Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grifols SA (GIFLF, Financial) reported a strong second quarter performance with revenue reaching EUR1,881 million, representing a 9.3% increase year-over-year on a constant currency basis.
- The company generated EUR57 million of positive free cash flow in Q2, driven by improvements in EBITDA and working capital management.
- Grifols SA (GIFLF) reaffirmed its full-year 2024 guidance, expecting adjusted EBITDA to exceed EUR1.8 billion.
- The company successfully reduced its leverage ratio from 6.3 times to 5.5 times, primarily driven by the EUR1.6 billion proceeds from the Shanghai Ross transaction.
- Grifols SA (GIFLF) made significant progress in corporate governance, including the appointment of a new Lead Independent Director and the reorganization of board committees.
Negative Points
- The company is facing uncertainties regarding a potential buyout by Brookfield and Grifols family shareholders, with no guarantee of an offer being made.
- Financial expenses were notably high in the second quarter, partly due to non-cash items and the issuance of new debt.
- Gross margin declined in Q2 due to provisions for potential inventory issues, impacting the margin by approximately 250 basis points.
- The Alpha-1 specialty proteins revenue was flat, mainly due to delays in transitioning to a new specialty pharma distributor in the US.
- Despite positive free cash flow in Q2, the company still faces challenges in overcoming the negative cash flow from Q1 and preparing for inventory build-up for 2025.
Q & A Highlights
Q: Can you provide more color on why the gross margin declined in the second quarter and what can we expect for the second half of the year?
A: We took a cautionary approach in our inventory management and recorded some provisions this quarter. This impacted our gross margin but was compensated by operational efficiencies and controlling SG&A levels. We expect normalized gross margin levels in the next months, similar to Q1 or higher.
Q: What is the outlook for free cash flow for the rest of the year?
A: We remain committed to achieving positive free cash flow for the year. While we have generated EUR57 million in Q2, we still have work to do to overcome the negative EUR250 million from Q1. We anticipate improvement in Q3 and Q4, with Q4 being the strongest quarter.
Q: Can you provide an update on the situation with Brookfield and any deadlines for due diligence?
A: There is no set deadline for the due diligence process. It is important to ensure Brookfield gets all the relevant information they need. We will provide updates as necessary, but there is no specific timeline.
Q: What are the key drivers for the increase in non-current financial assets this quarter?
A: The increase is primarily due to the EUR1.6 billion proceeds from the Shanghai transaction. This amount is reflected in our cash and cash equivalents. Additionally, we reclassified EUR1.1 billion from the TLB as a current liability, which we repaid in July.
Q: Can you elaborate on the outlook for the NAT business and the Alpha-1 franchise?
A: The NAT business is currently flat, but we expect growth based on tenders and business prospects. For Alpha-1, we are transitioning to a new specialty pharmacy provider in the U.S., which we expect to bear fruit by the end of the year. We are also working on subcutaneous dosing options and advancing clinical trials to strengthen our position.
Q: What is the status of the Immunotec facilities you are acquiring?
A: Some of the centers are already producing and contributing to our plasma supply. The acquisition is progressing as planned.
Q: Can you provide more details on the financial expenses for the second half of the year?
A: Financial expenses in Q2 included some non-cash items related to the repayment of the TLB. We expect financial expenses to be lower in the second half as we repay the remaining proceeds from the Shanghai transaction. The run rate should be closer to Q1 levels.
Q: What is the market share evolution for IG in the U.S.?
A: We are seeing strong momentum in the U.S. for both Gamunex and Xembify. We have new accounts coming online and expect continued growth. We have also transitioned the distribution of our new IG product, Mogo, to a third-party distributor to maximize uptake.
Q: What is driving the strong performance of albumin, and what should we expect from clinical trials?
A: The strong performance is driven by high demand in China. We have a new 10-year exclusivity contract that will support continued growth. Our clinical trial on liver cirrhosis is progressing well, with top-line results expected in Q4.
Q: Can you clarify the adjustments to EBITDA for the Shanghai transaction?
A: The capital gain from the Shanghai transaction was lower than initially expected, around EUR30-40 million. The EBITDA contribution from Shanghai Ross was fully recognized in Q2, following accounting rules.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
