SCHOTT Pharma AG & Co. KGaA (1SXP) Earnings Call Transcript & Summary

Hello, and a warm welcome to the SCHOTT Pharma earnings call. [Operator Instructions] The floor will be open for your questions following the presentation. Let me now hand over to Tobias Erfurth.

Thank you very much, Beatrice, and hello, everyone. Thank you for joining SCHOTT Pharma's earnings call for the second quarter of the fiscal year 2025. I'm Tobias Erfurth, Head of Investor Relations, and it's my pleasure to host today's call. I'm joined by our CEO, Andreas Reisse; and our CFO, Dr. Almuth Steinkuhler. Andreas will start the call by providing an overview of our business and strategic developments, followed by Almuth who will take us through the financial performance for the quarter in detail. Andreas will then conclude with our outlook before we open the floor for your questions. Before we begin, I would like to draw your attention to our disclaimer, which we encourage you to read. Additionally, please note that when we talk about the fiscal year 2025, we are referring to the period from 1st of October 2024 to 30th of September 2025. The second quarter relates to the period from January 1 to March 31, 2025. With this, I would now like to hand over to our CEO, Andreas Reisse. Andreas, please go ahead.

Thanks, Tobias. Good morning, everyone, and thank you for joining today's call. I'm pleased to share with you SCHOTT Pharma's strong results for the second quarter of the fiscal year 2025. So following a softer start to the year, we are very pleased to report that Q2 2025 exceeded expectations. Revenues increased to EUR 252 million or 10% at constant currencies. And this development was driven by strong demand for our high-value solutions, HVS, in both segments, drug containment solutions and drug delivery systems. This increase also reflected in our EBITDA margin, which improved to 28.2% at constant currencies, supported by a favorable product mix, as well as the continued execution of our efficiency measures. HVS sales represented 56% of our total revenues in the second quarter, and overall, this performance reinforces our confidence in achieving our fiscal year targets. Our strategic focus on innovation, expansion and partnership continues to pay off and enables us to shift our offerings towards HVS. These high-value solutions address specific customer needs and delivers superior profitability. Examples are reduced vials and cartridges, coated vials and syringes. Our customers are highly satisfied with our innovative solutions, which empower them to succeed in the market. They not only trust SCHOTT Pharma as a reliable supplier, but also depend on our solutions to effectively launch their products. And despite market volatility, the demand for our HVS remains strong, significantly outperforming standard business performance and affirming the effectiveness of our strategy. All in all, we are well on track to achieve our midterm target of generating over 60% of our revenues through HVS, underscoring our ability to capture value in a growing market and develop products and solutions that meet our customer needs. Innovation remains a cornerstone of our strategy and will fuel our product pipeline and future growth. So let me share some highlights from the second quarter. Our SCHOTT TOPPAC freeze polymer syringe is the first syringe on the market capable to protecting sensitive biologics such as cell and gene therapies at ultra-low temperatures down to minus 180 degrees Celsius. Given the complexity and specialization of these medications, they require stringent storage and transportation conditions. Traditionally, cryo bags have been used for such purposes. However, our optimized SCHOTT TOPPAC freeze refillable polymer syringes now offer an advanced alternative for pharma companies. We also expanded our sterile cartridge portfolio to 1.5 milliliter ready-to-use cartridge to small sterile format in our lineup. It streamlines pharmaceutical filling processes for a wide range of drugs used to safely store medications like insulin, GLP-1 or hormone therapies. It also supports the pharma trend of home care applications. Of course, both solutions are patented. So in September 2024, we founded the alliance for ready-to-use or RTU, together with our industry partners. With this initiative, we promote ready-to-use solutions to enhance manufacturing efficiency and ensure patient safety. We are delighted that the network is already growing and that new partners are joining us. Combined with our broad product portfolio, it is this partnership approach that puts us in the best position to participate in major industry trends and grow our HVS revenue share. So to meet the increasing demand for our broad product portfolio, we continue to expand our global production capabilities. In April, we started production of glass ampoules and Jagodina, Serbia and are ramping up production, which will contribute to revenue growth in the second half of financial year '25. This new facility is designed to become the largest ampoule production hub in Europe, strengthening competitiveness and local supply chains as a best cost location. At the same time, it enables us to shift state-of-the-art production of our core products and fully focus on higher margin, HVS production in Hungary. With that, I will now hand over to Almuth for a closer look at our financial performance.

Thank you, Andreas, and a good morning to everyone on the call. I'm pleased to walk you through our financial results for the second quarter and first half of SCHOTT Pharma's fiscal year 2025. As Andreas already mentioned, the second quarter of our fiscal year 2025 exceeded our expectations in many respects. Revenues in Q2 2025 increased by 8% year-on-year to EUR 252 million or 10% at constant currencies. Our EBITDA rose significantly by 63% year-on-year to EUR 72 million with a margin of 28.6%. At constant currencies, EBITDA margin amounted to 28.2%. I will dive deeper into the main drivers behind this growth in a moment. Earnings per share jumped 54% to EUR 0.26. Our capital expenditures totaled EUR 30 million in the second quarter, which is in line with last year. Please keep in mind that our CapEx spending is more concentrated in the second half of the fiscal year. I would now like to provide you with more details on our revenue and EBITDA development of the 2 segments on Slide 10. As always, you can see the drug containment solutions, DCS, in the dark blue bar and drug delivery systems, DDS, in the light blue bar. Both segments contributed to our strong performance in the second quarter that exceeded our expectations for top-line growth. On a reported basis, you can see that our group revenues in Q2 increased by 8% to EUR 252 million. At constant currencies, we have seen revenue growth of 10%. This development is very positive and provides a good foundation to achieving our targets for the fiscal year 2025. The overall revenue growth was driven by strong demand for HVS products, especially, but not only in the DCS segment. Revenues in the DCS segment amounted to EUR 143 million, translating to a 7% increase and the highest quarterly revenues since Q2 2023. Most important driver for DCS growth are ADCs, GLP-1 and manufacturing transformation of our customers. The strong performance of the DDS segment was mainly enabled by the high demand for glass syringes that offset the temporary lower demand for polymer syringes. SCHOTT Pharma reports revenue of EUR 109 million in the DDS segment for Q2 which represents an increase of 9% year-on-year. The DDS segment continued to benefit from long term market trends. For the first half of fiscal year 2025, this led to an overall revenue growth for SCHOTT Pharma on a reported basis of 3% to EUR 482 million. At constant currencies, this translates to a growth of 7%. Looking at the segment split reported EUR 272 million of revenues in the DCS segment, which represents a 3% increase year-on-year on a reported basis, or even 10% at constant currencies. In the DDS segments, revenues amounted to EUR 211 million, also 3% increase year-on-year on a reported basis, and 2% at constant currencies. As expected, the adverse FX effect is decreasing since Q1 2025. Now let's take a closer look at our bottom-line performance. Our overall EBITDA amounted to EUR 72 million, which resulted in a significant increase of 63% reported and 64% at constant currencies, respectively. The EBITDA margin increased to 28.6% in Q2 2025. At constant currencies, the EBITDA margin was 28.2%. The positive impact of efficiency measures and HVS growth overcompensated the current ramp-up cost in Hungary and Serbia. The profitability in the DCS segment was positively influenced by the increasing share of HVS, such as sterile vials and cartridges, as well as coated specialty wires. This resulted in an EBITDA for the segment of EUR 33 million compared to EUR 28 million in the second quarter of the previous year. The DDS segment contributed EUR 38 million to the EBITDA, compared to EUR 39 million in the quarter of the previous year. We have been able to maintain a high EBITDA in the DDS segment, including a product mix shift from polymer to glass syringes and the ongoing expansion efforts in Hungary. For the first half of the fiscal year 2025, EBITDA amounted to EUR 130 million, an increase of 11% year-on-year on a reported basis and 16% at constant currencies. This resulted in an EBITDA margin of 26.9%. at constant currencies, the EBITDA margin in the first half of 2025 amounted to 27.3%. DCS contributed EUR 62 million to EBITDA in the first half of the fiscal year, compared to EUR 55 million a year before. DDS EBITDA amounted to EUR 72 million compared to EUR 78 million in the first half of 2024. On the next slide, I would like to give you some details on our cash flow and investments. In the second quarter of 2025, our operating cash flow increased from EUR 25 million in Q2 2024 to EUR 48 million in Q2 2025. Free cash flow improved from minus EUR 3 million to EUR 19 million respectively. Capital expenditures in the second quarter totaled EUR 29 million, same as last year and we're primarily allocated to our expansion projects in Serbia and Hungary. We continue to fully self-fund the strategic expansion of our production capacity. Now, let's take a look at the near future and our targets. We continue to prioritize profitability and sustainable growth for our business. The second quarter exceeded our expectations and provides a good foundation for achieving our targets for the fiscal year 2025. Therefore, we confirm our given full year targets. We continue to expect organic revenue growth in the high single digits, as well as an EBITDA margin of approximately the prior year's level of 26.9%. Beyond our guidance, I would like to comment on other financial figures for the fiscal year 2025. We are optimistic about maintaining our already strong HVS revenue share at approximately 55%. Considering the ongoing market volatilities, we reduced our CapEx slightly by EUR 20 million for this year. Let me also make some housekeeping comments. The appreciation is likely to increase compared to the last year to a range of 7% to 8% of revenues. Finally, we continue to expect a tax rate of around 20%. Looking ahead to Q3 2025, we expect revenue growth in the mid-single digit percentage range compared with the second quarter of this fiscal year. The EBITDA margin at constant currencies should remain at a comparable level. This was a brief overview of our financials for the second quarter and first half of fiscal year 2025. I will now hand back to Tobias before we start with the Q&A session.

Many thanks, Andreas, many thanks, Almuth. I'm happy to open the Q&A session for today. Beatrice, our operator will help you with the registration for the Q&A. Thank you.

[Operator Instructions].

The first question comes from Giang Nguyen from Citi.

I have 2 please, but I'm just going to ask one at a time. So the first question is about Americas growth, which was more than 80% in a quarter. Was wondering if there was any pullback or sort of pull forward orders that you observed in this quarter related to the tariff dynamics in the U.S. I know there's a fair amount of lumpiness, but was there more orders coming in as we got closer to Liberation Day versus when we started the quarter?

Thanks for your question. So we can confirm that we have not seen any significant pull forward effects which would have driven the North American growth. We see growth in this area overall because we expand with our HVS business. I mean, we are adding capacity for HVS, and part of this HVS business is going as well to the U.S., and this is the case broadly across our product portfolio, whether it would be glass syringes, specialty wires or sterile cartridges, and these are driving the growth, which you have seen in the current quarter in North America.

And so just as a follow-up, is there any color that you could provide around the phasing of either orders or revenues through the last 2 quarters of the year, and on the back of very strong Americas. And also, what are you seeing is driving the decline in the other regions, and when should we expect these regions to normalize?

So what I would say, it is important to keep in mind to differentiate whether you look at KPIs where we sell the revenue to, so basically, say, put it in a way, to say destination or where we produce it. So we see currently a strong increase in HVS, and that's absolutely in line with our strategy. We focus on these areas, and we want to build their, let's say, further growth. And part of this HVS growth is going to the U.S., and therefore you see growth in North America, and this has no implication that we are not continuing our business and our performance as well in the other regions. So we are very happy with our performance over there, and we will continue to focus on HVS business.

And if I could just sneak in one last part and I will leave it here, if I may. If that's the case, why are you not looking to raise the guidance for the full years if the trend is looking to be very favorable versus initially expected?

We are confident to achieve our full year's guidance. And as initially said, our confidence is based on our new capacities, which we build up for glass syringes in Hungary, of our sterile cartridges in Switzerland, and which are already contracted by our customers, and this will drive our performance in the second half of the fiscal year 2025. Nevertheless, we want to be prepared. They are currently, let's say, it's a volatile market, we see as well therefore some uncertainties and therefore we want to stay with our fiscal year guidance.

Next question comes from Marianne Bulot of Bank of America.

I have 2 as well. So the first one is you initially guided for a little bit of a back end loaded year because of the capacity ramping up in Hungary and Switzerland. So just wondering if you could confirm that that is still the case, and how should we think a little bit about the phasing of growth from these 2 expansion into the next couple of quarters. And my second question is really on the tariff impact. I appreciate that you said should be relatively limited, but could you help us understand any quantitative details on the tariff impact would be useful.

Yes, we confirm that the financial year was back end loaded, just due to the fact that we are building up capacities, as Almuth already said in the previous question, as of mainly glass syringes on the one hand side and sterile cartridges on the other. So because these are the 2 main drivers, so still back end loaded. And about tariffs, also relatively simple. For this year we don't expect any significant impact on our financial results as it looks like really very much limited.

But maybe just on the first one, could you help us understand a little bit on the phasing? How does the capacity expansion will contribute to growth in Q3 versus Q4?

It's difficult to say because on the one hand side as ramp-up is running according to plan, which is good as all the technical part is okay, yes, and good. Quality is okay. Audits have been performed very well. So that is all good. It depends a little bit on the customers and their qualification programs. Therefore, it's really a little bit difficult to say, Q3, is this and Q4 is that. That is not possible, yes? Overall, we stay to it. And then, of course, we have, in addition, the summer shutdown, which always has an impact on our business, especially in Europe and the factories are closed for limited time, but summer shutdown that has an impact, yes.

Next question comes from Ed Hall from Stifel.

Just 2 questions from my side. The first question is just on the CapEx and just a bit of details on where about the EUR 20 million or EUR 30 million is cutting? In what region and what product lines should we think of? And then a second question, just on the components of the margin decline in DDS. I appreciate you flagged the components, but if you could flag any proportions of the decline in terms of the phasing versus sort of CapEx coming online, that would be really helpful.

Thanks for your questions, Ed. So let me start with the CapEx question. So given that we see currently a lot of uncertainties in the world, what have we done? We have not initiated significant new investments. So therefore, we are a bit more cautious to get more certainty how things will develop before we kick something off. In terms of your second question, the margin decline in DDS, please accept that we will not share individual margins of glass syringe or polymer syringes, let's say, in detail. But what we can confirm that we see ongoing ramp-up costs, which we have experienced in the first half year of this fiscal year, which is a significant driver why the margins overall are lower. But nevertheless, there's a slight difference as well between the margins of glass syringe and polymer syringes. That is true.

Perfect. That's really clear. Maybe just to follow-up on the CapEx question. So you mentioned there's no new initiation of investments. But is there a region or particular product line we should think of that has changed in your view in this just because obviously, EUR 20 million is an impact we should think of going down the line?

Basically, you can say that we really keep our CapEx programs for Europe at the moment. We do it also for India and the other regions where we look a little bit more carefully into it is U.S., yes, but that everybody knows that volatilities went up. So here, we are a bit more cautious with our projects. But anyhow, we increased just recently the capacity for sterile vials in Lebanon, Pennsylvania, for example. And we have also the ongoing project for our storage expansion in Wilson, North Carolina. But we are a bit more careful because of the discussions which are taking place at the moment. But overall, no change. Yes? We are -- as you know, we have a strategy which is really focusing on the HVS part and on the main trends in pharma, they remain -- many of them are remain very stable as like ADCs, for example, subcutaneous. So there's more to come. Nothing is changing in that aspect.

Perfect. That's very clear. Congrats on the print.

Next question comes from Falko Friedrichs from Deutsche Bank.

My first question is on tariffs. Good to hear that there shouldn't be an impact this year. Would that assumption change if there were to be tariffs on pharmaceuticals at some point soon? How would that change your outlook on the potential impact of these tariffs? And then secondly, could you speak a little bit more broader about what you're seeing in terms of underlying demand for your polymer syringes? We've seen rather weaker updates from the mRNA companies recently. So how does that factor into your thinking of the outlook of this business? And how big is the demand for cell and gene therapies at this point when it comes to these polymer syringes?

Falko, with the first question with the tariffs, I would say if -- there are already changes on pharmaceuticals. For example, what we see is some shift, for example, from China to India, where we are very well-positioned, yes? But generally, you can say, yes, pharmaceuticals are moving slower than we are moving, so we can always follow. That is what I would say is a general assumption is that they are really reallocating more capacities in the U.S. and slowing down Europe, for example, then we are definitely able to follow that. Yes, it's not a big problem for us because it takes them longer to do the full qualification, everything to the first question. And anyhow, we explained it in the question before that we are doing our investments as planned. Little bit more cautious, yes, but in general I would say we follow it. Then the second one with the polymer, that is, of course, the M&A business has an impact on it. It's fully reflected in our guidance. It's the first message, I would say, which is important. Second one is, of course, we are developing new business as well, value streams for our business. That is something we also said it will take us a little bit of time because we have slowed down business development activities in the past because of M&A. And first results, you can see as of cell and gene therapy completely new now on the market and other innovations and value streams will follow, but too early to say to what extent or how fast that is developing. That is really too early. It's a new offering of us to pharmaceutical companies. And -- but a bit more concrete in the recent -- as in the present, in the recent financial year, we have already developed a significant amount of new polymer sales with other applications without disclosing details here, but significant. And that is, of course, what we have to do that we fill our capacities.

Maybe a quick clarification question for Almuth. I just want to make sure I didn't misunderstand it. Did you point to mid-single-digit growth in the third quarter now in your prepared remarks? Or did I misunderstand that?

So I said that the third quarter would be higher than our second quarter, which we just completed by this amount, absolutely true. So continued growth in this fiscal year, so Q3 being higher than Q2.

Okay. So Q3 is the second quarter growth plus a mid-single-digit amount. Is that what you're saying?

Yes.

Next question comes from Hugo Solvet.

I have 2 follow-ups, please, on tariff. First, can you maybe expand a bit on what limited impact means? Are we talking about net gross impact? And have you initiated some mitigation measures here? And second, on the CapEx phasing, if macro stabilizes, should we expect a catch up in the CapEx spend into FY 2026?

Thank you for your questions, Hugo. So in terms of tariffs, it means that we have a small single-digit million impact, what we assume would be the impact for tariffs for us. And on your question on CapEx, we do not expect, let's say, a catch up to compensate for what we have produced this year and the next year. We will continue on our projects and then everything is following, let's say, the normal path and things just started a bit later for some new projects.

And just one quick follow-up. You gave useful color on the DDS segment, glass versus polymer for Q2, can you maybe talk to how you envision the mix in DDS developing into H2 and into 2026?

In general, we wouldn't share any details on polymer glass syringe development, but specifically on a quarterly basis what still remains true is that we stand with the growth or, let's say, the expansion of production capacity in glass syringes in Hungary, the share of glass syringes becomes more and more important in this segment because we're adding their capacity, and this is true as well for the next quarters to come.

Well, I do not see any more names on the question list. So I guess this brings us to the end of today's conference call. It was a quick call, but this will also be due to the fact that we had already reported preliminary figures. So thank you very much for your interest, your questions and your time today. We look forward to meeting you all in the upcoming conferences in May or June or at the latest on October -- sorry, August 12 for our Q3 results. Thank you very much. Have a good day and goodbye.