Grifols, S.A. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Overview: 2024 was a year with challenges but also meaningful accomplishments. The company outpaced market growth, with Q4 and full year 2024 revenues and adjusted EBITDA reaching new all-time highs. It strengthened its balance sheet through asset sales, organic deleveraging, and enhanced liquidity.
• Business Performance: Biopharma was the main growth driver, with immunoglobulin leading the way. Diagnostic, though down in Q4, remains a key cash flow contributor. The company reported improvements in key financial ratios, prioritizing free cash flow generation and deleveraging.
• Governance and Leadership: The Board was expanded with new members, and there were changes in the leadership team. Thomas Glanzmann retired from the Board, and Anne-Catherine Berner was nominated as the new chair. Recent executive appointments reflect efforts to bring in top talent.
• Innovation: Made progress in research and development, including the fibrinogen trial with a PDUFA date of December 27, 2025, and the PRECIOSA study. Received a grant from The Michael J. Fox Foundation for Parkinson's research to identify plasma-based biomarkers.

Segment Performance

• Biopharma: In Q4 2024, Biopharma grew at 15.1% and 11.3% for the year on constant currency basis. The immunoglobulin franchise, including IVIG and subcu IG, was the key growth driver. IVIG sales grew 15.6% in Q4 and 15.6% for the year, driven by strong performance in the U.S. and international markets. Subcutaneous immunoglobulin sales expanded by 56% year-to-date at constant currency. Albumin had full year growth of 8% at constant currency, driven by consistent demand in China and the U.S.
• Diagnostic: In Q4 2024, Diagnostic saw a 2% decline on a constant currency basis, resulting in a 0.7% increase year-to-date. Diagnostic remains a key contributor to the business and cash flow, with the company confident in its future as it implements its strategic plan.

Guidance

• 2025 guidance will be detailed during the Capital Market Day on February 27. The company will provide a midterm strategic plan showing how to deliver sustainable growth and margin expansion over the next years. Free cash flow generation and deleveraging remain top priorities.

Risks

• Market challenges and complex environment.
• Currency fluctuations, such as the rapid strengthening of the U.S. dollar impacting leverage.
• Potential tariff impacts on international operations.
• Competitive landscape, including threats from new entrants and competitors in the plasma-derived therapies space.

Q: First question just on the growth of immunoglobulin. It's been quite a strong growth acceleration for the year. Just if you could comment if the current plasma collection capacity and current level of inventory would allow you to continue that type of growth trajectory or [indiscernible] high growth.

A: If you tune in tomorrow for the Capital Markets Day, we'll definitely share more information. The company has been doing homework in the last years and is well prepared from a donor center's capacity and manufacturing capacity for the future. Next years are in a very solid position, with no significant CapEx expected in the next 3 to 4 years for donor centers or manufacturing.

Q: My first question is just on revenue per liter trends. You mentioned in your prepared remarks that some of the benefit you saw in Q4 came from improved revenue per liter. I was just wondering if you could kind of drill down a little bit more on that because it seems with IVIG significantly outpacing the growth of everything else. Revenue per liter is probably going to be -- if that carries on, you're going to get progressively more unbalanced revenues per liter. And you don't really make a lot of money just selling IG from a liter of plasma. So beyond perhaps the recovery in Alpha-1, is there anything else you can point to beyond new products where you will seek to try and improve the revenue per liter or at least stop the -- or offset the disproportionate effect, the very rapid growth in IG has versus the other proteins?

A: Important to highlight that we always aim to balance the growth in IG with the growth that we have on the albumin side. We saw an improvement in yield for IG, which further strengthens our revenue potential per liter. Our subcu IG, Xembify in the U.S., is at a premium price, which also helps on the pricing side. Looking across, those are the drivers that translated into higher revenue per liter last year.

Q: The first one is on gross margin. I see on Q4, in particular, it's down both in year-on-year and quarter-on-quarter terms. If you could explain what could have happened there. Of course, that has been offset by lower SG&A cost because EBITDA margin is up, but just to understand the gross margin dynamics.

A: If you go to Page 31, you actually see an improvement of gross margin by roughly about 100 basis points versus 2023 driven by lower plasma costs. Most of that margin improvement actually coming from Biopharma by about 170 basis points or so. Drivers are lower plasma costs, U.S. CPL down quite nicely, higher volume and revenues. We also had a change in fee-for-services and GPO fees which has a negative impact on gross margin by roughly about 60 to 80 basis points as well.

Q: First one was just free cash flow generation, as you mentioned, is a lot better this quarter, so strong in Q4. But in terms of phasing, so is working capital -- have you made quite a lot of the near-term progress already there? Or do you think there's still quite a lot more to be done near term? And just connected with that, the extraordinary growth CapEx was only EUR 20 million this quarter. So is that a helpful phasing benefit but it just means you're going to have more still to come next year or actually you're doing a bit less extraordinary growth CapEx? So how much extraordinary CapEx is there still out there? And how much of it have you burned through?

A: For the full year, we ended up with extraordinary growth CapEx of EUR 276 million. The phasing is entirely as we expected. With respect to working capital and free cash flow, there are a number of structural reasons why 2024 was very positive for us. We will begin to invest in net working capital and inventory from 2025.

Q: Can you tell us how is the donor fee evolving on whether there is further downside potential there? And also maybe you can comment on how is the plasma collection growing? What is the strategy here to grow more in line with the sales, accumulate and collect more and have more inventories?

A: The evolution of donor fees is not a linear one. Smart compensation methodologies are being applied, representing a win-win for donors and the company. From a plasma collection point of view, the focus is on working with donors to incentivize them and increase plasma collection in existing donor centers. There is no requirement for significant CapEx in this area in the next 3 years.

Q: Just one quick kind of clarification, I apologize if this is a simple question, but just on the reclassification of the change of treatment of fee-for-services, can you just give us a little bit more detail around what drove this change? Like what does this mean for your recorded sales, COGS and SG&A? And why, if this was an industry standard, is this not -- was that not part of your prior reporting?

A: This relates to benchmarking and understanding the upsides and downsides across the business. These fees were previously classified as OpEx but are now going into the gross to net. It's a standard throughout the industry. In terms of impact on recorded sales, COGS, and SG&A, it's a more realistic classification that aligns with market practice.