Grifols has crashed in the examination of last year's accounts, results highly anticipated by the market after accusations by Gotham City Research about possible falsification of accounts. Far from convincing the market, the accounts have caused the biggest collapse in its history as a listed company, higher than that received on January 9, when Gotham's devastating report emerged. They closed at 7.58 euros, with a fall of 34.9% (on January 9 the fall was 25%), accelerated from midday, after the conclusion of the call conference with analysts and the opening of Wall Street. Since the beginning of the year, the titles have dropped 47% of their value, and the stock is trading at its lowest since 2012, having already lost the recovery that began after the publication of the first Gotham report.
The accounts have revived the ghosts that have hovered over the company since January 9, to the extent that it, after the doubts cast by Gotham on the accounting, has not published the audited annual report. He has specified, however, that he received written confirmation from KPMG that it expects to complete its internal procedures and issue its audit opinion before next March 8.
Furthermore, counselor James Costos, former US ambassador to Spain, has not signed the accounts. The company has stated in its financial report that he was absent from the board meeting held in Barcelona yesterday for personal reasons. Grifols states that Costos “has not expressed any disagreement or opposition with the documentation.” Neither argument has eased market fears.
“The results are secondary until through the information requested by the National Securities Market Commission (CNMV) on its accounts, following the report published in January by Gotham City Research, and the corporate structure and the “crossed interests with related parties,” say Bankinter analysts. In the conference call, The executive president, Thomas Glanzmann, has pointed out that Grifols responded in a timely manner to the questions raised by the CNMV, and has indicated that the stock market authority is carrying out its own investigations. The CEO added that KPMG is preparing the audited report on the 2023 accounts, and explained that the auditor will issue a “clean and unqualified” opinion.
The results are secondary until through the information requested by the CNMV
Likewise, the accounts have indicated that a company controlled by Grifols, BPC Plasma, paid a dividend of 266 million euros to Scranton, the holding company owned by the GrÃfols family. Gotham pointed out in its report to the alleged irregular consolidation of BPC Plasma. “One of the main aspects that has affected investor confidence is the news that Grifols' annual results have not yet been approved by its auditor, KPMG. This lack of approval has generated uncertainty around the financial situation,” they indicate from IG Markets.
Market sources consulted by this newspaper have assured that the fact that the results have been presented without auditing is not common, but not “rare” either, since there have already been cases in the past of companies that have communicated their results without the auditor's opinion. The delay would be related to compliance with a series of procedures that are being finalized, although the blood products company has preferred to fulfill its commitment to present the accounts this Thursday so as not to raise more doubts, later of the Gotham City accusations. In fact, the last days of February are usually the usual date on which Grifols usually reports to the CNMV.
Precisely, the 2023 accounts are the last that KPMG audits Grifols since the 1990s. The Audit Law, in force since 2014, requires the rotation of auditors every 10 years. To do this, it established a transition period and determined that firms that had been working for a company since before 1994 must give way to the next one in 2020, except in cases of joint audit, which opened the door to an extension of up to 4 years. This is what happened in the case of Grifols, which also hired Deloitte to review the individual financial statements before becoming the main auditor.
From XTB, meanwhile, they have also had an impact on the accounts, beyond corporate governance issues: “The company attributes these poor results to restructuring expenses, but the truth is that the business is not generating the same benefits that it generated in previous years. In fact, its free cash flow was negative in 2023, accumulating two consecutive years in negative.†The company expects to enter this year in cash flow positive, according to the CFO, Ángel Arroyo, in the conference with analysts.
Results
However, Grifols has sought to highlight some of the data questioned by Gotham. Thus, it has indicated that it reduced its leverage ratio during 2023, thanks to the strong improvement in gross operating profit (ebitda), from 7.1 to 6.3 times at the end of 2023. The company explains that, Excluding the impact of IFRS 16 (997 million euros), the net financial debt is 9,420 million euros, 2.5% more than at the end of 2022. At the end of the third quarter, the debt was 9,540 million, the highest figure in the last two years. At the end of the year, the group had a liquidity position of 1,141 million, and a treasury position of 526 million.
Adjusted EBITDA rises 26.3% to 1,474 million euros, while the adjusted margin increases in the year to 24.0%, with an increase of 580 basis points, to 26.1% in the fourth quarter, excluding Biotest. The adjusted gross margin reached 41.4% in the fourth quarter of 2023, which represents an improvement of 570 points compared to the same quarter of 2022 and has contributed to the advance of the margin in 2023 to 39.7% (37, 6% in 2022) excluding Biotest. “We have met our objective and the company has reinforced its fundamentals,” said Glanzmann, in a call conference with analysts to present the results.
Total revenues increased by 11%, to 6,592 million euros, a new historical record for the group, with growth in all business units and key regions, according to the head of Operations, Víctor Grifols. Biopharma's revenues reached 5,558 million, with a growth of 13.3%, “driven by increased plasma supply, solid underlying demand for the main proteins, favorable prices and product mix.”
The company closed the year with profits of 59 million
The reported net profit stood at 59 million euros in 2023, 71% less than the previous year. The company indicates that, excluding extraordinary expenses related to restructuring costs, which caused the company to enter losses in the first half, the profit would reach 206 million. Operating cash flow increases by 300 million euros to 351 million, and free cash flow returns to positive in the second half of 2023, with close to 120 million, both excluding extraordinary expenses.
The forecasts (guidance) for 2024 include revenues of more than 7%, driven by Biopharma, which would grow between 8% and 10%, and an adjusted EBITDA of more than €1.8 billion, with a margin between 27% and 28%. “In 2024, we face a year of value creation for shareholders, with the next chapter of long-term sustainable growth,” said Glanzmann.
The manager highlighted that the company is going to focus on its main areas, reinforcing its presence in Biopharma, Diagnostic and Bio Supplies. In addition, it plans to accelerate innovation, taking advantage of new technologies to expand the innovation portfolio of plasma products and explore other opportunities not related to plasma. Likewise, it will seek strategic alliances to shape the global market, promoting the alliance with Haier Group, improving the donor experience, with the digitalization of processes, and optimizing operations to capture efficiencies.
Evolution
In its financial report, Grifols explains that the proceeds from the sale of 20% of Shanghai RAAS to the Haier Group will be used entirely to repay debt. “Taking this transaction into account, the pro forma leverage ratio stands at 5.4 times, showing clear progress towards the four-fold objective,” indicated the financial director, Alfredo Arroyo.
In this sense, the manager has indicated that Grifols expects to meet its 2025 maturities in the first half of 2024 and will try to do so “in an efficient manner.” To do this, the company will take into account both the funds from the planned sale and the various options available to it, including the refinancing of these maturities while remaining consistent with deleveraging objectives.
The strategic alliance with the Haier Group is expected to close in the first half of 2024, allowing synergies to be promoted and capitalizing on the potential of China, a high-growth market in the plasma and diagnostic sectors. In addition, this alliance extends the exclusive albumin distribution agreement with SRAAS for the next ten years, extendable up to 20 years. During the call conferenceGlanzmann has also pointed out that the due diligence for the sale of Shanghai Raas to Haier Group has already been concluded, and that the transaction only depends on the authorizations of the regulatory authorities.
The company has also highlighted the governance changes approved in recent days. “We have separated property management, simplified structures and formed a leading team in Spain,†explained Glanzmann, who announced that, as of 2025, he will become non-executive president of the group.
In this sense, Grifols began the search for a new CEO to guarantee the separation of ownership and management, and appointed Nacho Abia as the new CEO, who will assume the position as of April 1, 2024. In recent months, he has incorporated new executives in key positions such as Roland Wandeler, president of Biopharma Business Unit; Camille Alpi, head of Human Resources; Joerg Schüttrumpf, Chief Scientific Innovation Officer (CSIO); and Miguel Louzan, Chief Digital Information Officer (CDIO).
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