GlaxoSmithKline Consumer Healthcare (PSX: GSKCH) was set up in 2015 as an unlisted public company under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). It was later listed in 2017. It is a subsidiary of GlaxoSmithKline Consumer Healthcare B.V. The ultimate parent company is GlaxoSmithKline plc, UK. The company manufactures, markets and sells consumer healthcare products.
Shareholding pattern
As at December 31, 2021, close to 86 percent shares are held under the associated companies, undertakings and related parties. This category solely includes GlaxoSmithKline Consumer Healthcare B.V. The local general public holds about 6 percent shares, while the directors, CEO, their spouses and minor children own less than 1 percent shares in the company. The remaining about 9 percent shares is with the rest of the shareholder categories.
Historical operational performance
The company has consistently seen a growing topline over the years, while profit margins have been more or less stable, particularly after CY18.
Revenue in CY18 nearly doubled to reach almost Rs 15 billion, up from last year’s Rs 8.3 billion. This is due to the amalgamation of GlaxoSmithKline OTC (Private) Limited, a wholly owned subsidiary of GlaxoSmithKline Consumer Healthcare B.V. with GlaxoSmithKline Consumer Healthcare Pakistan Limited. Of the total almost Rs 15 billion, Rs 8.8 billion was contributed by GSK Consumer Healthcare while the remaining Rs 6.1 billion was contributed by GSK OTC (Pvt.) Limited. However, due to currency devaluation, cost of production increased to over 70 percent of revenue, compared to 62.6 percent in CY17. This resulted in gross margin falling to 29.6 percent. However, the fall in net margin was relatively contained as it was recorded at 7.2 percent, versus 8.5 percent seen in CY17. This was due to a substantial reduction inoperating expenses as a share in revenue.
In CY19, revenue registered an increase of close to 10 percent, crossing Rs 16 billion in value terms. This can be attributed to a 20 percent growth seen in the Oral Healthcare category, 16 percent in Skin Health category and 13 percent in Nutrition and Digestive Health category. On the other hand, cost of production decreased marginally, allowing gross margin to improve slightly to over 30 percent. With little change in other elements of the financial statement, net margin also improved marginally to 7.7 percent for the year.
Despite a challenging economic environment in the first half of CY20, and the second half impacted by the Covid-19 pandemic, the company witnessed a revenue growth of 21.6 percent in CY20. The Over The Counter (OTC) portfolio saw a 28 percent rise, while the Pain category saw 31 percent, Nutrition and Digestive Health category saw 30 percent and Oral Healthcare category saw 15 percent increase. Gross margin decreased to almost 27 percent as cost of production consumed a larger share in revenue on the back of currency devaluation that adversely impacted cost of raw materials. This also trickled to the net margin that was lower year on year at 6.3 percent. However, the decrease was not as pronounced due to a significant reduction in finance expense that was a result of lower interest rates and better cash position for the company.
In CY21 revenue grew by 21.75 percent to reach an all-time high topline of over Rs 24 billion. Respiratory category registered a growth of 63 percent, while Pain Management category saw a 21 percent rise, followed by 17 percent increase in Nutrition and Digestive Health categories. There was also a 31 percent growth in Oral Healthcare category. As cost of production continued to consume close to 73 percent of revenue, gross margin was also roughly flat at 27.4 percent. However, net margin improved to 8.8 percent as other income increased substantially to Rs 341 million from Rs 47 million in CY20. The higher other income came from income on savings accounts and “others”. In addition, operating expenses were also lower year on year that contributed to a higher net margin for the year.
Quarterly results and future outlook
Revenue in the first quarter of 2022 was higher by 36 percent year on year. OTC portfolio overall witnessed an improvement by 37 percent driven by Nutrition and Digestive Health segment and Pain Management category. Oral Healthcare also witnessed a growth of 27 percent year on year. This was attributed to growing demand and “strong route-to-market”. However, gross margin was lower at 26.9 percent due to increase in cost production that has been adversely impacted by currency devaluation. In addition, the closure of a major Chinese supplier of Paracetamol, a key raw material, also drove prices upwards. With other income reverting to its previous level, net margin was notably lower at 7.8 percent compared to 11.75 percent seen in the same period last year.
The company foresees continued growing demand, however, the increase in prices of Paracetamol will impact profit margins. In addition, global commodity prices also pose a threat to profitability.
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