Basel, Switzerland – The Roche Group posted solid operating results in the first half of 2011.
Group sales were stable in local currencies at 21.7 billion Swiss francs. Excluding Tamiflu, group sales increased by two percent in local currencies. The group’s core operating profit grew faster than sales, rising by a robust five percent in local currencies to 8.3 billion Swiss francs. The group’s net income grew even more strongly, advancing 10 percent on a currency-adjusted basis 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.
“We further improved profitability, mainly due to the ongoing implementation of our Operational Excellence program. We are, therefore, raising our earnings target for the full-year,” Roche’s CEO Severin Schwan said. “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 seven positive results out of seven 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,” he added.
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.
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. For more information, visit www.roche.com.