Operator: Ladies and gentlemen, welcome to the full year results 2020 investor and analyst conference call and webcast. I am Alice, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Pierre-Alain Ruffieux, CEO.

Please go ahead, sir. Pierre-

Alain Ruffieux: Thank you. Good morning and good afternoon to you all, and thank you for joining this call. I'm Pierre-Alain Ruffieux, and I have been the CEO of Lonza since the beginning of November last year. I'm pleased to join you today for my first full year results presentation.

I'm joined on the call by Rodolfo Savitzky, our Group CFO. Here, you would see a short overview of our schedule for today. I will provide a brief overview on performance at group level before handling to Rodolfo to share an update on our full year financial performance. I will then take you through an overview of each of our segments and businesses, before providing an update on our 2021, also our mid-term guidance. We will close the session with a Q&A session.

Let's start by taking a look at our group performance and highlights for 2020. As communicated last year, LSI is being reported as discontinued operation, meaning that LPBN now represent our continuing operation. We have delivered on our guidance for 2020. The full Lonza business delivered 12.0% sales growth at constant currency and CHF 1.4 billion CORE EBITDA. This represent a 31.2% margin.

These numbers reflect the performance of the LPBN segment, which achieved 12.2% sales growth and a 32.1% CORE EBITDA margin. We saw a strong performance across our LPBN business, with Biologics as the primary driver of growth. In this year of pandemic, our collaboration with Moderna on the COVID-19 vaccine represented a milestone for our business in Biologics. We have started the production of the active substance for the vaccine at both our Portsmouth sites in the U.S. as well as in Visp in Switzerland.

Turning to the LSI segment. We have also achieved a fairly solid performance, with 3.4% sales growth and 20.3% margin. In July last year, we took the decision to divest the LSI segment. It has been classified as discontinued operation in our 2020 financial results. Having decided to divest the LSI segment, we are now able to focus on the LPBN segment, which will become the future Lonza.

This represents a moment of opportunity as we achieve a clear identity as a single business operating in a single industry. To ensure we are optimally set up to deliver future success, we have spent some considerable time and effort in redesigning our business into 4 division and 5 function. We have also worked to update our financial reporting so that we can begin to report divisional performance in the future. Here, you would see an additional level on which our businesses have been placed into each of our new division. The new structure is designed to create clarity for customer, while improving performance and operational efficiency.

It has been developed in response to how customer interact with our business, ensuring that we are set up to deliver the best possible service offering. As the incoming CEO, I would like to take this opportunity to thank Albert Baehny and the management team for the extensive work on the structural redesign over the course of last year. It has left the business well placed not just for our 2020 results, but to capitalize on future opportunities. Building on the new structural design, I'm pleased to confirm that the Board of Directors appointed 3 new members on the Lonza Executive Committee, effective from April 1, 2021. These 3 new leaders would join our current EC, which comprises of our CFO, Rodolfo; our CHRO, Caroline; as well as our COO, Stefan.

I will take a moment to say just a few words about our new addition. Claude has long been with Lonza for just over 1 year and leads the Capsules & Health Ingredients Division. Gordon is a Lonza veteran, having been with the business for nearly 20 years. He is leading the Small Molecules Division. Finally, Jean-Christophe Hyvert has been with Lonza for 3 years.

He heads up the Biologics Division as well as the Cell & Gene Therapy and Bioscience Division. I would like to congratulate them for their appointment. While making strategic improvement to the structural design and governance of the Lonza business, we have taken the decision to divest the LSI segment. This will allow the business to find a home, where its value can be fully appreciated and its potential can be unlocked. I am pleased to confirm that our first round of the bidding process has concluded, and we are already working with the short list of high-qualified bidder on the second round of the process.

We cannot disclose the name of our current bidder, but we do expect to sign a deal in Q1 2021. We will be sure to provide updates when further development can be shared. On the next slide, we would like also to provide an overview on our major investment in 2020. I will not go into the detail of each project, but this overview provide an indication on our continued CapEx investment. We expect to maintain a similar investment momentum in the coming year to set you our long-term growth and success.

As infection rate began to gather momentum at the very beginning of 2020, Lonza formed a COVID-19 task force with 2

key objectives: keep our people safe and maintain business continuity. We are pleased to say that we have managed to achieve both goals as many of our employees have become used to home working, and while our lab and factory workers have quickly adapted to more stringent safety and hygienic requirements. Lonza has maintained business continuity, and in many markets, has been acknowledged as a supplier of essential medical therapies and treatment. You see here a snapshot of customers collaborating with us on lead projects related to COVID-19 over the course of the year. LSI has also played its part in helping to combat the pandemic.

Currently, 16 of Lonza microbial control solutions has been approved by the U.S. Enviromental Protection Agency to eradicate COVID-19 on surface. In May 2020, we confirmed a 10-year agreement with Moderna on its mRNA platform. This agreement provided for the manufacture of the active substance for Moderna COVID-19 vaccine. Thanks to our pre-planned capacity, we were able to move from contract negotiation to production in just 8 months.

The project has shown the commercial value of our Ibex offering, which helps to meet our customer needs around the industry challenges of speed and scale. Let me now hand over to Rodolfo to take us through the detail of the full year financial.

Rodolfo Savitzky: Thank you, Pierre-Alain. Good morning and good afternoon. The numbers today look different from our previous results because we are reporting LSI as discontinued operations for the first time.

It means that our operating results reflect the performance of Lonza as a pure-play health care business. However, one thing remains consistent compared to previous midyear and end-year presentations. Our numbers continue to indicate very strong performance. Before we begin to review the Lonza results, excluding LSI, let me just make a few comments on the results for the overall Lonza Group. This is the Pharma and Specialty Ingredients segments still together.

For Lonza Group, we guided for sales growth in constant currency above mid-single digit and a stable CORE EBITDA margin. Our results today show almost double-digit sales growth, 9.5% in constant currency, and CORE EBITDA margin close to 28% -- 28%, yes, 50 basis points above prior year. These results were supported by the strong performance of both the Pharma and Specialty Ingredients segments. So in short, we fully delivered on our guidance. Now let's turn the page and take a moment to review the results of Lonza continuing operations, that is Lonza excluding LSI.

Let me underscore the headlines already mentioned by Pierre-Alain. The results are strong, with sales growth at constant currency of 12% and CORE EBITDA margin of 31.2%. You may recall that our guidance for the LPBN segment was sales growth of high single digit to low double digit, so results came well ahead of guidance. The small margin decline of 50 basis points was anticipated, and it reflects the investments behind our growth initiatives. We see a stark difference between the sales growth in constant currency and reported currency.

This is because the Swiss franc appreciation against all our major currencies, U.S. dollar, euro and U.K. pound, had a major impact on reported sales. Importantly, our combination of balance sheet hedges and natural hedges mitigated the exchange rate impact on margin. During our H1 2020 results presentation, I mentioned that the growth projects have negatively impacted first half CORE EBITDA margin by 1.7 percentage points, and we expected a further negative impact of 3 to 3.5 percentage points in the second half.

Well, we managed to mitigate the impact of growth projects to negative 1.2 percentage points for the full year. For perspective, the year-on-year margin impact of these investments project was negative 40 basis points, as we, of course, also had growth projects in 2019. Importantly, while we had efficiency measures equivalent to almost 70 basis points of sales, they were compensated by negative product mix. I will discuss this margin bridge in more detail in the next slide. First, let me complete the financial summary here by saying that we also had very strong cash flow and ROIC results for the year.

And we will review this later in the presentation. This graphic provides an indication of the different major levers, which impacted our CORE EBITDA margin. Let me start with the investment impact. Pierre-Alain has shared a snapshot of how our investment behind growth projects progressed in 2020. For all of these projects, we need to start hiring and training the employees who will ramp up the facilities before we commence manufacture.

This means that most of these operating costs are expensed before we start to deliver revenues. To put this into context, we increased our number of FTEs in 2020 by more than 1,000 FTEs. Most of these new hires support our growth projects. Turning to our productivity. We continue to see efficiency gains in our manufacturing operations.

Cost containment measures, particularly in administrative areas, allowed us to maintain flat overhead year-on-year despite the significant growth in sales. Some of these measures also benefit from tailwinds from COVID-19, like the significant reduction in costs associated with travel. We had some negative impact related to business mix. For example, Cell & Gene Therapy continues to grow significantly and so has a negative impact on the margin mix. We need to keep in mind, though, that these high-growth business units will have a positive impact on ROIC and margin once they achieve a critical scale and stabilized operations.

We're particularly proud of our cash flow result. Our operating free cash flow was CHF 0.5 billion in 2020 and was up 36% versus the prior year. On net working capital, we already have made progress in accelerating collections, eliminating overdues. We are extending payment terms and paying on time. We still have the opportunity to optimize our inventories.

But given potential supply chain disruptions during the pandemic, we decided to maintain our inventory levels. Working capital, therefore, remained flat at 16% of sales. CapEx levels exceeded guidance. We surpassed our own expectations in accelerating the construction schedules of 7 growth projects. Just for perspective, CapEx spending in the last quarter was 20% higher than the average spending in the prior 3.

Finally, we saw a higher level of customer funding for some of our projects that you see under Other in the chart, which help to mitigate the impact of the additional CapEx. Around 70% of our CapEx expenditure was deployed on investments to drive long-term business growth. In this graphic, we made a distinction between normal growth projects and strategic growth projects. Normal growth projects provide incremental capacity or manufacturing site modifications to support commercial program. Strategic growth projects represent major investments in businesses, geographies, technologies or step increases in capacity.

Among these strategic growth projects, we have included the expansion of clinical mammalian capacity in Guangzhou, China; mid-scale mammalian capacity in Portsmouth, U.S.; preclinical services and clinical mammalian drug substance and drug product in [indiscernible] and developed in our JV with Sanofi in Visp, Switzerland, just to name a few. Looking at these examples, you can see the majority of funding was invested in mammalian manufacturing, which is explained by the CapEx-intensive nature of this business. Nonetheless, we also continue to make significant investments in small molecules, drug substance, conjugation, cell and gene therapy suites and capsules production. Importantly, all these investments continue to build our enterprise value. They carry attractive rates of return and ROIC levels of more than 30% after operations ramp up.

I should also note that many of these investments are made against already partially or fully contracted commercial programs so the project risk is relatively low. When we first saw the global impact of the pandemic back in March 2020, ensuring liquidity headroom became a top priority, given the high economic uncertainty. I'm glad to confirm that, even at this challenging time, we did not foresee any funding problems whatsoever. Still, we did our homework and refinanced facilities, increased credit lines and extended maturity profiles. With a very strong cash flow generation last year, despite investments in growth programs and the acceleration of our EBITDA, our net leverage continued to decrease.

We remain fully committed to maintaining our investment-grade rating, which is now more strongly underpinned by the favorable net leverage metric. This leads me to the last slide in this section. We are still steadily increasing our ROIC metric towards our mid-term guidance of double digit by 2023. ROIC properly captures the attractive margins of our base business and the attractive returns of our growth investment initiatives. We talked about CORE EBITDA in the first slide.

And here, we move to net operating profit after tax, or NOPAT. Both metrics are highly correlated this year, but we will face increased depreciation in future years impacting NOPAT once our many growth projects commence operations. Our tax rate remained below 10%, which reflects a combination of favorable country profitability mix, but also several one-timers, such as the impact of the canton of Valais in Switzerland tax reform. For perspective, the overall rate for the Lonza Group, now including LSI once more, was 11.7%, with a tax rate of about 20% for LSI operations. We will now guide a tax rate for Lonza, excluding LSI, of around 16% to 18% going forward.

As we continue to invest behind growth in the future, we will also maintain a strong focus on efficiency in both our existing operations and our investment initiatives. We are clear that ROIC progression and strong investments are not mutually exclusive when both sales growth and margin improvement remain clear focus areas. And now let me hand back the presentation to Pierre-Alain. Pierre-

Alain Ruffieux: Thank you, Rodolfo. Let me now provide a brief sales update on LPBN.

Our Pharma segment delivered a strong performance in 2020, with the Biologics business as a key driver of growth. As mentioned before, our LPBN businesses provend to be resilient to the potential impact of COVID-19. Our facilities remained open, and our supply chain was managed to ensure that business continuity was maintained across the segment. Moreover, our LPBN businesses worked with diligence and focus over the course of the year to expand their service offering to customer. We also saw the businesses expanding their production capacity in response to strong demand.

Also, we remain cautious as we navigate through the second wave of the pandemic. We remain confident that we can drive our current sales growth momentum into 2021. You will see here that we have reported on our 5 key LPBN business for consistency with previous financial update. Of course, we would disclose divisional results with the first half results later this year. This overview of LPBN customer projects provides a snapshot of our new wins and our organic growth.

Many new customer contracts have a reason for new focus on commercializing treatment to control the COVID-19 pandemic. We have also seen a high level of continued commercial appetite for our Ibex pre-planned offering and facilities. This has been particularly attractive to microbial and bioconjugates customer. Looking at our other wins across 2020. We are working across the value chain for many complex molecules, while growing our business from new customers in cell and gene therapy area.

We are also focusing on long-term sustainability of our business. From an environmental perspective, we are continuing to move to renewable energy supplies. We are also reducing our industrial water intensity, our global energy consumption and our carbon footprint. We have worked to create a safe and inclusive environment for our employees and made local community investment to support in controlling the pandemic. Now I would like to provide a short update on each of the 5 key businesses within LPBN.

Let's start with Small Molecules. We have seen a robust market in 2020, largely driven by a combined focus on oncology and specialized medicines. Small companies currently hold a large proportion of the pipeline, with high propensity to outsource. Speed to market is also becoming even more important as an increasing number of new market approvals are accelerating drug development and manufacturing time lines. The Small Molecules business has benefited from a robust approach to supply chain planning and in quick adaptation to virtual customer engagement.

Moreover, the business has growth with the new project wins as well as launching new service offerings. We are working to maintain this growth momentum in the long term, with the approval of new investment to increase capacity and extend our customer offering into early phase development. The Small Molecules business delivered high-end single-digit sales growth as well as supporting a margin increase over the last year. We currently anticipate double-digit sales growth in 2021, resulting from new growth projects coming online. In the Biologics market, we saw continued strong demand for large-scale capacity in mammalian last year.

Strong trend towards outsourcing continue to gather momentum, especially in mammalian, with small and mid-sized biotech firms' need for external partners to commercialize their discovery. We also see increased market demand in bioconjugates, where dedicated facilities and expertise is playing a critical role. We have mentioned before that the market has seen a surge of new drug candidates for COVID-19. We have seen more than 1,300 clinical trials over the course of last year, and CDMO partner like Lonza are playing an important role in bringing these new discoveries to market. Lonza saw an increase in new customers and program during 2020.

Specifically, there was a high level of interest in our Ibex Dedicate offering from customers looking to expand their mid-scale microbial capacity. We saw high utilization across clinical and commercial from small to large scale. This demand will enable us to commit to further capacity expansion in drug substance as well in drug product services over the coming year. The business reported strong financials for 2020, with sales growth in the mid-teens, but lower operating margin for the year, as mentioned by Rodolfo, reflecting the costs related to growth projects. As we move into 2021, we anticipate double-digit sales growth for the third consecutive year.

This will be supported by key strategic growth initiative across the business. Turning to our Cell & Gene Therapy business. We have seen market growth, driven by a focus on regenerative treatments for COVID-19. This focus has meant that other therapy has become a lesser priority. More widely, we see rapid pipeline expansion in the cell and gene therapy market, with more than 2,000 active therapies in development and more than 1,000 clinical trials in regenerative medicine.

We also see cell and gene therapy making strides towards commercial viability. There have now been 5 landmark commercial approvals for cell and gene therapy over the last 2 years. Agreement with new customer has allowed us to expand our service offering, and we have also worked to expand our vein-to-vein supply chain. This has extended our offering beyond manufacturing to meet the wider needs of our cell and gene therapy customer. We have clearly the lead in cell and gene therapy offering in the CDMO space, and the business supported strong sales growth above the market.

Margin and operational improvement was achieved as we saw increased throughput on existing assets. We expect to see further margin improvement in the coming year as asset utilization continue to pick up and further efficiency are achieved. The business is set up for success, and we are continuing to drive progress towards a positive margin. The Bioscience market showed solid levels of demand from all customer communities. This was combined by some challenging -- challenge arising from the pandemic.

We saw reduced demand results for certain bioscience products in Q2 last year as many academic and research institutes were forced to close during the lockdown. However, we were very pleased to see demand return to pre-pandemic level in the second half of the year. The business experienced a solid level of organic growth from existing customers over the course of 2020. It has also reviewed its commercial operation to improve customer experience and operational efficiencies. Bioscience reported high single-digit sales growth for the year, along with margin gains, driven by efficiency improvement.

Looking to 2021, we anticipate low double-digit sales growth. This was supported by continuing digital investment and innovation to maintain and extend our existing customer relationships. Last, but no way least, we come to Capsules & Health Ingredients business. We saw a surge in market demand for nutrition in 2020, driven by the pandemic. However, the market saw lower demand for capsule as many patients decided to postpone elective treatments due to the COVID-19.

This was partially offset by increased demand for certain OTC medications. The CHI business maintained its high capacity utilization across existing assets, which led to increased lead times for capsule products. With this in mind, we have approved investment to expand our capacity by around 15%. We are planning to bring this asset online before the end of this year. The CHI business reported high single-digit sales growth for the full year, mainly driven by its nutritional offering.

In 2021, we anticipate that interest in our nutritional offering will remain high as the pandemic continue. In this context, we anticipate low single-digit growth until our new assets come online. Now let me make a moment to share an overview of performance in the LSI segment for 2020. LSI reported a strong sales growth, accompanied by core business EBITDA margin improvement. The segment was largely able to maintain business continuity through the pandemic.

Despite these challenges, the pandemic drove sustained high demand for microbial control solutions for the year. In 2020, the LSI segment portfolio show resilience across the top and bottom line, supported by a market-orientated organization and a strategic focus on efficiency. Here, you would see an overview of business performance in the SCS division of LSI. We saw very strong performance in Hygiene, supported by new long-term customer agreements. The Home and Personal Care business saw increased interest in its preservation and laundry offerings.

However, there were reduced market demand for skin care, hair care and food. The Wood Protection business experienced increased demand, leading to a strong performance. Paintings and Coatings, Material Protection and Crop Protection were all negatively impacted by various market challenges, many of which arose from COVID-19 pandemic. Despite these challenges, the Crop Protection business has worked to expand into North America, Latin America and Southeast Asia over the course of 2020. In the SCS division, the Composite Material business faced some headwinds as the electronics and aviation sector were negatively impacted by COVID-19.

However, the business saw solid demand in the industrial sector and strong project pipeline in certain geographies and applications. The CDMO business performance was driven by the successful scale-up of new projects in Visp, supported by indicator of growth in the fermentation business. Performance Intermediates and Chemicals reported good performance, which was driven by increased production volume and supported by price increase in vitamin B3. The business felt some headwinds from the slowdown in customer electronics and industrial applications. Looking towards 2021, the business expects solid demand in the first half of the year, with some recovery in industrial applications.

As we come to the end of our business review, we would like to take a moment to share our Outlook 2021 and our mid-term guidance. Starting with our outlook for the current year, we are guiding for low double-digit sales growth. This is combined by improved margin, in line with the recently announced mid-term guidance trajectory for 2023. We have managed the impact of COVID-19 last year, and our outlook for the coming year assume we will continue to do the same. I also want to share a short reminder of our 2023 mid-term guidance, which was shared last October.

We are working to deliver double-digit sales growth each year until 2023. By this time, we expect to achieve a 33% to 35% CORE EBITDA margin and double-digit ROIC. As we noted before, our growth level would be supported by continued investment in growth projects as a key driver of long-term success. As we look to the year ahead, we are cautiously confident about business performance. We clearly understand that the pandemic continue to evolve and bring uncertainty.

However, we have proved to be robust and resilient to the challenges over 2020, and we anticipate that we will continue to manage any new challenges in the months to come. 2021 is a year in which Lonza will finally divest LSI and become a single business working in a single industry. Looking inside the business, we will focus on ensuring we have the best possible system and processes as we implement our new business structure, and we'll remain focused on our operational efficiency. We would also continue to maintain momentum in our CapEx investment to support long-term growth. Regarding this investment, we will work also to build on our success in attracting industry-leading talent.

We know that this is a critical component of our future success as new assets come online. Our extended Executive Committee will help us to refresh our approach to management. The coming year is also an appropriate time to ensure that our environmental, social and governance measures are comprehensive and robust across the business. To end, on a personal note, I'm pleased and proud of our progress in 2020, and I'm confident that we can use this as a strong foundation to drive further success in the coming year. This brings our presentation to a close.

I would like to thank you all for your time and attention. We now have time for question and answers. I will hand over to call operator to tell us who would ask the first question.

Operator: [Operator Instructions] Our first question comes from the line of Patrick Wood with Bank of America.

Patrick Wood: I have 2, please.

So the first one, Pierre-Alain, having got your feet under the table as CEO for a little bit now and having essentially come from a client, I guess, what are some of your observations having joined the business from the client side? How was it relative to expectations? When you look at operations, is there anything that you think you might consider changing or alternatively that surprised you? I'm just curious on your initial feedback having come from the client side. And then the second question is around capital deployment and things post-LSI. Maybe a little bit more detail, if you can, on how you guys are thinking about that in terms of either returns to shareholders or M&A. And on the latter, are we still focused on finding fill-and-finish assets? Is that still something that's important for you, guys? And do you feel you need that to be competitive? Or is it just nice to have?
Pierre-

Alain Ruffieux: Thank you. So as you know, I'm in the company for a little more than 90 days.

Actually, what I have appreciated as a client working with Lonza, being the speed of providing solution as well as the expertise. And clearly, in my first 90 days, I was really getting the confirmation of that. So I think we have a really strong technical expertise, capacity to respond to the needs, and we clearly plan to build on that for both very large clients as well as small biotech. For these 2 challenges, it's probably too early to mention, but actually see opportunity to continue on our journey for continuous improvement. And I think we can deliver on that dimension.

Rodolfo, you take the second one regarding the LSI proceeds?

Rodolfo Savitzky: Yes. Happy to do so, Pierre-Alain. So I think, at this stage, we would not like to disclose any specifics. Again, as Pierre-Alain mentioned, we expect signing in quarter 1. And after that, we will provide a little bit more details on that.

I mean, in general, I would say the priorities for investments haven’t changed, and we have communicated that during the analyst update. Our #1 priority is investments in organic growth, right? Here is where we see very high rates of return, very high ROICs when the businesses ramp up. So that remains a priority. And we have also shared in different sessions that we have interest in complementing our portfolio with some vertical fill and finish, right, in clientele. That could be an interesting addition.

So these remain priorities for us, but we will communicate more details in due time.

Operator: The next question comes from the line of Jo Walton with Crédit Suisse.

Jo Walton: I have 2 sort of strategic and 1 quick modeling question for us. If you look at your longer-term margin target of 33% to 35%, I wonder if you could tell us a little bit about what the bounds are on either side there. Given that you're showing double-digit sales growth, it seems, mean, certainly, at the bottom end of that range in terms of the margin expansion that you could have.

So I wonder if you could just tell us a little bit about the background, given that you are presumably going to be making margin gains on your base business, and also turning Cell & Gene Therapy from barely viable to very high-margin over time. So just a little bit about how those margins could work, please. And if you could also just tell us a little bit about whether you've changed your views on the Moderna impact over this year. I believe, at the Capital Markets Day, the planned revenue was something like CHF 110 million. So just give us a sense of how that might flex up or down for this particular year.

And the modeling question is just, should we exclude the corporate business going forward? You've given us your new structure, you gave us LPBN, you gave us corporate, and you stripped out LSI. For modeling, should we just tip the corporate into the base business going forwards?

Rodolfo Savitzky: So let me start with the last question in terms of the modeling. If you look at the discontinued operations results, it’s basically the Lonza Group, I’m simplifying, excluding LSI. Of course, there were a few adjustments we did related to some agreements for water care that now have been allocated to LSI, out of corporate. But in essence, it’s Lonza minus LSI.

So for corporate purposes, that gives you a good reference point. Let me briefly just take now, in reverse order, it’s probably easier like that. In Moderna, we haven’t changed our view. We – what we have communicated in October still stands. And therefore, our expectations in terms of production and revenue for the year is the same.

And then I would say the more strategic question, which is around the margin, it’s – again, it’s what we communicated in October. And you see it also reflected in our results. On the one hand, we have an expanding base business. Still, there’s throughput opportunities. And you have seen in the waterfall, this is a business where we can drive significant efficiency and productivity, and this is clearly top of the agenda of Pierre-Alain.

So the combination of throughput, efficiency, we expect to see an acceleration in margin expansion on the base business. Of course, that allows us to fund growth initiative, right? This is a big opportunity for long-term growth. But in general, the combination of, let’s say, expanding the base business and reinvesting some of that will translate into a trajectory that will get us to the 33% to 35% margin. Importantly, as Pierre-Alain mentioned in his guidance, we’re guiding for improved margins in this year. So already, you’ll see the first step in the trajectory.

And then I’ll get the question or Pierre-Alain will get the question, is it linear? Is it a hockey stick? Well, it’s neither. It’s not 100% linear, but it definitely is not a hockey stick. We will make progress continuously towards this [vehicle].

Operator: The next question comes from the line of Richard Vosser with JPMorgan. Richard Vosser : 2, please.

First is, looking at the sequential growth through LPBN through '21 first half versus second half. We've obviously seen about 13.6% growth in the second half of 2020 for that business. Should we expect to see an acceleration or a weaker first half because of the Capsules business impact? Just some thoughts there. And maybe also just adding into that, the phasing of the Moderna contribution. Is that phased into the first half or in the second half, please? And then, finally, just thinking about the AstraZeneca antibody agreement.

Is there any sort of contribution that we can think about from that in the guidance?
Pierre-Alain Ruffieux : Okay. So I will start with the AstraZeneca antibody. But definitively, this will contribute to the general growth we are expecting for next year. Rodolfo, do you want to take the next one?

Rodolfo Savitzky: Yes, happy to. So the Moderna contribution will be, let’s say, reasonably balanced between H1 and H2.

Again, it’s more – it doesn’t have anything to do with production ramp-up. That’s a bit of a separate story. It’s just the way the financials and the contract are structured. And then in terms of the growth in the Pharma segment between H1 and H2, this is very important as we start reporting in more detail by division this year. Here, you do see variabilities from quarter-to-quarter, sometimes depending on release for certain commercial programs.

So here, definitely, you cannot extrapolate the trend. The guidance that we are giving remains. I would not go now into a guidance by half 1 and half 2. We say low teens in terms of sales growth. But here, please do not assume that if you will have the quarterly numbers, that you could completely extrapolate a progression, because it depends very much in terms of when certain contracts are completed and released.

And sometimes the contracts are big, and they can fall in quarter 1 or, for whatever reason, they can fall in quarter 2, and that leads towards the progression.

Operator: The next question comes from the line of KC Arikatla with Goldman Sachs.

KC Arikatla: I have 2, please. On your Capsules business, you recently announced that you would be exiting the soft gels and the liquid-filled capsules part of the pharma market. Can you give us a sense of the revenue size of these businesses? And how should we think about your commitment to the hard capsules part of the Pharma business? Is that something that we should expect to be part of Lonza going forward? Or are there any divestment plans there? The second question to Pierre-Alain.

It's probably a bit unfair to ask you this question, given it's only been a few months that you've been in your new role, but I'll still ask. Can you comment on the competitive dynamics that you're seeing in the Biologics CDMO market? Because if I look at your closest competitor at an absolute level, consensus expects your competitor to add more dollars to their Biologics business over the next 2, 3 years than for Lonza. Is it because of differences in capacity availability, geographical exposure? Anything that you can provide in terms of details here, please. Pierre-

Alain Ruffieux: No. Thank you.

So regarding your first question, we are definitively strongly committed to the CHI business. This being said, we are always reviewing every single part of the business. And we may divest a small proportion if it’s not attractive enough. And I think you should see this so-called traction, it’s just a small adjustment. So we are fairly committed to the CHI business.

We don’t comment on the financial part of that, especially as transaction is not closed currently. But secondly, your question on competitors. Again, I would not answer as a Lonza CEO, but more from a previous customer, from 2 different perspectives. I think what is unique at Lonza compared to some of our competitors, we offer the full range of services in multiple different technology, moving from biospecific to cell and gene therapy and large-scale mammalian. So I think this is certainly one differentiator factor.

The second one, if you see about capacity, Lonza has very large capacity, part of the leaders. And we have a strong experience, which is very important, too. So as you said properly, your competition is growing, but we have 2 key strong strategic advantages.

Operator: The next question comes from the line of James Quigley with Morgan Stanley.

James Quigley: I've got 2 sort of operational ones and 1 on the dividend.

So in the past, you mentioned about drug product services in fill and finish and commercial scale fill and finishes being sort of the missing piece of the offering. But what about sort of investing in this business organically? The price of the assets in the field has probably taken a bit of a bump with COVID-19 and the need for vials and selling services, et cetera. So how are you thinking about the CapEx that will be required to do this organically? Is this part of a potential plan? And logistically, how could you think about this? So would it be sort of a global center of excellence? Or could you go for a sort of a Portsmouth site, a Visp site and a Singapore site? So any thoughts along those lines would be great. And secondly, looking sort of into the market, there's been some concern recently about sort of large capacity additions for some of your competition. Can you comment on this from a sort of a capacity utilization perspective? We don't have much visibility here between sort of the pharma companies and CDMOs other than sort of fairly rough numbers suggesting that sort of industry-wide capacity utilization might be in the mid to high 50s or so.

So where would sort of pharma companies typically be in terms of utilization? Where would you guys be? And I know you're not going to give us numbers in terms of actual utilization, but what would you consider as being fill up, allowing for some buffer capacity as well? And then how does that sort of tie into -- or at what point should we then become concerned -- or at what level should we become concerned for a capacity utilization across the industry? And any impact on the pricing environment? And then finally, on the dividend. So first time in a number of years, I think 4 or 5 years, that you've raised the dividend. It's not really a big cash drain, but is this now sort of a move towards a progressive dividend policy? Could we start to see the dividend continue to increase year-on-year, given that you are -- or as the margin and the investments and the cash flows improve?
Pierre-

Alain Ruffieux: Thank you, James, for your questions. Regarding first one, I was really pleased to see the progress that we have done at Lonza regarding DPS fill and finish. And you probably recall the acquisition of the sterile plant from Novartis as well as also scientists developing formulation in Basel.

So I think we made a really nice progress in this, as we mentioned. And as you probably know, CapEx for fill and finish are definitively much smaller than CapEx for drug substance. So we are clearly committed to grow better that part. Your question on capacity, it's probably more complex to answer. I mean I would probably refer you to the history in the last 5 -- 5 to 10 years.

Clearly, we see overall a strong growth of the market. So demand is increasing. And if you have a look on the pipeline of the big pharma, there is many products requiring more capacity. Yes, the facility is always a big jump, but we are carefully confident on that. As mentioned by Rodolfo, when we build new capacity, a significant proportion is already committed to customers and it's participating to our growth.

Rodolfo, do you want to take the one on dividend, please?

Rodolfo Savitzky: Happy to. So on dividend, our guidance has not changed at all. We say between 25% and 40% of net income, we will continue to distribute. And of course, we cannot anticipate what happens with the following year. But in general, when you see the trend, we keep the dividend stable because the range is quite wide, between 25% and 40% of net income.

So we keep the dividend stable for a couple of years. And then we typically increase to stay within the range. You should expect the same in the future.

Operator: The next question comes from the line of Peter Welford with Jefferies.

Peter Welford: I've got a couple, actually.

They're partly clarity or clarification. Just turning back to Jo's question on the mRNA vaccine. Curious there, just with regards to the revenues, where you said you're retaining the estimates from before. Should we read from that, that the additional doses that Moderna is talking about, well above the 400 million, are going to be made by then themselves, and you're not taking part in that? Or is this more to do with the way the contract is structured? And you mentioned the booking of revenues, and therefore, not necessarily to doses corresponding to revenues on your side. Secondly then, just on Cell & Gene Therapy.

You talked about margin increasing during 2021 on efficiencies and utilization. Just wondering if you're sticking with, I think you said, breakeven by the end of this year. So should we, therefore, still assume that 2021 is likely overall to be loss-making for that division? I wonder if you can comment at all on how we should think about the margin profile for that business this year. And then finally, just with regards to the bidders for LSI. I totally appreciate, obviously, with the confidentiality.

But I wondered if you can give us any sort of idea of the mix of the type of bidders that are on the shortlist. Should we be thinking of this at all as strategic? Are these financial? Or what sort of bidders should we think about here?
Pierre-Alain Ruffieux : No. Thank you, Peter, for your question. I will start with your first one on LSI. Definitively, at this stage, we cannot comment on the bidder.

And as mentioned in the presentation, we expect signing in Q1. Regarding Cell & Gene Therapy, we provide a detailed update last October. As you rightly remind, we are making progress towards breakeven in the next 12 months. And we will report more in updated results by mid-year or end year. Rodolfo, do you perhaps want to take the one on Moderna?

Rodolfo Savitzky: Yes, happy to.

So Peter, here, the point is -- I repeat a bit what I said. What we have communicated in October has not changed at all. So the fact that the numbers, the doses that we can communicate have not changed is simply because that's the case, right? I think for other communications regarding the number of doses that Moderna is sharing with the external world, there, you need to refer to Moderna because your view -- you need to remember that we, of course, are part of their supply chain, but they are in charge of the full supply chain. And that means they have -- they may have additional in-house manufacturing, et cetera. So I mean, for that, you need to talk to them.

Operator: The last question for today comes from the line of Naresh Chouhan with Intron Health.

Naresh Chouhan: Just one left, please, for Pierre-Alain. You came from a company where innovation was obviously the core of the business and high risk was part of the business model. And so given Lonza's very strong position with its clients from a manufacturing perspective, would you also consider building a contract research capability, like 2 of your peers have done, to like also potentially participating in the upside of your clients' clinical trial successes and also potentially drive more volume for the Biologics business?
Pierre-

Alain Ruffieux: Okay. It’s probably too early to discuss that.

I’m currently focusing really on learning the organization, the business, the customer. What we can – what I can say at this stage, clearly, the strength of Lonza, it’s providing expertise and difficult-to-make product, and we’ll probably continue to build on that. And if there is any chance to that, we would be happy to update you in our future call. Okay. With that, I would like to need to thank all of you for joining the call today.

It’s really been a pleasure speaking to you. I wish you an excellent day.

Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.

Goodbye.