Notes to the Financial Statements –
Lonza Group Ltd, Basel 

Note 1 – Principles

1.1 General Aspects

These financial statements were prepared according to the provisions of the Swiss Law on Accounting and Financial Reporting (32nd title of the Swiss Code of Obligations). Where not prescribed by law, the significant accounting and valuation principles applied are described below.

1.2 Financial Assets

Financial assets include short- and long-term loans to subsidiaries and associates. Loans granted in foreign currencies are translated at the rate as of the balance sheet date.

1.3 Treasury Shares

Treasury shares are recognized at acquisition cost and deducted from shareholders' equity at the time of acquisition. In case of a resale, the gain or loss is recognized through the shareholders' equity as an increase or decrease of available earnings brought forward.

1.4 Share-Based Payments

When treasury shares are used for share-based payment programs, the difference between the acquisition costs and any consideration paid by the employees at grant date is recognized as personnel expenses.

1.5 Short- / Long-Term Interest-Bearing Liabilities

Interest-bearing liabilities are recognized in the balance sheet at nominal value. Discounts and issue costs for bonds or syndicate loans are recognized as prepaid expenses and amortized on a straight-line basis over the principals' maturity period. Premiums are recognized as accrued expenses and amortized on a straight-line basis over the principals' maturity period.

1.6 Presentation of a Cash Flow Statement and Additional Disclosures in the Notes

As Lonza Group Ltd has prepared its consolidated financial statements in accordance with a recognized accounting standard (International Financial Reporting Standards IFRS), it has decided to forgo presentation of a cash flow statement, information on interest-bearing liabilities and audit fees in the note disclosures as would be required by Swiss law.

Note 2 – Information on Balance Sheet and Income Statement Items

2.1 Investments

Lonza Group Ltd holds the following direct subsidiaries as of 31 December 2016. For indirect principal subsidiaries, please see the list in Note 32.

Direct subsidiaries Place Capital in 1,000 Share in capital and
voting rights in %
    31.12.2016 31.12.2015 31.12.2016 31.12.2015
           
Arch Quimica, S.A. de C.V. Mexico, MX MXN 109 MXN 109 28% 28%
Lonza AG Visp, CH CHF 60,000 CHF 60,000 100% 100%
Lonza America Inc. Allendale, US USD 8 USD 8 100% 100%
Lonza BioPharma AG 1 Visp, CH CHF 550 CHF 550 100% 100%
Lonza Bioproducts AG Basel, CH CHF 100 CHF 100 100% 100%
Lonza do Brasil Especialidades Quimicas Ltda. Sao Paulo, BR BRL 18,387 BRL 18,387 99.9% 99.9%
Lonza (China) Investments Co. Ltd Guangzhou, CN USD 75,500 USD 75,500 100% 100%
Lonza Europe BV Breda, NL EUR 21 EUR 21 68% 68%
Lonza Finance Limited St. Helier, Jersey, GB CHF 335 CHF 335 100% 100%
Lonza Japan Ltd Tokyo, JP JPY 200,000 JPY 200,000 100% 100%
Lonza Licences AG Basel, CH CHF 100 CHF 100 100% 100%
Lonza Luxembourg S.à r.l. Luxembourg, LU EUR 12 n.a. 100% n.a.
Lonza Sales AG Basel, CH CHF 2,000 CHF 2,000 100% 100%
Lonza Swiss Finanz AG Basel, CH CHF 100 CHF 100 100% 100%
Lonza Swiss Licences AG Basel, CH CHF 100 CHF 100 100% 100%
International School of Basel AG Reinach, CH CHF 20,525 CHF 20,525 1.6% 1.6%

An impairment loss of CHF 478,000 was recognized in financial year 2016 (2015: CHF 6,531,747) for Lonza do Brasil Especialidades Quimicas Ltda.

2.2 Financial Assets

Lonza Group Ltd had issued subordination agreements of CHF 170 million (2015: CHF 170 million) on loans to subsidiaries and associates.

2.3 Trade Accounts Payables

Trade accounts payables include liabilities to personnel welfare institutions of CHF 846,464 at 31 December 2016 (2015: CHF 193,109).

2.4 Short-Term Interest-Bearing Liabilities

in CHF 31.12.2016 31.12.2015
Bonds due within 1 year 0 400,000,000
Bank loans 61,995,056 0

 

2.5 Long-Term Interest-Bearing Liabilities

in CHF 31.12.2016 31.12.2015
Bank loans 100,471,250 0

 

2.6 Share Capital, Authorized and Contingent Capital

The share capital on 31 December 2016 and 2015 comprised 52,920,140 registered shares with a par value of CHF 1 each, amounting to CHF 52,920,140.

Contingent Capital: The share capital of Lonza Group Ltd may be increased through the issuance of a maximum of 5,029,860 fully paid-in registered shares with a par value CHF 1 each up to a maximum aggregate amount of CHF 5,029,860.

Authorized Capital1: The Board of Directors shall be authorized to increase, at any time until 8 April 2017, the share capital of Lonza Group Ltd through the issuance of a maximum of 5,000,000 fully paid-in registered shares with a par value of CHF 1 each up to a maximum aggregate amount of CHF 5,000,000. The capital increases in the form of contingent capital and authorized capital may increase the share capital of Lonza Group Ltd by a maximum aggregate amount of CHF 5,029,860. The details and conditions are set out in Articles 4bis to 4quater of the Company’s Articles of Association.

At 31 December 2016, Lonza Group Ltd had a fully paid-in registered capital of CHF 52,920,140 and a contingent capital of CHF 5,029,860.

Reserves in the amount of CHF 26,460,070 (2015: CHF 26,460,070) included in the financial statements of the parent company cannot be distributed.

2.7 Reserves from Capital Contributions

In the context of the Corporate Taxation Reform II in Switzerland, the capital contribution principle was implemented with effect from 1 January 2011. The reserves from capital contributions established from 1 January 1997 to 31 December 2010 which qualify for the capital contribution principle of CHF 839,727,980 were approved by the Swiss Federal Tax Authority on 6 December 2011. The amount of CHF 747,926,528 was reclassified from "Available earnings brought forward" to "Reserves from capital contributions" as per 31 December 2011 to reflect the approved amount as "Reserves from capital contributions". As of 31 December 2016 the reserves from capital contributions amounted to CHF 243,393,025 (31 December 2015: CHF 374,645,313).

2.8 Treasury Shares​​

  Total shares Average rate in CHF Number of transactions
       
Treasury shares at 01.01.2015, weighted average price 905,628 84.63  
       
Acquisitions 2015 1,855 110.94 5
Distribution to board members (10,401) 121.54 4
Distribution to E-STIP share plans (16,656) 125.61 5
Distribution to LTIP share plans (222,677) 100.08 3
Distribution to ESPP share plans (15,354) 128.66 5
Distribution to other share plans (4,890) 109.20 1
Treasury shares at 31.12.2015, weighted average price 637,505 79.26  
       
Acquisitions 2016 0 0.00 0
Distribution to board members (7,865) 165.55 4
Distribution to E-STIP share plans (30,372) 162.75 2
Distribution to LTIP share plans (183,985) 156.30 1
Distribution to ESPP share plans (15,019) 170.50 6
Distribution to other share plans (1,373) 162.70 1
Sale Treasury shares (270,000) 180.31 3
Treasury shares at 31.12.2016, weighted average price 128,891 79.26  

 

2.9 Other Financial Income

Other financial income in 2016 includes net exchange rate gains of CHF 0 (2015: CHF 5,264,468) and interest income from loans to subsidiaries and associates of CHF 16,454,499 (2015: CHF 13,369,342).

2.10 Other Financial Expenses

CHF 2016 2015
     
Bank interest and fees 4,015,518 4,130,671
Interest on bonds 5,066,667 12,000,000
Interest on deposits subsidiaries 4,873,153 5,932,265
Amortization of discounts and issue costs 1,491,304 1,867,791
Premium paid on finance instruments 9,563,203
Net exchange rate loss 17,839,304
Total financial expenses 42,849,149 23,930,727

 

2.11 Other Operating Expenses

CHF 2016 2015
     
Consulting expenses 7,834,312 6,152,133
Administrative expenses 3,250,738 2,595,753
Other operating expenses 20,748,322 256,621
Total other operating expenses 31,833,372 9,004,507

 

Other operating expenses include transaction-related costs incurred for acquisition projects.

Note 3 – Other Information

3.1 Full-Time Equivalents 

At 31 December 2016, Lonza Group Ltd had 61 employees (2015: 47).

3.2 Contingent Liabilities, Guarantees and Pledges

At 31 December 2016, indemnity liabilities, guarantees and pledges in favor of third parties totaled CHF 1,517,927,309 (2015: CHF 1,263,697,474). The company is a member of the Lonza Group value-added-tax group in Switzerland and is thereby jointly and severally liable to the federal tax authorities for value-added-tax debts of that group.

3.3 Majors Shareholders

In accordance with Art. 663c of the Swiss Code of Obligations: See 1.2. Significant Shareholders in the Group Structure and Shareholder section of the Corporate Governance Report.

3.4 Share Ownership of the Members of the Board of Directors and the Executive Committee

In accordance with Art. 663c para. 3 of the Swiss Code of Obligations: See note 29 in the Consolidated Financial Statements and Remuneration Report.

3.5 Shares for Members of the Board and Employees 

According to the share-based payments (see note 24), Lonza Group Ltd allocates treasury shares as follows:

  2016 2015
  Number of shares Value in CHF Number of shares Value in CHF
Allocated to members of the Board of Directors 7,865 1,302,017 10,401 1,264,168
Allocated to members of the Executive Committee 11,657 1,821,989 21,056 2,330,336
Allocated to other employees 12,351 1,930,461 10,820 1,200,941
Total 31,873 5,054,467 42,277 4,795,445

In 2016 Lonza Group Ltd employed two members of the Executive Committee (2015: 2).

Significant Events After the Balance Sheet Date

Lonza Group Ltd has successfully placed 5.0 million new shares by way of an accelerated bookbuilding procedure with selected investors in Switzerland (private placement) and outside of Switzerland to institutional investors and qualified institutional buyers.

The shares were placed at CHF 173.00 per new share and the gross proceeds from the placement amount are equal to CHF 865 million. The new shares were listed and admitted to trading on the SIX Swiss Exchange on 3 February 2017. Payment and settlement occured on the same date.