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Annual Report

In 2018, Siegfried again performed very well. In its first two years, the “Evolve” strategy more than successfully passed its baptism by fire. These are outstanding requirements to achieve our ambitioned goal, namely to grow faster than the market and assert ourselves as the leading CDMO (Custom Development and Manufacturing Organization) worldwide.


Dr. Wolfgang Wienand, Chief Executive Officer

Siegfried operates in a market that is very fragmented. The ten largest companies cover less than 20 percent of the market. Is that a blessing or a curse for Siegfried?

It is true that the CDMO (Custom Development and Manufacturing Organization) market remains strongly fragmented although numerous acquisitions and mergers have been carried out in the past ten years. This situation holds several challenges for Siegfried. We have to be top class in our daily business while, at the same time, we aim to keep pace with the ongoing consolidation process in the market. A company actively participating in a consolidation process must be fit. We are fit.

How would you characterize this fitness?

We can fall back on our own experience. Any company wishing to acquire and integrate has to be well positioned in its daily business and be in a position to free up resources. In this regard, we succeeded extremely well with the integration of the BASF production sites completed more than a year ago. Moreover, a company aiming to grow by means of acquisition has to be financially robust in order to avoid embarking on any adventures in relation to the financing. In this regard, Siegfried is also fit.

Do changes on the customer side, in other words, the international pharma­ceutical companies, influence developments in the CDMO industry?

Certainly. Although the pharmaceutical ­industry has completed its consolidation process, we continue to see very expensive acquisitions. Therapies and drugs are becoming increasingly complex. In this situation, pharmaceutical companies increasingly focus on research, clinical development and marketing. Their own production activity is losing significance and is no longer regarded as strategic. That is where we as service providers and problem solvers come into play by taking over these tasks for the pharmaceutical companies.

Pharmaceutical companies pass on to us margin they could have retained had they continued their own production activity. Why then the trend toward outsourcing?

It is extremely important that our customers obtain their product on time and in the ­desired quality. That, however, is only a part of the strategic cooperation. We lower complexity for our customers’ supply chain because they can leave all aspects concerning production to us, namely procurement, development, synthesis/formulation, compliance and logistics. We help them avoid costly investments and lower their financial exposure and risk. This awareness is catching on increasingly. Today, outsourcing is no longer an option in the event of an emergency, but a generally accepted and recognized business model.1

The “Evolve” strategy, however, embraces aspects not directly connected to these requirements.

That may be the case at first glance. Ultimately, as a part of a strategic partnership, it is our aim to satisfy as many of our customers’ needs as possible. A broad offer from a single source simplifies outsourcing for our customers and, therefore, saves resources. That is why we aim to broaden our technological base, and that is why we aim to grow. In addition to sufficient equipment availability, broad-based cooperation with large strategic customers requires a strong and well-established organization in order to be reliable and remain flexible. We aim to be a strategic supplier and partner of our pharmaceutical customers that meets’ high demands concerning technology, quality, development and logistics. This is the reason why we will expand our technologyportfolio.

We’ve talked a lot about hardware. In the first three months of your new function you visited all of the sites. How fit are Siegfried’s employees?

As a former high-performance athlete, I would like to answer that as follows: Siegfried and Siegfried employees play in the first league. Nevertheless, there is room for improvement, processes that have not yet been fully established and market opportunities not fully seized. We have to work hard to reach the top of the first league, and then we have to work hard to remain there. This is a process that never finishes. By setting your sights high, you will identify a lot that calls for improvement and requires a high need for training. Always.

What are Siegfried’s goals for the 2019 financial year?

Strategically, we will continue on the tried and tested “Evolve” path and take the next growth steps as soon as possible without exposing the company to any adventures. Internally, we are working on our competitiveness and customer orientation. We have developed concrete plans of action for each of our sites in order to optimize our network as a whole. I am convinced that at the end of this year the Siegfried Group will again have made considerable progress on its path to the top.

Do you have any personal goals?

For this year, I have set two personal goals for myself, apart from the goals for the company we talked about earlier: first, promoting team spirit and demonstrating it by example. We want to become the strongest team in our industry. And second, to make direct contact with as many employees as possible so they can get to know me and I understand their needs and concerns. I have already made very good progress concerning both goals, which I am very glad about.

We recognize a growing readiness among pharmaceutical companies to outsource services for the development and production of drug substances and finished dosage form drugs. How is this reflected in the field of Business Development?

On the one hand, we recognize a growing interest among our larger pharmaceutical customers to outsource their activities and reduce the number of suppliers by means of strategic partnerships. Consequently, a customer expects a Custom Development and Manufacturing Organization (CDMO), such as Siegfried, to provide a broad portfolio of technical capabilities at various sites and to reflect high quality awareness. With its overarching quality system, Siegfried is capable of covering the entire value chain from intermediates through to finished dosage forms.

On the other hand, we recognize a growing trend in smaller to medium-sized companies – often referred to as “emerging pharma” – looking for a supplier with production expertise. By means of business excellence programs we have not only developed life cycle management for products at the end of their patent expiry cycle, but also an interesting platform for companies producing generic products. We therefore cover a broad customer portfolio. In this trend we recognize large potential for Siegfried. As we operate in a regulated environment, the trend often cannot be implemented at the desired speed.

Increasingly, Business Development and Account Management serve a demanding clientele. Only companies that are well positioned as a team will be able to take full advantage of opportunities.

Siegfried’s integrated offer is a ­frequent topic of discussion. Is it being accepted by customers, and do they understand it?

The integrated model offers advantages at various levels, especially with regard to the growing trend toward outsourcing. By means of its integrated offer, Siegfried provides an attractive platform for strategic partnerships.

In the case of smaller to medium-sized customers, we are capable of providing the entire supply chain while they can focus on their research and marketing capabilities.

Thanks to the integrated offer, large customers entrust us with both drug substances and finished dosage forms which, in turn, creates a strategic CDMO partnership. Customer can take full advantage of our broad-based capabilities.

What are the central elements of your customer dialogue?

It is always important to know the needs of customers and to address them. We follow a dual approach in that we initiate new business and also consider individual support of existing customers to be key to success. We work in teams in order to effectively contribute our capabilities. We are our customers’ permanent contact and secure communication at various levels. Technical and business oriented teams on both sides work hand in hand and are often referred to as twins. We use balanced score cards and regularly exchange agreed upon indicators, define measures and monitor implementation. We are used to working in matrix organizations, in other words, overarching departments and product segments. A defined communications strategy and interdisciplinary cooperation are a must in order to successfully manage a strategic partnership. The bar is set high, and we shall do everything in our power to meet these expectations in accordance with our motto, “expect more”.

The Siegfried Group emphasizes its attractive network and invests huge sums in cross-site cooperation and synergies. How do you evaluate the progress made in the year under review?

We pressed ahead with process and technology transfer among the individual sites. As a result, we can support our customers in their need for dual sourcing by means of our network while offering them flexible development and production capacity. This gives them an assurance in case their products establish themselves in the market above expectations. Cooperation grows steadily by means of targeted investments at our various sites. Our site in Nantong is developing into an increasingly significant partner. Moreover, we continuously strengthened the development hubs in Zofingen and Evionnaz. In the field of sterile filling, our next step is filling of biologically produced drug substances.

Which will be the next milestones in Siegfried‘s operational excellence, and how do you measure its success?

As a strategic partner of the worldwide pharmaceutical industry, it is essential that we are among the best in terms of operational excellence. Therefore, for me personally, this issue is an essential cornerstone of success in my organizational unit. Based on our network, we are in a position to exploit competitive advantages. We ­deliberately develop the capabilities of the individual sites differently, in order to fulfil customer needs and reach the best result for the entire network. We implement our operational excellence programs in this sense.

What does being a learning organization imply for Siegfried?

A learning organization must be capable and willing to learn in order to regularly ­adjust knowledge base and scope for action to new challenges. It must be able to recognize change fast and rapidly convey and ­implement the corresponding new requirements to our organization. Ideally, a learning organization is a system which is always in motion. New impulses are considered stimulation and used for development processes. This requires individuals who are open to new developments, are hungry and allow and support innovative solutions. Mechanisms that support such learning ­processes enjoy cooperation and conflict solving abilities, trust and team spirit. We work on this every day, with good results.

How can corporate culture be lived day-to-day in a company that is in constant transformation?

Constant transformation and change have been characteristic drivers in Siegfried’s history and are a part of our culture. In recent years, very structured and rigorously conducted integration and harmonization ­processes have dominated and pushed this element of culture somewhat into the background. However, feedback received from employees at all levels tells us that it is alive and very strongly embedded. They would like to be more actively involved, heard more clearly, and allowed to present their thoughts on matters. Following the intensive phase of acquisitions and integration we will pay more attention to this aspect.

How will internal stakeholder dialogue be shaped in the future?

I am convinced that classical hierarchical ­relationships and organizational structures will continue to lose relevance. Instead, we will increasingly work in mixed, cross-functional teams that find and implement jointly developed solutions at eye level. Cooperation and co-creation as well as the capacity to listen and engage in solution-oriented dialogue will become core competencies. They will characterize personal internal exchange and relationships with customers.

From an HR point of view, what was the biggest highlight in 2018?

The entire year was very intensive and provided a great number of exciting challenges. We analyzed in depth the results of our employee survey and drew conclusions for the future. I was particularly impressed by the large number of personal comments made. They contained much that is positive and included valuable suggestions for continued improvement. This kind of energy and readiness to address critical aspects turned out to be a real highlight for me.

Where in the near future do you intend to invest the means generated from the strong cash flow?

Siegfried pursues a growth strategy. The strong operating cash flow is used mainly to finance this growth. Cash and cash equivalents can moreover be used to reduce loans and borrowings or redeem hybrid bonds. This in turn increases our debt capacity to finance our growth.

In the coming years, where do you recognize the main market risks and how do you prepare to meet them?

We recognize market risks in two areas: On the one hand, as an internationally operating company we are exposed to currency risks which we meet by striving to balance earnings and expenses in the various currencies (natural hedging). On the other hand, we purchase raw material required for drug substance production in the market at prices exposed to market influences. In this regard we benefit from a central strategic procurement function established ­several years ago. This helps us today to manage and minimize these risks.

What is the ideal balance-sheet ­structure for Siegfried, and what is the situation today?

Across time, the strong operating cash flow will further improve the very stable financing structure in place today. Our emphasis is on conservative financing. In case of an acquisition this gives us the necessary flexibility.

What may shareholders expect from dividend policy in the future?

Siegfried’s shareholders may expect constant, slightly growing dividend payments.