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Fitch Revises Novartis' Outlook to Negative; 'AA' Affirmed
2017年9月18日 / 下午5点13分 / 1 个月前

Fitch Revises Novartis' Outlook to Negative; 'AA' Affirmed

(The following statement was released by the rating agency) LONDON, September 18 (Fitch) Fitch Ratings has revised Switzerland-based pharmaceutical company Novartis AG's Outlook to Negative from Stable. Its Long-Term Issuer Default Rating (IDR) and senior secured rating have been affirmed at 'AA' and Short-Term IDR at 'F1+'. Fitch has also affirmed at 'AA' the unsecured rating of the notes issued by Novartis Finance S.A., Novartis Capital Corp., and Novartis Securities Investments Ltd., all guaranteed by Novartis AG. The Negative Outlook assigned to Novartis' 'AA' rating reflects its weakening credit ratios, driven by the recent pressure on sales growth and profitability coupled with investment in restructuring the Alcon division, as well as generous shareholder returns. In its pharma business, Novartis is currently experiencing a period of falling sales due to patent expiries and increasing pricing pressure, which at present cannot fully be compensated by new product launches. The 'AA' rating remains however supported by the group's strong competitive position in the global pharmaceutical markets, its diversified business profile with a leading innovative and generic product portfolio, both with good future growth prospects, robust and recurrent FCF, and substantial financial flexibility, which also stems from strategic options to maintain its balance-sheet strength through non-core assets disposals. KEY RATING DRIVERS Pressure on Sales, Profitability: Following a revenue and margin decline in 2017, Fitch expects only modest sales growth between 2018 and 2020, and EBITDA margin recovery to 30% by 2020. Sales growth and profitability have been affected by the loss of exclusivity on key drugs, pricing pressures in its generics division and an overall soft performance in its eye-care unit. Currently, sales from new products and internal restructuring efforts have not been sufficient to counter these effects on its top line. Fitch however expects Novartis to return to profitable growth from 2018 driven by new treatment launches in oncology, cardiovascular, and dermatology in addition to Novartis' developing biosimilar portfolio. Limited Rating Headroom, Negative Outlook: The softer operating performance coupled with the completion in 2017 of a USD5 billion share buyback programme have increased financial leverage, thus limiting rating headroom at the 'AA' level. This has triggered the Negative Outlook. Fitch expects FFO adjusted net leverage to breach the 1.5x sensitivity in 2017 (estimated at 1.7x) adding to rating pressure should Novartis not be able to resume sustainable profitable growth and/or adjust financial policies. Limited rating headroom is also evidenced by the FCF-margin trending now at or just below the 6.0% negative rating sensitivity and which is likely to be volatile. Nevertheless, we still expect FCF to be above USD2 billion pa over the Fitch rating case. FFO fixed charge cover remains comfortably above the 13x trigger in the period. Diversification supports Business Profile: The ratings are supported by Novartis' solid competitive position as a leading player in the global pharmaceuticals and healthcare industry. We believe wide geographical and product diversification helps the company to mitigate the effect of governments' cost-containment measures and patent-expiry risk in individual countries. Strong R&D Base: Novartis has demonstrated sound R&D productivity, particularly in the field of oncology, cardiovascular, and dermatology and also continues to build a strong market position in the fast-growing biosimilar market. As recent innovation is introduced to the market, Fitch expects a slowdown in late-stage product pipeline announcements over the next 6-12 months as the company focuses on projects in earlier development stages. We believe that the appointment of the current head of R&D of Novartis as CEO starting January 2018 should bolster the strategy shift towards innovative-based medicine. In our opinion portfolio restructuring is likely in the medium term. Positive Sector Trends, Increasing Value Focus: Fitch views fundamentals in the pharma and healthcare sectors as positive, with growing access to healthcare globally, an ageing population, an increase in chronic diseases, as well as innovation in specialist treatments. As a result, Fitch however also expects the focus on value in healthcare to increase, affecting industry growth and profitability. Pharma players will need to increasingly demonstrate the value of new treatments to payers in addition to medical efficacy. In our view, Novartis has been at the forefront in negotiating performance-based pricing model for new drugs, such as Entresto. DERIVATION SUMMARY Novartis' rating of 'AA' remains well positioned in the Fitch-rated global pharma universe, demonstrating a similar size to its closest European peer Roche ('AA'/Stable), but slightly weaker financial leverage and interest coverage ratios. Novartis has a more diversified business profile, covering innovative pharma, generics, and eye-care compared to Roche's narrower focus on innovative pharma, and in particular on oncology. This however also leads to a structurally weaker operating profit margin for Novartis. Novartis' profit margins are comparable to Sanofi SA's ('AA-/Negative'), which however is smaller in size and diversified into more mature treatment areas such as diabetes. We expect further strategic activity (including M&A) at Sanofi, potentially putting upward pressure on its leverage. Financial leverage and debt coverage ratios however are increasingly similar between both issuers, reflected by the Negative Outlook assigned to Novartis' rating. Other global peers such as AstraZeneca ('A-/Negative'), GSK ('A/Stable') and Pfizer ('A+/Negative') or Merck & Co (A/Stable) of the US, are differentiated by size, business model, margins and - most importantly - financial leverage, with all of these 'A' rated entities having FFO adjusted leverage above 2.0x against Novartis' assumed peak of 1.7x. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer are listed below. - Sales are expected to bottom out in FY17 after a 2% decline, growing at 2% CAGR thereafter. Fitch anticipates future growth will be driven by recent drug launches, a turnaround at Alcon and the reduced importance of off-patent drugs such as Gleevec. Growth will also benefit from the lack of major new patent expirations until 2019. - EBITDA margins to diminish slightly below 28.5% in FY17 due to Gleevec's expiration and intense US generic pricing pressure. Stabilisation of margins in FY18 as further generic pricing at Sandoz offsets the recovery of profitability at Alcon. EBITDA margin to recover from FY19 onwards towards 30% as drug launches mature, new biosimilars are launched and restructuring benefits become visible. - R&D expense modelled at unchanged level around 18% of sales. Capital intensity stable at 6% of sales. - Fitch forecasts an USD0.5 billion working-capital inflow in FY17 due to the decline in revenue, followed by moderate working-capital outflows linked to sales growth. - Pre-dividend FCF margin around 18-19% of revenue over the rating horizon, resulting in pre-dividend FCF fluctuating around USD9 billion from FY17 to FY19 and experiencing an uptick to USD9.6 billion in FY20. - Dividend payouts to grow 2.5% annually from USD6.5 billion in FY17, in line with the group's policy and track record. FCF to fluctuate between USD2 billion and USD3 billion, with an FCF margin between 4% and 6% over the rating horizon. - Annual net acquisitions of USD1.5 billion, assuming no material divestments. This compares to the USD2-5 billion range for gross acquisitions guided by management. - Annual share buybacks of USD2 billion annually following the USD5 billion share buyback programme of FY17. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action, i.e. Revision of the Outlook from Negative to Stable - A financial policy in line with a 'AA' rating, including an FFO-adjusted net leverage remaining below 1.5x on a sustained basis as a result of stronger operating performance, divestments or other capital preservation measures - FFO net fixed charge cover above 13x or above on a sustained basis - Strong R&D productivity supporting the resumption of robust profitable revenue growth sustainable over the medium term. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Inability to return to profitable growth as new innovation is introduced to the market, and/or major debt-funded acquisitions and/or share buy-backs, leading to: - FFO-adjusted net leverage greater than 1.5x and/or FCF margin continuously below 6% on a sustained basis; - FFO net fixed charge cover below 13x on a sustained basis. LIQUIDITY Strong Liquidity: Novartis' liquidity is strong, with cash and marketable securities at USD8.4 billion at June 2017 (USD4.5 at end 2016), comfortably covering short-term debt maturities of USD7.5 billion (USD5.8 billion at - 2016). In December 2017 USD3.2 billion of short-term debt was related to drawings under CP programmes, under which Novartis can issue up to USD10.3 billion (of which USD1.3 billion in JPY). In addition, the group has undrawn committed bank facilities of USD6.0 billion, serving as CP backup liquidity and maturing in 09/2020. Novartis debt is not subject to financial covenants FULL LIST OF RATING ACTIONS Contact: Principal Analyst Pablo Mazzini Senior Director +44 20 3530 1021 Supervisory Analyst Frank Orthbandt Director +44 20 3530 1037 Fitch London 30 North Colonnade London E14 5GN Committee Chairperson Giulio Lombardi Senior Director +39 02 8790 87214 Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. Summary of Financial Statement Adjustments - Fitch adjusts for leases capitalised by applying a capitalisation factor of 8.0x to arrive at a debt-equivalent figure for the computation of leverage metrics. We also assume USD750 million as non-readily available cash for debt service either absorbed in working-capital cycles or in overseas markets subject to capital restrictions. Additional information is available on www.fitchratings.com. 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