Net profit increased to CHF135m, up from CHF118m a year ago, but this was driven by lower costs, not increased sales. Total sales dipped by 2.1 per cent to CHF1301m.
The drop in sales was primarily caused by a weak first quarter at the custom manufacturing unit, the largest division, where revenues dropped by 6.8 per cent to CHF658m. This was due to low first quarter capacity utilisation at sites in Portsmouth, UK and Hopkinton, Massachusetts, US.
Biologic manufacturing capacity utilisation improved in the second quarter but is still below 2008 levels, and well below the historical highs achieved in 2006 and 2007.
Although the unit struggled in the latest financials Lonza is optimistic about the next 18 months. New contracts signed by the unit increased, contributing to “considerably higher” overall orders, and this is expected to drive stronger growth in the second half of the year and through 2011.
Over this period the effects of the restructuring project will also start to be felt. Lonza initiated the project in the fourth quarter of 2009 with the goal of reducing fixed costs by CHF70-80m. These reductions, achieved by closure of a number of sites, will be realised in the first quarter of 2011.
Unit performance
Bioscience sales also decreased, dropping by 9.4 per cent to CHF106m. Lonza attributes the decline to lower cells in therapeutic cell solutions due to longer or delayed approvals by regulatory authorities. It also noted that client R&D budgets are still below pre-downturn levels.
However, the cell solutions business has a strong and diverse pipeline and this, coupled to recovery of the biopharm production market, is expected to continue the upwards trend seen in the second quarter.
Life science ingredients sales grew by 5.9 per cent to CHF536m. However, higher raw material costs, unfavourable exchange rates and increased competitive activities are increasingly pressuring margins.