Sartorius Aktiengesellschaft ($SRT3)

Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedim Biotech conference call and live webcast on Q1 2026. I'm chorus call operator. [Operator Instructions] And the conference is being recorded. A replay will be available shortly after the call. The presentation will be followed by a question-and-answer session. The conference must not be recorded for publication or broadcast. I would now like to turn the conference over to [indiscernible], Head of Investor Relations of Sartorius. Please go ahead.

Thank you. Hello, and a welcome also from my side. I'm joined today by our CEO, Michael Grosse; Florian Funck, our CFO, by Rene Faber, of the Bioprocessing division and CEO of Sartorius Biotech; and by Alexandra Gatzemeyer, Head of our LPS division. As always, we will start with prepared remarks followed by the Q&A session. As the call is scheduled to 1 hour, please limit your question to one so that as many participants as possible can take part. Please note that management's comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and the presentation. And with that, I'm pass over to Michael Grosse, CEO of Satorius. Michael, please go ahead.

Thank you, Petra, and a very warm welcome from my side as well. We are happy with the start of 2026, which is again the sort of a transition year. Before turning to the key messages for the quarter. I would like to briefly reflect on the strategic context following our Capital Markets Day a few weeks ago. At the CMD, we provide an update on our strategy and outlined our new midterm financial targets. Since then, the focus has been and is very clearly shifting to execution. The real work begins by consistently translating strategy into tangible results and actions and the work has already started in line with the evolving needs of our customers and the broader biopharma and life science markets. Our shared vision remains unchanged to simplify progress in biopharma and life science research, enabling better health for more people. With that context in mind, let me now turn to the key messages we would like to share with you today. We are off to a good start in 2026 and are very pleased with our performance in the first quarter of the year. Sales developed well with a continued strong recurring business in both divisions. At the same time, underlying EBITDA developed positively year-on-year and profitability remained resilient. This once again outlines the strength and resilience of our business model as well as the benefits of our disciplined operational execution. In Bioprocess Solutions, sales increased by around 1%, reflecting robust underlying demand. Consumables momentum remains strong, while Equipment was soft as expected, but is anticipated to improve in Q2. Lab Products & Services showed around 5% sales growth, continuing the positive momentum that started in the second half of 2025 already. This development was driven primarily by lab consumables and our biological portfolio, also including the MatTek acquisition. While Instruments demand remains cautious overall, we continue to expect at least stable development in 2026. Cash flow development was strong year-on-year. At the same time, we continue to make progress on deleveraging, underlining our clear commitment to financial discipline and a strong balance sheet. In light of our solid start into the year, we confirm our full year 2026 guidance for the group, and we expect sales revenue growth in constant currencies of around 5% to 9% and an underlying EBITDA margin slightly above 30%. Let me now briefly highlight a few innovations launched in Q1, that demonstrate the strong customer demand for Sartorius solutions across the Biologics value chain, starting with cell therapy manufacturing. With Eveo, cell therapy manufacturing platform, we are addressing one of the key bottlenecks in autologous cell and gene therapy, scalable and reliable manufacturing of highly personalized therapies. Eveo enables fully automated multi-peril production, allowing customers to run up to 8 patient batches in parallel and achieve up to 4x higher yields compared to conventional approaches. By all making critical process steps and reducing manual handoff, we we also shorten manufacturing cycle times, helping customers move faster from vein to vein, and ultimately agarate time to patients. At the same time, it will help to reduce footprint, capital intensity and over manufacturing complexity, supporting both centralized and decentralized production models. Turning to cell line development. we introduced 2 complementary innovations aimed at significantly improving speed and efficiency early in the biologics development. The latest generation of our cell selected platform self-selected CLD for cell line development, stable significantly faster and more reliable cell line development by combining automated imaging, monopality, verification, and gentle clone isolation in one single system. This reduces manual efforts and uncertainty early in the development, shorten time lines for months to weeks and strengthens regulatory readiness through integrated documentation and traceability. In parallel, our genetically engineered show host cell line allows for faster cloud development and up to 3x higher productivity supporting robust and scalable manufacturing as biologic pipeline continue to grow in complexity. These innovations once again highlight how Sartorius systematically remove bodies across the biologics and [indiscernible] from early development to manufacturing by helping customers show time lines, increase yields and improve overall process efficiency and cost structures. Well, with that, I'll now hand over to Florian to walk you through our Q1 financials in more detail.

Thank you, Michael, and a warm welcome from my side as well. I'm happy to take you through our numbers that like the continuation of consistently strong performance from the year 2025 into 2026. Let me begin with top line performance at group level. In the first quarter of 2026, sales revenue increased by 7.5% in constant currencies and 1.8% reported, reaching EUR 899 million. Looking now at our divisions in more detail. In Bioprocess Solutions, sales increased by 8.1% in constant currencies and 2.4% reported, reaching EUR 735 million. Growth was driven by the high-margin recurring consumables business. Equipment performed in line with expectations with a softer Q1 due to delivery schedules of customers and revenue recognition more loaded towards Q2. We anticipate stronger Q2 equipment sales and expect BPS Equipment to deliver at least prior years in H1 in constant currencies, supporting a healthy first half performance. In Lab Products & Services, sales increased by 4.9% in constant currencies, reaching EUR 164 million. MatTek contributed 2.8 percentage points to LPS growth in constant currencies. And based on reported figures, LPS posted a slight sales decline of minus 0.6%, which is purely FX related. Growth was driven by a robust contribution from our recurring business supported by positive momentum in our Bioanalytics portfolio. Let me also quickly elaborate on our regional performance. Overall, first quarter showed healthy growth momentum across all regions supported by continued strength in consumables. Starting with EMEA, sales increased by 8.0% in constant currencies in the first quarter. In the Americas, sales grew by 6% in constant currencies, and the growth was solid, particularly considering the stronger comparison base from last year. Asia Pacific delivered the strongest regional performance with sales growth of 8.9% in constant currencies, with China contributing nicely to the region's BPS growth. Let me now [indiscernible] to profitability which deserves a bit more explanation given the offsetting dynamics in the first quarter. The group's underlying EBITDA increased slightly by 1.6% to EUR 267 million in the period from January to March compared to prior year. Positive volume effects and economies of scale were upside by mix effect -- by mix effects within BPS consumables and tariff impacts as well as continued investments in future growth initiatives, especially in LPS. Against this backdrop, the corresponding EBITDA margin remained resilient at 29.7%, almost fully absorbing negative tariff effects of around 40 basis points. Similar developments as on group level were also recognized at divisional level. In Bioprocess Solutions, the underlying EDA margin developed positively. Margin expansion was driven by increased volumes and operating leverage overcompensating tariffs and some mix effects within consumables. As a result, underlying EBITDA increased to EUR 233 million, and the margin improved by 30 basis points to 31.8% in the quarter. In Lab Products & Services, as already flagged in early February, we are executing a multiyear investment program to scale future growth areas. This is already well reflected in our margin development over the past couple of quarters and is fully in line with our full year 2026 expectations. Consequently, the underlying EBITDA margin was 20.7%, unchanged compared to the level in Q2 -- Q4 2025 and also, of course, negatively impacted by tariffs. Now let us look at performance below underlying EBITDA, where both net profit and free cash flow developed well in the first quarter. The development of underlying net profit is mainly driven by the same effects we discussed at the underlying EBITDA level. On top of that, it is also mirroring higher depreciation caused by our CapEx programs over the past few years, as we highlighted at our Capital Markets Day a few weeks ago. While depreciation effects are recognized immediately with go-live of a building, as usual, the corresponding volume of revenue contributions materialize progressively as the additional capacity utilization is ramped up. Furthermore, we saw financing costs slightly increasing as cheap financing from early pandemic times ran out in H2 '25. Reported net profit increased by 16% year-over-year to EUR 56 million, thanks to lower extraordinary items that were last year mainly driven by our S/4HANA changeover, and we talked about this also that Q1 conference call '25. As you know, these extraordinaries are excluded from our underlying profit KPIs. Turning to cash-related items. Operating cash flow increased strongly to EUR 189 million, up almost 36% year-on-year. This improvement was driven by EUR 20 million higher reported EBITDA and lower tax payments versus high prior year base, compensating for the growth-related increase in working capital. Looking at working capital, I would like to emphasize that the working capital dynamics can mainly be explained by higher accounts receivable at quarter end, reflecting strong sales activity towards the end of the quarter. Customers received shipments and were invoiced late in the quarter, but due to timing effects and the Easter holiday season, many of these invoices have not yet converted into cash by quarter end, and therefore, sitting in AR. Based on the higher operating cash flow and relatively constant CapEx spending, also free cash flow increased significantly to EUR 113 million. The CapEx ratio of 8.6% was the prior year level, reflecting continued disciplined investments in support of future growth, but we continue to expect full year CapEx of around 12.5% of sales for the full year period. To conclude our discussion of the first quarter financials, let me briefly turn to our balance sheet-related key figures. We maintained a solid equity ratio of 39.4% at the end of the first quarter. The slight change compared to year-end reflects the dividends already offset from equity after the AGMs of the Sartorius AG and Sartorius Stedim Biotech S.A. in March 2026. Net debt decreased slightly to EUR 3.727 billion, reflecting continued deleveraging despite ongoing investment activity. At the same time, we continued to actively manage our gross debt profile. This makes the reduction in net debt, particularly notable as it was achieved despite the dividend payout to Satorius' 80 shareholders for fiscal year 2025 on March 31, and underscoring our continued focus on disciplined deleveraging. As a result, the leverage ratio defined as net debt to underlying EBITDA improved slightly to 3.53x, down from 3.55x at year-end 2025, and this confirms that we are progressing as planned on our deleveraging path. Taken together, these developments underline our continued commitment to financial discipline and to maintaining a strong investment-grade credit profile. And with that, I would like to hand over to Michael.

Thank you, Florian. Based on the solid performance in the first 3 months of the year and overall market development, we are confirming our full year 2026 guidance and continue to view 2026 as a transition year, covered our midterm ambitions as outlined at our Capital Markets Day much. For Sartorius Group, we expect sales revenue growth in constant currencies of around 5% to 9%. For Bioprocess Solutions, we anticipate within a range of approximately 6% to 10%, primarily driven by recurring business, while the Equipment business is expected to remain at least stable. In Lab Products & Services, we expect sales growth of around 2% to 6%, reflecting continued strength in the recurring business and the stabilizing instrument environment. At group level, sales growth includes around 1 percentage point contribution from the MatTek acquisition and the U.S. tariff-related surcharges. While LPS revenue growth includes approximately 1.5 percentage points from MatTek. Turning to profitability. We expect the underlying EBITDA margin to be slightly above 30% for the group, for Bioprocessing Solutions, the margin should be slightly above 32%, while in Lab Products & Services, we expect the margin to be slightly below 21%. The CapEx ratio is expected to remain around prior year levels. as we continue to invest selectively and with discipline in our global research and manufacturing footprint. We also expect net debt to underlying EBITDA to decrease to slightly above 3x by year-end, reflecting our continued focus on deleveraging, as Florian said before. Given the recent volatility in FX rates, we would also like to share some additional color on the expected foreign exchange impact for the second quarter. We currently anticipate a headwind in the region of 2-point -- minus 2.5 percentage points respectively, minus 4 percentage points for H1 accumulated. While we continue to expect FX effects for the full year to be around minus 2 percentage points, we remain mindful of an increasingly complex external environment, talent, geopolitical tensions, particularly in the Middle East, are driving increased uncertainty, especially the longer the situation is. However, we feel comfortable with our guidance as defined in early February and reiterated today. We expect the second half of the year to be stronger than the first half in absolute numbers. Our confidence is based on the positive underlying development of the biopharma market, a strong order book and our ability to navigate the continued volatility and uncertainty caused by the geopolitical and macroeconomic tensions. Looking ahead, Sartorius has a clear vision and strategy, and we're firmly committed to executing it with discipline, consistency and a long-term perspective to deliver sustainable value creation. With that, I would now like to hand over to Rene, who will walk you through the financials of Sartorius Stedim Biotech in detail. Rene?

Thank you very much, Michael. Also from my side, welcome, and thank you for joining our Q1 results call today. Sartorius Stedim Biotech delivered a strong start into 2026, supported by our high-margin consumables business as well as continued operating leverage. In the first quarter of 2026, sales revenue increased by 7.9% in constant currencies, reaching EUR 762 million. Growth in reported currencies amounted to 2.3%. Our Recurring Consumables business was fueled by strong underlying demand. Equipment, as Florian mentioned before, performed in line with our expectations, with a softer Q1 due to the delivery schedules of customers and revenue recognition more geared towards Q2. We anticipate stronger Q2 Equipment sales which would deliver at least prior year levels in H1, supporting a healthy first half performance. Looking at profitability, we observed similar developments to those at Sartorius AG as Florian elaborated earlier on. While earnings continued to improve in the first quarter, the underlying EBITDA margin remained largely flat. Positive volume effects and economies of scale were offset by a less favorable product mix within the Consumables portfolio and tariff impacts. Additionally, it has to be noted that there was a technical margin drag of 25 basis points due to an increase of the Sartorius branding free charge from Sartorius AG to SSB. As a result, underlying EBITDA increased to EUR 233 million, and the margin remained resilient at 30.7% for the quarter. All regions, looking at the regional performance, all regions contributed to positive business development in the first quarter, supported by continued strength in Consumables. Starting with EMEA, sales increased by 9.1% in constant currencies. In Americas, sales grew by 5.6% in constant currency, reflecting a tougher prior year comparison, but remaining positive overall. Asia Pacific delivered the strongest regional performance with sales growth of 9.4% in constant currencies, with China contributing nicely to the region's growth. Looking now at net profit and cash flow, profitability and cash generation developed solidly over the year. Starting with earnings before EBITDA, all metrics grow slightly. Underlying net profit increased slightly disproportionately to underlying EBITDA mirroring higher depreciation caused by our CapEx program over the past few years. Reported net profit improved by 3% to EUR 88 million, thanks low extraordinary items, which are excluded from the underlying profitability measures and were, therefore, supportive. Turning to cash-related items now. Operating cash flow increased strongly to EUR 193 million, up more than 61% year-on-year, driven by higher EBITDA and lower taxes compensating for the gross related increase in working capital. As a result, free cash flow rose significantly to EUR 124 million supported by the strong operating cash flow and stable CapEx at the prior year levels. Accordingly, the CapEx ratio increased slightly to 9.1%, reflecting continued disciplined investment in support of future growth but we continue to expect full year CapEx of around 13% of sales for the full year period. A quick look at our balance sheet metrics. At the end of the first quarter, we continued to show a very strong equity ratio of 50.6%, reflecting our solid capital structure. Compared with year-end, the slight decrease mainly reflects the dividend which was offset from equity following the AGM end of March. Net debt decreased slightly in the ratio of net debt to underlying EBITDA progress as planned. The net debt to underlying EBITDA ratio improved further to 2.8x, down from 2.38x at year-end, confirming that we remain well on track on our deleveraging path. Overall, these developments underline a strong balance sheet position of Sartorius Stedim Biotech and provides a solid foundation to support future growth while maintaining financial flexibility. Before we move into Q&A, let me quickly elaborate on our confirmed outlook for full year 2026. Based on the solid performance in the first 3 months and over a year and overall market development, we are confirming our full year 2026 guidance. We expect to stay on our profitable growth path and for 2026 sales revenue growth in the range of 6% to 10% in constant currencies, including 1 percentage points contribution from U.S. tariff surcharges. Growth will be mainly driven by a Recurring business, but again against higher comps, while the Equipment business should remain at least stable. Based on our order book, we continue to expect a stronger second half compared to the first half at Sartorius Stedim Biotech. This reflects the expected gradual normalization and improvement in the equipment business throughout the year. The underlying EBITDA margin should increase to slightly above 31%. Our CapEx ratio is expected to stay around previous year level of around 13%, reflecting our ongoing investments into research and resilient production footprint. Our commitment to deleveraging remains unchanged. We anticipate the leverage ratio, the net debt underlying EBITDA to decrease slightly to slightly above 2x at year-end. Given the volatility we have seen in the currency exchange rates over the past few years -- few months, let me also share some FX assumptions for the Sartorius Stedim Biotech group. We currently anticipate a headwind of approximately minus 2.5 percentage points in the second quarter, while we continue to expect FX effect for the full year to be around minus 2 percentage points. Michael highlighted earlier for Sartorius' AG and without repeating this in detail, the same considerations also applied to Sartorius Stedim Biotech. We feel comfortable with our guidance and define -- as defined in early February, and reiterated today. Our confidence is based on positive underlying development of the biopharma market, our strong order book, our ability to navigate the continued volatility and uncertainty driven by geopolitical and macroeconomic extensions. With this, I will hand over to the operator to begin the Q&A session.

[Operator Instructions] And the first question comes from Zain Ebrahim from JPMorgan.

My question is on the demand activity you're seeing at the moment in Equipment. Can you comment on what the latest is from customers based on your latest conversations with them?

Yes. Thank you for the question. So yes, let me first reiterate what we have just explained how the equipment is developing. So for Q1, we have seen a bit softer development in sales, more or less as expected. And we see the revenue recognition being moved or was moved more towards the Q2. So what we anticipate to see for the H1 is, first of all, stronger Q2 Equipment sales in H1 to be then at least at the level of the prior prior year. So overall, I would say, Equipment develops as we have expected, the positive start in the year coming from quite strong or relatively strong H2. We have seen already in H2 last year, Q3, Q4, particularly were quite quite positive quarters in Equipment, and we're benefiting from that in the beginning of the year as well. So overall, we are confirming our view on the Equipment moving forward, as I said, H1 positive, at least at the prior year level and same same for the full year. Overall, H2, as you can say today, we would expect based on the discussions we have with customers and the funnel we see, which is positively developing as well, for H2, we expect to be stronger than H1 from today's perspective.

Then the next question comes from Doug Schenkel from Wolfe Research.

It sounds like you expect Bioprocessing Equipment growth in Q2, which I think is what you were clarifying in the last question, but I just want to make sure that's right. And I want to also confirm that based on trends in backlog that you're expecting Bio Equipment growth to continue into the second half. And then I guess the last part to this question would be, are there any areas that you would call out that are notably driving recovery in Equipment? And conversely, are there areas that you're still awaiting some recovery?

Yes. So absolutely. Thanks for the question. Confirming, yes, we're expecting Q2 growth in equipment sales, as I mentioned, and also I think second part of your question was H2 above H1 is our current view, indeed. On the -- how we -- what is this happening? How is overall equipment developing, looking at different parts of the portfolio of regions? Honestly, I think it's quite all over the place. We don't see really special pockets of growth or still muted development, definitely have seen a good traction on bioreactors. Now as you remember, we talked about the consumption of bags and consumables, which we see going with the Equipment that is still well on track and continues nicely growing. And here and there, we see already new installations happening. I mentioned bioreactors, but it's going also in downstream, with very successful initial placements of our new innovative bionic platform going supporting process intensification as well some larger projects in area of peptides in chromatography. So it's kind of across the board.

Then the next question comes from Subbu Nambi from Guggenheim Securities.

At the Capital Markets Day a few weeks ago, you mentioned that biotech has been improving. The capital markets environment remains strong for Biotech. Are you seeing any change in behavior? And is that a potential source of upside relative to your full year targets if trends continue?

Yes. [indiscernible] start just BP. So I think we've as indicated there at the Capital Markets Day, I think we've already started we need to see signs of -- I mean, yes, the funding environment has improved progressively in the second half of the year, towards to year-end or we could see some more activities and interest and lead generations as well from the Biotech side. I think overall, it remains as well. I mean, if we look now as well as the LPS portfolio remains probably still on a more rather stable and lower levels. At the same time now, as we said, I think as we expect overall order situation opportunity generation for the second half of the year to be a great foundation. Again, given the lead times for these orders that will be generated as well from that part of the business. Again, I think we need to be mindful that the early sterilization of those sales would be rather at the very tail end of 2026 and rather create now the potential bench for revenue realization in 2027.

And the next question comes from Charles Pitman King from Barclays.

Can I just -- and I apologize if I missed this clarification, but just coming back to your 2H being greater than 1H on both an Equipment specific and a broader BPS dynamic. Can you just confirm that what you're expecting when you say absolute, is actually a continued growth in the organic line? Or is this primarily reflecting the removal of the FX headwind, like is that what gives you the confidence of absolutely being greater in 2H than 1H? I'm just trying to get an idea that the Equipment sales are, in fact, expected to improve over the course of this year.

Charles, first, let me talk to the question regarding FX. All that we are talking here, which is sales related is FX corrected. So it's in constant currencies. And what we have been saying is that we are expecting a higher H2 versus H1 absolute [ EUR 1 million ] currency adjusted.

And just in terms of the organic growth rate on Equipment in the second half? -- sales versus orders?

We've said that we are expecting H1 sales currency adjusted to be at least on the level of prior year and still also for the full year, we've said that we are expecting full year Equipment sales to be at least on prior year level.

And the next question comes from Charlie Haywood from Bank of America.

Charlie Haywood, Bank of America. A question on BPS consumables actually and the contribution to the guide. So I think Rene at the full year suggested low-teens consumables growth is a reasonable expectation for a normal year. And then you haven't called out many specific headwinds to the consumables side other than acknowledging '25 is a tougher comp. And then obviously, tariffs is actually a slight tailwind to that. So is it fair to think of all of those factors that consumables growth in the roughly low teens range for this year would be a sensible answer?

Well, let me tackle that Charlie and Rene maybe to comment on that. First of all, please bear in mind, we have said that the year '26 is a transition year. So please do not apply the kind of normal growth rate that we've given in the midterm guidance also as the kind of anchor point for the year '26. Additionally, on top of that, I think what we also said clearly is that we are expecting clear base effects because of the very high comps. So the growth rates that we've seen in the year '25, where it was in the [indiscernible] area,; is not one by one to be expected to continue. It will be still a healthy and strong growth. That is our expectation. But I think it would be wrong now to nail us down on a double-digit consumables growth for the full year.

Then the next question would come from Charles Weston from RBC Europe.

In terms of China, you both -- your M&A both spoke quite constructively at the Capital Markets Day, saying that there's more activity and recovery from China companies looking to a ban globally. I think one of your U.S. peers reported double-digit growth in China prior process in Q1. and said it was in recovery mode. So can you just perhaps give us any further color about what you're seeing from that market in Q1 and in Q2 so far, please?

Yes. I can get started. I mean as outlined, I think, overall, we are encouraged to see that there is a growth contribution from China after 2 rather difficult and reasonably weak years overall. I think I still would like to make the comment upfront that the tendency that we see and a bit the muted demand when it gets to the Equipment and Instruments business, that remains there. And hence, with the bigger impact that we have in that business quickly for the Lab Products & Services division. It is indeed the fact that here the contribution is lower and it remains rather soft on that side. However, I would say it's great to see the Q1 development there on the BPS and Consumer business side, where we basically seen overall group level performance of around close to 30% on that basis. So I mean on this perspective, we take a look at the growth contribution overall from China is positive on the Consumable side as we mentioned.

And the next question comes from Oliver Metzger from ODDO BHF SP1680031515.

It's about the full year guidance. So Q1 experienced still some headwinds and also had from the Q1 last year, let's say, a higher comparable base for the Consumable side. So momentum from the Consumables over the next quarters should not meaningfully deteriorate just from a space effect or remain similar. As you said, Equipment demand seemed to improve. And also we observe now a gradual improvement or recovery of LPS. So would you describe Q1 as a trough with regards to growth rates for the current year? If not any unforeseen headwinds pop up?

I would not do that. It is a solid start into the year. It is very much in the midpoint of our guidance. And I think we have, especially when issuing the guidance have also communicated about the drivers of the guidance, what might lead to the lower end, what might especially lead to the high end. And you know we said that the lower end would be more the kind of not so much expected scenario and the higher end would require quite healthy dynamics also in the Equipment area to take place. Whereas the midpoint would see an Equipment business rather on prior year level. I think we have seen now in Q1, a healthy start in the Consumables business. we are going to see, at least this is the current point of view that H1 from the Equipment side will be at least on prior year level. And with that, I feel very comfortable with the overall guidance and to frame Q1 as a trough, I would be cautious.

The next question comes from Odysseas Manesiotis from BNB Paribas.

All had a question on phasing throughout the year. Is it fair to assume Q2 could be the strongest growth quarter given your these comps here. I mean, I remember you had some fluid management related U.S. customs delays that made Q2 '25 a bit weaker, could you confirm where there that's a sensible way to think about it?

Yes. Thank you, Odysseas. So if you look at an absolute numbers, you have seen that the year -- or that Q2 in the year '25 was somehow standing out. It was above Q1 in absolute terms, and it was above Q3. It's true that the tariffs were ramping up with the implementation of the tariffs middle of April, Q2 took some time. And of course, the tariff effects are more pronounced in H2 '25 and not so much in Q2. Nevertheless, I would say that a not too low comp if we look forward into Q2, as I said, was higher in absolute terms than Q1 and Q3.

Then the next question comes from Thibault Boutherin from Morgan Stanley.

I just wanted to come back on the comments on Equipments. I guess the sustainability that you expect from this. So I guess, first of all, to what extent your conviction of improvement in Q2 is coming from the order book versus just expectations and discussions and sort of what lead time do you have on the order booking equipment, giving you that confidence? And then related to that, are you confident this is the beginning of a recovery cycle that it we've been waiting for, for some time? Or could we still be in a period of fluctuations where we could see Equipment order and Equipment sales being a bit more volatile for the next few quarters?

Yes. Thank you. And let me quickly quickly start on the visibility on Equipment for Q2. Making these statements requires support by order book, and this is exactly what we're seeing. So we are feeling quite quite confident looking at the order book. Of course, there might always be late adjustments from the customers indicating they want to have certain orders in June and then maybe I don't know what happened at their site requesting something in July. But the general volume is clearly in the order book already for Q2.

Yes, absolutely. Right, Florian, what I would add to that is that I'm not sure it's like -- as we expect at least flat full year sales Equipment. I would rather call it still a transition year. We, however, are quite positive with the outlook the orders in the year, full year on Equipment will be above the -- in H1, above the H1 last year and also the full year above 2025. So yes, as I mentioned before, funnel is there, the discussions we have with customers indicate that for this development, but it's still a positive transition year regarding that.

Then the next question comes from James Vane-Tempest from Jefferies.

I just got a question on underlying profitability to understand the construct because if margins are basically flat year-over-year, the other operating income seems to have had a 2.5 percentage benefit because, I guess, Q1 last year was minus 12% and that's moved to plus 10%. And I was just wondering if you can help us understand what's contributing to that level and if that's sustainable. And so if that actually has had such a big benefit and a swing, it looks as if the underlying margins have gone from over 31% to sort of less than 29%, which the largest driver seems to be at the gross margin level, which is down 2.7% I think it is. So the second part of the question then is, you've clearly talked about mix, but can you also help us understand the inventory write-downs, which happened last year and when that's exposed to start to improve over the coming years. And if that math sort of makes sense, what's happening in the underlying profitability?

Yes. Thank you, James, for your question. Let me start with that. So yes, of course, well spotted when we're looking at gross margin. The one really big driver in gross margin is FX. And as you know, we have a rolling forward hedging strategy on FX, but the positive hedging effect on FX on that margin rolling in other income. So the -- so there is a kind of mismatch if you're looking at that. And therefore, it is as a consequence, clear that you observe a healthy other income margin and the pressure on gross margin. Now regarding inventory. What we have been talking was more a kind of general statement to give you a feeling for possible possible support for further margin increase rather than giving you a concrete number that you can bring on a time line. And please accept my apologies for not going deeper this for your modeling.

Just so I understand what you're saying the swing is just due to that sort of mismatch in FX. So should we really be considering gross margins looking at what your gross profit is, with an adjustment for what we see in the other operating. Is that correct? So if you've seen this big swing, is that the sort of the level of anticipation we should have for this year because I also noticed that the same number in Q4? Or is it the type of thing which should then roll off in the second half of the year. The reason I'm asking is because it is sort of material to the overall margin rule. So it would just help us sort of the complete corporate picture.

Yes. James, we are guiding on underlying EBITDA margin, not on gross profit margin. Therefore, we've taken appropriate measures to secure that level of profitability. There is that FX swing. And there is another point that we also communicated in this call here that is around the mix effect that, of course, also had a certain slight drag besides tariffs on the gross profit margin. So please, always bear in mind, Q1 last year was free of any tariff liberation day tariffs. And please also bear in mind that we have that kind of mix effects within BPS consumables.

The next question comes from Naresh Chouhan from Intron Health.

A couple of bigger picture ones, please. We calculate the underlying demand for medium biologics is low double digits, obviously, what you returned to last quarter. If we -- I heard your comment just now that we should caution that we may see that this year. If the underlying demand is low double digits. Can you help us understand the delta between your sales growth? Is this a share issue? Is it yield? What's happening? Why are you not growing at the rate of demand? And then -- and secondly, as yields continue to improve, this is more of a question around Equipment. As yields continue to improve, are you seeing customers increasingly shifting to smaller batch bioreactors over the last week -- compared to the last few years, and therefore, could it be that you -- in Equipment that your share can improve.

Yes. Thanks for that question. So I agree with what you said on the demand. However, this is something you need to consider over longer period of time. So looking at a year, there might be fluctuations. But overall, this is what we see and expect. So the -- when we talk about market fundamentals and growth, we see that and expect the biologics demand will grow and continue to grow low double digit is fair assumption. At the same time, improvements happen. That has also impact, as you indicated on than what Consumables, Equipment are used. And yes, we have seen, but it's now -- we are more than -- for more than a decade that this yield or efficiency improvements lead to more and more smaller volume processes, more and more single-use adoption. And if you listen to our Capital Markets Day, this is also the expectation we have and what we do and drive as an innovation industry is further improvement of this efficiency. So even more of specialty commercial drugs will be manufactured in that more flexible single-use Equipment and facilities, which, of course, will positively impact and drive our market position and the growth of the business.

I'll just ask a follow-up. Should we then assume on the basis of that, that your Equipment sales should hold up pretty well, but Consumables will grow slower than underlying demand over the kind of short to medium term?

No.

And the next question comes from Falko Friedrich from Deutsche Bank.

I have one question, please. Is it fair to assume that the group adjusted EBITDA margin in Q2 is likely still below the full year guidance range, just like it was in Q1, given the incremental tariff headwinds and more Equipment in the mix?

Could be, depends also on the other components of mix, Falko.

Then the next question comes from [indiscernible] from Goldman Sachs.

Can you talk to how you're managing the current geopolitical risks and energy price increases? And what are the key mitigating strategies that you have in place?

Yes. Thank you very much. So when we are talking about the Iran crisis and energy prices, first of all, it has to be noted that Sartorius is not to be considered as a kind of energy-intensive company. If we purely talk about electricity, it is a very low single-digit percentage of cost of goods sold. And in recent years, we have also invested in expanding renewable energy capacity at our sites worldwide to become more independent, of course, over time from fossil-based energy. We are not using short-term hedging instruments, but what we are using our rolling contracts, longer-term rolling contracts. So even if we see on the spot market hikes in gas, or electricity, this should not have any larger impact on our P&L in '26 and in '27. On the other hand side, there might be indirect or second round effects from rising energy and/or gas prices on cost, for example, higher freight cost or oil-based components, in raw materials, so plastic, for example. And this is, of course, somewhat more relevant, and we are watching the supply and the sourcing situation very carefully. We have a task force on top of that. This might lead already in the year '26 to an increase of our cost base. And on the other hand side, most of our supply contracts are longer term. And even if we have higher price levels, they will also be mitigated by internal moving average prices based on inventory in place. And furthermore, currently, we have no significant component shortages that have been identified by the task force that I was mentioning. And of course, even if there were some cost effects and if I had to put a risk number, it would be, I don't know, on about EUR 10 million for the year, '26, we would then and implement countermeasures, including price increases or freight surcharges, and this is all currently evaluated. And of course, if the conflict is prolonged and we're seeing persistently higher oil prices that, of course, could have an impact on cost in 2027, but this is now too early to tell. But I can tell you that we have overall the instruments in place to fair our way also in an inventory environment.

And the next question comes from Charles Weston from RBC Europe.

I just have one, please I know the question has been asked before, but you've talked about there being tougher comps in 2026 on the Consumable side. but I thought that 2025 was effectively described as a more normal situation in absolute revenue terms. So if there was additional sort of restocking by customers in '25, making a tough comps tougher, perhaps you could just discuss that. But if not, and it was more normal, then why would 2026 consumer growth be lower because of tough comps?

I'm not sure I really got the question because what we've seen in prior year in Consumables was the growth in Consumables that was definitely above average market in a still transitioning year. And based on that, I would simply assume that or simply say it is not fair to assume that these high kind of growth rates will persist in the year '26 and that we will see base effects. When I was talking about comps, it was based on the question regarding Q2, where I just said that Q2 stood out in absolute volume against Q1 and Q3.

And the next question comes from Delphine Le Louet from Bernstein.

Just to be back into the mix specifically at BPS one. Can you clarify a bit more the impact in between the volume and the price any or in between the consumable, all the service versus the rest of the line when it comes to the Equipment? Can we have a bit more granularity here, please, for us to clearly understand.

Yes. Thank you very much for the question. So yes, we've seen that in the quarter, we see this more as a quarter effect, nothing to be continued and move forward, it's really a short-term mix shift to a certain part of the portfolio, nothing structural.

Okay. And there is nothing on the price -- no specific just regular price increase?

No, no. That has nothing to do with the price side.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Petra Muller, Head of Investor Relations, for any closing remarks.

Thank you, operator. This concludes today's call. Please reach out to the Investor Relations team in case of any open questions. We thank you for joining today's call. Wish you a pleasant rest of the day and see you next time. Operator, you may now disconnect.

Thank you.

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