Good morning. Welcome to the presentation of our half-year results, 2024 . I'm together with Reto Suter, our CEO ad interim and CFO. My name is Peter Stierli. I'm the Head of Communications. Reto will first present you the numbers, and then a few slides on our priorities for the rest of the year and beyond. At the end, as always, we will have a Q&A session. You will be able to ask your questions through audio, video call, or you can already now type your question into the text field. This webcast is scheduled for 45 minutes and is about to end at 10:45 A.M. Please note that we will record it. So, Reto, let's get into it.
Thank you very much, Peter. Good morning, and welcome to you all. Thank you very much for joining in today. It's going to be me presenting. Marcel will start in his new role as the CEO on September 1, so in about a week from now. But I know that he's already now very much looking forward to meet many of you at the occasion of the Capital Markets Day and site visit in Barcelona, where he will also present his views and focus areas on our strategy, which will then be called EVOLVE+. And next year, on the eighteenth of February, 2025, it will be him and me again, presenting then the full year results for the full of 2024. Now, let's dive into the numbers. Safe harbor statement. In the first half of 2024, Siegfried has continued to deliver.
We delivered growth, and we also delivered an increase in profitability, and with that, our strong growth of the underlying business has once more overcompensated the significant headwinds. The team and I, we are incredibly happy and also proud that we have been able to continue deliver during this transition phase. The net sales have increased by 3.5% in local currencies. The core EBITDA margin has increased by 60 basis points year on year to now 21.3%, and the core net profit came in at CHF 71.7 million, which is more than 20% more than last year. But the progress was not limited to the numbers. We also kept implementing and delivering on our strategy, EVOLVE.
We have successfully acquired an early-phase CDMO in the US, and we have continued to deploy capital into our existing manufacturing network, increasing capacities and also capabilities. Last but not least, the board has appointed Marcel to become Siegfried's new CEO, starting on September 1. There will be not one day of delay, and execution and delivery of the strategy will just continue. On the back of all of this, we confirmed the outlook for 2024. We 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. Let's go to the numbers. In the first half of 2024, we had a strong underlying business which grew and that overcompensated the significant headwinds. We have discussed these headwinds when presenting the 2023 numbers earlier this year.
First, we had a phasing out of significant vaccines business, which we still had in 2023. And information after this financial year, 2024, this effect will have washed through, and starting 2025, we will not speak about it anymore. Second, the destocking effect. We described this effect as being mid-double-digit for the years 2023 and 2024 combined. Third, portfolio optimization efforts, where we consciously sacrifice mid-teens million CHF of sales from tail-end products in order to enhance our profitability. Now, from today's perspective, all of these effects have materialized. On destocking, we will see a bit more of the effect in the second half of this year, while the quantum will remain constant, and we might even see some of that volume occurring in the first few months of 2025.
The currency headwind, we estimate today that the currency headwind for the full year will be a bit below 1%. But it's clear, our growth outlook of net sales of low single-digit percentages translates into a very significant growth of our underlying business, actually significantly above the market. We have grown profitably also in this first half of 2024. Net sales grew by 3.5% in local currencies. We have again seen a weaker euro as well as a weaker US dollar. To the two clusters. The drug substances business grew by 4.3% in local currencies, which was actually a bit higher than we anticipated, and it grew despite the headwinds that we had from destocking and also from portfolio management. The drug products business grew very strongly, overcompensating the vaccines effect by almost 2% in local currencies.
We were incredibly happy to see that we have seen an increased momentum at the two Spanish drug product sites. Both of these sites grow the number of clients other than Novartis, the number of projects that we take in, and also the revenues. That's really great news. The team at our site in Barberà has just recently been able to enter into a contract which will provide significant volumes for the Barberà site in the years 2026 and beyond. Drug products accounted, in this first half, for 33.7% of our revenues, whereas drug substances accounted for 66.3%. This is the usual reconciliation slide. What adjustments did we do when going from our accounting frameworks with Swiss GAAP FER to our core results. Now, in this first half, this slide looks rather unspectacular. We did just standard adjustments.
To core EBITDA, just one, we reclassified CHF 1.4 million of net interest of foreign pension plans down to the financial result. And to core net profit, we released CHF 0.4 million of a tax-related tax asset. Normal, usual, nothing out of the extraordinary. We have protected our profitability and actually increased it. This is just a very strong picture. We have increased gross profit by 8% to CHF 159.9 million. Core EBITDA grew by 5.1% to now CHF 132.1 million, corresponding to a margin of 21.3%. And core net profit grew 21.8% to now CHF 71.7 million. This is a testament to our very resilient business model, spreading risks across large portfolios and, with a very diversified product portfolio, too.
In addition, all of the measures that we have introduced over the last few reporting cycles, efficiency measures on the sites at the headquarters, continued strict cost discipline, and also the active management and optimization of our portfolio, has again, in this first half, supported the profitability. All of these processes are now part of Siegfried's DNA and will not stop. The journey is not over here. We will just continue to steadily compound and grow, and grow profitably. Let's take a deeper look into my P&L. A few technical remarks. At the beginning of 2024 , we have introduced a new transfer pricing system, properly allocating the risks across the functions and also making sure that the transfer pricing follows our business model. This has led to two effects.
On the one hand side, CHF 2 million in this P&L of IT costs have permanently shifted from COGS down to admin and general overhead cost, and secondly, the tax rate is now a little above 20%, and it came down significantly from the prior period. If we correct the SG&A for this permanent shift, core G&A are actually stable relative to sales, which is good news. One more remark, exchange rate differences came in positively and were reverting partially from the situation at the end of 2023. Now, this is maybe the most important financial statement that I'm going to present today. A strong operating cash flow is the foundation for us to be able to continue to invest into further growth, and I'm happy that in H1 2024, we have delivered a significant improvement in operating cash flow.
Looking at it a bit closer, you see that we had favorable developments, especially in our networking capital area. We have deployed significantly less capital into inventories, and we have kept our accounts payable well in check. We also have seen first contributions from our networking capital improvement program called Falcon. More of that effect, much more, is going to come in the second half of twenty-four and then for the full year of twenty-five. You also see that we have kept capital expenditures came in at the lower end of our guidance, due to deployment speed. That will just continue. And on the financing side, we have continued to deliver. Net debt to Core EBITDA is now 1.31, which is down from 1.64 at the prior period.
On June 14, the holder of the first hybrid convertible bond, with a nominal value of CHF 40 million, has decided to exercise its option to convert the bonds into shares of Siegfried Holding. These shares were then delivered from Treasury, and we have created about 14 million of equity value and, over time, also cash from that. We expect the conversion of the second hybrid bond over the same nominal amount to happen later in 2024. Firepower. On that, on the basis of the strong operating cash flow development, we currently estimate that the non-dilutive firepower available to us is at around CHF 600 million. In addition to these non-dilutive instruments, we can also access equity-linked instrument or then pure equity instrument.
So at this point in time, we see no restriction at all for us to continue to deploy capital into the further growth, into the further profitable growth of the Siegfried group of companies. Sustainability is one of the five core values of Siegfried for many years, and we are considered to be an ESG leader in the CDMO industry. Also, in the first half of 2024, we have made significant progress. Three focus areas in this first half. One, greenhouse gas reduction. We're in the process to validate our SBTi reduction targets, which we will then deliver with CDP reporting for this financial year 2024. As a part of that, we have developed decarbonization plans for the product sites with the largest greenhouse gas footprint, and we are also in the process of developing roadmaps for the decarbonization of all of our 13 sites. Second, the customer perspective.
Sustainability is very important for our customers as well. We have now rolled out sustainability dashboards for our products. These include the analytics of a product carbon footprint, and we also are able now to propose to our clients potential reductions. Third, we see evolving reporting standards in the non-financial area, of course, and we're well on track to prepare our organization for compliance with TCFD and CSRD, including the limited assurance provided by our auditors. We are incredibly happy that also external rating agencies recognize the significant achievements that we do in the sustainability area, and you see the badges of honor below. It's just our ambition to defend these ratings and obviously also to improve them. I'm coming to the outlook now. We will just continue to deliver our strategy, EVOLVE.
We will continue to deploy capital into attractive growth opportunities, which we deem attractive and which are available to us. We will continue to do that in two forms. On the one hand side, through M&A. On the other hand side, through organic investments into these growth topics. And with that, we will be further growing profitably over the next many years to come. We will also continue to group these growth options into three buckets: the existing core, things that we already own, adjacencies, somewhere close to what we do, but we are also not shy to deploy capital into totally new areas which we deem attractive. Marcel will speak at the occasion of the Capital Markets Day and site visit on October twenty-four in Barcelona about his focus areas of the strategy then called EVOLVE+.
And now let's do a quick check-in on the internal projects which are ongoing.
The new research and development hub for drug substances in Aviano is well on track to become operational in Q4 2024. The new large-scale manufacturing plant for high-value drug substances in Minden, in Germany, will deliver first revenues in 2025, as anticipated. At DINAMIQS in Schlieren, in Zurich, the build-out of the commercial capabilities is well on track to conclude towards the end of 2025. Now, in terms of mergers and acquisition activity, the last successful acquisition, the arrow has struck in the grow existing core. On June 10, just a few weeks back, we have been able to announce the successful entering into binding agreements with Curia Global. On July 1, that transaction has already closed, and the Siegfried Acceleration Hub is now in business.
Actually, since the closing, it already has attracted more than a handful of projects from existing clients, but also from new clients, and we're happy about that progress. Now, what did we buy? Just to recap. We purchased a CDMO specialized in early phase development and manufacturing services in Grafton, Wisconsin, in the US. On the map to your right-hand side, you see where Grafton is located, also in relation to our two existing sites in Pennsville and Irvine. At the bottom, in the photograph, you see the facility in the back, but more important, you see the team in the front. Actually, at the day of the closing, very happy people. And all of us are excited as well to welcome the Grafton team to the Siegfried family. Now, what will we do with this facility? We will develop it into the Siegfried Acceleration Hub.
which will provide early phase development services in drug substances, something that we could not do before. Why do we call it the Acceleration Hub? We call it the Acceleration Hub because we are now able to tap into molecules which we have not been able to access before, at earlier stages. This will, over time, lead to an acceleration of our growth trajectory. These are the phases of clinical discovery. So far, Siegfried has entered a client relationship typically at the end of phase two. The focus there was on high quality, very robust GMP manufacturing at industrial scale already. After the launch, we have provided commercial manufacturing out of our high quality global network of large scale API manufacturing plants.
Now, with the inclusion of the Siegfried Acceleration Hub into our offering, we become much more attractive and much more relevant to our customers. Because we can now offer the full range from preclinical development services through to commercial manufacturing, and actually ending with the fully formulated drug product. We think that this integrated offering is specifically attractive to small and medium-sized pharma companies, which are typically lacking the resources to change suppliers after preclinical and phase one. And it's also good to know that 80%, actually more than 80% of the products and projects in these early phases are owned or driven by small and medium-sized pharma companies. And with the Siegfried Acceleration Hub, we are able to tap into that attractive pool of new clients. It's also good that we have been able to expand our footprint in the U.S.
The U.S. is today the largest pharmaceutical markets in the world. What are our areas of action today? While the strategy EVOLVE describes the what, so the growth options available to us, the value creation options available to us, the how is very important as well. It all starts with operational excellence, because it is an immaculate delivery performance towards our customer, which keep our customers happy. And this is also the basis for the acquisition of new customers. But also, to me, as the CFO, operational excellence matters very much, because the reduction of non-quality cost and the reduction of deviation to standards has a significant impact on my P&L. So this will also be one of the sources for future profitability improvements. Second, commercial excellence.
We are in times of elevated macro uncertainty, and it's incredibly important that we protect our company's position against inflation, foreign exchange movements, and also demand in volatility. The commercial excellence frameworks are also the base for the improvement of working capital and the enhancement of the cash generation for the group. So also commercial excellence will be one of the key focus area going forward. Then third, portfolio optimization. This is about to make sure that the marginal Swiss franc of capital finds its way to the highest yielding opportunity. Here, existing capacity always competes with new capacity, and it's our task as the management to make sure that also the existing capacity is sweated properly in order for returns on capital to steadily increase over time.
Now, portfolio optimization for us is also a very important tool to manage capacity utilization across the network, and it will also be one of the significant sources of future increases in profitability. Now, let me conclude and summarize. Siegfried journey goes on. We will continue to deliver on our strategy, EVOLVE. We will continue to invest into our global network, and we will also continue to execute on value-creating M&A. We will not be restricted by the availability of funds. Again, CHF 600 million of non-dilutive firepower with the options to get more. On the way there, we will optimize our portfolio of projects, our products, technologies, our assets, and we will focus the whole organization on the execution alongside the operational excellence frameworks and alongside the commercial excellence frameworks. And with that, I'm also able to confirm the positive midterm outlook.
We will just continue to grow profitably at or above the market. And again, this excludes M&A, so M&A is always on top. On the way, we will stepwise expand the profitability, and with that, also increase the cash generation. Capital expenditures, we see over the cycle at low teens of net sales. We also confirmed the outlook for 2024, and expect a sales growth in the low single-digit % range in local currencies and the Core EBITDA margin at or above the level of 2023. I would now like to draw your attention to the next important dates. I mentioned it a few times during this presentation, Capital Markets Day site visit in Spain, taking place on October 24. It's the opportunity to meet Marcel, and also to listen to his presentation on future focus areas on the strategy EVOLVE+.
We will also offer a site visit of our attractive site, OSD site in Barberà in Barcelona. On the eighteenth of February, then in 2025, Marcel and I will together present the results for the full year, and the AGM in 2025 is scheduled on April ten, here in Zofingen, as always. With that, I have concluded my presentation. I would like to thank you very much for your attention. We will now take just a few moments to prepare for the Q&A, and we'll be back shortly. We
will now start with the Q&A session. As always, you can ask your question directly in the text box, or you can press the audio call, video call button, and you will be directed to the operator, who will put you in queue. The first question is from Barbora Blaha. She asks about Minden: Is Minden on track to go online in 2025? Is it rather H1 or H2? What kind of products are we going to produce there? Is it more of the existing products or new products? And how long does it take for the optimal utilization?
Okay, that's quite a number of questions, Barbora. On the timeline, we are on track. So we are on track for delivery of first revenues out of that facility in 2025. Of course, we want to have that as quickly as possible, so we are shooting for H1 2025. As always, quite ambitious people. On the product side, this will be both new and existing products.
It will be high-value products, you know, which we will produce in these very modern and state-of-the-art large-scale facilities. And then the ramp-up, don't expect that facility to be fully utilized at the end of 2025. So this will take a few years. From the way of thinking, we know for about a third of the capacity, pretty much the products and the clients which will go in there. For an additional third, we have very concrete idea, which are not yet signed up by contract. And about a third of the capacity is still available. And this is also the way how it should be because, you know, without that added capacity, we would have planned that capacity to be too small.
So we are excited to see this new manufacturing building come on track in 2025.
Thank you, Reto. The next question is from Sibylle Bischofberger. Good morning, Sibylle.
Good morning, everyone.
Hi, Sibylle.
Thank you for taking my question. I have two. I would like to start with CapEx. I was a little surprised about the lower level of CapEx you invested in the first half. Could you say something about what you expect for the full year, 2024 ? And in the midterm, you have the CapEx guidance of low teens. Does anything change? Does it move from the 2024 to the next years, or is it all... Is everything okay there? And the second question is about the drug products. Could you say something about the underlying growth? Was it as expected, still mid to high single digit, excluding the COVID effect? Thank you.
Yeah. I mean, thank you very much for these interesting questions, Sibylle. Let's start on CapEx. Now, why did we guide higher this year than the years to come? It's clear. We do have an accumulation of a few projects, the R&D center in Aviano, we have maintenance, and we also have DINAMIQS, which led to this higher guidance. Now, why did we come in somewhat at the lower end of the guidance? This was due to deployment speed. We deploy very carefully, and we think that this will catch up in the second half of 2024. And then for the full year we will be ending up maybe within the guidance, but maybe at the lower end of that. We don't think that there will be an effect into 2025.
So 2025, we will be again at the low teens. On the second question, drug product, yes, indeed, we are incredibly happy about the development of the underlying business in drug products, and specifically happy that this came from an increased momentum at the two Spanish sites. I mean, I leave the math up to you, but yes, if you do the calculation, you end up with a significant above-market growth for drug products.
Thank you.
Thank you, Sibylle. The next question is from Charles Weston. Good morning, Charles.
Good morning.
Charles, can you hear us? Charles? Okay, then maybe in the meantime, another question from Stefan Wolf. He is interested to know more about where we plan to deploy our firepower. In which areas do you think Siegfried could benefit most from external growth? And rather bolt-on acquisitions or larger acquisitions?
Yeah. I mean, very, very good question, and we have to see that at some point an M&A strategy becomes quite opportunistic, no? Because when it hits the opportunities on the ground, which is one of the reasons why we offer a broad range and actually many attractive opportunities for us to deploy capital. So we indeed could imagine to deploy capital into something in the existing core area, so more of the same as we still see significant value of additional scale. We could, for example, foresee to increase our development capabilities in the drug products area, just as one example.
But we also see value in the more technology-related areas in the adjacencies, particle technology mainly, and we would also not be shy to deploy something into the new areas, as we have done with DINAMIQS.
Thank you. So let's try again. Oh, now we have Konstantin. Konstantin, good morning. Please go ahead and ask your question.
Good morning, gentlemen. Thank you so much, Reto, for taking my question as well. Maybe a few, if I may. On the strategic side, we spoke and also we see about that you expand your reach into early-stage projects, first with the acquisition of DINAMIQS and also now with the Grafton site. So I would just like to hear, maybe your view on the underlying CDMO sector trends that we see. And I think if we look at some of your, let's say, broader CDMO peers, you see that they rather concentrate on fewer large-scale products, whereas you're going basically a bit in the, in the opposite direction. That would maybe be my first.
The second one on DINAMIQS. I think here the key is also to bring you to or bring a quite nice pipeline over the next one, two years. I think we heard now first signs that the early-stage activity in the cell and gene area is improving again. Is that something that you also see, and how is then potentially the pipeline developing at DINAMIQS currently? Maybe my last, if I may, on portfolio optimization. Maybe you can give some more color. I think if I understood correctly, that's something where you think there's still more room over the next years. What could be the drivers of this?
Is there still a replacement of legacy contracts with lower profitability, or is it maybe also, let's say, rather coming from a technical review of what is achievable capacity utilization, which might vary from product to product? So what are the drivers of that?
Yeah. No, thank you very much for these interesting questions, Konstantin. I have written them down, and I tried to remember where you started. So first on the CDMO sector trends and also getting into the more early phases, so the development part, the D in the CDMO, no? So the D in the CDMO for us is increasingly important. It will be one way to actually accelerate our growth trajectory. Because, you know, these are clients which, you know, once you have them, especially if they're coming from the smaller and mid-sized pharma companies, you will not lose them again. Because it does not make any sense for them to change if you're able, as a CDMO, to offer them actually the full supply chain down to the fully formulated drug product.
This is an attractive opportunity which not many CDMOs can provide. We can, so this is an incredibly attractive area. Obviously, we get a lot of questions about the risks. You know, obviously, these companies are young, and there will be funding topics at one or the other. This is improving now, but this will be. We will again solve that risk element by a broad diversification. So also at the Siegfried Acceleration Hub, also at DINAMIQS, we intend to create large portfolios of these type of products in order to increase the chances to have one winner which makes it into commercial manufacturing, leading then to a sales acceleration. On DINAMIQS, the pipeline, yes, indeed, we see an improvement.
Internally, we have just finalized the go-to-market strategy for the DINAMIQS team, which is by now actually also complete. And since the takeover, we have indeed signed a few attractive projects. On portfolio optimization, this is primarily a tool to increase the profitability of our company. And the nice thing about portfolio optimization is that it's never over, because in every given portfolio, you will always have a tail end. Just the average profitability of the portfolio increases over time, but you will always have a tail end. So this is a process and a tool, the optimization, which will be ongoing, and this is now fully embedded also into our management processes. There is a technical aspect to it, so we use portfolio optimization as well.
You know, when it is around capacities and capabilities which we do not have in abundance, then we use that tool as well to shape our capacities.
Thank you so much.
Thank you, Konstantin.
The next question is from Charles Weston. Charles, can you hear us? There seems to be, I think, an issue with your audio connection. Florian, can you please put the next person up in the queue?
Ania speaking. Good morning, Reto. Good morning, Peter.
Good morning.
A couple of questions from my side, if I may. I know that Marcel is going to speak about the EVOLVE+ strategy in October, and of course, you don't want to preannounce anything from that part. Just sort of to get a little bit of a feeling, you also mentioned, Reto, today, I mean, you have the three pillars in the EVOLVE strategy. So the EVOLVE+, does it sort of mean an additional pillar, or is it more an acceleration of the three pillars, or is it sort of a kind of... or shall we think about a refocus of the three pillars? If you could mention maybe on something, you know, a little bit as a guidance on that.
In terms of tax going forward, what can we expect, sort of more to keep on the 20%, or, what is sort of your guidance? My last question would be: you mentioned in the presentation as well as in your speech today, Reto, the momentum which is coming from Spain. You mentioned specifically significant volumes, because of a new contract. So are we to expect, a growth rate in the high single digit to low double digit, sort of in the years to come?
Mm.
These would be my three questions. Thank you.
Yeah. No, thank you very much, Ania. Very interesting questions. On EVOLVE and Marcel and the Capital Markets Day in Barcelona, I'm honestly not going to preempt, you know, what Marcel is going to present on October twenty-fourth. However, what I can say, the strategy EVOLVE was highly successful in the past seven years. So do we see a necessity to change that strategy fundamentally? No, we don't see that. But obviously, Marcel, as the incoming CEO, will have focus areas which things are important to him when executing on that strategy, EVOLVE. So don't expect any disruptive changes to that strategy. So much I can tell you. On the second element, which is the tax rate, yes, that's now a bit above 20%.
This will go maybe next year, the year after, a little under the 20, but not to 10. We pay our fair share of taxes in all the economies where we do business. To the situation in Spain, we are indeed incredibly happy about the increased momentum that you see at the Spanish plants. We have seen that for quite some time on the El Masnou plant, where we see or have the visibility into an optimal utilization over the next few years, and that is great. Barberà was a bit slower in the pickup, you know, also a very large site. We are now happy that also in Barberà, we have signed up significant volumes to become active in 2026 and beyond.
Okay. Thank you.
Thanks, Ania.
Thank you. The next question is from Ed Hall. Ed, can you hear us? Can you go ahead and ask your question? Good morning, Ed.
Hi, Ed. You're on.
Hi, guys. Yeah, just a couple of questions from my side, I guess maybe more on the shorter term. Could you just talk on any differences to H2 shutdown or maintenance that you sort of see or plan in 2024 versus 2023? Is there anything to deviate away from the typical seasonality you see in margins? And I guess maybe for the first two months of H2, has there been any major issues or effects that you could comment on? And then, like, I guess more of a maintenance question for my second one, but just on from the full year 2023 results, you provided some diversification metrics. To what extent have these changed, albeit at the customer life cycle or product level? Thanks.
Yeah. I mean, on diversification metrics, there's no change. You know, we don't see changes from months to months, so, in the middle of the year, we basically are where we had been at the end of the year, which was the last set of numbers reported on. On maintenance shutdowns, these are, of course, included in our, you know, analytics around the guidance. So, we see, especially in the drug products area, the maintenance shutdowns to take place mainly in the second half of a year, and specifically in Hameln, in Northern Germany, we will have a bit of an extended maintenance shutdown due to the fact that we are cutting over our ERP from SAP R/3 to SAP S/4.
Obviously, as we know that for quite some time, we are also preparing the organization, you know, to make up for that. To pre-produce in order not for these shutdowns not to have a significant effect on the weighing between H2 and H1. Drug products, you know, it's quite uniform between H1 and H2. In the drug substance area, the one comment that I made is that, you know, we expect a bit more of the destocking effect to take place in H2, with the whole quantum of the destocking described, you know, being constant. Yes, now you ask about current trading two months into H2. This all has been properly considered when assessing the guidance, and I just come from confirming this guidance for 2024.
So nothing major.
Great. Thank you very much.
Thank you. So we do have time for one more question, and the next person in the queue is Gary Steventon. Good morning, Gary.
Hi, thanks for taking the questions. On a drug product and then one drug substance, please. So on drug product, you mentioned the increased momentum at the Spanish sites. Can you just talk to whether we should now be expecting an inflection in contribution there as the momentum more than offsets the decline of the legacy contracts? And then, I guess, looking at drug product, given the maintenance shutdowns that do fall into the second half of the year, perhaps you could just frame your level of confidence that drug product as a whole grows in CER in 2024. And then secondly, just on drug substance and thinking about pricing, you've spoken to price being neutral across the portfolio this year, so now we're in late August, how confident are you in keeping pricing neutral?
And then how should we think about the contribution of price into 2025? Thank you.
No, thank you very much also for reaching into 2025. On your drug products question, Gary, on the Spanish side, indeed, we see increased momentum, and we now, for both of the sides, actually see a clear trajectory into optimal utilization. Now, just to be clear, we do not optimize these two sides for top-line growth. We optimize and will optimize now that we see the cost absorption way going forward. We will optimize these two sides for cash generation, which means that also profitability of the portfolio produced there will be important for us. So, if you speak of inflection, we will see inflection in terms of profitability, yes.
Then on the H2 contribution of the drug products cluster, as mentioned, we will see about an equal weighting for the drug products revenue delivery between H1 and H2. So while we will have the maintenance shutdown in H2, we have been preparing for that and will compensate for it. So don't expect a much weaker H2 for drug products. On the drug substances side, thank you very much for the question on pricing. That's an interesting and an important one. So in the first six months of 2024, we have been able to keep pricing neutral. Actually, this was the ambition, this was the intention, and we have been able to deliver on that as well.
So that, of course, in itself has been a component in the increase of the profitability from H1 2023 into H1 2024. On 2025, it's a little early to speak about 2025. I think looking at the main moving blocks, you know, that we have, then, of course, in this environment where actually energy prices spot are still coming back, we can expect some tailwind from raw materials in the drug substances side. We can expect some tailwind from energy cost, that we will see, will a bit smaller the effect than from 2022, from 2023 into 2024. But in turn, we will see continued wage inflation going into 2025.
I mean, some of the negotiations just ended, and we will see increases in Germany, to a much smaller extent, also here in Switzerland. But difficult to say more than that at this point in time, Gary.
Okay, thank you.
... Thank you, Reto. We have time for one last question, and this is from Finn Schertz from Deutsche Bank. Good morning, Finn.
Hi, Finn.
Yes, hi, and thanks for squeezing me in here at the end. So if I can maybe also touch upon the 2024 moving parts, can you maybe give us some color on how they developed against your own expectations? So now, you shared that destocking is actually likely more pronounced in the second half and might also reach into 2025. So, has this taken a bit longer than you expected, or was the 1H impact actually softer than you initially thought, or is it a larger number overall? That would be very helpful. And then maybe also on the cost savings and portfolio optimization measures, is there more to come in the second half?
So, what I'm trying to get at is your first half CER growth looks actually very strong, and I thought that growth would actually be even stronger in the second half. So if you can help us understand the moving parts there, and why there would actually be a deceleration in the second half. And I think given the operating leverage, so in total, second half should be higher. The margin should be further up, right?
Yeah. No, I mean, we're very happy to take that up. I mean, in terms of vaccines, that's as expected. In terms of portfolio management effects on top line, that's as expected, which is why I only commented on the destocking element. I mean, first, and this is a very important statement-
Mm.
... we don't see any change in the quantum that we described, you know, when, for the first time, introducing destocking. So this mid-double-digit CHF million for 2023 and 2024 combined has not changed. The phasing was a bit less compared to our expectation now in H1, which is why, you know, also, the 4.3% growth rate in the drug substances area at local currencies was a bit better than expected, actually. Some of that will now come in the second half of H2, which can have an impact on the growth of the drug substances area in H2. In terms of profitability, yes, of course, we still have higher quantums in H2, and that will certainly help the profitability also in the second half.
In terms of cost saving, we will just continue to save costs. So keep the cost at least at the same levels, as we have seen it in the first half of 2024.
Thank you very much.
Thanks, Finn.
Great. In the name of the Siegfried team, we would like to again thank you for dialing in to this call. We are looking forward to meet many of you on our Capital Markets Day and site visit in Barcelona on October twenty twenty-four. With that, we are closing this call. Thank you again for dialing in, and have a nice day.
Thank you very much.