NVO Novo Nordisk

By Nina Trentmann 

Danish insulin maker Novo Nordisk A/S is forecasting a rise in the working capital it would need as it prepares for a potentially disruptive Brexit, including product stockpiles and alternative means of drug transportation.

"We have more than doubled our [U.K.] inventories," Chief Financial Officer Karsten Munk Knudsen said in an interview with CFO Journal on Friday. The Bagsvaerd, Denmark-based company is currently storing 16 weeks of drug supply in the U.K. ahead of Britain's exit from the European Union on March 29.

This will result in higher working capital at Novo in the coming quarters, said Mr. Knudsen, without quantifying the potential increase. The company reported working capital as a percentage of sales of 4.4%, or 4.9 billion Danish kroner ($750 million), in 2018.

The U.K. accounts for 2% to 3% of Novo's global sales, but it doesn't manufacture in the country.

Companies from a range of sectors, including manufacturing and food production, have taken similar actions as they await the terms of Britain's departure from the European Union. Lawmakers on Tuesday voted for a renegotiation of the Brexit deal that the government and the EU agreed to in the fall.

The disagreement between the government and parliamentarians is creating a delay, increasing the potential for a last-minute deal or a no-deal Brexit on March 29. In such a scenario, tariffs could apply from day one of the new regime, March 30, and goods to and from the U.K. would have to clear customs, potentially resulting in significant costs and delays at the border.

Novo said it exploring alternative ways to transport its drugs. "We are normally shipping our products [to the U.K.], but now, we are also looking at airfreight," Mr. Knudsen said.

That also may not be an ideal solution. Under a no-deal Brexit, flight connections between the U.K. and the EU would remain in place, but there may be fewer daily flights, according to contingency plans released by the European Commission in December. "This might present another challenge," said Mr. Knudsen.

That is one of the reasons why the company is stockpiling in the U.K. Novo recently rented additional storage space in the U.K. Many of the company's products need to be refrigerated, adding to the problem, Mr. Knudsen said.

Novo would be "reasonably exposed" in a no-deal Brexit scenario, said Wimal Kapadia, an analyst at Sanford C. Bernstein & Co.

The drugmaker on Friday reported that net profit for the three months ended Dec. 31, 2018, increased 8.50 billion Danish kroner from 8.25 billion Danish kroner a year earlier, falling short of the 8.90 billion Danish kroner forecast by analysts in a FactSet poll.

Novo generates roughly half of its revenues, and a sizable part of its profit, in the U.S. There, net prices have fallen, by roughly 21% for basal insulin in 2018, one of the company's core products, according to Mr. Kapadia. "We see that our average net pricing is down," Mr. Knudsen said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

February 01, 2019 12:33 ET (17:33 GMT)

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