Siegfried Holding AG (SFZN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the presentation of the half year results of the Siegfried Group. I'm pleased to be your host today. My name is Peter Gehler. I'm together with our Chief Executive Officer, Wolfgang Wienand; and with Reto Suter, our Chief Financial Officer. We proceed in 2 sections. First, we hear and see the presentation of the half year results. And in the second part, we will walk through some slides concerning strategy and strategic intent. If you have questions, please use the form which you can find at the link which you received yesterday. Now let's start. Please, Wolfgang.

Yes. Thank you very much, Peter, for the introduction and also a warm welcome from my side. We decided to actually, in contrast to the past, go for webcast also for the half year earnings based on the positive feedback that we received after our webcast on the full year earnings 2020, and it's actually great to also communicate visually not only on the phone. So -- and as always, we try to actually indicate in the titles of our presentation already where the presentation might be going. And this time, it is further on track, Siegfried increases sales and earnings in the first half 2021. Further on track, of course, means that we look at 6 months full of important events and steps for Siegfried, but also a significant challenge that we, as a Siegfried global team, had to overcome. And actually, key message of today is we have been able to master our challenges and deliver growth in terms of sales and earnings. So before we dive deeper into the presentation, please read the safe harbor statement carefully in terms of forward-looking statements that either myself, Reto or Peter might make throughout the presentation. So a brief look at the agenda. It's going to be me, first, talking about the status of the company and providing the outlook going forward. Then I will hand over to Reto, who will share his view on financials, facts and figures. Then it's going to be me again, sharing my perspective on what we did in the 6 months and what you can expect from us going forward, before we then enter into the Q&A sessions where we will be happy to actually receive questions and provide useful answers for your information. So executive summary. Further on track in the first half 2021. Siegfried delivers growth on all levels while consistently implementing its strategy and mastering short-term challenges. Short-term challenge obviously relates to the cyberattack to which we fell victim in May and June and which actually required, especially our IT team, but in the end, all of us, many, many more colleagues on our sites, to actually stand up to that specific challenge and overcome the shutdown, which for most of the network actually brought all our operations to a full stop. I'm actually happy to report that due to very stringent, efficient and clear crisis management, actually huge effort of many, many people of Siegfried, we have been able to shorten the time of the shutdown to the degree possible and actually get back on our feet very fast and limit the impact on our business. And the outcome you see here, net sales of CHF 467 million, which is up more than 20% in Swiss francs and almost 20% in local currencies. All that, we have been able to translate into a core EBITDA [ above ] CHF 80 million, which is up almost 40%, and a core EBITDA margin of 17.3% as compared to 15% in the first half of 2020. And not only a significant increase of EBITDA, but also in free cash flow. Obviously, a very important figure for all of you, but also for us as a company in terms of our ability to further invest into growth to be able to also, in the future, make use of the many opportunities available to a company like Siegfried in the CDMO market. This cash flow figure means more than doubling the cash flow that we earned in the first half 2020. Now a few highlights about which I will talk in more detail later in the presentation. First and foremost, very important good news, integration and transformation of the 2 new Spanish manufacturing sites acquired from Novartis in January 2021 is well on track due to actually a great effort of our integration team and especially also of the new Spanish colleagues who actually have proven to be a great cultural fit and are able to actually work with high commitment to become an integral part of the Siegfried family. Second highlight is the successful start of commercial aseptic filling and finishing of the BioNTech COVID vaccine on our Hameln site in Northern Germany. Based on a capacity expansion that the team there, together with the support of BioNTech and many other colleagues from the Siegfried network and also suppliers, obviously, have been able to execute in record time. The Novavax COVID vaccine is expected to follow in the second half of this year. As always, in the past and in order to prepare ourselves for future growth, we continue to organically invest in capacities, technologies and people throughout the whole network in order to be ready for more business to come. We continue to have appetite for value-accretive external growth through M&A as part of our corporate strategy, EVOLVE, which will be a part of my presentation later on. And on the financing side, also good news. We had our successful debut with the issuance of a listed senior bonds of CHF 200 million in May 2021. Last but not least, we continued our ESG journey and decided to go for quantitative, measurable, transparent targets in the field of energy and CO2 carbon footprint and define a target, an ambitious one actually, for 2030 and also committed to the net zero greenhouse gas emission initiative by 2050. All this culminates in our -- actually the confirmation of our outlook that we presented to you in our February earnings conference, which is significant jump in sales to well beyond CHF 1 billion with profitability further expanding towards target range of 20% core EBITDA margin with a positive midterm outlook beyond 2021. And this is when I hand over to Reto Suter, our CFO.

Thank you very much, Wolfgang. And also from my end, dear, ladies and gentlemen, a warm welcome. What you see here on this slide is the top line perspective where we report in aggregate a substantial growth of 20.3% versus the prior period. Now, of course, this includes a substantial acquisition effect on the Drug Products side as these numbers now include the revenues from our 2 new pharmaceutical manufacturing plants acquired at the beginning of this year. Then, as reported, also the cyberattack at the end of May, early June has left its traces. The Drug Substances business was more affected as more complex and with a more pronounced lumpiness in revenue recognition especially in the month of May and June. Also, on the Drug Products side, we had the 2 Spanish sites which had not been affected at all by the attack. We are, however, confident that both business lines will contribute to organic growth in the full year of 2021. Now on the currency side, and you see that we had a slight tailwind in the first 6 months with the U.S. dollar depreciating and the euro appreciating against the Swiss franc. As the 2 new Spanish sites invoice in euros, we now have more than 50% of our revenues in that currency, balancing actually quite perfectly our cost structure. Then as a consequence, we now report 59% of our revenues in Drug Substances. Last period, 74%, and 41% in DP as this is prior to the vaccines business kicking in, in the second half of this year. Now this is the bridge between reported EBITDA under the Swiss GAAP FER framework and our core numbers. Core numbers are a good measure for the group's performance as they very transparently split out extraordinary facts, and we also use these core measures for internal measurement of performance. Now most of the adjustment that you see on this slide have already been included last year with only one item specific and new to this first half of 2021. Let's quickly run through it, and I will only comment on the adjustments, so in dark blue color. One repeating adjustment relates to our foreign pension plans. It's the reclassification of the current net interest from the operating expenses part down to the financial expenses. At year-end, we will then also consider any change in the technical interest rate and will adjust for the noncash P&L effect caused by such change in the interest rate. Now the one adjustment which is specific to this period is the adjustment for the costs incurred in connection with the integration of the 2 new sites in Spain, a total of CHF 2.7 million that we split out. Last but not least, we have reduced tax expenses in an amount of CHF 0.9 million from the reversal of the step-up on the Swiss tax law and have also included the additional taxes for the core adjustment, minus CHF 0.3 million. On this slide, you see the core income statement. And you will see that we have been able to increase gross profit quite substantially also on a relative basis, and this is despite the cyberattack. The SG&A has increased especially in the R&D area and admin. For R&D, this is due to the fact that we have included 2 new sites into our network, and the largest part of the cost related to the cyberattack have actually been recorded in the cost of goods sold as well as in the admin expenses. On the R&D expenses, they are now at around 4% of sales. This is where we were for the full year of 2020 and also where we actually should end up for the full year of 2021. Now on to my favorite and actually very important financial statement. Firstly, you will have noticed on the formal level that we have now also in the half year report presented the long form of the cash flow statement. This has been at the request from our valued new bondholders, and we have been very happy to comply with that request. I'm also very happy to report to you that we had a strong first half year in terms of cash generation with increases from both the raw cash generation due to higher sales and also higher profitability, but also very favorable developments in the net working capital area, which includes a very strong decrease in accounts receivable and extension in accounts payable. However, we do have observed the buildup of inventories, which is on the one hand side related to the inclusion of the 2 Spanish sites into our network, close to CHF 40 million, but partially also related to production delays caused by the cyberattack. Then as already at the end of 2020, we have continued to be able to get customers to make prepayments. So overall, if you have a look at the net working capital consumption relative to sales, you will see a significant decrease in this number as a percentage of sales. which is a result of our efforts, but also caused by a mix effect, more DP business, which are the cash cycles. On investing activities, we have deployed CHF 62 million in the first 6 months, including substantial investments at our site in Hameln which relates to the vaccines business. Cash flow from financing activities, that includes the placement of the hybrid bond -- of the public bond, CHF 200 million, and the payback of money owed onto the revolving credit facility. I will touch upon that in just a second. Then I would like to make 2 comments related to the financial statements. Firstly, as laid out in note 10 of the half year report, subsequent to period end, we have detected fraudulent payments at a subsidiary unrelated to the cyberattack. We have immediately launched an internal investigation, which is supported by external specialists and overseen by our Board of Directors, which is currently ongoing. The damage is expected to be in the high single-digit to low double-digit Swiss franc million range. We nevertheless continue to be confident to meet our 2021 targets under all scenarios. We very much regret this incident. We are investigating the matter, and we will learn and grow from it. Secondly, please note that the purchase price allocation and also the final determination of the purchase price will be included in the financial report for the full year of 2021. So these numbers aren't final yet. You will, however, see in my balance sheet that we have acquired quite a bit of fixed assets. This is now a picture that looks very similar to the last periods. We have improved again the numbers on all levels from gross profit to core EBITDA, to core EBITDA and to core net profit. And we have done it despite the headwinds of various short-term challenges. This is a clear demonstration of the resilience of our business model. Now on to the capital allocation framework. I have shown this slide before, and we actually use it these days quite a lot also internally as it describes clearly the levers available to us ultimately increasing the capital returns for our shareholders. Next to all the efforts that we do on the net working capital side that I have just described to you, our focus is also on the investing side. Here, we need to make sure that the marginal Swiss franc finds its way to the highest yielding opportunity be that internally, that's then topic 1; or externally, topic 2. At the same time, we also need to find ways to swell our assets to the max extent possible, and Wolfgang will speak about these issues in just a minute. Just a few remarks now on my end on topic 3, the optimizing of the funding structure, where we have done some further work based on what we have done so far in further optimizing our funding structure. In May '21, we have done a debut on the Swiss debt capital market by successfully placing senior bonds for CHF 200 million at very attractive conditions, substantially decreasing funding costs over the years to come and increasing cash generation. The proceeds will be used for an early refinancing of the second hybrid bond, which will come to a call date in October '21 and also other general corporate purposes. It is clear, it's our intention today to call and redeem also the second hybrid bond in full. And with that, I will now hand over back to Wolfgang.

Yes. Thank you very much, Reto, for this. And it's now going to be me guiding you through our thinking when it comes to strategy, also where we want to take our company and what we did to further implement our strategy in the reporting period. So overall, I think we can say that our corporate strategy, EVOLVE, is very well on track. We continue to drive organic and external growth by executing a set of independent strategic initiatives. The transaction -- the acquisition of the 2 Novartis sites in Spain, they used to be an action item in the second field of activity, acquisitions in Drug Products. And they are now becoming -- or are now part of the Siegfried network and our investment platform, development platform to actually create new business potential and revenues. So let's start with the first area of activity, investments in technology base and in the existing network. This is about strengthening our capabilities and technology base and adding capacities in the small molecule manufacturing space. We also, a few years ago, decided to organically expand our activities into the large molecules area in the field of aseptic filling and finishing, especially on our site in Hameln but also on our Irvine site. And actually, these investments have been the basis and have provided us the chance to be ready to take on the vaccine business from BioNTech last year because technologically, that, of course, is a very demanding process and not easy to implement, and I will talk about that in a bit. And we also continue to invest into capacities, debottlenecking first, of course, and release of hidden capacity because that's a cheaper way to add capacity. But we also need to add and did add new capacity on our existing sites. The other fields are external options, acquisitions in the Drug Products area and/or acquisitions in the Drug Substances area, and both still hold true also in the future. We continue to be convinced that also additional capacities in different dosage forms in the Drug Products areas, different technologies, but specifically in the area of sterile aseptic filling and finishing in Europe and U.S. would be great additions to our network and would add significant business potential. So we continue to look for opportunities in that space. The same holds true also for acquisitions in the Drug Substances area. Today, already, we have one of the largest CDMO small molecule manufacturing networks in the world and a very competitive one actually. But also here, adding capacity, adding business, adding sites which are competitive and attractive to Siegfried remains an attractive option for our strategy execution. With the biologics drug products business growing fast based on the activities over the past years and especially with the vaccines business in Hameln, we still believe that we as Siegfried, as one of the leading CDMOs in the space, would have the right to play and offer our integrated services not only in the Drug Substances small molecule area and Drug Products small molecule area, but also offer integrated services in the area of biologics. With our presence in the Drug Products area, the backward integration could very much makes sense for us and very much depends on what targets will become available at what valuation. We all know that this area offers only limited opportunities. It's typically rather high valuations, but we continue to also look in that space because it would be a great addition to Siegfried. So this is kind of a strategic menu based on which we operate and execute our strategy, EVOLVE. And I will now guide you through some specific activities which especially took place in the first area of activity here with regard to investments into our existing network. So actually, on all 3 areas, Drug Substances network, Drug Products network and also on our corporate network, we made important investments and introduced important improvements. First of all, very quickly and I will go into more detail later on, a highly potent micronization and particle technology in Evionnaz, capacity increase in Zofingen and continuous improvement essentially on all our sites when it comes to debottlenecking and adding capacity. Drug Products network. Here, the focus clearly is to integrate the manufacturing side. And actually, these integration efforts are very well on track, and we continue to invest into systems and processes. And very specifically, we started a fast-track project to establish a development Center of Excellence in Barcelona focusing on different technologies available on both sites, which is OSD -- highly potent OSD manufacturing ophthalmic -- sterile ophthalmics and other technologies. So that's going to be a very important milestone for the 2 sites, but also for the whole Siegfried product network in order to enable us to take on significant new business. The expansion of the fill/finish capacity in Hameln for the vaccine manufacturer, I already mentioned before, and we'll come back to that in a minute. The corporate network is now also playing on a larger base, and we continue to invest into our people. The Siegfried Academy, which was launched in 2019, is very well received by our people. And it's not focused on a small population of managers or senior managers only, but actually is available to almost everyone within the Siegfried family, more targeted towards leadership and enabling our people to actually also operate on a global scale in a very complex network with different cultures, different technologies, different management styles. We launched our leadership program, LEAP, this summer, which was actually well received and will help to further develop our capabilities to operate a strongly growing company. Then it's also clear that a global network now offers even more opportunities to globalize and to concentrate shared services at the best place, best place being in terms of organizational synergies or capabilities, availability of talent or just simply costs. And that's an exercise which is already ongoing and will continue over the next 1 or 2 years. Driving ESG initiatives. ESG has been important for Siegfried in the past, of course, already, and I will talk about that as well. But we made important decisions in the recent past in terms of setting up specific quantitative targets, and they're controlling and reporting. But let's start with the significant investment in the new development Center of Excellence in Barcelona to support our new business development for the local capacities but also for the global Drug Products network. So some highlights of the investment. It's going to be, I mean, a fast-track execution to establish new labs, but not only small-scale activities in the laboratories but also GMP pilot facilities for, let's say, small-scale commercial manufacturing. And fast track, in our case, means that this Center of Excellence will be operational in the third quarter of 2022 already and will then be available to support our business development sales activities to take on new business, especially in our new Spanish sites starting in the year 2023 and 2024. Total investment is expected to be up to CHF 15 million. So in terms of services, it's going to be very comprehensive: formulation development, pilot manufacturing and of course, analytical development. And we very much built that Center of Excellence based on local talent already available on the 2 sites and hiring new talent. Second of all, an overview of other important investments and activities in the network. Essentially, the mRNA COVID vaccine filling in Hameln, of course, is a highlight. And that is based on cooperation and supply agreement for large-scale aseptic filling, finishing and packaging of Comirnaty, the BioNTech vaccine, and the contracts related to that, that we signed in September last year. It's going to last until end of 2020, but we believe that there's a good chance to actually expand the cooperation with BioNTech beyond that date. The project has been executed in record time, 8, 9 months only, for an exercise which usually takes a company 18 months or so. But there was no alternative. It had to be fast, and the team in Hameln actually has been very fast. And I think we all, the team in Hameln but also the whole Siegfried group, the whole Siegfried family, can be actually very proud of what we have achieved together in Hameln. The production, and I'm very happy to be able to report on that as well, the production of commercial volumes actually started successfully in the meantime. The second investment is into a differentiated technology, kind of a bridging technology between Drug Substances and Drug Products. And it's about particle technology and micronization as an important technology to actually fine-tune the physical properties of an API, which then is helping the bioavailability of such ingredient, which is important for the efficacy -- sorry, efficiency of a drug. So in here, we are now able, after this significant investment, to actually offer large-scale commercial services not only for micronization but even for micronization of highly potent APIs, which is truly differentiating. So we also added capacity, I mean, throughout our network. And I just want to highlight one major exercise on our Zofingen site in Switzerland, which was the revamping of an asset to really rapidly get access to additional capacity. The first phase ended in December 2020 after replacing and upgrading utilities and infrastructure. And currently, the second phase is ongoing by replacing reactors so that we are fully operational with this additional capacity in Zofingen in the third quarter of 2021. So if you look at the individual activities here, I believe you can very well see a well-balanced area, well-balanced number of investments within the global network providing for both our ability to capture short-term opportunities like the vaccine business in Hameln, but also to create readiness for continued mid- to long-term profitable growth in an attractive market environment with Siegfried being one of the leaders in the space. Siegfried's commitment to sustainability. This is actually already today deeply embedded in our corporate DNA and also already acknowledged by leading reporting standards. But let's briefly reflect on the term sustainability. Sustainability is -- since I took over as CEO and actually spend a lot of time with my executive management team and also other senior managers on defining what the Siegfried vision is supposed to be, what our mission as a company, as a global team actually is. But also deciding, getting clarity on what are the dos and don'ts when operating in our business, when running Siegfried as a company, so providing the mental framework, the values, core values for our activities. And sustainability has already been and is since then 1 of our 5 core values. However, we take a pretty broad approach when thinking about sustainability. This is not only about ecological footprint, but it's also about many other dimensions where we seek for sustainable decisions and sustainable actions. And it all culminates in the sentence that we already, at that time, has stated. Siegfried is here not only for today or tomorrow, but for the next 150 years. Why 150 years? Siegfried has been founded in 1873, which means that in 2 years from now, we will be celebrating the 150th anniversary of the company. And we consider it to be our obligation to actually run the company in a way and make decisions in a way that not only success today or tomorrow is available to us, but also in the long run. And if the time comes, we want to hand over a company which is in a better state than at the time when we took it over and enable the next generation of leaders to actually run the company for many more decades in the future. So Siegfried started its ESG journey, of course, not only this year but already years ago and stepwise build out our activities, including controlling and reporting, and our first sustainability report was actually issued in 2016 already. But it was this year when we decided to actually structure, streamline, organize all activities in that space by implementing a cross-functional ESG governance Board, which is sponsored by myself as the CEO of the company and supervised by our Board of Directors, because it's a very important project and close to the heart of our directors as well. So briefly on reporting. Our reporting follows our actions, first of all, of course, and is geared to the standards of internationally recognized accepted guidelines: first of all, Sustainable Development Goals of the United Nations; and also, the Global Reporting Initiative, GRI. This is in order to enable you to assess our performance in terms of ESG to make it transparent and comparable with what other companies and other institutions actually do. We have been successful already with our activities in that field and have been rated with an A grade in the MSCI ESG rating and have been granted Prime Status by Institutional Shareholder Services, ISS, and thus among the best 10% of all life science companies certified by ISS. But of course, that's not enough, which is why we decided to be more specific, be more transparent and actually set transparent, quantitative, measurable targets in one very important area, which is the carbon footprint of Siegfried as a manufacturing company making use of environmental resources, of course. And here, we actually decided to go for a twofold approach. First of all, looking at -- looking 9 or 10 years ahead and decided to actually commit to reducing our CO2 footprint in terms of CO2 equivalents by 50% indexed against -- sorry, normalized against revenues until the year 2030 compared to what we have been consuming and emitting in the year 2020. So a 50% reduction, which is a pretty ambitious target, I believe. However, we have defined specific measures in terms of where is our energy coming from, how do we build new facilities, how we run infrastructure. And all that makes us very optimistic that we will be able to live up to this very ambitious target of reducing our CO2 footprint by 50% normalized against revenues over the next 9 years by 2030. An overarching commitment beyond 2030 is that we, as a company, as a group, commit to implement measures to achieve the 2050 greenhouse gas emission net zero goal to limit global warming to 1.5 degree Celsius. So a midterm target which is very transparent, quantitative, measurable until 2030 and a target to actually reach a net zero goal by 2050 in terms of greenhouse gas emissions. So that's actually the takeaway slide that most of you who are following us since quite some time already know. It remains Siegfried's ambition to consistently deliver profitable growth and invest in optimization and the expansion of the global network. So on the left-hand side, we see Siegfried as it has been in 2020 with revenues of CHF 845 million. On the right-hand side, we see where we want to take our company, the Siegfried vision. We want to further evolve as a global leader in the CDMO space. Today, we are probably #5 in that space, so already part member of the leading pack. We clearly want to stay there, but we also want to further evolve as a leading CDMO in that market. We want to further evolve as the most trusted partner of the pharmaceutical industry. We want to build the strongest team running the most competitive network. We want to have critical size in all segments in which we operate. And we want to be able to offer to our customers essentially all relevant chemical, biological, pharmaceutical technologies to solve their problems. What is the way? I mean how do we get from left to right? It actually is the corporate strategy EVOLVE, which is divided into 2 parts. The first part is kind of the base case of Siegfried: robust organic growth through investments. Organic growth in line with the CDMO market, with the ambition to outgrow. In the next few years, you can expect some fluctuations from variability in the COVID vaccine demand and the phasing of old versus new business in our new sites in Barcelona. On the way from left to right, we will stepwise expand our profitability in terms of core EBITDA margin into the 20% range. And we will do that through continued investments in technologies, people, capacity and a deeply integrated global network. On top of that base case, we continue to also go after external growth options, so accelerated growth through M&A as just proven by the acquisition of the 2 Novartis sites. So value-accretive acquisitions in core areas, but also considering acquisitive entry to new areas within the CDMO business model. All that leads to the confirmation of our outlook for 2021 as we have provided it in our February full year earnings conference already, which is a significant jump in sales to well beyond CHF 1 billion with profitability further expanding towards the target range of 20% core EBITDA margin and an overall positive midterm outlook for the company. This is what we wanted to share with you today, and we will now be happy to actually take questions and provide answers for them.

Thank you, Wolfgang. Thank you, Reto. So we are ready for the Q&A session. I start with questions from Patrick Wood. First question, revenue contribution from the 2 Novartis facilities in H1. I think, Reto, it's a question for you.

Yes. No, I'm very happy to answer that, and that's obviously a question which we get quite a lot. I mean, firstly, I would like to draw your attention to the financial report of 2020 where we have described the most important characteristics of the 2 newly acquired site in note 27 of the financial report where we have said that we expect revenues from these 2 sites to be in the region of about EUR 150 million and that we will take over 1,000 people. Other than that, we do not comment on the performance of individual sites for a reason. We run the company as a network. However, I think what is fair to say at this point is that these 2 sites, they deliver according to expectation. We did not experience any negative surprises after the takeover comparing to what we have seen in the diligence phase. The sites are performing consistently. And overall, they are strong addition to the Siegfried networks in terms of capacity, technology and also people.

And Patrick would like to know a sense for potential contribution from the 2 vaccine projects in H2.

Yes. I mean we have provided transparency on the revenue volume for the BioNTech project, and let me just reiterate that. We have a contract which will come to a close with, obviously, an expectation for -- to go beyond that at the end of 2022. And we have said that the volume of the contract would be a high double-digit million Swiss franc number. We have also said that we would start producing mid this year, and we have done so, as just reported. And then the whole volume spreads across these 3 semesters and is a bit backloaded into 2022. That's what I can say about the vaccine's contribution at this point.

Then Patrick asks, any further details on the fraud reported after balance sheet date? How confident that the issue isn't bigger? I think, Wolfgang, you will answer this question.

Yes. Patrick, thanks for the questions. I mean we detected the fraud event only a few days ago and immediately took all necessary internal and external steps to protect the interest of Siegfried and our shareholders, obviously. By doing so, we have been able to fully contain the issue. We immediately established a task force led by our Chairman of the Board, further comprising our Head of the Audit Committee and myself and immediately kicked off an internal investigation conducted by reputable external forensic auditors, which is currently still ongoing. We will deal with this challenge as we generally deal with challenges at Siegfried, be it positive ones, of which we had quite a number recently, or less positive one like this. First, fact-finding to understand what exactly happened, analysis of the findings, followed by reflection on ourselves of root causes and why our internal procedures, which we, of course, have, didn't suffice in this case, and eventually, definition and execution of all measures which need to be implemented for the future to improve. So all in all, we are very confident that this is an isolated, one-off event with no effect on ongoing operations, and we expect no impact on our ability to achieve our full year targets, which is why we confirmed our positive guidance for the full year. In terms of disclosure, the Board, together with executive management, has assessed all disclosure obligations and options. And we concluded to be open and transparent, as we have always been in the past, and to share our current assessment of the situation in the half year report as well as in the results presentation we just gave to you and, of course, answering your questions here. With the internal investigation currently ongoing, we cannot, for example, identify place or people involved yet or provide actually any further details beyond what we just shared with you on this.

Thank you. Then last question, a nice gross margin step-up despite the cyberattack and acquired facilities at lower utilization than group average. Is this a function of mix or something else? I don't know, Reto...

Yes. No, I mean, this is a general effect of margin progression that we have been observing actually over the past few result cycles. And obviously, it is indeed the case that the cyberattack there has hindered us a bit in this margin progression. As you know, most of the additional costs I have just described have been absorbed in COGS and actually in admin expenses.

Okay. And we have further questions from [indiscernible]. Is the EBITDA margin in the second half year higher than in the first half year?

Yes. Maybe if I may answer, [ Seville ]. Thanks very much for this interesting question. There's obviously one general explanation available, which is true for every year, and you have been following Siegfried for quite a number of years so you know that. And historically, the second half of the year is always stronger than the first, and this is true both in terms of revenue as well as profitability. And the reason for that is mostly based on the longer production cycles that we have in the Drug Substances part of our business where revenue and also importantly, the margin are in most cases only recognized at the end when the product is shipped to the customer. So that's the general explanation that margin usually is higher in the second half than in the first. And now, 2021 is a bit of a special animal. So there are 3 additional points to be mentioned here. Obviously, the one is that the H1 numbers have been affected by the effects of the cyberattack, which included unplanned expenses for external providers which have supported us in this difficult situation, and these expenses will obviously not reoccur in H2 2021. Second element is that also in the Drug Substances area, we had delays from H1 into H2, meaning profit recognition in H2 and not in H1. And then thirdly, and that's [ then the last point ], the vast majority of the vaccines business will kick in only in the second half of 2021.

And maybe adding to that, I mean, you can see it also in inventory development, right? So that is actually not only but also due to the delay that we have seen in May and June, but will, of course, translate into revenues in the second half of this year.

Okay. Next question is the FX effect expected in the second half year. Reto?

Well, obviously, I have to take certain assumption as regards how the euro and the U.S. dollar will progress against the Swiss. And if we assume that actually the current [ forward ] rates are a good proxy for that, we expect the FX not to be totally different from what it is at the half year. Let me just reiterate that with the inclusion of the 2 Spanish sites which invoice in euro, the FX situation has actually improved as we are now quite perfectly balanced between revenue and the corresponding cost in the respective currencies.

Thank you. Then [indiscernible] asks, how many other COVID vaccines beside BioNTech and Novavax will be produced by Siegfried? When will the Novavax production start? That's rather 2 questions. [indiscernible]

Yes, I'll take this one. I mean we expect the Novavax vaccine manufacturing to start actually within the second half of this year. However, we all know, while this seems to be a great vaccine, I think for the sake of completeness, we need to state that approval is not yet there by all global health authorities. But that is going to happen, the manufacturing in the second half of this year, subject to approval. In terms of new business, of course, the fact that we, as a company, can live up to a challenge like building up capacity within record time to absorb volumes also for vaccine made the rounds. And we, of course, talk to other people as well, but there's nothing to be reported yet. Well, we actually usually anyway don't really report on individual projects or products and customers, but that's what -- where we are today.

And then she asks, are there any acquisitions in Siegfried's M&A pipeline?

Yes. I think our [ expanded ] answer to that is, actually, while the acquisition of the 2 Spanish manufacturing sites from Novartis, actually, I believe, and I think we start to see that, is a great addition to the company and there's a lot of work going on for integration, transformation, we, of course, remain to have appetite to not only organically but also externally grow by acquiring other businesses, sites and capacities. And the M&A team is not -- I didn't send them home actually, and they continue to look for suitable targets. But as in the past, we announce an acquisition as soon as we are sure that it's going to happen and the contract is signed. So nothing to report on this actually right now. Focus clearly is on integration and transformation of the 2 sites right now.

Thank you. Then [ Henrietta Rumberger ] asks in German. [Foreign Language]

Well, what we can say is that the vaccines business will kick in, in H2, which will obviously lead to more Drug Products revenue. However, we will not provide guidance on how the exact split will ultimately be for the full year of 2021.

Okay. Thank you. Then we have a question from Barbora Blaha, again, to the BioNTech vaccine. What is your capacity utilization of your dedicated line? And should there be a third booster shot required, do you have free capacity until end of '22 to take further orders in this vaccine business?

Barbora, actually a great question and pretty close to what we are working on every day. However, I mean, we don't provide specific capacities or volumes. We are even not allowed to do so by contract. However, the partnership with BioNTech is very important for us right now and obviously next year. And we, of course, try to extend that partnership beyond 2022, be it for further vaccine manufacturing or other products of this, I mean, highly impressive company in a way. And we clearly see that as a strategic partnership that we would like to extend in terms of time and volume.