Lonza Meets Margin Goal Year Early, Yet Franc Clouds Outlook

Lonza Group AG, the world’s largest custom manufacturer of drug-ingredients, achieved a goal for margin improvement one year ahead of schedule, while the removal of a cap on the Swiss franc has clouded its outlook.

Earnings before interest and taxes increased 8.9 percent to 475 million francs ($545 million), the Swiss company said. That compares with an estimate from analysts of 472.9 million francs. Profit reached 20.4 percent of sales, exceeding a margin goal set for the end of 2015.

Chief Executive Officer Richard Ridinger, approaching his second anniversary in the role, is in the final stages of a three-year overhaul that’s included plant closures, disposals and other efficiency moves. Lonza paid $1.35 billion for Arch Chemicals to expand in ingredients to combat bacteria, used in water additives, detergents and cosmetics.

“We are reevaluating our outlook and will provide guidance at a later stage,” Ridinger said on a call. “These new challenges for our Swiss-based assets are manageable.”

Lonza shares gained 3.5 percent to 97.85 francs in Zurich trading as of 9:34 a.m., helping to claw back some of the 26 percent decline in the immediate aftermath of the exchange rate move.

Surprise Decision

The Swiss National Bank’s surprise decision last week to abandon the cap on the franc exchange rate has put added pressure on Lonza’s manufacturing site in Visp, Switzerland, where the company was founded. Products from Visp, which include aroma chemicals and health-food ingredients, compete globally. The SNB’s move could reduce earnings per share by 30 percent in 2015, according to Fabian Wenner, an analyst at Kepler Cheuvreux.

Ridinger’s using the task forces that originally worked on the three-year efficiency program back in 2011 and 2012 to tackle the latest challenges facing Visp. That means senior management won’t be distracted from working on the next stage of Lonza’s strategy, with details to be announced on April 28.

“There is nothing that’s unthinkable right now,” Ridinger said. “We have a bunch of measures and the task forces can find all the triggers much earlier this time.”

Only 11 percent of Visp’s sales are impacted by the franc exchange rate change.

Lonza is driving an overhaul in its water-treatment business to boost profitability by moving into more profitable industrial markets and the need for companies to conserve and reuse waste water.

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