GlaxoSmithKline Consumer Healthcare Pakistan Limited (PSX: GSKCH) was established in 2015 as a public, unlisted company and was later listed in 2017. It was set up essentially to bring into effect the demerger of Consumer Healthcare business of GlaxoSmithKline Pakistan Limited (GSK Pakistan). As the name suggests the company manufactures, markets and sells consumer healthcare products that cater to pain relief, respiratory, oral health, nutrition, skin health and gastrointestinal.
Shareholding pattern
As at December 31, 2019, the company is primarily held by its associated companies, undertakings and related parties with nearly 86 percent shares under the category; the latter solely includes GlaxoSmithKline Consumer Healthcare B.V. Some 5 percent are owned by the local general public while a little over 2 percent is held by each of the following: public sector companies and corporations, mutual funds and modarabas, and foreign companies. The remaining about 1 percent is distributed with the remainder of the shareholder categories.
Historical operational performance
The reason for lower net sales in CY16 as compared to that seen in the later years is because “the assets and liabilities of Consumer Healthcare Division as at March 31, 2016 were transferred to GlaxoSmithKline Consumer Healthcare Pakistan Limited. The performance of the company is therefore based on the nine months of commercial operations.” Although gross margin at 28 percent was the lowest seen in the four years, it was supported by other income that brought net margin to 10 percent- the highest in four years. This was due to insurance claim recovery due to a fire incident in June 2016, at the warehouse of one of the company’s third party located at Hawksbay Road.
In CY17, sales revenue grew to over Rs 8 billion, with the flagship brand “Panadol” crossing Rs 5 billion, indicating that the pharmacy is the largest contributor to the revenue. Apart from the growth in revenue, there was also a significant drop in cost of production as a percentage of sales that reduced from nearly 72 percent of revenue in CY16, to almost 63 percent in CY17. While this helped to improve gross margin, distribution expense claiming nearly 22 percent of revenue adversely affect net margin, along with a reduction in other income. The higher distribution expense was due to a combination of an increase in sales promotion, advertising, and handling, freight and transportation. Thus, net margin was recorded at 8.5 percent.
During CY18, the company had its own manufacturing facility in Jamshoro. Another highlight for the company during CY18 was the amalgamation of GlaxoSmithKline OTC (Private) Limited, a wholly owned subsidiary of GlaxoSmithKline Consumer Healthcare B.V. with GlaxoSmithKline Consumer Healthcare Pakistan Limited. The effect of this is also reflected in the topline growth for the year that nearly doubled to almost Rs 15 billion. Of this, Rs 8.8 billion was contributed by GSK Consumer Healthcare Pakistan, while GSK OTC (Pvt.) Limited contributed Rs 6.1 billion. However, the higher revenue came with higher costs that reduced gross margin to almost 30 percent; higher costs was due to currency devaluation that increased cost of imports. Net margin was further aggravated by a combination of distribution and finance expense; distribution expense was higher due to salaries and sales promotion. Thus, net margin was recorded at 7 percent.
Topline growth was relatively subdued at nearly 10 percent during CY19, as compared to the double digit growth seen in the last two years. Yet it did cross the Rs 16 billion mark. The Oral Healthcare category witnessed a 20 percent growth, 16 percent in Skin Health category, 13 percent in Nutrition and Digestive Health category. During the year, the company was able to reduce cost of production marginally keeping gross margins more or less flat, whereas a reduction in finance expense helped to increase net margin slightly to 7.7 percent (CY18: 7.2 percent).
Quarterly results and future outlook
There was an 11 percent growth in 1QCY20 year on year, while at Rs 4.3 billion, the company saw the lowest net sales in the three quarters of CY20. The increase in sales revenue compared to the same period last year was due to price increases on the Over the Counter (OTC) portfolio. With a portfolio of consumer healthcare products, the company was highly relevant in dealing with the outbreak of Covid-19. Moreover, with a lower cost of production, gross margin was the highest at 32.6 percent among the three quarters.
The traction only seemed to go upwards as in the second quarter sales revenue neared Rs 5 billion. This was nearly 22 percent higher year on year. While there was a 13 percent rise in Oral Healthcare category sales, 39 percent in Pain category and 33 percent rise in Nutrition and Digestive Health category, there was an adverse effect on skincare products, such as, sunblock, due to the lock down, in addition to prescription-based products due to a fall in visits to a healthcare professional. Cost of production rose to 75 percent in 2QCY20, however, net margin increased to almost 8 percent on the back of a reduction in administrative expenses.
Sales revenue cross Rs 5 billion during 3QCY20, with a 35 percent rise year on year, and almost 23 percent growth in 9MCY20. A significant contribution was made by increased demand coming for products such as “Panadol” and “CaC”. However, the third quarter saw cost of production at 74 percent of revenue, combined with higher distribution expense. This resulted in the lowest net margin among the three quarters at 5.6 percent. Year on year comparison also reveals lower profitability for CY20 due to higher costs.
The company foresees uncertainty, however it is focusing on demand generation and order fulfilment, along with witnessing growing demand for some of its major products.
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