Group Management Report
Macroeconomic Environment and Sector Conditions
Global Economy with Moderate Growth Rates
According to the most recent data, first-quarter growth in the OECD countries in 2016 was up 1.9%, approximately at the level of 2.0% in the prior-year quarter.
Growth drivers continued to be the emerging economies, especially the Asian economies. China's gross domestic product (GDP) thus rose 6.7% (previous year: +7.0 %), despite the slowdown in industrial production in this country. Growth of India's economy accelerated from 7.3% in the year-earlier quarter to 8.0%. As one of the few oil-importing emerging countries, India was able to considerably benefit from the low crude oil price.
The world's largest economy, the USA, lost growth momentum at the beginning of the year, reporting first- quarter GDP growth of 2.0% (previous year: +2.9%). This was primarily due to lower public spending and declining capital investments.
The euro zone continued on the growth track in the first quarter of 2016 and, driven by further expansive monetary policy, low oil prices and the weak euro exchange rate, expanded by 1.7% after 1.3% in the comparative quarter of 2015.
The euro had continuously appreciated against the dollar since the beginning of the year. However, it then fell at the end of the reporting period as a consequence of the British referendum on ending E.U. membership, and was at U.S. $1.11 U.S. on June 30 (December 31, 2015: $1.09). The global average interest rate continued to remain at a very low level in the reporting period.
Sources: OECD: Quarterly National Accounts, June 2016; German Chamber of Commerce in China: Q1/2016 economic data on China; Monthly Report issued by the German Federal Ministry of Economics and Technology, BMWI, 06-2016; Bloomberg.
Positive Sector Development Continues
The key customers the Sartorius Group serves besides those of the biopharmaceutical and pharmaceutical industries are from public research institutes, th e chemical industry and the food sector. The trends in these sectors thus provide important impulses for the business development of the Sartorius Group.
The international market research institute IMS Health estimates that the global pharmaceutical market has grown by around 6% on average over the past years. The regions comprising Asia and Latin America contributed an above-average proportion to this increase due to the expansion of their government healthcare systems and rising consumer spending.
The market for pharmaceuticals manufactured using biotech methods has been expanding overproportionately for quite some years within the global pharma marketplace and is currently showing especially dynamic growth. This is primarily attributable to many new approvals of biopharmaceuticals and additional market penetration by existing medicines. Overall, the proportion of sales revenue earned on the biotech market has nearly doubled over the last ten years, recently attaining around 24% of the global pharmaceutical market. Meanwhile, six biologics are among the Top 10 of pharmaceuticals that generate the highest sales.
Biosimilars, i.e., biotherapeutic products similar to originally patented reference biologics, are gaining significance, considering the number of patents due to expire. For instance, seven biosimilars alone were submitted for approval in the key U.S. market at the end of last year, and the first biosimilar antibody was approved by the U.S. Food and Drug Administration, FDA, in the reporting period.
Biotech production methods are much more complex and cost-intensive than are conventional methods. This is why the industry is continuously looking to develop more efficient production technologies. Single-use products play a decisive role in this effort. They significantly reduce production costs, offer greater flexibility and help accelerate time to market.
Among the main customer groups of the Lab Products & Services Division are the chemical and food industries, besides the pharmaceutical industry and the public research sector.
According to data provided by Frost & Sullivan, the global laboratory market grew 2.9% in 2015. While growth in Europe was only 1.9% given the moderate dynamics of its economy, Asian countries such as China and India grew at significantly overproportionate rates. Driven by strong demand from the biopharmaceutical industry and increasing spending by the public sector, the largest market for lab products, the USA, recorded an increase of 3.0%.
Sources: IMS Health: Delivering on the Potential of Biosimilars Medicines, March 2016; Global Medicines Use in 2020, November 2015; TOP 20 Global Products, December 2015; EvaluatePharma: World Preview 2015, Outlook to 2020, June 2015; www.gabionline.net, 8.4.2016; Frost & Sullivan: 2016 Spring Mid - year Report; May 2016.
Group Business Development
- Strong double-digit growth in order intake and sales revenue
- Excellent performance of Bioprocess Solutions; increase in order intake stronger than expected
- Continued positive development of Lab Products & Services business
- Forecast for the full year of 2016 raised
Product Portfolio Expanded by Acquisitions
As part of the continuous implementation of its strategy, Sartorius further expanded its product offering with innovative, complementary technologies over the past weeks by three acquisitions. The portfolio of the Lab Products & Services Division was thus extended in the area of bioanalytics by the acquisition of the companies IntelliCyt and ViroCyt, strengthening the division's position with biopharmaceutical customers and public research. Moreover, the Bioprocess Solutions Division added complementary products to its extensive array of single-use solutions through the acquisition of kSep.
IntelliCyt was acquired immediately before the end of the current reporting period and the two other companies were purchased shortly after the reporting date. Accordingly, these acquisitions did not have any effect on the development of sales revenue or earnings of Sartorius in the first half. For further information, please see pp. 7 et seq.
Sartorius Achieves Double-Digit Sales Growth in the First Half
In the first half of 2016, the Sartorius Group grew very dynamically at significant double-digit rates. Reflecting the positive business development of both of its divisions, the company's sales revenue rose 18.7% in constant currencies from €535.3 million to €625.4 million; the reported increase was 16.8%.
Sales Revenue and Order Intake
|in millions of €||6-mo. |
|Δ in % |
|Δ in % |
1 In constant currencies
All regions achieved double-digit growth rates. The Americas region, which accounted for about 34% of consolidated sales, again showed the highest growth momentum, recording an increase in sales of 24.7% to €212.3 million (reported: +23.1%, up from €172.4 million).
1 ) In constant currencies
2 ) Acc. to customers' location
In the EMEA region, which generates the highest share of Group sales of around 46%, sales grew by 18.7% in the reporting period, to €288.1 million (reported: +17.1%, up from €245.9 million).
Sales revenue in the Asia | Pacific region, which accounts for around 20% of Group sales, rose 10.0% to €125.1 million (reported: +6.9%, up from €117.0 million).
All changes given for the regional development are in constant currencies, unless otherwise specified.
Underlying EBITDA Increases Overproportionately
The Sartorius Group uses underlying EBITDA (earnings before interest, taxes, depreciation and amortization and adjusted for extraordinary items) as the key profitability indicator.
The Sartorius Group increased its earnings overproportionately yet again in the first half of 2016 due to economies of scale. Underlying EBITDA thus rose 26.6% from €121.1 million to €153.4 million. The respective EBITDA margin climbed from 22.6% in the year-earlier period to 24.5%.
Underlying EBITDA and EBITDA Margin Group
|in millions of €||6-mo. |
|Underlying EBITDA margin||24.5||22.6|
Consolidated EBIT, including all extraordinary items of –€9.9 million (H1 2015: –€3.8 million), depreciation and amortization, rose from €90.6 million to €109.9 million. Extraordinary items were primarily related to various cross-divisional projects. The Group's EBIT margin reached 17.6%, up from 16.9% a year ago.
The financial result of the Sartorius Group was –€3.9 million in the reporting period relative to –€15.2 million for the prior-year period. This change is essentially attributable to valuation effects related to foreign currency liabilities and hedging instruments.
Net profit for the period totaled €74.2 million relative to €91.7 million in the comparable period. The prior-year figure includes €38.9 million related to the sale of the Industrial Technologies Division in the first quarter of 2015.
Net profit after non-controlling interest amounted to €53.4 million relative to €76.9 million in the year-earlier period, with non-controlling interest accounting for €20.8 million (H1 2015: €14.8 million).
Relevant Net Profit Surges 30.4%
The relevant net profit attributable to the shareholders of Sartorius AG rose sharply by 30.4% from €47.8 million1 to €62.4 million. This profit figure is calculated by adjusting for extraordinary items and eliminating non-cash amortization, and is based on the normalized financial result as well as the corresponding tax effects for each of these items. Underlying earnings per ordinary share grew 29.6% to €0.91 (H1 2015: €0.70) and by 30.1% per preference share to €0.92 (H1 2015: €0.71).
The prior-year figures were restated according to the stock split completed on June 13, 2016.
|€ in millions||6-mo. 2016||6-mo. 20151|
|Normalized financial result2||–6.8||–7.7|
|Normalized income tax (2016: 30% | 2015: 30%)3||–36.4||–28.1|
|Underlying net result after tax||85.0||65.6|
|Underlying earnings after taxes |
and non-controlling interest
|Underlying earnings per share|
per ordinary share in €
per preference share in €
1 Continued operations
2 Financial result excluding fair value adjustments of hedging instruments and currency effects relating to financing activities
3 Underlying income tax, based on the underlying profit before taxes and non-cash amortization
4 Adjusted for stock split; rounded values
Robust Operating Cash Flow Development
In the first six months of the current fiscal year, the Sartorius Group reported a net cash flow from operating activities of €43.1 million relative to €56.2 million a year ago. In particular, the seasonal and growth-related increase in funds allocated to working capital influenced this figure.
Net cash flow from investing activities was –€69.0 million, above the year-earlier figure of –€40.6 million, as planned. Capital expenditures in the reporting period were related to, inter alia, the expansion of production capacity and the consolidation of Group headquarters in Goettingen, Germany.
Cash outflows associated with acquisitions of €79.1 million in the first half reflect the purchase of IntelliCyt Corporation in June (see the section on Business Development of the Divisions). On the whole, net cash flow from investment activities and acquisitions | divestitures was –€148.1 million. The prior-year figure of €3.1 million was significantly affected by the sale of the Industrial Technologies Division
Key Financial Indicators Remain at Good Levels
The balance sheet total for the Sartorius Group stood at €1,673.8 million in the period ended June 30, 2016, up from €1,437.2 million as of December 31, 2015. This increase is mainly due to the acquisition of IntelliCyt and the buildup of working capital.
Equity rose slightly from €644.8 million to €654.2 million between December 31, 2015, and the reporting date. The equity ratio continued to remain at a comfortable level at 39.1% (December 31, 2015: 44.9%).
Gross debt increased from €396.8 million as of December 31, 2015, to €559.9 million as of June 30, 2016, primarily due to the acquisition mentioned above and the increase in working capital. Net debt was €483.9 million relative to €344.0 million as of December 31, 2015.
In this context, the ratio of net debt to underlying EBITDA based on the past 12 months edged up slightly from 1.3 at year-end 2015, to 1.6 as of June 20, 2016.
Number of Employees Increases
As of June 30, 2016, the Sartorius Group employed a total of 6,697 people worldwide. Compared with December 31, 2015, head count thus rose by 512 or around 8%. This figure includes 57 staff from the acquisition of IntelliCyt Corporation. From a geographical perspective, personnel increased predominantly in the EMEA region. With a workforce of 4,733, Sartorius employed 360 more people in this region than at the end of the previous year. The number of employees in the Americas was 919, which is 113 higher than the prior-year head count. In Asia | Pacific, Sartorius employed 1,045 people as of the end of the reporting period (December 31, 2015: 1,006 staff).
Business Development of the Divisions
Bioprocess Solutions Division Shows Excellent Performance
In the first half, the Bioprocess Solutions Division reported significant double-digit growth rates in a continued dynamic market environment. Driven by strong demand both for single-use products and equipment, the division's sales revenue rose sharply by 23.9% in constant currencies to €469.8 million (reported: +22.1%). All regions recorded substantial growth. Besides very dynamic organic performance, BioOutsource and Cellca consolidated since April and July 2015, respectively, contributed approximately 3 percentage points of non-organic growth.
|in millions of €||6-mo. |
|Δ in % |
|Δ in % |
|– Asia | Pacific1||81.5||73.0||11.6||15.1|
1 Acc. to customers' location
The division's order intake climbed 23.5% in constant currencies and exceeded our expectations, especially due to some bigger equipment orders.
The underlying EBITDA of the Bioprocess Solutions Division rose significantly by 31.0% from €97.8 million to €128.1 million. Its respective margin rose from 25.4% to 27.3%, especially due to economies of scale.
Underlying EBITDA and EBITDA Margin Bioprocess Solutions
|in millions of €||6-mo. |
|Underlying EBITDA margin in %||27.3||25.4|
Lab Products & Services Continues Positive Business Development
In the first half of 2016, the Lab Products & Services Division continued its positive development as expected, reporting sales growth of 5.5% to €155.7 million in constant currencies (reported +3.5%). Demand was especially strong for laboratory consumables, such lab filters. The EMEA region showed the highest growth rates, with sales up by 7.5%, while the Asia | Pacific region exceeded its high prior-year level by 1.5%.
With the acquisition of U.S. IntelliCyt Corporation on June 28, 2016, Sartorius expanded its laboratory product portfolio by an innovative, powerful cell screening platform for drug discovery in the area of bioanalytics. In 2016, IntelliCyt is expected to generate sales revenue of more than U.S. $18 million; approximately half of this 1 Acc. to customers' location 384.9 22.1 23.9 revenue will be consolidated in the second half of the year in Sartorius Group sales. Break-even on underlying EBITDA for IntelliCyt is projected to be achieved by the end of 2017. This acquisition has not had any effect on the sales and earnings development in the first half.
|Lab Products & Services|
|in millions of €||6-mo. |
|Δ in % |
|Δ in % |
|– Asia | Pacific1||43.6||44.0||–0.8||1.5|
1 Acc. to customers' location
Underlying EBITDA of the Lab Products & Services Division rose in the first half of 2016 by 8.4% from €23.4 million to €25.3 million. Driven by higher sales, the division's underlying EBITDA earnings margin improved from 15.5% a year ago to 16.3%.
Underlying EBITDA and EBITDA Margin Lab Products & Services
|in millions of €||6-mo. |
|Underlying EBITDA margin in %||16.3||15.5|
Opportunity and Risk Report
The opportunities and risk situation of the Sartorius Group has not materially changed since the publication of its 2015 Annual Report. For this reason, please refer to the detailed description of the opportunities and risks on pp. 53 et seq., as well as the risk management system on pp. 56 et seq., for the Sartorius Group in the 2015 Annual Report.
From today's perspective, the outcome of the U.K. referendum to leave the European Union is not expected to materially impact the company's overall risk situation as Sartorius primarily addresses robust markets.
Future Macroeconomic Outlook Impacted by Political Uncertainties
According to the most recent forecast of the International Monetary Fund, IMF, for the full year of 2016, expansion of the global economy is expected to progress somewhat more slowly than projected at the beginning of the year. This is due to political uncertainties, among other causes. After originally forecasting growth of 3.4%, the IMF now assumes that the global economy will grow 3.2% (2015: +3.1%). Any negative influences potentially resulting from the U.K. referendum to leave the European Union are not reflected by this forecast.
For the U.S. market, the IMF projects that growth of this economy will remain at last year's level. Fueled by private spending, the U.S. economy is anticipated to expand by 2.4% (January forecast: +2.6%).
While the IMF expected at the beginning of the year that the euro zone would grow at a rate slightly above the previous year's figure (+1.6%), it most recently revised its forecast downward to 1.5%. Especially lower exports to emerging countries are projected to dampen the euro-zone economies. The U.K. economy is forecasted to expand 1.9%, while Germany and France are each expected to grow by 1.5% and 1.1%, respectively.
Contrary to its overall moderate expectations for both industrialized and emerging countries, the IMF revised its growth forecast slightly upwards for the Asian region to 6.4%. This development is projected to be driven by a stronger-than-expected increase of 6.5% in China's economic performance (January forecast: +6.3%). Above all, the financial policy measures taken by the Chinese government are anticipated to generate positive impulses.
Concerning the interest rate environment, there have been no material changes to the information we provided in our 2015 Annual Report. Therefore, experts continue to expect that key interest rates will remain at a very low level throughout 2016. Market forecasts for the exchange rate of the euro to the U.S. dollar for the second half of the year range between 0.99 and 1.24.
Sources: International Monetary Fund, World Economic Outlook, April 2016; Reuters Forex Poll, May 2016.
Sector Environment Expected to Remain Positive
The trends described on pp. 61-63 of our 2015 Annual Report have remained unchanged with respect to their impacts on the development of the Sartorius Group.
According to most recent estimates, a compound average growth rate (CAGR) of between 4% and 7% is forecasted for the global pharmaceutical industry in the period of 2015 to 2020. For the biopharma subsegment, market observers are projecting a CAGR of around 8% to 9% in view of the further penetration of biopharmaceuticals already approved, the expansion of their areas of indication and the industry's strong research and development pipelines.
Based on Frost & Sullivan estimates, global demand for lab products is forecasted to remain stable. Therefore, growth of around 3% is projected for 2016, with the Asian region expected to generate the highest growth momentum, whereas Europe is anticipated to grow moderately at about 2%.
Sources: IMS Health: Delivering on the Potential of Biosimilars Medicines, March 2016; Global Medicines Use in 2020, November 2015 EvaluatePharma: World Preview 2015, Outlook to 2020, June 2015 and June 2014; Frost & Sullivan: 2016 Spring Mid -year Report; May 2016.
Guidance for Fiscal 2016 Raised
Based on the company's excellent first-half performance in fiscal 2016, strong order intake for the Bioprocess Solutions Division and the most recent acquisitions , the Sartorius Group has raised and specified its forecast for the current year as follows:
Based on constant currencies, Group sales revenue is now projected to increase by about 15% to 18%. According to the company's previous guidance excluding the acquisitions of IntelliCyt, kSep and Viro Cyt, consolidated sales for the full year were forecasted to grow approximately 10% to 14%. The Group's underlying EBITDA margin is now expected to increase to about 25.0% compared with the year-earlier figure of 23.6% (previous guidance: around +1 percentage point).
For 2016, Sartorius continues to plan on investing around 10% of sales revenue. Its investing activities remain focused on the consolidation and extension of Group headquarters in Goettingen, Germany, and on the expansion of global production capacity and IT structure.
Regarding its financial position, Sartorius expects that in light of its most recent acquisitions, its ratio of net debt to underlying EBITDA by year-end will be slightly below the level of the first half of 2016 of 1.6. This forecast does not take any potential further acquisitions into account. Former guidance without acqusitions had projected that this ratio would be below the prior-year level of 1.3.
For the Bioprocess Solutions Division, management upgraded its full-year sales forecast from the previously expected increase of about 13% to 17% to about 19% to 22% in view of some equipment orders and the positive overall business outlook. This guidance includes a good 2 percentage points of non-organic growth contributed by consolidation of the two companies BioOutsource and Cellca acquired in the previous year, as well as by kSep that will be consolidated as of the second half of 2016. The division's underlying EBITDA margin is projected to rise from 26.5% a year earlier to around 28.0% (previous guidance: around +1 percentage point).
Due to consolidation of the acquisitions of IntelliCyt and ViroCyt and assuming an overall stable economic environment, Sartorius now projects that sales for the Lab Products & Services Division will grow approximately 6% to 9% (previous guidance: approx. 3% to 7%). The acquisitions are expected to contribute approximately 3 percentage points of growth. As both acquisitions will temporarily dilute earnings slightly, management expects that the division's underlying EBITDA margin will remain approximately at the prior-year level of 16.0%. Without this earnings dilution, the forecast for the division's underlying EBITDA margin would have remained unchanged at a projected increase by around 1 percentage point.
All forecasts are based on constant currencies.
Report on Material Events
On July 6, 2016, Sartorius signed an agreement through its subgroup Sartorius Stedim Biotech to acquire U.S. technology start-up kSep Holdings, Inc., based in Morrisville, North Carolina, USA. kSep develops and markets fully automated single-use centrifugation systems for biopharmaceutical manufacturing and thus complements the product portfolio of the Bioprocess Solutions Division.
For fiscal 2016, kSep is expected to achieve significant double-digit growth and to generate sales revenue of more than U.S. $7 million and a strong double-digit EBITDA margin. The transaction values kSep at around $28 million and is expected to close by the end of July 2016.
In addition, on July 15, 2016, Sartorius announced the acquisition ViroCyt Incorporated, an innovator in the field of rapid virus quantification. Based in Broomfield, Colorado, USA, the start-up is expected to achieve high double-digit growth and to generate sales revenue of more than $3 million in 2016 while achieving break – even on underlying EBITDA by the end of 2018. The transaction values ViroCyt at approx. $16 million. Following Sartorius' acquisition of cell screening specialist IntelliCyt, ViroCyt is now adding a further very innovative bioanalytical tool to the Lab Products & Services portfolio.
The consolidation periods for kSep and ViroCyt will cover a good five months in 2016. Therefore, the respective shares of their annual sales revenues will be included in consolidated Group sales.