Abbott Laboratories Pakistan Limited

Abbott is a multinational healthcare company engaged in providing efficient and life-changing medical technologies and services across the globe. Abbott Laboratories Pakistan Limited (PSX: ABOT) was set up as a public listed company in Pakistan in 1948. The company manufactures, imports and markets pharmaceutical, diagnostic, nutritional, diabetic care hospital and consumer products.

Pattern of Shareholding

As of December 31, 2022, ABOT has a total of 97.9 million shares outstanding which are held by 2661 shareholders. Associated Companies, Undertakings, and Related parties form the largest shareholding category with 78.84 percent shares of ABOT. Under this category, M/S Abbott Asia Limited dominates with 76.26 million shares. Local General Public grabs the next spot with ownership of 9.73 percent of ABOT’s shares followed by Insurance companies and Modarbas & Mutual Funds with a stake of 4.15 percent and 3.24 percent respectively in ABOT. Banks, DFIs, and NBFIs hold 1.37 percent of the company’s shares. The rest is held by other categories of shareholders.

Historical Performance (2018-22)

ABOT’s topline has been riding an upward trajectory since 2018; however, its bottom line registered growth only in 2020 and 2021. The company’s margins which considerably eroded in 2019 significantly rebounded in the COVID-19 year and the uphill journey continued in 2021. In the subsequent year, ABOT’s margins witnessed a substantial plunge. The detailed performance review of the period under consideration is given below.

In 2019, ABOT’s net sales grew by a meager 1.5 percent year-on-year. Pharmaceutical sales which constitute the major chunk of ABOT’s sales mix dropped by 3.5 percent in 2019 on account of the unfavorable economic and regulatory environment. Conversely, nutritional sales grew by 16 percent and General Health Care (GHC), diagnostics, and Diabetic care cumulatively grew by 10.4 percent during the year. 13 percent year-on-year decline in gross profit was the effect of the Pak Rupee depreciation and high inflation. This also culminated into a GP margin of 28.28 percent in 2019 versus 32.98 percent in the yesteryear. Selling & distribution expenses surged by 12.39 percent in 2019 owing to greater advertising &promotional activities, higher payroll expenses as well as elevated traveling charges. Administrative expenses also escalated by 19.79 percent in 2019 on the back of higher payroll expenses as ABOT increased its workforce from 1465 employees in 2018 to 1540 employees in 2019. Higher computer expenses also contributed to driving up administrative expenses in 2019. Other expenses showed some respite mainly due to better management of exchange loss and lower profit-related provisioning done in 2019. Other income also dropped by 23.25 percent in 2019 due to a decline in income from savings and deposit accounts and lesser scrap sales. Operating profit dwindled by 41.19 percent in 2019 with OP margin sliding down from 14.67 percent in 2018 to 8.5 percent in 2019. Finance cost also hit the bottom line hard due to an increase in discount rates during the year coupled with a sizeable increase in lease liabilities. The bottom line shrank by 51.74 percent year-on-year in 2019 to clock in at Rs.1299.89 million with EPS of Rs.13.28 versus EPS of Rs.27.52 in 2018. NP margin also slipped from 9.07 percent in 2018 to 4.31 percent in 2019.

While the other sectors of the economy would have definitely given a moan of despair in 2020 when the global pandemic hit the economies, it was the other way around for the Pharmaceutical sector. The historical performance of ABOT speaks volumes of the merry times it enjoyed in 2020. The margins of the company which had been shrinking since 2018 rebounded in 2020. In 2020, the company bagged a hefty topline growth of 17 percent year-on-year. The growth was mainly supported by the nutritional segment of the company which majorly comprises of adult nutritional supplements which attained a massive 37.5 percent year-on-year growth. The sustained performance of ABOT’s established brand drove up pharmaceutical sales by 12.6 percent in 2020. Diagnostic sales inched up by 4.1 percent whereas GHC and diabetic care cumulatively rose by 5.6 percent in 2020. While export sales couldn’t gain momentum during the year might be due to supply chain bottlenecks amidst lockdown and restrictions on the movement of people and goods, local sales attained massive growth during the year. Gross profit heightened by 38.91 percent in 2020 resulting in GP margin flying up to 33.57 percent in 2020 mainly on the back of improved prices as well as elevated sales volumes in the nutritional segment followed by the pharmaceutical segment. Selling & Distribution expenses took a nosedive of 2.48 percent in 2020 owing to lower travel costs and promotional activities on account of COVID-19. Administrative expenses slumped by 12.23 percent in 2020 on account of significantly fewer computer expenses. Other expenses increased on the heels of increased provisioning for WWF, WPPF, and CRF, but to set this off, other income exponentially grew mainly on account of liabilities pertaining to PC support and other infrastructure-related services written back by Abbott B.V. Netherlands. Hence, operating income grew by 146.52 percent in 2020 with OP margin climbing up to 17.91 percent. It is to be noted that the Finance cost multiplied by 44.86 percent in 2020 despite the low discount rate backdrop. While the company is sufficiently liquid and doesn’t require short-term or long-term financing facilities, finance costs grew on account of markup on lease liabilities recognized for business and vehicles. The bottom line burgeoned by 248.90 percent in 2020 to clock in at Rs.4535.25 million with EPS of Rs.46.33 and NP margin of 12.85 percent.

ABOT continued to follow the growth trajectory in 2021 whereby its topline boasted a year-on-year growth of 20.65 percent mainly on account of diagnostic sales which multiplied by 75.9 percent due to COVID-related testing and increased OPD activities. The General Health Care and Diabetic Care segment also shored up the topline by attaining a growth of 60.8 percent. These two segments were followed by the nutritional and pharmaceutical sectors bagging a year-on-year growth of 17.7 percent and 15.5 percent respectively in 2021. Better product mix and upward price adjustments played their due role in keeping the margins buoyant during 2021. Gross profit mounted to by35.7 percent in 2021. Consequently, the GP margin touched the highest level of 37.76 percent in 2020. Distribution expenses which were muted during 2020 rebounded by 33.10 percent in 2021 on account of increased promotional drives, particularly by the Nutritional segment, and increased travel charges as COVID-related restrictions began to ease off. Higher warehousing and freight charges on account of increased volume also contributed to higher distribution expenses in 2021. Administrative expenses surged by 12.43 percent in 2021 on account of higher depreciation charges and elevated payroll expenses as several employees rose up to 1469 in 2021. Pak Rupee Depreciation and ABOT’s dependence on imported raw materials and finished goods pushed up its exchange loss which along with increased provisioning for WWF, WPPF, and CRF drove other expenses up. Other income slid by 3.66 percent in 2021 due to no write-back of liabilities recorded by ABOT in 2021. All these factors translated into a 34.47 percent bigger operating profit in 2021 with an OP margin of 19.96 percent. Finance costs ticked up by 14.9 percent despite monetary easing. This was on account of the unwinding of GIDC. Net profit grew by 31.57 percent in 2021 to clock in at Rs.5967.06 million with EPS of Rs. 60.95 and NP margin of 14.02 percent.

While ABOT’s net sales grew by 15.71 percent in 2022, the bottom line didn’t follow suit. The margins didn’t comply either and thinned down considerably in 2022. The nutritional segment registered the highest year-on-year sales growth of 23.1 percent in 2022 followed by pharmaceutical 14.2 percent, diagnostic 9.4 percent, and GHC and diabetic care 8.9 percent. High commodity prices, Pak Rupee depreciation, elevating energy tariff, exorbitant fuel prices as well soaring inflation took its toll on the gross profit of ABOT which dwindled by 9.64 percent in 2022. GP margin leveled down to 29.49 percent in 2022, falling from its peak of 37.76 percent in 2021. Distribution expenses grew by a paltry 7.14 percent in 2022 on account of higher payroll expenses, traveling expenses as well as promotional drives by the nutritional segment. Increased salaries to comply with the minimum wage rate, coupled with a hike in utility expenses and depreciation drove up administrative expenses by 22.7 percent in 2022. Other income magnified by 44.39 percent in 2022 due to high-interest income, income from Abott GmbH as well as scrap sales. However, the growth in other income was counterbalanced by 43.9 percent higher other expenses due to exorbitant net exchange loss. As a result, operating profit lessened by 27.11 percent in 2022 with OP margin dropping to 12.58 percent. Despite the onset of monetary tightening, finance costs contracted by 46.36 percent in 2022 on account of the lesser amount incurred under the unwinding of GIDC as well as lower lease liabilities. Net profit fell by 49.65 percent in 2022 to clock in at Rs.3004.19 million with EPS of Rs.30.69 and NP margin of 6.10 percent.

Recent Performance (9MFY23)

While ABOT made 11.57 percent higher sales in 9MCY23 versus the same period last year, it couldn’t translate into a positive bottom line. The bottomline of the company which began shrinking since 2022 ended up in deep red during 9MCY23. During the period under consideration, diagnostic and pharmaceutical sales posted 20 percent and 18 percent rise respectively. However, high inflation and the consequent shrunken pockets of consumers wreaked havoc on the nutritional sales which crashed by 7 percent. Exorbitant rise in raw material prices coupled with Pak Rupee depreciation, high indigenous inflation, and energy tariff hike trimmed down gross profit by 31.29 percent in 9MCY23 with GP margin drastically falling down to 20.17 percent from 32.75 percent during 9MCY22. Operating expenses surged by 14 percent mainly on account of inflation. Higher exchange loss due to Pak Rupee depreciation resulted in 17.73 percent taller other expense incurred during the period. However, it was, to a great extent, offset by 62.77 percent higher other income which was the consequence of the waiver of liability Abbott Rapid Dx International Limited against the purchase of goods as well as handsome interest income earned during the year. Operating profit weakened by 81.6 percent in 9MCY23 with OP margin radically diving down to 2.41 percent from 14.61 percent during the same period last year. Finance cost slid by 36.59 percent in 9MCY23 due to the curtailed amount of lease liabilities outstanding during the period. The minimum tax regime and prior super tax levy of 10 percent added to the ado resulted in ABOT posting a net loss of Rs.792.696 million in 9MCY23 versus a net profit of Rs.2564.983 million in 9MCY22. ABOT registered loss per share of Rs.8.1 during the period under consideration versus EPS of Rs.26.2 during the same period last year.

Future Outlook

With the local pharmaceutical industry depending on around 90 percent of imported raw materials, the stability of the Pak Rupee and the easing of global commodity prices is a good omen. However, high indigenous inflation, high energy tariffs, and unprecedented levels of discount rates will continue to dilute the earnings and margins of ABOT in the absence of a necessary pricing review by DRAP. The company should also focus on export sales of its products particularly the nutritional segment which has lost its spark in recent times due to the dwindling purchasing power of consumers.