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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the GVS 9 Months 2025 Results Conference Call. 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 afternoon and good morning, and welcome to the 9 months 2025 results presentation of the GVS Group. A quick snapshot on the main number. Healthcare and Life Science, a nice growth of 4.8%, excluding FX and the U.S. dialysis and safety revenues plus 8.5% year-on-year, so nice speed of both division. Adjusted EBITDA margin at nearly 25%, so plus 60 versus the 9 months 2024. Adjusted net income net of FX at plus 7.2% versus the previous year to EUR 36.3 million, increasing the margin to 11.5% from the 10.5% of the 9 months 2024. Net financial position, EUR 271 million as of September '25 with the leverage ratio post M&A at 2.5. Leverage ratio, 2025, excluding the extraordinary effect of M&A and buyback at 2 versus the 2.3 of the previous year. Now, a little bit of color on the number that I just mentioned. As we can see, Healthcare and Life Science, a nice growth of 4.8%. Of course, if we include the dialysis, the growth is 0.5%. Energy Mobility at minus 10.8%, but this is a troubled market we know, and so we are waiting for a stabilization of this number. Safety, nice plus 0.85% and this confirmed the speed of this division. Adjusted EBITDA, nearly 25% at EUR 78.7 million with a growth of plus 0.8% versus the previous year. The net financial position, you can see in the dark blue line, the net financial position with the extra effect of M&A and buyback and the light blue, the same net financial position, but without the extraordinary effect. Now I will leave the speech to Guido that will give you some more color on this number.

Thank you, Massimo, and good afternoon to all of you. Let's move to the variance analysis of the 9-month sales. The first effect is the FX. We have a negative impact of EUR 6.9 million related to the depreciation of the U.S. and Chinese currencies. Then in terms of volumes, recorded minus EUR 3.7 million, and this is the effect of several different trends. The first is the positive contribution of M&A for EUR 9.6 million in the 9 months, and this is partially offset by almost EUR 8 million, EUR 7.9 lost volume loss related to the U.S. dialysis. This is a concept that we have introduced in the last call and the trend in the third quarter is basically continuing with the same pace of the first part of the year, and then the other volume losses is related to the mobility sector. Then on the positive side, we have a positive contribution in terms of pricing, EUR 4 million, and this increase includes also some reaction that we have implemented after the introduction of the tariff second quarter and third quarter of the year. Moving to the different division. It's worth highlighting that the main effect again that have influenced the MedTech in Healthcare and Life Science is again the U.S. dialysis business. Net of this effect, the MedTech in the 9 months recorded performance is overall stable compared to the 9 months of 2024. Safety business is growing at the same pace of the first half of the year, so plus 8.5%, very stable growth trajectory, excluding FX. Finally, Mobility is still affected by a negative sales trend of around 11%. Now I'll leave the floor to Marco on the EBITDA trends.

Thanks, Guido. Good morning, good afternoon, everybody. Here, EBITDA. EBITDA margin, you see is going from 24.3% last year to 24.9%. So around 700 bps accreation. In absolute terms, EBITDA is going from 78.1% to 78.7%. The main drivers are negative impact of FX year-over-year. The U.S. and Chinese currency are going down by around 3%. Volume effect negative already said a lot by Guido about that. Mix, I would say something about that. Mix is negative because it is by the recent acquisitions last January. Now the production of the products, let's say, both by Haemonetics. From Haemonetics are currently produced by Haemonetics. The marginality is currently lower than the average profitability of the group. Pricing, okay, already said by Guido, 1.4% year-over-year. Then there is a positive EUR 1 million, which is given by the fact that now we are projecting that we are going to pay next May around EUR 7 million as for short-term incentives to the management. Last year, we paid around EUR 8.5 million, so we are decreasing the projection. Why? Because we are -- because we are the expected EBITDA. By the way, we will give some comments on that, but let me say that the expected EBITDA for the full-year is around 25.5%, even slightly above that. It means that we are projecting to improve year-over-year by around 130 bps EBITDA margin. Then adjusted net income, as usual, we focus on the right portion of the slide. You see the box with a broken line square. The adjusted net income, excluding the FX impact generated by the intercompany loans in U.S. dollars. You see that year-over-year, we are increasing by 7.2% the adjusted net income from 36.3, and more importantly, I want to stress the fact that the adjusted net income as a percentage of revenues is equal to 11.5%. It was 10.5% last year, so this means that we convert into cash 11.5% of our revenues. When I say cash, it's cash after taxes and interest paid to the banks as well. Then net financial position and the leverage ratio. Leverage ratio is going from 2.1 to 2.5, but as already highlighted by Massimo at the beginning of the call, we should offset the extraordinary effects coming from the acquisition, EUR 49.4 million, the extra 2 new plants in China and U.K., EUR 8 million and the buyback shares buyback EUR 7.6 million. These factors are recapped inside the box with the blue line. On the right, you see the ordinary cash generated by the company in 9 months, EUR 13 million. It's EUR 13 million notwithstanding the negative trend of the working capital, EUR 20 million. Let's say that over the first 9 months, negative trend of the working capital is, let's say, normal is given by the ordinary trend of the business, so it's seasonality. EUR 20 million is a lot too much. I would have expected EUR 5 million, EUR 10 million. We are going to recover working capital, net working capital between October and December. If we see the same slide in 3 months' time, you will see that we are going to show a net working capital trend 5 or close to 0. We expect a strong generation of cash in the last quarter. That's why we expect a net financial position being equal something between EUR 245 million to EUR 250 million at the end of the year. We expect a leverage ratio of around 2.2 at the end of the year, notwithstanding buyback and all the extraordinary effects we have already mentioned. Now, I give the floor back to Massimo.

Current trading, as we mentioned, finally, we have completed the transfer of all the machine to -- from plant of Haemonetics to Monterrey Reynosa our plant in Mexico. We are dismounting now the last machine, but all the other machines are already fully operative in Monterrey and Reynosa. It's very important because finally, we will not have any more Haemonetics producing for us, but we will be independent, and we will be able to drive the speed of production. Puerto Rico finally, formally closed in October 2025, so no more cost delivered by this plant. The formal opening of the new U.K. and China factory, and so finally, the stop of this extraordinary CapEx that we have seen in the last year. New hydrogen membrane production line fully operative, and we are sending out products to our customers for initial validation. Guidance 2025. Sales, low single-digit growth, excluding FX versus 2024. Adjusted EBITDA confirmed 100, 150 bps versus the previous year, leverage ratio around 2.2%, including the impact of the buyback. A quick view on 2026 because we are working now on next year, and so it's interesting to see what is our vision for the next 12 months. MedTech. Finally, we have a ramp-up of new products, and this, as we have anticipated already 2 years ago, we had product development that will be launched next year, and that will support the organic growth of this division. Transfusion Medicine, as I already said, finally, we are independent, and we are driving the speed of our production, so that will allow us to recover the big delay that we accumulated during 2025, but plus super important will allow us to improve the marginality of this division to the group marginality. Life Science, we are working new agreement with big distributors in U.S. and in Europe, and that will definitely drive the growth of this division, plus the building of distribution hub in strategic market to be able to have a quick delivery to the customer. There are a lot of activity going on in this division, and that will pay back. We expect a payback on next year. Safety, keep growing, gaining penetration and market share. Of course, this based on the new product launch on '25 and the new product that will be launched on '26. Mobility, we see a growth on the electronic subdivision, the one related to electric vehicles because there are different applications that are in launch phase. Of course, the first sales of the new hydrogen membrane. This was a quick outlook on next year. I believe that now we can go to the Q&A session.

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

Two questions. The first one on U.S. dialysis. Do you have visibility on when we can expect a normalization in volumes? Second question is related to the new guidance. Can you please explain what changed and what prompted you to change your expectations for '25? Maybe if you could, Marco, bridge the change for every line that you revised compared to previous guidance?

Dialysis is a very complex situation because we have a contract with where we have defined a minimum quantity, but the point is that the customer until today was not able to produce internally, so it put on us a very big number because the production was not having any output. Now, the customer is gaining speed on their internal production, and so that's automatically decreased our share on the total production. This is still up and down, so not easy to predict. Anyway, I know that from the revenue point of view, it is not nice, but being non-margin, non-profit business is really not impacting on the group result and the group outlook for the future. Then the second line...

Question on the dialysis for each line is the variance, okay. Let's say, I would make comments on revenues and EBITDA, if it's okay for you. As for the revenues, we said mid- to high single digit. If you take a midpoint of the original guidance, you would translate that into EUR 465 million revenues. Now we are saying low single digit between 2% and 3% means EUR 430 million more or less. There is a EUR 35 million gap. More or less, there are 3 main reasons behind the deviation. 1/3 is coming from FX, because our budget was assuming U.S. dollar FX 1.10. Now the first 9 months, we were at 1.12 and we are [EUR 1.7]. More or less EUR 12 million are FX. Then another 1/3, so more or less, again, EUR 12 million are coming from the volumes driven by the acquisition, because we lost more or less 2 months production, 1 month because we closed the acquisition in January instead of December last year. Then we had a very troubled Q2. More or less, we lost 1 month production also in Q2. 1 month means EUR 5 million. 2 months are more or less EUR 10 million. The third reason is we said dialysis, dialysis year-over-year, across 12 months, we are losing more or less EUR 12 million. These are the 3 reasons behind the deviation of the sales.

Let me add one thing. This is the reason why for us, it was important to highlight that the core of the business is growing and so it's more related to the dialysis business and the delay generated by the production of the transfusion medicine of Haemonetics that generated this slowdown in revenue. It was important to highlight these 2 points.

Okay. Thanks. As for EBITDA, I will try to be as accurate as possible. The original guidance was EBITDA margin increasing by EUR 200 million to EUR 250 million year-over-year, which means EUR 150 million to EUR 250 million. The original budget was showing EBITDA of around EUR 122, which is the midpoint of the guidance. It means that now we are going from EUR 122 million to EUR 110 million, so the deviation is EUR 12 million more. Tax around EUR 2 million. Then we said the volumes. Volumes from the acquisition, okay, they have a slightly lower gross margin compared to the average of the group, but in a way, losing EUR 10 million, EUR 12 million means around EUR 3 million on the EBITDA. Then dialysis, more or less the same metrics. Then apart from the volumes, we said the -- as for the acquisition, we moved all the machinery from the Tijuana plant Haemonetics into ours now. We have just completed the movement. The assumption of budget was to complete the movement by July more or less. Then Puerto Rico, we have now completely closed the plant -- was to complete the closure in June, July. Let's say, the late movement of the extraordinary activities has been completed a few months later, and the impact was more or less EUR 2 million, EUR 3 million. This is a brief recap, but I hope also accurate of the bridge between the new guidance and the old one.

The next question is from Emanuele Gallazzi of Equita.

From my side, 3 questions. Let's start with the, let's say, early outlook for 2026 and specifically on the MedTech. You basically mentioned that the new product to drive growth in 2026. I was just wondering if you are seeing, let's say, a more normal approach from your clients, specifically in the Medtech. Still looking at your outlook for 2026, just a clarification on the safety and mobility. if I understand correctly, are you expecting, let's say, a high single-digit growth for the safety, so more or less in line with the trend seen in 2025 and a slight improvement in the mobility? Final clarification is still on the guidance. Thank you, Marco, for the details on the, let's say, the moving parts. Just looking at the guidance, basically, in the first 9 months, you were up 70 bps in terms of profitability, and you are now guiding for 120 bps for 2025, meaning that the fourth quarter should be really strong in terms of margin expansion. Can you just give us a little bit more details about this improvement, strong improvement expected in the fourth quarter? I guess, related to the Puerto Rico, but anything to add would be useful.

The first one was the med tech growth, what is the client feedback from customer and what kind of trend are we experiencing?

Again, isolating a bit the dialysis is an exceptional situation, and we have to deal with it. No, I would say that on the med tech market, it's now stable, and there is a slight positive improvement in this market. Again, there are 2 different speed. If I look at the U.S. market, there are a lot of new projects -- launch of new products. There is a very nice movement in this market. Europe is still penalized a little bit by the MDR certification that have slowed down all this market. If I put all together, I would say that I see a positive trend on this division. Of course, supported by new product launch that could make a difference on the growth for next year.

The second one was the safety. I was asking if the high single-digit growth of the safety.

Yes. Safety, absolutely, it's keeping the high single digit. They have new product to launch on next year too, and there are products that have been launched in 2025 that will be fully in effect for next year. Plus it's like a snowball, more visibility we have in the market, more penetration we have, more visibility we have, and so it's more easy for the customer to jump on our products and to switch from the competitors to our products. We are not expecting a change on the speed of safety. Mobility, I am expecting personally a stabilization of this market. I know it's still early to say something like this. I am kind of optimistic, let's put it in this way. I am expecting a more clear view on next year also because otherwise, it will be a disaster for everybody with this market. Apart from this, apart from my personal comment, anyway, we have this subdivision that is related to electronics and electric vehicles that have very interesting opportunity that are popping up, and so that will compensate any other possible decline from the rest of the division. Plus, we have, of course, the new Haemonetics. if we put together these 2 effects, for sure, I'm expecting a stabilization, if not a positive result. Again, we will be more detailed and more precise when we will have finished our work of budgeting for next year, and we will have discussed with all the customers. We will have closed all the negotiations for next year, and then we will have definitely more clear vision.

Question from Emanuel was about Q4 margin guidance. Okay. After 9 months, the EBITDA was around EUR 79 million. We said that our target on the full-year is EUR 110 million. It means that we need to generate EUR 31 million in Q4. The difference is driven by volumes. Let me explain you. If you take, for example, Q1 or Q2, you can see that we posted EUR 107 million, EUR 108 million revenues, and with that level of volumes, we generated on average EUR 27 million EBITDA. EUR 107 million revenues, we generated EUR 27 million EBITDA. Now Q4 to generate EUR 113 million sales, so it means versus Q1, Q2, around EUR 6 million higher revenues. The volume impact on the EBITDA of EUR 60 million then is around EUR 3.5 million. If you take the EBITDA in Q1 or Q2 and you add around EUR 3 million, EUR 4 million, you end up with around EUR 31 million in Q4. EUR 31 million in Q4, EUR 79 million after 9 months. The total is EUR 110 million. Then of course, we depend and rely on the volumes.

The next question is from Matteo Bonizzoni of Kepler Cheuvreux.

Two questions. One is a follow-up and clarification on what you just said on the Q4 performance. Basically, you're saying that starting from around EUR 100 million revenues, exactly EUR 100 million revenues in Q3, you count to do EUR 110 million, EUR 150 million in Q4. This is what you're guiding. What are the drivers of the sequential improvement? In particular, how much is related to the start of production for the Haemonetics blood business, which you have written in the press release in November, you have started finally to produce in your plants? How much of this EUR 110 million, EUR 150 million range is due to other drivers, so improvement in other -- for other reasons? Then on the free cash flow generation, which has been quite low in the 9 months, but you have guided to improve materially in the Q4. I think it's due you have already said to most working capital, which has absorbed EUR 20 million in the 9 months, but should reverse in Q4. Can you a little bit elaborate on that front of working capital improvement, expected working capital improvement in the last part of the year?

The first question is about Q4 sales. Before you, may I say something? Because we are projecting in the second half, same volumes as in the first half. We are projecting in the fourth quarter, same volumes we posted in 2023.

Yes. My anticipation was, I understand that we have to present quarter but on the B2B business, evaluating the quarter is always very complex, because the 1 container or 2 container might change completely the picture of the quarter. Again, normally, the last quarter of the year is the strongest quarter, and this is the job that we do every month. What is in delay versus the third quarter and what can be increased in the fourth quarter. This is what has driven our vision on the -- and the guidance of fourth quarter number that we have elaborated with all the plant that we are physically listed in this period.

The second question was about net financial position in Q4. Okay. Let's say that. Net financial position at the end of September is around EUR 272 million. We said that our target in terms of leverage ratio is 2.2, so it means that the net financial position we expect at the end of December is something around EUR 247 million. It means that we need to generate more or less EUR 25 million cash in the fourth quarter, normally. If the working capital is stable, we generate EUR 10 million, EUR 12 million each quarter, which is 12% of our revenues, okay? That's normal. Every month, we generate EUR 3 million, EUR 4 million of cash. You start from around EUR 10 million, EUR 12 million in Q4. Then don't forget that Q4, we expect a higher EBITDA than on average. We said around EUR 3 million more than the previous quarter. You should have EUR 2 million, EUR 3 million coming from volumes. Then we expect to decrease the working capital by around EUR 10 million. If you sum EUR 10 million, EUR 12 million we make each quarter, Q4 is going to be stronger than usual, around EUR 2 million, EUR 3 million, EUR 4 million working capital reduction, EUR 10 million, you end up with around EUR 25 million. I hope I was clear.

The next question is from Alessandro Tortora of Mediobanca.

I have, let's say, 4 questions, okay, brief question. The first one is you commented before about the hemodialysis negatively impact on your sales, considering the volatile trend on the contract manufacturing. Can you give us an idea which size as this business, the contract manufacturing by year-end? Just to have an idea of what is the reduced level of this business by year-end? That's the first question. I'll go one-by-one as you prefer.

Yes, if you want, I can answer it directly. We mentioned already in the previous conference that is around EUR 20 million, around EUR 20 million. The fluctuation, if we look at this year being nearly EUR 10 million, EUR 12 million, so there is high volatility on this. Difficult believe that will go under the EUR 12 million, EUR 15 million, I would say, for the contract base that we have.

Then the second question is on the -- sorry, on the, let's say, whole blood business. Clearly, you are now in full control of the production, as you said before, considering that also this year, you also lost, let's say, 2 months of production. Can you give us an idea of what's your reasonable view considering the full production next year, which kind of size can get next year? I'm not talking about, let's say, medium term because you already mentioned in the previous call, some commercial opportunities you see. Can you give us an idea, let's say, with a normal production rate, which kind of size this business can get next year?

Well, let's say, let's just repeat the number that we had during the presentation for 2025. This will be a very prudent number to expect for next year. It was EUR 50 million. If you base your, let's say, analysis based on this, that will be extremely prudent.

You said EUR 50 million, but I recall it that now there was also some intercompany. Basically, net revenues incremental for you would have been like, I don't know, EUR 35 million or something like this, if I recall it.

It's EUR 50 million versus EUR 22 million. So the increment is EUR 28 million.

Then the third question was on the Puerto Rico, okay? As you said before, basically, the plant was closed with some months delay. Can you help me, let's say, or at least can you remind me, let's say, the full benefit, Therefore, you expect in theory, we should have, I don't know, EUR 2 million, EUR 3 million more, let's say, cost benefits next year from this?

It's around EUR 1 million per quarter.

EUR 1 million per quarter, okay? Let's say, roughly EUR 2 million, let's say, considering...