2nd Jul 2021 21:43
(Alliance News) - Moody's Investors Service on Friday upped its outlook for GlaxoSmithKline PLC, after the pharmaceutical firm laid out its strategic vision last week.
The ratings agency now has a stable outlook for GSK, raised from negative. It affirms its A2 long-term senior unsecured rating.
"Today's outlook change follows announcements made by the company at its recent investor event, confirming our assumptions of around GBP8 billion expected proceeds from the de-merger of the Consumer Healthcare unit in mid-2022 and a material dividend cut from next year," said Frederic Duranson, Moody's senior analyst and lead analyst for GSK.
"In addition, the outlook change reflects GSK's intention to retain part of its stake in the Consumer Healthcare business, which would bring additional proceeds that would be used to reduce gross debt and fund the pension deficit, thereby supporting deleveraging down to at least 3.0x on a Moody's adjusted basis in the next 18 to 24 months."
The Brentford, England-based company said that, between 2021 and 2026, it expects a compound annual growth rate, at constant exchange rates, of 5% for sales and 10% for adjusted operating profit.
The firm said it expects cash generated from operations to exceed GBP10 billion by 2026, with plans to hit over GBP33 billion in sales by 2031.
On the separation of its Consumer Healthcare arm, it plans to do this via a demerger of at least 80% of GSK's 68% holding in the business to GSK shareholders, with the new Consumer Healthcare company shares expected to attain a premium listing on the London Stock Exchange and ADRs to be listed in the US.
GSK added it will retain a 20% stake in its upcoming Consumer Healthcare spin-out, a "short-term financial investment, which it intends to monetise in a timely manner".
However, Moody's added that while it expects a reduction in debt, it does not anticipate any large improvements in the gross debt to earnings before interest, taxes, depreciation, and amortization ratio. This is because the spin-off is expected to hit GSK's Ebitda by about GBP2.6 billion to GBP2.8 billion, Moody's explained.
The pharmaceutical firm is forging its plans for the future amid a backdrop of activist investor pressure, with Elliot Management Corp snapping up a stake in the company.
On Friday, GSK said Chief Executive Emma Walmsley is the right leader for the core pharmaceutical and vaccines business after the consumer division gets spun off, in response to a scathing open letter from Elliott.
On Thursday, the investor said it had built a significant stake in the London-based company, which has failed to realise its value after years of poor performance.
Without naming Walmsley, Elliott called for pharmaceutical and scientific experts to pick the "right leadership" for New GSK from internal and external candidates. Walmsley's background is in consumer business, and she spent 17 years at L'Oreal SA before leading GSK's consumer business and then being promoted to group CEO in 2017.
Glaxo shares closed largely flat at 1,437.80 pence each in London on Friday.
By Eric Cunha; [email protected]
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