Ladies and gentlemen, good morning or good afternoon. Welcome to Lonza's Q1 2018 Qualitative Business Update conference call and live webcast. I'm Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star 1 on your telephone. Should you need assistance, please press star 0 to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Richard Ridinger, CEO of Lonza. Please go ahead, sir.
Ladies and gentlemen, good morning and good afternoon. We've just now come back from our annual general meeting. We want to thank you all for joining now our conference call on Lonza's first quarter qualitative update for 2018. Joining me in the room are Rodolfo Savitzky, our CFO, as well as members of our investor relations and corporate communications team. You already read today's news release. We've had a positive start to the year so far, especially for our business along the healthcare continuum and, of course, also for the pharma capsule shell businesses, which are a part of it. Let's take a look at the highlights now on slide four. I'm pleased to report that pharma biotech's momentum is continuing to be strong, with high demand for all of our pharma offerings.
In pharma and biotech, both the biologics and the small molecules businesses are growth drivers with ongoing demand for clinical and commercial offerings. On the specialty ingredient side, the growth drivers have been the consumer health and nutrition businesses, including the pharma capsule shell offerings, as well as the composite materials business in what we call now consumer and resources protection. The seasonal and cyclical businesses with the Arch wood and water product portfolios had a softer start. The legacy capsule shell businesses have been performing well following the steady progress we have made on our business integration this year. Functional integration is mostly completed, and both IT integration and enterprise resource planning integration are progressing as planned as we speak.
Our combined offerings in consumer health and nutrition are attracting customers' interest already since a while. First synergies are already materializing as we bring together our active pharmaceutical ingredients and delivery systems in our pharma and biotech small molecule businesses. We are right on track to achieve positive half-year results when we do report numbers on the 25th of July 2018. Here are a couple of highlights so far this year. You can see in the picture on this slide of our new Pearland facility near Houston, Texas. We are proud to say that it's the world's largest dedicated cell and gene therapy facility, but even more important than its size, it allows us to provide treatment or even cures for diverse medical needs of our customers' patients. That's why at our grand opening last month, one industry leader referred to our facility as a house of hope.
Earlier today, we also announced our mid-scale biologics manufacturing expansion with state-of-the-art technological advances at Lonza's Portsmouth, New Hampshire site. We are continuing to meet our customers' future needs. Slide six gives more detail about the excellent performance of our biologics business in particular. We have had a strong demand for biological manufacturing in commercial stages and in clinical stages across all technologies and assets. Those assets include Ibex, where we see high interest with ongoing discussions. Our Hayward, California facility acquired at the end of last year is ramping up well and adding to our Slough in the U.K. offerings for clinical development and manufacturing. Overall, we have a robust customer base, and we are adding new customers to our network as we speak, too.
We continue to invest in our business to be sure we have the footprint required to meet our clients' needs in the future and also to strengthen our offerings. We announced in February that we are implementing our business strategy to create cell and gene therapy centers of excellence in Houston, Portsmouth, the Netherlands, and Singapore. That's because we have seen significant increase in customer demand that is outpacing the overall market growth. We are offering a fully integrated range of cell and gene therapy services. These services include process and analytical development, clinical product supply and commercial product supply in Pearland and Maastricht. Both Portsmouth and Singapore will serve as clinical and commercial manufacturing sites. I mention these examples to show how we are constantly adapting our business models and technologies in pharma biotech to the ever-changing realities in the marketplace.
Lonza is where the customer needs us to be. In fact, sometimes we are even there before customers know they need us to be there, and this we could see in live examples at the grand opening in Pearland, Texas. I also want to mention how our small molecule businesses are continuing to outperform on both the top and the bottom line. Legacy Capsugel has made solid contribution to the team's performance with newly added dosage forms and delivery system technologies. We also have now multiple synergistic projects in discussion that connect the active pharmaceutical ingredient and the dosage form and delivery systems offerings, or if you want, the API and the micronization offerings. I think it's a very positive start, especially for those synergies in Q1. Overall, we are really comfortable with our pace of progress now, and we recently reviewed that.
Slide nine gives an overview of our product business in pharma biotech. Pharma hard capsules and bioscience products and services. The pharma Capsugel business performed above our expectations, both versus prior year and on a run rate basis. We know that, of course, many of you remember that we reported a not so strong start in 2017 of Capsugel. That's why it's so important that we mention also on a run rate basis, we are happy with the business, which means not only versus prior year. We have a strong position in the business in specialty polymers, particularly in Asia, Europe, and Brazil, and we continue to lead by innovation. Although the Walkersville's remediation work isn't finished, the overall bioscience business experienced positive demand in Q1. We continue to invest as needed in R&D and innovation to ensure our future growth.
Our Pearland and Portsmouth investments also show that we are at the forefront of innovation, and that we are anticipating future needs and development in pharma biotech. These investments are partly counterbalanced by continued productivity improvements among our businesses with ongoing operational excellence programs. Turning now to Slide 12, you'll see in more detail the new reporting structure for specialty ingredients that reflects our market focus. Today, we'll report qualitative details within the new framework. Financial disclosure will follow, as mentioned before, with the half year results report. Lonza Consumer Health is showing good momentum across capsules and ingredients. We had a positive start to 2018 as expected with our nutraceutical ingredients offerings and legacy Capsugel dosage forms and delivery systems for the nutrition industry as key drivers. Additional growth is expected going forward due to synergistic geographic expansion across all businesses and due to our integrated formulated solutions.
High demand is continuing to benefit our leading actives in these fields, and these are our own actives, especially UC-II ingredient for joint health and Carnipure ingredient in sports nutrition. In Q1, our combined offerings certainly attracted interest, as you can see on Slide 14. More than 30 of our new dietary supplement product concept launches featured both Lonza specialty ingredients and pharma Capsugel's innovative dosage forms. Real synergies in the market now. In particular, demand is increasing for clean label specialty polymer solutions. More and more customers are converting to our specialty polymer capsules, which offer those clean label benefits. To re-emphasize that's especially important in the consumer Health or nutritional supplement market. Having said that, of course, the trend is also moving into the pharma market.
To keep us on the cutting edge of innovation, we announced in February that we are partnering to establish a venture capital fund for investing in consumer Health and wellness startups. On the next slide, you'll see details about our consumer and resources protection division. Robust demand was noted for innovative composite materials that address unmet needs in the aerospace and electronics industries, and for antimicrobial solutions in other industrial markets. As announced earlier, we are continuing the restructuring of our basic materials portfolio. We are emphasizing more on innovative offerings. For example, our engineered wood and Arch specialties. We are discontinuing non-core parts of our business, like the fertilizer business as one example, this allows us to focus more on value-added applications. More discontinuations are going to happen in the near future.
During the full year results in January 2018, we communicated that we would begin a strategic review of the Water Care business unit, which included restructuring and business model redesign. These initiatives aim to grow the business' top and bottom line. First fruits are expected to start materializing from late 2018 into 2019. This means we have made significant progress here. A business carve-out helps to ensure full transparency while we unlock the business' inherent value as a standalone business. To aid those efforts, we've retained an investment bank to advise us on all strategic options. Looking now at our outlook on Slide 18.
Our robust business momentum in Quarter One also makes Lonza fully confident of achieving at a minimum, the previously communicated full year guidance, which was mid-single-digit sales growth on a comparable basis in line with the midterm guidance 2022 and 100 basis point improvement of the CORE EBITDA margin in line, again, with the midterm guidance 2022. When we publish our half year financial results in July, you'll note that we will be reporting on a new key performance indicator. We are replacing CORE RONOA, return on net operating assets, with return on invested capital, or ROIC, as a new KPI. Just to remind us, it's important that after a big acquisition, you put the whole invested capital into consideration. The new midterm return investment and invested capital target or the new ROIC target, will be announced at that time of the half year results, too.
In addition, we'll provide historical pro forma financial data for this ROIC metric and for our new reporting structure in specialty ingredients. That's it, ladies and gentlemen. That's our story for today, and I think you'll agree it's really a positive one. I am sure you have many questions, and that's why we are here, to give answers to them. Who would like to begin now?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've 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 answers while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Matthew Weston from Credit Suisse. Please go ahead, sir.
Thank you very much for taking my question. Two, please, if I can. The first about the capacity expansion in Portsmouth. Can you tell us what incremental CapEx that's likely to drive? Whether that's included already in what you had suggested for full year 2018? If you can also give us some indication as to how much capacity expansion the new investment is likely to bring, that would be extremely helpful. Then secondly, with respect to the legacy Capsugel business, I know you now think of it within its separate divisions, but you did make the comment that it was performing ahead of your expectations, in terms of growth. Can you just give us a little bit more color as to whether that's very much a top-line comment, whether that's with reference to the profitability of Capsugel or whether it's a reference to both? Thank you.
Let me start with the Portsmouth question, then Rodolfo, who is deeper in the numbers, will go a little bit to the Capsugel question. A few comments about Portsmouth. I think this is a combination, this investment. Portsmouth was our first commercial mammalian site in the network. We are doing two things at the same time. We are discontinuing the oldest fermentation line by the early 2020s, and at the same time, we are ramping up a more modern one with a significant better productivity and more capacity. I think now we do it that this is synchronized in a way that I think it's perfectly supporting the stability of the business at the site and at the biopharma operations. We are not publishing exactly the capacity numbers, but it's a significant higher capacity for two reasons.
I think we are investing more fermenters with the new line. Secondly, of course, this is not a line of the mid-1990s. This is a line of 2020. We have a total different technology set up. Productivity will be higher. We are expecting also higher throughput opportunities. I think this is really state of the art in a spot which we think is the right spot to add at this moment in time to our overall offer of our worldwide biologic network. I think it's a well-thought-through investment, it is included in what we guided for CapEx for 2018. Absolutely. That's why I think it's at the right time, it's also, I think, an important message we gave also to our customers, that now we are ready to take on the next products. Which, of course, each product needs a different size of fermenters.
Now in this middle size, I think we are making a big step. It's also an investment which goes, just to mention one thing, into an existing site infrastructure. It's even not like Ibex, where we also build buildings. It's in an existing building. I think it's definitely one of those brown fields which will create, I think, a very high return. I'm absolutely convinced. I think it's already very easy to calculate. It's a very positive step, it's double. It's renovation, we use this, of course, to get a significant higher capacity at the same place.
On the Capsugel question, Matthew. As Richard said, the business definitely is performing in line with expectations on the top and the bottom line. These expectations we have shared, today is a qualitative update, I will not go into the numbers. These are pretty much the expectations we have shared related to the Capsugel business. A very important clarification also made by Richard. One could argue that Q1 2017, we said, was a relatively soft quarter for Capsugel. When we say it's fully in line with our expectations, we also look at the run rates that we expect for the year, where we also see a very positive outlook for the business. I can confirm that the run rate and margins are consistent with the year projection. All in all, good news.
I can also add that the capsules, the hard capsules, is performing really well, and we have anticipated see strong growth in the dosage form and delivery systems part of the business.
Thank you.
You're welcome.
The next question comes from Marcos Gola from MainFirst Bank. Please go ahead.
Hi, thanks for taking my question. My first one would be a follow-up on Capsugel. Could you shed some light whether the pharma or the consumer health business was the factor which was driving growth above the expectations? My second question is on the Ibex project. I believe you had a very rough winter on the construction side, which caused at least some delay in January. Have you been able to catch up on the delay, and do you see some risk for the completion date of this project at the moment? My third question, if I may, is on the cell and gene therapies. How fast do you expect this market to grow over the next five years? What is the margin profile and the margin potential of this business? Thank you.
Let's start with the last first, cell and gene therapy. I think it will grow, if we say maybe there is a roughly high single-digit growth rate in biologics, this will be a strong double-digit growth in the market. Of course, as I always say, mathematically, if the base is lower, you can always grow higher percentage rates. Here I'm talking about the overall market. I tell you, I think even this opening event made me extremely positive. Seeing immediate customer interest at this event was, for me, even unexpected. It's definitely a market, and when sometimes I'm asked where you are investing in, also in R&D, and you think this is one, not the only, but one strong focus.
We think that the next years. As I always said, I think when I was at roadshow in the last two years, I said in the 2020s, this is coming big times. I have big expectation on this. That's why I'm totally happy and just out of curiosity, it is in Texas, the Texas politician said it is so big because it's in Texas. In Texas, everything needs to be big. It's really quite impressive thing, unfortunately, not so many of you have been participating, but there were a lot of opinion leader customers, it was really a great event, I'm extremely bullish on that. Of course, it's an emerging business, has a critical size. Margins are not any different from the biologics, which are currently the most dominant ones in the portfolio.
I think we do not expect anything different, I think we are happy with the margins in the biologics as we speak. Ibex, fair point. Yes, we had with the winter weather, some challenges. Not only the cold, although the stormy weather. When you create infrastructure, it has been, I think, with special efforts, we are about to get back on track if it comes to the timing of the project. Our engineers don't expect this will have an overall impact on the total one. They have done special efforts to get back on schedule, we had, yes, it's true, in the first quarter. We had some challenges when the cold and windy winter weather was kicking in. Now with special efforts, we want to get back on the schedule, we are already on a very good way.
I think at least when I'm in Visp, I see the building growing every time and big time. I think it's impressive, hopefully many of you come to the Capital Markets Day, then you will see it even in a more impressive shape. Capsugel and the different segments, what I can say, it's all across the board, it's strong, especially strong, the dosage forms and delivery systems. I think this was extremely strong. What I said already in my presentation is, what was new for me also now in the first quarter or after the first quarter, that in this part, the synergies with the small molecules are starting to kick in with the first projects. I think this is something which makes me extremely positive.
Let's say the other was strong capsules, what Rodolfo said, we are happy with the run rate. If you recall what we said last year, the pharma capsules will be the slowest growth. Nutrition was growing stronger, I think it's definitely after a very good last year, they are again growing, and the strongest growth is with the dosage forms and delivery systems. This is what you can see absolutely in line with our forecasts.
That was very helpful. Thank you so much.
The next question comes from James Quigley from JPMorgan. Please go ahead.
Hello. Thank you for taking my questions. The first is on the phasing between half 1 and half 2. Excluding the consolidation impact from Capsugel in the first half, how should we think about the underlying growth rates? First half 2017 was a very tough comp, or is a very tough comp. Should we expect pharma biotech growth to be faster in the second half compared to the first half? Secondly, in the small molecules and the dosage form synergies, I think with the Q3 update, you said you'd had one asset. You've seen a lot of investment here. How many assets do you have now where there's a joint offering? Has your view started to change that the majority of the revenue synergies will come from the consumer side, now that you've seen a ramp up or potential ramp up here?
Just to sneak in, about a year ago, you mentioned that the whole of the non-core specialty chemicals businesses, so, coatings, agro, as well as water, were under strategic review. Does the announcement today around the water business and retaining an investment bank, does that mean that the other parts of specialty are going to remain in the group, or is that review still ongoing? Thank you.
I think maybe I start the last first. Yes, of course, the announcement of today means that we are seriously exploring all opportunities, which is also including the sales force. I think at this moment in time, of course, many people are then interested how fast and so on, but this is a start of a process. It's a start of a process. The start of a process doesn't mean that everything now goes automatically. I think I have my expectations, if they are not met, I think we will take different decisions. If they are met, I think we will definitely start to change all the portfolio according to our strategy. For the rest, it's what I said before, we will a little bit more elaborate in the Capital Markets Day.
What I can say right now, I think it's a step-by-step pruning of the portfolio. I think water is something which is a kind of a standalone business. We have made significant efforts to bring it into a shape that we can see better what is it really alone and not having a crossover with other businesses in assets, in business services. Now what I see it very clear, this was what we said earlier, all the business where we can do this, I think, in a reasonable period of time. It's not the same with the other businesses, which are heavily, if you want, so, drenched into small molecules business. Arch, I think just maybe if it's a small loop, please excuse me. I wanted just to mention this from a historical perspective, Lonza is not an exception.
Arch active and small molecules active were coming out of the same source. That means, at least in Lonza, which is not as big as former, I think predecessor of Novartis, where there was a carve out into Syngenta. This is not in Lonza, but we still are using the same basic streams of chemicals which go into two parts. This is a little bit more tricky, and that's why we are not focusing this in the first place. This needs a little bit more explanation, and I think as we are not doing anything in this respect anyway for the next quarters, stay tuned. We will talk about it in the Capital Markets Day. For water, it's clear. We have started the process. I think this is what you can read out of this, no further comment at this time.
I think it's so new, and I think it's a start. We will definitely comment if it comes to the end. On the small molecules, maybe let me try to recap, and if I do not catch everything, please come back again. What we saw with the synergies between actives and the delivery forms, we begin and I think we are expecting first real synergies in sales to start now, already in the Lonza Consumer Health & Nutrition part. Here I have to also clarify a few things, because in this market, and I have worked in the fast-moving consumer goods supply for a decade, I know quite well how this market works.
If you launch today, it's not a pharma contract of CMO where you have a contract, you start, you make the engineering and the validation batches, and then you are ramping up extremely fast. Here you penetrate with new offerings, the world market. You have launch in year one and somewhere between year two and four, the sales are ramping up. This can be in year two, it can be in year four, it can be in year three. This is my experience after many years. I've even made, in my last job, statistics about it. This is the reality, and this is what we are preparing now. I'm confident because I get the feedback from the market. Now, the small molecules, now we are getting the same.
Of course, it takes a little bit longer. To really get the people together, and this was done in quarter four last year. Now they have worked hard for a quarter. Here we have, if you ask a little bit about the asset base, the small molecules are still from an API perspective, we have two assets in China and Switzerland. Switzerland being the biggest one. In this drug formulation and delivery forms and this is where we have, at this moment, quite a network of six, if I'm not mistaken, different sites. Many of these sites and all of these sites represent a different technology. Here, I think the task of the team going forward is to form a very striking organization which combines at the best for the customer, all these different, fantastic technologies, to get the best delivery form for an active ingredient.
We are, as we speak, the teams are working on this heavily. I was even positive how many projects they have identified with customers combining API and the delivery form and dosage systems. Here, I think it's much more to getting aligned all the different technologies, to always come to the best solution. This is what we are doing right now. Rodolfo will talk a little bit about the H1, H2.
Yes. James, recall when we talk about 2017, what we said in general, let's say the discrepancy in the growth rates was more related, not necessarily to the sales run rate in 2017, but onto the base in 2016. Considering that the 2017 is more of a standard year, what I can say is that what we will see is relatively even growth, or at least this is our forecast today in the first half and second half. We have commented, of course, that in some of the cyclical business, the start was a little slower, in the numbers. We have a strong momentum as also commented in the healthcare continuum. We will see an uptick in the cyclical business, particularly, or we expect to see an uptick in the cyclical business in the second half.
Again, overall, we see even growth first half and second half.
Maybe one good news I can really say, I think if you recall, some might recall a year ago when we had extremely bullish growth. Extremely. It was not only growth, it was extremely bullish growth. Especially in the biologics, I think the hurdle was high. If you say it's positive, then we're definitely over this high hurdle of the previous year. This is not to forget. I think that I'm really happy. I think it was, we raised the bar so high that now we are even saying, even versus this high biologic bar, the momentum is good.
Perfect. Thank you very much.
You're welcome.
The next question comes from Patrick Rafaisz from UBS. Please go ahead.
Good afternoon. Thank you for taking my three questions, please. The first is a follow-up on Portsmouth, and the mid-scale expansion. Is that in anticipation of new businesses, or do you already have, as in other examples, already committed business here, for 2020 and beyond when these capacities are available? Secondly, specialty ingredients. You mentioned a somewhat softer start in wood, ag, and water, with a cyclical improvement in the second half. You think you can recapture the lost business here in Q1 in the coming quarters, or will we still see a delta for the full year versus 2017? Lastly, maybe you could provide us with a small preview on the ROIC targets.
Clearly we'll get the details with H1. With that now part of your long-term incentive scheme, you foresee any changes in how you steer the business, with this new incentive, in particular with regards to capital allocation? Thank you.
Yeah. Let's start with Portsmouth again. I think as I said before, yes, we see here as, I think we have in our market segmentation, we see definitely in this space a very high demand going forward. I think it has been. This is also confirmed by the fact that, yes, we are already getting these contracts into this place. This will, when it's completed, immediately have tech transfers while the old asset is still running. We are tech transferring already existing contracts into this new asset. Our teams are extremely confident that in a very foreseeable period of time, of the next quarters, this will be significantly filled, when we are starting the mechanical completion, and the validation, which is for cGMP, I think that's important. I think here, absolutely.
Of course, as I said before, it's a fantastic opportunity because we had to do it anyhow. I think it was on our CapEx agenda to replace now a 23-year-old biological asset. We had to do it. It was on our long-term investment plan. Now we are taking advantage and getting, if you want, so an old car, a brand-new car. It's a total different performance. Please excuse my comparison. Yeah. If we come to the seasonal and cyclical businesses, I think it's a little bit different. Some things are just like wood in North America. I was in New York. The weather in the first four months was, in the East Coast, quite miserable. Different in Europe. Of course, we are still more loaded in the U.S. with this business.
It was seasonally just not good because it was not good weather for a seasonal business. I think it definitely can come back. In Arch, and a part of Arch is also the animal feed, we have definitely one, if you want, so standard product, I even would say commodity in this portfolio, which is the vitamin B3 animal feed business. This was last year at its height, and this year the commodity cycle is going a little bit in the lower end. It was clear to us that it would come. It came in quarter one. Of course, as usual in those businesses, now we are expecting, for example, already as we speak, that volumes are coming back in this business, which is a typical pattern in this business. How much this will lead that we will get everything we need to see.
Be assured, I think we are not negative on that. Of course, we will need most probably in some of the businesses a whole four quarters to get back, and not only two quarters. This to a certain extent was expected, but to a certain extent, you cannot really foresee in the first quarter, even not in January, how the next three, four months are going to really to be in the market. That's something which is in the name of the game of those businesses. Nothing fundamental. It's just as those businesses are. Rodolfo on ROIC, what were-
Well, I think there's two parts to the question. The first part is if you can get a preview, unfortunately, we cannot give a preview at this stage. I think what is more important probably is the second part of the question, whether this will change in any way the way we steer the businesses. The answer is absolutely not. I think, of course, our main priority is to create value. We want to make sure that we obtain a return on our full investment, and this has been the case before with CORE RONOA, and it will be the case now with ROIC. Of course, internally as management, we're monitoring all the relevant KPIs so that this is the case.
We want to, let's put it like this, come up with a KPI externally that gives the transparency on how we perform on the full capital invested, and therefore the change from CORE RONOA to ROIC. This in no way changes the way we have been steering the business.
Independent which return on invested capital, whether it's only the operating assets or the total, including the goodwill and investment, our strong goal is every year to have a KPI improvement. Of course, why we changed it, I think many of you know, but just to repeat, to clarify it again. In the phase between 2012 and 2016, 2017, RONOA was a good measurement because at this moment in time, no big acquisitions were in sight, and we needed to get a much better return on the CapEx and net working capital, because it was extremely bad in 2011-2012. This is why we focused on that, and we made tremendous progress. It is a fair point for many investors, the feedback that after the Capsugel acquisition, I think this might not be the appropriate one because now you have a lot of goodwill on the balance sheet.
You need to get a return on the goodwill as well. I think for us, it's now only a fair measurement for the management to say, I think now put more the harder KPI in place, which is now the right measurement at this moment. This is what we are doing now, but that there is an improvement to come every year, there is no doubt. Otherwise, we are not meeting our targets.
Okay. Thank you very much.
You're welcome.
The next question comes from Laura Lopez Pineda from Baader Bank. Please go ahead.
Good afternoon. My first question is also on an expansion project. A couple of days ago, you announced also the expansion of your facility in Greenwood, which is supplying your health and nutrition business. Can you give us a little bit more details about this expansion project? How much will the capacity increase, and for which products is this capacity needed? Is it for empty capsules? Because I think there you also manufacture these. Secondly, on the agro business, today on the press release, you mentioned that the white biotech innovation portfolio is performing strongly, while the cyclical commodity, as it was already discussed during the call, was weak due also to seasonality. Can you maybe give us kind of an indication of the split of the current portfolio?
How much of the agro business is still being directed to the commodity market, and how much is more specialty? Lastly, a general question on the market. Pricing pressure in the pharma industry is strong and continues to be so. Do you see this as an advantage for Lonza and the CMO market, or do you believe that with time, this will also introduce pricing pressure for you?
Let's start from the backside. Pharma, we are extremely bullish, to be very clear. I think all what we see, all indications we have, all the contacts with customer, the total movement in the markets, including all different dimensions, make us extremely positive that this is an ongoing great story. I talk about years to come. More Capital Markets Day, as a teaser, if you want, I see it absolutely positive. Greenwood investment, it's for the active ingredient part of the portfolio. Why in Greenwood? Because, yes, we have a significant capsule production in Greenwood. We have a dosage form production, we have a formulation, lipid multi-particulate production of active ingredients, and now we are adding even active ingredients. It's really then a synergistic center of competence for consumer health and nutrition, but we are also providing still pharma capsules from that side.
I think this is why we put this into Greenwood, to have here everything more and more together, active, all the formulation technologies, and finally find finished dosage forms based on capsules. I think that's why.
Sorry.
Yeah?
if I understand correctly, the capacity addition is for active ingredient production?
Yeah.
Okay. Thanks.
Exactly. Active ingredients. Very successful active ingredients. The agro, of course, we have put on purpose, and this is a little bit, also a lot of agro intermediates and also basic materials for the feed into our agro business. That's why at this moment in time, this is, from a sales perspective, a bigger part than the specialties in total agro. The agro specialties, of course, are really in all dimensions, specialties in margin and all dimensions. We have put for a reason also the more agro intermediates, partly they're even used in other markets. Also the animal feed business, which is heavily represented by the vitamin B3 under this, and that's why in this portfolio, it has a stronger commodity part in the total portfolio. White biotech, yes, it belongs to the specialty part.
We have made a move a couple of years ago to put our Kouřim facility, I think decommission it from a pharma perspective and focus it fully with a growth project on white biotech, and this is working well. I think we make progress. Having said that, this white biotech is not only going into the agro market, it's as important also for the nutrition market. Again, it's also important even for the personal care market. It's important for the value chain, even of dosage forms. I think we have made synergistic projects between Capsugel and Lonza, even on white biotech. It's a bunch of exciting projects which are not for pharma, but for the consumer health market and partly for the agro market. This is about white biotech, and this is to the portfolio of agro at this moment.
Perfect. Thanks a lot.
You're welcome.
The next question comes from Peter Welford from Jefferies. Please go ahead.
Hi, thanks. Firstly, just on cost synergies at Capsugel, I wonder if you could give us any sort of update there. I appreciate it's a relatively small number, but any sort of progress update you can give us on realizing those. Secondly then, just on the Portsmouth expansion, is this doing cell therapies as well as mammalian capacity? And can you confirm also whether there will be any use of single-use bioreactors at this facility or whether it will be stainless? Then just finally, a point of clarification on the nicotinates. Is this business that the niacin presumably is still included within the consumer healthcare business? Does the CRP business supply the CHC business for the niacin, or how does the dynamics of that work? Thank you.
Let me start from the last question, then to Portsmouth, and then Rodolfo takes over with the cost synergies. The biggest volume of niacin or vitamin B3 goes with the animal feed business. In the consumer health business, we are also selling it, but here are different grades and partly even synergistic projects with vitamin B3, and here it's much more in the home of the specialties world, because it's not the same type, and it's also not the same, even sometimes, combined application. It's one asset, but it goes into different businesses for application and then finally also for marketing and sales. This is how it is. Portsmouth for cell therapy, I don't know whether you were at the Capital Markets Day 2016. We were just walking by a cell therapy suite at this moment in time.
This is, I think, on purpose. We did already an investment in cell therapy in Portsmouth because we wanted to make sure, and customers are reacting very positively, that in the moment, products move into phase III and here has also a possibility to become commercial, even for cell therapy to have a commercial experience site like Portsmouth is an extreme benefit. The customers love it. When they go to Portsmouth, they see this is real biological stuff, and we have provided cell therapy capacities, and we are extremely positive. Even customers who are in phase II and moving to phase III, they're really happy that they have the opportunity to move to Portsmouth. We have made an investment consciously also to take advantage of our experience we have on the commercial side, also for future cell therapy products.
On the single use, of course, we have published that we have on the large end 15 cubic meter fermenters. It's not a single use in the fermenter, but there's a lot of single use in the rest of the setup of the total new asset. There's a lot of single use concepts. It's not a bag in the fermenter because six cubic meter, maybe, Peter, at one moment in time, the two of us tried to get a 2 m³ bag out of the fermenter. We are invited, and then we see whether this is easily possible for six cubic meter. No, it's not at this moment would make sense. Around that, upstream, downstream, in all the fermenting, we have definitely a significant single use.
Peter, on the synergies, on the cost synergies, just again to remind ourselves. We have planned for CHF 30 million operating cost synergies by year three and CHF 15 million tax synergies again by year three. In terms of the operating synergies, half of them already, almost half of them were related to savings as we gain economies of scale by combining the two businesses. The rest were more related to personnel synergies as we can move into common shared services for the two organizations. As you can imagine, for the personnel synergies, the plans are intact. We feel extremely confident, but this requires common systems and processes. We will be realizing the savings more towards year three. This is not happening today. Today, we're still at the stage of setting up common systems and processes. The very positive news is in the procurement synergies, we're very confident.
We're seeing very fast progress in realizing these synergies. We will start seeing some results, meaningful results this year. Of course, the full level of procurement synergies will materialize in year three as promised. Likewise, on tax, again, this is something that is intended for year three, a lot of this can be planned ahead based on our projections and the different tax structures in the combined company, we also feel extremely confident to achieve this level of tax synergies by year three. Some of them, of course, we will start seeing a little bit earlier.
That's great. Thank you.
As a reminder, if you wish to register for question, please press star and one on your telephone. The next question comes from Justin Smith, Bloomberg Intelligence. Please go ahead.
Hi, good afternoon. Just two questions. One on the Portsmouth. I just wanted to clarify whether It sounds like there is some expansion going on there, from the earlier remarks, too, it sounds like there was a replacement cycle underway for some of the legacy equipment. I just was hoping that you could clarify that. Then in terms of the expansion, are those single-use capacity that you're expanding? Then the second question is just around the new cell and gene therapy center there. I was hoping to get a little better understanding about the long-term plan there and a little bit of elaboration on some of the services you're doing there now and then plan to do in the future.
If you're planning on consolidating any of the existing capabilities that you have at that center of excellence other than what you've done already. Thank you.
Yes. The last question. Yes. I think the Pearland facility is a center of competence, we will consolidate a lot, mainly Of course, in all clinical parts of cell and gene therapy, this will be a real center. I think it's well located in Houston, also with all the scientific environment which is around there. I think we feel very comfortable that this is a good place. It will be a business which is-- What we do here is very similar to what we have done in mammalian, where we'll talk about also in September more how we have set it up, that everybody knows how our system is going to work. Here it's the same. We have a clinical center. We have two clinical centers, which one is in the U.S., which is now permanent, close to Houston, the other is in the Netherlands.
We are building some commercial, late clinical commercial centers, this is three. Houston, we have also provided enough space that we can stay there, especially when it comes to, for example, I think, which is a big topic for us, is expanding virus production. When it goes to cell therapy, we definitely can go late stage and commercial also in Portsmouth, as I said before, or in Singapore. We try to replicate over time the same in Europe, because I think it's also important that we are having a shorter access to customers in Europe, we have in Netherlands also a clinical center. This is how we do it there. I think it's quite promising. I think we had a significant growth over the last years.
Now we are about to really professionalize our total setup in the most important markets at this moment in time. From there, I'm quite sure, I think this will become a more prominent part of the portfolio in the next three to five or two to five years, I would say. Again, Portsmouth, again, I think to the question, similar to discussed before, we still have a running suite there, but this is outdated. It's also old technology. I think it was on our investment plan to replace, we take this opportunity to make a step-up investment, which provides more capacity, more automation, more productivity. We are using as much as possible single use, but of course, what I said before, not on a six cubic meter fermenter, because it's just too big for a bag.
At this moment in time, you need a crane for a bag, which in any way you need, even with 2 cubic meter, a kind of a support. With 6, it will just be too much. We did it that way because we are really convinced that it's a significant need, which we need to fulfill by doing so. That's about Portsmouth. It's a replacement and at the same time an expansion.
Okay, I understand now. Thank you very much.
You're welcome.
That was the last question for today.
Ladies and gentlemen, thank you very much for joining our update. It was our pleasure to discuss with you, and looking forward to discuss again with all of you end of July for our half-year results. Thank you very much.
Thank you.
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