Strong Swiss franc hits profit and sales at Lonza

Acquisition of Arch Chemicals expected to balance volatility

Lonza reported a weaker-than-expected first-half profit due in part to the strength of the Swiss franc.

The Swiss ingredients manufacturer, headquartered in Basel, reported a 28% drop in first-half net profit to CHF97m (€84.2m; US$120.9m). Sales fell 8.3% to CHF1.19bn.

Stefan Borgas, Lonza’s chief executive, said in spite of the ‘heavy hit’ from the Swiss franc, the firm has delivered 5% growth in underlying revenues and operating profits.

‘Looking forward, our pipeline looks promising, our capacity utilisation is improving and our growth projects are moving forward,’ he said.

‘I am particularly excited by the opportunities that our newly focused strategy will allow us to capitalise on, not least the offer for Arch which is proceeding to plan and we expect to complete later this year.’

With the US$1.4bn offer for Arch Chemicals, Lonza has taken a step towards expanding its Microbial Control business, thus strengthening the overall business and balancing the portfolio.

In the short term, the impact of the strong Swiss franc is being mitigated in Visp and Basel by instituting longer working hours and mid- to long-term productivity improvements and portfolio upgrades.

Lonza said demand was high for life science ingredients but EBIT was significantly lower as most production in this sector is realised in Switzerland.

The Chemical and Biological Custom Manufacturing project pipelines were strengthened further and capacity utilisation increased in both businesses.

Bioscience sales were on a par with the first half of 2010 (+13.2% at constant exchange rates), with lower sales in media and molecular biology. Reduced spending by r&d at pharmaceutical companies, governmental agencies and academia had an impact on this business, the firm said.

Growth projects are moving forward with Lonza’s mammalian cell culture plant in Singapore starting up on time and on budget.

Additional growth projects remain on plan, including the expansion of cytotoxic manufacturing in Visp, the L-carnitine/PMDA plant and new niacinamide plant in China, increased capacity and r&d in Slough, UK, and the expansion of Development Services in Singapore.

‘Our sharpened five-year strategy will see the group remain firmly focused on life sciences with excellence in products and services which are complex, regulated and come in contact with the human body,’ said Borgas. ‘Lonza will move further into nutrition and microbial control to balance volatility in the CMO business.’

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