Kurt Anker Nielsen - Introduction
Ladies and Gentlemen, welcome to Novo Nordisk's 1999 Investor Presentation. My name is Kurt Anker Nielsen, I am CFO of Novo Nordisk. With me here today I have Mads Øvlisen, President and CEO of Novo Nordisk who will give you a presentation of Novo Nordisk's vision and general strategy and Lars Rebien Sørensen, member of Corporate Management and Head of Health Care, who will give you the overall update regarding Health Care. With us today is also Mads Krogsgaard Thomsen, Corporate Vice President for Health Care Discovery & Preclinical Development, who will lead you through our Diabetes Care R&D portfolio. Most of you have already met our Investor Relations representative(s), (Poul Lykkesfeldt and Michael Steen-Knudsen)/(Peter Lundby Hansen).
Following the presentation we will take your questions.
I will start out by covering the main financial results for 1998 and also I will take you through an update on the Enzyme Business to finally come back again after my colleagues' presentations to round off with some comments on selected financial issues and focus on 1999, as well as acting as moderator for the questions and answers session.
Slide 1 - Financial results 1998
The increase in sales and operating profits was achieved despite the economic pressure in several parts of the world, including South East Asia, Central and Eastern Europe and Latin America. The crises affected growth on our top line as well as on the bottom line, but none-the-less we saw a healthy underlying volume growth in Health Care sales, however partly counter-balanced by stagnating volume sales in Enzyme Business. We also saw a continued improvement in the productivity in our production area, in particular in the Enzyme Business, together with an increase in licence fees and other operating income, and we maintained a continued strong focus on cost control.
Group sales increased with 6%. The sales growth in Health Care amounted to 8% whilst sales in the Enzyme Business decreased by 2%. In local currencies, group sales increased by 8% due to a negative currency impact on sales of 2%, mainly caused by devaluation of the JPY of around 6% against the DKK.
Operating costs increased by 8% from 1997 to 1998; exclusive of one-off items total costs only increased by 4%. An important reason for this cost increase was that R&D costs grew by 23% year-on-year, or from 16% of sales in 1997 to 19% in 1998. This is partly explained by the provision of close to DKK 200 mill for the closing down of our levormeloxifene project, as well as by costs of around DKK 100 mill associated with the co-operation with Aradigm on pulmonary insulin delivery. Adjusting for these two one-off items the R&D costs increased by 12%, amounting to 17% of the sales in 1998. However, this significant increase can be explained also by the decision to direct a significant part of the one-off income in 1998 towards a strengthening of specific discovery and development projects.
The doubling of licence fees and other operating income were primarily driven by the sale of the Seroxat®/Paxil® rights in the Nordic countries and the income from the outlicensing of Gabitril® in all territories outside the Americas and Japan. These "income elements" were to some extent reduced by a settlement fee to Genentech. In total, these three items amounted to DKK 600 mill (net).
The royalty income from SKB on their sales of Seroxat®/Paxil® amounted to DKK 663 mill, an increase of 7% vs 1997.
Based on this development operating profits increased by 16%, while profit before tax and net profit increased by 13% and 15%, respectively.
Earnings per share of DKK 10 were DKK 32.47 or USD 2.54 per ADS at the year-end exchange rate.
Novo Nordisk realised a positive free cash flow in 1998 of DKK 1.3 billion. Capital expenditures decreased in 1998 compared to 1997, as several projects were completed in 1997, including our new Health Care production facility in Koriyama, Japan, and the first phase of our Enzyme factory in China. The major projects in 1998 included continued expansion of our NovoLet® production facilities in Denmark, and an expansion of our insulin production facility in Chartres, France.
Slide 2 - Financial results 1997 - 1998 vs financial targets
Novo Nordisk continued to grow the business in 1998. We saw an increase in operating profit, in the margins and in the return of our non-financial assets (RONFA).
We lived up to the long-term targets for growth in operating profit of 15%, we obtained an operating margin of 20% and lived up to our cash flow objectives. We moved in the right direction with respect to RONFA as well. All are results with which we are quite satisfied.
