In its interim first-half report published today, Novartis posted six-month operating income of CHF 4.4 billion, up 7% from the record levels of the same period of last year. Sustained good growth in Healthcare and Consumer Health, which lifted their respective operating margins to 30% and 12%, more than offset the foreseen cyclical down-turn in Agribusiness, where operating income was squeezed to CHF 867 million, or 18% of sales. Group net income was up 5% to CHF 3.7 billion due to higher operating income and a good treasury performance.

Consolidated key figures

Cash flow increased 28% to CHF 3.6 billion and free cash flow climbed to CHF 931 million, up
82% from the first half of 1998. The Group previously announced first-half sales from continuing
businesses of CHF 16.3 billion, a one-percent increase in local currencies and in Swiss francs.

With sustained commitment to Research & Development, the Group has increased its investment in Marketing & Distribution to prepare for forthcoming new product launches and will continue to rejuvenate its pharmaceutical portfolio and to implement its ambitious two-year restructuring program ``Project Focus'' in Agribusiness.

Novartis expects operating and net income for 1999 to exceed last year's levels, barring any
unforeseen economic or financial disturbances.

Operating income rises, driven by Healthcare and Consumer Health, despite higher investments for future growth

Group operating income was CHF 4.4 billion, 7% (CHF 294 million) above the previous year's level
in the same period, as a result of higher profits in Healthcare and Consumer Health. The CHF 165
million contribution from Corporate & Others is due mainly to the release of Corporate provisions
established in 1998 for receivable exposures in Brazil, Russia and the Ukraine, which were charged to Agribusiness in the first six months of 1999, and also due to an exceptional insurance settlement receipt.

Operating income by division

Investments in Research & Development and Marketing & Distribution were further increased as
part of the strategy to develop patent-protected products and to prepare the market introduction of
products from the company's rich pipeline. In Pharmaceuticals, the Research & Development
investment corresponded to 19% of sales, which keeps Novartis at the forefront of the industry.
General & Administration expenses declined by CHF 719 million because of a positive net effect
from exceptional items and continued productivity gains.

Healthcare: Increase in operating income margin

The operating income margin in Healthcare increased from 28.7% in the first half of 1998 to 29.9% in the first half of 1999, driven by Pharmaceuticals and Generics.

As Pharmaceuticals focuses on key products and prepares for new product introductions, it has
significantly increased its investments in Marketing & Distribution and Research & Development. The divestiture of the diagnostics business of Chiron, in which Novartis owns a minority stake, added CHF 147 million to operating income.

In Generics, strong volume increases combined with strict cost control resulted in a higher operating income margin.

At CIBA Vision, investments in Research & Development and in Marketing & Distribution increased in preparation for regulatory filing of key ophthalmic products (Visudyne(TM), Rescula(TM)), as well as for the global launch of the new generation contact lenses (Focus® DAILIES(TM), Focus® NIGHT & DAY(TM)).

Pursuing its strategy to increase the percentage of sales generated by patent-protected growth
products, Pharmaceuticals continued to strengthen its commercialization capacity and capabilities. It increased the sales-force and is implementing the ``Marketing Powerhouse'' initiative. This will further prepare the organization for the stream of product launches (up to 14 new molecular substances with significant sales potential) anticipated by the end of 2002.

Agribusiness: Difficult market environment

Decreasing volumes and a shift in the product mix towards lower-margin products had an impact on gross margins in all sectors. In addition, the exceptional expenditure of CHF 90 million for the
"Project Focus'' restructuring program, CHF 124 million charged for receivable exposures in Brazil, Russia and the Ukraine in Crop Protection, and litigation costs in Seeds were a heavy burden on operating income. The company has maintained its high level of investment in Marketing & Distribution as well as in Research & Development, in order to prepare the launch of key products such as the fungicide Flint® and the insecticide Actara®/Cruiser®, and to further build on technology leadership.

In response to the down-cycle in agriculture, Novartis initiated "Project Focus'' in June. This
ambitious two-year plan includes prioritizing products, improving product mix and establishing
product alliances. The goals are: to use production assets optimally according to volume demands, and to examine logistics on a regional basis in order to exploit synergies and reduce costs. The Research & Development portfolio will be reprioritized to concentrate resources on the most promising products and the growing importance of output traits and new technologies. Approximately 1 100 jobs will be reduced worldwide, leading to expected annual cost savings of about CHF 100 million.

Consumer Health: Sales growth and cost synergies drive profits

In Consumer Health, the operating income margin of continuing businesses increased from 10.1% in the first half of 1998 to 11.6% in the first half of 1999. The main contributors to this were sales
expansion and cost synergies from the merger of the Self-Medication and Nutrition businesses, which allowed a considerable reduction of the General & Administration expenses. The Division has further increased its investments in Research & Development to speed the development of functional foods, an important future growth area, and to prepare the launch of a new pediatric OTC line under the Gerber® brand.

With the sale of OLW, Eden, and Wasa, the Division has successfully completed the program begun last August to divest its non-core businesses, realizing a pre-tax gain of CHF 352 million. Trimmed of these businesses, Consumer Health is now focused on health-oriented, value-added products and on track to achieve the anticipated annual cost synergies of CHF 70 million.

Net income up 5% due to a rise in operating income and good treasury performance

In spite of a less buoyant stock market, Group Treasury again achieved an excellent result,
contributing CHF 447 million to income. This is less than the 1998 amount mainly because realized capital gains on equities were lower than the record levels of 1998. The recorded 1999 six-month net financial income already represents 73% of the 1998 annual total. Financial income amounted to CHF 945 million, whereas financial expenses and currency losses were CHF 498 million.

With tax expenses of CHF 1.1 billion, the tax rate amounted to 22.6%, practically the same level as in the same period last year.

Earnings per share in the first half were CHF 55, an increase of 6% over the first half of 1998.

Strong balance sheet -- high free cash flow

Total equity amounted to CHF 35.2 billion at the end of June, CHF 4.2 billion higher than at the end of last year. This increase is not only due to usual movements, such as net income (CHF 3.7 billion), translation gains (CHF 1.5 billion) and dividend payments (CHF 2.0 billion), but is also the result of an extraordinary increase in equity of CHF 1.0 billion, from adopting revised IAS 19 on Employee Benefits with effect from January 1, 1999. As a result of this, and lower financial debts of CHF 0.6 billion, the debt/equity ratio further strengthened to 0.23:1 at June 30, 1999.

Cash flow from operations grew significantly by 28% to CHF 3.6 billion (CHF 2.8 billion in the first
half of 1998), largely due to a smaller increase in net current assets and lower payments relating to the Novartis merger. Cash flow used for investing activities decreased by CHF 0.4 billion as a result of lower net investments in tangible fixed assets and a cash inflow from divestments. Cash flow used for financing activities increased CHF 0.9 billion to CHF 4.3 billion, as a result of higher dividends and debt repayments. Despite a CHF 251 million increase in dividend payment, free cash flow rose sharply by CHF 420 million to CHF 931 million.

Net liquidity of the Group comprising marketable securities, cash and cash equivalents less financial debts, increased by CHF 1.6 billion from CHF 10.2 billion at the end of 1998 to CHF 11.8 billion, reflecting the strong rise of free cash flow.

Outlook

Novartis will continue to center its strategy on innovation with strong funding of its Research &
Development operations. At the same time, it will concentrate its resources on growth drivers and
invest significantly in its commercialization efforts. The company today has one of the most promising pharmaceutical pipelines, with a large number of projects in late-phase clinical trials, including some with blockbuster potential, to be launched over the next several years.

While third quarter sales growth in Pharmaceuticals will be soft compared with the strong third
quarter of 1998, the company anticipates continued sales growth in Healthcare and Consumer Health for the full year in 1999, and an unchanged difficult marketplace for Agribusiness.

Barring any unforeseen economic or financial disturbances, Novartis expects operating and net
income for the full year to exceed last year's levels.

Full details and explanatory notes can be found in the 1999 First-half Report available from Novartis Communication, 4002 Basel, Switzerland and via the internet at http://www.novartis.com. 

Company news release
N2070