		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

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

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 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.

	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

	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

195

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

229

– 401

– 5

Cash receipts and payments

– 32

Disposals

– 3

– 30

– 53

Reclassification

– 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

106

– 47

¹ Notes 1, 2 and 30 provide information related to discontinued operations.

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.

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 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:

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

1 571

1 635

Commodities

111

Derivative financial instruments and accrued interest

110

159

Cash and cash equivalents

8 558

1 100

9 658

Total current financial assets

8 609

2 781

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

122

Commodities

110

Derivative financial instruments and accrued interest

102

Cash and cash equivalents

9 712

1 400

11 112

Total current financial assets

9 746

1 505

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.

	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

	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

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.

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:

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.