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 syndicated loans are recognized as prepaid expenses and amortized based on Effective Interest Rate over the principals' maturity period. Premiums are recognized as accrued expenses and amortized based on Effective Interest Rate over the principals' maturity period.
1.6 Currency and Interest related instruments
Currency and Interest related instruments with a short-term holding period are valued at their fair value as at the balance sheet date. A valuation adjustment reserve has not been accounted for.
1.7 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
Lonza Group Ltd holds the following direct subsidiaries as of 31 December 2017. For indirect principal subsidiaries, please see the list in Note 33.
|Direct subsidiaries||Place||Capital in 1,000||Share in capital and
voting rights in %
|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 0||CHF 550||0%||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 0||CHF 335||0%||100%|
|Lonza Holding Singapore Pte Ltd||Singapore, SG||USD 100,000||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 0||EUR 12||0%||100%|
|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%|
|Aravis Venture 1, L.P.||Grand Cayman, Cayman Islands||USD 58,824||31%|
|International School of Basel AG||Reinach, CH||CHF 20,525||CHF 20,525||1.6%||1.6%|
|Seed Fund Cycle-C3E (A), L.P.||Montreal, CA||CAD 42,000||2.4%|
Lonza Finance Limited in Jersey transferred the equity holdings in Lonza Holding Singapore Pte Ltd, Aravis Venture 1, L.P. and Seed Fund Cycle-C3E (A), L.P. to Lonza Group Ltd in 2017. Lonza Finance Limited was dissolved as of 22 May 2017. The liquidation loss of CHF 81,846,923 was recorded directly to the Equity account "Profit brought forward" in accordance with Swiss Law.
2.2 Financial Assets
Lonza Group Ltd had issued subordination agreements of CHF 190 million (2016: 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 250,909 at 31 December 2017 (2016: CHF 846,464).
2.4 Short-Term Interest-Bearing Liabilities
2.5 Long-Term Interest-Bearing Liabilities
During 2017 the Capsugel acquisition was partially financed through indebtedness including a USD 1.0 billion term loan and USD 1.4 billion bridge loan facilities provided by third-party lenders. The bridge was subsequently refinanced by traditional debt instruments.
Lonza Group Ltd priced its multi-tranche "Schuldschein" loan (private placement) in a total amount of EUR 700 million and USD 200 million at competitive market terms in August 2017. The EUR tranches have maturities of 4 and 6 years with fixed and variable coupons, respectively. The USD tranches have maturities of 5 years (variable coupon) and 7 years (fixed coupon). In December 2017 Lonza placed a USD 100 million, 7-year tranche "Schuldschein" loan. The proceeds plus available cash were used to fully redeem the outstanding debt bridge.
The net proceeds of the syndicated loan facility amount to CHF 225 million. The syndicated loan agreement contains a financial covenant that is based on Lonza's net debt / EBITDA ratio. The Group was in compliance with the covenant as of 31 December 2017.
2.6 Share Capital, Authorized and Contingent Capital
During 2017 the Capsugel acquisition was financed through a combination of equity and debt instruments. Following the successful placement of 5 million new shares with gross proceeds in the amount of CHF 845 million by way of an accelerated bookbuilding in February, Lonza offered – after the approval of shareholders during the Annual General Meeting (AGM) on 25 April 2017 – a total of 16,548,612 newly issued shares by way of a discounted rights offering with gross proceeds in the amount of CHF 2.2 billion.
The share capital on 31 December 2017 comprised 74,468,752 registered shares (2016: 52,920,140) with a par value of CHF 1 each, amounting to CHF 74,468,752 (2016: CHF 52,920,140).
Contingent Capital: The share capital of Lonza Group Ltd may be increased through the issuance of a maximum of 7,500,000 fully paid-in registered shares with a par value CHF 1 each up to a maximum aggregate amount of CHF 7,500,000.
Authorized Capital: The Board of Directors shall be authorized to increase, at any time until 25 April 2019, the share capital of Lonza Group Ltd through the issuance of a maximum of 7.500,000 fully paid-in registered shares with a par value of CHF 1 each up to a maximum aggregate amount of CHF 7,500,000. 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 7,500,000. The details and conditions are set out in Articles 4bis to 4quater of the Company’s Articles of Association.
At 31 December 2017, Lonza Group Ltd had a fully paid-in registered capital of CHF 74,468,752 and a contingent capital of CHF 7,500,000.
Reserves in the amount of CHF 26,460,070 (2016: CHF 26,460,070) included in the financial statements of the parent company cannot be distributed.
2.7 Reserves from Capital Contributions
|Reserves from Capital Contributions at 01.01.2016||374,645,313|
|Dividend payout April 2016||(131,252,288)|
|Reserves from Capital Contributions at 31.12.2016||243,393,025|
|Agio capital injection of 5,000,000 shares in February 2017||844,665,610|
|Dividend payout May 2017||(159,280,385)|
|Agio capital injection of 16,548,612 shares in May 2017||2,158,055,143|
|Reserves from Capital Contributions at 31.12.2017||3,086,833,393|
2.8 Treasury Shares
|Total shares||Average rate in CHF||Number of transactions|
|Treasury shares at 01.01.2016, weighted average price||637,505||79.26|
|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|
|Distribution to board members||(6,828)||201.47||4|
|Distribution to E-STIP share plans||(16,979)||184.31||3|
|Distribution to LTIP share plans||(108,682)||183.42||2|
|Distribution to ESPP share plans||(39,700)||206.63||2|
|Distribution to other share plans||(1,263)||205.40||1|
|Sale Treasury shares||(18,308)||180.28||1|
|Treasury shares at 31.12.2017, weighted average price||225,920||261.99|
2.9 Other Financial Income
Other financial income in 2017 includes interest income from loans to subsidiaries and associates of CHF 121,627,865 (2016: CHF 16,454,499).
2.10 Other Financial Expenses
|Bank interest and fees||31,328,344||4,015,518|
|Interest on bonds||0||5,066,667|
|Interest on deposits subsidiaries||1,951,438||4,873,153|
|Amortization of discounts and issue costs||41,381,248||1,491,304|
|Premium paid on finance instruments||18,651,430||9,563,203|
|Net exchange rate loss||132,083,109||17,839,304|
|Total financial expenses||225,395,569||42,849,149|
2.11 Other Operating Expenses
|Other operating expenses||24,822,255||20,748,322|
|Total other operating expenses||43,918,049||31,833,372|
Other operating expenses include transaction-related costs incurred for acquisition projects.
Note 3 – Other Information
3.1 Full-Time Equivalents
At 31 December 2017, Lonza Group Ltd had 63 employees (2016: 61).
3.2 Contingent Liabilities, Guarantees and Pledges
At 31 December 2017, indemnity liabilities, guarantees and pledges in favor of third parties totaled CHF 1,702,772,154 (2016: CHF 1,517,927,309). 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 Major 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
3.5 Shares for Members of the Board and Employees
According to the share-based payments (see note 25), Lonza Group Ltd allocates treasury shares as follows:
|Number of shares||Value in CHF||Number of shares||Value in CHF|
|Allocated to members of the Board of Directors||6,828||1,375,637||7,865||1,302,017|
|Allocated to members of the Executive Committee||19,202||3,551,697||11,657||1,821,989|
|Allocated to other employees||20,268||3,738,377||12,351||1,930,461|
In 2017 Lonza Group Ltd employed two members of the Executive Committee (2016: 2).
Significant Events After the Balance Sheet Date
There are no significant events after the balance sheet date which could impact the book value of the assets or liabilities or which should be disclosed here.