The restructuring and cost-reduction programme initiated by the company in 2003 helped net income rise 51.5 per cent to SF 138 million (€82.7m), but this was accompanied by a 2.7 per cent dip in sales to SF 2.18bn and a cut in margins from 13.5 per cent to 9.9 per cent compared to 2003. Operating income before special items and amortization of goodwill decreased to SF 215m from SF 302m in 2003.
The company said the company was adversely affected by market conditions on both sides of the business. Custom manufacturing were affected by very low use of Lonza's 2,000 and 5,000l reactor capacity for mammalian cell production of biopharmaceuticals, while its chemical activities were hit once again by high raw material and energy prices.
In custom manufacturing, sales fell 19 per cent to SF 676m, while operating income dropped over 58 per cent to SF 61m.
The biopharmaceuticals business was hit by customer project delays and a lack of funding in the biotechnology sector, which particularly affected Lonza's mid-size reactors, although the firm said demand for its large-sized reactors was increasing. The company has decided to install a fourth 20,000l mammalian cell bioreactor that should go on-stream in mid-2006.
Meanwhile the exclusive synthesis business 'continued its slow improvement for the third consecutive semester', according to Lonza, but continued to be affected by a low rate of new and delayed drug approvals, pharma companies using their own capacity and overcapacity in the marketplace. There were positive developments with the first successful project in Lonza's Solid Phase Peptide Synthesis programme and the start-up of a manufacturing plant in China for active substances and intermediates.
In its organic and fine chemicals unit, the market is expected to remain competitive for a number of product lines, but the group said it will focus on niche markets in nutrition and cosmetics to support long-term profitability.
"The board of directors expects sales growth and a solid improvement in earnings in 2005 in line with our short-term, two-year operating income targets of between SF300 million and SF400 million," Lonza said in a statement.
The company ruled out a restructuring of operations, something that had been widely expected in the market.
Analyst Bernd Pomrehn at Bank Sarasin told an agency report that "people were hoping they would make a move to sell their polymer intermediates but there is no sign of that."
Lonza also said Rolf Soiron will succeed Sergio Marchionne as chairman of the board. Marchionne previously said he would step down after he became chief executive officer at Fiat last year.