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Grifols Sa Barc Ord New
11/2/2023
Hello, everyone, and welcome to the Grifols Third Quarter 2023 Conference Call. Thank you very much for taking the time to join us today. This is Nuria Pascual, Investor Relations and Sustainability Officer. I'm joined by Thomas Glassman, our Executive Chairman and CEO, Victor Grifols-Deu, Chief Operating Officer, and Alfredo Arroyo, CFO. This call will last about 60 minutes. There will be a presentation of approximately 30 minutes, followed by a Q&A session. So if you want to raise a question, press the star followed by five when the Q&A session begins, and we will kindly ask you to limit your questions to a maximum of two. As a reminder, this call is being recorded, and the materials for the call are on the investor relations website at griffols.com. The transcript and webcast replay of the call will also be available on the investor relations website within 24 hours after the end of the conference call. Now, if we turn to slide two. Before we start, I would like to draw your attention to the forward-looking statements disclaimer in this slide deck of the release. Forward-looking statements on the call are subject to substantial risk and uncertainties. Speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. Now, I would like to turn the call over to Thomas Glassman.
Thank you, Nuria. Good afternoon and morning to all on the call. Thank you for joining us today. As you can see from our press release issued this morning, we have reported another strong quarter, further accelerating growth, improving our EBITDA, and meeting our commitments. But before we go into our operational performance, I want to address upfront what is and has been the market's concern about our deleveraging progress. Our commitment to deliver a material deleveraging transaction in 2023 of at least $1.5 billion in cash has not changed, nor has our very focused efforts to reach a leverage ratio of four times by 2024. We continue to give full priority to this. Regarding the June announced transaction in China, we are progressing and working diligently towards getting the agreement signed and expect to announce it before year-end 2023 in line with our commitment. As we are dealing with a very highly regulated environment, we expect to get all approvals and closing the transaction during the first half of 2024. Ultimately, this will support the organic results we are currently already delivering to continue deleveraging the company. Let me now walk you through how we are meeting our other commitments. Q3 was another quarter of strong revenue growth where we also delivered a 25.1% adjusted EBTA margin which is a significant improvement of 480 basis points compared to Q4 22 margin. The revenue growth was primarily driven by biopharma and our flagship franchises immunoglobulin and albumin, and we expect that momentum to continue throughout the year. All the measures to achieve the Euro 450 million cash cost savings from our operational improvement plan have been successfully executed. We are already seeing and will continue to see the related margin expansion throughout Q4 and next year. This is particularly visible in plasma, with cost per liter further declining, while our plasma supply levels continue to grow at a double-digit pace. As a result, we are now committing to the top of our adjusted EBITDA guidance to deliver Euro 1.450 million for the full year 2023. Annualizing the Operational Improvement Plan's total savings, our adjusted EBTA margin is anticipated to increase to 28 to 29 percent, which is in line with 2019 EBTA margins. Our EBTA and cash flow improvement are significantly contributing in our organic deleveraging progress, with our leverage ratio now at 6.7 versus a peak of nine times last year. As mentioned, and I strongly reiterate, we will continue to lower this ratio and are very focused on meeting our four-time target, including signing one deleveraging transaction this year. And last, but maybe most importantly, we are now stepping up our focus on our growth strategy to ensure the creation of sustainable long-term shareholder value. We are actively accelerating a series of strategic levers to strengthen our industry leadership as a global market maker, of which our recent Egypt and Canada projects are strong examples. We have also taken steps to further strengthen the leadership team to drive innovation and digitalization at Griffles by appointing Jörg Schuttrumpf as our Chief Scientific Innovation Officer and Miguel Luzon as our Chief Digital Information Officer. Both bring a wealth of experience and have a clear compass to take Griffles to the next level. We clearly continue to see innovation as a critical, strategic value-creating lever for future growth and are therefore working towards accelerating our pipeline. A testament thereof is that all our milestones set for the second half of the year are on track, and having completed the biotest fibrinogen trial in Q3, we are confident that we will also there be able to provide top-line results soon. Needless to say, we continue to be very optimistic and excited about both fibrinogen and trimodulin and the great opportunity they represent for griffles in the future. Having delivered on all our priorities and with our fundamentals strong, we are now well on the way to truly reposition griffles for sustainable, profitable future growth. This is a new chapter for Grifols, and we are very excited to embark on it. With that, I will now hand over to Victor to take you through the details of our business unit's performance in the quarter.
Thank you so much. Good afternoon or good morning, everyone, and thank you for joining us today. Now turning to slide six, our revenue growth. throughout the previous quarters has been remarkable. As we have been mentioning consistently, the sequential progression remains exceptionally strong and positive. Grifols standalone delivered a 9.1% growth in Q1, followed by a 6.5% in Q2, and a 9.6% in Q3, all of them at constant currency. All in all, revenues grew significantly 8.4% for the first nine months of the year. For these first nine months of 2023, we achieved revenues of more than 4.8 billion, up by 11.7% at constant currency. This was primarily driven by performance of biopharma in our key proteins, as well as biotest contribution. Please bear in mind that we are consolidating nine months of biotest in 2023, while only five months in 2022. Now, turning to slide seven, our biopharma performance was remarkable, driven by growth in our immune global in flagship product, which further accelerated in Q3, with 17.4% sales growth in the quarter and close to 15% year-to-date at constant currency, as well as our album franchise. IG continues to be driven by a strong and underlying volume demand and favorable pricing, especially outside U.S. Our subcutaneous immunoglobulin in Chemify continues to see a strong volume up peak, especially in Q3, backed by higher demand in the U.S. Chemify continues to offer a vast commercial opportunity, and we plan to further capitalize on this growth with launches in some European countries and Australia starting in this Q4 2023. Grifo's strategy to continue strengthening its immune global franchise in the U.S. and other selected countries is robust. We are focused on the immune deficiency market, including the highest growth primary and secondary indications, while remaining leadership in neurology and acute care. Earlier this week, we received FDA approval for a new IG purification facility, which will increase Grifos Gammonix's total capacity to 60 million grams per year. This approval was not only obtained in record time, but it will enhance efficiencies in terms of yield, recovery, and cost per gram. In albumin, we achieved a strong revenue growth year-to-date, delivering close to 18% increase with a higher demand in China and solid price increases in some key markets. Alpha-1 and specialty protein segment revenue was relatively flat, mainly driven by lower demand of plasma-derived factor VIII and, to a lesser extent, lower alpha-1 volumes due to industry dynamics in some European countries. As Alpha-1 demand improves on the back of the solid underlying improvements in our successful commercial model, the current lower growth is expected to be temporary. At the same time, I would like to highlight in this segment the good performance of our most recently launched products, such as Tavales, Fibrin Xilin, and Thrombin. which are growing significantly. In addition, hypers and antithrombin 3 are also delivering a positive evolution. Now turning to slide number eight. As a result of the successful execution of our operational improvement plan, cost per liter continue to reduce this quarter, declining by 22% as of September 2023 versus its July 2022 peak. This has been driven by decreasing donor commitment compensation, plasma center network and staff rationalization, and reduction of other plasma related costs such as overheads. After a stabilization of donor compensation in Q2, it continued to decline slightly in Q3. Going forward, we are targeting additional operational efficiencies through process optimization, streamlined operations, and overheads, lean processes, and digitalization. Plasma supply growth remains solid at 10% year-to-date versus last year. This plasma supply growth positions the company to continue meeting the growing underlying demand for our products. In parallel, and since the beginning of the year, our R&D, manufacturing, and quality teams have been working on a project to significantly improve our yield in gamma globulins. So far, we have seen very good results in pilot-scale production, and we are beginning to implement it in full-scale production as we speak. In our next quarterly call, we hope to be able to provide more details of this project and its results. We expect these improvements to further improve our margins as it is fully deployed. Now moving to slide nine. This year, and for the first time ever, the company made a strong commitment to accomplish 12 innovation milestones. And I am proud to say that we have made very good progress so far. Out of these 12, we have completed nine and are on track to be achieved the remaining in the coming months. Among others, during these nine months of 2023, we have finalized enrollment both the PRECIOSA and SPARTA trials. The latter, ahead of schedule, advanced from single-to-repeat dose phase in Alpha-1, a 15% subcutaneous study, and progressed in trials across our IG franchises, such as the IVIGPEG study, the CMV5 biweekly study, and the CMV5 secondary immune deficiency CLL study. Worth mentioning is that in Q3, we signed a collaboration agreement with the National Cancer Institute for our GIGA564 project. whose IND preparation has been submitted this October, which sets the stage for GigaGen's first oncology asset to enter clinical development. Also, in the GigaGen front, we have received positive feedback from the FDA in a pre-IND meeting held in September concerning the Giga2339 development in hepatitis B. We recently made important inroads in Alzheimer's space through our company, Araclon, on the phase 2 trial of its vaccine candidate, A-beta vaccine 40. For the treatment of patients with mild cognitive impairment and very mild Alzheimer's disease, releasing positive final results. Regarding biotests, remodeling and fibrinogen trials are advancing as expected. and we are fully focused on capturing its strong growth opportunity. To this end, we have completed the enrollment in the fibrinogen at first trial and are on track to publish top-line results early Q1-24. For the trimodulin escape trial, first patients have already been enrolled. These positive developments are testament to to our commitment to maintain and increase efforts in developing new products and indications, which we plan to continue to accelerate for the remainder of the year onwards. We expect the appointment of York as Chief Scientific Innovation Officer to enable us to execute on our objectives and further accelerate our pipeline. Now, in slide number 10, diagnostic revenues declined 3.1% at constant currency in the quarter, but 0.9% on a year-to-date basis. As mentioned in previous quarters, our NIT technology was negatively impacted due to the pricing concessions given in exchange for extending a large contract with a key customer of ours. However, strong instrument sales in Japan and Indonesia are helping to offset part of this decline. In block typing solutions, we are seeing a strong growth across the U.S., Argentina, and the Middle East, partially offsetting the lower sales of gel cars experienced in China lately. In recombinant proteins contract manufacturing from our Emerville plant, we have signed a renewed 10-year supply agreement with an important partner in the diagnostic field. And now moving to slide 11. In bio-supplies, revenues declined 14.1% in the quarter due to lower cell culture sales driven by subdued demand. We look forward to leveraging the acquisition of Access Biologicals and capturing the full potential of this business unit. And I will now hand it over to Alfredo, who will go through the group's financial performance.
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