Sartorius AG
XETRA:SRT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
168
288
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Sartorius AG
You don't have any saved screeners yet
Good afternoon, and good morning, everybody, depending on where you are. Welcome to our conference call on our Q1 results 2020 for both the Sartorius Group as well as for Sartorius Stedim Biotech. As always, I'm sharing this together with Rainer Lehmann, our CFO. And the structure of our presentation is, again, that we first walk you through the results for Sartorius AG or the Sartorius Group, I should say. And then after, we share the information for Sartorius Stedim Biotech, and then we have time for Q&A.So I would like to start off with highlighting the most important results from Q1. So first of all, we have been able to achieve double-digit growth for all most relevant KPIs: order intake, sales revenue and underlying EBITDA. The impact from the pandemic crisis has been neutral on a group level, but, for sure, was quite different for the 2 divisions, and you'll see that in a minute. For Bioprocess Solutions, we have achieved quite dynamic top line growth, particular strong order intake, because this has been additionally positively impacted by large equipment orders from Asia as well as some stocking initiatives by customers. For Lab Products & Services, here, for sure, we have seen a negative impact from the standstill in China, during January and February, which has dampened demand over there significantly. We see some recovery since March, again, more details in a minute. We are exempted from all our shelf and place regulations, where they are in place pretty much, that leads to the situation all our production sites are up and running. And also our supply chains are quite robust. Of course, it's a challenge pretty much to keep that going because there are some products that are more difficult to purchase, et cetera. But so far, a quite stable situation indeed.And then as you can imagine, of course, pretty much all different workplaces across the board are impacted by the current situation. Customer interaction are pretty much digitized completely at this point in time and also remote office work is the new standard at the moment. We have updated our guidance for 2020, both for the anticipated impact from the crisis going forward as well as a scenario, including the Danaher businesses. Again, more details later on.And then finally, and maybe you have realized it already when seeing these charts, we have launched new branding pretty much 8 weeks ago. And our new corporate claim, Simplifying Progress, stands very much for what we believe is really key for both our customers who are developing new drugs as well as for those who manufacture drugs.I would now like to hand over to Rainer, who will walk you through the results in more detail. Rainer?
Thank you, Joachim. And also a warm welcome from my side, first of all, to everybody.So I'm on Slide 5. As always, we have the group overview. We have a successful Q1, as Joachim already pointed out. Growth in constant currencies, 16.5%, to EUR 510 million, almost. Very nice growth, mainly fueled by bioprocess, but we'll come to that later. Included in the 16.5% is, as expected, 1 percentage point growth from the acquisition of Biological Industries at the end of last year's. And as it was already pointed out, the coronavirus pandemic impact on a group level is quite neutral. Coming down to order intake. Here, an impressive growth of almost 30% in constant currencies, amounting to EUR 629.5 million, mainly driven, again, by bioprocess side. We'll come to the details in a minute. Of course, the strong sales performance translate also in the growth of our EBITDA growing by 21% to almost EUR 138 million, which translates to an EBITDA margin of 27%. Of course, this is impacted positively by the economies of scale on the BPS side and overcompensating the LPS impact, but it's also slightly negative impact by FX. So increase, overall, then 8 percentage points. In addition, I want to point out that the 2019 order intake, sales and EBITDA margins of the divisions have been restated due to change allocation of 2 small products group. There's no impact on a group level. This is purely a switch between BPS, LPS. All the details you can find -- I'm sure you have seen, are published on our website as part of the earnings release.We come to the next slide and have a view on our sales split in the regions. You can pretty much see very constant growth rate across all the 3 major regions in Americas, 71% in constant currencies to EUR 180.7 million in the first quarter, really driven by BPS, which was -- and that's going to be the underlying story of this call. Really, the strong momentum on the bioprocess side in Q1. In EMEA, again, a strong development by BPS. And still on the LPS side, the growth supported by good demand from our diagnostic test kits. So the 16.1%, amounting at EUR 207 million. Under the current circumstances, quite happy with that. And in Asia Pacific, there, we have a complete different performance between the 2 divisions. Again, here, BPS, was a very strong quarter and a very dynamic growth so far. But in LPS, we see here a significant decline and basically a standstill after the Chinese New Year for another 6 weeks that clearly had an impact on our LPS performance. Sales by region. Overall, the split actually stays fairly constant compared to previous year figures.We move on to the detail of the divisions. Bioprocess, really strong demand across all product categories, and as I just pointed out, also all regions. Order intake rose by almost 40% in constant currencies to EUR 506 million in Q1, definitely fueled by larger equipment orders from China. And what really needs to be taken into consideration here is pull-forward effects from stocking initiatives we saw from customers attributed also to the current, yes, economic situation and the coronavirus pandemic. The sales could - or rose by 22.5% to EUR 394.3 million. We've quantified the stocking impact by roughly 2 percentage points on the sales growth. And as we pointed out also before, the growth from the acquisition of Biological Industries added here 1 percentage point as well. Underlying EBITDA margin fueled and really driven by economies of scale, despite some minor currency effects. So we see a jump of 32% to almost EUR 120 million, so which is for the division margin from -- that climbed from 28.3% in Q1 2019 to over 30%, so 30.4% in the first quarter of 2020.On the LPS, we see a different picture. We -- of course, driven by the adverse development in China. Really, we saw a strongly reduced demand there. We go to order intake. Pretty much stayed flat on previous year level, 0.5% growth in constant currencies, especially affected is our laboratory instruments business in China completely, yes, impacted after the shutdown after the Chinese New Year. The good thing, though, is that we really saw the business picking up in March. So that gives us hope for the following months. On the sales revenue side. Again, here, pretty much flat on previous year level amounting to EUR 115.6 million. This number includes the 2.5 percentage points nonorganic growth that Biological Industries contributed in the first quarter. We -- if we move right, the underlying EBITDA decreased from EUR 23.2 million by 22% to EUR 18 million and the margin, respectively, fell from 20.1% to 15.6%. This is clearly driven by very low capacity utilization, of course, of our factory in Beijing. As well as, let's say, economies of scale work on the upside, they also work, unfortunately, on the downside. So you can imagine that there's quite a difference if we have full and regular utilization throughout the world or in one of our regions. And specifically here, our production in China was completely shut down for nearly 2 months. And in addition, we actually had a headwind on FX that contributed roughly 1.5 percentage points in this division.If we move to next page, we see an overview of our financial KPIs. Operating cash flow increases to EUR 138 million. It's a growth of 20%. There, we have to keep in mind that actually the regular increase in our working capital that we see fueled by the growth on the bioprocess side and, of course, creates more receivables, was compensated by the factoring. We basically -- our -- the effect or the impact of the - our factoring program in Q1 was EUR 75 million. The extraordinary items influenced mainly by rebranding, Joachim pointed it out. We are appearing now in a great new look. Of course, by the pre-expenses already for the Danaher transaction, but also some integration expenses from Biological Industries as well as we see there are some impacts also from the earthquake, for example, in Puerto Rico in Q1 that added to the extraordinary line item. And the underlying net profit rose by 17.5% to EUR 57 million. Reported net profit increased approximately by 22% to EUR 46 million. So that ultimately our operating cash flow then is also EUR 114 million.The investing -- investment ratio dropped down to 8.8%, of course, attributable to the situation that we're, right now, pursuing a fairly stringent cost management, but also risk adverse investment policy and making sure that we really only invest where it's needed. Of course, bioprocess investments are full on track. But we also have to be realistic, even if we wanted to invest a bit more right now, it's fairly difficult to get those in place, and to be executed.If we go to the next page -- next slide. We continue to have a very sound balance sheet, as used to in the past, equity ratio slightly increased to 39% from 38% at year-end. Net debt slightly decreased in our main KPI, net debt over underlying EBITDA, fell down to 1.8, as we expected it. And you see on the right-hand side, just a graph where we continually expect, of course, to reduce our net debt and improve our indebtedness.And with that, I'll give back to Joachim, who's going to talk about outlook 2020.
Yes. Thank you very much, Rainer. So before we move on to a slide, which is a bit more busy than usual, I would like to, first of all, point out that the outlook for 2020, for sure, includes a much higher level of uncertainty than this is usually the case. I think this goes without saying maybe in these days but, nevertheless, I would like to elaborate a little bit on that because there are also some specific factors related to all business and some changes here that play a role.So first of all, of course, the pandemic crisis is the most important factor here. We believe that we are, in regards to the economic consequences, maybe still in the early phase, at least for Europe and the U.S. and maybe also some other parts of the world. For China, it seems to be the case that the situation is well under control. The step-wise release of all the restrictions is underway. We could observe already throughout March that this has positive consequences for demand and how businesses are ramping up again. However, we believe that is quite uncertain. We work on the assumption that we see similar patterns in Europe and in North America, and that we are probably approaching the peak of the crisis in those geographies soon. So that we will see possibly step-wise easening of the restrictions very soon. Obviously, there are signs for that. In some countries, the first easening steps are implemented and others are very much under discussion. But yet, of course, this is an assumption with substantial uncertainties included. Then further, within this context, I also want to highlight that we assume that all global supply change remain largely unaffected as we see it today and therefore, all our production capacities remain being available.And also one point that we mentioned here in the first bullet point on that chart that all these statements that I'm making here are relevant for both the existing business as well as the acquisitions that we have started to integrate or are planning to integrate. And within this context, I would like to introduce the assumption to you that we have modeled into our guidance and our outlook for 2020 the scenario that we will be able to consolidate the businesses that we are planning to acquire from Danaher as part of their life science portfolio for 8 months of 2020, so from May onwards. This reflects that following our most recent update that we were expecting the closing to take place in Q2. The initial expectation was that this should take place in Q1. And we want to confirm that we consider this process to be on a good track and the closing should take place within the next weeks.So because of these multiple factors where we have then come to is the new outlook for 2020 that you find on Page 12 of this presentation. On the right-hand side, and to provide you with maximum transparency to understand the different moving parts here from the previous guidance to the new one, you see that we have introduced 2 additional lines for each dimension, so for each group, bioprocess and LPS perspectives. And that is the influence from the 2 acquisitions, BI, Biological Industries, which has been part of our initial guidance already. And then the one, as I said, 8 months that we approximately assume to be included here regarding the Danaher businesses.So -- and for BI, it remains being the same. The numbers have been mentioned before, we could see them indeed materialize during Q1. 2.5 percentage points accretion top line for LPS, 1 percentage point for BPS, slightly dilutive for both divisions. And then top line accretion 1.5 percentage points for the group and, of course, also slightly dilutive regarding underlying EBITDA margin. This assumption remains being the same. And then for the top line, overall, for the LPS division, we now expect 10% to 14%. So we have widened the bandwidth by 1 point. To be honest, this is just an incomplete reflection of the level of uncertainty, but we wanted to nevertheless come up with not too wide bandwidth here. So we are adding 3 to 4 percentage points.But at the same time, as you can see here, we assume that the addition of the Danaher business, in this case, the ForteBio business, would add around 10 percentage points nonorganic growth. So in other words, we are rather expecting organic growth to be around 6 percentage points below our initial assumption when we started off into the year. And this is pretty much the same figure that we have experienced now during Q1. Of course, we assume for Q2 going forward that the geographies from where this dilution would come would be different ones, but the order of magnitude we expect to be approximately the same. And you can also see that the addition of the Danaher business should be accretive by approximately 1.5 percentage points to the LPS division's figure. Both numbers here are pretty much in line and all numbers that you see for the Danaher portfolio are very much reflecting what we said half a year ago when we informed you about the contract that we signed with Danaher, at that point in time when we said what would be the results for 12 months approximately. So these numbers here pretty much reflect 2/3 of such full year numbers.So -- and you can see that we remain expecting 20% of EBITDA margins for the LPS division. So and actually that means that we expect the accretion from the addition of the ForteBio business would be diluted by the gap in regards to organic growth. And by the way, the accretion also coming from both the real allocated businesses, Rainer talked about that before, and Danaher would be diluted and compensated by this 6 percentage points, roughly of less organic growth.For BPS, the numbers are 3.5 percentage points nonorganic growth contribution from the Danaher businesses and a slight dilution by approximately 0.5 percentage point. And this sums up to then including BI, again, 17% to 21%. So 6 to 7 percentage points stronger growth overall, which means roughly 3 percentage points stronger organic growth in BPS. And again, pretty much offset of the bottom line effects. So then we remain to expect here 30% of EBITDA margin. And all that sums up for the group to the expectation of the EBITDA margin to stay pretty much the same and -- to stay the same in comparison to our initial guidance, 27.5% and sales revenue to grow by 15% to 19%. And that includes then roughly 5 percentage points accretion top line through the Danaher businesses on the group's level and it moves then the overall guidance up by 5 to 6 points. So pretty much the organic growth remains on the level of our initial expectation.So as you can see, quite different effects on the 2 divisional - divisions, but pretty much, again, balancing at the group's level. Even though, as Rainer pointed out a minute ago, that we have been postponing a little bit some investments during Q1. We work on the assumption for the full year that the CapEx ratio would be around 10% as we initially expected that to be. It's a bit too early to make a different assumption here. And that is maybe a little bit on the conservative side, but also not unrealistic, to be honest. And for the indebtedness grade, so the net debt to underlying EBITDA ratio, we now expect the number to be around 2.75 for the full year following 2.0 for 2019.So now let me immediately continue with briefly walking you through the numbers for Sartorius Stedim Biotech. As always, pretty much comparable to those for Bioprocess Solutions, however, no effect from any reallocation of businesses. So no restatements here because this shift of product segment doesn't affect Sartorius Stedim Biotech in this case.So dynamic top line growth. Sales revenue up by 22.3% in constant currencies. And order intake up by 39.3% in constant currencies. Underlying EBITDA has reached 30 percentage -- 30% of margin, 1.4 percentage points above the previous year's number. And underlying earnings per share has reached EUR 0.87, a 28.5% above previous year's number. And the different effects here have been mentioned before, so I probably can skip that here.On the regional level, when Rainer presented to you the regional growth distribution for the group, he pointed out that that was a little bit different between the 2 divisions, and you can see here very well. While the Americas and EMEA have been growing pretty much at the same pace for bioprocess, in Asia Pacific, it's much stronger on group's level. It was also the same number because of the challenges that the lab business had there. But here for Asia Pacific, 31.5% of growth, of course, a very strong number, but in comparison to -- a little bit weaker comps than for the other geographies, I would say. But yes, a healthy distribution of growth, I would say.Cash flow. Quite most statements that have been made before for the group, cash flow and other KPIs also are to be made here for SSB, factoring largely impacted the SSB numbers and the SSB cash flow, therefore. But of course, also the higher earnings. Don't want to read all these numbers out here. The underlying net profit, I've mentioned before already. Operating cash flow up by EUR 35 million following the effects that have been mentioned. And investing cash flow also here, a bit lower than maybe initially expected because of the postponement of some investments.There is one statement that I would like to add here because it has been written on the one chart for the group. And it's here also the last bullet point on the right side here. For SSB, indeed, on both levels, the Boards are considering at the moment to review the dividend proposal for fiscal 2019. And the background here is, in the end, threefold, you can say. We, on the one hand, clearly see, even though we obviously are off to a good start into 2020, that there are substantial risks, much higher risks than in normal years. And we believe that even though the healthcare sector overall and also the biopharmaceutical industry are very much on the more stable side of industrial segments but, nevertheless, there is a good reason to remain prudent and cautious here.And then maybe opposite to this more defensive argument and position, of course, times of crisis are also always times of opportunities, at least, often this is the case. And therefore, another reason for us to have an eye on cash flow management overall is that there might be opportunities to acquire innovative technologies that would have been maybe out of reach because of very high price expectations in a more normal scenario because we have seen a quite heated market here over the last 2, 3 years. Very high prices. And it's not too unrealistic that this normalizes a little bit going forward. And in case the business continues to be rather robust, then maybe this more entrepreneurial and M&A-oriented line of thinking can play a role here as well.And then thirdly, but for sure, not lastly, we also consider ourselves to be part of our social environment in the different locations we are active. And we definitely, again, as I said already, believe that the economic impact from the situation are just only partially being seen. Of course, there is a lot of discussion about unemployment rate. We see it in some countries, but in most, we don't see it yet, and other impacts. And we believe that there might be a good reason for us to actively contribute to helping institutions and people that are particularly hit by the situation and also maybe particularly contribute to overcome the situation. For sure, one mainly thinks here in line of institutions in the healthcare system, but maybe some other cases might occur as well. So these 3 aspects are the background for both companies, Sartorius AG as well as Sartorius Stedim Biotech S.A. to consider a review of our dividend proposal for fiscal 2019. And as we have the opportunity for talking about this here in this call, we decided, even though this is an ongoing deliberation at the moment to address this topic, even though no decisions have been taken, it will be subject only to decision-making in the next few weeks.Okay. So let's talk about the final 2 charts. One, again, is on balance sheet and financial position. Nothing spectacular new here. Very strong equity ratio for SSB. A very low indebtedness rate at the moment, 0.1. You can see that also over the time on the right-hand side of this chart.And then finally, the outlook for 2020. Here, pretty much more in the usual format. You can see that we upgrade our sales revenue guidance also here on this level by 6 to 7 percentage points as we did for the bioprocess business. The difference that we upgrade here the underlying EBITDA margin is because here, no reallocation of the product groups play a role. So we expect now 30% EBITDA margin for SSB as well. CapEx ratio, we remain unchanged at 8% for the full year for the reasons that I mentioned before. And again, here, I would like to mention that this forecast includes the scenario that we would consolidate Danaher for approximately 8 months into our figures for 2020. The assumption and expectation for BI, Biological Industries, remain unchanged at 2 percentage points accretion, Danaher would result in 3 percentage points accretion, approximately slightly dilutive effect through these 2 acquisitions as explained before. And then finally, our expectation for the net debt to underlying EBITDA ratio for SSB is now to be approx 0.5 after our initial expectation of 0.3 and previous year's figure, which was at 0.3 as well.So thank you so far for your attention. And now we will open the line for questions.
[Operator Instructions] The first question is from the line of Paul Knight with Janney Montgomery.
Within the bioprocess division, were there any extraordinary events that you saw in the industry, such as any particular large customer build out of large projects in Asia. Could you talk to the specific -- was there anything we've highlighted in bioprocess?
So I would say we really can -- as you could also reform the numbers, very even distribution of growth from a regional perspective. I have shown that the growth in Asia was 10 percentage points higher than the number for EMEA and Americas, but with quite a bit weaker comps. So pretty much, you could say, if you also normalize that for the underlying market growth, pretty much comparable growth. And then also when we look across all product segments, very strong growth, pretty much, or very significant growth, maybe I should say, across the board. Therefore, no particular segment, no particular region standing out. We definitely see overall, of course, Asia and there, with a certain emphasis, maybe China, to be a region where capacities are built out, in particular. Partially, this is reflected in the orders for equipment that I mentioned. But I mean, we have seen that, to some extent, also in the period before. So I wouldn't say that this is particularly outstanding.And then, of course, one could ask the question -- oh, maybe one aspect, again, we mentioned that, that obviously, some customers have started stocking initiatives. We assume this effect to be around 2 percentage points for Q1 so far. We could imagine that we see a little bit more of that going forward. But that, I think, will depend very much on how customers evaluate the situation going forward. Because we don't necessarily believe that customers have ultimately changed their views on stocking in general, but that this is very much driven by the particular current situation. So therefore, I think they may adjust that also very much near term. So let's see. But there might be a little bit more to come.By the way, let me underline that all this is just a shift in time that doesn't add business in a more longer-term perspective. And then, of course, the question is, okay, is there anything already in conjunction to any new product development? These vaccines against corona or drugs against the COVID-19 disease as such. So -- and there, I believe, we are quite involved in some of those activities, and we see quite a bit we are very well exposed to the vaccine industry overall, but that is not that material yet, as you would expect because whatever is going on there, it is very much early days and not that relevant to our business how it is positioned.
Next question is from the line of Michael Leuchten with UBS.
Two questions, please. One, just following on BPS. The organic increase in your guidance of about 3.5%, it sounds like that's not driven by any driver in and around the pandemic at this point in time. So just wondering, this early in the year, what you're seeing that's driven quite a remarkable change already in that organic improvement in the business outlook beyond the equipment placement in Asia that you mentioned?And then thinking about the order book in -- that we now see growth, again, adjusting for the equipment placement here, how do you read that? It's still a number that is above sort of historical trends? It's very strong. Is that entirely driven by the inventory build? Or is that also running in an organically higher rate now than previously you had expected?
Yes. Thank you. Yes. So indeed, so order book also -- or the order intake, maybe, first of all, has been driven by strong demand across our product segments in the first place. So -- and that maybe is already a little bit part of the answer to your first question. But then as we explained also a lot more results, on top of that, there was -- there were quite larger equipment orders. I said before that such orders, we do see regularly. They impact every other year, I would say, at Sartorius Stedim Biotech or BPS, typically. But nevertheless, it's difficult to plan for those. So the fact that we pulled in substantial additional orders here such early in the year, even though we might not complete all of those orders within this year, also has contributed to our assumption that organic growth may be around 3 percentage points higher this year.And then, of course, maybe the last aspect, we are in very close contact, of course, with our customers and try to anticipate and project the -- their plans into our respective guidance. So that are pretty much the drivers. And again, as we talk about our guidance here, I would like to remind everybody that this year, for sure, this guidance includes a higher level of uncertainty. We did our best to factor that into our guidance. But of course, it still needs to be kept in mind.
The next question is from the line of Patrick Wood with Bank of America.
I'll keep it to 2 as well, if I can. And the first is obviously you mentioned on the -- generally the M&A possibility area. Just kind of curious, in BPS, you have a good upstream and downstream offering. I'm just trying to get a sense of the kinds of technologies that you generally will be interested in and looking for? What are the kind of businesses, in general, that you're interested in?And then on the second side, you touched on obviously the virus side, very limited at this stage. I mean we know there's a lot of development going on. You can hear from everyone, it's going on for everybody. But I'm just curious, like, longer term, how you feel this might impact your business on the virus side, whether it's vaccine production or more general intense penetration of use of vaccines. And so I am just kind of curious how you feel about that business longer term, given what we're seeing at the moment?
Yes. Thanks on the first one. So -- I mean we remain being interested and really focusing on complementary technologies. And complementary, of course, as we are well positioned pretty much across or along the entire value chain, as you mentioned, upstream, downstream doesn't mean now that there is, in particular, a process step where we are not present at the moment or so. But within these different steps, we could imagine technologies to be added, as we have done during - as well our last acquisitions, I think, of the media or maybe even across a little bit broader, the data analytics tool set that we acquired through Umetrics. So we do see a lot of innovation going on that addresses sometimes particular process steps or unit operations. Sometimes, it's a little bit -- it's a technology that addresses a larger part of the value chain. And even though, we don't have a blind spot, I wouldn't recommend to apply that line of thinking to our M&A strategy and focus, but we believe that there is still room for adding innovative complementary technologies.On vaccine-related -- our virus-related business, I think, as you phrased it, and then in particular, vaccine production. Yes, I think, probably a little bit too early to say. But I think it's much more likely that there will be a strong demand for additional vaccination than any other scenario at this point. The underlying technology, by which this vaccine, if we talk now particularly against some SARS type of viruses, it will be based on -- that's honestly too early. I think a lot of discussion is around mRNA, which is a very innovative technology. Maybe it's also more established technologies that this will be based on. But however, we believe and we can see that also through our interaction with customers for many years and also with customers that are involved in more recent, very recent development here, that there are quite a number of products out of our portfolio that can be used there. And we are quite optimistic that we should play a role in the manufacturing of such products going forward as well. So we believe that we should be able to contribute to any of such production lines going forward.
That's very helpful. And if I could just slip in one very quickly as well. And on the stocking side, are you seeing that both with the larger customers as well as the smaller biotech providers? And the reason I'm asking is I'm just trying to get a sense for some of the smaller biotech groups, how their funding situation is, whether they still have access to cash they need to keep operating?
Yes. I guess -- I mean if we take a broad perspective here, and not just focusing on any smaller biotech firms that are working now on vaccine development, for instance, then I guess it's a very diverse landscape at the moment. Because, since a couple of weeks, everybody is talking about vaccine development only, even though, still more people are dying on cancer or diabetes, and such -- than on corona infection. So I guess it's a bit diverse. I guess it will sort out, I would -- going forward and maybe normalize to some extent. I believe that it's also -- but again, with all caution, because it, to some extent, will depend on the overall economic situation, how much money and funds will be available. But there is a good chance that there will be rather more money being available for funding innovation in health care. I believe that's maybe a bit more of the realistic scenario. But again, I think, early innings and things will sort out, and we should be able to see that a little bit clearer going forward. It's still a bit early maybe for that.
The next question is from the line of Richard Vosser with JPMorgan.
It's Richard Vosser, JPMorgan. Just going on to the lab products business. Just if you could expand on what you're seeing in terms of demand in Europe right now there? And maybe if I heard and understood your guidance right, and please correct me if I'm wrong, it sounded as though you sort of assume 0 growth on an underlying basis or close to 0 growth for all quarters going forward. So does that sort of capture the idea that it'd be weak in all divisions across the rest of the year? I'm sort of thinking about second waves and also the idea of different countries being hit at different times. It sounds like a very conservative guidance for that part of the business. So just if you could help us out with a bit of clarification there, that would be great.
Yes. So -- I mean for what we have seen is now in Q1, an impact from the pandemic crisis amounting to a total of around 6 percentage points negative, pretty much from a 2-month lockdown in China. So -- and I would say what we see at the moment in Europe and in North America is, for sure, not that kind of shutdowns that we've experienced during January and February up in China. But on the other hand, there are large parts of our business affected. So when you consider that now we are talking about pretty much all of Europe and North America. So I think it's still very difficult to weigh one against the other, which will have a higher impact.When we looked at that and tried to extrapolate a bit on the effects that we can see so far, we came up with the conclusion that for the total of the remaining 3 quarters, and I wouldn't say for each and every quarter this will be the same then. But that for the total of the remaining 3 quarters, indeed, the impact should be pretty much this or we would expect it to be pretty much the same as we have seen it for the first quarter. And that, indeed, would then equal to pretty much a flat organic development versus 2019. And yes, that's indeed how we see it.I honestly wouldn't qualify that necessarily to be a very conservative expectation. It really depends very much on how the restrictions or how long the restrictions will stay in place as they are today because you have to imagine that for all sales where you need a demonstration in front of a customer, it's pretty much impossible at the moment. So of course, all the recurring business, the -- whatever you take now media or tools and scrubs in the lab division and so on and so forth, that is not so much impacted. But again, a new instrument sales to somebody who is maybe not yet using that kind of instrument would typically need a demonstration before he takes this decision. And that's very difficult at the moment. And it really depends on how that continues to be the case. So yes, we think this is a realistic and the best possible guidance and outlook that we can give at the moment. Whether it's too conservative, we will see.
The next question is from the line of Markus Gola with MainFirst.
Yes. My first question is a follow-up actually on the COVID-19 vaccine. Case numbers have increased substantially since the last call. And given that it might be based on mRNA, which you could serve much better, would it be possible to roughly quantify the potential tailwind for this year?My second question is related to LPS. Given the very different trends in the underlying business units, could you share with us a ballpark figure for the Q1 organic growth of the traditional lab business, so excluding by analytics?And lastly, maybe a big picture question, which might be more difficult to answer, but still curious to hear thoughts. I would be interested in what kind of structural changes you expect for the industry and your business as a consequence of the corona crisis?
Yes. Very, very different, interesting questions indeed. So on the first one, if I got that right, yes, so the effect that we believe can be realistically expected from any vaccine will most likely not be very significant in 2020. I believe it would be far too optimistic to expect any vaccine to be approved and manufactured in 2020. And that is where really potentially significant business could be expected. For sure, we are involved also in the development of such type of products and also that -- vaccines, also companies who work on, you mentioned, mRNA type of vaccines are customers of ours. But during the development phase and as this is -- development platforms for such vaccines have been developed by those companies typically even before, that doesn't trigger too much of additional business. So therefore, I wouldn't expect too much coming from there.A different question would be, but that is impossible to answer, what if one of the existing drugs that are tested to be effective against the disease as such, the severe lung disease, can be used as a treatment. And if there is consequence from that, the manufacturing of such drugs would be ramped up substantially. That, of course, could have an impact, but then it depends very much on which one of the drugs would be the one, and how far we would be exposed to that manufacturing, involved in that manufacturing. So pretty much impossible to quantify that in a reliable way for us and, therefore, it doesn't play too much of a role. If we assume there would be a vaccine available next year and then we may be able to quantify that for next year, but also only as soon as we know a little bit more about what type of vaccine that would be. But for 2020, I wouldn't expect too much.LPS-differentiated view on the growth of Bioanalytics business and the, what you call, traditional business. So Bioa, pretty much on track for Q1. However, as I said, going forward, and I know you asked for Q1, nevertheless, I would like to say, these are instruments that really need demonstrations to be sold to new customers. So far, we are quite optimistic that for the total year, that shouldn't be too much of a problem. But just want to mention that this can play a role there as well. And for sure, the traditional business, particularly the lab instruments, as a significant part of this traditional business that balances, for instance, have been quite impacted during January and February in China by the situation. So quite a bit of different impact on these 2 segments in Q1.And then you asked whether we could already imagine certain structural changes to happen and take place after the pandemic crisis? I mean very -- I think what is discussed in these days, but I would say largely as more political discussions and not so much already business-related discussions, probably, is in how far the production of certain medical goods should be localized, again, after having very much a global supply chain be in the status quo. Also, here, I would think that, to some extent, we may see that happen. But for sure, we won't see full throttle going all the way back to a full national type of setup. However that should look like, I think, that's pretty much impossible. However, if the related question would be and how far that would affect our business, I would say, it should not affect our business very much. Because at the end of the day, we are specified into certain manufacturing processes, and that is very much independent from whether a certain product is produced in one or the other country.
The next question is from the line, and sorry for my pronunciation, Delphine Le Louet with Societe Generale.
Two questions, if I may. The first one relates to the CapEx trend in the short-term and in the mid-term, meaning next year, do you expect for this year, is it wrong to think that we may have a massive cut in CapEx in Q2 and then possibly ramping up back in the second half of the year? And then how the COVID scenario, whatever the therapy or the vaccine might be developed in the future, would impact your '21 CapEx target and trend?And second question relates more to the order intake and just to get some better granularity regarding this extra growth you've been seeing. Is it all across the region, all across the customer? How big -- you were mentioning that you -- it's happened over the year to have some, let's say, extra ordering, like that. But would you qualify it already that the Q1 is like more than 100% that's a regular appreciated order -- extra order for -- on the normal year? Or is it wrong to think like this? Can you give us more granularity on this one, please?
Sure. So on CapEx, yes, we wouldn't give detailed guidance now on how CapEx will look like in the different quarters. The CapEx that we are reporting is the -- is based on the cash effect. So that means sometimes we report a cash effect on a certain investment that hasn't been influenced by any decision in that respective order simply because it has been realized in that order and most of the execution has taken place then. So with that in mind, the way how we operate that at the moment is, as we try to bring across during our presentation, we are postponing some of the decisions and that is pretty much there where we were talking about potential additions of capacities that where we are not so sure whether they would be needed short term or not. But others, we don't postpone. I give you an example. When we acquired Biological Industries, we said one integral part of this strategic move would be to build up additional manufacturing capacities beyond those that came along with that acquisition. And we don't see any reason to change our plans here. So there will be certain decisions here that we will take -- positively take and then we'll start also to have an impact on that. And altogether, we, therefore, said that we stick to our overall CapEx guidance for the full year. But again, no guidance at this point for the different quarters.It's honestly a bit too early to make any statements regarding 2021 CapEx and how far any portion of that is related to any corona/COVID-19 impact because there are too many variables here. I could imagine different scenarios here indeed. And it would be really very speculative at this point.To the -- your third question on order intake, here, we -- the quantification that we would share with you is that we see roughly EUR 50 million as being really like this extra order intake that we also mentioned in one of these bullet points, the majority or the larger part, maybe I should say, really is -- are these equipment orders from China, which already answers also the geographical aspect of your question probably, whereas, the stocking orders that we have seen so far and also those that we might see going forward, those we pretty much see from all geographies, maybe with a little -- from an absolute figure, with a little bit more emphasis, maybe on Europe and the Americas. Does that answer your question?
Yes.
The next question is from the line of Scott Bardo with Berenberg.
First question, please. Can you better describe the expanded assets of the Danaher deal, please? And several other businesses that you bring into the group. Just wondered if you could talk to a little bit what they are and whether you're pleased, do they expand certain sort of strategic avenues for you that you weren't getting in the original deal, please?Second question, again, actually follows on from the question on CapEx. I think the group, certainly the bioprocess business is trending somewhat ahead of the organic profile that you've sent out at your last Capital Markets Day, which now -- that mirrored with your original CapEx plan. So the question is, do you need to start increasing CapEx to meet supply or to meet demand? Or you're happy that you have capacities? Similarly, as part of this question set, some of your bioprocess competitors are making material investments into viral vector and gene therapy manufacturing. Is this something that Sartorius Group now needs to consider to compete in that arena?And last question, please. Yes. Joachim, I appreciate there's lots of moving parts. I'm very pleased to see the company performing well, and basically in this environment. You've emphasized several times uncertainty with respect to the forecast that you provided or your guidance. I think the last time you've made such an emphasis on uncertainty, you went on to materially raise your guidance levels throughout the course of the year. Now what I'm trying to understand is, is the uncertainty an equal reflection, both positive or minus? Or have you adopted what you're very comfortable in delivering as part of your guidance and leaving further upside?
Sure. So the first question, I understand that in a way that you would like to know what has been added to the portfolio after the signing of the contract with Danaher in the course of the antitrust approval process. So -- and here, it is not a very large business, actually. It's about a cross-flow systems and certain consumables or tangential flow filtrations, in other words, for cross-flow, actually, filtration. It's a certain filtration mode used also in downstream processing. It's a field in which we are present already, but where the assets from -- then they are -- are nevertheless, complementary to those that we already have in our portfolio. So therefore, it fits quite nicely into our portfolio. It doesn't add in the same way to our positioning like the classical chromatography technology does, that was one core of the set of assets that was part of the package before or as the protein analytics portfolio does. But nevertheless, a very well fitting nice addition.On CapEx, I mean as we are running a bit ahead of schedule, ahead of our initial plan in regards to organic growth, that might lead to a situation that we meet certain trigger points for further capacity expansion a little bit earlier. And then this could add to the respective CapEx ratio in the respective year. But I wouldn't expect too significant numbers here because the investments that we have made during the last couple of years, in particular, also the very significant expansion of our infrastructure in Puerto Rico, I think, are very good basis where certain additions, not necessarily trigger too high numbers. The additional or the investment into our own filtration media capacities trigger quite some additional CapEx, it should nevertheless pretty -- yes, pretty much fit into the guidance that we have given so far also regarding midterm. But that, for sure, is a substantial investment when you invest into both power as well as liquid media manufacturing that is quite a bit.Then on viral vector manufacturing. That's a field where we are at this point in time not active in. Therefore, I wouldn't also announce any investments here from our side. It's a field, of course, where we are active in a sense that viral vector manufacturing is made in a way that, to a large extent, products are used that are part of our product portfolio. So it's a field where we're definitely active in, yet we don't manufacture viral vectors or any such products by ourselves at the moment. Whether that becomes part of our strategic road map going forward or not is, let's say, an open question. Nothing that I would discuss at this point because we didn't take any decision on that here so far.Uncertainty. Yes, I believe, honestly, in these days, it's impossible to factor in all potential downsides, even though, maybe we would wish to do so and would like to do so. But I think it's impossible without coming to maybe even ridiculously low figures, yes. Because assuming just an impact of minus 6% in comparison to initial growth, I'm talking about the lab division at the moment, so flat organic growth in a situation, where everybody is saying, "This is probably the biggest economic crisis the world has seen during the last 90 years," I think that's, obviously, not the most pessimistic expectation one could think of. And I think the same holds true for bioprocess with other boundary conditions, of course.So I don't think that we can say, "Well, we factored in all downsides, and there's only upside left." Yes, I don't think so. And I also would clearly say, we should not underestimate the economic impact that is yet ahead of us. Of course, we all know very -- on a very individual and personal level have experienced the lockdown and being both at home and things like that, but that's a different thing from a recession. We don't have any statistical results and all the second round effects and what is ahead of us are coming from that. And therefore, we believe that the guidance that we have given here today is the best, and hopefully a realistic one that we can give. We, today, definitely consider that being achievable. But for sure, it's also one where quite some ambition is included.
Thanks for the detailed answer and the economic perspective. Maybe just a quick follow-up, if I may. A lot of medical technology companies exposed to hospitals are seeing some delay in accounts receivable due to their pressing liquidity issues. I wonder if that is something that we might expect or that you are anticipating encountering for Sartorius amongst some of your customers? And whether this could also be an additional reason for canceling the dividend or addressing the dividend policy to free up liquidity? If you could have some discussion on that topic, please.
Yes. So we are monitoring cash, of course, very, very closely at the moment. In such situations, cash is king always. We don't see any concerning changes in regards to how our customers are paying and our accounts receivable situation. But you could say that for the 1 reason of the 3 aspects that I was elaborating on, so what if the crisis will become deeper than we have seen so far and anticipate so far, then maybe that would be part of that scenario and that aspect. But we do not see it luckily so far in our figures, and we don't anticipate it today as the biopharmaceutical segment is a very robust segment that isn't impacted by itself so far.
The next question is from the line of Daniel Wendorff from Commerzbank.
Questions, a few, if I may. On the Danaher, on the acquisition of the Danaher assets, what is still missing for you to close that acquisition, i.e., what makes you so confident to consolidate this as of May? And is the debt financing of this at all impacted by the corona crisis? And how do you see the first integration steps after the closing of the transaction in light of all the trial restrictions and quarantine requirements globally?And my second question would be on the factoring of receivables. Can you say how this impacted your Q1 2019 results, if at all? And what are the financing costs of your factoring strategy, that would be helpful.
Yes. Sure. So I...
If you want, I can take the first 2 ones before you...
Yes. Do you want to? Yes, I just wanted to say maybe you start with the financing and the factoring.
And then you obviously -- yes, me first. So first of all, regarding the financing of the Danaher acquisition. That is, obviously, not affected by the corona pandemic. We have a bridge, a solid bridge for the full amount readily available, in which financing is also lasting until October 2020. We also are not going to be in pressure to refinance immediately. Although, of course, we would look to see what other options are available once the transaction is closed, but that's really we do step by step.And in regard of the factoring, basically, the impact that's really on the balance sheet, the financing position. So we said EUR 75 million was the impact on Q1, but we got additional funding on very attractive rates, really, in line with our overall financing, that is slightly below, I'd say, 1%. And it really, specifically right now, and that actually also leads to an answer to Scott's question before, we do not see any clear decline or value of our receivables, especially being able to expand the factoring program in this environment because our customer base actually is very good. And let's not forget, all of our receivables are actually insured before we can factor them. So there's also a lot of confidence going in this customer base, and we don't expect a difference in this trend. I rather expect an increase of the factoring program over the next quarters gradually.
Yes. Thank you, Rainer. So then maybe I...
Did I answer your questions?
Yes. Clear. That answers my questions.
Okay. Great. So then I answer the other part of the question. So the approval from antitrust authorities that were needed basically, and I focus now on the larger countries and jurisdictions, were from the U.S., from Europe and from China. And in each of these jurisdictions, 2 approvals were needed. One, on the divestment package as such. This was the key prerequisite so that Danaher could acquire the assets from GE, which they agreed upon some 14 months ago or so. And the second approval was on us to be an -- a suitable purchaser, as the legal term for that is. So all 3 approvals regarding the package are in place. That's why the deal was closed between Danaher and GE, as I said. From the U.S. and from Europe, also the suitable purchaser approval has been given already a few weeks ago. And I think that, that has been published also by us. So there is now the final approval necessary from the Chinese authorities, again, to qualify us to be a suitable purchaser. And we believe that this process is well underway.And on the integration. Yes, it's indeed, of course, a bit specific and special situation now to run the closing process and then the first integration processes. We are very well prepared to run this remotely. The -- there has been, of course, direct contact and interaction between the teams as far as possible before the lockdown and travel restrictions. So therefore, that is a good basis for that, anyhow. But then also since the restrictions, the teams have worked on this scenario, have conducted a couple of dry runs where possible. So that we believe we are well prepared for that.Having said that, of course, it's clear that then the integration process as such will look a little bit different than it would -- than this would be the case in a different scenario. Normally, we would have physical town hall meetings at all sites, et cetera. That, of course, has to wait now. And also some other organizational integrations can be undertaken only in -- at a little bit late point in time. But in general, we believe we should be very well positioned to run this integration.
The next question is from the line of Falko Friedrichs with Deutsche Bank.
I have 3 questions, please. Firstly, can you share the covenants you have on your debt?Then secondly, if the pharma or biotech company ends up coming up with the vaccine next year, do they tend to work with just 1 supplier for the production equipment? Or do they dual-source usually? Or is it spread across many suppliers? Can you speak a bit about the typical dynamics here?And then thirdly, what exactly are the consumables you sell for diagnostic kits? And how big is this business for you?
Rainer, you want to answer on debt covenants?
Yes. I'll take the first one. Debt covenants for us is net debt divided by underlying EBITDA is 3.25. And in case of an acquisition, we can actually go up to 3.75 for 2 quarters afterwards. And then there's a slowing down again. And that's the only one we have.
So in other words, with the 2.75 that we expect to...
Did that answer your question?
Yes. Perfect.
Okay. Very good. So then number of suppliers. That really depends. There is no clear rule that I could give here. Maybe, if at all, you typically are -- have a situation where a manufacturer has a supplier, like a #1 for a certain product segment in a certain process and then a backup for that. That's maybe the most typical setup. But there are also different scenarios possible. But I would put it that way. If we are -- would become qualified as a -- as the lead supplier or supplier #1 in one or the other of these processes, then this could indeed have a positive impact on our numbers next year potentially. But then we definitely, as you know it from us, then we would be also quite transparent about quantifying this effect. But from today's perspective, it's almost impossible to make any quantifications here.Diagnostic kits. Yes, thank you for that question, helps maybe to clarify that and make it more tangible for all of you. So we are, I would say, a leading supplier of diagnostic membranes to the developers and manufacturers of diagnostic kits of all kinds. And basically, these membranes need to have specific properties and a high uniformity of their quality. And that is where we are, I would say, we're very well positioned in regards to the quality and the performance of our products. So -- but that means we do not produce or develop and produce such kits by ourselves. We are involved in the development as there are certain adaptations to be made in regards to all the membranes so that they fit the best possible way to the purpose of that very kit. However, size of the business, say, approximately EUR 30 million last year.
Okay. And can you potentially give us a feeling for the growth you are seeing in that business currently?
Should be double-digit growth. And how far it gets an additional boost this year, it's a bit early to say. We see some signs for additional demand and that's why we mentioned that. But for the full year, I think, we should wait for maybe another quarter before we quantify that on a full year basis.
Next question is of the line of Virendra Chauhan with AlphaValue.
I am Virendra from AlphaValue. I have, firstly, one question on the liquidity slide. So in the earlier comments, you just mentioned that there could be a potential for -- to find assets because a find could be just best in the current environment. However, following the acquisition of Danaher, what would be your position with the access to cash or debt in case such an opportunity did come on?
Didn't you say you have 3 questions?
No. I haven't -- yes, a couple of more questions.
So maybe you...
The second would be -- should I go ahead and give you all 3 and then maybe you can take them.
Yes. Yes. Please, please. Yes, Please.
So the second question was around your comments that you saw 1 percentage point stocking impact in Q1 in response to one of the earlier question. So when do you expect that to normalize in context of your guidance? What I am trying to understand is that are we looking at that already factored into the current year guidance? Or should we be thinking that next year, it comes back as kind of a headwind in terms of the type of comps that we will see this year? So that's on the guidance. So basically, do you expect the stocking impact to last through the entire 2020? Or do you expect normalization for the year-end?And thirdly, I have a question on the LPS business. Could there be further downside to your guidance given the worsening macro environment as we move ahead post COVID-19? But I think you did answer this a few questions ago that we cannot rule out the outset. So please just go ahead with the first 2 questions.
Yes. Thank you very much. So then I need to focus on answering the first 2 questions. So as has been pointed out by Rainer a minute ago, we would have an ultimate ceiling at 3.75 in the case of an acquisition for the net debt EBITDA ratio. And we expect; now to close this year around 2.75. So you would say that ultimately, the debt capacity would be another 1x underlying EBITDA, so quite a significant amount from that perspective. And if we would like to stay within the 3.25 scenario, then it would be half of that. But still, that would amount to probably EUR 250 million or more. And so that capacity within the framework of our actual outlook, I think, is quite substantial. But of course, we are focusing here also in our statement that we were making rather on maybe smaller technology acquisitions where this would fit to.And then on the second question, stocking, and when that will be normalizing and how far we factored that into our guidance. We do expect stocking initiatives to play a certain role within the entire year of 2020, and we would rather anticipate, even that is far too early, we are not speaking about 2021 guidance here. But as I said before, I do not necessarily expect that we will see higher stock levels going forward even after the pandemic crisis. I could imagine that we see some normalization later on. And then in such scenario, we would see maybe the opposite effect then in 2021. But again, for 2020, what we are talking about here today, we do expect some accretional effect that plays into the additional organic growth, as I said before, in 2020.
The next question is a follow-up question off the line of Scott Bardo with Berenberg.
Real quick. Obviously, there's a lot of discussion, a lot of hype surrounding vaccines and biotherapeutic agents for COVID-19 outbreak. So I just wanted to very quickly just understand with respect to vaccines, mRNA vaccines, it is more potential for Sartorius than potentially an antigen-type protein vaccine? We had some discussions that given the huge potential volumes of a vaccine, is more likely to be in large [ population ]. I'm just trying to understand where Sartorius fits into this.And also, just with respect to your comments on the pharmacological interventions. Again, I think, remdesivir from Gilead is perhaps a leading candidate here. I understand that's a nucleotide analog, so not requiring the source of bioprocessing solutions that you provide. I just wanted to make sure I'm not on the wrong page.
So on your second question, for that very product, indeed, there would be only certain products. For instance, steroid filtration in terms of a product that would be used in that manufacturing and others not. Whether it's the most promising candidate or not, I -- to be honest, that goes beyond my capacity to answer that. I think there are very, very conflicting messages and findings that one can read, maybe a bit too early still. But you're right on that very one, I think.Regarding the bandwidth of products for the different types of vaccine manufacturing, that is really a very heterogeneous area. We see very different types of [ opportunities ] to say is that for most, I think, in all theory, again, I think, I have elaborated on these different disclaimers before and I can't speak that here. But overall, by and large, we think that there should be business opportunities in most of these cases, but you're right, to different degree for different type of underlying technology.
There are no further question. I hand back.
Yes. Thank you very much, indeed. Thank you very much to everybody for your interest in Sartorius Group and Sartorius Stedim Biotech. I appreciate it very much also the lively Q&A. We hope that we were able to answer all questions as you hoped for and expected. I'm sure we'll stay in touch. The [ next quarter ]. We'll talk to each other latest in about 3 months when we publish our H1 figures. Take care and stay safe. All the best to all of you. Bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.