Note 2 – Operating Segments

2.1 General Information

According to the requirements of IFRS 8 «Operating Segments» Lonza identified the following two market-focused segments for 2018: Pharma & Biotech and Specialty Ingredients.

Following the acquisition of Capsugel in 2017 Lonza continued to maintain its two market segments, the Pharma & Biotech Segment as well as the Specialty Ingredients Segments (before and after the acquisition of Capsugel). Capsugel was not integrated into the two existing segments in 2017, but Capsugel was managed and operated as a separate segment until 31 December 2017. Lonza’s Executive Committee decided to integrate Capsugel into Lonza’s existing two operating segments as of 1 January 2018.

The two operating segments are described as follows:

Pharma & Biotech

In the Pharma & Biotech segment, Lonza is one of the world’s leading providers of technology platforms along the value chain from pre-clinical to commercial, to scientific and regulatory expertise. This comprises development and manufacture of customized active pharmaceutical ingredients (APIs) and biopharmaceuticals as well as formulation services and delivery systems.

Lonza manufactures products that are at the forefront of powerful new treatments for cancer, diabetes, immune system disorders, heart conditions, Alzheimer’s and Parkinson’s diseases, inflammation and many other medical diseases and conditions. Lonza’s customers cover a wide spectrum: from the world’s largest pharmaceutical and biotechnology companies to medical research and testing organizations, as well as small startups pioneering breakthrough medical treatments. In 2018 the former biopharmaceutical business of Capsugel was integrated into the Small-Molecule Businesses.

Specialty Ingredients

In the Specialty Ingredients segment, Lonza is an innovative supplier of solutions that promote health, well-being, beauty, nutrition, hygiene and materials protection. This segment consists of two divisions, Consumer Health and Consumer Resources & Protection, as well as the Water Care business unit, which following Lonza Group’s 1 November 2018 announcement of planned divestment, has been accounted for as discontinued operations.

Lonza’s Consumer Health division provides health and well-being solutions as well as microbial and hygiene solutions. These include science-backed ingredients (nutritional supplements) with formulation know-how and capsule and encapsulation technologies to create innovative solutions for consumer health and nutrition companies. In 2018 the former Consumer Health & Nutrition business of Capsugel was integrated into the Consumer Health division.

Lonza’s Consumer Resources & Protection division addresses the coatings, composites and agricultural markets by offering products and specialty solutions for the protection, enhanced performance and modification of the end-use characteristics of various materials including carbon, fibers, fabrics, leather, metals, plastics, stone and wood, as well as for agricultural ingredients.

Corporate

Corporate includes mainly corporate functions, such as finance and accounting, legal, communication, information technology and human resources.

2.2 Information about Reportable Segment Profit or Loss, Assets and Liabilities including Reconciliations

In the following table, revenues and profit or loss are disclosed by the two reportable segments and corporate, which include the costs of the corporate functions, including eliminations, and adds up to the Group total. Lonza does not allocate financing costs, income and expenses from associates and joint ventures as well as taxes to the reportable segments. The information disclosed by the operating segments is the same as that reported monthly to the Group’s Executive Committee.

Year ended 31 December 2018

million CHF

 

Pharma & Biotech

 

Specialty Ingredients

 

Total operating segments

 

Corporate /
Eliminations

 

Continuing Operations

 

 

 

 

 

 

 

 

 

 

 

1

Intersegment sales were based on prevailing market prices

2

Excluding income / expenses related to restructuring and environmental measures

3

Net capital invested comprises all operating assets and goodwill less operating liabilities

4

Calculated at historical monthly average rates based on net capital invested excluding goodwill

Sales third-party

 

3,113

 

2,391

 

5,504

 

38

 

5,542

Intersegment sales1

 

7

 

35

 

42

 

(42)

 

0

Total sales

 

3,120

 

2,426

 

5,546

 

(4)

 

5,542

 

 

 

 

 

 

 

 

 

 

 

Result from operating activities (EBIT)

 

708

 

312

 

1,020

 

(178)

 

842

– Percentage return on sales in %

 

22.7

 

13.0

 

18.5

 

n.a.

 

15.2

 

 

 

 

 

 

 

 

 

 

 

Included in result from operating activities (EBIT):

 

 

 

 

 

 

 

 

 

 

Other operating income2

 

4

 

19

 

23

 

26

 

49

Other operating expenses2

 

(17)

 

(25)

 

(42)

 

(32)

 

(74)

Research & development

 

(116)

 

(44)

 

(160)

 

0

 

(160)

Depreciation and amortization

 

(268)

 

(198)

 

(466)

 

(44)

 

(510)

Impairment, net of reversal of impairment

 

(32)

 

(10)

 

(42)

 

(35)

 

(77)

Restructuring expenses

 

(3)

 

(1)

 

(4)

 

0

 

(4)

Environmental expenses

 

0

 

0

 

0

 

(41)

 

(41)

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

8,687

 

6,441

 

15,128

 

(1,212)

 

13,916

Total liabilities

 

3,907

 

844

 

4,751

 

2,875

 

7,626

Total equity

 

4,780

 

5,597

 

10,377

 

(4,087)

 

6,290

Net financial liabilities

 

802

 

(462)

 

340

 

3,912

 

4,252

Net capital invested3

 

5,582

 

5,135

 

10,717

 

(175)

 

10,542

 

 

 

 

 

 

 

 

 

 

 

Return on net capital invested (RONOA)4 in %

 

19.0

 

9.6

 

14.6

 

n.a.

 

12.1

 

 

 

 

 

 

 

 

 

 

 

Included in total assets:

 

 

 

 

 

 

 

 

 

 

Total property, plant and equipment

 

2,096

 

955

 

3,051

 

101

 

3,152

– Additions to property, plant and equipment

 

359

 

101

 

460

 

51

 

511

Total goodwill and intangible assets

 

3,297

 

3,730

 

7,027

 

33

 

7,060

– Additions to intangible assets

 

31

 

4

 

35

 

12

 

47

– Additions to goodwill and intangible assets from acquisitions

 

89

 

0

 

89

 

0

 

89

Investments in associates / joint ventures

 

1

 

1

 

2

 

8

 

10

 

 

 

 

 

 

 

 

 

 

 

Headcount

 

8,684

 

4,841

 

13,525

 

1,850

 

15,375

Average headcount

 

8,170

 

4,939

 

13,109

 

1,888

 

14,997

Year ended 31 December 20171

million CHF

 

Pharma & Biotech

 

Specialty Ingredients

 

Total operating segments

 

Corporate /
Eliminations

 

Group total

 

 

 

 

 

 

 

 

 

 

 

1

Restated to reflect adoption of IFRS 15 (see note 1) and classification of Water Care business as discontinued operations (see note 5.2)

2

Intersegment sales were based on prevailing market prices

3

Excluding income / expenses related to restructuring and environmental measures

4

Net capital invested comprises all operating assets and goodwill less operating liabilities

5

Calculated at historical monthly average rates based on net capital invested excluding goodwill

Sales third-party

 

2,408

 

2,102

 

4,510

 

38

 

4,548

Intersegment sales2

 

5

 

28

 

33

 

(33)

 

0

Total sales

 

2,413

 

2,130

 

4,543

 

5

 

4,548

 

 

 

 

 

 

 

 

 

 

 

Result from operating activities (EBIT)

 

471

 

304

 

775

 

(102)

 

673

– Percentage return on sales in %

 

19.6

 

14.5

 

17.2

 

n.a.

 

14.8

 

 

 

 

 

 

 

 

 

 

 

Included in result from operating activities (EBIT):

 

 

 

 

 

 

 

 

 

 

Other operating income3

 

12

 

12

 

24

 

85

 

109

Other operating expenses3

 

(20)

 

(29)

 

(49)

 

(50)

 

(99)

Research & development

 

(115)

 

(35)

 

(150)

 

0

 

(150)

Depreciation and amortization

 

(195)

 

(156)

 

(351)

 

(41)

 

(392)

Impairment, net of reversal of impairment

 

(17)

 

(2)

 

(19)

 

0

 

(19)

Restructuring expenses

 

(4)

 

0

 

(4)

 

0

 

(4)

Environmental expenses

 

0

 

0

 

0

 

(31)

 

(31)

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

7,384

 

6,513

 

13,897

 

(66)

 

13,831

Total liabilities

 

3,021

 

614

 

3,635

 

4,015

 

7,650

Total equity

 

4,363

 

5,899

 

10,262

 

(4,081)

 

6,181

Net financial liabilities

 

1,033

 

125

 

1,158

 

4,048

 

5,206

Net capital invested4

 

5,396

 

6,024

 

11,420

 

(33)

 

11,387

 

 

 

 

 

 

 

 

 

 

 

Return on net capital invested (RONOA)5 in %

 

13.1

 

9.2

 

11.2

 

n.a.

 

9.8

 

 

 

 

 

 

 

 

 

 

 

Included in total assets:

 

 

 

 

 

 

 

 

 

 

Total property, plant and equipment

 

1,972

 

1,078

 

3,050

 

148

 

3,198

– Additions to property, plant and equipment

 

282

 

113

 

395

 

32

 

427

– Additions to property, plant and equipment from acquisitions

 

443

 

158

 

601

 

0

 

601

Total goodwill and intangible assets

 

3,291

 

4,379

 

7,670

 

33

 

7,703

– Additions to intangible assets

 

3

 

1

 

4

 

20

 

24

– Additions to goodwill and intangible assets from acquisitions

 

2,635

 

2,589

 

5,224

 

0

 

5,224

Investments in associates / joint ventures

 

2

 

8

 

10

 

10

 

20

 

 

 

 

 

 

 

 

 

 

 

Headcount

 

7,657

 

5,036

 

12,693

 

1,925

 

14,618

Average headcount

 

4,266

 

6,217

 

10,483

 

1,891

 

12,374

2.3 Measurement of Operating Segment Profit or Loss

The accounting principles applied to the operating segments are based on the same accounting principles used for the consolidated financial statements. Lonza evaluates the performance of its operating segments on the basis of the result from operating activities (EBIT) as well as the CORE result from operating activities.

2.4 Geographical Information

Year ended 31 December 2018

million CHF

 

 

 

Non-current assets

 

 

Revenue from external customers (sales)

 

Property, plant and equipment

 

Intangible assets

 

Goodwill

 

Other non-current assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Switzerland

 

471

 

993

 

77

 

53

 

119

 

1,242

Germany

 

162

 

4

 

24

 

66

 

0

 

94

Ireland

 

246

 

0

 

0

 

0

 

0

 

0

United Kingdom

 

226

 

94

 

63

 

8

 

6

 

171

France

 

263

 

93

 

144

 

10

 

2

 

249

Netherlands

 

34

 

7

 

1

 

32

 

12

 

52

Belgium

 

29

 

82

 

1,565

 

2,549

 

0

 

4,196

Denmark

 

128

 

3

 

0

 

11

 

0

 

14

Sweden

 

272

 

0

 

0

 

0

 

0

 

0

Italy

 

23

 

0

 

0

 

10

 

0

 

10

Spain

 

5

 

120

 

0

 

0

 

0

 

120

Czech Republic

 

60

 

29

 

0

 

0

 

0

 

29

Rest of Europe

 

94

 

1

 

0

 

0

 

0

 

1

Europe

 

2,013

 

1,426

 

1,874

 

2,739

 

139

 

6,178

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

2,490

 

1,102

 

937

 

968

 

5

 

3,012

Canada

 

70

 

0

 

174

 

27

 

0

 

201

Mexico

 

46

 

8

 

26

 

0

 

0

 

34

Rest of North and Central America

 

2

 

2

 

0

 

0

 

0

 

2

North and Central America

 

2,608

 

1,112

 

1,137

 

995

 

5

 

3,249

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazil

 

62

 

8

 

21

 

0

 

0

 

28

Rest of Latin America

 

20

 

0

 

0

 

0

 

0

 

0

Latin America

 

82

 

8

 

21

 

0

 

0

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

China

 

235

 

238

 

84

 

4

 

1

 

327

Singapore

 

79

 

267

 

46

 

0

 

3

 

316

Japan

 

178

 

45

 

48

 

0

 

3

 

96

Indonesia

 

22

 

27

 

17

 

0

 

0

 

44

Thailand

 

28

 

0

 

33

 

0

 

0

 

33

India

 

78

 

19

 

28

 

2

 

1

 

50

Rest of Asia

 

126

 

3

 

0

 

0

 

0

 

3

Asia

 

746

 

599

 

256

 

6

 

8

 

869

 

 

 

 

 

 

 

 

 

 

 

 

 

South Africa

 

10

 

2

 

1

 

0

 

0

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia & New Zealand

 

78

 

5

 

24

 

8

 

1

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

Other countries

 

5

 

0

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

5,542

 

3,152

 

3,312

 

3,748

 

153

 

10,365

Year ended 31 December 2017

million CHF

 

 

 

Non-current assets

 

 

Revenue from external customers (sales)

 

Property, plant and equipment

 

Intangible assets

 

Goodwill

 

Other non-current assets

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Switzerland

 

448

 

911

 

55

 

53

 

88

 

1,107

Germany

 

209

 

3

 

28

 

68

 

0

 

99

Ireland

 

255

 

0

 

0

 

0

 

0

 

0

United Kingdom

 

157

 

91

 

72

 

9

 

2

 

174

France

 

138

 

99

 

158

 

10

 

0

 

267

Netherlands

 

21

 

7

 

3

 

33

 

5

 

48

Belgium

 

158

 

84

 

1,707

 

2,737

 

1

 

4,529

Sweden

 

174

 

0

 

0

 

0

 

0

 

0

Italy

 

22

 

0

 

0

 

11

 

0

 

11

Spain

 

18

 

126

 

0

 

0

 

0

 

126

Czech Republic

 

5

 

28

 

0

 

0

 

0

 

28

Denmark

 

30

 

3

 

0

 

11

 

0

 

14

Rest of Europe

 

60

 

2

 

0

 

0

 

0

 

2

Europe

 

1,695

 

1,354

 

2,023

 

2,932

 

96

 

6,405

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

1,860

 

1,088

 

1,267

 

1,051

 

30

 

3,436

Canada

 

61

 

0

 

56

 

4

 

0

 

60

Mexico

 

16

 

8

 

26

 

0

 

0

 

34

Rest of North and Central America

 

5

 

2

 

0

 

0

 

0

 

2

North and Central America

 

1,942

 

1,098

 

1,349

 

1,055

 

30

 

3,532

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazil

 

56

 

24

 

30

 

0

 

3

 

57

Rest of Latin America

 

20

 

0

 

0

 

0

 

2

 

2

Latin America

 

76

 

24

 

30

 

0

 

5

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

China

 

205

 

342

 

91

 

4

 

3

 

440

Singapore

 

178

 

275

 

47

 

0

 

3

 

325

Japan

 

162

 

41

 

48

 

0

 

0

 

89

India

 

64

 

23

 

32

 

2

 

0

 

57

Thailand

 

20

 

0

 

34

 

0

 

0

 

34

Indonesia

 

15

 

27

 

17

 

0

 

0

 

44

Rest of Asia

 

102

 

0

 

0

 

0

 

0

 

0

Asia

 

746

 

708

 

269

 

6

 

6

 

989

 

 

 

 

 

 

 

 

 

 

 

 

 

South Africa

 

13

 

7

 

3

 

0

 

0

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia & New Zealand

 

70

 

7

 

27

 

9

 

2

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

Other countries

 

6

 

0

 

0

 

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,548

 

3,198

 

3,701

 

4,002

 

139

 

11,040

2.5 Information About Major Customers

In 2018 Lonza’s largest customer accounted for 5.0% and the second, third, fourth and fifth largest customers for 4.7%, 3.8%, 3.1% and 2.0% in relation to total Group sales, respectively. No other customer accounted for 2.0% or more of Lonza’s total sales. Out of the five largest customers, the third-largest relates to the Specialty Ingredients segment, whereas the other largest customers relate to the Pharma & Biotech segment.

In 2017 Lonza’s two largest customers accounted for 4.7% each and the third, fourth and fifth largest customers for 4.4%, 4.3% and 3.0% in relation to total Group sales, respectively. No other customer accounted for more than 2.9% of Lonza’s total sales. The two largest customers related to the Pharma & Biotech segment and the Specialty Ingredients segment, while the third, fourth and fifth largest customers related to the Pharma & Biotech segment.