Ladies and gentlemen, welcome to the PolyPeptide Half-Year 2024 Result Presentation and Business Update Conference Call and Live Webcast. I am Youssef, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and that the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Michael Staeheli, Head of Investor Relations and Corporate Communication at PolyPeptide Group . You are now joined into the conference room. I suggest you mute your phones.
Sure.
Youssef, how many people do we have on the line?
I'm joined here by Juan José Gonzalez, our CEO, and Marc Augustin, our CFO. Before we start the presentation, I point your attention to our usual disclaimer on slide II. After the presentation, Juan José and Marc will be available to answer your questions that you can either ask over the phone or in writing through the chat functions. With this, I hand over to Juan José.
Thank you, Michael, and good morning, everyone. In 2024, we posted substantial improvements in profitability and cash flow, and the company is well positioned for strong growth. Now, there are four key messages from this session. Number one, we accelerated our revenue growth in the second half of the year. If you look at our performance, excluding COVID, the company grew 7.1%, with a second half of the year growth of 9.5%. Now, this growth is driven by the strong performance of our Commercial business. This is on the back of increased demand and the approval of important phase III projects. The metabolic business is the number one growth engine, and it also has doubled over the last three years. The second key message is the substantial improvement in profitability. Marc will talk about this in more detail, but our EBITDA margin increased by nine point four points to 7.5%.
This reflects the progress on our operational improvement agenda and changes in the product mix. Number three, we advanced our capacity expansion at a faster rate than originally planned. We are doing it across the manufacturing network. We spent EUR 87.8 million, which is about 26% of revenues. Something which is important to highlight is that this expansion is being done with strong customer support. In 2024, the customer financing support is around EUR 110 million. This is about an 80% improvement versus the customer funding we got in 2023. Finally, we are confirming our mid-term outlook. Our revenue growth momentum, our rich pipeline, the stabilization of our operations, our capacity expansion program, all that is putting us in a very good position to meet our targets by 2028, which include doubling our revenues versus 2023, with a profitability approach and EBITDA margin of 25%.
Our 2025 guidance shows healthy progress towards hitting this 2028, with a revenue guidance of 10%-20%. This is going to be driven by the ramp-up of the large-scale capacity supporting a GLP-1 contract in Belgium. Those are the key messages for today. Now, let's talk about how we see the market today. Peptides is one of the most attractive markets for the CDMO. On the left-hand side, you have a global therapeutic peptide market. In 2023, this market was estimated to be around EUR 45 billion. It is expected seven years later, by 2030, to be around EUR 130 billion. There are actually some recent reports that are forecasting the market not to be EUR 130 billion, but EUR 139 billion. We continue to see this forecast being upgraded as the time passes.
That basically means that our market is going to triple in size. The metabolic segment is the number one driver of this growth. If you look on the right-hand side, you can see the number of peptide drugs in clinical development. Today, there are 321 projects. As you can see, metabolics and oncology account for nearly half of the total clinical development pipeline. There are important projects also beyond these two segments in cardiovascular, infectious disease, neurology. The applicability in terms of peptides for drug development continues to expand on the back of advances in terms of how to make sure you manage the safety stability profile for different applications, including oral forms. That is in terms of the global therapeutic peptide market. Now, let's talk in a bit more detail regarding what are we seeing with the GLP-1 metabolic opportunity.
Basically, what we see is three things. Number one, we know that more than 80% of these patients exhibit at least one comorbidity. Over the last year, we continue to see important clinical data that show the positive impact beyond obesity and diabetes, whether it is cardiovascular or sleep apnea or Alzheimer or MASH or neo-osteoarthritis. The economic value of these metabolic drugs continues to increase, and that's going to ensure that they secure access across healthcare systems around the world. We are also seeing the strong performance of the leading players today in this market. Both Eli Lilly and Novo Nordisk have posted rapid growth for their commercial products, but also significant investments on their pipeline. We continue to see projects around long-acting formulations, oral delivery methods, multiple agonists, combination therapies, expanding range of indications.
I think that is going to make sure that you are able to have a compelling offering to different patient segments. On top of that, we are also seeing a good number of new entrants advancing next-generation molecules. Today, there are over 100 synthetic peptide-based metabolic drugs in clinical development. The most important thing is that because of the molecular structure, most of the pipeline in metabolics is around synthetic chemicals, which land very well for outsourcing with CDMO players. This is in terms of the GLP-1 and metabolic opportunity. Now, let's look at where PolyPeptide is sitting today vis-à-vis this last market opportunity. Basically, we have superior customer proximity and deep peptide expertise. We have been a leader in this market for over 70 years. Just to give you a sense, we have a strong track record of over 1,000 therapeutic peptides manufactured.
Our development and manufacturing network gives us significant customer proximity to advance the pipeline and also flexibility to provide multi-site offerings depending on the customer supply chain needs. In terms of position, let me talk about the strategy for PolyPeptide. Basically, our strategy is to become the most innovative peptide CDMO. All CDMOs to compete in this space need to have operational and quality excellence, need to have industrial-scale capabilities, and need to have some talent, culture, and ESG credentials. What we are doing is, on top of that, we are building three competitive advantages: innovation with proprietary manufacturing technology and application for green chemistry, development.
On this one today, we have what we believe is the richest pipeline in the market, but we continue to invest to make sure that as molecules become more complex, PolyPeptide continues to be the destination partner to be able to develop them. Finally, modularity. The application of our proprietary technology with the benefits of modularity allows us to scale up with a much lower execution risk, with a faster speed to market, and provide more flexibility both for the customer, but also for us as a company. This new market is being created. There will be multiple offerings coming into the market. What we know is that in 2030, this market is going to look very different than today. This modularity is going to give us the flexibility. This is in terms of our strategy.
I have to say, in 2024, we are very pleased with the progress against this strategy. Let's talk about our pipeline and our performance by therapeutic area. On the left-hand side, you have the evolution of our custom development projects from 2021- 2024. A couple of things are important to notice. Number one, since 2021, PolyPeptide has been engaged in close to half of all FDA approvals for peptide-based drugs. That just gives you a sense of the significant presence that PolyPeptide has across all clinical development activities in the market. Number two, we actually have increased the number of phase III projects and the number of Commercial projects. At the end of 2024, we are sitting with 32 phase III projects. We focus on bringing these projects to market. That's going to be a very important source of growth for us.
On the right-hand side, you see the revenue by therapeutic area. Over the last three years, our metabolic segment has more than doubled in revenues with a compound annual growth rate of 29%. Excluding that, what you can see is that oncology, for example, we are also growing double digits. If you exclude COVID, our other business is growing at high single digits with important programs in rare diseases, cardiovascular, vaccines, and some of the other important applications. The underlying growth of PolyPeptide when you exclude COVID is actually a very healthy 15.4%. This is very important because when you look at our mid-term outlook, it is actually anchored on a company which is already showing a strong growth rate. That is in terms of our pipeline and our performance in terms of therapeutic areas. Now, let's talk about our business mix.
Our business mix, similar to what we shared at the end of 2023, continues to shift towards commercial revenue with large pharma. On the left-hand side, you have the revenue evolution over the last three years split in terms of Commercial development, and COVID. What you see is that our Commercial business has grown very rapidly with a compound annual growth rate of 23.8%. It went from being around 40% of our revenues, 41% of our revenues, to 65% of our revenues. Today, it is about two-thirds of our total revenues. We expect that this will continue to increase going forward. When you look at our revenues by customer type, you can see how the importance of large pharma continues to increase.
Now, it's important to notice that the importance of large pharma continues to increase without undermining the growth with biotech, which we consider is also very important to ensure our presence in other therapeutic areas. That's our business mix around commercial revenue with large pharma. As you can imagine, as we move forward, we expect this trend to continue. Now, let's talk about our capacity expansion and the plans we are executing to ensure that we are in a position to meet our 2028 outlook. Basically, when you look at our CapEx investments, you, of course, have lifecycle management across all the sites. You have a key priority around the bottlenecking. In 2021, we had some bottlenecks in the sense that we had large capacity, large upstream capacity, but we did not have enough downstream capacity.
Basically, what we did in the case of Torrance and Malmö was we invested in downstream capacity that allowed us to increase the capacity for these sites. That is basically what we have done up until today. Going forward, the priority in terms of the bottlenecking will be around our site in India, where we have a program that will allow us to double the capacity of this site by 2025-2026. Now, aside from this deep bottlenecking, we have specific capacity expansion programs on the back of commercial contracts and customer financing support. The largest investment we have done today has been the large-scale SPPS production in Belgium. I am pleased to report that we were successful with our PPQ production and that we are ready in commercial production.
This is very important not just because of the financial impact that it will have in 2025, but also because we implemented very advanced technology around automation, continuous flow, digitization that then we are going to roll out in future capacity expansion. That is up and running, and we know it is going to be an important growth driver in 2025. In addition to that, we also are doubling our SPPS capacity in Strasbourg. This is to support a large non-GLP-1 commercial contract. We are expecting this capacity to come online towards the end of 2025. On top of that, we are also working to double our SPPS capacity in Malmö. This is a $100 million investment to support a large commercial GLP-1 contract. This is actually our first model.
It is very interesting for us to see how indeed the execution risk is much lower. Your ability to move at a much faster speed than before is basically materializing. We expect the deployment of this modular approach to be in 2027, to come online in 2027, and to provide a positive contribution for our mid-term outlook. That is overall our capacity expansion plan. Basically, the combination of these deep bottlenecking programs plus these capacity expansion projects put us in a very good position to be able to hit our mid-term outlook in terms of doubling revenues versus 2023. We are not only improving our operational performance and profitability and expanding capacity, but we are also building new capabilities and strengthening our talent to execute our strategy. For example, we are deepening our peptide expertise. We have very advanced research around resin formulations.
To give you a sense, we have a technology that for certain programs, we are able to double to triple the output in the upstream part. As you can imagine, that allows us to build, rather than building very large and inflexible vessels, to build mid-scale vessels that have similar levels of output, but that give you much better flexibility. We also have PFAS-free TFA in SPPS alternatives. I mean, over the last three years, we have been one of the most active companies around peptide scientific publications. I think we did over 30 publications over the last three years. We are also working on increasing the productivity, safety, and sustainability. We are continuous to advance our proprietary manufacturing technology. We have had a positive advancement in terms of our green chemistry. Actually, we got our CDP climate rating upgrade to B.
This is the second year in a row where we continue to upgrade our rating. We are enhancing our scalability and controls. I talk about modularity, but we also have a program around the standardization and harmonization that are the basis to start our ERP upgrade. Finally, we are strengthening our talent and organization. On that, you have seen how over the last three years, we are bringing Senior Executives from leading CDMOs. Today, I have the pleasure to share that the Board is going to propose the appointment of Jo LeCouilliard as a new board member. She has a deep financial background and very rich global experience with nearly two decades at GSK. We are very excited with her arrival and the contribution she will be doing with the board. This is what I wanted to share with you.
Let me just pass it to Marc, who will talk about our financial performance.
Thank you, Juan José. Good morning, everyone. Following Juan José's inspiring strategic update, I'm excited to walk you through PolyPeptide's financial results of 2024. Let's begin with an overview of our sales performance. In 2024, PolyPeptide generated EUR 336.8 million in revenue, marking a 5.1% increase compared to previous years, both as reported and at constant currency rates. If we adjust for the EUR 5.8 million COVID-related revenue from 2023, our underlying growth is at 7.1%. Similar to 2023, the second half of the year outpaced the first, with revenue growth accelerating in the second half of 2024.
Our strong full-year performance was primarily driven by an impressive 31.8% increase in commercial revenue, resulting from two key factors: A, the successful transition of multiple programs from development to commercial, and a broader surge in commercial demand across a range of therapeutic areas. This shift from development to commercial is an important milestone, demonstrating the steady progress of our project as they move from the clinical phase to full-scale commercialization. This is illustrating the strength of our long-term customer relationships and also the sustainability of our revenue streams. At the same time, the EUR 36.3 million year-over-year decline in development revenue is a natural outcome of this transition. Let me be clear, our development business remains strong with around 200 ongoing projects, providing a solid foundation for future growth. Looking ahead, we expect these year-over-year shifts between the businesses to remain as a natural part of our business model.
Late-stage phase III projects bear higher revenue value as they transition to commercial, while smaller early-stage projects take their place in development. This is simply the lifeblood of our pipeline, ensuring ongoing momentum and long-term success. Now, let's dive into our EBITDA evolution in 2024 and the significant strides we have made in restoring profitability. 2024 was a major turning point for PolyPeptide's profitability. We delivered a remarkable EBITDA turnaround, improving from EUR 6 million in 2023 to EUR 25.4 million in 2024. This translates to a 9.4 % point increase in our EBITDA margin, rising from -1.9% to 7.5% in 2024. It's also worth noting that our 2023 EBITDA was impacted by a one-time write-off of EUR 9.5 million, as you see on the left side of the chart. The key driver behind the improvement is a EUR 31.3 million boost driven by strong operational performance and product mix.
At the same time, we continue investing in our future. A 7.4% increase in our workforce drove the increase of our personnel expenses by EUR 9.5 million. These investments reflect our strategic preparation for growth, mainly the ramp-up of new assets and ongoing organizational changes. Looking ahead, as we outlined in our mid-term outlook, margin recovery is the journey that will take us through 2028. However, the meaningful improvements achieved in 2024 confirm that we are on the right track. Beyond that, we are building a strong foundation for long-term sustainable growth. Before moving to the cash flow, let's first take a closer look at PolyPeptide's profit and loss statement for 2024, the key improvements we delivered over the last 12 months. We achieved a gross profit of EUR 39.3 million, which is a material increase from EUR 9.1 million in 2023.
The gross profit improvement translates into a higher EBIT of EUR 29.1 million versus EUR 7.4 million in 2023. In addition to the operational improvements, we also saw positive developments in financial results, which improved by EUR 11 million to -EUR 10.8 million in 2024. As a result, substantially improved our net result from EUR -51.4 million- EUR -19.6 million in 2024. In summary, our P&L shows a clear path towards financial recovery, driven by a substantial increase in gross profit and a favorable development in the financial result, leading to a significantly improved net result. With that, let's now move over to the cash flow. Our improved profitability, combined with strong customer support and disciplined cash management, contributed to our improved operating cash flow. Cash flow from operating activities more than doubled, reaching EUR 89.4 million compared to EUR 36.5 million in 2023.
A key driver of this improvement was the inflow of advanced customer payments of EUR 110.4 million, versus EUR 61.9 million in 2023. This positive impact was partly offset by an increase in inventory of EUR 17 million, mainly for the ramp-up of new programs. Bottom line, we saw a total improvement in net working capital of EUR 72.5 million in 2024. On the investment side, we continue to execute our long-term strategy, leading to a net cash outflow from investing activities of EUR 91 million compared to EUR 59.5 million in 2023. The CapEx and percent of sales increased to 26.1% in 2024. Thanks to the higher operating cash flow, our free cash flow turned positive, reaching EUR 2.4 million versus EUR 20.2 million in 2023. Before debt repayments, the cash position is adding up to EUR 94.1 million on a comparable level to last year. After repayment, the cash position closed at EUR 68.3 million.
At the end of the year, EUR 30 million remained outstanding under the short-term credit facility with our main shareholder, and EUR 61 million was available under our revolving credit facility. In summary, 2024 was a year of strong cash flow generation driven by improved profitability and customer prepayments, enabling investments in infrastructure and capacity, as well as returning to a positive free cash flow. Before handing it back to Juan José, I would like to take a moment looking at our financing strategy, the progress we made in 2024, and the additional flexibility we aim to introduce at the upcoming AGM. PolyPeptide's financing strategy is built on four key pillars. First, improving profitability, strengthening our financial foundation through sustainable earning growth. Second, customer funding support, leveraging customer contribution to deliver investment projects. Third, debt financing, expansion of our existing credit facilities. Fourth, equity instruments, enhancing our long-term financial flexibility and stability.
First, let me take you through the progress we have made on the first three pillars in 2024. PolyPeptide continues to strengthen its self-funding capabilities, as demonstrated by the 9.4% point improvement of the EBITDA margin. Additionally, customer prepayments grew by nearly 80% this year, providing the momentum to accelerate our investment activities. On the debt financing side, we are in regular and active dialogue with our lenders as part of PolyPeptide's regular assessment of appropriate and attractive debt opportunities. Additionally, we are planning to expand the loan with our main shareholder, underscoring his support of our growth journey.
As new instruments in our financing toolbox, we are proposing at the next AGM the introduction of a capital bank, providing the company with the ability to adjust capital structure dynamically over the next five years, and the creation of conditional share capital, allowing us to size future growth opportunities in an agile and flexible manner. The two instruments are standard for listed companies in Switzerland to increase long-term financial and strategic flexibility. The first three pillars of our financing strategy will ensure that PolyPeptide remains well-positioned to support mid-term growth. The fourth pillar will allow PolyPeptide to respond agilely to new opportunities while maintaining a strong balance sheet for sustainable growth beyond 2028. With that, I now hand it back to Juan José for the 2025 guidance.
Thank you very much, Marc. First of all, let me just talk about the priorities for 2025.
PolyPeptide is sitting in a fundamentally better position than at the end of 2023. I mean, we are in a rapidly growing market. This growth is anchored on the back of very strong clinical benefits for patients. We have a large exposure to metabolics. As I mentioned before, we work with all key GLP-1 players, with commercial projects under development pipeline, and we work with a good number of new entrants coming into this metabolic space. We are sitting with a very rich pipeline with 32 projects in phase III. We have a stronger operational performance reflecting on a faster recovery than expected in terms of profitability. We have a capacity expansion plan, which is anchored on very large customer financing support. As Marc outlined, we have a financing that enables our ability to execute on our agenda.
That basically means that the priority for us, the number one priority for us, is to make sure that we continue our aggressive focus on execution, that we meet customer demand, that we support these phase III projects coming into commercialization, that we continue to advance our capacity expansion plan, and that we do it in a way which is profitable and continue to generate improvements in terms of our cash flow. Now, in terms of our guidance, what you have here is our 2023 actuals, our 2024 actuals, the guidance for 2025, and the outlook for 2028. First of all, let me just repeat, we are confirming our 2028 guidance. We find ourselves in a good position to double our revenues relative to 2023 and to have a profitability of approaching 25%. We expect volatility in terms of the levels of CapEx spending.
A lot will also be driven by new customer demand. In general, we plan to spend between 15%-20% of CapEx in revenues. For PolyPeptide to hit this guidance is very important because it will create significant shareholder value. We know that a company with that financial profile in 2028 and a strong growth momentum will have a market capitalization which is seven times higher than what it is today. That is why we are so focused on hitting our 2028 guidance. Now, our 2025 guidance shows a healthy evolution vis-à-vis these 2028 targets. In terms of revenue, we're targeting 10%-20% growth. We are very thoughtful here with our revenue guidance because we have this all last capacity coming online. We are very pleased with our progress with the fact that we are in commercial production.
This is all a new technology, and we want to take a bit more time before taking a more assertive position regarding the revenue potential in 2025. In terms of our EBITDA margin, we plan to continue to improve our profitability year-over-year. Now, how much our profitability will improve will be driven by, of course, what will be our final revenue growth in the year, plus what additional investments we will continue to do. As you can imagine, the jump we have taken in 2024 put us in a very good position to ensure that we move towards our 2028 targets. Finally, in terms of CapEx, we expect to spend around 20% of revenues in CapEx. This guidance is at local currency and a constant exchange rate. This is what we wanted to share with you.
I have to say we are all very excited with the progress in 2024 and the opportunities we have ahead. Our plan is to make sure that every year we are taking, again, healthy movements towards our guidance. We do not want to have a guidance that will be achieved on the last year of the guidance, but actually, we want to make sure that we execute on a plan where every year we are moving towards it in a very sustainable way. I would like to thank you, all the PolyPeptide employees, some of which are listening to this call this morning for their efforts, because everything we're sharing today really reflects their hard work and professionalism and dedication. With that, let's move to the Q&A.
Ladies and gentlemen, we'll now begin the question and answer session.
Anyone who wishes to ask a question or make a comment may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the queue, you may press star and two. Participants are requested to only use handsets while asking a question. Webcast viewers may submit their question or comments via the relative fields. Anyone who has a question may press star and one at this time. The first question comes from Charles Weston, RBC Europe. Please go ahead.
Hello. Thanks for taking my question. I'll start with three, please. First of all, on the EBITDA margin bands, you have caveated it by saying you're not going to provide any more detail other than improvements.
Can you just discuss perhaps some of the quantification of the drivers here in terms of dilution from the new large-scale assets, operational mix, or operational improvements and product mix? My second question is on the 2024 numbers. You guided in August to high single digits, and you delivered 5%. Can you just explain what the difference was there? Lastly, you have indicated that you are exploring a new ERP system. Could you just talk about timelines and potential cost of that? Thank you.
Thank you very much, Charles. Listen, let me talk about our revenue growth in 2024. Marc will talk about the main drivers of our EBITDA margin in 2025 and the ERP project. First of all, I think our revenue guidance, we had a mid-single digit guidance.
We upgraded to high single digits, and then we ended up at 5.1%. This is a very good example in terms of a small company with large capacity programs coming online and programs which are much larger than what they used to manage. This really reflects basically one batch moving from 2024- 2025. Right now, when you look at our revenue growth, it will always be a combination of the commercial demand of existing projects, phase III projects moving into commercialization, and, of course, the progress of the new projects coming in. There is a lot of movement in terms of mix and so forth that we need to manage. That is actually why we have taken a prudent approach in terms of our revenue guidance for 2025. You have this to 20%.
Basically, what we will do is on our first half results, we will see the progress, and we will revise a guidance if appropriate. Marc, do you want to talk about the EBITDA margin and the ERP?
Thank you, Charles, for your question. Looking at the EBITDA improvements we see for 2025, there are a few building blocks I would like to refer to. One point is definitely the growth we are expecting to have, and we are guided towards 2025. That is one important building block. Secondly, and you referred to that, Charles, we will see also in 2025 a negative impact on the margin by the ramp-up of the new assets. In the bridge of 2024, we showed the increase in FTEs and the impact on the costing.
I think you can expect something similar in the future as well as we are ramping up the asset in Sweden. As you know, there is a ramp-up of FTEs before the asset is coming online. Yes, for 2025, we expect here a similar impact. In addition to that, I was referring to the significant improvements we have seen in 2024 in operational excellence and operational performance. What we saw in 2024 is an improvement in regard to reduced scrap. We saw better planning, which led to a higher utilization of our assets, which increased the absorption we have seen in the year. Last but not least, you were referring to the ERP project, which we started at the end of 2024, and we are moving into 2025.
As you might know, we are looking into a cloud-based ERP system, which has an impact from a financial perspective that you cannot capitalize the cost as you might have been able in the past. The majority of the efforts we have put into this large project will impact our P&L in 2025-2026. You will see over the next two years an impact of this ERP project.
Thank you. Of course, the benefits of the ERP program are quite significant. If you look at the opportunities we have in terms of improving our operational efficiency, inventory management, control systems, for a company that is scaling rapidly, this ERP project is going to be a very attractive investment for us.
Next question. Thank you.
The next question comes from Laura Pfeifer, Octavian. Please go ahead, ma'am.
Yes, hello. Good morning. And thanks for taking my questions.
Maybe first on your sales guidance for this 10%-20%. Can you please give us an idea of what are the building blocks of this guidance? So how much growth do you expect from your base business and how much of commercial revenue is included from brand? Also related to that, is there a potential to overachieve on this target, for example, if you could sell the PPQ batches? The second question is more on the funding side. I think here you have shown on slide XIX these four pillars for funding. Given that you received a lot of prepayments in 2024, I'm just wondering, what is your assumption here for 2025 customer support? Also, how should we think about your ability to take on more debt?
Lastly, related to that, I just want to confirm if I understood it correctly that you said that for the midterm targets, the first three pillars are sufficient. Here, I'm just wondering under what circumstances you would consider equity. Thank you.
Thank you, Laura. Great to hear your voice. First of all, in terms of the sales guidance, I mean, that assumes growth in the base and, of course, a contribution of our new SPPS capacity in Belgium. Now, for 2025, we are assuming the revenues of the PPQ campaign, and we are assuming, of course, the revenues from the commercial production, which is already undergoing. I will say what is driving that range is basically your assumption regarding the ramp-up on this new capacity coming online.
We are being, although we are reassured in terms of the progress and how advanced we are vis-à-vis our plans, we are being very thoughtful in terms of our guidance because this is all new capacity coming in. We will have a chance in our third half results to refine our guidance. Yeah, there could always be a scenario where you do better than the guidance we are setting today. At this point, please consider our revenue guidance, what we are sharing today. In terms of financing, first of all, I think the support in terms of customer financing is much larger than what we expected in 2023. The imbalance between supply and demand continues going forward. This is an evolving situation.
As you can imagine, with our last number of phase III projects, we are having multiple discussions with our customers regarding this. You should expect that in 2025, there will be a healthy level in terms of customer support. As Marc said, the combination between our own profitability and cash flow, this much larger customer financing support, and our ability to expand our debt, these three combined allow us to hit our midterm guidance. In the case of equity, we want to have the flexibility to tap into equity over the next five years. As you can imagine, if we hit our 2028 outlook, the valuation of the company is going to be much higher. We are very careful in terms of the use of equity. At this point, that's not really a consideration.
We think that if we continue to evolve, if we continue to perform, we will see a much higher valuation. At some point, we might have a gross project to be able to tap into equity. It will have to make sense for us. That is certainly not today.
Thank you.
Next question.
The next question comes from Konstantin Wiechert, Baader Helvea. Please go ahead.
Yeah, good morning, gentlemen. Thank you so much for the presentation. Three questions from my side, if I may as well. Maybe first starting with also maybe coming back on building blocks regarding your 2025 EBITDA margin. Just maybe back on how have your contract renegotiations progressed over 2024? I understand that your new CCO, Stéphane, is going to have an important task. It will be an important task for him as well.
I guess you already started to work on those contracts more intensely over 2024. Should we expect some contribution from just repricing in 2025 as well? Could you share some outlook when we should see some of that? The second question would be on the announced Malmö expansion that you made. I'm just wondering whether you plan to place a similar 1.6 kiloliter reactor there or several smaller ones. Just adding on this, I think you said 100 new employees. Is that all you need for this plan to run it at full utilization? Are you moving employees from other equipment to that one as well? Maybe the last one then, I've seen you comment on the Indian site expansion.
I think you already had plans in the past to move more products to the Indian site, but not many customers were willing to move. Could you help us understand what has changed in that regard and what type of products you plan to move or produce in India? Is it mainly cosmetics or also pharma API? Thank you.
Thank you very much, Konstantin. Great questions. Let me take the one regarding the contract negotiations, the Malmö expansion, and the Indian site. Marc will talk about, again, your question on the EBITDA building blocks. First of all, I mean, we are very excited with Stéphane having joined as the Chief Commercial Officer. I mean, he has deep peptide and commercial experience and, of course, relationship with all the key players in the market.
I mean, the largest value in terms of our contract strategy is around the movement of our phase III pipeline into commercialization that basically drives much larger agreements with larger capacity expansions and financing support. This is really the focus of Stéphane and the team. Now, within that renegotiation, of course, pricing is always a factor. You are in an environment where there is an imbalance between supply and demand. I think we have very healthy conversations with our customers. Whenever we see that there is a need to adjust pricing, we are basically doing it and getting, again, constructive feedback from our customers. In terms of the Malmö expansion, I mean, we are advancing our understanding regarding what is the optimal size of the equipment based on our proprietary technology.
Of course, if you do not have advanced technology, then you are forced to do very large vessels for the upstream. If you have more advanced technology, again, you can have a similar or larger output with smaller vessels. Without disclosing exactly the size, you have to assume that this is really mid-scale size that has advanced technology and that will give us significant output. That is really the focus for us going forward. I mean, we are going to go from a market where there are four products to a market where there will be 30 products. The worst thing you can do is to build large vessels that only work for a market which is highly concentrated. Right now, what we are preparing is to make sure that by 2030, we have a setup that can provide significant flexibility across customers.
That will require an additional 100 new employees. In terms of the Indian site, I mean, again, the market is also changing. The expansion of the Indian site is mainly geared to support pharmaceutical API production. Marc, do you want to comment on the building blocks on the EBITDA?
Yes, sure. Thanks, Konstantin, for asking that. The building blocks, as I mentioned earlier, are really around the growth, improving the efficiency in our base business, in addition to the investment areas of ERP and innovation. One point I would like to add here is also the timing component of the improvement. The guidance we gave for 2028, we are on a very good track. It is not a sprint. It is a journey. Some of the operational improvements we are implementing take time, for example, getting the right project mix in the right site.
Therefore, we have the guidance for 2028, which we are on a good way to hit.
With that, I will move to the next question.
The next question comes from Daniel Jelovcan from Zürcher Kantonalbank. Please go ahead.
Yeah, good morning as well. The first question is still regarding the EBITDA margin guidance. I mean, can you still be a bit more specific? I understand the building blocks, etc. Let's say if you achieve 10% growth or 20% best case, I mean, what can we expect then in terms of EBITDA margin? I know it's not easy. It depends on different factors. If everything goes, let's say, according to your base scenario, what can we expect in terms of EBITDA margin with this sales growth range?
First question. Maybe I'll wait with the other one.
Thank you, Daniel.
Listen, I appreciate the desire for more clarity. Again, at this point, please consider that every year, we are going to plan to improve our EBITDA versus the previous year. Of course, you have a strong revenue growth with a wide range. This really depends on, again, how quickly are we ramping up the new capacity and the other programs. Unfortunately, we cannot be more specific at this point. As Marc said, this is really going to be a journey where every year, we're improving our profitability over this 2028 guidance. I guess what I can promise you is that on our third half results, you are going to get more information to be able to get a better sense of what will be our EBITDA performance in 2025.
Yeah. I mean, I understood the trajectory.
I mean, current consensus is at 18.5% according to your own collection. I mean, that seems too high, obviously. Just a remark. Maybe you can give some comments on that.
Daniel, I think according to our own consensus, EBITDA margin expectation for 2025 is around 13%, not 18%. We can take it after the call.
Do you have any other questions, Daniel?
Yes, sorry. The other question is, you mentioned you are active in 65 commercial projects, so one more in 2024. Can you elaborate a bit on, are those mostly single supplier contracts? It is clear that the big contracts are dual sourcing, etc. For the rest, I guess it must be the case that you are the single supplier. Is that the correct assumption?
Yeah. Thank you for the question. I think the way you describe it is more or less how it is.
If this project tends to have a, if they are smaller in nature, then they tend to be sole source suppliers. If they are large in nature, then they tend to be dual source or multiple source suppliers. This is another very important consideration. One big advantage of PolyPeptide is that we are heavily engaged during the development phases. That basically means that when we move into commercialization, we know in the case of large commercial contracts that we are going to be one of them. This is not really a matter of outperforming competitors, but making sure that in all the key commercial projects that you are participating in, and again, that you are well diversified, that you have a good presence in terms of customer base and therapeutic area. That is more or less where we are.
We increase our number of commercial projects, and you should expect that that number will continue to increase going forward.
Okay. The last question, the phasing between the two semesters now, I mean, it's obvious that in absolute terms, the second half is always much stronger. That obviously also should be the case in 2025. In terms of growth momentum, I mean, you had a low base from the first half, 2024, but you still are in the ramp-up this first semester. It's quite difficult for an outsider to model the semesters. My suspicion is that the first half could still be single-digit. Or maybe I'm totally wrong here with this assessment. It's more back-end loaded in the second half. That's the last question.
Yeah. At this point, please assume that similar phasing that we have had in previous years.
I think it's not that dissimilar to what you're seeing with competitors where the second half is larger than the first half.
Okay. Thanks.
Question?
The next question comes from Tanya Hansalik, UBS. Please go ahead.
Yes. Good morning. Thank you for taking my questions. I had kind of a follow-up on the financing. Can you provide us a bridge to your midterm targets in terms of capital requirements, cash flow generation, in-house prepayments, debts, and then equity you said is not included in the midterm guidance? The second question is, given your large revenue guidance range, could you give some more color on the specific risks you see in the ramp-up of capacity in Belgium for this large GLP customer? Third, another question on the capacity in India. Do you plan to participate in first-generation GLPs going off patent?
Is it correct to understand that this could be for generic GLPs? And could you maybe help quantify the contribution you expect medium-term from this? Thank you.
Thank you very much, Tanya. Listen, let me talk about your question regarding the risk on this new capacity. India and Denmark will comment on your question again regarding these financing blocks towards 2028. First of all, the risk profile at this point is very low. As you can imagine, once you finish the PPQ campaign and you are already in commercial production, there is less certainty on whether the equipment is going to work and so forth. This is all about having a careful ramp-up towards the maximum capacity of this new equipment. We are talking about a low level of risk. Again, we are very thoughtful.
Of course, because of that size and depending on how much you're able to produce and invoice within a particular year, you end up getting a different revenue growth. In terms of India, I mean, we, of course, produce for branded players and for generics. This expansion in India is mainly targeting pharmaceutical API for branded players. I mean, again, we don't provide the relative revenues by site. I have to say the doubling of production, so the contribution of the new capacity in Belgium, plus the doubling of production in Malmö and Strasbourg and India, put us in a very healthy situation relative to our 2028 guidance. In terms of financing, Marc, do you want to comment on that?
Yes, sure. Thank you for the follow-up question, Tanya.
The current CapEx plan we have included in the guidance is our best estimate of the expected investment which we require to achieve this year. For 2028 guidance, we were talking about a 15%-20% CapEx per year. That is still what we are aiming for. Any incremental CapEx is, of course, based on specific projects which we would analyze specifically and incrementally. For the midterm CapEx, we are well situated with the first three pillars we mentioned in the financing strategy. Next question.
The next question is a follow-up from Charles Weston in RBC Europe. Please go ahead.
Hello. Two follow-ups on other questions, please. First of all, will the Belgian site be at full utilization by the end of 2025? Would you expect this quite fast ramp profile for the other facilities you are investing in?
Secondly, just on the ERP system, you said that it will be all expensed P&L. Will they be taken as exceptional costs or be as part of your core EBITDA? Can you give us a sense of the size of those investments, please?
Thank you very much, Charles. Listen, I think when you have new capacity with advanced technology coming online, it's important rather than focusing on the speed of the scale-up, to focus on making sure that you have everything under control and that you're able to do it in a thoughtful phasing. Again, based on our plans, we will ramp up through 2025, and we will start 2026 with levels of capacity utilization more around the maximum. The same plan is for Strasbourg as it is for Malmö. In terms of the ERP project, Marc?
For the ERP project, I said that the cost will be reflected in the P&L, and they are included in the EBITDA guidance we gave for 2025. Please consider that we are at an early stage of this project, and we have, with the growth project, the ERP project, significant projects ongoing at the same time. To our best knowledge, the full cost for the ERP project for this year is included in the current guidance.
Understood. Thank you.
Thank you.
There are no more questions on the telephone queue, but there is one question in the chat function. It is from Matt Erickson, and the question is, how do you anticipate the potential U.S. tariffs will impact your operations? Will producing in the U.S. be able to offset the impact?
Yeah. Thank you for the question.
Basically, our contracts, I mean, basically all of our contracts insulate us from the impact on tariffs. If you look at our production output, even if it is to serve markets like the U.S., it is going to basically European-based logistic setup for our customers. We have the flexibility, as we have also a U.S. infrastructure. Peptides as a percentage of the total cost of the product is very, very small. The decision of our customers will not be driven by tariff. Really, at this point, it is all about producing at quality and having enough supply and making sure they can secure that to meet their own revenue aspirations. That is really the focus in terms of tariffs.
I think there are no more questions in the chat, none on the phone line. Juan José, you want to do a short closing? Yeah.
I mean, thank you very much for joining us this morning. I have to say, for the quality of the questions, we are very excited in terms of where we are as we finish 2024. We have one of the most attractive markets in the CDMO space. The company is very well positioned, and our focus is on execution, on making sure that every six months, every year, we are coming back and sharing with you the progress against our 2028 midterm guidance. Thank you very much, and enjoy the rest of the day.
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