GSK: Exchange Rate, Others Cut Earnings | Independent Newspapers Limited
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GSK: Exchange Rate, Others Cut Earnings

Posted: Mar 28, 2016 at 3:00 am   /   by   /   comments (1)

Bamidele Ogunwusi, Lagos



Like other sector, the health care industry has continued to battle with operational challenges, Bamidele Ogunwusi, writes that this is impacting on the earnings of GlaxoSmithKline Consumer Nigeria Plc (GSK) and its peers.


There is no doubt that the potentials of the healthcare industry is huge but in spite of these potentials, the industry in Nigeria has not been finding things easy. The year 2015 was, however, an awful year as the environment in which the healthcare business operated remained challenging.


Security situation in the country remained volatile. The Boko Haram menace in the North, amnesty programmes in the Niger Delta and case of kidnapping all over the country have continued to threaten the existence of businesses and Nigeria.


Besides, the lax in security has dented the investment sentiment, even as the country has been hit hard by the global downturn in the oil industry and foreign exchange rate crisis. Also, the manufacturing industry has continued to grapple with tough operating environment occasioned by the downturn triggered by drastic drop in the prices of crude oil at the international markets. Consequently, all these security challenges have remain a thorn to the businesses in Nigeria.


While some companies were able to successfully weather the storm, others were not. However, while it was accepted generally that the overall economic and business climate was mixed due to mounting economic challenges, GlaxoSmithKline Consumer Nigeria Plc like its competitors was not insulated.


Although the company remained the leader in terms of share price among the pharmaceutical firms listed on the floor of the Nigerian Stock Exchange, the firm’s share price has depreciated significantly in response to the massive sell offs that has enveloped the Exchange.


The company also remained susceptible to the challenges facing the manufacturing sector. Consequently, the company’s profit after tax, which had dropped by 36.6 per cent in the financial year ended December 31, 2014, fell further to 47.77 per cent slide by December 31, 2015.


Market watchers attributed the sustained decline to stiff competition and lack of accessibility to key markets in the Northern parts of the country coupled with increased financing cost, which have resulted in slow growth of many fast moving consumer goods companies.


Just as other quoted firms in the local bourse is facing depression in share prices, market sentiments for the shares of GSK, one of the nation’s foremost healthcare products manufacturers listed on the floor of the Nigeria Stock Exchange has dwindled relatively due to challenging environment faced by the real sector of the economy.


The share price, which closed at N55.00 per share in April 30, 2015 has declined. At the close of business last Friday, the company’s share price stood at N24.98, a decrease of N30.02 or 54.58 per cent year to date.




GlaxoSmithKline Consumer Nigeria had ended the year 2014 in negative trajectory, as it posted a 36.6 per cent drop in profit after tax for the financial year ended December 31, 2014. Similarly, profit after tax dipped 36.6 per cent to N1.848 billion from N2.919 billion in the corresponding period of 2013. Pretax profit for the year ended also declined 36.2 per cent to N2.752 billion from N4.314 billion recorded a year earlier.


Revenue moved from N29.183 billion in 2013 audited period to N30.521 billion in the review period of 2014; indicating a marginal growth of 4.5 per cent. However, the company paid a 75 kobo per share dividend and one (1) new share for every four (4) existing shares to investors of the company.


The drug maker’s first-half (H1) pretax profit for the period ended June 30, 2015 dipped 66.1 per cent to N424.82 million from N1.25 billion recorded in the same period of last year, as the trend of decline in bottom line continued.


Also, profit after tax fell 65.6 per cent to N297.37 million from N863.56 million declared in the H1 of 2014. Similarly, revenue inched down marginally by 1.4 per cent from N15.66 billion to N15.44 billion recorded a year ago; the drug maker said in a filing with the Exchange.


The results of the nine months ended September 30, 2015 showed a decline in key performance indices with revenue dipping by 24.51 per cent from N30.5 billion in Q3’2014 to N23 billion in Q3’2015. Profit before tax also was down by 74.51 per cent from N2.7 billion in Q3’2014 to N700 million in Q3’2015, while profit after tax equally shed 73.76 per cent to N485 million during the period under review from N1.848 billion in 2014. GlaxoSmithKline ended the year 2015 with 47.77 per cent slide in profit after tax for the financial year ended December 31, 2015. According to filing with the Exchange, profit after tax fell by 47.7 per cent to N965.047 billion from N1.848 billion in the corresponding period of 2014.


Pretax profit for the year ended also declined 57.95 per cent to N1.157 billion from N2.752 billion recorded a year earlier. Revenue however, moved from N30.521 billion in 2014 audited period to N30.634 billion in the review period of 2015; indicating a marginal growth of 0.4 per cent. Based on the performance, the company proposed a dividend of 30 kobo to its shareholders for the full year ended 2015.


Speaking at the AGM, Chairman of the company, Mr. Edmund Onuzo, said the major factors responsible for the significant decline in profitability include exchange losses arising from devaluation of the Naira following the crash in oil prices as well as the increase in cost of goods sold from new trading arrangement with Lucozade Ribena Suntory, the new owners of the two brands.


He added that the board has directed management to “take steps to mitigate the future impact of these risks on our business and as we progress into the current year, we are beginning to see gradual re-alignment on profitability of the business”.


Going forward


Onuzo said the company will continue to accord its shareholders the respect they deserve at all time and that it will also continue to come out with innovations that will expand the spread and scope of the company. His words: “Our focus is to continually maximize existing business opportunities with renewed commitment to a sustainable business through investment, product innovation and capacity development.


“Our firm belief is that companies that offer quality products at competitive prices, while ensuring operational efficiencies, will always remain ahead. We are determined to succeed in the market place all things being equal, and deliver superior returns to our shareholders.


“We need support of our shareholders, their encouragement, your constructive criticism and prayers to be able to navigate the ship of our company to the safe harbour of sustainable profitability and shareholders’ value.”


The business climate for GlaxoSmithKline Consumer Nigeria Plc like its peers has remained challenging due to intense competition and pressure on the Naira exchange rate. It is advisable that the company continue to adapt business strategies to fit the dynamic operating environment.