Interim Management Report
Economic and Sector Report
The sectors in which the Sartorius Group is active differ in their dependence on the economy. The Bioprocess Solutions Division, for instance, operates in an environment that is largely independent of economic fluctuations. The Lab Products & Services Division, in contrast, conducts its business activities in sectors that are more strongly affected by economic factors.
Slowdown in the Global Economy
According to the most recent data of the OECD, the momentum of the global economy tapered off in the first quarter of 2019.
Especially in Sartorius’ core European markets, growth rates were below the prior-year figures. While the rise in growth of gross domestic product (GDP) for Germany was estimated at 0.7% (previous year: 2.1%), the French economy expanded by 1.2% relative to 2.4% in the prior year. In Italy, economic performance remained approximately at the previous year's level. The U.K. economy saw an acceleration of growth to 1.8%, up from 1.2% in the prior year. GDP of the entire European Union gained 1.5% relative to 2.4% a year earlier.
The world’s largest economy, the USA, continued to grow significantly in the first quarter of 2019. Despite its ongoing trade dispute with China, the U.S. economy saw a 3.2% gain, up from 2.6% in the previous year.
By contrast, the expansion rate in the Asia-Pacific economic area slowed somewhat. Compared with the prior-year quarter, GDP growth in China was 6.4%, down from 6.8% in the year before. India reported a gain of 6.0% (previous year: 7.8%). South Korea and Japan, further important markets for Sartorius in the Asia-Pacific region, reported the following figures: While South Korea’s GDP grew by 1.8% (previous year: 2.8%), the rate of increase in Japan was 0.8% (previous year: 1.4%).
Sources: OECD: Quarterly National Accounts, June 2019.
Continued Positive Sector Development
Sartorius’ key customer groups include the biopharmaceutical and pharmaceutical industries as well as public research institutions. In addition, the company counts quality assurance laboratories in the chemical and food industries among its customers. Accordingly, the trends in these specific sectors considerably influence the business development of Sartorius.
The international market research institute IQVIA estimates that the global pharmaceutical market has grown annually by around 6% on average over the past five years. Within the pharmaceutical market, the segment for medications and vaccines manufactured using biotech methods has been growing faster than the rest of the market. In 2018, the biopharmaceutical market was projected at a volume of around €217 billion, an increase of approximately 8% to 9% over the previous year. The steadily growing significance and acceptance of biopharmaceutical compounds is reflected in their increasing share of the sales revenue in the global pharmaceutical market and the development activities of the pharmaceutical industry. For example, biopharmaceutical compounds account for more than 40% of the R&D pipeline.
Market growth for biopharmaceuticals fundamentally depends more on medium- to long-term trends than on short-term economic developments. The major growth driver for the global expansion of biopharmaceutical production capacities is the increasing need for medications by the growing world population and by the average aging communities in industrialized nations. In addition, rising incomes in emerging-market economies are leading to improved access to healthcare. Beyond this, growth is boosted by the development and approval of new biopharmaceuticals, which include a growing number of active pharmaceutical compounds to treat rare diseases that have been incurable until now. Recent progress has also been made, for example, in cell and gene therapies. Biosimilars, i.e., biotherapeutic products similar to originally patented reference biologics that are going off-patent, are playing an increasingly important role on the biotechnology market as well.
Demand for laboratory instruments and consumables is generated by public research and the chemical and food sectors besides the biopharmaceutical and pharmaceutical industries.
According to estimates by the market research firm Frost & Sullivan, the global laboratory market grew by approximately 3.6% to €39 billion in the past year. While Europe reported an increase of 2.4%, the United States – the largest market for laboratory products – grew by 4.2%. Significant growth was once again driven by Asian countries, such as China and India, in which the laboratory market saw above-average expansion of 7.0% (China) and 8.2% (India). Macroeconomic indicators for the first half of 2019 suggested that growth of the laboratory equipment market probably has slowed in comparison to the prior-year period.
Sources: IQVIA Institute: The Global Use of Medicine in 2019 and Outlook to 2023, January 2019; EvaluatePharma: World Preview 2019, Outlook to 2025; June 2019; Frost & Sullivan: 2018 Annual Report, November 2018; BioPlan: 15th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2018; Daedal Research: Global Biologics Market: Size, Trends & Forecasts, February 2018.
Group Business Development
- Significant growth in sales revenue, order intake and profit
- Bioprocess Solutions with high growth momentum; moderate development of Lab Products & Services
- Guidance for the full year of 2019 raised
Sartorius with Double-Digit Gains in Sales Revenue and Order Intake
Sartorius grew dynamically in the first half of 2019: sales revenue in constant currencies rose by 15.9% to €894.7 million; the reported increase was 18.0%. Order intake rose slightly more strongly, by 18.7% in constant currencies, to €974.3 million (in the reported figure, it grew by 20.7%). Growth was achieved completely organically and is predominantly attributed to the very strong business performance of the Bioprocess Solutions Division. By contrast, the increase in sales for the Lab Products & Services Division was more moderate as the softer economic environment had a dampening effect on demand, particularly at the end of the second quarter.
|Sales Revenue and Order Intake|
|in millions of €||6-mo. |
|Δ in % |
|Δ in % |
1) In constant currencies
Sartorius increased its sales revenue by double digits in all business regions. Revenue in EMEA rose by 11.4% in constant currencies to €362.0 million (reported: + 11.6%). This region accounted for the largest share of Group sales, around 41%.
The Americas region, which contributed about 34% to total Group sales, saw significant sales growth of 18.9% in constant currencies to €308.2 million (reported: + 23.5%) against a high prior-year base.
1 ) In constant currencies
2 ) Acc. to customers' location
The Asia | Pacific region accounting for around 25% of total consolidated sales showed the highest dynamics, reporting a revenue surge of 19.9% in constant currencies to €224.5 million (reported: + 21.8%).
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.
In the first half of 2019, Sartorius increased its earnings overproportionately. Underlying EBITDA rose 25.4% from €189.5 million to €237.6 million, and the Group‘s respective EBITDA margin also climbed from 25.0% in the year-earlier period to 26.6%. As expected, about one percentage point of this increase was attributed to the IFRS 16 Standard to be applied for the first time in 2019.
|Underlying EBITDA and EBITDA Margin, Group|
|in millions of €||6-mo. |
|Underlying EBITDA margin||26.6||25.0|
Consolidated EBIT, including extraordinary items of €10.6 million (H1 2018: – €13.9 million), depreciation and amortization, amounted to €166.6 million compared with €123.3 million in the previous year. Extraordinary items were primarily related to expenses incurred for various cross-divisional projects, such as the introduction of IT systems, and to the integration of the Group's acquisitions executed in the prior years. Despite higher depreciation, the consolidated EBIT margin rose in the reporting period from 16.3% a year ago to 18.6%.
The financial result was – €9.9 million in the first half of 2019, relative to – €11.0 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 first six months of 2019 rose significantly by 39.5% from €82.0 million in the first half Net profit for the first six months of 2019 rose significantly by 39.5% from €82.0 million in the first half of 2018 to €114.4 million. In addition, net profit after non controlling interest totaled €82.3 million relative to €57.3 million in the comparable year-earlier period, with non-controlling interest accounting for €32.1 million (H1 2018: €24.7 million). The tax rate for the Sartorius Group remained constant at 27.0%.
Relevant Net Profit Significantly Up Year over Year
The relevant net profit attributable to the shareholders of Sartorius AG rose by 27.3% from €79.8 million to €101.5 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 totaled €1.48 (H1 2018: €1.16) and €1.49 per preference share (H1 2018: €1.17).
|€ in millions||6-mo. 2019||6-mo. 2018|
|Normalized financial result1)||–7.7||–8.3|
|Normalized income tax |
(2019: 27% | 2018: 27%)2)
|Underlying net result after tax||136.2||107.5|
|Underlying earnings after taxes and non-controlling interest||101.5||79.8|
|Underlying earnings per share|
per ordinary share in €
per preference share in €
1) Financial result excluding fair value adjustments of hedging instruments and currency effects relating to financing activities
2) Income tax considering the average group tax rate, based on the underlying profit before tax
Operating Cash Flow Strongly Increased
In the first six months of the current fiscal year, the Sartorius Group increased its cash flow from operating activities: this figure stood at €165.1 million relative to €92.0 million a year ago, which equates to an increase of 79.6%. This development essentially reflects the rise in earnings.
Cash flow from investing activities rose in the reporting period by 19.1% to €116.0 million. First-half capital expenditures were related to, inter alia, the consolidation and expansion of Group headquarters in Göttingen, Germany. At its site in Yauco, Puerto Rico, Sartorius invested in the expansion of its production capacities for filters and single-use bags. At both sites, new production facilities were completed and started up operations in the reporting period. The ratio of capital expenditures (CAPEX) to sales in the first half of 2019 was in line with expectations, 12.8% compared with 13.2% in the previous year.1)
1) As of 2019, CAPEX is based on cash flow instead of balance sheet computation; CAPEX ratio restated: 13.1% for H1 2018; 14.9% for FY 2018.
Key Balance Sheet and Financial Indicators Remain at Robust Levels
The balance sheet total for the Sartorius Group stood at €2,716.6 million in the period ended June 30, 2019, and thus increased by €189.7 million compared with €2,526.9 million as of December 31, 2018. This rise is mainly attributable to higher figures for property, plant and equipment, growth-related increases in inventories and trade receivables, as well as the IFRS 16 Standard to be applied for the first time as of 2019.
The Sartorius Group's equity rose from €973.4 million as of December 31, 2018, to €1,020.3 million on the reporting date. The equity ratio continued to remain very robust at 37.6% (December 31, 2018: 38.5%). This slight decrease resulted from the extended balance sheet due to the IFRS 16 Standard.
While gross debt increased from €1,004.6 million as of December 31, 2018, to €1,090.4 million as of June 30, 2019, net debt was €1,036.6 million at the end of the reporting period relative to €959.5 million as of December 31, 2018.
The ratio of net debt to underlying EBITDA slightly edged down from 2.4 at year-end 2018 to 2.3 for the period ended June 30, 2019.
Number of Employees Increases
As of June 30, 2019, the Sartorius Group employed a total of 8,711 people worldwide. Compared with December 31, 2018, head count thus rose by 586 or around 7.2%. From a geographical perspective, the Americas region reported the highest staff increase by 19.7% to 1,513 people. The number of employees in EMEA was up by around 4.6% to 5,965 in the reporting period. Sartorius employed 1,233 people in Asia | Pacific as of the end of the reporting period (December 31, 2018: 1,159).
Business Development of the Divisions
Bioprocess Solutions Expanding Dynamically
The Bioprocess Solutions Division recorded significantly double-digit growth rates in the first half of 2019 in a continued highly positive market environment. Driven by high demand both for single-use technologies and equipment, sales revenue surged 20.7% to €676.6 million in constant currencies (reported: + 22.9%). The strong dynamics seen at the beginning of the year therefore continued in the second quarter.
|in millions of €||6-mo. |
|Δ in % |
|Δ in % cc1)|
|– Asia | Pacific2)||163.4||125.1||30.7||28.9|
1) In constant currencies
2) Acc. to customers' location
Order intake also developed very positively in the first half of 2019. Orders rose more strongly than division revenue by 23.4% in constant currencies to €746.4 million (reported: + 25.5%). Particularly notable in this context were the very dynamic project business and exceptionally positive development in Asia | Pacific.
Looking at the geographies, the EMEA region achieved a considerable increase in sales revenue of 15.2%. The Americas region again saw significant sales growth, which was up 22.0% against a high prior-year base, while the Asia | Pacific region showed even stronger momentum, reporting a 28.9% surge. (All rates of regional change in constant currencies.)
|Underlying EBITDA and EBITDA Margin Bioprocess Solutions|
|in millions of €||6-mo. |
|Underlying EBITDA margin in %||29.3||28.0|
Underlying EBITDA grew overproportionately by 28.8% to €198.3 million. The corresponding margin rose to 29.3% from 28.0% in the same period a year earlier due to economies of scale and as a result of a change in an accounting rule (IFRS 16), as well as despite a higher share of project business.
Lab Products & Services with Moderate Growth
In the first half of 2019, the Lab Products & Services Division slightly increased its sales by 3.2% to €218.1 million (reported: + 4.8%) against a strong prior-year revenue base. Growth in sales for the Lab Products & Services Division was slightly more moderate than had been initially expected as the softer economic environment had a dampening effect on demand. Especially at the end of the second quarter, development was not satisfactory.
By contrast, order intake for the division rose robustly by 5.4% in constant currencies to €228.0 million (reported: + 7.0%).
|Lab Products & Services|
|in millions of €||6-mo. |
|Δ in % |
|Δ in % cc1)|
|– Asia | Pacific2)||61.1||59.3||3.0||1.0|
1) In constant currencies
2) According to customers' location
Due to the impacts mentioned above, the EMEA and Asia | Pacific regions showed restrained growth of 2.2% and 1.0%, respectively. In the Americas region, sales revenue rose by 7.5% relative to high prior-year comparables. (All rates of change for regional development in constant currencies.)
Underlying EBITDA of the Lab Products & Services Division rose in the first six months of 2019 by 10.9% to €39.4 million due to economies of scale and as a consequence of the change in an accounting rule (IFRS 16). The division's earnings margin was up year over year from 17.1% to 18.1%.
|Underlying EBITDA and EBITDA Margin |
Lab Products & Services
|in millions of €||6-mo. |
|Underlying EBITDA margin in %||18.1||17.1|
Opportunity and Risk Report
The opportunities and risk situation of the Sartorius Group has not materially changed since the publication of its 2018 Annual Report. For this reason, please refer to a detailed description of the opportunities and risks as well as the risk management system for the Sartorius Group on pp. 54 et seq. and on pp. 67 et seq. of the 2018 Annual Report.
Global Growth is Set to Moderate
Following an upswing in the global economy that lasted for several years, economic activity slowed in the second half of 2018 in key regions, such as Europe and China. According to International Monetary Fund (IMF) projections, this more moderate development is likely to continue on in the current year. In its most recent outlook of April 2019, the IMF projects that the global growth rate will decrease from 3.6% in 2018 to 3.3% 2019. Risks to global economic growth arise from an escalation of international trade disputes and growing protectionism. In addition, a no-deal exit of the U.K. from the European Union would have a negative impact.
The IMF expects 1.6% growth for the European Union, down from 2.1% a year earlier. Especially in Germany, the largest European economy, the expansion rate is expected to slow from 1.5% in 2018 to 0.8% in 2019. While economic performance in France is likely to increase by 1.3% from 1.5% in the prior year, a gain of 1.2% is forecasted for the U.K. (previous year: 1.4%).
After the U.S. market bucked the global trend last year, reporting accelerated growth, this development could reverse in 2019 according to the IMF‘s projections. GDP in the USA is expected to rise at a lower rate of 2.3% than 2.9% a year earlier as the higher U.S. taxes and the subsiding positive effects of the tax reduction will dampen growth.
The Asia | Pacific economic area is likely to grow by about 5.4% this year and thus at approximately the prior-year level. This expected growth will be driven especially by the expansion of the economy in India. Here, the forecasted increase of 7.3% is projected to exceed the year-earlier rate of 7.1%. Despite experiencing a slight downturn to 6.3% (2018: 6.6%), China will continue to be the growth engine of the Asia | Pacific region as well. GDP growth in South Korea is expected to increase to 2.6% relative to 2.7% a year ago while GDP in Japan will edge up by 1.0% from 0.8% in 2018.
Sources: International Monetary Fund, World Economic Outlook, April 2019.
Continued Positive Sector Environment
The trends described on pages 63–64 of our 2018 Annual Report have remained unchanged with respect to their impacts on the development of the Sartorius Group.
Most recent estimates project that the global pharmaceutical market will expand at a compound annual growth rate of 3% to 6% during the period of 2019 to 2023. For the biopharma subsegment, market observers continue to expect overproportionate annual growth of around 8% to 9% on average, which will be driven by the rising demand worldwide for biopharmaceuticals. This growth will also be fueled by the ongoing penetration of the market by 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 laboratory products is predicted to continue showing positive development during the next few years. Therefore, growth of around 3.2% has been projected for 2019. While the U.S. market is likely to expand at a rate of 3.5%, market experts have been anticipating that Europe could grow by 2.0%. Yet macroeconomic and political uncertainties in the first half of 2019 pose higher global risks for this development.
Sources: IQVIA Institute: The Global Use of Medicine in 2019 and Outlook to 2023, January 2019; EvaluatePharma: World Preview 2019, Outlook to 2025; June 2019; Frost & Sullivan: 2018 Annual Report, May 2018; BioPlan: 15th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production, April 2018; Daedal Research: Global Biologics Market: Size, Trends & Forecasts, February 2018.
Guidance for Fiscal 2019 Raised
In view of business performance in the first half of 2019, management has raised its full-year guidance for the entire Group and modified the divisions‘ forecasts as follows:
Based on constant currencies, management now projects that Group sales revenue will grow by about 10% to 14%, up from its earlier growth forecast of about 7% to 11%.
Regarding profitability, management still expects that the Group's underlying EBITDA margin will increase to slightly above 27.0%, with an operating gain of about half a percentage point and the remaining rise resulting from changes in an accounting rule.1)
The ratio of capital expenditures (CAPEX) to sales revenue is expected to remain at around 12%, down from the year-earlier figure of 15.2%.2)
In view of its financial position, management continues to project that the ratio of net debt to underlying EBITDA will be slightly below the prior-year figure of 2.4 by the end of fiscal 2019.
Given the higher-than-expected growth dynamics for the Bioprocess Solutions Division, management has raised its sales forecast for this division from its previous guidance of about 8% to 12% to about 13% to 17%. Management's forecast for the division's underlying EBITDA margin remains unchanged, with this margin projected to increase to slightly more than 29.5% relative to 28.6% reported in the prior-year period. The operating gain of this increase is expected to amount to about half of a percentage point.1)
For the Lab Products & Services Division, management now anticipates that due to the growing economic uncertainties, the lower range of the division's sales forecast of about 5% to 9% will be reached. The division's underlying EBITDA margin is expected to be just below 20% (previous guidance: slightly above 20%; FY 2018: 18.5%), with the operating increase accounting for about half a percentage point.1)
All forecasts are based on constant currencies.
A disorderly exit of the United Kingdom from the EU and exacerbation of international trade disputes could impact our supply chains in both divisions to a certain extent, despite the measures already taken to counteract this development. A reliable prognosis concerning possible effects cannot be made at the current time.
1) IFRS 16 required to be applied as of 2019 regulates accounting of lease contracts. Ultimately, this has resulted in reporting longer-term lease payments as depreciation and, accordingly, in a somewhat higher EBITDA.
2) As of 2019, CAPEX is based on cash flow instead of balance sheet computation; CAPEX ratio restated: 13.1% for H1 2018; 14.9% for FY 2018.
Report on Material Events
No material events occurred after June 30, 2019.