(AOF) – The biggest drop in the SBF 120 index, Sartorius Stedim Biotech fell by 11.23% to 199.65 euros after issuing a warning on its results. Due to lower volume forecasts and product mix effects, the biopharmaceutical industry supplier’s current EBITDA margin is now expected to be slightly higher than 28% compared to around 30% previously, after 35% during the Previous exercice.
The company now expects a drop in revenue of almost 19% and if Covid-19-related items are excluded, a drop of around 14%.
Sartorius Stedim Biotech previously anticipated a drop in revenue of a percentage in the low to mid-tens range. If Covid-19-related activities are excluded, revenue was expected to decline by a percentage between the high single-digit range and the low tens range.
Sartorius Stedim Biotech had already issued a profit warning in June 2023.
According to preliminary figures, Sartorius Stedim Biotech recorded consolidated sales of approximately 2.069 billion euros during the first nine months of 2023, down 19% at constant exchange rates. “The main reasons are linked to a longer-than-expected decline in inventories after the end of the Covid-19 pandemic, low production levels at certain customers, the cessation of activities in Russia and an overall level of investment slowing from customers, mainly in China and the United States,” the company explained.
Preliminary current EBITDA declined due to volume changes and product mix effects to €594 million from €912 million. The corresponding margin stood at 29%, compared to 35.0%, a year earlier.
The company confirmed that its market outlook remains fundamentally positive in the medium and long term and continues to view itself in a strong position compared to the competition. Management expects profitable growth in 2024 and will give quantitative indications when publishing the figures for the year 2023 in January 2024. Its medium-term ambition until 2025 is currently under study and an update update will also be provided in January 2024.
Sartorius Stedim Biotech will publish its figures for the first 9 months of 2023 on October 19 as planned.
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Key points
– Company created in 1978, provider of integrated solutions for the biopharmaceutical industry;
– Turnover of €3.5 billion achieved 36% in the Americas, 26% in Asia-Pacific and 38% in Europe-Middle East-Africa;
– Business model for offering pharmaceutical groups products focused on the stages of production of biopharmaceutical substances and processes (cell culture media, cell lines, bioreactors, separation, purification and concentration of intermediate products) and on those of the isolation of the desired drug (cryopreservation, filtration, concentration, etc.);
– Capital controlled at 73.6% (84.6% of voting rights) by the German group Sartorius, Joachim Kreuzburg being chairman of the board of directors of 8 members and René Faber general director;
– Ability to finance acquisitions and rapid growth, thanks to controlled debt with an equity ratio of 50.2% and leverage of 1.2.
Challenges
– 2025 strategy based on the expansion of the offer through acquisitions, particularly in North America and Asia, on the optimization of industrial processes and the increase in production capacities, with the ambitious ambition of a turnover of €4.4 billion and an operating margin of +35%;
– Innovation strategy on 3 pillars:
– own development of specialized products thanks to R&D of 4.4% and a portfolio of 3,044 patents, focused on membranes, platforms and control technologies,
– acquisitions of innovative companies and industrial partnerships;
– environmental strategy integrated into that of the parent company;
– Strengthening the medical pockets activity with the acquisition, for €2.4 billion, of the French Polypus, specialist in transfection reagents for cell and gene therapies and plasmid DNA, necessary for RNA-based products ;
– Visibility with order intake equal to one year of turnover.
Challenges
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Low impact of wage inflation;
– Realization of anticipations of resumption of investments in the biopharmaceutical sector;
– Pause in external growth, priority going to the integration of Polypus;
–
After a decline of 18.7% in sales and 40% in net profit, 2023 objective lowered by an operating margin to around 30%;
– In the medium term, maintenance of the distribution rate at 16.7% of profit.
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Nothing is going well for German chemistry
German chemicals, very dependent on Russian gas, are in difficulty. Following sluggish sales in the automotive sector and falling demand in construction, production is down 8.5% in 2022, with overall turnover down 1.6% to 63.1 Billions of Euro’s. Specialty chemistry is doing better. On the other hand, the rate of utilization of production capacities in basic chemicals has slowed significantly to reach less than 80%. The third German industrial sector is tempted by relocation to the United States, where energy costs are much lower. With the Inflation Reduction Act, the United States has established an environment appropriate to current challenges.
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Biotechs put to the test
These companies are suffering from a much less favorable economic cycle, which is reflected in particular by a drop in venture capital financing of start-ups. These companies are therefore obliged to carry out layoff plans. Added to this is a much more restrictive regulatory framework. First, in the United States, measures linked to the Inflation Reduction Act (IRA) could have a strong impact on the margins of stakeholders. Indeed, from 2026, the federal Medicare program will be able to renegotiate the price of drugs marketed for nine years (chemical) or 13 years (biological), with discounts that could range from 35 to 60% for biotechs. Likewise, in Europe, with the new drug regulations presented in Brussels in April, the duration of patent protection will be reduced if the innovative treatment is not marketed in all member countries within two years.