July 25, 2012 / 5:39 AM / 8 years ago

REPEAT-UPDATE 2-Lonza sees strong demand, confirms guidance

* Sees no need for capital for financing reasons

* H1 net profit drops to 94 mln Sfr vs 68.8 mln estimate

* Confirms financial targets, sets targets thru 2015

* Dealmaking on hold, to focus on operational improvement

* Shares up 5.5 pct

By Andrew Thompson

BASEL, 25 July (Reuters) - Swiss drug industry supplier Lonza posted a much smaller drop in first-half profit than expected as business held up well amid economic uncertainty and said it would not need to raise capital, sending its share up over 6 percent.

The company, which grew sales 64.4 percent to 1.96 billion Swiss francs following last year’s $1.2 billion buy of U.S. biocide company Arch Chemicals, also confirmed its guidance for 2012.

The shift to specialty chemicals has made Lonza less dependent on volatile orders from large pharmaceutical and generic drugmakers but the move back to a lower-margin business has hurt earnings.

However, the company said on Wednesday it still expects operating profit to rise up to 15 percent this year and disclosed 2015 targets for the first time, including mid-single-digit growth in annual sales and a margin on earnings before interest, tax, deprecation and amortization of at least 20 percent.

“Importantly, 10 to 15 percent EBIT outlook is reiterated and mid-term targets have been set by the new CEO, which are in line with our estimates and should reassure sceptics,” Jefferies analyst Peter Welford said. He rates the stock at hold.

The Basel-based group reported a 3.1 percent drop in first-half net profit to 94 million Swiss francs ($94.6 million), citing margin pressure in its main segment of chemicals custom manufacturing, versus an average estimate of 68.8 million francs in a Reuters poll.

Lonza’s shares, which hit an all-time low of 32.81 francs last month on fears of a capital hike, bounced over 7 percent in early trade, bucking a 0.2 percent fall in the European healthcare index.

By 1342 GMT, they were up 5.5 percent at 46.26 francs.

Lonza, which has net debt of 2.53 billion francs ($2.55 billion) following the Arch Chemicals takeover last year, said it would not need a capital increase for financing reasons.

Financial chief Toralf Haag told journalists Lonza had not breached the terms of its debt in the first half, and did not expect to do so this year or next.

New Chief Executive Richard Ridinger said that while the company’s focus in the past was on dealmaking, it would now concentrate on delivering promised operational improvements. A review of Lonza’s structure and business models is ongoing with further job cuts a possibility.

The company ousted former CEO Stefan Borgas in January after 2011 profit plunged by one third.

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