Lonza Group AG

Ladies and gentlemen, welcome to Lonza's Q1 2024 cumulative update conference call and live webcast. I am Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference is being recorded. The presentation will be followed by a Q&A session. On this call, questions are restricted to investors and analysts only. You can register for questions at any time by pressing star and 1 on your telephone. In the webcast, you will be able to see a chat box for use in case there is a weak phone line. Please note that questions must be asked via the phone first. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Albert M. Beni, CEO at Interim. Please go ahead, sir.

Thank you for the introduction. Good morning, good afternoon. and welcome to our Q1 qualitative update. These calls are intended to provide a general business overview, so we will not be sharing numbers relating to our financial performance today. We will share a full financial update during our half-year call on July 25th. Today, I will start by sharing a view on the group and our growth projects, then provide a short update on each division Our CFO, Philippe Decke, will then provide a brief update on our alternative measures reporting changes, after which there will be time to answer your questions. We reported a softer Q1 group performance. Also, performance across the H1 is expected to normalize and align with the full year trajectory. We expect solid H2 sales, reflecting the timing of commercial batch releases. In this context, We are confirming our outlook for 2024 with flat CER sales growth compared to previous year and a core EBITDA margin in the high 20s or between 27% to 29%. Turning to our growth project, we continue to see progress in line with plan. At our site in Stein, Switzerland, we are on track with the construction of our large-scale commercial drug product facility. In WISP Switzerland, we are on track to commence operations with our large-scale mammalian drug substance plant. And in Q4 of this year, we expect the production of our first batches in our highly potent API small molecules facility. Now let's take a look at each of our divisions. There is good momentum across the biologics division, despite a slow start in Q1, which was impacted by high delivery in Q4 of the previous year, and some campaign shifts between Q1 and Q2. We see strong commercial demand, and while small-scale demand remains soft, we are beginning to see improvements in biotech funding. However, we should note that these early signs of recovery may take six to nine months to impact our revenues. Our mammalian business will also benefit from significant future growth through our agreement with Rush to acquire the Genentech Vacaville site. Our bioconjugate business unit saw strong growth, supported by a strong demand and the ramp-up of new assets. In mRNA, we have concluded our activity with Moderna, and we are fully focused on building the pipeline for our new clinical asset in Relaine, which will come online later this year. Our drug product services business is aligned to the clinical market, meaning it is continuing to grow, but at a slower pace compared to previous years. Here, we are working on extending our offering and assets into late-stage clinical and commercial products. The first commercial fill-and-finish program in VISP reached a key milestone in Q1 as it successfully completed its process performance In Microbium, the business continues to develop strongly, supported by the ramp-up of new assets, changes to our portfolio mix, and also a solid demand. Finally, the integration of Senafix into our licensing business is proceeding smoothly, and we continue to receive positive market feedbacks on our expanded offering. Turning to our small molecules division, we continue to see strong commercial demand with good visibility supported by high levels of committed business. Biotech funding challenges have impacted the number of early stage customer signings, but we are seeing first signs of recovery. The business is further supported by a continuing portfolio shift to high value and complex small molecules and the strong growth of our highly potent API offering. Campaign timing will lead to a soft H1 in the division, followed by a stronger H2. Looking at our CellEngine division, we are delivering improvements in our commercial and operational performance in our CellEngine technology business. This has been joined by strong sales and continuing customer interest in our commercial offering. In bioscience, market headwinds have impacted sales, mainly in our media business, but we are managing profitability through strong cost discipline. Turning to the capsules and health ingredient division, sales and margin performance was softer than expected. In the US, demand for nutraceuticals has begun to recover after a long period of post-pandemic destocking. However, Overcapacity in the market continues to place pressure on margins. Demand for pharma hard capsules has been softer than expected in Q1 in Western markets due to continued post-COVID stocking. To mitigate the impact of these developments and protect margins, the division has undertaken a cost management program along with its continuing commitments to innovation and customer value. We have also successfully piloted our new generation capsule manufacturing technology. In corporate news, we are continuing to make progress with our share buyback program of up to 2 billion, which was announced in 2023. As of March 31st, we have repurchased 1.3 billion of shares with an intention to complete the program in H1 2025. Finally, we have confirmed the appointment of Wolfgang Wienand as the new CEO of Lonza Group. He will commence his new role in the summer. To close, I will summarize by saying we are in line with the expected trajectory towards our outlook 2024. Looking at our industry fundamentals, we remain well positioned to capture value by maintaining our focus on growing our commercial offering while managing our costs and continuing to drive operational excellence. With that, I would like to thank you for your attention and will now pass over to Philippe.

Thank you, Albert. Before we move to the Q&A, I will take a moment to talk you through the external reporting changes in our alternative performance measures which were announced today. Effective for the financial year 2024, we will apply revised definitions of our core EPS, free cash flow, and divisional performance measures. The decision to revise the definitions of these performance measures is based on feedback from our investors and a thorough internal review. Our H1 2024 reporting will be aligned with these new definitions. The changes will improve the year-on-year comparison of Lonza's results as well as comparisons with our peers. The first change is to core EPS. Going forward, amortization of intangible assets from acquisitions is excluded from the core profit and therefore core earnings per share. This exclusion is common across the industry and will increase comparability for investors. For free cash flow, the non-cash items, change in provisions and share plan costs included in EBITDA are added back for the free cash flow calculation. In addition, the utilization of provisions is considered as well. Finally, for divisional core EBITDA, group-wide investments such as group IT infrastructure have been reported within corporate and related depreciation and amortization were previously allocated to the divisions. With the updated approach, the divisions will add back the depreciation and amortization included in the general cost allocation. This will result in an improved divisional core EBITDA with no impact at group level. More details on these changes are available under the Investors Relations section of Lonza's website. In the same place, you can also find restated financial information on core EPS, free cash flow, and divisional core EBITDA for full year 2023 and full year 2022, as well as H1 2023. Thank you for your time, and I will now hand over to Sandra to host the Q&A.