Ladies and gentlemen, welcome to the Half Year Results 2019 Analyst and Investors Conference Call and Live Webcast. I'm Cher, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Mark Fung, CEO of Lonza. Please go ahead, sir.
1st, a warm welcome to you all. It is my pleasure to share with you our 2019 half year update. Our CFO, Rodolfo Savitsky, joins me today along with members of our Investor Relations and Communication teams. Today, we will reflect on our financial performance in the 1st 6 months of 2019. We will review our strategic growth investment in LPBN and provide an update on the carve out.
Finally, we will turn to our outlook for the year before opening the call to questions. Let's start with the corporate overview for H1 twenty nineteen. I'm pleased to share our strong Pharma, Biotech and Nutrition segment results, which showed double digit sales growth year on year. The Biologics business outperformed and Small Molecules made a positive contribution. New customers and biopharmaceutical partner were confirmed during H1.
Specifically, we signed a number of new clinical and commercial contracts in our Cell and Gene Technologies business. Our existing growth investments in LPEB are progressing as planned and further high return commercially de risked projects are under consideration. We may consider additional investment in both CapEx and OpEx to support our ongoing growth plans. As we enter H2, we plan to focus on recruiting the talent that will enable our future growth. We have hired more than 3 50 candidates in H1, and our recruitment efforts for H2 will bring the numbers to around 1,000.
We have experienced softer demand in the Nutrition business, which was transferred from LSI to El Pebe in Q1 2019. Rest assured that we are taking to bring the performance of Nutrition back on track. We believe there are clear benefits to be gained from the convergence of pharma and nutrition. All businesses in the segment share technologies and know how. Importantly, the move also brings our legacy Capsugel operation back on the one roof, providing an opportunity to deliver operational efficiencies and synergies.
We are able to confirm our outlook for the financial year. We expect high single digit sales growth in LPN. The headwinds experienced in LSI in H1 were shared by the wider industry. However, we cautiously note the first signs of a recovery in sales as we enter H2. The carve out is progressing in line with our original plan.
We are working to make rapid progress, while avoiding unnecessary expenditure. Our intention is to create a separate entity that remains fully owned by Lonza Group. We are on track to complete the carve out by mid-twenty 20, and we remain confident that the project will fulfill its purpose. Our intention is to give LSI the autonomy to aim to become a leader in microbial control. It will also allow LPN to maintain momentum as a major player in life science.
LPEB is already a successful player in the life science industry. Its position is supported by the number of new projects and customers confirmed in H1. The map you see here provides a snapshot of all our investments project across the half year. You will recognize some from the Q1 qualitative update. But let me take you on a short tour of selected new contracts.
In Q1, we confirmed that we have already contract 100% of our 2020 clinical manufacturing capacity in Ibex. The California based biotech elector confirmed a contract for our full service single site clinical offering. We have worked with other partners to secure equally important contracts in Ibex. Remaining in Switzerland, you may have seen the announcement this morning that we are expanding our bio conjugation capacities in this. The contractual commitments are already in place.
At the same time, we will commence production of a 3rd commercial antibody drug conjugate, which has recently received regulatory approval. We are also expanding our highly potent active pharmaceutical ingredients called HAPIDS, capacities in this with customers including AstraZeneca. We look forward to progressing our partnerships with all these customers as well as many others. In the Netherlands, you will see that we are expanding our cell engine technologies at our facility in Gilead. This is already one of 4 global centers of excellence, and we plan to extend it with a dedicated suite for long term partners, including Gamida Cell.
The company has developed a potentially life saving allogeneic stem cell transplant solution for patients with a particular form of blood cancer. The treatment is currently in Phase III trials. Such innovative treatments targeting a specific patient group really reveals the breadth and depth of our capabilities. We can bring customers from clinical to commercial and collaborate along the full life cycle of a drug. Alongside this, we are moving cell and gene manufacturing from manual process to scalable industrialized solutions.
Our project locations and new partner portfolio give us a sense of our key growth area moving forward. With this, I will hand over to Rodolfo to share some insights on our H1 financials.
Thank you, Marc. Let's turn to some financial highlights for the half year. We're pleased to confirm continued positive momentum in our core Healthcare businesses in the 1st 6 months of 2019. Our performance sits at 6.4% sales and 7.7% core EBITDA growth for the group, resulting in a core EBITDA margin of 27.8%. These figures relate to our continuing operations excluding the water care business unit.
They are in our reported currency of these facts and are compared with the same period in 2018. I want to share some of the special impacts on our current level of sales and profitability. Our positive top line development was supported by ForEx tailwinds. This resulted in 30 basis points positive effect for H1, mainly driven by a weaker Swiss franc against U. S.
Dollars in H1 2019 versus H1 2018. The temporary service agreement we have in place for the divested water care business unit support our sales at the corporate level as well. In H1, there was a positive impact of around 30 bps. And for the full year, we expect 40 bps positive sales impact. Our positive development of core EBITDA was supported by the IFRS 16 accounting adjustment on leases.
This resulted in 40 bps incremental margin for the group. We have assumed around 30 bps to be offset by the standard cost arising from the water care divestment, which we closed in February. So the positive IFRS impact is now slightly higher. Stranded costs only account for around 10 bps and have a lesser impact. The service agreements with Water Care, however, have an additional 10 bps negative influence on margin in H1.
So in total, with minus 20 bps expected for the full year. Even without the IFRS 16 impact, partially offset by Water Care, our core EBITDA margin is slightly positive at group level, especially in the context of investments in LPBN and the headwinds in LSI. Our net working capital increased in H1 based on a buildup of inventory levels across all our businesses. We have increased inventory prior to H2 scheduled maintenance shutdowns in Elesai facilities, And our growth projects in FPBN also resulted in higher inventories, driven by customer demand for secure supply and improved flexibility. Inventory management will remain a focal area as we go into H2.
Net working capital contributed to reduced cash flows before Water Care divestiture alongside increased CapEx investment expenditures and dividend payments in H1. I should also point to our tax rate of 11.1% in H1 2019. We guided for below 20%, but we also had some favorable one offs related to Swiss tax reform among others. We do not expect this tax rate to be sustainable going forward, and I take this chance to confirm our previous guidance of a tax rate below 20% for H2. Of course, the tax rate for the full year will be lower.
Our return on invested capital, ROIC, increased by 110 bps to 9.4. This is also related to a slower tax rate in H1. We have guided for a double digit ROIC in the midterm based on our current investment plans. With the profile of high return in commercially derisked projects, we are confident that we will grow ROIC to very attractive levels. The 7.7% growth in core EBITDA and 7% growth in core EBIT translate into an increase of our core earnings per share EPS.
Our EPS has grown by 10% to CHF 7 per share. Now let me turn to the development of our deleveraging level. We provided guidance for below 2 net debt to core EBITDA by the end of 2019. We're currently standing at 2.1x. In H1, we have seen incoming cash flows from the divestiture of Water Care.
This resulted in estimated net proceeds of CHF 530,000,000. We have used the cash to support our strategic growth project deleveraging and dividend payment. The latter naturally falls in the first half of the financial year. At group level, we have spent CHF306 1,000,000 on CapEx in H1 and expect a further increase in H2. Our anticipated CapEx sits at 11% to 13% of sales for the full year.
This is based on currently approved projects, all of which adhere to a clear and structured process approval. Marc will talk more about this in a few minutes. We expect CapEx to be higher in H2 2019, and some of the planned investments will continue into 2020. Alongside CapEx spend, we are focusing on OpEx for talent recruitment to support new growth projects. To give you a sense of direction in spending, 80% of CapEx at group level was invested into the pharma and biotech and nutrition business.
Now let me hand back to Marc for a review of our segments and businesses in more detail. He will also share the outlook for the full year.
Thank you, Rodolfo. Let me open this section by commenting on the strong performance of the pharmabiotech business. This was balanced by softer demand in nutrition, which is reflected in the results. However, we delivered double digit growth in the segment. It is worth noting that Pharma and Biotech, excluding Nutrition, has seen year on year sales growth in the mid teens.
We achieved CHF2.1 billion sales in H1 twenty nineteen and the core EBITDA of $693,000,000 We are pleased to have maintained our high margin while continuing to invest in strategic growth project. However, Rodolfo already mentioned that our investments will be geared towards the second half of the year. We will continue to balance priorities between growth and margin. Let's take a moment to look at our CDMO services within the LPBN segment. I will not linger on every point here, but I encourage you to review the details of our businesses.
Let me draw your attention to our work in preclinical and complex molecules, both of which are growth areas for the segment going forward. Examples of success include the launch of a preclinical service package in small molecules and the new expression technologies for complex molecules in mammalian. And you will remember, we already mentioned our ADC and HAPI expansion projects are fully backed by customer contracts. We now have 11 investigational new drug completed and 3 out of 5 commercially available antibody drug conjugate are supported by Lonza. Looking at customer commitments and at the pipeline of clinical programs, there is a key need for commercial provision that we offer to our pharma and biotech partners.
Our continuing expansion will enable us to capitalize on these opportunities. AstraZeneca entered into a long term manufacturing agreement for a number of happy based products from our Wisp site with operation planned to start from July 2020. These are only a handful of examples. Now in turn to another interesting and high potential area for our company. I mean, of course, CELNG Technologies may be a small proportion of the wider Lonza business, but it has a leading position in the industry.
We are excited about our opportunities in this area. We can drive forward our technological offering, bring our customers to commercial and collaborate closely with regulators where needed. We are well positioned in the industry with 4 centers of excellence, including the U. S, Europe and Asia, and more than 10 years of experience. Our offer will have grown to a substantial size by 2025.
We are already working across all modalities, including autologous and allogeneic cell therapy and viral vector, including virally modified cells, better known as gene therapy. In H1 2019, we have secured a strong number of clinical and commercial agreements. The high volume of contractual commitment reflects the value of our capabilities and offerings in a dynamic market environment. It also shows that our investments are paying off and gives us reason to continue to focus on this important area. At the same time, we are working to enhance profitability via technological advances.
Drug Product Services will be another growth area for us going forward. The business supports our strategic focus on delivering full life cycle solutions to our partners. We have made an agreement to acquire a sterile freelance finish manufacturing facility from Novartis in the Basel area of Switzerland. The acquisition builds on our existing parenteral drug product development and testing capabilities. We are now able to offer an end to end service to our customers for clinical supply and commercial launch.
We will produce drug product at the facility for Novartis as well as providing capacity for additional customers. Looking more widely at our approach to investment, we are focusing on high return, commercially de risked project to support future growth and development. These include full life cycle management, the handling of complex molecules and the commercialization of cell and gene technologies. Where there are opportunities in these areas, we review the rate of return alongside the timeline. Any projects under consideration need an internal rate of return of above 20%.
We have a wide range of projects and each competes with the other when it is presented to our executive committee. With chemical projects, viability is assessed on demand projections. This is funding potential and the favorability of the regulatory environment. With commercial project, preference is given to proposal that are commercially derisked and can be paid off within contract duration. The remaining successful investment projects are the most viable and relevant to our business from a commercial and strategic standpoint.
In addition to those already announced, new projects are currently under review. Now let's turn to Consumer Health and Nutrition within Elpaban. Consumer Health and Nutrition performed below expectations and against a strong year on year comparable base. Ingredients sales were softer, driven by customer inventory rebuild in 2018 and supply challenges. Additional capacity is coming on stream in 2019 with expansion starting from mid-twenty 20 at our Greenwood facility in the U.
S. We are also working towards improved inventory management and operational scheduling. Demand for gelatin hard capsules has softened and competition has increased in Q2 2019. We have commenced commercial initiatives across the portfolio, including geographical expansion into bricks markets. We are also focusing on further developing our specialty polymer offerings and innovative dosage form and delivery solution.
We are confident that end markets remain attractive, especially for integrated offering that arise from Lonza Capsugel synergies. We developed a clear business case for the acquisition of Capsugel. Despite recent disruptions, our original case remains relevant and robust for both our pharma and nutritional dosage form businesses. It is right that nutrition now sits under the LPN segment umbrella. The movement of the business will help us to capitalize on the conversions of pharma and nutrition.
Moreover, the realignment brings the legacy Capsugel business back under one roof. Here we can see some recent examples of innovations and launches in the nutrition area of the business. There has been a focus on clean label, natural ingredients and capsules, which reflects a wider development in consumer preferences. As within pharma, here we provide an integrated solution. We have worked to combine nutritional ingredients and optimal formulation alongside dosage forms.
This has delivered bioavailability enhancement. We are providing these offerings across relevant nutritional ingredients, including our science backed UC2 ingredients for joint health. We now move from LPEBEN to Specialty Ingredients, LSI. The newly aligned LSI segment provides composites, fine chemical and microbial control offerings across consumer and industrial markets. As noted in the Q1 qualitative update, LSI has continued to face headwinds in line with the broader sector.
We achieved sales of CHF 859,000,000 in H1 2019. This represents a 3.8% decline compared to H1 twenty eighteen. Core EBITDA reached CHF163 1,000,000, resulting in a robust 19% core EBITDA margin by industry comparison. Profit margins were maintained as raw material price increases were partly passed to our customer and LSI cost control measures started to deliver benefits. With these factors in mind, we may see signs of recovery within the LSI segment in H2 and beyond.
We are cautious in this outlook as we understand that disruptive demand cycles and political uncertainties look set to continue. We are also expecting a softer core EBITA margin in the second half of twenty nineteen compared to H1 caused by scheduled maintenance work on our LSI sites across the whole portfolio. Alongside professional and hygiene offerings, home care disinfection continued to experience healthy demand and performed above the previous year. This was primarily driven by China and North America. Personal Care Preservation reported softer sales caused by increased competitive pressure and lower demand, especially in skin and hair care.
Sales for microbial control offerings in industrial and agricultural markets were below the same period last year. They were negatively impacted by the continued supply shortage of BIT, a key raw material for the business. Our BIT supply was significantly constrained in Q2 2019 when the world's largest producer of a precursor was closed down in the Yongsheng areas of China. The difficulties of sourcing and supplying customers impacted the segment's top line performance. We are on track to reestablish supply by diversifying our vendor base into new geographies, including India.
This is particularly important, while uncertainties persist regarding the supply of BIT out of China. The Wood Protection business performed solidly in H1 twenty nineteen, despite weather related challenges in North America, one of our key markets. The composites business was negatively affected by soft demand for electronics applications, especially out of Asia. The agricultural business is still suffering from customer destocking after a dry European summer in 2018. This was exacerbated by supply chain challenges, competitive pressure in increasing feedstock costs.
The markets in Australia and New Zealand were also affected by a drought in H1 twenty nineteen. However, the agrochemical contract manufacturing organization business benefited in Q2 from increased demand. We expect to see a recovery in LS, the LSI business from H2 2019 onward with a stronger top line performance, partly supported by an easier year on year comparison. However, as we said before, we should remain very aware of potential upcoming challenges. With the transition of the Nutrition business to LPEB, LSI can further increase its market focus on microbial control.
The business is innovating to remain in a leading position with key offerings, including its antidandrew formulation. It is also looking to grow in other areas, such as bioactives for skin and scalp care. Our regulatory expertise supports our customer offering by driving innovation and differentiation. We now turn from a review of past performance to our outlook for the future. In summary, H1 was a robust half year driven by pharmabiotech, but with headwinds in other parts of the business.
We are pleased to confirm our outlook for 2019. This was first communicated with the full year 2018 results in January of this year, and we confirm mid to high single digit sales growth. We also confirm a sustained high core EBITDA margin. We base this on the performance of our pharma biotech businesses, whilst taking into account the softer results from Nutrition and the headwinds in LSI. We expect high single digit sales growth in LPBN for the full year and the start of a sales recovery in LS signage 2019.
Efficiency measures across all businesses are ongoing with strategic investment in El Pebian and LSI maintenance shutdown scheduled throughout the second half of twenty nineteen. We continue to focus on the execution and delivery of our strategic growth project. The carve out is progressing as planned, and we are on track to have LSI fully carve out under the Lonza Group umbrella by mid-twenty 20. This is a time of change for Lonza. Many parts of our business must anticipate a dynamic market environment to deliver ongoing value to our customers.
Our current project and strategy growth investments will enable us to capitalize on opportunities and set up future success. It was my pleasure to present our half year financial results, and I'm looking forward to your questions.
We
would like to The first question comes from the line of Daniel Buchta from Tobel. Please go ahead.
Yes, thank you very much. One question then, maybe on the general supply situation. I mean, especially your non share side was affected by that. Can you give more indication on whether the supply shortage and the difficulties are solved already? Or when do you expect this to be the case?
And then related to that, I mean, you mentioned the maintenance shutdowns you expect for LSI in the second half. I mean, is this a general issue for the supply of yourself? And why do you expect that to impact margins in the segment? Thank you very much.
Good afternoon. So for the supply chain issue, I'm pleased to confirm that there are no supply issue in our non shore facilities. On the second part of the shutdowns in the H2, those are planned shutdowns. We do not expect that this would cause any kind of issues. But it's good governance to announce and to say in our overall overview that those are the things that we are doing and that are part of our business.
Yes, go ahead.
Maybe just to complement on the planned shutdown in the second half, as you can imagine, when you have a shutdown, you have lower production volumes and this translates into higher costs, higher on absorb variances, and this has a margin impact. We expect it around 1 to 2 percentage points in the second half.
Okay. Thank you very much. That's helpful. You're welcome.
Next question comes from the line of Matthew Weston, Credit Suisse. Please go ahead.
Thank you for taking the question. One, please. You highlight in the release and in your opening comments that you're seeing increased customer visibility in Pharma Biotech for 2020 2021. I presume that some of that reflects increased demand for the Ibex facilities. Can you just help us understand what implications that has for start up costs and medium term investments over the midterm.
Essentially, the better it gets and the more demand see, does that mean the harder it is to see profit growth in the early phases of the contract as you have to invest to realize clearly the previous question with 1 to 2 percentage points impact of the shutdowns. Is that versus the margin we saw in the first half of this year? Or is that versus the margin we saw in the second half of last year?
Thank you. So I'll take the first question, Rodolfo will take the second one. Of course, we are investing as there is more visibility on our customer demand that affects our Ibex project, but I would say not exclusively. It also directly concerns our investments in the other mammalian derived modalities such as in Portsmouth where we have a CapEx project too and not to forget Cylangi in Derby. Investment in growth are directly correlated not just only with CapEx, but in OpEx for hiring talent that are needed before the start of the operations.
Clearly, this is something that we are doing and we are on track based on our different business plans on the different places to hire the people and that this is one of the cause why we have said that we will sustain our overall core EBITDA margin. And also certain depreciations are expected to increase in the 2020 year. It's around €30,000,000 to €35,000,000 more compared to 2019 levels. And when it comes to the overall profitability increase within when it comes to the full utilization, we have to count between 3 to 6 year after the start of the investment. So much for question 1.
Question 2, Rodolfo?
Yes. Mario, thanks for the clarification. I have mentioned that this is compared to the H1 margin, not with the H2 2018 margin. So we expect a couple of 1 to 2 percentage points lower margin in LSI in H2 compared to LSI in H1 twenty
Many thanks indeed.
Next
question comes from the line of Paul Knight from Janney. Please go ahead.
Mark, a pleasure to hear your update. Rodolfo, could we talk about your capital expenditure plans? Will they be higher than last year? And could you refresh our memory on your maintenance CapEx levels versus what your total CapEx seems to be this year with demand worldwide?
Yes. So happy to provide a quick perspective on CapEx. As you've seen in this first half, we spent around 10% of sales. We have guided for the year to be between 11% 13%. My expectation is
we will
be on the higher end of the estimate. Therefore, if you do the math, you come to the conclusion that we will significantly ramp up CapEx spending in the second half. This is in line with plan. And of course, it may well be the case that a few CapEx spending spill over into 2020 because pacing of some projects may fall also into next year. In terms of the split, we currently see 70% of CapEx spending behind growth projects, 30% behind maintenance.
And when you think about the spending in H1, around 80% was dedicated to pharma, biotech and nutrition. Again, when we say 80%, this is a combination of growth and maintenance with the majority being growth projects.
Next question comes from the line of Patrick Wood, Bank of America. Please go ahead.
Perfect. Thank you for taking
my question. For mine, please, could I ask within LSI, the price increases that you guys managed to pass through from the higher raw material costs. If the raw materials go the other way, do you get to keep those prices? Or do they automatically reflect back down again to your customers? Thanks very much.
It's, of course, an interesting question. I hope there are no customers in the queue. I think we are no different than anybody else in the industry to that respect. Understand. Thank you.
Next question comes from the line of Marcos Gola, MainFirst Bank. Please go ahead.
Good afternoon and thank you for taking my questions. My question would refer to the expansion of your bioconjugation facility. You have also announced to expand your HAPI capacity in this. Is it fair to assume that product wise this expansion is related to the BioConjugate expansion versus dedicated to completely other drugs? And maybe could you generally elaborate a bit more on the midterm revenue and margin potential of BioConrugates given that you have won a lot of new projects here?
Thank you.
It is correct to say that we think maybe a year or so see, witness, engage additional bio conjugate deals and to that extent it is encouraging. We believe that in the foreseeable future, this will increase. The overall expansion that we do exist and does not just cover the commercial markets, but the clinical part also. And it's important to note, I understand the need to be able to give some numbers behind that in terms of projection, but to a very large extent, it depends on the success of the products that we how it will react into the market and this is unclear yet on the new one. We all have in mind those who are already a few years in the industry when we had projections on KADCYLA and then we have seen the outcome.
Can this happen again? Possible. So it's difficult to give an answer on this. On the happy part, yes, you are correct. This is part of molecules that do not just follow one agreement that we have announced with a very important partner of us.
But overall, in the Happy business, we see increased demand. And this goes along what we continue to observe and say complex molecules that require specialized knowledge that goes way beyond the standard manufacturing is a trend that continues to go and happy are along those categories.
Thank you.
Worth mentioning also that it's not just AstraZeneca, but there are also other customers.
Very clear. Thanks.
You're welcome.
Next question comes from the line of James Quigley, JPMorgan. Please go ahead.
Hi, thanks for taking my questions. On the again, sort of following up on the bio conjugate side of things, roughly more is the CapEx cost of the new facility? And you mentioned that you're involved in the production of 3 of the 5 approved conjugates, I think there's 11 INDs. What is it that the pharma companies find so difficult about the ADCs that they need to outsource to contract manufacturers like yourself. And when you look into the sort of wider pipeline of ADCs of the contracts you have at the moment, sort of roughly what stage of development that they are, sort of what force in Phase III, Phase II, Phase I?
And how quickly do you see the ADC pipeline expanding, which you could benefit from? Thank you.
So yes, there is some CapEx around our risk facility. Why do our partner come to us? And I would say that there is already a very good platform available in our sites.
And there
is already the right availability to go and to bring rapidly a clinical project or a commercial project into our place. And probably also because we have pioneered with Capsyla being the first one to come that this has created an important traction to our this facility. I'm saying all this while I want to stay humble. And the other thing is that it's clear that the pipeline is growing. Is it how many in Phase 1?
How many in Phase 2? How many in Phase III. This is not something that we are totally keen on giving you the exact details. But to guide you, I will tell you all of the above. This is something that is totally recurrent and inherent on this business.
And they are it's worth mentioning that in the ADCs, there is a total of 252 molecules from preclinical to commercial today. Did I forget out of your questions? Let me know.
That covers it. Thank you.
Thank you.
Next question comes from the line of Tuhan Naresh, New Street Research. Please go ahead.
Hi there. Thanks for taking my questions. Just a couple questions. 1 on the Ibex, the full service offering. Could you just kind of give us some color as to how your offering differs to Wishy's or how you would what's the kind of sales pitch here?
And then on Elektor, following on from that, with the Elektor deal, they're working on in outsiders, which obviously has very high failure rate. So how is this deal being structured as a take or pay deal? Otherwise, it could be quite a small deal where potentially you've set aside some capacity. And then on the gene therapy segment, could you give us a sense as to what potential sales is now is of LPBN And what would drive its profitability? And also, are you capacity constrained in this business?
Thanks.
First question, what is our offering in Ibex? And we are offering
the design
development in Ibex where it is the full scope with an accelerated pathway option to come with an offering in 12 months for an IND package. And in addition to that, we offer a refill if we can say so post IND that could be provided with a commitment on whenever time is needed, whatever quantity is needed, we commit to deliver it to the customer. The third element that is part of our IBEX offering is that through our overall network, if it is a product that needs not just disposable but possibly stainless steel. Maybe here there is a little difference between the companies that you have named, we are capable of offering, but not just capable, we are offering it. So the lifecycle management of a product that goes from molecule design up to a full delivery up to the door of the customer within a time line of 12 months, then the ability to stay without very relevant tech transfer can stay in our network is part of a differentiator.
Alector. Alector is one customer that what is important to mention is that they go along this kind of offering that is innovative and to that extent it is very relevant. The trials are expected in late 2019, early 2020 and the operation will start in Q3 2020. What's the size of our gene therapy business or as we call it more broadly cell and gene therapy And we do not give the exact numerical numbers, but we can say that this is in the low 100 of 1,000,000.
Thank you.
Next question comes from the line of Friedrich Falko, Deutsche Bank. Please go ahead.
Hello. Thanks for taking my questions. I would have 2 on the Nutrition business, please. Firstly, how would you judge your specialty polymer offering currently and how competitive is that in the market? And then secondly, what is your strategy for improving your presence outside of the U.
S. And Europe where Capsugel already seems to be quite strong?
So our offering in the specialty polymer is something that we have already inherited when we acquired Capsugel. And here, of course, we are continuing to innovate and bring additional offering into place. And this is something where we can differentiate with the competitors and we have certainly capabilities in the different continents. And this is something that is, of course, very relevant to us, less affected in our H1 in that area when we said that there is a softer performance. And in terms of market penetration relevant to the BRIC countries.
Capsugel legacy Capsugel when it came to Lonza was already present, but it's worth mentioning that the growth in those countries that follow these regions accelerates. Are we totally ready to cope with this acceleration today now? And here, there is some homework to be done on our side. This is one of the learnings of H1.
Okay. Thank you.
Next question comes from the line of Patrick Rafaisz, UBS. Please go ahead.
Thank you. I have two questions, please. 1 on the working capital. And you already mentioned a bit Rodolfo what happened with inventories, with the LSI shutdowns and the LTVM growth. How do you think about the potential working capital release here in the second half of the year?
And the second question would be around additional growth investments. Marc mentioned that these were being considered both on OpEx and CapEx. Will it be possible to size that broadly? How much this could mean? And what conditions these investments would be based on?
Thanks.
Yes. So on the working capital, we expect, based on our plans, to see a positive development in the second half, meaning that we will end with a lower cash requirement for working capital for the full year. Of course, this doesn't happen automatically. We are putting plans in place not only for inventory, which is a little bit more sticky, but also in receivables and payables. So this is for the first part of your question.
And then in terms of investment, we see the let's say the our focus is to accelerate growth. And one of the levels for growth is, of course, investments in capacity. So here what we are carefully judging is, yes, we need to balance our deleveraging plans on the one hand with our growth plans. And what I mentioned in my comments and Mark also underscored, The challenge for us is we have a broad portfolio of very attractive projects. Of course, to get to the portfolio, they all need to have attractive rates of return above 20%.
And then as an executive committee, we just need to decide where to draw the line. So all in all, I mean, to answer your question is we will continue to invest because this is a growth driver. And we will be in line with what we have guided for CapEx, let's say, in the high single digits in the midterm. And then in the short term, as you have seen this year, it's a little bit higher.
To give you a flavor about the what it entails those costs in our overall Ibex campus, if we can call it like this, by end of 2020, there will be 550 years that goes with training and costs. One more question. Who has the prima or the privilege?
The next question comes from the line of Laura Lopez Pineda, Other Bank. Please go ahead.
Very good. So the last question from my side or maybe 2. I will be interested in knowing in which specific sectors are you seeing a start of a recovery in the LSI business. So hearing from other chemical companies, they are actually not seeing any recoveries. I will be interested there to see if it's in more in electronics or in general or more in the agro space, which will maybe make a little bit more sense.
But in general, just to compare also with other peers that are actually a little bit or continue to be more cautious in the second half. And then secondly, you also mentioned some restocking in Nutrition in 2018 as one of the reasons for the weakness in the first half. So how do you think inventory levels are at the moment? And do you expect this to recover already in the second half that demand picks up again? Thank you.
So your first question about the LSI recovery, I think that it's worth noting that professional hygiene continues to be on track. And then the paint application, the industrial application and the electronics is still in a good path. And where we are cautiously optimistic is in the vitamin D3 business. The second question is about restocking in nutrition inventory level. While cyclically, this is something that we have seen in the past, But can I really know today whether this is going to happen?
It is I know what I want, but I don't know whether I have signs that allows me to say at this stage, whether there is anything that goes to that direction. I think it is too early to say on this, unfortunately. So that will put an end to the Q and A sessions. I would like to thank you all for listening today and for your valuable contribution in your question. Along with the Investor Relations team, Rodolfo and I, we're looking forward to seeing you again in our upcoming road shows and conferences.
And in the meantime, let me wish you all a very good day. Goodbye.
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.