GlaxoSmithKline

Created on 1 January 2001, GlaxoSmithKline through the merger of SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited. Today, it is the largest pharmaceutical company in Pakistan in terms of value, volume and prescription market shares.
GSK's product portfolio includes registered pharmaceutical medicines, vaccines, over-the-counter products, as well as other consumer healthcare brands. Augmentin, Seretide, Amoxil, Velosef, Zantac, Panadol and Calpol are some well-known medicine brands of the company. GSK Pakistan also boasts of some very popular consumer healthcare brands such as Horlicks, Aquafresh, Macleans and ENO. The company has three manufacturing sites in Karachi and one in Lahore.
PROFITABILITY ANALYSIS During 9MCY12, GSK Pakistan showed a slight improvement in its sales, increasing by about five percent relative to the same period last year. This pace of growth was slower relative to GSK's increase in sales during CY11 relative to CY10.
A number of factors were responsible for the slower pace of growth. Firstly, the import quota of the Pseudoephedrine raw material was suspended by the Narcotics Board. Secondly, government spending on large tenders was reduced, and thirdly, CFC containing products were discontinued as per global guidelines.
A further breakup in categories revealed that analgesics, central nervous system, cough/cold, gastro-intestinal and vitamin portfolios achieved double-digit growth during 9MCY12. On the other hand, the consumer healthcare category was greatly helped by enhanced brand investment, especially for well-known brands such as Iodex, Panadol, Sensodyne, Horlicks and ENO. Net export sales also registered a year-on-year increase of over 22 percent during 9MCY12.
But despite the robust performance from these categories of products, the company's gross margins went down slightly during the nine months of this calendar year, relative to the same period last year. The company attributes this to rising inflation, in particular the increase in prices of raw materials, utilities, packaging material and fuel and power. Besides these, currency devaluation has also taken a toll on the company's margins.
Selling, marketing and distribution expenses also witnessed an uptick during 9MCY12 relative to 9MCY11, partly because of greater branding efforts towards the consumer healthcare products, and partly because of the increased freight costs due to more expensive fuel.
The pressure on the operating side was reflected in the net margins, which were lower by 0.5 percentage points during 9MCY12 relative to the same period last year.
DEBT AND LEVERAGE GSK Pakistan is not a highly leveraged company. In fact, the long-term debt to equity ratio has been hovering around a mere five percent during the last three years. In fact, the long-term liabilities mainly constitute staff gratuities and differed tax liabilities rather than any bank loans. Consequently, the current ratio has also stood healthy for most of the years, with the figure at the end of September 2011 coming to 2.3.
The company does have healthy cash balances and comfortable reserves, with the cash surplus used to finance capital expenditures. Rs 824 million were spent on the upgradation and extension of the manufacturing/warehouse facility in the Korangi factory and for the purchase of vehicles up till 9MCY12.
"The surplus funds of the company decreased by Rs 893 million compared to year-end balance at December 31 2011, to Rs 1.4 billion mainly due to the dividend payout of Rs 957 million for 2011 as well as increased fixed capital expenditure in connection with manufacturing facility rationalisation and upgradations," said the latest available chief executive's review of the company.
DIVIDENDS AND SHARE PRICE GSK is a generous company when it comes to dividends. The company paid out cash dividends worth Rs 4 per share during CY11 and CY10, as well as 10 percent and 15 percent of bonus shares during the two years respectively. Until now, however, no interim dividends have been announced in 2012. GSK has been the most traded company amongst the pharma companies listed on the KSE lately, with the current price hovering around Rs 70 per share. The company's price-earning ratio has been quite healthy during the last two years.
OUTLOOK The most challenging aspect that the company faces in the near future is the price freeze on a majority of products. Because of this, the margins on several of these products are below feasible levels and because they are, consequently, loss-making products, their production is also at risk.
"The pharmaceutical industry in Pakistan has great potential for growth. However, its existence depends entirely on a regulatory environment which is able to balance the need for affordable healthcare with the essential commercial interests of this industry," the chief executive's review in the latest published financial statements of the company points out. The consumer healthcare business continues to be a promising sub-category, and with the company's efforts towards growth diversification and branding strategies, it will likely add further value to the business down the road.