AMPAC posts Q4 loss as process improvement drags on profits
In the fourth quarter the return of antiviral sales and demand for central nervous system (CNS) and oncology ingredients drove triple-digit year-on-year sales growth at AMPAC Fine Chemicals (AFC). Despite the sales improvement AFC posted an operating loss of $1.36m (€1.05m).
“The primary setbacks were difficulty with the implementation of process improvement that was designed to offset reduced pricing on a core product, and also increases in major equipment maintenance”, Dana Kelly, chief financial officer at AMPAC, said in a call with investors.
Joseph Carleone, CEO of AMPAC, told analysts the problems are “largely behind [AFC]” and the team is “very, very close” to hitting its yield and throughput goals. Carleone said AFC will reach its target “very shortly” and, after a delay due to manufacturing cycle times, finances will also improve.
The other setback relates to bringing production capacity back online after a break around the start of the year. “When you idle chemical equipment very often you have a larger amount of maintenance when you bring it back online”, Carleone said.
AFC has also refurbished some equipment as part of efforts to prepare previously idle capacity for production of a ‘major antiviral product’. This preparation process has dragged on profitability.
“Dealing with new people, new process improvements and new equipment, exacerbated by increased maintenance requirements and competitive pricing pressures, did not allow the team to achieve the profitability levels we have seen in the past”, Carleone said.
Better days
After performing the work “a large part of the regrowing pain is behind us”, Carleone said, and AFC expects margins will improve. Carleone expects to add “at least two new core products” next year to support its other growth lines.
As well as resurgent antiviral sales AFC has benefited from demand for oncology and CNS ingredients. In 2011 oncology and CNS sales grew by 118 per cent and 49 per cent year-on-year respectively.
