Abbott Laboratories (Pakistan) Limited

Abbott Laboratories (Pakistan) Limited (PSX: ABOT) was established as a public limited company in 1948. The company is in the business of manufacturing, and importing branded generic pharmaceutical, nutritional, diagnostic, diabetes care, molecular devices, hospital and consumer products.

Shareholding pattern

As at December 31, 2021, close to 79 percent shares are held in associated companies, undertakings and related parties. Within this, a major shareholder is M/S. Abbott Asia Investments Limited. The local general public hold close to 10 percent shares, followed by over 3 percent in each of the following: modarabas and mutual funds, and insurance companies. The directors, CEO, their spouses and minor children own less than 1 percent shares. The remaining roughly 4 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has seen a growing topline throughout since CY12. Profit margins, on the other hand, declined between CY16 and CY19, before rising again in CY20 and onwards.

In FY18, revenue posted a growth of early 14 percent to reach Rs 29.7 billion in value terms. Both local sales and export sales registered a growth of 14 percent and over 11 percent, respectively. Segment-wise, nutritional sales registered a growth of over 22 percent, “others” division grew by 14 percent and pharmaceutical division grew by almost 12 percent. Owing to currency devaluation and inflationary pressures, cost of production consumed 67 percent of revenue, compared to 61.3 percent in CY17.Note that the pharmaceutical industry relies heavily on imported raw materials the cost of which is adversely impacted by currency devaluation. As a result, gross margin declined to nearly 33 percent, from nearly 39 percent in CY17. Operating expenses also consumed a larger share in revenue whereas other expenses escalated on the back of exchange loss. Thus, net margin fell to 9 percent, the lowest seen thus far.

Revenue growth was marginal in CY19 at 1.5 percent, with topline crossing Rs 30 billion. Export sales, that is not a major contributor to the total revenue pie, posted a growth of 41 percent, whereas local sales declined marginally by 1 percent. Between divisions, the nutritional sales grew by 16 percent, and “others” category posted a growth of 8.6 percent. On the other hand, pharmaceutical sales decreased by almost 3 percent owing to the general economic and regulatory environment. Cost of production continued to rise, claiming close to 72 percent of revenue, thereby reducing gross margin for the third consecutive year, to over 28 percent. Operating expenses also consumed a larger share in revenue year on year, thus, net margin fell to an all-time low of 4 percent.

At 17 percent, revenue growth in CY20 was the highest seen thus far with topline crossing Rs 35 billion in value terms. Export sales reduced by 27 percent while local sales grew by nearly 22 percent. The decline in export sales can be attributed to trade halts associated with the outbreak of the Covid-19 pandemic. On the other hand, all the business segments registered a growth as noted by 12.7 percent rise in pharmaceutical sales, 39 percent in nutritional sales, 4 percent in diagnostics and 5 percent in “others”. The growth in revenue raised gross margin to over 33 percent. This also reflected in the net margin that was recorded at nearly 13 percent with a bottomline of Rs 4.5 billion. In addition to higher revenue, profitability also received support from other income that increased substantially due to a one-off event of liabilities written back.

Revenue in CY21 posted an all-time high growth of close to 21 percent to cross Rs 42 billion in value terms. This was largely attributed to a growth in volumes. Both export sales and local sales grew by almost 17 percent and 20.4 percent, respectively. Segment-wise, pharmaceutical sales grew by 15.5 percent, nutritional segment grew by 17.7 percent, diagnostic sales grew by almost 76 percent due to Covid testing and higher OPD activities, and general healthcare and diabetes care posted a growth of almost 61 percent. This raised gross margin close to 38 percent. Although net margin was also higher year on year at 14 percent, but the improvement was relatively marginal due to rise in distribution and other expenses, coupled with other income reducing. The rise in distribution expenses was due to greater traveling and sales promotions, while other expenses was driven by Workers’ Profit Participation Fund (WPPF), Workers’ Welfare Fund (WWF) and Central Research Fund (CRF).

Quarterly results and future outlook

Revenue in the first quarter of CY22 was 19 percent higher year on year. Pharmaceutical sales grew by 17 percent, nutritional sales by 19 percent while diagnostics segment continued to benefit from Covid testing, registering a growth of 36 percent. However, this did not translate into a higher gross margin as production costs increased to consume 65 percent of revenue, compared to 61.6 percentin 1QCY21 due to currency devaluation and inflation. This also caused other expenses to increase as exchange losses went up. Thus, net margin was also year on year at over 12 percent for the period versus 14.6 percent in the same period last year.

On the sales front, the company is facing a positive trend, but production costs, particularly due to currency devaluation as the sector is reliant on imports, threatens future profitability.