First quarter of Sartorius characterized by normalization of demand
Full-year outlook confirmed: uncertainties remain high due to the global political and economic situation
After the Covid-19-related business and inventory buildup by customers had triggered strong additional growth momentum in previous years, demand normalization at the life science group Sartorius continued throughout the first quarter of 2023, as expected, and led to a decline in sales revenue and earnings in the first three months of the year. For the full year, company management continues to expect moderate growth in sales revenue and a profit margin around the high prior-year level.
“Strong fluctuations in demand always pose a particular challenge; against this backdrop, we are satisfied with the start to 2023. As expected, the vanishing Covid-19-related business and the ongoing destocking activities by customers are clearly reflected in the sales revenue development of the bioprocessing division, and to a lesser extent in the laboratory division. As part of our focused cost management, we have adjusted short-term capacities to current demand, and we continue to assume that the normalization effects will play no significant role in the second half of the year. We therefore confirm our outlook for the full year 2023. However, we are monitoring the potential impact of the current global tensions on our industry very closely. As demonstrated for many years by our robust double-digit growth rates irrespective of extraordinary effects, the underlying growth drivers in our markets are fully intact. Demand for biopharmaceuticals is growing steadily, and we see new, innovative therapies making inroads. Therefore, we are consistently expanding our portfolio by acquiring innovative technology leaders, as we did most recently with the announced acquisition of Polyplus, and we are also continuing our investment program,” said Sartorius CEO Joachim Kreuzburg.
Business development of the Group
As expected, normalization of demand, which has been ongoing since the third quarter of 2022, continued in the first quarter of 2023 in all regions, while Covid-19-related sales revenue almost declined entirely. In the first three months, the Sartorius Group generated sales revenue of 903 million euros, which corresponds to a decrease of 13.2 percent in constant currencies (reported: -11.9 percent) compared with the exceptionally high level of the prior-year period. The growth contribution from acquisitions was around 1 percentage point. Excluding the Covid-19-related business, the decline was in the mid single-digit percentage range.
Following an exceptionally strong prior-year period, order intake reached 765 million euros (in constant currencies: -32.0 percent, reported: -31.2 percent), mainly due to the reduction of inventories that customers had built up during the pandemic.
Underlying EBITDA decreased by 22.1 percent to 272 million euros in the first three months of the year as a result of the sales revenue drop and a higher cost base. The resulting margin was 30.1 percent, compared with 34.1 percent in prior-year period. Price effects on the procurement and customer sides largely offset each other.
Relevant net profit was 116 million euros, compared with 167 million euros in the first quarter of 2022. Underlying earnings per ordinary share stood at 1.69 euros (prior-year period: 2.44 euros) and at 1.70 euros (prior-year period: 2.45 euros) per preferred share. The number of employees worldwide was 15,547 on March 31, 2023, compared with 15,942 at the end of 2022.
Key financial indicators
The Sartorius Group continues to have a very sound balance sheet and financial base. As of March 31, 2023, the equity ratio was 36.7 percent (December 31, 2022: 38.1 percent), and the ratio of net debt to underlying EBITDA stood at 1.8 (December 31, 2022: 1.7). Cash flow from investing activities was - 137 million euros, compared with -99 million euros in the first quarter of 2022. The ratio of capital expenditures (CAPEX) to sales revenue came in at 15.0 percent, compared with 9.4 percent in the prior-year period.
Business development of the Bioprocess Solutions division
The Bioprocess Solutions division, which offers a wide array of innovative technologies for the manufacture of biopharmaceuticals and vaccines, was particularly affected by the normalization of demand in the first quarter of 2023. It generated sales revenue of 695 million euros in the first three months, corresponding to a decline of 16.1 percent in constant currencies (reported: -14.7 percent) from the exceptionally high level of the prior-year period. The growth contribution from acquisitions was around 1 percentage point. Excluding the Covid-19-related business, the decline was in the upper single-digit percentage range.
Following a strong prior-year period, order intake reached 576 million euros (in constant currencies: - 36.1 percent; reported: -35.3 percent) in the first quarter. This was mainly due to the reduction of inventories that customers had built up during the pandemic.
In light of the decline in sales revenue and an increased cost base, the division’s underlying EBITDA decreased by 26.0 percent to 217 million euros, resulting in a margin of 31.2 percent (prior-year period: 36.0 percent).
Business development of the Lab Products & Services division
The Lab Products & Services division, which specializes in life science research and pharmaceutical laboratories, generated sales revenue of 208 million euros in the first quarter, almost matching the high level of the prior-year period (in constant currencies: -2.0 percent, reported: -0.9 percent). Sales revenue would have increased slightly without accounting for the Covid-19-related business, which was only marginal in the quarter.
Order intake stood at 189 million euros (-15.8 percent in constant currencies, reported: -15.1 percent), reflecting the currently relatively uncertain environment particularly for early-stage biotech companies.
The division’s underlying EBITDA was 55 million euros in the first three months (-1.7 percent). At 26.3 percent, the corresponding margin was close to the high level of the prior-year period of 26.5 percent.
Outlook for fiscal 2023
The management confirms its outlook for the current fiscal year. Accordingly, consolidated sales revenue is expected to increase by an amount in the low single-digit percentage range. Excluding the Covid-19-related business, the increase would be in the high single-digit percentage range. Acquisitions are anticipated to contribute around 1 percentage point to growth, with the proposed purchase of Polyplus not being included in the projection. The Group’s underlying EBITDA margin should be around the level of the prior year (33.8 percent).
For the Bioprocess Solutions division, the company anticipates sales revenue growth in the low single-digit percentage range. Excluding the Covid-19-related business, the increase would be in the high single-digit percentage range. Acquisitions are expected to contribute around 1 percentage point to growth, with the proposed purchase of Polyplus not being included in the projection. The division’s underlying EBITDA margin is anticipated to be around the level reached in 2022 (35.7 percent).
Sales revenue growth in the Lab Products & Services division is expected to be in the mid single-digit percentage range. Excluding the Covid-19-related business, the increase would be in the high single-digit percentage range. This division’s underlying EBITDA margin is also expected to be around the level of the prior year (26.2 percent).
The company is continuing its comprehensive mid-term capacity expansion program. In 2023, the CAPEX ratio should be at roughly 12.5 percent and the ratio of net debt to underlying EBITDA at about 1.5. Possible acquisitions, including the proposed acquisition of Polyplus, are not included in this projection.
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