Earnings Call: H1 2020

Aug 20, 2020

2020. With me together is Wolfgang Wienernd, our CEO and Reto Suckter, our CFO. We will guide you through the slides, which you find on the Internet or if you join us by laptop, you also can see my desktop. We will put you on mute during the speeches of Wolfgang Wiener and Reto Suso. And at the end, we open the Q and A session and then the channels will be open. May I ask Wolfgang to comment? Yes. Thank you, Peter. And also a warm welcome from my side and thank you for joining. As always, we try to condense our key messages into a telling title for our presentation when talking to you. Today, for obvious reasons, we, of course, need to relate to the coronavirus pandemic, which However, it's not doomsday. And we are happy and while not giving up on humbleness, a bit proud that we at Siegfried have been able to resist and continued to grow against that background of challenge and uncertainty also in the first half of twenty twenty. But now let's move on and start with the inevitable. Please note our Safe Harbor statement with regard to forward looking statements that I myself or Rito or Peter will make during the course of this presentation and the Q and A afterwards. So let's have a brief look at the agenda. We start with an executive summary on status and outlook by myself. Then I will hand over to Reto, our CFO, who will then talk about specific facts and figures before I will take over again, talk about strategy and provide some further reflections on the situation and the state of the company before we will then open the channels for you to ask questions and for us to answer these questions. So now we move to the executive summary in which I will essentially point towards all main messages and contents on which we will then touch upon in more detail later in the presentation. So Siegfried coped well with COVID-nineteen and managed to be continuously operational with some minor interruptions, and I will talk to that later. And Secret has been able to maintain its growth momentum. However, top line growth and as a consequence of that, profitability didn't reach our pre COVID-nineteen expectations. Net sales amounted to CHF 388,100,000, which is a growth of 2.2% in local currencies and a minus of 1.5 percent in Swiss francs. Core EBITDA achieved the level of 58,100,000 dollars at a core EBITDA margin of 15%. I think a strong message and an important achievement in times of crisis is the increase of our free cash flow up to CHF17,100,000 which is more than 50% more compared to previous year. Some initial Some initial reflections on the COVID-nineteen challenge to Seapri. Maybe let's start with markets and demand. So what did we experience there? In the end, affecting and influencing our top line. While overall robust and growing, which I think is an important key message, we of course saw increased volatility in demand of specific product groups. I mean, we have products which are used in the direct treatment of COVID-nineteen patients, which obviously increased significantly increased in demand to a point that we couldn't actually serve the whole demand. But we also saw other product groups for not lifesaving, not essential therapies, treatments, for example, ophthalmology, where it's clear that the related treatments and therapies were postponed to give preference to the acute care of COVID-nineteen patients. And as a consequence, our customers didn't have patient access and needed less volumes of these kind of products. Overall, robust and growing, however, significantly increased volatility. So that was, let's say, the outside world. Now let's briefly look at Siegfried ourselves and what we do. I mean, we are a manufacturing company. We need our people on-site. We need our facilities up and running, sweating. But also here, we saw also for obvious reasons, and I will share some insights in a minute, an increased volatility in technical operations and thus in production output. Coronavirus pandemic is a kind of a test of the secret machine. The secret machine consisting of 9 global sites essentially in all regions, roughly 2,700 people working for Siegfried hands on, doing stuff, managing complex processes. And as I said before, looking at our ability to deliver growth against all odds, I think it's fair to say that the secret machine actually passed the test. However, what did affect our performance in the first half twenty twenty? First of all, some delays in the supply chain. So availability of raw materials due to lockdown measures in the regions where the specific supplier is located. More importantly, we reduced availability of workforce from increased absentee rates as a consequence of not so many cases actual infections. We had some, but not so many, but very strict quarantine measures. What's important and will also be our guiding principle going forward, we need to keep our people safe. And we need to be sure and always have the ability to the degree possible to contain an infection and not create a hotspot, so that we can actually keep our sites up and running. We also saw delays in some maintenance repairs by third party providers because their experts, their technicians couldn't travel. And I have 2 specific instances in mind where actually important bottleneck equipment has been affected and was down for a longer period than time of time than usual. I mean, furthermore, and we took a slight hit in this regard. Selectively, we saw increased raw material prices from temporary shortages. I mean, it's the obvious candidates here, ethanol and isopropanol, which are used to manufacture disinfectants. And acetonitrile, quite a popular solvent. It's a coupled product related to the polymer industry also saw shortages leading to significantly increased prices. So that's as a short snapshot on the COVID challenge to Siegfried. Now let's move on to the next slide. And I want to start with a brief statement with regards to our business model, and we will further elaborate on that later in the presentation. But long story short, our business model has proven to be intact. And also based on that finding, based on that conviction, we continue to have a generally positive outlook for our company. As a result of that, it was our decision to, of course, not change or cut our short term CapEx plans. I mean, in terms of prices, you might I mean, you will be aware of liquidity, of course, and we will come to that later as well. And considering cutoff CapEx is an obvious possibility. However, we didn't do that for good reasons, which is business model fully intact. We see growing demand over time and we need technologies and capacities ready to serve this growing demand. What did it mean specifically for 2020 first half? And what will it mean going forward in 2020. In August, we kicked off our leadership development program as a key part of the Secret Academy, an initiative that we launched a year ago, which is investing into the skills of our people. They are one of the most important assets that we have, and we are convinced that it makes sense to continue to invest into our people at any time. We also invested in brick and mortar and steel. The micronization facility in Iberona is essentially ready and will become operational in the second half of twenty twenty and will add a large scale commercial scale technology for the treatment of drug substances materials. We also took into operation early in 2020 high pressure hydrogenation facility and so forth. It's a pretty rare technology and something which will be very attractive for certain products, certain processes of our customers. On the drug product part, we decided to actually install new aseptic filling lines in Harmon and Irvine at the end of 2020 and in Irvine within 2021 because that's an important growth segment in our portfolio, which we decided to and will continue to strengthen in the future. We also decided and started a stepwise increase of our overall oral solid dosage form capacity in Malta to really provide more capacity for the increasing demand of our customers and what we continuously invested into debottlenecking investments essentially on all our drug substances sites. Besides these short term CapEx initiatives, we also went through an almost 1 year long process of a strategic site masterplanning for the entire network with the outcome that Siegfried will continue to invest into new plants, new technologies and people in order to prepare our company for continued growth mid to long term. Having said all that, I briefly summarize our guidance, which is despite uncertain macro environment and with obviously significantly limited predictability due to COVID-nineteen, the outlook for full year 2020 is unchanged, low single digit growth of sales in local currencies and a slight expansion of the core EBITDA margin. Also, the midterm outlook is confirmed, profitable organic growth in line with the market and local currencies with the ambition to outgrow including selective and value accretive M and A. So that is the point in time when I hand over to my colleague, Ritu, who will take you through our financial figures. Thank you very much, Wolfgang. And let's dive into slide number 7 for the facts and figures part. And again, all of us are really happy to report that the Siegfried group has grown again in this first half of twenty twenty by 2.2% in local currencies and a minus of 1.5% in Swiss francs. As you're aware, there was a strong currency headwind in this first half of this year. The euro has depreciated against the Swiss francs by almost 6%. And also, the 2nd important currency for us, the U. S. Dollar, has depreciated against the Swiss franc by more than 3% from parity in the first half of twenty nineteen to 0.966 in H1 2020. As you know, we usually do about half of our sales in the euro and about 20% in the dollar, and this explains the strong currency headwind of minus 3.7%. We're always eager, obviously, to minimize the currency impact on our margin. We do this by applying a natural hedge, so balancing revenues and cost in each of the important currencies. And we have managed to do that quite well in this 1st 6 months of 2020. Now when going to the two business lines and adjusting for the 3.7% currency headwind, you will see that both the drug products as well as the drug substances segment have shown growth in local currencies. Growth was slower in drug substances, which has been somewhat expected as this is the segment that the line of business which had been more affected by COVID with the extended long term shutdown. And as just mentioned and illustrated by Wolfgang, the delays and other factors in the supply chains. However, the drug products business has shown a strong growth, 6.7%, fueled mainly by the aseptic and sterile film and finish operations. A question I got a lot over the past few weeks and months was, well, how would 2020 have looked like for Siegfried without COVID and its impact? And when answering that question, I always referred back to prior annual guidances, which used to be at least mid single digit or the midterm guidance, growing with the market, obviously, with the ambition to outgrow. And when we apply this thinking to H1 2020 and just for adverse FX effects, we end up with lost sales somewhere in the region of CHF 10,000,000 to CHF 20,000,000. I will refer back to that number again when I will discuss the COVID effects to the core income statement. Let's move to the next slide, Slide 8. This is the standard core framework slide, which should help you to understand the adjustments that we have applied to core in the first half of twenty twenty. These adjustments have been very minimal, as you can see. On the core EBITDA level, we have only adjusted for the current net interest on foreign pension obligations, which means that we have taken out CHF 0.5 million out of operating expenses and adding them back to the financial result where we think they should actually be allocated to. Then on the net profit level, the adjustments to core net profit, we have reversed a portion of the tax effect, which came as a result from valuation step up that we have consumed in 2019 as a result of a change in Swiss tax legislation. Remember, we have adjusted the full tax benefit when we calculated core net profit 2019, And we are now steadily reversing exactly that effect over the course of the next 5 years. So this adjustment will come back every 6 months. Now to the consolidated core income statement, and then now on Slide 9 of the presentation. Maybe the overall picture. Overall, we report a reduced gross profit and also lower non product related cost elements, so the SG and A. And in combination, the savings that we did in SG and A have compensated for about half of the reduction in gross profit. This is the fact pattern. Now let me try to illustrate the COVID impacts on this set of numbers. We have already done that on the sales side, where a loss of production time, delays into some supply chain, amongst other factors, have led to a lower growth than originally expected. However, the cost of goods sold, so the cost side of the P and L, has been impacted by COVID as well. Obviously, in preparation for a much stronger 2020, also for the first half, we have been laying the foundation, meaning hiring the people, preparing the infrastructure for a larger business volume, which due to COVID, did not materialize. So these additional costs have not been absorbed and ended up as idle cost, nonproductive costs, which are also part of the COGS. So you will see them there. As mentioned by Wolfgang, we also have incurred higher procurement costs for some materials. However, these price increases really have been significant. And on the overall cost element in COGS, there was not much flexibility for us to act upon because when you have high absentee rates and very strong expectation of a strong H220, you require and will still require the full workforce on board. So not timely to make any changes. Now let me try to put some numbers to the effects just described. So the €10,000,000 to €20,000,000 of lost sales, we have established that number already earlier. And now as we had the people and the machines basically in place, account for as idle cost, so already sitting in COGS, already there, larger part of the €10,000,000 to €20,000,000 actually drops down directly to the profit line, so EBIT, EBITDA, without incurring any incremental cost. Obviously, we would then have to take out a higher procurement cost and obviously add back some cost elements, which we did not occur incurred due to COVID, so less travel. And on that basis, with everything else unchanged, we would have arrived at a core EBITDA margin somewhere north of 17%, so higher than last year. Now next to the COVID effects, let me quickly point out 3 details on that slide, which are important. Firstly, as indicated in March this year already, the R and D costs have normalized to a share down to 4% now of sales. Secondly, and important for us as well, the core financial expenses are trending down, which is a direct result of us concluding the new syndicated loan facility. And thirdly, the depreciation line, noncash element is ticking up a little, a result, obviously, of past investment activities. Slide number 10 then summarizes these effects as just described. Again, a good result overall with gross profit at CHF72,200,000, core EBITDA at CHF58,100,000 core EBITDA at €31,300,000 and net profit at €21,500,000 Now an important slide is obviously the cash flow statement. And as you can imagine, we have been monitoring cash generation and obviously associated with that working capital even more closely than we usually do in normal years. So I'm really happy to report an increase in that important metric, cash generation, despite the challenging environment. Operating cash flow has grown to CHF 45,000,000, which is a plus of 8.4% to the prior period. As you saw, I'm sure the main contributor to this positive development has been the positive development in net working capital. And within net working capital, it has been mainly the inventory position, which has, as we have already indicated already in March when we presented the 'nineteen numbers, has normalized after buildup, especially of semi finished goods at the end of year 2019. You also see that the cash flow from investing activities accounted for €27,900,000 so pretty much on track tracking the last year. And as a consequence, also the free cash flow has grown to €17,100,000 If you analyze the cash flow from financing, and this is obviously affected by the fact that we have not been paying a dividend in H1 2020, but rather did a repayment of capital, which has occurred in July 2020, so in the second half. That you will find then in the cash flow statement for year end 2020. Important here, if you analyze these numbers, it's also worth noting that there also have been instances during COVID where we have intentionally increased inventory position during this first half of 2020, and I will illustrate that matter on the next slide, so Slide 12. Just a brief overview on our activities related to supply chain and procurement. It's worth noting that we have, in these functions, entered the COVID crisis quite well prepared. We have started to assess and act upon single sourcing risks already 2 years ago, back then as a response to sourced from China already established a second source when COVID hit us, and this has helped us tremendously mastering this current crisis. However, in early March, we have then begun to assess the sourcing risk that we had in a very disciplined and structured format. This was a significant effort, which has taken a lot of time and effort as secret sources between 1,000 and 2,000 materials per year. The assessment was done by applying value criteria, and we ultimately decided for only a few selected raw materials to either purchase them early, which is well suited to reduce the sourcing risk as you basically account for delays or you even purchase safety stock, which then eliminates the sourcing risk completely. The overall effect on net working capital in H21 is somewhere in a single digit Swiss franc number, which might increase for the full year of 2020 when we continue exactly what we have done. However, from an organizational development point of view, this is one of the examples, and we have also within the firm that actually the COVID situation served well as a catalyst for high impact organization development. The last slide in my section refers to our capital structure, Slide 13. As you know, the first call date of our first tranche of hybrid bond, this is the 3.5% bond, is coming to a first call date on October 26. And it will not come as a surprise to you that we still have the intention to exercise our call right and to redeem that tranche, that hybrid bond, funded by a further drawdown on the new and extended syndicated loan facility. There are a few effects, obviously, from that when we implement that. The first one is a very positive one. We will have a significant cash saving. The hybrid's coupon is CHF 3,500,000 per year. The interest on this indicated loan will be much lower, so more in the 100 basis point range. However, you have to consider that the SEK 3,500,000 so far have not been part of financial expenses. SD hybrid has been accounted for as equity instrument, but the additional syndicated loan portion obviously will be. Then for the same reason and with the same risk metrics applied and unchanged, we will observe an optical small increase in the leverage ratio, calculate the net debt divided by EBITDA. So let's take some easy numbers for year end. Let's assume €200,000,000 of net debt and €150,000,000 of EBITDA. We derive at a leverage ratio of 1.3, up from the 0.7 that we currently observe. And now to preempt the question, which obviously is an important one, is will this move have an impact on our ability to fund future acquisition? You know, and this is unchanged, speaking to investors, I understand that the leverage ratio of between 3.54 for a limited period of time seems acceptable. Now if you use the same EBITDA number for year end, the 150, not taking account any acquired EBITDA and applying the ratio of 3.5, we arrive at a non dilutive funding capacity of a share of more than SEK 500,000,000, deducting the €200,000,000 that we mentioned of anticipated net debt. At year end, we arrive at 3.25 1,000,000 free non dilutive funding capacity. This is a number which obviously will increase over time as net debt will decrease due to positive cash generation and EBITDA will increase as a part of our operational leverage. So to cut a long story short, yes, that move will not impact our ability to fund future Yes. Thank you, Retho. And Yes. Thank you, Retho. And I promised a few reflections on COVID. What did we experience so far, what do we expect going forward and also put these experiences into context when it comes to business model, strategy and so on. We'll briefly talk about strategy later on as well. But let me start with the Slide 15. Actually, I mean, this has been have been challenging times, interesting times as well, because at least myself and I think nobody else really experienced that kind of crisis before. And we I mean, while having hard work to do and had hard work to do in the first half, we also have been encouraged a lot by the support of our different stakeholders. And I will briefly guide you through what we did as a company and what we plan to do going forward to be safe and at the same time keep Siegfried on track. In these times and even more than usual, having clarity about the core values, which are the mental framework for our actions, having clarity about the mission, so the why, what are we good for as a company and as a team, and clarity about the ultimate goal, the target, where we want to develop into our company are extremely useful and have turned out to be useful when navigating through this crisis. Let's start with the values. I mean, we have 5 core values, and we could easily incredibly relate to one of them, which is integrity. Translated into specific action, we act responsibly and reliably, meaning protecting ourselves, protecting our people. Specifically, what we did, we could initiate an existing pandemic crisis plan already in January, which was established in 2003 during the first SARS crisis and also further polished and amended in 2009 during the swine flu crisis and had a good pretty good guiding principle document at hand and immediately established a corporate crisis team at the headquarters here in Zofingen, using external medical experts for advice and also installed local corona crisis sub teams who, in the end, managed them on the sites. We also implemented strict guidelines on hygiene, physical distancing, quarantine, home office for administrative functions, tracing in case of infections and very early on testing. And that all helped not to completely avoid infections because that's just not possible. And in all known cases and to the degree we could prove it afterwards, have been carried into the company, but didn't spread within the company. Company. And this is an important learning also for the second half, which of course still poses a challenge to us. And however, we believe that as long as the coronavirus pandemic stays somewhere close to where it is today, which means seemingly under control that we do have the means and the mentality and the processes installed to be able to also navigate through these ongoing challenges in the second half. What we also did as a company based on our self conception is that we supported the public health sector and public institution with disinfectants manufactured at the secret facilities free of charge. And we also distributed these disinfectants to our employees and their families. And that is probably the point in time to say again a great thank you to the whole global Siegfried team for the dedication of our employees and for their hard work also in this time of uncertainty going to work every day, keeping our plants up and running to the degree possible. And this performance, this attitude actually made this good first half result possible. We also got support from public authorities. And almost all legislations, a secret has been granted exempt status as a systemically relevant company to the health care system, which was a prerequisite for us to continue our operations also during periods of shutdown. And as I said before, the vast majority of our people actually came to work every day and continued to support us as a company to live up to our mission, which is we continue to manufacture safe drugs for patients worldwide, not only in normal times, but also in times of pressure and challenge. Coming to the vision. We remain determined to be successful now and in the future as well based on a healthy business model. And I alluded to that as a standard exercise in times of challenge and crisis, the CEO and the CFO sit together and look at reasonable worst case scenarios on what these scenarios would do to our liquidity and availability of cash. And here I can say that Siegfried, in all of these reasonable worst case scenarios, remains financially robust and stable. And I think this analysis is exposed, reinforced by the fact that we have been able to generate increasing amount of cash in the first half of twenty twenty. There was more encouragement from another group of stakeholders of Secwid, which are our customers. And despite the general slowdown in the business environment because customers have been very busy with themselves too. Their access to patients to execute clinical trials was limited due to lockdown measures. Ability to travel and meet face to face and negotiate contracts and visit sites, having a look at our equipment was limited too. Despite this slowdown, Siegfried was able to win attractive new business and initiate a potential new strategic partnership with an attractive customer. As kind of an upside from the COVID crisis, we are currently in discussion with a number of pharmaceutical companies for the corporation to manufacture aseptic COVID-nineteen vaccine drug products, which are currently still in clinical phase, which of course, again serves our mission. I mean, that's what we are here for and that's what we want to do. We want to contribute to fight this coronavirus pandemic. And of course, if we are successful in these discussions, that would also be economically attractive to Siegfried. So let's move on with some further reflections on the COVID challenge to Siegfried and answer some fundamental questions, which probably are important for U. S. Investors and people following the company from a business case perspective. And we have chosen 5 dimensions to briefly comment on. First one is markets and demand, obviously important. I mean, what do we expect COVID-nineteen to do to our target industry, pharmaceuticals and their demand for CDMO services. Then we briefly discuss about our operations and our general course of business in the context of the crisis, touch upon financials, which in the end this will be more general statements in line with what Reto just discussed before using the detailed figures. Then very fundamentally, briefly commenting on our business model and our strategy. And in the end, giving some sharing some thoughts on potential regulatory and political measures. So let's start with the first one, markets and demand. And I will kind of divide it into short term impact, as you see on the right hand side of the slide, and our expected long term impact of COVID on this dimension. Here you see and that is in line with what we experienced in the first half for the reasons discussed, of course, a slight slowdown in growth. We're still growing, but not at the pace at which we would have grown without COVID-nineteen. Will that continue forever? So is the general growth potential of Siegfried, of the CDMO industry, of the pharmaceuticals industry negatively affected by COVID-nineteen? Here, our answer is no. So the demand in our expectation will continue to be healthy and will continue to grow. Operations and general course of business of Siegfried, again, we alluded to that already. It's just tough to have hiccups in your supply chain. It's just tough to have absentee rates for a certain period of times in direct labor for certain sites of 15% or more. And you see that in your production output and we saw it in our P and L statement for the first half. But on the other hand, while there's still much to be learned about the coronavirus and we are actually not smarter than the scientists doing hard research on it. Our belief is that we have implemented the right measures to manage the level of the coronavirus pandemic as it is today going forward and keep our operations largely up and running and keep our people safe. In the long run, here the same applies with markets and demand being healthy and solutions available to actually create a safe work environment. We don't expect that our production output will be affected negatively by COVID-nineteen in the long run. Financials with the specific dimensions of sales, profitability, capital efficiency, I won't spend too much time because in the end, Rito has discussed it using the specific figures of the first half. Sales negatively affected in a way of us not being able to fully exploit our growth potential, Profitability negatively affected in the short term based on idle costs from resources that we had on board for a higher growth and that we wanted to keep on board for the expected strong second half twenty 20. Capital efficiency will slightly be impacted and we just discussed buildup of safety stock, which in the end for me is kind of an insurance premium in order to be sufficiently clear about our ability to actually manufacture and provide products to our customers. So short term impact as we saw slightly negative. The long term impact according to what we discussed before on markets and demand and operations, in our view, not impacted. The more fundamental question is on business model and strategy. So do we have to change, completely change or are we even threatened as a company because our business model might be outdated due to changes from COVID-nineteen. And we all know that many companies, many industries are faced with that specific question. In our case, and luckily, and we perceive that as a privilege, we feel that our business model is even more enforced and its viability confirmed. And as a consequence of that and with risk being one of the criteria, one of the competitive advantages that we wanted to strengthen and realize by our strategic actions, and I'll come to that later, we feel that both the business model and our strategy to further expand and build out our company are not negatively affected short term or long term, but that we as a company are on the right track with and without COVID-nineteen. So last but not least, what is our expectations and what are our thoughts on regulatory and political measures? And we see in all experience a lot of discussions by politicians, by experts in different countries, all aiming or targeting the question, how can we increase security of supply of essential pharmaceutical products. And you can actually see anything from the one extreme being let's take the whole production back from Asia and become fully self sufficient as a nation or as a region. I mean, do nothing, globalization unchanged. So what is our take here? We believe that with the pharmaceutical industry being a global industry and well developed value creation chains, well distributed over the globe in order to actually create economies of scale and allocate manufacturing products to the most suitable place is a plus, leading to more competitive, lower cost products, which is a good thing to the healthcare system. However, there obviously is risk in the system, but we are convinced that there are ways to actually manage these risks without taking back production to Switzerland or Germany or the U. S. And looking at Siegfried, we with our global network being able to provide dual sourcing, we with our expertise in procurement and sourcing being able to establish dual or third sources for our own supply, we believe that there is a good way to balance the benefits of global supply chains on the one hand side, but at the same time mitigate and reduce risk. When it comes to public interventions, I think that this the part of the discussion which calls for strengthening the industrial foundation of a country or of a region probably makes sense. And there are smart ways to do that, from direct subsidies so that investments become more attractive in certain countries to regulatory mechanisms like local content requirements for public tenders for generics. So these are things of which we believe certain imbalances can be reduced and Siegfried would support this kind of measures. However, we will not build our business model on public subsidies, which is why we gave it these upward arrows, but not at the same level upward as the others. So these are our reflections on some of the most important dimensions, which might be impacted or have been impacted by COVID-nineteen. And in case that there is more interest, in case that there are more questions afterwards, we will be happy to answer them in the Q and A section. So Slide 17. The most important part of that slide is actually the first four words, which is Siegfried's strategy evolved unchanged. And I kind of gave the background of that statement on the previous slide. We believe that this strategy was a good one before coronavirus and holds true also considering potential impact by coronavirus. Those of you who follow us for a longer period of time know these three areas of strategic activity. The first one being continuous investments in our technology base and our existing network, which means strengthening our small molecule manufacturing, organic expansion, my own investments into large molecules, I. E. Biologics, which means investing into aseptic finish capacities. And you might remember that this is exactly what we did in what I explained in the executive summary as one of our CapEx initiatives in 2020. So this is kind of the organic part of our corporate strategy, Evolv. There is also there are also these 2 acquisitive areas of activity. The first one and actually, if I could wish for a sequence of events, the preferred one, acquisitions in drug products. Because looking at the distribution of our sales, roughly 25% drug products, 75% drug substances, there's a clear imbalance. While we probably have one of the most competitive small molecule drug substances network in the CDMO space, This is not yet the case for drug products. And that we want to change. We continue to invest organically, but making a significant step by M and A would be very attractive to us as a company. The last part is potential acquisitions in the drug substances space. While I said before, we do have a very strong network already, we would be ready anytime to acquire an attractive asset also in the small molecule drug substances space. Furthermore, and depending on opportunity, we would also be ready to acquire small scale biologics drug substances manufacturing assets. So, I mean, while this is the plan, what we want to do, the question is what did we do so far? Here, the answer is somewhat unchecked. We continuously talk to people about their assets. We continuously identify by our own potentially attractive targets to us, and we would be ready with or without COVID-nineteen to make a smart and a good acquisition anytime. What we saw in the market is, of course, also a slowdown in M and A processes, just fewer targets becoming available, M and A processes being stopped or delayed for obvious reasons. I mean, with travel restrictions, it's kind of tough to do on-site due diligence, yes? So I think that's a fair observation, which we also saw ourselves. But we don't take this or COVID-nineteen as a reason not to further pursue our targets in the field of M and A. So let's move on to Slide 18. Again, the first three words in the headline being the important one, Siegfried's ambition unchanged, which is consistently deliver robust organic growth and execute value accretive M and A to outgrow the market. Again, many of you might know the slide. I think I still think it's pretty useful. Left hand side, where we are today or have been in 2019. Right hand side where we want to go as a company, mid- to long term. And in the middle, you kind of see the division of our investment case, how at least I see it and we see it. The base case being consistently delivering robust organic growth in line with the CDMO market. On the way, expanding step by step our core EBITDA margin up to the 20 percent corridor, continue to do selective investments in technologies, as I outlined at the very beginning of the presentation, continue to invest into incremental capacity, as I outlined at the beginning of the presentation, and the continuation of the integration of the entire site network. On top of that attractive base case, we want to accelerate our growth through M and A, value accretive acquisitions in our core areas and acquisitive entries to new areas within the business model. That all leads to the guidance, outlook for the full year 2020 despite macro uncertainty and with clearly limited predictability. I think we need to be clear about that. Low single digit percentage sales growth in local currencies, slight expansion of our core EBITDA margin, midterm outlook confirmed. And that is what we prepared for you. And we will now be happy to take questions and provide