Lonza hit by lower demand last year; cuts capex in 2010

By Gareth Macdonald

- Last updated on GMT

Related tags Generally accepted accounting principles Lonza

Full-year income at the Lonza was hit by falling demand for life science ingredients and custom manufacturing services and only modest gains for its bioscience unit.

Net income for 2009 fell 62 per cent to CHF159m (€107m), well below the consensus forecast of CHF237.4m predicted by analysts, while sales for the period was down 8.4 per cent to CHF2.7bn.

Revenue from life science ingredients business was down around 13 per cent to CHF1bn due, according to Lonza, to “the economic crisis and specifically by the downturn in diketene derivatives and Carboquat and the destocking of vitamins and vitamin intermediates.”

A similar pattern was repeated in Lonza’s custom manufacturing business, which saw revenue decline 6.2 per cent to CHF1.4bn. Again the Swiss chemicals firm attributed this to a decline in demand “due to clinical results driven order reductions.​”

Within this part of its business Lonza highlighted biologics manufacturing as being particularly impacted by lower-than-anticipated demand in the second half of the year, which resulted in significant capacity under utilisation.

The performance of Lonza’s bioscience unit, which combines the firm’s cell therapy and media manufacturing businesses, was more positive. Sales for the year grew 4.1 per cent to CHF231m.

The firm explained that its bioscience business had grown despite the postponement of a Phase III​ trial by a “key client” but did not provide any further details.

2010 outlook

For the coming year CEO Stefan Borgas was cautiously optimistic. He said that: “Although the environment remains unstable, we continue to be optimistic about our ability to deal with the situation​,” citing the “Project Bond” restructuring plan as a key part of the firm’s coping strategy.

Borgas added that: “The re-engineering project will result in significant generation of free operational cash flow in 2010,​” explaining that capital expenditure will be reduced from CHF500m to below CHF400m.

Vontobel analyst Carla Baenziger told Reuters that: "We believe that Lonza's performance will remain volatile​."

She added that: "The reduction in capex indicates that even management is sceptical about the next two years,​" Baenziger said. "We remain cautious for 2010 and 2011.​"

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