Description of the Business
Fine Chemicals & Catalysts Division is a global supplier of fine chemicals, catalysts and other speciality chemical products and services to a wide range of chemical and pharmaceutical industry customers and research institutes.
Catalysts and Chemicals
The Catalysts and Chemicals business manufactures precious and base metal catalysts, fine chemicals and electrochemical products. The business sells its products to customers in the speciality chemical, pharmaceutical, fine chemical and other markets. Manufacturing takes place in the UK, USA, Germany, India and China.
Macfarlan Smith
Macfarlan Smith manufactures active pharmaceutical ingredients (APIs) and intermediate products for the pharmaceutical industry. The business specialises in APIs for controlled drugs, particularly opiate products. Most of Macfarlan Smith’s customers are generic pharmaceutical companies. The business is headquartered in Edinburgh, UK.
Pharmaceutical Materials and Services
The Pharmaceutical Materials and Services business manufactures APIs and provides services to the pharmaceutical industry. The business specialises in the manufacture of platinum based anticancer APIs and controlled drugs and provides a full range of commercial scale manufacturing services for APIs to both generic and branded pharmaceutical companies. The business has operations in the USA and Ireland.
Research Chemicals
The Research Chemicals business is a globally integrated catalogue based supplier of speciality inorganic and organic chemicals. It operates under the Alfa Aesar brand name and is based in the UK, USA, Germany, China and India.
Performance in 2007/08 Our new Fine Chemicals & Catalysts Division achieved good growth in the year. Revenue increased by 13% to £521 million, sales excluding precious metals rose by 13% to £303 million and operating profit grew by 5% to £67.1 million. Translated at constant exchange rates, sales excluding precious metals increased by 15% and operating profit grew by 6%.
Return on sales (operating profit / sales excluding precious metals) was below last year but still satisfactory at 22.1%. The division achieved good growth in sales of nickel containing catalysts, where the high price of nickel boosted sales value but reduced the overall percentage return on sales.
The integration of the new division has gone well with a number of initiatives to cross sell products and services as well as to capitalise on the common, key competencies that run across the division which should support future sales growth. The majority of the speciality chemicals markets into which the division sells continue to expand and most of the division’s pharmaceutical industry customers are generic drug manufacturers who are also currently enjoying good sales growth.
Catalysts and Chemicals The Catalysts and Chemicals business performed well in the year generating about 40% of the division’s sales excluding precious metals. The business experienced strong growth in the Asian region, notably in China, and in heterogeneous catalyst sales in India, supporting the rapidly expanding pharmaceutical industry there. We completed an expansion of capacity in China for platinum chemicals and catalysts and we are investing in a number of other new facilities: in China for manufacturing sponge nickel catalysts for the local market; in India to provide improved service levels; and also in Germany for catalyst production.
Our facilities in Germany achieved good volume growth with increased sales of catalysts used in the manufacture of edible oils and chemical products. Our business developing chiral ligands, which are used in highly specialised catalysts for the pharmaceutical industry, also showed good growth from a low base and offers good prospects for the future.
Macfarlan Smith Macfarlan Smith’s sales of specialist opiates, particularly oxycodone, showed good growth, more than offsetting a decline in hydromorphone as a result of increased competition. The world market for opiate drugs, which are primarily used to treat pain, continues to grow. Use of these products increases as the world’s population ages and health care improves in developing economies. In addition growth is supported by the introduction of new applications and new dosage forms, particularly for specialist opiates, which enable broader, more controlled use of these medications.
Pharmaceutical Materials and Services In North America, the division’s Pharmaceutical Materials and Services business achieved steady growth in revenue. Sales of platinum based anticancer APIs were slightly below last year but sales of opiate products showed good growth. Revenue from contract research also continued to increase.
There is an opportunity for additional growth from the launch of new products, including the agreed launch in April 2009 of Barr’s generic version of ADDERALL XR®. We expect to see steady growth in sales of APIs for generic controlled drugs, particularly those used in the treatment of pain which is a growing market, and in speciality niches like prostaglandins. Prostaglandin APIs manufactured by the business have been used by customers in developing new generic products and several of these are in the process of review for regulatory approval.
Research Chemicals Research Chemicals achieved good growth in the year with increased sales in North America, Europe and Asia. The business received a good contribution from its joint venture in China, which started operation last year, achieving rapid growth from a low base. With increasing demand for its products, the business is investing in the expansion of facilities in India and Europe.
Research Chemicals’ main brand name is Alfa Aesar which sells through a globally recognised catalogue. In January 2008, Alfa Aesar launched the latest edition of the catalogue. The catalogue includes 30,000 chemicals, metals and other materials of which 3,000 were new compared with the last edition. These new products included many novel fine organics, fuel cell components, pure metals and catalyst / ligand kits. Under IFRS the costs of preparing the catalogue are expensed when the catalogue is issued to customers, although the catalogue itself will last two to three years. This has the consequence of reducing the business’ reported margins in the year of launch and increasing them in the following years.
