Lonza Continues to Make Measurable Progress in its Transformation

In 2014, Lonza delivered expected CORE EBIT growth of 11% in constant exchange rates (CER) (+9% in reported currency), compared with 2013. Lonza’s overall results confirm the updated guidance communicated during the third-quarter update. Both of Lonza’s segments — Specialty Ingredients and Pharma&Biotech — delivered a solid performance despite currency headwinds and the performance of the Water Treatment business.

Most of the individual businesses performed according to expectations. Unfavorable weather conditions in the Water Treatment business had a negative impact on revenues for the second consecutive year, as well as time-consuming, complex tech transfers and validations/qualifications in Pharma&Biotech businesses and portfolio optimizations; for example, the impact of Hopkinton, MA (USA) shutdown.

“For the third consecutive year, our full-year results demonstrate that we’re making good progress in transforming Lonza. Thanks to the efforts of our employees and managers, we will continue our journey from a product-focused organization into a market-driven one,” said Richard Ridinger, CEO of Lonza. “Our focus on quality and operational improvements produced positive results in 2014. We are also proud that during our ongoing transformation, we have achieved the best safety results in our company’s history.”

Specialty Ingredients Segment

In 2014 Lonza’s Specialty Ingredients segment delivered a solid financial performance with substantially improved profitability, more active portfolio management and marketing efforts, and more innovation. Innovative approaches resulted in a noteworthy number of new product launches driven by market demand and customers’ desire for technologically led, environmentally friendly and affordable solutions. CORE EBIT for Specialty Ingredients grew by 13.0% in CER (+7.1% in reported currency). 

Pharma&Biotech Segment

Lonza’s Pharma&Biotech segment experienced strong CORE EBIT growth of 15.2% in CER (+18.4% in reported currency) as efforts continued to refocus portfolios on higher-margin products and projects.
 

Custom Manufacturing, mainly the biopharma activities, benefited from solid outsourcing and dual-sourcing trends in the marketplace. Market interest and demand in new technologies — particularly for antibody drug conjugates (ADCs), cell therapy and viral therapy — continued in 2014. Lonza was able to accommodate manufacturing demand across technologies. These factors resulted in additional contracts for commercial and clinical-stage products. In addition, the company's Bioscience Solutions business developed well with product offerings to the pharma, biotech and research industries.

All 34 regulatory audits and 169 customer inspections were successfully completed; the significantly increased numbers over last year reflect the current substantially larger product pipeline and the more stringent regulatory environment in the pharmaceutical industry.

Financial Summary

• CORE EBIT grew by 11% in CER (+9% in reported currency)
• Lonza’s 2014 CORE EBITDA margin of 20.4% exceeded original guidance given in 2012 for 2015, one year ahead of schedule
• CORE RONOA increased to 14.3% compared with 12.3% in 2013
• Sales increased by 3% in CER (1.6% in reported currency) to CHF 3.64 billion
• Profit for the period increased by 172% to CHF 237 million
• CORE EPS increased to CHF 6.79, an increase of 36%
• Capital expenditure was CHF 180 million compared with CHF 210 million in 2013
• Operational free cash flow remained high with CHF 476 million
• Net debt reduction to CHF 2.0 billion resulted in a net debt/EBITDA ratio of 2.7x and a debt/equity ratio of 0.94x.

 

Outlook

The transformation of Lonza will continue in 2015 as planned. In 2015, Lonza will continue to focus on improving operational efficiency with a stronger focus on embedding quality and balancing the portfolio with a more favorable product mix of higher-margin products and services. Lonza is well positioned for further measurable positive development in 2015.

Underlying business performance leads us to be confident we will grow sales and profits in 2015. However, due to the recent and unexpected volatility in financial and currency markets, Lonza has decided to re-evaluate its outlook and to provide guidance for 2015 at a later stage. Lonza continues to have a positive outlook for the future as it is well positioned in its markets. Also Lonza has achieved a substantially better natural hedge with the Euro and US dollar since the acquisition of Arch and a more balanced spread of investments globally.