Sartorius Stedim Biotech SA

PAR:DIM

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and warm welcome to the Sartorius and Sartorius Stedim Biotech Conference call on the Q1 2021 Results. Today's conference is being recorded.At this time, I would like to turn the conference over to Dr. Joachim Kreuzburg, CEO. Please go ahead.

[Joachim Kreuzburg, Chairman & CEO]

Thank you very much. Welcome, everybody, and good day. I welcome you to our today's conference call on our Q1 results for Sartorius and Sartorius Stedim Biotech Group as well. As always, I'm running this call together with our CFO, Rainer Lehmann, who will present on all the details of the numbers for Sartorius. I will just kick it off by commenting the most important highlights for Q1 of this year.First of all, both divisions have achieved a 60-plus percent top line growth. And at the same time, a very substantial margin expansion. We will comment on that in much more detail in a minute. We have achieved strong organic growth. This should not be forgotten in light of the significant impact from our corona-related businesses, mainly vaccine manufacturing and also business with the providers of test kits. And of course, also acquisitions have played a particular role in the first quarter as well.We definitely see some specific effects that have played a role in Q1, both regarding top line as well as regarding bottom line, more information in a minute by Rainer. And then, of course, you know that we have started a very extensive program to extend our capacities, pull forward a number of initiatives in that regard as well. All those initiatives are on schedule. And the outlook for 2021, we do confirm here at this stage. We have just raised that around 4 weeks ago. So no point in touching this one at this point in time again, but we definitely do confirm it at this stage.So -- and with that, I would like to hand it over to Rainer.

[Rainer Lehmann]

Thanks, Joachim. Hello, everybody, and also welcome from my side to today's call. As Joachim mentioned already, Q1 has been extraordinary. If you have a look at the numbers on Slide 5 in the presentation, revenues surged to EUR 791 million. It's an increase in constant currencies of 61.6%. Thereof, mergers and acquisitions basically contributed 12 percentage points and the corona net impact around 20 percentage points.When you look at the order intake, they even -- increased even more dramatically by almost 90% to EUR 1.14 billion. Here, the corona effect is around 30 percentage points. I will actually dissect that number a little bit later when I talk about the divisional performance. Of course, those strong revenue numbers translated to an underlying EBITDA of EUR 263.5 million, which is an increase of 91%, that's in percentage points 6.3% increase -- percentage point increase to 33.3%. Clearly, we have to point out, as we did throughout the last quarters, especially last 3 quarters in 2020, that we still see an underproportionate cost development that, of course, leads to economies of scale, specifically on the functional expenses that are not sustainable. We can't point it out enough because as you see here, Q1 margin is above what our year-end guidance is, which also Joachim will mention at the end of the call. How does it translate to the results to the underlying earnings per share? For the ordinaries, it's EUR 1.77, an increase of 112.5%. And for the prefs, it's EUR 1.78, same increase as the other one.So if we look -- how is the development throughout the regions on the next slide. If we move from left to right, in the Americas, we see a very good performance. In constant currencies, an increase of 53.5% to EUR 253 million. This is a very solid performance on the bioprocessing side. On the LPS side, this is clearly driven by the acquisition. Remember that we acquired the Octet portfolio from Danaher in May. So basically, the whole Q1 is here, of course, in an organic contribution. The -- in the EMEA region, we see an increase of 63% from EUR 207 million to EUR 334 million. Clearly, on the BPS side, we know the tailwinds from the vaccine developers, I'll talk about that a little bit later when we talk about the BPS figures as well as a fantastic order intake growth. And also the LPS side improved considerably, and we have to say here also from an organic point of view, a very nice development in EMEA.Asia Pacific, here you see on the BPS side, really the most dynamic growth. Overall in the region, revenues increased by 71% to EUR 203 million. Keep in mind that on the LPS side, we really had very low comps in Q1. There was already a time when the -- not only the Chinese New Year happened, but of course, went straight into a lockdown. So their LPS Q1 2020 was, actually, if you remember, a negative development at this point in time. So here, we really have a lower comp, therefore, quite substantial growth, but also a really great recovery in that region. If we look overall in the regional split, just to mention it, I don't say it will be a sustainable distribution, but we see a little uptick of our revenues in EMEA. Of course, that's fueled by the BPS and the corona tailwind; Americas 32%; Asia Pacific, pretty much on the same level as year-end, 26%.If we now go on to the next slide, Slide 7, and have a look at the development of the Bioprocess Solutions division. We really see here, already mentioned the regional split really was very well distributed across all the regions, but also the growth spread really across all product categories as well. We start on the left side with the order intake. This one really surged to EUR 953 million. Compared to Q1, this has almost doubled. 11 percentage points really came from the acquired business, that leaves us with an, let's say, nonorganic growth of 86 percentage points, of those the corona impact we attribute around 37 percentage points.And it's really important to understand when we talk about the corona impact for us, we define it as the impact related to what we can attribute to the manufacturing of vaccines and a smaller part of the therapies. That's really where we can trade on some customer base, it's fairly usage trends and some other bigger ones, it's our best estimate. But of course, we believe this is a very good classification of the corona impact. That leaves us, although with quite some substantial, let's say, organic increase. And here, we also have to understand that on the order intake side, we really saw in Q1 a change of the ordering pattern, meaning that we saw customers pulling forward their orders, either for the entire year, sometimes also bleeding into 2022. So this is, of course, quite a surge and really unchanged compared to the previous quarters, to keep that in mind when analyzing the figures. Nevertheless, extraordinary performance here, I would say.On the sales side, revenues increased by 61.5% to EUR 610 million. Thereof, acquisitions contributed 9 percentage points. Here, the corona impact was roughly 23 percentage points. So very, very good development as we also expected to have a strong Q1. And of course, the strong sales numbers translate to a dramatic increase, you can almost say, on the EBITDA margin from 30.4% to 35.6 percentage points. That's an increase of 81% to EUR 217 million. Here as well, and specifically for the Bioprocess division, this needs to be pointed out is that these economies of scales are really also derived from the underproportionate cost development that we see in the functional expenses on the sales and distribution side, but of course -- which is the main contributor on the functional side. So let's really be careful and say when we extrapolate those figures. Also here, you see that we are, as of Q1, higher than what we're projecting at year-end. Joachim is going to comment that later on as well.The performance on the LPS side on the next slide, very strong, but also, of course, against a weaker prior year comps. Order intake, if we look at that, increased by 57% almost in constant currency to EUR 185 million. Of course, the numbers here were impacted for the lockdown in China in Q1, as I mentioned before. The acquisitions contributed 18 percentage points, which leaves an organic growth of 38%. Out of that, 11 percentage points we attribute to the corona impact. Revenues increased by 62% to EUR 180.3 million. Also here, we have a contribution, of course, from the M&A part, 23 percentage points. And the remainder is then the organic growth, of which 9 percentage points are attributed to the corona, especially here, it's more the usage of the testing kits where we produced part of the membrane for it.The increase in the EBITDA, of course, the strong revenue translates to an increase of the margin. Keep in mind, Q1, we just said, was really dampened by the overall development. We had only a margin of 15.6% last year. At the same time, this one increase to 25.7% to EUR 46.4 million, it's really an increase of 158%. Here, contributor clearly also the product mix. Our BioA business performed very nicely in Q1. Of course, we also had lower comps and a lower business in Q1 2020. And also here, we have the underproportionate cost development in Q1, which will also not be sustainable going forward.If we look on the next slide, Page #9. We see here some key performance indicators. We talked about the underlying EBITDA in the group increased by 91.2% to EUR 263 million. Extraordinary items, as we had, to be honest, predicted, also are decreasing. The major part of the integration is over some -- last year, we had some -- a bigger corporate project in that as well through, so extraordinary items Q1 attributed to EUR 5 million.Financial results, I want to spend a little bit time here because it's a new topic. If you remember, I addressed that also already at year-end. Here, we have actually the nontax deductible valuation effect related to the earn-out liability from the acquisition of BIA Separations we did. So the fluctuation, and it is mainly driven by the fluctuation of our stock price this year in -- attributes to roughly EUR 26 million, that's why you see here compared to last year, quite a substantial figure. Keep in mind, though, it is nontax deductible. So therefore, when you extrapolate or calculate the tax rate, it is in line if you adjusted for this figure in line with 30%, which we anticipate to beat this year.Underlying net profit increased by roughly 110% to EUR 121.6 million, and then net profit EUR 82 million. Of course, the strong EBITDA translates to an operating cash flow, which is very strong and pretty much doubled compared to previous year to almost EUR 230 million. As Joachim mentioned in the opening statements, we are increasing capacity. So investing cash flow compared to last year, pretty much doubled as well, EUR 90 million we spent on CapEx for Q1. It translates to a CapEx ratio of 10%. As we anticipated, we're going to be in the 14%, 15% range overall. So this is going to continue.On the next slide, we can also see the development of the balance sheet. Equity ratio slightly decreased. One might wonder why. Of course, the earnings and the equity in nominal figures increased substantially, but we also increased our balance sheet, mainly driven by the increase in inventories and accounts receivable, in line with business growth. But also with an increase of our cash balance. So nevertheless, 29.7% equity ratio, very healthy and very stable financial conditions.Net debt slightly decreased to EUR 1.82 billion. Of course, we use some of the operating cash flow to decrease debt. Hence, the more important figure, net debt divided by underlying EBITDA, dynamic indebtedness decreased compared to last year by -- to 2.2. We also see it on the right-hand side, a nice trend over last quarters where this ratio trend is coming down to the projected 2.0 at year-end.And with those -- with this update, I'll hand it over back to you, Joachim.

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you very much, Rainer. So I would like to finish our presentation on the Sartorius Group's numbers for Q1 by talking a little bit about the outlook for full year 2021. On Page 11, you see that for Bioprocess Solutions, which is in the middle of this little table, we do expect now 40% of top line growth, of which approximately 6 percentage points should come from acquisitions and 80% approximately from the additional corona demand. For the underlying EBITDA, we expect now a margin of 34%.For LPS, these figures are approx 20% top line and around 5 percentage points impact from acquisitions and corona demand, respectively. Underlying EBITDA margin expectation here is 24%. And then for the group, this translates or adds up to 35% top line, 5.5% by acquisitions, around 16 percentage points corona demand and underlying EBITDA margin of around 32%. In comparison to the guidance that we have given at the beginning of the year, these numbers are substantially higher particularly for Bioprocess Solutions, where 40% represents 12 percentage points more than the upper end of the bandwidth that we have given before, mainly because of additional corona demand, but also some of the effects that Rainer was commenting before that we see coming from the changed, at least temporarily changed, ordering patterns from our customers.Overall, we really have to underline the high level of uncertainties in these days. This, of course, might go into both directions. It's a very volatile, very dynamic environment at the moment. I think we all see the news flow from vaccine manufacturers, in particular, where we see different -- the different status in regards to market approvals, then, of course, also the very specific approvals and utilization rates in different countries. Preferences by the people are very different, also, at least in different countries. And we do see the efforts that are taken by manufacturers to ramp up their manufacturing. I believe it will take a couple of more months to get a clearer picture here also in regards to a potential third jab that people will get within the course of this year and whether that will be taken from those vaccines that are already manufactured or in manufacturing or whether there will be modifications necessary, et cetera. And then, of course, we also will definitely see a -- again, some kind of normalization at some point in time at least, or whenever that exactly might be in regards to the ordering pattern from customers, for sure.Underlying EBITDA, we have moved up by 1 percentage point for both divisions and then also by a little bit more than that for the group. Here, we -- as Rainer pointed out already, we see that our guidance shows numbers that are a little bit lower than those that we have achieved now for Q1. And again, we would like to point out that cost development is behind what it normally would be, very much impacted by the pandemic situation. It's not very easy at the moment to hire personnel at least at that rate that we normally would hire, given the top line growth that we have in functions like sales and marketing, partially also R&D and manufacturing, it still works quite well, I should say. And then, of course, we still have travel expenses being very, very low at the moment. And that is what we mean when we say this very high shift in profitability in EBITDA margin is not sustainable. We definitely do not announce here like a sustainable reduction of our profitability, but we want to say that it's overpronounced what we have seen here in Q1.So -- and having -- and then CapEx ratio, Rainer already touched upon that. CapEx ratio, we expect to be around 14% for the full year 2021, very much driven by the extensive program to extend our capacities. We talked about that a couple of times before. We very much have accelerated and partially also extended initiatives that we had on our agenda, already very much in the domain of filtration products, food management products, also those for bioreactors and some others. Hotspots here are Germany, Puerto Rico and China, but we're also running some extension programs -- expansion programs in other geographies and countries as well. Net debt to underlying EBITDA, we now expect to come in around 2.0.So -- and with that, I would like now to move to Sartorius Stedim Biotech. I will present those numbers quite quickly as they are very much in sync with those that Rainer already has presented on the BPS division. Of course, there is some difference, but the main trends are very much the same. So sales revenue increase is 61.1% in constant currencies. We have reached EUR 655 million. Here, order intake up by almost 96% of a little bit more than EUR 1 billion. And the effects from acquisition and the pandemic effects are 8%, respectively, 23.5% on sales revenue. Particularly the pandemic related effect even higher for order intake, around 37%. So that means that half roughly of this 96% of order intake growth is coming from like the organic growth of the, yes, let's say, normal business. And that already clearly indicates that we have this changed ordering pattern in this Q1 effect because surely, the, let's say, underlying normal business, however we call that now, has been growing by anything close to 50% for sure.Underlying EBITDA up by significantly more than top line. Therefore, we have seen the margin expansion by 5.5 percentage points to 35.4% now. And underlying earnings per share is 87%, up to EUR 1.64. I guess I talked about those points that are mentioned below the table.Geographical perspective, growth in EMEA as well as Asia Pacific around 70%. And whereas in the Americas, we have seen 45%. This is definitely not a relative weakness in Americas, but simply less impact from acquisitions here in particular. And then, of course, we do have some specific dynamic in Asia, which has to do also with the fact that Q1 last year wasn't that strong in Asia Pacific and in Europe, as I said, acquisitions of last year, particularly the one of the Danaher business has played a larger role there than anywhere else.Operating cash flow has increased very significantly by 78%, as you can read from the table. The effects that have played a role here are very much qualitatively and partially even in regards to the specific numbers, the same that has been talked about before. Again, what needs to be mentioned is the effect from the valuation regarding the earn-out liability from the BIA Separations acquisition. I think we have announced that very extensively a couple of months ago, after we closed that acquisition, that this effect will play a certain noncash effective role in most quarters probably.The financial indicators for Sartorius Stedim Biotech are on a very robust and solid level. Equity ratio is 47%. Net debt below the last year's end number with EUR 460 million. Same is for net debt to underlying EBITDA. Equity ratio a bit affected, as Rainer pointed out before. A bit long balance sheet. This year, dividend payment within Q1 other than last year. So yes, very robust situation, we believe.And then the outlook for Sartorius Stedim Biotech looks as follows: sales growth, we expect now to be around 38%. I do not want to repeat all comments regarding uncertainties in these days. Acquisitions should play -- have an impact around 5.5 percentage points and corona around 18 percentage points. Underlying EBITDA, we now project to come in at 33% and CapEx ratio unchanged -- sorry, CapEx ratio 14%, that was 15% before, but no change of our program here, but just the base is higher, because the sales revenue we expect now to be higher for the full year. Net debt to underlying EBITDA, we now to come in even lower than initially expected at 0.6.Before we open Q&A, I would like to remind everybody that we will run a virtual Capital Market Day in 30 days, I believe. No, 29 days, sorry, on May 20. Registration is open already. I would like to ask everybody to register for that event before. It will be completely virtual, as been said. We are very happy to welcome you there -- would be very happy to welcome you there. We will provide also some insight through, I think, video tools, et cetera. So I hope it will be worthwhile to attend, looking very much forward to be in contact and discussions with you then as well.And with that, we'll open Q&A.

[Operator]

[Operator Instructions] The first question comes from the line of Patrick Wood of Bank of America.

[Patrick Andrew Robert Wood]

I have 2 questions, please. The first is, obviously, you guys have kindly given some drivers of the base business, but you've been stripping out COVID from BPS and LPS. The underlying business seems in very good shape. So I guess my question is, could you help us have a little bit more of a sense of some of the drivers there? You mentioned, obviously, some of the water patterns within BPS. Do you have any sense of how material that was? I know you've obviously talked as well in that division about China accelerating in the past ex COVID. I'm just curious is that sort of trend that's going on. Any color there would be very helpful.And then the second question for BPS, primarily really, but I suppose it could apply to LPS as well. It's really about production limits. Obviously, the growth here is absolutely fantastic. But it must be quite a strain on the supply chains, on our manufacturing teams, on everybody involved, including yourselves. And so I guess, what is the capacity of the coming quarters to retain, particularly in BPS, this level of absolute sales going forward? How realistic is that?

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you very much for these questions. Yes, you're absolutely right. We are also pleased with the, yes, underlying growth of all business. And with -- even -- of course, this is on different levels, but this holds true for both divisions, actually. But of course, it's more apparent for the BPS division. And here, as always, it's very difficult to give very detailed and differentiated information on that because customers don't provide that much information on the applications, the production lines that they intend to use the product in that they order from us. And of course, always, customers don't order on the very last minute, so it's anyhow not that easy for us and customers wouldn't be willing, partially even be able to give a very precise information on that. So we see it pretty much a different ordering pattern, I would say, across the board. We see it pretty much by numerous customers that they order quite a bit and more than usually. So I wouldn't be able to be honest to say, well, it seems to be for that field of indication or what have you.So you were also asking, I guess, if I got you right, for a quantification of this effect. Well, I mean, I said that for SSB and for BPS, these numbers are pretty much similar that we are talking about at least 40-plus something percentage points of growth that would not be attributable to acquisitions or corona effect, order intake, I'm saying. So -- and this is, let's say, around 20% above sales revenue, and even sales revenue is higher than we would expect to be a sustainable market growth at the moment because that is not 25-plus percent, but rather maybe something around 15%. It can be maybe 20% in the quarter. So everything, every number that is higher than around 20%, we would say could be subject, should be rather, I should say, subject to some shift in time, yes? So -- and for us, as always, it's really very important to help you and all other investors to navigate as well as possible through those numbers.So what we bring -- want to bring across here is that we definitely are without any change, without any notion, very optimistic about our business going forward, our 2025 year guidance, which, based on our 2020 numbers, which has been a year of strong growth as well, translate into an average of 16% annual growth. There is no change in that regard. But of course, that means after a year where we expect a 35% growth, there will be years with lower growth rates. And that most likely won't be a straight-line curve with identical growth numbers.So we think it's -- it would be fair to assume that our 2025 targets are very realistic, but yet following 2 years of very high growth, 2020 and 2021, that there will probably be at least 1 year with a different set of numbers. Very difficult, though, to say how and when that exactly will look like. And what we can say is all this within a framework of a high level of confidence regarding the health of the overall market, the sustainability of all those trends, et cetera. Yes, but that is maybe the best navigation that we can give at this point in time. And again, there is no much difference because you were asking for China, et cetera. I think it will be definitely too early to say that any shift and change regarding underlying trends has been materialized in any geography at this point.Production limits BPS you were asking for. So when we are talking about this, and when we are making our comment at this time, then, of course, this includes all supply chain aspects, obviously. And I think we have talked about that before. What we have to manage, as everybody else in these days as well, is our own manufacturing capacities as well as all our suppliers, service providers, whatever is needed to finally deliver a product to an end customer. So -- and here, we feel -- because I guess that was your question, how I got it. We feel relatively comfortable, very comfortable, I would even say, that we can continue to maintain an output level on the level that we have seen for Q1. So there, we do not see too much of a risk as long as supply chains remain stable. So far, we have been able to manage that quite well.We are working on numerous capacity expansions. And here, most of them are of a nature that won't have any impact on 2021. As we -- like, the buildup of our cell culture manufacturing in Puerto Rico, for example, expansion of our membrane capacities in Germany and some others. However, we are working also in numerous smaller initiatives to expand our capacities. And here, we will see in how far we will be able to add some chunks of capacities along the way through this year. So therefore, I would say we feel quite comfortable regarding the level that we have delivered in Q1, no doubt about that, and working definitely hard maybe to add a little bit more through 2021.

[Operator]

Next question is from the line of Richard Vosser of JPMorgan.

[Richard Vosser, Senior Analyst]

Just a follow-up question just on the order book. And it's clear that there's been some pull forward. But if maybe you could talk about the composition of the order book between consumables and equipment. And certainly heard the idea that, that might stretch into realization of the order booking, revenues might stretch into '22. But just the bulk of the order book, are we looking at that being realized in sort of 6 and 7 months as sort of normal? Or is it significantly pushed out?Second question, just if you could give us an update on the outlook for BIA Separations and how that's going, how the integration is going and the growth potential there and the contribution from that acquisition. And also the potential for the closure of Novasep, how is that progressing?And then just finally, just a housekeeping issue around FX. The CER growth and reported growth was quite a wide difference this quarter. So just -- what's going on there? Is there some hedging there? How should we think about this? And how should we think about this going forward for the rest of the year?

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you for these questions. So composition of the order book is not much different from how it looks like usually and how our current business is. Though, I would say, when we talk about the different ordering pattern, then this attributes this comment regarding the difference in ordering pattern to consumables to a larger extent. Because, particularly when it comes to 2 larger systems and bigger orders regarding equipment, then here, it is very often the case that customers place them 1 year in advance before installation, et cetera, because it takes some time to partially sometimes design them and assemble them, et cetera, et cetera.What we see here now is that because of the high level of demand, the high level of orders, that delivery dates for consumables are longer than they usually are. And I'm talking about market average. No, I'm not just talking about Sartorius. I'm talking about what we see in the market. Customers accept that. And we are now reaching or have reached pretty much depending on the product we are talking about, have reached the stage where some of the consumables that are ordered, also from us, we confirm delivery dates in 2022 -- early 2022. So -- and that is, of course, a little bit the difference now that even part of our order book are reaching already regarding confirmed delivery dates into 2022, just as Rainer indicated earlier. So -- and again, the fact that customers pretty much, in most cases, accept that, this is the case, indicates this change in order behavior.So BIA Separations. Of course, it's still within the context of our BPS division, a relatively small business. We are early in the integration phase. We are -- we think very positively about the pipeline that is building up now on opportunities for this business. We are very enthusiastic about the performance of this technology and about the uniqueness of this technology. Customers are -- so the existing customers are pretty much the best ambassadors for this business because they always have been very satisfied by the products, particularly also by the support and application know-how that the BIA Separations team always has provided to customers. Of course, it doesn't change our numbers or has an impact on our numbers very much so, but we are very positive about how this has started and will develop going forward.Closing of Novasep. No news on that at this point. We have provided all the required information to the antitrust authorities. We do expect and do hope that even though such institutions also are not working maybe at full speed in these days because of maybe some restrictions that they might have because of whatever home office, et cetera, but we do hope and expect the decision to come in around mid of this year. And yes, I cannot give any additional information at this point.And on FX, Rainer, do you want to comment or shall I comment?

[Rainer Lehmann]

FX, of course, on the revenue side, we quantified the impact on the profitability. It's really not a major impact compared to previous year that we're seeing for both divisions in Q1.

[Joachim Kreuzburg, Chairman & CEO]

Slightly accretive, I would say.

[Rainer Lehmann]

Yes, a bit.

[Operator]

The next question is from the line of Paul Knight of KeyBanc Capital Markets.

[Paul Richard Knight, MD & Senior Analyst]

Perhaps the first question is for Rainer. The question is on capital expenditures. Will the EUR 400 million be spent in 2021? And then, Joachim, the question is, what were the particular products you were seeing in high demand in the quarter and to then give you confidence that the COVID demand continues even into 2022, or your thoughts on 2022 COVID demand? It might be unfair, but I'll try.

[Rainer Lehmann]

So quickly to the first one, yes, we expect our investments, CapEx efficient is cash out. So therefore, we expected that the EUR 400 million will be cash relevant and happening in 2021.

[Joachim Kreuzburg, Chairman & CEO]

So yes, maybe on the other questions, I think the first one, if I got you right, was the -- whether there is a certain pattern regarding products, that are particularly in demand because of the vaccine manufacturing. Here, I would say, we see, for sure, a lot of impact on -- in fluid management, but also in filtration. We definitely also have additional demand in cell culture technology, so in particular, our Bioreactors. So I would say our main product segments are pretty much almost evenly impacted. We see very strong top line growth pretty much across the board. So very significant double-digit growth really all across our segments know that particular pattern.And then for 2022, I believe you asked, in how far we were expecting any impact here. Honestly, a bit too early. I think the best guess, the best estimation today would be that we people will be in need for continuous vaccination against the coronavirus, maybe as we know it from the flu since many decades. But what that will mean for our business, that is very difficult to tell. I think it's not very unlikely to expect that going forward, in at least some years, people would expect one combined jab against the ordinary flu and the coronavirus. And therefore, we would rather work on the assumption that there will be some normalization going forward. Whether that will -- and what effect that might have in 2022 also in light of those effects that we would expect some normalization regarding ordering pattern, demand, et cetera, regarding the noncorona-related business makes it really very difficult to give any meaningful quantification at this point in time.

[Operator]

The next question is from the line of Michael Leuchten of UBS.

[Michael Leuchten, Co]

Michael Leuchten from UBS. A few questions, please. I was wondering if you had any views on why we see the change in the order pattern now? What's triggered that given that the dynamics and sort of visibility in shortages has been there for a while? So what do you think has pivoted the situation?Second question is on the sort of changes in attitudes towards vaccines. If indeed, the European Union does not renew the orders for recombinant vaccines, like the Oxford-AstraZeneca one and the world pivots to mRNA. Does that matter in your outlook? Does it impact how you think about 2021, 2022?And then the third question, given the AstraZeneca vaccine rollout hasn't quite worked according to plan, has that triggered any order cancellations? Have you seen anything in response to that particular situation? Or is it a bit impossible to tell?

[Joachim Kreuzburg, Chairman & CEO]

Yes. So to your first question, you are absolutely right in pointing out this aspect and asking maybe for a little bit broad picture. So I believe we have commented that all through last year already. And particularly in Q2 last year, we already said, well, we do see some additional demand because people are building up some inventory in BPS. That started to some extent, in Q2 last year already. And then we saw -- when you look on the numbers that we have reported last year, you see that order intake was substantially running above sales revenue in BPS.So -- and what we have expected and that can read very well from our guidance that we have given in January, then for the year 2021, that this would kind of normalize and that there would not be this additional -- this continuous and even, yes, more amplified behavior and defect that customers instead of normalizing their order behavior would even put more longer-term orders than they have done before. I guess that's the way how one should look on it. We already have finished last year with quite a strong order book. We commented on that also.We also commented on the fact when you read the numbers that we have provided for full year 2020 and the outlook that we were giving that not all of this order book was related to vaccine manufacturing, as we said back then. And what we have then experienced at the beginning of the year, and as we said, end of March, that we were a bit surprised by the very strong order intake during the first 10 weeks of this year, and a good portion was coming from this because not all of the uplift of our guidance was attributed to corona quite a bit, but not all. So -- and therefore, I guess that's basically the effect.And when you ask, okay, why now? Why is this? I would say, and as I pointed out a minute ago, customers are quite positive, in most cases, about the delivery times that we can confirm to them. And that helps, I would say, that there is quite -- that delivery times are much longer across the market. It's not -- logically not only us, also our competitors. And that customers are relatively easy with such long delivery times because they don't -- are not in urgent need for these products at this point in time. And then this -- for a certain time, this can be like a -- yes, I wouldn't say, a self-fulfilling process, but you just say, "Look, delivery times are long, so I better order earlier." So -- and then you have this new normal for a certain period in time until that point in time, when delivery times come down again, and that will happen at some point. And then, of course, you adjust your order behavior again. And then you have a certain self-accelerating process again into the other direction, yes?So therefore, I would say -- I guess I made this comment quite numerous times already over all those years. It all depends how you look on this market and how you look on -- and how your engagement is framed on the timescale. If you are in this market in the long run, you shouldn't bother at all. Because this doesn't have an impact on the long-term development of this market, on the long-term development of Sartorius in much respect. This is pretty much a shift of some orders from one quarter to the other. And that's basically all what we see here. And we just get very explicit information on that so that you can read and understand these numbers. But this is nothing fundamental in that sense. It's just the shift in time, yes?So -- and then your other question is on the -- in regards to may be the shift between different vaccine modalities, different types of vaccines as everybody gains additional experiences with these different vaccines. You mentioned AstraZeneca and, of course, there are also others. Well, I think your second question in that regard was whether we have seen order cancellations here yet? No, we didn't. And the other one would be if we would expect some shift in orders. I think clearly, if for -- if indeed, it would materialize that going forward mRNA vaccines would dominate markets very much versus viral vector-based vaccines, for example, then there would be some shift. But they wouldn't have much of an impact on our numbers. That's not much of a difference. As we always have pointed out, we have business with all manufacturers of the approved vaccines. And of course, then we have different levels of business maybe with the different manufacturers and also with different products at different manufacturers within those networks, but it's not much of a difference, and it pretty much levels out in the end.

[Operator]

Next question is from the line of Scott Bardo of Berenberg.

[Scott Bardo, Analyst]

So first question, again, just following up on this change in order patterns from your customers. I wonder whether you have any views on whether this is now done, all of the flush through has happened? Or is this a little bit of a self-perpetuating phenomenon where anyone that hasn't put in long duration orders is now increasingly fearful and does so? And I guess the nature of the question, please, Joachim, is I mean, are you expecting similar sort of order dynamic or robust order dynamic in the next quarter or so and then some negative or flattish development in the back half? Some sense of that would be helpful, please.And the second question, please. Obviously, a tremendous start to the year for both top line and bottom line. I'd like to understand within your margin guidance this year when you start to build out some of those normalized hiring costs, travel costs, conference costs so forth and following on from that question, I think you now guide for group level or divisional EBITDA margins, which are kind of at your 2025 margin already, and I think that you're expecting even next year to continue to grow. So I wonder if you can give us some sense. I mean, will you expect then 2022 margins to contract and then recover to these sorts of levels? I mean some sort of perspective here would be helpful, please.And maybe last small question. Just in the definition of a coronavirus revenue, so to say, is this including the bioreactors that you sell to these customers? Or are you treating that differently? I know bioreactors can be used for other things. So I just wanted to understand that.And lastly, I'm sorry. I think already, within the next weeks, you're probably at the situation of lapping the coronavirus orders that you received for the entire of last year. I wonder if you could share some thoughts as to, in your opinion, are we at the relative high in terms of the revenues coming from corona this year in Bioprocess? I appreciate this will be going on for a long time. But is the positive impact to the P&L most notable in 2021, in your opinion, and set to fall away over time? Any feeling there would be helpful.

[Joachim Kreuzburg, Chairman & CEO]

Sure. So yes, on the order pattern going forward, I think if I got you right, Scott, you're saying there is some kind of self-fulfilling process or self-emphasizing process going on at the moment. And yes, I guess that's how I tried to bring that across also that this is the case. But not so much in, just for us and vis-à-vis Sartorius, I think that's a bit how companies behave at the moment and place those orders in the moment. Frankly, I mean, as you know, we don't give any information about half month or something. So I cannot answer whether that has changed or it's still ongoing now in April. And even that may be not a good proxy for any longer-term projection.But as I tried to bring across before, we do not expect the gap between sales revenue and order intake to stay at the same level as it has been now for Q1. I mean we have built up an order book for BPS now of -- let me once again, look it up, EUR 340 million, which is obviously like half -- a bit more than half of the sales revenue of the quarter. And that's clear that, that wouldn't work. So in that sense, we do expect some normalization. And how that exactly will look like is really too early to tell, but be sure we will continue to comment on that as transparently as we are always doing -- yes, and always have been doing.So margin. Margin at 2025 level. If we achieve our guidance for this year, LPS, we guide 24% versus 25% for 2025, but for Q1 '21, we already have achieved that, absolutely. So again, cost levels are way or have developed really very differently from the top line. You can easily read that from our numbers, and that is what we definitely do not expect to be, yes, sustainable in that sense. Furthermore, our 2025 guidance includes acquisitions that we are projecting to rather be dilutive to our EBITDA margin. This is an assumption. Whether that exactly looks like that and in the case of a specific acquisition, we will see. And then, of course, we will have to talk about our margin guidance in that very moment in how far that very detail of our expectation was right.We definitely do not expect to see price pressure going forward that is stronger than any economies of scale or whatsoever, that's not our expectation. But I mean, when you think about it, we have added now -- I mean, 600 people, a bit more than 600 people in Q1. If we continue that pace, then we might add around 20% to our -- the number of employees, but we are expecting 35% top line growth. So that is a productivity gain of 15%. And that, of course, is not realistically possible in all the functions that we have, particularly not in sales and marketing. So -- and that is what we are talking about when we talk about margins.Definition of our corona-related business. So we definitely include bioreactors here. When it's clearly linked to a -- in the end, we are talking about vaccine manufacturing programs. So yes, it's included then there. And are we at the relative high of this overall development when it comes to the corona-related business, I would say, at least we should be quite close to it, when you see the number of vaccines that are manufactured in these days. We would have to translate this now to annual run rate. Then I believe we are, globally, I would reckon somewhere close or around 5 million doses run rate by mid of this year. That would be my estimation, run rate.So -- and I do not believe that would be realistic to assume much more demand going forward, when you anticipate second-generation vaccination or at least one way or the other, only the need for one inject per person. So -- and that even doesn't include any further productivity gains in regards to the manufacturing or combination with ordinary vaccines and so on and so forth. So yes, definitely, our view might be wrong, but our view is very extraordinary situation and a tremendous, not onetime effect in a sense that it will go away completely maybe. But in regards to the extend and then also the second round, factors like additional orders that we were talking about extensively here today, absolutely extraordinary.

[Operator]

Next question is from the line of Hugo Solvet of Exane BNP Paribas.

[Hugo Solvet, Research Analyst]

Congrats on the results. A quick follow-up from Richard's question earlier on order intake. Could you maybe give us some color on the geographic split for the order intake in Q1?Second, you mentioned the COVID peak potentially expected in 2021, and then the need for boosters from 2022 or probably even soon as 2021. So just wondering, should we assume that, let's say, 1/2 of or 1/3 of that COVID revenue contribution in 2021 is expected to be recurring?And lastly, on M&A, you mentioned some M&A that could be dilutive in your 2025 guidance. Given the recent transactions in the CRO space, do you see a presence in the CRO space maybe as a prerequisite to be best positioned to benefit from the rise of cell and gene therapies?

[Joachim Kreuzburg, Chairman & CEO]

Yes. So thank you very much for those questions. So order pattern, by region, is not so much different from the sales growth pattern. We do see here a little bit higher difference -- I mean, once again, order intake is overall higher than sales revenue. That is the case for all geographies and the higher difference is for the Americas. And then also -- and next one would be Europe. And it's a bit lower for Asia Pacific. But it's not a fundamentally different pattern also. So these additional orders, longer-term orders we see a bit more in the Americas and Europe.Yes, I think your second question, Hugo, was about the -- what we anticipate as to be corona business in 2022. And I can only tell you, my crystal ball is very, very foggy here. Yes. I'm -- I really -- I have to say, as -- I only can repeat these more qualitative comments that I've made before. We do expect that there will be business with corona vaccines going forward because I think that's the most realistic expectation that one has to apply in these days, given the pandemic situation. There is no reason to assume that the coronavirus will completely disappear. I think it's also most likely to anticipate that there will be only one jab per year, one way or the other.And then it becomes now a bit tricky. Will it be combined with ordinary flu vaccination from a customer/patient's point of view? That would be desirable. And then the other very -- too early to answer the question is, okay, and what about productivity gains? All those processes, particularly mRNA are completely new, innovative manufacturing processes. Second generation, third-generation processes should be more productive. What does it mean for suppliers as we are, yes? So honestly, too early to say, but be sure we will be very transparent about that as soon as we see this a little bit clearer. I would expect that in the course of the second half of this year, we will get much more insight where the respective programs of our customers stand. Because I would definitely anticipate that all of them has worked -- has started to work on that very extensively.And then, I guess, you have asked whether one needs to build up some CRO activities to be a relevant player in the gene and cell therapy market. That's a very good question. And I would say -- and maybe you meant even something similar. And I believe we talked about that in some calls before that we would say the CDMO space, and it's a space that is obviously relatively close to our business model, particularly when it comes to the D and that stands for, again, process development. Not for research, but process development.And now the question is, do we really have to be a CDMO because of that? And very often, this is exactly the combined business model to manufacture such products, also to some extent, for our customers by ourselves. Or how would be -- how would a strong positioning in process development look like without the known manufacturing arm or through realizing that by entering certain cooperations and so on and partnerships? So I think this is a question that probably cannot be answered black and white and by yes and no at this point. But I definitely would say process development is an important ability to have, and we have that already today in a number of critical applications. CRO, in a sense of really molecule research, we do not think to be active by ourselves there.

[Operator]

The next question is from the line of Markus Gola of Stifel.

[Markus Gola, Vice President]

I have only 2 left and hope they are not too specific. Both are related to your corona test kits business unit. So firstly, could you share with us whether your coronavirus tested components are also used for these rapid antigen tests or purely for PCR tests? And this rapid antigen test requires a higher or lower quantity of your product per unit?My second question is on the demand pattern for your corona testing components. I believe demand from the public and private sector for these rapid antigen tests picked up significantly over -- towards mid- to end of Q1. Hence, is it fair to assume that sales volumes will sequentially increase going into Q2 or the second half of the year? Or have you already seen big demands here in Q1?

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you very much for these questions. So indeed, when we say for our LPS division, that we do have some -- have seen some additional demand for such components, we basically meant pipette tips or liquid handling devices. And then there, of course, with some emphasis on the pipette tips and diagnostic membranes, as we call them here internally. The latter are used in these rapid test kits as they are used in many of such rapid test kits, whatever it might be, pregnancy or whatever. Whereas the pipette tips are very much used in the PCR testing.So it's really -- these are different products used to a different extent in these different type of test procedures. And overall, our diagnostic membrane business is larger than the one for pipette tips. Corona effect might be also a little bit larger so far for the membranes. And as you rightly pointed out, there is now a big boost for this rapid test. So that should maybe rather stay to be this ratio between these 2 different product lines.And now regarding peak or so, I would, to be honest, hesitate to give much of a guidance because if I now assume and maybe this is wishful thinking, that in the course of an accelerated execution of vaccination programs, and that they show results as we have seen them now in Israel, for example, then I would reckon that there will then soon be less demand for such test kits again. But bear with me, let's talk about that in July again.

[Operator]

The next question is from the line of Daniel Wendorff of Commerzbank.

[Daniel Wendorff, Team Head of Healthcare & Chemicals]

Three, if I may. The first one is on -- I'd like to go back actually on the underlying growth you saw in BPS in Q1. So excluding acquisitions and excluding the corona vaccine effect, and that was 29% in Q1, yet the full year guidance is only looking for 16%. Maybe can you explain the thinking behind this deviation again, that will be helpful.My second question is on the development of your cost line. And how should we think about the pickup there? Is that a straight line for every quarter? The margin will be a bit weaker or will there be a jump in the second half of the year in the development of costs impacting the margins? So any more color you can provide here, I would appreciate.And the last question is on the CapEx program. Given that you have now pulled forward a number of projects, how should we think about CapEx development as of your current point of view, obviously, CapEx development in 2022?

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you for these questions. So absolutely right. This -- yes, let's say, underlying growth has been around 29% sales revenue for Q1 versus around 16% projected for the full year. Main effect here are -- yes, are basically 2 effects. One is definitely comps. When you compare the Q1 for BPS last year -- with the average of last year, then these are very different comps. So that is one strong effect. And the other one is that, as pointed out before, a good portion or an increasing portion of these orders that we get in for this business is now already projected to be delivered in 2022. So these are basically -- these 2 effects. The first one already plays quite some role as the -- yes, as I said, the base is quite different from quarter-to-quarter.And then cost development. Yes, I tried to give some more color to that a minute ago, when I said when we look on the hirings and how they relate to our top line development. And we are currently hiring very much or increasing our hiring activities very much particularly for sales and marketing people very much globally. We won't be, even if we would like to, able to hire all those people that we might be willing to hire within 1 or 2 months or even within a quarter. So these additional costs will rather build up relatively in a straight line. I also would expect traveling and, therefore, travel costs to build up rather gradually over time than in a jump, as you said. And therefore, this is how we would project that as of today to be more a gradual effect.CapEx development next year. I think, as we said, when we talked about that first time already, I think, at least 2 or maybe 3 quarters ago that the big pieces here are projects that will run for longer than a year, particularly the expansion of our membrane casting capacities in Germany. And the cell line -- cell culture media production in Yauco . So -- and therefore, I mean it's a bit too early to give you precise numbers, but we would expect quite a substantial CapEx volume also for 2022. The ratio into which this will translate it's really too early to say, but it will be a substantial CapEx next year as well.

[Operator]

The final question is from the line of Falko Friedrichs of Deutsche Bank.

[Falko Friedrichs, Research Analyst]

Two quick questions, please. Firstly, on the corona business. Are you noticing any bottlenecks at your competitors at the moment that you were able to capitalize on? It just seems from looking at it that you are benefiting a little bit more than others. So I'm curious why that might be the case. So any thoughts would be appreciated.And then secondly, on the LPS market, the true underlying LPS market, how recovered would you say that market is from the pandemic? And how much pandemic-related volatility do you still sense in the market at the moment?

[Joachim Kreuzburg, Chairman & CEO]

Yes. Thank you very much for these 2 questions. So the first one, I would love to be able to give you a quantitative answer to that. Difficult. I -- and as you know, most of our direct competitors don't publish numbers anywhere close to the level of detail that we do. And therefore, I would really like to hesitate and do hesitate to give any quantifiable numbers. My impression is that our competitors are doing a great job. They are also expanding their capacities. I think one can read that also.I would say that we are probably doing quite well in regards to our delivery times and our delivery ability. But as I pointed out earlier, we now also see quite longer delivery times than this usually is the case. So we might have done a little bit better, and maybe we still do a little bit better but I definitely would not be able to pinpoint filtration or bioreactors or this or that, where we are doing better than the competitors. Bottom line, I would be surprised if growth rates would look very different for the different players in the industry. That would be my best guess at least.The second question is a tricky one, to be honest, and because we are not in a long -- we are in this market recovery, as you I think rightly called it for a long time. Maybe 2 quarters now because the third quarter last year was still very much impacted by lockdowns and restrictions in a number of countries. And therefore, I would honestly hesitate to give a clear answer on that. What I can say is as you can easily read from comparing our Q1 numbers to our guidance that we, as of now, would say, Q1 was very strong. Because 4 quarters of Q1 would be quite a bit higher than what we are projecting for full year now. So therefore, we still would say there should have been some catch-up even in. So even more than a recovery, maybe even some orders that -- and yes, some demand that has been shifted by customers into Q1 maybe and then maybe a normalization going forward. Honestly, I think we will have more substance to talk about this topic as the year progresses. A bit too early to be more precise here. I hope that's okay for you.So thank you very much, very much appreciated your interest in Sartorius and Sartorius Stedim Biotech's performance. Appreciate also very much all the questions. I hope we were able to answer them to your satisfaction. Very much looking forward to all your participations on the 20th of May at our Virtual Capital Markets Day. And then I think we will publish our numbers on Q2 and half year in pretty much precisely 3 months' time, which will be then our next touch point.So having said that, thanks again. Take care. Stay safe. All the best. Bye-bye.

[Rainer Lehmann]

Bye, everybody.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.