Siegfried Holding AG (SFZN) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of our half year results 2023. With me today, again, Wolfgang Wienand, our CEO; and Reto Suter, our CFO. We will first start with a summary of the highlights of the first half year 2023. Reto will then talk about the financials in more detail. This is followed by a presentation by Wolfgang on the outlook and the priorities ahead of us. [Operator Instructions] Without further ado, I would like to hand over to Wolfgang. Please.

Thank you very much, Peter. And also a warm welcome from my side, and we will be happy to guide you through the last 6 months of our company and what we did during that time and what we as a global team at Siegfried accomplished. So Siegfried delivers strong sales and profitability in the first half 2023 based on a resilient and well-diversified business portfolio. What does it mean specifically? Net sales up to CHF 607 million as compared to prior year of CHF 587 million, an increase of almost 7% in local currencies. And I think an important note to that, the underlying business, excluding the coronavirus vaccines, actually displayed even a double-digit percentage growth in local currencies. How did we translate that into profit, core EBITDA of CHF 125.7 million as compared to CHF 130 million in the prior year at a strong margin of 20.7%? Core net profit amounted to almost CHF 59 million as compared to CHF 65 million last year. With regard to the strategy EVOLVE, which is the guiding star of what we are doing at Siegfried in order to prepare ourselves to prepare the team for future success, we are well on track, which means we continue to significantly invest into our network to enable future growth and to be able to cope with a strong demand of Siegfried's services and products. And on top of that, we also reach beyond our core businesses and made the entry into the cell and gene therapy space through the acquisition of a small Swiss biotech start-up, DiNAMIQS, to create additional opportunities in a high-growth CDMO segment for the future. Based on the strong results of the first half year, we are in the position to actually increase our full year 2023 guidance, and we now expect mid-single-digit percentage sales growth in local currencies with a core EBITDA margin above 20% as compared to our full year guidance of February this year, which was low to mid-single-digit percentage sales growth in local currencies at a core EBITDA margin at or above 20%. And with that, I hand over to Reto, who will actually dive deeper into the financial facts and figures before I will take over again and together with you, look ahead to what we are going to do with our company in the future and what you can expect from us going forward. So over to Reto.

Thank you very much, Wolfgang. A warm welcome also from my side here from sunny Zofingen in Switzerland. Siegfried has just delivered a strong growth of net sales in the first half of 2023. In local currencies, the growth was 6.8%. In Swiss franc, which is our accounting currency, the growth was 3.5%. We saw a strong decline in the euro against the Swiss. We saw a decline also in the U.S. dollar against the Swiss. And combined with the fact that we only record 30% of our sales in the Swiss franc, 58% in the euro and the remainder in U.S. dollars, we had a strong currency headwind of minus 3.3%. The two business segments, the two businesses lines were affected differently by the currencies. Drug Products was affected stronger as this business has larger exposure to the euro. The currency effect here was almost minus 4%. Drug Substances currency effect a shade below 3%. In terms of natural hedging, we did a good job in H1 2023 with almost no impact on the margin, which means that we have been able to balance well the revenues as well as the cost in the different categories. The fuel -- the growth of the first half was fueled by Drug Substances, where we had seen a strong expansion of the existing business, but also successful acquisition of new business and the successful implementation of the active portfolio management. However, also the underlying growth of the Drug Products business was there. It's easy to overlook this fact by simply looking at the net numbers. However, if you properly account for the phasing out of the vaccines business and consider as well the strong currency impact of minus 4%, you end up at local currency growth of the underlying business of mid- to high single digit. Overall, Drug Products accounted for about 1/3 of our business with Drug Substances accounting for the remainder. One word on diversification. This is an important element of our business model. We spread risks across large portfolios. So I'm happy to report that the diversification metrics for clients and products, which we reported on in February are still unchanged for H1 2023. This is the reconciliation between the reported numbers on the Swiss GAAP FER, which is our accounting standards, and the Core framework, which we have introduced in 2019 and applied in an unchanged and consistent manner ever since. We did 4 adjustments to core EBITDA. We reallocated the current net interest charge from operating expenses down to financial expenses. This is higher this year compared to prior periods. And then we adjusted for 3 other elements, the Jubilee restructuring project costs on various sites as well as for transaction costs. If you go down to the level of net profit, we adjusted for tax effects as every year. And you will see here again the current net interest, which is being reallocated from the operating expenses. Now this slide looks a little different from the one used in prior presentations as we are now showing 4 periods H1 '20 through to H1 2023. And it shows a strong profitable growth over the cycle in a very challenging macro environment. Let's focus for a moment on the actual numbers, so '23. We record the sales growth as just explained. And in addition to that, we have been able to strongly protect our profitability across all of the profit aggregates from core gross profit, where we delivered CHF 147.7 million at a margin of 24.3%. Also, core EBITDA, where we delivered CHF 125.7 million at a margin of 20.7%. And we're also happy about the core EBIT and the core net profit. However, let's have a moment, a look at the wider time span, so comparing 2020 to 2023. We delivered a high CAGR for net sales, 16.1%, and we delivered even higher CAGRs for all of the profit aggregates from 26.9% on the level of core gross profit down to almost 40% on the level of core net profit. This is a proof of the resilience of our business model. The strong diversification across clients and products and also from strong operational management. We have seen continued high demand for products and services of Siegfried in Drug Substances, in Drug Products from existing clients, but also new clients. This was fueled by our capabilities and capacities. It was also fueled by the immaculate quality track record that we have. And of course, our strong abilities in sourcing and also executing on the M&A deals contributed to that growth as well. I'm sure you remember the macro environment. It was unprecedented. We saw pandemic. We saw disruptions in the supply chains. We saw inflation, significant inflation in cost categories very important for Siegfried, raw materials, energy and wage inflation. We saw a high roll in FX. We saw rising interest rates. We counted that through efficiency measures in the operations in all aspects, applying strict cost discipline and also an active portfolio management. All of this was key to successfully master the challenges and deliver the numbers that you see here. With this, we have protected the interest of our clients, but also the ones of Siegfried as a company and other stakeholders. The learnings from that time will be permanent and long-lasting. And the journey is not over. By now, we have created the foundation for continued profitable growth, all executed in a controlled and stable manner. This is the core P&L for the first half of 2023, where we have been able to protect a strong profitability. I have already touched upon net sales and core gross profit. So let's focus for a time -- for a moment on SG&A. And here, we scaled quite well. SG&A as a total decreased as an absolute total but also relative to sales to now below 10%. Marketing and sales increased, it's clear. We are attending trade fairs again. We are visiting clients. We are traveling. That's good. Core research and development costs bang on at 3.6% as in prior periods. As expected, core administration and general overhead costs decreased to now 5.5%. So that's good. You also see that the core financial expenses are higher than in the prior period. Large element here is the CHF 1.5 million, which I explained, that's the noncash interest on the pension liabilities. The operating cash flow is an important number for us as it is the entry ticket into continued profitable growth going forward. We have been able to improve operating cash flows despite the fact that profit was a little lower in this period. We have reduced the absorption of net working capital. However, if you go closer into the details and we again provided the long-form cash flow statement in our report, you will see that we continue to invest into the inventory positions, which is on the one hand side, a direct result of the expansion of the Drug Substances business. On the other hand side, we continue to deploy capital into safety stock. Capital expenditures, the CHF 64.5 million are in line with the guidance of low teens. And I have one administrative remark to make in relating to the cash flow from the financing activities. It now includes already in the first half, the dividend, technically, a repayment of capital to shareholders, which in prior periods had only taken place in the second half. The reason behind this is the change in the Swiss corporation law, which allows for an expedited process. The capital allocation framework, the wheel of fortune as we call it, it all starts with investments into growth opportunities, all in line with the delivery of our EVOLVE strategy. In 2 formats, organic, so investments into capacities and technologies but also in capabilities and people; then, of course, M&A, which is always on at Siegfried. This results in a strong top-line growth, as just shown, at expanding margin as just demonstrated to you and increasing cash generation, which we use to invest into the growth again.. We're very cautious when deploying fresh capital to the company. And we always deploy that capital at rates higher or return on capital which was significantly higher than what we currently observe in the actuals. This, in combination with the profitable growth over time will lead to an increase of the return on capital metrics. Being cautious on spending money also means that we will continue to be disciplined in terms of payout policy to our shareholders. At the end of the half year '23, I'm running at a leverage ratio of 1.6, that's net debt divided by the core EBITDA, which means that I have substantial non-dilutive funding capacity available just now to further support the strategy EVOLVE. These were my remarks. And with that, I'm happy to hand back to Wolfgang.

Yes. Thank you very much, Reto. And I'm now going to talk about how we want to turn that wheel of fortune, what it specifically means with regard to our ambitions for the future. So let's turn our head towards the next phase of growth at Siegfried, which is all about further executing upon our corporate strategy EVOLVE, which is about strengthening where we are already strong, strengthening our core but, of course, also at the same time open new doors to additional growth opportunities available to a company like Siegfried in a generally growing CDMO market. So 3 areas, 3 pillars of activity. Grow existing core. This is about fully exploiting the very attractive market segment of small molecules in both areas, Drug Substances and Drug Products. We are already today, the leading small molecule CDMO in the world, being capable to master complex chemistry based on the scientific and technical know-how of our people. But we continue to invest into that based on also data analytics, data tools like chemometrics, quality by design, design of experiments, other things, exciting scientific staff. We continue to add to our oral and inhalation solid dosage form capabilities. We continue to add to our capabilities in the area of sterile liquid dosage form. All that in order to produce an even more attractive integrated offering for the benefit of our customers, millions of patients worldwide in the end and, of course, for the benefit of Siegfried and our stakeholders. The second area is about adding adjacencies and integrating them, make them the core of our activities. So things close to what we are already doing today. First of all, formulation and aseptic filling and finishing of large molecules, biologics, that's an activity where we have proven to be pretty successful already based on the investments and the decision to actually, I mean, strengthen that area starting in 2017. And that was the very reason for us to be able in the first place to make an offer to BioNTech and Novavax in 2020 in order to provide a record time, a highly, technologically demanding manufacturing process of their vaccines, which were very much in need for the whole world at the time. Particle technology, bridging technology between Drug Substances and Drug Products in the small molecule space, very important to ask to our customers when it comes to increasing bioavailability of chemical compounds and that has been an investment focus over the past years already to strengthen our capabilities and also to provide capacities at commercial scale in that space. And the investment in Evionnaz into large-scale, highly potent micronization facility has been successful. This operation is up and running and adding significantly to our offering and making it even more differentiated. We would be interested to actually also add Drug Products delivery systems because together with our development capabilities and manufacturing capacities, that would create a very attractive offering to our customers and help to solve their problems. Drug Substances antibody drug conjugates, which would be a kind of a bridge between the small molecules world and the large molecules world is something which we could imagine to actually add to our portfolio most likely through M&A. Last area is reaching out further and enter in growing new areas available to a successful CDMO like Siegfried. And here, we see, from our perspective, Drug Substances antibodies, cell and gene therapy, viral vectors, bioengineered vaccines, and data analytics. So in here, you see that actually, the 3 pillars are not, let's say, a sequence of events in terms of first core and maybe sometime later, growing and entering new areas, but we are actually working on all 3 areas at the same time with our recent investment, our recent acquisition of DiNAMIQS, as announced to you on May 4th of this year being one example of a successful entry of Siegfried into a very new space with very attractive growth dynamics going forward. But I will talk to that in more detail later on. But let's briefly provide an update on where we are in delivering upon our strategy, grow our existing core. Minden, the large-scale Drug Substances' world-class production plant for high-value Drug Substances, where we actually had the groundbreaking in August 2022. And where we are currently running at high speed in order to provide this much-in-need capacity at the end of '24 or early 2025, the latest, which in the end will be an investment of up to CHF 100 million and will add significant capacity, technological capabilities and flexibility to our well-utilized Drug Substances network. Second area also in the Drug Substances space is about development services. In order to continue to grow and in order to be able to respond to the demand of our customers for Siegfried services, we need to also increase our development capacities, which is why we decided to significantly invest into our flagship site in Evionnaz, which is one of our 2 launch sites besides Zofingen, and to add significant capacities there through an investment into a large new R&D building amounting to, in the end, CHF 25 million. There we had the groundbreaking in April this year and expect to be operational and ready to take in new business at the end of 2024. Somewhat similar, but in a different context is our investment into the development center, the center of excellence for high-end Drug Products services in Barcelona, which was also part of the successful transformation of the 2 Novartis sites that we acquired early 2021. And that we, together with the teams on the site since then, step-by-step transformed into flexible, attractive CDMO platforms, also being able to provide important development services to our customers, which will help to actually further develop the business, not only for the 2 sites in Spain, but for the whole Drug Products network. So what you can see here is that we are ready and actually do build out our leading position in the small molecule space and are ready to grow our existing core in order to fully exploit the attractive potential available to us at Siegfried in that space. So while this has been all about brick-and-mortar, steel equipment, investment, hardware, it is equally important to make sure that we operate our hardware in the best possible way and actually execute in a way that we fully exploit the existing asset base and at the same time, preparing ourselves the asset base, but of course, also the organization for future growth. I mean, 3 guiding principles, 3 areas of activities, which are, on the one hand, of course, ambitions, but on the other hand, all the need to be translated to real actions organizational-wise, and of course, with regard to results. First of all, commercial excellence. Here is about us having to make sure that we allocate our high-value capacity to margin-accretive, high-value products and optimize working capital. So this is more the commercial end, how we design our commercial interaction with our customers in order to make sure that they get what they need. And that we, at the same time, create the value necessary and deliver the funds necessary to be able to continue to invest into our future growth. So protection against inflation, demand volatility, foreign exchange fluctuations as a result of the increasing interest rates, a key activity over the past 18 months probably, where Siegfried has been particularly successful and has been able to protect the health of the company and to protect our ability to continue to invest as just discussed on the slide before. Working capital is an important topic in operation like ours with sometimes operational manufacturing chains, I mean, being up to 18 months or even longer. So it's important to be mindful about cash flows and cash generation. And also here, we continue to discuss with our customers good, constructive solutions for both sides. And all that in the end is geared towards creating long-lasting strategic partnerships for our customers for the benefit of both partners. So what do we do and how do we run our operations? So here, it's clear, before we take fresh money and invest into additional capacity, we need to make sure that actually we get the best out of what we have already. So free up and derisk bottlenecks and improve operational efficiency. And Reto has just guided you through the figures. And you saw it by the increasing gross profit, that is an outcome of both activities, commercial excellence, but clearly also operational excellence because our customers rightfully expect from us that we are as efficient as possible before talking to them about the proper pricing. We strive for first-time-right. We reduce non-quality cost. We keep the highest level of quality standards, something in which Siegfried is leading in the CDMO space as well. And maybe surprisingly, maybe not, we will talk to that later, also to support our ambitious sustainability targets. Last part is about even more software in a way, organizational excellence, how to develop our organization, how to make sure that it's actually ready to every year grow. And even on top of organic growth, add additional businesses, additional teams, additional sites. So the Siegfried Academy, an initiative that we actually introduced in 2019 is still on. And it's still used by a number of employees. We include leadership development in that Siegfried Academy to develop our future leaders going forward. But it is accessible based on relevant topics for the whole population at Siegfried. SAP S/4HANA and Salesforce, so tools to help to design our processes and enforce and adhere to our processes are currently being implemented and this will be finalized -- I mean, Salesforce will be finalized already next year. And SAP S/4HANA will be fully rolled out throughout the whole network by the end of 2025. So very important to make all of that happen. I promised to briefly speak to sustainability at which we have a differentiated view. First of all, of course, there is an obligation for a company like Siegfried to be mindful. We are a resource-intense operation. So we need to be mindful in how much and what we consume to actually deliver our performances. But there's also strong economic incentive to be efficient in that space as well because using less also means being more profitable, spending less, economically attractive to us. So what did we do? And what have been the targets that we have set for ourselves going forward? First of all, that's what I announced in 2021. Our ambition is to reduce our overall footprint in CO2 equivalents by 2030 -- until 2030 by 50% as compared to what we have consumed in 2020, normalized for sales. And we are on a good way to actually achieve that target. And I will tell you why and what we have achieved specifically in the last 6 months. First of all, the specific target for 2023 was, of course, using less and we said the target will be ambitious, minus 10% as compared to what we have used in 2021, not normalized for sales or volumes. But we wanted to actually reduce consumption by 10%, even though we have significantly grown since then. Where are we right now, almost 9%. And I'm actually confident that based on the ambitions of the teams, based on the number of projects on our list that we can still work on, that we have a good chance to actually achieve those 10% for the full year. So this is about using less. The next part is actually about what do we use? Or what are the energy sources that we apply? And here, we have reached a level of now 73% of renewable electricity sources, which will help and already helped us to make good progress on our overall sustainability journey. I mean it's good to do the things, I mean, most important to actually do what you said, walk your talk and implement so that you get tangible results. But it's also important for a publicly listed company like Siegfried that it is recognized. And it continues to be recognized with the MSCI rating being confirmed in the first half 2023, to be AA, a great outcome for a company in the industry in which we operate. You don't find so many others at that level of rating. We are still a member of the Dow Jones Sustainability Index Europe. ISS confirmed their prime rating for our overall ESG performance, which, of course, is more than only a carbon footprint, and also our recognition by EcoVadis is remarkable. So overall, good progress in the first half 2023. So about DiNAMIQS, and I kind of alluded to that already before, continuing to deliver upon our strategy also in new areas. In May this year, we acquired DiNAMIQS as a nucleus for us to, first of all, enter the attractive high-growth segment of cell and gene therapy and to provide for additional growth opportunities in that very segment. DiNAMIQS is a small start-up located in the Bio-Technopark being in, and itself, a very attractive ecosystem. And it's also beneficial for us in order to really be capable of making it flourish. It's nearby. It's just a few -- 50 kilometers maybe. And for us, a good distance to actually have positive influence without rolling over this specific start-up mindset, the small organization with large corporate structures. So what is DiNAMIQS about? It's attractive AAV vector development and nonmanufacturing development platform, currently being run by a team of probably a dozen cutting-edge scientists, which we will use as the core to actually add to the organization. What we, as Siegfried, will also provide is what they didn't have so far. We will provide the funds to actually build out the strong capabilities into commercial scale capabilities in the form of a state-of-the-art GMP facility at 500-liter commercial. [Audio Gap] started, engineering work started, and we will, actually, be operational with those attractive commercial capacities in 2025. DiNAMIQS, I mean, as it is they are in the Bio-Technopark based on the business case that we have written for that investment, based on the investment that we are actually doing right now, it's an operation which in the midterm will provide mid- maybe in the high double-digit million Swiss franc revenues at attractive EBITDA margins. But of course, for us, while this, of course, would be a success, this wouldn't be enough. We see that as a starting point for a much longer journey. And based on that platform and this double-digit, mid-double digit, maybe high double-digit revenues and the pipeline that the team together with us will be able to build, we are ready, mentally ready to actually further scale out based on opportunities, be it additional capacity, be it additional technologies, be it in different and global manufacturing network footprint. So we very much like the optionality and also the flexibility of this small investment because we can still adapt to market trends and technology trends, which are still evolving in this very dynamic field. And with that, I come to the summary slide. Outlook increased. Siegfried -- and I think you could take that from what we have presented to you and what we, as a Siegfried team, together have achieved in the first half 2023. Siegfried keeps moving to deliver profitable growth. Going forward, over the next years, we continue to expect our sales to grow at least in line with the CDMO market. We will continue with an active project and portfolio management based on commercial, operational and organizational excellence. And we are committed, and we will be able to further execute on our corporate strategy EVOLVE by continuing to invest into our global network by adding capacities and differentiating technologies and by M&A, be it in core areas or beyond with DiNAMIQS just being the latest example for that. Based on what we delivered in the first half of 2023, we now expect our 2023 revenues to grow at the range of mid-single-digit percentage in local currencies with a core EBITDA margin above 20%. And with that, I thank you for your attention and hand over back to Peter, who will actually guide us through the Q&A session, during which you can ask questions. And Reto and myself will do the best to actually provide useful answers. Thank you.

[Operator Instructions] I think we have already somebody in the queue, Florian? Gary Steventon, please go ahead with your question.

So firstly, just on Drug Substances and the 20% CER growth that we've seen there. Can you help us better understand the various drivers that you called out contributing to that? So growth in the existing business, the new business, the impacts of active portfolio management but also pricing. I'm just wondering kind of how big a contributor pricing or value has been over the first half and how you see the volume versus value DiNAMIQS evolving over the second half and into '24? And on the Spanish Drug Products sites that are integrated, you first started talking to executing on pilot programs a year ago, and you mentioned you're attracting new business in the release today. So could you talk to your expectations for adding significant commercial volumes to those sites? Is that something that's happening now? And how do you see those volumes and the improving utilization ramping? And if I could just squeeze in a short third question. Just wondering what you're seeing in terms of demand for fill and finish now. There's probably quite a lot of availability in the near term. So what are you seeing in the nearer term? And is there any -- or are you seeing any kind of tangible benefits as a result of some of the operational difficulties that one of your peers is experiencing as well?

Thank you, Gary, for actually the 3 questions, which I think make a lot of sense, and I will be happy to go through all 3 of them together with Reto. Maybe starting with the Drug Substances part. While we don't provide, let's say, the separation of, let's say, pricing effects and volume effects for obvious reasons, it is true that actually it has been driven by both. I think the important message is that actually it is also driven -- I mean, significantly driven by volume increase, so increased demand. And when I would have to look at what kind of demand it is, it really is a healthy mixture of both of attractive development of existing business. So commercial business that we already had in our portfolio based on existing strong relationship with customers. So that is growing. But also -- and I think that's equally important, we continuously refresh our portfolio and take in new projects and new products, which, in the end, in a few years, mid- to long term will be the products who -- which at that point in time, will have to drive and will drive our growth. So it's really underlying a very attractive volume growth trend driven by strong demand for the high-value services of Siegfried from our customers. So first part. When it comes to Drug Products, I mean, first of all, big picture, while the growth in the Drug Substances space, I mean it's impressive in a way, right? In local currency is 20% after having displayed growth of 16% for the full year 2022 as compared to the prior period. I mean that's really impressive. And probably reflects the maturity of our Drug Substances operation and our reputation in that very, very area. But also for the Drug Products business, even adjusted for the vaccines business, as Reto just said before, we saw attractive growth rates mid- to high single digit. And that has been driven by actually all manufacturing sites, including the Spanish manufacturing sites. Spanish manufacturing sites are, of course, about continuing to transform where we actually have made a great progress already. And we are attracting new business, a little bit depending on the different technologies which are available on the 2 sides. But we are actually operating essentially according to plan. And when we said that our outlook for the next years is that we want to and will continue to grow at least in line with the CDMO market, we expect this to be fueled by both clusters, Drug Substances and Drug Products. So that would be my take of your questions, but maybe Reto would like to add anything.

No, I'm good. It's spot on. I would have said exactly the same.

So that's reassuring.

Now we have 2 questions actually from Sibylle Bischofberger. First one is, how do you expect -- how much do you expect to spend on CapEx in 2023 and 2024? And the second question is about the adjustment to the core EBITDA. How will the position of restructuring and transaction develop in the second half of the year? Do you expect further Jubilee costs?

I guess that -- actually, the last question about the Jubilee would be great to answer for myself but Reto you go first.

So on the CapEx for '23, I mean, we guided for low teens and that confirmed in my presentation that this is unchanged, and we're actually on track to deliver exactly that guidance. So that's on CapEx. And indeed, the core adjustment for the Jubilee, I leave to Wolfgang.

Yes, I mean the answer to that is, I mean, that was an important investment into the organization to increase stickiness and actually, how we, as a global team, work together. And I think we have been very successful in that, and this was money well spent. Unfortunately, we won't have a Jubilee every year. But actually, we are all committed that there will be a 300 anniversary in 150 years from now. And mentally, everyone is prepared and we will do our best that this Jubilee can actually take place in 150 years from now. So I mean, joke aside, this Jubilee cost, of course, will, I mean, somehow be visible in the second half as well, but afterwards, that's going to be gone. M&A is difficult to predict. But I think Reto's answer to that question is M&A is always on at Siegfried. And that means we continue to look at targets. We continue to do due diligence where we think that there might be something interesting, attractive to us. So transaction costs might come up the one or the other year again because we want to grow also through M&A.

Thank you, Wolfgang. Next question is from Konstantin Wiechert.

Can you hear me?

Yes.

Yes.

I'm here today for Markus Mayer. Maybe another one on sales. Looking at both, your currencies in the first half and your updated guidance, we look at the option [Technical Difficulty]

Now you're gone Konstantin. We can't hear you really anymore. Maybe try again.

So I was wondering on your updated guidance, considering that you already reached almost 7% growth in local currencies, why you stick to the mid-single-digit growth guidance here for the full year? And then maybe a second one on CapEx as well. Looking at your Minden capacity additions, is there maybe somewhat a back-end loading in the CapEx requirements and you finally buy all the equipment? Or is this spread evenly over the period until 2025?

Maybe I'll take the first question and would leave the second one to Reto. So on the guidance. First of all, of course, we guide what we believe is appropriate. And when actually sitting together and deciding upon our guidance, we actually apply 3 ironclad principles. First one being we really, I mean, account for the newest, the latest information available to us and our view of the business. Second of all, never overpromise. Third of all, never underperform. I think that's what you -- what our shareholders can expect from us, and we are committed to deliver upon those ambitions. And the second question, probably for Reto.

Happy to take that, that's on the CapEx guidance. So a question actually quite similar to the one of Sibylle earlier. I mean we are now at CapEx, we shade under 11% of sales for this first half, and I confirmed in my presentation that we will meet the CapEx guidance of low teens just for the full year of 2023. I mean, that said, it's quite difficult to really project the cash flows coming from the investment area. But that's what I can say.

Over the cycle, it's going to be low teens.

So the next question is from Laura. It's about the margin improvements for Drug Substances. How sustainable is that? And the underlying margin progression in Drug Products. Can you comment on that?

Yes. Maybe I'll provide the first part. We actually don't share the individual margins within the 2 clusters, but only overall margin progression. And of course, we are convinced that that's going to be sustainable and not only sustainable, we are committed to actually continue to improve step-by-step over the cycle. And that's what we have shown in the past, and I think it was a pretty useful slide. And actually, the very reason why we included a longer time frame of 3 periods from '20 to 2023, where we actually have exactly proven that. And that's what our ambition is going forward, and that's what you can expect from us going forward. So margin expansion is expected to continue step-by-step over time. Anything?

Next question is from Daniel Jelovcan.

You hear me well?

Yes.

Sorry, there was a lag with Zoom and live streams. I didn't really hear everything. So maybe the question was already asked, but just the first question, to clarify, when you said your COVID-adjusted growth was mid- to high single digit, that was for the Drug Products segment, right?

For the group, it's double-digit.

But then I'm a bit puzzled to be honest because that would imply that the COVID business in the first half was much bigger than I or probably everybody thought or was that not only price. I mean it's really tough to understand. I mean, the gap is from minus 11.7, which are reported in low currency, to this mid- to high single digit, which is, let's say, 7, gives a gap of nearly 20%, and that's close to CHF 50 million. I mean I was totally surprised that the corona business was so big.

We actually don't provide the very specifics. But depending on how you interpret the ranges that we have provided for the 2 businesses, BioNTech and Novavax, I mean, you can reconcile it, right, really depending on where you put yourself in the ranges provided.

And the second question is, I mean, on Drug Substances, this 20% growth came on top of a very strong base already. I mean you had, I think, 25% growth already in the first semester '22 in Drug Substances. That's quite different to Lonza which had a weak first semester and then a strong comp effect. So you really did great in Drug Substances far above the market. So how can I interpret that? I mean, I understand your profile; your reliable, good track record. But did you win many new projects? You mentioned new and existing customers, but did you have any very big projects, which probably came in June or whatever, just to understand it a bit more?

Yes, in terms of big projects, and I refer back to the diversification that actually Reto provided before. So of course, we have large customers, but it's not that there is this one big bang which changed everything. It is really an attractive progression throughout the whole portfolio of -- especially with strategic customers, of course, of existing business, but also in tech, of attractive new products. But I fully agree. I mean, we are probably really fully exploiting our leading position in the small molecules space here, and the team is actually doing a great job. Without wanting to put that into perspective, just for the sake of completeness, while the growth is impressive. And we are very happy about that. And we are, of course, committed to continue on that trajectory. I mean the 25% growth of the first half 2022 as compared to the first half of 2022 was strong but was somewhat tilted to the upper end based on the fact that we had the cyber attack in the first half of 2021 but I mean, it doesn't change the picture. Very strong development throughout the whole Drug Substances portfolio in the first half of 2023 and already, of course, also in the first half of whole 2022.

No, that's correct. Yes, I forgot the cyber attack because there were so many in the past.

Right, right. But it's still a great growth, I would say the first half '22. It doesn't change the picture.

Great growth, for sure. And last question on that. Was that driven by oncology? Or can you give a bit more flavor on this space here for Siegfried?

Actually -- when looking at our portfolio, we, of course, know the indications behind that. But it's not that we actually tailor our strategy towards specific indications because that's not the kind of bet that we want to take. Because in the end, we are not experts in pharmaceutical or medicinal therapy areas. But we are also present in the oncology space. But again, it isn't that we could, I mean, pick out a certain therapeutic area and only and specifically those products going into that have been responsible to fuel the majority of the growth. So actually, we can't generate that relation.

The next question is related to small pharma and biotech. Do you expect weaker demand from small pharma and biotech struggling with funding?

No, that's a question that we get quite a lot. And it obviously relates to the funding environment, specifically in that space. Siegfried usually starts a commercial relationship with its customers at the end of Phase II, maybe at the beginning of Phase III of clinical trials, which means that from a funding perspective in the perspective of a VC, these are already the derisked projects, so the winners in the portfolio, which is why we don't see any effects from that current funding environment.

Maybe to add to that because I actually omitted to mention that. It's somewhat good news. I mean not changing the picture for Siegfried as a group. But I think it's still worthwhile to mention. I mean for DiNAMIQS, the team has been able since May to actually win an important project and a large project for DiNAMIQS from a big pharma customer already. So while biotech funding is challenging right now, DiNAMIQS has been able to get a very attractive product from a very attractive customer, which obviously is funding those activities as well.

Then we have one question from [Anya Pommerin]. The question is related to the Center of Excellence in Evionnaz, which is going to be operational next year. Do you expect any further input costs for this one?

Not sure what input costs would mean in this regard. But with regard to project execution, in terms of both, time line and also budget, we are very confident that actually we will meet our ambitious targets, which is not to exceed CHF 25 million, which is the planned CapEx amount, and also be operational at the end of 2024 the latest, which is also the point in time when we really need the capacity because our services are very much in demand. When it comes to input costs in the sense of operational expenses, of course, we will build up scientific capacities, resources, chemists, technicians, actually adding the capacity and then doing the work in the R&D building, and that will come along with additional costs, but always, of course, against additional revenues. Otherwise, we wouldn't do that investment. So this investment in Evionnaz will add to capacities and capabilities, but we are very confident that the operational expenses that we will build up there will be more than covered, by far more than covered by revenues generated from those capacities and capabilities.

The next question is related to sustainability. What is the reason you compare energy savings across the 2-year period and not compared to 2022?

We started, I mean, this specific ambition already in 2022, where we achieved 4% as compared to 2021. And one could have said, of course, I mean, let's compare what we want to achieve in 2023 against 2022, which would then have led to a somewhat a lower percentage figure. So this is just a decision that we had to take what is the right reference point. So no further higher logic to that. However, what we thought is important that we don't start when talking about that ambition to adjust for volumes also. We wanted to see -- I wanted to see a reduction in absolute amounts against 2021 without adjusting for volumes. That means -- I mean, the growth in volumes that we are seeing and will continue to see in 2023 needs to be more than overcompensated when it comes to energy consumption. So no higher logic really.

The next question is from [Tanya Hanzlik]. It's related to Novavax. Can you tell us what level of impact from Novavax you expect in H1 and what do you expect for the full year '23?

Yes. I mean we guided for the volumes for Novavax for 2023, which was relevant double digit. So that still holds true. However, more evenly spread between the semesters than originally anticipated.

And then maybe one last question. Could you give us some more information on the underlying staff cost inflation you are seeing within the group for the full year?

I can -- first of all, it's obviously a mixture in the different legislations where we are operating and the inflation rates in the different countries. In Germany, it's essentially decided for 2023 and 2024, the 3.75 plus onetime payments, which depending on what salary level you assume can amount to 5%, 6% or so. Switzerland is lower because Switzerland enjoys a much lower inflation. Spain is higher again. I actually don't have the overall figure available right now. Maybe, Reto can you comment on that?

No, as mentioned, Germany 3.25% plus this one-off payment of EUR 1,500 per capita which will appear in 2023 and in exactly the same form in 2024 again. I mean there, we are subject to agreements with the unions. That's already fixed. It's lower in Switzerland, as mentioned, lower inflation. Spain is about the same as Germany, the U.S. about as well. So it's really a mixed bag. But if you take the wage inflations that you see on average in these countries, you're quite well placed to make an estimate for the Siegfried Group, too.

Thank you, Reto and Wolfgang. With that, we are coming to an end of the Q&A. Welcome, or thank you better for your interest, and we are looking forward to see you again in our full year results next year. Also, please don't hesitate if you have any further questions to reach out to Reto or me directly. We are happy to take questions further on. With that, once again, thank you for your attention, and have a nice day.

Thank you.

Thank you.