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07/26/2007
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| Lonza delivers an increase of 57% in EBIT and 82% in net income, based upon continuing operations. |
The recently completed growth strategy for Bioscience is designed to deliver enhanced returns. Lonza continues to successfully execute critical milestones of its long-term strategic plan.
Overview The first half-year performance was characterized by the effects of Lonza’s portfolio changes and solid developments in all businesses, with Biopharmaceuticals experiencing particularly strong growth. This elevated EBIT to
CHF 204 million from CHF 130 million, as compared to the first half of 2006, and led to a margin increase of 2.3 percentage points to 14.8% of sales. Along with the proactive measures that resulted in a low tax rate of 21.0%, the improved financial result led to an over-proportional increase in net income by 82.5%
to CHF 146 million. As a consequence, gearing declined from 92% at the end of the first quarter to 87%. RONOA continued to improve from 11.0% in the first half of 2006 to 13.8%. Sales in the first half of 2007 amounted to
CHF 1 374 million.
Strategy The projects designed to deliver sustainable, above-average, profitable growth, continue to be on or ahead of plan. Following the transformational changes to our portfolio implemented over the last year, 90% of Lonza’s sales now relate directly to the life-sciences. These changes are fully on track to create significant value and increase Lonza’s presence in high-margin, high-growth
areas. In the short-term, the priorities for 2007 are business delivery, integration of recently acquired assets and strategic reviews within the Organic Fine &
Performance Chemicals division.
Organic Fine & Performance Chemicals posted a satisfactory performance in the first half of 2007. Sales increased by 6.0% to CHF 564 million, a third of which was due to raw material price increases. Price initiatives and volume growth more than offset raw material price pressure, resulting in a
0.5 percentage point margin expansion to 14.0% of sales. EBIT thus increased by 9.7% to CHF 79 million. Similar trends are expected in the second half. Sales in the fourth quarter will be affected by the planned seasonal shutdown of the cracker in Visp (CH). Key divisional developments for the first half of 2007 include:
– Market shares in strategic business niches were sustained at the desired high levels, and capacity utilization overall remained high.
– Business performance was the strongest in Nutrition, driven by growth
in nicotinates, demand for Carniking® and Carnipure® and favorable weather conditions for Meta® sales.
– The Preservation business felt the slowdown in the US construction market.
– The project pipeline structure was adapted to reflect short, medium and long-term growth opportunities.
Exclusive Synthesis & Biopharmaceuticals increased sales by 45.2% to CHF 642 million (CHF 442 million in the first half of 2006). The significant
improvement in EBIT, which rose to CHF 117 million from CHF 72 million a year ago, was driven by Biopharmaceuticals. EBIT margins increased from 16.3% of sales a year ago to 18.2% thanks to strong capacity utilization and new projects coming on stream.
Biopharmaceuticals sales more than doubled from CHF 185 million in the first half of 2006 to CHF 400 million, due to strong internal growth and recently acquired assets. Capacity utilization was above 90%, batch success rates remained significantly above the industry average and batch scheduling favored the first half. This manufacturing success was supported by a strong pipeline of over 120 projects, reflected in continuous strong demand for our Microbial and Mammalian Biopharma Services.
Developments in this business sector include:
– Successful cGMP batches from the first 15 000-liter microbial line in Visp (Switzerland).
– Ground-breaking of the second large-scale mammalian facilities in Singapore and Portsmouth (USA).
– Seamless integration of the mid-scale mammalian assets in Porriño (Spain).
– Decision to consolidate the microbial plants of Baltimore and Hopkinton (USA), backed by strong customer support, accelerating by a year the anticipated break-even point to 2008.
– Expansion of Biopharma Services and R&D in the UK.
Exclusive Synthesis generated sales of CHF 242 million in the first half of 2007,
operating at over 90% capacity utilization. The slight decline compared with the
CHF 257 million posted in 2006 was due to the transformation of the plant in
Kouřim (CZ) and deferred delivery schedules. The turnaround project at the small molecule plant in Riverside (USA) is fully underway and the production ramp-up in the Belgian peptide facility is making progress, though is behind schedule. As a result, margins at half- year remained below expectations. We expect a pickup in profitability in the second half of 2007. The pipeline which again increased in the second quarter along with strong
customer commitment continues to support expansion plans. Noteworthy developments in this business sector include:
– Continuous rise in the number of inquiries for APIs (Active Pharmaceutical Ingre-
dients) production.
– Increased outsourcing of process-related R&D for key accounts.
– Continued investment in new technology platforms such as Highly Active Pharmaceutical Ingredients (HAPIs) and Antibody Drug Conjugates (ADCs).
– Small-scale API plant in Nansha (China) completed on time, going on stream in August.
– Construction of Lonza’s new large-scale API facility in China is well underway, backed by customer commitments. Production is expected to start in the second
half of 2008.
Bioscience Lonza’s new division is fully on track in its business plan in the first half of 2007, with strong margin delivery when excluding short-term integration costs.
Integration activities are progressing on schedule, while global sourcing synergies and the first cross-selling opportunities have been realized. The key elements of the
business strategy and its renamed business units are as follows:
– Cell Therapy – build upon leading position by developing innovative technologies for commercial production of cell-based therapeutics and leveraging Lonza’s custom manufacturing sales channels.
– Rapid Testing Systems – extend leading position in endotoxin detection systems by developing new technology platforms while also exploring new markets and
applications.
– Media – expand the specialist position to develop the next generation of media for biopharmaceutical manufacturing, while leveraging the Lonza sales channel to
deliver growth in the long term.
– Cell Discovery and Molecular Biology – accelerate internal development platforms in the area of cell handling, cell expansion and cell-based assays to
position the unit as the leading innovator and supplier of cell-based solutions for the global pharmaceutical and biopharmaceutical research markets.
Based upon the designed strategy, the financial targets for the division have been enhanced. Current business strength allows for an investment phase through 2007 and 2008 without impacting current margin levels. We forecast thereafter a stepwise acceleration of sales growth into the mid to high teens and a rise in operating income to over 20% of sales. As part of efforts to achieve these targets, R&D investments will be increased from 6% of sales to 8%, and capital expenditures of CHF 100 million will be disbursed over a four year period. In order to achieve the goals outlined in the strategy, the
number of Lonza Bioscience employees is expected to more than double in seven years taking the division to over 1 500 staff members.
Lonza Group Summary:
– The improved results in the non-core activities (see page 11) is primarily driven by the strong performance of the Singapore Purified Isophthalic Acid facility.
– As planned, capital expenditure was substantially higher than in 2006 to support growth (2007: CHF 261 million, 2006: CHF 148 million).
– Net working capital (NWC) in relation to sales declined further from 29.0% in the first half of 2006 to 24.3%, showing continued results of the NWC improvement program.
– Net debt amounted to CHF 1 535 million in the first half of 2007 following the recent acquisitions, but its ratio to equity has already declined from 92% in the first quarter of 2007 to 87%.
– In order to finance the acquisition of the Microbial Biopharmaceuticals and Research Bioproducts businesses from Cambrex, Lonza signed in December 2006 a syndicated loan of CHF 500 million with a consortium of banks. The syndicated loan has a five-year term, is based on floating rates and was drawn down in February. Lonza hedged the interest rate for the whole period of five years by means of an interest rate swap.
– Lonza added 1 311 employees to its workforce since the beginning of 2007, 1 115 of which came through acquisitions. Excluding these, the number of employees increased by 3.2%, in line with the long-term Human Resources strategy.
Senior Management Changes On 27 June 2007, Lonza announced the appointment of Marcela Cechova, prior Head of Lonza Exclusive Synthesis
Biochemicals and of the Kouřim (CZ) site, as the new Head of Global
Human Resources and new member of the Management Committee (MC). Jeanne Thoma, the previous Head of Global Human Resources, took over the role as Head of the Hygiene / Personal Care / Preservation business unit as
of 1 June 2007.
Outlook All strategic growth projects that have been conveyed are entirely
on track. With sound execution of its long-term plan, Lonza continues to drive aggressive growth initiatives in the form of strategic investments,
organic growth projects and targeted acquisitions.
Lonza reaffirms its guidance:
– Sales growth of 8 – 12% per year
– EBIT growth mid to high teens
– Project pipeline fully aligned to support growth expectations
– 2007 performance expected to exceed guidance (based upon continuing operations)
Lonza remains committed to its vision, with a passion to deliver sustainable value to its customers.
We express our sincere gratitude to our employees who work so diligently to help us achieve this aim, and to our shareholders and customers for their continued trust and confidence.
Rolf Soiron
Chairman of the Board of Directors
Stefan Borgas
Chief Executive Officer
For detailed information please view the attached PDF file
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