October 29, 2009 / 8:22 AM / in 8 years

UPDATE 3-Lonza warns on profit and cuts jobs, shares slump

* Cutting 5 pct of workforce or some 450 jobs

* Aims to cut fixed costs by 60-80 mln Sfr ($59-79 million)

* Sees 2009 operating profit falling to 360-380 mln Sfr

* Drops mid-term target through 2013, sees more volatility

* Shares plummet 18 pct

(Adds analyst comment and shares)

By Sam Cage

ZURICH, Oct 29 (Reuters) - Swiss drugs industry supplier Lonza Group Ltd LONN.VX said it will cut about 5 percent of its workforce after order cancellations and postponements forced it to lower earnings targets, slamming its shares.

Lonza aims to reduce fixed costs by between 60 million francs and 80 million ($59-79 million) over the next two years, including cutting some 450 jobs, its chief executive said on Thursday.

“By no means are we in a recovery mode in any of our markets around the world,” Stefan Borgas told reporters. “The volatility within our markets has significantly increased ... We do not expect this to go away for the next two years.”

Lonza shares fell 18 percent to 87.00 francs by 0809 GMT, versus a 0.1 percent drop in the DJ Stoxx European healthcare index .SXDP.

Lonza has moved away from specialty chemicals to focus on higher-margin pharmaceutical ingredients, helping shield it from low cost competition from Asia which affects other companies like compatriot Clariant AG CLN.VX.

But Lonza -- where Fiat SpA FIA.MI CEO Sergio Marchionne cut his teeth as a turnaround expert -- cut its full-year target and now expects its operating profit to fall to between 360 million francs and 380 million in 2009, from 441 million last year.

It also dropped its mid-term target of average operating profit growth in the mid to high teens until 2013 and will announce a new outlook after the fourth quarter.

“We expect a double whammy hit for the shares today due to the earnings cut and likely multiple contraction as a result of weaker earnings growth and lower visibility,” said Deutsche Bank analyst Holger Blum.

Borgas said the disappointing forecasts were due to a combination of one-off cancellations and postponements and were not an indication of a long-term trend for drugmakers cutting back on outsourcing manufacturing.

Last week the group pulled a $460 million offer to acquire Canada’s Patheon Inc PTI.TO, citing the cost and the opposition of majority shareholder JLL, and Borgas said it was in talks with several parties on potential buys. [ID:nLK694742]

It had previously said operating profit would not increase in 2009 after first-half results were hit by customer destocking. (Editing by Greg Mahlich and David Holmes) ($1=1.019 Swiss francs)

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