October 31, 2012 / 7:11 AM / in 5 years

UPDATE 2-Switzerland's Lonza axes 500 jobs to cut costs

* Plans 400 job cuts at Visp site in Switzerland

* To cut a further 100 staff in corporate functions

* Confirms full-year and mid-term targets

* Shares slip 0.9 percent (Adds analyst, details, shares)

By Caroline Copley

ZURICH, Oct 31 (Reuters) - Swiss drugs industry supplier Lonza plans to cut 500 jobs, including 400 at its main plant in southern Switzerland, as it grapples with low-cost competition, a strong Swiss franc and higher raw material prices.

The cuts at the Basel-based firm, which makes pharmaceutical ingredients for drugmakers such as GlaxoSmithKline and Abbott, equate to around 5 percent of its global workforce of about 11,000.

In its third-quarter business update on Wednesday, Lonza said it was also looking at its global manufacturing operations for ways to improve profitability at other sites.

The group believes it is well placed to benefit from pharmaceutical companies’ efforts to make their manufacturing processes more efficient as they face patent expiries.

However, it has also been hit by volatility in that sector, where big drug hopes can fail clinical trials and sales can plunge if a medicine is linked to unwelcome side-effects.

Lonza’s profit tumbled by a third last year, and it ditched its previous chief executive in January.

The group said on Wednesday it would cut 400 jobs at Visp, southern Switzerland, and 100 management positions around the world over the next year.

It is on track to deliver productivity improvements worth 100 million Swiss francs ($107 million) at Visp by 2015, it added.

Profitability at Visp, which produces chemical ingredients and microbial biopharmaceuticals, has come under pressure from low-cost competition, as well as higher oil and energy costs.

Last year, Lonza introduced longer working hours at the site to protect margins after investors fleeing the euro zone crisis sent the safe-haven franc to one record high after another.


Lonza said its businesses had performed as expected in the third quarter, though it registered a slight softening in demand in its microbial control unit in North America and Europe as macroeconomic uncertainty weighed.

“The business update showed some weak points in some areas,” ZKB analysts said in a note. “Nonetheless we believe that Lonza’s business development on the whole is broadly solid, especially in the current difficult environment.”

Shares in Lonza were down 0.9 percent by 0930 GMT compared with a flat European healthcare index.

The company said it was on track to meet its full-year target for operating profit to rise between 10 and 15 percent and confirmed its 2015 targets for mid-single-digit percentage growth in annual sales and a margin on earnings before interest, tax, deprecation and amortization of at least 20 percent. 

Lonza moved back into speciality chemicals last year through its acquisition of U.S.-based Arch Chemicals, as it sought to shield itself from the volatile pharmaceutical industry.

The company said the integration was going as planned and that 90 percent of cost-saving measures had been implemented.

$1 = 0.9310 Swiss francs Editing by Mark Potter

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