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Ladies and gentlemen, welcome to the Gerresheimer AG's First Quarter 2024 Results Conference Call. I am Hilda, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, I will hand over to Mr. Guido Pickert, Vice President, Corporate Investor Relations at Gerresheimer AG. Please go ahead.
Thank you, operator, and welcome to our call. Please note that the recording will be made available on our website some time after this call.
With that, I will hand over to our CEO, Dietmar Siemssen, to run you through the highlights of the quarter and give you our guidance with our CFO, Dr. Bernd Metzner. Please go ahead, Dietmar.
Yes. Thank you, and good morning. Welcome, everybody, and thank you for joining us this morning. Bernd Metzner, our CFO, and I will now run you through the highlights of our first quarter 2024. We will keep this brief, as our last update call was less than 2 months ago. As always, we will then be happy to take your questions.
With this, let's jump into the presentation. Just to recall, this is our system and solution portfolio. With our containment solutions, we bring the drug safely protected to the patient. Our drug delivery systems enable the drug to be safely administered. With our connected devices and digital solutions for therapy support, we help to improve the health outcome for patients worldwide.
This broad portfolio from standard products and systems to highly sophisticated, customized solutions allow us to perfectly address our customers' needs and thus benefit from global megatrends on the market. And it makes us resilient because it is also broad enough to mitigate market risks in a particular segment.
The first quarter 2024 shows the strength of this approach. We are still facing an ongoing destocking in the market, mainly in the vial business, but we were able to compensate this with the strong performance in our Plastic & Device business, namely medical devices such as inhalers, pens and auto-injectors. The underlying growth momentum is completely intact. The overall performance in Q1 was solid as expected. We achieved an organic revenue growth of 2.8% and organic adjusted EBITDA growth of 5.9%. The adjusted earnings per share was down by 3% compared to Q1 2023 mainly because of the higher number of shares due to the capital increase in April 2023 and, of course, of higher interest rates, which affected the financial results. As said, growth in Q1 was mainly driven by our Plastic & Device divisions, which continued the dynamic double-digit growth already seen in 2023.
Another Q1 highlight was our cash flow from operating activities. Our expanded business activities and the margin expansion led to a strong cash flow from operating activities. We expect that the operating cash flow will also profit from the ramp-up of new lines in our production facilities in Europe and North America for long-term customer orders in the next months.
With the destocking effect regularly decreasing over the next few months and the ramp-up of new lines kicking in, we expect a strong second half 2024 and, therefore, confirm our guidance.
Our key priorities for 2024 are clearly set. We will continue leveraging unique business opportunities. We will accelerate our sustainable profit growth by consistently increasing the share of systems and solutions and medical devices for injectables, in particular, for large molecule biologics and our product portfolio. These products have an attractive margin profile and will help us to further expand our overall margin.
We will execute on our ongoing growth projects and add global capacities for long-term contracts in these highly attractive product groups. I will give you further insights about the current status of our growth projects later on.
We will continue to execute operational excellence in everything we do. Delivering top-notch quality and the perfect fit of systems and solutions for our customers' needs will keep us ahead in the market. And we will further expand our product portfolio with highly innovative systems and solutions, including our own IP solutions, connected devices and platform solutions for digital therapy support.
Our key priorities for 2024 contribute to our long-term strategy for sustainable profitable growth and long-term value creation. Three main growth drivers will support us to achieve our targeted compound annual growth rate of 10% plus in the upcoming years. The solid base growth in our classic portfolio; our high-value solutions, including ready-to-fill vials, cartridges and syringes, and to, an even larger extent, medical devices for biologics. This includes pens and auto-injectors as well as our own IP platforms for auto-injectors and on-body drug delivery systems.
This is an overview of our main ongoing growth projects based on our long-term contracts and order intake, which we are executing according to plan. In Morganton, U.S. as well in Zhenjiang in China, we are, for example, adding capacities for high-value ready-to-fill vials and cartridges.
The expansion in Pfreimd, Germany and Horsovsky Tyn, Czech Republic, will add to our capacities for medical devices such as auto-injectors and pens. In Queretaro, Mexico and Skopje, North Macedonia, we are adding beyond other things, capacities for high-quality glass syringes, suitable, for example, for injectables biologics. The growth investments of today lay the foundation for the sustainable profitable growth for tomorrow. All growth projects are progressing according to plan. You see on these pictures the various stages of construction work as well as the delivering of line equipment. Ramping up of the production has started in Pfreimd and Horsovsky Tyn and will continue in the upcoming months in Morganton and Peachtree. Ramp-up will start in the second half of this year. Skopje and Queretaro will follow in 2025, Zhenjiang in 2026.
Yes. For the moment, thank you very much. With this, I will hand over to our CFO, Bernd Metzner, for a deep dive into the figures of the first quarter.
Thank you, Dietmar, and welcome, everybody, also from my side. Let's dive into the analysis of the key financials for the first quarter '24. Revenues grew from EUR 458 million to EUR 466 million. This leads us to an organic revenue growth of 2.8%. The impact from FX was minus EUR 4 million and resulted mainly from a weaker U.S. dollar.
Our Plastics & Devices division had a very good start into the year and once again recorded a strong top line as well as bottom line performance. Our Primary Packaging Glass division started the year in line with our expectation. Growth was muted due to the already known and anticipated temporary destocking effects.
Adjusted EBITDA grew from EUR 78 million to EUR 81 million. This leads us to an organic adjusted EBITDA growth of 5.9%. Organically, adjusted EBITDA margin increased from 16.8% by 50 basis points to 17.3%, driven by a very strong development in our Plastics & Devices division. The impact from FX was minus EUR 2 million.
Adjusted EPS went from EUR 0.71 to EUR 0.65. This leads us to an organic adjusted EPS decline of minus 3%, which is due to the dilutive effect of the capital increase in April 2023 by 10%. The impact from FX was minus EUR 0.04.
Let's move on to the divisional development in Q1 2024. Plastic & Devices. Revenues grew from EUR 229 million to EUR 258 million. This leads us to an organic revenue growth of 13.7%. The organic growth was driven especially by strong contribution from our syringes, inhalers and pen businesses. The impact from FX was minus EUR 1 million.
Adjusted EBITDA grew from EUR 47 million to EUR 59 million. This leads us to an organic adjusted EBITDA growth of 27.3%. Organically, adjusted EBITDA margin increased accordingly from 20.4% by 240 basis points to 22.8% and was mainly driven by a better product mix. FX contribution was neutral.
Now Primary Packaging Glass. Revenues declined from EUR 228 million to EUR 208 million. This leads us to an organic revenue decline of 7.2%. The impact from FX was minus EUR 3 million. The temporary destocking effect at our customer level impacted our vials business and was the reason for the revenue decline. Apart from this, our business performance in PPG was quite solid.
Adjusted EBITDA declined from EUR 41 million to EUR 35 million. This leads us to an organic adjusted EBITDA decline of 11.4%. Organically, adjusted EBITDA margin decreased from 17.9% (sic) [ 17.6% ] by 80 basis points to 16.7% (sic) [ 16.8% ]. The impact from FX was minus EUR 1 million.
Now Advanced Technologies. Revenues declined from EUR 3 million to EUR 1 million. Adjusted EBITDA declined from minus EUR 3 million to minus EUR 5 million. At Advanced Technologies, we continue to strive to establish Gerresheimer as an innovative original equipment manufacturer for smart and connected devices in the health care industry. We continue to work on very attractive projects with substantial commercial potential.
During the first quarter, we received various promising request from large pharmaceutical customers across our entire product portfolio. Interest was high, in particular for our Inbeneo auto-injector as well as for our SensAir pump for large molecules. We will keep you posted about the further development.
This slide shows the reconciliation of the reported to the adjusted financials for the first quarter of 2024. Revenues grew organically by 2.8% and adjusted EBITDA by 5.9% as discussed in all detail earlier. Let me briefly comment on our EBITDA adjustments, which amounted to EUR 2.6 million in Q1 2024. A big chunk of this amount stems from an inflation compensation premium paid.
The increase of the adjusted depreciation and amortization by EUR 2.6 million to EUR 36.7 million is mainly reflected by the high investments in our business in the most recent years. The adjustments of EUR 9.7 million consist as usual of amortization of fair value adjustments.
Now over to the line -- next line item, the financial results. The decrease of the financial result by EUR 1 million is predominantly due to increased interest rates on promissory loans and the revolving credit facility compared to Q1 2023.
Regarding income taxes, the adjusted tax rate in Q1 2024 was 29.3% compared to 28.7% in Q1 2023. Adjusted EPS, as mentioned in the beginning, went from EUR 0.71 to EUR 0.65. This leads us to an organic adjusted EPS decline of 3%. The EPS figure for Q1 2023 is based on 31.4 million shares, while the according figure for the calculation of the Q1 2024 EPS is 10% higher due to the capital increase of April 2023. So as discussed earlier, the organic decline in EPS is due to the capital increase.
Coming now to the cash flow development in the first quarter of 2024. The operating cash flow in Q1 is the strongest we ever had in the first quarter of our financial year. Let's discuss the details. As explained earlier, adjusted EBITDA increased from EUR 78 million to EUR 81 million. Looking at net working capital. This year's net working capital related cash outflow of minus EUR 24 million is an improvement by EUR 67 million compared to last year and was driven by the following two reasons.
First, we were able to execute a stricter, but more sustainable payment management, avoiding rebound effects like in previous years. Second, we received an additional prepayment of EUR 20 million related to the GLP-1 contract, which we announced already last year. This prepayment approach is a result of our long-term oriented win-win partnership philosophy and reflects, obviously, also a very strong commitment of our partners. This results in a very significant improvement of our operating cash flow from minus EUR 49 million last year to plus EUR 27 million this year and increased by EUR 76 million.
Moving now on how we utilize these funds. Net CapEx increased year-on-year as we continue to execute our investment program into highly attractive growth opportunities, as mentioned before by Dietmar. As you know, our currently elevated net CapEx cash out is a consequence of very attractive and unique business opportunities. We are especially ramping up our capacities for medical devices, GLP-1 products and biologicals. Finally, let's turn to the net financial debt as well as the adjusted EBITDA leverage. Both performance indicators improved year-on-year due to the capital increase and the EBITDA growth. Net financial debt according to credit agreement in force stands now at EUR 948 million. This is we could improve our adjusted EBITDA leverage from 3.2x to 2.3x.
On this positive note, I hand back to Dietmar. Dietmar?
Yes. Thank you, Bernd. With this, I would like to come back to our key priorities for 2024, which I've outlined previously. These priorities, we present yet another step forward while implementing our formula G strategy. Our formula G strategy process has transformed Gerresheimer and will enable us to reach our ambitious goals.
Gerresheimer has become a profitable growth company and will continue on this path in 2024 and beyond. So the outlook, we confirm our guidance. This includes our 2024 and 2025 outlook as well as our midterm guidance. For 2024, we expect a revenue growth between 5% to 10%, as we are still expecting some destocking effects in the market in the next months.
The adjusted EBITDA will once again be strong and reach between EUR 430 million and EUR 450 million, in line with our plans for further margin expansion. The adjusted earnings per share is expected to grow between 8% and 12%.
For 2025, we expect revenue growth to accelerate to 10% to 15%, with an expected adjusted EBITDA margin of around 22%. The adjusted earnings per share is expected to grow around 10%.
Our midterm guidance shows a compound revenue growth rate of 10% and a margin target for the adjusted EBITDA margin between 23% to 25%. Adjusted earnings per share growth will once again be around 10%.
As you can see, we are continuing our profitable growth path and would be delighted if you would accompany us going forward. The next opportunity to check in on our financial performance in 2024 will be our half year results for the fiscal year 2024, which we will publish on July 11. We hope you will join us again.
Thank you. We are now happy to take your questions.
[Operator Instructions] The first question comes from the line of Anchal Verma with JPMorgan.
This is Anchal Verma from JPMorgan on behalf of David Adlington. I have two questions, please. The first one is on destocking. Can you provide any more color on when you think it will come to an end? How comfortable are you that the recovery will start in H2? Are there any early signals that you've seen in the market or with your customers that make you believe this is possible?
And then the second question is at the recent Novo CMD, the company had mentioned that they're working on potentially using a single-chamber device for CagriSema, instead of a dual-chamber device. Did this come as a surprise to you? And does your outlook for GLP-1 change on the back of this?
Anchal, I take the second one. You take the first one, Bernd.
Anchal, thanks for your questions. I take the destocking question. What we see is that, gradually, this destocking is really ending, and this gives us the confidence for a very -- for a strong second half of the year, also in this -- in regard to this. What is the reason? You see it on which basis we are saying this. We have on the one side, the order intakes. We have to -- also the discussion with the customers. And above all, also to consider the lower comments as far as our vials business is concerned in the second half of 2023, that basically is the vial. And we believe the end of destocking this year.
Yes. Coming to the second question, it's not coming to a surprise that our customers are working on new solutions. In this specific case, it's not a surprise. It will take a couple of years, if potentially this could come, and then we would be prepared because we built up our lines in a flexible way. So we can produce dual chamber, single chamber and all kind of solutions on these lines.
The next question comes from the line of Oliver Reinberg with Kepler Cheuvreux. The next question is from the line of Falko Friedrichs with Deutsche Bank.
My first question is on the Plastics & Devices segment and the strong 14% organic growth in the first quarter. Can you provide the split between volume growth and the price impact? And also what -- how should we think about growth over the next few quarters in this segment as the comps are getting easier?
And then my second question is, can you just give an overall overview how you felt the start to the second quarter went in both segments? And then thirdly, on the Advanced Technology segment, where do we stand with the SensAir project and the other projects here?
Yes. I can take the first one. You take the second, and I take the third. That's...
Okay. That's good. That's fair.
That's fair, yes. Thank you, Falko, for the questions. Yes, the split in between volume, price, you have to see different. There is no price increases ongoing. So what you see is volume. But we, of course, are growing with higher margin products. So the mix impact is very helpful. So this is probably the picture that you are seeing. So it's volume and mix.
And I can take the Advanced Technology question first. The Advanced Technology questions is the projects are in plan. I think we announced that there's a couple of months delay in one of the projects of our customers. That is unchanged. We are on track with this latest update.
Also the other projects are on track. There's not much we can say about the Advanced Technology because in such an early stage, our customers are very sensitive that we share any information. That's why I cannot -- I'm not able to share any information here on this call.
And just to take your second question regarding the -- regarding Q2 and how we see it, and as you know, we don't guide for specific quarters. But what we said and what we want to reiterate today, what we said is that for the first half of this year, we will have a low single-digit organic revenue growth, and then you will have a very strong second half of this year. And this will bring us to the 5% to 10% organic growth. This is what we see and what we can reiterate in this call.
The next question comes from the line of Gaurav Jain with Barclays.
A few questions from me. So first is on revenue growth. So Q1, clearly ahead, and the comps get very easy as we go into Q2 and then later half of the year. So is it that your full year revenue guide could come in towards the higher end of the range that you are providing? And in that context, can you also comment on the impact of resin prices? So that's question one.
Then the second question I had was on this customer prepayment. So what I heard, and correct me if I'm wrong, that it's the same customer, but maybe a different contract. Or are these different customers? Because you had a prepayment last year as well. So could you just talk a bit about that? And then the third is quickly on vials. So you had told us last year, it was 10% of revenues. So if all the decline is happening because of destocking in vials, so that would suggest vials are down almost 50%. So then is it fair to say that vials are now closer to 5% of revenues on a run rate basis?
First one, you need to take.
I'll take the first one, and maybe I'll elaborate a little bit on the prepayment. Regarding the high end range of our guidance, don't expect that we are narrowing this down now to the -- or giving a more precise direction. We will do this in our July call, mid of July, when we release our Q2 numbers because then we have -- then we can pinpoint this more clearer. And I hope you understand, because we still have five months to go, and we don't want to be too specific.
Another topic was the prepayment. As you know, we don't disclose the customers. We don't -- as you know, we don't disclose the customers. And -- but it's definitely not a new contract. This is linked to a contract, which we basically disclosed in our February -- actually, in our October release, and we talked about our Q3. No new contract, but based on the already signed contract and agreed prepayment in the magnitude of EUR 20 million.
Yes. I'm a bit confused with the vial question because I have difficult to set this 10%, 5% announcement, honestly.
Sure. I mean, if I could just ask it another way. How much is the vial contribution this year? I mean, that's what I'm trying to assess because you had mentioned some numbers last few quarters that it is about 10%, 12% of the company. So where would it be landing this year?
I don't think that we disclosed this because the tubular business might have a certain share, where -- which includes part which is vials, ampoules. But there's no doubt, as there is the destocking at the moment ongoing in first quarter, the share of vials went down temporarily.
We are convinced that the effect of the destocking is actually a temporary effect, and the general consumption of vials on the mid and long term will not be impacted. We still see also in the vials a strong growth. On the bulk vials, normal growth of -- but especially in the high-value vials, strong growth. This is driven by increasing demand in injectables and are also driven by large molecule biologic drugs.
[Operator Instructions] The next question comes from the line of Oliver Reinberg with Kepler Cheuvreux.
Can you hear me now?
Yes, Oliver.
Perfect. So first question would really be kind of a follow-up on this kind of CagriSema discussion. I'm not sure how much color you can provide. But I guess, these kind of contracts are normally take-or-pay in nature.
So can you just broadly, big picture, talk about what is the kind of range of profit outcomes between the kind of a base case scenario? And what to, let's say, is the kind of legally binding guaranteed level of return?
And also on the back of this kind of current developments, which are obviously early stage, but does this impact your kind of willingness to commit to even broader exposure to this kind of, let's call it, application solution for potential new contracts? That would be question number one.
Secondly, there's an increasing trend, I think, towards securing supply on a national basis. I guess, the kind of Biosecurity Act is just one example in that direction. You had a kind of contract from the U.S. BARDA in the past. I'm just wondering, is there any kind of new potential contracts that are reflecting this kind of current trend that we have out there in the market?
And then the last question just on depreciation. Just trying to get any kind of feeling for the phasing of depreciation. So if there's the kind of ramp-up in the second half, does it mean that depreciation will exponentially increase in the second half?
Sorry. Took us a while because we have not fully understood the questions, but I can take the first one, which is easy to answer. You will understand, I will not disclose, and we cannot disclose, any details in the -- how we set up the contracts with our customers.
What I can say though is that with the transformational Gerresheimer, we have received a different standing in the level of partnership with our customers. This leads to the fact that we can negotiate more attractive terms and conditions. That includes topics like prepayments. In certain areas, it could also be take-or-pay clauses in -- and other things that are actually protecting our investments for the future. And this is what we can disclose.
And to the BARDA, I understood this. Whether there are some government driven investments, there are no further protections that we actually receive. And -- but the project in Morganton actually is fully ongoing. That's very helpful.
Maybe just to get to your depreciation question, Oliver. Basically, the ratio of depreciation to sales will be in line in the previous year actually, maybe 0.1% -- percentage points higher, but basically in line with the previous year when you're calculating it. I just read your note of today. You talked also about the tax rate. Indeed, the tax rate will be also in line with previous year, overall, to come to your estimate regarding EPS. I think it's helpful to note.
Okay. Super. And I hope that the lines holds. But then probably to reformulate the kind of first question, I mean, can you just provide an update on potential new GLP-1 contracts?
That was well understood. There will be new opportunities in the area of GLP-1 with various customers, and they -- there are no details I can give at the moment because there is no signed -- further signed contracts at the present.
The next question comes from the line of Anna Snopkowski with KeyBanc.
This is Anna on for Paul Knight. I just wanted to touch on your strength in Plastics & Devices. I was wondering if this was mainly attributable to GLP-1 or if there was a specific customer group that contributed to this growth. Maybe just a little more insight into this growth.
Yes. That's -- it's also easy to answer. We are serving all key players in the market for GLP-1. As there are in the market primarily only two players, that's the two players that contributed. And we are serving all of them. The sales that you see at the moment is actually a result of the deliveries to these customers. I hope that answers your question.
Ms. Snopkowski was the last question.
Could you please repeat the second part of the question or the second question?
There wasn't any more.
There wasn't any more.
No, no. There wasn't any more. Maybe Oliver Reinberg has...
Yes. We have a follow-up question from the line of Oliver Reinberg with Kepler Cheuvreux.
Yes. Perfect. I mean, I hope that the line holds. I mean, first is on CapEx and free cash flow. I think CapEx came in a bit higher to EUR 107 million in the first quarter. And I think you guided for EUR 300 million to EUR 350 million for the full year. So is that a kind of reasonable guidance? Are you now shooting towards the kind of upper end? Any kind of color on phasing?
And secondly just generally on CapEx. I think at the last Capital Markets Day, you talked about that you plan to lower the kind of capital intensity by the business by 25%. So was just wondering whether you can share any kind of update on this kind of measures and what kind of progress you've made.
And thirdly, just wondering, any update on how the kind of ready-to-fill vials business is ramping up?
Oliver, just to take your first question regarding CapEx guidance for this full year. Indeed, Q1 was -- we had a relatively high cash CapEx -- or CapEx cash out, relatively high. Obviously, we are investing now in profitable growth projects, and we are keen to ramp up the capacities here as fast as possible. Having this said, and there also played a little bit of phasing effect because we had higher payables in Q4 CapEx payables, and we paid out this in Q1. So relatively, this was definitely what inflated this number in Q1.
And as you know, we had lower subsidies in Q1. Compared to previous year, we had subsidies in the magnitude of EUR 7 million in Q1 2024 compared to EUR 21 million in Q1 2023. So if you compare, you need to consider this.
Last but not least, I think we will end close to EUR 350 million, still in the range, EUR 300 million to EUR 350 million, but on the higher end of this range. And we really try hard to be at this higher end of the range again because these are very attractive projects. And we want to execute them as fast as possible.
Yes. And the portion in the terms of capital intensity, very clearly, we are working on various projects to reduce the capital intensity, new line concepts and so on. And actually, some of them are actually implemented as we talk.
The long-term visibility of these effects will come. It will, of course, be a mix with the fact that we are increasingly investing into product segments or also projects where the margin profile, the return profile looks more attractive, and that will drive topics that are pretty relevant for us like ROCE, not down but up, yes, which is very helpful.
Mr. Reinberg, are you done with your questions?
Yes. The third question was just like any kind of update on ready-to-fill vials, how that is ramping up.
Our ready-to-fill vials, how the development is for ready-to-fill vials, pretty strong, and this is one of the key drivers of our high-growth products. We are growing strongly. That is an area that is not affected for us from the destocking effect, and you will see a further increased strong contribution, especially in the -- from the second half of the year with new projects jumping in and so on.
We have another follow-up question from the line of Gaurav Jain with Barclays.
Just a question on the $3 million adjustment, which you highlighted because of hyperinflation, if I heard correctly. What exactly is that? And will that be something which continues through this year?
No, no. Thanks a lot for your question. Thank you for the opportunity to clarify. It's just a onetime event. Actually, it's linked to the inflation of the past. If you want to point, it was a compensation, a one-time compensation to our employees. It is basically the background of it in Germany. And this was basically the key driver, making to go 1 million than, and the 1/3 actually was our onetime expenses was linked to this one.
And remember, we guided that for the total year, we expect around EUR 10 million in exceptional expenses, and we are in line with this.
Sorry. Which country is this for, Argentina?
Germany. No, no, it's Germany. Also in Germany, we had inflation. And this was basically negotiated.
Okay. As there are no further callers with questions in the queue at this time, we will, therefore, now conclude today's call. We are very happy to organize follow-up calls, as you know, should you still have questions. And we are looking forward to see many of you soon. Bye-bye.
Ladies and gentlemen, the conference has now concluded. And you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.