F. Hoffmann-La Roche Ltd
4070 Basel, Switzerland
Finance Report
© 2014
All trademarks are legally protected.
www.roche.com
Roche
|
Finance Report 2013
7 000 945
E
Finance in brief
Key results
Core operating profit margin,
% of sales
Sales
CER growth %
Pharmaceuticals
Diagnostics
Group
2013
+6.7
44.4
2012
+4.7
44.0
2013
+4.3
20.8
2012
+3.9
21.3
2013
+6.2
38.3
2012
+4.5
37.7
2013
(mCHF)
2012
(mCHF)
(CHF)
% change
(CER)
2013
% of sales
2012
IFRS results
Sales
46,780
45,499
+3
+6
Operating profit
16,376
14,125
+16
+20
35.0
31.0
Net income
11,373
9,660
+18
+22
24.3
21.2
Net income attributable to Roche shareholders
11,164
9,427
+18
+22
23.9
20.7
12.93
11.03
+17
+22
7.80
7.35
+6
Diluted EPS (CHF)
Dividend per share (CHF) 1)
Core results
Research and development
8,700
8,475
+3
+5
18.6
18.6
17,904
17,160
+4
+8
38.3
37.7
14.27
13.49
+6
+10
16,381
16,135
+2
+5
35.0
35.5
5,403
5,376
+1
+6
11.5
11.8
2013
(mCHF)
2012
(mCHF)
(CHF)
% change
(CER)
Net debt
(6,708)
(10,599)
–37
–38
Capitalisation
39,884
41,340
–4
+2
Core operating profit
Core EPS (CHF)
Free cash flow
Operating free cash flow
Free cash flow
–– Debt
18,643
24,590
–24
–22
–– Equity
21,241
16,750
+27
+37
1) Proposed by the Board of Directors.
CER (Constant Exchange Rates): The percentage changes in Constant Exchange Rates are calculated using simulations by reconsolidating both the 2013 and
2012 results at constant currencies (the average rates for the year ended 31 December 2012).
Core results and Core EPS (earnings per share): These exclude non-core items such as global restructuring charges and the amortisation and impairment of goodwill
and intangible assets. This allows a transparent assessment of both the actual results and the underlying performance of the business. A full income statement for
the Group and the operating results of the divisions are shown on both an IFRS and core basis. The core concept is fully described on pages 144–147 and
reconciliations between the IFRS and core results are given there.
Finance – 2013 in brief
Roche in 2013
The Roche Group reported strong overall results in 2013. Core operating profit grew ahead of
sales, and core earnings per share increased by 10% at constant exchange rates (CER). The Swiss
franc was stronger at average rates against some major currencies, notably the Japanese yen and
US dollar, which had a negative overall impact on the income statement and cash flows expressed
in Swiss francs.
Sales
Group sales increased by 6% (CER) to 46.8 billion Swiss francs (+3% growth in Swiss franc terms).
Pharmaceuticals sales growth was 7% (CER). The strong growth in both established and new
oncology products, Actemra/RoActemra in rheumatoid arthritis and Lucentis in ophthalmology
was partially offset by decreases in sales of Pegasys and Bonviva/Boniva as well as the loss of
Evista sales in Japan.
Diagnostics sales grew by 4% (CER), ahead of the market, with Professional Diagnostics being
the major contributor.
Operating results
Core operating profit increased by 8% (CER) to 17.9 billion Swiss francs (+4% growth in Swiss
franc terms). The sales growth and cost savings from various global restructuring plans offset
the higher operating costs from investments in key markets as well as the impacts from price
pressure and increased competition. The core operating margin increased by 0.6 percentage
points to 38.3%.
Research and development expenditure grew by 5% (CER) to 8.7 billion Swiss francs on a core
basis, driven by investments in the oncology and neuroscience therapeutic areas. R&D costs
were 18.6% of Group sales.
IFRS operating results include non-core items of 1.5 billion Swiss francs. This includes 1.2 billion
Swiss francs for the amortisation and impairment of goodwill and intangible assets and 0.5 billion
Swiss francs of income from the reversal of previous property, plant and equipment impairment.
Non-operating results
Net financial expenses decreased by 0.3 billion Swiss francs to 1.7 billion Swiss francs driven
by lower interest expenses partially offset by higher net foreign exchange losses.
Net income
IFRS net income increased by 22% at CER to 11.4 billion Swiss francs (+18% in Swiss franc terms),
due to the strong core operating results, lower financing costs and lower global restructuring
charges.
Core earnings per share increased by 10% in constant currencies (+6% in Swiss francs).
Cash flows
Operating free cash flow of 16.4 billion Swiss francs, up 5% at CER due to higher operating
profit.
Free cash flow of 5.4 billion Swiss francs, up 6% at CER due to higher operating free cash flow
and lower interest paid.
Repayment of debt is ahead of schedule with 67% of the notes and bonds issued in 2009
to finance the Genentech transaction being repaid by the end of 2013.
Financial position
Net working capital increased by 1% (CER), as higher levels of inventories due to launches
and growth of key products, higher safety stock levels and increased demand in key markets were
mostly offset by increased payables and accrued liabilities.
Net debt position improved by 3.9 billion Swiss francs to 6.7 billion Swiss francs.
Credit ratings strong: Moody’s at A1 and Standard & Poor’s at AA.
Shareholder return
Dividends. A proposal will be made to increase dividends by 6% to 7.80 Swiss francs per share.
This will represent the 27th consecutive year of dividend growth and will result in a pay-out ratio
of 54.7%, subject to AGM approval.
Total Shareholder Return (TSR) was 39% representing a combined performance of share
and non-voting equity security.
ROCHE GROUP
Finance in brief
Inside cover
1
3
46
52
Finance – 2013 in brief
Financial Review
Roche Group Consolidated Financial Statements
Notes to the Roche Group Consolidated Financial Statements
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
General accounting principles
Operating segment information
Net financial expense
Income taxes
Business combinations
Global restructuring plans
Property, plant and equipment
Goodwill
Intangible assets
Inventories
Accounts receivable
Marketable securities
Cash and cash equivalents
Other non-current assets
Other current assets
Accounts payable
Other non-current liabilities
52
55
58
59
62
64
67
70
72
75
75
76
76
77
77
78
78
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
Other current liabilities
Provisions and contingent liabilities
Debt
Equity attributable to Roche shareholders
Chugai
Non-controlling interests
Employee benefits
Pensions and other post-employment
benefits
Equity compensation plans
Earnings per share and non-voting equity
security
Statement of cash flows
Risk management
Related parties
Subsidiaries and associates
Significant accounting policies
78
79
83
87
90
92
93
93
101
105
106
107
117
119
124
Report of Roche Management on Internal Control over Financial Reporting
Report of the Statutory Auditor on the Consolidated Financial Statements
Report of the Independent Auditor on Internal Control over Financial Reporting
Multi-Year Overview and Supplementary Information
Roche Securities
135
136
138
140
150
Roche Holding Ltd, Basel
Financial Statements
Notes to the Financial Statements
Appropriation of Available Earnings
Report of the Statutory Auditor on the Financial Statements
154
156
164
165
Financial Review
Roche Group results
Sales in billions of CHF
Core operating profit in billions of CHF
% of sales
% CER growth
0
10
20
30
40
0
50
5
10
15
20
2013
+ 6.2
38.3
2012
+4.5
37.7
2011
+1.4
35.6
Net income attributable to Roche shareholders in billions of CHF
0
2
4
6
8
10
Core EPS in CHF
12
0
5
10
15
2013
11.2
14.27
2012
9.4
13.49
2011
9.3
12.30
The Roche Group’s results for 2013 showed growth in its core operating activities, with sales up by 6% and core operating
profit up by 8% at constant exchange rates (CER), and sales increasing in all regions. Investments continued to develop
the product pipeline and to secure future sales growth, notably through research and development, which increased by 5%
on a core basis. The strong operating performance, combined with lower financing costs, resulted in an increase in Core EPS
of 10% at constant exchange rates. The strong operating results were also evident in the operating free cash flow, which
increased by 5% to 16.4 billion Swiss francs or 35% of sales.
Sales in the Pharmaceuticals Division rose by 7%, driven by 10% growth in the oncology portfolio with significant growth in
recently launched medicines as well as established products. The key growth driver in oncology was the HER2 franchise with
Avastin, MabThera/Rituxan and Zelboraf also making significant contributions. Sales of Actemra/RoActemra and Lucentis
also increased. Key emerging markets showed growth of 12%, led by 21% sales growth in China. Diagnostics sales grew
at 4%, consolidating the division’s leading market position. The major growth area was Professional Diagnostics, while sales
in Diabetes Care declined.
Core operating profit increased by 8%, with the Pharmaceuticals Division growing at 7% and Diagnostics at 4%. In the
Pharmaceuticals Division cost of sales grew at 9% due to higher sales volumes, initial costs of implementing supply chain
strategies for future growth, compliance costs and negative exchange rate impacts. The 3% increase in marketing and
distribution costs was driven by investments to expand the business in emerging markets and to increase patient access
to medicines. In research and development the 5% increase arose mainly in the oncology and neuroscience franchises,
with the focus on new indications for recently launched products and other developments, such as PD-L1 targeted therapy
and the advancement of programmes for Alzheimer’s disease. In the Diagnostics Division profitability remained stable
as increased sales were offset by higher operating costs. These were driven by pricing impacts and growth in instrument
placements, especially in the US, higher research and development costs and the new Medical Device Tax in the US.
Roche Group – Financial Review | Roche Finance Report 2013
3­
In 2013 there were two major one-off impacts in the core results. The release of previously accrued reserves for the 340B
Drug Discount Program had a positive impact of 182 million Swiss francs on US pharmaceuticals sales and 145 million Swiss
francs on core operating profit. There were also 302 million Swiss francs of income from changes to the Group’s pension
plans in the core operating profit.
During 2013 the Group has continued the implementation of a number of major restructuring initiatives to position the
business for the future. The operational closure of the Nutley site in the US, which was announced in 2012, was completed
on schedule at the end of 2013. On 14 October 2013 the Pharmaceuticals Division published details of investments to increase
its global biologic medicine manufacturing network capacity. As part of this a bulk drug production unit at the Vacaville
site in California that had been discontinued and fully written down in 2009 will be brought back into service, resulting in
a reversal of the previously incurred impairment charges of 531 million Swiss francs. The Diagnostics Division continued
the implementation of various global programmes in the Diabetes Care and Applied Science businesses to address longterm profitability. On 23 April 2013 the Group announced that the Applied Science business area’s portfolio of products will
be integrated within the other business areas of the Diagnostics Division. Overall, the costs of the Group’s restructuring
activities in 2013 were over 1.9 billion Swiss francs lower compared to those in 2012. Impairment charges of 0.6 billion Swiss
francs were recorded for goodwill and intangible assets, notably for product intangibles in the Pharmaceuticals Division’s
hepatitis C virus (HCV) franchise and goodwill in the Tissue Diagnostics business. Taken together with the growth of the
underlying business, there was an increase in IFRS net income of 22% at constant exchange rates.
Operating free cash flow was 16.4 billion Swiss francs, an increase of 5% at constant exchange rates. This increase reflects
the cash generation of both divisions, partly offset by higher capital expenditure for property, plant and equipment and
investments in intangible assets. Free cash flow was 5.4 billion Swiss francs, 6% higher than in 2012. This was primarily due
to a higher operating free cash flow and lower interest payments as the Group’s debt continues to be repaid. These were
partially offset by the higher annual dividend.
In 2013 the Swiss franc appreciated against some currencies, in particular the Japanese yen and US dollar, but weakened
against the euro. The overall impact is negative on the results expressed in Swiss francs compared to constant exchange
rates, with impacts of 3–4 percentage points on sales, core operating profit and core EPS. The exchange rates used and
currency sensitivities are given on page 34.
4­
Roche Finance Report 2013 | Roche Group – Financial Review
Income statement
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
46,780
45,499
+3
+6
IFRS results
Sales
Royalties and other operating income
1,832
1,945
–6
–4
(11,948)
(12,175)
–2
+2
Marketing and distribution
(8,373)
(8,539)
–2
+1
Research and development
(9,270)
(9,552)
–3
–1
General and administration
(2,645)
(3,053)
–13
–12
Operating profit
16,376
14,125
+16
+20
Financing costs
(1,580)
(1,923)
–18
–17
(119)
(43)
+177
+240
Cost of sales
Other financial income (expense)
Profit before taxes
14,677
12,159
+21
+25
Income taxes
(3,304)
(2,499)
+32
+37
Net income
11,373
9,660
+18
+22
11,164
9,427
+18
+22
209
233
–10
+9
Attributable to
–– Roche shareholders
–– Non-controlling interests
EPS – Basic (CHF)
13.16
11.12
+18
+23
EPS – Diluted (CHF)
12.93
11.03
+17
+22
46,780
45,499
+3
+6
1,832
1,945
–6
–4
(11,892)
(11,444)
+4
+8
Marketing and distribution
(8,241)
(8,392)
–2
+2
Research and development
(8,700)
(8,475)
+3
+5
Core results
Sales
Royalties and other operating income
Cost of sales
General and administration
(1,875)
(1,973)
–5
–3
Operating profit
17,904
17,160
+4
+8
Financing costs
(1,580)
(1,923)
–18
–17
(119)
(43)
+177
+240
15,194
+7
+10
Other financial income (expense)
Profit before taxes
16,205
Income taxes
(3,679)
(3,429)
+7
+11
Net income
12,526
11,765
+6
+10
12,316
11,531
+7
+10
210
234
–10
+9
Core EPS – Basic (CHF)
14.52
13.60
+7
+11
Core EPS – Diluted (CHF)
14.27
13.49
+6
+10
Attributable to
–– Roche shareholders
–– Non-controlling interests
As disclosed in Note 32 to the Consolidated Financial Statements and as discussed below on page 45, the income statement for 2012 has been restated following
the accounting policy changes which were adopted in 2013. In the restated results of 2012 this causes a reduction in net financial income of 164 million Swiss francs.
See also the Investor Update from 21 March 2013. A reconciliation to the previously published income statement is provided in Note 32 to the Consolidated Financial
Statements.
Roche Group – Financial Review | Roche Finance Report 2013
5­
Sales
In 2013 sales increased by 6% at constant exchange rates (+3% in Swiss francs; +4% in US dollars) to 46.8 billion Swiss
francs. Sales in the Pharmaceuticals Division rose 7% with the HER2 franchise, Avastin, MabThera/Rituxan, Actemra/
RoActemra and Lucentis all growing strongly. Emerging market (E7) sales in Pharmaceuticals grew by 12%, led by 21%
growth in China, and now represent 11% of the division’s sales. The Diagnostics Division recorded sales of 10.5 billion Swiss
francs, an increase of 4% at constant exchange rates, consolidating its leading market position. The major growth area was
Professional Diagnostics, which represents more than half of the division’s sales and grew by 8%, while Diabetes Care sales
decreased by 3%.
Divisional operating results for 2013
Pharmaceuticals
(mCHF)
Diagnostics
(mCHF)
Sales
36,304
10,476
Core operating profit
16,108
2,177
–– margin, % of sales
Operating profit
44.4
20.8
15,633
1,241
–– margin, % of sales
Operating free cash flow
Corporate
(mCHF)
–
(381)
–
(498)
46,780
17,904
38.3
16,376
43.1
11.8
14,976
1,962
41.3
18.7
–
35.0
Pharmaceuticals
Diagnostics
Corporate
Group
+7
+4
–
+6
–– margin, % of sales
–
Group
(mCHF)
(557)
35.0
16,381
Divisional operating results – Development of results compared to 2012
Sales
–– % increase at CER
Core operating profit
–– % increase at CER
+7
+4
–26
+8
+0.1
0
–
+0.6
–– % increase at CER
+18
+5
–41
+20
–– margin: percentage point increase
+4.0
0
–
+4.1
+5
+9
+20
+5
–0.9
+0.9
–
–0.5
–– margin: percentage point increase
Operating profit
Operating free cash flow
–– % increase at CER
–– margin: percentage point increase
Core operating results
The Group’s core operating profit increased by 8% at constant exchange rates (4% in Swiss francs) and the Group’s core
operating profit margin improved by 0.6 percentage points to 38.3% of sales. In 2013 there were two major one-off impacts
in the core results. There was the release of sales reserves previously accrued for the 340B Drug Discount Program in the
US which had a positive impact of 182 million Swiss francs on sales and 145 million Swiss francs on core operating profit.
There was also income of 302 million Swiss francs recorded from changes to the Group’s pension plans. At constant exchange
rates, these effects had a combined positive margin impact of 0.8 percentage points for the Group, 0.5 percentage points
for the Pharmaceuticals Division and 0.7 percentage points for the Diagnostics Division. Excluding these two factors, core
operating profit grew by 5% for the Group and the Pharmaceuticals Division and by 1% in the Diagnostics Division. Currency
translation had a negative impact of 3.4 percentage points on the operating results. There was a minor currency effect on
the Group’s core operating margin, as the positive effect of 0.3 percentage points for the Pharmaceuticals Division was offset
by a negative effect of 0.5 percentage points for the Diagnostics Division.
6­
Roche Finance Report 2013 | Roche Group – Financial Review
Pharmaceuticals Division. The division increased its core operating profit by 7% at constant exchange rates, driven by
growth of the underlying business with a 7% increase in sales. Cost of sales increased by 9% due to higher sales volumes,
initial costs of implementing supply chain strategies for future growth, compliance costs and negative exchange rate impacts.
Research and development costs increased by 5%, mainly in the oncology and neuroscience franchises, and while there
was a 4% increase of general and administration costs they were stable as a percentage of sales.
Diagnostics Division. Core operating profit increased 4%, again driven by growth of the underlying business, with
a 4% increase in sales. Cost of sales increased by 6%, more than the sales growth, due to pricing impacts. There was also
a growth in instrument placements, especially in the US. Marketing and distribution costs decreased by 2% as a result
of lower spending in the Diabetes Care and former Applied Science businesses and due to lower bad debt expenses.
Research and development costs increased by 7% due to continuing investments into next-generation platforms. General
and administration costs increased by 8% due to the costs of the new Medical Device Tax in the US and ongoing IT systems
projects. These increases were partly offset by income recorded for changes to the Group’s pension plans.
Global restructuring plans
During 2013 the Group continued with the implementation of several major global restructuring plans initiated in prior years,
notably the reorganisation of research and development in the Pharmaceuticals Division and programmes to address the
long-term profitability in the Diabetes Care and former Applied Science businesses in Diagnostics. Additionally, there was
income of 531 million Swiss francs from the reversal of previously incurred impairment charges for a bulk drug production
unit at the Vacaville site in California.
Global restructuring plans: costs incurred in millions of CHF
Diagnostics 1)
Pharma R & D 2)
Other plans 3)
Total
2013
Global restructuring costs
–– Employee-related costs
89
44
132
265
–– Site closure costs
48
38
(491)
(405)
–– Other reorganisation expenses
Total global restructuring costs
83
157
66
306
220
239
(293)
166
Additional costs
–– Impairment of goodwill
35
–
–
35
–– Impairment of intangible assets
12
–
–
12
–– Legal and environmental costs
3
(53)
–
(50)
Total costs
270
186
(293)
163
1) Includes restructuring of the Diabetes Care and former Applied Science business areas.
2) Includes closure of the Nutley site and associated infrastructure and environmental remediation costs.
3) Includes the Operational Excellence programme (Pharmaceuticals and Diagnostics).
Diagnostics Division – Diabetes Care and Applied Science restructuring. On 23 April 2013 the Group announced
that the Applied Science business area’s portfolio of products will be integrated within the other business areas of the
Diagnostics Division. This will streamline decision-making and enhance technology flow from research use to the clinical
setting. On 26 September 2013 Roche Diabetes Care announced its ‘Autonomy and Speed’ initiative which will enable the
business to focus on Diabetes Care specific requirements, speed up processes and decision-making and drive efficiencies.
In 2013 total costs of 220 million Swiss francs were incurred, mainly for headcount reductions, IT-related costs and site
closure costs. In addition, goodwill impairment charges of 35 million Swiss francs were incurred for the write-off of the
goodwill from the Innovatis and 454 Life Sciences acquisitions in the former Applied Science business area.
Roche Group – Financial Review | Roche Finance Report 2013
7­
Pharmaceuticals Division – Research and Development reorganisation. On 26 June 2012 the Group announced a
streamlining of the research and development activities within the Pharmaceuticals Division. The planned operational closure
of the US site in Nutley, New Jersey, was completed on schedule by the end of 2013. During 2013 total costs of 239 million
Swiss francs were incurred. These costs include additional provisions of 88 million Swiss francs to cover site running costs
until the expected divestment in 2015. There was a further impairment of 35 million Swiss francs to the carrying value of
the Nutley site, based on the most recent external property market data. Costs for other employee-related, site closure and
reorganisational matters were 116 million Swiss francs. The first results of the environmental investigations showed that
the expected cost of remediation may be lower than originally expected and accordingly the environmental provisions were
reduced by 53 million Swiss francs.
Other global restructuring plans. On 14 October 2013 the Pharmaceuticals Division announced investments to increase
its global biologic medicine manufacturing network capacity to meet the rising demand for licensed biologics and expected
pipeline growth. A part of this a bulk drug production unit at the Vacaville site in California that had been discontinued and
fully written down in 2009 will be put back into service. This resulted in income of 531 million Swiss francs from the reversal
of previously incurred impairment charges. During 2013 costs of 126 million Swiss francs were incurred for the previously
announced Operational Excellence programme, mainly for employee-related and site closure costs in the Pharmaceuticals
Division and employee-related and site closure costs in the Diagnostics Division for the sites in Burgdorf, Switzerland and
Graz, Austria. Other plans totalled 112 million Swiss francs.
Merger and acquisitions
On 1 July 2013 the Group acquired a 100% controlling interest in Constitution Medical Investors, Inc. (‘CMI’), a US
private company based in Massachusetts. CMI is the developer of a highly innovative hematology testing system, which
is designed to provide faster and more accurate diagnosis of blood-related diseases, helping to improve patient care.
CMI is now reported in the Diagnostics operating segment as part of the Professional Diagnostics business area. The
purchase consideration was 220 million US dollars in cash and up to 255 million US dollars from a contingent consideration
arrangement.
Impairment of goodwill and intangible assets
In 2013 impairment charges for goodwill and intangible assets of 35 million Swiss francs and 12 million Swiss francs were
incurred for the Applied Science restructuring initiative described above. Based on the latest business plans prepared during
the second half of 2013, a goodwill impairment of 253 million Swiss francs was recorded in the Tissue Diagnostics business
area within the Diagnostics Division. The main factor leading to this impairment was reduced revenue expectations in the
US. These follow from recent changes in the College of American Pathologists guidelines for the use of negative reagent
controls in immunohistochemistry testing which reduced volumes and changes which reduced the reimbursement amount
to laboratories. In addition, unrelated to global restructuring, impairments totalling 286 million Swiss francs were recorded
in the Pharmaceuticals Division following a portfolio reassessment within the hepatitis C virus (HCV) franchise. Further
impairment charges of 64 million Swiss francs were recorded by the Pharmaceuticals Division for various smaller projects.
Further details are given in Notes 8 and 9 to the Consolidated Financial Statements.
Pensions and other post-employment benefits
During 2013 operating income of 302 million Swiss francs was recorded for past service costs from changes to the Group’s
pension plans in Switzerland, the United Kingdom and Germany. This represents the one-time impact of the adjustment
of the pension liability for the plan changes. Of this amount, 131 million Swiss francs were recorded in the Pharmaceuticals
Division and 67 million Swiss francs in the Diagnostics Division. The remaining 104 million Swiss francs of income were
allocated to Corporate, mainly attributable to previously divested businesses. In addition some of the US pension plans made
an offer to deferred vested members to settle part of the defined benefit obligation for a lump sum payment, which resulted
in a one-time settlement gain in the IFRS results of 19 million Swiss francs. Further details are given in Note 25 to
the Consolidated Financial Statements.
8­
Roche Finance Report 2013 | Roche Group – Financial Review
Legal and environmental settlements
In addition to the reversal of environmental remediation costs of 53 million Swiss francs for the Nutley site mentioned
above, a further 246 million Swiss francs of legal and environmental costs were recorded, unrelated to global restructuring
plans. These include a further increase of 138 million Swiss francs to the estimated remediation costs of a landfill site near
Grenzach, Germany, that was previously used by manufacturing operations that were closed some years ago.
Treasury and taxation
Financing costs were 1.6 billion Swiss francs, a decrease of 17%, with interest expenses being 23% lower at constant
exchange rates as debt was repaid. Other financial income (expense) was a net expense of 119 million Swiss francs, mainly
due to losses following the devaluation of the Venezuelan bolivar and foreign exchange hedge costs. Core tax expenses
increased by 11% to 3.7 billion Swiss francs and the Group’s effective core tax rate was stable at 22.7% (2012: 22.6%).
The main factors were the higher percentage of core profit contribution coming from tax jurisdictions with relatively higher
local tax rates than the average Group rate, notably in the US, mostly offset by the retrospective re-enactment of the
2012 US research and development tax credit rules in January 2013.
Net income and earnings per share
IFRS net income and diluted EPS both increased by 22% at constant exchange rates driven by the strong operating
performance, significantly lower global restructuring expenses and lower financing costs. On a core basis, which excludes
non-core items such as global restructuring costs and the amortisation and impairment of goodwill and intangible assets,
net income and core EPS both increased by 10%. This was driven by the strong operating performance and lower financing
costs. Core EPS grew by 7% when excluding the positive impacts from the 340B Drug Discount Program in the US and
from the changes to the Group’s pension plans.
Supplementary net income and EPS information is given on pages 144–147. This includes calculations of core EPS and
reconciles the core results to the Group’s published IFRS results.
Financial position
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
Pharmaceuticals
Net working capital
Long-term net operating assets
5,451
5,548
–2
+10
12,952
12,955
+0
+4
2,782
3,347
–17
–13
11,250
11,382
–1
0
(71)
–18
–18
(309)
Diagnostics
Net working capital
Long-term net operating assets
Corporate
Net working capital
Long-term net operating assets
(58)
+43
+43
31,934
32,852
–3
+2
Net debt
(6,708)
(10,599)
–37
–38
Pensions
(5,426)
(6,553)
–17
–18
1,838
1,581
+16
+18
Net operating assets
Income taxes
Other non-operating assets, net
Total net assets
(443)
(397)
21,241
(531)
16,750
–25
–29
+27
+37
Compared to the start of the year the Swiss franc appreciated significantly against the Japanese yen. There was also
a slight appreciation against the US dollar and Brazilian real and a slight weakening against the euro. These effects resulted
in a negative translation impact on the balance sheet positions at 31 December 2013. The exchange rates used are given
on page 34.
Roche Group – Financial Review | Roche Finance Report 2013
9­
In the Pharmaceuticals Division net working capital increased by 10% at constant exchange rates. This was mainly driven
by an increase of 24% in inventories due to recent and upcoming product launches and expected higher sales demand. There
were also higher levels of safety stock on selected products and temporary bridging stocks as a result of changes in supply
chain strategy. Trade receivables decreased by 2% mainly as a result of continuing strong collections, which more than offset
effects of underlying business growth. Trade payables increased by 34% following initiatives to improve cash management,
including extension of payment terms. Long-term net operating assets grew by 4% mainly due to increases in property, plant
and equipment. The main factor was biologic medicine manufacturing network investments, which resulted in an impairment
reversal of a bulk drug production unit at the Vacaville site in the US, which had previously been impaired in 2009. This was
partially offset by the impairment of intangible assets for the hepatitis C virus (HCV) franchise.
In Diagnostics the decrease in net working capital of 13% was driven by an increase in trade payables driven by extended
payment terms as well as increased accruals, including employee benefits and lower levels of inventories. Trade receivables
were stable as decreases in European markets have been offset by increases in emerging markets, notably China. The longterm net operating assets were stable as increases in property, plant and equipment for facilities in Germany and instrument
placements were offset by impairments of goodwill and intangible assets.
The decrease in the net debt position was mainly driven by the free cash flow of 5.4 billion Swiss francs. Transactions in
own equity to hedge the Group’s employee stock option programmes increased net debt by 1.2 billion Swiss francs while
net pension liabilities decreased by 1.1 billion Swiss francs due to changes in discount rates and the pension plan changes
referred to above. Net tax assets increased mainly due to the deferred tax effect of equity compensation plans, which
increased due to the increase in the price of the underlying equity.
Free cash flow
Pharmaceuticals
Diagnostics
Corporate
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
14,976
14,710
+2
+5
1,962
1,890
(557)
(465)
+4
+9
+20
+20
Operating free cash flow
16,381
16,135
+2
+5
Treasury activities
(1,275)
(1,542)
–17
–14
Taxes paid
(3,341)
(3,329)
0
+3
Dividends paid
(6,362)
(5,888)
+8
+9
5,403
5,376
+1
+6
Free cash flow
The Group’s operating free cash flow for 2013 was 16.4 billion Swiss francs, an increase of 5% at constant exchange rates.
The 8% increase in core operating profit was partly offset by higher capital expenditure on property, plant and equipment
and investments in intangible assets, by the increases in net working capital noted above in the comments on the financial
position and by the higher cash utilisation of restructuring and legal provisions. There were also several non-cash items in
core net income, including the income from changes to the Group’s pension plans in 2013. The free cash flow was 5.4 billion
Swiss francs, an increase of 6% at constant exchange rates, as the higher operating free cash flow and lower interest
payments were partly offset by the higher annual dividend payments. The Group has refined the calculation of the free cash
flow in 2013 to exclude the impact of employee stock options in line with its peer group (see page 148 for further details).
Comparative 2012 free cash flow information has been restated accordingly.
10­
Roche Finance Report 2013 | Roche Group – Financial Review
Pharmaceuticals Division operating results
Pharmaceuticals Division operating results
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
36,304
35,232
+3
+7
1,702
1,794
–5
–3
Cost of sales
(7,014)
(7,348)
–5
+1
Marketing and distribution
(5,844)
(5,914)
–1
+3
Research and development
(8,189)
(8,529)
–4
–1
General and administration
(1,326)
(1,558)
–15
–13
Operating profit
15,633
13,677
+14
+18
43.1
38.8
+4.3
+4.0
36,304
35,232
+3
+7
1,702
1,794
–5
–3
(7,353)
(7,097)
+4
+9
IFRS results
Sales
Royalties and other operating income
–– margin, % of sales
Core results 1)
Sales
Royalties and other operating income
Cost of sales
Marketing and distribution
(5,795)
(5,851)
–1
+3
Research and development
(7,683)
(7,529)
+2
+5
+4
General and administration
(1,067)
(1,061)
+1
Core operating profit
16,108
15,488
+4
+7
44.4
44.0
+0.4
+0.1
–– margin, % of sales
Financial position
5,451
5,548
–2
+10
Long-term net operating assets
Net working capital
12,952
12,955
0
+4
Net operating assets
18,403
18,503
–1
+6
14,976
14,710
+2
+5
41.3
41.8
–0.5
–0.9
Free cash flow
Operating free cash flow
–– margin, % of sales
1) See pages 144–147 for definition of Core results and Core EPS.
Roche Group – Financial Review | Roche Finance Report 2013
11­
Sales overview
Pharmaceuticals Division – Sales by therapeutic area
Therapeutic area
2013
(mCHF)
2012
(mCHF)
Oncology
22,553
21,163
+10
62
60
4,628
4,285
+11
13
12
10
Immunology
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Infectious diseases
3,180
3,479
–6
9
Ophthalmology
1,689
1,481
+15
5
4
810
858
–1
2
2
Neuroscience
Other therapeutic areas
Total sales
3,444
3,966
–6
9
12
36,304
35,232
+7
100
100
Pharmaceuticals Division sales increased 7% at constant exchange rates. Growth was driven by the oncology portfolio
as well as Actemra/RoActemra and Lucentis. These increases more than offset lower sales of Pegasys, the loss of Chugai’s
Evista sales following the termination of a co-marketing agreement in Japan and the expected further decline in Bonviva/
Boniva. Sales growth was primarily driven by the HER2 franchise, Avastin, MabThera/Rituxan, Actemra/RoActemra and
Lucentis. These main growth drivers represent 62% of the portfolio (2012: 59%) and together generated 1.8 billion Swiss
francs of additional sales in 2013. Sales in the US benefited from the release of previously accrued reserves under the 340B
Drug Discount Program of 182 million Swiss francs, more than half of which were for MabThera/Rituxan.
In oncology, demand for established products grew due to expanded use in existing indications. Furthermore, growth
was driven by the HER2 franchise following additional approvals for Perjeta and the launch of Kadcyla in the US and Europe.
Zelboraf also continued to be a significant growth contributor. Sales in immunology increased due to strong growth of
Actemra/RoActemra in all regions, reflecting the strong uptake of Actemra as a monotherapy treatment, and also due
to growth of MabThera/Rituxan in rheumatoid arthritis. There was continued growth in ophthalmology as Lucentis sales
benefited from the approval of a less frequent dosing regimen in wet age-related macular degeneration (wAMD) as
well as increased sales in retinal vein occlusion (RVO), and diabetic macular edema (DME).
All geographic data in the following sales tables is presented using the new organisational structure of the Pharmaceuticals
Division (see Investor Update from 21 March 2013).
12­
Roche Finance Report 2013 | Roche Group – Financial Review
Product sales
Pharmaceuticals Division – Sales
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Oncology
Avastin
6,254
5,764
+13
17
16
Herceptin
6,079
5,889
+6
16
17
MabThera/Rituxan 1)
5,760
5,622
+5
16
16
Xeloda
1,509
1,523
+2
4
4
Tarceva
1,339
1,314
+4
4
4
Zelboraf
354
234
+52
1
1
Perjeta
326
56
+498
1
0
Kadcyla
234
0
–
1
0
Neutrogin
217
266
+1
1
1
Others
481
495
+3
1
1
22,553
21,163
+10
62
60
MabThera/Rituxan 1)
1,191
1,085
+12
3
3
Actemra/RoActemra
1,037
842
+30
3
2
Total Oncology
Immunology
CellCept
874
909
–2
2
3
Xolair
790
705
+13
2
2
Pulmozyme
572
537
+8
2
1
Others
164
207
–7
1
1
4,628
4,285
+11
13
12
1,312
1,649
–19
3
5
693
638
+10
2
2
Total Immunology
Infectious Diseases
Pegasys
Valcyte/Cymevene
Tamiflu
635
560
+19
2
1
Rocephin
268
266
+5
1
1
Others
272
366
–24
1
1
3,180
3,479
–6
9
10
Lucentis
1,689
1,481
+15
5
4
Total Ophthalmology
1,689
1,481
+15
5
4
Total Infectious Diseases
Ophthalmology
Neuroscience
Madopar
313
310
+4
1
1
Others
497
548
–4
1
1
Total Neuroscience
810
858
–1
2
2
Activase/TNKase
683
584
+19
2
2
NeoRecormon/Epogin 2)
520
674
–18
1
2
Other therapeutic areas
Mircera
425
384
+24
1
1
Nutropin
274
304
–9
1
1
208
323
–34
1
1
Others
Bonviva/Boniva
1,334
1,697
–2
3
5
Total other therapeutic areas
3,444
3,966
–6
9
12
36,304
35,232
+7
100
100
Total sales
1)Total MabThera/Rituxan sales of 6,951 million Swiss francs (2012: 6,707 million Swiss francs) split between oncology and immunology franchises.
2) In previous reports total NeoRecormon/Epogin sales were split between renal anemia and oncology franchises.
Roche Group – Financial Review | Roche Finance Report 2013
13­
MabThera/Rituxan
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
3,329
3,112
+8
48
46
Europe
1,918
1,845
+3
28
28
249
291
+6
4
4
International
Japan
1,455
1,459
+6
20
22
Total sales
6,951
6,707
+6
100
100
MabThera/Rituxan. For non-Hodgkin’s lymphoma (NHL), chronic lymphocytic leukemia (CLL) and rheumatoid arthritis (RA)
as well as granulomatosis with polyangiitis (GPA) and microscopic polyangiitis (MPA). Global sales growth was driven by
increased use across all oncology and rheumatoid arthritis indications. Sales growth in the oncology franchise was 5% and
in the RA franchise sales grew by 12%. US sales were 3.3 billion Swiss francs, an increase of 8%, benefiting from the release
of sales reserves for the 340B Program. Excluding this impact of 99 million Swiss francs, US sales rose by 5%. Sales rose
6% in the International region with growth in China from increased demand for treatment of diffuse large B-cell lymphoma
(a type of NHL).
Herceptin
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
1,787
1,663
+9
29
28
Europe
2,191
2,176
–1
36
37
294
337
+8
5
6
International
Japan
1,807
1,713
+11
30
29
Total sales
6,079
5,889
+6
100
100
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
96
Perjeta
219
54
+311
67
Europe
United States
68
2
Over +500
21
4
Japan
23
–
–
7
–
International
16
–
–
5
–
Total sales
326
56
+498
100
100
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Kadcyla
United States
Europe
14­
222
–
–
95
–
9
–
–
4
–
Japan
–
–
–
–
–
International
3
–
–
1
–
Total sales
234
–
–
100
–
Roche Finance Report 2013 | Roche Group – Financial Review
HER2 franchise (Herceptin, Perjeta and Kadcyla). For HER2-positive breast cancer and HER2-positive metastatic
(advanced) gastric cancer. Herceptin sales grew in the US (+9%) and in the International region (+11%). Excluding the
release of sales reserves of 41 million Swiss francs from the 340B Program, US sales rose 6%. US growth resulted from
increased usage in both breast and gastric cancer. The International region grew in all sub-regions. Asia grew as a result
of the breast cancer patient access programme and HER2 testing initiatives, and sales in Latin America increased in both
private and public sectors. European sales were stable while sales in Japan grew by 8%. The recently launched Perjeta and
Kadcyla continued to be growth drivers with strong uptake and recognised benefits compared to other treatment regimens.
In total, the HER2 franchise grew by 14%.
Avastin
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
2,575
2,475
+5
41
43
Europe
1,919
1,649
+14
31
29
717
769
+15
11
13
International
Japan
1,043
871
+30
17
15
Total sales
6,254
5,764
+13
100
100
Avastin. For advanced colorectal, breast, lung, kidney and ovarian cancer, and for relapsed glioblastoma (a type of brain
tumour). Global sales grew by 13%, mainly due to increased use in established indications (colorectal, lung and breast
cancer) as well as in the newer indication of ovarian cancer. Ovarian and colorectal cancer indications were the main
drivers behind the 14% sales increase in Europe. Avastin sales in the US grew 5% as a result of expanded use in colorectal
cancer and also benefited from the release of 340B Program sales reserves. Excluding this impact of 31 million Swiss francs,
US sales rose 4%. Growth in the International region was 30%, with higher sales in Latin America driven by increased use
in colorectal and ovarian cancer indications in Brazil. There were also higher sales in the Asia sub-region, with China growing
at 62%, driven by the colorectal cancer indication. The growth in Japan of 15% was primarily due to use in colorectal, breast
and lung cancer.
Lucentis
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
1,689
1,481
+15
100
100
Total sales
1,689
1,481
+15
100
100
Lucentis. For wet age-related macular degeneration (wAMD), macular edema following retinal vein occlusion (RVO) and
diabetic macular edema (DME). US sales grew by 15% driven by growth in the RVO and DME indications and a stable market
share in wAMD following the approval given earlier this year for a less frequent dosing regimen.
Xeloda
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
616
627
0
41
41
Europe
315
322
–4
21
21
Japan
107
128
+4
7
8
International
471
446
+8
31
30
Total sales
1,509
1,523
+2
100
100
Roche Group – Financial Review | Roche Finance Report 2013
15­
Xeloda. For colorectal, stomach and breast cancer. Sales increased by 2%, with growth being driven primarily by China
(+17%) and also by Japan where there was increased penetration in adjuvant colon cancer (aCC) and metastatic colorectal
cancer (mCRC). Sales in Europe were impacted by price pressure and the loss of exclusivity in December 2013.
Tarceva
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
604
571
+7
45
43
Europe
343
355
–5
26
27
Japan
99
112
+10
7
9
International
293
276
+8
22
21
Total sales
1,339
1,314
+4
100
100
Tarceva. For advanced non-small cell lung (NSCLC) and pancreatic cancer. Sales rose by 4%, with growth in US, China
and Japan. Growth resulted from the approval and penetration in the first-line epidermal growth factor receptor (EGFR)
mutation-positive NSCLC indication. In Europe this partially compensated for a decrease in patient share in second-line
NSCLC. In the International region, growth in Asia was supported by additional reimbursement approvals.
Pegasys
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
307
541
–43
23
33
Europe
356
395
–11
27
24
52
81
–21
4
5
International
Japan
597
632
–3
46
38
Total sales
1,312
1,649
–19
100
100
Pegasys. For hepatitis B and C. Sales decreased by 19%, mainly in the US and Europe, due to further treatment deferrals
in anticipation of the expected launch of interferon-free combination therapies. In the International region, there was growth
in Asia (+3%) due to expanding access to patients and from markets where first-generation triple therapies have been
recently launched.
Actemra/RoActemra
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
314
241
+32
30
29
Europe
360
280
+27
35
33
Japan
197
201
+21
19
24
International
166
120
+49
16
14
Total sales
1,037
842
+30
100
100
Actemra/RoActemra. For rheumatoid arthritis (RA), systemic juvenile idiopathic arthritis and polyarticular juvenile idiopathic
arthritis. Sales continued to grow in all approved indications and in all regions as a result of the continued strong uptake as
a monotherapy in rheumatoid arthritis. Sales were over 1 billion Swiss francs with increases particularly in the US and Europe,
where Actemra/RoActemra continues to gain market share. Marketing and reimbursement approvals in additional countries
continue to expand patient access to Actemra/RoActemra. Actemra subcutaneous formulation was approved in Japan
during March and in the US during October, for adults living with moderately to severely active rheumatoid arthritis.
16­
Roche Finance Report 2013 | Roche Group – Financial Review
NeoRecormon/Epogin
2013
(mCHF)
United States
Europe
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
–
–
–
–
–
218
289
–26
42
43
Japan
100
171
–28
19
25
International
202
214
0
39
32
Total sales
520
674
–18
100
100
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Mircera
United States
Europe
–
–
–
–
–
104
81
+25
24
21
Japan
214
209
+27
50
54
International
107
94
+19
26
25
Total sales
425
384
+24
100
100
Anemia franchise (NeoRecormon/Epogin and Mircera). For anemia/renal anemia. In a declining and highly competitive
market combined sales of Roche’s NeoRecormon and Chugai’s Epogin (epoetin beta) declined 18%. The sustained decline
in sales of NeoRecormon and Epogin was partly offset by growth in sales of the longer-acting erythropoiesis-stimulating
agent Mircera, which rose 24% to 425 million Swiss francs. Much of this growth was due to the increasing number of
patients switching to, or starting treatment with, Mircera in place of NeoRecormon/Epogin. The strongest contributions
to higher Mircera sales came from Japan.
CellCept
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
204
171
+21
23
19
Europe
238
266
–12
27
29
Japan
68
77
+10
8
8
International
364
395
–7
42
44
Total sales
874
909
–2
100
100
CellCept. For the prevention of solid organ transplant rejection. Sales stabilised in 2013 with a return to growth in the US,
due to the delay of generic competition entering the market, and growth in Japan offsetting the continued decline in Europe
following patent expiry. Continued growth in Japan reflects the position of CellCept as the standard of care ahead of the
launch of generics that became available by the end of 2013.
Roche Group – Financial Review | Roche Finance Report 2013
17­
Tamiflu
United States
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
428
349
+24
67
62
Europe
18
9
+110
3
2
Japan
105
141
–8
17
25
International
84
61
+41
13
11
Total sales
635
560
+19
100
100
Tamiflu. For influenza A and B. Sales increases in the US more than offset the lower sales for both seasonal and pandemic
use in Japan.
Zelboraf
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
123
112
+11
35
48
Europe
194
116
+65
55
50
–
–
–
–
–
International
Japan
37
6
Over +500
10
2
Total sales
354
234
+52
100
100
Zelboraf. For BRAF V600E mutation-positive metastatic melanoma. Sales grew in all regions with Zelboraf approved
in 81 countries and receiving increasing reimbursement coverage. Zelboraf is now established as the standard of care for
BRAF mutation-positive metastatic melanoma in key markets such as the US (+11%), France (+33%), Germany (+23%)
and the UK (+25%).
Pharmaceuticals Division – Sales by region
Region
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
United States
15,097
13,856
+10
42
39
Europe
9,254
8,952
+2
25
25
Japan
3,405
4,108
+2
9
12
24
International
8,548
8,316
+8
24
–– EEMEA 1)
2,021
2,057
+1
6
6
–– Latin America
2,537
2,619
+8
7
7
–– Asia–Pacific
3,047
2,736
+13
8
8
943
904
+9
3
3
36,304
35,232
+7
100
100
–– Other regions
Total sales
The above table, and all other geographic sales data shown for the Pharmaceuticals Division, is presented using the new organisational structure of the Pharmaceuticals
Division (see Investor Update from 21 March 2013).
1) Eastern Europe, Middle East and Africa.
18­
Roche Finance Report 2013 | Roche Group – Financial Review
United States. Sales grew by 10% in US dollar terms, or 9% excluding the impact of the reserves release for the 340B Drug
Discount Program. The leading products were the oncology medicines MabThera/Rituxan, Avastin and the HER2 franchise,
with sales of 3.3 billion Swiss francs (+8%), 2.6 billion Swiss francs (+5%) and 2.2 billion Swiss francs (+31%), respectively.
Of the other products, the main growth drivers were Lucentis, Activase/TNKase, Xolair, Tamiflu and Actemra/RoActemra.
Gazyva received approval in November 2013 for previously untreated chronic, lymphocytic leukemia and sales for the
remainder of 2013 were 3 million Swiss francs.
Europe. Sales increased by 2% at constant exchange rates, despite being impacted by pricing pressures. Growth was
mainly driven by oncology products with Avastin (+14%), Zelboraf (+65%), Perjeta (over +500%) and MabThera/Rituxan
(+3%). In addition there was continued sales growth of Actemra/RoActemra (+27%). These were partially offset by lower
NeoRecormon and Bonviva/Boniva sales.
Japan. Sales grew by 2% in Japanese yen terms. Results in Japan were impacted by the loss of Evista sales following the
termination of a co-marketing agreement, which had a negative impact of 5 percentage points on sales growth. The major
growth drivers were Avastin with sales of 717 million Swiss francs (+15%) and Edirol with 181 million Swiss francs (+82%).
There was also growth in Actemra/RoActemra (+21%), Herceptin (+8%), MabThera/Rituxan (+6%) and from recently
launched Perjeta and Bonviva/Boniva.
International. Sales increased by 8% at constant exchange rates, driven by the Asia–Pacific and Latin America sub-regions.
Growth in Asia–Pacific was mainly due to the oncology products, especially Herceptin (+21%), Avastin (+35%), MabThera/
Rituxan (+13%) and Xeloda (+13%). China was the main driver in this region, with overall sales growth of 21%. In Latin
America sales growth was driven by Avastin, Herceptin and Actemra, despite pricing pressure and political uncertainties.
For the sub-region EEMEA, sales grew as underlying growth offset timing delays in some tender sales. Sales in this region
were also negatively impacted by political instability in several markets.
Pharmaceuticals Division – Sales for E7 leading emerging markets
Country
2013
(mCHF)
2012
(mCHF)
% change
(CER) total
% of sales
(2013)
% of sales
(2012)
Brazil
921
941
+9
3
3
China
1,497
1,224
+21
4
3
92
64
+59
0
0
401
408
–4
1
1
India
Mexico
Russia
444
439
+6
1
1
South Korea
233
222
+3
1
1
323
302
+14
1
1
3,911
3,600
+12
11
10
Turkey
Total sales
Total sales in the E7 key emerging markets grew by 12%. The sales growth was led by China, with a substantial contribution
from Brazil. The 21% growth in China reflects the efforts being made to expand patient access to medicines and the investment
strategy to expand the geographical coverage of medical care. The growth in Brazil resulted from the inclusion of several
key products into the reimbursement scope for public healthcare provision. Sales declined in Mexico due to delays in market
approvals and public sector purchases, while the growth in Turkey was a result of strong sales of key oncology products.
Roche Group – Financial Review | Roche Finance Report 2013
19­
Operating results
Pharmaceuticals Division – Royalties and other operating income
Royalty income
Income from out-licensing agreements
Income from disposal of products and other
Total – IFRS and Core basis
2013
(mCHF)
2012
(mCHF)
% change
(CER)
1,492
1,490
+2
115
75
+78
95
229
–58
1,702
1,794
–3
Royalties and other operating income. The decrease of 3% at constant exchange rates was due to lower income from
disposal of products, which was lower than 2012 due to four large transactions in that year. There was an increase in royalty
income in Japan in 2013 and increased royalties elsewhere from higher sales of out-licensed products such as Humira and
Enbrel. These were partly offset by milestone income for Eylea and the base effect of back royalty income of 27 million Swiss
francs received in 2012. The increase in out-licensing income was mainly due to out-licensing agreements in Japan.
Pharmaceuticals Division – Cost of sales
2013
(mCHF)
2012
(mCHF)
Manufacturing cost of goods sold and period costs
(4,330)
(4,277)
+9
Royalty expenses
(1,337)
(1,246)
+10
Collaboration and profit-sharing agreements
(1,680)
(1,556)
+8
Impairment of property, plant and equipment
(6)
(18)
–67
(7,353)
Cost of sales – Core basis
Global restructuring plans
Amortisation of intangible assets
Impairment of intangible assets
Total – IFRS basis
% change
(CER)
(7,097)
+9
461
(92)
–
(122)
(146)
–9
(13)
–100
(7,348)
+1
0
(7,014)
Cost of sales. Core costs increased by 9% at constant exchange rates mainly due to higher sales volumes, the initial
costs of implementing supply chain strategies for future growth, compliance costs and negative exchange rate impacts.
As a percentage of sales, cost of sales increased slightly to 20.2% from 20.1%. Royalty expenses were 10% higher driven
by the newly launched oncology products and by increased sales of Avastin and Tamiflu. In addition there were back
royalty expenses of 42 million Swiss francs due to the latest developments in the Sanofi arbitration (see also Note 19 to
the Consolidated Financial Statements). Expenses from collaboration and profit-sharing agreements increased mainly
driven by higher co-promotion expenses. This was as a result of higher sales of MabThera/Rituxan, including those related
to the release of the 340B Program sales reserves, and increased sales of Xolair and Tarceva. The net income from
global restructuring plans was due to 531 million Swiss francs from the reversal of previously incurred impairment charges
for a bulk drug production unit at the Vacaville site in California (see Note 6 to the Consolidated Financial Statements).
Pharmaceuticals Division – Marketing and distribution
Marketing and distribution – Core basis
Global restructuring plans
Total – IFRS basis
20­
Roche Finance Report 2013 | Roche Group – Financial Review
2013
(mCHF)
2012
(mCHF)
% change
(CER)
(5,795)
(5,851)
+3
(49)
(63)
–20
(5,844)
(5,914)
+3
Marketing and distribution. Core costs increased at constant exchange rates by 3%, with the percentage of sales ratio
improving to 16.0% from 16.6%. Sales and marketing efforts focussed on continued business expansion and increasing patient
access to medicines, in particular in emerging markets such as Asia. Significant investments were also made to support
the existing oncology portfolio and the newly launched products such as Perjeta, Kadcyla and Gazyva.
Pharmaceuticals Division – Research and development
Research and development – Core basis
Global restructuring plans
Amortisation of intangible assets
Impairment of intangible assets
Total – IFRS basis
2013
(mCHF)
2012
(mCHF)
% change
(CER)
(7,683)
(7,529)
+5
(101)
(489)
–79
(55)
(35)
+58
(350)
(476)
–26
(8,189)
(8,529)
–1
Research and development. Core costs increased by 5% at constant exchange rates but as a percentage of sales
decreased to 21.2% from 21.4%. There were increased investments in the oncology and neuroscience therapeutic areas.
In oncology additional activities were focussed on new indications for recently launched products and other developments,
such as PD-L1 targeted therapy. The progression of programmes for Alzheimer’s disease was the main area of increased
activity in the neuroscience area. These were partially offset by lower spending in other therapeutic areas such as
cardiovascular and inflammation, with the discontinuation of inflammation research in Nutley. In addition the Pharmaceuticals
Division capitalised 366 million Swiss francs (2012: 209 million Swiss francs) as intangible assets for the in-licensing of
pipeline compounds and technologies. The impairments of intangible assets include 286 million Swiss francs following
a portfolio reassessment within the hepatitis C virus (HCV) franchise and a further 64 million Swiss francs in respect of other
projects. Amortisation of intangible assets increased due to recent investments. Global restructuring costs of 101 million
Swiss francs were recorded, consisting mainly of employee-related costs and outside services for the closure of the
Nutley site.
Pharmaceuticals Division – General and administration
2013
(mCHF)
Administration
Pensions – past service costs
Gains (losses) on disposal of property, plant and equipment
Gains (losses) on divestment of subsidiaries
Business taxes and capital taxes
Other general items
General and administration – Core basis
Global restructuring plans
(1,048)
131
2012
(mCHF)
(943)
% change
(CER)
+15
–
–
(5)
1
–
2
–
(231)
(213)
84
94
–
+11
–3
(1,067)
(1,061)
+4
(197)
(466)
–57
Alliances and business combinations
(3)
45
–
Legal and environmental settlements
(74)
(76)
–4
Pensions – settlement gains (losses)
15
–
–
Total – IFRS basis
(1,326)
(1,558)
–13
Roche Group – Financial Review | Roche Finance Report 2013
21­
General and administration. Core costs increased by 4% at constant exchange rates but were largely stable as a
percentage of sales at 2.9% (2012: 3.0%). This includes the beneficial impact of 131 million Swiss francs of income from
changes in the Group’s pension plans. The increase in administration costs was mainly a result of a shift of finance headcount
from Corporate. There was also an increase in business taxes, including the costs for the US Branded Pharmaceutical
Product Fee of 175 million Swiss francs (2012: 163 million Swiss francs). Global restructuring costs mainly include site closure
costs for Nutley, consisting of employee-related costs, property taxes and outside services and provisions of 88 million Swiss
francs to cover site running costs until the expected divestment in 2015. Legal and environmental settlement costs mainly
relate to the legal matters described in Note 19 to the Consolidated Financial Statements.
Roche Pharmaceuticals and Chugai sub-divisional operating results
Pharmaceuticals sub-divisional operating results in millions of CHF
Roche
Pharmaceuticals
2013
2012
2013
Chugai
2012
Pharmaceuticals
Division
2013
2012
Sales
–– External customers
–– Within division
Core operating profit
–– margin, % of sales to external customers
Operating profit
–– margin, % of sales to external customers
Operating free cash flow
–– margin, % of sales
32,899
31,124
3,405
4,108
36,304
1,184
1,065
408
300
1,592
35,232
1,365
15,542
14,652
723
874
16,108
15,488
47.2
47.1
21.2
21.3
44.4
44.0
15,111
12,910
679
805
15,633
13,677
45.9
41.5
19.9
19.6
43.1
38.8
14,388
13,645
588
1,065
14,976
14,710
43.7
43.8
17.3
25.9
41.3
41.8
Pharmaceuticals Division total core operating profit and operating profit both include the elimination of 157 million Swiss francs (2012: 38 million Swiss francs) of
unrealised inter-company profits between Roche Pharmaceuticals and Chugai.
Sales and core operating profit of Roche Pharmaceuticals increased significantly with under-proportional cost growth in
marketing and distribution and in research and development combined with stable general and administration costs. The fall
in the exchange rate of the Japanese yen has a negative impact of approximately 20% on the Chugai results when expressed
in Swiss francs. Chugai’s core operating profit increased by 2%, in line with the increase in sales to third parties. Gross profit
from sales was up driven by higher domestic sales despite the loss of Evista sales. Income from out-licensing agreements
and royalties increased significantly. Operating expenses grew mainly due to increased R&D activities and higher M&D
spend mainly driven by product launches. The operating free cash flow at Chugai decreased mainly as a result of net working
capital movements with a significant increase in inventories for safety stocks and decrease in accounts payable driven by
the timing of material purchases from Roche Pharmaceuticals.
22­
Roche Finance Report 2013 | Roche Group – Financial Review
Financial position
Pharmaceuticals Division – Net operating assets
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
Movement:
Transactions
(mCHF)
Movement:
CTA
(mCHF)
Trade receivables
6,150
6,685
–8
–2
(156)
(379)
Inventories
4,069
3,584
+14
+24
824
(339)
+29
+34
(250)
39
–3
+5
418
(679)
Trade payables
(928)
(717)
Net trade working capital
9,291
9,552
Other receivables/(payables)
(3,840)
(4,004)
–4
–2
61
103
5,451
5,548
–2
+10
479
(576)
Property, plant and equipment
10,898
10,704
+2
+6
664
(470)
Goodwill and intangible assets
3,960
4,258
–7
–4
(162)
(136)
(2,151)
(2,249)
–4
–2
46
52
Net working capital
Provisions
245
242
+1
+3
13
(10)
Long-term net operating assets
Other long-term assets, net
12,952
12,955
0
+4
561
(564)
Net operating assets
18,403
18,503
–1
+6
1,040
(1,140)
The absolute amount of the movement between the 2013 and 2012 consolidated balances reported in Swiss francs is split between actual 2013 transactions
(translated at average rates for 2012) and the currency translation adjustment (CTA) that arises on consolidation. The 2013 transactions include non-cash movements
and therefore the movements in this table are not the same as amounts shown in the operating free cash flow (which only includes the cash movements). A full
consolidated balance sheet is given on page 49 of the Consolidated Financial Statements, and a reconciliation between that balance sheet and the information given
above is on page 149.
Currency translation effects on balance sheet amounts. Compared to the start of the year the Swiss franc appreciated
significantly against the Japanese yen. There was also an appreciation against the US dollar and the Brazilian real.
These effects resulted overall in a negative translation impact on balance sheet positions of 1,140 million Swiss francs
by 31 December 2013. The exchange rates used are given on page 34.
Net working capital. The increase of 5% in net trade working capital at constant exchange rates was due to increases
in inventories of 24%, partly offset by reductions in trade receivables and an increase in trade payables. There were higher
levels of inventories for recent and upcoming product launches such as Actemra/RoActemra and Herceptin subcutaneous
(SC) formulations, Kadcyla and Perjeta and also expected higher sales demand of established products. There were also
increases in safety stocks for selected existing products and temporary bridging stocks as a result of changes in supply
chain strategy. Trade receivables decreased by 2% despite the 2013 sales increase, as a result of continuing strong
collections notably in the Europe and EEMEA regions. Trade payables increased by 34% following initiatives to improve cash
management including extension of payment terms. There was a decrease of 2% in the net liability for other receivables/
payables due mainly to an increase in prepaid expenses and royalty receivables.
Long-term net operating assets. These increased by 6% as an increase in property, plant and equipment and lower
provisions were only partially offset by a decrease in intangible assets. The movement in property, plant and equipment was
mainly attributable to the capital expenditure projects described below in the free cash flow section and the impairment
reversal for a bulk drug production unit at the Vacaville site in the US. Intangible assets decreased due to impairments
following a portfolio reassessment within the hepatitis C virus (HCV) franchise and other impairments. Provisions decreased
due to the utilisation of restructuring and legal provisions. In addition the Nutley environmental provision was transferred
from the Pharmaceuticals Division to Corporate as it is being managed centrally with the planned site divestment.
Roche Group – Financial Review | Roche Finance Report 2013
23­
Free cash flow
Pharmaceuticals Division – Operating free cash flow
Operating profit
–– Depreciation, amortisation and impairment
–– Provisions
–– Equity compensation plans
–– Other
Operating profit cash adjustments 1)
Operating profit, net of operating cash adjustments
(Increase) decrease in net working capital
Investments in property, plant and equipment
Investments in intangible assets
Operating free cash flow
–– as % of sales
2013
(mCHF)
2012
(mCHF)
% change
(CER)
15,633
13,677
+18
1,063
2,171
–49
43
160
–73
295
306
–3
67
173
–57
1,468
2,810
–46
17,101
16,487
+7
(455)
(488)
+9
(1,316)
(1,079)
+25
(210)
+71
(354)
14,976
14,710
+5
41.3
41.8
–0.9
1) A detailed breakdown is provided on page 148.
The Pharmaceuticals Division’s operating free cash flow increased by 5% at constant exchange rates to 15.0 billion Swiss
francs. The increased cash generation from the underlying business, represented by the 7% growth in core operating profit,
was partly used by the increases in net working capital noted above in the comments on the financial position. Operating
profit, net of cash adjustments, also increased by 7% as the adjustment for various non-cash items in the core results largely
offset each other.
Capital expenditure for property, plant and equipment relates to investments in efficiency improvements in manufacturing
facilities and increased production capacity, in particular in the US. There was also the transfer of functions from the Nutley
site to other locations, infrastructure expansion resulting from business growth in Asia and increased expenditure for the site
developments in Basel.
24­
Roche Finance Report 2013 | Roche Group – Financial Review
Diagnostics Division operating results
Diagnostics Division operating results
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
10,476
10,267
+2
+4
130
151
–14
–13
IFRS results
Sales
Royalties and other operating income
Cost of sales
(4,934)
(4,827)
+2
+4
Marketing and distribution
(2,529)
(2,625)
–4
–2
Research and development
(1,081)
(1,023)
+6
+5
General and administration
(821)
(659)
+25
+25
Operating profit
–– margin, % of sales
1,241
1,284
–3
+5
11.8
12.5
–0.7
0
10,476
10,267
+2
+4
130
151
–14
–13
+6
Core results 1)
Sales
Royalties and other operating income
Cost of sales
(4,539)
(4,347)
+4
Marketing and distribution
(2,446)
(2,541)
–4
–2
Research and development
(1,017)
(946)
+8
+7
(397)
General and administration
Core operating profit
–– margin, % of sales
+8
+8
2,177
(427)
2,187
0
+4
20.8
21.3
–0.5
0
–13
Financial position
2,782
3,347
–17
Long-term net operating assets
Net working capital
11,250
11,382
–1
0
Net operating assets
14,032
14,729
–5
–3
1,962
1,890
+4
+9
18.7
18.4
+0.3
+0.9
Free cash flow
Operating free cash flow
–– margin, % of sales
1) See pages 144–147 for definition of Core results and Core EPS.
Sales
Diagnostics Division sales grew ahead of the global in vitro diagnostics market, with all regions contributing to sales growth
of 4% at constant exchange rates to 10.5 billion Swiss francs. This growth was predominantly driven by continued strong
demand for immunoassays and platforms used in clinical laboratories from Roche’s Professional Diagnostics business
area and regionally by emerging markets. Diabetes Care sales decreased by 3% due to continued market challenges and
reimbursement changes in blood glucose monitoring in some key markets, notably the US. Molecular Diagnostics grew 2%,
with continued strong uptake of the HPV test in the US. The main growth drivers were blood screening products returning
to growth, as well as world-wide growth of oncology tests and nucleic acid purification (NAP) products for life sciences.
Tissue Diagnostics sales increased 7%, with above market growth in all regions except in the US, which grew at a lower
rate due to reimbursement and guidelines changes.
Roche Group – Financial Review | Roche Finance Report 2013
25­
On 23 April 2013 the Group announced that the Applied Science business area’s portfolio of products would be integrated
within the Group’s other Diagnostics business areas. The polymerase chain reaction technology (PCR), the nucleic acid
purification (NAP) and biochemical reagents lines are now managed by Molecular Diagnostics. The Custom Biotech
portfolio has moved to Professional Diagnostics. A dedicated unit has been established to focus solely on sequencing.
Sales information has been reclassified retrospectively, and the sales of the sequencing business are reported as part of
the results for Molecular Diagnostics. Total divisional sales are unchanged.
Diagnostics Division – Sales by business area
Business area
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Professional Diagnostics
5,740
5,443
+8
56
53
Diabetes Care
2,459
2,566
–3
23
25
Molecular Diagnostics
1,612
1,627
+2
15
16
665
631
+7
6
6
10,476
10,267
+4
100
100
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Tissue Diagnostics
Total sales
Professional Diagnostics
Europe, Middle East and Africa (EMEA)
2,545
2,468
+3
44
45
North America
1,162
1,100
+7
20
20
Rest of the World
2,033
1,875
+15
36
35
Total sales
5,740
5,443
+8
100
100
Professional Diagnostics. Sales grew above the respective market and further extended Roche’s position as market leader.
The strong growth was driven by the immunoassay (+14%) and clinical chemistry (+6%) businesses. Coagulation patient
self-monitoring (+7%) and hematology (+9%) also contributed to this good performance.
All regions achieved sales growth, with the Asia–Pacific region being the main regional growth driver (+17%), while sales
in the smaller Latin America region also grew by 17%. In North America sales increased by 7%, with the cobas 6000 and
cobas 8000 product lines and automation solutions as the main contributors. In the EMEA region sales grew by 3%, mainly
due to immunoassay tests and clinical chemistry products. The coagulation patient self-monitoring business had strong
growth in North America. In Japan sales grew 4%. The immunoassay business continued its growth and contributed to
a quarter of the division’s total sales. Tests for markers for oncology, thyroid disorders, cardiac diseases, women’s health
(including vitamin D) and infectious diseases make up the majority of immunoassay sales. The hematology business showed
strong growth momentum in Russia and Latin America.
A key milestone for the business area was the launch of the new cobas 8100 instrument. This fully automated workflow series
for managing numerous routine laboratory tasks simplifies operations for customers, reducing manual handling of samples
and increases cost-efficiencies while processing urgent samples at more than twice the speed of the earlier version of this
system. The system is available globally, except in the US, and since its launch it has achieved a good market uptake.
Due to the reorganisation of the former Applied Science business area the Custom Biotech portfolio is now part of
the Professional Diagnostics business area and this is reflected in the comparative information.
26­
Roche Finance Report 2013 | Roche Group – Financial Review
Diabetes Care
Europe, Middle East and Africa (EMEA)
North America
Rest of the World
Total sales
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
1,484
1,468
0
60
57
482
579
–15
20
23
493
519
+3
20
20
2,459
2,566
–3
100
100
Diabetes Care. The 3% decrease in sales reflects reimbursement cuts for blood glucose monitoring supplies, especially
in the US, and ongoing price pressure in other key markets. There was continued competition from low-cost providers.
Sales decreased in North America by 15% due to reimbursement cuts for some important segments of the US market.
The business grew in Asia–Pacific (+4%) and Latin America (+2%), while sales were stable in EMEA (0%), where several
countries were affected by low-cost providers. Sales in Japan were 3% lower.
Sales of the Accu-Chek Mobile, targeted for more frequent testers, grew by 41%, whereas sales of old-generation AccuChek Compact and Advantage meters continued to decline. Sales of insulin delivery systems grew by 1%. The 1–2% growth
in blood glucose monitoring (bGM) strip volumes and meters placements were more than offset by continuing price
pressures in the bGM sector, in total leading to a 3% decline in global sales in the Diabetes Care business.
The business continued market launches of next-generation versions of existing brands such as the Accu-Chek Active and
the Accu-Chek Aviva/Performa meters, and received FDA clearance for the Accu-Chek Aviva Expert system in the US.
The Accu-Chek Active meter and the next-generation no-code Accu-Chek Aviva/Performa meter were launched in the third
quarter of 2013 globally, except in the US where the no-code Accu-Chek Nano SmartView meter and test strips have already
been available since 2012.
In 2012 Roche Diabetes Care initiated a restructuring, notably of research and development activities but also including some
marketing and manufacturing activities, to sustain long-term profitability. Further restructuring steps were taken in 2013 and
these activities will continue into 2014.
Molecular Diagnostics
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Europe, Middle East and Africa (EMEA)
622
623
0
39
38
North America
567
553
+4
35
34
423
451
+3
26
28
1,612
1,627
+2
100
100
Rest of the World
Total sales
Molecular Diagnostics. The underlying growth of the Molecular Diagnostics business was 6%, excluding sequencing sales.
The main contributors were tests for the human papilloma virus (HPV) (+90%), nucleic acid purification (NAP)/real-time PCR
(qPCR) reagents and systems in the life sciences market (+6%) and products for blood screening (+2%). Sales growth was
reported by all regions, with North America being the main growth driver for HPV test sales and blood screening. Sales for
blood screening also grew in Asia–Pacific. The EMEA region had sales growth of NAP/qPCR reagents and led the growth in
sales of oncology companion tests. In Japan sales grew by 1%.
Sales for blood screening, which represents a significant proportion of the business area’s total sales, showed a return
to growth in the second half of 2013 as the impacts of timing differences and ordering patterns seen in the first half of
the year were normalised. Sales of oncology companion diagnostic tests, an area of high medical value, also showed
significant growth.
Roche Group – Financial Review | Roche Finance Report 2013
27­
Following the reorganisation of the former Applied Science business area the real-time PCR technology, the NAP
(nucleic acid purification) portfolio and biochemical reagents are now part of the Molecular Diagnostics business. The sales
of the sequencing business are reported as part of the results for Molecular Diagnostics. These changes are reflected in
the comparative information.
Tissue Diagnostics
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Europe, Middle East and Africa (EMEA)
174
151
+14
26
24
North America
400
402
+1
60
64
91
78
+27
14
12
665
631
+7
100
100
Rest of the World
Total sales
Tissue Diagnostics. Sales growth was mainly due to the advanced staining reagents business, with all regions recording
sales growth. In North America sales increased by 1%, which was lower than global growth due to recent changes in US
guidelines and reimbursements (see below). There was 19% sales growth outside the US, with Asia–Pacific reporting 34%
sales growth in advanced staining, notably from China, Australia and South Korea. In EMEA the sales increase of 14% was
due to strong growth in reagent sales and new primary staining instrument sales. Sales for primary staining were up 12%,
with a strong contribution from the special stains business. Revenues from external personalised healthcare partners and
sales of companion tests continued to grow. The CINtec PLUS Cytology test, a fully automated cell-based assay used in
cervical cancer screening, obtained a CE Mark in December.
Based on the latest business plans prepared during the second half of 2013, a goodwill impairment of 253 million Swiss
francs was recorded in the Tissue Diagnostics business within the Diagnostics Division. The main factor leading to
this impairment was reduced revenue expectations in the US. These follow recent changes in the College of American
Pathologists guidelines for the use of negative reagent controls in immunohistochemistry testing which reduced volumes
and changes which reduced the reimbursement amount to laboratories.
Diagnostics Division – Sales by region
Region
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Europe, Middle East and Africa (EMEA)
4,825
4,710
+2
46
46
North America
2,611
2,634
+1
25
26
Asia–Pacific
14
1,746
1,556
+14
16
Latin America
802
774
+13
8
8
Japan
492
593
+2
5
6
10,476
10,267
+4
100
100
Total sales
Divisional sales growth was primarily driven by the Asia–Pacific, EMEA (Europe, Middle East and Africa) and Latin America
regions. Demand was particularly high in China, where sales rose 27%. The immunodiagnostics and clinical chemistry
reagents were the key growth drivers in the Asia–Pacific region. Sales growth in the EMEA region was led by Professional
Diagnostics, with Tissue Diagnostics also contributing. In Latin America, Professional Diagnostics, Molecular Diagnostics
and Tissue Diagnostics all showed solid growth. In North America sales grew 1% with strong US sales growth in
immunoassays, coagulation monitoring and molecular diagnostics, in particular the HPV and blood screening businesses.
This growth in the US was offset by a sales decline in Diabetes Care due to significant cuts in reimbursement. Immunoassay
sales, which grew by 9%, were the largest contributor to growth in Japan.
28­
Roche Finance Report 2013 | Roche Group – Financial Review
Diagnostics Division – Sales for E7 leading emerging markets
Country
2013
(mCHF)
2012
(mCHF)
% change
(CER)
% of sales
(2013)
% of sales
(2012)
Brazil
248
262
+6
2
3
China
843
656
+27
8
6
India
104
105
+9
1
1
Mexico
130
114
+12
1
1
Russia
209
199
+9
2
2
South Korea
167
155
+6
2
2
Turkey
128
133
+3
1
1
1,829
1,624
+15
17
16
Total sales
All E7 markets contributed to the sales growth mainly in the Professional and Tissue Diagnostics business areas. In Brazil
the division reinforced its market leadership in the IVD market. In South Korea growth was driven by commercial laboratory
automation projects for Professional and Tissue Diagnostics, which enhanced testing efficiency at customer sites. With the
ongoing focus on innovative and safe blood testing for patients across the whole of India, the division has more than doubled
the sites for nucleic acid tests (NAT) resulting in growth in Molecular Diagnostics.
Operating results
Diagnostics Division – Royalties and other operating income
Royalty income
Income from out-licensing agreements
Income from disposal of products and other
Total – IFRS and Core basis
2013
(mCHF)
2012
(mCHF)
% change
(CER)
114
136
–16
3
4
–18
13
11
+24
130
151
–13
Royalties and other operating income. The decrease of 13% at constant exchange rates was driven by lower royalty
income. This was mainly the result of back royalty payments of 15 million Swiss francs received in 2012 which did not reoccur
in 2013.
Diagnostics Division – Cost of sales
Manufacturing cost of goods sold and period costs
Royalty expenses
Impairment of property, plant and equipment
Cost of sales – Core basis
Global restructuring plans
Amortisation of intangible assets
Impairment of intangible assets
Total – IFRS basis
2013
(mCHF)
2012
(mCHF)
(4,348)
(4,173)
+6
(190)
(174)
+9
(1)
–
% change
(CER)
–
(4,539)
(4,347)
+6
(75)
(111)
–31
(320)
(341)
–7
(28)
–100
(4,827)
+4
–
(4,934)
Roche Group – Financial Review | Roche Finance Report 2013
29­
Cost of sales. Core costs increased by 6% at constant exchange rates due to an increase in manufacturing cost of goods
sold and period costs of 6%. Overall, the growth in core costs was higher than the sales growth due to pricing impacts.
There was also a growth in instrument placements, especially in the US, and increased diabetes meter placements. This
increase was partially offset by a one-time VAT refund in 2013 of 45 million Swiss francs related to meter placements in prior
years. This resulted in a cost of sales ratio of 43.3% compared to 42.3% in 2012. Global restructuring costs were mainly due
to the reorganisation of the former Applied Science business and for the closure of the sites at Graz, Austria and Burgdorf,
Switzerland. Amortisation of product intangibles decreased as some intangible assets became fully amortised.
Diagnostics Division – Marketing and distribution
Marketing and distribution – Core basis
Global restructuring plans
Amortisation of intangible assets
Total – IFRS basis
2013
(mCHF)
2012
(mCHF)
% change
(CER)
(2,446)
(2,541)
(78)
(78)
–2
(5)
(6)
–23
(2,529)
(2,625)
–2
–2
Marketing and distribution. Core costs decreased by 2% at constant exchange rates due to lower spending in Diabetes
Care and the former Applied Science business following the restructuring initiatives. Bad debt expenses were also lower.
The decreases were partially offset by increased spending for sales force and distribution in Professional Diagnostics and
Molecular Diagnostics. In the Asia–Pacific and Latin America regions marketing and distribution costs increased due to sales
force expansion to further penetrate emerging markets. This was more than offset by lower spending in the EMEA region.
On a core basis, marketing and distribution costs as a percentage of sales were 23.3% compared to 24.7% in 2012. Global
restructuring costs were mainly due to the reorganisations in the Diabetes Care and former Applied Science businesses
to improve the efficiency of marketing and distribution activities.
Diagnostics Division – Research and development
2013
(mCHF)
Research and development – Core basis
Global restructuring plans
Amortisation of intangible assets
Impairment of intangible assets
Total – IFRS basis
2012
(mCHF)
% change
(CER)
(1,017)
(946)
+7
(51)
(67)
–26
(1)
(2)
–38
(12)
(8)
+55
(1,081)
(1,023)
+5
Research and development. Core costs increased by 7% at constant exchange rates, driven by increased spending
for instrument development costs for major platforms in Professional and Molecular Diagnostics. Furthermore research
and development costs increased due to the acquisition of Constitution Medical Investors, Inc. in Boston, US. In the former
Applied Science business expenses declined significantly as a result of ongoing restructuring. In Diabetes Care costs
remained stable as a result of cost containment programmes initiated in 2012. As a percentage of sales, research and
development core costs increased to 9.7% from 9.2%. Global restructuring costs were mainly related to the reorganisation
in the Applied Science business and to the closure of the site in Graz, Austria. Intangible asset impairments of 12 million
Swiss francs were incurred as part of this reorganisation.
30­
Roche Finance Report 2013 | Roche Group – Financial Review
Diagnostics Division – General and administration
2013
(mCHF)
Administration
2012
(mCHF)
(381)
Pensions – past service costs
(354)
67
Gains (losses) on disposal of property, plant and equipment
% change
(CER)
+8
–
–
(3)
(1)
+101
Business taxes and capital taxes
(42)
(16)
+161
Other general items
(68)
(26)
+154
(427)
(397)
+8
(67)
(50)
+35
+54
General and administration – Core basis
Global restructuring plans
Impairment of intangible assets
(288)
(187)
Alliances and business combinations
(13)
(12)
+1
Legal and environmental settlements
(28)
(13)
+119
Pensions – settlement gains (losses)
2
Total – IFRS basis
–
(821)
–
(659)
+25
General and administration. Core costs increased 8% at constant exchange rates. The increase in administration costs
was due to higher employee costs in Professional Diagnostics for staffing global projects, ramping up new and developing
affiliates, as well as increases in certain legal costs. Business taxes increased due to the new US Medical Device Tax with
costs of 24 million Swiss francs. Other general items include several ongoing IT systems projects to standardise, automate
and centralise business processes. These increases were offset by income of 67 million Swiss francs recorded for changes
in some of the Group’s pension plans. As a percentage of sales, core costs increased to 4.1% from 3.9% in 2012. Global
restructuring costs were mainly due to global IT projects and employee-related costs from the reorganisation of the former
Applied Science business. In addition, goodwill impairment charges of 253 million Swiss francs were recorded in the Tissue
Diagnostics business and 35 million Swiss francs were incurred for the write-off of the goodwill from the 454 Life Sciences
and Innovatis acquisitions in the former Applied Science business.
Financial position
Diagnostics Division – Net operating assets
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
Movement:
Transactions
(mCHF)
Movement:
CTA
(mCHF)
Trade receivables
2,746
2,889
–5
0
(20)
(123)
Inventories
1,837
1,958
–6
–5
(66)
(55)
+49
+51
(213)
10
(168)
Trade payables
(615)
(412)
Net trade working capital
3,968
4,435
–11
–7
(299)
Other receivables/(payables)
(1,186)
(1,088)
+9
+11
(117)
19
Net working capital
2,782
3,347
–17
–13
(416)
(149)
Property, plant and equipment
4,721
4,572
+3
+4
213
(64)
Goodwill and intangible assets
7,129
7,436
(211)
(96)
Provisions
Other long-term assets, net
–4
–3
(522)
(530)
–2
–1
5
3
(78)
(96)
–19
–22
22
(4)
Long-term net operating assets
11,250
11,382
–1
0
29
(161)
Net operating assets
14,032
14,729
–5
–3
(387)
(310)
The absolute amount of the movement between the 2013 and 2012 consolidated balances reported in Swiss francs is split between actual 2013 transactions
(translated at average rates for 2012) and the currency translation adjustment (CTA) that arises on consolidation. The 2013 transactions include non-cash movements
and therefore the movements in this table are not the same as amounts shown in the operating free cash flow (which only include the cash movements). A full
consolidated balance sheet is given on page 49 of the Consolidated Financial Statements, and a reconciliation between that balance sheet and the information given
above is on page 149.
Roche Group – Financial Review | Roche Finance Report 2013
31­
Currency translation effects on balance sheet amounts. Compared to the start of the year the Swiss franc appreciated
against the US dollar and slightly weakened against the euro. These effects resulted overall in a negative translation impact
on balance sheet positions of 310 million Swiss francs by 31 December 2013. As the Diagnostics Division does not have
a significant net asset position in Japanese yen, the appreciation of the Swiss franc against the Japanese yen had only a minor
impact. The exchange rates used are given on page 34.
Net working capital. Net trade working capital decreased by 7%, driven by an increase in trade payables and a decrease
in inventories. Trade payables increased by 51% due to extended payment terms. Inventories decreased by 5% due to
increased inventory provisions. Trade receivables were stable as high collections were partially offset by increases following
from the growth of the business in emerging markets, notably China. There was an increase of 11% in the net liability for
other receivables/payables. The main factor behind the increase in other receivables/payables was higher accruals, including
for employee benefits, which was partially offset by an increase in prepaid expenses.
Long-term net operating assets. These remained stable at constant exchange rates. The decrease in intangible assets
was offset by increases in investments in property, plant and equipment. Property, plant and equipment increased by 4%
due to higher instrument placements and site expenditure in Germany. Goodwill and intangible assets decreased due to
impairments in Tissue Diagnostics and the former Applied Science business area. This was partially offset by the acquisition
of the Constitution Medical Investors, Inc. in the US. Provisions decreased by 1% due to a net utilisation of restructuring
provisions.
Free cash flow
Diagnostics Division – Operating free cash flow
2013
(mCHF)
2012
(mCHF)
% change
(CER)
Operating profit
1,241
1,284
+5
–– Depreciation, amortisation and impairment
1,487
1,418
+5
–– Provisions
–– Equity compensation plans
–– Other
(38)
76
–
40
35
+15
140
272
–50
Operating profit cash adjustments 1)
1,629
1,801
–10
Operating profit, net of operating cash adjustments
2,870
3,085
–4
(Increase) decrease in net working capital
Investments in property, plant and equipment
Investments in intangible assets
Operating free cash flow
–– as % of sales
270
(79)
–
(1,129)
(1,091)
+4
(49)
(25)
+92
1,962
1,890
+9
18.7
18.4
+0.9
1) A detailed breakdown is provided on page 148.
The operating free cash flow of the Diagnostics Division increased by 9% to 2.0 billion Swiss francs. The cash generation of
the business was supported by a decrease in net working capital in 2013, mainly due to increases in payables as noted above
in the comments on the financial position.
Operating profit, net of cash adjustments, decreased by 4% while core operating profit increased by 4%. This difference was
due to several non-cash items, including the income from changes in the Group’s pension plans in 2013, the cash utilisation
of restructuring provisions and lower bad debt expenses.
Capital expenditure for property, plant and equipment of 1.1 billion Swiss francs results from investment in facilities in Germany
and for instrument placements, particularly in China, the US and Germany.
32­
Roche Finance Report 2013 | Roche Group – Financial Review
Corporate operating results
Corporate operating results summary
2013
(mCHF)
Administration
Pensions – past service costs
Business taxes and capital taxes
Other general items
General and administration costs – Core basis 1)
Global restructuring plans
(401)
104
(8)
2012
(mCHF)
% change
(CER)
(457)
–12
–
–
(12)
–33
(76)
(46)
+64
(381)
(515)
–26
(9)
(20)
–58
Alliances and business combinations
(16)
(1)
Over +500
Legal and environmental settlements
(94)
(300)
–70
Pensions – settlement gains (losses)
2
Total costs – IFRS basis
(498)
–
(836)
–
–41
Financial position
Net working capital
(58)
(71)
–18
Long-term net operating assets
(443)
(309)
+43
Net operating assets
(501)
(380)
+32
(557)
(465)
+20
Free cash flow
Operating free cash flow
1) See pages 144–147 for definition of Core results and Core EPS.
General and administration core costs decreased by 26% at constant exchange rates due to the positive impact of 104 million
Swiss francs recorded for changes in some of the Group’s pension plans, which were mainly attributable to previously
divested businesses. Administration expenses decreased by 12%, mainly due to a shift of headcount to the Pharmaceuticals
Division. The increase in other general items was driven by costs related to ongoing IT systems projects. Total costs on an
IFRS basis decreased by 41%. Environmental expenses included a further increase in the estimated costs for the remediation
of a landfill site in Grenzach, Germany of 138 million Swiss francs. This was partly offset by the release of 53 million Swiss
francs for environmental remediation provisions for the Nutley site in the US.
Corporate operating free cash flow showed a higher outflow due to a reduction in accounts payable, notably in accruals
for employee benefits. The major reason for the decrease in the core costs was the non-cash income from changes in
the Group’s pension plans.
Roche Group – Financial Review | Roche Finance Report 2013
33­
Foreign exchange impact on operating results
The Group’s exposure to movements in foreign currencies affecting its operating results, as expressed in Swiss francs,
is summarised by the following key figures and comments.
Growth (reported at CER and in Swiss francs)
2013
% change (CER)
2012
2013
% change (CHF)
2012
Sales
+7
+5
+3
+7
Core operating profit
+7
+13
+4
+16
Sales
+4
+4
+2
+5
Core operating profit
+4
–2
0
0
Pharmaceuticals Division
Diagnostics Division
Group
Sales
+6
+4
+3
+7
Core operating profit
+8
+11
+4
+13
Average 2012
Exchange rates against the Swiss franc
31 December 2013
Average 2013
31 December 2012
1 USD
0.89
0.93
0.91
0.94
1 EUR
1.23
1.23
1.21
1.21
100 JPY
0.84
0.95
1.06
1.17
In 2013 compared to 2012, the Swiss franc was stronger against many currencies, in particular the Japanese yen and also
the US dollar, but weakened against some others, notably the euro. The overall impact was negative on the income statement
and free cash flow results expressed in Swiss francs compared to constant exchange rates. For sales, these developments
resulted in a negative impact of 3 percentage points, equivalent to 1.5 billion Swiss francs when translated into Swiss francs.
The currency translation exposure for the operating profit is mitigated by the Group having the majority of its cost base
located outside of Switzerland. The sensitivity of Group sales and core operating profit in absolute terms to a 1% movement
in average foreign currency exchange rates against the Swiss franc during the 2013 is shown in the table below.
Currency sensitivities
Impact of 1% change in average exchange rate
versus the Swiss franc
US dollar
Euro
Japanese yen
All other currencies
Sales
(mCHF)
Core operating profit
(mCHF)
181
76
99
50
39
20
128
76
The Group’s revenues are primarily generated from sales of products to customers. Such revenues are mainly received in the
local currency of the customer’s home market, although in certain emerging markets invoicing is made in major international
currencies such as the US dollar and euro. The costs of sales and marketing and also some administration costs follow the same
currency pattern as sales. The majority of research and development activities are incurred at the Group’s global research
facilities, and therefore the costs are mainly concentrated in US dollars, Swiss francs and euros. General and administration
costs tend to be incurred mainly at central locations in the US, Switzerland and Germany. Obviously the large majority of
Chugai’s costs are denominated in Japanese yen.
34­
Roche Finance Report 2013 | Roche Group – Financial Review
Treasury and taxation results
Treasury and taxation results
2013
(mCHF)
2012
(mCHF)
% change
(CHF)
% change
(CER)
Operating profit
16,376
14,125
+16
+20
Financing costs
(1,580)
(1,923)
–18
–17
(119)
(43)
+177
+240
IFRS results
Other financial income (expense)
Profit before taxes
14,677
12,159
+21
+25
Income taxes
(3,304)
(2,499)
+32
+37
Net income
11,373
9,660
+18
+22
11,164
9,427
+18
+22
209
233
–10
+9
Operating profit
17,904
17,160
+4
+8
Financing costs
(1,580)
(1,923)
–18
–17
(43)
Attributable to
–– Roche shareholders
–– Non-controlling interests
Core results 1)
Other financial income (expense)
Profit before taxes
(119)
16,205
+177
+240
15,194
+7
+10
Income taxes
(3,679)
(3,429)
+7
+11
Net income
12,526
11,765
+6
+10
12,316
11,531
+7
+10
210
234
–10
+9
–38
Attributable to
–– Roche shareholders
–– Non-controlling interests
Financial position – Treasury and taxation
Net debt
(6,708)
(10,599)
–37
Pensions
(5,426)
(6,553)
–17
–18
1,838
1,581
+16
+18
342
339
+1
+9
Income taxes
Financial non-current assets
299
289
+3
+7
Collateral, net
Derivatives, net
(480)
(356)
+35
+35
Interest payable
(542)
(749)
–28
–26
Other non-operating assets, net
(16)
(54)
–70
–27
Total net assets (liabilities)
(10,693)
(16,102)
–34
–35
Treasury activities
(1,275)
(1,542)
–17
–14
Taxes paid
(3,341)
(3,329)
0
+3
Dividends paid
(6,362)
(5,888)
+8
+9
(10,978)
(10,759)
+2
+4
Free cash flow – Treasury and taxation
Total
As disclosed in Note 32 to the Consolidated Financial Statements and as discussed below on page 45, the income statement for 2012 has been restated following
the accounting policy changes which were adopted in 2013. In the restated results of 2012 this causes a reduction in net financial income of 164 million Swiss francs.
See also the Investor Update from 21 March 2013. A reconciliation to the previously published income statement is provided in Note 32 to the Consolidated Financial
Statements.
1) See pages 144–147 for definition of Core results and Core EPS.
Roche Group – Financial Review | Roche Finance Report 2013
35­
Financing costs
Financing costs were 1,580 million Swiss francs, a decrease of 343 million Swiss francs or 17% compared to 2012. The main
driver was a decrease of 23% in interest expense which reflects the continued repayment of the debt incurred to finance the
Genentech transaction. The loss on early redemption of debt was 248 million Swiss francs, compared with 259 million Swiss
francs in 2012. The net interest cost of pension plans remained stable at 227 million Swiss francs. A full analysis of financing
costs is given in Note 3 to the Consolidated Financial Statements.
Other financial income (expense)
Other financial income (expense) was a net expense of 119 million Swiss francs. Net income from equity securities was
42 million Swiss francs, an increase of 13%. Interest income and income from debt securities decreased by 13% to 27 million
Swiss francs due to short-term interest rates remaining at low levels in major markets. The foreign exchange result mainly
reflects hedging costs and was a loss of 174 million Swiss francs compared to a loss of 89 million Swiss francs in 2012. The
foreign exchange result in 2013 included a loss of 45 million Swiss francs following the devaluation of the Venezuelan bolivar
in February 2013 and 34 million Swiss francs on losses on hedges of the Group’s euro/Swiss franc position. A full analysis
of other financial income (expense) is given in Note 3 to the Consolidated Financial Statements and details of the Group’s
hedging arrangement are given in Note 29.
Income taxes
The Group’s effective core tax rate was stable at 22.7% (2012: 22.6%). The higher percentage of core profit contribution
coming from tax jurisdictions with relatively higher local tax rates than the average Group rate, notably in the US, increased
the effective tax rate. This was mostly offset by the retrospective re-enactment of the 2012 US research and development
tax credits in January 2013, which means that the 2013 results include a whole year of tax credits in respect of 2012 as well
as tax credits for 2013.
A tax benefit of 375 million Swiss francs was recorded in 2013 for the non-core items compared to a tax benefit of 930 million
Swiss francs in 2012. The decrease was primarily due to the lower underlying non-core expenses compared to 2012, specifically
from global restructuring plans including intangible asset impairments as well as lower legal and environmental costs.
Full details of the Group’s income tax positions are given in Note 4 to the Consolidated Financial Statements.
Analysis of the Group’s effective tax rate
2013
Profit
before tax
(mCHF)
Group’s effective tax rate – Core basis
Global restructuring plans
Goodwill and intangible assets
Equity compensation plans
Other
Group’s effective tax rate – IFRS basis
16,205
Income
taxes
(mCHF)
Tax rate
(%)
Income
taxes
(mCHF)
22.7
15,194
2
1.2
(1,436)
399
27.8
(1,153)
299
25.9
(1,242)
354
28.5
22
–
52
24.9
(209)
14,677
(3,304)
22.5
–
(357)
12,159
(3,429)
Tax rate
(%)
(166)
–
(3,679)
2012
Profit
before tax
(mCHF)
22.6
26
–
151
42.3
(2,499)
20.6
Financial position
The decrease in the net debt position was mainly driven by the free cash flow of 5.4 billion Swiss francs. Transactions in
own equity to hedge the Group’s employee stock option programmes increased net debt by 1.2 billion Swiss francs while
net pension liabilities decreased by 1.1 billion Swiss francs due to changes in discount rates and changes in the plan rules
of some of the Group’s pension plans. Net tax assets increased mainly due to the deferred tax effect of equity compensation
plans, which increased due to the increase in the price of the underlying equity. Interest payable relates mostly to bonds
and notes with coupon payment dates in March and September, and the decline was due to the continued repayment
of the underlying debt. At 31 December 2013 the Group held financial long-term assets with a market value of 0.3 billion
Swiss francs, which consist mostly of holdings in biotechnology companies which were acquired in the context of licensing
transactions or scientific collaborations.
36­
Roche Finance Report 2013 | Roche Group – Financial Review
Free cash flow
The cash outflow from treasury activities decreased to 1.3 billion Swiss francs mostly due to lower interest payments.
Total taxes paid in 2013 were 3.3 billion Swiss francs, an increase of 3% at constant exchange rates, due to higher tax
payments in the US in 2013, partially offset by a base effect from the settlement of certain outstanding tax positions in
2012. Total dividends paid in 2013 were 6.4 billion Swiss francs, an increase of 0.5 billion Swiss francs compared to 2012,
reflecting the 8% increase in the Roche Group dividend.
Cash flows and net debt
Operating free cash flow in billions of CHF
0
5
10
Free cash flow in billions of CHF
15
0
2
4
6
2013
16.4
5.4
2012
16.1
5.4
2011
13.7
3.9
Free cash flow in millions of CHF
Pharmaceuticals
Diagnostics
Corporate
Group
15,633
1,241
1,468
1,629
(29)
3,068
17,101
2,870
(527)
19,444
270
(24)
(209)
(6)
(2,451)
2013
Operating profit – IFRS basis
Operating profit cash adjustments
Operating profit, net of operating cash adjustments
(Increase) decrease in net working capital
Investments in property, plant and equipment
Investments in intangible assets
Operating free cash flow
(455)
(1,316)
(354)
14,976
(1,129)
(49)
1,962
(498)
–
(557)
16,376
(403)
16,381
Treasury activities
(1,275)
Taxes paid
(3,341)
Dividends paid
(6,362)
Free cash flow
5,403
2012
Operating profit – IFRS basis
Operating profit cash adjustments
Operating profit, net of operating cash adjustments
(Increase) decrease in net working capital
Investments in property, plant and equipment
Investments in intangible assets
Operating free cash flow
13,677
1,284
(836)
2,810
1,801
328
4,939
16,487
3,085
(508)
19,064
(488)
(79)
(1,079)
(1,091)
(210)
(25)
14,710
1,890
44
(1)
–
(465)
14,125
(523)
(2,171)
(235)
16,135
Treasury activities
(1,542)
Taxes paid
(3,329)
Dividends paid
(5,888)
Free cash flow
5,376
Roche Group – Financial Review | Roche Finance Report 2013
37­
Operating free cash flow increased by 5% at constant exchange rates to 16.4 billion Swiss francs, driven by the strong growth
of the underlying operating business with core operating profit growth of 8%. There were increases in net working capital,
mainly inventories, and capital expenditure on property, plant and equipment and investment in intangible assets were higher
than in 2012. In both divisions the increased cash generated by the business was partly absorbed by the cash utilisation of
restructuring and legal provisions.
The cash outflow from treasury activities decreased to 1.3 billion Swiss francs mostly due to lower interest payments.
Total taxes paid were 3.3 billion Swiss francs, an increase of 3% at constant exchange rates, due to higher tax payments in
the US partially offset by the base effect of the settlement of certain outstanding tax positions in 2012. Total dividends paid
were higher due to the 8% increase of the annual Roche Group dividend.
Free cash flow of 5.4 billion Swiss francs was 6% higher at constant exchange rates, mainly due to increased operating free
cash flow and lower interest payments which were partly offset by higher dividend payments in 2013.
The Group has refined the calculation of the free cash flow in 2013 to exclude the impact of employee stock options, in line
with its peer group (see page 148 for further details). Comparative 2012 free cash flow information has been restated
accordingly.
Net debt in millions of CHF
At 31 December 2012
Cash and cash equivalents
Marketable securities
4,530
9,461
Long-term debt
(17,860)
Short-term debt
(6,730)
Net debt at beginning of period
(10,599)
Change in net debt during 2013
Free cash flow for 2013
Transactions in own equity instruments
Business combinations, net of divestments of subsidiaries
Hedging and collateral arrangements
Currency translation, fair value and other movements
Change in net debt during period
5,403
(1,190)
(231)
247
(338)
3,891
At 31 December 2013
Cash and cash equivalents
Marketable securities
38­
4,000
7,935
Long-term debt
(16,423)
Short-term debt
(2,220)
Net debt at end of period
(6,708)
Roche Finance Report 2013 | Roche Group – Financial Review
Net debt – currency profile in millions of CHF
Cash and marketable securities
2013
2012
Debt
2012
2013
US dollar 1)
2,152
2,757
(14,075)
(19,748)
Euro
3,657
3,787
(1,232)
(1,210)
(2,977)
Swiss franc
3,070
4,041
(2,587)
Japanese yen
1,825
2,117
(1)
(1)
753
794
(290)
(292)
Pound sterling
Other
478
495
(458)
(362)
Total
11,935
13,991
(18,643)
(24,590)
1)US dollar-denominated debt includes those bonds and notes denominated in euros, Swiss francs and pounds sterling that were swapped into US dollars,
and therefore in the financial statements have economic characteristics equivalent to US dollar-denominated bonds and notes.
The net debt position of the Group at 31 December 2013 was 6.7 billion Swiss francs, a decrease of 3.9 billion Swiss francs
from 31 December 2012. The decrease in net debt was mainly due to the free cash flow of 5.4 billion Swiss francs described
above, which includes dividend payments of 6.4 billion Swiss francs. Transactions in own equity to hedge the Group’s
employee stock option programmes increased net debt by 1.2 billion Swiss francs.
In 2009 the Group entered into derivative contracts with third parties to hedge the foreign exchange risk arising from bonds
and notes issued in currencies other than US dollar. At the same time collateral agreements were entered with the derivative
counterparties to mitigate counterparty risk. As the fair value of derivative hedging instruments increased due to the
strengthening of the euro against the US dollar during 2013, cash collateral of 0.1 billion Swiss francs was received by Roche.
The collateral balance in relation to the hedges on the non-US dollar-denominated bonds and notes is mainly sensitive
to the foreign exchange rate between the US dollar and the euro, but also to pound sterling. Currently the collateral balance
moves by approximately 55 million US dollars if all of these foreign exchange rates move by 1% simultaneously.
The redemption and repurchase of bonds and notes during 2013 (see Note 20 to the Consolidated Financial Statements)
had an impact on liquid funds, but had no impact on the net debt position.
Full details of the Group’s marketable securities, cash and debt positions are given in Notes 12, 13 and 20 to the Consolidated
Financial Statements.
Pensions and other post-employment benefits
Post-employment benefit plans are classified for IFRS as ‘defined contribution plans’ if the Group pays fixed contributions
into a separate fund or to a third-party financial institution and will have no further legal or constructive obligation to pay
further contributions. In 2013 expenses for the Group’s defined contribution plans were 343 million Swiss francs (2012:
313 million Swiss francs).
All other plans are classified as ‘defined benefit plans’, even if the Group’s potential obligation is minor or has a relatively
remote possibility of arising. Plans are usually established as trusts independent of the Group and are funded by payments
from the Group and by employees, but in some cases the plan is unfunded and the Group pays pensions to retired employees
directly from its own financial resources.
Roche Group – Financial Review | Roche Finance Report 2013
39­
Defined benefit plans
Expenses for the Group’s defined benefit plans were 329 million Swiss francs (2012: 506 million Swiss francs). The decrease
was mainly due to past service income of 302 million Swiss francs and settlement income of 19 million Swiss francs, as
described below. These were partially offset by an increase in the current service cost of 72 million Swiss francs driven
by lower discount rates at the beginning of 2013 compared to the beginning of 2012. These expenses take into account the
implementation of IAS 19 (revised) which increased the net interest cost of pensions in 2012 by 164 million Swiss francs
and in 2013 by approximately the same amount. Based on the revised actuarial assumptions at the end of 2013, expenses
for the Group’s defined benefit plans in 2014 are expected to be approximately 564 million Swiss francs. These estimates for
2014 pension expenses do not include any settlement or past service/curtailment effects that might arise during the year.
During 2013 operating income of 302 million Swiss francs was recorded for past service costs from changes to the Group’s
pension plans in Switzerland, the UK and Germany. This represents the one-time impact of the adjustment of the pension
liability for the plan changes. Of this amount, 131 million Swiss francs were recorded in the Pharmaceuticals Division and
67 million Swiss francs in the Diagnostics Division. The remaining 104 million Swiss francs of income were allocated to
Corporate, mainly attributable to previously divested businesses. In addition some of the US pension plans made an offer
to deferred vested members to settle part of the defined benefit obligation for a lump sum payment. The total lump sum
payment made reduced plan assets by 226 million Swiss francs and settled 245 million Swiss francs of the defined benefit
obligation, resulting in a gain on settlement of 19 million Swiss francs.
Funding status and balance sheet position
2013
(mCHF)
2012
(mCHF)
Funded plans
–– Fair value of plan assets
11,144
11,214
(12,625)
(13,812)
(1,481)
(2,598)
–– Defined benefit obligation
(4,059)
(4,090)
Total funding status
(5,540)
(6,688)
–– Defined benefit obligation
Over (under) funding
Unfunded plans
Limit on asset recognition
Reimbursement rights
Net recognised asset (liability)
(6)
120
(5,426)
(7)
142
(6,553)
Overall the funding status on an IFRS basis of the Group’s defined benefit plans increased to 88% compared to 81% at
the start of the year. This funding improvement was mainly due to a reduction in the defined benefit obligation arising from
a rise in discount rates at the end of 2013 in comparison to the end of 2012. The changes to the Group’s plans referred to
above also decreased the defined benefit obligation by 547 million Swiss francs. Plan assets remained stable as company
contributions increased to 352 million Swiss francs in 2013, compared to 307 million Swiss francs in 2012, with the settlement
in the US plans reducing plan assets by 226 million Swiss francs. The funded status of the pension funds is monitored by
the local pension fund governance bodies as well as being closely reviewed at a Group level. In addition to cash injections,
the Group initiated plan changes in several local pension plans, as described above.
Full details of the Group’s pensions and other post-employment benefits are given in Note 25 to the Consolidated Financial
Statements.
40­
Roche Finance Report 2013 | Roche Group – Financial Review
Roche shares
Share price and market capitalisation (at 31 December)
2013
2012
% change
(CHF)
Share price (CHF)
247.40
186.90
+32
Non-voting equity security (Genussschein) price (CHF)
249.20
184.00
+35
211
157
+35
Market capitalisation (billions of CHF)
In 2013 Roche ranked number 5 among a peer group consisting of Roche and 16 other healthcare companies1) for Total
Shareholder Return (TSR), defined as share price growth plus dividends, measured in Swiss francs at actual exchange rates.
At constant exchange rates Roche ranked number 6, with the year-end return being 37% for Roche shares and 40% for
Roche non-voting equity securities. The combined performance of share and non-voting equity security was 39% compared
to a weighted average return for the peer group of 31% in Swiss franc terms and 34% at constant exchange rates.
The healthcare sector outperformed the general market in 2013 despite continued pricing pressure and government budget
constraints in many parts of the world. Roche shares outperformed the healthcare sector as the company achieved important
new product approvals such as Kadcyla (HER2 breast cancer) and Gazyva (hematological cancers).
1)Peer group for 2013: Abbott, AbbVie, Amgen, Astellas, AstraZeneca, Bayer, Becton Dickinson, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson &
Johnson, Merck & Co., Novartis, Pfizer, Roche, Sanofi and Takeda.
Total Shareholder Return development
31 Dec. 12
31 March 13
30 June 13
30 Sept. 13
31 Dec. 13
150
145
140
135
130
125
120
115
110
105
100
Roche share
Roche non-voting equity security
Peer Set Index
Source: Datastream. Data for Roche and the peer index has been re-based to 100 at 1 January 2013. The Peer Index was converted into CHF at daily actual exchange
rates. Currency fluctuations have an influence on the representation of the relative performance of Roche versus the peer index.
Roche Group – Financial Review | Roche Finance Report 2013
41­
Proposed dividend
The Board of Directors is proposing an increase of 6% in the dividend for 2013 to 7.80 Swiss francs per share and non-voting
equity security (2012: 7.35 Swiss francs) for approval at the Annual General Meeting. This is the 27th consecutive increase
in the dividend. If the dividend proposal is approved by shareholders, dividend payments on the total shares and non-voting
equity securities will amount to 6.7 billion Swiss francs (2012: 6.3 billion Swiss francs), resulting in a pay-out ratio (based on
core net income) of 54.7% (2012: 54.5%). Based on the prices at year-end 2013, the dividend yield on the Roche share was
3.2% (2012: 3.9%) and the yield on the non-voting equity security was 3.1% (2012: 4.0%). Further information on the Roche
securities is given on pages 150–152 of the Finance Report.
Information per share and non-voting equity security
2013
(CHF)
2012
(CHF)
% change
(CHF)
EPS – Basic
13.16
11.12
+18
EPS – Diluted
12.93
11.03
+17
Core EPS – Basic
14.52
13.60
+7
Core EPS – Diluted
14.27
13.49
+6
Equity attributable to Roche shareholders per share
22.73
17.08
+33
7.80
7.35
+6
Dividend per share
For further details please refer to Notes 21 and 27 of the Consolidated Financial Statements and page 147 of the Finance
Report. The pay-out ratio is calculated as dividend per share divided by core earnings per share. The 2012 pay-out ratio
was restated following the accounting policy changes which were adopted in 2013.
42­
Roche Finance Report 2013 | Roche Group – Financial Review
Debt
To finance the Genentech transaction in 2009, the Group issued bonds and notes equivalent to 48.2 billion Swiss francs. Of
the debt raised in early 2009, 67% had already been repaid by 31 December 2013. This includes the redemption of 3.3 billion
euro-denominated notes on the due date of 4 March 2013 and 1.75 billion US dollars of notes originally due 1 March 2014
that were redeemed on 21 March 2013 following an exercise of an early call option made in December 2012. In addition
400 million US dollars of notes originally due 1 March 2019 were redeemed on 29 August 2013 following an exercise by the
Group of an early call option made in June 2013. In the second half of the year the Group redeemed 400 million Swiss francs
of bonds on the due date of 23 September 2013 and, on 26 December 2013, the Group exercised its option to call for early
redemption of 1.0 billion US dollars of notes that were due 1 March 2019. These notes will be repaid on 3 March 2014.
The maturity schedule of the Group’s bonds and notes outstanding at 31 December 2013 is shown in the table below, which
includes those instruments that were already in issue prior to the Genentech transaction.
Bonds and notes: nominal amounts at 31 December 2013 by contractual maturity
US dollar
(mUSD)
Euro
(mEUR)
Pound sterling
(mGBP)
Swiss franc
(mCHF)
Total 1)
(mUSD)
Total 1)
(mCHF)
2014
1,000 2)
–
–
–
1,000
888
2015
1,000
–
900 4)
–
2,485
2,207
2016
–
2017
–
–
–
1,000
2018
2019–2023
3,100
2024 and beyond
3,000
Total
8,100
2,100 3)
–
–
2,899
2,574
–
1,500
1,689
1,500
1,826
–
600
2,056
200
500
6,409
5,691
–
–
–
3,000
2,664
4,850
1,100
2,600
19,538
17,350
1,750 3)
1)Total translated at 31 December 2013 exchange rates.
2)Following the Group’s exercise of its early call option in December 2013, 1.0 billion US dollars of notes originally due in 2019 will be redeemed in March 2014,
five years ahead of their contractual maturity.
3)Of the proceeds from these bonds and notes, 3.3 billion euros have been swapped into US dollars, and therefore in the financial statements the bonds and notes
have economic characteristics equivalent to US dollar-denominated bonds and notes.
4)Of the proceeds from these bonds and notes, 600 million pounds sterling have been swapped into US dollars, and therefore in the financial statements the bonds
and notes have economic characteristics equivalent to US dollar-denominated bonds and notes.
The Group plans to meet its debt obligations using existing liquid funds as well as cash generated from business operations.
In 2013 the free cash flow was 5.4 billion Swiss francs, which included the cash generated from operations, as well as
payment of interest, tax and dividends.
For short-term financing requirements, the Group has a commercial paper programme in the US under which it can issue
up to 7.5 billion US dollars of unsecured commercial paper notes and committed credit lines of 3.9 billion euros available
as back-stop lines. Commercial paper notes totalling 0.8 billion US dollars were outstanding at 31 December 2013 (2012:
0.4 billion US dollars). For longer-term financing the Group has maintained strong long-term investment-grade credit ratings
of AA by Standard & Poor’s and A1 by Moody’s which should facilitate efficient access to international capital markets.
Credit ratings for the Roche Group at 31 December 2013
Moody’s
Standard & Poor’s
Short-term
Long-term
P-1
A1
Outlook
Stable
A-1+
AA
Stable
Roche Group – Financial Review | Roche Finance Report 2013
43­
Financial risks
At 31 December 2013 the Group has a net debt position of 6.7 billion Swiss francs (2012: 10.6 billion Swiss francs).
The financial assets of the Group are managed in a conservative way with the objective to meet the Group’s financial
obligations at all times.
Asset allocation. A considerable portion of the cash and marketable securities the Group currently holds is being used
for debt redemptions. Liquid funds are either held as cash or are invested in high-quality, investment-grade fixed income
securities with an investment horizon to meet those liquidity requirements.
Cash and marketable securities
(mCHF)
2013
(% of total)
(mCHF)
2012
(% of total)
Cash and cash equivalents
4,000
34
4,530
32
Money market instruments
6,706
55
7,631
55
793
7
1,558
11
Debt securities
Equity securities
Total cash and marketable securities
436
4
272
2
11,935
100
13,991
100
Credit risk. Credit risk arises from the possibility that counterparties to transactions may default on their obligations causing
financial losses for the Group. The rating profile of the Group’s 11.5 billion Swiss francs of cash and fixed income marketable
securities remained strong with 98% being invested in the A-AAA range. The Group has signed netting and collateral
agreements with the counterparties in order to mitigate counterparty risk on derivative positions.
The Group has trade receivables of 9.3 billion Swiss francs. Since 2010 there have been continuing financial difficulties
in Southern European countries, notably Spain, Italy, Greece and Portugal. The Group is a leading supplier to the healthcare
sectors in these countries and at 31 December 2013 has trade receivables of 1.1 billion euros (1.3 billion Swiss francs)
with the public customers in these countries. There was a decrease of 13% compared to 31 December 2012 with improved
collections in Italy, Greece and Portugal, while Spain remained stable compared to 2012. The Group uses different measures
to improve collections in these countries, including intense communication with customers, factoring, negotiations
of payments plans, charging of interest for late payments, and legal action. The Group is applying new commercial
arrangements with some public hospitals in Greece and Portugal.
Liquidity risk. Liquidity risk arises through a surplus of financial obligations over available financial assets due at any point
in time. The Group’s approach to liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity
requirements at any point in time. In addition to the current liquidity position, the Group has strong cash generation ability.
Those future cash flows will be used to repay debt instruments in the coming years.
Roche has strong long-term investment-grade credit ratings of AA by Standard & Poor’s and A1 by Moody’s. At the same
time Roche is rated at the highest available short-term ratings by those agencies. In the event of financing requirements,
the ratings and the strong credit of Roche should permit efficient access to international capital markets, including the
commercial paper market. The Group has committed credit lines with various financial institutions totalling 5.1 billion Swiss
francs of which 4.8 billion Swiss francs serve as back-stop line for the commercial paper programme. At 31 December 2013
no debt has been drawn under these credit lines.
Market risk. Market risk arises from changing market prices of the Group’s financial assets or financial liabilities. The
exposures are predominantly related to changes in foreign exchange rates and interest rates. The Group uses Value-at-Risk
(VaR) to assess the impact of market risk on its financial instruments. VaR data indicates the value range within which a
given financial instrument will fluctuate with a pre-set probability as a result of movements in market prices. The Group’s VaR
increased during 2013, mainly due to a gradual increase in long-term interest rates in major economies.
44­
Roche Finance Report 2013 | Roche Group – Financial Review
Interest rate risk. Interest rate risk arises from movements in interest rates which could affect the Group financial result
or the value of the Group equity. As part of the Group’s hedging management during 2013 the Group entered into interest
rate swap contracts for a combined notional principal of 2.0 billion US dollars. These swapped the fixed interest rate of 6.0%
to an effective floating interest rate of 3 months USD-LIBOR plus an average spread of 4.74%. The maturity of the swaps is
1 March 2019. In the same period the Group has entered into interest rate swap contracts with a combined notional principal
of 100 million Swiss francs. These swapped the fixed interest rate of 1.0% to an effective floating interest rate of 3 months
CHF-LIBOR plus an average spread of 0.21%. The maturity of the swaps is 21 September 2018.
Further information on financial risk management and financial risks and the VaR methodology is included in Note 29 to
the Consolidated Financial Statements.
International Financial Reporting Standards
The Roche Group has been using International Financial Reporting Standards (IFRS) to report its consolidated results since
1990. Several new and revised standards have been implemented effective 1 January 2013. These are listed in Note 32 to
the Consolidated Financial Statements. Except as noted below, these have no material impact on the Group’s overall results
and financial position.
Amongst other matters the revised version of IAS 19 ‘Employee Benefits’ includes the following changes to the existing
standard:
Eliminating the option to defer the recognition of actuarial gains and losses from defined benefit post-employment plans,
known as the ‘corridor method’. The Group has not previously applied this option, but rather uses the option to recognise
such gains and losses in other comprehensive income. The option previously applied by the Group will henceforth be
a requirement under the revised standard and therefore this change has no impact on the Group’s financial statements.
T he previous method of including the expected income from plan assets at an estimated asset return is replaced by
using the discount rate that is used to discount the defined benefit obligation. In the restated results of 2012 this causes
a reduction in net financial income of 164 million Swiss francs. There was no impact on Roche’s operating income or
net assets from this change.
P ast service costs are recognised immediately in the income statement in the period of a plan amendment. Previously, past
service costs had the portion related to unvested benefits deferred on the balance sheet, which was then progressively
released.
Further information on this topic was published in an Investor Update on 21 March 2013. This is available at
http://www.roche.com/investors/ir_update/inv-update-2013-03-21.htm.
The Group is currently assessing the potential impacts of the various new and revised standards and interpretations that will
be effective from 1 January 2014 and beyond which the Group has not yet applied. Based on the analysis to date, the Group
does not anticipate that these will have a material impact on the Group’s overall results and financial position.
Roche Group – Financial Review | Roche Finance Report 2013
45­
Roche Group
Consolidated Financial Statements
Roche Group consolidated income statement for the year ended 31 December 2013 in millions of CHF
Sales
2
Royalties and other operating income 2
Pharmaceuticals
Diagnostics
Corporate
Group
36,304
10,476
–
46,780
1,702
130
–
1,832
Cost of sales
(7,014)
(4,934)
–
(11,948)
(8,373)
Marketing and distribution
(5,844)
(2,529)
–
Research and development 2
(8,189)
(1,081)
–
General and administration
(1,326)
(821)
Operating profit 2
15,633
Financing costs 3
Other financial income (expense) 3
Profit before taxes
1,241
(9,270)
(498)
(2,645)
(498)
16,376
(1,580)
(119)
14,677
Income taxes 4
(3,304)
Net income
11,373
Attributable to
–– Roche shareholders 21
–– Non-controlling interests 23
11,164
209
Earnings per share and non-voting equity security 27
46­
Basic (CHF)
13.16
Diluted (CHF)
12.93
Roche Finance Report 2013 | Roche Group – Roche Group Consolidated Financial Statements
Roche Group consolidated income statement for the year ended 31 December 2012 in millions of CHF
Sales 2
Royalties and other operating income 2
Pharmaceuticals
Diagnostics
Corporate
Group
35,232
10,267
–
45,499
1,794
151
–
1,945
Cost of sales
(7,348)
(4,827)
–
(12,175)
Marketing and distribution
(5,914)
(2,625)
–
(8,539)
Research and development 2
(8,529)
(1,023)
–
General and administration
(1,558)
(659)
Operating profit 2
13,677
Financing costs 3
1,284
(9,552)
(836)
(3,053)
(836)
14,125
(1,923)
(43)
Other financial income (expense) 3
Profit before taxes
12,159
Income taxes 4
(2,499)
Net income
9,660
Attributable to
–– Roche shareholders 21
9,427
–– Non-controlling interests 23
233
Earnings per share and non-voting equity security 27
Basic (CHF)
11.12
Diluted (CHF)
11.03
As disclosed in Note 32, the income statement for the year ended 31 December 2012 has been restated following the accounting policy changes which were adopted
in 2013. A reconciliation to the previously published income statement is provided in Note 32.
Roche Group – Roche Group Consolidated Financial Statements | Roche Finance Report 2013
47­
Roche Group consolidated statement of comprehensive income in millions of CHF
Net income recognised in income statement
2013
Year ended 31 December
2012
11,373
9,660
Other comprehensive income
Remeasurements of defined benefit plans 21
674
(1,202)
Items that will not be reclassified to the income statement
674
(1,202)
26
(2)
Available-for-sale investments 21
Cash flow hedges
21
77
61
Currency translation of foreign operations 21
(1,331)
(694)
Items that may be reclassified subsequently to the income statement
(1,228)
(635)
(554)
(1,837)
Other comprehensive income, net of tax
Total comprehensive income
10,819
7,823
11,012
7,863
Attributable to
–– Roche shareholders 21
–– Non-controlling interests 23
Total
(193)
10,819
(40)
7,823
As disclosed in Note 32, the statement of comprehensive income for the year ended 31 December 2012 has been restated following the accounting policy changes
which were adopted in 2013. A reconciliation to the previously published statement of comprehensive income is provided in Note 32.
48­
Roche Finance Report 2013 | Roche Group – Roche Group Consolidated Financial Statements
Roche Group consolidated balance sheet in millions of CHF
31 December 2013
31 December 2012
31 December 2011
15,760
15,402
16,201
Non-current assets
Property, plant and equipment 7
7,145
7,480
7,843
Intangible assets 9
3,944
4,214
5,126
Deferred tax assets 4
4,707
4,849
2,753
Defined benefit plan assets 25
636
678
581
Other non-current assets 14
811
814
844
33,003
33,437
33,348
Inventories 10
5,906
5,542
5,060
Accounts receivable 11
8,808
9,465
9,799
218
339
222
Goodwill
8
Total non-current assets
Current assets
Current income tax assets 4
Other current assets
2,297
2,034
1,864
Marketable securities 12
7,935
9,461
7,433
Cash and cash equivalents 13
4,000
4,530
3,854
Total current assets
29,164
31,371
28,232
Total assets
62,167
64,808
61,580
(16,423)
(17,860)
(23,459)
(1,282)
(1,397)
(606)
(6,062)
(7,231)
(5,498)
(1,097)
(1,042)
(991)
(302)
(319)
(310)
(25,166)
(27,849)
(30,864)
Short-term debt 20
(2,220)
(6,730)
(3,394)
Current income tax liabilities 4
(1,805)
(2,210)
(2,206)
Provisions 19
(2,148)
(2,158)
(1,742)
Accounts payable 16
(2,162)
(1,945)
(2,053)
Other current liabilities 18
(7,425)
(7,166)
(6,815)
Total current liabilities
(15,760)
(20,209)
(16,210)
Total liabilities
(40,926)
(48,058)
(47,074)
Total net assets
21,241
16,750
14,506
19,294
14,514
12,116
1,947
2,236
2,390
21,241
16,750
14,506
15
Non-current liabilities
Long-term debt 20
Deferred tax liabilities 4
Defined benefit plan liabilities
25
Provisions 19
Other non-current liabilities 17
Total non-current liabilities
Current liabilities
Equity
Capital and reserves attributable to Roche shareholders 21
Equity attributable to non-controlling interests 23
Total equity
As disclosed in Note 32, the balance sheets at 31 December 2012 and 31 December 2011 have been restated following the accounting policy changes which were
adopted in 2013. A reconciliation to the previously published balance sheets is provided in Note 32.
Roche Group – Roche Group Consolidated Financial Statements | Roche Finance Report 2013
49­
Roche Group consolidated statement of cash flows in millions of CHF
2013
Year ended 31 December
2012
20,796
19,984
Cash flows from operating activities
Cash generated from operations 28
(Increase) decrease in net working capital
(209)
(523)
Payments made for defined benefit plans 25
(483)
(439)
(1,000)
(828)
Utilisation of provisions 19
Disposal of products
6
138
Other operating cash flows
3
2
18,334
Cash flows from operating activities, before income taxes paid
19,113
Income taxes paid
(3,341)
(3,329)
Total cash flows from operating activities
15,772
15,005
(2,451)
(2,171)
(403)
(235)
65
107
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Disposal of property, plant and equipment
Disposal of intangible assets
–
Business combinations 5
(233)
Divestment of subsidiaries
Interest and dividends received
2
28
Sales of marketable securities
Purchases of marketable securities
Other investing cash flows
Total cash flows from investing activities
–
(36)
8
51
39
47,954
40,934
(46,310)
(43,158)
23
(1,302)
(2)
(4,514)
Cash flows from financing activities
Proceeds from issue of bonds and notes 20
Redemption and repurchase of bonds and notes 20
2,698
(4,326)
Increase (decrease) in commercial paper 20
404
(687)
Increase (decrease) in other debt 20
151
153
Hedging and collateral arrangements
247
172
Equity contribution by non-controlling interests
20
–
Interest paid
(1,299)
(1,514)
Dividends paid 28
(6,362)
(5,888)
Equity-settled equity compensation plans, net of transactions in own equity 26
(1,190)
(301)
Other financing cash flows
(7)
(1)
(14,669)
(9,694)
Net effect of currency translation on cash and cash equivalents
(331)
(121)
Increase (decrease) in cash and cash equivalents
(530)
676
Total cash flows from financing activities
50­
–
(6,633)
Cash and cash equivalents at 1 January
4,530
3,854
Cash and cash equivalents at 31 December 13
4,000
4,530
Roche Finance Report 2013 | Roche Group – Roche Group Consolidated Financial Statements
Roche Group consolidated statement of changes in equity in millions of CHF
Share
capital
Retained
earnings
Fair value
reserves
160
17,286
124
statement
–
9,427
Available-for-sale investments
–
–
Hedging
reserves
Translation
reserves
Total
Noncontrolling
interests
Total
equity
12,116
2,390
14,506
9,427
233
9,660
Year ended 31 December 2012
At 1 January 2012
(20)
(5,434)
Net income recognised in income
–
–
–
(6)
–
–
Cash flow hedges
–
–
–
61
Currency translation of foreign operations
–
–
(5)
(1)
Remeasurements of defined benefit plans
–
(1,207)
–
–
Total comprehensive income
–
8,220
(11)
60
Dividends
–
(5,770)
-
–
–
(406)
–
(406)
–
(6)
61
(412)
4
–
(282)
(2)
61
(694)
(1,207)
5
(1,202)
7,863
(40)
7,823
(5,770)
(116)
(5,886)
Equity compensation plans,
net of transactions in own equity
–
305
–
–
–
305
1
Changes in non-controlling interests
–
–
–
–
–
–
1
1
160
20,041
113
40
(5,840)
14,514
2,236
16,750
160
20,041
113
40
(5,840)
14,514
2,236
16,750
–
11,164
–
–
11,164
209
11,373
At 31 December 2012
306
Year ended 31 December 2013
At 1 January 2013
Net income recognised in income
statement
–
Available-for-sale investments
–
–
19
–
–
19
7
26
Cash flow hedges
–
–
–
62
–
62
15
77
Currency translation of foreign operations
–
–
(9)
(7)
(903)
(428)
Remeasurements of defined benefit plans
–
670
–
–
Total comprehensive income
–
11,834
10
55
Dividends
–
(6,238)
–
–
(887)
–
(887)
–
670
4
(1,331)
674
11,012
(193)
10,819
(6,238)
(123)
(6,361)
Equity compensation plans,
net of transactions in own equity
–
6
–
–
–
6
4
10
Changes in non-controlling interests
–
–
–
–
–
–
3
3
Equity contribution by non-controlling
interests
At 31 December 2013
–
–
–
–
160
25,643
123
95
–
(6,727)
–
20
20
19,294
1,947
21,241
As disclosed in Note 32, the statement of changes in equity for the year ended 31 December 2012 has been restated following the accounting policy changes which
were adopted in 2013. A reconciliation to the previously published total equity at 1 January 2012 is provided in Note 32.
Roche Group – Roche Group Consolidated Financial Statements | Roche Finance Report 2013
51­
Notes to the Roche Group
Consolidated Financial Statements
1. General accounting principles
Basis of preparation
The consolidated financial statements (hereafter ‘the Annual Financial Statements’) of the Roche Group have been prepared
in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. They have been prepared
using the historical cost convention except for items that are required to be accounted for at fair value. They were approved
for issue by the Board of Directors on 27 January 2014 and are subject to approval by the Annual General Meeting of
shareholders on 4 March 2014.
These financial statements are the Annual Financial Statements of Roche Holding Ltd, a company registered in Switzerland,
and its subsidiaries (‘the Group’).
The Group’s significant accounting policies and changes in accounting policies are disclosed in Note 32.
Key accounting judgements, estimates and assumptions
The preparation of the Annual Financial Statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets, liabilities and contingent amounts. Actual outcomes could
differ from those management estimates. The estimates and underlying assumptions are reviewed on an ongoing basis and
are based on historical experience and various other factors. Revisions to estimates are recognised in the period in which
the estimate is revised. The following are considered to be the key accounting judgements, estimates and assumptions made
and are believed to be appropriate based upon currently available information.
Revenue. The nature of the Group’s business is such that many sales transactions do not have a simple structure and may
consist of multiple components occurring at different times. The Group is also party to out-licensing agreements which
involve upfront and milestone payments occurring over several years and which may also involve certain future obligations.
Revenue is only recognised when, in management’s judgement, the significant risks and rewards of ownership have been
transferred and when the Group does not retain continuing managerial involvement or effective control over the goods sold
or when the obligation has been fulfilled. For some transactions this can result in cash receipts being initially recognised
as deferred income and then released to income over subsequent periods on the basis of the performance of the conditions
specified in the agreement. There may be circumstances such that the level of sales returns, and hence revenues, cannot
be reliably measured. In such cases sales are only recognised when the right of return expires, which is generally upon
prescription of the products to patients. In order to estimate this, management uses publicly available information about
prescriptions as well as information provided by wholesalers and other intermediaries.
52­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
At 31 December 2013 the Group has 2,005 million Swiss francs in provisions and accruals for expected sales returns,
­charge‑backs and other rebates, including Medicaid in the US and similar rebates in other countries. Such estimates are
based on analyses of existing contractual or legislatively mandated obligations, historical trends and the Group’s experience.
At 31 December 2013 the Group has 425 million Swiss francs of provisions for doubtful receivables (see Note 11).
Such estimates are based on analyses of ageing of customer balances, specific credit circumstances, historical trends
and the Group’s experience, taking also into account current economic conditions.
Business combinations. The Group initially recognises the fair value of identifiable assets acquired, the liabilities assumed,
any non-controlling interest and the consideration transferred in a business combination. Management judgement
is particularly involved in the recognition and fair value measurement of intellectual property, contingent liabilities and
contingent consideration. In making this assessment management considers the underlying economic substance of
the items concerned in addition to the contractual terms.
Impairment. At 31 December 2013 the Group had 15,760 million Swiss francs in property, plant and equipment (see
Note 7), 7,145 million Swiss francs in goodwill (see Note 8) and 3,944 million Swiss francs in intangible assets (see Note 9).
Goodwill and intangible assets not yet available for use are reviewed annually for impairment. Property, plant and equipment
and intangible assets in use are assessed for impairment when there is a triggering event that provides evidence that an
asset may be impaired. To assess whether any impairment exists estimates of expected future cash flows are used. Actual
outcomes could vary significantly from such estimates of discounted future cash flows. Factors such as changes in discount
rates, the planned use of buildings, machinery or equipment or closure of facilities, the presence or absence of competition,
technical obsolescence and lower than anticipated product sales could lead to shorter useful lives or impairment.
Pensions and other post-employment benefits. The Group operates a number of defined benefit plans and the fair value
of the recognised plan assets and liabilities are based upon statistical and actuarial calculations. The measurement of the
net defined benefit obligation is particularly sensitive to changes in the discount rate, inflation rate, expected mortality and
medical cost trend rate assumptions. At 31 December 2013 the present value of the Group’s defined benefit obligation
is 16,684 million Swiss francs (see Note 25). The actuarial assumptions used may differ materially from actual results due to
changes in market and economic conditions, longer or shorter life spans of participants, and other changes in the factors
being assessed. These differences could impact on the assets or liabilities recognised in the balance sheet in future periods.
Legal provisions. The Group provides for anticipated legal settlement costs when there is a probable outflow of resources
that can be reliably estimated. At 31 December 2013 the Group had 634 million Swiss francs in legal provisions. The status
of significant legal cases is disclosed in Note 19. These estimates consider the specific circumstances of each legal case,
relevant legal advice and are inherently judgemental due to the highly complex nature of legal cases. The estimates could
change substantially over time as new facts emerge and each legal case progresses. Where no reliable estimate can be
made, no provision is recorded and contingent liabilities are disclosed where material.
Environmental provisions. The Group provides for anticipated environmental remediation costs when there is a probable
outflow of resources that can be reasonably estimated. At 31 December 2013 the Group had 624 million Swiss francs in
environmental provisions (see Note 19). Environmental provisions consist primarily of costs to fully clean and refurbish
contaminated sites, including landfills, and to treat and contain contamination at certain other sites. These estimates are
inherently judgemental due to uncertainties related to the detection of previously unknown contaminated sites, the method
and extent of remediation, the percentage of the problematic materials attributable to the Group at the remediation sites,
and the financial capabilities of the other potentially responsible parties. The estimates could change substantially over time
as new facts emerge and each environmental remediation progresses.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
53­
Income taxes. At 31 December 2013 the Group had a current income tax net liability of 1,587 million Swiss francs and
a deferred tax net asset of 3,425 million Swiss francs (see Note 4). Significant estimates are required to determine the current
and deferred tax assets and liabilities. Some of these estimates are based on interpretations of existing tax laws or regulations.
Factors that may impact on current and deferred taxes include changes in tax laws, regulations or rates, changing
interpretations of existing tax laws or regulations, future levels of research and development spending and changes in
pre‑tax earnings.
Leases. The treatment of leasing transactions is mainly determined by whether the lease is considered to be an operating
or finance lease. In making this assessment, management looks at the substance of the lease, as well as the legal form, and
makes a judgement about whether substantially all of the risks and rewards of ownership are transferred. Arrangements
which do not take the legal form of a lease but that nevertheless convey the right to use an asset are also covered by such
assessments.
Consolidation. The Group periodically undertakes transactions that may involve obtaining control or significant influence
of other companies. These transactions include equity acquisitions, asset purchases, alliance agreements and other
transactions with structured entities. In all such cases management makes an assessment as to whether the Group has
control or significant influence of the other company, and whether it should be consolidated as a subsidiary or accounted
for as an associated company. In making this assessment management considers the underlying economic substance
of the transaction in addition to the contractual terms.
54­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
2. Operating segment information
The Group has two divisions, Pharmaceuticals and Diagnostics. Revenues are primarily generated from the sale of
prescription pharmaceutical products and diagnostic instruments, reagents and consumables, respectively. Both divisions
also derive revenues from the sale or licensing of products or technology to third parties. Residual operating activities
from divested businesses and certain global activities are reported as ‘Corporate’. These include the Corporate Executive
Committee and global group functions for communications, human resources, finance (including treasury, taxes and pension
fund management), legal, safety and environmental services. Sub-divisional information for Roche Pharmaceuticals and
Chugai, operating segments within the Pharmaceuticals Division, is also presented.
Divisional information in millions of CHF
Pharmaceuticals
2013
2012
2013
Diagnostics
2012
2013
Corporate
2012
2013
Group
2012
Revenues from external customers
Sales
36,304
35,232
10,476
10,267
–
–
46,780
45,499
1,702
1,794
130
151
–
–
1,832
1,945
38,006
37,026
10,606
10,418
–
–
48,612
47,444
Sales
–
–
10
13
–
–
10
13
Royalties and other operating income
–
–
–
–
–
–
Royalties and other operating income
Total
Revenues from other operating
segments
Elimination of inter-divisional revenue
Total
–
–
–
–
(10)
(13)
–
–
16,376
14,125
–
–
10
13
15,633
13,677
1,241
1,284
–
–
363
17
–
–
363
17
1,294
1,049
1,158
1,079
6
2
2,458
2,130
Segment results
Operating profit
(498)
(836)
Capital expenditure
Business combinations
Additions to property, plant and
equipment
Additions to intangible assets
366
209
49
25
–
–
415
234
Total capital expenditure
1,660
1,258
1,570
1,121
6
2
3,236
2,381
8,189
8,529
1,081
1,023
–
–
9,270
9,552
1,024
1,057
847
828
7
6
1,878
1,891
177
181
326
349
–
–
503
530
(488)
444
14
18
–
–
(474)
462
–
288
187
–
–
288
187
Research and development
Research and development costs
Other segment information
Depreciation of property, plant and
equipment
Amortisation of intangible assets
Impairment (reversal) of property,
plant and equipment
Impairment of goodwill
–
Impairment of intangible assets
350
489
12
36
–
–
362
525
Equity compensation plan expenses
296
307
40
35
24
21
360
363
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
55­
Pharmaceuticals sub-divisional information in millions of CHF
Roche Pharmaceuticals
2013
2012
2013
Chugai
2012
Pharmaceuticals Division
2013
2012
3,405
4,108
36,304
Revenues from external customers
Sales
32,899
Royalties and other operating income
Total
31,124
35,232
1,601
1,731
101
63
1,702
1,794
34,500
32,855
3,506
4,171
38,006
37,026
1,184
1,065
408
300
1,592
1,365
49
25
111
70
Revenues from other operating segments
Sales
Royalties and other operating income
160
Elimination of income within division
(1,752)
Total
95
(1,460)
1,233
1,090
519
370
–
–
15,111
12,910
679
805
15,790
13,715
15,111
12,910
679
805
15,633
13,677
–
–
–
–
–
–
1,049
Segment results
Operating profit
Elimination of profit within division
(157)
Operating profit
(38)
Capital expenditure
Business combinations
1,169
882
125
167
1,294
Additions to intangible assets
Additions to property, plant and equipment
356
206
10
3
366
209
Total capital expenditure
1,525
1,088
135
170
1,660
1,258
7,507
7,751
743
800
8,250
8,551
Research and development
Research and development costs
Elimination of costs within division
(61)
Total
(22)
7,507
7,751
743
800
8,189
8,529
Depreciation of property, plant and equipment
897
903
127
154
1,024
1,057
Amortisation of intangible assets
134
112
43
69
177
181
(504)
(488)
444
Other segment information
Impairment (reversal) of property, plant and
equipment
441
16
3
–
–
–
–
–
–
Impairment of intangible assets
350
489
–
–
350
489
Equity compensation plan expenses
293
304
3
3
296
307
Impairment of goodwill
Net operating assets in millions of CHF
2013
2012
Assets
2011
2013
2012
Liabilities
2011
2013
2012
Net assets
2011
Pharmaceuticals
26,672
26,785
27,877
(8,269)
(8,282)
(7,869)
18,403
18,503
20,008
Diagnostics
16,846
17,261
18,136
(2,814)
(2,532)
(2,613)
14,032
14,729
15,523
164
156
162
(665)
(536)
(202)
Total operating
43,682
44,202
46,175
(11,748)
(11,350)
(10,684)
31,934
32,852
35,491
Non-operating
18,485
20,606
15,405
(29,178)
(36,708)
(36,390)
(10,693)
(16,102)
(20,985)
Group
62,167
64,808
61,580
(40,926)
(48,058)
(47,074)
21,241
16,750
14,506
Corporate
(501)
(380)
(40)
As disclosed in Note 32, the non-operating net assets at 31 December 2012 and 31 December 2011 have been restated following the accounting policy changes
which were adopted in 2013. A reconciliation to the previously published balance sheet is provided in Note 32.
56­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Net operating assets – Pharmaceuticals sub-divisional information in millions of CHF
Roche Pharmaceuticals
Chugai
Elimination within division
Pharmaceuticals Division
2013
2012
Assets
2011
23,688
22,962
23,542
(7,472)
(7,323)
3,725
4,532
5,088
(797)
(959)
(741)
26,672
(709)
26,785
(753)
27,877
2013
–
(8,269)
2012
Liabilities
2011
2013
2012
Net assets
2011
(7,119)
16,216
15,639
16,423
(750)
2,928
3,573
4,338
–
(8,282)
–
(7,869)
(741)
18,403
(709)
18,503
(753)
20,008
Information by geographical area in millions of CHF
Revenues from external customers
Royalties and
other operating
Sales
income
Non-current assets
Property, plant
and equipment
Goodwill and
intangible assets
2013
Switzerland
526
145
3,817
2,072
12,616
21
4,169
1,519
–– of which Germany
2,729
20
3,122
1,479
Rest of Europe
1,454
–
67
1
Europe
14,596
166
8,053
3,592
United States
17,169
1,557
4,720
7,214
1,042
2
114
79
18,211
1,559
4,834
7,293
3,363
–
348
12
190
European Union
Rest of North America
North America
Latin America
Japan
3,936
101
1,281
Rest of Asia
5,129
6
1,158
–
Asia
9,065
107
2,439
190
Africa, Australia and Oceania
Total
1,545
–
86
2
46,780
1,832
15,760
11,089
505
257
3,599
1,867
2012
Switzerland
European Union
–– of which Germany
Rest of Europe
12,272
51
4,004
1,787
2,534
48
2,938
1,746
1,570
–
59
1
Europe
14,347
308
7,662
3,655
United States
15,932
1,567
4,422
7,483
1,035
2
97
87
16,967
1,569
4,519
7,570
3,410
–
408
14
Rest of North America
North America
Latin America
Japan
4,735
63
1,638
276
Rest of Asia
4,368
4
1,081
177
Asia
9,103
67
2,719
453
Africa, Australia and Oceania
1,672
1
94
2
45,499
1,945
15,402
11,694
Total
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
57­
Supplementary unaudited information on sales by therapeutic areas in the Pharmaceuticals Division and by business areas in
the Diagnostics Division are given in the Financial Review. Sales are allocated to geographical areas by destination according
to the location of the customer. Royalties and other operating income are allocated according to the location of the Group
company that receives the revenue. European Union information is based on members of the EU at 31 December 2013.
Major customers
In total three US national wholesale distributors represent approximately a quarter of the Group’s revenues in 2013. The three
US national wholesale distributors are AmerisourceBergen Corp. with 5 billion Swiss francs (2012: 5 billion Swiss francs);
McKesson Corp. with 5 billion Swiss francs (2012: 5 billion Swiss francs) and Cardinal Health, Inc. with 3 billion Swiss francs
(2012: 2 billion Swiss francs). Approximately 96% of these revenues were in the Pharmaceuticals operating segment,
with the residual in the Diagnostics segment.
3. Net financial expense
Financing costs in millions of CHF
2013
Interest expense
Amortisation of debt discount 20
Net gains (losses) on redemption and repurchase of bonds and notes 20
Discount unwind 19
Net interest cost of defined benefit plans 25
Total financing costs
(1,062)
2012
(1,396)
(23)
(30)
(248)
(259)
(20)
(12)
(227)
(226)
(1,580)
(1,923)
Other financial income (expense) in millions of CHF
Net gains (losses) on sale of equity securities
2012
47
60
Net gains (losses) on equity security derivatives
2
1
Dividend income
2
2
Write-downs and impairments of equity securities
(9)
(25)
Net income from equity securities
42
38
Interest income
27
32
Net interest income and income from debt securities
27
32
(223)
(120)
Net foreign exchange gains (losses)
Net gains (losses) on foreign currency derivatives
49
31
(174)
(89)
Net other financial income (expense)
(8)
(24)
Associates
(6)
–
Foreign exchange gains (losses)
Total other financial income (expense)
58­
2013
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
(119)
(43)
Net financial expense in millions of CHF
2013
Financing costs
2012
(1,580)
(1,923)
(119)
(43)
Net financial expense
(1,699)
(1,966)
Financial result from Treasury management
(1,466)
(1,740)
(227)
(226)
Other financial income (expense)
Financial result from Pension management
Associates
Net financial expense
(6)
(1,699)
–
(1,966)
As disclosed in Note 32, the net financial expense for the year ended 31 December 2012 has been restated following the accounting policy changes which were
adopted in 2013. A reconciliation to the previously published net financial expense is provided in Note 32.
4. Income taxes
Income tax expenses in millions of CHF
2013
Current income taxes
Deferred taxes
Total income tax (expense)
(3,391)
87
(3,304)
2012
(3,332)
833
(2,499)
As disclosed in Note 32, the income tax expense for year ended 31 December 2012 has been restated following the accounting policy changes which were adopted
in 2013. A reconciliation to the previously published income tax expense is provided in Note 32.
Since the Group operates internationally, it is subject to income taxes in many different tax jurisdictions. The Group calculates
its average expected tax rate as a weighted average of the tax rates in the tax jurisdictions in which the Group operates.
This rate changes from year to year due to changes in the mix of the Group’s taxable income and changes in local tax rates.
The Group’s average expected tax rate increased by 2.4 percentage points to 22.6% in 2013 (2012: 20.2%). The main driver
for the increase was due to the growth in the proportion of the Group’s profits generated in the US, which has a relatively
higher local tax rate than the average Group rate. There were no significant local tax rate changes in the main operating
areas of the Group compared to 2012.
The Group’s effective tax rate increased to 22.5% in 2013 (2012: 20.6%). The main driver for the increase was the increase
in the average expected tax rate explained above. This was partially offset by the retrospective re-enactment of the 2012
US research and development tax credits in January 2013, which means that the 2013 results include a whole year of tax
credits in respect of 2012 as well as tax credits for 2013.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
59­
The Group’s effective tax rate can be reconciled to the Group’s average expected tax rate as follows:
Reconciliation of the Group’s effective tax rate
2013
2012
22.6%
20.2%
–– Non-taxable income/non-deductible expenses
+2.0%
+1.8%
–– Equity compensation plans
–0.2%
–0.3%
Average expected tax rate
Tax effect of
–– Research, development and other manufacturing tax credits
–2.4%
–2.1%
–– US state tax impacts
+0.4%
+0.8%
–– Tax on unremitted earnings
+0.9%
+0.4%
–– Utilisation of previously unrecognised tax losses
–0.7%
–
–– Other differences
–0.1%
–0.2%
Group’s effective tax rate
22.5%
20.6%
The income tax benefits recorded in respect of equity compensation plans, which varies according to the price of the
underlying equity, was 122 million Swiss francs (2012: 133 million Swiss francs). Had the income tax benefits been recorded
solely on the basis of the IFRS 2 expense multiplied by the applicable tax rate, then benefits of approximately 100 million
Swiss francs (2012: 107 million Swiss francs) would have been recorded.
Tax effects of other comprehensive income in millions of CHF
Remeasurements of defined benefit plans
Available-for-sale investments
Cash flow hedges
Currency translation of foreign operations
Other comprehensive income
Pre-tax
amount
Tax
1,000
(326)
42
(16)
118
(41)
(1,331)
(171)
–
(383)
2013
After-tax
amount
2012
After-tax
amount
Pre-tax
amount
Tax
674
(1,643)
441
26
(2)
–
(2)
77
98
(37)
61
(1,202)
(1,331)
(694)
–
(694)
(554)
(2,241)
404
(1,837)
Income tax assets (liabilities) in millions of CHF
2013
2012
2011
Current income taxes
–– Assets
218
339
222
–– Liabilities
(1,805)
(2,210)
(2,206)
Net current income tax assets (liabilities)
(1,587)
(1,871)
(1,984)
2,753
Deferred taxes
–– Assets
–– Liabilities
Net deferred tax assets (liabilities)
60­
4,707
4,849
(1,282)
(1,397)
3,425
3,452
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
(606)
2,147
Current income taxes: movements in recognised net assets (liabilities) in millions of CHF
2013
Net current income tax asset (liability) at 1 January
Income taxes paid
(Charged) credited to the income statement
2012
(1,871)
(1,984)
3,341
3,329
(3,391)
(3,332)
(Charged) credited to equity from equity compensation plans and other transactions
with shareholders
Currency translation effects and other
Net current income tax asset (liability) at 31 December
278
54
56
62
(1,587)
(1,871)
Deferred taxes: movements in recognised net assets (liabilities) in millions of CHF
Property,
plant and
equipment
Defined
benefit plans
Other
temporary
differences
Total
(1,349)
1,059
3,454
2,147
(4)
–
–
Intangible
assets
Year ended 31 December 2012
At 1 January 2012
(1,017)
Business combinations 5
–
(Charged) credited to the income statement
(Charged) credited to other comprehensive income 21
162
245
–
–
(4)
(10)
436
833
441
(37)
404
(Charged) credited to equity from equity compensation
plans and other transactions with shareholders
Currency translation effects and other
At 31 December 2012
–
–
–
192
192
43
29
(27)
(165)
(120)
(812)
(1,079)
1,463
3,880
3,452
(812)
3,452
Year ended 31 December 2013
At 1 January 2013
Business combinations 5
(Charged) credited to the income statement
(Charged) credited to other comprehensive income 21
(1,079)
1,463
3,880
–
(102)
–
4
(98)
512
(60)
(267)
87
–
(326)
(57)
(383)
–
(98)
(Charged) credited to equity from equity compensation
plans and other transactions with shareholders
Currency translation effects and other
At 31 December 2013
–
–
–
555
555
59
9
(10)
(246)
(188)
(851)
(660)
1,067
3,869
3,425
The deferred tax assets for other temporary differences mainly relates to accrued and other liabilities, provisions and
unrealised profit in inventory.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
61­
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit
is probable. The Group has unrecognised tax losses, including valuation allowances, as follows:
Unrecognised tax losses: expiry
Amount
(mCHF)
Within one year
2013
Applicable
tax rate
Amount
(mCHF)
2012
Applicable
tax rate
–
–
35
21%
406
14%
590
16%
More than five years
4,078
5%
2,821
5%
Total unrecognised tax losses
4,484
6%
3,446
7%
Between one and five years
The ‘More than five years’ category includes losses that cannot be used for US state income tax purposes in those states
which only permit tax reporting on a separate entity basis.
Deferred tax liabilities have not been established for the withholding tax and other taxes that would be payable on the
unremitted earnings of foreign subsidiaries, where such amounts are currently regarded as permanently reinvested. The total
unremitted earnings of the Group, regarded as permanently reinvested, were 29.7 billion Swiss francs at 31 December 2013
(2012: 30.9 billion Swiss francs).
5. Business combinations
Acquisitions – 2013
Constitution Medical Investors, Inc. On 1 July 2013 the Group acquired a 100% controlling interest in Constitution
Medical Investors, Inc. (‘CMI’), a US private company based in Massachusetts. CMI is the developer of a highly innovative
hematology testing system, which is designed to provide faster and more accurate diagnosis of blood-related diseases,
helping to improve patient care. CMI is reported in the Diagnostics operating segment as part of the Professional Diagnostics
business area. The total consideration was 286 million US dollars, of which 220 million US dollars was paid in cash and
66 million US dollars arose from a contingent consideration arrangement. The contingent payments are based on the
achievement of performance-related milestones that may arise until the end of 2017 and the range of undiscounted outcomes
is between zero and 255 million US dollars. The identifiable assets acquired and liabilities assumed are set out in the table
below.
Acquisitions – 2013: net assets acquired in millions of CHF
CMI
Intangible assets – Product intangibles: not available for use
262
Deferred tax liabilities
(98)
Other net assets (liabilities)
Net identifiable assets
Goodwill
101
Total consideration
266
Cash
205
Contingent consideration 29
Total consideration
62­
1
165
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
61
266
The fair value of the intangible asset is determined using an excess earning method that is based on management forecasts
and observable market data for discount rates, tax rates and foreign exchange rates. The present value is calculated using
a risk-adjusted discount rate of 12.5%. The valuation was performed by an independent valuer.
Goodwill represents a control premium and synergies that can be obtained from the Group’s existing business. None of
the goodwill is expected to be deductible for income tax purposes. Directly attributable transaction costs of 3 million Swiss
francs are reported in the Diagnostics operating segment within general and administration expenses. The impact of the
CMI acquisition on the Diagnostics Division and Group reported results was not material.
Acquisitions – 2012
Verum. On 3 January 2012 the Group acquired a 100% controlling interest in Verum Diagnostica GmbH (‘Verum’), a German
private company based in Munich. Verum is reported in the Diagnostics operating segment. The total consideration was
11 million euros of which 10 million euros were paid in cash and 1 million euros arose from a contingent consideration
arrangement. The contingent payments are based on the achievement of performance-related milestones and the range
of undiscounted outcomes is between zero and 2 million euros. The identifiable assets acquired and liabilities assumed
are set out in the table below.
Acquisitions – 2012: net assets acquired in millions of CHF
Verum
Intangible assets – Product intangibles: in use
17
Inventories
1
Deferred tax liabilities
(4)
Other net assets (liabilities)
(1)
Net identifiable assets
13
Goodwill
–
Total consideration
13
Cash
12
Contingent consideration 29
1
Total consideration
13
Cash flows from business combinations
Acquisitions: net cash outflow in millions of CHF
Cash consideration paid
Cash in acquired company
Contingent consideration paid 29
Total net cash outflow
2013
2012
(205)
(12)
1
–
(29)
(24)
(233)
(36)
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
63­
6. Global restructuring plans
During 2013 the Group continued with the implementation of several major global restructuring plans initiated in prior years,
notably the reorganisation of research and development in the Pharmaceuticals Division and programmes to address the
long-term profitability in the Diabetes Care and former Applied Science businesses in Diagnostics. Additionally, there was
income of 531 million Swiss francs from the reversal of previously incurred impairment charges for a bulk drug production
unit at the Vacaville site in California.
Global restructuring plans: costs incurred in millions of CHF
Diagnostics 1)
Pharma R & D 2)
Other plans 3)
Total
Year ended 31 December 2013
Global restructuring costs
–– Employee-related costs
89
44
132
265
–– Site closure costs
48
38
(491)
(405)
–– Other reorganisation expenses
83
157
66
306
220
239
(293)
166
Total global restructuring costs
Additional costs
–– Impairment of goodwill
35
–
–
35
–– Impairment of intangible assets
12
–
–
12
–– Legal and environmental costs
3
(53)
–
(50)
Total costs
270
186
(293)
163
Year ended 31 December 2012
Global restructuring costs
–– Employee-related costs
91
188
207
486
–– Site closure costs
63
381
125
569
–– Other reorganisation expenses
Total global restructuring costs
26
27
328
381
180
596
660
1,436
Additional costs
187
–
–
187
–– Impairment of intangible assets
–– Impairment of goodwill
29
46
112
187
–– Legal and environmental costs
–
243
1
244
396
885
773
2,054
Total costs
1) Includes restructuring of the Diabetes Care and former Applied Science business areas.
2) Includes closure of the Nutley site and associated infrastructure and environmental remediation costs.
3) Includes the Operational Excellence programme (Pharmaceuticals and Diagnostics) and in 2012 dalcetrapib (Pharmaceuticals).
Diagnostics Division – Diabetes Care and Applied Science restructuring
On 23 April 2013 the Group announced that the Applied Science business area’s portfolio of products will be integrated
within the other business areas of the Diagnostics Division. This will streamline decision-making and enhance technology
flow from research use to the clinical setting. On 26 September 2013 Roche Diabetes Care announced its ‘Autonomy and
Speed’ initiative which will enable the business to focus on Diabetes Care specific requirements, speed up processes
and decision-making and drive efficiencies. Various initiatives were announced in 2012 for the Diabetes Care and Applied
Science businesses, which included increasing the efficiency of marketing and distribution operations and research
and development activities.
64­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
During 2013 total costs of 220 million Swiss francs (2012: 180 million Swiss francs) were incurred mainly for headcount
reductions, IT-related costs and site closure costs. In addition, goodwill impairment charges of 35 million Swiss francs were
incurred for the write-off of the goodwill from the Innovatis and 454 Life Sciences acquisitions in the former Applied Science
business area. Intangible asset impairment charges of 12 million Swiss francs were also incurred related to the restructuring.
During 2012 a goodwill impairment charge of 187 million Swiss francs was incurred for the full write-off of the goodwill from
the NimbleGen acquisition and intangible asset impairment charges of 29 million Swiss francs were incurred.
Pharmaceuticals Division – Research and Development reorganisation
On 26 June 2012 the Group announced a streamlining of the research and development activities within the Pharmaceuticals
Division. The planned operational closure of the US site in Nutley, New Jersey, was completed on schedule by the end
of 2013.
During 2013 total costs of 239 million Swiss francs were incurred. These costs include 116 million Swiss francs for employeerelated, site closure and other costs during the year and additional provisions of 88 million Swiss francs to cover site running
costs until the expected divestment in 2015. The provisions were mainly for employee-related costs, property taxes and
outside services. There was a further impairment of 35 million Swiss francs to the carrying value of the Nutley site, based on
the most recent external property market data. The first results of the environmental investigations showed that the expected
cost of remediation may be lower than originally expected and accordingly the environmental provisions were reduced by
53 million Swiss francs.
During 2012 total costs of 596 million Swiss francs were incurred mainly for severance, other employee-related costs
and property, plant and equipment impairments at the Nutley site. In addition there were environmental remediation costs
at the Nutley site of 243 million Swiss francs and intangible asset impairment charges of 46 million Swiss francs as a result
of portfolio prioritisation decisions linked to the reorganisation.
Other global restructuring plans
On 14 October 2013 the Pharmaceuticals Division announced that, as part of its investments to increase its global biologic
medicine manufacturing network capacity, a bulk drug production unit at the Vacaville site in California that had been
discontinued and fully written down in 2009 will be put back into service. This resulted in an income of 531 million Swiss
francs from the reversal of previously incurred impairment charges (see Note 7).
During 2013 costs of 126 million Swiss francs (2012: 484 million Swiss francs) were incurred for the previously announced
Operational Excellence programme, mainly for employee-related and site closure costs in the Pharmaceuticals Division and
employee-related and site closure costs in the Diagnostics Division for the sites in Burgdorf, Switzerland and Graz, Austria.
Other plans totalled 112 million Swiss francs (2012: 49 million Swiss francs). In 2012 there were also 128 million Swiss francs
of restructuring costs and intangible asset impairment charges of 112 million Swiss francs in respect of the termination of
the dalcetrapib dal-OUTCOMES trial and all the studies in the dal-HEART programme.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
65­
Global restructuring plans: summary of costs incurred in millions of CHF
2013
2012
220
515
Employee-related costs
–– Termination costs
–– Defined benefit plans
(1)
–– Other employee-related costs
46
39
265
486
(498)
440
Total employee-related costs
(68)
Site closure costs
–– Impairment (reversal) of property, plant and equipment
–– Accelerated depreciation of property, plant and equipment
4
33
–– (Gains) losses on disposal of property, plant and equipment
(1)
16
–– Other site closure costs
90
80
Total site closure costs
(405)
569
Other reorganisation expenses
306
381
Total global restructuring costs
166
1,436
35
187
Additional costs
–– Impairment of goodwill 8
–– Impairment of intangible assets
12
187
–– Legal and environmental costs 19
(50)
244
Total costs
163
9
2,054
Global restructuring plans: classification of costs in millions of CHF
2013
Depreciation,
amortisation
and
impairment
Other
costs
Total
2012
Depreciation,
amortisation
and
impairment
Other
costs
Total
Cost of sales
–– Pharmaceuticals
–– Diagnostics
(544)
2
83
(461)
32
60
92
73
75
39
93
132
Marketing and distribution
–– Pharmaceuticals
–
49
49
–
63
63
–– Diagnostics
–
78
78
2
76
78
Research and development
–– Pharmaceuticals
5
96
101
273
374
647
20
43
63
10
65
75
–– Pharmaceuticals
35
162
197
304
162
466
–– Diagnostics
35
70
105
187
50
237
–– Diagnostics
General and administration
–– Corporate
Total
(44)
(44)
–
264
264
(447)
–
610
163
847
1,207
2,054
(504)
388
(116)
1,268
Total by operating segment
–– Roche Pharmaceuticals
–– Chugai
–– Diagnostics
–– Corporate
Total
66­
609
659
–
2
2
–
–
–
57
264
321
238
284
522
–
(44)
(44)
–
264
264
610
163
847
1,207
2,054
(447)
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
7. Property, plant and equipment
Property, plant and equipment: movements in carrying value of assets in millions of CHF
Land
Buildings
and land
improvements
921
Machinery
and equipment
Construction
in progress
12,166
16,631
1,344
(4,754)
(10,037)
Total
At 1 January 2012
Cost
Accumulated depreciation and impairment
Net book value
–
921
7,412
6,594
(70)
31,062
(14,861)
1,274
16,201
Year ended 31 December 2012
At 1 January 2012
921
7,412
6,594
1,274
16,201
Additions
4
79
929
1,118
2,130
Disposals
(6)
(33)
(89)
Transfers
1
395
588
(5)
(984)
–
Depreciation charge
–
(476)
(1,415)
Impairment reversal (charge)
–
(246)
(144)
(72)
Other
4
(21)
–
(17)
(186)
(13)
(426)
–
Currency translation effects
(44)
At 31 December 2012
880
6,948
Cost
880
Accumulated depreciation and impairment
Net book value
–
(183)
–
(133)
6,256
1,318
12,138
16,827
1,406
(5,190)
(10,571)
880
6,948
6,256
(88)
(1,891)
(462)
15,402
31,251
(15,849)
1,318
15,402
Year ended 31 December 2013
At 1 January 2013
880
6,948
6,256
1,318
15,402
Additions
–
75
875
1,508
2,458
Disposals
(5)
(16)
(108)
Transfers
1
269
690
Depreciation charge
–
(464)
Impairment reversal (charge)
–
337
Other
–
15
–
(27)
(211)
(262)
(10)
(536)
823
6,936
Cost
823
823
–
(1,878)
(25)
At 31 December 2013
Net book value
–
(133)
122
(53)
–
(960)
(2)
Currency translation effects
Accumulated depreciation and impairment
(1,414)
(4)
6,134
1,867
11,934
16,745
1,947
(4,998)
(10,611)
6,936
6,134
(80)
1,867
474
15,760
31,449
(15,689)
15,760
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
67­
Impairment reversal (charge)
On 14 October 2013 the Pharmaceuticals Division announced details of investments to increase its global biologic
medicine manufacturing network capacity to meet the rising demand for licensed biologics and expected pipeline growth.
The investments will be spread across sites in Penzberg (Germany), Basel (Switzerland) as well as Vacaville and Oceanside
(US). In 2009 a bulk drug production unit at the Vacaville site in California, which was not yet licensed, was discontinued
and fully written down as part of a reassessment of the global manufacturing network requirements at that time. The bulk
drug production unit at the Vacaville site will require capital investment before it can become operational, which is expected
to occur in 2015. The Group’s decision to restart licensing efforts and prepare for operational use of the discontinued bulk
drug production unit at the Vacaville site for commercial manufacturing has resulted in an impairment reversal of property,
plant and equipment of 531 million Swiss francs in 2013. The impairment reversal of 531 million Swiss francs represents the
net book value from the time of the original impairment for the assets that will be brought back into use, less the depreciation
that would have been charged in the intervening period had that impairment not occurred (see Note 6). This was partly offset
by a further impairment of 35 million Swiss francs to the carrying value of the Nutley site, based on the most recent external
property market data. During 2012 the impairment charges mainly related to property, plant and equipment at the Nutley site.
Classification of impairment of property, plant and equipment in millions of CHF
Cost of sales
2013
2012
536
(55)
Marketing and distribution
(3)
(4)
Research and development
(24)
(98)
General and administration
(35)
(305)
Total impairment reversal (charge)
474
(462)
In 2013 no reimbursements were received from insurance companies in respect of impairments to property, plant and
equipment (2012: none). In 2013 no borrowing costs were capitalised as property, plant and equipment (2012: none).
Leasing arrangements where the Group is the lessee
Finance leases. At 31 December 2013 the capitalised cost of property, plant and equipment under finance leases was
294 million Swiss francs (2012: 327 million Swiss francs) and the net book value of these assets was 124 million Swiss francs
(2012: 159 million Swiss francs). The carrying value of the leasing obligation was 178 million Swiss francs (2012: 203 million
Swiss francs), which is reported as part of Debt (see Note 20).
Finance leases: future minimum lease payments under non-cancellable leases in millions of CHF
Future minimum lease
payments
2013
2012
Within one year
Between one and five years
More than five years
Total
Future finance charges
Total future minimum lease payments (undiscounted)
Present value of minimum
lease payments
2013
2012
31
31
20
19
134
133
105
97
52
94
53
87
217
258
178
203
–
–
39
55
217
258
217
258
Operating leases. Group companies are party to a number of operating leases, mainly for plant and machinery, including
motor vehicles, and for certain short-term property rentals. The arrangements do not impose any significant restrictions
on the Group. Total operating lease rental expense was 408 million Swiss francs (2012: 404 million Swiss francs).
68­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Operating leases: future minimum lease payments under non-cancellable leases in millions of CHF
2013
2012
Within one year
253
258
Between one and five years
564
531
More than five years
181
159
Total minimum payments
998
948
Leasing arrangements where the Group is the lessor
Finance leases. Certain assets, mainly Diagnostics instruments, are leased to third parties through finance lease
arrangements. Such assets are reported as receivables at an amount equal to the net investment in the lease. Lease income
from finance leases is recognised over the term of the lease based on the effective interest rate method.
Finance leases: future minimum lease receipts under non-cancellable leases in millions of CHF
Present value of
minimum lease receipts
2013
2012
Gross investment in lease
2013
2012
Within one year
48
42
44
38
Between one and five years
82
93
75
87
1
1
1
1
131
136
120
126
n/a
n/a
More than five years
Total
Unearned finance income
(9)
(9)
Unguaranteed residual value
n/a
n/a
2
1
Net investment in lease
122
127
122
127
The accumulated allowance for uncollectible minimum lease payments was 3 million Swiss francs (2012: 2 million Swiss francs).
There were no contingent rents recognised in income.
Operating leases. Certain assets, mainly Diagnostics instruments, are leased to third parties through operating lease
arrangements. Such assets are reported within property, plant and equipment. Lease income from operating leases is
recognised over the lease term on a straight-line basis.
At 31 December 2013 machinery and equipment with an original cost of 3,639 million Swiss francs (2012: 3,382 million
Swiss francs) and a net book value of 1,407 million Swiss francs (2012: 1,361 million Swiss francs) was being leased to third
parties. There were no contingent rents recognised in income.
Operating leases: future minimum lease receipts under non-cancellable leases in millions of CHF
Within one year
Between one and five years
More than five years
Total minimum receipts
2013
2012
71
151
141
124
1
3
213
278
Capital commitments
The Group has non-cancellable capital commitments for the purchase or construction of property, plant and equipment
totalling 1.1 billion Swiss francs (2012: 0.5 billion Swiss francs).
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
69­
8. Goodwill
Goodwill: movements in carrying value of assets in millions of CHF
2013
2012
7,662
7,843
At 1 January
Cost
Accumulated impairment
Net book value
(182)
–
7,480
7,843
7,480
7,843
Year ended 31 December
At 1 January
Business combinations 5
Impairment charge
Currency translation effects
101
(288)
(148)
–
(187)
(176)
At 31 December
7,145
7,480
Cost
7,601
7,662
Accumulated impairment
Net book value
(456)
(182)
7,145
7,480
1,989
2,047
Allocated to the following cash-generating units
Roche Pharmaceuticals
Chugai
Total Pharmaceuticals Division
Diabetes Care
Professional Diagnostics
93
117
2,082
2,164
835
832
1,599
1,539
Molecular Diagnostics
–
–
Applied Science
–
34
536
801
Strategic goodwill (held at divisional level and not allocated to business areas)
Tissue Diagnostics
2,093
2,110
Total Diagnostics Division
5,063
5,316
Impairment charge
During 2013 impairment charges totalling 288 million Swiss francs were recorded which related to:
A goodwill impairment charge of 253 million Swiss francs was recorded in the Tissue Diagnostics business area within
the Diagnostics Division. This impairment is based on the latest business plans prepared during the second half of 2013.
The main factors leading to this impairment were reduced revenue expectations in the US following recent changes in
the College of American Pathologists guidelines for the use of negative reagent controls in immunohistochemistry testing
which reduced volumes and changes which reduced the reimbursement amount to laboratories.
On 23 April 2013 the Group announced a reorganisation of the Applied Science business area (see Note 6). A goodwill
impairment charge of 35 million Swiss francs was incurred for the full write-off of the goodwill from the 454 Life Sciences
acquisition in 2007 and the Innovatis acquisition in 2009 in the former Applied Science business area.
During 2012 a goodwill impairment charge of 187 million Swiss francs was incurred for the full write-off of the goodwill from
the NimbleGen acquisition in 2007 (see Note 6).
70­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Impairment testing
Pharmaceuticals Division. The division’s sub-divisions are the cash-generating units used for the testing of goodwill.
For Chugai, the recoverable amount is based on fair value less costs to sell, determined with reference to the publicly quoted
share prices of Chugai shares. For Roche Pharmaceuticals, the recoverable amount used in the impairment testing is based
on value in use. The cash flow projections used for Roche Pharmaceuticals impairment testing are based on the most recent
business plans approved by management. The business plans include management’s latest estimates on sales volume and
pricing, and production and other operating costs and assumes no significant changes in the organisation.
The business plans are projected over five years. These valuations include a terminal value beyond these years, assuming
no further growth. The discount rate used is based on an after-tax rate of 7.3% (2012: 6.4%), which is derived from a capital
asset pricing model using data from capital markets, including government twenty-year bonds. A weighted average tax rate
of 25.5% (2012: 25.5%) is used in the calculations and the corresponding pre-tax discount rate is 9.8% (2012: 8.6%).
Diagnostics Division. The division’s business areas are the cash-generating units used for the testing of goodwill. The
goodwill arising from the Corange/Boehringer Mannheim acquisition and part of the goodwill from the Ventana acquisition
is recorded and monitored at a divisional level as it relates to the strategic development of the whole division and cannot
be meaningfully allocated to the division’s business areas. Therefore the cash-generating unit for this goodwill is the entire
division.
The recoverable amount used in the impairment testing is based on value in use and the cash flow projections are based
on the most recent business plans approved by management. The business plans include management’s latest estimates on
sales volume and pricing, and production and other operating costs and assumes no significant changes in the organisation.
The business plans are projected over five years, except for the Tissue Diagnostics business area which is projected over
ten years reflecting the long-term nature of this business. These valuations include a terminal value beyond these years,
assuming no further growth. The discount rate used is based on an after-tax rate of 7.3% (2012: 6.4%), which is derived from
a capital asset pricing model using data from capital markets, including government twenty-year bonds. A weighted average
tax rate of 17.6% (2012: 15.9%) is used in the calculations and the corresponding pre-tax discount rate is 8.8% (2012: 7.7%).
Sensitivity analysis
Management has performed sensitivity analyses for both Roche Pharmaceuticals and the Diagnostics Division, which
increased the discount rate by 1% combined with decreasing the forecast cash flows by 5%, and for Chugai, which
decreased the publicly quoted share prices by 5%. Except for the Tissue Diagnostics business area, the results of the
sensitivity analyses demonstrated that the above changes in the key assumptions would not cause the carrying value of
goodwill to exceed the recoverable amount at 31 December 2013. The above key assumption changes would result in
a further goodwill impairment of 365 million Swiss francs in the Tissue Diagnostics business area at 31 December 2013.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
71­
9. Intangible assets
Intangible assets: movements in carrying value of assets in millions of CHF
Product
intangibles:
in use
Product
intangibles:
not available
for use
13,185
2,748
Marketing
intangibles:
in use
Technology
intangibles:
in use
Total
At 1 January 2012
Cost
Accumulated amortisation and impairment
Net book value
(10,440)
(422)
32
612
16,577
(20)
(569)
(11,451)
2,745
2,326
12
43
5,126
2,745
2,326
12
43
5,126
17
–
–
–
17
122
85
2
25
234
121
(121)
Year ended 31 December 2012
At 1 January 2012
Business combinations 5
Additions
Transfers
Amortisation charge
(514)
–
–
–
(6)
(10)
–
(530)
Impairment charge
(41)
(476)
–
(8)
(525)
Currency translation effects
(69)
(39)
–
–
(108)
8
50
At 31 December 2012
Cost
Accumulated amortisation and impairment
Net book value
2,381
1,775
12,968
2,375
(10,587)
(600)
2,381
1,775
Roche Pharmaceuticals
606
Chugai
157
Diagnostics
Total Group
4,214
35
621
15,999
(27)
(571)
(11,785)
8
50
4,214
1,287
–
42
1,935
–
2
–
159
1,618
488
6
8
2,120
2,381
1,775
8
50
4,214
2,381
1,775
8
50
4,214
–
262
–
–
262
Additions
117
270
1
27
415
Transfers
138
(138)
–
–
–
Allocation by operating segment
Year ended 31 December 2013
At 1 January 2013
Business combinations 5
Amortisation charge
Impairment charge
Currency translation effects
At 31 December 2013
Cost
Accumulated amortisation and impairment
Net book value
(489)
(25)
(46)
(5)
(9)
(503)
(337)
–
–
–
(362)
(33)
(1)
(2)
3
66
2,076
1,799
12,888
2,668
(10,812)
(869)
2,076
1,799
672
87
Diagnostics
Total Group
(82)
3,944
35
632
16,223
(32)
(566)
(12,279)
3
66
3,944
1,049
–
60
1,781
8
1
1
97
1,317
742
2
5
2,066
2,076
1,799
3
66
3,944
Allocation by operating segment
Roche Pharmaceuticals
Chugai
72­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Significant intangible assets at 31 December 2013 in millions of CHF
Operating segment
Net book value
Remaining
amortisation period
Roche Pharmaceuticals
214
6 years
Product intangibles in use
Tanox acquisition
Corange/Boehringer Mannheim acquisition
Diagnostics
478
4 years
Ventana acquisition
Diagnostics
269
4 years
Ventana acquisition
Diagnostics
458
n/a
CMI acquisition
Diagnostics
251
n/a
Product intangibles not available for use
Classification of amortisation and impairment expenses in millions of CHF
2013
Amortisation
2012
2013
Impairment
2012
Cost of sales
–– Pharmaceuticals
(122)
(146)
–
(13)
–– Diagnostics
(320)
(341)
–
(28)
Marketing and distribution
–– Pharmaceuticals
–– Diagnostics
–
–
–
–
(5)
(6)
–
–
(55)
(35)
(350)
(476)
(1)
(2)
(12)
(8)
(503)
(530)
(362)
(525)
Research and development
–– Pharmaceuticals
–– Diagnostics
Total
Internally generated intangible assets
The Group currently has no internally generated intangible assets from development as the criteria for the recognition
as an asset are not met.
Intangible assets with indefinite useful lives
The Group currently has no intangible assets with indefinite useful lives.
Intangible assets not available for use
These mostly represent in-process research and development assets acquired either through in-licensing arrangements,
business combinations or separate purchases. At 31 December 2013 approximately 49% of the projects in the Pharmaceuticals
Division have known decision points within the next twelve months which in certain circumstances could lead to impairment.
Due to the inherent uncertainties in the research and development processes, intangible assets not available for use are
particularly at risk of impairment if the project is not expected to result in a commercialised product.
Intangible asset impairment
Impairment charges arise from changes in the estimates of the future cash flows expected to result from the use of the asset
and its eventual disposal. Factors such as the presence or absence of competition, technical obsolescence or lower than
anticipated sales for products with capitalised rights could result in shortened useful lives or impairment.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
73­
Impairment charges – 2013
Pharmaceuticals Division. Impairment charges totalling 350 million Swiss francs were recorded which related to:
A portfolio reassessment within the hepatitis C virus (HCV) franchise (286 million Swiss francs). The assets concerned,
which were not yet being amortised, were written down to their recoverable value of 167 million Swiss francs.
A portfolio reassessment within the cardiovascular and metabolic diseases franchise (31 million Swiss francs). The asset
concerned, which was not yet being amortised, was fully written down.
A decision to stop two collaboration projects with alliance partners (26 million Swiss francs). The assets concerned, which
were being amortised, were fully written down.
A decision to stop development of one compound with an alliance partner (7 million Swiss francs). The asset concerned,
which was not yet being amortised, was fully written down.
Diagnostics Division. Impairment charges totalling 12 million Swiss francs were recorded from the Applied Science
business area reorganisation (see Note 6). The assets concerned, which were not yet being amortised, were fully written
down.
Impairment charges – 2012
Pharmaceuticals Division. Impairment charges totalling 489 million Swiss francs were recorded which related to:
A clinical data assessment of a project acquired as part of the Marcadia acquisition (162 million Swiss francs).
Various global restructuring initiatives (158 million Swiss francs), mainly related to the termination of the dalcetrapib trials
(see Note 6).
Portfolio prioritisation decisions (103 million Swiss francs), mainly related to the return of the monoclonal antibody RG 7334
anti-PLGF MAb to the alliance partners.
A clinical data assessment of two collaboration projects with alliance partners (53 million Swiss francs).
A decision to stop development of one compound with an alliance partner (13 million Swiss francs).
Diagnostics Division. Impairment charges totalling 36 million Swiss francs were recorded which mainly related to
the Applied Science business area restructuring (see Note 6).
Potential commitments from alliance collaborations
The Group is party to in-licensing and similar arrangements with its alliance partners. These arrangements may require
the Group to make certain milestone or other similar payments dependent upon the achievement of agreed objectives or
performance targets as defined in the collaboration agreements.
The Group’s current estimate of future third-party commitments for such payments is set out in the table below. These
figures are undiscounted and are not risk adjusted, meaning that they include all such potential payments that can arise
assuming all projects currently in development are successful. The timing is based on the Group’s current best estimate.
These figures do not include any potential commitments within the Group, such as may arise between the Roche and Chugai
businesses.
Potential future third-party collaboration payments at 31 December 2013 in millions of CHF
74­
Pharmaceuticals
Diagnostics
Group
Within one year
190
11
201
Between one and two years
491
29
520
Between two and three years
193
9
202
Total
874
49
923
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
10. Inventories
Inventories in millions of CHF
2013
2012
2011
Raw materials and supplies
921
827
817
Work in process
125
158
155
Intermediates
4,111
3,718
3,101
Finished goods
1,177
1,231
1,348
Less: provision for slow-moving and obsolete inventory
Total inventories
(428)
5,906
(392)
5,542
(361)
5,060
Inventories expensed through cost of sales totalled 8.8 billion Swiss francs (2012: 8.6 billion Swiss francs). Inventory writedowns during the year resulted in an expense of 303 million Swiss francs (2012: 306 million Swiss francs).
11. Accounts receivable
Accounts receivable in millions of CHF
2013
2012
2011
Trade receivables
9,296
10,091
10,270
Notes receivable
141
141
152
Other receivables
Allowances for doubtful accounts
Charge-backs and other allowances
44
38
30
(425)
(474)
(431)
(248)
Total accounts receivable
8,808
(331)
9,465
(222)
9,799
Allowances for doubtful accounts: movements in recognised liability in millions of CHF
2013
2012
At 1 January
(474)
(431)
Additional allowances created
(186)
(313)
188
239
Utilised during the year
28
23
Currency translation effects
19
Unused amounts reversed
At 31 December
(425)
8
(474)
Bad debt reversal credited to marketing and distribution totalled 12 million Swiss francs (2012: expense of 64 million Swiss
francs).
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
75­
12. Marketable securities
Marketable securities in millions of CHF
2013
2012
2011
Available-for-sale financial assets
Equity securities
436
272
241
Debt securities
793
1,558
1,428
6,706
7,631
5,764
–
–
–
7,935
9,461
7,433
Money market instruments and time accounts over three months
Other investments
Total marketable securities
Marketable securities are held for fund management purposes and are primarily denominated in Swiss francs, US dollars
and euros. Money market instruments are contracted to mature within one year of 31 December 2013.
Debt securities – contracted maturity in millions of CHF
2013
2012
2011
Within one year
267
1,273
735
Between one and five years
477
269
693
More than five years
Total debt securities
49
16
–
793
1,558
1,428
2013
2012
2011
3,329
3,725
2,838
671
805
1,016
4,000
4,530
3,854
13. Cash and cash equivalents
Cash and cash equivalents in millions of CHF
Cash – cash in hand and in current or call accounts
Cash equivalents – time accounts with a maturity
of three months or less
Total cash and cash equivalents
76­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
14. Other non-current assets
Other non-current assets in millions of CHF
Available-for-sale investments – held at fair value
2013
2012
2011
169
125
148
Available-for-sale investments – held at cost
40
57
53
Loans receivable
12
12
6
Long-term trade receivables
12
21
35
Restricted cash
32
35
37
29
Other receivables
77
89
81
Total financial non-current assets
342
339
360
Long-term employee benefits
243
254
240
Other assets
214
197
220
Total non-financial non-current assets
457
451
460
12
24
24
811
814
844
Associates
Total other non-current assets
The available-for-sale investments are mainly equity investments in private biotechnology companies, which are kept as
part of the Group’s strategic alliance efforts. Some unquoted equity investments classified as available-for-sale are measured
at cost, as their fair value cannot be measured reliably.
15. Other current assets
Other current assets in millions of CHF
2013
Accrued interest income
Derivative financial instruments 29
Restricted cash
Other receivables
2012
2011
51
34
20
653
454
274
–
–
–
581
617
699
1,285
1,105
993
Prepaid expenses
420
421
383
Other taxes recoverable
417
338
350
Total financial current assets
Other assets
175
170
138
Total non-financial current assets
1,012
929
871
Total other current assets
2,297
2,034
1,864
Other receivables are mainly related to royalty and licensing income receivables.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
77­
16. Accounts payable
Accounts payable in millions of CHF
Trade payables
Other taxes payable
Dividends payable
Other payables
Total accounts payable
2013
2012
2011
1,548
1,132
1,213
380
334
403
2
2
2
232
477
435
2,162
1,945
2,053
2011
17. Other non-current liabilities
Other non-current liabilities in millions of CHF
2013
2012
Deferred income
103
99
63
Other long-term liabilities
199
220
247
Total other non-current liabilities
302
319
310
2012
2011
Other long-term liabilities are mainly related to accrued long-term employee benefits.
18. Other current liabilities
Other current liabilities in millions of CHF
2013
Deferred income
Accrued payroll and related items
Interest payable
Derivative financial instruments
156
373
1,998
1,804
542
749
887
354
165
104
1,105
1,022
898
837
939
882
Other accrued liabilities
2,234
2,137
1,867
Total other current liabilities
7,425
7,166
6,815
29
Accrued charge-backs and other allowances
Accrued royalties and commissions
78­
334
2,019
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
19. Provisions and contingent liabilities
Provisions: movements in recognised liabilities in millions of CHF
Legal
provisions
Environmental
provisions
Restructuring
provisions
Employee
provisions
Other
provisions
Total
Year ended 31 December 2012
At 1 January 2012
Additional provisions created
746
265
566
289
867
2,733
86
317
607
137
509
1,656
Unused amounts reversed
(21)
–
(139)
(9)
(124)
(293)
Utilised
(65)
(15)
(326)
(104)
(318)
(828)
Discount unwind 3
1
7
–
1
3
12
–– Acquired companies 5
–
–
–
–
–
–
–– Contingent consideration 29
–
–
–
–
(23)
(23)
Business combinations
Currency translation effects
(19)
At 31 December 2012
728
Current
703
109
522
91
733
2,158
25
457
176
222
162
1,042
728
566
698
313
895
3,200
Non-current
At 31 December 2012
(8)
566
(10)
698
(1)
313
(19)
895
(57)
3,200
Year ended 31 December 2013
At 1 January 2013
728
566
698
313
895
3,200
Additional provisions created
119
155
400
131
529
1,334
Unused amounts reversed
Utilised
Discount unwind 3
(31)
(56)
(97)
(7)
(93)
(284)
(163)
(46)
(396)
(100)
(295)
(1,000)
–
15
–
2
3
20
–– Acquired companies 5
–
–
–
–
–
–
–– Contingent consideration 29
–
–
–
–
32
32
Business combinations
Currency translation effects
(19)
(10)
At 31 December 2013
634
624
Current
618
183
404
93
850
2,148
16
441
197
249
194
1,097
634
624
601
342
1,044
3,245
2,148
Non-current
At 31 December 2013
(4)
601
3
342
(27)
1,044
(57)
3,245
Expected outflow of resources
Within one year
618
183
404
93
850
13
182
108
40
17
360
Between two and three years
2
66
32
30
85
215
More than three years
1
193
57
179
92
522
634
624
601
342
1,044
3,245
Between one and two years
At 31 December 2013
Legal provisions
Legal provisions consist of a number of separate legal matters, including claims arising from trade, in various Group
companies. By their nature the amounts and timings of any outflows are difficult to predict.
In 2013 legal expenses totalled 97 million Swiss francs (2012: 72 million Swiss francs) which reflect the recent developments
in various legal matters. Details of the major legal cases outstanding are disclosed below.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
79­
Environmental provisions
Provisions for environmental matters include various separate environmental issues in a number of countries. By their nature
the amounts and timings of any outflows are difficult to predict. Significant provisions are discounted by between 4% and 5%
where the time value of money is material. The significant provisions relate to the closure of the US site in Nutley, New Jersey
and the estimated remediation costs for a landfill site near Grenzach, Germany, that was used by manufacturing operations
that were closed some years ago. During 2013 there was an increase of 138 million Swiss francs to the estimated remediation
costs for the landfill site near Grenzach, which is based on the latest remediation plan which is due to be submitted to the
local authorities for approval in 2014. The first results of the environmental investigations at Nutley showed that the expected
cost of remediation may be lower than originally expected and accordingly the environmental provisions were reduced by
53 million Swiss francs.
Restructuring provisions
These arise from planned programmes that materially change the scope of business undertaken by the Group or the manner
in which business is conducted. Such provisions include only the costs necessarily entailed by the restructuring which are
not associated with the recurring activities of the Group. The timings of these cash outflows are reasonably certain. These
provisions are not discounted as the time value of money is not material in these matters. The significant provisions relate to
the restructuring of research and development activities within the Pharmaceuticals Division, mainly related to the closure
of the US site in Nutley, New Jersey and the restructuring of the Diabetes Care and Applied Science businesses within the
Diagnostics Division.
Employee provisions
These mostly relate to certain employee benefit obligations, such as sabbatical leave and long-service benefits. The timings
of these cash outflows can be reasonably estimated based on past performance.
Other provisions
The timings of cash outflows are by their nature uncertain and the best estimates are shown in the table below.
Other provisions in millions of CHF
2013
2012
Sales returns
652
503
377
Contingent consideration 29
122
81
153
Other items
Total other provisions
2011
270
311
337
1,044
895
867
Contingent liabilities
The operations and earnings of the Group continue, from time to time and in varying degrees, to be affected by political,
legislative, fiscal and regulatory developments, including those relating to environmental protection, in the countries in
which it operates. The industries in which the Group operates are also subject to other risks of various kinds. The nature
and frequency of these developments and events, not all of which are covered by insurance, as well as their effect on future
operations and earnings, are not predictable.
The Group has entered into strategic alliances with various companies in order to gain access to potential new products or
to utilise other companies to help develop the Group’s own potential new products. Potential future payments may become
due to certain collaboration partners achieving certain milestones as defined in the collaboration agreements. The Group’s
best estimates of future commitments for such payments are given in Note 9.
80­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Pharmaceuticals legal cases
Accutane. Hoffmann-La Roche Inc. (‘HLR’) and various other Roche affiliates have been named as defendants in numerous
legal actions in the United States and elsewhere relating to the acne medication Accutane. The litigation alleges that
Accutane caused certain serious conditions, including, but not limited to, inflammatory bowel disease (‘IBD’), birth defects
and psychiatric disorders. At 31 December 2013 HLR was defending approximately 7,760 actions involving approximately
7,863 plaintiffs brought in various federal and state courts throughout the US for personal injuries allegedly resulting from
their use of Accutane. Most of the actions allege IBD as a result of Accutane use. In 2009 HLR announced that, following
a re-evaluation of its portfolio of medicines that are now available from generic manufacturers, rapidly declining brand sales
in the US and high costs from personal-injury lawsuits that it continues to defend vigorously, it had decided to immediately
discontinue the manufacture and distribution of the product in the US.
All of the actions pending in federal court alleging IBD were consolidated for pre-trial proceedings in a Multi-District
Litigation in the US District Court for the Middle District of Florida, Tampa Division. Since July 2007 the District Court has
granted summary judgment in favour of HLR for all of the federal IBD cases that have proceeded. Since August 2008 all
of these rulings have been affirmed by the US Court of Appeals for the Eleventh Circuit when plaintiffs appealed. Multiple
recently filed matters remain pending.
All of the actions pending in state court in New Jersey alleging IBD were consolidated for pre-trial proceedings in the
Superior Court of New Jersey, Law Division, Atlantic County. At 31 December 2013 juries in the Superior Court have ruled
in favour of the plaintiff in eight cases, assessing total compensatory damages totalling 67.7 million US dollars, and ruled
in favour of HLR in four cases. For the eight cases that were originally ruled in favour of the plaintiff by the Superior Court,
HLR is in the process of appealing two cases (27.4 million US dollars); one case is scheduled for a retrial in January 2014
(10.5 million US dollars); post-trial briefing is ongoing for two cases (18.0 million US dollars); and three cases have had their
verdicts reversed in favour of HLR (11.8 million US dollars).
Additional trials may be scheduled for 2014. Individual trial results depend on a variety of factors, including many that are
unique to the particular case and therefore the trial results to date may not be predictive of future trial results. The Group
continues to defend vigorously the remaining personal injury cases and claims.
Rituxan arbitration. In October 2008 Genentech and Biogen Idec Inc. filed a complaint in California against Sanofi-Aventis
Deutschland GmbH (‘Sanofi’), Sanofi-Aventis US LLC and Sanofi-Aventis US Inc. seeking a declaratory judgment that certain
Genentech products, including Rituxan, do not infringe Sanofi’s US Patent Nos. 5,849,522 and 6,218,140 and that the ‘522
and ‘140 patents are invalid. Sanofi alleged that Rituxan and another Genentech product infringe certain claims of the ‘522
and ‘140 patents. In March 2011 the district court ruled as a matter of law that Genentech and Biogen Idec do not infringe
the asserted patent claims. In May 2011 Sanofi appealed the court’s non-infringement ruling. The appellate court affirmed
the district court’s judgment of no patent infringement.
In addition in October 2008 Sanofi affiliate Hoechst GmbH filed with the ICC International Court of Arbitration (Paris)
a request for arbitration with Genentech, relating to a terminated patent-license agreement between one of Hoechst’s
predecessors and Genentech that pertained to the above-mentioned patents and related patents outside the US. Hoechst
sought payment of patent-license royalties on sales of certain Genentech products, including Rituxan, damages for breach
of contract, and other relief. In various arbitral awards in September 2012 and February 2013, the arbitrator found Genentech
liable to Hoechst for patent-license royalties on Rituxan, and he awarded the royalties and interest that Hoechst had sought.
In February 2013 the Group recorded a back royalty expense of 42 million Swiss francs, net of the assumed reimbursement
of a portion of the Group’s obligation by its co-promotion partner in the US, and a corresponding amount in accrued liabilities
(31 December 2012: accrued liability of 61 million Swiss francs).
Hoechst initiated proceedings in the US, France and Germany seeking to enforce the arbitral awards. In October 2013
Genentech paid the awarded royalties and interest to Hoechst under protest. Genentech is seeking annulment of the arbitral
awards through proceedings it initiated in the Court of Appeal of Paris. A hearing in those proceedings is scheduled for
June 2014. The outcome of this matter cannot be determined at this time.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
81­
Average Wholesale Prices litigation. HLR and Roche Laboratories Inc. (‘RLI’), along with approximately 50 other brand
and generic pharmaceutical companies, have been named as defendants in several legal actions in the US relating to
the pricing of pharmaceutical drugs and State Medicaid reimbursement. The primary allegation in these litigations is that
the pharmaceutical companies misrepresented or otherwise reported inaccurate Average Wholesale Prices (‘AWP’) and/
or Wholesale Acquisition Costs (‘WAC’) for their drugs, which prices were allegedly relied upon by the States in calculating
Medicaid reimbursements to entities such as retail pharmacies. The States, through their respective Attorney General,
are seeking repayment of the amounts they claim were over-reimbursed. The time period associated with these cases is 1991
through 2005. At 31 December 2013 HLR and RLI are defending one AWP action filed in the state of New Jersey. Discovery
is currently pending in this case. HLR and RLI are vigorously defending themselves in this matter. The outcome of this matter
cannot be determined at this time.
PDL litigation. In August 2010 PDL Biopharma (‘PDL’) filed a complaint in Nevada against Genentech seeking a judicial
declaration concerning Genentech’s obligation to pay royalties on certain ex-US sales of Herceptin, Avastin, Xolair and
Lucentis under a 2003 agreement between the parties. In September 2010 PDL filed a first amended complaint asserting
additional claims against Genentech, including breach of contract and breach of the implied covenant of good faith and fair
dealing. PDL also asserted new claims against Roche and Novartis for intentional interference with contractual relations.
In addition to declaratory relief, PDL is seeking monetary damages including compensatory and liquidated damages. In
November 2010 Genentech and Roche filed a motion to dismiss for failure to state a claim, and Roche filed an additional
motion to dismiss for lack of personal jurisdiction. In July 2011 the court denied the motions. PDL settled its claim against
Novartis.
In addition to the litigation, PDL conducted a royalty audit related to sales of Avastin, Herceptin, Lucentis, Xolair and Raptiva
for the years 2007 through 2009. The final audit report indicated that, under PDL’s interpretation of certain contract terms,
Genentech owes PDL additional royalties for the audit period. Under the same interpretation, Genentech may owe additional
royalties for years subsequent to the audit period. The Group disputes PDL’s interpretation of the relevant contract terms
and does not believe that additional royalties are owed. In June 2013 PDL filed a demand for arbitration related to its audit
claims with the American Arbitration Association.
The parties have stayed the arbitration proceeding and Nevada litigation, and are engaged in discussions to determine
if a settlement of certain issues is possible.
GSK litigation. In September 2010 GlaxoSmithKline LLC (‘GSK’) and Genentech each filed patent lawsuits against one
another in Delaware and California, respectively. The lawsuits concern GSK’s US Patent Nos. RE40,070 and RE41,555.
GSK is asserting claims against Genentech alleging infringement of the patents by Herceptin and Lucentis, and is seeking
compensatory damages. In its lawsuit Genentech is seeking a judicial declaration of non-infringement and invalidity of
the patents. In June 2012 the parties agreed to dismiss the California action without prejudice and the consolidated case
is now proceeding in Delaware. On 22 August 2013 the Delaware Court issued a claim construction order construing two
terms of the ‘555 patent. Trial is scheduled for June 2014. The outcome of this matter cannot be determined at this time.
Boniva litigation. HLR, Genentech and various other Roche affiliates (collectively ‘Roche’) have been named as
defendants in numerous legal actions in the US and Canada relating to the post-menopausal osteoporosis medication Boniva.
In these litigations, the plaintiffs allege that Boniva caused either osteonecrosis of the jaw or atypical femoral fractures.
At 31 December 2013 Roche is defending approximately 306 actions involving approximately 320 plaintiffs brought in federal
and state courts throughout the US and one action brought in the Court of the Queen’s Bench, Province of Saskatchewan,
Canada, for personal injuries allegedly resulting from the use of Boniva. All of these cases are in the early discovery stages
of litigation. Individual trial results depend on a variety of factors, including many that are unique to the particular case. Roche
is vigorously defending itself in these matters. The outcome of these matters cannot be determined at this time.
82­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
EMA investigation. On 23 October 2012 the European Medicines Agency (‘EMA’) announced that it would start an
infringement procedure to investigate allegations regarding an alleged breach of medicines safety reporting obligations in
relation to 19 centrally authorised medicines. On 19 November 2013 the EMA announced the results of the Pharmacovigilance
Risk Assessment Committee assessment of Roche’s medicines. The EMA found no impact regarding the benefit-risk balance
of any of Roche’s medicines and confirmed the benefit-risk profiles based on available safety information. The EMA and
other health authorities have confirmed all medicines remain authorised without changes to the treatment advice for patients
and healthcare professionals. All corrective and preventative actions resulting from the inspections are being implemented.
A re-inspection by authorities in November 2013 led to certain findings which Roche is now addressing. The EMA
infringement procedure is ongoing and the EMA is expected to issue its report to the EU Commission by April 2014 at
the latest. The outcome of this investigation cannot be determined at this time.
Diagnostics legal cases
Marsh Supermarkets litigation. In July 2008 Marsh Supermarkets Inc. (‘Marsh’) filed a breach of contract suit against
Roche Diagnostics Operations, Inc. (‘RDO’). The lawsuit relates to the termination of a sub-lease agreement for a building
by RDO. In December 2011 a Hamilton Superior Court judge awarded Marsh 19.5 million US dollars, which was provided for
in 2011. On 1 April 2013 the Court of Appeals of Indiana upheld the judgment. On 31 October 2013, after the Indiana Supreme
Court had declined to hear the further appeal by Roche, RDO paid the final awarded damages and interest of 22.5 million
US dollars to Marsh. This matter is now concluded.
20. Debt
Debt: movements in carrying value of recognised liabilities in millions of CHF
At 1 January
Proceeds from issue of bonds and notes
2013
2012
24,590
26,853
–
Redemption and repurchase of bonds and notes
(6,633)
2,698
(4,326)
Increase (decrease) in commercial paper
404
(687)
Increase (decrease) in other debt
151
153
Net (gains) losses on redemption and repurchase of bonds and notes
248
247
23
30
Amortisation of debt discount 3
Business combinations 5
Net foreign currency transaction (gains) losses
Currency translation effects and other
–
–
170
325
(310)
(703)
At 31 December
18,643
24,590
Bonds and notes
17,293
23,720
Commercial paper
702
324
Amounts due to banks and other financial institutions
459
336
Finance lease obligations
178
203
7
Other borrowings
11
7
Total debt
18,643
24,590
Long-term debt
16,423
17,860
Short-term debt
Total debt
2,220
6,730
18,643
24,590
There are no pledges on the Group’s assets in connection with debt.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
83­
Bonds and notes
Recognised liabilities and effective interest rates of bonds and notes in millions of CHF
Effective interest rate
Underlying
Including
instrument
hedging
2013
2012
2011
US dollar-denominated notes – fixed rate
5.0% notes due 1 March 2014, principal 2.75 billion US dollars
(ISIN: USU75000AL00 and US771196AQ59)
5.31%
4.85%
–
1,667
1,637
6.37%
6.00%
3,702
4,053
4,163
7.43%
n/a
2,145
2,205
2,268
4.82%
5.53%
–
3,997
5,213
5.70%
5.78%
1,316
1,325
1,297
5.70%
6.36%
2,571
2,531
3,342
2.07%
n/a
1,222
1,203
–
6.66%
7.00%
2,128
2,093
2,110
5.46%
n/a
290
292
287
0.32%
n/a
–
400
–
2.68%
2.88%
–
–
2,208
4.77%
n/a
1,489
1,487
1,483
1.04%
0.94%
599
599
–
1.64%
n/a
499
499
–
4.87%
n/a
888
913
940
5.39%
n/a
444
456
470
17,293
23,720
25,418
6.0% notes due 1 March 2019, principal 4.5 billion US dollars,
outstanding 4.1 billion US dollars (ISIN: USU75000AM82 and
US771196AS16)
7.0% notes due 1 March 2039, principal 2.5 billion US dollars
(ISIN: USU75000AN65 and US771196AU61)
European Medium Term Note programme – fixed rate
4.625% notes due 4 March 2013, principal 5.25 billion euros
(ISIN: XS0415624393)
5.5% notes due 4 March 2015, principal 1.25 billion pounds sterling,
outstanding 0.90 billion pounds sterling (ISIN: XS0415625283)
5.625% notes due 4 March 2016, principal 2.75 billion euros,
outstanding 2.10 billion euros (ISIN: XS0415624120)
2.0% notes due 25 June 2018, principal 1.0 billion euros
(ISIN: XS0760139773)
6.5% notes due 4 March 2021, principal 1.75 billion euros
(ISIN: XS0415624716)
5.375% notes due 29 August 2023, principal 250 million pounds
sterling, outstanding 200 million pounds sterling (ISIN: XS0175478873)
Swiss franc bonds – floating rate
Notes due 23 September 2013, principal 0.4 billion Swiss francs
(ISIN: CH0180513035)
Swiss franc bonds – fixed rate
2.5% bonds due 23 March 2012, principal 2.5 billion Swiss francs
(ISIN: CH0038365117)
4.5% bonds due 23 March 2017, principal 1.5 billion Swiss francs
(ISIN: CH0039139263)
1.0% bonds due 21 September 2018, principal 0.6 billion Swiss francs
(ISIN: CH0180513068)
1.625% bonds due 23 September 2022, principal 0.5 billion Swiss francs
(ISIN: CH0180513183)
Genentech Senior Notes
4.75% Senior Notes due 15 July 2015, principal 1.0 billion US dollars
(ISIN: US368710AG46)
5.25% Senior Notes due 15 July 2035, principal 500 million US dollars
(ISIN: US368710AC32)
Total bonds and notes
84­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Bonds and notes – maturity in millions of CHF
2013
2012
2011
Within one year
1,040
6,064
2,208
Between one and two years
2,204
–
5,213
Between two and three years
2,571
2,238
1,637
Between three and four years
1,489
2,531
2,237
Between four and five years
1,821
1,487
3,342
More than five years
8,168
11,400
10,781
17,293
23,720
25,418
2013
2012
2011
Total bonds and notes
Unamortised discount included in carrying value of bonds and notes in millions of CHF
US dollar notes
109
139
157
Euro notes
24
30
41
Swiss franc bonds
13
16
18
5
8
10
151
193
226
Pound sterling notes
Total unamortised discount
Issuance of bonds and notes – 2013
The Group did not issue any bonds or notes during 2013.
Issuance of bonds and notes – 2012
The Group raised net proceeds of approximately 2.7 billion Swiss francs through a series of debt offerings in 2012. All newly
issued debt was senior, unsecured and has been guaranteed by Roche Holding Ltd.
Redemption and repurchase of bonds and notes – 2013
Redemption of euro-denominated notes. On the due date of 4 March 2013 the Group redeemed the 4.625% fixed rate
notes with a principal of 3.313 billion euros. The cash outflow was 4,068 million Swiss francs, plus accrued interest, and there
was no gain or loss recorded on the redemption. The effective interest rate of these notes was 5.53%.
Redemption of US dollar-denominated notes. On 20 December 2012 the Group resolved to exercise its option to call
for redemption of the entire outstanding US dollar-denominated 5.0% fixed rate notes due 1 March 2014. On 21 March 2013
the Group redeemed the remaining outstanding principal of 1.75 billion US dollars at an amount equal to the sum of the
present values of the remaining scheduled payments of these notes discounted to the redemption date at the US Treasury
rate plus 0.50%, together with accrued and unpaid interest on the principal. The cash outflow was 1,722 million Swiss francs,
plus accrued interest, and there was an additional 1 million Swiss francs loss recorded on redemption. The effective interest
rate of these notes was 4.85%.
Partial redemption of US dollar-denominated notes. On 28 June 2013 the Group resolved to exercise its option to call
for early partial redemption of US dollar-denominated 6.0% fixed rate notes due 1 March 2019. On 29 August 2013 the Group
redeemed an outstanding principal of 400 million US dollars at an amount equal to the sum of the present values of the
remaining scheduled payments of these notes discounted to the redemption date at the US Treasury rate plus 0.50%, together
with accrued and unpaid interest on the principal. The cash outflow was 443 million Swiss francs, plus accrued interest,
and there was an 80 million Swiss francs loss recorded on redemption. The effective interest rate of these notes was 6.37%.
Redemption of Swiss franc-denominated bonds. On the due date of 23 September 2013 the Group redeemed the floating
rate bonds with a principal of 0.4 billion Swiss francs. The cash outflow was 400 million Swiss francs, plus accrued interest,
and there was no gain or loss recorded on the redemption. The effective interest rate of these notes was 0.32%.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
85­
Early redemption of US dollar-denominated notes in 2014. On 26 December 2013 the Group resolved to exercise
its option to call for early partial redemption of US dollar-denominated 6.0% fixed rate notes due 1 March 2019. The Group
will redeem an outstanding principal of 1.0 billion US dollars on 3 March 2014 at an amount equal to the sum of the present
values of the remaining scheduled payments of these notes discounted to the redemption date at the US Treasury rate
plus 0.50%, together with accrued and unpaid interest on the principal. The US Treasury rate will be determined by an
independent investment banker on the third business day preceding the redemption. A cash outflow of approximately
1,173 million US dollars, plus accrued interest, is expected on redemption. The Group has revised the carrying value of these
notes to take into account the changes to the amounts and timings of the estimated cash flows. The revised carrying value
of these notes at 31 December 2013 is 1,171 million US dollars (1,040 million Swiss francs). The increase in carrying value
of 182 million US dollars (167 million Swiss francs) is recorded within financing costs (see Note 3) as a loss on redemption.
The effective interest rate of these notes is 6.37%.
Redemption and repurchase of bonds and notes – 2012
During 2012 the Group redeemed 2.2 billion Swiss francs of bonds on their due date, completed a tender offer to repurchase
1.6 billion euros of notes (2.1 billion Swiss francs) and exercised its option to call for the early redemption of 1.75 billion
US dollars of notes on 21 March 2013.
Cash flows from issuance, redemption and repurchase of bonds and notes
Cash inflows from issuance of bonds and notes in millions of CHF
2013
2012
European Medium Term Note programme euro-denominated notes
–
1,201
Swiss franc-denominated bonds
–
1,497
Total cash inflows from issuance of bonds and notes
–
2,698
Cash outflows from redemption and repurchase of bonds and notes in millions of CHF
2013
2012
European Medium Term Note programme euro-denominated notes
(4,068)
US dollar-denominated notes
(2,165)
–
(400)
(2,198)
(6,633)
(4,326)
Swiss franc-denominated bonds
Total cash outflows from redemption and repurchase of bonds and notes
(2,128)
Commercial paper
Roche Holdings, Inc. commercial paper program. Roche Holdings, Inc. has an established commercial paper program
under which it can issue up to 7.5 billion US dollars of unsecured commercial paper notes guaranteed by Roche Holding Ltd.
A committed credit line of 3.9 billion euros is available as a back-stop line. The maturity of the notes under the program
cannot exceed 365 days from the date of issuance. As at 31 December 2013 unsecured commercial paper notes with
a principal amount of 791 million US dollars and an average interest rate of 0.07% were outstanding.
Movements in commercial paper obligations in millions of CHF
86­
2013
2012
1,022
At 1 January
324
Net cash proceeds (payments)
404
Currency translation effects
(26)
(11)
At 31 December
702
324
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
(687)
Amounts due to banks and other financial institutions
These amounts are denominated in various currencies, notably in Chinese renminbi and Argentine pesos, and the average
interest rate was 7.12% (2012: 6.98%). The amounts outstanding of 459 million Swiss francs at 31 December 2013 are due
within one year.
21. Equity attributable to Roche shareholders
Changes in equity attributable to Roche shareholders in millions of CHF
Reserves
Share
capital
Retained
earnings
Fair
value
160
17,286
124
–
9,427
–
–
–
9,427
–– Fair value gains (losses) taken to equity
–
–
27
–
–
27
(29)
(29)
Hedging
Translation
Total
Year ended 31 December 2012
At 1 January 2012
Net income recognised in income statement
(20)
(5,434)
12,116
Available-for-sale investments
–– Transferred to income statement
–
–
–
–
–– Income taxes 4
–
–
–
–
–
–
–– Non-controlling interests
–
–
(4)
–
–
(4)
–
–
–
204
–
204
Cash flow hedges
–– Gains (losses) taken to equity
–– Transferred to income statement
–
–
–
(106)
–
(106)
–– Income taxes 4
–
–
–
(37)
–
(37)
–– Non-controlling interests
–
–
–
–
–
–
a)
Currency translation of foreign operations
–– Exchange differences
–
–
(5)
(1)
(688)
(694)
–– Non-controlling interests
–
–
–
–
282
282
Defined benefit plans
–– Remeasurement gains (losses) 25
–
–
–
–
–– Limit on asset recognition 25
–
3
–
–
–
3
–– Income taxes 4
–
441
–
–
–
441
–– Non-controlling interests
–
(5)
–
–
–
Other comprehensive income, net of tax
–
(1,207)
(11)
60
(406)
(1,564)
Total comprehensive income
–
8,220
(11)
60
(406)
7,863
Dividends
–
(5,770)
–
–
(1,646)
–
(1,646)
(5)
(5,770)
Equity compensation plans, net of transactions
in own equity
At 31 December 2012
–
305
–
160
20,041
113
–
40
–
(5,840)
305
14,514
As disclosed in Note 32, the reserves at 31 December 2012 and 31 December 2011 have been restated following the accounting policy changes which were adopted
in 2013. A reconciliation to the previously published reserves is provided in Note 32.
a) The entire amount transferred to the income statement was reported in ‘Other financial income (expense)’.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
87­
Changes in equity attributable to Roche shareholders in millions of CHF
Reserves
Share
capital
Retained
earnings
Fair
value
Hedging
160
20,041
113
40
–
11,164
–
–
Translation
Total
Year ended 31 December 2013
At 1 January 2013
Net income recognised in income statement
(5,840)
–
14,514
11,164
Available-for-sale investments
–– Fair value gains (losses) taken to equity
–
–
79
–
–
79
–– Transferred to income statement
–
–
(37)
–
–
(37)
–– Income taxes 4
–
–
(16)
–
–
(16)
–– Non-controlling interests
–
–
(7)
–
–
(7)
–
–
–
283
–
283
(165)
Cash flow hedges
–– Gains (losses) taken to equity
–– Transferred to income statement
–
–
–
(165)
–
–– Income taxes 4
–
–
–
(41)
–
(41)
–– Non-controlling interests
–
–
–
(15)
–
(15)
–– Exchange differences
–
–
(9)
(7)
–– Non-controlling interests
–
–
–
–
428
428
–– Remeasurement gains (losses) 25
–
999
–
–
–
999
–– Limit on asset recognition 25
–
1
–
–
–
–– Income taxes 4
–
–
–
–
a)
Currency translation of foreign operations
(1,315)
(1,331)
Defined benefit plans
(326)
–– Non-controlling interests
–
–
–
Other comprehensive income, net of tax
–
670
(4)
10
55
(887)
–
Total comprehensive income
–
11,834
10
55
(887)
Dividends
–
(6,238)
–
–
–
1
(326)
(4)
(152)
11,012
(6,238)
Equity compensation plans, net of transactions
in own equity
At 31 December 2013
–
6
–
–
160
25,643
123
95
–
(6,727)
6
19,294
a) The entire amount transferred to the income statement was reported in ‘Other financial income (expense)’.
Genentech transaction
The Group completed the purchase of the non-controlling interests in Genentech effective 26 March 2009. Based on
the International Accounting Standard 27 ‘Separate Financial Statements’ (IAS 27) and consistent with the International
Financial Reporting Standard 10 ‘Consolidated Financial Statements’ (IFRS 10), which was adopted by the Group in 2013, this
transaction was accounted for in full as an equity transaction. As a consequence, the carrying amount of the consolidated
equity of the Group at that time was reduced by 52.2 billion Swiss francs, of which 8.5 billion Swiss francs was allocated
to eliminate the book value of Genentech non-controlling interests. This accounting effect significantly impacted the Group’s
net equity, but has no effect on the Group’s business or its dividend policy.
88­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Share capital
At 31 December 2013 the authorised and issued share capital of Roche Holding Ltd, which is the Group’s parent company,
consisted of 160 million shares with a nominal value of 1.00 Swiss franc each, as in the preceding year. The shares are bearer
shares and the Group does not maintain a register of shareholders. Based on information supplied to the Group, a shareholder
group with pooled voting rights owns 45.01% (2012: 45.01%) of the issued shares. On 24 March 2011 the shareholder group
announced that it would continue the shareholder pooling agreement existing since 1948 with a modified shareholder
composition. The shareholder group with pooled voting rights now holds 72,018,000 shares, corresponding to 45.01% of the
shares issued. This figure does not include any shares without pooled voting rights that are held outside this group by individual
members of the group. Ms Maja Oeri, formerly a member of the pool, now holds 8,091,900 shares representing 5.057% of
the voting rights independently of the pool. This is further described in Note 30. Based on information supplied to the Group,
Novartis Ltd, Basel, and its affiliates own 33.3330% (participation below 331⁄3%) of the issued shares (2012: 33.3330%).
Non-voting equity securities (Genussscheine)
At 31 December 2013, 702,562,700 non-voting equity securities have been authorised and were in issue as in the preceding
year. Under Swiss company law these non-voting equity securities have no nominal value, are not part of the share capital
and cannot be issued against a contribution which would be shown as an asset in the balance sheet of Roche Holding Ltd.
Each non-voting equity security confers the same rights as any of the shares to participate in the net profit and any remaining
proceeds from liquidation following repayment of the nominal value of the shares and, if any, participation certificates.
In accordance with the law and the Articles of Incorporation of Roche Holding Ltd, the Company is entitled at all times
to exchange all or some of the non-voting equity securities into shares or participation certificates.
Dividends
On 5 March 2013 the shareholders approved the distribution of a dividend of 7.35 Swiss francs per share and non-voting
equity security (2012: 6.80 Swiss francs) in respect of the 2012 business year. The distribution to holders of outstanding
shares and non-voting equity securities totalled 6,238 million Swiss francs (2012: 5,770 million Swiss francs) and has
been recorded against retained earnings in 2013. The Board of Directors has proposed dividends for the 2013 business
year of 7.80 Swiss francs per share and non-voting equity security which, if approved, would result in a total distribution
to shareholders of 6,728 million Swiss francs. This is subject to approval at the Annual General Meeting on 4 March 2014.
Own equity instruments
Holdings of own equity instruments in equivalent number of non-voting equity securities
2013
(millions)
Shares
Non-voting equity securities
Derivative instruments
Total
2012
(millions)
0.9
–
12.6
14.1
5.5
8.9
19.0
23.0
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
89­
Own equity instruments are recorded within equity at original purchase cost. Details of own equity instruments held at
31 December 2013 are shown in the table below. Fair values are disclosed for information purposes.
Own equity instruments at 31 December 2013: supplementary information
Equivalent number of non-voting
equity securities (millions)
Maturity
Strike price
(CHF)
Market value
(CHF billions)
0.9
–
–
0.2
12.6
–
–
3.1
145.50–195.80
0.4
Shares
Non-voting equity securities
30 Jan. 2015–
Derivative instruments
Total
5.5
16 Feb. 2016
19.0
3.7
Own equity instruments are held for the Group’s potential conversion obligations that may arise from the Group’s equity
compensation plans (see Note 26). The derivative instruments mainly consist of call options that are exercisable at any time
up to their maturity.
Reserves
Fair value reserve. The fair value reserve represents the cumulative net change in the fair value of available-for-sale financial
assets until the asset is sold, impaired or otherwise disposed of.
Hedging reserve. The hedging reserve represents the effective portion of the cumulative net change in the fair value of cash
flow hedging instruments related to hedged transactions that have not yet occurred.
Translation reserve. The translation reserve represents the cumulative currency translation differences relating to
the consolidation of Group companies that use functional currencies other than Swiss francs.
22. Chugai
Effective 1 October 2002 the Roche Group and Chugai completed an alliance to create a leading research-driven Japanese
pharmaceutical company, which was formed by the merger of Chugai and Roche’s Japanese pharmaceuticals subsidiary,
Nippon Roche. The merged company is known as Chugai.
Consolidated subsidiary
Chugai is a fully consolidated subsidiary of the Group. This is based on the Group’s interest in Chugai at 31 December 2013
of 61.5% (2012: 61.6%) and the Roche relationship with Chugai that is founded on the Basic Alliance, Licensing and Research
Collaboration Agreements.
The common stock of Chugai is publicly traded and is listed on the Tokyo Stock Exchange under the stock code ‘TSE:4519’.
Chugai prepares financial statements in accordance with International Financial Reporting Standards (IFRS) which are
filed on a quarterly basis with the Tokyo Stock Exchange. Due to certain consolidation entries there are minor differences
between Chugai’s stand-alone IFRS results and the results of Chugai as consolidated by the Roche Group in accordance
with IFRS.
90­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Financial information
Chugai summarised financial information in millions of CHF
2013
2012
3,813
4,408
Income statement
Sales 2
Royalties and other operating income 2
212
133
Total revenues
4,025
4,541
Operating profit 2
679
805
Non-current assets
1,786
2,270
Current assets
4,280
4,867
Balance sheet
Non-current liabilities
(251)
(273)
Current liabilities
(824)
(1,006)
Total net assets
4,991
5,858
Cash flows
Cash flows from operating activities
509
911
Cash flows from investing activities
(126)
(645)
Cash flows from financing activities
(220)
(268)
Dividends
The dividends distributed to third parties holding Chugai shares during 2013 totalled 84 million Swiss francs (2012: 98 million
Swiss francs) and have been recorded against non-controlling interests (see Note 23). Dividends paid by Chugai to Roche
are eliminated on consolidation as inter-company items.
Roche’s relationship with Chugai
Chugai has entered into certain agreements with Roche, which are discussed below:
Basic Alliance Agreement. As part of the Basic Alliance Agreement signed in December 2001, Roche and Chugai entered
into certain arrangements covering the future operation and governance of Chugai. Amongst other matters these cover
the following areas:
The structuring of the alliance.
Roche’s rights as a shareholder.
Roche’s rights to nominate members of Chugai’s Board of Directors.
Certain limitations to Roche’s ability to buy or sell Chugai’s common stock.
Chugai issues additional shares of common stock in connection with its convertible debt and equity compensation plans,
and may issue additional shares for other purposes, which affects Roche’s percentage ownership interest. The Basic
Alliance Agreement provides, amongst other matters, that Chugai will guarantee Roche’s right to maintain its shareholding
percentage in Chugai at not less than 50.1%.
Licensing Agreements. Under the Japan Umbrella Rights Agreement signed in December 2001, Chugai has exclusive rights
to market Roche’s pharmaceutical products in Japan. Chugai also has right of first refusal on the development and marketing
in Japan of all development compounds advanced by Roche.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
91­
Under the Rest of the World Umbrella Rights Agreement signed in May 2002, Roche has the right of first refusal on
the development and marketing of Chugai’s development compounds in markets outside Japan, excluding South Korea,
if Chugai decides that it requires a partner for such activities.
Further to these agreements, Roche and Chugai have signed a series of separate agreements for certain specific products.
Depending on the specific circumstances and the terms of the agreement, this may result in payments on an arm’s length
basis between Roche and Chugai, for any or all of the following matters:
Upfront payments, if a right of first refusal to license a product is exercised.
Milestone payments, dependent upon the achievement of agreed performance targets.
Royalties on future product sales.
These specific product agreements may also cover the manufacture and supply of the respective products to meet the other
party’s clinical and/or commercial requirements on an arm’s length basis.
Research Collaboration Agreements. Roche and Chugai have entered into research collaboration agreements in the areas
of small-molecule synthetic drug research and biotechnology-based drug discovery.
23. Non-controlling interests
Changes in equity attributable to non-controlling interests in millions of CHF
At 1 January
2013
2012
2,236
2,390
188
215
Net income recognised in income statement
–– Chugai
–– Other non-controlling interests
Total net income recognised in income statement
Available-for-sale investments
Cash flow hedges
Currency translation of foreign operations
Remeasurements of defined benefit plans
21
18
209
233
7
4
15
(428)
–
(282)
4
5
Other comprehensive income, net of tax
(402)
(273)
Total comprehensive income
(193)
(40)
–– Chugai 22
(84)
(98)
–– Other non-controlling interests
(39)
(18)
Dividends to non-controlling shareholders
Equity compensation plans, net of transactions in own equity
4
1
Changes in non-controlling interests
3
1
20
–
At 31 December
Equity contribution by non-controlling interests
1,947
2,236
Chugai
1,854
2,154
Other non-controlling interests
Total non-controlling interests
93
82
1,947
2,236
As disclosed in Note 32, the non-controlling interests for the year ended 31 December 2012 has been restated following the accounting policy changes which were
adopted in 2013. A reconciliation to the previously published non-controlling interests is provided in Note 32.
92­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
24. Employee benefits
Employee remuneration in millions of CHF
Wages and salaries
2013
2012
8,512
8,410
Social security costs
957
888
Defined contribution plans 25
343
313
Operating expenses for defined benefit plans 25
102
280
Equity compensation plans 26
360
363
Termination costs
6
Other employee benefits
Employee remuneration included in operating results
Net interest cost of defined benefit plans 25
Total employee remuneration
220
515
588
485
11,082
11,254
227
226
11,309
11,480
Other employee benefits consist mainly of life insurance schemes and certain other insurance schemes providing medical
coverage and other long-term and short-term disability benefits.
25. Pensions and other post-employment benefits
As disclosed in Note 32, following the implementation of IAS 19 (revised), the Group has amended its accounting policy
with respect to pensions and other post-employment benefits and restated the related 2012 comparatives and disclosures.
The Group’s objective is to provide attractive and competitive post-employment benefits to employees, while at the same
time ensuring that the various plans are appropriately financed and managing any potential impacts on the Group’s longterm financial position. Most employees are covered by pension plans sponsored by Group companies. The nature of such
plans varies according to legal regulations, fiscal requirements and market practice in the countries in which the employees
are employed. Post-employment benefit plans are classified for IFRS as ‘defined contribution plans’ if the Group pays fixed
contributions into a separate fund or to a third-party financial institution and will have no further legal or constructive
obligation to pay further contributions. All other plans are classified as ‘defined benefit plans’.
Defined contribution plans
Defined contribution plans are funded through payments by employees and by the Group to funds administered by third
parties. The Group’s expenses for these plans were 343 million Swiss francs (2012: 313 million Swiss francs). No assets or
liabilities are recognised in the Group’s balance sheet in respect of such plans, apart from regular prepayments and accruals
of the contributions withheld from employees’ wages and salaries and of the Group’s contributions. The Group’s major
defined contribution plans are in the United States, notably the US Roche 401(k) Savings Plan.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
93­
Defined benefit plans
Plans are usually established as trusts independent of the Group and are funded by payments from Group companies
and by employees. In some cases, notably for the major defined benefit plans in Germany, the plans are unfunded and the
Group pays pensions to retired employees directly from its own financial resources. Plans are usually governed by a senior
governing body, such as a Board of Trustees, which is typically composed of both employee and employer representatives.
Funding of these plans is determined by local regulations using independent actuarial valuations. Separate independent
actuarial valuations, together with a semi-annual update, are prepared in accordance with the requirements of IAS 19 for use
in the Group’s financial statements. The Group’s major defined benefit plans are located in Switzerland, the US and Germany,
which in total account for 81% of the Group’s defined benefit obligation (2012: 81%).
Pension plans in Switzerland. Current pension arrangements for employees in Switzerland are made through plans
governed by the Swiss Federal Occupational Old Age, Survivors and Disability Pension Act (‘BVG’). The Group’s pension
plans are administered by separate legal foundations, which are funded by regular employee and company contributions.
The final benefit is contribution-based with certain minimum guarantees. Due to these minimum guarantees, the Swiss plans
are treated as defined benefit plans for the purposes of these IFRS financial statements, although they have many of the
characteristics of defined contribution plans. Where there is an under-funding this may be remedied by various measures
such as increasing employee and company contributions, lowering the interest rate on retirement account balances,
reducing prospective benefits and a suspension of the early withdrawal facility.
Past service costs in 2013 include 142 million Swiss francs of income recorded in respect of changes to the Group’s pension
plans in Switzerland. The change represents the adoption of lower conversion rates, which determines the annuity at the
normal retirement age.
Pension plans in the United States. The Group’s major defined benefit plans in the US have been closed to new members
since 2007. New employees in the US now join the defined contribution plan. The largest of the remaining defined benefit
plans are funded pension plans, including separate plans originating from the Nutley, Palo Alto and Indianapolis sites, together
with smaller unfunded supplementary retirement plans. The benefits are based on the highest average annual rate of earnings
during a specified period and length of employment. The plans are non-contributory for employees, with the Group making
periodic payments to the plans. In 2013 payments made by the Group were 130 million US dollars (2012: 114 million US dollars).
Where there is an under-funding this would normally be remedied by additional company contributions.
In 2013 some of the US pension plans made an offer to deferred vested members to settle the defined benefit obligation
for a lump sum payment. The total lump sum payment made from defined benefit assets was 244 million US dollars
(226 million Swiss francs), which settled an obligation of 264 million US dollars (245 million Swiss francs). This led to a gain
of 20 million US dollars (19 million Swiss francs), which is included as a settlement gain in 2013.
Past service costs in 2012 include 68 million Swiss francs of income recorded in respect of curtailments to US defined benefit
plans. This arose primarily from the reorganisation of the Pharmaceuticals Division’s Research and Development organisation,
which involved the closure of the site in Nutley, New Jersey.
Pension plans in Germany. The Group’s major pension arrangements in Germany are governed by the Occupational
Pensions Act (‘BetrAVG’). These plans are unfunded and the Group pays pensions to retired employees directly from its
own financial resources. These plans are non-contributory for employees. The benefits are based on final salary and length
of employment. These plans have been closed to new members since 2007. They have been replaced by a new plan which
is funded by regular employee and company contributions and administered through a contractual trust agreement. The final
benefit is contribution-based with a minimum guarantee. Due to this minimum guarantee, this plan is treated as a defined
benefit plan for the purposes of these IFRS financial statements, although it has many of the characteristics of a defined
contribution plan.
Past service costs in 2013 include 55 million Swiss francs of income recorded in respect of changes to the Group’s German
pension plans. This change represents the adoption of an increase in the normal retirement age.
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Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Pension plans in the rest of the world. These represent approximately 13% of the Group’s defined benefit obligation
(2012: 13%) and consist of a number of smaller plans in various countries. Of these the largest are the pension plans at
Chugai, which are independently managed by Chugai, and the main pension plan in the United Kingdom. The Chugai plans
are fully described in Chugai’s own IFRS financial statements. The UK pension plan is funded by regular employee and
company contributions, with benefits based on final salary and length of employment. This plan has been closed to new
members since 2003 and has been replaced with a defined contribution plan.
Past service costs in 2013 include 110 million Swiss francs of income recorded in respect of changes to the Group’s UK
pension plans. This reflects a change in the indexation of pension increases to the consumer price index instead of previously
used retail price index.
Other post-employment benefit (‘OPEB’) plans. These represent approximately 6% of the Group’s defined benefit
obligation (2012: 6%) and consist mostly of post-retirement healthcare and life insurance schemes, mainly in the US. These
plans are mainly unfunded and are contributory for employees, with the Group reimbursing retired employees directly from
its own financial resources. The Group’s major defined benefit OPEB plans in the US have been closed to new members since
2011. Part of the costs of these plans is reimbursable under the Medicare Prescription Drug Improvement and Modernization
Act of 2003. There is no statutory funding requirement for these plans. The Group is funding these plans to the extent that
it is tax efficient. In 2013 there were no payments made by the Group to these plans (2012: none). At 31 December 2013 the
IFRS funding status was 57% (2012: 51%), including reimbursement rights, for the funded OPEB plans in the US.
Defined benefit plans: income statement in millions of CHF
2013
Current service cost
Past service (income) cost
Settlement (gain) loss
Total operating expenses
Net interest cost of defined benefit plans
Pension
plans
Other postemployment
benefit plans
Total
expense
407
16
(301)
(19)
2012
Pension
plans
Other postemployment
benefit plans
Total
expense
423
336
15
351
(1)
(302)
(66)
(5)
(71)
–
(19)
–
–
–
87
15
102
270
10
280
201
26
227
196
30
226
288
41
329
466
40
506
Total expense recognised in income
statement
Funding status
The funding of the Group’s various defined benefit plans is the responsibility of a senior governing body, such as a Board
of Trustees, and the sponsoring employer, and is managed based on local statutory valuations, which follow the legislation
and requirements of the respective jurisdiction in which the plan is established. Qualified independent actuaries carry out
statutory actuarial valuations on a regular basis. The actuarial assumptions determining the funding status on the statutory
basis are regularly assessed by the local senior governing body. The funding status is closely monitored at a corporate level.
During 2013 the fair value of plan assets increased due to favourable market conditions. Higher discount rates compared
to 2012 and the changes to the pension plans in Switzerland, Germany and the UK described above resulted in a decrease
in the overall defined benefit obligation. As a result the IFRS funded status of the funded defined benefit plans improved
to 88% (2012: 81%).
Reimbursement rights are linked to the post-employment medical plans in the US and represent the expected reimbursement
of the medical expenditure provided under the Medicare Prescription Drug Improvement and Modernization Act of 2003.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
95­
Defined benefit plans: funding status in millions of CHF
2013
Pension
plans
Other postemployment
benefit plans
Total
2012
Pension
plans
Other postemployment
benefit plans
Total
Funded plans
–– Fair value of plan assets
10,833
311
11,144
10,893
321
11,214
(11,863)
(762)
(12,625)
(12,901)
(911)
(13,812)
(1,030)
(451)
(1,481)
(2,008)
(590)
(2,598)
–– Defined benefit obligation
(3,847)
(212)
(4,059)
(3,864)
(226)
(4,090)
Total funding status
(4,877)
(663)
(5,540)
(5,872)
(816)
(6,688)
(6)
(7)
–– Defined benefit obligation
Over (under) funding
Unfunded plans
Limit on asset recognition
Reimbursement rights
Net recognised asset (liability)
(6)
–
(4,883)
–
120
(543)
120
(5,426)
–
(5,879)
–
142
(674)
(7)
142
(6,553)
Reported in balance sheet
–– Defined benefit plan assets
–– Defined benefit plan liabilities
516
(5,399)
120
(663)
636
(6,062)
536
(6,415)
142
(816)
678
(7,231)
Plan assets
The responsibility for the investment strategies of funded plans is with the senior governance body such as the Board of
Trustees. Asset-liability studies are performed regularly for all major pension plans. These studies examine the obligations
from post-retirement benefit plans, and evaluate various investment strategies with respect to key financial measures such
as expected returns, expected risks, expected contributions, and expected funded status of the plan in an interdependent
way. The goal of an asset-liability study is to select an appropriate asset allocation for the funds held within the plan. The
investment strategy is developed to optimise expected returns, to manage risks and to contain fluctuations in the statutory
funded status. Asset-liability studies include strategies to match the cash flows of the assets with the plan obligations.
The Group currently does not use annuities or longevity swaps to manage longevity risk.
Plan assets are managed using internal and external asset managers. The actual performance is continually monitored
by the pension fund governance bodies as well as being closely monitored at a corporate level. In these financial statements
the difference between the interest income and actual return on plan assets is a remeasurement that is recorded directly
to other comprehensive income. During 2013 the actual return on plan assets was a gain of 462 million Swiss francs
(2012: gain of 892 million Swiss francs).
The recognition of pension assets is limited to the present value of any economic benefits available from refunds from
the plans or reductions in future contributions to the plans.
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Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Defined benefit plans: fair value of plan assets and reimbursement rights in millions of CHF
2013
At 1 January
Pension
plans
Other postemployment
benefit plans
Total
2012
Pension
plans
Other postemployment
benefit plans
Total
10,759
10,893
463
11,356
10,299
460
Interest income on plan assets
283
17
300
332
18
350
Remeasurements on plan assets
141
5
146
522
40
562
(244)
(11)
(255)
(168)
(11)
(179)
352
(4)
348
307
(7)
300
Currency translation effects
Employer contributions
88
–
88
80
–
80
Benefits paid – funded plans
Employee contributions
(451)
(38)
(489)
(479)
(35)
(514)
Benefits paid – settlements
(226)
–
(226)
Past service income (cost)
Administration costs
At 31 December
–
(3)
10,833
–
(1)
431
–
(4)
11,264
–
–
–
–
(2)
(2)
–
–
–
10,893
463
11,356
Defined benefit plans: composition of plan assets in millions of CHF
2013
2012
Equity securities
4,027
4,341
Debt securities
3,942
4,288
Property
1,173
1,182
637
396
Cash and money market instruments
Other investments
1,365
1,007
At 31 December
11,144
11,214
Assets are invested in a variety of different classes in order to maintain a balance between risk and return as follows:
Equity and debt securities which mainly have quoted market prices (Level 1 fair value hierarchy).
Property which is mainly in private and commercial property funds which have quoted market prices (Level 1 fair value
hierarchy) and directly held property investments (Level 3 fair value hierarchy).
Cash and money market instruments which are mainly invested with financial institutions with a credit rating no lower
than A.
Other investments which mainly consist of alternatives, mortgages and commodities. These are used for risk management
purposes and mainly have a quoted market price (Level 1 fair value hierarchy).
Included within the fair value of plan assets are the Group’s shares and non-voting securities with a fair value of 165 million
Swiss francs (2012: 109 million Swiss francs) and debt instruments issued by the Group with a fair value of 17 million Swiss
francs (2012: 44 million Swiss francs). During 2013 Swiss pension plans purchased 0.4 million Roche shares from the Group
for 95 million Swiss francs.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
97­
Defined benefit obligation
The defined benefit obligation is calculated using the projected unit credit method. This reflects service rendered by
employees to the dates of valuation and incorporates actuarial assumptions primarily regarding discount rates used in
determining the present value of benefits, projected rates of remuneration growth and mortality rates. The present value
of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds or government bonds in countries where there is not a deep market in corporate bonds.
The corporate or government bonds are denominated in the currency in which the benefits will be paid, and have maturity
terms approximating to the terms of the related pension obligation.
The Group’s final salary-based defined benefit pension plans in the US, Germany and the United Kingdom have been closed
to new participants. Active employees that had been members of these pension plans at the time these were closed to
new participants continue to accrue benefits in the final salary-based defined benefit pension plans. New employees in the
US and UK now join the Group’s defined contribution plans, while new employees in Germany join the contribution-based
plan with a minimum guarantee. The defined benefit pension plans in Switzerland, where the final benefit is contributionbased with a minimum guarantee, remain open to new employees. As a result, the proportion of the defined benefit
obligation which relates to these closed plans is expected to decrease in the future.
Defined benefit plans: defined benefit obligation in millions of CHF
2013
At 1 January
Pension
plans
Other postemployment
benefit plans
Total
2012
Pension
plans
Other postemployment
benefit plans
Total
15,665
16,765
1,137
17,902
14,534
1,131
Current service cost
407
16
423
336
15
351
Interest cost
484
43
527
528
48
576
Remeasurements:
–– demographic assumptions
–– financial assumptions
–– experience adjustments
Currency translation effects
Employee contributions
Benefits paid – funded plans
28
12
40
(792)
(138)
(930)
170
–
170
1,863
64
1,927
59
(22)
37
144
(33)
111
(214)
(18)
(232)
(220)
(32)
(252)
88
–
88
80
–
80
(451)
(38)
(489)
(479)
(35)
(514)
(125)
(14)
(139)
Benefits paid – unfunded plans
(118)
(17)
(135)
Benefits paid – settlements
(226)
–
(226)
–
–
–
Past service (income) cost
(301)
(1)
(302)
(66)
(7)
(73)
Settlement (gain) loss
At 31 December
(19)
–
15,710
974
(19)
16,684
–
–
–
16,765
1,137
17,902
Composition of plan
Active members
7,328
294
7,622
7,794
390
8,184
Deferred vested members
1,352
14
1,366
1,724
13
1,737
Retired members
7,030
666
7,696
7,247
734
7,981
15,710
974
16,684
16,765
1,137
17,902
At 31 December
Plans by geography
Switzerland
6,879
–
6,879
7,121
–
7,121
United States
3,104
936
4,040
3,791
1,109
4,900
Germany
3,507
–
3,507
3,481
–
3,481
Rest of world
2,220
38
2,258
2,372
28
2,400
15,710
974
16,684
16,765
1,137
17,902
14.3
12.3
14.2
15.6
15.7
15.6
At 31 December
Duration in years
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Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Actuarial assumptions
The actuarial assumptions used in these financial statements are based on the requirements set out in IAS 19 ‘Employee
Benefits’. They are unbiased and mutually compatible estimates of variables that determine the ultimate cost of providing
post-employment benefits. They are set on an annual basis by local management, based on advice from actuaries, and are
subject to approval by corporate management and the Group’s actuaries. Actuarial assumptions consist of demographic
assumptions on matters such as mortality and employee turnover, and financial assumptions on matters such as interest
rates, salary and benefit levels, inflation rates and costs of medical benefits. The actuarial assumptions vary based upon
local economic and social conditions. The actuarial assumptions used in the various statutory valuations may differ from
these based on local legal and regulatory requirements.
Demographic assumptions. The most significant demographic assumptions relate to mortality rates. The Group’s actuaries
use mortality tables which take into account historic patterns and expected changes, such as further increases in longevity.
Rates of employee turnover, disability and early retirement are based on historical behaviour within Group companies.
The average life expectancy assumed now for an individual at the age of 65 is as follows:
Defined benefit plans: average life expectancy for major schemes in years
Country
Mortality table
Male
2012
2013
2013
Female
2012
Switzerland
BVG 2010 generational tables
21.3
21.2
23.8
23.7
United States
RP2000 projected to 2020
19.8
19.6
21.6
21.4
Germany
Heubeck tables 2005G
18.7
18.6
22.8
22.7
Financial assumptions. These are based on market expectations for the period over which the obligations are to be settled.
The assumptions used in the actuarial valuations are shown below.
Defined benefit plans: financial actuarial assumptions
2013
Weighted
average
Discount rates
3.38%
Expected rates of salary increases
2.98%
2012
Range
Weighted
average
Range
1.53%–7.20%
3.01%
1.70%–6.70%
2.00%–5.20%
3.05%
2.00%–5.25%
0.25%–3.50%
Expected rates of pension increases
1.03%
0.25%–2.40%
1.11%
Expected inflation rates
2.60%
2.00%–4.00%
2.60%
2.00%–4.00%
Immediate medical cost trend rate
7.38%
6.80%–7.40%
7.59%
7.10%–7.60%
Ultimate medical cost trend rate (in 2029)
4.50%
4.50%
4.50%
4.50%
Discount rates are determined with reference to interest rates on high-quality corporate bonds or government bonds in
countries where there is not a deep market in corporate bonds. Expected rates of salary increases are based on expected
inflation rates with an adjustment to reflect the Group’s latest expectation of long-term real salary increases. Expected rates
of pension increases are generally linked to the expected inflation rate. Expected inflation rates are derived by looking at
the level of inflation implied by the financial markets in conjunction with the economists’ price inflation forecasts, historic
price inflation as well as other economic variables and circumstances. Medical cost trend rates take into account the benefits
set out in the plan terms and expected future changes in medical costs. Since the Group’s major post-employment medical
plans are for US employees, these rates are driven by developments in the US.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
99­
Sensitivity analysis. The measurement of the net defined benefit obligation is particularly sensitive to changes in
the discount rate, inflation rate, expected mortality and medical cost trend rate assumptions. The following table summarises
the impact of a change in those assumptions on the present value of the defined benefit obligation.
Defined benefit plans: sensitivity of defined benefit obligation to actuarial assumptions in millions of CHF
2013
2012
497
562
0.25% increase
(570)
(654)
0.25% decrease
600
701
1 year increase in life expectancy
Discount rates
Expected inflation rates
0.25% increase
235
205
0.25% decrease
(221)
(244)
1.00% increase
112
168
1.00% decrease
(94)
(113)
Immediate medical cost trend rate
Each sensitivity analysis considers the change in one assumption at a time leaving the other assumptions unchanged.
This approach shows the isolated effect of changing one individual assumption but does not take into account that some
assumptions are related. The method used to carry out the sensitivity analysis is the same as in the prior year.
Cash flows
The Group incurred cash flows from its defined benefit plans as shown in the table below.
Defined benefit plans: cash flows in millions of CHF
2013
2012
Employer contributions, net of reimbursements – funded plans
(348)
(300)
Benefits paid – unfunded plans
(135)
(139)
Total cash inflow (outflow)
(483)
(439)
Based on the most recent actuarial valuations, the Group expects that employer contributions for funded plans in 2014 will
be approximately 339 million Swiss francs, which includes an estimated 122 million Swiss francs of additional contributions,
mostly related to the US defined benefit plans. Benefits paid for unfunded plans are estimated to be approximately 137 million
Swiss francs, which mostly relate to the German defined benefit plans.
100­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
26. Equity compensation plans
The Group operates several equity compensation plans, including separate plans at Chugai. IFRS 2 ‘Share-based Payment’
requires that the fair value of all equity compensation plan awards granted to employees be estimated at grant date and
recorded as an expense over the vesting period.
Expenses for equity compensation plans in millions of CHF
Cost of sales
2013
2012
61
45
Marketing and distribution
71
77
Research and development
99
108
General and administration
129
133
Total operating expenses
360
363
228
256
Equity compensation plans
Roche Stock-settled Stock Appreciation Rights
Roche Restricted Stock Unit Plan
87
65
Roche Performance Share Plan
18
16
Roche Connect
11
12
6
6
Roche Option Plan
Bonus Stock Awards
7
5
Chugai Stock Acquisition Rights
3
3
360
363
360
363
–
–
2013
2012
126
28
Total operating expenses
of which
–– Equity-settled
–– Cash-settled
Cash inflow (outflow) from equity compensation plans in millions of CHF
Roche Option Plan exercises
Chugai Stock Acquisition Rights exercises
Roche Connect costs
Transactions in own equity
9
2
(11)
(12)
(1,314)
(319)
(1,190)
(301)
Total cash inflow (outflow) from equity-settled equity compensation plans,
net of transactions in own equity
The net cash outflow from transactions in own equity mainly arises from sales and purchases of equity instruments
which are held for the Group’s potential conversion obligations that may arise from the Group’s equity compensation plans
(see Note 21).
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
101­
Equity compensation plans
Roche Stock-settled Stock Appreciation Rights. The Group issues Stock-settled Stock Appreciation Rights (S-SARs)
to certain directors, management and employees selected at the discretion of the Group. The S-SARs give employees the
right to receive non-voting equity securities reflecting the value of any appreciation in the market price of the non-voting
equity securities between the grant date and the exercise date. The S-SAR Plan regulations were restated and amended
effective 1 January 2013 (referred to as the ‘Roche S-SAR Plan’). Under the Roche S-SAR Plan, 180 million S-SARs will be
available for issuance over a ten-year period. The rights, which are non-tradable equity-settled awards, have a seven-year
duration and vest on a phased basis over three years.
Roche S-SARs – movement in number of rights outstanding
Number of rights
(thousands)
2013
Weighted average
exercise price
(CHF)
Number of rights
(thousands)
2012
Weighted average
exercise price
(CHF)
55,590
159.42
51,044
158.09
9,025
214.65
19,673
157.92
Forfeited
(1,345)
165.28
(3,196)
166.52
Exercised
(21,533)
166.82
(11,924)
149.36
(46)
195.00
(7)
Outstanding at 1 January
Granted
Expired
123.00
Outstanding at 31 December
41,691
167.32
55,590
159.42
–– of which exercisable
16,798
156.97
22,400
170.55
Number
exercisable
(thousands)
Rights exercisable
Weighted average
exercise price
(CHF)
Roche S-SARs – terms of rights outstanding at 31 December 2013
Number
outstanding
(thousands)
Weighted average
years remaining
contractual life
Rights outstanding
Weighted average
exercise price
(CHF)
2007
423
0.17
229.50
423
229.50
2008
1,243
1.09
195.16
1,243
195.16
2009
2,798
2.54
158.59
2,798
158.59
2010
5,681
3.65
151.84
5,531
152.07
2011
8,231
4.18
140.21
3,647
140.22
2012
14,631
5.26
157.97
3,118
158.05
2013
8,684
6.26
214.71
38
214.00
Total
41,691
4.68
167.32
16,798
156.97
Year of grant
Roche Restricted Stock Unit Plan. The Group issues Restricted Stock Units (RSUs) awards to certain directors,
management and employees selected at the discretion of the Group. The RSUs, which are non-tradable, represent the right
to receive non-voting equity securities which vest only after a three-year period, subject to performance conditions, if any.
There are currently no performance conditions on outstanding RSUs at 31 December 2013. The RSU Plan regulations were
restated and amended effective 1 January 2013 (referred to as the ‘Roche RSU Plan’). Under the Roche RSU Plan 20 million
non-voting equity securities will be available for issuance over a ten-year period. The Roche RSU Plan also includes a value
adjustment which will be an amount equivalent to the sum of shareholder distributions made by the Group during the vesting
period attributable to the number of non-voting equity securities for which an individual award has been granted.
102­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Roche RSUs – movement in number of awards outstanding
Outstanding at 1 January
2013
Number of awards
(thousands)
2012
Number of awards
(thousands)
1,137
2,227
Granted
921
–
Forfeited
(108)
(98)
Transferred to participants
(1,116)
Outstanding at 31 December
–– of which vested and transferable
(992)
834
1,137
2
1
Roche Performance Share Plan. The Group offers future non-voting equity security awards (or, at the discretion of
the Board of Directors, their cash equivalent) to certain directors and key senior managers. These are non-tradable equitysettled awards. The programme currently operates in annual three-year cycles. The Roche Performance Share Plan
regulations were restated and amended effective 1 January 2013 (referred to as the ‘Roche PSP Plan’). The Roche PSP Plan
includes a value adjustment which will be an amount equivalent to the sum of shareholder distributions made by the Group
during the vesting period attributable to the number of non-voting equity securities for which an individual award has been
granted. The amount of non-voting equity securities allocated will depend upon the individual’s salary level, the achievement
of performance targets linked to the Group’s Total Shareholder Return (shares and non-voting equity securities combined)
relative to the Group’s peers during the three-year period from the date of the grant, and the discretion of the Board of
Directors. Each award will result in between zero and two non-voting equity securities (before value adjustment), depending
upon the achievement of the performance targets.
Roche Performance Share Plan – terms of outstanding awards at 31 December 2013
2011–2013
Number of awards outstanding (thousands)
Vesting period
Allocated to recipients in
Fair value per unit at grant (CHF)
Total fair value at grant (CHF millions)
2012–2014
2013–2015
131
126
107
3 years
3 years
3 years
Feb. 2014
Feb. 2015
Feb. 2016
124.17
153.67
192.60
19
22
21
Roche Connect. This programme enables all employees worldwide, except for those in the US and certain other countries,
to make regular deductions from their salaries to purchase non-voting equity securities. It is administered by independent
third parties. The Group contributes to the programme, which allows the employees to purchase non-voting equity securities
at a discount (usually 20%). The administrator purchases the necessary non-voting equity securities directly from the market.
At 31 December 2013 the administrator held 2.2 million non-voting equity securities (2012: 2.3 million). In 2013 the cost
of the plan was 11 million Swiss francs (2012: 12 million Swiss francs).
Roche Option Plan. This programme is used in countries where S-SARs are not used. Awards under this plan give
employees the right to purchase non-voting equity securities at an exercise price specified at the grant date. The Roche
Option Plan regulations were restated and amended effective 1 January 2013 (referred to as the ‘Roche Option Plan’).
The options, which are non-tradable equity-settled awards, have a seven-year duration and vest on a phased basis over
three years, subject to continued employment.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
103­
Roche Option Plan – movement in number of options outstanding
Outstanding at 1 January
Number of options
(thousands)
2013
Weighted average
exercise price
(CHF)
Number of options
(thousands)
2012
Weighted average
exercise price
(CHF)
1,810
167.15
1,676
167.77
Granted
226
214.00
443
157.67
Forfeited
(54)
171.98
(117)
176.68
Exercised
(700)
178.38
(190)
145.01
(15)
195.00
(2)
132.74
Expired
Outstanding at 31 December
–– of which exercisable
1,267
168.78
1,810
167.15
640
164.69
966
179.93
Roche Option Plan – terms of options outstanding at 31 December 2013
Number outstanding
(thousands)
Weighted average
years remaining
contractual life
Options outstanding
Weighted average
exercise price
(CHF)
Number exercisable
(thousands)
Options exercisable
Weighted average
exercise price
(CHF)
2007
39
0.17
229.60
39
229.60
2008
92
1.13
193.62
92
193.62
2009
77
2.26
152.62
77
152.62
2010
162
3.29
169.48
162
169.48
2011
327
4.17
140.10
180
140.10
2012
352
5.25
157.63
89
157.57
Year of grant
2013
Total
218
6.25
214.00
1
214.00
1,267
4.26
168.78
640
164.69
The weighted average share price of Roche non-voting equity securities during the year was 230.83 Swiss francs
(2012: 168.47 Swiss francs).
Bonus Stock Awards. The Chairman of the Board of Directors and the Chief Executive Officer will be granted Bonus
Stock Awards in lieu of their cash-settled bonus for the financial year 2013. These will be issued by the end of April 2014.
The number of awards and fair value per award will be calculated at the grant date.
Chugai Stock Acquisition Rights. Chugai has Stock Acquisition Right programmes and the total fair value of the rights
issued in 2013 was equivalent to 3 million Swiss francs (2012: 2 million Swiss francs). In 2013, 3,270 rights (2012: 3,340)
were issued to employees and directors of Chugai. The rights are non-tradable equity-settled awards that have a ten-year
duration and vest after two years. Each right entitles the holder to purchase 100 Chugai shares at a specified exercise price.
In addition, 522 rights (2012: 817) were issued to the directors of Chugai that have a thirty-year duration and vest upon
the holder’s retirement as a director of Chugai. Each right entitles the holder to purchase 100 Chugai shares at an exercise
price of 100 Japanese yen.
104­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Fair value measurement
The inputs used in the measurement of the fair values at grant date of the equity compensation plans were as follows:
Fair value measurement in 2013
Roche Stock-settled
Stock Appreciation
Rights
Roche Restricted
Stock Unit Plan
Roche
Performance Share
Plan
Roche Option
Plan
Progressively
Cliff vesting
Cliff vesting
Progressively
over 3 years
after 3 years
after 3 years
over 3 years
7 years
n/a
n/a
7 years
9,025,294
920,570
109,580
226,191
22
214
193
22
Binomial
Market price a)
Monte Carlo b)
Binomial
–– Share price at grant date (CHF)
214
214
184
214
–– Exercise price (CHF)
214
–
–
214
Vesting period
Contractual life
Number granted during year
Weighted average fair value (CHF)
Model used
Inputs to option pricing model
–– Expected volatility
24.8%
n/a
n/a
24.8%
–– Expected dividend yield
6.8%
n/a
n/a
6.8%
–– Early exercise factor d)
1.19
n/a
n/a
1.19
–– Expected exit rate
8.1%
n/a
n/a
8.1%
c)
a)The fair value of the Roche RSUs is equivalent to the share price on the date of grant.
b)The input parameters were the covariance matrix between Roche and the other individual companies of the peer group based on a three-year history and a riskfree rate of minus 0.192%. The valuation takes into account the defined rank and performance structure which determines the pay-out of the plan.
c)Volatility was determined primarily by reference to historically observed prices of the underlying equity. Risk-free interest rates are derived from zero coupon
swap rates at the grant date taken from Datastream.
d)The early exercise factor describes the ratio between the expected market price at the exercise date and the exercise price at which early exercises can be
expected, based on historically observed behaviour.
27. Earnings per share and non-voting equity security
Basic earnings per share and non-voting equity security
2013
2012
11,164
9,427
Number of shares (millions) 21
160
160
Number of non-voting equity securities (millions) 21
703
703
Weighted average number of own shares and non-voting equity securities held (millions)
(15)
(15)
848
848
13.16
11.12
Net income attributable to Roche shareholders (CHF millions)
Weighted average number of shares and non-voting equity securities
in issue (millions)
Basic earnings per share and non-voting equity security (CHF)
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
105­
Diluted earnings per share and non-voting equity security
Net income attributable to Roche shareholders (CHF millions)
2013
2012
11,164
9,427
Increase in non-controlling interests’ share of Group net income, assuming all outstanding
Chugai stock options exercised (CHF millions)
Net income used to calculate diluted earnings per share (CHF millions)
(1)
(1)
11,163
9,426
Weighted average number of shares and non-voting equity securities in issue (millions)
848
848
Adjustment for assumed exercise of equity compensation plans, where dilutive (millions)
15
7
863
855
12.93
11.03
Weighted average number of shares and non-voting equity securities
in issue used to calculate diluted earnings per share (millions)
Diluted earnings per share and non-voting equity security (CHF)
As disclosed in Note 32, the earnings per share and non-voting equity security for the year ended 31 December 2012 have been restated following the accounting
policy changes which were adopted in 2013. A reconciliation to the previously published earnings per share and non-voting equity security is provided in Note 32.
28. Statement of cash flows
Cash flows from operating activities
Cash flows from operating activities arise from the Group’s primary activities in the Pharmaceuticals and Diagnostics
businesses. These are calculated by the indirect method by adjusting the Group’s operating profit for any operating income
and expenses that are not cash flows (for example depreciation, amortisation and impairment) in order to derive the cash
generated from operations. This and other operating cash flows are shown in the statement of cash flows. Operating cash
flows also include income taxes paid on all activities.
Cash generated from operations in millions of CHF
Net income
2013
2012
11,373
9,660
1,580
1,923
Add back non-operating (income) expense
–– Financing costs 3
–– Other financial income (expense) 3
–– Income taxes 4
Operating profit
Depreciation of property, plant and equipment 7
119
43
3,304
2,499
16,376
14,125
1,878
1,891
Amortisation of intangible assets 9
503
530
Impairment of goodwill 8
288
187
Impairment of intangible assets
362
525
Impairment (reversal) of property, plant and equipment 7
(474)
462
Operating (income) expense for defined benefit plans 25
102
280
Operating expense for equity-settled equity compensation plans 26
360
363
1,050
1,363
9
Net (income) expense for provisions 19
Bad debt (reversal) expense
(12)
64
Inventory write-downs
303
306
Other adjustments
Cash generated from operations
60
20,796
(112)
19,984
As disclosed in Note 32, the net income and non-operating (income) expense for the year ended 31 December 2012 have been restated following the accounting
policy changes which were adopted in 2013. A reconciliation to the previously published net income and non-operating (income) expense is provided in Note 32.
106­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Cash flows from investing activities
Cash flows from investing activities are principally those arising from the Group’s investments in property, plant and equipment
and intangible assets, and from the acquisition and divestment of subsidiaries, associates and businesses. Cash flows
connected with the Group’s portfolio of marketable securities and other investments are also included, as are any interest
and dividend payments received in respect of these securities and investments. These cash flows indicate the Group’s
net reinvestment in its operating assets and the cash flow effects of business combinations and divestments, as well as
the cash generated by the Group’s other investments.
Interest and dividends received in millions of CHF
Interest received
Dividends received
Total
2013
2012
49
37
2
2
51
39
Cash flows from financing activities
Cash flows from financing activities are primarily the proceeds from the issue and repayment of the Group’s equity and debt
instruments. They also include interest payments and dividend payments on these instruments. Cash flows from short-term
financing, including finance leases, are also included. These cash flows indicate the Group’s transactions with the providers
of its equity and debt financing. Cash flows from short-term borrowings are shown as a net movement, as these consist
of a large number of transactions with short maturity.
Dividends paid in millions of CHF
2013
Dividends to Roche Group shareholders
2012
(6,238)
(5,770)
Dividends to non-controlling shareholders – Chugai
(84)
(98)
Dividends to non-controlling shareholders – Other
(39)
(18)
Dividend withholding tax
Total
(1)
(2)
(6,362)
(5,888)
Significant non-cash transactions
There were no significant non-cash transactions in 2013 (2012: none).
29. Risk management
Group risk management
Risk management is a fundamental element of the Group’s business practice on all levels and encompasses different
types of risks. At a group level risk management is an integral part of the business planning and controlling processes.
Material risks are monitored and regularly discussed with the Corporate Executive Committee and the Audit Committee
of the Board of Directors.
Financial risk management
The Group is exposed to various financial risks arising from its underlying operations and corporate finance activities.
The Group’s financial risk exposures are predominantly related to changes in foreign exchange rates, interest rates and
equity prices as well as the creditworthiness and the solvency of the Group’s counterparties.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
107­
Financial risk management within the Group is governed by policies reviewed by the boards of directors of Roche or
Chugai as appropriate to their areas of statutory responsibility. These policies cover credit risk, liquidity risk and market
risk. The policies provide guidance on risk limits, type of authorised financial instruments and monitoring procedures.
As a general principle, the policies prohibit the use of derivative financial instruments for speculative trading purposes.
Policy implementation and day-to-day risk management are carried out by the relevant treasury functions and regular
reporting on these risks is performed by the relevant accounting and controlling functions within Roche and Chugai.
Credit risk
Credit risk arises from the possibility that counterparties to transactions may default on their obligations, causing financial
losses for the Group. The objective of managing counterparty credit risk is to prevent losses of liquid funds deposited with or
invested in such counterparties. The maximum exposure to credit risk resulting from financial activities, without considering
netting agreements and without taking account of any collateral held or other credit enhancements, is equal to the carrying
value of the Group’s financial assets.
Accounts receivable. At 31 December 2013 the Group has trade receivables of 9.3 billion Swiss francs (2012: 10.1 billion
Swiss francs). These are subject to a policy of active credit risk management which focuses on the assessment of country
risk, credit availability, ongoing credit evaluation and account monitoring procedures. The objective of trade receivables
management is to maximise the collection of unpaid amounts.
At 31 December 2013 the Group’s combined trade receivables balance with three US national wholesale distributors,
AmerisourceBergen Corp., McKesson Corp. and Cardinal Health, Inc., was equivalent to 1.4 billion Swiss francs representing
15% of the Group’s consolidated trade receivables (2012: 1.4 billion Swiss francs representing 14%). There is no other
significant concentration of counterparty credit risk due to the Group’s large number of customers and their wide
geographical spread. Risk limits and exposures are continuously monitored by country and by the nature of counterparties.
The Group obtains credit insurance and similar enhancements when appropriate to protect the collection of trade
receivables. At 31 December 2013 no collateral was held for trade receivables (2012: none).
Since 2010 there have been financial difficulties in Southern European countries, notably Spain, Italy, Greece and Portugal.
The Group is a leading supplier to the healthcare sectors in these countries and has trade receivables of 1.3 billion Swiss
francs (2012: 1.5 billion Swiss francs) with the public customers in these countries. At 31 December 2013 trade receivables
in Italy, Greece and Portugal decreased due to improved collections and in Spain remained stable compared to 2012. The
Group uses different measures to improve collections in these countries, including intense communication with customers,
factoring, negotiations of payments plans, charging of interest for late payments, and legal action.
The nature and geographic location of counterparties to accounts receivable that are not overdue or impaired are shown
in the table below. These include the balances with US national wholesalers and Southern Europe public customers
described above.
Accounts receivable (not overdue): nature and geographical location of counterparties in millions of CHF
2013
Regions
Switzerland
Public
Private
2012
Total
Public
Wholesalers/
distributors
Private
37
15
9
13
72
22
15
35
Europe
2,008
661
582
765
2,245
744
1,081
420
North America
1,925
56
1,409
460
1,921
77
1,575
269
620
108
163
349
520
125
212
183
Latin America
Japan
951
7
942
2
1,336
17
1,292
27
Asia, Australia and Oceania
777
40
425
312
826
139
410
277
Rest of world
Total
108­
Total
Wholesalers/
distributors
799
44
212
543
476
26
327
123
7,117
931
3,742
2,444
7,396
1,150
4,912
1,334
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
The ageing of accounts receivable that were not impaired is shown in the table below.
Ageing of accounts receivable that are not impaired in millions of CHF
Neither overdue nor impaired
2013
2012
7,117
7,396
Overdue under 1 month
401
447
Overdue 1–3 months
426
522
Overdue 4–6 months
435
489
Overdue 7–12 months
274
327
Overdue more than 1 year
Total accounts receivable
155
284
8,808
9,465
Cash and marketable securities. At 31 December 2013 the Group has cash and marketable securities of 11.9 billion Swiss
francs (2012: 14.0 billion Swiss francs). These are subject to a policy of restricting exposures to high-quality counterparties
and setting defined limits for individual counterparties. These limits and counterparty credit ratings are reviewed regularly.
Investments in marketable securities are entered into on the basis of guidelines with regard to liquidity, quality and maximum
amount. As a general rule, the Group invests only in high-quality securities with adequate liquidity. Cash and short-term time
deposits are subject to rules which limit the Group’s exposure to individual financial institutions.
Rating analysis of cash and fixed income marketable securities (market values)
(mCHF)
2013
(% of total)
(mCHF)
2012
(% of total)
AAA-range
3,172
28
5,176
37
AA-range
5,215
45
4,581
33
A-range
2,822
25
3,778
28
146
1
105
1
26
0
7
0
BBB-range
Below BBB-range
Unrated
Total
118
1
72
1
11,499
100
13,719
100
Master netting agreements. The Group enters into derivative transactions and collateral agreements under International
Swaps and Derivatives Association (ISDA) master netting agreements with the respective counterparties in order to mitigate
counterparty risk. Under such agreements the amounts owed by each counterparty on a single day in respect of all transactions
outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. The ISDA
agreements do not meet the criteria for offsetting in the balance sheet as the Group does not have a currently enforceable
right to offset recognised amounts, because the right to offset is only enforceable on the occurrence of future events, such
as a default or other credit events.
Contract terms. At 31 December 2013 there are no significant financial assets whose terms have been renegotiated
(2012: none).
Impairment losses. During 2013 total impairment losses for available-for-sale financial assets amounted to 9 million Swiss
francs (2012: 25 million Swiss francs).
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
109­
Liquidity risk
Liquidity risk arises through a surplus of financial obligations over available financial assets due at any point in time. The
Group’s approach to liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements
at any point in time. Roche and Chugai enjoy strong credit quality and are rated by at least one major credit rating agency.
The ratings will permit efficient access to the international capital markets in the event of major financing requirements.
At 31 December 2013 the Group has unused committed credit lines with various financial institutions totalling 5.1 billion
Swiss francs (2012: 5.1 billion Swiss francs), of which 4.8 billion Swiss francs serve as a back-stop line for the commercial
paper programme.
The remaining undiscounted cash flow contractual maturities of financial liabilities, including estimated interest payments,
are shown in the table below.
Contractual maturities of financial liabilities in millions of CHF
Carrying
value
Total
Less than
1 year
1–2
years
2–5
years
Over
5 years
17,293
1,350
25,337
1,923
3,072
7,793
12,549
1,350
1,154
33
106
57
122
122
35
2
85
–
2,162
2,162
2,162
–
–
–
Year ended 31 December 2013
Debt 20
–– Bonds and notes
–– Other debt
Contingent consideration 19
Accounts payable 16
Derivative financial instruments
18
Total financial liabilities
354
354
295
–
–
59
21,281
29,325
5,569
3,107
7,984
12,665
23,720
33,424
7,259
898
8,748
16,519
870
870
586
83
105
96
81
81
28
3
50
–
1,945
1,945
1,945
–
–
–
165
165
165
–
–
–
26,781
36,485
9,983
984
8,903
16,615
Year ended 31 December 2012
Debt 20
–– Bonds and notes
–– Other debt
Contingent consideration 19
Accounts payable 16
Derivative financial instruments 18
Total financial liabilities
Market risk
Market risk arises from changing market prices, mainly foreign exchange rates and interest rates, of the Group’s financial
assets or financial liabilities which affect the Group’s financial result and equity.
Value-at-Risk. The Group uses Value-at-Risk (VaR) to measure the impact of market risk on its financial instruments.
VaR indicates the value range within which a given financial instrument will fluctuate with a pre-set probability as a result
of movements in market prices. VaR is calculated using a historical simulation approach and for each scenario, all financial
instruments are fully valued and the total change in value and earnings is determined. VaR calculations are based on a 95%
confidence level and a holding period of 20 trading days over the past ten years. This holding period reflects the time
required to change the corresponding risk exposure, should this be deemed appropriate.
Actual future gains and losses associated with our treasury activities may differ materially from the VaR analyses due to
the inherent limitations associated with predicting the timing and amount of changes to interest rates, foreign exchange rates
and equity investment prices, particularly in periods of high market volatilities. Furthermore, VaR does not include the effect
of changes in credit spreads.
110­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Market risk of financial instruments in millions of CHF
VaR – Interest rate component
VaR – Foreign exchange component
VaR – Other price component
2013
2012
292
191
36
50
30
31
Diversification
(61)
(67)
VaR – Total market risk
297
205
The interest rate component increased mainly due to a gradual increase in long-term interest rates in major economies.
The foreign exchange component decreased due to a favourable exposure mix. The other price component arises mainly
from movements in equity security prices and remained largely stable.
Foreign exchange risk
The Group uses the Swiss franc as its reporting currency and as a result is exposed to movements in foreign currencies,
mainly the US dollar, Japanese yen and euro. The objective of the Group’s foreign exchange risk management activities is to
preserve the economic value of its current and future assets and to minimise the volatility of the Group’s financial result. The
primary focus of the Group’s foreign exchange risk management activities is on hedging transaction exposures arising through
foreign currency flows or monetary positions held in foreign currencies. The Group uses forward contracts, foreign exchange
options and cross-currency swaps to hedge transaction exposures. Application of these instruments intends to continuously
lock in favourable developments of foreign exchange rates, thereby reducing the exposure to potential future movements
in such rates.
Interest rate risk
The Group mainly raises debt on a fixed rate basis for bonds and notes. The Group is exposed to movements in interest rates,
mainly for its US dollar, Swiss franc and euro-denominated floating rate financial instruments. The primary objective of the
Group’s interest rate management is to protect the net interest result. The Group may use forward contracts, options and
swaps to hedge its interest rate exposures. Depending on the interest rate environment of major currencies, the Group will
use these instruments to generate an appropriate mix of fixed and floating rate exposures.
Interest rate hedging. During 2013 the Group entered into the following interest rate hedging contracts:
Interest rate swap contracts for a combined notional principal of 2.0 billion US dollars. These swapped the fixed interest
rate of 6.0% to an effective floating interest rate of 3 months USD-LIBOR plus an average spread of 4.74%. The maturity
of the swaps is 1 March 2019.
Interest rate swap contracts for a combined notional principal of 100 million Swiss francs. These swapped the fixed interest
rate of 1.0% to an effective floating interest rate of 6 months CHF-LIBOR plus an average spread of 0.21%. The maturity
of the swaps is 21 September 2018.
Other price risk
Other price risk arises mainly from movements in the prices of equity securities. The Group manages the price risk through
placing limits on individual and total equity investments. These limits are defined both as a percentage of total liquid funds
and as an absolute number for individual equity investments.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
111­
Capital management
The Group defines the capital that it manages as the Group’s total capitalisation, being the sum of debt plus equity, including
non-controlling interests. The Group’s objectives when managing capital are:
To safeguard the Group’s ability to continue as a going concern, so that it can continue to provide benefits for patients
and returns to investors.
To provide an adequate return to investors based on the level of risk undertaken.
To have available the necessary financial resources to allow the Group to invest in areas that may deliver future benefits
for patients and returns to investors.
To maintain sufficient financial resources to mitigate against risks and unforeseen events.
The capitalisation is reported to senior management as part of the Group’s regular internal management reporting and
is shown in the table below.
Capital in millions of CHF
2013
2012
2011
19,294
14,514
12,116
1,947
2,236
2,390
Total equity
21,241
16,750
14,506
Total debt 20
18,643
24,590
26,853
Capitalisation
39,884
41,340
41,359
Capital and reserves attributable to Roche shareholders
Equity attributable to non-controlling interests 23
21
As disclosed in Note 32, the total equity at 31 December 2012 and 31 December 2011 has been restated following the accounting policy changes which were adopted
in 2013. A reconciliation to the previously published total equity is provided in Note 32.
The Group’s net equity was significantly impacted by the 2009 Genentech transaction (see Note 21).
The Group is not subject to regulatory capital adequacy requirements as known in the financial services industry. The Group
has a majority shareholding in Chugai (see Note 22). Chugai is a public company and its objectives, policies and processes
for managing its own capital are determined by local management.
112­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Financial instrument accounting classifications and fair values
The fair values of financial assets and liabilities, together with the carrying value shown in the consolidated balance sheet are
as follows:
Carrying value and fair value of financial instruments in millions of CHF
Fair value –
hedging
instruments
Fair value –
designated
209
–
–
–
–
209
209
–
–
–
133
–
133
133
8,808
Availablefor-sale
Loans
and
receivables
Other
financial
liabilities
Total
carrying
value
Fair value
Year ended 31 December 2013
Other non-current assets 14
–– Available-for-sale investments
–– Other financial non-current assets
Accounts receivable 11
–
–
–
8,808
–
8,808
7,935
–
–
–
–
7,935
7,935
–
–
–
4,000
–
4,000
4,000
–– Derivative financial instruments
–
653
–
–
–
653
653
–– Other financial currents assets
–
–
–
632
–
632
632
8,144
653
–
13,573
–
22,370
22,370
Marketable securities 12
Cash and cash equivalents 13
Other current assets 15
Total financial assets
Debt 20
–– Bonds and notes
–
–
–
–
(17,293)
(17,293)
(19,991)
–– Other debt
–
–
–
–
(1,350)
(1,350)
(1,350)
Contingent consideration 19
–
–
Accounts payable 16
–
–
Derivative financial instruments 18
–
(354)
Total financial liabilities
–
(354)
(122)
–
–
–
–
–
(122)
–
–
(2,162)
–
(20,805)
(122)
(122)
(2,162)
(2,162)
(354)
(354)
(21,281)
(23,979)
Year ended 31 December 2012
Other non-current assets 14
–– Available-for-sale investments
–– Other financial non-current assets
Accounts receivable 11
Marketable securities 12
Cash and cash equivalents 13
182
–
–
–
–
182
182
–
–
–
157
–
157
157
9,465
–
–
–
9,465
–
9,465
9,461
–
–
–
–
9,461
9,461
–
–
–
4,530
–
4,530
4,530
–
454
–
–
–
454
454
Other current assets 15
–– Derivative financial instruments
–– Other financial currents assets
Total financial assets
–
–
–
651
–
651
651
9,643
454
–
14,803
–
24,900
24,900
–
–
–
–
(23,720)
(23,720)
(27,780)
(870)
(870)
(870)
Debt 20
–– Bonds and notes
–– Other debt
–
–
–
–
Contingent consideration 19
–
–
(81)
–
Accounts payable 16
–
–
–
–
Derivative financial instruments 18
–
(165)
Total financial liabilities
–
(165)
–
(81)
–
–
–
(1,945)
–
(26,535)
(81)
(81)
(1,945)
(1,945)
(165)
(165)
(26,781)
(30,841)
The fair value of bonds and notes is calculated based on the observable market prices of the debt instruments or the present
value of the future cash flows on the instrument, discounted at a market rate of interest for instruments with similar credit
status, cash flows and maturity periods.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
113­
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 – unobservable inputs.
Fair value hierarchy of financial instruments in millions of CHF
Level 1
Level 2
Level 3
Total
Year ended 31 December 2013
Marketable securities
–– Equity securities
436
–
–
436
–– Debt securities
791
2
–
793
1,726
4,980
–
6,706
–
653
–
653
–– Money market instruments and time accounts over three months
Derivative financial instruments
Available-for-sale investments – held at fair value
14
Financial assets recognised at fair value
24
145
–
169
2,977
5,780
–
8,757
Derivative financial instruments
–
Contingent consideration
–
Financial liabilities recognised at fair value
–
(354)
–
(354)
–
(354)
(122)
(122)
(122)
(476)
Year ended 31 December 2012
Marketable securities
–– Equity securities
272
–
–
272
–– Debt securities
1,414
144
–
1,558
–– Money market instruments and time accounts over three months
2,551
5,080
–
7,631
Derivative financial instruments
–
454
–
454
Available-for-sale investments – held at fair value 14
3
122
–
125
4,240
5,800
–
10,040
Financial assets recognised at fair value
Derivative financial instruments
–
Contingent consideration
–
Financial liabilities recognised at fair value
–
(165)
–
(165)
–
(165)
(81)
(81)
(81)
(246)
Level 1 financial assets consist of treasury bills, bonds and quoted shares. Level 2 financial assets consist primarily of
commercial paper, certificates of deposit and derivative financial instruments.
The Group determines Level 2 fair values using the following valuation techniques:
Marketable securities and derivative financial instruments are based on valuation models that use observable market data
for interest rates, yield curves, foreign exchange rates and implied volatilities for similar instruments at the measurement
date.
Available-for-sale investments using a valuation model derived from the most recently published observable financial
prices.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which
the transfer has occurred. There were no significant transfers between Level 1 and Level 2 and vice versa during the year
(2012: none).
114­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Level 3 fair values
Details of the determination of Level 3 fair value measurements and the transfer out of Level 3 of the fair value hierarchy
are set out below.
Contingent consideration arrangements in millions of CHF
2013
2012
At 1 January
(81)
(153)
Arising from business combination 5
(61)
(1)
Total unrealised gains and losses included in the income statement
–– Unused amounts reversed
–
52
–– Additional amount created
(9)
(3)
–– Discount unwind
(1)
–
1
–
Total gains and losses included in other comprehensive income
–– Currency translation effects
Transfers out of Level 3
–– Utilised 5
At 31 December
29
24
(122)
(81)
Contingent consideration arrangements
The Group is party to certain contingent consideration arrangements arising from business combination arrangements.
The fair value is determined considering the expected payment, discounted to present value using a risk-adjusted discount
rate of 4.6%. The expected payments are determined by considering the possible scenarios of forecast sales or other
performance criteria, the amount to be paid under each scenario, and the probability of each scenario. The significant
unobservable inputs are the forecast sales or other performance criteria and the risk-adjusted discount rate. The estimated
fair value would increase if the forecast sales or other performance criteria rate was higher or the risk-adjusted discount
rate was lower. At 31 December 2013 the payments under contingent consideration arrangements could be up to 303 million
Swiss francs.
Derivative financial instruments
The Group has entered into various currency swaps for certain non-US dollar debt instruments. Cash collateral agreements
were entered into with the counterparties to the currency swaps to mitigate counterparty risk. The following table sets out
the carrying value of derivative financial instruments and the amounts that are subject to master netting agreements.
Derivative financial instruments in millions of CHF
2013
2012
Assets
2011
2013
2012
Liabilities
2011
Foreign currency derivatives
–– Forward exchange contracts
138
31
87
(25)
(59)
–– Cross-currency swaps
513
418
178
–
–
–
–
–
–
–
–
–
–– Other
(42)
Interest rate derivatives
–– Swaps
2
5
9
(59)
–
–
–– Other
–
–
–
–
–
–
Other derivatives
–
–
–
(270)
(106)
(62)
653
454
274
(354)
(165)
(104)
(55)
(39)
(24)
55
39
24
(486)
(361)
(215)
6
5
(18)
Carrying value of derivative financial
instruments
15, 18
Derivatives subject to master netting agreements
Collateral arrangements
Net amount
112
54
35
(293)
(121)
(98)
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
115­
Collateral arrangements
The fair value of the currency swaps increased during 2013, mainly due to a stronger euro compared to the US dollar,
and as a result cash was delivered to the Group by the counterparties.
Movements in cash collateral other receivable (accrued liability) in millions of CHF
2013
2012
At 1 January
(356)
(233)
Net cash delivered by (to) the Group
(124)
(123)
At 31 December
(480)
(356)
Hedge accounting
At 31 December 2013 the Group has the following cash flow hedges and fair value hedges which are designated in
a qualifying hedge relationship.
Cash flow hedges. The Group has entered into cross-currency swaps to hedge foreign exchange and interest rate risk
on some of the bonds and notes issued by the Group which are denominated in euros and sterling. At 31 December 2013
such instruments are recorded as fair value assets of 513 million Swiss francs (2012: assets of 418 million Swiss francs).
There was no ineffective portion.
During 2012 the Group entered into foreign exchange forward contracts to hedge a part of its foreign translation exposure to
euros. During 2013 the remaining foreign exchange forward contracts matured resulting in a loss of 34 million Swiss francs
recorded in the income statement. At 31 December 2012 such instruments were recorded as fair value liabilities of 10 million
Swiss francs.
Chugai has entered into foreign exchange forward contracts to hedge a part of its foreign translation exposure to Swiss
francs and US dollars. At 31 December 2013 such instruments are recorded as fair value assets of 57 million Swiss francs
(2012: assets of 1 million Swiss francs). There was no ineffective portion.
The expected undiscounted cash flows from qualifying cash flow hedges, including interest payments during the duration
of the derivative contract and final settlement on maturity, are shown in the table below.
Expected cash flows of qualifying cash flow hedges in millions of CHF
Total
Cash inflows
Cash outflows
Total cash inflow (outflow)
Less than
1 year
2013
More than
1 year
Total
Less than
1 year
2012
More than
1 year
7,021
955
6,066
11,172
5,022
6,150
(6,558)
(913)
(5,645)
(10,919)
(4,936)
(5,983)
463
42
421
253
86
167
The undiscounted cash flows in the table above will affect profit and loss as shown below. These include interest payments
during the duration of the derivative contract but do not include the final settlement on maturity.
Expected cash flows of qualifying cash flow hedges with impact on profit and loss in millions of CHF
Total
Cash inflows
Cash outflows
Total cash inflow (outflow)
116­
Less than
1 year
2013
More than
1 year
Total
Less than
1 year
2012
More than
1 year
1,296
289
1,007
1,730
451
1,279
(1,310)
(293)
(1,017)
(1,839)
(490)
(1,349)
(14)
(4)
(10)
(109)
(39)
(70)
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
The changes in the hedging reserve within equity are shown in Note 21.
Fair value hedges. The Group has entered into some interest rate swaps to hedge some of its fixed-term debt instruments.
At 31 December 2013 such instruments are recorded as fair value liabilities of 59 million Swiss francs and fair value assets
of 2 million Swiss francs (2012: assets of 5 million Swiss francs). During 2013 a loss of 62 million Swiss francs was recorded
on these interest rate swaps (2012: loss of 4 million Swiss francs). As the fair value hedge had been highly effective since
inception, the result of the interest rate swaps was largely offset by changes in the fair value of the hedged debt instruments.
The Group has equity investments in various biotechnology companies that are subject to a greater risk of market fluctuation
than the stock market in general. To manage part of this exposure the Group has entered into forward contracts, which have
been designated and qualify as fair value hedges. At 31 December 2013 such instruments are recorded as fair value liabilities
of 270 million Swiss francs (2012: liabilities of 106 million Swiss francs). During 2013 a loss of 164 million Swiss francs was
recorded on these forward contracts (2012: loss of 44 million Swiss francs). The result of the forward contracts is offset by
the changes in the fair value of the hedged equity investments.
Net investment hedges. The Group does not have any net investment hedges.
30. Related parties
Controlling shareholders
The share capital of Roche Holding Ltd, which is the Group’s parent company, consists of 160,000,000 bearer shares.
At 31 December 2013 and 2012, based on information supplied to the Group, a shareholder group with pooled voting rights
owned 72,018,000 shares, which represented 45.01% of the issued shares. This group consisted of Ms Vera MichalskiHoffmann, Ms Maja Hoffmann, Mr André Hoffmann, Dr Andreas Oeri, Ms Sabine Duschmalé-Oeri, Ms Catherine Oeri, Mr
Jörg Duschmalé, Mr Lukas Duschmalé and the charitable foundation Wolf. The shareholder pooling agreement has existed
since 1948. The figures above do not include any shares without pooled voting rights that are held outside this group by
individual members of the group. Ms Maja Oeri, formerly a member of the pool, now holds 8,091,900 shares representing
5.057% of the voting rights independently of the pool.
Mr André Hoffmann and Dr Andreas Oeri are members of the Board of Directors of Roche Holding Ltd. Mr Hoffmann
received remuneration totalling 400,000 Swiss francs (2012: 400,000 Swiss francs) and Dr Oeri received remuneration
totalling 360,000 Swiss francs (2012: 360,000 Swiss francs).
There were no other transactions between the Group and the individual members of the above shareholder group.
Subsidiaries and associates
A listing of the major Group subsidiaries and associates is included in Note 31. Transactions between the parent company
and its subsidiaries and between subsidiaries are eliminated on consolidation. There were no significant transactions
between the Group and its associates.
Key management personnel
Total remuneration of key management personnel was 52 million Swiss francs (2012: 55 million Swiss francs, 2011: 61 million
Swiss francs).
Members of the Board of Directors of Roche Holding Ltd receive an annual remuneration and payment for their time and
expenses related to their membership of Board committees. Total remuneration of the Board of Directors in 2013, excluding
the Chairman and the Chief Executive Officer, totalled 4 million Swiss francs (2012: 5 million Swiss francs, 2011: 5 million
Swiss francs).
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
117­
The Chairman of the Board of Directors and members of the Corporate Executive Committee of Roche Holding Ltd receive
remuneration, which consists of an annual salary, bonus and an expense allowance. The Group pays social insurance
contributions in respect of the above remuneration and pays contributions to pension and other post-employment benefit
plans for the Chairman of the Board of Directors and members of the Corporate Executive Committee. The Chairman of the
Board of Directors and members of the Corporate Executive Committee also participate in certain equity compensation plans
as described below. The terms, vesting conditions and fair value of these awards are disclosed in Note 26. New members of
the Corporate Executive Committee (Mr Diggelmann in 2012 and Dr Hippe in 2011) are included in the table below for the
full calendar year in which they joined the CEC. Similarly, members of the Corporate Executive Committee retiring part way
through the year (Dr Soriot in 2012 and Dr Hunziker in 2011) are included for the full calendar year in which they left the CEC.
Remuneration of the Chairman of the Board of Directors and members of the Corporate Executive Committee in millions of CHF
Salaries, including cash-settled bonus
2013
2012
2011
24
28
24
Bonus Stock Awards
7
5
5
Social security costs
3
2
2
Pensions and other post-employment benefits
4
7
7
Equity compensation plans
9
7
13
Retirement awards
–
–
4
Other employee benefits
1
1
1
48
50
56
Total
For the purposes of these remuneration disclosures the values for equity compensation plans, including the Bonus Stock
Awards, are calculated based on the fair value used in Note 26. These represent the cost to the Group of such awards at
grant date and reflect, amongst other matters, the observed exercise behaviour and exit rate for the whole population that
receive the awards and initial simulations of any performance conditions.
The detailed disclosures regarding executive remuneration that are required by Swiss law are included in the financial
statements of Roche Holding Ltd, Basel, on pages 158–163. In those disclosures the values for equity compensation plans,
including the Bonus Stock Awards, represent the fair value that the employee receives taking into account the preliminary
assessment of any completed performance conditions. These fair values are shown in the table below, which reconciles
those disclosures required by Swiss law to the above related party disclosures for key management personnel.
Reconciliation to executive remuneration disclosures required by Swiss law in millions of CHF
2013
2012
2011
48
50
56
–– Bonus Stock Awards (IFRS basis)
(7)
(5)
(5)
–– Equity compensation plans (IFRS basis)
(9)
(7)
(13)
Total remuneration of the Chairman of the Board of Directors and members of
the Corporate Executive Committee (IFRS basis – see table above)
Deduct
Add back
–– Bonus Stock Awards (Swiss legal basis)
–– Equity compensation plans (Swiss legal basis)
4
3
4
18
13
11
54
54
53
Total remuneration of the Chairman of the Board of Directors and
members of the Corporate Executive Committee (Swiss legal basis)
Of which
–– Chairman of the Board of Directors (page 158)
–– Members of the Corporate Executive Committee (page 159)
118­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
9
9
9
45
45
44
Bonus Stock Awards. The Chairman of the Board of Directors and the Chief Executive Officer will be granted Bonus
Stock Awards in lieu of their cash-settled bonus for the financial year 2013. These will be issued by the end of April 2014.
The number of awards and fair value per award will be calculated at the grant date.
Equity compensation plans. The Chairman of the Board of Directors and members of the Corporate Executive Committee
received equity compensation as shown in the following tables.
Number of rights, options and awards granted to the Corporate Executive Committee
Roche Stock-settled Stock Appreciation Rights
2013
2012
2011
572,121
201,921
408,288
Roche Restricted Stock Unit Plan
19,838
–
–
Roche Performance Share Plan
20,660
22,825
25,778
Contributions paid for the Chairman of the Board of Directors and Corporate Executive Committee in millions of CHF
Roche Connect
2013
2012
2011
0.3
0.2
0.3
Transactions with former members of the Corporate Executive Committee. Pensions totalling 2 million Swiss francs were
paid by the Group to former Corporate Executive Committee members (2012: 2 million Swiss francs, 2011: 2 million Swiss
francs).
Defined benefit plans
Transactions between the Group and the various defined benefit plans for the employees of the Group are described in
Note 25.
31. Subsidiaries and associates
Listed companies
Share capital
Country
Company
City (in millions)
Equity interest
(in %)
Switzerland
Roche Holding Ltd
Basel
CHF
160.0
Stock Exchange: SIX Swiss Exchange Zurich
Valor Share: 1203211
Valor Genussschein: 1203204
ISIN Share: CH0012032113
ISIN Genussschein: CH0012032048
Market Capitalisation: CHF 211,290.7 m
Japan
Chugai Pharmaceutical Co., Ltd.
Stock Exchange: Tokyo
ISIN: JP3519400000
Market Capitalisation: JPY 1,266,524.1 m
Tokyo
JPY
335.2
61.5
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
119­
Non-listed companies
Share capital
Country
Company
City (in millions)
120­
Equity interest
(in %)
Algeria
Roche Algérie S.p.A
Bab Ezzouar
DZD
1.0
48
Argentina
Productos Roche S.A. Química e Industrial
Vanguardia en productos farmacéuticos (VANPROFARMA) S.A.
Buenos Aires
Buenos Aires
ARS
ARS
163.5
2.3
100
100
Australia
Roche Diagnostics Australia Pty. Limited
Roche Products Pty. Limited
Castle Hill
Dee Why
AUD
AUD
5.0
65.0
100
100
Austria
Roche Austria GmbH
Roche Diagnostics GmbH
Roche Diagnostics Graz GmbH
Vienna
Vienna
Graz
EUR
EUR
EUR
14.5
1.1
0.4
100
100
100
Azerbaijan
Roche Azerbaijan LLC
Baku
AZN
0.5
100
Bangladesh Roche Bangladesh Limited
Dhaka
BDT
27.2
100
Belarus
FLLC ‘Roche Products Limited’
Minsk
BYR
1.5
100
Belgium
N.V. Roche S.A.
Roche Diagnostics Belgium NV
Brussels
Brussels
EUR
EUR
32.0
3.8
100
100
Bermuda
Chemical Manufacturing and Trading Company Limited
Roche Capital Services Ltd.
Roche Catalyst Investments Ltd.
Roche Financial Investments Ltd.
Roche Financial Management Ltd.
Roche Financial Services Ltd.
Roche International Ltd.
Roche Intertrade Limited
Roche Operations Ltd.
Roche Services Holdings Ltd.
Syntex Pharmaceuticals International Ltd.
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
Hamilton
USD
RUB
USD
USD
USD
USD
USD
USD
USD
USD
USD
(–)
(–)
(–)
(–)
(–)
(–)
(–)
10.0
(–)
(–)
(–)
100
100
100
100
100
100
100
100
100
100
100
Bosnia-Herzegovina Roche Ltd. Pharmaceutical Company
Sarajevo
BAM
13.1
100
Brazil
São Paulo
São Paulo
BRL
BRL
41.7
510.8
100
100
Produtos Roche Químicos e Farmacêuticos S.A.
Roche Diagnostica Brasil Ltda.
Bulgaria
Roche Bulgaria EOOD
Sofia
BGN
5.1
100
Cameroon
Roche Cameroun SARL
Douala
XAF
60.0
100
Canada
Chempharm Limited
Hoffmann-La Roche Limited
Sapac Corporation Ltd.
Toronto
Toronto
St. John
CAD
CAD
CAD
(–)
40.3
(–)
100
100
100
Chile
Roche Chile Limitada
Santiago de Chile
CLP
70.9
100
China
Roche (China) Holding Ltd.
Roche Diagnostics (Hong Kong) Limited
Roche Diagnostics (Shanghai) Limited
Roche Hong Kong Limited
Roche R&D Center (China) Ltd.
Shanghai Roche Pharmaceuticals Limited
Shanghai
Hong Kong
Shanghai
Hong Kong
Shanghai
Shanghai
USD
HKD
USD
HKD
USD
USD
37.3
10.0
14.5
10.0
6.3
134.7
100
100
100
100
100
70
100
Colombia
Productos Roche S.A.
Bogotá
COP
26,923.7
Costa Rica
Roche Servicios S.A.
Heredia
USD
8.1
100
Croatia
Roche d.o.o.
Zagreb
HRK
4.8
100
Czech Republic
Roche s.r.o.
Prague
CZK
200.0
100
Denmark
Roche a/s
Roche Diagnostics a/s
Hvidovre
Hvidovre
DKK
DKK
4.0
1.3
100
100
Dominican Republic
Productos Roche Dominicana S.A.
Santo Domingo
DOP
0.6
100
Ecuador
Roche Ecuador S.A.
Quito
USD
28.1
100
100
El Salvador
Productos Roche (El Salvador) S.A.
San Salvador
SVC
0.2
Egypt
Ropharm Limited
Cairo
EGP
0.1
95
Estonia
Roche Eesti OÜ
Tallinn
EUR
0.1
100
Finland
Roche Diagnostics Oy
Roche Oy
Espoo
Espoo
EUR
EUR
0.2
(–)
100
100
France
Institut Roche de Recherche et Médecine Translationnelle SASBoulogne-Billancourt
Roche Diagnostics France S.A.S.
Meylan
Roche S.A.S.
Boulogne-Billancourt
Ventana Medical Systems S.A.S.
Illkirch
EUR
EUR
EUR
EUR
(–)
16.0
38.2
0.9
100
100
100
100
Georgia
Roche Georgia LLC
GEL
0.5
100
Tbilisi
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Country
Company
City
Germany
Galenus Mannheim GmbH
Roche Beteiligungs GmbH
Roche Deutschland Holding GmbH
Roche Diagnostics Deutschland GmbH
Roche Diagnostics GmbH
Roche mtm laboratories AG
Roche Pharma AG
Roche PVT GmbH
Swisslab GmbH
Verum Diagnostica GmbH
Mannheim
Grenzach-Wyhlen
Grenzach-Wyhlen
Mannheim
Mannheim
Heidelberg
Grenzach-Wyhlen
Waiblingen
Berlin
Munich
Share capital
(in millions)
EUR
EUR
EUR
EUR
EUR
EUR
EUR
DEM
EUR
EUR
Equity interest
(in %)
1.7
3.6
6.0
1.0
94.6
1.4
61.4
(–)
(–)
(–)
100
100
100
100
100
100
100
100
100
100
Ghana
Roche Products Ghana Limited
Accra
GHS
0.4
100
Greece
Roche (Hellas) S.A.
Roche Diagnostics (Hellas) S.A.
Athens
Athens
EUR
EUR
80.1
48.7
100
100
Guatemala
Productos Roche Guatemala S.A.
Guatemala
GTQ
0.6
100
Honduras
Productos Roche (Honduras), S.A.
Tegucigalpa
HNL
(–)
100
Hungary
Roche (Hungary) Ltd.
Roche Services (Europe) Ltd.
Budapest
Budapest
HUF
HUF
30.0
3.0
100
100
India
Roche Diagnostics (India) Pvt. Ltd.
Roche Products (India) Pvt. Ltd.
Mumbai
Mumbai
INR
INR
149.2
1,000.0
100
100
Indonesia
P.T. Roche Indonesia
Jakarta
IDR
1,323.0
98.3
Iran
Roche Pars Co. (Ltd.)
Tehran
IRR
41,610.0
100
Ireland
Roche Ireland Limited
Roche Products (Ireland) Limited
Clarecastle
Dublin
EUR
EUR
1.9
(–)
100
100
Israel
Medingo Ltd.
Roche Pharmaceuticals (Israel) Ltd.
Yoqneam Illit
Petach Tikva
ILS
ILS
8.0
(–)
100
100
Italy
Roche Diagnostics S.p.A.
Roche S.p.A.
Milan
Milan
EUR
EUR
18.1
34.1
100
100
Ivory Coast
Roche Côte d’Ivoire SARL
Abidjan
XOF
50.0
100
Japan
Roche Diagnostics K.K.
Tokyo
JPY
2,500.0
100
Kazakhstan
Roche Kazakhstan LLP
Almaty
KZT
150.0
100
Kenya
Roche Kenya Limited
Nairobi
KES
40.0
100
Latvia
Roche Latvija SIA
Riga
LVL
0.2
100
Lebanon
Roche Lebanon SARL
Beirut
LBP
100.0
100
Lithuania
UAB Roche Lietuva
Vilnius
LIT
0.8
100
Macedonia
Roche Makedonija DOOEL
Skopje
MKD
0.3
100
Malaysia
Roche (Malaysia) Sdn. Bhd.
Roche Diagnostics (Malaysia) Sdn. Bhd.
Syntex Pharmaceuticals Sdn. Bhd.
Kuala Lumpur
Petaling Jaya
Kuala Lumpur
MYR
MYR
MYR
4.0
0.9
(–)
100
100
100
Mauritius
Roche Products (Mauritius) Limited
Quatre Bornes
MUR
4.0
100
Mexico
Productos Roche, S.A. de C.V.
Roche Servicios de México, S.A. de C.V.
Mexico City
Mexico City
MXN
MXN
82.6
3.5
100
100
100
Moldova
Roche Products Limited S.R.L. Chisinau
MDL
1.8
Morocco
Roche S.A. Casablanca
MAD
59.5
100
Myanmar
Roche Myanmar Company Limited
Yangon
USD
(–)
100
Netherlands
Roche Diagnostics Nederland B.V.
Roche Finance Europe B.V.
Roche Nederland B.V.
Roche Pharmholding B.V.
Almere
Woerden
Woerden
Woerden
EUR
EUR
EUR
EUR
2.3
2.0
10.9
467.8
100
100
100
100
New Zealand
Roche Diagnostics NZ Limited
Roche Products (New Zealand) Limited
Auckland
Auckland
NZD
NZD
3.0
13.5
100
100
Nicaragua
Productos Roche (Nicaragua) S.A.
Managua
NIO
(–)
100
Nigeria
Roche Products Limited
Lagos
NGN
200.0
100
Norway
Roche Diagnostics Norge A/S
Roche Norge A/S
Oslo
Oslo
NOK
NOK
5.8
6.2
100
100
Pakistan
Roche Pakistan Limited
Karachi
PKR
38.3
100
Palestine
Roche Pharmaceuticals Palestine Ltd
Ramallah and Al-Bireh
USD
1.2
100
Panama
Productos Roche (Panamá) S.A.
Productos Roche Interamericana S.A.
Roche Products Inc.
Syntex Puerto Rico Inc.
Panama City
Panama City
Panama City
Panama City
PAB
USD
USD
USD
(–)
0.1
0.5
(–)
100
100
100
100
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
121­
Country
Company
City
122­
Share capital
(in millions)
Equity interest
(in %)
Peru
Productos Roche Química Farmacéutica S.A.
Lima
PEN
11.1
100
Philippines
Roche (Philippines) Inc.
Taguig City
PHP
300.0
100
Poland
Roche Diagnostics Polska Sp. z o.o.
Roche Polska Sp. z o.o.
Warsaw
Warsaw
PLN
PLN
8.0
25.0
100
100
Portugal
Roche Farmacêutica Química, Lda.
Amadora
Roche Sistemas de Diagnósticos, Sociedade Unipessoal, Lda. Amadora
EUR
EUR
1.1
2.6
100
100
Puerto Rico
Roche Operations Ltd.
Ponce
USD
(–)
100
Romania
Roche Romania S.R.L.
Bucharest
RON
472.2
100
Russian Federation
Limited Liability Company Roche Diagnostics Rus Roche – Moscow Ltd.
Moscow
Moscow
RUB
RUB
250.0
2.6
100
100
Serbia
Roche d.o.o. Beograd
Belgrade
EUR
4.1
100
Singapore
Roche Diagnostics Asia Pacific Pte. Ltd.
Roche Singapore Pte. Ltd.
Roche Singapore Technical Operations, Pte. Ltd.
Singapore
Singapore
Singapore
SGD
SGD
USD
20.4
4.0
35.0
100
100
100
Slovakia
Roche Slovensko, S.R.O.
Bratislava
EUR
0.3
100
Slovenia
Roche d.o.o. Pharmaceutical Company
Ljubljana
EUR
0.2
100
South Africa
Roche Products (Proprietary) Limited
Illovo
ZAR
60.0
100
South Korea
Roche Diagnostics Korea Co., Ltd.
Roche Korea Company Ltd.
Seoul
Seoul
KRW 22,969.0
KRW 13,375.0
100
100
Spain
Andreu Roche S.A.
Roche Diagnostics S.L.
Roche Farma S.A.
Syntex Roche S.A.
Madrid
Barcelona
Madrid
Madrid
EUR
EUR
EUR
EUR
100
100
100
100
0.1
18.0
54.1
0.1
Sri Lanka
Roche Products Colombo (Private) Limited
Colombo
LKR
14.0
100
Sweden
Roche AB
Roche Diagnostics Scandinavia AB
Stockholm
Bromma
SEK
SEK
20.0
9.0
100
100
Switzerland
F. Hoffmann-La Roche Ltd
Hoffmann-La Roche Ltd
Rabbit-Air Ltd
Roche Capital Market Ltd
Roche Diabetes Care Ltd.
Roche Diagnostics (Switzerland) Ltd
Roche Diagnostics International Ltd
Roche Finance Ltd
Roche Forum Buonas Ltd
Roche Glycart Ltd
Roche Long Term Foundation
Roche Pharma (Switzerland) Ltd
Basel
Basel
Bachenbülach
Basel
Burgdorf
Rotkreuz Rotkreuz
Basel
Buonas
Schlieren
Basel
Reinach
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
150.0
0.5
3.0
1.0
0.9
1.0
20.0
409.2
0.1
0.3
0.5
2.0
100
100
100
100
100
100
100
100
100
100
100
100
Taiwan
Roche Diagnostics Ltd.
Roche Products Ltd.
Taipei
Taipei
TWD
TWD
80.0
100.0
100
100
Thailand
Roche Diagnostics (Thailand) Limited
Roche Thailand Limited
Bangkok
Bangkok
THB
THB
103.0
12.0
100
100
Tunisia
Roche Tunisie SA
Tunis
TND
0.8
100
Turkey
Roche Diagnostik Sistemleri Ticaret A.S.
Roche Müstahzarlari Sanayi Anonim Sirketi
Istanbul
Istanbul
TRY
TRY
80.0
249.5
100
100
Ukraine
Roche Ukraine LLC
Kiev
UAH
124.0
100
United Arab Emirates Roche Diagnostics Middle East FZCO
Roche Middle East FZCO
Dubai
Dubai
AED
AED
19.0
0.5
100
100
United Kingdom
Welwyn Garden City
Burgess Hill
Welwyn Garden City
Welwyn Garden City
Welwyn Garden City
GBP
GBP
GBP
GBP
GBP
(–)
32.6
100.0
98.3
(–)
100
100
100
100
100
Piramed Limited
Roche Diagnostics Ltd.
Roche Holding (UK) Limited
Roche Products Limited
Roche Registration Limited
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Country
Company
City
Share capital
(in millions)
(–)
(–)
(–)
(–)
(–)
(–)
3.0
(–)
(–)
(–)
(–)
(–)
(–)
(–)
1.0
(–)
(–)
(–)
(–)
(–)
(–)
Equity interest
(in %)
United States
454 Life Sciences Corporation
Alios Biopharma, Inc.
Anadys Pharmaceuticals, Inc.
BioVeris Corporation
Genentech, Inc.
Genentech USA, Inc.
Hoffmann-La Roche Inc.
IGEN International, Inc.
Marcadia Biotech, Inc.
Roche Carolina Inc.
Roche Diagnostics Corporation
Roche Diagnostics Hematology, Inc.
Roche Diagnostics Operations, Inc.
Roche Health Solutions Inc.
Roche Holdings, Inc.
Roche Laboratories Inc.
Roche Molecular Systems, Inc.
Roche NimbleGen, Inc.
Roche TCRC, Inc.
Spring Bioscience Corp.
Ventana Medical Systems, Inc.
Branford
South San Francisco
South San Francisco
Indianapolis
South San Francisco
South San Francisco
Nutley
Pleasanton
Nutley
Florence
Indianapolis
Westborough
Indianapolis
Fishers
South San Francisco
Nutley
Pleasanton
Madison
New York
Pleasanton
Tucson
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
100
20.5
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Uruguay
Roche International Ltd. – Montevideo Branch
Hamilton
UYU
(–)
100
Venezuela
Productos Roche S.A.
Caracas
VEF
78.2
100
Vietnam
Roche Vietnam Co., Ltd. Ho Chi Minh City
USD
5.0
100
(–) = share capital of less than 100,000 local currency units.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
123­
32. Significant accounting policies
Consolidation policy
Subsidiaries are all companies (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Companies acquired during the year are consolidated from the date
on which control is transferred to the Group, and subsidiaries to be divested are included up to the date on which control
passes from the Group. Inter-company balances, transactions and resulting unrealised income are eliminated in full. Changes
in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been
obtained and if they do not result in a loss of control. Associates are companies over which the Group exercises, or has the
power to exercise, significant influence, but which it does not control and they are accounted for using the equity method.
Segment reporting
For the purpose of segment reporting the Group’s Corporate Executive Committee (CEC) is considered to be the Group’s
Chief Operating Decision Maker. The determination of the Group’s operating segments is based on the organisation units
for which information is reported to the CEC on a regular basis. The information provided is used as the basis of the segment
revenue and profit disclosures reported in Note 2, with the geographic analysis based on the location of customers. Selected
segment balance sheet information is also routinely provided to the CEC.
Transfer prices between operating segments are set on an arm’s length basis. Operating assets and liabilities consist
of property, plant and equipment, goodwill and intangible assets, trade receivables/payables, inventories and other assets
and liabilities, such as provisions, which can be reasonably attributed to the reported operating segments. Non-operating
assets and liabilities mainly include current and deferred income tax balances, post-employment benefit assets/liabilities
and financial assets/liabilities such as cash, marketable securities, investments and debt.
Foreign currency translation
The Annual Financial Statements are presented in Swiss francs. Most Group companies use their local currency as their
functional currency. Certain Group companies use other currencies (such as US dollars, Swiss francs or euros) as their
functional currency where this is the currency of the primary economic environment in which the entity operates. Local
transactions in other currencies are initially reported using the exchange rate at the date of the transaction. Gains and losses
from the settlement of such transactions and gains and losses on translation of monetary assets and liabilities denominated
in other currencies are included in income, except when they are qualifying cash flow hedges or arise on monetary items
that, in substance, form part of the Group’s net investment in a foreign entity. In such cases the gains and losses are deferred
into other comprehensive income.
Upon consolidation, assets and liabilities of Group companies using functional currencies other than Swiss francs
are translated into Swiss francs using year-end rates of exchange. The income statement and statement of cash flows are
translated at the average rates of exchange for the year. Translation differences due to the changes in exchange rates
between the beginning and the end of the year and the difference between net income translated at the average and yearend exchange rates are taken directly to other comprehensive income.
124­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Revenues
Sales represent amounts received and receivable for goods supplied to customers after deducting trade discounts, cash
discounts and volume rebates, and exclude value added taxes and other taxes directly linked to sales. Revenues from the sale
of products are recognised upon transfer to the customer of significant risks and rewards. Trade discounts, cash discounts
and volume rebates are recorded on an accrual basis consistent with the recognition of the related sales. Estimates of
expected sales returns, charge-backs and other rebates, including Medicaid in the US and similar rebates in other countries,
are also deducted from sales and recorded as accrued liabilities or provisions or as a deduction from accounts receivable.
Such estimates are based on analyses of existing contractual or legislatively mandated obligations, historical trends and the
Group’s experience. If the circumstances are such that the level of sales returns, and hence revenues, cannot be reliably
measured, then sales are only recognised when the right of return expires, which is generally upon prescription of the
products to patients. Other revenues are recorded as earned or as the services are performed. Single transactions are split
into separately identifiable components to reflect the substance of the transaction, where necessary. Conversely, two or
more transactions may be considered together for revenue recognition purposes, where the commercial effect cannot be
understood without reference to the series of transactions as a whole.
Cost of sales
Cost of sales includes the corresponding direct production costs and related production overheads of goods sold and
services rendered. Royalties, alliance and collaboration expenses, including all collaboration profit-sharing arrangements are
also reported as part of cost of sales. Start-up costs between validation and the achievement of normal production capacity
are expensed as incurred.
Research and development
Internal research and development activities are expensed as incurred for the following:
Internal research costs incurred for the purpose of gaining new scientific or technical knowledge and understanding.
Internal development costs incurred for the application of research findings or other knowledge to plan and develop
new products for commercial production. The development projects undertaken by the Group are subject to technical,
regulatory and other uncertainties, such that, in the opinion of management, the criteria for capitalisation as intangible
assets are not met prior to obtaining marketing approval by the regulatory authorities in major markets.
Post-marketing studies after regulatory approval, such as phase IV costs in the pharmaceuticals business, generally
involve safety surveillance and ongoing technical support of a drug after it receives marketing approval to be sold.
They may be required by regulatory authorities or may be undertaken for safety or commercial reasons. The costs of such
post-marketing studies are not capitalised as intangible assets, as in the opinion of management, they do not generate
separately identifiable incremental future economic benefits that can be reliably measured.
Acquired in-process research and development resources obtained through in-licensing arrangements, business
combinations or separate asset purchases are capitalised as intangible assets. The acquired asset must be controlled by
the Group, be separately identifiable and expected to generate future economic benefits, even if uncertainty exists as to
whether the research and development will ultimately result in a marketable product. Consequently, upfront and milestone
payments to third parties for pharmaceutical products or compounds before regulatory marketing approval are recognised
as intangible assets. Assets acquired through such arrangements are measured on the basis set out in the ‘Intangible assets’
policy. Subsequent internal research and development costs incurred post-acquisition are treated in the same way as other
internal research and development costs. If research and development are embedded in contracts for strategic alliances,
the Group carefully assesses whether upfront or milestone payments constitute funding of research and development work
or acquisition of an asset.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
125­
Licensing, milestone and other upfront receipts
Royalty income is recognised on an accrual basis in accordance with the substance of the respective licensing agreements.
If the collectability of a royalty amount is not reasonably assured, those royalties are recognised as revenue when the cash
is received. Certain Group companies receive upfront, milestone and other similar payments from third parties relating to
the sale or licensing of products or technology. Revenue associated with performance milestones is recognised based on
achievement of the deliverables as defined in the respective agreements. Upfront payments and licence fees for which there
are subsequent deliverables are initially reported as deferred income and are recognised in income as earned over the period
of the development collaboration or the manufacturing obligation.
Employee benefits
Short-term employee benefits include wages, salaries, social security contributions, paid annual leave and sick leave, profit
sharing and bonuses, and non-monetary benefits for current employees. The costs are recognised within the operating
results when the employee has rendered the associated service. The Group recognises a liability for profit sharing and
bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.
Long-term employee benefits include long-service or sabbatical leave, long-service benefits and long-term disability
benefits. The expected costs of these benefits are accrued over the period of employment. Any changes in the carrying value
of other long-term employee benefit liabilities are recognised within the operating results.
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. Termination costs are recognised at
the earlier of when the Group can no longer withdraw the offer of the benefits or when the Group recognises any related
restructuring costs.
Pensions and other post-employment benefits
For defined contribution plans the Group contributions are recognised within the operating results when the employee
has rendered the associated service. Prepaid contributions are recognised as an asset to the extent that a cash refund
or a reduction in future payments is available.
For defined benefit plans the liability recognised in the balance sheet is the present value of the defined benefit obligation
less the fair value of the plan assets. All changes in the net defined benefit liability are recognised as they occur as follows:
Recognised in the income statement:
Current service costs are charged to the appropriate income statement heading within the operating results.
Past service costs, including curtailment gains or losses, are recognised immediately in general and administration within
the operating results.
Settlement gains or losses are recognised in general and administration within the operating results.
Net interest on the net defined benefit liability is recognised in financing costs.
Recognised in other comprehensive income:
Actuarial gains and losses arising from experience adjustments (the difference between previous assumptions and what
has actually occurred) and changes in actuarial assumptions.
The return on plan assets, excluding amounts included in net interest on the net defined benefit liability.
Any change in the limit on the recognition of plan assets, excluding amounts included in net interest on the net defined
benefit liability.
Net interest on the net defined benefit liability is comprised of interest income on plan assets, interest cost on the defined
benefit obligation and interest on the effect of the limit on the recognition of pension assets. The net interest is calculated
using the same discount rate that is used in calculating the defined benefit obligation, applied to the net defined liability
at the start of the period, taking account of any changes from contribution or benefit payments.
126­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Pension assets and liabilities in different defined benefit plans are not offset unless the Group has a legally enforceable right
to use the surplus in one plan to settle obligations in the other plan.
Equity compensation plans
The fair value of all equity compensation awards granted to employees is estimated at the grant date and recorded as an
expense over the vesting period. The expense is charged to the appropriate income statement heading within the operating
results. For equity-settled plans, an increase in equity is recorded for this expense and any subsequent cash flows from
exercises of vested awards are recorded as changes in equity.
Property, plant and equipment
Property, plant and equipment are initially recorded at cost of purchase or construction, and include all costs directly
attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management. These include items such as costs of site preparation, installation and assembly costs and
professional fees. The net costs of testing whether the asset is functioning properly, including validation costs, are also
included in the initially recorded cost of construction. Interest and other borrowing costs incurred with respect to qualifying
assets are capitalised and included in the carrying value of the assets. Property, plant and equipment are depreciated on a
straight-line basis, except for land, which is not depreciated. The estimated useful lives of major classes of depreciable assets
are as follows:
Land improvements
Buildings
Machinery and equipment
40 years
10–50 years
4–15 years
Diagnostic instruments
3–5 years
Office equipment
3–6 years
Motor vehicles
5–8 years
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
components. The estimated useful lives of the assets are regularly reviewed and, if necessary, the future depreciation
charges are accelerated. Repairs and maintenance costs are expensed as incurred.
Leases
Where the Group is the lessee. Finance leases exist when substantially all of the risks and rewards of ownership are
transferred to the Group. Finance leases are capitalised at the start of the lease at fair value, or the present value of the
minimum lease payments, if lower. The rental obligation, net of finance charges, is reported within debt. Finance lease assets
are depreciated over the shorter of the lease term and its useful life. The interest element of the lease payment is charged
against income over the lease term based on the effective interest rate method. Operating leases exist when substantially all
of the risks and rewards of ownership are not transferred to the Group. Payments made under operating leases are charged
against income on a straight-line basis over the period of the lease.
Where the Group is the lessor. Certain assets, mainly Diagnostics instruments, are leased to third parties through both
finance and operating lease arrangements. Finance lease assets are reported as receivables at an amount equal to the net
investment in the lease. Lease income from finance leases is recognised over the term of the lease based on the effective
interest rate method. Operating lease assets are reported within property, plant and equipment. Lease income from
operating leases is recognised over the lease term on a straight-line basis.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
127­
Business combinations
Business combinations are accounted for using the acquisition method of accounting. At the date of acquisition the Group
initially recognises the fair value of the identifiable assets acquired, the liabilities assumed and any non-controlling interest
in the acquired business. The consideration transferred is measured at fair value at the date of acquisition. Where the Group
does not acquire 100% ownership of the acquired business, non-controlling interests are recorded either at fair value or
as the proportion of the fair value of the acquired net assets attributable to the non-controlling interest. Directly attributable
acquisition-related costs are expensed as incurred within general and administration expenses.
Goodwill
Goodwill arises in a business combination and is the excess of the consideration transferred to acquire the business over
the underlying fair value of the net identified assets acquired. Goodwill is not amortised but is tested for impairment at least
annually and upon the occurrence of an indication of impairment.
Intangible assets
Purchased patents, licences, trademarks and other intangible assets are initially recorded at cost. Assets that have been
acquired through a business combination are initially recorded at fair value. Once available for use, intangible assets
are amortised on a straight-line basis over their useful lives. Intangible assets are reviewed for impairment at each reporting
date. The estimated useful life is the lower of the legal duration and the economic useful life. The estimated useful lives
of intangible assets are regularly reviewed. Estimated useful lives of major classes of amortisable intangible assets are
as follows:
Product intangibles in use
4–20 years
Marketing intangibles in use
2–5 years
Technology intangibles in use
7–14 years
Impairment of property, plant and equipment and intangible assets
An impairment assessment is carried out when there is evidence that an asset may be impaired. In addition intangible
assets that are not yet available for use are tested for impairment annually. When the recoverable amount of an asset, being
the higher of its fair value less costs to sell and its value in use, is less than its carrying value, then the carrying value is
reduced to its recoverable amount. This reduction is reported in the income statement as an impairment loss. Value in use is
calculated using estimated cash flows, generally over a five-year period, with extrapolating projections for subsequent years.
These are discounted using an appropriate long-term interest rate. When an impairment loss arises, the useful life of the
asset is reviewed and, if necessary, the future depreciation/amortisation charge is accelerated. If the amount of impairment
loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised, then the previously recognised impairment loss is reversed through the income statement as an impairment
reversal.
Impairment of goodwill
Goodwill is assessed for impairment at each reporting date and is additionally tested annually for impairment. Goodwill is
allocated to cash-generating units and when the recoverable amount of the cash-generating unit, being the higher of its fair
value less costs to sell or its value in use, is less than its carrying value, then the carrying value of the goodwill is reduced
to its recoverable amount. This reduction is reported in the income statement as an impairment loss. The impairment testing
methodology is further described in Note 8.
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of finished goods and work in process includes
raw materials, direct labour and other directly attributable costs and overheads based upon the normal capacity of
production facilities. Cost is determined using the weighted average method. Net realisable value is the estimated selling
price less cost to completion and selling expenses.
128­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Accounts receivable
Accounts receivable are carried at the original invoice amount less allowances made for doubtful accounts, trade discounts,
cash discounts, volume rebates and similar allowances. An allowance for doubtful accounts is recorded where there is
objective evidence that the Group will not be able to collect all amounts due. These estimates are based on specific indicators,
such as the ageing of customer balances, specific credit circumstances and the Group’s historical experience, taking also
into account economic conditions. Expenses for doubtful trade receivables are recognised within marketing and distribution
expenses. Trade discounts, cash discounts, volume rebates and similar allowances are recorded on an accrual basis
consistent with the recognition of the related sales, using estimates based on existing contractual obligations, historical trends
and the Group’s experience.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and time, call and current balances with banks and similar institutions.
Such balances are only reported as cash equivalents if they are readily convertible to known amounts of cash, are subject
to insignificant risk of changes in their fair value and have a maturity of three months or less from the date of acquisition.
Provisions and contingencies
Provisions are recognised where a legal or constructive obligation has been incurred which will probably lead to an
outflow of resources that can be reliably estimated. In particular, restructuring provisions are recognised when the Group
has a detailed formal plan that has either commenced implementation or has been announced. Provisions are recorded
for the estimated ultimate liability that is expected to arise and are discounted when the time value of money is material.
A contingent liability is disclosed where the existence of the obligation will only be confirmed by future events or where
the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognised,
but are disclosed where an inflow of economic benefits is probable.
Fair values
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. It is determined by reference to quoted market prices or by the use of
established valuation techniques such as option pricing models and the discounted cash flow method if quoted prices
in an active market are not available.
Financial instruments
Financial instruments are classified into the following categories which are disclosed in Note 29.
Available-for-sale. These are non-derivative financial assets that are either designated as such or are not classified
in any other financial asset category. Available-for-sale assets are initially recorded and subsequently carried at fair value.
Changes in fair value are recorded in other comprehensive income, except for impairments and interest and foreign exchange
components. When an investment is derecognised the cumulative gains and losses in equity are reclassified to financial
income (expense). Available-for-sale assets are mainly comprised of marketable securities.
Fair value – hedging instruments. These are derivative financial instruments that are used to manage the exposures
to foreign currency, interest rate, equity market and credit risks. Derivative financial instruments are initially recorded and
subsequently carried at fair value. Apart from those derivatives designated as qualifying cash flow hedging instruments,
all changes in fair value are recorded as other financial income (expense).
Fair value – designated. These are non-derivative financial instruments that are designated as fair value through profit or
loss on initial recognition. Designated fair value instruments are initially recorded and subsequently carried at fair value with
changes in fair value recorded in the income statement. Designated fair value instruments are mainly comprised of contingent
consideration liabilities with changes in fair value recorded in general and administration within the operating results.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
129­
Loans and receivables. These are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. Loans and receivables are initially recorded at fair value and subsequently carried at amortised cost
using the effective interest rate method, less any impairment losses. Loans and receivables are mainly comprised of accounts
receivable and cash and cash equivalents.
Other financial liabilities. These are non-derivative financial liabilities. Other financial liabilities are initially recorded at fair
value and subsequently carried at amortised cost using the effective interest rate method. Other financial liabilities are mainly
comprised of debt and trade payables.
A financial asset is derecognised when the contractual cash flows from the asset expire or when the Group transfers
the rights to receive the contractual cash flows from the financial assets in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred. A financial liability is derecognised when the contractual
obligations are discharged, cancelled or expire.
Impairment of financial assets
Financial assets are individually assessed for possible impairment at each reporting date. An impairment charge is recorded
where there is objective evidence of impairment, such as where the issuer is in bankruptcy, default or other significant
financial difficulty. Available-for-sale equity securities that have a market value of more than 25% below their original cost,
or have a market value below their original cost for a sustained six-month period will be considered as impaired.
For financial assets carried at amortised cost, any impairment charge is the difference between the carrying value and
the recoverable amount, calculated using estimated future cash flows discounted using the original effective interest rate.
For available-for-sale financial assets, any impairment charge is the amount currently carried in other comprehensive income
for the difference between the original cost and the fair value.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss
was recognised. For debt securities measured at amortised cost or available-for-sale, the reversal is recognised in income.
For equity securities held as available-for-sale, the reversal is recognised directly in other comprehensive income.
Hedge accounting
The Group uses derivatives to manage its exposures to foreign currency, interest rate, equity market and credit risks.
The instruments used may include interest rate swaps, cross-currency swaps, forwards contracts and options. The Group
generally limits the use of hedge accounting to certain significant transactions. To qualify for hedge accounting the hedging
relationship must meet several strict conditions on documentation, probability of occurrence, hedge effectiveness and
reliability of measurement. While many of these transactions can be considered as hedges in economic terms, if the required
conditions are not met, then the relationship does not qualify for hedge accounting. In this case the hedging instrument
and the hedged item are reported independently as if there were no hedging relationship, which means that any derivatives
are reported at fair value, with changes in fair value included in financial income (expense).
Cash flow hedge. This is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated
with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss. The hedging
instrument is recorded at fair value. The effective portion of the hedge is included in other comprehensive income and any
ineffective portion is reported in financial income (expense). If the hedging relationship is the hedge of the foreign currency
risk of a firm commitment or highly probable forecasted transaction that results in the recognition of a non-financial item,
the cumulative changes in the fair value of the hedging instrument that have been recorded in other comprehensive income
are included in the initial carrying value of the non-financial item at the date of recognition. For all other cash flow hedges,
the cumulative changes in the fair value of the hedging instrument that have been recorded in other comprehensive income
are included in financial income (expense) when the forecasted transaction affects net income.
130­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Fair value hedge. This is a hedge of the exposure to changes in fair value of a recognised asset or liability, or an
unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable
to a particular risk and could affect profit or loss. The hedging instrument is recorded at fair value and the hedged item
is recorded at its previous carrying value, adjusted for any changes in fair value that are attributable to the hedged risk.
Changes in the fair values are reported in financial income (expense).
Debt
Debt instruments are initially recorded at cost, which is the proceeds received, net of transaction costs. Subsequently they
are reported at amortised cost. Any discount between the net proceeds received and the principal value due on redemption
is amortised over the duration of the debt instrument and is recognised as part of financing costs using the effective interest
rate method.
Taxation
Income taxes include all taxes based upon the taxable profits of the Group, including withholding taxes payable on
the distribution of retained earnings within the Group. Other taxes not based on income, such as property and capital taxes,
are included within general and administration expenses.
Liabilities for income taxes, mainly withholding taxes, which could arise on the remittance of retained earnings, principally
relating to subsidiaries, are only recognised where it is probable that such earnings will be remitted in the foreseeable future.
Deferred tax assets and liabilities are recognised on temporary differences between the tax bases of assets and liabilities
and their carrying values. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the unused tax losses can be utilised.
Current and deferred tax assets and liabilities are offset when the income taxes are levied by the same taxation authority
and when there is a legally enforceable right to offset them. Deferred taxes are determined based on the currently enacted
tax rates applicable in each tax jurisdiction where the Group operates.
Own equity instruments
The Group’s holdings in its own equity instruments are recorded as a deduction from equity. The original purchase cost,
consideration received for subsequent resale of these equity instruments and other movements are reported as changes
in equity. These instruments are held for the Group’s potential conversion obligations that may arise from the Group’s equity
compensation plans.
Changes in accounting policies
The Group has adopted the following new standards and amendments to standards, including any consequential
amendments to other standards, with a date of initial application of 1 January 2013.
IAS 19 (revised) ‘Employee Benefits’
IFRS 10 ‘Consolidated Financial Statements’
IFRS 11 ‘Joint Arrangements’
IFRS 12 ‘Disclosure of Interests in Other Entities’
IFRS 13 ‘Fair Value Measurement’
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
Annual Improvements to IFRS 2009–2011 cycle, 2010–2012 cycle and 2011–2013 cycle
With the exception of the revisions to IAS 19, these do not have a material impact on the Group’s overall results and financial
position. The nature and the effects of the changes most relevant to the Group’s financial statements are explained below.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
131­
Pensions and other post-employment benefits. As a result of IAS 19 (revised) the Group amended its accounting policy
with respect to the basis for determining the income or expense related to defined benefit plans and restated the 2012
results retrospectively. The main changes are as follows:
The revised standard eliminated the option to defer the recognition of actuarial gains and losses from defined benefit plans,
known as the ‘corridor method’. The Group did not apply this option, but rather uses the option to recognise such gains
and losses directly in other comprehensive income. The option currently applied by the Group is the requirement under the
revised standard and therefore this change had no impact on the Group’s financial statements.
Net interest on the net defined benefit liability is comprised of interest income on plan assets, interest cost on the defined
benefit obligation and interest on the effect of the limit on the recognition of pension assets. The net interest is calculated
using the same discount rate that is used in calculating the defined benefit obligation, applied to the net defined liability
at the start of the period, taking account of any changes from contribution or benefit payments. Previously, expected
income on plan assets was based on the estimated long-term rate of the underlying assets in the various plans. The impact
on the restated 2012 results was a reduction in net financial income of 164 million Swiss francs for the year ended 31
December 2012. The ongoing impact for 2013 and beyond is expected to be of a similar magnitude. There was no impact
on the Group’s operating income or net assets from this change.
Past service costs are now recognised immediately in the income statement in the period of a plan amendment.
Previously, past service costs had the portion related to unvested benefits deferred on the balance sheet, which was
then progressively released. The impact of this change was an increase in the Group’s net assets by 22 million Swiss francs
at 31 December 2012 and an increase of 24 million Swiss francs at 31 December 2011.
Following the revision to IAS 19 disclosed above the Group has also made a presentational change to the income statement,
which has renamed ‘Financial income’ to ‘Other financial income (expense)’ and moved this caption below ‘Financing costs’.
The reconciliations between the results published previously in 2012 (using the previous accounting policy) and the restated
amounts which are reported as comparatives in 2013 (using the revised accounting policy) are presented below.
Restated Roche Group consolidated income statement in millions of CHF
As
originally
published
Operating profit
Associates
Financing costs
Other financial income (expense)
14,125
–
(2,273)
Year ended 31 December 2012
Application
of IAS 19
(revised)
Restated
–
–
350
14,125
–
(1,923)
471
(514)
Profit before taxes
12,323
(164)
12,159
(43)
Income taxes
(2,550)
51
(2,499)
Net income
9,773
(113)
9,660
9,539
(112)
9,427
234
(1)
233
Basic (CHF)
11.25
(0.13)
11.12
Diluted (CHF)
11.16
(0.13)
11.03
Attributable to
–– Roche shareholders
–– Non-controlling interests
Earnings per share and non-voting equity security
132­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Restated Roche Group consolidated statement of comprehensive income in millions of CHF
As
originally
published
Net income recognised in the income statement
Other comprehensive income, net of tax
Total comprehensive income
Year ended 31 December 2012
Application
of IAS 19
(revised)
Restated
9,773
(113)
9,660
(1,948)
111
(1,837)
7,825
(2)
7,823
7,864
(1)
7,863
Attributable to
–– Roche shareholders
–– Non-controlling interests
(39)
(1)
(40)
Restated Roche Group consolidated balance sheet (selected items) in millions of CHF
As
originally
published
Deferred tax assets
4,856
Defined benefit plan assets
668
Deferred tax liabilities
31 December 2012
Application
of IAS 19
(revised)
Restated
(7)
10
(1,394)
(3)
4,849
678
(1,397)
As
originally
published
2,762
31 December 2011
Application
of IAS 19
(revised)
Restated
(9)
2,753
568
13
581
(604)
(2)
(606)
Defined benefit plan liabilities
(7,253)
22
(7,231)
(5,520)
22
(5,498)
Other net assets
19,851
–
19,851
17,276
–
17,276
Net assets
16,728
22
16,750
14,482
24
14,506
14,494
20
14,514
12,095
21
12,116
2,234
2
2,236
2,387
3
2,390
16,728
22
16,750
14,482
24
14,506
Capital and reserves attributable to Roche
shareholders
Equity attributable to non-controlling interests
Total equity
Consolidation policy. As a result of IFRS 10, the Group has amended its accounting policy for determining whether it has
control over and consequently whether it consolidates its investees. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. This change had no impact on the Group’s financial statements.
Fair values. IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value
measurements, when such measurements are required or permitted by other IFRSs. IFRS 13 unifies the definition of fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. It also replaces and expands the disclosure requirements about fair value
measurements in other IFRSs, including IFRS 7 ‘Financial Instruments: Disclosures’. In accordance with the transitional
provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively, and has not provided
all of the comparative information for new disclosures. The change had no impact on the measurements of the Group’s
assets and liabilities.
Roche Group – Notes to the Roche Group Consolidated Financial Statements | Roche Finance Report 2013
133­
Presentation of items of other comprehensive income. As a result of the amendments to IAS 1, the Group has modified
the presentation of items of other comprehensive income in its consolidated statement of comprehensive income, to
present separately items that may be reclassified to the income statement in the future from those that would not. The 2012
comparative information has been restated for this change. The change had no impact on the Group’s overall results and
financial position.
Future new and revised standards
The Group is currently assessing the potential impacts of other new and revised standards and interpretations that will be
effective from 1 January 2014 and beyond. Based on the analysis to date, the Group does not anticipate that these will have
a material impact on the Group’s overall results and financial position.
134­
Roche Finance Report 2013 | Roche Group – Notes to the Roche Group Consolidated Financial Statements
Report of Roche Management on
Internal Control over Financial Reporting
Report of Roche Management on Internal Control over Financial Reporting
The Board of Directors and management of Roche Holding Ltd are responsible for establishing and maintaining adequate
control over financial reporting. The internal control system was designed to provide reasonable assurance over the reliability
of financial reporting and the preparation and fair presentation of consolidated financial statements in accordance with
International Financial Reporting Standards.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect
to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of its system of internal control over financial reporting as of 31 December 2013
based on the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework
version 1992 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on
this assessment, management has concluded that the system of internal control over financial reporting was effective
as of 31 December 2013.
The Statutory Auditor KPMG AG has audited the consolidated financial statements of Roche Holding Ltd for the year
ended 31 December 2013, in accordance with Swiss Auditing Standards and with the International Standards on Auditing
(ISA). They have also issued a report on the effectiveness of the Group’s system of internal control over financial reporting.
This report is set out on pages 138 to 139.
Franz B. Humer
Chairman of the Board of Directors
Alan Hippe
Chief Financial Officer
Basel, 27 January 2014
Roche Group – Report of Roche Management on Internal Control over Financial Reporting | Roche Finance Report 2013
135­
Report of the Statutory Auditor on
the Consolidated Financial Statements
Report of the Statutory Auditor on the Consolidated Financial Statements to the Annual General Meeting
of Roche Holding Ltd, Basel
As statutory auditor, we have audited the accompanying consolidated financial statements of Roche Holding Ltd, which
comprise the income statement, statement of comprehensive income, balance sheet, statement of cash flows, statement
of changes in equity and notes on pages 46 to 134 for the year ended 31 December 2013.
Board of Directors’ Responsibility. The Board of Directors is responsible for the preparation and fair presentation
of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and
the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control
system relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying
appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility. Our responsibility is to express an opinion on these consolidated financial statements based
on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards and International Standards
on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit
also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates
made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion. In our opinion, the consolidated financial statements for the year ended 31 December 2013 give a true and fair view
of the financial position, the results of operations and the cash flows in accordance with International Financial Reporting
Standards (IFRS), and comply with Swiss law.
136­
Roche Finance Report 2013 | Roche Group – Report of the Statutory Auditor on the Consolidated Financial Statements
Report on Other Legal Requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists, which has been designed for the preparation of consolidated financial statements according to the instructions
of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
KPMG AG
Ian Starkey
Licensed Audit Expert
Auditor in Charge
François Rouiller
Licensed Audit Expert
Basel, 27 January 2014
Roche Group – Report of the Statutory Auditor on the Consolidated Financial Statements | Roche Finance Report 2013
137­
Report of the Independent Auditor on
Internal Control over Financial Reporting
Report of the Independent Auditor on Internal Control over Financial Reporting to the Annual General Meeting
of Roche Holding Ltd, Basel
We have examined the Roche Group’s system of internal control over financial reporting as of 31 December 2013, based
on criteria established in Internal Control – Integrated Framework version 1992 issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
The Board of Directors and management of Roche Holding Ltd are responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting as included
in the accompanying Report of Roche Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our examination. An entity’s internal
control over financial reporting is a process effected by the entity’s Board of Directors, management, and other personnel,
designed to provide reasonable assurance regarding the reliability of financial statements prepared in accordance with
International Financial Reporting Standards (IFRS) and includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of
financial statements in accordance with the applicable financial reporting framework; and (3) provide reasonable assurance
regarding the prevention or timely detection of the unauthorised acquisition, use, or disposition of the entity’s assets that
could have a material effect on the entity’s financial statements.
We conducted our examination in accordance with the International Standard on Assurance Engagements 3000 (ISAE 3000).
This standard requires that we plan and perform our examination to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our examination included obtaining an
understanding of internal control over financial reporting, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances. We believe
that our examination provides a reasonable basis for our opinion.
Because of the inherent limitations of internal control over financial reporting, including the possibility of management
override of controls, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation
of internal control over financial reporting to future periods are subject to the risk that internal control may become
inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may
deteriorate.
138­
Roche Finance Report 2013 | Roche Group – Report of the Independent Auditor on Internal Control over Financial Reporting
In our opinion, the Roche Group maintained, in all material respects, effective internal control over financial reporting
as of 31 December 2013 based on criteria established in Internal Control – Integrated Framework version 1992 issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with Swiss Auditing Standards and International Standards on Auditing,
the consolidated financial statements of Roche Holding Ltd for the year ended 31 December 2013 and our report dated
27 January 2014 expressed an unqualified opinion on those consolidated financial statements.
KPMG AG
Ian Starkey
Licensed Audit Expert
Auditor in Charge
François Rouiller
Licensed Audit Expert
Basel, 27 January 2014
Roche Group – Report of the Independent Auditor on Internal Control over Financial Reporting | Roche Finance Report 2013
139­
Multi-Year Overview and
Supplementary Information
Multi-Year Overview
Statistics, as reported
2004
2005
2006
Income statement in millions of CHF
Sales
31,273
35,511
42,041
EBITDA
9,566
11,404
14,436
Operating profit
8,979
8,669
11,730
Net income attributable to Roche shareholders
6,641
5,787
7,880
Research and development
5,093
5,705
6,589
Non-current assets
28,670
33,739
33,519
Current assets
29,406
35,626
40,895
Total assets
58,076
69,365
74,414
(14,882)
(18,130)
(14,908)
(9,901)
(9,492)
(12,692)
Balance sheet in millions of CHF
Non-current liabilities
Current liabilities
Total liabilities
(24,783)
(27,622)
(27,600)
Net assets
33,293
41,743
46,814
Capital and reserves attributable to Roche shareholders
28,223
34,922
39,444
Equity attributable to non-controlling interests
5,070
6,821
7,370
Additions to property, plant and equipment
2,357
3,428
3,878
64,703
68,218
74,372
Net income attributable to Roche shareholders as % of sales
21
16
19
Net income as % of equity, attributable to Roche shareholders
24
17
20
Research and development as % of sales
16
16
16
297
375
322
Personnel
Number of employees at end of year
Key ratios
Current ratio %
Equity and non-controlling interests as % of total assets
57
60
63
483
521
565
Number of shares
160,000,000
160,000,000
160,000,000
Number of non-voting equity securities (Genussscheine)
702,562,700
702,562,700
702,562,700
Total shares and non-voting equity securities
862,562,700
862,562,700
862,562,700
Sales per employee in thousands of CHF
Data on shares and non-voting equity securities
Total dividend in millions of CHF
1,725
2,156
2,933
Earnings per share and non-voting equity security (diluted) in CHF
7.81
6.71
9.05
Dividend per share and non-voting equity security in CHF
2.00
2.50
3.40
Information in this table is stated as reported and changes in accounting policies arising from changes in International Financial Reporting Standards
are not applied retrospectively.
140­
Roche Finance Report 2013 | Roche Group – Multi-Year Overview and Supplementary Information
2007
2008
2009
2010
2011
2012
2013
46,133
45,617
49,051
47,473
42,531
45,499
46,780
17,068
16,637
18,028
18,517
16,933
19,040
19,802
14,468
13,924
12,277
13,486
13,454
14,125
16,376
9,761
8,969
7,784
8,666
9,343
9,539
11,164
8,385
8,845
9,874
10,026
8,326
9,552
9,270
35,349
37,485
36,086
33,408
33,344
33,434
33,003
42,834
38,604
38,479
27,612
28,232
31,371
29,164
78,183
76,089
74,565
61,020
61,576
64,805
62,167
(10,422)
(10,163)
(43,084)
(34,380)
(30,884)
(27,868)
(25,166)
(14,454)
(12,104)
(22,067)
(14,978)
(16,210)
(20,209)
(15,760)
(24,876)
(22,267)
(65,151)
(49,358)
(47,094)
(48,077)
(40,926)
53,307
53,822
9,414
11,662
14,482
16,728
21,241
45,347
44,479
7,366
9,469
12,095
14,494
19,294
7,960
9,343
2,048
2,193
2,387
2,234
1,947
3,648
3,187
2,837
2,633
2,006
2,130
2,458
78,604
80,080
81,507
80,653
80,129
82,089
85,080
21
20
16
18
22
21
24
22
20
106
92
77
66
58
18
19
20
21
20
21
20
296
319
174
184
174
155
185
68
71
13
19
24
26
34
587
570
602
589
531
554
550
160,000,000
160,000,000
160,000,000
160,000,000
160,000,000
160,000,000
160,000,000
702,562,700
702,562,700
702,562,700
702,562,700
702,562,700
702,562,700
702,562,700
862,562,700
862,562,700
862,562,700
862,562,700
862,562,700
862,562,700
862,562,700
3,968
4,313
5,175
5,693
5,865
6,340
6,728 a)
11.16
10.23
9.02
10.11
10.98
11.16
12.93
4.60
5.00
6.00
6.60
6.80
7.35
7.80 a)
a) 2013 dividend proposed by the Board of Directors.
Roche Group – Multi-Year Overview and Supplementary Information | Roche Finance Report 2013
141­
Sales by division in millions of CHF
2009
2010
2011
2012
2013
Pharmaceuticals
38,996
37,058
32,794
35,232
36,304
Diagnostics
10,055
10,415
9,737
10,267
10,476
Total
49,051
47,473
42,531
45,499
46,780
2009
2010
2011
2012
2013
Sales by geographical area in millions of CHF
Switzerland
European Union
464
507
505
526
14,663
12,875
12,272
12,616
–– of which Germany
3,320
2,970
2,595
2,534
2,729
Rest of Europe
1,480
1,563
1,426
1,570
1,454
Europe
18,286
16,690
14,808
14,347
14,596
United States
17,208
16,446
14,133
15,932
17,169
948
1,051
1,047
1,035
1,042
18,156
17,497
15,180
16,967
18,211
2,940
3,397
3,115
3,410
3,363
Rest of North America
North America
Latin America
Japan
5,036
4,718
4,314
4,735
3,936
Rest of Asia
3,166
3,591
3,616
4,368
5,129
Asia
8,202
8,309
7,930
9,103
9,065
Africa, Australia and Oceania
Total
142­
499
16,307
1,467
1,580
1,498
1,672
1,545
49,051
47,473
42,531
45,499
46,780
Roche Finance Report 2013 | Roche Group – Multi-Year Overview and Supplementary Information
Additions to property, plant and equipment by division in millions of CHF
2009
2010
2011
2012
2013
Pharmaceuticals
1,644
1,464
1,049
1,049
1,294
Diagnostics
1,191
1,150
956
1,079
1,158
Corporate
Total
2
49
1
2
6
2,837
2,663
2,006
2,130
2,458
2010
2011
2012
2013
Additions to property, plant and equipment by geographical area in millions of CHF
2009
Switzerland
315
413
381
398
487
European Union
972
890
681
653
730
–– of which Germany
646
577
352
318
456
Rest of Europe
20
21
24
36
43
1,307
1,324
1,086
1,087
1,260
866
658
401
411
515
13
24
5
8
51
North America
879
682
406
419
566
Latin America
115
127
115
135
104
Japan
230
242
185
186
137
Rest of Asia
285
254
194
270
362
Asia
515
496
379
456
499
Europe
United States
Rest of North America
Africa, Australia and Oceania
Total
21
34
20
33
29
2,837
2,663
2,006
2,130
2,458
European Union information is based on members of the EU at 31 December 2013. The comparative information has been restated to include new EU members for
the whole five-year period.
Roche Group – Multi-Year Overview and Supplementary Information | Roche Finance Report 2013
143­
Supplementary Core results and EPS information
The Group’s basic and diluted earnings per share is given in Note 27 to the Annual Financial Statements. To allow
for a transparent assessment of both the actual results and the underlying performance of the business the full income
statement for the Group and the operating results of the divisions are shown on both an IFRS and core basis.
The core results concept, which is used in the internal management of the business, is based on the IFRS results,
with the following adjustments:
Global restructuring plans (see Note 6) are excluded.
Amortisation and impairment of intangible assets (see Note 9) and impairment of goodwill (see Note 8) are excluded.
Acquisition accounting and other one-time impacts from Alliance arrangements and Business Combinations (see Financial
Review) are excluded.
Discontinued operations (currently none) would be excluded.
Legal and environmental expenses (see Financial Review) are excluded.
Global issues outside the healthcare sector beyond the Group’s control (currently none) would be excluded.
Material one-time treasury items such as major debt restructurings (currently none) would be excluded.
Pension plan settlements (see Note 25) are excluded.
The tax benefit recorded under IFRS in respect of Equity Compensation Plans (ECPs), which varies according to price
of the underlying equity, is replaced by a normalised tax benefit, being the IFRS 2 expense multiplied by the applicable tax
rate (see Note 4).
The core results concept was further described on 22 October 2010 at an Investor Update teleconference, which is available
for download at: http://www.roche.com/investors/ir_agenda/csr_151010.htm
The Group’s IFRS results, including the divisional breakdown, are reconciled to the core results in the tables below.
The calculation of core EPS is also given in the tables below. Additional commentary to the adjustment items is given
in the Financial Review.
144­
Roche Finance Report 2013 | Roche Group – Multi-Year Overview and Supplementary Information
Core results reconciliation – 2013 in millions of CHF
Sales
IFRS
Global
restruc­
turing
Intangibles
amorti­
sation
46,780
–
–
Intangibles
impairment
Alliances &
business
combi­
nations
Legal &
environmental
Pension
plan
settlements
Normali­
sation of
ECP tax
benefit
Core
–
–
–
–
–
46,780
Royalties and other operating
income
Cost of sales
Marketing and distribution
1,832
–
–
–
–
–
–
–
1,832
442
–
–
–
–
–
(11,892)
127
5
–
–
–
–
–
(8,241)
(11,948)
(386)
(8,373)
Research and development
(9,270)
152
56
362
–
–
–
–
(8,700)
General and administration
(2,645)
273
–
288
32
196
(19)
–
(1,875)
Operating profit
16,376
166
503
650
32
196
(19)
–
17,904
Financing costs
(1,580)
–
–
–
–
–
–
(1,580)
–
Other financial income
(expense)
Profit before taxes
(119)
14,677
–
–
–
–
–
166
503
650
32
196
(2)
–
(19)
7
–
–
(119)
16,205
Income taxes
(3,304)
(168)
(131)
(4)
(55)
(22)
(3,679)
Net income
11,373
164
335
519
28
141
(12)
(22)
12,526
11,164
164
334
519
28
141
(12)
(22)
12,316
209
–
1
–
–
–
–
–
210
IFRS
Global
restruc­
turing
Intangibles
amorti­
sation
Intangibles
impairment
Alliances &
business
combi­
nations
Legal &
environmental
Pension
plan
settlements
Normali­
sation of
ECP tax
benefit
Core
45,499
–
–
–
–
–
–
–
45,499
Attributable to
–– Roche shareholders
–– Non-controlling interests
Core results reconciliation – 2012 in millions of CHF
Sales
Royalties and other operating
income
–
–
–
–
–
–
–
1,945
(12,175)
203
487
41
–
–
–
–
(11,444)
Marketing and distribution
(8,539)
141
6
–
–
–
–
–
(8,392)
Research and development
(9,552)
556
37
484
–
–
–
–
(8,475)
Cost of sales
1,945
General and administration
(3,053)
Operating profit
14,125
Financing costs
(1,923)
536
–
187
(32)
389
–
–
(1,973)
1,436
530
712
(32)
389
–
–
17,160
–
–
–
–
–
–
(1,923)
–
Other financial income
(expense)
(43)
–
–
–
1,436
530
712
(181)
349
1,037
–
Profit before taxes
12,159
Income taxes
(2,499)
Net income
9,660
1,037
9,427
233
(399)
–
–
–
(32)
–
389
–
–
(43)
(173)
(5)
(146)
–
(26)
(3,429)
539
(37)
243
–
(26)
11,765
348
539
(37)
243
–
(26)
11,531
1
–
–
–
–
15,194
Attributable to
–– Roche shareholders
–– Non-controlling interests
–
234
As disclosed in Note 32 in the Roche Group Annual Financial Statements, the core results for the year ended 31 December 2012 have been restated following
the accounting policy changes which were adopted in 2013. The adjustments made to the published IFRS results are the same for the core results.
Roche Group – Multi-Year Overview and Supplementary Information | Roche Finance Report 2013
145­
Divisional core results reconciliation – 2013 in millions of CHF
Intangibles
impairment
Alliances &
business
combi­
nations
Legal &
environmental
Pension
plan
settlements
Core
–
–
–
–
–
36,304
–
–
–
–
–
1,702
122
–
–
–
–
(7,353)
–
–
–
(5,795)
IFRS
Global
restruc­
turing
Intangibles
amorti­
sation
36,304
–
1,702
–
Pharmaceuticals
Sales
Royalties and other operating income
Cost of sales
(7,014)
(461)
Marketing and distribution
(5,844)
49
–
–
Research and development
(8,189)
101
55
350
–
–
–
(7,683)
General and administration
(1,326)
197
–
–
3
74
(15)
(1,067)
Operating profit
15,633
(114)
177
350
3
74
(15)
16,108
–
–
–
–
–
10,476
Diagnostics
Sales
Royalties and other operating income
10,476
–
–
–
–
–
–
–
Cost of sales
(4,934)
75
320
–
–
–
–
Marketing and distribution
(2,529)
78
5
–
–
–
–
(2,446)
Research and development
(1,081)
51
1
12
–
–
–
(1,017)
General and administration
(821)
67
–
288
13
28
(2)
271
326
300
13
28
(2)
Operating profit
130
1,241
130
(4,539)
(427)
2,177
Corporate
General and administration
(498)
9
–
–
16
94
(2)
(381)
Operating profit
(498)
9
–
–
16
94
(2)
(381)
IFRS
Global
restruc­
turing
Intangibles
amorti­
sation
Intangibles
impairment
Alliances &
business
combi­
nations
Legal &
environmental
Pension
plan
settlements
Core
35,232
–
–
–
–
–
–
35,232
1,794
–
–
–
–
–
–
1,794
Divisional core results reconciliation – 2012 in millions of CHF
Pharmaceuticals
Sales
Royalties and other operating income
Cost of sales
(7,348)
92
146
13
–
–
–
(7,097)
Marketing and distribution
(5,914)
63
–
–
–
–
–
(5,851)
(7,529)
Research and development
(8,529)
489
35
476
–
–
–
General and administration
(1,558)
466
–
–
(45)
76
–
(1,061)
Operating profit
13,677
1,110
181
489
(45)
76
–
15,488
10,267
–
–
–
–
–
–
10,267
151
–
–
–
–
–
–
Diagnostics
Sales
Royalties and other operating income
151
Cost of sales
(4,827)
111
341
28
–
–
–
(4,347)
Marketing and distribution
(2,625)
78
6
–
–
–
–
(2,541)
Research and development
(1,023)
67
2
8
–
–
–
(946)
General and administration
(659)
50
–
187
12
13
–
(397)
306
349
223
12
13
–
Operating profit
1,284
2,187
Corporate
146­
General and administration
(836)
20
–
–
1
300
–
(515)
Operating profit
(836)
20
–
–
1
300
–
(515)
Roche Finance Report 2013 | Roche Group – Multi-Year Overview and Supplementary Information
Core EPS (basic)
Core net income attributable to Roche shareholders (CHF millions)
Weighted average number of shares and non-voting equity securities in issue (millions) 27
Core earnings per share (basic) (CHF)
2013
2012
12,316
11,531
848
848
14.52
13.60
2013
2012
12,316
11,531
Core EPS (diluted)
Core net income attributable to Roche shareholders (CHF millions)
Increase in non-controlling interests’ share of core net income, assuming all outstanding
Chugai stock options exercised (CHF millions)
(1)
Net income used to calculate diluted earnings per share (CHF millions)
(1)
12,315
11,530
863
855
14.27
13.49
Weighted average number of shares and non-voting equity securities in issue
used to calculate diluted earnings per share (millions) 27
Core earnings per share (diluted) (CHF)
As disclosed in Note 32 in the Roche Group Annual Financial Statements, the earnings per share for the year ended 31 December 2012 has been restated following
the accounting policy changes which were adopted in 2013. This resulted in the core earnings per share for the year ended 31 December 2012 also being restated.
Roche Group – Multi-Year Overview and Supplementary Information | Roche Finance Report 2013
147­
Supplementary operating free cash flow information
Divisional operating free cash flow information in millions of CHF
Pharmaceuticals
2013
2012
2013
Diagnostics
2012
2013
Corporate
2012
2013
Group
2012
Depreciation, amortisation
and impairment
Depreciation of property, plant and
equipment
Amortisation of intangible assets
1,024
1,057
847
828
7
6
1,878
1,891
177
181
326
349
–
–
503
530
(488)
Impairment (reversal) of property,
plant and equipment
Impairment of goodwill
Impairment of intangible assets
Total
444
14
18
–
–
(474)
462
–
–
288
187
–
–
288
187
350
489
12
36
–
–
362
525
1,063
2,171
1,487
1,418
7
6
2,557
3,595
295
306
40
35
25
22
360
363
740
847
219
209
91
307
1,050
1,363
18
(129)
10
39
–
–
28
(90)
18
122
90
166
(106)
1
2
289
(697)
(687)
(257)
(133)
(46)
(8)
Other adjustments
Add back
–– Expenses for equity-settled equity
compensation plans
–– Net (income) expense for provisions
–– Net gain (loss) from disposals
–– Non-cash working capital and
other items
Deduct
–– Utilisation of provisions
–– Proceeds from disposals
Total
Operating profit cash adjustments
(1,000)
(828)
31
180
40
67
–
–
71
247
405
639
142
383
(36)
322
511
1,344
1,468
2,810
1,629
1,801
(29)
328
3,068
4,939
16,108
15,488
2,177
2,187
(381)
(515)
17,904
17,160
EBITDA
Core operating profit
Depreciation and impairment of property,
plant and equipment – Core basis
EBITDA
–– margin, % of sales
1,040
1,050
851
824
17,148
16,538
3,028
3,011
47.2
46.9
28.9
29.3
7
(374)
–
6
(509)
–
1,898
1,880
19,802
19,040
42.3
41.8
The Group has refined the calculation of free cash flow in 2013 to exclude the impact of employee stock options in line with its peer group. As a result the operating
profit cash adjustments for the year ended 31 December 2012 have been restated to exclude the net cash flow from equity-settled compensation plans. This resulted
in an increase of 746 million Swiss francs in the Group operating profit cash adjustments for the year ended 31 December 2012. The divisional impacts were increases
of 658 million Swiss francs in Pharmaceuticals, 64 million Swiss francs in Diagnostics and 24 million Swiss francs in Corporate.
148­
Roche Finance Report 2013 | Roche Group – Multi-Year Overview and Supplementary Information
Supplementary balance sheet information
Net operating assets to balance sheet reconciliation – 2013 in millions of CHF
Pharmaceuticals
Property, plant and equipment
Diagnostics
Corporate
Taxation and
Treasury
Roche Group
15,760
10,898
4,721
141
–
Goodwill
2,082
5,063
–
–
7,145
Intangible assets
1,878
2,066
–
–
3,944
Inventories
4,069
1,837
Provisions
(2,151)
(522)
–
(572)
–
5,906
–
(3,245)
Current income tax net liabilities
–
–
–
(1,587)
Deferred tax net assets
–
–
–
3,425
(1,587)
3,425
Defined benefit plan net liabilities
–
–
–
(5,426)
(5,426)
Marketable securities
–
–
–
7,935
7,935
Cash and cash equivalents
–
–
–
4,000
4,000
Debt
–
–
–
(18,643)
(18,643)
1,382
945
(58)
–
(78)
(12)
–
–
–
–
18,403
14,032
Other net assets (liabilities)
–– Net working capital
–– Long-term net operating assets
–– Other
Total net assets
245
(501)
(397)
(10,693)
2,269
155
(397)
21,241
Net operating assets to balance sheet reconciliation – 2012 in millions of CHF
Pharmaceuticals
Property, plant and equipment
Diagnostics
Corporate
Taxation and
Treasury
Roche Group
15,402
10,704
4,572
126
–
Goodwill
2,164
5,316
–
–
7,480
Intangible assets
2,094
2,120
–
–
4,214
Inventories
3,584
1,958
Provisions
(2,249)
(530)
–
(421)
–
5,542
–
(3,200)
Current income tax net liabilities
–
–
–
(1,871)
Deferred tax net assets
–
–
–
3,452
(1,871)
3,452
Defined benefit plan net liabilities
–
–
–
(6,553)
(6,553)
Marketable securities
–
–
–
9,461
9,461
Cash and cash equivalents
–
–
–
4,530
4,530
Debt
–
–
–
(24,590)
(24,590)
1,964
1,389
Other net assets (liabilities)
–– Net working capital
–– Long-term net operating assets
–– Other
Total net assets
(71)
–
(96)
(14)
–
–
–
–
18,503
14,729
242
(380)
(531)
(16,102)
3,282
132
(531)
16,750
As disclosed in Note 32 in the Roche Group Annual Financial Statements, the Taxation and Treasury net assets at 31 December 2012 have been restated following
the accounting policy changes which were adopted in 2013.
Roche Group – Multi-Year Overview and Supplementary Information | Roche Finance Report 2013
149­
Roche Securities
Price development of share in CHF
2009
2010
2011
2012
2013
2012
2013
2012
2013
300
250
200
150
100
50
0
Swiss Market Index (rebased)
Roche share
Price development of non-voting equity security (Genussschein) in CHF
2009
2010
2011
300
250
200
150
100
50
0
Swiss Market Index (rebased)
Roche non-voting equity security
Price development of American Depositary Receipt (ADR) in USD
2009
2010
2011
80
60
40
20
0
Roche ADR
S &P 500 Index (rebased)
Four Roche American Depositary Receipts (ADRs) are equivalent to one non-voting equity security (Genussschein). ADRs have been traded in the United States
over-the-counter market since July 1992.
Information in these tables is restated for the change in the ratio for the ADRs from 1:1 to 2:1 effective 24 January 2005 and the change in the ratio for the ADRs
from 2 :1 to 4 :1 effective 9 January 2009.
150­
Roche Finance Report 2013 | Roche Group – Roche Securities
Number of shares and non-voting equity securities a)
2009
2010
2011
2012
2013
160,000,000
160,000,000
160,000,000
160,000,000
160,000,000
(no nominal value)
702,562,700
702,562,700
702,562,700
702,562,700
702,562,700
Total
862,562,700
862,562,700
862,562,700
862,562,700
862,562,700
Number of shares (nominal value: CHF 1.00)
Number of non-voting equity securities (Genussscheine)
Number of own shares and non-voting equity securities
(Genussscheine) held
(6,682,120)
Total in issue
855,880,580
(11,214,765)
(15,084,967)
(14,093,890)
(13,537,704)
851,347,935
847,477,733
848,468,810
849,024,996
Data per share and non-voting equity security in CHF
Earnings (basic)
Earnings (diluted)
2009
2010
2011
2012
2013
9.07
10.14
11.01
11.12
13.16
9.02
10.11
10.98
11.03
12.93
Core earnings (basic)
12.40
12.81
12.33
13.60
14.52
Core earnings (diluted)
12.34
12.78
12.30
13.49
14.27
Equity attributable to Roche shareholders
8.61
11.12
14.27
17.08
22.73
Dividend
6.00
6.60
6.80
7.35
Stock price of share
b)
7.80 c)
Opening
168.70
181.00
142.80
166.60
186.90
High
182.10
191.70
167.00
191.70
258.50
Low
130.30
134.30
123.80
157.10
186.90
Year-end
181.00
142.80
166.60
186.90
247.40
Stock price of non-voting equity
security (Genussschein) b)
Opening
162.50
175.80
137.00
159.20
184.00
High
179.00
186.00
159.70
188.60
258.50
Low
124.10
130.20
117.00
149.20
184.00
Year-end
175.80
137.00
159.20
184.00
249.20
The earnings (basic and diluted), core earnings (basic and diluted) and equity attributable to Roche shareholders per share and non-voting equity security for 2012
have been restated following the accounting policy changes which were adopted in 2013 as disclosed in Note 32 in the Roche Group Annual Financial Statements.
The information for 2009, 2010 and 2011 has not been restated for this change in accounting policy.
Market capitalisation in millions of CHF
2009
2010
2011
2012
2013
151,296
117,563
136,102
156,582
211,291
2009
2010
2011
2012
2013
3.3
4.6
4.1
3.9
3.2
(Genussscheine) in %
3.4
4.8
4.3
4.0
3.1
Price/earnings of shares
20
14
15
17
19
19
14
15
16
19
Year-end
Key ratios (year-end)
Dividend yield of shares in %
Dividend yield of non-voting equity securities
Price/earnings of non-voting equity securities
(Genussscheine)
a)Each non-voting equity security (Genussschein) confers the same rights as any of the shares to participate in the available earnings and any remaining proceeds
from liquidation following repayment of the nominal value of the shares and the participation certificate capital (if any). Shares and non-voting equity securities
are listed on the SIX Swiss Exchange. Roche Holding Ltd has no restrictions as to ownership of its shares or non-voting equity securities.
b)All stock price data reflect daily closing prices.
c)2013 dividend proposed by the Board of Directors.
Roche Group – Roche Securities | Roche Finance Report 2013
151­
Ticker symbols
152­
Share
Non-voting equity security
American Depositary Receipt (ADR)
SIX Swiss Exchange
RO
ROG
–
Bloomberg
RO SW
ROG VX
RHHBY US
Reuters
RO.S
ROG.VX
RHHBY.PK
Roche Finance Report 2013 | Roche Group – Roche Securities
ROCHE HOLDING LTD, BASEL
154
156
Financial Statements
Notes to the Financial Statements
1. Summary of significant accounting policies
2.Equity
3. Contingent liabilities
4.Significant shareholders
156
156
157
157
5.Risk management
6. Board and Executive remuneration
7.Board and Executive shareholdings
Appropriation of Available Earnings
Report of the Statutory Auditor on the Financial Statements
158
158
161
164
165
Financial Statements
Income statement in millions of CHF
2013
Year ended 31 December
2012
6,842
5,060
29
48
Income
Income from participations
Interest income from loans to Group companies
Interest and investment income
Guarantee fee income from Group companies
Other income
Total income
7
5
142
189
28
26
7,048
5,328
Expenses
Financial expenses
(24)
(27)
Administration expenses
(31)
(32)
Other expenses
(35)
(32)
Total expenses
(90)
(91)
Profit before taxes
Taxes
Net income
154­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Financial Statements
6,958
(15)
6,943
5,237
(21)
5,216
Balance sheet in millions of CHF
31 December 2013
31 December 2012
9,157
10,025
Non-current assets
Participations
Long-term loans to Group companies
Total non-current assets
531
554
9,688
10,579
3,827
1,674
Current assets
Accounts receivable from Group companies
4
11
Marketable securities
Other accounts receivable
1,742
2,271
Liquid funds
1,159
1,389
Total current assets
6,732
5,345
16,420
15,924
Total assets
Equity
Share capital
160
160
Non-voting equity securities (Genussscheine)
p.m.
p.m.
–– General legal reserve
300
300
–– Reserve for own equity instruments
217
–
Free reserve
5,783
6,000
Special reserve
2,152
2,152
802
1,926
Legal reserve:
Available earnings:
–– Balance brought forward from previous year
–– Net profit for the year
6,943
5,216
16,357
15,754
Provisions
35
35
Total non-current liabilities
35
35
Accounts payable to Group companies
14
112
Other liabilities
14
23
Total current liabilities
28
135
Total liabilities
63
170
16,420
15,924
Total equity
Non-current liabilities
Current liabilities
Total equity and liabilities
p. m. = pro memoria. Non-voting equity securities have no nominal value.
Roche Holding Ltd, Basel – Financial Statements | Roche Finance Report 2013
155­
Notes to the Financial Statements
1. Summary of significant accounting policies
Basis of preparation
The financial statements of Roche Holding Ltd, Basel, are prepared in accordance with the provisions of Swiss law.
Participations
The major participations of the company are listed in Note 31 to the Roche Group Annual Financial Statements.
Valuation methods and translation of foreign currencies
Marketable securities and own equity instruments are reported at the lower of cost or market value. All other assets,
including participations, are reported at cost less appropriate write-downs. Assets and liabilities denominated in foreign
currencies are translated into Swiss francs using year-end rates of exchange, except participations which are translated at
historical rates. Transactions during the year which are denominated in foreign currencies are translated at the exchange
rates effective at the relevant transaction dates. Resulting exchange gains and losses are recognised in the income statement
with the exception of unrealised gains which are deferred.
Taxes
The tax charge includes corporate income and capital taxes.
2. Equity
Share capital
As in the previous year, share capital amounts to 160 million Swiss francs. The share capital consists of 160,000,000
bearer shares with a nominal value of 1 Swiss franc each. Included in equity are 702,562,700 non-voting equity securities
(Genussscheine). They are not part of the share capital and confer no voting rights. However, each non-voting equity security
confers the same rights as any of the shares to participate in the available earnings and in any remaining proceeds from
liquidation following repayment of the nominal value of the share capital and, if any, participation certificates.
Own equity instruments
During 2013 the company purchased 1.5 million Roche shares with a purchase price of 228.80 Swiss francs per share
and sold 551,650 of these shares with an average sales price of 238.36 Swiss francs per share. At 31 December 2013 the
remaining 948,350 Roche shares with a net book value of 217 million Swiss francs are included in marketable securities.
156­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Notes to the Financial Statements
Movement in recognised amounts in millions of CHF
As at 1 January 2011
Share
capital
Legal
reserve
Free
reserve
Special
reserve
Available
earnings
Total
equity
160
300
4,706
2,152
6,130
13,448
Net income
–
–
–
–
8,648
8,648
Dividends
–
–
–
–
(5,693)
(5,693)
160
300
4,706
2,152
9,085
16,403
–
–
–
–
5,216
5,216
(5,865)
As at 31 December 2011
Net income
Dividends
–
–
–
–
(5,865)
Transfer to free reserve
–
–
1,294
–
(1,294)
160
300
6,000
2,152
As at 31 December 2012
7,142
–
15,754
Net income
–
–
–
–
6,943
6,943
Dividends
–
–
–
–
(6,340)
(6,340)
–
217
160
517
Reserve for own equity instruments
As at 31 December 2013
(217)
5,783
–
–
–
2,152
7,745
16,357
3. Contingent liabilities
Guarantees
The company has issued guarantees for certain bonds and notes, commercial paper and credit facilities of Group companies.
The nominal amount outstanding at 31 December 2013 was 16.7 billion Swiss francs (2012: 22.8 billion Swiss francs). These
are described in Note 20 to the Roche Group Annual Financial Statements on pages 83 to 87.
4. Significant shareholders
All shares in the Company are bearer shares, and for this reason the Company does not keep a register of shareholders.
The following figures are based on information from shareholders, the shareholder validation check at the Annual General
Meeting of 5 March 2013 and on other information available to the Company.
Controlling shareholders
At 31 December 2013 and 2012, based on information supplied to the Group, a shareholder group with pooled voting rights
owned 72,018,000 shares, which represented 45.01% of the issued shares. This group consisted of Ms Vera MichalskiHoffmann, Ms Maja Hoffmann, Mr André Hoffmann, Dr Andreas Oeri, Ms Sabine Duschmalé-Oeri, Ms Catherine Oeri, Mr
Jörg Duschmalé, Mr Lukas Duschmalé and the charitable foundation Wolf. The shareholder pooling agreement has existed
since 1948. The figures above do not include any shares without pooled voting rights that are held outside this group
by individual members of the group. Ms Maja Oeri, formerly a member of the pool, now holds 8,091,900 shares representing
5.057% of the voting rights independently of the pool.
At 31 December 2013, based on information supplied to the Group, 53,332,863 shares (2012: 53,332,863 shares) are owned
by Novartis Ltd, Basel, including affiliates thereof (participation below 33 1⁄3%).
Roche Holding Ltd, Basel – Notes to the Financial Statements | Roche Finance Report 2013
157­
5. Risk management
The detailed disclosures regarding risk management that are required by Swiss law are included in Note 29 to the Roche
Group Annual Financial Statements on pages 107 to 117.
6. Board and Executive remuneration
Board of Directors
Members of the Board of Directors of Roche Holding Ltd receive an annual remuneration and payment for their time and
expenses related to their membership of Board committees.
Remuneration of members of the Board of Directors in thousands of CHF
2013
B. Gehrig
a)
A. Hoffmann
2012
72
400
400
400
P. Baschera
330
330
J. I. Bell
330
330
P. Bulcke
330
330
W. M. Burns
353
353
L. J. R. de Vink a)
54
330
C. Franz
330
330
D. Julius
360
360
A. D. Levinson
607
681
A. Oeri
360
360
S. Schwan b)
P. R. Voser
B. Weder di Mauro
Total
–
–
330
330
330
330
4,186
4,864
a) At the Annual General Meeting on 5 March 2013, Prof. Gehrig and Mr de Vink did not stand for re-election.
b) At the Annual General Meeting on 5 March 2013, Dr Schwan was elected as a new member of the Board of Directors. His remuneration is included in the tables
below as a member of the Corporate Executive Committee.
The remuneration for Dr Levinson includes payments for his consulting work and for his Board membership of Genentech
totalling 277 thousand Swiss francs (2012: 351 thousand Swiss francs). The Chairman of the Board of Directors, Dr Franz
B. Humer, received remuneration as shown in the table below.
Remuneration of the Chairman of the Board of Directors in thousands of CHF
2013
2012
2011
Annual salary, including cash-settled bonus
4,000
6,500
5,600
Bonus Stock Awards
2,792
–
–
Pensions and other post-employment benefits
1,809
1,808
2,984
75
75
75
Equity compensation plans
Other employee benefits
Total remuneration received
Social security costs
Total
103
279
226
8,779
8,662
8,885
379
291
370
9,158
8,953
9,255
At the Annual Shareholders Meeting on 4 March 2014 it will be proposed that Dr Christoph Franz be elected as Chairman of
the Board of Directors to succeed Dr Humer, who is not standing for re-election in 2014.
158­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Notes to the Financial Statements
Corporate Executive Committee
Members of the Corporate Executive Committee (‘CEC’) of Roche Holding Ltd receive remuneration, indirect benefits and
participate in certain equity compensation plans as shown in the table below. The Group’s CEO, Dr Severin Schwan, was the
member of the CEC with the highest total remuneration and his remuneration is also disclosed. New members of the CEC
(Mr Diggelmann in 2012 and Dr Hippe in 2011) are included for the full calendar year in which they joined the CEC. Similarly,
members of the CEC retiring part way through the year (Dr Soriot in 2012 and Dr Hunziker in 2011) are included for the full
calendar year in which they left the CEC.
Remuneration of the members of the Corporate Executive Committee in thousands of CHF
Total CEC
Annual salary, including cash-settled bonus
2013
– of which
S. Schwan
Total CEC
2012
– of which
S. Schwan
Total CEC
2011
– of which
S. Schwan
5,500
20,000
4,000
21,573
4,000
18,488
Bonus Stock Awards
1,117
1,117
3,143
2,513
3,610
929
Pensions and other post-employment benefits
2,463
545
4,457
747
4,318
459
17,640
6,219
12,921
5,237
11,285
4,480
Equity compensation plans
Retirement awards
Other employee benefits
Total remuneration received
Social security costs
Total
–
–
–
–
4,000
–
579
36
768
40
832
35
41,799
11,917
42,862
12,537
42,533
11,403
2,993
1,284
1,871
675
1,392
371
44,792
13,201
44,733
13,212
43,925
11,774
Bonus Stock Awards. The Chairman of the Board of Directors and the Chief Executive Officer will be granted Bonus Stock
Awards in lieu of their cash-settled bonus for the financial year 2013. These will be issued by the end of April 2014 with a
total fair value for the employee of 3,909 thousand Swiss francs. The fair value of these awards for the employee is calculated
taking into account the period in which they are blocked (3 years: 83.962%, 10 years: 55.839%). The number of awards
and fair value per award will be calculated at the grant date.
Employer contribution to social security schemes and pension plans. The Group pays social insurance contributions
in respect of the above remuneration and pays contributions to pension and other post-employment benefit plans for
the Chairman of the Board of Directors and members of the Corporate Executive Committee.
Equity Compensation Plans. The Chairman of the Board of Directors and members of the Corporate Executive Committee
also participate in certain equity compensation plans as described below. The terms and vesting conditions of these awards
are disclosed in Note 26 to the Roche Group Annual Financial Statements. The fair values used in the Roche Group Annual
Financial Statements represent the cost to the company at grant date and reflect amongst other matters the observed
exercise behaviour and exit rate for the whole population that receive the awards and initial simulations of any performance
conditions. For the purposes of these remuneration disclosures the values are calculated based on the fair value that the
employee receives taking into account the preliminary assessment of any completed performance conditions.
The Chairman of the Board of Directors and members of the Corporate Executive Committee are eligible to participate in
Roche Connect, a programme that enables employees to make regular deductions from their salaries to purchase non-voting
equity securities. The Group contributes to the programme, which allows the employees to purchase non-voting equity
securities at a discount (usually 20%).
During 2013 members of the Corporate Executive Committee were granted 201,921 Stock-settled Stock Appreciation
Rights (S-SARs). The individual awards relating to 2013 are shown in the table below. The fair value of these awards for
the employees was 7,345 thousand Swiss francs, which was calculated using the Trinomial model for American options.
Roche Holding Ltd, Basel – Notes to the Financial Statements | Roche Finance Report 2013
159­
During 2013 members of the Corporate Executive Committee were granted 19,838 Restricted Stock Units (RSUs).
The individual awards relating to 2013 are shown in the table below. The fair value of these awards for the employees was
3,249 thousand Swiss francs, which was calculated based on the average market non-voting equity security price over
the 90-day period prior to the grant date.
Members of the Corporate Executive Committee and other members of senior management participate in the Roche
Performance Share Plan (PSP). The Group has three overlapping three-year PSPs. The target awards for the three-year
cycle are defined at the beginning of the cycle and the awards are considered to form part of the employee’s remuneration
in three equal annual amounts over the three-year cycle. Each award will result in between zero and two non-voting equity
securities, depending upon the achievement of the performance targets and the discretion of the Board of Directors.
The individual awards relating to 2013 are shown in the table below. The number of the awards is calculated as follows:
PSP 2011–2013: At the end of the cycle the performance targets were achieved and accordingly the participants received
175% of the originally targeted non-voting equity securities.
PSP 2012–2014: One non-voting equity security per award.
PSP 2013–2015: One non-voting equity security per award.
The resulting allocations are multiplied by the non-voting equity security price at 31 December 2013 of 249.20 Swiss francs
to give the fair value for the remuneration received by the employee.
Remuneration from equity compensation plans in 2013
Number
S. Schwan
Fair value
(CHF thousands)
Other CEC members
Fair value
Number (CHF thousands)
Number
Total CEC
Fair value
(CHF thousands)
–
100
–
122
–
222
71,472
2,600
130,449
4,746
201,921
7,346
7,023
782
12,815
2,467
19,838
3,249
Roche Connect
–– Employer contributions
S-SARs
–– 2013 awards
RSUs
–– 2013 awards
PSP
–– PSP 2011–2013
16,555
–
22,100
–
38,655
–
–– PSP 2012–2014
9,079
–
13,746
–
22,825
–
–– PSP 2013–2015
7,314
–
13,346
–
20,660
–
–– Fair value
–
2,737
–
4,086
–
6,823
Total fair value
–
6,219
–
11,421
–
17,640
Other employee benefits. These include tax advisory costs and other incidental benefits.
Transactions with former members of the Corporate Executive Committee. Pensions totalling 2 million Swiss francs were
paid by the Group in 2013 to former Corporate Executive Committee members (2012: 2 million Swiss francs, 2011: 2 million
Swiss francs).
160­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Notes to the Financial Statements
7. Board and Executive shareholdings
Board of Directors
Directors Mr André Hoffmann and Dr Andreas Oeri and other members of the founder’s families who are closely associated
with them belong to a shareholder group with pooled voting rights. At the end of 2013 and 2012 this group held 72,018,000
shares (45.01% of issued shares). Detailed information about this group is given in Note 4. In addition at the end of the
year the members of the Board of Directors and persons closely associated with them held shares and non-voting equity
securities (Genussscheine) as shown in the table below.
Shareholdings of members of the Board of Directors
F. B. Humer
B. Gehrig
A. Hoffmann
P. Baschera
2013
Shares
2012
7,492
7,492
n/a
50
– a)
– a)
Non-voting equity securities
(Genussscheine)
2013
2012
67,725
85,216
n/a
300
200
200
Other
b)
c)
1
1
4,600
4,600
300
300
1,647
1,647
P. Bulcke
–
–
1,350
1,350
W. M. Burns
3
3
84,735
83,990
b)
n/a
–
n/a
–
d)
J. I. Bell
L. J. R. de Vink
C. Franz
–
–
350
350
D. Julius
350
350
2,050
1,550
A. D. Levinson
–
–
A. Oeri
– a)
– a)
S. Schwan
–
P. R. Voser
B. Weder di Mauro
Total
–
–
187,793
187,793
c)
n/a
–
n/a
b), e)
3,600
–
–
3,600
200
200
800
800
8,346
8,396
354,850
371,396
a) Does not include shares held in the shareholder group with pooled voting rights.
b) Equity compensation awards: Roche Option Plan, S-SARs, RSUs and Roche Performance Share Plan. See below.
c) In 2012 Mr Hoffmann and Dr Oeri each held 250,000 UBS Long/Short Certificates on Roche shares (RO) versus Roche non-voting equity securities
(Genussscheine) (ROG).
d) Mr de Vink held 31,600 Roche American Depositary Receipts (ADRs) in 2012.
e) Dr Schwan was appointed to the Board of Directors on 5 March 2013 and his shareholdings are disclosed in the tables below as a member of the Corporate
Executive Committee.
Roche Holding Ltd, Basel – Notes to the Financial Statements | Roche Finance Report 2013
161­
Corporate Executive Committee
Members of the Corporate Executive Committee and persons closely associated with them held shares and non-voting
equity securities as shown in the table below.
Shareholdings of members of the Corporate Executive Committee
Non-voting equity securities
(Genussscheine)
2013
2012
2013
Shares
2012
S. Schwan
10,000
7,000
68,518
47,813
a)
S. Ayyoubi
3
3
16,032
15,832
a)
R. Diggelmann
–
–
836
802
a)
A. Hippe
2,885
–
6,851
8,892
a)
G. A. Keller
2,153
2,153
21,413
25,783
a), b)
3
3
6,177
5,492
a)
15,044
9,159
119,827
104,614
D. O’Day
Total
Other
a) Equity compensation awards: Roche Option Plan, S-SARs, RSUs and Roche Performance Share Plan.
b) Close relatives of Dr Keller held 1,100 Roche shares (2012: 1,100 Roche shares).
At 31 December 2013 the Chairman of the Board of Directors, Mr Burns and members of the Corporate Executive Committee
held Roche Option Plan awards (ROPs) and Stock-settled Stock Appreciation Rights (S-SARs) as shown in the table below.
The awards held by Dr Humer, the current Chairman of the Board of Directors, and Mr Burns, a current member of the Board
of Directors, were issued to them in their previous capacities as members of the Corporate Executive Committee. The terms
and vesting conditions of these awards are disclosed in Note 26 to the Roche Group Annual Financial Statements and
additional supplementary information is in the Remuneration Report, which is included in the Business Report (Part 1 of
this Annual Report) on pages 130 to 146.
ROPs and S-SARs awards held at 31 December 2013
Year of issue
2013
2012
2011
2010
2009
2008
2007
Total
S. Schwan
71,472
163,869
77,161
57,013
–
–
–
369,515
S. Ayyoubi
21,441
49,161
46,298
–
–
–
–
116,900
R. Diggelmann
17,874
15,000
12,732
6,489
4,263
5,295
–
61,653
A. Hippe
28,590
65,547
3,589
–
–
–
–
97,726
G. A. Keller
26,805
61,452
28,936
–
–
–
7,000
124,193
D. O’Day
35,739
53,259
19,291
25,742
–
–
–
134,031
Total CEC
201,921
408,288
188,007
89,244
4,263
5,295
7,000
904,018
F. B. Humer
–
–
–
–
–
–
–
–
W. M. Burns
–
–
–
–
109,602
105,576
–
215,178
201,921
408,288
188,007
89,244
113,865
110,871
7,000
1,119,196
Total
Strike price (CHF)
Expiry date
214.00
157.50
Mar. 2020
Mar. 2019
140.10 a)
Feb. 2018
a)
175.50
145.40
195.80 b)
229.60
Feb. 2017
Feb. 2016
Jan. 2015 b)
Feb. 2014
a) Dr Hippe’s 2011 awards have a strike price of CHF 140.30 and expire in April 2018.
b) Mr Diggelmann’s 2008 awards have a strike price of CHF 188.90 and expire in July 2015.
162­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Notes to the Financial Statements
At 31 December 2013 members of the Corporate Executive Committee as shown in the table below held PSP awards from
the PSP performance cycles 2012–2014 and 2013–2015. The terms and vesting conditions of these awards are disclosed in
Note 26 to the Roche Group Annual Financial Statements and additional supplementary information is in the Remuneration
Report on pages 130 to 146 of the Business Report (Part 1 of this Annual Report). Each award will result in between zero
and two non-voting equity securities (before value adjustment), depending upon the achievement of the performance targets
and the discretion of the Board of Directors. At the end of the 2011–2013 cycle the performance targets were achieved and
accordingly the participants will receive 175% of the originally targeted non-voting equity securities. The total target number
of awards for the other outstanding performance cycles as at 31 December 2013 are shown in the table below.
Roche Performance Share Plan awards held at 31 December 2013
PSP 2012–2014
PSP 2013–2015
S. Schwan
9,079
7,314
S. Ayyoubi
2,723
2,194
R. Diggelmann
1,038
1,828
A. Hippe
3,631
2,925
G. A. Keller
3,404
2,742
D. O’Day
2,950
3,657
22,825
20,660
Feb. 2015
Feb. 2016
Total CEC
Allocation date
At 31 December 2012 the Chairman of the Board of Directors, Mr Burns and members of the Corporate Executive Committee
at that time held a total of 1,790,392 Stock-settled Stock Appreciation Rights, and had outstanding a total of 44,913 awards
granted under the Roche Performance Share Plan.
Roche Holding Ltd, Basel – Notes to the Financial Statements | Roche Finance Report 2013
163­
Appropriation of Available Earnings
Proposals to the Annual General Meeting in CHF
2013
2012
Available earnings
Balance brought forward from previous year
801,940,014
1,925,766,591
Net profit for the year
6,942,928,717
5,216,009,268
Total available earnings
7,744,868,731
7,141,775,859
(6,727,989,060)
(6,339,835,845)
Appropriation of available earnings
Distribution of an ordinary dividend of CHF 7.80 gross per share
and non-voting equity security (Genussschein) as against CHF 7.35 last year
Transfer to free reserve
Total appropriation of available earnings
To be carried forward on this account
164­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Appropriation of Available Earnings
–
(6,727,989,060)
1,016,879,671
–
(6,339,835,845)
801,940,014
Report of the Statutory Auditor
on the Financial Statements
Report of the Statutory Auditor on the Financial Statements to the Annual General Meeting
of Roche Holding Ltd, Basel
As statutory auditor, we have audited the accompanying financial statements of Roche Holding Ltd, which comprise
the income statement, balance sheet and notes on pages 154 to 164 for the year ended 31 December 2013.
Board of Directors’ Responsibility. The Board of Directors is responsible for the preparation of the financial statements
in accordance with the requirements of Swiss law and the company’s Articles of Incorporation. This responsibility includes
designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that
are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting
and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies
used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion. In our opinion, the financial statements for the year ended 31 December 2013 comply with Swiss law and
the company’s Articles of Incorporation.
Roche Holding Ltd, Basel – Report of the Statutory Auditor on the Financial Statements | Roche Finance Report 2013
165­
Report on Other Legal Requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and
independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists, which has been designed for the preparation of financial statements according to the instructions of the Board
of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s Articles
of Incorporation. We recommend that the financial statements submitted to you be approved.
KPMG AG
Ian Starkey
Licensed Audit Expert
Auditor in Charge
François Rouiller
Licensed Audit Expert
Basel, 27 January 2014
166­
Roche Finance Report 2013 | Roche Holding Ltd, Basel – Report of the Statutory Auditor on the Financial Statements
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Cautionary statement regarding forward-looking
statements
This Annual Report contains certain forward-looking s­ tatements.
These forward-looking statements may be identi­f ied by words
such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’,
‘should’, ‘seeks’, ‘estimates’, ‘future’ or similar expressions or
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intentions. Various factors may cause actual results to differ
materially in the future from those reflected in forward-looking
statements contained in this Annual Report, among others:
(1) pricing and product ­initiatives of competitors; (2) legislative
and regulatory developments and economic conditions; (3) delay
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financial market conditions; (5) uncertainties in the discovery,
to market; (4) fluctuations in currency exchange rates and general
development or marketing of new products or new uses of
existing products, including without limitation negative results
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of pipeline or marketed products; (6) increased government
pricing pressures; (7) interruptions in production; (8) loss
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property rights; (9) litigation; (10) loss of key executives or
other employees; and (11) adverse publicity and news coverage.
The statement regarding earnings per share growth is not a profit
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forecast and should not be interpreted to mean that Roche’s
4 March 2014
earnings or earnings per share for 2013 or any subsequent period
will necessarily match or exceed the ­historical published earnings
or earnings per share of Roche.
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The Roche Annual Report is issued by
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