Novartis AG · SIX:NOVN
Novartis — FY2004 Earnings Presentation
28 slides from Novartis's earnings presentation, Jan 20, 2005
Slide 1: Financial Achievements 2004
Financial Achievements 2004 Raymund Breu CFO, Novartis Agenda • Operating performance 2004 • Non-operating performance 2004 • Increasing shareholder value 2 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts 1
Slide 2: Delivering a Strong Performance
Delivering a Strong Performance • High organic business growth • Margins up except for Sandoz • Record operating and net income • Dividend increases for 8th consecutive year, + 5% 3 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts 2004 Another Record Year In USD m 2004 2003 Change Change in % USD
Slide 3: Business Expansion Driven by Organic Volume Growth
Business Expansion Driven by Organic Volume Growth and … Growth for 2004 % 20 15 +5% +14% 10 +0% +1% +9% +8% 5 0 Volume Price Acq./Div. LC Currency USD 5 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Strong Performance Across All Regions Net sales growth by region in % Net sales by region in %
Slide 4: Net Sales Expansion Driven by Pharmaceuticals and Consumer Health
Dynamic Net Sales Expansion Driven by Pharmaceuticals and Consumer Health 2004 net sales: USD 28 247 m Full year % net sales growth Full year net sales by division Pharma- LC 10 Pharmaceuticals ceuticals USD 15 LC -1 65% Sandoz 5 USD 8 Consumer LC 11% Health 1 USD 13 24% LC 9 Group Consumer Sandoz U
Slide 5: Other Income & Expense; Operating Income Expansion
Other Income & Expense Includes One-Time Charges Sandoz • Restructuring charges USD 37 m Animal Health • Inventory write-down USD 18 m Medical Nutrition • Integration Costs USD 14 m • Provision for legal cases USD 51 m Total USD 120 m In addition Other Income & Expense was affected by lower hedging
Slide 6: Significant Operating Margin Gain in Pharmaceuticals
Resulting in a Significant Operating Margin Gain in Pharmaceuticals Operating margins in % FY 2004 FY 2003 28.4 27.6 23.1 23.7 16.3 2 15.3 14.3 1 8.9 14.1 7.7 Pharma- Sandoz Consumer GROUP ceuticals Health (excl. Sandoz) 1 Margin excluding USD 37 m restructuring charges and related impairments 2 Mar
Slide 7: Significant Improvement in Result from Associated Companies
Significant Improvement in Result from Associated Companies 2004 2003 Change USD m USD m in % USD Total operating income 6 539 5 889 11 Result from assoc. companies 142 -200 * Financial income, net 227 379 -40 Income taxes -1 126 -1 008 +12 tax rate in % 16.3 16.6 Minority interests -15 -44 -66 Net
Slide 8: Free Cash Flow Reaches USD 3.4 bn
Free Cash Flow Reaches USD 3.4 bn with a 14% Increase in Dividends Paid 2004 USD m Change in % Cash Flow 6 812 6 Change in provisions and net current assets -87 n/m1 Cash Flow from operating activities 6 725 1 Investment in PPE2 -1 269 5 Change in other assets -129 n/m1 Dividends -1 968 -14 Free Cas
Slide 9: Dividend Increase for 8th Consecutive Year
Agenda • Operating performance 2004 • Non-operating performance 2004 • Increasing shareholder value 17 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Dividend Increase for 8th Consecutive Year DPS1 in CHF EPS2 in USD 1.2 2.5 1 2 0.8 1.5 0.6 1 0.4 0.5 0.2 0 0 1999 2000 2001 2002 2003 2004 1 Divid
Slide 10: USD 8.5 bn Returned via Share Buy-Backs
USD 8.5 bn Returned to Shareholders via Share Buy-Back Programs Share buy-back in USD m USD 1 740 m 1 3000 in 2004 2500 2000 1500 1000 500 0 Dec 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 1st program 2nd program 3rd program 4th program 1 In addition, a further USD 135 m of shares were purchased on
Slide 11: Beating the Market – Strong Positives
Beating the Market – Strong Positives • History of market beating double-digit sales growth since 2002 • Improving profitability • One of the strongest pipelines in the industry − 10 highly attractive compounds • Limited short- to mid-term exposure to patent expiry • Unique position amongst Pharmace
Slide 12: Information on Business Units
Information on Business Units 23 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts 2004 Sales Growth Components by Division / Business Unit Volume Price Acq./Div. Currency Pharmaceuticals 10% 0% 0% 5% Sandoz -2% -1% 2% 6% OTC 4% 1% 0% 6% Animal Health 8% 1% -4% 6% Medical Nutrition 3% 1% 27% 7% Inf
Slide 13: Medicines Make-up 86% of 2004 Sales
Medicines Make-up 86% of 2004 Sales and 91% of Operating Income Net sales in % by Operating income in % by division or business unit division or business unit 14 9 1 Pharmaceuticals 5 3 4 7 Sandoz OTC 11 Animal Health 65 Other businesses 81 25 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Sales
Slide 14: Pharmaceutical Operating Margin Up 0.8 % Points
Excellent Group Operating Income Expansion – One-Time Charges Affect Sandoz, Animal Health and Medical Nutrition 2004 Operating income: USD 6 539 m, +11% in USD Op. income growth in % (USD) Q4 op. income growth in % (USD) Pharmaceuticals 19 7 Sandoz/Generics -50 -82 OTC 14 -38 Animal Health -11 33 M
Slide 15: Regional Information
Regional Information 29 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Strong Performance Across All Regions % Net sales growth by region Net sales by region in % LC 9 US US USD 9 40% LC 7 Europe USD 17 7% Rest of the Americas Asia/Aus. LC 9 Africa USD 36% 17% 16 Europe Asia/Australia/ Rest of L
Slide 16: Strong Regional Net Sales in Fourth Quarter 2004
Sustained Strong Regional Net Sales Performance in Fourth Quarter 2004 Q4 % Net sales growth by region Q4 Net sales by region in % LC 9 US US USD 9 LC 5 38% Europe USD 15 8% Rest of the Americas Asia/Aus. LC 7 36% 18% Africa USD 12 Europe Asia/Australia/ Rest of LC 19 Africa Americas 22 USD 31 FRESC
Slide 17: Q4 Net Sales and Operating Income by Division
Net Sales Expansion Driven By Pharmaceuticals And Consumer Health 2004 Net sales: USD 28 247 m 2004 Net sales Q4 Net sales growth in % growth in % Pharmaceuticals 10 9 15 13 -1 7 Sandoz 5 13 8 7 Consumer Health 13 10 9 8 Group 14 13 33 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts One-Time Cost
Slide 18: Operating Income Declines 4% in Q4 2004
Operating Income Declines 4% in Q4 2004 Owing to One-Time Costs Q4 04 Q4 03 Change in USD % Sales 100% 100% 13 Cost of goods sold 24.8% 23.9% 17 Marketing & Sales 33.0% 32.3% 15 Research & Development 16.3% 16.2% 13 General & Administration 6.0% 6.0% 12 Other Income & Expense -0.3% -2.3% -85 Operati
Slide 19: One-time Costs Affected Sandoz and Medical Nutrition Margins
One-time Costs Affected Sandoz and Medical Nutrition Margins in Q4 Operating margins in % Q4 2004 Q4 2003 26.8 25.2 23.9 19.2 19.0 20.2 18.6 17.2 15.9 15.0 13.5 14.1 10.9 6.81 4.6 4.22 2.5 Pharma- Sandoz OTC Animal Medical Infant & CIBA GROUP ceuticals Health Nutrition Baby Vision 1 2004 margin excl
Slide 20: Strong Cash-Flow Generation Permits Share Buy-Backs
Strong Cash-Flow Generation Permits Continued Share-Buy Back Programs Liquid funds in USD bn 15 14.6 13.3 13.0 12.5 10 2001 2002 2003 2004 Net liquidity in USD bn 10 8.0 1 7.7 7.0 7.3 5 0 2001 2002 2003 2004 1 Restated for derivatives 39 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Up to 50% o
Slide 21: Income from Associates
Income from Associates 41 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Income from Associates Significantly Improved Over 2003 FY 2004 FY 2003 Change USD m USD m in % USD Share of est. Roche pre-tax inc. +369 +185 +99 Depreciation and amortization of – PPE1 and intangibles -166 -143 +16 – Good
Slide 22: Liquidity Management Information
Liquidity Management Information 43 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Financial Income Performance Mainly Due to Money Market and Currency Management 2004 2003 in USD m in USD m Interest (incl. dividends) +399 +340 Capital and option gains +126 +125 Currency losses/gains on investme
Slide 23: 2.7% Return of Portfolio in Low Yield Environment
2.7% Return of Portfolio in Low Yield Environment With An Extremely Low Risk Profile Return of Return of Value at risk1 Category portfolio benchmark of portfolio Shares +7.37% +12.94% 2.53% Bonds +1.97% +9.96% 1.66% Money +3.01% +1.53% 1.25% market Overall +2.69% +6.05% 0.50% 1 Value at risk in 10 d
Slide 24: Currency Distribution of Liquidity
Currency Distribution of Liquidity December 20031 December 20041 GBP Other 1% 9% CHF CHF EUR 13% 29% 11% 1% JPY EUR 59% 21% 56% USD USD 1 Including hedges 47 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Currency Related Information 48 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts 24
Slide 25: Operating Income Grows 9% in Constant Currencies
Operating Income Grows 9% in Constant Currencies % 20 15 +11% +5% +9% -3% 10 +6% 5 0 Currency Transactional LC growth Translational USD growth corrected losses gains growth 49 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts USD is the Predominant Currency in 2004 In % Net sales • Products are imp
Slide 26: Major Currencies Continued to Appreciate vs. USD
Major Currencies Continued to Appreciate vs. USD in 20041 Change vs. USD in % CHF 8 JPY 7 EUR 10 GBP 12 CAD 8 0 5 10 15 1 Based on sales-weighted average exchange rates 51 FRESCO 2004 / Raymund Breu / 2005-01-20 / Analysts Currency Effects on Operating and Net Income • Translation gains on net sales
Slide 27: Full Year Impact of Currency Movements
Full Year Impact1 of Currency Movements vs. USD on Sales and on Operating Income Impact of a 10% currency appreciation vs. USD on group net sales: • EUR: 2.5% • CHF: 0.3% • JPY: 0.8% • Others: 2.2% Impact of a 10% currency appreciation vs. USD on group operating income2: • EUR: 3.1% • CHF: -4.1% • J
Slide 28: Main Factors of Change in IFRS Rules
Main Factors of Change in IFRS Rules In USD m Pro forma impact in 2004 Discontinuation of goodwill amortization + Capitalization of intangibles + Expensing of share based compensation - Group Operating Income - Impact of IFRS changes on associated + companies Tax impact + /- Group Net Income - 55 FR