Annual Report 2002 - Roche

Pharmaceuticals: Operating profit and EBITDA margins improved further
Operating profit increased by 11% to 4.1 billion Swiss francs, representing 21.1% of sales in 2002
after 19.5% in 2001. EBITDA totalled 6.0 billion Swiss francs, up by 7%, and the EBITDA margin
increased from 29.7% to 31.0%. This strong result is driven by the prescription business while the
OTC results weakened compared to the previous year.
Total prescription sales increased by 10% in local currencies primarily driven by the strong
performance of the oncology franchise and other key products such as CellCept and NeoRecormon,
partly offset by the impact of generics on Roaccutane/Accutane. The consolidation of Chugai
from 1 October 2002 contributed 4 percentage points to the growth of the prescription business.
Marketing and distribution costs increased in line with sales. Increased costs for the launch of
new products such as Pegasys and Fuzeon were partially offset by a more focused spend on
growth areas resulting from the Pharmaceuticals Division restructuring. The research and development
pipeline was complemented by a number of in-licensing deals, which increased R&D
costs substantially due to upfront and milestone payments. The result also includes the gain on
the disposal of Neupogen of 217 million Swiss francs.
Due to the acquisition of Chugai and in order to improve comparability, the Japan prescription
business is now reported separately. It consists of the Nippon Roche prescription business until
30 September 2002 and Chugai from 1 October 2002. Consequently the Roche prescription
business as shown in this report excludes the business in Japan for both years. The profitability
of the Roche prescription business was improved further and the operating profit margin is now
at 25.0%. The Genentech prescription business achieved another very strong sales and profit
growth. The EBITDA margin of 37.0% represents Genentech’s strong contribution to the Group’s
operating cash generation. The 2002 operating profit of Genentech includes 603 million Swiss
francs of amortisation mainly arising from the acquisition of Genentech by Roche. The Japan
prescription business grew by 63% as a result of the acquisition of Chugai. The operating profit
margin decreased to 14.4% due to the strength of the Swiss franc relative to the Japanese yen,
higher launch costs for new products and the recurring acquisition accounting charges. On an
annualised basis these acquisition accounting impacts amount to approximately 90 million Swiss
francs.
OTC sales fell by 2% in local currencies. The main factors were weak sales of Aleve and the economic
difficulties in Latin America. Operating profit decreased by 14% to 244 million Swiss francs,
primarily due to the decline in sales, start-up costs for a new production facility, the absence of
second half 2001 gains on product disposals as part of the ongoing product portfolio streamlining
and intensified marketing efforts for product roll-outs in the second half of 2002. The operating
profit margin was 15.7% compared to 17.2% in 2001.
Diagnostics: another strong result
The sales development again significantly outperformed the market with an overall growth rate
of 11% in local currencies. Sales growth in the high margin business areas Molecular Diagnostics
and Diabetes Care was particularly strong. Operating profit increased by 14% to 1,131 million
Swiss francs and EBITDA by 8% to 1,984 million Swiss francs. Profitability again improved with the
operating profit margin up by 1.2 percentage points to 15.6% and the EBITDA margin up by
0.8 percentage points to 27.4%. Increased operating costs, in particular for research and development
and licensing activities, were more than offset by the strong sales growth.
Other
The result of ‘Other’ consists of the costs of Corporate Headquarters. In 2002, costs increased
compared to 2001 mainly due to the launch of corporate initiatives.
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