Lonza(LZAGY) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales grew by 16.8% at constant exchange rates, reaching CHF3 billion for the half year [6][17] - CORE EBITDA generated was CHF987 million, corresponding to a margin of 33.1% [6][20] - The core EBITDA margin of 33.1% is slightly below the high base of H1 2021, remaining robust against inflation impacts [20][22] Business Line Data and Key Metrics Changes - Biologics reported 26.2% sales growth with a margin of 37.3%, supported by large growth projects and customer cancellation fees [24] - Small Molecules experienced a sales decline of 20.3%, but margin increased by 2.6 percentage points to 29.9% due to phasing of major shipments [25] - Cell & Gene division achieved 23.4% sales growth and a margin increase of 6.3 percentage points to 22.4%, including a one-time event [26] - Capsules & Health Ingredients saw a 4% increase in sales with a stable margin at 35.2% [27] Market Data and Key Metrics Changes - The healthcare industry is less sensitive to economic fluctuations, with strong demand for CDMO services [8] - The company continues to see high interest in its Ibex offering and end-to-end solutions [8] Company Strategy and Development Direction - The company announced a strategic investment of CHF500 million to construct a new Fill & Finish facility in Switzerland, expected to be completed in 2026 [11] - The focus remains on long-term growth, operational excellence, and innovation while navigating macroeconomic challenges [10][42] - The company plans to invest around 30% of sales in CapEx for the full year [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged rising inflation and supply chain disruptions but confirmed the business remains on track [7][36] - The outlook for 2022 is reconfirmed, with expectations for underlying business performance to remain strong [36] Other Important Information - The company has over 100 ESG projects across its global network, integrating ESG targets into employee remuneration policies [14] - Free cash flow was negative in the first half of 2022 due to increased capital investments and inventory buildup [32] Q&A Session Summary Question: Confirmation of mid-term guidance and inflation impact - Management confirmed mid-term guidance remains valid despite inflationary impacts, which can be mitigated through contract clauses [45][46] Question: Clarification on one-time items in Biologics - The one-time item in Biologics had a sales impact of approximately 3% of group sales, with a corresponding EBITDA impact [52][53] Question: Update on Fill & Finish facility - The new facility is expected to start production in 2026, with no specific sales figures provided [58][59] Question: Biologics growth expectations for the second half - Management indicated that growth in the Biologics division is expected to continue, although specific half-year guidance is not provided [65][66] Question: Impact of Small Molecule revenue deferral on margins - The deferral of Small Molecule revenue is expected to positively impact sales and margins in the second half [114]