GVS S.p.A. (GVS) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome, and thank you for joining the GVS Full Year 2024 Results Web Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Massimo Scagliarini, CEO. Please go ahead, sir.

Thank you very much. Good morning, and welcome, everybody, to the full year 2024 result presentation. So another year is gone, and let's see a quick highlight of the number. Growing revenue of 1.5%, and that brings us to nearly EUR 430 million and a very nice growing the EBITDA of nearly 10% to EUR 104 million, with the margin that goes up 24.3%, so with an additional 190 bps versus the previous year. And what I love more is a very nice net income that grew 52% versus the previous year, bringing our net to nearly EUR 50 million. So very nice result in this area. And this brings the margin to 11.1% versus the previous year of 7.4%. And of course, with a strong cash generation, the net financial position decreased to 2.1x in terms of leverage, but with so strong cash generation, has been easy to return under our safety margin that we classify at 2.5x. So some more detail on this number. As you can see on the left side of the graph, the growth has been driven by Healthcare & Life Sciences and Safety, respectively, with 1% and 9.1%. Energy & Mobility suffering in the period with minus 4.4%, but in reality, Energy & Mobility is accounting less and less in the whole group. And moreover, after the last acquisition that we made in January out of blood division -- Transfusion Medicine, let me be correct. So as I mentioned, adjusted EBITDA from EUR 95 million to EUR 104 million, a growth of nearly 10% and the margin from 22% up to 24.3%, confirming that we are good in industrial reorganization, and we are doing the right move and the right activity to keep growing our EBITDA versus our target of 27%. And what I love more on the right side, a very nice graph of our net financial position. I would say that is impressive because if you look at it, in 2022, we were EUR 375 million with a leverage of 4.4x. And today, we are at 2.1x with total of EUR 219 million. So this was a quick presentation, then we enter in other detail, and I will leave the speech to Guido. Guido?

Thank you, Massimo. Now we supplement the finance analysis of the sales -- of the yearly sales as Massimo already anticipated. Our organic growth has been 1.5%, and it's been mostly driven by pricing, the EUR 6.2 million contribution by pricing and a small contribution by volume. This has been partially offset by negative FX, EUR 2.7 million of negative FX. It is linked to a mix bag of currency, not on the U.S. dollar but mostly on Chinese yuan, Brazilian real, Japanese yen and Korean won. Moving to next slide, we see the contribution by each single division. Healthcare & Life Science reported 1% organic growth in the year and the best contributor is the Air & Gas division, plus 13.4%. The growth in Air & Gas has been consistent across the different quarter. Laboratory segment report 1% growth, while the Liquid posted a small decrease of 0.6%. Moving to Energy & Mobility. The organic pro forma was minus 4.4%. And this has been linked to the weak automotive sales, in particular into thermic engine vehicles in Western Europe in particular. Moving down to Health & Safety, 9.1% organic growth. Again, this division was a very consistent growth across the different quarters, and we expect this to continue in 2025. And now I leave the floor to Marco to comment about EBITDA.

Thanks, Guido. Hello, everybody. Okay. EBITDA went up from last year, EUR 95 million to EUR 104 million in 2024. So the EBITDA margin went up by EUR 9 million. In Q4, the EBITDA was equal to the EBITDA in Q3, so around [ EUR 26 million ]. EBITDA margin in the full year is equal to 24.3%, so we improved by around 200 bps versus the previous year. It's the second year in a row that we have improved by around 200 bps. In 2022, the EBITDA was [ 79 ] in absolute terms, and it was 20.4% as a margin of the [ rate ]. So in 2 years' time, we have improved EBITDA margin by 390 bps. The increase in 2023 and 2024 was mainly driven by pricing. In '24, as a matter of fact, we improved pricing by 1.5%, and we expect the same trend also in 2025. Then you see a slight mix -- positive mix impact has generated the strong improvement -- the strong overall improvement of the EBITDA. As already said by Massimo, we are continuously reducing variable costs. So we are continuously improving our plant's efficiencies. These efficiencies are offset by the investments on the organization, on staff people and sales and marketing people to support the launch of new products. Let's go now to adjusted net income. Massimo already said, plus 52% year over year from EUR 31.4 million to EUR 47.7 million. But if we adjust that [ KPI ] taking into consideration, the FX impact generated by the intercompany loans in U.S. dollars, you see you have anyway a strong improvement from EUR 39.5 million to EUR 44.8 million. EUR 44.8 million translated as a percentage of revenue, so it gives you 10.4%. So this means that we are more or less translating, converting 10% of our revenues into cash. This KPI is a value, the proxy of the ability of our capability of generating cash. So please let's remember, this EUR 45 million, I said our capability of generating cash because when you look at the net financial position, you see we are going from EUR 329 million to EUR 219 million. So we improved our net financial position by around EUR 110 million. There are 3 main factors. The conversion of the shareholder loan into equity, the impact is EUR 75 million. And then you have the cash that the company is able to generate on a steady-state around EUR 40 million, EUR 45 million, partially offset in 2024 by extraordinary investments for the new plant in China, [ EUR 8.5 million ]. So the EUR 75 million coming from the conversion of shareholder loan, the cash -- operating cash that we ordinarily generate based on last year's [indiscernible] EUR 40 million, EUR 45 million. That's certainly [ CapEx ] due to the delta, it changes the improvement of the net financial position. I want to highlight one more -- one thing that Massimo already said, the leverage ratio 2 years ago was 4.4x. So we improved the leverage ratio in 24 months by 2.3x, of which only 0.7x is generated by the conversion of shareholder loan, 1.6x came from the improvement of EBITDA and from the cash generated. And now for the conclusion, I give the floor again to Massimo.

Thank you, Marco. Okay. A quick view on 2025. Of course, we are super busy integrating the new division of Transfusion Medicine. That means a lot of job -- regulatory job, a lot of job in the sales, to contact all the customers and to creating the power to bring back this business to what was 10 years ago. So nice and very hard job by our new Vice President, Luca Buttarelli in this area. Finally, we are seeing new products that are coming out in 2025, and this will impact all the 3 division. Of course, we were anticipating this 2 years ago in our industrial plan presentation. But finally, during '25, we will see this new product hitting the market. Don't expect too much in '25 by the new product because the full power will be deployed during 2026. A new organization that we will restructure, the Healthcare & Life Science division will be more oriented toward the sales channel versus the product as we were in the past. But we will see this in the next slide. Now guidance. So mid-high single-digit growth for this year, and we will see an acceleration after the second quarter because this is the timing that the new division, Transfusion Medicine, will need to pass all the regulatory approval. Adjusted EBITDA keeps moving on and growing again 150 to 250 bps because our target is the 27% is where we want to go, and we are moving and working in this direction. Leverage ratio below 2x. So absolutely no problem. A quick view. Yes, this is how we will present the new organization. The reality is, as I mentioned just a few seconds ago, is -- it's more that we need to be oriented towards the sales channel instead of the product. So in the past, Healthcare & Life Science, 3 subdivisions, Liquid, Air & Gas and Labs, now this is changed to MedTech that principally are B2B type of sales or industrial sales, let me say. Transfusion Medicine, oriented to the blood bank, hospital and distributors and Life Science that is through -- all through distributors. So as you can see, it's again more focusing on the sales channel to improve our contact with the market. I believe that this was the last slide. So we are now open to the Q&A section. Thank you.

[Operator Instructions] The first question is from Anna Frontani of Berenberg.

I would have 3 questions. First one, if we can have a clarification on the sales guidance for 2025. This mid- to high single-digit growth, I assume that it factors in the contribution from Haemonetics business, which should come progressively over the year. And then from an organic perspective, what are the assumptions? Is this all assuming pricing? So that's the first question. Second one, I appreciate that Massimo, you mentioned the contribution from new product launches. If we can maybe deep dive a little bit on this, if you could provide some examples and maybe if you can help us quantify the impact on 2025 and 2026, maybe? And then the last question, given that the significant deleverage, if you have any thoughts on capital allocation, can we maybe start talking about dividends for next year?

Thank you, Anna.

These questions are for you, Massimo.

Yes. So the first one is related to the...

No, the sales target '25, the contribution from Haemonetics, and the organic growth.

I know that nobody will be very happy because I will not enter into number in detail about our mid-high single-digit growth for next year. But we want to be prudent. We have a lot of potential in the Haemonetics business, Transfusion Medicine as we have interesting potential also on the organic and more specific on the new product, depending on when they will lead the market, how the market will appreciate that, and we'll react to this. So we can have really a lot of variation on our growth next year. So we really give you today just the real bottom number that will guarantee us a lot of prudence and more important to be the number quarter by quarter. So I know that I don't exactly answer your question, but I hope you understand our position and how we want to publish the number. So the impact of the new product for next year in reality will be marginal. But again, you know better than me. When you launch a new product, the market can react slowly and then accelerated by the time or it can be an immense success from the first day. And then you, of course, you will have a completely different impact in 2025. But I just give you this number. Historically, the new product account for 2% when they are fully deployed. So in 2026, we are expecting an impact of 2% by the new product launch. In 2025, I really don't want to give you any number because I prefer to consider this marginal, again, to be in the prudent side. Yes, absolutely, yes, returning to dividend or returning to dividend or having buyback, for sure, that would be something to be considered at the end of this year. And thank you, and I hope I answer all your questions.

The next question is from Emanuele Gallazzi of Equita.

Two questions from my side. The first one is a follow-up on the guidance and specifically on the EBITDA guidance. Basically, considering the dilutive impact of the recent acquisition, it seems to me that you're expecting a very strong margin expansion for the organic perimeter. Basically in 2025 should be close to 27%. So can you better elaborate on this, maybe providing some visibility on the key initiative to reach this guidance? And the second one is on the Healthcare & Life Science. Basically, we have seen some more, let's say, supportive indication about business outlook in 2025 from leading companies in this sector. I was wondering if you are, let's say, seeing any sort of change in order pattern from your client or is demand is staying at this level.

Okay. So I will answer to your first question, Emanuele. Okay. You are right that in 2025, [indiscernible] the acquisition could be largely dilutive, which means that like for like -- as already said by Massimo, into 2025, our target is 27% adjusted EBITDA margin. So which means improving the current last year EBITDA margin by around 250. How? There are 2 main factors. With respect to pricing, we have improved -- we have increased prices in 2024 versus the previous year. The impact was around EUR 6 million, 1.5% of our revenues. We expect the same impact next year. The second crucial point is Puerto Rico because we have just closed the plant at the beginning of January. There are just a bunch of people there, 13 people if I'm not wrong. And we are moving the production to Mexico. So we are not losing a single euro of production in revenues. The overall impact of reduced fees cost gives you another EUR 5 million, EUR 6 million saving. And so the 2 elements I have just mentioned gives you the explanation of the year-on-year expected EBITDA improvement. I hope I was clear. If not, please tell me.

No, very clear.

Thank you.

So on Life Science, it's slowly going back to its normality. But again, with the geopolitical mess that we have right now, I will be absolutely prudent also because Life Science is a global market. A lot of things are produced outside U.S. and not in U.S. So the geopolitical situation might affect this market drastically. So I would just be prudent on any type of forecast for this year. But in terms of consumption, in terms of market, it's slowly returning to normality.

The next question is from Alessandro Tortora of Mediobanca.

Let's say, I have 4 question, okay, but they are brief. So the first one is on -- let's say, you already mentioned your outlook on the Life Science for the year with this kind of gradual return to normal moderate growth. But can you also comment a little bit on the other 2 divisions? So the Health & Safety, your expectation for this year because you mentioned a good order momentum for this division? And secondly, also, the Energy & Mobility with -- [ burdened ] by the automotive performance. So if you can elaborate a little bit more on the -- your expectation for this year for these 2 divisions? That's the first question.

Okay. Safety, we'll keep going at double-digit growth. This is our vision. And Energy & Mobility, the factor will be to maintain the position, let me put it like this. So try to defend the result that we have reached in 2024 and maintain the same number.

Okay. And then coming back to your comment on the whole blood business and the ramp-up in terms of, let's say, sales contribution. Can you give us or simply confirm your expectation in terms of sales but also on EBITDA? I remember all the cost synergies, you mentioned this. So if you can just confirm what is your view on this whole blood contribution at full speed at regime in the coming years?

So okay. The first part is we are expecting an acceleration from the second quarter on. And this is because there are regulatory rules to be respected. So the customer has to register GVS into their database, et cetera, et cetera. In terms of EBITDA for the current year, you can take the official number that we gave before and then Marco and Guido can give you the details, my expectation much more stronger. But again, which they absolutely prudent on this side. And for the future, my expectation is that Transfusion Medicine will be absolutely aligned in terms of EBITDA margin with the rest of the group at 27%. But if you want to give some more details?

Yes. We already said that in 2025, EBITDA margin just for the acquisition, it's not dilutive, EBITDA margins are around 10%. But just for the current year because the ramp-up is expected in the second half of the year. Next year with the increase in sales, we go through with the efficiencies up and running, we are close to our, let's say, normal group profitability.

Okay. Then the third question is related to, let's say, all the tariff risk announcements, postponements that we are reading in this day. Do you have any thoughts, okay, you would like to share with us regarding any kind of plan B flexibility you may apply in case of tariff are going to take effect?

It's a super complex situation and more for the industrial product, because if, for example, you produce in Mexico, but all components are from different origins or are U.S. origins, you may have a specific treatment. If you reexport the product, so you import in the United States and then the reexport is again another picture. And there is still a lot of [ fog ], still a lot of uncertainty, so it's absolutely very difficult today to have a clear prediction on what will happen and where were will go. The third thing is we have 7 plants in the United States. They are all flexible. So for us, to convert some of this production to existing production that we are doing outside U.S. is very easy and very quick. So we are flexible. We still have the window, we see where the geopolitical will go, and we will adapt as we have done in the past very quickly to the new situation. I believe that and everybody can recognize this to us, we have always demonstrated in every situation, maximum flexibility and adaptability to the change in the environment, and this is giving us a great advantage versus competitors.

Okay. And sorry, a follow-up on this. Is it fair to say that the Macquilladora regime maybe could not protect totally, but it should give you some kind of protection or marginal protection in case of tariff adoptions?

On -- Massimo was referring on the medium, long term, so Macquilladora -- to keep it short, we've seen that the company is very flexible, more flexible than our competitors. So on the medium, long term, we are not concerned about a different target scenario. It's different referring to a very short term because before moving production, we need a stable and certain scenario. Just to give an example, Alessandro. If tomorrow, there is a new announcement, we do not immediately move the production because it maybe the week after it the announcement is reverted. So we are able to -- on a medium term, it's not concern for us. On a -- but we need a stable scenario. Then, of course, if the scenario is decent, why we are not concerned because we can increase pricing, because as Massimo said, we have plants all around the world. But we will not react every a week after a new announcement of the tariffs. Do you understand that? I'm sure it's clear. So on a very short time, we must have a negative impact, but on a short term.

And anyway, if you consider the competitors' environment where we are, majority of them are Sartorius or [ Medico ], they are European. So they are exactly in the same page where we are in. So again, we have the window, we are looking, but we are not particularly stressed because we have a different B plan to be adopted.

Okay. And the last one, let's say, just some quick comments on items like expectation for CapEx for this year, working capital on sales trend. And lastly, I remember, let's say, some negotiation also on the debt side, have conditions. So if you can also give us an indication of net financial charges for the year.

Okay. Our -- we said leverage will be down. We said below 2x. The assumption behind is CapEx at 7% of turnover, working capital stable like-for-like, but we strongly reduced the stock we got from Haemonetics, we got around EUR 30 million stock, will be reduced by at least by EUR 40 million debt stock, net financial charges expected with today to Euribor on average, 3.3%, all the financial debt, which means EUR 3 million less than last year, which mean is EUR 13 million.

[Operator Instructions] The next question is from Christian Hinderaker of Goldman Sachs.

I just wanted to come back on the bridge comment about mix. If you could perhaps elaborate on what was driving that, welcome some comment there. And then I'll come back to the second question.

Sorry -- bridge?

The mix. As we mentioned before, we don't want to disclose too much on the mix because we'll have no sense due to the actual complex situation in one side, geopolitically; in the other side, an acquisition just done. So trying to give perfect number will just be punitive to us. So I believe that the high single-digit is a very prudent figure, and it would be composed one part by organic and one part, of course, by the [ globe ]. We don't want to disclose more in terms of mix. I hope you understand.

Sorry, Massimo, maybe I wasn't clear. What I was referring to is in your EBITDA bridge, the contribution to margins from mix rather than the guidance growth mix, if you will, but I can understand that.

I just got the last part of the mix. So [indiscernible].

We just said that revenues went up mainly thanks to pricing. And we said volume mix, more volume, more or less 0 compared to the previous year. I said EUR 3 million of volume mix on the EBITDA. Why? Because you know that the mix in EUR 3 million, let's say, is not such a big figure. The mix is not usually having a strong negative or positive impact because of our profitability by division tends to be more or less constant. But okay, on top of that, I will tell you that we, as you know, Health & Safety sales went up. We improved by around 10% year-over-year. So the increase of the weight of the Health & Safety gave us a slightly positive mix. That's the story. So mix is generated by Health & Safety going up.

That's clear. Maybe just coming back to -- we've obviously entered a new year. I appreciate pretty volatile demand backdrop still, but obviously, inventory sort of destocking has been an issue for the market for some time. Where do you think customers are with this as we move through 2025? Do we think we're in a sort of more normal environment for sell-in, sell-out dynamics. And then also at the third quarter results, you talked about a distinction in growth between U.S. and European liquid filtration markets. Any comment on how that's evolved? I appreciate that, that's maybe 2 questions.

Two questions. The first question is where we are with the inventory destocking.

The destocking is already gone. I mean it's -- every customer have already absorbed the overstock that we made in 2023. But the true is that everyone pays a lot of attention to the stock. So everyone is very lean. Everyone towards the end of the year want to reduce their stock to increase, to improve the working capital. And so in this year, the real drive is due to the fact that in Europe, mostly we are still under the MBBR registration, so it's not a real moving market in terms of new product, new projects, et cetera, still a little bit slow. On the other side in U.S., there are a lot of new opportunity. So the 2 markets are moving at 2 different speed. So that's why -- and of course, now we have the tariffs and all these geopolitical pressure. So that, of course, is influencing the decision of the company to invest a new project or new venture. So I hope I answered your question.

And can you please repeat the third question, Christian?

Yes. I think the second part was covered. It was more about the growth -- relative growth dynamics for Healthcare Liquids that were called out between Europe and the U.S. last quarter and whether that's changed.

That's fine, thanks.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Thank you very much to everybody to participate at our conference, and see you at the first quarter presentation conference. Thank you very much.

Thank you. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.