Gerresheimer AG (GXI) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the publication preliminary Q1 2026 results of Gerresheimer [Foreign Language] Conference Call. I'm Mathilde, Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Guido Pickert, Vice President, Corporate Investor Relations. Please go ahead.

Thank you, operator. This earnings call is based on preliminary figures for our first quarter 2026. Both Lehmann and Achim Schalk will explain the Q1 2026 performance to you and we'll give you an update on the company development. On Page 1 of the presentation, please let me remind you that the disclaimer you can find there will apply throughout this earnings call, and we assume your content to this. I will therefore not read it out loud. You can download the slide deck from our website under presentations at our Investor Relations section. Now let me hand you over to Wolf Lehmann, our CFO, Wolf?

Thank you, Guido. Before we discuss the quarter, a few comments upfront. With me today is my Board colleague, Achim Schalk, who will present to you our focus and progress towards high-value primary packaging and truck delivery solutions including the sale of our business unit center and primary packaging plastics. As announced earlier this week, Uwe Röehrhoff has stepped down from his position as interim CEO for personal reasons few weeks later -- a few weeks earlier as maybe you anticipate. We sincerely thank him for his leadership and contributions during an important period for Gerresheimer Comparing when he joined in November last year to today, we achieved significant progress, which we will walk you through. The Management Board remains fully focused on the priorities we have communicated: one, completing the announced portfolio transactions, the sale of center and primary packaging plastics; two, reduce debt, strengthening our balance sheet, including a complete refinancing; three, deliver the operational transformation and restoring sustainable, profitable growth. I would like to reemphasize that integrity, compliance and strong financial controllership remain non-negotiable priorities for Gerresheimer. We're completing the additional review procedures required for the final Q1 financial statements, including, amongst others, a, the presentation and disclosure of so-called discontinued operations related to the sale of the 2 business unit Centor and Primary Packaging plastics. And b, the regular quarterly assessment of potential impairment indicators with any such adjustment would be noncash relevant. These procedures are supported by external advisers and are part of our commitment to maintaining the highest standards of financial reporting. We expect to publish the final Q1 financials in September and focus today on the key financial KPIs, which we do not expect to change anymore. Thank you for your patience, and please turn to Page 3 with selected recent company highlights. We have signed the sale of our business unit Centor and Primary Packaging Plastics to [indiscernible]. We expect the closing of the center sale by November 2026 and the closing of the PPP sale in the first half of 2027. Once both processes have closed, we reduced our debt significantly, and expect to have deleveraged to below 3x net debt-to-EBITDA ratio on a sustainable basis. We are working on a full refinancing of our debt and expect that to be finalized once we have closed the sales processes. I want to stress again that this marks a key turning point for Gerresheimer. Our portfolio strategy is clear and we are driving progress using a classic grow fixed cell approach. On growth, we will continue to grow our business units, medical device systems, syringe systems and Tubular Glass North America. Our growth investments are paying off and are delivering results. On fixed, contrary to Tubular Glass North America which is profitable and growing, Tubular Glass Europe needs a full turnaround and restructuring. In addition, we are right sizing our SG&A footprint and processes to match the new reduced size Gerresheimer post the sale of Centor and PPP and be aligned with top-tier competitors. On sale, we focus on fixing, carving out and selling moulded glass. We remain committed to execute the divestiture. However, we still have quite some work to do, improving operations. On our GTO transformation, we're executing and are targeting an improvement in EBITDA totaling EUR 50 million to EUR 70 million. About half of the underlying run rate savings we expect to execute in 2026 and the other half in 2027. By 2028, we target the full benefit in our financials. As expected, Q1 is our lowest quarter in 2006. In our first quarter of this year, we deliberately prioritized cash and working capital discipline. We materially reduced capital expenditures and limited the seasonal inventory build. The associated production adjustments temporarily reduced asset utilization and EBITDA, particularly in moulded glass. This was a conscious near-term trade-off to strengthen cash flow. For the remaining quarters of the year, we expect result improvements supporting a stronger second versus first half of the year. Before we cover first quarter in more detail, please turn to Page 4 with the corrections of Q1 last year. In Q1 2025, the impact of the restatement and other corrections summed up to EUR 1 million revenue reduction from EUR 520 million to EUR 519 million and EUR 10 million EBITDA reduction from EUR 91 million to EUR 81 million. Just like at our last earnings call for the full year, we split the corrections into bill and hold related adjustments and other corrections on the right. The [ BaFin ] investigation is ongoing. Unfortunately, we cannot comment on the timing, yet we continue to fully cooperate with the authorities to ensure transparency, support of the process and drive progress towards closure. We will continue to ensure that our 2026 accounts are correct and that will provide those to the highest standards, even if this takes more time than usual, I will take you later in the presentation through the latest targeted reporting time line of our quarterly financials. Now turn to Page 5, please, for a deeper look at our first quarter performance. In first quarter 2026, as promised, we very much focused on cash. We have CapEx spending and we reduced our inventory build up significantly compared to last year's first quarter. We manage production volume carefully, including prolonged temporary production halls at some of our production sites to avoid inventory buildup and related cash consumption. This was a conscious choice and came at the price of lower capacity utilization, resulting in lower EBITDA generation. As a result, revenues in the first quarter 2026 grew slightly by EUR 5 million, while EBITDA went down by EUR 15 million. However, free cash flow before M&A improved significantly by almost EUR 110 million year-on-year to minus EUR 32 million. Again, this was mainly driven by an inventory buildup of just EUR 5 million, which was EUR 41 million lower than first quarter '25 and a sizable reduction of net CapEx to EUR 56 million, which represents a EUR 57 million reduction or half compared to the same quarter last year. Please note that this represented the best free cash flow figure in any first quarter since 2019. With this, I'd like to hand over to Achim to explain our progress towards [indiscernible] solutions and results of our segments. Achim, please.

Thank you, Wolf. Please turn to Page 7 for an overview of our portfolio measures. As highlighted, we have signed an agreement to sell our business unit Centor and Primary Packaging Plastics to an affiliate of funds advised by [ Apex Partners ]. Under the terms of the agreements, [ Apex ] funds will acquire a total of 15 production sites from Primary Packaging Plastics in 9 countries in addition to the production side of Centor in the U.S. The purchasing price is based on an enterprise value of approximately EUR 1.5 billion. This is a great step towards deleveraging, targeting a sustainable leverage of below 3x EBITDA. In addition to that, we will continue to target the sale of our moulded glass segment. The future portfolio of Gerresheimer will be concentrated on high-value primary packaging and drug delivery solutions where technological expertise, regulatory requirements and long-term customer partnerships create meaningful differentiation and barriers to entry. Medical device systems and syringe systems provide attractive growth opportunities. While the transformation of Tubular Glass is intended to improve profitability and its competitiveness. Combined with lower leverage and a leaner cost base, this should support a more resilient margin and cash flow profile over time. Let me take you through the results of our new segments on Page 8. Containment and Delivery Systems achieved organic revenue growth of 8.8%, therefore, revenue increased to EUR 296 million in Q1 2026 from EUR 281 million in Q1 2025. The main driver of the revenue growth was the performance of our business unit Medical Device Systems with the ramp-up in Peachtree contributing positively. In addition, we saw a very positive performance for our Eastern European plants. The business unit, Primary Packaging Plastics or PPP as well as Centor were approximately flat year-over-year. In Q1 2026, the adjusted EBITDA of the whole segment grew to EUR 61 million from EUR 51 million the year before. This reflects the contribution from higher Medical Device System volumes and the benefit of resource reductions implemented in advanced technologies. PPP and Centor were broadly stable year-on-year, while cash and inventory measures also temporarily affected PPP earnings. With that, let's move to Slide 9, and our segment report on Primary Injectable Solutions. In Primary Injectable Solutions, our PIS, strong growth in syringe systems more than offset lower revenues in Tubular Glass Europe and Asia at the top line level. Total revenue of the segment grew to EUR 101 million from EUR 94 million with 14.2% organically. Adjusted EBITDA declined by EUR 1 million to EUR 6 million, reflecting the lower contribution from Tubular Glass Europe and Asia. We have changed the divisional leadership and initiated a restructuring plan focused on footprint optimization, operational excellence and SG&A savings as part of the GTO program in Tubular Glass Europe. Now let's move to our third and final segment, Moulded Glass on Slide 10. For this, I hand over back to Wolf.

Thank you, Achim. In Moulded Glass, lower revenues resulting mainly from the furnace repair and Chicago Heights and lower revenues from pharma containers or liquids in combination with weak market demand in the area of cosmetics. This led to a decline of revenues to EUR 144 million in the quarter, down from EUR 160 million the year before. Adjusted EBITDA in first quarter '26 declined over proportionately to EUR 6 million from EUR 32 million in Q1 '25. As explained upfront, this was mainly driven by our strong focus on cash, achieving a much lower inventory buildup through rigorous production volume management, including extended temporary production [indiscernible], which combined with lower revenue led to an underutilization of assets in Q1 this year with a high fall through to adjusted EBITDA. To improve our performance in this space, amongst others, we have initiated the closure of the Chicago Heights plant in first quarter, which we target to complete in the fourth quarter of this year. The qualification of our U.S. customers for delivery from our type 1 plant in Italy and India would carry on. Furthermore, we have a comprehensive set of transformation GTO measures in moulded glass to improve operational performance. We have upgraded our moulded glass leadership team with our new Moulded Glass CEO, [ Daniel Winkler ], to drive and accelerate the transformation. Let's take a look at the overall cash flow for the company on the next page, Page 12, please. The main drivers for the development from the EUR 66 million of preliminary EBITDA in the first quarter of 2026 to an operating cash flow of EUR 25 million were the changes in net working capital and our interest payments. On net working capital, as explained, we successfully managed to limit our inventory build up to EUR 5 million compared to EUR 46 million in first quarter '25. Our payables went down by EUR 54 million, around half driven by less reverse factoring lines available to us due to our lower credit rating at the beginning of this year. Collections worked well with EUR 46 million receivables reduction. On interest, on average, we paid around 4.4% interest on our gross debt of EUR 2.2 billion, resulting in a net interest payment of around EUR 16 million for the quarter. On CapEx, as mentioned earlier, we significantly cut CapEx in half to EUR 57 million from EUR 130 million in the first quarter of 25%. Please note that despite our better and very rigorous capital allocation, we spent EUR 37 million or 2/3 of the EUR 57 million total CapEx for growth projects. The operating cash flow of EUR 25 million less the CapEx spend resulted in a negative free cash flow before M&A of EUR 32 million. As mentioned, the best first quarter cash flow results since 2019 and more than EUR 100 million better versus first quarter last year. Our cash flow was paid off. On Page 13, I'll give you an update on our capital structure and financing status. On the left-hand side, you see our net financial debt of close to EUR 2 billion and our liquidity of EUR 342 million. This very solid liquidity level is fully sufficient and compliant with the covenants agreed with our banks under our stabilization agreement. On the right-hand side, you can see our maturity profile. Maturities at the end of this as well as at the end of next year will be more than covered by the expected proceeds from the divestitures of our business unit Centor on PPP. This gives us a very solid base for our debt refinancing, which we are executing with the support of our financial adviser, [indiscernible], and of course, with the continued strong support of our current group of banks and debt holders. Please turn to Page 14 for an overview of our upcoming events. On Tuesday of next week, we will be holding our Annual General Meeting. In September, we target to publish our final Q1 financials. In November, we expect to publish our half year results as well as our Q3 report. On the right-hand side of the page, we show selected investor relations events. And during September, we hope to meet you in person at one or the other of the listed investor conferences. Please turn to Page 15 for our closing remarks. Achim, please?

Thanks, Wolf. And let me close with the 3 priorities against which we expect to be measured. First, we will execute the Science Centor and PPP transaction on time and will use the proceeds to reduce leverage and support the refinancing of the group. Second, we will deliver the operational transformation, including the targeted EUR 50 million to EUR 70 million annualized EBITDA improvement with implementation across 2026 and 2027 and the full run rate impact expected from 2028. Third, we will continue to reshape the portfolio with the preparation of Moulded Glass for divestiture. However, as Wolf mentioned, there is still a lot of work ahead of us to do so. These actions are designed to, over time, create a more focused Gerresheimer with lower leverage, a linear cost base, stronger cash generation and attractive positions in high-value primary packaging and drug delivery solutions. With that, I pass it back to Guido for our Q&A session. Guido please.

Thank you, Achim. Operator, please open the floor for the Q&A session. .

[Operator Instructions] The first question comes from the line of Oliver Reinberg from Kepler Cheuvreux.

Three questions from my side. First, on this transformation savings of EUR 50 million to EUR 70 million. Can you just talk to, is there any change to that? Because when you talked about earlier 200 to 400 basis points overall, I thought it's a bit more like EUR 50 million to EUR 100 million. So just get in any color. Has there anything changed? Secondly, can you just provide some kind of details what actually happened in tubular glass, what these issues are? And thirdly, I wonder if you can provide any kind of sneak preview of the future of Gerresheimer. I mean you will basically sell down half of the kind of business. What is actually the next step beyond that? And can you provide any kind of comment on the search for a new CEO?

Thank you very much, Oliver for the 3 questions. I'll take the first one. transformation savings. Yes, quite frankly, nothing has changed here. the EUR 50 million to EUR 70 million that we are referring to, indeed, are somewhere worth around 200 to 400, 250 to 400 basis points margin improvement. Nevertheless, here, we're taking into consideration that Centor and PPP are divested. As such, you need to take the EUR 50 million to EUR 70 million rather to a reduced portfolio of roughly EUR 1.8 billion of sales. And then that margin improvement point range that you quoted Oliver is correct, right? . Tubular Glass, maybe I hand it over to Achim, that's in his basket.

Yes. Thanks, Wolf. Thanks, Oliver, for the question. On Tubular Glass, specifically in Europe, obviously, we have a comparably complex footprint of smaller plants, while the business is largely successful in the U.S. and North America as well as in China, there is necessity of restructuring and reshaping the footprint as well as refocusing the portfolio within Europe.

Great. And then maybe I take or start with the third question, which was on strategy, future of Gerresheimer, et cetera. I think we can only reiterate that both the divestiture of Centor and PPP as well as what we mentioned in terms of moulded glass, preparing carve-out, preparing divestiture is still lots to do to be very frank, a lots to do, but still strategically divestiture of moulded glass will continue to drive to focus on high-value primary packaging solutions as well as truck delivery solutions. That's where Gerresheimer is going. That's where all our strategic work is aiming for, and that's the future of Gerresheimer.

Yes, I think I wanted to add, Oliver, on your question. Obviously, that's not in the management board's hands, but in the Supervisory Board's hands, and we will hear from them going forward.

The next question comes from the line of Falko Friedrichs from Deutsche Bank.

Firstly, you have not mentioned the full year guidance in your presentation. Is the adjusted EBITDA margin target still realistic after these Q1 results that were significantly below it. Then my second question, were you able to sustain your market share while you were in cash preservation mode earlier this year? And my third question is, could you give us an indication on how much of the Tubular Glass business is in Europe? And how much is coming from the U.S.?

Thank you, Falko. On guidance, correct, we're not commenting on guidance because there is no change on guidance. As such, guidance is intact. What we did comment on obviously is that step by step by step, we do see an improvement in second half versus first half, and we do see the first quarter results clearly in the low point of the year, right? Market share, that would take a little bit longer here, really, as you -- as we commented on the different segments, clearly, some grew nicely. For example, what Achim walked you through. On the other hand, in moulded glass sales went down. And as such, that the [indiscernible] basket we're happy to set up a follow-up meeting with you on that. Then in terms of moulded, I think your question, Tubular Glass. Achim, maybe you can answer that.

Yes. Normally, we don't share details around the split of the regions. But clearly, the European region is much smaller than the U.S. .

We now have a question from the line of Olivier Calvet from UBS.

Wolf and Achim, just a couple left for me. Maybe just starting with the EBITDA margin levels, obviously, you're using new segments. We had some disclosures in June with your full year report. But we still have some pretty big deviations in margin levels, also from the comparative period relative to the averages you've shown over the full year. So I just wanted to ask if you could perhaps give us some color on the margin developments you saw last year as a basis for forecasting for us for this year, perhaps in each of the segments. If you're able to do that. And then secondly, just curious if you could give us a sense of the level of total CapEx you expect for the year. So I think base CapEx, if I recall correctly, you were calling around EUR 100 million or so. And just to give us a sense of how much growth CapEx as well, you expect on top of that?

Thank you very much, Olivier. I'll start with, I think, the first question, which was EBITDA margin development. And I think the question out there or where you have the largest deviation year-over-year is moulded glass. So why don't I start with moulded glass, and we take it from there, which also clearly had the biggest impact on the total Gerresheimer results. So quite frankly, to understand the EBITDA decreased year-over-year from first quarter EUR 25 million or EUR 32 million to first quarter [indiscernible], one has to normalize to ensure an apples-to-apples view. So Olivier, if you don't mind, let's start with first quarter '25. In the first quarter '25, as I mentioned, we increased inventory for the total company by EUR 46 million, and a good part of it was a moulded glass, which has favorably -- has a favorable P&L impact. So from the EUR 32 million EBITDA margin in the first quarter, I think you have to normalize around EUR 12 million or so. So you go from EUR 32 million minus EUR 12 million to EUR 20 million as a normalized level for first quarter '25 for the inventory buildup. So if you take then the EUR 20 million year-over-year, I mentioned that in moulded glass, we have faced around EUR 16 million lower sales impact. So that is around, I would say, EUR 8 million to EUR 10 million lower EBITDA comes out of that, especially since the sales decrease was in the higher-margin areas of pharma and cosmetics. So you go normalization, inventory build from EUR 32 million to minus EUR 12 million to EUR 20 million. And then really for lower sales, you go from EUR 20 million to roughly EUR 10 million to EUR 12 million first quarter last year, apples-to-apples view. The remaining EUR 4 million to EUR 6 million or so that to complete the walk to the EUR 6 million that we achieved in moulded glass in the first quarter, '26, that is really negative cost leverage due to the low capacity utilization, it's a bit of mix and some other cost and efficiency items. That, I would say, completes the walk. So in summary, of the EUR 32 million to EUR 6 million difference or EUR 26 million on a normalized basis, yes, around EUR 12 million is very strong cash management and inventory management in the first quarter of this year. EUR 8 million to EUR 12 million is volume related with pharma and cosmetics, including some mix and the remaining EUR 5-ish million or so is negative cost leverage, low capacity utilization, all of which I think are addressable. So I think one thing is to describe the first quarter. But if you don't mind, Olivier, I'll give you also a little bit what's going on in moulded glass going forward in terms of improvement of EBITDA I'd like to point out 5 drivers. One, I mentioned already, first quarter is seasonally our lowest sales quarter. Number two, we got A good part of our inventory reduction completed, some more to come, clearly, yet not with an as high impact as we have seen in the first quarter over first quarter last year. Number three, market recovery. As mentioned, especially pharma and cosmetics, were down year-over-year, which we do expect step-by-step, a gradual recovery towards the end of the year. Number four, mix, with the pharma and cosmetics, are higher-value products, whether as food and beverage, thus the recovery in those markets improved mix. And finally, number 5, very important in the transformation, which both Achim and I walked you through EUR 50 million to EUR 70 million EBITDA improvement for the total company fully by 2028. And I would say of that EUR 50 million to EUR 70 million, let's say, 1/3 even up to half of this is potentially moulded glass. And a good example of this is closure of our site at Chicago Heights, where we'll [indiscernible] EBITDA and cash over the last year, clearly. So in summary, those 5 drivers we are focusing on, those will help to improve results at moulded glass step-by-step, lots of work ahead of us. We have our hands full, yet our moulded glass team, [ Daniel Winkler ] is up to the challenge, yes. Quite frankly, I think moulded glass is very sensitive to the story of the first quarter and the margin impact. I'm not sure of, if you need the same picture here, in also the other segments up to you...

But we had the positive not only on containment and delivery systems, where we've been able to improve margin by more than 2 points. Despite the strong measures that we also took, especially in PPP on the inventory side, and we expect that margin to further increase through the year. And if you look at primary injectables, where margin was more or less flat. We also see recovery opportunity as we flagged for the second half of the year. And I think your second question was around CapEx, so for the full year, we still continue to invest and we split CapEx almost 50-50 in maintenance CapEx to restore the performance of our plants and productivity and 50%, we will continue to invest in growth.

Yes. No major change there, Olivier, you can do the math. Thank you.

Okay. And just if I can really appreciate the color. Just if I can come back to the levels you've published for the new segments in 2025. So from what you're saying, it sounds like sort of the EUR 20 million [indiscernible] in moulded glass as a base for Q1, and then essentially, you posted EUR 87 million for the full year. So no specific seasonality or any big moves that you -- so as you're redrawing the segments, is this kind of the question I was getting to. And similarly for the other segments, just trying to understand a little bit how you're thinking of their potential seasonality, right, thinking of primary injectables in particular as well?

Yes. I think, Olivier -- so I think the numbers that we put there for first quarter, as we mentioned, adjusted for [ Bill and hold ] as well as the other corrections. So that's why that -- all of those adjustments and the cleanup work, which we're completely done with that's included. And then secondly, in terms of seasonality, I think, as you know, the first quarter, as I mentioned, is our seasonal weakest quarter. Because as you know, we're -- you have to one difference, so for us, the first quarter, it is December, January and February, and those are in many areas. Those are just weaker, slower business activity month. And furthermore, I think we provided guidance and we just walked you through improvement that are underway. So where we clearly see that the second half of the year is stronger than the first half of this year, right? So that gives you hopefully some flavor for seasonality margins you have, and we gave you some indication on various matters that we're working on.

Yes. Just a final one, sorry, but just on Primary Injectable Solutions, right? You basically you've posted in Q1 last year, EUR 7 million EBITDA. You did EUR 70 million over the full year. So just wanted to understand how the year shaped up last year, right, as those are new segments.

I think, Olivier, traditionally, Q1 has always been the weakest and Q4 being the highest with a little bit of a dip in summer, so the third quarter. So we expect definitely a much stronger second half also for Primary Injectable. Yes. And then, Olivier, we ask for your patients as promised, every time that we publish a quarter for this year, we'll give you again the full transparency towards the same quarter last year. As you know, we've adjusted the full year for all [indiscernible] and all the corrections. And then we now, every time we provide transparency towards exactly that picture for the same quarter last year. So we ask for your patience. And then when we discuss second quarter first half we can go into this in more detail.

The next question comes from the line of Delphine Le Louet from Bernstein.

Thank you very much both for the visibility you're giving us. But just to be sure and fully clarified on my side. When we think about the other impacts that we have on [indiscernible] the revenue and the adjusted EBITDA. Is it strictly linked to what we discussed about the moulded glass division? Or is there any other stuff we need to keep into the consideration? And secondly, previously, you were talking a lot about the ramp-up in Peachtree. Can we know exactly where we are now? How we are in terms of efficiency and yield. And if you do have anything for us to think about the rest of the year?

All right. I hope I got the question correctly. So I'm on the cash flow page where we show adjustments. I think that's probably what you're referring to where we do...

Yes. I was more referring to the other, which is on the beginning of the page for the adjustment in between Q1 -- I mean, Q1 '25 and the new restated Q1 '25. So we have minus EUR 15 million on the EBITDA coming out from the quarters and so, yes.

Thank you very much. I think we won't provide all the line item details but already when we did the overall adjustment and restatement, we mentioned on the one hand side, you have bill and hold. And then in the other bucket, you basically have all our accounts, whether it is rebate accruals, other accruals, evaluations and, and, and. And as such, you clearly see bill and hold the balance between revenue impact of EUR 11 million and EUR 5 million adjusted EBITDA impact is kind of what you would expect. Obviously, in the other bucket, you have some adjustments, [indiscernible] that, yes, impact revenue, like I mentioned, for sample rebate accounting or other matters. But then you have also items that are purely having an impact on EBITDA, on earnings, but not on revenue, such as, any inventory accounting or accruals or Dutch matters, yes. We scrapped fulsome through all the accounts and all of that is captured in this view. Good question.