Roche : Half Year Report 2021

HALF-YEAR REPORT 2021

Finance in Brief

Key interim results

Sales

Core operating prot margin

Pharmaceuticals

CER growth %

% of sales

-2.9

44.1

Diagnostics

+0.8

47.2

+51.1

25.7

Group

+3.4

16.8

+8.3

37.9

+1.3

40.2

-2 0 2 4 6 8 10 44 46 48 500 10 20 30 40 50

			Six months ended 30 June
		2021		2020			% change		% change		% of sales		% of sales
			(CHF m)		(CHF m)		(CHF)		(CER)	(2021)		(2020)
IFRS results
Sales	30,713		29,281		+5		+8
Operating profit	10,077		10,638			-5		-1	32.8		36.3
Net income	8,216		8,465			-3	+2		26.8		28.9
Net income attributable to Roche shareholders	7,803		8,079			-3	+2		25.4		27.6
Diluted EPS (CHF)	9.05		9.32			-3	+2
Core results
Research and development	6,690		5,787		+16		+19		21.8		19.8
Core operating profit	11,652		11,766			-1	+4		37.9		40.2
Core EPS (CHF)	10.56		10.44		+1		+6
Free cash flow
Operating free cash flow	8,117		5,036		+61		+71		26.4		17.2
Free cash flow	6,038		3,274		+84		+99		19.7		11.2

30 June 2021

31 December 2020

% change

% change

(CHF m)

(CHF m)

(CHF)

(CER)

Net debt

(6,994)

(1,882)

+272

+204

Capitalisation

56,444

53,989

+5

+3

-

Debt

15,011

14,216

+6

+2

-

Equity

41,433

39,773

+4

+3

CER (Constant Exchange Rates): The percentage changes at Constant Exchange Rates are calculated using simulations by reconsolidating both the 2021 and 2020 results at constant exchange rates (the average rates for the year ended 31 December 2020). For the definition of CER see page 78.

Core results and Core EPS (earnings per share): These exclude non-core items such as global restructuring plans and amortisation and impairment of goodwill and intangible assets. This allows an assessment of both the actual results and the underlying performance of the business. A full income statement for the Group and the operating results of the divisions are shown on both an IFRS and core basis. The core concept is fully described on pages 71-74 and reconciliations between the IFRS and core results are given there.

Free cash flow is used to assess the Group's ability to generate the cash required to conduct and maintain its operations. It also indicates the Group's ability to generate cash to finance dividend payments, repay debt and to undertake merger and acquisition activities. The free cash flow concept is used in the internal management of the business. The free cash flow concept is fully described on pages 74-76 and reconciliations between the IFRS cash flow and free cash flow are given there.

2 | Roche Half-Year Report 2021

Contents

Finance in Brief				2
Financial Review				4
Roche Group Interim Consolidated Financial Statements		40
Notes to the Roche Group Interim Consolidated Financial Statements	46
1.	Accounting policies	46	10.	Provisions and contingent liabilities	62
2.	Operating segment information	48	11.	Debt	63
3.	Revenue	51	12.	Equity attributable to Roche shareholders	65
4.	Net financial expense	53	13.	Subsidiaries and associates	65
5.	Income taxes	54	14.	Earnings per share and non-voting equity
6.	Mergers and acquisitions	54		security	66
7.	Global restructuring plans	58	15.	Statement of cash flows	67
8.	Goodwill	60	16.	Financial risk management	68
9.	Intangible assets	60
Independent Auditor's Report on the Review of Interim Consolidated Financial Statements	70
Supplementary Information				71
Roche Securities				79

Roche Half-Year Report 2021 | 3

Financial Review

Financial Review

Group results

		Sales in billions of CHF																					Core operating prot in billions of CHF
																			% CER growth																	% of sales
				0		5			10			15		20		25					30		0		2		4		6		8		10				12
																											+8.3																37.9
																								+1.3																	40.2
																									+8.5																	40.6
				Net income attributable
				to Roche shareholders in billions of CHF														Core EPS in CHF
		0			2			4			6					8							0		2		4		6		8		10				12
																					7.8																	10.56
																						8.1																	10.44
																								8.6																	11.12

In the first half of 2021 the Roche Group achieved sales growth of 8% at constant exchange rates (CER) and core operating profit growth of 4%. IFRS net income increased by 2% while Core EPS increased by 6%. The appreciation of the Swiss franc against most currencies had an adverse net impact on the results expressed in Swiss francs compared to constant exchange rates of 3 percentage points on sales and 5 percentage points on core operating profit, IFRS net income and Core EPS.

The 8% sales growth in CER was driven by the Diagnostics Division, where there was continued growth in the sales of COVID-19-related products coupled with a rebound in routine testing across all regions as pandemic measures eased. In the Pharmaceuticals Division sales were lower due to biosimilar competition, notably in the US, although the continuing uptake of new medicines has helped to compensate for this. The core operating profit growth of 4% reflects the sales growth, together with increased cost of sales, due to the increasing proportion of diagnostics sales in the overall sales mix, as well as an increase of 19% in research and development costs in the Pharmaceuticals Division.

Core EPS increased by 6% in CER (1% increase in Swiss franc terms), supported by the results from treasury operations. IFRS net income increased by 2% (3% decline in Swiss franc terms) due to the increase in spending on restructurings and the base effect of income from the release of litigation provisions in the first half of 2020. Operating free cash flow was CHF 8.1 billion, an increase of 71%, due to the base effect of the significant increases in net working capital and spending on in-licensing and alliance arrangements in the first half of 2020. The free cash flow was CHF 6.0 billion, an increase of 99%, as a result of the growth in the operating free cash flow. The acquisition of GenMark was completed for CHF 1.7 billion.

Divisional operating results for the six months ended 30 June 2021

				Pharmaceuticals			Diagnostics			Corporate			Group
				(CHF m)			(CHF m)			(CHF m)			(CHF m)
Sales		21,671		9,042			-		30,713
Core operating profit		9,562		2,324		(234)		11,652
-	margin, % of sales		44.1		25.7			-		37.9
Operating profit		8,313		2,046		(282)		10,077
-	margin, % of sales		38.4		22.6			-		32.8
Operating free cash flow		7,282		1,178		(343)		8,117
-	margin, % of sales		33.6		13.0			-		26.4

4 | Roche Half-Year Report 2021

Financial Review

Divisional operating results - Development of results compared to the six months ended 30 June 2020

Pharmaceuticals

Diagnostics

Corporate

Group

Sales

- % change at CER

-3

+51

-

+8

Core operating profit

- % change at CER

-8

+137

+7

+4

- margin: percentage point change

-2.7

+9.3

-

-1.7

Operating profit

- % change at CER

-13

+147

+10

-1

- margin: percentage point change

-4.5

+8.8

-

-3.0

Operating free cash flow

- % change at CER

+41

-

-8

+71

- margin: percentage point change

+10.6

+14.2

-

+9.8

In the first six months of 2021 the COVID-19 pandemic continued to affect sales across the whole business as described in the following section on 'Impact of the COVID-19 pandemic'. Sales in the Pharmaceuticals Division were CHF 21.7 billion (2020: CHF 23.2 billion), a decrease of 3% at CER, which was driven by biosimilar competition, notably in the US. Despite this, there was growing demand for new medicines, including Ronapreve, Ocrevus, Hemlibra, Tecentriq, Evrysdi and Kadcyla, which together contributed an additional CHF 2.3 billion (CER) of new sales. Overall, the COVID-19 pandemic continued to have a negative impact on the division's sales due to reduced hospitalisations and outpatient visits remaining lower than they would otherwise have been.

The Diagnostics Division reported sales of CHF 9.0 billion, an increase of 51% at CER. The growth is mainly due to sales of COVID-19-related products, notably the cobas SARS-CoV-2 PCR test and the SARS-CoV-2 Rapid Antigen test. Total sales of all the COVID-19-related tests (at CER) were CHF 2.5 billion (2020: CHF 0.7 billion). Routine testing, which was greatly affected by the pandemic during 2020, rebounded across all regions in the first half of 2021. As a direct result, sales grew in all regions, notably in the Europe, Middle East and Africa region, which reported sales growth of 70%, and in the Asia-Pacific region, where the growth was 44%.

The Pharmaceuticals Division's core operating profit decreased by 8% at CER, below the sales decline of 3%, mainly due to an increase in research and development costs. Royalty and other operating income increased by CHF 0.4 billion due to higher income from the disposal of products than in the comparative period. Cost of sales decreased by 4% primarily due to the reversal of an idle-plant impairment. Marketing and distribution costs decreased by 6% as a result of transformations and reduced spending due to the COVID-19 pandemic. Research and development costs grew by 19%, with the growth mostly driven by late-stage investments in oncology, ophthalmology and personalised healthcare. In addition there were COVID-19-related investments, notably for the co-development of Ronapreve with Regeneron, and there were investments across the research and development activities, including investing in increased capabilities in China.

In the Diagnostics Division, core operating profit increased by 137% at CER to CHF 2.3 billion, ahead of the sales growth of 51%. While cost of sales grew by 51%, in line with the sales growth, marketing and distribution costs increased by 8% due to higher spending on distribution costs for COVID-19-related products. Research and development costs increased by 16% due to increased spending on COVID-19-related projects and the development of new instruments within the Core Lab customer area. Additionally, the acquisition of GenMark was completed in the first half of 2021 for CHF 1.7 billion in cash.

The IFRS operating profit decreased by 13% (CER) in the Pharmaceuticals Division, due to increased spending on global restructuring plans and the base effect of a release of litigation provisions in 2020, and increased by 147% (CER) in the Diagnostics Division. The 2021 interim results include CHF 1.0 billion for the amortisation and impairment of intangible assets and CHF 0.5 billion of expenses from global restructuring plans.

Roche Half-Year Report 2021 | 5