Alcon Inc. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under IFRS as issued by the IASB; amounts below are in U.S. dollars unless stated otherwise.
Business context and results
Alcon develops and sells eye-care products through Surgical and Vision Care. FY2022 net sales were $8.654 billion: Surgical contributed $5.045 billion (58%) and Vision Care $3.609 billion (42%). The United States represented 45% of sales. Alcon reported that markets continued recovering from COVID-19, while foreign exchange, inflation, and supply constraints weighed on results.
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales to third parties | $8.654bn | $8.222bn | +5% reported; +11% constant currency |
| Gross profit | $4.748bn | $4.652bn | +2% reported; +10% constant currency |
| Operating income | $672m | $580m | Operating margin 7.8%, up from 7.1% |
| Core operating income (non-IFRS) | $1.571bn | $1.443bn | +9% reported; core operating margin 18.2%, up from 17.6% |
| Net income | $335m | $376m | -11%; basic EPS $0.68 vs. $0.77 |
| Core net income (non-IFRS) | $1.108bn | $1.063bn | +4%; core diluted EPS $2.24 vs. $2.15 |
| Operating cash flow | $1.217bn | $1.345bn | Lower primarily due to working-capital outflows and currency effects |
| Free cash flow (non-IFRS) | $581m | $645m | Lower operating cash flow partly offset by lower capital spending |
| Cash and cash equivalents | $980m | $1.575bn | Declined $595m during the year |
| Financial debt / net debt (non-IFRS) | $4.648bn / $3.660bn | $4.080bn / $2.499bn | Net debt increased $1.161bn |
Comparative performance and financial position
- Surgical sales increased 7% reported (13% constant currency), led by implantables, advanced technology intraocular lenses, Hydrus microstent sales, and recovering procedure volumes. Vision Care sales increased 3% reported (8% constant currency); growth in newer contact lenses and acquired pharmaceuticals was partly offset by currency, legacy-lens declines, and contact-lens-care supply constraints.
- Reported net income fell despite higher operating income, mainly because of higher interest expense, other financial expense, and taxes. The effective tax rate rose to 27.6% from 10.0%, principally reflecting a U.S.-Switzerland Advanced Pricing Agreement affecting 2019–2022.
- Operating cash flow and free cash flow declined. Inventory and trade receivables rose, partly reflecting product launches, longer supply lead times, and sales growth outpacing collections. Investing cash outflow increased to $1.865bn, primarily due to acquisitions and capital spending.
- At year-end, total assets were $29.209bn and equity $19.677bn. Current assets were $5.193bn and current liabilities $2.782bn. The $1bn revolving credit facility was undrawn; average debt maturity was 11.8 years and 98% of financial debt was at fixed rates.
Outlook, commentary, risks, and unusual items
- The filing provides no specific consolidated FY2023 revenue or earnings guidance. Management expects inflationary pressures and supply-chain challenges to continue into 2023. The company describes its served eye-care markets as projected to grow at a mid-single-digit annual rate from 2022 to 2027; this is a market estimate, not company guidance.
- In November 2022, Alcon expanded its transformation program, expecting approximately $100m of additional annual run-rate savings and approximately $125m of incremental costs. Completion was still expected by year-end 2023; cumulative program expense through 2022 was $288m.
- Major transactions included the acquisitions of Ivantis, Aerie Pharmaceuticals, and the Eysuvis and Inveltys products. Aerie added marketed glaucoma products and a development pipeline; its acquisition contributed $16m of sales and reduced 2022 net income by $32m after closing.
- FY2022 operating income included $899m of adjustments to reach core operating income, including $588m amortization, $62m impairments, $119m transformation costs, $90m legal settlement costs, and $64m acquisition and integration costs. Core measures are non-IFRS and exclude items management considers outside underlying performance.
- Alcon accrued a one-time $199m payment to Johnson & Johnson Surgical Vision to settle worldwide disputes concerning femtosecond laser-assisted cataract surgery devices; the settlement was announced in February 2023. A separate contact-lens antitrust class settlement of $20m was paid in 2022.
- Key risks include foreign-exchange volatility, inflation and supply shortages, reliance on limited-source suppliers and certain manufacturing sites, demand and inventory forecasting, product quality and regulatory requirements, reimbursement and pricing pressure, competition and innovation execution, acquisition integration, litigation, cybersecurity and data privacy, and compliance with the three-year U.S. Department of Justice Deferred Prosecution Agreement.
- The Board proposed a CHF 0.21-per-share dividend for shareholder approval in May 2023; payment was not assured until approved. The 2022 dividend paid was CHF 0.20 per share.
- Auditors issued unqualified opinions on the IFRS financial statements and internal control over financial reporting as of December 31, 2022. Goodwill and brand-name impairment assessments, in-process R&D impairment, and valuation of Aerie-acquired intangible assets were identified as critical audit matters.
Important facts for investors to verify
- Reconcile reported growth with constant-currency growth and review currency exposure, including management’s estimate that a 1% U.S. dollar movement versus its currency basket changes annual sales by about $46m and operating income by about $20m.
- Assess cash conversion, working-capital trends, capital expenditure commitments ($248m at year-end), and the capacity to service higher net debt and interest costs.
- Review the assumptions supporting Aerie’s acquired intangible values and the carrying values of goodwill, the Alcon brand, and other intangibles; total goodwill and other intangible assets were substantial.
- Track execution of the expanded transformation program and whether anticipated savings are achieved without impairing growth or service.
- Monitor the $199m J&J settlement payment, the Hoya patent case scheduled for trial in 2024, generic-drug patent proceedings, and compliance with the DOJ agreement through its term.
- Confirm shareholder approval and amount of the proposed 2023 dividend, and distinguish non-IFRS core and free-cash-flow measures from audited IFRS results.