Grifols S A : First Quarter 2023 – Conference call transcript

Grifols Investor Relations - Q1'23 Earnings Call Transcript

Grifols

Q1'23 Earnings Call

9 May 2023

Grifols Investor Relations - Q1'23 Earnings Call Transcript

Speakers

Nuria Pascual, VP, Corporate Treasury & IR & Sustainability Thomas Glanzmann, Executive Chairman & CEO

Victor Grifols Deu, Chief Operating Officer (COO) Alfredo Arroyo, CFO

Questions From

Jo Walton, Credit Suisse

James Gordon, JP Morgan

Guilherme Sampaio, CaixaBank BPI

Tom Jones, Berenberg

Jaime Escribano, Banco Santander

Charles Pitman, Barclays

Vineet Agrawal, Citi

Grifols Investor Relations - Q1'23 Earnings Call Transcript

GRIFOLS Q1 2023 Results

Nuria Pascual, VP, Corporate Treasury, Investor Relations and Sustainability Hello everyone, and welcome to the Grifols' first 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, and I'm joined by Thomas Glanzmann, our Executive Chairman and CEO; Victor Grifols Deu, our Chief Operating Officer; and Alfredo Arroyo, Chief Financial Officer.

This call will last for about 60 minutes. There will be a presentation of approximately 30 minutes followed by a Q&A session. If you want to raise a question, press star followed by 5 when the Q&A session begins. We will kindly ask you to limit your questions to a maximum of two, please.

As a reminder, this call is being recorded. The materials for the call are on the investor relations section at grifols.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 live conference call.

Let me turn now to the legal disclaimer on slide 2. And before we start, I draw your attention to the forward looking statement disclaimer on this slide 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 Glanzmann.

Thomas Glanzmann, Executive Chairman and CEO

Thank you Nuria and thank you to everyone for joining the call today. Before we turn to the specifics of our business performance, financials and full year 2023 guidance, I would like to make some introductory comments.

Over the past few months, we had the opportunity after many years to meet in person with more than 80 investors and 60 investment houses in London and New York, addressing questions and concerns about performance, debt, governance and whether any fundamental changes will be made directionally at the company of the plans that had been laid out.

For me and the Management team these meetings were of great value and I would like to take this opportunity to thank all participants for their honest and often very direct feedback which was much appreciated. We have indeed taken note of what we heard and were told. In light of that, I would also like to take this opportunity to reiterate my key messages from these meetings.

First and very importantly, Grifols is committed to creating value for all our shareholders and restoring our credibility and trust of the financial community. As I noted in our meetings, we understand that to do so we will need to consistently deliver on our commitments, which we are already doing and will continue to do.

Second, the priorities set with our Board remain the same. We will improve our financial profile, reduce debt, execute and deliver our Operational Improvement Plan, capture commercial opportunities, and unlock Biotest's substantial value. Today's Q1 results should give you confidence that we are very focused on doing just that.

Third, we outline that we would clarify governance, streamline the organization, and implement a performance culture that is aligned with our shareholders.

In fact, over the last year, the senior leadership team has already made significant strides to reinforce our operational excellence, of which the most important first step was establishing a new organizational model. This involved the creation of four strategic business units and the appointment of new management under whom we have refocused our strategic efforts to accelerate growth.

Grifols Investor Relations - Q1'23 Earnings Call Transcript

Upon my appointment as Executive Chairman in February of this year, I swiftly sought to streamline Grifols' leadership structure - establishing a core senior leadership team with clear responsibilities. And now, as announced yesterday, my appointment to CEO further clarifies our decision-making processes to accelerate Grifols' growth and strategic progress. Victor has been appointed as the Chief Operating Officer and Raimon has been appointed as the Chief Corporate Officer. We have now clearly defined the responsibilities our senior executive leadership team enabling us to continue to deliver on our successful transformation with the greatest accuracy and speed.

I will return to this key topic in more detail later in the presentation.

And returning to our commitments, our fourth commitment was to improve our communication with stakeholders and we are and we'll certainly do so. We have our quarterly calls and we will follow up on a regular communication with our global investor base with the input from some of our investors we have also decided to expand our IR footprint into the United States to better serve investors in North America. Going forward, we are also determined to expand our reach and continue to engage with equity and fixed income market participants. I hope and trust that you will walk away from this presentation with a sense that Grifols is stepping up and aggressively aligning all the needed pieces to position the company for a successful future.

With that let me turn to slide 4 to kick off our presentation.

In 2022 we set clear priorities to reposition the company and made a number of key commitments in our February 2023 call. I am pleased to report that in the first quarter of 2023 we are effectively meeting and exceeding our commitments while we continue to execute on key priorities. Grifols is on the rebound, and our operational delivery in this first quarter reflects this, while it also demonstrates the company's strong fundamentals in a growing market.

So let me review a few highlights of the first quarter. As I mentioned earlier, we implemented significant changes to our executive governance, clarifying the leadership structure. In Q1, we also strengthened our performance culture by rolling out new, short and long-term incentive plans, aligned with shareholders' interests. The new plans award participants for overachievement and for Grifols' share price appreciation in the long-term.

Now turning to the numbers, we delivered a solid start to the year, meeting and exceeding on our commitments in some key metrics.

Revenues grew by 23% and by 14% on a like0-for-like basis excluding Biotest, driven by a strong performance of Biopharma, which delivered an increase of 26% and by 15% like-for-like.

Excluding Biotest, adjusted EBITDA margin for Q1 was 21%, exceeding the 19-20% guidance set for the first half of 2023. Consequently, we are raising our guidance to above 21% for the first half and for the whole year to 22-24%. Therefore, we now expect to exceed the 1.4 billion Euro EBITDA guidance for 2023.

The execution of our operational improvement plan is also exceeding our expectations with more than 80% of the 400 million Euro already deployed as of today. We have identified additional savings and are raising also here our target to more than 450 million. This achievement has not been easy and I would like to take this opportunity to express my gratitude to all those working tirelessly on the front lines to make this happen.

The plan as it stands today has resulted in a reduction of our cost per liter of more than 15%, driven primarily by a 25% decline in donor compensation, both figures compared to the peak in July of 2022. We are laser-focused on further reducing cost per liter and we expect this to contribute to EBITDA expansion in the range of 200-400 bps starting in the second half of 2023.

Additionally, we continue to make good progress on several workstreams to meet our debt reduction commitment in order to get to a leverage ratio of 4 times by 2024.

Returning to our commercial and innovation priorities, we continue to see significant opportunities for our high margin AlphaOne Prolastin and subcutaneous IG product Xembify. Additionally, we are

Grifols Investor Relations - Q1'23 Earnings Call Transcript

making significant efforts to accelerate the approval and successful launch of the new Biotest proteins. One launched, these proteins are expected to have a substantial positive impact on Grifols' financial performance and bringing them to market quickly is a critical aspect of our current integration with Biotest.

Turning now to slide 5.

Over the past years, Grifols has made significant strides to reinforce its Board of Directors with diverse competencies, backgrounds and experiences. The Board consists of 11 members, 6 independents that are led by a lead independent director. The Board operates today very well and decisions are made by consensus with effective checks and balances while promoting great transparency and accountability. To further enhance its governance, Grifols is currently in the process of hiring a 12th board member who will be independent and possess strong credentials.

In addition, with the latest appointments, all committees of the board are now led by independent board members. As I mentioned before, the co-CEO office has transitioned to the Senior Leadership Executive Team which I'm honored to chair. We have now defined the responsibility of this Committee. Victor, as Chief Operation Officer, is responsible for the day-to-day operations and has all the operating units reporting to him. He will also continue to serve on the Board of Directors. Raimon, current Vice Chairman of Grifols, in addition to his Board duties, assumes the role of Chief Corporate Officer focused on optimizing the value of our corporate alliances and partnerships as well as leading other key ad hoc initiatives.

The Senior Executive Leadership Team has a hands-on operating approach and meets weekly to ensure that we deliver. Its responsibilities include capital allocation, the strategy, communication, human resources policies, overall business performance, and very importantly, oversight of critical projects and priorities. A key priority right now is obviously our Operational improvement plan and delivering on our commitment to further improve our operating performance, and very importantly, reduce our debt level.

Now turning to slide 6. It is important to know that we have also made changes across the organization beyond the senior executive team. In 2022, a new organizational model was established to increase focus and build the performance culture that is more efficient, effective, agile and decisive and accountable. These changes included the appointments of new management to lead the Biopharma and Plasma Procurement business units, and a new president Diagnostic.

These new leaders have extensive experience in diverse industries, including health care, particularly bio pharmaceuticals as well as retail distribution channels. Their knowledge will be key to ensure effective product launches, especially considering the key Biotest proteins, while creating the most efficient, advanced, and very importantly, donor friendly global plasma network.

Finally, as I have mentioned before, we have reinforced our performance culture by rolling-out short and long-term incentive plans. The new short-term variable remuneration is an important step forward as it further aligns with our current key priorities. The equity based long-term incentive plan aims to support and accelerate the achievement of the company's long-term strategy while increasing alignment with shareholders as the stock price is a key metric.

As you can see, much is happening at Grifols to reposition us across the board for the future.

Let us now turn to Victor and then Alfredo. And then I will be back for the final remarks and then we will be happy to take your questions.

Victor Grifols Deu, Chief Operating Officer (COO)

Thank you so much. Good morning, or good afternoon to everyone, and thank you for joining us today. Let's turn now to slide 8 for business performance.

In Q1'23, Grifols revenue grew by 18% at constant currency and 23% on a reported basis, reaching a record level of 1,561 million Euros. If we exclude Biotest, total revenue reached 1,444 million Euros, an increase of 9% of constant currency and 14% on a reported basis.