Roche on track – full year earnings outlook increased

Basel, 21 July 2011

  • Group sales stable in local currencies. Excluding Tamiflu, Group sales up 2% and Pharmaceuticals Division sales up 1%; Diagnostics Division sales up 5%; on track to meet full-year guidance.
  • Core operating profit up 5% driven primarily by Operational Excellence and continued productivity measures. Core operating profit margin improves by 0.9 percentage points to 38.1% of sales (+ 1.8 percentage points in local currencies).
  • Operating free cash flow advances significantly by 27 % in local currencies (+7% in Swiss francs) and relative to sales by 5.5 percentage points to 31.6% of sales.
  • Core earnings per share rise 10% in local currencies, due to solid operating performance, lower financing costs and a lower tax rate.
  • Appreciation of the Swiss franc against all relevant currencies has a significant impact on the reported half-year results expressed in francs. However, underlying currency exposure is mitigated by the large majority of the cost base being located outside of Switzerland.
  • Excellent progress in late-stage pipeline: seven out of seven clinical trials deliver positive data to support regulatory submissions for new medicines or new indications for existing products.
  • Outlook for 2011: Core EPS target increases to around 10% in local currencies.
  • Roche aims to grow the dividend in line with Core EPS growth, and will at least maintain last year’s dividend in Swiss francs.
Key figures (January-June)

In millions of CHF
% change
As % of sales

20112010In CHFIn LC120112010
Group sales21,67124,636-120100100
excl. Tamiflu21,40923,926-11+2
Pharmaceuticals Division16,81519,386-13-17879
excl. Tamiflu16,55318,676-11+1
Diagnostics Division4,8565,250-8+52221
Research and development (core basis)3,8734,357-11017.917.7
Core operating profit 8,2519,159-10+538.137.2
Operating free cash flow6,8566,426+7+2731.626.1
Net income5,259 5,565-5+1024.322.6
Core Earnings per Share (CHF)6.686.95-4+10--

1 local currencies

Roche’s CEO Severin Schwan: “We further improved profitability, mainly due to the ongoing implementation of our Operational Excellence programme. We are therefore raising our earnings target for the full-year.” Schwan added: “Roche has continuously improved its business performance and profitability over the last three years in spite of the economic and financial crisis during this period. This robust performance has allowed us to both increase operating cash flows and to continue to invest in our strong product pipeline. We achieved 7 positive results out of 7 late-stage trials in the first half of this year and we recently filed our new melanoma medicine Zelboraf and the BRAF companion diagnostic test. These results are testimony to our innovation-focused strategy and will help to secure Roche’s future.”

Solid operating performance impacted by strong currency effects

The Roche Group posted solid operating results in the first half of 2011. Group sales were stable in local currencies (-12% in Swiss francs; +5% in US dollars) at 21.7 billion Swiss francs. Excluding Tamiflu, Group sales increased by 2% in local currencies. The Group’s core operating profit grew faster than sales, rising by a robust 5% in local currencies (-10% in Swiss francs) to 8.3 billion Swiss francs. The Group’s net income grew even more strongly, advancing 10% on a currency-adjusted basis (-5% in Swiss francs) to 5.3 billion Swiss francs. These results reflect the strength of the Group’s business as well as the impact of the strong appreciation of the Swiss franc against all currencies relevant for Roche since the first half of 2010.

Group’s profitability and cash generation improve further

The Group’s core operating profit increased significantly by 5% in local currencies (-10% in Swiss francs), again growing substantially faster than sales. The Group’s core operating profit margin improved by 0.9 percentage points to 38.1 (+1.8 percentage points in local currencies), driven mainly by savings from the Operational Excellence programme. The core operating profit margin was up by 1.7 percentage points in the Pharmaceuticals Division (+2.7 percentage points in local currencies), while in the Diagnostics Division it remained stable (-0.2 percentage points in local currencies).

Core operating profit in the Pharmaceuticals Division grew 5% in local currencies (-10% in Swiss francs) to 7.4 billion Swiss francs. The profitability increase was driven by the Operational Excellence programme, other productivity improvements and resource prioritisation. Operational Excellence led to a reduction in marketing and distribution expenses and research and development costs. In the Pharmaceutical Division Core R&D costs decreased by 2%, in spite of the growing number of projects in the development pipeline. The Diagnostics Division’s core operating profit grew 5% (-9% in Swiss francs) to 1.1 billion Swiss francs.

Group net income rose 10% in local currencies (-5% in Swiss francs). This was due to a solid operating performance, lower financing costs and a lower tax rate.

Core earnings per share (Core EPS), which excludes non-core items such as global restructuring charges and amortisation and impairment of intangible assets, increased 10% in local currencies (-4% in Swiss francs). The Eurobond repurchase in June had a negative impact on Core EPS growth of 1 percentage point.

The solid business performance and ongoing focus on productivity improvements are also reflected in the Group’s strong operating free cash flow, which increased by 27% in local currencies to 6.9 billion Swiss francs.

Operational Excellence delivers efficiency gains

The Operational Excellence programme initiated in November 2010 to optimise cost structures and achieve productivity gains, together with further synergies from the Genentech integration, generated savings of 950 million Swiss francs in the first half of 2011. Roche has completed consultations with employee representatives and continues to assist affected employees. The reorganisation or closure of sites in the United States, Austria, Germany and Switzerland is progressing as planned.

Roche is on track to realise annual savings from the Operational Excellence programme of 1.8 billion Swiss francs for 2011, and 2.4 billion Swiss francs by the end of 2012, also as planned.

Full year earnings outlook increased

Based on its half-year results, Roche has increased its full-year earnings outlook for 2011. Barring unforeseen events, Group and Pharmaceuticals sales (excluding Tamiflu) are expected to grow at low single-digit rates in local currencies, reflecting the impact of US healthcare reforms and European austerity measures. Pharmaceuticals sales are thus expected to grow in line with the market. In 2011 Diagnostics sales are again expected to grow significantly ahead of the market, driven by further rollouts of new products in all business areas. In spite of a more challenging environment and the introduction of an excise tax in the United States, based on its half-year results Roche has increased its Core EPS target for 2011 to around 10% in local currencies. Roche aims to grow the dividend in line with Core EPS growth, and will at least maintain last year’s dividend in Swiss francs.

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About Roche

Headquartered in Basel, Switzerland, Roche is a leader in research-focused healthcare with combined strengths in pharmaceuticals and diagnostics. Roche is the world’s largest biotech company with truly differentiated medicines in oncology, virology, inflammation, metabolism and CNS. Roche is also the world leader in in-vitro diagnostics, tissue-based cancer diagnostics and a pioneer in diabetes management. Roche’s personalised healthcare strategy aims at providing medicines and diagnostic tools that enable tangible improvements in the health, quality of life and survival of patients. In 2010, Roche had over 80,000 employees worldwide and invested over 9 billion Swiss francs in R&D (core basis). The Group posted sales of 47.5 billion Swiss francs. Genentech, United States, is a wholly owned member of the Roche Group. Roche has a majority stake in Chugai Pharmaceutical, Japan. For more information:

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