Fitch cuts PGF outlook to negative

Fitch Ratings said it changed the outlook on Polska Grupa Farmaceutyczna SA's national long-term rating to negative from stable. The national ratings were affirmed at BB+(pol) long-term and B(pol) short-term.

Fitch said the outlook change reflects PGF's sustained high debt, which was only partially offset by stronger EBITDA generation in 2005. Despite management's intention to meaningfully deleverage the company during 2005, net debt increased 4% to PLN341 million at the end of 2005 and net debt to EBITDA ratio was 3.9x.

The increase in PGF's debt in 2005 was partly driven by the company's policy to grant loans to pharmacies, the agency said. The loans increased by some PLN40 million to PLN90 million between December 2004 and September 2005. Fitch said that although this policy enables PGF to strengthen its links with these pharmacies, increase sales and earn interest on loans, the policy exposes the company to these entities' credit and liquidity risks.

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