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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Full Year Results 2021 Investor and Analyst Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Pierre-Alain Ruffieux, CEO. Please go ahead, sir.
Thank you, Sandra. Good morning and good afternoon to all of you, and thank you for joining us today for our full year results. Here with me today is Philippe Deecke, our new CFO. As you have already seen the number, this morning, we published a positive set of results for Lonza. We view them as an early confirmation of our strategy and transformation efforts. We look forward to sharing more detail with you over the next hour. Let's have a look at our agenda. I will start with an overview of our performance in 2021 before handing over to Philippe for a summary of our full year financial performance. Finally, I will take you through the performance of each of our divisions and say a few words about the future, including our outlook for 2022. Once we have completed the presentation, there will be time for us to answer your questions. Moving to Slide 4. We are proud to report strong performance level in 2021. Sales have grown by 20% at constant exchange rates and stand at CHF 4.5 billion for the full year supported by the ramp-up of growth projects. We have generated CHF 1.7 billion CORE EBITDA, which gives us a margin of 30.8 across the year. Our strong business momentum was marked by above-market sales across all divisions. We have continued to focus on our long-term success by progressing with our growth investment strategy. In 2021, our CapEx reached 24% of sales. This level of investment is supported by the strong free cash flow generated by our operational business and raising from the proceeds of the divestment of our former Specialty Ingredients business. As we look to 2022, we will continue to deliver on growth projects while focusing on operational excellence. Our 2022 outlook remains strong, with low to mid-teens expected sales growth at constant currency driven by sustained demand across our business. With the focus on operational excellence, we expect CORE EBITDA to continue to grow ahead of sales, delivering an improved CORE EBITDA margin. We reconfirm our midterm guidance of low-teen sales growth until 2024 and CORE EBITDA margin of around 33 to 35 by 2024. Before we look at our growth investments, let's have a look at our customer portfolio and pipeline. Over the course of the year, we strengthened our portfolio of customer collaboration. In 2021, we signed around 170 new CDMO customers on more than 400 new clinical and commercial programs. Looking at our customer portfolio, the geographical spread show our customers are predominantly based in the Americas, followed by EMEA. Our APAC customer base may be smaller but is strategically significant and looks set to grow in the future. Our work is fairly balanced between large pharma customer and small and mid-pharma biotech. To support our high level of customer demand and interest, we have continued with our ambitious CapEx investment program. New capacity and services were brought online as previous growth investment ramp up over the course of the year. For instance, our expanded capsule facility mean we can now produce around 250 billion capsules each year. We also expanded Microbial and Mammalian facility for biologics. Turning to growth projects announced in 2021, we started to make significant investments in many areas. In Biologics, we have invested to expand our offering across clinical development and manufacturing for both drug product and drug substance. In Small Molecules, we have invested in a new manufacturing complex in Visp. We have also expanded through acquisition and partnership. Our new site in Lexington and Siena expand our exosome offering within the Cell & Gene division. We are also achieving new milestones with BacThera, our new microbiome joint venture with Christian Hansen. We work to ensure that our long-term internal investment are derisked by selecting modalities with the greatest level of demand and commitment customer contract. This map show our investment across 2021 with H2 announced investment marked in blue. Many investments are designed to expand our current offering portfolio so we can provide a larger and more complete set of end-to-end solutions across modalities. The geographic spread and reach of our investment provides a manufacturing presence to fulfill the need of our customers, and is a key differentiating factor for us. We remain committed to maintaining our current level of growth momentum. An increased level of investment is critical to capitalize on the current market position and capture customer demand. It will enable us to support our customers, differentiate our offering and deliver long-term success. While continuing to drive our growth agenda, in 2021, we navigate a second year of which brought new opportunities and challenges. Our collaboration with Moderna was established back in 2020 to manufacture the mRNA drug substance for Spikevax. In our first year of collaboration, we ramped up new facilities in record time and commenced delivering of the mRNA drug substance. Building on this success, in H1 '21, we expanded our relationship with Moderna by confirming 3 new production lines in Switzerland and further production line in the Netherlands. Within our business, we have maintained momentum around our ambitious growth plan. Despite restriction on movement and interaction, we grew our employee community by more than 2,000 employees in 2021. This growth was enabled by virtual recruitment, onboarding and training program. Through the commitment and the effort of our teams around the world along with some increased inventories, we managed supply -- the global supply disruption with minor impact for our customer and our growth projects. We expect delivery and distribution issue to continue in 2022. As long as the condition remains comparable with the last 2 years, we expect to be able to manage the impact. However, we continue to observe the pandemic with humility and don't speculate on future events. As well as managing the ongoing impact of the pandemic in 2021, we have continued to focus on pushing forward with our sustainability agenda. As the results of the divestment of the Specialty Ingredients business, our CO2 footprint is now 35% smaller. During the year, we have also taken the opportunity to address legacy issue in our business. As announced in our half year results, we agreed on an investment to deliver a long-term remediation plan for the environmental issue in our Gamsenried landfill. We have also worked to reduce the environmental footprint of our ongoing operation. As a result, we have seen a relative reduction in greenhouse gas intensity of 11% compared to 2020. This corresponds to a 2.3 absolute reduction. Looking to the future, we are well positioned to deliver sustainable value creation. This commitment is supported by our ambitious environment and social target which are aligned with the United Nations Sustainable Development Goals. Starting in 2022, ESG targets have been incorporated to our global employee and executive remuneration policies. This will help us to ensure that our commitment remain a shared focus across the business. Our 2030 environmental commitment are shown here on the right. Based on our progress, we have increased our 2030 energy target from minus 24% to minus 36%. Additionally, we have an ambition to source 100% of renewable electricity by 2025. This new, ambitious plan will ensure that we maintain progress and momentum in this key area of our business. I will now hand over to Philippe to take us through the details of the full financial year.
Thank you, Pierre-Alain. Good morning and good afternoon. I may have had the pleasure of meeting some of you at the Capital Markets Day in October last year. But for those of you I have not met, I am Philippe Deecke, and I took the role of CFO in December last year. I'm pleased to share with you now a more in-depth review of our financial results for 2021. Before we start, let me remind you that all financials relate to our continuing operations, growth rates are reported at actual exchange rates, with the exception of sales growth, which is reported at constant exchange rates. First, on Slide 12, taking a look at our H2 and full year financial highlights, I'm happy to report that we have delivered a strong year surpassing our sales and meeting our margin guidance for the full year. Turning first to H2 results. Sales were strong with 25% growth benefiting from project phasing in Biologics and Cell & Gene. In line with our guidance in July, H2 CORE EBITDA margin was softer than in H1. This was due to a combination of factors, including project mix, cost of business ramp-up and phasing of one-off items. In H2, we have also seen some margin dilution arising from our low-margin energy and services sales to our former Specialty Ingredients business. Despite this impact, the H2 margin showed an improvement of 70 basis points compared to H2 2020. Looking now at the full year, our sales grew 20%, both at actual exchange rates and constant exchange rates as negative impacts from a weaker U.S. dollar were offset by stronger euro and British pound rates. As mentioned by Pierre-Alain we delivered a CORE EBITDA margin of 30.8% showing an increase of 20 basis points year-on-year. Turning to Slide 13, let's take a moment to look at our full year core EBITDA margin evolution in more detail. Many of our previous growth investments began to come online during the year and required investment during the ramp-up phase. We saw a negative margin impact of 1 percentage point from gross projects which was more than compensated by 2 percentage point gains in productivity. This came from improved operational excellence across divisions as well as a disciplined approach to operating expenses. To note, our operating expenses grew at less than half the rate of sales growth. Further, our margin was changed by some unfavorable impacts arising from project and divisional mix and the earlier mentioned low-margin sales to our former Specialty Ingredients business. Excluding these sales, top line growth would have been a very healthy 18% and margins would have seen a 70 basis point improvement. Stepping back, we are well on track for our midterm margin guidance and have managed to increase margins for the second year of the pandemic. While the pandemic led to some disruptions to supply, some batch delays and some cost increase in raw materials, we are happy to report that the overall impact remain manageable for us and our customers.On Slide 14, we share a few selected highlights of divisional performance. I will be brief as Pierre-Alain will provide more detail in the divisional deep dive later in the presentation. Looking at our divisions, we saw a strong performance across the board, with sales growth consistently outperforming the respective end markets and margin accretion in most divisions. In particular, we saw 24.7% growth in Biologics, supported by the ramp-up of large growth projects in key modalities, including Mammalian and mRNA. The growth projects however impacted our Biologics margin. Our Small Molecules divisions achieved double-digit growth at 11.6% driven by the ramp-up of commercial projects and despite the divestment of smaller noncore assets in Q1 2021. The Cell & Gene division was driven by continued strong growth of the Cell & Gene Technologies business as well as sustained demand for discovery services and testing solutions from Bioscience. Thanks to the improved operational delivery, the Cell & Gene Technologies business reached a positive margin in Q4. The strong momentum for Capsules & Health Ingredients continued during the year. Growth and margin improvements were driven by demand for hard capsules as well as the shift of the portfolio towards high-value offerings. Now turning to Slide 15, we have talked a lot about our CapEx growth investments, so let's take a moment to focus on CapEx. We are seeing positive fundamentals across all our markets and continue to make investments to capture these opportunities. For the full year 2021, we accelerated investments from around 20% in 2020 to now 24% of sales. From a total of CHF 1.3 billion of CapEx, around 80% was deployed for growth projects. I would like to remind you that we continue to apply strict financial thresholds when approving new growth projects and expect them to generate a ROIC north of 30% once they're fully ramped up. While large-scale mammalian assets can take up to 6 or 7 years to ramp up, investments in the other divisions have usually shorter ramp-up duration. Therefore, today's CapEx investment will generate growth in 4 to 6 years from now, beyond our midterm guidance. We also work to derisk our large investments by securing customer commitments for a significant portion of the asset through long-term contracts. We continue to see multiple opportunities for attractive organic investments, and we will continue on this accelerated path in 2022. This will be supported by our strong balance sheet following the divestment of the Specialty Ingredients business. More on this later. On Slide 16, we see the details of our operating free cash flow before acquisitions and divestments which amounted to CHF 0.4 billion in 2021. This corresponds to CHF 1.4 billion before growth CapEx and a strong pre-growth CapEx cash ratio of 27% of sales. I would like to highlight 2 items. First, our reported EBITDA, which is impacted by the provision for the environmental remediation of the Gamsenried landfill, but which has no impact on cash; second, the net working capital, which is down as a potential of sales despite growth in inventories to secure customer deliveries during the pandemic. Slide 17 takes a closer look at our ROIC where we delivered significant improvement in 2021. ROIC reached 10.7% as NOPAT grew 5x faster than invested capital. Our tax rate was slightly higher in 2021 compared to prior year, but remained below the midterm guidance range of 16% to 18%. This was driven by a favorable country profit mix and the provision for Gamsenried. Moving to the midterm, we expect our tax rate to converge to the guided range. The average invested capital grew only by CHF 0.4 billion despite significant investments in our asset base as it is partly offset by the Gamsenried provision. We expect a strong increase of invested capital in the midterm, driven by our continued growth investments. This leads me to Slide 18, my final slide, which shows our debt leverage. We ended 2021 with a cash position, including short-term investments of CHF 3.4 billion and a negative net debt leverage ratio of 0.5x CORE EBITDA. In H2, we are focused on efficiently managing the cash proceeds from the Specialty Ingredients divestment and have both repaid debt and placed funds in liquid instruments to reduce the impact of negative interest rates in Swiss francs. However, our main objective is to retain the flexibility to rapidly deploy funds in growth investments and bolt-on acquisitions when attractive opportunities arise. As a result of future planned organic investments and bolt-on acquisitions, we expect an increase of leverage in the midterm to our pre-divestment levels and remain fully committed to our current BBB+ investment rating. With that, I thank you for your time, and I will hand back to Pierre-Alain.
Thank you, Philippe. Let me now take a moment to provide a business update on each of our 4 divisions. Our Biologics business saw continued strong customer demand. Specifically, there was a high level of interest in our Ibex Dedicate offering and work has already started on the new manufacturing complex in Visp. This is expected to complete in 2024 with the majority of the facility capacity already reserved. In 2021, we brought significant expansion online across modalities. The first batch we have produced in our new Mammalian facility in Portsmouth, Visp, as well as Guangzhou, China. Demand for drug product across all modalities was [ fruitful ] for the year. As a result, we agreed investment in additional capacity in Stein, Basel and Guangzhou. In 2021, the biologic division delivered 24.7% sales growth at constant currency versus full year 2020. We have seen some margin decrease versus prior year as Philippe already explained. Sales growth momentum is expected to continue in 2022, driven by healthy market fundamentals. Turning to our Small Molecules business. We saw a significant number of new programs signed in 2021. During the year, the division played a key role in the supply of 5 innovator drugs approved by the FDA. We continued to meet high level of divisional demand by approving new capacity expansion. New manufacturing assets were brought online in Visp and started delivering commercial product to customers across bioconjugates and high-potency APIs. In 2021, we delivered 11.6% sales growth at constant currency versus full year 2020. The margin of 28% represents a slight increase compared to the previous year. Continued growth ahead of market is anticipated in 2022 as early phase drug product capacity in Bend and H -- high active API capability in Nansha, China will come online. Turning to Cell & Gene we are very pleased with the development in the division. Not only did we benefit from strong customer demand and improved synergy between the Bioscience business unit and our CDMO services, we have also achieved a positive margin in Q4 for our Cell & Gene technology business as anticipated in our H1 results presentation. In 2021, we continue to invest in innovative modalities. We have enhanced our exosomes offering with 2 new sites in Lexington and Siena. This will allow us to bring leading licensed exosome technology, expertise and capabilities to our customers. Looking at specific projects, we continue to drive the commercialization of our Cocoon platform. In H2, we entered into several collaborations allowing for continued adoption and development. In 2021, we achieved 26.6% sales growth at constant currency versus full year 2020. We delivered margin improvement versus the previous year to 17.6%. Continued sales growth is expected, driven by additional capacity coming online in 2022. Finally, let's take a look at Capsules & Health Ingredients. In 2021, the division saw solid demand across portfolio and region. We have delivered against our ambitious expansion plan, meaning we can now produce around 250 billion capsules annually. This drove 5.6% sales growth at constant currency for the full year 2021. 2021 also saw margin improve by 1.6 percentage points to 34.4%, driven by base business productivity and the focus moved towards higher margin and premium product like clean label capsule and active living ingredients. Turning to 2022. We anticipate similar business dynamics to continue. This is supported by sustained demand for our specialty capsules, which are enabling new product and application like capsule for dry powder inhaler. We anticipate that sustained demand for specialty capsule will support continued sales growth in 2022. Hence we conclude on the division, and I'd like to take a moment to focus on 2022. We expect to deliver another good performance in 2022 with low to mid-teens sales growth. CORE EBITDA will continue to grow ahead of sales which will deliver a higher CORE EBITDA margin in line with the midterm guidance. Our ambitious investment plan will continue with multiple attractive investment opportunity and CapEx expected at around 30% of sales for the year. As you have heard, we are pleased with the performance in 2021 and are confident in the underlying business fundamentals. We continue to see large market opportunity for Lonza, and are committed to continue extensive growth investment strategy to secure our long-term success. With the increased visibility since last October, we also want to reconfirm our midterm guidance for 2024. I would like now to take you through a snapshot of business priority for 2022. Our long-term growth is supported by a continued focus on CapEx investment and a selective approach to strategic acquisitions. We are continuing to accelerate growth to meet customer needs and drive long-term success in an area of sustained market demand. Our focus on operational excellence and lean approach to business is equally critical to our success. This will help us ensure that we can deliver with speed and efficiency for our customers while improving our own business performance. We will also continue to focus on differentiation through innovation across technologies, modalities and business model. We recognize sustainability is a critical component of our long-term strategy, and we'll continue to make progress with our ESG agenda.To briefly recap before Philippe and I take your question, 2021 was a successful year for Lonza. We achieved a strong financial performance while continuing to deliver for our customers and the patients and investing strongly in our future. We are looking forward to an exciting and busy year ahead as we will continue to improve and expand our operation. It is also the year of our 125th anniversary in which we will celebrate and honor Lonza past, present and future. With that, I thank you for your time and attention. Now we will take a 2-minute break to set up the video for the Q&A session. I will hand over to operator and look forward to seeing you in a few moments. [Foreign Language]
[Operator Instructions] The first question comes from Daniel Buchta from KZW (sic) [ ZKB ].
Daniel Buchta from ZKB here. My 1 question would be on the Biologics margin progression. I mean obviously, congratulations to the very strong second half figure here. However, I was surprised that with sites -- with the major sites now ramping up, you still have the significant growth investments on the P&L side. Is it fair to assume that this headwind, which you still have seen should now turn into a tailwind? Because to my analysis at least, all the bigger sites that you were ramping up, they are ramping up now, you should start generating revenues so that this headwind in 2022 then turns into a tailwind.
Philippe, do you want to take that one?
Yes, thank you, Pierre-Alain. Daniel, so you're right that we have started to ramp up several large assets in 2021. Now bear in mind that assets take a while to ramp up. This is not done within 1 year. Usually, large assets take 2 to 3 years to fully ramp up. So this is one aspect. So this -- some of it will continue in 2022. Plus we are restarting other assets that were announced last year, which are also being built and will ramp up in future years. So I think the margin dynamics for Biologics will remain the same. You have a portion of productivity, and you have a portion of dilution from growth assets.
The next question comes from Jo Walton from Credit Suisse.
Jo Walton from Credit Suisse. I just have a question about your business mix change. So we've seen that the Big Pharma has come down as a percentage of sales. We've seen that your top 10 has moved up materially as a percentage of sales from, what, 38% to 54%. I'm assuming that this is largely the Moderna relationship, so I wonder if you could tell us a little bit more about that and how the profitability of that may change as we go forward. And if I can just look at it more broadly in terms of the mix and your cash, I wonder if you could give us a little bit of help on what we should be thinking for, for the net financial income or expense for this year given the cash that you have sitting in the bank post LSI and what you're thinking of doing on the dividend.
Regarding the mix of a customer, we believe we have a healthy mix between commercial customer as well as clinical phase and early stage customers. Again, it's important to have this pipeline to feed long term the commercial manufacturing. You can see that our 10 biggest customers represent only a fraction, a little more than 1/3 of our wholesale. So we believe we are well balanced. And specifically to Moderna, we don't communicate the size of any sales of customer. Regarding the mix on the cash, Philippe?
Yes, so I think in terms of business mix, obviously, we have, I think, the 2 questions. The business mix, obviously changes over time as we have a fast-growing Cell & Gene business and some other divisions that grow less. So the business mix overall will slightly change. And if you're talking about our cash positions going forward, as mentioned, we have roughly 3.4 billion of cash, cash equivalents and short-term investments. We are -- we have very competitive rates, but now obviously, it's a difficult market to invest money at this point. So yes, we do have a negative interest on our cash, but this is well managed mainly in Swiss francs, so at low cost. So overall, we don't see a significant change in our interest and financial results.
The next question comes from Patrick Wood from Bank of America.
I'll keep it to 2, please. I guess the first one, the CapEx investments have been picking up and the growth investments have been picking up over time, which is great to see. But certainly 30% was more than I expected. So what is it that -- has something changed in terms of how confident you feel about putting more on the ground in terms of capacity than before? I saw obviously, your customer numbers went up by like 29% in 1 year. Are there certain things you're either seeing in the pipeline or discovering with customers that have triggered you to feel like, hey, let's go for it on the capital side? So that's the first question. And then I guess the second question is, obviously, as we've all discussed in the past, CapEx comes with OpEx to some degree as well. And versus the margin targets that were outlaid before, it seems the CapEx has been a bit higher than we previously thought. So I guess that's my roundabout way of asking, should we be thinking about the midterm margin range now, 33 to 35? Should we be thinking about the low end of that range is more likely? Or is that a bad read on my end?
So obviously, as we mentioned a couple of times in the past, when we invest CapEx, we make sure we derisk it. So again, our projects are at the risk with anchor customer, with a strong pipeline and we are confident on the investment. Again, just to remind you, some of the CapEx we announced last year, we spent the money over 2 or 3 years during the construction phase. So it's why we have some carryover of customers. Clearly, you have seen this year, a very strong dynamic in customers, and we seek to continue a demand which we want to capture. Regarding OpEx, you are correct. When we have CapEx, we have some OpEx. We have demonstrated this year with continuous improvement. We plan to offset that. And clearly, we don't have any changes on our midterm guidance, 33 to 35. And we are confident we can do that. We mentioned a couple of times, we see this increase of productivity to accelerate during the year. So we were speaking, it's not a linear development, but we see that accelerating and it's really realistic.
The next question comes from James Quigley from Morgan Stanley.
I've got one on the relative growth between 2022 and 2021. So growth is dropping from 20% in '21 as recorded to, I presume, 11%, 15%, thereabouts with the midterm guidance. So what areas of the business could see slower growth relative to 2021, especially how do you get to the low end of that range? Then particularly, could you talk through the Biologics acceleration in the second half of 2021 and the key factors for the growth in Biologics in 2022, as well as the sustainability of the strong growth seen in Biologics between now and the end of your guidance for 2024 and perhaps even beyond?
James, first of all, I would not read too much in difference between half year because with some of the customers having a campaign or not having a campaign, with new assets coming online, you may not always see a pure linear development during H1 -- compare H1 and H2. If you have a look on the future, clearly, I think we have multiple assets that we started this investment in '16, '17 coming online with anchor customers. So I think we have solid plan for the growth of Biologics in the year to come as long as we have provided the guidance. In specific areas like Cell & Gene therapy, we see really, a very huge demand and also portfolio maturing from really early clinical phase to late clinical phase and even commercial manufacturing. Philippe, anything you would like to add?
No. Thank you.
The next question comes from Richard Vosser from JPMorgan.
Just wanted to think about the impact of those growth projects and the operational efficiency. So you said, I think, accelerating operational efficiency. So should we anticipate more than 200 basis points of improvement from that going forward, let's say, in '22 and beyond? And the growth projects, given the accelerating CapEx, will that be more of a drag than 100 basis points? Just some clarity there would be very good. And then I just tagged one on the percentage that's already being contracted of the CapEx in '22. I think previously, we were looking at about 50% with the previous budget. Is that similar? Or with the very good customer acquisition, is that more than that 50%?
Okay. I will take the percentage of contracted and then Philippe will take the other question. So we don't provide exact number, but the definition is the mass majority is contracted. And probably, our understanding of vast majority is definitively more than 50%, much more than 50%. Philippe?
So I think you can think about the dynamics for 2022 to be very similar in terms of components than what you -- what I presented today for 2021. So there is a continued dilution effect from growth projects. We will see productivity mainly on our base business. And then we will continue to see some dilution from the annualization of the sales to our Specialty Ingredients business. So the components are the same. The size of each component is such that we believe there's an acceleration in margin accretion for 2022. But I wouldn't go into the details of each component, how exactly that's going to pan out. Obviously, there's multiple effects that will play into this.
The next question comes [ Jenna Li ] from FactSet. Jenna, your line is open, maybe you are on mute.We will take the next question. The next question comes from Xian Deng from Berenberg.
I have 1 kind of follow-up on 1 of the previous questions, looking at 2021, 2022 sales comparison. But my understanding is that a lot of your -- majority of your capacity, especially commercial capacity are booked at least 1 year before. In other words, you have very good internal visibility. And in 2H and 2021, you have very strong Biologics performance. And I was just wondering if you could give us some color, which projects and areas performed better than you previously expected at the beginning of 2021. And in general, like are there certain areas in your business that you have better internal visibility than others?
So to answer your first part of the question, for commercial assets, we have visibility more than for 1 year. Generally, we have long-term contract and we have visibility for multiple years, between 5 and 8 years. Clearly, I think, as you said, we overperformed last year, probably in some aspect, due to COVID related project. And also as the impact of the pandemic, rescheduling was probably less than initially anticipated. Another factor which contributes to the success is definitively the growth we have seen in Cell & Gene which was higher than anticipated, and this is more short-term contract.
Next question comes from Patrick Rafaisz from UBS.
I was just wondering, again, a follow-up on the dilution from growth investments. In the slides, you talked about 100 basis points for 2021. And -- but if I recall correctly, in H1, the dilution was 170 basis points. And has your calculation here changed or why? Because this would imply hardly any dilution in the second half of the year.
Philippe?
So no, there was no change in the way we compute dilution. I think there's maybe 1 effect, I think, the ramp-up of some of the Small Molecules projects, were commercial projects that ramp up more quickly. And so I think you -- when we talk about the dilution effect in these bridges, it's always a changeover change. So be aware, it's not an absolute value this year. It's the change over what happened in H2 2020. So overall -- but short message, we did not change the methodology. Second message, I think you will continue to see dilution over the years. The H1 to H2 swings, I wouldn't be too worried about.
Okay. And can I just throw in a quick related question on the margin outlook for Cell & Gene, right? I mean you managed to turn this profitable, EBITDA positive in Q4. Is that now sustainable? So will we have here nice space effect since the business was still EBITDA negative in the first 3 quarters of 2021?
Again, we don't provide so much of the detail, but just to give you perhaps some light of sight to understand the dynamics, definitively, we make it profitable end of last year. We see also this business maturing. Currently, we still have the vast majority of the program, which are clinical program. And as we evolve, this program moving to late clinical or even to commercial, we expect to see continuous margin expansion. So we mentioned, I think, in our Capital Market Day, but with time, you should expect to see the margin of this division be similar to other business at Lonza. But obviously, it will take some time as the portfolio is maturing.
The next question comes from Daniel Jelovcan from Mirabaud.
The question is on the Small Molecules. The growth slowed down in the second half to somewhere mid-single digit. And I think it's because of some portfolio divestments. Can you just remind me how big the impact there was? And should we be worried going forward? Or can we still, I guess, the low-teen growth also for Small Molecules?
Philippe?
So yes, indeed, we did divest 2 sites in Q1 2021. These were softgel sites that were deemed noncore to our future business in Small Molecules. So the main impact was seen in H2 of that, and we remain confident that the dynamics in Small Molecules are very good. Again, we saw a good uptake of some of our commercial projects, which should drive into 2022. So no reason to be worried on Small Molecules.
So the HP -- the highly APIs, they are like always, client dynamic, I guess?
Yes. Pierre, you want to talk to...
I have not understood the -- can you repeat your question, please, Daniel? I have not...
It's more dynamic, I think HP...
Definitively, it's more dynamic. Definitively.
The next question comes from Peter Welford from Jefferies.
If I may, I'll ask 2 questions. And just a point of clarity, just on the -- first of all, the business with Moderna, I just wonder if you can comment on your relationship there. I think you've said in the past that in 2022, this contract now shifts to commercial terms. I appreciate you would be drawn on the sales contribution, but can you just confirm that, that is the case and therefore, we should anticipate a different sort of profitability and impact this year relative to 2021? If I could maybe just briefly -- the comment you made about Asia Pacific becoming a more important client base, just wondering if you can comment though, how you could specifically see China. There's obviously been a number of debates, I think, over the course of the end of last year about potentially whether or not beating China is a good or bad idea with some of the relationships that there have been with companies across borders. Just wondering how you see the situation there and the appetite at the moment with some of your pharma customers who are willing to sign for you to produce drug within China. And then just a point of clarity if I can, for Philippe, can I just ask on the associates slide. The loss from associates were significantly bigger in the second half of the year. I thought that may relate to JV. Can you just also comment, was that a one-off? Or should we regard this JV loss in the second half to be representative of the future?
Yes. So regarding Moderna, again, I will reiterate, we don't provide details. But yes, we have -- we provided the information last year that we expect margin to increase with the time as we mature the relationship. So we will not provide more detail on that. Regarding APAC presence, again, you have seen we -- the vast majority of business is in America and in Europe, while we are growing presence in APAC. Regarding to China, we see 2 kind of demand for our customers. The first one, I think it's what I will call western company which want to be in China, and they ask us to be there because they don't want to invest themselves; or we have the opposite, we have startup in China, which are planning to put the product on the U.S. market and European market. And they would like to benefit for regulatory and quality expertise. So it's 2 of the drivers we see specifically to China.
Should I take the...
Sure. Yes.
So Peter, yes, the loss from associate company comes from the different JVs that we have. The number is actually very small, so I'm not going to comment too much on this. It's a very small, residual part of the commercial value of these JVs. So we're very confident with the JVs. I don't read too much into what end up in that line for these 2 big projects.
The next question comes from Parekh, Keyur from Goldman Sachs.
Hopefully, you can hear me okay. Two questions, please. The first one is on your kind of plans from an inorganic and growth perspective, I think, Pierre, you guided to going back to your, in the midterm, kind of 1.5x, 1.7x net debt to core EBITDA given where you are, that will inherently give you somewhere in the region of CHF 3 billion for you to kind of invest on that line. So the question is, how should we think about the speed at which you are planning to invest those CHF 3 billion? And how do you think about the trade-off between kind of new ventures versus buying something from an inorganic perspective? That's the first question. And then the second question, I suspect is kind of just following on the margin conversation. I think there is a lot of confusion on what it is that you are guiding to in '22 and the long term as well. What is factored into your 2022 guidance relative to increase in labor cost, et cetera? So as we think about the shape of that margin curve between 2021 and 2024, should we think of it as a linear progression? Should we think of it as '22 being lower than annual average, higher than annual average? Any color you might be able to provide, I think, will be very helpful for all of us.
Okay. Philippe, you want to take the first one?
Sure. So yes, indeed, I think we -- our balance sheet provides us the means to continue to invest the proceeds from the Ingredients business divestment. We will do this in 2 ways. We basically -- our capital allocation is mainly around organic growth investments. So that's what we will focus on. The -- and you see this in our CapEx guidance for 2022, that we are doing exactly this. So I think you can see this as well continuing for the next couple of years as we mentioned last October. Second priority would be bolt-on acquisitions. And there, obviously, we will see what opportunities come up. We are always very carefully assessing if it fits the strategy, if build or buy is the right strategy. So I think we are very careful at not overpaying when we could do this ourselves. But the main focus of utilizing this headroom, if you want, will be on organic growth.
Regarding the margin, we expect year-after-year improvement on the margin to give the guidance we provide for '24. We don't expect that to be linear, but at the same time, we don't expect [ anaschistic ]. So you should probably drive the curve between these 2 extremes. But we are planning an acceleration year after year on the margin improvement.
And just to confirm 1 thing, earlier -- which I think Philippe much earlier, we are now looking at 33%, 34% 2024 margins. Can you just confirm those numbers, please?
We see a margin of between 33% and 35% for 2024.
The next question comes from Alessandro Foletti from Octavian.
Yes, one on return on invested capital. You say that your new projects have a ROIC of above 30%. So if I do a little bit of math, you invest 80% in new projects, so all these new projects have a 30% ROIC. So when I -- still forward down the line, you have, at some point, 80% of your business at 30% and 20%, say, at current rate, 10%, you should end up at 25%, somewhere there around. Is this the right way to think about it? And secondly, by when?
Philippe?
So I mean you can do the math. The logic is sound. I think you have to bear in mind that we, of course, have also older assets and older projects. It's a constant flow of new projects coming in, but basically, I think when we approve such projects, they are -- once fully ramped up, they should -- that's the threshold we use. We mentioned before, and I mentioned in my presentation, I think the duration of such projects is quite long. So if you take large assets, which is the majority of these growth assets that we invest into, take about 6 to 7 years to fully ramp up. So this will come at term, but in the meantime, they, of course, deliver much lower return on capital, and this also takes your average down.
The next question comes from Paul Knight from [ KeyBanc ] Capital Markets.
Could you talk to the activity level you're seeing in the mRNA and RNA related customers? Is there increasing activity? Talk to that. And then the second question is supply chain. Are there any issues in the market to getting the materials that you do need?
Thank you, Paul. So on the mRNA, on top of our collaboration with Moderna, we see a lot of activity on the market. Today, there is more than 200 component in development in Phase I or in Phase II, again, which is really exciting and bringing this new modality to life. It's going to take years until it's fully materialized, but we are really confident with that and the number of inquiry to develop a strong business. Again, if you take the different duration of clinical phases, you should expect a strong business in this field, probably in the time frame of 3 to 10 years from now. Regarding supply chain, I think the situation is probably stable for the last 18 months. When I say stable, we see a small disruption, delay in delivery. I think we have been able to manage that with minor impact. We have increased our inventory. We have, from time to time, the need to reschedule some production. We have seen the impact last year. At the same time, I would say, with the strong collaboration with a key customer where we are a big customer to them, we are able to manage and to minimize the impact. So our assumption if this is staying like that, and according to our discussion is probably a situation, will stay in a similar way for the next 9 to 12 months. We don't anticipate a material impact to the business.Thank you, Paul. I would like to last question.
The last question for today's call is from John Kreger from William Blair.
Two quick ones. In terms of capital deployment, have you made a decision yet about how you're going to expand in the commercial scale, sterile fill finish? Is that a build versus a buy? And then second question is there's been quite a bit of cooling in biotech funding of late. Just curious if you're seeing that ripple through to impacting kind of early-stage development activity in your kind of early pipeline.
I will take the first one and Philippe will take the second one. Regarding capital deployment, again, we were quite clear and loud about our ambition to increase capacity in fill and finish. We are investing ourselves in commercial capacity, but we still look if there is opportunity to invest. And if we find the right asset, we would not hesitate to go at. So basically in summary, we pursue the 2 approach. Philippe?
Yes. John, so first of all, I'll start by saying that 2021 saw a record amount of money flowing into biotech funding. So I think this was a very big, big year for funding. Now we did cool off, I would say, probably the last couple of months of last year and early this year, but bear in mind that most biotech companies now are funded for many, many years. So I think the model has changed where usually funding is put in place for not only the early development phase but up to Phase II, sometimes even Phase III with the potential to actually commercialize the drug themselves before being bought up, which was the prior model. So I think at least what we see is we see a steady flow of still inquiries. And of course, our customers are well funded for at least several years to come.
With that, I would like to thank all of you for your attention today, and wish you an excellent day. [Foreign Language].
Thank you.
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