Swiss fine chemicals producer Lonza is facing increasing pressure from emerging markets with sales of its organic and performance chemicals dropping 11 per cent in this year's first half.
Lonza blamed higher raw material and energy costs as well as a weak US currency for its first half performance, but sales of SF438 million were still down 3.7 per cent on a currency-adjusted basis and operating profit plummeted 16.5 per cent on last year's same period to SF76 million.
With strong competition from India and China, Lonza failed to fully pass on the higher raw material costs to customers, although it claims to have held onto market shares.
Strong first quarter sales of nicotinates (vitamin B3) were negatively impacted in the second by SARS and the outbreak of chicken disease in northern Europe, causing atemporary lapse in demand and pressure on prices, said the firm.
Lonza is hoping however to gain from increasing demand for nicotinamides, with production at its second nicotinamide plant in Guangzhou, China expected to start mid 2005.
There was also buoyant demand for intermediates used in the production of vitamins but Lonza failed to match the prices for hydrocyanic acid derivatives and diketene derivatives of its Asian competitors.
Similar performances were seen across the group's units, bringing May's revised guidance into reality. Group operating profit was down to SF109 million from SF207 million, with sales of SF1157 million dropping by 10.4 per cent, or 6 per cent inconstant currencies.
The group's debt and financial expenses have also increased although cash from operations was 20.6 per cent higher than last year. Group net income for the half including nonrecurring items came to SF83 million.
Lonza's board claims it will be able to improve on its first half year performance but stuck to a cautious outlook for 2004, merely committing to an improved performance over 2003 levels. The company has already announced restructuring of its operations, leading to a loss of around 500 jobs. Merging life sciences activites should reduce production costs. Organic Fine Chemicals, PerformanceChemicals and the Visp Service Center have been combined to form the newLonza Organic Chemicals unit.