Albert Baehny: Good morning, everybody, and welcome to our conference for the financial results 2019. I'm together here with Rodolfo Savitzky, our CFO. Before we start the presentation, I want to make, to take a moment to talk about the sad news we've received on Sunday morning. Many of you will already have seen the news reports explaining that an accident has resulted in fatal injuries to a loyal and valued colleague, Eddie Imhof [ph]. Eddie was 57 years old and had worked for Lonza for 28 years.

The safety and welfare of our colleagues is always a top priority for Lonza. As soon as we became aware of the incident, we immediately shut down the facility. We have already commenced a full investigation to identify the cause and pinpoint any further safety improvement measures to ensure such a tragic event cannot happen again. The local cantonal police authorities have also started an external investigation into the accident. The Lonza fire brigade and emergency teams were on site within minutes to take all necessary measures to prevent any further impacts.

Since then, our operational managers and process safety experts have been working to identify the causes and ensure the continuing safety of other colleagues on the site. We have also performed the business continuity review and don't expect any disruption to sales or supplies as a result of the incident. Our condolences to Eddie's loved ones and many thanks to our colleagues in this for the efforts at this difficult time. And now I'll move on to our full year results. Here is a glance at the agenda for today and we have allowed time at the end for questions.

Let me start with a corporate review. 2019 was a year of change for Lonza. We started the carve-out of the LSI business. We also executed significant investment projects in LPBN and we saw changes in leadership. We delivered strong results with 6.8% sales growth and a sustained core EBITDA margin of 27.4%.

We were helped by a positive IFRS 16 impact on the margin side, which compensated for the incremental cost via the carve-out and the necessary OpEx related to the CapEx deployment. LPBN achieved a double-digit growth rate of 11%. LSI improved its margin, despite headwinds on the top-line. Our outlook for 2020 reflects our high visibility in LPBN. It also takes into consideration our continued high investments and volatile environment in which LSI operates.

And we are pleased and will be able to confirm our mid-term guidance supported by solid building blocks. The current business structure has two segments LPBN and LSI. LPBN is sub-segmented in two businesses, the pure CDMO business services and the product business. The CDMO service portfolio comprises three businesses, reflecting three different technology platforms; small molecule or chemical synthesis; mammalian and microbial fermentation; and cell and gene technologies. The product business portfolio has three sub businesses; bioscience, capsule systems and a small nutritional ingredients business.

After completing, the Capsugel acquisition, we then picked the entity, placing one part in LPBN another part in LSI. The setup created problems and we have decided to reunify the capsule business into a single entity. LSI has completed a re-organization last year to create a clear and focused setup along two distant business models; microbial control solutions and specialty chemical services. The carve-out of Lonza Specialty Ingredients segment is progressing in line with plan and completion is currently expected by mid of the year. We've had a team, a core team of 40 employees working on the carve-out since the program started in June 2019.

The carve-out work streams are shown here. All work streams are in full execution mode and progressing according to timelines and agreed milestones. In setting up the corporate structure, all legal entities are now either fully dedicated to LPBN or LSI. The employee allocation to either LPBN or LSI was completed at the end of 2019. We've also initiated the preparation of the carve-out financials to reflect LSI on the standalone basis.

In full year 2019 related carve-out we discussed amounted to CHF19 million, which had a 30 basis points impact current EBITDA margin. A further focus in 2019 was on the execution of significant investment projects. They've all been designed to secure continued profitable growth and meet future market demands. We are investing in growth opportunities in our co-LPBN businesses. This includes capacity and geographical expansions as well as new technologies, supporting the full lifecycle management of molecules.

In 2019, 786 million of CapEx or 13.3% of sales have been invested to finance key projects on clinical and commercial biologics, bioconjugates, small molecules, and cell and gene therapies. Our Ibex offering is progressing with four commercial customers including Sanofi and Portola. However, our planned projects are largely expected to contribute to continued growth in LPBN beyond the midterm guidance 2022, this is because facilities ramp up over several years before full utilization and profitably level are achieved. And now, I hand over to Rodolfo, who will take you through the financials. Rodolfo please.

Rodolfo Savitzky: Thank you, Albert. Welcome to everyone here in Zurich. Welcome as well to those who have joined on the phone. So, here's you can see a snapshot of our financial highlights for 2019. We're pleased to report 6.8% top line growth, resulting in CHF5.9 billion.

Our core EBITDA grew as well 7.2%, up to CHF1.6 billion. We have delivered on our guidance both in sales and profit with a stable 27.4 core EBITDA margin, up 10 basis points compared to prior previous year, this in a significant investment year. Our margin benefited from the new IFRS 16 accounting standards on leasing as Albert mentioned. This resulted in 60 basis points incremental margin for Lonza Group. However, this was largely offset by cost related to the divestment of the Water Care business in the carve-out of our Specialty Ingredients segment.

These two effects amounted to 50 basis points dilution. So, we were able to maintain our margin, despite the growth investments in our Pharma Biotech & Nutrition segment. Our margin was supported by our operating leverage in the double-digit growing pharma-based business, and it was also enhanced by ongoing efficiencies in our manufacturing operations as well as productivity gains across the Group. Our investments in pharma have led to increased operational expenses in growth projects, and this is partially explained by the 7.2% increase of employees compared to 2018. Two other important KPIs called EPS and return on invested capital also increased significantly versus prior year.

We are pleased to have achieved the strong 13.4% diluted core EPS increase and a 9.1% return on invested capital, more than 110 basis points ahead of the previous year. These strong results reflect our positive profit performance in an exceptionally low tax rate of 10%, 8% percentage points below prior year. The tax rate was positively impacted by a combination of country, profit mix and favorable one-time items, including first effects of the tax reform, which will be fully effective in 2020. Now for the future, we confirm our tax guidance of below 20% tax rate. All figures mentioned here related to Lonza's continuing operations, they exclude the Water Care business, which we divested in early 2019.

They are in reported currency and are compared with the same period in 2018. They are also on a like-for-like basis to reflect the realignment of our segments. Now let's take a glance at our Tools Segments. We'll start with LPBN which had very strong performance last year. Sales were up 11% with strong results in Biologics, these more than compensated for a contraction in the nutrition capsules.

Core EBITDA margin is decreased slightly by 30 basis points to a 32.9%, and by 90 basis points excluding the favorable impact of IFRS 16. These margin erosions reflect the impact of higher operating expenses to support investments and growth initiatives. In turn, these were partially offset by positive operating leverage and operational efficiencies. A particularly strong growth of our cell and gene technologies also had a dilutive effect for margin. We are focusing on profitability improvement measures in 2020, and this will help to secure both margin and growth levels in three key moralities for Lonza is well established.

These are viral vector, autologous and allogeneic gene and cell therapies. Our Specialty Ingredients segment reported weaker sales than anticipated in H2, 2019. We ended the year with 3.2% decline in sales on the back of overall softness in global end markets and in line with industry peers. On a positive note, our core EBITDA margin increase by 50 basis points and these result in a margin of 17.8% or 20 basis points improvement excluding the effect of IFRS 16. Here productivity gains, cost control measures and price increases more than compensated for the lower stages higher raw material costs in scheduled site maintenance.

Now, Albert has already briefly mentioned our investment projects. In this slide, you can see that Lonza's passed performance trajectory is mainly based on the investments we made 10 years ago. After meaningful investments in 2009, we have invested an average of 8% of sales in CapEx between 2011 in 2018. During this period, we experienced growth and profitability based on existing assets alongside improvements in operational and commercial excellence. Now in 2019, we increased the level of CapEx to 13.3% of sales and this was needed to meet the increasing breadth and scale of market demand and to support our long-term growth trajectory.

We anticipate that the 2019 elevated CapEx will be replicated in 2020, but from 2021, we expect to return to a normalized level of around 10% of sales based on our existing project pipeline. Our growth CapEx of course also drives growth in operational expenses as we have seen. Now, let me turn to our operational free cash flow in 2019. As discussed, we saw increased CapEx spending behind the growth initiatives in LPBN. Networking capital had a year-on-year to support growth, but with higher days of inventory across several businesses.

In addition to the business growth, one inventory driver was extending the value chain in small molecules by producing intermediate. We're currently working on plans to achieve an improved level of inventory in the future, while continuing to serve our customer needs. So let me summarize, Lonza achieved an operational free cash flow before acquisitions of free CHF399 million, then if we include the proceeds from the disposal of Water Care, our operational free cash flow amounted to CHF995 million. This of course was mainly used to finance our dividend, interest, taxes and to pay back debt. Now my final slide.

Here, I wanted to share the trajectory of our net leverage over the last three years. I'm pleased to confirm that we have delivered on our guidance. Net debt to core EBITDA ratio was decreased to 1.83 times by the end of 2019, outperforming our guidance of below two times. Our S&P rating has been confirmed at the beginning of the year triple B plus with stable outlook and these strong rating allows us to refinance over 2 billion of term loans in September. We have benefited now tighter pricing and substantial improvements in structural flexibility.

Our objective for the future is to maintain our strong investment grade rating in this area. So, I hope you agree that our results for the full year are both positive and encouraging for the future. We're entering 2020 with a strong balance sheet to fund our high return, risk managed investments and to support our future growth. And with that, I'll pass it over to Albert. He will go over highlights on the segments starting with LPBN.

Albert Baehny: Thank you, Rodolfo. Let me begin by summarizing our CDMO services business in LPBN. Lonza announced several new customers and projects in 2019, starting from biotech companies to big pharma. This list is not exhausted and we cannot disclose most of our customers for reasons of confidentiality. At Group level, we can say that we serve 700 of customers overly and with that millions of patients.

Let's take a look into the performance of our CDMO services business more specifically. Our highly potent active pharmaceutical ingredients offerings have made a positive contribution with a number of new long-term contracts signed with customers including AstraZeneca, among others. Small molecule sales were up double-digits in 2019. Mammalian and microbial saw ongoing strong momentum for its clinical and commercial offerings. We signed several commercial agreements for new and existing assets and have meaningful visibility for the mid and long-term.

Double-digit sales growths were achieved with mammalian and microbial business. Commercial capacities for 2020 are largely committed. We also have good visibility for the clinical offerings which are much more short-term in nature. I want to take a moment to focus on our cell and gene technologies. Cell and gene technologies delivered a highest number of new customer wins ever in 2019.

Last year, we signed a significant number of clinical and commercial contracts with new customers including, among others Cellectis, Prevail and DiNAQOR. The business also saw a new contract with existing partners including Mesoblast and Gamida for commercial supply. Now let's look at some of our investment highlights for 2019 in the LPBN segment. Let's start with Ibex solution. We confirmed a major multinational pharmaceutical company is new Ibex dedicated customer.

This agreement relates to the manufacture of a commercial microbial-derived product and comes as an addition to other Ibex dedicated partners including among others Sanofi and Portola. Our integrated service offerings in preclinical and clinical are still gained traction. In this area, we announced Genmab and Alector as new customers. On HPAPI and bioconjugated, AstraZeneca signed a long-term manufacturing agreement with us for the delivery of a number of products containing high-potent active pharmaceutical ingredients from our Visp sites. To meet increasing clinical launch and commercial market demand, Lonza started an expansion of its bioconjugation in Visp.

Visp has been developed in parallel with a successful commercial approval of several anti-drug conjugates produced at the sites. The acquisition of the Novartis Stein facility for drug product manufacturing was completed to complement our existing development services with sterile, fill and finish offerings. We are not able to cover the full product lifecycle. At the end of 2020, a new mammalian fermentation side will be operational China. The site will provide development in manufacturing services for early to late clinical and commercial launch projects.

The new site will house a 17,000 square meters multiproduct facility, implying single use technology with significant adjacent expansion land secured. The long-side investment listed here, we also delivered further capacity expansion with our multipurpose 6,000 liters bioreactor in Portsmouth coming online or so at the end of this year. And I will need to spend a few words on the lengthy build and return process for any bio-therapeutic projects. CHF1 CapEx investment is expected to translate into more than CHF1 revenue annually after your six or seven. This allows the necessary time for construction, ramp up validation approval, start of operational and put utilization of facility.

This means that our planned projects are largely expected to contribute to continued growth in LPBN beyond the midterm guidance 2022. This shows that the discussion to invest in a new biologic drug manufacturing facility must be taken year in advance of any solid market data and before clinical phase three trials are completed in other words forecasting is almost precise focusing using the just impossible not out most impossible it is impossible. You either invest in advance and you have capacity available or you get too late and you're missing business opportunities. In 2019, we also invested significantly in innovation four of our highlights are presented here. Protein expression, we have announced the next stage of the evolution of a GS Xceed toolbox.

As the format of innovative therapeutic proteins become more complex and harder to express, we're looking for new solutions. In March, we started to bring our single-box Cocoon autologous cell therapy manufacturing device to refer this complicated phrase as a pilot project with the Sheba Medical Center, the largest hospital in Israel. We made good progress in net 2019 and the Sheba Clinical Medical Center anticipated dosing the first patients with Cocoon during the second quarter of this year. In 2019, as strategic joint venture was agreed between Lonza and Danish company, Chr. Hansen, for developing and manufacturing live biotherapeutic products for pharma and biotitic customers.

The 50-50 controlled legal entity has approval to start operation under the name of BacThera. While Chr. Hansen contributes its extensive knowledge in manufacturing BacThera strengths that brings its strong capabilities in drug, delivery, technologies. But as it means they bring the strains of the bacteria -- we bring the vehicle to bring this bacteria into the [indiscernible] into anaerobic environment. We now turn to our product business in LPBN.

Let me summarize our 2019 business performance. Our bioscience business for medium, cell culture and the toxin detection testing solution and quality control software also increasing demand based on favorable market trends, drug discovery and cell therapy. Our pharma hard capsule business saw a good demand for specialty polymer. The business was supported by new product launches, but challenged by a difficult market condition in the U.S. Sales were up low single-digits.

Our nutritional capsules business while negatively impacted by increased competition, the business started to implement commercial with first impact in Q4 last year and carry on expected 2020. Nutritional capsule sales declined low-single. Finally, our smaller nutritional ingredient business experienced soft sales in 2019. We now move from LPBN to Specialty Ingredients, LSI business. In the second half of 2019 end markets did not come back as expected especially electronics and automotive in Asia remaining soft and vitamin B3 suffering from African swine fever.

Supply chain disruptions in 2018 became worse beginning of last year with a major incident in China. This impacted supply globally for important raw materials and specifically impacted the supply of BIT, which is used in some of our key products. LSI started to operate its two distant units, comprising one leading portfolio for microbial control solutions, MCS and a division of Specialty Chemical Solution, SCS. Let's first focus on microbial controlled systems or solutions. Professional hygiene and home care saw positive performance with continued strong sales.

In most market segments sales were up last year. Personal care saw an uptake in H2 with our anti-dandruff platform for healthcare. Wound protection experienced stable demand but saw an increasing competitive environment and pricing pressure especially in the U.S. market. Within material protection, Lonza's oil and gas industry solutions performed strongly.

These include corrosion inhibitor in bioscience. Polymer and textiles faced softer market demand from the automobile industry. Paints and coatings also saw good performance, driven by pricing management. Sales were up high single-digit. Crop protection faced ongoing customer destocking after a dry 2018 summer in Europe, aggressive competition from China and further dry weather in 2019.

Within LSI, we will now move to specialty chemical services. The specialty facility connected services business was negatively impacted by negative cycles in some end markets. Total sales were down. The demand for consumer electronic was weak, impacting particularly the composites business. Custom manufacturing closed at the same level as the previous year.

Lower volumes in industrial intermediates resulted from competitive pressure in China and external supply chain challenges. Finally, demand for agrochemical ingredients was down and the vitamin B3 business was impacted by lower volumes due to the African swine flu in Asia and low prices in the beginning of the year because of over capacities. The specialty ingredient sector is in the time of significant change with new opportunity primarily driven by an increased demand for environmentally friendly and sustainable products. We continue to innovate and expand our presence in the personal care market. Out anti-dandruff platform was successfully expanded in 2019 with a new offering.

In the Wood Protection, we have developed an effective formulation to protect engineered wood against termites, a threat especially in North America with wood being the primarily construction material for private housing. We focus bioactive and innovative ingredients for skin rejuvenation and have launched several new products. We now turn from a review of past performance and focus on our outlook for the future. We are able to provide this outlook for full year 2020. High single-digit sales growth with Pharma Biotech & Nutrition, low single digits is gross in especially chemical ingredients, and sustained core EBITDA margin.

As a final note, I also want to confirm that lonza's Board of Directors is actively searching a new CEO. We expect the process to be successfully completed with a candidate to be announced during H1 2020. We are also pleased to confirm our midterm guidance, 2022. The outlook 2020 is the next step in achieving this midterm guidance with all necessary building blocks being in place. Let me conclude with key priorities for this year, deliver our budgets and the building blocks to reach the midterm guidance, finalize the carve-out by mid of this year, focus on execution of our key growth initiatives, continue with our current effort regarding our innovation pipeline, identify, develop and retain top talents, short-term and long-term value creation.

And finally, we will review the future plans, the future alternatives for LSI. This is the end of our presentation and we are ready to listen and to answer your questions. A -

Albert Baehny: Daniel, the first hand, the competition.

Daniel Buchta: Daniel Buchta from Bank Vontobel. Maybe two questions to start with.

I mean, you have your 2020 guidance saying stable core EBITDA margin, but roughly 300 basis points less to reach the midterm guidance. Can you help us bridge a little bit what the drivers then in the next -- in the next -- two later years are to get to the 30.5% margin? And then, you were mentioning on one of the last slides to review future plans for Specialty Ingredients, what could these future plans be and help us to understand that a little bit? Thank you very much.

Albert Baehny: If you don't mind, I'll start with the second question and you take the first question.

Rodolfo Savitzky: Very good.

Albert Baehny: Well, we have initiated and we are carrying out the carve-out process.

The carve-out basically is to bring clarity, transparency between two businesses, which have almost nothing in common, chemical on one side, pharmaceutical on the other side. So, the first purpose of the carve-out is to bring transparency. At the same time, if you look at all heavy investments, almost $700, $800 million LPBN, it is clear that the long-term strategy focus will be on LPBN. So, if we combine the both, now carve-out bring transparency, high investment on LPBN at one point in time and this will happen this year, we will review the strategic alternatives for LSI. Now, this exercise will start at the board level, it is not yet started, but we will review during this year which direction for this business.

We keep it. We make a spinoff. We can sell it or we can go for the IPO. So don't speculate for the time being because we have to do this work entirely. It will start now, it will take some time, and at one point in time we will inform you into one direction, we think this business should be.

This is where we are today. Carve-out is key, carve-out would be implemented, strategic future for LSI start to be in all brainstorming session at board level. Rodolfo, you take the first one?

Rodolfo Savitzky: So when we say, there are three -- there are clear building blocks to reach the midterm guidance 2020, we refer to three main building blocks. Number one, relates to the pharma business and here you have any very strong operating leverage, what does that means, the business that is growing high single-digit as were guiding this year grew double-digit. You have relatively fixed cost structure.

So with the continuation of the positive growth momentum and the fix cost structure you get significant uplifting margins. The second important part in terms of building blocks is of course we're reinvesting significantly behind growth initiatives. We have said that whenever you put CapEx, you also need to invest in OpEx, we're talking about the range of 10% to 50% OpEx to CapEx. But of course this is a discretionary decision and we have highlighted the 1920s these are investment years in that we will return to more sustaining lower levels of investment in the future. So of course when you reduce the level of investment is automatically significantly reduces the drag on margin.

Then last but not least, the carve-out in LSI helps the business reach a level of autonomy where they can right-size there organization to feed a specialty chemical operations, and here over time, of course, not tomorrow because we're going through finalizing a carve-out a recovery but the significant opportunity for increased operational efficiency or organizational efficiency and of course that would allow this business to comfortably cross a 20%, core EBITDA margin that we have guided for 2022. So with these three elements, we have all the building blocks to reach out.

Albert Baehny: I think the next question was the second-fastest person that is here. We have to respect the order.

Patrick Rafaisz: Patrick Rafaisz from UBS.

Three questions, please. The first is a follow-up on the strategic options for LSI. Will that be a decision that the board takes and the new CEO will then just execute? Or are you waiting for the new CEO to discuss? That’s the first question?

Albert Baehny: The answer is very short we don’t quit.

Patrick Rafaisz: Good thanks. All I needed to know.

Second question, on cash flow and CapEx, you overshot to bid price on the 11% to 13% range and it looks like you will be above that again in 2020. What changed here?

Rodolfo Savitzky: Should I take it.

Albert Baehny: You could -- I may comment afterwards, but you can start the answer, yes.

Rodolfo Savitzky: I mean, yes, we guided 11% to 13%. At the end of day, we ended with 13.3 I would say I mean, I would consider that to be in line with the guidance and I would say at the end, these are a couple of years of investments and you know how the investments travels between the three years.

Albert Baehny: I'll add only one thing. Don't underestimate two things for Lonza. First of all, the amount of CapEx, we are close to 800, we used 300 recently. And the second point is complexity, the complexity in the investments, in mammalian, in microbial, in antiquity conjugates in cell and gene therapy. Those are very, very complex project and if we start with 100 and we end up with 110, what the hell.

We estimate these investments. Don't underestimate the complexity as well. The comment I want to make, the amount and the complexity. And we come from 300 to 800. This is a stress massive within the organization.

And there are some deviations that are domestic.

Patrick Rafaisz: Okay. Thanks for that. And then the last one, Rodolfo, you also talked about tax, the tax rate in 2019. Can you quantify the one-offs here and add a bit more color to positives here, the benefits of tax rate?

Rodolfo Savitzky: Yes.

Without getting into too many details on the tax, what I can say is, yes, as usual, there were a number of one-offs. But interestingly, the majority netted out. So, I would say the net impact of one of the one-offs was relatively limited. One of them was, let's say the first of tax of the Swiss tax reforms, but again, with a very limited impact. The majority of the tax effect was related to a change in the mix of our country profits.

We have this year a higher profit in some of the lower tax jurisdictions and the opposing effect in the higher tax jurisdictions. So, this is mainly related to companies and this is something that as I also told in my representation will not be sustained. So, we continue to guide for tax rate below 20% for the coming year.

James Quigley: Hi. This is James from JP Morgan.

In LPBN, how we think about the competitive landscape now. So, ADCs, you're very strong with three out of five commercial products. And so that's an area you're very strong in. But are there any other areas where competitors are catching up to you which may impact your ability to take advantage of the market growth? That's the first question. Second question, broadly on the margin, if you exclude the investments, what would the margin expansion have been? Just to give us an idea of what the underlying margin expansion is? And then I think I'll leave it there.

Albert Baehny: Can you bring Slide 16, please? I'd like to use one slide to answer to your first question. I think it's 16. No, this one, this one, yes, this one, can I have the pointer. I'd like to start with this slide. This is for me the most important slide, if you want to understand our business and our competitive position and what we are doing.

On the right inside, thank you. On the right side, you have the list and a simplified list of the technical platforms we are active in; chemical synthesis, mammalian and microbial fermentation, bioconjugate, by far the market leader in the technology and business size; cell and gene. You have to segment cell is not only cell it is cell autologous and allergenic. Viral vectors for gene technology. We have cell culture.

We have the media and we have the delivery forms. There is not a single competitor in the CDMO world offering this breadth of technologies. So number one. We're the largest. We have access to the largest portfolio of technologies.

This is unmatched. Secondly, this is unmatched because we decided to go for it transversal strategy and not a vertical. We could to some extent being vertical and say, we focus our efforts and investments only cell and gene therapies, look good enough. We want to be the CDMO player, adding access to the most important technologies. Now what does it mean as well, with this list of technologies we have we have access to molecules every year.

As a compound reason as pharma company, we will develop, will be working a $60 to $70 molecules a year, we have hundreds of molecules, we are the largest medical portfolio in the preclinical, clinical phases in the world. Now people makes often they are comparison with Wuxi. I gave only one figure and I never underestimate competition. On mammalian segmentation, we have a capacity of more than 200,000 liters more. Wuxi has 50,000 liters.

Before they reach the 200,000 liters, we will have maybe 1,400 liters. In other words, it will be very difficult or extremely expensive for example for a Wuxi to have access to our capacities. This is not cheap business. This is hundreds of millions. So first answer we are the best technology platform and we have and we have the largest experience worldwide is a CDMO per year of course it is important list of technologies.

This is key to understand why we are doing so well in LPBN. We have this know how we have the capacity, and we invest a lot and the other question was on the margin I can't remember.

Rodolfo Savitzky: You want me to.

Albert Baehny: What was the question?

James Quigley: To elaborate on the margin impact of the investment.

Albert Baehny: But I'll give you one example, I go into maybe a detail here, but I take the risk to give you a number.

If you take 2019 and we take three main investments the Ibex biopark, we take the investments in Portsmouth for addition 6,000 liters in the mammalian technology, and we take one through China. For the three key investments, we spent around the CapEx last year CHF380 million to give you an order of magnitude, only of these three investments Ibex, Portsmouth and China. For these 380 million CapEx, we needed around 60 million in OpEx, sales zero. This year for these three projects, we will need additional CapEx of around CHF240 to CHF250 so it will be best 60 this year for the investments and the OpEx because we are close to the ramp up phase the OpEx will go up 140, 150 million. This is the impact on the margin.

I repeat it next year, these key figures, 318 million in CapEx, around 16 million in OpEx, no sense, this year even more even again started pressing CapEx. The OpEx go up because we're close to start the production, 640 and 60 million and that will be phased at best for this investment in this year's best 60 million to 80 million. This is how it works. It takes three to four years to build the plant. You OpEx is increasing with the year and only after five year, four, five you start making sales not before.

This is the last cycle of an investment in this business. So when we say, we can maintain the operating margin next year, it means we do a lot of reports on the productivity because with this extra cost OpEx to support the CapEx investment. This is most important plan, sorry to insist if you want really to understand the business of Lonza, key. Indeed we should go on each single technology in details. What our strengths, where is competition and so on, we should do it maybe one day.

Sorry, I repeat, very important.

Remo Rosenau: Remo Rosenau, Helvetische Bank. If we assume for the sake of scenario and as I said, LSI would leave Lonza at some stage, then you would obviously have to redefine your targets 2022. Now that is only two years, then you could say well, it’s a different company now, we now set targets 2025. Or will you adjust this 2022 targets steady could see check, if you will reach them?

Albert Baehny: Well, first of all, you, the impression I have -- and apologize, if I’m wrong and if I heard some of you -- I have the impression you want to have this guidance on 2022, so you give the guidance.

On the guidance 2022, we feel comfortable that we have the right building blocks. And in these individual building blocks, we're doing the right things to achieve that Remo, yes. But the way we see ourselves.

Remo Rosenau: Let me ask you from another angle. If you would redefine targets without LSI and for 2022, is it the fair assumption to think that the margin improvement potentially be a bit lower, I mean now we already talk about 300 basis points, but with our LSI it will be probably bit less than 300 basis points, I will just take the other part.

Albert Baehny: I’m prudent because other four cities and I took the example on purpose, don’t underestimate this high operating expenses linked to the CapEx investment and this year it will be rolled how its 40 million and its 50 million we will not generate sale at all zero, but on top of the rest and if we can maintain the margin I think it's an result. So in one point in time the sales will move up, it will start in 2021, 2022 sales will go up based on this 240 million and then the margin will go up yes, otherwise we do a poor job.

Remo Rosenau: Fair enough thank you.

Albert Baehny: But that don’t give the numbers exact and we would say but this is business logic we're suffering now because of this investment and with delay we will be enjoying fantastic growth rates in sales and margin line is hopefully. From our success we will enjoy the sales growth.

Holger Blum: I got the mic. Holger Blum, Patinex Management. A question on the LPBN business, maybe you can talk a bit more about the product business and the trends there? You just were seeing soft demand in nutrition, maybe you can give us some granularity there and then on the growth rates of the CDMO and the absolute size versus the product businesses with LPBN?

Albert Baehny: The first question is related to LSI in general or to…

Holger Blum: LPBN, you obviously have more business which seems to doing terrific and on the other hand on the products business, it's founded more muted. Maybe you can...

Albert Baehny: We are lucky to be, let's be fair in a very healthy business environment biologics, bioproducts, bioprocessing growing annually at 8% plus, and we are in this business.

So, when we say that, we have been able to grow double-digit, it means, we are benefiting and we're capturing the big portion of these growth, which is offered by this market. So, we are to some extent, outperforming the market with our growth rates bio product, bio processes is around 8% went up to 10%. So, we are doing better than the market. On the product side, the largest business is a capsule business, and last year, we did not performed well. The total business sales were flat.

Nutritional sales were down and the pharma side of the business was up. So, we did not, we underperformed the market with the capsule and you know the size of this business because of the accepted of 1 billion and with 1 billion sales we have not been able to capture basically what the market was offering for external reasons, but just to be fair also internal created reasons.

Holger Blum: Okay. And outlook there, you're expect an improvement or...

Albert Baehny: Now, we're putting place measures to correct this sales trend, which we don't like.

And yes, we should be able this year to develop to generate positive sales growth with capsules business, which was not the case last year.

Holger Blum: And then the last question while you have molecule on Slide 11. What are the missing pieces in that technology list that you want to fill and then it leads to the stronger balance sheet and acquisitions?

Albert Baehny: Okay. So, it's an easy one. But, I'd like to simplify.

If you take product lifecycle of a drug, starting from discovery to commercialization, first of all, we will not and we are not in the discovery phase. This is job of the Novartis Our business start just after the discovery phase, and we end up with drug substance in the commercialization. What we cannot afford today is that the drug product, because we don't have the fill and finish facilities for commercial volumes. This is the only thing we are missing if we don't want to be in the discovery phase and if we don't want to commercialize the finished drug but only produce. We are missing one element.

This is fill and finish for commercial volumes. Otherwise, we have a fantastic portfolio of technology platform discovery.

Mark Purcell: I take the hint. It's Mark Purcell from Morgan Stanley. I have two questions.

The first one is. Is there possibility that CapEx remains higher for longer because your guidance is based on existing pipeline as opposed to emerging pipeline? So for example, I'm thinking Alzheimer's and the aducanumab and the all the other antibodies in development. That's a very active area, which could require hundreds of thousands of liters of capacity depending on where we go with the FDA and the political agenda there. I am thinking about new technologies probably thinking the winners in an area like most myeloma at the moment is the sort of four or five fourth raise in terms of the technologies mega view EOB, autologous NK cells switch and not just the winners. So just some thoughts and in terms of things are not currently within your pipeline, which may mean that for the right reasons, I'll take phase stronger for longer 2Q maybe another one and the second one was just going back to Holger's question.

In terms of building more capacity and capabilities, would you be interested in acquiring technologies assets within protein discovery?

Albert Baehny: Start with the first question and I'll take one word, Alzheimer. If Alzheimer -- if any technology is accepted by the FDS on Alzheimer, this is an industry problem, because industry will be missing capacities anyway. Now, if Alzheimer is coming through, I hope that the winner will come to Lonza and say, can we together build up capacities, we share the cost and we share the benefits. If Alzheimer comes I suspect nobody will be able on its own to satisfy the volume demand and that will need a partner. And hopefully, we will become his partner and then we have to invest clearly that will be -- there is already today missing capacities if Alzheimer come, it's fantastic for us.

Now on new technologies, I will not like to answer it specifically as you asked, but I want to say the following. We are convinced that there will be more and more breakthrough technologies and these breakthrough technologies will be will get an accelerated approval as the FDA level. Why? Because its breakthrough technology will be the only one being able to cure cancer and this will come. And as it take the speed of new breakthrough technologies, linked with approval will accelerate. And then, we have to make all of our decisions in which area we going to invest.

But if you take the fantastic improvements of genomics, you will not have a blockbuster for diabetes in the future. Genomics will be segmenting diabetes in different categories and then you will have different technologies different assets needed for different segmentation of their better this fantastic, but this will require additional CapEx yes. So, there will still be room for large blood vessels, but I believe in the future there will be less and less blood vessels and more and more fragmented smaller volume drugs and we that will require specific investments. So, if the need for CapEx is there because we are successful welcome invest assuming you generate enough cash flow. Sorry you never answer but the only way, but I am convinced breakthrough comes and acceleration of approval will come as well.

Mark Purcell: And the second question in terms of investing deeper into protein discovery, so vertically integrating down as opposed to up.

Albert Baehny: We prefer.

Mark Purcell: Horizontal

Albert Baehny: For the time being, thank you. Then I have to last question because there are question on the phone. Correct, so last one from the room, sorry.

Carla Banziger: Carla Banziger, Vontobel Asset Management. I have two questions as well. I'm not sure whether I understood you correctly before. Did you indicate or is there a change in how you build the set of these compare to the former management, which always said that they do it when they have the contract and they have the commitment? And the second one is around the operating cash flow, so it's probably one for Rodolfo. So before CapEx, can you maybe indicate the split between LSI and LPBN just that we get the feeling for the cash flow generation?

Albert Baehny: You start the second one and I will think about the first one.

Rodolfo Savitzky: So your question Carla is before the CapEx so meaning operating cash flow between. Look if you exclude the CapEx, the level of cash conversion of both businesses is similar.

Albert Baehny: Did you answer?

Rodolfo Savitzky: Yes.

Albert Baehny: Okay. To your first question, this is a fundamental question and it is, it has to do with Lonza philosophy but also with the market and I'll start with the market.

I studied during the introduction, it is impossible to forecast precisely the need, the demand for specific drugs. First of all, you invest before having the market data, secondly only for biologics you get the security yet your drug will be good only at the late phase of clinical Phase 3. So, if you want to have access to business, you must pre-invest in capacities. Now what are we doing with Ibex? And this is the Ibex concept. We invest in the infrastructure where we could install capacities rapidly.

So we had end the capacities in the infrastructure if you take ibex building 1, in Visp one wing is overly installed with equipment to produce and one wing is empty, completely empty and we will build put and place equipment in the second wing only when we have contracts, but the infrastructure is there what does it means. The difference between having access to this infrastructure and the greenfield build up capacity is tune off here. So we are giving to the capacities we have an advantage of two and half shares because we are pre listed in the infrastructure. The equipment will come only when we have signed contracts that clear. Make the distinction between pre-investment infrastructure and equipment investment, which come only along with the contract.

It's clear? Because my job -- our job is not to confuse you, it's to clarify. So where are the question from the -- how does it work? I don't know. Kristin, there are questions from -- no?

Operator: The first question from the phone comes from Jo Walton from Credit Suisse. Please go ahead.

Jo Walton: Thank you I have three questions please.

Firstly on LPBM, your guidance for 2019 was the high single digit sales growth. In the second part of the year, you managed to produce 12% sales growth. As you look forward into 2020, you have highlighted that a lot of your capacity is already earmarked. I just wonder what opportunities there could be for you to show double-digit sales growth again in 2020 rather than a decrease that you are currently forecasting? My second question relates to the corporate charges. As you moved to carve-out and potentially get rid of the LSI business.

How should we think about the remaining $100 million a year of corporate expenses? Is there anything could happen there? Would some of those go with LSI or will they have to remain in your existing business? And finally to help us modeling, I know you have told this that the tax rate would be below 20% because it was only 10% in 2019. So, current consensus appears it being about 17% for next year. Are you happy with that, is that correctly broadly speaking reflect this reversal that you're saying of the tax rate by geography. It's just below 20% is still not particularly precise to help us in our modeling. Many thanks.

Albert Baehny: Okay. Thank you for the questions. I'll start with the first question, LPBN growth rates, why only high single-digit in our guidance. I mean, yes, we delivered double-digit growth rates. I think what is missing at least for me to be true and able to guide with double-digit is to have to make sure that our capsule business will come back to nice growth rate in the future.

When this is the case, remember, it is $1 billion sales our of $2.2 billion sales in LPBN, if we are baked to sales growth low single-digit that will be with the capsule business then we may take the risk to guide with double-digit growth. Rodolfo, if not mind the financial aspects.

Rodolfo Savitzky: I'll take the next couple of questions. So on the corporate expenses, of course, Albert said, we are in the early stages of planning different options regarding the strategic review. We have done some preliminary analysis and naturally the objective is to eliminate standard cost in the event for we saw we want to separate the businesses.

But this is difficult to reduce see us. So, we expect let say a range of between 25% and 35% at this particular stage of standard cost but again it's very early and related to corporate numbers and this is something that of course have to be refined and the objective is, this is a number that we would like to reduce. And then on the second question regarding the taxes, well, again the guidance is below 20%. Now you'll say any current number you put on the table is 17%. Look, I would say, given the tax of performance of our company, I would not be surprised if eventually below 20 would be close to a number you mentioned.

But again, certainly right now, there's a lot of elements are playing to the tax planning. So, the official guidance remains below 20%.

Albert Baehny: Thank you for the question. Next one.

Operator: The next question comes from Patrick Wood.

Please go ahead.

Patrick Wood: Perfect. Thank you for taking my questions. I have three quick ones please. And the first one would be on the cell and gene therapy business.

You ideas for how to get margins up in this business, is just for cases the business model developing over time on the autologous side? Or is there something else going on? So one, cell and gene therapy margins and the plans there. The second, small molecules double-digit growth is a lot better than I was expecting and a little bit of color there will be helpful and how we should think about that business going forward? And then finally on the CEO candidate, if you could just pick one thing what would say the single most important factor that you're looking for? Thank you.

Albert Baehny: Okay, I'll start with the last question because I still remember it, CEO. The emphasis in the search and in the selection of the final candidates will be on his management skills. We want a humble person, combined with ambition.

We want an integral person, open, transparent, communicative, building up teams, asking dissidents to get their views. So, the main emphasis will be on the soft side on the human side of the management skills side. On the first question cell therapy margin, if you ask the question I suspect you know how it works today in this area. It is a manual process. You have up to 50 individual steps, all individual with humans making mistakes, then you have a very complicated supply chain between the patients, the manufacturing, the multiplication of the cells the transfer of cell to the patient.

This is a very, very delicate extensive process. So, the industry will have to and is working at ultimate automating these processes. Once this is achieved, it will be certainly become a highly profitable business. But today it's clear this is not profitable, it's too much manual work delicate work with big lot of problems and supply chain is highly complicated and sorry, I missed this question in between. I can't remember it.

Sorry for that.

Patrick Wood: The follow-on is on small molecules and the growth there in double digits, very good, just little a bit more color would be great, please?

Rodolfo Savitzky: Double digits in small molecules, if you could provide more on that?

Albert Baehny: Well, the demand is very strong. We have the assets and I mentioned in my introduction, the HPAPI, the highly potent this beginning in traction. We are one of the unique players here with this HPAPI manufacturing know-how and this is the reason behind these wonderful size, growth, the market is strong, and we have the technology and the assets to meet the demand.

Operator: The next question comes from Peter Welford from Jefferies.

Please go ahead.

Peter Welford: And first, we'll just return to the CEO and I appreciate your comment on the soft side that you're looking for. But with regards to the business set, I guess, are you looking for someone who's more experienced in pharma biotech? Or are you looking for someone who could also understand sort of conglomerate structure and the chemicals? I guess coming back to your comment for the focus is absolutely on the pharma and biotech. I guess would it be made clear to see CEO that, that's obviously therefore it's a skill set that's required, and if it doesn't make sense to for the board to reach a decision internally on the future before appointing the new CEO. And then secondly, just on the margin, I guess just trying to understand the impacts of the employees that you're hiring.

Obviously, I think you hired around 1,000 people this year, you made the point, there is only around 500 if you like on average, it is a similar number next year. So I guess when we think about 2021 therefore, we will obviously have the full roll-on effect with these additional employees as well. So I guess just only think about that, how should we think about the headcount going into 21? And if this now maybe end if you like as a hiring period or the significant hiring period this year or should we continue to see a significant further future increases to employees in future years? Thank you.

Albert Baehny: Thank you for the questions. CEO, technical profile ideally I put this on purpose that strongly ideally 20 year plus experience in the pharmaceutical industry strongly knowledgeable on biologics, cell and gene therapy, somebody who has been able to manage a complex organization because we are complex and the market is complex.

Somebody who is demonstrate the capability of change management. Somebody who is extremely will connect in the world of biologics, start up, institutes, big pharma this is on one side of the idea type of experience. We would like to find out. On the employees, as long as we invest 12%, 13% of sales, we need people and we need people before the plant started because we have to train the people. So we have three investments as well in people and this trend of hiring 100 of people on annual base we continue this year and next year.

And then we should slow down. Keep in mind this investment process where we need to invest before we produce to qualify to tell the people. And when we start producing, we need an extra, of course, OpEx on employees to manage the branch.

Operator: The next question comes from Friedrichs Falko from Deutsche Bank. Please go ahead.

Friedrichs Falko: I would have three very quick questions left. Firstly, what should we expect in terms of carve-out related cost in 2020? Secondly in the nutritional hard capsule business, how do you plan to go up against rising competition? Thirdly, what makes you confident to have a fully restored supply of BIT by the end of the first half of the year? How good is visibility on that?

Albert Baehny: With BIT, we're convinced because we negotiated new contracts and there are -- of course, you develop alternative. We're convinced if there are no incidents in China, we will have access to the volume we need on BIT mainly for the LSI business paintings and in personal care. The driving competition, I don’t understand it is on general, on LPBN or -- your question on driving competition, I miss it. You have it.

Rodolfo Savitzky: I think you mentioned capsules, but it was…

Albert Baehny: The competition in capsules, can you repeat your second question please?

Friedrichs Falko: Yes, so in the nutritional hard capsule business, in your release, you've mentioned that there is rising competition that led to the decline?

Albert Baehny: Okay, now the main competition on nutritional capsules is coming from India and China. They are selling nutritional capsules, empty capsules for around $130 for 1,000 units. And the market price for this same capsule in Europe and North America is around 350. So, we're facing a price, aggressive price competition from Indian and China on pricing. This is one of the reasons for the issues we face with the business in 2019.

And the carve-outs…

Rodolfo Savitzky: Yes, so, basically we commented for 2019, the amount was $19 million, the carve-out cost. We expected a similar amount in 2020 around that level.

Albert Baehny: So, thank you for your questions. We end up the Q&A session now. We'll look for another last question in the room, and then we go for the drink.

Any questions, otherwise, thank you for coming. Thank you for the questions and we can thousand questions during lunch. Thank you very much.

Rodolfo Savitzky: Thank you.