Sartorius Stedim Biotech

Welcome to the presentation of Sartorius and Sartorius Stadium Biotech's 9-month 2025 results. Please note that the call is being recorded and streamed on Sartorius' website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius.

Hello, thank you, Matilda, and a warm welcome from my side. I'm joined today by our CEO, Michael Große, by Florian Funk, our CFO, by René Faber, head of our Bioprocessing Division and CEO of Sartorial State and Biotech, and by Alexandra Gatzemeier, head of our Lab Products and Services Division. As always, we will start with prepared remarks followed by a Q&A session. As the call is scheduled for one hour, please limit your questions to two so that as many participants as possible can take part. Please note that management comments during this call will include forward-looking statements that involve risks and uncertainties for discussion of the risk factors. I encourage you to review the safe harbor statement contained in our today's documents. All of these are relating to our nine-month figures, and the reporting are available on the website. And with that, I'm pleased to hand over to Michael Grosse, CEO of Sartorius. Michael, the floor is yours.

Thank you so much, Petra, and good afternoon, everyone. A very warm welcome also from my side, and thank you for joining us today. As usual, we will walk you through our operational and financial performance year-to-date, discuss our updated outlook, and for the remainder of the year. Before we drive into the details, let me share a few remarks on my first three months as the CEO of Sartorius AG. Over the past weeks and months, I focused truly on listening and learning, connecting with colleagues and customers, partners around the world to understand their perspectives, expectations, and ideas. These conversations have further strengthened my conviction that Sartoris is indeed a company with a tremendous strength. Outstanding team, deeply respected position in our industry, and significant opportunities for the future. It's been an overwhelming start, I have to say, in the best possible sense. I want to thank all of my colleagues for their warm welcome, their commitment, and the enthusiasm they bring to their work every day. We will continue to evolve our strategy in line with where our customers and the broader biopharma and life science markets are heading. Our shared vision remains unchanged. to simplify progress in biopharma and life science research, enabling better health for more people. This brings me to the key messages that we would like to share with you today. First, we are pleased, and we really mean it by that, not necessarily only about the results, but as well the fact that during this year, 2025, we have been able to say what we do and do what we say. So we are pleased with our results for the first nine months and the progress achieved across the group. Sales grew by 7.5% in constant currencies. Even more encouraging is a significant expansion of our underlying EBITDA margin by two percentage points to 29.7%. And this despite FX headwinds that played an even larger role in Q3. This clearly demonstrates the positive effects of the growing volumes and the operating leverage in our business model, as well as our strong operational performance we had been working on for the last month. The main growth driver was once again the continued strong demand in our consumer business across both divisions. The 12-month rolling book-to-bill ratio was clearly above one and continued to improve sequentially. So, we have now seen nine consecutive quarters of improvement in this ratio. For the bioprocess solutions division, we delivered double-digit growth in the recurring business, which more than offsets the softness in the equipment business, which remains subdued but is stabilizing. In lab products and services, performance improved gradually, as expected, with slight growth in Q3 driven by recurring business. While instruments' demand remains subdued overall, it is more stable, similar to the trend observed in BPS. This development is equally supported by some recent positive momentum in our bioanalytics portfolio, partly driven as well by new product launches, including the updated InQ side version, which is featured on the cover page of this presentation. The leverage ratio was further reduced, underlining our commitment to financial discipline and a stronger balance sheet. Reflecting our confidence in our markets, we specified our full year 2025 guidance for both divisions and the group, now including the effects from tariffs and the MATIC acquisition in summer. For the group, we expect sales revenue to increase by around 7 percent. The underlying EBITDA margin is expected at slightly above 29.5 percent. Overall, Sartoris continues to execute well in line with our commitments and plans, combining innovation leadership with operational excellence and performance. Before handing over to Florian, I would like to make one comment on the 12-month rolling book-to-bill ratio, as many investors have asked how we are thinking about future disclosure of these metrics. We have always commented that this ratio was never intended to serve as a new KPI, replacing order intake, which we stopped reporting at the beginning of this year. We rather viewed it as a helpful metric during the normalization phase. To stay consistent throughout the fiscal year, we will provide a comment again when releasing our full year 2025 numbers. However, with the stocking now being largely completed, we have decided to phase regular communication on this metrics out. Business performance is best reflected in sales, the KPI we guide on, and which is more appropriate for assessing our consumables-dominated business model. Therefore, as of 2026, we will focus on sales revenue as our primary performance indicator and complement this with directional comments on the demand environment. With that, let me hand over to Florian, who will take you through the financials in more detail. Florian, over to you.

Thanks, Michael, and a very warm welcome also from my side. Happy to take you through our set of numbers which reflect a continuation of the business dynamics that we've seen for quite some time now. Let me start with sales revenue, which is up 7.5% in constant currencies and 5.5% in reported currencies to $2.6 billion. This positive development is driven by a mid- to high-teens growth in our recurring business over the quarters, which, as you know, is the dominant part of the portfolio. The non-recurring business was soft in the nine-month period, but it is stabilizing. Regarding the differential between constant currency and reported growth, it's clear that the FX situation has changed over the previous quarters. Whereas in Q1, we had some FX tailwind, the weakening of the US dollar in Q2 and more so in Q3 generated headwinds of around 200 basis points to our nine-month reported performance. With FX rates staying on today's level, the negative FX headwind for the full financial year 25 should be around 300 basis points. Important to take into account when coming to your assumptions looking forward. Nine months was also influenced by U.S. tariffs. As you know, we have successfully implemented tariff surcharges, which added 19 million, which is slightly below one percentage point, to our sales revenue. leading to a slight technical margin dilution of around 20 basis points. To be clear, the mentioned margin dilution is purely a mechanical effect caused by tariff surcharges as part of sales. These surcharges increase sales, the denominator in margin calculations, without a corresponding increase in the numerator, the EBTA. For Q3 specifically, the uplift in sales revenue due to charges was approximately 14 million, resulting in a technical margin dilution of around 50 basis points on group level. Order intake in the first nine months developed strongly and in line with expectations. Orders grew faster than sales, both over the nine-month period and during Q3. As a result, our 12-month rolling book-to-bill was clearly above 1 and continued to improve sequentially. Please note that with further sequential order intake growth in Q4, it is fair to assume that momentum in the rolling 12-month book-to-bill is starting to slow amid high prior year comparable effects. So technically, if Q4 B2B will be below the very high prior year comp figure of 1.16, the LTM B2B will slightly decrease from that current level. The positive top-line development is also reflected in underlying EBITDA and margin. Underlying EBITDA grew overproportionately by 12.8% to 774 million, and the margin increased by 200 basis points to 29.7%. This margin expansion was driven by positive volume and product effects and economies of scale offsetting FX headwinds of almost one percentage point. Underlying EPS also grew nicely by around 17 percent. Now looking at the regions, we are pleased that all regions contributed to this positive development. With an APEC, China has stabilized and was only slightly dilutive to overall growth. Growth in the region excluding China reached mid-teens year-to-date. EMEA remained robust with more than 6% growth year-to-date. As you may remember, the recovery in EMEA began earlier than in other regions and is therefore facing higher baseline effects compared with the Americas and Asia Pacific. For bioprocess solutions, growth was strong across all regions. Lab products and services showed gradual improvement with a return to growth in Americas and APAC. EMEA remained relatively soft, also reflecting higher prior year baseline effects. Let us now turn to our two segments, beginning with BPS. BPS delivered another strong quarter, Sales revenue in nine months is up almost 10% in constant currencies year-to-date. Growth was driven by high teens' growth in consumables, while equipment, as Michael mentioned, was soft but is stabilizing. Underlying EBTA increased by 17.3% to 667 million, with the margin improving by 260 basis points to 31.5%, supported by sales a sales mix, scale, and efficiency gains. Let's move to LPS, which delivered a resilient performance in a challenging market environment. Sales declined by a modest 1.3% in constant currencies year-to-date, supported by good momentum in consumables and services. The acquisition of METEC added almost one percentage point to this development. The instrument business was impacted by constrained CAPEX spending in life science research and markets, though we are seeing some encouraging signs of stabilization, also supported by positive momentum in bioanalytics in Q3, to which the launch of several updated instruments positively contributed. In Q3, sales were up 4.4% year-over-year. FX adjusted, including a non-organic contribution of around 2.5 percentage points from MATIC. The margin for the nine-month period came in at 21.7%, somewhat below prior year due to lower volumes, but especially unfavorable product mix and FX effect. Looking now at the performance below underlying EBITDA, both net profit and cash flow developed well. Underlying EBITDA has already set a growth of 88 million or 12.8% translated into over-proportional growth in underlying net profit of plus 17% and reported net profit plus 66%. Operating cash flow came in solidly at $511 million, below the exceptionally strong prior year figure of $613 million. Please bear in mind that in 2024, we were pulling the inventory and accounts receivable levers heavily, and you can only do that once. Furthermore, we want to ensure delivery reliability to our customers alongside the overall growth in business. We remain committed to keeping networking capital growth below sales growth this year and also going forward. With capex slightly below the prior year level year to date and investing cash flow of minus 311 million, free cash flow came in at 200 million. As highlighted during our previous call, there is some capex seasonality with H2 overall showing higher capex than H1. The capex ratio as a percentage of sales increased to 11.7% for the nine-month period of 2025, but we continue to expect full-year capex of around 12.5% of sales. Turning to our balance sheet-related key figures, we see a strong equity ratio of 39.7%. This increase versus year-end 24 is mainly due to some repayments on financing instruments using our very strong cash position and therefore tightening the balance sheet total. Net debt increased in connection with financing of the MATEC acquisition and the dividend payouts in Q2. But the leverage ratio, defined as net debt to underlying EBTA, improved from 4.0 times to 3.7 times in nine months after we have seen 3.8 times in H1, despite the acquisition of MATEC, which added approximately 0.1 turns to that ratio. So we are well underway on our planned leveraging path. And as you can see in the title, we stay committed to our investment grade rating. And with that, I would like to hand back over to Michael.

Excellent, Florian. Thank you so much. So let's look now to the full year 2025 guidance. Based on the continuous strong consumables demand and our solid operational performance year-to-date, We are specifying our full year 2025 guidance in the following way. For the group, we now expect sales growth in constant currencies of around 7%. For bioprocess solutions, we anticipate around 9% growth. For lead products and services, we see sales roughly flat versus the prior year period. Driven by strong performance and efficiency gains, we forecast the underlying EBITDA margin slightly above 29.5% for the group. For BPS, we expect margins to come in slightly above 31.5%. For LPS, we now anticipate a margin of around 21.5%. On cash-related items, our guidance remains unchanged. CapEx ratio will be around 12.5 percent as we advance the expansion of our global production network and other strategic capacity investments. We also continue to expect net debt versus underlying EBITDA ratio to decrease to approximately 3.5 times at the year end, as Lauren already highlighted. The non-organic contribution from the MAGNEC acquisition of a good 1 percentage point for LPS translating to around 0.3 percentage points for the group. The tariff-related impact of 1 percentage point additional top-line growth leading to a technical dilution in the underlying EBITDA margin of around 30 basis points in for the full year 2025. Our goal remains to continue strengthening our position in the market, and with our strategic direction, robust innovation pipeline, and strong consumer-customer partnership, we are well positioned to deliver on our ambition. With that, I would like now to hand over to René, who will walk us through the financials of Sartorius Stadium Biotech in more detail. René, over to you.

Thank you very much, Michael. Also, from my side, welcome, and thank you for joining us on the call today. Let me quickly walk you through the nine-month 2025 results for Sato Estet in biotech. We're very pleased with our operational and financial performance after nine months. Our high-margin recurring business with consumables remained very strong, delivering high teams, growth, and more than compensated for the soft-butt stabilizing equipment business. Sales for Sato Stead and Barter Group increased by more than 10 percent in constant currencies, reaching nearly 2.2 billion. Growth in reported currency was 8.2 percent, primarily due to the weaker U.S. dollar. The non-mines results were also influenced by U.S. tariffs. Florian elaborated a bit on that already. As you know, we have successfully implemented tariff surcharges which added around $17 million, a bit less than 1%, to sales revenue, leading to a technical margin dilution then at around 20 basis points. The 12-month rolling book-to-bill ratio was clearly about 1% and continued to improve sequentially. Underlying EBITDA increased overproportionately to revenue, rising by 21% to 683 million euros. This strong result was driven by volume mix, product mix, and economies of scale that offset the diluted FX impact of almost one percentage point. As a result, the underlying EBITDA margin improved significantly to 31.1%, an improvement of 3.3 percentage points compared to a year ago. Underlying EBS rose by 33.3% to 3.28 euros. Now looking at the regions, all three regions showed significant growth for Sars-Torsten in biotech. The Americas delivered the strongest year-over-year performance, up by 11.8% in the first nine months of 2025. Asia-Pacific accelerated robustly, posting 11.2% growth for the period. within Asia-Pacific China has continued to stabilize and was only slightly dilutive to regional growth. Excluding China, the region would have grown by approximately mid-teens year-to-date. EMEA maintained a solid momentum delivering 8.4 percent growth year-to-date. This robust performance came despite a higher comparison space resulting from an earlier recovery cycle in that region. as we discussed previously. Looking at the net profit and cash flow, underlying EBITDA growth of the strong 21% translated into an over-proportional increase in underlying net profit of 34.3% to 320 million euros, and the reported net profit of 68.5% to 280 million euros. Operating cash flow remained solid at 446 million euros, although below the high level recorded in the prior year, which was positively influenced by the inventor in accounts receivables measures that Florian already touched upon. Pre-cash flow was 167 million euros. Gap as a percentage of sales increased as expected sequentially to 12.6%. A quick look at our balance sheet metrics. Our equity ratio improved to 51.7% at the end of September with the increase being driven by some repayment of financial liabilities and therefore tightening the balance sheet total. Net debt increased slightly versus year end 2024 due to the dividend payouts in Q2. Deleveraging is progressing as planned. with the net depth to underlying EBITDA ratio improving to approximately 2.5 now by the end of the first nine months. So we are well on track on our deleveraging path. Before we move to Q&A, let me quickly operate on the updated full-year 2025 guidance. Based on our strong operational and year-to-date performance, and the continued robust demand for consumables, we are upgrading our full year 2025 guidance for the Thursday in biotech. We now expect sales revenue growth of around 9% in constant currencies. The underlying EBITDA margin is now expected at around 31%, which is at the top end of the previous guidance. Our capex ratio remains unchanged at around 13 percent, reflecting the ongoing investments into capacity expansion and innovation. We also still anticipate leverage. The net depth to underlying epidaire ratio to be at approximately 2.5, down from 2.8 in the prior year. Please note that our guidance now also includes the tariff impact. Tariff surcharges are expected to contribute around 1% to sales revenue, leading to a technical margin dilution of around 30 basis points by the end of the year. With this, I will hand over to the operator to begin our Q&A session. Thank you.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their 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 while asking a question. As a reminder, please limit the number of questions to two per person. Anyone who has a question may press star and one at this time. The first question comes from the line of Odysseus Manesiotis from BNP Paribas. Please go ahead.

Hi, thank you for taking my questions. First of all, I mean, your peer, your close peer Merck this morning noted an expectation for 9% to 10% by processing market growth over the midterm. So I first wanted to ask, does it sound like a reasonable range to you? And do you feel the market could get there as soon as 2026? And then I have a follow-up.

First of all, thanks for your question. As you know, we are not yet at a point where we have been walking through our perspectives with regard to our strategy, our mid-term, and our 2026 budget as such. However, let's say, I mean, I would say the estimation in terms of where roughly the goalpost might be doesn't sound completely off from our perspective.

Thank you, Michael. That's clear. And secondly, looking at your 12-month book-to-bill rolling, I appreciate the detail here. And yes, I agree with Michael that given that we're back, it might make more sense to phase out by Q4. But for now, is it fair to say that you're essentially back at the pre-pandemic average of around 1.08 for bioprocessing as of this quarter?

As we say, I mean, we are not really at a point that we think that it's good for us to put too much attention and detail on that. We felt that we indicated with the message that we are clearly above one, indicating that we see that positive momentum in terms of what we are receiving in terms of order and what we are getting out in sales realisation. This, while the trend as such continues, we have been, however, if we look backwards, you know, longer term, we have been as well on higher rates as we have seen during this year. So this is probably as much as clarity that I think we can give at this point.

That's very clear. Thank you very much for that.

The next question comes from the line of Zain Ibrahim from JPMorgan. Please go ahead.

Hello, Zain Ibrahim, JPMorgan. Thanks for taking my questions, and I'll stick to two as well. My first question is just to follow up on the previous one in terms of demand trends going forward and how you're thinking about the demand trends both for consumables and equipment going forward. It sounds like consumables continue to be strong, but equipment also is showing signs of stabilization to that. That's my first question, and then My second question is just on bioprocessing market share. Are you seeing any changes at the moment that you would highlight?

Okay. Sorry, the second question I may have missed. Can you repeat the second question? The first question is a bit on how we see the demand development with regard to instruments and equipment.

Yeah, that's right, on the first question. The second question was just on market share for VTS.

Okay, sorry. On the first question, I think we wish we could tell you much clearer to when exactly the market will turn back to how it used to look like on the equipment and instrument side. As we say, we see a stabilization of the trend, and we had some, I would say, Still too early to call it a trend, but we've seen, of course, the encouraging development that we've seen in the third quarter as well on the instrument side with the higher demand and some relevant level of order intake. Again, we remain positive that the market will and should progressively and gradually improve on that matter. But I really don't think that we have enough substance and data points to really say that it will and that we know exactly when it will. So we as well expect that this more to be a gradual process rather than a turnaround that happens overnight or that happens on the 31st of December. This is to be here.

I take the question on the market share as BPS. So I'm sure you guys know that You know, in our industry, you don't see a quick shift in market shares anyway due to the stickiness of the business. We are looking at three, five years CAGR compared to the peers to judge how we are doing. And I think it's a strong performance when you do that, gaining continuously increasingly the market shares. for our business. So I think we are looking at the current year development, the discussions with customers continue on that trajectory and positive about our ability to win projects, our ability to convert competitive products with better performing innovative technologies we are bringing to the market. So I think continuing on the track, strong track record of market share gains. Very clear.

Thanks a lot.

We now have a question from the line of Charles Pittman King from Barclays. Please go ahead.

Hi, Charles from Barclay. Thanks very much for taking my questions. Firstly, just noting the kind of rising comp headwind you're highlighting for 4Q on the book to bill. And given we're now about a sixth of the way into 4Q, I'm just wondering if you are expecting a sequential decline in that book to bill going to the end of the year or whether or not we could actually start seeing some budget flush benefit there. following the likely recent improvements in pharma customer budget clarity just any thoughts there and then a second one just if you could provide any kind of latest developments in your customer activity across the early stage and particularly large farmer activity in early stage given uh peers are pointing to a resurgence in biotech funding um and early stage activity of these pharma companies just a couple of comments there thank you very much

Thanks for the question. The first part was on the book to build. I think, you know, I feel like Florian answered the question in that sense that, and I may just have a different twist to it, but it's saying the same thing. So, I mean, again, we've seen that gradual improvement now all along the last and probably quite some quarters now. uh if we look at q4 again um in in my book and in my perception q4 2024 was an exceptional quarter an exceptionally strong quarter um so in case we we are able um to further improve the book to build in q4 on that basis rolling 12 months we will definitely open another bottle i would rather call it a um miracle So, yeah, we expect that there could be a slowdown on the base of the comparable base in the last year. But, again, still strong enough that we are positive about, of course, the total quarter in terms of its age development. And then the second part, I think, is that, René, will you take that?

Yeah, take that one. So, I understood the question on the development and the early stage biotechs. So, yeah, we see it somewhere. you know, overall, say, positive sentiment when talking to small biotech customers. Overall, some funding's happening, money flowing, progressing with the pipelines, molecules in the development. So that all is kind of, we see it as a positive signal, yet we don't see any material demand increase coming from that, but we expect that it's going to positively impact the development in the next quarters as well. I think also worth to mention that when talking about smaller customers in the CDMO space, that's also a customer segment which recovers later. compared to large-scale CDMOs. And we see also here already positive discussions around pipeline, project pipeline at the CDMOs filling up, preparing for additional campaigns and so on. So overall, I'd say positive signals to drive, you know, to contribute to the growth looking forward.

Thanks so much.

Next question comes from the line of Charlie Haywood from Bank of America. Please go ahead.

Charlie Haywood, Bank of America. Thank you for taking the questions. I have two, please. The first one on BPS consumables obviously continues to be very strong. Just wondering as you look to your order book, are there any pockets you'd flag either by geography or customer type which you think are yet to return to what you'd see as a normalized growth levels? And then the second one is just on the BPS margin. Obviously, year-on-year this year, you've seen roughly 250 bps step up, but it's obviously been relatively flat on a quarterly basis as we've gone through the year. How should we think about the moving parts on that into next year to drive your sort of guided mid-term margin expansion? Thank you.

I think the first part of the question, so on the recovery of consumables, You know, we don't really see there different dynamics pockets of inventory or the order book building dynamics. As we commented, the growth is very much visible across all the regions. We have seen that recovery now across the portfolio of consumables. Also there we don't see big differences. There was a bit later phasing of the recovery of products which had a longer shelf life, like filters for example, but they are now very much on the track. Maybe the only Yeah, kind of different dynamics with the smaller customers. As I commented just a minute ago, they are coming a bit later overall. So that's quite a broadly visible recovery in terms of consumables.

And regarding margin, so you're right that the Q3 margin is slightly below the margin that we've shown in Q1 and Q2. This is due to several factors. Factor number one, the absolute volume that we have been selling in Q3 was lower than in Q1 and Q2, so there was less volume or operational leverage. Secondly, there's the topic of tariffs, where we've clearly said that tariffs have the strongest impact in Q3. Nothing in Q1 and only very small in Q2, but Q3 is definitely hit by the technical tariff dilution. And thirdly, There's the ethics impact that we're having from the weakening of the dollars, where some parts of the products that we're selling in the U.S. don't have a U.S. dollar cost base, but have a Euro cost base, which of course is then also giving some stress to the margin. That is the point for Q3, but let me also clearly state that we are expecting definitely a healthy margin improvement back in Q4, which will bring then the overall annual margin to slightly above 31.5, as we have indicated for BPS. And also, I think what is clear on the back of a growth scenario that we are in general seeing for the year 2026 for BPS, And alongside also our statements in the midterm guidance, we are, of course, expecting further operational leverage going forward in that division.

Thank you.

We now have a question from the line of James Quigley from Goldman Sachs. Please go ahead.

Great. Thank you for my question. So the first one's for Rene. Rene, if we think back to June when we were in Miami at our conference, you were talking about how There's lots of capacity for growth in the consumables business because there is underutilized capacity that you can see at your customers. So as you look forward into 2026, how is that capacity utilization looking at your customers and therefore your capacity for continued growth in the consumables part of the business? Secondly, probably another one for Rene as well. There's been a lot of announcements of U.S. investment by your pharma customers and lots of pharma companies. Majority of it is likely to be R&D investment. So there will be some capex investment there as well. What abilities does that give you? on the potential recovery in equipment, particularly when thinking about how that capex might be spread between brownfield sites, greenfield sites, bolt-on expansions and things like that. So any comment you can give us on how the visibility has improved for equipment, that would be awesome. Thank you.

Thank you very much for the question. So let's start with the first one. on the utilization rates of single-use equipment. What we've been talking about is when we've seen this weakness in the capex equipment orders, one indicator we are watching and monitoring is how is the installed base of the equipment being utilized at customers. to understand the activity level and what's going on and how are customers using the equipment they have. And what we have seen is continued and strong growth of the consumables which customers use with the installed equipment, which is telling us, and we continue to see that, so we don't see a change in that, in the growing trajectory. And this is what is telling us is that increasingly the equipment is being used. So the activity is there and the customers at some point will hit the capacity limit and utilize fully equipment and get a new one. So, and that supports kind of the, you know, our overall kind of optimistic outlook that, as we said, it's for us a question of rather than when the recovery comes and not if the recovery comes. And secondly, it shows that, yeah, the utilization is growing, and I commented on the smaller CDMOs where they are getting projects now into the facilities. And in some cases, they need to add equipment. We've seen that in the past couple of quarters. So that's happening, and that makes us really positive. And that's also related kind of to your second question around the, you know, potentially moving or investing over proportionally in the U.S. due to the tariffs. We've seen a lot of headlines around that. So kind of you can say all in principle positive. We need to then see what is really additions instead of movements of, you know, transfers of capacities. For us it's important then it's really an additional demand-driven additions which then, where we then will see the increase in consumables consumption. We expect that we will see some increased investments in the U.S. It will take some time, depending on the type of the facilities. Customers are going to build greenfields. Large-scale takes several years until equipment becomes a topic and will be ordered and delivered. It goes faster with single-use facilities, maybe one to two years, and then you are in with the equipment projects. So overall, I would say it's a, at some point, we expect that it's going to be reflected in the equipment orders. But as Michael said, we need to see that first coming and then as the volatility of the equipment business anyway is higher, and I have said this several times, we want to see several quarters robust development to talk about trends.

That's excellent. Can I ask a very quick follow-up on the first question with consumables? Do you have any metrics that you can share with us in terms of where industrialization was at the end of last year, where it is today, and any outlook on how that could fill up going forward in terms of when customers in general might get that feeling. Thank you.

Yes, of course, as I said, we're tracking that, but it's nothing we communicate and collaborate as a KPI here. We're tracking that as a positive trend in increasing utilization. Thank you very much.

The next question comes from the line of Doug Schenkel from Wolf Research. Please go ahead.

Good morning. Good afternoon, everybody. This is Doug Schenkel from Wolf Research. Two topics I would like to discuss. The first is 2026, and then the second is the LRP. So on 2026, the cell side is currently forecasting around 11% year-over-year organic revenue growth for the bioprocessing segment. In my opinion, you would need to see an improvement in capital equipment demand to hit that estimate. Am I thinking about this correctly? I ask because while you have talked about some improvement in capital equipment demand on this call, which is encouraging, I would think that at this point, given it is an early stage of improvement that you would want, at least from a street management perspective, you would want us to wait to factor in signs of a recovery in instrument demand a little bit longer until you see more evidence of this sustainably improving. So that's the first topic. The second question is a lot shorter. Michael, when we met in Europe about a month ago, there were a number of questions focused on when you might update the LRP, when you might be far enough along in assessing the business to basically update the long-term targets. So the question would be, is that something that we can at this point expect early next year? Thank you very much for taking the questions.

Thank you, Doc. It was a pleasure. Thanks for the two questions. The answer to the first question is yes, and the answer to the second question is yes as well. No, so I mean, yeah, as we've discussed, I think in my mind, and I think Rene as well built a little bit on this, it's clear that the days on the full year growth perspective we're having really has been starting on a, of course, different comparable base in 2024. Again, if we see some level of continuation on the momentum of the consumer businesses, as well, Rene and Florin has been pointed out, we think that gives a solid base for the year to come. But I think we need to be cautious in order to, let's say, to believe that the trees will reach the stars on the basis that we would rather see it's happening on the equipment instrument side before we are talking about a trend. And we don't like to build plans on hopes. We would like to build them on enough solid, robust data to get a stronger conviction there. Still hoping for the gradual improvement. Then, indeed, we are planning a capital market day somewhere, of course, in the beginning or in the first quarter of 2026. And that will be the point in time where you will get, hopefully, a lot of answers to a lot of the questions.

We now have a question from the line of Subbu Nambi from Guggenheim Securities. Please go ahead.

Hey, guys. Thank you for taking my question. You touched on this a little bit on several questions. But thinking about bioprocessing market as a whole, accounting for capex how did the growth rates in production volumes perform in line with your expectation was it above was it below and then how does that outcome influence your thinking as we look forward to 2026 or the midterm and then my follow-up question was uh apac was strong for pps this quarter could you provide on how sales trended in china for the quarter and what's your expectation for the rest of the year thank you so much

Yes, so first question, action volume.

So, you know, there is no, this data is not easily kind of available, consolidated for our industry, but there are clear indicators, which is a consumables growth. And as our split of the revenues of consumables is around, 60% in commercial. And if you add the late stage clinical trials, phase two, phase three, maybe then total 80% is kind of volume driven growth. And we talked about that we have seen very strong and consistent recovery and growth in this consumable. So there is a consumption, there is production activities going on and it's growing. And to your second question, the China, when I was commenting about the regions development and the orders and this strong consumables trajectory that we see across all regions, that includes also China. So also in China, we see, meanwhile, a recovery and, yeah, double-digit growth of consumables. On equipment, it's weak, maybe even weaker than the other regions, not surprisingly. Not a surprise for us, as we've seen a bit of higher overcapacities during the pandemic in China, so that's kind of visible now also in equipment, but the consumables also are positive to see that we are getting back and we see the recovery as well in that region.

The next question comes from the line of Charles Weston from RBC Europe LTD. Please go ahead.

Hello. My first question is on the lab business. Last quarter, you said that you expected a strong Q4 in lab. It perhaps sounds like you're not viewing organic growth quite as strongly now. So perhaps you could explain if your view has changed there. And then secondly, if you do see an improvement in equipment and Q3 is the start of a trend rather than the one off, What does that mean for margin next year, given that it has a lower overall margin, but presumably you get some operating leverage through that equipment line as well?

Let me start with looking at LPS and Q4 and then also maybe a little bit looking ahead on your margin commentary and Alexander to build up on that then afterwards. So first of all, You know, we have expected, and we also talked about that in the last call, that we are projecting a stronger H2 development versus H1 in LTS. And this is exactly what we are now seeing already in Q2, where, as we've said, we've seen an increase in business of 4.4%. And even if you take out the MATEC acquisition, 2.5 percentage points, you're ending up with an organic growth of slightly less than 2%. So this is exactly moving into that direction. What we have also seen is, or foreseen, that Q4 should be the strongest quarter in the year for the LPS business. It also historically oftentimes has been the strongest quarter, as there are end-of-year budget decisions made on CAPEX. Alexander, do you want to add on that?

Yes, Florin, thank you. What Florin just mentioned is Q4 for LPS division is historically, if you look in the last probably 10 years, you would see a strongest quota driven by exactly effects on the CAPEX. And also in Q3, we saw some budgets being released around academia, around NIH. And yes, there may be not a new program started, but definitely continuations on programs which already run around development programs. And at our customer site in biopharma, biotech, we see more maybe interest around CapEx and definitely continuations on consumables. So that gives us the signs that Q4 should be rather strong as we just talked about that.

Yeah, and on your margin commentary, you know, this is completely technically right, of course, what you've said. If we were in a situation where the equipment business would gain momentum, and see an infection point, there might be mixed effects on margin. But honestly, I'm not expecting these effects to be that substantial that we would not see this kind of margin expansion overgrowth stemming from operational leverage overall in the group.

Thank you.

We now have a question from the line of Matthew Weston from UBS. Please go ahead.

Thank you very much. Two questions for me, please, if I can. A number of large pharma clients have said that they accelerated batches and manufacturing output ahead of the implementation of US tariffs during 2025. Do you recognize that trend or are you still confident that the strong growth seen in the nine months to date is real? and we won't see tougher comps when it comes to the first half of 2026. And then a second question on China for Rene. I'm just very interested as to whether now, having seen a period of time since domestic bioprocess companies were taking share in China, what's the midterm experience? Are you seeing customers come back to Western companies as quality becomes a challenge, or does the market remain the status quo?

Thank you for the question. So maybe starting with the second, as I said, we see good recovery in consumables in China. You're right, during the pandemic, which was kind of assurance of supply-driven shift in market shares and gains of the local suppliers. that happened, and what we see today, indeed, there are cases where we see customers coming back to us, and mostly customers, if we analyze the patterns, it seems like Chinese customers who are looking into bringing drugs out of China, partner with Western pharma companies. So those are more likely to come back and look into the quality and the innovation part. Yeah, but being completely transparent and fair, I think the local players have a have the right to exist and participate in the market moving forward. And to your first question on the large pharma companies kind of producing ahead of tariffs, look, we looked into that. We've seen that in few cases. But it's to what we know, what we talk to customers, what we hear, that didn't have a material impact on the growth trajectory we have seen in 2025 so far. So that also means we do not expect that it's going to play, you know, influence in some way the outlook for 2025.

As a reminder, please limit the number of questions to one per person due to timing constraints. The next question comes from the line of Oliver Metzger from Ottawa Bay HF. Please go ahead.

Okay, good afternoon. Thanks a lot for taking my question. It's one about some market fundamentals. So, a couple of years ago, you showed quickly some growth expectations across modalities. Now, some time has passed, we hear some negative news, for example, for mRNA. So, it seems that some of these novel modalities, the growth prospects, Sorry, Oliver.

Oliver, can you hear us? It's incredibly hard to hear you. Is there anything you can change with your position, maybe to a microphone or so? We really couldn't acoustically get your question.

I removed... Can you hear me better now?

Yeah, that is much better. Thank you.

Yeah, but my headset. Sorry for that. being on the Merck CMD. So back to my question. So some quarters ago, you have reported growth expectations across modalities and also for the whole novel modalities. Over the last weeks or months, we heard, for example, some more negative views from the mRNA side. Do you see any change in the dynamics of modalities which impact your business? I'd say the most prominent is the cell and gene therapy. So any change in fundamentals from that perspective?

Thanks for that question. So when talking about modalities, I think first of all, it's a, in terms of volumes and impact on our business, it's a small a small segment today, early segment, yet, and this is how we look into, you know, the future trends and investments where you need to do them. You need to look what customers are working on in their pipelines today, which will drive the volumes in the future. And on that part, it's clearly visible that around one-third of the drugs and modalities customers are developing today are these early advanced therapies, cell therapies, gene therapies, gene-modified cell therapies. You mentioned RNA, so that's in the bucket of advanced therapies. So that's happening. It's also important to understand how the business works and how the mechanics are. of bringing materials and specifying materials early in the development to be and to enjoy then the volumes and recurring consumables revenues later. You need to be there early, so I think this is the time where players need to act and be there. Yeah, on the trends, to your question, it's a A bumpy road, which we will see moving forward, not surprising. We've seen a number of positive development, as well as we've seen some more disappointing developments. But this is, I think, in the nature of this rather early type of development and modalities in early stages. For us, it's a, our view is this is, as a combined, you know, advanced therapy modalities, they will play a role in the future. We, I think, made steps and investments to position ourselves and build a relevant position in that space. And now it's about helping customers really to make these manufacturing processes more efficient. So innovation is a big topic. Innovation in manufacturing is a big topic, and we see ourselves extremely well positioned with the tools, capabilities we have to help them on their journey. Okay, that's helpful. Thank you.

We now have a question from the line of Thibault Bouterin from Morgan Stanley. Please go ahead.

Thank you. My question is just on the growth outlook for LPS Beyond 25. So for VCR, you readjusted your expectations due to demand softness. Do you see a structural change in the underlying demand in the market, sort of impacting your assessment for the longer-term outlook? In the past, it's a business that was characterized as being sort of mid-single to high-single-digit type of growth. Is that still realistic? And I appreciate that equipment is a big swinging factor. but just trying to understand if the underlying market dynamics are structurally softer beyond the gap in equipment demand.

Okay, I can start maybe with that. Thanks for the question, Thibault. So one perspective in this is, of course, that if we look a little bit in the dimension of what's been happening in the LPS business throughout the year 2025, How we started and where we stand right now, we've seen, as we say, some level of gradual improvement. I think what is with us and what we think will flow through as well into the future is still the underlying demand. And we should not forget there is still a relevant, not maybe as relevant as in BPS, but there's a relevant part of consumables and recurring business in LPS. um so in this part i think has been growing and developing nicely and again we don't have a reason to believe that this will change you know in the um in the in the following quarters um again the equipment we've discussed and we see here moderate changes we don't want to build uh let's say a perspective uh too strong uh on thinking that there is a systematic or a a fundamental structural change in that business as we go along. We are very well positioned with the innovations that we put through, as we said, and we've seen the improvement in the bioanalytical division or portfolio part being really on a good track here. So I think other than the year 2025, which was, I would say, a rather... a big reset vis-a-vis the previous year. In a comparison, I think we will have probably a better starting point for the year to come. But again, here as well, we don't necessarily feel that this is such a, there would be a breakthrough in this. But again, from a positioning perspective, from innovation perspective, from an overall sentiment, I think we all feel as well that it's not a question of if but when. But maybe there's anything else that needs to be added to this.

I think, Michael, you mentioned everything. Definitely, we have a mixed portfolio. We have bioanalytic instruments. We have classical lab equipment and consumables. And also, through our division, we serve different customer segments where we see different dynamics on applied markets versus life science. And applied, they didn't grow much during COVID, but they also didn't decline strongly after COVID years. And they probably would expect a bit stronger growth performance going forward. But anyway, in life science markets, as bioprocess, we will follow up with improvements. So this is, I think, how we look going forward. But looking into percentages to give it now, I would believe it's a bit too early to say.

Next question comes from the line of Oliver Reinberg from Kepler-Chevreux. Please go ahead.

Oh, yeah. Thanks very much for taking my question. I was just about talking about the U.S. competitive landscape. I mean, there's obviously a lot of noise. I was just wondering if you've seen any kind of market changes we should be aware of that are not immediately obvious. And most specifically, given your share of products for the U.S. that are done in the U.S., it's likely lower with what you see at P.S. Have you had any kind of clients that voiced concerns on the kind of high share of sourcing from Europe? And have you seen any kind of shifts of market shares in clients where you're not the only validated supplier? Thank you.

Thank you very much. Yeah, so I would say actually not really. When looking at the, as you asked, regarding the US regions, I think it's quite stable. We don't see any any shifted market shares. The way how we have implemented the surcharges and the transparency of the process data towards our customers as well has been well perceived by the clients. Of course, nobody likes that, but there is a constructive dialogue going on how to make sure that we stay competitive moving ahead. So it's rather a collaborative approach with customers who wants to and prefer to stay with Artorias. We have, as we commented in the past, possibilities and increasing the share of products made in the US for the US. Some of that we have done already in the cases where We've seen the need for that. There's some room for more, and we would do that. So it's not that much pressure we would see from that direction.

But is it a discussion topic with clients that you're having a large share from Europe? No, I mean, yes, maybe, yeah.

I mean, it is a discussion with clients about how we make sure that we stay competitive with our product. But kind of, you know, discussion, it's continued and ongoing discussion. And no tariff-related shifts. We didn't see that.

I just want to reiterate, really, the discussions with our customers are really on the merits and the value of our products, and we need to ensure, of course, that we remain competitive. As Rene said, I think we've taken our steps in order to gradually improve our production and our utilization, and as well, therefore, our share of products coming from the U.S. for the U.S., And we'll continue to look at that, but for sure we'll remain and make sure that our products remain competitive for customers in any of our regions.

Perfect. Thanks so much.

We now have a question from the line of Harry Gillis from Berenberg. Please go ahead.

Hi. Thank you for taking the questions. I just have a couple of follow-up ones, actually, on BPS equipment sales and the U.S. investment announcers made by several of your large pharma customers. Have you seen any anecdotal evidence of customers delaying any ex-US projects or future plans as they assess their global manufacturing footprint with potential shift towards the US? And again, on BPS equipment, can you comment or provide any guide roughly on what proportion of that is manufactured locally or in Puerto Rico. I know you gave details on the broader group portfolio earlier this year, but on BPS equipment specifically, is it sort of in line with the broader portfolio that's local or differs dramatically in either way? Thank you.

Yeah, so on the first question, The U.S. investments and if there are delays related to that, maybe evaluations of where to invest and how much to invest. I would say, of course, we have seen delays overall in investments, right? The capex and shifting, decision-making. It's hard to say how much of that is related to the discussions around the broader policy manufacturing network strategy, if you like. I think that these are the topics where when we talk to customers, everybody has and builds their multiple year network strategy and you don't change it so quickly and you think about twice when changing such a big strategic direction of how you build your network. So it might, you know, contribute to the delays we have seen in making decisions to invest. Yeah, but hard to quantify that. On your second question, the equipment capabilities in U.S., we don't make equipment in Yalco. We do that in a In Marlborough, close to Boston, we have a facility for equipment assembly, so we're ready to serve customers in the U.S. with the power processing systems made there.

Thank you.

The next question comes from the line of Ed Hall from Stiesel. Please go ahead.

Good afternoon, guys. Thank you for taking my question. It's just a quick one. I was wondering if you could quantify the magnitude of bioanalytics growth and its contribution to the overall LPS growth. Thanks.

We are generally not commenting on that level. Let me Despite that, make a comment, and I think it was also clear in our statements, we have been pleased to see here that development in Q3 on bioanalytics performance.

Thank you.

We now have a question from the line of Delphine Lelouet from Bernstein. Please go ahead.

Yes, hi. Good afternoon, and congratulations. I just want a bit of a clarification regarding LPS margin and to get a better understanding of what you've been putting in place to assume probably a greater resilience of the LPS margin and how should we think about the development volume in the coming quarter.

I think we were talking about the LPS margin development and that we've seen here some pressure on the LPS margin coming from FX effects, coming from volume and mix effects. Going forward, definitely, with FX staying on that level, there will not be additional downwards pressure. On the other hand side, alongside of a growth scenario going forward, there should be operational leverage that then should really help to stabilize the LPS margin or even improve the LPS margin going forward.

If there are no more questions, I would like to turn the conference back to Petra Müller, Head of Investor Relations.

Thank you, Mathilde. This concludes our today's call. In case of any open questions, please reach out to the Investor Relations team. We are always happy to help. We thank you for joining us today and wish you a pleasant rest of the day. Goodbye.

Thank you. Bye-bye. Bye-bye.

May now disconnect.