28 okt. Net sales up 4% (+5% cc)1 in Q3, with operating margin increase across Q3 and 9M
o Net sales of USD 14.7 billion grew 4% (+5% cc2) in Q3
o Strong operating income growth in Q3 of 14% (+18% cc)
o Core2 operating income in Q3 grew 8% (+11% cc), growing faster than sales
o Core EPS up 10% (+13% cc) in Q3
o Free cash flow 2 of USD 3.2 billion (-9%) in Q3
 Strong momentum in innovation, with positive regulatory decisions and data readouts in Q3
o Landmark trial showed LCZ696 cut cardiovascular deaths by 20% vs. current standard of care
o FDA Advisory Committee unanimously recommended approval for AIN457 in psoriasis
o Signifor LAR received positive CHMP opinion in acromegaly
o Alcon’s Simbrinza approved in EU for glaucoma
 Continued execution on growth products3 and expansion in Emerging Growth Markets3
o Growth products grew 21% (USD) to USD 4.9 billion or 33% of Group net sales in Q3
o Strong Emerging Growth Markets3 performance (+13% cc) in Q3, led by China, Brazil and Russia
 Ongoing productivity initiatives contributed to core margin improvement (cc) in Q3
o Core margin (+1.5 percentage points cc) improved mainly due to lower functional costs driven by productivity programs
 Binding agreement to divest influenza vaccines business to CSL Limited
 2014 Group outlook confirmed: Group net sales to grow low to mid-single digit (cc), core operating income to grow ahead of sales at mid to high-single digit rate (cc).

Basel, October 28, 2014 — Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
“Novartis delivered a very strong third quarter. We delivered solid sales growth with margin expansion. At the same time, we reached key innovation milestones, particularly with LCZ696 in heart failure and AIN457 in psoriasis, underlining the innovation power of the company.”
GROUP REVIEW
Following the transactions with GSK and Lilly announced on April 22, in order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the Group’s reported financial data for the current and prior year into “discontinuing” operations (Animal Health, OTC, and all of the Vaccines Division except for certain intellectual property rights and related other revenues which will be retained by Novartis and are now reported under Corporate activities) and “continuing” operations (Pharmaceuticals, Alcon and Sandoz Divisions and the retained Corporate activities).1 See page 21 of the Condensed Interim Financial Report for full explanation.
Third quarter
Group net sales grew on strong execution of growth products2
Group net sales increased 4% (+5% cc) to USD 14.7 billion in the third quarter. Growth products contributed USD 4.9 billion or 33% of Group net sales, up 21% (USD) over the prior-year quarter.
Group operating income increased 14% (+18% cc) to USD 3.0 billion. Currency had a negative impact of 4 percentage points, primarily due to the stronger Swiss franc and strengthening of the US dollar against the Russian ruble and Japanese yen. Operating income margin was 20.3% of net sales, up 2.3 percentage points (cc) from the prior-year quarter, partially offset by a negative currency impact of 0.5 percentage points. The cessation of depreciation and amortization of non-current assets from the portfolio transformation announcement date related to the discontinuing operations had a positive impact of USD 106 million for the quarter, improving operating income margin by 0.7 percentage points. The adjustments made to Group operating income to arrive at core operating income amounted to USD 0.9 billion (2013: USD 0.9 billion), including an exceptional non-tax deductible charge of USD 204 million for recognition of the 2014 liability for the US Healthcare Fee (following final regulations issued by the IRS which advanced the timing of recording the liability).
Core operating income was USD 3.8 billion (+8%, +11% cc). Core operating income margin in constant currencies increased 1.5 percentage points. R&D expenses contributed 1.1 percentage points due to productivity programs and higher prior-year late-stage clinical trial costs in Pharmaceuticals. Marketing & Sales, General and Administration expenses decreased 1.9 percentage points of net sales due to ongoing productivity programs. The reduction in functional costs as a percentage of net sales was partly offset by unfavorable other income and expense and cost of goods. The cessation of depreciation of property, plant and equipment related to the discontinuing operations had a positive impact of USD 52 million, improving the core operating income margin by 0.3 percentage points. Currency had a negative impact of 0.4 percentage points, resulting in a net increase of 1.1 percentage points to 26.1% of net sales.
Group net income of USD 3.2 billion was up 45% (+49% cc), mainly due to higher operating income, and income from associated companies, which included a pre-tax gain of USD 0.8 billion from the sale of the shares of Idenix Pharmaceuticals Inc. to Merck & Co.
EPS was USD 1.33 (+48%, +51% cc), ahead of net income growth due to lower average outstanding shares.
Group core net income of USD 3.3 billion was up 9% (+12% cc), slightly ahead of core operating income.
Core EPS was USD 1.37 (+10%, +13% cc), ahead of core net income growth mainly due to lower average outstanding shares.
1 Despite the required presentation of discontinuing operations, until the transactions announced on April 22 are closed, Novartis remains fully committed to all Group activities, and will continue to report performance on a total Group basis.
2 "Growth products" comprise products launched in 2009 or later, or products with exclusivity until at least 2018 in key markets (EU, US, Japan) (except Sandoz, which includes only products launched in the last 24 months).
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