PolyPeptide Group AG (PPGN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PolyPeptide Half Year 2024 Result Presentation and Business Update Conference Call and Live Webcast. I am Josef, the Chorus Call operator. [Operator Instructions]. At this time, it's my pleasure to hand over to Michael Stäheli, Head of Investor Relations and Corporate Communications at PolyPeptide Group. You may now join into the conference room.

I'm joined here by Juan-José González, our CEO and Marc Augustin, our CFO. Before we start the presentation, I point your attention to our usual disclaimer on Slide 2. After the presentation, Juan-José and Marc will be available to answer your questions that you can either ask over the phone or inviting through the chat functions. And with this, I hand over to Juan-José.

Thank you, Michael and good morning, everyone. In 2024, we posted substantial improvements in profitability and cash flow, and the company is well positioned for strong growth. Now there are 4 key messages from this session. Number one, we accelerated our revenue growth in the second half of the year. If you look at our performance, excluding COVID, the company grew 7.1% with the second half of the year growth of 9.5%. Now this growth is driven by the strong performance of our commercial business. This is on the back of increased demand and the approval of important phase III projects. The metabolic business is the #1 growth engine, and it also has doubled over the last 3 years. Now the second key message is the substantial improvement in profitability, and Marc will talk about this in more detail. But our EBITDA margin increased by 9.4 points to 7.5%, and this reflects the progress on our operational improvement agenda and changes in the product mix. Number 3, we advanced our capacity expansion at a faster rate than originally planned and we are doing it across the manufacturing network. We spent EUR 87.8 million, which is about 26% of revenues. Now something which is important to highlight is that this expansion is being done with strong customer support. In 2024, the customer financing support is around EUR 110 million, and this is about 80% improvement versus customer funding we got in 2023. And finally, we are confirming our midterm outlook. Our revenue growth momentum, our rich pipeline, the stabilization of our operations, our capacity expansion program, all that is putting us in a very good position to meet our targets by 2028 which include doubling our revenues versus 2023 with a profitability approaching an EBITDA margin of 25%. And our 2025 guidance show a healthy progress towards hitting this 2028 with a revenue guidance of 10% to 20%, and this is going to be driven by the ramp-up of the large-scale capacity supporting a GLP-1 contract in Belgium. So those are the key messages for today. And now let's talk about how we see the market today. Now peptides is one of the most attractive markets for the CDMO. On the left-hand side, you have a global therapeutic peptide market. And in 2023, this market was estimated to be around $45 billion. And it is expected 7 years later by 2030 to be around $130 billion. There are actually some recent reports that are forecasting the market not to be $130 billion, but $139 billion. And we continue to see this forecast being upgraded as the time passes. That basically means that our market is going to triple in size and that the metabolic segment is the #1 driver of this growth. But if you look on the right-hand side, you can see the number of peptide drugs in clinical development. And today, there are 321 projects. And as you can see, metabolics and oncology account for nearly half of the total clinical development pipeline. And there are important projects also beyond these 2 segments in cardiovascular, infectious disease, neurology, the applicability in terms of peptides for drug development continues to expand on the back of advances in terms of how to make sure you manage the safety, stability profile for different applications, including oral forms. Now that's in terms of the global therapeutic peptide market. Now let's talk in a bit more detail regarding what are we seeing with the GLP-1 metabolic opportunity. And basically, what we see is 3 things. Number one, we know that more than 80% of these patients exhibit at least one comorbidity and over the last year, we continue to see important clinical data that show the positive impact beyond obesity and diabetes, whether it is cardiovascular or sleep apnea or Alzheimer's or NASH or knee osteoarthritis. The economic value of these metabolic drugs continues to increase, and that's going to ensure that they secure access across health care systems around the world. Now we are also seeing the strong performance of the leading players today in this market. Both Lilly and Novo Nordisk have posted rapid growth for the commercial products, but also significant investments on the pipeline. And we continue to see projects around long-acting formulations, oral delivery methods, multiple agonist, combination therapies, expanding range of indications. And I think that is going to make sure that you are able to have a compelling offerings to different patient segments. And on top of that, we are also seeing a good number of new entrants advancing next-generation molecules. And today, there are over 100 synthetic peptide-based metabolic drugs in clinical development. The most important thing is that because of their molecular structure, most of the pipeline in metabolics is around synthetic chemicals, which land very well for outsourcing with CDMO players. So this is in terms of GLP-1 and metabolic opportunity. And now let's look at where is PolyPeptide sitting today vis-a-vis this large market opportunity. And basically, we have superior customer proximity and deep peptide expertise. We have been a leader in this market for over 70 years. Just to give you a sense, we have a strong drug track record of over 1,000 therapeutic peptides manufactured. And our development and manufacturing network give us significant customer proximity to advance our pipeline and also flexibility to provide multisite offerings depending on the customer supply chain needs. Now with that, in terms of position, let me talk about the strategy for PolyPeptide. And basically, our strategy is to become the most innovative peptide CDMO. Now all CDMOs to compete in this space need to have operational and quality excellence, need to have industrial scale capabilities and need to have some talent culture and ESG credentials. What we are doing is on top of that, we are building 3 competitive advantages: innovation with proprietary manufacturing technology and application for green chemistry, development. And on this one today, we have what we believe is the richest pipeline in the market, but we continue to invest to make sure that as molecules become more complex, PolyPeptide continues to be the destination partner to be able to develop them. And finally, modularity. And the application of our proprietary technology with the benefits of modularity allow us to scale up with a much lower execution risk with a faster speed to market and provide more flexibility, both for the customer, but also for us as a company. This new market is being created. There will be multiple offerings coming into the market. And what we know is that in 2030, this market is going to look very different than today. And this modularity is going to give us the flexibility. So this is in terms of our strategy. And I have to say in 2024, we are very pleased with the progress against this strategy. Now let's talk about our pipeline and our performance by therapeutic area. On the left-hand side, you have the evolution of our custom development projects from 2021 to 2024. And a couple of things are important to notice. Number one, since 2021, PolyPeptide has been engaged in close to half of all FDA approvals for peptide-based drugs. That just gives you a sense of the significant presence that PolyPeptide has across all clinical development activities in the market. And then number 2, we actually have increased the number of phase III projects and the number of commercial projects. And at the end of 2024, we are sitting with 32 phase III projects. And we focus on bringing these projects to market. That's going to be a very important source of growth for us. On the right-hand side, you see the revenue by therapeutic area. And over the last 3 years, our metabolic segment has more than doubled in revenues with a compound annual growth rate of 29%. But excluding that, what you can see is that oncology, for example, we are also growing double digits. And if you exclude COVID, our other business is growing at high single digits with important programs in rare diseases, cardiovascular, vaccines and some of the other important applications. So the underlying growth of PolyPeptide when you exclude COVID is actually a very healthy 15.4%. And this is very important because when you look at our midterm outlook, it's actually anchored on a company which is already showing a strong growth rate. Now that is in terms of our pipeline and our performance in terms of therapeutic areas. Now let's talk about our business mix. And our business mix is similar to what we shared in the -- in the end of 2023 continues to shift towards commercial revenue with large pharma. On the left-hand side, you have the revenue evolution of over the last 3 years, split in terms of commercial, development and COVID. And again, what you see is that our commercial business has grown very rapidly with a compound annual growth rate of 23.8%. So it went from being around 40% of our revenues, 41% of our revenues to 65% of our revenues. Today, it's about 2/3 of our total revenues, and we expect that this will continue to increase going forward. And then when you look at our revenues by customer type, you can see how the importance of large pharma continues to increase. Now it's important to notice that the importance of large pharma continues to increase without undermining the growth with biotech, which we consider is also very important to ensure our presence in more therapeutic areas. So that's our business mix around commercial revenue with large pharma. And as you can imagine, as we move forward, we expect this trend to continue. Now let's talk about our capacity expansion and the plans we are executing to ensure that we are in a position to meet our 2028 outlook. And basically, when you look at our CapEx investments, you, of course, have life cycle management across all the sites. But then you have a key priority around debottlenecking. And in 2021, we had some bottlenecks in the sense that we had large capacity -- large upstream capacity, but we did not have enough downstream capacity. And basically, what we did in the case of Torrance and Malmo was we invested in downstream capacity that allow us to increase the capacity for these sites. And that's basically what we have done up until today. Going forward, the priority in terms of debottlenecking will be around our site in India, where we have a program that will allow us to double the capacity of this site by 2025, 2026. Now aside from this debottlenecking, we have a specific capacity expansion programs on the back of commercial contracts and customer financing support. The largest investment we have done today has been the large-scale SPPS production in Braine, in Belgium. And I'm pleased to report that we were successful with our PPQ production and that we are ready in commercial production. And this is very important because -- not just because of the financial impact that it will have in 2025, but also because we implemented very advanced technology around automation, continuous flow, digitization that then we are going to roll out in future capacity expansion. So that is up and running, and we know it's going to be an important growth driver in 2025. In addition to that, we also are doubling our SPPS capacity in Strasbourg and this is to support a large non-GLP-1 commercial contract. And we are expecting this capacity to come online towards the end of 2025. And on top of that, we are also working to double our SPPS capacity in Malmo. And this is a $100 million investment to support a large commercial GLP-1 contract. This is actually our first model, and it's very interesting for us to see how indeed the execution risk is much lower and your ability to move at a much faster speed than before is basically materializing. And we expect the deployment of this modular approach to be in 2027, to come online in 2027 and to provide a positive contribution for our midterm outlook. So that is overall our capacity expansion plan. And basically, the combination of this debottlenecking programs plus this capacity expansion projects put us in a very good position to be able to hit our midterm outlook in terms of doubling revenues versus 2023. Now we are not only improving our operational performance and our profitability and expanding capacity, but we are also building new capabilities and strengthening our talent to execute our strategy. So for example, we are deepening our peptide expertise. We have very advanced research around resin formulations. And just to give you a sense, we have a technology that for certain products, we are able to double to triple the output in the upstream part. And as you can imagine, that allows us to build rather than building very large and inflexible vessels to build mid-scale vessels that have similar levels of output, but that give you a much better flexibility. We also have PFAS-free SPPS alternatives. I mean, over the last 3 years, we have been one of the most active companies around peptide scientific publications. I think we did over 30 publications over the last 3 years. We are also working on increasing the productivity, safety and sustainability. We are continues to advance our proprietary manufacturing technology. We have had a positive advancement in terms of our green chemistry. Actually, we got our CDP climate rating upgrade to be, and this is the second year in a row where we continue to upgrade our rating. We are enhancing our scalability and controls. I talk about modularity, but we also have a program around standardization, harmonization that are the basis to start our ERP upgrade. And then finally, we are strengthening our talent and organization. And on that, you have seen how over the last 3 years, we are bringing senior executives from leading CDMOs, and today, I have the pleasure to share that the Board is going to propose the appointment of Jo LeCouilliard as a new Board member. She has a deep financial background and very rich global experience with nearly 2 decades at GSK. So we are very excited with her arrival and the contribution she will be doing with the Board. So this is what I wanted to share with you. And now let me just pass it to Marc, who will talk about our financial performance.

Thank you, Juan-José, and good morning, everyone. Following Juan-José's inspiring strategic update, I'm excited to walk you through PolyPeptide's financial result of 2024. Let's begin with an overview of our sales performance. In 2024, PolyPeptide generated EUR 336.8 million in revenue, marking a 5.1% increase compared to previous year, both as reported and at constant currency rates. If we adjust for the EUR 5.8 million COVID-related revenue from '23, our underlying growth is at 7.1%. Similar to 2023, the second half of the year outpaced the first with revenue growth accelerating in the second half of '24. Our strong full year performance was primarily driven by an impressive 31.8% increase in commercial revenue, a result of 2 key factors: a, the successful transition of multiple programs from development to commercial and the broader surge in commercial demand across a range of therapeutic areas. This shift from development to commercial is an important milestone, demonstrating the steady progress of our projects as they move from the clinical phase to full-scale commercialization. This is illustrating the strength of our long-term customer relationships and also the sustainability of our revenue streams. At the same time, the EUR 36.3 million year-over-year decline in development revenue is a natural outcome of this transition. But let me be clear, our development business remains strong with around 200 ongoing projects, providing a solid foundation for future growth. Looking ahead, we expect this year-over-year shift between the business to remain as a natural part of our business model. Late-stage phase III projects bear higher revenue value as they transition to commercial, while smaller early-stage projects take their place in development. This is simply the lifeblood of our pipeline, ensuring ongoing momentum and long-term success. Now let's dive into our EBITDA evolution in 2024 and the significant strides we have made in restoring profitability. 2024 was a major turning point for PolyPeptide's profitability. We delivered a remarkable EBITDA turnaround, improving from minus EUR 6 million in 2023 to EUR 25.4 million in 2024. This translates to a 9.4% point increase in our EBITDA margin, ranging from minus 1.9% to 7.5% in 2024. It's also worth noting that our 2023 EBITDA was impacted by a one-time write-off of EUR 9.5 million, as you see on the left side of the chart. The key driver behind the improvement is a EUR 31.3 million boost driven by strong operational performance and product mix. At the same time, we continue investing in our future. A 7.4% increase in our workforce drove the increase of our personnel expenses by EUR 9.5 million. These investments reflect our strategic preparation for growth, mainly the ramp-up of new assets and ongoing organizational changes. Looking ahead, as we outlined in our midterm outlook, margin recovery is a journey that will take us through 2028. However, the meaningful improvements achieved in 2024 confirm that we are on the right track. And beyond that, we are building a strong foundation for long-term sustainable growth. Before moving to the cash flow, let's first take a closer look at PolyPeptide's profit and loss statement for 2024, the key improvements we delivered over the last 12 months. We achieved a gross profit of EUR 39.3 million, which is a material increase from EUR 9.1 million in 2023. The gross profit improvement translate into a higher EBIT of EUR 29.1 million versus minus EUR 7.4 million in 2023. In addition to the operational improvements, we also saw positive developments in financial result, which improved by EUR 11 million to minus EUR 10.8 million in 2024. And as a result, substantially improved our net result from minus EUR 51.4 million to minus EUR 19.6 million in 2024. In summary, our P&L shows a clear path towards financial recovery, driven by a substantial increase in gross profit and a favorable development in the financial result, leading to a significantly improved net result. With that, let's now move over to the cash flow. Our improved profitability, combined with the strong customer support and disciplined cash management contributed to our improved operating cash flow. Cash flow from operation activities more than doubled, reaching EUR 89.4 million compared to EUR 36.5 million in 2023. A key driver of this improvement was the inflow of advanced customer payments of EUR 110.4 million versus EUR 61.9 million in 2023. This positive impact was partly offset by an increase in inventory of EUR 17 million, mainly for the ramp-up of new programs. Bottom line, we saw a total improvement in net working capital of EUR 72.5 million in 2024. On the investment side, we continue to execute our long-term strategy, leading to a net cash outflow from investing activities of EUR 91 million compared to EUR 59.5 million in 2023. The CapEx in percent of sales increased to 26.1% in 2024. Thanks to the higher operating cash flow, our free cash flow turned positive, reaching EUR 2.4 million versus minus EUR 20.2 million in 2023. Before debt repayments, the cash position is adding up to EUR 94.1 million on a comparable level to last year. After repayment, the cash position closed at EUR 68.3 million. As of the end of the year, EUR 30 million remained outstanding under the short-term credit facility with our main shareholder and EUR 61 million was available under our revolving credit facility. In summary, 2024 was a year of strong cash flow generation driven by improved profitability and customer prepayments, enabling investments in infrastructure and capacity as well as returning to a positive free cash flow. Before handing it back to Juan-José, I would like to take a moment looking at our financing strategy, the progress we made in 2024, and the additional flexibility we aim to introduce at the upcoming AGM. PolyPeptide financing strategy is built on 4 key pillars. First, improving profitability, strengthening our financial foundation through sustainable earning growth; second, customer funding support, leveraging customer contribution to deliver investment projects; third, debt financing, expansion of our existing credit facilities. Fourth, equity instruments, enhance our long-term financial flexibility and stability. First, let me take you through the progress we have made on the first 3 pillars in 2024. PolyPeptide continues to strengthen its self-funding capabilities as demonstrated by the 9.4% point improvement of the EBITDA margin. Additionally, customer prepayments grew by nearly 80% this year, providing the momentum to accelerate our investment activities. On the debt financing side, we are in regular and active dialogue with our lenders as part of PolyPeptide's regular assessment of appropriate and attractive debt opportunities. Additionally, we are planning to expand the loan with our main shareholder, underscoring his support of our growth journey. As new instruments in our financing toolbox, we are proposing at the next AGM, the introduction of a capital band, providing the company with the ability to adjust capital structure dynamically over the next 5 years and the creation of conditional share capital, allowing us to size future growth opportunities in an agile and flexible manner. The 2 instruments are standard for a listed company in Switzerland to increase long-term financial and strategic flexibility. The first 3 pillars of our financing strategy will ensure that PolyPeptide remains well-positioned to support midterm growth. The fourth pillar will allow PolyPeptide to respond agilely to new opportunities while maintaining a strong balance sheet for sustainable growth beyond 2028. With that, I now hand it back to Juan-José for the '25 guidance.

Thank you very much, Marc. And first of all, let me just talk about the priority for 2025. And PolyPeptide is sitting in a fundamentally better position than at the end of 2023. I mean we are in a rapidly growing market. This growth is anchored on the back of very strong clinical benefits for patients. We have less exposure to metabolics. As I mentioned before, we work with all key GLP-1 players with commercial projects under development pipeline, and we work with a good number of new entrants coming into this metabolic space. We are sitting with a very rich pipeline with 32 projects in phase III. We have a stronger operational performance, reflecting on a faster recovery than expected in terms of profitability. We have a capacity expansion plan, which is anchored on very large customer financing support. And as Marc outlined, we have financing that enable our ability to execute on our agenda. That basically means that the priority for us -- the #1 priority for us is to make sure that we continue our aggressive focus on execution, that we meet customer demand, that we support the phase III projects coming into commercialization, that we continue to advance our capacity expansion plan, and that we do it in a way which is profitable and continue to generate improvements in terms of our cash flow. Now in terms of our guidance, what you have here is our 2023 actuals, our 2024 actuals, the guidance for '25 and the outlook for 2028. So first of all, let me just -- let me just repeat, we are confirming our 2028 guidance. We find ourselves in a good position to double our revenues relative to 2023 and to have a profitability of approaching 25%. And we expect volatility in terms of the levels of CapEx spending. A lot will also be driven by new customer demand, but in general, we plan to spend between 15% to 20% of CapEx in revenues. For PolyPeptide to hit this guidance is very important because it will create significant shareholder value. We know that a company with that financial profile in 2028 and a strong growth momentum will have a market capitalization, which is several times higher than what it is today. And that's why we are so focused on hitting our 2028 guidance. Now our 2025 guidance shows a healthy evolution vis-a-vis this 2028 targets. In terms of revenue, we're targeting 10% to 20% growth. We are very thoughtful here with our revenue guidance because we have this all large capacity coming online. We are very pleased with our progress with the fact that we are in commercial production, but this is all a new technology, and we want to take a bit more time before taking a more assertive position regarding the revenue potential in 2025. In terms of our EBITDA margin, we plan to continue to improve our profitability year-over-year. Now how much our profitability will improve will be driven by, of course, what will be our final revenue growth in the year, plus what additional investments we will continue to do. But as you can imagine, the jump we have taken in 2024 put us in a very good position to ensure that we move towards our 2028 targets. And finally, in terms of CapEx, we expect to spend around 20% of revenues in CapEx. Now this guidance is at local currency and a constant exchange rate. So this is what we wanted to share with you. I have to say we are all very excited with our progress in 2024 and the opportunities we have ahead. Our plan is to make sure that every year, we are taking, again, healthy movement towards our guidance. We do not want to have a guidance that will be achieved on the last year of the guidance. But actually, we want to make sure that we execute on a plan where every year, we are moving towards it in a very sustainable way. And I would like to thank you all the PolyPeptide employees, some of which are listening to this call this morning for their efforts because all -- everything we're sharing today is really reflection of their hard work and professionalism and dedication. So with that, let's move to the Q&A.

[Operator Instructions] The first question comes from Charles Weston, RBC Europe.

I'll start with 3, please. First of all, on the EBITDA margin bands, you have caveated it by saying you're not going to provide any more detail other than improvements. But can you just discuss perhaps some of the quantification of the drivers here in terms of dilution from the new large-scale assets, operational mix or operational improvements and product mix? My second question is on the 2024 numbers. You guided in August to high single digits and you delivered 5%. So can you just explain what difference was there? And then lastly, you have indicated that you are exploring a new ERP system. So could you just talk about time lines and potential cost of that?

Thank you very much, Charles. And listen, let me talk about our revenue growth in 2024, and then Marc will talk about the main drivers of our EBITDA margin in 2025 and the ERP project. First of all, I think our revenue guidance, we had a mid-single-digit guidance. We upgraded to high single digits, and then we end up at 5.1%. And this is a very good example in terms of a small company with large capacity programs coming online and programs which are much larger than what they used to manage. And this really reflects basically one batch moving from 2024 to 2025. Right now, when you look at our revenue growth, it will always be a combination of the commercial demand of existing projects, phase III projects moving into commercialization and then, of course, our progress of the new projects coming in. And there is a lot of movements in terms of mix and so forth that we need to manage. And that's actually why we have taking a prudent approach in terms of our revenue guidance for 2025, and you have this to 20%. And basically, what we will do is on our first half results, then we will see the progress and then we will revise our guidance if appropriate. So Marc, do you want to talk about the EBITDA margin and the ERP?

Thank you, Charles for your questions. So looking at the EBITDA improvement we see for '25, there are a few building blocks I would like to refer to. So one point is definitely the growth we're expecting to have and we are guided towards '25. So that's one important building block. Secondly, and you referred to that, Charles, we will see also in '25, a negative impact on the margin by the ramp-up of the new assets. So in the bridge of '24, we showed there is the increase in FTEs and the impact on the costing. I think you can expect something similar in the future as well as we are ramping up the asset in Sweden. And as you know, there is a ramp-up of FTEs before the asset is coming online. And so yes, for '25, we expect here a similar impact. And in addition to that, I was referring to the significant improvements we have seen in '24 in operational excellence and operational performance. So what we saw in '24 is an improvement in regard of reduced scrap. We saw a better planning, which led to a higher utilization of our assets, which increased the absorption we have seen in the year. Last but not least, you were referring to the ERP project, which we started end of '24, and we are moving into '25. As you might know, we are looking into a cloud-based ERP system, which has impact from a financial perspective that you cannot capitalize the cost as you might have been able in the past. So the majority of the efforts we have put into this large project will impact our P&L in '25, '26. So you will see over the next 2 years an impact of this ERP project.

And of course, the benefits of the ERP program are quite significant. If you look at the opportunities we have in terms of improving our operational efficiency, inventory management, control systems for a company that is scaling rapidly, this ERP project is going to be a very attractive investment for us.

The next question comes from Laura Pfeifer, Octavian.

Maybe first on your sales guidance for this 10% to 20%. Can you please give us an idea what are the building blocks of this guidance? So how much growth do you expect from your base business and how much of commercial revenue is included from brand? And also related to that, is there a potential to overachieve on this target, for example, if you could sell the PPQ batches? And then the second question is more on the funding side. I think here you have shown on Slide 19, these 4 pillars for funding. And given that you received a lot of prepayments in 2024, I'm just wondering what is your assumption here for '25 customer support? And also, how should we think about your ability to take on more debt? And then also lastly, related to that, I just wanted to confirm if I understood it correctly that you said that for the midterm targets, the first 3 pillars are sufficient. So here, I'm just wondering under what circumstances you would consider equity?

Thank you, Laura and great to hear your voice. First of all, in terms of the sales guidance, I mean, that assume growth in the base and of course, the contribution of our new SPPS capacity in Belgium. Now for 2025, we are assuming the revenues of the PPQ campaign, and we are assuming, of course, the revenues from the commercial production, which is already undergoing. I would say what is driving the range is basically your assumptions regarding the ramp-up on this new capacity coming online. And again, we are being -- although we are reassured in terms of the progress and how advanced we are vis-a-vis our plans, we are being very thoughtful in terms of our guidance because this is all new capacity coming in. And we will have a chance in our first half results to refine our guidance. And yes, there could be -- there could always be a scenario where you do better than the guidance we are setting today. But at this point, please consider our revenue guidance, what we are sharing today. Now in terms of financing, first of all, I think the support in terms of customer financing is much larger than what we expected in 2023 and the imbalance between supply and demand continues going forward. And this is a very -- this is a revolving situation. And as you can imagine, with our last number of phase III projects, we are having multiple discussions with our customers regarding this. So you should expect that in 2025, there will be a healthy level in terms of customer support. And as Marc said, the combination between our own profitability and cash flow, this much larger customer financing support and our ability to expand our debt, these 3 combined allow us to hit our midterm guidance. In the case of equity, we want to have the flexibility to tap into equity over the next 5 years. But as you can imagine, if we hit our 2028 outlook, the valuation of our company is going to be much higher. So we are very careful in terms of the use of equity. And at this point, we -- that's not really a consideration. We think that as we continue to evolve, we continue to perform, then we will see a much higher valuation. And at some point, we might have a growth project to be able to tap into equity, but it will have to make sense for us, and that's certainly not today.

The next question comes from Konstantin Wiechert from Baader-Helvea.

Three questions from my side, if I may as well. Maybe first, starting with also maybe coming back on building blocks regarding your '25 EBITDA margin. Just maybe back on how have your contract renegotiations progressed over '24? I understand that your new CCO, Stéphane is going to have an important task -- it will be an important task for him as well. But I guess you already started to work on those contracts more intensely over '24. So should we expect some contribution from just repricing in '25 as well? Or could you share some outlook when we should see some of that? Then the second question would be on the announced Malmo expansion that you made. I'm just wondering whether you plan to place a similar 1.6 kiloliter reactor there or several smaller ones? And just on add-on -- adding on this, I think you said 100 new employees. Is that all you need for this plant to run it at full utilization? Or are you moving employees from other equipment to that one as well? And maybe the last one then, I've seen your comment on the Indian site expansion. And I think you already had plans in the past to move more products to the Indian site, but not many customers were willing to move. So could you help us understand what has changed in that regard? And what type of products you plan to move or produce in India? Is it mainly cosmetics or also pharma API?

Thank you very much, Konstantin, and great questions. Let me take the one regarding the contract negotiations, the Malmo expansion and the Indian site, and then Marc will talk about, again, your question on the EBITDA building blocks. First of all, I mean, we are very excited with Stéphane having joined as the Chief Commercial Officer. I mean he has deep peptide and commercial experience and of course, relationship with all the key players in the market. I mean the largest value in terms of our contract strategy is around the movement of our phase III pipeline into commercialization that basically drives much larger agreements with larger capacity expansions and financing support. And this is really the focus of Stéphane and the team. Now within that renegotiation, of course, pricing is always a factor. You are in an environment where there is an imbalance between supply and demand. So I think we have very healthy conversations with our customers. And whenever we see that there is a need to adjust pricing, we are basically doing it and getting again constructive feedback from our customers. In terms of the Malmo expansion, I mean, we are advancing our understanding regarding what is the optimal size of the equipment based on our proprietary technology. And of course, if you don't have advanced technology, then you are forced to do very large vessels for the upstream. If you have more advanced technology, again, you can have a similar or larger output with smaller vessels. So without disclosing exactly the size, you have to assume that this is really mid-scale size that has advanced technology and that will give us significant output. And that's really the focus for us going forward. I mean we are going to go from a market where there are 4 products to a market where there will be 30 products. So the worst thing you can do is to build large vessels that only work for a market, which is highly concentrated. Right now, what we are preparing is to make sure that by 2030, we have a setup that can provide significant flexibility across customers. And that will require an additional 100 new employees. Now in terms of the Indian site, I mean, again, the market is also changing and the expansion of the Indian site is mainly geared to support a pharmaceutical API production. Now Marc, do you want to comment on the building blocks on the EBITDA?

Yes, sure. Thanks, Konstantin, for asking that. The building blocks, as I mentioned earlier, are really around the growth, improving the efficiency in our base business in addition to the investment areas of ERP and innovation. One point I would like to add here is also the timing component of the improvement. So the guidance we gave for '28, we are on a very good track but it's also -- it's not a sprint, it's a journey. So some of the operational improvements we are implementing takes time, for example, getting the right project mix in the right site. And so therefore, we have the guidance for '28, which we are on a good way to hit.

The next question comes from Daniel Jelovcan from Zurcher Kantonalbank.

So the first question is still regarding the EBITDA margin guidance. I mean, can you still be a bit more specific? I understand the building blocks, et cetera. But let's say, if you achieve 10% growth or 20% best case, I mean, what can we expect then in terms of EBITDA margin? I know it's not easy. It depends on different factors. But if everything goes, let's say, according to your base scenario, what can we expect in terms of EBIT margin with this sales growth range? First question. Maybe I'll wait for the other one.

Thank you, Daniel. And listen, I appreciate the desire for more clarity. Again, at this point, please consider that every year, we are going to plan to improve our EBITDA versus the previous year. Of course, you have a strong revenue growth with a wide range. And this is really depends on, again, how quickly are we ramping up the new capacity and the other programs. So unfortunately, we cannot be more specific at this point. But as Marc said, this is really going to be a journey where every year, we're improving our profitability towards this 2028 guidance. And I guess what I can promise you is that on our first half results, you are going to get more information to be able to get a better sense of what will be our EBITDA performance in 2025.

Yes. I mean I understood the trajectory, but I mean, current consensus is at 18.5% according to your own collection. I mean, that seems too high, obviously. Just a remark or maybe you can give some comments on that.

Daniel, I think according to our own consensus EBITDA margin expectation for 2025 is around 13%, not 18%. But we can take it after the call.

Do you have any other questions, Daniel?

Yes, sorry. The other question is, you mentioned you are active in 65 commercial projects, so one more in '24. Can you elaborate a bit on -- are those mostly single supplier contracts? It's clear that the big contracts are dual sourcing, et cetera. But for the rest, I guess, it must be the case that you are the single supplier. Is that the correct assumption?

Yes. Thank you for the question. And I think the way you describe it is more or less how it is. If this project tends to have -- if they are smaller in nature, then they tend to be sole source supplier. If they are large in nature, then they tend to be dual source or multiple source suppliers. And this is another very important consideration. One big advantage of PolyPeptide is that we are heavily engaged during the development phases. That basically means that when we move into commercialization, we know in the case of large commercial contracts that we are going to be one of them. And that's why this is not really a matter of outperforming competitors, but making sure that in all the key commercial projects that you are participating and again, that you are well diversified, that you have a good presence in terms of customer base and therapeutic area. But that's more or less where we are. We increased our number of commercial projects, and you should expect that, that number will continue to increase going forward now.

Okay. And the last question, the phasing between the 2 semesters now. I mean, it's obvious that only in absolute terms, the second half is always much stronger, and that's obviously also should be the case in '25. But in terms of growth momentum, I mean, you had a low base from the first half '24, but you still are in the ramp-up this first semester. So it's quite difficult for an outsider to model the semesters, but my suspicion is that the first half could still be single digit or I'm -- maybe I'm totally wrong here with this assessment, then it's more back-end loaded in the second half. That's the last question.

Yes. I mean at this point, please assume that similar phasing that we have had in previous years. And I think it's not that dissimilar to what you're seeing with competitors where the second half is larger than the first half.

The next question comes from Tanya Hansalik, UBS.

I had kind of a follow-up on the financing. Can you provide us a bridge to your midterm targets in terms of capital requirements, cash flow generation in-house, prepayments, debt and then as equity you said, is not included in the midterm guidance. And then the second question is, given your large revenue guidance range, could you give some more color on the specific risks you see in the ramp-up of capacity in Belgium for this large GLP customer? And then third, another question on the capacity in India. Do you plan to participate in first-generation GLPs going off patent? Is it correct to understand that this could be for generic GLPs? And could you maybe help quantify the contribution you expect medium term from this?

Thank you very much, Tanya. And let me talk about your question regarding the risk on this new capacity in India and then Marc will comment on your question again regarding this financing block towards 2028. First of all, the risk profile at this point is very low. As you can imagine, once you finish the PPQ campaign and you are already in commercial production, there is less certainty on whether the equipment is going to work and so forth. This is all about having a careful ramp-up towards the maximum capacity of this new equipment. So we're talking about low level of risk. But again, we are very thoughtful. And of course, because of the size and depending on how much you're able to produce and invoice within a particular year, you end up getting a different revenue growth. In terms of India, I mean, we, of course, produce for branded players and for generics. But this expansion in India is mainly targeting pharmaceutical API for branded players. And I mean, again, we don't provide the relative revenues by site. But I have to say the doubling of production -- so the contribution of the new capacity in Belgium plus the doubling of production in Malmo and Strasbourg and India put us in a very healthy situation relative to our 2028 guidance. In terms of financing, Marc, do you want to comment on?

Yes, sure. So thank you for the follow-up question, Tanya. The current CapEx plan that we have included in the guidance is our best estimate of the expected investment, which we require to achieve this year. And for 2028 guidance, we were talking about a 15% to 20% increase -- sorry, 15% to 20% CapEx per year. So that's still what we're aiming for. Any incremental CapEx is, of course, based on specific projects, which we would analyze specifically incrementally. So -- but for the midterm CapEx we are well situated with the first 3 pillars we mentioned in the financing strategy.

The next question is a follow-up from Charles Weston, RBC Europe.

Two follow-ups on other questions, please. First of all, will the Belgium site be at full utilization by the end of 2025? And would you expect this quite fast ramp profile for the other facilities you're investing in? And secondly, just on the ERP system, you said that it will be all expensed to the P&L. Will they be taken as exceptional costs or be as part of your core EBITDA? And can you give us a sense of the size of those investments, please?

Thank you very much, Charles. And listen, I think when you have new capacity with advanced technology coming online, it's important rather than focusing on the speed of the scale-up is to focus on making sure that you have everything under control and that you're able to do it in a thoughtful phasing. So again, based on our plans, we will ramp up through 2025, and we will start 2026 with levels of capacity utilization more around the maximum. And the same plan is for Strasbourg as it is for Malmo. In terms of the ERP project, Marc?

So for the ERP project, I said that the cost will be reflected in the P&L, and they are included in the EBITDA guidance we gave for '25. Please consider that we are at an early stage of this project, and we have with the growth projects, the ERP projects, significant projects ongoing at the same time. So to our best knowledge, the full cost for the ERP project for this year, as I said, are included in the current guidance.

There are no more questions on the telephone queue, but there is one question in the chat function. It's from [ Matt Erickson ] and the question is, how do you anticipate the potential U.S. tariffs will impact your operations? Will producing in the U.S. be able to offset the impact?

Yes. Thank you for the question. And basically, our contracts -- I mean, basically, all of our contracts insulate us from the impact on tariffs. And if you look at our production output, even if it is to serve markets like the U.S. is going to basically European-based logistic setup for our customers. And we have the flexibility as we have also U.S. infrastructure. But the peptides as a percentage of the total cost of a product is very, very small. The decision of our customers will not be driven by tariff. Really, at this point, it's all about producing at quality and having enough supply and making sure they can secure that to meet their own revenue aspirations and that's really the focus in terms of tariffs.

I think there are no more questions in the chat and none on the phone line. So Juan-José, do you want to do a short closing?

Yes. I mean, thank you very much for joining us this morning and I have to say for the quality of the questions. We are very excited in terms of where we are as we finish 2024. We have one of the most attractive markets in the CDMO space. The company is very well positioned, and our focus is on execution, on making sure that every 6 months, every year, we are coming back and sharing with you the progress against our 2028 midterm guidance. So thank you very much, and enjoy the rest of the day.

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