Lonza maintains 2019 outlook, though speciality ingredients segment faces challenges

SWISS drug ingredients maker Lonza Group is maintaining its full-year outlook amid positive momentum in its core healthcare businesses and headwinds in its speciality ingredients segment, the company said in a business update provided on Thursday.

The company described the first quarter of 2019 as a "solid start" to the year. For the first quarter, Lonza's newly formed pharma biotech and nutrition segment came in ahead of expectations compared to a year ago, while its speciality ingredients segment performed below expectations, with sales on the same level as in the first three months of 2018, Lonza said.

Group chief executive Marc Funk said: "Q1 results demonstrate that Lonza today has two segments operating in different markets, and growing at varying paces; so their performance and challenges should not be compared... The most recent segment alignment will support us as we continue to capitalise on increased investment focus, synergies and productivity within the segments. The alignment is a priority to ensure we remain firmly on our growth trajectory."

The company said that the speciality ingredients segment faced challenges that afflict the wider chemicals industry.

"Softening demand alongside changing order patterns in end-markets had an impact on industrial applications like composites for electronics, especially in Asia, as well as on anti-microbial actives for paints and coatings and construction applications," the company said.

"The extent of the challenges across all (speciality ingredients) businesses were not foreseen in January 2019, and the implementation of additional cost containment measures in speciality ingredients has started to mitigate impact of supply-chain disruption and raw material input costs."

Nonetheless, the group is maintaining its outlook for the year. It expects mid-to-high single digit sales growth, and a sustained core earnings before interest, tax, depreciation and amortisation (EBITDA) margin level for 2019.

Following the disposal of its former water care business unit in February this year, Lonza has adjusted its mid-term guidance for 2022. It now expects sales of 7.1 billion Swiss francs, down from 7.5 billion Swiss francs announced in January, and a core EBITDA margin of 30.5 per cent, from the 30 per cent announced previously.

Lonza recently reorganised its business units. The pharma biotech and nutrition segment combines the former pharma and biotech segment and the consumer health and nutrition units. According to Lonza, these businesses share technologies and innovation insights in dosage forms and delivery systems and apply them to pharmaceutical and nutritional offerings. Meanwhile, the newly aligned speciality ingredients segment retains its consumer and resources protection, and consumer product ingredients businesses.

Lonza shares were trading at S$79.97 on Thursday before trading was halted at 11.30am ahead of the company's annual general meeting in Switzerland.