Novartis has leapt to the defence of the Swiss National Bank for removing the cap on the Swiss franc against the euro and vowed to cut costs to cushion investors from the impact of a stronger local currency.
Switzerland’s central bank shocked markets this month by abandoning its three year-old peg to the euro in a move that sent the franc soaring.
Novartis, the biggest Swiss pharmaceuticals group by sales and market capitalisation, said on Tuesday that currency headwinds would wipe about 12 per cent from operating profits this year.
But Joseph Jimenez, chief executive, said the central bank had “no choice” but to act. “If you look at where the euro was heading, it was going to drag the Swiss franc down to unsustainable levels,” he told the Financial Times.
Mr Jimenez predicted a period of sustained weakness in the euro against the dollar and the franc in response to the €1tn bond-buying programme launched by the European Central Bank last week to revitalise the eurozone economy.
He said Novartis would try to mitigate currency pressures through efficiency measures in Switzerland, which accounts for 13 per cent of total costs, and the stepping up of a global cost-cutting programme launched last year.
Foreign exchange fluctuations would not derail improved growth and margins in the underlying business, Mr Jimenez insisted, as he announced forecast-beating fourth-quarter results and issued a bullish outlook for the year ahead.
“We’re carrying great momentum into 2015,” he said, predicting that, adjusted for currency movements, sales would rise by mid-single digits and operating profits by high-single digits this year.
Growth would be driven by product launches and restructuring after a $20bn asset swap agreed with GlaxoSmithKline last April aimed at strengthening core businesses and offloading non-core assets.
Under the deal, due to be completed in the first half of this year, Novartis will trade its vaccines division for the UK group’s cancer assets, while the pair will form a joint-venture in consumer healthcare.
Mr Jimenez said further “bolt-on” acquisitions worth $2bn-$5bn were possible to bolster the three business areas where Novartis will focus after its overhaul: pharmaceuticals, generic drugs and eyecare.
Much of this year’s forecast growth will come from a new treatment for the skin condition psoriasis which was approved by US and European regulators last week, and another for heart disease that is awaiting a green light.
Mr Jimenez said both had the potential for multibillion-dollar annual sales, replenishing a product portfolio that is already among the best-stocked in the industry with a third of revenues from products launched in the past five years.
Excluding currency factors, revenues rose 4 per cent to $14.6bn in the fourth quarter, while core net profits were up 9 per cent at $2.9bn, or $1.21 a share. This beat analysts’ consensus forecast for $1.19 a share.
Jeffrey Holford, analyst at Jefferies, said that, while the results were solid, 2015 guidance was “light” because of currency headwinds. Shares in Novartis were up 1.5 per cent at SFr88.35 in mid-afternoon trading.