Lonza Annual Report 2007 Worldreginfo - 6B862aab-D1a3-4Cde-9974-0B2fd4a6bb84 Worldreginfo - 6B862aab-D1a3-4Cde-9974-0B2fd4a6bb84 Annual Report Contents 3

annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 < niacinamide, enlarged 750 times, is used for food fortification, in dietary supplements and in animal nutrition WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 annual report contents 3

annual report

4 lettertoshareholders rolf Soiron,chairmanofthe BoardofDirectors and Stefan Borgas, chief executive officer

9 financial report

95 remuneration report

109 corporategovernance

129 safety,healthand environment

137 agenda and contacts

the lonza annual report 2007 consists of the following two parts: activity report and annual report, which includes the Financial report, remuneration report, corporate Governance and Safety, Health and environment. these publications are accessible on the internet at www.lonza.com. the annual report is also available in German. the english version prevails. in this report “lonza” and “the Group” refer to the whole group of lonza companies, “lonza Group ltd” refers to lonza Holding. the annual report of lonza Group ltd follows the guidelines issued by the oecD for multinational corporations.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 4 letter to shareholders

Dear Shareholders, customers, employees and Friends of lonza,

lonza reports 36% growth in eBit (cHF 408 million), 51% growth in net income (cHF 301 million) and a strong improvement in cash flow (all based on continuing operations), which results in a significant strengthening of its ability to generate further sustainable growth. the revised growth strategies forBioscience,nutrition ingredients and microbial controlare designed to deliver enhanced returns. lonza continues to achieve critical milestones in its long-term strategic plan and extends its mid-term guidance to 2013. the Board of Directors is proposing a dividend of cHF 1.75 per share.

overview the full-year performance was characterized by lonza’s portfolio changes and solid developments in all businesses, with Biopharmaceuticals experiencing particularly strong growth. the successfully integrated Bioscience division performed according to expectations. as a result, eBitDa for the group rose by 40.9% based on continuing operations from cHF 484 million in 2006tocHF 682million in 2007, increasing margins by2.6 percentagepoints to 23.8% of sales. along with a reduced tax rate, the improved financial result led to a proportion- ately greater increase in net income of 51.3% to cHF 301 million. as a consequence, gearing declined from 92% at the end of the first quarter to 72% at year-end. ronoa continued to im- prove from 12.2% in 2006 to 14.1%. Full-year sales in 2007 amounted to cHF 2870 million.

Strategy the projects designed to deliver sustainable, above-average, profitable growth con- tinue to be on or ahead of plan. the transformation of the portfolio progressed in 2007, with the sale of the purified isophthalic acid facility in Singapore at an attractive price, as well as the announced divestiture of the majority of the remaining stake in polynt S.p.a. the disposal proceeds will be redeployed in growth-enhancing opportunities.over 90%oflonzasales now relate directly to the life sciences, with an extensive range of technologies and reactor scales having been built up in order to meet customer needs. the successful integration of the newly acquired assets (Bioscience,porriño (eS), Hopkinton,ma(uSa)) strengthens lonza’sabilityto

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 letter to shareholders 5

serve pharmaceutical and biotechnology customers. in addition, lonza Bioscience provides a new technology and business platform, extending the range of offerings to include more steps in the customers’ process, from the research laboratory to production and subsequent quality control.

Strategy reviews were completed for the microbial unit within the Biopharmaceuticals business, the Bioscience division and the newly named life Science ingredients (formerly organic Fine & performance chemicals) business. increased up-front investment in r&D, regulatory fil- ings, new regions and new products will lead to better mid- to long-term growth prospects. in addition to incremental r&D investments in most of the businesses, an organization to deliver long-term technology breakthroughs and new business platforms across all divisions has been created. it will be funded in the low double-digit cHF million range. life Science ingredients posted a solid performance in 2007. Sales increased by 5.6% to cHF 1135 million. excluding the impact of currencies, sales grew by 7.2%, two-thirds of this improvement due to volume increases. the business again preserved both margins and ronoa despite negativeeconomic conditions and market uncertaintycaused bycost increases in raw materials, unfavorable currency exchange rates, a weak construction market in the uSa, and the seasonal shut-downofthe cracker in Visp (cH). Forthe full year,eBitincreased by7.7% to cHF 140 million. market shares in strategic business niches were sustained at the desired high levels and capacity utilization remained high. exclusive Synthesis & Biopharmaceuticals continued to be the principal growth driver for lonza in 2007, increasing sales by 29.4% to cHF 1388 million. the significant improvement in eBitDa, which rose by 32.5% to cHF 391 million from cHF 295 million a year ago, was driven by the Biopharmaceuticals business. profits were impacted by the operational performance and subsequent restructuring measures initiated in the Baltimore, mD (uSa), riverside, pa (uSa) and Braine-l’alleud (Be) facilities.

Biopharmaceuticals increased sales by 68% from cHF 468 million in 2006 to cHF 788 million, due to strong customer demand for both existing and recently acquired assets. capacity utilization was above 90% throughout the year, and batch success rates remained significantly above the industry average. the outlook for the successful microbial and mammalian manufacturing businesses is supported by a pipeline of over 135 projects, resulting in strong demand for lonza’s microbial and mammalian Services. exclusive Synthesis generated sales of cHF 600 million in 2007, operating at over 90% capacity utilization. after a disappointing first half, operational performance improved, on track towards the delivery of expected growth. overall, constraints from the high levels of capacity utilization and changes in the product mix limited sales growth for the full year. the turnaround project at the small-molecule plant in riverside, pa (uSa) showed the first promising results, and the production ramp-up at the Braine-l’alleud (Be) peptide facility is able to fully meet customer needs, but has not yet achieved the optimal operational performance. as a result, margins forthe full year remained belowexpectations.the further strengthening of the development pipeline supported the expansion of new technology platforms in Visp (cH). Strong customer demand required an acceleration of the build-out of the large-scale api plant in nansha (cn).

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 6 letter to shareholders

Bioscience, lonza’s new division, is fully on track with its business plan, delivering a strong margin performance when short-term integration costs areexcluded. on sales amounting to cHF 189 million, eBit of cHF 28 million translates into a margin of 14.8%, including integration costs. this good performance was driven principally by healthy growth in the rapid testing business and a solid operational performance in production. this financial strength will enable increased investment in r&D and capital expenditures resulting in mid-term upside potential, without dilution of short-term profitability. integration activities are progressing ahead of schedule, while the first global sourcing synergies and the first cross-selling opportunities have been realized.

lonza Group highlights – the improved results in non-core activities were driven primarily by the strong performance of the purified isophthalic acid facility in Singapore and the book gain of cHF 29 million relative to its disposal. – as planned, capital expenditure (excluding customer financing) was substantially higher than in 2006 to support growth (2007: cHF 533 million, 2006: cHF 278 million). – net working capital (nWc) in relation to sales declined further,from26.4% in 2006to 21.5%, showing the continuing impact of the nWc improvement program. – net cash provided by operating activities increased by 51.5% from cHF 425 million in 2006 to cHF 644 million. – net debt amounted to cHF1309million bythe end of 2007, with the ratio of debt to equity having declined from 92% in the first quarter to 72% by year-end, on strong cash flow generation. – in order to finance the acquisition of the microbial Biopharmaceuticals and research Bio- products businesses from cambrex, lonza signed a syndicated loan of cHF 500 million with a consortium of banks in December 2006. the syndicated loan, which has a five-year term and is based on floating rates, was drawn in February 2007. lonza hedged the interest rate for the whole period of five years by means of an interest rate swap. – lonza added 1565 employees to its workforce compared with the beginning of 2007, 1074 of them through acquisitions. excluding these, the number of employees increased by 8.0%, in line with the long-term human resources strategy.

Senior management changes effective 1 January 2007, uwe H. Böhlke joined lonza as a man- agementcommittee member and Head of the exclusiveSynthesis business.effective1august 2007, marcela Čechová, previously Head of lonza exclusive Synthesis Biochemicals and of the Kouřim (cZ) site, took over as the new Head of Global Human resources and replaced Jeanne thoma as a new member of the management committee (mc). Jeanne thoma moved into the role of Head of the microbial control business unit as of 1 June 2007.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 letter to shareholders 7

outlook all strategic projects are on track. With sound execution of its long-term plan, lonza continues to drive aggressive growth initiatives in the form of strategic investments and organic growth projects. Based on good visibility of contracts and projects and assuming stable economic conditions, lonza expects: – eBit growth in the mid to high teens up to 2013 – project pipeline fully aligned to support growth expectations – 80% of capacity expansion committed today at lonza we remain committed to our vision. our passion is to deliver sustainable value to our customers, whom we thank for their continued trust.

We would like to thank our employees, who work so diligently to help us achieve this aim, and our shareholders for their support.

rolf Soiron Stefan Borgas chairman of the Board of Directors chief executive officer

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report contents 9

financial report

financial highlights 10 essential Figures at a Glance

consolidatedfinancial statements 14 consolidated Balance Sheet 15 consolidated income Statement 16 consolidated cash FlowStatement 17 consolidated Statement of changes in equity 18 notes to the consolidated Financial Statements 80 report of the Group auditors

financial statementsoflonzagroup ltd 84 Balance Sheet – Holding 85 incomeStatement –Holding 86 notes to the Financial Statements – Holding 87 proposal of the Board of Directors 88 report of the Statutory auditors

89 investorinformation

91 statement of valueadded

92 free cash flow

< endotoxin, enlarged 8000 times. endotoxin, produced by gram-negative bacte- ria such as e. coli, can cause serious illness and even death if it gets into the blood stream. pharmaceutical and medical device companies use endotoxin detection products from lonza as a quality control test to make sure their products do not contain harmful levels of endotoxin.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 10 financial highlights Financial report

essential figures at a glance

lonza 2006 2007 million cHF

Sales total 2 914 2 870 – continuing operations 2 285 – Discontinued operations 629

result from operating activities (eBit) 344 408 – continuing operations 301 – Discontinued operations 43

profit before income taxes 292361 profit for the period 222 301 cash flow before change in net working capital 429562 investments in property, plant and equipment and intangibles (at cost) incl. leasing (371) (609) total equity1 6071808 net debt 913 1 309 net debt-equity ratio 0.57 0.72

Basic earnings per share cHF 4.69 6.33 – continuing operations cHF 4.20 – Discontinued operations cHF 0.49

Diluted earnings per share cHF 4.305.88 – continuing operations cHF 3.88 – Discontinued operations cHF 0.42

Book value per share cHF 33.94 38.01 Dividend payout ratio % 3228

number of shares (par value cHF 1.00)50 450 000 50 450 000 Share price (high/low) cHF 108.10/78.65 137.40/106.20 market capitalization (31 December) 5 3126 932

lonza group ltd 2006 2007 million cHF

net income 85 265 Shareholders’ equity1 4091602 Shareholders’ equity as a percentage of total assets % 69 56 Dividends declared after the balance sheet date 71 83 Dividend per share cHF 1.501.75

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report financial highlights 11

sales by division 2006 2007 million cHF % exclusive Synthesis & Biopharmaceuticals 1073 1 388 48 life Science ingredients 1075 1 135 40

Bioscience 0 189 7 other 137 158 5 continuing operations 2 285 2 870 100

Discontinued operations 629 0 0 lonza group 2 914 2 870 100

result from operating activities (eBit) 2006 2007 by division million cHF % exclusive Synthesis & Biopharmaceuticals 193 219 54 life Science ingredients 130 140 34

Bioscience 0 28 7 other (22) 21 5 continuing operations 301 408 100

Discontinued operations 43 0 0 lonza group 344 408 100

cash flow and investments 2006 2007 million cHF 600 562 500 429 400 300 200 100 0 cash flow before change in net working capital (100) (200) investments in property, plant and equipment and intangibles incl. leasing (300) (400) (371) (500) (600) (700) (609)

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report contents 13

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 14 consolidatedfinancial statements Financial report

consolidated Balance sheet

assets 1 2006 2007 million cHFnote2

fixed assets property, plant and equipment 6 4 1244513 accumulated depreciation and accumulated impairment losses 6 (1 980)2 144 (2 047) 2 466 intangible assets 7 67 158 Goodwill 7 102 394 other non-current assets 515 Deferred tax assets 22 174 173 investments in associates 8 10613 other investments 10 long-term loans and advances 14 1228 total fixed assets 2 611 3 247

current assets inventories 9 543 669 Value adjustments 9 (56) 487 (65) 604 trade receivables, net 10 462429 current tax receivables 22 39 other receivables, prepaid expenses and accrued income 11 100 150 Short-term advances and other financial assets 14 13 597 4622 cash and cash equivalents 12, 14 217 372 assets held for sale 5 0106 total current assets 1 301 1 704

total assets 3 912 4 951

total equity and liabilities1 2006 2007 million cHFnote2

equity Share capital 5050 Share premium147 158 treasury shares (338) (324) retained earnings and reserves 1 748 1 924 total equity attributable to equity holders of the parent see page 17 1 607 1 808 minority interest 00 total equity 1 607 1 808

liabilities Deferred tax liabilities 22 378 387 other long-term provisions 13 86 84 long-term debt 14 9231360 total long-term liabilities and provisions 1 387 1 831 other short-term liabilities 15 464 655 current tax payables 49 68 trade payables 16 173 236 Short-term debt: Due to bank and other financial institutions 14 232353 total current liabilities and deferred items 918 1 312 total liabilities 2 305 3 143

total equity and liabilities 3 912 4 951

1 at 31 December 2 See the accompanying notes to the consolidated financial statements

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report consolidatedfinancial statements 15 consolidated income statement

2006 2007

million cHF con- Discon- tinuing tinued note1 operations operations total total

sales (see segment information) 32 2 285 629 2 914 2 870 cost of goods sold (1 721) (561) (2 282)(2 060) gross profit 564 68 632 810

marketing and distribution (87) (10) (97) (130) research and development 23 (70)(6) (76) (89) administration and general overheads (130)(16) (146) (194) other operating income 20 55 14 69 79 other operating expenses 20 (31) (7) (38) (68) result from operating activities (eBit) 301 43 344 408 Financial income 21.1 14 0 14 20 Financial expenses 21.2 (66) (2) (68) (76) Shareofprofit of associates 21.3 30 310 other investment income/(loss) 21.3 (1)0 (1) (1) net financing costs (50) (2) (52) (47) profit before income taxes 251 41 292 361

income taxes 22 (52)(17) (69) (60) profit after income taxes before gain/(loss) on discontinued operations 199 24 223 301 Gain/(loss) on sale of discontinued operations, net of income taxes (1) (1) 0 profit for the period 199 23 222 301

attributable to: equity holders of the parent 199 23 222 301 minority interest 0000 profit for the period 199 23 222 301

cHFcHF cHFcHF Basic earnings per share 27 4.20 0.49 4.69 6.33 Diluted earnings per share 27 3.88 0.424.305.88

1 See the accompanying notes to the consolidated financial statements

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 16 consolidatedfinancial statements Financial report

consolidated cash flow statement

2006 2007 million cHFnotes1

profit for the period 222 301 adjustments for non-cash items: – income taxes 22 69 60 – net financing costs 21 5247 –Depreciation of property, plant and equipment (excl. impairment) 6 198 224 – amortization of intangibles 7 15 27 – impairment losses on property, plant, equipment and intangibles 6, 7 814 – Goodwill impairment 7 09 – release of negative goodwill 3.5 (12)0 – (Decrease) /increase of provisions (5) 18 – (Gain) / loss on disposal of property, plant and equipment42 – (Gain) / loss on sale of subsidiary 3.1, 3.4 (9) (29) – (Gain) / loss on sale of discontinued operations, net of income tax10 – reversal amortization of other liabilities (7) (26) – Share-based payments 69 – Delivery of treasury shares 1(1) income taxes paid (52)(38) interests paid (62)(55) cash flow before change in net working capital 429 562

(increase) /decrease inventories 23(104) (increase) /decrease trade receivables (49) 41 increase /(decrease) trade payables (12)60 (increase) /decrease other net working capital 6086 increase /(decrease) of other payables net (26) (1) net cash (used for)/provided by operating activities 425 644

purchase of property, plant and equipment(360)(596) purchase of intangible assets (11) (13) proceeds from sale of tangible and intangible assets 57 acquisition of subsidiaries, net of cash acquired 3.2, 3.3, 3.5 (212)(586) Disposal of subsidiaries, net of cash disposed of 3.1, 3.4 16 111 Disposal of discontinued operations, net of cash disposed of 4 141 0 purchase of investments (2)0 proceeds from sale of investments 251 purchase of other assets 0(10) proceeds from sale of other assets 21 Decrease in loans and advances 312 increase in loans and advances (2)(2) interests received 22 16 Dividends received 04 net cash (used for)/provided by investing activities (373) (1 055)

repayment of convertible and straight bond (675) 0 Syndicated loan 0500 proceeds/(repayment) from borrowings 169 44 increase in other liabilities 94 76 Decrease in other liabilities (1) 0 Dividends paid (61) (72) company contribution of purchased shares (3) (2) purchase of treasury shares (3) (24) Sale of treasury shares 050 net cash (used for)/provided by financing activities (480) 572

effect of currency translation on cash (1) (6)

net (decrease)/increase in cash and cash equivalents (429) 155 cash and cash equivalents at 1 January646 217 cash and cash equivalents at 31 December 217 372

1 See the accompanying notes to the consolidated financial statements

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report consolidatedfinancial statements 17 consolidated statement of changes in equity

attributable to equity holders of the parenttotal minority total million cHF Share Share retained Hedging trans- treasury interest equity capital premium earnings/ reserve lation shares other reserve reserves

at 31 december 2005 50 147 1 533 11 86 (337) 1 490 01490 net (loss)/gain on cash flow/ net investment hedge, net of tax000(19) 00(19) 0(19) translation differences 000(11) (16) 0(27) 0(27) net income recognized directly in equity 000(30) (16) 0(46) 0(46) profit for the period 00222 000222 0222 total recognized income and expenses for the period 00222 (30) (16) 0176 0176 Dividends 00(61) 000(61) 0(61) recognition of share-based payments 006000606 transfer of employee shares 00(3) 002(1) 0(1) acquisition of treasury shares 00000(3) (3) 0(3) at 31 december 2006 50 147 1 697 (19) 70 (338) 1 607 01607 net (loss)/gain on cash flowhedge, net of tax000600606 net change in fair value of cash flow hedges transferred to profit or loss 00016 0016 016 translation differences 0000(80)0(80)0(80) net income recognized directly in equity 00022 (80) 0(58) 0(58) profit for the period 003010003010301 total recognized income and expenses for the period 00301 22 (80) 0243 0243 Dividends 00(72)000(72)0(72) recognition of share-based payments 008000808 transfer of employee shares 00(3) 000(3) 0(3) acquisition of treasury shares 00000(24) (24) 0(24) Sale of treasury shares less taxes 011 00038 49 049 at 31 december 2007 50 158 1 931 3(10) (324) 1 808 01808 the share capital on 31 December 2007 comprised 50 450 000 registered shares with a par value of cHF 1 each (2006: 50 450 000 registered shares with a par value of cHF 1 each) amounting to cHF 50 450 000 (2006: cHF 50 450 000). reserves in the amount of cHF 25225000 included in the financial statements of the parent company cannot be dis- tributed.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 18 conSoliDateD Financial StatementS Financial report

notes to the consolidated financial statements

1 accounting principles Basis of preparation the consolidated financial statements for 2007 and 2006 are reported in Swiss francs (cHF)and arebased on the annual accountsofthe individual subsidiaries at 31 December which have been drawn up according to uniform Group accounting principles. the consolidated accounts are prepared in accordance with the international Financial reporting Standards (iFrS) and with Swiss law. they are prepared on the historical cost basis, except that derivative financial instruments are stated at their fair value.

changes in accounting policies the following new and revised standards and interpretations have been issued being effective for the reporting year 2007: – iFric7– applying the restatement approach under iaS 29 – Financial reporting in Hyper- inflationary economies – iFric 8 – Scope of iFrS 2 – iFric 9 – reassessment of embedded Derivatives – iFric 10 – interim Financial reporting and impairment – iFrS 7 – Financial instruments: Disclosures – amendment to iaS 1 – presentation of Financial Statements: capital Disclosures

With the exception of additional disclosures, the newand revised standards had no significant impact on the consolidated financial statements for the year 2007.

the disclosure requirements for iFrS 7 include qualitative and quantitative information about risk exposure arising from financial instruments, especially with regard to credit risk, liquidity risk and market risk. iFrS 7 also requires qualitative disclosure about management’s objectives, policies and processes for managing these risks. this information is dealt with in note 31.

the following newand revised Standards and interpretations havebeen issued, butare not yet effective and are not applied early in these consolidated financial statements. their impact on the consolidated financial statements of lonza has not yet been systematically analysed. the expected effects as disclosed below the table reflect a first assessment by Group management.

effective date planned application Standard / interpretation by lonza

iFric 11 iFrS 2 – Group and treasury share transactions * 1 march 2007reporting year 2008 iFric 12 – Service concession arrangements * 1 January 2008reporting year 2008 iFric 14 iaS 19 - the limit of defined benefit assets, minimum funding requirements and their interaction *** 1 January 2008reporting year 2008 iFric 13 – customer loyalty programmes *1July 2008reporting year 2009 iaS 1 revised – presentation of financial statements ** 1 January 2009reporting year 2009 iaS 23 revised – Borrowing costs *** 1 January 2009reporting year 2009 iFrS 8 – operating Segments ** 1 January 2009reporting year 2009 iFrS 3 revised - Business combination *** 1 July 2009reporting year 2010 iaS 27 amended – consolidation and separate financial statements *** 1 July 2009reporting year 2010

reclassification For comparative purposes, the prior year amount for net capital invested has been presented in the segment reporting information (note 32) to include goodwill as it be- came relevant due to the acquisition of cambrex in 2007.

the “accounting estimates and judgements” are disclosed in note 29.

*no or no significant impacts are expected on the consolidated financial statements ** mainly additional disclosures are expected in the consolidated financial statements *** the impacts on the consolidated financial statements can not yet be determined with sufficient reliability.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report consolidatedfinancial statements 19

principles of consolidation the consolidated financial statements represent the accounts for the year ended 31 December of lonza Group ltd and its subsidiaries.

Subsidiaries acquired during the year are included in the consolidated accounts from the date of acquisition, while any subsidiaries sold are excluded from the accounts from the date of sale. acquisitions are accounted for by the use of the purchase method of accounting. the full consolidation method is used, whereby the assets, liabilities, income and expenses are incor- porated in full, irrespective of the extent of any minority interest. payables, receivables, income and expenses between lonza consolidated companies are eliminated. inter-company profits included in year-end inventories of goods produced within lonza are eliminated. transactions between subsidiaries are concluded under market conditions. unrealized gains on transactions between subsidiaries are eliminated. unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. interests in joint ventures are reported using the line-by-line proportionate consolidation method. associates are valued in the consolidated financial statements using the equity method of accounting. under this method, the investment is initially recorded at cost, and is increased or decreased by the proportionate share of the associate’s profits or losses after the date of acquisition, adjusted for any impairment in the interest in the associate and depreciation of fair market value incre- ments/decrements recognized at that time. Goodwill included in associates is not accounted for separately. the Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. Dividends paid during the year reduce the carrying value of the investments. the significant subsidiaries included in the financial statements are shown in note 2.

Definition of subsidiary and associates a subsidiary is an enterprise controlled by lonza Group ltd. control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. an associate is an enterprise in which the Group has the ability to exercise significant influence, but not control, over the financial and operating policies. the consolidated financial statements include the Group’s share of the total recognized gains and losses of associates on an equity- accounted basis, from the date that significant influence commences until the date it ceases.

Definition of segments the segment data are shown by the primary business segments and the secondary geographical segments. the business segments are structured by subsidiaries which operate within the same business activity and are the basis of the internal reporting system. the major criterion used to define a segment is based on the risks and rewards associated with a business activity. revenue recognition Sales are recognized when the significant risks and rewards of ownership of the assets have been transferred to a third party and are reported net of sales taxes and rebates. provisions for rebates to customers are recognized in the same period that the related sales are recorded. revenue from termination fees is recorded in the income statement in the period in which the termination occurs. the poc(percentage of completion) method is applied for development projects. the stage of completion of a contract is determined on the basis of the estimated total contract costs. interest income is recognized on a time-proportion basis using the effective interest method. Dividend income is recognized when the right to receive payment is established.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 20 conSoliDateD Financial StatementS Financial report

Foreign currencies items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). the consolidated financial statements are presented in Swiss francs (cHF) which is the Group’s presentation currency. For consolidation purposes the balance sheet of foreign consolidated companies is translated to cHF with the rate on the balance sheet date. income, expenses and cash flows of the foreign consolidated companies are translated into cHF using the yearly average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). exchange rate differences arising from the different exchange rates applied in balance sheets and income statements are allocated to reserves. in the individual company’s financial statements, transactions in foreign currencies are translated at the foreign exchange rate applicable at the date of the transaction. monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date.

Derivative financial instruments and hedging Derivative financial instruments are initially recognized in the balance sheet at their fair value. the method of recognizing the resulting gain or loss is dependent on whether the derivative contract is designed to hedge a specific risk and qualifies for hedge accounting. on the date a derivative contract is entered into, the Group des- ignates derivatives which qualify as hedges for accounting purposes as either a hedge of the fair value of a recognized asset or liability (fair value hedge), a hedge of a forecasted transaction or firm commitment (cash flow hedge) or a hedge of a net investment in a foreign entity. changes in the fair value of derivatives which are fair value hedges are recognized in the income statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. changes in the fair value of derivatives in cash flow hedges that are highly effective are recognized in equity. the gain or loss relating to the ineffective portion is recognized immediately in the income statement. Where the forecasted transaction or firm commitment results in the recognition of an asset or liability, the gains and losses previously included in equity are included in the initial measurement of the asset or liability. otherwise, amounts recorded in equity are transferred to the income statement and classified as revenue or expense in the same period in which the forecasted transaction affects the income statement.

Hedges of net investments in foreign entities are accounted for similarly to cash flow hedges. the Group hedges certain net investments in foreign entities with currency forward contracts. all foreign exchange gains or losses arising on translation are recognized in equity and included in cumulative translation differences.

certain derivative instruments, while providing effective economic hedges under the Group‘s policies, do not qualify for hedge accounting. changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized in the income statement, when the committed or forecasted transaction is ultimately recognized in the income statement.

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However, if a forecasted or committed transaction is no longer expected to occur, the cumulative gain or loss that was recognized in equity is immediately transferred to the income statement. the purpose of hedge accounting is to match the impact of the hedged item and the hedging instrument in the income statement. to qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. at the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. this process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecasted transactions. the Group also documents its assessment, both at the hedge inception and on an ongoing basis, as to whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Fixed assets Fixed assets (property, plant and equipment) are stated at cost less accumulated depreciation and accumulated impairment losses. the assets are depreciated on a component basis over their estimated useful lives, which vary from 10 to 50 years for buildings and structures, and 5 to 16 years for production facilities, machinery, plant, equipment and vehicles. Fixed assets are depreciated using the straight-line method over their estimated useful lives.

Subsequent expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalized. other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. all other expenditure is recognized in the income statement as an expense as incurred. the residual values and the useful life of items of property, plant and equipment are reviewed and adjusted, if appropriate, at each balance sheet date.

lease Financial leases, which effectively constitute assets purchased with long-term financing, are carried as fixed assets at their purchase price and are written off over their estimated useful lives if the leased assets are transferred to the lessee at the end of the lease term. if there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. the corresponding liabilities are included in long-term and short-term debt. the finance lease gives rise to a depreciation expense for depreciable assets as well as a finance expense for each accounting period. For purpose of classifying a lease of land and buildings, lease of the land and of the buildings are evaluated separately. lease payments under an operating lease are recognized as an expense in the income statement on a straight-line basis over the lease term.

intangible assets intangible assets with a definite useful life are stated at cost less accumulated amortization and accumulated impairment losses. intangibles include software, licenses, patents, trademarks and similar rights granted by third parties and capitalized computer software development costs. costs associated with internally developed or maintained computer software programmes are recognized as an expense as incurred. costs that are directly associated with the production of identifiable and unique software products controlled by the Group,

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and that will probably generate future economic benefits exceeding costs beyond one year, are recognized as intangible assets. those direct costs include the software development employee costs and an appropriate portion of relevant overheads. intangible assets are amortized using the straight-line method over their estimated useful lives but not exceeding five years. all intangible assets in lonza have finite useful lives.

Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. When the excess is negative (negative goodwill) it is recognized immediately in profit or loss. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annuallyforimpairmentand carried at cost less accumulated impairment losses. Goodwill is treated as an asset in the acquisition. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

inventories inventories are reported at the lower of cost (purchase price or production cost) or market value (net realizable value). in determining net realizable value, any costs of completion and selling costs are deducted from the realizable value. the cost of inventories is calculated using the weighted average method. prorated production overheads are included in the valua- tion of inventories. adjustments are made for inventories with a lower market value or which are slow moving. unsalable inventory is fully written off. costs include all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

receivables trade receivables are recognized at the original invoice amount less allowances made for doubtful accounts. an allowance is recorded for the difference between the carrying amount and the recoverable amount where there is objective evidence that the Group will not be able to collect all amounts due. a reconciliation of changes in the allowance accounts for credit losses is provided.

Financial assets loans and advances and other financial assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. they arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. they are classified as short-term with maturities not longer than 12 months and as long-term with maturities greater than 12 months after the balance sheet date. loans and advances are carried at amortized costs using the effective interest method. realized and unrealized gains and losses are recorded in the income statement in the period in which they arise.

cash and cash equivalents cash includes cash in hand, in postal and bank accounts, as well as short-term deposits and highly liquid funds which have an original maturity of less than three months.

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impairment assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested forimpairmentannuallyand whenever thereisanindication thatthe unit may be impaired. an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. the recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). calculation of recoverable amount – in assessing value in use, the estimated future cash flows arediscounted to their presentvalueusing apre-taxdiscount rate thatreflects currentmarket assessments of the time value of money and the risks specific to the asset. reversal of impairment – an impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. an impairment loss in respect of goodwill is not reversed. in respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Deferred taxes tax expense is calculated using the balance sheet liability method. additional deferred taxes are provided wherever temporary differences exist between the tax base of an asset or liability and its carrying amount in the consolidated accounts for the year.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.

Deferred tax assets and liabilities are measured using substantially enacted tax rates in the respective jurisdictions in which lonza operates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. in assessing the recoverability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realized. For transactions and other events recognized directly in equity, any related tax effects are also recognized directly in equity. retirement benefits most of lonza‘s subsidiaries operate their own pension plans. Generally, they are funded by employees‘ and employer‘s contributions. the liability recognized in the balance sheet is the present value of the benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. a policy has been established whereby actuarial valuations are performed on a yearly basis. actuarial gains and losses are recognized over a period not exceeding the expected remaining working lives of the participating employees if the accumulated gains and losses exceed the corridor of 10% of the greater of plan assets and projected benefits obligation.

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termination benefits termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. the Group recognizes termination benefits when it is demonstra- bly committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

provisions a provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. if the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

a provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced pub- licly. Future operating costs are not provided for.

provisions for environmental liabilities are made when there is a legal or constructive obligation for the Group which will result in an outflow of economic resources. provisions are made for remedial work, where there is an obligation to remedy environmental damage, as well as for containment work where required by environmental regulations.

Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Straight bond interest-bearing borrowings are recognized initially at their fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost, with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective-interest basis.

convertible bond the convertible bond is separately shown in the balance sheet by the liability component and the equity component. the fair value of the liability component is determined on the basis of the present value of the principal plus the present value of the interest payable over the contractual period using a rate of interest applied by the market at the time. the value of the equity component is calculated by deducting the liability component from the total proceeds of the bond issue. the difference between the initial liability component and the notional amount is amortized over the contractual period of the bond and treated as a financial expense.

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Share capital ordinary shares are classified as equity. incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases lonza Group ltd’s equity share capital (trea- suryshares), the consideration paid, including anydirectlyattributable incremental costs (net of income taxes), is deducted from equity attributable to the Group’s equity holders until the shares are cancelled, reissued or disposed of.

Dividend Dividend distribution to lonza’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the lonza shareholders.

Share-based compensation the Group operates an equity-settled, share-based compensation plan. the fair value of the employee services received in exchange for the grant of options and other share-based compensations is recognized as an expense. the total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. at each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. it recognizes the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. research and Development Development costs are only capitalized when the related products will generate probable future economic benefits. Fixed assets (buildings, machinery, plant, equipment) used for research purposes are valued similarly to other fixed assets. Such assets are capitalized and depreciated over their estimated useful lives. expenses for research and development include associated wages and salaries, material costs, depreciation on fixed assets, as well as overhead costs. net financing costs net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, the finance charge for finance leases, dividend income, share of profit of associates, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognized in the income statement. interest income (expense) is recognized in the income statement as it accrues, taking into account the effective yield of the asset or liability or an applicable floating rate. Dividend income is recognized in the income statement on the date that the dividend is declared. interest income and expense include the amortization of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrumentand its amount at maturity calculated on an effective interest rate basis.

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2 principal subsidiaries1 in 2007, lonza acquired the research products and microbial Biopharmaceuticals businesses from cambrex corporation and integrated the research products companies in its new Bioscience division and the microbial Biopharmaceuticals companies in its exclusive Synthesis & Biopharmaceuticals division. the principal subsidiaries are shown below:

company town/country purpose currency 2 Share % Holding % Holding capital direct indirect in 000

lonza Braine Sa Braine-l’alleud, Be eur 40 000 100% lonza Verviers Sprl Verviers, Be eur 19 100% lonza canada inc. Shawinigan, ca caD 1 100% lonza aG Visp, cH cHF 60 000 100% lonza Sales aG Basel, cH cHF 2 000 100% lonza Biopharma aG Visp, cH cHF 550 100% lonza Bioproducts aG Basel, cH cHF 100 100% cHF 133 100% lonza Finance limited St. Helier, Jersey, GB uSD 13 100% lonza Biotec sro Kouřim, cZ cZK 282 100 100% lonza Guangzhou ltd Guangzhou, cn uSD 12 000 100% lonza Guangzhou nansha ltd Guangzhou, cn uSD 53 489 100% lonza (china) investments co. ltd Guangzhou, cn uSD 49 500 100% lonza Guangzhou research and Development center ltd Guangzhou, cn uSD 4 100 100% lonza nanjing ltd nanjing, cn uSD 2 000 100% lonza Group GmbH Weil am rhein, De eur 25 100% Gewerbepark Hochrhein GmbH Waldshut-tiengen, De eur 10 400 100% lonza GmbH Wuppertal, De eur 511 100% lonza copenhagen apS Vallensbaekstrand, DK DKK 150 100% lonza Biologics porriño, S.l. porriño, eS eur 10 296 100% lonza ibérica Sau Barcelona, eS eur 60 100% lonza Saint Beauzire SaS Saint Beauzire, Fr eur 1 566 100% lonza paris Sàrl paris, Fr eur 1 003 100% lonza Bioscience Sàrl paris, Fr eur 8 849 100% lonza France Sàrl levallois-perret, Fr eur 132 100% lonza Biologics plc Slough, GB GBp 14 500 100% lonza Wokingham limited Wokingham, GB GBp 1 100% lonza india private ltd mumbai, in inr 4 249 100% lonza milano S.r.l. caravaggio , it eur 52 100% lonza Japan ltd tokyo, Jp JpY 200 000 100% lonza europe BV Breda, nl eur 19 100% lonza Benelux BV Breda, nl eur 450 100% lonza Biologics Singapore pte ltd Singapore, SG uSD 25 000 100% lonza Biologics tuas pte ltd Singapore, SG uSD 25 000 50% lonza america inc. allendale, uS uSD 8 100% lonza inc. allendale, uS uSD 464 100% lonza Biologics inc. portsmouth, uS uSD 1 100% lonza Walkersville inc. Walkersville, uS uSD 1 100% lonza rockland inc. rockland, uS uSD 1 100%

research&Development production Sales office Service/Financing

1 all companies belonging to lonza Group are non-listed entities 2 abbreviation of currencies in accordance with iSo standards

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3 Business combination 3.1 Sale of lonza Singapore pte ltd, Singapore at 19 november 2007, lonza sold the subsidiary lonza Singapore pte ltd, Singapore, to perstorp Group for uSD 138 million. this transaction represents another milestone in lonza’s strategy to focus on its life-science operations, following the transformation of its portfolio implemented over the last year. over 90% of lonza’s sales now relate directly to the life sciences. perstorp will assume full ownership of the business and all related assets through a wholly owned subsidiary. Based on Jurong island, Singapore, lonza Singapore pte ltd is a leading manufacturerand marketer of purified isophthalic acid (pia), used as akeyingredient in the manufacture of petbottle-grade resins, unsaturated polyester resins and performance coatings.

the net assets sold and the gain on disposal of the subsidiary are as follows:

million cHF

property, plant and equipment73.7 intangible assets 2.1 Goodwill 0.6 other non-current assets 0.1 inventories 14.0 trade receivables, net 22.6 other receivables, prepaid expenses and accrued income 1.4 cash and cash equivalents 12.5 total assets sold 127.0

other short-term liabilities (5.4) trade payables (9.8) total liabilities sold (15.2)

total net assets sold 111.8

consideration for sale 154.6 purchase price adjustment(0.2) adjustment for net working capital (5.9) less transaction costs (7.1) less retention bonus(0.6) gain on disposal of subsidiary29.0

the net cash inflow from the sale is determined as follows:

million cHF

consideration for sale 154.6 purchase price adjustment(0.2) adjustment for net working capital (5.9) less transaction costs (7.1) less retention bonus(0.6) less vendor loan (17.4) less cash and cash equivalents in subsidiary sold (12.5) net cash inflow from sale 110.9

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3.2 acquisition of the research Bioproducts and microbial Biopharmaceuticals divisions from cambrex corporation on 24 october 2006, lonza announced an agreement with cambrex corporation (nYSe: cmBm) to purchase its research Bioproducts and microbial Biopharmaceuticals businesses for a cash consideration of uSD 460 million. in conjunction with the initial public offering of polynt S.p.a., these acquisitions will accelerate the Group’s strategic development and transform lonza into a focused life-science business. on 6 February 2007, lonza announced the completion of these acquisitions. the closing of the deal followed the consent of the cambrex shareholders on 5 February 2007.

the microbial Biopharmaceuticals business has been integrated into the existing exclusive Synthesis & Biopharmaceuticals segment and supports lonza’s microbial Biopharmaceuticals growth. research Bioproducts was positioned as a stand-alone business segment and renamed as lonza Bioscience. its leading position in cell-based research, endotoxin detection and cell therapy manufacturing is highly complementary to lonza’s Biopharmaceuticals business.

From 6 February to 31 December 2007, the acquired business contributed sales of cHF 232 million and a result from operating activities of cHF -3 million to the Group. this amount includes restructuring expenses of cHF 14 million from microbial Biopharmaceuticals and integration costs of cHF 8 million from Bioscience. if the acquisition had occurred on 1 January 2007, Group sales would have been cHF 2 886 million and the Group result from operating activities cHF 411 million for the year 2007. these amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiaries to reflect the additional depreciation and amortization that would have been charged assuming the fair-value adjustments to property, plant and equipment and intangible assets had applied from January 2007.

net assets acquired and goodwill are shown as follows:

million cHF

– purchase price in cash 570.4 – Direct costs relating to the acquisition 12.7 – purchase price adjustment (net working capital adjustment) 17.4 total purchase consideration 600.5 Fair value of net assets acquired (284.9) goodwill 315.6

the direct costs relating to the acquisition include costs for the purchase price hedge of cHF 4.8 million.

the goodwill includes expected synergies from the acquisition, the labor force and potentially intangible assets that could not be valued separately. it was pushed down to the Bioscience companies.

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the acquisition has been accounted for using the purchase method. the following amounts of assets and liabilities acquired have been included:

assets and adjustment assets and liabilities million cHF liabilities included through purchase immediately before at acquisition date price allocation the combination

property, plant and equipment99.5 (5.3) 104.8 intangible assets (patents)126.8 61.8 65.0 other non-current assets 0.9 0.00.9 Deferred tax assets 70.7 10.060.7 inventories 44.6 (0.1) 44.7 trade receivables, net 40.9 0.7 40.2 other receivables, prepaid expenses and accrued income 4.9 0.04.9 current tax receivables 4.1 0.04.1 cash and cash equivalents 14.9 0.014.9 trade payables (16.1) 0.0(16.1) other short-term liabilities (29.7) 0.5 (30.2) current tax payables (4.7) 0.0(4.7) Deferred tax liabilities (59.7) (49.3) (10.4) notes payable 0.03.5 (3.5) Short-term debt (4.0)0.0(4.0) other interest-free liabilities (0.7) (0.7) 0.0 other long-term provisions (3.3) 0.0(3.3) long-term debt (4.2)0.0(4.2) fair value of net assets acquired 284.9 21.1 263.8 Goodwill 315.6 cost of the business combination 600.5

purchase consideration settled in cash 600.5 cash and cash equivalents of subsidiaries acquired (14.9) cash outflow on acquisition 585.6

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3.3 acquisition of Bioproducts manufacturing division of ucB on 28 February 2006, lonza acquired 100% of the shares of the Bioproducts manufacturing division of ucB. this division with 300 employees is located in Braine-l’alleud outside Brussels, Belgium, and has been active in chemical peptides manufacturing for over 20 years.

From 28 February to 31 December 2006, the acquired business contributed sales of cHF 57 million and a result from operating activities of cHF -7 million to the Group. if the acquisition had occurred on 1 January 2006, Group sales would have been cHF 2 932 million and the Group result from operating activities cHF 347 million. these amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and amortization that would have been charged assuming the fair-value adjustments to property, plant and equipment and intangible assets had applied from January 2006.

the result for the ten months is not representative for future periods due to delayed projects and integration of the acquired company into lonza.

net assets acquired and goodwill are shown as follows:

million cHF

– purchase price in cash 188.8 – Direct costs relating to the acquisition 3.5 – purchase price adjustment (net working capital adjustment) 6.0 total purchase consideration 198.3 Fair value of net assets acquired (145.2) goodwill 53.1

the goodwill included expected synergies from the acquisition, the labor force and potentially intangible assets that could not be valued separately.

the acquisition has been accounted for using the purchase method. the following amounts of assets and liabilities acquired have been included:

assets and adjustment assets and liabilities million cHF liabilities included through purchase immediately before at acquisition date price allocation the combination

property, plant and equipment68.5 20.3 48.2 intangible assets (patents)40.7 40.5 0.2 inventories 37.5 (2.4) 39.9 trade receivables, net 4.1 0.1 4.0 other receivables, prepaid expenses and accrued income 4.4 4.4 0.0 trade payables (4.3) 0.0(4.3) other short-term liabilities (5.7) (0.3) (5.4) fair value of net assets acquired 145.2 62.6 82.6 Goodwill 53.1 cost of the business combination 198.3

purchase consideration settled in cash 198.3 cash and cash equivalents of subsidiary acquired 0.0 cash outflow on acquisition 198.3

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3.4 Sale of loFo Hightech Film GmbH, Weil am rhein, Germany at the closing date 30 June 2006, lonza sold the subsidiary loFo Hightech Film GmbH, Weil am rhein, Germany, to Shinkong Synthetic Fibers corporations (SSFc), headquartered in taipei, taiwan. SSFcwill assume full ownership of the business. the completion of this divestiture is part of lonza’s overall strategy that is focused on delivering sustainable value to our customers in the life-science industries. loFo Hightech Film GmbH is in the business of manufacturing and distributing solventcast films forhigh-tech applications,including –butnot limited to – opto-electronic displays.

the net assets sold and the gain on disposal of the subsidiary are as follows:

million cHF

property, plant and equipment34.6 Deferred tax assets 0.4 inventories 9.4 trade receivables, net 3.8 other receivables, prepaid expenses and accrued income 6.4 cash and cash equivalents 0.2 total assets sold 54.8

Deferred tax liabilities (2.1) long-term other provisions (6.6) other short-term liabilities (3.3) Short-term debt (25.0) trade payables (1.8) total liabilities sold (38.8)

total net assets sold 16.0

consideration for sale 24.9 less transaction costs (0.4) gain on disposal of subsidiary8.4

the net cash inflow from the sale is determined as follows:

million cHF

total consideration for sale 24.9 less vendor loan (7.9) less transaction costs (0.4) less cash and cash equivalents in subsidiary sold (0.2) net cash inflow from sale 16.4

3.5 acquisition of the biomanufacturing facility in porriño, Spain on 8 December 2006, lonza Group acquired 100% of the capital of Genentech’s mid-scale mammalian biopharmaceutical production plant based in porriño, Spain. this facility is FDa- licensed and one of three Genentech plants that are currently licensed to produce avastin® (bevacizumab) bulk drug substance for commercial use. lonza will retain the facility’s approximately 310 highly skilled employees.

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From 8December to 31 December 2006, the acquired business contributed no sales and no operating income. a release of negative goodwill of cHF 12 million originated from the purchase price allocation has been recognized in the consolidated income statement under “other operating income”.

if the acquisition had occurred on 1 January 2006, Group sales would have been cHF 3 004 million and the Group result from operating activities cHF 373 million. these amounts have been calculated using the Group’s accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from January 2006.

net assets acquired and goodwill are shown as follows:

million cHF

– purchase price in cash 13.0 – Direct costs relating to the acquisition 0.1 – purchase price adjustment (post closing statement) 5.8 – Vendor loan (interest free) 164.5 – Discount of interest free vendor loan (12.3) total purchase consideration 171.1 Fair value of net assets acquired (183.1) goodwill (12.0)

the negative goodwill was due mainly to the favorable conditions received for conversion of this one-product plant into a multi-purpose plant.

the acquisition has been accounted for using the purchase method. the following amounts of assets and liabilities acquired have been included:

assets and adjustment assets and liabilities million cHF liabilities included through purchase immediately before at acquisition date price allocation the combination

intangible assets (software / tech transfer avastin®) 3.1 2.8 0.3 property, plant and equipment178.2(12.0)190.2 inventories 3.5 0.03.5 other receivables, prepaid expenses and accrued income 7.3 0.07.3 Deferred tax assets 0.9 0.9 0.0 cash 5.4 0.05.4 trade payables (5.4) 0.0(5.4) Subsidies 0.05.3 (5.3) other short-term liabilities (9.9) (4.4) (5.5) fair value of net assets acquired 183.1 (7.4) 190.5 Goodwill (12.0) cost of the business combination 171.1

purchase consideration 171.1 cash and cash equivalents of subsidiary acquired (5.4) Discount of interest free vendor loan 12.3 Vendor loan (interest free) (164.5) cash outflow on acquisition 13.5

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4 discontinued operations on 30 october 2006, 60% of the polymer intermediates Business was sold via the polynt S.p.a. ipoon the Star segment of the mercato telematico azionario (electronic Stock market) of the Borsa italiana S.p.a. this business was not a discontinued operation or classified as held for sale at 31 December 2005. therefore the comparative income statement has been restated to show the discontinued operation separately from continuing operations. management committed to a plan to sell this business in 2006 due to the strategic decision to focus on lonza’s key com- petencies in the life-science industry.

profits attributable to the discontinued operations were as follows:

results of discontinued operations 2006 1 million cHF

Sales 629 expenses (586) results from operating activities 43 net financing costs (2) profit before income taxes 41 income taxes (17) results from operating activities, net of income tax and finance costs 24 Gain/(loss) on sale of discontinued operations (1) income tax on gain/(loss) on sale of discontinued operations 0 profit for the period 23

2006 cHF notes

Basic earnings per share 27 0.49 Diluted earnings per share 27 0.42

cash flows from discontinued operations 2006 million cHF

net cash from operating activities 41 net cash from investing activities incl. funds from divestiture 111 net cash from financing activities (13) net cash from discontinued operations 139

1 period of 10 months

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 34 consolidatedfinancial statements Financial report

effect of disposal on the financial position of the group 2006 million cHF

property, plant and equipment297.8 intangible assets 1.7 Deferred tax assets 1.0 other investments 0.1 long-term loans and advances 0.4 inventories 120.7 trade receivables, net 169.5 current tax receivables 0.2 other receivables, prepaid expenses and accrued income 7.0 cash and cash equivalents 28.5 total assets sold 626.9

Deferred tax liabilities (86.7) other long-term provisions (22.5) other short-term liabilities (16.6) current tax payables (11.1) trade payables (118.8) Short-term debt (87.0) total liabilities sold (342.7)

total net assets sold 284.2

consideration for sale 174.8 investment in associate (40%) 113.7 less transaction costs (5.2) gain/(loss) on disposal of discontinued operations (0.9)

the net cash inflow from the sale is determined as follows:

total consideration for sale, satisfied in cash 174.8 less transaction costs (5.2) less cash and cash equivalents in subsidiaries sold (28.5) net cash inflow from sale 141.1

on 6 november 2006, an additional tranche of 9% was sold on the stock exchange (green- shoe option), so that lonza held 31% of the shares in polynt S.p.a. at 31 December 2006 and 31 December 2007.

5 assets held for sale on 27 December 2007 lonza announced the signing of an agreement to sell approximately 90% (28.5 million shares) of its holding in polynt S.p.a. for eur 3.67 per share to polimeri Speciali S.p.a., an italian company, indirectly controlled by investindustrial. lonza remains a shareholder in polynt S.p.a., with a stake of approximately 3.4 %. the transaction was closed on 12 Febru- ary 2008 after regulatory reviews. polynt S.p.a. assets held for sale as of 31 December 2007, disclosed in the previous year’s balance sheet under “investments in associates”, correspond to a carrying amount of cHF 101 million.

part of the property, plant and equipment of lonza Gewerbepark GmbH is disclosed as assets held for sale, following the commitment of the Group’s management to sell three redeveloped properties during 2008. the carrying amount of these properties totaled to cHF 5 million.

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6 property, plant and equipment

2007 land Buildings and production construction total million cHF structures facilities in progress

cost at 1January 56 1 123 2 591 354 4 124 additions 52696469 596 Disposals (2)(2)(36) 0(40) reclassification to assets held for sale (5) 000(5) acquisition of subsidiaries 1047 33 999 Disposal of subsidiary0(7) (158) (1) (166) transfers / reclassification 025253 (278) 0 currency translation differences 0(15) (63) (17) (95) at 31 december 64 1 197 2 716 536 4 513

accumulated depreciation and impairment at 1 January0(468) (1 512) 0(1 980) Depreciation charge 0(42)(182)0(224) Disposals 0231 033 impairment losses1 0(1) (6) 0(7) Disposal of subsidiary0489093 currency translation differences 0434038 at 31 december 0(501) (1 546) 0(2 047) net carrying amount 31 december 64 696 1 170 536 2 466

insurance value 01582 3 337 60 4 979

2006 land Buildings and production construction total million cHF structures facilities in progress

cost value at 1 January491042 3 122 227 4 440 additions 422 71 263 360 Disposals (4) (3) (37) 0(44) acquisition of subsidiaries 17 107119 4247 Disposal of subsidiary0(16) (87) (1) (104) Disposal of discontinued operations (11) (66) (633) (27) (737) transfers / reclassification 046 66 (112)0 currency translation differences 1(9) (30)0(38) at 31 december 56 1 123 2 591 354 4 124

accumulated depreciation and impairment at 1 January(3) (463) (1 865) 0(2 331) Depreciation charge 0(37) (161) 0(198) Disposals 3231 036 impairment losses1 0(6) (2)0(8) Disposal of subsidiary0960069 Disposal of discontinued operations 025413 0438 currency translation differences 0212014 at 31 december 0(468) (1 512) 0(1 980) net carrying amount 31 december 56 655 1 079 354 2 144

insurance value 0948 3 203 51 4 202

1 the impairmentloss is included in the consolidated income statementunder other operating expenses.

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in 2007 an impairment loss on intangible assets of the DHa business of cHF 7 million was recognized in the “other” segment. When acquiring the DHa business, lonza inherited a pend- ing law suit for patent infringement in the uSa and Germany, which had been filed by martek Bioscience against nutrinova. meanwhile,the uSatrial has resulted in an adverse juryverdict against lonza, preventing lonza from selling any DHa on the uSa market. the outcome of the German trial is unpredictable and there is a risk of further european patent infringement suits. Given the adverse patent situation in the most important DHa markets (europe and the uSa) which prevents lonza from actively building up a business, it has been decided to write-off the DHa acquisition entirely. the Group assessed the recoverable amount of the assets as zero, as products can no longer be sold in those markets. it is assumed that the remaining inventory of cHF 3 million cannot be sold and this has therefore been entirely impaired.

an additional impairment loss on property, plant and equipment of cHF 7 million was recognized in 2007 in lonza inc. riverside, uSa, in the exclusive Synthesis & Biopharmaceuticals segment. Following our annual fixed-asset-cycle count process, specific equipment was identified as most likely no longer usable for production because of market reasons, changes in the production process as well in the set-up of the production facilities. the Group assessed those assets as no longer recoverable.

in 2006, an impairment loss on property, plant and equipment of cHF 8 million was recognized in the exclusive Synthesis & Biopharmaceutical segment. the production facilities built for the production of the exclusive Synthesis product “Hirulog” will be idle as the probability is high that this product will no longer be produced in future. the Group assessed the recoverable amount of those assets as zero, as they have no further productive use.

commitments for capital expenditure in property, plant and equipment amount to cHF 383 million at year-end 2007 (2006: cHF 245 million), mostly related to capital expenditures in the Biopharmaceuticals business.

the carrying amount of fixed assets under finance lease contracts at year-end 2007 amounts to cHF 12.5 million (2006: cHF 10.9 million). an increase in fixed assets under finance lease of cHF 5 million is due to the cambrex-acquisition. no other additions, disposals and transfers weremade in relation to the leased fixed assets in 2007and 2006. Depreciations relating to fixed assets under finance lease amount to cHF 2.5 million (2006: cHF 2.0 million).

no assets were pledged for security of own liabilities in 2007 and 2006. the Group’s obligation under finance leases are secured by the lessors’ title to the leased assets.

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leases 1. lessee finance lease liabilities – minimum lease payments: 2006 2007 million cHF not later than 1 year 58 later than 1 year and not later than 5 years 17 16 later than 5 years 41 total future minimum finance lease payments 26 25 Future finance charges on finance lease payments (6) (5) presentvalue of minimum financelease payments 20 20 the present value of finance lease liabilities is as follows:

2006 2007 million cHF not later than 1 year 37 later than 1 year and not later than 5 years 13 13 later than 5 years 40 presentvalue of minimum financelease payments 20 20

operating lease liabilities – minimum lease payments 2006 2007 million cHF not later than 1 year 1213 later than 1 year and not later than 5 years 47 42 later than 5 years 4234 total future minimum operating lease payments 101 89 lonza leases production facilities and office equipment under finance lease agreements in the uSa, expiring in 2008-2011/2012, as well as in Switzerland, ending in 2008. the finance lease agreement in the uSa is based on an interest rate of 8.7%. the lease contracts in Switzerland carryinterest rates between 4.5% and 5.0%. all leases areonafixed repaymentbasis and no arrangements have been entered into for contingent rental payments. all lease obligations are denominated in uSD and cHF. the fair value of the Group’s lease obligations approximates to their carrying amount. the Group’s obligation under finance leases is secured by the lessors’ title to the leased assets. lonza leases a number of buildings, warehouses, factory and office facilities, vehicles as well as land under operating leases. the leases for buildings, warehouses, factory and office facilities and vehicles run for periods between one and five years and for the land up to two and three years, all with an option to renew the lease after that date. none of the leases includes contingent rentals. the Fair lawn site from where the uS headquarters was moved to allendale in 2005 has been sublet. the sublease expired on September 2007.

During the year ended 31 December 2007, cHF 13.3 million (2006: cHF 13.6 million) was recognized as an expense in the consolidated income statement in respect of operating leases, of which cHF 0.9 million (2006: cHF 1.4 million) was due to sublease payments. cHF 1.2 million (2006: cHF1.6 million) was recognized as income in the consolidated income statement in respect of subleases. the land and building elements of a lease of land and buildings were considered separately for the purpose of lease classification as outlined in iaS 17.

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2. lessor there is an operating lease for which lonza acts as lessor. this lease falls within the scope of iaS 17 and iFric4guidance. it consists primarily of a biopharmaceutical manufacturing facility in Visp. the future minimum lease payments under non-cancelable operating leases are zero, because the lease payments are pre-financed by the customer.

7 intangible assets and goodwill 7.1 cost and accumulated amortization and impairment

2007 Goodwill patents and computer total million cHF trademarks software

cost at 1 January102 83 42 227 additions 05813 Disposals 0(3) (9) (12) acquisition of subsidiaries 316 1242442 Disposal of subsidiary(1) (5) (1) (7) currency translation differences (14) (12)0(26) at 31 december 403 192 42 637

accumulated depreciation and impairment at 1 January0(27) (31) (58) amortization 0(20)(7) (27) Disposals 01910 impairment losses1 (9) (7) 0(16) Disposal of subsidiary0314 currency translation differences 0202 at 31 december (9) (48) (28) (85) net carrying amount 31 december 394 144 14 552

2006 Goodwill patents and computer total million cHF trademarks software

cost at 1January 48 43 50 141 additions 03811 Disposals 0(4) (1) (5) acquisition of subsidiaries 53 43 096 Disposal of subsidiary00(1) (1) Disposal of discontinued operations 0(2)(13) (15) currency translation differences 10(1) 0 at 31 december 102 83 42 227

accumulated amortization at 1January 0(24) (39) (63) amortization 0(9) (6) (15) Disposals 0404 Disposal of subsidiary0011 Disposal of discontinued operations 011213 currency translation differences 0112 at 31 december 0(27) (31) (58) net carrying amount 31 december 102 56 11 169

intangible assets include software purchased from third parties, related software implementa- tion costs as well as patents and trade marks. their amortization is included in the line item “administration and general overheads” of the consolidated income statement.

1 the impairmentloss is included in the consolidated income statementunder other operating expenses.

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7.2 impairment tests for cash-generating units containing goodwill the following units show carrying amounts of goodwill (at year-end exchange rates):

2006 2007 million cHF

lonza Biologics (Biopharmaceuticals business)3231 lonza Guangzhou (nicotinates business)54 lonza inc. performance chemicals (Biocidal Quats business)1210 lonza Braine Sa (peptide business)5347 lonza Bioscience (ex cambrex)0302 total carrying amounts of goodwill 102 394

the increase in the carrying amounts of goodwill in 2007 compared with 2006 is due to the acquisition of cambrex’s Bioscience.

the recoverable amount of theabovecash-generating units is based on the value-in-use calculation. the cash flow projections include the actual operating results and a five-year business plan approved bymanagement.

these cash flow projections are based on the yearly business strategy review and exclude any future cash inflows and outflows expected to arise from growth potential of future capital expenditures.

the key assumptions and the approach to determining the recovery value of the cash-generating units are based on the following:

the Biopharmaceutical business is located in the united States as well as in Great Britain. Sales are based on existing contracts and planned utilization of equipment based on customer demand currently under discussion and the assumption that market demand will increase significantlyover the five-year period. prices areasper contractsand areassumed to stayat currentlevels.cost developments arebased on individual assumptions per cost element. personnel costs are assumed to increase 4% p.a. and the other expenses by 2% p.a. the cash flowprojections beyond the five-year period arebased on azerogrowth rate.a pre-tax discount rate of 9.6% has been used in discounting the projected cash flows. management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceedits recoverable amount.

the nicotinates (Vitamin B3) business plan relates to the site in Guangzhou in china. the cash flow projections are based on a slight decrease in gross margin in 2008 and 2009 due to an expected decrease in selling price and thereafter an unchanged margin until 2012. Sales volume will grow at 5% p.a. and is based on the Business Strategy review for the nicotinates market.the cash flowprojections beyond the five-year period areextrapolated using a zero growth rate due to limitation of capacity. the cash flows are discounted at a pre-taxdiscount rate of 10.9%. managementbelieves thatanyreasonablypossible change in any of these key assumptions would not cause the carrying amount to exceed the recoverable amount of this business.

the Biocidal Quats business is located in the united States. the cash flow projections are based on constant expected gross margins during the five-year planning period with a 3% p.a. increase in sales. Selling price changes are assumed to offset changes in raw material

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price.nomajor regulatorychanges will haveanunfavorable impactonthe volumes.managementbelieves this to be afair and reasonable assumption.the cash flowprojections beyond the five-year period are extrapolated using a zero growth rate. the cash flows are discounted at a pre-tax discount rate of 8.7%. management believes that any reasonably possible change in any of these key assumptions would not cause the carrying amount to exceedthe recoverable amount of this business.

the peptides business represents the cash-generating unit of lonza Braine Sa, Belgium, including lonza Sales ltd, Switzerland. the cash flow projections include the five-year plan based on current headcount, an order backlog life-span of two years and a patented life-span of four years. Sales are projected on the current portfolio of peptides with costs varying in line with sales increase. a drop in sales by 5.1% is projected in 2010 due to a time gap for validation purposes. the cash flow projections beyond the five-year period are extrapolated using a zero growth rate. the cash flows are discounted at a pre-tax discount rate of 8.8%, resulting in arecoverable amount which missed the carrying amount by cHF 9 million. therefore, an impairment loss on goodwill of cHF 9 million (2006: nil) was recognized and is included in other expenses. if a drop in sales of 10% were assumed for 2010, the impairment loss on goodwill would increase to cHF 12 million.

the Bioscience business relates to cambrex corporation, acquired on 6 February 2007. the cash flow projections are based on a 9% p.a. sales growth at a constant gross margin. the cash flowprojections beyond the five-year period areextrapolated using azerogrowth rate due to limitation of capacity. the cash flows are discounted at a pre-tax discount rate of 8.4%. managementbelieves thatanyreasonablypossible changeinanyof thesekeyas- sumptions would not cause the carrying amount to exceed the recoverable amount of this business.

8 investments in associates and joint ventures 8.1 associates lonza holds a 31% stake in aravis Ventures i, l.p., an international venture capital fund under cayman islands jurisdiction focusing on early-stage companies in biotechnology and drug development industry sectors. the total capital commitment of lonza in aravis Ventures is uSD 18.2 million of which uSD 14.6 million (2006: uSD 13.4 million) was drawn up until 31 Decem- ber 2007. the investment in aravis Venture i, l.p., is accounted for using the equity method.

in lonza’s 2007 financial statements, the investment in the associate relating to aravis Ventures i, l.p., amounted to cHF 13.5 million (2006: cHF 14.3 million). the net capital contribution to aravis Venture was cHF 0.2 million in 2007 (2006: cHF 2.4 million). an equity-loss of cHF 0.8 million in 2007 (2006: an equity-income of cHF 2.1 million) was disclosed.

For the associate polynt S.p.a., the following aggregated amounts were disclosed:

2006 1 2007 million cHF

assets 627804 liabilities 343 435 revenues 629946 profit2353

1 includes data of financial statementasof31october 2006. consolidated income statementin2006includes aperiod of 10months.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report consolidatedfinancial statements 41

an estimated equity-income of cHF 10.8 million (2006: cHF 1.1 million for november and December) was disclosed for polynt S.p.a. the investment in polynt S.p.a. was accounted for using the equity method.

on 27 December 2007, lonza announced the signing of an agreement to sell approximately 90% (28.5 million shares) of its holding in polynt S.p.a. for eur 3.67 per share to polimeri Speciali S.p.a., an italian company indirectly controlled by investindustrial. lonza remains a shareholder in polynt S.p.a., with a stake of approximately 3.4%. the transaction was closed on 12 February 2008 after regulatory reviews. therefore, the assets of polynt S.p.a. of cHF 101 million were reclassified to “assets held for sale”.

8.2 Joint Ventures lonza has a 50% interest in lonza Biologics tuas pte ltd in Singapore for which a proportionate consolidation is used. the following aggregate amounts are disclosed for lonza’s interest in the joint venture.

2006 2007 million cHF

current assets 16 12 long-term assets 05 current liabilities 03 long-term liabilities 00 income 01 expenses 00

9 inventories

2006 2007 million cHF%%

raw materials 2110423139 Work in progress 14 66 954 Finished goods 45 218 52317 other 20 99 16 94 total 100 487 100 604

By division 2006 2007 million cHF%%

exclusive Synthesis & Biopharmaceuticals 58 281 64 390 life Science ingredients 38 187 26155 Bioscience 001059 other 41900 total 100 487 100 604

the reported inventories are net of a total value adjustment amounting to cHF 65 million (2006: cHF 56 million).

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the movement of inventory value adjustments is shown as follows:

inventory write-downs raw materials Work in progress other total million cHF and finished goods

at 1 January 2007 5351656 increase 729137 reversal / utilization of write-downs 0(25) (1) (26) Disposal of subsidiary(1) 00(1) currency translation differences 0(1) 0(1) at 31 december 2007 11 38 16 65

the cost of inventories recognized as expenses during the period and included in “cost of goods sold” amounted to cHF 1 932 million (2006: cHF 2 199 million).

Development contracts in the exclusive Synthesis & Biopharmaceuticals segment, the percentage of completion method was applied to accounting for development contracts. the stage of completion is estimated on the basis of costs incurred compared with total forecasted costs. this accounting method is applied only to customer contracts with defined payment and delivery dates. contract costs are usually recognized as an expense in the income statement in the accounting periods in which the work is performed. an expected excessover total contract revenuefor the contract is recognized as an expense as soon as it is apparentthattotal contract costs may exceed total contract revenue.

2006 2007 million cHF

contract revenue recognized as revenue in the period 13 28 – contract costs incurred 724 – recognized profits less recognized losses 60 contract costs incurred plus recognized profits less recognized losses 13 24 – less progress billings (2)(13) total net amount due to/(from) customers 11 11

gross amount due from customers for contract work 11 12 gross amount due to customers for contract work 0(1)

advances received 931 retentions held by customers for contract work 00

10 trade receivables

2006 2007 million cHF

receivables from customers 470439 allowances for credit losses (8) (10) total 462 429 the credit risk is diversified due to the large number of entities comprising the lonza customer base and the dispersion across many different industries and regions. management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. at 31 December 2007 there were no significant concentrations of credit risk. the maximum exposure to credit risk is equal to the carrying amounts.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 Financial report consolidatedfinancial statements 43

aging of trade receivables 2006 2007 million cHF

not past due398 340 past due 1-30 days4965 past due 31-120 days917 past due more than 120 days67 total 462 429

reconciliation of changes in allowance accounts for credit losses 2006 2007 million cHF

Balance at the beginning of the year 13 8 Write-offs 0(1) increase in provision for credit losses 14 Decrease in provision for credit losses (1) (1) acquisition of subsidiaries 00 Disposal of subsidiary(5) 0 Balance at the end of the year 810 as of the balance sheet date, the Group considered various receivables as no longer collectible due to financial difficulties of the customers and recognized an impairment loss. the Group did not require collateral in respect of outstanding receivables.

11 other receivables, prepaid expenses and accrued income

2006 2007 million cHF

other receivables 59 97 prepaid taxes and social security payments 25 prepaid expenses and accrued income 39 45 accrued interest income 03 total 100 150

“other receivables” include accruals, receivables for taxes (other than income taxes) and down- payments to suppliers.

12 cash and cash equivalents

2006 2007 million cHF

cash 121156 time deposits 96 216 total 217 372

13 provisions

long-term provisions retirement environ- restruc- person- total million cHF benefits mental turing nel

at 1 January 2007 55 19 6686 increase 1070219 used (11) (2)(1) (1) (15) reversed 0(1) 0(1) (2) acquisition of subsidiaries 30003 Disposal of subsidiary00000 reclassification (to short-term provisions)0(2)(3) 0(5) currency translation differences (2)000(2) at 31 december 2007 55 21 2684

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short-term provisions retirement environ- restruc- person- other total (see note 15) benefits mental turing nel million cHF

at 1 January 2007 61418938 increase 01146627 used 0(3) (4) (3) 0 (10) reversed 000000 acquisition of subsidiary000000 Disposal of subsidiary000000 reclassification (from long-term provisions)023005 currency translation differences 01(1) (1) 0 (1) at 31 december 2007 6216 20 15 59

environmental the environmental provision reflects the future expenses for environmental protection for the plants in Waldshut (Germany), in Visp (Switzerland) and lonza inc. (uSa) and is expected to be utilized within 10 years. an increase of environmental provisions was provided for environmental measures at Gewerbepark Hochrhein GmbH (cHF 2 million), the Visp plant (cHF 3 million) and lonza inc., uSa (cHF 3 million).

restructuring the opening balance of short- and long-term provisions of cHF 10 million represents the remaining amount of pre-pension costs of lonza ltd with regard to a reduction in headcount of 149 employees relating to the 2003 restructuring program (cHF 9 million) as well as the provision for the cancellation fee for a leasing contract in Fair lawn (uSa) provided in 2004 (cHF 1 million). the remaining restructuring provision of lonza ltd is expected to be used until 2011. the provision for the leasing cancellation fee was used until 2007. in 2007 the restructuring provisions were decreased by cHF 4 million for restructuring expenses of lonza ltd and cHF 1 million for the leasing expenses in Fair lawn.

after expanding its capacity for cGmp manufacturing and process development through the acquisitions in the uSa, lonza has finalized the strategy review of its microbial Biopharma- ceuticals business. the new concept optimizes infrastructure to ensure greater efficiencies in manufacturing, expands technological leadership in process development and guarantees proximity to lonza’s customers in key markets, securing long-term profitable growth. the activities in the uSa will be consolidated in Hopkinton (ma), which will also become lonza’s Global Headquarters for microbial Biopharmaceuticals. the newly acquired plant in Baltimore with 250 employees will therefore be closed, for which a restructuring provision of cHF 14 million was recognized in 2007.

personnel provision for personnel include accruals for personnel with regard to incentives, holidays and long-term time account.

other includes an increase of a provision provided for future expenses with regard to the disposal of lonza Singapore pte ltd.

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14 net debt the net debt comprises:

2006 2007 million cHF

long-term debt Bonds 298 298 convertible bonds 418 423 Syndicated loan 0497 Due to banks and others: – Banks339 – other 158 191 119 128 leasing 16 14 total 923 1 360

convertible bond (2005-2009) amount: cHF 430 million, due 15 July 2009. interest: 1.5% p.a. payable on 15 July,for the first time on 15 July2006. conversion right: on or after 25august 2005 up to and including 1 July 2009, each bond of cHF 5 000 principal amount is convertible by bondholders into 54.52563 shares with a par value of cHF 1 (conversion price: cH 91.70; section 2 of the terms of the bond).

the fair value of the liability component and the equity conversion component was determined on the issue of the convertible bond in 2005. the fair value of the liability component, included in long-term debt, was calculated using a market interest rate for an equivalent non-convertible bond. the residual amount, representing the value of the equity conversion component, is included in equity.

the convertible bond is recognized in the balance sheet at initial recognition as follows:

convertible bond million cHF (2005–2009)

Face value of convertible bond 430 equity conversion component(14) liability component on initial recognition 416

interest expenses 6.5 amortization of liability component3.5

Straight bond (2005-2010) amount: cHF 300 million, due 2 June 2010. interest: 2.625% p.a. payable on 2June,for the first time on 2June 2006. the annual interest expenses amount to cHF 7.9 million.

Syndicated loan in order to finance the acquisition of the Biopharma and Bioproducts businesses from cambrex, lonza signed a syndicated loan of cHF 500 million with a consortium of banks in December 2006; the contract term is five years. it is based on floating rates (libor + margin depending on a margin grid) and was drawn down in February 2007. lonza hedged the interest rate for the whole five years via an interest rate swap.

lonza annual report 2007 WorldReginfo - 6b862aab-d1a3-4cde-9974-0b2fd4a6bb84 46 consolidatedfinancial statements Financial report

short-term debt (floating interest rates) 2006 2007 million cHF

Due to banks and other financial institutions 89 194 other 143 159 total 232 353

total debt 1 155 1 713

loans and advances (floating interest rates) 2006 2007 million cHF

long-term loans and advances (12)(28) Short-term loans and advances (13) (4) cash and cash equivalents (217) (372) total (242) (404)

net debt 913 1 309 loans and advances in 2007 include mainly the vendor loan to perstorp of cHF 17 million in connection with the sale of lonza Singapore pte ltd as well as receivables from pension funds.

Breakdown of debt by currencies 2006 2007 million cHF average average interest interest rates rates %% %% cHF2.02 65 747 2.51 78 1 330 eur4.3001 uSD 5.7033 378 5.75 20 345 other 1.302302.52237 total 100 1 155 100 1 713

Breakdown of loans and advances by currencies 2006 2007 million cHF average average interest interest rates rates %% %% cHF2.5012300 eur4.00 40104.00 124 uSD 6.00 48 126.00 88 28 total 100 25 100 32

interest rates are floating rates.

15 other short-term liabilities

2006 2007 million cHF

Short-term provisions (see note 13) 38 59 accrued liabilities and other payables 218 280 other interest-free liabilities 199 299 accrued interest payables 917 total 464 655

“accrued liabilities and other payables” include accruals and deferred income, such as down- payments from customers and the fair values of financial instruments (see note 31). in other interest-free liabilities, payments received from customer-funding are included.

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16 trade payables

2006 2007 million cHF

payables to third parties 173 236 total 173 236

“payables to third parties” principally comprise amounts outstanding for trade purchases and ongoing costs. the carrying amount of trade payables approximates to their fair value.

17 contingent liabilities no contingent liabilities exist for 2007. the prior year’s contingent liabilities for environmental risks against conalco inc. in the uSa of cHF 6.3 million were recognized as a liability in 2007.

18 material and energy costs