Lonza Drops After Currency, Water Unit Lead Sales to Fall Short

Lonza Group AG (LONN), the Swiss maker of drug ingredients and chemicals, fell the most in six months on Zurich’s stock exchange after reporting sales that missed analyst estimates.

The shares fell as much as 5.8 percent to 87.55 Swiss francs, the biggest intraday drop since July 25. Sales dropped 4.2 percent to 3.6 billion francs ($3.9 billion), weighed down by currency costs and a slowdown in demand for water-treatment chemicals. Lonza had guided for little change in revenue, and analysts had predicted 3.7 billion francs, on average.

Chief Executive Officer Richard Ridinger pledged to keep the company intact after the $1.3 billion acquisition of Arch in 2011 added cosmetic ingredients to a company involved in producing active pharmaceutical products and solutions for treating swimming pools. The CEO said his focus remains on pushing through a planned revamp.

Lonza traded 1.2 percent lower at 91.85 francs at 10:00 a.m. local time.

The company has appointed an adviser to help review options, including a sale or joint venture, of a wood-treatment unit that generates less than 300 million francs in sales, Ridinger said on a call. The possible disposal was announced last year. The process may start as soon as the end of this month and the unit made “tremendous” progress in sales and profitability in 2013, he said.

Complexity

Group earnings before interest and taxes, excluding peripheral units, increased by 11 percent to 436 million francs, ahead of the Lonza’s 10 percent target.

After closing sites and reshuffling top managers last year, Ridinger is seeking further improvements to the manufacturing network to reduce the complexity of Lonza’s business portfolio. The number of full-time employees fell by 854 to 9,935 in the 12 months through Dec. 31 as Ridinger pushed through a restructuring program.

“We are going to phase down some sites in China, but not to the same extent you have seen in 2013,” Ridinger said on the call.

“It’s a year of implementation, a year of re-focusing on growth.”

Revenue fell because of lower water-treatment orders, a revamp of the portfolio, unfavorable currency swings and the phasing out of a microbial plant in Massachusetts, the company said.

Water Commitment

Ridinger said he will keep hold of the water treatment business, acquired through the purchase of Arch Chemicals for $1.35 billion, even as a slow start to the summer in both Northern and Southern hemispheres dragged down sales of its swimming pool chemicals. The water industry is poised for consolidation, led by Ashland Inc.’s decision to exit its division supplying chemicals to treat municipal and industrial supplies.

“It’s the nature of the beast that you are dependent on the weather,” said Ridinger, adding that he would like the unit to focus more strongly on industrial and municipal water markets.

“What happened in 2013 should happen statistically once in a decade,” he said.

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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