Earnings Call Transcript - GRFS Q2 2023

Nuria Pascual, Investor Relations and Sustainability Officer

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, including 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. Before we start, I draw your attention to the forward-looking statement disclaimer on Slide 2 in the slide deck of our 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. And 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 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. Throughout the first half of the year, we have excelled in execution, proving financial discipline and enhancing 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 a 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 over 22% 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 €450 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 nine-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 rates. As a result of this performance, we have exceeded our revenues and adjusted EBITDA guidance for the first half and raised our second half and full-year 2023 guidance. We reiterate that leverage is a priority for us, and this includes reaching a net debt to EBITDA ratio of four 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 Investor Relations 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 onboarding 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.

Victor Grifols Deu, Chief Operating Officer

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 9.4% on a 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 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. Before we have seen sustained upward momentum, supported by higher plasma supply and robust underlying demand coupled with favorable pricing and some product mix. Subcutaneous IG revenues grew 28% in the first half of 2023. We continue to expand our offering of subcutaneous immune globulin Xembify globally. 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 the 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 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 observed lower demand for 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 in 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's 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 strong growth with opportunities in core indications, especially PID and secondary immune deficiency, but also in CIDP. Demand has remained robust and is expected to continue to be strong. 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 grow. Even though incidences of diseases are similar across geographies, consumption rates can vary significantly among them. Actually, IG in the U.S. is still consumed at almost three times the rate per capita 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 offerings and seeking new commercial opportunities, especially for IG in the U.S. 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 the 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 already been activated. Finally, we have completed the removal BLA submission to the FDA. Now moving into the diagnostic, Slide number 10. Diagnostic revenues continue to be driven by blood typing solutions where we are seeing strong growth across the U.S., Argentina, Brazil, and Spain. It is noteworthy to mention that the Grifols blood typing solutions are outperforming market growth and continue to gain market share. As you saw in Q1, our revenues in NAT technology are somewhat affected by the pricing concessions in exchange for extending large contracts with our key customers to up to 20 years. However, several factors in Europe and Asia are helping to partially offset this, including strong demand in Japan and instrument sales in the Philippines, for 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 and Diagnostic revenues more than doubling. And now I hand it over to Alfredo.

Alfredo Arroyo, CFO

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%, up from the 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 peak 2022 levels. 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, as shown in the last 12 month EBITDA trajectory, which is now close to €1.3 billion. The EBITDA margin reached a remarkable 23.4% in Q2, representing a 35% growth versus Q2 2022, driven by strong business performance and the accelerated operational improvement plan. Deleveraging continues to improve, down to 6.9 times compared to last year's peak of 9, improved by 2.1 times, driven entirely by business performance and cost discipline. The next slide shows the adjusted EBITDA bridge, progressing versus last year, where year-to-date June, the EBITDA has reached €655 million, representing an improvement of €93 million, 22.2% margin, which implies an additional 150 basis points versus the prior year, driven by the Biopharma contribution as well as the operational improvement plan. We have €135 million of one-off charges that include, mainly, the €140 million restructuring charges booked in Q1. No additional restructuring costs are expected. The next slide shows the operational improvement plan is progressing above our expectations. All initiatives have been 100% deployed, exceeding €450 million in savings, and we have already achieved €235 million in cash savings in the first half of the year. We're expecting additional €160 million in cash savings in the second half. If we consider that almost 75% of the total savings are plasma-cost related, due to the nine months plasma inventory accounting, €75 million in 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 in savings would be booked in 2024. Plasma cost per liter, as shown, has made rapid progress in reducing our plasma cost per liter by 20% from the 10% drop reported in Q4 2022, versus peak July costs in 2022. Plasma supply increased by 12% in the first half of the year, which aligns with the plasma needs to support our growth. Close to 50% of the cost per liter decline comes from lower donor compensation, with another 50% from other optimization initiatives such as process optimization, streamlining operations, overhead reduction, and digitalization. In line with the previous slide, plasma cost reduction has a very positive impact in the gross margin, but considering the nine months inventory accounting, those plasma cost savings will mainly impact the 2024 P&L. In the second half of this year, we see a potential of more than 250 basis points margin improvement compared to the first half. We expect further margin expansion in 2024, supported by the operational improvement plan initiatives currently deployed. The next slide shows our leverage commitment at four times leverage by the end of 2024, which 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 remaining 30% of deleveraging will come from deleveraging transactions whose cash proceeds will be fully used for debt reduction. We currently have total liquidity of €1.2 billion, including €500 million in cash. Based on the strong first half of the year results delivered and given our confidence in the second half of the year, we are 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% at 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 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. 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 a 28%-29% EBITDA margin, which basically is coming back to 2019 margins. Now, I hand over to Thomas for closing remarks.

Thomas Glanzmann, Executive Chairman and CEO

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 its growth further from the very solid momentum seen in the first quarter. We expect strong sales growth to continue, driven by demand for key proteins, product and country mix. The company has already successfully deployed 100% of €450 million of the cash cost-saving plan. Testament to the execution of the plan is the cost per liter reduction of 20% while plasma supply grew 12%. 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 for the second half of the year. Deleveraging remains a top priority and our commitment to reduce the leverage ratio to four times by 2024 is unchanged. We are today advancing on several work streams supporting our deleveraging efforts. Finally, I want to reiterate that 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. Our key focus continues to be on operational excellence, cash flow improvement, debt reduction, and ultimately 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.

Nuria Pascual, Investor Relations and Sustainability Officer

Our first question comes from Peter Verdult from Citi. Hi, Peter.

Peter Verdult, Analyst

Yes. Hi Nuria. Hi, everyone. Thanks for taking my questions. I will stick to 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 a 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 the 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.

Thomas Glanzmann, Executive Chairman and CEO

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. However, 70% of fixing our balance sheet now comes down to what Alfredo mentioned, which is really improving our operational performance. So regarding diagnostics, we are looking, we have a couple of work streams going, and we are considering a number of options at the moment. We have valuable assets, and Diagnostics is one of them at this point in time. 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 can make something official.

Nuria Pascual, Investor Relations and Sustainability Officer

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

James Gordon, Analyst

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 like immunoglobulin has decelerated slightly, but it still seems to be growing low double digits 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 seems to suggest that they had seen, and so that's why you're shifting more sellers to Europe? And how does the profitability compare to selling IG more in Europe versus 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.

Victor Grifols Deu, Chief Operating Officer

Hello, James. Good to hear you as well. I take the first question on immunoglobulins about the geography. Clearly in Europe, I was over in Europe. Outside the U.S., we see strong demand, and as long as we have now rebounded on the plasma supply, we can keep supplying that market to induce the growth we are seeing outside. In fact, we are growing very nicely there. In the U.S., we continue to see strong underlying demand in the market, and now we are also able to supply this market. Additionally, as you know, we are ramping up our subcutaneous product and Xembify, and both are seeing nice growth and stable pricing. Ultimately, profitability comes down to pricing in this franchise. There is a price gap between the U.S. and outside U.S. countries, and this drives the different kinds of profitability that we see geographically.

Thomas Glanzmann, Executive Chairman and CEO

Hey, James, this is Thomas. I'll take the second question. 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, particularly with Xembify, which still represents a very small portion of our total IG sales. As I've mentioned before, the profitability of Xembify is significantly higher, and as we sell more of Xembify, that will significantly improve the overall profile of our Biopharma business and profitability. So, we remain extremely excited about where we're going and what we're doing, as well as the future of our IG franchise.

Nuria Pascual, Investor Relations and Sustainability Officer

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

Jaime Escribano, Analyst

Hi, good afternoon. So a couple of questions from my side. Could you 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 mention of Alpha-1, Hyperimmunes, Factor VIII growing close to zero. Maybe if you could give us a little more color on this. And also, how does this reconcile with the increase in the top line guidance for the year? Because you basically accelerate or increase the top line growth to double digits in plasma. So my question would be if, in the second half, you're seeing an acceleration maybe of this part that has been a little bit weaker this quarter. And then my second question is regarding the Biotest licensing agreement that was announced back in May. If you could give us a little bit more details on how this is going 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.

Victor Grifols Deu, Chief Operating Officer

Hello, Jaime. I will take the first question. In this third bucket that we call Alpha-1 and specialty proteins, it's really a mix of performance across different product lines. The main one, of course, being Alpha-1. Alpha-1 is highly related to diagnosing potential patients and putting them on therapy. During 2022, we experienced a strong ramp-up in testing within this franchise as we exited the pandemic. You have seen that we have reinforced this testing approach with the home-kit to expand the progression. There is a lag time between the diagnosis and actually getting patients onto therapy. We expect the ramp-up in testing, which started in the second half of last year and continued during the first semester, to deliver more patients to be put on therapy, which will aid performance and growth in the second half. Additionally, regarding the second question about albumin, you'll see this fall to 5.1%. We anticipate this to continue to accelerate, and we expect to see better performance than the 5.1% in albumin as well. This indicates that the overall year looks higher than what it appears today.

Alfredo Arroyo, CFO

Okay. So, Jaime, to your second question about Biotest—yes, we signed this transfer tech license and development agreement, which covers the exchange of technology and know-how. Therefore, we will work together between Grifols and Biotest. Regarding your point about the P&L, there is no cash impact at all as a result of this transfer tech agreement.

Nuria Pascual, Investor Relations and Sustainability Officer

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

Thibault Boutherin, Analyst

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 going forward. 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 about the cost of treating CIDP patients. We know already that the annual cost of these gab inside is going to be similar to myasthenia gravis, so probably a little bit more than €200 million per patient. 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.

Victor Grifols Deu, Chief Operating Officer

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

Thomas Glanzmann, Executive Chairman and CEO

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

Thibault Boutherin, Analyst

Okay. Can you hear me?

Thomas Glanzmann, Executive Chairman and CEO

Now we can hear. Yes. Did I get this right?

Thibault Boutherin, Analyst

Okay. I mean, we already know. I think it was commented that the price, the cost in—you said it's 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. If you could just compare this with IG and implications in terms of reimbursement and access to treatment?

Victor Grifols Deu, Chief Operating Officer

Well, first of all, obviously, the treatment for IJV costs about $80,000 compared to the $200,000 we've heard—even higher estimates compared to the full treatment of patients. So IJV is reducing costs significantly for the system and the patients compared to what we had expected. If you take the $600,000, the cost differential could be ten times. Depending on the exact numbers, we believe there is a significant difference. We think this will be something that people will look at closely as we move forward. This gives us an optimistic outlook for IGs even in the CIDP segment going forward.

Nuria Pascual, Investor Relations and Sustainability Officer

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

Tom Jones, Analyst

Good afternoon, everyone. I have a couple of questions. Probably one for Alfredo actually. Just a 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 continuing to invest in inventory. When should we expect those drags on working capital to either abate or become a bit of a tailwind to start printing some positive free cash flow? Is this more of a 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 there is a clear path to how you can turn net debt to EBITDA through organic EBITDA growth. But you still need one further whole turn to come from asset sales, which to some degree, is not entirely within your control; you need third parties to play ball on that. So, given that the end of 2024 is only 18 months away, how are you thinking about plan B at this point with the leverage? If asset sales don't come to pass, I'm just wondering what you're considering at this point in terms of trying to hit that four-times target.

Alfredo Arroyo, CFO

Okay. Hi, Tom. Good to hear you again. Regarding the cash flow, if we think in terms of operating cash flow, in Q1, we had 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. Year-to-date, the operating cash flow excluding the restructuring cost has been positive at €72 million. That means in Q2, we have turned into €100 million positive operating cash flow. So if you look at the annexures that we have published, remember, that cash flow free cash flow includes interest expenses, as it starts from net profit. But operational cash flow wise, we have already moved into the second quarter positive; and in the second half of the year, we expect that operating cash flow will keep improving from now.

Nuria Pascual, Investor Relations and Sustainability Officer

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

Victor Grifols Deu, Chief Operating Officer

Well, plan B is we're going to execute on what we've said. We have one transaction that we've announced. As you pointed out, Tom, a significant part of it is operational—from operational performance. So we're very focused on delivering those two factors to get to the four times leverage by 2024.

Nuria Pascual, Investor Relations and Sustainability Officer

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

Guilherme Sampaio, Analyst

Hello, thank you for taking my question. 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 expect in terms of additional savings? And the second question is about plasma collections—how should we think about growth for the remainder of the year? Thank you.

Victor Grifols Deu, Chief Operating Officer

Regarding the cost per liter, as we said, we are currently 20% below peak costs from last year, and we expect that it will decline further, around 25%. This is not based on donor fees, but on other optimization opportunities we have launched to help in improving gross margin. Regarding plasma collections, we are monitoring. We know that there is a high correlation between donor compensation and collections, and we need to ensure we fine-tune collections in terms of volume to support our sales growth.

Nuria Pascual, Investor Relations and Sustainability Officer

Thank you. Next question coming from Alvaro Lenze from Alantra Equities. Alvaro?

Alvaro Lenze, Analyst

Hi, thanks for taking my questions. The first one is on guidance. I believe the increase in guidance provided on top-line growth 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 €1.4 billion to €1.45 billion is not that significant of an increase, so I was wondering whether this is due to good performance in Grifols standalone but worse performance in Biotest. How is the increase in the EBITDA that low with two additional percentage points of top line? Continuing with the guidance, at the last call you indicated 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 translate into 2024? Whether this is just an acceleration of the cost savings or whether this could also imply better performance in 2024? Thanks.

Victor Grifols Deu, Chief Operating Officer

Okay, thanks for the question. To the first point on the guidance for this year. Remember that we have achieved and deployed those €450 million. As I said, since more than 70% of the savings come from plasma costs, it takes time for these to flow through the P&L. That's why we increased from €1.4 billion to €1.45 billion, due to the phasing of savings flowing through the P&L. Regarding next year, we will provide guidance at a later stage and we feel comfortable that we will close the year at a 24% margin; as I said, we have provided pro forma EBITDA for 2023 based on the savings, which is €1.75 billion. Let me first close the year, and early next year, we will update you about 2024 guidance.

Nuria Pascual, Investor Relations and Sustainability Officer

Okay. We have a question coming from Joaquín García-Quirós from JB Capital. Hi, Joaquín.

Joaquín García-Quirós, Analyst

Yes, hello. Thank you for taking my question. It's just a follow-up regarding 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 expect more of a reversal during next year due to the reduced costs from plasma costs? Thank you.

Victor Grifols Deu, Chief Operating Officer

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

Nuria Pascual, Investor Relations and Sustainability Officer

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

Tom Jones, Analyst

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 about the middle of last year that the contract was signed, but I guess I'm trying to figure out when the price headwind drops out of the comparative quarters, whether it's Q3, Q4 or should we wait until next year for it to happen.

Victor Grifols Deu, Chief Operating Officer

As of today, the pricing concessions are going through the P&L. We signed this agreement in Q1 last year, and that is why the gross range of diagnostics is slightly declining. However, in exchange for that, we have secured the largest possible client through a contract extending up to 20 years.

Nuria Pascual, Investor Relations and Sustainability Officer

Okay. And also another follow-up from Jaime Escribano.

Jaime Escribano, Analyst

Hi, again. It's a quick one. Just to ensure I understand Slide 18 properly. You say that the gross margin could increase in the second half to 250 basis points. Although it usually sits at 100, if we take the gross margin of the first half excluding 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%, so 37.5% plus this 250 basis points? Is that the way we should think about this slide? Thank you very much.

Victor Grifols Deu, Chief Operating Officer

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

Nuria Pascual, Investor Relations and Sustainability Officer

Okay, thank you. And I guess here we have one final question, so Peter, you opened and you closed the Q&A session. Can we have your follow-up question?

Peter Verdult, Analyst

Yes, thank you. Just the final question is on innovation. When you did the Biotest deal, Fibrinogen and IgM opportunities were highlighted significantly. I understood the Fibrinogen Phase 3 data was imminent. I think you've cited a H2 event, but trying to push you either Victor or Thomas, when do you expect the data to be in-house or when do you expect to have the topline data available to the market? Also, could you remind us, you mentioned a $400 million to $800 million revenue opportunity at that time, I believe CSL does about $300 million of Fibrinogen sales off-label. Is that still $400 million to $800 million that you believe is the peak sales opportunity for Fibrinogen? Thank you.

Victor Grifols Deu, Chief Operating Officer

Thank you. Yes, we expect to provide data probably starting in early 2024, during the first half. This is the expectation we are targeting. Regarding peak sales, yes, that remains similar to what we have announced.

Nuria Pascual, Investor Relations and Sustainability Officer

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 meanwhile for those of you who have not yet been on holiday, enjoy summer, and we will speak to you soon. Thank you all.

Victor Grifols Deu, Chief Operating Officer

Thank you all.