Sartorius AG

Good day and welcome to the Sartorius and Sartorius Thelium Biotech conference call on the Q1 2023 results. Today's conference is being recorded. At this time, it's my pleasure and I would like to turn the conference over to Dr. Joachim Kreutzburg, CEO of Sartorius Group. Please go ahead, sir.

Thank you very much and also welcome from our side to our today's conference call on the Q1 results for 2023 for Sartorius as well as for Sartorius Thelium Biotech. We will run the call slightly differently from the previous times. I will make the introduction as always. Then Rainer will walk you through the main results for the Sartoris Group as well as for the divisions. And then René Faber, who is leading the Bioprocess Solutions Division at Sartoris since four years and now is also the CEO of Sartoris Data Biotech, will then focus on the Sartoris Data Biotech's numbers. Therefore, we will also slightly shift the presentation between BPS and SSB. Usually, we are going into the details when talking about the BPS numbers. This time, we will be a little bit quicker at that end, and then René will focus on saturated state and biotech. And as you know, overlap is 95 plus percent then in the second part of our presentation. And then, of course, we will jointly So let me kick this off by walking you through the highlights and the overview for Q1 2023. We clearly are recording a continued demand normalization as we have expected. I'm sure a lot of our discussion later will be around in how far that was in line with our expectation. So therefore, a quick recap, two and a half years ago, when order intake jumped by around 50% from one quarter to the other, we said, don't extrapolate this. Here are non-sustainable effects playing a role beyond the upcoming demand for Corona vaccine manufacturing. Back then, first players started to prepare themselves for the manufacturing of Corona vaccines. And we clearly always flagged that we were seeing stocking effects in the industry. We discussed pretty much in all calls last year about our expected destocking. It basically then started around mid of last year. We initially would have thought that it started a little bit earlier and would have affected a larger part of 2022. It affected pretty much the second half of 22, but that of course means that it's affecting 23 quite a bit. Our expectation, and it always has been, that this destocking would pretty much influence one year, four quarters. So therefore, this first half of 2023, we expected this impact to be significant. And therefore, when we made our guidance for the full year 2023, I think we made it quite clear that the two halves of this year would look differently. So, again, an expected reduced demand, which we consider to be temporary, and therefore we are also confirming the outlook for the year 2023. Sales revenue is below previous year by 13% in constant currencies, excluding the direct COVID effect. I'm not talking about destocking now. I'm talking about the business that is related to vaccine manufacturing, COVID tests, et cetera. Without that effect, it would have been a more moderate single-digit percentage decline. More details then also later here. And the underlying EBITDA margin is then also, of course, pretty much in line with revenue. As you know, we have quite significant scale effects affected by this lower sales revenue. One word again on this normalization, you will see a chart later on, or two charts actually, one for the group and later one for SSB that show both sales revenue development as well as order intake development. And it clearly shows as the order intake increase has been much more pronounced and steeper at the beginning of the pandemic for the two reasons that I mentioned again, we now also see a more pronounced reduction of order intake. Therefore, the gap between order intake Q123 and previous year is also more significant, but again, pretty much in line with expectations. So, and then René will later also give a little bit more detail on the announced acquisition of Polyplus. We were running a separate call on that two weeks ago already, but nevertheless, we will provide a bit more information again, just in case that there are some further questions.

And with that, I hand over to Rainer. Thanks, Joachim. And first of all, welcome from my side to today's call. So as usually, let's jump into the figures. Joachim mentioned a little bit unusual for us, but absolutely in line with our expectations. we see a decline in revenues and constant currencies of 13.2% to 903 million. Without COVID, the decline would have been in the mid-single-digit range. The 903 million euros only include really a very marginal COVID-related business. As I said already and anticipated at the beginning of the year, COVID will not play a role in the actual numbers in 2023. Order intake. declined by 32% in constant currencies to 765 million. Also here in line with the expectations, keep in mind at the beginning of the year, we anticipated it. We would not be surprised by seeing book to bill ratios below one for the first two quarters. So clearly indication of the softer H1 and with H1, of course, a more pronounced decline in Q1 as we see it already now. So for us in line as we expected it. The order intake, of course, is strongly affected by the customer destocking. Actually, I will show that in the next chart and talk about that a little bit further. And we expect, of course, the normalization to fade out in 2023, the second half of 2023, meaning that there should be an acceleration then of the business in the second half. The underlying EBITDA decreased by 22% to 272 million, which translates to 30.1% EBITDA margin, a reduction of almost four percentage points, but that actually fits to the decline in the revenue. Keep in mind here, of course, we are a volume-driven company, and also we are, and as we pointed out over the last quarters, We are dealing with a higher cost base, of course, also related to the expansions throughout the world that come always with a little bit of additional extra fixed costs. And of course, as we always pointed out in the past, we saw these, let's say, artificial economies of scale due to this tremendous growth during the COVID area where we said these will also not be sustainable. And we're now seeing the 30.1% margin. If you actually look back to before the COVID pandemic in 2019, we actually are above that level in the EBITDA margin on a group level. If we look at the, have a look at the next slide, I want to draw your attention here to the bar all the way to the right. That is actually the sales development in black. That is basically the non-COVID related sales and the yellow part is the COVID related sales and the gray-blue line is the order intake. So if you look in Q1 2023, you see and follow the line horizontally to the left to see, yes, each or Q1 is below each quarter of 2022, but above the quarters of 2021 and respectively 2020 and 2019. To put this in figures, we also put that on top left side. versus 2019 revenues for the quarter increased 105%. If you look at first quarter 2020, it's around 76%. Actually, if you would put the number for the first quarter 2021, it would be around 15%. So, therefore, we are seeing here also that the little black portion above of the horizontal line is most likely then also the impact, but we always said is the stocking part of the revenue during the previous years. This will, of course, as we always said, an impact that we can only see hindsight. One quarter is here, not enough. We'll see it for sure after the second quarter, but it gives us an indication of what the stocking effect was most likely during 2022. You also see here, especially since the beginning of 2021, the spread between the gray line and the black bar, which is quite significant, which of course increased our orders on hand that we still draw from. Therefore, it's absolutely in line and necessary that the order intake decreases in order to come back to our normal growth path. And if you keep in mind that in this presentation of the Q4 results, We also showed actually that we are pretty much a year ahead of the curve. That is exactly all in line. And I hope that these charts combined with the last chart from our presentation helps to understand and puts this overall or this short-term development in a broader perspective in the development of our company. If we go to the next chart, we see actually that this normalization happened pretty much throughout all different geographies. In the Americas, let me start on the left-hand side, revenues declined by 14% to 322 million. Here we have lower sales actually in both divisions. LPS is affected specifically by stronger comps. Also here, we had, as we pointed out over the last quarter, a positive impact in previous quarter of the biolytics business that did very well over the last two years. And also here, we, of course, then have quite high comparable basis. In EMEA, we see a decline of almost 12% to 359 million. In LPS, we actually see a quite robust sales growth, whereas on BPS, we are comparing here against high comps. Keep in mind, and as you all know, the majority of the COVID business was related to that region, and René will talk about that later. Here also we see additional effects from Russia, where we pretty much see a significant drop in our activities in that region quarter over quarter. In Asia Pacific, sales declined by 14.5% to 222 million. Here again, LPS actually growing in that region, but we're definitely not happy and it's actually below our expectations, development of the revenue of our business in China. On the right hand side, the geographical distribution, actually nothing major happened. it's quite in line with what it was at the year end. If you look quickly to the Biopro solutions, and as Joachim said, since René is here as CEO of the Satrucity Biotech subgroup, I'll only run very quickly through these numbers. Order intake decreased by 36.1% in constant currencies to 576 million. Here we see, of course, clearly the destocking effect, and we expect that to fade in H2. Sales revenues decreased by 16.1% in constant currencies to 695 million. Acquisitions contributed here on around one percentage point. And excluding COVID, we would actually see here a sales revenue drop in the upper single digit percentage range. The underlying EBITDA margin declining then to 31.2%. translating to 217 million. Of course, here again, here we can see these, what I called before, these artificial economies of scale that work in both ways. They worked in our favor with a significant jump in the margin from 2019 to 2020, 21, 22. And of course, then with the normalization, we also see then this impacting the profitability when it goes the other way. Yeah, more than from the May side, since BPS and SSB are pretty much, yeah, 95% the same. If we then switch to the LPS side, on here we see sales revenue close to previous year level, to the first quarter. Let me start on the left-hand side with the order intake. We see a decline of almost 16% in constant currencies to 189 million. Here we see or is already reflected the uncertain environment, it would say, particularly for the early-stage biotech companies, also in the U.S. And we also have to keep in mind that in the comparable of Q1-22, we also still had some corona-related business when it comes to membrane and testing kits. On the sales revenue side, we see pretty much on previous year level, 2%. decline in constant currencies to 208 million, excluding COVID, we would actually see here a slight increase in sales. Underlying EBITDA margin is 26.3%, so pretty much on previous year level, and with the absolute value at 55 million, really a result of also, yeah, stringent cost management. And, yeah, that's pretty much it on the LPS side. If we look at some key figures, the underlying EBITDA, of course, weaker level of 272 million also translates into a weaker operating cash flow. You might wonder why is it actually still stronger than Q1 2022. Keep in mind here that in previous year, Q1 2022, we had a strong increase of our working capital that of course we do not see anymore. In Q1 2022, there's only a slight increase. That is pretty much the explanation for that. Investing cash flow reflects the continuation of our substantial CAPEX program. You also know these expansions are related to capacity increases in our long-term basis. Therefore, we are continuing to invest that. The investment ratio jumps then up to 15% against the lower sales value. And of course, we pay attention also there to see maybe what investments we can defer. But overall, we are not changing the CAPEX program in 2023. If I look then at the next slide, we have here our equity ratio at 36.7%. slight decrease from the end of the year, net debt pretty much at same levels, that's 2.4 billion, that of course will change going forward with the acquisition of PolyPlus, but we had our extensive call about that already a few weeks ago, and on the net debt underlying EBITDA, slight increase compared to previous year, of course, here also reflected a little bit of reduction in EBITDA. And with that, I'll hand back to Joachim.