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Financial instruments - additional disclosures | 12 Months Ended
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Dec. 31, 2020
Financial Instruments - additional disclosure [abstract] |
Disclosure of detailed information about financial instruments [text block] | 29. Financial instruments – additional disclosures The following tables show the carrying values of financial instruments by measurement categories as of December 31, 2020 and 2019. Except for straight bonds (see Note 19), the carrying values are equal to, or a reasonable approximation of, the fair values.
|  |  |  | 2020 |
(USD millions) |  | Note |  | Financial instruments at amortized costs |  | Financial instruments at fair value through other comprehensive income |  | Financial instruments at fair value through the consolidated income statement |  | Other financial liabilities |
Cash and cash equivalents |  | 16 |  | 9 658 |  |  |  |  |  |  |
Time deposits and short-term investments with original maturity more than 90 days |  | 16 |  | 1 609 |  |  |  |  |  |  |
Trade receivables |  | 15 |  | 8 217 |  |  |  |  |  |  |
Other current assets |  | 17 |  | 963 |  |  |  |  |  |  |
Marketable securities - debt securities |  | 16 |  |  |  | 26 |  |  |  |  |
Long-term financial investments - equity securities |  | 13 |  |  |  | 1 111 |  | 466 |  |  |
Long-term financial investments - debt securities |  | 13 |  |  |  | 36 |  |  |  |  |
Long-term financial investments - fund investments |  | 13 |  |  |  |  |  | 366 |  |  |
Long-term loans, advances, security deposits and other long-term receivables |  | 13 |  | 297 |  |  |  |  |  |  |
Associated companies at fair value through profit and loss |  |  |  |  |  |  |  | 211 |  |  |
Derivative financial instruments |  | 16 |  |  |  |  |  | 159 |  |  |
Contingent consideration receivables |  | 13 |  |  |  |  |  | 625 |  |  |
Total financial assets |  |  |  | 20 744 |  | 1 173 |  | 1 827 |  |  |
Interest-bearing accounts of associates payable on demand |  | 21 |  | 2 085 |  |  |  |  |  |  |
Bank and other short-term financial debt |  | 21 |  | 976 |  |  |  |  |  |  |
Commercial paper |  | 21 |  | 4 258 |  |  |  |  |  |  |
Straight bonds |  | 19 |  | 28 298 |  |  |  |  |  |  |
Long-term liabilities to banks and other financial institutions |  | 19 |  | 233 |  |  |  |  |  |  |
Trade payables |  |  |  | 5 403 |  |  |  |  |  |  |
Commitment for repurchase of own shares |  | 18/22 |  | 1 769 |  |  |  |  |  |  |
Contingent consideration liabilities (see Note 20/22) and other financial liabilities |  |  |  |  |  |  |  | 1 069 |  |  |
Derivative financial instruments |  | 21 |  |  |  |  |  | 194 |  |  |
Lease liabilities |  | 10 |  |  |  |  |  |  |  | 2 005 |
Total financial liabilities |  |  |  | 43 022 |  |  |  | 1 263 |  | 2 005 |
|  |  |  | 2019 |
(USD millions) |  | Note |  | Financial instruments at amortized costs |  | Financial instruments at fair value through other comprehensive income |  | Financial instruments at fair value through the consolidated income statement |  | Other financial liabilities |
Cash and cash equivalents |  | 16 |  | 11 112 |  |  |  |  |  |  |
Time deposits and short-term investments with original maturity more than 90 days |  | 16 |  | 61 |  |  |  |  |  |  |
Trade receivables |  | 15 |  | 8 301 |  |  |  |  |  |  |
Other current assets |  | 17 |  | 2 036 |  |  |  |  |  |  |
Marketable securities - debt securities |  | 16 |  |  |  | 24 |  |  |  |  |
Marketable securities - fund investments |  | 16 |  |  |  |  |  | 37 |  |  |
Long-term financial investments - equity securities |  | 13 |  |  |  | 1 158 |  | 366 |  |  |
Long-term financial investments - debt securities |  | 13 |  |  |  | 33 |  |  |  |  |
Long-term financial investments - fund investments |  | 13 |  |  |  |  |  | 233 |  |  |
Long-term loans, advances, security deposits and other long-term receivables |  | 13 |  | 329 |  |  |  |  |  |  |
Associated companies at fair value through profit and loss |  |  |  |  |  |  |  | 186 |  |  |
Derivative financial instruments |  | 16 |  |  |  |  |  | 102 |  |  |
Contingent consideration receivables |  | 13 |  |  |  |  |  | 399 |  |  |
Total financial assets |  |  |  | 21 839 |  | 1 215 |  | 1 323 |  |  |
Interest-bearing accounts of associates payable on demand |  | 21 |  | 1 836 |  |  |  |  |  |  |
Bank and other short-term financial debt |  | 21 |  | 719 |  |  |  |  |  |  |
Commercial paper |  | 21 |  | 2 289 |  |  |  |  |  |  |
Straight bonds |  | 19 |  | 22 167 |  |  |  |  |  |  |
Long-term liabilities to banks and other financial institutions |  | 19 |  | 188 |  |  |  |  |  |  |
Trade payables |  |  |  | 5 424 |  |  |  |  |  |  |
Contingent consideration liabilities (see Note 20/22) and other financial liabilities |  |  |  |  |  |  |  | 1 065 |  |  |
Derivative financial instruments |  | 21 |  |  |  |  |  | 185 |  |  |
Lease liabilities |  | 10 |  |  |  |  |  |  |  | 1 949 |
Total financial liabilities |  |  |  | 32 623 |  |  |  | 1 250 |  | 1 949 |
Derivative financial instruments The following tables show the contract or underlying principal amounts and fair values of derivative financial instruments analyzed by type of contract at December 31, 2020 and 2019. Contract or underlying principal amounts indicate the gross volume of business outstanding at the consolidated balance sheet date and do not represent amounts at risk. The fair values are determined by reference to market prices or standard pricing models that use observable market inputs at December 31, 2020 and 2019.
|  | Contract or underlying principal amount |  | Positive fair values |  | Negative fair values |
(USD millions) |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019 |
Forward foreign exchange rate contracts |  | 13 679 |  | 10 779 |  | 151 |  | 96 |  | – 165 |  | – 75 |
Commodity purchase contract |  | 11 |  | 9 |  | 8 |  | 6 |  |  |  |  |
Options on equity securities |  | 70 |  | 269 |  |  |  |  |  | – 29 |  | – 110 |
Total derivative financial instruments included in marketable securities and in current financial debts |  | 13 760 |  | 11 057 |  | 159 |  | 102 |  | – 194 |  | – 185 |
The following table shows by currency contract or underlying principal amount the derivative financial instruments at December 31, 2020 and 2019:
|  | 2020 |
(USD millions) |  | EUR |  | USD |  | Other |  | Total |
Forward foreign exchange rate contracts |  | 2 432 |  | 6 376 |  | 4 871 |  | 13 679 |
Commodity purchase contract |  |  |  | 11 |  |  |  | 11 |
Options on equity securities |  |  |  | 70 |  |  |  | 70 |
Total derivative financial instruments |  | 2 432 |  | 6 457 |  | 4 871 |  | 13 760 |
|  | 2019 |
(USD millions) |  | EUR |  | USD |  | Other |  | Total |
Forward foreign exchange rate contracts |  | 1 373 |  | 7 760 |  | 1 646 |  | 10 779 |
Commodity purchase contract |  |  |  | 9 |  |  |  | 9 |
Options on equity securities |  |  |  | 250 |  | 19 |  | 269 |
Total derivative financial instruments |  | 1 373 |  | 8 019 |  | 1 665 |  | 11 057 |
Derivative financial instruments effective for hedge accounting purposes At the end of 2020 and 2019, there were no open hedging instruments for anticipated transactions. Fair value by hierarchy As required by IFRS, financial assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. There are three hierarchical levels, based on increasing subjectivity associated with the inputs to derive fair valuation for these assets and liabilities, which are as follows: The assets carried at Level 1 fair value are equity and debt securities listed in active markets. The assets generally included in Level 2 fair value hierarchy are foreign exchange and interest rate derivatives, and certain debt securities. Foreign exchange and interest rate derivatives are valued using corroborated market data. The liabilities generally included in this fair value hierarchy consist of foreign exchange and interest rate derivatives. Level 3 inputs are unobservable for the asset or liability. The assets generally included in Level 3 fair value hierarchy are various investments in hedge funds and unquoted equity security investments. Contingent consideration carried at fair value is included in this category.
|  | 2020 |
(USD millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Financial assets |  |  |  |  |  |  |  |  |
Debt securities |  |  |  | 26 |  |  |  | 26 |
Total marketable securities |  |  |  | 26 |  |  |  | 26 |
Derivative financial instruments |  |  |  | 159 |  |  |  | 159 |
Total marketable securities and derivative financial instruments |  |  |  | 185 |  |  |  | 185 |
Debt and equity securities |  | 1 153 |  |  |  | 460 |  | 1 613 |
Fund investments |  |  |  |  |  | 366 |  | 366 |
Contingent consideration receivables |  |  |  |  |  | 625 |  | 625 |
Total long-term financial investments |  | 1 153 |  |  |  | 1 451 |  | 2 604 |
Associated companies at fair value through profit and loss |  |  |  |  |  | 211 |  | 211 |
Financial liabilities |  |  |  |  |  |  |  |  |
Contingent consideration payables |  |  |  |  |  | – 1 046 |  | – 1 046 |
Other financial liabilities |  |  |  |  |  | – 23 |  | – 23 |
Derivative financial instruments |  |  |  | – 194 |  |  |  | – 194 |
Total financial liabilities at fair value |  |  |  | – 194 |  | – 1 069 |  | – 1 263 |
|  | 2019 |
(USD millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Financial assets |  |  |  |  |  |  |  |  |
Debt securities |  |  |  | 24 |  |  |  | 24 |
Fund investments |  | 37 |  |  |  |  |  | 37 |
Total marketable securities |  | 37 |  | 24 |  |  |  | 61 |
Derivative financial instruments |  |  |  | 102 |  |  |  | 102 |
Total marketable securities and derivative financial instruments |  | 37 |  | 126 |  |  |  | 163 |
Debt and equity securities |  | 976 |  |  |  | 581 |  | 1 557 |
Fund investments |  |  |  |  |  | 233 |  | 233 |
Contingent consideration receivables |  |  |  |  |  | 399 |  | 399 |
Total long-term financial investments |  | 976 |  |  |  | 1 213 |  | 2 189 |
Associated companies at fair value through profit and loss |  |  |  |  |  | 186 |  | 186 |
Financial liabilities |  |  |  |  |  |  |  |  |
Contingent consideration payables |  |  |  |  |  | – 1 036 |  | – 1 036 |
Other financial liabilities |  |  |  |  |  | – 29 |  | – 29 |
Derivative financial instruments |  |  |  | – 185 |  |  |  | – 185 |
Total financial liabilities at fair value |  |  |  | – 185 |  | – 1 065 |  | – 1 250 |
The change in carrying values associated with Level 3 financial instruments, using significant unobservable inputs during the year ended December 31, is set forth below:
|  | 2020
(USD millions) |  | Associated companies at fair value through profit and loss |  | Fund investments |  | Long-term financial investments |  | Contingent consideration receivables |  | Contingent consideration payables |  | Other financial liabilities |
January 1 |  | 186 |  | 233 |  | 581 |  | 399 |  | – 1 036 |  | – 29 |
Fair value gains and other adjustments, including from divestments recognized in the consolidated income statement |  | 57 |  | 151 |  | 34 |  | 173 |  | 206 |  |  |
Fair value losses (including impairments and amortizations) and other adjustments recognized in the consolidated income statement |  | – 18 |  | – 8 |  | – 39 |  |  |  | – 90 |  | – 3 |
Fair value adjustments recognized in the consolidated statement of comprehensive income, including currency translation effects |  | 4 |  | 3 |  | 33 |  | 40 |  | – 62 |  | – 2 |
Purchases |  | 24 |  | 17 |  | 123 |  | 43 |  | – 123 |  |  |
Cash receipts and payments |  |  |  |  |  |  |  | – 30 |  | 63 |  | 11 |
Disposals |  | – 23 |  | – 61 |  | – 109 |  |  |  |  |  |  |
Reclassification |  | – 19 |  | 31 |  | – 163 |  |  |  | – 4 |  |  |
December 31 |  | 211 |  | 366 |  | 460 |  | 625 |  | – 1 046 |  | – 23 |
Total of fair value gains and losses recognized in the consolidated income statement for assets and liabilities held at December 31, 2020 |  | 39 |  | 143 |  | – 5 |  | 173 |  | 116 |  | – 3 |
|  | 2019
(USD millions) |  | Associated companies at fair value through profit and loss |  | Fund investments |  | Long-term financial investments |  | Contingent consideration receivables |  | Contingent consideration payables |  | Other financial liabilities |
January 1 |  | 145 |  | 251 |  | 488 |  | 396 |  | – 907 |  | – 10 |
Impact from discontinued operations 1 |  |  |  | – 28 |  | – 19 |  |  |  | 163 |  |  |
Fair value gains and other adjustments, including from divestments recognized in the consolidated income statement |  |  |  | 12 |  | 6 |  | 35 |  | 195 |  | 1 |
Fair value losses (including impairments and amortizations) and other adjustments recognized in the consolidated income statement |  | – 15 |  |  |  |  |  |  |  | – 89 |  | – 48 |
Fair value adjustments recognized in the consolidated statement of comprehensive income |  |  |  |  |  | – 6 |  |  |  |  |  |  |
Purchases |  | 49 |  | 28 |  | 229 |  |  |  | – 401 |  | – 5 |
Cash receipts and payments |  |  |  |  |  |  |  | – 32 |  | 3 |  | 33 |
Disposals |  | – 3 |  | – 30 |  | – 53 |  |  |  |  |  |  |
Reclassification |  | 10 |  |  |  | – 64 |  |  |  |  |  |  |
December 31 |  | 186 |  | 233 |  | 581 |  | 399 |  | – 1 036 |  | – 29 |
Total of fair value gains and losses recognized in the consolidated income statement for assets and liabilities held at December 31, 2019 |  | – 15 |  | 12 |  | 6 |  | 35 |  | 106 |  | – 47 |
1 Notes 1, 2 and 30 provide information related to discontinued operations.
During 2020, there were several individually non-significant transfers of financial investments from Level 3 to Level 1 for USD 166 million (2019: USD 64 million), mainly due to initial public offerings of the invested companies. Realized gains and losses associated with Level 3 long-term financial investments measured at fair value through the consolidated income statement are recorded in the consolidated income statement under “Other income” or “Other expense,” respectively. Realized gains and losses associated with Level 3 long-term financial investments measured at fair value through other comprehensive income are not recycled through the consolidated income statement but are instead reclassified to retained earnings. During the year, the net loss and net gain recorded on associated companies, fund investments and long-term financial investments at fair value through profit and loss were USD 92 million and USD 427 million, respectively. If the pricing parameters for the Level 3 input were to change for associated companies at fair value through profit and loss, fund investments and long-term financial investments by 10% positively or negatively, this would change the amounts recorded in the 2020 consolidated statement of comprehensive income by USD 104 million. To determine the fair value of a contingent consideration, various unobservable inputs are used. A change in these inputs might result in a significantly higher or lower fair value measurement. The inputs used are, among others, the probability of success, sales forecast and assumptions regarding the discount rate and timing and different scenarios of triggering events. The inputs are interrelated. The significance and usage of these inputs to each contingent consideration may vary due to differences in the timing and triggering events for payments or in the nature of the asset related to the contingent consideration. If the most significant parameters for the Level 3 input were to change by 10% positively or negatively, or where the probability of success (POS) is the most significant input parameter, 10% were added or deducted from the applied probability of success, for contingent consideration payables, other financial liabilities and contingent consideration receivables, this would change the amounts recorded in the 2020 consolidated income statement by USD 260 million and USD 324 million, respectively. Equity securities measured at fair value through other comprehensive income Equity securities held as strategic investments, typically held outside the Novartis Venture Fund, are generally designated at date of acquisition as financial assets valued at fair value through other comprehensive income with no subsequent recycling through profit and loss. Except for the investment in Alcon Inc. with a fair value of USD 71 million at December 31, 2020 (2019: USD 382 million), these are made up of individually non-significant investments. At December 31, 2020, the Group holds 56 non-listed equity securities (December 31, 2019: 53) and 34 listed equity securities (December 31, 2019: 29) in this category with the following fair values:
(USD millions) |  | 2020 |  | 2019 |
Listed equity securities |  | 862 |  | 843 |
Non-listed equity securities |  | 249 |  | 315 |
Total equity securities |  | 1 111 |  | 1 158 |
There were no dividends recognized during 2020 and 2019 from these equity securities. In 2020, in accordance with the consolidated foundations Alcon Inc. shares divestment plans, Alcon Inc. shares with a fair value of USD 331 million were sold (2019: USD 976 million), and the USD 13 million gain on disposal (2019: USD 62 million gain) was transferred from other comprehensive income to retained earnings during 2020. In addition, in 2020, equity securities that were no longer considered strategic, with a fair value of USD 206 million (2019: USD 33 million), were sold, and the USD 137 million gain on disposal (2019: USD 33 million gain) was transferred from other comprehensive income to retained earnings (see Note 8). Nature and extent of risks arising from financial instruments Market risk Novartis is exposed to market risk, primarily related to foreign currency exchange rates, interest rates, and the market value of the investments of liquid funds. The Group actively monitors and seeks to reduce, where it deems it appropriate to do so, fluctuations in these exposures. It is the Group’s policy and practice to enter into a variety of derivative financial instruments to manage the volatility of these exposures and to enhance the yield on the investment of liquid funds. It does not enter into any financial transactions containing a risk that cannot be quantified at the time the transaction is concluded. In addition, it does not sell short assets it does not have, or does not know it will have, in the future. The Group only sells existing assets or enters into transactions and future transactions (in the case of anticipatory hedges) that it confidently expects it will have in the future, based on past experience. In the case of liquid funds, the Group writes call options on assets it has, or writes put options on positions it wants to acquire and has the liquidity to acquire. The Group expects that any loss in value for these instruments generally would be offset by increases in the value of the underlying transactions. Foreign currency exchange rate risk The Group uses the US dollar as its reporting currency. As a result, the Group is exposed to foreign currency exchange movements, primarily in European, Japanese and emerging market currencies. Fluctuations in the exchange rates between the US dollar and other currencies can have a significant effect on both the Group’s results of operations, including reported sales and earnings, as well as on the reported value of our assets, liabilities and cash flows. This, in turn, may significantly affect the comparability of period-to-period results of operations. Because our expenditures in Swiss francs are significantly higher than our revenues in Swiss francs, volatility in the value of the Swiss franc can have a significant impact on the reported value of our earnings, assets and liabilities, and the timing and extent of such volatility can be difficult to predict. There is also a risk that certain countries could devalue their currency. If this occurs, it could impact the effective prices we would be able to charge for our products and also have an adverse impact on both our consolidated income statement and balance sheet. Subsidiaries whose functional currencies have experienced a cumulative inflation rate of more than 100% over the past three years apply the rules of IAS 29 “Financial reporting in Hyperinflationary Economies”. The hyperinflationary economies in which Novartis operates are Argentina and Venezuela. Venezuela was hyperinflationary for all years presented, and Argentina became hyperinflationary effective July 1, 2018, requiring retroactive implementation of hyperinflation accounting as of January 1, 2018. The impacts of applying IAS 29 were not significant in all years presented. The Group manages its global currency exposure by engaging in hedging transactions where management deems appropriate. Novartis may enter into various contracts that reflect the changes in the value of foreign currency exchange rates to preserve the value of assets, commitments and anticipated transactions. Novartis also uses forward contracts and foreign currency option contracts to hedge. Net investments in subsidiaries in foreign countries are long-term investments. Their fair value changes through movements of foreign currency exchange rates. The Group has designated a certain portion of its long-term euro-denominated straight bonds as hedges of the translation risk arising on certain of these net investments in foreign operations with euro functional currency. As of December 31, 2020, long-term financial debt with a carrying amount of EUR 1.8 billion (USD 2.3 billion) (December 31, 2019: USD 2.1 billion), has been designated as a hedge instrument. During 2020, USD 201 million of unrealized loss (unrealized income in 2019: USD 44 million) was recognized in other comprehensive income and accumulated in currency translation effects in relation with this net investment hedge. The hedge remained effective since inception, and no amount was recognized in the consolidated income statement in 2020, 2019 and 2018. Commodity price risk The Group has only a very limited exposure to price risk related to anticipated purchases of certain commodities used as raw materials by the Group’s businesses. A change in those prices may alter the gross margin of a specific business, but generally by not more than 10% of the margin and thus below the Group’s risk management tolerance levels. Accordingly, the Group does not enter into significant commodity futures, forward or option contracts to manage fluctuations in prices of anticipated purchases. Interest rate risk The Group addresses its net exposure to interest rate risk mainly through the ratio of its fixed-rate financial debt to variable-rate financial debt contained in its total financial debt portfolio. To manage this mix, Novartis may enter into interest rate swap agreements, in which it exchanges periodic payments based on a notional amount and agreed-upon fixed and variable interest rates. Equity risk The Group may purchase equities as investments of its liquid funds. As a policy, it limits its holdings in an unrelated company to less than 5% of its liquid funds. Potential investments are thoroughly analyzed. Call options are written on equities that the Group owns, and put options are written on equities that the Group wants to buy and for which cash is available. Credit risk Credit risks arise from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk, the Group periodically assesses country and customer credit risk, assigns individual credit limits, and takes actions to mitigate credit risk where appropriate. The provisions for expected credit losses for customers are based on a forward-looking expected credit loss, which includes possible default events on the trade receivables over the entire holding period of the trade receivables. In measuring the expected credit losses, trade receivables are grouped based on shared credit risk characteristics (such as private versus public receivables) and days past due. In determining the expected credit loss rates, the Group considers current and forward-looking macroeconomic factors that may affect the ability of the customers to settle the receivables, and historical loss rates for each category of customers. The Group’s largest customer accounted for approximately 17% of net sales, and the second largest and third largest customers accounted for 11% and 6% of net sales, respectively (2019: 18%, 13% and 8%, respectively; 2018: 18%, 14% and 8%, respectively). The highest amounts of trade receivables outstanding were for these same three customers and amounted to 14%, 12% and 6%, respectively, of the Group’s trade receivables at December 31, 2020 (2019: 14%, 12% and 7%, respectively). There is no other significant concentration of customer credit risk. Counterparty risk Counterparty risk encompasses issuer risk on marketable securities and money market instruments; credit risk on cash, time deposits and derivatives; as well as settlement risk for different instruments. Issuer risk is reduced by only buying securities that are at least A- rated. Counterparty credit risk and settlement risk are reduced by a policy of entering into transactions with counterparties (banks or financial institutions) that feature a strong credit rating. Exposure to these risks is closely monitored and kept within predetermined parameters. The limits are regularly assessed and determined based upon credit analysis, including financial statement and capital adequacy ratio reviews. In addition, reverse repurchasing agreements are contracted, and Novartis has entered into credit support agreements with various banks for derivative transactions. To further reduce the settlement risk, the Group has implemented a multi-currency system, CLS (Continuous Linked Settlement), providing multilateral netting (payment-versus-payment settlement) of cash flows from foreign exchange transactions. The Group’s cash and cash equivalents are held with major regulated financial institutions; the three largest ones hold approximately 14.1%, 12.6% and 9.7%, respectively (2019: 12.6%, 10.4% and 8.3%, respectively). The Group does not expect any losses from non-performance by these counterparties and does not have any significant grouping of exposures to financial sector or country risk. Liquidity risk Liquidity risk is defined as the risk that the Group could not be able to settle or meet its obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Group Treasury is responsible for liquidity, funding and settlement management. In addition, liquidity and funding risks, and related processes and policies, are overseen by management. Novartis manages its liquidity risk on a consolidated basis according to business needs and tax, capital or regulatory considerations, if applicable, through numerous sources of financing in order to maintain flexibility. Certain countries have legal or economic restrictions on the ability of subsidiaries to transfer funds to the Group in the form of cash dividends, loans or advances, but these restrictions do not have an impact on the ability of the Group to meet its cash obligations. Management monitors the Group’s net debt or liquidity position through rolling forecasts on the basis of expected cash flows. Novartis has two US commercial paper programs under which it can issue up to USD 9.0 billion in the aggregate of unsecured commercial paper notes. Novartis also has a Japanese commercial paper program under which it can issue up to JPY 150 billion (approximately USD 1.5 billion) of unsecured commercial paper notes. Commercial paper notes totaling USD 4.3 billion under these three programs were outstanding as per December 31, 2020 (2019: USD 2.3 billion). Novartis further has a committed credit facility of USD 6.0 billion, which was renewed in September 2019. This credit facility is provided by a syndicate of banks and is intended to be used as a backstop for the US commercial paper programs. The facility matures in September 2024 and was undrawn as per December 31, 2020, and December 31, 2019. In December 2019, Novartis entered into a short-term credit facility of USD 7 billion, with a maturity date of June 30, 2020 with a syndicate of banks. On January 7, 2020, Novartis borrowed USD 7 billion under the facility with interest based on the USD LIBOR. On February 14, 2020, Novartis repaid the full USD 7 billion initially borrowed. The facility expired on June 30, 2020. The following table sets forth how management monitors net debt or liquidity based on details of the remaining contractual maturities of current financial assets and liabilities, excluding trade receivables and payables as well as contingent considerations at December 31, 2020, and December 31, 2019:
|  | 2020 |
(USD millions) |  | Due within one month |  | Due later than one month but less than three months |  | Due later than three months but less than one year |  | Due later than one year but less than five years |  | Due after five years |  | Total |
Current assets |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities, time deposits and short-term investments with original maturity more than 90 days |  | 13 |  | 1 571 |  | 25 |  | 5 |  | 21 |  | 1 635 |
Commodities |  |  |  |  |  |  |  |  |  | 111 |  | 111 |
Derivative financial instruments and accrued interest |  | 38 |  | 110 |  | 4 |  | 4 |  | 3 |  | 159 |
Cash and cash equivalents |  | 8 558 |  | 1 100 |  |  |  |  |  |  |  | 9 658 |
Total current financial assets |  | 8 609 |  | 2 781 |  | 29 |  | 9 |  | 135 |  | 11 563 |
Non-current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Financial debt |  |  |  |  |  |  |  | – 10 621 |  | – 15 638 |  | – 26 259 |
Financial debt - undiscounted |  |  |  |  |  |  |  | – 10 661 |  | – 15 802 |  | – 26 463 |
Total non-current financial debt |  |  |  |  |  |  |  | – 10 621 |  | – 15 638 |  | – 26 259 |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Financial debt |  | – 4 195 |  | – 2 218 |  | – 3 178 |  |  |  |  |  | – 9 591 |
Financial debt - undiscounted |  | – 4 195 |  | – 2 219 |  | – 3 179 |  |  |  |  |  | – 9 593 |
Derivative financial instruments |  | – 93 |  | – 84 |  | – 17 |  |  |  |  |  | – 194 |
Total current financial debt |  | – 4 288 |  | – 2 302 |  | – 3 195 |  |  |  |  |  | – 9 785 |
Net debt |  | 4 321 |  | 479 |  | – 3 166 |  | – 10 612 |  | – 15 503 |  | – 24 481 |
|  | 2019 |
(USD millions) |  | Due within one month |  | Due later than one month but less than three months |  | Due later than three months but less than one year |  | Due later than one year but less than five years |  | Due after five years |  | Total |
Current assets |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities, time deposits and short-term investments with original maturity more than 90 days |  | 20 |  | 26 |  | 16 |  | 3 |  | 57 |  | 122 |
Commodities |  |  |  |  |  |  |  |  |  | 110 |  | 110 |
Derivative financial instruments and accrued interest |  | 14 |  | 79 |  | 3 |  | 3 |  | 3 |  | 102 |
Cash and cash equivalents |  | 9 712 |  | 1 400 |  |  |  |  |  |  |  | 11 112 |
Total current financial assets |  | 9 746 |  | 1 505 |  | 19 |  | 6 |  | 170 |  | 11 446 |
Non-current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Financial debt |  |  |  |  |  |  |  | – 9 110 |  | – 11 243 |  | – 20 353 |
Financial debt - undiscounted |  |  |  |  |  |  |  | – 9 150 |  | – 11 355 |  | – 20 505 |
Total non-current financial debt |  |  |  |  |  |  |  | – 9 110 |  | – 11 243 |  | – 20 353 |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Financial debt |  | – 4 243 |  | – 1 373 |  | – 1 230 |  |  |  |  |  | – 6 846 |
Financial debt - undiscounted |  | – 4 243 |  | – 1 373 |  | – 1 230 |  |  |  |  |  | – 6 846 |
Derivative financial instruments |  | – 130 |  | – 29 |  | – 26 |  |  |  |  |  | – 185 |
Total current financial debt |  | – 4 373 |  | – 1 402 |  | – 1 256 |  |  |  |  |  | – 7 031 |
Net debt |  | 5 373 |  | 103 |  | – 1 237 |  | – 9 104 |  | – 11 073 |  | – 15 938 |
The consolidated balance sheet amounts of financial liabilities included in the above analysis are not materially different to the contractual amounts due on maturity. The positive and negative fair values on derivative financial instruments represent the net contractual amounts to be exchanged at maturity. The Group’s contractual undiscounted potential cash flows from derivative financial instruments to be settled on a gross basis are as follows:
|  | 2020 |
(USD millions) |  | Due within one month |  | Due later than one month but less than three months |  | Due later than three months but less than one year |  | Total |
Derivative financial instruments and accrued interest on derivative financial instruments |  |  |  |  |  |  |  |  |
Potential outflows in various currencies - from financial derivative liabilities |  | – 930 |  | – 4 096 |  | – 719 |  | – 5 745 |
Potential inflows in various currencies - from financial derivative assets |  | 904 |  | 4 114 |  | 710 |  | 5 728 |
|  | 2019 |
(USD millions) |  | Due within one month |  | Due later than one month but less than three months |  | Due later than three months but less than one year |  | Total |
Derivative financial instruments and accrued interest on derivative financial instruments |  |  |  |  |  |  |  |  |
Potential outflows in various currencies - from financial derivative liabilities |  | – 814 |  | – 4 624 |  | – 952 |  | – 6 390 |
Potential inflows in various currencies - from financial derivative assets |  | 807 |  | 4 656 |  | 922 |  | 6 385 |
Other contractual liabilities that are not part of management’s monitoring of the net debt or liquidity consist of the following items:
|  | 2020 |
(USD millions) |  | Due within three months |  | Due later than three months but less than one year |  | Due later than one year but less than five years |  | Due after five years |  | Total |
Contractual interest on non-current liabilities |  | – 82 |  | – 468 |  | – 1 846 |  | – 4 251 |  | – 6 647 |
Lease liabilities |  | – 77 |  | – 209 |  | – 692 |  | – 1 027 |  | – 2 005 |
Trade payables |  | – 5 239 |  | – 164 |  |  |  |  |  | – 5 403 |
Commitment for repurchase of own shares |  | – 1 769 |  |  |  |  |  |  |  | – 1 769 |
Contingent consideration liabilities |  | – 24 |  | – 38 |  | – 639 |  | – 345 |  | – 1 046 |
|  | 2019 |
(USD millions) |  | Due within three months |  | Due later than three months but less than one year |  | Due later than one year but less than five years |  | Due after five years |  | Total |
Contractual interest on non-current liabilities |  | – 36 |  | – 428 |  | – 1 531 |  | – 3 439 |  | – 5 434 |
Lease liabilities |  | – 65 |  | – 181 |  | – 622 |  | – 1 081 |  | – 1 949 |
Trade payables |  | – 5 222 |  | – 202 |  |  |  |  |  | – 5 424 |
Contingent consideration liabilities |  | – 62 |  | – 9 |  | – 582 |  | – 383 |  | – 1 036 |
Capital risk management Novartis strives to maintain a strong credit rating. In managing its capital, Novartis focuses on maintaining a strong balance sheet. As of December 31, 2020, Moody’s Investor Service rated the Company A1 for long-term maturities and P-1 for short-term maturities and S&P Global Ratings rated the company AA- for long-term maturities and A-1+ for short-term maturities. Value at risk The Group uses a value at risk (VAR) computation to estimate the potential 10-day loss in the fair value of its financial instruments. A 10-day period is used because of an assumption that not all positions could be undone in one day given the size of the positions. The VAR computation includes all financial assets and financial liabilities as set forth in the table on page F-69, except: • Trade receivables • Other current assets • Long-term loans and receivables, advances and security deposits • Contingent considerations • Lease liabilities • Commitment for repurchase of own shares • Trade payables The VAR estimates are made assuming normal market conditions, using a 95% confidence interval. The Group uses a “Delta Normal” model to determine the observed interrelationships between movements in interest rates, stock markets and various currencies. These interrelationships are determined by observing interest rate movements, stock market movements and foreign currency rate movements over a 60-day period for the calculation of VAR amounts. The estimated potential 10-day loss in the fair value of the Group’s foreign currency positions (including foreign exchange translation risk), the estimated potential 10-day loss of its equity holdings, and the estimated potential 10-day loss in fair value of its interest rate-sensitive instruments (primarily financial debt and investments of liquid funds under normal market conditions), as calculated in the VAR model, are the following:
(USD millions) |  | 2020 |  | 2019 |
All financial instruments |  | 587 |  | 355 |
Analyzed by components: |  |  |  |  |
Instruments sensitive to foreign currency exchange rates |  | 199 |  | 89 |
Instruments sensitive to equity market movements |  | 62 |  | 31 |
Instruments sensitive to interest rates |  | 197 |  | 187 |
The average, high and low VAR amounts are as follows:
|  | 2020 |
(USD millions) |  | Average |  | High |  | Low |
All financial instruments |  | 568 |  | 659 |  | 322 |
Analyzed by components: |  |  |  |  |  |  |
Instruments sensitive to foreign currency exchange rates |  | 225 |  | 515 |  | 71 |
Instruments sensitive to equity market movements |  | 78 |  | 261 |  | 21 |
Instruments sensitive to interest rates |  | 329 |  | 912 |  | 173 |
|  | 2019 |
(USD millions) |  | Average |  | High |  | Low |
All financial instruments |  | 348 |  | 385 |  | 303 |
Analyzed by components: |  |  |  |  |  |  |
Instruments sensitive to foreign currency exchange rates |  | 143 |  | 195 |  | 86 |
Instruments sensitive to equity market movements |  | 36 |  | 81 |  | 16 |
Instruments sensitive to interest rates |  | 233 |  | 303 |  | 187 |
The VAR computation is a risk analysis tool designed to statistically estimate the potential 10-day loss from adverse movements in foreign currency exchange rates, equity prices and interest rates under normal market conditions. The computation does not purport to represent actual losses in fair value on earnings to be incurred by the Group, nor does it consider the effect of favorable changes in market rates. The Group cannot predict actual future movements in such market rates, and it does not claim that these VAR results are indicative of future movements in such market rates or are representative of any actual impact that future changes in market rates may have on the Group’s future results of operations or financial position.

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