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Exhibits:

99.1 Financial Report Q4 2014
99.2 Interim Financial Report

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�	Novartis AG
�	�
�	�	�
Date: January 27, 2015	By:	/s/ MALCOLM B. CHEETHAM
�	�		�
�	Name:		Malcolm B. Cheetham
�	Title:		Head Group Financial Reporting and Accounting
�	�	�	�

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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statements

Fourth quarter (unaudited)

		Q4 2014 USD m		Q4 2013 USD m		Change USD m
Net sales to third parties from continuing operations		13�075		13�389		-314
Sales to discontinuing segments		55		51		4
Net sales from continuing operations		13�130		13�440		-310
Other revenues		224		188		36
Cost of goods sold		-4�416		-4�428		12
Gross profit from continuing operations		8�938		9�200		-262
Marketing & Sales		-3�229		-3�451		222
Research & Development		-2�537		-2�486		-51
General & Administration		-736		-695		-41
Other income		606		513		93
Other expense		-691		-748		57
Operating income from continuing operations		2�351		2�333		18
Income from associated companies		580		155		425
Interest expense		-188		-163		-25
Other financial income and expense		13		-42		55
Income before taxes from continuing operations		2�756		2�283		473
Taxes		-308		-268		-40
Net income from continuing operations		2�448		2�015		433
Net loss/income from discontinuing operations		-961		43		-1�004
Total net income		1�487		2�058		-571
Attributable to:
Shareholders of Novartis AG		1�491		2�029		-538
Non-controlling interests		-4		29		-33
Average number of shares outstanding – Basic (million)		2�408		2�432		-24
Basic earnings per share from continuing operations (USD)1		1.02		0.82		0.20
Basic earnings per share from discontinuing operations (USD)1		-0.40		0.01		-0.41
Total basic earnings per share (USD)1		0.62		0.83		-0.21
Average number of shares outstanding – Diluted (million)		2�449		2�469		-20
Diluted earnings per share from continuing operations (USD)1		1.00		0.81		0.19
Diluted earnings per share from discontinuing operations (USD)1		-0.39		0.01		-0.40
Total diluted earnings per share (USD)1		0.61		0.82		-0.21
1�Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
�

Consolidated income statements

Full year (audited)

		FY 2014 USD m		FY 2013 USD m		Change USD m
Net sales to third parties from continuing operations		52�180		51�869		311
Sales to discontinuing segments		239		221		18
Net sales from continuing operations		52�419		52�090		329
Other revenues		1�215		626		589
Cost of goods sold		-17�345		-16�579		-766
Gross profit from continuing operations		36�289		36�137		152
Marketing & Sales		-12�377		-12�638		261
Research & Development		-9�086		-9�071		-15
General & Administration		-2�616		-2�603		-13
Other income		1�391		1�205		186
Other expense		-2�512		-2�047		-465
Operating income from continuing operations		11�089		10�983		106
Income from associated companies		1�918		599		1�319
Interest expense		-704		-683		-21
Other financial income and expense		-31		-92		61
Income before taxes from continuing operations		12�272		10�807		1�465
Taxes		-1�545		-1�498		-47
Net income from continuing operations		10�727		9�309		1�418
Net loss from discontinuing operations		-447		-17		-430
Net income		10�280		9�292		988
Attributable to:
Shareholders of Novartis AG		10�210		9�175		1�035
Non-controlling interests		70		117		-47
Average number of shares outstanding – Basic (million)		2�426		2�441		-15
Basic earnings per share from continuing operations (USD)1		4.39		3.76		0.63
Basic earnings per share from discontinuing operations (USD)1		-0.18		0.00		-0.18
Total basic earnings per share (USD)1		4.21		3.76		0.45
Average number of shares outstanding – Diluted (million)		2�470		2�479		-9
Diluted earnings per share from continuing operations (USD)1		4.31		3.70		0.61
Diluted earnings per share from discontinuing operations (USD)1		-0.18		0.00		-0.18
Total diluted earnings per share (USD)1		4.13		3.70		0.43
1�Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.
�

Consolidated statements of comprehensive income

Fourth quarter (unaudited)

		Q4 2014 USD m		Q4 2013 USD m		Change USD m
Net income		1�487		2�058		-571
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on financial instruments, net of taxes		78		-60		138
Novartis share of other items recorded in comprehensive income recognized by associated companies, net of taxes		5		7		-2
Translation effects		-873		472		-1�345
Total of items to eventually recycle		-790		419		-1�209
Other comprehensive income never to be recycled into the consolidated income statement:
Net actuarial gains from defined benefit plans, net of taxes		320		344		-24
Comprehensive income		1�017		2�821		-1�804
Attributable to:
Shareholders of Novartis AG		1�022		2�791		-1�769
Continuing operations		2�022		2�740		-718
Discontinuing operations		-1�000		51		-1�051
Non-controlling interests		-5		30		-35

Full year (audited)

		FY 2014 USD m		FY 2013 USD m		Change USD m
Net income		10�280		9�292		988
Other comprehensive income to be eventually recycled into the consolidated income statement:
Fair value adjustments on financial instruments, net of taxes		110		173		-63
Novartis share of other items recorded in comprehensive income recognized by associated companies, net of taxes		-5		5		-10
Translation effects		-2�220		676		-2�896
Total of items to eventually recycle		-2�115		854		-2�969
Other comprehensive income never to be recycled into the consolidated income statement:
Net actuarial (losses)/gains from defined benefit plans, net of taxes		-822		1�504		-2�326
Comprehensive income		7�343		11�650		-4�307
Attributable to:
Shareholders of Novartis AG		7�274		11�538		-4�264
Continuing operations		7�820		11�512		-3�692
Discontinuing operations		-546		26		-572
Non-controlling interests		69		112		-43

Condensed consolidated balance sheets (audited)

		Dec 31, 2014 USD m		Dec 31, 2013 USD m		Change USD m
Assets
Non-current assets
Property, plant & equipment		15�983		18�197		-2�214
Goodwill		29�311		31�026		-1�715
Intangible assets other than goodwill		23�832		27�841		-4�009
Financial and other non-current assets		18�700		18�648		52
Total non-current assets		87�826		95�712		-7�886
Current assets
Inventories		6�093		7�267		-1�174
Trade receivables		8�275		9�902		-1�627
Other current assets		2�530		3�392		-862
Cash and cash equivalents, marketable securities, commodities and derivatives		13�862		9�222		4�640
Assets related to discontinuing operations		6�801		759		6�042
Total current assets		37�561		30�542		7�019
Total assets		125�387		126�254		-867
Equity and liabilities
Equity attributable to Novartis AG shareholders		70�766		74�343		-3�577
Non-controlling interests		78		129		-51
Total equity		70�844		74�472		-3�628
Non-current liabilities
Financial debts		13�799		11�242		2�557
Other non-current liabilities		13�771		14�172		-401
Total non-current liabilities		27�570		25�414		2�156
Current liabilities
Trade payables		5�419		6�148		-729
Financial debts and derivatives		6�612		6�776		-164
Other current liabilities		12�524		13�394		-870
Liabilities related to discontinuing operations		2�418		50		2�368
Total current liabilities		26�973		26�368		605
Total liabilities		54�543		51�782		2�761
Total equity and liabilities		125�387		126�254		-867
�

Condensed consolidated changes in equity�

Fourth quarter (unaudited)

		Q4 2014 USD m		Q4 2013 USD m		Change USD m
Consolidated equity at October 1		71�424		72�179		-755
Comprehensive income		1�017		2�821		-1�804
Purchase of treasury shares		-1�891		-770		-1�121
Treasury share repurchase commitment under a share buy-back trading plan		17				17
Increase in equity from exercise of options and employee transactions		3		12		-9
Equity-based compensation		277		263		14
Change in non-controlling interests		-3		-33		30
Consolidated equity at December 31		70�844		74�472		-3�628
�

Full year (audited)

		FY 2014 USD m		FY 2013 USD m		Change USD m
Consolidated equity at January 1		74�472		69�263		5�209
Comprehensive income		7�343		11�650		-4�307
Purchase of treasury shares		-6�926		-2�990		-3�936
Treasury share repurchase commitment under a share buy-back trading plan		-658				-658
Increase in equity from exercise of options and employee transactions		2�400		1�691		709
Dividends related to shareholders of Novartis AG		-6�810		-6�100		-710
Equity-based compensation		1�143		1�077		66
Impact of change in ownership of consolidated entities				-10		10
Change in non-controlling interests		-120		-109		-11
Consolidated equity at December 31		70�844		74�472		-3�628
�

Condensed consolidated cash flow statements

Fourth quarter (unaudited)

		Q4 2014 USD m		Q4 2013 USD m		Change USD m
Net income from continuing operations		2�448		2�015		433
Reversal of non-cash items
Taxes		308		268		40
Depreciation, amortization and impairments		1�291		1�211		80
Change in provisions and other non-current liabilities		316		204		112
Income from associated companies		-580		-155		-425
Net financial income		175		205		-30
Other		-118		-6		-112
Net income adjusted for non-cash items		3�840		3�742		98
Interest and other financial receipts		394		-65		459
Interest and other financial payments		-168		-90		-78
Taxes paid1		-559		-509		-50
Cash flows before working capital changes from continuing operations		3�507		3�078		429
Payments out of provisions and other net cash movements in non-current liabilities		-251		-302		51
Change in net current assets and other operating cash flow items		1�467		1�186		281
Cash flows from operating activities from continuing operations		4�723		3�962		761
Cash flows from operating activities from discontinuing operations 1		482		488		-6
Total cash flows from operating activities		5�205		4�450		755
Purchase of property, plant & equipment		-830		-1�048		218
Purchase of intangible, financial and other non-current assets		-304		-218		-86
Proceeds from sales of property, plant & equipment, intangible, financial and other non-current assets		366		179		187
Acquisitions of businesses		-350				-350
Change in marketable securities, commodities and net divestment proceeds of associated companies		331		-1�524		1�855
Cash flows used in investing activities from continuing operations		-787		-2�611		1�824
Cash flows used in investing activities from discontinuing operations 1		-132		-44		-88
Total cash flows used in investing activities		-919		-2�655		1�736
Change in current and non-current financial debts		1�157		-746		1�903
Treasury share transactions, net		-1�899		-707		-1�192
Other financing cash flows				-65		65
Cash flows used in financing activities		-742		-1�518		776
Net translation effect on cash and cash equivalents		-162		47		-209
Change in cash and cash equivalents		3�382		324		3�058
Cash and cash equivalents at October 1		9�641		6�363		3�278
Cash and cash equivalents at December 31		13�023		6�687		6�336
1�In Q4 2014, total Group tax payments amounted to USD 692 million when also taking into account payments of USD 19 million and USD 114 million, included in the cash flows from operating activities and investing activities, respectively, of discontinuing operations.

Condensed consolidated cash flow statements

Full year (audited)

		FY 2014 USD m		FY 2013 USD m		Change USD m
Net income from continuing operations		10�727		9�309		1�418
Reversal of non-cash items
Taxes		1�545		1�498		47
Depreciation, amortization and impairments		4�751		4�462		289
Change in provisions and other non-current liabilities		1�490		736		754
Income from associated companies		-1�918		-599		-1�319
Net financial income		735		775		-40
Other		122		307		-185
Net income adjusted for non-cash items		17�452		16�488		964
Interest and other financial receipts		1�067		539		528
Interest and other financial payments		-692		-631		-61
Taxes paid1		-2�179		-2�054		-125
Cash flows before working capital changes from continuing operations		15�648		14�342		1�306
Payments out of provisions and other net cash movements in non-current liabilities		-1�125		-947		-178
Change in net current assets and other operating cash flow items		-625		-778		153
Cash flows from operating activities from continuing operations		13�898		12�617		1�281
Cash flows used in/from operating activities from discontinuing operations 1		-1		557		-558
Total cash flows from operating activities		13�897		13�174		723
Purchase of property, plant & equipment		-2�624		-2�903		279
Purchase of intangible, financial and other non-current assets		-1�079		-665		-414
Proceeds from sales of property, plant & equipment, intangible, financial and other non-current assets		739		472		267
Acquisitions of businesses		-331		-42		-289
Change in marketable securities, commodities and net divestment proceeds of associated companies		3�287		-81		3�368
Cash flows used in investing activities from continuing operations		-8		-3�219		3�211
Cash flows from/used in investing activities from discontinuing operations 1		889		-133		1�022
Total cash flows from/used in investing activities		881		-3�352		4�233
Dividends related to shareholders of Novartis AG		-6�810		-6�100		-710
Change in current and non-current financial debts		3�318		-1�333		4�651
Treasury share transactions, net		-4�515		-1�237		-3�278
Impact of change in ownership of consolidated enities				4		-4
Other financing cash flows		-140		-103		-37
Cash flows used in financing activities		-8�147		-8�769		622
Net translation effect on cash and cash equivalents		-295		82		-377
Change in cash and cash equivalents		6�336		1�135		5�201
Cash and cash equivalents at January 1		6�687		5�552		1�135
Cash and cash equivalents at December 31		13�023		6�687		6�336
1�In FY 2014, total Group tax payments amounted to USD 2.6 billion when also taking into account payments of USD 7 million and USD 459 million, included in the cash flows from operating activities and investing activities, respectively, of discontinuing operations.

Notes to the Condensed Interim Consolidated Financial Statements for the three- and twelve-month periods ended December 31, 2014 (audited)

1. Basis of preparation

These Condensed Interim Consolidated Financial Statements for the three- and twelve-month periods ended December 31, 2014, were prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and accounting policies set out in the 2014 Annual Report published on January�27, 2015.

2. Selected critical accounting policies

The Group’s principal accounting policies are set out in note 1 to the Consolidated Financial Statements in the 2014 Annual Report and conform with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The presentation of financial statements requires management to make subjective and complex judgments that affect the reported amounts. Because of the inherent uncertainties, actual outcomes and results may differ from management’s assumptions and estimates. In particular, as discussed in note 11 of the 2014 Annual Report, goodwill, Alcon brand name and acquired In-Process Research & Development projects are reviewed for impairment at least annually and these, as well as all other investments in intangible assets, are reviewed for impairment whenever an event or decision occurs that raises concern about their balance sheet carrying value. The amount of goodwill and other intangible assets on the Group’s consolidated balance sheet has risen significantly in recent years, primarily from acquisitions. Impairment testing under IFRS may lead to potentially significant impairment charges in the future that could have a materially adverse impact on the Group’s financial results.

The determination of the contingent consideration in respect of acquisitions also requires management to make assumptions on the probability and amount of potential payments due to previous owners. If actual payments are different to the estimated amounts recorded for contingent consideration there could be a significant impact, either positive or negative, on the Group’s financial results.

3. Significant transactions

Vaccines – Divestment of blood transfusion diagnostics unit
On January 9, 2014, Novartis completed the divestment of its blood transfusion diagnostics unit to the Spanish company Grifols S.A., for USD 1.7 billion in cash. The pre-tax gain on this transaction was approximately USD 0.9 billion and was recorded in operating income from discontinuing operations.

Pharmaceuticals – Acquisition of CoStim Pharmaceuticals, Inc.
On February 17, 2014, Novartis acquired all of the outstanding shares of CoStim Pharmaceuticals, Inc., a Cambridge, Massachusetts, US-based, privately held biotechnology company focused on harnessing the immune system to eliminate immune-blocking signals from cancer, for a total purchase consideration of USD 248 million (excluding cash acquired). This amount consists of an initial cash payment and the net present value of contingent consideration of USD 153 million due to previous CoStim’s shareholders, which they are eligible to receive upon the achievement of specified development and commercialization milestones. The purchase price allocation resulted in net identified assets of USD 152 million (excluding cash acquired) and goodwill of USD 96 million. Results of operations since the acquisition were not material.

Pharmaceuticals – Divestment of Idenix Pharmaceuticals, Inc. (Idenix) shareholding
On August 5, 2014, Merck & Co., USA completed a tender offer for Idenix. As a result, Novartis divested its 22% shareholding in Idenix and realized a gain of approximately USD 0.8 billion which was recorded in income from associated companies.

Corporate – Divestment of LTS Lohmann Therapie-Systeme AG (LTS) shareholding
On November 5, 2014, Novartis divested its 43% shareholding in LTS and realized a gain of approximately USD 0.4 billion which was recorded in income from associated companies.

Alcon – Acquisition of WaveTec Vision Systems, Inc. (WaveTec)
On October 16, 2014, Alcon acquired all of the outstanding shares of WaveTec, a privately held company, for USD 350 million in cash. The purchase price allocation resulted in net identified assets of USD 180 million and goodwill of USD 170 million. Results of operations since the acquisition were not material.

Major pending transactions

Transaction with Eli Lilly and Company
On April 22, 2014, Novartis entered into an agreement with Eli Lilly and Company, USA (Lilly) to divest its Animal Health business to Lilly for approximately USD 5.4 billion in cash to be paid on closing. This transaction closed on January 1, 2015 and will result in a pre-tax gain of approximately USD 4.6 billion.

Transactions with GlaxoSmithKline plc
On April 22, 2014 (and as amended and restated on May 29, 2014), Novartis entered into the following agreements with GlaxoSmithKline plc, Great Britain (GSK). These transactions with GSK are inter-conditional and were approved by GSK shareholders in December 2014. They are still subject to other closing conditions, including regulatory approvals. The transactions are expected to close during the first half of 2015.

Pharmaceuticals – Acquisition of GSK oncology products
Novartis has agreed to acquire GSK’s oncology products for an aggregate cash consideration of USD 16 billion. Up to USD 1.5 billion of this cash consideration is contingent on certain development milestones. In addition, under the terms of the agreement, Novartis was granted a right of first negotiation over the co-development or commercialization to GSK’s current and future oncology R&D pipeline, excluding oncology vaccines. The right of first negotiation is for a period of 12.5 years, from the acquisition closing date.

Vaccines – Divestment
Novartis has agreed to divest its Vaccines business to GSK for up to USD 7.1 billion plus royalties. The USD 7.1 billion consists of USD 5.25 billion to be paid on closing and up to USD 1.8 billion in future milestone payments. Novartis’s Vaccines influenza business is excluded from the GSK Vaccines business acquisition. However, GSK has entered into a future option arrangement with Novartis in relation to the Vaccines influenza business, pursuant to which Novartis may unilaterally require GSK to acquire the entire or certain parts of its vaccines influenza business for consideration of up to USD 250 million (the Influenza Put Option) if the divestment to CSL Limited, Australia (CSL), discussed below, is not completed. The option period is 18 months, beginning the earlier of the GSK transaction closing date and October�22, 2015. Novartis paid GSK a fee of USD 5 million in consideration for the grant of the Influenza Put Option.

Consumer Health – Combination of Novartis OTC with GSK consumer healthcare in a joint venture
Novartis and GSK have agreed to create a combined consumer healthcare business through a joint venture between Novartis OTC and GSK consumer healthcare. Upon completion, Novartis will own a 36.5% share of the joint venture and will have four of eleven seats on the joint venture’s Board. Furthermore, Novartis will have customary minority rights and also exit rights at a pre-defined, market-based pricing mechanism. The investment will be accounted for using the equity method of accounting.

Transaction with CSL
On October 26, 2014 Novartis entered into a transaction with CSL to sell its Vaccines influenza business to CSL for USD 275 million. This transaction is expected to be completed in the second half of 2015, subject to all necessary regulatory approvals.

Entering into the separate divestment agreement with CSL resulted in the vaccine influenza business being a separate cash generating unit within the Vaccines Division, requiring the performance of a separate valuation of the influenza vaccines business net assets. This triggered the recognition of an exceptional impairment charge of approximately USD 1.1 billion (pre-tax), as the book value of the influenza vaccines business net assets was above the USD 275 million consideration to be paid by CSL.

Classification as discontinuing operations
These major pending transactions, combined with the divestment of the blood transfusion diagnostics unit which closed on January 9, 2014, result from the portfolio review which commenced in mid-2013.

As a result, Novartis is required to separate the Group’s reported financial data for the current and prior year into “discontinuing” and “continuing” operations.

Discontinuing operations include the Animal Health Division, the OTC Division, and the Vaccines Division including the USD 0.9 billion pre-tax gain arising from the USD 1.7 billion divestment of the blood transfusion diagnostics unit to Grifols S.A., completed on January 9, 2014, and related prior-year results for this unit’s activity. Excluded from discontinuing operations are certain intellectual property rights and related other revenues of the Vaccines Division which are retained by Novartis and are now reported under Corporate activities. Also included in discontinuing operations, under Corporate, are certain transaction related expenses.

As required by IFRS, 2014 results exclude from the portfolio transformation announcement date any further depreciation and amortization related to discontinuing operations.

Continuing operations comprise all other activities of the Novartis Group, including the Pharmaceuticals, Alcon and Sandoz Divisions and the retained Corporate activities.

Continuing operations do not yet include the results from Oncology assets to be acquired from GSK on closing of the transaction or the results from the 36.5% interest in the GSK/Novartis consumer healthcare joint venture that will be created at the same time.

There were no significant acquisition or divestment transactions in 2013.

4. Summary of equity attributable to Novartis AG shareholders

Number of outstanding shares (in millions)

Issued share capital and reserves attributable to Novartis AG shareholders

2014

2013

Change

FY 2014 USD m

FY 2013 USD m

Change USD m

Balance at beginning of year

2�426.1

2�420.6

5.5

74�343

69�137

5�206

Shares acquired to be held in Group Treasury

-46.8

-33.3

-13.5

-4�057

-2�464

-1�593

Shares acquired to be cancelled

-27.0

-2.2

-24.8

-2�396

-170

-2�226

Other share purchases

-5.4

-4.8

-0.6

-473

-356

-117

Increase in equity from exercise of options and employee transactions

41.4

34.3

7.1

2�400

1�691

709

Equity-based compensation

10.3

11.5

-1.2

1�143

1�077

66

Treasury share repurchase commitment under a share buy-back trading plan

-658

-658

Dividends

-6�810

-6�100

-710

Net income of the period attributable to shareholders of Novartis AG

10�210

9�175

1�035

Other comprehensive income attributable to shareholders of Novartis AG

-2�936

2�363

-5�299

Impact of change in ownership of consolidated entities

-10

10

Balance at December 31

2�398.6

2�426.1

-27.5

70�766

74�343

-3�577

�

�

5. Consolidated income statements – Segmentation – Fourth quarter

		Pharmaceuticals				Alcon				Sandoz				Corporate				Total continuing operations				Total discontinuing operations				Group eliminations				Total Group
		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m
Net sales to third parties		7�860		8�323		2�703		2�655		2�512		2�411						13�075		13�389		1�558		1�689						14�633		15�078
Sales to other segments		61		35		11		10		70		77		-87		-71		55		51		14		14		-69		-65
Net sales		7�921		8�358		2�714		2�665		2�582		2�488		-87		-71		13�130		13�440		1�572		1�703		-69		-65		14�633		15�078
Other revenues		171		127		10		7		3		6		40		48		224		188		16		97						240		285
Cost of goods sold		-1�709		-1�773		-1�320		-1�308		-1�527		-1�480		140		133		-4�416		-4�428		-1�022		-949		69		65		-5�369		-5�312
Gross profit		6�383		6�712		1�404		1�364		1�058		1�014		93		110		8�938		9�200		566		851		0		0		9�504		10�051
Marketing & Sales		-2�157		-2�357		-641		-648		-431		-446						-3�229		-3�451		-447		-503						-3�676		-3�954
Research & Development		-2�073		-1�990		-247		-287		-217		-209						-2�537		-2�486		-216		-211						-2�753		-2�697
General & Administration		-294		-272		-162		-150		-102		-104		-178		-169		-736		-695		-108		-127						-844		-822
Other income		215		317		42		51		37		41		312		104		606		513		91		53		-8		-4		689		562
Other expense		-463		-397		-31		-158		-55		-20		-142		-173		-691		-748		-1�065		-23		8		4		-1�748		-767
Operating income		1�611		2�013		365		172		290		276		85		-128		2�351		2�333		-1�179		40		0		0		1�172		2�373
as % of net sales		20.5%		24.2%		13.5%		6.5%		11.5%		11.4%						18.0%		17.4%		-75.7%		2.4%						8.0%		15.7%
Income from associated companies										1				579		155		580		155		-1		-1						579		154
Interest expense																		-188		-163										-188		-163
Other financial income and expense																		13		-42										13		-42
Income before taxes																		2�756		2�283		-1�180		39						1�576		2�322
Taxes																		-308		-268		219		4						-89		-264
Net income																		2�448		2�015		-961		43						1�487		2�058
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Consolidated income statements – Segmentation – Full year

		Pharmaceuticals				Alcon				Sandoz				Corporate				Total continuing operations				Total discontinuing operations				Group eliminations				Total Group
		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m
Net sales to third parties		31�791		32�214		10�827		10�496		9�562		9�159						52�180		51�869		5�816		6�051						57�996		57�920
Sales to other segments		262		202		49		50		286		294		-358		-325		239		221		78		72		-317		-293
Net sales		32�053		32�416		10�876		10�546		9�848		9�453		-358		-325		52�419		52�090		5�894		6�123		-317		-293		57�996		57�920
Other revenues		629		497		34		27		12		18		540		84		1�215		626		65		285						1�280		911
Cost of goods sold		-6�889		-6�655		-5�193		-4�900		-5�751		-5�476		488		452		-17�345		-16�579		-3�073		-3�322		317		293		-20�101		-19�608
Gross profit		25�793		26�258		5�717		5�673		4�109		3�995		670		211		36�289		36�137		2�886		3�086		0		0		39�175		39�223
Marketing & Sales		-8�178		-8�514		-2�474		-2�452		-1�725		-1�672						-12�377		-12�638		-1�812		-1�911						-14�189		-14�549
Research & Development		-7�331		-7�242		-928		-1�042		-827		-787						-9�086		-9�071		-857		-781						-9�943		-9�852
General & Administration		-1�009		-1�051		-613		-589		-376		-374		-618		-589		-2�616		-2�603		-431		-457						-3�047		-3�060
Other income		734		699		79		79		97		106		481		321		1�391		1�205		1�007		174		-18		-12		2�380		1�367
Other expense		-1�538		-774		-184		-437		-190		-240		-600		-596		-2�512		-2�047		-1�146		-184		18		12		-3�640		-2�219
Operating income		8�471		9�376		1�597		1�232		1�088		1�028		-67		-653		11�089		10�983		-353		-73		0		0		10�736		10�910
as % of net sales		26.6%		29.1%		14.8%		11.7%		11.4%		11.2%						21.3%		21.2%		-6.1%		-1.2%						18.5%		18.8%
Income from associated companies		812								4		2		1�102		597		1�918		599		2		1						1�920		600
Interest expense																		-704		-683										-704		-683
Other financial income and expense																		-31		-92										-31		-92
Income before taxes																		12�272		10�807		-351		-72						11�921		10�735
Taxes																		-1�545		-1�498		-96		55						-1�641		-1�443
Net income																		10�727		9�309		-447		-17						10�280		9�292
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Discontinuing operations – Segmentation – Fourth quarter

		Vaccines as previously published 1				Consumer Health				Transfers to continuing Corporate 2				Corporate (including eliminations)				Discontinuing operations
		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m
Net sales to third parties of discontinuing operations		494		655		1�064		1�034										1�558		1�689
Sales to other segments		19		11		-5		3										14		14
Net sales of discontinuing operations		513		666		1�059		1�037										1�572		1�703
Other revenues		8		135		8		10				-48						16		97
Cost of goods sold		-584		-511		-438		-442				4						-1�022		-949
Gross profit of discontinuing operations		-63		290		629		605				-44						566		851
Marketing & Sales		-74		-91		-373		-412										-447		-503
Research & Development		-141		-132		-75		-79										-216		-211
General & Administration		-32		-38		-76		-87								-2		-108		-127
Other income		10		24		83		22						-2		7		91		53
Other expense		-784		-11		-16		-1				1		-265		-12		-1�065		-23
Operating loss/income of discontinuing operations		-1�084		42		172		48				-43		-267		-7		-1�179		40
as % of net sales		-219.4%		6.4%		16.2%		4.6%										-75.7%		2.4%
Income from associated companies		-1		-1														-1		-1
Loss/income before taxes of discontinuing operations																		-1�180		39
Taxes																		219		4
Net loss/income of discontinuing operations																		-961		43
1�2013 includes the divested blood transfusion diagnostics unit
2�Other revenue contains royalties and out-licensing revenues of Vaccines which are to be retained by Novartis.

Discontinuing operations – Segmentation – Full year

		Vaccines as previously published 1				Consumer Health				Transfers to continuing Corporate 2				Corporate (including eliminations)				Discontinuing operations
		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m
Net sales to third parties of discontinuing operations		1�537		1�987		4�279		4�064										5�816		6�051
Sales to other segments		65		61		13		11										78		72
Net sales of discontinuing operations		1�602		2�048		4�292		4�075										5�894		6�123
Other revenues		32		333		33		36				-84						65		285
Cost of goods sold		-1�336		-1�578		-1�737		-1�751				7						-3�073		-3�322
Gross profit of discontinuing operations		298		803		2�588		2�360				-77						2�886		3�086
Marketing & Sales		-280		-334		-1�532		-1�577										-1�812		-1�911
Research & Development		-545		-476		-312		-305										-857		-781
General & Administration		-118		-140		-313		-316								-1		-431		-457
Other income		905		70		99		79						3		25		1�007		174
Other expense		-812		-88		-60		-63				4		-274		-37		-1�146		-184
Operating loss of discontinuing operations		-552		-165		470		178				-73		-271		-13		-353		-73
as % of net sales		-35.9%		-8.3%		11.0%		4.4%										-6.1%		-1.2%
Income from associated companies		2		1														2		1
Loss before taxes of discontinuing operations																		-351		-72
Taxes																		-96		55
Net loss of discontinuing operations																		-447		-17
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1�2013 includes the divested blood transfusion diagnostics unit
2�Other revenue contains royalties and out-licensing revenues of Vaccines which are to be retained by Novartis.

Discontinuing operations – Condensed balance sheet (audited)

		Dec 31, 2014 USD m		Dec 31, 2013 USD m
Assets
Property, plant & equipment		1�411		145
Goodwill and other intangible assets		2�462		358
Financial and other non-current assets		352		10
Inventories		1�155		87
Trade receivables and other current assets		1�421		159
Total assets related to discontinuing operations and held for sale		6�801		759
Liabilities
Other non-current liabilities		706
Trade payables and other current liabilities		1�712		50
Total liabilities related to discontinuing operations and held for sale		2�418		50

6. Financial instruments

The following table illustrates the three hierarchical levels for valuing financial instruments at fair value and also those measured at amortized cost or at cost as of December 31, 2014 and December�31, 2013. For additional information on the hierarchies and other matters, please refer to the Consolidated Financial Statements in the 2014 Annual Report, published on January 27, 2015.

		Level 1				Level 2				Level 3				Valued at amortized cost or cost				Total
		Dec 31, 2014 (audited) USD m		Dec 31, 2013 (audited) USD m		Dec 31, 2014 (audited) USD m		Dec 31, 2013 (audited) USD m		Dec 31, 2014 (audited) USD m		Dec 31, 2013 (audited) USD m		Dec 31, 2014 (audited) USD m		Dec 31, 2013 (audited) USD m		Dec 31, 2014 (audited) USD m		Dec 31, 2013 (audited) USD m
Debt securities		301		294		26		29										327		323
Equity securities		15		21								26						15		47
Fund investments		29								6		11						35		11
Total available-for-sale marketable securities		345		315		26		29		6		37						377		381
Time deposits with original maturity more than 90 days														6		1�931		6		1�931
Derivative financial instruments						356		121										356		121
Accrued interest on debt securities														3		5		3		5
Total marketable securities, time deposits and derivative financial instruments		345		315		382		150		6		37		9		1�936		742		2�438
Available-for-sale financial investments		605		458						332		366						937		824
Fund investments										71		52						71		52
Long-term loans and receivables, advances, security deposits														712		647		712		647
Financial investments and long-term loans		605		458						403		418		712		647		1�720		1�523
Associated companies		66								168								234
Total associated companies at fair value through profit or loss		66								168								234
Contingent consideration										-756		-572						-756		-572
Derivative financial instruments						-52		-103										-52		-103
Total financial liabilities at fair value						-52		-103		-756		-572						-808		-675

With effect from January 1, 2014, in order to have consistent valuation methods for all venture capital fund investments, the Group has commenced valuing its fund investments with a voting share interest in excess of 20%, at fair value instead of using the equity method of accounting. For reasons of materiality this new accounting policy is applied prospectively. Apart from this change, there were no other changes in the full year to the valuation techniques used for financial instruments nor significant transfers from one level to the other nor significant transactions associated with level 3 financial instruments.

The fair value of straight bonds amounted to USD�17.0 billion at December 31, 2014 (USD�13.5 billion at December�31, 2013) compared to the balance sheet value of USD�16.0 billion (USD�12.9 billion at December�31, 2013). For all other financial assets and liabilities, the carrying amount is a reasonable approximation of the fair value. The carrying amount of financial assets included in the line financial and other non-current assets amounted to USD�1.7 billion at December 31, 2014 (USD�1.5 billion at December�31, 2013).

The Group’s exposure to financial risks has not changed significantly during the period and there have been no major changes to the risk management department or in any risk management policies.

7. Legal proceedings update

A number of Novartis companies are, and will likely continue to be, subject to various legal proceedings, including litigations, arbitrations and governmental investigations, that arise from time to time. Legal proceedings are inherently unpredictable. As a result, the Group may become subject to substantial liabilities that may not be covered by insurance and may in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations or cash flow. Note 20 to the consolidated financial statements contained in our annual report for the year ended December 31, 2013 contains a summary as of the date of that report of significant legal proceedings to which Novartis or its subsidiaries were a party. The following is a summary as of January 26, 2015 of potentially significant developments in those proceedings, as well as any new potentially significant proceedings commenced since the date of the last annual report. Reference is also made to note 20 to the consolidated financial statements contained in our annual report for the year ended December 31, 2014 for a summary of significant legal proceedings.

Investigations and related litigations

Southern District of New York (SDNY) marketing practices investigation and litigation
In April 2013, the US government filed a civil complaint in intervention to an individual qui tam action against Novartis Pharmaceuticals Corporation (NPC) in the United States District Court (USDC) for the SDNY involving several of NPC’s cardiovascular medications. The suit is related to a previously disclosed 2011 investigation of the United States Attorney’s Office (USAO) for the SDNY relating to marketing practices, including the remuneration of healthcare providers, in connection with three NPC products (Lotrel, Starlix and Valturna). The complaint, as subsequently amended, asserts federal False Claims Act and common law claims with respect to speaker programs for NPC’s cardiovascular medications allegedly serving as mechanisms to provide kickbacks to healthcare professionals. It seeks unspecified damages, which according to the complaint are “substantial”, including treble damages and maximum civil penalties per claim, as well as disgorgement of Novartis profits from the alleged unlawful conduct. In August 2013, New York State filed a civil complaint in intervention asserting similar claims. Neither government complaint in intervention adopted the individual relator’s claims with respect to off-label promotion of Valturna, which were subsequently dismissed with prejudice by the court. NPC vigorously contests the SDNY, New York State and individual claims, both as to alleged liability and amount of damages and penalties.

SDNY specialty pharmacies investigation and litigation
In April 2013, the US government filed a civil complaint in intervention to a qui tam action against NPC in the USDC for the SDNY. The suit is related to a previously disclosed 2012 investigation of the USAO for the SDNY into NPC’s interactions with certain specialty pharmacies concerning in particular Myfortic, Exjade, Gleevec, Tasigna and TOBI. The complaint, as subsequently amended, asserts federal False Claims Act and state law claims related to alleged unlawful contractual discounts and rebates to specialty pharmacies in connection with Myfortic, and alleged unlawful contractual discounts, rebates and patient referrals to one specialty pharmacy in connection with Exjade. The US government seeks unspecified damages, which according to the complaint are “substantial”, including treble damages and maximum civil penalties per claim. In January 2014, eleven states filed three complaints in intervention asserting similar claims related to Exjade; and the qui tam relator served on NPC an amended complaint also asserting similar claims with respect to Myfortic and Exjade, as well as claims involving Tasigna, Gleevec and TOBI that the federal and various state governments declined to pursue. NPC vigorously contests all government and relator claims, both as to alleged liability and amount of damages and penalties.

District of New Jersey (DNJ) investigation
In late September 2014, Alcon Laboratories, Inc. (ALI) received a subpoena from the USAO for the DNJ relating to an investigation of Alcon sales practices. ALI is cooperating with this investigation.

New York state investigation
In November 2014, ALI received a civil subpoena from the New York state attorney general relating to an investigation into a unilateral pricing policy program. ALI is at the outset of assessing the facts and is cooperating with this investigation.

Lucentis/Avastin^®�matters in Italy and France
In 2013, the Italian Competition Authority (ICA) opened an investigation to assess whether Novartis Farma S.p.A., Novartis AG, F. Hoffmann-La Roche AG, Genentech Inc. and Roche S.p.A. colluded to artificially differentiate Avastin^® and Lucentis in order to avoid the erosion of the sales of Lucentis by off-label Avastin^® with the aim of preserving the market position of Lucentis in Italy. In March 2014, the ICA imposed a fine equivalent to USD 125 million on Novartis AG and Novartis Farma S.p.A. and a fine on F. Hoffmann-La Roche AG and Roche S.p.A. equivalent to USD 122 million. Novartis appealed the ICA decision and, as required by Italian law, has paid the ICA fine, subject to the right to later claim recoupment. In December 2014, the Tribunale amministrativo regionale (TAR) del Lazio published a decision rejecting all appeals. Novartis intends to appeal the decision of the TAR Lazio. In October 2014, Novartis also appealed the resolution of the Italian Medicines Agency to include Avastin^® in a list of drugs to be reimbursed off-label. The Italian Ministry of Health (MoH) has indicated in a letter that it intended to seek a total equivalent of approximately USD 1.4 billion in damages from Novartis and Roche entities based on the above allegations, and the Lombardia region has sent a payment request equivalent to approximately USD 71 million. Novartis vigorously contests the MoH and Lombardia claims.

The French Competition Authority carried out an inspection in April 2014 on the premises of Novartis Groupe France and Roche with respect to the French market for anti-vascular endothelial growth factor (VEGF) products indicated for the treatment of wet age-related macular degeneration.

Japan investigations
Novartis Pharma K.K. (NPKK) has completed a comprehensive investigation with external specialists launched in April 2013 which identified that two former employees of NPKK were not appropriately identified as NPKK employees in the trial publications for five post-registration investigator initiated trials (IITs) regarding valsartan. In October 2013, the Japanese Ministry of Health, Labor and Welfare (MHLW) published an interim report in which it required further actions, including investigations by the government into allegations of exaggerated advertising. None of the trials/publications were used for registration purposes. In July 2014, the Tokyo District Public Prosecutor Office indicted a former NPKK employee, and also NPKK under the dual liability concept in Japanese law, in two counts for alleged manipulation of data in sub-analysis publications of the Kyoto Heart Study regarding valsartan. The charges against NPKK are subject to a maximum total fine of JPY 4 million. Novartis is cooperating fully with the authorities.

Also in January 2014, allegations of inappropriate involvement of NPKK representatives in a nilotinib IIT being conducted by the University of Tokyo Hospital were raised in the media. In February 2014, NPKK established an External Investigation Committee (EIC) to clarify the actual involvement in the IIT as well as the root cause and provide a proposal for preventing recurrence. In March 2014, the EIC issued a final report finding various instances of improper conduct, including improper handling of confidential patient information, document destruction and failure to report adverse events. The MHLW issued a business improvement order in July 2014, following NPKK’s disclosure of its failure to report adverse events. Novartis is implementing a business improvement plan and has notified all competent health authorities worldwide about the adverse events reporting issue, and several have requested additional information and clarification from Novartis. In addition to taking remedial action, Novartis also conducted a comprehensive review of NPKK’s conduct and business practices related to IITs and the other above issues in Japan, and has released new global guidelines for IITs.

The MHLW plans to issue new guidelines governing the conduct of IITs in Japan, and it is in the process of determining any additional sanctions against NPKK for the above conduct which could potentially include a temporary suspension of certain business activities.

Italy investigations
In January 2014, the ICA opened an investigation to assess whether Novartis Farma S.p.A. and Italfarmaco S.p.A. colluded on the supply of octreotide acetate (Sandostatin LAR and Longastatina^® LAR, respectively) to prevent competition in tenders issued by the regions of Emilia Romagna, Veneto and Lombardia.

In June 2014, the public prosecutor of Siena initiated a criminal investigation of Novartis Vaccines and Diagnostics S.r.l. with respect to allegations that the transfer price of the adjuvant MF59 was unlawfully marked up. The investigation concerns whether the Focetria and Fluad vaccines sold to the government

were over-priced and whether the Italian Ministry of Health paid an inflated amount in a dispute settlement relating to the supply of Focetria during the 2009 pandemic.

Product liability matters

Zometa/Aredia�product liability litigation
NPC is a defendant in approximately 525 remaining cases brought in US courts, in which plaintiffs claim to have experienced osteonecrosis of the jaw or atypical femur fracture after treatment with Zometa or Aredia, which are used to treat patients whose cancer has spread to the bones. From the outset of the litigation, approximately 332 cases have been dismissed on pre-trial summary judgment or other dismissal, of which 16 remain on appeal.

Through the end of the fourth quarter of 2014, judgment has been entered in favor of NPC in nine jury trials, seven of which are final, and plaintiffs have obtained one verdict outside the centralized proceedings and six verdicts in the centralized litigation. In the centralized proceedings, juries awarded compensatory damages (averaging approximately USD�0.7 million in each case), no punitive damages in four cases, and punitive damages (as capped by applicable state and federal laws) totaling approximately USD�1.8 million in the remaining two. Four of the verdicts in favor of plaintiffs in the centralized litigation are not final given remaining post-trial and appeal options in each. In the one plaintiff’s verdict outside the centralized proceedings, the jury awarded USD�2.65 million in compensatory damages and no punitive damages.

Further trials are scheduled. Individual case results, which can depend on the particular facts of a given case, may not necessarily be predictive for other cases. The cases are being vigorously defended.

Arbitration

Fanapt^® arbitration: Concluded
In May 2014, Vanda Pharmaceuticals Inc. commenced an arbitration against Novartis Pharma AG relating to the licensing of Fanapt^®. The case was resolved in the fourth quarter of 2014 for an amount that is not material to Novartis.

Other Matters

Average Wholesale Price (AWP) litigation
Claims have been brought by various US state governmental entities against various pharmaceutical companies, including certain Sandoz entities and NPC, alleging that they fraudulently overstated the AWP that is or has been used by payors, including state Medicaid agencies, to calculate reimbursements to healthcare providers. In the second quarter of 2014, Sandoz reached a settlement of the Illinois claims against it for USD 63 million. Further settlements have been obtained in the cases brought by the states of Kansas and Utah against NPC, each for amounts that are not material to Novartis. Actions brought by the states of Illinois, Mississippi, Utah and Wisconsin remain pending against one or more Novartis companies. At least one trial is scheduled for 2015. NPC is also a defendant in a putative class action brought by private payors in New Jersey. The cases are being vigorously defended.

Qui tam action
In 2006, NPC received a subpoena from the US government seeking certain information regarding the marketing and promotion of Xolair. The investigation, which was previously disclosed, was prompted by a qui tam complaint filed in the District of Massachusetts (D. Mass.) in 2006, asserting various federal False Claims Act and state claims relating to certain alleged improper marketing practices involving Xolair. In addition to the 2006 suit, relator complaints were filed in D. Mass. in 2010 and 2012 against various Novartis, Genentech and Roche entities, containing allegations similar to those in the 2006 complaint. In 2011, the US and various state governments declined to intervene in the relators’ actions, and closed the investigation. In June 2014, the relator in the 2010 action voluntarily dismissed his claims in that complaint with prejudice; the US and various states subsequently consented to the dismissal. The relator complaints in combination claim more than USD 1.5 billion in alleged treble damages, civil penalties and disgorgement of profits. Novartis denies the allegations both as to the merits and the monetary claims and is vigorously contesting these actions.

Consumer class actions
Novartis companies have been the subject of various consumer lawsuits that are brought as proposed class actions but in which class certification has not been decided. For example, four putative class actions were brought in December 2013 and January 2014 against Novartis and its consumer health

unit. They generally claim that it was a deceptive practice to sell Excedrin Migraine at a higher price than Excedrin Extra Strength when the two have the same active ingredients, even though the products have different labels and clearly disclose their active ingredients. In 2014, three of the four putative class actions were dismissed; the remaining one is pending in the DNJ.

Since November 2012, six putative consumer fraud class action litigations were commenced against Alcon (and in four cases Sandoz) in federal courts in the Southern Districts of Illinois (S.D. Ill.) and Florida and the Districts of Missouri, Massachusetts and New Jersey. They claim that Alcon’s, Sandoz’s and many other manufacturers defendants’ eye drop products were deceptively designed so that the drop dosage is more than necessary to be absorbed in the eye or there is too much solution in each bottle for the course of the treatment, leading to wastage and higher costs to patient consumers. Three cases remain pending in the S.D. Ill., D. Mass. and DNJ. Novartis is vigorously defending the remaining cases, both on the merits and with respect to class certification.



In addition to the matters described above, there have been other developments in the other legal matters described in Note 20 to the consolidated financial statements contained in our annual report for the year ended December 31, 2013. These do not significantly affect the assessment of management concerning the adequacy of the total provisions recorded for legal proceedings.

8. Subsequent event

Divestment of Animal Health business
On January 1, 2015, Novartis completed the divestment of its Animal Health division to Eli Lilly and Company, USA, for approximately USD 5.4 billion. This will result in a pre-tax gain of approximately USD 4.6 billion.









SUPPLEMENTARY INFORMATION (unaudited)

Non-IFRS disclosures

Core results

The Group’s core results – including core operating income, core net income and core earnings per share – exclude the amortization of intangible assets, impairment charges, expenses relating to the integration of acquisitions as well as other income and expense items that are, or are expected to accumulate within the year to be, over a USD 25 million threshold that management deems exceptional.

Novartis believes that investor understanding of the Group’s performance is enhanced by disclosing core measures of performance because, since they exclude these items which can vary significantly from year to year, the core measures enable better comparison across years. For this same reason, Novartis uses these core measures in addition to IFRS and other measures as important factors in assessing the Group’s performance.

The following are examples of how these core measures are utilized:

• In addition to monthly reports containing financial information prepared under International Financial Reporting Standards (IFRS), senior management receives a monthly analysis incorporating these core measures.

• Annual budgets are prepared that include targets for both IFRS and core measures.

Despite the use of these measures by management in setting goals and measuring the Group’s performance, these are non-IFRS measures that have no standardized meaning prescribed by IFRS. As a result, such measures have limits in usefulness to investors.

Because of their non-standardized definitions, the core measures (unlike IFRS measures) may not be comparable to the calculation of similar measures of other companies. These core measures are presented solely to permit investors to more fully understand how the Group’s management assesses underlying performance. These core measures are not, and should not be viewed as, a substitute for IFRS measures.

As an internal measure of Group performance, these core measures have limitations, and the performance management process is not solely restricted to these metrics. A limitation of the core measures is that they provide a view of the Group’s operations without including all events during a period, such as the effects of an acquisition or amortization of purchased intangible assets.

2013 results excluding Diagnostics unit

On January 9, 2014, Novartis completed the divestment to Grifols S.A. of our former blood transfusion diagnostics unit, which had been included in our former Vaccines and Diagnostics Division. Because the divestment occurred near the beginning of 2014, Novartis believes that investor understanding of the Group’s performance would be enhanced by disclosing a comparison of the Novartis 2014 results against 2013 results that exclude the results of the divested business, since it will assist investors in evaluating the Group’s performance on a more comparable basis from year to year. For this reason, management has used this comparison, in addition to IFRS and other measures, in its assessments of the Group’s performance.

Constant currencies

Changes in the relative values of non-US currencies to the US dollar can affect the Group’s financial results and financial position. To provide additional information that may be useful to investors, including changes in sales volume, we present information about our net sales and various values relating to operating and net income that are adjusted for such foreign currency effects.

Constant currency calculations have the goal of eliminating two exchange rate effects so that an estimate can be made of underlying changes in the consolidated income statement excluding the impact of fluctuations in exchanges rates:

• the impact of translating the income statements of consolidated entities from their non-USD functional currencies to USD; and

• the impact of exchange rate movements on the major transactions of consolidated entities performed in currencies other than their functional currency.

We calculate constant currency measures by translating the current year’s foreign currency values of the sales and earnings into USD using the average exchange rates from the prior year and comparing them to the prior year values in USD.

We use these constant currency measures in evaluating the Group’s performance, since they may assist us in evaluating our ongoing performance from year to year. However, in performing our evaluation, we also consider equivalent measures of performance which are not affected by changes in the relative value of currencies.

Growth rate calculation

For ease of understanding, Novartis uses a sign convention for its growth rates such that a reduction in operating expenses or losses compared to the prior year is shown as a positive growth.

Net debt and free cash flow

Net debt and free cash flow are non-IFRS financial measures, which means they should not be interpreted as measures determined under IFRS. Net debt is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to pay dividends, to meet financial commitments and to invest in new strategic opportunities, including strengthening its balance sheet. Free cash flow is presented as additional information because management believes it is a useful supplemental indicator of the Group’s ability to operate without reliance on additional borrowing or usage of existing cash. Free cash flow is a measure of the net cash generated that is available for debt repayment, investment in strategic opportunities and for returning to shareholders. Novartis uses free cash flow in internal comparisons of results from the Group’s divisions. Free cash flow of the divisions uses the same definition as for the Group. No tax or financial receipts or payments are included in the division calculations. The definition of free cash flow used by Novartis does not include amounts related to changes in investments in associated companies nor related to acquisitions or divestments of subsidiaries. Free cash flow is not intended to be a substitute measure for cash flow from operating activities as determined under IFRS.

CORE RESULTS – Reconciliation from IFRS results to core results – Group – Fourth quarter

		Pharmaceuticals				Alcon				Sandoz				Corporate continuing operations				Total continuing operations				Total discontinuing operations				Total
		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m		Q4 2014 USD m		Q4 2013 USD m
IFRS Operating income		1�611		2�013		365		172		290		276		85		-128		2�351		2�333		-1�179		40		1�172		2�373
Adjustment for divested blood transfusion diagnostics unit																								-95				-95
Operating income excl. Diagnostics		1�611		2�013		365		172		290		276		85		-128		2�351		2�333		-1�179		-55		1�172		2�278
Amortization of intangible assets		67		70		522		517		96		105		1				686		692				57		686		749
Impairments
Intangible assets		155		19						12								167		19		405				572		19
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites		2				-1												1				1				2
Other property, plant & equipment		-6		53						5		1		1		17				71		737		1		737		72
Financial assets		6		14						1				43		6		50		20						50		20
Total impairment charges		157		86		-1				18		1		44		23		218		110		1�143		1		1�361		111
Acquisition or divestment related items
- Income																						4				4
- Expense		26						121										26		121		196				222		121
Total acquisition or divestment related items, net		26						121										26		121		200				226		121
Other exceptional items
Exceptional divestment gains		-34		-125										-248				-282		-125						-282		-125
Restructuring items
- Income		-13		-28		-11												-24		-28		1				-23		-28
- Expense		220		85		21		41		12								253		126		2		-3		255		123
Legal-related items
- Expense				5								-10		30				30		-5						30		-5
Additional exceptional income		-59		-34		-29		-44				-4				-1		-88		-83		-81		1		-169		-82
Additional exceptional expense		2		61		28		44				5		29		39		59		149		7		2		66		151
Total other exceptional items		116		-36		9		41		12		-9		-189		38		-52		34		-71				-123		34
Total adjustments		366		120		530		679		126		97		-144		61		878		957		1�272		58		2�150		1�015
Core operating income		1�977		2�133		895		851		416		373		-59		-67		3�229		3�290		93		3		3�322		3�293
as % of net sales		25.2%		25.6%		33.1%		32.1%		16.6%		15.5%						24.7%		24.6%		6.0%		0.2%		22.7%		22.1%
Income from associated companies										1				579		155		580		155		-1		-1		579		154
Core adjustments to income from associated companies, net of tax														-370		44		-370		44						-370		44
Interest expense																		-188		-163						-188		-163
Other financial income and expense																		13		-42						13		-42
Taxes (adjusted for above items)																		-407		-418		-35		24		-442		-394
Core net income																		2�857		2�866		57		26		2�914		2�892
Core net income attributable to shareholders																		2�860		2�836		58		27		2�918		2�863
Core EPS (USD)																		1.19		1.17		0.02		0.01		1.21		1.18
�

CORE RESULTS – Reconciliation from IFRS results to core results – Group – Full year

		Pharmaceuticals				Alcon				Sandoz				Corporate continuing operations				Total continuing operations				Total discontinuing operations				Total
		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m		FY 2014 USD m		FY 2013 USD m
IFRS Operating income		8�471		9�376		1�597		1�232		1�088		1�028		-67		-653		11�089		10�983		-353		-73		10�736		10�910
Adjustment for divested blood transfusion diagnostics unit																								-239				-239
Operating income excl. Diagnostics		8�471		9�376		1�597		1�232		1�088		1�028		-67		-653		11�089		10�983		-353		-312		10�736		10�671
Amortization of intangible assets		276		278		2�064		1�989		400		409		3		4		2�743		2�680		73		220		2�816		2�900
Impairments
Intangible assets		231		29		7		57		39		20						277		106		405		8		682		114
Property, plant & equipment related to the Group-wide rationalization of manufacturing sites		23		1														23		1		-1		33		22		34
Other property, plant & equipment		-8		28		-1		4		7		-3		23		17		21		46		737				758		46
Financial assets		20		16						1				91		41		112		57				8		112		65
Total impairment charges		266		74		6		61		47		17		114		58		433		210		1�141		49		1�574		259
Acquisition or divestment related items
- Income																						-876				-876
- Expense		33						330								1		33		331		196				229		331
Total acquisition or divestment related items, net		33						330								1		33		331		-680				-647		331
Other exceptional items
Exceptional divestment gains		-237		-313										-294				-531		-313						-531		-313
Restructuring items
- Income		-56		-40		-24				-3								-83		-40		-7				-90		-40
- Expense		632		122		95		77		21		2		1				749		201		28		25		777		226
Legal-related items
- Income																						-2				-2
- Expense		125		33								85		30				155		118						155		118
Additional exceptional income		-158		-70		-29		-56				-4		-315		-75		-502		-205		-81				-583		-205
Additional exceptional expense		162		63		102		61		18		4		105		114		387		242		24		2		411		244
Total other exceptional items		468		-205		144		82		36		87		-473		39		175		3		-38		27		137		30
Total adjustments		1�043		147		2�214		2�462		483		513		-356		102		3�384		3�224		496		296		3�880		3�520
Core operating income		9�514		9�523		3�811		3�694		1�571		1�541		-423		-551		14�473		14�207		143		-16		14�616		14�191
as % of net sales		29.9%		29.6%		35.2%		35.2%		16.4%		16.8%						27.7%		27.4%		2.5%		-0.3%		25.2%		24.7%
Income from associated companies		812								4		2		1�102		597		1�918		599		2		1		1�920		600
Core adjustments to income from associated companies, net of tax		-812												-163		277		-975		277						-975		277
Interest expense																		-704		-683						-704		-683
Other financial income and expense1																		-31		-48						-31		-48
Taxes (adjusted for above items)																		-2�028		-2�057		-43		71		-2�071		-1�986
Core net income																		12�653		12�295		102		56		12�755		12�351
Core net income attributable to shareholders																		12�580		12�175		105		59		12�685		12�234
Core EPS (USD)																		5.19		4.99		0.04		0.02		5.23		5.01
1�2013 adjusted for USD 44 million devaluation loss.

CORE RESULTS – Reconciliation from IFRS results to core results – Group – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges 3		Other exceptional items 4		Q4 2014 Core results		Q4 2013 Core results excluding Diagnostics 5
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		9�504		672		254				47		10�477		10�671
Operating income		1�172		686		1�361		226		-123		3�322		3�293
Income before taxes		1�576		736		1�362		226		-544		3�356		3�286
Taxes6		-89										-442		-394
Net income		1�487										2�914		2�892
EPS (USD)7		0.62										1.21		1.18
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-5�369		672		254				47		-4�396		-4�462
The following are adjustments to arrive at Core Operating Income
Marketing & Sales		-3�676								7		-3�669		-3�913
Research & Development		-2�753		13		215				-6		-2�531		-2�601
General & Administration		-844								23		-821		-807
Other income		689				-9		4		-476		208		315
Other expense		-1�748		1		901		222		282		-342		-372
The following are adjustments to arrive at Core Income before taxes
Income from associated companies		579		50		1				-421		209		198
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms; Other expense includes amortization of intangible assets; Income from associated companies includes USD 50 million for the Novartis share of the estimated Roche core items.
2�Impairments: Cost of goods sold, Research & Development, Other income and Other expense include principally net impairment charges or reversals related to intangible assets, property, plant and equipment and financial assets; Cost of goods sold and Other expense include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business; Other expense also includes an additional impairment charge incurred in Corporate, for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.
3�Acquisition or divestment related items, including restructuring and integration charges: Other income includes an adjustment to the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes costs related to the planned acquisition of GSK oncology assets as well as professional service fees related to the portfolio transformation divestment activities.
4�Other exceptional items: Cost of goods sold includes charges for the Group-wide rationalization of manufacturing sites; Marketing & Sales, Research & Development and General & Administration include charges for transforming IT and finance processes; Other income includes manufacturing sites rationalization gains, product related divestment gains and gains in the Novartis Venture Fund, and the impact from a post-retirement medical plan amendment; Other expense also includes restructuring provision charges, charges for transforming IT, and a write-off of a receivable as a result of the proposed portfolio transformation transactions; Income from associated companies includes the gain from the divestment of the Lohmann shareholding.
5�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.
6�Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on exceptional items although this is not the case for items arising from criminal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of USD 1.8 billion to arrive at the core results before tax amounts to USD 353 million. The average tax rate on the adjustments is 19.8% due to the adjustment required in the quarter by applying the estimated full year tax charge to the year-to-date pre-tax income of the period.
7�Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

CORE RESULTS – Reconciliation from IFRS results to core results – Group – Full year

FY 2014 IFRS results

Amortization of intangible assets 1

Impairments 2

Acquisition or divestment related items, including restructuring and integration charges 3

Other exceptional items 4

FY 2014 Core results

FY 2013 Core results excluding Diagnostics 5

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

Gross profit

39�175

2�757

281

-120

42�093

41�763

Operating income

10�736

2�816

1�574

-647

137

14�616

14�191

Income before taxes

11�921

3�073

1�575

-647

-1�096

14�826

14�337

Taxes6

-1�641

-2�071

-1�986

Net income

10�280

12�755

12�351

EPS (USD)7

4.21

5.23

5.01

The following are adjustments to arrive at Core Gross Profit

Other revenues

1�280

-302

978

699

Cost of goods sold

-20�101

2�757

281

182

-16�881

-16�291

The following are adjustments to arrive at Core Operating Income

Marketing & Sales

-14�189

22

-14�167

-14�477

Research & Development

-9�943

56

298

17

-9�572

-9�613

General & Administration

-3�047

64

-2�983

-3�014

Other income

2�380

-16

-876

-902

586

799

Other expense

-3�640

3

1�011

229

1�056

-1�341

-1�267

The following are adjustments to arrive at Core Income before taxes

Income from associated companies

1�920

257

1

-1�233

945

877

1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms; Other expense includes amortization of intangible assets; Income from associated companies includes USD 257 million for the Novartis share of the estimated Roche core items.

2�Impairments: Cost of goods sold, Research & Development, Other income and Other expense consist principally of net impairment charges or reversals related to intangible assets, property, plant and equipment and financial assets; Cost of goods sold and Other expense also include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business; Other expense also includes an additional impairment charge incurred in Corporate, for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.

3�Acquisition or divestment related items, including restructuring and integration charges: Other income includes the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes costs related to the planned acquisition of GSK oncology assets as well as professional service fees related to the portfolio transformation divestment activities.

4�Other exceptional items: Other revenues includes an amount for a commercial settlement; Cost of goods sold includes charges for the Group-wide rationalization of manufacturing sites; Marketing & Sales, Research & Development and General & Administration include charges for transforming IT and finance processes; Other income includes product related divestment gains and gains in the Novartis Venture Fund, an insurance recovery net of a deferred amount, a partial reversal of a legal expense provision, a reduction in restructuring provisions, and the impact from a post-retirement medical plan amendment; Other expense includes restructuring provision charges, charges for transforming IT and finance processes, an expense related to Lucentis in Italy, the expense of USD 204 million related to the advancement of the timing of recording the US Healthcare Fee liability as a result of final regulations, and a write-off of a receivable as a result of the proposed portfolio transformation transactions; Income from associated companies includes gains from the divestment of Idenix and Lohmann shareholdings.

5�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.

6�Taxes on the adjustments between IFRS and core results take into account, for each individual item included in the adjustment, the tax rate that will finally be applicable to the item based on the jurisdiction where the adjustment will finally have a tax impact. Generally, this results in amortization and impairment of intangible assets and acquisition-related restructuring and integration items having a full tax impact. There is usually a tax impact on exceptional items although this is not the case for items arising from criminal settlements in certain jurisdictions. Adjustments related to income from associated companies are recorded net of any related tax effect. Due to these factors and the differing effective tax rates in the various jurisdictions, the tax on the total adjustments of USD 2.9 billion to arrive at the core results before tax amounts to USD 430 million. The average tax rate on the adjustments is 14.8 % since the estimated full year tax charge has been applied to the pre-tax income of the period.

7�Earnings per share (EPS) is calculated on the amount of net income attributable to shareholders of Novartis AG.

CORE RESULTS – Reconciliation from IFRS results to core results – Pharmaceuticals – Fourth quarter

Q4 2014 IFRS results

Amortization of intangible assets 1

Impairments 2

Acquisition or divestment related items, including restructuring and integration charges 3

Other exceptional items 4

Q4 2014 Core results

Q4 2013 Core results

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

Gross profit

6�383

59

-58

31

6�415

6�773

Operating income

1�611

67

157

26

116

1�977

2�133

The following are adjustments to arrive at Core Gross Profit

Cost of goods sold

-1�709

59

-58

31

-1�677

-1�712

The following are adjustments to arrive at Core Operating Income

Marketing & Sales

-2�157

2

-2�155

-2�330

Research & Development

-2�073

8

213

-16

-1�868

-1�958

Other income

215

-10

-108

97

118

Other expense

-463

12

26

207

-218

-198

1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.

2�Impairments: Cost of good sold includes partial reversal of previously impaired production assets, partly offset by the impairment of intangible assets related to a marketed product; Research & Development includes impairment charges for in process projects and termination of collaboration and license agreements; Other income relates to impairment reversals of property, plant and equipment; Other expense includes impairment charges related to property, plant and equipment and financial assets.

3�Acquisition or divestment related items, including restructuring and integration charges: Other expense includes costs related to the planned acquisition of GSK oncology assets.

4�Other exceptional items: Cost of goods sold and Research & Development include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes gains related to the rationalization of manufacturing sites, the impact from a post-retirement medical plan amendment, as well as additional gains from divestments announced in prior periods; Other expense includes mostly restructuring charges.

CORE RESULTS – Reconciliation from IFRS results to core results – Pharmaceuticals – Full year

FY 2014 IFRS results

Amortization of intangible assets 1

Impairments 2

Acquisition or divestment related items, including restructuring and integration charges 3

Other exceptional items 4

FY 2014 Core results

FY 2013 Core results

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

Gross profit

25�793

238

-58

127

26�100

26�492

Operating income

8�471

276

266

33

468

9�514

9�523

The following are adjustments to arrive at Core Gross Profit

Cost of goods sold

-6�889

238

-58

127

-6�582

-6�421

The following are adjustments to arrive at Core Operating Income

Marketing & Sales

-8�178

2

-8�176

-8�487

Research & Development

-7�331

38

289

7

-6�997

-7�161

General & Administration

-1�009

1

-1�008

-1�051

Other income

734

-13

-451

270

263

Other expense

-1�538

48

33

782

-675

-533

1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.

2�Impairments: Cost of good sold includes partial reversal of previously impaired production assets, partly offset by the impairment of intangible assets related to a marketed product; Research & Development includes impairment charges for in process projects and termination of collaboration and license agreements; Other income relates to impairment reversals of property, plant and equipment; Other expense includes impairment charges related to property, plant and equipment and financial assets.

3�Acquisition or divestment related items, including restructuring and integration charges: Other expense includes costs related to the planned acquisition of GSK oncology assets.

4�Other exceptional items: Cost of goods sold, Research & Development and Marketing & Sales include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes an insurance recovery from Corporate related to exchange risks, gains related to the rationalization of manufacturing sites, the impact from a post-retirement medical plan amendment, as well as additional gains from divestments announced in prior periods; Other expense include restructuring charges, an expense related to Lucentis in Italy and an expense of USD 157 million related to the advancement of the timing of recording the US Healthcare Fee liability as a result of final regulations.

�

CORE RESULTS – Reconciliation from IFRS results to core results – Alcon – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		1�404		517						3		1�924		1�880
Operating income		365		522		-1				9		895		851
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-1�320		517						3		-800		-792
The following are adjustments to arrive at Core Operating Income
Marketing & Sales		-641								5		-636		-648
Research & Development		-247		5						10		-232		-236
General & Administration		-162								14		-148		-142
Other income		42								-39		3		11
Other expense		-31				-1				16		-16		-14
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
2�Impairments: Other expense includes the reversal of impairment charges related to property, plant and equipment.
3�Other exceptional items: Cost of goods sold and Other expense include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Marketing & Sales and General & Administration include charges for transforming IT and finance processes; Research & Development includes a net increase of contingent consideration liabilities related to acquisitions; Other income includes the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites and the impact from a post-retirement medical plan amendment.
�
�

CORE RESULTS – Reconciliation from IFRS results to core results – Alcon – Full year

FY 2014 IFRS results

Amortization of intangible assets 1

Impairments 2

Acquisition or divestment related items, including restructuring and integration charges

Other exceptional items 3

FY 2014 Core results

FY 2013 Core results

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

USD millions

Gross profit

5�717

2�056

26

7�799

7�665

Operating income

1�597

2�064

6

144

3�811

3�694

The following are adjustments to arrive at Core Gross Profit

Cost of goods sold

-5�193

2�056

26

-3�111

-2�908

The following are adjustments to arrive at Core Operating Income

Marketing & Sales

-2�474

20

-2�454

-2�452

Research & Development

-928

8

7

10

-903

-939

General & Administration

-613

45

-568

-564

Other income

79

-1

-52

26

39

Other expense

-184

95

-89

-55

1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.

2�Impairments: Research & Development includes impairment charges for in process projects; Other income includes a reversal of impairment charges related to property, plant and equipment.

3�Other exceptional items: Cost of goods sold and Other expense include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Marketing & Sales and General & Administration include charges for transforming IT and finance processes; Research & Development includes a net increase of contingent consideration liabilities related to acquisitions; Other income includes the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites, as well as the impact from a post-retirement medical plan amendment; Other expense also includes an expense of USD 29 million related to the advancement of the timing of recording the US Healthcare Fee liability as a result of final regulations.

�

CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		1�058		96		10				5		1�169		1�119
Operating income		290		96		18				12		416		373
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-1�527		96		10				5		-1�416		-1�375
The following are adjustments to arrive at Core Operating Income
Research & Development		-217				2						-215		-208
Other expense		-55				6				7		-42		-29
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets.
2�Impairments: Cost of goods sold and Research & Development include charges related to impairment of intangible assets; Other expense includes impairment charges related to property, plant and equipment and financial assets.
3�Other exceptional items: Cost of goods sold and Other expense relates to restructuring charges.
�

CORE RESULTS – Reconciliation from IFRS results to core results – Sandoz – Full year

		FY 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges		Other exceptional items 3		FY 2014 Core results		FY 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		4�109		398		37				10		4�554		4�424
Operating income		1�088		400		47				36		1�571		1�541
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-5�751		398		37				10		-5�306		-5�047
The following are adjustments to arrive at Core Operating Income
Research & Development		-827		2		2						-823		-785
Other income		97				-1				-3		93		100
Other expense		-190				9				29		-152		-152
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets; Research & Development includes the recurring amortization of acquired rights for technology platforms.
2�Impairments: Cost of goods sold and Research & Development include charges related to impairment of intangible assets; Other income includes a reversal of impairment charges related to property, plant and equipment; Other expense includes impairment charges related to property, plant and equipment and financial assets.
3�Other exceptional items: Cost of goods sold and Other expense include net restructuring charges; Other income includes the reversal of restructuring charges; Other expense also includes an expense of USD 18 million related to the advancement of the timing of recording the US Healthcare Fee liability as a result of final regulations.
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Corporate continuing – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		93										93		110
Operating loss		85		1		44				-189		-59		-67
The following are adjustments to arrive at Core Operating Loss
General & Administration		-178								9		-169		-169
Other income		312								-248		64		104
Other expense		-142		1		44				50		-47		-112
1�Amortization of intangible assets: Other expense includes amortization of intangible assets.
2�Impairments: Other expense includes impairment charges related to property, plant and equipment and financial assets.
3�Other exceptional items: General & Administration includes expenses related to setup costs for Novartis Business Services; Other income relates to gains in the Novartis Venture Fund; Other expense includes charges for transforming IT and finance processes, as well as a provision for a legal settlement.
�
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Corporate continuing – Full year

		FY 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges		Other exceptional items 3		FY 2014 Core results		FY 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		670								-302		368		211
Operating loss		-67		3		114				-473		-423		-551
The following are adjustments to arrive at Core Gross Profit
Other revenues		540								-302		238		84
The following are adjustments to arrive at Core Operating Loss
General & Administration		-618								18		-600		-589
Other income		481								-307		174		246
Other expense		-600		3		114				118		-365		-419
1�Amortization of intangible assets: Other expense includes amortization of intangible assets.
2�Impairments: Other expense includes impairment charges related to property, plant and equipment and financial assets.
3�Other exceptional items: Other revenues includes an amount for a commercial settlement; General & Administration includes expenses related to setup costs for Novartis Business Services; Other income includes an insurance recovery transferred to Pharmaceuticals net of a deferred amount and gains in the Novartis Venture Fund; Other expense includes charges for transforming IT and finance processes, as well as a provision for a legal settlement.
�
�
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Discontinuing operations – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets		Impairments 1		Acquisition or divestment related items, including restructuring and integration charges 2		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results excluding Diagnostics 4
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		566				302				8		876		789
Operating income		-1�179				1�143		200		-71		93		3
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-1�022				302				8		-712		-779
The following are adjustments to arrive at Core Operating Income
Other income		91				1		4		-81		15		45
Other expense		-1�065				840		196		2		-27		-23
1�Impairments: Cost of goods sold and Other expense include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business; Other income includes a revision to a reversal of an impairment charge for property, plant and equipment; Other expense relates to an additional impairment charge incurred in Corporate, for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.
2�Acquisition or divestment related items, including restructuring and integration charges: Other income includes an adjustment to the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes professional service fees related to the portfolio transformation divestment activities.
3�Other exceptional items: Cost of goods sold and Other expense include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites, and the gain on the sale of a divested product, which was sold as a result of the proposed portfolio transformation transactions; Other expense includes the write-off of a receivable as a result of the proposed portfolio transformation transactions, partially offset by prior period professional service fees which have been reclassed as acquisition related items.
4�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Discontinuing operations – Full year

		FY 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges 3		Other exceptional items 4		FY 2014 Core results		FY 2013 Core results excluding Diagnostics 5
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		2�886		65		302				19		3�272		2�971
Operating income		-353		73		1�141		-680		-38		143		-16
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-3�073		65		302				19		-2�687		-2�650
The following are adjustments to arrive at Core Operating Income
Research & Development		-857		8								-849		-728
Other income		1�007				-1		-876		-89		41		163
Other expense		-1�146				840		196		32		-78		-120
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets up to the portfolio transformation annoucement date; Research & Development includes the recurring amortization of acquired rights for technology platforms up to the portfolio transformation annoucement date.
2�Impairments: Cost of goods sold and Other expense include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business; Other income includes a reduction of an impairment charge for property, plant and equipment; Other expense relates to an additional impairment charge in Corporate, for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.
3�Acquisition or divestment related items, including restructuring and integration charges: Other income includes the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes professional service fees related to the portfolio transformation divestment activities.
4�Other exceptional items: Cost of goods sold and Other expense include restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes the gain on the sale of a divested product, which was sold as a result of the proposed portfolio transformation transaction, the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites, the partial reversal of a legal expense provision, and the impact from a post-retirement medical plan amendment; Other expense also includes the write-off of a receivable as a result of the proposed portfolio transformation transactions.
5�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Vaccines – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets		Impairments 1		Acquisition or divestment related items, including restructuring and integration charges 2		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results excluding Diagnostics 4
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		-63				302				1		240		167
Operating loss		-1�084				1�071		18		-11		-6		-52
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-584				302				1		-281		-354
The following are adjustments to arrive at Core Operating Loss
Other income		10						4				14		17
Other expense		-784				769		14		-12		-13		-8
1�Impairments: Cost of goods sold and Other expense include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business.
2�Acquisition or divestment related items, including restructuring and integration charges: Other income includes an adjustment to the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes professional service fees related to the portfolio transformation divestment activities.
3�Other exceptional items: Cost of goods sold relates to restructuring charges; Other expense includes prior period professional service fees which have been reclassed as acquisition related items, as well as an adjustment to a restructuring charge.
4�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.

CORE RESULTS –�Reconciliation from IFRS results to core results – Vaccines – Full year

		FY 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges 3		Other exceptional items 4		FY 2014 Core results		FY 2013 Core results excluding Diagnostics 5
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		298		49		302				1		650		529
Operating loss		-552		57		1�071		-862		-4		-290		-302
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-1�336		49		302				1		-984		-981
The following are adjustments to arrive at Core Operating Loss
Research & Development		-545		8								-537		-423
Other income		905						-876				29		61
Other expense		-812				769		14		-5		-34		-61
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets up to the portfolio transformation announcement date; Research & Development includes the recurring amortization of acquired rights for technology platforms up to the portfolio transformation announcement date.
2�Impairments: Cost of goods sold and Other expense include the USD 1.1 billion impairment charge as a result of the proposed sale of the influenza vaccines business.
3�Acquisition or divestment related items, including restructuring and integration charges: Other income includes the gain on the disposal of the blood transfusion diagnostics unit on January 9, 2014; Other expense includes professional service fees related to the portfolio transformation divestment activities.
4�Other exceptional items: Cost of goods sold relates to restructuring charges; Other expense includes an adjustment to a restructuring charge.
5�2013 figures exclude the blood transfusion diagnostics unit which was divested on January 9, 2014.
�

CORE RESULTS –�Reconciliation from IFRS results to core results – Consumer Health – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets		Impairments 1		Acquisition or divestment related items, including restructuring and integration charges 2		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		629								7		636		622
Operating income		172				1		23		-81		115		60
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-438								7		-431		-425
The following are adjustments to arrive at Core Operating Income
Other income		83				1				-81		3		21
Other expense		-16						23		-7				-5
1�Impairments: Other income includes an adjustment to an impairment charge reversal for property, plant and equipment.
2�Acquisition or divestment related items, including restructuring and integration charges: Other expense also includes professional service fees related to the portfolio transformation divestment activities.
3�Other exceptional items: Cost of goods sold and Other expense include restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes the gain on the sale of a divested product, which was sold as a result of the proposed portfolio transformation transaction, as well as the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites; Other expense includes prior period professional service fees which have been reclassed as acquisition related items.

CORE RESULTS – Reconciliation from IFRS results to core results – Consumer Health – Full year

		FY 2014 IFRS results		Amortization of intangible assets 1		Impairments 2		Acquisition or divestment related items, including restructuring and integration charges 3		Other exceptional items 4		FY 2014 Core results		FY 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		2�588		16						18		2�622		2�442
Operating income		470		16		-1		23		-56		452		298
The following are adjustments to arrive at Core Gross Profit
Cost of goods sold		-1�737		16						18		-1�703		-1�669
The following are adjustments to arrive at Core Operating Income
Other income		99				-1				-89		9		77
Other expense		-60						23		15		-22		-23
1�Amortization of intangible assets: Cost of goods sold includes recurring amortization of acquired rights to in-market products and other production-related intangible assets up to the portfolio transformation announcement date.
2�Impairments: Other income includes a reduction of an impairment charge for property, plant and equipment.
3�Acquisition or divestment related items, including restructuring and integration charges: Other expense includes professional service fees related to the portfolio transformation divestment activities.
4�Other exceptional items: Cost of goods sold and Other expense include net restructuring charges related to the Group-wide rationalization of manufacturing sites; Other income includes the gain on the sale of a divested product, which was sold as a result of the proposed portfolio transformation transaction, the reversal of restructuring charges related to the Group-wide rationalization of manufacturing sites, the partial reversal of a legal expense provision, and the impact from a post-retirement medical plan amendment.

CORE RESULTS –�Reconciliation from IFRS results to core results – Corporate discontinuing – Fourth quarter

		Q4 2014 IFRS results		Amortization of intangible assets		Impairments 1		Acquisition or divestment related items, including restructuring and integration charges 2		Other exceptional items 3		Q4 2014 Core results		Q4 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		0										0		0
Operating loss		-267				71		159		21		-16		-5
The following are adjustments to arrive at Core Operating Loss
Other expense		-265				71		159		21		-14		-10
�
1�Impairments: Other expense relates to an impairment charge incurred for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.
2�Acquisition or divestment related items, including restructuring and integration charges: Other expense includes professional service fees related to the portfolio transformation divestment activities.
3�Other exceptional items: Other expense relates to a write-off of a receivable as a result of the proposed portfolio transformation transactions.

CORE RESULTS –�Reconciliation from IFRS results to core results – Corporate discontinuing – Full year

		FY 2014 IFRS results		Amortization of intangible assets		Impairments 1		Acquisition or divestment related items, including restructuring and integration charges 2		Other exceptional items 3		FY 2014 Core results		FY 2013 Core results
		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions		USD millions
Gross profit		0										0		0
Operating loss		-271				71		159		22		-19		-12
The following are adjustments to arrive at Core Operating Loss
Other expense		-274				71		159		22		-22		-36
�
1�Impairments: Other expense relates to an impairment charge incurred for an in-process project which is pending divestment as a result of the proposed portfolio transformation transactions.
2�Acquisition or divestment related items, including restructuring and integration charges: Other expense includes professional service fees related to the portfolio transformation divestment activities.
3�Other exceptional items: Other expense relates to a write-off of a receivable as a result of the proposed portfolio transformation transactions.

Condensed consolidated changes in net debt�

Fourth quarter

		Q4 2014 USD m		Q4 2013 USD m
Change in cash and cash equivalents		3�382		324
Change in marketable securities, commodities, financial debt and financial derivatives		-751		2�316
Reduction in net debt		2�631		2�640
Net debt at October 1		-9�180		-11�436
Net debt at December 31		-6�549		-8�796

Full year

		FY 2014 USD m		FY 2013 USD m
Change in cash and cash equivalents		6�336		1�135
Change in marketable securities, commodities, financial debt and financial derivatives		-4�089		1�676
Reduction in net debt		2�247		2�811
Net debt at January 1		-8�796		-11�607
Net debt at December 31		-6�549		-8�796

Components of net debt

		Dec 31, 2014 USD m		Dec 31, 2013 USD m
Current financial debts and derivative financial instruments		-6�612		-6�776
Non-current financial debts		-13�799		-11�242
Less liquidity:
Cash and cash equivalents		13�023		6�687
Marketable securities, commodities and derivative financial instruments		839		2�535
Net debt at December 31		-6�549		-8�796

Share information

		Dec 31, 2014		Dec 31, 2013
Number of shares outstanding		2�398�626�257		2�426�084�308
Registered share price (CHF)		92.35		71.20
ADR price (USD)		92.66		80.38
Market capitalization (USD billion)		223.7		194.2
Market capitalization (CHF billion)		221.5		172.7

Free cash flow

Fourth quarter

		Q4 2014 USD m		Q4 2013 USD m		Change USD m
Operating income from continuing operations		2�351		2�333		18
Reversal of non-cash items
Depreciation, amortization and impairments		1�291		1�211		80
Change in provisions and other non-current liabilities		316		204		112
Other		-118		-6		-112
Operating income adjusted for non-cash items		3�840		3�742		98
Interest and other financial receipts		394		-65		459
Interest and other financial payments		-168		-90		-78
Taxes paid		-559		-509		-50
Payments out of provisions and other net cash movements in non-current liabilities		-251		-302		51
Change in inventory and trade receivables less trade payables		1�422		1�332		90
Change in other net current assets and other operating cash flow items		45		-146		191
Cash flows from operating activities from continuing operations		4�723		3�962		761
Purchase of property, plant & equipment		-830		-1�048		218
Purchase of intangible, financial and other non-current assets		-304		-218		-86
Proceeds from sales of property, plant & equipment, intangible, financial and other non-current assets		366		179		187
Free cash flow from continuing operations		3�955		2�875		1�080
Free cash flow from discontinuing operations		464		444		20
Total free cash flow		4�419		3�319		1�100

Full year

		FY 2014 USD m		FY 2013 USD m		Change USD m
Operating income from continuing operations		11�089		10�983		106
Reversal of non-cash items
Depreciation, amortization and impairments		4�751		4�462		289
Change in provisions and other non-current liabilities		1�490		736		754
Other		122		307		-185
Operating income adjusted for non-cash items		17�452		16�488		964
Interest and other financial receipts		1�067		539		528
Interest and other financial payments		-692		-631		-61
Taxes paid		-2�179		-2�054		-125
Payments out of provisions and other net cash movements in non-current liabilities		-1�125		-947		-178
Change in inventory and trade receivables less trade payables		-731		-588		-143
Change in other net current assets and other operating cash flow items		106		-190		296
Cash flows from operating activities from continuing operations		13�898		12�617		1�281
Purchase of property, plant & equipment		-2�624		-2�903		279
Purchase of intangible, financial and other non-current assets		-1�079		-665		-414
Proceeds from sales of property, plant & equipment, intangible, financial and other non-current assets		739		472		267
Free cash flow from continuing operations		10�934		9�521		1�413
Free cash flow from discontinuing operations		-172		424		-596
Total free cash flow		10�762		9�945		817

Supplementary tables: Fourth quarter– Net sales of the top 20 pharmaceutical products in 2014

						US				Rest of world				Total
Brands		Business Franchise		Indication		USD m		% change in constant currencies		USD m		% change in constant currencies		USD m		% change in USD		% change in constant currencies
Gleevec/Glivec		Oncology		Chronic myeloid leukemia		624		12		613		-1		1�237		1		5
Gilenya		Neuroscience		Relapsing multiple sclerosis		325		29		341		36		666		26		32
Lucentis		Ophthalmics		Age-related macular degeneration						588		1		588		-7		1
Diovan/Co–Diovan		Primary Care		Hypertension		83		-78		296		-31		379		-55		-53
Sandostatin		Oncology		Acromegaly		198		7		218		3		416				5
Afinitor/Votubia		Oncology		Breast cancer		224		24		202		23		426		18		24
Tasigna		Oncology		Chronic myeloid leukemia		152		32		276		29		428		22		30
Exforge		Primary Care		Hypertension		20		-77		278		6		298		-20		-14
Galvus		Primary Care		Diabetes						295		-1		295		-10		-1
Exelon/Exelon Patch		Neuroscience		Alzheimer's disease		120		12		120		-9		240		-4		0
Exjade		Oncology		Iron chelator		81		14		162		2		243		0		5
Xolair1		Primary Care		Asthma						200		25		200		16		25
Neoral/Sandimmun		Integrated Hospital Care		Transplantation		14		8		150		-10		164		-16		-9
Voltaren (excl. other divisions)		Established medicines		Inflammation/pain						172		4		172		-2		4
Myfortic		Integrated Hospital Care		Transplantation		34		-55		97		32		131		-18		-10
Ritalin/Focalin		Established medicines		Attention deficit/ hyperactivity disorder		86		-27		42		9		128		-20		-18
Femara		Oncology		Breast cancer		9		80		89		3		98		-2		6
Comtan/Stalevo		Neuroscience		Parkinson’s disease		2		-78		87		2		89		-14		-5
Tegretol		Established medicines		Epilepsy		19		6		67		2		86		-4		2
Zortress/Certican		Integrated Hospital Care		Transplantation		18		80		67		40		85		35		45
Top 20 products total						2�009		-8		4�360		4		6�369		-6		0
Rest of portfolio						365		-5		1�126		3		1�491		-4		1
Total Division sales						2�374		-8		5�486		3		7�860		-6		0
�
1�Net sales reflect Xolair sales for all indications (i.e. Xolair SAA and Xolair CSU, which are managed by the Integrated Hospital Care franchise).

Supplementary tables: Full year – Net sales of the top 20 pharmaceutical products in 2014

						US				Rest of world				Total
Brands		Business Franchise		Indication		USD m		% change in constant currencies		USD m		% change in constant currencies		USD m		% change in USD		% change in constant currencies
Gleevec/Glivec		Oncology		Chronic myeloid leukemia		2�170		12		2�576		-5		4�746		1		2
Gilenya		Neuroscience		Relapsing multiple sclerosis		1�190		16		1�287		45		2�477		28		30
Lucentis		Ophthalmics		Age-related macular degeneration						2�441		5		2�441		2		5
Diovan/Co–Diovan		Primary Care		Hypertension		960		-43		1�385		-22		2�345		-33		-32
Sandostatin		Oncology		Acromegaly		751		6		899		6		1�650		4		6
Afinitor/Votubia		Oncology		Breast cancer		805		16		770		29		1�575		20		22
Tasigna		Oncology		Chronic myeloid leukemia		540		26		989		23		1�529		21		24
Exforge		Primary Care		Hypertension		284		-20		1�112		4		1�396		-4		-2
Galvus		Primary Care		Diabetes						1�224		6		1�224		2		6
Exelon/Exelon Patch		Neuroscience		Alzheimer's disease		485		6		524		-6		1�009		-2		-1
Exjade		Oncology		Iron chelator		307		16		619		1		926		4		6
Xolair1		Primary Care		Asthma						777		30		777		27		30
Neoral/Sandimmun		Integrated Hospital Care		Transplantation		55		-2		629		-6		684		-9		-6
Voltaren (excl. other divisions)		Established medicines		Inflammation/pain						632		-3		632		-6		-3
Myfortic		Integrated Hospital Care		Transplantation		149		-45		394		14		543		-15		-11
Ritalin/Focalin		Established medicines		Attention deficit/ hyperactivity disorder		327		-25		165		8		492		-17		-16
Femara		Oncology		Breast cancer		27		42		353		0		380		-1		2
Comtan/Stalevo		Neuroscience		Parkinson’s disease		19		-42		352		-1		371		-7		-4
Tegretol		Established medicines		Epilepsy		82		19		264		1		346		1		4
Zortress/Certican		Integrated Hospital Care		Transplantation		60		88		267		28		327		31		36
Top 20 products total						8�211		-3		17�659		4		25�870		0		2
Rest of portfolio						1�561		-13		4�360		0		5�921		-6		-4
Total Division sales						9�772		-5		22�019		3		31�791		-1		1
�
1�Net sales reflect Xolair sales for all indications (i.e. Xolair SAA and Xolair CSU, which are managed by the Integrated Hospital Care franchise).

Pharmaceuticals net sales by business franchise – Fourth quarter

		Q4 2014 USD m		Q4 2013 USD m		% change USD		% change cc
Primary Care
Onbrez Breezhaler/Arcapta Neohaler		56		53		6		15
Seebri Breezhaler		42		25		68		88
Ultibro Breezhaler		51		6		nm		nm
Subtotal COPD1 portfolio		149		84		77		94
Galvus		295		328		-10		-1
Xolair2		200		173		16		25
TOBI		65		88		-26		-23
Other		8		10		-20		2
Total strategic franchise products		717		683		5		14
Diovan		379		843		-55		-53
Exforge		298		372		-20		-14
Tekturna/Rasilez		47		59		-20		-15
Other		274		352		-22		-16
Total Established medicines		998		1�626		-39		-34
Total Primary Care products		1�715		2�309		-26		-20
Oncology
Gleevec/Glivec		1�237		1�227		1		5
Tasigna		428		352		22		30
Subtotal Bcr-Abl franchise		1�665		1�579		5		10
Sandostatin		416		416		0		5
Afinitor/Votubia		426		361		18		24
Exjade		243		244		0		5
Femara		98		100		-2		6
Jakavi		84		47		79		91
Zometa		57		94		-39		-34
Proleukin		15		26		-42		-42
Zykadia		12		0		nm		nm
Other		66		60		10		11
Total Oncology products		3�082		2�927		5		10
Specialty - Neuroscience
Gilenya		666		527		26		32
Exelon/Exelon Patch		240		250		-4		0
Comtan/Stalevo		89		103		-14		-5
Extavia		43		37		16		20
Other		16		21		-24		-24
Total strategic franchise products		1�054		938		12		18
Established medicines		100		112		-11		-2
Total Neuroscience products		1�154		1�050		10		16
Specialty - Ophthalmics
Lucentis		588		630		-7		1
Other		13		14		-7		-4
Total Opthalmics products		601		644		-7		1
Specialty - Integrated Hospital Care (IHC)
Neoral/Sandimmun		164		195		-16		-9
Myfortic		131		159		-18		-10
Zortress/Certican		85		63		35		45
Ilaris		54		37		46		54
Other		45		43		5		9
Total strategic franchise products		479		497		-4		4
Everolimus stent drug		62		46		35		46
Established medicines		224		259		-14		-9
Total IHC products		765		802		-5		2
Established medicines - additional products
Voltaren (excl. other divisions)		172		176		-2		4
Ritalin/Focalin		128		161		-20		-18
Tegretol		86		90		-4		2
Trileptal		59		69		-14		-10
Foradil		43		55		-22		-12
Other		55		40		38		39
Total additional products		543		591		-8		-3
Total strategic franchise products		5�933		5�689		4		11
Total established medicines and additional products		1�927		2�634		-27		-22
Total Division net sales		7�860		8�323		-6		0
1�Chronic Obstructive Pulmonary Disease
2�Net sales reflect Xolair sales for all indications (i.e. Xolair SAA and Xolair CSU, which are managed by the Integrated Hospital Care franchise).
nm = not meaningful

Pharmaceuticals net sales by business franchise – Full year

		FY 2014 USD m		FY 2013 USD m		% change USD		% change cc
Primary Care
Onbrez Breezhaler/Arcapta Neohaler		220		192		15		17
Seebri Breezhaler		146		58		152		159
Ultibro Breezhaler		118		6		nm		nm
Subtotal COPD1 portfolio		484		256		89		93
Galvus		1�224		1�200		2		6
Xolair2		777		613		27		30
TOBI		281		387		-27		-26
Other		46		40		15		20
Total strategic franchise products		2�812		2�496		13		16
Diovan		2�345		3�524		-33		-32
Exforge		1�396		1�456		-4		-2
Tekturna/Rasilez		207		290		-29		-27
Other		1�201		1�312		-8		-6
Total Established medicines		5�149		6�582		-22		-20
Total Primary Care products		7�961		9�078		-12		-10
Oncology
Gleevec/Glivec		4�746		4�693		1		2
Tasigna		1�529		1�266		21		24
Subtotal Bcr-Abl franchise		6�275		5�959		5		7
Sandostatin		1�650		1�589		4		6
Afinitor/Votubia		1�575		1�309		20		22
Exjade		926		893		4		6
Femara		380		384		-1		2
Jakavi		279		163		71		72
Zometa		264		600		-56		-55
Proleukin		74		91		-19		-19
Zykadia		31		0		nm		nm
Other		249		228		9		10
Total Oncology products		11�703		11�216		4		6
Specialty - Neuroscience
Gilenya		2�477		1�934		28		30
Exelon/Exelon Patch		1�009		1�032		-2		-1
Comtan/Stalevo		371		401		-7		-4
Extavia		177		159		11		11
Other		66		78		-15		-15
Total strategic franchise products		4�100		3�604		14		15
Established medicines		409		444		-8		-3
Total Neuroscience products		4�509		4�048		11		13
Specialty - Ophthalmics
Lucentis		2�441		2�383		2		5
Other		63		61		3		5
Total Opthalmics products		2�504		2�444		2		5
Specialty - Integrated Hospital Care (IHC)
Neoral/Sandimmun		684		750		-9		-6
Myfortic		543		637		-15		-11
Zortress/Certican		327		249		31		36
Ilaris		199		119		67		69
Other		173		169		2		4
Total strategic franchise products		1�926		1�924		0		3
Everolimus stent drug		205		247		-17		-18
Established medicines		981		1�112		-12		-10
Total IHC products		3�112		3�283		-5		-3
Established medicines - additional products
Voltaren (excl. other divisions)		632		675		-6		-3
Ritalin/Focalin		492		594		-17		-16
Tegretol		346		342		1		4
Trileptal		265		257		3		6
Foradil		175		205		-15		-10
Other		92		72		28		29
Total additional products		2�002		2�145		-7		-4
Total strategic franchise products		23�045		21�684		6		8
Total established medicines and additional products		8�746		10�530		-17		-15
Total Division net sales		31�791		32�214		-1		1
1�Chronic Obstructive Pulmonary Disease
2�Net sales reflect Xolair sales for all indications (i.e. Xolair SAA and Xolair CSU, which are managed by the Integrated Hospital Care franchise).
nm = not meaningful

Net sales by region¹ – Fourth quarter

		Q4 2014		Q4 2013		% change				Q4 2014		Q4 2013
		USD m		USD m		USD		cc		% of total		% of total
Pharmaceuticals
Europe		2�733		2�847		-4		5		35		34
US		2�374		2�572		-8		-8		30		31
Asia/Africa/Australasia		1�880		2�105		-11		-5		24		25
Canada and Latin America		873		799		9		19		11		10
Total		7�860		8�323		-6		0		100		100
Of which in Established Markets		5�687		6�256		-9		-4		72		75
Of which in Emerging Growth Markets		2�173		2�067		5		13		28		25
Alcon
Europe		695		749		-7		4		26		28
US		1�108		1�028		8		8		41		39
Asia/Africa/Australasia		610		597		2		9		23		22
Canada and Latin America		290		281		3		12		10		11
Total		2�703		2�655		2		7		100		100
Of which in Established Markets		1�995		1�994		0		4		74		75
Of which in Emerging Growth Markets		708		661		7		17		26		25
Sandoz
Europe		1�111		1�207		-8		3		44		50
US		935		737		27		27		37		31
Asia/Africa/Australasia		308		316		-3		2		12		13
Canada and Latin America		158		151		5		16		7		6
Total		2�512		2�411		4		11		100		100
Of which in Established Markets		1�877		1�735		8		13		75		72
Of which in Emerging Growth Markets		635		676		-6		6		25		28
Continuing operations
Europe		4�539		4�803		-5		4		35		36
US		4�417		4�337		2		2		34		32
Asia/Africa/Australasia		2�798		3�018		-7		-1		21		23
Canada and Latin America		1�321		1�231		7		17		10		9
Total		13�075		13�389		-2		3		100		100
Of which in Established Markets		9�559		9�985		-4		0		73		75
Of which in Emerging Growth Markets		3�516		3�404		3		12		27		25
Vaccines2
Europe		198		165		20		29		40		33
US		128		171		-25		-25		26		34
Asia/Africa/Australasia		81		95		-15		-12		16		19
Canada and Latin America		87		73		19		39		18		14
Total		494		504		-2		4		100		100
Of which in Established Markets		340		352		-3		2		69		70
Of which in Emerging Growth Markets		154		152		1		10		31		30
Consumer Health
Europe		465		506		-8		4		44		49
US		247		210		18		18		23		20
Asia/Africa/Australasia		224		202		11		16		21		20
Canada and Latin America		128		116		10		17		12		11
Total		1�064		1�034		3		11		100		100
Of which in Established Markets		682		663		3		8		64		64
Of which in Emerging Growth Markets		382		371		3		15		36		36
Total
Europe		5�202		5�474		-5		5		36		37
US		4�792		4�718		2		2		33		32
Asia/Africa/Australasia		3�103		3�315		-6		-1		21		22
Canada and Latin America		1�536		1�420		8		18		10		9
Total (excluding divested blood transfusion diagnostics unit sales)		14�633		14�927		-2		4		100		100
Of which in Established Markets		10�581		11�000		-4		1		72		74
Of which in Emerging Growth Markets		4�052		3�927		3		12		28		26
Divested blood transfusion diagnostics unit sales				152
Total Group		14�633		15�079		-3		3
1�Net sales from operations by location of third party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
2�2013 figures for Vaccines exclude the blood transfusion diagnostics unit that was divested on January 9, 2014.

Net sales by region¹ – Full year

		FY 2014		FY 2013 2		% change				FY 2014		FY 2013
		USD m		USD m		USD		cc		% of total		% of total
Pharmaceuticals
Europe		11�245		10�993		2		3		35		34
US		9�772		10�256		-5		-5		31		32
Asia/Africa/Australasia		7�655		7�947		-4		0		24		25
Canada and Latin America		3�119		3�018		3		13		10		9
Total		31�791		32�214		-1		1		100		100
Of which in Established Markets		23�653		24�493		-3		-2		74		76
Of which in Emerging Growth Markets		8�138		7�721		5		11		26		24
Alcon
Europe		2�872		2�831		1		4		27		27
US		4�349		4�179		4		4		40		40
Asia/Africa/Australasia		2�449		2�378		3		8		23		23
Canada and Latin America		1�157		1�108		4		12		10		10
Total		10�827		10�496		3		6		100		100
Of which in Established Markets		8�049		7�918		2		3		74		75
Of which in Emerging Growth Markets		2�778		2�578		8		14		26		25
Sandoz
Europe		4�573		4�596		-1		2		48		50
US		3�215		2�821		14		14		34		31
Asia/Africa/Australasia		1�168		1�139		3		6		12		12
Canada and Latin America		606		603		0		8		6		7
Total		9�562		9�159		4		7		100		100
Of which in Established Markets		7�035		6�625		6		7		74		72
Of which in Emerging Growth Markets		2�527		2�534		0		6		26		28
Continuing operations
Europe		18�690		18�420		1		3		36		36
US		17�336		17�256		0		0		33		33
Asia/Africa/Australasia		11�272		11�464		-2		2		22		22
Canada and Latin America		4�882		4�729		3		12		9		9
Total		52�180		51�869		1		3		100		100
Of which in Established Markets		38�737		39�036		-1		0		74		75
Of which in Emerging Growth Markets		13�443		12�833		5		10		26		25
Vaccines2
Europe		549		484		13		15		36		34
US		516		521		-1		-1		34		37
Asia/Africa/Australasia		248		242		2		3		16		17
Canada and Latin America		224		176		27		42		14		12
Total		1�537		1�423		8		10		100		100
Of which in Established Markets		1�112		1�035		7		8		72		73
Of which in Emerging Growth Markets		425		388		10		15		28		27
Consumer Health
Europe		2�059		2�004		3		6		48		49
US		940		847		11		11		22		21
Asia/Africa/Australasia		834		793		5		8		19		20
Canada and Latin America		446		420		6		14		11		10
Total		4�279		4�064		5		8		100		100
Of which in Established Markets		2�798		2�636		6		7		65		65
Of which in Emerging Growth Markets		1�481		1�428		4		11		35		35
Total
Europe		21�298		20�908		2		3		37		36
US		18�792		18�624		1		1		32		32
Asia/Africa/Australasia		12�354		12�499		-1		3		21		22
Canada and Latin America		5�552		5�325		4		13		10		10
Total (excluding divested blood transfusion diagnostics unit sales)		57�996		57�356		1		3		100		100
Of which in Established Markets		42�647		42�707		0		1		74		74
Of which in Emerging Growth Markets		15�349		14�649		5		11		26		26
Divested blood transfusion diagnostics unit sales				565
Total Group		57�996		57�921		0		2
1�Net sales from operations by location of third party customer. Emerging Growth Markets comprise all markets other than the Established Markets of the US, Canada, Western Europe, Japan, Australia and New Zealand.
2�2013 figures for Vaccines exclude the blood transfusion diagnostics unit that was divested on January 9, 2014.

Principal currency translation rates

Fourth quarter

		Average rates Q4 2014 USD		Average rates Q4 2013 USD		Period-end rates Dec 31, 2014 USD		Period-end rates Dec 31, 2013 USD
1 CHF		1.037		1.107		1.010		1.124
1 EUR		1.249		1.361		1.215		1.378
1 GBP		1.583		1.619		1.556		1.653
100 JPY		0.875		0.997		0.836		0.952
100 RUB		2.125		3.071		1.722		3.044

Full year

		Average rates FY 2014 USD		Average rates FY 2013 USD		Period-end rates Dec 31, 2014 USD		Period-end rates Dec 31, 2013 USD
1 CHF		1.094		1.079		1.010		1.124
1 EUR		1.329		1.328		1.215		1.378
1 GBP		1.648		1.564		1.556		1.653
100 JPY		0.947		1.026		0.836		0.952
100 RUB		2.649		3.142		1.722		3.044

Income from associated companies

		Q4 2014 USD m		Q4 2013 USD m		FY 2014 USD m		FY 2013 USD m
Share of estimated Roche reported net income		191		207		813		817
Prior-year adjustment						-56		-59
Amortization of additional intangible assets recognized by Novartis on initial accounting for the equity interest		-38		-39		-158		-154
Net income effect from Roche		153		168		599		604
LTS Lohmann Therapie-Systeme AG		421		7		436		31
Idenix Pharmaceuticals Inc.						812
Income from other associated companies related to continuing operations		6		-20		71		-36
Income from associated companies related to continuing operations		580		155		1�918		599
Income from other associated companies related to discontinuing operations		-1		-1		2		1
Total income from associated companies		579		154		1�920		600
�

Vaccines segment – 2013 comparative information

The following reconciles previously published results for the Vaccines segment to the revised presentation:

Vaccines – Fourth quarter and full year 2013

		Vaccines as previously published 1				Transfers to continuing Corporate 2				Reported Vaccines				Divested blood transfusion diagnostics unit				Vaccines excluding Diagnostics				Core adjustments				Vaccines Core result excluding Diagnostics
		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m		Q4 2013 USD m		FY 2013 USD m
Net sales to third parties		655		1�987						655		1�987		-152		-565		503		1�422						503		1�422
Sales to other segment		11		61						11		61		-2		-10		9		51						9		51
Net sales of segment		666		2�048						666		2�048		-154		-575		512		1�473						512		1�473
Other revenues		135		333		-48		-84		87		249		-78		-212		9		37						9		37
Cost of goods sold		-511		-1�578		4		7		-507		-1�571		115		447		-392		-1�124		38		143		-354		-981
Gross profit		290		803		-44		-77		246		726		-117		-340		129		386		38		143		167		529
Marketing & Sales		-91		-334						-91		-334		14		45		-77		-289						-77		-289
Research & Development		-132		-476						-132		-476		6		29		-126		-447		6		24		-120		-423
General & Administration		-38		-140						-38		-140		7		21		-31		-119						-31		-119
Other income		24		70						24		70		-7		-9		17		61						17		61
Other expense		-11		-88		1		4		-10		-84		2		15		-8		-69				8		-8		-61
Operating income/loss		42		-165		-43		-73		-1		-238		-95		-239		-96		-477		44		175		-52		-302
as % of net sales		6.4%		-8.3%						-0.2%		-12.0%		62.5%		42.3%		-19.1%		-33.5%						-10.3%		-21.2%
Income from associated companies		-1		1						-1		1						-1		1						-1		1
1�Including the divested blood transfusion diagnostics unit.
2�Other revenue contains royalties and out-licensing revenues of Vaccines which are to be retained by Novartis.