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01/24/2007
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| Lonza extends its successful track record by delivering an 18.1% increase in net income (CHF 222 million) and has accelerated the strategic shift to the life-science sector. |
EBIT in 2006 increased to CHF 344 million (+15.8%), compared with CHF 297 million the previous year. The main driver behind these positive results was the continuing improvement in the performance of our Biopharmaceuticals activities. Sales reached CHF 2 914 million, up 15.6% from the 2005 figure. Approximately half of this increase resulted from higher raw material prices. Good progress was made on the implementation of our strategy in 2006, which led to an enhancement of our guidance. The Board of Directors is proposing a dividend of CHF 1.50 per share.
Overview The 2006 business year was characterized by successfully transforming our portfolio to the life-sciences which will make up 90% of our sales in 2007. Divestiture of non-life-science activities (Polynt S.p.A. and LOFO GmbH) and acquisitions in the life-science sector (Peptides, mammalian mid-scale capacity in Porriño, Spain and pending close of Cambrex Bio-businesses) is expected to create significant value and increase Lonza’s presence in high-margin, high-growth businesses.
The Group’s 2006 operating income margin was maintained at 11.8%, while RONOA improved to 12.2% as compared to 10.9% in 2005. Cash flow before change in net working capital increased from CHF 386 million in 2005 to CHF 429 million in 2006.
Net working capital (NWC) in relation to sales declined from 31% to 26%, demonstrating effective implementation of the NWC reduction project that was initiated at the beginning of 2006.
Strategy The strategic projects designed to deliver sustainable, above-average, profitable growth were effectively executed in the reporting year as planned. The highlights of 2006 are summarized below:
Biopharmaceuticals
– Construction of a large-scale mammalian manufacturing facility was initiated in Singapore, a pioneering project in the south-east Asia region.
Genentech has an exclusive option to buy this plant.
– Lonza will build a second 80 000 L mammalian cell culture manufacturing facility in Singapore.
– The fourth 20 000 L bioreactor in Portsmouth, NH (USA) came on stream ahead of schedule in May 2006.
– Laboratory space and clinical production capacity was expanded in Slough (UK).
– In November of 2006, the first of the two 15 000 L microbial bioreactors in Visp (Switzerland) was started up on schedule in cooperation with UCB.
– The acquisition of a mid-scale mammalian cell culture facility (4 x 10 000 L) was completed in Porriño (Spain).
– Successful demonstration of effective large-scale production capability using cell culture-based starting material for vaccines.
Exclusive Synthesis
– The Lonza Braine peptides business was successfully integrated.
– The active pharmaceutical ingredient (API) facility and small-scale plant expansion projects in China are on track.
– The drying line in the new API building in Visp (Switzerland) has been operational since December 2006.
– Production modifications for the fermentation of high-end enzymes at the Kouřim (CZ) facility are on schedule.
Organic Fine & Performance Chemicals
– Amine capacity expansion, based upon new and innovative technology, in Mapleton, IL (USA) in order to secure market leadership in North America is well under way.
– The engineering of an amines production base in China to service the Asian market has been initiated.
– The integration of the Larch Arabinogalactan business, acquired in May 2006, into the Nutrition business unit was completed.
Polymer Intermediates (Polynt S.p.A.)
– The financial figures for this division are included until October 30, 2006.
– The initial public offering was completed (including Greenshoe) at the beginning of November 2006.
– Lonza retains a 31% minority stake in Polynt S.p.A.
– The purified isophthalic acid plant in Singapore is retained by Lonza.
Lonza Group
– As planned, the capital expenditure of CHF 371 million (excluding acquisitions) was higher than in the previous year (CHF 272 million) due to strategic projects.
Outlook All major strategic projects are fully on track. In addition to the projects announced in 2006, new opportunities were identified, as well as challenges which are being addressed. Major investments for organic growth projects are the primary drivers for delivering sustained profitable growth rates in the long term. Some examples of future development projects are:
– Multi-purpose shell expansion in Portsmouth, NH (USA).
– Reactivation and expansion of a previously mothballed reactor in Portsmouth, NH (USA), to deliver 5 000 L capacity.
– Potential construction of a third production line at the large-scale microbial plant in Visp (Switzerland).
– Detailed preliminary study and basic design development for a vaccines plant in Portsmouth, NH (USA).
– Additional capacity for the synthesis of highly active pharmaceutical ingredients.
The integration of acquisitions and one-time cost of strategic projects will amount to approximately CHF 35 million in 2007.
Annual overall investment will be between CHF 350 and 500 million for the next years.
As a result of sound execution of our long-term strategy, Lonza expects:
– Sales growth of 8 - 12% per year
– EBIT growth mid to high teens
– Project pipeline fully aligned to support growth expectations
Visibility of contracts and projects, together with economic conditions, supports continuous growth until 2012.
Net debt and bonds In February 2006, the CHF 375 million straight bond issued in 2003 by Lonza Group Ltd was repaid in full. At the end of June 2006, the CHF 300 million convertible bond issued in 2002 by Lonza Finance Limited, Jersey, was also paid back in full. Both bonds were successfully re-financed in the second half of 2005 at attractive conditions.
Net debt decreased to CHF 913 million compared to CHF 962 million at the end of 2005. The decrease of the net debt is mainly related to the listing of 69% of Polynt S.p.A. (formerly Lonza SpA) on the Italian Stock Exchange.
The debt-equity ratio improved to 57% despite the acquisitions in Braine-l’Alleud (Belgium) and Porriño (Spain). This ratio will remain well below our threshold of 100%, even after the completion of the acquisitions of two Bio- businesses from Cambrex which is expected in the first quarter of 2007.
People Lonza increased its focus on leadership development, with the creation of a Career Development Center designed to develop future leaders for senior management positions. With the full support and participation of the Management Committee, the leadership skills of our most promising talents were assessed and individual development plans implemented. In addition, a further one hundred talented members of the next levels of management underwent an online assessment and similar individual de-
velopment plans were put in place. Beyond leadership development, our efforts focused on improving management skills, legal compliance, contin-uous improvement of our sales and marketing skills and the increased use of online learning tools.
Senior Management Changes Lukas Utiger assumed the role of Head of the Organic Fine & Performance Chemicals division on August 1, 2006.
Effective January 1, 2007, Uwe H. Böhlke joined Lonza as a Management Committee Member and Head of the Exclusive Synthesis business sector.
We wish to take this opportunity to express our sincere gratitude to our shareholders and our customers for the trust they have placed in us over the years. We also owe a particular word of thanks to all Lonza employees, old and new, for their outstanding efforts and vital contributions to the successful implementation of our growth strategy.
At Lonza we remain faithfully committed to our vision. Our passion is to deliver sustainable value to our customers.
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Rolf Soiron
Chairman of the Board
Stefan Borgas
Chief Executive Officer
For detailed information please view the attached PDF file |
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