Premiumization and specialization drives capsule growth in Lonza’s 2021 results

26 Jan 2022 --- Lonza is seeing a portfolio shift to premium nutraceutical products, as well as sustained demand for specialty capsules. The Switzerland-based group’s 2021 financial results also reveal “strong momentum” driven by sales growth ahead-of-market across all divisions. 

“If you look at the end-customer trends, more people are looking for healthier options,” Ramin Cyrus, vice-president marketing, Capsules & Health Ingredients at Lonza, tells NutritionInsight. 

Therefore, Lonza is shifting production to more premium products such as VCaps Plus Capsugel, its vegetarian, cleaner label capsules. However, Cyrus stresses that it continues to offer a wide portfolio range of dosage forms, including budget-friendly options.

Notably, there are also new ingredients and dosage forms in the pipeline. “The one that appears to be of great interest to both our pharmaceutical and nutraceutical customers is our next-generation enteric capsule with unique enteric properties that allows for stomach transit and release in the distal intestine,” says Cyrus.

Lonza is working with select partners to finalize this new capsule that can be used in a variety of applications. Cyrus expects it will be available for general release later this year. 

Growth across the network
2021 was a year of transformation, consolidation and growth across Lonza’s global network, says CEO Pierre-Alain Ruffieux.

“During the year, we have experienced strong and sustained levels of customer demand across our divisions. This has provided opportunities to collaborate with new customers as well as extending relationships with our existing loyal customer bases.” 

He continues that the sustained high levels of demand can be addressed by Lonza’s new assets and facilities as they begin to come online.

“In 2021, we focused on executing our existing growth investments by ensuring a smooth and efficient ramp-up process as well as confirming new growth projects.” 

Demand for premium ingredients
The Capsules & Health Ingredients sector saw 5.6% constant exchange rate (CER) sales growth to reach CHF 1.204 billion (US$1.309 billion) in 2021. 

Financial and operational performance for Capsules & Health Ingredients in 2021. Lonza reports the division saw solid demand across product lines supported by particular regional interest from the Americas and APAC.

“We have delivered against our ambitious expansion plans, and our global capacity increased to around 250 billion capsules annually,” states the business. 

“To place this number in context, last spring the Capsugel brand celebrated the production of its 5 trillionth capsule. It took us approximately 60 years to reach that milestone. With our new capacity, it would now take us less than 20 years.”

Cyrus expands that the pandemic has accelerated demand for drug and nutritional supplements by bringing millions of new patients and consumers into the market faster than was projected. 

“In response, we have accelerated our capacity to meet this new higher base of customers.”

Lonza also has plans to further grow its capsule capacity throughout 2022. 

Additionally, demand for premium offerings such as clean label capsules and active living ingredients – like its organic UC-II collagen – led to an improved margin of 34.4%, compared to 2020.

Clean label demands have become a mainstay for the nutrition industry as consumers seek naturally sourced ingredients free from synthetic additives. This has been seen in NPD, which is also reflecting an evolving definition of the “clean label” term. 

Looking ahead, Lonza expects that sustained demand for specialty capsules will support continued sales growth in 2022. 

Targeting de-risked growth investments
Overall, Lonza is reporting sales of CHF 5.4 billion (US$5.9 billion) and 20% CER sales growth. Margin improvement was achieved through productivity improvements that were partially offset by ramping up growth projects and a negative mix.

CHF 1.7 billion (US$1.8 billion) core EBITDA resulted in a margin of 30.8%. Lonza acknowledges that reported EBITDA was impacted by the provision of CHF 285 billion (US$310 billion) for the environmental remediation of the old Gamsenried landfill, with no impact on core EBITDA and cash flow.

In 2021, capital expenditure reached 24% of sales, which Lonza says supports its long-term plan to deliver attractive margins through de-risked growth investments. 

Notably, it is expected to now increase to around 30% in 2022. Last year, these investments were supported by free cash flow, alongside the proceeds from the CHF 4.2 billion (US$4.7 billion) divestment of Lonza’s former Specialty Ingredients business. The company’s internal growth investments were accompanied by a selective approach to bolt-on acquisitions. 

Navigating the pandemic
Lonza also highlights it has successfully navigated global supply disruptions arising from the COVID-19 pandemic with manageable impact for its customers and growth projects. 

Although disruptions look set to continue into 2022, no material impact is anticipated as long as the conditions remain comparable with the previous two years.

Looking ahead, Lonza anticipates business momentum across divisions and ramping up growth projects will drive expansion at above-market levels. 

A continued focus on operational excellence is expected to deliver an improved core EBITDA margin, in line with the 2024 mid-term Guidance trajectory, which Lonza has reconfirmed.

By Katherine Durrell