Sartorius Stedim Biotech SA

PAR:DIM

Earnings Call Analysis

Company Reports Profit Drop and Expansion

Despite a nearly 40% drop in underlying net profit to €202 million, the company increased its operating cash flow by 25% to €363 million. A key focus was optimizing H1 2022's inflated working capital, leading to no further negative expectations in this area. Investment cash flow hit €327 million, reflecting ongoing capacity expansions, which resulted in a high CapEx ratio of 17.3%. Equity ratios remained stable year-on-year, slightly over 38%, while net debt increased slightly to €2.6 billion. Looking ahead, the company expects a low to mid-teens decline in sales revenue for 2023, or a mid to high single-digit decline excluding COVID-related businesses. The full year profitability forecast for the group is around 30%, taking into account the Polyplus acquisition.

Sartorius Group's H1 2023 Results Show Resilience Amidst Reduced Demand

Sartorius Group and Sartorius Stedim Biotech, led by CEO Dr. Joachim Kreuzburg and CFO Rainer Lehmann, reported results affected by weaker demand across customer groups and continuous inventory reductions. The destocking trend, driven by clients' inventory management and a full omission of COVID-19-related business, precipitated a 15% sales decline to €1.73 billion. Order intake fell by a third to €1.45 billion, with COVID-excluded figures showcasing an upper single-digit decrease. Despite these challenges, the Group upheld a robust 29.8% EBITDA margin, reflecting stringent cost control efforts. The H1 operating cash flow improved by 25% to €363 million, benefiting from optimized working capital management. Projections show an underlying EBITDA margin around 30% for the current fiscal year, with a CapEx ratio of roughly 15%, as Sartorius continues to invest in expanding its global footprint.

Polyplus Acquisition Marks Strategic Expansion in Bioprocessing

The recent acquisition of Polyplus, a leading provider of transfection reagents for gene therapy manufacturing, aligns strategically with Sartorius' focus on cell culture media and critical materials. This move complements their existing offerings and is expected to offer cross-selling opportunities in a market growing at 20-30%. Polyplus contributes to the previously-mentioned sales revenue growth projections with an additional percentage point and is financed through a bridge facility with intentions to refinance via a bond issuance. These financial maneuvers aim for a net debt to underlying EBITDA ratio slightly above 4% by year-end.

Global Market Conditions Impact Regional Performance Unequally

Regionally, the Americas, EMEA, and Asia-Pacific all felt the destocking and investment hesitations. The Americas saw a decline of over 12%, EMEA nearly 16%, and Asia-Pacific experienced the strongest decrease due to a pronounced softness in the Chinese market and the advent of local competition. The net debt to underlying EBITDA displayed a moderate uptick to 2.1%, and the equity ratio remained stable at over 38%. Current financial indicators suggest a path of cautious optimism, acknowledging the need for agility in a volatile market.

Resilient Bioprocess Solutions Division Faces Industry-Wide Softening

The Bioprocess Solutions division witnessed order intake shrinkage across all regions by 35.5%, with sales decreased by 17.5% to €1.35 billion. A notable decline (excluding COVID business) was in the single-digit range, and the EBITDA margin stood firm at 30.8%. Labs Products & Services division also experienced a softer market, with order intake and sales dropping by 22.5% and 7.5%, respectively, though it maintained a 26.3% EBITDA margin. The acquisitions, inclusive of Polyplus, contribute two percentage points to growth with an expected underlying EBITDA margin around 30% for the division.

Firm Outlook for Second Half with Expected Order Intake Recovery

Management maintains contact with customers, gleaning insights into inventory levels and reordering timelines. Over 60% predict reaching target inventory levels by Q3, with reordering potentially restoring normalcy in Q4. Sartorius aims to capitalize on this recovery, bolstered by customer reassurances and planned efficiency optimizations. The anticipated rebound in order intake might edge the company closer to its 2025 growth targets, restoring momentum dampened by recent market adjustments.

Earnings Call Transcript 2023-Q2

[Operator]

Good day and welcome to the Sartorius and Sartorius Stedim Biotech Conference Call on the Second Quarter 2023 Results. Today's conference is being recorded.

At this time, I would like to turn the conference over to Dr. Joachim Kreuzburg, CEO of the Sartorius Group. Please go ahead sir.

[Joachim Kreuzburg, CEO]

Thank you very much and welcome from our side here as well. Thank you for attending our conference call on a Friday afternoon or Friday morning for some of you hopefully.

We would like to start by walking you through the results of the Sartorius Group and then thereafter to the results of the Sartorius Stedim Biotech Group. We will do this year by myself, Rainer Lehmann, our CFO; and René Fáber, Head of the Bioprocess Solutions division as well as CEO of Sartorius Stedim Biotech.

Let me start by walking you briefly through the main highlights of the first half year's results. As expected, also the second quarter was very much influenced by the temporary weak demand by quite the most of our customer groups one can say. Of course, the most significant impact has come from the continuous reduction of inventory levels by our customers.

At the same time -- and this is particularly relevant for the Bioprocess Solutions division. For both divisions, we also have seen some impact by lower investment activities by customers. Of course, still there is also some impact from the pretty much full omission of the COVID-related business. And Rainer will show you also the impact on both -- sales revenue for both divisions in a minute.

The underlying EBITDA has remained on a quite robust level at around 30% for the group. The cost containment measures that are in place are paying out here. Looking forward, let me flag that here already. Of course, it will play a role to prepare for an increasing order intake activity or increasing demand by our customers and therefore, we are preparing for keeping our delivery times short and our delivery ability high. So, that's a key topic going forward.

We are confirming the outlook that we have revised five weeks ago and I also would like to confirm our mid-term outlook for 2025 here. And then quite recent news is that we closed our Polyplus acquisition three days ago. We announced that, but we will take the opportunity here today again to introduce the main highlights of this business, the strategic logic and why we are doing this. René actually will do this in the Sartorius Stedim Biotech part of our today's presentation.

And with that, I would like to hand over to Rainer for the details of our H1 results.

[Rainer Lehmann, CFO]

Thanks Joachim and also first of all, welcome to today's earnings call. Let's have a look how the soft topline development actually translate into the figures for H1.

Sales amounts to €1.73 billion, that's a decline of 15%. Excluding COVID and that's important because really this year we pretty much do not see any further or related COVID business any longer. This decline would have been in the upper single-digit only. It's always too important to keep it in mind since last year was still fueled at this point in time with some COVID tailwinds.

Order intake decreased substantially, but also as expected by a third to €1.45 billion. The decline as you know and we have flagged that quite often related to the destocking that seems to take a bit longer than we initially thought. Hence also the update of the guidance that Joachim just referred to in the middle of June and also some lower investments of activities at our customer side.

The underlying EBITDA decreased by almost 26% to €517 million, that's a drop in margin of good four percentage points to 29.8%, nevertheless still under the circumstances, quite robust margin.

Functional expenses are back actually on previous year level at this point in time and as you know, we are a volume-driven company as we have seen tremendous economies of scale over the last two years, which led to margins up to 34% in the group.

Of course, these economies of scale unfortunately also play the other way around, so therefore seeing this development. Underlying earnings per share for the ordinary €2.95 dropped by 40% and for the prefs, it's €2.96 and again same drop as for the ordinaries.

What keeps -- what's important to know, of course, stringent cost management was key for the first half that will also continue going forward in order to achieve the guidance that also Joachim will reiterate later on.

If we go to the next slide, we continue, of course, and I think it's very important to see our current development in perspective and in a broader context over the time. You see here that Q2 has a lower performance or has lower revenue than Q1, we always expected a weaker H1 and H2 and we anticipate that actually Q2 now on the order intake, also hits the bottom and from here on, we see a recovery in late Q3 and then Q4 order intake picking up for both divisions.

If we have the regional view, we see that really all regions have been influenced by the destocking effect and the low investment activities. The Americas sales are -- the -- ours sales declined in both divisions. LPS was specifically affected here by strong comps. Keep in mind that in the -- especially in the US also we had a very good success with our Biologics portfolio and that of course, also now was a bit more heightened environment regarding Biotech funding also plays for sure a role here in this normalization.

In the Americas, we achieved revenues of €646 million, that's a decline of good 12%. In the EMEA region, we dropped a bit further almost 16% to €669 million in revenues. LPS was here pretty much stable we have to say, was driven by the Bioprocess, which of course, has very high comparables. Most of the COVID-related revenue was related to this region, but also Russia has an influence here basically four percentage points of the drop are attributed to the business or basically the loss of business in Russia.

In Asia-Pacific, we see actually sales declines also in LPS. Here, I need to also point out that part of that -- and I will come to that when we dive into divisions, but the OEM membrane business, so basic components for the COVID test played role. The BPS revenue decreased mainly also due soft business in China. Yes, in this regard and René will add some more color later on during his presentation.

When we come to the detail and have a detailed look on the Bioprocessing side, we see and I start here on the left hand side with the order intake. We really see this decrease across all regions, the loss of almost 36% or 35.5% in constant currencies to €1.1 billion is really attributed to that destocking. We can't mention it enough.

It took -- or takes a bit longer than we originally anticipated, as I said, but we anticipate that to really bottom out this quarter -- or last quarter. And sales revenue decreased by 17.5% in constant currencies to €1.35 billion. Excluding COVID, there would be a upper single-digit percentage rate decline.

When we look at the regional also split here, we actually see that the loss was pretty much across all regions. Again, on the Bioprocessing side here, it was around 20% loss and Americas a little bit less, only 10% and in Asia-Pacific also 25% revenue decline.

Nevertheless -- and despite the fact that we lost quite some revenue on the Bioprocessing side, we managed to have an underlying EBITDA margin of 30.8%. EBITDA amounted to €414 million. I mentioned it below, we're really here dependent on economies of scale, which worked or works in both ways.

If we have now a look at the LPS division, Labs Products & Services, you will see continue to see robust results in a continued challenging market. Also here starting on the left hand side with the order intake decreased to €348 million by 22.5%, mainly drive -- one of the main drivers here is really the in the OEM membranes that we had some nice business over the first six months of 2022. And we also see here clearly the weaker, let's say, market environment when it comes to the early stage Biotech funding.

Sales revenue amounted €389 million, a drop of almost 7.5%. Excluding COVID here, we would have a reduction only in the mid-single-digit range. The underlying EBITDA, I mentioned before, we could continue to keep a high profitability for our LPS division here was 26.3% amounting to €102 million, really stable outlook or stable performance due to also stringent cost management in that division.

We have to look at some key performance indicators. Underlying EBITDA I just mentioned, if you look at the extraordinary items, of course, they are a little bit higher with €61 million.

Let me put some color here. Half of them will relate to the adjustment -- or to organizational adjustments. Part of that is, for example, our voluntary employee program as well as ramp-up costs in connection with expansions. But also certain one-time payments with suppliers. So, really about this whole topic that we still have the aftermath of the COVID business from last years and the rest is really integrations and also corporate projects that we normally show in this position.

Financial result is -- inflows as always by the volatility of the valuation of the BIA Separation's earn-out liability. So, nothing new here. Of course, our interest result or interest expense net has increased due to the funding of the acquisition of Albumedix last year and will of course going forward be a lot more substantially influenced by the new acquisition.

Underlying net profit amounted to €202 million, with a drop of almost 40%. Operating cash flow -- and I was actually very happy to report that in these circumstances with that weaker result, we actually were able to increase our operating cash flow by good 25% to €363 million. Main driver is here that in H1 2022, we had a substantial increase in working capital, which we now could optimize and also going forward, we do not expect any further negative development out of that position.

Investing cash flow amounted to €327 million. As Joachim pointed out at the beginning, we also continued with our capacity expansions. As you know, a lot of them are in the manufacturing capacities, which of course, we are adjusting on the timeline a little bit, but therefore we are showing a quite high CapEx ratio of 17.3%.

On the next slide, we have our more indicators, equity ratio pretty much on last year's level. It's a little bit over 38%. Net debt slight increase to €2.6 billion, which then translates to a net debt divided by underlying EBITDA of 2.1% slight increase, but of course with the reduction of the profitability that's a result of that.

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

[Joachim Kreuzburg, CEO]

Yes. Thanks Rainer. So, from my side now, just the outlook for 2023. The headline here says 2023 P&L outlook confirmed as revised in June. So that is because we now of course factored in the Polyplus acquisition since it's closed since July 18th.

You can see here from the first bullet point below the table that this means that there is one additional percentage points of non-organic sales revenue growth contribution, but no impact on the outlook bandwidth here and there's also no impact on approximate profitability outlook that we are giving.

The other effect is shown in the last bullet point, the net debt to underlying EBITDA ratio, which is now anticipated to be slightly above four by end of the year. The other numbers are as adjusted for five weeks ago. So, it's a very busy chart, apologies for that. But I hope it helps for providing as much transparency as possible here.

So, therefore, briefly, for the Sartorius Group, we are expecting a low to mid-teens decline in sales revenue. The effect or the decline excluding the COVID-related business and the impact from that would be mid to high single-digit. Rainer, has explained the numbers after H1. So, this is the guidance for full year. And the profitability for the group that we are expecting is around 30%. And then it reads the same for the two divisions and I guess I don't have to read it out here.

Then as a recap, because Rainer already mentioned CapEx for H1, we expect CapEx to be approximately on the same level for the full year. So, -- or I mean the ratio to be around 15%, but the absolute CapEx roughly on the same level.

So, we are pretty much continuing without changes our capacity expansion program. And let me briefly reiterate why this is. One is because we leave our mid-term expectation unchanged. We believe what we are seeing here at the moment is what we always have anticipated and that is quite significant volatility around our unchanged and positive mid-term growth trajectory.

And as we didn't change our expectation and our respective activities during strong overamplification of order intake and sales growth because of the buildup of inventories by our customers, we do the same now during this temporary rundown of the inventory levels of our customers.

And then, of course, there's also a certain impact from the necessity to build up a certain regionalization of our footprint. We actually have been working on that even before the geopolitical turmoil, but nevertheless, of course, this also adds a bit to our CapEx as there is particularly to mention the expansion of our North American plant, but as well as the buildup of capacities in Asia.

So, -- and with that, I would like to hand it over for the Sartorius Stedim Biotech results to René.

[René Fáber]

Thank you, Joachim, and hello everybody also from my side. Welcome to our H1 earning call. I will start the SSB part with the Polyplus acquisition we have announced in March and finally closed this week. First of all, very warm welcome for our new colleagues from Polyplus, we're very excited to join forces with that great team.

Polyplus is a leading provider of transfection reagents which are used in manufacturing of gene therapies and gene modified cell therapies. The company expanded their offering and added both Plasmid design and Plasmid manufacturing capabilities and also launched recently new reagents, which are used to make lipid nanoparticles for in-vivo RNA or DNA gene delivery applications.

So, highly relevant portfolio for us and very important milestone in our very focused efforts to build a portfolio of Cell Culture Media and critical materials, which are used particularly in making such new therapeutic modalities like cell and gene therapies.

Products are highly complementary to our upstream and downstream and fluid management offering we have today and supported by services like cell line and process development or Plasmid design and Plasmid manufacturing services.

These materials are highly -- high quality G&P grade ingredients, which have a strong impact on performance and economics of the manufacturing processes of our customers. They are often used in combination media, for example, with the gross factors or transfections reagents are used with Cell Culture Media for -- to make biovectors. So, it brings very nice cross selling opportunities as well. Typically, they are expecting in preclinical or early clinical development of drugs and once the drug gets approved, it becomes quite sticky and recurring business.

The market for cell and gene therapy is an early, relatively young market, which is becoming increasingly relevant. These new modalities represent now one-third of new Biologics pipeline already. The market is growing with 20%, 30%. The approved drugs are today rather small indications typically with regional or country approvals.

According to FDA, the expectation is that around 2025, 10 to 20 new approvals might come to the market per year. We have seen quite a nice pickup of approvals recently in last couple of years. The pipelines are well filled. Preferreds are early phases providing for us the opportunity to get those materials expecting early in these processes. Polyplus here brings quite nice footprint in these pipelines, both in development, but also in already approved drugs.

Regarding the financing, Rainer, do want to take that further?

[Rainer Lehmann, CFO]

Yes, I'll take this quickly. So, as you know, we basically communicated that the initial financing is done. We are a bridge facility on Sartorius AG level. We intend to really long-term refinances with a bond. We are in the middle of the bond preparation and will most likely go into the market at the beginning of September with the intent then to refinance a bit in long-term. That would of course bring our dynamic indebtedness. So, net debt underlying EBITDA is substantially higher.

As I just said before, on an SAG level that was 2.1% and it will be slightly above 4% for the SSB dynamic indebtedness that would be slightly below 4%. And it was a clear deleveraging strategy important to be under 3.0% until 2025.

And with that back to you René?

[René Fáber]

Yes. Thank you, Rainer. And with that, let's move to the H1 results for Sartorius Stedim Biotech. Again very much in sync with what the acumen Rainer described for the group following the exceptionally strong previous year sales revenues declined by 18.5% in constant currencies compared to H1 2022 to now €1.4 billion.

Taking COVID revenues out, the decrease was slightly above 10%. Order intake has been impacted even stronger, of course, resulting in 37% decline, which corresponds to an order to book ratio as we have expected, that's slightly above 0.8% for the first half of the year.

As expected normalization of demand, which we've seen going on since the mid of 2022 continued. We did expect to end -- that it ends a bit earlier, so it's now bit prolonged. We also have seen a general reluctance to invest on part of our customers due to over capacities and looking at the EBITDA margin despite the lower volumes we achieved a solid EBITDA margin at 29.7% and now here price effects on both procurement side and customer side largely offset each other.

We have been working very diligently on managing the costs during that period, decreased the headcount or adjusted the headcount to the current demand situation and we'll continue doing that moving forward. The lower profitability is then reflected in the underlying earnings per share, which was at €2.62 million H1 2023 versus €4.4 million last year.

Putting the sales revenues into perspective, again, very similar picture over the years here like Rainer showed for the group where our sales revenues now doubled when we compare it to 2019, pre-pandemic times, which translates to a strong almost 20% CAGR growth along this four years. We expect the higher volatilities also continue, not of course at debt scale, but in 2024, 2025, there will be -- that's our expectation.

Then looking at the regions, we see similar normalization effects across all the regions. US is impacted by destocking mainly. Europe, below strong comps with additional negative impact. I think that's roughly five percentage points coming from Russia business decline. In Asia-Pacific, strongest decrease, mainly due to soft China business.

What we see in China is that the effects of inventories, build ups, over capacities, and also the challenging funding environment also apply in China, but are kind of more pronounced there compared to other regions and also the recovery might take a bit longer in China than in other regions. And we also see a stronger presence now of local competitors in China.

Cash flows, again, very much in line with what Rainer explained here for the group to highlight here again our efforts to reduce inventories adjust to the demand normalization resulting in lower working capital in the light of the strong fundamental growth drivers of our market, which we see we are continuing our global investment program in manufacturing capacities across all regions, Joachim mentioned South Korea. So, both Asia, US, we have expanded and just opened new facility in Yauco, Puerto Rico for Cell Culture Media and continue investing across the portfolio and region moving forward. It resulted in a CapEx ratio at 18.7% for the first half of the year, of course, due to a bit lower sales revenues in that time.

The company continues to a very solid some balance sheet equity ratio was at 50.2%. Net debt stood at €1.8 billion, which is resulting in a ratio of net debt to underlying EBITDA of €1.2 billion.

That brings me now to the outlook for 2023, very much, again, in line with what Joachim already described. Therefore, the Bioprocess division, same dynamics here. We're expecting now low to mid-teens decline in sales revenues, excluding COVID related business, high single-digit to a low teens decline, acquisitions including Polyplus, expected to contribute two percentage points, excluding Polyplus one percentage point.

So, in underlying EBITDA, we anticipate margin at around 30% where the positive margin effects now coming from Polyplus acquisition is not expected to have a significant impact here due to the timing in that in this year. The CapEx ratio for the full year we project at around 15%, and the net debt to underlying EBITDA at slightly now below 4%, which includes the Polyplus acquisition already.

With that, I think we move to Q&A.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And our first question comes from Vineet Agrawal with Citi.

[Vineet Agrawal, Citi]

Hi. Thanks for taking my question. Just on order intake. Are there any particular pockets where you are seeing better visibility for orders than others? Mean if you peak into some of your largest customers' inventory and maybe based on product shelf lives and our discussions with the customers, are you seeing any particular signs, which kind of gives you confidence of recovery in the later part of this year? Thank you.

[Joachim Kreuzburg, CEO]

Thank you very much for the question. Indeed, as you can imagine, in this volatile times, we are in very close contact with our customers with regards to the inventory levels they have and the expectations to reorder or start reordering again.

We have been talking to the majority of our largest customers, of course, and what we're hearing from them is that most of them -- more than 60% of them expecting to reach their inventory levels in the target inventory levels in Q3 and start reordering in Q3 and almost every customer we talk to confirmed the -- starting to reorder in the Q4 of this year.

So yes, as Rainer said, that this is now what we expect maybe after the summer period to see uptake in order intakes and then continuing then in Q4.

[Vineet Agrawal, Citi]

Thank you.

[Operator]

Our next question comes from Michael Leuchten with UBS. Please go ahead.

[Michael Leuchten, UBS]

Thank you for taking my questions. Two, please. One, just going back to the prior one, what are you doing different now to get a better handle on where we are in this time of visibility compared to what you were doing before. Is there any difference? Or is it the same processes it's just a little bit easier to get the visibility now than maybe it was in Q1?

And then a question on China. You mentioned China a few times in terms of softness, is that now softness beyond the sort of basic materials and products that always was a competitive year than China. Is the local competition now going into areas where previously that wasn't present? Or is it still only in the lower tech area, not in spectrum processes? Thank you.

[Joachim Kreuzburg, CEO]

Maybe on the difference and maybe René will add to that. I think customers are a little bit more transparent at this point now about where they stand in this process. I think during the pandemic and shortly thereafter, it was indeed a little bit more difficult to get an overview here. I think that's exactly as you anticipated, the biggest difference. So, that makes it also a bit easier for us and I guess also for other players to get visibility and share that then also with you.

On China, if I get it right, you are asking for in how also the market environment has changed. And I think René spoke about that already. On one hand, maybe all the effects that we see on the global level are to be seen there as well, maybe on a little bit more pronounced level. That's one thing.

But the other aspect is for sure and also that has been mentioned, I believe, that as expected, we see now also some competition in China. And I think we always shared with the market that we were expecting this to first play a particular role in, let's say, more standard fluid management applications and I think that is also something that we can confirm and see here.

And in general, I believe, as in other industries as well, the dynamic has been a kind of accelerator and then life for those trends that were ongoing anyway. So, that's basically, I think, what we can say.

The biggest maybe uncertainty here and that is why we are always flagging also the quite high uncertainty overall in regards to China is more of a geopolitical dimension as well. So, I think the potential within the Chinese market is still very, very significant. But of course, a bit of uncertainty here for sure is also in how far business might be regulated and limited going forward.

[Michael Leuchten, UBS]

Thank you.

[Operator]

Our next question comes from Oliver Reinberg with Kepler Cheuvreux. Please go ahead.

[Oliver Reinberg, Kepler Cheuvreux]

Thanks very much for taking my questions. Three if I may. Can you first talk about market growth where we currently see it excluding any kind of stocking effects? So, to what extent as to funding pressure in early-stage biotech and also the lower investment activity lower the overall market growth for you?

And then second question, just expanding on market share. In the past, you talked about your ability to gain market share. Can you just provide an update, I guess, this kind of market share gains in North America and probably also in cell-culture media are still valid?

On the other side, obviously, you were able to get into some kind of accounts when others were not able to deliver, which may flip back and also overall, there's more capacities in the industry. So, can you just talk about the dynamics around market share, please?

And then third question, if I may, just on the mid-term guidance. Can you just provide us with kind of which, I mean, to get to the 2025 target that requires a bit more than 20% topline growth for Bioprocess and Stedim? So, how do you think about this kind of three components in terms of M&A, destocking, and organic growth? Thanks very much.

[Joachim Kreuzburg, CEO]

Maybe I briefly start with the mid-term targets and then René will answer the two on market growth and market share. So, I think when you ask for the bridge from 2023 expectation to 2025 projection and target. Then the first important thing to note is that we are talking about roughly €0.5 billion of consumption of products from us and that mostly in Bioprocess, i.e., in Sartorius and Biotech that we are not selling in 2023. So, consumption in 2023 is approximately €0.5 billion are higher than sales revenue.

So, I think that's the most important aspect to note that based on -- in how far we see and understand and know the market dynamics that these are roughly the numbers. So, -- and therefore, what we are projecting from there to the year 2025 is then mostly organic growth on a relatively, let's say, average level. But of course, that then already includes also -- as you are asking for M&A, the acquisition of Polyplus that we have just closed.

So, it's not that we are factoring in really very high level of additional M&A for Bioprocess here. I think you are asking for SSB and Bioprocessing here. For the Lab division, there is also, of course, the certain offset effect. And here, we would expect maybe in proportion in relation to the size of the division, maybe also a little bit more relevant M&A going forward. but, of course, again, some substantial organic growth. And again, for the first two questions, I hand over to René.

[René Fáber]

Yes. So, on the market growth, of course, the year 2023, particularly is a very difficult one to make a robust gap information about the market growth as such, taking out the inventory activities and also the slower investment activities, I would say probably slightly below what we have been looking at historically for equipment tools providers, market low to mid-teens digit growth rates.

How we are looking at that rather is a mid-long-term perspective and the main driver -- growth driver are the -- here the drug pipelines of what our customers are developing Here, we expect that the majority -- the main -- the largest market segment of protein monoclonal antibodies, pipelines are continuing to grow a growth rate in that segment of high single-digit to low double-digit rates is something we would expect mid to long-term and the new modalities I've mentioned when I talked about Polyplus cell and gene therapies, they are growing over-proportionally strong.

Gene therapy is maybe around 20%, cell therapy is 30%. We see that as on top to -- in addition to what the protein markets. And yes, so that the expectation mid long-term would be that we continue on that low to mid-single-digit growth rates for overall business market shares.

We have during the pandemic, being able to gain market shares due to our ability to supply and at the speed of capacity expansions. I would say, mostly in the US, we also see, of course, it's not surprising that we will not keep it all the market share shares we gain.

But overall, I think we are getting or got out of the pandemic with net gain of market share -- a sustainable market share, mostly US. China, it's different due to the local competitors there. Particularly during the COVID pandemic, you could see a preference of local players, local customers to secure their materials from the local competitors. So, there I would not talk about market share gains in China, definitely not.

[Oliver Reinberg, Kepler Cheuvreux]

Thanks so much.

[Operator]

Our next question comes from Paul Knight with KeyBanc. Please go ahead.

[Paul Knight, KeyBanc]

Yes. Thank you on the monoclonal answer. The other is, are GLP-1 significant yet for your Filter business. And then the other question is would it be fair to say Bioprocess concluded the June quarter kind of as expected Lab Products a little weaker? That would be my first two questions.

[Joachim Kreuzburg, CEO]

So, maybe the second question first, for in how far the two divisions performed up to our expectations. I would say it's not much of a difference here for the two divisions. You can say that typically, the -- when you don't have any influencer overlayer from any other significant trends or larger single projects or whatsoever.

Then the second quarter is a bit below the first quarter, particularly when you have Easter in the second quarter, it sounds maybe a little bit odd, but that is what it is. And this has been the case in 2023. So both divisions basically came in end of June, where they expected them to come in. Really no significant difference that I would highlight here.

[René Fáber]

And on the GLP, of course, these are different manufacturing processes then Cell Culture process to make biologic tracks. But you're right, the filters are used in such processes. It can be sterilizing great filters or just for filtration type of product. So, absolutely.

[Paul Knight, KeyBanc]

Thank you.

[Operator]

Our next question comes from Jo Walton with Credit Suisse. Please go ahead.

[Jo Walton, Credit Suisse]

Thank you. I have two questions. I'd just like to go back to the confidence that you have that things will start improving perhaps in the third quarter and definitely in the fourth quarter. I assume that you were speaking to your customers earlier this year Were they just not telling you anything? And then when you called them back more recently, they were more open? Or why when you spoke to customers, you didn't have visibility before. But now you speak to customers you do have more visibility. I think people are just trying to really gauge the degree of confidence that you have.

And my second question would be relating to China competition. Now, I think we all understand that there's been good local supply. But within the pandemic, we did hear of people able to get a hold of Chinese product and integrate it into their processes.

And I just wonder if you feel that, that Chinese competition is going to be leaking out into other areas or whether you feel that any short-term use of those products will go away and once again, people will look for the higher-quality products that come from you.

And just to clarify on the element of destocking. On the Lonza call, just before this one, Lonza talked about having seven months' of inventory at the half year, the same as the inventory level that they had at the end of 2022, and they were talking to doing destocking in the second half of the year. So, that's one customer where we would get a slightly more pessimistic outlook. Thank you.

[Joachim Kreuzburg, CEO]

Yes. So, for the confidence regarding order intake development in Q3 and Q4 and then how far the -- yes, the quality of -- or the details that we have got from customers have changed. I think we tried to express that before we would say that the level of detail that we get from customers is indeed a little bit higher. And therefore, we feel that the outlook is maybe a little bit more robust now.

We also would say that a stock level around the six months is rather something that we have seen at many customers before the pandemic, while during the pandemic, stock levels have been very often around the 12-month level. I don't want to comment on any single individual customer here.

But our view is that indeed, our stock levels at customers have been going down quite substantially, and one can read this very clearly from the order intake that we are reporting.

And -- but let me clearly say, we try to be very, very transparent here. And I think, as you know, following us for longer that we have been flagging what we call back then, a changed ordering behaviors of customers, I think, around, yes, almost three years ago.

And back then, we said it's hard to quantify. At that time, it was actually impossible to quantify, but we nevertheless flagged that. And we'll continue doing so even at times where no one customers as well as competition was addressing this topic and we are reporting order intake. And this is an information that is cannot see from anyone else.

So, I would like to claim that we are very, very transparent here and tried to share information in that transparent way as we have it available. But of course, we cannot guarantee for any of this information. I think that's clear. But we think that the numbers that we have now, the insight that we have now is a little bit more detailed and robust than before indeed.

And then on China, I think what we said -- and again, this is something I believe we are talking about in these kind of calls for a long time and for sure, also quite a while before the pandemic. We always said that we would expect a number of mechanisms in the market that we are addressing to be the same as in other industries as well. So, we always said we would expect Chinese competition to become established and to also then gain share for sure, particularly in the Chinese market.

And we always said that we would expect this to happen when we talk about consumer, in particular, first in the -- and mostly, in the fluid management domain and in the more simple applications here because we don't have any IP protection and nobody has any protection there.

And as I said before, what we see now is that for the Chinese market and in the Chinese market, this trend has been a bit amplified and accelerated during the pandemic. I think something that one can see also in some other industries probably.

Now, you are asking if I got you right, what we think how this would develop going forward. And that is quite difficult to project -- we still, of course, have this one specific feature of the applications that we are serving in, and that is that for more, let's say, sophisticated applications, further downstream, for instance, the validation of -- and the specification of products that are being used in the manufacturing of a drug plays a larger role. And therefore, the stability of existing business is quite high. That's one factor that foresee plays a role.

But in how far the Chinese competitors will make inroads to the global markets and how that exactly will play out, I think it's really difficult to predict. One thing what we deeply believe in, and we always have been, therefore, pushing forward is that innovation plays a major role in this market. The products that our customers are producing are extremely valuable that is for sure the case for monoclonal antibodies, but even more the case for cell and gene therapies.

And therefore, the key question by our customers always is in how far we can help them to accelerate their processes and to how to improve the productivity of their processes.

So, -- and that is more important than the price point of the respective product. So, differentiation, innovation, productivity gains is really the key factor. So, -- but clearly, to expect that -- or we would not expect and build our strategy on whatever that Chinese competitors would be excluded from global markets. So, I don't think that this would be a viable strategy.

[Jo Walton, Credit Suisse]

Thank you for your very full reply.

[Operator]

Our next question comes from Hugo Solvet with BNP Paribas Exane. Please go ahead.

[Hugo Solvet, BNP Paribas Exane]

Hi, hello. Thanks for taking my questions. I have three. First one on Biotech customers. Can you give some more thoughts around the weak funding environment and the impact it has had on your business and say, if those type of customers were to go to zero, not would that represent our sales?

Second, you have a lot of new capacity coming online in the coming months' time, demand is a bit quicker? Is there a risk that we could see longer term pressure on the margin from the utilization rate?

And third, on Polyplus, now that the transaction has closed, could you just clarify your earlier comment on the bond issue, does that imply that you won't do a rights issue? Thank you.

[René Fáber]

Thank you. This is René speaking. I take the questions one and two. I think Rainer will comment on the third question. So, regarding the Biotech customers for us, of course, it's a very important market segment -- customer segment. However, today, our exposure -- revenue exposure to these customers is below 10%. Of course, we also see a slowdown there.

You can see that in a way that, for example, in the Lab division, they would -- instead of buying five instruments at the time do it sequentially. So, you see a slowdown there in cash protection. You see that also in a way that they prioritize reshuffle or reprioritize their assets pipeline drugs. We rather see a slowdown in early phase drugs in early phase or preclinical development. So, it's less a less business simply due to the volumes. So, overall, yes, there is an impact, but not that strong for -- definitely not for the Bioprocessing business.

Capacities, yes, we have -- we are building and expanding manufacturing capacities you have mentioned. One driver is regionalization. And yes, here, we want to make sure that we fulfill expectations of customers in Asia and being -- having a local footprint in Asia.

Is there a risk that we will see a pressure on margins, we will see that so far not necessarily? We believe that the capacity expansions we are doing looking at our projections and expectations for the future growth that will get filled then rather quickly again. And we want to be prepared for these volatilities, which we talked about also and having capacities ready for the next phase. And Rainer?

[Rainer Lehmann, CFO]

Yes. So, Hugo on the bond, basically, we're looking at the 10 million bond, anticipating buckets between three to 12 years. We really need to see how it plays out at the end of the day, but it was a fixed coupon. So, really a straightforward bond. I hope that answered your question.

[Operator]

Our next question comes from Richard Vosser with JPMorgan. Please go ahead.

[Richard Vosser, JPMorgan]

Hi, thanks for taking my questions. A couple please. Just thinking about the customer reordering in late Q3, have the customers indicated any sort of increase or level of reordering that they expect to you? Just some thoughts there and how are they seeing that to develop?

Second question, just it looks as though you still have an order backlog at this point. I know around maybe about €500 million ahead of sales over the last sort of three or four years. Is that the case? And when do you expect that to return to balance? And how much of this is expected to benefit the second half?

And then just thinking about that second half and the order backlog and the orders you've taken in the first half. The second half has still got an element of recovery to get to your guidance. So, just thinking about the pushes and pulls on that first half versus second half, is that because the low orders that you've taken in the first half seems to mean that that's relatively challenging. So, just -- or somewhat challenging. Just some thoughts there. Thanks very much.

[Joachim Kreuzburg, CEO]

Yes. Maybe before René may comment on in how far we see any level and size of orders of customers that have come to an end with the destocking. So, we wouldn't -- we don't call that backlog, I guess, what you are addressing. And therefore, I hope I got your question right and I'm able to answer it in the right way.

So, ballpark €100 million, maybe €150 million is the number of maybe what we would say destocking left to happen. So, -- but backlog for us will always be a kind of whatever carryover of orders, which always happens, but which is not necessarily subject to any and destocking activities by customers also.

So, -- but I guess if we are talking about the same thing here with maybe slightly different words than we would say ballpark, it's that number. And what we indeed factored into our H2, as you call recovery of sales revenue is the pickup of ordering activity, again, by customers. So, that's basically the most significant aspect that we are expecting here, René?

[René Fáber]

And Richard, on the size of orders, I would say that's very much -- overall, it's, of course, driven by consumption and then by each customer's preference and strategy on inventory levels.

What we, however, see and would expect this that other than in the past where customers -- some customers would place standing orders for the year consumption that we will not see that or see it less and rather more of smaller orders. So, that's something we are seeing coming.

[Richard Vosser, JPMorgan]

Excellent. Thank you so much.

[Operator]

Our next question comes from James Quigley with Morgan Stanley. Please go ahead.

[James Quigley, Morgan Stanley]

Hello. Thank you for taking my questions. Two left. Just picking up on the question on margins and the impact of capacity coming online. So, thinking about your capacity utilization today sort of broadly across your network. So, how does that compare now versus pre-COVID levels?

Also, is there a mix element as well that maybe you might also support higher margins for a similar level of utilization today versus where you were in the sort of 2019 period or so? Just looking on a quarterly basis, second quarter margin looks a little bit lower than the first quarter?

Similarly, on that same topic, in terms of the margin, you mentioned sort of cost cutting initiatives. So, how much of the sort of margin hit has been offset by cost cutting initiatives?

And secondly, on the lower investment by customers, can you talk through some of the drivers here? Is this project that where customers have ordered equipment in advance and see that equipment before this year? Or is this more referring to customers being cautious about investing in future projects and deliveries there? Thank you.

[Joachim Kreuzburg, CEO]

Yes. Maybe I'll start. So, capacity utilization during the high times of the pandemic in the sense of where we had this very high level of order intake, customers were trying to build up inventories or the effect of building up their inventories -- inventory levels. The capacity utilization was really at 100% in many -- for many product segments. So, that included a very significant expansion of our of our shift models.

So, there were quite some sites where we were running 24/7 shifts. And now this is back to a more normal level. So, if we would now say 24/7 is 100%, and we are now down to 80%, 75%, depending a little bit also on the product segments in some product segments, a little bit lower and some -- a little bit higher. That's also why the significant capacity expansions that we are still investing into are very relevant in our view because of the mid-term growth expectations that we are having.

And it's also important that we are not running at 80%-plus capacity utilization too quickly again because there's always quite some lead-time that it takes to expand capacity.

And I think the -- during different times, we also spoke about this in in this -- in one of those calls that there is nothing more expensive than not having capacities available. So, that is why we believe this makes sense to continue investing here.

Then you were asking for several other effects on profitability besides capacity utilization, or the volume effect. Rainer was elaborating on the volume effect earlier today and you were mentioning mix costs, et cetera, I would like to add to this price and supply costs, so to say. And that, of course, had quite some impact.

We have pretty much been able to offset the higher costs on the supply side by price increases. I think that has been a topic since 15 months roughly. And so far, I think we are on a good track to continue being able to offset that. The cost adjustments that we were undertaking were compensating only for a smaller part of the volume effect.

It's pretty much -- I mean, of course, it's always possible to achieve more compensation here. But what we are trying to balance here at the moment is what we addressed earlier in our call here today and that is being prepare for a pickup of order intake again, because we then think that we have to adjust outputs again quickly. So, therefore, it was only a smaller part that we were on. Rainer, you want to add?

[Rainer Lehmann, CFO]

I can add some color there, James. Basically, if you look at that we are with our functional expenses. Also this -- the first six months 2023 and pretty much in line with the first six months of 2022. And when you look in 2022, actually, the second half was 10% higher than the first half. You see that actually we made quite some progress also in managing really also our functional expenses overall gives you the communication there and that is a mid-double-digit million figure we're talking about there.

[Joachim Kreuzburg, CEO]

And then maybe the last question, if I took that down rightly and that is in how far customers have been investing into equipment in advance. I don't know, René, whether you want to comment on that. I think what I can say in general that -- we have seen that before that there have been times where people were expanding capacities very significantly and one was triggering the other, and then there was a little bit more capacity available, I don't know.

[René Fáber]

Yes, absolutely. And you can see it rather at the smaller clients, smaller customers, smaller CDMOs, mostly in Asia-Pacific, including China, that those companies kind of driving the wave of high demand during the core invested in capacities, which are not yet utilized. So, that -- it's one of the reasons why where we see less investments going on now in -- particularly in that customer segment.

[James Quigley, Morgan Stanley]

Great. thank you. Just one quick follow-up, if I can. Just in terms of the capacity utilization, at what levels were you sort of pre-COVID, I mean that might be a bit more of a direct comparison to where you are now, the sort of 80% to 75%, where were you pre-COVID?

[Joachim Kreuzburg, CEO]

So, we typically want to stay below 80%, or in other words, as soon as we reach 80%, we want to be able to activate additional capacities relatively quickly. So, typically, we try to maneuver between 60% and 80%. It sounds relatively low, but please keep in mind that we are typically growing 10% or more year-on-year and that there are quite some lead-times to activate additional capacity. So, ballpark, 80% is a good number, but again, then new capacities have to be available relatively quickly.

[James Quigley, Morgan Stanley]

Perfect. Thank you very much.

[Operator]

Our next question comes from Odysseas Manesiotis with Berenberg. Please go ahead.

[Odysseas Manesiotis, Berenberg]

Hi, thanks for taking my questions. First one to follow-up on René's answer around inventory levels earlier. So, I mean if 60% of your customers are expected to reach their target inventory levels at the end of the third quarter, what was that percentage around June or the end of the second quarter?

Secondly, could you please give us a bit of a feeling of your cost of debt from 2024 onwards, assuming the Polyplus acquisition is fully debt financed with around 4% to 4.5% bit sensible?

And thirdly, could you also please talk to us about any progress around the CFO search and what the expected timelines are? Thank you.

[Joachim Kreuzburg, CEO]

So, maybe on the first question, we believe that the vast majority of our customers have not reached their targeted inventory level before the end of Q2, maybe something below 25% that have reached that level by the end of Q2, but not more than that. Rainer?

[Rainer Lehmann, CFO]

Yes. On the debt, basically -- going forward, the total debt because we are still enjoying to be honest, some lower financing from the past that the combined debt going forward is probably more around on the 4% range. We expect, of course, the bond to be more in the -- between 4%, 4.5%. And since we are currently a bit lower rates, the combined one, I would see around 4%.

[Joachim Kreuzburg, CEO]

Yes, I hope I thought it's clear that this is something that we cannot comment on -- but I think it's clear that this is very much on top of the agenda of the Supervisory Board. And my understanding is that the Supervisory Board is quite yes, driving this process, yes, very diligently and well in time.

[Odysseas Manesiotis, Berenberg]

All clear. Thank you very much.

[Operator]

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

[Falko Friedrichs, Deutsche Bank]

Thank you. good afternoon. My first question is -- thanks for sharing this €100 million to €150 million that is still left to be destocked. Can you help us put that into perspective and share the amount that you've experienced in the first half of this year that was destocked?

And then my second question is related to that, how much of the €100 million to €150 million still left to be destock, do you expect to be destocked in 2024? Or do you expect all of that to be completed by the end of this year? Thank you.

[Joachim Kreuzburg, CEO]

Sorry, we were mute here. So, once again -- so yes, so ballpark, we believe that this will be close to €0.5 billion overall -- of destocking that we will have seen. We think left will be the €100 million, maybe a little bit more than the €100 million, and then there will be something €300 million plus that we think has happened so far in H1. So, that's ballpark. We don't expect a significant number to be carried out into 2024.

[Falko Friedrichs, Deutsche Bank]

Thank you.

[Operator]

Our next question comes from Le Louet with SG. Please go ahead.

[Delphine Le Louet, Societe Generale]

Yes, hello. Good afternoon. Delphine Le Louet speaking. If I move a bit on Polyplus, could you let us know the evolution of the of the mix in between the reagent and the transaction that you see in the future now that you've been completed the acquisition?

And secondly, I was wondering because you already mentioned one percentage point additional growth coming out from Polyplus and we know that the margin are fairly exceptional in the field, and you have no contribution to margin. So, does your vision and mid-term vision -- or can you give us a bit more idea about what would be the fluctuation of the margin just linked with the incorporation of Polyplus into the business?

[Joachim Kreuzburg, CEO]

Can you please repeat the first question?

[Delphine Le Louet, Societe Generale]

I was wondering if you can share your vision about the evolution of the mix in terms of revenue for Polyplus regarding the breakup in between the reagent and so in between the transaction factors and the Plasmid, would that change over time according to you and to your client base, how you see the future?

And second question was more about the margin and the accretion to the overall.

[Joachim Kreuzburg, CEO]

Okay. Thank you for clarifying. So, product mix evolution for Polyplus, we would expect is that in transaction reagents, Polyplus having already very strong market position versus -- and they will continue to grow moving forward. Plasmid, Polyplus is rather a newcomer in the Plasmid manufacturing and Plasmid design. So, here we would expect higher growth rates, of course, starting on a bit lower level than transfection reagents. Margins -- Rainer can comment on that.

[Rainer Lehmann, CFO]

The margin, we'll see basically on a full year basis, 0.5 percentage point increase on EBITDA. Of course, we'll really see that partially of that this year, but since it's still in the -- within the range of our guidance, we didn't flag that specifically, but it is obviously has a substantially higher margin than the Bioprocess Solutions division so far.

[Delphine Le Louet, Societe Generale]

Okay. Thanks.

[Operator]

Our next question comes from Oliver Metzger with ODDO BHF. Please go ahead.

[Oliver Metzger, ODDO BHF]

Good afternoon. Thanks a lot for taking my questions. Two I have. The first is on the inventory levels at customers. We hear that some customers approach low inventory levels, but the degree of concern is not so high as basically the whole Bioprocess industry signals openly that we are able to deliver short-term.

Do you regard lower inventory level and the tenancy potentially to order just in time as a risk or a new normal that also given the higher cost of capital and therefore, efforts to reduce working capital. So, that potentially your assumption that six months' inventories, the level we saw before the pandemic is not the old reality, but the new royalty might be somewhere below the six months?

And my second question is just very quick on Polyplus. So, can you comment on the underlying performance of Polyplus since the beginning of the year as basically since over the last months, you were not allowed to talk in details, but now we are after the closing, and do you see some -- also some higher volatility at Polyplus? Thanks a lot.

[Joachim Kreuzburg, CEO]

Yes, maybe I take the first question. So, regarding the target inventory levels of our customers. We don't have an indication that they are aiming for a substantially lower level at this point. I fully understand the considerations that you have just explained.

On the other hand, many customers still are rather cautious. I want to be prepared for future disruptions of supply chains. So, at the moment, we don't have any indications that they are aiming for a substantially lower inventory levels than on Polyplus. René?

[René Fáber]

Yes, the performance is as expected. The few similar effects as we see in the other portfolios Bioprocessing, but by far not that pronounced. There are a couple of customers also who build inventories. But again, it's much less pronounced than in other businesses.

[Oliver Metzger, ODDO BHF]

Okay. Thank you very much.

[Operator]

Our next question comes from Sezgi Ozener with HSBC. Please go ahead.

[Sezgi Oezener]

Hi. Thanks for taking my question and thanks for the clarification on the financing. Now that net debt is reaching for levels, I know it kind have come down gradually, but what will be your strategy if another opportunity came up? So, that's question number one.

And question number two is in terms -- you mentioned the Russia comps for us Sartorius and Sartorius Stedim Biotech, when do the cost base -- when does the base get easier for that? Do you ever expect this business to come back? And are there strategies that you're taking against that?

And the last one is on the substantial reduction that we saw in the receivables. We now partially working capital correction, but did that have like further like impact such as like the acquisition of the distributor in Turkey or any other change that you saw during the period? Thank you.

[Joachim Kreuzburg, CEO]

So, the line was indeed a little bit limited here. So, I don't know whether we got your questions right from an acquisition standpoint.

[Sezgi Oezener]

Happy to repeat them.

[Joachim Kreuzburg, CEO]

Yes, that would be great.

[Sezgi Oezener]

Sure. First of all, on the Polyplus acquisition and the financing with two bonds you mentioned, equity financing for Sartorius Stedim seems to be out for the moment. What would your strategy be in the case of another attractive acquisition opportunity coming up given net debt to -- is coming close to 4?

And second question was on the Russia comps. You mentioned a significant impact on revenues. When do you expect Russia comps to reach a base? And is there a structural change there? Do you ever expect this business to come back or is that get transferred to a different region or yes, to local competition?

And the last one is the substantial reduction in receivables that we've seen. Is this just like the working capital correction we have seen? Or does it have more to do with the one-time payment to suppliers that you mentioned or the acquisition of a distributor in Turkey [indiscernible]?

[Joachim Kreuzburg, CEO]

Yes. Thank you very much for repeating the three questions. This is now very clear. So, as we always have said that we would consider using equity for financing acquisitions in general. That, of course, always depends on the specific case. So, therefore, we would not like to speculate now about any theoretical case.

But in general, we do have the opportunity to use both or either SSB shares in case of an acquisition that would be made by the Sartorius Biotech subgroup or Sartorius AG's treasury shares in case it would be an acquisition that would be made by the LPS division. So, definitely wouldn't exclude this year, but currently no plans for doing that. Again, it depends on a couple of factors, I believe.

Russia, first of all, it's important to point out that our business in Russia is extremely reduced and extremely limited. It always has been very focused on the health care and biopharma sector. Anyway, no business outside this sector. I think it goes without saying that no business outside any restricted areas or allowed areas, very much down to the level that might stay, but maybe it goes even further down, but it's very, very much reduced now already.

And as you are asking for structural changes, I guess you know that they shown maybe easier than they are even pulling out here is restricted legally and comes with a certain risk. So, we are trying to manage that very, very diligently, but clearly, we are almost completely out of activities there.

And to your third question, no, it's the normal course of business that has influenced our net working capital position and the different elements here. As we always have said, we were working on reducing our inventory levels by ourselves. This is a function of robustness of supply chains, expected orders, that's clear. But on receivables, nothing specific to mention here.

[Sezgi Oezener]

Thanks very much. Just as a follow-up in terms of the Russia business base, when do you expect the comps to become easier, beginning of the war or in the later quarters?

[Joachim Kreuzburg, CEO]

I wouldn't expect any change here anytime soon.

[Sezgi Oezener]

Okay. Thanks.

[Operator]

Our next question comes from Naresh [Indiscernible] Health. Please go ahead.

[Unidentified Analyst]

Hi there. Many thanks for taking my question. Just a couple on supply please. Can you help us understand when each of these kind of different elements of your new supply come on stream? And how long that takes to get to full capacity?

And then if I heard you correctly, you -- if I -- since COVID, you added about 10% of capacity a year. If I heard correctly, I may have misheard that. Can you confirm that? And can you also help us understand what kind of amount of capacity you were getting over the next few years? Thank you.

[Joachim Kreuzburg, CEO]

Sorry, Naresh, could you repeat the questions? Second one we didn't --

[Unidentified Analyst]

Apologies. Okay. On the -- if I heard you correctly, I think you said that you've been adding about 10% of incremental capacity each year over the last few years. I may have misheard that. Can you confirm? And secondly on that can you help us understand kind of what percentage of increase in capacity we should be assuming in the coming years out to 2025? Thank you.

[Joachim Kreuzburg, CEO]

Yes. Thanks again for repeating, but maybe we have a problem here with the quality of the audio line. So, capacities, now what I actually try to bring across is that if you take approx 10% organic growth, then it means that capacity utilization gets increased by approx 10 percentage points year-on-year, just ballpark number, right?

So -- and that means that we don't feel comfortable to run any manufacturing site above 80% capacity levels because then we hit very soon the ceiling. So, that is what we wanted to bring across the capacity additions.

And therefore, of course, you are right, one could translate that into, okay, every year, we have to add around 10% capacities, that's right. But when you look into a specific project to extend capacities then very often they are larger than just 10%, yes. So, therefore, you typically -- the chunks that we are adding, and that now depends very much on the type of technology, product segments and so on and so forth.

But very often, I would rather think of sizes of 30%, sometimes 50%, sometimes even larger sizes of additional capacities. And I think we sometimes spoke about that. Sometimes we also do that in a staged approach that we had quite substantial additional [Indiscernible] capacities, for instance, that would allow us for even doubling the capacities, but then we sit in machines only for, let's say, additional 25% of capacities and then at the machinery sequentially over the time. So, you cannot translate that easily, but that's roughly what we are seeing.

And the second question, how much additional capacities we will make available over the next couple of years than ballpark, for sure, will be rather around 50%. And again, it depends now on the different segments in some areas, for instance, when we talk about Cell Culture Media and the reagent, et cetera, even more than that, whereas in other segments, it's maybe rather around that number.

But again, keep in mind, Cell Culture Media reagents, critical materials, et cetera, this is the segment that we have entered. René was elaborating on that earlier today and where we also expect substantially higher growth rates than the 10% I was talking about. So, that's why also the additional capacities that we are building at the moment are larger.

[Unidentified Analyst]

Thank you. And if I could just ask when would you -- do you expect those to come on stream? Is that 2024 or 2025 or beyond?

[Joachim Kreuzburg, CEO]

Yes. So, it depends. So, for example, additional capacities in one year for Fluid Management Technologies, we basically will have available partially already end of this year, beginning of next year. There are additional capacities in Yauco for our single-use technologies as well as for Cell Culture Media, where we are also talking about later this and earlier next year, capacities in South Korea, we are rather talking about end 2025 beginning of 2026. So, it's really staggered. There is not this one being Big Bang moment, it's really rather over time.

[Unidentified Analyst]

Thank you very much. Appreciate it.

[Operator]

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

[Joachim Kreuzburg, CEO]

Yes. Thank you very much everyone for your interest in our results and also in all those strategic and operational topics beyond the short-term results only. I appreciate very much the dialogue with you. I hope we were able to answer your questions sufficiently. Looking forward to continue our dialogue latest in three months when we will publish our nine months results. Wish you a relaxing summer wherever you are, enjoy your vacation. Talk to you soon. All the best. Bye, bye.

[Operator]

Ladies and gentlemen, the conference is now concluded and you may now disconnect your lines. Thanks for joining, and have a pleasant day. Good bye.