Lonza Group AG

Yes. Warm welcome also from my side here in Zurich to our full year results presentation through which actually, Philippe and myself will guide you through and we will guide you through a set of figures, which we believe actually is a strong one, underpinning our claim to be the market leader in the CDMO space with significant growth potential ahead of ourselves.

So -- but before we actually dive deeper into our figures and into the facts, let's take together, a brief look at our safe harbor statement, please read carefully, take note and feel bound to it. So what did we prepare for today?

Four parts. First of all, it's going to be One Lonza, me taking you in the fast forward session again through the things that we shared on -- during our investor update on the 12th of December.

So what makes us special and what makes us so optimistic about our future over the next year? Then it's going to be the second part for Philippe and myself to dive a bit deeper into the details of what happened in 2024 before we then turn our heads towards the future, 2025.

What you can expect from us on long term going forward. And we will conclude with hopefully an engaging -- engaged Q&A session, during which Philippe and myself will do our best to actually -- I mean, provide as useful answers to your questions.

And with that, a brief summary of, I guess, I mean, key points, key messages of today. First of all, Lonza reported for the full year 2024 revenues of CHF 6.6 billion, which is in line, according to our guidance, with the prior year.

However, and we will take a closer look. If we look at our CDMO business, which will be going forward the core of our activities, we're actually looking at a pretty strong year with growth in the low teens.

If we adjust for the extraordinary high base in 2023 with the special incomes and revenues coming from the mRNA business for the COVID-19 vaccine. CORE EBITDA margin of 29%, yielding CHF 1.9 billion.

Also here take a closer look and explain to you that our core business, the CDMO business, actually significantly expanded margin as compared to the underlying business in previous year. So corrected for the mRNA business in 2023.

We continued to execute up on our ambitious organic growth investment program with CapEx of around 22% of revenues, which is important for us to be able to continue to grow also over the next year, so we will provide further details on that. Strong cash flow CHF 473 million, which is a lifeblood essentially for our growth trajectory.

And then looking at 2025, and we will -- as explained to you in December, we will guide for the two different businesses separately. For the CDMO business, we actually expect an even stronger year 2025 with revenues approaching 20% and the CORE EBITDA margin approaching 30%, including the positive impact at least on the top line from the Vacaville acquisition in 2024.

For the CHI business, we actually expect to return to growth of revenue and also return to growth of EBITDA margin in the mid-20s and the top line to grow at low to mid-single digits percentage points. So One Lonza, our vision, we kind of walked through that.

That's a core part of who we are. And that is a core part for defining our ambitions and how we actually want to turn them into reality.

We used that slide to kind of breaking down this pretty rich state but into its core components and how they educate us internally at Lonza but also the external world about how we think about ourselves and where we want to take our company. First of all, it includes the explicit statement decision, ambition to turn Lonza into a pure play CDMO.

And which in turn means that actually, for good reasons, we decided and communicated that decision in a mindful way, exit the CHI business, which in itself is a great business but for which we, at Lonza, don't believe to be still the best owner. Of course, we have the ambition to not only today, but also in the future, be the market leader in the space across modalities.

So we will stay a multimodality CDMO across the value chain from drug substance, drug products but also across the life cycle but not the least also in terms of creating value. This will be affected through us striving for cutting-edge science, smart technologies and lean manufacturing.

But with the ambition to actually create outstanding value, we, of course, need an attractive underlying market, which provides for the opportunities in the first place. Let's quickly walk through again what's actually the underlying market provides us with when it comes to growth potential.

Here, we have chosen the number of molecules we expect to come and -- become available actually to companies like us over the next years until 2029. Small Molecules 4%, Bio 6%, Cell & Gene 9%.

It's a somewhat different respect not in value, U.S. dollars but number of molecules.

We thought it's useful because in the end, that defines the number of shots that we at Lonza can actually take on target, shoot on target. And here, we are looking at an attractive pipeline development over the next years to come.

So that itself already provides for opportunity. However, based on the reallocation of volumes, the reallocation of activities, also the reallocation of funds, cash at the pharmaceutical company level, actually, that will be on top of that growth and additional growth increments become available from volumes activities shifting from pharmaceutical companies to CDMOs like Lonza.

So that will add roughly something like 2%, 3%. So that in the market segments in which we operate at Lonza, we see an underlying market of 8% to 10%.

This comes along with another set of attractive characteristics, low volatility, high entry barriers. So we are in a good spot when it comes to our playing field.

But then it's about market leadership. Our ambition to create not only value but outstanding value.

So how can you affect that? What do you have to have in order to actually deliver that?

And here, we defined based on -- I mean, looking back and finding out what actually has been the sources of our past success and what will be the sources of our future success. We came up with this concept of the Lonza Engine.

So a set of -- unique set of our core competencies, which actually sets us apart from competition consisting of 5 elements, high-performance team. In the end, it's about -- it's very much a people's business.

While we apply technology in the end, it's very much trust-based. Our customers trusting in our people and our ability to actually deliver upon our promises.

Second of all, a unique, and I can tell I'm a scientist myself, I'm working with the CDMO space since almost 2 decades. And I believe unique ecosystem when it comes to scientific, technological but also digital capabilities.

Thirdly, a unique customer relationship, the relationships. So the depth of relationships that Lonza is able to enter into with clients actually is very special and well deserved, of course but that will also carry ourselves into the future and will keep us growing market.

End-to-end execution excellence, that's about our ability to put money efficiently and effectively into the ground across the world. So building new capacity -- capacities where needed.

And lastly, for a growing company, we need to, in a very efficient way, be able to always constantly add people, technologies, assets, be it through organic investments or M&A. We also briefly talked about those areas, I mean, while being a strong company, those areas where I believe where we, as the leadership team believe we can still do better and defined 4 areas: Reshape; elevate; focus, and expand.

I will talk briefly about reshape, focus, of course, and also expand. So new operating model.

Shared with you, shared with the Lonza team mid of December, currently in preparation and to be implemented and fully live in the second quarter of 2024. It's somewhat different allocation of our technology platform into 3 business platforms with -- for a number of reasons, 1 being a better, let's say, allocation of responsibilities, not all growth projects in 1 division.

Also standardizing structure so that we actually within 1 consistent business model, the CDMO business model, we always and everywhere apply the same organizational principles. We'll strengthen our functional oversight, and we actually create a more unified go-to-market approach, which will also support an increase and even better customer experience.

So we also introduced a new way how we think about our future and how we inform about our future. That's what we call the CDMO organic growth model.

On the left-hand side, we see the Lonza Engine. Underlying market, 8% to 10% but our claim is actually that we outgrow the market due to the Lonza Engine by 2% to 3%.

So our outlook in terms of growth potential on average over time, over the next year is actually low teens. So 10% to 13%, 8% to 10%, plus 2% to 3%.

However, in an industry like ours, we had about, in the end, manufacturing products, doing stuff, right? We need to continue to invest into our asset base because only then we have the capacities, which then can support this extraordinary growth of low teens on average over time, over the next years.

And here, this -- the correlation, of course, is between revenue, top line growth and what we need to spend. And here, our rough calculation.

That's how we look at our business internally as well is that we, of course, first of all, need to invest into our infrastructure, existing assets. So keep them fit and in shape, which will be, on average, over time, a mid-high single-digit percentage of sales figure.

And on top of that because that is not enough for us to grow on top of that, we expect to spend low teens of sales into growth investments. So that all adds up on average over time to mid- to high-teens percentages of sales.

Yes, CapEx required to support a low teens growth sales trajectory on average over time. And all that, of course, with the CORE EBITDA growing ahead of sales growth.

So that's our CDMO organic growth model. We also talked about expand, the fourth initiative, which is that while Lonza -- I mean, we have been able in the past to do successful M&A as well.

We will talk to [indiscernible] I think I'm convinced a great example for that. But overall, on average, actually, we have been -- I mean we preferred actually organic investments, so building ourselves.

And from now on going on -- going forward, we actually will take an impartial approach to growth opportunities, which can be organic investments, building assets ourselves or developing technologies ourselves. We will, of course, continue to do that but we'll also consider opportunities of inorganic growth.

The North Star for us to decide where to invest, what organic or inorganic growth opportunity we want to make use of. The North Star, the measure for what is good, what is not good, what is fit for Lonza, what is not fit for Lonza, will be the Lonza Engine, only where we are convinced that we will be able to apply this unique set of core competencies.

Only there, we will put our money because only then we have reasons to believe to be able to deliver outstanding value. On the right-hand side, you see a kind of a landscape, a menu even where we not -- I mean, in an absolute fashion, expect to put our money going forward.

Essentially, it means we want -- we will stay a multimodality CDMO, and we'll continue to invest in each of our existing business platforms, sometimes organic or inorganic, sometimes rather organic or only inorganic but there is another field that actually important is the green one, which is that we have the obligation as management to not only think about today, tomorrow, next year, next 3 years but that already today, we need to create the opportunities, which will then drive growth, 5, 7, 10 years further down the road. So we at Lonza will continue to stay ahead of the wave, not only in manufacturing excellence or development excellence today but also being with our customers, with our clients when it comes to their new breakthrough innovations, new modalities.

And there, we will also be ready to invest to create the earning potential of 5, 10, 15 years down the road. Briefly on CHI because I've been talking about CDMO so far only.

CHI is a market-leading business. It's a great business.

It's a great team, applying strong superior technology and delivering a quality level unheard of in the industry. It's a clear #1 in the space with revenues above EUR 1 billion, an industry-leading CORE EBITDA margin in the mid-20s.

Also the #1 when it comes to innovation and branding. And actually, based on the reasons that I will share later with you a positive outlook, not only for 2025 but also beyond.

So I mean, why this -- I mean, that is a great business. Why did Lonza decide to actually exit the business at the appropriate time in the best interest of our shareholders and stakeholders.

The reason being when I said that we will apply the Lonza Engine to each new opportunity coming our way. And of course, we need to be prudent and also ask ourselves if the current portfolio actually is the right one.

And each part of our current portfolio really fully benefits from this unique set of core competencies, really benefit from the Lonza Engine. And if you take a closer look, while the CHI being a great business, it does not to the same degree, benefit from our core competencies, has a different business model.

In reality, the synergies when it comes to go-to-market, technology, manufacturing, they're actually rather limited. And also the business adheres to a different market dynamic, which is why we thought that this business is not the right business for Lonza anymore.

We're not the right owner anymore but we'll look for another owner going forward. So takeaway of that part of the presentation, One Lonza is a place of a unique opportunity.

We have a clear strategy and a clear plan for value creation, the Lonza Engine as the unique set of core competencies. And I hope you see that.

We don't waste time taking decisions. And by doing so, we have set ourselves up to deliver strong long-term profitable growth.

So quickly on what happened in 2024. I'm happy to share some observations with regard to overall market environment in the pharmaceutical and the CDMO space, and of course, then taking the 1 or the other, which is worthwhile to mention.

First of all, U.S. FDA approval, again, very high 50 as compared to 55 before, on average, last 5 years, has always been around 50.

So a strong pipeline coming to market. Also clinical target at record levels, which is good for Lonza because that's where we are providing unique services and also the CDMO business model remains in high demand and also there is a continuing preference of pharmaceutic clients for Western sources.

I mean what have we been able to translate that into when it comes to business, our signed contract volumes in 2024 amounted to approximately CHF 10 billion, which, of course, I mean, that will materialize over time. But that's what the teams have been able to sign a significant number.

We actually took on 50 new commercial products, signed contracts for them, which is an average figure for the last 3 years. And some highlights, exciting Vertex, the first therapy using CRISPR/Cas9, the technologies.

It's actually a cell therapy, an extended collaboration in the ADC space and multi-modality drug substance, drug product, integrated offering with another strategic customers. So strong contracting base on our unique business model across modalities and across the value chain.

Organic growth investments, ongoing 22 projects, 50% in construction, some being ramped up and others now in operation. That is actually what will drive our growth already in 2025 and also in the next years to come.

Vacaville very briefly. I mean this is so far, and I've been to Vacaville after the JPMorgan Healthcare Conference in San Francisco, together with a potentially large client, who actually was impressed, I can tell.

I mean so far, the integration is going exactly as planned. That applies to technical integration, that applies also to customer visits, contract signing.

In the meantime, we have been able to sign the second contract for Vacaville and we continue to receive customer visits, and we continue to negotiate further contracts for this high-value capacity. For 2025, we expect approximately plus/minus CHF 0.5 billion in terms of revenues from Vacaville at a dilutive margin though.

And we again expect to invest up to CHF 500 million into the site, not because the site wouldn't be high quality, it is. But in order to make it more flexible and increase automation and make it perfectly fit more for CDMO operations.

One last thought, which might be important for you as well. In the end, what we will have to do over the next year is to balance three utilization factors of the site.

First of all, of course, continuing to manufacture for Roche. Second of all, taking in new products but we will also have to have -- have to put time aside, downtime in a way so that we can actually introduce the engineering changes that we want to introduce.

So that the site is not only able to deliver revenues today but also five years down the road in an as efficient manner as possible. So you see another topic to which we, at Lonza, remain committed and we will not walk away from our targets here, and I'm happy to report, we have chosen 3 KPIs here against which we measure our success, against which we measure our progress.

First of all, greenhouse gas emissions as an intensity, so normalized for revenues. Here, we have been able to reduce now by 44% as compared to 2018, with a target 2030 being 50%, so great progress.

Then also not only being busy with 1 and 2 ourselves but also looking at our own supply chain, so Scope 3. And here, we create more and more transparency and now 80% of our suppliers actually have undergone the ESG evaluation so that we have visibility of what's happening there.

Women in leadership, diversity. We are now at 30% with the target being 35%.

So -- but we are getting there, which will further add to the 1 part of our Lonza Engine high-performing team because diversity in the right way, supports performance. That's clear.

So with that, I actually go over to the full year '24 financials and hand over to Philippe so that he guides us through those figures.

Thank you so much, Wolfgang. Welcome, everyone.

So before we move on to the full year financials for 2024, let me maybe step back and give you a quick recap on the growth-driven value creation model and our financial capital allocation framework. So with that, you saw that in December, our value creation framework is really driven by growth and by investment into growth.

And by having the right assets in the right technologies, we are aiming at outgrowing and outpacing the market, and Wolfgang mentioned that to you. Now, it's not only done with top line growth.

We also want to grow our margins. And so we are committing to grow our CORE EBITDA faster than we grow sales.

And we do this by actually working -- actively working on our portfolio, trying to move into higher-value products. We do this also, of course, by doing continuous manufacturing and continuous operations improvement.

But also, to be honest, over the next few years, the intensity of our growth projects will actually diminish and therefore, the dilution from early assets will actually decrease over time. Now once we have the top line growth, we improve the margin.

This will create more cash, and we will drive more cash out of the business over the next few years. On top of the growth and the margin, we will work on our net working capital, mainly around inventory, a key things to -- that we continuously need to be working on.

Now once we have the cash, the question is, how do we deploy it. And we shared with you back in December as well, the slightly evolved capital allocation framework, all starts with cash from operations at the top.

And then there's a few things we just have to do. We have to maintain our assets.

We have to invest into the right infrastructure to feed our assets, and we have some systems to maintain. So this is the first part.

This is just the must do. Second, we are committed to our dividend policy of maintaining or increasing dividends over time, returning money to our loyal shareholders.

So these things are not negotiable and will be there. The rest is really what we call discretionary cash.

And this discretionary cash will be used to fund the growth going forward. Now the twist we introduced in December, and Wolfgang mentioned it as well, is we will be impartial as to driving growth through bolt-on M&A or through organic means.

I think this is important as this will give us the best chances to really work on the market opportunities and grow -- and fund the growth for the future. After everything exploited our growth opportunity, any surplus capital will be returned to shareholders.

We've shown that with our CHF 2 billion share buyback program that is still ongoing. But yes, again, if we don't have enough growth opportunities, the capital will be returned through means to our shareholders.

So this just as a brief recap. Now let's dive into the full year results for 2024.

Here is the overview and we are very pleased with the results. Our sales are in line with our outlook.

They're in line with the prior year, declining just 0.2% in constant currency, driven really by a very strong CDMO business and somehow offset by a weaker product business, our CHI Capsules business but also some weakness in market headwinds on the Bioscience side. Now without the high base in 2023, without the COVID revenue and the impact from the termination of the prior year, the group would have been growing 7% underlying.

So we really -- the business grew 7% masked by what happened last year. Our margins also very strong at 29%, declining slightly versus the prior year, again, due to this high base but we're very pleased with the development of our margin, and we'll get to the details in a few seconds.

Actually, the margin was at the high end of the guided range of 27% to 29%. We had in the second half, actually a slightly better operation and manufacturing performance, which offset -- help us offset the slightly lower, less favorable product mix versus the first half.

Exchange rates also played a role. You see that we had roughly 2% impact on the top line as well as on the bottom line coming from the appreciation of the Swiss franc versus our 2 main currencies, the dollar and the euro.

Now our margins remain well protected. We are well -- we have a good natural hedge overall on the globe having our revenues and costs in roughly the same currencies.

So overall margin well protected. Now let me give you a new page where we try to give you a little bit more detail on the revenue and the sales evolution.

As you can see, we had a very dynamic growth in our 3 CDMO divisions. Biologics, excluding the impact from the mRNA business in the prior year, grew 13%, a very dynamic growth, really pleased by the performance of the Biologics division.

Small Molecules, continued to driving higher-value products and maximizing the assets that are in place, growing 9%, a little bit over 9%. And also Cell & Gene growing 1% reported basis.

But again, we had, remember, a termination from Codiak BioSciences in 2023. If you remove that, operationally, the business grew 10%.

So again, I think the 3 CDMO division showing that our organic growth model of low teens growth for the CDMO business is again also in 2024, the case. Now our growth was impacted by Capsules and Health Ingredients.

The business declined 6.6% in constant currency, again, mainly from market headwinds, and Wolfgang will get to that in a few minutes. Another view about our sales is actually showing the risk diversification of Lonza.

We spent some time about -- on this topic back in December but this is how it looks like for 2024. Our top 10 customers are roughly 50% of our sales.

Most of them have multiple products with Lonza. And so if you look at the top 10 products, this makes even less than 1/3 of our revenue.

So the concentration risk is actually quite low, and we are not subject to any large singular risks. If you look at customers by type, we appeal and Lonza appeals to both large pharma as well as small, medium pharma and biotech company.

50% of our revenue are coming from large pharma. The rest over 600 biotech and small pharma companies representing half of our revenue.

And then by phase of molecule, we continue to be heavily weighted towards commercial and late-stage manufacturing, which provides a lot of visibility for future revenue. We care about the early stage.

We need the early stage because this feeds our pipeline for future commercial contracts. But again, the revenues are heavily biased or weighted towards commercial contracts.

Moving on to our margin evolution, again, the chart that gives you a little bit more detail. Our margin of 29.0%, down 0.8% versus the prior year, mainly for 3 reasons.

One, we had a high base in 2023. The COVID mRNA business was actually a high-margin business.

And so this gives you a headwind. Second, as you can see on the chart, a margin decline in CHI.

Again, driven by market headwinds from slight overcapacity in the market. And third, we had some hedging gains as well that were here in the corporate segment that we have not repeated this year.

Therefore, some headwind from the corporate segment. Removing the COVID business of last year, actually, all the CDMO divisions improved their margin, and so we're very pleased with that progression, and we see this continuing.

How did we grow margin underlying? One, a better and more favorable product mix.

And we mentioned that already in our H1 reporting. Second, the better asset utilization across all 3 divisions.

And third, higher productivity, which is also based to the network optimization that we started at the end of 2023. So all of that actually quite pleased with the margin progression and looking to continue that journey.

Looking into CapEx. We invested CHF 1.4 billion into CapEx last year, out of which 60% went into our growth projects, well diversified but mostly -- across technologies but mostly focused on commercial assets, which represented 22% of sales.

Slightly less than what we had expected at the beginning of the year and we mentioned that in H1, we had some lower spend on maintenance across many of our sites as well as isolated change in specification by customers, which leads to a little bit of phasing. Overall, we are very pleased with the progress of our growth project construction and we remain confident that these are the growth drivers for the next few years.

Moving from CapEx into free cash flow. We had a strong cash flow year, delivering almost CHF 0.5 billion of free cash flow, which actually represents 21% of sales before growth CapEx.

So before we decide to invest and to reinvest that money, the business generated 21% of free cash flow out of sales, which is a quite strong figure. The higher cash flow is mainly driven by slightly lower CapEx versus 2023, and slightly offset by a little bit more net working capital, mainly from inventory that we took on with the Vacaville acquisition where we get inventory but we didn't really get sales in 2024 from Vacaville.

Now to our balance sheet. We raised roughly CHF 2.1 billion through the Eurobond market in 2024.

This to fund both our investments into organic CapEx as well as to fund the Vacaville acquisition. And you see that with that and together with the share buyback program, we are coming back into our target range of leverage between 1.5 and 2, staying true to our commitment of a BBB+ rating.

Now this level of leverage still leaves us with enough room for both bolt-on investments as well as organic investment in the future. So a very solid, actually financing and balance sheet situation.

Now let me finish with a quick word on dividend. We are proposing to the AGM a dividend of CHF 4 per share.

As you can see, this is very much following the evolution of the last 10 years where we have a pattern of holding dividend constant to then increase. We increased dividend in '22.

We increased dividend in '23. And this year, with the transition year in 2024, the proposal is to stay at CHF 4.

The CHF 4 represents a 44% payout as well at the high end of our payout range of 35% to 45%. And with that, I will hand back to Wolfgang.

And maybe providing you with the information that in the appendix, we provide some further information to -- for you, for the financial models on some financial KPIs, you'll find them in the appendix. With that thank you very much.

And Wolfgang going back to you.

Thank you very much, Philippe. I'm happy to take you through some more highlights in the different divisions.

So Biologics kind of talked to that already. A super strong business.

And if we look at the underlying development compared to 2023 without mRNA, actually growth of 13% and the CORE EBITDA margin of above 34%. Strong commercial demand and some examples here, the large scale Mammalian site and actually on track and will be starting to manufacture GMP products in the first half of 2025 fueling and supporting our strong outlook for 2025.

Also in Portsmouth to a small-scale asset, which we actually need either for small products or for development activities started successfully with the first GMP batches. Bioconjugates, an area where we are also market leader and actually one of the pioneers or the pioneer in terms of coming up with competitive and high-quality manufacturing technologies.

Here, the two commercial assets in Visp are actually ramping up quite fast, and we continue to invest into large-scale capacity there as well. Small Molecules, I mean, as mentioned by Philippe, it's an impressive development of the business, almost 10% growth year-on-year and a superior margin of almost 36% and the highest number of new customers and programs signed in 2024.

Cell & Gene, an area where we're actually reaching out into the future. It's kind of the seed technology, of which we believe we will benefit over the next years and especially further down the road.

Here, adjusted for the extraordinary fact of the Codiak termination in last year, the business -- the overall business grew by 10%. Also here, profitability of almost 16%.

And I think an important information, the Cell & Gene technology business itself now crossing a break-even, which is a very nice development, and not many in the space can actually claim that for themselves. Capsules, as spoken to by Philippe, declined by 6% but still a superior market leading CORE EBITDA margin in a challenging overall market environment.

This business, this team has been able to actually defend its market-leading position and also to defend market-leading profitabilities through, of course, top line efforts in order to provide volumes to our clients but also through very disciplined cost management. What we also did in 2024 and will continue to do in 2025 and over the next years is to roll out our superior proprietary D90 manufacturing technology.

So this is really a machine which adds to efficiency and further build out our leading position when it comes to manufacturing cost, manufacturing efficiency and even further add to quality in terms of the product itself. So when we spoke about challenging market conditions and market headwinds, what is our view?

And we brought this picture here for the hard empty capsules business, which is the major part of the CHI business as a whole, which in itself can be differentiated, divided into 2 markets. First one being nutraceuticals, the second 1 being pharma capsules.

But let's start with nutra. So we see pre-COVID January 2022 with the horizontal line being the normalized 100% volume demand of the market at a point in time where we see the spike from everyone overstocking vitamin C, vitamin whatever and actually leading to significant growth rates.

Remember, the CHI business in 2023, grew by top line by 11% at a CORE EBITDA margin close to 30%. Then there's an inflection point when customers started to destock around mid-2022.

So takes a point of time with a grain of salt. And then into the trough, however, for Nutraceuticals, we saw that actually we're recovering and essentially end of 2024 somewhat back to normal when it comes to market demand.

So I think the takeaway here is that due to an area -- a period of excess capacity due to overstocking and then destocking here, Lonza is returning back to normal. Pharma is somewhat similar picture, same reasoning.

However, somewhat delayed. Inflection point, essentially a year later as compared to nutraceuticals.

But also here, while not being back to normal yet, we saw at the end of 2024 signs of recovery when it comes to real demand, revenues but also in coming order. So that -- I mean if we kind of apply the same pattern as we have seen it for the nutraceuticals business and carefully listening to our clients, we would expect that also after overall 9 quarters, so probably in the second half of 2025, also for the CHI business, we expect to get back to normal, which supports our guidance for that business for 2025, which is returning to growth in terms of top line sales and also margins too low- to mid-single percentages top line growth and margin -- CORE EBITDA margin in the mid-20s.

And that actually leads me to the outlook, turning our heads to the future. What can you expect from us in 2025.

for the CDMO business, we expect an even stronger year as compared to the strong year 2024 with top line growth approaching 20%, including the revenues from the Vacaville acquisition, approximately plus/minus CHF 0.5 billion and low teens organic sales growth, if we were to just look at the underlying CDMO business in line with our CDMO organic growth model. For the CORE EBITDA margin, we expect it to approach 30%, which means with the dilution coming from the Vacaville business that the underlying CDMO business, I mean, continues to expand profitability.

When looking at, let's say, the timing of revenues, we currently expect the second half to be somewhat stronger as compared to the first half in terms of both revenues and also margin. CHI outlook kind of shared already, low to mid-single digit, constant exchange rate, sales growth at a CORE EBITDA margin in the mid-20s.

And with that quick summary, what we talked about, solid results in 2024, driven by a strong CDMO performance, underlying growth of the CDMO business corrected for mRNA in the low teens. And that business actually compensated for the softer demand in the Capsules and Health Ingredients business from a challenging market environment and also for the loss of the mRNA business.

We continue to invest into our growth programs and 60% of that actually goes into the growth project, which will fuel our future success. CDMO, 2025, very strong outlook and the organic growth model being in place and working and delivering what we expect from it.

And with that, I happily hand over to, I guess, David, and look forward together with Philippe to your questions.

Many thanks indeed, Wolfgang. And Philippe, I'm going to ask you to join Wolfgang on the stage.

I'm also going to ask our technician who's following me up to miraculously transform the stage in front of your very eyes. We've got a set of questions, hopefully in the room.

We've also got people online that are queuing up already to ask questions. And I'm aware that we've run over slightly as well.

So I'm going to already just reassure you by extending the session by 10 minutes. That would allow us time in the room to ask questions until around 2:00.

And then a further 10 minutes of people online to ask some questions as well. So I've two people helping me as well.

Guys, put your hands up in the room, then we'll do our best to try and get to as many of you as we can, just to try and help us include as many of you as possible. If I could ask you to ask no more than 2 questions, that would be greatly appreciated.

Who would like to ask the first question?

Patrick Rafaisz from UBS. One question on Small Molecules, please.

I mean, very strong performance in the second half. Of course, there was some timing effects that helped.

How do you think about the operational performance and the margin in '25 year, right? Because there will be some capacity additions.

So presumably, utilization will be maybe a bit weaker. Will that affect the margins?

Or do you think this is now the new normal?

Thank you very much. Great question.

And I fully confirm, I think that the Small Molecules business, not only, but also the Small Molecules business actually performed really strongly in 2024, and we expect it to perform strongly in 2025 as well. And it will support this overall very strong top line outlook and also the expansion of the margin of the underlying business.

However, we won't share additional details on the divisional or business platform level going forward. But also Small Molecules then part of the new business platform advance into this will contribute to both top line growth and margin expansion.

Okay. Understood.

And can you add a bit more color maybe on the seasonality and the contribution in Mammalian from the ramp-up in H1? I understand production start will be in the course of H1.

So -- but is there any indication or color you can give us on the phasing, how much of the incremental revenues will be H2 loaded? And how should we think about the dilution from the upfront CapEx related to those ramps?

Yes, indeed. And when I said that actually H2, we currently expect to be stronger than H1 in terms of both top line and also CORE EBITDA.

The reason is, among others, that actually 2 important assets are coming on stream in both Biologics, so the large-scale Mammalian facility in Visp coming on stream with GMP production in the first half 2025 and also the highly potent asset, the new one in Visp, this case, Small Molecules, will also ramp up in the first half 2025. So full contribution of or stronger contribution from those assets actually in the second half being one of the reasons why second half currently is expected to be stronger than first half.

Thank you, Patrick. Straight over here.

Any other questions in the room, just so I can see your hands. Okay.

Very good.

[ Daniel ] [indiscernible]. First question is when you look at the big pharma, what they recently presented, for instance, Novartis in Q3, they said that their number of Phase I and II projects were cut down by 40% over the last 3 years.

Roche was even more steep. So I'm a bit worried long term, of course, that this 30% exposure of you to preclinic Phase I, Phase II is going to weaken because it cannot be compensated by all small biotech companies, I guess.

So of course, I understand commercial business is very strong but maybe in a few years down the road.

Thank you, [ Daniel, ] for the question and a good question. While we -- I mean, Novartis, Roche being great companies, no doubt but won't comment on them specifically.

It's also not the view -- our view on the industry, of course. In the end, what we do is, look -- we actually look at new drugs being approved.

We look at number of molecules in development, so preclinical up to Phase III. And there, we actually see a record high, right?

So the number of molecules in development actually is at a record high. And that is still a market view, right?

How does it translate into what we do at Lonza? And here, I can tell that we see positive developments from the increased biotech funding back to probably all look at the same figures, USD 28 billion in 2024, which is probably the level where it has been prior to 2020, 2021.

And also incoming RFPs or RFQs. So customers are asking us to offer development services.

Actually, that looks very good. So our view is not that we would see any decline in number of shots that we at Lonza can take at target.

So actually, we are not concerned in this regard.

Very clear. And the second question, when I look at the corporate segment, you had years now of declining costs.

And now you have, again, quite an increase in the core EBITDA loss in corporate. Is that a new area?

Or is that just some one-offs basically?

I knew it. Look, [ Daniel, ] I think corporate is a mixed bag of many, many things.

You have everything from medical benefits to pensions to hedging to electricity, sales, to AXA, et cetera. So there's a lot of things.

I think there's a few things that were positive last year that are not positive this year. I can name a few but I think the 3 that come to mind is the hedging that I mentioned before.

I think hedging gains were lower this year than last year. I think on the VPPA, on the virtual purchase power agreements, I think also we had a slight gain last year.

We have a slight loss this year. And then the same is on pension adjustments due to the interest rates.

So I think there's a lot of small things. It's not a new base, if you want.

It's just a very volatile line.

[indiscernible] I have a question regarding the order you signed, this CHF 10 billion you mentioned. Can you give there a little bit more clarity?

Are there sales per year or in total? And then what's the timeline you can cash?

I'm actually thankful for that question because -- and we always debate if to include it or not because, I mean, why did we decide to include it this time? It actually provides us, and I guess also would hope also you with comfort because we at Lonza are able to sign contracts at a level where no one else can.

However, and we kind of shared that figure for 2023 as well has been CHF 13 billion. So you might wonder, I mean, will it go down with Lonza.

No, it's not, right? It's just the volatility, the phasing, how contract signings occur, right?

And as you rightfully said, I mean this is not the same thing, right? I mean the contract periods can be very different.

I mean, in 2023, CHF 13 billion and CHF 10 billion in 2024. So while it is somewhat, I would hope, useful qualitative indicator, it's nothing with which I would advise you to do any math with because it's not a clean figure, right?

But it is a strong figure. And I guess that's where I would leave it because I mean, any further interpretation probably is not meaningful and not leading anywhere.

But it provides comfort.

[indiscernible] I have a question about the reported EBITDA and the adjusted EBITDA. So the difference was bigger.

Could you give us any idea about 2025, how much [indiscernible] expenses you expect and restructuring and other costs going into the delta between reported and adjusted margins?

Yes, I think you're right. Thanks for the question.

I think both 2023 and 2024 have been heavier years than usual on the adjustments. I think 2023 and '24 were marked by restructurings that we have done on certain sites, some impairments that we took as well connected to these site decommissioning.

So from that point of view, not something that we would expect to see again and again. I think 2024 was marked, there's almost CHF 100 million coming from BacThera, which is a joint venture we decided to wind down.

So also not something that you would expect to see every year. The restructuring, I think, have been relatively contained about the same '23, '24.

I would not expect but that's a difficult one to forecast. So overall, I think you have a lot of items that we do not expect to repeat.

Are there any further questions in the room? I'm going to hand over to Sandra to host the online Q&A for the final 10 minutes.

Zain Ebrahim, JPMorgan. A couple for me.

My first question is just on Vacaville. So you cited strong interest in the facility and you signed a second contract now.

Could you help us dimensionalize the full size of this contract versus the first one or maybe to the average contract that you signed in Biologics? And in terms of the interest that you had, how many customers you have visit the site so far?

Actually, I had a hard time to understand. Vacaville contracts and average, I understood.

Zain, can you maybe repeat and speak very slowly?

Sorry. Hopefully, you can hear me clearer now.

So just on Vacaville, it sounds like you announced -- so with the second contract, and you've got strong interest in the facility in terms of customer visits. So could you help us understand the size of the second contract relative to the first one and the average for the group maybe?

And how many customers have visited the facility so far?

Yes. Yes, happy to take that question.

Thank you, Zain. Indeed, second contract signed, and again, I mean, we had a very successful customer event on the Monday of the JPMorgan Healthcare Conference.

I went with a large client, potential client there on Thursday. And then on Friday, I've been able together with the team to say goodbye and shake hands to an excited customer.

So I mean, there are a number of negotiations ongoing. There are regular customer visits on the site, probably even on a weekly basis.

So we are very happy by the way how customers receive the message that this asset is now in the hands of Lonza, which is why we are very optimistic to be able to deliver upon our business plan, which is substituting the outgoing older Roche business over the next 3 to 4 years and keeping the overall revenue level plus/minus constant at around CHF 0.5 billion until 2028 with expanding margin, though, because the new business coming into the site will be more profitable than the business that is currently in the site. Otherwise, actually, I'm not in the position to share more details on individual contracts.

James Quigley from Goldman Sachs. I've got a question on the 2025 outlook.

So obviously, stripping out the onetime effects, the CDMO business is growing broadly in line with the midterm targets of low teens. However, in 2025, the -- you have the Visp large-scale manufacturing plant starting as well.

So the 2025 guidance implies that the non-Vacaville part of the business will continue to grow in that low teens area but you have this large site coming online in the second half of the -- or first half of the year with the contribution in the second half of the year. So what are your assumptions in terms of the base business, new manufacturing plants coming online as well for that non-Vacaville part of the business for 2025?

Yes. Thanks, James.

Yes, we have new facilities coming online every year. We have new assets starting up and ramping up every year.

So yes, we do have our 6x 20,000 and the highly potent facilities ramping up but we also had in 2024, assets ramping up in Bioconjugation in mid-scale and smaller scale. So overall, this is a constant.

We constantly have assets coming online. So I think that's one thing to keep in mind.

Second, if you remember, the way large-scale assets ramp up, this is not an immediate thing. This is a slow thing over a couple of years.

For example, for the 6x 20,000 the peak sales will be in '28, '29. So therefore, yes, there is a contribution, but this doesn't necessarily change the world by itself.

Charles Pittman-King from Barclays. Just initially on margins.

So ex-CHI was 30% in 2024, so very strong. Just kind of wondering what the organic margin expansion versus your specific Vacaville dilution expectation is in 2025.

So a little bit more detail on Vacaville? And then just secondly, I was wondering if you could just give us a little bit more information on where your utilization stands across each of your subdivisions.

I think we've kind of spoken about Mammalian running close to full capacity before hence, Vacaville coming online, but just a bit more information on those other divisions would be great.

Yes. Thank you, Charles.

I'll be happy to take the first part and maybe Philippe, the second one. On the margin, actually, we will not share specific margins per site.

However, we commit to actually the margin for the CDMO business to approach 30%. And if you look at the margin that we reported for the CDMO business in 2024 and assume that actually there is a dilution effect coming from Vacaville but we still commit to deliver a margin for the CDMO business approaching 30%, so towards 30%.

That actually implicitly means that the underlying business without Vacaville actually is further expanding margin as we actually promised. So growth of our core EBITDA ahead of the sales growth according to the CDMO organic growth model.

Maybe for the second part to Philippe.

Yes, sure. So we don't disclose utilization by site or overall by division.

But as I mentioned in my presentation, we did improve actually utilization of -- across the sites, across all 3 divisions. Now yes, you're right, on the Mammalian site, if you talk about commercial assets, our commercial assets are running at full capacity and therefore, Vacaville and therefore, we're very pleased now to be able to show Vacaville to new customers because we can offer large-scale capacity again.

The mid-scale and small-scale capacity are usually running at slightly lower utilization because nobody wants to wait a year or two years to get access to a site for early-stage material. So these sites are usually running at slightly lower capacity so that you can offer space.

On the Small Molecules side, I think our assets are highly, highly utilized. And the way the team is working around this to show growth is really through continuous improvement and active portfolio management, which means you're moving all the product out of your lineup and bringing in new customers at higher value.

So this is a way around utilization, which is very high in Small Molecules. And then on Cell & Gene, I think there, it's clear that we still have room to grow.

I think if you look at the charts shown by Wolfgang, you will see that we're not looking to buy capacity in Cell & Gene because we have capacity. We have enough sites.

We are very pleased with having more commercial products to utilize these sites but this is certainly a place where utilization will grow over time.

The first is on the CGT, the Cell & Gene division. In the 2023 Capital Markets Day, Lonza indicated an expectation for 4 new cell and gene commercial products by 2025.

So CASGEVY counts one, should we expect 3 more this year or having even failed or been pushed back? And my second question, you mentioned in your remarks that there is a tightening capacity environment for CDMOs.

And I just wondered if you could elaborate on that, particularly in light of the CapEx from you and your peers. And perhaps would you have an estimate for industry utilization in Biologics?

Maybe I can start with the second question, which goes back to the slide that I used to kind of explain the overall market environment to you. And this graph actually was us picking a certain segment, which is the Mammalian capacity.

And here, we said that actually from currently, I think, 55% or so captive manufacturing, this will actually go down below 50% through outsourcing towards CDMOs while the overall market growing. And we actually see -- foresee the overall capacity utilization in the Mammalian space to increase from roughly 70% to 80% over the next years, which probably then is what you would call full capacity utilization.

And that actually is why we say we are actually expecting, and that's what we also hear from clients and this is reflected in the high interest in our services. We expect actually capacity in that mammalian space to further tighten over years, which is why it's a great thing to have Vacaville because with that, we can actually support additional requests from our clients.

First part on CGT for you, Philippe.

Yes, sure. Yes, Charles, I think we've made good progress actually on delivering on the number of commercial products for Cell & Gene Technologies.

Of course, Wolfgang mentioned this but you saw the press release of CASGEVY. This, for sure, counts as one.

We also have Mesoblast, which is public, which is a product. It's the first -- actually the first allogeneic cell and gene therapy being FDA approved, which we produce in our site in Singapore.

So we pretty much every site now has a GMP-approved product, and we are manufacturing commercial products, GMP products in all of our Cell & Gene sites. So we are on a good way.

I think we're not at whatever number you said 6, I think, is what you said. We're not there yet but I think we have good line of sight to be there or about there.

Yes. Thank you very much, Sandra.

Thank you very much for all of you being here with us in Zurich in the room. And of course, thank you very much to all who attended this conference virtually.

I, myself and Philippe, we have been happy to present a strong set of figures for 2024 to you and are very much looking forward what 2025 will bring based on our expectations and the outlook that we just shared with you. We know we will have a lot of work ahead of us but we are looking forward to it.

Our teams are looking forward to it and we are looking forward to meet you all again in July when then talking about what we did with our company in the first 6 months of 2025. So thank you very much.

All the best, and see you soon.