Ladies and gentlemen, welcome to the PolyPeptide Group AG Half Year 2025 Results Presentation and Business Update Conference Call and Live Webcast. I am Sandra, the call of school operator. I would like to remind you that all participants have been listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. 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 Tim Brandl, Director FP&A and Investor Relations. Please go ahead, sir.
Thank you, Sandra, for the introduction. Good morning, everyone, and welcome to our H1 2025 Results Presentation. I'm being joined today by our CEO, Juan José Gonzalez, and our CFO, Marc Augustin, who will take you through the presentation and will be open to take your questions at the end. Before we start, I would like to draw your attention to our usual disclaimer on page two. For the Q&A, please follow the instructions on page three. Anyone who wishes to ask a question can do so via telephone or in writing directly in the webcast. Moving on to the agenda, Juan José will start with a business update. Marc will guide you through our financial results before Juan José shares our guidance for the full year and midterm outlook. Now, without further ado, I'm pleased to hand over to our CEO, Juan José Gonzalez. Juan José?
Thank you, Tim, and good morning, everyone. Thank you for joining us today. There are four key messages for today's session. Number one, we posted strong growth in revenue and cash flow. We grew 24% versus the first half of 2024, mainly driven by our commercial revenue in therapeutic metabolics. We also posted strong operating cash flow on the back of more disciplined working capital management and further customer prepayments. We not only are improving our operating performance, we are not only securing customer prepayments, but we are also improving our financial flexibility. This is on the back of expanding our revolving credit facility, which we announced in May 2024. The combination of these levers will allow us to continue to pursue capacity expansion and fulfill growth opportunities. Number three, in terms of capacity expansion across our global manufacturing network, they are all on track.
Specifically, our new SPPS large capacity facility in Braine is progressing according to plan, and we are in line to achieve target utilization rate by the end of 2025. It is on the back of this momentum that we have in the first half of 2025 that we are revising our 2025 full-year guidance towards the upper range, and we are confirming our 2028 midterm outlook. All of this was achieved in the context of a market growing rapidly. Peptides is one of the most attractive markets for CDMOs. If you look at the global peptide therapeutics market, it is forecasted to grow between 2024 to 2030 at a CAGR above 15%. This is largely driven by metabolics. There is a very rich and diversified pipeline of peptide drugs in clinical development today.
There are nearly 500 between phase one to phase three, with metabolics and oncology accounting for over 40% of all the clinical development activity. If you look at metabolics, the market continues to evolve rapidly. There is a strong focus on differentiation, particularly in terms of indication expansion, enhanced efficacy, alternative delivery routes, and extended dosing intervals. The possible thing is that as customers are looking for differentiation in terms of metabolics, the peptide molecular structure is becoming more and more complex, which basically makes them focus on synthetic solutions. Together with all the geopolitical concerns regarding China, this is favoring outsourcing Western-based CDMOs. Just to give you a sense of how engaged PolyPeptide is in all these clinical development programs, if you take all the phase three peptide drugs in clinical development globally, PolyPeptide is working in over one third of all of them.
That makes us a company with the richest pipeline in the market. This is in terms of how this market is growing rapidly. Let's see how well we are positioned in this market. Basically, we believe that on the back of our multi-site network, with development and commercial infrastructure across the U.S., Europe, and Asia, we are very well positioned. PolyPeptide has 70 years of experience. We have deep peptide expertise with over 1,000 therapeutic peptides manufactured, and our multi-site network gives us the customer proximity to ensure that we are able to participate actively in all this development. Just to give you a sense, from 2021 to today, if you look at all the peptide drugs that secured approval by the FDA, PolyPeptide was engaged in over half of them.
With this multi-site network, we have a very clear strategy in terms of how we want to compete in this market. Basically, we have a vision of being the most innovative peptide CDMO. We have a foundation around operational and quality excellence, industrial scale capabilities, talent culture, and sustainability. We are working on three competitive advantages. First of all, in terms of innovation, in our previous call, we talked about our proprietary percolation technology. Today, we have rolled it out across all of our large SPPS assets, which allow us to reduce solvent consumption by 40%. In parallel, we are advancing the development of proprietary ultra-high-capacity SPPS resin, which will boost reactor productivity by a factor of two to three. Very transformational innovation.
In terms of development, we already have the richest pipeline, and we are very much focused on making sure that we continue to work with all key metabolics players, not just with our commercial offering, but also with our pipeline, and also that we work across all other therapeutic areas. The idea is we take our proprietary technology from innovation, and we create value propositions which are differentiated to customers. Finally, we are working on a competitive advantage around capacity expansion through modularity. If you look at what some other companies are doing, they are building very large vessels, which are very complex. We will say are more rigid and more difficult to operate. Because we have more advanced innovation, we actually can build mid-size manufacturing lines. We build them as models, so we build them externally, and when they are ready, we place them across our manufacturing sites.
Today, we are already in the process of deploying our first model, and everything indicates that this is going to be between 12 to 18 months faster than a traditional capacity expansion. The combination of these competitive advantages is going to help us to fulfill our vision of competing as the most innovative peptide CDMO. Now, let's see how on the back of this strategy we are transforming our portfolio. Our business mix is shifting rapidly towards metabolics and commercial revenue. On the left-hand side, you have our revenue by therapeutic area. In the first half of 2021, right when the company IPO'ed, metabolics accounted for 27% of our revenues. Four years later, those revenues have tripled. Our metabolics business is growing at a CAGR of 27% and already accounts for more than half of our global revenues.
This is very important that we have this rapid growth in metabolics because metabolics will be the number one growth engine of the peptide market. On the right-hand side, you have our revenue by business area. When we IPO'ed in the first half of 2021, our commercial business accounted for 44% of our revenues. Four years later, it has grown to be 65% of our revenues. Commercial revenues have some advantages over our development. They are on the back of long-term contracts. They are recurring revenues. You can deploy automation and operational efficiency and just give more stability to the company. This is in terms of how our portfolio is shifting. We are also doing very important investments in terms of capacity expansion. Let's see where we are. What we have here is our all-capacity expansion plan.
In addition to our maintenance and debottlenecking programs, there are three key projects undergoing. The first one is our large-scale SPPS production in Braine, Belgium. We are in line to hit our target utilization by the end of 2025. In the first half of this year, this new capacity already started to contribute in revenues, and we have been able to break even. In the second half of the year, what we will see is that this capacity is going to have a positive impact in both revenues and profitability. In terms of Strasbourg, we are also on track, and this capacity is targeted to become online at the end of 2025. We expect that in 2026, it will follow a very similar dynamic to what we are having with our new capacity in Braine. Finally, we are also working to double our SPPS capacity in Malmö.
This is our modular capacity expansion and is on track to become online at the end of 2027. These three capacity expansions are very important because it is on the back of that that we will be able to meet our 2028 guidance. By the time we finish 2025 and start 2026, we have already completed two of the three. Now, as we improve our performance, as we execute our capacity expansion plan, we are also strengthening our talent and capabilities. We have new groups in terms of procurement and engineering and operational excellence. We also have brought very strong senior talent. Marc was with me today. He came from Lonza, where he led rapid expansion of biologics. We also announced previously the appointment of Stefan Barré as our Chief Commercial Officer. He used to be the peptide platform leader at Corbion.
Today, we are announcing some important changes in terms of operations. Basically, with the increasing importance of our multi-site capacity expansion, Jens Fricke, who today is our Head of Global Operations, is going to move to be 100% focused on the execution of these CapEx programs. Therefore, we are appointing a new Chief Manufacturing and Supply Chain Officer, who is going to be Raoul Bernhardt. Raoul has over 30 years of healthcare operations experience, including over a decade working at Catalent, where he was the Vice President of the Pharma Pro Delivery Division, which was a global network of sites across the U.S., Europe, and Asia. We are very excited with Raoul joining us, and we are looking forward to working with him. We are not only making changes at a senior level, we also have new leaders joining at our manufacturing sites in the U.S.
For example, we have new colleagues coming into manufacturing and process development from other CDMO peptide players. That is going to ensure that we have the right level of capabilities and experience as we continue to expand our U.S. operations. With that, let me pass it to Marc, who is going to talk about our H1 financial results.
Thank you, Juan José, and a warm welcome from my side as well. Before we go into the details of our financial performance, I'd like to highlight three key takeaways. First, the continued expansion of our commercial metabolics business is a major driver of our sales growth. Second, profitability on the back of this business, while the new asset in Braine is already operating around break-even. Third, our strong cash flow and improved financing situation, combined with rising profitability, place us in a solid position to capture future growth opportunity. With that, let's start with sales budgets. In H1 2025, we achieved sales of EUR 167.1 million, representing a growth of more than 23% compared to last year. This remarkable increase was primarily driven by nearly EUR 30 million in our commercial business.
As Juan José mentioned, we saw a successful start of the large-scale asset in Braine, which counted for about 50% of the growth. Additionally, we continued to see robust growth in our existing base business, while further optimizing our program portfolio to enable further efficiency gains. On the development side, we saw sustained demand in the market across different therapeutic areas, generating a solid revenue increase of 4.1% versus the first half of 2024. While the development business tends to be more volatile due to program lifecycle fluctuations, we are pleased with the consistent overall demand and growth. Currency exchange rate changes had a minor net positive impact. Within the group, positive and negative effects were largely balanced out. With that, let's move to the EBITDA Bridge. Based on the strong growth in our commercial business as outlined before, we observed a EUR 14.5 million EBITDA increase.
We are showing that in the first column of the bridge. As mentioned before, the sales growth is almost evenly split between our new large-scale asset in Braine and our base business across the network. On the EBITDA side, the base business is contributing nearly all of the EBITDA improvement, enabled by operational improvement as well as portfolio optimization, which are driving utilization and efficiency. We are particularly pleased that the Braine asset already in H1 2025 reached break-even on EBITDA level, only a few months after its startup, demonstrating both flawless execution and the efficiency of the facility. As communicated earlier, we expected the asset to reach its target utilization by the end of the second half, which will further drive both sales and profitability in H2 compared to H1 2025.
In other words, most of the profitability improvements of EUR 14.5 million in H1 2025 stem from our base business, while the growth business is successfully ramping up. This also illustrates the accretive impact of our commercial metabolics business, even though raw material costs increased by EUR 5.2 million compared to H1 2024. Let's pause here for a second. The commercial business is and will stay the main driver of our sales growth and at the same time improve continuously the underlying profitability. We also continue to invest during the transition and growth in our most valuable asset, our people. Over the past months, we've expanded our organizational capabilities across key functions by adding nearly 90 FTE, positioning us well for the growth ahead. This led to an EBITDA of EUR 7.6 million or 4.6% of sales before exceptional items.
As anticipated, in all larger projects, we face non-operational costs also for the new asset in Braine, leading to an impact of EUR 2 million compared to H1 2024. I want to emphasize that these costs are entirely expected during the ramp-up phase of the new asset. We are very pleased with the current performance level of the asset and confident that the asset will continue to perform as well as evidenced in H1 and since it's already operating around break-even. Additionally, we have shared at our full year 2024 earnings call, we have embarked on a strategic investment in a new ERP system, which is a key enabler of our AI and digitization roadmap. As this is a -based solution, implementation costs are expanded, which impacted our EBITDA in H1 by EUR 1 million.
Overall, our EBITDA margin continued to improve compared to the previous period, even after considering exceptional costs associated with the ERP program and the asset ramp-up. Turning from the EBITDA to the cash flow, this is certainly one of the base highlights. We achieved a substantial improvement in operating cash flow. Our disciplined approach in managing the working capital has clearly paid off. As a result, we delivered positive free cash flow of EUR 0.5 million and ended the first half with a solid cash position of EUR 76.7 million. This strong performance was driven not only by new customer prepayments of EUR 27.7 million, but also by the proactive inventory management ahead of the anticipated growth in the second half and stringent receivable collection. As communicated earlier this year, we expanded our revolving credit facility to EUR 151 million, while also extending its maturity to 2028.
At the end of H1, EUR 60 million was drawn under this facility, leaving substantial headroom for future investment and providing for operational flexibility. Finally, I would like to briefly revisit our four-pillar financing strategy, first introduced during our full year 2024 earnings call. First, we remain laser-focused on profitability and improving operating cash flow, as shown in H1 2025. Second, we continue to ensure that large investments are closely aligned with customer support, offsetting our capital expenditure cash outflow. Third, we have strengthened our financial flexibility through the expanded revolving credit facility and the long-term support from our anchor shareholders. Lastly, at our annual general meeting, the shareholder approved the use of equity to provide additional flexibility under the right conditions.
We see this as a tactical tool that complements our three primary financing pillars, strengthening our balance sheet and enabling us to seize growth opportunistically at the right point of time. Before concluding, let's briefly recap. First, strong first half growth driven by the successful ramp-up of the Belgian facility and sustained performance from our base business. Sustainable EBITDA improvements in our base business driven by the transition to more commercial business. Free cash flow achieved break-even, validating our disciplined working capital management. Last, strengthened financial position with a well-equipped toolbox and significant cash reserves, positioning us well for executing on our midterm targets. With these results, we look forward to an exciting second half of the year. Thank you, and now back to Juan José Gonzalez and our 2025 guidance.
Thank you very much, Marc. Before we talk about our guidance, let me just spend a moment talking about our approach to guidance. We basically are very thoughtful in terms of how we want to guide the market. We have multiple projects moving across clinical phases. We have ramp-ups. We see all these capacity expansion projects. Our approach to guidance is at the beginning of the year, we issue a relatively broad guidance. Then, on the back of our third-half results, we refine that guidance, and then we share with you our full-year results at the end of the year. What we want is our performance to drive our evaluation and not our guidance. With that in terms of context, let me talk about how we are revising our guidance for 2025.
If we go through our revenue, EBITDA margin, and CapEx, in terms of revenues, at the beginning of the year, we basically indicated that we were planning to grow between 10% to 20%. We have had a strong third half of the year with a 24% growth. We are revising that range towards the upper end. Now it's going to be between 13% to 20%. On the back of the strong momentum we have in the first half of the year, we are very confident in terms of that range. In the case of the EBITDA margin, at the beginning of the year, we targeted that we will increase our profitability versus 2024. Now we are indicating that it's going to be from high single-digit to low double-digit. In the case of CapEx, we were targeting 20% of revenues. That was about USD 75 million.
Now we are revising that target to USD 100 million. This is just reflecting the customer demand for accelerated CapEx. The priorities to be able to meet this revised guidance remain unchanged to what was the beginning of the year. We are very much focused on our operational and quality excellence programs. We are focusing on reaching our target utilization rate of the new SPPS large capacity facility in Braine, Belgium by the end of the year. We want to continue to advance the capacity expansion programs in Malmö and Strasbourg, which will position us very well for the following year. Finally, we are working on a second wave of metabolics contracts. We are already having some commercial discussions, which we will announce as we finalize them. That's in terms of our 2025 revised guidance. Now, let's talk about our 2028 midterm guidance.
Basically, a year ago, we put a target around doubling our 2023 revenues by 2028. We said that by then, we will have an EBITDA margin approaching 25% and that during that period, our capital expenditure will be between 15% to 20%. One year has passed since we issued that guidance, and we are reconfirming our ability to meet these targets. We believe that the momentum that we have, the progress in terms of our shift to metabolics and commercial, our capacity expansion, our stronger capabilities, that we should be able to hit this guidance. We are going to do it by every year moving towards this target. This is not something that we will achieve at the end of this period. This strategy around being the most innovative peptide CDMO, we believe it's going to create significant value for stakeholders.
By 2028, a company of that size, with that level of profitability, with a rich pipeline, will be valued several times higher than where we are today. That's why we are aggressively focused on execution. Our strategy doesn't involve going to new markets beyond peptides or doing transformational transactions. We are very much focused on being a pure peptide player and executing against this midterm guidance. With that, let me pass you to Sandra from the Q&A.
We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets if they're asking a question. Webcast viewers may submit their questions or comments in writing by the relevant field. Anyone who has a question may press star and one at this time. Our first question comes from Charles Weston from RBC Europe. Please go ahead.
Hello. Thanks for taking my questions. Two, if I can kick off with, please. First of all, on the negative mix, can I just confirm that negative mix related to the product manufacturing location, i.e., from manufacturing in Braine rather than from the increase in metabolics versus the other products? Secondly, can you give us some color on the utilization of a site in Braine? What's the average utilization or perhaps the end of H1 utilization? If you assume that you will reach peak utilization at the end of the second half, what does that mean for the average utilization in the second half? Thank you.
Thank you, Charles. Marc is going to comment on the negative mix. Let me just say, overall, our metabolics contracts, our commercial business are actually margin accretive in terms of the company. It's just that because of the nature of these contracts, the mix is different than what we have on the development side. Marc can comment.
Yes. Charles, thank you very much for the question. Please let me make one step back to answer your question. We are in a transitional growth phase, which is driving our profitability in different ways, and which are partly linked. Let me first start with the growth. We see strong growth driven by commercial metabolics business in our base business and in our new assets. Especially in the base assets, this growth is driving the underlying profitability, as Juan mentioned, and we have shown in the H1 bridge. Around half of the growth is coming from base, but nearly the full profit increase is driven by the base business and the metabolics growth there. We introduced our profitability guidance of approaching 25% in 2028. We said this transition towards the metabolics commercial business will take some time to shift the portfolio.
We now start to see exactly the success of this transition in the base business. The shift to commercial business, especially metabolics, also means that we are seeing a higher share of raw material costs compared to the past, which was more driven by development and small volume production. This is shown in the second pillar of the EBITDA bridge and cold mix. Looking at the Braine assets, we are very pleased with the progress running short after the start around break-even in EBITDA level, which we see very positive, and not only for the financial attractiveness of the growing metabolics business, but also showcasing the efficiency of the new asset. We expect in H2 the asset to contribute positively to the group profitability.
Not so in the second half, the growth will be shown not only in the new asset in Braine, but also in the base business, as we have seen in the past 2024 and 2023, where the profitability and the sales grew stronger in the second half compared to the first half.
Charles, maybe if I can just help you in terms of the capacity utilization for the new capacity in Braine, maybe just a couple of things. One is the manufacturing of any new asset is started slowly, and as you are getting more and more confident, you increase your capacity utilization. There is a difference between what you are manufacturing versus what you are invoicing because there is a time from when you finish manufacturing to when you go through all the quality process and then are able to ship to customers. Our objective is to make sure that by the end of 2025, we are at target utilization, and you will see the full benefit in 2026. If you remember, this capacity is supporting a USD 100 million contract. Next question?
The next question comes from Laura Pfeiffer from Octavian. Please go ahead.
Yes. Hello. Good morning. Laura Pfeiffer from Octavian. I have two questions, please. Maybe on the sales guidance for this 13% to 20% growth, I think this is still quite a broad range for potential outcomes in the second half, you know, ranging from, I don't know, mid-single-digit growth to the high teens. Can you please give us an idea how much growth you expect from your base business and also how much of commercial revenue you expect to be contributed by Braine? I think this would be just helpful as you get a better feeling, you know, why the range is still so broad. Related to that, is there an upside potential? Could you also do even better, given that you already grew at 24% in the first half? Secondly, on the margin target for this year, you have now provided a range.
Do I interpret it correctly that it might read as 8% to 12% when you say high single-digit to low teens? Also here, what are the drivers and the headwinds we should consider? Specifically, maybe you could comment here on what profitability level do you see as feasible for the Braine? I think you mentioned it's now at break-even. It will contribute, but will it already be accretive or will it still be dilutive to margins in H2? Thank you.
Thank you, Laura. Let me just start with the revenue range. Of course, we grew 24% in the first half of the year. We are very pleased with the momentum of the company. We have multiple programs. This is a new asset, a new asset that we are ramping up. There is volatility. The D&D is not just how much you can manufacture, but how much you can invoice in the second half of the year. Although we are confident in terms of our growth rate, we do see a range of outcomes. Whatever we end up growing in the second half of the year, what you can get from our performance in the first half is that we are moving through an accelerated growth phase in 2025, 2026, 2027, and 2028. In terms of our EBITDA, you are right. That would be like 8% to 12%.
That would be a good conclusion in terms of what would be the EBITDA margin. We have different clinical programs moving in between phases, ramp-ups, and depending on what is the level of revenues that we achieve, that will give you a different level of EBITDA margin. If you look at our 2028 guidance, a lot of our improvement in profitability comes from our leverage, our ability to grow, and making sure that that flows into our bottom line. We expect to see that dynamic in the second half, which is similar to what we saw in 2023 and 2024, where a lot of our profitability is concentrated in the second half of the year. I don't think this is going to be dissimilar. Marc, I don't know if you want to comment in terms of whether our Braine facility, the Braine new capacity, would be margin accretive or dilutive.
I'm happy to do so. As we saw in the first half, Braine is contributing nicely to the growth we have seen in the first half. Juan mentioned already, we expect further growth in the second half compared to the first half in the base business as well as in the growth business in Braine. Having said that, of course, the new asset in Braine will improve over time, and the sales contribution will grow in the second half. With the growing sales contribution, you can also assume that the asset, which is currently running around break-even at EBITDA level, will contribute positively to the overall profit of the group.
Next question?
The next question comes from Charles Pitman King from Barclays. Please go ahead.
Thanks very much. A quick clarification for my two questions. Can I just push again a little bit on the last question that you see Braine as dilutive to group margins for 2H? It sounds like it's on track to become accretive next year, but I don't think it exit rate, just for 2H, does it remain dilutive? My two questions, firstly, on the metabolics space, I'm just interested to know how to get some insight from you on how your conversations have evolved over the past six months. Have you seen any kind of indication, change of indicated demand from your customers? You mentioned that you had this accelerated CapEx requirement as you raised your FY25 outlook. Is that indicative of higher demand?
Secondly, on China, I think you mentioned earlier that you see increasing kind of in-licensing of China assets as a positive tailwind for rising focus of Western CDMO use. I'm just wondering if you can give us a little bit more insight into that perspective. Thank you very much.
Yes, Charles. Thank you for the question. Let me talk about metabolics and what we have seen in the last six months, then about Western CDMOs and China and how that is playing out. Marc can talk about whether this new capacity will be margin dilutive or not in the second half of this year. First of all, in terms of metabolics, this market is, again, growing very rapidly, and it's a very dynamic environment. We believe that those trends are favoring Western CDMOs. If you look at some of the announcements, you see either the leading players or new companies getting ready to enter into the market, focusing on acquiring assets and differentiating their portfolio. The way they try to differentiate their portfolio moves them from recombinant solutions towards more and more synthetic solutions. Of course, that's very good for us.
The imbalance between supply and demand is still continuous, which basically means that the overriding focus, either for existing players or players that want to get into the market, is to secure capacity. You can see that when you look at our customer prepayments, where you have customers willing to fund the expansion to be able to secure capacity. All of these things are there, and we believe it is positive. In our case, if you look at our metabolic performance, we basically grew 98% this year versus last year. We have such an exposure in terms of working with all the key metabolic players and such expertise in terms of metabolic clinical development that we are very well positioned there.
I would say the concerns regarding China, of course, started with the Biosecurity Act, and then with all these studies and geopolitical tensions, it's making our customers actually try to work more with Western-based CDMOs. In the case of development, we are seeing projects moving, I would say, more rapidly towards us. In the case of commercial contracts, it, of course, takes time to move those. I would say we are basically seeing an environment where Chinese CDMOs are focusing on supporting the Chinese market, where Western CDMOs are focusing on U.S. and European players. Marc, do you want to comment on the margin dilution?
Yes, sure. As I mentioned, the new asset is around break-even in H1. With the increasing sales performance in the second half, we expect that the asset is adding absolute EBITDA to the group. Of course, if you look at it from a margin perspective, that is not that strong. It needs to build up during the time, and what we said, we expect a high utilization towards the end of the year. From that perspective, you're right.
Yeah, I think it's going to be margin accretive in 2026.
Thank you.
Next question?
Very clear.
Thank you, Charles.
The next question comes from Constantin Lichert from Baader Helvea. Please go ahead.
Yeah. Hi, Juan José and Marc. Thanks for taking my questions as well. Juan José, maybe we can start with a question on the Indian side again. I would appreciate if you could give us an update on the talks that you had with customers to transition certain products to that side. If possible, could you give us maybe a rough ballpark number, how much sales you expect to switch in 2026, and whether you expect any one-off costs related to that? That would probably be my first question, and then I'll put the next one after that.
Thank you, Constantin. First of all, customers are more focused on securing supply both in the U.S. and Europe. You can see that the majority of our CapEx investment is against those geographies. In the case of India, we do have this manufacturing site. We are doing some tactical investments to be able to increase capacity. Basically, what we are doing is we are reallocating some key projects to India to free up capacity so they can better support, especially metabolics projects. That's basically how we are managing it. Our India facility is relatively small, so this is not really that material for the performance of the company.
You said that we have mostly in the next year or already this year, I mean, we see growth of about USD12 million or so in the generics and cosmetics business. Is that something where that move or that growth has been driven also by growth in the Indian side, or is that not related to that?
It's not related to that. We have different generic programs in different sites. In terms of the optimization of the portfolio, this is something which is important because we are specializing the sites depending on some key therapeutic areas and capabilities. We are shifting our product portfolio, and that process takes time. It's something that we started last year, we're doing it this year, and it will continue next year. It will position us very well to make sure that we can better support customers.
All right. Maybe just to ask a bit differently again on the mix effect, how much was that really driven by the growth in the large or the transition to the large-scale production, and how much of that was driven by this growth or growing share in the generics and cosmetics business? Was that having a negative impact as well?
There is a mix effect that's coming mainly out of the growing commercial business, where we have a different cost structure compared to a development business or small-scale production. This is not statistically coming out of the generic business.
Okay. With these, let's say, contribution margins of 30% that you've shown now in the first half here, is that something that you are happy with? Where should this go over the next two years? What is probably holding you back in the first half to probably go more towards a range of, I would assume, 45% to 55%?
As mentioned earlier, we expect the margin to improve towards the second half of the year, as we have seen in prior years and also supported now through the ramp-up of the new asset in Braine. Over the longer time horizon, we saw that we are approaching the EBITDA margin of 25% by 2028, and we are for that on a good track and feel very confident to achieve that.
Okay, last.
Yeah, sorry. I keep the last question, and then I go back in the line.
Yeah, I mean, most have already asked anyways, right?
Go ahead, Constantin.
Have you still produced, like when you switched to your main or your metabolics customer, potentially metabolics customer, to the large-scale asset in the first half, have you still produced volumes for that customer or for that product on the equipment that you have so far produced capacity on, just to get a better understanding of the growth in the base business?
Talking about a customer, we have multiple programs with customers. We do not have customers in just one program. We work on several programs for the customers. That's point one. The second point regarding the transition from the product we have produced in the existing asset, we transferred that into the new asset. I think that's one of the parts I mentioned earlier regarding the portfolio mix, which also takes time. The capacity is backfilled with new programs, which are also going through a ramp-up period, qualification, and so on and so forth, which is impacting also the profitability. That's what we said when we meant that it takes time until 2028 to reach the USD 25 million. The portfolio mix in the base asset is something which is taking time. It's not just switching a customer from an asset A to an asset B.
The asset A needs to be backfilled. When we look at the improvement of the growth business, you see just in that improvement, not necessarily the underlying mix change.
Okay. So.
Yes, that's fine.
Let's move to the next question.
The next question comes from Tanya Hanseling from UBS. Please go ahead.
I have two questions left. One is about.
I understand, Tanya. Can you restart your question, please?
Can you hear me better now? Hello. Yeah, can you hear me better now?
Okay.
Okay. Super. Another one on the Braine reactor. When you say you'll reach a target utilization rate by end 2025 and accretive in 2026, what does that mean in terms of timelines to reaching target EBITDA profitability? Is this in 2026, or does this also take a few years to get there?
From a profitability perspective for the new asset, we expect that to reach at 2026 as we are reaching the target utilization rate towards the end of this year. In 2026, we should see the first year of target utilization rate.
Our profitability target is to be approaching 25% by 2028. If you look at in 2023, I think it was negative 2%. Last year, it was plus 7.5%. You will see us continue to improve on our EBITDA margin, and we are going to move again every year towards that target.
Thank you. A second question, maybe I missed this, but on your guidance for sales growth for the full year, this implies a slowdown in the second half. I see there's a stronger base from last year, but I would have still expected a continued acceleration. Maybe you can give some more color on this.
I think similar to the question of Laura, we are very thoughtful in terms of how we issue guidance and how we refine guidance. You know these are new assets. We have all these programs moving across clinical phases, and there is also a lot of external volatility. Let's just say that we had a very strong first half of the year, and we expect to continue to have our growth momentum. I will say let's just wait to see at the end of the year where we finish relative to this guidance.
Okay, thank you. Very clear.
Next question?
The next question comes from Daniel Yelovkan from ZKB. Please go ahead.
Good morning as well. Just not much left, but just elaborating a bit on slide nine. I mean, metabolics, close to USD 100 million sales now. How concentrated is that? I guess it is quite concentrated, or are there also a lot of phase three peptide drugs in that? I mean, which also has a certain volume? That's the first question.
Thank you, Daniel. One of our strategies in metabolics is to make sure that we have exposure to the market, but to avoid a significant level of concentration. That is when we say that we work across all key metabolic players in commercial and in development. If you look at our over 30 projects in phase three, there is a good number of them that are actually in metabolics. We have tripled our revenues in the last four years, and we expect all these to continue to be the number one growth engine for the company.
Okay. Great. The last question is maybe more big picture, but one key concern from investors about pharma stocks and the big CDMOs is clearly MFN. Nobody knows about the impact. Of course, you will say we have the contract, we ship our API to wherever warehouse, and the customer picks it up. If pharma will have a big hit from MFN, and I know that will take quite a time, if that happens, there will be the day when there must be a compromise also on the price. I think you see my question. That would be interesting. Thanks.
Yeah. Daniel, thank you for the question. I think it's very relevant. I mean, relative to other CDMOs, peptide CDMOs are more insulated to pricing pressure because we represent a very small percentage of the cost. We are like less than 4% of the cost, less than 2% of the final price. Really, in our commercial discussions, and by the way, this is across branded pharmaceutical and generics, this is more about supply rather than pricing. If they are not able to secure peptide supply or the peptide CDMO is not able to ramp up their capacity to meet their demands, then what they will lose in terms of value is significantly higher than whatever they will get in terms of the cost savings. That basically makes for a healthier relationship.
I think it's true that over time, if there is a major correction of pricing in the U.S., that might result in pricing pressure. That's why it's so important that you remain relevant with them. You remain relevant by doing two things. One is making sure that you work on their commercial projects and on their pipeline. This is something that we are very focused on, that we are always working on their next generation of products where there will be less pricing pressure than on the existing commercial programs. The second thing is that you have an innovation that allows you to compete effectively also in terms of throughput and pricing.
For example, the technology I shared when I was talking about innovation, if you have technology that is able to increase the output of our vessels two to three times, of course, that will make you much more competitive than a CDMO that doesn't have that level of technology. I think there is a lot of volatility and a lot of discussions. Right now, again, our number one focus is to make sure that we execute against this strategy, that we advance in terms of our financial performance towards this midterm guidance, and that we are very well positioned for any future scenarios.
Okay, thanks a lot. It's great.
Thank you, Daniel.
As a reminder, if you wish to register for a question, please press star followed by one. We have a follow-up question from Charles Weston from RBC Europe. Please go ahead.
Thank you. Yes, again. We've been monitoring accelerated delivery of products, of course, all ahead in Paris. All of that is not possible with the high-end cost and capacity utilization you're seeing in your assets anyway. Secondly, you said that Strasbourg will complete by the end of the year. What is the working group's culture, the group's capacity, the strength Strasbourg represents? The same question for Malmö. The last bit is a technical question as well on generic GLPs and starting that next year. How do you envisage that impacting the API in the future?
Sorry to interrupt you, but there is a problem with your sound system. We actually maybe got 20% of what you said. Would you mind?
I'm sorry about that.
Now I can hear you better.
Okay.
So.
Excuse me, the DT operator, Mr. Weston. We are not receiving any good audio from your end. We need to switch to the next question.
Okay. If you would like, you can send it. Charles, if you would like, why don't you just send it over text? We can go to the next question, and then we'll be able to answer it.
Okay, thank you.
Let's go to the.
The next question comes from Charles Pitman King from Barclays. Please go ahead.
Hi, guys. Hopefully, you can hear me. A couple more follow-up questions from me. Just thinking about, you know, because of the financial side of things, just thinking about this ERP cost headwind that you know, you kind of highlighted as exceptional in H1 2025. Just wondering if you can provide a little bit more insight into what kind of headwinds these costs are going to remain just going over the next few years as you continue to invest. Secondly, on FX, you kind of highlighted in your financial results that there was a large impact related to FX. The net impact on your sales is less than 1%. Just trying to kind of square the circle around how we should think about FX headwinds going forward as well. Thank you very much.
Yes. Before Marc addresses both questions, let me just say, the ERP program is an important investment for the company, not just because of how it is going to help us to standardize and strengthen our core processes, but also because it's going to enable our artificial intelligence agenda. There are major areas of improvement where you can leverage AI, whether it is in terms of your forecasting, manufacturing planning, or in terms of better development expertise. This is a key area of investment for the company, and I think it's going to have a very, very good return for us. Now, Marc, you want to talk about the financial side of the ERP project?
No, definitely. Hey, Charles. Thanks for your question. Compared to the past where we would have been able to capitalize the ERP implementation cost, we are embarking towards a solution for the ERP system. That means that you cannot capitalize these costs. What we see, and that's the reason why we classify that as an exceptional cost. In addition to running the current ERP system, we are driving the implementation of the new system where we have additional costs in preparation and also setting up the team for the project, which was hitting us in the first half with around €1 million. Regarding the further activities, the more activities you have in these projects, of course, the higher the costs are increasing. We expect a peak of the impact in the 2026 timeframe. Regarding your question on the FX, yes, we have a two-side picture of the FX.
On the revenue side, we are following a natural hedge approach, which worked pretty well for us in the first half. As I mentioned earlier, we have some gains and some losses, but they are netting each other more or less off. On the balance sheet side, we have intercompany loans and receivables, which cause unrealized exit gains and losses. We were impacted this year by these unrealized revaluation impacts from intercompany positions.
Thank you, Marc. Thank you.
Next question?
Gentlemen, so far, there are no further questions. Back over to you for the written questions from the webcast.
Thanks a lot. This is Tim again. I'll read out the questions. The first question is, was there an attempt by our customers to pull forward deliveries into H1 given potential tariffs?
Thank you. I mean, the answer is no. Actually, even
If they want it, we are basically producing and shipping as much as we can. The whole point of tariff, and this is very important because a lot depends on how customers are optimizing taxes and what is their supply chain strategy. We actually haven't had one question regarding tariffs. All the discussions with customers are again around, are we able to produce, are we able to scale up in line with what they need? This is really the focus of our discussions. Next one?
Next question is around our capacity in Strasbourg and Malmö, and how much that represents as part of the total capacity, given that we're talking about doubling in Strasbourg and Malmö.
Sure. I guess that was a question from Charles that we are... All right. I think we haven't commented how much was the financial impact of the capacity expansion in Strasbourg. Of course, Strasbourg is a smaller site, so you can imagine that it's smaller relative to what we are doing in Belgium and Sweden. I think in the case of Sweden, we basically said that it was supporting around USD 100 million in terms of contracts, very much of a similar size to what we are doing in Belgium. As you can see, between the growth on the base plus the new capacity in Belgium and Strasbourg and Malmö, we have what we need to be able to hit our midterm guidance. We do not need to sign new commercial contracts to be able to hit our 2028 target. Next question?
I think that's the last one on the impact of genericization of Wegovy in 2026 on the peptide therapeutics industry as a whole.
Yeah. I mean, we don't... First of all, if we take Novo Nordisk, Novo Nordisk's initial launch in metabolics was using recombinant technology, and their next generation of products also use synthetic peptides. Actually, for us as a Western-based CDMO, Novo Nordisk represents a more attractive opportunity going forward because, again, they are moving from in-house manufacturing to a combination of in-house and outsourcing. In terms of the impact of Wegovy on genetics, of course, the genetic market is going to grow, but you have over 100 metabolic projects in clinical development, and you will continue to see this wave of launches and this balance between branded and genetics. We don't think it's going to be dissimilar to what we saw in any other healthcare market. As long as there is a very active innovation, you're going to have a very robust and attractive branded pharmaceutical segment. Next question?
All right. I think that was the last question. Thank you again for joining us today. At the end of the first half of the year, we are pleased with our progress. We are in a position to revise our guidance towards the upper range. More importantly, we are in a position to confirm that we are on the right track to hit our 2028 targets. Thank you very much, and enjoy the rest of the week.
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