Ladies and gentlemen, welcome to the Full Year Results 2018 Analyst and Investor Conference Call and live webcast. I'm Iruna, the call operator. I would like to remind you that all participants are in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Richard Ridinger, Chief Executive Officer of Lonza. Please go ahead, sir.
Ladies and gentlemen, good morning and good afternoon. Thank you all for joining our conference call on Lonza's full year results for 2018. Today, we have two main topics to discuss, our full year 2018 results and the upcoming Chief Executive Officer transition. Together with me in the room are Rodolfo Savitzky, our Chief Financial Officer, who is here to answer your financial questions, as well as members of the investor relations and corporate communications team.
Our special guest today is Marc Funk, our incoming Chief Executive Officer, who is currently the Chief Operating Officer of Pharma & Biotech. I'd like to start by introducing him as my successor. Marc joined Lonza in 2009 and has been an integral part of the entire company since that time. From 2009- 2014, when he took over as Pharma & Biotech Chief Operating Officer, he served as Lonza's Group General Counsel and Board Secretary.
You will be hearing from and about Marc shortly, let's get started with our packed agenda today. First, I'll take a look at our overall business and our segment-specific highlights. Rodolfo will present the financial results. Marc will focus on the future and cover our outlook for 2019. I'll wrap up with a few personal comments and then move on to the Q&A session. As you read in today's news release on our 2018 results, we've once again had a great year, especially for our businesses along the healthcare continuum. Today is my seventh full year result, I'm pleased to say that each consecutive one has been better than the last. This year, we delivered sales of CHF 5.5 billion at a record level of profitability. Let's dig into some of the other highlights now on slide four.
I just mentioned we delivered a remarkable 9% organic sales growth with 27.3% core EBITDA margin, 100 basis points improvement during the year. All our numbers, by the way, are reported for continuing operations, excluding Water Care. Pharma & Biotech contributed significantly to these excellent results, with 14% sales growth and margins up 260 basis points. The Consumer Health division also performed strongly with positive momentum in 2018. I'll talk about Capsugel in a moment, I first want to point out that by keeping a sharp focus on executing our healthcare continuum strategy, we have become more resilient and independent from the cyclical parts of our business. Totally different, by the way, than it was many years ago. We are much less exposed to those volatile trends than in the past, as you can see from our strong results overall. We are not completely immune to those influences.
The challenging environment for cyclical parts of the portfolio did have a negative impact on the business. We certainly are continuing to implement countermeasures to improve the performance. With the announced divestment of Water Care planned for later in this quarter one, we have dealt with the seasonality fluctuating part of our portfolio. Now we are dealing with the cyclical part with robust improvement and risk mitigation measures underway. The next slide demonstrates the fact that our major investments and divestments are progressing as expected. Some of the highlights of 2018 you see here include facility openings, plant expansions, technology advances, and strategic growth initiatives. One personal highlight for me was our Capital Markets Day, where we clearly outlined our continued growth trajectory and ambitions and where I had the chance to meet many of you in person.
Slide six shows you a few examples of the successful integration of innovative Capsugel products into our overall portfolio. We have introduced new offerings to the market, such as naturally colored capsules or clean-label vegan and vegetarian capsules. Throughout the first full year with Capsugel as a part of our Lonza family, we have benefited from its performance and synergies. It has not only brought growth, but profitable growth. I'm pleased to say that we swiftly integrated all operations and functions, and we have found that the company cultures are closely aligned.
We are definitely delivering on our strategy to grow sustainably along the healthcare continuum. Capsugel added to this organic growth in the businesses where it was integrated, specifically in Pharma & Biotech, and in Consumer Health within Specialty Ingredients. I think you will agree that not many such large transformative acquisitions are so clearly and quickly accretive for shareholders. I'm now going to hand the microphone over to Rodolfo, our Chief Financial Officer, to give us some more details about the 2018 financial highlights. Rodolfo?
Thanks, Richard. Welcome also from my side, ladies and gentlemen. I'll start on slide eight. First, a few notes. All the Lonza numbers presented here exclude Water Care, as that will be our business composition going forward. Some 2017 numbers are also pro forma, which means they include Capsugel from January 1st, 2017, for comparison purposes. This approach allows to calculate our organic growth, which is Lonza's focus. I think you will agree that our 9% sales and 12% core EBITDA organic growth figures underscore our ability to deliver on our strategy. We had an excellent core EBITDA margin of 27.3%. Again, we delivered on our commitment to achieve 100 basis points margin improvement on a reported basis. We achieved this margin improvement for Lonza both with and without Water Care. Of course, the Water Care divestment is margin accretive by 180 basis points.
Core RONOA is at 31% and is another proof of Lonza's positive returns on its organic investments. ROIC remained at 8% as a result of a more normalized tax rate in 2018. Let's take a look now at the next slide to see how our segments performed. The key Pharma & Biotech figures are the CHF 3.1 billion sales for 2018, which is an outstanding 14% organic sales growth. core EBITDA amounted to CHF 1 billion, a pro forma increase of 23.6% versus prior year. That was with a 32.8% core EBITDA margin, an improvement of 260 basis points on a like-for-like basis. That figure is clearly above our goal to reach a 30%+ margin for this segment. You can see in the graph, this segment has continuously improved core EBITDA margin, leveraging the existing asset base and benefiting from our commercial and operational excellence initiatives.
The drivers here are the biologics businesses in particular, but also the combined Lonza Capsugel small molecule offerings. As Richard already explained, Specialty Ingredients faced some headwinds in 2018 for its cyclically exposed businesses, but also in some commodities such as vitamin B3, putting pressure on margins. However, despite the negative sales development in some of our cyclical businesses like vitamin B3 and wood protection, the Specialty Ingredients segment grew by 3.4%. The key drivers of this growth included nutritional offerings, our personal and institutional hygiene solutions in Consumer Health, and our specialty businesses in Consumer & Resources Protection. Overall, the Specialty Ingredients segment has also continuously improved its core EBITDA margin over the years. While 2017 includes the positive impact of Capsugel, it also reflects a record high margin for some of the cyclical businesses like vitamin B3 or marine antifouling, which distorts the trend.
On slide 10, you see more numbers for Lonza, including discontinued operations as the Water Care divestiture will only close in Q1 of this year. We have continued to make further progress on deleveraging and are on a clear path to achieve a net debt to core EBITDA level below 2x by the end of 2019. A return to the levels of 2015. The proceeds of the Water Care divestment will be used partly for that deleveraging, as well as for investing in growth. I'm sure you've noted that two weeks ago, we announced the initiation of a public credit rating with Standard & Poor's. The S&P rating provided Lonza with a BBB+ and stable outlook, which confirms our attractive financial profile. We are committed to maintaining an investment-grade rating in order to support our financing strategy. From the financial side, it is a positive story for the overall company.
With that overview, I'll hand back over to Richard to provide further insights into the businesses.
Thanks, Rodolfo. We don't need to do another deep dive into the Lonza Pharma & Biotech numbers. Further details are available on slide 12. Let me just point out that the segment reported pro forma double-digit sales growth and a 260 basis points margin improvement. That result represents a significant performance improvement for three consecutive years now. By the way, under the responsibility of the incoming Chief Executive Officer . As we discussed at Lonza's Capital Markets Day in September, the team achieved those results while investing in technological advances, demands-driven capacity expansions, and targeted R&D and innovation for continued growth in the future, especially, but not only in biologics. Next couple of slides cover the successes of the Lonza Pharma & Biotech businesses. On Slide 13, it's clear how well the biologics businesses performed, both in clinical development and manufacturing and in commercial manufacturing.
In 2018, Lonza worked on 305 clinical and 25 commercial large molecule programs. We see continued high demand. Ibex in Switzerland will surely add to our capabilities to meet demand as well as our other investments. One of the highlights in quarter four was announced that we are establishing a biologics footprint in China as we see growth potential in this market. Throughout the year, we have also further invested in innovation and R&D. For example, in October, we acquired a controlling stake of Octane Biotech to further develop the Cocoon intelligence technology and cell and gene therapy. Our small molecules businesses also contributed to the strong Lonza Pharma & Biotech results. Here I want to point out that Lonza is now able to provide our customers a broad range of offerings along the entire pharma value chain in drug substance and now also in drug product.
Our consumables and research tools business is also making progress and sees continued demand. Moving now to Specialty Ingredients on Slide 16. Again, I don't need to dive into these numbers. I do want to point out that Consumer Health and Consumer & Resources Protection were top performers in that Specialty Ingredients portfolio. The next slide shows you the results by division in Specialty Ingredients. You will see we have increased transparency in 2018 and disclosed the Consumer Health and Consumer & Resources Protection parts of the Specialty Ingredients segment. Of particular note are our Consumer Health results that show the positive momentum we are making with our healthcare businesses. The 27.3% core EBITDA margin for Consumer Health is a good start in its first year. I think you'll agree. Here on Slide 18, you can see the breadth of our customer base, many of them small and mid-sized companies.
Lonza's integrated offerings in the nutritional space are exactly what our customers need as they look for a company that will act as their partner, not just as their supplier. For example, now that Capsugel is fully integrated, we can provide innovative offerings in clean labels, specialty polymers, and bioavailability solutions. Strong combinations with Lonza's proprietary ingredients. The next slide shows how parts of Consumer & Resources Protection performed robustly, particularly our specialties. Microbial control as a platform was strong. Lonza is market leader there. We've already mentioned the headwinds. Again, I'll point out the peak cyclical parts are under review and countermeasures in place. Already in 2018, as an example, we back-integrated raw materials and assets from our agro ingredients and have repurposed them for pharma intermediates.
The first bullet point on Slide 20 is a reminder of the decision announced on the 1st of November 2018 to divest the Water Care business to Platinum Equity. That strategic move allows us to focus even more on the healthcare continuum. Water Care continued to make operational improvements to further grow the business and developed further new technologies throughout 2018. Faced some headwinds, however, like late seasonal start in North America and Europe and higher transportation cost. While Water Care continues its restructuring and business model redesign, the outlook for the business in 2019 is positive. I am now going to hand the microphone over to Marc Funk, who will talk to us about what the future looks like for Lonza in the short and long term. First, let me say a few words about my successor.
Marc has accompanied me during my entire journey in different jobs and scopes of responsibility. Almost five years ago now, I proposed him as the head of Lonza Pharma & Biotech segment, a good decision for Lonza. He has continued to be a testament to the depth of leadership talent in our company. With Marc as my successor in leading Lonza, I am deeply convinced he can bring Lonza fresh perspectives that will drive our strategy of growing along the healthcare continuum. I have full trust that with Marc, we will continue the Lonza success story. Now over to Marc.
Thank you, Richard. Let me also acknowledge how much I enjoyed working with you over the last years. I will start with slide 22. First, I would like to make a couple of personal comments, too. I am looking forward to meet many of you in my new role. I have already met some of you at past Capital Markets Days, and on road shows, and at conferences. I hope to be able to continue our conversation as I plan to go on more road shows soon. We will be reaching out to you shortly to set that up. Now let us begin by looking our midterm guidance on slide 22. I will remind you that after completing the divestment of Water Care, we will provide an adjusted midterm guidance to account for the Water Care disposal.
Our goal was and is to reinvest part of the proceeds of the Water Care disposal into the healthcare continuum with expected higher return to deliver more shareholder value. Until closing of the transaction and the subsequent adjustment will simply confirm the midterm guidance, including the Water Care business unit. Sales at CHF 7.5 billion, core EBITDA margin 30%, core RONOA 35%, double-digit ROIC. We can also confirm the growth trajectory by business that we have outlined at our September Capital Markets Day. Lonza Pharma & Biotech, high single-digit growth with a sustained 30%+ core EBITDA margin. Specialty Ingredients Consumer Health division, mid to high single-digit sales growth with a margin progression from high 20s to above 30%. Specialty Ingredients Consumer & Resources Protection division, low to mid single-digit sales growth with a margin progression from high teens to around 25%.
A reminder that the midterm guidance 2022 is based on the present business composition for Lonza, including the Water Care business unit, the present macroeconomic environment, current visibility, and constant exchange rates. Turning now to our outlook for 2019, which will contribute to achieving our midterm guidance. As we will continue to focus on the thorough execution of our growth investments, we fully expect 2019 to be an unprecedented investment year. Our outlook is based on Lonza continuing operations excluding Water Care, the present macroeconomic environment, current visibility, and constant exchange rates. Based on these assumptions, our outlook for 2019 includes achieving mid to high single-digit sales growth, confirming a sustained high core EBITDA margin level. While we are continuing to invest in innovation and growth, especially in the biologic businesses, we won't neglect our initiatives to improve our operational and commercial excellence programs.
We also continue to implement countermeasures for the cyclicality-exposed businesses. We will give an update on the outlook with Q1 qualitative business updates 2019. In addition, we will further accelerate the review of our current assets and portfolio to continue strengthening Lonza's position along the healthcare continuum. An update on the review will be provided. I'll turn the microphone back over to you now, Richard.
Thank you, Marc. Let's wrap up with a look back at the last seven years on slide 24 and slide 25. We have exceeded in those years guidance across all metrics, and our continuing operations have grown steadily and created value for our company and our shareholders. I think demonstrated particularly in our sales and core EPS figures. I'm humbled yet pleased by the results of the last seven years, as you'll see on slide 25. Our strategic, financial, and operational turnaround has yielded a 486% total shareholder return between beginning of 2012 and end of 2018. As you can see from the upward trajectory of the share price over the years. Some of you as investors could even take advantage of that remarkable growth. You'll also see here the phases of our development. We began by focusing on restructuring, reorganization, operational efficiency, and market orientation in the first years.
We announced our strategy and optimized our portfolio in the next phase. We began executing on our strategy, and I have to say, I'm modestly proud about how well the strategy has turned out. As we outlined at the Capital Markets Day, we have invested and divested and sharpened our portfolio. Lonza is all lined up for future success. With a smooth handover during the next months, two things will remain the same, our clear strategic direction and our successful execution. Lonza is a good company and will remain a good company. We expect ongoing positive momentum and growth for our already high margins. Incoming Chief Executive Officer will give you more specific details during the first half of the year. I would like to share some final personal thoughts. As analysts and investors, you have watched patiently, for most part, our turnaround and growth over the years.
You have supported us even when we have encountered bumps along that upward path. You have been following us and sometimes even challenging us on the path, that partnership with you as analysts and investors has spurred us even further forward. With your support, we did make great progress and move much further forward, as the chart indicates. For seven years, I have enjoyed meeting you personally on road shows and investor events, and it's been a pleasure to take part in many helpful and thought-provoking discussions. I really enjoyed working with you. I wish each and every one of you success in your future, too. Ladies and gentlemen, I'm sure you have many questions. That's why we are here to answer them. Who would like to begin?
Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You'll hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question from the phone comes from the line of Daniel Buchta from Vontobel. Please go ahead, sir.
Yes, thank you very much for taking my three questions. Before, of course, thank you, Richard, for your efforts. I think one can clearly say you have done a great job in that regard, turning around the company. The first question actually I would like to ask you on the change. Can you share a bit more the background on this, I would say, a bit surprising decision, and why is this going to happen now? Related to that, why is it going to happen so quickly? You will leave Lonza basically by the end of April. Why aren't you staying for a year or at least joining then even the supervisory board? You have just one change in the supervisory board. I'm a bit surprised about that.
The second question, you mentioned for the outlook 2019 that you have several growth and investments coming up. Obviously, this is the case. In my view, most of them you have already this year, like Ibex, the Singapore expansion, Houston. Maybe you can quantify a little bit really these growth-related investments in 2019 you are seeing and also clarify a little bit why the strong underlying fundamentals in pharma and biotech, but also the portfolio transformation you were highlighting in Specialty Ingredients, why this is not enough to, I don't know, at least show higher margins in 2019, as you say, only you want to sustain high margins. The third and last question quickly, you say you want to reinvest parts of the Water Care proceeds for further portfolio transformation.
Can you give indications on what size we can expect that and to be and in which areas? Thank you very much.
Let me start a little bit on the comment on the question of the change. I think, of course, a few of my beliefs, especially when it comes to a change which we have now announced. That we change to an internal successor who is fully aware of everything what works, who has been, I would say, extremely successful in the most, I think, the dynamic part of the company's portfolio. I think here it is my strong belief that between announcement, not only to the external, also to the internal world, it's important that it's a fast handover. If you want to have a smooth transition, you should minimize, and this is my strong belief, I have seen many bad examples. You should minimize the uncertainty for people because then they do not know to whom they should look.
That's why I think it was also my request to make finally a fast handover, which basically, of course, will with the announcement, I will be in charge until end of February, then Marc will take over. I'm still available, but I think the difference between an external successor and internal successor is really an internal successor who has been the whole time with me, has taken important responsibilities. Here I don't see any problem, Marc and myself have worked so long together that you can take the smooth handover as guaranteed. That's also why it's announced in this way, we have to make sure that our people are not losing any focus in this period. From my perspective, reflecting the time I had in Lonza, just to remind, a tenure of seven years as a Chief Executive Officer is far above the average of European Chief Executive Officer s.
I think I'm almost a veteran in this sense. What is important, you need to set yourself a few targets. Of course, I came to the company, some of you still know it was in a quite miserable situation. I said I want to turn it around operationally, financially and strategically. Of course, I want to see these also being in place. What I said before, I think we have achieved those goals. Which means I think this is a platform for writing the next page of the Lonza book. The question is always, when is the right timing? As you do know, personally, I don't like Chief Executive Officer s who are holding on their job just to be the Chief Executive Officer .
It's important that you find the right time and you hand over the torch while the outgoing and the incoming Chief Executive Officer are at full speed. This is, I think, after some reflection, it was clear to me, this is the right time, after these seven years. I think I'm modestly proud of what has been achieved, and I am fully convinced that I said before that with Marc Funk as the best successor I can imagine at this moment in time for this company, this will be extremely flawless. As you can imagine, I'm also investor. I think I'm quite relaxed in what's going to happen in 2019. This was why it was done in this way. I'm not a supporter of a nine months or 12 months handover period because this can really stop momentum of companies.
Maybe if it had been an external one is a different story, here we are talking about a real insider who has been instrumental in the success of the last years. Now we need to have two others. I think the outlook 2019. Who's taking that?
The question was, what about the investments in 2019? Here we have to remind ourselves, we have said already at the Capital Markets Day, 2019 will be an unprecedented year in terms of investments. Here we said at the time the CapEx would be 10%-12% of sales. Of course, now with the reporting of continuing operations, that translates into 11%-13% of sales. The point is, many of the initiatives that have been announced, the meaningful part of the investment will start happening in 2019. The question I have gotten in roadshow early this year was, is this investment mainly CapEx? The answer is yes, of course, it's mainly CapEx. Of course, we have to acknowledge that there's some OpEx that comes with the investment. When we think of 2019, there's two dimensions.
These investments, which are absolutely critical for our growth. We have talked about the very high NPV of all of these investments, rate of return. We expect already to see positive impact in our numbers in 2021, 2022. The other dimension is the headwinds in Consumer & Resources Protection. Here we were a little bit disappointed in the sense that we were expecting the headwinds to abate in the second half of 2018. That didn't happen. Conservatively, we're saying for 2019, at this stage, we say let's take a prudent position and let's assume we can stabilize the business at this point in time. This is the main explanation for the guide
There was a final question, which.
The investment in Water Care.
Yes.
I think we always said, I think we definitely will put a part in deleveraging, and the part is really with those investments. The name of the game is we take of non-core business, the gains, and we invest in the healthcare continuum, and this is what we are going to do this year. Of course, it is still some time to go. Hopefully, we will finalize the closing in quarter one. I think all signs are positive that this can happen, but as usual, it is more in the hands of authorities than in our hands. Still, I don't see a red flag at this moment in time.
Okay. Thank you very much, and Richard, to you especially, all the best and thanks for your effort.
Thank you, too.
The next question from the phone comes from the line of Dominique Bünzli with Credit Suisse. Please go ahead.
Hello. It's actually Jo Walton from Credit Suisse. I'm afraid I'm going to go back to the margins and the level of investment and just how conservative we might see the stable margin comment for this year. I think, as you're well aware, looking at the consensus expectations, a number of investors were expecting to see some margin improvement. Not on a linear basis to 2022, but at least some progress as we're moving towards that 2022, and you appeared to be happy with those expectations until really very recently. I wonder if I could just push you a little bit more on what you had expected to improve but has not yet improved and how confident you are, whether we should really see this as a low ball number.
You, Marc in particular, now that you will be responsible for delivering it, would hope to be able to do better than this. Can I specifically ask how much of the Capsugel synergies have already been taken in 2018, and how much more is available to come through in 2019, which obviously to some extent will offset the extra investment that you're talking about? Thank you.
I think it was a long question. Maybe we a little bit slice it. I think the synergies in Capsugel, let's start from the back and then we come back to the guidance. If we go back, I think we achieved what we wanted to achieve in 2018. Of course, we are progressing as we speak. I think it will go as planned. As what we said before, of course, maybe 2019, we still have a clue. Of course, we are integrated business, and then it's a decision. Is it synergy or is it already the combined business which is moving forward? I think as the years move on, it will become more and more difficult. I think coming back again to the margin guidance and the investments. Before maybe Marc goes in, let me make a comment as an outgoing Chief Executive Officer .
The guidance is the one which has been given right now. I think it's absolutely, we are starting from a very good and high level. There is an incoming Chief Executive Officer . I think from my perspective, I really want you to understand how I see it. He starts officially, although he knows, of course, the company. Officially his start comes 1st of March, and we should give him the 100 days. A new PE in the sure. Marc will comment. He will talk to you about what he thinks going forward. This is why, I think you see an announcement during the first half of 2019. He will tell you at one moment in time what he thinks about that going forward. If my colleagues want to add anything.
Thank you, Richard. Yes, I do confirm that the margins are sustainable, meaning that in January 2019, we are quite confident that the way we are seeing the projections, it's definitely not going to be lower. I heard the word you were hoping more. At this stage, at this time, we have to look at, on one side, certain opportunities. Also a certain sense of responsibility to also look at certain headwinds that today are still not totally clear. That puts us into a situation where the qualifier of sustainable is the best adjective that we can find today.
Thank you.
Welcome.
The next question from the phone comes from the line of Patrick Wood from Bank of America Merrill Lynch. Please go ahead.
Patrick, thank you very much. I have two if I may, please. The first is on the raw materials and price escalators in your contract. It'd be helpful if you could help us understand the typical time lag that generally, in very general terms, exists between the raw materials move and when you get some of that back in pricing. That's the first question. The second, I'm afraid I'm going to be boring and also ask on the margin structure. You were obviously saying that a lot of the payback from the investment comes in 2021, which makes sense. Takes time to bring things on stream and get the returns. Totally understand that. Does that mean we should be also thinking about 2020 as a year of OpEx investment in a similar way to 2019, or am I misunderstanding this? Thank you.
Let me take the raw material part. There are two things. What is a normal, I think as I've worked since 25 years in this kind of business. Normally, I think you have, depending on which contracts you have, also in the make to stock businesses, you have sometimes contracts which fix for a quarter or six months, sometimes nine months, price of a product with a customer. Normally, you have a time like somewhere in between three to nine months. It depends on the mix of the contracts. A little bit of flavor to last year and the headwinds we had, I think it was not only the contract, it was also You might have heard it in other parts of the industry. The other hand with was just, I think, disruptions in the supply chains of many key raw materials, also for some performance plans also.
Phase A from the Chinese Blue Sky policy, though say some districts or in some provinces of China, the whole manufacturing was shut down. If then some key ingredients are running out of supply, I think you feel it a little bit in especially the antimicrobial business, and this is what happened in the second half, was a little bit disappointing. When we said we are taking action, yes, we are taking action. I give you one example of the actions. We will start, as much as we can, to insource critical synthesis again, because we still have the capabilities on the chemical side to do, and I think this It's an industry. I have talked a lot in the industry. It's an industry phenomenon for 2018. Now actions need to be taken.
They are underway, I think within the next weeks and months, the management will see where we are, then in the course of updating us where we go. That's the first, I think. I hope I could answer your first question from the materials and the situation. Now the other question was about the investments and how will it do in 2020. On the investments, let me remind you. As Marc mentioned in his presentation, we definitely stick by our midterm guidance. That's an important starting point. We will restate as soon as the Water Care divestment closes, we will restate it or we will adjust it for the Water Care business. What that means is we have a clear reference point for 2022. We have also said it's not going to be a hockey stick.
What we need to understand is, yes, of course, the investments will continue. Even some of the investments we're talking about, they are not just for one year, it's a multi-year investment. We have many different trends happening at the same time. When there was a Capital Markets Day, I talk about many of the productivity programs we have here in enabling functions. We continue with productivity programs in manufacturing. Of course, the expectation is that over time, there will be a recovery of margins in the Consumer & Resources Protection business. As I said in summary, there are many different dimensions to the margin progression. That's the first thing I would like to emphasize. Second, the midterm guidance stands. Then, of course, we will not give at this stage a guidance for 2020. I mean, this is not the point.
I think with my comments, you can more or less understand that we expect a reasonable progression towards our 2022 targets.
Perfect. Thank you for taking my questions.
The next question from the phone comes off the line from Markus Gola with MainFirst. Please go ahead, sir.
Yes. Hi, thanks for taking my question. My first one would be in follow-up on the investments or dial four. The question is the absolute amount of the OpEx for these investment projects, will it be higher in 2019 or in 2020? My second question is related to the 2022 targets. Assuming that you still have investments in 2020, and also given that you have confirmed your midterm guidance on the margin, which adjusted for Wood has roughly 31.5%. How confident are you to achieve that? Where is this significant acceleration coming from? Finally, my third question is on the accelerated asset revision.
Does that mean that contrary to the statements on the Capital Markets Day, that Coatings and Composites as well as the wood business are under review again? Thank you.
Again, there's several dimensions to your question. Let me start again pointing to the midterm guidance, because at this stage
Is what we can clearly communicate. When you think of the different businesses and the margin progression that we expect, again, keeping in mind that we had some significant headwinds in 2018. While it's true that, for example, in Consumer & Resources Protection, the 2017 base was artificially high. It was a year where the cyclical businesses were at all-time records. You have to keep in mind that we had a correction of roughly 500 basis points in 2020. For this business in particular, we said the expectation is that we'll definitely cross the 20% margin and ideally get close to the 25% margin. This gives you a reference. Consumer Health, likewise, it's at 27%, and we said we would like to cross the 30% margin. We will get there through a combination of portfolio, productivity programs, and we are confident behind these numbers.
To your question, what we see when we do our internal planning, it's a reasonable life path to where we want to end, considering the developments that we expect across these different pieces. The second one you said, will the OpEx as such be higher or lower? Well, typically, OpEx tends to increase as you get closer to triggering the start of operations around the investment. Again, we need to see this not as one single variable. At the same time, the scale of the business is growing. Our base business is becoming much bigger. Just the operating leverage that you get in a business that is growing at a 9% level like it did is significant.
Again, don't underestimate efficiencies in programs like we're doing with outsourcing, let's say off-shoring many of our services and so forth. It would be absolutely and completely wrong to say, okay, because the OpEx will be higher as you progress in building up the investment, that translates into a certain conclusion on the margin. This is absolutely not the case. We continue to accelerate our operating leverage, which means growing our sales ahead of our costs. In addition, we continue with our efficiency programs, and we stand by our projections. Marc said that very clearly in his presentation by each of the different units, this is how we get to the midterm guidance.
Okay. On the asset revision?
Excuse me?
On the asset revision, we have scale continuum. This is something that we see that in the current year and in the near future, we will have to look at what are the review of the different portfolio. At this stage, it would be premature to go any further.
Okay. Very clear. Thank you.
The next question comes from James Quigley with JPMorgan. Please go ahead.
Hi. Thank you for taking my questions. Only a couple left from me. Looking into the Lonza Pharma & Biotech division, you mentioned there's 205 programs you're working on. That was 290 programs last year and 190 programs the year before. Looks like a significant slowdown in the number of clinical programs you're working on. Is it a bottleneck there capacity-wise from your point of view, or is there more something around the wider market in the clinical stage? On 2019, the range on the top line is mid to high. What needs to happen to get to the higher end of that guidance? On Consumer & Resources Protection, you mentioned the significant margin decline. 2019 also looks challenging as we head into this year. Is the 25% guidance, is that an aspirational target, or how achievable is that target given the difficulties in that division?
Thank you very much.
Maybe, James, we have to recall again. Let me just start just to correct, I think we have corrected large molecule programs have actually increased-
Yes
between 2017 and 2018 from 290 programs- 305 programs. I think we have more programs. I think it's not decreased, it's increased.
That was the question. This year it's increased to 305 programs. Last year it was 290 programs. The year before it was 190 programs. You had 100 programs gain in 2018 and only 15 programs gain in 2018.
What we said, we are increasing, James. We are increasing in the clinical capacities because the demand goes up, up. We have announced that we have, I think we are expanding in Slough. We have in Hayward, California, ramped up. We are investing in Visp, that's exactly because all the demand is increasing on the biologics. I think there is no decrease. It's an increase. Also we have more commercial molecules. I think it's in the biologic. All numbers I know are going up, and I see numbers are all going up. Maybe, hopefully Rodolfo and Marc have to catch the middle part, but let me go a little bit to Consumer & Resources Protection.
I think as Rodolfo already said. If 500 basis points was the drop between 2017 and 2018, and this is a little bit in the cyclical part, if you see 500 basis points, it's 17.9%, and at the 500 basis points, you would be almost at 23% or so. I think important is that even in this portfolio, that we are de-emphasizing the cyclical part. This is always what we said, you remember in Capital Markets Day, I think repurposing and all this stuff. A lot of actions need to take that were separate. The problem is a little bit in that business is, of course, if there is a shortage in some of those volume products, you can have that again spring back. I think, but of course, this is not what we want.
Going forward, we want a more stable, more added value portfolio, this is what needs to be done in this business, this is what we said in the Capital Markets Day. That's why if we had the same discussion exactly a year ago, we'd say we are at 23% margin. I think it's a very little stat. In fact, we have to make sure that we are looking deep into portfolio and see what can be done to make this a little bit less volatile.
James, could you repeat your second question, the one in the middle?
What needs to happen to get to the top end of the revenue guidance to high single digit?
For next year, you mean?
Yes, for 2019. Yep.
Look, I think as you know us now, the way we think about, in this case, let's talk about the revenue guidance. Of course, we have a firm plan in place. In the case of pharma, there's a very high level of visibility. It's not a given, even in the case of pharma, because we need to execute operationally. In the case of the Consumer Health and Consumer & Resources Protection, we have very strong plans in place. Lots of learning from 2018. We feel confident about 2019. Of course, even in our plans, we have the base plan, and we have what we consider an upside plan. Typically, we need to see what is the momentum that happens in quarter one. Based on that, we can confirm in what part of the range of the guidance we feel comfortable.
Just let me comment. I think guiding mid to high single digits is again, strong organic growth from my perspective. This is, I think, definitely the goal of the company, this is, you will see when I'm not anymore in these discussions, but I know Marc. This is Marc's strong message to the organization. This is a focus, I think this is absolutely right. This is also why the guidance, I think, it's a remarkable one.
Are there any further questions?
The next question from the phone comes from Daniel Jelovcan with Mirabaud. Please go ahead.
Yeah. Hello, Rodolfo. Can you elaborate a bit on the small molecules where you flagged also robust growth. According to my knowledge, this market is growing 5%-7% kind of. I guess with all the synthesis, Capsugel, you were probably above that. I know you don't give specific indications about that, but is it a fair assumption that it was also maybe even close to 10%? That's the first question. The second question is, Rodolfo, when you talked about waiting for the Q1 numbers for more visibility, can you maybe flag how was the exit quarter last year? So Q4. I know you don't provide quarterly numbers. When we looked at all the reports now in the world, it looked like November and especially December, the world was collapsing. Did you experience any significant slowdown in Q4 also compared to Q3?
If you can give some qualitative elements on that. The last question is, in the press release, you mentioned that in Singapore, you have now installed the first 2,000 liter single-use packs. Is that a trend which is now spreading all over the world or more specifically in Asia? I know most of the time it's a decision by your client if he wants a steel reactor or a disposable. Does it also help you to reduce costs and improve margins with these kind of products? That's all my three questions. Thanks.
I'll take the last question to start with. With respect to the site selection of Singapore to do disposable. The capacity utilization of the disposable technology in Singapore was tactical and pragmatic choice, dictated by desires of the client to manufacture at a certain pace and with the capability of our company.
To bring up to speed in this place, certain assets available to fulfill client needs. To that extent, it is a success.
mainly in Asia, or in Europe or in North America?
That's the second part of your question.
Sorry
which is this disposable technology now the standard of excellence? The answer is no. It is an alternative, indispensable need to address the manufacturing of specific molecules that fit well into this kind of assets. The stainless steel tanks are not correlated with decline or a different route. There is a need for stainless steel addressing molecules that goes into the medium to large scale. That trend and that need is not affected necessarily, and is continued in the future to be of a need. This explains, to some extent, also our decision last year to invest in mid-size capacity in the United States, for example. In relation to your first question, what is the relevance in our portfolio of the small molecules? Historically, this is where the CDMO industry started in Lonza, and this, over the last years, particularly the last one, became very relevant.
Also, thanks to portfolio review, operational excellence, we managed to capitalize a growth here that is, for us, interesting, exacerbated by the acquisition of Capsugel. Here, what I can say is not to confirm nor infirm the percentage growth that you have mentioned, but what I can say is that the Capsugel acquisition is something that we are very proud of. On the short term to start with, but also in a more medium term, where our vision to come with an innovative offering, where the service in the small molecule embedded with our know-how of ingredients, APIs, formulations, and the capsules is something that is a key road, a key path to sustain the future of this company.
Maybe a comment to the last quarter. Given the nature of the part of our business, which is CDMO, of course, by definition, if you have contracts in place, this is a little bit different from so-called make-to-stock mechanisms, I think, as we have those in place. There is not a quarter which is collapsing because of the demand fluctuations. In some areas of Consumer & Resources Protection, I think, of course, definitely you have differences from quarter to quarter. We could not really see overall a collapse in the fourth quarter. What I said, the momentum of the business is intact, and that's why you have seen the sales guidance which was given.
No, from my side, just a short comment. I echo exactly what Richard said, and I have to say, we don't disclose data by quarter. We won't start that. Definitely, the quarter result, I would qualify it as positive and consistent with our projections for 2019. It's absolutely clear that even though December 31st marks the end of a year and the start of another, it's clear that the trends don't recognize this artificial, let's call it timeline. In our case, we saw a positive momentum in the non-CDMO part of the business, and this is a good foundation for 2019.
Okay. Thank you. Richard, all the rest, it was all clear from my side as well. Thank you.
Thank you likewise.
The next question from the phone comes from the line of Patrick Rafaisz with UBS. Please go ahead, sir.
Good afternoon, and thanks for taking the time. Three more questions, please. The first is on Lonza Pharma & Biotech. You did talk about strong demand for commercial large molecules. How should we think here about potential mix impact and contract structures in 2019? Anything we need to take into account in our modeling here versus 2018? The second question for Specialty Ingredients. The cyclical bits, Richard, you mentioned 2017 was a very strong year. How should we think about the comparables in H1 for Specialty Ingredients, where EBITDA was already down quite a bit? Is that already a low base where you feel comfortable you can build on, or is that still maybe at risk if the environment doesn't improve? The last one on CapEx.
You already talked about 2019 extensively, and you've given us at the CMD a target of reversing back to 7%-9% over time. How linear should we assume that CapEx will come back after 2019? Also with the China project now announced, is it maybe staying above 10% for longer or should we assume below 10% already for 2020? Thanks.
For the first question about the large molecules for Lonza Pharma & Biotech, is there any difference in the portfolio or anything to think about between 2018 and 2019? I would say no. There is nothing material that needs to be perceived as different, and there are opportunities, and the assets that we have are in adequacy to the needs. On the CapEx 2019 and 2020, we have been clear at the Capital Markets Day. At this stage, we do not foresee any changes into the guidance that we have given so far. In the curve about the increase and the decline at a certain time, to go back to more of a normality or what we can call normality, I don't know, is something that is unchanged at this stage.
Yeah. Sorry. Maybe a brief comment on the Specialty Ingredients and the cyclical part. I think what has been already stated before, I think this is a prudent approach in the beginning of the year. Actually, the teams have worked in the last year and still in this first phase of the year on reestablishing some of the supply chains, which have caused some problems in the second half of 2018. I think now I would not say that we can already say at this moment in time what it is going to be for the first half. I think here I need to ask you for a little bit patience to see when quarter one is behind us.
I think the management team will have a better picture how the reestablishment of the supply chains that has worked, and then maybe we will be more in position to give you an answer on that than we can do it right now.
Okay, that's clear. Thank you very much.
Ladies and gentlemen, now let me have some final words before closing. I think some of you have been in the call today. You have accompanied me through all these years. Some of you will remember 2012 when I first arrived. Lonza was being derailed by poor performance and an operational nightmare, but it had great potential, I think you will agree. Now we are in 2019. I think Lonza is a totally different company. We have a clear strategy, great performance, and good momentum. What remains, from my perspective, the same now as in 2012 is that we still have great potential. I want you to continue to support now my successor, Marc, as you have supported me, and I thank you very much for that. As I said, a sincere thank you again, and I hope we will meet again someday, and 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.