Investors/Analysts ConferenceLondon/New York, February 2012Ian Bishop

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This presentation contains certain forward-looking statements. These forward-looking statements may be identified by words such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’, ‘should’, ‘seeks’, ‘estimates’, ‘future’ or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this presentation, among others:

1 pricing and product initiatives of competitors;2 legislative and regulatory developments and economic conditions; 3 delay or inability in obtaining regulatory approvals or bringing products to market; 4 fluctuations in currency exchange rates and general financial market conditions; 5 uncertainties in the discovery, development or marketing of new products or new uses of existing products,

including without limitation negative results of clinical trials or research projects, unexpected side-effects of pipeline or marketed products;

6 increased government pricing pressures; 7 interruptions in production 8 loss of or inability to obtain adequate protection for intellectual property rights; 9 litigation;

10 loss of key executives or other employees; and11 adverse publicity and news coverage.

Any statements regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche’s earnings or earnings per share for this year or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Roche.

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Changes in 2011 Finance Report

Net Working Capital

Appendix 1: Core EPS supplementary information

Appendix 2: Hedging and collateral arrangements

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IFRS Financial StatementsNo significant changes in 2011 Financial Statements

No major changes in IFRS effective for 2011• New standards on consolidation and joint ventures, and further revisions to IAS 19

(pensions) were issued, which will be applied in 2013.• Implementation of IFRS 9 ‘Financial Instruments’ deferred from 2013 to 2015.• New standards expected on Revenue Recognition and Leasing for 2015.

Notes to the Financial Statements• Previous Note 3 on Genentech dropped.

Chugai – Note 3• Disclosure of costs of East Japan Earthquake.• Impact on operating results to be discussed in Financial Review.

Global restructuring plans – Note 7• Detailed disclosure on Operational Excellence.

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Change of format• Detailed information on Product/Business Area sales to be moved to Financial Report.• Reorganised text in Financial Review to mirror the business and to be more to-the-point.• Ensured balance between Reported and Core results.

Expanded product sales information in Financial Report• To support expanded text, the regional information in Press Release & ROFIS is included. • Top 20 is replaced by full overview of product sales, with products over 200m CHF given.• Pharma products with sales over 1bn CHF are given in detail, together with selected growth

products and also Tamiflu.• Emerging markets: E7 sales are included for both Pharma and Dia.

Balance sheet review• Divisional balance sheet commentary given, including working capital and capex.• Balance sheet forex movements quantified and explained.

Financial Review 2011Summary of changes

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Changes in 2011 Finance Report

Net Working Capital

Appendix 1: Core EPS supplementary information

Appendix 2: Hedging and collateral arrangements

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Main factors• When consolidating in CHF, all NWC not denominated in CHF can move due to currency

translation.• Year-on-year this was not such a large effect in 2011 (unlike 2010). JPY was stronger

against CHF, while Brazilian Real and Turkish Lira were weaker.• During the year the CHF was on average stronger than either opening or closing rates for

some currencies (notably USD).

Net Working CapitalMovements – Currency Translation

€100

1 January

€100

31 December

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Main factors• When looking at the Operating Free Cash Flow, only cash transactions are relevant.• Build-ups can come from growth markets and inventories for launch products.• Build-up in trade receivables can also come from customers delaying payment.• Inventory levels have to be maintained to ensure supply at all stages of the supply chain.• Active cash collection, inventory management and factoring will reduce build-up.

Net Working CapitalMovements – Cash Transactions

€100

1 January

€110

31 December

+ €40

Sales

- €30

Cash from customers

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Main factors• When looking at the Balance sheet, also relevant are non-cash transactions such as:• Acquisitions, which typically will increase all balances.• Provisions, notably obsolete/slow-moving inventories and doubtful receivables/bad debts,

which increase or decrease the balance sheet NWC with no cash effect.• Transfers, such as replacing public debt trade receivables with government bonds.

Net Working CapitalMovements – Non-Cash Transactions

€100

1 January

€90

31 December

+ €40

Sales

- €30

Cash from customers

- €20

Provisions

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Main factors• Trade receivables increase in 2011 due to growth in China, plus build-up in public sector in

Southern Europe (notably Spain, Portugal).• Inventories increase in 2011, due to build-up in key growth markets (Asia-Pacific,

especially China, and also Latin America).• Payables level in 2011, large decrease in 2010 due to settlement of YE 2009 balances.

Net Working CapitalPharma Division – Operating Free Cash Flow

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Main factors• All cash flow relevant items on previous slide apply here. Additional factors are:• Trade receivables reduced by 344m CHF due to Greek bonds (which are financial assets

not part of NWC – almost all were sold by year-end).• Inventories and trade receivables balances reduced due to increased provisions.

Net Working CapitalPharma Division – Balance sheet

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Main factors• Trade receivables increase in 2011 due to build-up in public sector in Southern Europe,

with longer settlement times and reduced factoring activity.• Inventories increase in 2011, due to launch build-up and growth in Professional

Diagnostics and Tissue Diagnostics, plus higher Hitachi-sourced inventories.• Payables higher (therefore NWC lower) due to harmonisation of supplier payment terms.

Net Working CapitalDiagnostics Division – Operating Free Cash Flow

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Main factors• All cash flow relevant items on previous slide apply here. Additional factors are:• Trade receivables reduced by 64m CHF due to Greek bonds. (which are financial assets not

part of NWC – almost all were sold by year-end).• All net working capital balances higher due to acquisitions.• Trade receivables balances reduced due to increased provisions.

Net Working CapitalDiagnostics Division – Balance Sheet

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Changes in 2011 Finance Report

Net Working Capital

Appendix 1: Core EPS supplementary information

Appendix 2: Hedging and collateral arrangements

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Core EPS• Core EPS was pioneered by Roche in the Healthcare sector in 2004. • Consistently applied since then, with clear linkage to the audited IFRS financial statements. • We expanded the disclosures for 2010 in light of current international and industry practice

and taking into account the latest regulatory guidance.

Presentational changes made in 2010• Income statement in audited financials simplified, removing “Exceptional Items”.• Internal and external earnings metrics aligned. “Operating Profit before Exceptional Items”

will be replaced by “Core Operating Profit”. • No significant changes to the definition of Core EPS. Operational Excellence costs will be

excluded from the Core Results.• From 2010, Core Results will be given externally for full Divisional and Roche Group income

statements, with a fully transparent reconciliation to the audited IFRS results.

Core Results reportingOverview

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Earnings per shareWhich one to use?

Diluted EPS

• Best suited for reporting to shareholders on actual results. - Includes everything.

Core EPS• Best suited for reporting to shareholders on actual results.

- Focuses on the underlying business.- Excludes historic irregular items (discontinuing businesses, litigation and

environmental settlements) and items that reduce comparability to peers (intangible asset amortisation and impairment).

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Operating expense is fixed

• Operating expense is fixed at grant date and spread over vesting period, but …

Tax benefit is variable

• Tax benefit variable (depending on market price) and booked until exercise- Tax benefit can be zero (if option out-of-money)- Tax benefit can include catch-up from prior periods- Overall cap on tax benefit that can be included in the income statement per

IFRS 2 (operating expense multiplied by tax rate)- Tax impacts last beyond vesting until exercise

Equity Compensation PlansIncome taxes: main principles

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Shareprice

Grant date Year 1 Year 2 Year 3 Year 4 Year 5

Operating -100 -100 -100 - -expense

Tax 0 60 30 30 -40benefit

Effective 0% 60% 30% n/a n/atax rate

Strike price

Equity Compensation PlansIncome taxes: theoretical example

Assumptions: 3 year cliff vesting plan, 40 % local tax rate, no exercises

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Major Roche Group equity compensation plans: tax effects

HY ‘10CHF m

FY ‘10CHF m

HY ‘11CHF m

FY ‘11CHF m

Operating profit (158) (302) (168) (370)

Reported tax benefit 9 6 29 120

Effective tax rate 6% 2% 17% 32%

Normalised tax benefit 50 89 58 112

Normalised tax rate 32% 30% 35% 30%

Equity Compensation Plans Income taxes: current situation 2010-2011

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Assumptions• Does not include impairments from 1 January 2012 onwards.• Does not include acquisitions or additions from 1 January 2012 onwards.• Does not include transfers to ‘in use’ from 1 January 2012 onwards.• Tax rate assumed at 35%.• Foreign exchange rates assumed 2011 closing: USD 0.94, EUR 1.22, JPY 1.21.

Intangible assets amortisation for 2012-2014 Estimates based on status at 31 December 2011

CHFm 2012 2013 2014

Amortisation 486 445 419

Income taxes (170) (156) (147)

Non-controlling interests - - -

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Changes in 2011 Finance Report

Net Working Capital

Appendix 1: Core EPS supplementary information

Appendix 2: Hedging and collateral arrangements

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Overview Financing and HedgingAll foreign exchange exposures hedged with derivatives

RHI * Finance Company

RIUDNA

Bond Investors

Banks

Bonds USD + non-US currencies FX hedges

IC loans USD

Collateral Mgmt

IC - FX hedges

IC loan USD

Hedge Accounting

Genentech* Roche Holdings, Inc. (US holding company)

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Hedging and collateral arrangementsWhat are these, and why is Roche doing this?

Debt issued to finance Genentech transaction• Roche issued 40 billion USD of debt in early 2009 from its US holding company.• Debt was issued in USD to the US markets, but also in EUR, GBP and CHF to

access European markets. Hedging• Proceeds of non-USD debt were swapped to give the debt economic

characteristics of USD debt in the Roche financials.• Repayment rate has been fixed to the forex rates prevailing at issue in 2009.• Similarly interest costs have been economically hedged to US interest rates. How is this done ?• Shorter-term debt is hedged using Forward Contracts of 1-6 months, which are

periodically settled and rolled over.• Longer-term debt is hedged using Cross-Currency Swaps, which are only settled

on maturity of the debt.• Collateral payments are exchanged between Roche and the banks to mitigate

counter-party risk on the Cross-Currency Swaps.

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Hedging and collateral arrangementsMechanics – Forward Contracts

Accounting treatment of derivative• No recognition at inception.• During course of contract fair value of derivative fluctuates due to forex rates.• This movement is recorded to financial income “Gain/loss on foreign currency

derivatives”.• On maturity of contract, cash settlement is made, a true-up is recorded to

financial income, and a new contract is set-up.

Accounting treatment of hedged debt• Carrying value of debt (which is EUR/GBP/CHF denominated in a USD reporting

company) fluctuates due to forex rates.• This movement is recorded to financial income “Foreign exchange gains/losses”

Hedge Accounting• Although economic hedging is achieved, there is no hedge accounting.

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Hedging and collateral arrangementsForward Contracts

CHF billion FY 2010 H1 2011 H2 2011 FY 2011

Forward contracts

- Foreign exchange gains (loss) in income statement

1.0 0.3 (0.2) 0.1

- Cash inflow (outflow) (0.3) 0.3 (0.1) 0.2

- Carrying value of asset (liability) in balance sheet of current contracts

0.1 0.1 - -

Underlying debt

- Foreign exchange gain (loss) in income statement

(0.1) (0.3) 0.2 (0.1)

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Hedging and collateral arrangementsMechanics – Cross-Currency Swaps

Accounting treatment of derivative• No recognition at inception.• During course of contract fair value of derivative fluctuates due to forex rates, and

also interest rates (due to longer duration compared to forward contracts).• This movement is recorded to equity in the hedging reserve.

Accounting treatment of hedged debt• Carrying value of debt (which is EUR/GBP/CHF denominated in a USD reporting

company) fluctuates due to forex rates.• This movement is recorded to equity in the hedging reserve.

Hedge Accounting• No impact on income statement, due to hedge accounting.• Residual amount remains in equity, due to interest-rate differentials. This will

unwind on maturity.• In addition to the forex entries, there is an interest element recorded to income.

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Hedging and collateral arrangementsCross-Currency Swaps

CHF billion FY 2010 H1 2011 H2 2011 FY 2011

Cross-currency swaps

- Foreign exchange gain (loss) recorded in equity for the period

(1.2) 0.9 (1.1) (0.2)

- Carrying value of derivative asset (liability) in closing balance sheet for swaps

0.4 1.0 0.2 0.2

Underlying debt

- Foreign exchange gain (loss) recorded in equity for the period

1.1 (1.0) 1.1 0.2

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Hedging and collateral arrangementsMechanics – Collateral arrangements

Why is this done ?• The Cross-Currency Swaps involve counter-party credit risk for both parties.• The carrying value can be quite high. Book value.• The collateral arrangements cover both parties for the risk. Cash.

Process• Once a week a cash transfer is made between Roche and its counterparties.• This is recorded as a balance sheet movement. There is no impact on income.• As the underlying debt is repaid, the volume of the collateral will reduce, until it

becomes zero when all debt is repaid.

Future volatility• Currently the collateral balance moves by 150m USD if the EUR/GBP/CHF all

move by 1% against the USD.• As the debt is repaid this will reduce to less than 100m USD by mid-2013.

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Hedging and collateral arrangementsCollateral arrangements

CHF billion FY 2010 H1 2011 H2 2011 FY 2011

Opening balance 1.5 0.1 0.9 0.1

Cash inflow (outflow) (1.4) 0.8 (0.7) 0.1

Closing balance 0.1 0.9 0.2 0.2

Reported as

- current assets - - - -

- accrued liabilities (0.1) 0.9 0.2 0.2

Total (0.1) 0.9 0.2 0.2

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