Sartorius AG

Ladies and gentlemen, welcome to the Sartorius and Sartorius Stadium Biotech H1 2025 conference call and live webcast. I am Mathilde, the chorus 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 all participants the opportunity to ask a 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 only be answered once. 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 Michael Grothirk, CEO. Please go ahead.

Thank you, Mathilde, and good afternoon, everyone, and thank you for joining today's call on our H1 results of the Sartorius AG, as well as Sartorius Data and Biotech. Today, I'm together with Florian Funk, our CFO with René Faber, our head of Bioprocessing Division and CEO of Sartorius Data and Biotech, and also Alexandra Gatzemeier, our head of the lab division. But before I walk you through our financials and the full year outlook of the Sartorius AG, I would like to take the opportunity to introduce myself and share how excited I am to step into the role of the CEO at Sartorius. Maybe very briefly on my vita, you may have seen that I hold a degree in mechanical engineering and a PhD and spent the last 20 years in the processing and packaging industry for pharmaceuticals and for food. Most recently as CEO of Syntagon, a spin-off of Bosch. And before that, I spent many years in executive roles in Sweden, in Switzerland, in the executive board of Petapak, and before that in the automotive industry with BMW and Ford Motor Company. And now I joined Sartorius actually 22 days ago and truly look forward to working not only together with my colleague and the team here and our customers, but also with you. It's actually a great privilege to lead this exceptional company with this outstanding team. Sartorius has an incredibly strong foundation in the scientific excellence world around innovation, uncompromised quality and trusted partnership with our customers in the life science industry. I'm deeply energized by this opportunity and by all the opportunities that lie ahead of us. In the recent weeks and months, I've been rather busy and connecting with all the colleagues, customers, and partners around the world to understand their expectations and perspectives of the industry. These conversations have only reinforced my view of Sartoris as a company with tremendous strength and highly respected position in the industry. It's been an overwhelming start in the truly best sense of this word. My goal is to build on the successful trajectory that has been set by my predecessor, Jochen Kreuzberg, while empowering our teams in order to accelerate innovation and performance, delivering even more impactful solutions to our customers, and ultimately, to patients. Together, we continue evolving our strategy to stay closely aligned with our customer needs and to drive the broader industry development. And as we move forward, we remain guided by our shared vision to simplify progress in biopharma and life science research, eventually leading to better health for more people. And now, let me start walking you through the highlights of the first half year of 2025. Now, looking at the results for the last six months, we are pleased with our business performance, and as expected, we saw a strong growth in consumables, which remains the most relevant driver for our overall business. Revenue grew by 6% in constant currencies, which translated into a significant margin expansion driven by volume, product mix, and economies of scale. The underlying EBITDA increased by a strong 12% year-over-year, bringing our underlying EBITDA margin close to 30%. Now, while processing solution sales revenue grew by nearly 9% year-over-year on a constant currency basis, driven by the growth in consumer reasons. The equipment business remains soft, however, but we see a positive development in the opportunity funnel as we are engaging in a number of promising conversations with customers considering new investments. Net products and services, with a strong focus on instruments, delivered a solid performance as well in the recurring business with net consumables and services. This could, However, not compensate for the continued hesitation around larger capital investments by our customers. Space revenue, hence, declined by 4% in constant currency. Now, the Mathex acquisition was closed on July 1st, and sales and earnings contributions will be included in the division's financial results from the second half of the year onwards. We launched several new products in both divisions to enhance the efficiency and productivity of our customers' drug development and manufacturing processes. I would like to briefly mention and highlight only two examples here that I found exceptional. As you know, we have developed a platform for incentivized bioprocesses in collaboration with our customer Sanofi. We have now launched in the first two modules, which automate and intensify several purification steps. The system is designed to deliver savings and production costs, higher productivity, shorter time to market, and lower CO2 emissions. Additional modules for further production steps are now scheduled to follow in 2026. In LPS, we enhanced our biological, our bioanalytical offering with new generations of three established instruments that enable customers to achieve better research results faster. One is our IntuSight, a market-leading instrument that allows researchers to continuously observe and analyze living cells in real time. The new model is the only one on the market that enables confocal imaging directly inside an incubator. One focal imaging is particularly suitable for analyzing organoids and microtissues. These complex 3D cell models limit human tissue, delivering more accurate and reproducible results, and thus accelerate the development of new blocks. In addition, they reduce the need for animal testing and research. And now, let's turn to the numbers. free cash flow, enabling us to reduce our leverage ratio as planned. And based on our strong half-year performance, as well as our orders on hands, our expectations for the second year, driven as well by our dialogue with our customers, we are confirming our full year 2025 guidance as we feel very comfortable with the numbers provided. Now with this, I would like to hand over to Florian, who will walk us through the details in the presentation.

Florian, over to you. Thank you very much, Michael, and also welcome from my side. And I'm very happy to take you now through our set of numbers, reflecting a continuation of the positive business dynamics that we've seen since some time. Starting with sales, which is up by 6.1% in constant currencies and 5.2% in reported currency to 1.767 billion euro. This positive development is driven by a double-digit growing recurring business, which is the dominant part of our business, as you know, while the non-recurring part continues to be soft and down double-digit. Looking at the differential of constant currency growth and growth in reported currency, it is obvious that the FX situation changed from Q1 to Q2. So, contrary to Q1, where we had some FX tailwinds, especially the weakening of the US dollar in Q2 generated some headwinds of 90 basis points to our H1 performance in reported currencies. So, obviously, if the US dollar to euro exchange rate stays on the current level, the negative FX impact will be higher in H2 versus H1. But please note that all our sales revenue guidance figures are in constant currencies. Besides the swing in foreign exchange developments, Q2 also marked the beginning of tariff challenges for our industry. and started with Liberation Day on April 2nd. We have taken several measures, as you know, to limit the tariff impact on our business, with one of them being the successful introduction of tariff store charges to our U.S. customers. As most of the U.S. demand for Q2 is either coming and produced in the U.S. or was already available in our warehouses, the effects on top line in Q2 and H1 of the tariff were minimal. There was a mid single digit million Euro figure with no effect on our profitability. But we are expecting the effects to somewhat increase over H2, even if the tariff rate stays at the current 10% level. The scope of this increase, of course, is depending on the final tariffs being imposed. We will of course talk about this going forward in our publications to create sufficient transparency for investors and analysts, but we don't want to speculate on tariff settings going forward. Order intake in H1 also developed as expected and grew more than sales. As you know, we have stopped giving quarterly order intake numbers as this is neither standard in this industry nor, in our perspective, in this current market setting, helping to analyze the short-term business. We rather think that a 12-month rolling number better reflects the underlying trend of business. And here we can report that this number is above 1 and constantly improving for quite some quarters. The positive top line development is also reflected in underlying EVDA and EVDA margin. Underlying EVDA grew over proportionately by 11.9% to 527 million. Margin increased by 170 basis points to 29.8%. This margin expansion was driven by positive volume and product mixed effects and economies of scale. Also underlying EPS grew nicely by around 30%. Let's have a look at the regional performance. Looking at the regions, all three regions reported a very solid growth, with the Americas showing the strongest growth in H1, also based on easier costs. Growth in all regions was driven by consumables, while the equipment business was soft across the board. Let's move on to our division, starting with VPS. It has been a very strong H1 for BPS, with sales growth in constant currencies of around 9% to 1.435 billion. Growth was driven by recurring business that showed strong double-digit growth, compensating for the soft equipment business being double-digit down. We are seeing a good level of customer interaction with regards to our equipment business, especially around manufacturing technologies that allow for significant efficiency and yield increase on the customer side, but still, In this overall phase of uncertainty, customers are reluctant to sign orders at this point in time. BPS last 12 months B2B shows, as for the group, a consistent growth over the last two years with values of above 1 since Q2 24. Looking at underlying EBTA and margin, we see underlying EBTA growing by around 17% to 453 million. Margin is up by 240 basis points and comes in at 31.6% very healthily in H125. This was driven by volume and mixed effects and economies of scale on a leaner cost base after our efficiency program implemented last year. Let's move on to LPS. With its high exposure to non-recurring and capex-driven business, LPS continues to be confronted with a challenging market situation. Sales were down 4 percentage points in constant currencies and 4.8% in reported currency. And this was driven by the non-recurring business that developed double-digit negatively, while the recurring side of the business likely grew across all regions. Especially our business with bioanalytic instruments is suffering in this situation where customers are pushing out their investment decisions. This has also an impact on the margin that went down from 23.6% in the prior year to 22.3% in H125. And drivers here, of course, was volume first and then, of course, also mix, as you know, that the bioanalytical instruments are from a margin perspective the best performing ones. Let me also comment on the performance below the underlying EBTA, looking at net profit and also cash flow metrics. As you can see, the underlying EBTA growth of 56 million or 11.9% translated into an over-proportional growth in underlying net profit of 13.7%. and especially reported net profit of 33%. Operating cash flow came in suddenly with 289 million. And this is below the 347 million we were able to report last year. But please bear in mind that we were pulling the inventory and accounts receivable lever heavily in H124. And as you know, you can only pull these levers once. And therefore, we are seeing here in the operating cash flow a reduction of 16.6%. And furthermore, commenting on networking capital, we wanted to ensure delivery liability to our customers alongside the overall nicely growing business. It states our ambition and clear targets to increase the net working capital under proportionately to the sales growth in 2025, just to reconfirm that. Combined with the low H1 CapEx ratio and the corresponding investing cash flow of minus 167 million, free cash flow will grow by 14 million to 122 million. These do not multiply the investing cash flow of H1 times two to become to our 2025 forecast assumption, there will be some CapEx seasonality with H1 showing higher CapEx numbers than H1. CapEx ratio as a percentage of sales dropped accordingly in H1 to 9.1%, and as guided, we are expecting to be at a CapEx ratio for the full year 25 of around 12.5% of sales. Now looking at the balance sheet related key figures, we firstly see an ongoing strong equity ratio of 37.8%. And the reduction in equity and equity ratio is only due to FX effects and the approved dividend that we paid out in the beginning of Q2, 25. Net debt slightly increased, mainly due to some non-cash positions, such as leasing and also accrued interest for our bonds, which is then payable in September this year. Net debt to underlying EBITDA improved from 4.0 times to 3.8 times in H1, so we are well underway on our planned and leveraging path, and as you can see in the title, we very much also stay committed to our investment grade rating. And with that, I would like to hand over to my colleague Michael Voss again.