BAGSVAERD, DENMARK--(Marketwire - January 29, 2009) - Financial Statement for 2008
Novo Nordisk increased operating profit by 38% in 2008
Performance driven by sales of modern insulins and gross margin improvement. Dividend to be increased by 33%.
* Sales in local currencies increased by 12% in 2008 and by 9% in Danish kroner.
-- Sales of modern insulins increased by 28% (24% in Danish kroner).
-- Sales of NovoSeven® increased by 14% (9% in Danish kroner).
-- Sales of Norditropin® increased by 12% (10% in Danish kroner).
-- Sales in North America increased by 18% (10% in Danish kroner).
-- Sales in International Operations increased by 21% (15% in Danish kroner).
* Gross margin improved by 1.7 percentage points in local currencies and by 1.2 percentage points in Danish kroner to 77.8% in 2008, primarily reflecting continued productivity improvements and a negative currency impact of around 0.5 percentage points.
* Reported operating profit increased by 38% to DKK 12,373 million, up from 8,942 DKK million in 2007. Adjusted for the impact of closure costs for pulmonary diabetes projects in 2007 and 2008 and the impact of currencies, underlying operating profit increased by more than 25%.
* Net profit increased by 13% to DKK 9,645 million. Earnings per share (diluted) increased by 16% to DKK 15.54.
* At the Annual General Meeting on 18 March 2009, the Board of Directors will propose a 33% increase in dividend to DKK 6.00 per share of DKK 1. The ongoing share repurchase programme has been increased by DKK 1 billion to DKK 18.5 billion and the remaining DKK 6 billion of the programme is expected to be repurchased before the end of 2009.
* For 2009, operating profit measured in local currencies is expected to grow at the level of 10%. Due to a positive currency impact reported operating profit growth is expected to be around 9 percentage points higher.
* Novo Nordisk reached in 2008 the four long-term financial targets established in 2006. The four ratios used are still considered appropriate measures to ensure value creation and several targets have consequently been increased.
Lars Rebien Sørensen, president and CEO, said: “We are satisfied with the solid business results achieved in 2008 driven by the continued penetration of our modern insulins in all key markets. Despite the general economic downturn we still expect double-digit growth in both sales and operating profit for 2009 and we are increasing our long-term financial targets.”
Contents
Page Consolidated financial statement 2008 3 Long-term financial targets 2008 4 Sales development by segments 5 Sales development by regions 5 Diabetes care 5 Biopharmaceuticals 6 Costs, licence fees and other operating income 7 Net financials and tax 8 Capital expenditure and free cash flow 8 Long-term financial targets 9 Outlook 2009 10 Research and development update 11 Equity 12 Corporate governance 13 Sustainability issues update 15 Legal issues update 15 Financial calendar 16 Conference call details 16 Forward-looking statement 17 Management statement 18 Contacts for further information 19 Appendices: Appendices 1-2: Quarterly numbers in DKK and EUR 20 Appendices 3-4: Income statement and balance sheet 22 Appendix 5: Cash flow statement 24 Appendix 6: Statement of changes in equity 25 Appendix 7: Exchange rates for key currencies 26
Consolidated financial statement 2008
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies used in this report are consistent with those used in the Annual Report 2007.
% change 2008 vs Profit and loss 2008 2007 2006 2005 2004 2007 (Amounts below in DKK million) Sales 45,553 41,831 38,743 33,760 29,031 9% Gross profit 35,444 32,038 29,158 24,583 20,981 11% Gross margin 77.8% 76.6% 75.3% 72.8% 72.3% Sales and distribution 12,866 12,371 11,608 9,691 8,280 4% costs Percent of sales 28.2% 29.6% 30.0% 28.7% 28.5% Research and development 7,856 8,538 6,316 5,085 4,352 -8% costs - hereof costs related (325) (1,325) - - - to AERx® 1) Percent of sales 17.2% 20.4% 16.3% 15.1% 15.0% Percent of sales (excl 16.5% 17.2% - - - AERx®) 1) Administrative expenses 2,635 2,508 2,387 2,122 1,944 5% Percent of sales 5.8% 6.0% 6.2% 6.3% 6.7% Licence fees and other 286 321 272 403 575 -11% operating income Operating profit 12,373 8,942 9,119 8,088 6,980 38% Operating margin 27.2% 21.4% 23.5% 24.0% 24.0% Operating profit (excl 12,698 10,267 - - - 24% AERx®)1) Operating margin (excl 27.9% 24.5% - - - AERx®) 1) Net financials 322 2,029 45 146 477 -84% Profit before income 12,695 10,971 9,164 8,234 7,457 16% taxes Income taxes 3,050 2,449 2,712 2,370 2,444 25% Income tax rate 24.0% 22.3% 29.6% 28.8% 32.8% Net profit 9,645 8,522 6,452 5,864 5,013 13% Net profit margin 21.2% 20.4% 16.7% 17.4% 17.3% 1) Costs related to discontinuation of all pulmonary diabetes projects. Consolidated financial statement 2008- continued These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies used in this report are consistent with those used in the Annual Report 2007. Other key numbers (Amounts below in DKK million except earnings per share, dividend per % change share and number of 2008 vs employees) 2008 2007 2006 2005 2004 2007 Depreciation, 2,442 3,007 2,142 1,930 1,892 -19% amortisation, etc Capital expenditure 1,754 2,268 2,787 3,665 2,999 -23% Free cash flow 11,015 9,012 4,707 4,833 4,278 22% Equity 32,979 32,182 30,122 27,634 26,504 2% Total assets 50,603 47,731 44,692 41,960 37,433 6% Equity ratio 65.2% 67.4% 67.4% 65.9% 70.8% Diluted earnings per 15.54 13.39 10.00 8.92 7.42 16% share (in DKK) Dividend per share (in 6.00 4.50 3.50 3.00 2.40 33% DKK)1) Payout ratio 2) 37.8% 32.8% 34.4% 33.2% 31.8% Payout ratio (adjusted) - 34.9% - - - 3) Average number of 26,069 24,344 22,590 21,146 19,520 7% full-time employees 1) Proposed dividend for the financial year 2008. 2) Total dividends for the year as a percentage of net profit. 3) Total dividends for the year as a percentage of net profit adjusted for impact of Dako and AERx® discontinuation. Long-term financial targets 2008 Performance against 2008 2007 2006 2005 2004 Long-term long-term financial target ratio targets Operating profit growth 38.4% (1.9%) 12.7% 15.9% 8.7% 15% Operating profit growth 23.7% 12.6% - - - (excl AERx®) 1) Operating margin 27.2% 21.4% 23.5% 24.0% 24.0% 25% Operating margin (excl 27.9% 24.5% - - - AERx®) 1) Return on invested 37.4% 27.2% 25.8% 24.7% 21.5% 30% capital Cash to earnings 114.2% 105.7% 73.0% 82.4% 85.3% Cash to earnings (three 97.6% 87.0% 80.2% 82.4% 59.0% 70% years’ average) 1) Costs related to the discontinuation of all pulmonary diabetes projects. Sales development by segments Sales increased by 12% measured in local currencies and by 9% in Danish kroner. Modern insulins continue to be the main contributor to growth and NovoSeven® and Norditropin® also continue to contribute to growth. The sales growth realised in 2008 was in line with the previously communicated guidance of sales growth of ’11-13% measured in local currencies, whereas reported sales growth is expected to be around 3 percentage points lower’. Sales Growth Growth Share of 2008 as in local growth DKK reported currencies in local million currencies The diabetes care segment Modern insulins 17,317 24% 28% 77% - Levemir® 3,850 49% 55% 28% - NovoMix® 5,637 19% 23% 21% - NovoRapid® 7,830 17% 22% 28% Human insulins 11,804 -6% -5% -11% Insulin-related sales 1,844 5% 8% 3% Oral antidiabetic products 2,391 11% 16% 6% Diabetes care - total 33,356 9% 13% 75% The biopharmaceuticals segment NovoSeven® 6,396 9% 14% 16% Growth hormone therapy 3,865 10% 12% 8% Other products 1,936 -2% 1% 1% Biopharmaceuticals - total 12,197 7% 11% 25% Total sales 45,553 9% 12% 100%
Sales development by regions
In 2008, sales growth was realised in all regions measured in local currencies. The main contributors to growth were North America and International Operations providing 48% and 29%, respectively, of the total sales growth. Europe contributed 21% and Japan & Oceania 2% of the sales growth in 2008 measured in local currencies.
Diabetes care
Sales of diabetes care products increased by 13% measured in local currencies and by 9% in Danish kroner to DKK 33,356 million compared to last year.
Modern insulins, human insulins and insulin-related products
Sales of modern insulins, human insulins and insulin-related products increased by 12% measured in local currencies and by 9% in Danish kroner to DKK 30,965 million. All regions contributed to growth, with North America and International Operations having the highest growth rates. Novo Nordisk continues to be the global leader with 52% of the total insulin market and 44% of the modern insulin market, both measured by volume.
Sales of modern insulins increased by 28% in local currencies in 2008 and by 24% in Danish kroner to DKK 17,317 million. Sales of Levemir® increased by 55%, sales of NovoRapid® (NovoLog® in the US) increased by 22% and sales of NovoMix® (NovoLog® Mix 70/30 in the US) increased by 23%, all measured in local currencies. All regions realised solid growth rates, with North America and Europe as the primary contributors to growth. Sales of modern insulins contributed 77% of the overall growth in local currencies and now constitute 59% of Novo Nordisk’s sales of insulins.
North America
Sales in North America increased by 21% in local currencies in 2008 and by 14% in Danish kroner, reflecting a solid penetration of the modern insulins Levemir®, NovoLog® and NovoLog® Mix 70/30. In the fourth quarter of 2008, US sales were positively impacted by a rebate reversal related to a federal healthcare programme. Novo Nordisk maintains its leadership position in the US insulin market with 41% of the total insulin market and 32% of the modern insulin market, both measured by volume. Currently, more than 37% of Novo Nordisk’s modern insulin volume is being sold in FlexPen®.
Europe
Sales in Europe increased by 6% in local currencies and 5% measured in Danish kroner, reflecting continued progress for the portfolio of modern insulins. Novo Nordisk holds 55% of the total insulin market and 51% of the modern insulin market, both measured by volume, and is capturing the main share of growth in the modern insulin market.
International Operations
Sales within International Operations increased by 18% in local currencies and by 14% in Danish kroner. The main contributor to growth in 2008 was sales of modern insulins, primarily in Turkey and China. Furthermore, sales of human insulins continue to add to overall growth in the region, driven by China.
Japan & Oceania
Sales in Japan & Oceania increased by 1% in local currencies and by 6% measured in Danish kroner. The sales development reflects sales growth for the modern insulins NovoRapid®, NovoRapid Mix® 30 and Levemir®. Novo Nordisk holds 72% of the total insulin market in Japan and 64% of the modern insulin market, both measured by volume.
Oral antidiabetic products (NovoNorm®/Prandin®)
Sales of oral antidiabetic products increased by 16% in local currencies and by 11% in Danish kroner to DKK 2,391 million compared to 2007. This primarily reflects increased sales in International Operations and North America, mainly due to an increased market share in China and a higher average sales price in the US market.
Biopharmaceuticals
Sales of biopharmaceutical products increased by 11% measured in local currencies and by 7% measured in Danish kroner to DKK 12,197 million compared to last year.
NovoSeven®
Sales of NovoSeven® increased by 14% in local currencies and by 9% in Danish kroner to DKK 6,396 million compared to last year. Sales growth for NovoSeven® was primarily realised in North America and International Operations. The sales growth for NovoSeven® during 2008 primarily reflected increased sales within the congenital bleeding disorder segments, where Novo Nordisk is the global leader and was supported by the launch of room temperature-stable NovoSeven® in the US as well as key markets in Europe. Treatment of spontaneous bleeds for congenital inhibitor patients remains the largest area of use. In the fourth quarter of 2008, sales of NovoSeven® in the US were positively impacted by wholesaler stock building. Sales of NovoSeven® in International Operations in 2008 were positively impacted by the timing of tender sales compared to 2007.
Growth hormone therapy (Norditropin®)
Sales of Norditropin® (ie growth hormone in a liquid, ready-to-use formulation) increased by 12% measured in local currencies and by 10% measured in Danish kroner to DKK 3,865 million. North America and Europe were the main contributors to growth measured in local currencies. Novo Nordisk is the second-largest company in the growth hormone market with 23% market share measured in volume.
Other products
Sales of other products within biopharmaceuticals, which predominantly consist of hormone replacement therapy (HRT)-related products, increased by 1% in local currencies and decreased by 2% in Danish kroner to DKK 1,936 million. This development primarily reflects generic competition in the US to Activella®, a continuous-combined HRT product, but also continued sales progress for Vagifem®, Novo Nordisk’s topical oestrogen product.
Costs, licence fees and other operating income
The cost of goods sold was DKK 10,109 million in 2008 representing a gross margin of 77.8% compared to 76.6% in 2007. This improvement reflects improved production efficiency and higher average selling prices in the US. The gross margin was negatively impacted by around 0.5 percentage points due to a negative currency development.
In 2008, total non-production-related costs amounted to DKK 23,357 million and were largely at the same level as in 2007. This development reflects lower costs related to research and development, primarily reflecting the non-recurring costs related to the discontinuation of AERx® in 2007 of DKK 1,325 million and non-recurring costs of DKK 325 million in 2008 related to the discontinuation of AERx® and other pulmonary diabetes projects. Sales and distribution costs increased at a lower level than sales, primarily explained by a return of a deposit related to an antidumping case in Brazil countered by higher costs related to the expanded sales force in the US.
In 2008, costs amounting to DKK 171 million in connection with general employee share programmes were expensed. In 2008, Novo Nordisk expensed costs in relation to share-based long-term incentive programmes for senior management and other senior employees (around 580 participants in total) amounting to DKK 160 million. The comparable expense for 2007 was DKK 121 million (around 525 participants in total).
Licence fees and other operating income were DKK 286 million in 2008 compared to DKK 321 million in 2007.
Operating profit in 2008 increased by 38% to DKK 12,373 million compared to 2007 and is above the previously communicated expectations of growth in operating profit of ’32-35% as reported’. Adjusting for the impact from the return of a deposit related to an antidumping case in Brazil, operating profit was realised slightly above the previously communicated expectations of growth in operating profit.
Net financials and tax
Net financials showed a net income of DKK 322 million in 2008 compared to a net income of DKK 2,029 million in 2007.
Included in net financials is the result from associated companies with an expense of DKK 124 million, primarily related to Novo Nordisk’s share of losses in ZymoGenetics, Inc of approximately DKK 192 million. In 2007, the result from associated companies was an income of DKK 1,233 million primarily related to the non-recurring tax-exempt income of approximately DKK 1.5 billion from Novo Nordisk’s divestment of the ownership of Dako’s business activities.
The foreign exchange result was an income of DKK 159 million compared to an income of DKK 910 million in 2007. This development reflects gains on foreign exchange hedging activities especially in US dollar partly offset by losses on commercial balances in non-hedged currencies. Foreign exchange hedging losses of DKK 864 million have been deferred for future income recognition, primarily in 2009.
The realised results for net financials in 2008 were slightly lower than the previously communicated expectation of a total net financial income of around ‘DKK 350 million’ despite a non-recurring interest income related to the return of a deposit related to an antidumping case in Brazil. The lower result for net financials is primarily explained by losses on commercial balances in non-hedged currencies.
The effective tax rate for 2008 was 24.0%, an increase from 22.3% in 2007, when the effective tax rate was positively impacted by the non-recurring tax-exempt income from the divestment of Novo Nordisk’s ownership of Dako’s business activities as well as from the non-recurring effect from the re-evaluation of the company’s deferred tax liabilities as a consequence of the reduction in the Danish corporation tax rate to 25%, introduced in 2007.
The realised effective tax rate for 2008 was in line with the previously communicated expectation of a tax rate of ‘around 24%' for the full year of 2008.
Capital expenditure and free cash flow
Net capital expenditure for property, plant and equipment for 2008 was realised at DKK 1.8 billion compared to DKK 2.3 billion for 2007. The main investment projects in 2008 were manufacturing expansion of FlexPen® assembly capacity as well as expansion of the purification and filling capacity for insulin products. The realised capital expenditure was slightly higher than the previously communicated expectation of ‘around DKK 1.5 billion’.
Free cash flow for 2008 was realised at DKK 11.0 billion compared to DKK 9.0 billion for 2007. Novo Nordisk’s financial resources at the end of 2008 were DKK 17.2 billion and higher than the level at the end of 2007. Included in the financial resources are unutilised committed credit facilities of approximately DKK 7.5 billion. The realised cash flow was significantly above the previously communicated expectation of ‘around DKK 9.5 billion’ and is primarily reflecting a stronger operating performance, working capital improvements and a return of a deposit related to the antidumping case in Brazil.
Long-term financial targets
Focusing on growth, profitability, financial return and generation of cash, Novo Nordisk introduced four long-term financial targets in 1996 to balance short- and long-term considerations, thereby ensuring a focus on shareholder value creation. The targets were subsequently revised and updated in 2001 and in 2006. By 2008, and despite a challenging currency exchange rate environment since the last update of the targets, Novo Nordisk has now reached the performance level stipulated in the four long-term financial targets and has consequently revised the target levels. The revision is based on an assumption of a continuation of the current business environment and given the current scope of business activities and has been prepared assuming that currency exchange rates remain at the current level as outlined in appendix 7.
Ratio Previous targets Result 2008 New targets Growth in operating profit 15% 38.4% 15% Operating margin 25% 27.2% 30% Return on invested capital 30% 37.4% 50% (ROIC) Cash to earnings (three 70% 97.6% 80% years’ average)
The target level for operating profit growth remains at 15% on average. The target still allows for deviations in individual years if necessitated by business opportunities, market conditions or exchange rate movements.
The target level for operating margin is increased from 25% to 30%. The key enabling factors are expected to be further productivity improvements in the manufacturing and administrative areas while at the same time ensuring investments in both research and development as well as sales and marketing. It should be noted that the achievement of the operating margin target may be influenced by significant changes in market conditions including regulatory developments, changes in pricing environment, healthcare reforms as well as exchange rate movements.
The target level for return on invested capital (ROIC) measured post tax is increased from 30% to 50%. The raised target reflects the expectation of continued lower growth in invested capital relative to operating profit as well as a stable effective tax rate.
The target level for the cash-to-earnings ratio is increased from 70% to 80%, reflecting improved cash conversion ability. As previously, this target will be pursued looking at the average over a three-year period. Performance on this ratio may be impacted in individual years by significant acquisitions, investments or licensing activities.
Outlook 2009
The current expectations for 2009 are summarised in the table below:
Expectations are as reported, if not Current expectations otherwise stated 29 January 2009 Sales growth - in local currencies At the level of 10% - as reported Around 5 percentage points higher Operating profit growth At the level of 10% - in local currencies Around 9 percentage points - as reported higher Net financial expense Around DKK 1.6 billion Effective tax rate Around 24% Capital expenditure Around DKK 3 billion Depreciation, amortisation and impairment Around DKK 2.6 billion losses Free cash flow At least DKK 9 billion
Novo Nordisk expects sales growth in 2009 at the level of 10% measured in local currencies. This is based on expectations of continued market penetration for Novo Nordisk’s key strategic products within diabetes care and biopharmaceuticals as well as expectations of continued intense competition during 2009. Given the current level of exchange rates versus Danish kroner, the reported sales growth is expected to be around 5 percentage points higher than the growth rate measured in local currencies.
For 2009, operating profit growth measured in local currencies is expected to be at the level of 10%. The forecast reflects a continued improvement of the gross margin and increased spending for sales and distribution relative to sales due to an expected high level of sales and marketing activities primarily related to the expected approval and launch of liraglutide and continued global market penetration for the portfolio of modern insulins. Given the current level of currency exchange rates versus Danish kroner, the reported operating profit growth is expected to be around 9 percentage points higher than the growth rate measured in local currencies.
For 2009, Novo Nordisk expects a net financial expense of around DKK 1.6 billion, reflecting significant foreign exchange hedging losses, primarily related to the US dollar and the Japanese yen as well as expected losses related to non-hedged currencies.
The effective tax rate for 2009 is expected to be around 24%.
Capital expenditure is expected to be around DKK 3 billion in 2009. Expectations for depreciations, amortisation and impairment losses are around DKK 2.6 billion, and free cash flow is expected to be at least DKK 9 billion.
All of the above expectations are based on the assumption that the global economic downturn will not significantly deteriorate the business environment for Novo Nordisk during 2009. In addition, all of the above expectations are provided that currency exchange rates, especially the US dollar, remain at the current level versus the Danish krone for the rest of 2009 (see appendix 7). Novo Nordisk has hedged expected net cash flows in relation to US dollars, Japanese yen, British pounds, Chinese yuan and Canadian dollars and, all other things being equal, movements in key invoicing currencies will impact Novo Nordisk’s operating profit as outlined in the table below.
Invoicing currency Annual impact on Novo Nordisk’s Hedging period operating profit of a 5% movement (months) in currency USD DKK 530 million 15 JPY DKK 150 million 14 GBP DKK 80 million 13 CNY DKK 80 million 15* CAD DKK 40 million 5
*USD used as proxy for hedging of Novo Nordisk’s CNY exposure
The financial impact from foreign exchange hedging is included in ‘Net financials’.
Research and development update
Diabetes care
Novo Nordisk has obtained headline data from a one-year extension of the LEAD™ 3 study. The LEAD™ 3 study evaluated the efficacy and safety of two different daily doses of liraglutide compared to the sulfonylurea glimepiride in the treatment of type 2 diabetes for one year. The results from the initial year of the study were published in The Lancet in September 2008. A total of 321 patients out of the 440 patients completing the LEAD™ 3 study entered into an open-label extension in which they were to continue their treatment for four more years. The one-year extension data showed that two years of liraglutide monotherapy treatment led to significant and sustained improvements in glycaemic control and weight loss compared to once-daily glimepiride monotherapy. At the 1.8 mg dose, liraglutide lowered HbA1c by 1.1 percentage points versus 0.6 percentage points for glimepiride, a difference which was statistically significant and in line with the results from the initial 52 weeks of the study. From an HbA1c baseline of between 8 and 8.5%, around 60% of the patients treated with the 1.8 mg dose of liraglutide achieved the ADA target of HbA1c level below 7% following two years of treatment. With regard to weight reduction, the two-year data showed a difference between patients treated with liraglutide and glimepiride, respectively, of more than 3 kg after 24 months in favour of liraglutide. The safety profile of liraglutide was confirmed in the study.
As announced in November 2008, the US Food and Drug Administration (FDA) informed Novo Nordisk that the planned Advisory Committee meeting for liraglutide on 2 March 2009 was rescheduled to 2 April 2009. FDA advisory committees are panels of independent experts who advise the FDA as they consider regulatory decisions. The advisory committee meetings are open to the public and are common for major pharmaceutical drugs under review. Novo Nordisk submitted the New Drug Application (NDA) to the FDA on 23 May 2008, meaning that an action letter from the agency to the NDA could be expected on 23 March 2009 following a standard 10-month review period. In September 2008, the agency indicated that it would most likely have to extend the date of completing its assessment by a couple of months. The FDA has informed Novo Nordisk that this is still the timeline it is targeting.
In Europe, the regulatory process for liraglutide is progressing as planned. Novo Nordisk has submitted answers to questions from The European Medicines Agency (EMEA) and is heading towards a regulatory decision from the European Commission by mid-2009.
In October, Novo Nordisk initiated the first of the three trials constituting the phase 3 programme for liraglutide in obesity and all patients have now been recruited. The trial investigates the ability liraglutide to support patients in maintaining weight loss achieved by a a low calorie diet. One-year data from all three studies in the phase 3 programme for obesity is now expected to be available before the end of 2011.
In January 2009, PrandiMet® was launched on the US market. PrandiMet® is a fixed-dose combination of the fast-acting insulin secretagogue repaglinide and metformin for the treatment of type 2 diabetes. PrandiMet® has been approved as an adjunct to diet and exercise to improve glycaemic control in adults with type 2 diabetes who are already treated with a meglitinide (such as Prandin®) and metformin or who have inadequate glycaemic control on a meglitinide alone or metformin alone.
Biopharmaceuticals
In November 2008, the FDA approved Norditropin® for the treatment of children with short stature born small for gestational age (SGA) with no catch-up growth by the age 2-4 years. The approval is part of Novo Nordisk’s strategy to pursue label exp
