Gerresheimer AG
XETRA:GXI
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Gerresheimer AG
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This conference is now being recorded. Welcome to the conference call regarding the publication of Gerresheimer AG's Q1 Results 2020. [Operator Instructions] Now I hand over to Mr. Jens-Philipp Briemle, Head of Investor Relations at Gerresheimer AG.
Welcome, ladies and gentlemen. Thank you, operator, and thank you for joining us to review our first quarter results 2020. With me today, virtually, are Dietmar Siemssen, our CEO; and Dr. Bernd Metzner, our CFO. As we did in the past, we are presenting a set of slides to accompany our remarks on this conference call. The interim report, the slide presentation and the press release are posted on the Investor Relations page of our website. Please note that this call is being webcast live and will be archived in our website. Before we start, I would like to remind you that the presentations and discussions are conducted subject to the disclaimer. We will not read the disclaimer, but propose we take it as read into the records for the purpose of this conference call. Our agenda for today starts with the presentation by Dietmar Siemssen and Dr. Bernd Metzner. After that, we will enter into a Q&A session. Now it is my pleasure to turn the call over to Dietmar Siemssen.
Well, thank you, Jens, and good afternoon or good morning to those joining us from the U.S. And thank you for your interest in Gerresheimer just in ahead of the Easter vacation, that is for sure a bit different this year than the other years. So welcome to our Q1 results conference call. I assume many of you are dialing in from the home offices in these exciting days and exciting times. Let's come to the Q1 2020. Quick summary upfront. Reviewing the results of our first quarter financial results actually came in quite unspectacular. We are more or less exactly on plan and delivered according to the expected figures. Revenues are at EUR 304 million and the adjusted EBITDA at EUR 51 million. We have actually seen minor impact of the COVID-19 on our operations in the first quarter. Yes, also, we had to accept extended Chinese New Year holidays, but all our Chinese plants resumed operations 2 weeks after Chinese New Year and are since then running on schedule.Nevertheless, overall, the pandemic takes full management attention, and I really can't say that these times are boring. We manage these challenges at our 37 plants worldwide at our own. It is a great proof of the robustness of our business model, our operations in the markets we operate in. I'm very proud of how the global team is managing the actual challenging times. Besides the fact that we keep the facilities running, we still are strongly working on the preparation of our long-term goals. In other words, we do not only manage the pandemic crisis, at the same times, we take care of the long-term strategy and growth of our company. One example, we have taken care of the long-term financing structure. We have secured a refinancing due in autumn already now, and I'm sure that Bernd in a few minutes will talk about this because he's pretty proud about it. Overall, we are fully on track, and we confirm our growth guidance for 2020. If you look at Slide #5, you see our business model confirms its robustness in times of such challenges as to COVID-19 pandemic. We are a key supplier for pharma and health care. Our status of being part of the critical infrastructure is confirmed wherever needed. We do more than 80% of our revenues with pharma and health care, plus packaging for essential products like food, beverage, hygiene and so on.Another factor that makes us resilient is our global production footprint. With 37 plants in 14 different countries, we can leverage the risk, are close to the customers and avoid a cluster risk. We face up to the special situation in view of the coronavirus, which is spreading worldwide. We are fully aware of our important role as a key supplier of medicines and supplies for everyday life. We at Gerresheimer are doing everything in our power to maintain production. In our plants, we produce vital packaging for medicines, drug delivery devices and packaging for food, beverage and hygiene, and personal care products. Millions of patients and consumers trust that they will be cared for and we take responsibility for this. We are, therefore, as a logic consequence, part of the critical infrastructure of the countries in which we operate. We face up to this responsibility, and, together with our dedicated employees, supply chain partners and customers, do everything in our power to ensure that our production and thus, the care of patients and consumers worldwide is guaranteed.These days, we actually received a lot of very encouraging feedback from our customers worldwide, thanking us for the perfect supply chain, the deliveries on time and in full, which they rely on and at the end of the day, the patients, they also rely on. And I can tell you, this is something, the thank you that we received from the customers, that very rarely happens under normal conditions. As I mentioned, we are fully focused on 100% business continuity at all of our plants. The health of our employees is absolutely important. In recent weeks and months, we have taken many precautions to ensure this. We have activated a worldwide pandemic plan at all of our sites since February already. This includes special hygiene regulations, travel and visiting restrictions, working in contained and isolated groups that ensures that in case of some employee getting coronavirus, we do not have to close the half of the plant, but only a limited smaller group, and we work with various shift patterns to ensure this. All our plants are up and running. Where needed, all of them have the confirmation of the authorities that they are regarded as part of the critical infrastructure. This business continuity is not easy and takes a lot of effort, but it proves also that our operations are very well managed, that we are highly motivated and dedicated with our employees. Together, we will continue fighting these effects and challenges of the pandemic. On the other side, we take the suppliers. On the supply side, we work closely together with our supply chain partners. The supply chain is fully intact. There's no shortage of essential supplies, such as raw material, tubing, resins or gas and electricity. Just like us, our key suppliers are regarded as part of the critical infrastructure and that ensures also our supply. On the customer side, we see unchanged high demand for our products. Of course, our customers are part of the essential industry sector in all countries. They produce and fill their drugs actually more than ever. We also see additional business opportunities coming up that are resulting from the actual situation, especially in pharma, where first customers start to prepare for higher demand, but also in other areas, like food and beverage, where the demand is at a very high level anyway. The liquidity at Gerresheimer is solid. We have additional liquidity headroom for some EUR 110 million. And additionally, as mentioned before, Bernd Metzner and his team have secured a refinancing that was due for end of this year already now, which is very positive. It is important that we manage the challenges and secure business continuity. Nevertheless, it's also essential to focus on our long-term growth strategy at the same time. The activities around our growth story are unchanged, ongoing. As described in our February meeting, we see 3 key enablers for that: the cultural mindset for growth and excellence, the investments and innovation. And we see 3 large growth levers, which are: the market dynamics and market growth, our growth segments and, of course, new products. We confirm our guidance for 2020, and we aim for higher growth in the coming years. We are 100% dedicated to deliver our story, transforming our Gerresheimer onto a sustainable, profitable growth path. With this, I hand over to Bernd, who will give us some more insights into the financials. Bernd, I hand over to you.
Thank you, Dietmar, and welcome from my side as well. Please move with me to the next slide to discuss the financials for the first quarter 2020. Despite the developing COVID-19 pandemic, our business showed a robust performance in Q1. Revenues in Q1 2020 came in almost on the level of Q1 2019, amounting to EUR 304 million. The adjusted EBITDA declined quarter-on-quarter from EUR 54 million to EUR 51 million. This financial presentation year-over-year is, as anticipated, someone distorted -- somewhat distorted given the well-considered and already in Q4 2019 implemented and announced revenue model change of Sensile. As you know, we converted Sensile from a contract developer for PharmaCo to a revenue-sharing partner of PharmaCo. With this change, we had, on the one side, a negative sales impact of EUR 6 million and a negative adjusted EBITDA impact of EUR 5 million year-over-year, but increased, on the other side, and very important, the value potential of Sensile considerably. I will come back later to this topic. Apart from this, 2 aspects need to be highlighted for Q1: First, our operations were barely impacted by the developing COVID-19 pandemic. Second, the core business with P&D and PPG remains resilient and developed nicely. Below EBITDA, 2 further aspects in the P&L statement are worth mentioning year-over-year: First, we could reduce our net finance expenses in the amount of EUR 2 million year-over-year by refinancing our operations as far as possible in euro instead of U.S. dollar. There'll still be a beneficial trend for the next 6 months as well. Second, the income tax expense remained with EUR 3 million at the same level as previous year quarter. The tax rate in Q1 2020 is relatively high due to relatively low earnings contributions from subsidiaries in low tax jurisdictions. We anticipate that this will normalize again over the course of the financial year 2020, and we still expect a tax rate of 29% or 30% for the full year. As you can see from this slide, our core business performed robust year-over-year, both in terms of revenues as well as adjusted EBITDA. Plastics & Devices in Q1. Revenues declined slightly from EUR 161 million to EUR 158 million, and our adjusted EBITDA from EUR 34 to EUR 31 million. To zoom into the analysis, the slight decline was due to a onetime phasing effect in our U.S. business Centor background. Given our established year-end sales ready approach, we saw in Q1 some extraordinary customer destocking. This hurts us with a high single-digit million euro number in sales and a mid-single-digit million euro number in EBITDA. On the other side, 2 good news. On the back of our strong medical device and syringes business, the Plastics & Devices division, excluding Centor, grew 5% year-over-year organically with a slight improved adjusted EBITDA margin. Second, Centor will be back on track in Q1 and Q3, and will surprise positively with a solid sales growth and higher adjusted EBITDA contribution than in Q2 2019. Now let's move to Primary Packaging Glass. Primary Packaging Glass in Q1 continues to show another successful quarter by an organic revenue growth of 2.2% to EUR 147 million year-over-year. This development was driven by tubular glass, which developed well, both in the U.S. and in Europe. Sales in moulded glass were more or less stable and were not affected by the developing corona pandemic. The expansion in the adjusted EBITDA margin from 18% to 20% in Primary Packaging Glass was supported by our efficiency program. A few additional words on Advanced Technologies, Sensile. First, Advanced Technologies is an innovation driver by developing intelligent drug delivery systems and is steered as a long-term investment case. We invest now to harvest the benefits in the upcoming years. Worth bearing in mind, all the potential benefits of Sensile are not included in our midterm guidance. Second, end of last year, we changed our revenue model. Instead of getting reimbursed for the development costs from PharmaCo, we prefer to get a higher portion of the revenues from our PharmaCo partners instead. In other words, we evolved from a contract developer for PharmaCo to a revenue-sharing partner of PharmaCo. Third, the development of our micro pump for chronic heart failure treatment, this SQ Innovation, is fully on track, and we assume the results of our clinical trials end of Q3. Last, but not least, fourth, the minus EUR 4 million adjusted EBITDA in Q1 are not representative for the rest of the year as these losses are front-end loaded. We expect around minus EUR 10 million for the full year 2020. Let me now highlight the main points on the cash flow development on the next slide. Our free cash flow before M&A was with minus EUR 78 million, almost EUR 50 million less than in Q1 2019. The reason for this nonrepresentative but expect outlier are twofold: First, CapEx. The EUR 32 million CapEx spent in Q1 2020, we are smoothing our phasing compared to the previous year and implementing the CapEx projects according to plan. We still plan to invest 12% of revenues in the financial year 2020. Second, change in working capital increased by EUR 32 million compared to Q1 2019. Some aspects: A, we are routinely building up our working capital significantly in the first quarter of a year, especially when we renew furnaces like in Lohr or in the U.S. So nothing new from this side. B, apart from this, however, we had significant phasing effects in Q1 2020. As you might remember, we had an extraordinary strong working capital release in Q4 2019, where we reduced our working capital by almost EUR 60 million, and accordingly, around EUR 24 million more than with EUR 33 million in Q4 2018. This EUR 24 million carries forward into Q1 and hurt us now. C, good news. For the full year 2020, we expect to expand our working capital in line with our revenue growth. Or said differently, over the next 3 quarters, we will see a significant working capital release, almost counterbalancing the buildup in Q1. Looking at the free cash flow before M&A in 2020, we expect to arrive at the same level of EUR 34 million as in 2019. Let me now elaborate a bit more on the financial position of our company. As you can see, our net financial debt according to the credit agreement in force increased by EUR 83 million from EUR 932 million to EUR 1.015 billion.The adjusted EBITDA leverage ratio, calculated as net financial debt to adjusted EBITDA, increased from 3.1 to 3.4 accordingly. Important to note, our new revolving credit facility, dated October 2019, considered our CapEx plan and increased our financial covenant from 3.5 to 3.75 financial leverage. This gives us financial flexibility in the amount of about EUR 110 million. As you can see from the maturity schedule on this slide, we will have to refinance EUR 190 million promissory loan by November this year. We solved this matter already today. Please move to the next slide. In order to secure the refinancing of the promissory loan due in November 2020, we finalized the bridge financing yesterday. I would like to highlight the following points: First, we have a firm bank credit commitment for EUR 191 million in order to refinance the promissory loan. Second, this bridge financing has a maturity of 24 months, starting end of April 2020. Third, the costs for this protection are negligible. Fourth, as soon as the market conditions are attractive again, we will launch the promissory loan to redeem our promissory loan due in November 2020. The fact that we are able to agree on a bridge financing in these turbulent times is a clear sign of balance sheet strength and reflects Gerresheimer's proven and resilient business model for capital markets and our bank partners. With this, I'm now handing back to Dietmar.
Yes. Thank you, Bernd. I know that you are very proud of the refinancing, and it is a good job, very good job of the team. Yes. With this, I come actually to Chart #17, which gives us an outlook to the second quarter. So some remarks on Q2 and the businesses in detail. As you heard it from Bernd already, our Plastics & Devices business performs very well. We expect good growth, above 5%. The demand for prescription vials in the U.S. is also very good, and we expect syringes as well to grow significantly. Primary Packaging Glass looks good, too. Pharma glass packaging is expected to grow well and show good growth. Cosmetic packaging is lower, especially in the perfume sector these days, but not all of the effects due to COVID-19 are actually negative for us. Some opportunities due to COVID-19 are clearly visible. Especially in pharma, we see that several of our customers are preparing for an increase, especially in the areas of vaccination. This provides very interesting opportunities for us. Besides that, I think it's worth to mention the positive development of our micro pump project with SQ Innovation, and the project is fully on track. We expect the clinical trials to start during the summer as scheduled. So the program is developing very, very promising. Switching over to the Chart #18, to the guidance. I am actually very happy that we, especially in these quite challenging times, are able to confirm our guidance and are able to stick to our plan to deliver growth for Gerresheimer in 2020.We also confirm our midterm guidance. Also, for the EBITDA margin, the -- in February, already mentioned 21% goal for 2020 and the 23% midterm. Our investment in growth projects, capacities, new products and the digitalization is essential for our growth plans and will be at 12% of sales in 2020, setting the foundation for the strong growth in the coming years. Let me sum up. We have 3 clear priorities: no doubt, we have to ensure business continuity at the moment: we have to deliver according to our growth plans; and we are prepared for acceleration of our growth plans even further as soon as, step-by-step, the global situation will hopefully return more and more to normal. With this, I will hand back to Jens Briemle, and I'm looking forward to your questions. Thank you. I hand over to you, Mr. Briemle.
Thank you for your presentations. So let's enter now our Q&A session. Operator, please go ahead.
[Operator Instructions] And the first question is from Scott Bardo, Berenberg.
Congratulations for responding to the challenges that many companies face themselves in today. A few questions, please. So firstly, I'd like to explore a little bit further your dynamics and exposures within the Cosmetics segment. You mentioned that you have certain exposures to perfume flacons, but other things within this portfolio. So can you please give us some sense as to the magnitude of the various components? And what your order visibility is for the various different buckets within Cosmetics? Just following on from this topic of Cosmetics. I think we saw in the previous economic crisis, 10 years ago, some quite sharp negative operational leverage in your previous moulded glass business. Can you help us understand the differences in the cost flexibility that Gerresheimer has now to absorb any negative in Cosmetics? And whether you would anticipate divisional contraction in PPG surrounding some volatility in Cosmetics? Follow-up question then. Very pleased to see the bridge financing and also your discussion of liquidity being EUR 110 million or so. Question really relates to, if things get worse than you think in some of the more volatile and unpredictable parts of your business, can you describe some of the tools you have to increase your liquidity? I think within your release, you mentioned there are various variable buckets and items that you have to potentially increase liquidity? Wonder if you could explore those in more detail for us?
Yes, Bernd, I think I'll take the first question, and leave the third, especially to you. And the second, which I did not fully understand. So I leave it to you as well, Bernd. Maybe, I'll pick up the first one, Scott, the Cosmetics. Yes, the Cosmetics business is not one business. Yes, you have to differentiate a little bit in the different areas of the cosmetic. There are, of course -- of the EUR 180 million, EUR 190 million in sales in Cosmetics, you have 60 -- around EUR 60 million that are in the perfume sector. And this is the one where you see the biggest impact because you can imagine at the moment with all the shops closed, the airports closed, the sales goes down. So we expect here maybe a hit of around, let me say, some EUR 15 million to EUR 20 million for the next 2 months. It is partly compensated by other areas, and the other areas that are kind of only minor impacted, for creams and so on, within the Cosmetics. We are partly compensating this by using capacities here for other products, which are more in the food and beverage areas. We can compensate certain things here. But there are also other opportunities to compensate. It's also partly compensated by the fact that we really enjoy some increased sales out of the -- demands out of the pharma business. I think this is to the Cosmetics. I don't know whether you need some more details on that.
That's helpful.
And coming back to...
The moulded glass topic, Bernd, I hand over to you. I'm not fully -- it's not fully clear what the question is. I hope you understood it better than me.
I'll try, Scott. But it's clear, we -- so far, we are organized that we don't think that we have a, let's say, that we -- that all our lines are still active. And you actually asked what happens if one -- and the logic is, by the way, we are quite lucky one because in this time, we are -- our fragrances and perfumes are maybe under -- has some difficulties. We have also other opportunities. And one of them is that our competitors are actually stopping their production and they are now in need that we're helping them out. And this is one aspect, one to other -- with competitors, which I don't want to name here, which basically need also our support on this side. Having this said, therefore, the likelihood that you have to shut down one line is quite limited, and also not in our base case scenario, reflected. But even if this would be the case -- now a little bit theoretically, if this would be the case, can you basically go different from 10 years ago? You basically go to the government. Just our, in the end, only European plants affected if at all, and they will actually support us that you get rid at least part of your fixed costs. And I think that we can manage this -- that we can -- that we could manage this for 2, 3 months in a way that our margin is not really affected. And we have also reserved certain buffer in our plan now, for example, energy and so on, which helps us as well to compensate for that. So we're calculating with certain buffer in this respect, but we hope that we don't need this -- to make use of it because we don't want to shut down any lines, and we have not yet -- we don't see that this is actually really needed and necessary.
Yes, maybe, I have chance. If this is the question, of course, we have in our plans prepared for certain things in the facilities like short-term work and so on. But at the moment, this does not seem to be necessary, honestly spoken.
Regarding your third topic, bridge financing. Indeed, we have a certain headroom now for EUR 110 million. And what you should know, it's really -- we are talking now about scenarios, which we don't see from a management because if I look now at our numbers, also now in March, for example, and the forecast, we are now in the middle, actually, of the second quarter, we are really acting according to plan. This is what we foresee and we have a positive outlook, as mentioned by Dietmar before. But considering that you have really a worst-case scenario and all is a drama, then at the end of the day, you have a lot of bigger rooms CapEx. You have a lot of variable costs, which we have in our organization, which we simply can phase into other quarters to secure our liquidity here. And on the back of our headroom what we have is EUR 110 million, I think it's really not -- it's from this perspective, not an issue. But clearly, we are quite very close to our business operations these days. And we have a very tight financial management control in these days. That's crystal clear, Scott.
That's very helpful. And maybe just a last very succinct point. So Dietmar, how confident do you feel on paying the scheduled dividend this year? Is that very important to you? Or have you not made a -- you and the Board made a determination on that yet?
It's better to unmute. Yes, I think we are -- there's no change in the plannings. Also to the AGM, it's -- I see a couple of companies moving them into the end of the year. We have no intention to move the AGM ahead away from the schedule, which is in June this year. And with this, we will also pay out the dividend according to plan.
And the next question is from Falko Friedrichs, Deutsche Bank.
I would have 3 questions, please. Firstly, regarding the CapEx spend this year. Do you still anticipate to spend the full 12% of sales? Or is it likely that certain investments could be pushed into next year given the current situation? And in that regard, do you still plan to have the furnace repairs this year? Then secondly, a follow-up on the Cosmetics business. As these tend to be higher-margin products, do you expect this to weigh on group margins temporarily? Or can you offset this by using the lines for food or pharma or other products? And then thirdly, what are you seeing in terms of business from Pfizer out of the U.S. currently? And is that starting to meaningfully recover?
I -- Bernd, I think most of them are in my direction, yes? Yes, coming to the CapEx. Yes, we -- I will not guarantee that we spend all the 12%, and it's not our key target to spend as much as possible. And it might be that one or other of the CapEx is delayed. We have, for example, a machine producer in Malaysia that has some difficulties. If this comes, we will decide to postpone the CapEx into the next quarter or maybe into the next year, but we don't see absolute major deviations at present. But there's no doubt, at the moment, you are planning on site and you have to respond every week to the things that are coming up. The Cosmetics business is -- has good margins. No doubt. I think we can compensate this. The -- as Bernd said, yes, we are partly able to compensate the business because we are also filling our production sites here in Momignies, and also, Tettau, with products -- other products, food, for example, but also what was carefully mentioned by Bernd with competitor products, where we are helping out because our competitors or many of our competitors have, in principle, switched off their productions. So I don't expect major impact here of -- on the margin in total. And the Pfizer topic is an important one. Actually, the local plants here in U.S. that were creating these problems are still causing difficulties and the orders are not much higher. But step-by-step, you clearly see that we are able to compensate this with other alternative customers. And also, Pfizer is increasing their demands in other areas, for example, preparation of potential vaccination periods.
Okay. Great.
Actually, this is -- yes, they are not back, but the business is not developing unfavorably.
And the next question is from Veronika Dubajova, Goldman Sachs
I will keep to 3, please. My first question is just, I wanted -- I was hoping you could elaborate a little bit on your comments around the growth acceleration as we move through the year. And I guess, maybe a little bit of commentary on what you've seen in March and April so far. And then as you think about both the growth and EBITDA progression throughout the year, how should we be thinking about that cadence, Q2, Q3 and Q4? If you can share some color around that, that would be very helpful. My second question is actually a follow-up to Falko's question. We are hearing anecdotally that there are some drug shortages and increased demand emerging for certain injectable drugs. Is this something that you are seeing on your end as well, and that could potentially represent some positives from COVID, not just negative on the Cosmetics side? And then my third question is, please, just around the debt covenants and your thoughts. I mean obviously, you were at 3.4x at the end of the quarter, the covenant at 3.75. Any risks that you see in terms of breaching that level?
Bernd, the third one is very clearly for you, but I think we should also share the first one. I talk about the sales, you about the EBITDA. Yes, growth acceleration over the year, there is no revolutionary new information here. We will grow with existing customers, where we are increasing our share of wallet, taking the glass, for example. We will increase partly with new products, where also some of our innovational products really play now an increasing role. We are talking the Elite Glass, where we've really been able to secure the first business, not in the books, but we will start delivery. Same is valid for the first ready-to-fill vials that we will ship over the loop of this year, which is good because these businesses are not -- are really helping us. The syringes, as we mentioned before, are really running very well, and we will probably see more of it with a higher, let me say, compliance for people that take a vaccination for flu, for example, in fall. So the demands will go up here. But also we enter into new products -- into new markets and new customer groups, yes. We should not forget about the growth that we enjoy at the moment in India, for example, glass, where we clearly show double-digit growth figures. We should not forget about the Plastic Packaging business increases that we enjoy in both China and also in Brazil, South America. So it's a mix of everything. I think I told you in February, yes, the first quarter will not be a total surprise, but Gerresheimer will show growth from the second quarter, and there's no doubt. We also look very clearly into the figures, how will corona impact us. But we are now confident that the second quarter will already provide us with the necessary growth, and we are starting to grow story with the second quarter.I cannot totally avoid the impacts coming from the Cosmetic, and I will not talk it beautiful. There's for sure a certain EUR 10 million, EUR 15 million risk in here, and I do not know how much of this we can compensate. But even if this counts, our story is still intact.And the EBITDA, do you want to say something to the EBITDA progression, Bernd?
Practically, Veronika, regarding the EBITDA progression, I mean, from a margin point of view, we are more or less on the same level as previous year. But what we see is that we -- this is our base case, what we see is that we have also support of energy. That's clear energy cost somehow and also the U.S. dollar helps us, at least in the reported EBITDA, if you compare this with this previous year. So in this sense, definitely, I'm also quite optimistic for the next couple of quarters. By the way, we have also some quite interesting products from a product mix portfolio. And it looks also pretty good if you're going more into innovative products, like we have specialty glass and so on. So I'm quite positive also for the rest of the year as far as our EBITDA growth acceleration is concerned.Your question regarding the debt covenants. Indeed, we feel very comfortable with the headroom what we have there with around EUR 110 million as of today, because we increased our covenants from the 3.5 to 3.75, especially in light of the CapEx program, what we have -- what we had in our mind. But apart from this, what we need to see is that we always look from a scenario point of view on our business. And if need may be, you can mobilize our business around 50 -- yes, EUR 50 million, EUR 75 million CapEx, working capital and other discretionary spend, but you can really shift and move into different quarters or simply save. And therefore, if you see this package in total, we feel very confident that you -- that we don't have any liquidity issue.
I pick up the second question with -- you had mentioned the drug shortages in injectables. The short answer is, we do, so far, not see any short-term impact of these drug shortages on the demand midterm. Long term, you have to see that the discussions that are ongoing, for example, in the U.S., also in Germany at the moment with a stronger localization of the production. This, for sure, gives us also opportunities as we -- and if that comes -- if the localization is increased, as a global player with our global footprint, of course, can serve our customers wherever they are in the countries where they need us, and that, for sure, gives us opportunities that are coming on top.
And can I just ask as a sort of a quick follow-up, do you think you can already show mid-single-digit organic revenue growth in the second quarter? Is that your expectation right now?
Absolutely. That's my clear goal. There's a small question mark with how big will the impact be in April-May for the Cosmetics? Can I compensate all of this? But so far, we are on plan.
The next question is from David Adlington, JPMorgan.
Two questions from me. Firstly, just in terms of the margin benefit in PPG in the quarter, you obviously had some efficiency savings and also some energy cost savings. I don't think the latter will be sustainable given the past due prices. I just wonder if you can give us maybe the underlying benefit from the efficiency savings of about 200 basis points or so improvements. And then secondly, just a question on stock levels at customers. During the financial crisis, we saw customers destock from about 6 months, I think, down to about 3 months in memory. I just wonder how -- where the stock levels at customers were now? And where you think stock levels might go, either up or down, from here in relation to the COVID outbreak?
I think I'd take both of the questions here. You can add, Bernd, if you. It's a little bit different now, you have to understand. We usually are sitting next to each other. Now we're in the kind of home office, we don't see each other. Yes, the first point, I understood you that goes in the sustainability of the margin improvements in Glass. I think you saw in 2019, 12% of our sales was spent in CapEx. And we always told you some of this CapEx actually is not only spent into capacity increase, but also in digitalization and efficiency improvement. And actually, these things are coming now, and we are seeing them, and they are sustainable. And I hope that they will further improve over the loop of the next months and also years because there are further investments that we will do. And the energy, of course, are also helpful at the moment. There's definitely an energy impact of some EUR 6 million, EUR 7 million beneficial for us at present. Yes, to the stock level, we have actually seen some customers destocking, and now we see customers upstocking again. If you look at in the Plastic business, for example, it's very clear that our customers are filling their warehouses again. And you should also see this in Plastics in the U.S. I think you heard in the presentation, the central impact for the warehouses were reduced. Now they are starting to fill them up again. So I think, we are more in the level of normally filled warehouses at present maybe a little bit in the direction of they are pretty full.
Just to -- maybe to add on the energy costs for Q1, especially, maybe, looking at the margin here, you had maybe in EUR 1 million, EUR 2 million support in Q1 for PPG and the rest comes really from product mix and efficiency gains in the end of the day. And that's a good development, especially if you do have a nice track record now on PPG over the last couple of quarters, as you know. And -- therefore, we're very confident also for the upcoming quarters in this regard. And we have to leave some support here, as mentioned by Dietmar, also in the next couple of quarters. Dietmar mentioned EUR 6 million, EUR 7 million. This was on a full year basis versus our original plan.
The cost efficiency in the facilities are also obvious. Improvements are obvious. They are coming due to the investments we made into the processes. They are improving the automation, which, of course, is helpful for the costs. But also the process capabilities, which is leading to the fact that the quality -- first produced quality is much better and the nonconformity costs are lower, and this is definitely sustainable.
If you allow me one topic, David, on the destocking practice. In our industry, I mean, you have -- our customers are quite, let's say, conscious about that they have sufficient, let's say, inventory level -- that they have a sufficient high inventory level. And for the experience that mentioned before by Dietmar is that we are -- our customers are better prepared to be on the safe side and it has been a tendency because you ask about the tendency better more than less on the inventory and the increased inventory levels. That's at least my gut feel telling me.
The next question is from Daniel Wendorff, Commerzbank.
And three, if I may. And the first question is on something you said in the call. You mentioned the opportunities for your business coming from vaccination strategies against COVID-19. And can you talk a bit more how exactly you plan to benefit there? And my second question would be on your vials business. How big is that overall in terms of volume and value? Any more color you could provide would be much appreciated. And my last question would be on working capital again. What makes you so confident that the working capital development will turn during the course of this year when everything runs according to your plan? And can you provide us a bit more color here?
I'll start, maybe, Bernd. The vaccination, it's not only COVID, you have to see. But there's no doubt, we clearly see that some of our customers are preparing also for a COVID vaccination. If this comes up, it will be too less time to do it in syringes. So we have to expect clearly that this goes into vials, and we have several customers to talk very briefly about demands that are asking for several hundreds of millions of additional vials and are preparing for these capacities. You cannot just squeeze out hundreds of million additional vials out of the market, not at Gerresheimer and none of our competitors, but we still have a solid amount of free capacity for these needs. On the midterm or long term, you have to clearly see that this will also lead to what I mentioned to a higher compliance for the normal flu vaccination in certain countries, and this will definitely also increase the demands of syringes. And we have, of course, customers preparing for this.On the long, long run, for -- not only in the next 12 months, but longer out, it might be that we have to -- clearly have to see the potential of countries that are deciding that they will increase the base protection of their people by demanding a certain vaccination. And this, for sure, will increase the need of worldwide capacity for syringes, and that is for sure interesting also to us. To the second question, I do not exactly provide you with a number of million units, but over the time, we have more than EUR 100 million sales in -- more than EUR 100 million -- EUR 120 million sales in vials, and it's an important part of our business, no doubt. It's both converted and moulded. We have also a certain amount of moulded vials as well.And question to the working capital, Bernd, I think, I hand it over to you.
Yes, definitely. Daniel, in practices as follows, you have -- we built up EUR 80 million in Q1. Then, if you want to build up your working capital according to your sales growth, you actually would assume you built up your working capital by EUR 10 million to EUR 15 million. And therefore, you have a data of around EUR 70 million, EUR 65 million, and this is something you can manage. It simply comes back to simply good working capital management. And the good testimonial is our Q4 2019, where we actually reduced our working capital by EUR 60 million. So actually, then you have still a stretch of EUR 10 million, EUR 15 million. And yes, our organization will swallow it. Somehow, we have to have a tight working capital management in the next couple of months. But based on this logic and based on this track record, it should be really doable.
And we have a follow-up from Scott Bardo, Berenberg.
So first follow-up, please. It was my understanding that the initial contract for asthma inhalation devices in Europe, your Horsovsky Tyn and Czechoslovakia manufacturing facility was contingent on you having that facility up and running towards the end of this year. And I appreciate this. There's some disruptions to construction amid this COVID situation. But can you confirm that, that facility will be up and running, although there's no need to be concerned about you fulfilling your sort of contractual obligations towards that expansionary effort? So that's first question, please.Second question more of a sort of a high level topic. I think surrounding this COVID crisis, a lot of countries have been acting in a very sort of focused and potentially protectionist way. And we're hearing that in North America, for example, there will be methods and processes adopted to make sure manufacture of certain drugs takes place in America, such that it's less reliant upon supply chains from Asia and so forth. Do you envisage a scenario where this could be a positive or negative for Gerresheimer if there is change in the supply chain of pharmaceuticals in the future? And last question, please. I understand that you have some relatively major partnerships with the in vitro diagnostics industry for your Plastics business. And some in vitro diagnostic companies are seeing some sharply negative routine testing volumes for their products. But at the same side, some of those companies coming up with new serology solutions for COVID. So the question really mean -- relates to, are you seeing any signals of any potential negative to your plastics components business for the in vitro diagnostics industry?
Yes. The first one I can answer very fast. Both the plannings for Horsovsky Tyn, but also Skopje, where we also have a plant where we want to start production this summer are super minor delayed. If at all, it's going to be more taking weeks instead of months. So in principle, we are more or less on plan here. No relevant deviation in this. The COVID countries have been acting in this way. I don't say that I love this, but -- on a political base, but for our business, actually, this is something we love because as I mentioned before, with our global footprint, we can really serve our customers in the region where they want to have the products out of the region, and that gives us a competitive advantage compared to many of our competitors, if not all of them. So this is very helpful, and this is more positive to us than negative. The diagnostic business is a good business for us. It's not very big, and I -- if it would be bigger, I wouldn't complain. We have no negative impact so far. But no doubt, there might be opportunities with us due to possible increase of diagnostics, for example, for testing in corona. But that's a bit too early to talk about.
And the next question is from Aliaksandr Halitsa, Hauck & Aufhäuser.
I just wanted to ask on -- I hear that there are -- there was a shortage of certain glass tubes in some countries, which is -- basically creates bottleneck for COVID testing. I was just wondering whether that's something you observed, and if you have anything do with that?
As I mentioned in the presentation, the supply chain is secured. We don't see problems. Even though we have one of our suppliers that is actually in north of Italy, but the supply chain is secured.
No, what I meant is basically that there is a need for, I don't know how they precisely call it, for certain glass tubes, which one uses in diagnostics of -- for COVID-19. And so I was wondering whether it is something that you have exposure to with your business in a way that she would then benefit or help to really alleviate this supply shortage?
I think we are neutral here. For us, the supply chain is secured. And for the aspects -- other aspects, I think it's -- I can't answer.
[Operator Instructions] And we received a follow-up from Daniel Wendorff, Commerzbank.
This is just a financial question on the refinancing. And can you already comment on how this will change your financial result? I know it's a few months away, I guess, but maybe if you could give us some kind of guidance there also within -- in the next -- for the next fiscal year, that would be appreciated.
Bernd, I think you have pointed out if I would take this question yes?
Thanks a lot, Dietmar. No, Daniel, thanks for giving me this question. So in practice, what we have done here and now with this bridge, it isn't the end of the day. It should not have an impact for '21 actually because we are planning to issue debenture notes this year and refinancing our debenture notes due in November based on this debenture notes. So there should be no impact going forward. But if you look at -- by the way, if you look now and the interest development in the last couple of months, we should see an improvement because it changed our financing -- refinancing more towards euro than to U.S., and therefore, this should give us really support. You have seen this now with USD 2 million -- EUR 2 million in Q1, where we were better than previous year. Having this said, actually, this is protection what we have done now. With the bridge financing, what we hope not to make use of, in practice, cost us EUR 1 million or something like that. So it's very negligible if you compare this to your overall financing -- financial expenses, which are around EUR 20 million for a year like 2020.
And we have a follow-up from Falko Friedrichs, Deutsche Bank.
--Sorry, I was on mute. Just one quick question. Was there any factoring of receivables in the first quarter? And if yes, how much?
Bernd?
Just to take it up, you have no -- we had EUR 10 million factoring in Q4 last year, and we kept this level, so you don't have any impact in the working capital or in the working capital management for this effect. So we stand and -- still stand at the level of EUR 10 million, which is a revolving factoring line.
And the next question is from Christoph Gretler, Crédit Suisse.
So I still have actually now 3 questions left. The first is on, you mentioned a few times that you're actually still kind of working in some plants whereby your competition is actually apparently knocked. Could you explain to me that, basically, are you more or less risk-averse or basically better managed? Because, for example, I heard one of your competitors saying that kind of, for example, in India, you can only work at 50% of capacities because of social distancing requirements. That would be my first question. I can probably do it on a sequential basis.
Yes. I don't know whether it's risk-averse, maybe we have a better set up with the opportunity to balance a little bit better the production, which means if some products fall out, we can really compensate this with some others. And with a footprint also in Europe with Momignies, for example, in this -- there's only 2 plants that are really affected, which is Tettau and Momignies, but we can balance a little bit the business back and forth, which helps us for sure to work here. To pick up the India topic, definitely, it was also for us challenging to keep the production up, and there were also 2 days where we couldn't run properly. The advantage we have here in India is that we have actually the areas where the employees can live, we have them on-site, or very, very close to our production plant. So we offered them living opportunities. That, of course, gives us the opportunity that we have the workers available in the facility because the biggest problem in India is at the moment that they -- that the people can't go to work because they are not allowed to travel, even though they have permission papers with them. But there's sometimes a chaotic and crazy situation in India, and that gives us, at the moment, the opportunity that we can still produce. But you should not get the impact that everything is just easier. It is, at the moment, challenging to keep all the production running. That's what I meant in the presentation. The teams in our facilities, the management teams, are really doing a great job maintaining the production, keeping them up, and that is good.
Definitely. I mean it's very impressive. The second question now relates to actually the transportation of your end product. I mean we've seen kind of some of this in term of -- the freight costs now going through the roof at the moment. I mean first of all, are you actually kind of paying for freight to your end customer? Or is that already kind of taken up by your end customer? And if you are basically kind of not paying for it, is there any kind of extra cost we should expect? Or is there a certain risk there, either getting capacities or because, I guess, it's kind of gets more costly?
Yes, also here, we benefit from our global footprint. We are actually producing in the region for the region. So there's not a lot of transfer back and forth in between different countries. As such, air freight is something that we, in principle, do not have. And I have to take this -- raise this. In principle, actually, we do not have air freight. So that's -- it's mainly truck -- trucks. We were challenged also here in India, for example, because also we had difficulties to get the trucks because the drivers couldn't drive. But this was only for a few days and is solved now. And to your question, are we paying? Or is the customer paying? We have various systems in place. We do not expect any impact or relevant impact on extra cost for freight at the moment.
Okay. That's encouraging. My last question would be on new business development. Could you speak about the funnel of new projects? And basically, does this come to a stop in this environment? Or do you still have discussion with kind of customers for new projects? I guess, it's a bit more forward-looking question. Medium-term kind of -- so that you can deliver on the medium-term growth plans, I guess, it's important to have the discussions now. So how does this work these days?
Yes, the question interesting because I -- and I do not have a clear yes or good or bad answer. There's, no doubt, some of the customers you have difficulties to reach them. And as such, it's difficult to discuss about new business. On the other side, you also have a lot of customers that are now better accessible than ever because they are now at their home office, and if you call them, they pick up the phone. So it's -- I would call it more neutral. But there is, no doubt, some of the discussions are delayed for a couple of weeks. But when we talk new business, we are talking '22, '23, '24 and whether a month back and forth will not impact us much. The success we have actually, and I have carefully mentioned this in the presentation that you will see out in the later quarter this year and also in the beginning of '21 are obvious though. There are business wins we do with Elite Glass and ready-to-fill areas that are definitely what I call new innovative products and they will help us. And it is, yes, for me, motivating and inspiring. And we need to see that we are able to convince our customers with these new products. And if you have your new innovative product, you have to get the first customers that are really convinced, then the others will go along. And take the example of Elite Glass. This is really an opportunity where our customers are paying more for the product, but they also get more and they can run their production lines faster and on higher quality, so the total cost of ownership for them is lower. But it takes some time to convince, and it's great to see that we now -- in end of Q3, Q4, we'll see the first customer that is switching his production to Elite Glass. That's cool.
There are no further questions at this point.
If there are no further questions, we would like to thank you for joining us today. Please note that we are going to publish our second quarter results for 2020 on July 14, 2020. Thank you so much, and enjoy the Easter break.
Yes, thank you for your strong interest just ahead of the Easter break.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.