Sartorius Aktiengesellschaft (SRT3) Earnings Call Transcript & Summary

Good day, and welcome to the Sartorius and Sartorius Stedim Biotech Conference Call on the Preliminary Full Year 2019 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.

Thank you very much, and welcome, everybody, to our -- today's call on the financial results for 2019, the preliminary results, I should say, and also the guidance for the year 2020 for both the Sartorius Group as well as for Sartorius Stedim Biotech. I would like to kick off today's call by talking a little bit about the main highlights of financial 2019, and then I will hand over to Rainer Lehmann, our CFO. So the highlights last year clearly have been, first of all, that growth on all levels, sales revenues, order intake as well as profit has been in the double-digit area, particularly our Bioprocess Solutions, again, has grown very nicely with a very strong momentum throughout the year across the board. We also have seen robust development overall in Lab Products & Services, we believe. We are happy being able to report on the closing of the acquisition of Biological Industries, the Israeli cell culture media specialist. And as you probably all know, we have signed an agreement to acquire select life science business from Danaher around end of October last year. And we'll give a little bit of outlook on that as well. And overall, we also have a positive view on 2020 for both divisions and the group. And now I would like to hand over to Rainer to talk about the details.

Thanks, Joachim. First, also welcome from my side to today's call. In the next slide on the presentation, basically, we see that we had another very successful year as Joachim just pointed out. Sales revenue rose by almost 15% to EUR 1.827 billion. And constant currencies was a strong performance of our order intake reaching EUR 1.9 billion in constant currencies, also an increase of approximately 15%. The strong top line really trickled down also to an underlying EBITDA of EUR 495 million, it's an over-proportional increase of 22.4%. And EBITDA margin, that translates actually to an EBITDA margin of 27.1%. Let's keep in mind, if you look basically to the left to comparing it to 25.9%, there's a little bit less than 1 percentage point impact of IFRS 16, which is mandatory this year for the first time. Also want to point out that the acquisition that Joachim just mentioned that we closed at the middle of December of Biological Industries really had only a very marginal impact on the figures which can, to be honest, neglected for all purposes of discussing 2019. If we look at the next slide and have a view on the regional sales split, we really see double-digit growth in all geographies. In the Americas, we were able to increase revenues by 17.4% to EUR 630 million, really fueled by BPS double-digit growth and also LPS was a strong performance in this market. In the EMEA region, we were able to increase revenues by 11.2% despite, on the Laboratory Products & Services division, being affected by a softer economy. Remember, throughout -- and especially in Q2 was a quarter that was unexpected low and, therefore, really had an impact on the overall performance. And the Bioprocess Solutions had also considerable growth in the EMEA region in 2019. Asia Pacific, again, a strong year, 17.4% increase in revenue to EUR 463 million fueled, again, double-digit growth on Bioprocess. And LPS grew slightly, but there we also have to take into inflation. We had quite significant comps that we were faced with in that area. If we have a look on the divisional development, Bioprocess Solutions, really strong demand across all regions. As I outlined, double-digit growth everywhere and throughout all product categories. Very happy there was the development of the division order intake, increased by 18% in constant currencies to EUR 1.479 billion, also driven by dynamic project business. Sales increased by a little bit more by 18.1% in constant currencies to EUR 1.372 billion. And that despite the effects actually that we saw throughout the year and that was an increase effect throughout the course of the year regarding the loss of certain media revenue. Keep in mind that at the end of 2018, we modified the agreement with Lonza and at that time, projected growth impact, where we quantified it by around 2 percentage points, actually was all in line with slightly below 2 percentage points growth. That's cost us this year on the growth. Nevertheless, 18.1%, very good performance overall. Strong revenue growth trickled down also over proportionally to the EBITDA, increased by 24.5% to EUR 406.8 million, which is an increase of the margin by a good percentage point to 29.6%. Also, keep in mind that not only economies of scale but also there was a windfall effect of the application of IFRS 16. On the next page where we look at the Laboratory Products & Services performance, clearly can characterize at a robust performance in a challenging economic environment. The economic environment dampened our growth on the order intake and sales side, especially in EMEA and Asia Pacific, as I mentioned, in Q2, that was really weak. If we look at actually Q1, Q3, Q4, there the growth rates were really between 6% and 9%. So actually, in our expectations was really Q2 that, that was flat. So on the order intake, nevertheless, we were able to increase by 5.7% to EUR 460 million, and the sales revenue, we could even add a bit more, 5.9% increase in constant currencies to EUR 455 million. The growth was also fueled by the very good Bioanalytics or a strong momentum on the Bioanalytics side, specifically in Asia -- sorry, specifically in Americas and Europe where, due to a change of the distribution channel in China, we saw actually a decline in the business, which we will recover from though in the current year, so we expect a lot better performance in that region in 2020. The underlying EBITDA margin was able to increase from 18.5% to 19.6% to EUR 89 million. Again, here, slight positive impact due to the IFRS 16. If we look at some key financial figures on the next page, we see a very strong improvement on the operating cash flow, mainly driven by the strong performance of the EBITDA. Financial result increased slightly, but within our expectations, to EUR 32.5 million. The extraordinary items amounted to EUR 28.4 million. Keep in mind in the comparable that actually there, the 2018, we had a large positive effect due to the cancellation of the liability to Lonza, which was a result out of the modified agreement. In addition, we have the operating cash flow. One effect that we introduced a factoring program at year-end which contributed EUR 37 million, that's also reflected in the EUR 377 million. So strong performance cash flow, 54% increase year-over-year, happy with that. On investing, cash flow amounted to EUR 269 million. Keep in mind, though, here that we have the acquisition of BI's included in that figure. The CapEx ratio, which since the beginning of this year we are basing our cash flow, ratio is now 12.3%, so right in line with our expectations that we communicated throughout the year. CapEx also decreased, of course, as we mentioned throughout the quarters due to the completion of several larger projects. If you go to the next page, we see our equity ratio as of December 31, 2019, 38%, slight decrease mainly driven also by the application of IFRS 16, which increases the balance sheet some. Net debt and absolute values slightly increased to over EUR 1 billion. But the key performance indicator, which for us is the net debt divided by underlying EBITDA, we're able to improve to 2.0. So we're happy to reduce that. And with this, I'll hand back to Joachim to comment on the OpEx.

Yes, thank you, Rainer. So for 2020, we expect quite a significant top line growth, again, and also a further increase of our profitability. For the group, we expect 10% to 13% of increase of sales revenues in constant currencies and an increase of the underlying EBITDA margin to approximately 27.5%. For Bioprocess Solutions, the set of figures is 11% to 14%, respectively, 13% approximately for the EBITDA margin and 7% to 10% top line growth for LPS in constant currencies and approximately 20% of EBITDA margin. Within this figure is the expected nonorganic contribution by Biological Industries. You see in the first bullet point that we expect 1 percentage point of contribution coming for BPS and 2.5 percentage points for LPS. I will talk about that in a minute when I give you an update on the acquisition of Biological Industries. And for the group, this is then 1.5 percentage points. We don't have any nonorganic contribution in here coming through the expected closing of the acquisition of certain businesses from Danaher. I'll come to that also in a minute. We expect the CapEx ratio to further go down as we announced already a while ago that we expect this curve here. We expect approximately 10% for 2020. And we are happy being able to say that if we achieve this set of figures for 2020, that we then will have fully matched and achieved the midterm guidance that we have given 8 years back based on our 2011 figures back then, and that was mainly the EUR 2 billion of sales revenues for the Sartorius Group. So as I said before, I now I would like to talk a little bit about the Biological Industries acquisition. Next page. So just as a reminder, Biological Industries is a developer and manufacturer of cell culture media. It's specialized and very well positioned in the quite young and upcoming field of advanced therapies or very often you would also say cell and gene therapies. It's headquartered in the north of Israel close to Haifa, 130 employees mainly employed in Israel. Sales revenues last year between EUR 20 million and EUR 25 million, healthy growth profile. Compared to the profitability of Sartorius, a slightly dilutive EBITDA margin, which explains to some extent the not too high increase of the EBITDA margins that we expect for 2020, just as shown before. And we will allocate approximately half of the business in 2020 to each of our divisions, that is mainly because there is -- roughly half of the business really with media that are used in research. Those we will allocate or this business we will allocate to LPS, and those media that are used or will be used for manufacturing, we allocate to the Bioprocess Solutions division. As the acquisition from a technical and legal standpoint has been made through Sartorius Stedim Biotech in -- within SSB, you will see that in a few minutes when we walk you through those figures. The entire effect of this acquisition will be shown on that level as well. But on the group level, there is this allocation to the 2 divisions. Closing was just mid of December, so really a neglectable impact on the '19 figures, Rainer talked about that before. And the purchase price was around EUR 45 million for just a little bit more than 50% of the shares. Agreements in place to possibly increase our shareholdership within the next couple of years. And the strategic background, of course, is that we wanted to build up and own fully-owned cell culture media business after the exclusivity has been removed from the agreement with Lonza. So this is about having an old portfolio and building also our own manufacturing capacities in the future beyond the one that we now already have in Israel. On the next page, I would like to give you a quick update on the acquisition of certain life science assets from Danaher. As announced around the 20th of October last year, this business we expect to -- or this transaction we expect to close in Q1 2020. More precisely, we now expect this to happen rather around the end of Q1 because this transaction, as you are aware of, is subject to antitrust approval in the context of Danaher's acquisition of the GE Biopharma business. This is an ongoing process moving ahead well, but yet it's quite a time-intense process. So therefore, we expect this to happen rather around the end of Q1. The transaction includes businesses for both divisions as well, pretty much also 50-50 from a sales revenue perspective. It includes the bioanalytical tools business according to our vocabulary. It's pretty much protein analytics, the ForteBio business from Pall or Danaher as well as predominantly downstream technologies, also a little bit of upstream technologies that would be added to the Bioprocess Solutions division, mainly chromatography business. Purchase price that we agreed upon has been USD 750 million, and the allocation will be approximately 75% to be allocated to the Lab division and approximately 25% to Bioprocess. All the precise effect on our 2020 figures or the guidance that we will give for 2020, of course, depends on the exact date of closing. And therefore, we will specify and update our guidance then upon the closing date. I would now like to walk you also through the figures for Sartorius Stedim Biotech. And, of course, these are very much in line with the Bioprocess Solutions figures from a divisional perspective within the Sartorius Group. So 17% of top line growth we could achieved and have closed and EUR 1.44 billion of turnover. Order intake, EUR 1.54 billion, 16.2% up from 2018, all proportionate increase of our underlying EBITDA to EUR 421.5 million. This is an increase of a good 23%. EBITDA margin expansion, 1.1 percentage point so that we are at 29.3% here. Underlying earnings per share, up by almost 20% to EUR 2.85. I think we talked about that before that this has been really driven by a very strong growth throughout the board for both the product perspective as well as from the regional perspective. BI did not have any significant impact, we said that before. And we also -- I also talked about the impact of -- from IFRS that we also announced a year ago already to be the case in this -- in the last year. On the next page, you see the growth that we have achieved in the 3 geographies. The picture is almost the same as shown for the group, but yet with particularly Asia Pacific being even stronger with close to 24% increase in constant currencies and 13% for EMEA and 17.1% for the Americas. Pretty much for the Americas in particular, we have to say, really strong comps, high comps, so really strong development here but also for EMEA and Asia Pacific. I think this has been a successful year with really healthy top line growth. Cash flow also for the Sartorius Stedim Biotech Group, most of the statements that have been made for the Sartorius Group are relevant here as well. So the strong underlying EBITDA and the respective increase here has led to a significant increase of our operating cash flow. We also have seen some impact by the factoring program. You see that in the bullet points on the right-hand side. The fact that the extraordinary 2018 have been strongly, positively impacted by the change of the contract with Lonza, I think is known to you and, of course, play here on the SSB level a role as well as the significant decrease of our CapEx ratio that came in as expected as announced a year before. For the key figures, from a financial and balance sheet perspective, I think, can be said that this is a very strong position, around 65% equity ratio, just 0.3% net debt to underlying EBITDA even though we are still investing or have invested on a quite significant level plus the closed this one transaction, so further decrease on debt level, so a very robust position. So -- and then finally, without repeating the details on the 2 acquisitions, the one that we closed, the other one that we announced and hope to close relatively soon, here now the outlook for 2020 for Sartorius Stedim Biotech. Top line growth, 11% to 14% we expect here. But here as we consolidate the entire BI business, as I said before, the nonorganic contribution to this top line growth we expect to be around 2 percentage points. And the profitability is a little bit stronger impacted because of this dilutive effect from BI, so that we expect the margin around 29.5% here and the decrease of the CapEx ratio to around 8% for Sartorius Stedim Biotech. Also here, one can clearly say that we are very well on track to achieve the midterm guidance that we have set and communicated 8 years ago. So that would it be from our side so far. And now we are happy to run a Q&A. Thanks.

[Operator Instructions] The first question comes from the line of Patrick Wood with Bank of America.

Perfect. I have 3 quick ones, if I can, please. The first would be within BPS. I'm just curious where you guys are seeing, from your perspective, the greatest demand profile and changes there. What I mean by that is like, how is the demand structure in the CDMO is looking relative to in-house? I mean, you've mentioned it a little bit before about -- I think it was last call about CDMO capacity running reasonably high. I'm just curious to see a little bit of color on the BPS demand by sort of rough customer there, that would be great. The second one would be, and apologies if you mentioned this already on the call. But the factoring program, I know it's very small, but I'm just curious as to some of the background to that and whether that was something that was new. Apologies, if not. And then the very final one. We've had, obviously, some of our companies since Biogen refiled, obviously, talking about aducanumab and capacity in the industry. If we do get a success on that side and longer term with Alzheimer's, I'm just kind of curious how you feel about capacity across the industry if we did get some kind of a solution, whether that's aducanumab or something else, just whether that would result in any kind of incremental demand.

Thank you very much for your questions. I will answer question 1 and 3, and then Rainer will answer the question 2 on factoring. So we have to say that we have seen pretty much a balanced demand from the different customer segments. You mentioned CDMOs or in-house in particular, we could also add maybe biosimilar manufacturers to this. Of course, the relative increase over the last couple of years has been the strongest for biosimilar manufacturers as this is a quite new segment of the overall market, but we clearly have also seen significant investment by a couple of originators and then, clearly, also by CDMOs. So I always would hesitate or we would hesitate to say, well, it's mainly CDMOs or so because we really see quite different business models on our client side. Of course, maybe a lot of people would say that there is a certain trend towards outsourcing, but I think you also see some players doing it a little bit the opposite and the percentage of outsourced manufacturing hasn't increased that substantially so far, even though, clearly, this is a nicely growing segment without any doubt in the moment. So well balanced, I think, is the fairest answer on that. The question regarding capacities, and you gave one example what could drive a sharp, additional increase in demand. That's a very good question. And I clearly would say that there is reason to expect that the capacities will be further increased in the next couple of years as we have seen it also over the last few years to quite a significant extent. But I would not, at the same time, say that there is a short-term capacity shortage also to be expected. Of course, that is always quite difficult to judge because it's not such -- we don't have a situation where there is a complete and very transparent knowledge about all available capacities and also in how far such capacities would be flexible enough to be used to fulfill the demand. But overall, I would say there has been quite significant investments into our capacities over the last couple of years, plus the fact that single-use technologies are extremely powerful, whether it is about building up capacities in relatively short time. So we are positive about the future capacities demand and we do not, at the same time, expect any significant capacity shortage. Question two, Rainer?

Yes. So regarding the factoring, so for 2019, it's basically at EUR 37 million. It's really a part of the diversification of our financing structure. It's another solid way. We actually used to have factoring in the past, until 2014 we ran a factoring program. Throughout 2020, you will actually see an increase of the factoring volume, but it's purely out of diversification and additional financing source since we have a very attractive accounts receivable portfolio.

The next question comes from the line of Michael Leuchten with UBS.

One quick follow-up question. Could you provide us with the percentage of your portfolio that is nonbiosimilars given your commentary around CDMOs in-house and biosimilars? That would be question number one. Question number two, just on the FTC process. So obviously, you're closing. The Danaher asset acquisition is subject to what happens to the FTC review of the bigger deal, but how do you see that happening? Is that a sequential event? Or can you actually work on things in parallel to close that as quickly as possible? So when you say end of Q2, is that -- do you think you -- so Q1 is that you think you can get everything done by that point in time? And then third question, on BPS, it looks like in EMEA in Q4, BPS dropped into the single-digits growth. Is that just a base effect? Or is there anything else going on?

Yes. Thank you for those questions. So biosimilar is around the 10% mark now. We would say maybe as a recap, of course, that at this point, still influenced by a substantial piece of systems business or equipment business because very often we are talking about first-time investments into capacities, so that plays a certain role. Percentage would be a little bit low if we just talk on -- about consumables. The FTC process you mentioned or the antitrust process, it's -- of course, the FTC has the authority for the U.S., but then, of course, also the European Commission for Europe and also China plays a role. So all these processes are running to some extent in parallel, but also not exactly on the same timeline. So therefore, the -- we expect the approvals not to come in exactly at the same time but the closing of the transaction, that will happen at one point in time. It's not possible for several reasons to make a sequential closing if that was the question, like closing in Europe and closing then in the U.S. 3 weeks later or so. That wouldn't work. So the closing as such will be at one point in time. And therefore, you could say that the last approval to come in is, therefore, triggering than this event. BPS, pretty much high comps from Q4 2018, nothing specific. We are very happy with our performance in EMEA.

The next question comes from the line of Markus Gola with MainFirst.

So my first one is related to the coronavirus -- virus. It seems that you had financial tailwind during the outbreak of H1N1 back in 2009. Could you remind us what products have been driving that and maybe also the magnitude of the financial tailwind back at the time? And is it fair to expect that there is some upside to your guidance if the coronavirus reaches the same case volumes like the flue pandemic back in 2009? And my second question is related to the pending acquisition of the Danaher assets. It seems that some antitrust authorities might demand further divestments before they grant the approval for the Danaher [ JV ]. So would you be willing and financially able to buy additional assets if these become available on the market?

Yes, thank you very much for these 2 questions. So yes, you're right. 10 years ago, we have seen, as you said, additional tailwind coming from the outbreak at that time. We quantified that to be approximately 2 percentage points. I think what has to be taken into account is that the effect in absolute figures, in all theory, could be of the same magnitude, but then the relative impact would be significantly smaller as we have grown substantially over those 10 years. So I would say maybe the very best, very theoretical guess at this point is that absolute impact may be the same, but please, maybe, and then the relative impact, very likely below 1 percentage point. Pure math would maybe say 0.5 percentage point. So -- but, again, very theoretical at this point. And you were asking for what has driven that. Well, we are quite well positioned as a supplier for -- of the manufacturers of flu vaccine and also other vaccines. And the products that our customers are using are pretty much across the board. But of course, we are talking about single-use product here. Otherwise, it wouldn't be impacted by any additional manufacturing campaigns. So it would be pretty much filters, some bags, et cetera. And then you were asking for the -- about the speculation, whether the remedy package that Danaher might have to invest or the additional products that would have to become part of the remedy package, whether we would be able to acquire those. Also here, I think it's a bit speculation at this point. I would say that, nevertheless, it's quite likely that given our positioning in this industry, that there would be a fit and some complementarity for such products so that we would be a suitable purchaser for such products also and be a potentially very competitive company to continue such products, on the one hand. And I also don't expect, at this point, the potential additions to a remedy package be of a size that this would stretch our financial limits at all. So we don't have any concerns here.

The next question comes from the line of James Quigley with JPMorgan.

So the first one is on the order intake for the BPS division in the second half of -- second half of the year. It was a little bit lower than the first half. So can you talk us through the dynamics and to what extent the slowdown is concerning? Or is it more due to the base effect or timing effects? The second question is on the guidance. So for both of the divisions of BPS and LPS, can you take us through the pushes and pulls for the top and the bottom end of the ranges? And in the past 2 years, the BPS, particularly, you've increased the guidance by 4 or 5 percentage points at the half year. To what extent is that guidance potentially conservative as you're giving it now? Or were those 2 upgrades due to specific events that may not happen again this year?

Yes. Thank you for these 2 questions. So for the difference between H2 and H1, you can basically say that the development is, I would say, pretty, pretty much in line with what we would have expected. When you compare the quarters in 2018, you see that there was indeed Q4, quite strong. So comps were relatively high. On the other hand, we also have seen a healthy performance in Q4 as such. Therefore, maybe the main point really was that Q1 and Q2 was a positive surprise, and that also has led us to increase the guidance for 2019. And as we said back then when we did that half a year ago, this was very much because of a number of larger projects that have led to additional sales revenues in 2019 already, but will partially also spill over into 2020 but, of course, against this higher comps. So the guidance that we have given for 2020, we believe, is not too conservative. I mean, we are talking about significant top line growth, again, 11% to 14% after a very strong increase during 2019. The profitability guidance, to some extent, of course, has to be seen in the light of, a, the higher level where further increases naturally or mathematically are becoming smaller. Secondly, then just the topic that I touched upon, the certain portion of project business still in because of the high order intake that we have received from that part of our product portfolio in '19. And thirdly then, the certain dilution that's not a big impact, but still from the BI acquisition, that we expect to play a role during the first few years after integration. So I think it's not a too conservative guidance for 2020.

The next question comes from the line of Scott Bardo with Berenberg.

So first question just relates a little bit to how you see phasing over the course of the year. I appreciate that the first half of 2019 had particularly strong underlying performance in Bioprocess Solutions. Does that signal in your mind that you're likely to start a little bit below the BPS guidance framework? Or is that something you're not willing to really call out at this point? Just following on from the question on guidance [ about the ] course but I appreciate that you always try as a company to tell it pretty straight in how you see it. But just with reference and your experience running the company as compared to previous years where you've upgraded Bioprocess guidance, how would you characterize this year with respect to upside or downside surprise to your guidance? [ Would you ] still call it a normal year where things could be better than expected? Or is there reasons to be a little bit more cautious as compared to prior year's [ error bars ] around guidance?

Thank you, Scott. I appreciate your creative way of asking this question. So phasing, yes, a good point. I mean, we do not have such seasonality in our business. But of course, we do see everyone and then a bit stronger quarters and, therefore, slightly different patterns, not huge fluctuations in our -- in the portions that the different quarters contribute, but then, of course, certain shifts can already make a difference of 1, 2 percentage points in the quarter-on-quarter growth rate. So having said that, I would tend to say that, indeed, first half of the year 2019 was indeed quite strong. We also have seen in the first half of 2018 the effect from the change of our Lonza contract kicking in a little bit slower. That, of course, now will continue to show a certain effect in the first 2 quarters of 2020. So if at all, from today's perspective, and again, of course, we leave the closing of the Danaher acquisition out now anyway, then maybe the tendency could rather be that growth in the first half is maybe a little bit lower than in the second half. But that already assumes that everything else is absolutely a straight line. And of course, that is rather never the case. On the guidance being -- or whether we are seeing ourselves now at the beginning of a normal year or less normal year, that is always difficult to say. I mean, we believe that in general, the growth drivers in our industry all remain pretty much intact, pretty much on the same levels that we have seen before. And that is why we are expecting a significant growth even set after such a strong year '19, which has followed a strong year '18. However, if at all, one could also say, well, the number of new drug approvals has been a little bit lower recently than it has been before. So there are also some figures, even though still at healthy levels, but if you would say, okay, is it rather adding momentum or maybe taking a little bit of momentum away, I think overall, I could find reasons for both arguments. So -- and therefore, we really believe that the guidance that we have given now for the scope that we can give guidance for at this point is a very fair one and a realistic one. And yes, and then let's see once we have the opportunity to update it after the closing of the acquisition of Danaher businesses.

I always appreciate your thoughts. And maybe while sticking with the [ right ] process, just to understand a little bit from a product positioning standpoint. So obviously, we see some quite aggressive investments from CDMOs around the world for capacity. So the question I really want to ask you is, do you feel that your product portfolio is now well suited to these expansionary efforts? We see some companies with very high-volume single-use bags winning business from some of the CDMOs, and I wonder whether that is something which is a focal point for the group. And similar question for arguably the more low volume end of the scale for cell therapies or gene therapies. Do you feel that you have the right portfolio to really capture those opportunities?

Yes. Very, very relevant perspective, I believe. So for CDMOs, I would definitely say that we have a very competitive portfolio. And I think the development of our business in that segment, as I said earlier, I mean, also, we see this in other segments, for example, with originators. But nevertheless, I think it proves that we have a very relevant and attractive offering here. Of course, we will never stop looking for complementary additions to make our portfolio even more relevant and also look for innovations, et cetera. So that's clear, but we believe that we are very competitively positioned here. Cell and gene therapy is, of course, a much younger field where I would say nobody yet has a or has yet the portfolio that will make that segment long term, also economically sustainable success. Because I -- my view, our view is that these players are still looking partially for the right technologies also to outscale, for example, their manufacturing when they have to paralyze the manufacturing of the different batches in relatively small volume. I think there is a certain demand of high integrated systems of higher automated systems. So I think this is an area where we definitely consider ourselves being well positioned. And the media portfolio from BI has added to our positioning here without any doubt. But yet, this is a field where further additions, further innovation for sure will be necessary, and we definitely want to be an active part of this journey.

Very good. And perhaps last one if you'll afford me another question, just quickly on the LPS business. So I appreciate the guidance. If one were to strip out the acquisition, looks more like 4.5% to 7.5% growth with 40 basis points, 50 basis points margin expansion or so. That seems to be tracking below your medium-term aspiration and arguably, as was fiscal '19. So the question I will really ask you is has anything really changed in your business to make you address the outlook we have on an underlying basis for this business?

I would say the underlying perspective is pretty much unchanged. What is right is indeed that we -- particularly in 2019, but to some extent, one could argue also before that the underlying growth in Asia has declined over the last couple of years to some extent, and we also, definitely by ourselves, have further room to improve here. And I said before, we also expect that, particularly in the area of analytical tools for instance, we expect a substantial step-up of our growth rate there this year. So I would say, mostly unchanged view. But nevertheless, you are right. We thought to be a little bit further than we are today. And I would say, maybe to the -- if I take it from the regional perspective then Asia, maybe to some extent.

The next question comes from the line of Paul Knight with Janney.

Congratulations on the quarter. Joachim, can you talk about your capacity utilization and then your capital expenditure plans relative -- and also what's your maintenance capital expenditure normally relative to what your plan is?

Yes. So capacity utilization, of course, is different in different areas. After the substantial investments that we have made, though, I would say that in most areas where we are well below the 80% mark, and to be well below 80% is important because when you are growing, let's say, around the 10% mark, then otherwise you easily and quickly hit the 80% mark, and that is more or less the latest point in time that triggers already a further expansion of capacities. However, one area I would mention here that is a bit of an exception and that is the area of systems and instruments. So when you think of bioreactors and such type of -- yes, smaller and larger instruments, then this is an area that also has developed very, very nicely over the last couple of years across the board. So it starts off with the smaller systems like ambr 15 and then also ambr 250. So the highly automated multi parallel, small-scale fermenters, but also then the larger scale range of [ STRs ]. So the manufacturer -- the [ cellular ] reactors for manufacturing use. So -- and here, we, indeed, will have to expand our capacity substantially in 2020. It's pretty much on top of our agenda in that regard. So maybe there is -- that gives you a little bit of more light and color regarding our situation there. On the maintenance CapEx, I mean, the concept of maintenance CapEx, of course, is always a little bit tricky, but we tend to say that -- maybe, first of all, I should say that we have a number of 2.5% or so of capitalized R&D in our CapEx ratio, so that we have to deduct first. And then if we go -- look ahead into 2020, so we are talking about something, let's say, between 7% and 8% then on classical kind of CapEx. And here, we would say that maybe something around the half of that would be maintenance CapEx if we had no capacity expansions to invest into whereas the remainder, so somewhere 3% to 4% cap maintenance, 3% to 4% is expansion that we work on in 2020.

The next question comes from the line of Daniel Wendorff with Commerzbank.

Three, if I may. Two on BPS, one on LPS. And starting off with the 2 BPS questions. And the first one would be, when I look at Q4 in particular, can you quantify the negative impact in having come from the [ loans that you're ] restructuring on your sales growth? My second question would be on BPS. And when you look at capacity expansions in the --

I'm sorry, we seem to have lost the line of Daniel Wendorff. Hopefully, he will dial back in. The next question, we have a follow-up from Scott Bardo with Berenberg.

Yes, sorry, Daniel. Just a quick question, a few questions, please. Again, with respect to coronavirus. Interested to hear your thoughts, Joachim, on what you're hearing on the ground in China. Has some of the government-led initiatives to contain the virus outbreak led to any disruption in manufacturing capabilities or had any impact on Asian manufacturers that you're aware of to this point? Maybe you could share some thoughts around that. And also, I understand from some of your recent corporate communications that you're contemplating building a manufacturing plant in Korea to help serve some biologics. I wonder if you've made a determination on that yet.

So we would be not aware of any measurable impact coming from any actions of the Chinese government to fight against the coronavirus outbreak. We touched upon that earlier. If anything might come up here, it won't be, most likely, not that significant, but we would not be aware of anything yet. And on Korea, I'm not sure what kind of communication here has led to this misunderstanding. We are not planning to build any own manufacturing site in Korea. Korea is a very significant market for us. We are very well positioned. We, for sure, will further expand also our presence in that market going forward because we foresee almost similar growth rates going forward and growth potentials going forward in South Korea as in China in regard to growth rates. So that's clear. But so far, we do not plan any -- to build up any own manufacturing capacities in Korea.

Okay. That's very clear. Perhaps just one very quick financial clarification, please, from Rainer. Rainer, is it too early to give us a sense of what the minority pay away to Sartorius Stedim is from the parent? I've seen that this has been trending up somewhat disproportionately over the recent years as compared to bioprocess growth. And it's just useful to help value the 2 entities separately. So I wonder if you'd kindly share the minority expected for fiscal '19.

So basically, if I understand you correctly, base the dividend that we're planning that SSB is giving to its parent SAG, is that what you're referring to?

Yes. The minority pay away to Sartorius Stedim for the part of the business you don't consolidate or you don't own, rather.

At the moment, actually, we do not disclose that because that has to go through the sort of shareholding assembly first, because that is really the body that then basically defines what the dividend will be, and then we know exactly what is going to come up to Sartorius AG. If that answers the question?

Okay. We need to [ write ] ...

But maybe, Scott, I -- maybe one other aspect because, I mean, there is -- there are a lot of figures that are available, I think. What you can see is over the last couple of years that the increase of the dividend payment for both the Sartorius Group as well as for Sartorius Stedim Biotech pretty much has been on the same level, so that the payout ratios on both levels have been pretty much the same. And if you do the math and calculate the net payout of Sartorius AG, so payout, the gross payout of Sartorius AG and then the income that Sartorius AG receives from the dividend payment from Sartorius Stedim Biotech also has stayed pretty much on the same level. So I hope that clarifies that. Going forward, dividends for 2019, no decisions have been taken yet even what to propose to the shareholder meeting, not to talk about the decisions by the shareholder meetings, of course. Okay?

Daniel Wendorff has dialed back in to the call. So the next question is from Daniel with Commerzbank.

So I hope my question arrives this time. I was kicked off the call for whatever reason. And so I start one by one. And first question on BPS, when I look at Q4 in particular, and can you quantify the negative impact, which have come from the Lonza deal on your sales growth? And that would be my first question.

Okay. So the answer is around 4 percentage points in the single quarter 4.

Okay. Very good, very helpful. My second question would be when you look at capacity expansions in the industry, can you quantify the level of single-use components being included in these production chains maybe compared to the existing base?

That's always a tricky question that would require quite a lengthy discussion about definition. But what we would say is that for filters, the penetration rate is, since quite many years, 100%. So in all biomanufacturing sites all filters that are used are single-use filters, but that is already the case since many years. So no change between -- or no difference between newly installed capacities and older capacities. It's a bit different for what we call fluid management technology, so bags. Here, what we have seen is over the last couple of years that more and more applications have been penetrated by single-use technology. So it started 15, 20 years ago with simple applications like transport and storage. And now you see pretty much all other possible applications like mixing, et cetera, also being penetrated by single-use technologies. So we would consider the actual situation being around penetration to be 2/3, where it is about new newly installed systems, and we would consider that going also up to 100% within the next 5, maybe 5-plus x years. And when we see the entire scope of installed capacities, maybe the penetration rate is around 30%. And when we talk about then fermentation and that be maybe the last segment that I address here, then this current penetration would be maybe around 5%, simply because there's still -- there are still many stainless steel capacities in operation. Current penetration of new sales I would say is, for sure, 30% now, rather this is a figure that really has increased very significantly over the last couple of years. It started off with a significant penetration into process development. And even when it was starting to become the dominant technology in process development, still some installments, new installments, were stainless steel because that is when those projects I think kicked off, but now for sure, I would see around 30% and increasing. So that we would expect within the next 5-plus x years, this figure to be also around, let's say, 75% or so. So we are still in a very interesting transition in some areas.

Okay. And my last question would be on the LPS revenues going into the different industries. And can you potentially quantify what the growth rates were in 2019 when you look at your sales with different target industries like bioanalytics or even in the chemical industry? That would be very helpful.

Yes. So what we typically would disclose here at this point. Is that roughly half of our revenues in the Lab division goes into what we would call the life science segment. That is academia, but also, of course, life science or biopharma industry quite often. And then the other segment, what typically is called, and we also call it like that, applied research, but also some quality assurance labs in some industries like chemical, also, they make up for the other 50%. And clearly, the growth rate in applied has been lower than in life science. It can be quite different in the different industries. I think it's no surprise that the chemical industry has been a little bit more challenging last year than maybe food industry, which hasn't been that bad. But overall, you could clearly say, and when you've seen an overall growth of around 6% for the division, then you can imagine that in the life science segment, growth is, let's say, around the 10% mark, even though not all of that is bioanalytics, whereas growth in the applied segment has been relatively low last year.

There are no further questions at this time. I hand back to Dr. Joachim Kreuzburg for closing comments.

Yes. Just briefly, thanks a lot to everybody for participating in our call and for your continued interest in Sartorius. We appreciate that a lot. I'm sure we stay in contact through Investor Relations and at different conferences within the next couple of weeks. And then we will, for sure, have another call on Q1 and maybe earlier if there are any news on some of the projects we are working on. Thanks a lot again. Have a great day. Talk to you. Bye-bye.

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