Financial Policies at GSK

Presented by: Rohit Chawla (11503) Shiraz Baig (13114)

Introduction

• History: created on 1st January 2001, with the merger of french company SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited- standing today as the largest pharmaceutical company in Pakistan

- Mainly operates in segments (Pharmaceutical and consumer healthcare)

Products

• Products: Augmentin, Panadol, Seretide, Betnovate, Zantac and Carpol in medicine and renowned consumer healthcare brands include Horlicks, Aquafresh, Macleans, Zofram and ENO, and many others.

Key figures

• Sales Rs.25,231 million volume,

Profit of Rs.1,062 million, Net profit to Assets was 4.2%• Outperforming KSE-100 P/E ratio which 11, since GSK`s P/E

ratio was 37.5 in 2013, and has doubled relative 2012.

• Today`s Operational status: - There are about 79 sites for manufacturing and - Operates in 33 countries.- Having 4 major sites in Pakistan, 3 in Karachi, and one in

Lahore.

Risks faced by GSK

• Strategic Risk: - Overly restricted prices, and - No general policy for pharmaceuticals

• Commercial Risks

• Strategic Risks

DFL AND DOL

• DOL = (1.9)- but, it was 0.7 in 2012.

• DFL = 0.6 - However in 2012, DFL was 0.4, essential in 2013

and GSK had same debt to equity ratio that is 0.1, showing that cost of debt in 2013 has increased in 2013 for GSK.

Fixed asset Profile of GSK

Year Fixed Asset 2008 2415 (millions) 2009 3830 2010 4190 2011 4794 2012 5815 2013 5973

1 2 3 4 5 60

1000

2000

3000

4000

5000

6000

7000

Series1

The growth rate in sales is 9%, showing the success of GSK`s expansion of operations, P/E ratio is ALSO 37.5.

Cash Management Policy

• Focused on generating internal financing

• Very strict stance on short term borrowing

• Dynamic system at work, for determining liquidity requirement

• Current cash flow operations 4.2, which was at 7 in 2012

• Excess cash is invested in government securities.• cash= 2.1 billion • Improved operating cycle (from 94 to 82) in 2013

• GSK invests in the highly rated government securities.• Branches in different banks such as:- Citibank - Standard Chartered Bank (Pakistan) Limited- HSBC Bank Middle East Limited- Habib Bank Limited- Deutsche Bank A.G.- Barclays Bank PLC Pakistan

Inventory Management

• Till 2010 GSK used DSS process, left it out because not having quality of intigertated information system

• GSK has complete warehouse system• GSK follows lead time approach, orders 4

times a year with a safety stock of 1 month forward.

• Overall they order 4 times in year

• Since of 2011, GSK is following SAP model for inventory management

• Improved operating cycle (from 94 to 82) in 2013

Benefits of SAP:- Integrated information system- functional areas of financial, human resources, supply chain

management, and marketing- Model provides real time feature in the transaction.- Automated updating of the over consumption of stock.

Receivable Management

• Follows a very strict policy regarding receivables owing to products they provide in market are unmatchable.

• GSK deals in cash or they only one week of credit to the costumers

• Days to receivable turnover ratio of 5 days, Reflecting the demand of the products

Payable Management

• Spending very aggressively on the R&D department of the pharmacy, having a long term perspective.

• Evident from Rs. 150 million increase in fixed assets.

• Supplier are confident regarding the prospects and credibility of the GSK, since in last days to payoff for supplies was 28, now it is 28.

Conclusion

• Efficiently managing its operations• Has market share of 55%• SAP is used for effective inventory and other

business operations• Uses lead time, keeps a safety stock of 1

month, places 4 orders in a year.• Days of collection period is 5, showing sound

liquidity position of company.

• Bright future prospects heavily investing in R&N, and increasing its investment in fixed asset by Rs.150 million.

• Owns 4 research centers 3 in Karachi and 1 in Lahore

Thank you…..!!!!!!!!!!!!