Grifols S A : Third Quarter 2022 Business update – Conference call transcript

Grifols

Q3 2022 Business Update

8th November 2022

Speakers

Nuria Pascual, VP, Corporate Treasury & IR & Sustainability Steven F. Mayer, Executive Chairman

Raimon Grifols, Co-CEO

Alfredo Arroyo, CFO

Victor Grifols Deu, Co-CEO

Questions From

Vineet Agrawal, Citi

James Gordon, JP Morgan

Sarita Kapila, Morgan Stanley

Guilherme Sampaio, CaixaBank Equities

Emily Field, Barclays

Tom Jones, Berenberg

Rosie Turner, Jefferies

Julien Dormois, BNP Paribas

Alvaro Lenze, Alantra Equities

Introduction

Nuria Pascual, VP, Corporate Treasury & IR & Sustainability

Good day everyone, and welcome to Grifols' business update conference call. We are very pleased to host this call today and thank you for joining.

As we have already explained, we want to increase our engagement with the capital markets and with investors, this is a testament to our commitment to enhance our communication.

The call will last one hour. There will be a presentation of something like 30 minutes, and then we will follow with a Q&A session to complete the hour, or if you have no questions we'll finish earlier.

Today, I am joined by Steve Mayer, our newly appointed Executive Chairman; Raimon Grifols and Victor Grifols, our Co-CEOs; and Alfredo Arroyo, our CFO. The materials of this call are already available on the Investor Relations section of grifols.com.

Then our forward-looking statement disclaimer for this business update. We undertake no obligation to update or revise any of the statements and this is a forward-looking statement that refers to the substantial risk and uncertainties.

With that, I will turn the call over to Steve. Thank you.

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Opening Remarks

Steven F. Mayer, Executive Chairman

Thank you, Nuria and thank you everyone for joining the call today. Since I am new to the Grifols Executive Chairman role, I would like to begin the call by emphasising a few high-level points before we turn to the specifics of our business update.

Many of my friends and acquaintances have asked me why I elected to take on this role at Grifols at this point in my life. The answer is actually pretty simple. Grifols is a great company, with a clear mission and a long history of improving the health and well-being of people around the world. It also has very strong fundamentals in place, irreplaceable assets supporting a long-term strategy and the challenges it has recently faced can and will be overcome.

I have read a few reports that have questioned whether, in light of the fact that I've been on the Grifols Board for several years, there will be any real changes in the offing. In response to that question, on the one hand I can refer you to my long private equity career that was focused on being a change agent and helping companies we owned realise their potential.

On the other hand, I also fully recognise that words are not what matter; our execution and our performance will ultimately tell the true story. I ask that you judge us on our strategic, operational, and financial performance over the coming months, which is how we will be judging ourselves.

If you check out my personal background, you will also know that I am highly competitive and driven to win, with a lot of experience in team sports. While I am now ultimately responsible for delivering, at the same time you should know that this is one team, and we will align as a single unified team behind our goals.

In that regard, we are, as a team, laser focused on our top priorities. First of all, creating an organisation with a performance culture that will be efficient, effective, data-driven, agile, and decisive.

We are already implementing a renewed emphasis on planning and execution. Again, if you look at the investments I led at Cerberus, you will see that in most of them, improved operational performance was at the heart of their success. That improved performance comes from a disciplined approach to planning, project management, and rigorous execution against the plan.

I also believe strongly in the principle of accountability. Everyone in the organisation will be accountable, using measurable indicators, starting with me.

We will also be much leaner and more cost-effective, and while this will improve our margins, just as importantly it will enable us to move faster and serve patients better.

Our next priority is to meaningfully improve our cash flow and expense profile. We have been making, and expect to continue to make, progress on the cost of plasma. Of course there is a six to nine month lag before cost reductions are recognised in our income statement as a result of a long inventory cycle, which as you know is characteristic of our industry.

We are also focused on reducing fixed and semi-fixed cost throughout the organisation from delayering, better spans of control, organisational streamlining, facilities rationalisation and capacity optimisation, outsourcing certain non-core functions, and better use of technology and data.

We are also making further effort to reduce working capital and capex cash use. And, very importantly, we are implementing a zero-based budget process for 2023.

A third and very important priority is debt reduction. Right now, we are evaluating a variety of levers and, although we have nothing to announce today, it is clear that the company has highly valuable assets throughout the world, and therefore, we have a range of attractive deleveraging alternatives under consideration.

We do however believe that the company's stock is meaningfully undervalued today so issuance of equity in today's trading range is not a favoured option

We firmly believe that by year-end 2023, and very possibly before concerns about leverage will be substantially mitigated.

A fourth priority is capturing commercial opportunities with certain of our existing products that we believe are underpenetrated currently. For example, our subcutaneous IG product, which commands a higher price than IVIG, represents only a single-digit percentage of our IG sales, compared to 40% for CSL.

In addition, we continue to see opportunities for our high margin Alpha-1 product, Prolastin, through ongoing efforts in patient identification. We will be mentioning a recent favourable development in that regard later in this call.

Our final top priority to mention today is the effort to unlock the full value of Biotest. We and Biotest are dedicating resources to accelerate integration and the recognition of both cost and revenue synergies.

As you know, we also believe that the approval, commercialisation, and successful launch of the new Biotest proteins are likely to have a substantial impact on Grifols' financial profile.

Of course, any initiative that's dependent on regulatory approval and successful commercialisation and market launch inherently involves uncertainty, but we continue to believe that Fibrinogen and IgM are a matter of when, not if, and that ultimately, they will be very significant and high margin contributors to profitability.

In addition to these five key priorities, we plan to continue improving transparency and enhancing our communications with the capital markets and with investors. Today's call is evidence of this. We also expect to schedule meetings with individual investors once we have progress to report on the priorities I've just walked through. I look forward to meeting many of you in person before too long.

Before turning the call over to Raimon and Victor, I do want to state that it is highly important to me to ensure that we will deliver on all of our goals while remaining true to Grifols' core values and sustainability. Raimon and Victor?

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Key Highlights

Victor Grifols Deu, Co-CEO

Thank you, Steve, and thank you all for being on the call here today with us.