Earnings Call: H2 2018

Mar 7, 2019

Okay. Okay, ladies and gentlemen, welcome to our media conference. I see many faces well known being part in our journey since many years. I see new participants. Welcome to you all, and welcome also to the participants in our webcast. These participants have got a link where they can put on and then post their questions and write it down, and it will arrive at my laptop here in the conference. And I will in the Q and A session, I will then be your partner in posing this question to the new CEO, Wolfgang Wieland and Reto Sutto. I already said it, our new CEO, Wolfgang Wieland, is the first time with us, and welcome also from my side. Not with the company. Not with the company. There is, since 2010, already a member of our Executive Committee. So I hand over to him, and many thanks. Thank you, Peter. Where's my laser sword? There it is. Okay. Yes. Also, welcome from my side to the 2019 Analyst Conference. My name is Rolf Gang Winant, and since January 1, I'm the CEO of the company. And I'm actually happy today to present our company to you and our financial result 2018, together with my dear colleague, Reto Zutta, our CFO. I mean with me standing here for the first time, please allow me a few introductory words. While being new to the role, I'm actually not new to Siegfried, quite the opposite. I'm with the company since 2010 and started as Chief Scientific Officer, so I'm a chemist by training not only, but I'm a chemist. Then I took on the role of Chief Strategy and have been responsible for the execution of our previous corporate strategy, Transform. And eventually, I was serving in both roles: Chief Scientific Officer and Chief Strategy Officer. Siegfried has undergone huge transformations, many changes in recent years. Because let's remember, I mean, since 2012, we executed large strategic projects, acquired other companies, tripled revenues, number of employees, number of sites. With all these changes, one thing didn't change. There was and still is an outstanding entrepreneurial mindset within Siegfried that we have been able to preserve and actually probably is part of the corporate DNA throughout its history of 145 years. And I felt it when I joined Siegfried 9 years ago, and I still feel it. And it's my ambition and the ambition of the Executive Committee and the Board as well to actually carry this spirit into the future and put it into action. Siegfried also is a great place to work. And for me, in our perspective, almost a unique platform when it comes to building an industry leader in the CDMO space. I'm considering the audience here. Secret is not only a great place to work, but it's also a promising place to invest in. And I'm actually very excited to lead the company into the future. So what we will be doing today, Reto and myself, is, of course, spending time on reporting the past, but we will also share insights into our strategic thinking and share thoughts about the ambitions that we, as an executive committee, have when it comes to the future of Siegfried. I can't spell you this, so Safe Harbor statement. Please read it carefully and fast. And I start off with the executive summary. And looking at the figures that you received this morning, you can see that the annual result 2018 is a good one. And looking at the company's history, you will even see it's the best one, a record result in our history. So we saw robust growth. Net sales up to almost €800,000,000 a plus of 5.8%. What we also have been able to do again is to actually translate additional revenues into superior profitability. So increase profitability over proportionally on any level when it comes to profits. EBITDA is up 14 5 percent to EUR 127,400,000, which is a plus of 120 basis point in terms of margin, now 16%. And that's how it goes down through EBIT, net profit. And in the end, last but not least, also cash generation was strong. Operating cash flow for the first time beyond CHF 100,000,000 and also free cash flow with roughly €45,000,000 up 42%. So strong financial performance, delivering on our promise to actually be able to profitably grow. I skip the first next bullet here and go to what we did in the past year when it comes to investing and preparing our company for future growth. We invested into a new logistics center in Sofing, where our company's headquarters is and also into 40 additional workplaces in R and D. Why is that so? Efficiency is a key competence for Siegfried, a key competence that you need in the CDMO business model and business processes, logistic processes are part of our processes. Also part of our service offering to our customers is, of course, development. So we feel increasing demand for development services, which is why we created room to grow in our R and D department in Sofing. We also decided to enter into another very attractive CDMO market segment, which is the segment of aseptic fill finish services for biological drug substances. So for example, monoclonal antibodies proteins. They need special treatment, very sensitive molecules. And you need special competencies, special analytical equipment, special machines to actually be able to handle that task. And Harmel, after investments into a filling line, after investments into equipment and education of the people, is now capable of doing that. It's right now still a small business, single digit, but strongly growing. And the market itself is very attractive as well, so we see that as an important step for Siegfried. There are more investments, of course, ongoing, which are more adjacent in nature, so incremental to adding capacity to enable our network to absorb and accept more growth. Last item on this introductory slide is actually the outlook for 2019. There, we see at least mid single digit sales growth with a further increase in EBITDA margin, constant currencies. And if we even look beyond 2019, we strive for and are convinced that we will be able to actually achieve profitable growth in line with market, and we have the clear ambition to outgrow the market, including selective and value accretive merger and acquisition. And that's the point in time when Reto will take over and guide you through the figures. Thank you very much, Wolfgang. Welcome and hello from my side as well. Very happy to take you through the 2018 numbers of the Siegfried Group. We recorded a very robust growth in sales of 5.8 percent to a number of CHF794 1,000,000. You see how the individual business lines grew. So we recorded a sale of 17.1% in the drug product field, whereas growth in the drug substances part accounted or amounted to 2.5% for the year. The picture between drug substances and drug products is very similar to last year. So 3 quarters of our business is in drug products, so production of the API, whereas onefour of our revenues comes from the drug product space. Please allow me at this point 2 comments which go beyond the content of this slide. The one obviously is on sales growth in the second half of twenty eighteen. This obviously is lagging expectations. And in hindsight, it's very fair to say that we have been too optimistic mid-twenty 18. Where does it come from? Siegfried is in a transition. We come from a world where we have been optimizing individual sites. We have optimized the business of an individual site. But we strive to go to a situation where we optimize a network. This is obviously enhancing our capabilities and our capacities by quite a bit. So that's the way to go. However, in order to do that, we need to introduce a couple a few measures in order to be able to do that. These measures, they include transferring production orders from one site to another. For example, transferring processes out of the high value add but expensive sites in Sofingen to cheaper sites, to Zainville Baux, to Namtong, etcetera. These measures also include small scale capital expenditure projects in order to debottleneck the network. And lastly, these measures also include strengthening the bench, so adding people, much needed people to the organization. In brief, through these measures, we have put an additional strain onto the organization. And it's fair to say that in the last quarter, in the last two months, the business was the operations was overloaded. And actually, despite a very healthy demand and from our customer side, from the client side, we have not been able to cope. So we have had operational slippage in the amount of low double digit CHF 1,000,000, some of which we will see again in 2019, but unfortunately, some of which is lost. The second comment is on the currency situation. So we see you see from the numbers that we had a little bit of tailwind from the currencies, 1.4 percent. What's the currency situation has been for Siegfried in 2018 year? Actually, as in the past, we are long the dollar, which had not a great impact as the dollar year on year was almost flat to the Swiss. And we have been slightly short to euro. So we have had more cost in euro than revenues in the euro. This has obviously helped us on the top line, contributed about CHF 10,000,000 in additional sales, so tailwind top line. However, as we have been short the euro, it also introduced heavier costs. So in total, we had a negative adverse impact of EUR 2,000,000 onto the bottom line. That's transaction effect of currencies. What's the earnings quality? So how does the risk that we have in our revenues look like? You see here concentration measures, both in terms of customers as well as products. You see the top 10 customers and the top 10 products. And it tells you that we have a highly diversified business portfolio in both areas. So the top 10 customers account for 38% of revenue, with the largest accounting for 6% of revenue. So no huge concentration from a customer perspective. Whereas from a product perspective, a similar picture is imminent 35% concentration from the top 10 products. In addition, the top 10 products are quite equally weighted between the 2 product types that we have, so exclusive products that we do for just one single customer. And 4 products come from the MultiClient business, which is the off patent, the generic business where we sell to many clients. So diversified and also balanced in terms of products. Let's move down the P and L. This is the profit metrics, the profit aggregates that we show for the year 2018. The numbers that we show from EBIT downwards are before the restructuring cost, maybe another €1,500,000 to be fair. And here, we have the clear confirmation that we have again been able to transfer to transform a robust growth into an even better growth in the profit aggregates. I was happy to see that we have been able to grow net profit to €57,500,000 this year. It's again a record number for Siegfried, which is a plus of 40.9%. I think that's very good. A technical statement. You will have seen that we had restated the 2017 numbers. It's a technical restatement concerning our European pension fund obligations, which need we need to calculate interest for that obligation, technical interest, so noncash. And in the past, we had recorded these interest payments as a part of the financial result as IFRS does it usually. However, we have come to the conclusion and have also been made aware of that Swiss Get Fair requires the inclusion of these interest payments, these interest charges to personal expenses. So we had to move them from below EBIT to top of EBITDA, so part of SG and A now. The magnitude of this change for the 2017 numbers was €2,700,000 adverse. So we have reduced EBITDA by exactly this €2,700,000 The relative picture obviously looks the same as the absolute picture. But again, we have been able to increase the EBITDA margin to 16 16.0 percent, a plus of 120 basis points on that restated level. However, EBITDA margin could have been better. Also, 2 isolated incidents that I have to tell you about in the last semester of 2018. One was that we have built more provisions towards the end of the year. Obviously, this leads to a much more stable financial results going forward. However, we had to accept that charge to the admin cost in 2018. Amount is about up to close to CHF 3,000,000. The second event was an isolated series of events, one of which I can tell you about. We had a much weaker than expected yield on recycling of palladium catalysts, which had a significant effect provided that palladium prices have skyrocketed towards the end of the year and still continue to do so. The effects of all these operational slippages accounted to CHF 3,000,000, which have been charged to COGS. So the cost of goods sold have decreased. The gross profit margin and obviously down all the rest. The impact, easily calculated on the level of EBITDA, it's 80 basis points for the year. So This is a summary of what I have already told you. Maybe to again mention SG and A, so what's happening below gross profit before, then operating profit. These numbers that are shown here, and let's concentrate for a second on admin and general overhead, the minus 43.35, they include the restructuring cost of the 1.5 for the restructuring that we did earlier in the year in Evianna. And they also include the increase of the provision positions that I just mentioned. So if you correct for that, actually, SG and A as a total aggregate has come down, which again is a fantastic confirmation of the scaling up of margins and profit aggregates even though we have recorded only a robust sales growth this year. The financial results, the CHF 96,000,000, they include the translation difference for ForEx in the amount of €2,500,000 So the pure financial expenses have remained stable compared to last year. Cash flow statement. This is maybe the financial statements that I, Wolfgang, the rest of the management team started to close when analyzing the performance of the business. Because ultimately, we require a strong cash generation in order to be able to fund our future plans, to implement our strategy. So that's important. And I'm proud that this year, for the first time in Siegfried's history, we have been able to record a triple digit million operating cash flow. That's fantastic news. Obviously, also free cash flow has increased strongly, plus 42 percent, to EUR 46,000,000 despite a little bit more heavy CapEx program this year, which for the record was not only maintenance CapEx but also expansionary CapEx, Wolfgang has and will still be alluding to that point later on. How do we spend that cash? What's our set of priorities for the use of our funds that we generate? The overriding principle here in allocating capital is that we would like to maintain a strong balance sheet in order to safeguard and preserve our financial flexibility to be prepared to fund our future business, which includes M and A. We have debated within management team with the board a set of priorities, and here it is. Priority number 1 is reinvesting into the current business in order to support organic growth, which is maintenance capital, maintenance CapEx, but which is also organic growth investments into organic growth initiatives. Priority number 2, 2, just for sanitary reasons, we want to pay out the dividend, keeps us honest. Our dividend payout ratio is modest. So if you see what we propose to the AGM in a month from now, it accounts for about 20% of net profit or a little more than 10% of operating cash flow. I would consider that modest. This will continue to be modest. However, we will step by step increase the absolute number. 3rd, deleveraging. Obviously, we are highly cash generative this time. I will use the cash that we don't use for organic growth or the dividend. I will use it to deleverage, which then in the future, again, provides much, much, much more flexibility to me. Only to be prepared for the 4th priority, which is then MMDIA in line with the strategy EVOLVE that we currently are about to implement. I'm asked a lot around funding capacity. What could you just short term now without any dilution of the equity holders to shareholders, what would you be able to pay? This is debt funding capacity, and I'm happy to confirm that we do have dry powder to fund our strategic journey ahead. Yes, indeed. So these are the numbers for 2017 2018. What you see is obviously the net debt, which is just the debt position minus cash. I deduct the treasury shares that we have, and you see we have increased that position opportunistically during the downturn in Q4, which is then my real debt capacity in terms of ratios, net debt to EBITDA, 0.38 at the end of 2017, which through cash generation and increase of EBITDA has come down to 0.18 for the avoidance of doubt. These numbers obviously are calculated counting the hybrid bonds as an equity position. That's the way how banks currently look at it, If I take the EUR 0.18 as a basis and just scale it up to an acceptable net debt to EBITDA ratio of 3, That math is easy. It's €350,000,000 additional debt on top of what I currently have, which is also supported by debt capacity calculations that we're using free cash flow projections into the future. So that figure is well based. And out of the 350,000,000, I can quickly mobilize 200,000,000 because it's under existing financing contracts. So that's the situation around dry powder at Siegfried at this point in time. And obviously, this number is increasing quarter by quarter by quarter by quarter as it should be. Payout proposal. Vandewheel, the Board of Directors, proposed to the shareholders at the in April in Soffing, again, a slight increase in absolute terms, so an increase of CHF 0.20 to CHF 2.60 60 per share. It's not a dividend from a structural point of view. It's a return or distribution out of contribution reserves, which is favorable for some receivers of the dividend, mainly with natural persons. And even after this payout, which is CHF 10,800,000, even after that, we will have a total capital contribution reserve left of in excess of CHF 100,000,000, which in our view at least represents value available to the shareholders. So we will try to preserve it as much and as best as we can. So this has been the retrospective part. I hand back to my colleague, Wolfgang, for the strategic part. Thank you very much, operator. I actually want to spend the time on talking about 4 things: 1st, a little bit reflecting on who we are as a company, what we are doing, why we exist at all and the market environment we are playing in. Then second, briefly reflect on strategic imperatives analysis, which we see in the market. 3rd, compare what we are today against these strategic imperatives. And 4th, talk about the things that we believe we need to do going forward to actually build out our leading position in the CDMO space. I want to start with that mission statement, which I think is very useful internally, externally as well because it kind of is the North Star. I mean, if you're really busy in your daily life, kind of reminds me and all of us what we are actually good for as a company. And we spent the time as an executive committee to come up with that mission statement. With mastery of science and technology, we take the precious innovations of our pharmaceutical customers to industrial scale and manufacture safe drugs for patients worldwide. So 4 elements being provided in this mission statement. 1st, mastery of science and technology. In the end, we are a technology providing company. We need excellent scientists and the ability to actually transform this science into industrial processes, which is why we invest in our people. Then there's a part of precious innovations. Customers come to us and hand over their innovations to us, trusting that we are capable of making it industrial process, a commercially viable process and manufacture a product at large scale so that they can actually use it for the treatment of their patients. There's one short story. I mean, I was using this mission statement, of course, also internally for town hall meetings. In Evianard, it was a point in time when actually that of production stood up. In fact, Wolfgang exactly, we have a customer, a small one, with only one product, a start up. Life or death for the company is that one product. And this product is so important for the company that actually they have people on our side continuously watching what we are doing and literally sleeping besides a reactor, right? They trust us. And trust is an important part of our business model. And if you would ask me, what is it in the end, what needs to be and was the success of Secret in the past and needs to be part of our success in the future is our ability not only to be great scientists, great technologists, having great network acquire. It is in the end the trust that our customers have into our capabilities because the product that we are manufacturing and selling, you can't just buy on the next corner. Very important. So precious innovation. Industrial Scale, I talked about that. That's what we do. We don't invent new therapies. That's our customers' business. But our innovation takes place when it comes to creating the most efficient industrial commercial process so that therapies become affordable and we come up with prices which are okay for the health care systems. And last but not least, looking beyond our customers, B2B, to the patients which are treated with our products. It is our obligation to actually manufacture safe drugs. It's important and part of our business. And I also created 3 more data points when it comes to who we are and what we do and why do we matter. The first one is quite surprising one, at least it was for me at the time. If you look at the number of active pharmaceutical ingredients approved by the FDA, It's not such a huge number. It's roughly 1500. Out of these 1500 active pharmaceutical ingredients, we at Siegfried are capable of manufacturing approximately 200 out of them, which is almost 15%, so significant. We are a significant source of pharmaceutical products. Another perspective that you can take is the number of patients approximately treated by our customers using products manufactured by Siegfried. There, you can easily say it's probably around €40,000,000 quite a number. So it's 5 times Switzerland or 5 times Nantong, the city where we actually the friends from the Chinese actually manufacture also APIs 2 hours away from Shanghai. So it's quite a significant number. And that even dramatically increases if you look at a specific product that we are manufacturing in our Minden site in Northern Germany, Caffeine. We are one of the largest manufacturer and supplier of Caffeine to the pharmaceutical industry but also beverages. And you can easily say probably up to 1,000,000,000 people get in contact with a Siegfried product every year by consuming And there are a lot of good news on that slide. I mean, the health care market is a very I mean, it's a strongly growing market. It's not very cyclical. Health is the last item where people would stop spending. So that's a good start. And we see the growth of our pharmaceutical customers of roughly 4.5% year on year, so healthy growth. That's our target industry. So we can expect our industry, the CDMO business model, to grow at 4 0.5% as well. On top of that, there's a growth increment coming from a strategic shift in our customers' industry, which is that large corporations, many of them with a chemical conglomerate background, used to manufacture their products themselves. But investors more and more expect pharmaceutical companies to spend their funds on their key value drivers, which is not manufacturing. It is innovation. It's marketing. It's distribution, yes? Which is why pharmaceutical customers either don't invest in our manufacturing capacities anymore or actually take capacity out of operation, take it off their balance sheet and actually hand over manufacturing to companies like us. Based on this, what we call outsourcing trend, we see the growth increment in our market on top of the underlying of roughly 1.7%, so let's say 6%. That's good news. I mean, there are not so many industries which are not cyclical, but still growing year on year in the range of 5%, 6%, 7%. Just to give you some figures, won't go through this slide, bullet by bullet. In 2017, our target market accounted for roughly USD 800,000,000,000 It's projected to grow at a CAGR of 4.5 percent to slightly above USD 1,000,000,000 in 2022. As said before, that translates into a much smaller market, of course, €70,000,000,000 in 2017, but in a slightly stronger growing market, the CDMO market, our target our market, with a growth rate of 6 point 2%. So that's who we are and where we are playing. When you define a strategy as a company, you're well advised obviously to look at fundamental trends which are taking place in your target industry, the pharmaceutical space. And that's what we did as well. We came up with 5 fundamental observations, which we used to actually build our strategy. First one is focus of our pharmaceutical customers on innovation and marketing. So I explained that. Strong incentive for them to outsource, not invest funds into brick and mortar, but rather innovation distribution marketing. Very good. Increased cost awareness. That's an interesting one because and I remember a situation 1.5 years ago when a COO of a large big pharma customer actually visited Siegfried, us being a strategic supplier. And he said, look, I mean, I'm responsible for product supply at my company. And from all the acquisitions that our company did, so his company, my supplier base grew beyond 500. That's a zoo. I can't handle it, Wolfgang. I want to get it down to 150 or less. But that means that strategic supplier like yourself need to be capable of doing more, yes? What he also said is we are kind of transforming from a very much transactional supplier customer relationship, in many cases based on price, to a more strategic customer relationship because in the end, the amount of internal resources that I have to keep ready to control this zoo of suppliers is adding so much complexity and costs that the overall picture is not healthy anymore. So the more a supplier can take out complexity out of the supply chain of a pharmaceutical customer, the more attractive he is for the customer. 3rd point is that breakthrough innovation, if you look at the pharmaceutical pipelines, of course, companies like Pfizer, Novartis, Roche are strong innovators. But just based on numbers, most of the Phase 1, Phase 2 projects are not coming from big pharma. They are coming from midsize, small startup pharmaceutical companies. And these companies, by definition, don't have internal manufacturing resources. They simply spend their money, the limited funds they have, on the key value drivers, which is innovation, right? So they even don't have the option to manufacture internally. They need to come to companies like us. So another good trend for companies like Siegfried. Then there are 2 more. Increasing complexity of the molecule itself, I won't go too much into detail here. But technically, you can create a commercial upside if you are a company who is able to support the customer in both areas, in drug substances development, so the API itself, and also in the formulation. By combining the development cycle, you actually save time of the customer. Time in that phase for customer is everything, time to market. If you lose 1 year, you don't lose tail end sales. You'll lose peak sales, customer perspective. So us being able to offer that integrated services is attractive to customers. Last point is proactive life cycle management. 10 years ago, I remember that most originators actually gave up on their drugs as soon as they lost exclusivity, just let it go. Didn't take care anymore, didn't spend marketing, just gone. That's not the case anymore. Some of them trying to exploit it to the degree possible, which makes them enter also a cost game, including cost of goods sold. So the product that we manufacture and their price point becomes even more important to the customer. And if you are a company to support that requirement, then you can make good business. So these are the challenges, the fundamental trends that we face as a company, as an industry and how do we compare against these trends. That's the landscape. That's what Secret is today. After strategy transformed, many acquisition spending, CHF 500,000,000 Swiss francs and so on, We are now present in any relevant region of the world, of course, heavily in Europe with the corporate headquarters in Zofingen, another big site in Evianna, Saint Vubar close to Lyon, then the northern German operations in Minden and Hamelin. Then we have Helfa, a drug product facility Nantong, our GMP API facility in Asia and the presence in California Irvine for drug products, urethral finish and East Coast, pencil. So it's a pretty good setup already. Pretty good in the sense of us now being able, at least partially, in one important field of our activity, which is drug substances, so the API, us being able to actually operate our sites as a true network, which we believe will create a strong competitive advantage to Siegfried. It's a pretty complex task, and Reito kind of alluded to that when discussing the slippage in 2018, but it's worthwhile. If you're able to operate your site as a true network, you can generate competitive advantage. And I will explain you how. I'm in kind of a pretty busy slide. I will make it as short as possible. So on the left hand side, you see new business coming into the company, Phase 2, Phase 3, so development projects or sometimes even commercial products. The process is pretty mature, it can go directly to a large scale manufacturing plant, but it's not so often the case. In most cases, we need to spend development. Does it make sense to have a development department on each side? No, it does not. So we have 3 development hubs, the one in Soofingen, another one in Evuna and in Nantong, each one of them between 2550 people. And they, in the past, have only been responsible for their own sites, Zofing for Zofing, Evuna for Evuna, Nantong for Nantong. But already last year and for sure going forward, they are responsible to actually feed the whole network. So first, synergy. Then let's look at the network as well. So we do have Tofing and Ebuna, great sites, very flexible, great people, but high cost, right? Then we have sites in Minden, surprisingly competitive when it comes to cost, great people as well. Sambo Bar, surprisingly competitive when it comes to cost. Pencil and Nantong, obviously, in the role of low cost manufacturer, right? Our vision on this network of sites is not every site needs to be technically able to do everything, But the whole network needs to be able to do everything, yes? So that leads to a specific view on how do we spend CapEx and where do we spend CapEx, but it also leads to a specific view how to actually work on our portfolio. Three things are now possible if you are capable of running sites as a true network: dual sources for security of supply. I'm referencing the same CEO that I was talking about earlier. For a large product of this company, Siegfried supplies 100% of the API. Usually, that doesn't happen because there's so much value at risk on the pharmaceutical company level. They never give the whole supply into one hand. Usually, they have either internal capacity plus an external supplier or 2 or 2 external suppliers. Why did it work out in our case? Because we have been able to actually offer 2 sites. There is security of supply. And on top of that, we could add a second lower cost site to our Swiss site, which helped to defend margins because the customer can now decide where to allocate which volume. And in doing so, defining deciding upon the mix price that he pays. Also commercially, very viable. 2nd part, horizontal integration of value chain. So chemistry is it's a thing which can take time, right? Sometimes, your manufacturing is just 2 or 3 steps, then you're fine. But sometimes, it's 15 steps, can take 1 year or longer because it's a sequence. You do the 1st step, 2nd step, 3rd step, yes? And the requirements also from a cost perspective on the individual steps are different, right? And we are now able to actually in source intermediates, high value intermediates, which we before had to purchase from external suppliers, which meant giving up on margin. We do have cases where we manufacture an early stage in Nantong, a middle stage in Sambuba and the final stage in Northern Germany. That you can do if you're capable of running your sites as a true network. And we consistently also look at high value intermediates that we are still insourcing in Nantong, which adds value to our portfolio. 3rd part is life cycle management and again alluding to what Rachel said before, product transfers. So what we are currently doing is taking out mature products from our high value capacities in Switzerland and kind of providing them a second life in terms of margin, right, By taking them out, bringing them, for example, to Sambo Ba, Minden or Nantong, improving margin and at the same time, freeing up high value capacity in Evianna and Sofit. So that's a third play that you can actually have if you're capable of running your network your site as a network. Another thing is possible, which is very important, very useful for us, and I would think also from a financial perspective, very attractive because assuming that you have the right setup of sites, you are capable of not only making use of 1 market entry point but 2. Here you see the life cycle of a pharmaceutical product, preclinical phase, Phase 1 to 3, so clinical phase. And there's a commercial on patent time period, then there's the off patent time period, right? That's the sales the revenue curve of our pharmaceutical customer. That's a typical entry point. Customers come to us with Phase 2, 2A, 2B, maybe Phase 3 projects for the development of industrial processes, later commercial supply. Great entry point. I mean, of course, you need to offer attractive prices, but price sensitivity is relatively low. Willingness to pay if you can deliver great services is high, yes? That's what happening in Sulfing, Avionar, our European sites. There's a second market entry point here. When a drug product gets off patent, there are new players entering the stage looking for supply, generic companies. And there you can also make great business, assuming that you have the right setup in terms of cost structure. And that's where the Nantong side, but also other side, Samuban, Minding, come into play. Why did I say probably also attractive if you look at our business through financial eyes? It's about volatility or standard deviation as a measure of volatility. Let's have a look at the approval rates per year approvals per year by the FDA for new drugs. Time horizon, 2,007 to 20 17, 25, 35, up to 55, next year down to 30, up again to 55. That's what I would call volatility, right? In the end, that's, I mean, our pipeline. That's where the next projects are coming from. If you just depend on that, you, in theory, of course, softened and so on. You don't win any every project here. But that's the volatility we have to deal with, right? If you include the 2nd entry point here, generics, it's a higher number because there are different dosage forms and so on. There's also volatility, of course. But if you are able to serve both, that's your curve, just adding it up, yes? And the standard deviation from 30% goes down to 80%. That's useful. That gives stability to your portfolio when it comes to generating new business. So that's where we are today in terms of competitive landscape. And just straightforward, not arguing a lot, taking revenues as a measure of scale size, right? That's the year 2017. Here in U. S. Dollar million, these are the companies just taking their revenues. You see I mean, you see many things on this slide. One being Siegfried is in the leading pack. It's number 6. It's U. S. Dollar 2017 figure. What you also see is 20% less than 20% market share for the top 10 player. That tells us 2 things. First of all, the business model is pretty young. It has been invented just in the 90s by Lonza and also Siegfried, a few others. So it's only 30 years old. And in such a young industry, you see fragmentation because consolidation didn't take place yet. It didn't have time to take place, 1st. 2nd rationale here is that the investment hurdle I mean, the ticket to play, not to play here but to play here, so all the rest, small scale, a few products, a few projects only, is relatively low, dollars 20,000,000, dollars 30,000,000 in China. Then you can start to do something. I mean, the great the most attractive projects won't go to these vendors, of course, yes? But that's the entry ticket. And the outcome of that is depicted here. In mature industries, you see it the other way around, right? Top 5, 6 players covering 80% of the market. We believe at a certain point in time, far future, the CDMO market will have consolidated to that point as well, far future. But what is clear to us is consolidation has taken place. And I will give you some insights why there is also a strong strategic rationale for consolidation. That's what we call the CDMO pyramid, right? That's a fragmented market, I would say, right? Here again, you see the leaders, the top 4: Patheon, Lonza, Fariva, Catalent, Breakaway Group above €1,000,000,000 500,000,000 to €1,000,000,000, they are Siegfried. Number 6, some others, getting more, getting more and even more down here. I said there is a strong strategic rationale for scale. And you can actually approach that hypothesis from many different perspectives. I thought that I can make it short with this audience here by just providing some analytics here. You see on the y axis, EBITDA margin as a proxy for profitability, right? EBITDA margin in percent. And you see on the x axis, revenues of the company. And we took the leading competitors, including ourselves, and asked ourselves, so what happened with these leading players? If you look at EBITDA and revenues in 2012 and look at it again in 2017. And you see this picture for Siegfried, 48 in 2012. We did our strategy, came up at 17 with USD113 million EBITDA and margin increase. For other players, this one here is PATHION, did their strategy ending up here, other players. So there is a clear corridor which at least correlates scale with profitability. One might argue that a correlation is not causality, but it is causality in this case because if you go back to the strategic analysis that I presented to you, many of the things you can track back to scale, technology breadth that you are able to finance, flexibility and capacity to provide security of supply, a network to play the game that I just explained to you. So these are all things related to funds available. Funds available relates to size. So there's a strong imperative for growth because growth translates into superior margins. We have proven it. Others have proven it. So what are we going to do about this insight that size matters? Let us summarize on this slide, which are the key areas of activity for our current corporate strategy, Evolve. Actually starts with organic investments because 1st and foremost, we have a strong organic case to support, yes? So we will invest investing already now and last year into additional technologies which matter in our space. Won't bother you with details here. One word is micronization. So being able to process particles and produce the right particle size, which is important for bioavailability in the final drug product. It's about highly potent APIs. So more complex molecular structures coming to market with more potency, which requires special precautions in the manufacture of these APIs. We are capable of doing it already today at the so called Class III level, which is a certain level of exposure, but not yet in the Class IV exposure level, which we believe is an interesting segment as well. So organic investments into technology. I alluded to what we are doing in Hameen. So investing into capabilities, analytical equipment, filling line to actually be able to serve the market of biological drug substances fill finish. So not manufacturing the drug substance itself, but being able to do the aseptic fill finishing services to produce the drug product. That's something where we are investing and where we right now are building the business. So both organic, acquisition in drug product and acquisition in drug substances. I mean, the networks that I've presented to you previously with the sites, 6 sites, R and D, them working together, horizontal integration and so on, that we can't play in the drug product field because we are too small. We have one site for oral dosage for manufacture in mortar, which is a great site, happy with it, but it's one site. What worked with the one customer giving us 100% of his volumes will never happen in water. Too risky, not possible. So there, we need scale, which is why we say we need to acquire. We need to acquire sites and capacity, and that's a clear field of activity of our strategy, Evolve. Acquisition in drug substances, strong network already, and it's fine for organic growth. But we see I mean, additional opportunities, especially in the U. S, it would be great to have more capacity in the drug substance space as well because, I mean, proximity to customers matters, especially in the times of churn, yes? So doing acquisition there, value accretive, selective, not taking whatever is available, that would be attractive as well. Or to give you I mean, to give you a notion how we look at that. I mean, BASF transaction 3 years ago, 4 years ago was great for Siegfried. If such an asset would become available again, we would do it, of course, be it in the U. S. Or Europe. It doesn't matter, yes? So that's our flexibility here. Then there is one more item, which we phrase that way, and I think it's important to phrase it that way. Depending on opportunity, we would also be ready to acquire a biological drug substance, CDMO asset. Why is that so? I mean, the drug product part, we are currently investing in organically. And Harman already did investments in Irvine. So there, we can grow. Capabilities there, organic case. But we believe that the integrated offering that we are making also in the small molecule space will also work in the biologic space. Then the question is how do we enter such an activity? Do you, I mean, build it on your own greenfield, which is too late? So we need to acquire. The issue is looking at number of targets available and if available valuations, it's not a good time because we believe that the prices being paid right now, last 2 years, are not sustainable, at least not sustainable according to metrics that we apply. And we are ambitious people, yes? So depending on opportunity. How does that translate into our outlook that I would like to discuss with you here? We see Siegfried today, roughly CHF 800,000,000 revenues. And I've explained to you our robust organic growth case, the base case, so to say. And if we look at the time line of, let's say, 10 years, 2018 or 2019 to 2028, it is our ambition to organically grow with the market and with the additional ambition to actually outgrow the market as being one of the market leaders. On the way, we want to continue and will continue to expand our profitability, our EBITDA margin, eventually up to the target of 20% EBITDA. We will continue to do selective investments in technologies, as just described, as part of the EVOLVE strategy. We will continue to work on, I mean, leveraging the upsides, the competitive advantages of our network, so a deeper integration of our network. And we will continue to do add on investments in capacity within that network according to demand. And building on that, we strive for accelerated growth through M and A. So value accretive acquisitions in our core areas, That's the drug substance part, for example, drug products, oral solid dosage form and acquisitive entry to new areas within our business model. So we won't leave our business model. We are pure play CDMO. That's what we will be. No change. But the biologics space is an adjacent area where the CDMO business model works well. And depending on opportunity, we would be ready to acquire. And our target state that we are striving for, so to say, the Siegfried vision is given here: be a global leader in the CDMO space, being the trusted partner, strategic partner of the pharmaceutical industry, having the strongest team, mastery of science and technology, running the most competitive network, discussed that, have critical size in all segments and main geographies to drug product, North America and in the end are capable of mastering all relevant chemical, biological and pharmaceutical technologies. And that's what we wanted to present to you