Ladies and gentlemen, welcome to the Full Year Results 2018 Analyst and Investor Conference Call and Live Webcast. I'm Iruna, the Chorus Call operator. I would like to remind that all participants are in a listen only mode and the conference is being recorded. The presentation will be followed by a 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. Richard Riediger, CEO 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 2 main topics to discuss: our full year 2018 results and the upcoming CEO transition. Together with me in the room are Rodolfo Savitsky, our Chief Financial Officer, who is here to answer your financial questions as well as members of the Investor Relations and Corporate Communications team. And our special guest today is Marc Funk, our incoming CEO, who is currently the Chief Operating Officer of Pharma and Biotech.
I'd like to start by introducing him as my successor. Marc joined Lonza in 2,009 and has been an integral part of the entire company since that time. From 2,009 to 2014, when he took over as Pharma and Biotech COO. He served as Lonza's Group General Counsel and Board Secretary. You will be hearing from and about Mark shortly, but let's get started with our tax agenda today.
First, I'll take a look at our overall business and our segment specific highlights. Rodolfo will then present the financial results. Marc will focus on the future and cover our outlook for 2019. Finally, I'll wrap up with a few personal comments and then move on to the Q and A session. So as you read in today's news release on our 2018 results, we have once again had a great year, especially for our businesses along the Healthcare Continuum.
Today is my 7th full year results, and I'm pleased to say that each EUR 5,500,000,000 at a record level of profitability. Let's dig into some of the other highlights now on Slide 4. I just mentioned we delivered a remarkable 9% organic sales growth with 70 7.3% 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 and Biotech contributed significantly to these excellent results with 14% sales growth and margins up 2 60 basis points.
The Consumer Health division also performed strongly with positive momentum in 2018. I'll talk about Capsugel in a moment, but 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 ways 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. However, we are not completely immune to those influences. So 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 Blend for later in this quarter 1, we have dealt with the seasonality fluctuating part of our portfolio. And 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 6 shows you a few examples of the successful integration of innovative Capsugel borlabs 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 1st full year with Capsugel as a part of our Lonza family, we have benefited from its performance and synergies. Which 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 Farm and 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 CFO, 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 8. 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 form a, which means they include Capsugel from January 1, 2017, for comparison purposes.
This approach allow us to calculate our organic growth, which is conscious 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%. So 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. CORONOA 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 and biotech figures are the CHF 3,100,000,000 sales for 2018, which is an outstanding 14% organic sales growth.
Core EBITDA amounted to CHF 1,000,000,000, a pro form a increase of CHF 23.6 billion versus prior year. And that was with a 32.8 percent 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% plus margin for this segment. As 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.
Now 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 Good 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 and 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.
So 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 2 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 2 weeks ago, we announced the initiation of a public credit rating with Standard and Poor's. The S and P rating provided Lonza with a BBB plus 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.
So from the financial side, it is a positive story for the overall company. And 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 Pharma and Biotech numbers, But further details are available on Slide 12. Let me just point out that the segment reported pro form a double digit sales growth a 260 basis points margin improvement. And that result represents a significant performance improvement for 3 consecutive years now, and by the way, under the responsibility of the incoming CEO. As we discussed at Lonza's Capital Market Day in September, the team achieved those results while investing in technological advances, demand driven capacity expansions and targeted R and D and innovation for continued growth in the future, especially but not only in Biologics.
Next couple of slides cover the successes of the Pharma and Biotech businesses. On Slide 13, it's clear how well the Biologics business has performed, both in clinical development and manufacturing and in commercial manufacturing. In 2018, Lonza worked on 305 clinical and 25 commercial large molecule programs, and we see continued high demand. Ibex in FISP will surely add to our capabilities to meet demand as well as our other investments. One of the highlights in quarter 4 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 and D. For example, in October, we acquired a controlling stake of Octane Biotech to further develop the Cocoon autologous technology in cell and gene therapy. Our Small Molecules businesses also contributed to the strong pharma and 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, but I do want to point out that Consumer Health and Material Protection were top performers in that Specialty Ingredients portfolio. The next slide shows you the results by division in Special Ingredients. You'll see we have increased transparency in 2018 and disclosed the Consumer Health and Consumer and Resources Protection parts of the Specialty Ingredients segment. Of particular note, our Consumer Health results that show positive momentum we are making with our Healthcare businesses.
The 27.3% core EBITDA margin for Consumer Health is a good start in its 1st 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 CaptuGen is fully integrated, we can provide innovative offerings in clean label, specialty polymers and bioavailability solutions.
Strong combinations with Lonza's proprietary ingredients. The next slide shows how parts of Consumer and Resources Protection performed robustly, particularly our specialties. Microbial Control as a platform was strong, and Lonza is market leader there. We've already mentioned the headwinds, but again, I'll point out the big cyclical parts are under revenue and countermeasures in place. Already in 2018, as an example, we back integrated raw materials and assets from Alco 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 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 develop further new technologies throughout 2018. Face some headwinds, however, like late seasonal start in North America and Europe and higher transportation costs. While Water Care continues its restructuring and business model redesign, the outlook for the business in 2019 is positive.
I'm now going to hand the microphone over to Marc Fung, who will talk to us about what the future looks like for Lonza in the short and long term. But first, let me say a few words about my successor. Mark has accompanied me during my entire journey in different jobs and scopes of responsibility. Almost 5 years ago now, I proposed him as the Head of Lonza's Pharma and 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'm deeply convinced he can bring Lonza fresh perspectives that will drive our strategy of growing along the healthcare continuum. I have full grasp that Mark with Mark, we will continue the Lonza accessory. Now over to Marc.
Thank you, Richard. Let me also acknowledge how much I enjoyed working with you over the last years. And I will start with Slide 22. But first, I'd like to make a couple of personal comments too. I'm looking forward to meet many of you in my new role.
I've already met some of you at past Capital Market Days and on roadshows and at conferences. I hope to be able to continue our conversation as I plan to go on more roadshows soon. We'll be reaching out to you shortly to set that up. Now let's begin by looking our mid term guidance on Slide 22. I'll remind you that after completing the divestment of Water Care, we will provide an adjusted mid term 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, Sales at CHF 7,500,000,000 core EBITDA Sales at CHF 7,500,000,000 core EBITA Margin 30%, core owner 35%, double digit ROIC. We can also confirm the growth trajectory by business that we have outlined at our September Capital Market Day. Pharma Biotech high single digit growth with a sustained 30% plus percent 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 Ingredient Consumer and Resource Protection division, lowtomidsingledigitsalesgrowth with a margin progression from high teens to around 25%. And a reminder that the mid term 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 counter measures 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 health care 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 7 years on Slide 2425. 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 feedback.
I'm humbled and pleased by the results of the last 7 years, as you'll see on Slide 25. Our strategic financial and operational turnaround has yielded a 486 percent total shareholder return between of 2012 and end of 2018. As you can see from the upward trajectory of the share price over the years. Some of U. S.
Investors could even take advantage of that remarkable growth. You'll also see the phases of our development. We began by focusing on restructuring, reorganization, operational efficiency and market orientation in the 1st years. We announced our strategy and optimized our portfolio in the next phase. Then 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 in the Capital Markets Day, we have invested and divested and sharpened our portfolio. So Lonza is all lined up for future success. With a smooth handover during the next month, 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 CEO will give you more Now 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.
And that partnership with you as analysts and investors has spurred us even further forward. And with your support, we did make great progress and move much further forward that the chart indicates. For 7 years, I have enjoyed meeting you personally on roadshows and investor events, and it's been a pleasure to take part in many helpful and thought provoking discussions. I enjoyed I really enjoyed working with you. I wish each and everyone of you success in your future too.
And so 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 The first question from the phone comes from the line of Daniel Buchta from Brent Thobel. Please go ahead, sir.
Yes. Thank you very much for taking my three questions. But before, of course, thank you, Richard, for your efforts. And I mean, I think one can clearly say you have done a great job in that regard turning around the company. So the first question, actually, I would like to ask you on the change.
Can you share a bit more of the background on this, I would say, a bit surprising decision? And why is this going to happen now? And related to that, why is it going to happen so quickly? I mean, you will leave Lonza basically by the end of April. And why aren't you staying for a year or at least joining then even the Supervisory Board?
I mean, you had just one change in the Supervisory Board. So I'm a bit surprised about that. Then the second question, I mean, you mentioned for the outlook 2019 that you have several growth and investments coming up. Obviously, this is the case. But in my view, most of them you had already this year like IDEX, 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 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? And then the 3rd and last question quickly, I mean, 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 to be and in which areas? Thank you very much.
So 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 the 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, I'm it's 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 because if you want to have a smooth transition, you should minimize and this 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. And that's why we I think it was also my request to make finally a fast handover, which basically, of course, we deal 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. And Marc and myself have worked so long together that you can take the smooth handover as guaranteed. And that's also why we write amounts in this way because we have to make sure that our people are not losing any focus in this period. So from my perspective, reflecting the time I had in on such as to remind a tenor of 7 years as a CEO, it's far above the average of European CEOs. I think I'm almost a veteran in this sense.
What is important, you need to set yourself a few targets. And I of course, I came to the company and some of you still know that it was in a quite miserable situation. And I said, I want to turn it around operationally, financially and strategically. And of course, I want to see this also being in place. And 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 Solonza book.
Now the question is always when is the right timing. And you do know personally, I don't like CEOs who are holding on their job just to be the CEO. It's important that you find the right time and you hand over the torch while the incoming the outgoing and the incoming CEO are at full speed. And this is, I think, after some reflection. It was clear to me, I think this is the right time after these 7 years.
And I think I'm modestly proud of what has been achieved. And I'm fully convinced that I see before that with Marc Funk as the best successor I can imagine at this moment in time for this company, I think this will be extremely flawless. And as I can you can imagine, I'm also investor. I think I'm quite relaxed in what's going to happen in 2019. So this was why it was done in this way.
I'm not a supporter of a 9 months or 12 months handover period because this can really stop momentum of companies. Maybe if it would if it has had been an external one, it's a different story. But here, we are not we are talking about a real insider who has been instrumental in the success of the last years. Now we need to have 2 others. I think the outlook 2019, who's taking that?
Well, the question was, what about the investments in 2019? And 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. And here, we said at that time, the CapEx would be 10% to 12% of sales. Of course, now with the reporting of continuing operations, that translates into 11% to 13% of sales. But the point is we many of the initiatives that have been announced, the meaningful part of the investments will start happening in 2019.
And then the question I have gotten in a roadshow early this year was, is this investment mainly CapEx? And the answer is yes, of course, it's mainly CapEx. But of course, we have to acknowledge that there's some OpEx that comes with the investment. So when we think of 2019, there's 2 dimensions, these investments, which are absolutely critical for our growth, which 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.
And then the other dimension is the headwinds in CRP. And here, we were a little bit disappointed in the sense that we were expecting the headwinds to abate in the second half of twenty eighteen. That didn't happen. And so 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. And this is the main explanation for the guidance.
Then there was a final question, Richard. Yes.
I think we always said, I think we definitely will put a part in deleveraging and the part is really with both 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's still some time to go. We hope we will finalize the closing in quarter 1.
I think all signs are positive that this can happen. But as usual, it's more in the hands of authorities than in our hands. But still, I don't see a red flag at this moment in time. Okay.
Thank you very much. And good to you especially. All the best and thanks for your effort. Thanks. You too.
The next question from the phone comes from the line of Dominique Leung 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.
So 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 lowball number. And you, Mark, in particular, now that you will be responsible for delivering it, would hope to be able to do better than this? And can I specifically ask how much Capsugel 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 we have a little bit to I think it was a long question. Maybe we're a little bit slice it. I think the synergies in 2020 in Capsugeleste are coming back and then we come back to the guidance. So if we go back, I we achieved what we wanted to achieve in 2018. Of course, we are progressing as we speak.
I think we are it's going it will go as planned. But as what we said before, of course, maybe 2019, we still have a clue, but then, of course, we are integrated business and then it's a prereglassition. Is it synergy or is it already the combined business, which is moving forward? So I think as the years move on, it will become more and more difficult. So now for 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 CEO. The guidance is the one which has been given right now, and I think it's absolutely we are starting from a very good and high level. Now there is an incoming CEO. I think from my perspective, and I really want, I think, you to understand how I see it. He starts officially, also he knows, of course, the company.
But officially, his start comes 1st March, and we should give him the 100 days. And you pay in the Schuhrer and Marc will comment. He will talk to you about what he thinks going forward. And this is why you see an announcement in the 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. But I hear the words you were hoping more at this stage, at this time, we have to look at on one side certain opportunities, but 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 objective that we can find today.
Thank you.
You're 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 2, if I may, please. The first is on the raw materials and price escalators in your contracts. It would 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? So 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 2 things. What is the 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 Made to Stock businesses, you have sometimes contracts which fix for a quarter or 6 months or sometimes 9 months a price of a product with a customer.
Normally, you have a time lag to somewhere in between 3 to 9 months. It depends on the mix of the contracts. And a little bit of flavor to last year and the headwinds we had, I think it was not only the contract, it was also and you might have heard it in other parts of the industry. The other hand, we've got just, I think, disruptors in the supply chains of many key raw materials also for some performance plants although Phase A from the Chinese Blue Sky policy, there was some districts or in some provinces of China, the whole manufacturing was shut down. And 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. And we are and what when we said we are taking action, yes, we are taking action. And I give you one example of the actions. We will start as much as we can to in source critical synthesis again because we still have the capabilities on the chemical side to do. And I think this but it's an industry.
I have talked a lot in the industry. It's an industry phenomena for 2018. And now actions need to be taken. They are underway. But I think within the next weeks months, the management will see where we are and then this is a part of updating us where we go.
That's the first I think I hope I could answer your first question on the materials and the situation. And now the other question was about the investments and how we'll do in 2020.
So on the investments, let me remind you. We, as Marc mentioned in his presentation, we definitely stick by our mid term guidance. That's an important starting point. We will restate as soon as the water divestment closes, we will restate it or we will adjust it for the Water Care business. And 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. And what we need to understand is, yes, of course, the investments will continue. Even some of the investments we're talking about, they're not just for 1 year. It's a multiyear investment. But we had many different trends happening at the same time.
When there was a Capital Markets Day, I talked about many of the productivity programs we have here in enabling functions. We continue with productivity programs in manufacturing. And of course, the expectation is that over time, there will be a recovery of margins the Consumer Resources Protection business. So as I said, in summary, there are many different dimensions to the margin progression. That's the first thing I would like to emphasize.
2nd, the midterm guidance stands. And then, of course, we will not give at this stage a guidance for 2020. I mean, this is not the point. But I think with my comments, you can more or less understand that we expect a reasonable progression towards our 2022 targets.
From the line from Markus Gola with MainFirst. Please go ahead, sir.
Yes, hi, and thanks for taking my question. My first one would be a follow-up on the investments for Dial 4. So the question is the absolute amount of the OpEx for these investment projects, will it be higher in 2019 or in 2020? And 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 water is roughly 31.5%.
That would imply that you need a significant acceleration of some 150 basis points margin expansion in 2021 2022. So how confident are you to achieve that? And where is the significant acceleration coming from? And 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 on the review again?
Thank you.
Again, there's a few 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. Now for this business in particular, we set the expectation that we'll definitely cross the 20% margin and ideally get close to the 25% margin. So this gives you a reference. Consumer Health, likewise, it's at 27%, and we said we would like to close the 30% margin. And we will get there through a combination of portfolio, productivity programs, and we are confident behind these numbers.
So to your question, what we see when we do our internal planning, it's a reasonable light path to where we want to end, considering the developments that we expect across these different business. So this would be the first point of the question. 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. But again, we need to see this now as a unique use one single variable.
At the same time, the scale of the business is growing or this 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 It's significant. And again, don't underestimate efficiencies in programs like we're doing with outsourcing, let's say, offshoring many of our services and so forth. So 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. And in addition, we continue with our efficiency programs and we stand by our projections, Mark said that very clearly in his presentation, by each of the different units. And then this is how we get to the midterm guidance.
Okay. And on the asset revision?
Excuse me?
On the actual asset, 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. But 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.
Thank you for taking my questions. Only a couple left for me. Looking into the Pharma and Biotech division, you mentioned there's 2 0 5 programs you're working on. That's 2 90 programs last year and 190 the year before. So looks like a significant slowdown in the number of chemical programs you're working on.
What's the is the bottleneck there capacity wise from your point of view? Or is there more something around the wider market in the clinical stage? And then on 2019, the range on the top line is mid to high. What needs to happen to of that guidance? And then on Consumer Resources and Protection, you mentioned a significant margin decline and 2019 also looks challenging as we head into that into this year.
So is the 25% guidance, is that an aspirational target? Or how achievable is that target given the squeeze in that division? Thank you very much.
Maybe just we have to recall again. But let me just start just to correct. I think we have selected large molecule programs have actually increased between 2017 2018 from 290 to 305. I think we have more programs. I think it's not decreased, it's increased.
So we
just That was the question. So this year, it's increased to 305,000,000. Last year, it was 290,000,000. The year before, it was 190,000,000. So you had 100,000,000 gain in 2018 and only $15,000,000 gain in 20.
What we said, we are increasing, Jess. We are increasing in the clinical capacities because the demand goes 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 Trisk.
And that's exactly because all these both all the demand is increasing on the Biologics. I think this is there is no decrease. It's an increase. And also, we have more commercial molecules. I think it's in the Biologics.
All numbers, I know are going up, and I see numbers are all going up. Maybe I hopefully showed also and Mark have catch the middle part, but let me go a little bit to CRP. I think as Rodolfo already said, 500 basis points was the drop between 2017 2018. And this is a little bit in the cyclical part. If you see 500 basis points, it's 17.9 percent.
And at the 500 basis points, you would be almost 23 points or so. I think important is that even in this portfolio that we are deemphasizing the cyclical part. This is always what we said. You remember in Capital Market Day, I think repurposing and all this stuff, a lot of actions need to take this that was said. But the problem is, a little bit in this business is, of course, if there is a shortage in some of those volume products, you can have guidance and swing back.
And I think, of course, this is not what we want. Going forward, we want a more stable, more added value if we had the same discussion exactly a year ago, let's say, we had 23% margin, I think it's a very little step. But 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 more 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, the high single digit?
For next year, you mean?
Yes, for
2019, yes.
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. But it's not a given in the case of pharma because we need to execute operationally. In the case of the consumer health and CRP, we have very strong plans in place, lots of learning from 2018.
We feel confident about 2019. But of course, even in our plans, we have the base plan and we have the what we consider an upside plan. And typically, we need to see what is the momentum that happens in quarter 1. And based on that, we can confirm whether we are in what part of the range of the guidance we feel comfortable.
Just let me maybe comment, I think guiding mid to high single digit, I think, is again strong organic growth from my perspective. And this is, I think, definitely the goal of the company. And this is you will see when I'm not anymore in these discussions, but I know Mark. This is Mark's strong message to the organization. This is a focus.
I think this is absolutely right. Are there any further questions?
The next question from the phone comes from Daniel Yarov Khan with Mirabaud. Please go ahead.
Yes. Hello, you elaborate a bit on the small molecules where you flagged also robust growth? And according to my knowledge, this market is growing 5 percent to 7% kind of. Where I guess with the all the synergies with Capsugel, you were probably above that. But 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. And the second question is, Rodolfo, when you talked about the rating for 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, but when we looked at all the reports now in the world, it looked like November and especially December, the world was collapsing. And did you experience any significant slowdown in Q4 also compared to Q3?
If you can give some qualitative elements on that. And the last question is, in the press release, you mentioned that in Singapore, you have now installed the first 2,000 liter single use bags. Is that a trend which is now spreading all over the world or more specifically in Asia? And I know it's the most of the time, it's a decision by your client if he wants a steel reactor or disposal. But does it also help you to reduce costs and improve margins with these kind of products?
That's all my 3 questions. Thanks.
I'll take the last question to start with, with respect to the site selection of Singapore to do disposable and the capacity utilization. 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. And to that extent, it is a success.
And mainly in Asia or also in Europe or
in the North America? That's the second part of your question, which is, is this disposable technology now a v 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. But the stainless steel tanks are not correlated with decline or a different route.
There is a need for stainless steel addressing molecules either goes into the medium to large scale and that trend and that need is not affected necessarily and this continue in the future to be of a need. This explains to some extent also our decision last year to invest in midsize 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 4th last one became very relevant.
And 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. But here, what I can say is not to confirm nor inform 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.
And maybe a comment to the last quarter. Of course, given the nature of the business, our business is the CDMO.
Of course,
by definition, if you have contracts in place, this is a little bit different from so called make to stop mechanisms, I think, as we have those in place. Of course, there is not, I think, a quarter which is collapsing because of the demand fluctuations. Of course, in some areas of CRP, I think, of course, definitely, you have differences from quarter to quarter, but we could not really see overall a collapse in the Q4. And what I said, the momentum of the business is intact, and that's why you have seen the sales guidance, which was given.
Yes. 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.
But definitely, the quarter result, I would qualify it as positive and consistent with our projection for 2019. I think it has to be clear that even though December 31 marks the end of a year and the start of another, we it's clear that the trends don't recognize these artificial, let's call it, time line. But 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. And Richard, all the best and it was all the player 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. And 3 more questions, please. The first is on Pharma and Biotech. You did talk about strong demand for commercial large molecules. How should we think here about potential mix impact in contract structures in 2019?
Anything we need to take into account in our modeling here versus 2018? Then the second question for Specialty Ingredients. For the cyclical bids, Richard, you mentioned 2017 was a very strong year. How should we think then 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? And the last one on CapEx, you already talked about 2019 extensively and you've given us that the CMD target of reversing back to 7% to 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.
So for the first question about the large molecules for pharma biotech, is there any difference in the portfolio or anything to think about between 2018 2019? I would say no. There is nothing material that needs to be perceived as different. And there is there are opportunities and the assets that we have in adequacy to the needs. On the
CapEx
2019 2020, we have been clear at the Capital Market 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 a more of a normality or what we can call normality, I don't know, is something that isn't changed at this stage.
Yes. Sorry. Maybe please 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. And actually, the teams have worked in the last year and still in this 1st phase of the year on reestablishing some of the supply chains, which have caused some problems in the second half of twenty eighteen.
And I think now it's I not say that we can already say at this moment in time what's going what is it going to be for the first half. And here, I need to ask you for a little bit patience to see when quarter 1 is behind us. I think the management team will have a better picture of the reestablishment of the supply chains that has worked. And then
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.
So, ladies and gentlemen, now let me have some final, final words before closing. Think some of you have been in the call today. You have to complete me through all these years. So you some of you will remember 2020 12 when I first arrived. Lonza was being derailed by poor performance in the operational nightmares, 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. But what remains from my perspective is 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.