Novartis : Condensed financial report

Novartis Fourth Quarter and Full Year 2022

Condensed financial report - supplementary data

Novartis Global Communications

Novartis Fourth Quarter and Full Year 2022

Condensed Financial Report -

Supplementary Data

INDEX	Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
Group	3
Innovative Medicines	8
Sandoz	14
CASH FLOW AND GROUP BALANCE SHEET	16
INNOVATION REVIEW	19
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated income statements	22
Consolidated statements of comprehensive income	24
Consolidated balance sheets	25
Consolidated statements of changes in equity	26
Consolidated statements of cash flows	28
Notes to condensed consolidated financial statements, including update on legal proceedings	30
SUPPLEMENTARY INFORMATION	50
CORE RESULTS
Reconciliation from IFRS results to core results	52
Group	54
Innovative Medicines	56
Sandoz	57
Corporate	58
ADDITIONAL INFORMATION
Reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash flow to
exclude the impacts of the 2021 divestment of our Roche investment	58
Condensed consolidated changes in net debt	60
Share information / Free cash flow	61
Effects of currency fluctuations	63
DISCLAIMER	66



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Group

Key Figures

Fourth quarter

		Excluding Roche investment impacts2		Reported
	Q4 2022	Q4 2021	% change	% change	Q4 2021	% change	% change
	USD m	USD m	USD	cc1	USD m	USD	cc1
Net sales to third parties	12 690	13 229	-4	3	13 229	-4	3
Divisional operating income	2 218	2 854	-22	-13	2 854	-22	-13
Corporate income and expense,
net	-269	-292	8	2	-292	8	2
Operating income	1 949	2 562	-24	-14	2 562	-24	-14
As % of net sales	15.4	19.4			19.4
(Loss)/income from associated companies	-3	2	nm	nm	14 621	nm	nm
Interest expense	-219	-206	-6	-8	-206	-  6	-8
Other financial income and expense	14	-42	nm	nm	-26	nm	nm
Income taxes	-275	-645	57	50	-645	57	50
Net income	1 466	1 671	-12	2	16 306	-91	-90
Basic earnings per share (USD)	0.69	0.75	-8	7	7.29	-91	-89
Net cash flows from operating activities	4 111	3 884	6		3 884	6
Free cash flow1	3 552	3 027	17		3 027	17
Core1
Core operating income	4 030	3 819	6	15	3 819	6	15
As % of net sales	31.8	28.9			28.9
Core net income	3 251	3 044	7	17	3 135	4	14
Core basic earnings per share (USD)	1.52	1.36	12	23	1.40	9	19

1. Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 50. Unless otherwise noted, all growth rates in this release refer to same period in prior year.
2. A reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash flow to exclude the impacts of the 2021 divestment of our Roche investment can be found on page 58 of the Condensed Financial Report. The free cash flow impact represents the dividend received in Q1 2021 from Roche in relation to the distribution of its 2020 net income.

nm = not meaningful



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Full year

		Excluding Roche investment impacts2		Reported
	FY 2022	FY 2021	% change	% change	FY 2021	% change	% change
	USD m	USD m	USD	cc1	USD m	USD	cc1
Net sales to third parties	50 545	51 626	-2	4	51 626	-  2	4
Divisional operating income	10 234	12 288	-17	-8	12 288	-17	-8
Corporate income and expense,
net	-1 037	-599	-73	-84	-599	-73	-84
Operating income	9 197	11 689	-21	-13	11 689	-21	-13
As % of net sales	18.2	22.6			22.6
(Loss)/income from associated companies	-9	-2	nm	nm	15 339	nm	nm
Interest expense	-837	-811	-3	-5	-811	-  3	-5
Other financial income and expense	20	-96	nm	nm	-80	nm	nm
Income taxes	-1 416	-2 119	33	25	-2 119	33	25
Net income	6 955	8 661	-20	-9	24 018	-71	-67
Basic earnings per share (USD)	3.19	3.86	-17	-7	10.71	-70	-66
Net cash flows from operating activities	14 236	14 549	-2		15 071	-6
Free cash flow1	11 945	12 760	-6		13 282	-10
Core1
Core operating income	16 665	16 588	0	8	16 588	0	8
As % of net sales	33.0	32.1			32.1
Core net income	13 352	13 099	2	11	14 094	-5	3
Core basic earnings per share (USD)	6.12	5.84	5	14	6.29	-3	6

1. Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 50. Unless otherwise noted, all growth rates in this release refer to same period in prior year.
2. A reconciliation of 2021 IFRS results and non-IFRS measures core results and free cash flow to exclude the impacts of the 2021 divestment of our Roche investment can be found on page 58 of the Condensed Financial Report. The free cash flow impact represents the dividend received in Q1 2021 from Roche in relation to the distribution of its 2020 net income.

nm = not meaningful



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Strategy Update

Our focus

During 2022, Novartis unveiled a new focused strategy with our transformation into a "pure-play" Innovative Medicines business. We have a clear focus on five core therapeutic areas (cardiovascular, immunology, neuroscience, solid tumors and hematology), with multiple significant in-market and pipeline assets in each of these areas, that address high disease burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy, and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies - the US, China, Germany and Japan.

Our priorities

1. Accelerate growth: Renewed attention to deliver high-value medicines (NMEs) and focus on launch excellence, with a rich pipeline across our core therapeutic areas.
2. Deliver returns: Continuing to embed operational excellence and deliver improved financials. Novartis remains disciplined and shareholder-focused in our approach to capital allocation, with substantial cash generation and a strong capital structure supporting continued flexibility.
3. Strengthening foundations: Unleashing the power of our people, scaling data science and technology and continuing to build trust with society.

Sandoz planned spin-off

The planned spin-off remains on track for H2 2023. Completion of the transaction is subject to certain conditions, including consultation with works councils and employee representatives (as required), general market conditions, tax rulings and opinions, final Board of Directors endorsement and shareholder approval in line with Swiss corporate law. The transaction is expected to be tax neutral to Novartis.

Financials

Fourth quarter

Net sales

Net sales were USD 12.7 billion (-4%, +3% cc) in the fourth quarter driven by volume growth of 10 percentage points, partly offset by price erosion of 3 percentage points and the negative impact from generic competition of 4 percentage points.

Corporate income and expense, net

Corporate income and expense, which includes the cost of Group headquarter and coordination functions, amounted to an expense of USD 269 million compared to an expense of USD 292 million in the fourth quarter of 2021, mainly driven by prior year adjustments to provisions on M&A transactions partly offset by higher restructuring costs and lower contributions from the Novartis Venture Fund.

Operating income

Operating income was USD 1.9 billion (-24%,-14% cc), mainly due to higher restructuring costs (USD 0.6 billion), primarily related to the implementation of the previously announced streamlined organizational model. Operating income margin was 15.4% of net sales, decreasing by 4.0 percentage points (-3.2 percentage points cc).

Core operating income was USD 4.0 billion (+6%, +15% cc) driven by higher sales and productivity, including initial savings from the previously announced streamlined organizational model. Core operating income margin was 31.8% of net sales, increasing by 2.9 percentage points (+3.5 percentage points cc).

Income from associated companies

Income from associated companies was a loss of USD 3 million in the fourth quarter compared to an income of USD 14.6 billion in prior year and core income from associated companies was a loss of USD 3 million in the fourth quarter compared to an income of USD 93 million in prior year. These decreases were due to the divestment of our investment in Roche that closed in the fourth quarter of 2021 where a gain of USD 14.6 billion was recognized.



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