Sartorius Stedim Biotech S.A. (DIM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Sartorius and Sartorius Stedim Biotech's 9 months 2026 Results Call. Please note that the call is being recorded and streamed on Sartorius website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Muller, Head of Investor Relations of Sartorius. Please go ahead.

Yes. Thank you, operator. And hello, and welcome to everybody. Joining me today are Michael Grosse, our CEO; Florian Funk, our CFO; Rene Faber, Head of Bioprocessing and CEO of [indiscernible] Biotech as well as Alexandra Gatzemeyer, Head of Lab Products & Services. As always, we will start with prepared remarks followed by Q&A. The call is scheduled for 1 hour. Please limit yourself to 1 question to allow as many participants as possible to take part. If time permits, we will, of course, take follow-up questions at the end. Please note that management's comments will include forward-looking statements involving risks and uncertainties and for details of the relevant risk factors, please refer to the safe harbor statement in today's press release and also in the presentation. And with that, I'm pleased to hand over to our CEO, Michael Grosse. Michael, please go ahead.

Thank you, Petra, and a very warm welcome from my side as well. I'm happy to report a solid results for the first 9 months of 2026, with both of our divisions contributing to growth. At the same time, further improved profitability and generated strong cash flow. This allowed us to continue deleveraging and further strengthen our balance sheet, all in line with the financial priorities we outlined at the beginning of the year. Let me share some high-level views here. At the group level, we saw a solid growth during the first 9 months of the year. Looking at the divisions, the strong operational sales growth in Bioprocessing Solutions was driven by a healthy recurring business and the continued recovery of the nonrecurring business, which grew year-on-year. Overall, this confirms the equipment recovery we anticipated at the beginning of the year and supports our confidence in its further progression. Lab Products & Services performed particularly well and even exceeded our expectations. Growth was broad-based across the portfolio with particularly strong momentum in our Bioanalytics business and some pull forward in Q3. Here, AI-driven drug discovery workflows are becoming an increasingly relevant growth driver, and especially our Okta platform is very well positioned to benefit from this trend and the opportunities it creates. Overall, we are very pleased with our top line performance, especially considering that tariff surcharges shifted from a benefit to a headwind in Q3 and market is now fully reflected in our organic baseline. If we strip out all tariff effects, our underlying growth actually accelerated compared with the previous quarter. Turning to profitability. Higher volumes, together with continued cost and operational discipline keep us well on track with our profitability objectives for group and for both divisions. The combination of profitable growth and continued discipline on working capital translated into a substantial improvement in free cash flow. As a result, we further reduced leverage and continued to strengthen our balance sheet. Overall, we are very pleased with the progress we've made so far this year. The positive momentum is based on end markets that remain fundamentally intact. We are seeing healthy pipelines and increasing research activities across our customers, which is supported demand for lab instrument consumables. As these programs move through the pipeline, production volumes increase and so does the need for bioprocessing solutions. In Bioprocessing, customers are increasingly focused on improving productivity and efficiency while reducing cost. We saw the strong interest firsthand at our recent [indiscernible] forming getting which brought together 130 participants from 54 biopharma companies and 30 external speakers across the industry. Discussions range from intensified upstream processing to continuous downstream manufacturing, automation and data analytics. My key takeaway was that the industry is increasingly moving from discussing the potential of pros intensification to how to implement it in practice. Sartorius is very well positioned for this transition with technologies spending to workflows from early process development to next-generation bioprocessing. And of course, we do not stand still on the innovation front. First, in BPS, we have expanded our portfolio with technologies that improve oxygen transfer and needing further process and indication and upstream and ready-to-use declines in closed sterile bags and a new animal component-free cell culture medium. Second, in LPS, we added an AI-powered insight module for faster label-free stem cell analysis and a new Okta biosensor for faster antibody measurement with less sample preparation. Leading on this, let me briefly turn to our outlook. We confirm our full year guidance and continue to expect operational group sales growth around the midpoint of our 5% to 9% range and an underlying EBITDA margin slightly above 30%. For BPS, our expectations remain unchanged, why we have refined our expectations for LPS following the strong 9-month performance. We will come back to the details shortly. With that, I will turn the call over to Florian for the financial highlights. Florian?

Thank you, Michael, and a warm welcome also from my side. Let me start with the group's top line performance. Overall, our top line continues to build on the positive trajectory of recent quarters. First, we are seeing sustained strength in consumables alongside continued growth in our nonrecurring business. Second, growth is broad-based across all regions, with APAC performing particularly well, also supported by the continued recovery in China. And finally, our lab division showed substantial growth as the recovery continues to progress. With that backdrop, let's look at the financial results for the period in detail. As a brief reminder, we introduced operational sales growth last quarter. This measure excludes the effect of tariff refunds and the corresponding customer compensation. We don't consider this to be part of our underlying operating top line performance. In Q3, we received an additional EUR 5 million in tariff refunds from the U.S. Treasury. This of the amount received in the first 9 months to EUR 31 million, while we claimed approximately EUR 40 million in total. We are still expecting to receive the outstanding amount by year-end, but there is a level of uncertainty to timing, of course. Corresponding customer compensation reduced sales growth by around 120 basis points in the first 9 months. In Q3 alone, the impact was almost 60 basis points. Excluding this effect, group operational sales grew by 8.1% in constant currencies. Including it, growth was 6.9% in constant currencies. Now turning to the divisions. Bioprocess Solutions continued to deliver solid broad-based growth. Operational sales increased by 8.1% in constant currencies, including the effect from tariff compensation to customers growth was 6.8% in constant currencies. Performance continued to be driven by our Consumables business, which delivered healthy single-digit percentage growth in the first 9 months of 2026. Consumables grew at a double-digit rate. Please be reminded that our overall Consumables business was partly diluted by volatility in our Advanced Therapies portfolio in Q2, which is obviously included in our 9-month view. We continue to expect these ATS orders either towards the end of 2026 or in 2027. Overall, recurring business continued to benefit from healthy activity across our customers' drug development pipeline, supported by clinical trial activity, new drug approvals and growing commercial manufacturing volumes. We were also encouraged by the ongoing recovery in the nonrecurring business, which grew year-on-year. This confirms our view that the bottom is behind us and that the market continues to improve in a steady, consistent manner. Now let's turn to the LPS division. LPS delivered a very strong Q3 that exceeded our expectations. Operational sales grew by 8.3% in constant currencies in the first 9 months. Including the effect from tariff compensation to customers, growth was 7.5% in constant currencies. We are clearly seeing positive underlying business trends across the LPS division. But in our view, part of the Q3 performance reflects demand pull forward and timing effects. This should be viewed in the context of a prolonged period of subdued customer investment and should, therefore, not to be extrapolated as a new run rate. Growth was supported by the recurring consumables and service business as well as by instruments with particular strength in analytical solutions. This was supported by improving biotech funding, rising research activity and a gradual release of customer CapEx. Finally, Matek contributed approximately 2 percentage points to LPS growth, performing fully in line with our expectations. Overall, we are very pleased with the top line performance, especially considering that tariff surcharges turned from a tailwind in the first half into a headwind in Q3. The reduction in surcharge rates from around 15% last year to approximately 10% this year represented a growth headwind in Q3 of roughly 40 basis points for both the group and BPS and roughly 50 basis points for LPS. Taking this into account, our true underlying business momentum remains very flat. Now let's talk about our regional performance. Overall, we saw a broad-based positive development across all regions in the first 9 months of 2026. Starting with EMEA, sales increased by 6.4% in constant currencies. EPS was the main contributor while LPS also delivered a positive performance. In the Americas, operational sales increased by 8.4%, with both divisions contributing. Including tariff-related customer compensation, growth was 4.9% in constant currencies. The region was still affected by the Q2 project delays in ATS I mentioned earlier. Q3 did not show any unusual ATS sales effects. Asia Pacific remained our strongest region, with sales up by 11% in constant currencies. Both divisions delivered double-digit growth, also supported by a continued recovery in China. Let me now turn to profitability. Overall, we continue to make good progress during the first 9 months of the year. Underlying EBITDA increased by 6.9% to EUR 828 million, while the corresponding margin expanded by 50 basis points to 30.2%. As in the first half, higher volumes and operating leverage were the main drivers of this improvement. These effects more than offset an unfavorable product mix and our continued investments in future growth areas. On a net basis, tariffs surcharges and the related customer compensation balanced each other out, had no impact on profitability of the divisions and the group. Looking at the divisions, Bioprocess Solutions generated underlying EBITDA of EUR 714 million. The margin improved by 80 basis points year-on-year to 32.3%, primarily driven by higher volumes and operating leverage. In LPS division, underlying EBITDA came in at EUR 114 million, the margin was broadly stable year-on-year despite our continued investments in future growth initiatives. The clear sequential improvement profitability was supported by the very strong top line performance in Q3. Overall, we are pleased with the continuous progress and profitability, which remains fully in line with our expectations for the year. Okay. So let's move on to have a look at performance below the underlying EBITDA earnings as well as cash generation developed well in the first 9 months. Underlying net profit increased by around 7% to EUR 260 million, reflecting the improvement in operating profit discussed earlier. Underlying earnings per share increased accordingly to EUR 3.76 per ordinary share and EUR 3.77 per preference share. Reported net profit attributable to shareholders increased by 51% to EUR 188 million. This was primarily driven by the strong improvement in operating profit and significantly lower extraordinary expenses compared to the prior year period. Turning now to cash flow. Where operating cash flow increased to EUR 562 million, up around 10% year-on-year. Higher earnings and the refund of U.S. tariffs more than offset an increase in working capital. The working capital increase was basically in line with the growth of the underlying business. Free cash flow increased significantly by 55% to EUR 310 million, driven by higher operating cash flow and lower CapEx. CapEx ratio was 9.6%. While capital expenditure remained below the prior year level, we continue to invest in key strategic projects and growth initiatives. Finally, let me briefly turn to balance sheet and leverage. Strong earnings and cash generation supported further balance sheet improvement. The equity ratio that you can see on the chart increased to 42.8% from 39.8% at year-end 2025. Net debt decreased to EUR 3.68 billion, which is almost EUR 200 million less than 12 months ago and well above EUR 60 million less than at year-end 2025. Net debt to underlying EBITDA improved to 3.3x. This shows that we are continuing to make good progress on our deleveraging path while still investing in the future growth of the business. Overall, these developments reflect our disciplined approach to capital allocation and our commitment to maintaining a strong balance sheet and solid investment-grade credit profile. Before we move on, let me briefly flag an upcoming change to our financial reporting. A new standard called IFRS 18 will become mandatory for financial year starting on or after January 1, 2027. This standard mainly changed the face of the P&L by dividing it into an operating, investing and financing part and introducing standardized subtotals. It also increases the transparency around alternative performance measures and how these reconcile with the profit shown in the P&L. Today, we calculate underlying EBITDA starting from EBIT and adding back depreciation, amortization and adjustments. Under IFRS 18, we will start with the newly defined P&L line operating profit, while the add-backs remain quite the same. Most important takeaway from this, underlying EBITDA will remain our central profit KPI and the content of this number stays consistent with recent reporting. The new presentation will also not affect net profit or net cash flow. We will disclose underlying EBITDA as management defined performance measure and provide a reconciliation to the closest IFRS-defined subtotal, which will be operating profit. Though in a nutshell, nothing changes in terms of Sartorius' underlying business performance reporting. IFRS 18 mainly changes how certain line items are represented and classified mainly in the P&L and to a limited extent in the cash flow statement. With that, Michael, back to you.

Thank you so much for Florian. Now let's take a look at our full year guidance. We confirm our expectations for the group and BPS by raising them for LPS following the strong performance in the first 9 months. At the top of the slide, you see our guidance ranges for sales revenue growth. These ranges cover both our operational view and the expected development, including customer compensation related to tariffs. On an operational basis, we continue to expect growth broadly around the midpoint of our guidance ranges of 9% to 9% for the group, 6% to 10% for Bioprocess Solutions. For Lab Products & Services, we have raised our expectations and now expect growth around the upper end of the 2% to 6% range. Including customer compensation for tariff surcharges, we continue to expect growth in constant currencies to be in the lower half of the respective guidance ranges for the group and BPS. For LPS, we now anticipate growth around the upper end of the range. As a brief reminder on tariffs, we submitted refund applications of approximately EUR 40 million. By the end of September, we had received around EUR 31 million. We are expecting the outstanding EUR 9 million to be paid by year-end, but there's a level of uncertainty to timing. On M&A contribution, no changes here. The contribution from the MATTEK acquisition remains unchanged of approximately 30 basis points for the group and 1.5 percentage points for LPS. Turning to profitability. We continue to forecast an underlying EBITDA margin of slightly above 30% for the group and slightly above 32% for Bioprocess Solutions. Following the strong development in LPS, we have raised our margin expectations to slightly above 21% compared with our previous expectations of slightly below 21%. Finally, our expectations for the other key financial indicators remain largely unchanged. We have modestly lowered our full year CapEx ratio expectation from around 12.5% to around 12%. Our expectation for net debt to underlying EBITDA of slightly above 3x at year-end remains unchanged. Looking ahead to Q4. We continue to expect solid underlying development with further recovery in Equipment and continued growth in Consumables. However, Q3 benefited from some pull forward and timing effects in LPS and Q4 phases are not too easy comparison base across both divisions in absolute million euros. In addition, MATTEK is now included in the organic comparison base and tariff surcharges represent a headwind compared to a tailwind in H1. Therefore, the strong Q3 growth rates should not be extrapolated into Q4. Finally, a brief update on FX. For the full year, we currently model an FX headwind of slightly more than 1 percentage point on a reported revenue growth. For Q4 in isolation, however, we expect FX to turn into a tailwind of slightly below 2 percentage points. Further modeling assumptions can be found in the appendix of this presentation. Overall, our message is straightforward. Our underlying business continues to be strong. Consumables remain strong. The recovery in Equipment is progressing as expected and improved visibility reinforces our confidence in the full year outlook. As you know, our goal is to continue to grow profitably above market. To achieve this, we are focusing on three key areas: our portfolio, the customer experience and operational excellence. It is simply we want Sartorius to become a more customer-centric, more focused and more efficient company. To make this happen, we are adapting our operating model and are moving forward from our divisional structure and will no longer manage the business in separate divisional silos. This also means change to the Executive Board responsibilities. And to our external reporting structure for next financial year onwards. But before we get into the details, let me first explain the key changes and why we are making that. At our Capital Markets Day, we talked about our ambition to further improve customer experience and become an even better partner for our customers. We want Sartorius to be easier to work with, better coordinated and simpler to navigate. As our portfolio has become increasingly interconnected, customers are increasingly looking forward for complete solutions rather than only individual products. That's why we want to present Sartorius as one company, with one case to the customers and easy access to our full portfolio. And this is why we bring our commercial activities together under one organization. Alexandra Gatzemeyer, who leads our global commercial organization as Chief Commercial Officer, responsible for account management, marketing and customer and technical services across the group. This allows us to present Sartorius as one company with clearer customer ownership, better coordination across our portfolio and the more consistent experience for our customers worldwide. Second priority we discussed at the Capital Markets Day, whilst maintaining our innovation leadership while continuously improving operational excellence. The support product groups are being brought together under Rene Faber, as Chief Product Officer; and he will be responsible for research development, product management, technical sales and manufacturing. This creates clear accountability and helps bring decisions closer to the business and our customers. Last but not least, we created a global operations function under my leadership. Bringing these activities together allows us to establish common standards across the group, share best practices more efficiently and effectively and further strengthen our operational excellence. And just to be clear, Rene will continue in his role as CEO of Sartorius Stedim Biotech, and I will continue my role as Chairman of the Board of Directors of Sartorius Stedim Biotech. With these changes, I'm convinced that we have the right organization set up to deliver on our ambition of becoming a more customer-centric, more focused and more efficient company. I also believe we are well positioned for our next case, of course. In this context, we will also adjust our external reporting as of 2027, underline our second reporting more closely with our corporate structure. Taking into account our French-listed subgroup Sartorius Biotech. The new segment structure will comprise of three building blocks. The former Bioprocess Solutions, Bioprocessing division will become the Bioprocessing Solutions segment exactly mirroring Sartorius Stedim Biotech. As a result, sales revenue and EBITDA, differences previously caused by product allocations and structural considerations no longer exist, simplifying modeling for analysts covering both companies. The Lab Products & Services division will become the Research Solutions segment and comprise our business outside Sartorius Stedim Biotech. Consequently, we will also find a separate reconciliation line in our financial reporting, which primarily reflects intercompany eliminations. At the end of the day, these changes require only a limited restatement. They do not affect Sartorius Group's revenues or underlying EBITDA and the separate reporting of Sartorius Stedim Biotech remains entirely unchanged. I'm sure many analysts covering both Sartorius AG and Sartorius Stedim Biotech, will appreciate the modeling simplification that comes with this. We are announcing the intended reporting change early to give investors and analysts sufficient transparency and preparation time. For the 2026 full year results, we tend to report the year under the existing segment structure and additionally provides pro forma figures for 2025 and 2026 under the new reporting structure, including a reconciliation. Our 2027 guidance will be presented on the basis of the new structure. Actual reporting under the new segment structure is scheduled to begin with the first quarter 2027 results. From that point onwards, we would no longer report the previous BPS and LPS segmentation. In summary, the adopted operating model and the planned reporting structure are both designed to support our one Sartorius approach, emphasizing customer centricity, clear portfolio for both and a simple reporting. With that, I'm now handing over to Rene. Rene, please?

Thank you, Michael, and good afternoon, everyone. Looking at the first 9 months of 2026, I'm very pleased with our performance. The Bioprocess Solutions business continued to develop well and broadly in line with our expectations. Demand for Biologics remained robust, supporting healthy growth in our recurring business with consumables, again, making the main contribution. In Advanced Therapies underlying market activity remains encouraging, particularly in earlier stage pipelines. Our Equipment business grew nicely year-on-year confirming ongoing recovery. Utilization rates continue to increase, triggering new equipment orders, demand for high throughput process development systems is high, supporting healthy activity levels of our customers. I'm also encouraged by the continued traction of our innovative platforms, which help customers develop processes faster and manufacture drugs in a more efficient way. What I hear from customers is that, there's no way around implementing every possible innovation in manufacturing. We have launched new intensified bioreactor back enabling to make more product and lower volumes, interest in our bionic intensified downstream platform is high, and we believe our portfolio is very well positioned to support customers as they continue adopting high-efficient singles manufacturing. Let's now turn to our financials. Starting with the top line. On an operational basis, excluding tariff-related customer compensation, sales revenue grew by 7.8% in constant currencies compared with the first 9 months of 2025. Including customer compensation, sales were up by 6.5% in constant currencies, reaching EUR 2.29 billion. Customer compensation for tariff surcharges amounted to EUR 28 million in the first 9 months, including EUR 4.5 billion in Q3. Our Recurring business remained an important driver of top line growth, increasing at a healthy high single-digit rate. or consumables grew at double-digit rate. The Equipment business also continued positive trends supported by customer investments in process development, productivity and faster time lines. Turning to profitability. Underlying EBITDA increased by 4.8% to EUR 716 million. The margin remained robust at 31.3%, improving by 20 basis points year-over-year. Positive volume effects and operating leverage offset for the total product mix. Tariff surcharges and related customer compensation balance each other out and on a net basis have no impact on profitability. Please note that underlying margin development was stronger than the reported 20 basis points, increase suggests that as a higher brand name fee was a 25 basis point headwind compared with last year. We already discussed that one in Q1. Overall, a strong margin underscores the strength and the scalability of our business model. Looking at regions. All three contributed growth in the first 9 months. EMEA maintained solid momentum with sales increasing by 6.5% in constant currencies to EUR 982 million. In the Americas, operational sales grew by 7.6% in constant currencies, Including tariff rated customer compensation, growth was 3.9% in constant currencies, with sales reaching EUR 783 million. The region was also still affected by the project delays in Advanced Therapies, as Florian mentioned earlier. Asia Pacific was our strongest region, with sales increasing by 10.6% in constant currencies to EUR 524 million. This development was also supported by continued recovery in China. Overall, the original picture remains broad-based with positive contributions from all three regions. Let's move to net profit and cash flow. Both developed well during the first 9 months. Underlying net profit grew by 9.4% to EUR 350 million. Underlying earnings per share increased accordingly by 9.4% to EUR 3.59 billion, reported net profit increased by 26.7% to EUR 277 million, supported by the improvement in operating profit and lower extraordinary items compared with the previous year period. Operating cash flow increased by 11.6% to EUR 498 million. Higher earnings and the U.S. tariff refunds more than offset the gross related increase in working capital. And free cash flow grew strongly by 58.5% to EUR 264 million, driven by higher operating cash flow and lower capital expenditure. The CapEx ratio was 10.1% compared to 12.6% in the prior year period. We continue to invest our global research and production infrastructure while staying disciplined on how we allocate the capital. A quick look at our balance sheet metrics. The ratio -- the equity ratio increased to 54.6% compared to 51.7% at the year end of 2025, reflecting our strong capital structure and earnings development. Net debt decreased to EUR 2.14 billion. The ratio of net debt to underlying EBITDA improved further to 2.26x compared to 2.38x at year-end of 2025. Overall, these developments underline the very robust balance sheet position of Sartorius Stedim Biotech, with a solid foundation to support future growth while maintaining financial flexibility and discipline. Two quick points before we move to -- on to our guidance. First, IFRS 18, which Florian explained earlier, will, of course, also apply to Sartorius Stedim Biotech reporting as of Q1 2027. Second, let me also underline that one Sartorius approach does not change the reporting of Sartorius Stedim Biotech. SSB will continue to report separately and with the same level of transparency as to date. The underlying principles, governance and transparency will remain unchanged. So to our guidance. Let me briefly comment on our confirmed 2026 outlook for Sartorius Stedim Biotech. On an operational basis, we continue to expect growth around the midpoint of our guiding range of 6% to 10%. Including customer compensation for tariff surcharges, we expect to report growth in constant currencies to be in the lower half of this range. As a brief reminder on tariffs, we submitted to refund applications of approximately EUR 35 million. By the end of September, we had received around EUR 28 million. We are expecting to receive the outstanding amount by year-end, but there is a level of uncertainty to timing. Turning to profitability. We continue to forecast an underlying EBITDA margin of slightly above 31% for the full year. Finally, we have modestly lowered our full year CapEx ratio expectation from around 13.3% to around 13%, reflecting our more focused prioritization of investment projects. Our expectation for net debt to underlying EBITDA of slightly above 2x at year-end remains unchanged. FX headwind would be approximately 1.2 percentage points on reported revenue growth for the full year. For Q4, we expect now a tailwind of approximately 1.7 percentage points. Michael mentioned earlier, when thinking about Q4, please keep in mind the tariff surcharges will represent a headwind and that we are also facing a demanding comparison base with Q4 last year being our strongest quarter in absolute sales. So putting it all together, the underlying business remains healthy. The first 9 months give us a solid basis for the remainder of the year. And our focus now is on execution and finishing the year strongly. And with that, I will hand over to the operator for the Q&A.

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

I'll stick to one, which is -- just if you could provide more color on the demand trend you see from customers in Bioprocessing, both on the recurring side of the business and nonrecurring. And specifically, how did market conditions evolve in Q3? It sounds like it's steadily getting better Florian, from your comments, but if you could maybe elaborate on that. And I think previously, you had a guidance for Equipment of flat to slight growth for the year. So what's your latest view there?

If we keep to someone gets the question in full, I didn't understand fully acoustically. Can you just quickly repeat the main points of the question for the acoustics is not brilliant.

Sorry, hopefully, you can hear me clearly now. It was on latest demand trends in bioprocessing on recurring and nonrecurring and how that's changed in Q3 and what your latest view is on equipment for 2026 revenue growth?

Okay. Thanks, Zain, for the question. Let me take that on. I think if we see the -- we see and build on the continuation of, first of all, we have strong demand based on the volumes for the recurring business parts. You look at our core consumables specifically, we see the continuation of the first 6 months of the year as well prolonged in Q3 across the board. Secondly, I think as I highlighted during the presentation, we've seen a strengthening progression in the recovery of the Instruments and Equipment business. as well quite widely across the regions. Here, I think to outline is really the specific strong demand that we see on the Bioanalytics front and as well on further desktop systems. We expect, of course, this trend to further continue. We have good visibility for the full year, particularly when it gets to the Instruments and Equipment side, supporting our full year guidance as we outlined.

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

Charlie from Bank of America. It's actually on the LPS side, after obviously a very strong third quarter, showing an early demand signal, but obviously appreciate there is some phasing element to that. I wanted to just understand more broadly how you see the potential opportunity here from, I guess, AI and AI-driven drug discovery for initially on the Bioanalytics and LPS side and then maybe longer term on the Bioprocessing side.

Okay. Thanks, Charlie, thank you for the question. I think the LPS part of this, Alexandra will take.

Yes. Let me take part on LPS drug discovery. So if you think about AI drug-driven drive discovery, this was one of our strategic growth pillar. We were talking at the Capital Market Day and we already play in this area. So one of the example Michael was talking earlier an introduction about Incucyte, for example, where we have collaboration with NVIDIA, and we have AI-powered assays already on Instrument. And. The second example is Octet. It's a [indiscernible] system, where we have -- it's real-time measurement, label free. So we do see this instrument participating in workflows at the customer side, and we would expect even further grow on innovations in that direction because that is Instrument, Consumables, software part and cost services.

Thank you, Alexandra. Anything to add there, Rene, on the BPS side when it gets to the particularly [indiscernible] part of this?

Yes. I mean I think it's interesting to see the discussions we are having with our customers who do process development. Those discussions are around know how to get prepared for the increased number of trucks, which are coming due to the AI development and the discovery. So the expectation clearly will help the AI will have intrdiscovery to get more drugs into the manufacturing and also increase the success rate of these drugs. And the process development people are already preparing for that, how to deal with the increased numbers. And of course, the high throughput systems like our [indiscernible] system is exactly the solution to deal with that wave, which is potentially coming.

Then the next question comes from Matthew Weston from UBS.

As we look into '27, '28 and we think of the likely demand for new facility fit out, particularly in the U.S. in BPS, there's a big investor debate on whether Sartorius will lose share to your competitor with a 5,000 liter single-use bioreactor. So my question is really, where are Sartorius on scaling up your bioreactor volumes in single use? Do you think it will be a competitive advantage and in particular, what in the Sartorius portfolio gives you confidence that you'll win your fair share of the RFPs when they come?

Thank you, Matthew. This one is for Rene.

Thank you very much for the question. So first of all, I think the -- what you are saying and this is what we also hear customers are preparing for increase of the capacities, customers prefer single use. So single use is the -- often the technology of choice. Now to the volumes, what we see in our discussions -- and we recently had a nice few platform wins or conversion of competitors [indiscernible] platforms to ours due to the reason that the main driver and the main thinking of the customers is with the improved titers from the process development and the intensification of processes, the expectation is that the volumes of 2,000 and below covers the majority of the demands of our clients. Of course, we are watching the 5,000 topic here so far. We see it's rather a quick increasing capacity for diesels, order, legacy, low tighter processes, which we don't believe is the future, but we are in constant touch with customers to see what they exactly need.

The next question comes from Charles Pitman King from Barclays.

Charles Pitman King from Barclays. My question is just also thinking about kind of '27, '28 dynamic as we roll forward off a strong year. I'm just thinking about potential benefit from this U.S. reassuring and timings compared to some peers. You previously said you expect orders over '27, '28 with late '27, '28 orders. I'm just wondering if that remains your expectation given what you've seen over the year so far? And also just if you can provide any further commentary around whether you think this U.S. reshoring is driven by [indiscernible] expansions? Or is it actually more reflective of a preference to shorten supply chains post COVID and therefore, a bit more structural?

Thank you, Charles, thanks for your question. So I'll take that one up here. Yes. So I mean, basically, we stay in line with our indications of the way of how we look as the demand for the year '27 and '28 when it gets to particularly the nonrecurring business and CapEx investments from the policy changes and the regulatory demands. So we, of course, have been very pleased in order to see the one other brownfield additions and CapEx demands coming from North America already during this year and the second half of this year. So far, at the same time, we don't necessarily say that we would attribute that to real discussions. If we take that, we still believe that we see some of the specific groundbreaking is taking place as we speak. We continue to see that the expectation on order intake is there for the later part of '27 and '28 and then we'll basically spend over a longer period of time. Our judgment so far is not necessarily yet a very structural demand that comes from that. We still believe that there will be a specific regional overcapacity or global overcapacity, be it the consequence of those investments. So we see these investments that will come and spend through these years from '27, '28 onwards for the coming years to build up regional capacity, particularly for the CapEx investment part.

And the next question comes from Subu Nambi from Guggenheim Securities.

You've now delivered roughly 8% operational growth through the 9 months with Consumables healthy and Equipment recovering. As you look into 2027, what needs to be true For Bioprocess Solutions to sustain the high single-digit growth? And how much confidence do you have that Equipment can still become a meaningful contributor rather than the growth primarily coming from Consumables?

Thank you for your question, Subu. Yes, I think at this point in time, we don't want to preempt the exciting discussions that we probably will have done in 2027. So there's no need right now for us to talk about 2027 guidance. We're in the middle of our discussions in the executive team and then with the supervisory team to look at our budgets for the future. Of course, we see the momentum on the basic demand for our core consumables and broader recurring business to be robust and taking us into the year-end. And therefore, there's as well no need to believe that those trends and the underlying demand for our customers in terms of increasing volumes in their output will change. So in this respect, we think this is for sure, a guiding principle into the coming year. Again, we think it's too early now as well to make a clear note about how the nonrecurring business will further develop. However, of course, given the lead times we have a bit better look here. That's the reason why we are rather confident with our projections for this year on the nonrecurring side that we will see a slight growth for the full year. And we see this as a progression of the normalization in that part of the business. Again, taking -- having said that, it's important to see that the demands in CapEx and CapEx investments generally follow a higher degree of cycle, and I would say, some volatility on the basis of capacity and capacity utilization.

The next question comes from Odysseas Manesiotis from BNB Paribas.

I wanted to zoom into the strength of the LPS division in Q3, please. Could you give us a sense of roughly what proportion you saw from demand coming from analytics on the AI drugs like the [indiscernible], then broader LPS product demand from Biotech funding and also to what extent pull forward help you here?

Thank you for the question, Odysseas. This is one for you Alexandra.

Thank you for the question. And yes, we're very happy to see our performance in this 9 months for LPS division. I think fair to say that we would not tell exact numbers of estimation even on our pull forward from Q4 into Q3. But definitely, performance is truly driven by Consumables. So recurring revenue within our LPS. So we see the Bioanalytic, Instruments in use in high use -- at the customer side, it's released of the CapEx by Academia and Biopharma. So execution of the planned projects from which we was working from the beginning of the year and that the drivers for this 3 quarters of the performance of LPS.

The next question comes from Charles Weston from RBC.

The integration of the functions from the two businesses is obviously a major step for the business. So, can you tell us how far through this process are you? What do you think the key risks are? And what do you anticipate as the benefits? And is there a way that you'll be able to report on the progress here going forward in a quantitative manner?

Yes. Thanks for the question. I appreciate that, Charles. I will take that on. So we started to build this on a progressive basis with the new organization starting summer, and we think that now, of course, we will formalize and have a full life then in the beginning of 2027 with these new responsibilities. We are well underway in the company company in order to outline what does it mean in the new interfaces, in the interaction with the teams. We're driving workshops and alignment sessions. So overall, I think, I would say, the spirit and the satisfaction with the team on the new structure is there and people have found mostly their place. Now what does it really bring? I mean, we discussed it a bit before. The main driver is threefold. On the one hand side, we always think that structure needs to fall strategy. So with our clarity that we're going to focus our strategy on the three pillar of products and innovation, on customer centricity in operations. It's that we want to drive clear accountabilities and focus areas in the new operating model with that. Secondly, we think the customers will really appreciate that step with a very key note of one face to the customer to provide a clear entry point, a clear coordination of all efforts and therefore as well a better way of coordinating and an easier way for us to interact. And last but not least, we look at our portfolio and its growing complexity always from a total workflow perspective, all the way starting from drug discovery, molecule development, process development, upstream, downstream manufacturing and taking as well now a consistent approach for all of our product development and product management across portfolio will drive a strengthening of that part as well. And last but not least, bringing on an operational team in order to set the standards for quality for operations and drive it in a consistent manner across the supply chain and operations framework will support our appetite for operational excellence improvements.

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

Just, is that clear if the tariff surcharge was funded by all of your competitors? So do you have any customer feedback on what you did in terms of funding these tariffs, surcharges? And do you see some positive outcome in your conversations with your customers?