Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedim Biotech conference call and live webcast on Q1 2026. I'm Moritz, your conference call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. A replay will be available shortly after the call. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius. Please go ahead.
Thank you. Hello, and a warm welcome also from my side. I'm joined today by our CEO, Michael Grosse, by Florian Funck, our CFO, by René Fáber, Head of the Bioprocessing Division and CEO of Sartorius Stedim Biotech, and by Alexandra Gatzemeyer, Head of our LPS Division. As always, we will start with prepared remarks, followed by the Q&A session. As the call is scheduled to one hour, please limit your question to one so that as many participants as possible can take part. Please note that management comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and the presentation. With that, I'm pleased to hand over to Michael Grosse, CEO of Sartorius. Michael, please go ahead.
Thank you, Petra, and a very warm welcome from my side as well. We're happy with the start of 2026, which is again, sort of a transition year. Before turning to the key messages for the quarter, I would like to briefly reflect on the strategic context following our Capital Markets Day a few weeks ago. At the CMD, we provided an update on our strategy and outlined our new midterm financial targets. Since then, the focus has been and is very clearly shifting to execution. The real work begins by consistently translating strategy into tangible results and actions, and the work has already started in line with the evolving needs of our customers and the broader biopharma and life science markets. Our shared vision remains unchanged to simplify progress in biopharma and life science research, enabling better health for more people.
With that context in mind, let me now turn to the key messages we would like to share with you today. We are off to a good start in 2026 and are very pleased with our performance in the first quarter of the year. Sales developed well, with a continued strong recurring business in both divisions. At the same time, underlying EBITDA developed positively year on year and profitability remained resilient. This once again underlines the strength and resilience of our business model, as well as the benefits of our disciplined operational execution. In Bioprocess Solutions, sales increased by around 8%, reflecting robust underlying demand. Consumables momentum remained strong while equipment was soft as expected, but is anticipated to improve in Q2. Lab Products & Services showed around 5% sales growth, continuing the positive momentum that started in the second half of 2025 already.
This development was driven primarily by lab consumables and our bioanalytical portfolio, also including the MatTek acquisition. While instruments demand remains cautious overall, we continue to expect at least stable development in 2026. Cash flow development was strong year-on-year. At the same time, we continued to make progress on deleveraging, underlining our clear commitment to financial discipline and a strong balance sheet. In light of our solid start into the year, we confirm our full year 2026 guidance for the group, and we expect sales revenue growth in constant currencies of around 5%-9% and an underlying EBITDA margin slightly above 30%. Let me now briefly highlight a few innovations launched in Q1 that demonstrate the strong customer demand for Sartorius solutions across the biologics value chain. Starting with cell therapy manufacturing.
With Eveo, our new cell therapy manufacturing platform, we are addressing one of the key bottlenecks in autologous cell and gene therapy, scalable and reliable manufacturing of highly personalized therapies. Eveo enables fully automated multi-parallel production, allowing customers to run up to eight patient batches in parallel and achieve up to 4 x higher yields compared to conventional approaches. By automating critical process steps and reducing manual handoffs, Eveo also shortens manufacturing cycle times, helping customers move faster from vein to vein and ultimately accelerate time to patient. At the same time, Eveo helps to reduce footprint, capital intensity, and over-manufacturing complexity, supporting both centralized and decentralized production models. Turning to cell line development. We introduced two complementary innovations aimed at significantly improving speed and efficiency early in the biologics development.
The latest generation of our CellCelector platform, the CellCelector CLD for cell line development, enabled significantly faster and more reliable cell line development by combining automated imaging, monoclonality verification, and gentle clone isolation in one single system. This reduces manual efforts and uncertainty early in the development, shortens timelines from months to weeks, and strengthens regulatory readiness through integrated documentation and traceability. In parallel, our genetically engineered CHO host cell line allows for faster clone development and up to 3x higher productivity, supporting robust and scalable manufacturing as biologics pipelines continue to grow in complexity. These innovations once again highlight how Sartorius systematically removes bottlenecks across the biologics value chain, from early development to manufacturing, by helping customers shorten timelines, increase yields, and improve overall process efficiency and cost structures. Well, with that, I now hand over to Florian to walk you through our Q1 financials in more detail.
Thank you, Michael, and a warm welcome from my side as well. I'm happy to take you through our numbers that reflect the continuation of consistently strong performance from the year 2025 into 2026. Let me begin with top-line performance at group level. In the first quarter of 2026, sales revenue increased by 7.5% in constant currencies and 1.8% reported, reaching EUR 899 million. Looking now at our divisions in more detail. In Bioprocess Solutions, sales increased by 8.1% in constant currencies and 2.4% reported, reaching EUR 735 million. Growth was driven by the high-margin recurring consumables business. Equipment performed in line with expectations with a softer Q1 due to delivery schedules of customers and revenue recognition more loaded towards Q2. We anticipate stronger Q2 equipment sales and expect BPS equipment to deliver at least prior year levels in H1 in constant currencies, supporting a healthy first half performance.
In Lab Products & Services, sales increased by 4.9% in constant currencies, reaching EUR 164 million. MatTek contributed 2.8 percentage points to LPS growth in constant currencies. Based on reported figures, LPS posts a slight sales decline of -0.6%, which is purely FX related. Growth was driven by robust contribution from our recurring business, supported by positive momentum in our bioanalytics portfolio. Let me also quickly elaborate on our regional performance. Overall, the first quarter showed healthy growth momentum across all regions, supported by continued strength in consumables. Starting with EMEA, sales increased by 8.0% in constant currencies in the first quarter. In the Americas, sales grew by 6% in constant currencies, and the growth was solid, particularly considering the stronger comparison base from last year. Asia- Pacific delivered the strongest regional performance with sales growth of 8.9% in constant currencies, with China contributing nicely to the region's BPS growth.
Let me now turn to profitability, which deserves a bit more explanation given the offsetting dynamics in the first quarter. The group's underlying EBITDA increased slightly by 1.6% to EUR 267 million in the period from January to March compared to prior year. Positive volume effects and economies of scale were offset by mix effects within BPS consumables and tariff impacts, as well as continued investments in future growth initiatives, especially in LPS. Against this backdrop, the corresponding EBITDA margin remained resilient at 29.7%, almost fully absorbing negative tariff effects of around 40 basis points. Similar developments as on group level were also recognized at divisional level. In Bioprocess Solutions, the underlying EBITDA margin developed positively. Margin expansion was driven by increased volumes and operating leverage overcompensating tariffs and some mix effects within consumables.
As a result, underlying EBITDA increased to EUR 233 million, and the margin improved by 30 basis points to 31.8% in the quarter. In Lab Products & Services, as already flagged in early February, we are executing a multi-year investment program to scale future growth areas. This is already well reflected in our margin development over the past couple of quarters and is fully in line with our full year 2026 expectations. Consequently, the underlying EBITDA margin was 20.7%, unchanged compared to the level in Q4 2025, and also, of course, negatively impacted by tariffs. Now let us look at performance below underlying EBITDA, where both net profit and free cash flow developed well in the first quarter. The development of underlying net profit is mainly driven by the same effects we discussed at the underlying EBITDA level.
On top of that, it is also mirroring higher depreciation caused by our CapEx programs over the past few years, as we highlighted at our Capital Markets Day a few weeks ago. While depreciation effects are recognized immediately with go live of a building, as usual, the corresponding volume revenue contributions materialize progressively as the additional capacity utilization is ramped up. Furthermore, we saw financing costs slightly increasing as cheap financing from early pandemic times ran out in H2 2025. Reported net profit increased by 16% year-over-year to EUR 56 million. Thanks to lower extraordinary items that were last year mainly driven by our S/4HANA changeover, and we talked about this also at Q1 conference call 2025. As you know, these extraordinaries are excluded from our underlying profit KPIs. Turning to cash-related items, operating cash flow increased strongly to EUR 189 million, up almost 36% year-on-year.
This improvement was driven by EUR 20 million higher reported EBITDA and lower tax payments versus high prior-year base compensating for the growth-related increase in working capital. Looking at working capital, I would like to emphasize that the working capital dynamics can mainly be explained by higher accounts receivable at quarter end, reflecting strong sales activity towards the end of the quarter. Customers received shipments and were invoiced late in the quarter, but due to timing effects and the Easter holiday season, many of these invoices had not yet converted into cash by quarter end, and therefore sitting in AR. Based on the higher operating cash flow and relatively constant CapEx spending, also free cash flow increased significantly to EUR 113 million.
The CapEx ratio of 8.6% was a prior level, reflecting continued disciplined investment in support of future growth, but we continue to expect full year CapEx of around 12.5% of sales for the full year period. To conclude our discussion of the first quarter financials, let me briefly turn to our balance sheet related key figures. We maintained a solid equity ratio of 39.4% at the end of the first quarter. The slight change compared to year-end reflects the dividends already offset from equity after the AGMs of Sartorius AG and Sartorius Stedim Biotech SA in March 2026. Net debt decreased slightly to EUR 3.727 billion, reflecting continued deleveraging despite ongoing investment activity. At the same time, we continued to actively manage our gross debt profile.
This makes the reduction in net debt particularly notable as it was achieved despite the dividend payout to Sartorius AG shareholders for fiscal year 2025 on March 31st, underscoring our continued focus on disciplined deleveraging. As a result, the leverage ratio defined as net debt to underlying EBITDA improved slightly to 3.53 x, down from 3.55 x at year-end 2025. This confirms that we are progressing as planned on our deleveraging path. Taken together, these developments underline our continued commitment to financial discipline and to maintaining a strong investment-grade credit profile. With that, I would like to hand back over to Michael.
Thank you, Florian. Based on the solid performance in the first three months of the year and the overall market development, we are confirming our full year 2026 guidance and continue to view 2026 as a transition year toward our midterm ambitions as outlined at our Capital Markets Day in March. For Sartorius Group, we expect sales revenue growth in constant currencies of around 5%-9%. For Bioprocess Solutions, we anticipate growth within a range of approximately 6%-10%, primarily driven by recurring business, while the equipment business is expected to remain at least stable. In Lab Products & Services, we expect sales growth of around 2%-6%, reflecting continued strength in the recurring business and a stabilizing instruments environment. At group level, sales growth includes around one percentage point contribution from the MatTek acquisition and the U.S. tariff-related surcharges.
While LPS revenue growth includes approximately 1.5 percentage points from MatTek. Turning to profitability, we expect the underlying EBITDA margins to be slightly above 30% for the group. For Bioprocessing Solutions, the margin should be slightly above 32%, while in Lab Products & Services, we expect the margin to be slightly below 21%. The CapEx ratio is expected to remain around prior year levels as we continue to invest selectively and with discipline in our global research and manufacturing footprint. We also expect net debt to underlying EBITDA to decrease to slightly above 3x by year-end, reflecting our continued focus on deleveraging, as Florian said before. Given the recent volatility in FX rates, we would also like to share some additional color on the expected foreign exchange impact for the second quarter.
We currently anticipate a headwind in the region of -2.5 percentage points in Q2, respectively, -4 percentage points for H1 cumulative. While we continue to expect FX effects for the full year to be around -2 percentage points. We remain mindful of an increasingly complex external environment. Current geopolitical tensions, particularly in the Middle East, are driving increased uncertainty, especially the longer the situation persists. However, we feel comfortable with our guidance as defined in early February and reiterated today. We expect the second half of the year to be stronger than the first half in absolute numbers. Our confidence is based on the positive underlying development of the biopharma market, a strong order book, and our ability to navigate the continued volatility and uncertainty caused by the geopolitical and macroeconomic tensions.
Looking ahead, Sartorius has a clear vision and strategy, and we are firmly committed to executing it with discipline, consistency, and a long-term perspective to deliver sustainable value creation. With that, I would now like to hand over to René, who will walk you through the financials of Sartorius Stedim Biotech in more detail. René?
Thank you very much, Michael. Also from my side, welcome and thank you for joining our Q1 results call today. Sartorius Stedim Biotech delivered a strong start into 2026, supported by our high-margin consumables business as well as continued operating leverage. In the first quarter of 2026, sales revenue increased by 7.9% in constant currencies, reaching EUR 762 million. Growth in reported currencies amounted to 2.3%. Our recurring consumables business was fueled by strong underlying demand. Equipment, as Florian mentioned before, performed in line with our expectations with a softer Q1 due to the delivery schedules of customers and revenue recognition more geared towards Q2. We anticipate stronger Q2 equipment sales, which will deliver at least prior year levels in H1, supporting a healthy first half performance. Looking at profitability, we observed similar developments to those at Sartorius AG, as Florian elaborated earlier on.
While earnings continued to improve in the first quarter, the underlying EBITDA margin remained largely flat. Positive volume effects and economies of scale were offset by a less favorable product mix within the consumables portfolio and tariff impacts. Additionally, it has to be noted that there was a technical margin drag of 25 basis points due to an increase of the Sartorius brand name fee charge from Sartorius AG to SSB. As a result, underlying EBITDA increased to EUR 233 million, and the margin remained resilient at 30.7% for the quarter. Looking at the regional performance, all regions contributed to positive business development in the first quarter, supported by continued strength in consumables. Starting with EMEA, sales increased by 9.1% in constant currencies. In Americas, sales grew by 5.6% in constant currency, reflecting a tougher prior year comparison, but remaining positive overall.
Asia- Pacific delivered the strongest regional performance, with sales growth of 9.4% in constant currencies, with China contributing nicely to the region's growth. Looking now at net profit and cash flow, profitability and cash generation developed solidly over the year. Starting with earnings before EBITDA, all metrics improved slightly. Underlying net profit increased slightly disproportionately to underlying EBITDA, mirroring higher depreciation caused by our CapEx program over the past few years. Reported net profit improved by 3% to EUR 88 million, thanks to low extraordinary items, which are excluded from the underlying profitability measures and were therefore supportive. Turning to cash-related items now. Operating cash flow increased strongly to EUR 193 million, up more than 61% year-over-year, driven by higher EBITDA and lower taxes, compensating for the growth-related increase in working capital.
As a result, free cash flow rose significantly to EUR 124 million, supported by the strong operating cash flow and stable CapEx at the prior year levels. Accordingly, the CapEx ratio increased slightly to 9.1%, reflecting continued disciplined investment in support of future growth, but we continue to expect full-year CapEx of around 13% of sales for the full year period. A quick look at our balance sheet metrics. At the end of the first quarter, we continued to show a very strong equity ratio of 50.6%, reflecting our solid capital structure. Compared with the year end, the slight decrease mainly reflects the dividend, which was offset from equity following the AGM at the end of March. Net debt decreased slightly, and the ratio of net debt to underlying EBITDA progressed as planned.
The net debt to underlying EBITDA ratio improved further to 2.28 x, down from 2.38 x at year-end, confirming that we remain well on track on our deleveraging path. Overall, these developments underline a strong balance sheet position of Sartorius Stedim Biotech and provide a solid foundation to support future growth while maintaining financial flexibility. Before we move into Q&A, let me quickly elaborate on our confirmed outlook for full year 2026. Based on the solid performance in the first three months and the overall market development, we are confirming our full year 2026 guidance. We expect to stay on our profitable growth path and for 2026, sales revenue growth in the range of 6%-10% in constant currencies, including 1 percentage points contribution from U.S. tariff surcharges. Growth will be mainly driven by recurring business, but again, against higher comps, while the equipment business should remain at least stable.
Based on our order book, we continue to expect a stronger second half compared to the first half at Sartorius Stedim Biotech. This reflects the expected gradual normalization and improvement in the equipment business throughout the year. The underlying EBITDA margin should increase to slightly above 31%. Our CapEx ratio is expected to stay around previous year level of around 13%, reflecting our ongoing investments into research and resilient production footprint. Our commitment to deleveraging remains unchanged. We anticipate the leverage ratio, the net debt underlying EBITDA, to decrease to slightly above 2 x at year-end. Given the volatility we have seen in the currency exchange rates over the past few months, let me also share some FX assumptions for the Sartorius Stedim Biotech group.
We currently anticipate a headwind of approximately - 2.5 percentage points in the second quarter, while we continue to expect FX effects for the full year to be around - 2 percentage points. Michael highlighted earlier for Sartorius AG, and without repeating this in detail, the same considerations also apply to Sartorius Stedim Biotech. We feel comfortable with our guidance as defined in early February and reiterated today. Our confidence is based on positive underlying development of the biopharma market, our strong order book, our ability to navigate the continued volatility and uncertainty driven by geopolitical and microeconomic tensions. With this, I will hand over to the operator to begin the Q&A session.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to one question. Anyone who has a question may press star and one at this time. The first question comes from Zain Ebrahim from JP Morgan. Please go ahead.
Hello. Zain Ebrahim, JP Morgan. Thanks for taking the question. I'll stick to one. My question is on the demand activity you're seeing at the moment in equipment. Can you comment on what the latest is from customers based on your latest conversations with them? Thanks very much.
Yeah, thank you for the question. Let me first reiterate what we have just explained, how the equipment is developing. For Q1, we have seen a bit softer development in sales, more or less as expected, and we see the revenue recognitions was moved more towards the Q2. What we anticipate to see for the H1 is, first of all, stronger Q2 equipment sales and H1 to be then at least at the level of the prior year. Overall, I would say equipment develops as we have expected. The positive start in the year coming from a quite strong or relatively strong H2, we have seen already in H2 last year, Q3, Q4 particularly were quite positive quarters in equipment and we're benefiting from that in the beginning of the year as well. Overall, we are confirming our view on the equipment moving forward.
As I said, H1 positive at least at the prior year level, and same for the full year. Overall H2, as we can say today, we would expect based on the discussions we have with customers, and the funnel we see, which is positively developing as well for H2, we expect to be stronger than H1 from today's perspective.
Thanks a lot.
The next question comes from Doug Schenkel from Wolfe Research. Please go ahead.
Thank you for taking the question. It sounds like you expect bioprocessing equipment growth in Q2, which I think is what you were clarifying in last question, but I just want to make sure that's right. I want to also confirm that based on trends and backlog that you're expecting bio equipment growth to continue into the second half. Then I guess the last part to this question would be, are there any areas that you would call out that are notably driving recovery and equipment? And conversely, are there areas that you're still awaiting some recovery? Thank you.
Yeah. Absolutely. Thanks for the question. Confirming, yes, we're expecting Q2 growth in equipment sales as I mentioned. I think second part of your question was H2 above H1. That's our current view, indeed. Where is this happening? How is overall equipment developing, looking at different parts of the portfolio or regions? Honestly, I think it's quite a, It's quite all over the place.
We don't see really special pockets of growth or still muted development. We definitely have seen a good traction on bioreactors. Now, as you remember, we talked about the consumption of bags and consumables, which we see going with the equipment that is still well on track and continues nicely growing. Here and there, we see already new installations happening. I mentioned bioreactors, but it's going also in downstream with very successful initial placement of our new innovative Pionic platform going, supporting process intensification as well. Some larger projects in area of peptides, in chromatography. It's kind of across the board.
The next question comes from Subbu Nambi from Guggenheim Securities. Please go ahead.
Hey, guys. Good morning. At the Capital Markets Day a few weeks ago, you mentioned that biotech has been improving. The capital markets environment remains strong for biotech. Are you seeing any change in behavior? Is that a potential source of upside relative to your full-year targets if trends continue?
Yeah, may start just briefly. I think as indicated there at the Capital Markets Day, I think we've already started really to see signs of, I mean, the funding environment has improved progressively in the second half of the year. Towards the year-end, we already could see some more activities and interest and lead generations as well from the biotech side. I think overall it remains as well. If we look now as well at the LPS portfolio, remains probably still on a more rather stable and lower levels. At the same time now, as we said, I think, as we expect overall order situation, opportunity generation for the second half of the year to be a great foundation. Again, given the lead times for these orders that will be generated as well from that part of the business.
Again, I think we need to be mindful that earliest realization of those sales will be rather at the very tail end of 2026 and rather create now the potential benchmark for revenue realization in 2027.
Thank you.
The next question comes from Charles Pitman-King from Barclays. Please go ahead.
Hi, guys. Thanks very much for taking my questions. I apologize if I missed this clarification, but just coming back to your 2H being greater than 1H on both an equipment specific and a broader BPS dynamic. Can you just confirm that what you're expecting when you say absolute is actually a continued growth in the organic line? Or is this primarily reflecting the removal of the FX headwind? Is that what gives you the confidence of absolute being greater in 2H than 1H? Just trying to get an idea that the equipment sales are in fact expected to improve over the course of this year. Thank you.
Yeah, Charles. First, let me talk to the question regarding FX. All that we are talking here, which is sales related, is FX corrected, so it's in constant currencies. What we have been saying is that we are expecting a higher H2 versus H1 at absolute million euro currency adjusted.
Just in terms of the organic growth rate on equipment in the second half? Sales versus orders.
No, we've said that we are expecting H1 sales currency adjusted to be at least on the level of prior year. Still, also for the full year, we've said that we're expecting full year equipment sales to be at least on prior year level.
Perfect. Thank you.
Welcome.
The next question comes from Charlie Haywood from Bank of America. Please go ahead.
Thanks. Charlie Haywood, Bank of America. A question on BPS consumables, actually, and the contribution to the guide. I think, René, at the full year suggested low teens consumables growth is a reasonable expectation for a normal year. You haven't called out many specific headwinds to the consumables side other than acknowledging 2025 is a tougher comp. Obviously tariffs is actually a slight tailwind to that. Is it fair to think of all of those factors that consumables growth in the roughly low teens range for this year would be a sensible answer?
Well, let me tackle that, Charlie, and, René, maybe to comment on that. First of all, please bear in mind, we have said that the year 2026 is a transition year. Please do not apply the kind of normal growth rate that we've given in the midterm guidance also as the kind of anchor point for the year 2026. Additionally, on top of that, I think what we also said clearly is that we are expecting clear base effects because of the very high comps. That growth rates that we've seen in the year 2025, where it was in the teenage area is not one by one to be expected to continue. It will be still a healthy and strong growth. That is our expectation. I think it would be wrong now to nail us down on a double-digit consumables growth for the full year.
Thank you.
The next question would come from Charles Weston from RBC Europe. Please go ahead.
Thanks for taking the question. In terms of China, you and René both spoke quite constructively at the Capital Markets Day, saying that there's more activity and recovery from China companies looking to expand globally. I think one of your U.S. peers reported double-digit growth in China bioprocessing in Q1 and said it was in recovery mode. Can you just perhaps give us any further color about what you're seeing from that market in Q1 and in Q2 so far please?
Yeah. I can get started. As outlined, I think overall we are encouraged to see that there is a growth contribution from China after two rather difficult and reasonably weak years overall. I think I still would like to make the comment upfront that the tendency that we see and a bit the muted demand when it gets to the equipment and instruments business, that remains there. Hence with the bigger impact that we have in that business, particularly for the Lab Products & Services Division, it is indeed the fact that here the contribution is lower and it remains rather soft on that side. However, I would say it's great to see the Q1 development there on the BPS and consumables business side, where we basically see an overall group level performance of around close to 30% on that basis.
From this perspective, we take a look at the growth contribution overall from China is positive on the consumables side as we mentioned.
Thank you.
The next question comes from Oliver Metzger from ODDO BHF. Please go ahead.
Yeah. Good afternoon. Thanks a lot for taking my question. It's about the full year guidance. Q1 experienced still some headwinds and also had from the Q1 last year, let's say, a higher comparable base for the consumable side. Momentum from the consumables over the next quarters should not meaningfully deteriorate just from the base effect or remain similar. As you said, equipment demand is seen to improve, and also we observe now a gradual improvement or recovery of LPS. Would you describe Q1 as a trough with regards to growth rates for the current year, if not any unforeseen headwinds pop up?
I would not do that. It is a solid start into the year. It is very much in the midpoint of our guidance. I think we have, especially when issuing the guidance, have also communicated about the drivers of the guidance, what might lead to the lower end, what might especially lead to the higher end. You know that we said that the lower end would be more the kind of not so much expected scenario, and the higher end would require quite healthy dynamics also in the equipment area to take place. Whereas, the midpoint would see an equipment business rather on prior year level. I think we have seen now in Q1 a healthy start in the consumables business.
We are going to see, at least this is the current point of view, that H1 from the equipment side will be at least on prior year level. With that, I feel very comfortable with the overall guidance and, to frame Q1 as a trough, I would be cautious.
Okay. Thank you.
The next question comes from Odysseas Manesiotis from BNP Paribas. Please go ahead.
Hi. Thanks for taking my questions. I also had a question on phasing throughout the year. Is it fair to assume Q2 could be the strongest growth quarter, given the easier comps here? I remember you had some fluid management, related U.S. customs delays that made Q2 2025 a bit weaker. Could you confirm whether that's a sensible way to think about it?
Yeah. Thank you, Odysseas. If you look at absolute numbers, you've seen that Q2 in the year 2025 was somehow standing out. It was above Q1 in absolute terms, and it was above Q3. It's true that the tariffs were ramping up with the implementation of the tariffs middle of April. Q2 took some time, and of course, the tariff effects are more pronounced in H2 2025 and not so much in Q2. Nevertheless, I would say that Q2 is a not too low comp if we look forward into Q2. As I said, it was higher in absolute terms than Q1 and Q3.
The next question comes from Thibault Boutherin from Morgan Stanley. Please go ahead.
Thank you. I just want to come back on the comments on equipment and, I guess, the sustainability that you expect from this. I guess first of all, to what extent your conviction of improvement in Q2 is coming from the order books versus just expectations and discussions? Sort of what lead time do you have on the order book in equipment giving you that confidence? Then related to that, are you confident this is the beginning of a recovery cycle that we've been waiting for some time? Or could we still be in a period of fluctuations where we could see equipment order and equipment sales being a bit more volatile for the next few quarters? Thank you.
Yeah. Thank you. Let me quickly start on the visibility on equipment, for Q2. Making this statement requires support by order book, and this is exactly what we're seeing. We are feeling quite confident looking at the order book. Of course, there might always be late adjustments from the customers indicating they want to have certain orders in June and then maybe, I don't know what happened at their site, requesting something in July. The general volume is clearly in the order book already for Q2.
Yeah, absolutely. Right, Florian. What I would add to that is that, I'm not sure it's like, as we expect at least flat full year sales equipment, I would rather call it still a transition year. We, however, are quite positive with the outlook, that orders in the full year on equipment will be above H1, above the H1 last year, and also for the full year above 2025. Yeah, as I mentioned before, funnel is there. The discussions we have with customers indicate that positive development, but it's still a positive but transition year, regarding that.
Thank you.
The next question comes from James Vane-Tempest from Jefferies. Please go ahead.
Yes. Hi. Thanks for taking my questions. I've just got a question on underlying profitability, just to understand the construct, because if margins are basically flat year-over-year, the other operating income seems to have had a 2.5 percentage benefit because I guess Q1 last year was -12, and that's moved to +10. I was just wondering if you can help us understand what's contributing to that level and if that's sustainable. If then that actually has had such a big benefit and a swing, it looks as if the underlying margins have gone from over 31 to sort of less than 29, at which the largest driver seems to be at the gross margin level, which is down 2.7%, I think it is.
The second part of the question then is, you've clearly talked about mix, but can you also help us understand the inventory write-downs which happened last year and when that's supposed to start to improve over the coming years? If that math sort of makes sense, what's happening in the underlying profitability? Thank you.
Yeah. Thank you, James, for your question. Let me start with that. Yes, of course, well spotted. When we're looking at gross margin, the one really big driver in gross margin is FX. As you know, we have a rolling forward hedging strategy on FX, but the positive hedging effect on FX on that margin are rolling in other income. There is a kind of mismatch if you're looking at that, and therefore, as a consequence, it is clear that you observe a healthy other income margin and the pressure on gross margin. Now regarding inventory, what we have been talking was more a kind of general statement to give you a feeling for possible support for further margin increase, rather than giving you a concrete number that you can bring on a timeline.
Please accept my apologies for not going deeper on this for your modeling.
Thank you, just so I understand, what you're saying is the swing is just due to that sort of mismatch in FX. Should we really be considering gross margins looking at what your gross profit is with an adjustment for what we see in the other operating? Is that correct? If we've seen this big swing, is that the sort of level of anticipation we should have for this year, because I also noticed that nasty number in Q4. Is it the type of thing which will then roll off in the second half of the year? The reason I'm asking is because it is material to the overall margin overall, so it would just help us build to the complete corporate picture.
Yeah. James, we are guiding on underlying EBITDA margin, not on gross profit margin. Therefore, we've taken appropriate measures to secure that level of profitability. There is that FX swing, and there's another point that we also communicated in this call here, that is around the mix effect that, of course, also had a certain slide track besides tariffs on the gross profit margin. Please, always bear in mind, Q1 last year was free of any tariffs, Liberation Day tariffs. Please also bear in mind that we have that kind of mix effects within BPS consumables.
That's great. Thanks for taking the follow-up.
Thank you.
The next question comes from Naresh Chouhan from Intron Health. Please go ahead.
Hi there. Thanks for taking my question. Couple of bigger picture ones, please. We calculate the underlying demand for mammalian biologics is low double digits, obviously, which you returned to last quarter. I heard your comment just now that we should caution that we may not see that this year. If the underlying demand is low double digits, can you help us understand the delta between your sales growth? Is this a share issue? Is it yields? What's happening? Why are you not growing at the rate of demand? Secondly, as yields continue to improve, this is more of a question around equipment. As yields continue to improve, are you seeing customers increasingly shifting to smaller batch bioreactors compared to the last few years? Therefore, could it be that in equipment that your share can improve? Thank you.
Yeah. Thanks for that question. I agree with what you said on the demand. However, this is something you need to consider over longer period of time. Looking at a year, there might be fluctuations, but overall, this is what we see and expect. When we talk about market fundamentals and growth, we see that and expect that the biologics demand will grow and continue to grow. Low double digit is fair assumption. At the same time, improvements happen. That has also impact, as you indicated, on then what consumables, equipment are used. Yes, we have seen, but it's now we are more than a decade, that this yield or efficiency improvement leads to more and more smaller volume processes, more and more single-use adoption. If you listen to our Capital Markets Day, this is also the expectation we have.
What we do and drive as an innovation industry is further improvement of this efficiency, so that even more, especially commercial drugs, will be manufactured in that smaller, more flexible, single-use equipment and facilities. Which, of course, will positively impact and drive our market position and the growth of the business.
Can I just ask a follow-up? Should we then assume on the basis of that your equipment sales should hold up pretty well, but consumables will grow slower than underlying demand over the short to mid-term?
No.
Okay. Thank you.
The next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you. I have one question, please. Is it fair to assume that the group-adjusted EBITDA margin in Q2 is likely still below the full year guidance range, just like it was in Q1, given the incremental tariff headwind and more equipment in the mix?
Could be. Depends also on the other components of mix, Falko.
Okay. Fair enough. Thank you.
The next question comes from Theodora Rowe Beadle from Goldman Sachs. Please go ahead.
Hi. Thanks for taking my question. Can you talk to how you're managing the current geopolitical risks and energy price increases, and what are the key mitigating strategies that you have in place? Thank you.
Yeah. Thank you very much. When we are talking about the Iran crisis and energy prices, first of all, it has to be noted that Sartorius is not to be considered as a kind of energy-intensive company. If we purely talk about electricity, it is a very low single-digit percentage of cost of goods sold. In recent years, we have also invested in expanding renewable energy capacity at our sites worldwide to become more independent, of course, over time from fossil-based energy. We are not using short-term hedging instruments, but what we are using are rolling contracts, longer term rolling contracts. Even if we see on the spot markets hikes in gas or electricity, this should not have any larger impact on our P&L in 2026 and in 2027.
On the other hand side, there might be indirect or second-round effects from rising energy and/or gas prices on cost. For example, higher freight costs or oil-based components in raw materials, so plastic, for example. This is, of course, somewhat more relevant and we are watching the supply and the sourcing situation very carefully. We have a task force on top of that. This might lead already in the year 2026 to an increase of our cost base. On the other hand side, most of our supply contracts are longer term and even if we have higher price levels, they will also be mitigated by internal moving average prices based on inventory in place. Furthermore, currently we have no significant component shortages that have been identified by the task force that I was mentioning.
Of course, even if there were some cost effects, and if I had to put a risk number, it would be, I don't know, around about EUR 10 million for the year 2026. We would then act and implement countermeasures, including price increases or freight surcharges. This is all currently evaluated. Of course, if the conflict is prolonged and we're seeing persistently higher oil prices, that, of course, could have an impact on costs in 2027, but this is now too early to tell. I can tell you that we have overall the instruments in place to find our way also in an inflationary environment.
The next question comes from Charles Weston from RBC Europe. Please go ahead.
Hello. Thanks for taking the follow-up. I just had one, please, on the comps. I know the question's been asked before, but you've talked about there being tougher comps in 2026 on the consumables side. I thought that 2025 was effectively described as a more normal situation in absolute revenue terms. If there was additional sort of restocking by customers in 2025, making the comps tougher, perhaps you could just discuss that. If not, and it was more normal, then why would 2026 consumable growth be lower because of tough comps? Thank you.
I'm not sure I really got the question. Because what we've seen in prior year in consumables was a growth in consumables that was definitely above average market in a still transitioning year. Based on that, I would simply assume that, or simply say it is not fair to assume that these high kind of growth rates will persist in the year 2026, and that we will see base effects. When I was talking about comps, it was based on the question regarding Q2, where I just said that Q2 stood out in absolute volume against Q1 and Q3.
Okay. Thank you.
The next question comes from Delphine Le Lou ët from Bernstein. Please go ahead.
Yes. Hello. Morning, everybody. Just to be back into the mix effect and specifically at BPS, René, can you clarify it a bit more, the impacts in between the volume and the price, if any, or in between the consumable or the service versus the rest of the line when it comes to the equipment? Can we have a bit more granularity here, please, for us to clearly understand?
Yeah. Thank you very much for the question. Yeah, we've seen that in the quarter. We see it as more of a quarter effect. Nothing to be continued and move forward. It's really a short-term makeshift to a certain part of the portfolio. Nothing structural.
Okay. There is nothing on the price? Nothing specific? Just regular price increase?
No. That has nothing to do with the price as such.
Okay.
Yeah. No.
Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Petra Müller, Head of Investor Relations, for any closing remarks.
Thank you, operator. This concludes today's call. Please reach out to the Investor Relations team in case of any open questions. We thank you for joining today's call. Wish you a pleasant rest of the day and see you next time. Operator, you may now disconnect.
Thank you.
Ladies and gentlemen, the conference is now concluded and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.