We are looking back at another successful year with CHF 5.9 billion in sales, CHF 1.6 billion in CORE EBITDA and CHF 1.2 billion in CORE EBIT for the full-year 2019. These strong results reflect the continued positive momentum of the pharma-related businesses. We delivered on our guidance both on sales with 6.8% sales growth in reported currency (7.3% in constant currency) as well as on profit with a sustained 27.4% CORE EBITDA margin, up 10 bps compared to previous year.

Our margin benefitted from the new IFRS 16 accounting standard on leases, resulting in 60 bps incremental margin for the Group. However, this was largely offset by costs related to the divestment of the Water Care business and the carve-out of our Specialty Ingredients segment. These amounted to a dilution of 50 bps.

Full-year performance was driven by Lonza’s Pharma Biotech & Nutrition (LPBN) segment achieving 11.0% sales growth in reported currency (11.3% in constant currency), above guidance. The business attained a CORE EBITDA margin of 32.9%, despite an elevated level of operational expenditure (OPEX) behind growth initiatives. The margin was supported by operating leverage in the double-digit growing Pharma base business. It was also enhanced by ongoing efficiencies in our manufacturing operations, as well as productivity gains across the Group.

The Specialty Ingredients (LSI) segment reported weaker sales than anticipated in H2 2019. Segment performance showed overall softness in global end-markets. The business reported sales growth of -3.2% in reported currency (-2.5% in constant currency). However, productivity gains, cost control measures and price increases resulted in a CORE EBITDA margin of 17.8%.

Two other important KPIs – earnings per share and return on invested capital – have seen a significant increase in 2019. We are pleased to have achieved a strong 13.4% diluted CORE EPS increase and a 9.1% ROIC, more than 110 bps ahead of the previous year. These strong results reflect our positive profit performance and an exceptionally low 10% tax rate – 8% pts below prior year.

The tax rate was positively impacted by a combination of country profit mix and favorable one-time effects, including the impact of the adoption of Swiss tax reform, fully effective in 2020. We confirm our previous tax guidance of achieving an effective tax rate of below 20%.

In 2019, we increased the level of capital expenditure (CAPEX) investments to 13.3% of sales. We anticipate that the 2019 elevated CAPEX will be replicated in 2020. From 2021, we expect to return to a normalized level, based on the existing project pipeline.

Net working capital had a year-on-year increase to support growth, but with higher levels of inventory across several business units. In addition to business growth, one inventory driver was extending the value chain in small molecules by producing intermediates. We are currently working to achieve an improved level of inventory while continuing to serve our customers’ needs.

We have achieved an operational free cash flow before acquisitions of CHF 399 million in full-year 2019. Including the proceeds from the disposal of Water Care, our operational free cash flow amounted to CHF 995 million. This was mainly used to finance our dividend, interest, taxes and to pay down debt. Our Net Debt to CORE EBITDA ratio was decreased to 1.83 times by the end of 2019.

1 All figures relate to Lonza’s continuing operations (excluding the Water Care business unit) and are compared with the same period in 2018 on a like-for-like basis (restated Lonza Full-Year 2018 financial results) to reflect the realignment of the segments

Personal Perspective

Outlook 2020 and Mid-Term Guidance 2022

We will continue to execute on all of the necessary building blocks to achieve our Mid-Term Guidance 2022. In 2020, we will focus on executing our growth projects in another major investment year, completing the carve-out of our Specialty Ingredients segment and reviewing future plans. The investment in growth projects in LPBN is expected to remain at 2019 levels in order to further expand our asset and technology platforms for future growth. We have also factored into our outlook the continued macroeconomic uncertainty and some potential ongoing headwinds in the cyclical parts of our Specialty Ingredients businesses.

Concurrently, we will work to strengthen a culture of shared values, collective accountability, commitment and transparency. We will also increase our efforts to ensure a constant pipeline of talent to develop as future company leaders. Finally, we will establish clearer environmental, social and governance (ESG) targets and action plans for implementation in 2021.

The following outlook for full-year 2020 is provided for Lonza Group:

  • Above mid single-digit sales growth, with high single-digit sales growth in Pharma Biotech & Nutrition and low single-digit sales growth in Specialty Ingredients
  • Stable CORE EBITDA margin

The Outlook 2020 is the next step in achieving our Mid-Term Guidance 2022 with all necessary building blocks in place. These include continued operating leverage and efficiency improvements in the LPBN base business, the return to a normalized level of investment in LPBN both in CAPEX and OPEX spend from 2021, alongside productivity gains and business recovery in LSI.

We confirm our Mid-Term Guidance 2022:

  • Sales of CHF 7.1 billion
  • CORE EBITDA margin of 30.5%
  • CORE RONOA 35%
  • Double-digit ROIC

Outlook 2020 and Mid-Term Guidance 2022 are based on the present business composition, the current macro-economic environment, existing visibility and constant exchange rates.