GlaxoSmithKline Prays For A Stronger Economy | Independent Newspapers Limited
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GlaxoSmithKline Prays For A Stronger Economy

Posted: Mar 21, 2016 at 1:00 am   /   by   /   comments (0)

Kirk Leigh, Lagos

Nowhere is the brunt of economic challenge felt more than the manufacturing sector in a developing economy like Nigeria where pharmaceutical giant GlaxoSmithKline Nigeria (GSK) plies its trade.
The sector had suffered from a recession, which it only exited in the last quarter of 2015 with a measly rise of 0.6 percent on the back of a 2.8% expansion in textiles, apparel and footwear (TAF) and a softer contraction (Q4: -5.6% YoY, Q3: -8.9% YoY) in food, beverage and tobacco (FBT), according to the latest figures from the National Bureau of Statistics (NBS).
So when drug maker GlaxoSmithKline Nigeria reported full year pre-tax profit of N1.16 billion on a N30.63 billion revenue, which is less than 1 percent improvement over last year’s showing, market watchers didn’t quit raise much of an eye brow.
Manufacturers have variously decried the inclement business environment, which are fallouts of government policy. There complaints range from scarcity of dollars to indiscriminate import waivers along with the age long problems of lack of electricity and paucity of finance.
Even if the cost of sales did not quite reflect the heavy cost of doing business at 3 percent, pre-tax profits screamed out the situation.
The pre-tax returns of GlaxoSmithKline Nigeria, which could very well be representative of the heavy operating cost of manufacturers, slumped to N1.16 billion, less than half what the company achieved in the last financial year when it made PBT of N2.75 billion.
The heavy toll is also seen in the PBT margin which took a shave to settle at 3.8 percent from 9 percent.
The maker of Ribena’s bottom-line or net profit sank by a scary 47.3 percent to paint a rather sad picture of how asphyxiating government policy can be to a business. It fell to N965 million from N1.83 billion. But the figure was helped by a massive reduction in tax obligation, which was more than four times lower than the previous year’s.
This also had the effect of constraining net profit margin given the slothful movement of sales.
Net profit margin or the much the company could glean from a naira put into the business fell to 3.2 percent from 6 percent. This means that in both years (last year and the year before), every one naira returned only 3 kobo and 6 kobo, respectively.
But at an inflation rate of 9.4 percent in December 2015, the real marginal return of the pharmaceutical company broached negative territory.
Despite the not so inspiring returns, the company board proposed dividend of 30 kobo per share, with payment date of June 24, 2016. Closing date has been fixed for May 25, which is roughly one month to the AGM fixed for June 23.
The company managed a 12 percent growth in total assets despite the slowing economy but negative profits put a dark spot on assets ability to deliver on profits as the company’s return on assets fell from 6.6 percent to 3.1 percent in the period.
This trend is also seen in the inability of equity to deliver on profits as return on equity sank to half what it was in 2014- from 14.3 percent to 7.3 percent. This is as total equity inched 3 percent to N13.2 billion from N12.76 billion.
Where funds are hard to get, the company may be slowing down on heaping up borrowed funds as its financing cost fell 27.6 percent from N5.12 million to N3.7 million. Current assets rose 22 percent to N17.5 billion from N14.3 billion and by a curious pace of change, current liabilities followed same level of growth by 22 percent to N16.13 billion from N13.2 billion.
The even paced growth between the two solvency ingredients left the short term solvency level unchanged at 1:1.08 in both periods under review. The solvency ratio indicates that the company is in a good position to meet with its short term obligation to suppliers.
At 0.5 for the last two years, the company has been effectively managing its long term solvency ratio.
The company’s share price has remained unchanged at N23.7 since announcing year end result last week to indicate that investors and indeed market watchers expected nothing more from the maker of pharmaceuticals and vaccines.
GlaxoSmithKline is one of the world’s leading research-based pharmaceutical and healthcare companies. With headquartered in the UK with major business operations in the US, employing over 97,000 people in over 100 countries.

The company’s mission, according to information gleaned from its website is to “improve the quality of human life by enabling people to do more, feel better and live longer.”
“In Nigeria, GlaxoSmithKline has been a dominant and leading force in the healthcare industry, having a strong presence in the country for the past 40 years. GlaxoSmithKline operates globally with business units focused on pharmaceuticals, vaccines and consumer healthcare products.”