Kurt Anker Nielsen, Conclusion and Outlook for 1998
While in their presentations my colleagues addressed some of the business challenges to be faced in 1998 and onwards, I will spend a few minutes on some of the financial issues often raised by financial analysts and our shareholders.
These issues include:
- Seroxat®/Paxil® royalty income and the impact on our earnings
- Our capital structure
- Our dividend policy
- The new accounting principles which took effect as of 1 January, 1998
The royalty income, outside of the Nordic countries, which we receive from SmithKline Beecham will fall sharply in year 2000. However, we believe that we will be able to compensate for this mainly by 3 other means.
Slide 33 - Seroxat®/Paxil® Royalty Income Compensation
First, we will receive royalty income from other technology agreements and out-licensed products. These products include Gabitril®, out-licensed to Abbott and Sanofi. Gabitril® is already marketed in USA and in Europe. Platelet Derived Growth Factor, PDGF received FDA approval in late 1997. PDGF is sold under the trademark Regranex® in the US. Thrombopoietin, or TPO, was out-licensed to Amgen/Kirin, who currently is having this compound in Phase 2/3 clinical trials.
Second, revenues from new product introductions will contribute on the top and income lines. These products include PrandinTM soon to be launched in the US and, hopefully later in the year in Europe, and NovoSeven® which, hopefully, also will be introduced in the US later this year. In addition we have filed for approval for our first HRT product in the US.
Last but not least, we will continue to focus on productivity and cost containment throughout the entire organisation.
This means that also in year 2000 you should still expect to see a growth for Novo Nordisk at the operating income level. Our overall financial growth target on the operating income level is at least 15%. Clearly, it will be more difficult to reach this target in year 2000, but we will do our best to not compromise our target.
In respect to our capital structure we acknowledge we are well capitalised even compared with our own target for the equity to debt ratio. Our eyes will continuously be open for acquisition candidates, for the in-licensing of projects or products for our core business areas. However, if not successful in employing our cash this way, we will consider alternative ways of creating value for our shareholders.
We are, however, already paying out more to our shareholders. In 1996, we increased the dividend by 50% to DKK 3.75 per share. For 1997, the Board of Directors proposes to raise dividend by 53% to DKK 5.75 per share and it remains our policy, over the coming years, to continue to increase the pay-out-ratio, of course, with due respect to the development in earnings and capital needs.
In this connection I would also like to mention our introduction of a stock option programme which fully implemented will cover approximately 300 managers world-wide. This has been introduced as a supplement to our existing compensation plans.
Then a few comments on our new accounting principles. I will not go into details but just say that changes were made for two major reasons. First of all, the changes are in line with the international trend in respect to accounting standards. This also means that our accounting standards, with a few exceptions, will be in line with US GAAP. Second, the changes will allow investors and analysts to more easily compare Novo Nordisk's financial performance with that of other international companies. We have, for your information, included in the Appendix a slide showing the restated figures for 1995, 1996 and 1997. Further, these changes are explained in our annual report for 1997 and can also be reviewed on our homepage.
Finally, let me summarise Novo Nordisk's expectations for 1998.
Novo Nordisk expects a continued increase in sales of its existing products in 1998. In addition, Novo Nordisk has high expectations for sales of new products, especially of PrandinTMin the US, where we in January 1998 signed a co-promotion agreement with Schering-Plough. PrandinTM is expected to be launched in the US in the second quarter of 1998.
Assuming that Novo Nordisk's main currencies remain stable at current levels, these developments are expected to enable Novo Nordisk, also in 1998, to live up to the company's objective of an increase in operating income of at least 15%, to which must be added a major one-off income in the first quarter of 1998. Income before tax is expected to increase correspondingly, assuming that the Danish and international interest rate levels do not change significantly from current levels.
These expectations also apply following the change to new accounting policies as just mentioned, as the effect of these changes on operating income and income before tax is considered immaterial.
Under the new accounting policies, the effective tax rate in 1998 is expected to be at the level of 34.
Novo Nordisk's capital expenditure for property, plant and equipment is expected to be at the level of DKK 2 billion.
The agreement to out-license Gabitril® signed in December 1997 will result in a major one-off income in the first quarter of 1998. Exclusive of this income, earnings in the second half of the year are expected to exceed earnings in the first half.
For the sake of good order, I will show the following slide.
Slide 35 - Forwardlooking Statements
We are now ready to take questions.
