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 Roche, the world's largest maker of cancer drugs, has a track record of solid profit growth prompting expectations of
a more generous dividend, share buyback or M&A.
It said on Thursday it planned to pay a dividend of 7.80 Swiss
francs per share, up 6 percent over the previous year, and would
keep hiking payouts. But this fell short of the mean estimate of
7.98 Swiss francs in a Reuters poll.
Roche's reluctance to offer a sweetener to shareholders in the form
of a special dividend or stock buyback contrasts with cross-town
rival Novartis, which announced a $5 billion share buyback program
last year.
Kepler Cheuvreux analyst Fabian Wenner said investors were likely to
be disappointed, given Roche would have net cash — a measure of cash
on financial statements after subtracting current liabilities — by
mid-year.
"That raises the question as to what they are going to do with it?
The only sensible assumption is that they are preparing a deal,
otherwise what are they going to do with the money?" Wenner said.
Roche's net debt stood at 6.7 billion francs by the end of 2013 and
it has now paid off around two-thirds of its $46.8 billion purchase
of Californian biotech firm Genentech in 2009.
Chief Executive Severin Schwan said the group's net debt to assets
ratio of 11 percent at the end of last year was back in its target
corridor of zero to 15 percent. But he said this was still above
average compared to peers in the industry.
He declined to say how the company might use its cash if it could
not find a suitable acquisition to spend the money on.
"The question is always of course ... M&A and that will very much
depend on the opportunities coming up," Schwan told reporters. "But
our strategy has not changed at all, we will continue to look out
for bolt on acquisitions."
He said Roche was interested in adding to its pipeline in its
pharmaceuticals division as well as buying technologies for its
diagnostics unit, but did not give any price range.
Since buying Genentech, the drugmaker has earned a reputation as a
disciplined acquirer, prepared to walk away from potential deals
rather than overpay.
In 2012, Roche abandoned an attempt to buy Illumina for $6.7 billion
after shareholders in the U.S. gene-sequencing company held out for
a higher price. Last year, Roche was said to be seeking financing
for a potential bid for rare disease treatment specialist Alexion,
but no deal has materialized.
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STRONG SWISS FRANC
Roche's full-year sales rose 3 percent to 46.78 billion Swiss francs
($52.22 billion), in line with forecasts, and driven by strong
demand for both its older and newer cancer medicines as well as its
rheumatoid arthritis medicine Actemra.
Net profit rose 18 percent to 11.373 billion francs, missing the
average analyst forecast for 11.626 billion in a Reuters poll. The
figures were hit by currency swings, with Roche particularly hurt by
a weakening of the Japanese yen against the Swiss franc. Chief
Financial Officer Alan Hippe said the emerging market currency
weakness would likely be a drag on 2014's figures.
Citi analyst Andrew Baum said the negative currency impact
overshadowed otherwise robust fundamentals. He expects foreign
exchange swings to shave 6 percent off core earnings per share this
year, if current exchange rates persist.
Roche guided for 2014 sales to grow in the low-to-mid single
digits percent, while core earnings per share (EPS) should grow
ahead of sales. It expects the loss of exclusivity on chemotherapy
drug Xeloda — its fifth-biggest seller with sales of 1.5 billion
francs last year — to drag on growth.
Roche has pushed ahead with plans to develop "follow on" medicines
which it hopes will replace or breathe new life into older
treatments. It is banking on a strong ramp-up of these products to
defend its market share once copycat versions of biotech drugs known
as "biosimilars" arrive.
This strategy showed it was bearing fruit on Thursday, as sales of
Perjeta, a treatment for women with a particularly aggressive form
of breast cancer, rose nearly five-fold to 326 million francs, from
56 million a year ago.
Shares in Roche, which rose 35 percent last year, were trading down
0.6 percent at 238.4 francs by 1040 GMT (05:04 ET), compared to a
flat European healthcare sector index.
($1 = 0.8959 Swiss francs)
(Editing by Jane Merriman)
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