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Annual Report
2018

The Siegfried Group reported a good result for the 2018 financial year, the best in its corporate history. Sales amounted to 794.3 million Swiss francs and grew by 5.8 percent.

Dear Shareholders

Siegfried Group reported a good result for the 2018 financial year, the best in its corporate history. Sales amounted to 794.3 million Swiss francs, corresponding to a growth of 5.8 percent. Earnings before interest, taxes, depreciation and amortization (EBITDA) grew by 14.5% to 127.4 million Swiss francs, corresponding to an EBITDA margin of 16.0 percent (2017: 14.8 percent). Earnings, therefore, again grew faster than sales. Siegfried achieved a significantly higher net profit of 57.5 million Swiss francs (2017: CHF 40.8 million), an increase of 40.9%.

Based on the good annual results, the Board of Directors recommends to the Annual General Meeting a distribution to shareholders of 2.60 Swiss francs per share, structured as a distribution from capital contribution reserves (previous year: CHF 2.40).

For 2018, Siegfried reports an operating cash flow after change in net working capital of 106 million Swiss francs (2017: CHF 84.6 million), corresponding to an increase of 25.2%. Investments in tangible and intangible fixed assets amounted to 60.1 million Swiss francs (2017: CHF 52.8 million).

Drug substances and corresponding intermediates represent about three quarters of Siegfried’s sales, and drug products about one quarter. The growth of approximately six percent (4.5% adjusted for currencies) is robust. Siegfried showed a slight growth in drug substances and a strong growth in sterile filling of liquids (vials, ampoules, cartridges and others) and solid dosage forms (tables and capsules).

For the first time, sales include products manufactured at the Nantong site. Business with drug products grew by nearly one fifth, while both sterile filling as well as tablets and capsules improved.

 

Stabilizing its leading position

Today, the Siegfried Group is one of the world’s top six suppliers to the pharma­ceutical industry, also known as CDMOs (Custom Development and Manufacturing Organizations). At nine sites across three continents, the company produces a multitude of different active pharmaceutical ingredients and finished dosage forms. Siegfried developed into an important supplier to the pharmaceutical market and is capable of producing about 200 of a total of 1500 drug substances approved by the FDA, the US regulation authority. Siegfried therefore expects to support the medical treatment of about 40 million patients annually.

Siegfried aims to stabilize this leading position in the current year and create the preconditions for continued growth. While existing strategic partnerships with several large pharmaceutical companies represent the basis for this growth, new strategic customer relationships will be developed.

As an answer to the increasing demands from our customers and to take the best possible advantage of the opportunities provided by a growing market, the Siegfried Group continues to strengthen its technological capabilities and further integrates its prouction activities across the entire network of manufacturing sites. Therefore, in the year under review, Siegfried invested in research & development and in additional production capacities. In Zofingen, some 40 new laboratory workplaces were completed in November 2018 and are now gradually being occupied according to market needs. It takes ­account of the entire group’s growing demand for research & development capacity. The Hameln site is currently developing additional capacity and capabilities that will be used for the aseptic filling of biological drug substances. Corresponding customer contracts have been signed. In St Vulbas, near Lyon, Siegfried invested in the adjustment and expansion of production facilities to process a large customer order. The product was formerly produced at our US production site in Pennsville only. In addition, Siegfried invested in optimizing internal processes. In early 2018, the company took into operation a new packaging and warehouse building in Irvine. In October 2018, a new logistics warehouse was inaugurated in Zofingen which will simplify processes at the site. In the course of the fourth quarter, the Hameln site was successfully integrated into Siegfried’s worldwide SAP network.

For the current year, in order to meet the requirements of the intended growth, Siegfried is planning to make additional investments in its technological capability, optimization of business processes and additional production capacity.

 

Consolidation to proceed

Consolidation in the CDMO market will continue to proceed considering that today the ten leading CDMO companies have a market share of below 20 percent and size in this industry represents a competitive ­advantage. Consequently, for Siegfried, reaching and continuing to expand critical size remains a core element of its corporate strategy to assert and further expand its position at the forefront of the segment. It is Siegfried’s ambition to grow constantly in line with the market and, in addition, to strengthen the company by means of acquisitions and thus provide for inorganic growth on top. As defined in its current “Evolve” strategy, Siegfried aims to make acquisitions in the field of both, drug substances and drug products. It remains a ­primary goal to offer both services – chemical and pharmaceutical development and large-scale technical production – as an integrated offering from a single source and thereby simplifying our customers’ supply chains and making them more efficient. As in the past, we shall proceed in a disciplined manner and ensure that potential acquisition targets represent a good fit with Siegfried concerning culture, business activity, technology and price of acquisition and contribute to our corporate value. In the year under review, Siegfried’s sites were again repeatedly visited and audited by the FDA, the US American regulatory ­authority. The results were extremely gratifying. The Siegfried network gave no cause for concern and meets the demands of the various regulatory authorities.

 

Generation change in operational management

Operating activity of Siegfried’s longstanding Chief Executive Officer, Dr. Rudolf Hanko, came to an end on 31 December 2018. During his tenure, he initiated profound change to the company, enlarged the organization and took it to the top of the industry. In this period, the value of the company multiplied. In the name of all shareholders and the entire workforce, the Board of Directors and Executive Management wish to express their gratitude to Rudolf Hanko for his successful activity and untiring commitment to the company. At the 2019 Shareholders’ Meeting, the Board of Directors will propose the election of Dr. Rudolf Hanko to the Board.

With effect from 1 January 2019, Dr. Wolfgang Wienand took on responsibility for his new task as Chief Executive Officer. He joined Siegfried Group’s Executive Committee in 2010, and during this period he was in charge as Chief Scientific and Strategy Officer of Siegfried’s global research and strategy development and implementation. In the first months of the current year, he visited each of Siegfried’s nine sites and presented his agenda to employees and management. In addition to the Siegfried Group’s strategic ambitions directed at the outside in accordance with the “Evolve” strategy, Wolfgang Wienand will pay attention to optimizing our internal business and management processes and adjust them to demands made by the rapid growth experienced in recent years and to the connected complexity. Of no less importance to him will be the network approach, in other words, the growing together of all our sites which, in total, have to obtain the best and most competitive offer for our customers. He attaches particular value to Siegfried acting as a global team across all of its sites and continuing to strengthen competitiveness through scientific and technological excellence and efficiency in all of technical and business procedures.

 

Sustainability as a central corporate value

As a partner of the international pharmaceutical industry, Siegfried places great emphasis on sustainability in all respects. Consequently, sustainability represents one of our central corporate values. Again, in its reporting, the Siegfried Group fully meets the standards of the Global Reporting Initiative (GRI). This involves not only the reputation of the company but also summarizing the wide range of measures and making them available internally and externally. A materiality analysis was implemented in a work group which defined the nine most significant topics. These include product safety, environmental protection, fair working conditions including health and occupational safety, corruption and anticompetitive conduct, political representation of interests, and integration of the local population at the various sites. Both, the Executive Committee (ExeCom) and the Board of Directors regularly deal with topics concerning sustainability, especially the careful use of natural resources and corporate social responsibility. The sustainability report, which is also available online, shows that Siegfried enjoys high awareness for such issues and far-­advanced instruments to implement them.

 

Out thanks to the employees

In the year under review, the Siegfried Group’s employees were again highly challenged and confronted with many changes. This was and is the only way to achieve continuing organic growth. Credit for this growth must be given to our dedicated and loyal workforce. We would like to take this opportunity to thank executive management and all employees for the great effort accomplished at all sites.

 

Outlook

For the current financial year, at constant currencies, the Siegfried Group expects to grow sales at least in the mid single-digit range and to continue to improve the operating earnings margin (EBITDA).

In closing, we would like to express our gratefulness to you, dear shareholders, for your support and loyalty to Siegfried. We will do everything in our power to ensure that the company remains on its successful course in the year under review and beyond and report continued growth.

Highlights of the reporting year

Key figures

Net sales
794.3
million Swiss francs
Change over previous year:
+5.8%
Change 
EBITDA
127.4
million Swiss francs
Change over previous year:
+14.5%.
Change 
EBIT
77.8
million Swiss francs
Change over previous year:
+25.7%
Change