GLAXO: profits fall

GlaxoSmithKline Pakistan Limited (PSX: GLAXO) has seen its profits fall for the first time in at least the last six years. The company’s profits have grown continuously except 2016 when profits after tax remained flat as GSK Consumer Healthcare (PSX: GSKCH) demerged from GLAXO (GSK Pakistan). GSKCH demerged from GLAXO in 2015 and started operations as an independent company in 2016 and got listed on PSX in 2017. GLAXO manufactures and markets a wide variety of prescription medicines and vaccines, whereas GSKCH sells over-the-counter medicines and consumer products.

The pharmaceutical giant booked a healthy topline growth of 8 percent year-on-year in 2019 versus the average sales growth of 6.5 percent in the last six years. Growth in topline is likely to have come its trade business that include antibiotics, analgesics, dermatology and respiratory segments. The commercial trade is a key driver of growth at GSK that fulfils the prescription demand generated by commercial activities.

Also most likely included in the revenues are the sales of OTC products to GSKCH being manufactured by the GLAXO due to pending transfer of marketing authorisations by Drug Regulatory Authority of Pakistan. These amounted to Rs4.1 billion in 2018.

Despite the growth in topline, the company’s gross margins slipped due to higher costs of sales  largely emanating from the currency devaluation and increase in price of raw material. In 2018 Annual Report, the company had highlighted that a challenge in 2019 will be the full year effect of the devaluation, compared to the half-year impact in 2018. However, contained expenses and growth in other income during the year provided some support to the bottomline, which declined by 7 percent year-on-year in 2019.

Key risks for GLAXO in 2020 will continue to be foreign exchange volatility and high inflation risk impacting business profitability. DRAP issued a SRO last year to partially compensate the devaluation impact by allowing a one-time across the board price increase to the pharma companies y 15 percent, but Peshawar High Court issued a stay order halting the implementation increase in medicine prices.