Business and financial performance Glaxo Smith Kline Pakistan Ltd. Project objectives and overall reserach report

Table of Contents

PART 1 PROJECT OBJECTIVES AND OVERALL RESEARCH REPORT.
INTRODUCTION
REASONS FOR CHOOSING THE TOPIC ARE:
REASONS OF CHOOSING THE COMPANY
PROJECT AIMS AND OBJECTIVES
RESEARCH QUESTIONS
RESEARCH APPROACH

THE INFROMATION GATHERING AND ACCOUNTING/BUSINESS TECHNIQUES USED
Secondary source
ETHICAL ISSUES.
ANALYTICAL TOOLS USED
Ratio analysis

PART 3
INTRODUCTION TO INDUSTRY
INTRODUCTION TO COMPANY
RATIO ANALYSIS
Competitors Analysis
PEST ANALYSIS
SWOT
CONCLUSIONS
RECOMMENDATIONS:

LIST OF REFERENCES

PART 1 PROJECT OBJECTIVES AND OVERALL RESEARCH REPORT.

INTRODUCTION

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REASONS FOR CHOOSING THE TOPIC ARE:

- Ratio analysis will be more valuable in the prospects and skills like critical quantitative analysis tools are routinely utilized as a part of the financial analysis of any organization.

- This topic gets to organization in an all-encompassing way since both Financial and non-financial related viewpoints are considered which gives better learning shots.

- This topic provides the opportunity to know how well/worse the organization is performing throughout the years and when contrasted with firms of the comparable nature. Moreover, it is additionally vital to know how well its distinctive divisions are performing among themselves in various years. Ratio analysis encourages such correlation.

GlaxoSmithKline Pakistan Limited (GLAXO) is the main company selected for RAP.

REASONS OF CHOOSING THE COMPANY

To investigate why pharmaceutical organizations have been left hanging especially with regards to limited price increment even when inflation is spiraling, currency is quickly losing its worth, and when energy shortages have made the case worse for pharmaceuticals.

GLAXO is the flagship company in Pakistan's pharmaceutical industry and has expanded tremendously over the past few years, despite all hardships, urging me to conduct an analysis on its performance.

The operations of GLAXO provides a more resilient view of the industry since they are divided into both Pharmaceuticals and consumer healthcare which adjures me to select GLAXO.

GLAXO is one of few company in the pharmaceutical industry to have successful new launches in the industry and the upward trajectory on the exports front was very appealing while searching for companies of the pharmaceutical sector.

PROJECT AIMS AND OBJECTIVES

- To analyze in-depth the financial performance of GLAXO from FY2012 to FY2014. - To access the profitability growth of the GLAXO. - To assess GLAXO capital structure and its liquidity. - To consider how GLAXO has managed to run its operations effectively. - To compare the company’s financial performance with its competitors over the three year period. - To access GLAXO business performance over a three year period by analyzing its macro environment factors. - To consider GLAXO’s strengths and weaknesses and potential opportunities and threats it has faced over the three year period. - To draft a reasonable conclusion and suggest recommendations based on my findings.

RESEARCH QUESTIONS

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RESEARCH APPROACH

To carry out my research work effectively. I will try to follow a methodological approach. I will make sure to prepare proper timetables and will decide specific dates for each work to be done to meet the targets.

To gauge the performance of GLAXO, it is important that I ought to have adequate data about it, so at the initial step I will attempt to accumulate adequate suitable and reliable data of my organization and the industry it operates in. I will ensure that I update my knowledge and apply suitable techniques with the goal that I can profoundly break down the accumulated data which will help me to meet my targets. Then I will assess the business and financial execution of the business over the three year period beginning with the financial analysis of GLAXO. I will think about its financial execution against a contender. At that point PEST and SWOT examination will be led to satisfy the prerequisite of business investigation. I will make a point to keep my emphasis on referencing relying only on Harvard Referencing System to mitigate the risk of any ethical issues arising.

THE INFROMATION GATHERING AND ACCOUNTING/BUSINESS TECHNIQUES USED

Secondary source

Secondary sources of information are those that include a presentation of conclusion that is communicated by someone else (ALIA School Libraries Section, n.d). Newspapers, magazines, periodicals and different publications, and in addition radio and TV reporters will likewise put an inclined perspective on a subject.

INFORMATION SOURCES USED

Company publications

GLAXO and HIGHNOON publish most of their financial and non-financial information on their company websites for example their audited annual reports and company profile.

Electronic media

The internet was used as a database for searching information about the company for example official websites of various organization.

Online journals

They were used to gain knowledge about the macro environment and the industry trends.

Print media

Various newspapers for example business Recorder, Express tribune, Dawn were also referred to stay informed throughout RAP. These were used to get the information regarding opportunities and threat faced by the industry and economy as a whole.

Reference books

For ratio analysis and business models books were also consulted to revise concepts these also include e-books.

Limitations faced.

- Plausibility of containing off base data containing errors can exist. - It gets very confounded to extricate important data from an extensive variety of information. - Data is accumulated from various sources conflicts with each other - Outdated and biased information is a considerable issue.

ETHICAL ISSUES.

The principle ethical issue which was experienced while leading secondary research is copyright infringement to stay away from this issue I ensured to give sufficient references at each point conceivable by Harvard Referencing Framework to demonstrate that I do recognize the work of others.

ANALYTICAL TOOLS USED

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Ratio analysis

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Financial ratio can be classified into four major groups:

PROFITABILITY

Profitability ratio are intended for the assessment of the company's operational performance (Srivastava and Yadav, 1986). The ratio yields a marker of the company's proficiency in utilizing the capital entrusted by shareholders and banks.

SOLVANCY

The ratio of the company’s (Lehner and Losbichler, 2012) ability in fulfill their short term liability.

LIQUIDITY

The ratio is a measure of financial strength on a specific date it incorporates an important expression of the company’s solvency (Xu, 2005) explaining its ability to meet obligations as they come due.

EFFICIENCY RATIO

The efficiency ratio is a ratio that is generally used to examine (Tracy, 2012) how well a company uses its assets and liabilities internally.

INVESTOR RATIO

This ratio is used to measure a company's (Parkinson, 2011) readiness to uphold its current level of investment in capital assets.

LIMITATION OF RATIO ANALYSIS

- Ratio of one firm cannot always be compared with the other as different firm (Keown and Martin, 2004) apply different accounting policies.

- In case of window dressing ratio analysis does not provide an accurate picture ( Ehrhardt and Brigham, 2014) as then companies may record accounting data according to their own convenience.

- It is not standby for personal judgments as it’s just and aid and (Palanivelu. R 2007) cannot replace personal judgment.

- A single ratio by itself is generally ( Taparai, 2004) meaningless

SWOT ANALYSIS

- The SWOT analysis purses a coordinated methodology including key organization and environmental variables. The goal is the showdown of organization’s internal strengths and its weaknesses as well as organization external business opportunities and (Bohm, 2008) threats in order to generate conceivable vital alternatives.

LIMITATIONS

- It provides a stagnant viewpoint ( Rao, Parvathiswara, Sivaramakrishna, 2008) and does not expose the dynamics of competitive environment.

- A SWOT analysis can overemphasize internal strengths ( Pearce, 2012) and downplay external threats.

- Over emphasis on solo topics ( Dess, Lumpkin, Eisner, 2009) and differences of outlook may arise during discussion.

- SWOT analysis does not rest exclusively on carefully post a firm in one particular cell. (Alok and Goyal, 2010) Rather, it recommends that a Analyst should visualize the overall position of the firm in terms of the product and market circumstances.

PEST

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LIMITATIONS

- The rate of change of Pest factors in the general environment and their increasing unpredictability ( Henry, 2011) act to limit the use of PEST analysis.

- PEST main aim is to identify and evaluate environmental influences. In most cases. Internal influences are often neglected.

- Analysis is often based on assumptions as it is difficult to update regularly information. Management Association, n.d.) While a strategic analysis requires current facts and needs to identify current quires.

- Collecting relevant bulk data and from legit sources is difficult ( Daidj, 2015) access to quality data is key issue.

PART 3

INTRODUCTION TO INDUSTRY

Pakistan has an extremely dynamic and embryonic pharmaceutical industry. Since independence in 1947 industry has grown miraculously there are 338 national and 24 multinationals (Tribune, 2015). According to the National Drug Policy of Pakistan this number could exceed defiantly due to registration of numerous companies industries now (PPMA, n.d.) catering Almost 70% of the nation's interest of finished medicine.

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Pharmaceutical is part of manufacturing sector manufacturing sector which contributed 13% of Gross Domestic Product (GDP) in FY2015 including injections, capsules and tablets. Which managed to grow by 16.0%, 14.9% and 4.3% Respectively (Govt of Pakistan, n.d) the Growth in Pharmaceuticals industry Is heavily dependent on import of raw materials due to non-availability of domestic inputs as well as no pharmaceuticals company have (FDA) approved manufacturing plant.

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Over the years procedures imposed on the manufacturers increase the cost of production. The brutal covenants attached with drug manufacturing license has sorely affected the growth of (Dawn, 2015) pharmaceutical industry in Pakistan.

INTRODUCTION TO COMPANY

GlaxoSmithKline Pakistan Limited was created on January 1st, 2001 through the merger of SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited, and stands today (Study sols, n.d) as the largest pharmaceutical company in Pakistan .

- GLAXO Legacy company Glaxo Laboratories was the first pharmaceutical company to be listed on the Karachi Stock Exchange in 1951 (GSK, 2014) GLAXO also have a significant global presence with commercial operations in more than 150 countries, a network of 84 manufacturing sites in 36 countries and large R&D centers in the UK, USA, Spain, Belgium and China.

GLAXO Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription drugs and vaccines) (Bloomberg, 2016) and consumer healthcare (over-the-counter-medicines, oral care and nutritional care)

In Pakistan, the Company deals in Anti-infective, Respiratory, Vaccines, Dermatological, Gastrointestinal, Analgesics, Urology, Central Nervous System, Allergy, Cardiovascular and Vitamins therapy areas (World Trade Review, 2015) and produces 200m tablets a year which makes it the largest tablet production facility in the country.

- Some of GSK’s leading pharmaceutical brands are Augmentin, Seretide, Amoxil, Velosef, Zantac and Calpol (Forexpk, 2013) and renowned consumer healthcare brands include Panadol, Horlicks, Sensodyne and ENO.

Major competitors are mainly multinationals pharmaceutical companies (KSE Stocks, n.d.) such as:

- Abbott - Norvartis - Pfizer - Sanofi - Aventis - Getz and Sami. (Med pk. (n.d.) local company. - Major products made during this site (A1 Pakistan, 2015) are Augmentin, Amoxil, Calpol, Zantac and Actifed.

GLAXO Pakistan has built a competent commercial capability with a track record of successfully integrating the BMS, UCB, Novartis Vaccines, and Stiefel businesses (FactSet, 2016) and building a diverse and profitable business. GLAXO presently employs about 2,700 persons across its Sales.

Recently, GLAXO is planning to buy Novartis’ vaccines for $5.25b. GLAXO’s Mencevax vaccine has the largest market share of 85.53%. While Novartis’s Menveo has 14.47% market share (The News, 2015) this would eradicate the competition in the future.

RATIO ANALYSIS

Profitability ratios

GROSS PROFIT MARGIN

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FY2012

GPM decreased by 2.39% from competitive FY2011 with 6.44% growth in total sales and 7.36% growth in COS.

The challenging macro-economic factors (Osac, gov. 2012) disrupted operation. Joined with suspension of Pseudoephedrine raw material (Business Recorder, 2013) lower government spending on large tenders and discontinued production of CFC containing products (Forex.pk, 2013) effected sales.

However, GLAXO churned satisfactory 5.5% local sales growth, courtesy (Business Recorder, 2013) 6-new launches in the industry and launching of top 20 out of the 439 products.

Similarly 10.8% growth in exports sales (GSK, 2012) primarily to regional markets include Afghanistan and Sri Lanka .

GPM lowered due to rising cost of raw material, higher inflation, escalating fuel process . (News Pakistan, 2012) and depreciating local currency. (The Nation, 2012). Moreover, stagnant prices throughout these years (Business Recorder, 2014) despite persistent increase in prices of various products for GLAXO irresistibly eroded the margins.

However, GPM for the year was marginally lower than that of FY2011 which was consequently due to the better product mix and cost saving aims of the company. Since GLAXO invest heavily in its health care products; Sensodyne and Horlicks (Business Recorder, 2013), to increase the market penetration.

All in all, fluctuation in the input prices and supply constraint explain the route taken by the profits of the company.

FY2013

GSK’s sales grew by a comfortable 9% in FY2013, but the bottom line took a hit with an increase of 11% in COS hence. Gross margins eroded by 5.46%

In terms of revenue generated by the company the performance of the company for FY2013 Improved compared to FY2012. Consumer healthcare sales grew by an exceptional 38% year-on-year to form a near 15% share of the GLAXO’s revenues to Rs.3.7b. (Pharma News, 2015) joined with 15% progress in export sales (GSK, 2013) through penetration in the regional export market reflected growth of over FY2012.

Due to the issues relating to the lack of a price adjustment across border gross margins eroded attributed majorly to (The Nation, 2013) escalating input costs amid the government's price freeze on medicines. Increased investment in the consumer healthcare segment (Business Recorder, 2014) the divestment of the company's animal healthcare segment as part of group policy (Vaccines and Global Health, 2014) weak rupee which hit its all-time low in FY2013 (Dawn, 2013) and impact of significant 23% increases in raw and packing material prices, higher utilities, fuel and energy cost (Tribune, 2013) increased COS.

These unfavorable pressures on the COS could not be offset despite efforts at improving the product mix and (Chowdhry, 2014) initiatives aimed at minimizing supply chain and working capital costs

The lackluster GLAXO performance during the FY2013 is an evidence of unrestrained economic factors hence shrinking profits.

FY2014

GPM hiked by 6.72% from competitive year FY2013 with 10.51%% growth in total sales and 8.08% growth in COS.

The current year’s sales growth was result of a number of factors. The law and order situation improved in Karachi (Radio Gov, 2014) caused disrupted supplies.

Golden sales mix, adjustments on some older products and synergies though consolidating manufacturing operations (Business Recorder, 2015) enriched sales.

GSKs consumer health segment accounted for over 17% of total revenues, and 20% of gross profit (Hussain. B, 2015) this strategic shift has helped the firm win back some of its lost margins to a tough industry.

Export sales, primarily to regional markets include Afghanistan and Sri Lanka grew by 10.86% (GSK, 2012). However exports sales were restricted due to changes in export regulatory regime (Pharma News, 2015) and the post-election situation is Afghanistan (Brookings, 2015) caused supply delays.

GLAXO has been undertaking various cost-cutting initiatives such as reducing loss-making SKUs, attaining synergies by consolidating manufacturing facilities, and simplifying operational processes (Business Recorder, 2015). This has kept COS constrained. Combined with depressed fuel prices (Price Paktron, 2014) favored COS.

Overall GLAXO bounced back with glittering results as sales counterpoise COS.

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FY2012

NPM increased significantly by 9.24% from FY2011 despite decrease in GPM by 2.39%.

Selling, Marketing and Selling expenses at Rs3028m increased by 8.53% in FY12, mirrored increased investment in core and new brands as per the new strategy introduced in FY2011 (Baloch. F, 2011) fused with increased freight cost due to rising oil prices (Tribune, 2012) and (GSK, 2012) 6.4% sales growth.

Other operating income recorded at Rs192.6 in FY2012 as investment income declined by 28.5%. This resulted in reduced funds following low interest rates (Trading Economies, n.d.) hence 53% reduced financial assets.

Further, Finance cost increased by 30.08% as local currency depreciates (The Nation, 2012) unveiling a 60% increase in exchange loss.

In contrast, administrative expenses narrowed by 23% in FY12 at Rs784.8m due to decreased restructuring cost which was a one of expense in FY2011 (Business Recorder, 2012) braced margins.

Due to inflation (Tribune, 2012) training expenses and employment cost increased . In count wage rates increased (Dawn, 2012) which amplified salaries for the FY2012.

Net profit increased despite pooped operational expenses courtesy fall in restructuring cost.

FY2013

NPM decreased by 26.52% as 9% improvement in sales was offset by 15.9% surge in operating expense.

Selling, Marketing and Distribution cost increased considerably by 19.7%. Just as company spends more on consumer healthcare segment in support of new line introductions like Horlicks (The Nation, 2013) a s evident through sales. Paired with escalated fuel prices (Dawn, 2013) led 17% increased freight cost.

Rolling out labor rates (Tribune. (2012). Increased administrative expense by 19% combined with rising inflation (Tribune, 2013) exposed GLAXO to inflexible external factors.

Other operating income increased by 38% over last year. This was primarily the result of the divestment of the Animal health care (Business Recorder, 2013) as part of the global strategy likewise decreased interest rates (Tribune, 2013) leaped up other income.

Unfavorable exchange rates (Dawn, 2013) led to higher financial charges for the year which rose by 235% as exchange loss increased by 360%.

Ascend in operational costs and diminished profit gave a gigantic set back.

FY2014

NPM increased significantly by 43.71% from FY2013 as sales record a double digit growth of 10.5%.

Selling, marketing and distribution expenses at Rs3694m increased by only 2% in FY2014.This stability was mainly due to rationalization of product portfolio (GSK, 2014). Which impacted the expense base. Further scientific engagements activities by management (GSK, media, 2014) resulted in lower spend. Travelling, freight and transportation expenses (Dunya, 2014) steadies as fuel prices declined.

General inflation level (Financial Markets, 2014) explicates the 9% boast in administrative expenses at Rs1020m. Further, increased minimum wage rate (Tribune, 2014) increased wages.

Gain in Pakistan’s currency (News Tribe, 2014) resulted in exchange gain of Rs126.9 million pleasing the operating income with 8.05% to Rs491.6m.

All in all, a stellar returns were recorded as a result of efficient product mix.

RETURN ON EQUITY

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FY2012

ROE advances further to 11.64% with a 13.34% increase from competitive FY2011.

Glaxo generated 3.7% added profits over FY2011. Mainly due to 6.4% increased sales (GSK, 2012) in addition 23% decrease in administrative expense courtesy (Trading Economics, n.d.) decreased reconstruction expenses from FY2011. Glaxo equity increased by 2.5% reflecting 14% increase in bonus shares and 4.9% increase in unappropriated profit owing to 15% increase in Total comprehensive income.

Glaxo paid a final dividend of Rs.957m which was 15% higher than FY2011 (Asian net, 2013) thus restricted increase in shareholder’s equity. Moreover a constraint denominator in ROE fraction as opposed to striking increase in net profits resulted in a hike.

In comparison to industry and sector averages over 5years (Reuters, n.d.) Glaxo’s ROE was 200bp low. Since GLAXO does not relies on debt (GSK, 2012) company generated efficient returns without risk.

GLAXO enjoyed green accounts as company generated efficient returns for owners.

FY2013

ROE decreased to 9.36% with a 20% shrinkage from FY2012.

The major reason for the dig in ROE for the year was the 26.52% decrease In NP which offset the increased sales as operating expenses increased by almost 16% ( Dawn, 2014). As escalated cost and unfavorable exchange rate ( Tribune, 2013) desecrated the margins for the year.

Glaxo equity decreased by 4% as consequent to 10% increase in shares capital as a result of 10 bonus shares for every 100 shares (Paper Paste, 2014) and reserves decreased by 3.51% owing to required amendment in IAS-19 (revised) (GSK, 2013) resulted in a 12% decline in unappropriated profits.

In appraisal to industry and sector averages over 5years (Reuters, n.d.) Glaxo’s ROE was 800bp low

Therefore a lesser decreased denominator in ROE fraction as opposed to vibrant decrease in net profits resulted in a dig.

FY2014

ROE increased to 14.12% with a 51% splendid upturn from competitive FY2013.

GLAXO 10.5% surge in sales (Pharma News, 2015) efficient product mix and 11.6% increased sales per employee (Trading Economics, n.d.) ratio led to increase in NP by 58.8% which consequently helped in resurrecting the ROE greatly.

On contrary Glaxo’s equity increased by 5.25% reflecting 13.1% increase in bonus shares and 13.5% increase in unappropriated profit owing to 59.5% increase in Total comprehensive income.

Glaxo paid a final dividend of Rs.1.01b which was 3.75% lower than the FY2013 ( Pak stocks, n.d.) thus shareholder’s equity increased by 5.25%. Moreover a lesser denominator increased ROE fraction as opposed to conspicuous 58% increase in net profits which resulted in a hike.

In contrast to industry and sector averages over 5years (Reuters, n.d.) Glaxo’s ROE was 200bp low.

GSK enjoyed green accounts as company generated efficient returns for owners.

LIQUIDITY RATIO

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FY2012

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Current ratio fell by 8.8% to 2.26Times. CA(s) witnessed a drop of 2.45% whereas CL exhibited escalation of 7% abating the overall ratio from expanding.

Above 76% of CA comprise of Stock and cash. Amid FY2012 inventory worth of Rs.107.3m was written off (GSK, 2012) contributing mainly in 9% fall in inventory during the year.

Moreover, in lined with the announced strategy of increased capital expenditure (Tribune, 2011) led to 80% improved capital investment for capacity improvement in FY2012. Resulted in decreased funds joined with enhanced payout during the year (Pakistan Company 2013) consequently decreasing cash by minor 0.5%. However Glaxo sold land worth of Rs.149m (GSK, 2012) which abducted cash from further declining during FY2012.

The cut in the estimated interest rate ( Dawn, 2012) resulted in a low yield. Which restricted the return of investment and ultimately restricted the growth by less than 1% not helping CA to grow.

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On the other hand, Trade and other payables (Pharma News, 2015) made up 97% of CL . In FY2012, Due to currency depreciation (Pakistan Economist, 2012) Pakistan economy experienced adverse situation . Meanwhile GLAXO payables exist in foreign currency. This increased the foreign payables by 31% to Rs.998.41m. Since net payables are not hedged.

Glaxo owed dividend of worth 100m which rose by 53%, resulted in higher CL for FY2012 ( Pakistan Company News, n.d.) As per the amalgamation agreement between Glaxo and Stiefel Laboratories (Ireland) Limited.

Despite of enormous expenses Glaxo’s QR remained strong for the year.

(IEconomic, n.d.)

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FY2013.

The year saw 15.6% decline in CR to 1.91 Times.CA increase by 16.4% while CL increased 38% resulting in a shrinkage in the fraction.

Increased procurement due to 9% growth in sales (GSK, 2013) escalating prices during the year (Trading Economies, n.d.) and stock build to support manufacturing because of enhanced and upgraded manufacturing as result of expenditure in FY2011 (GSK 2012) led to rise of 57% in stocks.

(IEconomic, n.d.)

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Cash for the year decreased by 12% despite 48% decrease in capital expenditure (Paper Paste, 2014) and 12.5% decrease in dividend. Glaxo also sold trademarks worth of Rs.186.5m and liquidized investments during the year worth Rs.186.5m. Despite these all measurement cash fell reflecting inflation. Pakistan stock market produced impressive results in FY2013 (Business Recorder, 2013) helped GLAXO to increase return on investment as Investment increased by 13%, Consequently Rs.1.54b increase in CA

While trade and other payables increased by 41% in FY2013 .Owing to 29% higher share base compensation to Rs.153.08m (GSK, 2013) and increased foreign payable transaction which increased by a massive 119% due to decreased forex rate ( Bloomberg, 2013) as these are exposed to forex risk Thus Rs.1.57b increase in CL.

In contrast to industry and sector averages over 5years (Reuters, n.d.) Glaxo’s ROE was 200bp low.

CA grew lesser then CL placing QR for the FY2013 in jeopardy.

The CR fell slightly by 3.4% TO 1.84 Times.

Both CA and CL witnessed a growth 4.17% and a higher 8% respectively ultimately deteriorating the overall ratio.

Due to increased stock level in FY2013 (Markets, n.d.) FY2014 did not witnessed any increase in stock despite 10.5% increase in sales. Resulted in 53% increase in trade debts reflecting a lenient policy.

A considerable increase of 164% in investment resultant to boast in the market (Bloomberg, 2015) braced CR. Cash increased by 10% as Glaxo (GSK, 2014) sold operational assets worth Rs.109m

Trade and other payables growth was restricted to 8% including amount pertains (GSK, 2014) to dividend payable to Stiefel Laboratories (Ireland) Limited 35% to RS.215m

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Rs.906.22 million Payables exist in foreign currency due to transactions with foreign undertakings (Business Recorder, 2015) which increased by 31% to Rs.998.41m reflecting increased raw material or enriched sales.

Overall, QR growth was abducted due to increased payments.

EFFICIENCY RATIO

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FY2012

Working capital at 29.63days expeditiously reduced by 20days from FY2011.

This inventory buildup decreased by 9% due to increased opening stock ultimately decreasing the inventory days by 20days. (GSK, 2012) this reduction was in contrast to initiatives taken for working capital management in FY2012 (GSK, 2011) of optimization of the working capital.

Glaxo reconsidered its lenient credit policy because despite of 6.44% increase in sales (Business Recorder, 2013) Debtor’s Days remained the same, hence reacting on the initiatives.

Creditor’s days too were not subject to any volatility. Since trade and other payables increased by 7.8% offsetting the increase in COS by 7.3%.

Overall GLAXO managed cash conversion cycle efficiently by applying leading and lagging approach.

FY2013

Working capital further reduced by 11 days from FY2012.

Extrovert increase in Consumer heath product sales led to 9% increase in sales for the FY2013. Increased sales and plant and production enhancement in FY2011 (GSK, 2014) screeched up stock threshold by 23.4% to support enriched operation. Thus increasing the Inventory by 12 days.

However better working capital optimization can be witnessed for debtor days since debtors decline by a slight 0.12% despite increased sales.

Creditors days increased by 22.53 day courtesy increased payables by 40.78% (DAW,2013) due to depreciation in Pak rupee (TRADING ECONOMIES) which increased the liability for the year. Since cost of sales increased by lesser 11%. This fraction helped in working capital improvement.

GLAXO had started early cash conversion which was the main reason for shortened WC.

FY2014

Working capital concentrated further by 6 Days to 12.4 Days.

FY2014 produced glittering results overall. Sales went up by 10.5% offsetting the 8% increase in COS. led to drop in Inventory days (GSK, 2014) Moreover management strive to improve working capital was reflect in the stabilized inventory figure for the FY2014.

The enriched operation for the years resulted in the increased Debtor which rose by 53% increasing the Debtor Days by 2 days Creditor remained same for FY2014 as better exchange rate (Trading Economies, n.d.) a restricted the trade payable growth to 8% and on the other hand deflationary policy of the government (Trading Economies. (n.d.) b helped Glaxo to manage its cost which rose the same 8%.

GLAXO performed well, by applying appropriate techniques.

Earnings per share

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FY2012

In FY2012 EPS grew by 5.24% as profits increased due to decreased administrative expenses and noteworthy increase in export sales. (Business Recorder, 2013) Combined with successful launches of new products in both the Pharmaceutical and Consumer segments of the business. (GSK, 2013) helped GLAXO in resurrecting EPS.

Despite, 10% bonus issued during FY2012 (Pak Stocks, .n.d.) and 10% increase in share capital EPS stood healthy due to augmented profits.

This increase was seen as a positive sign by the investors.

FY2013

EPS experienced a sharp fall of 27% compared to FY2012.

As PAT eroded due to unfavorable pressures such as higher utilities, fuel and energy cost and continuous weakening of Pakistan rupee (Business Recorder, 2014) as well as (GSK, 2013) profit margins decrease as administrative expense increase reflecting same unfavorable pressures.

Furthermore 10% increase in bonus share (Pak Stocks, .n.d.). Increased the weighted average shares and caused the EPS to fall.

GLAXO weak management could not facilitate in generating positive returns.

FY2014

EPS hiked by a remarkable 44.4% because of the vast growth in sales followed improved gross profit margin and exchange rate gain helped GLAXO to depict sustaining growth.

Efficient product portfolio restructuring and cost containment measures resulted in the lower spend.

(Business Recorder, 2015). Other factors contributing towards margin improvement included a stable and favorable exchange rate, price adjustments on older products which had not been allowed any increase since 2001 (GSK, 2014)

Similarly a 10% increase in bonus share (Pak Stocks, .n.d.) increased share capital by lesser 10%.

Glaxo strong affairs generated positive values for shareholders.

PRICE EARNING RATIO

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FY2012

On account of better profitability this year PE ratio surged by a nominal 3.84% to 14.06.

KSE 100 Index showed a growth of nearly 50% (Asadullah, 2013) but suspension of Pseudoephedrine raw material import quotas by the Narcotics Board (Business Recorder, 2012). And voluntarily discontinuation of CFC containing products (Business Recorder, 2013). Resulted in sales loss in excess of Rs350m. However investors were satisfied as Consumer Health Care business robust sales growth (GSK, 2012) led to cash dividend of Rs.4

GLAXO being a fundamentally strong company managed to enjoy overall growth but restrictive support by government and economic condition offsets the benefit.

FY2013

GLAXO made a solid impact in the market with 154% increase in PE.

This year was outstanding for KSE (Tribune, 2014). GLAXO also experienced trend effect (Standard Capital, n.d.). GLAXO rationalized portfolio combined with best product mix strategy and successful new innovation (Sheikh. I, 2013). Maintained a buy stance in the stock market .A strong impact was noticed on the share price which ended the year on RS. 136.2 (GSK, 2013)

Futuristic approach of GLAXO was admired by the investors.

FY2014

PE ratio maintained a growing trend ahead of a significant boast it further increases by 11.37%.

The share price got a lift (Reuters, n.d.) after GLAXO exhibited highest EPS figure 5.30 since 2008.

The stock market also touched historic, unprecedented levels ( Bloomberg, 2015). Indication a healthy investment trend. This had a positive impact on GLAXO share price which ended the year on Rs.219.3 (GSK, 2014)

Overall GLAXO managed to satisfy its investor.

DIVIDEND PER SHARE

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FY2012

GLAXO dividend per share remained same for the year.

GLAXO announced Rs.4 dividend/share (Pakistan Company News, 2013) as company was able to generate heftier profits for the year with an increase of 4% over FY2011. (Forex Pk, 2013) consequently increase of 9.14% in NP.

Although Glaxo main focus was to enhance the production plants as per the new policy in FY2011 (Pak Stocks, .n.d.) However amid FY2012 Glaxo still managed to pay dividends.

Due to stable and persistent growth, GLAXO maintained its history of providing reasonable returns and payouts to its shareholders.

FY2013

Company dividend dived by 12.5%. Company declared a dividend of Rs.3.5/share (Pak Stocks, n.d.) As a consequence 22% decreased in profits and (GSK, 2013) and 11.5% fall in cash and bank balance. Better stock market condition (Tribune, 2013). Therefore Convinced GLAXO for shareholders payouts.

FY2014

Glaxo dividend/share increases by 42.8% than FY2013

This year have been more productive for GLAXO and shareholders as company announce dividend of Rs.5 (Pak Stocks, .n.d.)

Net sales increased 10.5%, which pushed gross profit higher to Rs7.34bn from Rs6.22bn (Dawn, 2015) this portrayed a strong image to investors mitigating the effect of last two years (Business Recorder, 2015). Further, company again manages to reinvest and maintained balance (GSK, 2014) as capital investment for the year increased by 65.5%.

Company maintained its stance of maximization of shareholder’s benefit.

Competitors Analysis

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GPM of HINL dived In FY2013 as the 23% increase in total sales including 18% increase in export (HINL, 2013) could not fully absorb the 23.1% increase in COS (Business Recorder, 2014) courtesy declined foreign currency (Geo News, 2013) increased electricity costs (Dawn, 2013) yet managed higher GPM (Pak Stocks, n.d.) than 24% GLAXO’s.

FY2014 HINL GPM grew higher by 9.22% due to 23% increased sales reflecting 15% volume increase over FY2013 (Business Recorder, 2014) consistent with sales COS registered a lesser growth of 15% due to better exchange rate (Customs Today, 2014) while factors such as favorable impact of exchange rate amalgamated with Economy improvement (World Bank, 2014) helped Glaxo to improve GPM by 6.7% (GSK, 2014) and sales by 10.5%

Owing to better COS grip HINL succeeded.

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HINL’s NPM over three years was far better than GLAXO. Although in FY2012 GLAXO outperformed.

HINL aggressive marketing of the products in FY2012 (Pharma News, 2015) rose costs reflecting poor control than GLAXO over Operating cost as HINL’s sales to operating Expense were 34% (HINL, 2012) compare to GLAXO’s 15% (Business Recorder, 2013) due to 6 new product launch .

FY2014 exchange rates improves (Customs Today, 2014) GLAXO’s NPM improved by 43%. Reflecting greater dependability of NPN (The Financial, .n.d) on exchange rate . While, HINL cited productivity improvement and the favorable impact of exchange rate parity (Business Recorder, 2015) improved margin by 42%.

Both company’s net profits are on exchange rate discretion.

ROE

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Fy2014 Hinl ROE 29.77% compared to GLAXO 14.12% was better. Difference due to having slender 6.05% NPM and higher base (Pak Stock, n.d.) by GLAXO ended up with lower ROE then HINL due to 44.8% NPM (HINL, 2014) and consistent share capital (Scs Trade, n.d.) while Glaxo NPM throughout

All in all HINL outperformed Glaxo.

Liquidity Ratios

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In FY2014 HINL QR 2.26 was better than GLAXO’s 1.84 however it took a dig due 52% increased CA and a higher 65% increase in CL.

DUE To whimsical pricing mechanism and stringent regulatory framework coupled with tough economic scenario in FY2013 and FY2012 only few pharmaceutical were able to grow. HINL was one of them while Glaxo was the deterrent (Business Recorder, 2014) a. HINL better managed the operations (Business Recorder, 2014) b while GLAXO had a bumpy ride throughout as QR decreases.

EFFICIENCY RATIO

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HINL showed a decreasing (HINL, 2014) WCC over three years, while correspondingly HINL also showed decreasing WCC.

Both companies management improved as it showed a decreasing trend both company management went for the optimum WCC days.

Creditor’s days for both HINL and GLAXO showed increasing trend over two years followed by increase in FY2014 which was lower than GLAXO as HINL creditor (Business Recorder, 2015) increase by 70% over the years.

Inventory turnover days reduced for both the companies and showed same decreasing trend HINL better managed the inventory days as despite 20% increase in sales it remained lower than that of Glaxo in FY2014.

SOLVANCY RATIOS

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GLAXO does not have any (GKS, 2014) long-term loan in its balance sheet

HINL’s NCL consists of long term loan which was paid in full in FY2014, finance leases, deferred liabilities and advances. In all three years (Reuters, n.d.) HINL equity rises by 50% while debt decreased by 19%

As per the current situation both companies relies more on equity then debt.

INVESTORS RATIO

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GLAXO showed lesser growth in EPS than HINL.

FY2014 Better operational management helped HINL to increase profits by 74.8% while the weighted average shares remained constant (Pak Stock, n.d.) On the other hand GLAXO 58% increase in profits (Reuter, n.d.) and 5.25% increased equity base exhibited lesser growth.

Over the years HINL managed well to generate good earnings for shareholders as compared to GLAXO courtesy consistent (HINL, 2014) equity base and higher margins.

P/E

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P/E ratio for GLAXO was noticeably higher than HINL

FY2014, GLAXO P/E AT 41.40 was higher than HINL’s 14.57 (HINL, 2014) owing to higher base of HINL

The MVS for HINL grew significantly by 364% (Pak Stock, n.d.) while GLAXO grew by 200% over the years

PE for Glaxo glooms higher than HINL throughout because of Better Image.

DIVIDEND YIELD

The dividend paid out by both the companies showed increasing trends

In FY2013 GALXO dividend took a dig by 12.5% followed an (GSK, 2014) increase of 43% in FY2014.

The reason been the increased sales and profitability by Glaxo. While HINL dividend rises by 28.5% in FY2013 followed by a massive (HINL, 2015) increase of 44.44% in FY2014 due to 42.3% increase in NPM.

Overall HINL paid higher dividends

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PEST ANALYSIS

Political Factors

- The unsporting conduct by the government which hoards and still government appears to be hesitant to comprehend the unsolved issues for example cessation of the production lines (Pakistan Today, 2014) if tyrant covenants are breached.

- Unsettled resentments foresee bleak future for the pharmaceutical companies. Government discretionarily sets the low drug prices which must be accepted ( Dawn, 2016) b and any breach would bring about heavy penalties ( Dawn, 2016) such unsolved decisions by the government permits less opportunity for pharmaceuticals to work unreservedly.

- The brutal covenant of providing exemption only those raw material which are liable to customs duty not exceeding 10% ad valorem tax (Kabanico, 2016) has same effect as increase in cost on GLAXO.

- Terrorism is the worst of all threats faced by Pakistan (Ali, 2016) this has caused turmoil in business environment of business.

Economical

- Pakistan Interest Rate is at record low of 6 percent (Trading Economies, n.d.) which makes financing viable at nominal cost. - The ever increasing inflation rate in the economy (Trading Economies, n.d.).b is quagmire for industrialist and companies like GLAXO have been jarred by this persistent build consistently. - The precarious foreign exchange rate of Pakistan is an incredible risk to GLAXO ( Aazim, 2015) this controls their profit, bringing about a substantial macro pressure. - An incredible taxation rate will be demanded of Rs40bn extra duty measures to meet fiscal deficit ahead of reimbursement of loan (Dawn, 2016) this could result in losing confidence in the economy by the investors. - The continued shortfall in the power and gas segment which is prone to remain an issues (Dost, 2016) and the fact that government have been reluctant to solve the problem implies that GLAXO hardships to work in a less developed nation would drag out. - Pakistan expanding population and the more extensive base on population pyramid (LiaqatandAbdullah, 2014) implies that youth and grown-ups would be requiring more vaccines and higher utilization of supplementary items for instance Horlicks. - Pakistan has a distressing abnormal state of unhealthiness, 24 percent of the general public is undernourished. (United Nation. (2014) this implies future expansion of GLAXO as increased demand for its products seems certain. - Diseases bringing on germs can be spread from sewage. Pakistan unfortunately have an unattended sewage system (Daily Times. (2016) GLAXO is indulged in providing medication to cure such diseases, implies consistent clientele. - By far most of the general population don't have access to clean drinking water. Contaminated water is one of the greatest sources in the spread of infections. Four fifths of all illnesses are brought on by water borne diseases (Hassan Foundation. (n.d.) GLAXO actively works on the development of product to combat Cholera, Typhoid, Hepatitis A & E and Diarrhea.

TEHCNOLOGICAL

- Pakistani Government is planning to spend heavily in IT (Budget, 2016) this would make the taxation system and tendering system more robust and would help GLAXO.

- Pakistan have low percentage of GPD for Science and Development (Dawn, 2016) this represent low standard of science education and hence less ancillary help for GLAXO.

- Pakistan have been ranked 131 out of 141 countries in the Global Innovation Index (Tribune , 2016) this represent the overall trend in the country hence less Technological advancement in the future too. Hence affecting GLAXO

SWOT

STRENGHTS

GLAXO keep on making owners and investor happy despite hardship it had to confront amid troublesome times in the economy by paying consistent dividends and retaining loyalty (GSK, 2014) replicating strength.

GLAXO has set up an efficient Liquidity Management System (GSK, 2014) that is effectively involved in evaluating and arranging the Company's cash prerequisites to guarantee adequate availability of funds .

GLAXO surplus funds were largely utilized on increased capital investments for facility improvements including plant up-gradation and capacity enhancement (GSK, 2014) reflecting futuristic approach GLAXO Return on Assets, Return on investment and Return on Equity beats both (Reuters, n.d.) industry and sector averages by a distant margin GLAXO retains the volume share of 18% and have a diverse portfolio of over 150 brands (Reuters, n.d.) b with a huge fleet of force of about 2300 person across its sales, reflect strong foot holdings

Despite various hurdles and ban on legislation and licenses by the monitoring bodies GLAXO continued to maintain its domination (Pakistan News, 2016) and maintains its market leadership. GLAXO vast operation throughout the country and being part of the prestigious group (Company Check, n.d.) provides a competitive edge over its competitors. GLAXO have been awarded with best corporate award in 2013 (Map Pk, 2013) and due to Companies outstanding contribution toward cleaner and greener Pakistan in FY2014 GLAXO have been awarded with Environment Excellence Award (Nfeh Pk, n.d.) setting an example for other companies.

WEAKNESESS

GLAXO relies on imports thus devaluation of local currency against dollar over three year period (Trading Economies, n.d.) c led GLAXO to bear colossal losses. Company also does not opt for any hedging technique. Profitability amounts to 80% of the company's and any fluctuation in the input prices and supply constraints effects GALXO (Trading Economies, n.d.) and company have not done anything to reduce this cost.

Employee turnover is high (GSK, 2014) this increases the training cost hence, pressurizes margins

Glaxo faces the potential for fraud and high financial risk (GSK, 2014) due to its wide operations throughout the country as well.

OPPORTUNITIES

Pakistan is among the high ranking countries where people are still get affected of preventable diseases The Nation. (2013). which is a good things as GLAXO have a diverse brands as to cater the locals need. Utility crises in Pakistan have adversely affected the business such as energy and fuel crises, present government have taken corrective measure to end the crisis in near future Dawn. (2016). which would smoothen the operations Pakistan exports of pharmaceutical products are seen as a potential area (Pakistan Today. (2012) Since GLAXO is involved in exports this could create a major opportunity for the company.

The ongoing targeted operation in Karachi have bought peace and ease for business to carry their operation (Nation, 2014) this would bring prosperity to GLAXO since company have been adversely affected by the uncertain situation of Karachi. THREATS Pakistan is among few countries of the world to face significant terrorism and security problems (Sodhar, 2013) negatively affecting business environment and this problem seems continuous. Fake drugs in Pakistan is seen as major threat (Pakistan, 2016) World Health Organization approximately 30% of drugs in Pakistan are counterfeit this is threat to reputation. This industry is heavily regulated by the Government of Pakistan (Pakistan Today, 2012) US dollar has increased by 278% since 1996, the Government of Pakistan has not allowed the increase in price of medicines.

Other competitors are finding it hard to survive due to lack of structure (The News, 2015) and if these difficulties persist this could cause a serious threat to expansion of GLAXO.

Concern over decline in pharmaceuticals exports (Pakistan Today, 2016) is threat to Glaxo as their main growing stream is Export sales.

Medicine in Pakistan are smuggled to Afghanistan (Pakistan Today, 2015) since medicine are fragile item with low shelf life, use of such medicine could harm the patients hence could damage the reputation and law suits.

CONCLUSIONS

Profitability Ratio

GLAXO performed well in all three years as GPM with the effect of increasing export sales while the production cost levelled up mainly due to rationalized portfolio. However across the board price adjustments affected Profitability FY2013.

NP for the company showed growing trend which helped ROE to grow better then industrial and sector averages.

LIQUIDITY RATIOS

Current ratio situation change from well at almost 2.5 times to 1.84 times in FY2014. Meanwhile CL increased more than 50% and Cl grew lesser 17% courtesy increasing exchange rate and increasing sales.

EFFICIENCY RATIO

Overall WCC shows efficient results. Creditors increased in lined with decreasing exchange rate parity while inventory days and debtors days declining trend reflect the implementation of efficient strategy.

INVESTORS RATIOS

Inventors have been given efficient return for their investments as reflect in increasing trends of EPS and P/E ratios.

COMPETITOR ANALYSIS

HINL is a profitable and a growing company with impressive improvement over the years confronting macro-economic hardships

HINL earned better margins as compared to GLAXO as company is less exposed to across the board price adjustments and has better cost control management. HINL grew significantly in terms of profitability as compared to GLAXO.

Opposite to GLAXO, HINL QR improved in comparison. However it was lower in FY2013. CL remained stable as compared to GLAXO while CA grew by more than 39%.

In contrast, HINL WCC trend also showed declining trend however it remained more than GLAXO due as stock and debtors increased to support increasing sales trends which was higher than that of GLAXO. Despite the fact that creditors days were increasing. They were better managed courtesy lesser increase in CL.

HINL gearing decreased over the years meanwhile company paid loan in full IN FY2014 While GLAXO is nil geared.

In comparison to GLAXO, HINL EPS was better throughout as a result of no new share issue while P/E ratio was lesser. Both companies paid continuous dividends however HINL dividends grew more than that of GLAXO.

PEST

Political environment is unstable and lacks consistency in law and order. Joined with threats like terrorism. Economic environment nowadays is helpful due to low interest rates and current government better control over macro-economic issues which could help GLAXO to grow as well as social structure of Pakistan supports GLAXO to expand.

Glaxo has a great potential to explore Far East market as the great structure is capable of catering the demand. Nil gearing makes growth less riskier as well as efficient implementation of the strategy can support the export sales and improve operations. However exposure to across the board adjustment adversely affects GLAXO.

SWOT

There are certain strengths of GALXO such as brand differentiation and quality products which no competitor is producing. Consistence sales growth and has a great potential to explore Far East market. Glaxo is nil geared which makes growth less riskier however there are diseconomies of scale due to the large size of the company joined with less ancillary services available in regards to Technology.

RECOMMENDATIONS:

Glaxo should adopt cost control measures to lessen its overall cost of production to inflate profits.

They should adopt hedging techniques to mitigate the risk of severe exchange losses

GLAXO is nil geared they can adopt optimize DEBT: EQUITY structure to maximize the shareholder’s wealth

GLAXO must focus on in house production rather than importing costly raw material and spare parts

Better inventory management could improve the WCC more.

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