Novartis : Interim financial report (PDF 0.5 MB)

Novartis Second Quarter and Half Year 2022

Condensed interim financial report - supplementary data

Novartis Global Communications

Novartis Second Quarter and Half Year 2022

Condensed Interim 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 INTERIM 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 interim consolidated financial statements, including update on legal proceedings	30
SUPPLEMENTARY INFORMATION	47
CORE RESULTS
Reconciliation from IFRS results to core results	49
Group	51
Innovative Medicines	53
Sandoz	54
Corporate	55
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	55
Condensed consolidated changes in net debt	57
Share information / Free cash flow	58
Effects of currency fluctuations	60
DISCLAIMER	63



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Group

Key Figures

Second quarter

		Excluding Roche investment impacts2		Reported
	Q2 2022	Q2 2021	% change	% change	Q2 2021	% change	% change
	USD m	USD m	USD	cc1	USD m	USD	cc1
Net sales to third parties	12 781	12 956	-1	5	12 956	-1	5
Divisional operating income	2 567	3 639	-29	-24	3 639	-29	-24
Corporate income and expense,
net	-339	-160	-112	-125	-160	-112	-125
Operating income	2 228	3 479	-36	-30	3 479	-36	-30
As % of net sales	17.4	26.9			26.9
(Loss)/income from associated companies		-2	nm	nm	239	nm	nm
Interest expense	-202	-201	0	-1	-201	0	-1
Other financial income and expense	16	-11	nm	nm	-11	nm	nm
Income taxes	-347	-611	43	37	-611	43	37
Net income	1 695	2 654	-36	-29	2 895	-41	-34
Basic earnings per share (USD)	0.77	1.19	-35	-27	1.29	-40	-33
Net cash flows from operating activities	3 755	4 132	-9		4 132	-9
Free cash flow1	3 304	4 235	-22		4 235	-22
Core1
Core operating income	4 270	4 345	-2	5	4 345	-2	5
As % of net sales	33.4	33.5			33.5
Core net income	3 431	3 436	0	8	3 716	-8	-1
Core basic earnings per share (USD)	1.56	1.53	2	10	1.66	-6	1

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 47. 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 55 of the Condensed Interim 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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First half

		Excluding Roche investment impacts2		Reported
	H1 2022	H1 2021	% change	% change	H1 2021	% change	% change
	USD m	USD m	USD	cc1	USD m	USD	cc1
Net sales to third parties	25 312	25 367	0	5	25 367	0	5
Divisional operating income	5 593	6 193	-10	-3	6 193	-10	-3
Corporate income and expense,
net	-513	-299	-72	-81	-299	-72	-81
Operating income	5 080	5 894	-14	-7	5 894	-14	-7
As % of net sales	20.1	23.2			23.2
(Loss)/income from associated companies	-2	-2	0	0	495	nm	nm
Interest expense	-403	-403	0	-2	-403	0	-2
Other financial income and expense	36	-30	nm	nm	-30	nm	nm
Income taxes	-797	-1 002	20	13	-1 002	20	13
Net income	3 914	4 457	-12	-4	4 954	-21	-14
Basic earnings per share (USD)	1.77	1.98	-11	-3	2.20	-20	-12
Net cash flows from operating activities	5 404	5 740	-6		6 262	-14
Free cash flow1	4 224	5 310	-20		5 832	-28
Core1
Core operating income	8 353	8 302	1	7	8 302	1	7
As % of net sales	33.0	32.7			32.7
Core net income	6 682	6 536	2	9	7 129	-6	0
Core basic earnings per share (USD)	3.02	2.91	4	11	3.17	-5	2

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 47. 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 55 of the Condensed Interim 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

Novartis is a focused medicines company, with depth in five core therapeutic areas (Hematology, Solid Tumors, Immunology, Neuroscience and Cardiovascular), strength in technology platforms (Gene Therapy, Cell Therapy, Radioligand Therapy, Targeted Protein Degradation and xRNA), and a balanced geographic footprint. Our confidence to grow in the near to mid-term is driven by potential multi-billion-dollar sales from our key growth brands: Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio. To fuel further growth through 2030 and beyond, we have 20+ assets with significant sales potential that could be approved by 2026.

Novartis remains disciplined and shareholder focused in our capital allocation. We balance investing in our busi- ness, through organic investments and value-creatingbolt-ons, with returning capital to shareholders via our growing annual dividend and share buybacks. Our previously announced USD 15 billion share buyback is ongoing, with USD 9.4 billion still to be executed.

In April, we announced a streamlined organizational model, designed to support innovation, growth and productiv- ity, the implementation of which is progressing well. With the changes, Novartis now expects to deliver SG&A savings of approximately USD 1.5 billion, to be fully embedded by 2024. The savings will contribute to achieving mid to long-term IM core margins in the low 40's and investing in our pipeline.

The strategic review of Sandoz is on track; we expect to provide an update, at the latest, by the end of 2022.

Novartis continues to make significant strides in building trust with society and consistently integrating access strategies into how we research, develop and deliver our medicines. We are committed to net zero emissions across our value chain by 2040. During the quarter, our MSCI ESG rating was increased to "AA", placing us in the top quartile of companies within the pharmaceutical industry. Our culture journey towards an inspired, curious and unbossed organization continues, in order to drive performance and competitiveness in the long-term.

Financials

Second quarter

Net sales

Net sales were USD 12.8 billion (-1%, +5% cc) in the second quarter, driven by volume growth of 12 percentage points, price erosion of 4 percentage points and the negative impact from generic competition of 3 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 339 million, compared to an expense of USD 160 million in the second quarter of 2021, mainly driven by higher restructuring costs.

Operating income

Operating income was USD 2.2 billion (-36%,-30% cc), mainly due to lower product divestment gains (USD 0.4 billion), higher impairments (USD 0.4 billion) and higher restructuring costs (USD 0.3 billion) primarily related to the implementation of the new organizational model.

Core operating income was USD 4.3 billion (-2%, +5% cc), mainly driven by higher sales, partly offset by higher R&D and M&S investments and lower gross margin. Core operating income margin was 33.4% of net sales, decreasing by 0.1 percentage points (+0.1 percentage points cc).

Income from associated companies

Income from associated companies was USD 0 million in the second quarter compared to USD 239 million in prior year and core income from associated companies was USD 0 million in the second quarter compared to USD 278 million in prior year. These decreases were due to the divestment of our investment in Roche that closed in the fourth quarter of 2021.



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