Letter to Stakeholders

Albert M. Baehny, Chair of the Board of Directors and Richard Ridinger, Chief Executive Officer (photo)

Albert M. Baehny
Chairperson of the Board of Directors

Richard Ridinger
Chief Executive Officer

Dear Stakeholders,

Looking back at another successful year at Lonza, we demonstrated that we have continued on our growth trajectory along the Healthcare Continuum® with 9% organic sales growth and strong profitability. At the same time, we have been investing in Lonza’s future and continuing to create value for all of Lonza’s stakeholders, including our shareholders.

Healthcare Businesses at Our Core

The drivers of our success were our healthcare businesses in Pharma & Biotech and in the Consumer Health part of Specialty Ingredients. In the Pharma & Biotech segment, Lonza benefited from our broad expertise and innovative offerings as a contract development and manufacturing organization (CDMO) that provides integrated solutions with various technologies that span the whole pharma value chain – from molecule to patient. Our consumer health and nutrition business complements our pharma offerings with effective nutritional ingredients combined with optimized dosage forms and delivery systems solutions.

Prescriptive and preventive healthcare are at the heart of what Lonza does for consumers and patients. We see continued high demand for our CDMO services and integrated offerings in both areas and are capitalizing on global needs generated by a growing, aging and more affluent population.

Successful Capsugel Integration Achieved

Our Healthcare Continuum® strategy was further reinforced in 2018 with the successful Capsugel acquisition and integration. Capsugel has become an integral part of the Lonza family and is now – within the first full year after closing – completely integrated within the Lonza businesses and functions.

First synergies could be realized in 2018, and during the year we began launching combined products in consumer health and nutrition. In our small-molecule businesses, we have also started to introduce joint offerings in early clinical phases; and we have participated in cross-selling opportunities and extended our value chain already. The highly compatible cultures, thoroughly planned and executed integration process and most importantly dedication of the combined teams made it possible for the transformative acquisition to add value.

Next-Generation Biologics Manufacturing

Another highlight of the business year 2018 was clearly the expansion of our Ibex® offerings in Visp, Switzerland – now also providing clinical development and manufacturing services from drug substance to drug product, including fill and finish. We have a highly competitive offering with our biopark, a generational project fully based on concrete customer demand and focused on technological advances.

In 2018 we also opened our Houston, TX (USA) facility, the world’s largest cell- and gene-therapy facility in the world. With the technological CocoonTM innovation, an automated «autologous-cell-therapy-in-a-box» device, we are at the forefront of supporting our customers to provide next-generation medicines to treat or even cure severe diseases. All of our growth investments in our healthcare businesses are progressing as planned.

Creating a Resilient Business

The Healthcare Continuum® spans from the patient to the consumer and therefore also includes specialty solutions for a safe and sustainable environment. Within our Consumer Health and Consumer & Resources Protection businesses of the Specialty Ingredients segment, we offer efficient and at the same time health-related and environmentally friendly formulations against harmful microbes for household applications and industrial markets. Whereas demand for our microbial-control solutions remained high in 2018, we faced headwinds in the more mature, basic chemical parts of our business.

Therefore, we have to prudently work on becoming more resilient. Targeted measures in Consumer & Resources Protection regarding raw-material supply and pricing are being taken while we backward-integrate certain raw materials, re-purpose assets for our core healthcare businesses and even discontinue the manufacturing of some products.

Further Strengthening the Healthcare Continuum®

In 2018 we have announced the divestment of our Water Care business unit to Platinum Equity, an experienced owner who will develop Water Care as a stand-alone business and will give new perspectives to the global sites and its employees. The divestment further strengthens our strategic healthcare focus. We plan to re-invest parts of the proceeds of the Water Care disposal into the Healthcare Continuum® with expected higher returns to deliver more shareholder value.

In this regard 2019 will be a challenging year in which we take the opportunity to further accelerate our growth with targeted investments, especially in the biologics space, and with ongoing innovation and R&D projects. We will invest in new pharma technologies and in ingredients and delivery solutions for nutritional supplements, as well as in innovative solutions for microbial control.

As a result of these investments, we expect to participate fully in the anticipated market growth toward and beyond our Mid-Term Guidance 2022. In addition, in 2019 Lonza will accelerate the review of our current portfolio to further strengthen the company’s position along the Healthcare Continuum®.

The year 2019 will also be a year of leadership transition with Marc Funk, formerly COO of Lonza Pharma & Biotech, as the new incoming CEO of Lonza from 1 March 2019. Marc is committed to building on the company’s strong foundation and to driving forward our strategy across all our businesses along the Healthcare Continuum®.

Strong Commitment to Sustainability

Today sustainability is a critical part of Lonza’s economic success; and we take our social, environmental and governance-related responsibilities seriously. We believe we can create value for society by innovating science-based solutions along the Healthcare Continuum® to develop the medicines and consumer products of tomorrow.

As a baseline for whatever we do, we ensure that regulatory compliance, integrity and ethical conduct are the foundations in every place we operate. While working toward achieving our Vision Zero – the aspiration to work without incidents and reduce emissions, water consumption and waste – we also take responsibility for our industrial heritage, as demonstrated by our continued progress in Visp on remediating the mercury situation.

Continuing on Our Growth Trajectory

We would like to thank all our stakeholders for their continued support, especially our shareholders, customers, suppliers and the local communities where we operate. Lonza is committed to continuing to grow by focusing on commercial and operational excellence. At the same time, we will make dedicated investments in our biologics businesses and further shape our business portfolio within an accelerated timeframe. The Healthcare Continuum® strategy has been setting the path, and Lonza is well prepared to benefit from a breadth of opportunities in the pharma and healthcare markets. We believe we can succeed based on our global footprint, technological capabilities, customer- and market-focused offerings, constant innovation and, most importantly, the expertise and dedication of our people.

Lonza’s excellent results in 2018 have been reached because of this dedication and the integrity of our approximately 15,500 employees globally. We are committed to attracting and retaining the best talent globally, and we have the ambition to become a place where our employees professionally and personally grow. With the ongoing support of our employees, along with all other stakeholders, Lonza is confident we can continue on our growth trajectory.

Albert M. Baehny
Chairperson of the Board of Directors

Richard Ridinger
Chief Executive Officer