Sartorius AG

Welcome to the Sartorius and Sartorius Stadium Biotech conference call on the Q1 2024 results. I'm Moritz, your call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Joachim Kreuzburg. Please go ahead.

Thank you very much and good day, good morning, good afternoon, also from my side here. Together with my colleagues, Florian Funk, our new CFO, and René Faber, CEO of Sartorius State and Biotech, I will now walk you through our presentation for the Q1 results of Sartorius, as well as Sartorius State and Biotech. I think it's fair to say that the results of the first quarter of this year show a mixed picture. That is mostly because of the very different levels of order intake and sales revenue at the beginning of last year as a comparison, because of the very strong dynamics and unsynchronized development of order intake and sales revenue during 2022 and 2023. It's also because of quite some different regional trends and influencing factors, and these have also different effects on the different product segments of sartorias, and you will see this in a minute also in more detail. We would nevertheless say that the results largely are within the expectations. We expected a rather slow start into the year. We were rather expecting a moderate first half of the year. Order intake is up by almost 10%, whereas sales revenue, because of the much stronger prior year numbers, is down by roughly 7.5%. Book-to-bill ratio is slightly above 1%, as we have seen it again being the case at the end of last year. In the fourth quarter, we have seen that first time since a while, so we see a continuation of this positive dynamics. As I already said, the dynamics vary quite significantly across regions and customers, and as I also said, across the different product segments. By regions, and again, you will see this in more detail, you can say that order intake is the strongest for both divisions in the Americas and by far the weakest For China, if we take this as a separate market, this is really relevant to have a dedicated look on that. And for sales also, China is showing the weakest numbers, pretty much as expected, I would say. This also has some effect on the different developments on the product segment dimension. What is very positive is that order intake is significantly up for the recurring business, so mostly consumables, and that is the case for both divisions, whereas we are seeing a muted investment activity by customers pretty much across the board, again, the strongest in China, but also in other regions, and that has led to a relatively low order intake for our equipment and instruments. We do see, and that is, again, quite positive and very encouraging, a strong business dynamics in our business for advanced therapy solutions, which is, as you know, one key strategic focus area in our bioprocess solutions division in particular, so significantly above average dynamics in this segment. We consider the profitability to be on a positive, robust level. It's above the pre-pandemic level. I think we shouldn't forget this maybe as one benchmark as well. It's above the level of end of last year. Nevertheless, it's a little bit below the Q1 of last year as sales revenue has been higher at that time, as already said. And we think that the ongoing efficiency programs will increasingly contribute during the year to further strengthen our profitability performance. Overall, as we already elaborated during our last course, we consider the market fundamentally intact. I think that is very much what other players in the industry, I think, confirm also constantly, be it on the customer side or be it other life science tools providers. We clearly all see China being still weak, and we definitely still see also an above-average market volatility and, of course, some geopolitical uncertainties, which make it more challenging than usually maybe to make very granular guidances or give very granular guidances on the timeline. But nevertheless, we consider our guidance and our plan for 2024 being intact, and that's why we confirm it. Going with that, I would like to hand over to Florian.

Yeah, thank you very much, Joachim. Good afternoon, and welcome also from my side to our quarterly call. I'm happy to walk you through our quarterly performance, and as you know, this is my first victorious quarterly call as I have officially started as CFO April 1st. So... I'm hoping to meet many of you in person in approximately four weeks when we're going to have our capital market stay here mid of May in Göttingen. Well, let's have a look at the key financial figures. Overall, I would say that the key financials mirror our recovery curve that we are in, so please remember Q123 was marked by quite low order intake, while sales were still on a quite high level. So, we see order intake being up against Q123, while sales are still down on quite high comps. Looking at profitability, I think the figures show that Sartorius has worked well on addressing the cost structures. On minus 9% on sales, the decline in the underlying EBITDA was only 14%, so the margin is at a satisfying 28.6, which is 150 basis points below prior year Q1, but, and this has to be noticed, 160 basis points above Q4-23. And so I think on the back of the assumed increased positive market dynamics, we are well positioned to reach our profitability guidance of slightly more than 30 percent. Looking at EPS, we see, as expected, the impact of the increased debt level after the POLYplus acquisition that closed, as you know, in Q3 last year. Let's have a look into the regions. The pattern that we saw in the group sales down while order intake up is visible across the board except for the APEC region, so let me start with APEC. In APEC, order intake is also down but driven only by China. If you exclude China, APEC is on order intake up mid-single digit, which is encouraging. And as you can see on the last bullet, the BPS, division can compensate the China effect, while LPS order intake is, of course, heavily impacted, where China plays a more important role in this division. In the Americas, we saw 9 percent sales decline, EMEA down minus 4 percent. On the other hand, the recovery in order intake is also more pronounced in Americas, while order intake in EMEA is only up. 7% versus America plus 25%. Looking at our sales performance against Q4 last year, something that you will be also looking into, we are slightly down overall, but looking at the front-running consumables or recurring business, which is the majority of our Sartorius business, sales are up high single-digit versus Q4 2013. And also, order intake is up in that comparison. Let's move to the bioprocess division. Sales are down 8 percent if you adjust for currency and M&A effects. But in my perspective, there are some encouraging signs that also Joachim mentioned. The order intake growth is visible in all regions. healthy growth here of 15%. And the recurring business is coming back with a mid-single-digit sales growth over goods Q4. Looking at underlying EBITDA, the figure is down like sales, but margin is holding up quite well with almost 30%. And this is driven by positive mix effects, so the consumable share is increasing. And of course, we've also done adjustments in the cost base where we took out a low double-digit million euro amount in Q1 with more to come over the course of the year. Let's have a look at LPS. And in LPS, we see order intake and stales still in negative territory. The negative order intake situation is very much a function of the weak China business. that is still not recovering in contrast to all other regions. Please remember, this China business in LPS dropped as of Q2 23, so we are looking still in Q1 at quite high comps. But looking at the overall dynamic, I have to say we're satisfied with the LPS. Performance as we saw positive sales and order intake performance versus Q4 of last year. Underlying EBITDA went down, the margin down by 230 basis points. Of course, on the back of lower sales and also some mixed effects, but we are constantly adjusting here the cost base. Let's look at the other key figures. that lead to cash flow. The performance below EBTA, I was already talking about underlying EBTA, looking then at extraordinary items. They're on the same ballpark as prior year. The main part of that is reorganization costs, which also then includes redundancy costs. And I can tell you we are not finished yet there. So this is, of course, a focus point. The financial result is, as expected, down on the higher debt that we have on balance after the Polyplus acquisition that closed in Q3 last year. And the underlying net profit reduction, of course, is driven by lower EBITDA and also the financial results. That brings me to operating cash flow, which is one of my favorite reporting lines. It is significantly down. 157 million, and there are three main reasons for that. The largest effects come from the tax side. We had an unusual pattern of our tax payments, which led to a payment of approximately 70 million that happened in a different quarter than in the last reporting season. Second effect, of course, is lower EBTA, and the third effect comes from the fact that we used our factoring lines less in Q1 versus the prior quarters. Be sure that we will be working thoroughly in the next month to get our cash performance up, and the focus here will be on inventory, which reduced roughly $10 million under the year-end 23 figure. A short comment on CapEx. CapEx in absolute terms is stable against prior year. CapEx ratio is above. guidance, which is 13%, as we are expecting, of course, increased sales over the course of the year. So this is rather timing to come to the overall guidance. Moving on to balance sheets, non-current assets almost unchanged, nothing to comment on. The equity ratio is up as a result of the capital measures that we've taken in February 24, where we got One billion additional cash in was 992, to be precise. And the net debt is reduced accordingly, including the cash flow effect that I explained in the prior chart. Net debt to EBTA also nicely down to 4.4 times. And for year-end, we are expecting this ratio to be slightly above three as a combination of the increased EBTA versus prior year and, of course, also improve networking capital metrics. And speaking of year ends, this brings me then to guidance. You have seen the guidance is unchanged to the one that we published with our annual report, as Q1 was broadly in line with our internal expectations. So I won't read it out line by line, but would rather hand over to my colleague Rene to talk about SSB.