Lonza(LZAGY) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2023, the company reported sales of CHF6.7 billion, reflecting a sales growth of 10.9% at constant exchange rates [2][99] - Core EBITDA remained flat year-over-year at CHF2 billion, resulting in a margin of 29.8% [8][99] - Reported profits decreased by 46% to CHF655 million, primarily due to high base effects from divestment gains in 2022 and impairment losses in 2023 [8][99] Business Line Data and Key Metrics Changes - The Small Molecules division achieved sales of over CHF900 million in 2023, growing by 11% due to strong demand for high-value CDMO services [9][43] - The Biologics division experienced a sales growth of 17.6%, with underlying growth reaching 25% when excluding the Moderna business [60][75] - The Cell & Gene division reported a sales growth of 6.6%, but faced margin declines due to early-stage funding weaknesses and operational challenges [64][101] - The Capsules & Health Ingredients division saw a decline in sales and margins, impacted by post-pandemic inventory destocking and higher raw material costs [22][31] Market Data and Key Metrics Changes - The company signed approximately 130 new CDMO customers and around 350 new clinical and commercial programs in 2023, indicating strong market demand [4][27] - The company’s top 10 customers represent about half of total sales, providing a stable foundation for growth [28] - The company operates in a market where 80% of sales are focused in Europe and the Americas, with a balanced customer base between small, mid, and large pharma [96] Company Strategy and Development Direction - The company continues to invest in growth, deploying CHF1.7 billion in CapEx in 2023, which is 25% of sales, focusing on large growth projects [12][104] - The strategic review led to the decision to decommission two sites in Guangzhou, China, and Hayward, U.S., to reduce fixed costs without impacting mid-term growth [41][103] - The company aims for high single-digit underlying sales growth in 2024, driven by strong commercial CDMO performance and a rebound in Capsules & Health Ingredients [23][47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term potential of the CDMO industry, driven by outsourcing trends and a robust pipeline of Phase I drug candidates [27][95] - The company anticipates a similar adverse impact on 2024 sales due to the loss of COVID business from Moderna, but expects margins to remain stable due to natural hedging [15][39] - Management noted that the early-stage funding environment remains challenging, with no significant rebound expected in 2024 [77][88] Other Important Information - The company achieved a strong free cash flow of CHF329 million in 2023, supported by net working capital improvements [36][99] - A 14% increase in the dividend to CHF4 per share is proposed, reflecting a payout ratio in line with the company's capital allocation strategy [94][106] - The company has made significant progress in sustainability, reducing emissions intensity by 43% and energy intensity by 35% [29] Q&A Session Summary Question: Clarification on margin range - Management clarified that the core EBITDA margin for 2024 is expected to be between 27% to 29% [50][51] Question: Performance trends in early-stage demand - Management indicated that early-stage demand remains weak, with no significant rebound expected in 2024 [77][88] Question: Guidance for growth adjusted for Moderna - Management explained that the guidance for high single-digit growth in 2024 reflects a lower base due to the previous year's performance and ongoing challenges in early-stage funding [58][88] Question: Impact of site closures on early-stage capacity - Management stated that there is sufficient small-scale capacity in the market for early-stage biologics despite the site closures [145] Question: Update on CEO search process - The board is in the process of interviewing candidates and expects to announce a new CEO by early Q2 [117][145]