Sartorius Stedim Biotech S.A. (SDMHF) Q4 2022 Earnings Call Transcript

Sartorius Stedim Biotech S.A. (OTCPK:SDMHF) Q4 2022 Earnings Conference Call January 26, 2023 9:30 AM ET

Company Participants

Joachim Kreuzburg – CEO

Rainer Lehmann – CFO, Member of Executive Board

Conference Call Participants

Odysseas Manesiotis – Berenberg

Matthew Weston – Credit Suisse

Michael Leuchten – UBS

Richard Vosser – JPMorgan

James Quigley – Morgan Stanley

Paul Knight – KeyBanc

Falko Friedrichs – Deutsche Bank

Delphine Le Louet – Societe Generale

Operator

Good afternoon, ladies and gentlemen. Welcome to the Sartorius and Sartorius Stedim Biotech Conference Call on the Preliminary Full Year 2022 Results. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Dr. Joachim Kreuzburg, CEO. Please go ahead, sir.

Joachim Kreuzburg

Thank you very much. Happy New Year, everyone, and welcome to our today’s conference call on the preliminary results of the year 2022 for both Sartorius AG as well as the Sartorius Stedim Biotech. Thank you for your interest. Together with Rainer, our CFO, I will kick it off. We will first talk about the results of the Sartorius Group and then later on, on those of Sartorius Stedim Biotech.

Let me start with a brief overview on the most important results for 2022. It has been another successful year after two years of very dynamic growth. We have been able to grow both divisions double digit. Overall, we met the targets that we tried to achieve, even though the corona business came in substantially lower than we thought at the beginning of the year, as I think everybody has recorded for 2022. Also, our underlying EBITDA is up substantially. Our margin is pretty close to the high pre-year level.

For 2023, this is a bit special now, and I think some of you will have seen that already when looking at the respective guidance’s by other companies from the industry. We expect a low single-digit sales growth overall mainly because of we are now seeing the tail of the corona effects, excluding the COVID business, we are expecting high single-digit top line growth. For the underlying EBITDA, we expect the margin to be around the same level as in 2022.

For 2025, and we said that since mid of last year, we have looked into our ambition. We fundamentally confirm those numbers in regards to all essentials because we see all the underlying market fundamentals to be completely intact. However, because of the higher price levels that we are seeing following the higher inflation rates for 2022 and the one that we would expect for 2023 and beyond, we have shifted up our total sales revenue target to €5.5 billion. We leave the margin target unchanged at 34% for the group. I think it goes without saying that the uncertainties overall remain very high, both from a political as well as economic standpoint, I believe.

And with that, I hand over to Rainer.

Rainer Lehmann

Thanks, Joachim. Also welcome from my side to today’s call as well as Happy New Year. As always, let’s have a look at the figures, as Joachim already mentioned, really another very successful year. Revenues increased by 21% and reached €4.175 billion. So that actually fracked another milestone here by breaking the €4 billion mark.

In constant currencies, this was a growth of 15%. Out of that, 2 percentage points were contributed by acquisitions. And also this number includes a bit less than what we anticipated in COVID revenue. This one amounted at the end of the day to €220 million in 2022.

Order intake decreased as expected by 10% and – so the normalization continued in the fourth quarter as we anticipated due to mainly, of course, the lower COVID business. If we would exclude the COVID-related business, we would have actually had a slightly positive growth on the order intake, which at the end amounted to €4 billion.

The underlying EBITDA grew by 20% to €1.4 billion. So that’s pretty much the margin as on the previous year level, reached 33.8%, so 0.3 percentage points lower than last year. Here, mainly attributed to the, yes, anticipated catch-up in our cost base that we talked about during the last quarter, as well as some slight FX-related headwinds.

If we look at the geographical distribution of the revenue. Let’s start from the left-hand side, we see the Americas fantastic growth, 21.5%, almost to €1.54 billion. The Americas contributed here both on – with both divisions to that success. In the EMEA region, in the middle, we achieved a revenue increase of 9% to also €1.5 billion. Let’s keep here in mind that we really had tough comparables. You know the growth as here in 2020 as well as 2021 were fueled by the COVID-related business. Let’s also keep in mind actually that the business in Russia decreased significantly in 2022.

Asia Pacific, also nice development here, double-digit 16.2% growth to a little bit over €1 billion. Also both businesses performed well also against to minus [ph] actually quite high comps. If we have a look at the donut on the right-hand side donut chart, we see actually a little shift between the regions. If we look at – if we compare to 2021, EMEA has now 37% of the revenue share that is down 4 percentage points. And those 4 percentage points were actually gained by the Americas that are also now on 37%. Of course, let’s keep in mind that also the strong dollar had an impact here. But nevertheless, it also reflects the better growth rates that we could achieve in the Americas. Asia Pacific contributed as previous year was 26%. I also want to point out here that in that region, the partial lockdowns that we – that incurred over the last quarter in China really had no significant impact on our business and the growth in Asia Pacific.

So let’s have a deeper look into the divisions. On the next slide, we see Bioprocess Solutions. Revenue increased 22% to €3.3 billion. That’s an increase of almost 16% in constant currencies. Here as well, acquisitions contributed 2 percentage points. The COVID-related business significantly down compared to previous year amounted now to around €200 million.

And the order intake on the left-hand side, we see, as expected, down 10.4% to €3.1 billion in constant currencies here, a reduction of 14%. Again, let’s keep in mind, if we would exclude here the corona-related business, this would have been slightly positive.

The underlying EBITDA margin was pretty much on previous year level, maybe a little bit, of course, impacted by the anticipated increase in the cost base that we talked about us – throughout the last quarter that now is pretty much in effect. And therefore, is around – is 35.7% in absolute numbers, almost €1.2 billion, an increase of 20.5%.

If we look at Laboratory products and Services. Here, we also have a really very successful year. Sales revenue increased in constant currencies by 11.5% to €848 million. Here only acquisitions contributed 1 percentage point. And we also pointed or – I’m naming here, the COVID-related business is around €20 million, of course, significantly lower the impact of that than on the Bioprocess Solutions division.

Order intake, up 7.5% by in constant currencies to €885 million, really a very dynamic development also mainly driven by our Bioanalytic business, which is performing very well over the last years and also was the driver of the 2022 increase – our growth for order intake as well as sales revenue.

The margin, we could slightly increase to €222 million basically an EBITDA margin of 26.2%. And that was actually despite also here the anticipated increase of the cost base, but also some FX-related headwinds that we have here.

We then have a look at the – some key performance indicators. On the next slide, we actually could not fully, let’s say, translate the underlying EBITDA of €1.4 billion to the same growth or growing by 20% to the operating cash flow. That is mainly due to higher inventories to support our supply chains. So here, the cash flow related from the increase of working capital is around roughly €300 million. Just to put some color to this.

The financial result, as in the previous quarter, as we mentioned, is mainly driven and influenced by the valuation of the BIA separations earn-out liability. The underlying net profit increased, therefore, by 18.4% to €655 million. The reported net profit increased. And let’s keep in mind here that, of course, the valuation has a big impact on here by – increased by 112% to €678 million.

Investing cash flow, around €1.1 billion. That actually is roughly €536 million is attributed to acquisitions. Keep in mind, the acquisition of ALS at the beginning of 2022, but also Novasep, as well as then the biggest acquisition in 2022 Albumedix in the third quarter and the remainder of the €1.1 billion, so the €593 million is related to CapEx, mainly to – in our production facilities around the world. So that ultimately, our CapEx ratio stayed a little bit below our guidance with 12.5%. As you know, we guided 14%. So we had that adjusted. Yes, at the end came in with 12.5%.

On the next slide, we see our usual development of our equity ratio, a nice increase of to 32 — 38%. So very healthy financials. Net debt increased, of course, driven not only by working capital, but mainly also by the acquisitions to almost €2.4 billion, but a more relevant figure and net debt divided by underlying EBITDA at a healthy 1.7%. And on the right-hand side, you can see, of course, after each acquisition, which we always try to deleverage in the following quarters, and we plan to do so as well going forward.

And with that, I would give back to Joachim.

Joachim Kreuzburg

Thanks, Rainer. So you already heard a bit about acquisitions and CapEx when Rainer talked about the cash flow key figures. I would like to highlight just briefly the CapEx side of things. But maybe before I do so, I just want to remind everyone, as we mentioned before, we made three acquisitions also during 2022.

When we take a little bit of broader perspective on the years 2020 through to ’22, it has been 10 businesses that we have been acquiring and integrating. I’m just saying that because we were doubling our sales revenue in that time period or more than doubling our sales revenue actually in that during the time period and made quite a number of acquisitions.

So we have been quite busy also on the front of adding capacities globally. And you see this on this chart. We invested a bit more than €0.5 billion during 2020. The CapEx ratio was 12.5%. You have heard that before. And you can already see here that we are planning the same level for the year 2023.

This is very much a global exercise or international exercise, we are expanding our capacities in all regions and also for all product segments as we have a broad distributed growth. We are growing in both divisions and also within the divisions across our product portfolio.

Just a few pictures also on those sites where we are running larger capacity expansion projects, Ann Arbor, Michigan, is one example that is quite advanced. The same is for Göttingen, where we are – we’ll start casting membranes in these new buildings quite soon.

In Yauco, we have expanded our manufacturing footprint substantially, added cell-culture media to it. Aubagne, France, where is the main location for our bag manufacturing. We are expanding our footprint substantially. The same on a smaller scale is in Beijing, China, where we are expanding our local manufacturing of bags, so bags made in China for China. And then in Songdo, South Korea, we are just about to start building a significant facility to serve the quite relevant South Korean market and also the market outside Korea in the Asian region.

So – and now I would like to shift the perspective on 2023. I already mentioned at the beginning that we have to really take a look on two or take two perspectives on those numbers. One is what I would call the, let’s say, the all-in growth rate that we are expecting, which is low single digit for Bioprocess and mid-single digit for the Lab division and, therefore, also overall for the group, low single digit.

But that includes a further significant decline that we expect for our COVID-related business. If we exclude that, then we are expecting both divisions and therefore, also the group to grow high single digit for BPS. And accordingly, also for the group, this includes 1 percentage points from acquisitions. So particularly, it’s the Albumedix acquisition as this took place rather late last year. We expect the underlying EBITDA margins for both divisions and the group to come in around the level of 2022.

What I would like to underline is we believe that we should again perform at least on market level. We have been growing substantially stronger than the market throughout a long period now and particularly also during the period 2020 through to ’22. And again, therefore, explicitly also during ’22.

I don’t think that I have to read out all the comments made here. CapEx ratio, I mentioned already, net debt underlying EBITDA, I think, has been touched upon by Rainer before. So therefore, what I would like to do before then shifting to Sartorius Stedim Biotech is briefly talk about the midterm ambition for 2025. Just as a reminder, we first published our prospectus for ’25 at the beginning of 2019, I believe. At that time, we were shooting for €4 billion of sales revenue. In the meantime, we have shifted this to €5 billion, and we also shifted our margin expectation quite a bit to 34%.

And while we leave the margin expectation unchanged, we think that we have to adjust the top line guidance a bit upwards by approx 10%. And this is because of inflationary effects.

But before I come to that, I would like to draw your attention to the fact that we are currently running ahead of our midterm plan by roughly 1 year, even a little bit more than 1 year. And what you can see on this chart is the yellow line that represents the growth curve from ’19 through to ‘25%, even including now this upward shift a bit, which would lead to a compound annual growth rate of 20%. Excluding this shift, it would be 18%.

And this rate is already quite significantly higher than the historical compound annual growth rate of 13% from ’15 through to ’19, which again, was higher than the market back then. But as you can see for the period from ’19 to ’22, the compound annual growth rate has been 32%. And as we already were talking about since mid of 2020, this growth rate is not back – hasn’t been backed by a respective fundamental increase of demand, but it was driven by this additional corona demand but also substantially by temporary effects of different ordering behavior of customers.

And what we are seeing now is like the correction of this and customers are now shifting back to normal – more normal stock levels. And that, of course, leads to also us now moving back towards the underlying growth path.

And this we wanted to share with you in this graphical representation on this chart. But again, nevertheless, we have shifted our ambition for 2025 by 10%. You see that this is the case also for both divisions. It’s just rounding that we came up with 4.2% and 1.3% for the two divisions, which looks slightly different than 10%, but essentially, it’s 10% for both divisions. And therefore, for the group, €5.5 billion now is our top line target for 25%. And as said before, we leave the EBITDA margin target unchanged at 36% and 28%, respectively, and 34% for the group.

I now would like to talk briefly about the results of the Sartorius Stedim Biotech Group. As always, they are very much in sync with the development of the Bioprocess Solutions division. So what you see here is that our sales revenue was up by 15%, including one in constant currencies, including 2 percentage points from inorganic growth.

Order intake was down by a little bit less than 10% because of the effects that Rainer was explaining before. EBITDA was up by a good 18%, then margin slightly below the previous year’s level for yes, partially, of course, non-currency effects, but mostly because of the expected catch up of the costs.

From a geographical standpoint, also here, most comments have been made before. We should keep in mind, of course, that EMEA, which is posting the lowest growth rate for 2022 is – has been showing extremely high growth rates before because of the strong portion of European players in manufacturing COVID corona vaccines. So overall, a healthy distribution of our geographical growth and also a healthy distribution of our sales by region, as you can see there.

Regarding cash flow, again, this is very much our high level of investments, as well as the effects coming from working capital and then also those from the earn-out – BIA separations and other effects that Rainer was talking about before already. CapEx ratio, you see here has been 12.3% for Sartorius Stedim Biotech.

Therefore, also the balance sheet and other financial KPIs look very healthy, I would say. Equity ratio, almost 50%. Net debt to underlying EBITDA is still below 1.0 even though we are investing significantly both in organic and inorganic growth.

And then I don’t want to walk you again through this conceptual chart on why we are on and how we are running around one year ahead of our midterm plan. But you can see that this particularly holds true for our Bioprocess Solutions division and, therefore, also for Sartorius Stedim Biotech. And of course, we also have shifted, therefore, our midterm ambition, but before we show that one. I briefly talk about the outlook for 2023 which is at low single digit all in, as I described that before, but then excluding the COVID-related business and the respective effects that we expect for ’23, we expect mid to high single-digit growth for Sartorius Stedim Biotech. FX also around 12.5%.

And the further decline of our embedded ratio provided that we would not make any further acquisitions. As always, we never try to factor those into the numbers. We update rather such forecast if we make any acquisitions. And underlying EBITDA margin, we expect at the same level as for ’22.

So – and then finally, coming back to our ’25 ambition. Also here, we increased the top line ambition and target to €4.4 billion after €4 billion before reflecting the higher price levels because of the inflation that we have seen in 2020 and that we anticipate going forward, we leave the profitability target unchanged at above 35% for Sartorius Stedim Biotech.

Thank you so far for your attention. And now we are looking forward to your questions.

Question-and-Answer Session

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] We have the first question from Odysseas Manesiotis from Berenberg. Your question, please.

Q – Odysseas Manesiotis

Hi, Joachim. Hi, Rainer. Thanks for taking my questions. So firstly, taking from your peer’s recent statements or your backlog and customer discussions, would it be fair to assume a stronger H2 ’23 compared to H1? And would you expect book-to-bill ratio to improve the historical levels by the second half?

And secondly, also given that you had some FX headwind in your full year 2020 EBITDA margin, what negative profitability factors would essentially replace this negative FX impact for you to guide 2023 margins in line with 2022? Is it simply a factor of increasing your core to emission reduction expense from 50 to 100 basis points? Or are there other factors involved as well? Thank you.

Joachim Kreuzburg

Thank you very much for your questions, particularly the first one, I believe, is an important one and one that is discussed widely in the industry at the moment. So absolutely, as you assumed, we also expect as other players as well, different halves of the year 2023, we would expect H2 to be quite a bit stronger than H1 indeed.

We expect and we – I think we were talking about that during our last two or three calls already that we would expect the beginning of the year to still show – quite some effect of normalization as we talked about, whereas around mid of this year, we expect then to rather see orders and sales revenues to be more in sync again and that this reduction of order of stock levels that some customers to also have come to an end.

It’s very difficult to be very precise at this moment. I think it’s too early to be more precise than that. But from our today’s perspective, we definitely would expect H2 to be stronger than H1 indeed. And for the FX effects, I hand over to Rainer.

Rainer Lehmann

Yes. So regarding the nature of our FX effects are, of course, the positive one is the strength in the dollar that we’ve seen in 2022. But of course, that unfortunately is being compensated by the hedging – hedging hedges that we do. And here, again, the dollar is the most relevant one for us where, of course, we hedge 12 to 18 months ahead. So this is actually a rolling forward, therefore, in 2022. The positive impact of the general P&L effect has been diluted or actually even completely compensated by those negative realization of hedges.

Going forward, and this really depends, we were down pretty much to parity in around Q3, also beginning of Q4. Now we’re back a little bit to – that the euro gained a little bit of strength. So we still will see a little bit of FX happen most likely at the beginning, but that should then bleed out hopefully over the end of the year.

Odysseas Manesiotis

Thank you. That’s very clear. And sorry, just to squeeze one more in there. So that 100 basis points costs that you’re assuming for your CO2 emission reduction program. Is that going to be relevant after 2025? Or should we not consider it as such?

Rainer Lehmann

Yes, we expect that to continue playing a role. We, at this point, believe that the – that costs for – for example, energy with a lower CO2 footprint or transportation services with the lower CO2 footprint, et cetera, to rather be more expensive than whatever, more traditional sources and suppliers, that probably will change at some time, but I don’t think that this will be already the case after 2025. So they will, we believe, continue playing a role.

Odysseas Manesiotis

All clear. Thanks for the answers.

Operator

The next question comes from Matthew Weston from Credit Suisse. Your question, please.

Matthew Weston

Thank you. Two for me, please. The first just a follow-up. And Joachim, do you think that the BPS book-to-bill ratio has troughed in 4Q of ’22? Or do you think it’s potentially got further to fall as we get customer order normalization in the first half of this year?

And then secondly, a question about price trends. On the 3Q call, you alluded to the fact that you anticipated taking another substantial chunk of price at the beginning of ’23. Could you let us know what’s happened in terms of pricing for LPS and BPS going into this year? And what that means to the underlying run rate is likely to be for the full year?

Joachim Kreuzburg

Yes, sure. So to be more precise than we have been so far for B2B as a book-to-bill ratio is honestly also quite difficult on a quarterly basis as this is quite – I mean, to our standards a rather short period of time. So what we believe and we said that already, I think, mid of last year is that we would expect the beginning of 2023 to also rather show book-to-bill ratios below one. Again, quite difficult to be more precise.

I think the – in our perspective, most important message is that all the market fundamentals, we really consider to be fully intact, be it the, let’s say, the fundamental demand for drugs, but then – and therapeutics, vaccines, et cetera, and then also for the respective technologies to develop and produce those products, but also in regards to the pipeline of innovations, both of the developers and manufacturers of medical products and pharmaceuticals, in particular, but also in regards to their need for innovative technologies for such new modalities partially.

So that’s the key thing, we believe, and we believe that even though, of course, we fully understand the interest in as precise as possible predictions on some more detailed trends, we believe that those are not really important for any fundamentals here. So long story short, book-to-bill, we expect to be below one, maybe for the first two quarters this year, but it’s difficult to be more precise.

Price trends, we indeed shared with you before that at the beginning of 2023, we would introduce another adjustment of the price levels in sync with the inflation. I think what one can say is that the inflation rates have been going down already a little bit, and the perspectives seem to be also a bit more optimistic in that regard going forward.

The level of price adjustments that we are introducing now is reflecting that. So we are rather introducing mid single-digit price increases, but the guardrail for us anyhow is to balance the effects that we see on our cost side coming from price effects there on the – on our sales prices. So – and there, we are quite optimistic that this should be the case, and we factored that into our guidance for 2023 accordingly.

Matthew Weston

Thank you very much.

Operator

The next question comes from Christian Faitz from Kepler Cheuvreux. Your question, please.

Unidentified Analyst

Yes. It’s actually Elmy Miranda [ph] from Kepler Cheuvreux. Thanks for taking my question. And the first one is on market share. There’s obviously different dynamics you were able to deliver when others didn’t have any kind of capacity. So can you just talk about to what extent that is currently a headwind from certain accounts, excluding COVID?

And on the other side of the equation, obviously, you were able to get a foot into the door with some kind of new clients where you probably may gain going forward. So can you just talk about the dynamic of these two factors?

And second question then on LPS. If I look at your guide for 2023, it points to mid single-digit growth. And I guess when we consider the dynamic in Bioanalytics, this should probably loan drive more than 7.5% growth in that division. So it’s the right way to think about it, you’re expecting negative growth outside bio way [ph]

And the third question also on LPS, obviously mid single-digit growth for 2023. But in order to get to the €1.3 billion guided implies more than 20% sales growth in ’24 and ’25. So can you just share with us your thoughts in terms of the split of this growth between organic and M&A? Thanks very much.

Joachim Kreuzburg

Yes. Let me answer question three and four. And maybe then you can repeat your first two questions, please, because on market share because it was hard to understand them here. The line isn’t that good, unfortunately.

So on LPS, 2023 and our guidance there for top line development. So we are not planning for a negative growth for our – what we call Lab essentials business. The fact that we are not more aggressive in regards to our growth targets reflect the fact that we have been seeing quite a high level of demand and therefore, also growth in that division. Again, also, we were growing above the market. But overall, the market was rather healthy during the last two years.

And I guess you are partially also discussing these – the question of in how far the more difficult funding environment for early-stage biotech firms, for example, would have an impact on growth. So we are not that exposed to customers that are depending on funding. However, we would say that the overall investment mood in the – also in the lab domain is a little bit more muted than it has been probably before.

So therefore, we believe that 2023 will be showing a lower market growth than the years before and our growth expectation here is mirroring that. So it’s not that we are particularly having a negative view on our Lab essentials business.

And on ’25, you are right. We are including some assumptions on inorganic growth. This portion of inorganic growth will maybe a little bit larger, the portion, not necessarily the absolute numbers. The portion will be possibly a little bit larger for LPS and represented a more significant double-digit percentage of the overall top line growth. That’s absolutely correct.

By the way, also in line with what we have said even back in 2019 when we were defining the target the first time for ’25. At that time, it was €1 billion for LPS. But even then, we said, well, inorganic growth contribution for LPS might be relatively higher than for BPS.

But then, of course, let’s see, it all depends then also on the size of targets, the timing, et cetera, whether that then materializes exactly in that way. But yes, our model is built like that. And then again, please, could you repeat your question around market share?

Unidentified Analyst

Yeah. Of course, sorry for the bad line, quality. I hope you can hear now. So it’s just about the dynamics and BPS. So obviously, during the last two years, we have been able to deliver capacities to clients where competitors didn’t have any kind of leeway. So now the entire industry is obviously ramping up capacity. So in these accounts, what do you expect any kind of headwinds in terms of market share?

And I guess, in other clients where you did not have a foot in the door, you now enter these accounts and may probably grow. So I’m just wondering if you can talk about these kind of dynamics and which one of this is relevant or another way of asking this is, obviously, do you believe from here onwards, do you believe you can continue to gain market share?

Joachim Kreuzburg

Yes. Okay. Thank you very much. Now it was clear. So yes, absolutely correct. What you are saying during the earlier phases of the pandemic, I think we – our delivery ability was above average, and that – then resulted in exactly the effect that you were summarizing. We were gaining business proportionately, also from customers that were looking for a second or third source in some areas.

There is not one answer that fits all cases. There are different behaviors by customers. By and large, we would say we would consider quite a significant chunk of these market share gains that come from that very effect. And it’s not the only effect why we are gaining market share to be sustainable. We don’t think that everything will just bounce back. That’s not what we are seeing. And as it is not the only effect for our market share gains, we also believe that we should be able to continue gaining market shares.

The – there are a couple of main drivers for this and also the drivers that have been playing a role before the pandemic. And those have been won clearly that our presence and relevance also in the U.S. is a completely different one than 10 years or 20 years ago. And that means that the portion of new business that we are winning is much larger than it has been back then. But of course, the overall business always reflects to a good portion as so much of the sales revenue is recurring that the overall business always reflects a good portion of the past.

So that’s one driver. And the other driver is, of course, the, let’s say, the bandwidth and again, relevance of our product portfolio in quite a number of areas. Our product portfolio has been strengthened substantially when focusing on BPS. And the effect that you were mentioning before is a – has been a BPS effect. I would just mention that we have strengthened our portfolio in downstream processing substantially, in regards to classical chromatography but also intensified chromatography for instance. And then we have built quite a comprehensive portfolio of what we call critical raw material, less reagents, media for particularly new therapies, and that pays off. We are winning a substantial chunk of business in that market segment or in those applications, and we expect that to continue.

Unidentified Analyst

That’s very helpful Thanks so much, indeed.

Operator

The next question comes from Michael Leuchten from UBS. Your question, please.

Michael Leuchten

Thank you very much. Two questions, please. One, just a follow-up on the market shares. Customers have gone to deal specking some processes. Do you expect that to reverse and those process going back to single specking? Or do you think that your specking is now there to stay, and we shouldn’t worry about who gets kicked off projects over time?

And the second question, just on the inventories in the channels. Is there a degree of expiries for those that matter? Is that a variable that could help reducing inventories as 2023 progresses and inventories just expires because the channel flight [ph] is over? Thank you.

Joachim Kreuzburg

Yes. Thank you very much. Really relevant and interesting questions, addressing quite some detailed mechanics of the market indeed. So we don’t see that customers who have gone through the effort of establishing a dual or a second source would go back to a single source typically, so that we wouldn’t see.

That doesn’t mean that both sources are used to the same level. Again, there is not one answer probably to the question in that regard or in a quantitative manner but qualitatively, one can say that nobody would really go back to a single source effectively.

On inventories and limited shelf life, yes, you’re absolutely right. Products, the products that we are talking about here and when we are talking about inventories, indeed, we are talking about consumables, single-use products. Those are sterilized before used, and they are ready to use their customers, so they have been sterilized. That is one reason, not the only one, but one reason for limited shelf life.

But we wouldn’t expect the limited shelf life to play a major role for at which point in time the inventory levels at customers are back to their desired levels. We – again, it’s a relevant aspect per se, but we don’t think that this should play a major quantitative role.

Michael Leuchten

Thank you.

Operator

The next question comes from Richard Vosser from JPMorgan. Your question, please.

Richard Vosser

Hi. Thanks for taking my questions. Joachim, when back at the end of ’21, you highlighted, I think, that you thought 5 percentage points of growth in ’21. And I think an additional 5 percentage points of growth in ’20 had come from maybe stocking up at customers, which could equate to a couple of hundred million of destocking. Is that what you’re thinking about in terms of the total level of destocking through 2023?

And also just a clarification, a lot of your peers are sort of suggesting that the destocking would only be coming from customers involved in COVID and other areas. Is it that COVID type customer that you’re seeing the destocking? Is that where you’re seeing it?

And then second question, just I mean, sort of related, and I think you might have touched on it. But the order backlog that you have based on the delivery dates you see, is that coming out in Q1 and Q2? Or is some of that backlog deliveries in the second half as well?

And then final question, please. Just thinking about the M&A priorities in ’23. Obviously, you mentioned 10 deals. They’ve been – I say some of them – a big, some of them small, where are you sitting in terms of deal size at the moment and areas like mRNA, et cetera? Thanks very much.

Joachim Kreuzburg

Yes. Thanks for the questions. So we think that maybe the best number to use – to estimate the exceeding stock levels at customers is to take a look on the book-to-bill ratios that we have seen during ’20 and ’21. And I’m saying that absolutely being aware of the fact and also with you know, wanting to ask everybody to take this always with a grain of salt, that the more you take a, let’s say, a more narrow view on book-to-bill ratios like on a quarterly basis or so, I would not recommend to take those numbers for being too relevant. But on a longer time horizon, they make quite some sense. And for ’20 and ’21, the book-to-bill ratios have been approx 1.25, 1.28, whereas our usual level has been around 1.08, somewhere around that figure.

So we had two years where the – where we had 15 to 20 percentage points higher order levels than we usually would have had. Now if we take that and then deduct approximately the €500 million, for example, of COVID business in ’21 and then the 220 in ’22, a bit already before in 2020, then you get a feeling for the exceeding orders that have been not directly related to COVID business. So – and therefore, I would say if you do the math, you come up with a higher three-digit million euro’s number of orders that are rather representing exceeding stock levels.

Have that been just companies that have been involved in manufacturing, corona vaccines? No. But clearly, they have played a role here, clearly. So some of those have been particularly been exposed to the need for ensuring their supply chains, and they have been particularly keen to do everything that was necessary to maintain that.

So therefore, I would say we wouldn’t define the group of customers that have acted like that as narrowly as maybe some others have experienced that. But clearly, those customers have played a particular role.

And on M&A in ’23, I mean, I guess you understand that this is a question that I can almost not answer. What I can say is that we continue to be interested in adjacent additions to our portfolio complementary additions. We believe that there are a number of highly interesting companies out there. Maybe some won’t be for sale. Maybe some others might be open.

What one can say is it’s also a very competitive landscape out there. So one thing is what we find interesting. The other thing is what might be then achievable and executable. So let’s see. But clearly, we, I think, have a clear focus. We have a decent track record. We have reasonable financing power. So let’s see what we will be able to achieve.

Richard Vosser

Excellent. Thank you very much.

Operator

The next question comes from James Quigley from Morgan Stanley. Your question, please.

James Quigley

Hello. Thank you for taking for taking my questions. Just circling back on the pricing impact. You mentioned in the middle of last ’22, you had a high single-digit price increase and then you had – even you highlighted a mid single-digit price increase for start of this year. So can you just let us know what the pricing impact is on average throughout 2023 across BPS and LPS, respectively?

And then as we think about modeling in the BPS division, with the 13% CAGR that you highlighted before as being sort of the historical CAGR again above market growth. But would that be the best place to start? And then making our adjustments for price and COVID and destocking?

Then on investment intensity. You mentioned again CapEx is around about 12.5% of sales there thereabouts. Can you remind us how this should trend for the coming years and where a normalized level would be? And then as we think about the projects you’re investing in, you highlighted some on the slide, but where are the key areas that you are investing in across the sort of five portfolio areas that you mentioned in BPS and similarly in Bioanalytics as well. So which areas are benefiting most from your investments/

And finally, on the order book, again, similar question as other quarters. Have you seen any cancellations outside of normal course of business or outside of COVID orders? Thank you.

Joachim Kreuzburg

Yes. Thank you very much. So on price increases, I think you’re very well aware of the fact that we have to consider here before I mention the number that we had a price increase that was reflecting the substantially higher inflation rates around mid of last year only. And then, of course, until this hits the sales revenue, it still takes some time because you always have quite some order book that you are executing first where orders have been pulled in at the previous price levels. So therefore, we would consider and there’s not much difference between the two divisions.

The effective price effect above the usual level of being low single digit, because you have timing and so on and so forth. So therefore, that was definitely, yes, as I said, a low single-digit number. And for the year 2023, and I guess I said that before, we are introducing a pricing round and the price adjustment around that is a bit lower than the one that we are adjusting – that we have introduced been introducing last year.

But of course, in turn, it will become effective for most of this year. So maybe the effect then including this time shift, again, will lead to a lower single-digit effect above the 2022 price level at the end of the year, and that will mean that overall, the pricing effect above the usual inflation rates will be in total when they have been fully – become fully effective will be around 10%. And that’s exactly mirrored in our ’25 ambition. These 10% and they have become fully effective are mirrored in our ’25 ambition.

And therefore, I’m not 1% [ph] sure whether we can help you to detail out your model here in this call. Maybe this should be a separate call with our IR team later. But because by ’25 and also towards the end of this year, we expect that all those temporary effects have become – to have fully phased out by them, be it stock levels and so on and so forth. So – but again, maybe that’s a separate call.

On CapEx, the 12.5%, as we mentioned in the presentation, and you are asking for specific areas that we are focusing on, well, I think as said, we are very satisfied with the fact that we are growing pretty much across our product portfolio. And therefore, we are very much taking care of making sure that we remain having a high delivery ability across our portfolio to the benefit of our customers. And that means that we are indeed expanding our capacities in.

And let me start with bioprocessing in separation technologies. Now I could go into more detail and say, filtration in both and purification. And indeed, we are investing in both areas. We are investing into our fluid management technology capacities. We are investing into our cell culture media capacities, including reagents to cell culture media. And in the LPS division, we are particularly, of course, investing into the fast-growing area of bioanalytical instruments, respectively, the capacities that we have here.

So the latter would be particularly the facility in Ann Arbor whereas before cell culture media, one to highlight would be Yauco, but there is also one in Germany that we are expanding. Then when it comes to the fluid management domain, the first one to mention would be Aubagne, France, as I said, for China – for China also Beijing. And then our separation technology, I would particularly mention the one in Göttingen, but also the one in Yauco again. So it’s really across the board.

And then on your last question, order cancellations. Yes, I think as everyone else in the industry, we have also seen some at the lower double-digit million euro range. And that particularly in the fourth quarter, which as explained before, came in even a little bit lower than we thought as the vaccine manufacturing has been further been in decline across the board.

James Quigley

Got it. Thank you.

Operator

The next question is from Paul Knight from KeyBanc. Your question, please.

Paul Knight

Thanks for your time. Congratulations on the quarter, Joachim. The question I have is, are you seeing a heightened activity in mRNA in cell therapy and antibody-drug conjugate work? And if so, are you better positioned to capitalize off of those trends?

Joachim Kreuzburg

Yes. So I think maybe the answers would be a bit different when discussing the different modalities in more detail. But in general, I think – and I guess that wouldn’t surprise you. We are always taking a little bit longer or yes, a perspective of longer time period, and one can clearly say that we are living in a different – completely different phase in the biopharmaceutical industry than 10 years ago is maybe too simple, but even five years ago.

Back then, it was just monoclonal antibodies, you could say. And of course, they are still dominating the market. They are playing the most significant role, and they are still growing. So it’s very important to still have a very relevant and also constantly – or a portfolio where innovation plays a role. Let’s think of intensified manufacturing, for instance, which is, I think, an interesting direction in manufacturing monoclonal antibodies.

So – but you were asking for the new modalities. And here, we are seeing a lot of activities, of course, a lot of investments into new mRNA therapeutics also that have been kicked off since 2020. And we have seen also a lot of activities and do see [ph] that’s still in cell and gene therapies.

Of course, at the beginning, when such markets are young, when only a few products have made it to the market, volatilities are extremely high. And therefore, and even in the Maps [ph] market, we have seen quite significant volatilities overall in demand when you think of the effect that has come from biosimilars, for instance.

So we are talking about a market where I would say, again, it’s probably not recommendable to take it to short-term oriented look on things. And therefore, we wouldn’t say, well, maybe it has been a little bit less demand for technologies in the cell and gene therapy domain during the last, whatever, 12 months or so because that can have and very often, just is driven by one or two drugs that have made it to the market only.

So it’s early stage still in this market. But we believe it’s a highly attractive, increasingly relevant market. It’s a market for which we are offering relevant technologies and where we have a very close look on and where our sales revenues have been growing quite a bit over the last couple of years.

Paul Knight

Thank you And then last, so COVID-related business really be more in the latter half of 2023, pretty slow in the beginning?

Joachim Kreuzburg

Yes. That is – I mean, I tend to say it’s my first pandemic. So therefore, it’s – let’s see what exactly will happen. But we tend to say, well, there have been a large part of the population that has been getting vaccinated three times in – during 2021, whereas a smaller part of the population has been vaccinated just once during ’22. And a very significant part of the population now already has been going through an infection on top of their vaccination status.

So therefore, I would say the overall level of immunity in the population is completely different than it has been two years ago. And therefore, I wouldn’t expect the – yes, let’s say, willingness or the demand for such vaccinations to pick up again. I don’t expect that. Of course, all this is very much depending on, okay, will there be another variant that is more dangerous, so to say.

But if that doesn’t happen, we would rather speak to all of you that we already applied more than a year ago when we said we expect sooner or later the corona vaccine business to rather become a very – a rather small one, and part of that might become even part of the what we call flu vaccine business today. So that the net effect will be really rather small and not really too relevant to talk about.

Paul Knight

Okay. Thank you.

Operator

The next question is from Falko Friedrichs from Deutsche Bank. Your question, please.

Falko Friedrichs

Thanks very much. And thank you for sharing that the order intake would have been slightly positive if you exclude COVID in ’22. Could you by any chance also tell us what the order intake would have been if you exclude COVID and exclude this destocking that you witnessed in 2022? Just trying to get a feel for the very true underlying trend here in ’22?

And then my second question is whether there’s anything that stands out when thinking about growth in China in 2023? Thank you.

Joachim Kreuzburg

So on the – so the first question, I’m sorry, that really would become a little bit too granular for the – for public communication here. But what I can say is because as you are asking for order intake, the – there hasn’t been – as you would expect, as you know, the demand or the manufacturing of vaccine has been slowing down substantially during this year, and there have been a lot of orders being placed before 2022. So you can imagine there hasn’t been much order intake for that during ’22.

And for stocking, maybe as a reminder, we have seen the stocking playing a role in our order intake, particularly in the five quarters, Q3 2020 through to Q3 ’21. So ’22 again, hasn’t been seeing much of that, if at all, I would say, pretty much nothing on the order level, and you were asking for orders. So I hope that helps, even though we wouldn’t make an explicit calculation for that.

So – and on China, and I guess you asked for China ’23. So as maybe for the entire business for different reasons, we expect growth in China to be maybe a bit slower at the beginning of the year. I think it’s very obvious that maybe first, the wave of corona infections has to come down again in China. I think as it has been a quite intense one, obviously or still is an intense one there on the positive side hopes that we will see the tail of that wave already during Q1, but there should be and will be an impact in Q1.

Overall, we are absolutely not pessimistic for China for ’23. We expect ’23 to be a decent year again, and we usually are seeing healthy double-digit growth rates in China, and that is what we are expecting for ’23 as well. But again, not in a linear manner.

Falko Friedrichs

Okay. Thank you.

Operator

The next question comes from Delphine Le Louet from Societe Generale. Your question, please.

Delphine Le Louet

Yes. Hello, hi. Good afternoon, everyone. Follow-up on many points. And so you talk about China, but I think it’s very much of an interest [ph] for everybody to know what sort of size in terms of business we can achieve in China with the ramp-up in terms of manufacturing? So if you can give us any idea or any comparison in terms of business for any country would be very much interesting.

Other question regarding the business development at BPS. When we consider your guidance for this year for ’23, ex mid to high single digit, I was very much interested in knowing what are your underlying assumption, let’s say, on the client category, meaning that what does that mean for your, let’s say, traditional long-term contract versus the one-off or the short term you may have due to the research due to the biotech due to any specificity on the cell and gene.

So can we have just a flavor of your assumption? Are you still having a number for the small category one-off time? Or you’ve already plugged everything into this, I’d say, continuum of long-term contracts? Many, thanks.

Joachim Kreuzburg

Yes, sure. So on China, we are running currently around 11% of our global business that we make in China overall for the Sartorius Group. And we expect that ratio to slowly but steadily increase. I mean, slowly simply because such a ratio doesn’t move that quickly. But we usually are growing a bit stronger in China than globally, mostly because simply, the market is growing very strongly.

Now of course, one could say, well, in how far will that probably change in the course of global economic tensions, I think that’s pretty much impossible to factor in, in a decent way. So far, we do not see any significant limitations to doing business in China. We also don’t see U.S.-based companies to changing their ambitious approach towards making business in China. So therefore, consider that maybe to be a disclaimer. So around 11% at the moment, and then that should further grow a bit.

Maybe to again confirm, we are not manufacturing products in China for the rest of the world with one smaller exception where we are also making sure that we are mirroring that at other places. We never shifted manufacturing towards China. So – and therefore, whenever we have built up manufacturing in China and that holds true for more than two decades now already, this was China for China, and that is what we are still doing.

But of course, we are still importing quite a lot into China. And even before the more apparent economic tensions that we are seeing now, we were working based on the assumption that sooner or later, also in our industry, policymakers would ask for a higher local content. So we believe that over time, we have to make sure that we are maybe producing even more in China for China than we are doing today because our scope of what we are manufacturing there is a bit limited. But again, no limitation for us to making business there currently.

I guess you were asking for quite a high level of granularity regarding our BPS growth assumption. And I’m really sorry, but that level of detail, we, for sure, cannot share publicly. In principle, and I think I said that before, the – when you accept now for single quarters and other short periods of time and take a little bit of broader look, then we expect the market segment of new modalities to rather grow faster than the one for monoclonal antibodies and therefore, also our business that serves those different market segments should grow a bit faster.

But – and maybe then conceptually, what I can say, when we are building such or when we are building our budget, which is the basis for our guidance, then of course, we are taking quite a detailed look into those different market segments. But yes, again, it’s – I think you understand that we cannot share that publicly.

Delphine Le Louet

Many, thanks.

Operator

The next question comes [indiscernible] from HSBC. Your question, please.

Unidentified Analyst

Hi. Thanks for the presentation and on the results. I have two, please. First of all, in CapEx, last year, earlier in the year, you had a [Technical Difficulty] CapEx. You ended the year with 12.5%, and that also the outlook. So I was wondering if one of the three acquisitions you did throughout ‘’22 [Technical Difficulty] for CapEx? And are these conditions that you made over is well positioned posterior [ph] as coming to an end of the back end demand?

And secondly, in biosimilars, how do you see your competitive position there? Do you think that big market share is gained throughout the company cannot be utilized in gaining more market share in biosimilars business. How you’ve seen your positioning there?

And thirdly, and lastly this business in Stedim, I think that in combination with the strength of [Technical Difficulty] has to do with the difference in your outlook for 2023 and the too high is quarter growth for them versus high single-digit [Technical Difficulty] So maybe if you could elaborate on the business and how we should see the impact on [Technical Difficulty]

Joachim Kreuzburg

Yeah. So I have to say the line was incredibly bad. I don’t know whether anybody else in the call got more than 10% of your question, but we didn’t. I have to say it’s extremely difficult to answer that we think we heard something like why our guidance excluded COVID business is a bit different between BPS and SSB. I thought I heard the word bioanalytics, but don’t get whether there was a question around that. I really have to admit it. The only one that I can answer is that the reason why we say mid- to high single digit for SSB in comparison to high single digits, both excluding COVID for BPS is it’s basically – it’s a very minor difference, of course, as you can imagine, but yet it’s a slight difference.

And the reason is that the SSB Group is supplying some products to the LPS division of Sartorius AG and mainly we are talking about OEM membranes, membranes that have been – are used in diagnostic test kits in various applications. And one of those has been and still is, of course, for example, food test, but also corona test, and that has been the reason, as this played a role will less play a role in 2023. This dilutes a bit the growth. But maybe you can repeat and I can only hope that the line is a little bit better. Maybe you can repeat – may I ask speaking slowly repeat one or the other of your further questions.

Unidentified Analyst

Okay. I hope you can hear me better now. The first question you answered with perfectly the frac question. So I just wanted to ask about tax. Earlier in 2022, you had guided for 14% CapEx. Now it’s 12.5% actual ’22 and ’23 guidance.

So I was wondering if one of the three acquisitions you made removed or reduced the need on CapEx on that side? And the last one was on your positioning in biosimilars now that COVID vaccine demand is going to be – it looks like it’s going to be less and biosimilars demand probably more. So how do you see your positioning there?

Joachim Kreuzburg

Yes. Thank you very much for repeating the questions. I think now it was much better. So CapEx is a bit higher partially because we are expanding capacities also at sites that we have acquired, like we are expanding our capacities at Solugenix [ph] for instance. We will expand our capacities or our — have started basically to expand our capacities at Cell [ph] And then going forward, it’s not yet part of that are expanding our capacities in Albumedix. So those acquisitions would not dilute our CapEx overall.

The reason why it has been a little bit lower than we initially thought in 2022 has basically our timing effects. It’s – we didn’t stop or whatever any of our activities there. We were rather taking a mindful look on when exactly we would need certain capacities because we need them, midterm guidance and midterm demand unchanged. But now as we really – as soon as we saw that the expected normalization really kicks in, we look where we could relax our time lines a little bit. So that was basically the background there.

And on biosimilars, absolutely right, biosimilars are a driver of or a component of our growth. Overall, we would say also an area where we rather have been gaining market share or through which we have been gaining market share as we typically have a larger share in the manufacturing of biosimilars than in some of the original products.

I think it’s maybe less of a dynamic driver than it has been. That always depends a little bit on the number of products or patent expirations. But yes, overall, it’s a relevant part of the market and one where I think we play a decent flow.

Unidentified Analyst

Thanks very much. And thanks – than you so much for repeating and yeah.

Joachim Kreuzburg

Welcome.

Operator

The next question is from Naresh Gohan from Intron [ph] Your question, please.

Unidentified Analyst

Hi, there. Thanks for taking my questions. In the past, you’ve spoken about some of your customers or being able to get insight into the inventory levels at some of your customers. Where you have that insight? Can you see how much inventory they have left until they get back to the current normalized levels?

And secondly, on – I’m sorry, that’s on BPS. And again, in terms of supply coming on stream in BPS, there’s obviously lots coming on in the next 12 to 24 months. I’m just trying to understand if you – where you see utilization at these plants and whether it can stay as high as it was in 2022 this year and in next year and what that impact that might have on kind of margin – so just trying to understand the utilization levels as these new expansion projects come on stream? Thank you.

Joachim Kreuzburg

Yes. Thank you very much for these two questions. So indeed, exactly, as you said, insights into inventory levels is in general limited, but of course, it’s different from customer to customers and at some, we have some more information and some more detailed insights and those – and these insights that we have very much back the view that we have been expressing before here in this call when we said that we probably would expect the first two quarters to be quite impacted by the rundown of the high inventory levels of customers, whereas maybe in the second half of the year, we should be seeing then more the typical pattern there. So yes, again, that’s where we have more insight, we would project, yes, this time lines roughly.

On the capacities that have become or will become online in this space? I think – I guess what you are indicating here is that maybe the capacity utilization will be not that high at the beginning. That’s right. For us as a supplier into such processes, that’s not necessarily a big topic. What we probably will see indeed that other than we have been seeing during the last few quarters that, as you would expect, that the demand for systems and instruments, et cetera, has been rather high because those are not subject to inventory or stocking that we might see maybe a little bit more a, let’s say, kind of uniform demand for both systems and consumables. I’m talking order intake here or orders, right, for sales revenue, then everything is a little bit more flattened out anyway. So maybe that is what I would expect.

But in general, I wouldn’t say that we see a particular unusual situation in the industry. You always have certain fluctuations of capacity utilizations and then very often capacity utilizations are high. A lot of investments are started. And then, of course, logically, this reduces the average capacity utilization significantly. And then you will see less new capacities being triggered. So I would see us quite in a normal cycle here and we don’t have like any additional caveats to our expectations here.

Unidentified Analyst

Thank you.

Operator

We have a follow-up from Matthew Weston. Mr. Weston, please go ahead.

Matthew Weston

Thank you very much. And Joachim, thanks for your patience with a follow-on. It’s just a quick question about client inventory at COVID manufacturers. And I’m just curious, if I ordered a great deal of Sartorius inventory for mRNA manufacturer and subsequently, I realized I didn’t need it, but I was a bio-manufacturer, who did make many other things that use Sartorius products.

Would you entertain it if I came to you and said, would you have it back, and I will swap it for stuff that I need for everything else or that inventory sits with the customer, and there is nothing that you will do about it?

Joachim Kreuzburg

Yes. Thanks for that question. I think it’s a question that quite logically comes to one’s mind. And I know that there have been some comments made by other players in the industry, the quarters before that somehow, I think, left the impression that this was quite an usual whatever behavior and kind of negotiation also.

But I wouldn’t see that very much. And the reason is the following, a very significant portion of vaccine manufacturing have been made by CD or CMOs. And there are for those products that are standard products they can typically use them also indeed in other processes. I think that was a comment that was made before as I just said by other players, that we would also see. Where the products are custom made for that very process, there is no point that we could take them back. So both ways, it’s rather not a scenario where we are taking back products.

Matthew Weston

Okay. Many thanks, indeed.

Operator

Sorry. That was our last question, and I hand back to Dr. Kreuzburg for closing comments.

Joachim Kreuzburg

Yes. Once again, thanks, everyone, for participating in this call and your continuous interest in Sartorius and Sartorius Stedim Biotech. We appreciate that a lot. I think I just close the call by saying that we are looking forward to be in touch when we will publish our Q1 figures in roughly 12 or 13 weeks from now. Take care all the very best for everyone. Bye-bye.

Rainer Lehmann

Bye, everybody.

Operator

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant evening. Goodbye.