Sartorius AG

Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedham Biotech conference call on the Pre-Eliminary Results 2024 conference call and live webcast. I am Youssef, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. This call is scheduled for 60 minutes. The presentation will be followed by a Q&A session. In order to give you all participants the opportunity to ask their question, We ask that the number of questions per person be limited to two. In addition, and in the interest of all participants, questions with the same content will be only answered once. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions via writing in the relative fields. 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 Kreutzberg Please go ahead.

Thank you very much for opening our conference call today, and welcome, everyone. Thank you for dialing in. Thank you for your interest in Sartorius and Sartorius State and Biotech. As always, we will present our results in a way that I will start with some highlights. And then Florian will expand on the financial results in quite some detail on the Sartorius Group. And then after that, Wendy will talk about the results of Sartorius Data Biotech. So the highlights for 2024 for the Sartorius Groups are, first of all, we have fully achieved our reverse guidance that we have been giving in July of last year. We have seen that, and that is for the group and both divisions, for both top line as well as profitability. This came in on basis of a market that is gaining momentum in its recovery. we see that increasingly the underlying growth drivers are getting back to center stage, I would say, and becoming more relevant now after the dominance of more volatile temporary drivers. For bioprocess solutions in particular, we have seen that sales are pretty much on previous year's level, roughly one percentage point above, particularly because the consumer's business has been growing nicely towards the end of the year. As customers, an increasing number of customers have now reached the target inventory levels and is still about reaching the target inventory levels, whereas at the same time, equipment business is still muted. More details later. For LPS, we are slightly below previous year's level. This is particularly because in China, we still see a very soft market. but also here we have seen a nice positive momentum towards the end of last year. I think it's worth noting that our profitability, whereas it's slightly below the number for 2023, is on a very robust level, and I think it's fair to say that Saturis has been mitigating through the last five years with maybe the most robust and resilient profitability development. And, of course, one contribution to that has been our efficiency program that we have been conducting during last year, which has compensated for low-capacity utilization. Outlook for 2025, we remain being cautious in that regard. We expect the market to return back to growth, but yet below mid-term average rates. And for Sartorius, we expect profitable moderate growth, but above the market growth. So with that, I hand over to Florian. Thank you very much, Ibrahim, and also from my side, a very warm welcome to the group outside. Yeah, let's have a look at some financial key figures of that transition year 2024, starting with sales coming in at 3.4 billion euro on previous year level. And with that, slight increase in constant currencies of 0.1%, we are also very well hitting the midpoint of our guidance. Digging deeper into these roughly flat sales developments, we are seeing the expected picture of a consumable flat normalization. The recurring business, as you know, is the dominant part of the overall group. And this recurring business is showing a mid-single-digit growth figure, while the non-recurring or equipment business developed weaker with negative double-digit growth in 2024. Order intake is a digit ahead of prior year, looking at the 12 months. And also here, consumables order intake is stronger than equipment with improving dynamics over the year. On the equipment side, we are still seeing some reluctance to invest on the customer side, but at least looking at order intake, order intake in H2 is above the order intake level that we've seen in H1 of 2024. The underlying EBITDA margin stays on a very robust level, as previously mentioned, with 28.0% and €945 million in absolute terms. So we have picked the guide midpoint not only in sales but also on the EBITDA margin. And looking at the margin, as you know, we have implemented a comprehensive efficiency program in 2024 that took above $100 million out of the P&L, compensating the dampening effects that we had of the lower capacity utilization and also the inventory reduction. Let's have a look at our regional performance, which shows a quite heterogeneous picture influenced by general market conditions and product mix. In both provisions, we see EMEA being the strongest performing region with an overall growth of 5.5%. Looking at Americas, the performance has to be seen in connection with the fact that the American business is even more focused on life science and pharma than the European one. And this is also the reason why we are seeing more effects from the temporary industry trends here reflected in this region. But it also has to be noted that the recurring business was up in the Americas in both divisions in 2024 versus prior year. With regards to Asia, the performance of plus 1.4% is very much still affected by China, where markets have heavily corrected in 2023. But since several quarters seem to have found their bottom. We see a lot of customer interaction going on. in China, and people are looking in the stimulus program, but so far we are not seeing too much of business materializing out of that yet, I have to say. Excluding China, the Asian sales performance would have been up mid-single-digit, and just to remind you, China currently accounts for approximately 8% of our overall sales. You also see the portfolio still is quite balanced with 41% of sales in EMEA, 36% in America, and 23% in APEC. Now coming to BPS, where order intake is up approximately 13% in constant currencies to 2.7 billion. And here we saw a very good finish in Q4 with an order intake of over 850 million euro driven by consumables. Overall, sales grew around 1% in constant currencies to 2.7 billion with the same kind of pattern described already for the group, meaning recurring business is doing good with plus mid-single-digit growth in the whole year and also positive dynamics while equipment business is shrinking and stays muted up to now. Besides positive recurring business, it is also worth mentioning that the ATS business showed above-average growth in mid-teens arena. Underlying EBITDA and corresponding margin is up 10 basis points versus prior year, and in 2024, we saw... some margin pressure from some mixed effects, but especially pressure from lower production volumes alongside with our inventory reduction program. And we have successfully been working against these effects with the already mentioned efficiency program that delivered the expected three-digit number. Coming then to LPS. where market environment stays challenging and where we have also to digest the much weaker China market. And still also seeing across the board customers still somehow being reluctant to invest into instruments. And in this environment, I think we can be satisfied with an order of intake that came in plus 4% above prior year and constant currencies. And also worth mentioning that order intake was strong, particularly in Q4 in the lab essentials and bioanalytics areas. So overall, Q4 order intake for LPS was up double digit. Days were down. In the full year, 24 by 3 percentage points in constant currencies against quite high comms, especially from China. And if you exclude China for RPS, the sales growth would have been flat even versus prior year. especially, as already mentioned, the equipment business with bioanalytics instruments were somehow weaker. The broader lab essential business is, over the year 24, doing better. And as you know, lab essential business is coming with lower margins than bioanalytic instruments, so there is a negative mixed effect. Also, we have to digest the overall volume effect versus prior year and the output reduction to reduce inventories. We're weighing on the margin. So as a consequence, the underlying EBTA is down to 158 million with a margin of 22.9% for the full year 24. Then if we move on, As usual, you know, we have added that page in the deck with some other financial key data that some of you use for modeling, some comments from my side to this. The extraordinaries are above prior year level on the back of the sizable efficiency program that we have. implemented in 2024, and especially with Q4 expenses, are above prior year level, but as you can imagine, these extraordinaries come in connection with the efficiency program, and a lot of these Q4 expenses are non-cash items, so are contributing to the very good free cash flow that we have achieved, and I will come in a minute to that. The financial results And prior year was heavily influenced by positive non-cash earn-out valuation effect and adjusted for this non-cash one-off in the prior year. The financial result is down only due to the increase in the average debt level versus prior year. Underlying net profits came in lower than prior year due to increased depreciation and higher level of financial expenditure. It's just explained. The, for me, foremost line here, of course, is then looking at cash flow. And, you know, we wanted to focus on cash flow, respectively free cash flow performance in 2024. in order to reduce our leverage. And here I would say we have been quite successful with doubling our free cash flow versus prior year from $271 to $550 million. And this is the result of our working capital initiatives, especially in inventory, but also a tighter CapEx management. And looking at CapEx, Of course, the prior year number is impacted by the polyclass acquisition, but even adjusted for that, we have trimmed CAPEX in the year 2024 down, and the CAPEX as a percentage of sales is accordingly also down from 16.5 percent in prior year to 12.1 percent in the year 24, and therefore also this new figure is fully in line with our guidance given in July 24. Then coming to balance sheet and the leveraging on the back of our clear commitment to an investment grade rating. Non-current assets are slightly up to $8 billion. This is because of our CapEx program that still included several growth projects that we're adding to property plans and equipment provision in non-current assets, but also due to the stronger U.S. dollar and therefore foreign exchange effects, especially at year-end. Equity ratio stands at 38.6%, and the increase is mostly driven by the capital increase that we did in Q124, and the same reason is to be mentioned for the reduced net debt number to 3.746%. Brilliant, but please, besides the capital increase, let's not forget the strong free cash flow as one driver that we have delivered. These points then bring me to the leverage ratio net debt to EBITDA, which stands at 4.0 at year end, meeting also in this KPI our guidance from July. And if you allow just to be clear, that organic deleveraging that we have done was not a one-time exercise of 24%. It will stay also a focus point of management in 2025, and we want to further bring net debt to underlying EBITDA down. Of course, in the first place, by increasing EBITDA, but also based on continued networking capital and CapEx management. And for the broader outlook, I would like to hand over to Rafa Kost for the time. Thanks, Julian. So I already said at the beginning that we now see the fundamental road drivers to become more visible again, more relevant again in a certain way as the fluctuations, the volatilities driven by temporary effects that you all are aware of are phasing out. and I think that's a very positive one because I think we never stopped saying that the fundamental road drivers in our industry are fully intact, very strong, very robust, and in a way also very visible because the different elements are very visible and based on publicly available data. So what you can see here on this chart is on the left-hand side that even in those years that I think we all would say have been more on the challenging side, 23 and 24, there has been a record number of approvals for biologics. And that also includes record numbers for cell and gene therapies. So we really have a very healthy pipeline at our customers, at the board of biotech and biopharmaceutical industry. And you also see that increasingly advanced therapies are playing a role within this industry. This all translates to attractive underlying growth rates. You can see on the right-hand side that the pharma market overall provides already a robust growth level. But then on top of that, we see that the biopharmaceutical market is growing significantly stronger, as we always have said, and as you know, since significantly more than a decade, as the share that biopharmaceutical products have in the overall pharma market continues to expand as within the pipelines overall, biopharmaceutical products, biotech products are dominating. And therefore, the growth expectation for the biopharma market is approximately 10%. And then there are certain pockets within that market of which we expect and others expect as well, even higher growth rates as biosimilars, for instance, but also then cell and gene therapy scenario. of which you know we are focusing on in particular by our unique and very strong and differentiated product portfolio. And then another aspect, but still underlying how well we are positioned to benefit from these growth opportunities is single-use technology. This is not a new topic for sure. Sartorius is focusing on that since, you can say, two decades or something like that. But nevertheless, it still provides growth rates around 15%, as it is the, you can say, technology paradigm that enables our customers to develop new products faster, more efficiently, and to manufacture such products in a more flexible and efficient way. So this is the set of underlying drivers, and of course, Even below that, you could say there are drivers like demographics, etc. I think we don't need to mention them here, and also numerous diseases that still can't be treated, but I think there is good hope, reasonable hope, why there will be an increasing number of drugs being available to treat such diseases. I think you all are aware of that. And the key message here is that now increasingly these drivers again take over when it is about how the industry and also the market for life science tool providers as we are developing. So how does that translate into our outlook for the year 2025? We expect profitable growth in both divisions. We expect to see a larger contribution to that from our bioprocess solutions division. When you maybe look into how we built this outlook, first of all, we expect the life science tools market to grow, but, and I said that at the beginning, yet below its midterm average. I think we expanded on the fact that we see the destocking to be very advanced now and an increasing number of customers have probably reached their target inventory levels now but we also have talked about that some other segments like the more capex intense activities of customers, investment into systems, equipment, instruments, etc. is still a bit muted so therefore we expect the market to not being fully back to the average rates. And within this environment, we expect Sartorius to perform a buff market, but we still would describe that as a moderate profitable revenue growth that we want to achieve in 2025. When we say profitable growth, this means we expect being able to expand our underlying EBITDA margin to some extent. But, of course, we would now translate that or describe this as a slight increase of our EBITDA margin based on a moderate revenue growth. We just have talked about our further organic reduction of our debt leverage. I think I don't need to add to that. I think that's very clear. And then, and I think we have talked to most of you during the last couple of months quite a bit, that we then will issue quantitative guidance alongside our Q1 results in April of this year. For the midterm targets, these are unchanged. And with that, I hand over to René. Thank you, Ephraim, and hi, everybody. Welcome also from my side to today's call. Let me quickly walk you through the Sartori studying biotech preliminary 2024 results.

It was very encouraging to see increasingly positive trend in the second half of the year, and especially in the fourth quarter 2024.