Earnings Call Transcript - GRFS Q3 2023

Nuria Pascual, Investor Relations and Sustainability Officer

Hello, everyone, and welcome to the Grifols Third 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. I'm joined by Thomas Glanzmann, our Executive Chairman and CEO; Victor Grifols Deu, Chief Operating Officer; and Alfredo Arroyo, CFO. This call will last about 60 minutes. There will be a presentation of approximately 30 minutes, followed by a Q&A session. 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. Now if we turn to Slide 2. Before we start, I would like to draw your attention to the forward-looking statements disclaimer in this slide deck of the release. 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. Now I would like to turn the call over to Thomas Glanzmann.

Thomas Glanzmann, Executive Chairman and CEO

Thank you, Nuria. Good afternoon and morning to all on the call. Thank you for joining us today. As you can see from our press release issued this morning, we have reported another strong quarter, further accelerating growth, improving our EBITDA and meeting our commitments. But before we go into our operational performance, I want to address upfront what is and has been the market's concern about our deleveraging progress. Our commitment to deliver a material deleveraging transaction in 2023 of at least €1.5 billion in cash has not changed, nor have our very focused efforts to reach a leverage ratio of 4x by 2024. We continue to give full priority to this. Regarding the transaction in China announced in June, we are progressing and working diligently towards getting the agreement signed and expect to announce it before year-end 2023, in line with our commitment. As we are dealing with a very highly regulated environment, we expect to receive all approvals and close the transaction during the first half of 2024. Ultimately, this will support the organic results we are currently delivering to continue deleveraging the company. Let me now walk you through how we are meeting our other commitments. Q3 was another quarter of strong revenue growth, where we also delivered a 25.1% adjusted EBITDA margin, a significant improvement of 480 basis points compared to Q4 '22 margin. The revenue growth was primarily driven by biopharma and our flagship franchises, immunoglobulin and albumin, and we expect that momentum to continue throughout the year. All the measures to achieve the €450 million cash cost savings from our operational improvement plan have been successfully executed. We are already seeing and will continue to see the related margin expansion throughout Q4 and next year. This is particularly visible in plasma, with cost per liter further declining, while our plasma supply levels continue to grow at a double-digit pace. As a result, we are now committing to the top of our adjusted EBITDA guidance to deliver €1.450 million for the full year 2023. Annualizing the operational improvement plans total savings, our adjusted EBITDA margin is anticipated to increase to 28% to 29%, which is in line with 2019 EBITDA margins. Our EBITDA and cash flow improvement are significantly contributing to our organic deleveraging progress, with our leverage ratio now at 6.7 compared to a peak of 9x last year. As mentioned, and I strongly reiterate, we will continue to lower this ratio and are very focused on meeting our 4x target, including signing one deleveraging transaction this year. Last, but maybe most importantly, we are now stepping up our focus on our growth strategy to ensure the creation of sustainable long-term shareholder value. We are actively accelerating a series of strategic levers to strengthen our industry leadership as a global market maker, which our recent projects in Egypt and Canada are strong examples. We have also taken steps to further strengthen the leadership team to drive innovation and digitalization at Grifols by appointing Jorg Schuttrumpf as our Chief Scientific Innovation Officer and Miguel Louzan as our Chief Digital Information Officer; both bring a wealth of experience and have a clear compass to take Grifols to the next level. We clearly continue to see innovation as a critical strategic value-creating lever for future growth and are therefore working towards accelerating our pipeline. A testament thereof is that all our milestones set for the second half of the year are on track. Having completed the Biotest Fibrinogen trial in Q3, we are confident that we will also be able to provide top line results soon. Needless to say, we continue to be very optimistic and excited about both Fibrinogen and Trimodulin and the great opportunity they represent for Grifols in the future. Having delivered on all our priorities and with our fundamentals strong, we are now well on the way to truly reposition Grifols for sustainable, profitable future growth. This is a new chapter for Grifols, and we are very excited to embark on it. With that, I will now hand over to Victor to take you through the details of our business unit's performance in the quarter.

Victor Grifols Deu, Chief Operating Officer

Thank you, Thomas. Good afternoon or good morning, everyone, and thank you for joining us today. Now turning to Slide 6. Our revenue growth throughout the previous quarters has been remarkable. As we have been mentioning consistently, the sequential progression remains exceptionally strong and positive. Grifols stand-alone delivered a 9.1% growth in Q1, followed by a 6.5% in Q2 and a 9.6% in Q3, all of them at constant currency. All in all, revenues grew 8.4% for the first 9 months of the year. For these first 9 months of 2023, we achieved revenues of more than €4.8 billion, up by 11.7% at constant currency. This was primarily driven by the performance of Biopharma and our key proteins as well as Biotest's contribution. Please bear in mind that we are consolidating 9 months of Biotest in 2023, while only 5 months in 2022. Now turning to Slide 7. Our Biopharma performance was remarkable, driven by growth in our immunoglobulin flagship product, which further accelerated in Q3, with 17.4% sales growth in the quarter and close to 15% year-to-date at constant currency, as well as our albumin franchise. Immunoglobulin continues to be driven by strong underlying volume demand and favorable pricing, especially outside the U.S. Our subcutaneous immunoglobulin Xembify continues to see a strong volume uptake, especially in Q3, backed by higher demand in the U.S. Xembify continues to offer a vast commercial opportunity, and we plan to further capitalize on this growth with launches in several European countries and Australia starting in Q4 2023. Grifols' strategy to continue strengthening its immunoglobulin franchise in the U.S. and other selected countries is robust. We are focused on the immune deficiency market, including the highest growth primary and secondary indications while maintaining leadership in neurology and acute care. Earlier this week, we received FDA approval for a new IG purification facility, which will increase Grifols' Gamunex total capacity to 60 million grams per year. This approval was not only obtained in record time, but it will enhance efficiencies in terms of yield, recovery, and cost per gram. In albumin, we achieved strong revenue growth year-to-date, delivering close to an 18% increase with higher demand in China and solid price increases in some key markets. Alpha-1 and specialty protein segment revenue was relatively flat, mainly driven by lower demand for plasma-derived factor VIII and, to a lesser extent, lower alpha-1 volume due to industry dynamics in some European countries. As alpha-1 demand improves on the back of solid underlying improvements in our successful commercial model, the current lower growth is expected to be temporary. At the same time, I would like to highlight in this segment the good performance of our recently launched products, such as Tavlesse, fibrin sealant, and thrombin, which are growing significantly. In addition, hypers and antithrombin III are also delivering positive results. Now turning to Slide 8. As a result of the successful execution of our operational improvement plan, cost per liter continued to reduce this quarter, declining by 22% as of September 2023 versus each July 2022 peak. This has been driven by decreasing donor commitment compensation, plasma center network and staff rationalization and a reduction of other plasma-related costs, such as overheads. After a stabilization of donor compensation in Q2, it continued to decline slightly in Q3. Going forward, we are targeting additional operational efficiencies through process optimization, streamlined operations, and digitalization. Plasma supply growth remained solid at 10% year-to-date versus last year. This plasma supply growth positions the company to continue meeting the growing underlying demand for our products. In parallel, since the beginning of the year, our R&D, manufacturing, and quality teams have been working on a project to significantly improve our yield in gamma globulins. So far, we have seen very good results in pilot-scale production, and we are beginning to implement it in full-scale production as we speak. In our next quarterly call, we hope to provide more details on this project and its results. We expect these improvements to further enhance our margins as it is fully deployed. Now moving to Slide 9. This year and for the first time ever, the company made a strong commitment to accomplish 12 innovation milestones. And I am proud to say that we have made very good progress so far. Out of these 12, we have completed 9 and are on track to achieve the remaining in the coming months. Among others, during these 9 months of 2023, we have finalized the enrollment for both the PRECIOSA and SPARTA trials, the latter ahead of schedule, advanced from single to repeat dose phase in alpha-1, a 15% subcutaneous study, and progressed in trials across our different phases such as the IVIG-PEG study, the Xembify bi-weekly study and the Xembify secondary immune deficiency CLL study. Worth mentioning is that in Q3, we signed a collaboration agreement with the National Cancer Institute for our GIGA564 project, whose IND preparation has been submitted this October, which sets the stage for GigaGen's first oncology asset to enter clinical development. Also, in the GigaGen front, we received positive feedback from the FDA in a pre-IND meeting held in September concerning the GIGA2339 development in hepatitis B. We recently made important inroads in the Alzheimer's space through our company, Araclon, on the Phase II trial of its vaccine candidate, ABvac40, for the treatment of patients with mild cognitive impairment and very mild Alzheimer's disease, releasing positive final results. Regarding Biotest, Trimodulin and Fibrinogen trials are advancing as expected, and we are fully focused on capturing its strong growth opportunity. To this end, we have completed the enrollment in the Fibrinogen ADFIRST trial and are on track to publish top line results in early Q1 '24. For the Trimodulin ESsCAPE trial, the first patients have already been enrolled. These positive developments are a testament to our commitment to maintain an increased effort in developing new products and indications, which we plan to continue to accelerate for the remainder of the year onwards. We expect the appointment of Jorg, our Chief Scientific Innovation Officer, to enable us to execute our objectives and further accelerate our pipeline. Now in Slide 10. Diagnostic revenues declined by 3.1% at constant currency in the quarter, but 0.9% on a year-to-date basis. As mentioned in previous quarters, our NAT technology was negatively impacted due to the pricing concessions given in exchange for extending a large contract with a key customer. However, strong instrument sales in Japan and Indonesia are helping to offset part of this decline. In blood typing solutions, we are seeing strong growth across the U.S., Argentina, and the Middle East, partially offsetting the lower sales of GelCards experienced in China lately. In recombinant proteins, contract manufacturing from our Emeryville plant, we have signed a renewed 10-year supply agreement with a crucial partner in the diagnostic field. And now moving to Slide 11. In Bio Supplies, revenues declined by 14.1% in the quarter due to lower cell culture sales driven by subdued demand. We look forward to leveraging the acquisition of Access Biologicals and capturing the full potential of this business unit. And I will now hand it over to Alfredo, who will go through the group's financial performance.

Alfredo Arroyo, CFO

Thank you, Victor. Good day to everyone. Overall, we have delivered strong performance across the board, improving revenues, profitability, and strengthening our balance sheet. Our revenues continue to grow sustainably at 9% at constant currency in Q3, bringing the year-to-year growth to 11.7%. Our EBITDA margin continued to show sequential expansion, further improving to 25.1% from the 23.4% in Q2. On the back of our enhanced profitability, which will continue to improve in the coming quarters, our leverage ratio has declined to 6.7x from a peak of 9x last year. Organic efforts have been a key piece so far on our deleveraging path. Revenue has shown a very positive sequential trend throughout this year. On a last 12 months basis, total revenue has reached more than €6 billion with 11% growth. Biopharma continues to be the key growth driver with solid underlying demand, particularly in IG and more notably, our subcutaneous product, which continued to gain further traction as well as our albumin franchise in China. Our ex-U.S. strategy has also been an important growth lever, combined with mid-single-digit price increases. Our gross margin has significantly improved over the last quarters, reaching 41% in Q3. This quarter shows the steepest gross margin expansion in recent quarters, improving by 400 basis points compared to the same period last year. This is due to Biopharma's remarkable performance and a 22% decline in cost per liter, which is now clearly reflected in our P&L after a 9-month accounting lag. On the right-hand side of this slide, you can see a significant decrease in our SG&A cost as a percentage of revenue. This reduction, which amounts to nearly 120 basis points compared to Q3 last year, is primarily attributed to operational leverage and efficiencies resulting from our €450 million operational improvement plan. All of this has culminated in a higher EBITDA margin for the group, reaching 25.1% in the third quarter and more than €1.3 billion on the last 12 months basis. Year-to-date, it has reached more than €1 billion and a 23.2% margin, reflecting sequential improvement of 480 basis points compared to the end of '22. Most of the improvement has come from Biopharma, driven by both volume and cost per liter improvement. Our operational improvement plan has also made a significant contribution to EBITDA. On a last 12 months basis, EBITDA has increased by 28% with significant margin expansion. Considering this significant margin improvement, we are now very confident in our ability to achieve the high end of our previous EBITDA guidance. We expect full-year '23 total revenue growth of 10% to 12% at constant currency, which is supported by Biopharma revenue growth of 12% to 14% at constant currency. Regarding EBITDA margin, now we expect for the second half of this year to be at 25% from the 24%, 25% period range, and a margin of 24% plus for the full year '23. All of this confirms our adjusted EBITDA guidance of €1,450 million by the end of the year. If we consider the annualized cash savings, the pro forma 23% EBITDA margin would be in the 28%, 29% margin range, bringing us back to the pre-COVID margin levels. Building on all efforts made through previous quarters, we continue to make solid progress on our deleveraging path down to 6.7x at the end of September of this year. This has been driven by EBITDA improvement backed by business performance, cost savings, and operating cash flow improvement. We remain confident to achieve a leverage target of 4x by the end of '24. Our current liquidity is more than €1 billion, including €454 million in cash. Now I hand over to Thomas for the final remarks.

Thomas Glanzmann, Executive Chairman and CEO

Thank you, Alfredo. Maybe to put all of what you have heard in perspective. Last year, we embarked on a journey to turn around Grifols' financial performance and build an increasingly performance-oriented, efficient, and accountable organization. The third quarter has been a testament that we are well underway to meet our objectives. Our fundamentals have never been as solid, and we have delivered a strong performance across the board, executed on our key priorities and, very importantly, delivered on our commitments. One, we have grown our revenue sustainably. Two, we have enhanced profitability and have sequentially updated our EBITDA guidance for the full year '23 accordingly, and we remain on track to reach 2019 EBITDA margin levels next year. And three, driven by all of these improvements and a commitment to deliver a deleveraging transaction of at least €1.5 billion still in '23, we will strengthen our balance sheet and are on track to reach our guidance of 4x by 2024. At the same time, we are not losing sight of what's ahead of us beyond '23. We are now very focused on realizing Grifols' full potential, and in doing so, maximizing value for all stakeholders. Our efforts will concentrate on several strategic levers. One, we will build on where we see our core strength and the best competitive advantage. Two, we will continue operating as a global market maker and shaping our markets, seizing those commercial opportunities that are most promising and hold great potential. Three, we will continue to accelerate and bolster innovation, focusing on a select number of therapeutic areas and prioritizing those projects in our pipeline that will boost our profitability and differentiate us with our customers. Under the leadership of Jorg, the architect of Fibrinogen and Trimodulin, we will strategically strengthen innovation as our future growth engine for Biopharma. Four, we will continue to enhance donor attractiveness through personalization of the experience, digitalization, and streamlining our processes. Five, we will also continue to improve our business and operations through further process optimization, streamlined operations, and digitalization to drive efficiency. And sixth, as a market leader, we will explore new markets and business opportunities, but we will enter into agreements to deliver groundbreaking differentiated patient and customer solutions. Importantly, these six strategic pillars will be backed by a performance-oriented management team and a strong people and talent development culture. We will build on the current progress and momentum while maintaining strong financial discipline, both with regard to P&L and balance sheet management to ensure strong, sustainable long-term financials. In the coming quarters, we will give you more details of all our strategic levers and update you on the progress as we continue to deliver on our commitments in the short term. I want to conclude by reiterating how encouraged I am by all our progress in the first nine months of the year. I want to thank the entire Grifols team for their hard work and dedication. I appreciate your attention, and I'll now turn it back to Nuria, who will open it up for discussion. Thank you.

Nuria Pascual, Investor Relations and Sustainability Officer

Thank you, Thomas, and thank you all for your time. Now let's start the Q&A session.

Tom Jones, Analyst

Kind of both of them really relate to the tech transfer agreement that you've recently signed with Biotest. I wanted just a straightforward financial one really. I think you guys have this morning guided towards somewhere around a mid-triple-digit million number payments in total over the '23, '24, '25, '26 timeframe. It would be helpful for us to try and understand sort of broadly how that might be weighted just to help us modulate your sort of free cash flow over the next couple of years. And then related to that, sort of related to the master distribution agreement you also have with them. Just wondering how you're intending to position Yimmugo, that novel IVIg product against your existing Gamunex and Xembify brands and how you make sure you don't cannibalize each other inadvertently and ultimately create the most revenue and value across the entire IgG franchise with all of those products? So some idea of sort of commercial marketing strategy for those different IgG products would be helpful, I think.

Victor Grifols Deu, Chief Operating Officer

Thank you, Tom, for your question. Regarding the transfer tech agreement with Biotest. Basically, this is what you have seen in the press release as on a stand-alone basis. On a consolidated basis, it's worse. I mean, the payments related to this agreement will be done based on the cash flow needs of Biotest. So it will not have an impact on a consolidated basis.

Thomas Glanzmann, Executive Chairman and CEO

Tom, I take the second piece of your question. It's about the positioning of Yimmugo. As you know, in Grifols, we have two main intravenous brands; one is Gamunex, and the other one is Flebogamma. Our idea is to—due to basically the better years that Yimmugo has compared to Flebogamma is to—with time, once the product is approved in different countries, to commercially switch from Flebogamma to Yimmugo. This is kind of in summary, the strategy we are pursuing.

Tom Jones, Analyst

That's really helpful. Not many, but a really quick one. The GBP 13.7 million of restructuring charges in Q3, which line item were they booked in? Just help us tie up our models.

Alfredo Arroyo, CFO

Depending on — if we're talking now about severance, there will come severance for, I would say, for the manufacturing area or from, I would say, corporate structure, they go either to COGS or to SG&A. I mean for further details, you can follow up the — all the specifics with my team.

James Gordon, Analyst

James Gordon, JPMorgan. Two questions, please. First one was on divestment plans. The question was just what is the cause of it taking maybe a little bit longer than we thought to close. It has been about 5 months since the June update. Is it that you're looking to do something more complicated like maybe a combined transaction, divesting some of Shanghai RAAS and diagnostics or some factors related to the dynamics in China at the moment? Or why has this taken a bit longer? And why are you still confident? And then the second question was just on Biopharma growth. So strong performance in the quarter. I think it was 14.5% year-to-date and 13.7% in the quarter, but you're still guiding for the full year to grow 12% to 14%. So that's quite a wide range with only 2 months of the year left, and it does imply potentially quite a slowdown in Q4. So is that just conservatism? Or is there some tougher things going in Q4? I can see you've maybe got a tougher comp for Biotest or is it industry dynamics with alpha-1? Why might things theoretically slow so much in just the last few months of the year?

Thomas Glanzmann, Executive Chairman and CEO

James, this is Thomas. I'll take your first question. And first of all, let me just remind you that Shanghai RAAS, which obviously is the asset we're talking about, is extremely attractive, and there have been many, many people that have had an interest in this asset. Now also this being a China transaction, it's a very complex environment to negotiate. We do want to make sure that this turns out to be a good transaction, both in the short and long term for Grifols. So that has taken time. And we obviously want to make sure we cross all the Is and Ts, but it's really not more than the fact that getting anything done in China does take a lot more time than if you were to do it in Europe or the United States.

Victor Grifols Deu, Chief Operating Officer

Okay. I take the second part of your question. No, we are fully committed to meet our targets of revenue growth, both combined with Biotest and Biopharma on a stand-alone basis. It's fully there.

James Gordon, Analyst

I think it was just the full breadth of the range would imply that there might be quite a slowdown. So is it just you don't want to change the range at this time? Because to get to just 12%, you'd have to have quite a slowdown versus what you've done in the first 9 months?

Victor Grifols Deu, Chief Operating Officer

We have had a very strong, in fact, Q3 quarter. For Q4, we are sticking to our budget. And if it comes as good as Q3, we will try to deliver, of course, but it's kind of this quarterly thing; sometimes the swings are not really, let's say, underlying reality.

Thibault Boutherin, Analyst

Just one on albumin to start. The number seems to imply you had a very strong acceleration of albumin sales in the third quarter. So I just want to understand what happened there. Is there any one-off? That's the first question. And second one on deleveraging. And beyond the Shanghai RAAS stake sale that you have kind of confirmed, do you see an appetite to do another transaction before the end of 2024? And how large this deal would need to be in order for you to get to your leverage target? Like does it need to be as big as Shanghai RAAS or could you do something smaller and get there?

Victor Grifols Deu, Chief Operating Officer

On the first one, on the albumin question. No, we are seeing strong momentum in albumin, both in China and other important regions globally, and we are meeting our demand. As the plasma is coming back, we are meeting this demand that is out there for us. So it's perfectly in line and it's fully, let's say, controlled.

Thomas Glanzmann, Executive Chairman and CEO

Thibault, Thomas here. We are actually very focused now 100% on signing the China transaction and are not looking at anything else at this point in time. We believe that the organic deleveraging combined with the transaction is going to get us to the target that we set for ourselves for '24.

Alvaro Lenze, Analyst

The first one is, if you could provide some additional detail on the evolution of alpha-1. Sales seem to be a bit weak. I don't know whether it's final demand or increased competition from other plasma players? And the second is if you could provide some guidance on cash flow. I see that investment in working capital remains very high. I don't know if we should expect continued investment in Q4 and also into 2024.

Victor Grifols Deu, Chief Operating Officer

I take the first one. Alvaro, on alpha-1, yes, as we said, we are seeing today kind of flattish evolution in this franchise for us. There are many, many components. As you know, we have a unique business model when it comes to commercial, especially in the U.S. and our historical markets. After the pandemic, we are fine-tuning this model. As you know, a key important factor for the model is the first piece in the funnel, which is the testing piece. Just in May, we launched the new testing tool, which is the AlphaID at Home, which is the complement to the health care professional testing model. So we are fine-tuning there. We expect this flattish trend we have seen recently to turn around during 2024 as I said; we made some small tweaks in our operating model to adapt to the new times post-pandemic.

Alfredo Arroyo, CFO

Alvaro, to your question about cash flow, we have that hit, as you all know, in Q1, the restructuring cost. Most of the payments were done in Q1. Since then, we've seen a significant positive increase in cash flow. We're going to see this in not only Q1, Q2 and Q3, but also in Q4. Regarding the inventories, yes, we've seen some increase in this quarter. But year-to-date, we are at the same number of inventory days, around 300, which is in line with the previous year. Remember that just by maintaining the number of days, but due to the increase of sales activity with double-digit growth, we did require additional inventory. But for the year-end, we're going to see a very positive cash flow before servicing.

Guilherme Sampaio, Analyst

So first one, a follow-up on this previous question. In terms of organic deleveraging. We keep seeing net debt going up. When should we see a decline in net debt? Should we see that already next quarter or something for next year, actually the cash effect of the deleveraging transaction that you are anticipating? And second, if you could touch upon the slowdown in the diagnostic area that we've seen specifically in this quarter?

Alfredo Arroyo, CFO

Okay. For the first question, the net debt reduction will be seen primarily based on the cash proceeds coming from the divestment, because even though we see that our operational cash flow is going to keep improving during this year and next year, we need to deleverage to reduce basically the interest expense.

Victor Grifols Deu, Chief Operating Officer

On the diagnostic question, you talk about the slowdown in this quarter. If I understood correctly, it's good to remind you that in Q2, we had an exceptional revenue or income coming in this one that, of course, is exceptional, and it's not happening in this quarter or the others to come.

Nuria Pascual, Investor Relations and Sustainability Officer

Okay. Good. And now we have a couple of follow-ups. So Tom, I think you have some additional questions.

Tom Jones, Analyst

I just wondered, it was a broader follow-up question around your pipeline. And if I look across everything, you've got a building number of assets, whether it's the two GIGA products, 564 and 2339, you've got the Alkahest, the AMD product, the 4290 product, then the 6019 and 6021 I think from Alkahest as well, plus you've got the Alzheimer's vaccine. You got all these sort of non-plasma, like some of the Alkahest ones and plasma products, but you've got a lot of kind of non-core products building up in the pipeline, which is great. But I just wondered kind of what your long-term thinking around the development of these products is because, to be frank, at the moment, the market just puts the multiple on the R&D spend. I don't think anyone's got a penny of revenue in anybody's model for any of these products. So as it sits today, they're a bit of a drag on the equity story. So I just kind of wonder what the long-term strategy is? Is it to keep these, take them all the way through to development and marketing? Or at some point, do you think you'll start out-licensing some of these products and tying up with people who might have more expertise in late-stage oncology drug development? I just wonder what this kind of big picture here is because at the moment, they're all cost and no benefit from the equity markets perspective.

Victor Grifols Deu, Chief Operating Officer

Thank you, Tom. Yes, it's a very, very good question from your side. Yes, clearly, Trimodulin and Fibrinogen will play a key role here as plasma will be at our core, both in the day-to-day in commercial and manufacturing, but also for our future developments. So plasma clearly will be on the core with those two products and the complement coming from our life cycle management that we are doing in different products. On those new technologies, for instance, on GigaGen, when we made the acquisition of this asset or this technology, I should say, it was in line with our gamma globulin product portfolio. We saw that an interesting opportunity in the way we can obtain gamma globulin or specific gamma globulins from this technology. It happened that this company came also with these oncology interesting initiatives or programs there, and we just wanted to continue them. Going forward, if some of them are successful, we are clearly open to define and decide whether this remains in our core and we, let's say, expand to oncology or we kind of out-license whatever is the form for those non-plasma programs.

Alvaro Lenze, Analyst

Thanks for allowing me to jump back in the queue. Just two questions. First is on capacity and considering the fast growth in activity, if I'm not mistaken, I believe, in Q2, you mentioned that you were around 60% capacity or something like that. If you could provide us an update on how is that trending? And when should you return to higher CapEx spending as CapEx is currently running lower than it has in the past? And the second question is just if you could provide some guidance on the evolution of minority profits attributable to non-controlling interests. They have been trending a little bit higher than I expected. There's a little visibility as some of the companies here do not have a reported EBITDA like the plasma collection networks of Haema and Biotest US. So whether we could extrapolate this €30 million per quarter like indefinitely? Or could you provide some guidance for this year and next year?

Alfredo Arroyo, CFO

Okay. I take both questions. Regarding capacity, yes, we confirmed in the last call, the 60% capacity for this year. Based on the upcoming sales growth and our projections, we expect the next wave of CapEx expansion will take place in 2028, okay. So we have a clear path of lower spend from now to 2028. Regarding the minority, the minority line within our P&L, for your model, you can extrapolate €100 million per year.

Nuria Pascual, Investor Relations and Sustainability Officer

Okay. Apparently, there were two persons who were trying to access and were having some kind of problems. We will try to give access from our side. We have Peter Verdult from Citi. Can you hear us, Peter?

Peter Verdult, Analyst

Can you hear me now?

Nuria Pascual, Investor Relations and Sustainability Officer

Yes, we can.

Peter Verdult, Analyst

Three questions, please. Thomas, for you, firstly, when you initially put that press release out in June, you talked about the transaction and remaining a significant shareholder in Shanghai RAAS. So could you maybe reconfirm that or have things changed? And can I be cheeky and ask what in your view is a significant shareholding still in RAAS post the transaction? Question number two, maybe for Victor. I think it would be helpful for us in the market, good growth on Xembify; it's a long-term growth driver. I think historically, you've said 5% to 10% of sales coming from IgG sales are Xembify. Are you willing to put a ballpark number as to where we are at the end of this year, where we are on Xembify? And then lastly, I joined late, apologies, but I did hear James Gordon's question about the guidance. Can I just invert it and make it more simple? Is it fair to say that the risks, given the trends you're seeing so far in Q4, that the risk to your guidance is very much to the upside rather than downside as James is implying in terms of mechanically going, keeping that 12% to 14%?

Thomas Glanzmann, Executive Chairman and CEO

With regard to our ownership and all of that, we're going to let you know all of the details once we announce and once we sign. But I do want to remind you that we have a strategic alliance with Shanghai RAAS, and we have an albumin distribution agreement, both of which are very important to us. Also, our future position in China is important to us in a strategic market. So as we proceed with this deal, all of these pieces will be a very important part as we conclude and sign the deal with Shanghai RAAS.

Victor Grifols Deu, Chief Operating Officer

On the second question, Peter, yes, as you probably can see in the presentation we released to date, the growth pace of subcutaneous versus our IV products is clearly higher. So this is as we move every month, every quarter, the share of subcutaneous versus the overall is increasing, and we expect this to continue. I don't know exactly up to which level, but we expect this to represent a significant mix in our IgG portfolio.

Alfredo Arroyo, CFO

Regarding the guidance, as you know, the growth is very important to understand that it's based on the baseline, okay, the previous year and also on when you look at it on a reported basis on the FX. For Q4, we expect that we still expect a strong quarter, but the reality is that when we look at the amount, the amount of the fourth quarter is going to be higher than the previous quarter. However, the baseline varies from one quarter to another when you compare with the previous year. But said that, we reiterate this range for net revenue guidance for the year-end.

Nuria Pascual, Investor Relations and Sustainability Officer

We are coming close to the hour, but we have two follow-ups, one from Jaime, another from Charles. Please, if you can make one question each so that we conclude with that session. First, Jaime.

Jaime Escribano, Analyst

Mine is fairly quick. It is regarding the pipeline. So you announced the Alzheimer's vaccine results first readout quite recently. Just to know what could we expect following steps? And is this a big opportunity for you? Or can you try to give us some kind of sense of how excited you are with this? And just a very quick one also related to the pipeline, which is the ASFA in 2018 said that they were going to review the guidelines and that in 2023, they would start recommending again products. Is this something that could be on the table again to try to revive the AMBAR project with ASFA or you don't have a lot of expectations on that?

Victor Grifols Deu, Chief Operating Officer

Yes, on the Alzheimer's, the Araclon vaccine, there was a question previous, and yes, it's a program that we are open to out-license to finance this Phase III trial that it should go now. So that's the status as of today on Grifols regarding this vaccine looking for a kind of partnership here. On the ASFA inclusion of the AMBAR protocol into their guidelines, yes, it has been included in one of the guidelines. So now that it's a procedure that can be used out there for patients. Regarding the AMBAR in general for Grifols, we are in a standby mode. We are in talks with regulatory agencies to see opportunities on how to proceed. But to the ASFA question, yes, it has been included.

Jaime Escribano, Analyst

Okay. I'm sorry, Victor, just two follow-ups. But then is there any opportunity to monetize AMBAR through this recommendation of the ASFA or to get it into the insurance or any growth potential coming from there?

Victor Grifols Deu, Chief Operating Officer

At this stage, we are moving cautiously, I should say, in the sense of slow. We are trying to understand which are the potential possibilities that we can see for this program in relation to the inclusion of the protocol in the ASFA guidelines.

Nuria Pascual, Investor Relations and Sustainability Officer

Okay. And last question for our today's session, Charles.

Charles Pitman, Analyst

Just very quickly, can I just get the understanding clear. The €1.5 billion you expect to receive and to pay down, that's a post-tax amount? And then just the actual question I had follow-up was just talking about the expected potential for other cost savings given you've now hit the kind of top end of your target for FY '23. Kind of what other further levers are there that you're seeking to identify going forward? Or is the focus very much just on normal operational efficiency?

Alfredo Arroyo, CFO

For the €1.5 billion, this is — it's going to be cash, no taxes when you receive the cash; there are no taxes on this. Regarding the operational improvement plan, as we said, this year, we're going to achieve through P&L, the €150 million plus the €300 million, as I said, for next year, the €450 million, I think we continue working to exceed that €450 million. There are some opportunities already mentioned by Victor on the manufacturing side. So this is a nonstop working process. I'm pretty sure that more savings will come in the upcoming quarters.

Nuria Pascual, Investor Relations and Sustainability Officer

Thank you, Alfredo, and thank you, everybody, for joining us today. I expect to talk to you very soon. As always, any follow-up, any other questions you may have, you can contact us at the Investor Relations and Sustainability department, and we'll be happy to take other questions from all participants. Thank you very much.

Thomas Glanzmann, Executive Chairman and CEO

Thank you very much, everybody.

Victor Grifols Deu, Chief Operating Officer

Thank you. Bye-bye.

Alfredo Arroyo, CFO

Thank you. Bye-bye.