Lonza : Half-Year Alternative Performance Measures Report

Enabling a Healthier World

Alternative

Performance

Measures

Half-Year 2021

Alternative Performance Measures - Half-Year 2021

Introduction

As announced in the investor presentation of 15 October 2020, Lonza has decided to update the external financial reporting to include revised Alternative Performance Measures (APM).

The main objective was to reduce the number of APMs to include only the most critical ones and to increase the threshold of CORE adjustments to the appropriate materiality level, given Lonza's current size.

This Finance Report and other communications with investors and analysts includes APMs that are not defined by IFRS (non-GAAP-measures) but are used by the management to assess the financial and operational performance at a divisional and group level. These supplementary financial measures should not be viewed in isolation or as alternatives to Lonza's consolidated financial position and financial results, which are reported in accordance with IFRS. Instead, our APMs are intended to provide a complementary perspective on Lonza's performance by isolating distorting effects like exchange rate fluctuations or onetime items. They are also intended to provide additional key performance indicators to complement the performance dashboard. The APMs in use may not correspond

to performance measures with similar names in other companies. Every APM shown in the financial report relates to the performance of the current or the previous reporting year.

The APMs are structured in operational Performance Measures as well as Liquidity and Capital Measures. The operational Performance Measures consist of the definition of the CORE concept, the derivation of EBITDA (CORE and non-CORE) and the disclosure of profitability measures at constant exchange rates. The Liquidity and Capital Measures consist of Net Debt and ratios based on Net Debt and Return on Invested Capital, as well as Operational Free Cash Flow.

The following table outlines which APMs are applied on divisional level and respectively on group level:

Performance Measures	Division	Group

Sales and sales growth at constant exchange rate

CORE EBITDA / CORE EBITDA margin

EBITDA

CORE EPS

CAPEX

Liquidity and Capital Measures	Division	Group

Net Debt

Net Debt / CORE EBITDA ratio

Debt / Equity ratio

Return On Invested Capital (ROIC)

Operational Free Cash Flow (before and after acquisition)

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Alternative Performance Measures - Half-Year 2021

Performance Measures

CORE Results

As exceptional items can differ significantly from year to year, Lonza excludes these exceptional effects from the reported IFRS results to determine the CORE results. We believe that disclosing CORE results of the Group's performance enhances the financial markets' understanding because the CORE results enable better year-on-year compari- sons. Furthermore, the Group uses CORE results in addition to IFRS as important factors when internally assessing the Group's performance.

The following exceptional items are considered as CORE adjustments when they exceed the threshold of CHF 20 million per event1:

• Restructuring costs,
• Remediation costs of historic environmental issues,
• Acquisition and divestiture related expenses,
• Impairments,
• Litigations,
• One-timeeffects arising from changes to pension plans - curtailments and settlements

In accordance with the CORE results, APMs such as CORE Earnings per share (CORE EPS) and CORE EBITDA are directly affected by the exclusion of the adjustments listed above.

The reconciliation of the IFRS result to the CORE result for H1 2021 and 2020 is as follows:

	Million CHF	2021	2020
			restated
	Profit from continuing operations	263	442
	Environmental-related expenses2	289	0
	Income resulting from acquisition and divestitures3	0	(1)
	Contingent consideration expense from sale of businesses4	1	0
	Tax effect5	(32)	0
	CORE Profit from continuing operations	521	441
	CORE Profit from continuing operations attributable	519	440
	to equity holders of the parent
	CORE Earnings per share attributable to equity holders	6.99	5.93
	of the parent

1. In the context on the CORE definition, an "event" represents an individual business case that might involve income/expenses across several fiscal years
2. Environmental remediation expenses predominantly relate to Gamsenried (CH).
   Refer to note 6 disclosed in the Selected Explanatory Notes of the Half-Year Report 2021.
3. Positive impacts related to the acquisition of Capsugel in 2017.
4. Negative impact from fair value adjustment on contingent purchase price consideration from the sale of the former Peptide business
5. Group tax rate on continuing operations of 11.2% for 2021 and 9.1% for 2020

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Alternative Performance Measures - Half-Year 2021

Earnings before interest, tax, depreciation and amortization (EBITDA) from Continuing Operations

In line with the CORE adjustments, Lonza assesses operational performance based on CORE EBITDA, which can be reconciled in two steps:

	Million CHF	2021	2020
			restated
	Result from operating activities (EBIT)	317	531
	Depreciation of property, plant and equipment	162	137
	Amortization of intangible assets	86	82
	Impairment and reversal of impairment on property, plant,	(7)	0
	equipment and intangibles
	Earnings before interest, taxes and depreciation (EBITDA)	558	750
	Million CHF	2021	2020
			restated
	Earnings before interest, taxes and depreciation (EBITDA)	558	750
	Environmental-related expenses1	289	0
	Income resulting from acquisition and divestitures2	0	(1)
	CORE EBITDA	847	749

1. Environmental remediation expenses predominantly relate to Gamsenried (CH).
   Refer to note 6 disclosed in the Selected Explanatory Notes of the Half-Year Report 2021.
2. Positive impacts related to the acquisition of Capsugel in 2017.

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Alternative Performance Measures - Half-Year 2021

Growth at constant exchange rates

Financial results in constant currencies are adjusted to eliminate the impact of changes in exchange rates between the reported and reference period - typically the prior year. This adjustment allows management to focus on operational results, without any distorting effect from changes in foreign currency exchange rates from one period to another.

Constant currency is calculated by converting sales, CORE EBIT and CORE EBITDA of the current year at the exchange rate of the prior year. The resulting margins can therefore be compared with the reported profit margins of the prior year to understand fundamental business trends.

Lonza Group (Continuing Operations)

Million CHF20212020 Change in %

Sales	2'542	2'243	13.3
Retranslation at prior year rates	30
Sales in constant currency	2'572		14.7
CORE EBITDA	847	749	13.1
Retranslation at prior year rates	13
CORE EBITDA in constant currency	860		14.8
Margin in %	33.4

Small Molecules

Million CHF20212020 Change in %

Sales	362	315	14.9
Retranslation at prior year rates	5
Sales in constant currency	367		16.5
CORE EBITDA	99	78	26.9
Retranslation at prior year rates	5
CORE EBITDA in constant currency	104		33.3
Margin in %	28.3

Biologics

Million CHF20212020 Change in %

Sales	1'284	1'100	16.7
Retranslation at prior year rates	0
Sales in constant currency	1'284		16.7
CORE EBITDA	490	461	6.3
Retranslation at prior year rates	7
CORE EBITDA in constant currency	497		7.8
Margin in %	38.7

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