All-- A ratings report on Smithcline Beechem. Of note is the quarter of a billion dollar reserve for litigation involving and including the company that brli bought from them and has a lawsuit pending with them.
As an example of the potential, read the notes on the Fonar thread.
WJ
NEW YORK, June 11 /PRNewswire/ -- Standard & Poor's today has raised its
ratings on SmithKline Beecham PLC and related entities (see list below). The
outlook is positive. About US$1.7 billion of rated debt is affected.
The upgrades reflect significant improvements over the past three years
in SmithKline Beecham's business profile, in conjunction with a less
aggressive than expected acquisition policy.
The business profile has benefited in recent years from successful
introduction and growth of a number of new drugs. Compared to its 1994
position, the group:
-- Has a better balanced portfolio of drugs (following the mid-1994 U.S.
patent expiry of its previously biggest drug Tagamet);
-- Enjoys one of the best pipelines in the industry;
-- Achieved about twice the industry's average growth rate in
pharmaceuticals (13% in 1995, 14% in 1996, and 12% in the first quarter of
1997 compared with the same periods one year earlier);
-- Has overproportional exposure to the lucrative U.S. market (49% of
total sales in 1996); and
-- No significant exposure to U.S. patent expiries in the next four
years.
The upgrades also acknowledge that, despite a more aggressive management
style and the group's goal to become the world's leading health care company,
SmithKline Beecham has made no major acquisitions in the past two and half
years. While the event risk of a major acquisition cannot be excluded for any
major participant in pharmaceuticals, given the ongoing consolidation process
in a still fragmented industry, SmithKline Beecham currently has no
operational necessity to merge with another company. With its attractive range
of new drugs, it has no obvious need for making a major acquisition or
considering a merger. Its new products account for over a third of sales, and
were up 37% in 1996 compared with 1995, and up 40% in the first quarter of
1997. They include Seroxat/Paxil (antidepressant), Famvir (antiviral), Kytril
(anti-emetic), Havrix (hepatitis A vaccine), ReQuip (Parkinson's disease),
Hycamtin (ovarian cancer), Infanrix (paediatric vaccine), and until 1996
Relafen (arthritis medicine).
Unlike its business profile, SmithKline Beecham's financial profile has
remained unchanged. At June 1996 the company's net debt (including preference
shares of US$750 million) remained at #2.3 billion (about US$3.7 billion),
which is the same level as for the year-end 1994 net debt when SmithKline
Beecham acquired Diversified Pharmaceutical Services and Sterling Winthrop.
This was mainly because of exceptional cash outflows such as restructuring
charges and simplification of SmithKline Beecham share structure. Since then
there have been further exceptional cash outflows relating to the group's #250
million provision set up in 1995 and relating to litigation and administrative
proceedings concerning clinical laboratories and pharmaceutical pricing but
also a US$750 million preferred stock issue in July 1996 to repay existing
debt. At March 31, 1997 net debt was #1.6 billion.
Going forward, however, the group's businesses should return to a
stronger free cash flow generation -- as evidenced by the generation of #362
million of average, annual free cash flow from operations between 1993 and
1995. In 1996, funds from operations (before changes in working capital) to
net interest and preference share dividends was above 15 times (x) (up from
13x in 1995) and funds from operations to net debt was 118% (up from 89% in
1995). In the first quarter of 1997 trading profit covered net interest and
preference share dividends 13x.
OUTLOOK: Positive.
Ratings anticipate that SmithKline Beecham will reduce its net debt
meaningfully via free cash generation as well as a continuation of the good
operating performance and disciplined acquisition strategy. Further strong
improvements in SmithKline Beecham's financial profile could lead to a rating
upgrade over the medium term, Standard & Poor's said. -- CreditWire
RATINGS RAISED
To From
SmithKline Beecham PLC
SmithKline Beecham Corp.
Corporate credit rating AA- A+
Commercial paper A-1+ A-1
SmithKline Beecham Finance PLC
*Commercial paper A-1+ A-1
SmithKline Beecham Capital Inc.
SmithKline Beecham Capital PLC
*Senior unsecured debt AA- A+
SmithKline Beecham Holdings Corp.
Corporate credit rating AA- A+
Preferred stock A+ A
*Guaranteed by SmithKline Beecham PLC.
SOURCE Standard & Poor's
CO: SmithKline Beecham PLC
ST: New York
IN: MTC
SU: RTG
06/11/97 16:22 EDT prnewswire.com
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