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On May 8, 2024, STERIS (Chinese name: Sterry), the world's largest supplier of infection control and surgical medical equipment, announced that it will start a targeted restructuring.
Founded in 1985 in Ohio, USA, Steery is a company listed on the New York Stock Exchange. The unveiled restructuring plan includes the restructuring of the Medical-Surgical business in Europe, the impairment of the in-house developed X-ray accelerator, as well as the rationalization of products and the consolidation of facilities.
After the announcement of the above plan, Stery's stock price continued to rise, and as of May 10, it had closed at $231.33 per share, with a market capitalization of $22.859 billion.
In the short term, Stery has made a number of divestitures. In the last month alone, Stery announced the sale of its dental division to Peak Rock Capital for US$787.5 million (about 5.699 billion yuan), and announced the completion of the divestiture of its life sciences division of the Controlled Environment Certified Services business ("CE Services"), which was acquired by Integra.
In recent years, the U.S. Environmental Protection Agency (EPA) has been working to reduce emissions of ethylene oxide, a carcinogenic gas used in the sterilization of medical devices, also known as EtO or EO. It is expected that after this restructuring, Stery will focus more on its main business, focus on responding to changing market rules, and adjust its global layout.
01
Closure of the production site in France
Strengthen the layout in China and Southeast Asia
On the same day that Streard announced the restructuring, French media reported that the company's subsidiary in France, Steris SAS, announced the closure of its operating room equipment production site by March 2025.
The company came to the Gironde department 13 years ago and has been optimizing its production. In 2010, the group decided to consolidate several industrial production sites scattered on the outskirts of Orleans, in the south of England and in Switzerland, but the management team of the American group said: "Despite our efforts and investments, the production units dedicated to the operating room are still not financially mature. Strei's market share in Europe and France remains stagnant at around 5 percent. ”
The French manufacturing site has grown from more than 80 to more than 200 employees in more than a decade, and the closure is expected to eliminate 96 jobs.
Strengthen the layout in China and Southeast Asia
While reducing its European plants, Stery has expanded its plant in China and mentioned its presence in Southeast Asia.
In April 2024, Steery announced the completion of the expansion of its Suzhou plant in China, supplementing ethylene oxide (EO) processing capacity and X-ray sterilization capacity. "The expansion of the Suzhou facility further demonstrates our commitment to ensuring patient safety through technology-neutral service offerings, including current and future radiation and gas sterilization treatment options."
In addition to its Suzhou facility in China, Stery supports medical device manufacturing in Asia with electron beam, ethylene oxide, gamma and X-ray treatment sterilization services in Kuala Ketier, Kulim, Port Klang, Rawang, Malaysia, and Chonburi Province, Thailand.
Annual revenue of $5.5 billion
In conjunction with the announcement of the restructuring, Stery announced its results for the fiscal year 2024 and the fourth quarter ended March 31, 2024.
Total revenue for FY2024 increased 12% to $5.5 billion compared to $5.0 billion in FY2023. Organic revenue from continuing operations increased 10% to $5.0 billion in fiscal 2024, compared to $4.5 billion in fiscal 2023.
Total revenue for the fourth quarter of fiscal 2024 was $1.5 billion, an increase of 10% from $1.4 billion for the fourth quarter of fiscal 2023. Constant currency organic revenue from continuing operations increased 7% to $1.4 billion in the fourth quarter, compared to $1.3 billion in the fourth quarter of fiscal 2023.
Dan Carestio, President and CEO of Styrry, said: "We are pleased with our strong performance in the fiscal year as our healthcare division continues to deliver strong performance trends, primarily driven by strong performance in the United States. We made several strategic decisions in fiscal 2024 that will prepare Stery for future growth, including today's targeted restructuring announcement and the announcement of the divestiture of the dental division. As we enter fiscal 2025, I believe we are well positioned to deliver on our long-term commitment of mid-to-high-single-digit revenue growth and double-digit earnings growth.
02
A number of businesses have been divested
3.5 billion won the BD surgical platform
Recently, Styrry has completed a number of divestitures.
5.7 billion, selling centennial dentistry
In April 24, the company announced that it had reached an agreement with Peak Rock Capital to sell its dental business HuFriedyGroup (Haofudi) for 787.5 million US dollars (about 5.699 billion yuan).
Founded in 1908 and headquartered in Chicago, Hotford, the world's leading manufacturer of infection control, dental instruments and reprocessing, has offices and distribution centers in Germany, Italy, China, Singapore and Japan, and a sales footprint in more than 30 countries, with an office in Pudong New Area, Shanghai.
In 2019, FullInvest was acquired for $690 million by Cantel Medical, a leading global provider of infection control products and services in the areas of endoscopy, dentistry, hemodialysis and life sciences.
On June 2, 2021, Stery fully completed the merger and acquisition of Kaiteng, thus winning the entry of HFDI into the dental field.
In the last three months of 2023, Stierry's quarterly financial report showed that dental sales fell 5%, from $103.6 million to $97.9 million, as the main reason for the divestiture.
Divestment of environmental certification business
On April 1, 24, Integra Testing Services, one of the largest TAB (Commercial HVAC Market Certification Testing/Tuning/Balancing) companies in the United States, announced that it has acquired Styrity's Controlled Environment Certification Services business ("CE Services").
CE Services is a provider of cleanroom and controlled environment certification, service/repair, and environmental monitoring services for the life sciences industry. Terms of the transaction were not disclosed.
3.5 billion won the BD surgical platform
However, while a number of business divestitures are being divested, Stery is also increasing its business layout.
On August 2 last year, Stery announced the completion of the acquisition of the BD surgical instrument platform for US$540 million (about RMB 3.533 billion). The asset has a history of more than 120 years and includes surgical instruments, laparoscopic instruments and sterilization containers. Three well-known brands, Mueller™, Snowden-Pencer™ and Genesis™, as well as three plants in St. Louis, Missouri, Cleveland, Ohio, USA and Tuttlingen, Germany.
Commenting on the business restructuring plan, Dan Carestio, Chief Executive Officer of Styrier, said: "These actions allow us to focus on our core business and deliver on our long-term commitment to investors. We believe that with these changes, we will be building the right portfolio, sales channels and network facilities in the coming years. ”
03
The main business is facing challenges
At present, Strear's main business area is the sterilization of medical devices, which is facing a changing landscape.
Ethylene oxide is a broad-spectrum, highly efficient, penetrating sterilization method with minimal damage to disinfectants. Its vapor pressure is relatively high, and it can penetrate the micropores to reach the deep part of the item. In the United States, ethylene oxide is the most commonly used method of sterilization of medical devices, with more than 20 billion medical devices in the United States sterilized with ethylene oxide each year, accounting for about 50% of the total.
Ethylene oxide is also toxic to humans and animals, and the gas can be absorbed through the respiratory tract, easily absorbed by the skin through clothing and gloves, leading to other diseases such as cancer, which has been controversial for many years.
The U.S. Environmental Protection Agency (EPA) has cracked down on ethylene oxide exposure during sterilization and is gradually proposing stricter regulatory options. Public consultation until June 12, 2023: National Emission Standards for Hazardous Air Pollutants and Pesticide Registration Review: Proposed Interim Decision and Draft Addendum to Ethylene Oxide Risk Assessment.
In the future, vaporized hydrogen peroxide may become an alternative to ethylene oxide. The latest 510(K) submission guidance issued by the U.S. FDA shows that vaporized hydrogen peroxide has been upgraded from a Class B sterilization method to a Class A sterilization method.
These changes are in response to the latest internationally agreed standard (ISO Standard 22441:2022) and an effort to reduce ethylene oxide (EtO) emissions. Previously established Class A sterilization methods include: moist heat, dry heat, ethylene oxide (EtO), and irradiation. Ethylene oxide is the only certified chemical gas sterilizer.
These changes mean that companies will need to upgrade their engineering facilities in the short term, and the cost of retrofits, including the cost of installation, operation and maintenance of new equipment, as well as the loss of revenue associated with the downtime required for installation, may have a corresponding impact on the medical device supply chain.
It is understood that Stery provides vaporized hydrogen peroxide (VHP) sterilization services and sells VHP chambers and equipment.
Commenting on the change, Dan Carestio, CEO of Styris, said, "Steris, as a technology-neutral and location-neutral company, has an incredible advantage in how we can help our customers – whether it's selling accelerators to users for on-premise deployments, or VHP for customers' own on-premise sanitization deployments, or whether customers are using us for large-scale contracts, we've been continuing to expand as we anticipate continued long-term growth in the industry. ”
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According to public statistics, the market size of the global surgical infection control market exceeded $2.5 billion in 2014, and then grew steadily at an annual growth rate of about 4-5%, and in 2021, the market size reached about $3.234 billion, and the market size is expected to reach $3.866 billion in 2026 under the condition that the growth rate remains basically unchanged.
In recent years, especially since the new crown epidemic, the awareness of hospital infection control is bound to increase rapidly, and the attention to the infection control industry is also increasing.
On the other hand, under the comprehensive evaluation system of ESG environmental, social and corporate governance performance, the use and emission of ethylene oxide have also become the focus, which may become one of the key projects of ESG evaluation for many medical device companies in the future.