France's Rhone-Poulenc Bets On Future Solo Success
May 26, 1998 3:46 PM
DOW JONES INTERNATIONAL NEWS SERVICE
By Matthew Curtin
PARIS (Dow Jones)--French pharmaceuticals and
chemicals group Rhone-Poulenc (RP) is determined to
go it alone.
In the face of some searching questions at the group's
annual shareholders' meeting Tuesday, Chairman and
Chief Executive Jean-Rene Fourtou said Rhone-Poulenc
will eschew any major acquisition or merger for the
foreseeable future.
The group will rely on intensfied research and
development and its latest batch of pharmaceutical
products to improve its returns for shareholders,
Fourtou said.
"Our intention is not to grow our global presence, but to
improve our profitability," Fourtou said.
Rhone-Poulenc is also pushing ahead with plans to float
a 30% stake in its specialist chemicals unit Rhodia on the
Paris and New York stock exchanges. The move is
timed for next month, market conditions willing, Fourtou
said.
He added that Rhone-Poulenc will stick to its
"ambitious" goal of raising its return on equity to 15% by
the year 2000; it improved to 11.5% in 1997 from 7.2%
in 1993.
Reminding shareholders that five years ago the group
was close to bankruptcy, and saddled with a tired
portfolio of products, Fourtou repeated his forecast that
Rhone-Poulenc's earnings will rise 20% this year from
FRF10.14 per share, before exceptional charges, in
1997.
Lagging Share Price
Fourtou acknowledged Rhone-Poulenc's returns for
shareholders have been poor, and that its stock price
lags that of its French and international rivals. The shares
hit a new high of FRF334.7 on the Paris stock market
Tuesday, up FRF1.2 on the day, but they have lagged
the benchmark CAC 40 index so far this year.
"We are far from the profitability" of Rhone-Poulenc's
U.S. and European rivals, Fourtou said. "In size, we are
not so small... but we have been late in raising our
profitability."
That said, Fourtou rebuffed suggestions by trade-union
and individual investors that the group's current strategy
is so poorly conceived that it leaves Rhone-Poulenc
vulnerable to a hostile takeover bid.
He argued Rhone-Poulenc's size and debt burden
makes the group "difficult to swallow" for any would-be
predator, even after selling shares in Rhodia.
Rhone-Poulenc's pharmaceutial businesses alone - U.S.
unit Rhone-Poulenc Rorer whose minority shareholders
were bought out last year, the Paster Merieux units, and
the Centeon and Merial joint ventures - put it in the
same league as U.S. companies such as Pfizer. Its life
sciences businesses rank along side those of companies
like Switzerland's Novartis, Fourtou said.
Rhone-Poulenc is also spending more on research and
development, up at 9.4% of revenue in 1997 from 5.9%
ten years ago, and is refocusing its efforts on its core
pharmaceutical products - vaccines, drugs related to
preventing heart disease and treating cancer, as well as
animal vaccines, other animal health and agricultural
products.
Hopes Pinned To New Products
Managing Director Igor Landau said Rhone-Poulenc has
a suite of recently developed pharmaceuticals which are
still in the process of being approved in different
markets, promising a surge in revenue growth in the
years ahead.
Landau said sales of products such as cancer-treatment
drugs Taxotere and Granocyte and heart-treatement
drug Lovenox/Clexane offer "very great protential" for
the group.
Pharmaceuticals should contribute 36% of revenue by
the year 2000, up from 18% last year, driven by new
products, he said.
In the first quarter this year, group earnings climbed to
FRF873 million in the first quarter from FRF674 million
a year earlier, in line with expectations, as revenue rose
1.4% to FRF21.9 billion.
The profit rise was due largely to growth in
Rhone-Poulenc's animal-health business and to
improvement at Centeon LLC, its U.S. joint venture,
which broke even after a $40-million loss in 1997,
-Matthew Curtin; 33 (0) 1-5300-0303;
mcurtin@ap.org
Snapshot
French chemicals and drug group Rhone-Poulenc SA is
an international corporation with activities spread among
inorganic and organic chemicals, fibers and polymers,
fertilizers and insecticides, and human health.
Headquarters: 25, quai Paul Doumer, 92408
Courbevoie Cedex, France
Significant Developments: In 1997, Rhone-Poulenc
bought the 31.9% of RPR it didn't already own for
about FRF27 billion. The company said it would spin off
its chemicals and fibers business into a separate, quoted
company in the second-half of 1998, keeping about a
70% stake. To pay for restructuring, the group took an
FRF8.4 billion after-tax charge in 1997. Rhone-Poulenc
will take another FRF2 billion charge in the second and
third quarters of 1998 to cover assorted restructuring
costs. The group aims to have a 20% rise in EPS in
1998, excluding items, and for a return on equity of 15%
in 2000. RPR successfully launched a hostile takeover
bid for Fisons PLC of the U.K. in August 1995. At the
end of 1994, the group sold its acetics business to
Canada's Acetex.
Rhone-Poulenc's pharmaceuticals division was merged
with Rorer Inc. of the U.S. in July 1990 to form
Rhone-Poulenc Rorer. Rhone-Poulenc was privatized in
November 1993.
All figures are in French francs
Yr To Yr To Yr To
12/31/97 12/31/96 12/31/95
Net Profit a (5.00 Bln) 2.74 Bln 2.13 Bln
Revenue 90.00 Bln 85.82 Bln 84.79 Bln
EPS a (14.87) 8.44 6.71
Annual Div 3.75 3.50 3.00
a. Includes FRF8.4 billion in after-tax, one-time charges
for restructuring. Before charges, the company posted
net income of FRF3.4 billion and earnings per share of
FRF10.18.
Currency History (French franc vs dollar)
12/31/97 12/31/96 12/31/95
European
close 6.0170 5.2370 4.9000
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