Gerresheimer AG

XETRA:GXI

Earnings Call Transcript 2020-Q3

[Operator]

The conference is now being recorded. Welcome to the conference call regarding the publication of Gerresheimer AG's Q3 Results 2020. [Operator Instructions] Now I hand over to Ms. Carolin Nadilo, Head of Investor Relations.

[Carolin Nadilo, Corporate Director of Investor Relations]

Welcome, everyone, and thank you for joining us to review our third quarter results. With me today are Dietmar Siemssen, our CEO; and Dr. Bernd Metzner, CFO. As we did in the past, we are presenting a set of slides accompanying the management's notes on this conference call. The interim statement, the presentation and the press release are posted on the investor relations website. Please note this call is being webcast live and will be filed on our website, too. Before we start, I would like to remind you that the presentations and the discussions are conducted subject to the disclaimer. We will not read the disclaimer, but propose taken it as read into the records for the purpose of this 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. And now it's my pleasure to turn the call over to Dietmar Siemssen.

[Dietmar Siemssen, CEO & Member of Management Board]

Yes. Thank you, Carolin. And good afternoon, ladies and gentlemen. Good morning to those of you joining us from the U.S. or overseas. And welcome to our Q3 conference call. I'm pleased to have you on this call today and hope everyone is healthy and also stays -- remains healthy. These times of the global COVID-19 pandemic require brave, dynamic and innovative measures to learn from the pandemic and to force the long-term growth opportunities. And it's important for me to emphasize that Gerresheimer does. Our second half of 2020 will reflect the whole picture, stating the very positive developments on the high dynamic in our Gerresheimer. Let's look into Q3 and the outlook for Q4 now, and the growth opportunities we are clearly facing. So let's start. Q3 is stating the obvious. Our core business proved very robust, growing organically with 2.1% despite the COVID-19 impacts. No doubt we have been facing temporary headwinds in our cosmetics business. But the growth we have been able to achieve in the other business businesses or business segments are able to overcompensate these impacts. We are continuously advancing our growth strategy, implementing the foundation for profitable, sustainable growth. And we are looking into a very strong fourth quarter, meaning back-end loaded fiscal year. Looking at the top line, reported revenues in the third quarter 2020 came in at EUR 349 million, including the before-mentioned impacts on parts of our cosmetics business. Bottom line, the adjusted EBITDA increased EUR 75 million with an, as well, increased adjusted EBITDA margin of 21.5%. Also good to see that our free cash flow significantly improved year-over-year to EUR 38 million reflecting the strong earning quality in our company. Bernd will definitely elaborate on the financials in more detail later but what is very important for me to mention is that we should not isolate the third quarter and look at the third quarter only but look at the second half of our fiscal year as a whole. Our growth plans remained unchanged and we continue to invest into innovation, capacity, quality, excellence and digitalization. The third quarter reflects only partially the fiscal year's full picture which is as already announced strongly back-end loaded. We delivered on our promises and we see a very strong fourth quarter ahead supported by strong orders, new business SOPs and additional capacities showing now first results. This gives us the confidence to confirm our guidance for the full year 2020.The dynamic of the transformation in our Gerresheimer is continuously high and the initiatives we are taking enable us to benefit from the global megatrends in pharma and also health care. Today we selected 2 examples of the various activities in all the areas of the Gerresheimer's portfolio. I would like to give you more color on Gerresheimer's opportunities in the increasing biologics markets as well as the increasing importance of our pharma products, especially here in glass vials and also syringes. For sure, biotechnology is a highly promising market for Gerresheimer. We see strong growth potential in the market for injectables in general. While the market for small molecules will remain strong, we see even larger growth potential for biotech-based drug products, implicating an overproportion growth in large molecules. That means the fast-growing biological sector will offer significant opportunities. And we will make sure that Gerresheimer, with its unique broad portfolio of products, will serve the biotech companies with the right product solutions and that Gerresheimer will be part of this strong biotech market story or market development. We launched in the last months Gx Biological Solutions, a dedicated unit with technical and development experts, offering enhanced services for pharma packaging solutions in both the U.S. and also Europe. We are adding essential laboratory and regulatory services for biotech companies during the different stages of their drug development. The team offers these services in the 2 innovation and technology centers in Bunde, Germany, Europe and Vineland, New Jersey, U.S. Last, Gx Biological Solution is a full-service provider serving the needs of small, mid as well as also large biotech companies continuously enhancing its product and serving offering. The potential of Gx Biological Solution is promising, and unit already contributes to the implementation of our growth strategy. But of course, this is just the beginning. Our clear target is to serve the biotech customers' needs with the whole Gerresheimer's portfolio from standardized pharma products over customized product solutions to smart and digital devices. Main contributors for both revenues and margin acceleration in biologics for the next years will be the ready-to-fill syringes and our Elite Glass vials as well as ready-to-fill vials, as well. Growth in injectables is one of the strongest global megatrends. Beside the growth opportunities of new drugs like biotech and biosimilars, we see increasing health care access globally, which offers an increase in vaccination in general. Furthermore, we see the trend towards more self-medication and individual customized drugs. All of these global megatrends will require, with significant portion, injectable solutions. I already spoke about the promising growth in biologics, but worth mentioning is the increasing market for vials and syringes, also further fostered by COVID-19 and depending on the recurrent necessity of flu or COVID-19 vaccination, we are convinced there will be a continuous increase in demand for prefilled syringes. As of now, the demand is clearly above existing market capacities. Thus, the syringes and also the vial business play an important role in our growth strategy. Having said that, some more words on COVID-19 vaccination. Right now it's not yet clear which drug will make the race for COVID-19 vaccination in the end. My personal expectation and hope is that we will have several solutions in the market. The tremendous demand for vaccination units will be served through single or also multi-dose vials. In case of a regular vaccination need, we expect this effect to generate a strong increase in the demand of ready-to-fill syringes in the outer years as well. Closely cooperating with our pharma customers, we assumed the global demand for COVID-19 vials of about 2 billion to 3 billion units served over the loop of the next 2 years. And we also assume that Gerresheimer would serve 1/3 of that. As of today, we see this assumption to be proven rather conservative. Looking at the orders we received from our customers, meaning by nearly all key pharma companies, it seems the demand is even higher than that and we, as Gerresheimer, will take a larger stake. In 2019 and '20, we have invested in vials production lines, glass forming lines and syringes. And we will also do so in '21 in order to cover the increasing demand. Furthermore, our new ready-to-fill vials machine in Bunde is now ramping up production. Our ready-to-fill 5 line for prefilled syringes is ramping up with production as we talk, we actually started this in June, ready-to-fill syringe line 6 will start production by mid-'21. We are at the moment, producing the machines. Thus, we are preparing our Gerresheimer to serve this high demand for while and syringes being a reliable partner for our customers and the patients out there worldwide. Being a reliable partner for our customers, this is what Gerresheimer characterizes. We are clearly aware of our responsibility towards our customers and patients. Within the last months, we have put huge effort in focusing on our customers' needs, knowing that quality and availability are key for our customers. We proved highest quality and delivery accuracy also in times of COVID-19. With our global footprint, we serve our customers locally without any interruptions in supply chain, independent from the region in the world. Gerresheimer stands for long-term customer relationships, accompanying our customers through a huge part of their products' life cycle. Dear, ladies and gentlemen, we are in the middle of our fourth quarter, clearly preparing for a strong finish of the year. Our Gerresheimer is transforming at full force. We are pushing on our strategy implementation, and we are about to close our budget plannings for the next year. I'm pleased to invite you to our Capital Markets Day, taking place fully virtually on December 8, 2020. There, we will provide you with deeper insights on our growth strategy as well as our investment plans. We are looking forward to elaborating on digitalization and innovation as well as providing insights on our ambitious ESG strategy. Furthermore, it is a pleasure for me to give you the opportunity to interact with some of our international experts on innovation, excellence and also sustainability. Looking forward to meeting you there, and please save the date. With this, I hand over to Bernd for some elaborations on the financial figures in detail.

[Bernd Metzner, CFO & Member of the Management Board]

Thank you, Dietmar, and welcome to everybody also from my side. Before we go into the analysis of our figures, some introducing words. As already mentioned by Dietmar, our fiscal year is strongly back-end loaded. Why? Three main reasons. The cosmetics business is gradually recovering in Q4 but affects us in Q3 by around EUR 6 million versus Q3 2019. Second, in Q3 2020, we had negative phasing effects in P&D amounting to a mid-single-digit million euro amount, which will support us in Q4. Third, we will start with our delivery of COVID-19 vials in Q4. Backed on our high forecast accuracy, we should realize a high single-digit organic growth in Q4 2020. Now let's dive into the P&L analysis of Q3. Organically, our core business delivered revenue growth of 2.1% in Q3 2020. This includes the temporary COVID-19 onetime effect of about EUR 6 million in our cosmetics business. If you look at our core business without cosmetics, the quarterly organic growth rate would have amounted to 4.5%. Reported revenues in Q3 2020 came in at EUR 349 million from EUR 359 million in Q3 2019 mainly impacted by negative currency effects amounting to a total of EUR 9 million. Let's turn to the earnings. We achieved a strong adjusted EBITDA of EUR 75 million compared to EUR 72 million in previous year's quarter resulting in an excellent organic growth of 8.6% in our core business. Organic growth means FX adjusted and without considering the EUR 2 million to EUR 3 million positive effect from the first-time application of IFRS 16. Below adjusted EBITDA, I would like to highlight 3 aspects for Q3 2020. First, the positive one-off effect is caused by the sale of our Küssnacht real estate. Second, as in Q2, amortization declined due to the extension of useful life of Sensile's core technology. Third, income taxes amounting to EUR 13 million lead to a tax rate of 33% in Q3. Normalized, that means without considering the Küssnacht sale, we would have had a tax rate of 30%, 31%. For the full year 2020, we expect a tax rate close to that number. Midterm, we foresee, as you know, a tax rate of 25% only. All in all, a solid Q3 with a very strong Q4 ahead. Having now a closer look into the divisions, the above-mentioned parameters are well reflected. Plastics & Devices. This division grew organically mid-single-digit, precisely 4.3% year-over-year. Due to negative currency headwind in the amount of approximately EUR 7 million reported revenues developed rather flattish compared to previous year. In the third quarter, we saw strong revenue growth in Primary Plastic Packaging and our syringes business. Centor performed according to plan. In the Medical Plastic Systems business, we saw some phasing effects in our tooling business amounting to a mid-single-digit million euro amount, which, and that's important, will support Q4 correspondingly. The adjusted EBITDA margin improved from 23.6% by 3.3 percentage points to 26.9%. Main contributors have been all business units plus a positive impact of EUR 1.6 million due to the first-time application of IFRS 16. Without considering the IFRS and FX effects, this resulted in a remarkable organic adjusted EBITDA growth of 13.5%. Now let's turn to Primary Packaging Glass. Organically, revenues of the PPG division remained nearly flattish. Negative currency effects, mainly from the U.S. dollar impacted the reported revenues of our PPG division by about EUR 2 million, resulting in EUR 156 million revenues. As already mentioned, we had a temporary onetime hit due to COVID-19 of around EUR 6 million within our cosmetics business. If you look on our PPG business without cosmetics, then you see even an organic growth of 5 percentage points. It shows that our PPG revenues in the pharma business is developing strongly. The adjusted EBITDA increased from EUR 30 million in Q3 2019 to EUR 32 million in Q3 2020. This increase of EUR 2 million is remarkable given the temporary negative impact in our cosmetics business due to COVID-19. We got supported by efficiency gains and further insurance compensation in the magnitude of a mid-single-digit million euro amount, which compensates damages. This insurance compensation is mainly caused by damages linked to the furnace leakage in the U.S., last year. One part is associated to lost business, representing revenues of approximately EUR 3 million in Q3 2020, another part to the demolition and repair of the furnace in the U.S. Now let's turn to Advanced Technology, 4 topics to consider. First, Advanced Technologies is an innovation driver by developing intelligent drug delivery systems and steered as a long-term investment case. And please remember, all the potential benefits of this division are not included in our midterm guidance. Second, as you know, 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 evolve 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 with SQ Innovation is on track with significant sales contribution expected in 2020. Fourth, without any settlement proceeds, we see in Q4 around EUR 2 million revenues and a similar EBITDA level like in Q3. Let me now highlight the main points on the cash flow development on the next slide. Our free cash flow of EUR 38 million represents strong earnings quality for Gerresheimer, clearly outperforming Q3 2019. [ And ] the free cash flow amounts to EUR 3 million negative, a positive swing of EUR 41 million. This outperformance is triggered by our good performance in the core business, excellent operational working capital performance and the sale of our Küssnacht site with a positive cash impact of EUR 13 million. In Q3, we achieved a significant improvement of inventories and receivables contributing to the net working capital reduction. Compared to Q3 2019, we improved this number by EUR 17 million. With regards to CapEx, we stick to our investment program for 2020 and are on track to invest around 12% of revenues in 2020. Without the Küssnacht sale, we spent EUR 42 million CapEx in Q3 and aim to implement the CapEx projects according to plan, even so there had been minor shifts due to COVID-19. Let me now elaborate a bit more on the financial position of our company. As you can see, despite the dividend payment of EUR 38 million, our net financial debt has been rather stable at EUR 981 million compared to the end of May 2020 figure. The adjusted EBITDA leverage, calculated as net debt to adjusted EBITDA, has been at 3.2x as of August 31, 2020, accordingly. The financial covenant for our revolving credit facility stands at 3.75x EBITDA, which gives us still solid financial headroom in the amount of about EUR 170 million. On October 1, 2020, we signed a promissory loan agreement amounting to EUR 325 million. We saw a high oversubscription, which reflects the confidence in our business model and in the long-term success of Gerresheimer. We achieved attractive conditions which will support our net financial expense by EUR 0.5 million per year going forward. We will refinance the promissory loans maturing in November 2020 and further reduce our drawing in our revolving credit facility agreement. Closing of the transaction is expected for early November 2020. With this positive news, I now hand back to Dietmar.

[Dietmar Siemssen, CEO & Member of Management Board]

Yes. Thank you, Bernd. It's exciting here. We heard in the beginning with Bernd, you might have heard this some problems with the microphone. I hope it's better with my start now. And a small remark on your presentation. Thank you, Bernd. Before everyone and the good listeners become too nervous, the start, the first sales in the SQ Innovation business, we are expecting actually for '22, not for '20. With this, I think I start to summarize a bit, the key message in a few words. We actually are looking into a very strong fourth quarter. Most likely the strongest quarter in Gerresheimer history so far because my plan is to do it better and better. In the Plastics & Devices divisions, we anticipate high single-digit growth in the fourth quarter. The phasing effects on -- of the third quarter, affecting our tooling business, as Bernd mentioned, will be offset in the fourth quarter, and we will see these sales. And we are producing syringes at full capacity. The Primary Packaging Glass division is about to contribute even stronger with high single-digit or even double-digit growth. What is most important for me to mention is that our investments into innovation are now starting to pay off. We will show first significant revenue contribution of our Elite Glass in the fourth quarter of our fiscal year 2020. We see first sales from also starting COVID-19 vials deliveries, and we expect a first recovery in our cosmetics business also for high end, perfume bottles. And a short update on our Advanced Technologies division. The SQ Innovation project is on track. Overall, our expectation to achieve FDA approval at the end or by the end of '21 is still valid. The conclusion for today is the following: we confirm our full year guidance, and we stick to our plan to deliver mid-single-digit growth for Gerresheimer in 2020. These challenging times are putting extra responsibility on our shoulders. We take this very seriously and we're working on full steam to cover the extra demand on vials and syringes. All our machines are running at full capacity, and the team is fully committed to deliver. Considering the global megatrends in pharma and health care supported or forced to driven by COVID-19, we are 100% dedicated to deliver our story becoming an innovative growth company and solution provider. Thus, we also confirm our midterm guidance. For the adjusted EBITDA margin, we confirm the 21% target for 2020 as well as the steady increase up to the 23% midterm. To sum it up, the full year 2020 is the turning point in terms of growth for Gerresheimer. And all COVID-19 unaffected areas are proving strong growth rates already. We confirm our guidance. And are looking forward to a strong fourth quarter. Consequently take the opportunities and advantages out of the pandemic, adding capacities and anticipating growth opportunities in areas as of connectivity and also digitalization. Our goal is to become a key market driver for the global pharma and health care industry. Our future Gerresheimer will be the smart choice for pharma, biotech and health care for customers and patients worldwide. And with this, I'd like to hand it back to Carolin and look forward to your questions.

[Carolin Nadilo, Corporate Director of Investor Relations]

Thank you, Dietmar. So let's enter into our Q&A session. [Operator Instructions] And the first question comes from Veronika Dubajova from Goldman Sachs.

[Veronika Dubajova, Equity Analyst]

I will keep it to 2, please. My first one is just your degree of confidence in the growth expectations you've outlined for the fourth quarter. Obviously, it's a very unusual year this year in terms of how heavily it is weighted towards Q4. So if you can maybe help us understand how much of that high single-digit growth that you're expecting for the core business is underpinned already versus what are some of the remaining risks that you see? That would be very helpful. And then my second question is just on the profitability. Looking at sort of the type of margin that you've delivered year-to-date. And normally, the type of margin step-up that you get to -- normally deliver in the fourth quarter. I'm a little surprised that the guidance on the EBITDA front is unchanged. I guess is there any sort of onetime costs or headwinds you're anticipating for the fourth quarter? Or is this more a function of being prudent at this stage given that you still have 2 months to go?

[Bernd Metzner, CFO & Member of the Management Board]

Maybe I would take over the -- I don't know, Dietmar, do you want to take the first? Both?I just start with the first question, how confident we are regarding our revenues, Veronika, quite confident as we have see guidance ranges between 3% and 7%. We have a level of forecast accuracy of 98%. Now we're in the middle of the quarter. We have certain effects which are really important for us, for example, one is the phasing of tooling and that we have a high volatility during the years as far as tooling revenues are concerned and we are basically EUR 6 million which we don't do in Q3, which we would normally if you compare this to 2019, we would have done, but which are shifted are now in Q4, and this is one thing. The other thing is that we see a recovery in cosmetics which is very important now for Q4, perhaps the same level as in Q4 like in 2019. And what is very important also for 2021 overall, our plan is that we will be for the full year '21 that our -- actually seeing in line with our -- in our business as cosmetic 2019. So we really see improvement in this regard and this should help us on this end. And -- yes, the level of forecast is very high. I mean you have to know, let's say, business continuity assumed, we should really be there in this kind of range between 3% and 7% but obviously on the lower end of our guidance. That's clear?

[Dietmar Siemssen, CEO & Member of Management Board]

Yes, maybe adding to that also from my side. We should not forget maybe a bit unusual but we planned this year was back-loaded from the very beginning, independent from COVID. Why was this the case? Because we knew that the new RTF line syringes would start in June and it would steadily ramp-up and we would principally -- mainly see this in Q4. And also the successful launch now which finally leads to deliveries of the Elite Glass takes place and it was planned in that way. So there's a couple of start of productions that are really planned like this from the very beginning. Bernd, spoke about the toolings and we should not forget, it's not a game-changer in total, but we will start to deliver the first COVID-19 vials also in the fourth quarter. And yes, that gives us a certain confidence. Coming back to the question towards the profitability, yes, you might call it prudent. But I think it's reasonable that we stick to the guidance. And if we would overachieve, maybe it's also not so bad, yes. It's fine. Gerresheimer learns to do this.

[Veronika Dubajova, Equity Analyst]

Yes. I understood that it's always better to underpromise and over-deliver than the other way. Can I just ask a...

[Dietmar Siemssen, CEO & Member of Management Board]

Let me just to add on this. The thing is this will be definitely Q4 regarding our margin. If you look now, Q1, we had a 17% EBITDA margin. Q2, we had 22% EBITDA margin Q3 21%. Q4 will be our strongest quarter regarding our margins. This is our expectation, just to be totally clear, yes?

[Veronika Dubajova, Equity Analyst]

Excellent. Good. It's great to have that confirmation. If I can just ask a quick follow-up, Dietmar, just on the RTF, it seems to me that maybe you're accelerating the time line for RTF6 a little bit. Is that fair? And should we be reading that as a sign of confidence from you around the growth prospects that you're seeing for this business? And I guess, just remind us the opportunity that you see there, in particular with 5 and 6, as you think about the next couple of years?

[Dietmar Siemssen, CEO & Member of Management Board]

Yes, I think I need to bring some explanation into when we talk about RTF because there are 2 areas of ready-to-fill, we are talking. One is the classic glass ready-to-fill syringe, which we -- the syringe market is 95% in the Glass business ready-to-fill. Here, we launched in June, our next ready-to-fill line, which will add around at least capacity by end of the year, hopefully, up to 100 million up to this total 500 million for Gerresheimer. And the RTF6 we are talking about is actually also for syringes. That's the line that we are setting up at the moment and will start to deliver first capacity -- first volumes probably in the same period of the year in '21, which is in June ramping up steadily to the end of the year. The other aspect of ready-to-fill is across the vials. We have also set up the ready-to-fill capacities in Bunde at the first vial line, and we have added ready-to-fill capacities in the North America region here in Queretaro, our Mexican plant, where we now have started to deliver ready-to-fill vials. It's the 2 things that you have to put in -- keep in mind, yes.

[Carolin Nadilo, Corporate Director of Investor Relations]

Now we have Scott Bardo from Berenberg.

[Scott Bardo, Analyst]

Just a question on the top line dynamic. I think that your guidance at the beginning of the year and reiterated in the second quarter was for mid-single-digit growth. And if I understand your comments correctly, you're more steering as to around 3% growth for the full year. So that sounds a little bit light of mid-single-digit. In which case, I'd just like to understand, was it that this quarter was a bit softer than you expected? And if so, in which areas caught you a little bit by surprise here? Do you expect, therefore, a bit of a catch-up effect into next year? So you have slightly better or towards the upper end of the sort of bandwidth that you have identified this 3% to 7%? So that's the first question, just a bit of discussion on where Q3 sits within the guidance range that you set at the beginning of the year. Second question, please, without stealing too much thunder from the upcoming Capital Markets Day, but profitability for the business seems to be doing pretty well. Has this at this point triggered any reassessment as to the medium-term margin projections for the business? And have you developed any thoughts related to your ongoing CapEx expenditure over the medium term?

[Dietmar Siemssen, CEO & Member of Management Board]

And maybe I'll take the first question. Yes. I think one point is very important, Scott, you have to see we are not steering the business completely in quarters. And I think you have to -- especially here there were some shifts from the third quarter into the fourth quarter. So you definitely have to see the second half year together. And that's the main surprise besides, of course, the impact that we see in the perfume business here in the cosmetic area for COVID, which definitely we did not plan in the beginning of the year, and we did not appreciate. But also here, we are very well underway. Take the cosmetic out. It is, for me, extremely satisfying to see that if you take the cosmetic, this temporary effect at the side, that we've been very successful to bring the, what we call the core business, the remaining business to growth. And you see, and that's what I always wanted, you see that we are back in a real strong growth phase in the Glass. And this is something where I'm totally confident that we will see this also in '21 and the following years. And that is very good. Plus, of course, that the other businesses are also showing very reasonable growth, all in a very strong area of the mid-single-digit. I don't want -- don't know whether you want to add something, Bernd?

[Bernd Metzner, CFO & Member of the Management Board]

No, I think there's 2 things, 2 aspects to it. And in addition, maybe you have -- one is regarding the guidance. We had including -- basically got Sensile. We had basically -- we are on the lower end. If you take that out actually because of the special circumstances of the last year, then you really see a nice organic growth, which we should not forget, which is more in the midpoint direction and fueled by our strong performance in Q4. So that's -- and therefore, if I look now at Q3, it was basically like planned. Maybe we had this kind of tooling effect shift going more into Q4, we have not foreseen by the magnitude of EUR 3 million or so, but if you have this catch-up in Q4, we're not seeing what worries us here in this direction. And regarding the -- it's a good thing, Scott, regarding your question regarding margin development and the Capital Markets Day. Indeed, yes, we have now all hands on deck to make our budget preparation. We are doing this during the course now of October and November, and we talk about it also when we are at the Capital Markets Day. Regarding the margin, but what we can say is that if you look in our midterm guidance, what we have said that we go into the direction of 23%, it's no question that this will be also the -- our -- this will be no surprise also at the Capital Markets Day. The only question is when. When you actually can achieve this? And therefore -- and we want to show also a nice trajectory going forward now from 21% in the direction of 22%, 22% direction of 23%, so you really see a nice development into this direction over the course of the next years. One thing -- other thing is it's not a secret. It's a part of our investments. What we are doing. You just tackled on it, goes also in the direction for digitalization, also making more efficiency gains here and there, and this is something also testimonial that we get there with this kind of margin improvement. And probably, I'm just calculating out of top of my mind, maybe 20% of our CapEx and what we're investing also goes into this kind of efficiency gains. This is something what you need always to consider. The rest, yes, you need to be patient, and we talk about it at the Capital Markets Day more in detail.

[Scott Bardo, Analyst]

Understand. And maybe just a quick follow-up on the CapEx point. Because I think previously, the previous management teams, there was this notion that we're at the top of the CapEx cycle and that, that should moderate now. I know, of course, Gerresheimer is becoming increasingly growth hungry. But can you give us some directional comments as to whether you believe that CapEx will naturally moderate from this point? Or will it be sustained at these high -- sort of higher levels? That would be helpful to avoid any sort of surprise in December?

[Dietmar Siemssen, CEO & Member of Management Board]

Yes. We are not ready with the budget, but it's clear. I don't disagree to that, that the growth is demanding quite some Capex, but it's not my key target to keep the CapEx at a super small level. It's -- my key goal is to make sure that the CapEx we are investing is also translating into growth or profitability improvement. What is good and you might not be able to see this from the outside, but we see this. It's maybe not proven one-o-one now in the financial results because the COVID is mixing up a little bit. But for me, very satisfying to see that the investments we are doing are actually already now starting to show results in both sales but also in the improvements. Some goes far too far into the detail, but some of the improvements of the process capability that we invested are clearly showing that, for example, the cost of nonconformity, cost of nonquality are going down and you see these effects. And yes, you might also be able to see them in the profitability of the loop over the next quarters.

[Carolin Nadilo, Corporate Director of Investor Relations]

Now we have Falko Freidrichs from Deutsche Bank.

[Falko Friedrichs, Research Analyst]

I would have 3 questions, please. Firstly, on the vials opportunity for COVID vaccines. Based on your presentation today, it sounded like the opportunity for you could be a little bit larger than you initially expected. Can you tell us if that is a correct assessment on my end and whether pricing for these vials has been stable? Then secondly, on your cosmetics business, do you expect it to be back on the prior year's level in Q4 or even slightly growing again? Or would that be too optimistic? And then thirdly, on the last call, there was a bit of a discussion around potential funding from government authorities for all your expansions to deliver the COVID vaccine vials. Can you tell us if there's any update here? And whether you're still hopeful to receive some funding?

[Dietmar Siemssen, CEO & Member of Management Board]

Yes. I'll take the first one. I think I already see in the reaction of Bernd, that he's absolutely eager to take especially the third one and also the second, so I start with the vials. Yes. There are still quite some variables within the vials. But one, I start with the -- what is really factor. There will be a vaccination as soon as there is the right formulation found. There will be probably several pharma companies that find a solution for vaccination. So there will be a vaccination, and there will be a demand of -- let it be some 5 billion, 6 billion shots. The filling capacity is the more critical factor than actually the vials. Because due to the filling capacity, a lot of the pharma players that are close to the solution have decided not only go into multi-dose solutions, which means 1 glass vial for every single vaccination but into multi-dose. So we have now demands that we are discussing with our customers from single dose, 1 shot per vial up to 18. This is actually reduced a number of vials in total. That's where our guess is, and that's a pretty realistic guess. Meanwhile, as we are deep in the process of discussing the things of 2.5 billion to 3 billion vials that are needed worldwide within, let me say, the next 2 years over the loop of the next 2 years. So who will be the supplier of these vials? And there are -- in principle, majority of these vials will come from 3 big players. We are one of these players. And as we are discussing the things it seems that we might even be able to take more than 1/3, which is also a question of having the capacities available. We, in principle, invest in '19 and not in a super genius anticipation of COVID because we didn't know this, but we had to -- we plan some renewal of some lines, and we just now had some of the older lines running for some more months or years. So we invested in '19. We also invested in further capacities in '20, and we will also, in order to fulfill the market demand, invest in '21, and this will bring us in a very good and favorable position to help our customers out here. This is, by the way, a big added value for Gerresheimer far beyond the pure euros of sales because we are opening the doors with some of the pharma customers at the moment because they need these vials, and we are able to support them where we, for example, today, had no access to, at least not for glass vial. And that is -- it's, for us, very important on a long-term run, not only for COVID, but also for other customer access to be successful here. So this goes in a very, very positive direction for us. No doubt. You take over the cosmetics.

[Bernd Metzner, CFO & Member of the Management Board]

No. Thanks a lot for the question regarding Cosmetics. And practices is like as follows. We had in Q4 now in 2020, we see that we will be the first time at the same level as Q4 2019. And this is true also for the full year 2021. So in 2021, we expect that our cosmetic business will be at par with our cosmetic business in the last year, so 2019, actually. So that's a situation for cosmetic, and this is how we plan and also how we plan for our capacities going forward. And we have a good proof point now with our Q4 now in this quarter. Regarding the second question, regarding the governance funding. We are all around federal, state level and also at European level, but it's too early to call it a day. We don't plan for that, but we are asking, and there are really nice funding puts available, and they are available starting from the 1st of January, especially on the federal level. Here in Germany, where we're quite hopeful, but we don't plan for that. And I think this is a prudent approach. But we see definitely that we meet the requirements. And we are one of the companies which might get finally also funding from the government, but we don't plan for that. It's simply too early. But maybe you ask me in the Capital Markets Day, I can give you an update on this topic.

[Carolin Nadilo, Corporate Director of Investor Relations]

Next question comes from Daniel Wendorff from Commerzbank.

[Daniel Wendorff, Team Head of Healthcare & Chemicals]

Yes. Three, if I may. Maybe a follow-up question on the vial opportunity for COVID-19 vaccines. Do you get the impression from discussions you have with vaccine manufacturers that eventually COVID-19 vaccines might also be something which has to be applied also in, let's say, regular terms with time at about of a few years. So that this opportunity will not end in 2022? And my second question is on the Elite Glass vials. And how big do you see your revenue opportunity there? And for what product in particular? Just to get a sense of how important this product line could become for Gerresheimer? And my last question would be on the new development deals you once saw for Gerresheimer Advanced Technologies. If I recall that right, you targeted 1 to 2 new deals every year, development deals. Is that something you would still see? Or how should we think about this?

[Dietmar Siemssen, CEO & Member of Management Board]

It goes in my direction.

[Bernd Metzner, CFO & Member of the Management Board]

Yes.

[Dietmar Siemssen, CEO & Member of Management Board]

Yes. The question with the regular vaccination is a very relevant one. It's difficult for me to answer. But yes, we see more and more indications in the market that a single vaccination probably will not bring sustainable results. So we are looking into this. I do not know whether it's 2x, 4x or maybe annual, like you do for the flu vaccination. It is clear to us, we are ready to help, if you need a more regular -- if it comes 2, 3x, it will most likely still be in vials. If it comes really regular, that is something we are looking into. Because that would then mean it will steadily transfer from vials into syringes. That, of course, if you can -- if you just imagine that there is a world market demand of 1 billion or 1.5 billion more syringes. That is something that takes time, at least 2, 3 years before the capacity worldwide are built up. We are definitely looking into this. Because 1.5 billion more syringes is almost 50% more of the worldwide capacity that is existing today that would also, for us, mean I would have to add 50% to my capacity only maintain my market share, which I definitely want. So we are at the moment, definitely looking into opportunities to expand our syringe capacity. By the way, not only in Europe but also we would look into other regions like NAFTA region or also in Asia, most likely China. Yes. Elite Glass -- it's also a perfect question. Thank you for that. It's almost so -- I would have asked you to ask this. The Elite Glass is a significant improvement of the total cost of ownership within the production process of our customers. Yes, the Elite Glass is more expensive, but it's much smaller in the tolerance. It's significantly harder. So higher in the resistance. So the total cost of ownership of the customers are especially lower because they can run their lines significantly higher. We are now starting the first deliveries in the fourth quarter with the first customer. For us, this is strategically extremely important because the results that -- the results of this caster will improve the efficiency of the Elite Glass and then show the potential of the market. I clearly see quite some significant potential in Elite Glass in the next years to come, definitely. It's difficult to tell you how much. And the last question was...

[Daniel Wendorff, Team Head of Healthcare & Chemicals]

On Advanced Technologies. Yes.

[Dietmar Siemssen, CEO & Member of Management Board]

Advanced Technology. Also here, you should not limit the advanced technology story into pump only we have the SQ Innovation that I can talk about. We are in discussion with one or other player, and you will understand that will definitely and can't disclose here who this is, but we are in discussion with various other customers. But the story of Advanced Technology is significantly bigger than only the pump. You have to see what happened in the Sensile that we once acquired in the last 2 years, we have now built Advanced Technology. We have hired new capabilities, new players and are working on, what I call, one of the future growth areas of our Gerresheimer, which is smart devices. So it's not only necessary the pump, we shouldn't have guess we acquired the small company respimetrix with the inhaler, but we are also looking into further other devices. I can't go into too much detail here. We might show you something on the Capital Market Day, but I can't go into too much detail. But our vision very clearly is that Gerresheimer is supplier of a broad portfolio of different smart devices, whether it's a pen, inhaler or injector pump. And this all will be developed with an Advanced Technology. That's what we're working on. And that's not just hope and pray only, no doubt, we are also in discussion with 1 other customer. That's music for the next years.

[Daniel Wendorff, Team Head of Healthcare & Chemicals]

Okay. So we should expect more news flow to come here on the partnering front?

[Dietmar Siemssen, CEO & Member of Management Board]

I mean what I told you. I clearly see that this Advanced Technology will be a strong further leg, whatever you want to translate it into, my English maybe not good enough for this, for Gerresheimer and the future.

[Carolin Nadilo, Corporate Director of Investor Relations]

Now we have Christoph Gretler, Crédit Suisse.

[Christoph Gretler, Managing Director in Equity Research]

Actually two, the first relates to the midterm guidance. Can you just remind me -- I mean when you set that in terms of growth guidance is mid-single-digit. We didn't know about this COVID vaccine opportunity. And now basically, if I just now kind of look at this EUR 800 million at EUR 0.05, and I get to EUR 40 million, which is now something like 2%, 3% top line growth. Is this kind of on top of this midterm guidance? Or how should I think about that? And the second question actually also relates to -- by chance, to this COVID topic. I mean could you elaborate how these contracts work actually with this vaccine company, and especially what type of risk you're taking on? Because none of them is now kind of approved, there is still a lot of regulatory risk as we learned overnight from J&J, for example. And I was just wondering, is there any chance you can get upfront payments, for example, as a reservation fee? Because I guess, now you have to -- if they have some orders, now you have to kind of set aside some capacities. And then while you're unsure whether it's called up? Thank you for any thoughts.

[Bernd Metzner, CFO & Member of the Management Board]

Maybe just I'd take over the first one, Christoph. Regarding the midterm guidance. Just to we have a broader range of between 3% and 7% for our mid- -- how we call it, it mid-single-digit growth, and this is our midterm guidance for our revenue growth. And this is one topic. The other thing is that we will on the Capital Markets Day elaborate a little bit more on it and being more precisely on what does it mean and translate to. Regarding the COVID, how does it work? Actually, we have EUR 30 million, EUR 35 million, maybe EUR 40 million additional revenues because of COVID-19, however, it's basically spread over 24 months. So therefore, it comes not in 1 moment or 1 year, but it's really spread actually over 3 years. You have it now a little bit in Q4. You have it in '21 and you have it in '22. So therefore, it comes not on top from today's perspective. But let's look at our Capital Markets Day, when we have also our budget ready and when we can present the outcome of it. But that's where we stand as of today, mid-single-digit growth, including COVID-19, with a range of 3% to 7%, and the spread of the COVID -- positive COVID effects over basically 3 years, if you want. So '20 a little bit, '21 and '22.

[Christoph Gretler, Managing Director in Equity Research]

Okay. Got that.

[Dietmar Siemssen, CEO & Member of Management Board]

You should probably have felt meanwhile that this team that we have in the management is not satisfied long term with mid-single-digit. We will present it to you as soon as we have found the solutions. Coming back to your second question...

[Christoph Gretler, Managing Director in Equity Research]

No. I'm hopeful as well. So...

[Dietmar Siemssen, CEO & Member of Management Board]

The second question is an important question, and it's a tricky because the prepayments you are mentioning or the pre-reservation payments. They don't come for free. And they carry a certain risk, and that's one of the reasons why I'm not overly motivated to go in this direction. Why? We do today, not 100% know who are the real winners of this vaccination race. If I get a prepayment of one of the players, I fix my whole volume or a certain part of the capacity volume on this player. Let's assume this guy is not the winner. I have a reserved prepaid portion I can't sell and the other customers with the worldwide demand are hungry to get this, and I can't sell it. That's why I rather keep this neutral here. I'm convinced that the worldwide demand is coming. We are one of the players that can satisfy the worldwide demand. And it might sound a bit brutal for you, but if I don't sell it to winner A, because he's not winning, I sell it to B or to C. That's the strategy that we are following at the moment.

[Christoph Gretler, Managing Director in Equity Research]

And do you also like kind of the airlines kind of oversell your capacity because you know that it's unlikely that all of them will be successful, is this a kind of a strategy you would consider? I guess given as you say, kind of there is very limited capacity in the market?

[Bernd Metzner, CFO & Member of the Management Board]

Yes. We're not doing it like airplanes.

[Dietmar Siemssen, CEO & Member of Management Board]

Yes, yes, we don't.

[Bernd Metzner, CFO & Member of the Management Board]

And then you don't get me...

[Dietmar Siemssen, CEO & Member of Management Board]

No. No. Wait a second. I have to do this like this. The other point is it's not -- this is not a game, you have quite some responsibility on your shoulder, and we are not talking some demand of 1 customer that comes up. We are talking about demand of our customers that are our regular customers in a daily business, and they are our customers long term, not only for COVID. So it's not a game where you mess up and you play the rules. It's I was -- one of your colleagues asked me, can you now squeeze out a lot of high prices for these vials, it's nothing you would do because it's not the behavior that Gerresheimer shows in a long-term partnership.

[Christoph Gretler, Managing Director in Equity Research]

No. No. I didn't mean to imply that. No, for sure. But it's a very challenging situation for the whole industry, given at least no various variables kind of uncertainties and you basically have to commit in capital or upfront.

[Carolin Nadilo, Corporate Director of Investor Relations]

Are there any further questions? We have a follow-up from Scott Bardo. We actually can't hear you.

[Scott Bardo, Analyst]

Sorry. I was on mute. Just a couple of technical questions, please. Yes. Bernd, can you help us understand how much revenue you have lost in your GAT business this year as a result of the fires and the damages and the warehouse issues and what have you? And whether all of those issues are resolved, present a similar magnitude tailwind in 2021. So if you could quantify that, that would be helpful?And of course, on a similar topic, you have this Argentinian disposal in your plastics business. Could you give us some sense of what that is in terms of absolute magnitude? And are you planning any further disposals, which could act as a sort of a drag to revenues in the near term?

[Bernd Metzner, CFO & Member of the Management Board]

Scott, just for clarification, the insurance compensation, which we get -- and when we talk about insurance compensation for the U.S., leakage -- furnace leakage, which we had in Q3 2019. Actually, you can say that each month, and that is really remarkable because we don't make a big fuss out of it, each month because of this leakage from 2019 we are losing USD 1 million, and we get compensated by USD 700,000. That's basically the ballpark. And this you can multiply with 12, then you have the yearly number. And this will last also December and January. And we should also get this kind of compensation for the lost business. This is as far as the furnace leakage is concerned. On top, you have one part is the business leakage. The other part is that we have to repair our furnace as well. And therefore, the repair of the furnace, the permanent repair, I have to say, it's also now in the third quarter, we have around, let's say, $2 million, which we got for the permanent repair. And the part of this is linked to damages. It's all damages. It's expenses like demolition, which has basically recovered. The other part is the CapEx for the permanent repair of the furnace, actually. And if you look how this will develop, also in Q4, we expect that for the U.S., we should get, for the business interruption, some compensation and also for the damages caused by the permanent repair. And again, for the first quarter '21, we should also get USD 1 million to USD 2 million in addition for the compensation for that. And how this will develop this business, we have to look at it. In the end, this is the coverage of our -- for our insurance compensation, it can only get better. The business over there. And we expect to get back to normal during the course of the year -- of the next year as far as the consequences of these furnace leakage are concerned. That's the perspective of the insurance compensation and our leakage, furnace leakage. The other question was linked to the question, do we expect further as we sold the -- we sold Argentina last year, it was basically in Q4 last year. And with this, we -- year-to-date, you can expect EUR 2 million. It's basically EUR 2 million revenues for the full year. It's really not so significant. It's EUR 2 million revenues. And basically, the reason for selling it, you see it in the EBITDA number is basically 0, yes? What we lost in terms of EBITDA, it's [ O ] point -- it's 100,000 or something. And now talking about what we could expect to sell also in '21. We have nothing on the radar screen. We have nothing on the radar screen to sell. What we do is we look at assets, which are -- which have no revenues, yes. For example, real estate, which are not used heritage from the past of Gerresheimer, but it's really minor in nature, which have no -- generated no revenues and are not relevant for our business, which we will be just making cleanup. Apart from this, there will be no sales sold in our company for '21, at least not in our plan.

[Carolin Nadilo, Corporate Director of Investor Relations]

As there are no further questions, we would like to thank you for joining us today. We already talked about our CMD taking place on December 8. But please also note that we are going to publish our annual results on February 18, '21. All the best and stay safe.

[Dietmar Siemssen, CEO & Member of Management Board]

Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.