annual report 1999 - ku leuven · 2012-10-31 · lonza group has recorded excellent results for...

Annual Report1999

A successful star t 4

Lonza Group’s Profile, Vision and Strategy 6

Group highlights 8

Activity repor ts 13

Safety, health and environment 26

Directors and auditors 28

Group organization and management 29

Combined financial statements 31

Financial statements – Holding 63

Investors’ information 71

Significant subsidiaries 72

Addresses 73

The annual report of Lonza Group Ltd

follows the guidelines issued by

the OECD for multinational corporations.

Table of contents

Dear Shareholder

1999 was an eventful year and a historical milestone for Lonza Group, with the debutof algroup’s chemicals and energy businesses as an independent listed company onthe SWX Swiss Exchange. On 1 November Lonza Group began trading on the SWX SwissExchange and was immediately included in the Swiss Market Index (SMI). The IPO(Initial Public Offering) was well received by investors and analysts. The shares haveper formed well since the IPO, evidencing the Group’s solid prospects as a leadingspecialty chemicals company, with a strong balance sheet providing a healthy platformfor growth in the rapidly developing life science market. We will do our utmost in thefuture to ensure a sustained increase in our company value to justify our shareholders’confidence.

The IPO was realized after a very shor t preparatory phase. On 11 August 1999 theBoard of Directors of the Alusuisse Lonza Group (algroup) proposed to demerge thechemicals and energy businesses and to integrate the aluminium and packagingbusinesses in a three-way merger with Alcan and Pechiney. On 18 October 1999 theExtraordinary Shareholders’ Meeting of algroup approved the demerger of thechemicals and energy businesses and shor tly afterwards the shareholders suppor tedthe bir th of Lonza Group by exercising their rights to acquire one Lonza Group share foreach algroup share at a price of CHF 10. None of this would have been possible withoutthe extraordinary effor ts and the special contribution of all those individuals involvedin the demerger process. The Board of Directors and the Executive Committee of LonzaGroup would like to express their appreciation for those individuals’ suppor t andunwavering dedication to achieve the goal.

Lonza Group has recorded excellent results for 1999. Net income amounted to CHF273 million, which is CHF 71 million or 35.1 % up on the previous year (CHF 33 millionor 16.3 % on a comparable basis [see Note 25 on pages 53/54]). With flat revenuesover the prior year, operating income increased by 27.4% to CHF 358 million (by 9.3 %to CHF 307 million on a comparable basis). Operating margins rose from 13.1 % to16.4 % (to 14.1 % on a comparable basis). This shift was the result of the combinedimpact of a much improved product mix and the benefits from improvements in oper-ational efficiency implemented over the last two years in the fine chemicals busines-ses. All these factors, together with the strong per formance of the energy business,more than offset the poor per formance of our Intermediates and Additives division,which was plagued by adverse market conditions throughout 1999 for the polymerintermediates products and by the star t-up problems of the isophthalic acid plant inSingapore.

A successful start

A successful start4

Sergio MarchionneMartin Ebner

The Group generated a cash flow of CHF 433 million. Capital expenditures were sub-stantially down at CHF 278 million, 32.2 % lower than 1998, reflecting the early com-pletion of our Singapore investment and the reduction of the capital intensity of our finechemicals businesses.

As already announced in connection with the demerger of Lonza Group in October 1999,the Board of Directors will recommend that a dividend of CHF 10 per share be ap-proved by the shareholders.

The outlook for this year is expected to show uneven per formance over the two semes-ters, with the second half-year expected to yield much stronger plant loadings than thefirst half and 1999. Depending on the per formance of our Intermediates and Additivesbusinesses, whose competitive positioning and current per formance remains unsatis-factory for our Group, we expect the 2000 results to exceed those of 1999.

The terms of office of the Board members of Lonza Group are due to expire at the for th-coming Ordinary Shareholders’ Meeting on 9 June, 2000. It is proposed to the Share-holders’ Meeting to re-elect the incumbent Board of Directors for a fur ther one-yearterm in accordance with the Ar ticles of Association.

We would like to express our appreciation for your suppor t and confidence in LonzaGroup. We are grateful to our customers for their trust as business par tners and theircontribution to our achievements in 1999. Special thanks are due to our 5 697employees for their dedication and continuing commitment to the achievement of best-in-class per formance. Without them, these results would simply not have been possible.

4 May 2000

Martin Ebner Sergio MarchionneChairman of the Board Managing Director and

Chief Executive Officer

A successful start5

Lonza Group’s Profile,Vision and Strategy6

Lonza Group’s Profile, Vision and StrategyLonza Group is one of the world’s leading specialty chemical companies, focused onfine chemicals for the life science industr y. It develops, manufactures and sells awide range of complex value-added organic fine chemicals with applications in phar-maceuticals, agrochemicals, vitamins, food and feedstuf fs, dyes and pigments,adhesives, fragrances, as well as engineering polymers. Lonza Group is the world lea-der in exclusive custom manufacturing of active ingredients and substances for lifescience companies, and at the forefront of developments in the biotech field. Theper formance chemicals business is focused mainly on microbiologically active sub-stances known as biocides. Our intermediates and additives business is centred onthe manufacture of key chemical building blocks such as phthalic, maleic, trimelliticanhydride and isophthalic acid, using proprietar y catalysts and technologies, andtheir derivatives such as plasticizers, unsaturated polyester resins and technocom-pounds. In addition to these core chemical activities, we are involved in hydroelec-tric power generation and supply.

Lonza Group has created a focused group of businesses with strong competitivepositions by concentrating on research and development in advanced areas of che-mistr y and biotechnology, continuous product and process development, substantialinvestments in employees, state-of-the-ar t research and production facilities, and anenvironmentally compatible infrastructure. At the hear t of this success is a set of pri-vileged relationships with customers who are all leaders in their respective sectors.

In 1999 net sales amounted to CHF 2 183 million (13 % in Switzerland, 40 % in otherEuropean countries, 33 % in Nor th America and 14 % in other par ts of the world). TheGroup had a global workforce of 5 697 employees, 21 manufacturing facilities in 8countries and 22 sales of fices ser ving customers in more than 90 countries.

We want to be the leading specialty chemicals group, with each of its businessesbeing “best in class”, sharing best practices and a culture which relies on anempowered workforce driven by an unrelenting passion for performance improve-ment and customer service.

Our vision is a unifying force permeating all our activities and nur turing a culture thatis dedicated to business excellence. It provides the impetus for our work on leader-ship, based on the belief that managers should lead and employees should manage.

Profile

Vision

Lonza Group’s Profile,Vision and Strategy7

Building on a broad base of technologies and a strong track record as pioneers incustom manufacturing we will continue to invest substantial ef for ts and funds in thedevelopment of the fine chemicals sector. This will entail expanding our technologybase in all areas of advanced chemistr y and biotechnology as well as widening ourgeographical reach. One of our key objectives is to build on our current premier posi-tion to become the preferred supplier and par tner to the leading life science compa-nies by capitalizing on their desire to outsource production of complex molecules ornew active substances. We will also evaluate oppor tunities for expansion beyond ourcurrent scope, but always within broadly defined life science parameters.

The key area of growth in the specialty sector is the biocides business, where weaspire to leadership in both market share and application know-how.

In the intermediates and additives area we will concentrate on strengthening ourbusiness with chemical building blocks to fur ther reduce the impact of economiccycles on the operating per formance, expanding the range of applications for pro-ducts and oxidation technologies, as well as developing new derivatives. The conti-nuing inclusion of these businesses in Lonza Group’s por tfolio is under examination.

Internal growth initiatives, selective acquisitions and strategic alliances will be themeans to achieve our corporate goals. To ensure success, we will subject our busi-nesses to continuous assessment using our own alva™ system, an economic value-added measurement criterion.

Strategy

Group highlights (see Note 25 on pages 53/54)proforma

1998 1999

Combined sales million CHF 2 153 2 183

Combined operating income million CHF 281 358

Combined income before income taxes million CHF 277 355

Combined net income million CHF 202 273

Combined cash flow million CHF 383 433

Investments in proper ty, plant and equipment (at cost) million CHF (410) (278)

Shareholders’ equity million CHF 1 813 2 498

Net debt (cash) million CHF 28 (399)

Net debt-equity ratio 0 na

Basic earnings per share1) CHF 31.4 42.5

Book value per share1) CHF 281.8 388.3

Cash flow per share1) CHF 59.6 67.4

Dividend payout % – 23.4

Number of registered shares (par value CHF 10) – 6 433 985

Holders of registered shares at year-end 16 328

Market prices (high/low) registered share CHF 968/917

Market capitalization million CHF 6 209

Net income for the year (16 3–31 12 99) million CHF – 82

Shareholders’ equity million CHF – 1 894

Shareholders’ equity as a percentage of total assets % – 85.4

Dividends million CHF – 64

Dividend (CHF per share) CHF – 10

The Group issued 6 433 985 shares of common stock on 26 October 1999.

For comparative purposes basic earnings per share in 1998 for the Group have been calculated

using the same weighted average numbers of shares as for the year ended 31 December 1999.

Group

Lonza Group Ltd

Group highlights8

1)

1600

1400

1200

1000

800

600

400

200

0

400

350

300

250

200

150

100

50

0

Sales by divisionin million CHF

Operating incomeby division

in million CHF

Group highlights9

15

47

16

05

52

4

49

3

82

85

98 99 98 99 98 99

Fine chemicals and specialties 73 %

Intermediates and additives 23 %

Energy 4 %

22

9

29

7

58

40

21

27

98 99 98 99 98 99



Energy 7 %

million CHF 1998 1999

Switzerland 295 272

EU 859 858

Rest of Europe 17 17

Nor th America 681 735

Other areas 301 301

Total 2 153 2 183


Switzerland 105 87

EU 68 41

Rest of Europe 5 11


Other areas 156 12

Total 410 278


Fine chemicals and specialties 194 216

Intermediates and additives 203 49

Energy 13 11

Holding and others 0 2

Total 410 278

Group sales by marketing area

Investments (at cost)

in property, plant and equipment

by production area

Investments (at cost)

in property, plant and equipment

by division

Group highlights10



Energy 4 %

Switzerland 13 %

EU 39 %

Rest of Europe 1 %

Nor th America 33 %

Other areas 14 %

Switzerland 31 %

EU 15 %

Rest of Europe 4 %

Nor th America 46 %

Other areas 4 %

million

CHF

450

400

350

300

250

200

150

100

50

0

at 31 December 1998 1999

Fine chemicals and specialties 4 438 4 428

Intermediates and additives 1 145 1 195

Energy 64 58

Holding and others 4 16

Total 5 651 5 697

Holders

Switzerland 14 841

Great Britain/USA 108

Germany 569

Others 810

Total 16 328

Cash flow andinvestments

(excl. acquisitions)

Employees

Shareholder structure

(registered sharesaccording to nationality of

holders, at 31 12 99)

Group highlights11

Switzerland 91 %

Great Britain/USA 1 %

Germany 3 %

Others 5 %

41

4

38

3

28

0

43

3

98 99

Investments inclusive of intangibles

(excl. acquisitions)

Cash flow



Energy 1 %

Group overview 14Group per formance 14Holding 14Employees 15

Fine Chemicals and Specialties 16

Intermediates and Additives 20

Energy 24

Safety, health and environment 26

Directors and auditors 28

Group organization and management 29

Activity reports

Activity reports13

14Group overview14

Group performance Followingits public flotation in Novem-ber 1999, Lonza Group re-corded an excellent resultfor 1999, reflecting a ver ystrong per formance from ourfine chemicals business.

Notwithstanding flat re-venues over the prior year,operating income for theGroup increased by 27.4 % to CHF 358 million (by 9.3 %to CHF 307 million on a com-parable basis [see Note 25on pages 53/54]). Operatingmargins rose from 13.1 % to16.4 % (to 14.1 % on a com-parable basis). This shift wasthe result of the combinedimpact of a much improvedproduct mix and the benefitsresulting from operationalef ficiency measures imple-mented over the last twoyears in the fine chemicalsbusiness. All these factors,together with strong earn-ings from our energy sector,were more than suf ficient toof fset the poor showing ofour Intermediates and Addi-tives division, which wasplagued by poor pricing in its main product lines and by problems with the star t-up of the isophthalic acidplant in Singapore.

There was a dispropor tio-nate rise in net income toCHF 273 million, 35.1 % higher than in 1998 (16.3 %

on a comparable basis),mainly as a result ofreduced taxation chargesnow below the 25 % mark.The Group generated a cashflow of CHF 433 million.Capital expenditures weresubstantially down at CHF278 million, 32.2 % lowerthan 1998, reflecting theearlier completion of our Sin-gapore investment and thereduction in the capitalintensity of our fine chemi-cals businesses. The finan-cial strength of the Groupremains undisputed, with netcash on its balance sheet of approximately CHF 400million.

Holding At the Extraordinar yShareholders’ Meeting ofAlusuisse Lonza Group Ltdheld on 18 October 1999,the shareholders voted infavor of demerging the chem-icals and energy businessesof algroup and transferringthem into the legal structureof Lonza Group Ltd. Thedemerger took place inaccordance with the condi-tions set out in the agree-ment of 17 September 1999.The Lonza Group stockswere traded as SMI secur-ities on the SWX SwissExchange for the first timeon 1 November 1999.

The repor t period is from 16March (date of foundation)

1/2 Lonza Biotec, Kourim (CZ): Impressions of the biotech plant at Kourim.

1

2

Group Overview

Group overview15

to 31 December 1999;whereas for the operationalactivities 1 July 1999 is theef fective demerger date. Theassets transferred in thecategor y of contributions inkind included a cash amount of USD 234 million.In view of the fact that thethree-way merger betweenAlcan, Pechiney and algroupis not now to go ahead as planned, USD 167 millionhas to be repaid, as peragreement, to AlusuisseLonza Group Ltd.

For the repor t period, LonzaGroup Ltd earned a netincome of CHF 82 million.This result takes account ofextraordinar y expenses of CHF 6 million for thedemerger.

The Board of Directors isrecommending a dividend ofCHF 10 per share. Thisequates to a pay-out ratio ofaround 23.4 % of the consol-idated net income.

Our employees At the end of1999, Lonza Group had5 697 employees worldwide,an increase of less than 1 %on the previous year.

1999 was an eventful year,with the termination of merg-er discussions with VIAG andthe introduction of newmerger plans for algroup’spackaging and aluminium

businesses with those ofAlcan and Pechiney. This lastproposal triggered thedemerger of Lonza fromalgroup. The level of profes-sionalism displayed duringthis exceptionally demandingperiod, while at the sametime ensuring that LonzaGroup met its financialtargets, is a credit to theleadership capabilities andfocus of our employees at all levels.

The vision and leadershipprinciples which were intro-duced in algroup in 1997,will be continued with LonzaGroup. With a combinedtotal of 355 par ticipantsattending the correspondingtraining programs during1998 and 1999, these initia-tives have been instrumentalin achieving our per formancetargets. The number of modules planned for 2000provides for a fur ther 300par ticipants.

The Executive Committee isunwavering in its suppor t forthis groupwide initiative onemployee development. Theemphasis on leadership,identified as the key factorin gaining and maintainingcompetitive advantage, willser ve the Group well in theyears ahead.

1 Lonza Biotec, Kourim (CZ): Searching for solutions at the biotech plant at Kourim.2 Lonza Ltd, Visp (CH): Control room at FCC (Fine Chemicals Complex).

1

2

Fine chemicals and specialties16

The Fine Chemicals and Specialties division achievedan excellent level of per-formance in 1999. The divi-sion’s net sales increasedby 3.7 % (2.3 % on a currencyequivalent basis) to CHF 1 605 million. Operatingincome increased by CHF 68 million, or 29.7 % to CHF297 million, yielding an oper-ating margin of 18.5 %. On a comparable basis (seeNote 25 on pages 53/54),the increase amounts to CHF 34 million or 14.8 %, reflect-ing an operating margin shiftfrom 14.8 % to 16.4 %. Majordrivers behind the strongoperating per formance werean improved product mix withhigher-value-added products,ef ficient capacity utilizationand the substantial impactof cost improvement mea-sures.

Exclusive fine chemicals Sales of the business unitremained practically un-changed, primarily due todelayed callof fs of pharma-ceutical intermediates andactive substances by cust-omers. The business experi-enced strong demand fromthe agrochemicals sector.Products at the pilot-plantstage together with the newproducts pipeline showed a strong increase from bothleading pharmaceutical companies and the agro-

chemicals and veterinar ysectors. Additional capacity was commissioned at ourRiverside plant in Consho-hocken (USA) and the tech-nological workbench at Visp(CH) was broadened by the installation of low tem-perature facilities and a new phosgene plant.

Organic chemicals Demandfor organic chemicals wasstronger than in 1998, butmore intensive competitionresulted in price pressure.As a result of productivityimprovements during theprevious two years, the busi-ness unit was able to main-tain its level of profitability.Sales volumes of organicintermediates for vitaminsand pharmaceuticals showedcontinued growth. Deliveriesof organic intermediates for industrial applicationswere satisfactor y, with asuccessful market launch ofcyanates, a class of high-per formance resins for usein advanced electronic, aero-space and industrial appli-cations.

Biotechnology Sales of L-carnitine (a vitamin-likenutrient) continued to growthanks to increased marketpenetration in the food areaand the successful develop-ment of its application as afeed supplement. Lonza Bio-

Fine Chemicals and Specialties

1 Lonza Ltd, Visp (CH): Insulated circulation system in production plant.2 Lonza Ltd, Visp (CH): Storage tank fittings, FCC (Fine Chemical Complex).

1

2


logics brought a new fermen-tation suite on stream at itsfacility in Por tsmouth (USA),responding to fur ther expan-sion of the market for mono-clonal antibodies and othertherapeutic proteins. Bio-pharmaceuticals, especiallymonoclonal antibodies, areemerging as power ful per-formers in the market with a ver y steep growth pattern.The number of new projectsincreased significantly, espe-cially in the area of mam-malian cell fermentation,and an internal assessmentsuggests that current pro-duction capacity will be fullyutilized in the near future.

Specialties The sales in-crease in the specialtiesbusiness was driven by astrong US economy and goodmarket acceptance of ourbiocides product line world-wide. Per formance in all geo-graphical regions was par-ticularly strong in the area ofdisinfectants. New productswere introduced for woodtreatment, pulp and paperas well as preservativeapplications in cosmetics.

Research and developmentBuilding on a broad base oftechnologies in custom man-ufacturing and capitalizingon the customers’ need toshor ten product develop-ment time and outsourceproduction, we continued to

expand in all forms of advanced chemistr y and biotechnology such as themanufacture of highlypotent, low volume activeingredients including pep-tides. New isolation andpurification tools, for ex-ample industrial high pres-sure chromatography, wereintroduced.

The biotechnology installa-tions at the Visp plant wereupgraded to broaden therange of products that canbe manufactured with thisequipment. We laid the foun-dations for a significantstrengthening of our custommanufacturing ser vices withthe star t-up of a new fer-menter suite at our plant inPor tsmouth, USA, and relo-cation to new R&D laborato-ries in Slough, UK.

New reactor technology forthe manufacture of malono-dinitrile, an impor tant build-ing block in the productionof vitamins, pharmaceuticalsand dyes, is in the develop-ment phase. We successfullypatented a new air oxidationprocess for the production ofnicotinic acid.

In the specialties sector wereceived EPA approval forseveral new disinfectant andsanitizing product claims.

Lonza Ltd, Visp (CH): Storage tank for light petrol.


Product groups Main application Market positionProducts

Exclusive finechemicals

Organic chemicals

Biotechnology

Specialties

No. 1 worldwide

No. 1 worldwide for niacin

No. 1 worldwide

No. 2 worldwide

No. 1 worldwide in high per for-mance cyanate-ester resins, no. 1 worldwide specialtychain-extenders

No. 1 worldwide

No. 1 worldwide

No. 1 worldwide

Leader in specialty biocides

Among the leading producers

Leader in sugar-freesweeteners

Active substances and inter-mediates for pharmaceuticals,crop protection and animalhealth agents

Feed and foodstuf fs,pharmaceuticals

Pharmaceuticals, agrochemi-cals, colorants

Vitamin B1, optical brighten-ers, herbicides, adhesives

Electronics, aerospaceindustr y, coating

Snail and slug control agents

Pharmaceuticals, bio-pharmaceuticals, cosmeticsand food/feed additives

Spor ts nutrition, food,pharmaceuticals and feed-stuf fs

Disinfectants, water treat-ment, wood treatment andpreservatives

Food additives, personal care,polymer additives

Food products, personal care,sweeteners

Exclusive manufacturing for life science companies

Niacin (amide)

Diketene derivatives

Hydrocyanic acid derivatives

Engineering polymers

META metaldehyde

Exclusive manufacturing forthe pharmaceutical, cosmeticsand nutrition industries

L-carnitine

Microbiologically activesubstances

Oleochemicals

Carbohydrates

Production sites

China 1

Czech Republic 1

Germany 1

Great Britain 1

Switzerland 1

USA 7

Total 12

Research and development centers

Great Britain 1

Switzerland 1

USA 1

Sales offices 18


Switzerland 231 214

EU 489 498

Rest of Europe 10 10


South America 17 20

Asia 156 155

Others 6 5

Total 1 547 1 605


Organic chemicals 519 474

Exclusive fine chemicals 474 477

Biotechnology products 124 139

Specialties 381 403

Others 49 112

Total 1 547 1 605

Locations

Sales by marketing area

Sales by market


Switzerland 13 %

EU 31 %

Rest of Europe 1 %

Nor th America 44 %

South America 1 %

Asia 10 %

Organic chemicals 29 %

Exclusive fine chemicals 30 %

Biotechnology products 9 %

Specialties 25 %

Others 7 %

Intermediates and additives20

Adverse market conditionsthroughout 1999 for thepolymer intermediates indus-tr y, coupled with star t-upproblems at our isophthalicacid plant in Singapore, ledto sharply reduced marginsfor the year. Sales droppedto CHF 493 milllion or 5.9 %(5.2 % on a currency equiva-lent basis) compared to1998. Operating incomedecreased by CHF 18 millionor 31 % to CHF 40 million,yielding an operating marginof 8.1 %, down from 11.1 %the previous year. On a com-parable basis (see Note 25on pages 53/54), thedecrease was 60.3 % to CHF23 million – or an operatingmargin of 4.7 %. The marketrecover y expected in thesecond half of 1999 onlypar tly materialized, as it wasnegatively af fected by theincrease in raw materialprices during that period.Fur thermore, our new plantin Singapore did not reachoperational viability until thelast quar ter of the year.

Anhydrides and chemicalsPhthalic anhydride oper-ations par tly recovered fromthe record low levels experi-enced during the first sixmonths of 1999. In contrast,the results of our maleicanhydride business remainedunsatisfactor y. Competitionfrom new production capaci-ty in Europe and the FarEast, coupled with generallypoor demand during 1999,led to persistent price pres-sure and margin reductions.

There was a strong upturn inour trimellitic anhydride busi-ness as we consolidated ourleadership in Europe, withsales growing in line withour increased productioncapacity. The market pene-tration of malic acid contin-ued to progress, with volumesales up 38 % on the previ-ous year.

The additives business,including special derivativesof maleic anhydride, improved relative to 1998.

In Singapore, the metaxyleneand isophthalic acid plantsstar ted up and attained asteady production regime inthe last quar ter, a nine-month delay according to theoriginal schedule. Salespicked up in all major worldmarkets thanks to an ef fi-cient sales-agent and distri-bution network. Expectationsare for a sustained 8 %growth in annual consump-tion of isophthalic acid,mainly due to the continuingstrong demand in the PETmarket segments. More thanadequate capacity nowexists for current marketdemand, thus resulting inhistorically low prices whichare expected to recover asdemand grows to balancesupply.

Plasticizers delivered animproved per formance intheir specialty sectors, withgeneral purpose productsmaintaining the previousyear’s levels. Special plasti-

Intermediates and Additives

1 Lonza Composites srl, Scanzorosciate (IT): Production of molded composites.2 Lonza Composites srl, Scanzorosciate (IT): Molded composite, part of car body.

1

2


cizers – trimellitates andpolymerics – reinforced ourleadership in Europe, wherewe established ourselves asthe reference supplier due tothe integration with trimel-litic anhydride. General pur-pose plasticizers recoveredduring the second half onthe back of revived demandfrom Europe and Asia, push-ing prices and margins high-er. However, the structure ofthe market is little changedand the outlook for theseproducts remains uncer tain.

Resins and Compounds Theper formance in the resinsbusiness was in line withmarket growth, confirmingour market share in Europeof around 10 %. The com-pounds business continuedto suf fer from a generaldownward pressure on prices.

Catalysts & Technologies Aslowdown in investment innew plants in the Far Eastnegatively af fected theresult of the business unit.Our worldwide leadership inmaleic technology and cata-lysts was confirmed by thesuccessful commissioning inJapan of the world’s largestreactor for production ofmaleic anhydride from ben-zene, and by the good per-formance of the secondgeneration Alma fluidizedbed catalyst.

Research and developmentOverall, there are more than100 people engaged in research and developmentwith a dual focus: strategic

research that aims to ensurea continuous stream of inno-vation in product and pro-cess development; and workthat ser ves the businessunits directly, developing andoptimizing existing technolo-gies and product groups.

In 1999 a new process andcatalyst for the production ofpyromellitic anhydride wasdeveloped, resulting in anincreased yield and reducedby-products.

Another new catalyst forformaldehyde will be com-mercialized in 2000. Formal-dehyde is one of the mostversatile chemicals. Its mainapplication is in the produc-tion of resins which are usedfor manufacturing par ticleboards, plywood, and furni-ture.

A new “post-reactor” techno-logy for phthalic anhydridewas installed which increasesthe yield of the process and reduces emissions. Thistechnology received the“Clean Products and Pro-cesses” award from the Ital-ian Inter-University Consor-tium “Chemistr y for Environ-ment”.

Special derivatives of suc-cinic anhydride, used in foodadditives, epoxy resins, lubri-cants and paper chemicals,were scaled up for commer-cial production during theyear.

Lonza Composites srl, Scanzorosciate (IT): Production of molded composites.

Product groups Main application Market positionAnhydrides and

chemicals

Plasticizers

Resins

Compounds

Catalysts andtechnologies


No. 1 in Europe for trimelliticanhydride and malic acidNo. 1 in Europe and co-leaderworldwide for fumaric acid

Among Asia’s leadingproducers

No. 1 in EuropeNo. 2 worldwide

No. 1 in Europe for specialplasticizers

Among Europe’s leadingproducers

No. 2 in Europe for techno-compounds

No. 1 worldwide: catalysts formaleic anhydrideNo. 1 worldwide: fluid bedtechnology for maleic anhy-dride

Unsaturated polyester resins,plasticizers, adhesives, paints, lubricants, additives for food and feedstuf fs,pharmaceuticals

Unsaturated polyester resins,PET bottle grade, paints andcoatings

Electrical equipment andelectronics, paints andpigments, additives in plas-tics, pharmaceutical andagricultural products

Plasticizers for PVC, electricalequipment, automotive,furnishing, clothing, spor t

Nautical engineering, construc-tion and transpor t industries,electrotechnical equipment,spor t, furniture, sanitar y wear

Electrical equipment andelectronics, construction andtranspor t industries

Phthalic and maleic anhydrideproduction

Dibasic acids and anhydrides(maleic anhydride, phthalicanhydride, trimellitic anhy-dride, fumaric acid, malic acid)

Pure isophthalic acid andmetaxylene

Special anhydrides and esters

General purpose and special plasticizers

Unsaturated polyester resinsand derivatives

Technocompounds and moldedcomposites

Catalysts and technologies for phthalic and maleic anhy-dride

Products


Production sites

China 1

Germany 1

Italy 5

Singapore 1

USA 1

Total 9

Research and development centers

Italy 3

Sales offices 18


Switzerland 22 11

EU 369 365

Rest of Europe 7 7


South America 5 3

Asia 68 64

Others 9 11

Total 524 493


Anhydrides & chemicals 234 212

Plasticizers 113 114

Resins 72 62

Compounds 84 84

Catalysts & technologies 21 13

Others – 8

Total 524 493

Locations

Sales bymarketing area

Sales by market

Switzerland 2 %

EU 74 %

Rest of Europe 1 %

Nor th America 7 %

South America 1 %

Asia 13 %

Others 2 %

Anhydrides & chemicals 43 %

Plasticizers 23 %

Resins 13 %

Compounds 17 %

Catalysts & technologies 3 %

Others 1 %

Energy24

EnergyNet sales in the energy divi-sion increased by 3.7 % toCHF 85 million. Higher pro-duction due to favorableweather conditions for thehydroelectric power plants andan improved exchange ratiobetween winter and summerenergy combined with opera-tional improvements led to arecord operating income ofCHF 27 million. This repre-sented an increase of 28.6 %over the previous year, yield-ing an operating margin of31.8 % up from 25.6 % in theprevious year.

Operating conditions during1999 were characterized byan exceptionally high level ofwater availability, both in theValais and in the River Rhine.The exceptional rainfallscaused some damage butalso brought abundant water-flows. The energy productionof the Group, based entirelyon hydroelectric power plants,amounted to 1 624 GWh in1999, 11.3 % above the pre-vious year and 8.5 % abovethe ten-year average. Totaltrading volume of electricalenergy, including purchasesand swaps, amounted to2 240 GWh, compared with2 046 GWh in the previousyear.

With the upgrading of the 65kV switching station at theMörel power plant and theinstallation of new machinery

at the Ackersand powerplant, we completed twomajor projects which will helpmaintain operations at theseplants for decades to come.

The re-establishment ofAckersand I AG, under takentogether with our concessionpar tners, represents anadvantageous solution for thefuture of this facility as it pro-longs the concessions due torever t in the coming years.This amicable and pragmaticagreement will stand as anexemplary solution to theproblem of reversion. Thecompany, in which Lonza hasa 25 % stake, has been run-ning the power plant sincethe beginning of the year. Asbefore, Lonza Energy willcontinue to provide adminis-trative and operational mana-gement as well as overseeingpower distribution.

The liberalization of theenergy market in Switzerlandis to some extent effectivealready, although the institu-tional framework is not yet in place. Competition hasbecome much more intensiveand the pressure from low-cost production continues.

1 Alusuisse-Lonza Energie AG, Visp (CH): Buckets of Pelton wheel.2 Alusuisse-Lonza Energie AG, Visp (CH): Machine store at Acker-sand I power plant.

1

2

Energy25

Power generation

Power supply

Own production

Trading volumes

Sales by marketing area

Lonza Group has a majority holding in four power plants (Valais 3, Rhine 1) with a totalelectricity output of 838 GWh. It is also a minority shareholder in nine fur ther genera-ting companies (Valais 7, Rhine 2) with a total output of 786 million kWh.

The Group has holdings and rights at 11 transformer and distributing substations atthe 220 kV and 32 at the 50/65 kV voltage level, as well as transmission-line holdingsover a total length of some 240 km in the 380/220 kV grid and 250 km in the 50/65kV grid.

GWh 1999

Rhine 186

Valais 1 438

Total 1 624

GWh 1999

Holdings (total 1 624)

majority 838

minority 786

Purchase 396

Re-exchange (swaps) 220

Total 2 240

GWh 1999

Switzerland 1 509

Germany 100

Exchange (swaps) 323

Spot 308

Total 2 240

Rhine 11 %

Valais 89 %

Holdings majority 37 %

Holdings minority 35 %

Purchase 18 %

Re-exchange (swaps) 10 %

Switzerland 67 %

Germany 5 %

Exchange (swaps) 14 %

Spot 14 %

19

94

19

95

19

96

19

97

19

98

19

99

Safety, health and environment26

Safety

Energy

In 1999 Lonza Group again made substantial investments in safety, health and envir-onmental protection (SHE). Of the CHF 278 million spent last year on property, plant andequipment, CHF 30 million was related to SHE. Among the most important projects wasthe connection of three production facilities at the Visp (CH) plant to the liquid andgaseous waste incineration plant. This will bring about a major reduction in air emis-sions, while meeting the regulatory criteria for a long time to come. Investments in theimprovement and expansion of waste water treatment facilities at the Riverside plantsin Conshohocken, USA, as well as San Giovanni and Scanzorosciate, Italy, enhance thecompetitiveness of these sites.

Safety at work remains a key concern throughout the company. All the production sitesare currently implementing appropriate programs. Although the accident rate hasshown a marked drop since 1994, it has stagnated somewhat over the last three yearsat about 10 accidents per million hours worked, despite continuous effor ts in the areaof accident prevention. Fur ther concer ted effor ts are expected to reduce the accidentrate to below 10. Par ticular emphasis is given to the training of our staff.

25

20

15

10

5

0

Lost-time injury rate (per 1 000 000 hours worked)

In recent years, the growth in energy consumption has kept pace with the expansion ofproduction, with the rate of growth slowing significantly since 1997. In the repor t year,the total energy consumed was 13 200 terajoules, only 1.5 % higher than in 1998. Themost important sources are natural gas and energy produced by incineration of ourwastes and utilizing waste heat through heat exchangers. They contribute 80 % to thetotal energy consumed. Liquid fossil fuels account for a little over 2 %.

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0

Energy consumption (in terajoules).

19

94

19

95

19

96

19

97

19

98

19

99

Net electricity

Natural gas

Liquid fuels

Steam

Self-generated

Safety, health and environment

Safety, health and environment27

Emissions of carbon dioxide (CO2), 30 % of which originate directly from burning fossilfuels and 70 % from chemical reactions in production processes as well as waste incin-eration, were down 9 % on the 1998 figure.

1 000

900

800

700 1 400

600 1 200

500 1 000

400 800

300 600

200 400

100 200

0 0

CO2 emissions (in 1000 metric tons) VOC emissions (in metric tons)

Emissions of volatile organic compounds (VOC) have been practically stagnant since1995, notwithstanding the substantial increase in production volumes during the sameperiod. Fur ther improvements are expected in the years ahead. Site analysis showsthat VOC emissions are falling at all production centres except Visp in Switzerland,where they have been increasing since 1995. The upward trend at Visp is due tochanges in the product mix and the still to be completed connection of two productionfacilities to the liquid and gaseous waste incineration plant. The completion is sched-uled for 2000 and, in combination with other process optimization measures, it shouldlead to a significant reduction in VOC emissions at Visp.

Two idle production facilities near the Visp site, Ackersand and Gampel, were demol-ished in 1999 using state-of-the-ar t, controlled demolition methods. The soil on thesites was of sufficient quality to permit recultivation without costly rehabilitation mea-sures. The initiative has made these two former industrial zones usable for other pur-poses again.

A key element in our SHE management system is monitoring our per formance andconformity with existing legislation in this area. We regularly conduct systematic SHEaudits at all sites. In 1999, SHE per formance was examined at six of the total of 21production sites in the Group. These audits contribute to continuous improvement.

Emissions

Rehabilitation

Audits

19

94

19

95

19

96

19

97

19

98

19

99

19

94

19

95

19

96

19

97

19

98

19

99

VOC Lonza Group

without Visp plant

VOC Visp plant

Directors and auditorsBoard of Directors Term expires

Chairman 2000

Martin Ebner* (12 Aug. 1945)

Main shareholder and Chairman

of the Board of BZ Group Holding

Deputy Chairman 2000

Christoph Blocher* (11 Oct. 1940)

Industrialist and member of the

Swiss parliament (Nationalrat)

Managing Director 2000

Sergio Marchionne (17 June 1952)


Member 2000

Rupert Gasser* (25 Dec. 1938)

Executive Vice President of Nestlé Ltd

Member 2000

Peter Kalantzis* (12 Dec. 1945)

Member of the Executive Committee

of Alusuisse Lonza Group Ltd

Internal Audit

Ed O’Donnell

Auditors Term of of fice for the

KPMG Fides Peat, Zurich financial year 1999

Member of the Audit Committee, standing committee of

the Board of Directors

Board of DirectorsAt the ExtraordinaryShareholders’ Meetingheld on 14 September1999 in Zurich, MartinEbner, ChristophBlocher, Sergio Mar-chionne, Ruper t Gasserand Peter Kalantziswere elected as mem-bers of the Board ofDirectors. The Boardsubsequently appoint-ed Martin Ebner asChairman, ChristophBlocher as DeputyChairman and SergioMarchionne as Manag-ing Director.

The terms of office ofthe members of theBoard of Directors aredue to expire at thefor thcoming OrdinaryShareholders’ Meetingon 9 June 2000. It isproposed to the Share-holders’ Meeting thatthe incumbent Boardmembers be re-electedfor a fur ther one-yearterm in accordancewith the Ar ticles ofAssociation.

(status April 2000)

Directors and auditors28

*

Sergio Marchionne

Managing Director and


Group Finance

Heinz Bähni

Treasury

Alessandro Baldi

Group Controller

Hugh D. Markey

Taxes

Staff functions

Christine Menz

Corporate Communications

Leo Houle

Human Resources

Fine Chemicals and Specialties

R. Helmut Rupp

Fritz Blaser

Walter Eschenmoser

Beat In-Albon

Stéphane Mischler

Ed Robinson

Fred Schauder

Gerhar t Schreiner

Roland Waibel

Gar y Williams

Intermediates and Additives

Andrea de Virgiliis

Giancarlo Angaroni

Franco Budi

Edoardo Duzioni

Marco Ferrante

Volker Fritz

Carlo Fumagalli

Sergio Moreno

Massimiliano Schiavi

Rosario Valido

Energy

René Dirren

Beat Abgottspon

Michel Schwery

(status April 2000)

Group organizationand Management29

Sergio Marchionne R. Helmut Rupp Andrea de Virgiliis René Dirren

Group organization and management

Combined financial statements 32Combined balance sheets 32Combined income statements 34Combined cash flow statements 35Combined statement of shareholders’ equity 36

Basis of preparation of the combined financial statements 36

Accounting principles 38

Notes to the combined financial statements 42

Statement of value added 56

Segment data 57

Information per security 60

Report of the Group Auditors 61

Combinedfinancial

statements1998–1999

Combinedfinancial statements31

Combined balance sheets

at 31 December in million CHF


Combined financial statementsproforma

Assets ■ Note 1998 1999

Fixed assets

Proper ty, plant and equipment 4 3 397 3 754

Accumulated depreciation 4 (1 634) 1 763 (1 815) 1 939

Intangible assets 4 36 56

Goodwill 4 77 74

Other noncurrent assets and deferred items 4 121 165

Investments 4 63 51

Long-term advances 4 0 7

Total fixed assets 2 060 2 292

Current assets

Inventories 6 455 437

Trade receivables, net 7 372 394

Other receivables, prepaid expenses

and accrued income 8 74 125

Shor t-term advances and other financial assets 12 0 446 649 1 168

Cash and cash equivalents 9 0 214

Total current assets 901 1 819

Total assets 2 961 4 111

See the accompanying notes to

the combined financial statements.

■

proforma

Liabilities and shareholders’ equity ■ Note 1998 1999

Total shareholders’ equity see page 36 1 813 2 498

Minority interests 20 18

Liabilities

Long-term provisions 11, 23 452 480

Long-term debts 12 0 159

Total long-term liabilities and provisions 452 639

Other liabilities and deferred items 13 429 422

Current liabilities:

Trade payables 14 219 222

Shor t-term debts:

Due to banks and other financial institutions 12 28 247 312 534

Total current liabilities and deferred items 676 956

Total liabilities 1 128 1 595

Total liabilities and shareholders’ equity 2 961 4 111




■

proforma

■ Note 1998 1999

Net sales (see segment data) page 58 2 153 2 183

Changes in inventor y of work-in-progress

and finished goods 12 (9)

Other operating income 17 59 66

Income from production 2 224 2 240

Material costs (812) (806)

Energy costs (98) (119)

Personnel expenses 18 (566) (539)

Other operating expenses 19 (295) (284)

Depreciation and amor tization 20 (172) (1 943) (134) (1 882)

Operating income 281 358

Amor tization of goodwill (5) (5)

EBIT – earnings before interest and taxes 276 353

Other financial income and expenses 21 a, b (3) 0

Income from investments 22 4 2

Income before income taxes 277 355

Income taxes 23 (77) (84)

Net income before minorities 200 271

(Income)/loss attributable to minorities 2 2

Net income 202 273

1998 1999

CHF CHF

Basic earnings per share page 60 31.4 42.5

Diluted earnings per share page 60 31.4 42.5



Combinedincome statements

in million CHF


■

proforma

■ Note 1998 1999

Combined net income for the year 202 273

Depreciation on proper ty, plant and equipment 4 165 124

Amor tization of intangibles 4 7 10

Amor tization of goodwill 4 5 5

Increase in long-term provisions 5 22

(Income) from application of the equity method 22 (1) (1)

Cash flow 383 433

Increase in net working capital (26) (14)

Net cash provided by operating activities 357 419

Purchase of property, plant and equipment 4 (410) (278)

Purchase of intangibles net 4 (4) (2)

Goodwill from purchase of operations 4 (2) 0

Sale of investments 6 12

Proceeds from sale of proper ty, plant and equipment 3 17

Goodwill from sale of operations 0 5

Purchase of other assets (3) (1)

Increase in other long-term liabilities 68 5

Decrease in loans and advances 0 (655)

Net cash used in investing activities (342) (897)

Increase (decrease) of capital (13) 58

Increase of capital from demerger 0 270

Increase in debts 7 361

Contribution minority interests (9) (3)

Net cash provided by (used for) financing activities (15) 686

Translation adjustments 0 6

Net increase in cash 0 214

Cash and cash equivalents at 1 Januar y 9 0 0

Cash and cash equivalents at 31 December 9 0 214



Combined cashflow statements

in million CHF


■

Basis of preparationof the combinedfinancial statements36

million CHF

At 31 12 97 proforma 1 661 0 0 0 0 1 661

Decrease of capital (13) 0 0 0 0 (13)

Translation dif ferences (37) 0 0 0 0 (37)

Net income 202 0 0 0 0 202

At 31 12 98 proforma 1 813 0 0 0 0 1 813

Rights of fering Lonza

(net of transaction costs) 58 0 0 0 0 58

Cash contribution from algroup 346 0 0 0 0 346

Decrease of capital (76) 0 0 0 0 (76)

Adoption of IAS 19 revised 5 0 0 0 0 5

Translation dif ferences 43 0 0 0 0 43

Net income

(1 Januar y – 31 October 1999) 238 0 0 0 0 238

Demerger from algroup (2 427)

At 31 10 99 0 64 1 742 590 31 2 427

Net income

(1 November – 31 Dezember 1999) 0 0 0 35 0 35

Translation dif ferences 0 0 0 0 36 36

At 31 12 99 0 64 1 742 625 67 2 498

Basis of preparation of the combined financial statementsThe combined financial statements have been prepared on the following basis:

1. The accompanying combined financial statements of the Lonza Group Ltd and its subsidiaries (the“Group”) include the combined balance sheets, combined income statement, combined statementsof cash flows and combined statements of shareholder’s equity of those chemical and energy acti-vities that were spun-off from algroup. A list of the significant subsidiaries and affiliates is reportedon page 72. The businesses have been included in these combined financial statements as if theyhad been part of the Group for the periods ended 31 December 1998 and 1999.

2. The balance sheets, income statements and cash flow statements of the individual Lonza Groupoperations have been established on the basis that they will operate under the control of the Groupcommencing 1 July 1999.

3. Financing activities within algroup have historically been centralized and managed at corporatelevel on a country by country basis and not by division. These combined financial statements havebeen prepared on the assumption that the Group was free of debt at the end of the 1997 fiscal year.This has been accomplished by an assumed increase (decrease) of capital equal to the amountnecessary to extinguish the net debt of each operating subsidiary, with the exception of net debt attri-butable to minority interests which continues to be shown. Thus, the combined income statementsfor 1998 do not reflect any interest income or expense, other than interest expense in relation to the

Combinedstatement of shareholders’

equity

Sha

re c

apit

al

Cap

ital

em

ploy

ed

Pre

miu

m

Ret

aine

d ea

rnin

gs

Oth

erco

mpr

ehen

sive

inco

me

Tota

l eq

uity

Basis of preparationof the combinedfinancial statements37

Group’s pension obligation of its German subsidiaries. As a result, the net debt positionin the balance sheets of the Group for the year ended 31 December 1998 has resultedin a nil balance. In 1999 the combined income statement shows interest income andexpenses starting from 1 July 1999, the date of the changes. The balance sheet reflectsas of 31 December 1999 the effective net debt situation of the Group.

4. The foreign currency exposure for the Lonza Group has been managed at corporatelevel by hedging activities, therefore no costs related to financial transactions have beenrecognized in 1998. The 1999 combined income statement includes the costs of finan-cial transactions starting from 1 July 1999. Any gains and losses resulting from hedgingtransactions related to operational activities have been allocated to the related opera-tional units.

5. With the exception of income taxes attributable to the Group’s US operations, in-come tax expenses have been calculated by applying country-specific statutory incometax rates to each Group subsidiary’s net income computed as if it were debt-free as de-scribed in Note 3 above. Sufficient previously unrecognized tax loss carryforwards wereavailable in the United States to shelter the US chemical operations from full currentfederal taxes for the years ended 31 December 1998 and 1999. US taxes have there-fore been provided at the required minimum annual federal tax rate plus full statutorystate tax rates. Additional deferred taxes have been provided wherever temporary differ-ences exist between the tax bases of an asset or liability and its carrying amount in thecombined financial statements. For 1998, thir ty percent of the tax expense for the yearis presented as deferred tax expense based on historical experience.

Deferred tax assets and liabilities are recognized for future tax consequences attribut-able to the differences between the financial statement carrying amounts of existingassets and liabilities and their respective tax bases and operating loss and tax creditcarryforwards. Deferred tax assets and liabilities are measured using enacted tax ratesin the jurisdictions in which the Group operates that are expected to apply to taxableincome in the years in which the temporary differences are expected to be recovered or settled. In assessing the realizablity of deferred tax assets, management considerswhether it is probable that some portion or all of the deferred tax assets will not be real-ized. For transactions and other events recognized directly in equity, any related taxeffects are recognized directly in equity as well.

6. In order to better reflect the future costs related to corporate infrastructure and addi-tionally the total assets of Lonza Group, the proforma combined financial statements1998 are included as comparison figures.

Accounting principlesGeneral information Subject to the comments included in the basis of preparation ofthe combined financial statements, the combined financial statements are repor ted inSwissfrancs (CHF) and are based on the annual accounts of the individual subsidiariesat 31 December, which have been drawn up according to uniform Group principles. Thecombined accounts are prepared in conformity with International Accounting Standards(IAS), published by the International Accounting Standards Committee (IASC).

Restatement For comparative purposes, cer tain prior year amounts have been reclas-sified to conform with the current year presentation.

Principles of combination The combined financial statements represent the accountsfor the year ended 31 December of Lonza Group Ltd and its subsidiaries.Subsidiaries acquired during the year are included in the combined accounts from thedate of acquisition, while any subsidiaries sold are excluded from the accounts fromthe date of sale. Acquisitions are accounted for by the use of the purchase method ofaccounting. The full consolidation method is used, whereby the assets, liabilities, in-come and expenses are incorporated in full. The propor tion of the net assets and netincome attributable to minority shareholders is shown separately in the combinedbalance sheet and income statement.Payables, receivables, income and expenses between the Group’s subsidiaries in-cluded in the combination are eliminated. Intercompany profits included in year-endinventories of goods produced within the Group are eliminated. Transactions betweensubsidiaries are concluded under market conditions.Investments in affiliates are reflected in the balance sheet using the equity method ofaccounting. Under this method, the investment is initially recorded at cost, and isincreased or decreased by the propor tionate share of the affiliate’s profits or lossesafter the date of acquisition, adjusted for any amortization of goodwill arising on acqui-sition and depreciation of fair market value increments/decrements recognized at thattime. Dividends paid during the year reduce the carrying value of the investments. Investments of less than 20 percent are not combined and are stated at cost, less anywrite-offs that are necessary.The significant subsidiaries and affiliates included in the combined financial state-ments are shown on page 72.

Definitions A subsidiary is a Group company which Lonza Group Ltd controls by holding(either directly or indirectly) more than 50 percent of the voting shares of the company.An affiliate is a Group company in which Lonza Group Ltd holds (either directly or in-directly) 20 to 50 percent of the voting shares of the company.

Accounting principles38

A related party is a subsidiary or affiliate of algroup which is not par t of Lonza Group.Liabilities Financing activities within algroup are centralized and managed at corpo-rate level on a country by country basis. For purposes of preparing this combined bal-ance sheet, and in accordance with the terms of the Separation and Demerger Agree-ment between algroup and Lonza Group, it has been assumed that the Group was freeof net financial debt for the years ended 31 December 1997 and 1998, and for the six-month period ended 30 June 1999. This has been accomplished by an assumed increase(decrease) of capital equal to the amount necessary to extinguish the net financial debtof each company which has been included in the combination, with the exception of netfinancial debt attributable to minority interests which continues to be shown.The current ratio represents the relationship between current assets and current lia-bilities.

Treatment of foreign subsidiaries All assets and liabilities of a foreign subsidiarywhich is combined are translated using the exchange rates in effect at the balancesheet date (the current method). Income and expenses are translated at the averageexchange rate for the year. Dif ferences resulting from the application of these dif ferentmethods of translation of the balance sheet and income statement, together withexchange gains or losses on the opening net asset values of the subsidiaries, areadded to or deducted from the combined shareholders’ equity.

Revenue recognition Revenue from product sales is recognized when the product isshipped.

Foreign currency transactions Transactions in foreign currencies are recorded usingexchange rates in effect at the time of the transaction. Gains or losses arising on set-tlement of these transactions are included in the current year’s income. Foreign cur-rency denominated monetary assets and liabilities at 31 December are translatedusing the exchange rate in effect at the balance sheet date. Any gains or losses result-ing from this translation are included in the current year’s income.

Derivative financial instruments To manage currency exposures, the Group uses cur-rency forwards and option contracts. Realized and unrealized gains and losses arisingfrom currency forwards and options are recognized as adjustments to the gains andlosses resulting from the underlying hedged transactions. Derivative instruments desig-nated as a hedge of the Group’s net asset exposures related to foreign subsidaries arereflected in the currency translation adjustment section of shareholders' equity offset-ting the translation gains or losses relating to those net asset exposures. The Groupdoes not hold or issue financial instruments for trading purposes.



Fixed assets Fixed assets (proper ty, plant and equipment) are stated at cost lessdepreciation.The assets are depreciated over their estimated useful lives, which vary from 10 to 50years (1998: 25 to 50 years) for buildings and structures, and 5 to 16 years (1998: 3to 12 years) for production facilities, machinery, plant, equipment and vehicles. Fixedassets are depreciated using the straight-line method over their estimated useful lives.During 1999, the Group adopted estimated useful lives for its operating assets whichmore accurately reflect industry practice. The effect of this change in estimated usefullives reduced depreciation expense for the year ended 31 December 1999 by CHF 64million. The effect on net income for the year ended 31 December 1999 was an in-crease of CHF 38 million.Long-term leasing arrangements, which effectively constitute assets purchased withlong-term financing, are carried as fixed assets at their purchase price and are writtenoff over their estimated useful lives. The corresponding liabilities are included in thelong-term and shor t-term debts.

Intangible assets Intangibles include software, licences, patents, trademarks and simi-lar rights granted by third par ties. These assets are amortized using the straight-linemethod over their estimated useful lives.

Goodwill At the time of their initial recognition, the assets and liabilities of combinedsubsidiaries are recorded at their estimated fair value. Goodwill represents the dif fer-ence between the purchase price and the fair value of the net assets acquired. Good-will is capitalized and amortized on a straight-line basis over its estimated useful lifenot exceeding 20 years.

Inventories Inventories are repor ted at the lower of cost (purchase price or Group pro-duction cost) or market value (net realizable values). The cost of inventories is calcu-lated using the weighted average method. Prorated production overheads are includedin the valuation of inventories. Goods with long storage periods and obsolete goods arewritten down.

Receivables Trade receivables as well as other receivables are disclosed at nominalvalues less expected economic adjustments at fair value.

Cash and cash equivalents See basis of preparation of the combined financial state-ments.

Deferred taxes See basis of preparation of the combined financial statements.

Retirement benefits Most of the Group’s subsidiaries operate their own pension plans,primarily legally independent from the Group. Generally, they are funded by employees’and employer’s contributions.A policy has been established whereby actuarial valuations are per formed on a three-year basis and roll-forwards are conducted during the intervening period. The cumula-tive effect from initial application of IAS 19 as of 1 January 1995 is included as a tran-sitional amount and will be recognized as an asset or liability respectively, over a periodnot exceeding the expected remaining working lives of the par ticipating employees. Inthe following years the actuarial gains and losses are recognized over the same periodas above if the accumulated gain and loss exceed the corridor of 10 % of the greaterof plan assets and projected benefits obligation. Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised. This re-vised standard permits companies to elect to amortize or immediately recognize, any dif-ference between the accumulated pension cost at transition and the funded status ifthat difference is an additional pension liability consistent with IAS 8, as a change inaccounting policy. The group elected to immediately recognize the impact of the adop-tion of IAS 19 revised.

Research and development Expenditures on research and development are not capi-talized, but charged immediately to expenses. Fixed assets (buildings, machinery, plant,equipment) used for research purposes are valued similarly to other Group fixedassets. Such assets are capitalized and depreciated over their estimated useful lives.Expenses for research and development include associated wages and salaries, mate-rial costs, depreciation on fixed assets, as well as overhead costs.

Use of estimates The preparation of financial statements and related disclosures inconformity with International Accounting Standards requires management to make esti-mates and assumptions that affect the repor ted amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statementsand revenue and expenses during the period repor ted. Actual results could dif fer fromthose estimates. Estimates are used in accounting for allowances for uncollectiblereceivables, inventory obsolescence, depreciation, employee benefits, taxes, restruc-turing reserves and contingencies. Estimates and assumptions are reviewed periodi-cally and the effects of revisions are reflected in the financial statements in the periodthey are determined to be necessary.


Notes to thecombinedfinancial statements42

Notes to the combined financial statementsThe following exchange rates were used to translate the significant currencies used in the Group:

Exchange rates 1998 1999 1998 1999

USA dollar 1 1.3775 1.5955 1.4497 1.5023

Canada dollar 1 0.8896 1.0986 0.9798 1.0117

Australia dollar 1 0.8448 1.0423 0.9135 0.9705

Great Britain pound sterling 1 2.2860 2.5835 2.4008 2.4303

Germany mark 100 82.1190 82.0290 82.3850 81.8240

France franc 100 24.4870 24.4580 24.5740 24.3970

Italy lira 100 0.0829 0.0829 0.0835 0.0827

Netherlands guilder 100 72.8860 72.8020 73.0860 72.6210

Spain peseta 100 0.9657 0.9642 0.9704 0.9618

Risk management activities The Group is exposed to market risk from changes in currency ex-change rates. To manage the volatility relating to these exposures, the Group enters into variousderivative transactions pursuant to the Group’s policies in areas such as counterpar ty exposure andhedging practices. Counterpar ties to these agreements are major international financial institu-tions. Positions are monitored using techniques such as market value and sensitivity analyses. TheGroup does not hold or issue derivative financial instruments for trading purposes and is not a par tyto leveraged instruments.The following tables present information for foreign exchange contracts. The notional amount ofderivatives summarized below represents the gross amount of the contracts and includes alreadyclosed transactions which have not yet matured. Therefore the figures are not a direct measure ofthe Group’s exposure. The market value approximates to the cost of settling the outstandingcontracts. These market value amounts should be viewed not in isolation but in relation to the mar-ket values of the underlying hedged transactions and the overall reduction in the Group exposure toadverse fluctuation of foreign exchange rates.

1 Exchange rates

2 Financialinstruments

Bal

ance

she

etye

ar-e

nd r

ates

CH

F

Inco

me

stat

emen

tye

ar a

vera

ge

rate

s C

HF


proforma

1998 1999

Interest rate contracts million CHF million CHF

Notional amount 42 21

Net negative market value (2) 0

Net negative book value (1) 0

Dif ference market value/book value (1) 0

Credit risk 0 0

Interest rate management The Group’s policy is to manage interest cost using a mix of fixed andvariable rate debt. In order to manage this mix in a cost-efficient manner, the Group enters intointerest rate swaps, to exchange, at specified intervals, the dif ference between fixed and variableinterest amounts calculated by reference to a corresponding notional principal amount.

proforma

1998 1999

Foreign exchange contracts million CHF million CHF

Notional amount 48 1 126

Net negative market value 0 (34)

Net negative book value 0 (34)

Dif ference market value / book value 0 0

Credit risk 0 29

Foreign exchange management In managing its exposure to fluctuations in foreign currencyexchange rates, the Group has entered into a variety of currency swaps, foreign exchange contractsand options. These agreements generally include the exchange of one currency for a second cur-rency at a future date.

In 1999 LOFO High Tech Film GmbH was integrated into the Fine Chemicals and Specialties division.For comparative purposes, the previous year's data of the combined financial statements werereclassified to reflect the current corporate structure.

3 Changes in thescope of

consolidation

44


At cost

Land 67 1 0 2 (3) 2 69 49

Buildings and structures 937 11 0 0 (9) (3) 936 486 818

Production facilities, machiner y,

plant, equipment and vehicles 2 226 114 0 16 (30) 189 2 515 1 170 2 573

Construction in progress and

advances for proper ty, plant

and equipment 167 16 0 260 (9) (200) 234 234 115

Property, plant and equipment 3 397 142 0 278 (51) (12) 3 754 1 939 3 506

Intangible assets 61 4 0 2 (2) 26 91 56

Goodwill 89 8 0 0 (6) 0 91 74

Other noncurrent assets and

deferred items 121 13 0 138 (107) 0 165 165

Unconsolidated investments 264 (1) 0 22 (34) 0 251 51

Long-term loans and advances 0 0 0 7 0 0 7 7

Total fixed assets 3 932 166 0 447 (200) 14 4 359 2 292

Accumulated depreciation

Land (17) (1) 0 0 0 (2) (20)

Buildings and structures (414) (4) 0 (26) 12 (18) (450)

Production facilities, machiner y,

plant, equipment and vehicles (1 203) (41) 0 (98) 22 (25) (1 345)

Property, plant and equipment (1 634) (46) 0 (124) 34 (45) (1 815)

Intangible assets (25) 0 0 (10) 2 (2) (35)

Goodwill (12) (1) 0 (5) 1 0 (17)

Unconsolidated investments (201) 1 0 0 0 0 (200)

Long-term loans and advances 0 0 0 0 0 0 0

Total depreciation (1 872) (46) 0 (139) 37 (47) (2 067)

Total fixed assets net 2 060 120 0 308 (163) (33) 2 292

The Group previously accounted for cer tain costs associated with repair and maintenance throughthe use of an «Erneuerungsfond» (Renewal Fund) which essentially was a provision for significantrepair and maintenance of the Group’s energy plants. In the current year, the Group completed ananalysis of the items in the «Erneuerungsfond» and transferred such items to fixed assets. The pro-cedure had no impact on the combined net income or net assets of the Group.

4 Movements infixed assets

in million CHF

at 3

1 1

2 9

8

Cur

renc

y tr

ansl

atio

ndi

ffer

ence

s

Cha

nge

in t

he s

cope

of c

onso

lidat

ion

Add

itio

ns

Dis

posa

ls

Tran

sfer

s1

at 3

1 1

2 9

9

Insu

ranc

e va

lue

at 3

1 1

2 9

9

Fixe

d as

sets

net

at 3

1 1

2 9

9

At

31

12

98

Cur

renc

y tr

ansl

atio

ndi

ffer

ence

s

Cha

nge

in t

he s

cope

of c

onso

lidat

ion

Add

itio

ns

Dis

posa

ls

Tran

sfer

s1

Acc

umul

ated

de

prec

iati

on

at 3

1 1

2 9

9

1

Commitments for capital expenditure in proper ty, plant and equipment amount to CHF 57 million atyear end 1999 (1998: CHF 62 million).

During 1999, the Group adopted estimated useful lives for its operating assets which more accu-rately reflect industry practice. The effect of this change reduced depreciation expenses for the yearended 31 December 1999 by CHF 64 million.

Commitments for non-cancellable operating leases at year-end are due as follows:

Operating leases

Year million CHF

2000 24

2001 22

2002 19

Thereafter 159

Total future minimum lease payments 224

proforma

1998 1999

million CHF % million CHF %

Raw materials 81 18 85 19

Work-in-process and finished goods 282 62 269 62

Others 92 20 83 19

Total 455 100 437 100

By division million CHF % million CHF %



Energy 0 0 0 0

Others 0 0 0 0

Total 455 100 437 100

5 Leases

6 Inventories



7 Tradereceivables

8 Other receivables,

prepaid expensesand accrued

income

9 Cash andcash equivalents

10 Pledges andassets under

reservation ofownership

11 Long-termprovisions

proforma

1998 1999

million CHF million CHF

Receivables from customers 358 381

Accounts receivable from unconsolidated af filiates 17 21

Value adjustments (8) (13)

Related par ties 5 5

Total 372 394

The credit risk is diversified due to the large number of entities comprising the Group’s customerbase and the Group’s dispersion across many dif ferent industries and regions.

proforma

1998 1999


Other receivables 38 42

Prepaid taxes and social security payments 13 22

Prepaid expenses and accrued income 19 16

Accrued interest income 4 11


Total 74 125

proforma

1998 1999


Cash 0 126

Own shares 0 56

Time deposits 0 32

Total 0 214

The assets pledged for security of own liabilities amount to CHF 1 million (1998: CHF 33 million).

1998 1999


Deferred taxes 255 340

Retirement benefits 107 103

Others 90 37

Total 452 480

The provisions for retirement benefits comprise primarily the pension liability of the Group’s defined benefit pension plans as disclosed in Note 26. Included in the above amounts are pro-visions for healthcare relating to the Group’s US subsidiaries.


The net debt is comprised of:proforma

1998 1999

Long-term debt million CHF million CHF

Bonds 0 50

Due to banks and others:

Banks 0 64

Leasing 0 16

Others 0 0

Other financial institutions 0 0 29 109

Total 0 159

Debt due after more than five years in 1999: CHF 6 million (1998: CHF 0 million).

proforma

1998 1999

Short-term debt million CHF million CHF

Due to banks and other financial institutions 1) 28 228

Others 0 20

Due to algroup 0 64

Long-term debt due within one year 0 0

Total 28 312

Total debt 28 471

Loans and advances

Long-term loans and advances 0 (7)

Shor t-term advances 0 (14)

Due from algroup 0 (635)

Cash and cash equivalents 0 (214)

Total 0 (870)

Net debt 28 (399)

The 1998 amount reflects the portion of net debt in the minority interests.

Loans and advances to affiliates amounted to CHF 19 million (1998: CHF 0 million), whereas thedebt owed to them amounted to CHF 8 million (1998: CHF 9 million).

12 Net debt

1)


13 Other liabilitiesand deferred items

14 Tradepayables

proforma

1998 1999

Breakdown of debts by currencies million CHF % % million CHF % %

average average

interest rates interest rates

Swiss franc 16 57 4.90 197 42 2.97

Pound sterling 0 0 0 12 3 8.72

Italian lira 0 0 0 29 6 4.27

US dollar 12 43 6.09 202 43 5.80

Singapore dollar 0 0 0 17 3 4.59

Others 0 0 0 14 3 6.22

Total 28 100 471 100

proforma

1998 1999


Shor t-term provisions 95 91

Capital tax payables 3 3

Current tax payables 40 57

Other interest-free liabilities 86 92

Accrued liabilities and deferred items 188 156

Accrued interest payables 4 7


Total 429 422

proforma

1998 1999


Payable to third par ties 207 208

Payable to af filiates 6 7


Total 219 222


Lötschen D CHF 50 93/03 2001 5.00 –1) 50

D = Debenture issue

in 1998 as part of the debt-free status and therefore shown in algroup, in 1999 the debt was compensated by

cash.

Contingent liabilities concern bills discounted, purchase commitments and guarantees given to thirdpar ties in the ordinary course of business. They amount to CHF 8 million (1998: CHF 9 million).Various lawsuits and claims are pending against the Group and its subsidiaries for losses allegedlyincurred under contracts, personal injury, proper ty and environmental damage, and franchise andproper ty tax assessments. In the opinion of management, disposition of these lawsuits and claimswill not involve sums that would have a material, adverse effect upon the combined financial posi-tion, operations, or cash flows of the Group.

proforma

1998 1999


Work per formed for investments

in proper ty, plant and equipment 43 39

Other operating income 16 27

Total 59 66

proforma

1998 1999


Wages and salaries 447 433

Pensions 39 24

Other social security contributions 67 68

Other personnel expenses 13 14

Total personnel cost 566 539

15 Bonds

16 Contingentliabilities

17 Otheroperating

income

18 Personnelexpenses

Ori

gina

l bo

ndam

ount

in

mill

ion

Mat

urit

y

Not

red

eem

able

befo

re

Inte

rest

rat

e %

Long

-ter

min

mill

ion

CH

F

Long

-ter

min

mill

ion

CH

F

proforma

1998 1999

1)


proforma

1998 1999


Total 295 284

Apart from the repair and maintenance costs of CHF 85 million (1998: CHF 89 million), the majoritems repor ted under other operating expenses are selling, general and administrative expenses.

proforma

1998 1999


Proper ty, plant and equipment 165 124

Intangible assets 7 10

Total 172 134

Amortization of goodwill 5 5

proforma

1998 1999


Interest income 0 13

Other financial income 0 32

Total 0 45

proforma

1998 1999


Interest expenses 0 (13)

Other financial expenses (3) (32)

Total (3) (45)

In 1998 the other financial expenses are comprised primarily of financing costs for the Germanpension funds.

19 Otheroperatingexpenses

20 Depreciationand

amortization

21a Interest and other financial

income

21b Interest and other financial

expenses


proforma

1998 1999


Dividend earned 3 1

Income from application of the equity method 1 1

Total 4 2

proforma

1998 1999


Major components of tax expense

Current taxes (55) (30)

Deferred tax expense relating to the origination

and reversal of temporar y dif ferences (22) (54)

Total (77) (84)

Reconciliation of tax expense not same as

Tax at the domestic rates applicable to the profits prospectus

earned in the countr y concerned 84 103

Tax ef fect of expenses that are not deductible

for tax purposes 4 (17)

Tax capital gain on demerger 0 4

Tax credits and other incentives earned (1) (2)

Tax benefits from previously unrecognized tax losses (16) (3)

All other 6 (1)

Total 77 84

Deferred tax expenses charged (credited)

directly to equity 12 (41)

Capital taxes of CHF 9 million (1998: CHF 9 million) are contained in other operating expenses.

22 Income frominvestments

23 Incometaxes


proforma

1998 1999

Assets Liabilities Assets Liabilities

Components of deferred income tax balances million CHF million CHF

Shor t-term operating provisions 14 54 9 14

Long-term operating provisions 28 40 48 122

Proper ty, plant and equipment 0 161 0 204

Pension benefits 0 0 16 0

Tax loss carr y forwards 113 0 108 0

Subtotal 155 255 181 340

Valuation allowance (71) 0 (59) 0

Deferred income taxes 84 255 122 340

These amounts are included in the following captions in the balance sheet.

Other noncurrent assets and deferred items 84 122

Long-term provisions (255) (340)

Net deferred tax liability (171) (218)

Research and development expenses reflect primarily the cost incurred in basic scientific researchand development. In 1999 these expenses amounted to CHF 98 million (1998: CHF 105 million).

24 Research anddevelopment


During 1999, the Group adopted estimated useful lives for its operating assets which more accu-rately reflect industry practice. In order to allow for a meaningful comparison with the prior year, thedata below reflect the impact of the change of useful lives for group assets on selected financialinformation.

proforma

1999 1999 variance

before change as reported


Balance sheet page 32/33

Accumulated depreciation (1 880) (1 815) 65

Inventories, net 450 437 (13)

Total assets 4 059 4 111 52

Total shareholders’ equity 2 459 2 498 39

Minority interests 17 18 1

Long-term provisions 468 480 12

Total liabilities and shareholders’ equity 4 059 4 111 52

Income statement page 34

Changes in inventories 4 (9) (13)

Depreciation and amor tization (198) (134) 64

Operating income 307 358 51

Income taxes (71) (84) (13)

Net income 235 273 38

Cash flow statement page 35

Combined net income for the year 235 273 38

Depreciation of proper ty, plant and equipment 188 124 (64)

Increase in long-term provisions 9 22 13

Increase in net working capital (27) (14) 13

Net cash provided by operating activities 419 419 0

Segment data: page 57

Operating income

Fine chemicals and specialties 263 297 34

Intermediates and additives 23 40 17

Total Group 307 358 51

Net capital invested

Fine chemicals and specialties 1 590 1 626 36

Intermediates and additives 653 669 16

Total Group 2 265 2 317 52

Percentage return on sales

Fine chemicals and specialties 16.4 18.5 2.1

Intermediates and additives 4.7 8.1 3.4

Total Group 14.1 16.4 2.3

25 Review offixed assets, esti-mated useful lives


proforma

1999 1999 variance

Return on net capital invested

Fine chemicals and specialties 17.2 19.2 2.0

Intermediates and additives 3.7 6.3 2.6

Total Group 14.0 16.2 2.2

The Group sponsors pension plans according to the regulations of the countries in which it oper-ates. All significant plans provide defined benefits on retirement. The benefits are based primarilyon years of service and the employees’ compensation for cer tain periods during the last years ofemployment. The Group has adopted the IAS 19 Retirement Benefit Costs. During 1999, actuarial valuationswere per formed for all significant defined benefit plans using the projected unit credit valuationmethod. The long-term provisions for retirement benefits relating to the Group’s German subsid-iaries have been included in this calculation for 1999.

The weighted average assumptions used in the actuarial valuations are according to the underlyingnational economic conditions of the respective countries:

proforma

1998 1999

Discount rate 4.5 % 3.6 %

Expected long-term rates of return on plan assets 5.5 % 5.5 %

Rates of increase in compensation 3.0 % 2.0 %

Except for the Group’s German subsidiaries, pension costs are generally funded currently withinnational regulatory limitations. The projected benefit obligation for the German subsidiaries is included in the following table. The funded status for substantially all defined benefit plans, shownseparately for plans whose assets exceeded and are less than the projected benefit obligation, isas follows:

Plans with PBO in

excess of assets

proforma


Projected benefit obligation (PBO) (1 061) (1 163)

Plan assets at fair value 1 044 1 078

Plan assets in excess of (less than)

projected benefit obligation (17) (85)

Long-term pension provisions 33

Funded status (17) (52)

The pension asset and liability calculated above are disclosed in the financial statements for 1999.The net change of the prepaid pension costs accounted in the financial year amounts to CHF 12 mil-lion (1998: CHF (13.5) million) and is reflected under other liabilities and deferred items. Theaccrued amount at the end of 1999 is CHF 52 million (1998: CHF 70 million). This amount does notinclude the German book reserve of CHF 33 million.

26 Pensionbenefits

Continuation Segment data: page 57


Net periodic pension costs for the Group’s significant defined benefit plans consist of the following:

1998 1999


Service costs 21 21

Interest costs 46 40

Expected return on assets (51) (56)

Net amor tization and deferral 11 0

Total 27 5

Effective 1 January 1999, the Group adopted the provisions of IAS 19 revised. This revised stand-ard permits companies to elect to amortize, or immediately recognize, any dif ference between theaccumulated pension cost at transition and the funded status if that dif ference is an additionalpension liability. The Group has elected to immediately recognize the impact (a benefit of CHF 15million) of the adoption of IAS 19 revised consistent with IAS 8, as a change in accounting policy.

For the stub period between 14 September and 31 December 1999, the members of the Board ofDirectors received no compensation.

To date, the Group has not experienced any year 2000 problems with any of our internal systemsor our products, and we do not expect to experience such problems in the future. All costs asso-ciated with Year 2000 system adjustments have been charged to expenses as incurred.

Lonza AG has entered into a Plea Agreement with the United States Depar tment of Justice relatingto Lonza AG’s sale of niacin and biotin. The United States Government had charged that Lonza AGfixed prices and allocated volumes in connection with its sale of niacin and niacinamide. To settle these charges, Lonza AG agreed to plead guilty to one count of price fixing and to pay a fine of USD 10.5 million. An appropiate provision was made at the end of 1998. No Lonza AG executives or employees are charged with any wrongdoing.

In March 1999 a number of class action lawsuits were filed against Lonza Inc and cer tain otherchemical producers by purchasers of vitamin products in the United States. Because of the preli-minary stage of these matters, the exact outcome of the class actions cannot presently be deter-mined. The Group has provided, on a conservative basis, an amount representing its assessmentof the potential exposure.

Under the Demerger Agreement between algroup and Lonza Group, Lonza Group was permitted toretain USD 234 million in “excess” cash in connection with the Demerger. However, this amountwas to be reduced to USD 67 million in the event that Pechiney did not par ticipate in the APA com-bination, and paid as par t of the formula by which Lonza Group was demerged from algroup with nonet debt. In the absence of an amendment to the terms of both the Demerger Agreement and theCombination Agreement, and following the termination of the Combination Agreement with respectto Pechiney, the USD 167 million excess cash is due from Lonza Group to algroup as of 30 June2000.

27 CompensationBoard of Directors

28 Year 2000

29 Eventsafter balance

sheet date

Statement ofvalue added56

Statement of value addedproforma

■ Note 1998 1999

Origin of value added: million CHF % million CHF %

Income from production 2 224 2 240

Other income from investment 22 2 1

Total Lonza Group income 2 226 100 2 241 100

Services bought from third par ties:

Material costs (812) (806)

Energy costs (98) (119)

Other operating expenses 19, 23 (286) (275)

Gross value added 1 030 1 041

Depreciation on proper ty, plant and equipment

as well as amor tization on intangibles and goodwill 4 (177) (139)

Income from application of the equity method 22 2 1

Total net value added 855 38.4 903 40.3

proforma

1998 1999

Distribution of value added: million CHF % million CHF %

To staf f

Wages and salaries 18 447 433

Pensions 18 39 24

Other social security contributions 18 67 68

Other personnel expenses 18 13 14

Total personnel cost 566 66.2 539 59.7

To public authorities

Income and capital taxes 23 86 10.0 93 10.3

To lenders

Interest on net debts 21 3 0.4 0 0.0

To the company

Net income including minorities 200 23.4 271 30.0

Total 855 100 903 100

Distribution of value added per employee:

Wages and salaries 79 340 76 300

Pensions 6 922 4 229

Other social security contributions 11 892 11 982

Other personnel expenses 2 307 2 467

Total per employee 100 461 94 978

The appropriate explanations can be found in the notes

to the combined financial statements.

■

Net sales to Operating Net capital

customers 1) income invested 2)

by business segment proforma proforma proforma

million CHF 1998 1999 1998 1999 1998 1999

Fine chemicals and specialties 1 547 1 605 229 297 1 465 1 626

Intermediates and additives 524 493 58 40 586 669

Energy 82 85 21 27 132 142

Others 0 0 (27) (6) (76) (120)

Total 2 153 2 183 281 358 2 107 2 317

Percentage Return on net

return on sales capital invested 3)

by business segment proforma proforma

% 1998 1999 1998 1999

Fine chemicals and specialties 14.8 18.5 15.4 19.2

Intermediates and additives 11.1 8.1 11.3 6.3

Energy 25.6 31.8 16.1 20.0

Others na na na na

Total 13.1 16.4 14.3 16.2

Net sales to Operating Net capital

customers income invested 2)

by region proforma proforma proforma

million CHF 1998 1999 1998 1999 1998 1999

Europe 1 545 1 544 238 309 1 421 1 344

Other regions 608 639 43 49 686 973

Total 2 153 2 183 281 358 2 107 2 317

Percentage Return on net

return on sales capital invested 3)

by region proforma proforma

% 1998 1999 1998 1999

Europe 15.4 20.0 17.9 22.4

Other regions 7.1 7.7 6.6 5.9

Total 13.1 16.4 14.3 16.2

Intersegment sales for 1998–1999, which were based primarily on

prevailing market prices, have been eliminated.

Net capital invested comprises all assets and liabilities committed

to the segment operations at historical year-end rates.

Calculated at historical yearly average rates and includes Lonza Group companies

acquired or integrated during financial year.

Segment data57

1)

2)

3)

1)

Segment data

proforma

1998 1999

million % million %

by production area CHF CHF

Switzerland 1 434 51 1 451 51

EU 701 25 668 23

Rest of Europe 33 1 37 1

Europe 2 168 77 2 156 75

Nor th America 644 23 685 24

Other areas 2 0 29 1

Subtotal 2 814 100 2 870 100

(Intercompany sales) (661) (687)

Total 2 153 2 183

proforma

1998 1999

million % million %

by marketing area CHF CHF

Switzerland 295 14 272 13

EU 859 40 858 39


Europe 1 171 54 1 147 53



Related par ties 40 2 45 2

Total 2 153 100 2 183 100

proforma

1998 1999

million % million %

by division1) CHF CHF

Fine chemicals and specialties 1 551 73 1 605 74


Energy 109 5 113 5

Others 1 0 7 0

Subtotal 2 187 102 2 220 102

(Intercompany sales) (34) (2) (37) (2)

Total 2 153 100 2 183 100

Intersegment sales for 1998–1999, which were based

primarily on prevailing market prices, have been eliminated.

Sales

Segment data58

1)

proforma

1998 1999

million % million %

by division CHF CHF



Energy 4 2 6 5

Others 0 0 0 0

Total 172 100 134 100

proforma

1998 1999

million % million %

by division CHF CHF



Energy 0 0 0 0

Others 0 0 0 0

Total 105 100 98 100

proforma

1998 1999

million % million %

by region CHF CHF

Switzerland 105 26 87 31

EU 68 16 41 15


Europe 178 43 139 50



Total 410 100 278 100

proforma

1998 1999

million % million %

by division CHF CHF



Energy 13 3 11 4

Others 0 0 2 0

Total 410 100 278 100

Investments calculated at average rates.

Depreciation andamortization

Research anddevelopment

Investmentsin property,

plant andequipment

Segment data59

1998 1999

by production area % %

Switzerland 2 725 48 2 611 46

EU 1 435 26 1 495 26


Europe 4 346 77 4 300 75

Nor th America 1 068 19 1 146 20


Total 5 651 100 5 697 100

Average number of employees 5 634 5 675

1998 1999

by division % %

Fine chemicals and specialties 4 438 79 4 428 78

Intermediates and additives 1 145 20 1 195 21

Energy 64 1 58 1

Others 4 0 16 0

Total 5 651 100 5 697 100

Information per securityRegistered shares 1998 1999

Number issued – 6 433 985

Number ranking for a dividend – 6 363 985

Nominal value per share CHF – 10

Ratios per security 1998 1999

Basic weighted average number of shares – 6 428 985

Diluted weighted average number of shares – 6 428 985

Basic earnings per share CHF 31.4 42.5

Diluted earnings per share CHF 31.4 42.5

The Group issued 6 433 985 shares of common stock on 26 October 1999. For comparative purposes basic

and diluted earnings per share in 1998 for the Group have been calculated using the same weighted average

number of shares as for the year ended 31 December 1999.

Personnel

Information per security60

1)

1)

As Group auditors, we have audited the combined financial statements of Lonza GroupLtd, Zurich and its subsidiaries, presented on pages 31 to 60. The combined financialstatements consist of the combined balance sheet as of 31 December 1999, the com-bined statement of income, cash flows and shareholders’ equity and the notes to thecombined financial statements for the year then ended.

These combined financial statements are the responsibility of the Company’s Board ofDirectors. Our responsibility is to express an opinion on these combined financial state-ments based on our audit. We confirm that we meet the legal requirements concerningprofessional qualification and independence.

Our audit was conducted in accordance with auditing standards promulgated by the pro-fession and with the International Standards on Auditing issued by the InternationalFederation of Accountants (IFAC). Those standards require that we plan and per formthe audit to obtain reasonable assurance about whether the combined financial state-ments are free of material misstatement. An audit includes examining, on a test basis,evidence suppor ting the amounts and disclosures in the combined financial state-ments. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial presenta-tion. We believe that our audit provides a reasonable basis for our opinion.

Without qualifying our opinion, we draw your attention to the basis of preparation of thecombined financial statements.

In our opinion, the combined financial statements give a true and fair view of the com-bined financial position of Lonza Group Ltd, Zurich and its subsidiaries and the com-bined results of its operations and cash flows in accordance with the InternationalAccounting Standards of the International Accounting Standards Committee (IASC) andthe 4th and 7th Directives of the European Union and are in accordance with the pro-visions of Swiss law and the accounting principles of the Listing Rules of the SwissExchange.

The Directors’ annual repor t on the Group is consistent with combined financial state-ments. We recommend that the combined financial statements submitted to you beapproved.

KPMG Fides Peat

Peter Hess Hanspeter StockerSwiss Certified Accountant Swiss Certified AccountantAuditor in Charge Auditor in Charge

Zurich, 7 March 2000

Report of theGroup auditors tothe Shareholders’

Meeting of Lonza Group Ltd,

Zurich

Report of the Group auditors61

Report of the Group auditors

Financial statements Holding 64Balance sheet 64Income statement for the year 66

Notes to the 1999 financial statements 67

Appropriation of net income 68

Report of the Auditors 69

Annual financial statements of

Lonza Group Ltd, Zurich

Financial statementsHolding63

Balance sheet at31 December 1999

in CHF


Financial statements – HoldingAssets 1999

Fixed assets

Intangible assets 10 113 383

Property, plant and equipment 4

Investments 1 057 736 024

Long-term loans to subsidiaries 250 000 000

Total fixed assets 1 317 849 411

Current assets

Receivables

From third par ties 28 015 336

From subsidiaries and af filiates 0

Prepaid expenses

Third par ties 26 377 372

Subsidiaries and af filiates 10 185 863

Short-term advances

Third par ties 634 290 621

Subsidiaries and af filiates 88 115 882

Marketable securities

Own shares 55 847 430

Cash 57 994 522

Total current assets 900 827 026

Total assets 2 218 676 437

Liabilities and shareholders’ equity 1999

Shareholders’ equity

Share capital 64 339 850

Legal reserve

General legal reserve 1 691 733 858

Reserve for own shares 55 847 430

Net income for the period 16 March– 31 December 1999 82 004 070

Total shareholders’ equity 1 893 925 208

Liabilities

Payables

Due to third par ties 1 543 198

Due to subsidiaries and af filiates 4 898

Accrued expenses


Due to subsidiaries and af filiates 131 494

Short-term provisions


Short-term debts

Due to third parties 55 841 767

Due to subsidiaries and af filiates 252 543 804

Total current liabilities 324 751 229

Total liabilities 324 751 229

Total liabilities and shareholders’ equity 2 218 676 437

Shareholders’ equity as a percentage of total assets 85.4 %

Net financing receivables 777 862 884


Income 16 3 99–31 12 99

Income from investments 92 248 325

Interest income 5 066 600

Other financial income 30 714 078

Other income 1 688 355

Income from disposal of investments 0

Total income 129 717 358

Expenses

Other administrative expenses 3 586 374

Interest expenses 3 999 667

Other financial expenses 31 261 738

Depreciation on intangible assets 1 296 051

Taxes 577 586

Other expenses 6 991 872

Total expenses 47 713 288

Net income for the period 16 March– 31 December 1999 82 004 070

Income statementin CHF


At 31 December 1999, indemnity liabilities, guarantees and pledges in favour of third-par tiestotalled CHF 83 763 750. According to contractual arrangements, the sum of USD 234 000 000 furnished by Alusuisse LonzaGroup Ltd in the course of the Lonza demerger will be reduced to USD 67 000 000 if the takeoverbid submitted by Alcan Aluminium Ltd for Pechiney SA as par t of the APA merger is not completed.

The company is a member of the Lonza Group value-added-tax group and is thereby joint and sev-erally liable to the federal tax authorities for value-added-tax debts of that group.

31 December 1999: CHF 35 240 884.

See list of Significant subsidiaries, page 72.

The affiliated companies are valued on the basis of conservative accounting principles. The invest-ments in affiliated companies are repor ted on the basis of individual valuation.

We are aware that BZ Gruppe Holding Ltd directly and indirectly holds 1 385 568 registered sharesof our company (corresponding to about 21.5 % of the share capital). It is also known to us thatEms-Chemie Holding AG, together with Emesta Holding AG, holds a total of 640 000 registeredshares (corresponding to about 9.9 % of the share capital) of our company.

The company holds 60 000 of its own registered shares, repor ted at cost, at CHF 55 847 430 orCHF 930 per share. In January 2000, 10 000 consideration shares were bought from AlusuisseLonza Group Ltd on the basis of the Separation and Demerger Agreement of 17 September 1999.These 70 000 shares carry neither voting nor dividend rights.

The share capital as of 31 December 1999 comprises 6 433 985 registered shares with a par valueof CHF 10 each, amounting to CHF 64 339 850.

Demerger-related transaction costs were charged in full to the income statement and amount toCHF 6 079 147.

The legal reserve consists of the following:

Contributions in kind from the Lonza demerger 1 691 733 858

Reserve for own shares 55 847 430

Total 1 747 581 288

There were no other circumstances subject to the repor ting requirements of Ar t. 663b CO.

1 Contingent liabilities

2 Fire insurancevalues of property,

plant and equipment

3 Investments

4 Majorshareholders in

accordance withArt. 663c of the

Swiss Code ofObligations

5 Own shares

6 Additional notes

Notes to the financial statementsHolding67

Notes to the financial statements – Holding

Balance sheet income on 31 December 1999 82 004 070

Payment of a dividend of 100 % on the share capital for 6 363 985

shares entitled to dividend payments 63 639 850

Net income brought forward 18 364 220

If the Shareholders’ Meeting approves the above proposal from the Board of Directors, the dividendof CHF 10 per registered share, less 35 % withholding tax, will be paid as of 16 June 2000 at theoffices designated in the publication organ of the company and in selected daily newspapers.


Martin Ebner Sergio MarchionneChairman Managing Director and


Proposal of theBoard of Directors

in CHF

Appropriation of net income68

Appropriation of net income

Report of the Auditors69

Report of the AuditorsAs Statutory Auditors, we have audited the accounting records and the financial state-ments (balance sheet, income statement and notes) of Lonza Group Ltd, Zurich, for theperiod from 16 March 1999 to 31 December 1999.

These financial statements are the responsibility of the Board of Directors. Our respon-sibility is to express an opinion on these financial statements based on our audit. Weconfirm that we meet the legal requirements concerning professional qualification andindependence.

Our audit was conducted in accordance with auditing standards promulgated by the pro-fession, which require that an audit be planned and per formed to obtain reasonableassurance about whether the financial statements are free from material misstate-ment. We have examined on a test basis evidence suppor ting the amounts and dis-closures in the financial statements. We have also assessed the accounting principlesused, significant estimates made and the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

In our opinion, the accounting records, financial statements and the proposed appro-priation of available earnings comply with the law and the company’s ar ticles of incor-poration.

We recommend that the financial statements submitted to you be approved.

KPMG Fides Peat

Peter Hess Hanspeter StockerSwiss Certified Accountant Swiss Certified AccountantAuditor in Charge Auditor in Charge


Report of the Auditors to the

General Meeting ofLonza Group Ltd

Zurich

On 1 November 1999, Lonza Group shares were traded on the SWX Swiss Exchangefor the first time. The new Lonza Group shares were included in the Swiss MarketIndex (SMI) from the initial trading date. During the two months to 31 December1999, the Lonza Group shares per formed consistently with the SMI. The daily trad-ing volume averaged CHF 28 million. At year end 1999, a total of 6 433 895 shareswere outstanding, resulting in a market capitalization of CHF 6.2 billion.

Registered shares

Lonza Group SPI

CHF points

980 5050

960 4950

940 4850

920 4750

900 4650

■ Lonza Group

■ Swiss Per formance Index SPI

Share price

Market price trendin Zurich

1 November to 31 December

Investors’ information71

Investors’ information

1 Nov 10 Nov 19 Nov 30 Nov 9 Dec 20 Dec 31 Dec

1999

Significant subsidiaries72

Significant subsidiaries and

affiliates31 December 1999

European countries

Lonza AG Gampel, CH CHF 1 042 62 500 96 4

Alusuisse-Lonza Energie AG Visp, CH CHF 112 200 100

Aletsch AG Mörel, CH CHF 12 20 000 92

Kraftwerk Lötschen AG Steg, CH CHF 13 25 000 65

RHOWAG-Rhonewerke AG Ernen, CH CHF 40 000 30

RKN-Rheinkraftwerk Neuhausen am

Neuhausen AG Rheinfall, CH CHF 3 1 000 80

Salanfe SA Vernayaz, CH CHF 18 000 50

Lonza Biotec sro Kourim, CZ CZK 840 137 100 100

LOFO High Tech Film GmbH Weil am Rhein, DE DEM 52 15 000 100

Lonza Compounds

GmbH & Co KG Miehlen, DE DEM 37 1 520 100

Lonza GmbH Wupper tal, DE DEM 59 1 000 100

Lonza France Sàrl Levallois-Perret, FR FRF 220 100

Lonza Biologics plc Slough, GB GBP 41 4 500 100

Lonza UK Ltd Bristol, GB GBP 80 100

Lonza Composites Srl Milano, IT ITL 29 3.0 100

Lonza Compounds Spa Milano, IT ITL 46 11.5 100

Lonza Spa Milano, IT ITL 480 100 100

Lonza Benelux BV Breda, NL NLG 250 100

Lonza Europe BV Breda, NL NLG 41 100

Other countries

Lonza Guangzhou Ltd Guangzhou, CN USD 10 12 000 68

Lonza Japan Ltd Tokyo, JP JPY 200 000 100

Lonza Singapore Pte Ltd Singapore, SG USD 6 27 800 100

Alusuisse-Lonza America Inc Millville, NJ, US USD 2 8 100

Lonza Biologics Inc Wilmington, DE, US USD 17 1 100

Lonza Inc Fair Lawn, NJ, US USD 509 696 100

Research/Applications

Production

Sales

Services/Financing

Abbreviations of countries and currencies in accordance with ISO standards.

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Net

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Addresses73

Production sites

Europe

Czech Republic

Lonza Biotec sroOkruzní 134CZ-281 61 Kour̆ ímTel + 42 0321 739 654 Fax + 42 0321 783 [email protected]

Germany

Lonza CompoundsGmbH & Co KGKieselstrasseDE-56357 MiehlenTel +49 6772 93210Fax +49 6772 6888

LOFO High Tech Film GmbHWeidstrasse 2PO Box 1580DE-79576 Weil am RheinTel +49 7621 7030Fax +49 7621 [email protected]

Italy

Lonza SpA Scanzorosciate siteVia Enrico Fermi, 51IT-24020 Scanzorosciate(Bergamo)Tel +39 035 652111Fax +39 035 655204

Lonza SpA San Giovanni Valdarno siteVia del Pruneto, 40IT-52027 San Giovanni Valdarno(Arezzo)Tel +39 055 91281Fax +39 055 943936

Lonza SpA Ravenna siteVia Baiona, 192IT-48100 RavennaTel +39 05844 457011Fax +39 0544 451812

Headquarters

Corporate OfficeLonza Group LtdFeldeggstrasse 4PO BoxCH-8034 ZurichTel +41 1 386 22 22Fax +41 1 386 25 [email protected]

Fine Chemicals and SpecialtiesLonza LtdMünchensteinerstrasse 38PO BoxCH-4002 BaselTel + 41 61 316 81 11Fax + 41 61 316 91 [email protected]

Intermediates and AdditivesLonza SpA – HeadofficeVia Vittor Pisani, 31IT-20124 MilanTel +39 02 669991Fax +39 02 66987630

EnergyAlusuisse-Lonza Energie AGLitternaring 2PO Box 281CH-3930 VispTel +41 27 948 75 00Fax +41 27 948 75 [email protected]

Lonza Composites SRlVia Enrico Fermi, 37IT-24020 Scanzorosciate(Bergamo)Tel +39 035 652111Fax +39 035 652308

Lonza Compounds SpAVia Cadute e Dispersidell’Aeronautica, 18I-24030 Brembate Sopra(Bergamo)Tel +39 035 623100Fax +39 035 333500

Switzerland

Lonza LtdValais WorksPO BoxCH-3930 Visp, SwitzerlandTel +41 27 948 51 11Fax +41 27 947 51 [email protected]

United Kingdom

Lonza Biologics plc228 Bath RoadGB-Slough, Berkshire, SL1 4DYTel +44 1753 777000Fax +44 1753 [email protected]

North America

Lonza Biologics Inc101 International DrivePor tsmouth, NH 03801, USATel +1 603 334 6100Fax +1 603 334 [email protected]

Lonza IncBaypor t9700 Baypor t BoulevardPasadena, TX 77507, USATel +1 281 291 2300Fax +1 281 291 2315

Lonza Inc2031 East 65 StreetLos Angeles, CA 90001, USATel +1 323 584 5600Fax +1 323 584 5650

Addresses

Addresses74

Lonza Inc8316 West Route 24Mapleton, IL 61547, USATel +1 309 697 7200Fax +1 309 697 7250

Lonza Inc679 Hardy RoadPainesville, OH 44077, USATel +1 440 350 6300Fax +1 440 350 6320

Lonza IncRiverside900 River RoadConshohocken, PA 19428, USATel +1 610 292 4300Fax +1 610 292 4380

Lonza Inc3500 Trenton AvenueWilliamsport, PA 17701, USATel +1 570 321 3900Fax +1 570 321 3925

Asia

China

Lonza Guangzhou Ltd821, Gongye South RoadCN-Guangzhou 510288Tel +86 20 8433 8998Fax +86 20 8433 1998

Lonza Liyang Chemical Co Ltd20 East Ping Ling Road213300 Liyang, Jiangsu ProvincePeople’s Republic of ChinaTel +86 519 7206898Fax +86 519 7203361

Singapore

Lonza Singapore Pte LtdPulau Sakra site12 Sakra Road, Jurong IslandSingapore 627892Tel +65 8676393Fax +65 8676204

Sales offices

Europe

Czech-Republic

Lonza Biotec sroOkruzní 134CZ-281 61 Kour̆ ímTel + 42 0321 739 654 Fax + 42 0321 783 [email protected]

France

Lonza France Sàrl55, rue Aristide BriandFR-92309 Levallois-Perret CedexTel + 33 1 40 89 99 00Fax + 33 1 40 89 99 [email protected]

Germany

Lonza GmbHMorianstrasse 32PO Box 13 14 53DE-42041 WuppertalTel + 49 202 245 38 0Fax + 49 202 245 38 [email protected]

Hungary

Lonza LtdRepresentation OfficeDunaház III. lépcsöház II. em 2Boráros tér 7HU-1095 Budapest IXTel + 36 1 215 94 19Fax + 36 1 215 09 [email protected]

Italy

Lonza SpAVia Vittor Pisani, 31IT-20124 Milan Tel + 39 02 66 999 268 Fax + 39 02 669 87 [email protected]

Netherlands

Lonza Benelux BVAluminiumstraat 1PO Box 3148NL-4800 DC BredaTel + 31 76 542 51 00Fax + 31 76 542 40 [email protected]

Poland

Alusuisse Lonza Services LtdRepresentation Officeul. Smolenskiego 4, m 15PL-01-698 WarsawTel + 48 22 833 87 45Fax + 48 22 833 12 [email protected]

Russia

Moscow Representation of Alusuisse Lonza Group LtdUlitsa Usacheva 35RU-119048 MoscowTel + 7 095 926 53 18Fax + 7 095 926 53 [email protected]

Spain

Lonza Ibérica SA (Unipersonal)Vía Augusta, n° 18, 2a Pta, izdaES-08006 BarcelonaTel + 34 93 238 54 60Fax + 34 93 416 02 [email protected]

Switzerland

Lonza AGMünchensteinerstrasse 38PO BoxCH-4002 BaselTel + 41 61 316 81 11Fax + 41 61 316 91 [email protected]

Addresses75

United Kingdom

Lonza UK LtdImperial House, Lypiatt RoadGB-Cheltenham, Glos. GL50 2QJTel + 44 1242 51 32 11Fax + 44 1242 22 22 [email protected]

Lonza Biologics plc228 Bath RoadGB-Slough, Berkshire SL1 4DYTel + 44 1753 777000Fax + 44 1753 [email protected]

North America

Lonza Inc17-17 Route 208Fair Lawn, NJ 07410, USATel + 1 201 794 2400Fax + 1 201 794 [email protected]

Lonza Biologics Inc101 International DrivePor tsmouth, NH 03801, USATel + 1 603 334 6100Fax + 1 603 334 [email protected]

South America

Brazil

Lonza do Brasil LtdaAv. Das Nações Unídas18001 sala 420BR-04795-900 São PauloTel + 55 11 5683 7628Fax + 55 11 5683 [email protected]

Asia

Hongkong

Lonza Hongkong Ltd32 FI, Times Tower393 Jaffe Road, WanchaiHK-HongkongTel + 852 2545 68 68Fax + 852 2854 18 [email protected]

India

Lonza Ltd India Liaison OfficeSandoz HouseDr. Annie Besant RoadIN-Worli, Mumbai 400 018Tel + 91 22 497 5893Fax + 91 22 497 [email protected]

Japan

Lonza Japan LtdKyowa Shinkawa Bldg 8F2-20-8, Shinkawa, Chuo-kuJP-Tokyo 104-0033Tel + 81 3 5566 0612Fax + 81 3 5566 [email protected]

Singapore

Lonza Inc SingaporeRepresentation Office7 Temasek Boulevard#18-05 Suntec Tower OneSG-Singapore 038987Tel + 65 33 27 824Fax + 65 33 83 816

Lonza Singapore Pte Ltd12 Sakra Road,Jurong IslandSingapore 627892Tel +65 867 6393Fax +65 867 6204

Production

Christine Menz

Corporate Communications

Lonza Group Ltd, Zurich

Design

Atelier Roger Pfund

Communication visuelle

Geneva-Carouge

Illustration on cover and in text

‘Metamorphoses‘ by Roger Pfund,

painter and graphic artist

Photographs

Tristan Pfund, Geneva

Eliane Rutishauser, Zurich

Prepress

Typolitho AG, Zurich

Printing

Vontobel Druck AG, Wetzikon

Produced and printed in Switzerland

annual report 1999 - ku leuven · 2012-10-31 · lonza group has recorded excellent results for...

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