Lonza Group AG (LONN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the half year results 2020 investor and analyst conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Albert Baehny, CEO ad Interim and Chairman of Board of Directors of Lonza Group who will now be joined into the conference room.

Good morning to you all, and thank you for joining us today, and a warm welcome to those joining us on the phone. Also joining me on the stage is Rodolfo Savitzky, our CFO. Let's start with a glance at our agenda for today. Rodolfo will talk us through the group's finances, and I will provide a wider update on the business. To set the scene, I would like to take a moment to share an update on how our business has responded to the COVID-19 pandemic. The first half of 2020 has brought challenges and uncertainties to every business in different ways. From the very beginning, our priority was to maintain operational performance, while ensuring the continuing safety of all our employees. For these commitments, we have supported our customers by providing an uninterrupted supply of essential products and services. We have also embraced new ways of working to ensure that our sites and offices continued to operate effectively and safely. Outside of our sites and offices, we have worked to make adaptations to our transport network. We have rerouted goods in transits and invested in additional airfreight transportation when needed. Inevitably, this has led to higher logistic costs. You also have seen the news of our partnership with Moderna. Lonza and Moderna each bring unique and complementary skills and assets to the collaboration. Let me take a moment to share a short update on this important new alliance. Lonza and Moderna have agreed on a 10-year strategic collaboration on the mRNA platform. Initially, our efforts will focus on the rapid delivery of a vaccine for COVID-19. The success of this collaboration inevitably depends on the clinical success of the new mRNA approach. It also depends on how Lonza's abilities to ramp up manufacture at an -- I'll repeat it. It also depends on Lonza's ability to ramp up manufacture at an unprecedented scale and pace. Currently, we are planning the installation of 4 production lines. One will be located in Portsmouth in U.S. and the other 3 will be based at our manufacturing facility in Visp in Switzerland. Each new production line represent an investment of some CHF 70 million. Moderna will fund 3 lines and Lonza will provide the CapEx needed to develop the fourth line. After an intensive period of technology transfer, we expect the first mRNA batch to be delivered in Portsmouth by end of next week. The first batch of drug substance will be delivered in the U.S. by September 2020, and the first drug substance batch will be delivered in Visp this by end of December 2020. Equipment deliveries have been accelerated, and we have ensured that we have a dedicated workforce in place to deliver. However, I should emphasize that there will be uncertainties to overcome as the project progresses. As we look at this target timings, it's important to remember that we are currently working with a vaccine candidate. Phase I trials have shown positive indications, and I will come to this in a moment. However, there are still the clinical Phases II and III, which need to be completed before a final review and approval by the FDA. While the vaccine candidate path to commercialization is at an early stage, it is simply not possible for us to forecast the potential sales and margin for Lonza. For this reason, we are not able to include any figures relating to Moderna in our outlook 2020. Any predictions at this stage would be pure speculations and may prove to be misleading as the project progresses. We are happy to share what we know at the current moment. This includes CapEx, project status, next steps and project time lines. Once we have a greater certainty regarding commercial, we will be able to share these details as well. Now let's take a closer look at the progress of the mRNA-1273 vaccine in the regulatory approval process. You may already have seen that Moderna and the National Institute of Allergy and Infectious Diseases have communicated positive Phase I safety and efficacy data. Specifically, the Phase I data indicates that the mRNA-1273 vaccine stimulates a robust immune response with all dosage levels. Finding of Phase I trial indicates that 100-microgram should be the optimal dose for the Phase III study, which will start at the end of July. Inevitably, open question will remain until the Phase III trial has been completed. However, initial indications are a positive and encouraging steps in the right direction. Let me now take a moment to provide a snapshot at our half year 2020 financial results. The first half of 2020 has been a time of change for Lonza. In the LSI segment, we are finalizing the carve-outs. In the LPBN segment, we are continuing to execute significant investment projects. Finally, at the group level, we have announced changes in our senior leadership. We're also very pleased to report strong results with 7.7% sales growth in reported currency and an improved CORE EBITDA margin of 29.1%. LPBN achieved a double sales growth rate of 10.8%. LSI maintained a high CORE EBITDA margin of 19.7% in a mixed business environment, which included both head and tailwinds. Currently, we have a solid outlook with stable margins. This takes into account the additional operating costs linked to our continued high investment in LPBN and the uncertainties in LSI operating environment. Having shared our sales growth rates, I would like to add a few comments on the margins. At group level, the CORE EBITDA was up 7.9% to CHF 893 million, corresponding to a margin improvement of 130 basis points to 29.1%. LPBN CORE EBITDA grew 9.7% to CHF 760 million with a 90 basis point improvement in the margin. This was achieved in the context of high investments and the related increasing costs, which are not yet contributing to revenue and profit levels. LSI demonstrated the resilience of its business models and portfolio in a very uncertain environment. It reported flat sales and a positive effect of 70 basis points on the CORE EBITDA margin of 17.7%. I will now hand over to Rodolfo to take us through the details of half year financials.

Thank you, Albert, and good morning from my side. Albert has briefly highlighted our strong financial results for the first half. He will also take you through the operational results in more detail in a moment. Before that, I would like to take a moment to highlight some of the key levers behind these numbers. Growth in LPBN continues to be fueled by strong momentum across all businesses, but particularly by biologics and cell and gene therapy. In LSI, we see a more mixed performance with strong growth in Hygiene and Home Care, compensating for headwinds in other categories like Composites for electronics in aerospace. In H1, we have seen exchange rates playing an important role in our results. We have around 4 percentage points difference in sales growth between currency corrected and reported currency given the appreciation of the Swiss franc against the U.S. dollar by 4% and the euro by 6%. Looking at the CORE EBITDA margin. We see a significant improvement, as Albert mentioned, for the group of 130 bps in reported currency. Here, the impact of currency on the margins is limited as our revenue and cost structure provides a natural hedge. There have been a number of important profit drivers behind our margin result. And let me start with the impact of growth projects. As you may remember, the investment in growth projects has both a CapEx and an OpEx component. Of these 2, the OpEx carries a negative impact to profitability during the ramp-up years. Now let's focus on LPBN. Its CORE EBITDA margin went up by 90 basis points despite a negative 170 basis point margin impact from growth investments. This was more than offset by the positive contribution of operating leverage and productivity initiatives delivering 260 basis points improvement on the margins. Now for the second half, the impact from growth investments is expected to be more significant with around 300 to 350 basis points negative impact on the core EBITDA margin of LPBN. In LSI, we also show an improvement in CORE EBITDA margin in constant currency, and this is as a result of contingency measures related to the COVID-19 dynamic. Returning to the growth investments. We have continued to invest in CapEx in H1 at around 14% of sales, in line with the overall level in 2019. This slide provides a breakdown of our CapEx investments and shows that the projects in LSI [indiscernible] are relatively small. The majority of CapEx has been allocated to our pharma segment, LPBN, and the split of LPBN CapEx is roughly 80% in growth projects and 20% in maintenance. The investments in growth projects are critical to long-term success and value creation for Lonza. They are underpinned by solid demand projections, in many cases, already backed by commercial contracts or customer commitments. They also have very attractive financial return profile. Broadly speaking, these investments delivered more than CHF 1 million sales after 6 or 7 years for every CHF 1 million invested. Such growth projects tend to deliver rates of return of around 20% to 30% and an incremental return on invested capital well above 30% once sales have fully ramped up. Now with all these investments, cash flow remains, for us, a central priority. And our H1 results reflect a strong improvement in operating cash flow compared to the same period last year. The increased cash flow is driven by a strong EBITDA net working capital discipline. These have offset the high level of investment in CapEx. Turning to our net working capital. We have achieved enhanced collections despite the COVID-19 pandemic. Currently, we have stable days outstanding, in line with our target and a low level of overdue receivables. Nonetheless, inventory remains a focal area for the business as progress in this area has been slightly slower than expected. We are deploying a program to further improve supply chain management, and we expect to see benefits already in H2 in the second half and early next year. This brings us to our net leverage, which remains below 2x. And we're fully on track to maintain a strong investment-grade rating. Importantly, we have secured a very comfortable financing headroom considering the uncertainties arising from the COVID-19 pandemic. You may remember earlier in the year, we issued a CHF 300 million bond with a 1% coupon in our inaugural Eurobond of EUR 500 million with a 1.625% coupon. The Eurobond was a resounding success with 12x oversubscription. And very importantly, it was the first ever inaugural issuance in the European market with 100% virtual roadshow. With these financing measures, we ended our first half in an extended debt maturity of close to 4 years and average funding cost of 1.3%, and this compares against 1.8% in 2019. This brings me to my last slide, which provides an overview of ROIC. It gives us a nice summary of our group financial performance. Return on invested capital slightly increased to 9.8% compared to 9.5% -- 9.4% in the first half of 2019, and this despite our growth investments. The increase in net operating profit after tax was more than 3x higher than the one for average invested capital. While operating profit before taxes grew double digit, our tax rate decreased to a more sustainable 15% level compared to 2019, where we saw a number of onetime tax upsides. Our first half tax rate in 2020 is, nonetheless, still well within the guidance of below 20%. The increase in invested capital reflects the absence of acquisitions as we focus on organic growth opportunities. Looking back at H1, we can confidently say that our financial metrics were exceptionally positive. We expect this positive momentum to continue in the second half, but we understand the impact of growth projects will be higher and therefore, the margin levels will most likely be lower than in H1. All in all, a very encouraging picture for the first half and for the year. And now back to Albert.

Thank you, Rodolfo. Let me now provide a business update on LPBN. We continue to see strong demand across our LPBN portfolio of modalities and services. Despite some delays in clinical trials, I am pleased to report that the business has not experienced any substantial or significant negative impact from the challenges of COVID-19 in H1. Moreover, our Capsules and Health Ingredient business has benefited from a solid nutrition market. In this context, the LPBN segment has delivered double-digit sales growth rates. Let's take a closer look at each of our Pharma & Biotech businesses. First, let's turn to Small Molecules. Demand in this business has been driven by our high-potent API technologies. This has delivered a solid pipeline of projects. And during H1, we have closed a number of multiyear customer contracts. Our H1 sales were negatively impacted by a onetime effect. Without this effect, our sales would have been in the high single digits. We're expecting a solid H2 and full year results with Small Molecules. Let us now take a moment to review the Mammalian and Microbial business. Health care continues to outperform the broader market. This outperformance is supported by the continuing high level of demand for large molecules. In the Mammalian and Microbial area, there have been only minor impact arising from delays to clinical trials. These delays were caused by more immediate priorities relating to the COVID-19 pandemic. In the first half, we signed new commercial and development agreements across our modalities and sites. We are facing some delays on some construction projects largely caused by a shortage of contractor resources. Apart from this, the COVID-19 pandemic has not impacted our performance, and we have delivered double-digit sales growth in the first half for Mammalian and Microbial. We have experienced some high operating costs linked to our growth initiatives. However, we have maintained solid operating margins, and we are confident about the business as we look forward to H2. Full year sales are forecasted at double-digit growth rates. Now let's take a look at Cell and Gene Therapy. Overall, I am pleased to report that we have an excellent pipeline for both cell and gene therapies alike. In the course of H1, we accelerated the implementation of initiatives to reach a higher level of process excellence. We also signed several novel technology deals and secured several clinical programs. In the first half, we saw double-digit top line growth. This strong performance was supported by improvements to the operating margins. We expect this growth momentum to continue in the second half. Next, we turn our focus to the Bioscience business. Bioscience has been negatively affected by a reduction in demand for products from academic and research customers. This has been caused by the temporary closure of many labs across both Europe and North America. On a more positive note, we have seen strong and continued recovery in our media business. This positive and negative impacts have balanced the performance of the business. Sales in the first half were slightly up, and we expect to see stronger sales in H2. Finally, in our LPBN segment, we turn to our Capsules and Health Ingredients business. In H1, the COVID-19 pandemic drove greater levels of interest in supplements. As a result, the Nutrition business experienced increased consumer demand across all regions. We also saw some inventory build. The pharma capsules market has experienced weak demand, in particular, in North America. In this geography, the lockdown in H1 has led to fewer visits to the doctor. In turn, this has led to a decrease in medication prescriptions. The lower demand levels have been balanced by modest growth in Europe and stronger growth in Asia Pacific for pharma capsules. Also sales were flat for hard capsules. We saw double-digit sales growth for both hard nutrition capsules and health ingredients. As a result, the Capsules and Health Ingredients business experienced high single-digit sales growth. Having taken a time to review the LPBN segment, let us now turn our attention to the Specialty Ingredients business. During the first half, LSI experienced both positive and negative impacts from COVID-19. As a result, total sales were flat versus H1 2019. It will come as no surprise to hear that demand was very strong for Hygiene products and for Home & Personal Care. We experienced a disproportionately high demand for Bioscience during H1, which caused some temporary shortages of raw materials. In contrast, many of our industrial markets were not immune to the COVID-19. We saw low demand in businesses, including wood and material protection, paints and coatings, consumer electronics and composites for civil aviation. All our manufacturing sites remained open through the first half with a single exception of our wood operations. Let's start by looking at our Microbial Control Solutions business. We saw high single-digit sales growth in Microbial Control system in H1. It was driven by high double-digit sales growth with both Professional Hygiene and Home & Personal Care. This was balanced by wood production sales, which were below the level of H1 2019. Sales for Paints and Coatings were down, reflecting overall weaker levels of demand. Material protection sales also have been negatively impacted by the industrial markets. We have seen particular impacts in the automotive and oil and gas businesses. Finally, our Crop Protection business was negatively impacted by the dry weather in Oceania and Southeast Asia. Now let's take a moment to review the Specialty Chemical Services business. A challenging business environment, coupled with some onetime effect, has impacted negatively on top line growth in this business. Total sales growth was down by low double digits. We saw overall lower demand across our Composites business, mainly consumer electronics and civil aviation. There was a mixed picture in the CDMO business. We saw stable sales in chemical and weaker sales in the fermentation business. The performance of chemical intermediates was resilient COVID-19 with strong vitamin D3 sales. Finally, let me briefly touch on the LSI carve-out. I am pleased to confirm that the project is almost completed. We have provided additional detail on this slide. However, at a glance, you will see that there is a small number of remaining issues regarding specific geographies and service agreements. We are also working to complete and finalize the carve-out of the IT function. As the carve-out both to drove close to completion, the Board has taken time to consider the strategic options for the long-term future of the LSI segment. We consider a wide range of alternatives, and we have come to the conclusion that LSI should be divested from the Lonza Group business through a sales process. In its current state, LSI has proved itself to be a profitable specialty chemical business with a leading position across a range of attractive end markets. It has also shown an encouraging level of resilience in the challenging market conditions arising from COVID-19 pandemic. In this context, we believe that LSI may attract offers from strategic buyers and from private equity firms. The sales process will deliver advantages to Lonza. It will provide a swift, clean and clear break, allowing LSI to find a home where it can develop and grow. As LSI departs, Lonza will become a pure-play pharma and biotech company. The sale will allow us to concentrate on our strengths in this space and develop our position as a leading manufacturing partner in the life sciences space. As we look forward towards H2, we are pleased to confirm our guidance for above mid-single-digit sales growth for the group. We are so pleased to confirm a stable CORE EBITDA margin. We anticipate that sales growth will be driven by pharma, biotech and nutrition. In the LPBN segment, we expect to see a high single-digit to low double-digit sales growth. However, we anticipate that LPBN performance will be offset to some extent by flat to low single-digit sales growth in the LSI segment. A stable CORE EBITDA margin should be generated in the context of the investment incurred by our growth projects in LPBN. Of course, our outlook assumes no expected adverse impacts or disruptions arising from the COVID-19 pandemic. As always, in these sessions, we have covered a lot of ground. To summarize, we have shared in -- what we have shared in a few -- sorry, to summarize what we have shared in a few words, the business has so far maintained operations and performance through the pandemic. This is reflected in our financial performance, which shows resilient margin at group level. At the current moment, we are working internally to finalize the carve-out of LSI segment. We are pleased to report a resilient performance in H1, and we are hopefully -- hopeful that the second half will allow us to continue in the same trajectory. However, I must emphasize that this remains a unique moment in human history, in which we must continue to expect the unexpected. With this in mind, our forecasts are inevitably subject to high levels of uncertainties.

Many thanks to you all for your time and attention, and now we come to the Q&A session. We will start by taking questions in the room, and then we will move to questions from Chorus on the phone line. If you are asking questions in the room, please wait until you have the microphone, so that our callers can hear your questions as well. Who would like to ask the first questions?

I'm Daniel Buchta from Vontobel. Three questions, if I may. The first one on Capsugel. I mean what you are providing now in qualitative terms as I see, the consumer part works extremely well, but probably you had some prebuying. Can you maybe quantify what the underlying growth rate was because the Capsugel business in the past 1 to 2 years was a bit struggling? And then on the pharma side, do you see any underlying improvements? Because I think the first quarter was even negative, what you said. And the second question on the time line for the LSI disposal. I mean can we expect an announcement on this finalization already this year? Can you share a bit maybe something on price expectations? And also, is there any restructuring still to come related to that? I mean the carve-out is done, but is there still something to come? And then the third one on the guidance, you reiterated your margin expectation, stable. And given the strong first half, I understand what you said on ramp-up costs being more pronounced. But is there anything we are missing here? Because otherwise, if I add everything together, I still would expect margins to be up this year?

Thank you for the question. To the last question, you just underestimate the level of OpEx linked to the CapEx investments. We're not talking about CHF 10 million, CHF 20 million, CHF 30 million. We are talking about more than CHF 150 million OpEx for the year linked to the CapEx and this hundreds of million plus are not generating any sales and margin. So to believe that we can maintain -- that we can increase margins despite the good business we are developing to increase the margin in such high cost, it's impossible. I mean it's a fantastic performance to be able basically to balance CHF 150 million plus extra cost, not generally sales and margins and maintain high margins. I think this is a fantastic performance. And I don't see how people can doubt and can say it's a bad performance. This is a remarkable result. Do not underestimate size of the investments. In LPBN, in 2020, we will be investing net-net-net more than CHF 600 million, and this corresponds to more than CHF 150 million in OpEx, I repeat it, generating no sales and no profits. And we tell you that we will be maintaining the CORE EBITDA margin at the level of 2019. I don't see where we can get critiqued on this one, to be honest. This is a remarkable performance. And we invest for the future. If we don't invest now, in 2 years, you will say, "What the hell, you missed the opportunities." So this is business as usual and we invest as much as we can to be able to generate in the future further double-digit sales growth for LPBN. So you are just underestimating the amount of investments and the amount of costs linked to these investments. I wanted to make it very clear. It's not peanuts. It's not CHF 20 million or CHF 30 million, a huge amount of money, but for the future, and we maintain margins. Oh, I said it with a serious tone. I apologize for that. Now I'll come back, yes. Regarding LSI, we have been very consistent from the very beginning, which means since last year. We have said all the time, first carve-out. In parallel to the carve-out, the Board is analyzing and reviewing all the strategic options for LSI. So we are finalizing the carve-outs. We did our homeworks at the Board level, and we are communicating today. Carve-out is almost done, and we have decided to go for a sales process. Now the next steps are: number one is to plan the process; and step #2 will be to execute the process. And I can't say more today than that. We will be fast, but I don't have the final plan for this process. We plan the process, we will execute it. And as usual, we are not slow. We move fast. On the Capsules business, excellent performance of the business. The Capsules business had high single growth rates. This was the combination of flat sales for the Pharma business and double-digit sales growth for the Nutrition business. I said in the introduction that maybe there were some inventory builds. If this individual build will be, again, part of the business in the second half? I don't know. I can only comment when we will have the second half behind us. Take it as it is. It's a very strong business, strong first one -- first half results. We expect strong sales in the second half. Pharma, it will depend on how, mainly, the American patients, will visit the doctors; how many medications we will prescribe. I don't have the answer now. We can only comment when second half is behind us. Otherwise, I will be speculating and it's not my style. I'd rather deliver than speculate.

Jelovcan, Mirabaud. So the first question is the CapEx for Moderna, another CHF 70 million. Is that just entrepreneurial risk? Or do you get something back if the drug fails?

It's, of course, stupid to say it's a no-risk investment, but let me explain it why. We have a 10-year collaboration agreement with Moderna. It's a 10-year collaboration agreement on mRNA technology platform. Assuming the vaccine will not be registered by the FDA, there is a long list of other projects based on mRNA technology, and then we will be using these assets for other projects. So basically, there is almost no risk with the CHF 70 million investment in one production line from our side in this. Because if it doesn't work, we have the assets, the technology for other projects.

Okay. And the second question, I mean you always talk about Moderna and some analysts for Moderna, they are freaking out with talking about $75 per injection, which is crazy, CHF 17 billion peak sales potential. And so why do you always talk about Moderna? You have 140 other inquiries with COVID-19 drugs or therapeutics because you're not allowed to tell? Or I mean you have hundreds more projects in this area.

No, no, no. There are many projects, but there are limits to our capacities in terms of human resources and in terms of manufacturing and research capacities. Moderna is certainly the most important project we have currently in our portfolio related to the COVID-19. And it was a wish from Moderna and from us to inform the market openly. Why? Because we need Moderna and Moderna needs us. So it was not a problem to communicate. We joined forces. They have the basic know-how, we have the manufacturing know-how. We have the know-how to scale up lab processes and we have plants around the world. So it makes a lot of sense to say this is a strong collaboration. We have other collaborations for other topics related to COVID-19, but some of our partners are not willing to be open on this collaborations. Why? We are focused, and we talk a lot about Moderna. One, because it's the most important one where we're in kind of full position; and it is for sake of the humanity, medium and long term.

Okay. And the third question, if I may. On Slide 21, that was a bit fast. You talked about biologics and some 6,000 investments. What was that? And the 2,000 active therapies in development, that's for the market that...

It is the market.

And you have some 800, that's currently in mind. That's the...

We have a lot. We have a long list. I don't want to give the exact numbers. By the way, I wouldn't know the exact numbers, to be fair. When you talk Mammalian and Microbial, you talk about the size of the fermenters. You have 20,000, 20,000 liters and 6,000 is 6,000 liters.

And why 6,000?

Because if you want to participate successfully to the markets, you need small scale, 1,000, 2,000; medium scale, 6,000, 5,000; and you need a large one for the blockbusters, 20,000. You play with 2,000 and 1,000 the beginning of a process from clinical trials; then you move to midsized, 6,000, 5,000. And if you are lucky to have a blockbuster, you need the 20,000. And you need all this portfolio of scales to be a strong player. And you need specific at small scale, 1,000, 2,000 for the start-ups. So we are equipped to serve the market with 1,000, 2,000, 5,000, 6,000, 20,000. And we stop at 20,000.

This is Patrick Rafaisz, UBS. Three questions as well for me, please. The first one...

If you go question by question, it's easier for me.

Sure, no problem. The first one is also Moderna and the CapEx. To what extent is that incremental on what you anyway guided to 13.5% of sales for this year? Or is that displacing other projects you would have had otherwise?

Now first of all, we are not communicating -- we don't put any sales in our outlook 2020 because we don't know how much sales we will be generating with Moderna. So if you see PhD type of works, this is speculation because we don't know ourselves. And I don't want to speculate in this room and with you, it would be unfair. I suspect that early next year, we will have very good view on how much sales and margin we may be able to deliver out of this Moderna. Today, it's impossible.

But I meant just the CapEx, the CHF 70 million.

The CapEx, it's CHF 70 million. It was not planned, of course. When we prepared our business plan last year, we didn't include Moderna. So it's on top of the normal, but we can absorb this CHF 70 million It's not dramatic at all. We are pleased indeed to have this CapEx opportunity.

Okay. And the second question is on the quarterly sales development at LPBN, quite an acceleration in the second quarter from what you showed us with the Q1 update. What should we assume as a run rate? Were there any special effects, very favorable batch runs? Will there be more qualification batches in the second half? So we look at H1 or Q2 as our best estimate?

I don't want to come back to Q1. But basically, you didn't read me between the lines. I didn't say it, but in Q1, this business was up double digits. But you didn't read me between the lines because I combine with -- I combine LPB with -- I combine this business with the Nutrition. But between the line, I said the Capsules business has a growth rate below 10%. It represents CHF 1 billion -- it's driven on annually, the CHF 1 billion basis. The rest of the business was double digits. So Q1, Q1, this business was already at double-digit sales growth. You didn't read me between the lines because I haven't been as transparent as I am this morning.

So that means if -- it will depend also on the Capsules business in the second half. And here, you sound more optimistic than you did?

We are very confident that the LPB, this is the Pharma & Biotech business will be delivering double-digit sales growth. And the Capsules business is a bit more uncertain because of the Pharma business evolution in North America and the Nutrition business. It's why we're a bit more prudent. But the Pharma & Biotech will be delivering double-digit growth rates second half, yes.

Very clear. And the last question is on the OpEx investments and margin dilutions. So if I combine H1 and H2, maybe 250 basis points. How fast will this dilution be phased out over the coming years? Is that the function of the 6- to 7-year ramp time? Or how should we think about that?

I suspect you have the business plan in your eyes as further we go ahead.

Yes. So I mean, Patrick, to your question, the investments, of course, we -- it takes we say typically 6 years to achieve what we call, more or less, let's say, peak sales. And then, of course, you have 2 or 3 years to finalize the construction program where you start hiring the FTEs, and you obviously don't have sales. And then as of year 2 or 3, depending on the project, you start generating revenue, so pretty fast. You don't have a negative impact from the project, but of course, you only get to, let's call it, target margins by year 6 or 7. But I would say the negative drag, it gets neutralized already at the -- as soon as you start operating the facility.

But I think the key message, we are investing really in the future to secure high sales growth rates years ahead. Oh, David, I didn't see you, apologies. Yes, last question in the room because we have to share with the other persons.

I just have a question about a status update on Ibex. Can you maybe just comment when you exactly plan to start operations in which facility, et cetera?

So I am commenting on the Ibex building one, which is 100% owned by Lonza. In this building, we have 2 wings, very important to make this distinction. Wing 1 is basically sold out, and we will start using -- producing this wing 1 during 2020. The wing 2 is today empty, but we are starting to put more infrastructure in the wing 2 because we have gained projects, which will be incorporated into the Ibex wing 2 building #1. Differently, we are very satisfied. Half of the building is sold out, and we are on the way, sold most of the wing 2 of building one. Why I make this distinction between 1? Because there was another building. It's a joint venture with Sanofi. So I was commenting only on Lonza's 100% ownership of building 1. So we are very satisfied. Excuse me?

[indiscernible]

In a few. We start producing this year. So we take now questions outside of the room.

The first question from the phone comes from Jo Walton from Crédit Suisse.

Just a couple of questions. I'm sorry to go back to the Moderna situation...

Can you repeat your question? Can you go question by question, please?

Of course.

Can you go 1 question after the other, please?

Of course. Starting then on the Moderna situation. And I understand that you cannot be very specific. But can you guide us as to how to think about this because there are so many different forecasts out there in the market? From your discussions today, it looks as if we should think of your investment being CHF 70 million in capital investment and then some additional staff costs and that we should be looking for return on that level of investment because Moderna has invested the majority of the money, and therefore, presumably, you're only going to make a limited return. So we should think of it as a return on capital investment type of business.

Well, I said clearly in my introduction that we are not going to make comments on commercials. I stick to that because it will be pure speculation, and I'm not prepared to comment speculations and hypothesis you can read in the market. So sorry for that. My answer is that I don't comment because it's too early. And I don't want to mislead you and stick to that. And for that, it would be otherwise unfair. I will want to comment Moderna commercials today because I don't know.

Would it be reasonable for us to believe that in a few years' time, Moderna could be as important to you as one of your current biggest customers? So your current biggest customer is only 5% of your sales. Is that the way that we should be thinking about it? Again, not precisely, but is that the sort of thing we should be thinking about?