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Gerresheimer AG
Earnings Call Analysis
Q3-2024 Analysis
Gerresheimer AG
In Q3 2024, the company reported revenues of EUR 499 million, reflecting an organic growth of 2.6%. However, this growth fell short of initial expectations. Adjusted EBITDA improved slightly from EUR 100 million to EUR 104 million, indicating a 3.5% organic growth. The adjusted EPS grew from EUR 1.07 to EUR 1.16, which translates to an organic growth of 3.6%. This suggests a commitment to maintaining profitability, albeit at a slower pace compared to what was hoped for.
Within the divisional performance, Plastics & Devices stood out with revenues climbing from EUR 261 million to EUR 279 million, translating into an organic growth of 7.9%. This growth was largely driven by strong sales in drug delivery systems, including syringes and inhalers. Adjusted EBITDA in this segment rose from EUR 63 million to EUR 70 million, demonstrating a robust 10.9% organic growth. The margin also improved, suggesting improved efficiency and product mix, with the adjusted EBITDA margin up to 25.1%.
Conversely, the Primary Packaging Glass segment faced challenges, with revenues declining from EUR 228 million to EUR 221 million, marking a 3.0% organic revenue decline. Factors contributing to this decline included ongoing destocking by customers and adverse weather affecting production capabilities. The segment’s adjusted EBITDA dropped from EUR 49 million to EUR 45 million, resulting in a 9.4% organic decline. Despite these troubles, the company expects a gradual improvement in this segment as market conditions stabilize.
In terms of cash flow, the company is navigating through a cautious landscape. With a notable net financial debt of EUR 1.1 billion, the adjusted EBITDA leverage slightly increased from 2.3x to 2.6x. Looking ahead to Q4, the company anticipates a robust free cash flow performance estimated between EUR 50 million to EUR 100 million, despite predicting a total free cash flow in 2024 to land between negative EUR 50 million to negative EUR 100 million. This reflects strategic investments aimed at positioning the business for long-term growth.
The company revised its financial guidance, now expecting organic revenue growth of 3% to 4% for the year 2024, and an adjusted EBITDA between EUR 415 million and EUR 430 million. Moreover, the adjusted earnings per share is forecasted to grow between 2% and 8%. For 2025, the organic revenue growth projection is between 7% and 10%, with an EBITDA margin target of around 22%. This cautious guidance reflects recent market adjustments and internal assessments of growth trajectories.
Despite the current challenges, particularly in the Primary Packaging Glass segment, the company remains focused on its long-term growth trajectory. The executives emphasized their ongoing commitment to high-value product segments and adapting to changing market demands. The recent disruptions from Hurricane Helene and ongoing destocking are temporary hurdles, and there are expectations of a return to growth in 2025 as these issues are resolved. The company’s strategic vision continues to revolve around delivering effective containment solutions and enhancing patient health outcomes.
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Thank you, operator. Please note that the recording will be made available on our website sometimes after the call. Please let me hand you over to our CEO, Dietmar Siemssen, to run you through our preliminary Q3 results and explain the adjustment in our growth guidance together with our CFO, Dr. Bernd Metzner. Dietmar, please go ahead.
Thank you, Pickert, and hello, everybody. We have to apologize for the small technical problems we are fighting here on a very spontaneous call, as you can all recognize. So welcome, everybody, and thank you for joining us today. As you all already recognize, this is a call outside our regular reporting routine. You have most likely seen our ad hoc announcement and the corporate news we issued today. Unfortunately, we needed to revise our guidance for our financial year 2024 as well as '25.
We know that this raises a number of questions from your side, which is why we decided to publish preliminary figures for Q3 2024 and move our analyst call forward to now to today. So let's give you an overview of our Q3 figures, and then we can drive you into questions.
Q3 was solid, but did not show the growth dynamics that we anticipated. We achieved an organic revenue growth of 2.6%. Adjusted EBITDA growth came in at 3.5%. Adjusted earnings per share growth at 3.6%. We are still growing stronger in our bottom line than in the top line. That means profitable growth while expanding the margin. But believe me when I say that these are not the results we are satisfied or happy with. We anticipated a stronger, significantly stronger pickup in growth.
Plastic & Devices showed a continued good performance with organic revenue growth of 8% and adjusted EBITDA growth of 11%. The growth was mainly driven by drug delivery systems such as syringes, inhalers, pens and autoinjectors. We are currently experiencing particularly strong growth in product solutions for large molecule biologics such as GLP-1 but also other devices went very well.
Primary Packaging Glass, however, was still very much affected by the still ongoing destocking in the market. Our internal 3-month forecast and the 2024 planning discussions with our sales teams showed a much slower market recovery in the vial market than anticipated even recently, and the softer growth rebound in 2024 -- '25, excuse me, than we hoped we would see.
Now we see signs of market recovery with order pickup in vials but this is coming later and also slower than we expected, impacting also our 2025 results for Tubular Glass and our PPG division with lower-than-expected growth rate. In addition to that, Hurricane Helene caused floodings in North Carolina and our vial plant in Morganton is severely affected by these. We are working intensively on the topic at present, but it might take us several weeks until we'll be able to restart the production.
The long-term underlying growth trajectory in the vial market remains intact. We also see that the market advanced the addition -- the adoption of ready-to-use vials, which holds significantly higher value to our customers and also better margins for us.
Q4 2024 will be stronger again in both Plastics & Devices as well as Primary Packaging Glass as new production line ramp up as planned and the effects of destocking continues to fade out.
Before I jump into the new guidance, I will hand over to our CFO, Bernd Metzner, for a deep dive into preliminary figures in Q3 '24.
Thank you very much, Dietmar. Revenues grew from EUR 488 million to EUR 499 million. This led us to an organic revenue growth of 2.6%. The negative impact from FX was around EUR 2 million. Adjusted EBITDA for the group improved from prior year's level of EUR 100 million to EUR 104 million. This led us to an organic adjusted EBITDA growth of 3.5%. Organically, adjusted EBITDA margin increased by 20 basis points to 20.9%.
The impact from FX on adjusted EBITDA was plus EUR 1 million. Adjusted EPS increased from EUR 1.07 to EUR 1.16. This led us to an organic adjusted EPS improvement of 3.6%. The impact from FX on adjusted EPS was plus EUR 0.05.
Let's move on to the divisional development in Q3 2024. Revenues grew from EUR 261 million in Plastics & Devices to EUR 279 million. This led us to an organic revenue growth of 7.9%. So organic growth was especially driven by strong contributions from drug delivery systems, as mentioned before by Dietmar.
The impact from FX was around minus EUR 3 million. Adjusted EBITDA grew from EUR 63 million to EUR 70 million. FX contribution was almost neutral. This led us to an organic adjusted EBITDA growth of 10.9%. Organically, adjusted EBITDA margin increased from 24.4% by 70 basis points to 25.1%, this improvement was driven by a better product mix.
Now let's move on to Primary Packaging Glass. Revenues declined from EUR 228 million to EUR 221 million. This led us to an organic revenue decline by 3% -- 3.0%. The impact from FX was almost neutral. The temporary destocking effect at our customers' level still impacted our pharma glass business and was the reason for the revenue decline.
Compared to the first 6 months of 2024 with an organic sales growth of minus 6.9%, we are in Q3 with minus 3.0% organic sales growth, at least gradually improving and we do see green shots. So all the momentum of our customers has most recently improved, and we expect to come back to a positive sales growth in the next quarter in our segment, PPG Tubular Glass.
Adjusted EBITDA declined from EUR 49 million to EUR 45 million. The impact from FX was plus EUR 1 million. This lets us to an organic adjusted EBITDA decline of 9.4%. Organically, adjusted EBITDA margin decreased from 21.9% by 140 basis points to 20.5%.
Coming now to the cash flow development in the third quarter of 2024. Compared to prior year Q3, adjusted EBITDA increased from EUR 100 million to EUR 104 million. For Q3, we had not yet a positive cash contribution from the release of working capital, somehow like in Q3 2023 if you adjust by the onetime prepayment in the amount of EUR 70 million related to GLP-1 contracts in Q3 2023. And as we have not seen such down payments in this year, Q3 again, this explains the year-over-year development.
Regarding cash taxes, the outflow of EUR 15 million is a bit higher than last year's figure of EUR 12 million as explained by the timing of tax payments.
Moving now on how we utilize the funds. Net CapEx in Q3 was almost on prior year level as we continue to execute our investment program into highly attractive growth opportunities. As you know, our currently elevated net CapEx cash out is a consequence of very attractive and unique business opportunities. We are especially ramping up our capacities for medical devices, GLP-1 products and biologics.
Finally, let's turn to net financial debt as well as the adjusted EBITDA leverage. Net financial debt according to credit agreement in force stands now at EUR 1.1 billion. With this, our adjusted EBITDA leverage slightly increased from 2.3x to 2.6x.
Looking at the full year, in line with our seasonality pattern, we expect a strong free cash flow performance in Q4 in the magnitude of plus EUR 50 million to EUR 100 million. As you know, our free cash flow performance is strongly influenced by the timing of the execution for our investment program and profitable growth, especially on the back of this CapEx phasing variable we expect to arrive at a range of minus EUR 50 million to minus EUR 100 million free cash flow in 2024.
With this, I hand back to Dietmar.
Yes. Thank you, Bernd. And I hope that the connection is good enough that you can follow the presentation.
Let's come to the guidance update. Looking at the remaining quarter, we will once again see a robust growth in Plastics & Devices as new production lines actually ramp up, and we also anticipate that the glass side, the PPG will return to a slight growth compared to the previous year's quarter as we clearly see the destocking effects to steadily fade out.
The market recovery in the vial market is coming late. And the pickup in growth is not as strong as we had hoped for. We also see a softer demand in moulded glass products for the food and beverage industry. In addition to that, no doubt, we have to deal with the effects of Hurricane Helene in our plant in Morganton, North Carolina. As a trigger point, the flooding led to a halt in production and it might take us several weeks until we'll be able to restart production again.
All these singular effects combined awaiting on our initial expectations of a double-digit growth quarter, that's why we need or needed to review our guidance. 2025 will be much stronger again than 2024, but even not as strong as we anticipated in our previous guidance. The long-term growth trajectory in vials with the trend forward ready-to-use platform is intact.
So for the 2024 financial year, we now expect organic revenue growth of between 3% and 4% compared to the previous year. Adjusted EBITDA is now expected to come in between EUR 415 million and EUR 430 million. The adjusted earnings per share is expected to grow between 2% and 8%.
For 2025, we now expect organic revenue growth of between 7% and 10% and an EBITDA margin of around 22%. We will give you an update on the adjusted earnings per share guidance for 2025 when we publish our results for the full year 2024 in February '25.
Our midterm guidance remains unchanged. Our growth prospects in the coming years remain positive despite the temporary market weakness in one of our submarkets. We are still an unchanged Strategic Partner of Choice for the Global Pharma and Biotech Industry, a one-stop shop for containment solutions, drug delivery systems and digital therapy support.
As explained several times, we are the ones that bring the drug safely to the patient, ensure that the drug can be safely administered and improve the patient's health outcome with our digital solutions, for example, to support medical adherence.
We are currently experiencing particularly strong growth in solutions for large molecule biologics such as GLP-1. We expanded the share of revenue with biologics from 13% in the first 9 months of '23 by 400 basis points to 17% in the first 9 months of 2024. Here, the successful transformation of our company through our formula G corporate strategy process with an increased focus on these high-growth, high-margin markets is well paying off.
The biologics market in general has a much higher growth dynamic than the pharma market. The for biologics -- for biologic focus markets on which we are already active, show active market growth of more than 15%. We are excellent positioned to profit from our dynamic market growth with our broad portfolio our dedicated solutions for large molecule biologics or industrialization expertise and our global footprint.
We will continue to profitably grow in the coming years, thanks to the high order backlog, the capacity expansion for long-term customer orders and the combined strength of 2 successful market players as soon as the acquisition of Bormioli Pharma will have been finalized. With this transaction, we will expand our portfolio with additional high-value solutions in glass and plastics and system integration that will accelerate our growth and help us to expand our margins further. The transaction is still, as we all know, subject to custom closing conditions and antitrust approval. We're in close dialogue with the respective authorities and are working towards completion of the transaction as planned in the fourth quarter 2024. We will, of course, keep you updated.
We have decided to postpone our Capital Markets Day to spring as we want to give you an update for the combined organizations after closing. We will publish the Q3 and 9-month results of 2024 in our quarterly statements on 10th of October on our website. The next opportunity to check in on our financial performance will be our results of the fiscal year 2024, which will be published on February 26.
Thank you, and we will now take your questions.
And the first question comes from Oliver Reinberg from Kepler Cheuvreux.
Three, if I may. The first would be on the 2025 sales growth outlook. I guess you guided for 10% to 15% when you still have a kind of 5% to 10% growth in mind for 2024. So I guess the decline in vial has lowered the base quite materially, making it in theory easier to grow in 2025. So I'm just trying to understand what else drove the decision to take down the kind of outlook for next year? Is it just vials? You talked about, I think, food and beverage, but it appears that there's anything else where you're expecting a certain softer demand? Any color there would be appreciated.
So you don't have second question?
Second question would be just -- I'm not sure if you can provide any kind of color on the flooding, what kind of sales and EBITDA margin effect you're going to have in mind? And then thirdly, on Bormioli, I think when you announced the transaction, you talked about that net debt-to-EBITDA may come down to 3x or lower within 1 year post closing.
Now given the kind of revised forecast and also the recent softer performance of Bormioli, can you just provide an update where you expect the leverage to be? And do you [indiscernible] kind of equity measures?
Dietmar I didn't get the second. You have to answer the second. I did get the...
I can answer these things relatively shorter, Reinberg. The first one is the effect on '25 are driven by vials, that's it. So it's vials, the rebound effect comes lower than expected, and it's driven by the vials.
And also the Bormioli topic. Yes, we also saw that they obviously reported shorter financial results compared to the guidance that they obviously head out but this is today not affecting the acquisition business case that we were looking for.
And I would take the flooding question. So somehow a certain -- only a certain tipping point, I have to say, because it happens actually, we were informed about it the other day actually. And this current flooding is a Morganton vial plant caused by the Hurricane Helene which basically will halt our production by several weeks. And obviously, with our updated and an adjusted guidance, will be covered actually the potential shortfall in this regard, but it's really too early to really quantify this by as the last penny.
Right. And just in vials, I mean, I guess, when the guidance for 2024 was impacted by more than 5 percentage points, I guess, vials must have been cut in half. So it's probably only 5% of group sales. So I'm just trying to reconcile, we're just talking about 7% to 10% growth next year. So there's nothing else at all where you have to revise your kind of expectations?
I think what we saw very clearly is that -- you're talking '24 or '25?
'25 expectations.
Basically, when we -- just to step into when we gave our guidance for 2 years, actually, for '24 and '25, if you would not have -- to be clear, if we would not have this kind of events that we have not this recovery as we have hoped for, then we would not have this kind of call now because we would not have a need for adjusting our guidance.
Okay. So all expectations are for GLP-1 and all other projects are unchanged for next year?
That's correct. That's -- if this is the question, that's correct.
Right. And on the leverage for post-Bormioli one year post-closing, any update where this could be? I guess, it will be then higher than [indiscernible]?
It's too early, a bit.
Basically, you might mean the leverage when we have -- see we're expecting now the closing, as you have said, we expected the closing now in Q4. And then if you look at 2025, I don't think that we have a leverage above 3.5x EBITDA, and this remains still intact, obviously. We are in the preparation for our plan, as you know, in the next couple of weeks. But -- that's our clear idea, yes, not above 3.5x next year.
And the next question comes from Ed Hall from Stifel.
Just a couple of questions for me. The first one, I mean, could you just share the percentage of your business, which is currently within long-term contracts versus short term? If you could split that out between PPG and P&D, that would be quite helpful? And then could you talk about lead times you're seeing across the business units, I guess, now versus maybe the start of the summer? And how do you evolve over sort of the next 6 months, 9 months? I mean, do you envisage a scenario of improved visibility?
And then I think just following up from Oliver's question, can you just quantify the percentage of sales of vials? I think it was my understanding it was close to around 10%, maybe slightly below. So I'm just curious as how a 4% cut to the midpoint is attributed to 100% to just vials? Is something I'm missing here? Is the market outlook for cartridge or ampoules structurally weaker? Any comments there would be great.
The first question is a tricky one. How much in percentage of your business long term, short term? Because we have -- with the broad portfolio, you have all different characteristics. You have very long term, like for devices. And if you split the business, yes, maybe it's easier for the business unit. You can actually -- it's -- maybe you Bernd answer this.
I would say 1/3 of our business is basically protected by long-term contracts. One is, let's say, medium-term contract, 1/3 and the other 1/3 is basically based on concrete order intakes of 1 to 3 months lead time. I think this is a fair assessment as a rule of thumb.
Perfect. And the medium term, I mean, how do you define that in terms of length of time?
Medium term is for us actually 4, 5 years -- 3, 4 years in the average.
We're still talking a regulated market where a change is not easy done because you most likely have to requalify the whole drug packaging solution.
Perfect. And then on the lead times across the business units, could you talk about them now, I guess, sort of maybe on vials, but also across all your different portfolio? And how you see this changing over the next, let's say, 12 months?
I think what you see is that the lead times in the especially Tubular Glass side has shortened over the loop of the last years. So it's one of the destocking effects that these lead times clearly have shortened, which also leads to the fact that the stock optimization of our customers has become easier for them because they have a higher -- shorter lead times, and that helps them.
And do you see a scenario where -- I mean, do you see in your forecast where sort of lead times and visibility improves for your business? Or right now, is your assumption lead times are staying pretty much where they are for the next 6 months or so?
I would say so, yes, it stays constant.
Perfect. And then just the last question on just a percentage of sales in vials. I mean, my last expectation was around 10%. And I'm just curious of how this causes -- this sort of the 10% of sales causes sort of a 4% cut to the midpoint of the guidance? I mean, is there something else in the market outlook from my understanding, it's not just vials that have been destocking. So is there anything else that in your portfolio that is also causing any structural weakness outside of your midterm targets?
Tricky question. But I would repeat it simply that the primary effect for next year that makes a difference in the guidance is the primary effect is actually the Tubular Glass business. And I guess there's 2 effects. The rebound comes a bit later and the rebound comes softer. And with this also, some of the disruption of the markets into the direction of high-value products also comes a bit later. It will still come, but it comes later. And this has an effect that affects not only '25 but all the next years.
And to repeat what we've just said before to Oliver, without this effect, what Dietmar said, we would not sit here. Very simple, yes, at this stage.
No doubt that the facility -- the flooding of the facility was a kind of tipping point. But this is not what we see that will influence '25.
And the next question comes from Victoria Lambert from Berenberg.
My first question is just -- so are you now seeing delays to your new capacity additions that you were planning for Q4? And is this -- because it's Morganton, is this just the high-value vials? So yes, maybe the flooding, you can just explain what glass products have been impacted? And then I guess this was asked a bit earlier, but you don't -- there's no change to your GLP-1 orders because these weren't in vials?
The second -- I'll take the second question first because it's very easy. No, that has no impact on the GLP-1 story at all because all these ramp-ups, the projects are all in time. The ramp-ups are doing well and are in time. To your first question, that's tricky to answer because as a matter of fact, we were able to go into the facility today for the first time. The plant is not producing. There's not even power supply at the moment.
What -- why I can't answer this question straight away is that -- because we are trying to find ways to balance out production stop in Morganton with opportunities in other facilities. But the whole situation is unclear at the moment. As positive, I'm optimistic that we will not have an impact on '25, but it will definitely impact '24, one of the reasons why we are sitting here.
And the next question comes from Gaurav Jain from Barclays.
I have 3 questions. One is that if I take the bottom point of your EBITDA, which is EUR 415 million and the depreciation is going up by 10% anyway Y-o-Y. So your EBIT will not grow and interest expenses going up. So why is your EPS growing 2% is not very clear to me. Like is the tax rate coming down quite substantially on a Y-o-Y basis? So that was question number one, and I can ask the others later on.
Maybe just to answer. In the end of the day, we expect that, in the end, we see this as a lower end point, just to start with EUR 415 million. And if you really calculate it through, ultimately, it boils down also to the tax rate. And in the tax rate we see, and you see this also when you're zooming into Q3, we were really able to capture also net operating losses because our business is running in certain areas, very strong, and we can also basically makes profit from our net operating losses and reducing our tax rate. That's basically the reason why we are quite safe on this 2% to 8%, I think, EPS growth.
So would it fair to say that the tax rate will be closer to 25% this year versus almost 28% last year?
Yes, yes. But it's really too early. You need to calculate the net operating losses and so on. But if you look at the trend now in Q3, it's a quite encouraging thing. So therefore, we are quite safe on the EPS side.
Sure. And will this lower tax rate than continue into FY '25 and beyond?
We have also is the tax rate -- basically a forecast of 25% tax rate also going forward. This is our guidance. But in the moment, when you have a basically a site, which is returning -- have a turnaround at certain site and legal entity has a turnaround, there is a lot of net operating losses we have to activate in the -- or capitalize the net operating losses and this is what is actually happening in Q3. And we have to look how these things develop in Q4. So therefore, our EPS growth from 2% to 8% is safe. Also, if you would end with the lower end point of our guidance range for EBITDA, what is definitely not our aim, to be clear.
Sure. And then look, I think across the industry and for you as well, there have been multiple guidances which have frustrated investors. So how confident are you that you can do what you are now saying for FY '25? Like is there a sufficient buffer in your guidance for next year?
There's no doubt, also one of the -- I think it's also a question -- an answer to one of the questions earlier, there's no doubt that we decided to be a little bit more prudent on the whole guidance to make sure that we deliver. And because I'm not very happy to sit here at the moment, and I don't want to repeat this.
Sure. Okay. And then just lastly, I mean, while it is true that PPG is weak, but it does seem that even Plastics & Devices hasn't picked up as much as you were probably think. So is there any shortfall happening on that side as well, on the Plastics & Devices side?
Plastics & Devices actually runs very well. There's a smaller exception for the South American Plastic Packaging business, which is principally not relevant. The business actually is doing very well.
If you look at it, we have a 8% growth in Q3 and the year-to-date growth of, I think, 9% something like this, 9.2%, so really strong and nothing...
This is strong, all ramp-ups are complete and plan, all new projects, the -- also the plant projects are completely in time, we're doing very well.
And the next question comes from Falko Friedrichs from Deutsche Bank.
Two questions from my end, please. Firstly, can you give a little more flavor on what you're seeing with regard to destocking? Your German peers sounded quite a bit more optimistic that it's largely concluded. So it would be interesting to hear a bit more what you're hearing on the ground? And when you think this has finally concluded, can that still happen this year? Or is that something that most definitely goes on next year as well to a more significant extent?
And then secondly, can you share with us the sort of how much of your global vial production capacity fits in Morganton?
Coming to the destocking first. From my point of view, you can see that the destocking more or less is clearly fading out. And I don't expect that we see destocking anymore in '25. The reason for the point that we are facing now is that the rebound effect actually comes slower and softer than we anticipated. It's not that we do not grow in Tubular Glass and we will also grow strongly in next year very clearly, both top and bottom line, it's just not as strong as earlier anticipated. And the vial capacity in Morganton compared to the worldwide is an answer -- I have to calculate. I do not know exactly. It's probably -- yes, less than 20%, yes.
Okay. That's helpful.
Which is not a hard answer because this is actually changing because, as you all know, quite some investments moves into this facility not only for flooding recovery, but also the new lines supported by also BARDA.
And I assume you have insurance in place, right, to cover the damages?
Falko, we have insurance in place, and all hands on deck to manage this now.
What we need to do is now get the production back in production -- the plant back in production, that's important. Because it's not only a question of sales, it's, of course, also a question of making sure that your customers get what they need.
And the next question comes from Curtis Moiles from BNP Paribas.
I just have a few. First one, looking at P&D in Q4, just maybe a little bit more color on how much acceleration you're expecting there? Is it maybe safe to say low double-digit or mid-teens percentage? Or kind of what are you seeing there maybe? And then in the PPG segment, given this rebound is slower and softer than expected, should we kind of expect quarter-on-quarter improvement throughout the rest of 2025? Or is it kind of level off at some point? Yes, any color there.
I can take the first one. The Q4 for Plastics & Devices is, as I said, it's not affected. It's running according to plan and it's running well.
And taking your PPG question actually for this year, I mean, I alluded basically that I think we have an almost 6%, 7% for the first 6 months, we have 6%, 7% decline, if I'm right, and then we have now a decline of 3% in Q3. But we really see -- we will see a growth in Q4. And actually not even a bad growth, but significantly less than expect what we've actually hoped for, that's the situation here. But as you know, we don't give guidance for specific segments for a specific quarter, but only that you have a certain direction. So you really see a nice uptick there, which is really material better than in Q3.
So this in principal goes also in the direction of the question of your predecessor more or less. The destocking is fading out, the rebound comes slower. Yes, that's the point.
Okay. And maybe just a super quick follow-up. If you were to maybe try to pinpoint like market normalization for vials, is that maybe mid-2025 or is that a bit too ambitious?
The question for the normalization is...
So basically, it's really quite difficult. We see now growth in this area, again, and we see this the first time now since 15 months in Q4 this year. And we also expect a nice growth in the next year to come. But I repeat what Dietmar said -- what Dietmar just said and echo for you, you have expected more.
Yes, we probably have to answer this different. Are we confronted with a general overcapacity or lower demand in general. And here, my point of view is that the general trend toward is more injectables, which includes not only the vials, but also, of course, the syringes, cartridges and injectable device is from our point of view, unbroken. What we are facing at the moment is a combination of first destocking and then a slower rebound effect and this is actually causing the difficulties that we see now, the primary reason, there's a couple of others and also the slightly slower growth also in '25. I will not give out the guidance for '26, but I mean the '26 growth will be back on track.
And the next question comes from David Adlington from JPMorgan.
Four, please. So firstly, given the slower performance at Bormioli, I just wondered if you'd had any scope to renegotiate the price? And following on from that, the second question is, how is the performance impacting your view on the subsequent strategic review?
Third question is just on the insurance side. Just wondered if you had any insurance for the lost revenues that we might come and see at a later point. And then final one, why are you comfortable giving EBITDA guidance for next year but not yet EPS guidance?
Maybe just regarding the -- just start with the EPS guidance and the EBITDA guidance, where we are now at the stage of our planning process is not yet serious to precise the guidance for EPS 2025, given where we are in the budgeting process. There are basically 2 elements. Two elements, David. The key element is we have not yet finalized the CapEx plan depending on the order intake, it's not yet final. And obviously, this has an impact on our financial debt and interest rate and in interest expense.
And the second is we have a certain -- as we have discussed before, also a certain variants as far as our jump-off point for 2024 for EPS growth and therefore, I think it's on the one side, prudent and on the other side, would not be really serious to precise now the EPS guidance. It's a little bit different from EBITDA for this reason I just mentioned.
Then come to the -- regarding the insurance coverage. I mean, it's also -- if you lost business, you were also insured, but obviously, it's the revenues, you cannot do anything. It's -- therefore, you -- the bottom line is that some are protected. We have a certain threshold but you need to cover on your own. But other than that, also the business disruption, let's call, is protected by our insurance as other income, but not as revenues, obviously.
And the strategic review, I don't know, Bormioli?
I didn't get this complete question. He also asked the Bormioli figures are the worst performance, I saw this as well. What you have to consider it's not the worst performance against their plan, but you have to look at the worst performance against the acquisition business plan, and that is the relevant one here so far. We included a couple of cushions, which obviously turns out to be the right thing to do.
And the strategic review from moulded glass, okay, here -- I also have -- yes, we will -- let's do the closing first and let's then see forward what the strategic review brings in detail.
Then the next question comes from James Vane-Tempest from Jefferies.
Three, if I may, please. Firstly, just on Bormioli. I understand your point that recent performance doesn't impact your business case for the acquisition. But you mentioned at the time, it was around EUR 370 million, growing around 5% with the 21% EBITDA margin as a starting point at the time of the deal to think about. So can you give us an indication if this is still the right starting point at this stage?
Second point is the question is just on visibility into the market in your business. As you're guiding down now 2 months before year-end, and we understood you at least had some visibility. So how much of this was within your control given you seem to be warning on the same issues, your peers who warn several months ago? Or is this actually a worsening of current trends? I'll come back for the third question.
Yes, to the Bormioli, we still believe the business case is intact, unchanged, honestly spoken, and there's no deviation to the estimates in the business plan for us. It's a bit theoretical hypothetical because we are in between signing and closing, and as such, only have limited access and see the same figures as you see as well. And that I don't think has a major impact to us.
Okay. So it's EUR 370 million and growing around 5%. Just so I understand.
With the Bormioli acquisition, I don't know what he's referring to. But Bormioli acquisition, we are not talking about we are buying just sales and profits. I think what you have to see here is the joint business that has a certain performance. And here, I think it's important that we see the total Plastic business together with synergies is performing in a certain direction. I think this -- I assume this is what we guided for, not the Bormioli business, but the joint business that we guided for. And here, I clearly see that this is the performance we are expecting.
What is important, we cannot basically make -- we are not managing now the Bormioli business. As you know, therefore, it's very difficult to make any statements regarding Bormioli in the actual current business. But the -- as said, what Dietmar just mentioned, for us it's a great topic. It will be very accretive to our total business. We see a lot of synergies in system integration capability and growth, and that will definitely lead to what we call high-value products in plastic. And so the business is very attractive for us.
Just coming back to the question, why now, on the visibility topic. I mean we made it crystal clear also when we released our Q2 numbers, that we are close to the lower end of our sales guidance. This was very clear in July. And we always said that Q3 will be stronger than Q2, and it happened. And now Q2 -- Q4 will be materially stronger than Q4 -- Q3 in terms of organic growth. And this is really what is happening. But despite a strong Q4, this will be basically not sufficient.
And what we have seen is there are 3 major aspects. One, the tipping point, this current flooding as we talked about it, was something that really is something ad hoc happened. This second topic is lower-than-expected market recovery for our vials business, we talked about it and definitely not helpful was that we had a certain headwind in our moulded glass food and beverage business in Q3 and Q4. This is something what we need to face. And as soon as we had it clear on the table, we decided to make a ad hoc decision, yes.
My third question is, apologies if I missed at the start. But how did the vials business perform in Q3? And does your guidance assume sequential growth in vials each quarter through the end of 2025? I guess I'm also struggling to understand how the guidance can just be due to vials given the relative size of that business unless you assume significant growth before in that segment, just looking at the magnitude of the group downgrade.
Just looking at the vials business, Q3 -- in comparison with Q3, this is really relatively stable. There's no growth in Q3, actually, a small decline still. And therefore, we still have this kind of destocking, but it's crystal clear that our Q4 will be the first time that we see a substantial growth in our vials business and which is really substantial.
But I understand that everyone is kind of looking for general weakness in the business, and I cannot help them because the key driver of the problem we have at the moment is the delay in the ramp-up of the Tubular Glass business and the softer recovery. And that is the point. Otherwise, like Bernd said, we would not sit here. No doubt the tipping point, no doubt, was the Morganton facility, which is not very helpful. But this is -- but we were trying earlier also as we indicated several times.
Then the next question comes from Alexander Galitsa from HAIB.
Just on this -- on the vial situation, maybe you could give us a sense by how much vials were down in Q3 and also 9 months? And what are you baking into your guidance for 2025 as far as vials are concerned?
We cannot disclose on the vial business in detail. But it was down.
Although Alexander, thanks for asking. I mean, really, we don't make now a disclosure precisely for our vials business. But definitely, in Q3, we had, let's say, a further shortfall in the magnitude of a mid-single-digit euro amount actually in Q3 and we expect that euro, and we expect that we can grow significantly in Q4. That's our idea, and this is how we see the business.
Okay. Understood. And then maybe just generally or rather on the adjusted EBITDA margin guidance for 2025, what a bit stands out is that you have reduced your sales growth expectations for 2024 and 2025, so that the 2025 absolute sales are going to be materially below what previously was expected yet you only marginally, I think, changed the adjusted EBITDA guidance for 2025 from at least 22% to now around 22%. So just wondering where is this confidence regarding the strength in margin coming from considering that the absolute revenue will be quite a bit lower than initially what was planned?
Basically, this comes from the trajectory of our business now. We are really improving, and you have seen this also in our numbers year-to-date and you will see this also from the full year basis. We are gradually improving our margin from 2023, where we are around 20%, now going into the direction of 21%. And obviously, we want to go and grow then by 1% -- further by 1 percentage point. We should not forget that we're really changing our product portfolio and that we're having more high-value products, the GLP-1 is helping us as well.
And that's basically the core of the whole matter based on the product mix and the growth, which is between 7% and 10%, this should really drive our margin improvement, which we have demonstrated also in the last years.
Yes. Because the key drivers of the margin improvement are fully ongoing. It's new devices, the new line of vials, it's in syringes, it's in several areas. And here, that's the drivers of the margin improvement.
Understood. And maybe the very last one, if you can provide here any color on to what has been sort of the -- I guess, the main -- what has been the main sort of tipping point for the adjustment now? Because it seems that there were several messages from the industry, I think, SCHOTT committed positively that the demand or the situation in the destocking seems to be improving. And then you also in July conference call seem to be quite optimistic on the situation as well. But then Q3 growth came at only 2.2%, which probably suggests that there was significant deviation in August. Maybe if you could just comment, what were the developments, I guess, that tilted your also expectations for the upcoming quarters to quite a bit negative direction?
Yes. It was clear from the very beginning that the year would be back-end loaded. I think this is important. Our markets have gone through the longest and deepest phase of destocking by customers and like our peers, we were also affected by this. So no doubt about this, but this drove us down from a guidance from 5% to 10% where we actually initially planned to reach the upper end of the guidance to the lower end of the guidance and we always communicated this.
The tipping point now are the 3 points that Bernd disclosed, yes? It's a combination of, no doubt, the slower ramp-up and slower recovery of the tubular glass in general. So the rebound effect, it's Morganton that is clearly a tipping point. It's not helpful at all. Plus, of course, the mentioned weakness in food and beverage moulded glass segment that is also not helping at the moment. And that together, when each and every point are individual, you might have been able to compensate, save them almost. But the 3 together now are leading to the fact that we are sitting here in this call and taking the guidance down.
And the next question comes from Olivier Calvet from UBS.
So shortly, just on Bormioli, you've said your expectations haven't changed. I just wanted you to confirm consensus that you distribute excludes Bormioli. Your guidance update is strictly excluding Bormioli, right?
That is an easy answer, yes.
Okay. Then moving on to...
Yes, it does not include Bormioli.
Yes. Yes. On Morganton, if we assume roughly 10% of the business it's vials and the 1/5 of that is Morganton. How much was the ramp-up in high-value vials and cartridges in Morganton for next year?
Yes. Too early to answer because we have to look at the situation of Morganton first. But that most of the high-value vials, hopefully and lucky-wise are actually out of Queretaro in the U.S. the Mexican facility. But we also planned some high-value ramp-ups in Morganton, but we have to see how much they are affected or well, whether we can still materialize them because I hope at the moment that we can restart the plant within '24.
Yes. But I'm just wondering in terms of what was expected to come incrementally in terms of either sales or volumes out of Morganton? You have this ramp-up in the second half of 2024 before that issue with the hurricane. So basically, are we talking adding 20%, 30%, 50% capacity to the Morganton site? Or is there any color you can give us there in terms of the ballpark of the volume increase you had before that hurricane issue?
There will not be any volume increase now in the next weeks. And we have to make sure that the Morganton plant is restarting again until the end of the year. Well, I cannot answer this completely because we are still working on because it's absolutely fresh and early. We're still working on how much we can relocate to other facilities and still run these things.
Right. No, no. I just wanted to understand what's your expectation prior to all these issues were? I understand we've obviously got a changed situation, but it's just to understand also the magnitude of the jet for the vial business being around 10% of sales?
We planned growth there. We planned also a couple of ramp-ups and as they are not coming, this is one of the tipping points why we are sitting here.
Okay. And I just wanted to also get a sense of if you can talk about the requirements related to reopening that North Carolina site. You've said some other sites might offset, might be able to serve short-term demand. But would it be fair to assume that the site would be starting operations from Q1 next year?
No, I hope actually earlier, but it starts too early. We are talking several weeks. It might be 4. It might be 6 weeks. That's something that we really have to investigate. We were able to go into the facility again today. And now the engineers are working, and I hope to get an update over the loop of the next days.
Okay. And final one, just if you could differentiate your destocking comments between high-value vials and bulk vials. Any difference there that you're seeing?
Yes, the majority is in bulk vials. The wide majority, vast majority.
And the next question comes from Michael Hannig from Quirin PrivatBank.
I have a quick one on the flooding. Could you give us a ballpark figure how much revenue the plant was generating last year to just get a better understanding of the missing revenue?
We don't disclose this, but it's [ $40 million ] or something.
In the ballpark of [ $40 million ].
And the next question comes from Gaurav Jain from Barclays.
Thank you for taking a follow-up question. So you and a lot of your peers have got guidance multiple times. And so how should we think about CapEx in the industry for this year and the next few years? And shouldn't there be now a big step down in CapEx that we should be expecting?
The CapEx -- basically, your question was whether we think also our CapEx program in the light of this adjustment, for 2024 guidance and 2025 guidance? If I understand this is correct. No, that's not the case.
But why would that be the case is my question? Because then essentially, your EBITDA numbers are coming in below expectations and your CapEx is the same. So the business is becoming worse and worse when it comes to the returns profile.
But we have not guided the CapEx for '25.
In the midst -- in the end, our midterm -- the midterm of our company, which is really driving the whole thing, we are not short-term oriented in our company. We're really pursuing a long-term profitable growth path. And this is really intact, as Dietmar worked is out before in the slide deck, we have several growth accelerators that will deliver on our double-digit growth ambition. We have -- that's the conversion to the ready-to-fill vials, cartridges, be that our high-value devices, our own IP devices, the IP pipeline, be that our syringe business serving into robust injectable market growth or frankly, also our high-value pharma plastic platform, we are a mission-critical supply chain partner of choice, and we have this kind of [ own drug point ].
And all of this, this is really important. These are profitable growth opportunities and we need to capture them. And therefore, there is no reason to announce this kind of long-term CapEx project.
It was a bit hard to understand your question how I understood it. It's not the way you raise it. It's actually, we have here only a cell phone at the moment. Yes, and that's very clear. I mean, we are planning to grow next year between 7% and 10% organic, very clear. And we are planning to go back to double-digit growth over the loop of the next years. That has unchanged in the midterm guidance. What we're doing at the moment with the CapEx, we are laying for the foundation for the growth in the future. That's the new facilities for auto-injectors, for syringes, for pens and this is the right thing to invest into. This is the turnaround of the company in both top line, but you should also not forget, it's the materialization of what ensures the midterm margin improvement also that is driving the company to '23 and beyond EBITDA margin, and this is what we are investing into.
Ladies and gentlemen, this was the last question for today. The conference is now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.