The difficulties facing Lonza came into clear focus today as the company published its half-year results, with sales down across its custom manufacturing, organic chemicals and polymers businesses.
Overall, sales fell 10.4 per cent to CHF 1.157 billion (€749m) while operating income slid 19.4 per cent to CHF 157 million, not including CHF 52 million in charges relating to an ongoing restructuring exercise.
A revamp of the group's Exclusive Synthesis business, covering advanced intermediates and active ingredients, is now saving Lonza CHF 40 million a year, according to the company. However, a company-wide effort started in May to improve efficiency and reduce operating costs came too late to have a significant impact on the first-half figures, although savings of CHF 100 million should be realised over the next 12 months.
The Exclusive Synthesis business experienced delays in product approvals and de-stocking by Lonza's customers, while the group's biotechnology operations, Lonza Biologics and Lonza Biotec, were affected by delays and failures of customer products late in clinical development. Overall sales in these businesses fell 12.9 per cent to CHF 420 million, with operating income down 13.3 per cent to CHF 85 million and margins down slightly to 20.2 per cent.
Biotechnology was particularly hit by excess capacity in Lonza's 2,000L and 5,000L reactors, at a time when the group has unveiled a major investment in a 60,000L expansion at its Portsmouth facility in the USA. However, almost 90 per cent of the latter capacity is accounted for by long-term orders, and the company is confident that capacity in its smaller reactors will be refilled by 2004. In the meantime, "take or pay contractual payments will offset most of the profit shortfall in 2003," said the company in its interim statement.
As part of its restructuring exercise, Lonza has already said that it intends to combine all its current Good Manufacturing Practice-based businesses (Exclusive Synthesis, Biologics and Biotec) into a single division called Lonza Custom Manufacturing, in order to increase its capability to acquire new business and improve operating efficiencies.
Lonza's traditional activities - organic fine chemicals, performance chemicals and polymer intermediates - were hit by higher raw material and energy prices, as well as unfavourable exchange rates. Sales of organic and performance chemicals (now operating under the Lonza Organic Chemicals banner) fell 11.0 per cent to CHF 438 million, while operating margins also decreased from 18.5 to 17.4 per cent. Polymer intermediates' sales of CHF 298 million were 5.4 per cent down and operating margins were slashed to 6.4 per cent from over 10 per cent.