Press Release: Novartis delivers strong full year performance, 10% net sales and 18% core operating income growth (cc(1)), with margin expansion. Continuing ...

Ad hoc announcement pursuant to Art. 53 LR

Full year (continuing operations(2) )

-- Net sales grew +10% (cc, +8% USD) with core operating income growing +18%

(cc, +11% USD)

-- Sales growth was mainly driven by continued strong performance from

Entresto (+31% cc), Kesimpta (+99% cc), Kisqali (+75% cc), Pluvicto

(+261% cc) and Scemblix (+179% cc)

-- Operating income increased +39% (cc, +23% USD). Net income increased +62%

(cc, +42% USD). Free cash flow from continuing operations was USD 13.2

billion (+9% USD)

-- EPS grew +70% (cc, +49% USD) to USD 4.13. Core EPS was USD 6.47 growing

+25% (cc, +18% USD)

Fourth quarter (continuing operations)

-- Net sales grew +10% (cc, +8% USD) with core operating income growing +13%

(cc, +5% USD),

-- Sales growth was mainly driven by continued strong performance from

Entresto (+26% cc), Kisqali (+76% cc), Kesimpta (+73% cc), Cosentyx (+21%

cc) and Pluvicto (+53% cc)

-- Q4 selected innovation milestones:

-- Fabhalta FDA approval for treatment of adults with PNH (both

previously treated and treatment-naïve)

-- Cosentyx FDA approval for the treatment of moderate to severe HS

in adults

-- Cosentyx FDA approval for intravenous formulation in three

indications (PsA, AS, nr-axSpA)

-- Iptacopan Ph3 APPLAUSE-IgAN met its primary endpoint in IgAN

patients

-- Atrasentan Ph3 ALIGN study met its primary endpoint in IgAN

patients

-- Iptacopan Ph3 APPEAR-C3G met its primary endpoint in C3G patients

-- Scemblix Ph3 ASC4FIRST study met its primary endpoints in 1L Ph+

CML-CP patients (January)

Dividend, 2024 guidance; updated mid-term guidance

-- Dividend of CHF 3.30 per share, an increase of 3.1%, proposed for 2023

-- 2024 guidance3 -- Net sales expected to grow mid single digit and core

operating income expected to grow high single digit

-- Updated mid-term guidance -- Net sales expected to grow 5% cc CAGR

2023-2028 with core operating income margin expanding to 40%+ by 2027

(1) Constant currencies (cc), core results and free cash flow are non-IFRS measures. An explanation of non-IFRS measures can be found on page 49 of the Condensed Financial Report. Unless otherwise noted, all growth rates in this Release refer to same period in prior year. (.)

(2) As defined on page 37 of the Condensed Financial Report, Continuing operations include the retained business activities of Novartis, comprising the innovative medicines business and the continuing Corporate activities and Discontinued operations include operational results from the Sandoz business.

(3) Please see detailed guidance assumptions on page 7

Basel, January 31, 2024 - commenting on 2023 results, Vas Narasimhan, CEO of Novartis, said: "Novartis completed its strategic transformation into a pure-play innovative medicines company and continued its relentless pursuit of sustainable shareholder value creation. Our robust operational performance continues, with strong double-digit top and bottom-line growth, for the quarter and full year. We delivered ten positive Ph3 readouts on assets with significant sales potential, over the past year. The very strong performance of our key growth drivers and pipeline underscores the confidence in our growth (5% cc CAGR 2023-2028) and margin (40%+ by 2027) mid-term guidance."

Key figures(1)

Continuing operations

----------------------------------------------------------

Q4 2023 Q4 2022 % change FY 2023 FY 2022 % change

USD m USD m USD cc USD m USD m USD cc

------- ------- ---- ---- ------- ------- ----- ---

Net sales 11 423 10 576 8 10 45 440 42 206 8 10

------- ------- ---- ---- ------- ------- ----- ---

Operating income 2 582 1 755 47 68 9 769 7 946 23 39

------- ------- ---- ---- ------- ------- ----- ---

Net income 2 638 1 315 101 130 8 572 6 049 42 62

------- ------- ---- ---- ------- ------- ----- ---

EPS (USD) 1.29 0.62 108 140 4.13 2.77 49 70

------- ------- ---- ---- ------- ------- ----- ---

Free cash flow 2 141 3 462 -38 13 160 12 123 9

------- ------- ---- ------- ------- -----

Core operating

income 3 821 3 645 5 13 16 372 14 794 11 18

------- ------- ---- ---- ------- ------- ----- ---

Core net income 3 126 2 963 6 11 13 446 11 946 13 19

------- ------- ---- ---- ------- ------- ----- ---

Core EPS (USD) 1.53 1.39 10 16 6.47 5.48 18 25

------- ------- ---- ---- ------- ------- ----- ---

Strategy Update

Our focus

During 2023, Novartis completed our transformation into a "pure-play" innovative medicines business. We have a clear focus on four core therapeutic areas (cardiovascular-renal-metabolic, immunology, neuroscience and oncology), with multiple significant in-market and pipeline assets in each of these areas, that address high disease burden and have substantial growth potential. In addition to two established technology platforms (chemistry and biotherapeutics), three emerging platforms (gene & cell therapy, radioligand therapy and xRNA) are being prioritized for continued investment into new R&D capabilities and manufacturing scale. Geographically, we are focused on growing in our priority geographies - the US, China, Germany and Japan.

Our priorities

1. Accelerate growth: Renewed attention to deliver high-value medicines

(NMEs) and focus on launch excellence, with a rich pipeline across our

core therapeutic areas.

2. Deliver returns: Continuing to embed operational excellence and deliver

improved financials. Novartis remains disciplined and shareholder-focused

in our approach to capital allocation, with substantial cash generation

and a strong capital structure supporting continued flexibility.

3. Strengthening foundations: Unleashing the power of our people, scaling

data science and technology and continuing to build trust with society.

Financials

Following the September 15, 2023, shareholders' approval of the spin-off of the Sandoz business the Company reported its consolidated financial statements for the current and prior years as "continuing operations" and "discontinued operations."

Continuing operations include the retained business activities of Novartis, comprising the innovative medicines business and the continuing corporate activities. Discontinued operations include the Sandoz Division and selected portions of corporate activities attributable to Sandoz's business, as well as certain expenses related to the spin-off.

Following the spin-off of the Sandoz business, Novartis operates as a single global operating segment focused innovative medicines company.

The commentary below focuses on continuing operations. We also provide information on discontinued operations, which mainly includes Sandoz and allocated corporate activities.

Continuing operations

Fourth quarter

Net sales were USD 11.4 billion (+8%, +10% cc) in the fourth quarter driven by volume growth of 13 percentage points. Generic competition had a negative impact of 3 percentage points and pricing had no impact.

Operating income was USD 2.6 billion (+47%, +68% cc), mainly driven by higher net sales and lower restructuring charges, partly offset by higher SG&A and R&D investments.

Net income was USD 2.6 billion (+101%, +130% cc), mainly driven by higher operating income and non-recurring favorable tax impacts. EPS was USD 1.29 (+108%, +140% cc), benefiting from lower weighted average number of shares outstanding.

Core operating income was USD 3.8 billion (+5%, +13% cc), mainly driven by higher net sales, partly offset by higher SG&A and R&D investments. Core operating income growth in USD was impacted by negative 2 percentage points from the effect of mid-December currency devaluation in Argentina(1). Core operating income margin was 33.5% of net sales, decreasing 1.0 percentage point (+1.0 percentage point cc).

Core net income was USD 3.1 billion (+6%, +11% cc), mainly due to higher core operating income. Core EPS was USD 1.53 (+10%, +16% cc), benefiting from lower weighted average number of shares outstanding.

Free cash flow from continuing operations amounted to USD 2.1 billion (-38% USD), compared with USD 3.5 billion in the prior year quarter driven by lower net cash flows from operating activities.

(1) IFRS(R) Accounting Standards requires for our Argentina subsidiary, as it operates in a hyperinflation economy, to translate for consolidation purposes their full year income statement to our USD presentation currency using the ARS closing rate, and not using the average exchange rate for the period. This results in the 9-months and the Q4 devaluation impact being recognized in Q4.

Full year

Net sales were USD 45.4 billion (+8%, +10% cc) in the full year, driven by volume growth of 16 percentage points, partly offset by price erosion of 2 percentage points and the negative impact from generic competition of 4 percentage points.

Operating income was USD 9.8 billion (+23%, +39% cc), mainly driven by higher net sales, lower restructuring charges, and income from legal matters, partly offset by higher impairments and higher SG&A and R&D investments.

Net income was USD 8.6 billion (+42%, +62% cc), mainly driven by higher operating income and non-recurring favorable tax impacts. EPS was USD 4.13 (+49%, +70% cc).

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January 31, 2024 01:00 ET (06:00 GMT)