Grifols, S.A. (GRFS) Q2 2023 Earnings Report, Transcript and Summary

Hello everyone, and welcome to the Grifols' Second 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; Grifols CFO, Alfredo Arroyo; and Victor Grifols Deu, our Chief Operating Officer. This call will last for about 60 minutes, there will be a presentation of approximately 30 minutes, followed by a Q&A session. [Operator Instructions] As a reminder, this call is being recorded and the materials for the call are on the investor relations website 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 conference call. Before we start, I draw your attention to the forward-looking statement disclaimer on Slide 2 in the slide deck of our release and forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date. And we undertake no obligation to update or revise any of the statements. And now I would like to turn the call over to Thomas Glanzmann.

Thank you, Nuria. Good afternoon and morning to all on the call. Thank you for joining us. Today I'm very pleased to announce a second consecutive quarter of strong results for Grifols. We are not only delivering on our commitments, but accelerating these as a result of our turnaround strategy. Although the first half of the year--all through the first half of the year we have excelled in execution, proved financial discipline and enhanced our performance culture. We advanced on all key priorities during this first half of 2023. Our operational performance continues to improve on a sequential basis. We are reporting sustainable revenue growth driven by Biopharma which is supported by solid underlying demand, favorable pricing and product mix led by Xembify, which grew 26% in the first half of 2023. We have accelerated margin expansion, reaching an adjusted EBITDA margin of 22% plus for the first half mainly driven by our strong business performance and well executed operational improvement plan. During the first six months of 2023, we successfully deployed 100% of the Euro450 million cash cost savings improvement plan. Evidence of this is the cost per liter reduction, which declined sharply since August of last year. By the end of 2024, we expect to have booked the full amount of €450 million in savings on our P&L, considering the 9-month lag coming from our long inventory cycle, which as you know, is characteristic of our industry. At the same time plasma supply continues to grow at double-digit growth rates. As a result of this performance, we have exceeded our revenues and adjusted EBITDA guidance for the first half and raised second half and full-year 2023 guidance. We reiterate that leverage is a priority to us and this includes reaching net debt to EBITDA of 4 times by the end of 2024. As mentioned in previous calls, we have several work streams in place to deleverage the company and we are working with the intent to close, one deleveraging transaction by year end. We will share more information on this matter when we are able to, including on the previously announced China opportunity. In addition to all these important milestones, we continue to focus on our innovation pipeline where we are making solid advancements. Victor will take you through them shortly. Grifols is committed to creating value for all our shareholders and restoring goodwill with the financial community. We firmly believe that to do so we must consistently deliver on our goals and commitments. One of these commitments was to enhance our communication with stakeholders and we will continue to do so in the first half of 2023, we had the opportunity to engage with more than 100 investors through honest and constructive discussions, which were much appreciated. Going forward, we will continue to expand our outreach and aim to engage with more equity and debt market participants. As indicated in the first quarter 2023 earnings call, we made the decision to reinforce and expand our IR footprint in the U.S. to better serve investors in North America and globally. Now, we can announce that this position has been filled and the on-boarding process has started. I am sure many of you will have the opportunity to interact with our new Senior Director of U.S. Investor Relations and Sustainability who reinforces the global team led by Nuria Pascual, and Danny Segarra. Before Victor takes us through a business update, I would ask you at the end of our presentations to take a moment and review the comprehensive efforts Grifols has also undertaken in terms of sustainability through our six pillars during the first half of 2023. These pillars represent our collective commitment to drive positive change and make a lasting impact. By reviewing the details of our sustainability initiatives we trust that you will gain an appreciation of our efforts and progress spanning from environmental stewardship and social responsibility to ethical governance, supply chain excellence and employee well-being. I would like to conclude by reiterating how encouraged I am by all our progress in the first half of the year. And I want to thank the entire Grifols team for their hard work, dedication and perseverance. With that, I will now hand the call over to Victor.

Thank you, Thomas. Good afternoon, everyone. And thanks for joining us today. Turning to Slide 6, we achieved revenues of more than $3.2 billion for the first half of the year growing 13.1% at constant currency and 14.8% on a reported basis, if we exclude Biotest, total revenues reached almost $3 billion, an increase of 7.7% at constant currency and 9.5% -- 9.4% reported basis. Biopharma revenues grew 14.9% at constant currency and 16.7% on a reported basis to reach $2.7 billion and by 8.4% at constant currency and 10.2% on a reported basis to $2.4 billion, excluding Biotest, backed by a robust underlying demand, favorable pricing and product mix. Now turning to Biopharma slide number 7. The significant growth in our flagship product seen in Q1 has continued into Q2, resulting in a half-year growth of 13.6% at constant currency. And before we have seen sustained upward momentum supported by higher plasma supply in robust underlying demand coupled with favorable pricing and some product mix. Subcutaneous IG revenues grew 28% in half one 2023. We continue to expand our offering of subcutaneous immune globulin Xembify globally. And to that end, you will have seen that we initiated a launch in Spain and plan to launch Xembify in Australia, in the second half of the year, just as two examples. In albumin, strong demand and favorable pricing in China and rest of the world are the main drivers of growth offsetting some weaker volumes in the U.S. Going forward, overall we expect volume demand to remain robust throughout the year. Finally, our Alpha-1 and specialty protein segment grew 0.3% on constant currency driven by a mixed geographic volume performance in Alpha-1 with higher volumes in the U.S., partially offset by lower volumes in certain European countries. We are increasing testing volumes in the Alpha-1 which will trigger further sales growth during the rest of the year. On the other side, we noted a favorable performance in our Hyper portfolio and continued positive trend in our partnerships in blood management products. Partially offsetting that we have lower demand of our plasma-derived Factor VIII product. Now turning to Slide 8. Grifols is strengthening its IG franchise as we continue to see a solid growth opportunity in the €40 billion IG market which is growing high-single digits and is expected to continue to do so. We have three strong brands and our unique strategy to drive further growth. We are accelerating our commercial and innovation efforts to capture opportunities with our subcutaneous IG product Xembify which commands a higher price than IVIG and currently represents only a single digit percentage of our IG sales and we expect this to continue increasing over time. In parallel, we are building on our IVIG Gamunex track record, consolidating our industry leading position in neurology and acute care while continuing our work to keep IG therapy as the standard of care. In addition, we believe Biotest removal will be instrumental in supporting these long-term growth and reinforcing our position in Europe. We continue to remain focused on the Immune Deficiency market, which comprises a larger share of IVIG usage with primary and secondary immune deficiency growing ahead of the rest of the users. As global plasma supply increases, we are anticipating a strong growth with opportunities on core indications especially PID and secondary immune deficiency, but also in CIDP. Demand has remained robust and is expected to continue to be so. Many patients even in top markets remain underdiagnosed. Demand for treatment of secondary immune deficiency for which currently there is no competitive threat continues to show grow. Even though incidences of diseases are similar across geographies, consumption rates can vary very significantly among them. Actually IG in the U.S. is still consume at almost 3 times the rate per capita of population when compared to Europe. Therefore IG market growth is expected to outpace potential erosion from disruptive technologies . Turning now to Slide 9, our ambition going forward is to increasingly focus on innovation as a key driver of our medium to long-term growth. To support this objective, we are expanding our existing commercial offering as well as seeking new commercial opportunities, especially in the U.S. of IG. We are pleased to announce that we achieved a number of key milestones since our last quarterly update. During Q2 '23, we finalized the enrollment of the PRECIOSA trial and also for the SPARTA trial study, with the latter progressing ahead of schedule. We have also made significant advancements on our Biotest innovation commitments with both Fibrinogen and Trimodulin Phase 3 trials on track. With regard to Fibrinogen, we completed the FiiRST trial and presented top line study results in line with our expectations. The data will be used for clinical submission, both in Europe and U.S. where we expect to receive market approval by the end of 2024 and late 2025 respectively. For Trimodulin we initiated the ESsCAPE trial study and the field sites have been already activated. And finally, we have completed the removal BLA submission to the FDA. Now moving into the diagnostic, Slide number 10. Diagnostic revenues continues to be driven by blood typing solutions where we are seeing a strong growth across the U.S., Argentina, Brazil and Spain. It is noteworthy mentioning the Grifols blood typing solutions is outperforming the market growth and continues to gain market share. As you saw in Q1, our revenues in NAT technology are somehow affected by the pricing concessions in exchange for extending large contract with our key customers to up to 20 years. However, a number of factors in Europe, in Asia are helping to partially offset this including a strong demand in Japan and instrument sales in Philippines as an example. Now turning to Slide 11, Bio Supplies division revenues grew 57% at constant currency, benefiting from the integration of Access Biologicals. All three of the regions have reported strong revenue growth with Bio Supplies, Diagnostic revenues more than doubling. And now I hand it over to Alfredo.

Thanks Victor. And thank you for joining us today. Moving to Slide 13, we're very pleased to report a continuation of the strong momentum seen in the first quarter. Revenue growth across key divisions and margin came in above expectations. Driven by strong business performance and execution of our operational improvement plan already 100% deployed, total revenues increased by 14.8% reaching €3.2 billion plus 9.5% like-for-like excluding Biotest. Biopharma revenues grew 16.7% or 10.2% like-for-like. Therefore, the revenue growth is tracking above our previous full year guidance of 8% to 10% for the Group and 10% to 12% for Biopharma. Adjusted EBITDA margin improved further in Q2 to 23.4% from 21% margin in Q1. This translates to a 22.2% EBITDA margin for the first half of the year, exceeding our guidance for the period. Our leverage ratio declined to 6.9 times by the end of June, supporting our commitment to deleveraging our balance sheet. Plasma supply and cost per liter, both improved sequentially versus Q1 '23, where plasma supply increased by 12% and the cost per liter declined by 20% versus 2022 pick. This slide shows sequential improvement across financial key metrics. We continue to see mid to high single-digit revenue growth driven by Biopharma which has benefited from solid plasma supply, robust underlying demand, pricing and product mix. As a result our top line has reached almost €6 billion on the last 12 months basis. With a 17 growth versus Q2 2022. Our profitability is steadily improving shown in the last 12 month EBITDA trajectory which is now close to €1.3 billion. EBITDA margin reached remarkable 23.4% in Q2, representing 35% growth versus Q2 2022 driven by the strong business performance and the acceleration of the operational improvement plan. Deleveraging continues improving, now 6.9 times compared to last year peak of 9 improved by 2.1 times, driven entirely by business performance and cost discipline. The next slide, shows the adjusted EBITDA bridge, that progresses versus last year, where year-to-date June, the EBITDA has reached €655 million, that represent an improvement of €93 million, 22.2% margin, which implies an additional 150 basis points versus prior year, driven by Biopharma contribution, as well as the operational improvement plan. And then we have €135 million of one-off charges that includes, mainly the €140 million restructuring charges that we booked in Q1. No additional restructuring cost are expected. The next slide shows the operational improvement plan is progressing above our expectations. All the initiatives have been 100% deployed exceeding €450 million savings, and we have already achieved €235 million in cash savings in the first half of the year, and we're expecting additional €160 million cash savings in the second half. If we consider that almost 75% of the total savings are plasma-cost related and due to the 9 months plasma inventory accounting €75 million savings have been posted through the P&L in H1. An additional €85 million will come in the second half and a carryover of €290 million savings would be booked in 2024. Plasma cost per liter as shown in this slide as of June, we've made the rapid progress in reducing our plasma cost per liter by 20% from the 10% drop reported in Q4 2022 versus all July peak cost in 2022. Plasma supply increased by 12% in the first half of the year which is aligned with the plasma needs to support our growth. Close to the 50% of the cost per liter decline comes from lower donor compensation and another 50% from other optimization initiatives such as process optimization, streamline operations, overheads, processes and digitalization. In line with the previous slide, plasma cost reduction has a very positive impact in the gross margin, but considering once again the nine months inventory accounting those plasma cost savings will mainly impact in 2024 P&L. In the second half of this year we see a potential of more than 250 basis point margin improvement compared to the first half of the year. We expect further margin expansion in 2024, supported by the operational improvement plan of the initiatives currently deployed. Next slide shows our leverage commitment at four times leverage by the end of 2024 that remains unchanged. We continued deleveraging organically as a result of our business performance and our operational improvement plan. The four times leverage target will come from 70% of the operational improvement plan plus EBITDA organic growth and the remainder 30% deleverage will come from deleverage transactions whose cash proceeds will be fully used for debt reduction. We currently have a total liquidity of €1.2 billion, including €500 million in cash. Based on the strong first half of the year results delivered and since we are very confident on the second half of the year, we're raising our guidance for the full year revenues and EBITDA. We expect full-year '23 total revenue growth including Biotest of 10% to 12% at constant currency compared to the previous guidance of 8% to 10%. This is backed by Biopharma revenue growth of 12% to 14% compared to a prior guidance of 10% to 12% or constant currency. Regarding EBITDA, now we expect the EBITDA margin for the second half of the year to be in the range of 24-25% and a full-year EBITDA margin at 24% expecting the continuation of a strong sequential quarterly margin improvement. This should lead to an adjusted EBITDA including Biotest of €1.4 billion to €1.45 billion by the end of the year. And considering the annualized cash cost savings, the pro forma 2023 EBITDA is expected to be in the range of €1.7 billion to €1.75 billion representing 28%-29% EBITDA margin, which basically is coming back to 2019 margins. Now, I hand over to Thomas for closing remarks.

Thank you. Alfredo. I would like to conclude by reiterating a few points we have already made. I will also highlight the main triggers that support raising guidance for the second half of 2023 and for the whole year. We are pleased with the progress made during the first six months of the year through operational performance both on the commercial and innovation front, as well as on the deleveraging and we will continue to execute on all of these with the same focus in the second half of the year and beyond. In the second quarter of 2023 Grifols accelerated, it's still further, from the very solid momentum seen in the first quarter. We expect the strong sales growth to continue, driven by demand for the key proteins, product and country mix. The company has already successfully deployed 100% of €450 million of the cash cost saving plan. Testament of the execution of the plan is the cost per liter reduction of 20% while plasma supply grew 12% for the first half of 2023. As mentioned we also made good progress with our focus on innovation. We met numerous innovation milestones which will support further growth and margin expansion in the coming years, including the European approvals for Xembify and Biotest's Yimmugo. We are, therefore, confident in our ability to deliver on the raised financial guidance in the second half of the year. Deleveraging remains a top priority and our commitment to reduce the leverage ratio to four times by 224 is unchanged. We are today, advancing on several work streams supporting our deleveraging efforts. Finally, I want to reiterate, the Board is fully invested and focused on creating value and making our commitments a reality. While the executive team is laser-focused on accelerating the execution of the company's strategy. Key focus continues to be on operational excellence, on cash flow improvement and debt reduction and ultimately on increasing value for all shareholders. Once again, I want to thank our entire Grifols team for making it all happen. Without everyone's effort, focus and dedication the progress made in the first half of 2023 would not have been possible. I appreciate your attention and now turn it back to Nuria who will open it up for questions.

[Operator Instructions] So now our first question comes from Peter Verdult from Citi. Hi, Peter.

Yes. Hi Nuria. Hi, everyone. Thanks for taking my questions. I will stick two and get back in the queue. The two are related around the deleveraging point which you touched on Thomas in your prepared remarks, but can I just push you firstly on RAAS the partial disposal. Anything you're willing to say more on timing and the number of interested parties would be helpful. The question we often get asked by existing and potential investors. And then secondly on Diagnostics, are you looking to stabilize this business further and demonstrate sort of sustainable growth rate before considering alternative options that could further accelerate the deleverage. I know you said very clearly at the start of the year one to two transactions in 2023. But it feels to me at this juncture that is more likely to be RAAS divestment in 2023. So feel free to put back in my box, if you feel I'm coming to the wrong conclusion but just wanted to get a bit more color on RAAS and diagnostics. Thank You.

Thank you Peter, great to hear your voice. Well, let me basically reiterate some of the things that we've said. The potential China deal or Shanghai RAAS is in process, discussions are ongoing, we cannot offer more comments at this point, but we will obviously inform you as soon as we have news. We do stand by our June release of the potential transaction that would generate €1.5 billion in cash and would retain a strong position in China, but I do want to remind you that this is one of our work streams, but also that 70% of fixing our balance sheet now come back to what Alfredo mentioned really is on improving our operational performance. So with regard to the diagnostics, we are obviously looking, we have a couple of work streams going, we are looking at a number of things at the moment. We have valuable assets and Diagnostics is one of them at this point in time and as these discussions are ongoing as you will appreciate they are obviously very confidential and I cannot divulge more details on the different work streams until we actually can make something official.

Thank you, Thomas. And thank you Peter. We have James Gordon from JPMorgan on the line. Hi, James.

Hello, James Gordon, JPMorgan. Thanks for taking the two questions. Both about immunoglobulin please. The first one was immunoglobulin performance this quarter and this year, it looks that may be immunoglobulin has decelerated slightly, but it still seems to be growing low double-digit this quarter. So, strong performance. I think I heard a comment about an uptick in sales, ex-U.S. So have you seen any softening in U.S. demand growth as one of your peers seem to suggest that they had seen and so that's why you're shifting more sellers to Europe and how does the profitability compared to selling IG more in Europe and the U.S. That's the first question please. And the second one, I think you alluded to on the call already the argenx, they had their headline, we've got CIDP results. So just curious, any thoughts on the data that they generated, whether you think that would see much erosion of your franchise or not. Your perspective on that data whether we might see significant switching.

Hello, James. Good to hear you as well. I take the first question on immunoglobulins about, let's say, the geographic. Clearly in Europe, I was over in Europe. Outside U.S., we see a strong demand and as long as we have now rebound on the plasma supply we are able to keep supplying that makes growth that we are seeing outside. In fact, we are growing very nicely there. In the U.S., similar case we continue to see a strong underlying demand in the market and now as well we are able to supply this market. In addition, as you know we are ramping up--continue ramping up our subcutaneous product and Xembify and in both we are seeing nice growth and stable pricing and profitability at the end of the day comes to pricing in this franchise. And as we all know there is a price gap between U.S. and outside U.S. countries and this is driving the different kinds of profitability that we see geographically.

Hey, James, this is Thomas, I'll take the second question. Well, first of all, we believe that the results are actually good for us because they really reconfirm our position that the argenx results are going to have very little impact on our business. We continue to be very optimistic about the IG opportunity with a €14 billion market growing at high-single digits and the opportunities that we have, not only in the U.S. but globally with our product range and particularly as was pointed out, with Xembify which still represents a very, very small portion of our total IG sales. And as I've mentioned before, as it had been mentioned in our protocols, the profitability of Xembify obviously significantly higher and as we shift more or sell more of Xembify that will significantly improve also the overall profile of our biopharma business and profitability. So we're actually continued to be extremely excited about where we're going, what we're doing and the future of our IG franchise.

Thank you. Thank you, James. Now we go for Jaime Escribano from Banco Santander. Hi, Jaime.

Hi, good afternoon. So a couple of questions from my side, so just if you can elaborate a little bit more on the performance of 7% growth at constant currency, Grifols excluding Biotest in Q2 versus around 9% in Q1, and with IG seems to be growing at double digits, albumin at around 5%, but then there is this that you mentioned growing close to zero. Alpha-1, Hyperimmunes, Factor VIII, maybe if you can give us a little bit more color on this. And also, how does this reconcile with the increase in the top line guidance for the year because you basically accelerates or increase the top line growth to double digits in plasma. So my question would be if in the second half, are you seeing an acceleration maybe of this part that has been a little bit weaker this quarter. So, and then my second question is regarding the Biotest licensing agreement that was announced back in May. If you can give us a little bit more details on how is this going to be to be implemented and how should we think about the P&L, if there is anything we should bear in mind going forward? Thank you very much.

Hello. Jaime, I will take the first question. In this let's say third bucket that we call it Alpha-1 and specialty proteins, really it's a bucket that contains many different, let's say, product lines. The main one of course being Alpha-1. Clearly, it's a mix of performance on those different business lines as I said. If we precise on Alpha-1. As you know Alpha-1 is highly related with diagnosing potential patients to be put lately on therapy. And during 2022, what we experienced as we were exiting the pandemic, we were ramping up our testing in the franchise. You have seen that we have kind of reinforced this testing approach with the home-kit to expand the progression. And there is a lag time between diagnosis to truncate that to be put on therapy. And back to your point, we expect these ramping up in testing that started second-half last year. And with this continuing during this first semester, we expect this to deliver more and more patients to be, let's say, put on therapy. And this will help the improvement in performance and growth during the second-half. In addition to that, to your broader question about second-half for instance albumin, you'll see this falling 5.1%. We expect this to continue to be accelerated and we expect to see better, let's say, performance than the 5.1% in albumin also. And this makes the overall year to look higher than what it looks today.

Okay. So, Jaime, to your second question about Biotest, yes, we signed this transfer tech license and development agreement by which this is going to cover the exchange of technology know-how. So, therefore working together between Grifols and Biotest. To your point to the P&L, there is no P&L or cash impact at all as a result of this transfer tech agreement.

Thank you, Alfredo. Now, we have a question or two from Thibault Boutherin from Morgan Stanley.

Hello, thank you very much for taking my question. First one is on immunoglobulins. I mean, we're seeing more growth right now of immunoglobulins, if you could just tell us a little bit about your thinking in the context of the last liter economic logic how you're thinking about balancing growth between putting going forward. And is it an issue at some point in terms of profitability if immunoglobulins continue to grow faster than other proteins? My second question is, if you could just talk a little bit about the cost of treating CIDP patients. We know already that annual cost of these gab inside it is going to be similar to myasthenia gravis, so probably a little bit more than [€200 million] per patient. And so if you could contrast this with the average annual cost of treating a CIDP patient today in the U.S. with immunoglobulin. And if you could comment on IG potentially having or not a cost advantage compared to new innovation CIDP? Thank you.

Okay. It was a little bit hard to understand the whole question, but on the first one, if I understood is the, balance or balanced growth in our proteins I should say that we - we are working towards our goal. Our strategy to rebalance our protein growth both especially the top ones, which as we know our IG and albumin. That is still a gap, but we are targeting during this year 2023 and the coming year 2024 to rebalance as we were pre-pandemic, which is the optimal let's say a scenario from the profitability standpoint, it's not yet there. But we are working towards balancing those two proteins.

Okay. I'm not sure I heard your questions very clearly. But if I think I got it, it was you were asking about the pricing differential between the new product that was just went through clinicals and RIJV, is that right?

Okay. Can you hear me?

Now we can hear. Yes. Is that, did I get this right?

Okay. I mean we already know. I mean, I think it was commented that the price, the cost in - you said it is going to be similar to myasthenia gravis. So we know already it is going to be in the tune of $200,000 or a little bit above that. And so if you could just compare this with IG and implications in terms of reimbursement and access to treatment?

Well, first of all obviously, the treatment for IJV, it's about 80,000 or compared to the 200 we've heard even a much higher numbers than the 200 for a full treatment of the patients, So IJV is obviously are significantly lowering cost to the system and the patients than what we had expected. And actually if you take the 600,000, the cost differential could be 10 times. So depending on what number the state stay tell you, we think that there is a significant difference. And we also think that this is going to be something that people will look at closely as we move forward. So that gives us another very optimistic view of the fact that IJVs will do very well going forward even in the CIPD segment.

Okay. Thank you. We have now on the line Tom Jones from Berenberg. Hi, Tom.

Good afternoon, everyone. I have a couple of questions. Probably one for Alfredo actually. Just pretty boring one but on operating and free cash flow. Obviously the business is improving but free cash flow is still pretty weak and negative you still by the - continuing to invest in inventory. When should we expect those drags on working capital to either abate or become a bit of a tailwind need to start printing some positive free cash flow. Is this more 2024 story or do you think you can do that in the second half of the year? And then the second question, kind of like to cash flow, but tied to the leverage story. I think we're all fairly confident or there is a clear path to how you can knock to turn to the EBITDA of your leverage by organic EBITDA growth. But you still need one further whole turn to come from asset sales, which to some degree, not entirely within your control you need third parties to play ball on that. So given the end of 2024 is only 18 months away, how are you thinking about kind of plan B's at this point with the leverage if the asset sales don't come to pass. So I'm just wondering what you're kind of thinking might be at this point in terms of trying to hit that four times target.

Okay. Hi, Tom. Good to hear you again. Regarding the cash flow, I mean, if we think in terms of operating cash flow basically in Q1, we have a negative cash flow mainly driven by the restructuring cost, even if we adjust the restructuring cost in Q1 was slightly negative around $25 million. And year-to-date, the operating cash flow excluding the restructuring cost has been positive 72 million. That means, then the Q2 we have turned into 100 million positive operating cash flow. So if you take a look at the annexures that we have published, remember that that cash flow, free cash flow include the interest expenses, that because it's a start from the - it's start the calculation from the net profit. But operational cash flow wise, we have already moved into second quarter positive and in the second half of the year on the back of higher EBITDA, point number one, and then the absence of any further restructuring cost we expect that the operating cash flow is going to keep improving from now to the second half of the year.

And it was the second question that was on the leverage and the asset sales and what's the plan B.

Well, plan B is we're going to execute on what we've said. So we have one transaction that we've announced. And as you pointed out, Tom a significant part of it is operational - from operational performance. So we're very said on delivering on those two things to get to the 224.

Okay, thank you. We have Guilherme Sampaio from CaixaBank. Hi Guilherme.

Hello, thank you for taking my question. So the first one on cost per liter. So you've talked about some efforts going forward to continue reducing cost per liter. We've announced 160 million cost savings already deployed. What else should we get in terms of additional savings. And the second question is about plasma collections, how should we think about growth for over the remaining part of the year. Thank you.

Regarding the cost per liter, as we said, as of today, we are 20% below peak of cost per liter, last year that was during the summer time. And we expect that it will be in a slightly better, so that means that we expect that the cost per liter, finally will decline around 25%. Okay. But then now not on the back of donor fees, but on the back of order, I would say order opportunities and other initiatives that we have launched. So that's going to further help in the gross margin. Regarding the collections, we are monitoring. We know that there is a high correlation between donor compensation and collections and of course we need to make sure that we fine-tune the collections in terms of volume to make sure that the volume that is coming is enough to support our sales growth.

Thank you. And next question coming from Alvaro Lenze from Alantra Equities. Alvaro?

Hi, thanks for taking my questions. The first one is on guidance, I believe the increase. I would have expected from the increase that you have provided on top line guidance and being in the upper range of margin. I would have expected total EBITDA in euro terms to be upgraded more I guess it seems that the increase in the EBITDA guidance from over 1.4 billion to 1.45 is not, is not that much of an increase, so I was wondering whether this is due to good performance in Grifols to standalone. But our worst performance in Biotest, how is the increase in the EBITDA that low - two additional percentage points of top line. And also continuing with the guidance at the last call you indicated that you were comfortable with the consensus on 2024 EBITDA, which was somewhat above 1.8 billion. So how does this increase in the guidance for 2023 reads into 2024 so, whether this is just an acceleration of the cost savings or whether this could also imply better performance in 2024? Thanks.

Okay, thanks for the question. So to the first point, the guidance for this year. Remember that you know even though we have already achieved and deploy those 450 million. As I said, you know, especially since the more than 70% of the savings are coming for plasma cost. It takes time to go through the P&L. So that's why, as I said most of plasma cost savings will hit 2024 P&L, so we have increased from 1.4 to 1.450 because the phasing of the savings flowing through the P&L. Regarding next year, we will provide you with guidance at a later stage and we feel comfortable that this year, we're going to close the year at 24%. And then as I said, we have provided already with pro forma EBITDA 2023 based on the savings, which is 1.750 and later on let me first close the year and then early next year we will keep you posted about 2024 guidance.

Okay. We have a question from - coming from Joaquín García-Quirós from JB Capital. Hi, Joaquín. Joaquín García-Quirós: Yes, hello. Thank you for taking my question. It's just a follow-up regarding the free cash flow. You said that working - you didn't say anything about working capital. So when can we expect a reversal of working capital especially in inventories, is it more for the second half of this year or should we be expect more of a reversal during next year due to the reduced costs from plasma costs. Thank you.

Yes, on one hand, the EBITDA is going to grow in line with the activity. As you know that's way that working capital work especially inventory, but at the same time as of today the days - the DIO, the days inventory are declining. So for the second half of the year, we expect the volume wise, the inventories are going to increase. However, due to this cost saving plan, the cash cost savings associated to plasma will offset that volume increase.

Great. We have a couple of follow-up questions. First from - he was the first to be again nonetheless Tom, I think you have something else.

Yes, thanks for taking my follow-up it was a very quick one. I was just wondering if you could remind us when the price concessions related to the renegotiated contract with CTS kicked in from memory, it was the sort of middle of last year that the contract was signed, but I guess I'm just trying to figure out when the price headwind drops out of the comparative quarters, whether it's Q3, Q4 or we should wait until next year before it happens.

As of today, I mean during this year, we are - the price concessions are going through the P&L. We signed this agreement - it was Q1 last year. If I recall right, and so that's as of today is the only reason why the gross range of diagnostic is slightly declining, but remember in exchange of that we have signed a contract up to 20 years. So we have secured the largest and the most possible client of ours.

Okay. And also another follow-up from - hi, Escribano.

Hi, again. It's a quick one. So just to make sure I understand Slide 18 properly where you say that the gross margin expired could increase in the second half to 250 basis points. Although usually with 100 but if we take the gross margin of the first half ex-Biotest, which is around 37.5%. My question would be, would it be fair to think about gross margin in the second half for Grifols excluding Biotest of close to 40% of 37.5 plus this 250 basis points, is that the way we should think about this slide. Thank you very much.

Well, you know, for the year for the second half of the year basically what is going to happen. We're going to see a strong growth on warehouse, I'm going to give you the - what are the main growth drivers. A strong growth, volume wise IG but especially coming in China, point number one. Point number two, the plasma cost savings will start helping the P&L flow through the P&L. Number three, the, all the other non-plasma cost savings basically OpEx savings are going to also impact the P&L and since the second half of the year sales will be higher, the operational leverage will be higher. Therefore, all of these factors, all of these components will support that - the increase of EBITDA margin, you're going to see sequentially that you know that we move from this 21 to 23 and then in Q3 and Q4 further quarterly margin improvement on a sequential basis

Okay, thank you. And I guess that here we have one final, so Peter you open and you close the Q&A session. So can we have your follow-up question?

Yes, thank you. Just final question is on innovation. When you did the Biotest deal, the Fibrinogen and the IgM opportunities were highlighted in a significant way. So I was under the understanding that the first Fibrinogen Phase 3 data was imminent. I think you've cited H2 event but try to push you either Victor or Thomas, when do you expect to date to be in-house or when do you expect to at least topline data to the market. And can you remind us again you will come - $400 million to $800 million revenue opportunity was quoted at the time of the deal, I believe, CSL does about $300 million of Fibrinogen sales off label, but could you remind us, is still $400 million to $800 million that you believe is the peak sale opportunity for the Fibrinogen. Thank you.

Thank you. Yes. We expect the - to provide the data probably starting next year 2024 and during the first half, I should say this is the expectations that we are targeting. And regarding, yes the big sales remain similar to what we, but what we have announced.

Okay. And with that, I think we will close today's call. We hope to see you or hear you again in our next quarterly calls and now in the meanwhile for those of you who have not been yet on holiday, so enjoy summer and speak to you soon. Thank you, all.

Thank you, all.