Good afternoon. Welcome to the presentation of our full-year results 2023. It's great to see so many of you here in person. Thank you for coming. A warm welcome also to those who have dialed in online. With me today, Wolfgang Wienand, our CEO, and Reto Suter, our CFO. My name is Peter Stierli. We will first start with a summary of our results by Wolfgang. Then Reto will talk about the financials in more detail. Then Wolfgang will provide us with a strategic outlook of what's to come and what's on our agenda in the months ahead of us. We will then have a Q&A session. For all of you who have joined online, you can ask your questions via the audio button. At the very end, we would like to invite you for some refreshments and the opera in the hall next door.
Without further ado, I would like to hand over to you, Wolfgang.
Thank you very much, Peter. Also, a warm welcome from my side to all the ladies and gentlemen here in the room and, of course, also to those joining our conference through the webcast. It will be with great pleasure to actually present a strong set of financial figures that we, as a global team at Siegfried, have been able to accomplish in 2023. What I can already say now and today is, after a decade, more than a decade, of profitable growth and a series of successful acquisitions, today, Siegfried is stronger than ever. Also, part of the presentation will be what we did in 2023 in order to prepare our company for future growth, to make us ready to continue our journey of profitable growth in 2024 and the years to come.
But before we dive into the details, we need to take a brief look at the Safe Harbor Statement. So please read carefully, take note, and feel bound to it. I guess the key message of today is Siegfried, in 2023 and again, continued to deliver profitable growth. The global team at Siegfried has been able to do that despite the phasing out of significant vaccines business with BioNTech based on strong growth of the underlying business without vaccines in both clusters, drug substances and drug products. What does it mean specifically? Net sales in 2023 are up to CHF 1.272 billion, which is, in local currencies, an increase of 6.3%. In the clusters, we saw, without any impact of vaccines in drug substances, a strong growth of almost 17% in local currencies.
In drug products, while declining, including the vaccines business based on the strong comparison 2022, the underlying drug product business also grew by mid- to high single-digit percentages in local currencies. For the total underlying business of Siegfried, that translates into a local currency growth of low- to mid-teens percentages. How have we been able to translate those revenues into profit? Also here, a very strong picture with CHF 273.3 million ahead in absolute terms the prior year with CHF 272.5 million at a strong margin of 21.5%, meaning that despite the outgoing of very profitable vaccines business, the company has been able to defend its profitability and continue to expand profit. Core net profit of CHF 128 million against slightly less in the prior year.
In terms of strategy - and I will talk to that later in the presentation, of course - in terms of our corporate strategy EVOLVE, we are well on track. We continue to significantly invest in our existing network to enable future growth. We also successfully entered the space of cell and gene therapies through the acquisition of a Swiss startup, DiNAMIQS, where we mid- to long-term expect to create significant additional opportunities for future growth of Siegfried. Somewhat similar as for 2023, the mission for the Siegfried team for 2024 is, again, based on the outgoing Novavax vaccines business, to not only compensate but overcompensate based on our strong underlying business. That translates into the guidance for 2024 being that we, at Siegfried, expect a sales growth in the low single-digit % range in local currencies and a core EBITDA margin at or above the level of 2023.
This implies a growth of our underlying business at or above market. How did we manage all that, and how did we manage to deliver such strong results? I guess the key summary is that Siegfried continued, based on our resilient business model and our leading position in the global CDMO space, from sustainable fundamental trends in the pharmaceutical industry and our strong focus on operational execution. By doing so, we have been able to beat temporary headwinds. What have those temporary headwinds been? Inflation. We all know that. Over the past two years, we saw inflations unheard of for two decades, which, of course, has put the financial health of many companies, including Siegfried, at risk if we wouldn't have reacted properly, which is about, first of all, being very disciplined when it comes to costs.
But then, of course, also going to our customers, having constructive discussions, and finding solutions in terms of properly compensating us for our increased input costs. The energy crisis, especially in Europe, of course, has been a challenge to us in terms of pricing, but even in certain periods in terms of availability at all. Here, the company, the team of Siegfried, responded well by being very disciplined about energy consumption and delivered an absolute saving on the 2021 comparison of -10%, even though we had more output and more products, more volumes delivered in 2023. Financing costs up, which confirmed our very disciplined approach in terms of allocating capital. We will talk about that later in the presentation.
Last but not least, and partially with significant impact, we also saw destocking, like many other companies in our space and like we did ourselves, in terms of not holding those high levels of inventory of raw materials and input materials anymore after the global supply chains have stabilized again. We saw this impact, however, have been able, based on our large portfolio and the diversification of those kinds of risks within our portfolio, and have been able to still compensate for that and deliver strong growth with strong profitability. These have been the temporary headwinds. What have been the fundamental trends based on which we, as a team using our very resilient business model, have been able to accomplish that? First of all, within the pharmaceutical industry, we continue to see an increased cost awareness when it comes to manufacturing their products.
That's something beneficial for companies like Siegfried with our focus on efficiency, with our ability to actually create higher utilization in our multipurpose plants as compared to pharmaceutical companies with their own limited portfolio. The second trend, which is going on since quite a number of years and will continue to be with us in the next years to come, is the increasing focus of pharmaceutical companies on their true value drivers, which is the innovation of new therapies, the innovation of new molecular entities, and their clinical development. Later on, after approval, the marketing and distribution of those products. A key value driver for the pharmaceutical industry is not anymore owned manufacturing capacities, global kingdoms for billions in the balance sheet with owned capacities. This is the part that the pharmaceutical industry is willing to outsource to credible, high-quality, reliable partners like Siegfried.
Another trend in favor of our business model and in favor of Siegfried is that innovation, breakthrough innovation, more and more takes place not at large pharmaceutical companies anymore but rather small biotechs and mid-sized companies. Those companies, by default, need to spend every US dollar, every euro, every Swiss franc they have on their key assets, which is a molecule, which is a therapy, which is a clinical development they have. It's not investments into brick and mortar, steel, and reactors. That's where we enter the stage and help them to actually make, translate their precious innovations into industrially viable products. The last trend which supports our business model is the increasing complexity of the molecular entities being developed in the pharmaceutical space, which, of course, puts the hurdle pretty high in terms of capabilities, available technologies.
That's the space where companies like Siegfried, with their technological breadth and also their funding capacity, are able to make a difference for the benefit of our customers. How? We have specifically been able to translate those positive trends after having beaten the temporary headwinds to translate those trends into strong profit and loss statements in 2023 and a strong balance sheet. You will hear later from Reto, our CFO. That is actually now. I hand over to Reto so that he can provide more details on our financial figures.
Thank you very much, Wolfgang. Welcome to you all here in Zürich, Grüezi Mittenand. Also, to the people abroad at the webcast. Very happy to be here and to run you through the financial update for this successful financial year 2023. In 2023, Siegfried has, again, delivered profitable growth. Net sales grew in local currencies by 6.3%. In Swiss francs, which is our accounting currency, the growth was 3.4%. Again, in 2023, we saw significant currency headwinds with a weaker euro and actually a much weaker US dollar. We again applied natural hedging, so balancing the cost portions with the revenue portions in the various currencies. This has worked well, also protecting the margin. Now, let's have a specific look at the two business lines. Drug substances, as mentioned, grew by 16.8%.
In 2023, we just continued to see what we had already observed when presenting the H1 numbers, which was an extension of the existing business, which was a successful portfolio optimization, and which was also the inclusion and the welcoming of new clients. Also, the drug products business developed well. When correcting for the currency headwind and when adjusting for the leaving and fading out vaccines business, the underlying drug products business grew by mid- to high single-digit %. All in all, in total, in terms of sales, I have now two-thirds of the business generated in drug substances and roughly one-third of the business generated in drug products. This is the reconciliation of our core numbers to the Swiss GAAP FER numbers, which is our accounting standard. This is a concept that we had introduced in 2019 and implemented in an unchanged and consistent way and manner ever since.
We have done five adjustments to Core EBITDA, and I will now run only through the two most important ones. We revalued the foreign pension plan debt liability at the end of the year. As technical interest rates have fallen by 50 basis points, that liability has expanded. Under Swiss GAAP FER, I need to include that expansion of CHF 12 million as personal expenses. As in every year, we split that CHF 12 million out. The second adjustment, which I will discuss here, is reallocation. The current net interest on that pension liability, I reclassify and put it where it belongs, namely to the financial expenses. I have done three adjustments to core net profit. The one I've already discussed, this is the reoccurrence of the current net interest. That's CHF 3 million, which is significantly higher than last year.
I have tax effects on these Core EBITDA adjustments and then a release of a deferred tax assets due to a step up. I've already presented this slide when we presented the half-year numbers. It shows the development of the Siegfried sales and the profit aggregates over a longer period. You can see the development of our business quite well. Let's first focus on the financial year 2022 versus 2023 actuals. You see that we have been able to defend our profitability quite well despite the adverse mix effects that we had in the portfolio from 2022 to 2023. Actually, all of the profit aggregates in absolute terms have increased, and we're happy about that. But let's now look at the longer time span, so from 2022 to 2023. This is a great picture. We have been able to grow net sales at a CAGR of 14.6%.
If I take local currencies, it's even 17%. At the same time, we have been able to compound also on the profit aggregates from between 21%, that's core net profit, up to 27% on the core EBIT level. This is a testimony of the resilience of our business model. We saw continued demand from clients for our products and services very much along the lines described by Wolfgang, the sustainable structural growth drivers which are in place. Obviously, that development has also been helped by our ability to pick, source, structure, execute, and then integrate attractive M&A opportunities. We should never forget that this set of numbers was produced in a time of unprecedented macro challenges.
We had a pandemic in that year, supply chain disruptions, inflation across major input cost categories, high interest rates, an energy crisis with peaking energy prices, and a lot of forex volatility. Keys to success here were an active portfolio management, so internally. It was the application of continuous efficiency initiatives on each and every site and also at headquarters. Strict cost discipline while still continuing to invest into capabilities. Obviously, the ability to pass on inflated costs to our customers. The story is not over here. This is just the beginning. We have now laid the foundation for continued growth steadily compounding over the many next years to come. Let me walk you through some of the moving pictures that occurred between financial year 2022, 2023, and the outlook for 2024 in a simplified way. Looking first at what occurred between 2023 actuals and 2022 actuals.
We have achieved a growth of net sales of 6.3%. This consisted of two main elements. On the one-hand side, we saw the BioNTech volumes fading out, which is a minus. Then we saw a positive development of the underlying business, which was a plus. Now, when I adjust for the BioNTech impact, the growth of the underlying business is low- to mid-teens percentage. For the financial year 2024, we guided with low single-digit percentage. Again, it consists of two elements. We see the Novavax volumes fading out, which is a minus. Again, we see a positive development of the underlying business, which is a plus. Adjusting now for the Novavax impact, that low- to single-digit overall translates into an at or above market growth of the underlying business. More comments on the financial year 2024 important to note.
In 2024, we see effects from our portfolio optimization efforts. We have consciously sacrificed mid-teens million CHF of sales from tail-end products, which will enhance our profitability. For the avoidance of doubt, of course, this portfolio optimization is included in our guidance. That mid-teens million sales translates easily into one to two growth percentage points. For 2024, we again expect a currency headwind, strong currency headwind actually. We again expect to see seasonality. We see a stronger H2 versus a weaker H1. In terms of pricing, given the developments on raw material prices, energy costs, et cetera, we currently expect a neutral price component. But again, also in the financial year 2024, we will be delivering profitable growth. Diversification and spreading risks across large portfolios is the core of our business model. It promotes stability and is basically the basis for future growth. How does that look like?
On a customer level, we continue to have Novartis as our top customer, accounting for between 10%-20% of revenues. You all are well aware that this relationship with Novartis is governed by a long-term manufacturing and supply agreement. Customer two accounts for 6%, and then customers three to ten account for an additional 30%. When looking at the split of these revenues generated with large pharmas and small to mid-sized pharma companies, we generate 36% of these revenues with large pharmaceutical companies and 64% with small to mid-sized pharma companies. Let's now shed some light on the life cycle diversification. We generated in 2023, 90%-95% of our revenues with commercial manufacturing and between 5% and 10% with products and services in clinical phases.
Important to note is that it was significantly less than 1% of revenues that we generated in preclinical or phase I. Let's move to product diversification. Top product unchanged at 5%, products two to 10 at 26%. In total, top 10 at 31%. The split between exclusive products, where we manufacture one product for one customer and sell it to that customer, accounted for 75%, while the multi-client business, where we sell one product to more than one customer, accounted for 25%. Now, these are the numbers for 2023. However, these are largely unchanged and have been like this over the past few years already and will not change going forward despite the large changes that we have seen in our business mix in 2023. Let's have a look at the P&L.
COGS, of course, were impacted by inflation, but with a steady focus on commercial and also operational excellence, we have been able to protect the interests of our customers, but also of us. Core gross profit was even a shade higher in absolute terms than in the past year. Total last G&A was stable at CHF 133.5 million and declined, of course, relative to net sales. We also saw an absolute and relative decline of core administration general overhead costs despite higher allocations to STI provisions. That's a good sign. We have continued to invest into marketing and sales, which is an important client-facing function and was stable in research and development costs, which is also core for our client interaction. All good. Core financial expenses were higher than in the prior period.
This includes this non-cash interest on the pension liabilities, which was CHF 1.8 million higher than in the prior period. Then lastly, the non-cash exchange rate differences were higher than last year as we had to translate into Swiss francs these balance sheet positions at historic lows of the euro and the dollar rate right at the year-end. It's a non-cash event. Income taxes have become lower, at around 25%, 28%-29% in the last year, and they will normalize over the next few years towards the range of 20%. We also saw a significant improvement in operating cash flow generation. That was great. We spent CHF 136.8 million on property, plant and equipment and intangibles, which is higher than last year, but at the lower end of our guidance.
Lastly, the cash flow from financing included this year a repayment of CHF 65 million of bank loans, so we delivered, and of course also the dividend to our valued shareholders, which is technically a repayment of capital. Speaking of dividend, the payout proposal to the AGM on the 18th of April 2024 will be another increase by CHF 0.20 to CHF 3.60 per share, again as a repayment of capital, which is for large parts of our shareholder base here in Switzerland tax-free. Sustainability, it's one of our five core values, and we have made progress here in the financial year 2023. We're on the way to become and remain an ESG leader in the CDMO market. What have been these steps towards our ambition? We have saved an absolute amount of energy consumption, 10% in 2023 as compared to 2021.
This is not normalized with sales, so we had a significantly higher sales volume in 2023. That 10% is a great achievement. We have now 71% of our electricity coming from renewable energy sources. We have reduced the lost-time injury rate by 11%, and we remain committed to reducing our carbon footprint by 50% until 2030. We are very happy about the fact that our efforts and ambition and also our ESG performance was reflected in the rating of external rating agencies. MSCI rates us double. We have been included for the third time in a row in the prestigious Dow Jones Sustainability Index Europe. ISS ESG rates us prime, and all of our sites have been awarded gold and silver awards by EcoVadis. Since 2022, Siegfried is also a signatory of the Science Based Targets initiative. There's further planned activities, of course.
Our journey continues, and for 2024, for key areas, we want to improve third-party recognition of our performance, so the scoring. Our R&D people will continue to collaborate also closely with clients to reduce the environmental footprint and to enhance that performance. We will further build out the reporting framework towards an integrated reporting, not only covering finance and operations, but also sustainability. Reporting on detailed water resource and waste numbers. While we have provided an estimate of our scope three emissions in the sustainability report published today, we will provide further detail on that as a part of our CDP reporting in 2024. Capital allocation is closely linked, of course, with the delivery of our strategy EVOLVE. It all starts with investing into future growth potentials, which all have the potential to generate shareholder value for all of us.
Which will lead to a top-line growth, expanding margin, more cash being generated, which we will then again use to invest into further growth projects. On the way there, we will deleverage as we have done this year now and optimize the funding cost. As you have seen, we will spend our capital carefully. We will also be very disciplined in payouts to shareholders, as seen. It's the right point in time to also make an outlook for the CapEx for 2024. This will be elevated due to the ongoing investment projects in Minden, Evionnaz, and at DiNAMIQS. For 2024, we expect mid-teens % of sales, which is slightly higher than the overall mid-term guidance, which is low-teens % of sales.
Furthermore, I'm now at a core debt to core EBITDA ratio, leverage ratio of 1.4, which means that we have significant funds available in a non-dilutive format to continue to support the strategy also over the next few years. With that statement, I hand over back to Wolfgang.
Yeah, thank you very much, Reto, for providing those insights. I will happily start with the investment into growth. What can you expect that we will do with our dry powder, with our funds going forward? Let's turn our heads towards the future and remind ourselves on the corporate strategy EVOLVE+, which was in the past and will continue to be our blueprint, our game plan for what we will do with our company and for how we want to make Siegfried even stronger in the years to come. We strengthen our core and want to open doors beyond.
Three pillars, three areas of activity on which we will act in the future, be it through organic investments or be it through M&A. First of all, grow our existing core, make us stronger where we are already strong today. This is about small molecules, drug substances, and drug products, complex chemistry, strengthen our capabilities there, oral inhalation, solid dosage forms, aseptic, liquid dosage forms, and further strengthening our integrated offering of drug substances and drug product services. How did we walk our talk here? This is about proof points. Acquisition of the two drug product sites from Novartis in Barcelona obviously very well fit into that area of activity. Also, the new large-scale drug substances manufacturing plant that we are currently building in Minden fits to that idea of making us stronger where we are strong already.
Also, our capabilities and capacities for high potency drug substances and drug products have been part of that. Our strategy is also about adding adjacency, making our current offering even more complete, which is about formulation and aseptic fill-finishing of large molecules, biologics, which is an attractive area of the CDMO market as well. Particle technologies, which is kind of the bridging technology between drug substances and drug products, drug product delivery systems as an attractive hook for customers to join Siegfried, not only for development, but also for commercial manufacturing, and also ADCs as a strongly growing area. Proof points here is that we recently decided to actually expand our capacity for pre-filled syringes, aseptic fill and finish of biologics by an investment in Hameln, adding to our capacities that we already have on our manufacturing site in Irvine. However, for small volumes only.
Also, the expansion two years ago of our micronization capacities for highly potent APIs in Evionnaz significantly adds to our differentiating set of technologies. We also want to create future growth opportunities beyond the areas where we are active already today. This is about entering and growing a new area, drug substances, antibodies, proteins, nothing that we would be able to do today. Cell and gene therapy, an interesting, still small, however strongly growing therapeutic area in the pharmaceutical space, Viral Vectors belonging to that, synthetic biology as a potential attractive segment in that space, data analytics in the sense of making better use of our data in order to be more efficient in our business acquisition, but also in our execution and in our operations.
Proof point here of a recent activity, of course, is the acquisition of DiNAMIQS, the startup in Zurich, where we are currently erecting commercial GMP capacities. I'll talk to that later. Delivering upon our strategy, growing existing core. Three examples here, Minden, that is going on right now. We started with the construction in 2022, and we expect first revenues coming out of that plant in 2025. This is going to be CHF 100 million investment plus minus. Evionnaz, very well on track, the erection of additional drug substances, high-end development services, a large R&D building there for a total of CHF 22 million-CHF 23 million, very well on track in terms of budget and also timeline. We expect and will see first revenues related to those services already in 2024.
Barcelona, two new sites in Spain, which we have successfully transformed into very flexible, very efficient customer-facing CDMO platforms over the past three years, including an investment into a center of excellence for high-end drug products development services completed and operational already since 2023. Maybe let's pause for a minute here and briefly talk about how the development on the two Spanish sites are going on. First of all, integration successfully accomplished, SAP transferred to SAP S/4HANA done in 2022 already for Barberà del Vallès and in October last year also successfully executed for El Masnou. Both sites already today contribute to the expansion of our profitability.
The one site already entered a very attractive, above-average growth trajectory in terms of revenues based on its ability, our ability to actually retain strategic customers depending on the site and also introducing new business based on very differentiated technologies, which are rare in the CDMO space. Very well going on there. The other side is also developing well, and there we saw the intake of attractive smaller projects with regard to special technologies and the highly potent API area. We even have been able in the meantime to actually attract and create an additional strategic customer who was willing and actually did co-invest into a new technology three-layer tableting. We will, together with that customer, create attractive business going forward. We also are in advanced discussions for that side with certain customers in order to actually also introduce significant straight OSD volumes over the next years to come.
We will see a little bit of that already in 2024 and more significant volumes in 2025 and 2026. Developing very well according to our expectations or maybe even slightly above. Let's briefly look at future opportunities. Where do we expect, where can you expect us to generate profitable growth from in the years to come? Siegfried, as the leading CDMO in the small molecule space, is actually very well positioned. I'll talk to that in a minute. It's very well positioned to actually benefit from a number of attractive opportunities becoming available in the next years to come. Let's briefly take a look back and look at past approvals, past FDA approvals when it comes to new molecular entities being approved for marketing. We see in blue small molecules and in light blue biological entities.
What becomes clear, at least looking back at past approvals, that, of course, both segments are very, very attractive. We all know that. Also, small molecules continued to provide the lion's share of past approvals. That's the space where Siegfried is operating. How will the future look like? The best proxy for the future actually is the current development pipeline in the pharmaceutical industry. Same color code, and we see here from research over preclinical phase one to three and eventually filed what is currently being developed in the labs of our customers. Again, in dark blue, we see small molecule opportunities and in light blue, biological opportunities. Also, in the future, small molecules will obviously provide a number of opportunities for companies like Siegfried. That's a pool from which we will draw and realize future growth.
How did we do that, and how does our technology strategy look like in order to increase our probability of success, in order to address as many of those small molecule opportunities as possible? It's exactly technological breadth. We decided to be able to actually address and make an attractive offer for as many opportunities. Currently, based on what we have today, which is a very broad technological toolbox and selected differentiating niche technologies, we estimate to be able to address approximately 80% of those more than 10,000 opportunities currently being developed. How does that translate into an efficient go-to-market? Here, we can actually make use of our strong reputation based on our 150 years of corporate heritage, based on our very strong quality and compliance track record, based on long-lasting, robust strategic customer relationships where those customers entrust us with their most precious innovations.
That is exactly the spot in the market where the willingness to pay is highest. Delivering upon our strategy EVOLVE, us entering and over time growing new areas. The acquisition of DiNAMIQS in Schlieren, a very attractive ecosystem for scientists close to ETH here in Zurich, and other strong universities in the space in Switzerland and Europe. There, we actually acquired DiNAMIQS, 95% stake, and are currently planning and will soon start to actually build a commercial GMP facility, which will become operational and will be online in 2025, and then ready to also manufacture products for clinical development and also for the market. We already see today first successes from small biotech startups, but somewhat surprisingly, but reassuring, even large pharmaceutical companies relying on the strong expertise of our scientific team there. Let's briefly look ahead.
What DiNAMIQS is supposed to do for Siegfried, what we expect from that, and why we actually did this kind of acquisition. First of all, we very much like this approach, which is kind of controlled in terms of value at risk. It's going to be including the acquisition of the shares and the build out of the commercial capacities. It's going to be a mid-double-digit million CHF amount, which is still a lot of money, but as compared to what we have seen in that space in the past, probably a very limited amount of value at risk. The setup of the company is such that we retain our flexibility in order to adjust for technology changes in the market, to adjust for demand changes in the market, which makes us even more comfortable in terms of not sitting on idle capacity in that space.
Let's assume we are successful and we are confident that we will be able to develop that asset successfully in the next three, four, five, six years to come. I would say as of today, the revenue potential from that asset might be CHF 50 million, CHF 60 million, maybe CHF 70 million. Is that supposed to be the end point and us being happy with our entry into that space? Of course not. Based on that success, we are mentally ready and will be willing to actually further scale out and build on that success and use that team to actually add capacities, probably not in Zurich because that's not a place for cost-efficient manufacturing, I guess, but somewhere else in our network. We would also be ready to acquire in the future capacities from other players, which are not used there anymore.
We also keep our eyes open in terms of adding technologies to even make the toolbox of DiNAMIQS broader and more attractive to our customers. Overall, I can say today that the integration and also the build out of both, the DiNAMIQS team, which is now, I think, at 15 or 16 great people as well on track, and also the commercial facility is being planned. Maybe on a side note, we will have a new CEO entering on March 1st who will take over from Eduard Ayuso, who stepped in as a CEO but is himself a great scientist and will serve as CTO and drive the technological development of DiNAMIQS forward. We also have been able to convince a new independent non-executive director to join the DiNAMIQS board, which used to be the former president of the Cell and Gene Therapy division of Catalent.
With that strong team, we are confident to be able to push forward and achieve our ambitions in that attractive space for Siegfried. With that, I come to the takeout slide, which as a key message consists of Siegfried's journey is going to continue. We are committed and will deliver continuously profitable growth going forward. We will do that by continuously investing into our global network and executing value-adding M&A. We confirm our positive mid-term outlook about continued profitable growth at or above market, excluding M&A, while stepwise, as in the past, stepwise expanding our profitability, capital expenditures over the cycle of low teens% of sales. We are committed and will translate the many opportunities available to us into growth while optimizing our portfolio of projects, products, and assets.
We will continue to focus on execution along the commercial, operational, and organizational excellence of our people, of our strong teams. We will further deliver upon our corporate strategy EVOLVE as in the past through investments in the network and through M&A in core areas and beyond. Again, our outlook for 2024, we at Siegfried expect to deliver sales growth in the low single-digit percentage range in local currencies at a Core EBITDA margin at or above the level of 2023, which implies a growth of the underlying business excluding vaccines at or above market. With that, I will hand over to Peter so that he can guide us through the Q&A, and we will be happy to take your questions and provide as useful answers as possible. Thank you very much. One second, Peter needs to take over first. I think Gary was first. Not true, but ladies first.
Let's see.
Well, thank you so much, Wolfgang. We will start with the Q&A session now. For those of you who are online, you can ask your question via dialing in through the audio call. Those who are in the room, I would like to ask you to please use the microphone when you ask your question. With that, who should I pick? Sibyl, please.
Thank you very much. Sibylle Bischofberger from Vontobel. You were talking about the sales you generated with inflation and destocking effects. Could you say something about volume and prices? How much is it of this 6.3% sales growth in 2023? Second, about CapEx 2024, it's more than normal. Could you say something about how much will be invested in growth and how much in maintenance, please?
Yeah, we'll be happy to answer that. Maybe Reto takes the CapEx question.
I will start with the first two questions. First of all, destocking, yeah, we have been hit like everyone else in the industry by that in 2023. Also, we'll see or are already sure about destocking effects in 2024. We don't disclose products or customers and also not values, but it's a significant double-digit. However, again, as a reminder, that is all digested in our guidance. Our mission as a team and my mission for the Siegfried team is that those things happen. They are part of the business, but we need to make sure that we diversify that risk and still grow. That is what I take from that guidance, that despite those effects and also the portfolio management effect, which is CHF 10 million-CHF 20 million in 2024, it's a good thing to do.
We still want to not only compensate but overcompensate for those effects also in 2024. In terms of composition of sales growth being either price or volumes, we actually don't provide that breakdown for obvious reasons. What I can tell is that also the business growth, the underlying business growth in terms of additional projects, additional product volumes is substantial. CapEx?
Let me pick up the CapEx question. Yes, we spend about the depreciation amount in absolute terms on maintenance CapEx. That includes not only the pure replacement of existing capacities but also the odd debottlenecking here and there. As a rule of thumb, that's between 6.5%-7% of revenues for maintenance and the remainder, of course, then for capacity expansion.
Yeah, and the peak in 2024 is really due to a kind of a phasing effect from these important projects going on, Minden, Evionnaz, and also DiNAMIQS kicks in. Over the cycle, it's going to be low teens of revenues.
Thank you. Next question to Barbora Blaha, please.
Thank you, Barbora Blaha from UBS. I have two questions. The first one is about the guidance. You already mentioned some of the drivers, more general drivers. Could you please give a bit more color on the divisional level? Do you expect more growth from the drug products because the base for drug substances is being set high or yeah? Thank you.
Yeah, thank you, Barbora. Actually, both segments in terms of the underlying business perspective will grow also in 2024.
Okay.
Go ahead.
Then another one in terms of obesity.
There are also more and more small molecules in phase two already. Are you involved in discussions with customers? Also, how difficult is it really to manufacture? Because I read that it's not that easy. Would you have an advantage against others, again, because of this complex manufacturing? Thanks.
Yeah, thank you. Maybe on complexity of obesity drugs. The current drugs on the market of Novo and Eli Lilly are peptides. That's a technology on the drug substances level. Those are peptides, which is a technology that we don't have. That is nothing that Siegfried would be able to do. Indeed, if it becomes, let's say, oral, which doesn't mean easy, but regular small molecule, then we, of course, would be able to. I mean, had to look at the molecules, but would be able to offer our services there.
Where we do have capabilities already today is about the drug product. The sterile or aseptic fill-finish of those molecules, I mean, in principle, from a technological perspective, we would be able to do probably in Hameln, maybe also in Irvine.
Thank you.
We kind of skipped Gary, who was very early on with this. Please, go ahead. A question?
Thank you. Gary Steventon from BNP Paribas Exane. First question just on maybe the fill-finish business. You have the COVID business rolling off and capacity in Spain, and you've announced the additional capacity expansion in Germany too, so lots of supply from your perspective. The question is more on confidence and visibility that you have in filling that supply. You mentioned good progress on the new volumes.
Just wondering how significant a driver you see those new volumes being towards growth in 2024 and then to what extent you have visibility on the projects that are coming into the new capacity that you're planning. Perhaps just linked to that with the recent deal announced with a major global CDMO, I'd assume some third parties might be looking for new partners for some of their fill-finish capacity. Any comments that you may have here or anything you may be seeing in terms of incoming?
Yeah, we'll be happy to share our view, first of all, on ourselves and maybe at least some thoughts on, I guess you referred to the acquisition of Catalent by Novo Holdings and the pass-on of three manufacturing sites. Let's start with ourselves.
First of all, the drug products network being less mature because younger and just built mainly through acquisitions over the last decade, less mature than the drug substances business. That is something where we are establishing a leading footprint right now. What I can tell is that we are seeing across the board, across the technologies, positive momentum to kicking in. I kind of referred to what is happening in Spain already. Briefly on our capacities, specifically in Hameln. There, I mean, the coronavirus pandemic, of course, was a terrible event for the world. Having said that, it created a number of opportunities for us at Siegfried business-wise, but also mentally in terms of proving to ourselves and proving to customers what we are capable of.
The last part, and actually we proactively planned for that and executed, that is that we wanted to transform the Hameln site towards, let's say, more differentiating technologies being aseptic fill-finish in vials of biologics, for example, but also now a PFS. That's currently going on. We have been able to actually strike the first deals for additional volumes in vials, which will be transferred over the next probably 18 months and then kick in and will become visible in form of attractive additional revenues. One side comment, though, and that might even be a good bridge then to the answer to the last part of your question, even the ampules business of which one would have thought, "Look, that's old technology and not attractive anymore," which was our belief as well.
Also, there we see increasing demand because along the lines that I described on the second slide about ongoing trends in the pharmaceutical industry, pharmaceutical companies further clean up their asset base and actually outsource also volumes based on that technology. That can be nice and will be nice attractive opportunities even for that technology. Momentum developing well in that part. On the acquisition of Catalent, I mean, I won't comment on strategy and what to think of it, but the key of your question was, "Is it beneficial for CDMOs or is there additional potential becoming available or not?" If I had to say and had to give a judgment, I would say probably yes because our assumption is that Novo Nordisk didn't acquire the three sites in order to become a CMO, but rather for own capacities, for own products. First thought.
Second thought, I mean, if I were a pharmaceutical company being supplied from those sites, I probably would ask myself if it is sustainable and good situation to be supplied by a competitor in the long term. What I'm trying to say is there are good reasons to actually think that there might be opportunities becoming available for high-quality vendors like Siegfried. Does that make sense?
Okay. Thank you. The next question from Anja, please.
Anja Pomrehn, Mirabaud Securities. My questions primarily relate to the new technologies and modalities, especially in view of cell and gene therapy, as you have elaborated, Wolfgang. In one slide, you have highlighted the approvals, which we have seen in the different small molecules in biologics. Last year, just on biologics, there were 17 FDA approvals. Just in the first half of this year, there's an estimated another 15 approvals to be expected.
Now, you've done the acquisition with DiNAMIQS to enter this field, and your main focus still is small molecules while it seems that biologics seems to have the higher growth rate going forward. Could you maybe elaborate a little bit what your strategy is going forward in terms of how would you add more modalities? What would you more focus on, and what would be the strategy going forward? Because you have such a strong base in small molecules, and the future growth seems to be more and more towards biologics and cell and gene. Where would be the focus in growth, also in terms of CapEx for you, Reto? Then also in terms of M&A, which you have announced as such, that would be one.
Then if you could maybe tell a little bit in terms of cell and gene where you currently are, which phases you are as you have elaborated in one of the slides? Thank you.
Yeah, thank you very much, Anja. Let's try to give a comprehensive answer there. What I try to do is making a case for both, for small molecules, of course, providing more details there because that's where we are heavily invested and active right now and the leading CDMO in the space. I was not trying to make a case, let's say, that biologics wouldn't be great. It's just a great area as well in the sense of proteins, monoclonal antibodies, and somewhat different to that, also different technologies, viral vectors.
Let's briefly start on the future potential of small molecules, of which we are convinced, not only because we have the asset base, but based on the figures. What we didn't look at is the share in the market, in the current commercial market of small molecules versus biologics. Yes, small molecules are growing at 5%-6% in our customer-end market, and biologics probably 8%-9%, depending on which market study you look at. In absolute terms, those 5%-6% on a larger amount in the market still, these are billions becoming available in terms of growth over time. There's a lot of opportunity, a lot of business for us to actually win, and a lot of value to be created there. We feel happy there. However, DiNAMIQS caters into that ambition.
Also, our already existing biologics business in the drug product field caters towards the ambition to not only play in the small molecules area, but also create a footprint in biologics. In drug products, we have been successful already based on investments into capabilities and also capacities in Hameln starting in 2017, which is why we have been able to actually make an attractive offer to BioNTech and Novavax at the time. These are biologics. We have been and are still aseptically filling them. We have a footprint there. We even further invest into PFS now with a specific target of fill and finish biologics in Hameln. DiNAMIQS is another example where the market is still evolving, is still creating itself, technology decisions still to be taken. We thought that the timing actually is good.
The timing was also good in terms of the view of the markets at those opportunities. DiNAMIQS, two years ago, wouldn't have been available to us probably at any price. Based on the biotech funding shortage over the past two years, this asset became available at a fair price. Now we created the footprint there and are ready to build it out. I guess that's my view. When it comes to drug substances, proteins, and monoclonal antibodies, that's maybe the last part in a more generalized way of my answer. Let me start there. How to enter a new space for Siegfried? You always have the decision to either make it or buy.
For some of the areas like highly potent APIs, micronization, maybe even based on highly potent APIs, ADCs, that probably is a make trajectory for us because we have the funds, we have a number of necessary capabilities, so we can do it ourselves without paying a premium for an acquisition target. For other things like, for example, biological drug substances, proteins, monoclonal antibodies, we couldn't do it. I mean, we maybe could, but it would take too long to build such a facility, green or brown field, and build up a team. Years would be a valley of tears in terms of cash flow. That would be clearly something to be done through M&A. We are looking at targets like that, and if the right target comes around the corner, we would be ready to execute at any time. Does that make sense for the technology question? Okay.
Maybe we take it up later during a coffee at our Apero. Second question or second part of the many questions is about our view on the cell and gene space and if DiNAMIQS will be short-term capable of even supplying commercial products, commercial volumes. Right now, it's not because it is a strong development platform, strong scientific team, but not GMP yet. By default, by regulatory hurdles, only being able to actually supply preclinical material. That is going to change with the investment which we currently make in Zurich. With this facility then being available in 2025, we will start to also manufacture material for human use. When there will be the first commercial product in the Zurich Schlieren facility, I don't know.
This is kind of a strategic option on the table for us at Siegfried, which will, I mean, right now, it's a small little plant, but it will become a tree at a certain point in time, not tomorrow, but mid to long term. We decided and consciously wanted to be present in that space as well. Now we have the means and the starting point to accomplish that.
Thank you.
Then there was a CapEx part, I think.
Yeah, the CapEx was related to how you would allocate the equipment.
It's included in your answer.
Kind of, yeah, which can mean funds created from the small molecules business being invested somewhere else. Okay.
Good. Next question is from our online participants. It's Charles Weston. Charles, please go ahead with your question.
Thank you very much. Can you hear me okay?
Yes. Hi, Charles.
Hi, Charles.
Great. Thank you. Hi.
First of all, just a clarification, please. You mentioned that the year would be H2-weighted. I mean, it typically is. Is it likely to be more H2-weighted this year on revenues and margins, or were you just referring to normal seasonality?
Yeah, it's slightly stronger in 2024 than historically in the past, yes.
Okay. Just to also touch on the question earlier around the sterile fill-finish and prefilled syringe, was the 18-month answer indicating that we should be looking at mid-2025 to start to see the beginning of the uptick in growth on that site? Given the revenue capacity was significant if you add up BioNTech and Novavax together, is it that sort of magnitude that we're looking at, or are we only talking about stepwise capacity utilization from that mid-2025 period?
Yeah, that's going to be stepwise capacity utilization. I would have to add also to the timeline.
Considering lead times of those equipment, it's going to be rather end of 2025, early 2026. From when onwards, we will be able to actually transfer products into that capacity and fill the capacity. We are talking to customers already about specific projects. We are actually confident that this technology will eventually significantly add in terms of revenues, but also profitability and value.
Okay. Thank you. Lastly, I think that there's now 10% more staff at Siegfried at the end of 2023 versus the end of 2022, judging by the date of the annual report. Revenue per employee was down, but you maintained a margin or a reasonably decent margin. What was the additional headcount primarily for, and should we expect to see a leverage of that human capacity over the next year or two?
Actually, Reto and myself talked about that just recently.
We discussed, is it headcount or is it FTE? If okay for you first of all, I think a great question. If okay for you, Charles, we would like to come back to you on that one. What I can tell is we mean the terms cost discipline and efficiency very serious. What it means specifically in terms of, let's say, conversion cost per FTE and revenue per FTE, we will be happy to come back to you.
Thank you. I don't want to hog it, but if you didn't get to answer me that one, can I ask one more, please?
Sure.
Just around the portfolio set of a fair swap. On the portfolio optimization side, that was quantified at mid-teens revenue.
Historically, when you talked about portfolio optimization, you've been replacing less profitable work, either improving the profitability of existing work or replacing less profitable work with more profitable work. It sounded like this is work that's leaving where you don't have an immediate replacement. Is that right? Should we be thinking about that as potential capacity going forward?
Yeah, indeed. The whole portfolio management and portfolio optimization exercise that we have been talking about over the last three years was about being mindful with our funds. We need to make sure that the capacity that we have today, we make best use of for products only with an appropriate profitability, i.e., delivering appropriate return on capital employed before throwing fresh money out of the window in order to keep those products, but install fresh capacity to take on a new volume.
That was the mental framework which we have applied over the last two and three years. It's no wonder that with some revenues, but minor, but the majority of the positive effect actually from the portfolio optimization kicking in in 2024 because two to three years is about the time that you need to actually give your clients, your customers, in order for them being able to find another source. These are good conversations to have. You can't just kick someone out. That's not the way how Siegfried does business and how one can do business in that space. It's no wonder that it's for the first time becoming visible in 2024. Let's say the balancing effect and the desired outcome you will see by the further expansion of our profitability in 2024. That's what's going on there.
From one day to the other, take out one product and fill it with the next more profitable product. That's unfortunately not how it's working. There's some time lag, but yes, making available that capacity for future business reduces our CapEx requirements and will happen over time.
Thank you.
Thank you very much.
Thank you, Charles.
We have two more questions. One is over here and then one with Laura. Yes.
Thanks, Daniel Jelovcan, Stifel . What was eye-catching was that your Swiss franc exposure in the annual report went up some CHF 100 million, which is quite significant. Could you convince some customers to switch from euro invoicing to Swiss franc, or what's the background there?
Yeah, that's part of the answer, yes, indeed.
No. We call that natural hedge and actually working back, not on the top line, but bottom line.
Then this ridiculous debate in the U.S. Congress about banning companies like WuXi and so on. Do you see first relocations, or do you have customers who are giving you some signs that probably you're not really competing to WuXi AppTec every day?
No, but it is a competitor. First of all, I think you phrased it the right way. It's a debate right now and still to be seen what the outcome will be. If that really were to materialize, that would have an impact on, of course, first of all, WuXi AppTec, but of course also for alternative sources in the West, Europe, in the U.S. like Siegfried. Do we see that already today? Not yet. That's probably too fresh. Those things still take time to sink in.
It's not an easy thing to say from one day to the other, "Let's switch sources." That's a process of 2 years, probably.
Last questions, Siegfried.
Please, Daniel.
What was eye-catching is that your percentage of completion went up to a record high. What was the driver behind that? Was that the bigger batch or some smaller batch?
Yeah, it's just a phasing question. We use the POCM method to recognize revenues for very selected products which are significantly large in size and which would have an undue impact on the seasonality of our business. It was CHF 15.5 million in the financial year 2023, which is a shade over 1% of our revenue recognition that we did using that. It's seasonal. In the last year, it was actually negative.
It will be consumed over 2024, obviously.
Thank you, Reto Suter, for your questions. Now, the last question for Laura.
Thank you, Laura from Octavian. I'm just wondering how should we think about your core EBITDA guidance where you say at or above this last year's level? Given that you already achieved over 22% in H2 last year, shouldn't we rather expect to see at least 22%? I think in that context, it would be helpful if you could elaborate a bit on the margin drivers you see, maybe the mix also with better business in Spain and also the headwinds we should consider. Then also connected to that, I'm just wondering how much room is left for further cost optimization given that you obviously already are quite cost disciplined. Thank you.
You take that.
Of course. Yeah. On the margin guidance, you know us quite well, Laura.
When we push out a guidance, we always consider, of course, the latest information that we have available in terms of projections, security, etc. We also always consider the risk associated with the implementation. Please keep in mind we're a manufacturing entity, and within our business, things can also go wrong, which could have an impact on the margin, etc. as well. This is the spirit and the mindset in which we push out guidance. Obviously, we will not hold back at any artificial level, be it 22% or 22.2%. We always go for the optimum, at the maximum, etc. In that spirit, you should also read the guidance of at or above the 2023 levels. On the cost optimization, this is actually never finished. On the one hand side, you have the question of efficiency in a manufacturing organization is never over.
This is something that Wolfgang Wienand, the two COOs of the two business classes, look at actually on an at least quarterly level. How well are the efficiency measures of employees, of equipment, and of assets? How are they stacking up, and how are they improving? This is not something where we at some point come and speak to you and say, "Well, this is over now. We have reached the limit." What we need to make sure is that we don't do a cost optimization which will hinder at some point our future expansion and our future potential. That way, despite the fact that you have been able to be cost-conscious, we even in these difficult times continued to invest into expansion of our capabilities and capacities, which will be important to capitalize on future potentials now in 2024 and also 2025 and beyond.
Maybe as the one addition, the comparison 2023 still contains a significant vaccines business at superior profitability, which we will not only compensate but overcompensate top line, but obviously based on the guidance, also bottom line. I think that speaks to the ambition when it comes to our commercial excellence and when it comes to our operational excellence and cost efficiency.
Thank you. One very last question from our online community. Finn, please go ahead from Deutsche Bank. Can you hear us ?
Yes, hi. Thanks. Yes, can you hear me?
Yes.
Yes, perfect.
Okay, perfect. Thanks for taking my questions. Two, you talked that you would want to grow at least in line with the market. Where do you actually see market development in 2024, especially when you compare it to 2023? I would assume that destocking is becoming less of a topic this year.
I think you said that pricing is flat. If you could maybe contrast that for us, I think structurally the market's probably at around 6%. Would you say that the market picture is getting more bright here this year? Then connected to that, I'm trying to understand where this step down in underlying growth comes from 2023 to 2024. Would you say it's then harder to get to the lower end of your guidance if the market is at 5%-6% and you have the COVID headwind? Essentially, would something have to break or go wrong, as you said, to actually reach the lower end? Thank you.
Quick answer to your question. One probably can spend not only hours, but days, weeks, or months on market research.
When we talk about average market growth in the CDMO space, we take the 6% and measure that ourselves against that figure. When it comes to the second question, it would be Reto to provide an answer there.
Yeah, that's the bridge from the 2023 actual of the underlying business to the 2024 guidance, if I understand you correctly. No doubt 2023 was a fantastic year for us, and all really went to plan and well, so that was great. There's two topics which differentiate 2023 to 2024. On the one hand side, we spoke about it, portfolio optimization, that mid-teens millions CHF of sales, that accounts for between 1% and 2% of growth. Then secondly, the 2023 aggregate in sales also included passed-on inflation to customers as well as the 2023 numbers included that as well, and we expect that to be neutral in 2024.
Thank you very much.
Thank you, Finn.
With that, we would like to close this Q&A session. Once again, thank you for coming here and dialing in online. For those who would still like to chat with us, we have some refreshments prepared next door. Then please take note, the presentation of our half-year results will be on August 22nd. Thank you so much.
Thank you.
Thank you.