Sartorius AG

Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedham Biotech conference call on the Pre-Eliminary Results 2024 conference call and live webcast. I am Youssef, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. This call is scheduled for 60 minutes. The presentation will be followed by a Q&A session. In order to give you all participants the opportunity to ask their question, We ask that the number of questions per person be limited to two. In addition, and in the interest of all participants, questions with the same content will be only answered once. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions via writing in the relative fields. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Joachim Kreutzberg Please go ahead.

Thank you very much for opening our conference call today, and welcome, everyone. Thank you for dialing in. Thank you for your interest in Sartorius and Sartorius State and Biotech. As always, we will present our results in a way that I will start with some highlights. And then Florian will expand on the financial results in quite some detail on the Sartorius Group. And then after that, Wendy will talk about the results of Sartorius Data Biotech. So the highlights for 2024 for the Sartorius Groups are, first of all, we have fully achieved our reverse guidance that we have been giving in July of last year. We have seen that, and that is for the group and both divisions, for both top line as well as profitability. This came in on basis of a market that is gaining momentum in its recovery. we see that increasingly the underlying growth drivers are getting back to center stage, I would say, and becoming more relevant now after the dominance of more volatile temporary drivers. For bioprocess solutions in particular, we have seen that sales are pretty much on previous year's level, roughly one percentage point above, particularly because the consumer's business has been growing nicely towards the end of the year. As customers, an increasing number of customers have now reached the target inventory levels and is still about reaching the target inventory levels, whereas at the same time, equipment business is still muted. More details later. For LPS, we are slightly below previous year's level. This is particularly because in China, we still see a very soft market. but also here we have seen a nice positive momentum towards the end of last year. I think it's worth noting that our profitability, whereas it's slightly below the number for 2023, is on a very robust level, and I think it's fair to say that Saturis has been mitigating through the last five years with maybe the most robust and resilient profitability development. And, of course, one contribution to that has been our efficiency program that we have been conducting during last year, which has compensated for low-capacity utilization. Outlook for 2025, we remain being cautious in that regard. We expect the market to return back to growth, but yet below mid-term average rates. And for Sartorius, we expect profitable moderate growth, but above the market growth. So with that, I hand over to Florian. Thank you very much, Ibrahim, and also from my side, a very warm welcome to the group outside. Yeah, let's have a look at some financial key figures of that transition year 2024, starting with sales coming in at 3.4 billion euro on previous year level. And with that, slight increase in constant currencies of 0.1%, we are also very well hitting the midpoint of our guidance. Digging deeper into these roughly flat sales developments, we are seeing the expected picture of a consumable flat normalization. The recurring business, as you know, is the dominant part of the overall group. And this recurring business is showing a mid-single-digit growth figure, while the non-recurring or equipment business developed weaker with negative double-digit growth in 2024. Order intake is a digit ahead of prior year, looking at the 12 months. And also here, consumables order intake is stronger than equipment with improving dynamics over the year. On the equipment side, we are still seeing some reluctance to invest on the customer side, but at least looking at order intake, order intake in H2 is above the order intake level that we've seen in H1 of 2024. The underlying EBITDA margin stays on a very robust level, as previously mentioned, with 28.0% and €945 million in absolute terms. So we have picked the guide midpoint not only in sales but also on the EBITDA margin. And looking at the margin, as you know, we have implemented a comprehensive efficiency program in 2024 that took above $100 million out of the P&L, compensating the dampening effects that we had of the lower capacity utilization and also the inventory reduction. Let's have a look at our regional performance, which shows a quite heterogeneous picture influenced by general market conditions and product mix. In both provisions, we see EMEA being the strongest performing region with an overall growth of 5.5%. Looking at Americas, the performance has to be seen in connection with the fact that the American business is even more focused on life science and pharma than the European one. And this is also the reason why we are seeing more effects from the temporary industry trends here reflected in this region. But it also has to be noted that the recurring business was up in the Americas in both divisions in 2024 versus prior year. With regards to Asia, the performance of plus 1.4% is very much still affected by China, where markets have heavily corrected in 2023. But since several quarters seem to have found their bottom. We see a lot of customer interaction going on. in China, and people are looking in the stimulus program, but so far we are not seeing too much of business materializing out of that yet, I have to say. Excluding China, the Asian sales performance would have been up mid-single-digit, and just to remind you, China currently accounts for approximately 8% of our overall sales. You also see the portfolio still is quite balanced with 41% of sales in EMEA, 36% in America, and 23% in APEC. Now coming to BPS, where order intake is up approximately 13% in constant currencies to 2.7 billion. And here we saw a very good finish in Q4 with an order intake of over 850 million euro driven by consumables. Overall, sales grew around 1% in constant currencies to 2.7 billion with the same kind of pattern described already for the group, meaning recurring business is doing good with plus mid-single-digit growth in the whole year and also positive dynamics while equipment business is shrinking and stays muted up to now. Besides positive recurring business, it is also worth mentioning that the ATS business showed above-average growth in mid-teens arena. Underlying EBITDA and corresponding margin is up 10 basis points versus prior year, and in 2024, we saw... some margin pressure from some mixed effects, but especially pressure from lower production volumes alongside with our inventory reduction program. And we have successfully been working against these effects with the already mentioned efficiency program that delivered the expected three-digit number. Coming then to LPS. where market environment stays challenging and where we have also to digest the much weaker China market. And still also seeing across the board customers still somehow being reluctant to invest into instruments. And in this environment, I think we can be satisfied with an order of intake that came in plus 4% above prior year and constant currencies. And also worth mentioning that order intake was strong, particularly in Q4 in the lab essentials and bioanalytics areas. So overall, Q4 order intake for LPS was up double digit. Days were down. In the full year, 24 by 3 percentage points in constant currencies against quite high comms, especially from China. And if you exclude China for RPS, the sales growth would have been flat even versus prior year. especially, as already mentioned, the equipment business with bioanalytics instruments were somehow weaker. The broader lab essential business is, over the year 24, doing better. And as you know, lab essential business is coming with lower margins than bioanalytic instruments, so there is a negative mixed effect. Also, we have to digest the overall volume effect versus prior year and the output reduction to reduce inventories. We're weighing on the margin. So as a consequence, the underlying EBTA is down to 158 million with a margin of 22.9% for the full year 24. Then if we move on, As usual, you know, we have added that page in the deck with some other financial key data that some of you use for modeling, some comments from my side to this. The extraordinaries are above prior year level on the back of the sizable efficiency program that we have. implemented in 2024, and especially with Q4 expenses, are above prior year level, but as you can imagine, these extraordinaries come in connection with the efficiency program, and a lot of these Q4 expenses are non-cash items, so are contributing to the very good free cash flow that we have achieved, and I will come in a minute to that. The financial results And prior year was heavily influenced by positive non-cash earn-out valuation effect and adjusted for this non-cash one-off in the prior year. The financial result is down only due to the increase in the average debt level versus prior year. Underlying net profits came in lower than prior year due to increased depreciation and higher level of financial expenditure. It's just explained. The, for me, foremost line here, of course, is then looking at cash flow. And, you know, we wanted to focus on cash flow, respectively free cash flow performance in 2024. in order to reduce our leverage. And here I would say we have been quite successful with doubling our free cash flow versus prior year from $271 to $550 million. And this is the result of our working capital initiatives, especially in inventory, but also a tighter CapEx management. And looking at CapEx, Of course, the prior year number is impacted by the polyclass acquisition, but even adjusted for that, we have trimmed CAPEX in the year 2024 down, and the CAPEX as a percentage of sales is accordingly also down from 16.5 percent in prior year to 12.1 percent in the year 24, and therefore also this new figure is fully in line with our guidance given in July 24. Then coming to balance sheet and the leveraging on the back of our clear commitment to an investment grade rating. Non-current assets are slightly up to $8 billion. This is because of our CapEx program that still included several growth projects that we're adding to property plans and equipment provision in non-current assets, but also due to the stronger U.S. dollar and therefore foreign exchange effects, especially at year-end. Equity ratio stands at 38.6%, and the increase is mostly driven by the capital increase that we did in Q124, and the same reason is to be mentioned for the reduced net debt number to 3.746%. Brilliant, but please, besides the capital increase, let's not forget the strong free cash flow as one driver that we have delivered. These points then bring me to the leverage ratio net debt to EBITDA, which stands at 4.0 at year end, meeting also in this KPI our guidance from July. And if you allow just to be clear, that organic deleveraging that we have done was not a one-time exercise of 24%. It will stay also a focus point of management in 2025, and we want to further bring net debt to underlying EBITDA down. Of course, in the first place, by increasing EBITDA, but also based on continued networking capital and CapEx management. And for the broader outlook, I would like to hand over to Rafa Kost for the time. Thanks, Julian. So I already said at the beginning that we now see the fundamental road drivers to become more visible again, more relevant again in a certain way as the fluctuations, the volatilities driven by temporary effects that you all are aware of are phasing out. and I think that's a very positive one because I think we never stopped saying that the fundamental road drivers in our industry are fully intact, very strong, very robust, and in a way also very visible because the different elements are very visible and based on publicly available data. So what you can see here on this chart is on the left-hand side that even in those years that I think we all would say have been more on the challenging side, 23 and 24, there has been a record number of approvals for biologics. And that also includes record numbers for cell and gene therapies. So we really have a very healthy pipeline at our customers, at the board of biotech and biopharmaceutical industry. And you also see that increasingly advanced therapies are playing a role within this industry. This all translates to attractive underlying growth rates. You can see on the right-hand side that the pharma market overall provides already a robust growth level. But then on top of that, we see that the biopharmaceutical market is growing significantly stronger, as we always have said, and as you know, since significantly more than a decade, as the share that biopharmaceutical products have in the overall pharma market continues to expand as within the pipelines overall, biopharmaceutical products, biotech products are dominating. And therefore, the growth expectation for the biopharma market is approximately 10%. And then there are certain pockets within that market of which we expect and others expect as well, even higher growth rates as biosimilars, for instance, but also then cell and gene therapy scenario. of which you know we are focusing on in particular by our unique and very strong and differentiated product portfolio. And then another aspect, but still underlying how well we are positioned to benefit from these growth opportunities is single-use technology. This is not a new topic for sure. Sartorius is focusing on that since, you can say, two decades or something like that. But nevertheless, it still provides growth rates around 15%, as it is the, you can say, technology paradigm that enables our customers to develop new products faster, more efficiently, and to manufacture such products in a more flexible and efficient way. So this is the set of underlying drivers, and of course, Even below that, you could say there are drivers like demographics, etc. I think we don't need to mention them here, and also numerous diseases that still can't be treated, but I think there is good hope, reasonable hope, why there will be an increasing number of drugs being available to treat such diseases. I think you all are aware of that. And the key message here is that now increasingly these drivers again take over when it is about how the industry and also the market for life science tool providers as we are developing. So how does that translate into our outlook for the year 2025? We expect profitable growth in both divisions. We expect to see a larger contribution to that from our bioprocess solutions division. When you maybe look into how we built this outlook, first of all, we expect the life science tools market to grow, but, and I said that at the beginning, yet below its midterm average. I think we expanded on the fact that we see the destocking to be very advanced now and an increasing number of customers have probably reached their target inventory levels now but we also have talked about that some other segments like the more capex intense activities of customers, investment into systems, equipment, instruments, etc. is still a bit muted so therefore we expect the market to not being fully back to the average rates. And within this environment, we expect Sartorius to perform a buff market, but we still would describe that as a moderate profitable revenue growth that we want to achieve in 2025. When we say profitable growth, this means we expect being able to expand our underlying EBITDA margin to some extent. But, of course, we would now translate that or describe this as a slight increase of our EBITDA margin based on a moderate revenue growth. We just have talked about our further organic reduction of our debt leverage. I think I don't need to add to that. I think that's very clear. And then, and I think we have talked to most of you during the last couple of months quite a bit, that we then will issue quantitative guidance alongside our Q1 results in April of this year. For the midterm targets, these are unchanged. And with that, I hand over to René. Thank you, Ephraim, and hi, everybody. Welcome also from my side to today's call. Let me quickly walk you through the Sartori studying biotech preliminary 2024 results.

It was very encouraging to see increasingly positive trend in the second half of the year, and especially in the fourth quarter 2024.

Development in the consumables business was particularly positive, as most biopharma customers are reaching their target inventory levels. Also, sales revenue from products for advanced therapies continued to grow at an above average rate, while business with processing equipment remained muted. We closed the 2024 with sales revenue of 2.78 billion euros, reflecting a slight growth of 0.6% in constant currencies, including a non-organic contribution of 2.4%. Order intake developed even better, very much driven by consumables recovery, increasing by a double-digit 12.9% in constant currencies. Our underlying EBITDA was at 779 million euros with a margin of 28%, which was close to the prior year level. Originally, We observed very, very dynamics. In the MIA region, sales revenue increased by 5.9%, driven by recurring business. In the Americas, sales revenue decreased by 6.7%, impacted by soft equipment demand. However, with quite positive Q4 development, the recurring business was slightly up in this region. Asia-Pacific grew up by 4% despite the ongoing weakness in the China market. Net operating cash flow increased by 9.2% to 850 million euros. Florian gave all the details to DeadShot already, so maybe just to highlight, we invested 340 million in our R&D and global production infrastructure with the capex ratio standing at 12.2% at the year end compared to 17.1% in the previous year. Looking at the key financial indicators also quickly here, deleveraging progresses as expected, with net debt down to 2.191 million euros, resulting in net debt to underlying EBITDA ratio at 2.8 as expected. And now finishing with the guidance, very quickly for Satoshi's third-in-party group, in line with what Joachim said. We expect continuous demand recovery in the life science market. We aim to grow profitably above the market level with a moderate increase in sales revenue driven by recurring businesses consumables and underlying EBITDA should increase over proportionally compared to sales revenue. Our focus will remain and we will stay focused on the organic debt reduction. With that, thank you and we are now happy to take your questions.

We will now begin the question and answer session. As a reminder, please limit the number of questions to two per person. Anyone who wishes to ask a question may press star followed by one on your telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the queue, you press star followed by two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Webcast viewers may submit their questions via writing in the relative field. In the interest of time, please limit yourself to two questions. Anyone with a question may press star and one at this time. The first question comes from the line of Richard Vosser from J.P. Morgan. Please go ahead.

Hi. Thanks for taking my questions too, please. So you focused on the strong order development for consumables in Q4. I think you previously suggested double-digit growth at the nine months for consumable orders. So How did those consumer orders develop in terms of year-in-year growth in the fourth quarter? And do you think customer order patterns on consumables reflect any catch-up related to customers running their inventory levels too low? And then just a quick second question, could you give us some help on market growth for 2025? You clearly highlighted lower than long-term market trends, but how are you thinking about the pace of recovery from the low single-digit decline I think we're probably seeing in 2024.

Thanks very much. for bioprocessing overall has been close to 1.2 for the fourth quarter and consumables above that figure. But exactly as you pointed out already, And as we always have said, let's not over-interpret a single quarter. We don't have indications that customers have run down their inventory levels too far. So we wouldn't say that this now, again, you know, like compensates for that and we see the next quarter. volatility in that regard. But order levels have been relatively low in the quarters before, picking up only slightly in Q3. So I think it always makes sense to look on those trends more in a cumulative way. And here we can see that order growth year-on-year has been encouraging. I think both Florian as well as René were talking about that for bioprocessing, respectively SSB. And as both have pointed out, Equipment business, they're muted, and the numbers that we show there translate into even a little bit higher numbers for the consumer goods business. So we would say we see now increasingly those repetitive, more predictable order patterns from customers that we are used to. not fully back to normal, as we, I think, pointed out, but we see this, yeah, getting more and more substance. And then on the growth rate for 2025, we intentionally stay qualitatively here. And we don't want to provide any quantitative assumptions at this point. As we said, we want to give quantitative guidance And we will put that into relation to what we see how the market is developing in April. And then I think we also have the numbers for 2024 in total. As you said, maybe a low single-digit decline overall for the market in 2024, but I think yet we don't have all the data points available. So I think that's a discussion to have a little bit later this year. Perfect.

Thank you very much. The next question comes from the line of Charles Pittman King from Barclays. Please go ahead.

Hi, guys. Thank you very much for taking my questions. For me, first on just kind of typical seasonality, I was wondering if you could give us an idea of the typical seasonality that you would expect in customer orders before COVID. And as the industry returns to a pre-COVID norm, what proportion of consumables would typically be ordered in 4Q to support customer manufacturing for the next year? And if you could just confirm whether current orders are reflecting this new normal seasonality or not. And then the second question for me, I'm just curious to get an update from your ongoing substantial expansion activities in South Korea and get an update on your plant there. Is this still on track for becoming operational in a 26 timeframe, and how might that impact margins? Thank you.

So, since Melody is... is honestly difficult to say, because we always have seen, and of course, I think we can also say before, and even including the high times of the pandemic, nobody was really bothering. But there was always some fluctuation, some volatility regarding order intake, and it was not necessarily a clear pattern that, for example, Q4 was the strongest or so. Maybe on average it has been a little bit more on the strongest side. But the extent to which this has been the case was quite different year on year. And even if we take the equipment out and just take a look at consumables, I would say it's not such a clear pattern. And therefore, we always recommend to rather look on consumables. full years, because then there was typically a much more stable trend regarding order growth, sales revenue growth, etc. So, having said that, again, I think your question, at least I would understand that very much, is about, okay, how shall we, what should be the right evaluation of this quite healthy, quite strong fourth quarter. And our view is that it definitely has been a very good finish to 2024. and it fully supports the view that we, I think, also have shared with the market that we are getting closer and closer to a normal market condition, and we indeed see the more usual ordering behavior of customers, as I tried to say before, and that... relates to consumables. Because for equipment, you couldn't say, well, it doesn't make sense to say, oh, this is a usual ordering pattern. So we see this increasingly. but we definitely wouldn't over-interpret and over-emphasize Q4. And that is also why we issue the guidance that we issue. I think it makes sense to take this as a very good start into 25, no doubt about that, but we remain a bit more on the cautious side going forward. So in South Korea, we are on track. We are building our facility at what we would call the best spot in Songdo. And Zongdo is the new epicenter of mortal antibody manufacturing worldwide. So happy to build our capacities there. We are in close contact, of course, to the relevant customers in South Korea and beyond. And we expect to start qualification of that site during 2026. And then let's see when we'll start to deliver products out of that site. That's great. Thank you so much.

The next question comes from the line of Matthew Weston from UBS. Please go ahead.

Thank you very much. Two questions from me, please. If I just look at full year 24 by a process order intake up 12.7%, I think a discussion we've had a lot is that the time to delivery of customer orders is has been reduced quite significantly because there's a lot of free capacity within your manufacturing system. So why would 12.7% order intake not translate to low double-digit sales growth in 2025 for the buyer process business? And then secondly, a much bigger picture question about the Trump administration and their potential focus on trade tariffs. Do you expect that bioprocess consumables would be included in any trade tariff discussions if they were to progress forward? Have we got any historic context as to whether they were excluded in the past? But more importantly, what proportion of your U.S. bioprocess demand do you currently manufacture in Puerto Rico, and how much could you expand that if it became necessary?

So, I'll start with the first question. So, absolutely right, healthy growth in orders year-on-year. We shouldn't forget the level of orders in 23. And therefore, again, I think we should put it into perspective, again, I think very solid base how we are starting into 25 now. So I think we definitely confirm that. At the same time, we definitely stick also to our cautious outlook. We would not recommend to speculate about double-digit growth rate at this point of the year. So on the tariffs, there's more speculations today. We will not do that. On Yauco, Puerto Rico, that's one of our largest manufacturing sites in our network, where we have installed capacities for all major consumables products in the portfolio, meaning including casting lines for membranes, filters manufacturing, all different types, as well as the single-use products portfolio more or less complete. So I think we are well prepared with our network. We always have been saying how important it is to build that network continuously, which we continue doing. We just talked about the Zondo in Asia. So I think we are well prepared in case of need to increase the capacities in the US market.

Thank you. Rene, could I just come back quickly with a follow-up? So you currently have the ability to manufacture all of the key components of your product portfolio, but is it fair to say you currently don't satisfy the U.S. fully from Puerto Rico? Correct. Yeah, they're still capacity-free.

Thank you. The next question comes from the line of Doug Shenko from Wolfer Research. Please go ahead.

Good day, and thank you for taking my questions. The first topic I wanted to push on a little bit more is the growth outlook for 2025. So specifically, I was wondering if you would be willing to just clarify when you reference better-than-industry growth What is the growth rate that you're referring to? And from a pacing standpoint, should we continue to assume a gradual, sequentially improving, non-inflecting growth rate as we think about pacing over the course of the year? And then the third part of the question would be, building off of that, would you ultimately expect the 2025 exit rate to be within the range of your LRP? Thank you.

Maybe I'll try to answer the first question first, and then the second, I guess, we would like to ask you for repeating it because it was a little bit difficult acoustically here to understand that. So I think what we are talking about here is a growth rate of the market for bioprocessing products in the upper single digit. percentage CAGR rate. And for lead products, it typically has been rather around, I mean, for the type of portfolio that we have, 5%, 6% or so. So that has been roughly the underlying market growth rates being relevant for Sartorius. And as we said, for now, we would expect 25 to grow a little bit below that.

And the second question, please, I could repeat that. Absolutely, and sorry about that. So my second question is, as we think about the cadence for the year, should we continue to assume a gradual, you know, basically, you know, better quarterly growth quarter by quarter as we progress through the year? And if that is the case, would you expect the 2025 exit rate from a top-line growth standpoint to be within at least the low end of the range as we think about your long-term targets? So do we expect gradual improvement, and do we exit the year within your LRP?

Absolutely. So we would not like to give any guidance for H1 versus H2 at this point. I guess we become more granular in that regard in April when we issue our quantitative guidance. Therefore, it's a bit difficult for us to answer this question about the implications for midterm and how the growth will develop there. Maybe that sounds a little bit like a surprise or so to you, but we shouldn't forget that We typically don't have such a strong seasonality, as I said before. And it's not the case that sales in age two of a given year is a good indicator for sales growth in age one of the following year or so. So, therefore, let's build this one by one. 25 more granularity in April, and then let's see whether we can already talk about the period thereafter. But for now, we wouldn't be able to guide for any seasonality in 25. Okay.

Thank you again for taking my questions.

The next question comes from the line of Charles Weston from RBC Capital Markets. Please go ahead.

Thanks for taking the questions. The first is around capacity utilization of your customers. Clearly we're approaching normalization on the consumable side, but if they're not buying equipment, presumably they haven't yet reached a normalized capacity utilization. So do you have any insights from speaking to them about how that's trending at your customer sites? And then the second question, please, on margin in 2025. You've talked about margin expansion, but there are a number of puts and takes. I think those are your efficiency savings that you've talked about and quantified for 2024, but that could annualise. There's presumably improving utilization given the destocking of inventories that you did in 24. Has that finished and how much of a headwind was that? And are there any other major drivers of margin that you could perhaps quantify that affected 24 that we should think about for 25? Thank you. Thank you very much for the questions. I take the first one about the capacity utilization at our customer side. So, you know, it's a very mixed picture, I would say.

It's hard to say an average industry. There are customers who clearly are very busy, well-utilized, investing in additional capacities, On the other side, there are also customers, rather small ones, which still have quite a bit of unutilized capacities as well. So really a mixed picture. I think overall trend is rather positive that we see

even for those customers who sit on unutilized capacities, projects coming in, especially in the CDMO area.

So I think what we hear is the trend is positive, the projects are coming in, which is very much in line with also the trend we see in our business, which we discussed today with the very positive recovery, especially in consumables. equipment investments in capacities kind of follows the same mixed picture in the customer base. For those who are investing, of course, they are active, and we are very much involved in providing the equipment.

For those who are not, yeah, that still you can see in the pipeline, in the funnel, already coming activities preparing for that, but, you know, the orders and revenue still to come.

I'm your margin question. When we talked about the outlook of 25, we're also mentioning that we are assuming that we will see a stronger development in sales in the consumables or recurring side of the business versus the equipment or non-recurring side of the business. which tells you that on the one hand side we are expecting here a positive margin effect for mix as the recurring business normally comes with a higher margin than the non-recurring business. So this is one component of the margin expansion. And the second component clearly is operational leverage. We have invested a lot in 24 to right size and right structure, so to say, the platform, making it ready for then a more normalized growth coming along in the upcoming grids. Therefore, the expectation is that clearly operational leverage should be the contributing factor besides mix to the margin expansion we are foreseeing for 2025.

Thank you very much. Is it still possible to quantify the headwind that you faced in 2024 from the low utilization of your putty given the destocking?

We are not giving that number. Sorry.

Okay.

Thank you.

The next question comes from Subun Abhi from Guggenheim and Securities.

Please go ahead. Thank you, guys. Thank you for taking my question. I have two questions. The first one, would you identify potential drivers of upside and downside to the 2025 qualitative guidance that you provided for sales? And the second one, While it's still speculative, could U.S.-driven trade disruptions be an opportunity for Sartorius in terms of upside share gain, similar to what supply chain disruptions in the pandemic were an opportunity for share gains? How much upside could this be? Thank you.

Thank you very much for these two questions. So up and downsides, yeah, well, I think the variables are largely on that side in how far new projects at customers really materialize. let's say, A in general and B on the timeline. This is always a variable that is pretty much out of our control and out of the control of our peers. We believe that the destocking shouldn't be much of a variable now. It's an influencing factor, but shouldn't be the remainder of that is an influencing factor, but it shouldn't be a source of significant volatility as far as we see it. But timing of of approvals, timing of investments at customers, timing of starting manufacturing campaigns, et cetera. This is pretty much the variable which you can say can go into both upside and downside. And then on the lab business, Of course, we do have a bit of a variable of the biotech funding environment, which is a couple of elements that can be public budgets. But, of course, also in how far venture funding in the U.S. is continuing to pick up, it has changed. It's picking up already a little bit, but not very much yet. So this is a potential maybe upside. But of course, also if there is a significant uncertainty in theory, it could be also downside. And in China, I think we spoke about that. We base our expectation here on a couple of assumptions. not too optimistic ones, we believe, for China, but yet, of course, this is also a certain trend or it's an uncertainty. Currently, we believe that we did factor in two optimistic assumptions, but nevertheless, this would be also an uncertainty to be mentioned here, I believe. And maybe with a little bit of more influence for LPS, I think we spoke about that China plays a larger role for the LPS division than for the bioprocessing division, so therefore I mention it here. And then, It's an interesting aspect that you ask for the opportunities that may be in stricter and more challenging tariff environments being triggered by the new US administration. And I think René said that when answering the other question a couple of minutes before, it's a bit, of course, speculation here. But I would agree that one couldn't exclude that because we are well-positioned. We are not very much negatively exposed, but of course, I would say our positioning is very comparable to the one of our main competitors, even though these main competitors are US-based, but they also have manufacturing sites out of the US. and some intra-group logistics there. So that's what we would say. For me, it looks more like a level playing field and not so much of an area where I would expect too much of an influence.

Very helpful. Thank you so much.

The next question comes from the line of James Quigley from Goldman Sachs. Please go ahead.

Great, thank you for taking my questions. I've got two, please. So, firstly, on the geographic outlook. So, in BPS, America saw a decline of 6% on revenues, but was flat, slightly growing in Q4. How much of the fourth quarter order intake was from the Americas region? Just wondering if there's a significant order intake in Q4 reflected a step up or a catch up in orders from the Americas, or if there's potential for additional order book upside in BPS once the Americas recovery is up and running. First one. And the second one is, can you comment on market share dynamics across the key subcategories? In the guidance, it implies you're expecting to gain some market share by going ahead of the market. But is this market share gains or is this just a mixed impact given you may be slightly more exposed to 17 therapies, for example? and also during COVID, particularly in field tracing, you gained market share and then gave it back over the past few years. So into 2025, what gives you confidence that the share dynamics have normalised and in which areas could you expect to gain share given the guidance? Thank you.

Thank you for the question regarding the first question on dynamics on order intake in Q4 on a regional perspective. can tell you to give you a rough feeling is that the general pattern that we've seen with Europe and Asia-Pacific ex-China leading somehow the development and America's being lagging a little is also the case for Q4. and the market shares a couple of thoughts for me.

Look, we have, I think, well, strong good track record on growing above the market, above our market segment over the years.

What makes us optimistic is the wins we continue to see currently and also last year. Last year we have seen very nice wins and conversions especially in the area of consumables.

So I think we are well prepared with the portfolio, with the organization, sales team, being well trained and aggressive with strong technical support to continue on that market share gain.

Thank you.

The next question comes from the line of Foucault Solver from PNB Paribas. Please go ahead.

Hi, thank you. Thanks for taking my questions. I have two, please. First on order intake for BPS and the 40% sequential increase. Can you impact this, please, for us? Is there any large order impacting that? And can you expand a bit on the type of customers? And as it's driven by primarily consumables, is there any price impact? impact in that growth. Can you please quantify it? On the order book as well, I think I remember in Q3 you mentioned that there was still a tail of COVID order in the order book. Is it still the case? And back to Mathieu's question earlier, could you confirm the average lead time, please? Thank you.

I take the first question on the sequential order intake in the fourth quarter for DPS. I think there is no one-off really there. I mentioned a couple of new business wins we have seen, which came in Q4. kind of across the board continued recovery from the destocking recovery, kind of more customers, broader, but also across the portfolio, additional products kicking in. So that contributes, which is kind of, again, showing and confirming that this trend is going on and well going on, but no significant relevant wafts. Maybe all about, I guess it was also mainly related to SSP or BPS, but nevertheless I can take that as well. So the portion of... Yeah, like COVID-related, you said, I believe, orders in our book is, of course, very small now. Maybe let me redefine that anyway a bit. COVID-related, I guess that is what you meant, orders that have been placed during COVID, but that were meant to build up stock levels at our customers. And as I said, customers have been quite advanced. Now in regards to reducing their stock levels back to their target level and therefore our order book doesn't include much of that any longer. And then average lead time. Absolutely right. It has been a big topic during the pandemic. And lead times have been partially very long. We were performing quite well in that situation. Lead times have come down substantially across the different players in the industry. And we now see lead times have started to get a little bit longer again, but not to any extreme extent or so, but just the normal course of business.

It always fluctuates a little bit with the demand dynamics. Okay, thank you very much. Just a quick follow-up, if I may. Could you confirm on the FY25 revenue guidance, there is no contribution from M&A?

Yes, confirmed. Thank you. Kindly note that for the interest of time, please limit yourself to one question. One question. The next question comes from Oliver Metzger from Odo VHF. Please go ahead.

Good afternoon. Thanks a lot for taking my question. So it's about order intake in consumables and the respect of sales recognition. So you commented in the past that the lead time from order to delivery has come down, so also the order pattern has changed towards more frequent smaller orders. With improving order intake, eventually you get more data points about this relation and also the breadth of your visibility should improve. So can you describe the dynamics or At least give us an indication which portion of your orders are fulfilled almost immediately, and which share of orders may take weeks, months, or even quarters to be fulfilled. Thank you.

Yeah, sure. So maybe this is a relevant aspect of our business in general, and therefore let me answer this question maybe also along those lines. So for our consumables business, and that is where we actually, I think we explained quite a bit here today, that is where we see the demand dynamics and therefore also the order dynamics. Here we are talking about partially products that are made to stock and that are available within a rather short period of time. Here we are talking about Sometimes a couple of days or maybe only a few weeks. And then those that are to order. And here we are talking about maybe eight weeks, for instance, something around that, depending, of course, on the product. and such factors. Lead times that are beyond that, like quarters or something, we have in the equipment business, particularly when we are talking about non-standard, somehow customized equipment. So a benchtop bioreactor, for instance, would be typically a standard type of instrument slash system, and here we would talk maybe about 8 to 12 weeks or something, but when it is a customized, maybe more complex system where some engineering is involved at the beginning, then we partially talk about two quarters. It can be even longer if we are talking really about larger, more complex systems. Again, consumables is on the shorter end typically. However, let me add one thing. Some times, customers, because you said, well, back to smaller orders, yeah, but not necessarily completely across the board. Some customers place orders, say, for the next three quarters just to say something. So it may, sometimes we get orders, where the customer expects the fulfillment to happen only within the, let's say, next nine months. So there's not necessarily the translation of every order that we receive today into sales within the next 10 weeks or so.

Okay, great. Just a very quick follow-up, but in particular on the last few sentences you mentioned. So Is this still a relevant size for you, or is this really that you say, okay, the bulk is pretty short-term? So these follow-up orders, which are negotiated in advance.

Okay, so it's pretty much as it always has been. It also depends partially on customer preferences. Some customers... tend to place larger orders for the next few quarters. Others never do that. So it's pretty much a normal ratio now, I would say.

Can you describe that ratio?

No, we don't give a quantitative answer for that. Sorry. Thank you for your understanding.

The next question comes from the line of Dylan Van Haften from Stiefel. Please go ahead.

Hey, guys. Thanks for taking my question. So I just wanted to clarify two short things. One is just on the split between the ordering dynamics. Could you confirm that between PharmaBiotech and CDMOs this is similar? And then secondly, just as a follow-up, is there still positive pricing expected in 2025?

Yeah, so there's no shift in pattern regarding originators and CDMOs. We wouldn't talk about any particular pattern here. Of course, we do see different ordering activity of different customers, but that very much depends on... The business level, the order intake level that these customers have and not so much on the question of whether they are originators or CDMOs. And for 25 price adjustments, price increases on a very normal level as in other usual and average years, so low single digits.

Excellent. Thank you. The next question comes from the line of James Van Tempest from Jefferies. Please go ahead.

Yeah, hi, thanks for taking my questions. First one, Florian, I think in your prepared remarks you talked about bioanalytics sort of somehow being lower. It sounded as if that was perhaps a surprise. Just wondering if you can give some dynamic swarms going on there, just given the profitability of that segment. And then my second question is just on your market definition, not quantitative guidance for the year, which I know is coming at Q1. Previously you presented data that the farmer market growth is 6%, biologically share is 2%, and biosimilars is 2% to get to this by a farmer market growth of 10%. So just wondering how we should interpret the 3% to 6% farmer market growth, which you presented, I think, on slide 10, to get to this 10% biopharma market growth. You mentioned bioprocessing growth is high single digit, which is less than biopharma, or is the biopharma market actually growing more like 7% to 10%? Thank you.

Okay, there were a lot of questions, James, so let me start clarifying on bioanalytic instruments and lab essentials. The first phase, we are not giving any concrete numbers on profitability of the segments. The only thing that we are stating is that, of course, the by-lay instruments have a higher margin versus the broader left essential segment. And within that, what we also have been saying in terms of the dynamics is that on the back of the overall still reluctant customer behavior, we are seeing that the BioA instruments part of the LPS business is harder hit by the current market phase that we are seeing. Maybe in addition to that, our BioA business has developed very, very nicely over the last couple of years, and we have seen a very positive adoption of our main product here. which is the INCU site, the Lifestyle Imaging System, and then the Protein Analytical System, OCTET. And I think it's fair to say that you find them in pretty much any biotech research lab globally, and particularly in the U.S. as this is the hotbed of life science research. Of course, sales ratios have been, or sales have been very, very high for those products. And from that very high level, in a more challenging funding environment, 2024 was a bit of a challenge, a difficult year. And that is why we made that comment earlier that mix, because it's unfortunately strong in regards to gross margins. Nix was a little bit dilutive in LPS in comparison to the very strong year 23, and the same is top line, particularly in the U.S. So COMS is very important here, I think, to add. And then on market definition and dynamics, So, of course, the slide that we were sharing with you is not the ultimately exhaustive description and analysis of all market segments and its growth rate, et cetera, et cetera. So bear with us. We wanted to highlight a couple of key dimensions here. and it is meant in the following way, that the farmer market, It's not the market for pharma tools or biotech tools, but the pharma market as such, as a market of medical drugs that are being sold to patients ultimately, should grow around 3% to 6% over the next couple of years. And then, as you can see, that within this market, And, of course, you could also sort this a little bit different. We see different dynamics. One is that biopharma is a subsegment of pharma overall, but again, the same kind of dimension. So like end market should grow around 10%. And then there are different parts of this biopharma market again, which are biosimilars and cell and gene therapies growing faster than the anti-pharma market, okay? So that is how we define that. And then a different dimension to this is single use, which we expect to grow around 15%. And this is a technology that is particularly being used in the biopharma market, partially also in classical pharma, but mostly in biopharma. And that means including biosimilar CGT, but also monoclonal antibodies as the more classical biopharmaceutical market. And then the other... piece of information that is included here is lab equipment and consumables, and that of course we could have sorted also elsewhere. because this is, again, across the different parts of the pharma market. It's mostly addressing research, partially also quality control for both pharma and biopharma. And the type of recruitment that we are having and where maybe also most innovation is happening across the board is addressing more the biopharmaceutical market, because here far more parameters are typically being developed analyzed and observed, et cetera. And therefore, one can say that this lab equipment and consumables market should grow roughly 5%, and that would be a tools market. So therefore, one could sort that also differently. Now, through this, you pretty much have all the numbers that I think are relevant to assess what are the driving forces for the markets that we are addressing, which is lab equipment and consumables through our LPS division, and then we are addressing those that are developing and manufacturing biopharma products through our bioprocessing division. I hope that helps.

Thanks very much. The next question comes from the line of Tibos Buterin from Morgan Stanley.

Thank you very much for taking the question. Just a quick one on the mix of equipment versus consumables. Just if you could give us a picture for Q4 and for the full year of what that mix looks like. And then when we think about this mix going forward, I think historically Sartorius was a bit more weighted equipment than Peel. Do you expect this to revert back to this situation, or do you think that long-term the mix of consumables is going to remain higher than it was in the past?

On a biotech level, you could say 75% consumers, 25% equipment. And by the way, this is... our average number. It's not the most recent number. We are more heading towards higher recurring revenue portions. And so, therefore, maybe at some point we will have reached something around 80-20. So, that ballpark But, again, we are giving ballpark numbers here. It's not a KPI that we intend to report on a quarterly basis, but that's roughly the proportion. And it's also worth mentioning that most of the equipment that we are selling, if not all, to some extent is linked to consumable sales. So it's not necessarily the case that one would say, well, equipment sales is lumpy, less profitable, it's not so much fun. it's partially a very relevant anchor and door opener within our portfolio. So that is, I think, how one should look at it.

Thank you. The last question comes from the line of Falco Friedrichs from Deutsche Bank. Please go ahead.

Thank you. Two quick follow-ups, please. Firstly, Could you confirm that the sequential order intake was up in Q4 for both consumables and equipment? And then my second question, could you confirm that you didn't notice a more significant pull forward of orders in Q4, meaning that customers pulled their orders forward essentially for 2025? Thank you.

Maybe first on the sequential order intake view in Q4 where I can confirm that recurring as well as non-recurring business was up sequentially. And that is a very good bridge to answering the second part of your question. And that is, let's again not over-interpret single quarters for different reasons that are partially speculative. Because, and I fully understand that question, I don't get me wrong. you said, oh, might have been pull-forward effects. Well, yeah, but there might have been also push-out effects from the quarters before. And that is why we never would encourage to over-intergroup, in this case Q4, but not necessarily because we would say, yeah, there has been massive pull-forward effects, I said that earlier during our call here. We were waiting for order activity to pick up, and it was pushed out also by customers, so you could also make the point that maybe some of the quarters that we have seen in Q4 in other times would have placed a little bit earlier already. So both might have played a certain role, but bottom line, I would come back to our point of view, which is really good quarter, really good starting point into 25, but let's stay cautious and see how things develop during the next couple of months. and then we'll talk about quantitative guidance for full year 25 in April. Thank you. Thanks, everyone. Thanks, everyone, for your interest in Sartorius. Thank you for all your questions. Thank you for your understanding that we have to limit the number of questions a bit to being able to finish this call after roughly 75 minutes. It was a pleasure as always. Looking forward to talk to you again in this format in the middle of April. But I'm sure there will be a lot of interaction in different formats on different channels before that. Take care. All the best. Talk soon. Bye-bye.

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