Drugs industry supplier Lonza Group ditched Chief Executive Stefan Borgas after profit last year plunged by a third and warned 2012 would pose further challenges because of a strong franc and problems at pharmaceutical firms.

The Basel-based group, which is battling currency headwinds and volatile raw material prices, said the board decided in the last 48 hours to replace Borgas.

"The board is the coach on the sidelines. After a certain point we say the performance is no longer good enough and we have to change the captain," Lonza Chairman Rolf Soiron told a news conference on Wednesday.

Borgas came to Lonza as CEO in 2004 after spending more than a decade in senior roles at chemicals group BASF.

He fared well by repositioning the company away from speciality chemicals to high-margin pharmaceutical ingredients, but many wondered whether he had lost his magic touch when the company issued a couple of profit warnings following the financial crisis.

Borgas has not commented on his ousting.

Lonza, which makes pharmaceutical ingredients for drugmakers like GlaxoSmithKline and Abbott, moved back into specialty chemicals last year through its acquisition of U.S.-based Arch Chemicals, as it sought to shield itself from the volatile pharmaceutical industry.

Another customer, Novartis, said on Wednesday it was bracing for lower profitability this year as key products like top-selling blood pressure drug Diovan face competition from cheaper rivals.

Lonza said it wanted to focus on improving the returns on capital invested, although the environment would remain tough, with the exchange rate, threat of recession and drug approval delays all impeding progress.

"We feel the capital invested is not generating the returns our investors would expect," Soiron said.

Lonza is targeting double-digit growth in earnings before interest, tax, depreciation and amortization (EBIT) and Soiron said he would not be happy with growth of just 10%.

Earnings before interest, tax, appreciation and amortization fell 22% in 2011, compared with 2% growth the previous year.

Net profit dropped 33% in 2011 to 190 million Swiss francs ($204 million), excluding the Arch acquisition. Analysts in a Reuters poll forecast net of 201 million. By 1412 GMT shares in Lonza were down 11.1%, making it by far the worst performer in a 1.3% lower European healthcare sector index.

Surprise

The timing of the board's decision caught analysts off guard.

"The surprise announcement, at least to us, is CEO Stefan Borgas' departure driven by the Board's decision to improve returns," Jefferies' analysts said in a note. "We understand the rationale but personally were impressed by Borgas' vision."

Soiron will head the management committee while the company considers both internal and external candidates for the CEO role. "The ranks under the CEO are the first legitimate candidates," he said.

Vontobel analyst Carla Baenziger said the change of guard showed the company was in a challenging situation.

"The Arch acquisition in our view will have a cosmetic effect on earnings growth short term but is likely to bring more volatility in Lonza's numbers," she said.

Lonza said it expected the $1.2 billion acquisition of Arch to boost earnings per share growth in 2012.

The company is seen to be well-placed to benefit from pharmaceutical companies' efforts to make their manufacturing processes more efficient as they face expiring patents on their top-selling drugs and rising price pressures.

Lonza suffered an 84 million francs negative impact from the strong Swiss franc, which hit multiple record highs against the dollar and euro last year.

Lonza said it would pay out 2.15 Swiss francs per share for 2011, the same as in the previous year.