Roche : Semi-Annal Report

HALF-YEAR REPORT 2022

Finance in Brief

Key interim results

Sales

Core operating prot margin

Pharmaceuticals

CER growth %

% of sales

+3.0

46.2

Diagnostics

••••

-2.9

44.1

+11.3

25.7

Group

••••

+51.1

25.7

+5.4

39.2

••••

+8.3

37.9

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

			Six months ended 30 June
		2022		2021			% change		% change		% of sales		% of sales
			(CHF m)		(CHF m)		(CHF)		(CER)	(2022)		(2021)
IFRS results
Sales	32,295		30,713		+5		+5
Operating profit	11,547		10,077		+15		+15		35.8		32.8
Net income	9,161		8,216		+12		+12		28.4		26.8
Net income attributable to Roche shareholders	8,530		7,803		+9		+9		26.4		25.4
Diluted EPS (CHF)	10.54		9.05		+16		+16
Core results
Research and development	6,628		6,690			-1		-1	20.5		21.8
Core operating profit	12,668		11,652		+9		+9		39.2		37.9
Core EPS (CHF)	11.76		10.56		+11		+11
Free cash flow
Operating free cash flow	9,782		8,117		+21		+21		30.3		26.4
Free cash flow	7,097		6,038		+18		+18		22.0		19.7

				30 June 2022				31 December 2021			% change			% change
				(CHF m)				(CHF m)			(CHF)			(CER)
Net debt			(20,942)		(18,167)		+15		+8
Capitalisation			56,696				59,543			-5			-5
-	Debt			27,750				31,198			-11			-14
-	Equity			28,946				28,345			+2			+5

CER (Constant Exchange Rates): The percentage changes at Constant Exchange Rates are calculated using simulations by reconsolidating both the 2022 and 2021 results at constant exchange rates (the average rates for the year ended 31 December 2021). For the definition of CER see page 75.

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 68-71 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 71-73 and reconciliations between the IFRS cash flow and free cash flow are given there.

2 | Roche Half-Year Report 2022

Contents

Finance in Brief				2
Financial Review				4
Roche Group Interim Consolidated Financial Statements		39
Notes to the Roche Group Interim Consolidated Financial Statements	45
1.	Accounting policies	45	10.	Provisions and contingent liabilities	59
2.	Operating segment information	47	11.	Debt	60
3.	Revenue	50	12.	Equity attributable to Roche shareholders	62
4.	Net financial expense	52	13.	Subsidiaries and associates	63
5.	Income taxes	53	14.	Earnings per share and non-voting equity
6.	Mergers and acquisitions	54		security	63
7.	Global restructuring plans	55	15.	Statement of cash flows	64
8.	Goodwill	57	16.	Financial risk management	65
9.	Intangible assets	57
Independent Auditor's Report on the Review of Interim Consolidated Financial Statements	67
Supplementary Information				68
Roche Securities				76

Roche Half-Year Report 2022 | 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	+5.4		0		2		4		6		8		10			12	39.2
																										+8.3																37.9
																								+1.3																		40.2
				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
																									8.5																		11.76
																					7.8																	10.56
																						8.1																	10.44

In the first half of 2022 the Roche Group achieved sales growth of 5% and core operating profit growth of 9%. IFRS net income increased by 12% while Core EPS increased by 11%. Changes in exchange rates against the Swiss franc largely offset each other, so there was a negligible impact on the results expressed in Swiss francs compared to constant exchange rates (CER).

The 5% sales growth was mainly driven by the Diagnostics Division, with increased sales of COVID-19-related products and growth in routine testing across all regions. In the Pharmaceuticals Division sales were higher due to the continuing uptake of new medicines, which more than offset the negative impact from biosimilar competition. The core operating profit growth of 9% reflected the sales growth and also the income from the Ultomiris patent settlement.

IFRS net income increased by 12% and Core EPS by 11%. These increases included positive impacts of 3 percentage points from the Ultomiris patent settlement, net of tax, and 6 percentage points from the share repurchase from Novartis, net of additional financing costs and tax. Operating free cash flow was CHF 9.8 billion, an increase of 21%, due to the higher cash generation of the business including the Ultomiris patent settlement. The free cash flow was CHF 7.1 billion, an increase of 18%, as a result of the growth in the operating free cash flow.

Divisional operating results for the six months ended 30 June 2022

				Pharmaceuticals			Diagnostics			Corporate			Group
				(CHF m)			(CHF m)			(CHF m)			(CHF m)
Sales		22,347		9,948			-		32,295
Core operating profit		10,318		2,560		(210)		12,668
-	Margin, % of sales		46.2		25.7			-		39.2
Operating profit		9,360		2,466		(279)		11,547
-	Margin, % of sales		41.9		24.8			-		35.8
Operating free cash flow		8,667		1,509		(394)		9,782
-	Margin, % of sales		38.8		15.2			-		30.3

4 | Roche Half-Year Report 2022

Financial Review

Divisional operating results - Development of results compared to the six months ended 30 June 2021

Pharmaceuticals

Diagnostics

Corporate

Group

Sales

- % change at CER

+3

+11

-

+5

Core operating profit

- % change at CER

+8

+11

-4

+9

- Margin: percentage point change

+2.3

0

-

+1.4

Operating profit

- % change at CER

+13

+22

+4

+15

- Margin: percentage point change

+3.9

+2.1

-

+3.1

Operating free cash flow

- % change at CER

+20

+29

+19

+21

- Margin: percentage point change

+5.5

+2.1

-

+4.0

Sales in the Pharmaceuticals Division were CHF 22.3 billion (2021: CHF 21.7 billion), an increase of 3% at CER, driven by growing demand for Hemlibra, Ocrevus, Evrysdi, Phesgo and Tecentriq, which together contributed an additional CHF 1.5 billion (CER) of sales. Sales of MabThera/Rituxan, Herceptin and Avastin decreased by a combined CHF 1.0 billion (CER), as the impact of biosimilar competition further slowed down.

The Diagnostics Division reported sales of CHF 9.9 billion, an increase of 11% at CER. The sales growth was driven by increased sales of COVID-19-related products and growth in routine testing across all regions. Total sales of COVID-19-related tests (at CER), notably the SARS-CoV-2 Rapid Antigen test, were CHF 3.1 billion (2021: CHF 2.5 billion). Sales in the division's base business increased by 6% at CER, driven by the immunodiagnostics business, with cardiac tests being a key contributor.

The Pharmaceuticals Division's core operating profit increased by 8%, above the sales increase of 3%, in part due to the CHF 0.7 billion of income from the Ultomiris patent settlement. Cost of sales increased by 14% as a result of sales volume growth and the impact of the reversal of an idle-plant impairment in 2021. Marketing and distribution costs increased by 4% driven by higher spending on digital customer solutions and product launches and also by pre-launch activities. Research and development costs were CHF 5.7 billion, with oncology remaining the primary area and the cancer immunotherapy portfolio being a key driver. Neuroscience, immunology and ophthalmology also represented significant areas of spending. The decline of 3% in research and development costs was driven by the co-development costs for Ronapreve in 2021.

In the Diagnostics Division, core operating profit increased by 11% at CER to CHF 2.6 billion, in line with the sales growth of 11%. Cost of sales increased by 14% driven by sales volume growth and a mix effect from the increased volumes of SARS-CoV-2 Rapid Antigen tests. Higher distribution costs related to these tests were the main factor in the 3% increase in marketing and distribution expenses. Research and development costs increased by 11%, with digital solutions being the main growth driver. In addition, investments continued for projects in sequencing, mass spectrometry and point of care.

The IFRS operating profit increased by 13% (CER) in the Pharmaceuticals Division, ahead of the 8% growth in core operating profit, because of lower intangible assets amortisation. In the Diagnostics Division, IFRS operating profit increased by 22% (CER), compared to the 11% growth in core operating profit, due to the significant spending on restructuring activities

in 2021. The 2022 interim results for the Group include CHF 0.9 billion for the amortisation and impairment of intangible assets and CHF 0.3 billion of expenses from global restructuring plans.

Roche Half-Year Report 2022 | 5