A warm welcome to the Lonza Group 2021 Annual Report. During the past year we remained agile and responsive to capture opportunities in a business landscape that has continued to evolve with the COVID-19 pandemic. Post-divestment, we have worked with focus and determination to reposition our business as a dedicated partner to the healthcare industry across our four divisions: Biologics, Small Molecules, Cell & Gene and Capsules & Health Ingredients. We have also continued to drive our accelerated growth agenda in a dynamic operating context. Looking at our business across the year, it is fair to say that 2021 was characterized by a combination of strong performance and resilience.
Financial Performance
We are pleased to present another successful year. Lonza has reported sales of CHF 5.4 billion, growing 20% AER (20% CER) and CHF 1.7 billion CORE EBITDA, resulting in a margin of 30.8%. This strong momentum at Group level was driven by sales growth ahead of market across all divisions.
As we continued to navigate the uncertainties arising from the COVID-19 pandemic, we actively worked to maintain a dialogue with our investor community. Our shareholders received business and financial updates at Half-Year and Full-Year, as well as being invited to our Capital Markets Day, which took place in Zurich (CH) in October. This was a chance for us to present our strategic priorities at a Group and divisional level. It was also an opportunity for us to introduce Philippe Deecke, our new Chief Financial Officer, who joined us in December 2021. Alongside these formal gatherings, we have also organized multiple briefing sessions and meetings with investors over the course of the year.
Creating a Path to Long-Term Success
We have continued to focus on our long-term success by progressing with our growth investment strategy. For the Full-Year 2021, our total capital expenditure (CAPEX) reached CHF 1.3 billion or 24% of sales, and it is expected to increase to around 30% in 2022. We have made strategic investments in areas of sustained customer demand, which allow us to consolidate our global reach and deliver end-to-end solutions across modalities. During the year, we confirmed an investment of CHF 200 million to construct a new manufacturing facility in Visp (CH), to accommodate future Small Molecules expansions. We also committed a further CHF 850 million to build two new large-scale mammalian facilities in Visp and Portsmouth (US) over the next two years. Our sustained approach to organic investment will ensure we are able to deliver for our customers and capitalize on long-term market growth.
Our organic growth investments are supported by a considered and selective approach to bolt-on acquisitions. In November 2021, we added an exosomes manufacturing facility in Lexington (US) from Codiak Biosciences, and the Exosomics Service Unit in Siena (IT) to our network. These sites extended our Cell & Gene Technologies business with offerings in exosome assay and process development, analytics and manufacturing services. Inevitably, these selected highlights only provide a snapshot of expansion activities, and many other plans are in development or on the horizon.
Across our operations, we are now working to deliver a Lean approach to business. We are already focused on driving continuous improvement by eliminating waste and maintaining our high levels of quality. This will help us to ensure that we can deliver with speed and efficiency for our customers while improving our own business performance. We will increase our focus on Lean operations in 2022, while continuing to engage and educate our leadership and the entire organization around Lean principles.
Managing Through the Pandemic
Our operating environment remained uncertain and changeable as the pandemic continued to evolve through 2021. Many of our markets experienced “hard lockdowns” through the first half. During this time, our office workers maintained their home working routines, while our laboratory and manufacturing employees continued to attend our facilities to fulfil our role as a supplier of essential goods and services. Through the commitment and relentless efforts of our teams around the world, along with some increase in inventories, we managed the global supply disruptions with minor impact for our customers and our growth projects.
While we anticipate that delivery and distribution issues will continue in 2022, we expect to continue to manage the impact, as long as conditions remain comparable with the last two years.
Our Contribution to Controlling COVID-19
Alongside our focus on maintaining business continuity, we have also continued to make active contributions to controlling the pandemic. In 2020, we entered into an agreement with Moderna to install three mRNA production lines at our Visp (CH) site and one production line in Portsmouth (US) to manufacture the drug substance for Moderna’s Spikevax COVID-19 vaccine. Based on the success of this collaboration, we entered into a new agreement with Moderna in May 2021 to add three further production lines at our Visp site. In June 2021, we further extended our collaboration once more, with an agreement to build an additional line at our site in Geleen (NL) to fulfil a crucial step in the drug substance manufacturing process. Again, we were able to leverage our existing infrastructure and assets to deliver an accelerated build-out and ramp-up of operations. Our rapid response in the manufacture of the Moderna vaccine drug substance has supported in controlling the spread of the pandemic.
Alongside our continuing collaboration with Moderna, we continue to work with other customers on COVID-related projects, including AstraZeneca, Capricor and Humanigen.
Attracting and Retaining Leading Talent
Our people are the beating heart of our business, and their contributions have been even more critical as we have managed through the pandemic and continued to operationalize new facilities. To support our accelerated growth over the last year, we have hired more than 4,5001 people. While working to ensure that we can provide competitive offers to these new candidates, we also understand that retaining existing talent is a crucial component of our business success. Like many companies in the last year, we have seen an increase in turnover, and we are working to address this by ensuring our people are engaged with meaningful work and opportunities in a highly competitive employment market.
For current colleagues, we have reviewed and updated our approach to reward and recognition over the course of the last year. In our updated bonus structure, we have placed greater emphasis on rewarding individual performance. We have also placed a focus on sustainability by aligning the bonus evaluation of company performance with our environmental, social and governance (ESG) commitments. The new bonus system will be launched in 2022, alongside a new share purchase scheme for colleagues in selected test markets. This will enable our people to purchase shares at a discounted rate, and benefit from a share match plan after three years, so that they can truly share in the company’s success.
Building on our launch of the Employee Assistance Program (EAP) in 2020, we have continued to deliver a more active approach to supporting our colleagues in a wide range of areas. In 2021, we delivered a global information series on wellbeing and hosted employee sessions on a broad range of topics including parenting through the pandemic, mental health and empowering women in leadership. We have already commenced work on a wellbeing app for colleagues, and this is due to be tested and released in 2022.
- More than 4,500 is the total number of new joiners in 2021 (headcount excluding contingent workers). The net increase of FTE totaled more than 2,000.
Our Commitment to Sustainability
During 2021, we also focused on driving further progress with our ambitious sustainability agenda. Our CO2 emissions were reduced by 35% with the divestment of our former Specialty Ingredients business. As we embark on a new era of business, we have also taken the opportunity to address legacy issues arising from our past activities. In 2021, we installed a catalyzer to manage nitrous oxide emissions at our niacin facility in Visp (CH) before divesting the facility with the Specialty Ingredients segment. The catalyzer helped to further reduce the N20 footprint of Switzerland. In the same locality, we completed remediation works on the most affected residential plots containing mercury, and we will commence work on agricultural land parcels in 2022. Finally in 2021, we continued working with the cantonal authorities to find an agreement on a lasting solution to the groundwater pollution issues caused by the legacy Gamsenried (CH) landfill. We have made a provision of CHF 285 million, which we expect to cover the majority of total remediation costs. The first phase of work will take around ten years to complete and will commence in 2023 or 2024.
We recognize sustainability is a critical component of our long-term strategy and forms an ethical imperative for our business. In this context, we were pleased to have been recognized as one of the World’s Most Ethical Companies 2021 by the Ethisphere® Institute. This recognition is based on a comprehensive review of our company’s governance, leadership and reputation, environmental and societal impact, ethics and compliance program and overall commitment to a culture of ethics.
A full overview of our sustainability activities in 2021 are detailed in our designated Sustainability Report, which forms a companion document to this 2021 Annual Report.
Group Outlook 2022
We have remained resilient to the challenges of the pandemic in 2021. As long as the conditions remain comparable with the last two years, we expect to be able to manage the impact. In this context, our 2022 Outlook anticipates low to mid-teens CER sales growth, driven by sustained strong momentum across our businesses. We expect this to translate into an improved CORE EBITDA margin on the path to reach the Mid-Term Guidance. We also reconfirm our Mid-Term Guidance of low teens CER sales growth until 2024, and we guide for a CORE EBITDA margin of around 33% to 35%.
Thanks to our Stakeholders
I would like to extend my thanks to all our colleagues, customers, shareholders and business partners. More than ever in 2021, our business success has been a collaborative and collective endeavor in which we have all participated.
Looking towards 2022, it will be the first full year in which Lonza will act as a dedicated partner to the healthcare industry. With this new clarity and focus, I am eager and excited to work with you all on driving progress towards our purpose of enabling a healthier world.
Pierre-Alain Ruffieux
Chief Executive Officer
