PART I [Item 3. KEY INFORMATION](index=7&type=section&id=Item%203.%20KEY%20INFORMATION) This section summarizes Grifols' historical financial data (2018-2020) and outlines key risks impacting its operations and financial health [Selected Financial Data](index=7&type=section&id=A.%20Selected%20Financial%20Data) This section presents Grifols' historical consolidated financial data for 2018-2020, including key balance sheet and profit and loss figures Consolidated Balance Sheet Data (2018-2020) | Indicator | 2020 (in € thousands) | 2019 (in € thousands) | 2018 (in € thousands) | | :--- | :--- | :--- | :--- | | **Total non-current assets** | 12,109,822 | 10,180,427 | 8,993,795 | | **Total current assets** | 3,164,954 | 5,362,184 | 3,483,251 | | **Total Assets** | 15,274,776 | 15,542,611 | 12,477,046 | | **Total Equity** | 6,720,055 | 6,845,768 | 4,696,604 | | **Total non-current liabilities** | 7,219,583 | 7,330,285 | 6,523,121 | | **Total current liabilities** | 1,335,138 | 1,366,558 | 1,257,321 | | **Total Liabilities** | 8,554,721 | 8,696,843 | 7,780,442 | Consolidated Statement of Profit and Loss Data (2018-2020) | Indicator | 2020 (in € thousands) | 2019 (in € thousands) | 2018 (in € thousands) | | :--- | :--- | :--- | :--- | | **Net revenue** | 5,340,038 | 5,098,691 | 4,486,724 | | **Gross margin** | 2,255,165 | 2,341,232 | 2,049,560 | | **Operating Result** | 996,132 | 1,131,365 | 994,124 | | **Profit attributable to the Parent** | 618,546 | 625,146 | 596,642 | | **Basic earnings per ordinary share (€)** | 0.90 | 0.91 | 0.87 | [Risk Factors](index=10&type=section&id=D.%20Risk%20Factors) This section details the company's primary risks, categorized into structural, business, healthcare industry, and securities-related factors - The company's substantial level of indebtedness, **€7.0 billion** as of December 31, 2020, could adversely affect its financial condition and restrict its ability to react to business changes[36](index=36&type=chunk) - The COVID-19 pandemic has had, and could continue to have, a material adverse impact on operations, including manufacturing, supply chains, and clinical trials[34](index=34&type=chunk)[79](index=79&type=chunk) - A significant portion of net revenue (approximately **47%** in 2020) is derived from immunoglobulin products, making the company vulnerable to adverse market events affecting these products[34](index=34&type=chunk)[81](index=81&type=chunk) - The company faces risks from potential changes to the U.S Patient Protection and Affordable Care Act (ACA) and other government regulations that could affect pharmaceutical pricing and reimbursement[35](index=35&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - The Grifols Family and Scranton Enterprises B.V. own approximately **36%** of Class A shares, giving them significant influence over matters requiring shareholder approval, including the election of the board of directors[35](index=35&type=chunk)[189](index=189&type=chunk) [Item 4. INFORMATION ON THE COMPANY](index=37&type=section&id=Item%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of Grifols, detailing its history, business structure, global operations, R&D, properties, and regulatory landscape [History of and Development of the Company](index=37&type=section&id=A.%20History%20of%20and%20Development%20of%20the%20Company) Founded in 1940, Grifols has grown into a global, vertically integrated plasma derivatives producer, marked by key acquisitions and significant operational capacity - Grifols is a vertically integrated global producer of plasma derivatives, ranking among the top three in the industry[203](index=203&type=chunk) - As of year-end 2020, the company operated **312 plasma collection centers** in the U.S and Germany with a manufacturing capacity of approximately **15.2 million liters** of plasma per year[203](index=203&type=chunk) - Significant recent acquisitions include a **100%** stake in Alkahest, Inc and plasma facilities from GC Pharma in 2020, expanding its R&D and manufacturing capabilities[210](index=210&type=chunk) [Business Overview](index=38&type=section&id=B.%20Business%20Overview) Grifols operates five divisions, with Bioscience as the largest, maintaining a strong global presence and a vertically integrated business model Net Revenue by Division (2020) | Division | Net Revenue (in € thousands) | % of Total Net Revenue | | :--- | :--- | :--- | | Bioscience | 4,252,502 | 79.5% | | Diagnostic | 775,889 | 14.5% | | Hospital | 118,675 | 2.2% | | Bio Supplies | 224,090 | 4.2% | | Others | 31,989 | 0.6% | | **Total** | **5,340,038** | **100.0%** | Net Revenue by Region (2020) | Region | Net Revenue (in € thousands) | % of Total Net Revenue | | :--- | :--- | :--- | | United States and Canada | 3,599,746 | 67.4% | | European Union | 834,492 | 15.6% | | Rest of the World | 905,800 | 17.0% | | **Total** | **5,340,038** | **100.0%** | - The company is vertically integrated across the entire value chain, from plasma collection through **312 centers** to the marketing and distribution of final products[227](index=227&type=chunk)[228](index=228&type=chunk) - Research and development spending was **€294.2 million** in 2020, with **1,107 employees** dedicated to R&D Key projects include treatments for Alzheimer's disease (AMBAR study) and COVID-19 (ITAC study)[313](index=313&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) [Organizational Structure](index=62&type=section&id=C.%20Organizational%20Structure) Grifols, S.A. is the parent of a global group comprising 63 consolidated and 12 equity-method companies, reflecting a unified corporate strategy - As of December 31, 2020, the Grifols Group was comprised of **63** fully consolidated companies[386](index=386&type=chunk) - The Group also held interests in **12** companies that were accounted for using the equity method, where its ownership is between 20% and 50%[386](index=386&type=chunk) [Property, Plant and Equipment](index=62&type=section&id=D.%20Property%2C%20Plant%20and%20Equipment) Grifols operates major manufacturing facilities globally, including plasma fractionation plants with a combined capacity of **15.2 million liters** per year, and a global operations center - The company operates **four** plasma fractionation plants located in Parets (Spain), Los Angeles (USA), Clayton (USA), and a newly acquired facility in Montreal (Canada)[388](index=388&type=chunk)[392](index=392&type=chunk)[396](index=396&type=chunk) - The combined fractionation capacity of its facilities is approximately **15.2 million liters** per year, with plans to increase this to **21 million liters** by 2022 and **28 million** by 2026[203](index=203&type=chunk)[392](index=392&type=chunk) - A global operations center in Dublin, Ireland, centralizes key functions for the Bioscience division, including logistics, distribution, and treasury[398](index=398&type=chunk) [Regulatory Matters](index=64&type=section&id=E.%20Regulatory%20Matters) Grifols is subject to extensive government regulation in the U.S., Europe, and other international markets, covering product authorization, anti-fraud, and pricing/reimbursement - In the U.S., Grifols' plasma derivative products are regulated as biologics and require an approved Biologics License Application (BLA) from the FDA to be marketed[401](index=401&type=chunk)[402](index=402&type=chunk) - The company's activities are subject to anti-fraud and abuse regulations in the U.S., such as the Anti-Kickback Law and the False Claims Act (FCA), with potential for severe civil and criminal penalties[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) - In the European Union, medicines are authorized via a centralized procedure through the EMA or through national authorization procedures The withdrawal of the U.K from the EU (Brexit) has introduced new regulatory pathways for the U.K market[427](index=427&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk) - Sales are dependent on reimbursement from third-party payors, including government programs like Medicare and Medicaid in the U.S., which are increasingly challenging prices and examining cost-effectiveness[456](index=456&type=chunk)[457](index=457&type=chunk) [Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=77&type=section&id=Item%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes Grifols' 2020 financial performance, including revenue, margins, liquidity, capital resources, and the impact of COVID-19 and acquisitions [Operating Results](index=77&type=section&id=A.%20Operating%20Results) In 2020, net revenue grew **4.7%** to **€5.34 billion**, despite a **€205 million** inventory write-down, with profit before tax increasing **7.5%** due to improved finance results Financial Performance Comparison (2019 vs. 2020) | Indicator | 2020 (in € thousands) | 2019 (in € thousands) | % Change | | :--- | :--- | :--- | :--- | | **Net revenue** | 5,340,038 | 5,098,691 | 4.7% | | **Gross margin** | 2,255,165 | 2,341,232 | (3.7)% | | **Operating result** | 996,132 | 1,131,365 | (12.0)% | | **Profit before income tax** | 878,629 | 817,103 | 7.5% | | **Consolidated profit for the year** | 708,990 | 648,644 | 9.3% | - The COVID-19 pandemic had a net negative impact of **€155 million** on 2020 operating results, which includes a **€205 million** inventory write-down, reduced revenues, offset by a **€112 million** expense containment plan and strong sales of a SARS-CoV-2 diagnostic test[485](index=485&type=chunk) - The Bioscience division's revenue grew **6.2%** to **€4.2 billion**, driven by strong immunoglobulin and albumin sales The Diagnostic division's revenue increased **5.8%** to **€775.9 million**, largely due to its TMA molecular test for SARS-CoV-2[515](index=515&type=chunk)[519](index=519&type=chunk) - Finance costs decreased by **35.3%** to **€177.7 million**, mainly due to debt refinancing in late 2019 and a **€57 million** capital gain from the Shanghai RAAS transaction[535](index=535&type=chunk) [Liquidity and Capital Resources](index=88&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) As of December 31, 2020, Grifols maintained a strong liquidity position, with operating cash flow significantly increasing to **€1.1 billion**, supporting strategic investments and a diversified debt structure - As of December 31, 2020, the company had a liquidity position of approximately **€1.5 billion**, consisting of **€579.6 million** in cash and **€922.5 million** in undrawn credit lines[575](index=575&type=chunk)[484](index=484&type=chunk) Historical Cash Flows (2018-2020) | Cash Flow Activity (in € thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | 1,110,336 | 568,933 | 737,428 | | **Net cash (used in) investing activities** | (858,115) | (548,789) | (781,867) | | **Net cash from/(used in) financing activities** | (354,401) | (332,356) | 152,503 | - The company is undertaking a **€1.4 billion** investment plan from 2018 through 2022, focusing on expanding manufacturing capacities for the Bioscience division and growing its plasma center network[602](index=602&type=chunk) - Key financing sources include the 2019 Credit Facilities (comprising Senior Term Loans and Revolving Loans), **€1.0 billion** in 3.20% Senior Unsecured Notes due 2025, and **€1.675 billion** in Senior Secured Notes issued in 2019[612](index=612&type=chunk)[619](index=619&type=chunk)[627](index=627&type=chunk) [Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=101&type=section&id=Item%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details Grifols' Board of Directors, senior management, compensation, board practices, and global workforce of **23,655 employees** as of year-end 2020 [Directors and Senior Management](index=101&type=section&id=A.%20Directors%20and%20Senior%20Management) The Board of Directors is led by non-executive Chairman Víctor Grifols Roura, with joint CEOs Víctor Grifols Deu and Raimon Grifols Roura, supported by an experienced senior management team - Víctor Grifols Roura serves as the non-executive Chairman of the Board[657](index=657&type=chunk)[660](index=660&type=chunk) - Víctor Grifols Deu and Raimon Grifols Roura have served as joint and several Chief Executive Officers since January 1, 2017, as part of a planned succession[657](index=657&type=chunk)[663](index=663&type=chunk)[665](index=665&type=chunk) - The senior management team is composed of long-tenured executives with deep industry experience, responsible for global operations across all divisions[690](index=690&type=chunk) [Compensation](index=109&type=section&id=B.%20Compensation) In 2020, total director compensation was **€5 million**, senior management received **€17.2 million**, and an RSU Retention Plan allows employees to receive bonuses in Class B shares - Total compensation paid to the Board of Directors in 2020 was **€5 million**[730](index=730&type=chunk) - Senior management (excluding directors) received aggregate compensation of **€17.2 million** in 2020[733](index=733&type=chunk) - The company maintains a Restricted Share Unit (RSU) Retention Plan where eligible employees can elect to receive up to **50%** of their bonus in Class B shares, which the company matches with an additional **50%** of the elected amount, subject to a two-year vesting period[737](index=737&type=chunk) [Board Practices](index=111&type=section&id=C.%20Board%20Practices) The Board of Directors, comprising **13 members** with three committees, follows Spanish corporate governance practices, which differ from NASDAQ standards - The Board is composed of **13** directors elected for four-year terms[740](index=740&type=chunk)[741](index=741&type=chunk) - The Board has an Audit Committee, an Appointments and Remuneration Committee, and a Sustainability Committee[756](index=756&type=chunk) - The Audit Committee consists of **three** members, all of whom are independent in conformity with Exchange Act and NASDAQ Listing Rules[762](index=762&type=chunk) - A new Sustainability Committee was established on December 11, 2020, to monitor corporate governance, environmental, and social practices[769](index=769&type=chunk)[770](index=770&type=chunk) [Employees](index=116&type=section&id=D.%20Employees) As of December 31, 2020, Grifols had **23,655 employees** globally, with the majority in manufacturing and North America being the largest region Employees by Geographic Region (Year-End) | Geographic Region | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Spain | 4,292 | 4,134 | 3,858 | | North America | 16,756 | 17,479 | 15,330 | | Rest of the World | 2,607 | 2,390 | 2,042 | | **Total** | **23,655** | **24,003** | **21,230** | - The largest department by employee count is Manufacturing, with **19,049 employees** as of year-end 2020[774](index=774&type=chunk) [Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=117&type=section&id=Item%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details Grifols' Class A share ownership, including major shareholders, and significant related party transactions, such as the **$538 million** sale of Haema AG and Biotest US Corporation Major Shareholders of Class A (Voting) Shares as of Dec 31, 2020 | Name of Beneficial Owner | Percentage of Ordinary Shares | | :--- | :--- | | Deria S.A. | 9.16% | | Scranton Enterprises B.V. | 8.13% | | Thorthol Holdings B.V. | 7.09% | | Núria Roura Carreras | 6.15% | | Blackrock, Inc. | 4.47% | - In December 2018, Grifols sold its stakes in Haema AG and Biotest US Corporation to major shareholder Scranton Enterprises B.V for **$538 million** Grifols retains an option to repurchase the shares and has a **30-year** plasma supply agreement with the entities[790](index=790&type=chunk)[791](index=791&type=chunk) - The company contributes annually to the Víctor Grifols i Lucas Foundation and the Probitas Private Foundation, both of which have connections to the Grifols family and directors In 2020, contributions were **€0.4 million** and **€9.9 million**, respectively[792](index=792&type=chunk)[793](index=793&type=chunk)[794](index=794&type=chunk) [Item 8. FINANCIAL INFORMATION](index=120&type=section&id=Item%208.%20FINANCIAL%20INFORMATION) This section presents Grifols' audited financial statements, details legal proceedings including a **$4 million** arbitration award, and outlines the dividend policy targeting **40%** of net consolidated profits - The company is involved in a legal dispute with Abbott Laboratories over unpaid royalties, where an arbitrator awarded **$4 million** to GDS/Ortho in June 2020 The court litigation is ongoing[801](index=801&type=chunk) - The company's dividend policy targets a payout of approximately **40%** of net consolidated profits, subject to debt covenants[809](index=809&type=chunk) - In October 2020, shareholders approved a dividend of **€0.162** per Class A share (totaling **€68.9 million**) and **€0.162** per Class B share (totaling **€41.8 million**), plus a preferred dividend of **€0.01** per Class B share[811](index=811&type=chunk)[813](index=813&type=chunk) [Item 10. ADDITIONAL INFORMATION](index=127&type=section&id=Item%2010.%20ADDITIONAL%20INFORMATION) This section details Grifols' corporate structure, share capital, and governing documents, outlining the rights of Class A and Class B shares, material contracts, and tax considerations - The company's share capital consists of **426,129,798 Class A voting shares** and **261,425,110 Class B non-voting shares**[860](index=860&type=chunk) - Class B shares have a preferred annual dividend of **€0.01** per share, which is paid before any dividend to Class A shareholders They also receive the same ordinary dividends as Class A shares[812](index=812&type=chunk)[908](index=908&type=chunk) - While generally non-voting, Class B shares have voting rights on specific extraordinary matters, such as mergers, dissolution, delisting, or any resolution that adversely affects their rights[904](index=904&type=chunk)[905](index=905&type=chunk)[913](index=913&type=chunk) - Dividends paid by Grifols to non-residents of Spain are generally subject to a **19%** withholding tax, which may be reduced to **15%** for eligible U.S holders under the U.S.-Spain tax treaty[943](index=943&type=chunk)[944](index=944&type=chunk) [Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=145&type=section&id=Item%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details Grifols' exposure to market risks, primarily currency fluctuations (USD/EUR) and interest rate volatility, with mitigation strategies in place - The company's primary market risk exposure is to currency fluctuations, particularly between the U.S dollar and the euro This is mitigated by holding debt denominated in U.S dollars[981](index=981&type=chunk)[982](index=982&type=chunk) - A hypothetical **10%** strengthening of the U.S dollar against the euro at year-end 2020 would have increased equity by **€750.6 million** and profit by **€13.2 million**[983](index=983&type=chunk) - As of December 31, 2020, **46%** of the company's total debt was at a fixed interest rate, mitigating exposure to interest rate volatility[987](index=987&type=chunk) - A hypothetical **100 basis point** increase in interest rates during 2020 would have increased interest expense by **€36.2 million**[989](index=989&type=chunk) PART II [Item 15. CONTROLS AND PROCEDURES](index=153&type=section&id=Item%2015.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of Grifols' disclosure controls and internal control over financial reporting as of December 31, 2020, as assessed by management and audited by KPMG - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[1076](index=1076&type=chunk) - Management assessed the effectiveness of internal control over financial reporting using the criteria from the COSO Internal Control — Integrated Framework (2013) and found it to be effective[1080](index=1080&type=chunk) - The independent registered public accounting firm, KPMG Auditores, S.L., issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[1081](index=1081&type=chunk) [Corporate Governance and Other Matters](index=154&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Other%20Matters) This section covers corporate governance, including the Audit Committee Financial Expert, Code of Ethics, KPMG fees (**€6.1 million**), a share buy-back program, and differences from NASDAQ standards - The Board has determined that Steven F Mayer is an "audit committee financial expert" and is an independent director[1084](index=1084&type=chunk) Principal Accountant Fees (KPMG) | Service Category | 2020 (in € thousands) | 2019 (in € thousands) | | :--- | :--- | :--- | | Audit fees | 5,567 | 5,080 | | Audit-related fees | 399 | 651 | | Tax fees | 11 | 55 | | All other fees | 105 | 85 | | **Total** | **6,082** | **5,871** | - In March 2021, the Board implemented a share buy-back program to acquire up to **1%** of the company's share capital (**4,261,298 Class A shares** and **2,614,251 Class B shares**) for a maximum investment of **€125 million**, intended for future acquisitions[1095](index=1095&type=chunk)[1097](index=1097&type=chunk)[1098](index=1098&type=chunk) - As a foreign private issuer, Grifols follows Spanish corporate governance practices, which differ from NASDAQ rules for U.S companies regarding board independence, shareholder quorum, and proxy solicitations[1103](index=1103&type=chunk)[1104](index=1104&type=chunk) PART III [Item 18. FINANCIAL STATEMENTS](index=160&type=section&id=Item%2018.%20FINANCIAL%20STATEMENTS) This section presents Grifols' audited consolidated financial statements (2018-2020), prepared under IFRS, along with KPMG's unqualified opinion on both the financials and internal controls - The financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and cash flows for the three-year period ended December 31, 2020, in conformity with IFRS[1140](index=1140&type=chunk) - The independent auditor, KPMG, identified the evaluation of the Diagnostic goodwill impairment analysis as a critical audit matter due to the significant judgment required in evaluating assumptions related to future cash flows, perpetual growth rate, and the discount rate[1149](index=1149&type=chunk)[1151](index=1151&type=chunk) - The company adopted IFRS 16 Leases on January 1, 2019, changing its method of accounting for leases, but did not restate comparative figures for 2018 as permitted by the standard's transitional provisions[1141](index=1141&type=chunk)[1238](index=1238&type=chunk)

Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ☐ Yes ☒ No GRIFOLS, S.A. TABLE OF CONTENTS | PRESENTATIO ...

Part I [Key Information](index=8&type=section&id=Item%203.%20KEY%20INFORMATION) This section summarizes Grifols' five-year financial data under IFRS and details key financial, operational, and industry risk factors Consolidated Statement of Profit and Loss Data (2014-2018) | | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | | (in thousands of euros) | | | | | | **Net revenue** | 4,486,724 | 4,318,073 | 4,049,830 | 3,934,563 | 3,355,384 | | **Gross Profit** | 2,049,560 | 2,152,011 | 1,912,291 | 1,930,998 | 1,699,214 | | **Operating Result** | 994,124 | 1,003,343 | 939,408 | 970,370 | 857,689 | | **Profit before income tax** | 725,842 | 695,722 | 712,752 | 690,250 | 589,680 | | **Profit attributable to the Parent** | 596,642 | 662,700 | 545,456 | 532,145 | 470,253 | | **Basic earnings per ordinary share (€)** | 0.87 | 0.97 | 0.80 | 0.78 | 0.69 | Consolidated Balance Sheet Data (2014-2018) | | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | | (in thousands of euros) | | | | | | **Total non-current assets** | 8,993,795 | 7,974,948 | 7,007,258 | 6,512,243 | 5,536,627 | | **Total current assets** | 3,483,251 | 2,945,316 | 3,122,514 | 3,089,472 | 2,913,122 | | **Total Assets** | 12,477,046 | 10,920,264 | 10,129,772 | 9,601,715 | 8,449,749 | | **Total Equity** | 4,696,604 | 3,633,965 | 3,727,978 | 3,301,390 | 2,662,883 | | **Total non-current liabilities** | 6,523,121 | 6,308,312 | 5,330,030 | 5,247,319 | 4,777,150 | | **Total current liabilities** | 1,257,321 | 977,987 | 1,071,764 | 1,053,006 | 1,009,716 | | **Total Liabilities** | 7,780,442 | 7,286,299 | 6,401,794 | 6,300,325 | 5,786,866 | [Risk Factors](index=12&type=section&id=D.%20Risk%20Factors) - The company identifies three main categories of risks: those relating to its corporate and financial structure, those inherent to its business operations, and those associated with the broader healthcare industry[42](index=42&type=chunk)[77](index=77&type=chunk)[162](index=162&type=chunk) - Key financial risks include a substantial level of indebtedness (**€6.4 billion** as of Dec 31, 2018), which could affect financial condition and restrict business flexibility; covenants in debt agreements also impose limitations on activities such as incurring additional debt, paying dividends, and making acquisitions[42](index=42&type=chunk)[43](index=43&type=chunk)[50](index=50&type=chunk) - Operational risks are significant, stemming from the complexity of manufacturing biological products, potential for plasma contamination, reliance on a consistent plasma supply, and the need for continuous adherence to cGMP regulations; competition from other major players like Takeda and CSL Behring is also a key risk[77](index=77&type=chunk)[94](index=94&type=chunk)[101](index=101&type=chunk) - Industry-related risks include potential impacts from the US Healthcare Reform Law (Affordable Care Act), government price controls, reimbursement challenges from third-party payors, and stringent anti-fraud and abuse regulations[162](index=162&type=chunk)[169](index=169&type=chunk)[176](index=176&type=chunk) [Information on the Company](index=35&type=section&id=Item%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details Grifols' history, vertically integrated business across five divisions, global operations, R&D, and regulatory frameworks [History and Development of the Company](index=35&type=section&id=A.%20History%20of%20and%20Development%20of%20the%20Company) - Founded in 1940 in Barcelona, Grifols has grown from a domestic Spanish company into a global, vertically integrated producer of plasma derivatives, ranking among the top three in the industry[189](index=189&type=chunk)[190](index=190&type=chunk)[192](index=192&type=chunk) - The company has expanded significantly through strategic acquisitions, including Talecris (2011), Novartis' diagnostic business (2013), and Hologic's NAT Donor Screening Unit (2017)[197](index=197&type=chunk)[200](index=200&type=chunk)[202](index=202&type=chunk) - In March 2019, Grifols entered into an agreement to acquire a **26.2%** stake in Shanghai RAAS, a leader in China's plasma derivatives sector, to serve as the exclusive distributor of Grifols' products in China[195](index=195&type=chunk)[196](index=196&type=chunk) [Business Overview](index=37&type=section&id=B.%20Business%20Overview) - Grifols operates through five divisions: Bioscience (**78.4%** of 2018 revenue), Diagnostic (**15.6%**), Hospital (**2.7%**), Bio Supplies (**3.7%**), and Others (**0.5%**)[207](index=207&type=chunk)[221](index=221&type=chunk) Net Revenue by Division (2016-2018) | Division | 2018 (€ thousands) | 2017 (€ thousands) | 2016 (€ thousands) | | :--- | :--- | :--- | :--- | | **Bioscience** | 3,516,704 | 3,429,785 | 3,195,424 | | **Diagnostic** | 702,265 | 732,369 | 691,701 | | **Hospital** | 119,454 | 105,649 | 102,251 | | **Bio Supplies** | 167,004 | 66,791 | 57,239 | | **Others** | 22,451 | 18,263 | 34,601 | | **Total** | **4,486,724** | **4,318,073** | **4,049,830** | Net Revenue by Region (2016-2018) | Region | 2018 (€ thousands) | 2017 (€ thousands) | 2016 (€ thousands) | | :--- | :--- | :--- | :--- | | **United States and Canada** | 2,974,429 | 2,896,505 | 2,707,579 | | **European Union** | 800,274 | 686,983 | 651,496 | | **Rest of the World** | 712,021 | 734,585 | 690,755 | | **Total** | **4,486,724** | **4,318,073** | **4,049,830** | - The company is vertically integrated, controlling the value chain from plasma collection (**197 centers** in the US) and manufacturing (**14.8 million liters/year** capacity) to marketing and distribution in over 100 countries[192](index=192&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) [Property, Plant and Equipment](index=60&type=section&id=D.%20Property,%20Plant%20and%20Equipment) - Grifols operates major manufacturing facilities in Spain (Parets del Vallès, Murcia) and the United States (Los Angeles, CA; Clayton, NC; Emeryville, CA; San Diego, CA)[350](index=350&type=chunk)[351](index=351&type=chunk) - The company has three plasma fractionation plants in Clayton (NC), Los Angeles (CA), and Parets (Spain), with a combined annual capacity of approximately **14.8 million liters**; all facilities are certified by the FDA and EMA[230](index=230&type=chunk)[352](index=352&type=chunk) - A new global operations center for the Bioscience division was opened in Dublin, Ireland, centralizing logistics, distribution, treasury, and regulatory activities[356](index=356&type=chunk) [Regulatory Matters](index=62&type=section&id=E.%20Regulatory%20Matters) - The company's operations are extensively regulated by government authorities in the U.S. (FDA), the European Union (EMA), and other countries, covering all stages from R&D and manufacturing to marketing and distribution[360](index=360&type=chunk)[392](index=392&type=chunk) - In the U.S., biological products require an approved Biologics License Application (BLA) from the FDA, a process that includes preclinical tests and three phases of clinical trials to establish safety and efficacy[362](index=362&type=chunk)[363](index=363&type=chunk) - In the European Union, medicines are authorized through either a centralized procedure via the EMA or national procedures; Grifols utilizes both, with some products approved centrally and others via mutual-recognition or national processes[393](index=393&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk) - Sales are subject to pricing and reimbursement policies, including government programs in the U.S. like Medicaid, Medicare, and the 340B/PHS program, which involve mandatory discounts and rebates[413](index=413&type=chunk)[414](index=414&type=chunk) [Operating and Financial Review and Prospects](index=73&type=section&id=Item%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes Grifols' 2016-2018 financial performance, covering revenue, gross margins, liquidity, capital resources, debt, and contractual obligations [Operating Results](index=73&type=section&id=A.%20Operating%20Results) Financial Performance Comparison (2017 vs. 2018) | Metric | 2018 (€ thousands) | 2017 (€ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Net revenue** | 4,486,724 | 4,318,073 | 3.9% | | **Gross profit** | 2,049,560 | 2,152,011 | (4.8)% | | **Operating result** | 994,124 | 1,003,343 | (0.9)% | | **Profit before income tax** | 725,842 | 695,722 | 4.3% | | **Consolidated profit for the year** | 594,406 | 661,314 | (10.1)% | - In 2018, net revenue grew **3.9%** (**9.2%** at constant currency) to **€4.5 billion**, driven by strong performance in the Bioscience division, particularly from immunoglobulin, albumin, and alpha-1 antitrypsin sales[461](index=461&type=chunk)[463](index=463&type=chunk) - Gross margin decreased from **49.8%** in 2017 to **45.7%** in 2018, primarily due to higher plasma procurement costs associated with expanding plasma supply to meet strong demand[482](index=482&type=chunk)[483](index=483&type=chunk) - In 2017, net revenue grew **6.6%** (**7.2%** at constant currency) to **€4.3 billion**, with growth across all divisions and regions; gross margin improved to **49.8%** from **47.2%** in 2016, mainly due to the integration of the acquired NAT donor-screening business[491](index=491&type=chunk)[504](index=504&type=chunk) [Liquidity and Capital Resources](index=85&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) - As of December 31, 2018, the company held **€886.5 million** in cash and cash equivalents and had approximately **€380 million** available under its debt agreements, which is expected to be sufficient for funding requirements for at least the next twelve months[512](index=512&type=chunk)[513](index=513&type=chunk) Historical Cash Flows (in thousands of euros) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | 737,428 | 841,746 | 553,278 | | **Net cash (used in) investing activities** | (781,867) | (2,185,880) | (506,652) | | **Net cash from/(used in) financing activities** | 152,503 | 1,434,065 | (329,558) | | **Net increase in cash and cash equivalents** | 147,271 | (8,488) | (247,491) | - The company is undertaking a **€1.2 billion** capital investment plan for 2016-2020, primarily to expand manufacturing capacities for the Bioscience division[574](index=574&type=chunk) - Key financing sources include the New Credit Facilities (Tranche A and B term loans totaling **~$5.35B** and **€607M**, plus a **$300M** revolving facility), **€1.0 billion** in 2017 Senior Notes due 2025, and various loans from the European Investment Bank[546](index=546&type=chunk)[550](index=550&type=chunk)[558](index=558&type=chunk) [Contractual Obligations](index=96&type=section&id=F.%20Contractual%20Obligations) Contractual Obligations as of December 31, 2018 (in thousands of euros) | | Total | Less than one year | One to three years | Three to five years | More than five years | | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating leases** | 438,252 | 97,222 | 115,611 | 88,543 | 136,876 | | **Financial debt obligations** | 6,608,822 | 290,336 | 641,520 | 2,174,111 | 3,502,855 | | **Interest — financial debt obligations** | 1,232,329 | 240,890 | 241,141 | 721,025 | 29,273 | | **Licenses and royalties** | 24,284 | 4,291 | 8,336 | 8,287 | 3,370 | | **Total** | **8,303,686** | **632,739** | **1,006,608** | **2,991,966** | **3,672,374** | [Directors, Senior Management and Employees](index=97&type=section&id=Item%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details Grifols' leadership, board practices, compensation, and employee demographics by department and geographic region [Directors and Senior Management](index=97&type=section&id=A.%20Directors%20and%20Senior%20Management) - As of January 1, 2017, Víctor Grifols Roura transitioned to non-executive Chairman, with his son, Víctor Grifols Deu, and his brother, Raimon Grifols Roura, appointed as joint and several Chief Executive Officers[637](index=637&type=chunk)[639](index=639&type=chunk)[640](index=640&type=chunk) - The Board of Directors consists of **13** members, including executive, proprietary, independent, and other external directors[633](index=633&type=chunk)[709](index=709&type=chunk) [Compensation](index=111&type=section&id=B.%20Compensation) - Total compensation paid to all directors in 2018 was **€6.7 million**; this includes fixed and variable components for executive directors and fixed fees for non-executive directors based on board and committee roles[697](index=697&type=chunk) - Senior management (excluding board members) received aggregate compensation of **€16.1 million** in 2018[702](index=702&type=chunk) - The company has a Restricted Share Unit (RSU) Retention Plan where eligible employees can receive up to **50%** of their bonus in Class B shares or ADSs, with the company providing a **50%** match on the elected amount; these RSUs vest after two years and one day[705](index=705&type=chunk) [Employees](index=116&type=section&id=D.%20Employees) Number of Employees by Department (2016-2018) | Department | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Manufacturing** | 17,147 | 14,577 | 11,400 | | **Research & development** | 984 | 963 | 812 | | **Administration and others** | 1,396 | 1,112 | 1,095 | | **Sales and distribution** | 1,265 | 1,227 | 1,164 | | **Other** | 438 | 417 | 406 | | **Total** | **21,230** | **18,296** | **14,877** | Number of Employees by Geographic Region (2016-2018) | Geographic Region | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Spain** | 3,858 | 3,649 | 3,430 | | **North America** | 15,330 | 13,671 | 10,557 | | **Rest of the World** | 2,042 | 976 | 890 | | **Total** | **21,230** | **18,296** | **14,877** | [Major Shareholders and Related Party Transactions](index=117&type=section&id=Item%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details Grifols' ownership structure, major shareholders, and significant related party transactions, including the 2018 sale of Haema AG and Biotest US Corporation [Major Shareholders](index=117&type=section&id=A.%20Major%20Shareholders) Major Shareholders of Class A (Voting) Shares as of Dec 31, 2018 | Name of Beneficial Owner | Percentage of Ordinary Shares | | :--- | :--- | | Deria S.A. | 8.91% | | Scranton Enterprises B.V. | 8.67% | | Thorthol Holdings B.V. | 7.06% | | Núria Roura Carreras | 6.15% | | Blackrock, Inc. | 4.40% | | Oppenheimerfunds Inc. | 3.07% | | Jupiter Fund Management PLC | 3.04% | [Related Party Transactions](index=119&type=section&id=B.%20Related%20Party%20Transactions) - In December 2018, Grifols sold its **100%** stakes in Haema AG and Biotest US Corporation to Scranton Enterprises B.V., a major shareholder, for **$538 million**; Grifols retains an option to repurchase the shares and continues to operate the plasma centers under a 30-year plasma supply agreement[752](index=752&type=chunk)[754](index=754&type=chunk) - The company makes annual charitable contributions to the Víctor Grifols i Lucas Foundation (**€0.4 million** in 2018) and the Probitas Private Foundation (**€5.4 million** in 2018), which is equal to **0.7%** of its profits before tax[755](index=755&type=chunk)[756](index=756&type=chunk)[757](index=757&type=chunk) [Financial Information](index=120&type=section&id=Item%208.%20FINANCIAL%20INFORMATION) This section covers legal proceedings, primarily patent suits with no material impact, and the company's dividend policy targeting **40%** of net profit - The company is involved in patent infringement lawsuits with bioMérieux and Enzo Life Sciences related to products from the acquired Hologic business, but does not expect a material impact on its financial statements[765](index=765&type=chunk)[766](index=766&type=chunk) - The company's dividend policy targets a payout of approximately **40%** of net consolidated profit, contingent on the Leverage Ratio being below 3.50:1.00 as per its New Credit Facilities[771](index=771&type=chunk) 2018 Dividends Paid | Share Class | Dividend per Share (€) | Total Dividend (€ millions) | | :--- | :--- | :--- | | **Class A** | **0.204** (final) + **0.20** (interim) | **86.9** + **85.2** = **172.1** | | **Class B** | **0.204** (final) + **0.20** (interim) + **0.01** (preferred) | **52.6** + **51.5** + **2.6** = **106.7** | [The Offer and Listing](index=122&type=section&id=Item%209.%20THE%20OFFER%20AND%20LISTING) This section details Grifols' securities trading markets, including Class A and B shares on Spanish exchanges and Class B ADSs on NASDAQ - Grifols' Class A shares are listed on the Spanish Stock Exchanges (ticker: GRF) and Class B shares are also listed there (ticker: GRF.P)[778](index=778&type=chunk) - In the United States, Class B ADSs are listed and traded on the NASDAQ Global Select Market under the symbol "GRFS"; each Class B ADS represents one Class B share[781](index=781&type=chunk) [Additional Information](index=128&type=section&id=Item%2010.%20ADDITIONAL%20INFORMATION) This section details share capital, articles of association, material contracts, and tax regulations, outlining distinct rights of Class A and B shares - The company has two classes of shares: **426,129,798** Class A ordinary shares with voting rights and **261,425,110** Class B non-voting preference shares[823](index=823&type=chunk) - Class B shares have limited voting rights (only on extraordinary matters affecting their rights), are entitled to a minimum annual preferred dividend of **€0.01** per share, and have liquidation preference over Class A shares[867](index=867&type=chunk)[870](index=870&type=chunk)[880](index=880&type=chunk) - Material contracts include the New Credit Facilities, the **€1.0 billion** 3.20% Senior Notes due 2025, and various term loans with the European Investment Bank[892](index=892&type=chunk)[893](index=893&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=147&type=section&id=Item%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines Grifols' market risk exposure, primarily currency risk (USD) mitigated by debt, and interest rate risk from variable-rate debt - The company's main currency risk exposure is to the U.S. dollar, as a significant portion of transactions are denominated in USD; this risk is primarily mitigated by holding U.S. dollar-denominated debt[951](index=951&type=chunk)[952](index=952&type=chunk) - A hypothetical **10%** strengthening of the U.S. dollar against the euro at year-end 2018 would have increased equity by **€506.1 million** and profit by **€4.1 million**[953](index=953&type=chunk) - As of December 31, 2018, **19%** of the company's total debt was at a fixed interest rate; a hypothetical **100 basis point** increase in interest rates during 2018 would have increased interest expense by **€53 million**[956](index=956&type=chunk)[958](index=958&type=chunk) Part II [Controls and Procedures](index=153&type=section&id=Item%2015.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of disclosure controls and internal control over financial reporting as of December 31, 2018 - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were effective[1026](index=1026&type=chunk) - Based on an assessment using the criteria from the Committee of Sponsoring Organizations of the Treadway Commission (COSO), management believes the company's internal control over financial reporting was effective as of December 31, 2018[1030](index=1030&type=chunk) - The independent registered public accounting firm, KPMG Auditores, S.L., issued an unqualified audit report on the effectiveness of the company's internal control over financial reporting[1032](index=1032&type=chunk) [Corporate Governance](index=156&type=section&id=Item%2016.G.%20CORPORATE%20GOVERNANCE) This section details Grifols' corporate governance practices, highlighting differences between Spanish requirements and NASDAQ Listing Rules - As a foreign private issuer, Grifols elects to follow Spanish home country corporate governance practices in lieu of certain NASDAQ Listing Rule 5600 Series requirements[1044](index=1044&type=chunk) - Key differences from NASDAQ rules include shareholder meeting quorum requirements (**25%** of voting capital on first call), exemption from SEC proxy solicitation rules, and different board independence standards[1045](index=1045&type=chunk)[1047](index=1047&type=chunk)[1051](index=1051&type=chunk) - The Audit Committee consists of three independent directors, meeting NASDAQ and Spanish requirements; the Appointments and Remuneration Committee is composed of external directors, with a majority being independent, in line with Spanish law[731](index=731&type=chunk)[733](index=733&type=chunk) Part III [Financial Statements](index=160&type=section&id=Item%2018.%20FINANCIAL%20STATEMENTS) This section contains Grifols' audited consolidated financial statements for 2018, prepared under IFRS, including KPMG's report and detailed notes - The financial statements were prepared in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)[1071](index=1071&type=chunk)[1118](index=1118&type=chunk) - The independent registered public accounting firm, KPMG Auditores, S.L., provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[1084](index=1084&type=chunk)