Profits slump at Lonza as business is realigned
pharmafile | July 23, 2009 | News story | Manufacturing and Production | Lonza
Swiss chemical and contract manufacturing group Lonza saw a slump in sales and profits in the first half of the year, as weakening demand coincided with investments in bringing new plants online.
Lonza also said it had combined its Exclusive Synthesis and Biopharmaceutical business divisions into a single entity – called Lonza Custom Manufacturing – in order to improve efficiencies.
Sales were down 9% to 1.33 billion Swiss francs ($1.25 billion), with the decline offset by lower raw material costs and efficiency improvements, while earnings before interest and taxes fell by a third to 163 million francs.
Chief executive Stefan Borgas said the full-year earnings should be roughly in line with 2008, with a stronger second half propping up the lower figures in the first six months of the year.
Describing the sales pattern at its custom manufacturing unit as 'lumpy', Lonza said that the Exclusive Synthesis (which focuses on chemicals, intermediates, active pharmaceutical ingredients) was marked by a poorer product mix and a shift by clients towards holding reduced inventory levels as they adopt leaner, 'just-in-time' manufacturing models.
Meanwhile, the Biopharmaceuticals division suffered from similar trend, and the business was also held back by the opening of a new large-scale API plant in Nansha, China, the start-up of production at Lonza's unit in Porrino, Spain, and lower capacity utilisation at the group's US facility in Portsmouth, New Hampshire.
Despite the difficult operating environment Lonza is expecting things to pick up in the second half as the effect of inventory reduction peters out.
"Project pipelines improved significantly, and the trend toward outsourcing and more strategic partnerships was reinforced," said the firm in its interim financial statement, adding that it is running at around 80% capacity at the moment.
As part of the reorganisation, Stephan Kutzer, currently head of biopharmaceuticals, and Uwe Boehlke, head of exclusive synthesis, will jointly lead the newly formed custom manufacturing division. Both will continue to report to Lonza chief executive Stefan Borgas.
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