Earnings Call: Q2 2021

Jul 21, 2021

Thank you very much. Good day everybody from Sartorius. I'm here together with Rainer Lehmann, our CFO, and we would like to talk about the half-year results of Sartorius and Sartorius Stedim 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 first six months of this year. Rainer will 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. We have been achieving 60% top-line growth during the first six months. Of this, 22 percentage points are corona related. We will give you more details about this number for the two divisions. Rainer will do that in a minute. Eight percentage points have been non-organic. We will give you more details for the two 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. We will talk about that in more detail. We have seen a very healthy expansion 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. 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. We will 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 three weeks ago. We'll refer to that also a little bit more. It's in the space of cell culture reagents, so very much a bolt-on acquisition of a very innovative company, though. We have raised the outlook for the full year also earlier this month. Of course, we will talk about it in more detail also in a minute. Rainer. Thanks, Joachim, and also welcome everybody to our call today. As always, we'll start with revenue growth. Basically, pretty impressive H1, +60% constant currencies, amounted ultimately to EUR 1.6 billion in revenues out of that. The inorganic, so contributions by acquisitions was around 8 percentage points, the impact of the COVID that we have been disclosing so far has been 22 percentage points. Very happy with that performance overall. Order intake increased even higher in constant currencies, around 82%, which attributed then to EUR 2.17 billion. If you look at that spread that we always point out between order intake and sales revenue, that one has now actually increased to over half a billion. 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 I'm sure we're going to talk about in the Q&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 million. That's a margin increase of 6.3 percentage points to 34.1%. 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 EUR 3.79, and as always, the pref was EUR 0.01 more to EUR 3.80, a respective increase also 108%. If we look on the next slide, basically we included here, since we have been talking over the last quarters 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, then actually see underneath it our group headcount growth in the same period compared to the first six months of 2020. That increased by 23%. We basically employed in H1 net 1,350 new employees, we're roughly now 12,000 employees. 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 all our operations also increased even higher than our average, so in 28%. 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&L, we have an under-proportionate build-up of the workforce compared to the sales growth, with only 13%. Joachim's going to comment later on the guidance, but this development is expected really to subside in the second half of the year. One interesting data point is also if you go on our website and actually look under Career Opportunities, we have 1,100 open positions currently. Out of that, actually, 80% are non-operations. There you can actually see what is basically going to happen, also in the subsequent months and going forward. That's a little quantification of why we are now talking for a few quarters, actually, in regard of an, let's say, artificial economies of scale, because this is not a sustainable development. We really need to build up the function sales to market product development, but also to certain extent, of course, the support functions in order to manage the growth and to make sure that this is a sustainable situation. Therefore, we are expecting an increase of our cost base for H2. If we now 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. LPS really fueled here with the acquisition. Remember, keep in mind, May 1st, we closed the acquisition of the life science asset of the Danaher Group. There, the Octet is doing really well, we have to say, and that of course, has a very good performance on that region. Attributing ultimately to EUR 519 million for the first six months. In EMEA, growing by almost 64% to EUR 682 million. Here, actually, we're going to see it a bit later when we dive into the divisions. The demand from the vaccine manufacturers, quite strong, really. That's a little bit why we see also a higher growth rate in EMEA than compared to Americas, where we usually see the strong growth rate as well. Nevertheless, also considerable sales growth still on the LPS side. In Asia Pacific, I have to say, both divisions are doing very well. We'll talk about a bit later in the next slide. LPS, very happy. There we really have to talk with also, or call it a strong recovery, because let's keep in mind that the first six 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. Then of course, with the really strong lockdown measures that were put in place, and which put pretty much a halt there on the growth for LPS in that area. Regional distribution, slightly skewed a little bit, nothing major. A little bit, 2 percentage points more in EMEA, a 1 percentage point less than Asia Pacific compared to year-end. 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 never seen so far. Orders amounted, after 6 months, the intake to EUR 1.8 billion. There, of the COVID impact, 31 percentage points. The contribution from the acquisitions, around 10 percentage points. Which leaves the rest, let's call it organic. 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. We look on the right hand, the sales revenue basically increased by 62.5% to EUR 1.26 billion. 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 million spread. If you look at the gray bar in both charts, you see that there, 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%. Americas is still a very good performance, and I think we shouldn't get used to those growth rates because they are quite high. In Americas, we increased it by 45%. Sounds low compared to the 74% in EMEA, in Asia Pacific than 70%. 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 first 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 from EUR 247 million to EUR 460 million. It's an increase of 86% and a margin increase from 30.5% to 36.3%. If we 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 with the sales revenue, 52% growth in constant currencies. They are off from acquisitions around 14 percentage points. The impact from the COVID-related activities, which is here really our 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 attributes to EUR 362.7 million 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, the strong performance of the acquired business, and specifically here the Octet business from Danaher, that fueled that growth. Asia Pacific, we looked at basically growth rates of 52%. If we go on the left-hand side with the order intake, roughly 50% rose to EUR 375 million in constant currencies, the growth rate. M&A or the inorganic contribution was 11 percentage points here. The COVID impact was 9 percentage points, at least on our 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 is a lot quicker and therefore, order intake and sales revenue pretty much behave in a fairly consistent manner. The distribution on the order intake, to be honest, also the same as on the revenue side when it comes to the regions. In LPS, clearly also driven by the product mix and the good performance of our bioanalytics portfolio, we see a significant increase in the margin compared to last year at this point in time from EUR 46 million to EUR 95.1 million. We doubled it at the end of the day and with an increase, or we ended up at an EBITDA margin of 26.2%. Again, let's also keep here in mind that we have an under proportionate cost development. If we go to the next slide. As usual, 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% to EUR 440 million. 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. This is really truly earnings driven. Extraordinary items, and I'm jumping back onto the top here, decreased to roughly EUR 11 million, really related of course to our usual M&A or basically the integration activities as well as some corporate-driven projects. 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 first quarter, we have here a substantial increase that is mainly related to the valuation of the earn-out liability with the acquisition of BIA Separations that we did at the end of last year. This effect is roughly EUR 35 million. Let's also keep in mind this is not tax relevant. 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 million, and they ultimately report a net profit available to our shareholders amounting to EUR 189.8 million, an increase by 138% almost. CapEx ratio for the first six months is at 9%, slight increase over last year, half a 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 money spent. I don't want to really say that, but to make sure that the expansions are being fulfilled. We're going to see also, at least my expectation is 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. Again, few financial indicators. Equity ratio increased slightly to 31.3%, despite an increase of our balance sheet, sum of roughly EUR half a billion. Of course, you see the strong earnings, build up our strong equity position. Very happy with that. Net debt decreased basically to EUR 1.7 billion from EUR 1.9 billion compared to year-end, which then leads to our financial indebtedness or net debt divided by underlying EBITDA of 1.8. You clearly see on the right-hand side in that chart also the trend downwards over the last three quarters. 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 at a significant lower level than a few quarters ago. With that, I'm going to hand over back to Joachim, who's going to talk a little bit about our most recent acquisition, CellGenix. Thank you, Rainer. We have announced the acquisition of CellGenix almost 3 weeks ago, when we closed that transaction. The company has been founded in 1994, as you can read from this chart. The business was a little bit more than EUR 20 million 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. CellGenix 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 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 EUR 1 million for the 51% stake that we have acquired now. We will acquire the remaining shares in 2 years and 5 years from now. 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. Before I walk you through the numbers, I definitely would like to underline that still the uncertainties 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 COVID vaccines, but also maybe the different ordering pattern and the respective different maybe behavior and ordering policies by our customers, on the other hand. 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 COVID 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. 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. A part we have seen already, but the biggest chunk will be in the second half of the year. From May onwards, we don't account the acquisition of the businesses from Danaher any longer to be non-organics, because we always do that for precisely 12 months only. That's the background for this. The overall performance again, and the overall contribution within the business year 2021 didn't change. For LPS, we are expecting 30% top-line growth, just as for Bioprocess, also here an upwards 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 non-organic, 5 percentage points COVID related, the latter unchanged. The acquisition related an increase because here we have seen a very nice development of the Octet® business since the beginning of this year. We actually also have seen that during the end of last year. Nevertheless, here, we don't see any shift in the timing or so. 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 seen now 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. Last but not least, two 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. Therefore, we now see this change by 2 percentage points, after pretty much 2 increases of the guidance. Then for net debt to underlying EBITDA, we now expect this to come in slightly below 2.0. A bit below what we thought so far, and this is without any additional acquisitions, as this is always the assumption that we take here as a basis. Let me now walk you briefly through the SSB results for the first 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 the order intake 87.5%, both numbers in constant currencies. Over proportionate translation into EBITDA, also here up by almost 86%, reaching EUR 487.4 million. 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 EUR 3.49 for the first 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&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. 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. 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. 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 first six months of this year. Our equity ratio also very healthy. I believe that's quite obvious. 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, three 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. 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&A. The CapEx ratio, again, for the same reason as said 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. With that, I would like to open the line for Q&A. Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. One moment for the first question, please. 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. 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, for Alzheimer's from industry demand, whether it's single-use or stainless steel, however you think we should think about that. 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 biologic drugs? Again, given the fairly high use of single-use there. I'm just curious if you think the regulatory changes have any impact. The last one, I guess, appreciate you don't want to guide into 2022 now. If you're in our shoes, you guys have said you're obviously putting a lot more OpEx back in the business. 1,100 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? Thanks. Thank you for the 3 questions. 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, 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 stainless steel bioreactors, for example. Even when somebody uses single-use bioreactors, he would need cell culture media and other products around that. 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, et cetera, is realized in single-use technologies as well. I always would recommend to put this into perspective. Because this is very often 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. Therefore, this is nothing that we would see as something that dilutes our growth perspectives at all. Secondly, on your second question. The 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 or the opportunity also for single-use technologies again, if I got your question right. Of course, we are seeing when it comes to stainless steel components, then, of course, you would find more local Chinese companies that are able to provide certain of such components than this is the case in single-use technology. 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. Overall, we do not see any significantly changed regulatory or any competitive environment in China at this point in time. Again, definitely, as we always have said, China is a market that we are putting a lot of effort into developing that also further for us, and this market will tick slightly differently than others do, but that has been expected for a long time. On 2022 and our CapEx and OpEx-related activities, your related question of whether we do expect strong growth for 2022. Indeed too early to even give a halfway significant qualitative answer to that question. 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 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. 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. 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 Leuchten from UBS. Please go ahead. Oh, 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 over what you just reported in Q2. Is that linked to the CapEx phasing, and will debottleneck as we go into 2022? Is that the best you can do with the existing program, and there needs to be more CapEx to service the order book, so the order intake growth that we've seen? Same theme, but maybe slightly different question. The second question, just 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 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? 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." 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 is that too early to say? Thank you. Yeah. Thank you also for these questions. On CapEx and in how far our build-up of capacity, and the phasing of those capacities coming online, relates to what we project for H2 versus H1. Indeed, most of what we are investing into at the moment 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. Therefore, that 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. 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 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. 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. Therefore, there is not a one-to-one link, again, between our own CapEx and additional capacities coming online and what we are expecting for the second half of the year. Headcount. I understand that you are asking 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 you know our midterm plan, which means that we want to achieve EUR 5 billion of sales revenue. That's substantially more than what we have today. Even then, of course, we don't expect that to be a steady state, but still a state within like a milestone on a significant growth path. That means we have to continuously make sure that we have sufficient people to support our revenue growth. 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 it was extremely high. 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 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. Be sure we will share whatever insight we will get in the meantime with you. Thank you. Next question is from the line of Paul Knight from KeyBanc Capital Markets. Please go ahead. Joachim, 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? Secondly, are you seeing customers increase capacity for cell therapy and mRNA and the new modalities that seem to be emerging, but are they significant yet? Thank you. Yeah. Absolutely right. CDMOs are very busy and all CDMO capacities are very much sought after. 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. 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 broad network, but still, a significant one and still expanding. I would say for sure that has driven a lot of what CDMOs are facing at the moment. I think the trend that we've seen before that CDMOs are getting involved even more often and are benefiting proportionately from also the increase of business with or the growing demand for monoclonal antibodies. I think that hasn't changed. That's still an underlying trend. Of course, exactly as you are asking for in your second question, cell therapies, mRNA, et cetera, are then new modalities where also different types of customers are building up capacities. We do see specialized CDMOs that are building up capacities for that. 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. I think it's a very diverse picture. As we have seen it for a long time, 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. You see really all kinds and mixes of this business model. Nevertheless, maybe that was a very long answer to your question. We do see capacities being built up also for cell therapies. Thank you. 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. Second question, actually on margins. 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. Actually, maybe I'll add in a third and just think about the vaccine efficacy against COVID, at least the Delta variant against symptomatic disease seems to be wearing a little thin, maybe leaving to boosters being required. Are you seeing a greater change in the picture of demand from your customers as, is Delta changing that? Is that increasing because of Delta? Thanks very much. Yeah. The Octet business includes a certain portion of recurring revenues. That number is, I believe, a good 20% at the moment. 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. We do like very much all recurring elements of such placements also. We definitely see a very significant demand for such instrumentation. We also see a nice demand and acceptance for newer versions and one newer version that we have just launched to the market. We believe that this business should continue to grow in a nice way. I would prefer that we first complete the first full business year with that, having this business on board before we maybe give a little bit more insight here. We also know that last year was maybe not the best comps for that, given the lockdown of labs first in Asia, then later in the U.S. Maybe growth that we are seeing here at the moment, which is very nice and very significantly double-digit, is maybe a little bit higher than one would expect for normal years. 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. Therefore, we simply wouldn't like to comment on that. We do not believe that it would be too significantly 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 high extent organic growth, would probably lead to higher margins, but that non-organic additions would more likely than not lead to certain dilutions, at least over time. That is still an assumption that we would use as a base for our guidance, probably. 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. Maybe that explains also another element for the actual situation. 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, a 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. Let's see what exactly the impact will be, but I definitely 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. 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. Again, 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. 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? Thank you. Yeah. 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. That indeed means that the contribution from this business is significantly lower than for the first half of the year. Not zero, because the baseline has been significantly higher in the second half of last year. Nevertheless, lower. 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 tests 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. Again, I definitely would refer to the statement regarding uncertainty, at this point. We thought indeed that in the second half of the year, demand would go down to some extent. Maybe one additional remark. We typically say components for corona tests, and then we sometimes mention membranes, diagnostic membranes, as well as pipette tips. There is 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. Yeah, I hope that answered your question. Indeed, expectation is quite a bit lower for the second half of the year. Yes, it did. Thank you. Next question is from the line of Scott Bardo from Berenberg. Please go ahead. Hi, guys. Thanks for taking my question. A few questions, please. Some maybe technical ones in dissecting the growth, if you like, of the Bioprocess Solutions business. I know difficult, Joachim, 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 these stocking patterns or inventory management protocols for your customers? 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. That would be helpful. The second related question, please, on the COVID-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 EUR 330 million in revenue, so to say, which is actually relatively small in the context of your BPS business, I think around 13% of your guided revenues for the full year. 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? Do you already have some sense 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 BPS appears to be accelerating. I wonder if you could help shine some light on why you think that is. Thank you. Yeah. Thank you, Scott. 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. On the first one, probably, inventory management, I really would be shy to quantify that. It will be a little bit like the remainder of when we talk about maybe the other factors. 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. We do believe that it is somehow relevant. Corona, it's important to see how we calculate these numbers, and what that means then for total business. When we say 20 something% of contribution to our total growth, then this relates to last year. Last year, particularly of course, in the second half of the year, we already had business and we quantified that back then with the manufacturers of COVID vaccines. If we add that, we basically say, and this is like the baseline. That means that we see something like EUR 500 million of business with the manufacturers of COVID vaccines. 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 EUR 500 million. That is, I believe, very much in line what one probably sees at other companies with somewhat comparable product portfolios. Then you are asking for the underlying growth and that has obviously accelerated. 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. You were asking for the trending, of course, of the COVID business. COVID-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, 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 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, that's why we will not give a guidance for this piece of our business and therefore also not for our overall business next year. At this point in time, we'll do this pretty much in 6 months from now. 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. That would be like a tailwind element. The question is how will be the phasing out of this actual order pattern that we would interpret into what we say into next year. 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 three months from now. No, I understand. Thank you. Maybe just one point of clarification. When you refer to EUR 500 million in COVID sales, so to say, am I right in saying that that's a cumulative number? EUR 150 last year, EUR 350 this year, a cumulative number? Exactly, Scott. EUR 150 that we made last year and are also doing this year. This year on top of this EUR 150 there is another, say EUR 350 and that is EUR 500. Understood. Okay. 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&As. You keep acquiring businesses, but your leverage stays pretty low, right? Because your cash flow is so strong. Do you still see a sufficient pool of potential acquisition targets going forward? Would you start to consider share buybacks or other types of shareholder returns? Second question is on input costs. Do you notice anything there? Any rise in costs currently? If that's the case, how much of that can you typically pass on to your customers? Yeah. Thank you. Actually, the market for M&A or M&A opportunities is as lively as never. 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. Most opportunities we don't believe would be a good enough fit to what we are looking for, which is, first of all, a very complementary but still very innovative business that makes our offering more relevant to customers. Of course, it's also valuation. Frankly, of course, valuation for businesses is very, very high at the moment. Therefore, in some cases, we also would say, well, we believe that the valuation might be too high. Then it's about the cultural fit and our view on successful integration process can be managed. However, as we see a very significant number of opportunities, or as you would say, the healthy pool for such opportunities, we definitely do not consider any other utilizations for our cash, like share buyback programs also. Absolutely not at this point in time. Input cost. We do see that in some areas, not too significant at the moment. 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 longstanding relationships with our suppliers. We also have longstanding relationships and agreements with our customers. 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, et cetera. 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. We also haven't, in turn, tried to increase our prices in front of customers, in the situation of their urgent demand. Pretty much not very influential on our numbers so far. Okay. Thank you. Next question is from Hugo Solvet from Exane BNP Paribas. Please go ahead. Hi, guys. Thanks for taking the questions. I have two. First one on capacity increase, and especially those that will come 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 a smaller one? Second, Joachim, you mentioned that Edwin to COVID sales, in a few quarters or in 2022 could be a more efficient production line 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 trying to cope with demand? Thank you. Yeah. Maybe on the second question first. At the moment, it's indeed more the latter. 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, et cetera. 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 doesn't change the process as such, but already helps typically to improve the overall efficiency of the manufacturing process. There we have been a very, I would say, integral part of such efforts, particularly at 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. We will maybe give that as a more tangible, quantitative guidance when we share with you our expectation for the year 2022. 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. 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 helps very much. Thanks. There are no further questions at this time. I would like to hand back to Dr. Joachim Kreuzburg for closing comments. Please go ahead. Yeah. Thank you very much. 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 we 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. It's really a very dynamic and volatile time in these days. 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.