Grifols, S.A. — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019; this is an annual report, not a standalone 2019 fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and amounts below are in euros unless stated otherwise.
Business context
Grifols is a vertically integrated global healthcare company focused primarily on plasma-derived therapies, with diagnostic, hospital and biological-supplies businesses. Bioscience generated 78.3% of 2019 revenue. The United States and Canada contributed 66.5% of revenue. Grifols operated 295 plasma collection centers and reported annual fractionation capacity of approximately 15.2 million liters.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Net revenue | €5,098.7 million | €4,486.7 million | +13.6% reported; +9.2% at constant currency |
| Gross profit / margin | €2,341.2 million / 45.9% | €2,049.6 million / 45.7% | Gross profit +14.2%; margin improved 0.2 percentage points |
| Operating result | €1,131.4 million | €994.1 million | +13.8%; approximately 22.2% of revenue in 2019 |
| Profit before tax | €817.1 million | €725.8 million | +12.6% |
| Consolidated profit | €648.6 million | €594.4 million | +9.1%; parent-attributable profit was €625.1 million |
| Basic EPS | €0.91 | €0.87 | Parent-attributable profit basis |
| Net cash from operating activities | €568.9 million | €737.4 million | Down €168.5 million, mainly amid working-capital investment |
| Net cash used in investing activities | €548.8 million | €781.9 million | 2019 included €412.3 million for property, plant, equipment and intangible assets |
| Cash and cash equivalents | €742.0 million | €1,033.8 million | Down €291.8 million |
| Financial liabilities | €7,207.4 million | €6,376.8 million | Includes €740.7 million of lease liabilities recognized under IFRS 16 |
Operating cash flow was pressured by a €323.7 million inventory increase; year-end inventory was €2,342.6 million, with turnover of 310 days versus 292 days in 2018. Trade receivables averaged 26 days outstanding, compared with 22 days. The company reported approximately €532 million of available capacity under debt agreements, including approximately €445 million under the revolving facility. Management said cash, operating cash flow and available facilities were expected to cover obligations, working capital and planned capital expenditure for at least 12 months.
Current assets included €1,716.7 million of current financial assets associated with the Shanghai RAAS transaction; this contractual right was not cash. The filing reports €741.98 million in cash separately.
Material changes versus the prior year
- Revenue growth accelerated from 3.9% reported in 2018 to 13.6% in 2019; constant-currency growth was 9.2% in both years. Bioscience revenue rose 13.6% reported, while Bio Supplies rose 59.6%, partly reflecting third-party plasma and biological-product sales.
- Gross margin recovered to 45.9% from 45.7%. Management cited stable plasma costs and production efficiencies; in 2018, higher plasma procurement costs had contributed to a substantially lower 45.7% margin versus 49.8% in 2017.
- Research and development expense increased 14.7% to €276.0 million. Selling, general and administrative expense increased 15.7% to €942.8 million, with plasma-network expansion identified as a factor.
- Operating cash flow fell as inventory and receivables absorbed cash. Inventory provisions increased to €104.3 million from €48.8 million.
- Grifols refinanced its senior secured debt in November 2019, issuing €1.675 billion of secured notes and entering new term and revolving facilities. Finance costs rose 16.9% to €343.0 million; the finance result also included a €97.9 million accounting gain associated with refinancing.
- IFRS 16 was adopted on January 1, 2019 without restating comparatives. Grifols recognized €703.9 million of right-of-use assets and €740.7 million of lease liabilities at year-end; lease-related finance expense was €34.6 million.
Outlook, risks and unusual items
- Growth and investment: Management cited a long-term expected global plasma-derivatives market growth rate of 6%–7%. Grifols’ plans include a €1.4 billion investment program for 2018–2022, approximately 19 million liters of fractionation capacity by 2023, and 370 approved plasma centers globally by 2024. These are plans, not guaranteed outcomes.
- COVID-19: As of the financial-statement preparation date, management said operations had not been materially affected and were not expected to be significantly affected, citing essential products, multiple sites and inventory intended to support more than six months of strong demand. The filing emphasized that the pandemic’s duration and financial effects were uncertain.
- Shanghai RAAS: At December 31, 2019, Grifols had transferred rights to 45% of the economic interests and 40% of the voting interests in its diagnostic subsidiary GDS in exchange for a contractual right to Shanghai RAAS shares. The transaction closed March 30, 2020: Grifols acquired a 26.2% interest in Shanghai RAAS and retained control of GDS. The post-year-end closing produced a reported €57 million gain from remeasurement of the financial instrument. The auditor identified the valuation of Diagnostic goodwill as a critical audit matter; the carrying amount was €2.657 billion and the 2019 impairment analysis used a 14.5x EBITDA multiple linked to the transaction.
- Debt and exposure: Leverage, refinancing access, debt covenants and variable interest rates are significant risks. The filing reported 55.2% of senior interest-bearing debt at variable rates in its risk discussion and estimated that a 100-basis-point rate increase would raise 2019 interest expense by approximately €51 million. Approximately 76% of revenue was denominated in U.S. dollars, creating currency exposure against the euro.
- Operations and competition: Plasma availability and collection-center compliance, manufacturing quality, product safety, pricing and reimbursement pressure, and competition in immunoglobulins are key risks. IVIG products accounted for approximately 44% of revenue. Four product lots were voluntarily withdrawn in 2019 after reported adverse drug-reaction rates exceeded usual levels; Grifols said it had never had a finished-product batch recall due to a safety risk.
- Other unusual items: Singulex ceased operations and entered bankruptcy; Grifols impaired its investment and related loans. The filing also describes pending Abbott royalty and patent litigation, with arbitration scheduled for 2020. KPMG issued an unqualified audit opinion on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile reported revenue growth with the 9.2% constant-currency measure and assess whether growth is translating into sustainable margins and cash generation.
- Track inventory, inventory provisions and operating cash flow; determine whether the strategic inventory build converts into sales without further write-downs.
- Review total debt, lease liabilities, refinancing terms, variable-rate exposure, covenant headroom and the availability of revolving credit.
- Assess the Shanghai RAAS valuation, the €57 million post-year-end gain, Grifols’ continuing control of GDS, and the sensitivity of Diagnostic goodwill to the transaction-based valuation assumptions.
- Monitor progress, costs and regulatory approvals for the capacity expansion and plasma-center targets, alongside the impact of competition, reimbursement and plasma supply.
- Follow COVID-19 effects, product-safety developments and the outcome of the Abbott dispute and arbitration; the filing’s expectations and litigation status are time-specific.