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GlaxoSmithkline: Building Alliances For Growth

Posted: Aug 7, 2015 at 12:49 am   /   by   /   comments (0)

FY 2014 Performance Analysis:

The audited Full Year 2014 (FY 2014) result of GlaxoSmithKline Consumer Nigeria Plc (Glaxosmith) for the period ended December 31, 2014 shows that its Turnover (T/O) increased by 4.58% to N30.52bn, compared with N29.18bn recorded in the corresponding period of 2013. The improvement in revenue can be attributed to the increased income generated from consumer healthcare products, particularly Lucozade and Ribena. The revenue generated from this segment increased by 4.23% to N21.41bn in 2014. The cost of sales increased by 12.54% to N19.79bn in FY 2014 from N17.58bn recorded in FY 2013. The increase in the cost of sales can mostly be attributed to the rise in the cost of raw materials. The cost of raw materials, consumables and goods purchased for resale rose by 12.53% to N16.47bn in FY 2014.  Cost of sales as a percentage of Turnover rose to 64.83% from 60.24% as at FY 2013. The administrative, selling and distribution expenses increased by 3.02% to N7.65bn. These expenses as a percentage of turnover decreased marginally to 25.06% in FY 2014 from 25.44% in FY 2013.

The other operating income stood at N81.11mn as at FY 2014, representing a decrease of 1.64%, compared with N82.46mn recorded in FY 2013. Other operating expenses rose significantly to N1.03bn in FY 2014 from N104.45mn in 2013, this increase was mostly due to unrealised exchange losses totalling N893.137mn. The company also recorded a significant increase of 895.14% in its finance cost of N5.12mn in FY 2014 from N0.51mn in 2013. The Profit Before Tax (PBT) fell to N2.75bn, a decrease of 36.21% from N4.31bn recorded in the corresponding period of 2013. The tax provision also decreased by 35.27% to N903.37mn from N1.40bn, leading to a Profit After Tax (PAT) of N1.85bn in FY 2014 from N2.92bn in the corresponding period of 2013, representing a decrease of 36.67%. The company’s profit margins decreased significantly in FY 2014 compared with FY 2013. This is a reflection of the challenges the company is facing with regards to stiff competition rising cost of raw materials and increased foreign exchange loss.

The company’s profit margins decreased in 2014 compared with 2013. The Gross Profit Margin decreased to 35.17% in 2014 from 39.76% in 2013.  The EBIT Margin decreased significantly in 2014 to 8.81% from 14.24% in 2013. The PBT margin decreased to 9.02% in 2014 from 14.79% in 2013, The PAT margin also decreased to 6.06% in 2014, down from 10% in 2013.

A cursory look at the balance sheet position as at FY 2014 compared with the position as at FY 2013 shows an increase in the company’s fixed assets. The total fixed assets increased by 10.70% to N13.42bn from N12.12bn in FY 2013. The inventory also increased to N7.59bn from N5.62bn in FY 2013. The cash and bank balances recorded a decrease of 56.70% from N3.92bn in FY 2013 to N1.70bn in FY 2014.

Included in the Group’s cash balance is restricted cash of N256mn for unclaimed dividends of shareholders. The trade debtors and other receivables increased in FY 2014 by 22.75% to N4.98bn from N4.05bn in the FY 2013 period. The trade creditors and other payables also increased by 10.22% to N11.89bn from N10.79bn as at FY 2013. The working capital stood at N1.35bn from N2.31bn recorded in FY 2013, while net assets for the period increased by 4.88% to stand at N12.95bn from N12.35bn as at FY 2013.

The total assets of the company which stood at N27.99bn as at FY 2014 were financed by a mix of equities and liabilities in the ratio of 46.26% and 53.74% respectively. Our analysis of the liabilities shows that the short-term liabilities stood at N13.22bn, accounting for 87.88% of the total liabilities, while the long-term liabilities stood at N1.82bn accounting for 12.12% of the total liabilities. The long-term liabilities constituted mainly of deferred tax liability, which stood at N1.69bn. The short-term liabilities constituted mainly of trade creditors and other payables.


Q1 Performance Analysis:

As at Q1 2015, turnover decreased by 4.45% to N7.46bn, compared with N7.80bn recorded in the corresponding period of 2014. The administrative, selling and distribution expenses increased by 8.86% to N2.15bn in Q1 2015. The company recorded a significant decrease of 77.63% in its net finance income of N4.50mn from N20.10mn in 2014. The PBT fell to N421.83mn, a decrease of 52.72% from N892.13mn recorded in the corresponding period of 2014. The tax provision decreased by 54.16% to N126.77mn from N276.56mn, leading to a PAT of N295.07mn in Q1 2015 from N615.57mn in the corresponding period of 2014, representing an decrease of 52.07%. We note that business activities were generally slow in Q1 2015 because of the general elections, the security issues in the country and the unfavourable macroeconomic situation in the country.

The PBT Margin decreased over the Q1 2014 and the Financial Year ended December (FY), 2014 figure. The PBT margin decreased to 5.66% in Q1 2015 from 11.43% as at Q1 2014 and 9.02% recorded at the end of FY 2014. Also, the PAT margin currently stands at 3.96%, down from 7.89% in the corresponding period of 2014, and also down from 6.06% as at FY 2014. The result also indicates that the percentage of T/O, PBT, and PAT in the Q1 2015 to the Audited T/O, PBT and PAT for the period ended December 2014 are: 24.43%, 15.33% and 15.96%, respectively.

Given the run rate, the company is likely to meet its previous year’s performance in turnover but unlikely to meet its previous performance in profit. However, given the strategic focus to advertisement, the company should gradually re-align on the profit margins.


Strategic Focus:

Glaxosmith’s current strategic priority is to focus on growing the new businesses and building the brand. For the coming years, the company’s long term strategy is to redesign its Route-To-Market (RTM) with the focus to build momentum behind drinks and drive deeper and wider penetration and strengthen the non-drinks portfolio. The company will also focus on a commercial model that will ensure that distributor margins and investment are aligned to support growth. Glaxosmith will continue to make substantial investment in its Agbara factory in order to meet customer’s demand and to maintain its edge over competition.

                 – FSDH Research