Lonza(US:LZAGY)2023-01-25 17:36Financial Performance - The company reported a sales growth of 15.1% at constant exchange rates, reaching CHF6.2 billion, with a core EBITDA of CHF2 billion and a margin of 32.1% [5][21] - Core EBITDA grew by 19.8%, leading to a year-on-year margin improvement of 1.3 percentage points [23] - Free cash flow before gross CapEx was CHF1.1 billion, implying an 18% cash conversion, while the return on invested capital (ROIC) remained strong at 11.4% [36] Business Line Performance - The Biologics division achieved a sales growth of 21.7%, driven by high customer demand and a strong pipeline of commercial agreements [42] - The Small Molecules division saw a sales growth of 5.9%, supported by new manufacturing capacity for ADC payloads and improved margins [45] - The Cell & Gene division reported a sales growth of 13.6%, with strong performance in BioScience, but faced challenges in the Cell & Gene technologies unit due to product delays and funding slowdowns [46][100] Market Performance - 90% of sales are concentrated in the EMEA and Americas regions, with a customer base split of 60% small to mid-sized pharma and 40% large pharma [11][12] - The company signed approximately 115 new CDMO customers and around 375 new clinical and commercial programs in 2022 [11] Company Strategy and Industry Competition - The company plans to maintain a CapEx of 30% of sales to secure long-term growth and consolidate its leading position in the CDMO industry [6][52] - Following the divestment of the Specialty Ingredients business, the company is focused on organic investment and attractive bolt-on M&A opportunities [8][39] - The CDMO industry is expected to continue showing double-digit growth driven by the biopharma market and increased demand for outsourcing [17] Management Commentary on Operating Environment and Future Outlook - The management anticipates high single-digit sales growth at constant currency for 2023, with a core EBITDA margin of 30% to 31% [7][51] - The company is confident in its midterm guidance of low-teen sales growth and core EBITDA margins within the 33% to 35% range [53] - Management noted that inflation impacts are being managed through price adjustments and procurement initiatives [26][93] Other Important Information - The company has committed to returning excess capital to shareholders via a share buyback program of up to CHF2 billion and proposed a dividend increase to CHF3.50 per share [8][38] - The company reduced greenhouse gas emission intensity by 13%, energy intensity by 6%, and water intensity by 10% compared to 2021, reflecting its commitment to sustainability [16] Q&A Session Summary Question: Contribution of various headwinds to margin contraction - Management indicated that residual inflation and delays in growth projects are key drivers for 2023, but they remain confident about 2024 margin improvements due to strong visibility on growth assets [59][63] Question: Slowdown in ramp-up of biologic projects - Management confirmed that some delays impacted 2022 and early 2023, but they expect to catch up by the end of the year [66][67] Question: CapEx expectations and growth opportunities - Management stated that the high CapEx in 2023 corresponds to projects initiated in previous years, and they anticipate a decrease to high teens by 2025, contingent on investment opportunities [71][73] Question: Local market pressures in China - Management noted that competition and post-lockdown challenges have affected their operations in China, but they remain optimistic about future opportunities as restrictions ease [76][78] Question: mRNA impact on future margins - Management clarified that while mRNA sales peaked in 2022, residual sales are expected to be marginal, with no significant impact anticipated for 2024 [80][81] Question: Cell & Gene product headwinds - Management acknowledged challenges in the Cell & Gene division due to clinical trial delays and funding slowdowns, but they do not foresee long-term disruptions [100][102] Question: Cash flow generation expectations - Management expects improved cash flow in 2023 as inventory levels normalize following supply chain recovery [120]