Good day, and welcome to the Sartorius and Sartorius Stratum Biotech Conference Call on the First Half twenty twenty one Results. This conference is being recorded. At this time, I would like to turn the conference over to Doctor. Joachim Kreuzberg's CEO. Please go ahead, sir.
Thank you very much, and good day, everybody, from Sartorius. I'm here together with Rainer Lehmann, our CFO, and we would like to talk about the half year's results of Sartorius and Sartorius Stedium Biotech has just announced. As always, I would like to kick it off with mentioning a couple of highlights that we see being the most important developments during the 1st 6 months of this year. Then Rainer will talk take over and talk about the financial results in more detail. And then I will continue with the outlook for the full year and the SSB results.
So we have been achieving 60% top line growth during the 1st 6 months. Of this, 22 percentage points are corona related. We will give you more details about this number for the 2 divisions. So Rainer will do that in a minute. 8 percentage points have been nonorganic.
Again, we will give you more details for the 2 divisions, and we will give you also the number of the corona related impact on the order intake, which has been a little bit higher than the 22% even. Both divisions have achieved very dynamic organic growth, a bit above our expectations for different reasons. Again, we'll talk about that in more detail. We have seen a very healthy expansion of the margin of the margins of both divisions and then, of course, also for the group. Clearly, we have to consider the relatively moderate comps for first half of last year.
But however, we also have seen a couple of, let's say, overemphasized economies of scale, again, because of the under proportionate increase of our cost base. Talk about that also in a little bit more detail. Our accelerated capacity expansions, particularly relevant for the BPS business, are very well on track overall. We also have announced an acquisition that we closed 3 weeks ago. We'll refer to that also a little bit more.
It's in the space of cell culture reagents, so very much of a very innovative company, though. And we have raised the outlook for the full year also earlier this month. And of course, we will talk about it in more detail also in a minute. Feiner?
Thanks, Joachim. And also welcome, everybody, to our call today. So as always, we'll start with revenue. Growth, basically pretty impressive H1, plus 60% constant currencies, amounted ultimately to €1,600,000,000 in revenues out of that. The unorganic, so contributions by acquisitions was around 8 percentage points.
And the impact of the corona that we have been disclosing so far has been 22 percentage points. So very, very happy with that performance overall. Order intake increased even higher in constant currencies around 82%, which attributed then to €2,170,000,000 And if we look at that spread that we always point out between order intake and sales revenue, that one has now actually increased to over EUR 500,000,000 So let's keep in mind that when we're really analyzing our figures making extrapolations that this is quite some significant, let's say, buffer or spread that we I'm sure we're going to talk about in the Q and A session afterwards. Of course, the strong growth in revenues and what Joachim also just mentioned, the under proportionate cost development, led to an EBITDA of EUR 555,000,000 That's a margin increase of 6.3 percentage points to 34.1%. So let's keep in mind and I'm actually going to elaborate a little bit more in detail also what are the levers that actually contributed to that.
Underlying EPS for the ordinary shares increased by roughly 109% to €3.79 And as always, the press was €0.01 more to €3.80 respective increase also 108%. If we look on the next slide, basically, we included here since we have been talking over the last quarters over regarding the under proportionate cost development, we decided also to show you a little bit the details and figures behind it, what this means and how actually this translates here. On the left side, you see our 60% revenue growth for H1 in constant currencies. And I actually see underneath it our group headcount growth in the same period compared to the 1st 6 months of 2020, and that increased by 23%. We basically employed in H1 net 13 50 new employees.
So we're roughly now 12,000 employees. But you can clearly see that the allocation to the different functions is quite different. If we look, we mainly and that is what we always attribute also or commented on, is due to the expansion of production capacity, of course, the headcount on our operations also increased even higher than our average, so in 28%. So that's really the majority of the newly employed folks that joined us are actually in the production side. And then we see here that in the sales and marketing, which is, of course, after the production, the next biggest function and also expense bucket in our P and L, we have an under proportionate buildup of the workforce compared to the sales growth with only 13%.
And Joachim is going to comment later on the guidance, but this development is expected really to subside in the second half of the year. And one interesting data point is also if you go on our website and actually look under career opportunities, we have 1100 open positions currently. Out of that actually, 80% are non operations. So there you can actually see what is basically going to happen also in the subsequent months and going forward. So that's a little quantification of why we are now talking for a few quarters actually in regard of an, let's say, call artificial economies of scale because this is not a sustainable development.
We really need to build up the functional what are the functions, sales and market product development, but also to a certain, of course, extent, of course, the support functions in order to manage the growth and to make sure that this is a sustainable situation. So therefore, we are expecting an increase of our cost base for H2. If we now then come to the next slide, basically, we have our regional development, as you can see, really growing more than 50% across all regions. Let's start on the left. Americas, 52%, very solid performance on Bioprocess.
LTS really fueled here with the acquisition. Remember, keep in mind, May 1, we closed the acquisition of the life science assets of the Danaher Group. So there, the octet is doing really well, we have to say. And that, of course, gives us a little bit of or has a very good performance on that region, and truly ultimately to €519,000,000 for the 1st 6 months. In EMEA, growing by almost 64 percent to €682,000,000 Here, actually, we're going to see it a bit later when we dive into the divisions.
The demand for from the vaccine manufacturers quite strong. Really, that's a little bit why we see also a higher growth in EMEA than compared to Americas where we usually see the strong growth rates as well. And nevertheless also considerable sales growth still on the LPS side. And in Asia Pacific, I have to say both divisions doing very well. We'll talk about a bit later in the next slide.
LPS, very happy there. We really have
to talk also
or call it a strong recovery because let's keep in mind that the 1st 6 months specifically for LPS in Asia and there specifically also in China was tough last year with the shutdown coming out of the New Year and then, of course, with the really strong lockdown measures that were put in place and which, yes, put pretty much a halt there on the growth for LPS in that area. Regional distribution, slightly skewed a little bit, but nothing major, a little bit 2 percentage points more in EMEA, a little percentage point less than Asia Pacific compared to year end. But this is really mainly due to the demand of the vaccine manufacturers that we have seen on the BPS side. If we look into the detail on the BPS on the next slide, really very dynamic growth. Let's start on the left hand side with the order intake.
In constant currency, 91%.
That is, of course,
quite a number we have not never seen so far. So orders amounted after 6 months the intake to EUR 1,800,000,000. There of the corona impact 31 percentage points, the contribution from the acquisitions around 10 percentage points and which leaves the rest, let's so call it, organic. But of course, we know that there is here also a change in ordering patterns from our customers. Call it maybe a little bit of stocking, call it maybe a little bit of, hey, what I can get into my supplier right now, I will place.
We'll see how this will play out going forward and towards the end of the year. When we look on the right hand, the sales revenue basically increased by 62.5 percent to EUR 1,260,000,000. And here actually visually, you can really see the quite over proportional increase of the order intake. If you look at the yellow chart compared from the order intake or yellow bar from the order intake to the sales revenue, you see really the EUR 550,000,000 spread. And if you look at the gray bar in both charts, you see that the spread was quite different in H1 of 2020.
The sales revenue in EMEA, I pointed out, is really the strongest growth. There we grew by 74 percent. Americas is still a very good performance. And I think we're getting a bit we shouldn't get used to those growth rates because they are quite high. But in Americas, we increased it by 45%.
Sounds low compared to the 74% in EMEA and Asia Pacific than 70%, but of course, all on a very healthy level and really reflects also the increased demand specifically in Europe by the vaccine manufacturers that we experienced over the 1st 6 months. Of course, all of this revenue growth and combined with the still under proportionate cost development that I just outlined before in the slides, we see quite a steep increase compared to previous year in our margin by from €247,000,000 to 4 €60,000,000 It's an increase of 86% and a margin increase from 30.5% to the 36.3%.
If you
look at the development on the LPS side, on the next slide, We really see here very strong performance, but also against soft prior year comps. Let's keep that in mind as well. Let me start actually here in the middle where this with the sales revenue, 52% growth in constant currencies. They are off from acquisitions around 14 percentage points. The impact from the corona related activities, which is theory or diagnostic membranes and also some liquid handling products around 9 percentage points, which leaves us with a real healthy organic growth of 29 percentage points.
Of course, the growth then attributed to EUR362,700,000 in H1. If we look there on the regional split, we really see what I mentioned before that EMEA basically got 33% revenue increase. In the Americas, we saw here an increase of 82%. Again, let's keep in mind, of course, a strong performance of the acquired business and specifically the Octet business that from Danaher that fueled that growth. Asia Pacific, we looked at basically growth rates of 52%.
If you look at on the left hand side, we see order intake, roughly 50% growth to EUR 375,000,000 in constant currencies to growth rate. M and A or the inorganic contribution was 11 percentage points here. The corona impact was 9 percentage points, at least on the organic side, around 30 percentage points. Here, again, we see that also in the distribution when you compare order intake to sales revenue, we do not see as always this big spread between order intake. Here really that has to do also, of course, as you know, with the sales cycle, it's a lot quicker.
And therefore, order intake and sales revenue pretty much behave in a fairly consistent manner. The distribution on the order intake, therefore, to be honest, also the same as on the revenue side when it comes to the regions. Also in LPS and then clearly also driven by the product mix and the good performance of our Biolytics portfolio, we see a significant increase in the margin compared to last year at this point in time from CHF 46,000,000 to CHF 95,100,000. So we doubled it at the end of the day and with an increase or would end up at an EBITDA margin of 26.2%. But again, let's also keep you in mind that we have an under proportionate cost development.
If we
go to the next slide. As usual, talk about I want to talk about a little bit some key financial figures, driven really by the higher earnings with a fantastic operating cash flow that you see basically in the middle of that chart, increased by 104 percent to €440,000,000 And I have to say that growth actually that really the increase of the working capital or our factoring activities really did not have a significant impact onto the growth. So this is really truly earnings driven. Extraordinary items, and I'm jumping back onto the top here, decreased to roughly €11,000,000 really related, of course, to our usual M and A or basically integration activities as well as some corporate driven projects. And what I want to point out here in the next line is the financial result.
Just as a reminder, as I pointed also out at year end, but also at the Q1, we have here an increase a substantial increase that is mainly related to the valuation of the earnout liability with the acquisition of BS separations that we did at the end of last year. This effect is roughly €35,000,000 Let's also keep in mind this is not tax relevant. So therefore, when you do your calculations regarding tax rate, we're still at our anticipated tax rate of 30% without that impact. The underlying net profit, you see the figures there increased by 108% to almost EUR 260,000,000 and they ultimately reported net profit available to our shareholders amounting to €189,800,000 an increase by 138% almost. CapEx ratio for the 1st 6 months is at 9%, slight increase over last year, 0.5 percentage point.
As Joachim pointed out, expansion is well underway. Of course, we're making sure that everything is made possible to really get the
let's say, get
the money spent. I don't want to really say that, but it's to make sure that the expansions are being fulfilled. We're going to see also, at least my expectations, also a little increase in the second half of the year in regards to our investing or in our CapEx activities. If we look on the next slide, there are again few financial indicators. Equity ratio increased slightly to 31.3% despite an increase of our balance sheet sum of roughly €500,000,000 So of course, you see the strong earnings build up our strong equity position, very happy with that.
And then net debt decreased basically to SEK 1,700,000,000 from SEK 1,900,000,000 compared to year end, which then leads to our financial indebtedness or net debt divided by underlying EBITDA of €1,800,000,000 You clearly see on the right hand side in that chart also the trend downwards over the last three quarters. So we're able to really use the strong cash flow also to decrease our net debt. And of course, paired with the increase in our EBITDA, the indebtedness is as a significant lower level than a few quarters ago. And with that, I'm going to hand over back to Joachim, who's going to talk a little bit about our most recent acquisition, Celgenics.
Yes. Thank you, Rainer. We have announced the acquisition of Celgenics almost 3 weeks ago when we closed that transaction. The company has been founded 1994, as you can read from this chart. The business was a little bit more than €20,000,000 in 2020.
It's a highly profitable business, so its profitability is now above the average of the Sartorius Group even. The main business is in cytokines and growth factors, so important components of cell culture media. Celgenex is very much specialized on producing such reagents or components at GMP grade and is very much specialized also on such components that are used in advanced therapies, so cell and gene therapies in particular. It's therefore a perfect fit to our strategy on one hand, but also it's a pretty much a bolt on but very innovative acquisition at the same time to our Cell Culture Media business that we are building up. The transaction volume is €100,000,000 for the 51% stake that we have acquired now.
We will acquire the remaining shares in 2 years 5 years from now. And but nevertheless, of course, as you can imagine, we are starting the integration and make this an integral part of our portfolio right away. With that, I would like to move forward to talking about the outlook that we have increased 2 weeks ago roughly for the full year 2021. And before I walk you through the numbers, I definitely would like to underline that still the uncertainties are remain to be higher than they usually are in our business. Of course, to some extent, we still have this inherent high visibility within our business, but there are a couple of more moving pieces at the moment, be it the additional business with the producers of corona vaccines, but also maybe the different ordering pattern and the respective different maybe behavior and ordering policies by our customers on the other hand.
So we are guiding now for Bioprocess Solutions a top line growth of 50% and an underlying EBITDA margin of 36%. We believe that the composition of the top line growth should be 4 percentage points from acquisitions and approximately 20 percentage points from corona demand. The latter is up a little bit from our previous guidance, which has been 18%, whereas the contribution from acquisitions is a bit lower, 4 percentage points after 6 percentage points before. The reason for that is not that these businesses are not developing in a positive way. The opposite is the case.
We are very satisfied with their performance. But we do see that a larger part than we initially thought of the realization as sales revenues of these businesses overall will be after May this year. So a part we are seeing, have seen already, but a big chunk will be or the bigger chunk will be in the second half of the year. And from May onwards, we don't account the acquisition of the businesses from Danaher any longer to be nonorganics because we always do that for precisely 12 months only. So that's the background for this, the overall performance again.
And the overall contribution within the business year 20 21 didn't change. For LPS, we are expecting 30% top line growth. So just as for Bioprocess, also here an upward shift by 10 percentage points and an underlying EBITDA margin of 26%, also here 2 percentage points up just as for BPS. The composition of the top line increase, we expect now to be 6 percentage points nonorganic, 5 percentage points corona related, the latter unchanged. The acquisition related, an increase because here, we have seen a very nice development of the Oktit business since the beginning of this year.
We actually also have seen that during the end of last year. But nevertheless, here, we don't see any shift in the timing or so. And therefore, this is 6%. Overall, for the group, that adds up to 45% top line and 34% underlying EBITDA margin. The increase of the EBITDA margin is very much due to the stronger top line.
The overall increase in comparison to last year is, of course, related because of the effect that we largely have FCNO in the first half of the year. We will not have that much playing a role in the second half of the year. Rainer explained that in detail, which is the time gap pretty much in regards to the evolution of our cost base in comparison to the top line development. So and then last but not least, 2 comments on CapEx and indebtedness rate. CapEx ratio, we expect now to be around 12%, which is 2 percentage points lower than we expected it so far, but this is completely due to the increase of our sales guidance in comparison to how we kicked off into the year.
We didn't change that number when we increased our guidance a bit after 3 months because here, it was more a matter of rounding than anything else. And therefore, we now see this change by 2 percentage points after pretty much two increases of the guidance. And then for net debt to underlying EBITDA, we now expect this to come in slightly below 2.0. This so a bit below what we thought so far, and this is without any additional acquisitions. This is always the assumption that we take here as the basis.
Let me now walk you briefly through the SSB results for the 1st 6 months. Again, of course, mostly in parallel with what you have seen for BPS, some minor differences because of those businesses that are part of the SSB business but not being sold through BPS but through LPS. Increase of our sales revenue is 61% and of order intake, 87.5%, both numbers in constant currencies. Over proportionate translation into EBITDA also here, up by almost 86%, reaching €487,400,000 Also here, you see a substantially higher order intake than sales revenue. I think you have heard a number of explanations on that before.
We do see a significant increase of our underlying EBITDA margin, almost 6 percentage points up and also an over proportionate increase of our underlying earnings per share reaching €3.49 for the 1st 6 months. The different factors, I think we have talked about already, and I think I won't repeat that so that we have more time for Q and A. From a geographical standpoint, I believe you have also heard already a couple of comments. EMEA, particularly strong because here, there is an over proportionate part of the vaccine manufacturing taking place. That's one factor.
And also, the chromatography business that we acquired last year has a bit of stronger footprint in Europe. However, we are pretty much satisfied with the balance of our geographical growth and the differences between the growth in Americas and EMEA doesn't represent any, let's say, operational difference in performance. Operating cash flow pretty much also comes with the same comments and, let's say, orders of magnitude that you have seen before. Extraordinary items significantly lower than a year ago, financial results impacted by what has been mentioned before. So therefore, strong operating cash flow, well above our investing cash flow, which is developing in sync with what you have seen for the group as the majority of our capacity expansions are taking place within the scope of the BPS division or the SSB subgroup.
Therefore, the financial indicators remain indeed on a very solid level, as shown here. We have been able to reduce our net debt to underlying EBITDA quite a bit during the 1st 6 months of this year. Our equity ratio also very healthy, I believe. That's quite obvious. And then the outlook for 2021 is also very much in sync with what I just was talking about when presenting the BPS numbers for you.
We expect the top line growth to be 10 percentage points higher than so far and to be 48%. The underlying EBITDA margin, we also expect around 36%, which is, in this case, 3 percentage points up, which is pretty much a question of rounding in comparison to BPS. You know that there are always certain differences, small differences, not always the same differences from year to year. That very much depends on the product mix of the business within SSB that is not going through the BPS division. So these are this is pretty much the background, not very exciting probably, but nevertheless, maybe worth mentioning it that explains that.
Composition of growth, again, slightly changed because of the reasons that I was talking about, particularly regarding M and A. And the CapEx ratio, again, for the same reason as set for the group, below what we expected so far but at the same absolute figure. Net debt to underlying EBITDA, we obviously now expect to come in a little bit lower than we thought so far. So with that, I would like to open the line for Q and A. Thank you.
First question is from the line of Patrick Wood from Bank of America. Please go ahead.
Thank you very much. I have three questions, please. The first one, I'm just curious how you guys are thinking about the implications for Alzheimer's therapeutics. I get that it's a controversial class, but for Alzheimer's from industry demand, whether it's single use or stainless steel, however you think we should think about that? So that's the first question.
On the second question, just curious, do you think there's any impact from the slightly more potentially stringent regulatory landscape in China on biological drugs, Again, given the fairly higher use of single use there, just curious if you think the regulatory changes have any impact? And then the last one, I guess, appreciate you don't want to guide into 2022 now. But if you're in our shoes, you guys have said you're obviously putting a lot more OpEx back in the business, 1100 jobs
is a
lot of jobs. It seems like you're positioning yourselves from a CapEx and an OpEx place for strong growth going forward and including in 2022. Is that the right way to think about it? How should we think about the phasing as we move going forward?
Yes. Thank you for the three questions. So yes, absolutely correct that maybe parts of the manufacturing for the Alzheimer's medicine will be realized in stainless steel or is partially already realized in stainless steel. However, there is substantial single use business. Nevertheless, there is maybe as a little bit as a reminder probably, when you think about filtration and also purification, you always talk about a very significant single use component anyway, even in case of running single stainless steel bioreactors, for example.
And even when somebody uses single use bioreactors, he would need cell culture media and other products around that. So and what maybe should be added then that very often the, let's say, the liquid the fluid management around the BioReactor can be mixing of cell culture media, etcetera, is realized in single use technologies as well. So I always would recommend to put this into perspective if because this is very often like the very visible heart of a process to some extent when somebody says, oh, it's realized in stainless steel. That doesn't mean that there is no business opportunity and attractive business opportunity for us and other suppliers of single use technology. So therefore, this is nothing that we would see as a whatever, something that dilutes our growth perspective at all.
Secondly, on your second question, this China market, we believe, will be a very interesting and attractive one going forward. There are multiple trends, I believe, that play a role in China. We wouldn't say that or we don't expect today that there will be a regulatory framework that reduces the utilization of or the opportunity also for single use technologies again, if I got your question right. But of course, we are seeing a raw or when it comes to stainless steel components, then of course, you would find more Chinese local Chinese companies that are able to provide certain of such components then this is the case in single use technology. So there is clearly, as in other industries as well, maybe a slightly different overall situation in the Chinese market than in some other markets globally.
But overall, we do not see any significantly changed regulatory or anyhow competitive environment in China at this point in time. But again, definitely, as we always have said, China is a market where that we are putting a lot of effort into to develop that also further for us. And this market will tick slightly differently than others do, but that is has been expected for a long time. On 2022 and our CapEx and OpEx related activities and then your related question whether we do expect strong growth for 2022. Indeed, too early to even give a halfway significant qualitative answer to that question.
But what I can say is that pretty much all our CapEx and also OpEx is more related to our midterm growth expectations than anything else. I think that's quite maybe quite a natural and normal thing when you talk about CapEx. But even for OpEx, this is the case because in our business, whatever you do also in front of a customer will pay off only after maybe 2 years or so. So if we have more feet on the ground, more customer facing people, they will generate business that we will see in our books 2 years later on average. So therefore, the hirings that will take place now in the second half of this year are not directly linked to our expectation in 2022.
Very clear. Thank you for taking the questions.
Next question is from the line of Michael Boysen from UBS. Please go ahead.
Thank you very much. Three questions from me. I was just wondering if I could go back to the CapEx question slightly differently. Looking at your full year guidance for this year, it seems to me you're, roughly speaking, assuming sequentially not a lot of incremental revenue step ups in Q3 and Q4 or what you just reported in Q2. Is that linked to the CapEx phasing and will debottleneck as we go into 2022?
Or is that the best you can do with the existing program and there needs to be more CapEx to service the order book sorry, the order intake growth that we're seeing? So same theme, but maybe slightly different question. The second question is on your helpful slide on the employees. Is there a way of explaining how you think about the employees you need to support the revenues? Is there like a percentage of revenues?
Is there a way to say, okay, if you want to sustain a certain trajectory, there is a framework to think about? Or is it just you flagging, look, we have to hire people and just be careful because there is OpEx pull through, but we can't quantify it? And my third question is just the order intake behavior here. We've seen a step down over Q1 that's come down sequentially. Is that a reflection of the inventory behavior changing already?
Do you expect that to normalize further into Q3? Or do you think or is that too early to say?
Yes. Thank you also for these questions. So on CapEx and in how far our buildup of capacity and the phasing of those capacities coming online relates to what we project for H2 versus H1. So indeed, most of what we are investing into at the moment in regarding capacities won't make much of a difference in the second half of the year. For example, the additional membrane casting capacities or also our cell culture media manufacturing capacities won't be available in the course of this year.
So therefore, there again is not such a strong link. A second aspect is indeed that it's not only about our own capacities. It's also a bit about the capacities within our supply chain. We believe that we are performing very well. We receive a lot of positive feedback from our customers in that regard.
But it's anything else but a walk in the park. It's really a lot of effort to keep supply chains being very reactive and also the to make sure that all the components are available that are needed. We are talking about quite a bandwidth of products that we are offering to our customers with an even larger bandwidth of components and certain services. Think of sterilization services, for example. And all this is sometimes really a certain challenge or you could even say a certain bottleneck in a situation of such a tremendous growth rate that we are seeing at the moment.
So therefore, there is not a one to one link again between our own CapEx and capacities additional capacities coming online and what we are expecting for the second half of the year. Headcount, I understand that you are asking for whether we are having even maybe too few people to support the revenue level that we have at the moment. I wouldn't say that. It's more that we really are I mean, you know our midterm plan, which means that we want to achieve €5,000,000,000 of sales revenue. That's substantially more than what we have today.
And even then, of course, we don't expect that to be a steady state, but still a state within a or in a like a milestone on a significant growth path. So that means we have to continuously make sure that we have sufficient people to support our revenue growth. And for that, we definitely have to continue adding people. Order intake, Q2 versus Q1, you're absolutely right. Number is a little bit lower than for Q1.
And Q1, it was extremely high. So therefore, we consider the order intake in Q2 to be very healthy and indeed too early to tell whether that already speaks or stands for a certain trend regarding the inventory management of our customers. It's unfortunately always a little bit difficult to tell. I would think that the question of some or normalization of ordering pattern, inventory levels within the entire value chain of our customers will take probably more than a year from now. I would imagine that for a few more times, we will talk about that in our quarterly calls, But it's really difficult to say as of now how that exactly will look like, but be sure we will share whatever insight we will get in the meantime with you.
Next question is from the line of Paul R. Knight from KeyBanc Capital Markets. Please go ahead.
The contract manufacturing companies seem to be tripling revenue. Can you sense where that capacity is targeting? Is a lot of it COVID still or is it mostly in the traditional biologics market? And then secondly, are you seeing customers increase capacity for cell therapy and mRNA in the new modalities that seem to be emerging, but are they significant yet? Thank you.
Yes.
I mean, absolutely right. CDMOs are very busy, and all CDMO capacities are very much sought after. So they are typically growing substantially. I wouldn't say that on average, they are tripling their business, but for sure also seeing very significant growth. Quite a significant number indeed involved one way or the other in the manufacturing of corona vaccines at different stages, some only fill and finish, some for much more, maybe, let's say, I would now say, more relevant pieces of the value chain, be it upstream, be it downstream.
So there is not the one clear pattern. When you see the manufacturing network that Pfizer BioNTech are running or also the one that Moderna has built up, maybe it's not that a broad network, but still a significant one and still expanding, then I would say, for sure, that has driven a lot of what CDMOs are facing at the moment. But I think the trend that we have seen before that CDMOs are getting involved even more often and are benefiting over proportionately from also the increase of business with or the growing demand for monoclonal antibodies, I think that's not that hasn't changed. So that's still an underlying trend. And then, of course, exactly as you are asking for in your second question, cell therapies, mRNA, etcetera, are then, yes, new modalities where also different types of customers are building up capacities.
We do see specialized CDMOs that are building up capacities for that. But of course, we are also seeing originators that are doing that. We are seeing originators, for example, in the field or originators and CDMOs in the field of mRNA that are expanding their value chain within the field of mRNA. So I think it's a very diverse picture. As we have seen it for a long time, there is not this there are not these clear cut business models.
We even see, as you probably are aware of, we do see originators who partially sell their capacities, sometimes very opportunistically as CDMOs, yes? So you see really all kinds and mixes of this business model. So yes, but nevertheless, maybe that was a very long answer to your question. Yes, we do see capacities being built up also for cell therapies.
Next question is from the line of Richard Vosser from JPMorgan. Please go ahead.
Hi, thanks for taking my questions. A couple, please. First of all, you've referenced a couple of times on the octet demand in LPS. Perhaps you could give us an idea of the sustainability of that level of demand and how you see that picture developing going forward. 2nd question, actually on margins.
Margins are obviously, you said that they're going to come down a bit, but maybe you could think about the margin picture. It come down a bit in the second half, but maybe the margin picture through to your 2025 guidance, you could give us some color there. And actually, maybe I'll add in a third and just think about the vaccine efficacy boosters being required. So are you seeing a boosters being required. So are you seeing a greater sort of a change in the picture of demand and from your customers as is Delta changing that?
Is that increasing because of Delta? Thanks very much.
Yes. The Octet business includes a certain portion of recurring revenues. That number is, I believe, a good 20% at the moment. So there is some inherent, I think, sustainability or stability in that you were, I think, asking for. At least maybe that is a partial answer to your question.
And I mean, we do like very much all recurring elements of such placements also. But we definitely see a very significant demand for such instrumentation. And we also see a nice demand and acceptance for newer versions and one new version that we have just launched to the market. So we believe that this business should continue to grow in a nice way. I would prefer that we first complete the 1st full business year with that having this business on board before we maybe give a little bit more insight here.
And we also know that last year was maybe not the best comps for that, given the lockdown of laps first in Asia, then later in the U. S. So maybe growth that we are seeing here at the moment, which is very, very nice and very significantly double digit, is maybe a little bit higher than one would expect for normal years. But we definitely see a, let's say, a healthy sustainability for continuously nice growth rates and margin contributions. Margin 2025, obvious question.
We didn't look into the different elements of our midterm guidance, frankly. And therefore, we simply wouldn't like to comment on that. We do not believe that it would be too significantly be changed if we updated it at some point in time because we always have said that the pure organic growth and what we are seeing at the moment is, to a very, very high extent, organic growth would probably lead to higher margins. But that nonorganic additions would more likely than not lead to certain dilutions at least over time. And that is still an assumption that we would use as a base for our guidance probably.
And as a matter of fact, the acquisitions that we have closed now during the last, whatever, 18 months or so, all have been rather accretive and, so to say, not typical for our assumption. So maybe that explains also another element for the actual situation. But be sure, we will look into our midterm guidance at some point and then see whether we will update it. At this point, we believe it should be a very good yardstick for what we are shooting for. Vaccine efficacy, need for booster and the question whether delta changes everything.
To be honest, my key learning from the last 18 months is that you will definitely have to learn something about this every day. So let's see what exactly the impact will be, but I definitely would see we see more and more signs that Delta is a bit more of a different variant than maybe beta has been when that was the big story. So from today's perspective, the need for boosters and the need for maybe also modified boosters seems to be a much more likely scenario than any other. But again, it would be a little bit too early to say whether that changes any of our perspectives at this point in time.
Thanks so much. Awesome.
Next question is from the line of Markus Gola from Stifel Europe. Please go ahead.
Good afternoon and thank you for taking my questions. Most have already been answered, but I still have one on your LPS guidance. You increased the guidance in total, but the demand related to corona remained unchanged. So could you give us an update on the demand specifically related to corona testing kits? And do you expect this to slide the second half of the year?
Yes. So indeed, we didn't change our expectation for the full year. We kept that unchanged at 5 percentage points, whereas for the first half of the year, we believe that this effect has been around 9 percentage points. So that indeed means that the contribution from this business is significantly lower than for the first half of the year, not 0 because the baseline has been significantly higher in the second half of last year. So but nevertheless, lower.
And I mean now we could again talk about in how far along delta, even though vaccination rates are significant in most countries now, that maybe, again, the demand for test would go up again, which may lead to changed guidances again of the diagnostic firms, where we have seen a lot of downgrading of such guidances at the moment. So again, I definitely would refer to the statement regarding uncertainty at this point. But we thought indeed that in the second half of the year, demand would go down to some extent. Maybe one additional remark. We said that almost we typically say components for corona tests.
And then we sometimes mention membranes, diagnostic membranes as well as pipette tips. There's also some cell culture media or a certain derivative of that in there, where we indeed believe that this part of the business indeed was very heavy in the first half of the year and will less contribute in the second half. So yes, I hope that answered your question. Indeed, expectation is a bit lower for the or quite a bit lower for the second half of the year.
Yes, it is. Thank you.
Next question is from the line of Scott Bardo from Berenberg. Please go ahead.
Hi, guys. Thanks for taking my question. Yes, a few questions, please. Some maybe technical ones and dissecting the growth, if you like, of the Bioprocess Solutions business. So I know it's difficult, Joaquin, and I appreciate your comments.
But do you think you might be able to give us a sense of how much of your H1 sales growth and how much of your H1 order growth related to the stocking patterns or inventory management protocols for your customers? And also, therefore, how much of your current 50% growth guidance is converting that order dynamic? I guess what we're trying to work out is whether this inventory management is a headwind for next year or indeed a tailwind for next year for this business. So that would be helpful. The second related question, please, on the corona related impacts.
I think you've been very explicit in saying that corona for Bioprocess is going to be some 20 percentage points of your 50 percentage points growth. If I understand this correctly, this equates to about €330,000,000 in revenue, so to say, which is actually relatively small in the context of your VPS business, I think around 13% of your guided revenues for the full year. So if you could maybe confirm that logic and help us understand a little bit how you see that trending next year. Does that go down significantly, that number? Or do you already have some sense that, that will be rather stable?
Last question, please. Even
when you net out all
of this inventory stuff and the corona stuff, the underlying growth of VPS appears to be accelerating. And I wonder if you could help shine some light on why you think that is? Thank you.
Yes. Thank you, Scott. So I mean, these questions are obviously very much linked to each other and address the different elements of our growth that we are seeing at the moment, exactly as you said. So on the first one, probably inventory management, I really would be shy to quantify that. But it will be a little bit like the remainder of when we talk about maybe the other factors.
But maybe nevertheless, we wouldn't mention the aspect of what we expect to be related to different inventory management on average if it would be a neglectable element. So we do believe that it is somehow relevant. Corona, it's important how to see how we calculate these numbers and what that means then for total business. So when we say 20 something percent of contribution to our total growth, then this relates to last year. And last year, particularly, of course, in the second half of the year, we already made had business, and we quantified that back then, with the manufacturers of corona vaccines.
And if we add that, we basically say that and this is like the baseline, yes? So that means that we see something like €500,000,000 of business with the manufacturers of corona vaccines, yes? So the business that we made last year and then the 20 percentage points on top are what we see this year. And that adds up to roughly €500,000,000 So and that is, I believe, very much in line what one probably sees at other companies with somehow comparable product portfolios. And then you are asking for the underlying growth and that has obviously accelerated.
And then now, of course, this is linked to the other numbers and again to the question of how much might be inventory management and how that exactly will look like going forward. And you were asking for the trending, of course, of the corona business. So corona related business going forward, again, hard to say, very much linked to the aspect of whether booster shots will be necessary. Most likely, today, we would say yes, but it will make all of a difference whether people will rather need them every 6 months or every 12 months, how many people will be tired of getting vaccinated and how many people will stay do this, how efficient will future manufacturing processes be, will they be different and maybe more efficient than those of today, very difficult to say. And that's why we will not give a guidance for this piece of our business and therefore also for our overall business next year.
At this point in time, we'll do this pretty much in 6 months from now. And that is the same then for how the inventory management will play a role in next year, whether that is a tailwind or a headwind for next year. Also not yet clear, the order book as such, of course, obviously, will be a great base for starting into next year. I think that is pretty much safe to say even today. So that would be like a tailwind element.
But then the question is how will be the phasing out all of this actual order pattern that we would interpret into what we say into next year. So therefore, a bit too early to really quantify that, and please accept that we are shying away before we have to change our statements in 3 months from now.
No, I understand. And maybe just one point of clarification. When you refer to €500,000,000 in corona sales, so to say, Am I right in saying that that's a cumulative number, so €150,000,000 last year, €350,000,000 this year?
A cumulative number? Exactly, Scott. So EUR150,000,000 that we made last year and are also doing this year. And then this year, on top of this EUR150,000,000 there is another, say, €350,000,000 and that is €500,000,000
Understood. Very good.
Okay. Thank you.
Next question is from the line of Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you very much. I have two questions, please. Firstly, on M and A. So you keep acquiring businesses, but your leverage stays pretty low, right, because your cash flow is so strong. So do you still see a sufficient pool of potential acquisition targets going forward?
Or would you start to consider share buybacks or other types of shareholder returns? And then second question is on input costs. And do you notice anything there, any rise in costs currently? And if that's the case, how much of that can you typically pass on to your customers?
Yes. Thank you. So
actually,
the market for M and A or M and A opportunities is as lively as never. So we do see plenty of opportunities. We get a number of opportunities typically on our tables every week. The fact that we are having closed only one so far this year is pretty much because we are very selective. There are most opportunities we don't believe would be a good enough fit to what we are looking for, which is, 1st of all, a very complementary but still very innovative business that makes our offering more relevant to customers.
And then, of course, it's also valuation. And frankly, of course, valuation for businesses is very, very high at the moment. So therefore, in some cases, we also would say, well, we believe that the valuation might be too high. And then it's about the cultural fit and our view on how successful integration process can be managed. So but therefore, however, as we see a very significant number of opportunities or, as you would say, a healthy pool for such opportunities, we definitely do not consider any other, yes, utilizations for our cash like share buyback programs also, absolutely not at this point in time.
Input costs, yes, we do see that in some areas, not too significant at the moment. And therefore, I would say not really a major topic and therefore, typically not very much that we have to discuss with our customers. We mostly have long standing relationships with our suppliers. We also have long standing relationships and agreements with our customers. So we see a rather stable situation that, of course, we will have to see how that changes now.
We see inflation rates increasing in some areas, energy costs, etcetera. So maybe we are just at the beginning of something that changes here. But so far, it hasn't been a major topic during the last 18 months or so. And we also haven't, in turn, tried to increase our prices in front of customers in this situation of their urgent demand. So pretty much not very influential on our numbers so far.
Next question is from Hugo Solvay from Exane BNP Paribas. Please go ahead.
Hi, guys. Thanks for taking the questions. I have 2. First one on capacity increase and especially those that are that will come in online in 2022. Can you help us size them whether we are talking about capacity increase similar to what we've seen in Q1, Q2 or smaller ones?
And second, Joakim, you mentioned that headwind to COVID sales in a few quarters or in 2022 could be more efficient production lines for COVID vaccines. Are you working on some projects like that with vaccine manufacturers at the moment? Or every vaccine manufacturer is still pretty much in trying to cope with demand? Thank you.
Yes. Maybe on the second question first. At the moment, it's indeed more the latter, yes, that the manufacturers of vaccines, particularly mRNA, where maybe the most emphasis is on at the moment, at least in the Western world, that is very much still the case that they are ramping up the capacities, making sure that they have consistent supply chains, etcetera. So not yet so much about, let's say, fundamental process optimizations. Having said that, we have been a significant contributor to helping our clients to increase the batch sizes, which is which doesn't change the process as such, but already helps typically to improve the overall efficiency of the manufacturing process.
And there, we have been a very, I would say, integral part of such efforts at the particularly when it comes to mRNA manufacturing, helping them to really increase the batch sizes by pretty much an order of magnitude. On capacity 2022, we believe that capacities in 2022 should be well above the capacities that we had available at the beginning of this year indeed. And we will maybe give that as a more tangible quantitative guidance when we share with you our expectation for the year 2022. But we will we are not only investing into these big additional capacity projects that I referred to earlier in the field of membrane capacities and cell culture media, which will play not so much of a role in 2022, but we are also executing a number of smaller capacity expansions, which, when they will be all available, make some difference to our capacity in 2022 overall, again, particularly in comparison to beginning of this year. I hope that helps.
That's all very much. Thanks.
There are no further questions at this time. And I would like to hand back to Doctor. Joachim Kreuzberg for closing comments. Please go ahead.
Yes. Thank you very much, and I would like to thank everybody who participated in our call today. Thank you for your interest. Thank you very much also for your questions. I hope you were able to answer them well enough.
I hope you absolutely understand that it's really difficult to answer all such questions in a quantitative way at this point in time. I think you know us well enough that we are very happy to share quantitative guidance as soon as we feel comfortable enough to do so. But it's really a very dynamic and volatile time in these days. So therefore, looking forward talking to you in 3 months from now and sharing more information with you back then or then. Take care, stay safe, enjoy the summer.
All the best. Bye bye. Ladies
and gentlemen, the conference is now concluded, and you may disconnect