Kurt Anker Nielsen, Introduction
Ladies and gentlemen, once again I am pleased to welcome you to our annual investor presentation.
My name is Kurt Anker Nielsen and I am the Chief Financial Officer and Deputy CEO of Novo Nordisk.
With me here today are two of my colleagues from Corporate Management, Lars Rebien Sørensen and Steen Riisgaard who will talk about the progress made and the challenges that are facing our two business areas: Health Care and the Enzyme Business. Again this year, I will round off our presentation with comments on our expectations for 1998 and to some of the financial issues we are facing.
1997 was another outstanding year for Novo Nordisk. In our 1996 annual report we said that the challenge for 1997 would be to maintain the momentum. In fact, we did better. We accelerated.
Throughout the year we introduced several new promising products in both of our two business areas while we continued to move swiftly ahead with the compounds in our R&D pipeline. In R&D we achieved a remarkable increase in productivity positioning us among the best in the industry.
Financially we did better in 1997 than we set out to do whenin March 1997 we announced the full year results for 1996, and also better than our improved expectations from November of 1997.
Slide 1 - Financial Results 1997
In 1997 operating income grew by 28% and net income grew by 23%.
Admittedly, the favourable development in currency exchange rates, USD and GBP in particular, had a positive impact on the result. However, the growth on the operating income level was achieved by continued healthy underlying volume growth in our core businesses, an increase in the productivity in our production departments, an increase in license fees and a continued focus on cost containment. Within the staff and service areas the planned cost savings came through as expected.
Sales on the group level grew by 14%. The sales growth in Health Care and the Enzyme Business amounted to 13% and 16%, respectively. In local currencies group sales increased by 9%.
The 42% increase in license fees and other operating income was primarily driven by a strong growth in the licensee fees from SmithKline Beecham's sales of Seroxat®/Paxil® outside the Nordic countries.
We did not make any provisions for restructuring in 1997. Restructuring costs amounted to DKK 104 million in 1996.
Income before tax increased by 25%. As previously announced, the tax rate increased to 30% in 1997 due to lower depreciation for tax purposes, resulting in an increase of net income of 23%. Earnings per share was DKK 29.48 or USD 2.16 per ADS at the year-end exchange rate.
We realised a positive free cash flow of DKK 583 million, in 1997. This was primarily driven by a strong increase in the cash flow from operations. Capital expenditures increased significantly in 1997 because we were building additional production capacity in a number of sites. In 1997, we completed the construction of our new health care production facility in Koriyama, Japan. We completed the construction of our new NovoLet® Complet factory in Denmark and we inaugurated our new R&D center in Beijing, China.
Slide 3 - Financial Results 1996-1997 - vs Financial Targets
In conclusion, we met two of our four financial targets in 1997 and we made significant progress with the remaining two: the operating margin increased from 16% in 1996 to 18% in 1997 and the Return on Non-Financial Assets (RONFA) increased from 14.8% in 1996 to 17.1% in 1997.
Fulfilling the remaining two financial targets will be on top of the agenda for the coming years.
I am sure that you agree that 1997 was an exciting and remarkable year for Novo Nordisk. However, we do not intend to sleep on the laurels. 1998 will be even more exciting and challenging for our company and again this year, we have chosen to address these challenges in today's presentation.
Slide 4 - Management Priorities
The challenges are:
- US strategy, including the launch of NovoNorm®/Prandin®
- Maintain leadership in Diabetes Care
- Expand the position in Women's Health Care
- Enzyme Business - further improvement of profitability
- Capital structure and dividend policy
- Sharp reduction in Seroxat®/Paxil® royalty income in year 2000
With these words I am pleased to introduce Lars Rebien Sørensen, Corporate Executive Vice President, Health Care.
