- now with a more focused portfolio
Continuing operations1 saw sales, core2
operating income and core EPS grow (cc2) in Q1
o Net sales were USD 11.9 billion (-7%, +3% cc)2
o Operating income was USD 2.8 billion (-1%, +15% cc)
o Core operating income (-4%, +9% cc) grew faster than sales (cc), resulting in core margin of 30.6%
o Core EPS was USD 1.33 (-1%, +11% cc)
o Further strengthening of USD impacted sales by -10% and core operating income by -13%
o Free cash flow2 increased 27% to USD 1.5 billion
For total Group, Q1 divestments resulted in exceptional operating income gains totaling USD 12.8 billion and net income gains of USD 10.8 billion
Strong progress on innovation continued in Q1
o Three approvals in Oncology: Jakavi in polycythemia vera (EU), Farydak in multiple myeloma (US) and Jadenu for chronic iron overload (US)
o LCZ696 granted FDA priority review and CHMP accelerated assessment in heart failure
o Positive trials on Cosentyx in psoriasis showing superiority to Stelara®
, sustained two-year efficacy
o Sandoz received FDA approval for first biosimilar Zarxio and in April for first substitutable generic version of Copaxone® 20mg one-time-daily injection, Glatopa
Portfolio rejuvenation continued in Q1, reinforcing growth prospects for continuing operations
o Growth Products3
grew 15% (USD) to USD 3.7 billion, or 31% of net sales
o Strong performance in Emerging Growth Markets3
(+12% cc)
Continued progress in transforming portfolio and increasing productivity
o Transactions with GSK and Lilly closed on March 2 and January 1, respectively; divestment of influenza Vaccines business to CSL expected to be completed in H2 2015
o For continuing operations, core margin improved (+1.7 percentage points cc) mainly due to ongoing productivity initiatives
Outlook 2015 for continuing operations confirmed
o Net sales expected to grow mid-single digit (cc); core operating income expected to grow ahead of sales at a high-single digit rate (cc)
1 Refers to continuing operations. Continuing operations are defined on page 34 of the Condensed Interim Financial Report. Total Group results
include exceptional divestment gains and other operational results of discontinued operations. See page 4.
2 Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 42
of the Condensed Interim Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year.
3 Growth Products are defined on page 2 and Emerging Growth Markets on page 6.
FINANCIAL RESULTS • RÉSULTATS FINANCIERS • FINANZERGEBNISSE
Novartis delivered sales growth (cc), significant margin expansion (cc) and
strong innovation in Q11
; now with a more focused portfolio
Continuing operations1
saw sales, core2
operating income and core EPS grow (cc2
) in Q1
o Net sales were USD 11.9 billion (-7%, +3% cc)2
o Operating income was USD 2.8 billion (-1%, +15% cc)
o Core operating income (-4%, +9% cc) grew faster than sales (cc), resulting in core margin of 30.6%
o Core EPS was USD 1.33 (-1%, +11% cc)
o Further strengthening of USD impacted sales by -10% and core operating income by -13%
o Free cash flow2
increased 27% to USD 1.5 billion
For total Group, Q1 divestments resulted in exceptional operating income gains totaling
USD 12.8 billion and net income gains of USD 10.8 billion
Strong progress on innovation continued in Q1
o Three approvals in Oncology: Jakavi in polycythemia vera (EU), Farydak in multiple myeloma (US)
and Jadenu for chronic iron overload (US)
o LCZ696 granted FDA priority review and CHMP accelerated assessment in heart failure
o Positive trials on Cosentyx in psoriasis showing superiority to Stelara®
, sustained two-year efficacy
o Sandoz received FDA approval for first biosimilar Zarxio and in April for first substitutable generic
version of Copaxone®
20mg one-time-daily injection, Glatopa
Portfolio rejuvenation continued in Q1, reinforcing growth prospects for continuing operations
o Growth Products3
grew 15% (USD) to USD 3.7 billion, or 31% of net sales
o Strong performance in Emerging Growth Markets3
(+12% cc)
Continued progress in transforming portfolio and increasing productivity
o Transactions with GSK and Lilly closed on March 2 and January 1, respectively; divestment of
influenza Vaccines business to CSL expected to be completed in H2 2015
o For continuing operations, core margin improved (+1.7 percentage points cc) mainly due to
ongoing productivity initiatives
Outlook 2015 for continuing operations confirmed
o Net sales expected to grow mid-single digit (cc); core operating income expected to grow
ahead of sales at a high-single digit rate (cc)
Key figures Continuing operations1
Total Group1
Q1 2015 Q1 2014 % change Q1 2015 Q1 2014
USD m USD m USD cc USD m USD m
Net sales 11 935 12 767 -7 3 12 483 14 022
Operating income 2 785 2 815 -1 15 15 407 3 489
Net income 2 306 2 454 -6 9 13 005 2 968
EPS (USD) 0.96 0.99 -3 12 5.40 1.21
Free cash flow 1 465 1 152 27 1 226 765
Core
Operating income 3 651 3 800 -4 9 3 549 3 657
Net income 3 199 3 333 -4 8 3 116 3 212
EPS (USD) 1.33 1.35 -1 11 1.29 1.31
2/12
Basel, April 23, 2015 — Commenting on the results, Joseph Jimenez, CEO of Novartis, said:
“Our focus on execution has resulted in a strong operational performance. We have completed the
GSK and Lilly transactions and innovation continues to be strong. We had three approvals in
Oncology, FDA priority review for LCZ696, Zarxio became the first biosimilar approved under the new
pathway in the US and we launched Cosentyx globally. We are on track to deliver our full-year
guidance.”
GROUP REVIEW
On March 2, 2015, Novartis announced that it completed a series of transactions with GlaxoSmithKline
plc (GSK). These comprise the acquisition of certain oncology products and right of first negotiation1
to
the pipeline compounds from GSK, the creation of a world-leading consumer healthcare business
through a joint venture combining the two companies' consumer divisions, and the divestment of the
Novartis non-influenza Vaccines business to GSK. The transactions were part of the Novartis portfolio
transformation announced on April 22, 2014 to focus the company on three leading businesses, and
follow the divestment of Animal Health to Eli Lilly and Company (Lilly) completed on January 1, 2015.
In order to comply with International Financial Reporting Standards (IFRS), Novartis has separated the
Group’s reported financial data for the current and prior years into “continuing” and “discontinued”
operations. See page 34 of the Condensed Interim Financial Report for full explanation.
2
First quarter
The commentary below focuses on continuing operations, which include the businesses of
Pharmaceuticals, Alcon and Sandoz, and starting on March 2 the results from the new oncology assets
acquired from GSK and the 36.5% interest in the GSK consumer healthcare joint venture (the latter
reported as part of income from associated companies). We also provide detail on total Group
performance on page 4.
Continuing operations
Continuing operations net sales amounted to USD 11.9 billion (-7%, +3% cc) in the first quarter.
Growth Products3
contributed USD 3.7 billion or 31% of net sales, up 15% (USD) over the prior-year
quarter.
Continuing operations operating income was USD 2.8 billion (-1%, +15% cc). The strong leverage from
productivity initiatives and lower restructuring charges were more than offset by a negative currency
impact of 16 percentage points, primarily due to the strengthening of the US dollar against most
currencies. Operating income margin increased to 23.3% of net sales, up 2.5 percentage points (cc)
from the prior-year quarter. Currency had a negative impact of 1.2 percentage points, resulting in a net
increase of 1.3 percentage points. The adjustments made to Group operating income to arrive at core
operating income amounted to USD 0.9 billion (2014: USD 1.0 billion).
Core operating income was USD 3.7 billion (-4%, +9% cc). Core operating income margin in constant
currencies increased 1.7 percentage points, mainly due to productivity gains across functional costs.
Currency had a negative impact of 0.9 percentage points, resulting in a net increase of 0.8 percentage
points to 30.6% of net sales.
Continuing operations net income was USD 2.3 billion (-6%, +9% cc), growing less than operating
income mainly due to a lower contribution from associated companies, partly offset by lower financial
expenses.
EPS was USD 0.96 (-3%, +12% cc), growing ahead of net income due to the lower number of average
outstanding shares.
1
The right of first negotiation is over the co-development or commercialization of GSK’s current and future oncology R&D pipeline, excluding
oncology vaccines.
2 Novartis remains fully committed to the influenza Vaccines business until it is sold to CSL. This business is reported within discontinued operations.
3
"Growth Products" are an indicator of the rejuvenation of the portfolio, and comprise products launched in a key market (EU, US, Japan) in 2010
or later, or products with exclusivity in key markets until at least 2019 (except Sandoz, which includes only products launched in the last 24
months). This is a rolling definition, meaning that last year it was defined as products launched in a key market (EU, US, Japan) in 2009 or later, or
products with exclusivity until at least 2018 in key markets (except Sandoz, which includes only products launched in the last 24 months).
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