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Healthcare/pharmaceutical sector second only to technology in dominating corporate cash

Apple leads top corporate cash holders in 2016, followed by Microsoft and Google, according to a report released by Moody's Investor Service.

Susan Morse, Senior Editor

The healthcare and pharmaceutical sector is second only to technology in corporate cash growth, according to a report released today by Moody's Investor Service.

In 2016, healthcare/pharmaceuticals had $273 billion in cash holdings, up from $264 billion in 2015.

However, technology dominates the cash sector at $871 billion in 2016, compared to $777 billion in 2015.

All five of the top corporate cash holders in 2016 were in technology, in a list that's a repeat from 2015: Apple, Microsoft, Google, Cisco Systems and Oracle Corp.

[Also: EHR installs carry huge financial risks, Moody's says]

In 2007, Exxon Mobil was number one, followed by Ford, Pfizer, Cisco and Microsoft, according to Moody's.

After technology, the top cash-heavy U.S. industries are healthcare/pharmaceuticals, consumer products, energy, automotive and manufacturing. The top six, including technology, dominated a record $1.6 trillion, or 87 percent of total corporate cash at the end of 2016.

Moody's reported mixed gains and losses for the healthcare/pharma sector for 2016, while energy suffered the largest declines.
The top five cash holders, all in technology, spent nearly $35 billion in 2016, up from $32 billion in 2015, with Apple spending the most at $13 billion.

It should be no surprise then, that Apple is the biggest borrower, going from no debt in 2012 to $88 billion in 2016, according to Moody's.

Technology posted the largest percentage increase in debt for the fourth straight year by 37 percent in 2016.

[Also: For-profit hospital finances look stable, profit margins should improve, Moody's says]

However, Moody's reported a decline in borrowing for the first time since it began the survey in 2007. Leading the decline was energy, where debt fell by 17 percent.

Healthcare/pharma remained at 10 percent total debt, the same as in 2015.

For 2016, the healthcare/pharma sector experienced a 10 percent decline in capital expenditure growth. Energy saw a 47 percent decline. In comparison, technology increased by 11 percent.

For 2017, Moody's said it expects total capital expenditures to decline in the low-single digits, driven by an estimated 10 to 15 percent reduction in the energy sector.

Revenue declined overall across the sectors for 2016, but healthcare/pharmaceuticals, along with consumer products, were the exceptions.

The largest revenue generating sector, consumer products, grew by 11 percent to $2.74 trillion. Revenue for the healthcare/ pharmaceuticals sector grew by 3 percent, and the technology sector inched up only 1 percent. All of the other sectors experienced revenue declines of 4 to 11 percent, with the energy sector falling by 31 percent.

Discretionary cash flow hit a new record, Moody's said. For healthcare/pharma, cash flow from operations less capital expenditures was 11 percent in 2016, compared to 5 percent in 2015.

Margins for healthcare/pharma were 15 percent, compared to a high of 23 percent for technology, and a low of 8 percent for automotive.

Earnings before interest, taxes and amortization or EBITA growth for healthcare/pharma was a negative 4 percent in 2016, compared to 6 percent in 2015. Its EBITA margin was 15 percent, compared to 16 percent in 2015.

Manufacturing led the way in cash flow from operations growth, at 18 percent. For healthcare/pharma, cash flow from operations grew 7 percent, compared to 4 percent the year before. Energy suffered a negative 35 percent decline in CFO growth.

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