Good morning, everybody. Thank you for joining our earnings call. Great to have you on the line. I'm joined here by Raymond De Vré, our CEO, and Jan Fuhr Miller, our CFO. They will walk you through the presentation, and at the end, they will answer your questions. I draw your attention to our usual disclaimer on slide two. For the Q&A session, you're gonna have the opportunity to ask your questions over the phone or through the chat function in writing. With this short introduction, I hand over to Raymond, please.
Good morning. Jan, Michael, and I are sitting here in our office in Baar, and we're looking forward to be presenting to you today. I'm Raymond and would like to personally welcome you all to today's call. As you all know, we had already provided an update about material H1 development back on July twelfth, and the news we announced was clearly a disappointment to us and for the market. We also realized that there were some unanswered questions, and we have thus provided additional disclosures and information today. I hope that in today's call we will be able to explain development and our forward-looking expectations. We will also obviously continue to reach out to you and remain available for further discussion at any time, including as part of our upcoming investor roadshows and conferences.
Importantly, we do really believe that our long-term story is intact also in this more challenging environment, and we do continue to be convinced about the strength of our business going forward. Let me start with a summary of the performance on page five. In the first half of 2022, we had revenues of around CHF 134 million, down 1.1% versus what was a strong H1 2021. We had a larger-than-expected drop in adjusted EBITDA, leading to an adjusted margin of 20%. We will explain in detail later. Jan will go through the bridge in detail, but the drop can be explained by two major factors. First, the impact of an increased personal cost base over the past 12 months needed to support our planned growth.
Also the impact of a more demanding operating environment, as we have said, especially around inflationary pressures. We had capital expenditures of around EUR 38 million or 28% of revenue. This reflects a continuation of our expansion strategy that started a couple of years ago to support our pipeline. We do have an active custom projects pipeline of 218 projects now, growing from 180 a year ago, reflecting what we believe is a continuous industry belief in peptides and nucleotides-based therapies. In the course of the past few weeks, we have also realized that it is important that we provide a bit more insight into the mix of our business.
Hence, we wanted to share that the revenue associated with the coronavirus pandemic were around EUR 33 million in the first half of this year and around EUR 63 million for the full year in 2021. As we have already mentioned earlier in July, we have reached an agreement to shift a portion of our pandemic-related business that was already on order for the second half of this year into 2023. Given the shift that I have just mentioned, and given continued inflationary pressure, we are expecting revenue growth of 8%-10% with an adjusted full-year EBITDA margin of 22%-25% for 2022, which still implies a healthy growth from our peptide business. To deliver on our aspiration, we have already taken actions and launched various initiatives to ensure strong and lean execution in the next few months.
For the midterm now, we do expect the business to grow with a revenue CAGR in the low teens, though with varying growth rates year-over-year. We also expect a continuous progression of the adjusted EBITDA margin back towards 30%. This will be a summary. I will now let Jan provide you a lot more details and insight on our financial results for 2021. Jan?
Thank you very much, Raymond, and good morning to everyone. I'm pleased to go through the financial results for the first half of 2022. Let's start here by taking a deeper look into our financial performance, starting here on slide seven, as you see. This slide provides the reported half-year development of our total revenue and EBITDA from 2018 all the way up to 2022. As you see, we reached revenue of EUR 133.7 million for H1 2022, highlighted here on the left side of the slide. The slight revenue decline of 1.1% or the 3.3% decline at constant currency compared to a high base of 2021.
The lower than expected revenue was driven by a more challenging operating environment than we anticipated at the beginning of this year. Resulting in several of our customer deliverables shifting to late in the first half and some deliverables also being moved to the second half of this year. To the right, you will find the half-year development of our reported EBITDA, providing us with EUR 26.7 million for 2022. For the first half this year, we unfortunately were faced with a more significant drop in our EBITDA than we anticipated. Certainly amplified by the current inflationary challenges that we see. Again, this compares to a very high, very strong EBITDA for the first half of 2021, as you see from the graph.
The first half of 2022, EBITDA was also impacted by the increase in our personnel during the second half of last year and the first half of 2022 ahead of our anticipated growth. I will also, as Raymond mentioned, be providing some additional details on the key drivers behind the year-on-year EBITDA drop just in a few slides. On the next slide, being slide number eight, we present the development of our business areas from 2021, as you see, to 2022. Again, our strategy is to continuously grow our pipeline, facilitating future growth of our commercially approved peptides or our contract manufacturing business area. I would like first to draw your attention here to the development of our custom projects business area, here marked in light green, providing H1 2022 revenue of EUR 72.6 million.
During the first half of this year, two of our CP or custom projects from our pipeline were commercially launched in the market, shifting revenue from our custom projects business area to our contract manufacturing business area. This resulted in, as you see, a 5.8% increase of revenue equal to EUR 48.4 million for our commercially approved projects sold to the innovator. Thus, the two commercially approved products more than offset the impact of our somewhat maturing contract manufacturing portfolio. On the generics and cosmetics business area seen here to the right on the chart, slightly declined in the first half of 2022 with 3.9% compared to the first half of 2021. Here, it's driven by two factors.
The first factor is during the first half of last year, we did experience some stock building from a number of our customers. This is combined with some H1, H2 phasing of sales in 2022. The next slide shows the key drivers explaining the drop in our adjusted EBITDA from H1 2021 to H1 2022. As you see here, this is slide number nine. Our adjusted EBITDA of EUR 43.2 million in 2021, as you see all the way to the left, dropped to an adjusted EBITDA of EUR 26.7 million in 2022 equal to a margin of 20%. This significant drop in profitability in H1, partly unanticipated, is driven by several factors.
First and foremost, our average FTE base grew by 130 employees from the first half of 2021 to the first half of 2022. This is equal to an increase of 12.7%, an increase mainly within operations and quality that's linked to our business growth ahead of us. As you can see from the graph, the FTE increase had a negative EBITDA impact of EUR 13.3 million compared to the first half of last year. To the right of the FTE increase, you see the impact related to input costs equal to an amount of EUR 8 million between the first half of last year to the first half of this year. Let me specify what is actually included in the category input costs.
During the first half of this year, we were impacted more than expected by a number of factors included in this category. Starting with the price increases of our raw materials used in our production, we were experiencing substantially higher solvent prices amplified by the current macroeconomic environment. On the same note, our energy, consumables, waste, and inbound freight costs have gone up. Finally, we are exposed to wage inflation at several of our operating facilities. Again, the sum of these factors accumulated accounts for a total negative impact of EUR 8 million, of which around half was unanticipated. Moving further to the right on the graph, maintenance of our sites and equipment is important for our smooth operational execution in development, analytical, and production, resulting here in an increase of EUR 2.7 million compared to H1 2021, of which 50%-60% was unexpected.
To the right of maintenance we have other. Other is composed of additional travel, as an example, marketing, insurance, personal costs, but also some scrap from operations. In this case, we experienced additional unanticipated insurance costs due to the current macroeconomic environment. During the first half of this year, we had a positive net impact on the EBITDA of our product mix. The product mix impact was equal to a positive EUR 2.1 million of projects that we finalized and delivered to our customers from January to June 2022 compared to last year. Finally, we worked on a substantial number of additional projects across our three business areas for delivery to the customers during the second half of this year. This favorable impact of change in cost absorption on the EBITDA accounted, as you see here, for EUR 8.4 million.
Again, this leads us back to our EBITDA of EUR 26.7 million, equal to a margin of 20%. On the following slide, being slide number 10, I would like to share how we have worked with our pricing model to cope with inflationary challenges. To further understand the inflationary impact on the key elements of our cost base, we have included here an illustration of our cost structure, as you see, on this graph here to the left. As a reminder, over 70% of our cost base consists of costs associated with energy, input material, and our employees.
Again, the year-on-year impact of the EUR 8 million addressed on the previous slide is a combination of rising energy costs at our facilities, higher than anticipated raw materials, and especially the solvent costs being utilized for the production of our batches, and the automatic wage indexation taking place mainly in Belgium, increasing our personnel costs. A substantial part of that unanticipated cost we have not been able to pass on to our customers due to, first, we have a large share of firm purchase orders leading into 2022, combined with a limited flexibility for some of our contractual terms. During the first half of this year, we have enhanced the flexibility of our contractual terms and aligned our pricing model accordingly to be able to better cope with the inflationary conditions we see.
All new customer purchase orders, the increase in the input cost base that I spoke about due to the various factors, have already been implemented. For our existing purchase orders, of which some are also to be executed in 2023, we continue the discussion on inflationary adjustments with our key customers. We anticipate that the full benefit of our current pricing and contractual improvement initiatives will be in full effect in 2023. On slide number 11, we have provided a summary P&L here presenting the development from the first half of 2018 to the first half of 2022.
As noted here, our 2022 operating results reached EUR 15.5 million at a margin of 11.6% of the revenue below 2021 due to the factors or drivers that I mentioned earlier. The increase in our financial expenses in the first half of this year compared to H1 2021 are driven mainly by the exchange rate, but also a few leasing contract indexations there. The effective tax rate for the first half of 2022 ended slightly above 20% compared to an effective tax rate of 16.6% in 2021. The H1 2022 tax rate is in line with the full 2021 effective tax rate.
Our result of the year, the first half of this year, came in at EUR 10.2 million, equal to a margin of 7.7% and equates to an earnings per share of 4.31. Now let's move on to development in our cash flow and cash position, which you will see in slide number 12. As I mentioned earlier, we are focused on growth for the future. This is also reflected in our cash flow statement. The first half of 2022, growth coming from our net cash flow from our operating activities, excluding the change in net working capital. That amounted to, as you see, EUR 17 million. This is indicated here on the with the light green bar on the graph.
This is offset by our change in net working capital of -EUR 24.7, as well as the cash that we have used for our investment activities, which is the amount you see of EUR 41.2 million. Summing that up, it accounts for a free cash flow equal to -EUR 48.9 million between December 2021 and end of June 2022. The outflow change in our net working capital of the -EUR 24.7 million is a function of mainly three factors. Number one, our inventory increased close to 25% since the end of 2021. This is due to the growing business anticipated in the second half of this year. Again, this equates to an increase of over EUR 27 million of the inventory.
The second factor, a decrease in our contract liabilities or our advance payment from our customers equal to EUR 12.8 million compared to the end of 2021, reflecting the execution of our customer commitments, secured going forward, especially related to some of our late phase projects. Finally, this time moving in the opposite direction, a decrease in our trade receivable balance of close to EUR 19 million compared to the balance of December 2021. Noting also that the December 2021 was an all-time high sales month for PolyPeptide. During the course of January to June 2022, we also purchased treasury shares with the amount of EUR 12 million. This is in the context of share-based programs. As you know, we issued dividend to our shareholders of EUR 9.7 million following the AGM.
This finally provides us with an end of June 2022 cash balance of EUR 66.4 million. Our focus on executing investment initiatives to support the growth going forward is shown on the following slide, and this is slide number 13 here. We have, as seen here, generated CapEx of EUR 37.9 million, equal to 28.4% of revenue in the first half of 2022, equal to investment in our PPE, but also into intangibles that has been capitalized during this reporting period. This is equal again to an increase of around EUR 13 million compared to the first half of 2021. During 2022, we continue our capacity expansion program, while we also added new capabilities to our facilities and further strengthened the digitalization and automation in line with our strategic plan.
Just a few key projects to highlight that I have mentioned earlier, the expansion of our large-scale solid phase synthesis capabilities and capacity in Belgium and our downstream capabilities in Sweden, in Malmö. We're also in the process of installing several additional lyophilizers across all our larger sites. All key projects, they are on track to support our planned business growth for the future. Now I am pleased to hand back to Raymond, who will provide you with some conclusive remarks and our outlook. Thank you.
Thank you, Jan. Despite some of the financial results, we are pleased also by the future outlook also, and I wanted to share a few highlights for us, for all of you going forward. Here on page 15, you get an overview of our pipeline. What has been interesting is that over the past few months, given the lifting of our traveling restrictions, we have had the opportunity to interact in person with many customers around the world. We do continue to see biotech companies and pharmaceutical companies investing into peptide and nucleotide-based R&D. Hence, we continue to strongly believe that the business of peptide and nucleotides remains a significant growth driver for the future. Our focus remains to grow by expanding our pipeline, trying to serve as many customers as possible.
PolyPeptide aims to be the preferred partner for its customers building on strong API capabilities. In the first half of 2022, PolyPeptide made further progress in growing custom projects pipeline, as you can see here. We're really proud to report that we had a total of 218 projects at the end of 2022, compared to 181 at a year ago, and 196 at the end of 2021. Our pipeline obviously evolves continuously, but despite those movements, the number of projects in phase III of clinical development has remained constant at 30 projects, which is exciting. In fact, two phase II projects moved to phase III, and two former phase III projects were commercially launched during the reporting period, as Jan mentioned earlier today. Newly acquired projects are typically in early-stage development and included several oligonucleotide projects.
Around half the number of development projects are in two exciting therapeutic areas. One is metabolic disorders, which includes diabetes and obesity, and the other one being oncology. Given the expected dynamics from its pipeline, PolyPeptide is preparing for a significant growth of manufacturing volumes going forward that is projected to outpace actual revenue growth. I thought I would illustrate that with a couple of examples and pictures in the next few slides. Let me elaborate on our expansion plan and what we are doing in order to support our pipeline.
Jan mentioned some of the programs that we have in place, and I do want to reiterate what he said, that overall, despite what does remain a difficult global supply chain environment in general, we are glad that today all our major expansion projects are still largely progressing as per planned across all our sites. Here on page six, you see what is actually our largest infrastructure program right now, which is a large-scale solid phase synthesis unit in Braine-l'Alleud, in Belgium. In fact, I was there earlier this week, and I have to say that it is a very impressive infrastructure. The unit having been designed with multiple pieces of equipment across multiple floors to be able to handle different types of products. It will also be automated to minimize risk and optimize efficiency.
All the most critical large process equipment have been delivered, and the unit is expected to be fully in operation in 2024. I would like to add that more generally speaking, the site of Braine-l'Alleud is the site that has the most significant expansion potential in the medium to long term, even beyond the current infrastructure. On page 17 here, a couple of other examples. On the left side, you can see the new large-scale purification and lyo line in Malmö, which is significantly improving the downstream capabilities at the site. We'd like to share that we have installed, and you may remember us saying this, a similar piece of equipment in Braine-l'Alleud last year, and that later this year, another one, lyo will also become operational in Torrance, California.
We have worked very closely across all the sites to optimize and standardize the design and installation of all three lyos to make sure that we capture synergies across the group and facilitate internal tech transfers when and if appropriate. On the right side, as we have said multiple times, our growth ambition includes the expansion of our capabilities beyond peptides into the market of nucleic acid-based therapies, otherwise known as oligonucleotides, which we all know is a promising new modality with hundreds of compounds in development today. I'm very happy that our R&D and GMP pilot plant facility, as well as the team in Torrance, are fully up and running right now. As I mentioned, with several active development projects ongoing in the facility as we speak.
As a reminder, our group strategy is to build a portfolio of early-stage oligonucleotide custom projects and to develop the business and infrastructure with a long-term perspective step by step. On the next page, wanted to summarize a little bit where we stand on our integrated strategy. I did introduce this framework earlier this year and would like to provide a brief update along some of the dimensions. Of course, customers first. Goes without saying the customer is at the center of everything that we do. On the right side, going for growth. Growing is key to support our customers, and as I've stated before, peptides do remain a vector for future growth. As I illustrated with the previous photographs, we are investing in our infrastructure, but also in our analytical and digital capabilities to better serve our customers and meet their future needs.
Upcoming patent expiries are giving us opportunities to expand our portfolio of generic APIs, and with the emerging oligonucleotide-based APIs, the group also aims to meet unmet needs for customers in that area. On innovation, the value that we bring to customers is closely linked to our leading-edge capabilities in providing product and services effectively, efficiently, and responsibly. To that end, we are implementing an innovation agenda to ensure that both our upstream and downstream manufacturing process and analytical capabilities stay at the forefront of technology. As an example, we have recently filed a patent around an innovative approach to solid phase synthesis to improve throughput. We also structuring our innovation team in Strasbourg to be closer to the well-known innovation ecosystem in the whole region.
An important dimension, as we have said multiple times, is our group-wide green chemistry program to reduce the environmental footprint of our activities. We are scaling up novel approaches to reduce solvent consumption to most of our large-scale equipment. We are implementing a comprehensive program focused on the use of solvents aligned to the well-known principle of green chemistry. This is a technically complex challenge, and we are working with partners, including academic institutions, technology startups, industry association, and of course, customers. Finally, our One PolyPeptide. As an overarching team, given what we're facing, given the growth that we have ahead of us, the group tries to continuously upscale and upgrade its overall capabilities as One PolyPeptide. This is critical for success. We seek to continuously reinforce our One PolyPeptide culture, but also to build solid global foundations that are required to ensure that growth is sustainable.
As we mentioned earlier, we increased our net average FTE by 130 over the past 12 months. 90% of these are employees on the floor in operations, in development and in quality. This, by the way, means that the increase in new people is even higher because you also have some level of attrition, of course. Our purpose is really to ensure that we have the right programs, culture, and processes to improve our capabilities and seamlessly absorb this high level of people every year, which is a significant increase compared to what we used to do in the past. Finally, a quick word, but we will come back to this with the full year. We continue our ESG efforts.
We are implementing, as we have said before, an integrated strategy to incorporate all material ESG aspect of our business as part of our strategy, being around green talent or supply chain management. I hope this provides an overview of where we stand today and some of our priorities going forward. Based on this, I would like to now share a little bit more information and discuss our financial guidance here on page 19, starting with 2022. PolyPeptide undertook considerable efforts in 2020 and 2021 to support the global fight against the pandemic, which in that context was clearly the right thing to do.
Now, the nature of the coronavirus dynamic has changed, and as you read in our market update of July, an agreement was reached to shift a portion of the coronavirus pandemic-related business that was on order for the second half of 2022, and we shifted that into 2023. Given the circumstances, we worked closely together to come up with the best suitable solution for us and for our customers. For 2022, as shown on page 19 here, PolyPeptide therefore now expects revenue growth of between 8% and 10%, which still implies a healthy growth from the peptides business. The adjusted EBITDA margin is expected to be between 22% and 25%, given also continued inflationary pressure as expected for the rest of the year. The level of capital expenditures as a percent of revenues remains unchanged, at over 25% of revenue.
To deliver on these aspirations, we have already taken many actions and launched various cost, productivity and pricing initiatives to ensure strong and lean execution in the next few months, which will obviously be critical. On page 20, a few words now on the midterm outlook. PolyPeptide obviously recognizes that the nature of the pandemic is changing, but also that the overall macroeconomic environment has become more and more demanding, and that combined with uncertain geopolitical developments. However, it has confidence in the structural growth opportunities in its market and more specifically in the potential of its late-stage customer projects, as we have stated multiple times in the past. For the midterm, assuming no unexpected adverse events, PolyPeptide expects to grow its business with a revenue CAGR in the low teens, though with varying growth rates year by year.
In particular, we expect slower growth for 2023, followed by an acceleration of growth in 2024, driven by the typical uneven phasing that is quite common in this industry. PolyPeptide expects to continuously progress the adjusted EBITDA margin towards 30%. Despite the margin of 20% in this first half of this year and the setback that we have all seen, when we look at the future, we are and remain convinced that structurally this is a business with indeed a 30% margin at that scale. With that, I would like to thank you for your attention, and we will now open the floor for questions. Thank you.
The first question comes from the line of Daniel Buchta with ZKB. Please go ahead.
Yes, thank you very much. Maybe two questions, if I may, one after another. Starting on your COVID-19 business, I mean, thank you very much for providing these details. It's very, very helpful. If I take your guidance adjustment, for top-line momentum this year, I mean, I get roughly EUR 50 million sales for this year still. But then more importantly, on your midterm guidance, I mean, it's unchanged at low teens. You mentioned already a bit slow or slower 2023, but what are your assumptions in this midterm guidance regarding the COVID-19 business? Will it go down to zero or, I don't know, whatever amount of revenues you can still expect beyond 2023? And then also question on your phasing for the margin midterm.
I mean, you will finish this year with 22%-25% margin, but midterm, you still expect to move the progress again towards the 30%. Maybe you can provide a little bit more color on how this progression may look like. Last but not least, maybe a question on the pricing discussions. I mean, thank you very much also here for providing these insights. My understanding was always that CDMOs in general is a cost-plus model. I mean, so therefore, I'm a bit surprised that you have so tough discussions also with customers where you have ongoing projects. I mean, how are they responding that it may take until mid-2023 until you're fully done with passing on this significant inflation you're facing at the moment? Thank you very much.
Thank you, Daniel. I will take the first question and Jan will take the second and the third question. On the COVID-19 business, you're right. Your estimates are about right for 2022. To be very clear in our midterm guidance, for 2023, we have obviously accounted for the portion that was shifted to 2023. That's obviously accounted for in 2023. That's the only thing that's accounted for. For truly the midterm guidance beyond that, we are not assuming anything from a coronavirus expected revenues anymore. Given the nature of the pandemic, we are not assuming anything anymore.
All right. Thanks, Daniel. I will then start with your question on the progression of the margin. As you mentioned, 2022 to 25% is our guidance for 2022. We are also confident in the midterm that we are progressing towards 30% margin, adjusted EBITDA margin. Though, as also mentioned earlier, we see, as Raymond mentioned, an uneven uptick of that. This is, you know, a reflection of, you know, a couple of very important things.
What we see is, of course, our late phase pipeline, and we see the evolution and the expectations of that, how that is progressing for our top line, the assumed phasing of that revenue, and therefore also the utilization of our assets, our economies of scale that we expect to get, on that page as well. That's why we see, you know, at the midterm, at that end, we see that progressing, and we're confident on that, 30% EBITDA margin. That's that one.
The third question you had, Daniel, on the pricing. I would highlight two factors here which have, and they are correlated, that have caused the challenge that you also alluded to on passing on these inflationary challenges that we experience, the macroeconomic environment and so forth. You're right, Daniel, you know, we have a cost-plus model, clearly. What we have and what we have also mentioned previously, as you might recall, is we have a very significant amount of visibility of purchase orders, of sales orders to our customers leading into a new year.
that was also the case leading into 2022, where we had in the range of 65%-70% of the purchase orders already in place, already set based on the contractual conditions and so forth that was managed, mostly towards the second half of last year. That gives us, you know, that it's very, very nice with that visibility, but it also created some limitations. If you look at the way our contractual terms were defined to these customers, which gave us limited capabilities to do these adjustments. That is what we, as I mentioned, what we have really worked on in the first half of this year to ensure that, first of all, you know, all the impacts that we see on the increased raw materials, the increase in price.
Prices for solvents, energy costs, consumables, the wage inflation, that is reflected in our cost-plus model going forward. It's gonna be included for all the quotes, or it have been included for all the quotes that we have passed on to the customers. The quotes that have been turned into POs now. Obviously the ones that we have the current level of existing POs that is still being executed and that will be executed in the second half of this year and also some in the first half of next year. That's where we still have the discussions with the customers on doing an adjustment on the pricing to reflect more of the inflationary challenges.
Okay. Thank you. That's very helpful.
Does that answer?
Yes, certainly helps. Thank you.
The next question comes from the line of James Quigley with Morgan Stanley. Please go ahead.
Morning. Thank you for taking my questions. I've got a couple. Just on the midterm guidance, if you've used the mid-teens growth or the low teens growth, I think you said 10%-13% is what that loosely translates to. If we use the midpoint of that on a CAGR basis to 2025 using 2021 as a base, and it's sort of working backwards, excluding COVID, it suggests around sort of 18%-19% growth for the underlying business. The market is expected to grow about 10% range or so out to 2025 based on the IPO documents. Has there been an underlying acceleration in the market growth?
What other factors would you point to that has PolyPeptide growing at almost double the market? Presumably the revenue mix trends towards metabolic and oncology products is key. Is there anything else we're missing and could you give us a sort of a sense of your confidence in that implied growth rate? Secondly, within the contract manufacturing revenues, as you mentioned, there was growth of 5.8%. Could you sort of split out the contribution from the new products and the underlying business, especially in the context of a decline of 23% in the second half of last year. I suppose what I'm trying to get at is what is the rate of the underlying decline?
Also what are the reasons for that decline? It doesn't look like there's much offset coming through with the generics business. Is it purely just lower demand for the underlying products in the portfolio? Or is there insourcing or what are the impacts or the factors impacting that part of the business and how should we think it should trend over time? Then just one quick one on cost pressures, again, sort of related to your cost-plus model. How are you sort of future-proofing for inflation that's going forward? You know, we've seen that inflation is still pretty high. To what extent can you future-proof some of those contracts so that there is some element of, you know, upcoming inflation impact reflected as well? Thank you.
Thanks, James. I'll take the first and third question. Jan will take the second one. Your assessment of the dynamic in the midterm outlook is correct. And indeed, the low teens overall on the reported revenue expected growth rate, CAGR growth rate over the midterm does translate to a growth rate, a higher growth rate, if I can use that, as you mentioned, for the underlying business. That is correct. And I think the reason that you mentioned are the reason, and it's part of what we've tried to communicate as well. It is the portfolio.
It is the portfolio that we have, both the combination of the phase three portfolio that remains stable in number, which means that actually as projects, because a couple of projects get commercial, a couple of projects get added into it. It is the combination of the late stage, but also the broader pipeline and increasing overall to some extent as well. These are the impact, and I think we remain confident and in that sense, quite consistent with the fact that, this pipeline is solid. We keep open dialogues with all our customers across those various products to make sure that we stay up to date with the latest estimates of what the products will do in the market if they are successful.
Now, obviously, doesn't mean all 30 of them will be successful. Probably not, because of simple laws of statistics. It is an encouraging one. As you mentioned, the fact that a significant number of these drugs are in oncology, are in metabolic disorders, are in obesity, tend to further reinforce that thing. That's the confidence that is there and we also try to illustrate this by the CapEx. The CapEx that we do here is largely as a result of that and just being able to support the future needs.
All right, James. I will take question number two on the contract manufacturing revenue and a little bit of insight into the dynamics, the evolution and how we see that a little bit going forward as well. So just to recall a little bit, the baseline here, end of last year, we had a bit of a decline. A bit of a decline, which was a reflection of two or consequence of two drivers. One, as I also mentioned that, we have a number of projects in there that we sell, again, to the innovator, that are mature. So we don't see. You know, we see it very stable. We don't see it growing a lot.
There's also an element in there of some stock building from the past, where we saw in particular one customer who launched in a new market, building quite a substantial amount of stock, impacting their need for API batches for a while. There was also some Brexit stock building back in 2020. What we see now for the first half year, we see a slight increase, close to 6% increase compared to the first half of last year. Here, the two new projects turning into products now that was commercially launched, they more than made up this trend of our mature pipeline.
Which of course we're very happy about and it's very positive for, because we really want our late phase pipeline clearly to turn into commercial products that we can sell to our innovator. That, you know, is a positive one. What we also see going forward with that in mind, of course, these products for the second half, we expect also that contract manufacturing will grow. Of course, what Raymond De Vré mentioned also is that we still have 30 projects. We moved two in the first half of this year from our custom projects, our pipeline building business area, to our contract manufacturing, our commercially approved products to our innovator, while we got two new projects from our phase II to phase III.
We still have 30 projects in there in our late phase, in phase III, which is very important also in our midterm for the growth. Of course, we see that as some of the growth drivers for the top line and also therefore clearly for the adjusted EBITDA in the midterm.
On the third question on the contracts and the possibilities to adjust, you're right. I think we need to do a better job at this going forward. This is a bit of a lesson learned for us, and we're doing this through various things. Obviously, any new customers, new contracts, it goes without saying that we will adapt and make sure that we have the flexibility that we can. Secondly, for existing ongoing contracts, there we do have usually protections, but we will make sure that especially as we think of 2023 and have new purchase orders starting now, typically being discussed in the second half of 2022 for the following year, these the right cost structure is then being used and the adequate pricing as well.
Finally, the last way to do this, James, is that we also have, especially when you have products in late stage phase three, you have a natural shift there, where you typically move from a development contract to a commercial supply agreement. That's a typical change of contractual relationship that you have as a product slowly but surely moves into commercial. It tends to happen being negotiated at that point of time. That is also a point of time where you can make sure that the terms and the conditions are clearly reflecting the current situation.
That's great. Thank you very much.
The next question comes from the line of Tanya Hansalik with Credit Suisse. Please go ahead.
Hi. Good morning, everyone. I had most of my questions answered, but maybe just two more to clarify. For the margin in 2022, I think it would be helpful if you could kind of help with the Novavax contribution, assuming it's a higher margin than the base business, and basically stripping out this effect. Could you give us a kind of a starting point for the margin going forward? Yeah, I saw in 2020, you had around 20% EBITDA margin. Is it as low as this or better?
In terms of the midterm profitability target, could you give us some color on the timeline to reaching the 30% or the progression towards 30%? Like, yeah, when do you expect this to be reached again?
Okay. All right. Good morning. Yeah, I can take the two questions. Tanya, good morning to you. So on the first one, which you mentioned about what is the profitability, if you like, of the COVID related business there. So, you know, we don't specify exactly what it is clearly due to the confidentiality. What I can mention, and what you can consider, is that this is above average in terms of that. That obviously has now been built in to our considerations. It has also been built in, as we mentioned, you know, there's some revenue that has moved, as mentioned, to 2023.
We are not considering in our midterm beyond that any COVID-related revenue and therefore any margin connected to that in the rest of the midterm. On the timeline to reach the 30% adjusted EBITDA margin, I would see the progression reaching that towards the end of the midterm. It's very much connected to our late-phase pipeline, as I mentioned earlier. It's very much related to the progression and the expected approval and so forth of some of these products, projects. I would say we anticipate that we will reach, and we confidently will reach, the 30% towards the end of the midterm. Again, just to be very clear here, you know, we see this as a progression.
We see it also as, you know, an uneven, you know, development, very much linked to how the top line is developing. I hope that helps, Tanya.
I mean, just to follow up midterm, what year do you consider? Is that, like, 2025? 2026?
Yeah. Yeah, good question. We expect 3-4 years.
3-4 years. Okay. If I could just slip in one more question for last year. The Novavax revenues, thank you for providing that, the EUR 63 million. Just for my own purposes, it would also be helpful if you could tell us a bit about the split between H1 and H2 last year.
Okay. Yeah, definitely, Tanya, that's not a problem. Just to be very clear, so we have, you know, 63 of COVID-related revenue. If you look at the split between 2021, H1 and H2, it is very much even across the two semesters.
Okay, great. Thank you very much.
Close to 50/50% between H1 2021 and H2 2021.
Thank you.
The next question comes from the line of Konstantin Wiechert with Baader Helvea. Please go ahead.
Yeah, good morning. Thanks for taking my questions as well. Maybe two questions from my side. One would be on the contract liabilities. I see there are EUR 34 million still on the balance sheet. Is that now all on old purchasing terms, or is that partly also now with the price adjustments? Maybe the second question, because I haven't fully understood it now, it's regarding the increased employee base, so your EUR 30.3 million from that. Is that an effect that was actually fully anticipated, or is that, yeah, let's say temporarily weaker resource allocation? I mean, you now had EUR 33 million revenues from COVID-related production in the first half, so that doesn't look like a slowdown in the first half. Was it maybe that you already expected the drug E to be launched in the first half of this year?
How can I get a closer understanding why there's such a big difference? Especially, when I talk to Bachem, which say that they would never have such a huge increase in employees before launching new production. That's kind of where it's the struggle to understand this huge increase now.
All right. Thank you. I can take the first question and Raymond will take the second one. On the contract liabilities or what is equal to what is advance payments from our customers, which we have in our balance sheet. You're right, at the end of last year, the thirty-first of December 2021, we had a little bit more than EUR 46 million, which was reduced to close to EUR 34 million at the end of June this year. Your question was whether this is based on the previous costing or whether this is including the adjusted cost-plus model of the inflation. It is a combination of both, but mostly it is, you know, related to longer term commitments that have done.
That has been finalized prior to that. For the previous pricing, if you like. Again, just to be very clear on what this is. This is the advance payment that they provide us with based on the contracts going forward.
Clearly, for some of the customers, these are going down, they are more into a different setting now. If they're commercially approved, it's a different setup. It's not so much, you know, lumpiness where you do an upfront payment and you have following that, then you have some payments when you execute on batches and so forth. Very short, you know, the majority of the EUR 34 million that we have sitting there right now in our contract liabilities, again, our advance payments from customers, that is pre-inflationary adjustments.
On your second question, in terms of the headcount increase, this was largely anticipated, so there was no unanticipated there. This is largely as per our plan. I think what is important to realize is that that is truly a headcount over the last since a year ago. In fact, when you look at that headcount increase or overall personnel increase, a significant part was already incurred in 2021, in the second half of 2021, and then the second part was obviously incurred in the first half of this year. This increase is not due to one drug. We cannot relate this to one project, et cetera. That would not be the case. This is clearly a reflection of the broader increase of activity levels that we are seeing among the group.
As we had stated in the full year report in 2021, even compared to 2020, our volume of production almost doubled. You have to realize that our current production volume across the board, across the pipeline, across the commercial product, more or less, are double, which means more activities, more testing, more shipment as well. I think we continue to anticipate an increase in that going forward as well. We need to plan. It's also in today's world, recruiting people is not so easy. It is not so straightforward. This needs to be planned in advance. You can't start recruiting people the day you need them. You need a certain anticipation. Training people for GMP activities is in itself a 3-6 months process.
This needs to be planned well in advance. We also see attrition. Attrition is increasing as everyone would witness in the world today. You need to plan for attrition as well, so that you always are sufficiently staffed in order to execute the plans that we have. It's a combination of all these activities that explain why we had that increase. Again, as I started with, this was all planned for. There's no surprise on that particular.
Okay, thank you very much. Maybe one smaller last question regarding the oligonucleotide business. I think, is it now correct that you first booked revenues in the first half this year? Maybe you can give a broad indication what you expect for the full year. Also I would be interested if you feel like giving us a broader understanding where you see the oligonucleotide business in, let's say, three or four years. I know there's still the decision, I think, outstanding, if you wanna go into the large scale production or not. Some color to that would be great.
Yes. That is correct. Oligonucleotide revenues have been booked as part of our revenues as part of our first half. We expect that to continue to grow. We do have a few projects, as I mentioned, but we're not in a position here to disclose any range of numbers right now. I think it is a priority for us. In terms of capacity increase, we do plan to increase our capacity. But as you state, we're not yet ready to put the full load large scale capacity. That would be premature. We still have room, even in our current facility where we have the installed equipment right now.
We can still increase the capacity in that in a significant way by adding equipment to try to match supply and demand as well as we can going forward.
Thank you.
The next question comes from the line of Henrietta Roomberger with AWP Finanznachrichten . Please go ahead.
Yes, good morning. I have two questions actually. One is on price increases. You said that with the new plans, you try to, you know, increase the prices in the new contracts. How long does it actually take for you, the price increases to show an effect on your numbers? Secondly, you said at some point that you expect the peptide market to grow at some 7% annually. Is that still valid? Finally, do you have any issues with currency effects at all? Thank you.
All right, I can start on the first question, just to be very clear on how that works. In our cost-plus model, what we do, when we do a quote for a customer, we update the base cost we have, the assumptions we have in there. That has now, as I mentioned in the first half, been updated with you know the inflation, the high inflation that's impacting the higher raw material prices that we see, the higher solvent costs and so forth. That has been incorporated into our costing model. On the cost, we add a margin, and that is what we use for our quotes to the customers. That has been included there.
The quotes that we have submitted to the customers during the first half of this year with that in mind. Where we have received a PO, that is already in the business. It's a question of there's obviously a time lag there because as I mentioned, you know, the nature of our business leading into a new year is that we have quite a large percentage of our base already confirmed. As I mentioned, we had at the beginning of this year, for the full year, we had, you know, around 2/3 of the expected revenue. We had that already as confirmed POs with that pricing done at that point in time into our production plan, ready for execution and so forth.
All future POs after that will incorporate the higher, adjusted pricing due to the inflationary, effects, the macroeconomic effects and so forth.
I think on your two other questions, so the market growth, we did say market growth of 10% at this point of time. We still stick to that estimate. We still believe that overall the API market for this product would grow by around 10% in the coming few years. In terms of currency effect, we did disclose, in fact, that it has an impact on revenue. What's also important to note is that actually on a profitability, on an EBITDA standpoint, the currency impact is negligible. It's actually close to zero, in the way that the negative impact on revenues, because we do have revenues in US dollars, is being equally compensated by the positive impact you get on the cost side. It is neutral on a profitability standpoint.
Ladies and gentlemen, that was the last question on the telephone. I would now like to turn the conference over to Michael Stäheli for the written question. Michael, please.
Yes. We have a few questions in the chat system. I believe some of them have been already answered. I just pick those that I believe have not yet been discussed. The first would be from Renato Torbati from Credit Suisse, and I read his question. You expect to spend CHF 70-80 million CapEx per annum over the next few years in your midterm planning. Will you have enough operating cash flow to pay for this CapEx? What is your current cash on hand, excluding prepayments from customers? What are your minimum requirements for cash liquidity reserves?
All right. I can take that question. A good question. What, you know, maybe starting here with the second half of this year, as you based on the guidance that we gave, we foresee a second half of this year where we will increase our operating cash flow in that. That is anticipated that is going up. You know, of course, what we are constantly doing is we're trying to see what we can do and what we can improve for our net working capital, our inventory, you know, get our receivables. And they are at this stage in a very good shape, you know. Tracking that, following that, following up with the customers, doing the same on the accounts payables, whatever we can do in our contract liabilities.
Sales is working very hard to get as many prepayments in there as possible. In terms of the actual cash, you know what we have. We have disclosed that at the end of June this year, we had a bit more than CHF 66 million in cash. But obviously this is something that we monitor closely. We will also monitor that closely going forward. That will be also a key thing that will be critical for the midterm as well. Of course, what we are doing as well is we are looking at potentially exploring what would be necessary in terms of building some debt going forward.
Good. Thank you. Our next question was from Gareth Blades from Amiti Global Investors. He writes here maintenance CapEx, but I think he means the maintenance cost. You alluded to maintenance costs in your EBITDA bridge. You mentioned that 50%-60% was unanticipated. Could you explain the elements you did not anticipate, please?
Sure. There was some additional maintenance cost coming in. It consists of various different elements in there. There's also the need for some spare parts. Spare parts that are very important for some of our production, some of our development to be able to ensure that, you know, that operation continues smoothly going forward. Being able to have these spare parts on site, in case, given our current production plan, our current H2 that we're looking at, is very important for them to have that in case anything would happen to the equipment going forward. Of course, what we're also doing is we are to secure that even further.
We have further looked at the maintenance service contracts that we have to make sure that we have, you know, the best possible contracts in place for the equipment, whether it's equipment that we have in our development, very importantly, equipment that we have in the analytical departments, to be able to ensure that we, on time in full, can do the analytical, you know, services for our customers to be able for them to get the deliverables on time so we can release it on time.
Okay, thank you. The last question here from the chat that I read is from Laura Pfeifer from Octavian, which is about the midterm outlook. Midterm, you are guiding for a low teens revenue CAGR with varying growth rates per annum and not a straight line. Would this even mean that we could see negative growth in one year, for example, next year with the COVID cliff? Or should we rather think about single digit growth rates?
We do not expect negative growth rate going forward, short of any adverse events, no. I think it's better to think about it as a slow and low level of growth.
Good. I think these were all the questions, that I want to read from the chat at this point. With this, I hand over to the operator.
Thank you very much. I'll hand back to you for any closing remarks, then. We don't have any more questions on the telephone.
Okay. Having said that, I would like to thank all of you for participating to the conference call. I hope we were able to provide a little bit more color, transparency, on the performance to date, as well as how we look at the business going forward. Obviously, we'll be happy to continue the dialogue with you, and we're looking forward. We do have a busy agenda of investor relation interaction in the next few weeks, and we look forward to continuing interaction and answering any questions that you have. If you do have, in the meantime, anything, do not hesitate to contact us and directly contact Michael. We'll be very happy to try to be as responsive as we can. Thank you very much for your time.