PolyPeptide Group AG (PPGN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PolyPeptide Full Year 2023 Results Presentation and Business Update Conference Call and Live Webcast. I'm Ricky, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Michael Staheli, Head of Investor Relations and Corporate Communications at PolyPeptide. Please go ahead, sir.

Good morning, everybody. Thank you for joining our 2023 earnings call and your interest in PolyPeptide. Before we start, I draw your attention to our usual disclaimer on Slide #2. I'm joined here by Juan Jose Gonzalez, our CEO; and Marc Augustin, our CFO. Juan Jose and Marc will go through the presentation. And after that, they will answer your questions. [Operator Instructions] With the short introduction, I hand over to Juan Jose. Please?

Thank you, Michael, and a warm welcome to everyone. I'm going to spend a few minutes talking about the strategy for the company and the progress in 2023. And then Marc will talk about the financial results and guidance for 2024 and as Michael said, then we will open for a Q&A. So when we talk about PolyPeptide, we'll talk about the transformation. And let me just give you a little bit more color in terms of what we mean by that. We are basically going from a larger scale CDMO to an industrial scale CDMO. And this transformation is underway. And if you look at our results in 2023, you can see some of the highlights there. There are 4 main takeaways when you look at the progress of PolyPeptide last year. Number one, we are well positioned in a very attractive market, our multi-site manufacturing and development network together with our rich pipeline position us very well for the growth coming in front of us. Number two, the operational improvements are taking shape in the second half of the year. We achieved record revenue growth in the second half versus the first half of the year and we also were able to improve our profitability and cash flow. I will talk in a little bit more detail regarding where we are in our operational improvement journey. The point is that we see on the back of the rapid growth of GLP-1, a rapid portfolio shift. We have growth across many therapeutic areas but our mix is shifting towards metabolic and large pharmaceutical customers. And finally, we have been successful in advancing our commercial agenda, 3 new large agreements concluded in 2023 and together with the agreement previously announced in December 2022, this 4 agreement has a potential to double the company's revenues. This is nothing that we are going to expand at the first half 2024 earnings call when we provide our mid-term look. Now let's spend a couple of minutes talking about the Peptide market. And there has been, I would say, an incredible transformation also of the Peptide market. It's becoming one of the most attractive CDMO market. We see a broad development pipeline that are about 1,000 payback projects, 340 clinical development. There are robust outsourcing trends. Customers continue to focus on their core competencies. The molecular entities are becoming more and more complex. So customers need more and more the expertise or CDMO specialize in Peptides. And of course, there are growing volume needs mainly driven by GLP-1 and if you look at 2023, it actually reflects everything we are talking about how dynamic is this market. There were 6 FDA approvals for new chemical entities and 2 product expansions. There has also been robust GLP-1 clinical results. The most important thing is that these clinical results not only show the benefits in terms of weight reduction, but also the benefits in terms of comorbidity, whether it's cardiovascular or liver disease. And finally, we have seen accelerated investments by large pharma. Before most of the early stage development activity was done by biotech, but actually, you see now large pharma building dedicated R&D Peptide organizations. Now you're seeing several development programs coming from large pharma. And we think that is going to be very healthy for the development of the Peptide market. So within this Peptide market, let's talk about where -- how PolyPeptide is positioned. And we consider PolyPeptide very well positioned with some very clear competitive advantages. First of all, PolyPeptide have over 70 years of track record manufacturing peptides. We actually have manufactured over 1,000 peptides Today, we manufacture 1/3 of all commercially available peptides. And we have been able to achieve this through our multi-site development and manufacturing network that gives a significant customer proximity. And today, PolyPeptide that is well known for its development expertise, we have cutting-edge process development capabilities. So if a customer has a complex molecular entity, it required a deep peptide expertise, they tend to partner with PolyPeptide. And we actually have seen that in terms of the development of our pipeline over the years. Now let's talk about our operations improvement plan and this is something which is a very important as a priority for the company over the next 3 years. I mean, PolyPeptide started an aggressive expansion in the midst of significant market volatility between COVID, supply chain disruptions, trying to scale up across multiple sites with products that were more and more complex. The company was not well prepared to achieve something like that and we saw that in the performance in 2022 and we certainly saw that during the first half of 2023. So this operational improvement program is very important because [indiscernible] is what will ensure that our growth translate into higher profitability and cash flow. And we are basically focusing on meeting high customer demand efficiently. We are focusing on process optimization, technical proficiency, what we talk about having the right profile, training, deploying. And we are also doing organizational changes. We are basically bringing to the company CDMO talent with deep industrial expertise. In the second half of the year, we are starting to see the progress on this agenda. If you look at our metrics in terms of quality conformity, schedule adherence, speed of patch release office, we are actually improving month by month. Now we said that this agenda will last until the end of 2024. And we believe we are on track to meet our goals by then. It's a challenging agenda because the company have a high-growth nature and we are going to be scaling up over 40 programs, for example, in 2024, but it's 100% under our control. We know exactly what we need to do and it's just important to make sure that we remain focused on these operational improvements. Now we will not only focus on improving our operations. In parallel, we will continue to do investment projects. And last year, we completed several downstream projects across our key sites. And in terms of the construction for the large-scale SPPS infrastructure, our 1,600 liter that was completed at the end of 2023. The validation is ongoing and we expect that ramp-up to start during the second half of 2024. We initially were planning to finish it around mid H1, but now we believe it's going to be during the second half of the year. Now we have been producing this for over the last 2 years. So we know exactly what we need to do. Of course, we need to do it at a larger scale. And here, the most important thing is that we finished the year with this ramp up and operating as we are expecting. And in parallel, we are also driving our innovation and this is very important. We believe that we should not only improve our operations, not only expand our capacity, but also upgrade the way chemical synthesis is being done. And we have 2 priorities. One is integrating green chemistry efforts. And the second one is increasing the output, especially in our upstream process and we have some proprietary technology that I will talk in a minute regarding this. Now why don't we talk about our growth performance in 2022 and basically, what we have seen is a strong acceleration in the second half of the year. First of all, on a full year basis, we had a guidance of mid-to-high single digits last year and we ended up growing at 14%, which was 18% at constant currency rates. We are able to fully phase out the COVID business. And excluding COVID, the growth of the company was actually 37% and just give you a sense in terms of the strong underlying growth of the company. And then in the second half of the year, we saw an acceleration, excluding COVID during the first half of the year, we grew at 29%. And in the second half of the year, we grew 42%. One of the reasons why we were able to grow this half was our operational improvement agenda that allow us to release and invoice batches faster than what we were expecting. Now behind this strong growth is our pipeline. And the main highlight in terms of our pipeline is that Phase III projects are advancing towards commercialization. And what you have here is a table with our pipeline in 2022 and our commercial projects and then our pipeline in 2023 and then the number of commercial projects. And there are 2 main highlights. Number one, in the case of early-stage pipeline, we did see especially in the second half of the year, the impact of a limited funding climate. And in the later stage, we actually see the benefit and progress of our pipeline with a number of Phase II projects increasing and a number of our commercial projects also increases. So we basically have been successful in terms of continue to support our customers in projects that move from Phase III into commercialization. Now just to give you a sense in terms of how reach is our Phase III pipeline. We always refer to projects, but there are projects that have multiple peptides. So these 29 projects, which is about twice the number of projects that our key competitors has equates to 55 peptides and I refer in terms of how many peptides we have in the entire market. And that just gives you a sense in terms of how we over-index in terms of the number of Phase III projects. And of course, as our pipeline move from face to face, the impact of Phase III and commercial projects for our revenues will continue to increase and in 2023, it's around 70%. Now we can see the benefit of the increase in the number of commercial projects in our revenue performance by business area. And what you have seen on the left-hand side is the revenue by business area for 2022 and 2023 and a couple of things. One is our contract manufacturing business is the fastest growing business segment growing at 53%. And in 2023, excluding COVID, it already accounts for 42% of our revenues. In 2022, it was only 37%. More importantly, we see very positive customer momentum. We are able to secure prepayments to increase our capacity. As I mentioned before, we signed 3 new large agreements, and this is a combination between GLP-1 agreements and non-GLP-1 agreements, which is important for us. We want to make sure that we are very well positioned towards GLP-1 but we also have a strong position across all the exciting therapeutic areas like oncology or rare diseases. Now with the agreement that we announced at the end of December 2022, with these 3 agreements, just 4 agreements will double PolyPeptide revenues. And this is something, again, we will discuss in more detail when we provide our midterm outlook, but it just gives you a sense in also strong growth profile of the company because outside of these 4 agreements, we have the whole pipeline also coming in and moving into commercialization. Now if we talk about our portfolio, what we see is a positive impact from the exposure in GLP-1. And on the left-hand side, you have a revenue by therapeutic area. And you can see how metabolics increased its share of revenue from 27% to 39%. And on the right-hand side, you have the revenue by customer type, where large pharma increased it share of revenues from 42% to 58%. And we expect as we move forward that metabolics and large pharma will continue to increase in its share of the overall business. Now let me just finish by talking about innovation. And again, our objective is to make sure that as we move forward, we also continue to advance the peptide manufacturing technology. And we have 2 priorities. One is Green chemistry where we actually have proprietary technology to reduce the amount of relative solvent consumption. So for example, last year, we deployed this technology, and we're able to reduce it by 23.5%. We also have a project about using green solvent. So 12.5% of all new development projects, for example, now have green solvent. And we also are evaluating recycling technology. Just looking at what some of the other industries has been applied. And then on the manufacturing side, we actually have develop proprietary technology that significantly increase the throughput during the [indiscernible] process. And this is very important because it's going to take, let's say, 1,600 liter being able to produce twice or 3x more than what it normally should. We also have a scientific collaboration agreement to advance our innovation agenda. And we also have a partnership agreement for biochemical production. This is basically for recombinant projects. And the idea is to make sure that as a company, we are not only a position as a one with deep development expertise, but that we also have advanced technology to advance the environmental agenda of our customers and that we can manufacture also with very high levels of productivity. So this is what I wanted to share with all of you and before I pass it to Marc, let me say one thing, Marc, is a good example in terms of our talent agenda. Marc came from Lonza. He work in biologics. When he joined biologics was about EUR 600 million in revenues. By the time he left, it was EUR 3.3 billion. It's a very good example in terms of bringing someone that knows what is there to scale up a company rapidly. What do you need to have in place to make sure that you pursue this growth agenda. And I have to say we are very happy to have him with us. So Marc.

Thank you, Juan José, and good morning also from my side. It's a pleasure to be here and present to you the '23 financial results from PolyPeptide. Let's start with the revenue trend. As Juan José already explained, we could finish '23 with a significant sales growth of 14% versus 22% and at 18.2% with constant exchange rates. As you can see on the slide, EUR 45 million of COVID-related sales could be overcompensated by growth across the network. Driving into the underlying product mix change you notice that we have a balance between metabolic and other therapeutic areas. Excluding COVID related revenue, the growth is approaching 37%. 35 new programs were introduced and with various scale-up projects. All this illustrating the significant transition PolyPeptide is currently going through. I also show you on the slide the growth by business area. With a solid growth of 10.3% in customer projects, 22.2% in Contract Manufacturing in stable growth in generics and cosmetics. We grew in all our sites in the network, which is supporting our natural hedging approach, which is mitigating our FX exposure, both on the sales and on the cost side. Overall, the strong performance, especially in the second half of '23 with a growth of 43% versus the first half. With that, I turn to EBITDA bridge. There are 3 main drivers for the unfavorable EBITDA evolution in '23, which led to an EBITDA of minus EUR 6 million. First, we incurred significant higher write-downs of EUR 19.3 million versus 2022 including obsolete inventory of EUR 12.5 million and higher production mainly linked to ramp-up and product mix changes activities. Second, in '23, we were faced with higher operational costs of EUR 18.3 million, which mainly includes higher labor costs and energy costs as well as unfavorable variances, which are mainly driven by a lower utilization due to the introduction of new programs and ramp-up activities. Third, although the loss of the COVID-related products could be overcompensated on the sales side, on the EBITDA level, we see a negative impact of EUR 5 million, driven by the above average profitability of the COVID related products. On the right side, you see the EBITDA comparison '22 versus '23 by half year. And you see the significant improvement, which has been achieved in the second half of '23, showing a positive EBITDA of EUR 13 million or a margin of 7.1%. We have more work in front of us to get back to a sustainable EBITDA level. The positive development of the second half '23 is giving us evidence that the implemented measures show the expected impact. Returns in the right direction to improve our full year margin in 2024. With that, I move over to the P&L. I touched on revenue and EBITDA evolution on the prior slides. I want to focus here now on the financial results. In '23, we were hit by a noncash FX impact of about EUR 12 million linked to the revaluation of intercompany loans due to different constant currencies, which is impacting unfavorable P&L and offset in the OCI. We are currently reviewing our internal financing structure to avoid these impacts going forward. The interest expense of EUR 5.6 million contains the cost for the new RCF and the shareholder loan including an income tax benefit of EUR 6.8 million, the right of the yield is minus EUR 51.4 million. With the net loss reported in '23, the group will not propose a payment of a dividend at the AGM on April 10. With that, I'll move to the next slide. Before we talk about the cash flow, I would like to highlight 2 facts. First, we secured a revolving credit facility of EUR 111 million and a loan from our main shareholder of EUR 40 million. Second, we received prepayments from our customers of EUR 38.8 million, which are both strengthening our position to pursue our growth ambitions. In '23, net cash flow from operating activities reached EUR 36.5 million versus EUR 5.5 million in '22, mainly driven by a reduction in net win capital of EUR 46.2 million. Net cash flow from investing activities is EUR 56.7 million. And this all adding up to total free cash flow of minus EUR 20.2 million versus a minus of EUR 73.3 million in '22. At the end of '23, cash and cash equivalents reached EUR 95.7 million versus EUR 37.5 million at the end of '22. Let me move to CapEx. 2023 was a year of consolidation in regard of CapEx spend. The focus was on the advancement and completion of several investment projects. Let me talk about our CapEx evolution over the recent years now. Before 2020, the average investment was around 12% of sales, followed by 3 years of accelerated investments, with a range between 20% and 30% of sales, driving various growth projects across the network. In 2023, PolyPeptide invested EUR 54.9 million, mainly in Braine to finalize the construction of the 600 liter project. Let me now turn to my last slide about priorities and guidance in '24. In '24, our priorities will be meeting the increasing customer demand, continue to strengthen operations and profitability and further capacity expansion. For '24, we expand a mid- to high single-digit revenue growth at constant currency rates. The EBITDA return positive, but we do expect to operate a net loss. The capital expenditure will be between EUR 60 million and EUR 70 million. As in the last year, we expect the stronger second half compared to the first half, pronounced by the capacity ramp up in the second half of '24. For the first half of '24, we foresee a comparable revenue level as in the first half of '23, with an improved EBITDA and at a net loss. We are currently preparing our midterm outlook, which we plan to publish together with the '24 midyear results in August. In the context, we will also revisit our approach to certain disclosures around development of our business. With that, I close my presentation and hand over back to Michael for questions.

Ricky, are there questions on the telephone line?

[Operator Instructions] First question from Daniel Buchta, ZKB.

Maybe the first question on the new large contracts, I mean, congrats to those. But maybe just -- on the CapEx side, I guess there is more CapEx needed to get the capacity for these very significant contracts. Your free cash flow is not the strongest at the moment. How can you fund those investments and also, what is the timeline for this doubling of sales with those 4 contracts? Maybe you could provide a bit more clarity on this. The second one then on the [indiscernible] ramp-up relates to the one first large customer. I mean, how did the customer react to those delays on H2 instead of someone over H1 with a ramp up there. And then also, what gives you the confidence that you can really get full efficiency there maybe towards the end of this year, given the unprecedented size of the reactors there and the volumes needed by that customer, that would be it.

Daniel, thank you very much for your question. This is Juan Jose. So in terms of the new large contracts, we will need to invest additional capacity but Marc mentioned that we actually has received customer prepayments and they are in connection with these contracts. So we are using these prepayments to be able to build our capacity. So with the money that we have, we basically are going to be able to execute on these contracts. And we're very excited about these contracts because -- it's not only shows confidence on PolyPeptide, but of course, a much higher level of commitment with these payments. Now in terms of the timing to double our sales. Let me answer this question when we provide our midterm outlook. Just to give you a sense in terms of just how our sales are going to evolve, but also what will be our capacity expansion strategy. Now in terms of the ramp-up, I mean, we have experienced about a 3-month delay. I have to say these are very large projects and our customer is -- I would say, have a high level of understanding and patients in terms of all the suppliers across not just peptides, but fill and finish and everybody trying to ramp up capacity aspect as they can. When we talk about our confidence to execute. So 2 things. One is we have been producing this product for over 2 years. So we know what it takes to be able to do it well. But as you said, of course, we have to do it at a larger scale. And we just have to make sure that we are prudent and we take our time in terms of how we go about doing it but we are confident that we are going to have it operational at a good level of operation towards the end of 2024. And then we will really start seeing the benefits in 2025.

The next question from Laura Pfeifer, Octavian.

I have 2. Maybe first on the EBITDA. For this year, you did not provide a quantitative guidance. So I would be glad, if you maybe could guide us a little bit more how we should think about it is maybe the second half margin of 7% a point of reference. And yes, maybe what are the drivers and the headwinds we should consider in modeling for the '24 margin progression? And secondly, maybe also related to the previous question on these new contract. I'm just wondering if you could hear a little bit toward development stage are these projects? I mean are there Phase III, are they already filed? Are they already commercial scale and also how big each of them are they comparable insights to each other?

Thank you, Laura. And let me start with the new contracts. So they had a mix between Phase III and commercialization stage. But of course, we expect it to be very material relative to PolyPeptide size. And in terms of the EBITDA guidance, there are a couple of things which are important to know in terms of context. Number one, we have the operational improvement program. Number two, we have over 30 programs being a scale up in 2024 and then number three, we have the 1,600 liter chemical line. So you're going to have different moves in terms of capacity utilization and performance. And that's really what is driving our EBITDA guidance. Marc, I don't know if you want to comment a bit more in terms of what should they expect.

I think it's one important point, what we said in the guidance is turning positive and I think that's very important. We also will discuss the improvement measures we have implemented, which led to a very nice improvement in the second half of '23. So -- and I think that combined, you said about the challenges we have in front of us giving more light to it.

Okay. But is it fair to assume that the EBITDA in H1 will still be a negative territory and only for the full year basis, it's positive.

We are guiding -- guidance on the full year, turning positive. And we also said that the EBITDA margin will improve in the first half.

The next question is from Vineet Agrawal, Citi.

Most have been answered, but just maybe one on EBITDA bridge, it looks a bit different to what you presented at first half. So maybe you could explain any of the differences. I think you had some impact from changes in cost absorption, et cetera, but I can't see that now. Just trying to see if this is what we should be using as a reference point going forward. And then trying to see if you can quantify how much of the EBITDA impact is from the ramp-up of the facility and the reason for this question is because one of your large peers is investing heavily in CapEx, but there seems to be very little impact on the margins. So I'm just trying to understand, is it only just different accounting that we follow, which means that you can't capitalize some of the costs. So any sight on that would be really appreciated.

I will start on the bridge. So the bridge you see for the second half, you can take as a reference for us using going forward. There's a little bit changes on the naming. Here, we are referring to operational costs, you saw the operational costs on half year bridge as well. And we had there also the position of change in cost absorption. So this is now more combined in the change in the cost.

Yes. And Vineet, in terms of your question regarding the CapEx expansion and the impact on the margins. There are 2 reasons why you see more impact on PolyPeptide. Number one, because we have a lower profitability and an operational improvement plan underway. And the second thing is that PolyPeptide is a smaller company. So big changes in terms of investment and performance drives significant volatility and we think we're going to say the volatility of course, until the company get to a scale where you can actually absorb some of these investments and one-offs. But there is no reason why PolyPeptide shouldn't go back to very high profitability levels. And by now, our objective is to make sure that we meet customer demand that we're investing capacity that we do this investment, we solve using equity that we do a combination of bank financing and customer support and that we improve our profitability year after year. But that's basically the plan for PolyPeptide.

The next question is from [indiscernible].

Two questions from my side as well. First of all, you mentioned in one of the slides that your sales contribution from commercial and Phase III projects contribute roughly 70%. Could you kindly divide that sort of how much of that is in commercial and how much is in Phase III? That would be question one. And question 2, also relating to the ramp-up of your large-scale plant. I mean you clearly indicated you want to start ramping up in the second half '24. So what do you think is the likelihood that you will be running at full capacity by the end of '25?

So in terms of how much of the 70% is driven by Phase III? And how much is driven by commercialization? I think if you go to Slide 10 where you get the revenue by business area, you can assume that commercialization is at our revenues in contract manufacturing, plus generic and cosmetics. So that will be about EUR 150 million. That basically means around 50% of the company's revenues adding what we call a commercialization phase and then about the other 30% will be in Phase III. In terms of the 1,600 liter, we don't expect it to be operating at full capacity by the end of 2024. We see -- we are planning actually for a much more thoughtful ramp-up and what we want to make sure that we have the production under control, that we can meet the quality requirements and that we can release, and we expect to reach full capacity in 2025.

Yes, that was my question. So basically, you expect full capacity here by the end of '25.

Yes. At some point in 2025, yes.

Next question from Leonildo Delgado.

A couple of them. The first one is do you see any potential risk in securing future large volume contracts to pass delays and operational issues? And the second question would be, could you break down the specific measures implemented in the second half of '23 that you believe had the most impact on performance?

I mean that's why we have made our #1 priority to meet customer demand. And one way for you to see that we have been able to maintain our relationship with our customers. It's a fact that if you look at our Phase II project that has increased from 2023 versus 2022. And then we have been able in Phase III projects to move to a commercialization because our commercial projects have also increase from 60 to 64. So basically, we have been able to continue to maintain our relationships and with new commercial agreements, we just shared, we're showing that we are able to expand. But of course, it's very important to make sure that we maintain our focus on execution that we are able to meet our demand forecast. And of course, in parallel that we do that while improving our profitability. In terms of the measures in the second half of the year that had a biggest impact in terms of our performance. And we point to our ability to meet the quality requirements and released on time. I think there has been a lot of focus to make sure that we're able to do that. Now this is a plan that will take us on the way towards the end of 2024 because there are also some other areas that we are working on which is very important. And we are just actually looking to deliver the performance of the company today. But of course, we are making sure that we have an operational performance that can support a company that will be much larger. And that's really where the focus is. Now should we go to the next question.

The next question comes from Daniel Buchta from ZKB.

Daniel. I think he is on mute.

We can. I think there was also a question from Charles. Can we take Charles?

Hello, can you hear me?

Yes. Daniel or Charles, who was speaking now?

The line of Mr. Charles Weston is open. You may proceed with your question.

It's Charles Weston from RBC. Two questions from me as well, please. What are the terms of the 2 debt facilities that PolyPeptide has from the banks and from your shareholder in terms of covenants, the term and how they're secured? And my second question is how much more prepayment could we look for in 2024? And can you give us some guidance on the expected net working capital movements in 2024 as well?

Let me start with the prepayments. First of all, I think you should expect a prepayment next year. Now we don't really guide for prepayment but this is something that you're going to see as part of our cash flow performance. Now Marc will talk about the terms that we have with the banks and with our anchor shareholder. But let me just say one thing. First of all, it was very important to make sure that we increase our financing capacity. And we basically, with this 2 agreement, we have been able to double our financing capacity. But the second thing is that having our anchor shareholder coming to support the company. This also a very good sign in terms of the commitment and stability that PolyPeptide can have as seen embark in a growth journey. And Marc, do you want to comment on the terms for the loan and the net working capital?

So first of all, net working capital is a key priority for us. So we have done quite some good work in '23 to improve the net working capital and we will proceed working on net working capital, especially of inventory receivables and payables. So these are priorities for us in '24. Of course, I cannot go into the details of the terms regarding the loan agreements with the bank and the shareholder. Nevertheless, we see that as a bank, as a shareholder, showing huge confidence in our future plans and the expectation for a good trajectory.

Good. There are no more questions on the phone line. There are a few questions in chat function, which I will read to you. The first is [indiscernible]. Please comment on the customer risk profile of the company due to the new larger customer contracts driving growth. Few customers will have a larger share of your revenues question marks.

Yes. Thank you for that question. And it is true, our customer base is concentrating towards fewer large customers. And this is driven by the GLP-1 opportunity. And we will see the concentration with customers continue to increase year-over-year. Now we actually do not see this as higher risk. We have been working with these clients over many, many years. And we have an agenda with them that go from development all the way to Phase III and then commercialization. So you have very broad relationships. We also find them as very sophisticated, very supportive and also very long term in nature. They want to -- they actually want to see poly PolyPeptide being successful. So I would say in terms of higher concentration, I don't see correlated as a higher risk profile. But of course, we need to make sure that in our most important strategic relations that we have high levels of performance.

Then there is other question from [indiscernible]. Do you consider your revenue growth, mid-to-high single-digit growth guidance for 2024 to be conservative considering that you grow in 2023 was 37% adjusting for COVID projects?

Yes. I mean we have had last year a very strong underlying growth. And I have to say our guidance in 2024 reflects the fact that we still have our operational improvement agenda that we are scaling up many programs. And that we have, of course, the 1,600 liter capacity expansion. So there could be some variability in terms of how we end up by the end of the year. But at this point, we think it's a good guidance to reflect pretty much what we think we're going to do.

I think in the chat function, there are no more questions that have not been answered before. I think with that, I hand over back to you, Juan José for a closing statement.

Thank you very much, Michael, and thank you again for joining us this morning. The transformation of PolyPeptide from a larger scale to industrial scale is undergoing. We have a high growth profile of a company in what is considered one of the most attractive city of our markets. There is a lot of work for us to do is still to improve our profitability and cash flow. And we are very much committed to achieve that. There is no reason why this company cannot scale up and return to similar profitability levels. And I'm certainly looking forward to meet all of you at our first half 2024 earnings call, where again, we share our midterm outlook and then you will get a sense in terms of the scale of the ambition that PolyPeptide have.Thank you very much, and enjoy the day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.