Sartorius Stedim Biotech

Ladies and gentlemen, welcome to the Sartorius and Sartorius Ted in Biotech conference call on the first quarter 2025. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. This call is scheduled for 60 minutes. The presentation will be followed by Q&A session. In order to give 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 only be answered once. You can register for questions at any time by pressing star and one. At this time, it's my pleasure to hand over to Dr. Joachim Kretschburg. Please go ahead, sir.

Thank you very much for the introduction, and hello and welcome to our conference call on the Q1 results of Sartorius AG as well as Sartorius State in Biotech. Today, I'm together with Florian Funk, our CFO, as well as with René Faber, the president of our bioprocessing division, as well as the CEO of Sartorius State in Biotech, and also Alexandra Gatzemeier, the president of our lab division as she will walk you through the slide on the most recently announced acquisition of MATEC. So let me start with walking you through the highlights of the first quarter of 2025. We think we are off to a good start, a very good start into the year 2025. Pretty much development has been as expected. That means very much driven by a very healthy business with consumables in both divisions, but particularly in bioprocess solutions, where sales revenue is up in total by 10%, but strong double-digit growth in consumables, whereas the business with equipment remains rather muted as expected. And this has a stronger impact, of course, on the left division because this is a more general situation that we see in the industry that there is still a reluctance of customers to make larger investments into instruments, into equipment across the board, even though we have quite a lot of encouraging discussions with customers that are considering to make such investments. On a group's level, We therefore have achieved a sales revenue growth of 6.5% in constant currencies. Book-to-bill ratio has been clearly above 1 for both divisions, and therefore also for the group. The top-line growth has been translated into a substantial margin expansion, driven by scale effect, but also by product mix, as our consumer business has been particularly strong, as just said. and also previous year's efficiency program has contributed to this margin expansion. Also very positive, you will see that later, is the strong cash flow, and therefore also that the leverage ratio could be reduced as planned. We also will do publish today then our quantitative guidance for the year 2025. We announced this end of January of this year that we will do this alongside of our Q1 publication and we are expecting a sales revenue growth for the group of approximately 6%. For now, we would flag that or attach a plus minus 2% bandwidth to this as still volatilities in the market globally are relatively high. For the underlying EBITDA margin, we expect 29 to 30% more details at the end of our presentation. And with this, I would like to hand over to Alexandra to talk about the MATEC acquisition.

Thank you very much, Joachim, and welcome from my side to the Sartoris conference call. I will give you some more details on the signed agreement between Sartoris and BiCo to acquire one of BiCo operating company, MATEC. MATIC is a leading provider of human cell-based microtissues and 3D models for in vitro testing to accelerate preclinical drug development processes and to reduce or replace animal testing. The portfolio of the company consists of several types of microtissues like skin, respiratory, eyes, and some others. It's also culture, wear, and media, as well as some in-house testing services, and these are provided to biopharma and cosmetics companies. Plan acquisition is well in line with our innovation strategy, focused on advanced cell models, along with new modalities, data management, and AI analytics. MAD-X leading portfolio of 3D microtissue models will help our customer to speed up in vitro testing of drug candidates and reduce animal testing and preclinical drug development, and also providing new insights. The importance of advanced cell models even further increased after the recent announcement by FDA last week. on significant policy shift aimed to reducing its reliance on animal testing for drug development and incorporating new approach methodologies. According to FDA, the animal testing requirement will be reduced, refined, or potentially replaced using a range of approaches, including AI-based computational models of toxicity and cell lines and organoid toxicity testing in laboratory setting. And FDA also said that they will initially focus on monoclonal antibodies and other biologics for safety and efficacy evaluations. We see that MATIC solutions are highly compatible with our LPS offering in biologic instruments, reagents, and software, and will make Sartoris provider of comprehensive portfolio consist of the Cell model, cell analysis instrument, consumables, and AI-supported data models. We also see that the coverage of customers is kind of very good between both companies. Matic was founded in 1985 and employs more than 80 people. It's headquartered in North America in Auslan, Massachusetts, and they also have a production site in Bratislava, Slovakia. The business will become part of our LPS division and 2024 generated sales revenue of more than 20 million US dollars with profitability margin very similar to LPS division. The agreed purchase price is 80 million US dollars, which is approximately 72 million euro. Transaction is subject to customary closing conditions, including regulatory approval, and we expect closing during the second quarter of 2025. Major focus after closing will be on expanding commercial geographical coverage and as well accelerating roadmap execution and synergy built on our product offering. And with this, I will give a word to Florian.

Thank you very much, Alexandra, and also welcome from my side. Happy to take you through our set of numbers, which are reflecting, I would say, a continuation of the positive dynamics that we've seen since some time already. Sales revenue is up 6.5% in constant currencies and 7.7% in reporting currencies to $883 million. This positive development is driven by a double-digit recurring business, which is, as you know, the dominant part of our business, while the non-recurring part continues to be soft. Order intake was also healthy and grew more than sales, bringing the book-to-bill to a number significantly above 1%. The positive top-line development is also reflected in underlying EBTA and underlying EBTA margin. Underlying EBTA grew overproportionately by 12.2% to 263 million, and the respective margin increased by 120 basis points to 29.8%. The margin expansion that we were able to report was driven by positive volume and product mix effects. and also based on the adjusted cost base as a result of the efficiency program that we implemented last year. Also, EPS grew nicely by around 21%. Let's have a look at the regional development, where we can say that all three regions developed very positively, with the Americas showing the strongest growth in Q1. The growth in all regions was driven by consumables, while the equipment business was softer across the board. China business came in slightly below prior year Q1, but on the same level as on Q4-24, so a stable development. And without China, the APEC performance would have been at a very healthy rate of approximately 10%. Diving now into the two divisions. where it's clear that it has been a very strong Q1 for BPS with safe growth and constant currencies of around 10% to 718 million. The growth was driven by recurring business that showed strong double-digit growth, compensating for the soft equipment business. Looking at EBTA and margin, we see underlying EBTA growing by 17% to 226 million, The margin is up by a very good 170 basis points and comes in at 31.5% in quarter 125. And this was driven, as I already explained for the whole group, also here by volume and mixed effect and a leaner cost base after our efficiency program. Going now to LPS, where We have to say that with its high exposure to the non-recurring and CapEx-driven business, LPS continues to be confronted with a challenging overall market situation. Sales were down 5.5% in constant currencies and 4.4% in reporting currencies, and this was driven by the non-recurring business that developed negatively, while the recurring side of the business also here in LPS grew nicely. Especially our business with bioanalytical instruments is suffering in the situation where customers are pushing out their investment decisions on the timeline. This has also an impact on the margin that went down from 24% in prior year to 22.6% in Q1 2025. And the drivers here were of course the lower volume but also mix as bioanalytic instruments are quite profitable product class in our portfolio. Let me now comment on the performance below underlying EBITDA, so deeper into the P&L and the cash flow. And as you can see, the underlying EBITDA growth of 29 million in absolute terms, or 12.2%, translated into an overproportional growth of underlying net profit of 21.4% and reported net profit of 31.2%. Operating cash flow came in quite strong, three times as high as in 2024, or in absolute terms, plus 94 million. And roughly one-third of this increase is stemming from higher EBITDA, one-third roughly from less taxes paid, and one-third from net working capital and other effects. And combined with the low Q1 CapEx ratio and the corresponding investment cash flow of minus 78 million, The free cash flow as a resulting figure grow by 151 million to 61 million in Q1 25. Please do not multiply that investing cash flow of 78 million by four times to come to our full year assumption for CapEx. There will be some CapEx seasonality. with stronger cash-outs over the coming quarters. We will comment on the CapEx guidance in a couple of minutes. Now, looking at the balance sheet-related key figures, we firstly see an ongoing strong equity ratio of 38%. The reduction of the equity ratio is only due to some FX effects and the approved dividends that have been offset from the equity in the accounts that we published. Net debt slightly increased, mainly due to some non-cash positions, such as additional leasing contracts and accrued interest. Net debt to underlying EBITDA improved from 4.0 times to 3.9 times in Q1, so we are, my perspective, well underway on our plan to leverage in past And as you can also see in the title, we stay committed to our investment graduation. And with that, I would like to hand back to Joachim. Thanks, Lorian. Yeah, I think one topic today for sure during Q&A will be the current situation regarding tariffs. Therefore, maybe just a couple of statements here along the slide that we have prepared. So first of all, and really as the most important aspect, I think we do not expect any impact on our competitive positioning. That, of course, has to do with the fact that a large part of our products are a very integral part and validated part of processes that are run by our customers. But at the same time, it's also important to see that also our peers are running comparable global production setups and supply chains. Sartorius has established a region for region approach since a long time with a quite well established footprint also in the U.S. and also to some extent in China. But of course, nevertheless, we also have a number of mitigating measures are being defined and underway, which include terrorist surcharges, for example, and a further shift of certain production volumes. And then, of course, it's also clear to all of us, I think, that there might be second-round effects, very difficult to define them and to quantify them even more so. But, of course, they cannot be excluded. I think this statement of caution has to be shared, even though I think it's also fair to say that typically the life science sector, the biopharma sector are less impacted from such effects. So I'm coming to the guidance now for the full year of 2025. We are expecting robust sales revenue growth and a further increase of our profitability. As you can see, and I'm starting from the bottom of this table, we expect a slight increase of 1% midpoint for LPS. Again, bandwidth, as said earlier, plus minus approximately 2% at this point of the year. Bioprocess plus 7%. That makes then for the group plus 6% on the top line. And our EBITDA margin guidance is 22% to 23% for LPS, 31% to 32% for BPS, and 29% to 30% for the group. CapEx ratio around 12.5%. net debt to underlying EBITDA, a decrease to approximately 3.5 by the end of this year. And then important to note that this, the margin forecast does not include any potential effects from tariffs and related mitigating and corrective measures. As you can imagine, a tariff surcharge might even inflate the top line to some extent, which then might lead to a certain impact on margin. We expect all those effects to most likely be rather temporarily and temporarily. also only quite limited. And once again, let me underline that we do not expect any influence on our strong position and competitiveness. So, and with that, I would like to hand over to Rene for SSPs.

Joachim, thank you very much, everyone. Let me quickly walk you through the Q1 results of the Sato Estet in biotech. As Joachim and Florian already mentioned, it was really good to see the continued positive momentum after the strong Q4 last year, now also in the Q1, and we are really satisfied with our achievements in the first quarter. While customers remain cautious with their investment in equipment, our high-margin recurring business with consumables products is performing really well and is performing well across all consumables product groups as well as all regions. In the first quarter, we recorded double-digit sales revenue growth of 10.4% for the SSB group in constant currencies, who's 745 million euros, and the book-to-bill ratio was well above one in the quarter. And looking at the underlying EBITDA, increased over proportionally to sales revenue by almost 20% to 229 million euros. In addition to the higher volumes and the higher proportion, as mentioned, of the consumables, also the previous year's efficiency program made also a positive contribution to the profitability. The underlying EBITDA margin then increased to 30.8% up by more than two percentage points. Regionally, we observed strong performance across all regions. The Americas region, nicely catching up, showed a double-digit growth of 13.8%. EMEA increased by 8.9%. And the sales revenue in Asia Pacific region was up almost 8% when excluding then China, a strong double-digit growth of 14.2% in Asia. Looking at the cash flow, the net operating cash flow more than doubled, 220 million euros compared to 55 million euros in the previous year, reflecting the higher earnings, the lower tax, and the stringent working capital management, as Florian described it, We are also progressing well with our investment programs in manufacturing and R&D infrastructure. CapEx came as planned with 65 million euros, yet disproportionately low in the first quarter, and the CapEx ratio stood at 8.8 percent. A quick view on the key financial indicators, deleveraging progresses as expected with the net debt to underlying EBITDA ratio down from 2.8 to 2.7 as of the end of Q1. No additional comments from me on the tariffs as Joachim covered them already in the SAG group part. By that, I move now to the guidance for the full year 2025 for the Sato-Stein biotech group. Based on the first quarter positive momentum, we expect the continued Demand recovery for our recurring consumables products and still rather muted equipment business in 2025. We project top line revenue growth of around 7% for this year and with the continued above average volatility at this point in time, a range of plus minus two percentage points. In terms of profitability, expectation is that the underlying EBITDA margin will be around 30% to 31% compared to previous year figure of 28%. And as Joachim explained, this margin forecast does not include any possible effects of tariffs or related mitigating or corrective measures. CapEx ratio around 13%. underlying net debt to underlying EBITDA at 2.5 down from previous year 2.8 and with that we move to Q&A thank you very much

Ladies and gentlemen, 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 and one with a telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast. Anyone who has a question may press star N1 at this time. Our first question comes from Shubu Nambi with Guggenheim. Please go ahead.

Hey, guys. Good morning. Thanks for taking my questions. Was there any pull forward of orders you observed in the quarter because of the tariff dynamics or any macro uncertainty? I ask because there was higher than expected growth in America. Any particular reason what role that would be helpful?

Okay, yeah, so only one question. Thank you very much. We haven't seen that. We don't consider that to have played any relevant role during Q1.

Thank you so much. And then what drove the higher than expected growth in America still?

We wouldn't say that it was higher than expected. I think last year we partially had the question whether development in the Americas was a little bit more down or more muted than in other regions. And we said, no, not really the case. Often it's rather a temporary effect that has to do also with comps. and there is no underlying trend or anything that we can see here.

Perfect. Thank you, guys.

The next question comes from Doug Shankle with Holt Research. Please go ahead.

Dan, thank you for taking the questions. So first on instruments, You said early in your prepared remarks that you have had quite a number of good discussions about instruments in spite of the actual pressure on revenue. Could you tell us more? Where are you seeing the most activity? What type of customers? What type of instruments? Is this for expansion or replacements? And then conversely, where is activity more muted? So that's really the first topic I would like to cover. The second is In the United States, I believe you have said previously that one third of U.S. revenue is supported by U.S. production. In response to tariffs, how quickly could you increase? Thank you.

Yeah. Maybe I answer the second question and the first will be answered by René because this is really mostly something that is related to discussions that we are having with customers in the bioprocess division currently. So a little bit more than a third of what we sell into the U.S., we manufacture in the U.S. currently, and we believe that we can shift another 10% or so within just a few months. On the longer time horizon, maybe a bit more would be possible as we quite have some infrastructure there. But of course, also those shifts at some point come at a cost. So therefore, we would not flag today that we will shift much more than around this 10 percentage points. As we said, there are a number of measures underway, and we think that we will see in our industry, not just by ourselves, in our industry, quite a lot of terror surcharges for now.

And take the first question on the instrument systems. So what we see is kind of a continued ongoing quite high activity level on the customer side when it comes to preparing for additional equipment purchases, preparing for, you know, your question was partly related to Is it an expansion of capacities or replacements? We start, especially this first quarter, to see more and more expansion projects coming. A lot of demonstrations for equipment are going on. Yet nothing which would result yet in a really increased level of orders, but we are optimistic that With this ongoing high-level activity level, we will see the recovery of the equipment starting this year.

Our next question comes from Ishugu Solbert with BNP Paribas. Please go ahead.

Hi, hello. Thank you for taking my questions and congrats on the prints. I have two. So first question on order intake. Would it be fair to assume that book to build would be doing better than historical trends of around 1.08 in the quarter? And second, thanks for the clarification on the pull forward of demand, which apparently had no impact on that order intake in Q1. Just wondering if this also applies to pent-up demand, or blanket orders which I think you had a bit of an impact on the order intake in Q4. So that would be my two questions and thank you very much Joachim for all the interaction in the past years and good luck and all the best for the rest.

Thank you very much Hugo also for your kind last words now. You have to live another half an hour with me now. But let me first of all ask you for clarification of your second question. We are not sure whether we really got it. Can you please repeat your second question, Hugo?

You made some clarification comments on the fact that there was no pull-forward of demand impacting the order intake and lifting the order intake in Q1. I was just wondering if you also haven't seen any pent-up demand or any blanket orders. in this Q1 order intake. Thank you. Large orders.

So yeah, thank you very much. So I guess we got it now. So on the first one, order intake, book-to-bill ratio. So I think what is important to note here is because you are relating that, and I think that makes a lot of sense, to longer-term trends and levels. What is very important, the 1.08 that you were mentioning was indeed a longer-term average. So it's a good yardstick to compare a current level with, but I would always recommend, we would always recommend to use it rather for annual book-to-bill ratios than for quarterly book-to-bill ratios. So having said that, what we have seen now for two years, pretty much consistently, of course, coming from a low level after the reduction of inventory levels kicked in at customers, that our moving annual total book-to-bill ratio is moving upwards. Moving annual total book-to-bill ratio is just that what I've mentioned what makes sense to look at, that represents a 12-month average. And we are now since more than a quarter above one with this moving annual total. So all this moves exactly into the right direction. And of course, the moving annual total moves a bit slower than a monthly figure. I think that goes without saying. And then my last piece of perspective that I would like to share here is for the quarter, the yardstick of our longer-term average is a good comparison. Let me phrase it like that. So that is the level that for the quarter we are now roughly seeing. But again, please keep in mind, this makes really sense on a moving annual total perspective only to measure against. But again, all those trends, all those signs are exactly moving in a nice, consistent way into this direction. And then on blanket orders, not higher or anything than we have seen at other points in time. This always plays some role. Some customers place such orders. Typically, by the way, at very individual points in time, you wouldn't say it always happens in Q1 or it always happens in Q4. It's really different from customer to customer, and there is no particular pattern that we could report for Q1.

Our next question comes from Richard Wasser with JP Morgan. Please go ahead.

Hi, thanks for taking my questions. And I'd echo Hugo's comments. Good luck, Gil Kim, and thanks for everything. Now the questions. Maybe I could ask about the seasonality in buyer process. How are you thinking about that? Obviously, we've had a very strong Q1 above 10% growth. and your guidance implies is a 5% to 9% range. How are you thinking about that based on what you can see in your order book? That's the first question. And the second question, just on LPS, just, you know, again, pretty similar question. It's been relatively weak in Q1, and obviously equipment's remaining muted, and that's quite a large portion of the business. What gives you the confidence to be able to get to 1% growth given the decline that we saw in Q1? Thanks very much.

Thank you very much. I think the first question on the seasonality in the bioprocessing, look, nothing really special what we would expect or different to previous years. With respect to seasonality, you're right, good Q1, strong Q1, but no big ups and downs expected for the rest of the year. If we look at seasonality, maybe it's fair to say Q4 is strongest, followed by Q1 and then Q2, Q3. That's something we would also expect for 2025. Again, no big differences. You can read from our guidance 7% and the range we have the plus minus two percentage points that gives you kind of a good idea where we are heading.

Maybe just some first remarks on LPS and then Alexander will add to that. So the ratio also for LPS has been encouraging. and following an encouraging trend, as I just explained. Then we also have to keep in mind that it hasn't been so much a reduction of inventory levels of customers, but we also have seen a period during 2021 and 22 in particular, with partially still having an effect in 23, of significant expansion of lab capacities, research capacities, a lot of investments being made into instruments, and therefore a muted demand following that. And I think we have seen the trough here. And then on top of that, the division also has launched a few products, more to come, very encouraging customer feedback, and maybe, Alexander, you add to that.

Yes, following in the comments on the new product launches, we could see that with innovations, it really resonates with the customer. So launching instrument in the end of January, in March, we already had the first order. So really a rotation from the lead to the order was faster than usual. And historically, we have also seasonality within the LPS division and second half of the year for us. always stronger than the first half of the year, as we saw in all the previous years. So it's innovations, it's seasonality, and of course, we didn't utilize fully potential on recurring revenue. I see that coming together with instruments in the second half, probably stronger than now.

Thanks very much.

The next question comes from Paul Knight with KeyBank. Please go ahead.

Joaquin, the question is on tariffs. Do you think customers will easily absorb those higher prices because products are so important to therapeutic manufacturing?

Yeah. So it's really important to underline that we are, and I would guess, and assume that our peers will do this very, very similarly, that we are really only passing to our customers those additional costs that we are facing through tariffs. And we'll be very transparent towards customers about that. And therefore, I believe that our customers will accept that and also can accept that. And you are right. All products are essential for the manufacturing processes in particular. But as always, we are not taking unfair advantage of that. But we are planning to compensate the effects that we are facing.

And then regarding National Institute of Health, are the related universities spending less due to the budget confusion? And then the other part of NIH, they are encouraging less animal but more cell testing. How quickly do you think that cell testing develops?

Yeah, so thank you for this $100 million question. We believe, actually, that there is reason to be quite a bit optimistic. Why? Because this technology is Innovative, no doubt, on the one hand, and still a lot of further improvements and expansions of this technology possible. And we believe that MATEC is therefore the best available platform. But at the same time, it's a technology that is very well established in the cosmetics industry, for example. Of course, you could say with a limited scope and with a less complex scope, scope, but nevertheless absolutely established. And I think it has been a long way coming that there is now the broader ask and support and commitment for an establishment of this technology. And therefore, we are quite optimistic. At the same time, we should keep in mind that when you look on animal testing globally in total, within drug development, research and development, I think only 15, maybe 20% of all the animals being used are being used there, right? So even if within the next five to 10 years, we can compensate for that to a large, large extent, we are addressing only maybe max 20% of animal testing so far. But nevertheless, it's absolutely worth it. But as Alexandra also said, it's not only and only in TIPS here, only that, it's also that this tissue-based test procedures provide more relevant biological insights and allow for an accelerated and more efficient drug development. I think it's really a technology that provides a lot of advantages, strong advantages, and therefore I think there's good reason to assume that it makes substantial inroads within the next couple of years.

Yeah. The next question comes from James Tempest with Jefferies. Please go ahead.

Yes, hi, thanks for taking my question. Just to come back to the comments on book-to-bill sort of well above one, I mean, that does imply a material increase from one, so wondering if you can help quantify that. I think from memory you did 1.2 times or so in Q4, which seems to be more of a relevant quarterly reference point. We've had a bunch of incoming as well on why you stopped disclosing orders, and some investors have been surprised. If you could help us understand that, and I'll come back for a follow-up. Thank you.

Okay. So, yeah, thank you for that question. So we have been in discussion and interaction and dialogue a lot with investors and with analysts over the last, yeah, you could say pretty much like eight quarters or so. And clearly the majority of those discussions has led to the conclusion that the full disclosure of order intake, which was unique, nobody else was doing that in the same way, has rather led to a distraction from the more relevant KPIs. And you could also say sometimes, sometimes to misinterpretation. And therefore, we have decided to really align a little bit more with what seems to be I don't know whether it's right to say market standard or the average level of disclosure here. And that is why we are giving this insight and nevertheless try to give additional color through explanations as we are giving it here today for both divisions and the group. And I thought that we also were giving some further help in interpreting this information in the right way. So maybe let me once again say for both divisions at the group, we see a positive trend for what we would consider the really relevant perspective, which is the moving annual total trend for book-to-bill. And we now, since more than a quarter, see this number being above one. And I also gave an indication that for the single quarter, even though that is maybe even a little bit too short-sighted, we are somewhere around the level that we have seen on the longer-term averages before the pandemic. So I hope that's helpful, and we are fully committed to support you interpreting these numbers in a good way and giving this insight. but we at the same time are convinced that this full disclosure of order intake really bears the risk of too short-sighted interpretations, misinterpretations, and distraction from focusing on the more relevant KPIs.

Thanks for that. My follow-up is if you could just comment on industry lead times and whether you're seeing those extending and any view on excess capacity across the industry or if you think that's lower. You've mentioned seeing more frequent orders, but are you also seeing volumes going up per order? And if so, how does that relate to pre-COVID?

Thank you. So are you referring to capacity utilization on our customer side or on our side?

Well, I guess your side in terms of being able to supply and, you know, are lead times shorter or longer? And are you seeing the average volumes going up or not? Just trying to get a sense in terms of whether the ability to supply customers is – is getting harder because there's increasing orders sort of coming in in terms of the demand for your products.

I can take that question. Thanks for that. So it's good that the demand is increasing. We talked about that really positive momentum. We see we have expected that. And, you know, to the lead times, there are product groups we are well, you know, within the standard lead times, more standard products. Some product groups we've seen now a bit longer lead times, mostly related to the supply chain. So the supply of the components, much less of the reason is the capacity. Capacity is there. We're quite quick in ramping up. We've been doing that. But in some cases, waiting to get the components, that can lead to a bit of bit longer lead times. Thanks very much.

The next question comes from Charles Pittman with Barclays. Please go ahead.

Hi, thank you very much for taking my questions. Just one more on orders and your commentary around the lack of probable pull forward. I'm just wondering if you could give us a little bit more detail on the phasing of orders seen over 1Q by month. And if you just, I mean, I know there's a fair amount of lumpiness, but just to kind of give a little bit more confidence that you can have that insight that there is no pull forward from 2Q, 3Q, 4Q this year. And then just a second question on the guidance for the year. What you provided previously at FY24 was kind of qualitative, and you suggested that you were remaining cautious. Can you just confirm, I assume this is the case given the plus 2 minus to percentage point range on guidance, that this does remain intentionally conservative in your eyes, given the strong 1Q results? Thank you.

Yeah, your first question, I'm sorry, we cannot give more insight than what we tried to give you already. So we haven't seen any put forward orders to the best of our knowledge. And then Yeah, well, of course. The guidance that we are giving you today, we intend to give in a sense of a robust guidance. And I think two percentage points plus minus is a bandwidth that has made a lot of sense over the last couple of years. And I'm not only referring to the pandemic. At this point in time of the year, it's typically what you can see as variables and even more so in these times, I believe. But yeah, we try to give a robust guidance here indeed.

Maybe just a quick follow-up then. If you could just give us a little bit more detail on what would it take to reach the top or the bottom end of this guided range? I mean, to get to the top end, would you have to see a full recovery of equipment demand by the end of the year is suggesting you would see some recovery and what would have to happen to hit the bottom end given the strong monkey start.

Yeah. What I find always important here is and I hope you can confirm that there is good reason for this confidence now again after a couple of quarters, a few quarters at least, that are very much based on the fundamental trends that the question for reaching certain volumes is not so much a question of the if, but of the when. So, therefore, it's more the question, okay, will the recovery of the instruments and equipment orders start three months earlier or later. This is indeed a little bit the variable and the aspect that is a bit difficult to predict indeed and not really within our scope of influence. So that's exactly the point. But at the same time, the flip side of that coin is that we can be very confident that it will happen. I think René was talking about the encouraging discussions that we are having with customers about substantial projects, and all this, we shouldn't forget that, is backed by very healthy pipelines of our customers, quite strong levels of new product approvals. So, therefore, And, of course, it doesn't help much when you want to dial in a number in your Excel sheet for the year 2025. I fully understand that. But nevertheless, on a little bit bigger or broader perspective, this will come. And at this point in time, it's a little bit difficult to exactly say which quarter it will kick in, and that makes a difference indeed. Thank you so much.

The next question comes from Sibyl Buterin with Morgan Stanley. Please go ahead.

Thank you very much. First question is just on the mid-term outlook. We are seeing sort of large investment announcements from the pharma industry in the U.S. to onshore capacity with a big capex plan being announced. Is it fair to expect incremental demand from building capacity in the U.S. and to expand expect to participate into this? And also the timing where if this happens, is it the 2025 story in terms of orders or would it potentially more materialize in 2026 in terms of orders? That's the first question. And the second is just on China. If you could provide an update on the sort of demand and outlook in China. There are some talks of potential acceleration of the stimulus program. from the government, so do you think you could benefit from this as well to some extent?

I take the first question on the investments and announcements. Our business is very much driven by the drug demand. As you know, for the bioprocess division, 80% is recurring consumables revenue, and what drives that is the the volumes of manufacturing, the approvals of new drugs, going then and driving the increase in the volume and, as Joachim mentioned, the pipelines of our clients. That's very much the most important gross driver. The investments which are planned are not necessarily bringing the volume, but in certain cases, then it will have positive effects on the CapEx and some installations of equipment. But the major part of the business is really volume-driven.

China stimulus, not much new to report on. Of course, all of our customers are looking into opportunities, but yet not much has materialized, I would say. Thank you very much.

Our next question comes from Falco Friedrichs with Deutsche Bank. Please go ahead.

Thank you. Two questions, please. Firstly, on the consumables business within BPS, how close to normal demand pattern are you seeing here again? And is this destocking now fully completed or for the most part completed? And then my second question on tariffs is, Could you give us a few examples of the types of products that you do have to import into the US at the moment? And when you said that you could shift a little bit, about 10% to the US within a few months, for which types of products would you do that? Thank you.

So first question, the demand consumables, the pattern we see, yes, we are I would say close to the real demand of our customers means that this stocking is indeed to the biggest extent already behind us, still here and there, some pockets and customers still working through the rest of the inventories, but it's not anymore the main topic for us. and on the tariffs and the product groups examples. In the U.S., we, in Puerto Rico, where we have a large manufacturing facility, that's the main, the biggest product groups in our consumables portfolio, like filters, single-use bags, which we have installed capacities Over there and then East Coast in the U.S., also an equipment site, assembly of power processing equipment, products, examples where we don't have a footprint in the U.S. would be assembly agents from the reason acquisitions as an example.

Thank you. And Joachim, all the best to you in your next steps beyond November.

Thank you.

The next question comes from Oliver Metzger with Odo. Please go ahead.

Good afternoon. Thanks for taking my questions. The first one is more of a modeling question to understand. So the strong order intake you recorded in Q4, would you describe that the majority of revenues related to these orders were already converted into sales in Q4 or was there some spillover into Q1? Second question is about early biotech funding. The last weeks were turbulent and we saw in some areas even some reluctancy to invest. Could you share your view whether you saw any deterioration of biotech funding again? And if not, do you see the underlying recovery of early biotech to continue? Thank you.

Yeah, Oliver, thank you for your question. Let me answer on order intake Q4, and just to remind everybody of us, this was overall in the group a very high order intake of more than 1 billion, 1 billion 41 to be precise. And, of course, there were, I would say, a normal part was already converted to sales in Q4. Also, Q1 benefited a little bit of that, but still, as you've seen also that our orders on hands have grown by year end, there is a lot even also after Q1 to materialize in our business. So, Q2 and to some extent even Q3. Yeah, and early biotech, I would say clearly not yet back to these very high levels that we have seen since mid of 2020 and then through 21 and large part of 22 probably. But let me remind you that we don't have such a big exposure to early biotech and early NIH funding directly. Of course, you could say it's a certain proxy for how the general mood is in the industry, also in the U.S. So clearly, still, as you say, maybe a little bit of a reluctance, but it's also fair to say that the low point is behind us here.

Okay, that's good to hear. Thank you, and all the best to you.

The next question comes from . Please go ahead.

Hi there, guys. Thanks for taking my question. So just one clarification on the tariffs. So just when you talk about surcharges and plus maybe some transfer pricing, should we just think about this as just generally being P&L neutral, X maybe some quarterly movements? And then my second question would be if you could just remind us on the LPS equipment side what the split is in terms of biopharma industry exposure sort of NIH and academia?

The corrective mitigating measures that we are undertaking are meant to keep it EBTA neutral. Indeed, that's what we are aiming for. And Alexandra?

Looking into our instruments split between different segments, so you ask NIH, academia, and pharma, NIH is rather a small amount, around low single-digit percentage. Then the second biggest would be biopharma followed by academia between all the bioanalytic instruments.

And maybe just as a short follow-up on that, are you at all concerned about what's happening on the funding side of the university side, and would you expect that would hit ordering on equipment?

We didn't saw any different pattern in the Q1 for the ordering pattern from academia, so of course we will monitor what happened in Q2 and Q3, but Q1 was, you could say, pretty usual business in academia with grants and all the orders of the instruments, as well as consumables for this instrument.

Excellent. Thank you very much. Also wishing you a lot of luck, Joachim. Thank you.

Ladies and gentlemen, in the interest of time, please limit yourself to one question only. The next question comes from Charlie Haywood with Bank of America. Please go ahead.

Charlie here with Bank of America. Thanks for taking my questions. Just a quick one on your full year 25 bioprocess EBITDA guide implies limited margin expansion from first quarter throughout the year. So is it fair to expect that to continue as fairly flat throughout the year on the margin level or what's stopping you seeing continued margin expansion? And then just a very quick clarification. Can you confirm your sales guide currently excludes the passing on of tariff costs to customers? Thank you.

Yeah, let me start with the guidance question. First of all, you know, there is, of course, a, I would call it, reducing factor of the efficiency program as base effects from last year also kicking in. This is why we are taking a more cautious approach on guidance going forward. A second point to keep in mind is that in Germany as well as in other important markets, there will be some cost effects kicking in also because of personnel cost increases, wage increases that are typically kicking in Q2 of the year. So this is why we are right now starting into the year with the guidance. that is round about the current level of profitability that we've seen. Yeah, and the second question also, correct surcharges yet not being factored into our guidance. Perfect. Thank you.

The next question comes from Jamie Coogley with Goldman Sachs. Please go ahead.

Thanks for taking my question, James, quickly here from Goldman Sachs. So I've got a question picking up again on the timing of when equipment could start to come back in the BPS division, as that's quite a big offset on the strong growth that we're seeing in consumables. So could you just remind us of what are the key factors that are driving the slow equipment orders? Is it the fact that during COVID there was a massive shortage increase in orders and deliveries and now some of your pharma customers are waiting to increase utilization of those facilities before ordering new equipment. Is it more of a case that customers are sitting on investment decisions and not wanting to invest further, or is it, as we've seen across the market, there's a lot of activity in the CDMO space with stainless steel manufacturing, so maybe less of a requirement for single use. Any sort of color, any factors there that you could apply on would be super useful. Again, appreciate you don't have a crystal ball, but if there is any sort of ideas as to when we could start to see equipment being less of an offset on consumer boards, that would be awesome. Thank you.

Yeah, so let me try to give you a bit of color to what the equipment is. regarding the equipment situation. And how you described it, I think all the, you know, different aspects play a role here. Definitely there is some pockets of overcapacity still in the industry. We've been talking about the China specifically, maybe a region where it was most pronounced or is mostly pronounced, yet we see a nice kind of a growth of the use of consumables in the in-store space, clearly showing that the utilization of the equipment in the industry is increasing and we are approaching to, you know, the high utilization levels. You mentioned CDMOs. Maybe that's a group of the small midsize CDMOs where we clearly see that Projects coming, utilization rates increasing, and first, you know, projects for capacity expansion already in our opportunity funnel. Maybe, you know, to give you an idea, I would say half of the projects, equipment projects we are working on today is what I would call capability additions, like new equipment which customers didn't have before. and maybe then the other half and 50-50 split capacity expansions and second the replacement of all the equipment. I hope it helps to understand the situation there.

Yes, that helps. Thank you very much and best of luck Joachim for the future. Thank you.

The next question comes from Charles Weston with RBC. Please go ahead.

Hi, thanks for squeezing me in. Just one on inventories, specifically your own inventories. Has your inventory reduction program finished? And was there any margin impacts on that in Q1? Thank you.

Yeah, thank you for that question. Inventory developed in Q1 quite stable, but based on an increased business, of course. In terms of inventory days, we were able to make improvements in Q1, and there have been no margin impacts like the ones that we were talking about last year because everything that we have been producing was, you know, was not reducing overall the inventory to a large extent. So no double effects of fixed costs in our P&L in Q1.

Thank you. Is there more to come on the inventory days?

No, we are not expecting that in 2025.

Okay. Thank you very much. Good luck, Joachim.

The last question comes from Delphine Lillouet with Bernstein. Please go ahead. Is that where your line is open? Maybe your microphone is on mute.

Yes, sorry for that. No, I had some issue with my mic. Firstly, Joachim, thanks a lot for all the job you've been doing over the decades. We know each other and when I look at the journey you've been doing on the biopharma and all the innovation you bring to the table, I think it's... It's an amazing achievement. So well done for your leadership and where we are today. And so obviously my question is going to be for you. And probably with a long-term or mid-term look at, can you detail us your CapEx expansion plan in the U.S.? And what's going to trigger, if any, the tariff, a bit of a change in your CapEx direction for the U.S. specifically?

Yeah, thank you very much. Maybe a few words from my side. Maybe my colleagues want to add to that. But the tariffs now, of course, are maybe, you know, opening a new chapter in the trade conflict that we saw coming, all of us saw coming since more than eight years now. And therefore, also, we have expanded our footprint in the US, as well as in Asia, for example, quite a bit over the last couple of years. Just as a reminder, we have substantially expanded our presence, our manufacturing presence in Yaukou. I think just a minute ago, Renée was talking about the bandwidth of product that we are manufacturing there. That is very substantial. We also have opened up just last year our center, our Global Center for Bioanalytical Technologies, Instruments Technologies, Manufacturing and R&D in Ann Arbor, as the majority of the market for such instruments is in the US. And then later last year, we have opened up our Customer Interaction Center, uh about product develop a process development sorry in marlboro close to boston with a certain focus on new modalities and we also are running manufacturing sites there both for equipment as well as for consumer builds for the bio process solutions division so what i want to say by that is we already have quite an established footprint we can further expand the utilization of these capacities short term to some extent. I was talking about that when I said 10 percentage points that would reflect something like by a quarter or so in relation to its current utilization. And of course, it would be possible to go a bit beyond that then afterwards if necessary as well. So, we think this is already quite a substantial footprint. And at the same time, an efficient footprint because we think it would come at a cost if we would expand our footprint in the U.S. substantially also across all other products. No plans today, and therefore we would project today that capex ratio globally for Sartorius will go down within the next years to come after our expansion in Asia has been further progressed. So that's a bit our perspective here today. Okay. Okay. Good. So I think we have come to an end here today, and all questions hopefully have been answered to your satisfaction. I would like to thank you all for your interest in Sartorius. I would also like to thank you personally for your kind words during our today's call, but also always for your, yeah, your support by covering Sartorius And it has been really a very satisfying journey together in this very, very nice industry I think we are all focusing on. So thank you very much. My journey at Sartorius is over, but not my journey overall. So let's see where we will meet again in the future. I at least would be happy to do so. So all the best to all of you, and thanks a lot.

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