Lonza Business Performance on Track

April 25,2013

Lonza Business Performance on Track                        

  • Good performance in Specialty Ingredients market segment with slow start in the Pharma&Biotech market segment as anticipated
  • Successful pricing of a CHF 300 million straight bond at favorable conditions
  • New market focused organization taking shape
  • VispChallenge project on track; head count reduction in implementation phase
  • Project for reduction of site and administration complexity started and on track
  • Swords, Ireland site to be closed in the second quarter of 2013
  • CAPEX below last year levels                        

Basel, Switzerland, 25 April 2013 – In the first quarter 2013, Lonza’s business performance was solid and in line with expectations. While the Specialty Ingredients market segment showed a good performance, the Pharma&Biotech market segment had a slow start as anticipated. Growth in project pipelines demonstrates Lonza’s leading market positions. Strong cost controls and process improvements continue across the organization. Also, performance for 2013 will be geared towards a stronger second half-year 2013. Lonza reiterates its 2013 EBIT guidance growth of approximately 10%.  

Richard Ridinger, CEO Lonza, said „Earlier this year, we announced significant changes to our organization; aligning ourselves directly with markets we serve. I am pleased to report the newly focused organization is taking hold while delivering on our first quarter results. At the same time, we are working broadly to assess the performance and efficiencies across of our operations as well as administrative functions and we are making good progress; I am pleased with the results so far. Our first quarter results are in line with the expectations we have set out.“  

Pharma&Biotech Market Segment
The Pharma&Biotech market segment saw a good pipeline development across all technologies. As expected the segment had a lower capacity utilization in the first quarter of the year due to higher product changeover because of new project introductions as well as project delays at customers. Based on contracts and negotiations there will be a continuous ramping-up of the entire network in the quarters ahead.   Various long-term supply agreements for small molecule products were signed during the first quarter 2013 and the expansion of antibody drug conjugate plant in Visp is on track. Biological Manufacturing saw good pipeline development. The resolving of the Hopkinton, MA (USA) manufacturing issues remains a key priority and we are working diligently to address the manufacturing and process issues. The pipeline for cell and viral was strong with high number of new product candidates and for new clients. Lonza‘s Singapore cell therapy facility is on-line and the first GMP lots of cell therapy products were produced.  

Custom Development services saw good overall demand in the first quarter. Lonza’s XS Microbial Technologies™ was a catalyst for new projects in the first quarter. There was high demand for development and scale-up services using proprietary micro-reactor / continuous flow technology (MRT).   

The Media business had good sales and Cell Biology continued to perform strongly, supported by introduction of new products. The long-term collaboration with Sartorius is on track. Sequestration in the U.S. impacts academic and governmental sales and in Europe, Research and Testing businesses suffer from deteriorated economic situation. Testing Solutions is on target with strong growth in Asia-Pacific.  

Specialty Ingredients Market Segment
The Specialty Ingredients market segment had a good start into 2013 with decent overall market demand in most areas. All growth projects are on track.   The Personal Care market experienced good overall market demand. Preservative and Specialty Ingredients sales are tracking slightly ahead of target. We introduced new and innovative products for anti-aging, anti-acne active and a natural preservative providing a broad spectrum antimicrobial effect in cosmetic products along with fragrance enhancement.  

In Hygiene, there was solid performance in primary markets (Europe and USA) and sales were in line with budget and with improved margins. In response to the Influenza virus Type A, Lonza is able to offer a wide range of disinfectant grade products effective against these types of viruses. There is increasing interest for our disinfecting wipes against hospital acquired infections. Nutrition Ingredients experienced good overall market demand. Niacin had market demand as expected with pricing remaining at a low level.  

Lonza experienced high utilization of its Agro assets and a good visibility with orders throughout the end of 2013. Sales with Meta™ were strong in the first quarter in preparation for spring season in home and garden. The capacity expansion project for a multipurpose plant in Visp (CH) is on track for start-up at the end of the fourth quarter.  

In Water, Lonza had a good start in Europe due to positive timing of sales; this was counterbalanced by a slow start to the US season due to poor weather in March. The industrial, commercial and municipal markets continue to gain customer interest with new installations of our Pulsar Feeder.  

The Wood offerings experienced a better first quarter compared to prior year especially in the North American housing market, while the wood protection market holding firm in EU despite ongoing poor market conditions. In Industrial Chemicals, High Performance Materials from the electronics sector saw strong demand. HCN derivatives had overall sales above target, while diketene derivatives experienced strong demand but price pressure from competition in China and India.    

Efficiency Programs
Closure of Swords: The Swords (IE) site has experienced a low capacity utilization for some time with no foreseeable change to this trend. That is why we came to the decision to close this site to optimize the production network as intended in our global manufacturing footprint review. Beginning of March Lonza informed its 32 employees and 11 contracted staff at the Swords facility about the closure of the site. Swords was part of the legacy Arch Chemicals Inc. business which was acquired by Lonza in October 2011 and manufactures biocides, for example marine anti-fouling paints and metal working fluids, since 1966. In consultation with local employee representatives and authorities, Lonza will put in place a severance package which will treat all employees in a fair and transparent manner. The Swords plant is expected to cease its activities in June 2013. Lonza will transfer all products manufactured in Swords in close alignment with all customers to other operations within Lonza’s global network, mainly to its plants in Rochester, NY (USA) and Suzhou (CN). With our two larger well established sites in Rochester and Suzhou global demand can be met effectively in the years to come.  

The VispChallenge initiative is well underway with a diligent implementation of the different measures. We are confident that the number of required lay-offs will be well below the initially communicated magnitude of one third of a total of 400 positions.  

As announced at the last third quarter update Lonza initiated also a review of the Corporate Functions structure to optimize and adapt corporate service offerings and to realize sustainable improvements and savings. This program will lead to a reduction of 100 positions worldwide over 24 months of which 60 positions have already been implemented and is an important step into the streamlining of our administrative footprint.  

In summary, overall results for the first quarter as well as Lonza’s reorganization and improvement projects are on track. Lonza has a solid financial situation with pricing of a straight bond at favorable conditions. Looking forward, it is expected that the second half of 2013 will be stronger than the first half of 2013 and Lonza reiterates its 2013 EBIT guidance growth of approximately 10%.    

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