Sartorius Stedim Biotech Group First-Half Financial Report January to June 2008
AUBAGNE, France--(BUSINESS WIRE)--Regulatory News:
Sartorius Stedim Biotech Group (Paris:DIM) First-Half Financial Report January to June 2008
Economic Outlook
Macroeconomic Environment
According to the leading German economic research institutes in their spring 2008 Joint Economic Forecast, the global economy is currently losing momentum. Therefore, they expect the global economy to grow 2.7%, down from 3.6% in the past year.
In the USA, the persistent woes on the financial markets, along with eroding prices on the real-estate markets, are expected to hurt property values of homeowners, and considerably dampen private consumption that is essential for the US economy. For the current year, the German economic research institutes therefore predict that gross domestic product in the USA will grow 1.5%, compared with 2.2% a year ago.
For the eurozone economy, the leading German economic institutes likewise forecast moderate economic activity during the further course of the year and project that growth will be 1.7% (2.6% in 2007). Germany is expected to attain a rate of 1.8% and France 1.5%.
For Japan as well, experts anticipate that cyclical expansion during the current year will weaken to 1.4% from 2.1% in 2007.
While the economy in the emerging Asian countries has largely remained unfazed by the financial crisis so far, the weakness of the US economy and the risk of inflation are bound to have a dampening effect from now on. For 2008, German research analysts forecast growth of around 10% for China (2007: 11.9%) and 7.0% (2007: 9.2%) for India.
The European Central Bank (ECB) raised its base rate, which had remained constant at 4.0% since June 2007, to 4.25% in June 2008. By contrast, the US Federal Reserve (Fed) trimmed its prime rate by 25 basis points to 2.0% during the last cut on April 30 to shore up the faltering economy.
As a result of the weakening US economy and the substantially lowered key interest rates in the USA, the dollar continued to plummet in the first half of 2008. Thus, the average first-half exchange rate of 1.53 US dollars to the euro was 20 cents higher than the year-earlier exchange rate of 1.33 US dollars to the euro.
Sector Situation
The international market research institute IMS Health estimates that overall global growth in the pharmaceutical industry will dip slightly from 6%-7% in 2007 to 5%-6% in 2008. The trend toward increasing utilization of single-use products is expected to continue dominating this sector.
In 2008, IMS Health experts predict that the pharmaceutical market will grow between 4% and 5% in the USA and the five largest European markets. Tightened regulatory standards concerning testing, safety and, ultimately, the cost-efficiency of pharmaceuticals have delayed the launch of new medications. On top of this, many pharmaceutical companies have been facing mounting cost pressure, according to IMS Health. As a consequence, a few companies, particularly those in the USA, implemented programs for optimizing their inventory.
To ensure the best possible comparability, the first-half figures of 2008 are presented in parallel with those of 2007 on a pro forma basis. This means they include Stedim as of January 1, 2007, and are adjusted for extraordinary expenses and effects (underlying figures).
Order Intake
In the first half of 2008, the Sartorius Stedim Biotech Group received orders worth €188.4 million (first half 2007 pro forma: €198.3 million). The currency-adjusted figure corresponds to a decline of -0.9% (actual exchange rate -5.0%). This situation resulted from a large contract in our equipment business that magnified order intake during the year-earlier period.
Sales Revenue
Sartorius Stedim Biotech increased its sales revenue by a currency-adjusted 3.5%. At €185.4 million, sales revenue in the reporting currency is approximately at the previous year’s pro forma level (€186.6 million).
Business in Europe showed highly dynamic development, attaining a double-digit growth rate, and thus reflects our successful integration of the former business entities and our enhanced market positioning. In the US pharmaceutical market, sales revenue fell as a result of the weaker demand of certain key accounts in the biopharmaceutical sector. The reason is that these key accounts had to accept delayed or restricted drug approvals by the Food and Drug Administration (FDA). As a consequence, these large customers manufactured considerably fewer medications than they had originally planned. In addition, a few key customers initiated programs to reduce their inventory and thus temporarily put the brakes on demand for our products on top of this.
Key Figures
|
In millions of € (unless otherwise specified) |
1st half 2008 |
1st half 2007 pro forma |
Change in % |
Change in % (in constant currencies) |
|||||
| Sales revenue | 185.4 | 186.6 | -0.6 | 3.5 | |||||
| Europe1) | 118.7 | 106.7 | 11.2 | 12.7 | |||||
| North America1) | 37.6 | 50.4 | -25.2 | -14.2 | |||||
| Asia | Pacific1) | 23.8 | 23.8 | -0.1 | 2.4 | |||||
| Other Markets1) | 5.4 | 5.8 | -6.7 | -6.3 | |||||
| EBITA2) | 20.8 | 21.3 | |||||||
| EBITA margin2) in % | 11.2 | 11.4 | |||||||
| Net profit2)3) | 10.3 | 10.7 | |||||||
| Earnings per share2)3) in € | 0.60 | 0.62 |
1) According to customers’ location
2) For 2007: underlying
3) Excluding amortization
Earnings Development
First-half operating earnings, reported as EBITA (earnings before interest, taxes and amortization) were €20.8 million in 2008 compared with €21.3 million in 2007 (pro forma underlying). The corresponding EBITA margin was 11.2% compared with 11.4% in 2007 (pro forma underlying). Based on the previous year’s exchange rates, this EBITA margin increased to a solid 12%.
The company’s first-half financial result of –€4.6 million was impacted by the hike in the euro base interest rate above last year’s.
The Sartorius Stedim Biotech Group’s first-half net profit after minority interest was €8.1 million in 2008 (first half 2007 pro forma underlying: €8.2 million) and also impacted by the exchange and interest rates as described above. If non-cash amortization for business combinations is excluded, net profit totals €10.3 million (first half 2007 pro forma underlying: €10.7 million). The corresponding earnings per share amount to €0.60 (first half 2007 pro forma underlying: €0.62).
Assessment
The sales increase in Europe shows that after integration of the two former businesses had successfully progressed, we reinforced our position in the market. Overall, we made a strong showing in our regional markets, although we could not evade the challenging market conditions in the USA. Given the EBITA margin we achieved, we are continuing to perform on a very solid earnings level, against the backdrop of these adverse conditions.
Cash Flow
As of June 30, 2008, Group cash earnings amounted to €22.0 million in 2008. Capital expenditures in the first half of 2008 totaled €8.7 million. Thus, we invested 4.7% of sales revenue in the Group. For the full year, we expect that our investment to sales ratio will be at a similar level.
On the whole, first-half net cash flow was –€2.8 million. For the full year of 2008, we estimate that net cash flow will be positive.
Research and Development
In the first half of 2008, research and development (R&D) costs were at €12.8 million relative to €13.4 million a year ago. The ratio of R&D costs to sales revenue eased slightly from 7.2% in the first half of 2007 to 6.9% in the reporting period.
Employees
As of June 30, 2008, the Sartorius Stedim Biotech Group employed 2,343 persons, or 32 more than at the end of the financial year 2007 (2,311).
It should be noted that the reorganization of our activities in the North American region entailed a reduction in our workforce from 426 to 371 persons.
Net Worth and Financial Position
Consolidated Balance Sheet
The balance sheet total of the Sartorius Stedim Biotech Group was €654.3 million as of June 30, 2008 (March 31, 2008: €649.0 million).
Equity is valued at €363.4 million. In relation to the balance sheet total, the equity ratio of 55.5% is at a comfortable level (March 31, 2008: 56.2%) for the Group.
Gross debt owed to banks was €173.5 million as of June 30, 2008; net debt totaled €165.6 million. The ratio of net debt to EBITDA was 2.6. Gearing, the ratio of net debt to equity, was 0.5. Thus, the key ratios for assessing the company’s creditworthiness are at robust levels.
Financing | Treasury
During the first half of 2008, the Sartorius Stedim Biotech Group still sourced its financing predominantly from the bridge loan arranged by Sartorius AG for the Stedim transaction. A separate financing package will be provided to replace this bridge loan and ensure that the Sartorius Stedim Biotech Group is financed independently of Sartorius AG. For this reason, in July 2008 we contracted Commerzbank AG, Dresdner Bank AG and West/LB AG as lead banks to arrange for a syndicated loan. The financing package was originated on July 23, 2008.
Future Macroeconomic Environment
Future Macroeconomic Report
Based on the estimates of the leading German economic research institutes, global growth in 2008 is likely to remain stable for the most part at 2.7% in 2008 and at 2.9% in 2009, respectively. Growth in the global economy will be driven primarily by the dynamics in the emerging Asian countries. On the whole, analysts see considerable uncertainties in their forecasts. These doubts will linger as long as the end and the extent of the financial crisis remain insufficiently known.
The leading German economic institutes expect the US economy to be impacted by the crisis on the financial markets both in the current and in the upcoming year. After registering a rise of 1.5% in the gross domestic product of the USA in 2008, the leading German economic institutes assume that the US economy will grow 2.2% in 2009.
For the eurozone economy, analysts expect that the momentum of the economic cycle will be moderate. Thus, gross domestic product for 2008 is projected at 1.7%; for 2009, at 1.6%. For Germany, the leading German economic institutes anticipate that in 2009 its economy will grow at 1.9%; for France, they estimate that the rate of increase will be 1.5%.
China’s gross domestic product is expected to grow again in 2009 at approximately 10%, at a pace lower than that of 2008. India’s economy is projected to maintain growth at a high level of 7.0% in 2008 and 2009.
After having cut the prime rate for the seventh consecutive time since September 2007, the US Federal Reserve (Fed) has left it at 2.0% during the past few weeks. In the interim, the Fed has rated inflation as a major concern in its interest policy and has halted its cycle of rate cuts for the time being. Some analysts estimate that the first rate hike will come in September of this year.
In their forecasts, the German institutes for economic research assumed that the crude oil price, which last stood at more than 140 US dollars per barrel, would be 98 US dollars per barrel this year and some 100 US dollars per barrel next year, and that the average exchange rate would be 1.58 US dollars to the euro.
Future Business Development in 2008
For the second half of 2008, Sartorius Stedim Biotech forecasts higher growth in sales revenue than in the first half. Acceleration of growth is likely to be accompanied by a rise in profitability. However, the Group does not expect to reach its ambitious full-year targets. The current uncertainties concerning the US biotechnology market and the present economic climate make all forecasting attempts difficult for the second half.
Risk Analysis
Market and Sector Risks
The Sartorius Stedim Biotech Group in its role as a supplier to the biopharmaceutical industry is exposed to a certain degree to the specific risks of this market. In particular, approval or denial of approval of new medications and other decisions of the regulatory authorities affect our customers’ investment and purchase decisions as well as the timing of these decisions. We estimate that although these influential factors may have an impact on sales revenue and earnings in certain financial years, they will not affect the medium-term growth and profitability development of Sartorius Stedim Biotech.
Assessment of Risks that Could Jeopardize the Existence of the Company | Risk Management System
After thorough analysis of the entire risk situation and according to our current review, there are no discernible risks that could jeopardize the existence or the future of the corporation. A detailed description of our risk management system and of the individual risks and opportunities of the Sartorius Stedim Biotech Group is given in the “Reference Document 2007” starting on page 40.
Balance Sheet
Assets
| June 2008 |
December 2007
Audited |
|||||||||
| € in mn | % | € in mn | % | |||||||
| Non-current assets | ||||||||||
| Goodwill | 249.3 | 38.1 | 249.3 | 38.9 | ||||||
| Intangible assets | 102.8 | 15.7 | 105.2 | 16.4 | ||||||
| Property, plant and equipment | 113.5 | 17.4 | 113.9 | 17.8 | ||||||
| Financial assets | 1.8 | 0.3 | 1.8 | 0.3 | ||||||
| Subtotal | 467.4 | 71.4 | 470.2 | 73.4 | ||||||
| Receivables and other assets | 0.4 | 0.1 | 0.3 | 0.0 | ||||||
| Deferred tax assets | 8.6 | 1.3 | 8.5 | 1.3 | ||||||
| Total (1) | 476.3 | 72.8 | 479.0 | 74.8 | ||||||
| Current assets | ||||||||||
| Inventories | 61.7 | 9.4 | 53.8 | 8.4 | ||||||
| Trade receivables | 92.7 | 14.2 | 84.9 | 13.2 | ||||||
| Current tax assets | 4.3 | 0.7 | 5.3 | 0.8 | ||||||
| Other assets | 11.4 | 1.7 | 10.4 | 1.6 | ||||||
| Cash and cash equivalents | 7.9 | 1.2 | 7.5 | 1.2 | ||||||
| Total (2) | 178.0 | 27.2 | 161.7 | 25.2 | ||||||
| Total assets | 654.3 | 100.0 | 640.7 | 100.0 | ||||||
Equity and Liabilities
| June 2008 | December 20071) | |||||||||
| € in mn | % | € in mn | % | |||||||
| Equity | ||||||||||
| Issued capital | 10.3 | 1.6 | 10.3 | 1.6 | ||||||
| Capital reserves | 338.2 | 51.7 | 338.2 | 52.8 | ||||||
| Retained earnings | 14.9 | 2.3 | 14.2 | 2.2 | ||||||
| Minority interest | 0.0 | 0.0 | 0.0 | 0.0 | ||||||
| Total (1) | 363.4 | 55.5 | 362.8 | 56.6 | ||||||
| Non-current liabilities | ||||||||||
| Pension provisions | 11.8 | 1.8 | 11.4 | 1.8 | ||||||
| Deferred tax liabilities | 35.5 | 5.4 | 36.4 | 5.7 | ||||||
| Other provisions | 2.7 | 0.4 | 2.6 | 0.4 | ||||||
| Loans and borrowings | 3.8 | 0.6 | 4.9 | 0.8 | ||||||
| Other liabilities | 0.3 | 0.0 | 0.3 | 0.0 | ||||||
| Total (2) | 54.1 | 8.3 | 55.7 | 8.7 | ||||||
| Current liabilities | ||||||||||
| Provisions | 5.8 | 0.9 | 7.5 | 1.2 | ||||||
| Trade payables | 31.7 | 4.8 | 31.3 | 4.9 | ||||||
| Loans and borrowings | 169.6 | 25.9 | 156.4 | 24.4 | ||||||
| Current tax liabilities | 4.6 | 0.7 | 3.5 | 0.5 | ||||||
| Other liabilities | 25.0 | 3.8 | 23.6 | 3.7 | ||||||
| Total (3) | 236.8 | 36.2 | 222.3 | 34.7 | ||||||
| Total equity and liabilities | 654.3 | 100.0 | 640.7 | 100.0 | ||||||
1) The figures of the balance sheet consolidated as of December 31, 2007, have been adjusted with regard to the allocation of liabilities of the Sartorius AG Group subsidiaries and payments received for orders. These have been reclassified from the item “Other liabilities” into “Trade payables” in order to better reflect their nature.
Income Statement
| 2nd quarter 2008 | 2nd quarter 2007 |
1st half 2008 1) |
1st half 2007 1) |
||||||||||||||
| € in mn | % | € in mn | % | € in mn | % | € in mn | % | ||||||||||
| Sales revenue | 94.2 | 100.0 | 77.6 | 100.0 | 185.4 | 100.0 | 77.6 | 100.0 | |||||||||
| Cost of sales | 47.1 | 50.1 | 41.4 | 53.4 | 94.9 | 51.2 | 41.4 | 53.4 | |||||||||
| Gross profit on sales | 47.0 | 49.9 | 36.1 | 46.6 | 90.6 | 48.8 | 36.1 | 46.6 | |||||||||
| Selling and distribution costs | 22.2 | 23.6 | 17.6 | 22.7 | 44.1 | 23.8 | 17.6 | 22.7 | |||||||||
| Research and development costs | 6.7 | 7.1 | 5.9 | 7.6 | 12.8 | 6.9 | 5.9 | 7.6 | |||||||||
| General administrative expenses | 6.1 | 6.5 | 4.1 | 5.3 | 12.6 | 6.8 | 4.1 | 5.3 | |||||||||
| Other operating income and expenses | -0.5 | -0.6 | 0.1 | 0.2 | -0.2 | -0.1 | 0.1 | 0.2 | |||||||||
| Earnings before interest, taxes and amortization (EBITA) | 11.4 | 12.1 | 8.6 | 11.1 | 20.8 | 11.2 | 8.6 | 11.1 | |||||||||
|
Amortization 2) |
1.6 | 1.6 | 0.1 | 0.1 | 3.1 | 1.7 | 0.1 | 0.1 | |||||||||
| Earnings before interest and taxes (EBIT) | 9.9 | 10.5 | 8.5 | 11.0 | 17.7 | 9.5 | 8.5 | 11.0 | |||||||||
| Interest and similar income | 0.0 | 0.0 | 0.0 | 0.0 | 0.3 | 0.2 | 0.0 | 0.0 | |||||||||
| Interest and similar expenses | 2.5 | 2.6 | 1.6 | 2.0 | 4.9 | 2.6 | 1.6 | 2.0 | |||||||||
| Profit before tax | 7.5 | 7.9 | 7.0 | 9.0 | 13.2 | 7.1 | 7.0 | 9.0 | |||||||||
| Income tax expenses | -3.4 | -3.6 | -2.0 | -2.5 | -5.1 | -2.7 | -2.0 | -2.5 | |||||||||
| Other taxes | -0.6 | -0.7 | -0.2 | -0.3 | -1.2 | -0.6 | -0.2 | -0.3 | |||||||||
| Deferred taxes | 1.2 | 1.2 | -0.4 | -0.5 | 1.3 | 0.7 | -0.4 | -0.5 | |||||||||
| Net profit for the period | 4.6 | 4.9 | 4.4 | 5.7 | 8.1 | 4.4 | 4.4 | 5.7 | |||||||||
| Attributable to: | |||||||||||||||||
| Equity holders of Sartorius Stedim Biotech | 4.6 | 4.9 | 4.4 | 5.7 | 8.1 | ||||||||||||