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Lonza CEO steps down over poor 2003 figures

Despite heavy spending in sectors such as biotechnology, Lonza's 2003 results failed to live up to expectations Keystone

The chief executive of the Lonza specialty chemicals group, Markus Gemünd, has resigned as the company reported a 59 per cent fall in 2003 net profit.

This content was published on January 20, 2004 - 12:00

The results were particularly affected by restructuring costs stemming from poor sales to the company’s pharmaceutical customers.

Lonza said its profit of SFr91 million ($71.73 million) had been adversely affected by a one-off charge of SFr100 million related to the closure of some of its fine chemicals facilities.

Gemünd, who only took on the role of CEO in February 2002 after making a name in Lonza’s biotech business, is to step down as soon as a successor can be found.

The news sent the share price tumbling at the stock exchange. It fell by more than 11 per cent in early Tuesday afternoon trading to SFr62.80 from Monday's close of SFr71.25.

New leadership

A short company statement on Tuesday said that Gemünd felt that, given the market developments that had affected the performance in 2003, a “different type of leadership” was required to move the group forward.

“The CEO’s departure is no surprise,” said Jean-Marc Müller, an analyst at Bank Bellevue in Zurich. “There were indications a few months ago he would have to leave.”

Müller told swissinfo that one reason Gemünd had to step down might have been a series of clashes with the main shareholder until the end of last year, Christoph Blocher.

Blocher transferred his shareholding to his children after being elected to the government in December.

Low performance

Lonza underperformed the European chemical sector by over a quarter last year and gave a surprise profit warning in May, when the severity of the biotech sector downturn became apparent.

The company had increased biotechnology production just as the downturn hit, moving away from its original businesses of supplying the aluminium and chemicals markets.

But analysts say Lonza’s biggest problem is the exclusive synthesis division, which manufactures custom pharmaceutical intermediates.

They point to a lack of new drugs in the pipeline for Lonza’s customers, as well as the failure of some clinical trials.

Müller says that Lonza is not alone in this situation. “Clariant, which also has the same kind of business, is also suffering,” he said.

The SFr100 million restructuring charge in the division wasn’t the news the stock market was waiting or hoping for.

“Net profit plunged a hefty 59 per cent, and that’s clearly way below market expectations,” said Martin Vögtli at Bank Vontobel in Zurich.

Sales of organic chemicals were also hit in 2003. High prices, weak demand, currency fluctuations and competition from producers in developing countries, such as China, all weakened the bottom line.

“Significant setback”

Lonza said in its financial statement that in 2003 it had experienced a “significant setback in performance”.

The recovery expected in the second half did not materialise, it added.

Operating income before one-off items fell 28 per cent to SFr302 million on sales of SFr2.24 billion.

Lonza, which supplies biotech products to the pharmaceutical and agrochemical industries, said that in view of all the negative factors that had influenced the company in 2003, it was taking a “conservative and cautious” view of its earnings guidance.

It said it was aiming for operating income of at least SFr225 million this year, with earnings per share of SFr3, although analysts such as Müller are prepared to go as high as SFr4 per share.

Not happy

The chairman of the board, Sergio Marchionne, said in a Sunday newspaper interview that he was not happy with developments at the group and did not back his chief executive, prompting speculation that Gemünd could be replaced.

In Tuesday’s company statement, Marchionne thanked Gemünd for his contribution to Lonza over the past two years.

“The group now needs to rebase both its operations and expectations, and reaffirm its leadership position which has been earned over many years of outstanding delivery in terms of both technology and customer service,” he said.

swissinfo, Robert Brookes and Scott Capper

Key facts

Lonza describes itself as a life sciences driven chemical company.
It supplies active chemical ingredients, intermediates and biotechnology solutions to the pharmaceutical and agrochemical industries.
It offers a broad catalogue of organic intermediates for a wide range of applications, including pharmaceuticals, agrochemicals, vitamins, food and feedstuff, dyes and pigments, adhesives and fragrances.
Lonza also has a polymer intermediates division.
The company had 5,659 employees at the end of 2003.

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In brief

Markus Gemünd, CEO of the Lonza specialty chemicals group, has resigned after profit fell in 2003 by 59% to SFr91 million.

Gemünd only took over as CEO in February 2002.

The firm said it experienced a “significant setback” in performance.

The board of directors is to propose a dividend of SFr1.30 per share.

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