In its second year of operations, the Novartis Group reported record levels in earnings with operating income up a further 8% thanks to margin improvements in Healthcare and Consumer Health. Net income rose a further 16% to CHF 6.1 billion as a result of enhanced productivity due to cost synergies and volume gains as well as a substantial improvement in net financial income. The Group previously reported full-year sales of CHF 31.7 billion, an increase of 5% in local currencies or 2% in Swiss francs.

Alex Krauer, who retires as Chairman of the Board of Novartis next month, noted ``In spite of the
difficult market conditions that prevailed last year, Novartis has achieved a strong performance. We are proposing a dividend of CHF 29, an increase of 16% over 1997.''

Daniel Vasella, Chairman designate and President of Novartis commented, "1998 was a year of
merger implementation. By year-end, we had achieved 89% of our three-year cost synergies target. We further focused our Life Sciences portfolio through acquisitions and divestments, and made significant organizational improvements, most notably creating a new Consumer Health Division. We have made important investments in future-oriented technologies. In a rapidly changing environment, the challenges ahead will be increasingly demanding, but the success of the merger provides us with strong fundamentals and an outstanding competitive platform upon which to build our business.''

Sales -- Healthcare Division leads the way

Group sales in 1998 totalled CHF 31.7 billion, an increase of 5% in local currencies, with notable
sales growth in the Generics, Seeds and CIBA Vision sectors. Increased volumes contributed 4% of this growth, the remaining one percent coming from price increases. The appreciation of the Swiss franc against major currencies squeezed the increase in sales to 2% in Swiss francs.

Healthcare (+7% in local currencies)

Key growth drivers in Pharmaceuticals (+6%) throughout the year were: Aredia® (cancer, +61%),
Sandostatin® (acromegaly, +38%), Cibacen® (hypertension, +27%), Foradil® (asthma, +27%), and Miacalcic® (osteoporosis, +21%). Flagship product Sandimmun®/Neoral® maintained its status as the gold standard in transplantation, exceeding sales of CHF 1.8 billion (+5%). The new-class anti-hypertensives Diovan® and Co- Diovan® together achieved impressive full-year sales of CHF 409 million. The leading antifungal Lamisil® (+5%) has captured significant market share in Japan and the US. Supported by added marketing impetus and its launch in Japan, the cholesterol-lowering agent Lescol®/Lochol® overcame fierce competition to post full-term growth of 1%. Various new compounds received marketing approval in 1998. Comtan®, a novel treatment for Parkinson's disease, obtained its first registration in the EU. Simulect®, a novel treatment to prevent acute rejection in transplantation, gained rapid acceptance by all major transplant centers in the US. Exelon® (Alzheimer's disease), now approved in 44 countries and available in 28, awaits approval in the US, whereas Apligraf® (wound healing) and Sandostatin LAR® received US registration in 1998. Regionally, Europe performed well throughout the year. Difficult economic conditions and healthcare cost containment measures in Japan were partly offset by the launch of Lochol® and the success of Lamisil® tablets. Overall in 1998, strong sales growth was recorded in the US.

Generics (+13%) boasted vigorous growth, with outstanding performance in cephalosporin-antibiotics and other bulk generics. Retail generics had to compete in tough market conditions in Germany, but achieved solid growth in Eastern Europe, Asia and Latin America. Sustained improvement in the US continued in the fourth quarter. The acquisition of Hoechst Marion Roussel's fermentation plant in Frankfurt, Germany, was finalized in November and will contribute to the future antibiotics business.

In CIBA Vision (+9%) Ophthalmics posted strong growth, with Voltaren Ophthalmic®
(anti-inflammatory) and Viscotears(TM) (gel for dry eyes) leading the way. Spurred by the performance of the Focus® line of contact lenses, Optics continued to develop well. The   innovative daily disposable contact lenses Focus® DAILIES(TM) have established a leadership position in major European markets. Focus® NIGHT & DAY(TM), a revolutionary extended-wear contact lens, was introduced in Mexico, the first test market.

Agribusiness (+4% in local currencies)

In Crop Protection (+2%), Insecticides, Turf & Ornamentals and Seed Treatment all performed well, while herbicide sales slowed, principally in the US, because of low commodity prices and competitive price pressure. Growth was strong in Latin America, particularly in Brazil, and in the Asia Pacific region. In Europe, good results in the Benelux countries and Southern Europe were offset by increased competition in the fungicide market early in the year. Generally, the herbicide Topik®, the fungicide Ridomil Gold® and the insecticide Vertimec® achieved impressive sales. Cruiser®, a seed-treatment insecticide specifically developed for corn in dry farming conditions, got off to a fast start in South Africa following approval in August.

Seeds (+12%) reported considerable expansion of corn sales in the US, supported by a strong
demand for the genetically improved Bt hybrids. The high quality of Novartis' seeds generated
dynamic sales in sunflowers in Europe and in soybeans in the NAFTA region. Sugar beet sales were affected by acreage reductions in Europe. Sales in Vegetables and Flowers showed momentum in all major markets.

In Animal Health (+5%), sales of Sentinel® (flea and worm control) almost tripled in the US,
underpinning the company's position in pet parasite control. Program® 6-month injectable, a novel single-dose flea protection for cats, was introduced in the US, Europe, Japan and Australia,
strengthening Animal Health's leadership in flea control. Clomicalm®, for separation anxiety in dogs, was launched in Europe and approved in the US. The farm animal business grew well in Latin America and, through the acquisition of Young's, in Australia and New Zealand.

Consumer Health (+3% in local currencies)

In Nutrition (+6%), Infant & Baby Nutrition was lifted by the strong growth of its organic line Tender Harvest(TM), in the US, and the above-market performance in Latin America. In Medical Nutrition, ReSource® and the Health Care Food Services business continued to perform very well.

Self-Medication (-2%) reported increased sales of Fenistil® (itchy skin complaints), Venoruton®
(venous complaints) and Nicotinell® (smoking cessation). In Europe, growth was satisfactory and in line with the market. In North America, market share was maintained in key segments, but sales development was constrained because of one-time inventory adjustments by the rapidly consolidating retail industry and a weak winter cough and cold season in the US. An agreement was signed in November with Kao Corporation to jointly enter the consumer healthcare business in Japan.

Operating income -- improved margins in Healthcare and Consumer Health

The operating margin increased from 21.8% in 1997 to 23.2% in 1998 on the back of enhanced cost synergies and a stronger focus on key products. Expenditure on Marketing & Distribution developed slightly below the sales growth. The Group maintained its level of investment in Research & Development at 11.8% of total sales. In Pharmaceuticals, the expenditure on R&D was 18.0% of sales, which is among the highest in the industry. Administration costs and general overheads decreased significantly, mainly as a result of the merger related cost synergies.

In the Healthcare Division, operating income rose 10% to CHF 5.2 billion, corresponding to a return on sales of 29.8% (27.9% in 1997). Profitability in Pharmaceuticals increased, mainly as a result of reductions in General & Administration expenses and in the cost of goods sold as a percentage of sales. The sector also benefited from an exceptional divestment gain by Chiron, in which Novartis holds a minority stake. Operating income in Generics grew strongly thanks to the outstanding performance of the cephalosporin business and a turn-around in the retail generics business in the US. CIBA Vision's operating margin was slightly lower, mainly because of higher investments in R&D and the launch costs of Focus® DAILIES(TM) in the US.

The operating margin in Agribusiness declined from 19.9% to 18.1%. Crop Protection was
constrained by price pressures and increased provisions for outstanding receivables mainly in Russia and Eastern Europe. In Seeds, margins were offset by increased R&D investments in new
technologies and high litigation expenses for the protection of our intellectual property. Strict cost
control measures helped Animal Health to improve its profitability. Consumer Health lifted its
operating margin from 9.2% to 12.6%. This is mostly as a result of cost savings from restructuring Gerber® in North America, which increased the Nutrition operating margin from 6.9% to 11.1%. The restructuring charges due to the merger of the Self-Medication Sector with Nutrition amounted to CHF 96 million. This has been offset by the gains generated from the divestment of non-core activities.

Corporate and other expenses: Corporate and Country Management costs were reduced by 8% in
1998. Income from outstanding insurance claims and non- recurring reductions in pension expenses were offset by an increase in provisions of approximately CHF 140 million to cover receivable exposures in Brazil, Russia and the Ukraine.

Net income -- driven by a substantial increase of net financial income

Increased operating income and an impressive financial performance pushed net income up 16% to a record CHF 6.1 billion, leading to a margin improvement of 2.4 percentage points from 16.7% to 19.1%. A higher proportion of net financial income in 1998 was taxed at a lower rate than operating income, which resulted in a reduction of the effective tax rate from 24.3% in 1997 to 23.6% in 1998.

Net financial income

Financial expenses increased by only CHF 86 million, whereas financial income soared CHF 652
million as a result of portfolio adjustment to higher yielding investments, a slightly higher average
amount of available liquid funds, and increased capital gains and income from options and forward
contracts. After deducting an increase of CHF 72 million in currency losses in Emerging Markets, the net financial income increased by almost CHF 500 million to CHF 614 million in 1998. On a
risk-adjusted basis, the company outperformed its benchmark (weighted basket of international
money market, equity and bond indices) by 2.57 percentage points. Overall, Group Treasury
achieved a return of 6.6% on invested liquidity.

Net liquidity exceeds CHF 10 billion

Cash flow from operations increased by CHF 1.2 billion to CHF 5.9 billion, corresponding to an
increase of 26%. Investment in tangible fixed assets remained constant at CHF 1.6 billion. Free cash flow doubled to CHF 2.6 billion. The Group's financial strength is reflected in the CHF 2.9 billion increase in net liquidity to CHF 10.3 billion. Total equity increased by CHF 4.2 billion, whereas the Group's financial debts were reduced by CHF 2.5 billion mainly due to repayments. The year-end debt/equity ratio improved further from 0.41:1 in 1997 to 0.28:1 in 1998 underlining the Group's strong balance sheet.

Integration process almost completed

Novartis is reaping the benefits of significant synergies made possible by the merger. By year-end, cost savings of CHF 1 770 million, corresponding to 89% of the planned three-year total, had already been achieved. This exceeds the 1998 target of 80%. By 31 December 1998, merger-related personnel reductions amounted to 11 690, representing 97% of the planned total. New jobs have also been created, mainly in the Pharmaceuticals sales force in order to further support key products.

1998 -- Growth initiatives, organizational improvements and a sharper focus on Life Sciences

Novartis has taken various internal and external steps to further strengthen its positions in the Life Sciences businesses and to build on sustainable and profitable growth.

In Healthcare, various collaborations and agreements in the area of Research & Development were signed. Programs were initiated to improve productivity in Pharmaceuticals. The new fully integrated organization in Development promises a marked acceleration in the speed of delivering drugs to the market.

In Agribusiness, the position in the South Korean market was strengthened by the incorporation of Seoul Seeds and the acquisition of the former Oriental Chemicals Industries crop protection business. A new organizational structure was implemented in Crop Protection: with the goal of getting closer to the customer, five regions with responsibility for regional strategy and marketing were established. In Seeds, several key alliances strengthened the existing businesses or broadened the product base.

In August, Novartis announced the formation of a new Consumer Health Division by merging the
company's self-medication and nutrition businesses. At the same time, the company announced plans to divest non-core nutrition brands and businesses, which have total sales of CHF 1.3 billion. The company is on track with this program, having sold its Swiss snack-food business Roland and its US medical distributor Red Line. The Italian sugar-free business was divested at the end of the year and an agreement to sell Novartis' participation in the Swedish snack-food company OLW was signed. Only two of the major non-core brands (Wasa® and Eden®) remain to be sold. This merger is expected to achieve significant synergies both on the cost as well as on the growth side. Some CHF 70 million in annual cost synergies are expected within two to three years, mainly from reduced overheads and through sales-force optimization. Growth synergies will be realized within three to four years, while sales expansion will be generated by leveraging existing brands into new categories.

Outlook 1999 -- A further improvement in operating income expected

Sales dynamism can be expected to continue, based on new pharmaceutical products and higher
investments in Marketing and Sales, which will compensate for generic competition. CIBA Vision's ophthalmics and high-volume lenses and the anti-infectives business of Biochemie are expected to perform well. The market environment for Agribusiness is difficult, particularly in Brazil and Russia, and in the herbicide business in the US. However, with new products, solutions and a broad portfolio, we expect to be at least in line with market development. Consumer Health will focus on integrating its self-medication and nutrition businesses and on realizing the cost synergies and growth opportunities. The divestment of non-strategic nutrition activities should be concluded by mid-year.

The Group will continue to work on operational improvements and will further invest in growth
opportunities. This, in combination with the anticipated volume growth, should form the basis for a
further improvement in operating income.

Novartis is a world leader in Life Sciences with core businesses in Healthcare, Agribusiness and
Consumer Health (Nutrition and Self-Medication). In 1998, Novartis Group sales were CHF 31.7
billion, of which CHF 17.5 billion were in Healthcare, CHF 8.4 billion in Agribusiness and CHF 5.8
billion in Consumer Health. The group annually invests more than CHF 3.7 billion in R&D.
Headquartered in Basel, Switzerland, Novartis employs about 82,000 people and operates in over
100 countries around the world.

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