By Joan Faus
BARCELONA (Reuters) -Shares in Grifols fell 35% on Thursday, prompting a halt in trading and movement of the shares into auction mode, despite the Spanish drugmaker's attempt to regain investors' trust after reporting a 72% plunge in 2023 profit.
The results are the first since a Jan. 9 report by hedge fund Gotham City Research, which questioned the company's accounting and debt ratio, wiped $3.8 billion off its market value. Grifols has dismissed the report, insisting its data was correct, and sued Gotham City.
Thursday's stock dive intensified after Grifols executives told analysts on a conference call that the company aimed to reduce its debt ratio to between 4.0 and 4.5 times its EBITDA by year-end as it is currently working on one or two asset sales.
It also announced that its current executive chairman would become non-executive chairman next year.
Grifols posted negative free cash flow for the second straight year. As analysts pressed executives on Grifols' 2023 negative free cash flow of 189 million euros, Chief Financial Officer Alfredo Arroyo said the company aimed to close the year with free cash flow just below break-even, already incorporating the impact of credit interests.
Broker XTB said Grifols would struggle to cut debt if it did not generate more cash flow.
"The market actually expected a free cash flow of around 500 million or 600 million euros and in the end it will be much lower," said XTB analyst Javier Cabrera, referring to comments by Grifols' CFO this year.
The 2023 profit of Grifols, which produces drugs made with blood plasma, fell sharply to 59 million euros. Grifols attributed the drop to restructuring costs and rising expenses. Analysts polled by LSEG had expected profit of 162 million euros.
The company said on Thursday its leverage ratio fell to 6.3 times EBITDA (earnings before interest, taxes, depreciation and amortisation) at the end of 2023 from 6.7 times in the third quarter.
Including funds from the $1.8 billion sale of its stake in Shanghai RAAS Blood Products, the ratio would fall to 5.4 times EBITA, Grifols said. The asset sale is expected to close in the first half of 2024.
"Our best estimate for year-end is a leverage target between four and 4.5 times," Arroyo said on the call, adding the ratio could even fall below four times depending on the divestments.
JPMorgan (NYSE:JPM) analysts said earlier on Thursday the share fall may have been triggered by Grifols' disclosure that the results were not yet audited, although it expected an opinion from KPMG by March 8. Grifols accounts are normally signed off ahead of publication, JPMorgan said.
Grifols CEO and Chairman Thomas Glanzmann, who will leave his CEO role on April 1, said KPMG would issue a clean audit opinion and added that the timing of the audit was related to administrative matters, without elaborating.
Last month's report by Gotham City capped four tumultuous years for the Barcelona-based company as the COVID-19 pandemic severely hit its capacity to collect plasma, prompting the market to focus on Grifols' debt.
The company expects 7% revenue growth this year and adjusted EBITDA to reach 1.8 billion euros ($1.95 billion), when excluding currency swings, after 1.5 billion euros last year.
($1 = 0.9219 euro)