Lonza sales in first-half hit by recession and start-up costs

Lonza, the Swiss drugs industry supplier, saw its first-half net profit fall 33% to CHF 118m (Euro 78m; £67m), hit by "lumpiness" in its Custom Manufacturing division and a slowdown in parts of Life Science Ingredients. Group sales fell 9% to CHF 1.3bn.

The company said cost and efficiency improvements, along with lower raw material prices, partly compensated for lower capacity utilisation levels and limited the decline in EBITDA to 15% (CHF 300m).

Sales fell in Life Science Ingredients by 14% to CHF 506m. As expected, Microbial Control and Performance Intermediates were hit by stringent cost control and lower raw materials prices.

Compared with a strong first-half in 2008, sales declined by 8% to CHF 706m in Custom Manufacturing (Exclusive Synthesis and Biopharmaceuticals).

Lonza said Exclusive Synthesis suffered from an unfavourable product mix and from customers reducing their inventory levels. However, a stronger performance is anticipated in the second half.

Biopharmaceuticals also felt the effects of just-in-time ordering by customers. In addition, the division had to pay start-up costs from the opening of plants in China and Spain, and from making product changes at its plant in Portsmouth, NH (US). As a consequence, EBITDA dropped by 17% to CHF 179m.

Lonza said yesterday that it has combined Exclusive Synthesis and Biopharmaceuticals into a single entity called Lonza Custom Manufacturing in order to improve efficiency.

Sales in the Bioscience division rose by 9% to CHF 117m, driven by organic growth and the integration of Amaxa.

The company said all strategic projects going forward are on track. Project pipelines and the extension of the custom manufacturing business model to multiple product contracts leads Lonza to expect EBIT growth in the mid to high teens on average until 2013.