Siegfried Holding AG (SFZN) Earnings Call Transcript & Summary

[Presentation] Welcome to the presentation of our full year results 2024. A warm welcome also to the ones who have joined online. Thanks for joining. With me today is Marcel Imwinkelried, our CEO; and Reto Suter, our CFO. As always, we will start with a summary of the highlights of 2024. Reto will then talk about the financials in more detail. Then Marcel will talk about what is driving the growth in our key market segments, some of the trends in our industry and how we are implementing EVOLVE+ to position ourselves in this environment. At the end, we will have a Q&A session. Those who joined online can join via -- and ask the questions via video call. With that, I would like to hand over to Marcel. Over to you.

Thank you, Peter. Good afternoon. Happy to meet you in person here in Zurich, and also a warm welcome to the colleagues which have joined in the webcast. If there is one message I want to remember for today is due to the strong underlying business we delivered on our guidance, and we continued on our growth profitability. As you can see, we are strong in all key performance indicators. But especially, I would like to highlight 2 numbers. One is the core EBITDA margin, where we were able to cross the 22% mark. And the second one, the core net profit, where we made it up by 24%, close to CHF 160 million, which is great. Outlook for 2025, we are guiding for a mid-single digit in local currencies, and we are looking forward for a core EBITDA margin above 22%. Now in the next few slides, I would like to share with you how we achieved this strong performance. First, we delivered this profitable growth due to strong outstanding performance in safety, in quality and in reliability, supply. All of these dimensions are operational excellence, and this is exactly part of the EVOLVE+ strategy, one of the most important pillar of this strategy. I will come later on. I'm really proud of the supply reliability. We were able to cross the 90 percentage mark, which is also very important because our customers, they are relying on us. They want to have their product on-time in full, with the right quality and with a safe track record as well. We delivered our profitable growth to become more and more sustainable. We are helping our customers to become more and more sustainable as well. As you can see, we made significant progress in all of these different dimensions. [Audio Gap] Especially, I would like to highlight the carbon emission reduction over the last 4 years, where we were able to reduce that by 50%, which is significant. Becoming more and more greener as a company, we are also becoming more and more diverse. As I speak, there are 48% of the management positions held by women. Third, we delivered our profitable growth through a strong execution of our EVOLVE+ strategy through M&A. With the acquisition of the Grafton site in Wisconsin, we achieved 2 important goals. The first one, to expand our network in U.S.A.; and the second one, to bring an additional piece for our puzzle to provide the full end-to-end service for our customers. In conclusion, 2024 for Siegfried was a very strong year. Due to the strong underlying business, which was growing very nicely, we were able to fulfill the expectations according to our guidance and also further to improve our profitable growth. Now I would like to hand over to Reto, who will give you more insights about the financial numbers.

Thank you very much, Marcel. Welcome to you all here in Zurich, and obviously also a warm welcome to all of you sitting on the screen somewhere around the globe. I'm very happy now to lead you through this, again, strong set of numbers that we delivered in 2024. In 2024, we again have had an underlying business, which grew above the market. We have more than offset the various headwinds. We spoke about these headwinds exactly a year ago here, and I have touched upon them also when I presented the half year numbers in August. And now let's see how the underlying growth of the business really was. The 3 effects were as follows. The vaccines business has now totally phased out of our business portfolio. This was an impact of somewhere between CHF 30 million and CHF 40 million. Destocking, most of the defect is over to CHF 20 million to CHF 30 million in '24. We expect between CHF 5 million, more like CHF 10 million to come still in H1 2025. Portfolio optimization, as expected, the top line effect is now through the system. Obviously, that effort will continue over the next many periods. And if you combine that now with the currency headwind that we saw, we arrived at 8% to 9% growth of the underlying business for 2024, which is strong, and which is significantly above the market. In Swiss francs, which is our accounting currency, the growth was 1.8%. Also in '24, we have seen the dollar as well as the euro depreciating against the Swiss franc, both by 2%, and this led to a significant headwind of 1.2% to the business portfolio, the currency portfolio that you see here. The effect was once again stronger in the drug product cluster. This is a cluster which has almost no Swiss franc exposure. It's basically a euro business. So the headwind there was 2%, and even smaller in drug substances. We again applied the natural hedging concept in '24. This went quite perfectly. So the impact on the margin from these significant movements was very limited. Now if you look at currency in '25, we again expect the euro to decline slightly on the dollar. Well, who knows? But we expect the smaller currency headwind somewhere between neutral and 0.5% against us. If you look at the 2 clusters, both of them actually grew significantly above the market at between 8% and 9%. Drug Substances, you could clearly see that H2 was a bit stronger in destocking than H1. And some of the effect is mentioned still to come in '25. And Drug Products delivered well as well in the second half. Please remember here that the maintenance shutdown for Drug Product is always in the second half, August usually. And there's also some piece of good news that I would like to share with you on the ERP. We had the migration to the latest version of SAP, SAP S/4HANA in the Drug Products cluster in the significant out of Hameln in the second half. Also Malta, we had in the second half. These ventures perfectly well, in time, on budget and without any interruption to supply to our customers. So very happy about that. Concluding ,68.9% of the business in Drug Substances and a bit more than 30% in Drug Products. Now this is the slide that I always show. It's the reconciliation between reported numbers under Swiss GAAP FER, which is our accounting framework, and then the core numbers. We introduced these in 2019 and have applied the concept ever since in an unchanged way, in a very transparent way, I would say. Now this picture looks rather, let's say, let's call it, unspectacular, And unspectacular on these slides is good. It means that reported and core numbers actually very close to each other, and that is nice. We adjusted for the one thing which we adjust always. That's relating to foreign pension plans, where we revalue these obligations at year-end that led to a small decline of that obligation, CHF 1.4 million in our favor actually from a P&L point of view. We took that out as every time. And then we reallocated CHF 3 million of direct interest payments from operating expenses down to the financial expenses, also as every year. Now in '24, we have not only been able to grow, but we have only -- also be able to protect and actually increase our profitability. We have more than offset the phasing out of this profitable chunk of the vaccines business. And we have translated a growth on the top line to an even more significant growth on the various bottom line aggregates. So all of the profit aggregates have grown by higher rates than the sales growth. So you see core EBITDA has grown by 4.5% to margin of now 22.1% and CHF 285.6 million. It's a good result. And core net profit has grown by even a stronger EBIT 24% to now CHF 158.9 million or a margin of 12.3%, and that is really good. This is a proof of our resilient and well-diversified business model, which made that possible. Again, some processes helped. It's the same as in the last years. Operational excellence added to that number significantly. And we also have applied a strict cost discipline as in the periods before and not only on the level of the individual manufacturing sites around the globe, I'm specifically also happy that we applied it at the corporate center in the global functions. Active portfolio optimization helped as every year also in 2024. Touching upon diversification, that's important. We spread risks across large portfolios of customers and clients. And that promotes stability and provides an optimal basis for us to continue to grow. Siegfried is not dependent on one customer and Siegfried is not dependent on one product, my financial metrics either so. Customer diversification, Novartis continues to be our top customer with somewhere between 10% and 20% of revenues, customer 2 at 9%, customer 3 to 10 as an additional 33%. You will see that customer 2 is a bit higher than what we had seen in the previous periods, but sometimes the concentration is also an opportunity. Small to midsized pharma companies make up more than half of our revenues, 41% comes from large pharma companies. This ratio will move towards smaller and midsized pharma companies once the effects of the Grafton acquisition kicked in. Relating to Life Science, life-cycle diversification, we continue to make the vast majority of what we do in revenues from commercial manufacturing between 90% and 95%. And the remainder 5% to 10% we do in the clinical phases. This will also not change with the Grafton acquisition. Grafton serves the purpose to accelerate the inflow of additional valuable molecules into our high-quality manufacturing network. That's the purpose. Then product diversification, as last year, top product at 6% and the products 2% to 10%, an additional 27%. Also the split between multiclient exclusives, more or less unchanged 1 quarter to 3 quarters. Now in '24, we have enhanced and increased the profitability, and that's really good news. But some enhanced financial management also helped us to even contribute more to the bottom line. I will come to that. So we see core gross profit increased despite the adverse change in mix from the phaseout of the vaccines business. Core SG&A, if you include other operating income, actually declined both in absolute terms as well as in relative terms. We shifted some costs, IT costs from COGS down to the core admin and general overhead due to the introduction of a new transfer pricing. And despite that, we could reduce actually the whole block. You also see that core financial result comes down. This is a function of lower interest rates. And we have been able to significantly reduce the exchange rate differences. That's translation of balance sheet positions despite the fact that we saw a much higher volatility in the ForEx rates. That is due to the introduction of an advanced much more detailed hedging program on exactly these positions on a daily basis. And then you see that the tax rate has come in lower at 18.5% effective tax rate now, which is a direct result of the introduction of a new transfer pricing regime, properly adjusting the transfer prices to our steering model and allocating risks and profit across global functions and also geographies. And this was the result for the 24% increase in the core net profit. On cash generation, we have made significant progress due to project FALCON in net working capital management. We have released nearly CHF 60 million of cash from inventory positions. However, this very positive effect was temporarily offset by a onetime increase in paid income taxes. That's for prior periods, went already through the P&L and was related to COVID-related profits in Germany. And it was also offset by a phasing effect. We booked more revenues in November and December, meaning that these invoices that we printed have not yet converted into cash. But as we speak, they do so now in the next few weeks. So that's a temporary shift. But due to these effects, operating cash flow was lower in '24 than in the financial year 2023. Capital expenditures were in line with plan at the lower end actually of the guidance at 14% of net sales. Capital expenditures for '25 -- for '24 and then the years to come will go back to low teens as we had it before. At the end of the year, net debt to core EBITDA is at 1.7, slowly coming down now in the quarters to come, which means that I still have ample room for nondilutive funding power to grow the business organically as well as inorganically. I'm also happy about the fact that both hybrid convertible bonds have now been converted by the holder of these bonds. CHF 80 million of hybrid debt have left the liability structure. That's good. And in this process, we have created significant shareholder value for all of you as well. So very happy about that specific transaction. The Board will propose to the shareholders' meeting on April 10 to increase the payout to shareholders by CHF 0.2 to now CHF 3.80 per share. This will be effected once more as a reduction in nominal capital, which means it's tax-free for larger parts of our shareholding structure. And the Board will also propose to the shareholders a 1:10 share split, which facilitates the liquidity of the shares with a special focus and special view on enabling and make it easier for our employees to participate in the share purchase program that we offer. Equity ownership by our own people is an important element for all of us. Which brings me to the capital allocation slide. You know that wheel, we access growth options. This will lead to strong top line growth at expanding margin, this increases cash generation, which we then use again to deploy into further growth of our company. Now following the Capital Markets Day, I have received many questions on M&A and a few questions on the margin expansion. And let me touch upon them for a minute or so. The question on M&A was, is this still topical? Is this still important under Evolve+? And let me be crystal clear on that. M&A has been important in the past. It's important now, and it's also going to be important in the future. Through M&A, we can add scale, we can add abilities, we can add technologies. And as always, this has not changed. We will continue to be very selective. We focus on immediate value creation, and we will never go for the marginal fair value deal. So that's important. On expanding margins, same margin levers as always. Economies of scale. As an example, we keep the SG&A constant, increase the business volume. This automatically leads to an expansion of all the margins below EBITDA. Interesting and actually dominant will be the bringing on stream of new assets. So converting idle cost into revenues at marginal cost for profit. Portfolio optimization will play an important role going forward as well. So far, this has been restricted or focused on drug substances. Now Drug Substances continues year after year, but we will now also roll out this effort to drug products to selected sites in the Drug Products network. And then lastly, and we have spoken about this a lot in Barcelona, operational excellence, including process excellence. Here, the question was, what can this bring -- what is the effect of operational excellence on to my margin. Let me give you a number. Operational excellence can bring somewhere between high single-digit Swiss franc million to a low double-digit Swiss franc million amount per year recurring, which means that this could be 50 basis points margin expansion up to 80, 90 point margin expansion. So this is also significant also going forward. So you see the Siegfried journey goes on. We just continue to compound year after year after year, and that continues. And now I'm happy to hand back to Marcel for the outlook.

Thanks, Reto. Now let's talk about our bright future. As already shared with you during the Capital Market Day in Barcelona, we see and this is still valid that we have -- that we are working in a very healthy growing CDMO business. There are 4 decisive trends ongoing. And particularly, I would like to highlight one of them. And that's the innovation. Innovation is coming through small and midsized pharmaceutical companies. And that's exactly where EVOLVE+ is covering. We need to look and really to make sure that we can provide the full service end-to-end for this kind of customers. Strategy. We are still relying on EVOLVE, the previous strategy, but what I've also shared with you in Barcelona that we are expanding now. First, in the technology offering; and secondly, that we are looking what we are doing to become the best in that. Let me share the rapid progress what we have done over the last months. We are in the strong execution mode now, especially for broadened technology offering, where we were able now to implement to make the decision very fast and already now in the implementation phase. First of all, aseptic manufacturing technology. I was highlighting in Barcelona that we are taking care of the expansion of our prefilled syringe and cartridge capacity. In the meantime, we have decided to go for a second line in Hameln, a bigger one, which will become available by end of next year for our customers. The first line, which is already in execution will become available for our customers by end of this year. Bridging Technologies, that was the second topic regarding offering broadener technologies, spray drying. And this spray drying, we are implementing and investing in Barcelona, del Vallès in Barcelona. Also, these capabilities and capacity will be available by end of next year. First revenues we are expecting beginning of 2027. Ophthalmic. Good news. The demand and the business growth is significantly much better than we thought. We are now in the expansion mode there. We are implementing a sterile ointment line to cover the demand. Good news, already the majority of this capacity is booked by our customers. Overall, we see for all 3 technologies, a huge demand from small to mid-cap, but also from the large companies as well. Let's talk about our excellence topics to become best in all of what we are doing. Let's start with commercial excellence. I would like to highlight 2 topics which we have achieved in the meantime. First, go-to-market strategy. We developed this plan and also implemented over the last 6 months for drug substance, for drug product, but also for our viral vector company, DINAMIQS, which is very close-by here in Zurich in Schlieren. Good news, we see already some prospects coming through. Secondly, I would like to highlight the FALCON project. This is really to reduce the net working capital. And Reto already outlined in his presentation, the benefit regarding the cash release. But overall, we were able to reduce the inventory by 10%. At the same time, and this is really unusual, but this is exactly to do with the operational excellence. We were able to -- what I've shared in the previous presentation to make the reliability up. Very often, it's in the contradiction way, but it shows that we are really making the right progress there. This was also the reason that we were able to release close to CHF 60 million last year. Expect more because more will come through. And we will let you know by end of the year what will be the number what we are talking about here. Second one is development excellence. Here, the ultimate goal for our customers is to extend their exclusivity for their product. There is only one way to do that. You need to reduce the development time. Now with the new lab setup what we are putting in place, higher speed, but also now due to the fact that we are able to provide the full service from clinical development up to commercial, we are in a position to serve our customers and to reduce at the end, the development time by 2 to 4 years. That's exactly what also the small and mid-caps are looking for, to have one service provider. And there are not so many CDMOs because you need to pass the critical mass to offer the entire development knowledge and capabilities. Operational excellence, already used several times during the presentations here. With the new technologies, which are available with artificial intelligence, we were able to do a value stream mapping. What does this mean, to reduce really unnecessary steps. And at the end, we were able to reduce the throughput time. This means for a production in the pharmaceutical company, it starts with dispensing in the warehouse to do the full production, including finished packaging and to release. We were able to reduce that in Malta from 50 days down to 25 days. I'm really excited about that. And it's not only that we are able through this to reduce the throughput time at the end to release the cash, but also we are able to respond on short notice of demand changes of our customers. This is top class. And we are -- due to the fact that we have such benefits and also our customers, we are looking forward now to implement that within the entire network in Siegfried for all sites in the upcoming months. Now Siegfried is set to outpace the market growth midterm. With the strongest team, highly motivated people with the winning spirit and with the EVOLVE+ strategy, we are in a position to do so. Of course, you can count on us for the positive midterm outlook, which will remain. We will continue with our profitable growth above market, of course, excluding M&A, -- we are going for stepwise expanding profitability. As already outlined, the CapEx will be at the low teens. And of course, we will still use as a catalyst, our accretive M&A activities. You can count on us, and thanks a lot for your attention. And now happy to hand over to Peter, and he will prepare to answer afterwards your questions. Thanks a lot for your attention.

Thank you, Marcel. We are happy now to take any questions from the room as well as from the online participants through video call. We have about 30 minutes. And after that, we can -- we're happy to take more questions during the apero. Let's get started. Laura, please.

Laura Pfeifer from Octavian. Maybe I have 2. So first, on your sales guidance for this year, it's this mid-single-digit growth. So can you help us a little bit understanding what are the components? I understand there is a small headwind, but probably less than 1% from the destocking -- so maybe you could give us a little bit more thoughts on why growth should not be as strong as it was in '24? And also what are your assumptions for input costs and pricing? And then the second one is maybe more on the Spanish side. If you could give us an update how your contract winning is progressing here? Have you won some new contracts in the meantime and what it could mean for the growth this year and the next year?

Thank you. Maybe the question on Spanish side for you, Marcel, and the different components of the guidance from Reto.

Shall I start with Spain? Yes. Happy to do so. I think as already outlined and also what I shared during the presentation with the expansion in El Masnou, we are growing extremely fastly there. The innovation is coming through despite that over the last decade, there was not so much innovation in the ophthalmic business. And we are playing here really in a niche and the demand is strong. That's also the reason why we're looking forward to expand our capacity. And as already outlined, the line is more or less already fully booked, which is good, which is great. For Barbera, here also what we have already shared with you in the half year results last August and also in the Capital Market Day, we are also progressing there as well. So we had a significant contract signed mid of last year and also more customers and products are coming through now in the upcoming months as well, and we are progressing there as well.

Thank you, Marcel. Reto on the guidance?

So I'll take the guidance question then. I mean when we issue guidance, we always do it in the very same manner, and we have been successful with that in the past. We always look at the latest projections that we have. How is business developing? Much of what we will sell in 2025 is already in manufacturing currently. However, there's still some leads that needs to be converted, et cetera, et cetera. And then secondly, we always ask ourselves what's the guidance or the target that, with a very large degree of certainty, we are able to achieve. And this is what we then guide, including -- so that's bottom up created, but with a high probability of achieving that. It's now my eighth presentation of annual results, and so far, we have not issued a profit warning ever since, and I don't intend to change that anytime soon. Relating to input cost and pricing, this will be a little different than 2024, where we have seen certain raw material categories actually declining. For '25, we expect it to be stable, slightly increasing a bit. On the personnel cost side of things, it's very similar to what we had been observing in '24. So that's inflation, mostly in Germany, but also in the United States of America. Obviously, we want to compensate for that. We want to grow profitably, which means that we need to, again, work on efficiency, and all of that pricing will be neutral to very slightly positive. So here and there, we, of course, try and will increase the prices as well, as a result of changed input cost. But in some instances, also just because we can.

Thank you, Reto. Maybe Laura, you can pass on the mic to Sibylle.

Sibylle Bischofberger from Vontobel. I have also 2 questions on the outlook. First, I would like to understand your EBITDA margin guidance, you expect more than 22%. You had 22.1% in the last year. What are the moving parts there? And does it mean that it could be that EBIT margin would not increase as you are increasing depreciation and amortization due to the Minden site going to be amortized? Or a little more detail about that? That's the first question.

Reto, do you want to take that?

Yes. No, I understand that. Obviously, we have been in the past, been very successful in increasing the EBITDA margin step-by-step actually every year, and we would like to continue to do exactly that. The moving parts, less significant than in '24. However, we will also see no tailwind from input costs and energy, et cetera. So it's going to be a bit more challenging. However, we are very hopeful to be able to increase the margin again in 2025. On depreciation, you're right. I mean, obviously, in 2025, we will put into operations, a large manufacturing plant in Minden, which will lead to depreciation, of course, so that we will see in 2025, most probably in the second half.

And the second question is about CapEx. You had -- you mentioned that you will decrease CapEx to low teens. Could you be more precise about how much CapEx you want to spend there?

Yes, 10% to 13%.

The next question, [ Castel Corinne ] from [ Daniel ].

Daniel Jelovcan, ZKB. On the operational cash flow, the big delta you explained already with the higher cash tax you paid. So CHF 82 million versus CHF 20 million. That was a big surprise to most, I think. So in the future, can we expect any cash tax like in the P&L, so CHF 40 million or -- you mentioned the reason why it was so high. Is that a fair assumption?

Yes, it is a fair assumption, actually. And already this year, cash taxes and -- I mean, '25 cash taxes and effective tax rates come closer together. It's also much easier for us now with the new transfer pricing system to plan for that as we pay the most tax actually here in Switzerland, and the tax rates and the profitability of the sites on a stand-alone basis are quite easily plannable and projectable.

Okay. And the other one is, I mean, in the cash flow statement, there was a big swing in other current liabilities and accruals. I mean, in '23, you had nearly CHF 100 million inflow. And in '24, you had CHF 65 million outflow. So a huge delta, which as an outsider, is impossible to predict. And I suspect it also has to do with revenue recognition maybe? I'm not sure, so if you can explain?

Yes. I mean with one significant customer, we changed the way of working together, which has, in the last year, left its marks. However, that was accompanied by a significantly larger profitability for us in the years to come. So that was welcomed. And this change in the makeover with that customer has left its marks as well in that position that you mentioned. That will not reoccur again.

So that item will be neutral or positive EBIT?

Yes.

Okay. And then last question. There was a certain inventory allowance, I believe, a reversal, which had a positive impact on the gross margin. I'm not sure if my reading is correct, but maybe you can provide a little bridge in the gross margin, that would be very helpful.

Yes. I mean, inventory allowance or provisions on the inventory, in general, have come down, if you compare '24 to '23. And that is actually a good thing because inventory provisions, we actually calculate in a very mechanical way. We calculate how significant, how large is the turn of that inventory position. And the lower inventory turn is, the higher the provision gets, because there's room to believe that you will not be able to sell a specific inventory position. So if you see at Siegfried, inventory provisions actually decreasing and coming down, that is good news. It means that our inventory actually turns quicker, which is also one of the benefits of that specific project, FALCON, that we will not only focus on accounts receivables and payables, but also on what's going on in the inventory. That's by far the biggest lever that we have at our hands.

The next question is from Tanya Hansalik. What was the contribution from Novavax in 2024? Was there a compensation payment? And what do we expect in full year '25? Marcel, do you want to take that?

Yes. I think in 2024, it was not a lot anymore, just to be honest. And I think for 2025 has already outlined, there is nothing left, so COVID vaccines is definitely gone.

Next question. We have Ed Hall on the video call.

Can you hear me?

Yes. We can't see you, Ed.

There's a camera, perfect. Perfect. Just a couple of questions on my side. I think the first one would just be on valuations in regards to M&A and how you look at valuations. I think obviously, do you think these valuations sort of been reset? And do you see further room for this to be reset just in line with, obviously, your emphasis on EVOLVE+ and M&A going forward? That would be my first question.

Marcel?

Sure. I think as already also outlined during the presentation, we are looking at the M&A activities at the assets for sure. And also, we have always -- when we are talking about EVOLVE+, we have always 2 options. Now we have the financial power to invest by ourselves internally or sometimes, it's even better to go for external one because then you have already capabilities, assets or whatever available and it's already running in full speed. So we are looking at both options. But of course, we -- sometimes then we have also to make the decision: We go for acquisition or shall we do that in-house? So as I already outlined, for Spray drying, prefilled syringes and so on, we decided last autumn to go for in-house investment, which makes sense absolutely also to build it up because it's expansion. We have already the capabilities there, but also we are still open and looking at different options for our core business, but also for new modalities as well.

Okay. Perfect.

If I may add...

And then...

Sorry, Ed. Reto has something to comment on this question.

I mean, generally speaking, you also see it in the public data available, deal activity increases. Also if you speak to private equity, dealmaking increases. In some instances, IPO windows go up again. So the environment for M&A has clearly improved if you compare it to a year ago.

Perfect. And then my second question would just be similar to Daniel on the sort of current liabilities and accruals on the balance sheet. More related to this deferred income. Obviously, there's quite a large change. Not being an auditor myself, I mean, how does this flow through in the balance sheet? Does it go through the P&L at all? And if so, what is the drop-down to EBIT?

No, it does not. And it's actually really related to that restructuring. I mean, in a very positive sense with that one specific large growing client, which is -- how did I mention it, the concentrated opportunity rather than a risk.

Perfect. And then just one final quick question. Just on Grafton contribution to growth. What was the quantum in '25? And is there a quick outlook for 2024 as well?

Yes. I mean, Grafton, you see the details on the acquisition on Note 21 in my financial report. The contribution to sales and profitability is just insignificant in '24. In '25, we'll be a bit large, I mean 2x insignificant, which is maybe a little significant. I don't know.

Good news, we see some prospects which are coming through, which is great. But also to manage the expectations, still these products will come -- becoming commercial, it will take some time, 3 to 5 years. But that's already what we have shared with you.

Next question. Laura, one more question. Yes, please.

Sorry, I just have a follow-up. I think it was mentioned in the appendix that you expect a stronger H2 like in terms of waiting relative to H1. What is the reason for that?

Yes. I mean the main reason is the bit of destocking, which we will continue to see now in H1 in the Drug Substances cluster. In addition to that, when we look at the current manufacturing plant, also there, we see a stronger revenue recognition in the second half. This is just based on how we manufacture most efficiently and based on the demand of our clients. Obviously, we always try to optimize these manufacturing plants. But what we currently see, and I think it's fair to also share that with you, is a weaker H1 and stronger H2.

And is that true for Drug Substances but also for Drug Products? I thought that this is more evenly spread.

In Drug Products, it's much more evenly spread. It's more like 49 to 51 in usual years. And it's specifically in Drug Substances where we see the imbalance to a lesser degree also in DP.

Next question is from Fynn Scherzler from Deutsche Bank, online. Fynn, can you hear us?

Yes, I can. If you can maybe come back to your 2025 guidance. You commented already, but I just want to clarify. So aside from the destocking, which is about 1%, are there any other factors that we should consider that with slow underlying growth from the 8%, 9% you had in the past year?

Reto?

No, no other facts. I would have mentioned them today. No, the destocking is the only one left. So let's look forward to 2025. You're on mute.

If you can maybe update us on the Minden side? How is the progress here? And what timing should we expect on the first revenues? You said they come in '25. So is this really only just a little bit of revenue towards the end of 2H? And maybe has the commercial manufacturing already started now? Or are you still in qualification phase? And then maybe if I can add. I would have expected that maybe the first Minden revenue could actually roughly offset the destocking impact in terms of revenue for the full year. Is that about right? Or would that still be too much?

I think the question is related to Minden. So we have -- we are currently discussions. We don't know if we are able to make it in the first half of the year or beginning of the second half of the year. In other words, we are really close. Good news is that we will deliver on time, in full, that the facility will go on operation, which is great. But it's just a matter of weeks, first half of the year where we see the first revenues or in the second half.

Now on the magnitude of the first revenues. I think, Fynn, your assumption is not so wrong.

Okay. Perfect. And then maybe if I can squeeze in one last one. Can you maybe comment on the CDMO activity you've seen through 2024 in general? So my impression is that maybe drugs have been turned out to be a bit stronger than you had thought. At the beginning of the year, and also if I look at peer commentary, is it fair to say that activity at pharma customers is maybe turning a bit stronger into 2025?

Marcel?

I think we see continuity in a lot of activities. So also in the new molecules, which are coming through, we see continuous progress there. So not a big difference compared to 2024. Of course, what we see, especially for the small caps, that money is much more available now. Also, by the way, also the potential M&A activities, which have quite significant change upwards over the last several months. That's what we see. More activities coming through.

Thanks, Fynn. Next question, again from Daniel.

Cell and gene business for you, Marcel. Have you ever said something about the size of this business in terms of turnover? I mean, end of the decade, because we hear so many contradictions statements, I mean, Rentschler down the U.K. cell and gene CDMO facility. Novartis building capacity in Slovenia, does everything in-house. The Lonza is doing very well. So an idea why you should be so well in that segment?

Very good question, Daniel. I think we have to separate cell and gene therapies. We are in gene therapy, and it's a little bit more, except that some of the companies are going out, I think, quite a good position to be, and why? I think, first of all, it was quite smart to start with the capabilities. And always, if we are going in new technologies, everything starts with capabilities, development activities. And what we are doing and we are signing and we have nicely made up the prospects in our dynamic site in Schlieren, good news. But we are talking about early phase products and not GMP because, as you know, also this technology is in an early phase in channel as a technology. But I think it's good to come from this way than to -- just to invest in assets and some of our competitors. They were heavily investing in assets. But you can have assets, but if you don't have the capabilities and not the relationship -- and here, you need really to talk from scientists to scientists, and it's really difficult to fill at the end also these assets. And we are moving, we are progressing. If we are talking about sales, it's not significant yet. If you are talking about an early phase project and we are talking about 100,000, 200,000, but it depends on the numbers of new products, new prospects, which we are gaining. And we are gaining in both directions. We are working for large pharmaceutical companies, but also for small and mid-caps. And looking now forward that some of these products, which we have developed at the early stage, that they are coming through, that we can bring these products then to commercial then with the first GMP batch which should produce or we will produce then in 2026.

I mean, Daniel was asking for end of decade revenue projection. We confirm that the CMD that this could be somewhere mid double-digit swiss franc million for that asset base that we are now creating.

Say it -- sales by decade.

Yes.

Okay. This is still valid, yes? Nothing has changed.

Sorry, I must have forgotten.

Sorry. I misunderstood. All good.

And the other question is the portfolio optimization in Drug Products, which you start now. So I guess that's not done overnight and will have an impact this year. Is that correct on the top line?

We don't expect a significant impact on the top line of Drug Products from these activities. As in Drug Substances, we started the effort in '21. And the first year where we had an impact on the top line was '24. This is also due to the fact that we obviously pulled the easier levers first, which is efficiency, pricing, commercial excellence in some cases, and only as a last resort to an end on exiting a certain product. You also want to give your client enough time to adjust its supply chain because we can't be the ones responsible for a product not becoming available anymore. So it's a very good question. We don't expect any impact on sales for 2025.

But the approach is always the same. You need to have really high utilization of the site. And exactly also we have now -- we are now in a position like El Masnou, what I have shared with you, to be in such a position to go for this portfolio management activities.

Next question is from Charles Weston, RBC. Florian, can you put him through?

So the first is around the capacity data or if you can provide any capacity data around the aseptic fill finish sites in terms of volume coming online for the 2 different new sites and how that adds to the total capacity that's already in existence there, please?

Marcel?

For fill and finish, if I?

The 2 lines.

The 2 lines, yes. Here also, we are in touch with -- for these 2 lines, prefilled syringes and cartridges with customers to fill them. And also to book the capacity there accordingly, and we are making progress as well there.

I think Charles want to know how large the lines are.

How -- the capacity of the lines. So it's -- one is a small line with 10 million units. So this is really a dedicated line for biologics, large molecules. And the second one is a line for 30 million units per year. And here, also for large molecules, but can also manage, of course, small molecules and biosimilars as well.

And just one other one, please. Just a follow-up on the earlier question on phasing. I think you indicated that the drug products was, relatively speaking, quite even. The Drug Substance would be even more second half weighted. Did I miss any further color on quite how second half weighted it might be this year versus last year?

Yes, we're still working on that. But as the effect of additional destocking somewhere shade down the CHF 10 million maybe for H1 for Drug Substances gives you a bit of an idea. And then in addition, we also have the programming as it currently lies with the revenue crystallization points, also in Drug Substances, which is currently in addition to the destocking skewed towards H2. We are working on that. Obviously, we have no interest in imbalances between the 2 semesters. But it was fair to announce that to you today.

Thanks, Charles. Yes, please?

Michail Paraskevopoulos. I have a question regarding the market. Is it fair to assume that the market, also in 2025, like you mentioned, -- and CMD and also before, will, in general, let's say, 6% to 7%. Is this a correct assumption for also 2025? Or do you think different in this year?

No. We see the same number, the same growth in Drug Substances and also in Drug Product. We are continuing to do that. And we have now also much more insights with the go-to-market strategy because we are approaching much more customers now. And we see what's coming up. So we don't see a change there.

The difference between your mid-single-digit growth you assume for the guidance in 2025 and the marked for 6%, is it because you have too less capacity at the moment? Or what's the difference there?

I can repeat what I already told you. When we guide, we use the latest information available. What we currently see, not some kind of market-based derivation of anything, but bottom-up demand and the programming and the individual pieces of equipment that we see. And then obviously, we adjusted and review that. Then we say, what's the number that -- we have a very high degree of certainty we'll be able to achieve in order, not for me, my ninth year as the CFO, needing to issue a profit warning. That's the way how we approach it. Market numbers are interesting. And obviously, in the mid- to long term, we also assess these in the short term and the year for us, the short term. We assess the programming that you really see in the machines in order not to disappoint.

And don't underestimate the phasing effect. If you are acquiring very successfully, winning new prospects now, it comes through to the phasing with the tech transfer all of these activities 1, 2 years later. So that's the reason.

We have one more last question from the chat from [ Mosine Dravu ]. He's asking about R&D expenses in percentage of sales. It has declined over the last 3 years. Is there -- what is the reason for that? And is this trend going to continue? Reto?

Yes. I mean R&D is not an easy one, and I'm sorry for needing to resort to a bit of technicalities here. So when R&D assists in a certain commercial manufacturing process, for example, we manufacture commercially in R&D equipment and that happens. Then, of course, the cost of that R&D product support go into the COGS. We recognize the sales. We have the COGS. And then basically, what you see in the SG&A line, it's what's left from the R&D cost. So that's unallocated cost. And that's, of course, also cost that we use in order to make processes more efficient for ourselves. So the percentage of R&D as a percentage of sales changes over time. What it tells you is that in 2024, we have used R&D more in order for commercial manufacturing. So this is then included in the COGS rather than in SG&A. If I look at number of people working in R&D, this is unchanged and actually increasing.

We have one more question on the video chat. For Ruben [indiscernible].

On the subject of M&A, I'm curious, you're seeing -- Reto, you mentioned the environment out there. Are you seeing more competition for assets than you have, let's say, 6 months ago or 12 months ago? And the second part of that question is if Siegfried does engage in M&A in 2025, would you expect the acquisition to be margin dilutive on the group level?

Well, I can preempt the second one. I can't tell you whether we do an acquisition in 2025 or not. Can't tell you. But M&A is always on. So -- but I can't provide an answer here. On the first one, the level of competition really depends on the way or the structure of the cell process. So we, in the past and also this year and also next year, we'll see, let's say, assets which are being owned by private equity currently, leaving private equity because in harvesting period, and they need to divest out of that asset. These assets usually change hands in terms of competitive processes, structured processes where a lot of bidders are invited to basically maximize the purchase price for the private equity fund. So that will continue. I think there is still assets around which are below that level, where you can basically create exclusive relationships with the seller because you are able to offer something which other people can't. This is more the secret style. This is what we are good at. This is what we have been successfully doing in the past. And I think this is also what we are about to be delivering in the next periods to come.

Okay. I'm also curious, just one more question, if I may. There's been discussion in the past in terms of the margin journey that the company is on. When you look at Siegfried compared to fellow Swiss CDMOs, do you see Siegfried maintaining the ambition to match that level of profitability, I would, I guess, more specifically describe it as high 20% EBITDA margin? Is that a realistic ambition? And if it is, what kind of time line is Siegfried thinking about that?

I think it's clear, of course, we want to become best here as well and to play also in this group. Of course, we are ambitious. Believe me, personally, I'm very ambitious, and we see the opportunity growth growing year-over-year also from the profitability point of view. We see opportunities that's also in line with the EVOLVE+ strategy with all of these excellence topics, which I have outlined and you can expect more year-over-year. And of course, we are looking and striving forward to go above or to the higher 20s as well. From the timing point of view, it will take some time. So it's not done overnight.

With that, we are at the end of this Q&A session. For those who are here and still would like to chat with us, come join us for an apéro outside to the left. Those who are online, sorry, you cannot join, but we look forward to welcome you again when we announce our half year results on August 21. Thank you so much.

Thank you very much.