Novartis : Interim financial report (PDF 0.4 MB)

Novartis First Quarter 2021

Condensed interim financial report - supplementary data

Novartis Global Communications

Novartis First Quarter 2021

Condensed Interim Financial Report -

Supplementary Data

INDEX	Page
GROUP AND DIVISIONAL OPERATING PERFORMANCE
Group	3
Innovative Medicines	6
Sandoz	12
CASH FLOW AND GROUP BALANCE SHEET	13
INNOVATION REVIEW	15
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated income statements	18
Consolidated statements of comprehensive income	19
Consolidated balance sheets	20
Consolidated statements of changes in equity	21
Consolidated statements of cash flows	22
Notes to condensed interim consolidated financial statements, including update on legal proceedings	23
SUPPLEMENTARY INFORMATION	36
CORE RESULTS
Reconciliation from IFRS results to core results	38
Group	39
Innovative Medicines	40
Sandoz	40
Corporate	41
ADDITIONAL INFORMATION
Income from associated companies	41
Condensed consolidated changes in net debt / Share information	42
Free cash flow	42
Effects of currency fluctuations	43
Estimated prior year COVID-19 related forward purchasing impact in constant currencies
on first quarter key figures	44
DISCLAIMER	45



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Group

Key Figures

	Q1 2021	Q1 2020	% change	% change
	USD m	USD m	USD	cc1
Net sales to third parties	12 411	12 283	1	-2
Divisional operating income	2 554	2 710	-6	-8
Corporate income and expense,
net	-139	34	nm	nm
Operating income	2 415	2 744	-12	-14
As % of net sales	19.5	22.3
Income from associated companies	256	123	108	109
Interest expense	-202	-239	15	15
Other financial income and expense	-19	-7	-171	-93
Taxes	-391	-448	13	14
Net income	2 059	2 173	-5	-7
Basic earnings per share (USD)	0.91	0.96	-5	-6
Cash flows from operating activities	2 130	2 528	-16
Free cash flow1	1 597	2 021	-21
Core1
Core operating income	3 957	4 177	-5	-8
As % of net sales	31.9	34.0
Core net income	3 413	3 549	-4	-6
Core basic earnings per share (USD)	1.52	1.56	-3	-5

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 36. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.



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COVID-19 update

• There continues to be COVID-19 related lockdowns and disruptions in several geographies negatively impacting demand, particularly: dermatology, ophthalmology, the breast cancer portfolio, Sandoz Retail and Anti-Infectives
• For Sandoz COVID-19 resulted in a historically weak cough and cold season and softened retail demand
• Drug development operations are continuing with manageable disruptions (see Innovation Review section), with our range of digital technologies allowing us to proactively manage our clinical trials portfolio and rapidly mitigate any disruptions
• Our operations remain stable and cash collections continue to be according to our normal trade terms, with days sales outstanding at normal levels
• Novartis remains well positioned to meet its ongoing financial obligations and has sufficient liquidity to support normal business activities
• Novartis is collaborating with Molecular Partners to develop, manufacture and commercialize two antiviral DARPin® candidates, ensovibep (MP0420) and MP0423. These candidates are designed to target multiple different sites on the SARS-CoV-2 virus simultaneously for enhanced antiviral effects and potential use as both prophylactics and treatments
• Novartis joined industry-wide efforts to meet global demand for COVID-19 vaccines and therapeutics through various manufacturing agreements

Financials

First quarter

Net sales

Net sales were USD 12.4 billion (+1%, -2% cc) in the first quarter driven by volume growth of 3 percentage points, price erosion of 2 percentage points and negative impact from generic competition of 3 percentage points. Excluding prior year COVID-19 related forward purchasing, we estimate first quarter net sales grew +1% (cc, +4% USD).¹

Corporate income and expense, net

Corporate income and expense, which includes the cost of Group management and central services, amounted to an expense of USD 139 million in the first quarter compared to an income of USD 34 million in the prior year, mainly driven by royalty settlement gains related to intellectual property rights last year.

Operating income

Operating income was USD 2.4 billion (-12%,-14% cc) mainly due to lower gross profit impacted by pricing erosion at Sandoz, manufacturing restructuring, higher impairments, partly offset by lower legal expenses.

Core operating income was USD 4.0 billion (-5%,-8% cc) mainly due to Sandoz (-35% cc). Core operating income margin was 31.9% of net sales, decreasing by 2.1 percentage points (-1.8 percentage points cc). Excluding prior year COVID-19 related forward purchasing, we estimate core operating income declined -1% (cc, +2% USD).¹

Income from associated companies

Income from associated companies increased from USD 123 million in prior year to USD 256 million in the first quarter of 2021 mainly due to the increase in the share of income from Roche Holding AG. The estimated first quarter income for Roche Holding AG, net of amortization, was USD 216 million compared to USD 188 million in prior year. A positive prior year true up of USD 40 million has been recognized in the first quarter of 2021, compared to a negative true up of USD 64 million in the first quarter of 2020.

Core income from associated companies increased to USD 313 million from USD 308 million in prior year due to a higher estimated core income contribution from Roche Holding AG for the current period. The favorable prior year core income true up from Roche of USD 40 million was broadly in line with the true up recognized in the first quarter of 2020 of USD 38 million.

1 Growth excluding prior year COVID-19 related forward purchasing is a non-IFRS measure, an explanation for this measure can be found on page 44



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Interest expense and other financial income/expense

Interest expense amounted to USD 202 million compared to prior year interest expense of USD 239 million, mainly due to lower interest expense on financial debts. Other financial income and expense amounted to a loss of USD 19 million compared to a loss of USD 7 million in the prior year mainly due to lower interest income and higher financial expenses in the current period partially offset by reduced currency losses.

Taxes

The tax rate in the first quarter was 16.0% compared to 17.1% in the prior year. Excluding the impact of non-deductible legal settlement expenses in the first quarter in the prior year, the prior year first quarter tax rate would have been 15.7%. The increase from prior year was mainly the result of a change in profit mix.

The core tax rate was 16.0% in both periods.

Net income, EPS and free cash flow

Net income was USD 2.1 billion (-5%,-7% cc) mainly due to lower operating income. EPS was USD 0.91 (-5%,-6% cc), declining less than net income, benefiting from lower weighted average number of shares outstanding.

Core net income was USD 3.4 billion (-4%,-6% cc) mainly driven by the decline in core operating income. Core EPS was USD 1.52 (-3%,-5% cc), declining less than core net income, benefiting from lower weighted average number of shares outstanding.

Cash flows from operating activities amounted to USD 2.1 billion.

Free cash flow amounted to USD 1.6 billion (-21%) compared to USD 2.0 billion in the prior year quarter. This decline was mainly due to the USD 650 million upfront payment to in-license tislelizumab from BeiGene and lower operating income adjusted for non-cash items, partly offset by favorable changes in working capital.



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