Core Non-Operating Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2017
|
|
Year ended
Dec 31, 2016
|
|
Change in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Core operating income
|
|
|
12,850
|
|
|
12,987
|
|
|
(1
|
)
|
|
0
|
|
Core income from associated companies
|
|
|
1,335
|
|
|
1,134
|
|
|
18
|
|
|
18
|
|
Core interest expense
|
|
|
(777
|
)
|
|
(707
|
)
|
|
(10
|
)
|
|
(12
|
)
|
Core other financial income and expense
|
|
|
39
|
|
|
(99
|
)
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core income before taxes
|
|
|
13,447
|
|
|
13,315
|
|
|
1
|
|
|
2
|
|
Core taxes
|
|
|
(2,056
|
)
|
|
(2,001
|
)
|
|
(3
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income
|
|
|
11,391
|
|
|
11,314
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core basic EPS ($)
|
|
|
4.86
|
|
|
4.75
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
Table of Contents
Core Income from associated companies
Core income from associated companies increased to $1.3 billion from $1.1 billion in the prior-year period. The core income
contribution from GSK Consumer Healthcare Holdings Ltd., increased to $479 million in 2017 from $369 million in the prior-year period, and the core income contribution from Roche
increased to $832 million from $760 million.
Core Interest Expense and other financial income and expense
Core other financial income and expense amounted to a net income of $39 million, compared to an expense of $99 million in 2016,
mainly on account of lower currency losses. In the prior year, the exceptional charges of $0.3 billion related to Venezuela were excluded from the 2016 core other financial expense.
Core Taxes
The core tax rate (core taxes as a percentage of core pre-tax income) increased to 15.3% from 15.0% in the prior year.
Core Net Income
Core net income was $11.4 billion (+1%, +2% cc), benefiting from higher core income from associated companies.
Core EPS
Core earnings per share were $4.86 (+2%, +3% cc), reflecting the benefit of our share buyback program.
121
Table of Contents
2016 Compared to 2015
Key figures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
|
|
Change in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Net sales to third parties from continuing operations
|
|
|
48,518
|
|
|
49,414
|
|
|
(2
|
)
|
|
0
|
|
Sales to discontinued operations
|
|
|
|
|
|
26
|
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from continuing operations
|
|
|
48,518
|
|
|
49,440
|
|
|
(2
|
)
|
|
0
|
|
Other revenues
|
|
|
918
|
|
|
947
|
|
|
(3
|
)
|
|
(3
|
)
|
Cost of goods sold
|
|
|
(17,520
|
)
|
|
(17,404
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations
|
|
|
31,916
|
|
|
32,983
|
|
|
(3
|
)
|
|
(1
|
)
|
Marketing & Sales
|
|
|
(11,998
|
)
|
|
(11,772
|
)
|
|
(2
|
)
|
|
(4
|
)
|
Research & Development
|
|
|
(9,039
|
)
|
|
(8,935
|
)
|
|
(1
|
)
|
|
(2
|
)
|
General & Administration
|
|
|
(2,194
|
)
|
|
(2,475
|
)
|
|
11
|
|
|
8
|
|
Other income
|
|
|
1,927
|
|
|
2,049
|
|
|
(6
|
)
|
|
(5
|
)
|
Other expense
|
|
|
(2,344
|
)
|
|
(2,873
|
)
|
|
18
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
8,268
|
|
|
8,977
|
|
|
(8
|
)
|
|
(3
|
)
|
Return on net sales (%)
|
|
|
17.0
|
|
|
18.2
|
|
|
|
|
|
|
|
Income from associated companies
|
|
|
703
|
|
|
266
|
|
|
164
|
|
|
164
|
|
Interest expense
|
|
|
(707
|
)
|
|
(655
|
)
|
|
(8
|
)
|
|
(10
|
)
|
Other financial income and expense
|
|
|
(447
|
)
|
|
(454
|
)
|
|
2
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes from continuing operations
|
|
|
7,817
|
|
|
8,134
|
|
|
(4
|
)
|
|
2
|
|
Taxes
|
|
|
(1,119
|
)
|
|
(1,106
|
)
|
|
(1
|
)
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
6,698
|
|
|
7,028
|
|
|
(5
|
)
|
|
1
|
|
Net income from discontinued operations
|
|
|
|
|
|
10,766
|
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,698
|
|
|
17,794
|
|
|
(62
|
)
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Novartis AG
|
|
|
6,712
|
|
|
17,783
|
|
|
(62
|
)
|
|
(59
|
)
|
Non-controlling interests
|
|
|
(14
|
)
|
|
11
|
|
|
nm
|
|
|
nm
|
|
Basic earnings per share ($) from continuing operations
|
|
|
2.82
|
|
|
2.92
|
|
|
(3
|
)
|
|
2
|
|
Basic earnings per share ($) from discontinued operations
|
|
|
|
|
|
4.48
|
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings per share ($)
|
|
|
2.82
|
|
|
7.40
|
|
|
(62
|
)
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow from continuing operations
|
|
|
9,455
|
|
|
9,259
|
|
|
2
|
|
|
|
|
Free cash flow
|
|
|
9,455
|
|
|
9,029
|
|
|
5
|
|
|
|
|
Group overview
Novartis delivered solid results in 2016, countering much of the effects of the loss of US patent protection during the year for our pioneering
leukemia drug,
Gleevec
. This underscores the strength of our pipeline and our ability in recent years to renew our product portfolio and control costs
to manage through important patent expirations.
Gleevec
follows
Diovan
, which lost exclusivity in 2011
in the EU and in 2012 in the US.
Our
Innovative Medicines and Sandoz Divisions performed well under challenging circumstances. We were not successful in returning Alcon to growth in 2016, although we have begun to see
the first results from the growth plan implemented during the year.
122
Table of Contents
Net sales for Novartis in 2016 were $48.5 billion, down 2% in reported terms, but flat measured in constant currencies (cc) to remove the impact of
fluctuations in exchange rates. While volumes grew 6 percentage points, that was offset by the negative impacts of 4 percentage points due to generic competition and 2 percentage
points from lower prices.
We
continued to face headwinds in 2016 from currency fluctuations, with the rising value of the dollar adversely affecting our reported sales and income. This continues a trend we have
seen for several years, particularly in 2015 when currency fluctuations had a negative 10% impact on sales. To help investors assess the impact of exchange rates on our performance, we also indicate
growth rates in constant currencies.
In
2016, our growth products
1
contributed $17.1 billion, or 35% of net sales. These include
Gilenya
for multiple
sclerosis, up 14% (cc) to $3.1 billion;
Cosentyx
for psoriasis and two other immune-related illnesses, which reached blockbuster status with
sales of $1.1 billion;
Jakavi
for blood cancer, up 45% to
$581 million; and the combination cancer therapy
Tafinlar + Mekinist
, acquired from GSK during 2015 ($672 million).
Biopharmaceutical
products from Sandoz also continued to be a bright spot, rising 31% (cc) to $1.0 billion.
Sales
of heart failure drug
Entresto
grew steadily during the year and totaled $170 million. We continued to increase our
investment in its launch, devoting additional resources during the year to educating doctors and patients about its benefits.
Operating
income in 2016 was $8.3 billion (8%, 3% cc), down mainly due to the effects of patent expirations and increased investments related to
new product launches, including
Entresto
and
Cosentyx
, and the Alcon growth plan.
Net
income from continuing operations was $6.7 billion, down 5% in reported terms, but up 1% in constant currencies, due to higher income from associated companies.
Basic
earnings per share from continuing operations were $2.82 (3%, +2% cc), up more than net income due to a reduction in the average number of shares outstanding.
Free
cash flow from continuing operations was $9.5 billion, up 2%, reflecting lower net investment in property, plant and equipment.
For
the total Group, net income amounted to $6.7 billion in 2016 compared to $17.8 billion in 2015. The prior year benefitted from the $10.8 billion net income from
discontinued operations, which included $12.7 billion of exceptional pre-tax divestment gains and the operational results of the divested businesses until the respective dates of completion of
the transactions. For more information on discontinued operations, see "Factors Affecting Comparability of Year-on Year Results of Operations" below and "Note 29. Discontinued
operations" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
Basic
earnings per share decreased to $2.82 from $7.40 in the prior year.
Free
cash flow for the total Group amounted to $9.5 billion in 2016 compared to $9.0 billion in 2015. The prior year included a negative free cash flow of approximately
$0.3 billion from discontinued operations.
-
1
-
"Growth products" are an indicator of the rejuvenation of the portfolio, and comprise products launched in a key
market (EU, US, Japan) in 2011 or later, or products with exclusivity in key markets until at least 2020 (except Sandoz, which includes only products launched in the last 24 months). They
include the acquisition effect of the GSK oncology assets.
123
Table of Contents
Productivity
Efforts to improve productivity are delivering results. Novartis Business Services (NBS), our shared services organization, continued to
leverage the global scale of Novartis to streamline and consolidate our operations. For example, we reduced the number of information
technology applications we use, consolidated facilities services from more than 100 suppliers to just three, and initiated the standardization of infrastructure services at selected manufacturing
sites, among other steps. In addition, NBS continued to optimize its footprint through selective offshoring to five global service centers.
NBS,
as well as our newly created Global Drug Development (GDD) organization and global Novartis Technical Operations (NTO) group, will continue to drive the pursuit of greater
efficiency and effectiveness. We anticipate that the benefits of the new GDD and NTO organizations will yield more than $1 billion in annual cost savings by 2020.
Net Sales by Segment
The following table provides an overview of net sales to third parties by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31,
2016
|
|
Year ended
Dec 31,
2015
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Innovative Medicines
(1)(2)
|
|
|
32,562
|
|
|
33,345
|
|
|
(2
|
)
|
|
0
|
|
Sandoz
(2)
|
|
|
10,144
|
|
|
10,070
|
|
|
1
|
|
|
2
|
|
Alcon
(2)
|
|
|
5,812
|
|
|
5,999
|
|
|
(3
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to third parties from continuing operations
|
|
|
48,518
|
|
|
49,414
|
|
|
(2
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Formerly
named the Pharmaceuticals Division
-
(2)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
Innovative Medicines
Innovative Medicines Division sales were $32.6 billion, down 2% in reported terms, but in line with the prior year in constant currencies
(cc). A 7% increase in volume was offset by the impact of generic competition (6 percentage points) and price declines (1 percentage point).
Sales
performance varied by geography. Sales in Europe were $11.2 billion, up 7% in constant currencies, and reached $8.1 billion in emerging growth markets, up 6% (cc). In
the US, sales declined 8% (cc) to $10.9 billion, mainly due to generic competition for
Gleevec
following loss of patent protection there
in February. And in Japan, sales declined 10% (cc), due to generic competition and divestments.
Growth
products contributed $14.8 billion, up 24% in constant currencies. These productswhich include
Gilenya
,
Cosentyx
,
Entresto
,
Tasigna
,
Jakavi
, and the combination of
Tafinlar
+
Mekinist
represented 45% of net sales, compared to 37% in 2015.
Novartis Pharmaceuticals Business Unit
Ophthalmology
Sales in Ophthalmology were $5.5 billion (8%, 6% cc), primarily reflecting declines in
Lucentis
(11%, 8% cc),
which continues to see increasing competitive pressure in Japan and some European countries.
124
Table of Contents
Neuroscience
Neuroscience sales were $3.7 billion (+1%, +2% cc), with increases for
Gilenya
(+12%,
+14% cc) being offset by lower sales of
Exelon
and
Exelon
Patch (39%,
39% cc), due to generic competition for
Exelon
Patch in the US and EU.
Immunology and Dermatology
Sales in Immunology and Dermatology reached $3.0 billion (+41%, +44% cc). Sales of
Cosentyx
continued to accelerate, reaching
$1.1 billion, versus $261 million in 2015. Gains for
Ilaris
(+20%, +22% cc) also helped offset declines in other products due to generic competition.
Respiratory
Respiratory sales were $1.5 billion (+11%, +15% cc). Our portfolio of drugs for chronic obstructive pulmonary disease
(COPD)including
Onbrez Breezhaler
/
Arcapta Neohaler
,
Seebri
Breezhaler
and
Ultibro Breezhaler
achieved sales of $655 million (+14%, +16% cc). Sales of
Xolair,
the first biologic
drug approved for moderate-to-severe allergic asthma, reached $835 million (+11%, +15% cc), including as a treatment
for chronic hives.
Cardio-Metabolic
Sales for the franchise were $1.4 billion (+19%, +20% cc).
Entresto
which has
been launched in more than 30 countries and benefited from a strong endorsement in updated clinical practice guidelines in the US and EUcontinued to grow steadily and sales reached
$170 million, up from $21 million in 2015.
Galvus
sales were $1.2 billion (+5%, +6% cc).
Established Medicines
Established medicines such as
Diovan
($1.1 billion, 13% cc) and
Exforge
($926 million, 8% cc) continued to see declines due to generic competition.
Novartis Oncology business unit
Oncology sales were $12.8 billion (4%, 2% cc), nearly even with the prior year, despite declining sales
of
Gleevec
/
Glivec
(29%, 28% cc) due to generic competition in the US.
That decline was largely offset by growth in other products. Products showing growth included the
combination therapy
Tafinlar
+
Mekinist
($672 million);
Votrient
($729 million);
Promacta/Revolade
($635 million); and
Jakavi
, up 45% (cc) to $581 million.
125
Table of Contents
TOP 20 INNOVATIVE MEDICINES DIVISION
(1)
PRODUCT NET SALES2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
Rest of world
|
|
Total
|
|
Brands
|
|
Business
Franchise
|
|
Indication
|
|
$ m
|
|
% change
in
constant
currencies
|
|
$ m
|
|
% change
in
constant
currencies
|
|
$ m
|
|
% change
in $
|
|
% change
in
constant
currencies
|
|
Gleevec/Glivec
|
|
Oncology
|
|
Chronic myeloid leukemia and GIST
|
|
|
1,214
|
|
|
(52
|
)
|
|
2,109
|
|
|
1
|
|
|
3,323
|
|
|
(29
|
)
|
|
(28
|
)
|
Gilenya
|
|
Neuroscience
|
|
Relapsing multiple sclerosis
|
|
|
1,683
|
|
|
12
|
|
|
1,426
|
|
|
15
|
|
|
3,109
|
|
|
12
|
|
|
14
|
|
Lucentis
|
|
Ophthalmology
|
|
Age-related macular degeneration
|
|
|
|
|
|
|
|
|
1,835
|
|
|
(8
|
)
|
|
1,835
|
|
|
(11
|
)
|
|
(8
|
)
|
Tasigna
|
|
Oncology
|
|
Chronic myeloid leukemia
|
|
|
722
|
|
|
9
|
|
|
1,017
|
|
|
10
|
|
|
1,739
|
|
|
7
|
|
|
10
|
|
Sandostatin
|
|
Oncology
|
|
Carcinoid tumors and Acromegaly
|
|
|
853
|
|
|
4
|
|
|
793
|
|
|
3
|
|
|
1,646
|
|
|
1
|
|
|
3
|
|
Afinitor/Votubia
|
|
Oncology
|
|
Breast cancer / TSC
|
|
|
775
|
|
|
(13
|
)
|
|
741
|
|
|
6
|
|
|
1,516
|
|
|
(6
|
)
|
|
(5
|
)
|
Galvus
|
|
Cardio-Metabolic
|
|
Diabetes
|
|
|
|
|
|
|
|
|
1,193
|
|
|
6
|
|
|
1,193
|
|
|
5
|
|
|
6
|
|
Cosentyx
|
|
Immunology and Dermatology
|
|
Psoriasis, ankylosing spondylitis and psoriatic arthritis
|
|
|
765
|
|
|
nm
|
|
|
363
|
|
|
nm
|
|
|
1,128
|
|
|
nm
|
|
|
nm
|
|
Diovan/Co-Diovan
|
|
Established Medicines
|
|
Hypertension
|
|
|
147
|
|
|
(42
|
)
|
|
926
|
|
|
(6
|
)
|
|
1,073
|
|
|
(16
|
)
|
|
(13
|
)
|
Exjade/Jadenu
|
|
Oncology
|
|
Chronic iron overload
|
|
|
447
|
|
|
22
|
|
|
509
|
|
|
(6
|
)
|
|
956
|
|
|
4
|
|
|
6
|
|
Exforge
|
|
Established Medicines
|
|
Hypertension
|
|
|
10
|
|
|
(85
|
)
|
|
916
|
|
|
(3
|
)
|
|
926
|
|
|
(12
|
)
|
|
(8
|
)
|
Xolair
(2)
|
|
Respiratory
|
|
Asthma
|
|
|
|
|
|
|
|
|
835
|
|
|
15
|
|
|
835
|
|
|
11
|
|
|
15
|
|
Votrient
|
|
Oncology
|
|
Renal cell carcinoma
|
|
|
357
|
|
|
nm
|
|
|
372
|
|
|
nm
|
|
|
729
|
|
|
nm
|
|
|
nm
|
|
Tafinlar/Mekinist
|
|
Oncology
|
|
Melanoma
|
|
|
298
|
|
|
nm
|
|
|
374
|
|
|
nm
|
|
|
672
|
|
|
nm
|
|
|
nm
|
|
Promacta/Revolade
|
|
Oncology
|
|
Immune thrombocytopenic purpura
|
|
|
310
|
|
|
nm
|
|
|
325
|
|
|
nm
|
|
|
635
|
|
|
nm
|
|
|
nm
|
|
Travoprost Group
|
|
Ophthalmology
|
|
Reduction of elevated intraocular pressure
|
|
|
211
|
|
|
6
|
|
|
408
|
|
|
(5
|
)
|
|
619
|
|
|
(2
|
)
|
|
(1
|
)
|
Jakavi
|
|
Oncology
|
|
Myelofibrosis
|
|
|
|
|
|
|
|
|
581
|
|
|
45
|
|
|
581
|
|
|
42
|
|
|
45
|
|
Voltaren/Cataflam
|
|
Established Medicines
|
|
Inflammation/pain
|
|
|
|
|
|
|
|
|
525
|
|
|
1
|
|
|
525
|
|
|
(6
|
)
|
|
1
|
|
Neoral/Sandimmun(e)
|
|
Immunology and Dermatology
|
|
Transplantation
|
|
|
41
|
|
|
(13
|
)
|
|
474
|
|
|
(9
|
)
|
|
515
|
|
|
(10
|
)
|
|
(9
|
)
|
Exelon/Exelon
Patch
|
|
Neuroscience
|
|
Alzheimer's disease
|
|
|
90
|
|
|
(74
|
)
|
|
354
|
|
|
(8
|
)
|
|
444
|
|
|
(39
|
)
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top 20 products total
|
|
|
|
|
|
|
7,923
|
|
|
(8
|
)
|
|
16,076
|
|
|
7
|
|
|
23,999
|
|
|
0
|
|
|
2
|
|
Rest of portfolio
|
|
|
|
|
|
|
2,974
|
|
|
(7
|
)
|
|
5,589
|
|
|
(4
|
)
|
|
8,563
|
|
|
(8
|
)
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Division sales
|
|
|
|
|
|
|
10,897
|
|
|
(8
|
)
|
|
21,665
|
|
|
4
|
|
|
32,562
|
|
|
(2
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Formerly
named the Pharmaceuticals Division.
-
(2)
-
Net
sales reflect
Xolair
sales for all indications (e.g. including
Xolair
SAA and
Xolair
CSU, which is
managed by the Immunology and Dermatology franchise).
nm = not meaningful
Gleevec/Glivec
($3.3 billion, 28% cc) is a kinase inhibitor approved as a targeted therapy for Philadelphia
chromosome-positive (Ph+) chronic myeloid leukemia (CML) and to treat patients with metastatic and/or unresectable KIT (CD117) positive (KIT+) gastrointestinal stromal tumors (GIST), as an adjuvant
treatment for certain adult patients following resection of KIT+ GIST. First launched in 2001,
Gleevec/Glivec
is approved in more than 110 countries.
Gleevec/Glivec
is also approved in the US, EU and Japan to treat Ph+ acute lymphoblastic leukemia, a rapidly progressive form of leukemia. In addition,
Gleevec/Glivec
is approved in the US and EU to treat dermatofibrosarcoma protuberans, a rare solid
126
Table of Contents
tumor;
hypereosinophilic syndrome; myelodysplastic/myeloproliferative diseases and other rare blood disorders. In the US,
Gleevec
is also approved for
aggressive systemic mastocytosis.
Gleevec/Glivec
has received approvals in more than 80 countries as a post-surgery (adjuvant setting) therapy for
certain adult patients with KIT+ GIST. Following approval by the FDA in 2013, the EMA approved
Gleevec
/
Glivec
in July 2013 for pediatric patients with
newly diagnosed Ph+ acute lymphoblastic leukemia
in combination with chemotherapy.
Gilenya
($3.1 billion, +14% cc) is the first oral therapy approved to treat relapsing forms of multiple sclerosis (RMS) and the
first in a new class of compounds called sphingosine 1-phosphate receptor modulators. In the US,
Gilenya
is indicated for relapsing forms of MS. In the
EU,
Gilenya
is indicated for adult patients with high disease activity despite treatment with at least one disease modifying agent, or rapidly evolving
severe relapsing-remitting MS.
Gilenya
impacts four key measures of disease
activity: relapses, MRI lesions, brain shrinkage (brain volume loss) and disability progression. Its effectiveness on all of these measures has been consistently shown in multiple controlled clinical
studies and in the real-world setting. As of November 2016, more than 180,000 patients have been treated in clinical trials and in a post-marketing setting, with more than 395,000 total patient-years
of exposure.
Gilenya
is currently approved in more than 80 countries around the world.
Gilenya
is
licensed from Mitsubishi Tanabe Pharma Corporation.
Lucentis
($1.8 billion, 8% cc) is a recombinant humanized high affinity antibody fragment that binds to vascular
endothelial growth factor A (VEGF-A), a key mediator of intraocular neovascularization. Approved in 2006 as the first anti-VEGF for ocular use Lucentis revolutionized the therapy for patients with
neovascular age related macular degeneration (nAMD). Today Lucentis is licensed for six ocular indications: nAMD, visual impairment due to diabetic macular edema (DME), visual impairment due to
macular edema secondary to branch retinal vein occlusion (BRVO), visual impairment due to macular edema secondary to central retinal vein occlusion (CRVO), visual impairment due to choroidal
neovascularization secondary to pathologic myopia (myopic CNV) and visual impairment due to choroidal neovascularization secondary to other pathologies. Approval of the sixth indication was received
in Europe in November 2016, and submissions have been filed in 22 other countries, including Switzerland, Australia, Indonesia and Brazil. Lucentis is the only treatment available for a wide range of
CNV conditions confirming it in diseases of the retina. The label of
Lucentis
was updated in September 2014 allowing flexible treatment (including a
treat and extent regimen) already in the first year of therapy. In April 2016 the label of
Lucentis
was further updated to include the treatment of RVO
patients with retinal ischemia. In November 2016, the EMA approved
Lucentis
to treat patients with visual impairment due to choroidal neovascularization
(CNV) associated with causes other than neovascular age-related macular degeneration or myopic CNV.
Lucentis
is the only anti-VEGF treatment available
in a pre-filled syringe and approved for a treat and extend regimen in the first year of therapy. Since its launch in 2007, there have been more than 4.3 million patient-treatment years of
exposure for
Lucentis
and more than 26.8 million injections. Novartis licensed
Lucentis
from
Genentech for development and commercialization outside of the US.
Tasigna
($1.7 billion, +10% cc) is a signal transduction inhibitor of the BCR-ABL tyrosine kinase. Since its launch in 2007,
Tasigna
has been approved in more than
125 countries to treat patients with Ph+ CML in the chronic and/or accelerated phase who are resistant or
intolerant to existing treatment, including
Gleevec/Glivec
. It is also approved in more than 120 markets, including the US, EU member states,
Switzerland and Japan, to treat newly diagnosed patients in the chronic phase.
Sandostatin
($1.6 billion, +3% cc) is a somatostatin analogue indicated for the treatment of patients with acromegaly, a chronic
disease caused by over-secretion of pituitary growth hormone in adults.
Sandostatin
is also indicated for the treatment of patients with certain
symptoms associated with carcinoid tumors and other types of gastrointestinal and pancreatic neuroendocrine tumors. Additionally,
Sandostatin LAR
is
approved in more than 60 countries for treatment of patients with advanced
127
Table of Contents
neuroendocrine
tumors of the midgut or unknown primary tumor location.
Sandostatin
was first launched in 1988 and is approved in more than 100
countries.
Afinitor/Votubia
($1.5 billion, 5% cc) is an oral inhibitor of the mTOR pathway.
Afinitor
is approved in more than 120 countries including the US, EU member
states and Japan for patients with advanced renal cell carcinoma following
vascular endothelial growth factor-targeted therapy (in the US, after failure of sunitinib or sorafenib).
Afinitor
is also approved in more than 110
countries, including the US, EU member states and Japan for the treatment of locally advanced, metastatic or unresectable progressive neuroendocrine tumors (NET) of pancreatic origin. Afinitor was
approved in the US in February and the EU in June for the treatment of patients with progressive, well-differentiated, nonfunctional NET of gastrointestinal or lung origin that are unresectable,
locally advanced or metastatic, and is approved for this indication in more than 40 countries worldwide. In addition,
Afinitor
is approved in more than
110 countries for hormone receptor-positive advanced breast cancer in combination with an aromatase inhibitor, after prior endocrine therapy. Everolimus, under the trade name
Afinitor
in the US and
Votubia
in the EU, is also approved in more than 95 countries to treat patients
with tuberous sclerosis complex (TSC) who have subependymal giant cell astrocytoma not requiring immediate surgery, and in more than 90 countries to treat patients with TSC who have renal
angiomyolipoma not requiring immediate surgery. A dispersible tablet for oral suspension formulation is approved for patients with TSC who have SEGA in more than 40 countries including the US (under
the trade name
Afinitor Disperz
), EU member states (under the trade name
Votubia
) and Japan (under the
trade name
Afinitor
). Everolimus, the active ingredient in
Afinitor
, is also available under the trade
names
Zortress/Certican
for use in transplantation in the US and EU, respectively, and is exclusively licensed to Abbott and sublicensed to Boston
Scientific for use in drug-eluting stents.
Galvus
Group ($1.2 billion, +6% cc), includes
Galvus
, an oral treatment for
type 2 diabetes, and
Eucreas
, a single-pill combination of vildagliptin (the active ingredient in
Galvus
) and metformin. The products were first
approved in 2007.
Galvus
is currently approved in more
than 130 countries, including EU member states, Japan (as
Equa
) and countries in Latin America and Asia-Pacific.
Eucreas
was the first single-pill
combination of a DPP-4 inhibitor and metformin approved in Europe, and also under the trade name
Galvus Met
, and is currently approved in more than 125 countries. In 2012,
Galvus
received EU approval
for expanded use as a second-line monotherapy for type 2 diabetes patients who cannot take metformin. In 2012, the EC approved the use of
Galvus
and
Eucreas
in combination with other diabetes treatments. The first approval was for the use of vildagliptin in combination with insulin, with or
without metformin, for patients with type 2 diabetes when diet, exercise and a stable dose of insulin do not result in glycemic control. The second approval was for the use of vildagliptin in
triple combination with metformin and a sulphonylurea for the treatment of type 2 diabetes when diet and exercise plus dual therapy with these two agents do not provide adequate glycemic
control.
Galvus
monotherapy indication was approved in China in April 2015.
Eucreas
was approved in
Japan in September 2015 under the name
Equmet
as the first single-pill combination metformin/DPP-4 inhibitor approved in that country.
Cosentyx
($1.1 billion) is a fully human monoclonal antibody that selectively neutralizes circulating interleukin 17A (IL-17A).
Cosentyx
has been approved in over
75 markets, including the US and countries of the EU, for the treatment of moderate-to-severe plaque psoriasis.
Cosentyx
is also approved in the EU for the treatment of adults with ankylosing
spondylitis who have responded inadequately to conventional therapy,
such as non-steroidal anti-inflammatory drugs, and for the treatment of active psoriatic arthritis in adults when the response to disease modifying anti-rheumatic drug therapy is unsatisfactory. In
January 2016,
Cosentyx
was approved in the US for the treatment of adults with active ankylosing spondylitis and for the treatment of adults with active
psoriatic arthritis.
Cosentyx
is approved in more than 65 countries for the treatment of adults with ankylosing spondylitis and psoriatic arthritis,
including the US, countries of the EU, Canada and Australia.
Cosentyx
is approved in Japan for the treatment of moderate-to-severe plaque psoriasis,
pustular psoriasis, and both psoriasis vulgaris and psoriatic arthritis in adults who are not adequately responding to systemic therapies (except for biologics).
128
Table of Contents
Diovan
Group ($1.1 billion, 13% cc), consisting of
Diovan
monotherapy and the combination product
Co-Diovan/Diovan
HCT, is an angiotensin II receptor blocker (ARB).
Diovan
is the only agent in its class approved
to treat all of the following: high blood pressure (including children 6 to 18 years), high-risk
heart attack survivors and patients with heart failure. First launched in 1996,
Diovan
is available in more than 120 countries for treating high blood
pressure, in more than 90 countries for heart failure, and in more than 70 countries for heart attack survivors. First launched in 1997,
Diovan
HCT/Co-Diovan
is approved in more than 100 countries worldwide.
Exjade/Jadenu
($956 million, +6% cc), is an oral iron chelator approved for the treatment of chronic iron overload due to blood
transfusions in patients two years of age and older, as well as chronic iron overload in patients with non-transfusion dependent thalassemia in patients 10 years of age and older. Patients with
chronic anemia from diseases such as thalassemia, sickle cell disease and myelodysplastic syndromes require repeated transfusions, which puts them at risk of iron overload.
Exjade
, a dispersible tablet
for oral suspension, was first approved in 2005 and is now approved in more than 100 countries, including the US, EU member
states and Japan. An oral film-coated tablet formulation that can be swallowed or crushed is approved in the US and Canada under the tradename
Jadenu
.
It was approved by EMA in 2016 under the tradename of
Exjade
. Regulatory applications have been submitted in Switzerland and other countries. In
addition to the film-coated tablet formulation, a new formulation has also been developed as granules for patients who cannot swallow tablets, using the same composition as the film-coated tablet
formulations. Regulatory applications for granules formulation have been submitted under the name
Jadenu
in the US and Japan and under the name
Exjade
in
the EU.
Exforge
Group ($926 million, 8% cc) includes two medicines approved for the treatment of hypertension:
Exforge
, a single-pill combination of the angiotensin
receptor blocker (ARB) valsartan and the calcium channel blocker amlodipine besylate; and
Exforge
HCT, a single pill combining an ARB (valsartan), calcium channel blocker (amlodipine) and a diuretic
(hydrochlorothiazide) three widely prescribed blood pressure treatments. First approved for the treatment of high blood pressure in Switzerland in 2006, and in the US and EU in 2007,
Exforge
is now
available in more than 100 countries.
Exforge
HCT was approved in the EU and the US in
2009, and is now available in more than 75 countries.
Xolair
($835 million, +15% cc) is a recombinant, DNA-derived, humanized IgG1K monoclonal antibody.
Xolair
is designed to block IgE, which limits the release of
mediators in the early and late phases of the allergic inflammatory cascade.
Xolair
is approved for the treatment of moderate-to-severe, or severe, persistent allergic asthma in more than 90 countries,
including the US since
2003, the EU since 2005, and Japan since 2009.
Xolair
is provided as lyophilized powder for resolution, and in addition as liquid formulation in a
pre-filled syringe in most European countries.
Xolair
is currently approved in the EU, Switzerland and more than 80 countries as a treatment for chronic
spontaneous urticaria (CSU)/chronic idiopathic urticaria (CIU) including approvals in the EU as add-on therapy for the treatment of CSU in adult and adolescent (12 years and above) patients
with inadequate response to H1 antihistamine treatment, and, in the US, for the treatment of adults and adolescents (12 years of age and above) with CIU who remain symptomatic despite H1
antihistamine treatment. We co-promote
Xolair
with Genentech in the US and share a portion of operating income, but we do not record any US sales.
Novartis records all sales of
Xolair
outside the US.
Votrient
($729 million) is a small molecule tyrosine kinase inhibitor that targets a number of intracellular proteins to limit
tumor growth and cell survival.
Votrient
is approved in the US for the treatment of patients with advanced renal cell carcinoma (aRCC), and in the EU
for first-line treatment of adult patients with aRCC and for patients who have received prior cytokine therapy for advanced disease. RCC is the most common type of kidney cancer in adults, and nearly
one-fifth of patients have aRCC at the time of diagnosis.
Votrient
is also indicated for the treatment of patients with advanced soft tissue sarcoma
(STS) who have received prior chemotherapy (efficacy in adipocytic STS or gastrointestinal stromal tumors has not been demonstrated). STS is a type of cancer which can arise from a wide variety of
129
Table of Contents
soft
tissues including muscle, fat, blood vessel and nerves.
Votrient
is approved in more than 100 countries worldwide for aRCC and in more than 90
countries for aSTS.
Votrient
was acquired from GSK.
Tafinlar + Mekinist
($672 million) is the first combination of its kind for the treatment of patients with BRAF V600
mutation positive unresectable or metastatic melanoma, as detected by a validated test, in the US, EU and several other markets.
Tafinlar
targets the
serine/threonine kinase BRAF in the RAS/RAF/MEK/ERK pathway and
Mekinist
targets the threonine/tyrosine kinases MEK1 and MEK2 in the MAP kinase pathway,
resulting in dual blockade of this pathway. This is the first combination of a BRAF and a MEK inhibitor to demonstrate an overall survival benefit over BRAF inhibitor monotherapy after three years in
two Phase III studies in BRAF V600 mutation positive unresectable
or metastatic melanoma patients.
Tafinlar
and
Mekinist
are each also approved as single agents for the
treatment of patients with unresectable or metastatic melanoma in more than 60 and 40 countries worldwide, respectively.
Tafinlar
and
Mekinist
were each
acquired from GSK. As part of our purchase of oncology products from GSK, we obtained the worldwide exclusive rights granted by Japan
Tobacco Inc., to develop, manufacture, and commercialize trametinib.
Promacta/Revolade
($635 million) is a once-daily oral thrombopoietin receptor agonist that works by stimulating bone marrow cells
to produce platelets. It is the only approved once-daily oral thrombopoietin receptor agonist, and is marketed under the brand name
Promacta
in the US
and
Revolade
in most countries outside the US. It is approved in more than 100 countries for the treatment of thrombocytopenia in adult patients with
chronic immune (idiopathic) thrombocytopenia (ITP) who have had an inadequate response or are intolerant to other treatments. In the US and EU,
Promacta/Revolade
is approved for patients one year and
older with chronic ITP who have had an inadequate response to other treatments.
Promacta/Revolade
may be considered as second line treatment for adult non-splenectomised patients where surgery is
contraindicated.
Promacta/Revolade
is also approved in 45 countries for the treatment of patients with severe aplastic anemia (SAA) who are refractory to other
treatments (in the US for the treatment of patients with SAA who have had an insufficient response to immunosuppressive therapy and in the EU for the treatment of adults with acquired SAA who were
either refractory to prior immunosuppressive therapy or heavily pretreated and are unsuitable for hematopoietic stem cell transplant). In addition,
Promacta/Revolade
is approved in more than 50
countries for the treatment of thrombocytopenia in patients with chronic hepatitis C to allow them to
initiate and maintain interferon-based therapy.
Promacta/Revolade
is marketed under a collaboration agreement between Ligand
Pharmaceuticals, Inc., and Novartis.
Promacta/Revolade
was acquired from GSK.
Travoprost
Group ($619 million, 1% cc), including
Travatan, Travatan Z
, and
Duotrav
, are indicated for the reduction of elevated intraocular pressure (IOP)
in patients with open-angle glaucoma or who have ocular hypertension.
Single agent travoprost products (
Travatan, Travatan Z, Travatan
BAK-Free and
Izba
) are prescribed as
first-line agents and are marketed in more than 140 countries, including the US, countries of the EU, Canada and China.
Duotrav
is a fixed-dose
combination solution of the prostaglandin analogue travoprost with the beta-blocker timolol, and is approved as a second-line treatment in adults for the reduction of IOP in patients with open-angle
glaucoma or ocular hypertension who are insufficiently responsive to topical beta-blockers or prostaglandin analogues.
Duotrav
is currently marketed in
more than 140 countries, including countries of the EU, Canada and China.
Jakavi
($581 million, +45% cc) is an oral inhibitor of the JAK1 and JAK2 tyrosine kinases. It is the first JAK inhibitor indicated
for the treatment of disease-related splenomegaly or symptoms in adult patients with primary myelofibrosis, post-polycythemia vera myelofibrosis or post-essential thrombocythemia myelofibrosis and
adult patients with polycythemia vera who are resistant to or intolerant of hydroxyurea
. Jakavi
is currently approved in more than 100 countries for
patients with myelofibrosis and in more than 65 countries for patients with polycythemia vera, including EU member states and Japan. A five year follow-up of the two pivotal trials, COMFORT-I and
COMFORT-II suggests an overall survival advantage for patients randomized to
Jakavi
compared to placebo or best available therapy, respectively.
Novartis licensed ruxolitinib from Incyte Corporation for development and
130
Table of Contents
commercialization
in the indications of oncology, hematology and Graft-versus-host disease outside the US. Ruxolitinib, marketed in the US as Jakafi® by Incyte Corporation, is approved by
the FDA for the treatment of patients with polycythemia vera who have had an inadequate response to or are intolerant of hydroxyurea. Jakafi® is also approved by the FDA for treatment of
patients with intermediate or high-risk myelofibrosis, including primary myelofibrosis, post-polycythemia vera myelofibrosis and post-essential thrombocythemia myelofibrosis.
Voltaren/Cataflam
($525 million, +1% cc) is a leading non-steroidal anti-inflammatory drug (NSAID) for the relief of symptoms in
rheumatic diseases such as rheumatoid arthritis and osteoarthritis, and for various other inflammatory and pain conditions.
Voltaren/Cataflam
was first
registered in 1973 and is available in more than 140 countries. This product is marketed by the Innovative Medicines Division in a wide variety of dosage forms including tablets, drops, suppositories,
ampoules and topical therapy. Our Sandoz Division also markets generic versions of the product in various countries. In addition, we have licensed the
Voltaren
trademarks to our consumer healthcare
joint venture with GSK to be used in the marketing of low dose oral forms and the topical forms of
Voltaren
as over-the-counter products.
Neoral/Sandimmun(e)
($515 million, 9% cc) is an immunosuppressant to prevent organ rejection following a kidney,
liver, or heart transplant.
Neoral
is also approved for use in lung transplant in many countries outside of the US. This micro-emulsion formulation of
cyclosporine is also indicated for treating selected autoimmune disorders such as psoriasis and rheumatoid arthritis. First launched in 1995,
Neoral
is
marketed in approximately 100 countries.
Exelon/Exelon
Patch ($444 million, 39% cc) are cholinesterase inhibitors indicated for the treatment of
Alzheimer's disease (AD) dementia and Parkinson's disease (PD) dementia. They are the oral and transdermal formulations, respectively, of the cholinesterase inhibitor rivastigmine.
Exelon
capsules have
been available since 1997 to treat mild to moderate AD dementia and are approved in more than 85 countries. In 2006,
Exelon
became the only cholinesterase inhibitor to be approved for mild to moderate
PD dementia in addition to AD in both the US and EU.
Exelon
Patch was approved in 2007 in the US and EU and has been approved for the treatment of mild-to-moderate AD in more than 85 countries,
including
more than 20 countries where it is also approved for Parkinson's disease dementia. The once-daily formulation
Exelon
Patch has shown comparable efficacy
and superior tolerability to the highest recommended doses of
Exelon
capsules, with significant improvement in cognition and overall functioning
compared to placebo. In 2013, the FDA expanded the approved indication for
Exelon
Patch to also include the treatment of patients with severe
Alzheimer's disease. In 2013, European Marketing Authorization was obtained for the higher dose in mild-to-moderate AD. The higher dose has been approved in more than 50 countries. The severe
indication has now been approved in more than 10 countries.
Sandoz
Sandoz net sales in 2016 were $10.1 billion (+1%, +2% in constant currencies, or cc), with strong performance particularly in
biopharmaceuticals (+31% cc). An 8 percentage-point increase in volume more than offset the negative 6 percentage-point effect of price erosion. Sales rose in Central and Eastern Europe
(+7% cc), Western Europe (+3% cc), the US (+1% cc), Latin America (+11% cc), and the Middle East and Africa (+6% cc). Sales in Asia Pacific were comparable to the prior year (cc).
131
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
(1)
|
|
Change
in $
|
|
Constant
currencies
change
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Retail Generics
|
|
|
8,623
|
|
|
8,718
|
|
|
(1
|
)
|
|
1
|
|
Biopharmaceuticals
|
|
|
1,002
|
|
|
772
|
|
|
30
|
|
|
31
|
|
Anti-Infectives (Partner label/API)
|
|
|
519
|
|
|
580
|
|
|
(11
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,144
|
|
|
10,070
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
Retail Generics
Sandoz markets active ingredients, intermediates and finished dosage forms of pharmaceuticals. The Retail Generics franchise includes products
in the therapeutic areas of dermatology, respiratory, oncology, transplantation and ophthalmics, plus finished dosage forms of anti-infectives sold under the Sandoz name. Franchise sales reached
$8.6 billion (+1% cc).
Biopharmaceuticals
Sandoz markets protein- and other biotechnology-based products called biosimilars, as well as
Glatopa,
which treats a relapsing form of
multiple sclerosis. Global sales of biopharmaceuticals grew 31% (cc) to $1.0 billion, benefiting
from the US launches in 2015 of
Glatopa
and
Zarxio
, and the continued strong growth of other products
already on the market.
Anti-Infectives
Sandoz sells pharmaceutical ingredients and intermediates (mainly antibiotics) under the Sandoz name and to third-party customers.
Anti-infectives sold to third parties for sale under their own name were $519 million, down 10% (cc), because some low-margin products were
discontinued and also due to a weak flu season in the first quarter of 2016. Total Anti-Infectives sales were $1.4 billion, down 2% (cc), and included sales of finished dosage forms sold under
the Sandoz name of $860 million, up 4% (cc).
Alcon
Alcon implemented a growth plan in 2016 with emphasis on three areas: accelerating innovation and sales, strengthening customer relationships,
and improving operations. Alcon launched new products during the year, including the
CyPass
Micro-Stent to treat glaucoma, the
NGENUITY
3D Visualization
System for retinal surgery, and a multifocal version of its innovative
Dailies
Total1
contact lenses. Increased advertising and promotion for contact lenses helped return that segment to growth after several weak quarters.
Alcon
net sales in 2016 were $5.8 billion (3%, 2% in constant currencies, or cc).
132
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
(1)
|
|
Change
in $
|
|
Constant
currencies
change
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Surgical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cataract products
|
|
|
2,695
|
|
|
2,853
|
|
|
(6
|
)
|
|
(3
|
)
|
of which IOLs
|
|
|
986
|
|
|
1,099
|
|
|
(10
|
)
|
|
(7
|
)
|
Vitreoretinal products
|
|
|
616
|
|
|
594
|
|
|
4
|
|
|
4
|
|
Refractive/other
|
|
|
207
|
|
|
251
|
|
|
(18
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,518
|
|
|
3,698
|
|
|
(5
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact lenses
|
|
|
1,762
|
|
|
1,743
|
|
|
1
|
|
|
2
|
|
Contact lens care
|
|
|
532
|
|
|
558
|
|
|
(5
|
)
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,294
|
|
|
2,301
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
5,812
|
|
|
5,999
|
|
|
(3
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
Surgical
Surgical sales declined 3% (cc) to $3.5 billion, mainly due to weaker performance of intraocular lenses, which faced competitive
pressures, and slowing equipment sales (primarily
LenSx
for cataract surgery and
Wavelight
for
refractive surgery, which have reached high penetration in their market segments). Those factors were partially offset by continued solid growth in sales of cataract disposable surgical supplies (4%
cc). The Surgical business is making progress, improving service and supply levels in 2016 and laying the foundation for a return to growth.
Vision Care
Vision Care sales were flat in constant currencies at $2.3 billion. Growth in contact lenses offset a decline in contact lens care
products. Increased advertising and promotion behind key brands helped return the contact lens segment to growth after several weak quarters.
Dailies
Total1
, the first and only water-gradient lens, was the key driver.
Operating Income from Continuing Operations
The following table provides an overview of operating income by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
% of net
sales
|
|
Year ended
Dec 31, 2015
|
|
% of
net sales
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
|
|
$ m
|
|
|
|
%
|
|
%
|
|
Innovative Medicines
(1)(2)
|
|
|
7,426
|
|
|
22.8
|
|
|
7,815
|
|
|
23.4
|
|
|
(5
|
)
|
|
0
|
|
Sandoz
(2)
|
|
|
1,445
|
|
|
14.2
|
|
|
1,300
|
|
|
12.9
|
|
|
11
|
|
|
14
|
|
Alcon
(2)
|
|
|
(132
|
)
|
|
(2.3
|
)
|
|
281
|
|
|
4.7
|
|
|
nm
|
|
|
nm
|
|
Corporate
|
|
|
(471
|
)
|
|
|
|
|
(419
|
)
|
|
|
|
|
(12
|
)
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
8,268
|
|
|
17.0
|
|
|
8,977
|
|
|
18.2
|
|
|
(8
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nm = not meaningful
-
(1)
-
Formerly
named the Pharmaceuticals Division
-
(2)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
133
Table of Contents
Operating income was $8.3 billion (8%, 3% cc), a decrease from $9.0 billion in 2015 mainly due to the loss of
exclusivity on
Gleevec
, as investments related to new product launches and the Alcon growth plan were partially offset by resource allocation and
productivity programs. The negative currency impact of 5% was due to the strong US dollar on average versus the British pound and major emerging market currencies, partially offset by the
strengthening of the Japanese yen. Operating income margin in constant currencies decreased 0.7 percentage points; currency had a negative impact of 0.5 percentage points resulting in a
decrease of 1.2 percentage points to 17.0% of net sales.
Core Operating Income key figures
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Core gross profit from continuing operations
|
|
|
35,806
|
|
|
36,900
|
|
|
(3
|
)
|
|
(1
|
)
|
Marketing & Sales
|
|
|
(11,991
|
)
|
|
(11,729
|
)
|
|
(2
|
)
|
|
(4
|
)
|
Research & Development
|
|
|
(8,402
|
)
|
|
(8,738
|
)
|
|
4
|
|
|
3
|
|
General & Administration
|
|
|
(2,120
|
)
|
|
(2,389
|
)
|
|
11
|
|
|
8
|
|
Other income
|
|
|
753
|
|
|
823
|
|
|
(9
|
)
|
|
(7
|
)
|
Other expense
|
|
|
(1,059
|
)
|
|
(1,077
|
)
|
|
2
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core operating income from continuing operations
|
|
|
12,987
|
|
|
13,790
|
|
|
(6
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As % of net sales
|
|
|
26.8
|
|
|
27.9
|
|
|
|
|
|
|
|
-
(1)
-
An
explanation of non-IFRS measures and reconciliation tables see "Non-IFRS Measures as Defined by Novartis".
The
adjustments made to operating income to arrive at core operating income from continuing operations amounted to $4.7 billion (2015: $4.8 billion) broadly in line with
the prior year.
Excluding
these items, core operating income from continuing operations decreased 6% (2% cc) to $13.0 billion. Core operating income margin in constant currencies
decreased 0.7 percentage points mainly due to the loss of exclusivity on
Gleevec
, as investments related to new product launches and the Alcon
growth plan were partially offset by resource allocation and productivity programs. Currency had a negative impact of 0.4 percentage points, resulting in a margin of 26.8% of net sales,
compared to 27.9% in 2015.
The
following table provides an overview of core operating income by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
% of
net sales
|
|
Year ended
Dec 31, 2015
|
|
% of
net sales
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
|
|
$ m
|
|
|
|
%
|
|
%
|
|
Innovative Medicines
(1)(2)
|
|
|
10,354
|
|
|
31.8
|
|
|
10,862
|
|
|
32.6
|
|
|
(5
|
)
|
|
(1
|
)
|
Sandoz
(2)
|
|
|
2,071
|
|
|
20.4
|
|
|
2,045
|
|
|
20.3
|
|
|
1
|
|
|
4
|
|
Alcon
(2)
|
|
|
850
|
|
|
14.6
|
|
|
1,235
|
|
|
20.6
|
|
|
(31
|
)
|
|
(27
|
)
|
Corporate
|
|
|
(288
|
)
|
|
|
|
|
(352
|
)
|
|
|
|
|
18
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core operating income from continuing operations
|
|
|
12,987
|
|
|
26.8
|
|
|
13,790
|
|
|
27.9
|
|
|
(6
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Formerly
named the Pharmaceuticals Division
-
(2)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
134
Table of Contents
Innovative Medicines
Operating income was $7.4 billion (5%, 0% cc).
Core
operating income, which excludes certain items, was $10.4 billion (5%, 1% cc). Core operating income margin decreased 0.2 percentage
points, mainly due to launch investments for
Entresto
and
Cosentyx
, but partially offset by productivity
improvements. Fluctuations in exchange rates had a further negative impact of 0.6 percentage points, resulting in a net decrease of 0.8 percentage points to 31.8% of net sales.
Research and development of Innovative Medicines Division
The following table provides an overview of the reported and core research and development expense of the Innovative Medicines Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
(1)
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Research and Exploratory Development
|
|
|
(2,645
|
)
|
|
(2,739
|
)
|
|
3
|
|
|
2
|
|
Confirmatory Development
|
|
|
(5,064
|
)
|
|
(4,946
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Innovative Medicines Division Research and Development expense
|
|
|
(7,709
|
)
|
|
(7,685
|
)
|
|
0
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As % of Innovative Medicines net sales to third parties
|
|
|
23.7
|
|
|
23.0
|
|
|
|
|
|
|
|
Core Research and Exploratory Development
(2)
|
|
|
(2,543
|
)
|
|
(2,663
|
)
|
|
5
|
|
|
3
|
|
Core Confirmatory Development
(2)
|
|
|
(4,569
|
)
|
|
(4,839
|
)
|
|
6
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Innovative Medicines Division Research and Development expense
|
|
|
(7,112
|
)
|
|
(7,502
|
)
|
|
5
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As % of Innovative Medicines net sales to third parties
|
|
|
21.8
|
|
|
22.5
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016
-
(2)
-
Core
excludes impairments, amortization and certain other items.
Innovative
Medicines Division Research and Exploratory Development expense amounted to $2.6 billion in 2016, a decrease of 3% (+2% cc) compared to 2015 as a result of continued
productivity efforts. Confirmatory Development expense increased by 2% (4% cc) to $5.1 billion compared to $4.9 billion in 2015, mainly driven by the impairment of
intangible assets.
Core
Research and Exploratory Development expense in the Innovative Medicines Division as percent of sales decreased by 0.8 percentage points in constant currencies as a result of
continued productivity efforts and synergies from acquired Oncology assets. This decrease was partially offset by negative
currency movements of 0.1 percentage points, resulting in a net decrease of 0.7 percentage points to 21.8% of net sales.
135
Table of Contents
Sandoz
Operating income reached $1.4 billion, up 11% (+14% cc).
Core
operating income, which excludes certain exceptional items, was $2.1 billion (+1%, +4% cc). Core operating income margin in constant currencies increased
0.2 percentage points. However, that gain was partly offset by the negative 0.1 percentage-point impact of exchange rates, yielding a result of 20.4% of net sales.
Sandoz
continued to build its portfolio of biopharmaceuticals, which now represents a $1 billion-plus business, with roughly half of that coming from the US. In 2016, our
biosimilar Erelzi (etanercept-szzs) was approved in the US to treat the same inflammatory diseases as the reference product, Amgen's Enbrel®, with its launch pending litigation. In
addition, our biosimilar
Binocrit
(epoetin alfa) was approved in the EU for a new route of administration. We are currently evaluating options for an
epoetin alfa filing in the US. Filings were accepted in the EU for our pegfilgrastim and rituximab biosimilars.
Alcon
Operating loss was $132 million, compared to an income of $281 million the year before.
Core
operating income, which excludes certain items, was $850 million (31%, 27% cc), mainly due to increased investment in research and
development, as well as higher spending on sales and marketingboth activities that were part of the Alcon growth plan. Core operating income margin in constant currencies decreased by
5.3 percentage points, and exchange rates added another 0.7 percentage points of negative impact, yielding a net decrease of 6 percentage points to 14.6% of net sales.
Corporate Income and Expense, Net
Corporate income and expense, which includes the cost of Group management and central services, amounted to a net expense of $471 million
(12%,25% cc) in 2016 compared to a net expense of $419 million in the prior year. The increase was mainly due to lower royalty and other income as well as
costs related to the execution of the initiatives announced on January 27, 2016, to further focus the divisions, centralize manufacturing and integrate drug development functions. These factors
more than offset the reduction in General & Administration expenses in 2016.
136
Table of Contents
Non-Operating Income and Expense
The following table provides an overview of non-operating income and expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Operating income from continuing operations
|
|
|
8,268
|
|
|
8,977
|
|
|
(8
|
)
|
|
(3
|
)
|
Income from associated companies
|
|
|
703
|
|
|
266
|
|
|
164
|
|
|
164
|
|
Interest expense
|
|
|
(707
|
)
|
|
(655
|
)
|
|
(8
|
)
|
|
(10
|
)
|
Other financial income and expense
|
|
|
(447
|
)
|
|
(454
|
)
|
|
2
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes from continuing operations
|
|
|
7,817
|
|
|
8,134
|
|
|
(4
|
)
|
|
2
|
|
Taxes
|
|
|
(1,119
|
)
|
|
(1,106
|
)
|
|
(1
|
)
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
6,698
|
|
|
7,028
|
|
|
(5
|
)
|
|
1
|
|
Net income from discontinued operations
|
|
|
|
|
|
10,766
|
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,698
|
|
|
17,794
|
|
|
(62
|
)
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS ($) from continuing operations
|
|
|
2.82
|
|
|
2.92
|
|
|
(3
|
)
|
|
2
|
|
Basic EPS ($) from discontinued operations
|
|
|
|
|
|
4.48
|
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic EPS ($)
|
|
|
2.82
|
|
|
7.40
|
|
|
(62
|
)
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associated companies
Income from associated companies increased to $703 million, compared to $266 million in the prior year.
The
increase was mainly due to income recognized from our investment in GSK Consumer Healthcare Holdings Ltd. of $234 million compared to a loss of $79 million
recognized in the prior year, in which the income from operations was more than offset by integration charges and an additional expense from the final purchase price allocation for the investment in
GSK. The 2016 income contribution from GSK Consumer Healthcare Holdings Ltd. includes a negative adjustment recorded in the second quarter upon the issuance of 2015 actual results.
In
addition, in 2016, we recognized an income of $464 million from our investment in Roche, which reflected our estimated share of income for 2016 of $532 million partly
offset by the adjustment for 2015 actual results. The higher contribution from Roche in 2016 was mainly due to a smaller adjustment recognized upon publication of 2015 actual results by Roche compared
to the adjustment recorded in the prior year upon publication of the 2014 actual results.
Interest Expense and other financial income and expense
Interest expense from continuing operations increased to $707 million from $655 million in the prior year due to higher
outstanding debt.
Other
financial income and expense amounted to an expense of $447 million compared to $454 million in the prior-year, mainly on account of an exceptional charge of
$305 million (2015: $410 million) related to Venezuela due to foreign exchange losses on intra-group payables as well as higher currency losses recognized in 2016.
137
Table of Contents
Taxes
The tax rate from continuing operations increased to 14.3% from 13.6% in the prior year, mainly as a result of a change in profit mix to
jurisdictions with higher tax rates.
Net Income
Net income from continuing operations was $6.7 billion (5%, +1% cc) with the increase of 1% in constant currencies compared
to the decline in operating income due to higher income from associated companies, mainly from the investment in GSK Consumer Healthcare Holdings Ltd. The current year includes
$0.3 billion (2015: $0.4 billion) exceptional charges related to Venezuela. For more information see "Effects of Currency Fluctuations".
EPS
Basic earnings per share from continuing operations was $2.82 per share (3%, +2% cc), up more than net income due to a
reduction in the average number of shares outstanding.
The
following table provides an overview of core non-operating income and expense:
Core Non-Operating Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
Dec 31, 2016
|
|
Year ended
Dec 31, 2015
|
|
Change
in $
|
|
Change in
constant
currencies
|
|
|
|
$ m
|
|
$ m
|
|
%
|
|
%
|
|
Core operating income from continuing operations
|
|
|
12,987
|
|
|
13,790
|
|
|
(6
|
)
|
|
(2
|
)
|
Core income from associated companies
|
|
|
1,134
|
|
|
981
|
|
|
16
|
|
|
16
|
|
Core interest expense
|
|
|
(707
|
)
|
|
(655
|
)
|
|
(8
|
)
|
|
(10
|
)
|
Core other financial income and expense
|
|
|
(99
|
)
|
|
(24
|
)
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core income before taxes from continuing operations
|
|
|
13,315
|
|
|
14,092
|
|
|
(6
|
)
|
|
(2
|
)
|
Core taxes
|
|
|
(2,001
|
)
|
|
(2,051
|
)
|
|
2
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income from continuing operations
|
|
|
11,314
|
|
|
12,041
|
|
|
(6
|
)
|
|
(3
|
)
|
Core net loss from discontinued operations
|
|
|
|
|
|
(256
|
)
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income
|
|
|
11,314
|
|
|
11,785
|
|
|
(4
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core basic EPS ($) from continuing operations
|
|
|
4.75
|
|
|
5.01
|
|
|
(5
|
)
|
|
(2
|
)
|
Core basic EPS ($) from discontinued operations
|
|
|
|
|
|
(0.11
|
)
|
|
nm
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core basic EPS ($)
|
|
|
4.75
|
|
|
4.90
|
|
|
(3
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Income from associated companies
Core income from associated companies increased to $1.1 billion from $981 million in the prior-year period. The increase was due
to a higher contribution from GSK Consumer Healthcare Holdings Ltd., which accounted for $369 million in 2016 compared to $213 million in prior-year period.
138
Table of Contents
Core Interest Expense and other financial income and expense
Core other financial income and expense, which excludes the exceptional charges of $0.3 billion (2015: $0.4 billion) related to
Venezuela amounted to a net expense of $99 million, compared to $24 million in 2015.
Core Taxes
The core tax rate from continuing operations (core tax as a percentage of core pre-tax income) increased to 15.0% from 14.6% in the prior year.
This increase is mainly a result of a change in core profit mix to jurisdictions with higher tax rates.
Core Net Income
Core net income from continuing operations was $11.3 billion (6%, 3% cc) and decreased 3% in constant
currencies, broadly in line with core operating income.
Core EPS
Core basic EPS from continuing operations was $4.75 (5%, 2% cc), down less than core net income due to a
reduction in the number of shares outstanding.
Discontinued Operations
|
|
|
|
|
|
|
Year ended
Dec 31, 2015
|
|
|
|
$ m
|
|
Net sales to third parties from discontinued operations
|
|
|
601
|
|
Operating income from discontinued operations
|
|
|
12,477
|
|
Net income from discontinued operations
|
|
|
10,766
|
|
Attributable to:
|
|
|
|
|
Shareholders of Novartis AG
|
|
|
10,758
|
|
Non-controlling interests
|
|
|
8
|
|
Basic earnings per share ($) from discontinued operations
|
|
|
4.48
|
|
Free cash flow from discontinued operations
|
|
|
(230
|
)
|
As
all transactions of the portfolio transformation were completed during 2015, there are no results from discontinued operations reported in the 2016 consolidated income statement. In
2015, results for discontinued operations include the operational results from the Vaccines influenza business, prior to its divestment to CSL Limited on July 31, 2015, as well as results from
the Vaccines non-influenza business and OTC until March 2, 2015. Operational results from the Animal Health business, which was divested on January 1, 2015 include only the divestment
gain.
Discontinued
operations in 2015 also include the exceptional pre-tax gains of $12.7 billion from the divestment of Animal Health ($4.6 billion), and the transactions with
GSK ($2.8 billion for the Vaccines non-influenza business and $5.9 billion arising from the contribution of Novartis OTC into the GSK Consumer Healthcare joint venture). In addition, the
GSK transactions resulted in $0.6 billion of additional transaction-related costs that were expensed.
Net
income from discontinued operations in the prior year amounted to $10.8 billion. For more information on discontinued operations please see "Factors Affecting
Comparability of
Year-on Year Results of Operations" below and "Note 29. Discontinued operations" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24,
2018.
139
Table of Contents
Total Group
For the total Group, net income amounted to $6.7 billion compared to $17.8 billion in 2015. The decrease was mainly due to the
exceptional divestment gains included in the net income from the discontinued operations of the prior year.
Basic
earnings per share decreased to $2.82 from $7.40 in the prior year.
FACTORS AFFECTING COMPARABILITY OF YEAR-ON-YEAR RESULTS OF OPERATIONS
The comparability of the year-on-year results of our operations for the total Group can be significantly affected by acquisitions and
divestments. The transactions of significance during 2017 and 2016 are mentioned below.
Significant transactions in 2017
Innovative MedicinesAcquisition of Ziarco Group Limited
On January 20, 2017, Novartis acquired Ziarco Group Limited (Ziarco), a privately held company in the United Kingdom, focused on the
development of novel treatments in dermatology. This acquisition adds a once-daily oral H4 receptor antagonist in development for atopic dermatitis, commonly known as eczema, to complement the
Novartis dermatology portfolio and pipeline. The fair value of the total purchase consideration was $420 million. The amount consisted of an initial cash payment of $325 million and the
net present value of the contingent consideration of $95 million, due to Ziarco shareholders, which they are eligible to receive upon the achievement of specified development milestones. The
purchase price allocation resulted in net identifiable assets of $395 million and goodwill of $25 million. Results of operations since the date of acquisition were not material.
Innovative MedicinesAcquisition of Encore Vision, Inc.
On January 20, 2017, Novartis acquired Encore Vision, Inc. (Encore), a privately-held company in Fort Worth, Texas, in the United
States, focused on the development of a novel treatment in presbyopia. The fair value of the total purchase consideration was $456 million. The amount consisted of an initial cash payment of
$366 million and the net present value of the contingent consideration of $90 million, due to Encore shareholders, which they are eligible to receive upon the achievement of specified
development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $389 million and goodwill of $67 million. Results of operations since
the date of acquisition were not material.
Significant transactions in 2016
AlconAcquisition of TRANSCEND MEDICAL, INC.
On February 17, 2016, Alcon entered into an agreement to acquire Transcend Medical, Inc. (Transcend), a privately-held, US-based
company focused on developing minimally-invasive surgical devices to treat glaucoma. The transaction closed on March 23, 2016, and the fair value of the total purchase consideration was
$332 million. The amount consisted of an initial cash payment of $240 million and the net present value of the contingent consideration of $92 million due to Transcend
shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of
$294 million and goodwill of $38 million. The 2016 results of operations since the date of acquisition were not material.
140
Table of Contents
Innovative MedicinesAcquisition of REPRIXYS PHARMACEUTICALS CORPORATION
On November 18, 2016, Novartis acquired Reprixys Pharmaceuticals Corporation (Reprixys), a privately held, US-based company specializing
in the development of therapeutics in certain hematologic and inflammatory disorders, following receipt of results of the SUSTAIN study. The initial interest of 19% was adjusted to its fair value of
$64 million through the consolidated income statement at acquisition date. This re-measurement resulted in a gain of $53 million.
The
fair value of the total purchase consideration for acquiring the 81% stake Novartis did not already own amounted to $268 million. The amount consisted of an initial cash
payment of $194 million and the net present value of the contingent consideration of $74 million due to Reprixys shareholders, which they are eligible to receive upon the achievement of
specified development and commercialization milestones. The purchase price allocation resulted in net identifiable assets of $332 million. No goodwill was recognized. The 2016 results of
operations since the date of acquisition were not material.
For
further details on significant transactions, see "Note 2. Significant transactions" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K
on January 24, 2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are set out in "Note 1. Significant accounting policies" in the "Excerpts from Novartis Annual Report
2017" furnished to the SEC on Form 6-K on January 24, 2018, which are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
Given
the uncertainties inherent in our business activities, we must make certain estimates and assumptions that require difficult, subjective and complex judgments. Because of
uncertainties inherent in such judgments, actual outcomes and results may differ from our assumptions and estimates, which could materially affect the Group's consolidated financial statements.
Application of the following accounting policies requires certain assumptions and estimates that have the potential for the most significant impact on our consolidated financial statements.
Deductions from Revenues
As is typical in the pharmaceutical industry, our gross sales are subject to various deductions which are primarily composed of rebates and
discounts to retail customers, government agencies, wholesalers, health insurance companies and managed healthcare organizations. These deductions represent estimates of the related obligations,
requiring the use of judgement when estimating the effect of these sales deductions on gross sales for a reporting period. These adjustments are deducted from gross sales to arrive at net sales.
The
following summarizes the nature of some of these deductions and how the deduction is estimated. After recording these, net sales represent our best estimate of the cash that we
expect to ultimately collect. The US market has the most complex arrangements related to revenue deductions.
United States specific healthcare plans and program rebates
The United States Medicaid Drug Rebate Program is administered by State governments using State and Federal funds to provide assistance to
certain vulnerable and needy individuals and families. Calculating the rebates to be paid related to this program involves interpreting relevant regulations, which are subject to challenge or change
in interpretative guidance by government authorities. Provisions for estimating Medicaid rebates are calculated using a combination of historical experience, product and population growth, product
pricing and the mix of contracts and specific terms in the individual State agreements.
141
Table of Contents
The
United States Federal Medicare Program, which funds healthcare benefits to individuals age 65 or older and certain disabilities, provides prescription drug benefits under
Part D section of the program. This benefit is provided and administrated through private prescription drug plans. Provisions for estimating Medicare Part D rebates are calculated based
on the terms of individual plan agreements, product sales and population growth, product pricing and the mix of contracts.
We
offer rebates to key managed healthcare and private plans in an effort to sustain and increase market share of our products, and to ensure patient access. These programs provide a
rebate after the plans have demonstrated they have met all terms and conditions set forth in their contract with us. These rebates are estimated based on the terms of individual agreements, historical
experience, product pricing, and projected product growth rates. These provisions are adjusted based on established processes and experiences from filing data with individual states and plans. There
is often a time lag of several months between us recording the revenue deductions and our final accounting for them.
There
is often a time lag of several months between us recording the revenue deductions and our final accounting for them.
Non-United States specific healthcare plans and program rebates
In certain countries other than the US, we provide rebates to governments and other entities. These rebates are often mandated by laws or
government regulations.
In
several countries, especially in Europe and Australia, we enter into innovative pay-for-performance arrangements with certain healthcare providers. Under these agreements, we may be
required to make refunds to the healthcare providers or to provide additional medicines free of charge if anticipated treatment outcomes do not meet predefined targets. Potential refunds and the
delivery of additional medicines at no cost are estimated and recorded as a deduction of revenue at the time the related revenues are recorded. Estimates are based on historical experience and
clinical data. In cases where historical experience and clinical data are not sufficient for a reliable estimation of the outcome, revenue recognition would be deferred until such history would be
available. In addition, we offer global patient assistance programs.
There
is often a time lag of several months between us recording the revenue deductions and our final accounting for them.
Non-healthcare plans and program rebates, returns and other deductions
We offer rebates to purchasing organizations and other direct and indirect customers to sustain and increase market share, and to ensure patient
access to our products. Since rebates are contractually agreed upon, the related provisions are estimated based on the terms of the individual agreements, historical experience, and projected product
growth rates.
Charge-backs
occur where our subsidiaries have arrangements with indirect customers to sell products at prices that are lower than the price charged to wholesalers. A charge-back
represents the difference between the invoice price to the wholesaler and the indirect customer's contract price. We account for vendor charge-backs by reducing revenue for the estimate of
charge-backs attributable to a sale transaction. Provisions for estimated charge-backs are calculated using a combination of factors such as historical experience, product growth rates, payments,
product pricing, level of inventory in the distribution channel, the terms of individual agreements and our estimate of the claims processing time lag.
When
we sell a product providing a customer the right to return it, we record a provision for estimated sales returns based on our sales return policy and historical return rates. Other
factors considered include actual product recalls, expected marketplace changes, the remaining shelf life of the product, and the expected entry of generic products. In 2017, sales returns amounted to
approximately 1% of gross product sales. If sufficient experience is not available, sales are only recorded based on evidence of product consumption or when the right of return has expired.
142
Table of Contents
We enter into distribution service agreements with major wholesalers, which provide a financial disincentive for the wholesalers to purchase product quantities in
excess of current customer demand. Where possible, we adjust shipping patterns for our products to maintain wholesalers' inventory levels consistent with underlying patient demand.
We
offer cash discounts to customers to encourage prompt payment. Cash discounts are estimated and accrued at the time of invoicing and are deducted from revenue.
Following
a decrease in the price of a product, we generally grant customers a "shelf stock adjustment" for their existing inventory for the relevant product. Provisions for shelf stock
adjustments, which are primarily relevant within the Sandoz Division, are determined at the time of the price decline or at the point of sale, if the impact of a price decline on the products sold can
be reasonably estimated based on the customer's inventory levels of the relevant product.
Other
sales discounts, such as consumer coupons and co-pay discount cards, are offered in some markets. The estimated amounts of these discounts are recorded at the time of sale, or when
the coupons are issued, and are estimated utilizing historical experience and the specific terms for each program. If a discount for a probable future transaction is offered as part of a sales
transaction then an appropriate portion of revenue is deferred to cover this estimated obligation.
We
adjust provisions for revenue deductions periodically to reflect actual experience. To evaluate the adequacy of provision balances, we use internal and external estimates of the
inventory in transit, the level of inventory in the distribution and retail channels actual claims data received and the time lag for processing rebate claims. External data sources include reports
from wholesalers and third-party market data purchased by Novartis.
143
Table of Contents
The
following table shows the worldwide extent of our revenue deductions provisions and related payment experiences for the Innovative Medicines, Sandoz and Alcon Divisions:
PROVISIONS FOR DEDUCTIONS FROM REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement
charge
|
|
|
|
|
|
|
|
|
|
Effect of
currency
translation
and business
combinations
|
|
|
|
Change in
provisions
offset against
gross trade
receivables
|
|
|
|
|
|
Revenue
deductions
provisions at
January 1
|
|
|
|
Revenue
deductions
provisions at
December 31
|
|
|
|
Payments/
utilizations
|
|
Adjustments
of prior
years
|
|
Current
year
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
1,461
|
|
|
|
|
|
(3,684
|
)
|
|
(62
|
)
|
|
3,875
|
|
|
|
|
|
1,590
|
|
Non-US-specific healthcare plans and program rebates
|
|
|
1,020
|
|
|
131
|
|
|
(1,954
|
)
|
|
80
|
|
|
2,186
|
|
|
(107
|
)
|
|
1,356
|
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
1,702
|
|
|
65
|
|
|
(11,814
|
)
|
|
(127
|
)
|
|
12,045
|
|
|
(145
|
)
|
|
1,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations 2017
|
|
|
4,183
|
|
|
196
|
|
|
(17,452
|
)
|
|
(109
|
)
|
|
18,106
|
|
|
(252
|
)
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
1,165
|
|
|
|
|
|
(3,203
|
)
|
|
7
|
|
|
3,492
|
|
|
|
|
|
1,461
|
|
Non-US-specific healthcare plans and program rebates
|
|
|
1,024
|
|
|
(31
|
)
|
|
(1,844
|
)
|
|
(26
|
)
|
|
1,883
|
|
|
14
|
|
|
1,020
|
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
1,601
|
|
|
(19
|
)
|
|
(11,142
|
)
|
|
(117
|
)
|
|
11,383
|
|
|
(4
|
)
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations 2016
|
|
|
3,790
|
|
|
(50
|
)
|
|
(16,189
|
)
|
|
(136
|
)
|
|
16,758
|
|
|
10
|
|
|
4,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
1,097
|
|
|
|
|
|
(2,823
|
)
|
|
(90
|
)
|
|
2,981
|
|
|
|
|
|
1,165
|
|
Non-US-specific healthcare plans and program rebates
|
|
|
1,015
|
|
|
(109
|
)
|
|
(1,716
|
)
|
|
(3
|
)
|
|
1,846
|
|
|
(9
|
)
|
|
1,024
|
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
1,421
|
|
|
(69
|
)
|
|
(10,679
|
)
|
|
(124
|
)
|
|
10,993
|
|
|
59
|
|
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing operations 2015
|
|
|
3,533
|
|
|
(178
|
)
|
|
(15,218
|
)
|
|
(217
|
)
|
|
15,820
|
|
|
50
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Table of Contents
The
table below shows the gross to net sales reconciliation for our Innovative Medicines Division:
GROSS TO NET SALES RECONCILIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement charge
|
|
|
|
|
|
|
|
Charged
through
revenue
deduction
provisions
|
|
Charged
directly
without being
recorded in
revenue
deduction
provisions
|
|
Total
|
|
In % of
gross sales
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines gross sales subject to deductions
|
|
|
|
|
|
|
|
|
43,994
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
(3,303
|
)
|
|
|
|
|
(3,303
|
)
|
|
(7.5
|
)
|
Non-US-specific healthcare plans and program rebates
|
|
|
(1,722
|
)
|
|
(956
|
)
|
|
(2,678
|
)
|
|
(6.1
|
)
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
(2,698
|
)
|
|
(2,290
|
)
|
|
(4,988
|
)
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Innovative Medicines gross to net sales adjustments
|
|
|
(7,723
|
)
|
|
(3,246
|
)
|
|
(10,969
|
)
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines net sales 2017
|
|
|
|
|
|
|
|
|
33,025
|
|
|
75.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines gross sales subject to deductions
|
|
|
|
|
|
|
|
|
42,630
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
(3,051
|
)
|
|
|
|
|
(3,051
|
)
|
|
(7.2
|
)
|
Non-US-specific healthcare plans and program rebates
|
|
|
(1,352
|
)
|
|
(885
|
)
|
|
(2,237
|
)
|
|
(5.2
|
)
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
(2,736
|
)
|
|
(2,044
|
)
|
|
(4,780
|
)
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Innovative Medicines gross to net sales adjustments
|
|
|
(7,139
|
)
|
|
(2,929
|
)
|
|
(10,068
|
)
|
|
(23.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines net sales 2016
|
|
|
|
|
|
|
|
|
32,562
|
|
|
76.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines gross sales subject to deductions
|
|
|
|
|
|
|
|
|
42,460
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US-specific healthcare plans and program rebates
|
|
|
(2,533
|
)
|
|
|
|
|
(2,533
|
)
|
|
(6.0
|
)
|
Non-US-specific healthcare plans and program rebates
|
|
|
(1,238
|
)
|
|
(762
|
)
|
|
(2,000
|
)
|
|
(4.7
|
)
|
Non-healthcare plans and program-related rebates, returns and other deductions
|
|
|
(2,831
|
)
|
|
(1,751
|
)
|
|
(4,582
|
)
|
|
(10.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Innovative Medicines gross to net sales adjustments
|
|
|
(6,602
|
)
|
|
(2,513
|
)
|
|
(9,115
|
)
|
|
(21.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative Medicines net sales 2015
|
|
|
|
|
|
|
|
|
33,345
|
|
|
78.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016.
145
Table of Contents
Surgical Equipment Revenue
Surgical equipment is often sold together with other products and services under a single contract. The total consideration is allocated to the
separate elements based on their relative fair values. Revenue is recognized once the recognition criteria have been met for each element of the contract.
For
surgical equipment, in addition to cash and instalment sales, revenue is recognized under finance and operating lease arrangements. Arrangements in which Novartis transfers
substantially all the risks and rewards incidental to ownership to the customer are treated as finance lease arrangements. Revenue from finance lease arrangements is recognized at amounts equal to the
fair values of the equipment, which approximate the present values of the minimum lease payments under the arrangements. As interest rates embedded in lease arrangements are approximately market
rates, revenue under finance lease arrangements is comparable to revenue for outright sales. Finance income for arrangements in excess of twelve months is deferred and subsequently recognized based on
a pattern that approximates the use of the effective interest method and recorded in "Other income". Operating lease revenue for equipment rentals is recognized on a straight-line basis over the lease
term.
Impairment of Goodwill, Intangible Assets and Property, Plant and Equipment
We review long-lived intangible assets and property, plant and equipment for impairment whenever events or changes in circumstance indicate that
the asset's balance sheet carrying amount may not be recoverable. Goodwill, the Alcon brand name and other currently not amortized intangible assets are reviewed for impairment at least annually.
An
asset is generally considered impaired when its balance sheet carrying amount exceeds its estimated recoverable amount, which is defined as the higher of its fair value less costs of
disposal and its value in use. Usually, Novartis adopts the fair value less costs of disposal method for its impairment evaluation. In most cases no directly observable market inputs are available to
measure the fair value less costs of disposal. Therefore, an estimate of fair value less costs of disposal is derived indirectly and is based on net present value techniques utilizing post-tax cash
flows and discount rates. In the limited cases where the value in use method is applied, net present value techniques are utilized using pre-tax cash flows and discount rates.
Fair
value reflects estimates of assumptions that market participants would be expected to use when pricing the asset and for this purpose management considers the range of economic
conditions that are expected to exist over the remaining useful life of the asset. The estimates used in calculating net present values are highly sensitive, and depend on assumptions specific to the
nature of the Group's activities with regard to:
-
-
amount and timing of projected future cash flows;
-
-
behavior of competitors (launch of competing products, marketing initiatives, etc.);
-
-
probability of obtaining regulatory approvals;
-
-
future tax rates;
-
-
appropriate royalty rate for the Alcon brand name;
-
-
appropriate terminal growth rate; and
-
-
appropriate discount rate.
Due
to the above factors and those further described in "Note 1. Significant accounting policies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on
Form 6-K on January 24, 2018, actual cash flows and values could vary significantly from forecasted future cash flows and related values derived using discounting techniques.
146
Table of Contents
The
recoverable amount of the grouping of cash generating units to which goodwill and indefinite life intangible assets are allocated is based on fair value less costs of disposal. The
valuations are derived from applying discounted future cash flows based on key assumptions, including the terminal growth rate and discount rate. For additional information see "Note 10.
Goodwill and intangible assets" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
In
2017, intangible asset impairment charges of $709 million were recognized, of which $591 million was recorded in the Innovative Medicines Division, $61 million in
the Sandoz Division, and $57 million in the Alcon Division.
In
2016, intangible asset impairment charges for continuing operations of $591 million were recognized, of which $522 million was recorded in the Innovative Medicines
Division, $65 million in the Sandoz Division, and $4 million in the Alcon Division.
In
2017 and in 2016, there were no reversals of prior-year impairment charges.
Goodwill
and other intangible assets represent a significant part of our consolidated balance sheet, primarily due to acquisitions. Although no significant additional impairments are
currently anticipated, impairment evaluation could lead to material impairment charges in the future. For more information, see "Note 10. Goodwill and intangible assets" in the "Excerpts from
Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
Additionally,
net impairment charges for property, plant and equipment during 2017 amounted to $157 million (2016: $102 million).
Trade Receivables
Trade receivables are initially recognized at their invoiced amounts including any related sales taxes less adjustments for estimated revenue
deductions such as rebates, charge-backs and cash discounts.
Provisions
for doubtful trade receivables are established once there is an indication that it is likely that a loss will be incurred. These provisions represent the difference between
the trade receivable's carrying amount in the consolidated balance sheet and the estimated net collectible amount. Significant financial difficulties of a customer, such as probability of bankruptcy,
financial reorganization, default or delinquency in payments are considered indicators that recovery of the trade receivable is doubtful. Trade receivable balances include sales to drug wholesalers,
retailers, private health systems, government agencies, managed care providers, pharmacy benefit managers and government-supported healthcare systems. Novartis continues to monitor sovereign debt
issues and economic conditions in Greece, Italy, Portugal, Spain, Brazil, Russia, Saudi Arabia, Turkey and other countries, and evaluates trade receivables in these countries for potential collection
risks. Substantially all of the trade receivables overdue from Greece, Italy, Portugal, Spain and Saudi Arabia are due directly from local governments or from government-funded entities. Deteriorating
credit and economic conditions as well as other factors in these countries have resulted in, and may continue to result in an increase in the average length of time that it takes to collect these
trade receivables and may require Novartis to re-evaluate the collectability of these trade receivables in future periods.
Contingent Consideration
In a business combination or divestment of a business, it is necessary to recognize contingent future payments to previous owners representing
contractually defined potential amounts as a liability or asset. Usually for Novartis these are linked to milestone or royalty payments related to certain assets and are recognized as a financial
liability or financial asset at their fair value, which is then re-measured at each subsequent reporting date. These estimations typically depend on factors such as technical milestones or market
performance and are adjusted for the probability of their likelihood of payment, and if material, are appropriately discounted to reflect the impact of time.
147
Table of Contents
Changes
in the fair value of contingent consideration liabilities in subsequent periods are recognized in the consolidated income statement in "Cost of goods sold" for currently marketed
products and in "Research & Development" for In-Process Research and Development (IPR&D). Changes in contingent consideration assets are recognized in "Other income" or "Other expense",
depending on its nature.
The
effect of unwinding the discount over time is recognized for contingent liabilities in "Interest expense" and for contingent assets in "other financial income and expense" in the
consolidated income statement.
Impairment of Associated Companies Accounted for at Equity
Novartis considers investments in associated companies for impairment evaluation whenever objective evidence indicates the net investment may be
impaired, including when a quoted share price indicates a fair value less than the per-share balance sheet carrying value for the investment.
If
the recoverable amount of the investment is estimated to be lower than the balance sheet carrying amount an impairment charge is recognized for the difference in the consolidated
income statement under "Income from associated companies".
Retirement and Other Post-Employment Benefit Plans
We sponsor pension and other post-employment benefit plans in various forms that cover a significant portion of our current and former
associates. For post-employment plans with defined benefit obligations, we are required to make significant assumptions and estimates about future events in calculating the expense and the present
value of the liability related to these plans. These include assumptions about the interest rates we apply to estimate future defined benefit obligations and net periodic pension expense, as well as
rates of future pension increases. In addition, our actuarial consultants provide our management with historical statistical information such as withdrawal and mortality rates in connection with these
estimates.
Assumptions
and estimates used by the Group may differ materially from the actual results we experience due to changing market and economic conditions, higher or lower withdrawal rates,
and longer or shorter life spans of participants among other factors. For example, in 2017, a decrease in the interest rate we apply in determining the present value of the defined benefit obligations
of one-quarter of one percent would have increased our year-end defined benefit pension obligation for plans in Switzerland, United States, United Kingdom, Germany and Japan, which represent 94% of
the Group total defined benefit pension obligation, by approximately $0.8 billion. Similarly, if the 2017 interest rate had been one quarter of one percentage point lower than actually assumed,
the net periodic pension cost for pension plans in these countries, which represent about 82% of the Group's total net periodic pension cost for pension plans, would have increased by approximately
$23 million. Depending on events, such differences could have a material effect on our total equity. For more information on obligations under retirement and other post-employment benefit plans
and underlying actuarial assumptions, see "Note 24. Post-employment benefits for associates" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on
January 24, 2018.
Provisions and Contingencies
A number of Group companies are involved in various government investigations and legal proceedings (intellectual property, sales and marketing
practices, product liability, commercial, employment and wrongful discharge, environmental claims, etc.) arising out of the normal
conduct of their businesses. For more information, see "Note 19. Provisions and other non-current liabilities" and "Note 27. Commitments and contingencies" in the "Excerpts from Novartis
Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
148
Table of Contents
We
record provisions for legal proceedings when it is probable that a liability has been incurred and the amount can be reliably estimated. These provisions are adjusted periodically as
assessments change or additional information becomes available. For significant product liability cases, the provision is actuarially determined based on factors such as past experience, amount and
number of claims reported, and estimates of claims incurred but not yet reported.
Provisions
are recorded for environmental remediation costs when expenditure on remedial work is probable and the cost can be reliably estimated. Remediation costs are provided for under
"Non-current liabilities" in the Group's consolidated balance sheet.
Provisions
relating to estimated future expenditure for liabilities do not usually reflect any insurance or other claims or recoveries, since these are only recognized as assets when the
amount is reasonably estimable and collection is virtually certain.
Research & Development
Internal Research & Development costs are fully charged to the consolidated income statement in the period in which they are incurred. We
consider that regulatory and other uncertainties inherent in the development of new products preclude the capitalization of internal development expenses as an intangible asset usually until marketing
approval from the regulatory authority is obtained in a relevant major market, such as for the United States, the European Union, Switzerland or Japan.
Healthcare Contributions
In many countries, our subsidiaries are required to make contributions to the countries' healthcare costs as part of programs other than the
ones mentioned above under deductions from revenues. The amounts to be paid depend on various criteria such as the subsidiary's market share or sales volume compared to certain targets. Considerable
judgment is required in estimating these contributions, as not all data is available when the estimates need to be made.
The
largest of these healthcare contributions relates to the US Healthcare Reform fee, which was introduced in 2011. This fee is an annual levy to be paid by US pharmaceutical companies,
including various Novartis subsidiaries, based on each company's qualifying sales as a percentage of the prior year's government-funded program sales. This pharmaceutical fee levy is recognized in
"Other expense".
In
addition, effective 2013, the United States government implemented a medical device sales tax that is levied on the Alcon Division's United States sales of products which that
considered surgical devices under the law. This medical device tax is initially included in the cost of inventory as, for Alcon, the tax is usually levied on intercompany sales. It is expensed as cost
of goods sold when the inventory is sold to third parties. In December 2015, Congress enacted a law that included a two-year moratorium on applying the medical device excise tax, which expired on
December 31, 2017. On January 22, 2018, the US Congress extended the moratorium for an additional two years.
Taxes
We prepare and file our tax returns based on an interpretation of tax laws and regulations, and we record estimates based on these judgments and
interpretations. Our tax returns are subject to examination by the competent taxing authorities, which may result in an assessment being made requiring payments of additional tax, interest or
penalties. Since Novartis uses its intellectual property globally to deliver goods and services, the transfer prices within the Group as well as arrangements between subsidiaries to finance research
and development and other activities may be challenged by the national tax authorities in any of the jurisdictions in which Novartis operates. Therefore, inherent uncertainties exist in our estimates
of our tax positions, but we believe that our estimated amounts for current and deferred tax assets or liabilities, including any amounts related to any uncertain tax positions, are appropriate based
on currently known facts and circumstances.
149
Table of Contents
New Accounting Pronouncements
See "Note 1. Significant accounting policies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K
on January 24, 2018.
Internal Control Over Financial Reporting
The Group's management has assessed the effectiveness of internal control over financial reporting. The Group's independent statutory auditor
also issued an opinion on the effectiveness of internal control over financial reporting. Both the Group's management and its external auditors concluded that the Group maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017.
FACTORS AFFECTING RESULTS OF OPERATIONS
Transformational Changes Fueling Demand
Accelerating biomedical innovation
We are seeing an explosion of innovation in medical science. Better understanding of the molecular mechanisms of disease, coupled with new types
of therapies, promises to yield powerful new medicines for patients. The trend toward patient-specific precision treatments will likely accelerate.
Further
advances in molecular biology, which has been a mainstay of research for decades, will continue to yield results. Scientists contributing to the Human Protein Atlas have
identified about 1 800 proteins that they believe are possible targets for drugs. So far, only about 600 of them are actually targeted by currently approved therapies. In addition, new
molecular techniques, such as gene editing, personalized cell therapies and harnessing the cell's own waste disposal system, could open new treatment opportunitiesincluding ones that go
beyond what has been possible using today's drugs.
The
advent of digital technologies as therapeutic aids is also starting to alter the conventional notion of medical treatment. For instance, mobile applications that aim to treat
substance abuse and help diabetics manage their disease have received clearance from the US Food and Drug Administration (FDA). Combining traditional medicines with digital technology that helps
patients follow healthy behaviors holds great promise for improving the quality of care as well as treatment outcomes for patients.
Transforming how doctors diagnose and treat diseases
Although the digital revolution has been relatively slow to arrive in healthcare, it is gaining momentum and will likely bring radical change in
the coming years.
A
growing proliferation of sensor technology is helping researchers and doctors gather increasing amounts of information about patients' health and how they respond to treatment. Care
providers are starting to mine healthcare data using a combination of statistical methods and artificial intelligence to flag emerging medical problems and help physicians diagnose and treat patients.
In fact, a recent study found that computers already have an edge over doctors in their ability to predict the likelihood that a patient will have a heart attack over a 10-year period, based on an
evaluation of risk factors.
Patients,
armed with greater access to their own medical data, will likely play a more active role in preventing diseases and managing their own care when they become ill. The role of
physicians and other care providers will likely also evolve as they help educate patients on treatment options and steer patients toward the most effective choices.
150
Table of Contents
Transforming drug research and development
Digital technology may also increasingly improve the efficiency and effectiveness of researching and developing potential new therapies. The
marriage of data and artificial intelligence will enable complex biological simulations that complement human scientific ingenuity. Such tools are already being considered by the FDA as replacements
for preclinical animal studies to assess toxicity in potential new medicines. As digital tools become more widespread, they may be able to shorten research times and improve the likelihood that
experimental drugs will prove safe and effective.
This
surge in medical innovation will likely occur in an increasingly diverse and fragmented research environment, with new advances coming from a variety of
sourcessometimes unexpected ones. Molecular biology may intersect with other disciplines, from engineering to computer science, to advance the practice of medicine. And we expect there
will be greater diversity in funding for research. Already we see governments, companies and venture capitalists increasingly supporting academic researchers' efforts to advance promising experimental
therapies.
All
of these factors are contributing to greater competition at the forefront of innovation in medical science. One upshot is that medicines will likely be held to a higher standard of
efficacy in the future.
Aging populations
While accelerating medical innovation could help tame some of the devastating diseases that still plague humanity, other trends in society pose
significant challenges. Rapidly aging populations continue to put pressure on health systems around the world.
People
are living longer and the worldwide elderly population continues to grow at a rapid pace. The number of people in the world over age 60 will reach about 1.4 billion by
2030, according to projections by the United Nations, up from less than 1 billion today. Aging populations, in addition to rapid urbanization and changing lifestyles in the developing world,
are contributing to increased prevalence of chronic ailments such as heart disease and cancer.
At
the same time, many countries are working to expand access to healthcare. For example, China recently expanded reimbursement of some medicines.
These
factors are driving higher healthcare spending, which is expected to grow at an annual rate of 4.3% between 2015 and 2020, reaching a total of $8.7 trillion worldwide, projects the
Economist Intelligence Unit. By 2020, about half of that spending is expected to go toward treating the three leading causes of death worldwide: cardiovascular disease, cancer and respiratory disease.
To
keep costs in check, governments and health insurers are already employing a variety of tactics, including increasing the use of generics and biosimilars, imposing price cuts, and
limiting access to some innovative therapies. The pharmaceutical industry is also playing a role, exploring new pricing models and delivering innovative new treatments that maximize benefits for
patients.
Better health outcomes for patients
In pursuit of greater efficiency and effectiveness, some healthcare systems are also expediting the transition from a system based on fees for
services toward one based on reimbursement for specific health outcomes in patients. In the US, for instance, a new law came into effect in 2017 that aims to tie reimbursement more closely to quality
and health outcomes for some elderly patients.
As
the transition accelerates, we expect health systems will increasingly find ways to discourage the use of medical treatments that bring little or no value for patients or healthcare
systems. In parallel, they will likely place greater value on treatments that delay the progression of disease or that help avoid events requiring expensive acute care, such as heart attacks.
151
Table of Contents
With
people living longer and retirement ages rising, we also anticipate countries and health systems will put greater emphasis on keeping people fit and productive later in life. And we
think there will be growing emphasis on maintaining quality of life as people age, with less focus on extending life by a few more months.
For
more detailed discussion about the risks facing Novartis and what we're doing to mitigate them, see "Increasingly Challenging Business Environment" below.
We
think the trends driving changes in healthcare will bring new opportunities for Novartis, as well as new challenges. And we believe the changes now underway in our industry raise the
importance of delivering true innovation that produces better health outcomes for patients and health systems, with greater efficiency.
Increasingly Challenging Business Environment
Loss of exclusivity for patented products
Pharmaceutical companies routinely face generic competition when their products lose patent or other intellectual property protection, and
Novartis is no exception. Major products of our Innovative Medicines Division, as well as certain products of our Alcon and Sandoz Divisions, are protected by patent or other intellectual property
rights, allowing us to exclusively market those products. The loss of exclusivity has had, and will continue to have, an adverse effect on our results. In 2017, the impact of generic competition on
our net sales amounted to approximately $2.0 billion.
Some
of our best-selling products face or are expected to face considerable competition due to the expiration of patent or other intellectual property protection. For example, we faced
generic competition for
Gleevec/Glivec
in the United States, European Union and Japan throughout 2017, which will continue. Patent protection for our
Sandostatin
products has expired and generic versions of
Sandostatin
SC are available in the United
States, European Union and Japan. Diovan and Co-Diovan/Diovan HCT, which had long been our best-selling products, have generic competitors in the United States, European Union and Japan. Looking
forward, intellectual property protecting a number of our major products will expire at various times in the coming years, raising the likelihood of further generic competition. Among our products
expected to begin losing intellectual property in key countries during the next three years are
Gilenya
, our everolimus products
(
Afinitor/Votubia
and
Certican/Zortress
),
Exjade/Jadenu
and
Lucentis
.
To
counter the impact of patent expirations, we continuously invest in R&D to rejuvenate our portfolio. For example, in 2017, we invested 18.3% of total net sales in R&D. One measure of
the output of our efforts is the performance of our growth drivers, including
Cosentyx
and
Entresto
, the
launches of
Kisqali
,
Kymriah
and
Rydapt
in 2017, and the
newly launched Sandoz biosimilars. Novartis also has a number of late-stage product candidates in its pipeline with the potential to come to market in the next few years.
Ability to deliver new products
Our ability to maintain and grow our business and to replace revenue and income lost to generic and other competition depends in part on the
success of our R&D activities in identifying and developing new treatments, that address unmet medical needs, are accepted by patients and physicians, and are reimbursed by payors.
Developing
new healthcare products and bringing them to market is a costly, lengthy and uncertain process. R&D for a new product in our Innovative Medicines Division can take
15 years or more, from discovery to commercial launch. With time limits on intellectual property protections, the longer it takes to develop a product, the less time we may have to recoup our
costs. During each stage of development, there is a significant risk that we will encounter obstacles. They may cause a delay or add substantial
152
Table of Contents
expense,
limit the potential for commercial success, or force us to abandon a product in which we have invested substantial amounts of time and money.
In
addition, as healthcare costs continue to rise, governments and payors around the world are increasingly focused on health outcomes, rewarding new products that represent truly
breakthrough innovation versus those that offer an incremental benefit over other products in the same therapeutic class. This has led to requests for more clinical trial data than has been required
in the past, the inclusion of significantly higher numbers of patients in clinical trials, and more detailed analyses of the trials. As a result, despite significant efforts by health authorities such
as the FDA to accelerate the development of new drugs, the already lengthy and expensive process of obtaining regulatory approvals and reimbursement for pharmaceutical products has become even more
challenging.
Our
Sandoz Division faces similar challenges, particularly in the development of biosimilars. While Sandoz was a pioneer in introducing biosimilars to the European market in 2006, and
was the first company to win approval for a biosimilar under the new regulatory pathway in the United States in 2015, many countries still lack fully developed regulatory frameworks for the
development and approval of biosimilars. Further delays in establishing regulatory frameworks, or any other difficulties that may arise in the development or marketing of biosimilars, could put at
risk the significant investments that Sandoz has made, and will continue to make, in this area.
Our
Alcon Division faces medical device development and approval processes that are often similarly difficult. As part of its growth plan, Alcon has taken steps to accelerate innovation.
It has started to see the results of its efforts, with the approval and launch of intraocular lens innovations in 2016 and 2017, including
Clareon
and
PanOptix
IOLs,
AutonoMe
and
Ultrasert
IOL delivery
systems, and,
ReSTOR
Toric IOL with
ACTIVEFOCUS
optical design, as well as
CyPass
micro-stent and a
multifocal version of
Dailies Total1
. But there is no certainty that Alcon will
continue to be successful in these efforts, and if it is not, there could be a material adverse effect on the success of the Alcon Division, and on the Group as a whole.
In
spite of our significant investments, there can be no guarantee that our R&D activities will produce commercially viable new products that will enable us to grow our business and
replace revenue and income lost to competition.
Commercial success of key products
Our ability to grow depends not only on our pipeline delivery, but also on our commercial success, particularly with respect to our key growth
drivers, which we consider to be an indicator of our ability to renew our portfolio. The commercial success of these products could be impacted at any time by a number of factors, including new
competitors, changes in doctors' prescribing habits, pricing pressure, manufacturing issues, and loss of intellectual property protection. In addition, our revenue could be significantly impacted by
the timing and rate of commercial acceptance of new products.
All
of our businesses face intense competition from new products and scientific advances from competitors. Physicians, patients and payors may choose competitor products instead of ours
if they perceive them to be better in terms of efficacy, safety, cost or convenience.
In
particular, our Alcon Division and our US Sandoz business each has suffered declines in sales and profits in recent years due at least in part to increased competition for its
products, although Alcon's results improved in 2017, returning to growth. There can be no certainty either that Sandoz US sales
will recover, or that Alcon's improved results will be repeated in the coming years. In any event, such competition and the costs of our efforts to improve these businesses' performance, as well as
other factors, can be expected to affect the business, financial condition or results of operations of these organizations, at least in the near term. In addition, despite the devotion of significant
resources to our efforts to improve the performance of Alcon and Sandoz US, those efforts may ultimately prove insufficient.
153
Table of Contents
Pricing and reimbursement
Around the world, governments and payors continue to struggle with rising healthcare costs as aging populations contribute to increased
prevalence of chronic diseases. There have also been examples of significant controversies about prices for pharmaceuticals that some members of the public have considered excessive. These factors
have intensified the pressures we face regarding the prices we charge for our drugs, and our ability to establish satisfactory rates of reimbursement for our products by governments, insurers and
other payors.
In
our Sandoz Division, for example, sales declined in 2017 due to intense industry pricing pressure in the US. Sales growth outside the United States was unable to fully compensate.
We
expect scrutiny to continue in 2018, and the following years, as governments and insurers around the world strive to reduce healthcare costs through steps such as restricting access
to higher-priced new medicines, increasing coinsurance or copays owed by patients for medicines, increasing the use of generics, and imposing price cuts. In this environment, we believe it is more
important than ever to demonstrate the value that true innovation brings to the healthcare system.
To
manage these pressures, we are investing in real-world data and analytics to provide additional evidence of the health benefits of our products, exploring new technologies and patient
management services, and partnering with payors to develop and scale outcomes-based commercial models. For example, we are working with customers on flexible pricing approaches where we are fully
compensated only if a drug succeeds in meeting certain performance targets.
Business practices
In recent years, there has been a trend of increasing government investigations and litigation against companies operating in our industry,
including in the United States and other countries. We are obligated to comply with the laws of all countries in which we operate, as well as any new requirements that may be imposed upon us. But
beyond legal requirements, we strive to meet evolving public expectations for ethical behavior. We have a significant global compliance program in place, and we devote substantial time and resources
to efforts to ensure that our business is conducted in a legal and publicly acceptable manner. Despite these efforts, any failure to comply with the law could lead to substantial liabilities that may
not be covered by insurance and could affect our business and reputation.
Governments
and regulatory authorities worldwide are also increasingly challenging practices previously considered to be legal and compliant. For example, sponsoring doctors to attend
medical conferences has long been used by pharmaceutical companies to help raise awareness of the latest advances in medicine. One of our goals in 2017 was to find better and more inclusive ways to
reach a broader cross-section of this community. We have therefore started to employ technology to supplement face-to-face meetings and bring the experience of international congresses to the local
level.
Responding
to these challenges and new regulations is costly. Investigations and litigation may affect our reputation, create a risk of potential exclusion from government reimbursement
programs in the United States and other countries, and potentially lead to large damage payments and agreements intended to regulate company behavior. This is why we continued to strengthen the
Integrity & Compliance function in 2017. The function now has 473 employees and is headed by our Chief Ethics and Compliance Officer, who reports directly to the CEO of Novartis. The Chief
Ethics and Compliance Officer is also Head of Litigation, reporting to the Group General Counsel of Novartis. By bringing the Integrity & Compliance and Legal functions closer together, we can
evaluate facts that might be at issue in lawsuits to determine if additional compliance actions or policies are warranted. We expect this will help us constantly improve our compliance activities.
154
Table of Contents
Supply continuity
The production of pharmaceutical products and medical devices can be highly complex, and any manufacturing issue compromising supply or quality
could have serious consequences for the health of patients. For this reason, there are strict regulatory requirements surrounding our manufacturing processes, which, in addition to our own high
quality standards, introduce a greater chance for disruptions and liabilities. Any significant failure by us or our third party suppliers to comply with these requirements or the health authorities'
expectations, may cause us to shut down the production facilities or production lines. Alternately, we may be forced to shut them down by a government health authority.
Beyond
regulatory requirements, many of our products involve technically sophisticated manufacturing processes or require specialized raw materials. For example, biologic products,
produced from living plant or animal micro-organisms comprise a significant portion of our product portfolio. For biologic products, slight deviations in the production process could lead to
production failures or recalls. Our portfolio also includes a number of sterile products such as oncology treatments, which are technically complex to manufacture and require strict environmental
controls. There is a greater chance of production failures and supply interruptions for such products.
Given
the complexity of our manufacturing processes, we have worked for several years to adopt a single high-quality standard across the company. We believe these efforts are having an
impact. The results of inspections by regulatory agencies in 2017 were consistent with the year before. Out of a total of 217 inspections, all but two (99%) were without major findings.
Foreign exchange fluctuations
Changes in exchange rates between the US dollar, our reporting currency, and other currencies can have a significant effect on our reported
sales, costs and earnings, as well as on the reported value of our assets, liabilities and cash flows.
For
example, because our expenditures in Swiss francs are significantly higher than our revenue in Swiss francs, volatility in the value of the Swiss franc can have a significant impact
on our reported results, and the timing and extent of such volatility can be difficult to predict.
There
is also a risk that certain countries could take steps that could significantly impact the value of their currencies, such as withdrawing from trade agreements or common
currencies. In addition, countries facing local financial difficulties, including countries experiencing high inflation rates and highly indebted countries facing large capital outflows, may impose
controls on the exchange of foreign currency. Such exchange controls could limit our ability to distribute retained earnings from our local affiliates, or to pay intercompany payables due from those
countries.
To
mitigate the risk posed by foreign exchange fluctuations, we engage in hedging transactions where management deems appropriate, after taking into account the natural hedging afforded
by our global business activity.
Intangible assets and goodwill
We carry a significant amount of goodwill and other intangible assets on our consolidated balance sheet, primarily due to acquisitions,
including the acquisition of Alcon and the oncology assets acquired from GSK. As a result, we may incur significant impairment charges if the fair value of intangible assets and groupings of cash
generating units containing goodwill are less than their carrying value on the Group's consolidated balance sheet at any point in time.
We
regularly review our long-lived intangible and tangible assets for impairment. In 2017, for example, we recorded intangible asset impairment charges of $709 million, including
the cost of discontinuing the development of RLX030 (serelaxin). Impairment testing may lead to additional
155
Table of Contents
impairment
charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition.
Tax
Our worldwide operations are taxed under the laws of the jurisdictions in which we operate. However, the integrated nature of our worldwide
operations can produce conflicting claims from revenue authorities in different countries as to the profits to be taxed in the individual countries, including disputes relating to transfer pricing.
The majority of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions, which provide a framework for mitigating the impact of double taxation on our revenues
and capital gains. However, mechanisms developed to resolve such conflicting claims are largely untried, and can be expected to be very lengthy.
In
recent years, tax authorities around the world have increased their scrutiny of company tax filings, and have become more rigid in exercising any discretion they may have. As part of
this, the Organization for Economic Co-operation and Development (OECD) has proposed a number of tax law changes under its Base Erosion and Profit Shifting (BEPS) Action Plans to address issues of
transparency, coherence and substance.
At
the same time, the European Commission is finalizing its Anti Tax Avoidance Directive, which seeks to prevent tax avoidance by companies and to ensure that companies pay appropriate
taxes in the markets where profits are effectively made and business is effectively performed. The European Commission also continues to extend the application of its policies seeking to limit fiscal
aid by Member States to particular companies, and the related investigation of the Member States' practices regarding the issuance of rulings on tax matters relating to individual companies.
These
OECD and EU tax reform initiatives also need local country implementation, including in our home country of Switzerland, which may result in significant changes to established tax
principles. Although we have taken steps to be in compliance with the evolving OECD and EU tax initiatives, and will continue to do so, significant uncertainties remain as to the outcome of these
efforts.
In
addition, in the United States, the president on December 22, 2017, signed into law the Tax Cuts and Jobs Act of 2017, which includes substantial changes to the US taxation of
individuals and businesses. Although the new law substantially decreased tax rates applicable to corporations, we do not yet know what all of the consequences of this new statute will be, including
whether the law will have any unintended consequences. In particular, significant uncertainties remain as to how the US government will implement the new law, including with respect to the tax
qualification of interest deductions, the concept of a territorial tax regime, royalty payments and cost of goods sold.
In
general, such tax reform efforts, including with respect to tax base or rate, transfer pricing, intercompany dividends, cross border transactions, controlled corporations, and
limitations on tax relief allowed on the interest on intercompany debt, will require us to continually assess our organizational
structure against tax policy trends, and could lead to an increased risk of international tax disputes and an increase in our effective tax rate, and could adversely affect our financial results.
IT security, data integrity and data privacy
We are heavily dependent on critical, complex and interdependent information technology (IT) systems, including internet-based systems, to
support business processes.
The
size and complexity of our IT systems, and in some instances their age, make them potentially vulnerable to external and internal security incidents, breakdowns, malicious
intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced and lost data, programming and human errors, and other similar events. Although we have devoted and continue to
devote significant resources and management attention to cybersecurity and to business continuity efforts, like many companies, we
156
Table of Contents
have
experienced certain of these events and expect to continue to experience them in the future, as the external cyber-attack threaat only keeps growing. We believe that the data security incidents
we have experienced to date have not resulted in significant disruptions to our operations, and have not had a significant adverse effect on our results of operations, or on third parties. However, we
may not be able to prevent breakdowns or breaches in our systems and we may not be able to prevent such events from having a material adverse effect on our business, financial condition, results of
operation, or reputation.
In
addition, our routine business operations, including through the use of information technologies such as the Internet, social media, mobile technologies, and technology-based medical
devices, increasingly involve our gathering personal information (including sensitive personal information) about patients, vendors, customers, employees, collaborators and others. Breaches of our
systems or those of our third-party contractors, or other failures to protect such information, could expose such people's personal information to unauthorized persons. Any such event could give rise
to significant potential liability and reputational harm, including potentially substantial monetary penalties. We also make significant efforts to ensure that any international transfers of personal
data are done in compliance with applicable law. Any additional restraints that may be placed on our ability to transfer such data could have a material adverse effect on our business, financial
condition, results of operations and reputation.
Transformational technologies and business models
Rapid progress in digital technologies and in the development of new business models is substantially transforming numerous industries around
the world, while sometimes quickly rendering established businesses uncompetitive or obsolete. To take advantage of these opportunities, Novartis has embarked upon a digital transformation strategy,
with the goal of making Novartis an industry leader in leveraging advanced analytics and other new technologies. At the same time, there is a risk that other companies with specialized expertise or
business models may enter the healthcare field, potentially disrupting our relationships with patients, healthcare professionals, customers, distributors and suppliers, with unknown potential
consequences for us.
If
we should fail to succeed in our efforts at a digital transformation of our company, then there is a risk that we may fail to create the innovative new products, tools or techniques
that such technologies may make possible, or may fail to create them as quickly and efficiently as such technologies may enable. We may also lose opportunities to engage with our stakeholders and to
profit from improved business processes, and may lose the resources devoted to these efforts to transform our business. At the same time, should third parties successfully enter the healthcare field
with disruptive new technologies or business models, then we potentially may see our business supplanted in whole or in part by these new entrants.
Approach to Risk Management
The Risk Committee of the Board ensures the Group has implemented an appropriate and effective risk management system and process. It reviews
with management and Internal Audit the identification, prioritization and management of the risks, the accountabilities and roles of the functions involved in risk management, the risk portfolio and
the related actions implemented by management. The Risk Committee informs the Board of Directors on a periodic basis.
The
Group Risk Office coordinates and aligns the risk management processes, and reports to the Risk Committee on a regular basis on risk assessment and risk management. Organizational
and process measures have been designed to identify and mitigate risks at an early stage. Organizationally, the responsibility for risk assessment and management is allocated to the divisions,
organizational units, and functions, with specialized Corporate functions, such as Group Finance, Group Legal, Group Quality Assurance, Corporate Health, Safety and Environment, Business Continuity
Management,
Integrity & Compliance and the Business Practices Office providing support and controlling the effectiveness of risk management in these areas.
157
Table of Contents
Financial
risk management is described in more detail in "Note 28. Financial instrumentsadditional disclosures" in the "Excerpts from Novartis Annual Report 2017"
furnished to the SEC on Form 6-K on January 24, 2018.
NON-IFRS MEASURES AS DEFINTED BY NOVARTIS
Novartis uses certain non-IFRS metrics when measuring performance, especially when measuring current year results against prior periods,
including core results, constant currencies, free cash flow and net debt.
Despite
the use of these measures by management in setting goals and measuring the Group's performance, these are non-IFRS measures that have no standardized meaning prescribed by IFRS.
As a result, such measures have limits in their usefulness to investors.
Because
of their non-standardized definitions, the non-IFRS measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These
non-IFRS measures are presented solely to permit investors to more fully understand how the Group's management assesses underlying performance. These non-IFRS measures are not, and should not be
viewed as, a substitute for IFRS measures.
As
an internal measure of Group performance, these non-IFRS measures have limitations, and the Group's performance management process is not solely restricted to these metrics.
Core Results
The Group's core resultsincluding core operating income, core net income and core earnings per shareexclude fully the
amortization and impairment charges of intangible assets, except software, and certain acquisition-related items. The following items that exceed a threshold of $25 million are also excluded:
integration and divestment related income and expenses, divestment gains and losses, restructuring charges/releases and related items, legal related items, impairments of property, plant and equipment
and financial assets, as well as income and expense items that management deems exceptional and that are or are expected to accumulate within the year to be over a $25 million threshold.
Novartis
believes that investor understanding of the Group's performance is enhanced by disclosing core measures of performance since they exclude items that can vary significantly from
year to year, the core measures enable better comparison of business performance across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as
important factors in assessing the Group's performance.
The
following are examples of how these core measures are utilized:
-
-
In addition to monthly reports containing financial information prepared under IFRS, senior management receives a monthly analysis
incorporating these core measures.
-
-
Annual budgets are prepared for both IFRS and core measures.
A
limitation of the core measures is that they provide a view of the Group's operations without including all events during a period, such as the effects of an acquisition, divestments,
or amortization/impairments of purchased intangible assets and restructurings.
Constant Currencies
Changes in the relative values of non-US currencies to the US dollar can affect the Group's financial results and financial position. To provide
additional information that may be useful to investors, including changes in sales volume, we present information about our net sales and various values relating to operating and net income that are
adjusted for such foreign currency effects.
158
Table of Contents
Constant
currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statement excluding
the impact of fluctuations in exchange rates:
-
-
The impact of translating the income statements of consolidated entities from their non-US dollar functional currencies to US dollars; and
-
-
The impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional
currency.
We
calculate constant currency measures by translating the current year's foreign currency values for sales and other income statement items into US dollars, using the average exchange
rates from the prior year and comparing them to the prior year values in US dollars.
We
use these constant currency measures in evaluating the Group's performance, since they may assist us in evaluating our ongoing performance from year to year. However, in performing
our evaluation,
we also consider equivalent measures of performance that are not affected by changes in the relative value of currencies.
Growth Rate Calculation
For ease of understanding, Novartis uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared
to the prior year is shown as a positive growth.
Free Cash Flow
Free cash flow is presented as additional information because management believes it is a useful supplemental indicator of the Group's ability
to operate without reliance on additional borrowing or use of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment, investment in strategic
opportunities and for returning to shareholders. Free cash flow is a non-IFRS measure, which means it should not be interpreted as a measure determined under IFRS. Free cash flow is not intended to be
a substitute measure for cash flow from operating activities as determined under IFRS.
Novartis
defines free cash flow as cash flow from operating activities and cash flow associated with the purchase or sale of property, plant and equipment, as well as intangible, other
non-current and financial assets, excluding marketable securities. The definition of free cash flow used by Novartis does not include amounts related to changes in investments in associated companies
or related acquisitions or divestments of subsidiaries.
Net Debt
Net debt is presented as additional information because management believes it is a useful supplemental indicator of the Group's ability to pay
dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet. Net debt is a non-IFRS measure, which means it should not be
interpreted as a measure determined under IFRS.
Novartis
defines net debt as current and non-current financial debt less cash and cash equivalents, current investments and derivative financial instruments.
Novartis Cash Value Added
Novartis Cash Value Added (NCVA) is a metric that is based on what the company assesses to be its cash flow return less a capital charge on
gross operating assets. NCVA is used as the primary internal financial measure for determining payouts under the Long-Term Performance Plan introduced in 2014.
159
Table of Contents
More
information on NCVA is presented as part of the Compensation Report, see "Item 6.B Compensation".
Additional Information
EBITDA
Novartis defines earnings before interest, tax, depreciation and amortization (EBITDA) as operating income from continuing operations excluding
depreciation of property, plant and equipment (including any related impairment charges) and amortization of intangible assets (including any related impairment charges).
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Operating income
|
|
|
8,629
|
|
|
8,268
|
|
|
361
|
|
Depreciation of property, plant & equipment
|
|
|
1,520
|
|
|
1,489
|
|
|
31
|
|
Amortization of intangible assets
|
|
|
3,690
|
|
|
3,861
|
|
|
(171
|
)
|
Impairments of property, plant & equipment, and intangible assets
|
|
|
866
|
|
|
693
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
14,705
|
|
|
14,311
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise value
Enterprise value represents the total amount that shareholders and debt holders have invested in Novartis, less the Group's liquidity.
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 31, 2017
|
|
Dec 31, 2016
|
|
Change
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Market capitalization
|
|
|
195,541
|
|
|
172,048
|
|
|
23,493
|
|
Non-controlling interests
|
|
|
59
|
|
|
59
|
|
|
0
|
|
Financial debts and derivatives
|
|
|
28,532
|
|
|
23,802
|
|
|
4,730
|
|
Liquidity
|
|
|
(9,485
|
)
|
|
(7,777
|
)
|
|
(1,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise value
|
|
|
214,647
|
|
|
188,132
|
|
|
26,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise value/EBITDA
|
|
|
15
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
Table of Contents
2017 AND 2016 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative
Medicines
|
|
Sandoz
|
|
Alcon
|
|
Corporate
|
|
Group
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
IFRS Operating income
|
|
|
7,782
|
|
|
7,426
|
|
|
1,368
|
|
|
1,445
|
|
|
(190
|
)
|
|
(132
|
)
|
|
(331
|
)
|
|
(471
|
)
|
|
8,629
|
|
|
8,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
2,243
|
|
|
2,440
|
|
|
454
|
|
|
460
|
|
|
901
|
|
|
901
|
|
|
|
|
|
|
|
|
3,598
|
|
|
3,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
591
|
|
|
522
|
|
|
61
|
|
|
65
|
|
|
57
|
|
|
4
|
|
|
|
|
|
|
|
|
709
|
|
|
591
|
|
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites
|
|
|
7
|
|
|
1
|
|
|
60
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
(6
|
)
|
Other property, plant & equipment
|
|
|
77
|
|
|
76
|
|
|
13
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
84
|
|
Financial assets
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
197
|
|
|
99
|
|
|
226
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges
|
|
|
675
|
|
|
617
|
|
|
134
|
|
|
66
|
|
|
86
|
|
|
4
|
|
|
197
|
|
|
99
|
|
|
1,092
|
|
|
786
|
|
Acquisition or divestment of businesses and related items ..
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(2
|
)
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
(229
|
)
|
|
(117
|
)
|
|
(297
|
)
|
Expense
|
|
|
32
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
223
|
|
|
162
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition or divestment of businesses and related items, net
|
|
|
30
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
(6
|
)
|
|
45
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestment gains
|
|
|
(368
|
)
|
|
(608
|
)
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
(368
|
)
|
|
(662
|
)
|
Restructuring and related items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(53
|
)
|
|
(41
|
)
|
|
(7
|
)
|
|
(23
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
(1
|
)
|
|
(5
|
)
|
|
(65
|
)
|
|
(73
|
)
|
Expense
|
|
|
268
|
|
|
418
|
|
|
134
|
|
|
123
|
|
|
34
|
|
|
33
|
|
|
29
|
|
|
65
|
|
|
465
|
|
|
639
|
|
Legal-related items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(21
|
)
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
(99
|
)
|
Expense
|
|
|
35
|
|
|
205
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
205
|
|
Additional income
|
|
|
(534
|
)
|
|
(61
|
)
|
|
(3
|
)
|
|
|
|
|
(51
|
)
|
|
(13
|
)
|
|
(372
|
)
|
|
(22
|
)
|
|
(960
|
)
|
|
(96
|
)
|
Additional expense
|
|
|
273
|
|
|
84
|
|
|
|
|
|
6
|
|
|
20
|
|
|
61
|
|
|
46
|
|
|
100
|
|
|
339
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(400
|
)
|
|
(102
|
)
|
|
124
|
|
|
100
|
|
|
60
|
|
|
77
|
|
|
(298
|
)
|
|
90
|
|
|
(514
|
)
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
2,548
|
|
|
2,928
|
|
|
712
|
|
|
626
|
|
|
1,047
|
|
|
982
|
|
|
(86
|
)
|
|
183
|
|
|
4,221
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core operating income
|
|
|
10,330
|
|
|
10,354
|
|
|
2,080
|
|
|
2,071
|
|
|
857
|
|
|
850
|
|
|
(417
|
)
|
|
(288
|
)
|
|
12,850
|
|
|
12,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as % of net sales
|
|
|
31.3
|
%
|
|
31.8
|
%
|
|
20.7
|
%
|
|
20.4
|
%
|
|
14.2
|
%
|
|
14.6
|
%
|
|
|
|
|
|
|
|
26.2
|
%
|
|
26.8
|
%
|
Income from associated companies
|
|
|
(1
|
)
|
|
|
|
|
23
|
|
|
6
|
|
|
|
|
|
|
|
|
1,086
|
|
|
697
|
|
|
1,108
|
|
|
703
|
|
Core adjustments to income from associated companies, net of tax
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
431
|
|
|
227
|
|
|
431
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(777
|
)
|
|
(707
|
)
|
Other financial income and expense
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
(99
|
)
|
Taxes, adjusted for above items (core taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,056
|
)
|
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,391
|
|
|
11,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income attributable to shareholders of Novartis AG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,391
|
|
|
11,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core basic EPS ($)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.86
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Adjusted
for charges of $0.3 billion in 2016 related mainly to devaluation losses in Venezuela.
-
(2)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
161
Table of Contents
2016 AND 2015 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovative
Medicines
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandoz
|
|
Alcon
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
Group
|
|
|
|
|
|
2015
restated
(2)
|
|
|
|
2015
restated
(2)
|
|
|
|
2015
restated
(2)
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
IFRS Operating income from continuing operations
|
|
|
7,426
|
|
|
7,815
|
|
|
1,445
|
|
|
1,300
|
|
|
(132
|
)
|
|
281
|
|
|
(471
|
)
|
|
(419
|
)
|
|
8,268
|
|
|
8,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
2,440
|
|
|
2,367
|
|
|
460
|
|
|
447
|
|
|
901
|
|
|
895
|
|
|
|
|
|
|
|
|
3,801
|
|
|
3,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
522
|
|
|
138
|
|
|
65
|
|
|
27
|
|
|
4
|
|
|
1
|
|
|
|
|
|
|
|
|
591
|
|
|
166
|
|
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites
|
|
|
1
|
|
|
6
|
|
|
(7
|
)
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
89
|
|
Other property, plant & equipment
|
|
|
76
|
|
|
(45
|
)
|
|
8
|
|
|
14
|
|
|
|
|
|
1
|
|
|
|
|
|
21
|
|
|
84
|
|
|
(9
|
)
|
Financial assets
|
|
|
18
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
91
|
|
|
117
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges
|
|
|
617
|
|
|
131
|
|
|
66
|
|
|
124
|
|
|
4
|
|
|
2
|
|
|
99
|
|
|
112
|
|
|
786
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition or divestment of businesses and related items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(68
|
)
|
|
(22
|
)
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(229
|
)
|
|
(260
|
)
|
|
(297
|
)
|
|
(283
|
)
|
Expense
|
|
|
41
|
|
|
214
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
223
|
|
|
250
|
|
|
264
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition or divestment of businesses and related items, net
|
|
|
(27
|
)
|
|
192
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
(10
|
)
|
|
(33
|
)
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestment gains
|
|
|
(608
|
)
|
|
(626
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
(54
|
)
|
|
(662
|
)
|
|
(680
|
)
|
Restructuring items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(41
|
)
|
|
(30
|
)
|
|
(23
|
)
|
|
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(5
|
)
|
|
(5
|
)
|
|
(73
|
)
|
|
(39
|
)
|
Expense
|
|
|
418
|
|
|
422
|
|
|
123
|
|
|
121
|
|
|
33
|
|
|
29
|
|
|
65
|
|
|
57
|
|
|
639
|
|
|
629
|
|
Legal-related items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
Expense
|
|
|
205
|
|
|
578
|
|
|
|
|
|
40
|
|
|
|
|
|
4
|
|
|
|
|
|
(30
|
)
|
|
205
|
|
|
592
|
|
Additional income
|
|
|
(61
|
)
|
|
(119
|
)
|
|
|
|
|
(2
|
)
|
|
(13
|
)
|
|
(5
|
)
|
|
(22
|
)
|
|
(68
|
)
|
|
(96
|
)
|
|
(194
|
)
|
Additional expense
|
|
|
84
|
|
|
132
|
|
|
6
|
|
|
15
|
|
|
61
|
|
|
33
|
|
|
100
|
|
|
65
|
|
|
251
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(102
|
)
|
|
357
|
|
|
100
|
|
|
174
|
|
|
77
|
|
|
57
|
|
|
90
|
|
|
(35
|
)
|
|
165
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
2,928
|
|
|
3,047
|
|
|
626
|
|
|
745
|
|
|
982
|
|
|
954
|
|
|
183
|
|
|
67
|
|
|
4,719
|
|
|
4,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core operating income from continuing operations
|
|
|
10,354
|
|
|
10,862
|
|
|
2,071
|
|
|
2,045
|
|
|
850
|
|
|
1,235
|
|
|
(288
|
)
|
|
(352
|
)
|
|
12,987
|
|
|
13,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as % of net sales
|
|
|
31.8
|
%
|
|
32.6
|
%
|
|
20.4
|
%
|
|
20.3
|
%
|
|
14.6
|
%
|
|
20.6
|
%
|
|
|
|
|
|
|
|
26.8
|
%
|
|
27.9
|
%
|
Income from associated companies
|
|
|
|
|
|
|
|
|
6
|
|
|
2
|
|
|
|
|
|
|
|
|
697
|
|
|
264
|
|
|
703
|
|
|
266
|
|
Core adjustments to income from associated companies, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431
|
|
|
715
|
|
|
431
|
|
|
715
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(707
|
)
|
|
(655
|
)
|
Other financial income and expense
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
(24
|
)
|
Taxes, adjusted for above items (core taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,001
|
)
|
|
(2,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,314
|
|
|
12,041
|
|
Core net loss from discontinued operations
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,314
|
|
|
11,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core net income attributable to shareholders of Novartis AG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,307
|
|
|
11,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core basic EPS from continuing operations ($)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75
|
|
|
5.01
|
|
Core basic EPS from discontinued operations ($)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core basic EPS ($)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Formerly
named the Pharmaceuticals Division.
-
(2)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016.
-
(3)
-
Adjusted
for charges of $0.3 billion related mainly to Venezuela subsidiaries (2015: $0.4 billion).
-
(4)
-
For
details on 2015 discontinued operations reconciliation from IFRS to core net income, please refer to "2015 Reconciliation of IFRS
Results to Core ResultsGroup Discontinued Operations".
-
(5)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
162
Table of Contents
2017, 2016 AND 2015 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTSGROUP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
IFRS
results
|
|
Amortization
of intangible
assets
(1)
|
|
Impairments
(2)
|
|
Acquisition or
divestment
of businesses
and related
items
(3)
|
|
Other
items
(4)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
32,960
|
|
|
3,401
|
|
|
92
|
|
|
|
|
|
125
|
|
|
36,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,629
|
|
|
3,598
|
|
|
1,092
|
|
|
45
|
|
|
(514
|
)
|
|
12,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
8,999
|
|
|
3,974
|
|
|
1,093
|
|
|
45
|
|
|
(664
|
)
|
|
13,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
(5)
|
|
|
(1,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
7,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS ($)
(6)
|
|
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(17,175
|
)
|
|
3,401
|
|
|
92
|
|
|
|
|
|
125
|
|
|
(13,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(12,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
(12,865
|
)
|
Research & Development
|
|
|
(8,972
|
)
|
|
197
|
|
|
680
|
|
|
|
|
|
(218
|
)
|
|
(8,313
|
)
|
General & Administration
|
|
|
(2,136
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
(2,135
|
)
|
Other income
|
|
|
1,969
|
|
|
|
|
|
(9
|
)
|
|
(117
|
)
|
|
(1,065
|
)
|
|
778
|
|
Other expense
|
|
|
(2,331
|
)
|
|
|
|
|
329
|
|
|
162
|
|
|
647
|
|
|
(1,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associated companies
|
|
|
1,108
|
|
|
376
|
|
|
1
|
|
|
|
|
|
(150
|
)
|
|
1,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms; Income from associated companies includes
$376 million for the Novartis share of the estimated Roche core items.
-
(2)
-
Impairments:
Cost of goods sold and Research & Development include impairment charges related to intangible assets; Research &
Development and Other expense include impairment charges related to financial assets; Research & Development, Other income and Other expense include reversals and charges related to the
impairment of property, plant and equipment.
-
(3)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
transitional service-fee income and expenses and other items related to the portfolio transformation.
-
(4)
-
Other
items: Cost of goods sold, Other Income and Other expense include net restructuring and other charges related to the Group-wide rationalization
of manufacturing sites; Cost of goods sold, Research & Development, General & Administration, Other income and Other expense include other restructuring income and charges and related
items; Marketing & Sales includes an income from the release of a provision; Research & Development includes fair value adjustments to contingent consideration liabilities; Other income
and Other expense include legal-related items; Other income also includes a gain from a Swiss pension plan amendment, product and financial asset divestment gains, a partial reversal of a prior period
charge, an income from a settlement of a contract dispute and a fair value adjustment to contingent consideration sales milestone receivables; Other expense also includes a provision for contract
termination costs, a charge for onerous contracts and an amendment to the Swiss Pension Plan; Income from associated companies includes an adjustment of $150 million for the Novartis share of
the estimated GSK Consumer Healthcare Holdings Ltd. core items.
-
(5)
-
Taxes
on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will
finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and
acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for
163
Table of Contents
items
arising from legal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the
differing effective tax rates in the various jurisdictions, the tax on the total adjustments of $4.4 billion to arrive at the core results before tax amounts to $760 million. The average
tax rate on the adjustments is 17.1%.
-
(6)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
IFRS
results
|
|
Amortization
of intangible
assets
(1)
|
|
Impairments
(2)
|
|
Acquisition or
divestment of
businesses
and related
items
(3)
|
|
Other
items
(4)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
31,916
|
|
|
3,758
|
|
|
96
|
|
|
|
|
|
36
|
|
|
35,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,268
|
|
|
3,801
|
|
|
786
|
|
|
(33
|
)
|
|
165
|
|
|
12,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,817
|
|
|
4,097
|
|
|
786
|
|
|
(33
|
)
|
|
648
|
|
|
13,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
(5)
|
|
|
(1,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS ($)
(6)
|
|
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
918
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
868
|
|
Cost of goods sold
|
|
|
(17,520
|
)
|
|
3,758
|
|
|
96
|
|
|
|
|
|
86
|
|
|
(13,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(11,998
|
)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
(11,991
|
)
|
Research & Development
|
|
|
(9,039
|
)
|
|
43
|
|
|
495
|
|
|
|
|
|
99
|
|
|
(8,402
|
)
|
General & Administration
|
|
|
(2,194
|
)
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
(2,120
|
)
|
Other income
|
|
|
1,927
|
|
|
|
|
|
(10
|
)
|
|
(297
|
)
|
|
(867
|
)
|
|
753
|
|
Other expense
|
|
|
(2,344
|
)
|
|
|
|
|
205
|
|
|
264
|
|
|
816
|
|
|
(1,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associated companies
|
|
|
703
|
|
|
296
|
|
|
|
|
|
|
|
|
135
|
|
|
1,134
|
|
Other financial income and expense
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms; Income from associated companies includes
$296 million for the Novartis share of the estimated Roche core items.
-
(2)
-
Impairments:
Cost of goods sold and Research & Development include impairment charges related to intangible assets; Other income includes
impairment reversals of property, plant and equipment; Other expense includes impairment charges related to property, plant and equipment, and financial assets.
-
(3)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
transitional service-fee income and expenses and other items related to the portfolio transformation; Other income also includes a gain from the revaluation of a previously held financial investment
in a newly acquired company.
-
(4)
-
Other
items: Other revenues include an early release of deferred income associated with a collaboration agreement; Cost of goods sold, Other income
and Other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; Research & Development, Marketing & Sales, Other income
and Other expense include other restructuring income and charges; Cost of goods sold and Research & Development include adjustments of contingent considerations; General &
Administration, Other income and Other expense include items related to setup costs for Novartis Business Services; Other income and Other expense also include legal settlements and changes in
provisions; Other income also includes gains from product divestments, other income related to the portfolio transformation and a gain related to the sale of real estate; Other expense also includes a
charge as a result of a pension plan amendment, a charge for an indirect tax
164
Table of Contents
settlement
and other costs; Income from associated companies includes $135 million for the Novartis share of the estimated GSK Consumer Healthcare Holdings Ltd. core items; Other
financial income and expense relates mainly to devaluation losses in Venezuela.
-
(5)
-
Taxes
on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will
finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and
acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal
settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in
the various jurisdictions, the tax on the total adjustments for continuing operations of $5.5 billion to arrive at the core results before tax amounts to $882 million. The average tax
rate on the adjustments is 16.0%.
-
(6)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
results
|
|
Amortization
of intangible
assets
(1)
|
|
Impairments
(2)
|
|
Acquisition or
divestment of
businesses
and related
items
(3)
|
|
Other
items
(4)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit from continuing operations
|
|
|
32,983
|
|
|
3,666
|
|
|
126
|
|
|
|
|
|
125
|
|
|
36,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
8,977
|
|
|
3,709
|
|
|
369
|
|
|
182
|
|
|
553
|
|
|
13,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes from continuing operations
|
|
|
8,134
|
|
|
4,132
|
|
|
369
|
|
|
182
|
|
|
1,275
|
|
|
14,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes from continuing operations
(5)
|
|
|
(1,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
7,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,041
|
|
Net income/loss from discontinued operations
(6)
|
|
|
10,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
17,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations ($)
(7)
|
|
|
2.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.01
|
|
Basic EPS from discontinued operations ($)
(7)
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic EPS ($)
(7)
|
|
|
7.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
919
|
|
Cost of goods sold
|
|
|
(17,404
|
)
|
|
3,666
|
|
|
126
|
|
|
|
|
|
153
|
|
|
(13,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(11,772
|
)
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
(11,729
|
)
|
Research & Development
|
|
|
(8,935
|
)
|
|
43
|
|
|
40
|
|
|
|
|
|
114
|
|
|
(8,738
|
)
|
General & Administration
|
|
|
(2,475
|
)
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
(2,389
|
)
|
Other income
|
|
|
2,049
|
|
|
|
|
|
(56
|
)
|
|
(283
|
)
|
|
(887
|
)
|
|
823
|
|
Other expense
|
|
|
(2,873
|
)
|
|
|
|
|
259
|
|
|
465
|
|
|
1,072
|
|
|
(1,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Income before taxes from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associated companies
|
|
|
266
|
|
|
423
|
|
|
|
|
|
|
|
|
292
|
|
|
981
|
|
Other financial income and expense
|
|
|
(454
|
)
|
|
|
|
|
|
|
|
|
|
|
430
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms; Income from associated companies includes
$423 million for the Novartis share of the estimated Roche core items.
-
(2)
-
Impairments:
Cost of goods sold, Research & Development and Other expense consist principally of net impairment charges or reversals related to
intangible assets, property, plant and equipment, and financial assets; Other income includes a reversal of an impairment related to property, plant and equipment.
165
Table of Contents
-
(3)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
items related to the portfolio transformation.
-
(4)
-
Other
items: Other revenues and Other income include additional gains from product divestments; Cost of goods sold and Other expense include charges
for the Group-wide rationalization of manufacturing sites; Cost of goods sold also includes an inventory write-off; Marketing & Sales, Research & Development and Other expense include
other restructuring charges; Research & Development also includes expenses related to product acquisitions; General & Administration includes charges for transforming IT and finance
processes and expenses related to setup costs for Novartis Business Services; Other income also includes a gain of $110 million from a Swiss pension plan amendment and items related to
portfolio transformation; Other expense also includes legal settlement provisions; Income from associated companies includes $292 million for the Novartis share of the estimated OTC joint
venture core items; Other financial income and expense relates mainly to devaluation losses in Venezuela.
-
(5)
-
Taxes
on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will
finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and
acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on other items, although this is not always the case for items arising from legal
settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in
the various jurisdictions, the tax on the total adjustments for continuing operations of $6.0 billion to arrive at the core results before tax amounts to $945 million. The average tax
rate on the adjustments for continuing operations is 15.9%.
-
(6)
-
For
details on discontinued operations reconciliation from IFRS to core net income, please refer to "2015 Reconciliation of IFRS Results
to Core ResultsGroup Discontinued Operations".
-
(7)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
166
Table of Contents
2017, 2016 AND 2015 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTSINNOVATIVE MEDICINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Acquisition or
divestment of
businesses
and related
items
(3)
|
|
Other
items
(4)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
25,584
|
|
|
2,056
|
|
|
31
|
|
|
|
|
|
56
|
|
|
27,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,782
|
|
|
2,243
|
|
|
675
|
|
|
30
|
|
|
(400
|
)
|
|
10,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(9,007
|
)
|
|
2,056
|
|
|
31
|
|
|
|
|
|
56
|
|
|
(6,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(9,089
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
(9,093
|
)
|
Research & Development
|
|
|
(7,630
|
)
|
|
187
|
|
|
594
|
|
|
|
|
|
(200
|
)
|
|
(7,049
|
)
|
General & Administration
|
|
|
(986
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
(985
|
)
|
Other income
|
|
|
1,027
|
|
|
|
|
|
(9
|
)
|
|
(2
|
)
|
|
(665
|
)
|
|
351
|
|
Other expense
|
|
|
(1,124
|
)
|
|
|
|
|
59
|
|
|
32
|
|
|
412
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(2)
-
Impairments:
Cost of goods sold and Research & Development include impairment charges related to intangible assets; Research &
Development, Other income and Other expense include reversals and charges related to the impairment of property, plant and equipment.
-
(3)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income includes transitional
service-fee income; Other expense includes items related to the portfolio transformation and costs related to an acquisition.
-
(4)
-
Other
items: Cost of goods sold, Other Income and Other expense include net restructuring and other charges related to the Group-wide rationalization
of manufacturing sites; Costs of goods sold, Research & Development, General & Administration, Other income and Other expense include other restructuring income and charges and related
items; Marketing & Sales includes an income from the release of a provision; Research & Development includes fair value adjustments to contingent consideration liabilities; Other income
and Other expense include legal-related items; Other income also includes a gain from a Swiss pension plan amendment, an income from a settlement of a contract dispute, as well as product and
financial asset divestment gains; Other expense also includes a provision for contract termination costs, an amendment to the Swiss Pension Plan, a charge for onerous contracts and other charges.
167
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Acquisition or
divestment of
businesses
and related
items
(3)
|
|
Other
items
(4)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
24,670
|
|
|
2,409
|
|
|
41
|
|
|
|
|
|
(11
|
)
|
|
27,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,426
|
|
|
2,440
|
|
|
617
|
|
|
(27
|
)
|
|
(102
|
)
|
|
10,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
765
|
|
Cost of goods sold
|
|
|
(9,331
|
)
|
|
2,409
|
|
|
41
|
|
|
|
|
|
39
|
|
|
(6,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(8,435
|
)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
(8,428
|
)
|
Research & Development
|
|
|
(7,709
|
)
|
|
31
|
|
|
481
|
|
|
|
|
|
85
|
|
|
(7,112
|
)
|
Other income
|
|
|
1,091
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
(759
|
)
|
|
264
|
|
Other expense
|
|
|
(1,213
|
)
|
|
|
|
|
95
|
|
|
41
|
|
|
576
|
|
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(2)
-
Impairments:
Cost of goods sold and Research & Development include impairment charges related to intangible assets; Other expense includes
impairment charges related to property, plant and equipment, and financial assets.
-
(3)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
transitional service-fee income and expenses and other items related to the portfolio transformation; Other income also includes a gain from the revaluation of a previously held financial investment
in a newly acquired company.
-
(4)
-
Other
items: Other revenues include an early release of deferred income associated with a collaboration agreement; Cost of goods sold, Other income
and Other expense include net restructuring and other charges related to the Group-wide rationalization of manufacturing sites; Research & Development, Marketing & Sales, Other income
and Other expense include other restructuring income and charges; Research & Development also includes an expense due to an adjustment of a contingent consideration; Other income and Other
expense also include legal settlements and changes in provisions; Other income also includes gains from product divestments; Other expense also includes a charge as a result of a pension plan
amendment.
168
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
restated
results
(1)
|
|
Amortization of
intangible
assets
(2)
|
|
Impairments
(3)
|
|
Acquisition or
divestment of
businesses
and related
items
(4)
|
|
Other
items
(5)
|
|
Core
restated
results
(1)
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
25,451
|
|
|
2,335
|
|
|
99
|
|
|
|
|
|
90
|
|
|
27,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,815
|
|
|
2,367
|
|
|
131
|
|
|
192
|
|
|
357
|
|
|
10,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
764
|
|
Cost of goods sold
|
|
|
(9,204
|
)
|
|
2,335
|
|
|
99
|
|
|
|
|
|
118
|
|
|
(6,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing & Sales
|
|
|
(8,430
|
)
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
(8,387
|
)
|
Research & Development
|
|
|
(7,685
|
)
|
|
32
|
|
|
39
|
|
|
|
|
|
112
|
|
|
(7,502
|
)
|
Other income
|
|
|
1,149
|
|
|
|
|
|
(56
|
)
|
|
(22
|
)
|
|
(747
|
)
|
|
324
|
|
Other expense
|
|
|
(1,639
|
)
|
|
|
|
|
49
|
|
|
214
|
|
|
859
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016.
-
(2)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(3)
-
Impairments:
Cost of goods sold includes impairment charges, as well as reversals of impairment charges related to intangible assets;
Research & Development includes impairment charges for in process projects and termination of collaboration and license agreements; Other income includes a reversal of intangible asset
impairments; Other expense includes impairment charges related to property, plant and equipment and financial assets.
-
(4)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
income and costs related to the portfolio transformation.
-
(5)
-
Other
items: Other revenues and Other income include additional gains from product divestments; Cost of goods sold and Other expense include net
restructuring charges related to the Group-wide rationalization of manufacturing sites; Cost of goods sold also includes an inventory write-off; Marketing & Sales, Research & Development
and Other expense include other restructuring charges; Research & Development also includes expenses related to product acquisitions; Other income also includes a gain from a Swiss pension plan
amendment; Other expense also includes legal settlement provisions.
169
Table of Contents
2017, 2016 AND 2015 RECONCILIATION FROM IFRS TO CORE RESULTSSANDOZ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
4,415
|
|
|
454
|
|
|
61
|
|
|
69
|
|
|
4,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,368
|
|
|
454
|
|
|
134
|
|
|
124
|
|
|
2,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(5,800
|
)
|
|
454
|
|
|
61
|
|
|
69
|
|
|
(5,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
204
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
194
|
|
Other expense
|
|
|
(351
|
)
|
|
|
|
|
73
|
|
|
65
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets.
-
(2)
-
Impairments:
Cost of goods sold includes impairment charges related to intangible assets; Other expense includes impairment charges related to
property, plant and equipment.
-
(3)
-
Other
items: Cost of goods sold, Other income and Other expense include net restructuring and other charges related to the Group-wide rationalization
of manufacturing sites and other restructuring income and charges and related items; Other income also includes a gain from a Swiss pension plan amendment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
4,314
|
|
|
460
|
|
|
55
|
|
|
60
|
|
|
4,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,445
|
|
|
460
|
|
|
66
|
|
|
100
|
|
|
2,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(5,971
|
)
|
|
460
|
|
|
55
|
|
|
60
|
|
|
(5,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
|
(814
|
)
|
|
|
|
|
10
|
|
|
|
|
|
(804
|
)
|
Other income
|
|
|
185
|
|
|
|
|
|
(10
|
)
|
|
(29
|
)
|
|
146
|
|
Other expense
|
|
|
(259
|
)
|
|
|
|
|
11
|
|
|
69
|
|
|
(179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets.
-
(2)
-
Impairments:
Cost of goods sold and Research & Development include impairment charges related to intangible assets; Other income includes
impairment reversals of property, plant and equipment; Other expense includes impairment charges related to property, plant and equipment.
-
(3)
-
Other
items: Cost of goods sold, Other income and Other expense include net restructuring and other charges related to the Group-wide rationalization
of manufacturing sites; Cost of goods sold, Other income and Other expense also include other restructuring income and charges; Other income also includes gains from product divestments; Other expense
also includes other costs.
170
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
restated
results
(1)
|
|
Amortization of
intangible
assets
(2)
|
|
Impairments
(3)
|
|
Acquisition or
divestment of
businesses
and related
items
(4)
|
|
Other
items
(5)
|
|
Core
restated
results
(1)
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
4,379
|
|
|
446
|
|
|
27
|
|
|
|
|
|
33
|
|
|
4,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,300
|
|
|
447
|
|
|
124
|
|
|
|
|
|
174
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(5,844
|
)
|
|
446
|
|
|
27
|
|
|
|
|
|
33
|
|
|
(5,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
|
(782
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(781
|
)
|
Other income
|
|
|
109
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(4
|
)
|
|
104
|
|
Other expense
|
|
|
(381
|
)
|
|
|
|
|
97
|
|
|
1
|
|
|
145
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016.
-
(2)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets.
-
(3)
-
Impairments:
Cost of goods sold includes impairments of intangible assets; Other expense includes impairment charges related to property, plant and
equipment.
-
(4)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
items related to the portfolio transformation.
-
(5)
-
Other
items: Cost of goods sold includes marketable intangible assets not capitalized; Cost of goods sold and Other expense include net restructuring
charges related to the Group-wide rationalization of manufacturing sites; Other income includes a gain from a Swiss pension plan amendment; Other expense also includes a legal settlement.
2017, 2016 AND 2015 RECONCILIATION OF IFRS RESULTS TO CORE RESULTSALCON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
2,799
|
|
|
891
|
|
|
|
|
|
|
|
|
3,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss/income
|
|
|
(190
|
)
|
|
901
|
|
|
86
|
|
|
60
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(3,231
|
)
|
|
891
|
|
|
|
|
|
|
|
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
|
(568
|
)
|
|
10
|
|
|
86
|
|
|
(18
|
)
|
|
(490
|
)
|
Other income
|
|
|
47
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
30
|
|
Other expense
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
95
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(2)
-
Impairments:
Research & Development includes impairment charges related to intangible and financial assets.
-
(3)
-
Other
items: Research & Development includes fair value adjustments to contingent consideration liabilities; Other income and Other expense
include restructuring income and charges and related items; Other income also includes a gain from a Swiss pension plan amendment and the partial reversal of a prior period charge; Other expense also
includes legal-related items.
171
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
IFRS
results
|
|
Amortization of
intangible
assets
(1)
|
|
Impairments
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
2,724
|
|
|
889
|
|
|
|
|
|
(13
|
)
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss/income
|
|
|
(132
|
)
|
|
901
|
|
|
4
|
|
|
77
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(3,092
|
)
|
|
889
|
|
|
|
|
|
(13
|
)
|
|
(2,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
|
(516
|
)
|
|
12
|
|
|
4
|
|
|
14
|
|
|
(486
|
)
|
Other income
|
|
|
48
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
44
|
|
Other expense
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
80
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(2)
-
Impairments:
Research & Development includes impairment charges related to intangible assets.
-
(3)
-
Other
items: Cost of goods sold includes an income due to an adjustment of a contingent consideration; Research & Development, Other income and
Other expense include restructuring income and charges; Research & Development also includes an expense due to an adjustment of a contingent consideration; Other expense also includes a charge
for an indirect tax settlement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
restated
results
(1)
|
|
Amortization of
intangible
assets
(2)
|
|
Impairments
(3)
|
|
Other
items
(4)
|
|
Core
restated
results
(1)
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
2,877
|
|
|
885
|
|
|
|
|
|
2
|
|
|
3,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
281
|
|
|
895
|
|
|
2
|
|
|
57
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(3,145
|
)
|
|
885
|
|
|
|
|
|
2
|
|
|
(2,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research & Development
|
|
|
(468
|
)
|
|
10
|
|
|
1
|
|
|
2
|
|
|
(455
|
)
|
General & Administration
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
32
|
|
|
(418
|
)
|
Other income
|
|
|
54
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
45
|
|
Other expense
|
|
|
(69
|
)
|
|
|
|
|
1
|
|
|
30
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
to reflect the new divisional structures and product transfers between divisions, announced on January 27, 2016.
-
(2)
-
Amortization
of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other
production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
-
(3)
-
Impairments:
Research & Development includes impairment charges related to intangible assets; Other expense includes impairment charges related
to property, plant and equipment.
-
(4)
-
Other
items: Cost of goods sold includes net restructuring charges related to the Group-wide rationalization of manufacturing sites; Research &
Development includes non capitalized costs for the US; General & Administration includes charges for transforming IT and finance processes; Other income includes a gain from a Swiss pension
plan amendment and a partial reversal of restructuring charges; Other expense includes other restructuring charges and a legal settlement.
172
Table of Contents
2017, 2016 AND 2015 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTSCORPORATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
IFRS
results
|
|
Impairments
(1)
|
|
Acquisition or
divestment of
businesses
and related
items
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(331
|
)
|
|
197
|
|
|
15
|
|
|
(298
|
)
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
691
|
|
|
|
|
|
(115
|
)
|
|
(373
|
)
|
|
203
|
|
Other expense
|
|
|
(732
|
)
|
|
197
|
|
|
130
|
|
|
75
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Impairments:
Other expense includes impairment charges related to financial assets.
-
(2)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
transitional service-fee income and expenses and other items related to the portfolio transformation.
-
(3)
-
Other
items: Other income includes a fair value adjustment to contingent consideration sales milestone receivables, a Swiss pension plan amendment and
other items; Other income and Other expense include restructuring income and charges and related items; Other expense also includes an amendment to the Swiss Pension Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
IFRS
results
|
|
Impairments
(1)
|
|
Acquisition or
divestment of
businesses
and related
items
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(471
|
)
|
|
99
|
|
|
(6
|
)
|
|
90
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administration
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
74
|
|
|
(432
|
)
|
Other income
|
|
|
603
|
|
|
|
|
|
(229
|
)
|
|
(75
|
)
|
|
299
|
|
Other expense
|
|
|
(776
|
)
|
|
99
|
|
|
223
|
|
|
91
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Impairments:
Other expense includes impairment charges related to financial assets.
-
(2)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
transitional service-fee income and expenses and other items related to the portfolio transformation.
-
(3)
-
Other
items: General & Administration, Other income and Other expense include items related to setup costs for Novartis Business Services;
Other income also includes an income related to the portfolio transformation and a gain related to the sale of real estate; Other expense also includes other restructuring charges and other costs.
173
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
results
|
|
Impairments
(1)
|
|
Acquisition or
divestment of
businesses
and related
items
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(419
|
)
|
|
112
|
|
|
(10
|
)
|
|
(35
|
)
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administration
|
|
|
(648
|
)
|
|
|
|
|
|
|
|
54
|
|
|
(594
|
)
|
Other income
|
|
|
737
|
|
|
|
|
|
(260
|
)
|
|
(127
|
)
|
|
350
|
|
Other expense
|
|
|
(784
|
)
|
|
112
|
|
|
250
|
|
|
38
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Impairments:
Other expense includes impairment charges related to property, plant and equipment and financial assets.
-
(2)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income and Other expense include
items related to the portfolio transformation.
-
(3)
-
Other
items: General & Administration and Other expense include expenses related to setup costs for Novartis Business Services; Other income
includes a gain from a Swiss pension plan amendment, a reversal of a provision and items related to portfolio transformation; Other expense also includes a credit for a legal settlement charged to the
divisions.
2015 RECONCILIATION FROM IFRS RESULTS TO CORE RESULTSGROUP DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
IFRS
results
|
|
Impairments
(1)
|
|
Acquisition or
divestment of
businesses
and related
items
(2)
|
|
Other
items
(3)
|
|
Core
results
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Gross profit
|
|
|
267
|
|
|
|
|
|
|
|
|
6
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/loss
|
|
|
12,477
|
|
|
(83
|
)
|
|
(12,627
|
)
|
|
8
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/loss before taxes
|
|
|
12,479
|
|
|
(83
|
)
|
|
(12,627
|
)
|
|
8
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
(4)
|
|
|
(1,713
|
)
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss
|
|
|
10,766
|
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS ($)
(5)
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
(376
|
)
|
|
|
|
|
|
|
|
6
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are adjustments to arrive at Core Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
13,420
|
|
|
|
|
|
(13,310
|
)
|
|
(1
|
)
|
|
109
|
|
Other expense
|
|
|
(727
|
)
|
|
(83
|
)
|
|
683
|
|
|
3
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Impairments:
Other expense includes the partial reversal of the influenza Vaccines business impairment charge recorded in 2014.
-
(2)
-
Acquisition
or divestment of businesses and related items, including restructuring and integration charges: Other income includes gains from the
divestment of Animal Health ($4.6 billion) and from the transactions with GSK ($2.8 billion for the non-influenza Vaccines business and $5.9 billion resulting from the
contribution of the former Novartis OTC division into the GSK consumer healthcare joint venture in exchange for 36.5% interest in this newly created entity); Other expense includes additional
transaction related expenses of $0.6 billion and other portfolio transformation related costs.
174
Table of Contents
-
(3)
-
Other
items: Cost of goods sold, Other income and Other expense include restructuring charges.
-
(4)
-
Taxes
on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will
finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. There is usually a tax impact on other items although this is not always the case for
items arising from legal settlements in certain jurisdictions. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of
$12.7 billion to arrive at the core results before tax amounts to $1.7 billion. The average tax rate on the adjustments is 13.2%.
-
(5)
-
Earnings
per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
5.B Liquidity and Capital Resources
The following tables summarize the Group's cash flow and net debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Cash flows from operating activities from continuing operations
|
|
|
12,621
|
|
|
11,475
|
|
|
12,085
|
|
Cash flows used in investing activities from continuing operations
|
|
|
(2,979
|
)
|
|
(2,693
|
)
|
|
(19,666
|
)
|
Cash flows used in/from operating and investing activities from discontinued operations
|
|
|
(140
|
)
|
|
(748
|
)
|
|
8,694
|
|
Cash flows used in financing activities
|
|
|
(7,733
|
)
|
|
(5,314
|
)
|
|
(9,176
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
84
|
|
|
(387
|
)
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
1,853
|
|
|
2,333
|
|
|
(8,349
|
)
|
Change in marketable securities, commodities, time deposits and derivative financial instruments
|
|
|
(145
|
)
|
|
(3
|
)
|
|
(66
|
)
|
Change in current and non-current financial debts and derivative financial instruments
|
|
|
(4,730
|
)
|
|
(1,871
|
)
|
|
(1,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Change in net debt
|
|
|
(3,022
|
)
|
|
459
|
|
|
(9,935
|
)
|
Net debt at January 1
|
|
|
(16,025
|
)
|
|
(16,484
|
)
|
|
(6,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net debt at December 31
|
|
|
(19,047
|
)
|
|
(16,025
|
)
|
|
(16,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW
Financial year 2017
Cash flows from operating activities amounted to $12.6 billion, compared to $11.5 billion in 2016. The increase of
$1.1 billion was mainly driven by favorable working capital changes, lower legal settlement payments out of provisions and lower taxes paid, partly offset by the decrease in net income adjusted
for noncash items.
Cash
flows used in investing activities from continuing operations amounted to $3.0 billion in 2017. This amount included cash outflows for the purchase of property, plant and
equipment of $1.7 billion, for intangible assets of $1.1 billion, for financial assets and other non-current assets of $0.5 billion and for acquisitions and divestments of
businesses, net (mainly the Ziarco Group Limited and Encore Vision, Inc. acquisitions) of $0.8 billion. This was partly offset by cash inflows from the sale of property, plant and
equipment, intangible assets and financial assets of $1.1 billion.
Cash
flows used in investing activities from discontinued operations, which consists of payments out of provisions related to the portfolio transformation transactions, amounted to
$0.1 billion, compared to $0.7 billion in 2016, which also included capital gains taxes.
175
Table of Contents
The cash flows used in financing activities amounted to $7.7 billion, compared to $5.3 billion in 2016. The 2017 amount included cash outflows for
the dividend payment of $6.5 billion and for net treasury share transactions of $5.2 billion. The net cash inflows from current and non-current financial debts of $4.0 billion
were mainly from the issuance of bonds denominated in US dollar and euro for a notional amount of $3.0 billion and EUR 1.85 billion ($2.0 billion), respectively, partially offset
by the repayment of current and non-current financial debt of $0.9 billion.
Financial year 2016
Cash flows from operating activities from continuing operations amounted to $11.5 billion, compared to $12.1 billion in 2015. The
decrease of $0.6 billion was driven by lower
operating income adjusted for non-cash items, lower hedging results and higher payments out of provisions, partially offset by dividends received from GSK Consumer Healthcare Holdings Ltd.,
lower cash outflows for taxes paid and net current assets and other operating cash flow items.
Cash
flows used in investing activities from continuing operations amounted to $2.7 billion in 2016. This amount includes cash outflows of $1.9 billion for the purchase of
property, plant and equipment, $1.4 billion for intangible, financial and other non-current assets, and $0.8 billion for acquisitions and divestments of businesses, net (including the
Transcend Medical, Inc. and Reprixys Pharmaceuticals Corporation acquisitions). This was offset by cash inflows of $1.3 billion of proceeds from the sale of non-current assets and
$0.1 billion net proceeds from sales of marketable securities and commodities. In 2015, cash flows used in investing activities from continuing operations amounted to $19.7 billion,
primarily due to the acquisition of the GSK oncology assets for $16.0 billion.
Cash
flows used in investing activities from discontinued operations amounted to $0.7 billion in 2016 due to portfolio transformation transactions payments, including capital
gains taxes. In 2015, the cash flows from investing activities from discontinued operations of $8.9 billion were mainly driven by net proceeds from the portfolio transformation divestments.
The
cash flows used in financing activities amounted to $5.3 billion, compared to $9.2 billion in 2015. The 2016 amount includes cash outflows of $6.5 billion for
the dividend payment and $0.9 billion for treasury share transactions, net. The net inflow from current and non-current financial debts of $2.1 billion was due to the increase in
short-term borrowings of $1.8 billion and the issuance of two euro denominated bonds for total proceeds of $1.9 billion, partially offset by the repayment at maturity of a euro
denominated bond of $1.7 billion.
The
2015 amount included mainly a cash outflow of $6.6 billion for the dividend payment and $4.5 billion for treasury share transactions, net, partially offset by a net
inflow from financial debts of $2.0 billion.
Financial year 2015
Cash flow from operating activities of continuing operations decreased to $12.1 billion from $13.9 billion in 2014.
The
decrease was primarily due to the negative currency impact on operations. The prior year also included higher proceeds from commercial settlements.
The
cash outflow for investing activities of continuing operations amounted to $19.7 billion in 2015. This was primarily due to the outflow of $16.5 billion for
acquisitions of businesses, mainly the oncology business from GSK for $16.0 billion, the net outflow of $2.8 billion for the purchase of property, plant and equipment, intangible and
other non-current assets and the net outflow of $0.3 billion from the change in marketable securities.
In
2014, cash flow from investing activities of continuing operations was a small net outflow of $8 million. This was primarily due to net outflows of $0.3 billion from the
acquisition of businesses,
176
Table of Contents
$3.0 billion
mainly from purchase of property, plant and equipment, offset by $1.4 billion of proceeds from the sale of investments in associated companies, particularly LTS Lohmann
Therapie-Systeme AG and Idenix Pharmaceuticals, Inc. and $1.9 billion proceeds from the net sale of other marketable securities, including maturing long-term deposits.
The
cash flows used in financing activities amounted to $9.2 billion, compared to $8.1 billion in 2014. The 2015 amount includes a cash outflow of $6.6 billion for
the dividend payment and $4.5 billion for treasury share transactions, net. The net inflow from the increase in current and non-current financial debt of $2.0 billion was mainly due to
the issuance of three Swiss franc denominated bonds for a total amount of $1.5 billion in the first half of 2015, the issuance of two US dollar denominated bonds totaling $3.0 billion in
the fourth quarter 2015 and the increase in commercial paper outstanding of $0.4 billion, partially offset by the repayment at maturity of a US dollar denominated bond of $2.0 billion
and a Swiss franc denominated bond of $0.9 billion. In 2014, the cash outflows included $6.8 billion for the dividend payment and $4.5 billion for treasury share transactions,
net. These outflows were partially offset by increase in the current and non-current financial debt of $3.3 billion.
The
net cash inflows from discontinued operations of $8.7 billion in 2015 were mainly driven by the net proceeds of $8.9 billion from the divestments in connection with the
portfolio transformation transactions. In 2014, the net cash inflow of $0.9 billion consisted mainly of proceeds from the divestment of the blood transfusion diagnostics unit to
Grifols S.A.
GROUP NET DEBT
Net debt constitutes a non-IFRS financial measure, which means that it should not be interpreted as a measure determined under International
Financial Reporting Standards (IFRS). Net debt/liquidity is presented as additional information as it is a useful indicator of the Group's ability to meet financial commitments and to invest in new
strategic opportunities, including strengthening its balance sheet.
Group
net debt consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Current financial debts and derivative financial instruments
|
|
|
(5,308
|
)
|
|
(5,905
|
)
|
|
597
|
|
Non-current financial debts
|
|
|
(23,224
|
)
|
|
(17,897
|
)
|
|
(5,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total financial debt
|
|
|
(28,532
|
)
|
|
(23,802
|
)
|
|
(4,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Less liquidity
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,860
|
|
|
7,007
|
|
|
1,853
|
|
Marketable securities, commodities, time deposits and derivative financial instruments
|
|
|
625
|
|
|
770
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liquidity
|
|
|
9,485
|
|
|
7,777
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt at December 31
|
|
|
(19,047
|
)
|
|
(16,025
|
)
|
|
(3,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial year 2017
Total financial debt increased by $4.7 billion to $28.5 billion at December 31, 2017, from $23.8 billion at
December 31, 2016. Non-current financial debt increased by $5.3 billion to $23.2 billion at December 31, 2017 from $17.9 billion at December 2016, mainly due to the
issuance of bonds in the first quarter that are denominated in US dollar and euro for a notional amount of $3.0 billion and EUR 1.85 billion ($2.0 billion), respectively.
Group net debt increased to $19.0 billion at the end of 2017 from $16.0 billion at the end of 2016, mainly due to increased borrowings.
177
Table of Contents
Current
financial debt decreased by $0.6 billion to $5.3 billion at December 31, 2017, from $5.9 billion at December 31, 2016, mainly due to a
reduction in short-term borrowings. Overall current financial debt consists of the current portion of non-current financial debt of $0.4 billion and other short-term borrowings of
$4.9 billion, including derivatives and commercial paper.
Novartis
has two US commercial paper programs under which it can issue up to $9.0 billion in the aggregate of unsecured commercial paper notes. Novartis also has a Japanese
commercial paper program under which it can issue up to JPY 150 billion (approximately $1.3 billion) of unsecured commercial paper notes. Commercial paper notes totaling
$2.3 billion under these three programs were outstanding as per December 31, 2017. Novartis further has a committed credit facility of $6.0 billion, entered into on
September 23, 2015. This credit facility is provided by a syndicate of banks and is intended to be used as a backstop for the US commercial paper programs. It matures in September 2020 and was
undrawn as per December 31, 2017.
The
long-term credit rating for the company continues to be double-A (Moody's Aa3; Standard & Poor's AA; Fitch AA)
Financial year 2016
Total non-current and current financial debt, including derivatives, amounted to $23.8 billion at December 31, 2016, compared to
$21.9 billion at December 31, 2015.
Non-current
financial debt increased by $1.6 billion to $17.9 billion at December 31, 2016, mainly due to the issuance of two euro denominated bonds for a total
amount of $2.0 billion.
Current
financial debt increased by $0.3 billion to $5.9 billion at December 31, 2016, from $5.6 billion at December 31, 2015, mainly due to higher
short-term borrowings partially offset by a repayment at maturity of a euro denominated bond of $1.7 billion. Overall current financial debt consists of the current portion of non-current debt
of $0.2 billion and other short-term borrowings (including
derivatives and commercial paper) of $5.7 billion. Group net debt decreased to $16.0 billion at the end of 2016 from $16.5 billion at the end of 2015.
Novartis
has two US commercial paper programs under which it can issue up to $9.0 billion in the aggregate of unsecured commercial paper notes. Novartis also has a Japanese
commercial paper program under which it can issue up to JPY 150 billion (approximately $1.3 billion) of unsecured commercial paper notes. Commercial paper notes totaling
$3.2 billion under these three programs were outstanding as per December 31, 2016. Novartis further has a committed credit facility of $6.0 billion, entered into on
September 23, 2015. This credit facility is provided by a syndicate of banks and is intended to be used as a backstop for the US commercial paper programs. It matures in September 2020 and was
undrawn as per December 31, 2016.
The
long-term credit rating for the company continues to be double-A (Moody's Aa3; Standard & Poor's AA; Fitch AA).
178
Table of Contents
The
maturity schedule of our net debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
Due within
one month
|
|
Due later than
one month but
less than
three months
|
|
Due later than
three months
but less than
one year
|
|
Due later than
one year but
less than
five years
|
|
Due after
five years
|
|
Total
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities and time deposits
|
|
|
71
|
|
|
72
|
|
|
105
|
|
|
181
|
|
|
58
|
|
|
487
|
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
106
|
|
Derivative financial instruments and accrued interest
|
|
|
7
|
|
|
19
|
|
|
6
|
|
|
|
|
|
|
|
|
32
|
|
Cash and cash equivalents
|
|
|
4,260
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
8,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current financial assets
|
|
|
4,338
|
|
|
4,691
|
|
|
111
|
|
|
181
|
|
|
164
|
|
|
9,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
|
|
|
|
|
|
|
|
|
(9,849
|
)
|
|
(13,375
|
)
|
|
(23,224
|
)
|
Financial debtundiscounted
|
|
|
|
|
|
|
|
|
|
|
|
(9,893
|
)
|
|
(13,519
|
)
|
|
(23,412
|
)
|
Total non-current financial debt
|
|
|
|
|
|
|
|
|
|
|
|
(9,849
|
)
|
|
(13,375
|
)
|
|
(23,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
(4,576
|
)
|
|
(169
|
)
|
|
(456
|
)
|
|
|
|
|
|
|
|
(5,201
|
)
|
Financial debtundiscounted
|
|
|
(4,576
|
)
|
|
(169
|
)
|
|
(456
|
)
|
|
|
|
|
|
|
|
(5,201
|
)
|
Derivative financial instruments
|
|
|
(31
|
)
|
|
(48
|
)
|
|
(28
|
)
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current financial debt
|
|
|
(4,607
|
)
|
|
(217
|
)
|
|
(484
|
)
|
|
|
|
|
|
|
|
(5,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
(269
|
)
|
|
4,474
|
|
|
(374
|
)
|
|
(9,668
|
)
|
|
(13,211
|
)
|
|
(19,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
Due within
one month
|
|
Due later than
one month but
less than
three months
|
|
Due later than
three months
but less than
one year
|
|
Due later than
one year but
less than
five years
|
|
Due after
five years
|
|
Total
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities and time deposits
|
|
|
32
|
|
|
126
|
|
|
110
|
|
|
124
|
|
|
53
|
|
|
445
|
|
Commodities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
94
|
|
Derivative financial instruments and accrued interest
|
|
|
38
|
|
|
102
|
|
|
91
|
|
|
|
|
|
|
|
|
231
|
|
Cash and cash equivalents
|
|
|
5,907
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
7,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current financial assets
|
|
|
5,977
|
|
|
1,328
|
|
|
201
|
|
|
124
|
|
|
147
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
|
|
|
|
|
|
|
|
|
(5,141
|
)
|
|
(12,756
|
)
|
|
(17,897
|
)
|
Financial debtundiscounted
|
|
|
|
|
|
|
|
|
|
|
|
(5,155
|
)
|
|
(12,901
|
)
|
|
(18,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current financial debt
|
|
|
|
|
|
|
|
|
|
|
|
(5,141
|
)
|
|
(12,756
|
)
|
|
(17,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial debt
|
|
|
(5,099
|
)
|
|
(250
|
)
|
|
(440
|
)
|
|
|
|
|
|
|
|
(5,789
|
)
|
Financial debtundiscounted
|
|
|
(5,099
|
)
|
|
(250
|
)
|
|
(440
|
)
|
|
|
|
|
|
|
|
(5,789
|
)
|
Derivative financial instruments
|
|
|
(15
|
)
|
|
(72
|
)
|
|
(29
|
)
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current financial debt
|
|
|
(5,114
|
)
|
|
(322
|
)
|
|
(469
|
)
|
|
|
|
|
|
|
|
(5,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
863
|
|
|
1,006
|
|
|
(268
|
)
|
|
(5,017
|
)
|
|
(12,609
|
)
|
|
(16,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179
Table of Contents
The following table provides a breakdown of liquidity and financial debt by currency as of December 31:
LIQUIDITY AND FINANCIAL DEBT BY CURRENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
in % 2017
(1)
|
|
Liquidity
in % 2016
(1)
|
|
Financial
debt in
% 2017
(2)
|
|
Financial
debt in
% 2016
(2)
|
|
US dollar ($)
|
|
|
77
|
|
|
77
|
|
|
63
|
|
|
66
|
|
Euro (EUR)
|
|
|
8
|
|
|
9
|
|
|
20
|
|
|
13
|
|
Swiss franc (CHF)
|
|
|
5
|
|
|
5
|
|
|
11
|
|
|
13
|
|
Japanese yen (JPY)
|
|
|
1
|
|
|
|
|
|
4
|
|
|
5
|
|
Other
|
|
|
9
|
|
|
9
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Liquidity
includes cash and cash equivalents, marketable securities, commodities and time deposits.
-
(2)
-
Financial
debt includes non-current and current financial debt.
EFFECTS OF CURRENCY FLUCTUATIONS
We transact our business in many currencies other than the US dollar, our reporting currency.
The
following provides an overview of net sales and operating expenses for our operations based on IFRS values for 2017, 2016 and 2015 for currencies most important to the Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Currency
|
|
Net sales
|
|
Operating
expenses
|
|
Net sales
|
|
Operating
expenses
|
|
Net sales
|
|
Operating
expenses
|
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
US dollar ($)
|
|
|
37
|
|
|
42
|
|
|
38
|
|
|
43
|
|
|
40
|
|
|
42
|
|
Euro (EUR)
|
|
|
26
|
|
|
22
|
|
|
26
|
|
|
23
|
|
|
24
|
|
|
23
|
|
Swiss franc (CHF)
|
|
|
2
|
|
|
15
|
|
|
2
|
|
|
15
|
|
|
2
|
|
|
13
|
|
Japanese yen (JPY)
|
|
|
6
|
|
|
4
|
|
|
7
|
|
|
5
|
|
|
6
|
|
|
4
|
|
Chinese yuan (CNY)
|
|
|
4
|
|
|
3
|
|
|
4
|
|
|
3
|
|
|
4
|
|
|
3
|
|
British pound (GBP)
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
2
|
|
|
3
|
|
|
3
|
|
Canadian dollar (CAD)
|
|
|
3
|
|
|
1
|
|
|
3
|
|
|
1
|
|
|
3
|
|
|
1
|
|
Brazilian real (BRL)
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
2
|
|
Australian dollar (AUD)
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
Russian ruble (RUB)
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Other currencies
|
|
|
14
|
|
|
8
|
|
|
12
|
|
|
5
|
|
|
13
|
|
|
7
|
|
Operating
expenses in the above table include Cost of goods sold, Marketing & Sales, Research & Development, General & Administration, Other income and Other
expense.
We
prepare our consolidated financial statements in US dollars. As a result, fluctuations in the exchange rates between the US dollar and other currencies can have a significant effect
on both the Group's results of operations as well as on the reported value of our assets, liabilities and cash flows. This in turn may significantly affect reported earnings (both positively and
negatively) and the comparability of period-to-period results of operations.
For
purposes of our consolidated balance sheets, we translate assets and liabilities denominated in other currencies into US dollars at the prevailing market exchange rates as of the
relevant balance sheet
180
Table of Contents
date.
For purposes of the Group's consolidated income and cash flow statements, revenue, expense and cash flow items in local currencies are translated into US dollars at average exchange rates
prevailing during the relevant period. As a result, even if the amounts or values of these items remain unchanged in the respective local currency, changes in exchange rates have an impact on the
amounts or values of these items in our consolidated financial statements.
Because
our expenditures in Swiss francs are significantly higher than our revenues in Swiss francs, volatility in the value of the Swiss franc can have a significant impact on the
reported value of our earnings, assets and liabilities, and the timing and extent of such volatility can be difficult to predict. In addition, there is a risk that certain countries could take steps
that could significantly impact the value of their currencies.
There
is also a risk that certain countries could devalue their currency. If this occurs, it could impact the effective prices we would be able to charge for our products and also have
an adverse impact on both our consolidated income statement and balance sheet. The Group is exposed to a potential adverse devaluation risk on its intercompany funding and total investment in certain
subsidiaries operating in countries with exchange controls.
The
most significant country in this respect was Venezuela, where the Group incurred significant foreign exchange losses in 2015 and 2016.
Subsidiaries
whose functional currencies have experienced a cumulative inflation rate of more than 100% over the past three years apply the rules of IAS 29 "Financial Reporting in
Hyperinflationary Economies". Gains and losses incurred upon adjusting the carrying amounts of non-monetary assets and liabilities for inflation are recognized in the income statement. The
subsidiaries in Venezuela restate non-monetary items in the balance sheet in line with the requirements of IAS 29.
The
Group's subsidiaries in Venezuela are experiencing a significant reduction in approvals for remittance of US dollars outside the country at the exchange rate available for imports of
specific goods and services of national priority, including medicines and medical supplies. Since November 2016, the Group has applied the floating rate of DICOM (Sistema de Divisa Complementaria) to
translate the financial statements of its Venezuelan subsidiaries. This change from the rate applicable for imports of specific goods and services of national priority to the floating rate of DICOM
resulted in a $0.3 billion revaluation loss on the outstanding intercompany balances in 2016. The net outstanding intercompany payable balance of Venezuela subsidiaries was not significant at
December 31, 2017 and at December 31, 2016, due to reserves against the intercompany balances.
The
Group manages its global currency exposure by engaging in hedging transactions where management deems appropriate, after taking into account the natural hedging afforded by our
global business activity. For 2017, we entered into various contracts that change in value with movements in foreign exchange rates to preserve the value of assets, commitments and expected
transactions. We use forward contracts and foreign currency options to hedge. For more information on how these transactions affect our consolidated financial statements and on how foreign exchange
rate exposure is managed, see "Note 1. Significant accounting policies", "Note 5. Interest expense and other financial income and expense", "Note 14. Trade receivables" and
"Note 27. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
181
Table of Contents
The
following table sets forth the foreign exchange rates of the US dollar against key currencies used for foreign currency translation when preparing the Group's consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end
|
|
|
|
|
|
Change
in %
|
|
Change
in %
|
|
$ per unit
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
AUD
|
|
|
0.766
|
|
|
0.744
|
|
|
3
|
|
|
0.779
|
|
|
0.722
|
|
|
8
|
|
BRL
|
|
|
0.313
|
|
|
0.288
|
|
|
9
|
|
|
0.302
|
|
|
0.307
|
|
|
(2
|
)
|
CAD
|
|
|
0.771
|
|
|
0.755
|
|
|
2
|
|
|
0.797
|
|
|
0.741
|
|
|
8
|
|
CHF
|
|
|
1.016
|
|
|
1.015
|
|
|
0
|
|
|
1.024
|
|
|
0.978
|
|
|
5
|
|
CNY
|
|
|
0.148
|
|
|
0.151
|
|
|
(2
|
)
|
|
0.154
|
|
|
0.144
|
|
|
7
|
|
EUR
|
|
|
1.129
|
|
|
1.107
|
|
|
2
|
|
|
1.195
|
|
|
1.051
|
|
|
14
|
|
GBP
|
|
|
1.288
|
|
|
1.355
|
|
|
(5
|
)
|
|
1.347
|
|
|
1.227
|
|
|
10
|
|
JPY (100)
|
|
|
0.892
|
|
|
0.922
|
|
|
(3
|
)
|
|
0.888
|
|
|
0.854
|
|
|
4
|
|
RUB (100)
|
|
|
1.715
|
|
|
1.498
|
|
|
14
|
|
|
1.734
|
|
|
1.648
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end
|
|
|
|
|
|
Change
in %
|
|
Change
in %
|
|
$ per unit
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
AUD
|
|
|
0.744
|
|
|
0.753
|
|
|
(1
|
)
|
|
0.722
|
|
|
0.731
|
|
|
(1
|
)
|
BRL
|
|
|
0.288
|
|
|
0.305
|
|
|
(6
|
)
|
|
0.307
|
|
|
0.253
|
|
|
21
|
|
CAD
|
|
|
0.755
|
|
|
0.784
|
|
|
(4
|
)
|
|
0.741
|
|
|
0.721
|
|
|
3
|
|
CHF
|
|
|
1.015
|
|
|
1.040
|
|
|
(2
|
)
|
|
0.978
|
|
|
1.011
|
|
|
(3
|
)
|
CNY
|
|
|
0.151
|
|
|
0.159
|
|
|
(5
|
)
|
|
0.144
|
|
|
0.154
|
|
|
(6
|
)
|
EUR
|
|
|
1.107
|
|
|
1.110
|
|
|
0
|
|
|
1.051
|
|
|
1.093
|
|
|
(4
|
)
|
GBP
|
|
|
1.355
|
|
|
1.529
|
|
|
(11
|
)
|
|
1.227
|
|
|
1.483
|
|
|
(17
|
)
|
JPY (100)
|
|
|
0.922
|
|
|
0.826
|
|
|
12
|
|
|
0.854
|
|
|
0.831
|
|
|
3
|
|
RUB (100)
|
|
|
1.498
|
|
|
1.649
|
|
|
(9
|
)
|
|
1.648
|
|
|
1.362
|
|
|
21
|
|
The
following table provides a summary of the currency impact on key Group figures due to their conversion into $, the Group's reporting currency, of the financial data from entities
reporting in non-US dollars. Constant currency (cc) calculations apply the exchange rates of the prior year to the current year financial data for entities reporting in non-US dollars.
CURRENCY IMPACT ON KEY FIGURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
constant
currencies %
2017
|
|
Change
in $ %
2017
|
|
Percentage
point
currency
impact
2017
|
|
Change in
constant
currencies %
2016
|
|
Change
in $ %
2016
|
|
Percentage
point
currency
impact
2016
|
|
Net sales
|
|
|
2
|
|
|
1
|
|
|
(1
|
)
|
|
0
|
|
|
(2
|
)
|
|
(2
|
)
|
Operating income
|
|
|
7
|
|
|
4
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
(5
|
)
|
Net income
|
|
|
12
|
|
|
15
|
|
|
3
|
|
|
1
|
|
|
(5
|
)
|
|
(6
|
)
|
Core operating income
|
|
|
0
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(6
|
)
|
|
(4
|
)
|
Core net income
|
|
|
2
|
|
|
1
|
|
|
(1
|
)
|
|
(3
|
)
|
|
(6
|
)
|
|
(3
|
)
|
For
additional information on the effects of currency fluctuations, see "Note 28. Financial instrumentsadditional disclosures" in the "Excerpts from Novartis Annual
Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
182
Table of Contents
FREE CASH FLOW
Novartis defines free cash flow as cash flow from operating activities and cash flow associated with the purchase or sale of property, plant and
equipment, intangible assets, other non-current assets and financial assets, excluding marketable securities. Cash flows in connection with the acquisition or divestment of subsidiaries, associated
companies and non-controlling interests in subsidiaries are not taken into account to determine free cash flow. For further information about the free cash flow measure, which is a non-IFRS measure,
see "Item 5. Operating and Financial Review and ProspectsItem 5.A Operating ResultsNon-IFRS Measures Defined by NovartisFree Cash Flow" above. The
following is a summary of the free cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Operating income from continuing operations
|
|
|
8,629
|
|
|
8,268
|
|
|
8,977
|
|
Reversal of non-cash items
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairments
|
|
|
6,332
|
|
|
6,175
|
|
|
5,575
|
|
Change in provisions and other non-current liabilities
|
|
|
160
|
|
|
956
|
|
|
1,642
|
|
Other
|
|
|
(360
|
)
|
|
(264
|
)
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating income adjusted for non-cash items
|
|
|
14,761
|
|
|
15,135
|
|
|
16,098
|
|
Interest and other financial receipts
|
|
|
1,084
|
|
|
942
|
|
|
1,180
|
|
Interest and other financial payments
|
|
|
(980
|
)
|
|
(878
|
)
|
|
(669
|
)
|
Taxes paid
|
|
|
(1,611
|
)
|
|
(2,111
|
)
|
|
(2,454
|
)
|
Payments out of provisions and other net cash movements in non-current liabilities
|
|
|
(877
|
)
|
|
(1,536
|
)
|
|
(1,207
|
)
|
Change in inventory and trade receivables less trade payables
|
|
|
(393
|
)
|
|
(1,051
|
)
|
|
(617
|
)
|
Change in other net current assets and other operating cash flow items
|
|
|
637
|
|
|
974
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities from continuing operations
|
|
|
12,621
|
|
|
11,475
|
|
|
12,085
|
|
Purchase of property, plant & equipment
|
|
|
(1,696
|
)
|
|
(1,862
|
)
|
|
(2,367
|
)
|
Proceeds from sales of property, plant & equipment
|
|
|
92
|
|
|
161
|
|
|
237
|
|
Purchase of intangible assets
|
|
|
(1,050
|
)
|
|
(1,017
|
)
|
|
(1,138
|
)
|
Proceeds from sales of intangible assets
|
|
|
640
|
|
|
847
|
|
|
621
|
|
Purchase of financial assets
|
|
|
(468
|
)
|
|
(247
|
)
|
|
(264
|
)
|
Proceeds from sales of financial assets
|
|
|
330
|
|
|
247
|
|
|
166
|
|
Purchase of other non-current assets
|
|
|
(42
|
)
|
|
(149
|
)
|
|
(82
|
)
|
Proceeds from sales of other non-current assets
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow from continuing operations
|
|
|
10,428
|
|
|
9,455
|
|
|
9,259
|
|
Free cash flow from discontinued operations
|
|
|
|
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
10,428
|
|
|
9,455
|
|
|
9,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial year 2017
Free cash flow amounted to $10.4 billion (+10% $) compared to $9.5 billion in 2016. The increase was mainly driven by favorable
working capital changes, lower legal settlement payments out of provisions and lower taxes paid, partly offset by the decrease in operating income adjusted for non-cash items and higher net
investments.
183
Table of Contents
Financial year 2016
In 2016, free cash flow from continuing operations amounted to $9.5 billion (+2% $) compared to $9.3 billion in 2015. The increase
of $0.2 billion was mainly driven by lower net investments in property, plant and equipment.
Free
cash flow for the total Group amounted to $9.5 billion in 2016 compared to $9.0 billion in 2015. The prior year included a negative free cash flow of approximately
$0.3 billion from discontinued operations.
Financial year 2015
In 2015, free cash flow from continuing operations decreased by 15% to $9.3 billion compared to $10.9 billion in 2014. This
decrease was primarily due to the negative currency impact on operations. The prior year also included higher proceeds from Novartis Venture Fund divestments and commercial settlements. Total free
cash flow including the continuing and discontinued operations was $9.0 billion in 2015 compared to $10.8 billion in 2014.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 31, 2017
|
|
Dec 31, 2016
|
|
Change
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment
|
|
|
16,464
|
|
|
15,641
|
|
|
823
|
|
Goodwill
|
|
|
31,750
|
|
|
30,980
|
|
|
770
|
|
Intangible assets other than goodwill
|
|
|
29,997
|
|
|
31,340
|
|
|
(1,343
|
)
|
Financial and other non-current assets
|
|
|
26,660
|
|
|
27,232
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
104,871
|
|
|
105,193
|
|
|
(322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
6,867
|
|
|
6,255
|
|
|
612
|
|
Trade receivables
|
|
|
8,600
|
|
|
8,202
|
|
|
398
|
|
Other current assets
|
|
|
3,256
|
|
|
2,697
|
|
|
559
|
|
Cash, marketable securities, commodities, time deposits and derivative financial instruments
|
|
|
9,485
|
|
|
7,777
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
28,208
|
|
|
24,931
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
133,079
|
|
|
130,124
|
|
|
2,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and liabilities
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
74,227
|
|
|
74,891
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financial debts
|
|
|
23,224
|
|
|
17,897
|
|
|
5,327
|
|
Other non-current liabilities
|
|
|
12,225
|
|
|
15,127
|
|
|
(2,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
35,449
|
|
|
33,024
|
|
|
2,425
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
5,169
|
|
|
4,873
|
|
|
296
|
|
Financial debts and derivatives
|
|
|
5,308
|
|
|
5,905
|
|
|
(597
|
)
|
Other current liabilities
|
|
|
12,926
|
|
|
11,431
|
|
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
23,403
|
|
|
22,209
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
58,852
|
|
|
55,233
|
|
|
3,619
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
|
133,079
|
|
|
130,124
|
|
|
2,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
Table of Contents
Total
non-current assets of $104.9 billion at December 31, 2017, decreased by $0.3 billion compared to December 31, 2016.
Property,
plant and equipment increased by $0.8 billion to $16.5 billion, mainly due to the favorable currency translation adjustments, as net additions were offset by
depreciation.
Goodwill
increased by $0.8 billion to $31.8 billion, mainly due to $0.7 billion favorable currency translation adjustments.
Intangible
assets other than goodwill decreased by $1.3 billion to $30.0 billion, as net additions of $2.4 billion and favorable currency translation adjustments of
$0.7 billion were more than offset by amortization and impairment charges totaling $4.4 billion.
Financial
and other non-current assets decreased by $0.6 billion to $26.7 billion, as a decrease in the deferred tax assets of $1.8 billion was partly offset by an
increase of $1.1 billion in the investments in associated companies, mainly due to favorable currency translation adjustments.
Total
current assets increased by $3.3 billion to $28.2 billion at December 31, 2017, due to an increase in cash and cash equivalents, marketable securities,
commodities and derivatives of $1.7 billion. Inventories and other current assets increased by $0.6 billion each, and trade receivables by $0.4 billion.
Based
on our current incurred loss provisioning approach, we consider that our provisions for doubtful trade receivables are adequate. We continue to monitor the level of trade
receivables particularly in Greece, Italy, Portugal, Spain, Brazil, Russia, Saudi Arabia and Turkey. Should there be a substantial
deterioration in our economic exposure with respect to those countries, we may change the terms of trade on which we operate.
The
majority of the outstanding trade receivables from these closely monitored countries are due directly from local governments or from government-funded entities, except for Russia,
Brazil and Turkey, which are due from private entities. The gross trade receivables from these countries at December 31, 2017 amount to $1.7 billion (2016: $1.7 billion), of which
$124 million are past due for more than one year (2016: $82 million), and for which provisions of $95 million have been recorded (2016: $63 million). At December 31,
2017, amounts past due for more than one year are not significant in any of these countries.
The
following table provides an overview of the aging analysis of total trade receivables and the total amount of the provision for doubtful trade receivables as of December 31,
2017 and 2016:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
$ m
|
|
$ m
|
|
Not overdue
|
|
|
7,758
|
|
|
7,386
|
|
Past due for not more than one month
|
|
|
279
|
|
|
262
|
|
Past due for more than one month but less than three months
|
|
|
230
|
|
|
223
|
|
Past due for more than three months but less than six months
|
|
|
137
|
|
|
185
|
|
Past due for more than six months but less than one year
|
|
|
137
|
|
|
145
|
|
Past due for more than one year
|
|
|
249
|
|
|
163
|
|
Provisions for doubtful trade receivables
|
|
|
(190
|
)
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
Total trade receivables, net
|
|
|
8,600
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
is also a risk that certain countries could devalue their currency. Currency exposures are described in more detail, "Effects of Currency Fluctuations" above.
Trade
payables increased by $0.3 billion to $5.2 billion, and other current liabilities increased by $1.5 billion to $12.9 billion.
185
Table of Contents
Current income tax liabilities increased by $0.1 billion to $1.7 billion. While there is some uncertainty about the final taxes to be assessed in
our major countries, we believe that our estimated amounts for current income tax liabilities, including amounts related to uncertain tax positions, are appropriate based on currently known facts and
circumstances.
In
our key countries, Switzerland and the United States, assessments have been agreed by the tax authorities up to 2014 in Switzerland and up to 2012 in the United States, with the
exception of one open United States position related to the 2007 tax filing and one for the 2010 tax filing.
Other
non-current liabilities which include deferred tax liabilities, provisions and other non-current liabilities decreased by $2.9 billion to $12.2 billion at
December 31, 2017, mainly due to a reduction of the pension obligations of $1.3 billion resulting from actuarial gains and a change in the accounting for a component of the Swiss pension
plan from defined benefit to defined contribution plan.
Novartis
believes that its total provisions are adequate based upon currently available information. However, given the inherent difficulties in estimating liabilities in this area,
Novartis may incur additional costs beyond the amounts provided. Management believes that such additional amounts, if any, would not be material to the Group's financial condition but could be
material to the results of operations or cash flows in a given period.
The
Group's equity decreased by $0.7 billion to $74.2 billion at December 31, 2017, compared to $74.9 billion at December 31, 2016. The decrease was
mainly on account of $6.5 billion for the dividend payment and net treasury share purchases of $5.3 billion. These amounts resulting from transactions with shareholders were partially
offset by net income of $7.7 billion, favorable currency translation differences of $2.2 billion, net actuarial gains from defined benefit plans of $0.9 billion, and equity-based
compensation of $0.6 billion.
The
Group's liquidity amounted to $9.5 billion at December 31, 2017, compared to $7.8 billion at December 31, 2016, and net debt increased to
$19.0 billion at December 31, 2017, compared to $16.0 billion at December 31, 2016. The debt/equity ratio increased to 0.38:1 at December 31, 2017, compared to
0.32:1 at December 31, 2016.
186
Table of Contents
SUMMARY OF EQUITY MOVEMENTS ATTRIBUTABLE TO NOVARTIS AG SHAREHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
outstanding shares
(in millions)
|
|
Issued share capital and
reserves attributable to
Novartis AG
shareholders
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
|
|
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Balance at beginning of year
|
|
|
2,374.1
|
|
|
2,373.9
|
|
|
0.2
|
|
|
74,832
|
|
|
77,046
|
|
|
(2,214
|
)
|
Shares acquired to be canceled
|
|
|
(66.2
|
)
|
|
(10.3
|
)
|
|
(55.9
|
)
|
|
(5,270
|
)
|
|
(784
|
)
|
|
(4,486
|
)
|
Other share purchases
|
|
|
(3.8
|
)
|
|
(2.6
|
)
|
|
(1.2
|
)
|
|
(304
|
)
|
|
(208
|
)
|
|
(96
|
)
|
Exercise of options and employee transactions
|
|
|
4.6
|
|
|
4.1
|
|
|
0.5
|
|
|
255
|
|
|
214
|
|
|
41
|
|
Equity-based compensation
|
|
|
8.8
|
|
|
9.0
|
|
|
(0.2
|
)
|
|
612
|
|
|
664
|
|
|
(52
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
(6,495
|
)
|
|
(6,475
|
)
|
|
(20
|
)
|
Net income of the year attributable to shareholders of Novartis AG
|
|
|
|
|
|
|
|
|
|
|
|
7,703
|
|
|
6,712
|
|
|
991
|
|
Impact of change in ownership of consolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
7
|
|
Other comprehensive income attributable to shareholders of Novartis AG
|
|
|
|
|
|
|
|
|
|
|
|
2,835
|
|
|
(2,330
|
)
|
|
5,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
2,317.5
|
|
|
2,374.1
|
|
|
(56.6
|
)
|
|
74,168
|
|
|
74,832
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2017, 13.4 million treasury shares for $0.9 billion were delivered as a result of options being exercised and physical share deliveries related to equity-based
participation plans (2016: 13.1 million shares for $0.9 billion). Novartis repurchased in total 66.2 million shares for $5.3 billion on the SIX Swiss Exchange second
trading line under the CHF 10 billion share buyback authority approved at the 2016 Annual General Meeting (AGM) (2016: 10.3 million shares for $0.8 billion). This included
56.4 million shares bought for $4.5 billion under the up-to $5.0 billion share buyback announced in January 2017, and 9.8 million shares bought for $0.8 billion to
offset the dilutive impact from equity-based participation plans (2016: 10.3 million shares for $0.8 billion). In addition, 3.8 million shares for
$0.3 billion were acquired from employees, which were previously granted to them under the respective programs (2016: 2.6 million for $0.2 billion). No shares were repurchased on
the SIX Swiss Exchange first trading line in 2017 and 2016. With these transactions, the total number of shares outstanding decreased by 56.6 million shares in 2017 (2016: increase of
0.2 million shares).
Treasury shares
At December 31, 2017, our holding of treasury shares amounted to 299.4 million shares or approximately 10% of the total number of
issued shares. Approximately 131 million treasury shares are held in entities that limit their availability for use.
At
December 31, 2016, our holding of treasury shares amounted to 253.1 million shares or approximately 10% of the total number of issued shares. Approximately
135 million treasury shares are held in entities that limit their availability for use.
At
December 31, 2015, our holding of treasury shares amounted to 303.1 million shares or approximately 11% of the total number of issued shares. Approximately
137 million treasury shares are held in entities that limit their availability for use.
187
Table of Contents
Bonds
In February 2017, three US dollar bonds totaling $3.0 billion were issued; a 3-year bond of $1.0 billion with a coupon of 1.80%, a
5-year bond of $1.0 billion with a coupon of 2.40% and a 10-year bond of $1.0 billion with a coupon of 3.10%.
In
March 2017, two EUR bonds totaling EUR 1.85 billion were issued; a 4-year bond of EUR 1.25 billion with a coupon of 0% and a 10-year bond of EUR
0.6 billion with a coupon of 1.125%.
In
September 2016, two EUR bonds totaling EUR 1.75 billion were issued; a 7-year bond of EUR 1.25 billion with a coupon of 0.125% and a 12-year bond of EUR
0.5 billion with a coupon of 0.625%.
In
June 2016, a EUR bond of EUR 1.5 billion with a coupon of 4.25% was repaid at maturity.
In
February 2015, three Swiss franc bonds totaling CHF 1.375 billion were issued; a 10-year bond of CHF 0.5 billion with a coupon of 0.25%, a 14-year bond of
CHF 0.55 billion with a coupon of 0.625% and a 20-year bond of CHF 0.325 billion with a coupon of 1.050%.
In
November 2015, two US Dollar bonds totaling $3.0 billion were issued: a 10-year bond of $1.75 billion with a coupon of 3.0% and a 30-year bond of $1.25 billion
with a coupon of 4.0%.
In
April 2015, a 2.9% US Dollar bond of $2.0 billion was repaid at maturity. In June 2015, a 3.625% CHF bond of 0.8 billion was repaid at maturity.
Liquidity/Short-term Funding
We continuously track our liquidity position and asset/liability profile. This involves modeling cash flow maturity profiles based on both
historical experiences and contractual expectations to project our liquidity requirements. We seek to preserve prudent liquidity and funding capabilities.
We
are not aware of any significant demands to change the level of liquidity needed to support our normal business activities. We make use of various borrowing facilities provided by
several financial institutions. We also successfully issued various bonds in previous years (including 2016 and 2017), and raised funds through our commercial paper programs. In addition, reverse
repurchasing agreements are contracted and Novartis has entered into credit support agreements with various banks for derivative transactions.
The
maturity schedule of our net debt can be found in "Note 28. Financial instrumentsadditional disclosures" in the "Excerpts from Novartis Annual Report 2017"
furnished to the SEC on Form 6-K on January 24, 2018.
5.C Research & Development, Patents and Licenses
Our R&D spending for continuing operations totaled $9.0 billion, $9.0 billion and $8.9 billion ($8.1 billion,
$8.5 billion and $8.9 billion excluding impairments and amortization charges) for the years 2017, 2016 and 2015, respectively. Each of our divisions has its own R&D and patents policies.
Our divisions have numerous products in various stages of development. For further information on these policies and these products in development, see "Item 4. Information on the
Company4.B Business Overview."
As
described in the "Risk Factors" section and elsewhere in this Form 20-F, our drug development efforts are subject to the risks and uncertainties inherent in any new drug
development program. Due to the risks and uncertainties involved in progressing through pre-clinical development and clinical trials, and the time and cost involved in obtaining regulatory approvals,
among other factors, we cannot reasonably estimate the timing, completion dates, and costs, or range of costs, of our drug development program, or of the development of any particular development
compound, see "Item 3. Key Information3.D Risk
188
Table of Contents
Factors."
In addition, for a description of the research and development process for the development of new drugs and our other products, and the regulatory process for their approval, see
"Item 4. Information on the CompanyItem 4.B Business Overview."
5.D Trend Information
Please see "Item 5.A Operating ResultsFactors Affecting Results of Operations" and
"Item 4. Information on the CompanyItem 4.B Business Overview" for trend information.
5.E Off-Balance Sheet Arrangements
We have no unconsolidated special purpose financing or partnership entities or other off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources,
that is material to investors, see also "Note 27. Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24,
2018, and matters described in "Item 5.F Tabular Disclosure of Contractual Obligations".
5.F Tabular Disclosure of Contractual Obligations
The following table summarizes the Group's contractual obligations and other commercial commitments, as well as the effect these obligations and
commitments are expected to have on the Group's liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
Total
|
|
Less than
1 year
|
|
23 years
|
|
45 years
|
|
After
5 years
|
|
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
$ m
|
|
Non-current financial debt, including current portion
|
|
|
23,583
|
|
|
359
|
|
|
5,170
|
|
|
4,679
|
|
|
13,375
|
|
Interest on non-current financial debt, including current portion
|
|
|
6,244
|
|
|
620
|
|
|
977
|
|
|
788
|
|
|
3,859
|
|
Operating leases
|
|
|
3,169
|
|
|
309
|
|
|
384
|
|
|
255
|
|
|
2,221
|
|
Unfunded pensions and other post-employment benefit plans
|
|
|
2,179
|
|
|
121
|
|
|
249
|
|
|
257
|
|
|
1,552
|
|
Research & Development potential milestone commitments
|
|
|
4,306
|
|
|
780
|
|
|
1,535
|
|
|
1,154
|
|
|
837
|
|
Property, plant & equipment purchase commitments
|
|
|
318
|
|
|
247
|
|
|
71
|
|
|
|
|
|
|
|
Acquisition of business and intangible asset commitments
(1)
|
|
|
4,000
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
|
43,799
|
|
|
6,436
|
|
|
8,386
|
|
|
7,133
|
|
|
21,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
For
acquisition of business commitments, please refer to "Note 2. Significant transactions" in the "Excerpts from Novartis Annual Report 2017"
furnished to the SEC on Form 6-K on January 24, 2018.
The
Group intends to fund the Research & Development, Property, plant & equipment and intangible asset purchase commitments with internally generated resources. The Group
intends to fund the acquisition of business ($3.9 billion) mainly through external short- and long-term debt.
For
other contingencies, see "Item 4. Information on the CompanyItem 4.D Property, Plants and EquipmentEnvironmental Matters", "Item 8.
Financial InformationItem 8.A Consolidated Statements and Other Financial Information" and "Note 19. Provisions and other non-current liabilities" and "Note 27.
Commitments and contingencies" in the "Excerpts from Novartis Annual Report 2017" furnished to the SEC on Form 6-K on January 24, 2018.
189
Table of Contents