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

Good afternoon. This is the conference operator. Welcome, and thank you for joining the GVS First Half 2025 Results Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Massimo Scagliarini, CEO. Please go ahead, sir.

Thank you very much. Good afternoon, and good morning to everybody, and welcome to the first half results presentation of the GVS Group. So a quick highlight on the number. The title to this slide is related to the second quarter of this year because we reached our record EBITDA since 2021. And I would like to remember that in 2021, we were still under the effect of the COVID pandemic. So it's a very nice sign of the track that we are following and a confirmation of the discipline that we have in improving our profitability. Healthcare and Life Science, plus 2.2%. We are a little bit disappointed by this result. Besides being a positive growth, and so this is really good, we are a little bit disappointed. And this is because we have been affected by a disruption in production by Haemonetics that have stopped production for nearly 1 month, and so this has impacted our sales in the second quarter. Plus we have a legacy of 2 big customer of Haemonetics in the hemodialysis sector where we do some third-party work. And beside this not being a very profitable business, is super volatile and is affecting our revenue, but not profit because, as I said, it's not impacting this. But anyway, Guido will give you more details later on these topics. And just to add another point, anyway, we are working on our strategic plan for the next 3 years, and we will address also this point in our strategic plan. Safety. Safety, a nice plus 8.6%, very positive, accelerating in the second quarter and a nice view for the second half. Adjusted EBITDA EUR 25.1 million, so 90 bps versus 2024. And again, with a wonderful second quarter of EUR 26.2 million, 120 bps versus Q2 '24. So we are moving in the right direction in terms of profitability. Adjusted net income, plus 16.2% versus previous year, EUR 26.2 million, increasing the margin from 12.1% versus 10.5% of the first half of the last year. Net financial position, EUR 26.8 million with a leverage ratio after merger and acquisition of 2.4. Now some more detail in reality, I have already spent a lot of words in the first slide. Again, Healthcare and Life Science, plus 2.2%. In reality, and again, we will give you some more on this. But if I extract just the old core business of MedTech, we have growth is correct me with is more than 5% MedTech just in this area. So this -- why I mentioned this because it's a very nice signs that the market is finally moving in the right direction. So we are very positive on this. Energy and Mobility, minus 8.5%. I will not spend comment on this. Everybody knows the status of the market. And so I will move to the safety where we have the 8.6% that I mentioned before with an acceleration on the second quarter and a nice view for the second half. Adjusted EBITDA, plus 4.1% at EUR 54.2 million with a 25.1% margin for the first half. Net financial position, EUR 268 million after -- with a leverage ratio of 2.4 after the M&A activity. Now I will give the speech to Guido for some other details.

Let's move now to Slide #4 to comment the evolution of sales in the first half of 2025. So compared to the first half of 2024, the revenues are up 1.7% excluding the FX impact. So we had a negative FX impact of approximately 1.4% of EUR 2.9 million, and this has been more than compensated by growth both in volumes, EUR 0.9 million or 0.4% and EUR 2.8 million equal to 1.3% growth in price. If you go to the following slide, let's see and let's comment the various trend of different divisions, starting from Healthcare and Life Science. Healthcare and Life Science reported a 2.2% growth, excluding FX. And as Massimo mentioned, it's worth highlighting 2 different factors that impacted on the performance of the division in the first half of the year. The first is Transfusion Medicine. Massimo already anticipated that we had 1 month block in Haemonetics plant production. And due to this stop, we lost approximately 1 month of revenues in the quarter, so approximately EUR 4 million of impact. And this created a sizable order backlog that we plan to reabsorb in the second half of the year and our order portfolio remain very solid. And in addition of that, the completion of the transfer of the production machinery from Haemonetics Tijuana plant to our plant in Mexico, that is expected to be completed by Q3 2025 will help to stabilize this situation. Moving to MedTech. We have this negative 1.5% performance excluding FX. But as Massimo mentioned, this is affected by a sharp decline of our specific business. And this is a contract manufacturing of hemodialysis lines that we have in place with 2 large U.S. customers. It's a legacy from Haemonetics acquisition. This business is low margin, it's not strategic for us and has been -- it has experienced a very high volatility in the last 18 months. In first half 2025, the volumes are down approximately 30%, compared to the first half of 2024. So this translates into an impact of negative impact of EUR 5 million. So net of this impact MedTech division is growing 3.5% in the first half. So there is a 5% difference from -- that is linked to this dialysis business. That means that our core high-margin MedTech business, so the filters, the components is growing nicely. And this is an important message that we wanted to highlight in this presentation. Please also note that in full year 2024, we had already a negative impact of this dialysis business. There was approximately EUR 5 million in the year, so 3% impact versus 2023. And it was again related to this business, these 2 customers. This decline in revenue is not linked to a specific dynamics of the underlying sector because U.S. dialysis volumes, if you also look at the reporting of the listed player are flattish basically. But so this effect is rather a very client-specific dynamic because both customers have internal production capacity and our contract manufacturing only covers the quantity that they don't produce internally. So we consider this business not core. We are now assessing in the context, as Massimo said, in the context of the new strategic plan, how we want to handle this business going forward. So moving to safety now, I mean, a very strong performance, in particular in the second quarter. So we had a strong acceleration in second quarter of sales. Excluding FX in second quarter, we reported a plus 13.8% growth in revenue from the 3.1% of the first quarter. And so I mean we expect this trend to continue in the second half of the year, while the Energy Mobility basically had the same trend we recorded in the first half and is down -- on the first quarter and is down in the first half 8.5%. And now I leave the floor to Marco to comment the EBITDA.

Thank you, Guido. Hello, everybody. 3 slides on the financials now. The first one is on the adjusted EBITDA. EBITDA in the first half of '24 was EUR 52 million. Now we are at EUR 54.2 million. So we are improving by EUR 2.2 million. The main reason being net price. So we increased pricing by 1.3% year-on-year and the amount is EUR 2.8 million. Then FX is negative -- slightly negative EUR 0.2 million, is driven by the trend of the dollar, which fell down by 1% year-on-year against the euro. And slight negative impact is also generated by the Chinese currency going down by 2% against the euro. As for the volume mix, [indiscernible]. Guido already told a lot about that. And then you see on the right side of the slide, [ order ] is 0.1, so negligible. The impact on the change in tariffs is there. The impact has been EUR 350,000 in the first half. In the meantime, we have increased pricing to offset that. Starting from the 1st of July, we increased pricing in order to compensate an assumed tariff increase of 10%. So in July, the impact of the tariff was 0 [indiscernible] from August 15% tariff. This would translate to a deterioration in our EBITDA of EUR 400,000 in the second half, which means in the end same impact as in the first half. So anyway, the impact of the tariff is not so significant, thanks to pricing -- further pricing we are implementing in the second part of the year. As for the EBITDA margin already highlighted by Massimo, we are increasing by 90 points year-over-year, already said by Massimo, the strongest quarter since Q4 2021. Let me say also that in Q1 2025, so last quarter, EBITDA margin was 24.1. This time in the quarter of the current year, we are improving versus the first quarter EBITDA margin by 210 bps. Now I move to the next slide. You see on the left side of the slide, the adjusted net income, which is excluding the FX impact related to the intercompany loans in dollars, which funded the M&A over the past few years. You see in absolute terms, from 22.5 last year, to 26.2. Again, just to keep it short, the adjusted net income or net revenue is 12% roughly, which means that we convert into ordinary cash, 12% of [indiscernible]. And then my third slide is around the net financial position. You see last year, we closed with EUR 219.8 million, let's say around [indiscernible]. We went to EUR 275 million at the end of Q1 and now we are improving versus Q1 by EUR 7 million. Now we are EUR 268 million. You see that in the bottom part of this slide, 2 rectangles. The first is highlighting [indiscernible] impact generated by M&A, the acquisition made in January EUR 49.4 million and extraordinary tariffs EUR 5.6 million which are the extraordinary investment for the new branch in the U.K. and China. If we set aside the extraordinary effects, we have created in the first half around EUR 7 million ordinary cash. This is less than the last year, because this year over the first 6 months, we generated EUR 15 million. And why from EUR 15 million, we went to EUR 7 million. Because you see net working capital deterioration in the first 6 months, EUR [indiscernible]. Let me explain that. Around EUR 4 million is due to the fact we had anticipated the payment of the [indiscernible] from July to June. So it's EUR 4 million and we are recovering all that in the second half. Then EUR 8 million is due to the stock not related to the acquisition. So it is related to the [indiscernible] and I bet that we are recovering that by October. And then EUR 4 million remains around due to receivables and our targets to recover around 50% of that in the second part of the year. So just to say that main impact of the working capital is temporary. So we are going to recover almost [indiscernible] in the second half of the year which translates into an ordinary cash generated in the second half of around EUR 40 million. The EUR 40 million we are going to generate in the second part of the year is not included in the impact of the buyback, which is expected not higher than EUR 20 million. So it's going to be between EUR 10 million and EUR 20 million. And also the EUR 40 million I mentioned is not including extraordinary CapEx for the last portion of the investments for the move into the new plant in U.K. and China and CapEx also related to the acquisition we made at the beginning of the year. And so we are confirming excluding the buyback, leverage ratio of around 2 at the end of the year. Now I give the floor to Massimo for the conclusions.

Thank you. Okay. A quick outlook to what will happen in the second half. So as we mentioned, EUR 350,000 roughly what we paid on the first half for the tariff impact. In reality, we have already negotiated the price increase with all our customers. So we are expecting to recover this on the second half. And of course, this will help also the revenue because price increase will improve the first line. Whole blood, very nice order portfolio. We need to be quick in transferring all the production from Haemonetics facility to our facility so that we will be in full control of the production and we can accelerate and recovery what we have lost in the first half. We are seeing the transfer to be completed by Q3 in 2025. On the guidance, nothing specific. We confirm the mid- high single-digit growth versus the previous year and because we are expecting to recover a nice ramp-up in the second half in the Whole Blood, plus we have the price increase in all the MedTech that is impacted by the tariffs. We have the adjusted EBITDA still confirmed at 150, 250 bps, including tariffs and leverage ratio around 2.2 including the impact of the buyback that we activated 1 month ago. I believe that this is all. And so now we can move to the Q&A to give you more detail on any views you may have on the first half. Thank you.

[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler Cheuvreux.

I have 2 simple questions, let's say. One is, we know that you don't disclose the Delta Perimeter impact, but it's fair to assume that in the first half, it has been around EUR 4 million. And it's also fair to assume that in the full year, it could be the net impact including also the netting of the infra group sales may be in the region of EUR 20 million. This is useful for us just to calculate clearly the, let's say, let's call it, organic growth. And then I would like to have as a second question, a sort of feeling on the trading condition, which you are experiencing in Q3. Clearly, you have done basically flat sales all in all in the first half, including ForEx and everything you have done, plus 0.4%. So just to understand what kind of phasing we should expect for the acceleration in the second half? Are you already seeing including ForEx, including everything, including Delta Perimeter, an acceleration in the third quarter, do you expect to see or is more back-end loaded in the fourth quarter? And then if I may also, we know that we should have a margin impact additional in the second half from the closing of the facility in Puerto Rico, which you in the past guided to happen at some point midyear. I would like to have maybe an update on this -- on how it's progressing this item, let's say.

[indiscernible] quick question, I think your number are relatively accurate. I think we can add a couple of more million as total impact for the full year, but I think the -- you centered the point. And the second question, I don't know if you want...

Something condition about Q3.

Well, again, as I mentioned before, there are different points that need to be evaluated. The first one is the conclusion of the transfer of all the machine and the starting of our production for what regards the blood division. This is going to happen in Q3 '25. So we are expecting to see an acceleration already in Q3 and then the full speed in Q4. For what regards the legacy of the dialysis, again, this is very volatile. It's difficult to predict how it's going. MedTech is running very nicely and is growing very nicely. Life Science is confirming all the results. And safety is also going quite nicely and the vision that we have for the second half already in Q3 is very positive. I believe that Energy Mobility will remain roughly where it is now in terms of revenue. So we are positive already in the Q3, but the blood might affect, let me say, the speed of the Q3. It really depends on when we can close this. The closure of Puerto Rico is nearly done. We are still producing a few small things, but the plant is, I would say, completely empty. There are just 2 machines that are remaining in Puerto Rico. And by Q3, that will be completely closed and so that will bring more profit to the group because we will have less extra cost to managing this plant.

If I may, I want to add one point. How we built our guidance, we need just to replicate in the second half, the Q2 performance as for the old perimeter, very simple. And on top of that, the whole blood needs to report EUR 4 million per month, which is what we have already done between February and May. The only difference between the second half and the first half that we have lost January...

And june.

June. January because we signed the contract at the 14th or 15th of January and June because of we have already explained this [indiscernible]. So the guidance is not something extraordinary. It's just the second quarter, it's the second quarter. Yes.

The next question is from Emanuele Gallazzi of Equita.

I have just 2 quick questions. The first one is back on your tariff topic. You were mentioning an additional price increase. I think in the first quarter, you were guiding for something close to 1.5% price impact. Are you slightly ahead of this? So we should think about an additional price increase related to tariff? And the second one is when I look at the second quarter results, do they include the full recovery of the Monterrey mold issue in the first quarter? And even for the safety, I think that in the first quarter, you were mentioning a shift in order. So the second quarter results include this big order shifted from the first quarter to, I guess, the second quarter.

We can start from the last one. On safety, yes, so we have recovered this. But on top, there were in general acceleration. The very good performance of safety in second quarter is not only linked to this recovery of order loss in the first, but it is really also an acceleration of the business and that's why we are -- we see, as Marco said, that this performance can be potentially replicated in the second part of the year.

The first question was about the tariffs and pricing. Let me say, in the first half, pricing was 1.3%, close to -- very close to. Then we have already implemented new pricing impact around 30, 40 bps on top of the 1.3%. And this has been implemented to completely offset the impact of the new tariffs expect equal to 10% for the good from the to the U.S. So this is what we expect. Now we could assume 15%, so an extra 5%. Up to now, we have negotiated pricing to offset the 10%. So now our commitment is to implement a further 30, 40 bps, but I cannot exclude on top further pricing. I hope I was clear.

Yes. Maybe if I can follow up on your guidance because in the first half, you reached a 90 bps margin expansion. And if I look at the low end of the guidance, it clearly implies a material improvement in profitability in the second half despite, let's say, the top line acceleration should be driven by the M&A contribution, which has a dilutive effect on the profitability side. You clearly mentioned the Puerto Rico, but can you help us understanding a little bit better the moving parts here to have this improvement?

May I just have a word?

Yes.

What is interesting to understand is that the first half in terms of margin dilution for the blood division was the more critical because we are paying for manufacturing the goods for us during the transition from their plant to our plant. What will happen in the second half is that we will start production. So we will not pay any more Haemonetics to produce for us. So that will bring a nice acceleration on the EBITDA margin.

And further info. Let's say that last year in the second half, our EBITDA margin was around 24%. You probably remember that last year, the first half in the second half, we posted more or less the same EBITDA margin, something close to 24%. In Q3 and Q4, now we are telling you we are going to -- so it means that the second half means that the second quarter in the second half, I have an increase in EBITDA of around 200 bps, not the 90 bps we posted in the first half. Then on top of that, Puerto Rico, Puerto Rico closure is giving us further 50 bps because up to June, the difference between July and June, just closing Puerto Rico, it means that we are going to save around EUR 200 every month. these are the main. Then of course, don't forget that it's very important for us to increase volumes. So now we are saying we are assuming to have volumes in Q3 and Q4 aligned with Q2 as for the perimeter, which means that the second half we will see in the second half higher volumes than in the first half. And we are quite sensitive to higher volumes. You remember that if we increase volumes by 1%, we improve our EBITDA margin by 30 bps. But just to keep it very, very short Emanuele, we need to confirm the second quarter performance in the second half.

I think there was a question regarding Monterrey, the production and disruption in Monterrey now.

It's okay. It's -- Monterrey is running smoothly and so no issue on this side.

The next question is from Christian Hinderaker of Goldman Sachs.