Sartorius Stedim Biotech SA

PAR:DIM

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and welcome to the Sartorius and Sartorius Stedim Biotech Conference Call on the Q1 2022 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, executive]

Thank you very much, and also a good day and welcome from my side to our Q1 call for both Sartorius AG as well as Sartorius Stedim Biotech. As always, we would like to start with highlighting some of the key achievements and results of the first quarter, then Rainer will walk you through the key numbers, P&L, et cetera, for the Sartorius Group, and then I will take over again for outlook as well as for Sartorius Stedim Biotech.

And before we start with the highlights, I would like to remind everybody that some of the following statements are related to the future, and therefore, of course, are based on some assumptions, so that we can't take a guarantee for any of such future-oriented statements.

So let's start talking about the highlights of the first 3 months of 2022 for the Sartorius Group. I think we really had a dynamic start into the year with double-digit growth in sales as well as in earnings, and that's the case for both divisions. We overall have seen a healthy demand situation while at the same time, as expected, we recorded a normalization of the corona-related effect as well as of order intake development overall, i.e., related to these earlier order placements that we have seen particularly end of 2020 and then for the first couple of months in '21.

We have seen the increase of profitability despite some FX headwinds and even though we have seen some higher cost for logistics that we have seen already partially last year. But for some materials, of course, we now also see some increasing costs.

Our capacity expansion initiatives are on schedule. And I think it's also worth mentioning that we have been able to close 2 acquisitions successfully. That's nothing new. We have reported on that before. But nevertheless, I think it's -- yes, as I said, worth mentioning in regards to what we have been busy with and what we have achieved during the last 3 months.

For the full year, we are confirming our forecast, but, of course, at the same time, we also have to make the statement that the overall global uncertainties for sure have substantially increased.

And with that, I would now like to hand over to Rainer.

[Rainer Lehmann, executive]

Thanks, Joachim, and also welcome, everybody, to the call from my side. As Joachim mentioned, the dynamic start really led to a nice revenue increase of 25.4% in constant currencies to EUR 1.25 billion. This is a record quarter for us, the first time that we actually cracked the EUR 1 billion mark, so a great achievement here. Out of those 25% growth, approximately 2 percentage points are related to the recently made acquisitions. And the COVID-related revenue is really on previous year level. Of course, you can do the math by doing that. It's basically approximately a EUR 100 million of that EUR 1 billion here is related to COVID.

Order intake, as expected, and Joachim mentioned as well, is normalizing. This is a process that is in line with our expectations. We see here a decrease on a group level of almost 6% to EUR 1.12 billion. I'll comment that a bit more in detail when we come to divisions because clearly, the effects of bioprocess and LPS are substantially different.

Underlying EBITDA amounts EUR 349 million. So this corresponds to an EBITDA -- underlying EBITDA margin of 34.1%, so an increase of 0.8 percentage points. This is already including the increase that we are seeing in the logistics and in some raw materials, but most likely not the end of those increases. And it also includes some FX headwind. And let me give a little bit of color for you there because one would expect with an strengthening of dollar and [ the yuan ] but actually there would be some positive effect on the EBITDA. That is true for, the true if you just have the translation on the P&L and balance sheet, but this was overcompensated by some negative effects out of our hedging that we did not do in the normal course of business.

EPS, earnings per share for the ordinaries increased by 37.6% to EUR 2.44. And for the [indiscernible] , EUR 0.01 more by 37.3% to EUR 2.45.

If we look at the regional distribution of our revenue, we see that in the Americas, we were able to increase or grow substantially once more by 32.6% in constant currencies to almost EUR 360 million. This was specifically also fueled by the great performance of our bioanalytical business on the LPS side. But of course, BPS also performed there very well.

EMEA, one could say only 20%, but let's keep in mind that here, especially on the BPS side, we are facing high comparables, those as you know, were driven by the different -- or by the different order pattern that our customers clearly showed last year in conjunction also with the COVID pandemic, but also with COVID-related effects. LPS in EMEA still was a robust performance.

If we then move east, Asia Pacific. Here, we also see great development, 25% in constant currency growth to EUR 264 million. Solid performance here really on the BPS side. LPS also fueled by great development of the bioanalytical business in this region. On the right-hand side, you see only a small little shift actually for the regional distribution of our revenue. EMEA, if you looked at last year's year-end figures or even at Q1 2021, you see there were a few more percentage points on EMEA. It was like 42. So those shifted to the Americas. So now we see, again, a little bit more balanced regional distribution, in line also what we had before the pandemic outbreak.

On the next slide, let's have a deeper look on to the Bioprocess Solutions. Here on the left side, we see the decrease of the order development of almost 10% to EUR 890 million. That was in line with our expectations and is definitely impacted by the current pandemic we are in and, of course, the clearly changed ordering pattern that we see specifically compared to Q1 2021.

Sales revenue increased by 29.2% in constant currencies to EUR 814 million. Here, 2 percentage points were contributed by the acquisitions. And the underlying EBITDA margin, we're able to improve by 0.4 percentage points to 36%, amounting then to EUR 293 million despite the just mentioned FX effect there. Actually, these comments that I just made on a group level are valid for both divisions. Here also, of course, we already see an increase in the logistics and materials and that we'll see on both divisions as well.

On the next slide, if we look on the performance of LPS, on the left-hand side, the order intake grew by 15% and constant currency to EUR 222 million. So fueled, of course, also by bioa, who really did a great performance in the first quarter. Sales revenue grew by 12.4% to EUR 210 million. That increase includes 1 percentage point from the acquisition of ALS that we just did at the beginning of the year. And Joachim is going to say something to that later on. Also, the sales revenue really again driven by a very good performance of our bioanalytical portfolio.

EBITDA margin compared to previous year, we could increase from 25.7% to 26.5% so an increase of 20% to EUR 55.7 million. Again, here, we not only distilled or taken advantage of economies of scale, but also the favorable product mix. i.e., the higher profitability of our bioanalytics portfolio contributed to this effect despite the aforementioned FX effects.

If we have a look onto the some key financial indicators, see extraordinary, there's really no -- not much movement, stayed on a low level and are attributed to the regular M&A and integration activities. Financial results, just as a side note, I've been commenting that in the past quite elaborately is really related to the fluctuation of our earn-out liability that is in conjunction with the acquisition of BIA Separations. So we will continue to see that driver here is, of course, also the share price performance.

And the underlying profit increased by 37.5% to EUR 167 million. And the operating cash flow, driven by the strong profitability, is EUR 190.2 million. Why is it a decrease compared to Q1? We really see substantial increase still in our working capital, specifically on the inventory, but also receivable side, that led to that part.

The CapEx ratio is currently at 9.5%. We are guiding for this year, 14%, so quite below, but it is fairly in line with our expectations generally at the beginning of the year. We have some lower CapEx. The CapEx by itself is EUR 96 million. The rest -- the difference to investing cash flow of EUR 163 million is related to the acquisitions we made.

If we look then at the financial indicators and here, our key ratio, the equity ratio for the group is at 33% increase compared to previous year of 3 percentage points. Of course, profitability is driven, but also the fluctuation of the earn-out liability and the conversion of the first payment of the earn-out liability increase here the equity position.

Net debt, a slight increase. Keep in mind here, that we have still a substantial increase in working capital, but also we had in the first quarter the dividend payment to our shareholders, which is a temporary impact on the net debt.

Net debt to underlying EBITDA is in line with expectations as well of 1.4. And you see on the right-hand side, which on the bar chart and the line, the continuous deleveraging of the Sartorius Group.

And with that, I'll give back to you, Joachim.

[Joachim Kreuzburg, executive]

Yes. Thank you very much, Rainer. Before I come to the guidance for full year 2022, I would like to briefly elaborate on the 2 acquisitions that we have closed in the course of the first quarter of 2022.

On the left-hand side, the one that we have closed first that was beginning of January this year, it's a further expansion of our offering in the bioanalytics segment in the LPS division. This time, it's an automated system for the analysis selection and isolation of cells. This serves numerous applications of our customers and fits nicely to the other products that we have here in the bioanalytics segment as there are our life cell imaging system or our protein analytics systems, for example.

On the BPS side, we finally closed the acquisition that we're working on for a long time, and that was the chromatography business from Novasep in France that we closed beginning of February. This is another building block of our downstream processing business that we have built throughout the last roughly 24 months now by acquiring a portfolio from Danaher by acquiring BIA Separations, sorry for that, WaterSep and now this business, so that we now really have an innovative portfolio for this downstream applications as well.

So -- and then coming to the guidance, we confirm the set of numbers that we have communicated a couple of weeks ago when we introduced this guidance to you, and this represents a significant double-digit sales growth as well as a sustained high level of profitability as we have achieved that with a step increase last year. Of course, at the same time, it needs to be said that we see even higher uncertainties than a couple of years -- a couple of months ago, a couple of weeks ago, even when we published and communicated this guidance, and that, to quite some extent, has to do or has been triggered by the war in Ukraine and then following, of course, the increased risks regarding supply chains and then, of course, the further substantially elevated inflation rate levels.

So however, from today's perspective, assuming that we don't see any spillover of the war in Ukraine, for instance, no further substantially constraints regarding supply chains, et cetera. We are expecting -- and now I go from the bottom to the top -- for the LPS division, a 6% to 10% sales revenue growth in constant currencies, of which 1 percentage point should come from acquisitions. For BPS, we expect 17% to 21%, including 2 percentage points from acquisitions. And for the group, that is up to 15% to 19%, including 2 percentage points from acquisitions. And profitability levels would then be 26% for LPS, 36% for Bioprocess Solutions and 34% for the Sartorius Group.

Again, we would like to underline that this profitability level includes additional spendings and costs of roughly 0.5 percentage points in -- or related to our initiative to reduce our greenhouse gas footprint, more precisely to reduce our CO2 emission intensity by 10% every year. We elaborated on that extensively end of January as well.

For the CapEx ratio, we continue to expect 14% of sales. And for the net debt to underlying EBITDA ratio, we anticipate a number around 1.1 as before. And of course, all those numbers are based on the assumption besides those that are made regarding the uncertainty on no further acquisitions.

So let me briefly walk you through the set of numbers for Sartorius Stedim Biotech for the first quarter as well. Here, we see, of course, a very similar picture to the BPS division. Sales revenue came in at EUR 863 million and order intake at EUR [ 950 ] million. The latter represents a decline of 8.5%, whereas sales revenue is up by 27.5%. It's important to note that we are talking about the book-to-bill ratio above 1. So yes, clearly, decline of order intake, Rainer, I think, explained that before, very much expected because of the extremely high level from last year, but still, I think, a very positive number in our view.

Underlying EBITDA at EUR 304 million, which represents a margin of 35.2%. Again, it's -- we have to mention that this is despite this pretty much same level as the year before we achieved despite some FX headwinds around 0.5 percentage point as well as some additional or higher costs for logistics and materials in particular.

For the regional perspective, I think most has been mentioned by Rainer, and this set of numbers pretty much shows a similar picture. Very strong growth in the Americas. And EMEA and Asia Pacific, a little bit below that, but still very substantial double-digit growth rates and very much in line with our expectation.

For the cash flow, I think also here pretty much a comparable picture given the size and relevance of our SSB, respectively, BPS business. It's clear that, that is very much the driver for most of the numbers that you see on the group level as well. And that is particularly the case, of course, for the impact from the valuation of the earn-out liability as well as regarding CapEx and also working capital. So maybe I don't need to repeat all those comments that have been made before here. And that pretty much also holds true qualitatively at least regarding the key financial indicators, where we have seen a certain increase of our equity ratio to 48%, a slight increase of our net debt and pretty much a stable indebtedness ratio on a very low level, which is 0.4 only.

And for the guidance, again, confirmation of all numbers that we have communicated a couple of weeks ago. So 15% to 19% sales revenue growth, which includes 2 percentage points that we expect to come from acquisitions and an underlying EBITDA margin above 35%.

I don't need to repeat, I think, the comment regarding our greenhouse gas emission reduction initiative and the impact that we have already included here into the profitability guidance. CapEx, we continue to expect to come in at 14.5% approx. And net debt to underlying EBITDA, we expect to further decline to 0.2.

And with that, and we're saying thank you for your attention. We can now turn over to Q&A.

[Operator]

[Operator Instructions]

First question is from the line of Patrick Wood from Bank of America.

[Patrick Andrew Wood, analyst]

Perfect. I'll keep it to 2 quite quick ones. The first one, apologies if I missed it, but just curious, you previously commented about the EUR 500 million expectation for vaccines. And I get -- I get we're trying to sort of not distance ourselves. But after J&J's comments the other day, just trying to see how you're thinking about what you've embedded within the guidance. I appreciate the guidance hasn't changed for the year, but the ex COVID business seems very strong. So have you lowered your expectations for vaccines, but actually the base business is strong enough, so because you don't have to move it? Any commentary around that would be very useful. So that's the first question.

And the second question, I'll try to think how to phrase it in a way that you can actually answer, but you can probably predict the topic. In the context of M&A and what we're seeing about potentially kind of vaccines and things like that, does that change how you would think about assets that have a large proportion of revenues associated with COVID vaccines? Would that lower your thought process on acquiring those kind of businesses? Or just nothing in terms of your M&A thought process change?

[Joachim Kreuzburg, executive]

Thank you very much, Patrick. First of all, I have to say you definitely are the clear frontrunner regarding asking that question in a very elegant way. So let's see whether anybody can beat you on that. I would say we definitely -- and I think we have spoken about that before -- we believe that mRNA and some other novel modalities are represented in very strong pipelines. I think during the last years, 2 years, in particular, for sure, when it comes to mRNA, we have seen a lot of investments and a lot of projects that have been started and quite some promising projects. So I think one can leave, maybe in this case Corona vaccines, aside for a moment, to say, well, that this really is a very strong business segment. But that, of course, also holds true for some other novel modalities like gene therapies and others.

So -- and I think we always have highlighted that we believe that we want to further expand our portfolio into areas that are relevant for this space. And I would like to remind you that for instance, our acquisition of CellGenix of Xell biological industries before, also BIA Separations. So all those acquisitions that we have made in the field of cell culture media and cell culture media components as well as some of those that we have made regarding downstream processing technologies, we have highlighted that those are particularly relevant for this space. So -- and I believe we continue to be interested to strengthen our portfolio in that regard.

Now when it comes to the speculation that we have seen, I think, already 8 weeks ago, the first time regarding specific assets that are particularly, let's say, exposed to some of those areas I elaborated on a minute ago, I think it's clear that we cannot make any comments on those. So therefore, I mean, we also realize and read those rumors, but we don't comment on those.

On the outlook, for our Corona vaccine-related business, mainly Corona vaccine-related business because that has been the majority of the EUR 500 million that we have made last year and for which we have said end of January, that based on the expectations and demand forecast that our customers have given us and have shared with us, we back then said, well, we expect the same number pretty much for 2022. And so far, our customers, particularly those who are really representing the majority of this business stick to their forecast.

And of course, it's clear that -- we also are fully aware of some of the more recent announcements. Maybe one can say that J&J didn't represent a very large part of the vaccines that have been used last year and this year, so that this shouldn't change the overall market expectation of any player, I would say, except for J&J maybe. So -- but of course, we also realize that the forecast that have been communicated in regards to at which point in time the [ Omicron ] adopted and specified new versions of certain vaccines, particularly the mRNA-based vaccines would be available, have changed. So therefore, I would clearly say we also realize that this is a dynamic area, a volatile area where one could work with a couple of different assumptions, but we base our assumption on what our customers have told us and are telling us. And that's why we, at this point in time, stick to our expectation of EUR 500 million for the full year, approximately. And what we have seen in Q1, Rainer elaborated on that, that we have seen pretty much the same business as in Q1 last year, so far is in line with that.

[Operator]

Next question is from the line of Michael Leuchten from UBS.

[Michael Leuchten, analyst]

Two questions for me as well. So just a clarification on what Patrick just asked. When I look at the order intake, in that number, is the residual of what you just elaborated on, as in if it's EUR 500 million, give or take, for the full year from COVID-related revenues, minus the EUR 100 million that were booked in sales in Q1, is that part of that order intake now such that the underlying number is actually EUR 700 million? Or is the number that you're talking to still based on conversations with the customers, but it hasn't come into your order intake yet?

And then my second question is on pricing. My understanding is that pricing this year is stronger for you and the industry overall than in a normal year. Can you just talk to where we are on that? And then as we maybe look out further, would you expect the higher prices to stick if there are air pockets within the inventories? Or is there a risk that some of that stronger price taking this year will not be sustainable further out?

[Joachim Kreuzburg, executive]

Yes. On order intake, not 100% sure whether I got that right. But it's really a bit a mixed bag, I would say. Some of the orders in conjunction with sales revenues, related to Corona vaccine manufacturing that we expect to be realized this year. We already have got -- received last year, some we have received in the course of Q1. So that the underlying order intake that is not Corona-related in Q1 is higher than the number that you have calculated. So I would say, yes, backing what we try to qualify to be a healthy demand situation.

Pricing, I think you are absolutely highlighting here an important point. We are -- I mean, we -- of course, we all have seen a higher inflation rate already at the end of last year. That is why I think we were talking about this topic also in our end of January call. And we have already introduced some price increases. We now, of course, see that it will be necessary to introduce further price increases. We are in very open discussions and constructive discussions with our customers, how to set that up in the best way. I think we have really very -- yes, very constructive, very trustful relationships also to our customers so that the best setup in how far maybe some of such price increases will be, let's say, variable and which one will be sustainable depends a bit on the case and the item.

I'll give you an example. Freight, for example, is the most easy one, which one can rather format as a variable component, whereas others are less so. And the same is, of course, the case on our purchasing side, if that was more the focus that you were asking for. So -- but -- however, in a total perspective, what we are aiming for and is represented in our guidance is to pretty much balance the increased prices that we see on the purchasing side and those that we are in discussions with our customers.

[Operator]

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

[Richard Vosser, analyst]

First question just on the pull-forward demand, Joachim, you've sort of mentioned that there's been some normalization in the quarter. I'm just wondering how much of a headwind on growth you see from that normalization over the rest of '22 and whether you sort of saw that in Q1 as well as sort of percentage impact on the growth there.

Second question, just on China. I think some of your competitors have flagged a headwind on their sales outlook from China potentially because, I suppose, of the lockdowns there. Maybe you could remind us how exposed you are to China and what you're seeing there in terms of the impact on sales and the supply chain.

And maybe if I could ask a third, just if you could remind us on the M&A firepower you deployed or you mentioned EUR 10 billion previously. Just if you -- the last few years have been sort of more bolt-on M&A. Is that the sort of way we should think about it going forward to deploy that EUR 10 billion over time.

[Joachim Kreuzburg, executive]

Yes, thank you for these questions. So the normalization of order intake, I think Rainer qualified that earlier as a process that is a bit ongoing. Therefore, we would hesitate a bit to give a guidance for a book-to-bill ratio for the full year because that is, in essence, what you are a bit asking for, and I understand absolutely that question. But we would -- to be honest, rather like to see where we stand by mid of the year, maybe to give a guidance on order intake.

You know that order intake typically is not subject to any guidance that we are giving. I nevertheless understand that in these particular times with this very significant volatility of that number that this is one to talk about. But to quantify this, we find this is a little bit too early. Again, I would just like to remind everybody how significantly higher than sales revenue the order intake has been for a couple of quarters, particularly the last 22 or the last one in particular and then the first 2, in particular, in 2021. So therefore, we are hesitating a little bit here so far. And I think the number tells a clear message here so far. I think, start into this year was a good one.

China headwind, it all will depend on the duration of this current lockdown in Shanghai and whether that will be prolonged or maybe geographically expanded and whether we will see more of that in the further course of the year. I, at this point, therefore, maybe wouldn't select that as an existing headwind, but as a potential headwind, as a risk, so to say. That's clear. If China as a relevance as a market for us that this is clear if there are constraints to the market and constraints for our customers also to further develop their business for a certain period, then this could have an impact on us. So far, again, I would not flag it as a headwind but as a risk.

And on firepower, Rainer, you want to comment on the size or...

[Rainer Lehmann, executive]

The size we have quantified quite a few times, it's exactly this EUR 10 billion plus that we have consisting of the different components. Our own treasury shares, of course, increasing leverage up to closer or to 3.75 up there to that region temporarily and also a dilution in the stake in SSB, while always remaining in full control. So firepower is plenty. And to your strategic question for the right asset and right target, yes, this is exactly why we are determining the firepower in order to be able to act and also quickly on this.

[Joachim Kreuzburg, executive]

Yes. And yes, if we got the question correctly, we do not plan any acquisitions outside the strategic focus that we have and therefore, we would continue to execute on our strategic agenda indeed.

[Operator]

Next question is from the line of Markus Gola from Stifel.

[Markus Gola, analyst]

I have a follow-up on transformative M&A as well, but a bit more general. So when you're considering these large acquisitions, is the only dimension you're looking at the strategic fit of the target? Or is your mindset closer to, I don't know, guys like Warren Buffett, which are reluctant to issue equity if their shares trade materially below intrinsic value? That would be the first one.

And the second one is on German energy supply. Have you looked how you would be affected if basically Russia would stop supply gas to Germany would have some possibilities to defend your German operations here?

And my last question, if I may, is on China as well. It seems that there could have been some stocking from your Chinese customers in response to the U.S. unverified list. I understand that there are some fears that the U.S. might restrict supply of single-use products to China. Have you seen any of this in Q1?

[Joachim Kreuzburg, executive]

Yes. So the first question regarding the key criteria for our M&A. It's clearly the strategic fit. Of course, we also have to be convinced of the valuation. And we, I mean, do have, yes, very, very strict process also in that regard that we are building typically 5 years business plans including -- also considering certain risk factors and then making DCF calculations basically on that. And if there is any target that we could only get by exceeding that price, then we don't go after that. So we are clearly having a first selection on the strategic side, but which, by the way, also, of course, includes our ability to run an integration and respective execution also at that time, so we also always try to make sure that we don't have too many integration processes going on at the same time. But then, of course, we also check on the price.

And cultural fit also is something that we are interested in. So we also have declined opportunities where we said we believe that here maybe the fit is not good enough on that end.

So -- but yes, we are not -- let's put it that way, for logical reasons, we have a different supply approach than Warren Buffett, for instance, in that regard.

German energy supply, in our own operations, we believe to be quite robust and resilient and should be able to mitigate any shortage of gas supply. On a global scale, though, we believe that a strict limitation of gas supply to Germany within the next, I don't know, maybe 6 to 12 months, somewhere within that time frame, could have an impact on supply chains and that we would think mainly around, let's say, chemically or chemical-based products, be it certain plastic resins, et cetera. And I believe that would be quite independent from the location of any facility.

So therefore, even a supplier or a player in that field that doesn't run necessary a site in Germany would possibly be affected by that because we simply talk about major manufacturing capacities for numerous different chemical products in Germany. And of course, a disruption in that regard, I believe, would have effects on various industries globally. So therefore, I would say we -- when you boil it down to our specific setup, we believe we have a quite resilient setup in that regard.

On China and potential restrictions there, we haven't been impacted by that, as you were asking for in Q1. I can absolutely understand that you ask that question. But so far, we cannot see -- we do not see any conflict on the trade side as we have seen that in the semiconductor field over the last, whatever, 2 years, 3 years, 4 years maybe even. We can't see that at the moment. We do not see that at the moment, and therefore, wouldn't see that as a major factor.

[Operator]

Next question is from the line of James Quigley of Morgan Stanley.

[James Quigley, analyst]

I've got a couple left. So the LPS business had a really strong quarter led by bioanalytics, as you said. Can you give us a little bit more color on the growth in bioanalytics for the quarter? Was this a phasing impact driven by a large number of equipment orders or sales or is this a step change in the growth driven by your portfolio and underlying demand? And roughly what portion of the LPS division is bioanalytics currently? And where do you assume this mix moves out to your 2025 targets?

And secondly, you mentioned the FX hedging. Could you give us an idea of what the absolute EBITDA impact from FX was for the quarter? And then [ related to ] hedging going forward, is there any rule of thumb or any details on the net exposure you can give us for the sort of key currencies that can help us in modeling out the FX?

[Joachim Kreuzburg, executive]

So the bioa portfolio makes up for roughly 30% of our LPS business in total of the LPS division. And the growth for the bioa business have been, I mean, I would say, very substantial double-digit percentage values. I hope you can accept that we don't disclose that in all detail, but it's significantly above our growth in the division overall, even though we believe that we pretty much have performed at least on market level in all segments we are active in, but in bioanalytics for sure, substantially ahead. And here, we can see that we see great leverage effects because of the complementarity of the portfolio that we have built here.

The highlights, I think I said that before, is live cell imaging. That was the acquisition of Essen in 2017 or '18. And then also the addition of the Octet business that was the -- for the bio business that we have acquired from Danaher, so doing very well. Highlight here is the U.S. or the Americas, I think I said that before, but we are doing very well and grow nicely pretty much in all geographies, one can say. So that's truly a highlight. But again, we are also satisfied with the performance of the other businesses in LPS.

I guess the second question was on FX. I -- otherwise, please maybe say it again, but the FX effect for LPS in Q2 -- in Q1, sorry, was also approx. 0.5 percentage point from exactly, as you said, the valuation effects. And Rainer, net exposure, I think dollar is the one that is key.

[Rainer Lehmann, executive]

Yes. So the exposure that we basically have in the U.S. dollar region is roughly EUR 1 billion. The exposure is EUR 1 billion.

[Joachim Kreuzburg, executive]

And hedging?

[Rainer Lehmann, executive]

And while we basically don't -- we hedge in a basket of according to -- of currencies. We don't hedge single currencies because there's contract fluctuations. We do a cash flow at risk method in this regard, fairly sophisticated, I can say. So therefore, we show currently, and we're hedged on the U.S. dollar, of course, a little bit slightly than above the current exchange rate. That's why we see the negative impact of -- in the P&L. And our current FX rate is roughly around $1.15 that we are hedging.

[Joachim Kreuzburg, executive]

And the effects should become smaller, given the constant FX rates, then this effect becomes smaller because of the relevant volume as that hedge rate declines, and we already have seen this valuation effect.

[Rainer Lehmann, executive]

Just one topic, it's important to understand what's our hedging strategy, we do 12 months rolling forward. So that's really the effect that basically it will bleed out over time.

[Operator]

Next question is from the line of Odysseas Manesiotis from Berenberg.

[Odysseas Manesiotis, analyst]

Firstly, one on biosimilars. A wealth of biologics patents are expiring in 2023. How should we think about the revenue contribution of these? So if a patent expiration is on a certain date, would a 2-year lead time on the ordering compared to this date and the 1 year pre patent expiration sales contribution makes sense?

[Joachim Kreuzburg, executive]

So yes, biosimilars, I think it's great to have that question because during the last 2 years, I think that has been a little bit moved out of focus because of all those other strong trends that were dominating discussions. But clearly, biosimilars are a part of the strong positive fundamentals for -- particularly for the Bioprocess division, for sure.

And if we got your question right, you were asking, okay, what's the time line roughly? Is there a gap between product runs off-patent? And then there are significant sales revenues of 1 to 2 years?

Let's put it that way. This gap can be shorter when the respective player, all those players just start early enough with their projects. What definitely is the case that between their first investments into manufacturing sites, i.e., for instance, equipment in the -- for whatever cell culture -- no, for cultivating cells, bioreactors, et cetera, and then later, having the entire facility up and running, there, we are talking typically about 1 to 2 years.

But between the runoff of the patent and the market entry of such a producer, that can be shorter. And maybe just as a reminder, biosimilars should make up as far as we have a visibility between -- or around the 5% mark for the -- for all of Bioprocess business at the moment, but increasing.

[Odysseas Manesiotis, analyst]

Okay. Perfect. Very interesting. And one follow-up. So on the chromatography business, you've grown that quite a bit following your recent acquisitions. So these sales synergies with your recently acquired assets have on the sales front, have a lot of space to grow. I'm aware that it's a relatively more profitable space than the rest of our bioprocessing business. So should we expect this part of your business to sort of outgrow the other parts of bioprocessing?

[Joachim Kreuzburg, executive]

We do see very healthy growth rates, I have to say, pretty much across our portfolio. We see this in our cell culture technologies portfolio, which includes bioreactor, cell culture media, cell culture media components, et cetera. We see that in fluid management technologies, and then we see that in the field of what we call separation technologies. And here, chromatography is one segment. But also the other segment of filtration product is also growing very nicely. So maybe that's the first comment that I would like to make.

Yes, we expect a bit above-average growth rate in this chromatography field because of the fact that we have entered that more recently and see substantial potential also to gain market share here. But nevertheless, we should put that into perspective that we are not talking about a complete different sphere and level of growth rates in that field -- maybe as a first remark.

The second remark that I would like to make is that the portfolio that we have. And I think that's one feature that really makes it a very, very competitive portfolio is that we offer a bandwidth of, let's say, more classical chromatography systems and consumables, both low-pressure and high-pressure chromatography systems and the respective columns, plus systems for continuous chromatography plus a complete novel and unique technology, which are the monolith technology that we have acquired through BIA Separations.

And then, as you can imagine, the different products within this portfolio carry and contribute different gross margins. As soon as we are talking about a system, we are talking about lower-than-average margins, as you would expect in all other areas as well. And we are always extensively communicating this, for instance, when it comes to cell culture technologies, and the systems there also have below-average gross margins, whereas when the consumables have very attractive above-average gross margins, and that is definitely also the case in the chromatography field.

So now bottom line, what I want to say here is this is a business that is should grow nicely, a bit above average, contributing nice gross margins, but it will not lead to any significant shift of our overall gross margins.

And maybe our last comment here would be that when it comes to our 2025 guidance, then we always have said that we include here a certain volume of acquisitions, which we typically would expect to come in at lower EBITDA margins. So therefore -- and then these businesses would dilute our, like, organic EBITDA margin development a little bit for a certain period in time. So please keep that in mind when maybe building a little bit a more, let's say, detailed and sophisticated model.

[Operator]

Next question is from the line of Falko Friedrichs from Deutsche Bank.

[Falko Friedrichs, analyst]

My first question is on Q1. So when stripping out this COVID contribution, it obviously shows very strong growth in the non-COVID business, more than 30%. Was there any unusual stocking pattern by customers that you have noticed in the quarter? Was there anything that you would not call a normal demand pattern?

Then my second question is a bit bigger picture on the industry dynamics because there still seems to be a bit of a concern in the market around potentially sudden and significant downturn in your customer demand at some point soon. And I'm talking about the non-COVID business side of things because your customers might have stocked up enough or channels are full, et cetera. I would be very interested to hear your view about this and whether you think it is likely that over the course of the next, let's say, 1 to 2 years, there could potentially be a phase where you might see a very noticeable slowdown in customer demand and how good your visibility really is into this.

And then my last brief question would be on Russia. And how you approach doing business in Russia at the moment, whether that is business as usual or not.

[Joachim Kreuzburg, executive]

Yes. So thank you for those questions. So maybe I start with the last one on Russia. Of course, this is not business as usual because the transportation sector is heavily impacted and influenced by the sanctions. That's clear. And there are also some maybe, let's say, even more detailed approval processes implemented regarding products that could potentially be or, let's say, I would even say, in theory, be of dual use that has been implemented since a long time, but procedures have been maybe become a little bit more also time-consuming, I would say.

And that means that we are, at the moment, taking into account and being fully compliant with any restrictions and sanctions in place that we are still doing business with Russia to a certain extent. And again, limiting factor here is very much transportation at the moment.

And the consideration that is important for us is that all of the products that we are supplying into Russia are used for the manufacturing of medicines. And there are explicit statements by all relevant bodies in Germany and the EU that such products are not included in the sanctions at this point in time.

And therefore, we, of course, then also have had a thorough evaluation and discussion on our side in how far we should impose, let's say, our own sanctions here. But for us, the humanitarian aspect is the most important one. And therefore, we think that the patients in need, be it for insulin or certain cancer drugs or whatever partially is produced locally in Russia, should get their medicines and that is why we have not stopped our supply of Russia as far as this is possible at all. And again, we see severe limitations here.

And maybe my last sentence on that, that is also fully in line with what our customers do and our competitors are doing at this point in time. But of course, we are fully aware that the overall policies regarding sanctions might change within the next couple of weeks. And I think we are all aware of the fact that this will be possibly be linked one way or the other to possible sanctions or bans or embargoes around the energy supply from Russia into Germany and other European countries.

So maybe I would then shift to the first and second question because I think they are quite interlinked. So did we see any unusual or non-normal demand pattern in Q1? We wouldn't say so, but at the same time, we will clearly always repeat our statement that the visibility that we have here is limited.

In the -- on our customer side, the purchasing policies and the execution of purchasing activities is very much driven on a site level. So very often, customers -- the majority of our customers don't run fully consolidated purchasing activities. And therefore, it's also often the case, particularly for larger players, that there is no consolidated overview of their stock level. So therefore, I clearly would always make the disclaimer that visibility is limited, but we haven't seen any non-normal demand pattern.

If we would take the Q1 in an isolated way and see the book-to-bill level, for Q1, I would even say that it's really very much in line with anything that we have seen in the pre-COVID times.

But last sentence, as said before, this is one quarter now that we would qualify to represent somehow a normalization. And I'm sure we will talk about that based on more data and more developments, maybe even more updates from customers by mid of this year.

[Operator]

Next question is from the line of Delphine Le Louet from Societe Generale.

[Delphine Le Louet, analyst]

I just need a clarification regarding the EUR 500 million envelope for the vaccines COVID-related. In terms of pricing for the year, how should we read that envelope that now the Q1 has passed? Should we think of back-end loaded, meaning that over 60% of that is still H2 versus 40% in H1? Or is it quite a sort of a balanced figure on a quarterly basis?

Second question, deal with the current growth. How much have you seen this coming out from the price increase?

And second (sic) [third] question regarding the revenue stream, how much of the growth have you seen is coming out from either new customer or a new contract in a way on new drugs or new elements of future bio elements? Can you detail that, please?

[Joachim Kreuzburg, executive]

Yes. Thank you very much, Delphine, for those questions. I guess, for the first one regarding how will sales revenues regarding corona vaccine production will be balanced over the year, it's a bit difficult to say. I think we will again see much more by mid of the year. I would again come back to the point that I think both mRNA vaccine manufacturers, and these have been the dominating ones.

I think everybody knows the publicly available numbers about the number of doses being applied and whether it was mRNA-based and from which one of these 2 players. And it's clear that this will have, one way or the other, the largest impact for everybody in the market.

And here, we have seen some changes in the timing quite recently, I mean, the initial timing of both was -- has been that -- around -- yes, basically around this time of the year. They wanted to have a modified version available. Now it rather looks like, yes, maybe September, something around that point in time.

But then of course, manufacturing campaigns would start a bit ahead of that. But still, it's not a question, to be honest, that I can really answer very well or we can answer very well here, and I ask for your understanding here. I think we always try to be very transparent here, and we, for sure, will continue doing so once we have more visibility.

Pricing effect on the sales side are very limited in -- for the Q1 numbers. Also limited even though a little bit more already included on the order intake side, not dominating the equation, but of course, naturally a little bit more included there.

And then on the revenue evolution new contracts, new customers. I think one can say that it's pretty much in the nature of our business that, volume-wise, existing customers always dominate the equation because we are talking about validated processes and there are a lot of follow-up orders constantly. And therefore, this represents the majority of our business when it comes to euro values. But we are -- and that's -- now I'm talking about the bioprocessing or SSB business, yes.

In LPS, it's still also quite the same, but there is -- of course, there is a little bit more young companies, research-oriented companies when it comes to the bioa products for instance.

Switching back to bioprocess for a second. We are nevertheless pleased also with the number of projects that we have with new customers when it comes to novel technologies, BIA Separations, I want to mention again, very novel chromatography technology used for advanced therapies. Most of the projects here are early-stage projects. So I would say, fully in line with how this balance should look like, I would say, is what we can report here.

[Delphine Le Louet, analyst]

Okay. Perfect. And a quick follow-up regarding Russia. How big is Russia in the revenue so far?

[Joachim Kreuzburg, executive]

It has been -- on a full year basis, last year, it has been around 2%.

[Operator]

Next question is from the line of Giorgio Frömmel from Cana Investors Advisory.

[Giorgio Frommel, analyst]

My name is Giorgio Frömmel from Cana Investors Advisory., Managing Director. And I just wanted to know for the next 10 years, how much revenue in sales and gross profit, do you think you can get?

[Joachim Kreuzburg, executive]

Next 10 years?

[Giorgio Frommel, analyst]

Yes.

[Joachim Kreuzburg, executive]

I mean I have to say I appreciate very much long-term thinking. And I think that's -- and also long-term perspective and guidances. And I mean, we have been -- I think we are rather known in the market for giving long-term visibility. But so far, our -- the best that we can do is share our 5 years -- our plan, it was a 5 years plan. It's our midterm plan until the year 2025 with you. And here we are shooting for EUR 5 billion of sales revenue for the Sartorius Group and EUR 4 billion for Sartorius Stedim Biotech.

And maybe do you nevertheless give you a bit more of a feeling since roughly 10 years, our growth trajectory is 15% top line growth on average year-on-year, which represents doubling our sales revenue every 5 years.

[Operator]

Next question is from the line of Paul Knight from KeyBanc.

[Paul Knight, analyst]

A question we are frequently receiving is earlier-stage biotechnology and the lack of funding. I know not maybe a significant part of your business, but what do you see from early-stage research in biotechnology?

[Joachim Kreuzburg, executive]

Yes. I mean, we have seen a lot of funding during the last, say, 24 months. And one area I think we touched upon a bit earlier when there was a question around mRNA-based product going forward and how we would see that space. And that, of course, has been one area with particularly significant inflow of funds. For me, the question is now, and that is why I'm answering a little bit general here is whether we will see any changes to that or again one could maybe say normalization to that once we have maybe the pandemic behind us.

So -- but in general, I would say, funding and therefore, also the pipelines in our space look very healthy. We wouldn't consider funding constraints at the moment as any limiting factor for the growth of our business.

[Paul Knight, analyst]

And then the other question is regarding mRNA. Are you seeing the emergence of those programs become significant for your business?

[Joachim Kreuzburg, executive]

I mean the corona vaccine manufacturers that have been -- and the manufacturing and the need for our products has been significant in 2020 and 2021, and we expect the same for -- the same level in 2022. But I guess we have said before that for 2025, we -- so far, we base our guidance on the assumption that there would be no net effect from that, but that includes that we would rather believe that there is a certain chance that by the year 2025, and maybe a little bit earlier, we will see combined annual vaccinations or vaccines available for corona as well as maybe like ordinary flu.

So in that sense, we believe there will be a certain sustainable piece, but we wouldn't expect today any number of doses being produced every year close to the number that we have seen in this phase. So -- and again, current expectation would be it would be the same in 2022. So that's the more near term in terms of pharma time line.

In the longer run, I think there is a good chance that there will be other mRNA-based products, therapies also based on mRNA technology. Here, we will again see lower numbers of doses, but most likely significantly higher doses or content of mRNA per dose. So -- and therefore, yes, we do expect mRNA to play a significant role going forward. But I would definitely have the view that one shouldn't be too optimistic regarding time lines.

What we have seen here regarding corona vaccines has been extraordinary in any respect and time lines for any cancer drug, et cetera, will be much, much longer than anything that we have seen for the corona vaccines.

[Operator]

Next question is from the line of Carl Brown from Acxiom.

[Carl Brown, analyst]

Just a question on the order intake number. I understand the comparisons are skewed by changing ordering patterns from your customers. But I am still interested, in the quarter, of the EUR 949 million, how much was from vaccine-related business?

[Joachim Kreuzburg, executive]

The business that we have had in the Q1 related to corona -- and here then, more specifically related to corona vaccines has been in the high double-digit million euro range.

[Operator]

There are no further questions at this time, and I would like to hand back to Dr. Joachim Kreuzburg for closing comments. Please go ahead.

[Joachim Kreuzburg, executive]

Yes. Thank you, everybody, for your interest in Sartorius and Sartorius Stedim Biotech and for the lively discussions and for all your questions that hopefully, we were able to answer in a satisfactory way. We will continue to be as transparent as possible, and we always will flag when there are things too volatile to be quantitative in these times. But however, let me again summarize, I think we are off for a good start into 2022 and looking forward to achieving our goals for the full year. But of course, keeping in mind the uncertainties around us. Thank you all. Stay safe and talk to you next time. Bye-bye.

[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.