Sharp Rise In UK Pharma Sector Profitability

3 September 1995

The profitability of the UK pharmaceutical industry increased considerably from the first quarter to the second quarter of 1995, according to the quarterly Corporate Health Check published by CCN Group Ltd. The industry is clearly on a strong upward path, says CCN, forecasting that it will exhibit still stronger activity in the months and years ahead, as the impact of recent mergers and acquisitions feeds through.

The industry's average return on capital employed increased from 29.2% in the first quarter to 38% in quarter two to reach, after four years of gradual decline, a higher level than at any time in the last 10 years. This puts the sector at the top of the UK league table; the average across all industries is 11.4%. Moreover, CCN points out that while the industry's pretax margin on sales was virtually static in the period under review, growing only from 21.2% to 21.7%, it was still top of this league table, at over three times more than the national average of 7.2%.

Merger and acquisition activity within the UK pharmaceutical industry has been supported by a greater reliance on debt finance, comments CCN, pointing to the sharp increase in the debt gearing ratio for the sector as a whole, from 16.3% in the first quarter of the year to over 28.6% in the second, in a business which is traditionally low-geared. However, it adds that this level remains far below the national average of 50%.

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