Viatris Reports FY23 Results with little progress on deleveraging

Summary; Pharma Viatris {VTRS US Equity} (Baa3 S, BBB- Neg, BBB) reports a miss on 4Q/FY23 results but beats on FY24 guidance; guidance for achieving leverage targets this yr is unch (necessary for ratings); buybacks boosted

FY23 FCF at $2.4b missed c$2.5b but still increasing its share repurchase program from $1b to $2b (has used $500m) and kept dividends unchanged at ~$600m this year ($0.48/share).

Midpoint for FY24 guidance is FCF of $2.5b ($2.3-2.7) - a beat on consensus $2.3b. Similar magnitude beats on revenue guidance ($15.5b vs. c$15.3b) but EBITDA did come a tad shy ($4.95b vs. c$5b)

$1.3b debt was paid down over the yr (vs. $1.8b returned to equity holders) to leave leverage (gross debt to EBITDA) 0.2* higher at 3.4* driven by a ~$600m fall in EBITDA yoy. 50/50 target us of FCF to return to equity holders vs. business development remains unch.

Long-term leverage target is unch at 3* (range of 2.8-3.2*) - it expects to reach it this year. Based on EBITDA guidance it will require it to pay down $2.3-$3.2b in gross debt this year (to hit 3*) & compares to the $1.3b it paid down last yr (on higher earnings). Its guiding to paying down '24 maturities + "incremental debt" to reach target - it has $2b in maturities this yr including €1.75b (~$1.9b) in the June and Nov € lines.

We don't see any rating risk (yet) from Moody's or Fitch - former looking for deleveraging through '24 (which Viatris reaffirmed) & latter adding a floor req. for FCF/debt of 10% - which doesn't seem a issue on guidance. Not much visibility for us on S&P's expectations (on BBB- Neg since Aug).

Local VTRS curve trades marginally wider of Bayer snr lines yet in $ its the inverse (again by margin). No view on VTRS curve from us but rating pressure seems more acute still on Bayer (bonds have rallied since dividend cuts were announced). Bayer is ~2-notches higher rated but on neg outlooks from Fitch & Moody's with no updates from either since its $2.25b court loss in late Jan (which has been ~offset by the dividend cut announced this month).

VTRS equities down -2% in pre-market, €VTRS +4-6 wider, €Bayer Snr +4-9 wider.