Grifols : rsquo; net profit rises by 23% to 224.8 million euros in the First Half of 2014 Download (65 Kb)

Free translation from the original in Spanish. In the event of discrepancy, the Spanish- language version prevails.

• Growth and diversification drive revenues by 16.7% to 1,610.8 million euros.

• Operating cash flow exceeds 400 million euros to June 2014

• Net financial debt down 17 million euros from March 2014, and leverage ratio of 2.92 times Adjusted EBITDA1

• Completion of refinancing process brings average cost of debt to below

• Shareholders Meeting approves allocation of 137.5 million euros to dividends for 2013: a payout of 40% of consolidated net profit

Barcelona, 31 July 2014.- Grifols' (MCE:GRF, MCE:GRF.P and NASDAQ:GRFS) revenues rose by 16.7% during the first half of the year to 1,610.8 million euros, including the transfusional diagnostics business acquired from Novartis in January 2014. Geographical diversification of sales helped to reduce the potential impact of exchange rate volatility, and turnover grew by 21.7% at constant currency (cc).

The proportion of total sales generated by each of the group's divisions remains unchanged since the first quarter, with a more diverse sales base following the expansion of the transfusion medicine business at the start of the year. The proportion of sales generated by each division was over 18% for the Diagnostic Division, 75.0% for the Bioscience Division, and
3.1% for the Hospital Division.

• Sales of Bioscience Division up 3.3% (cc)

The Bioscience Division is the group's main engine of organic growth. Sales of plasma proteins continue to rise, with significant increases in intravenous immunoglobulins (IVIG), alpha-1 antitrypsin and albumin. There was a moderate fall in sales of intermediate products and of factor VIII following the completion of some contracts and delays in tendering processes in several countries. Sales to June 2014 were 1,208.2 million euros, a rise of 3.3% (cc) or 1.0% fall after taking exchange rate fluctuations into account. Grifols has maintained its strategy of pursuing balanced growth in sales to optimize both raw material costs and
manufacturing capacity.

* 1 Excludes non-recurring costs and costs associated with recent acquisitions.

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The Diagnostic Division generated sales of 293.5 million euros (excluding 9.3 million euros of intersegment sales) an increase of 358.0% (cc) and of 339.9% when taking exchange rates into account. International sales in the blood typing area remain very active, including analyzers and reagents (DG-Gel® cards). Also worth noting are sales of immunoassays, instrumentation, tests and other blood screening services using NAT technology (Procleix®), a business that has seen the renewal of the agreement with the Red Cross in Beijing (China) during the period. The company is a global leader in transfusion medicine and continues to drive its activity with new products and new markets as well as its lines of instruments and reagents for hemostasis and immunohematology.
The Hospital Division generated 49.6 million euros of sales during the six-month period. The division has continued to expand its international presence, a process that has helped to limit the decline during the period to 3.2% (cc), although more than 70% of its sales continue to be generated in Spain. During the first half of 2014 sales of intravenous solutions' instrumentation continued to progress, as well as new manufacturing contracts for third parties and sales of Hospital Logistics in Latin American.
Finally, Grifols' non-recurring income, included within the Raw Materials & Others Division, rose to 59.4 million euros, representing 3.7% of total revenues. These include, among others, royalties (Bioscience and Diagnostic divisions), income deriving from manufacturing agreements with Kedrion, and third-party engineering projects performed by Grifols Engineering.

• Company boosts its global presence and will market diagnostic products in China and India in the near future

Grifols continues to drive its sales in international markets, and the purchase of Novartis' transfusional diagnostics unit has strengthened the sales revenue of the Diagnostic Division in the United States. The company is still working on the exact allocation of the new business by geographic region, therefore sales by region for the new diagnostic business have not been provided for this period.
Excluding sales generated by the newly acquired business and non-recurring sales (Raw Materials & Others), income in the United States and Canada rose by 5.8% (cc) to 838.7 million euros, representing 52.1% of sales. Sales in the European Union fell by 4.4% (cc) during the period, due to the delay in some contracts for the supply of factor VIII in countries such as Poland. In contrast, sales of plasma proteins in Spain increased slightly for the second consecutive quarter, although the contraction in the sales of the Diagnostic and Hospital divisions continued. It should be noted that since January 2014 the heading "Others" (Raw Materials & Others) has not been broken down by geographic region, and that the figures for
2013 have been modified to facilitate comparison. Sales performance was particularly good in
France, Germany, and Eastern Europe.
Sales in the rest of the world (ROW) rose by 3.9% (cc) in line with the company's forecasts of the calendar for tendering processes. Income was 208.5 million euros, driven primarily by growth in albumin sales in China, diagnostic products as well as increased consumption of
certain proteins in Russia.

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Internationalization remains a priority for the company, with plans to create new subsidiaries in India, Indonesia and Taiwan, primarily to drive the geographic expansion of diagnostic products. Grifols currently has commercial subsidiaries in 25 countries. The most recent are the Dubai subsidiary, operational since 2013 and servicing the Middle East region, and the change in status of office in Shanghai from a representative office to the status of commercial subsidiary. Grifols also has a direct commercial presence in Hong Kong.

• EBITDA up 14.3% to 508.2 million euros

Grifols' EBITDA was 508.2 million euros in the first half of 2014, a 14.3% increase compared to the figure of 444.6 million euros reported for the same period of the preceding year. Adjusted EBITDA1 rose by 12.7% to 523.8 million euros.
The improvement in EBITDA is a consequence of ongoing developments in the company's manufacturing efficiency. Grifols continues to optimize its cost of plasma, and its fractionation and protein purification. The group is also working to implement new efficiency measures deriving from a range of in-house R&D projects. These include ongoing enhancements of the "ABO technology" (Automatic Bottle Opener), to automatically open plasma bottles, which enables a better use of each liter of plasma as well as the implementation of radiofrequency systems (RFID) on all plasma bottles, automating the recording of the traceability data by pallet. This process is currently performed manually on a bottle by bottle basis. Grifols continues to work on obtaining FDA and EMA permits and licenses to perform all of the different manufacturing stages at any of its manufacturing plants, allowing it to flexibly combine processes, optimize manufacturing efficiencies, and reduce costs.
The integration of the new diagnostic unit is progressing, as well as the process of standardization and harmonization of the accounting information. The policy of containing overheads has been maintained, although these costs have increased as a result of incorporating the operating structure of the new business acquired. More resources have also been allocated to R&D to support current projects. These factors explain some of the changes to margins. Specifically, the EBITDA to income ratio was 31.5%, while the adjusted EBITDA1 to income ratio is 32.5%.

• Net profit rises by 23.0% to 224.8 million euros

Grifols' net profit rose by 23.0% to 224.8 million euros, a figure that represents 14.0% of the group's revenues, compared to 13.2% for the same period of 2013. Adjusted net profit4 was
288.7 million euros. This excludes non-recurring costs and costs associated with recent acquisitions, as well as the amortization of deferred financial costs associated with the refinancing, and the amortization of intangible assets associated with acquisition, including the amortization or royalties of the first and second quarter.
During the first half of 2014, profits benefited from the fact that, despite the increase in debt in absolute terms, financial costs remained stable as a result of the improved funding conditions
negotiated in the first quarter of the year. Including the financial cost of the new funding needed

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to acquire the transfusional diagnostics unit, the financial result was 124.3 million euros, including the amortization of deferred expenses corresponding to the cancellation of bonds and debt as part of the refinancing process undertaken to reduce financial costs and extend repayment periods.
At the same time, the effective tax rate was lower during this six-month period due to changes in the contribution to profits from different geographical regions.

Key items: first half of 2014

(In millions of euros) 1H2014 %sales 1H 2013 %sales % Var % Var

CC

NET REVENUES BIOSCIENCE DIVISION HOSPITAL DIVISION DIAGNOSTIC DIVISION2

SUBTOTAL

RAW MATERIALS & OTHERS EBITDA

ADJUSTED EBITDA3

GROUP PROFIT

ADJUSTED GROUP PROFIT4

2 Excluding 9.3 million euros of inter-segment sales.

3 Excludes non-recurring costs and costs associated with recent acquisitions.

4 Excludes non-recurring costs and costs associated with recent acquisitions, the amortization of deferred financial costs associated with refinancing, and the amortization of intangible assets associated with acquisitions.

• Assets increase to 7.3 billion euros following recent acquisitions

Total consolidated assets at June 2014 were 7,276.1 million euros, a significant increase compared to the figure of 5,841.0 million euros reported at December 2013. The difference primarily reflects the acquisition of the assets of Novartis' transfusional diagnostics unit.
Tangible fixed assets net increase over 158 million euros, includes a plant in Emeryville (California, United States), while intangible fixed assets have increased mainly as a result of the 935.3 million euro goodwill generated by the acquisition. This amount is still provisional, although no significant changes to the goodwill valuation or the fair values of the assets and
liabilities acquired are expected.

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• Strong increase in operating cash, to 400.5 million euros

In the second quarter of the year, the group's cash position rose slightly, reaching 736.9 million euros in June. The group performed strongly, generating 400.5 million euros of operating cash in the first half, compared to the figure of 280.3 million euros for the same period of 2013.
The changes in working capital reflect the active management of accounts receivable, and the incorporation of the new business.

• Net financial debt increases, but average cost of debt falls by more than 200 bps to below 3.5%

One of Grifols' principal commitments following the recent acquisitions is the rapid reduction of leverage ratios. The group's net financial debt has fallen by more than 17 million euros since March 2014, and at the end of the first half of 2014 it stood at 3,163.3 million euros, a figure that reflects the new funding package. This represents a debt ratio (NFD/adjusted EBITDA) of
2.92, higher than the ratio of 2.28 reported in December 2013 prior to the acquisition.
The forecast cash flows will continue to contribute to the rapid deleveraging, while the refinancing process concluded in the first quarter of the year will translate into a reduction of the average cost of debt by more than 200 bps to below 3.5%.

• Capital Expenditure (CAPEX)

Grifols' major capital expenditure projects have included the completion of work designed to expand its plasma fractionation capacity. These include completion of the plants at Parets del Vallès (Barcelona, Spain) and Clayton (North Carolina, United States). Once Clayton becomes operational in 2015, the group will have capacity to fractionate over 12 million liters of plasma/year to obtain the different plasma proteins.
During the first six months of the year, the company continued with its existing investment plans, allocating over 125.3 million euros to its own manufacturing facilities - including facilities designed to strengthen the Diagnostic Division following the expansion of the group's presence in the transfusional diagnostics sector. The majority of current investments are part of the new capital expenditure plan for the period 2014 to 2016, with a budget of approximately
600 million euros.
The projects scheduled to reach completion this period include:

• Expansion of the Clayton purification plant for fraction V, an intermediate plasma product that is purified and converted to albumin. The total investment will be 22 million euros.

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• New facilities at the Clayton's complex for dosing and filling protein vials under sterile conditions using the patented Grifols Sterile Filling (GSF®) system. Sterile filling is one of the most critical points of the manufacturing process. 29.7 million euros of investment.

• New alpha 1-antitrypsin (Prolastin®) purification, dosing and sterile filling plant at the Parets del Vallès industrial complex. Total investment of approximately 31 million euros.

• Expansion of the albumin purification, dosing and sterile filling plant at Los Angeles

(California, United States). The total investment will be 21 million euros.

• New plant at Emeryville (California, United States) to centralize all antigen production for immunological diagnostics, an investment of 96 million euros.

• Expansion (phase IV) of the plant at the industrial complex of Las Torres de Cotillas (Murcia, Spain) that will add two new dosing lines in order to integrate all production process under one roof. The total investment will be 6.3 million euros.

Other major developments include the modernization of Grifols offices and facilities in Madrid (Spain), Shanghai (China), Pisa (Italy), and Raleigh (North Carolina, United States), and investments to update several plasma donor centers in the United States.

• R&D in-house and through investees

Financial liquidity and solvency provides the foundations for Grifols' continuing commitment to research. From January to June 2014 Grifols allocated a total of 85.2 million euros to R&D, an increase of 45.7% compared to the same period of 2013, and representing 5.3% of sales. Midterm the company plans to gradually increase the resources allocated to R&D to a level of
6%, with the aim of speeding up some projects designed to promote and recover the therapeutic value of a number of plasma proteins and to improve the efficiency of manufacturing processes.
This commitment to research is also expressed through the support for the research activities of its investee companies. Including these partnerships that are capitalized, global investment in R&D is higher than the figure reported in the profit and loss account.
Grifols will continue to invest in projects to support research into diseases that require urgent solutions, such as Alzheimer's disease and cirrhosis, and to promote solutions for personalized medicine and treatment options for rare diseases.
A key milestone in Grifols' R&D policy during the first half of 2014 was the inclusion of Araclon Biotech, a Grifols company specializing in immunotherapy and the diagnosis of Alzheimer's and other degenerative diseases, in the world's largest dementia research group: the United Kingdom Dementias Research Platform (UKDP). Araclon is the first Spanish company to become a foundational member and will participate in one of the platform's most important projects. Araclon's contribution involves classifying over 1,500 individuals in asymptomatic states of dementia in order to create a massive database available to any research group in this field. The service provided by Araclon will focus on the use of its ABtest to analyze the blood samples of participants to detect and measure 3 beta amyloid peptides that could be potential biomarkers for early (pre-clinical) diagnosis of Alzheimer's disease, one of the types of dementia
included in the study.

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• Bioscience Division: 75.0% of income

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It will centralize all the plasma from the United States that is not fractionated there; it will provide a point of connection between the different plants that manufacture plasma medicines, centralizing the exchange of intermediate products (pastes) from the fractionation stage (first phase of the manufacturing process) for purification and filling (second and third stage of the manufacturing process) at the group's various plants; and it will bring together the labeling, packaging, preparation and distribution of the finished product to the group's commercial subsidiaries, with the exception of Spain and the United States, thus improving distribution times.
Construction work began in January 2014. The project is part of the Strategic Plan to optimize the group's operating and distribution infrastructure, which aims to improve the efficiency in order to operate simultaneously at several scales providing the greatest flexibility and ensuring the continuity of supplies. The facility will consist of a warehouse and logistics area to distribute products worldwide (the company has a direct commercial presence in 25 countries), a plasma classification area, a quality control laboratory, and offices.

Grifols has invested over 260 million euros in the new fractionation plant in the Clayton industrial complex. It is currently the largest in the world and one of the most advanced in the industry. When it is operational in 2015, it will employ over 200 people and will have a fractionation capacity of 6 million liters of plasma/year, almost doubling the plant's existing capacity, and enabling the treatment of more patients with rare and chronic diseases, such as neurological disorders, immunodeficiency, hemophilia and genetic emphysema. The new plant covers an area of 14,400 m2 and boasts the very latest systems and processes to ensure the highest product quality standards.

The United States FDA has approved a new concentration for the factor VIII that Grifols produces at its Los Angeles plant (California, United States). The new concentration of 2,000
International Units (IU) per vial is 500 IU per vial higher than the maximum concentration previously authorized, offering significant benefits for patients with hemophilia A who require a higher dose than the established one to prevent episodes of bleeding, and reducing
administration time by up to 30%.

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• Diagnostic Division: 18.2% of income

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ID CORE XT is a Blood Group Genotyping Test, from human genomic DNA, which permits simultaneous identification of 37 antigens of 10 blood groups in less than four hours. The molecular blood group typing employed by this kit offers greater safety in blood transfusions, ensuring greater compatibility between donor and patient. ID CORE XT kits have already been set up in Norway, Canada and several centers in the United States, among other countries.

Promonitor® is the commercial brand for the ELISA immunoassay line (test and devices) for monitoring patients on biological therapies, such as those affected of rheumatoid arthritis and other chronic inflammatory diseases. This control offers benefits to patients, to doctors, and to health facility managers, as it ensures the correct use of drugs, optimizes doses, and prevents the prolonged use of inappropriate treatments. Chile will provide a platform for the gradual launch of this product range in other Latin American countries over the coming months.

The system permits the inactivation of pathogens in platelet components and plasma, reducing the risk of disease transmission during blood transfusion. Grifols holds the exclusive distribution license for this product in the Mexican market, including implementation and technical support.

• Hospital Division: 3.1% of income

Grifols has continued to promote the international expansion of its Hospital Division. Approval has been granted in Brazil to market the Gri-fill® system for the automated preparation of intravenous solutions. It has also signed an agreement with US firm Medicrane for the manufacture in Murcia of devices and products for blood banks in the United States.

Grifols has renewed its distribution contract with German firm Panjunk for the distribution in Spain of cannulae for regional anesthesia, and its contract with Woo Jong Medical for the sale of its Accufuser® elastomeric subcutaneous infusion pumps. In addition, the Spanish Agency for Consumption, Food Security and Nutrition (AECOSAN) has authorized two new enteral
nutrition products specifically for diabetics, scheduled for release in September.

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• Saving energy, reducing water consumption and emissions, and increasing the recycling of waste: the key elements of the Environmental Program 2014-

2016

Grifols presented its new "Environmental Program 2014-2016", which sets out the environmental targets for this period. Key areas include energy saving measures in new buildings and projects, reducing water consumption, increasing the recycling of waste and residues, and reducing emissions of greenhouse gases.
During the first half of the year, new fractionation plants were opened at Parets del Vallès (Barcelona, Spain) and Clayton (North Carolina, USA). The design of these facilities incorporated eco-efficient measures to reduce the environmental impact of activities. In addition, a second ethanol rectification tower at the Parets del Vallès plant has come on stream, allowing hydroalcoholic solutions to be recycled and ethanol to be reintroduced into the manufacturing process.

• Grifols average workforce rises by 7.4% to June 2014

To June 2014, Grifols had an average workforce 12,649, an increase of 7.4% compared to the end of 2013. The workforce has increased in all regions. In Spain, the workforce grew by 4.5% to 2,756. In the United States, the average workforce rose by 6.5%, and in the rest of the world it rose by 34%. Much of the increase registered outside of Spain was due to the acquisition in January 2014 of the transfusional diagnostics unit of Novartis, a move that added more than
550 members of staff to Grifols' workforce.
Average length of service is 6.4 years, equally distributed by gender (46% men and 54%
women), and the average age is 38. Almost 29% of employees (3,653 people) are aged between 18 and 29, and 61% of employees (7,751 people) fall within the 18 to 39 age bracket.

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About Grifols

Grifols is a global healthcare company with a 70-year legacy of improving people's health and well being through the development of life-saving plasma medicines, diagnostics systems, and hospital pharmacy products.
The company is present in more than 100 countries worldwide and is headquartered in Barcelona, Spain. Grifols is a leader in plasma collection with a network of 150 plasma donor centers in the U.S., and a leading producer of plasma-derived biological medicines. The company also provides a comprehensive range of transfusion medicine, hemostasis, and immunoassay solutions for clinical laboratories, blood banks and transfusion centers, and is a recognized leader in transfusion medicine.
In 2013, sales exceeded 2,740 million euros with a headcount of 13,200 employees. Grifols demonstrates its commitment to advancing healthcare by allocating a significant portion of its annual income to R&D.
The company's class A shares are listed on the Spanish Stock Exchange, where they are part of the Ibex-35 (MCE:GRF). Its non-voting class B shares are listed on the Mercado Continuo (MCE:GRF.P) and on the U.S. NASDAQ via ADRs (NASDAQ: GRFS). For more information visit www.grifols.com

DISCLAIMER

The facts and figures contained in this report which do not refer to historical data are
"projections and forward-looking statements". The words and expressions like "believe", "hope", "anticipate", "predict", "expect", "intend", "should", "try to achieve", "estimate", "future" and similar expressions, insofar as they are related to Grifols Group, are used to identify projections and forward-looking statements. These expressions reflect the assumptions, hypothesis, expectations and anticipations of the management team at the date of preparation of this report, which are subject to a number of factors that could make the real results differ considerably. The future results of Grifols Group could be affected by events related to its own activity, such as shortages of raw materials for the manufacture of its products, the launch of competitive products or changes in the regulations of markets in which it operates, among others. At the date of preparation of this report Grifols Group has adopted the measures it considers necessary to offset the possible effects of these events. Grifols, S.A. does not assume any obligation to publicly inform, review or update any projections and forward-looking statements to adapt them to facts or circumstances following the preparation of this report, except as specifically required by law. This document does not constitute an offer or invitation to purchase or subscribe shares, in accordance with the provisions of the Spanish Securities Market Law 24/1988, of July 28, the Royal Decree-Law 5/2005, of March 11, and/or Royal Decree 1310/2005, of November 4, and its implementing regulations.

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