Lonza Group AG

Ladies and gentlemen, welcome to the Lonza Q3 2025 Qualitative 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 has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Please limit yourself to one question and then re-enter the queue in case you have a follow-up. In the webcast, we have a chat box which should only be used if your question can be heard into the phone. 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 Filip Deke, CFO. Please go ahead, sir.

Good morning, good afternoon, and a very warm welcome to our Q3 qualitative update. Before we go into more details, please let me remind you that we intend to provide you with a general business overview with our qualitative update. But we will not be sharing figures related to our financial performance. We will do so on the 28th of January with our full year update. Let me start with an overview of our group performance before we move to the performance of our business platforms and PHI. Afterwards, I will provide you with an update on our business contracting and our first project, followed by the current macroeconomic situation before I close for the Q&A session. Today, we report a strong Q3 performance across our CDMO businesses, aligned with our expected full-year trajectory. Supported by this strong performance, we are confirming our 2025 outlook for the CDMO business, which we upgraded at half-year. with sales growth of 20% to 21% at constant exchange rates compared to the prior year and a core EBITDA margin in the range of 30% to 31%. Excluding veteran, which is now expected to contribute at the upper end of the range of around half a billion Swiss francs in sales and a better-than-expected core EBITDA margin in 2025, we expect low-teens percentage organic CBR growth and a margin improvement in our CBR business. in line with our CMO organic growth model. As anticipated at our half-year release in July, we confirm our expectation of higher sales in H2 2025 than in H1. We see a healthy progression of our core EBITDA margin in line with the 2025 outlook. Progressing well on its expected recovery path, we also confirm our full-year 2025 outlook for the capsules and health ingredients for THI business at the low-to-mid single-digit percentage CR growth and an improved core EBITDA margin in the mid-20s. Based on FX rates at the beginning of October, we can reiterate an anticipated year-over-year headwind of around 2.5% to 3.5% of sales and core EBITDA for full year 2025. However, our margin is well protected due to a strong natural hedge and our hedging program in place. Moving to the performance of our business platforms, let's start with integrated biologics. Integrated biologics continue to see strong momentum with robust demand for its large scale mammalian assets. This is further supported by Vacabil, as I just commented on. In our small scale mammalian assets, we see a high level of utilization and we have a good level of visibility for the remainder of this year. But let me come back to the early-stage business later to provide further context and outlook. Overall, we are pleased to report a continued good operation execution alongside maturing growth projects and growth and margin drivers in our integrated biologics business. Turning to our advanced synthesis platform, to see strong commercial demands for small molecules and bioconjugated capacities, as underlined by the deal mentioned in our Q3 release. signing a large multi-year supply agreement in small molecules. Growth is supported by new capacities in small molecules with our new highly potent API plan, training bioconjugates. The business platform further benefits from the robust operating execution and the demand for complex products, supporting margins as witnessed already with our half-year results. Our systems identity platform improves the Q3 as expected. Also, we expect the full year performance to remain moderate in the context of the software first half. Deliverance are weighted into Q4, and depending on the progress of key customer projects and decisions, sales may also fall into 2026. iScience had a good Q3 with robust growth, and we are pleased to report that microbial returned to growth in Q3 after a software H1 performance. In Celergine, ongoing pipeline variability and complex manufacturing continues to weigh on asset utilization. When we anticipate a gradual recovery in operation performance, it will remain below the strong execution seen in 2024. Celergine is a business with strategic relevance to Lonza and is our aim to increase resilience of the business over time, commercially and operationally. But in the meantime, some business variability may persist. Our CHI business returned to positive CR growth in Q3, in line with the expected full-year trajectory for 2025. We are pleased to report that also the pharma capsules business is seeing improved demand trends and returned to positive volume growth in Q3. We can therefore confirm that both our nutraceutical and pharmaceutical capsules business have moved beyond the post-pandemic destocking phase. In the current geopolitical environment, our manufacturing footprint in Greenwood, South Carolina, and Puebla, Mexico, is continuing to support CHR's customer to navigate the evolving geopolitical environment. In the U.S., recent preliminary affirmative countervailing and anti-dumping decisions continue to be in place, allowing more balanced competition for pharmaceutical and nutraceutical capsules in the U.S. We progressed with the necessary internal combat measures to prepare our exit from the CHI business. The good business momentum highlights the attractiveness of the CHI business as a leader in its markets, and we are confident in the business ability to return to historical CR sales growth in the low-to-medium-digit percentage and a core EBITDA margin of about 30%. We are therefore confident to accept the business in the best interest of our customers, employees, and shareholders, and we will do so at the appropriate time. Before turning to our growth projects, let me say a few words on contracting. For 2025, we expect, again, a healthy level of contract signing across technologies and sites. Recently, we were able to sign several significant contracts including a further strategic long-term contract for integrated drug substance and drug product supply of bioconjugates. In our small molecules technology platform, we signed a large multi-year commercial supply agreement, and in integrated biologics, we were able to secure a fourth significant long-term supply agreement for our Vacaville site. In Vacaville, we expect further contract signings in the coming months, and we continue to see strong customer interest on large-scale U.S. capacity. Let me say a few more words about Vacaville. One year after closing the acquisition, we are very pleased with the site's integration into the non-service network, which is progressing in line with the plan. The site continues to demonstrate robust operation execution in support of RoCH and is maintaining its excellent quality track record, which is also reflected in our expectations of Vacaville, contributing at the higher ends of our initial estimates for 2025. In fact, it's also preparing new product introductions for 2026. And the first phase of CapEx is progressing a plan to upgrade the size of the system and supply to purchase capabilities. Our new highly-coordinated care facility in List is progressing well and will commence full commercial operation in July 2025. Our large-scale and many facilities also in List show good progress in ramp-up activities in Q3. GMP operations are underway and commercial production is expected to ramp-up gradually from 2023 onwards. Ramp-up activities for both facilities are those progressing in line with plans. Before closing my remarks and opening for the Q&A session, let me reiterate our expectations of no material financial impact on DONSA from the currently announced official U.S. trade policies. The so far announced U.S. tariffs do not include tariffs on API, intermediates, and raw materials as described in the Annex II of the Executive Order. We further remain confident that our well-diversified global manufacturing footprint with large capacities in the US, Europe, and Singapore will enable us to support our customers' global manufacturing requirements today and in the future. We, of course, remain vigilant to the continued evolution of the situation and potential impact on our businesses. We also continue to closely monitor biotech funding trends And recent fluctuations in funding levels, I expect to have only a minimal impact on Lonza's growth momentum in 2025 and beyond, with early stage activities representing only approximately 10% of the CDMO business and only a portion of that business originating from companies requiring funding. To close, let me provide some final remarks. Lonza is on track to deliver on its full year 2025 outlook. We see strong contracting demand with customers seeking long-term services for their strategic projects. Our growth projects are on track and are contributing to our growth this year and will continue to do so also in the years to come. In the current geopolitical environment, our large commercial business provides stability and our global assets are in positions as well to support our customers with their complex manufacturing needs. Thank you for your time and hand over to Sandra.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. Kindly limit yourself to one question. You can get back in the line again for any follow-up question. If you wish to remove yourself from the question queue, you may press star and two. Questions on the phone are requested to use only handsets while asking a question. In case of difficulties with understanding your question on the phone line, we will ask you to submit your question via the chat box in the webcast. Anyone with a question may press star 1 at this time. Our first question comes from Ibrahim Zain from JP Morgan. Please go ahead.