Lonza Group – Q3 business update
28 October 2011, BASEL, SWITZERLAND – In the third quarter, Lonza’s solid operating performance continued with capacity utilization remaining at good levels and project pipelines increasing in key areas of our business, especially in chemicals. Custom Manufacturing in particular has been able to capitalize on its global leadership in biologics. However, this underlying growth has been masked by the strength of the Swiss Franc and the impact of higher raw material costs which take time to pass onto customers. In Switzerland, further measures have been taken to improve productivity to help offset the impact of the stronger currency. Looking ahead to the remainder of the year we expect further solid progress based on our current order pipeline.
Stefan Borgas, CEO of Lonza comments, “We continued to see good underlying performance from our Custom Manufacturing business in the third quarter. As in the first half we are working to address the strong Swiss franc and higher raw material costs which have particularly impacted margins in Life Science Ingredients. We remain on track to deliver underlying sales and EBIT growth in 2011. In recent weeks we have completed the acquisition of Arch to create the world leader in Microbial Control and have listed our shares on the Singapore Stock Exchange. These important strategic initiatives are designed to extend our interconnected life science platform and to support our growth ambitions in Asia.”
Life Science Ingredients saw satisfactory underlying demand in most areas, however margins were impacted by the strong Swiss Franc, higher raw material cost and competition. In Nutrition Ingredients, nicotinates margins suffered from competition. Performance Intermediates continued to experience strong demand and the first commercial deliveries from the new PMDA plant in Nanjing (China) started in October. Microbial Control achieved higher volumes in its key strategic growth markets including China but industrial applications saw slightly weaker sales.
Custom Manufacturing continues to benefit from good levels of capacity utilization and growing project pipelines. In Chemical Manufacturing we have seen higher sales in local currencies but margins have been impacted by product mix. Our small and large scale manufacturing capacity in Nansha (China) is experiencing high demand from both local and global pharmaceutical customers. The very satisfying growth in our chemical project pipeline reflects our broad and unrivalled technology offering.
In Biological Manufacturing, we have enjoyed a high level of capacity utilization. In Singapore we have completed the process validation in the 20,000 liter fermenters for our first customer on time. In the third quarter we signed a number of new manufacturing contracts and continued our business development activities to expand our customer base in Asia, particularly Japan. We have also responded in a timely manner to an FDA warning letter relating to our Hopkinton facility and have subsequently instigated a review of the systems at all our manufacturing facilities. The FDA letter will however result in the delayed release of a number of product batches. Development Services has continued to make good progress as a result of further new customer agreements.
Our Bioscience business continues to recover although at slower pace than anticipated mainly due to constrained academic budgets as governments limit their investment in research. In Cell Therapy we signed an important new collaboration with the Australian cell therapy leader Mesoblast. We have also seen strong interest in Cell Therapy and Viral Vector based therapy development services.
Arch acquisition completed ahead of schedule
On 20 October 2011, Lonza announced that it had completed the acquisition of Arch creating the global leader in microbial control. Arch will be combined with the company’s existing operations to form a new business sector Lonza Microbial Control. This business will have sales of approximately USD 1.4 billion with market leadership in water and hygiene, and additional growth potential in materials protection and personal care. The business will help expand Lonza’s footprint in China, India, Brazil and South Africa and bring it closer to a number of attractive end customer markets.
Listing on Singapore Stock Exchange
On 21 October 2011, Lonza’s shares began trading on the Singapore Stock Exchange. This secondary listing reflects Lonza’s growing engagement with Asia. It will also provide the company with the ability to raise additional capital from Asian investors to finance strategic growth opportunities.
