|March 01, 2005|
The 2004 consolidated financial statements are presented in appendix 3.The date of first-time consolidation of Aventis in the sanofi-aventis financial statements is August 20, 2004. In 2004, sanofi-aventis made a consolidated net loss of 3,610 million euros, compared with net income of 2,076 million euros in 2003. 2004 consolidated income includes Aventis figures for only 4 months and 10 days and is impacted by the application of fair value acquisition accounting to the deal and by restructuring costs, for a total amount of 7,175 million euros, of which 5,046 millions euros for purchased In-Process Aventis R&D charges.
To give a better representation of the business performance of the Group, it has been decided to publish and explain adjusted proforma statements of income for 2004 and 2003, which exclude material impacts arising from the accounting treatment of the transaction as well as restructuring charges.
YEAR ENDED DECEMBER 31, 2003:
Barring major adverse events, sanofi-aventis expects:
The main event of 2004 was the acquisition of Aventis by Sanofi-Synthélabo, which became sanofi-aventis on August 20, 2004.
As a result, financial data for the sanofi-aventis Group for the year ended December 31, 2004 are not directly comparable with published historical data. In order to give a better representation of our business performance, we have decided to publish and explain our financial data in the form of proforma (unaudited) financial statements.
We also believe that the concept of "adjusted net income" (unaudited) will give investors a better understanding of the operational performance of the new entity.
The terms "proforma statement of income" and "adjusted net income" are defined in Appendix 1. An adjusted proforma statement of income is provided in Appendix 2. The reconciliations of the proforma statement of income to the adjusted proforma statement of income, are provided in Appendices 4.
|Comments on adjusted proforma statement of income (unaudited)|
In 2004, sanofi-aventis generated net sales of 25,418 million euros, an increase of 10.0% on a comparable basis(2). Currency fluctuations had an unfavorable impact of 4.1 points, more than two-thirds of which was due to the fall in the US dollar. Changes in Group structure (comprising products divested by Aventis in 2003 and the first half of 2004) had an unfavorable impact of 1.3 point. After taking these items into account, net sales growth came to 4.6%.
Gross profit came to 19,376 million euros, 4.7% higher than in 2003. Gross margin ratio to sales was stable at 76.2%. The higher burden of pharmaceutical contributions in Europe was offset by increased net royalty income on Plavix® and Avapro® and a favorable product mix.
Research and development expenses were 2.6% lower than in 2003 at 3,961 million euros, representing 15.6% of net sales. The main reason was the lower level of milestone payments in 2004 (in 2003, milestone payments were made to Proskelia, Immunogen, Regeneron, etc).
Selling and general expenses amounted to 7,678 million euros, 2.2% higher than in 2003. This limited growth reflects the sharp cut back in recruitment implemented by both groups as soon as the deal was announced in early 2004.
Other operating income and expense, which comprises transfers of profits in respect of joint operations with Bristol-Myers Squibb, our share of profits from the Actonel alliance with Procter & Gamble, and our share of profits generated by our other alliances, represented net income of 426 million euros, compared with 324 million euros in 2003.
As regards the alliance with Bristol-Myers Squibb, our share of profits generated by Plavix® and Avapro® in North America, the territory managed by Bristol-Myers Squibb, amounted to 581 million euros (against 436 million euros in 2003). Conversely, profits passed on to Bristol-Myers Squibb in respect of the territory managed by sanofi-aventis came to 257 million euros, compared to 173 million euros in 2003.
Operating profit, including the 220 million synergies achieved in 2004, amounted to 8,163 million euros, 12.5% higher than in 2003. Operating margin advanced by 2.2 points to 32.1%.
Net financial expense was 599 million euros, compared with 633 million euros in 2003 (note that the acquisition debt is positioned on January 1, 2003, in accordance with the principles of the proforma financial statements). This improvement was mainly due to a reduction in the level of debt as a result of cash flow generated in the year and to lower interest rates, partly offset by the write-down to market value of investments in companies such as Rhodia, Genta and Millenium (total write-down of 76 million euros, against 2 million euros in 2003).
Exceptional items showed a net gain of 29 million euros in 2004, against a net loss of 41 million euros in 2003. The 2004 figure includes 420 million euros of gains on disposals (2003: 428 million euros), Aventis bid defense costs of 156 million euros, the cost of restructuring programs initiated by Aventis prior to the acquisition (140 million euros, versus 218 million euros in 2003), and costs relating to divested activities of 63 million euros (221 million euros in 2003).
Income taxes were 2,355 million euros, compared with 1,813 millions in 2003. The effective tax rate was 31.5% in 2004, compared with 28.1% in 2003, when the rate reflected the impact of favorable exceptional items in Aventis accounts.
The contribution from equity investees represented net income of 176 million euros, against a net loss of 151 million euros in 2003.
In 2004, this line mainly comprised the Group’s share in the profits of joint ventures with Merck & Co in vaccines in Europe (Sanofi Pasteur MSD) and in animal health (Merial), and of Wacker (chemicals) and Yves Rocher.
The negative contribution from equity investees in 2003 was due partly to the losses of Rhodia (equity-accounted until May 2, 2003), and partly to losses associated with Dystar (investment sold in 2004) and Wacker.
Net income came to 5,247 million, 17.9% higher than in 2003.
Earnings per share (EPS) was 3.89 euros, 18.2% up on the 2003 figure (3.29 euros), based on a total of 1,347,480,482 shares in 2004 (1,352,146,319 in 2003).
At end December 2004, the Group had net debt of 14.2 billion euros, compared with 2.4 billion euros at end 2003 (2003 position calculated on the basis of the consolidated balance sheet of each of the two groups, after including quasi-equity instruments in debt, and after excluding treasury shares held for the purpose of stock option plans and listed equity investments from liquid assets). The Group’s net debt at end 2004 includes the impact of the cash outflow of 15.9 billion euros(3) for the cash portion of the offer for Aventis. The net debt to equity ratio stood at 39.8% at December 31, 2004.
The Group confirms that it expects to repay the acquisition debt within 5 years from the closing of the deal.
The Board of Directors, at its meeting of February 28, 2005, decided to request a General Meeting of Shareholders to be held on May 31, 2005 to approve a dividend of 1.20 euros per share, an increase of 17.6% on the 2003 dividend of 1.02 euros. Based on adjusted proforma earnings per share, this represents a payout of 30.8%.
The dividend will be paid on June 7, 2005.
The integration process is progressing more rapidly than initially expected. The commitment of the Group’s employees to the project has been the key factor in this success.
The decision has been taken to merge headquarters operations in each subsidiary and country; management teams are now in place, and sales forces are fully integrated and operational.
The successful integration of the Research and Development teams has enabled us to carry out a full review of the portfolio, leading to the selection of 128 compounds, including 20 vaccines. 48 projects are in phase II and phase III, 29 compounds are in phase I, and 51 projects are at the pre-clinical stage.
|Impact of IFRS|
Adjusted proforma net income under IFRS (unaudited) is 5,025 million euros, 222 million euros less than French GAAP adjusted proforma net income (5,247 million euros). This difference is mainly due to the recognition of stock option plans as an expense (240 million euros) and the elimination of goodwill amortization (9 million euros).
Adjusted proforma EPS under IFRS (unaudited) comes to 3.77 euros, compared with French GAAP adjusted proforma EPS of 3.89 euros.
As indicated when we published our 2004 net sales on January 26, 2005, we will present and explain information about the impact of the transition to IFRS on the 2004 consolidated financial statements in a conference call on April 14, 2005.
The outlook for 2005 adjusted EPS growth is the same under French GAAP as under IFRS.
|Appendix 1: Explanatory Notes|
Comparable sales: When we refer to the change in our sales on a “comparable” basis, we mean that we exclude the impact of exchange rate fluctuations and changes in Group structure (acquisitions and divestitures of entities and rights to products as well as change in the consolidation percentage for consolidated entities).
For any two periods, we exclude the impact of exchange rates by recalculating sales for the earlier period on the basis of exchange rates used in the later period.
We exclude the impact of acquisitions by including sales for a portion of the prior period equal to the portion of the current period during which we owned the entity or product rights based on sales information we receive from the party from whom we make the acquisition. Similarly, we exclude sales in the relevant portion of the prior period when we have sold an entity or rights to a product.
For a change in the consolidation percentage of a consolidated entity, the prior period is recalculated on the basis of the consolidation method used for the current period.
Reconciliation of proforma net sales on a reported basis for 2003 to pro forma net sales on a comparable basis for 2003
Developed sales: When we refer to “developed sales” of a product, we mean consolidated net sales, excluding sales of products to our alliance partners, but including those that are made through our alliances and are not included in our consolidated net sales (with Bristol-Myers Squibb on Plavix®/Iscover® (clopidogrel) and Aprovel®/Avapro®/Karvea® (irbesartan) and with Fujisawa on Stilnox®/Myslee® (zolpidem). Our alliance partners provide us with information regarding their sales in order to allow us to calculate developed sales.
We believe that developed sales are a useful measurement tool because they demonstrate trends in the overall presence of our products in the market.
Reconciliation of 2004 proforma net sales to 2004 proforma developed sales
The proforma statement of incomeis provided for comparative purposes. It is presented as though the offer for Aventis, and the other transactions described below, had occurred on January 1, 2003. It was prepared on the basis of the following principles:
Adjusted net incomeis defined as accounting net income (under French GAAP) adjusted for material impacts arising from (i) the use of fair value acquisition accounting for the Aventis transaction and (ii) restructuring costs associated with the transactionl. Sanofi-aventis believes that eliminating these impacts from net income gives a better representation of the business performance of the new Group.
|Appendix 2: French GAAP adjusted proforma statement of income (unaudited)|
The adjusted proforma statement of income is derived from the proforma statement of income as presented in Appendix 4
|Appendix 3: 2004 French GAAP consolidated financial statements (audited)|
Sanofi-aventis statements of income (French GAAP)
Reconciliation of 2004 consolidated statements of income to 2004 adjusted consolidated statements of income(French GAAP)
Sanofi-aventis simplified consolidated balance sheets (French GAAP)
Millions of euros
|Appendix 4: Reconciliation of proforma statement of income to adjusted proforma statement of income for 2003 and 2004 (French GAAP, unaudited)|
The adjustments made to the proforma financial statements reflect the elimination of material impacts of the application of fair value acquisition accounting to the deal (3,179 million euros net of deferred taxes, and with no cash impact for the Group) and of restructuring costs (362 million euros net of tax), i.e. a total impact of 3,541 million euros.
Reconciliation of 2004 proforma statement of income to 2004 adjusted proforma statement of income (French GAAP, unaudited):
The detail of material impacts on the 2004 proforma statement of income arising from the application of fair value acquisition accounting to the Aventis deal and of restructuring costs are as follows:
(a) An amortization charge of 3,840 million euros against intangible assets. This adjustment has no cash impact on the Group.
(b) A pre-tax restructuring charge of 557 million euros recorded as an exceptional item.
(c) The tax impact comprises:
(d) The impact on income from equity investees comprises an amortization charge against intangible assets and a goodwill amortization charge, amounting to a total of 88 million euros. This adjustment has no cash impact on the Group.
Paris: March 1st
New York: March 21st
Mr. Dehecq will present the 2004 Results on March 21st in New York at the St.RegisHotel (2 East 55th St. at 5th Avenue) at 12:30 PM EST.
The sanofi-aventis Group is the world's 3rd largest pharmaceutical company, ranking number 1 in Europe. Backed by a world-class R&D organization, sanofi-aventis is developing leading positions in seven major therapeutic areas: cardiovascular disease, thrombosis, oncology, diabetes, central nervous system, internal medicine, and vaccines. The sanofi-aventis Group is listed in Paris (EURONEXT : SAN) and in New York (NYSE : SNY).
Chip Rouse, 908-243-6050