Notes to the Financial Statements Lonza Group Ltd, Basel Audited

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

2.1 Investments

 

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 %
    31.12.2017 31.12.2016 31.12.2017 31.12.2016
           
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

in CHF 31.12.2017 31.12.2016
Bank loans 95,042,412 61,995,056

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.

 

in CHF 31.12.2017 31.12.2016
Syndicate loans 2,343,228,100 100,471,250

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

CHF  
   
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  
       
Acquisitions 2016 0 0 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  
       
Acquisitions 2017 288,789 247.06 7
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

CHF 2017 2016
     
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

CHF 2017 2016
     
Consulting expenses 13,691,678 7,834,312
Administrative expenses 5,404,116 3,250,738
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

 

In accordance with Art. 663c para. 3 of the Swiss Code of Obligations: See note 30 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 25), Lonza Group Ltd allocates treasury shares as follows:

  2017 2016
  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
Total 46,298 8,665,711 31,873 5,054,467


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.