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Lonza showed impressive year-to year performance

Lonza is an integrated solutions provider and a pharmaceutical supplier that is going to have a new CEO at the end of 2020. As known, 2019 showed the company’s increased sales by 6.8% to $6.1 billion (CHF5.92 billion). The share on a dividend will remain $2.84 (CHF2.75). The Pharma Biotech & Nutrition (LPBN) segment remains the highlight in Lonza, as it’s sales increased by 11%.

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This picture show a person mixing some chemical components.

Lonza grew again in 2019 thanks to its activities as a pharmaceutical supplier. By contrast, some areas of the chemical products business showed signs of resin formation. The Basel-based company intends to present a new CEO before the end of this year.

In 2019, Lonza increased sales by 6.8% to $6.1 billion (CHF5.92 billion), the company announced on Tuesday, January 21. Of this, $1.58 billion (CHF1.53 billion) remained as operating income (EBITDA), 6.7% more than in the previous year.

Lonza also reported figures adjusted for provisions and restructuring costs. The so-called “core EBITDA” increased by 7.2% to $1.67 billion (CHF1.62 billion) with a margin of 27.4%. This is 0.1% more than in the previous year.

The bottom line was a net profit of $788 million (CHF763 million), an increase of 16%. The Board of Directors proposes the payment of an unchanged dividend of $2.84 (CHF2.75) per share. These figures more or less met analysts’ forecasts.

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Strong pharmaceutical division

The highlight at Lonza is, and remains, the Pharma Biotech & Nutrition (LPBN) segment, which supplies pharmaceutical companies with active ingredients for drugs, among others. The sales climbed by 11% to $4.3 billion (CHF4.17 billion) and core EBITDA by 10% to $1.41 billion (CHF1.37 billion). Only the capsules and food ingredients business, part of the LPBN division, fell short of expectations, Lonza added.

Lonza has made “significant” investments in future growth – including $811 million (CHF786 million) at its main plant in Visp in 2019 – and spending this year is expected to be similarly high. At the same time, Lonza is also a “job engine”: in 2019, the company have hired more than 1,000 new employees – with a further 600 to be added in 2020.

LSI with problems

According to Lonza, the Specialty Ingredients segment, which produces disinfectants and wood preservatives, among other things, continued to face “adverse” conditions. Particular mention was made of lower demand from the automotive industry and agriculture.

Expressed in figures, sales at LSI fell by 3.2% to $1.74 billion (CHF1.69 billion) and operating profit EBITDA fell by 0.3% to $311 million (CHF302 million). However, the margin rose slightly to 17.8%. This was achieved thanks to price increases.

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Last summer, Lonza announced the spin-off of its chemicals business. According to the company, the move should be completed by mid-2020. According to the plans, LSI will be spun off but will remain owned by Lonza.

Medium-term objectives confirmed

For 2020, Lonza is forecasting a sales growth above the mid-single-digit range and a stable core EBITDA margin. This will result in high single-digit growth for Pharma Biotech & Nutrition and low single-digit growth for Specialty Ingredients.

The 2022 targets remain in force and by that year Lonza aims to increase sales to $7.33 billion (CHF7.1 billion) and the core EBITDA margin to 30.5%.

The search for a new boss for Lonza is still ongoing. The process should be successfully completed during 2020 with the announcement of a new CEO, the company stated on Tuesday, January 21st.

In mid-November, Lonza’s CEO Marc Funk surprised everyone by announcing that he would be stepping down after only eight months in office. According to the company, the resignation was “for personal reasons”. Funk’s predecessor Richard Ridinger had previously headed the Basel-based company for seven years. Currently, Chairman of the Board Albert Baehny holds the position of CEO on an interim basis.

Lonza shares quoted at a fixed price

On Tuesday, January 21st, the shares of the Basel-based pharmaceutical supplier Lonza stood out from a weak overall market with rising prices. The 2019 annual figures, published in the morning, were almost exactly in line with analysts’ expectations. Only the dividend could have been a little higher, according to experts.

On the morning of January 21st, Lonza’s names are listed on the Swiss Stock Exchange 3.67% higher at $396 (CHF380.90). The overall market (SMI), however, is slightly lower. All in all, the analysts’ verdict is that the 2019 business results have met expectations. Nevertheless, the analysts at Baader Helvea have awarded it the rating “outstanding”. And Falko Friedrichs of Deutsche Bank pointed out that the second half of 2019 showed the first signs of recovery.

Peter Welford of Jefferies sums up that the strong pharmaceutical-biotech business compensated for the weaker chemicals business. This was also expected, according to Credit Suisse.

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As usual, Lonza has issued rather conservative guidance for the current year, contrary to analysts’ assessments. The company has “only” set itself the goal of keeping the operating profit margin stable, which is considered disappointing for ZKB. That could lead to a reduction in earnings estimates in the range of 1% to 2%, Welford thinks. The colleagues at JP Morgen even expect a reduction of 2% to 3% in the consensus estimates. This does not worry Welford any further, however, as this was expected by many market participants, added Friedrichs of Deutsche Bank.

UBS experts described the guidance on capital expenditure as slightly negative, with capital expenditures to be the same in 2020 as in 2019, and the lack of a strategic update.

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(Featured image by Alex Kondratiev via Unsplash)

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Michael Jermaine Cards is a business executive and a financial journalist, with a focus on IT, innovation and transportation, as well as crypto and AI. He writes about robotics, automation, deep learning, multimodal transit, among others. He updates his readers on the latest market developments, tech and CBD stocks, and even the commodities industry. He does management consulting parallel to his writing, and has been based in Singapore for the past 15 years.