Lonza: global hedge helped offset currency exposure but Visp still a risk

21-Jul-2015 - Last updated on 22-Jul-2015 at 11:08 GMT

Lonza argues that its global hedge is starting to bare fruit

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Lonza has reported higher revenues and profits for H1 2015, but warned that the strength of the Swiss franc means its Visp facility is still finding it hard to compete.

The Swiss life sciences supplier saw revenue increase 6.1% to CHF1.9bn ($1.98bn) for the six months to the end of June, while earnings before interest and tax (EBIT) grew 7.9% to CHF260m. The sales contribution from its pharma and biotechnology unit was up 11.9% to CHF754m.

Lonza cited good capacity utilization for its custom manufacturing business – for both approved and Phase III drug products – and higher customer spending on custom development – particularly for biopharmaceuticals – as the key drivers.

The firm also said its deal with Index Ventures had resulted in two new contracts with biotechnology firms – for protein and cell line development, respectively – adding that its relationship with the venture capital investor meant the projects could begin quickly.

Strong Swiss franc

A negative factor that impacted Lonza during the first half of 2015 was the Swiss National Bank's decision to abandon the CHF1.20 per Euro exchange rate ceiling it imposed in 2011. The shock move saw the Swiss firm’s share price fall 17%.

Lonza' share price has since recovered, however, the firm acknowledged that the strong franc was continuing to impact its business, particularly in relation to its manufacturing facility in Visp where it has imposed a hiring freeze to reduce costs.

The firm said: “We risk being less competitive because of the Swiss franc-related fixed cost base there [in Visp]; so we have continued the existing Visp Challenge program started in 2012.

“The solid basis of this program allowed us to take a careful approach to the current challenges and to find dedicated, well-targeted measures, such as further automation, slight adaptations to our capacity offering in lower-margin assets and portfolio adaptations.”

Beyond Visp, Lonza said it has also worked to limit its exposure to currency fluctuations over the past few years, citing the acquisition of Arch Chemicals in 2011 as a successful example of these efforts.

“Since the acquisition of Arch Chemicals, Lonza has improved the natural hedge globally from a sales-versus-costs perspective for nearly all our trading currencies; so Lonza is less exposed from a Group point of view than in previous years.”

It added that: “Remaining foreign-exchange effects are being managed through business performance and counter-measures.”