Sartorius AG
XETRA:SRT
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Sartorius AG
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Good afternoon, ladies and gentlemen. Welcome to the Sartorius and Sartorius Stedim Biotech Conference Call on the Preliminary Full Year 2022 Results. Today's conference is being recorded.
At this time, I would now like to turn the conference over to Dr. Joachim Kreuzburg, CEO. Please, go ahead sir.
Thank you very much. Happy New Year, everyone to our today’s conference call on the preliminary results of the year 2022 for both Sartorius AG as well as Sartorius Stedim Biotech. Thank you for your interest. Together with, Rainer, our CFO, I will kick it off.
We will first talk about the results of Sartorius Group and then later on, on those of Sartorius Stedim Biotech. Let me start with a brief overview on the most important results for 2022, it has been another successful year after two years of very dynamic growth. We have been able to grow both divisions double digit. Overall, we met the targets that we try to achieve even though the Corona business came in substantially lower than we thought at the beginning of the year, as I think everybody has recorded for 2022. Also underlying EBITDA is up substantially. Our margin is pretty close to the high three-year yield level. For 2023, this is a bit special now and I think some of you will have seen that already when looking at the respective guidance by other companies from the industry. We expect the low single digit sales growth overall mainly because of we are now seeing the tail of the corona effects. Excluding the COVID business, we are expecting high single digit top line growth. For the underlying EBITDA, we expect the margin to be around the same level, as in 2022.
For 2025 and we said that since mid of last year, we have looked into our ambition, we fundamentally confirm those numbers in regards to all essentials, because we see all the underlying market fundamentals to be completely intact. However, because of the higher price levels that we are seeing following the higher inflation rates for 2022, and the one that we would expect for 2023 and beyond, we have shifted up our total sales revenue target to EUR 5.5 billion, we leave the margin target unchanged at 34% for the Group. I think it goes without saying that the uncertainties overall remain very high both from a political as well as economic sense of standpoint, I believe. And with that I hand over to Rainer Lehmann.
Thanks Joachim. Also welcome from my side today's call as well as happy new year. As always, let's have a look at the figures. As Joachim mentioned, really another very successful year, revenues increased by 21% and reached EUR 4.175 billion. So that's actually we cracked another milestone here by breaking the EUR 4 billion mark, in constant currencies it was in a growth of 15%. Out of that two percentage points were contributed by acquisitions. And also this number includes a bit less than what we anticipated in COVID revenue, this one mounted at the end of the day to EUR 220 million in 2022. Order intake decreased as expected by 10%. So the normalization continued in the fourth quarter, as we anticipated, due to mainly of course, the lower COVID business, if we would exclude the cause related business, we would actually have a slightly positive growth on the order intake, which at the end amounted to EUR 4 billion. The underlying EBITDA grew by 20% to EUR 1.4 billion. So that's pretty much the margin as on the previous year level, reached 33.8%. So 0.3 percentage points lower than last year here, mainly attributed to the, yes, anticipated to catch up in our cost base that we talked about during the last quarters, as well as some slight FX related headwinds. If we look at the geographical distribution of the revenue, let's start from the left-hand side we see the Americas, fantastic growth 21.5%, almost EUR 1.54 billion. The Americas contributed here, both – it was both divisions to that success. In the EMEA region in the middle, we achieved a revenue increase of 9% to also EUR 1.5 billion. Let's keep here in mind that we really had tough comparables, the growth rates here in 2020, as well 2021 were fueled by the COVID related business. Let's also keep in mind actually that the business in Russia decreased significantly in 2022. Asia Pacific, also a nice development here, double digit 16.2% growth to a little bit over EUR 1 billion. Also both businesses performed well, and also against actually fair fight, quite high comps.
If we have a look at the donut on the right-hand side donut chart, we see actually a little shift between the regions. If we look at, if we compared to 2021, EMEA has now 37% of the revenue share, that is down four percentage points. And those four percentage points were actually gained by the Americas that also now on 37%. Of course, let's keep in mind that also the strong dollar had an impact here. But nevertheless, it also reflects the better growth rates that we could achieve in the Americas. Asia Pacific contributed as previous year was 26%. I also want to point out here that in that region, the partial lockdown that that incurred over the last quarter in China really had no significant impact on our business and the growth in Asia Pacific.
So let's have a deeper look into the divisions. On the next slide, we see Bioprocess Solutions, revenue increased 22% to EUR 3.3 billion, that's an increase of almost 16%, in constant currencies, here as well acquisitions contributed two percentage points, the COVID related business significantly down compared to previous year amounted now to around EUR 200 million. And the order intake on the left-hand side, we see as expected, down 10.4% to EUR 3.1 billion in constant currencies here, a reduction of 14%. Again, let's keep in mind, if we would exclude here, the corona related business, this would have been slightly positive. The underlying EBITDA margin was pretty much on previous year level, maybe a little bit, of course, impacted by the anticipated increase in the cost base that we talked about us throughout the last quarters, that now is pretty much in effect, and therefore is around 35.7%, in absolute numbers, almost EUR 1.2 billion, an increase of 20.5%.
If we look at Laboratory Products & Services, and here we also have really very successful year, sales revenue increased in constant currencies by 11.5% to EUR 848 million here only, acquisitions contributed one percentage point. And we also pointed or many hit the COVID related business is around EUR 20 million, of course, significantly lower the impact of that, then on the Bioprocess Solutions Division. Order intake, up 7.5% by in constant currencies to EUR 885 million, really a very dynamic development may also mainly be driven by our biologic business which is performing very well over the last years. And also was the driver of the 2022 increase or growth for order intake as well as sales revenue. The margin record slightly increases to EUR 222 million, basically EBITDA margin of 26.2%. And that was actually despite also here, the anticipated increase of the cost base, but also some FX related headwinds that we have here.
We then have a look at some key performance indicators on the next slide, we actually could not fully let's say translate the underlying EBITDA of EUR 1.4 billion to the same growth or growing by 20%, the operating cash flow that is mainly due to higher inventories to support our supply chains. So here, the cash flow related from interest of working capital is around roughly EUR 300 million, just to put some color to this. The financial result, as in the previous quarters, we mentioned is mainly driven and influenced by the valuation of BIA Separation’s earn-out liability, the underlying net profit increased therefore, by 18.4% to EUR 655 million, the reported net profit increased. And let's keep in mind here that of course, the valuation has a big impact on here by increased by 112% to EUR 678 million. Investing cash flow around EUR 1.1 billion. That actually is roughly EUR 536 million is attributed to acquisitions. Keep in mind the acquisition of ALS at the beginning of 2022, but also Novasep as well as then the biggest acquisition in 2022 of Albumedix in the third quarter, and the remainder of the EUR 1.1 billion. So the EUR 593 million is related to CapEx mainly to in our production facilities around the world so that ultimately, our CapEx ratio stayed a little bit below our guidance was 12.5%. Keep, as you know, we got it 14%. So we had that adjusted, yes, at the end came in was 12.5%.
And the next slide, we see our usual development of our equity ratio, nice increase of 30% to 38%. So very healthy financials net debt increase, of course, driven not only by working capital, but mainly also by the acquisitions to almost EUR 2.4 billion, but the more relevant figures and net debt divided by underlying EBITDA at healthy 1.7. And on the right-hand side you can see, of course, after each acquisition, which we always try to deleverage in the following quarters. And we'll plan to do so as well going forward. And with that I would give back to Joachim.
Thanks Rainer. So you already heard of a bit about acquisitions and CapEx. When Rainer talked about the cash flow key figures, I would like to highlight just briefly the CapEx side of things. But maybe before I do so I just want to remind everyone, as I mentioned before, we made three acquisitions also during 2022. While we take a little bit of broader perspective on the years 2020 through ‘22, it has been 10 businesses that we have been acquiring and integrating, and just saying that because we were doubling our sales revenue in that time period, or more than doubling our sales revenue, actually in that during the time period, and made quite a number of acquisitions. So, we have been quite busy also on the front of adding capacities globally. And you see this, on this chart, we invested a bit more than EUR 0.5 billion during 2022. The CapEx ratio was 12.5%, you have heard that before. And you can already see here that we are planning the same level for the year 2023. This is very much a global exercise or international exercise; we are expanding our capacities in all regions. And also for all product segments as we have a broad distributed growth. We are growing in both divisions and also within the divisions across all product portfolio.
Just a few pictures also on those sites where we are running larger capacity expansion projects. Ann Arbor, Michigan is one example that is quite advanced, the same as Göttingen where we will start casting membranes in these new buildings quite soon. In Yauco, we have expanded our manufacturing footprint substantially added cell culture media to it. Aubagne, France, where is the main location for our back manufacturing, we are expanding our footprint substantially. The same on a smaller scale is in Beijing, China, where we are expanding our local manufacturing of bags so bags made in China for China. And then in Songdo, South Korea, we are just about to start building a significant facility to serve the quite relevant South Korean market and also the market outside Korea in the Asian region. So now, I would like to shift the perspective on 2023. I already mentioned at the beginning, that we have to really take a look on two or take two perspectives on those numbers. One is what I would call the, yes, let's say the all-in growth rate that we are expecting which is low single digit for bioprocess and mid-single digit for the lab division and therefore also overall for the Group low single digit, but that includes a further significant decline that we expect for our COVID related business. If we exclude that then we are expecting both divisions in their parts of the group to grow high single digit for BPS, and accordingly also for the Group this includes one percentage points from acquisition. So I think it's the Albumedix acquisition as this took place rather late last year. We expect the underlying EBITDA margins for both divisions intergroup to come in around the level of 2022.
What I would like to underline is, we believe that we should again perform at least on market level, we have been growing substantially stronger than the market throughout a long period now and particularly also during the period 2020 through ‘22. And again, therefore explicitly also during ‘22. I don't think that I have to read out all the comments made here, CapEx ratio I mentioned already, net debt underlying EBITDA I think have been touched upon Rainer before. So, therefore, what I would like to do before then shifting to Sartorius Stedim Biotech is briefly talk about the midterm ambition for 2025. Just as a reminder, we first published our perspectives for ‘25 at the beginning of 2019, I believe. At that time we were shooting for EUR 4 billion of sales revenue. In the meantime, we have shifted this to EUR 5 billion. And we also shifted our margin expectation quite a bit to 34%. And while we leave the margin expectation unchanged, we think that we have to adjust the top line guidance a bit upwards by approx. 10%. And this is because of inflationary effects.
But before I come to that, I would like to draw your attention to the fact that we are currently running ahead of our midterm plan by roughly one year even a little bit more than one year. And what you can see on this chart is the yellow line that represents a growth curve from ‘19 through 225, even including now this upward shift a bit, which would lead to a compound annual growth rate of 20%, excluding this shift, it would be 18%. And this rate is already quite significantly higher than the historical compound annual growth rate of 13%, from ‘15 through to ‘19, which again, was higher than the market back then. But as you can see, for the period from ‘19, to ‘22, the compound annual growth rate has been 32%. And as we already were talking about since mid of 2020, this growth rate is not that, hasn't been backed by a respective fundamental increase of demand. But it was driven by this additional Corona demand, but also substantially by temporary effects of different ordering behavior of customers. And what we're seeing now is like the correction of this, and customers are now shifting back to normal, more normal stock levels. And that, of course, leads to also us now moving back towards the underlying growth path. And this, we wanted to share with you in this graphical representation on this chart. But again, nevertheless, we have shifted our ambition for 2025 by 10%, you see that this is the case also for both divisions, it's just rounding that we came up with 4.2 and 1.3 for the two divisions, which looks slightly different than 10%. But essentially, it's 10% for both divisions, and therefore for the group EUR 5.5 billion now is our top line target for ‘25. And as said before we leave the EBITDA margin target unchanged at 36% and 28%, respectively, and 34% for the Group.
And I would like to talk briefly about the results of Sartorius Stedim Biotech Group. As always, they are very much in sync with the development of the Bioprocess Solution Division. So what you see here is that our sales revenue was up by 15%, including one in constant currencies, including two percentage points from inorganic growth order intake was down by a little bit less than 10%. Because of the effects that Rainer was explaining before EBITDA was up by about 18% then margin slightly below the previous year's level or, yes, partially of course and currency effects, but mostly because of the expected catch up of the costs.
From a geographical standpoint also here, most comments have been made before, we should keep in mind of course, that EMEA which is posting the lowest growth rate for 2022 has been showing extremely high growth rates before because of the strong portion of European players in manufacturing COVID or corona vaccines. So overall, a healthy distribution of our geographical growth and also healthy distribution of our sales by region as you can see there. Regarding cash flow, again, this there was very much our high level of investments as well as the effects coming from working capital and then also those from the earn-out of BIA Separation’s and other effects that Rainer was talking about before already. CapEx ratio you see here has been 12.3% for Sartorius Stedim Biotech.
Therefore, also the balance sheets and other financial KPIs look very healthy, I would say. Equity ratio almost 50%, net debt to underlying EBITDA still below 1.0 even though we are investing significantly, both in organic and inorganic growth. And then I don't want to walk you again through this conceptual chart on why we are run and how we are running around one year ahead of our midterm plan. But you can see that this particularly holds true for our Bioprocess Solutions division and therefore Sartorius Stedim Biotech. And of course, we also have shifted, therefore, our midterm ambition, but before we show that one, I briefly talked about the outlook for 2023, which is at low single digit all in as I described that before, but then excluding the COVID related business and the respective effects that we expect for ‘23. We expect mid to high single digit growth for Sartorius Stedim Biotech, CapEx also around two point 12.5%. And the further decline of our indebtedness ratio, provided that we would not make any further acquisitions. As always, we never try to factor those into the numbers. We update rather such forecast if we make any acquisitions, and underlying EBITDA margin, we expected the same level as for 2022.
So and then finally coming back to our ‘25 ambition also here, we increase the top line ambition and target to EUR 4.4 billion, after EUR 4 billion before reflecting the higher price levels because of the inflation that we've seen in 2020. And that we anticipate going forward, we leave the profitability target unchanged at above 35% for Sartorius Stedim Biotech. Thank you so far for your attention. And now we are looking forward to your questions.
[Operator Instructions]
We have the first question from Odysseas Manesiotis from Berenberg.
Hi, Joachim. Hi, Rainer. Thanks for taking my questions. So firstly, taking from your peers recent statements ordered backlog and customer discussions, would it be fair to assume a stronger H2 ‘23 Compared to H1? And would you expect book-to-bill ratio to improve to historical levels by the second half?
And secondly, also, given that you had some FX headwind in your full year 2022 EBITDA margin, what negative profitability factors will essentially replace this negative FX impact for you to guide 2023 margins in line with 2022? Is it simply a factor of increasing your co2 emission reduction expense from 50 to 100 basis points or other factors involved as well? Thank you.
Thank you very much for your questions particularly the first one, I believe is an important one, and one that is discussed widely in the industry at the moment. So absolutely, as you assumed, we also expect as other players as well, different halves of the year 2023. We would expect H2 to be quite a bit stronger than H1 indeed, we expect and we, I think we were talking about that during our last two or three calls already, that we would expect the beginning of the year to still show quite some effects of normalization as we talked about, whereas around mid this year, we expect then to rather see orders and sales revenues to be more in sync again. And that this reduction of order of stock levels at some customers to also have come to an end. It's very difficult to speak very precise at this moment. I think it's too early to be more precise than that. But from our today's perspective, we definitely would expect H2 to be stronger than H1 Indeed. And for the FX effects, I hand over to Rainer.
Yes, so regarding the nature of our FX effects are, of course, a positive one is the strengthened dollar that we've seen in 2022. But of course, that, unfortunately, is being compensated by the hedging. Hedging, hedges that we do. And here again, the dollar is the most relevant one for us. We're of course, we hedged 12 to 18 months ahead. So this is actually rolling forward. Therefore, in 2022, the positive impact of the general P&L effect has been diluted or actually even completely compensated by those negative realization of hedges. Going forward, and it really depends, we're down pretty much to parity in around Q3, also, beginning of Q4, now we are back a little bit to the euro gain a little bit of strength. So we still will see a little bit of FX headwind, most likely at the beginning, but that should then bleed out hopefully over the end of the year.
Thank you. That's very clear. And sorry, just to squeeze one more in there. So that 100-basis point cost that you're assuming for your CO2 emission reduction program, is that going to be relevant after 2025? Or should we not consider it as such?
Yes, we expect that to continue playing a role. We, at this point believe that the -- those costs for example, energy with a lower co2 footprint or transportation services with a lower co2 footprint, et cetera to rather be more expensive than whatever more traditional sources and suppliers. That probably will change at some time. But I don't think that this will be already the case after 2025. So they will, we believe continued playing a role.
The next question comes from Matthew Weston from Credit Suisse.
Thank you. Two for me, please. The first just to follow up, Joachim, do think that the BPS book- to-bill ratio has dropped in 4Q of ‘22? Or do you think it's potentially got further to fall as we get customer order normalization in the first half of this year?
And then secondly, a question about price trends. On the 3Q call, you alluded to the fact that you anticipated taking another substantial chunk of price at the beginning of ‘23. Could you let us know what's happened in terms of pricing for LPS and BPS going into this year and what that means the underlying run rate is likely to be for the full year.
Yes, sure. So to be more precise than we have been so far for b2b. So book to bill ratio is honestly also quite difficult on a quarterly basis as this is quite a, I mean, to our standards, a rather short period of time. So what we believe and we said that already, I think mid of last year, is that we would expect the beginning of 2023 to also rather show book-to-bill ratios below one. Again, quite difficult to be more precise. I think in our perspective, most important message is that all the market fundamentals, we really consider to be fully intact, be it the let's say the fundamental demand for drugs, but then and so therapeutics, vaccines, et cetera. And then also for the respective technologies to develop and produce those products, but also in regards to the pipeline of innovations, both of the developers and manufacturers of medical products and pharmaceuticals in particular, but also in regards to their need for innovative technologies for such, yes, new modalities partially. So that's the key thing, we believe. And we believe that even though of course we fully understand the interest in as precise as possible predictions on some more detailed trends, we believe that those are not really important for any fundamental setup. So long story short book- to-bill, we expect to be below one, maybe for the first two quarters this year. But it's difficult to be more precise.
Price trends. We, indeed, shared with you before that at the beginning of 2023, we would introduce another adjustment of the price levels in sync with the inflation, I think what one can say is that the inflation rates have been going down already a little bit. And the perspectives seem to be also a bit more optimistic in that regard going forward, the level of price adjustments that we are introducing now is reflecting that. So we are rather introducing mid-single digit price increases, but the guardrail for us anyhow, is to balance the effects that we see on our cost side coming from price effects there are on the -- on our sales prices. So and there we are quite optimistic that this should be the case. And we factored that into our guidance for 2023 accordingly.
Next question comes from Christian Faitz from Kepler Cheuvreux.
Oh, yes, actually, it’s actually Oliver Reinberg from Kepler Cheuvreux. Thanks for taking my question. And the first one is on market share. And you reference data -- different dynamics, you were able to deliver one other didn't have any kind of capacity. But can you just talk about to what extent that is clearly a headwind from certain accounts excluding COVID. And on the other side of the equation, obviously you were able to get a foot into the door with some kind of new clients where you're probably may gain going forward, so can you just talk about the dynamic of these two factors?
And second question then on LPS, and if I look at your guide for 2023, it points to mid-single digit growth, I guess, when we consider the dynamic in bio analytics, as it's probably lone drive for more than 7.5% growth in that division. So is it the right way to think about that you are expecting negative growth outside [inaudible].
And the third question also on LPS, and obviously mid-single digit growth for 2023. But in order to get to EUR 1.3 billion guide that requires more than 20% sales growth in ‘24 and ‘25. So can you just share with us your thoughts in terms of the split of this growth between organic and M&A? Thanks so much.
Yes, let me answer questions three and four. And maybe then you can repeat your first two questions, please. Because on market share, because it was hard to understand them here the line isn't that good, unfortunately. So on LPS 2023 and our old guidance, therefore, topline development. So we are not planning for negative growth for our what we call LPS essentials business, the fact that we are not more aggressive in regard so growth targets reflect the fact that we have been seeing quite a high level of demand and therefore also growth in that division. Again, also we were growing above market, but overall the market was rather healthier during the last two years. And I guess you are partially also discussing these. The question of in how far the more difficult funding environment for early stage, biotech firms, for example, would have an impact on growth. So we are not that exposed to customers that are depending on funding. However, we would say that the overall, yes, investment mood in the, also in the lab domain is a little bit more muted than it has been probably before.
So therefore we believe that 2023 will be showing a lower market growth than the years before and our growth expectation here is mirroring that. So it's not that we are particularly having a negative view on our LPS essentials business. And on ’25, you are right, we are including some assumptions on inorganic growth, this portion of inorganic growth will may be a little bit larger portions, not necessarily the absolute numbers, the portion will be possibly a little bit larger for LPS and represented in the more significant double-digit percentage of the overall top line growth that absolutely correct. By the way, also in line with what we have said, even back in 2019, when we were defining the target the first time for ‘25. At that time, it was EUR 1 billion for LPS, but even then, we said, well, inorganic growth contribution for LPS might be relatively higher than for BPS. But then of course, let's see, it all depends then also on the size of targets, the timing, et cetera, whether that then materializes exactly in that way. But yes, our model is built like that. And then again, please, could you repeat your question around market share?
Yes, of course, Joachim, sorry for the line quality, I hope you continue now. It's just about the dynamics and BPS. And so obviously, during the last two years, you've been able to deliver capacity compliance, we're competitive, didn't have any kind of leeway. So now the entire industry is of ramping up capacity. So in these accounts, would we expect any kind of headwinds in terms of market share? And I guess, in other clients where you did not have a foot in the door, you now enter this account and may probably well, I'm just wondering if you can talk about these kinds of dynamics. And which are one of this is more relevant. Or another way of asking this is obviously, do you believe from here onward, do you believe you can continue to gain market share?
Yes, okay. Thank you very much. Now it was clear. So yes, absolutely correct. What you were saying during the earlier phases of the pandemic, I think we, our delivery ability was above average. And that's then resulted in exactly the effect that you were summarizing, we were gaining business over proportionately also from customers that we were looking for a second or third source in some areas. There is no one answer that fits all cases, yes, there are different behaviors by customers, by and large, we would say we would consider quite a significant chunk of these market share gains that come from that very effect. And it's not the only effect where we are gaining market share to be sustainable, we don't think that everything will just bounce back. That's not what we are seeing. And as it is not the only effect for our market share gains, we also believe that we should be able to continue gaining market shares. There are a couple of main drivers for this, and also the drivers that have been playing a role before the pandemic. And those have been one clearly that our presence and relevance also in the US is a completely different one than 10 years or 20 years ago. And that means that the portion of new business that we are winning is much larger than it has been back then. But of course, the overall business always reflects to a good portion as so much of the sales revenue is recurring that the overall business always reflects a good portion of the past. So that's one driver and the other driver is of course the, yes, let's say the bandwidth and again relevance of our product portfolio in quite a number of areas our product portfolio has been strengthened substantially when focusing on BPS. And the effects that you were mentioning before is a -- has been a BPS effect. I will just mention that we have strengthened our portfolio in downstream processing substantially in regards to classical chromatography, but also intensify chromatography, for instance, and then we have built quite a comprehensive portfolio of what we call critical raw materials/reagents media for particularly new therapies. And that pays off, yes, we are winning a substantial chunk of business in that market segment, or in those applications and we expect that to continue.
The next question comes from Michael Lexton from UBS.
Oh, thank you very much. Two questions, please. One just to follow up on the market shares, and customers have gone to deal specking some processes. Do you expect it to reverse? And those process going back to single specking? Or do you think that you're specking is now there to stay? And we shouldn't worry about who gets kicked off projects over time?
And a second question just on the inventories in to channels, is there a degree of expires for those that matter? Is that a variable that could help reducing inventories as 2023 progresses and inventories just expires because the shelf life is over? Thank you.
Yes, thank you very much. Really relevant and interesting questions. Addressing quite some detail mechanics of the market indeed. So we don't see that customers who have gone through the effort of establishing a dual or a second source would go back to a single source typically, so that we wouldn't see that doesn't mean that both sources are used to the same level. Again, there is not one answer, probably to the question in that regard, or in a quantitative manner. But qualitatively, one can say that nobody would really go back to a single source effectively.
On inventories and limited shelf life. Yes, you're absolutely right. Products, the products we are talking about here and when we are talking about vendors, indeed, we are talking about consumables, single use products, those are sterilized before use, and they are ready to use at customer. So they have been sterilized. That is one reason not the only one but one reason for limited shelf life. But we wouldn't expect the limited shelf life to play a major role for at which point in time, the inventory levels at customers are back to their desired levels. We, again, it's relevant aspect per se. But we don't think that this would play a major quantitative role.
The next question comes from Richard Vosser from JPMorgan.
Hi, thanks for taking my question. Joachim, way back in the end of ’21 you highlighted I think that you thought five percentage points of growth in ‘21. And I think an additional five percentage points of growth in ‘20 had come from maybe stocking up at customers, which could equate to a couple of 100 million of destocking. Is that what you're thinking about in terms of the total level of destocking through 2023? And also just a clarification, a lot of your peers are sort of suggesting that the destocking would only be coming from customers involved in COVID and other areas? Is it that COVID type customer that you're seeing that destocking. Is that way you're seeing it?
And then second question. Just I mean, sort of related, and I think you might have touched on it. But the order backlog that you have based on the delivery dates, you see, is that coming out in Q1 and Q2 or is some of that backlog deliveries in the second half as well?
And then final question, please. Just thinking about the M&A priorities in ‘23. Obviously, you mentioned 10 deals, they've been I suppose some of them are big, some of them small, where are you sitting in terms of deal size at the moment and areas like mRNA, et cetera. Thanks very much.
Yes, I think thanks for the questions. So, we think that maybe the best number to use to estimate the exceeding stock levels at customers is to take a look on the book-to-bill ratios that we have seen during ‘20 and ‘21. And I'm saying that absolutely being aware of the fact and also with wanting to ask everybody to take this always with a grain of salt, that the more you take a, let's say, a more narrow view on book-to-bill ratios like on a quarterly basis or so, I would not recommend to take those numbers for being too relevant, but on a longer time horizon, they make quite some sense. And for ‘20 and ‘21, the book-to-bill ratios have been approx. 1.25-1.28, whereas our usual level has been around 1.08, somewhere around that figure. So, we had two years, where the -- where we had 15 to 20 percentage points, higher order level than we usually would have had. Now, if we take that, and then deduct approximately EUR 500 million, for example, of COVID business in ‘21, and then the EUR 220 in ‘22, a bit already before in 2020, then you get a feeling for the exceeding orders that have been not directly related to COVID. business. So, and therefore, I would say, if you do the math, you come up with a higher three digit, million euros numbers of orders, that are rather representing exceeding stock levels. Has it that being just companies that have been involved in manufacturing, Corona vaccines? No, but clearly, they have played a role here, clearly. So some of those have been particularly been exposed to the need for ensuring their supply chains. And they've been particularly keen to do everything that was necessary to maintain that. So, therefore, I would say, we wouldn’t define the group of customers that have acted like that, as narrowly as maybe some others have experienced that. But clearly, those customers have played a particular role. And on M&A in ’23, I mean, I guess you understand that this is a question that I can almost not answer. What I can say is that we continue to be interested in adjacent additions to our portfolio, complementary additions. We believe that there are a number of highly interesting companies out there, maybe some won't be for sale, maybe some others might be open. What one can say is, it's also a very competitive landscape out there. So one thing is what we find interesting, the other thing is what might be then achievable and executable. So let's see. But clearly, we, I think, have a clear focus. We have a decent track record; we have reasonable financing power. So let's see what we will be able to achieve.
The next question comes from James Quigley from Morgan Stanley.
Hey. Thank you for taking my questions. And to circling back on the pricing impact and you mentioned in the middle last ’22 you had a high single digit price increase and then you had even you highlighted a mid-single digit price increase for start of this year. So can you just let us know what the pricing impact is on average throughout 2023, across BPS and LPS respectively. And then as we think about modeling in the BPS division with the 13% CAGR that you highlighted before as being sort of the historical CAGR above market growth, so would that be the best place to start and then making our adjustments for price and COVID and destocking.
Then on investment in intensity, you mentioned again that said CapEx is around about 12.5% of sales there abouts. Can you remind us how this should trend for the coming years? And where normalized level would be? And then as we think about the projects, you're investing in, you highlighted some on the slide, but where are the key areas that you are investing in across the sort of five portfolio areas that you mentioned in BPS and similarly in biometics as well. So which areas you are benefiting most from your investments?
And finally, on the order book, because, again, similar question as other quarters, have you seen any cancellations outside of normal course of business? Or outside of COVID orders? Thank you.
Yes, thank you very much. So on price increases, I think you're very well aware of the fact that we have to consider here before I mentioned the number that we had a price increase that was reflecting the substantially higher inflation rates around the mid of last year only. And then, of course, until this hits the sales revenue, it still takes some time, because you always have quite some order book that you're executing first, where orders have been put in at the previous price levels. So therefore, we would consider it there's not much difference between the two divisions, the effective price effect above the usual level of being lower single digit, because you have timing and so on and so forth. So, therefore, that was definitely, yes, as I said, a low single digit number. And for the year 2023 and I guess I said that before, we are introducing a pricing, round and price adjustment round, that is a bit lower than the one that we have adjusting, I think we have introduced -- been introducing last year. But of course, in turn, it will become effective for most of this year. So maybe the effect, then, including this time shift, again, will lead to a lower single digit effect above the 2022 price level, at the end of the year. And that will mean that overall, the pricing effect above the usual inflation rates will be in total, when they have been fully become fully effective, will be around 10%. And that's exactly mirrored in our ‘25 ambition, these 10%, they have become fully effective are mirrored in our ‘25 ambition.
And therefore, I'm not 100% sure whether we can help you to detail out your model here in this call, maybe there should be a separate call with our IR team later. But because by ‘25, and also towards the end of this year, we expect that all those temporary effects to have to come, to have fully phased out by then, be it stock levels and so on and so forth. So but again, maybe that's a separate call.
On CapEx, the 12.5% as we mentioned in the presentation. And you are asking for specific areas that we are focusing on. Well, I think as I said, we are very satisfied with the fact that we are growing pretty much across all product portfolio. And therefore, we are very much taken care of making sure that we remain having a high delivery ability across our portfolio to the benefit of our customers and that means that we are indeed expanding our capacities in and let me start with bio processing in separation technologies. Now I could go into more detail and say filtration and both and purification and indeed we are investing in both areas. We are investing into our fluid management technology capacities. We are investing into our cell culture media capacities including reagents to cell culture media and in the LPS division we are particularly of course investing into the fast-growing area of bio analytical instruments, respectively, the capacities that we have here. So the latter would be particularly the facility in Ann Arbor whereas before cell culture media one to highlight would be Yauco. But there's also one in Germany that we are expanding. Then when it comes to the food management domain, the first one to mention would be Aubagne in France, as I said for China, also Beijing, and then on separation technology I would particularly mention the one in Göttingen, but also the one in the Yauco again. So it's really across the board.
And then on your last question, order cancellations. Yes, I think as everyone else in the industry, we have also seen some at the lower double digit million-euro range, and that particularly in the fourth quarter, which as explained before, came in even a little bit lower than we thought as the vaccine manufacturing has been further been in decline across the board.
The next question is from Paul Knight from KeyBanc.
Thanks for your time, congratulations on the quarter, Joachim. The question I have is, are you seeing a heightened activity in mRNA in cell therapy, and antibody drug conjugate work? And if so, are you better positioned to capitalize off of those trends?
Yes, so I think maybe the answers would be a bit different when discussing the different modalities in more detail. But in general, I think and I guess that's -- that wouldn't surprise you. We are always taking a little bit longer, yes, perspective on longer time periods and one can clearly say that we are living in a different, completely different phase in the biopharmaceutical industry than 10 years ago is maybe too simple, but even five years ago, back then, it was just monoclonal antibodies you could say and of course they are still dominating the market. They are playing the most significant role and they are still growing. So it's very important to still have a relevant and also constantly a portfolio where innovation plays a role. Let's think of intensified manufacturing for instance, which is I think an interesting direction in manufacturing monoclonal antibody. So but you are asking for the new modalities and here we are seeing a lot of activities, of course, a lot of investments into new mRNA therapeutics also that has been kicked off since 2020.
And we have seen also a lot of activities and do see that still in cell and gene therapies. Of course, at the beginning when such markets are young, when only few products have made it to the market volatilities are extremely high. And therefore, an even in the maps market, we're seeing quite significant volatilities overall in demand when you think of the effect that has come from biosimilars way. Yes, so we are talking about a market where I would say, again, it's probably not recommendable to take too short term oriented look on things. And therefore, we wouldn't say, well, maybe it has been a little bit less demand for technologies in the cell and gene therapy domain during the last whatever, 12 months or so, because that can have it very often just is driven by one or two drugs that have made it to the market only. So it's early stage, though, in this market. But we believe it's a highly attractive, increasingly relevant market, it's a market for which we are offering relevant technologies. And where we have a very close look on and where our sales revenues have been growing quite a bit over the last couple of years.
Thank you. And then last, should COVID related business really be more in the latter half of 2023? Pretty slow in the beginning?
Yes. That is, I mean, I tend to say it's my first pandemic. So therefore, it's, let's see what exactly will happen. But we tend to say, well, there have been a large part of the population that has been getting vaccinated three times during 2021. Whereas a smaller part of the population has been vaccinated just once, during ‘22. And a very significant part of the population now already has been going through an infection on top of their vaccination status. So therefore, I would say the overall level of immunity in the population is completely different than it has been two years ago. And therefore, I wouldn't expect the, yes, let's say willingness, or the demand for such vaccinations to pick up again, I don't expect that. Of course, all this is very much depending on okay, will there be another variant that is more dangerous, so to say, but if that doesn't happen, we would rather stick to our view that we already applied more than a year ago when we said we expect sooner or later the corona vaccine business to rather become a very a rather small one. And part of that might become even part of the what we call flu vaccine business today. So that the net effect will be really rather small, and not really too relevant to talk about.
The next question is from Falko Friedrichs from Deutsche Bank.
Thanks very much. And thank you for sharing that the order intake would have been slightly positive if you execute COVID in ‘22. Could you by any chance also, tell us what the order intake would have been if you exclude COVID and exclude the destocking that you witnessed in 2022? Just trying to get a feel for the very true underlying trends in ’22?
And then my second question is whether there's anything that stands out when thinking about growth in China in 2023. Thank you.
So on the -- so the first question, I'm sorry, that really would become a little bit too granular for the public communication here. But what I can say is because as you are asking for order intake, there hasn't been, as you would expect, as you know, the demand, or the manufacturing of vaccine has been slowing down substantially during this year, and there have been a lot of orders been placed before 2022. So you can imagine there hasn't been much order intake for that during ‘22 and for stocking. Maybe as a reminder, we have seen the stocking playing a role in our order intake, particularly in the five quarters, Q3 2020 through to Q3, ‘21. So ‘22, again, hasn't been seeing much of that, if at all, I would say pretty much nothing on the order level, and you were asking for orders. So I hope that helps, even though we wouldn't make an explicit calculation for that.
So, and on China, and I guess you ask for China ‘23. So, as maybe for the entire business for different reasons. We expect growth in China to be maybe a bit slower at the beginning of the year. I think it's very obvious that maybe first the wave of Corona infections has to has to come down again, in China, I think as it has been a quite intense one, obviously or still is an intense one there on the positive side hopes that we will see the tail of that wave already during Q1, but there should be and will be an impact in Q1. Overall, we are absolutely not pessimistic for China for ‘23. We expect 23 to be a decent year. Again, we usually are seeing healthy double digit growth rates in China, that is what we are expecting for ‘23 again, as well, but again, not in a linear manner.
The next question comes from Delphine Le Louët from Société Générale.
Yes, hello. Hi, good afternoon, everyone. Follow up on many points. And so you talk about China. But I think it's very much of interest for why everybody to know, what sort of size in terms of business we can achieve in China with ramp up in terms of manufacturing. So if you can give us any idea or any comparison in terms of business, for any country would be very much interesting.
Other question regarding the business development at BPS. So when we consider your guidance for this year for ’23, exclusively mid to high single digit, I was very much interested in knowing what all your underlying assumption, let's say on the client category, meaning that what does that mean for your let's say, traditional long-term contract versus the one off or the short term you may have? Due to the research, due to the biotech, due to any specificity on the cell and gene? So can we have just a flavor of your assumption? Are you still having a number for the small category one off time? Or you've already plugged everything into this? I'd say continue on with long term contracts. Many thanks.
Yes, sure. So on China, we are running currently around 11% of all global business that we make in China overall for the Sartorius Group. And we expect that ratio to slowly but steadily increase, I mean, slowly, simply because saturation doesn't move that quickly. But we usually are growing a bit stronger in China than globally. Mostly because simply the market is growing very strongly. Now, of course, one could say, well, in how far will that probably change in the course of global economic tensions, I think that's pretty much impossible to factor in a decent way. So far, we do not see any significant limitations to doing business in China, we also don't see US based companies to changing their ambitious approach towards making business in China. So therefore, consider that maybe to be a disclaimer, so around 11%, at the moment, and then that should further grow a bit, maybe to again confirm, we are not manufacturing products in China for the rest of the world with one smaller exception, where we are also making sure that we are narrowing that at other places. We never shifted manufacturing towards China. So and therefore, whenever we have built up manufacturing China, and that holds true for more than two decades now already, this was China for China. And that is what we are still doing. But of course, we are still important, quite a lot into China. And even before the more apparent economic tensions that we're seeing now. We were working based on the assumption that sooner or later, also, in our industry, policymakers would ask for a higher local content. So we believe that over time, we have to make sure that we are maybe producing even more in China for China than we are doing today, because our scope of what we're manufacturing there is a bit limited. But again, no limitation for us to making business there currently.
I guess you were asking for quite a high level of granularity regarding our BPS growth assumption. And I'm really sorry, but that level of detail, we for sure cannot share publicly, in principle, and I think I said that before when you accept now for single quarters and other short periods of time and take a little bit of broader look then we expect the market segment of new modalities to rather grow faster than the one for monoclonal antibodies. And therefore, also our business that serves those different market segments should grow a bit faster. But and maybe then conceptually, what I can say when we are building such or when we are building our budget, which is the basis for our guidance, then, of course, we are taking quite a detailed look into those different market segments. But, yes, again, it's, I think you understand that we cannot share that publicly.
The next question comes from Sezgi Özener from HSBC.
Hi, thanks for the presentation and some excellent good results. I have three please. First of all, in CapEx last year, early in the year you had a -- for 40% CapEx. You ended the year with 13% and 12.5% and -- outlook, so I was wondering each and one of the three acquisitions you did throughout ‘22. Did you submit for support and -- as well position -- that was coming to an end of the vaccine demand.
Secondly, in biosimilars, how do you see your competitive position there? Do you think that the market share you gain throughout the pandemic can also utilize, and gaining more market share in biosimilars business? Then how do you see your positioning there? And lastly, the -- business in did not -- in your outlook for 2023 mid to high six quarter growth versus high single digit COVID growth in Sartorius. So maybe if you could elaborate on that -- business and how we should see the impact also going forward?
So I have to say the line was incredibly bad. I don’t know whether anybody else in the call got more than 10% of your question but we didn’t. I have to say it's extremely difficult to answer that we think we heard something like why our guidance excluded COVID business is a bit different between BPS and SSB. I thought I heard the word bioanalytics. But don't quote whether there was a question around that. I really have to admit it. The only one that I can answer is that the reason why we say mid to high single digit for SSB in comparison to high single digit both excluding COVID for BPS is it's basically, it's a very minor difference, of course, as you can imagine, but yet, it's a slight difference. And the reason is that the SSB Group is supplying some products to the LPS division of Sartorius AG. And mainly we're talking about OEM membranes, membranes that have been, or are used in the diagnostic test kits in various applications. And one of those has been and still is, of course, for example, food tests, but also Corona tests. And that has been the reason as this played a role, I will let's play a role into 2023. This dilutes a bit to grow. But maybe you can repeat. And I can only hope that the line is a little bit better. Maybe you can repeat. May ask, speaking slowly repeat one or the other of your further questions.
Okay, I hope you can hear me better now. The first question you answered was perfectly the right question. So I just wanted to ask about CapEx. Earlier in 2022, you have guided for 14% CapEx. Now it's 12.5% actual ‘22 and ‘23 guidance. So I was wondering if one of the three acquisitions you made, removed or reduced the need on CapEx on that side. And the last one was on your positioning in biosimilars. Now that COVID vaccine demand is going to be what it looks like, it's going to be less and biosimilars demand probably more so, how they see your positioning there.
Yes, thank you very much for repeating the questions, I think, now it was much better. So, CapEx is a bit higher, partially because we are expanding capacities also at sites that we have acquired, like we are expanding or our capacities at cell genic for instance, we will expand our capacities or are started basically to expand our capacities at cell and then going forward is not yet part of that. Expanding our capacities in Albumedix, so those acquisitions would not dilute our CapEx overall, the reason why it has been a little bit lower than we initially thought in 2022 has basically our timing effects. It's, but we didn't stop or whatever any of our activities there. We were rather taking a mindful look on when exactly we would need certain capacities. Because we need them mid-term guidance and mid-term demands unchanged. But now as we really, as soon as we saw that the expected normalization really kicked in, we looked where we could relax our timelines a little bit. So that was basically the background there.
And on biosimilars absolutely right, our biosimilars are a driver of or a component of our growth. Overall, we would say also an area where we rather have been gaining market share or through which we have been gaining market share as we typically have a larger share in the manufacturing of biosimilars than in some of the original products. I think it's maybe less of a dynamic driver than it has been. That always depends a little bit on the number of products or patent expirations. But, yes, overall it's a relevant part of the market and one where I think we would play a decent role.
The next question is from Naresh Chouhan from Intron.
Hi, there. And thanks for taking my questions. In the past, you've spoken about some of your customers are being able to get insight into the inventory levels at some of your customers. Where you have that insight? Can you see how much inventory they have left till they get back to the current normalized levels? And secondly, sorry that’s on BPS, and again on in terms of supply coming on stream in BPS is obviously lots coming on in the next 12 to 24 months. I am just trying to understand if you, where you see utilization at these plants, and whether it can stay as high as it was in 2022, this year, and then next year, and what that impact that might have on kind of margins, you have to say transcend utilization levels as these new expansion projects come on stream. Thank you.
Yes, thank you very much for these two questions. So indeed, exactly, as you said that insight into inventory levels is in general limited, but of course, it's different from customer to customers. And at some we have some more information, some more detailed insight and those and this insight that we have very much back the view that we have been expressing before here in this call, when we said that we probably would expect the first two quarters to be quite impacted by the rundown of the high inventory levels of customers, whereas maybe in the second half of the year, we should be seeing them in more than typical pattern there. So yes, again, that's, where we have more insight, we would project, yes, these timelines roughly.
On the capacities that have become or will become online in this space. I think I guess what you are indicating here is that maybe the capacity utilization will be not that high at the beginning. That's right. For us, as a supplier into such processes, that's not necessarily a big topic, what we probably will see indeed that other than we have been seeing during the last few quarters that as you would expect that the demand for systems and instruments et cetera has been rather high because those are not subject to inventory or stocking that we might see maybe a little bit more, yes, let's say kind of uniform demand for both systems and consumers. I'm talking order intake, orders, right, for sales revenue, then everything is a little bit more flattened out anyway. So maybe that is what I would expect. But in general, I wouldn't say that we see a particular unusual situation in the industry. You will always have certain fluctuations of capacity utilizations and then very often capacity utilization are high, a lot of investments are started and then of course logically this reduces the average capacity utilization significantly and then you will see less in new capacities being triggered. So I would see as quiet in a normal cycle here and would not have like any additional caveats to our expectations here.
We have a follow on from Matthew Weston.
Thank you very much and, Joachim, thanks for your patience with the follow on. It's just a quick question about client inventory at COVID manufacturers. And I'm just curious if I ordered a great deal of Sartorius inventory for mRNA manufacture. And subsequently, I realized I didn't need it. But I was a buyer manufacturer who did make many other things that you Sartorius products would you entertain it if I came to you and said, would you have it back? And I will swap it for stuff that I need for everything else? Or that inventory sits with the customer? And there is nothing that you will do about it
Yes, thanks for that question. I think it's a question that quite logically comes to one's mind. And I know that, that there have been some comments made by other players in the industry, the quarters before that somehow, I think left the impression that this was quite a usual whatever behavior and kind of negotiation or so. But I wouldn't see that very much. And the reason is the following, a very significant portion of vaccine manufacturing have been made by CD, it was CMOS. And there are, for those products that are standard products. They can typically use them also, indeed, in other processes. I think that was a comment that was made before, as I just said, by other players, that we would also see where the products are custom made for that very process. There is no point that we could take them back. So both ways, it's rather not a scenario where we are taking back products.
That was our last question. And I hand back to Dr. Kreuzburg for closing comments.
Yes, once again, thanks everyone, for participating in this call and your continued interest in Sartorius and Sartorius Stedim Biotech. We appreciate that a lot. I think I just close the call by saying that we are looking forward to be in touch when we will publish our Q1 figures in roughly 12 or 13 weeks from now. Take care. All the very best for everyone. Bye-bye.
Bye, everybody.
Ladies and gentlemen, the conference is now concluded. And you may disconnect your telephone. Thank you very much for joining. And have a pleasant evening. Goodbye.