Lonza drives transparency with new structure and culture to “harmonize” business

16 Oct 2020 --- Lonza has established a new structure and culture for its businesses. The company now has a dedicated focus on the pharma and biotech industry, and has introduced a structural and cultural blueprint set to create a harmonized “one business” identity. This will also provide a greater level of transparency on company performance to Lonza’s investor and analyst community.

“The new structure is designed around the focus on Pharma, Biotech and Nutrition (LPBN). It also meets the needs of developing and manufacturing a more diverse range of modalities and products,” Claude Dartiguelongue, president of Capsules & Health Ingredients at Lonza, tells NutritionInsight.

The structure now comprises four business divisions:

• Biologics (representing 47 percent of sales).
• Capsules and Health Ingredients (representing 27 percent of sales).
• Small Molecules (representing 16 percent of sales).
• Cell & Gene Therapy and Bioscience (representing 10 percent of sales).

“If we look at our nutrition business, we now produce a range of different capsules and demand is growing. Each of these modalities has very different value chains and the new structure also gives them room to grow,” adds Dartiguelongue.

The four business divisions will be supported by five strategic global business functions: Operations, Quality, Commercial/Marketing, Finance and Human Resources. 

The business is currently in a period of transformation, and the new structure will become operational from January 1, 2021. External financial reporting will be updated to reflect the new structure.

Carving out LSI 
The structure was developed to increase divisional end-to-end performance accountability and strengthen governance and process excellence from global functions. This is while Lonza proceeds with the divestment of its Specialty Ingredients (LSI) segment. 

Dartiguelongue explains that LSI and LPBN were operating in very different markets with different dynamics.

“Both have opportunities for growth but Lonza has decided to carve out LSI and focus the Lonza business on the LPBN portfolio. There is increased competition and complexity in both the pharma and nutrition segments and this focus will allow us to continue to serve customers as their needs evolve.”

Lonza has started initial discussions with potential LSI buyers, but Dartiguelongue says it is too early to discuss reinvestment of the proceeds of the sale.

Updated financial reporting
The structural design is supported by internal cultural values, which include collaboration, accountability, focus, integrity and openness.

Meanwhile, the updated financial reporting fully reflects the new divisional structure, thereby increasing granularity on divisional performance for investors.

At a divisional level, key performance indicators will include sales, CORE EBITDA margin and CAPEX. These figures will also be provided for the group, alongside cash flow, ROIC, CORE EPS and Net Debt / CORE EBITDA. 

The new reporting steering model will also eliminate selected measures, including CORE EBIT and CORE RONOA APMs and increase the threshold for non-CORE adjustments to CHF20 million (US$22 million) per event.The Capsules and Health Ingredients sectors are set to see CAGRs of 3-4 percent and 6-8 percent growth, respectively, between now and 2023. 

Future outlook
Albert Baehny, chairman and CEO ad interim of Lonza Group, highlights the global demand for Lonza’s products and services. This is both a measure of resilience and the future growth potential for the business, he says. 

“Our current CAPEX plans for 2021 and 2022 are based on a solid projection of performance, which is reflected in the group guidance. Our future plans are built on the world-class quality of our product and service offering, alongside the trust and loyalty we have built within our customer community,” he notes. 

Pierre-Alain Ruffieux will become CEO in November. He remarks: “The new business structure, culture and financial reporting will provide a critical compass as we navigate our future.” 

“It gives me a solid foundation as I commence my new role and work to ensure that Lonza continues to optimize its global potential as a true leader in developing technologies to enable a healthier world.”

Results for Capsules and Health Ingredients
Despite being the second biggest sector, Capsules and Health Ingredients is seeing some of the slowest growth. 

While as a group, Lonza is expected to see double-digit revenue growth for 2023, Capsules is estimated to grow 3 to 4 percent, while Health Ingredients could grow 6 to 8 percent.

However, this is still above the projected market volume growth, which is set to be 2 to 3 percent and 5 to 6 percent, respectively. 

“We see strong demand for our capsules and ingredients as consumers become more health-conscious and look to nutritional supplements and new drugs. We are confident that we have the broadest portfolio, the network capacity, quality standard and the innovation power demanded by our customers,” says Dartiguelongue.

In July, the Capsules and Health Ingredients business reported that it was benefiting from a strong nutrition market, as the COVID-19 pandemic drove consumer interest in nutritional supplements.

Last month, the company launched its first probiotic ingredient for the sports nutrition market. Lonza is also active in the collagen space, targeting consumers across generations.

By Katherine Durrell