Lonza(US:LZAGY)2023-07-21 17:10Financial Data and Key Metrics Changes - The company reported sales of CHF3.1 billion for H1 2023, representing a 5.6% growth at constant exchange rates compared to H1 2022, with underlying performance showing about 10% growth [6][19] - CORE EBITDA reached CHF922 million, resulting in a margin of 30%, which is 3 percentage points lower than the previous year due to the loss of COVID-related sales and lower asset utilization [7][20] - The updated outlook for sales growth is mid- to high single-digit at constant exchange rates, with CORE EBITDA margin revised to 28% to 29% [7][40] Business Line Data and Key Metrics Changes - Biologics Division: Reported sales growth of 2%, with double-digit growth when adjusted for mRNA sales loss. The division saw strong performance in Bioconjugates, Mammalian, and Microbial businesses [23][32] - Small Molecule Division: Achieved a strong performance with sales growth of 37.5%, driven by high asset utilization and a favorable product mix, with margins at 35% [24][32] - Cell & Gene Division: Experienced softer growth at 11%, with BioScience performing well but Cell & Gene Technologies facing weak demand due to the biotech funding environment [25][35] - Capsules Division: Reported flat sales, impacted by weak demand in the nutraceutical market, while pharmaceutical hard capsules showed growth [28][32] Market Data and Key Metrics Changes - The company noted a decrease in early-stage service inquiries, leading to underutilization of assets, particularly in the Cell & Gene division [56][60] - The nutraceutical market is experiencing destocking by U.S. customers, contributing to lower demand [10][28] Company Strategy and Development Direction - The company is focused on ramping up new commercial assets to support growth in Biologics and optimizing early-stage opportunities [16][45] - An acquisition of Synaffix was completed to enhance capabilities in developing Antibody-Drug Conjugates (ADCs), positioning the company uniquely in the industry [12][13] - The company remains committed to its ESG initiatives, including significant progress in emission reduction programs [14][15] Management Comments on Operating Environment and Future Outlook - Management acknowledged current market headwinds affecting early-stage services and nutraceutical capsules, with expectations of a prolonged recovery period [60][61] - The company maintains confidence in its long-term growth potential, particularly in the Cell & Gene sector, despite short-term challenges [76][117] Other Important Information - The company invested CHF765 million in CapEx, focusing 80% on growth projects, primarily in the Biologics division [29] - Free cash flow was negative CHF62 million, attributed to ongoing organic growth investments [30] Q&A Session Summary Question: Margin bridge between H1 last year and H2 this year - Management explained that the margin decline is primarily due to the drop in COVID-related sales, one-off effects, and lower asset utilization [49][51] Question: Project funding infrastructure changes - Management noted a decrease in early-stage service inquiries, impacting utilization rates [56] Question: Guidance for early-stage services recovery - Management indicated that visibility for early-stage services is limited to three to six months, with expectations of a slow recovery [60][61] Question: Visibility for 2023 and 2024 guidance - Management confirmed strong visibility for commercial manufacturing, while early-stage services have less visibility [81][82] Question: Pricing and capacity concerns in the industry - Management expressed confidence in high utilization rates for large-scale assets, emphasizing the importance of execution and quality over pricing [85][87] Question: Capital expenditure plans - Management confirmed no changes to capital expenditure plans, focusing on growth projects in Biologics [96][98] Question: Outlook for Cell & Gene therapy - Management noted stabilization in the Cell & Gene market, with potential for recovery [100]