analysis of financial statement of pharma industry
TRANSCRIPT
PRESENTATION ON PHARMACEUTICAL INDUSTRY
TO:SIR FAISAL DHEDHIDATED: 3rd DEC 2015
SARWAT JAHAN 878 INDUSTRYMUHAMMAD OWAIS ALI 60046 GSKMUHAMMAD GOUHAR IQBAL 5052 ABBOTTSHAHZAD KHALID 5700 FRZ-SONS
PHARMACEUTICAL INDUSTRY
• GlaxoSmithKline Pakistan Limited• Abbott• Ferozsons
Pakistan Pharmaceutical Industry At the time of independence, we did not have any pharma units. The establishment of national companies started in 1960s. The Pharmaceutical manufacturing sector of Pakistan is composed of
Local Manufacturers and Multinationals. Today, we have 600 pharmaceutical companies operating in Pakistan,
out of which 386 are manufacturing units. Together they cater for approximately 90% of Local market needs. Some of Pharmaceuticals are also exporting finished products and thus
generating foreign exchange. Local Research promotion is lacking. Local production of raw materials is low. The raw materials are mostly imported from China and India. These raw
materials are very much expensive to develop. The pharmaceutical industry is highly capital intensive. Most of the
manufacturing machines are imported from foreign countries. Provides direct employment to more than 70,000 and indirect
employment to around 150,000 people across the country. Prices of all 50,000+ drugs are controlled by government in Pakistan.
Concerns of Pharmaceutical Sector
Lack of implementation of patent control. Production and circulation of Fake medicines. Drug price control policy of Pakistan Govt. Low per capita expenditure on Pharmaceuticals.
Concerns of Public Regarding Pharmaceuticals
Excess profitability on certain medicines. Non provision of low profit life saving medicines. Involvement in unethical practices to enhance drug circulation which
include individual and institutional bribes. Not adhering to strictest of quality control mechanisms.
SWOT AnalysisStrengths: $2.3 billion industry having $500 million
domestic and $ 100 foreign direct investment.
Annual 15% growth rate of industry. 100% prices control proper regulation
compare with India. Creates employments in the economy.
Opportunities: Form and facilitate infrastructure that helps
to make possible pharmacy industry to improve process and technique.
Technical support to companies for improving exports.
More standardize and systematic procedures for testing and validation of dosage.
Focus on export instead of imports by the help of proper export policies and political stabilities.
Weakness: 90% of ingredients imported from outside.
That impact on price level of medicines. Cost of discovering and testing of new drugs is
high. Lack of PhD’s and no concentration on
training and development of employees.
Threats: Lake of research and development in the
industry. The acquisition and mergers impact on the
management challenges and decision making. Completion in generics and contract
manufacturing. 5-25% duties and taxes on machinery and
inputs.No proper policies Cost management and tax reduction.
Recommended to invest
• GlaxoSmithKline Pakistan Limited
• Abbott• Ferozsons
PAST PRESENT FUTURE
NORMAL FAVORITE AVERAGE
NORMAL AVERAGE FAVORITE
NORMAL FAVORITE NORMAL
• GSK has made a segment internally to evaluates it’s trio product. PANADOL , SANSODYNE & HORLLICKS.• Government of Pakistan has issued a Licence to other Pharma companies to make the drug which was only producing by Ferozson.
Comments of Miss.Manal Iqbal (CFA) Deputy Head of Research at Elixir securities Pakistan (private) limitedDeputy Head of ResearchElixir securities pakistan (private) limited Head of Research/Fund ManagerMCB-Arif Habib Savings & Investments LtdAugust 2012 – September 2015 (3 years)
GlaxoSmithKline Pakistan Limited GlaxoSmithKline Pakistan Limited was created January 1st, 2001 through the merger of
SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited and Glaxo Wellcome (Pakistan) Limited and stands today as the largest pharmaceutical company in Pakistan. GSK is a long established investor in Pakistan. Our legacy company Glaxo Laboratories Pakistan Ltd. was the first pharmaceutical company to be listed on the Karachi Stock Exchange in 1951. GSK Pakistan operates mainly in two industry segments: Pharmaceuticals (prescription drugs and vaccines) and consumer healthcare (over-the-counter-medicines, oral care and nutritional care). In Pakistan, the Company deals in Anti-infective, Respiratory, Vaccines, Dermatological, Analgesics, Oncology, Urology, Central Nervous System, Allergy, Cardiovascular and Vitamins therapy areas.
We are committed to our mission of providing patients quality products to help improve the quality of their lives. Some of our leading pharmaceutical brands include Augmentin, Seretide, Amoxil, Velosef, Zantac and Calpol and renowned consumer healthcare brands, which include Panadol, Horlicks, Sensodyne and ENO. Prominent vaccines include Synflorix, Infanrix Hexa, Rotarix, Havrix and Priorix Tetra.
Today GSK Pakistan is highly successful business with 11% of the value and over 18% of the volume share. Major competitors are MNCs such as Abbott, Novartis, Pfizer, Sanofi Aventis and local companies like Getz and Sami. Pakistan has built a competent commercial capability with a track record of successfully integrating the BMS, UCB, and Stiefel businesses, and building a diverse and profitable business of over 150 brands.
GSK Pakistan presently employs about 2,300 persons across its Sales, Global Manufacturing Services (GMS),Pharma division and Consumer Health Care functions.
GlaxoSmithKline Pakistan Limited
Financial Performance at a Glance
% Rupees in Million2014 2013
Net sales 10.51 27883 25231Gross profit 18.03 7346 6224
Operating profit 45.71 2869 1969
Profit before taxation 57.40 2849 1810Taxation 55.35 1162 748
Profit after taxation 58.85 1687 1062
Dividend - cash* 57.14 1592.3 1013.3
- per share - Rs 42.86 5 3.5
- Issue of bonus shares - 289.5Paid-up Capital 10.00 3184.7 2895.2
GlaxoSmithKline Pakistan Limited
GlaxoSmithKline Pakistan LimitedCash Flows
2014 2013
Operating Activities Rs. in million 2,432 1,057
Investing Activities Rs. in million -920 -285
Financing Activities Rs. in million -957 -990
Changes in Cash equivalents Rs. in million 555 -218
Cash & equivalents - Year end Rs. in million 2,652 2,097Financial HighlightsCash dividend per share Rupees 5.0 3.5Bonus shares % - 10.0Market value per share - year end Rupees 219.3 136.2Market value per share - high Rupees 254.0 152.1Market value per share - low Rupees 136.3 68.0
Market price to Book value withsurplus Times 5.8 3.5
Market capitalization Rs. in million 69,843 39,435
GlaxoSmithKline Pakistan LimitedComment on Cash FlowsThe Company’s cash requirements are met through internal cash generation without reliance on borrowings. An effective Liquidity Management System is in place that is actively involved in assessing and planning the Company’s cash flow requirements to ensure adequate availability of funds as required by the business. The Company invests its surplus funds in a mix of sovereign investments and high credit rated bank deposits to maintain a risk averse optimum interest yielding portfolio. The Company maintains strong relationships with its banks and constantly evaluates cash management and trade solutions to improve its investment and banking operations. The Company continued to use its strong cash flows to make the required levels of investments in business necessary to sustain long term growth.Cash and cash equivalents have increased from last year mainly due to cash generated from operations. The surplus funds were largely utilized on increased capital investments for facility improvements including plant up gradation and capacity enhancement.
GlaxoSmithKline Pakistan LimitedBalance Sheet
2014 2013- property, plant and equipment 6,652 5,973Assets - intangible- Goodwill 956 956Long Term Investments - -Long-term loans and deposits 88 87Net current assets 5,198 5,196Non current assets held for sale 27 -
12,921 12,212
Less: Non-Current LiabilitiesStaff retirement benefits - Staff gratuity 382 251Deferred taxation 594 612
976 863Net assets employed 11,945 11,349Financed byIssued, subscribed and paid-up capital 3,185 2,895Reserves 8,760 8,454Shareholders’ Equity 11,945 11,349
GlaxoSmithKline Pakistan LimitedVERTICAL ANALYSIS
Balance Sheet Analysis% 2014 2013 2012 2011 2010 2009
Share Capital and Reserves 62.5 63.3 70.1 71.1 72.5 73.4Non Current Liabilities 5.1 4.8 4.3 3.8 3.6 3.4Current Liabilities 32.4 31.9 25.6 25.1 23.9 23.2Total Equity and Liabilities 100.0 100.0 100.0 100.0 100.0 100.0Non Current Assets 40.4 39.1 42.3 37.8 35.1 34.8Current Assets 59.6 60.9 57.7 62.2 64.9 65.2Total Assets 100.0 100.0 100.0 100.0 100.0 100.0
Profit and Loss Account Analysis
% 2014 2013 2012 2011 2010 2009Net sales 100.0 100.0 100.0 100.0 100.0 100.0Cost of sales 73.7 75.3 73.9 73.2 74.3 74.7Gross profit 26.3 24.7 26.1 26.8 25.7 25.3Selling, marketing and distribution expenses 13.3 14.4 13.1 12.8 12.2 11.6Administrative expenses 3.7 3.7 3.4 4.7 4.4 5.1Other operating expenses 0.9 0.6 0.8 0.9 0.9 0.9Other income 1.8 1.8 1.4 2.1 2.1 2.8Operating profit 10.3 7.8 10.2 10.5 10.3 10.5Financial charges 0.1 0.6 0.2 0.2 0.1 0.3Profit before taxation 10.2 7.2 10.0 10.3 10.2 10.2Taxation 4.2 3.0 4.3 5.0 4.6 4.0Profit after taxation 6.1 4.2 5.7 5.2 5.6 6.2
GlaxoSmithKline Pakistan LimitedComments on Profit and loss Statement (Income Statement)Net sales for the year 2014 has increased 10.5%, due to emergence of Ebola virus, Dengue fervor , Amoeba and weather changes because of Global warming. Gross profit increased with 18.03% and after taxation its profit margin is 58.85% more than the previous year 2012 which is a milestone.
Milestones/AchievementsThe Steroids Portfolio crossed Rs. 2.2 billion in sales.• Cutivate crossed Rs 100 million landmarks in sales.• Hydrozole crossed the 1 million in prescriptions mark.• Zolanix underwent a new pack of 4’s launch• Launch of Cicatrin Powder 20g.• Launch of Valtrex
TaxationThere is an increase in taxation from prior year mainly due to prior year charges and higher profitability.
Comments on Balance SheetProperty, plant and equipment have witnessed an increase over prior year due to investment in production facilities and infrastructure to support growing scale of business.In Non-current Liabilities deferred taxation is showing in negative.
GlaxoSmithKline Pakistan Limited
Turnover and profit 2014 2013
Net sales 27,883 25,231
Gross profit 7,346 6,224
Operating profit 2,869 1,969
Profit before taxation 2,849 1,810
Taxation -1,162 748
Profit after taxation 1,687 1,062
EBTIDA 3,293 2,323
Cash Dividend including bonus shares 1,592 1,303
Sales per employee 11,091 11,643
GlaxoSmithKline Pakistan Limited2014 2013
Liquidity RatiosAdvances to Deposits ratio Times 2.9 2.1Current ratio Times 1.8 1.9Quick / Acid test ratio Times 0.8 0.8Cash to Current Liabilities Times 0.4 0.3Cash flow from Operations to Sales % 8.7 4.2
Activity / Turnover RatiosInventory turnover ratio Times 3.2 3.3No. of Days in Inventory Days 115 112Debtor turnover ratio Times 63.0 72.1No. of Days in Receivables Days 6 5Creditor turnover ratio Times 10.6 10.5No. of Days in Creditors Days 34 35Total Assets turnover ratio Times 1.5 1.4Fixed Assets turnover ratio Times 4.2 4.2Operating Cycle Days 86 82
GlaxoSmithKline Pakistan LimitedProfitability Ratios 2014 2013Profit before tax ratio % 10.2 7.2
Gross Yield on Earning Assets % 7.1 7.6
Gross Spread ratio Times 0.2 0.2
Cost / Income ratio Times 0.6 0.7
Return on Equity % 14.1 9.4
Return on Capital employed % 9.1 6.2
Gross Profit ratio % 26.3 24.7
Net Profit to Sales % 6.1 4.2
EBITDA Margin to Sales % 11.8 9.2
Operating leverage ratio Times 5.5 -1.9
GlaxoSmithKline Pakistan Limited
Investment/Market Ratios 2014 2013
Earnings per share (EPS) Rupees 5.3 3.7Price Earnings ratio Times 41.4 37.1Price to Book ratio Times 0 0Dividend Yield ratio % 2.3 2.6Dividend Payout ratio Times 0.9 1.0Dividend Cover ratio Times 1.1 1.1
Capital Structure RatiosEarning assets to total assets ratio % 13.9 11.7Net assets per share Times 37.5 39.2Debt to Equity ratio Times 0.1 0.1Financial leverage ratio Times 0.6 0.6Interest Cover ratio Times 139.9 12.4
GlaxoSmithKline Pakistan LimitedDividendsThe Company maintained its history of providing reasonable returns and payouts to its shareholders. The Board of Directors of the Company, in their meeting held on February 25, 2015, have proposed a cash dividend of Rs. 5.0 (2013: Rs. 3.5) per share. Overall dividend payout for 2014 at Rs 1.6 billion will be 57.1% higher than 2013, reflecting the higher equity base.Financial Risk Management:Interest rate risk:As at December 31, 2014 the Company does not have any borrowings. Further, the entire interestbearing financial assets of Rs. 2.28 billion (2013: Rs. 1.83 billion) are on fixed interest rates, hence management believes that the Company is not exposed to interest rate changes.
GlaxoSmithKline Pakistan Limited
GlaxoSmithKline Pakistan Limited
GlaxoSmithKline Pakistan LimitedHorizontal Analysis
Abbott Pakistan With over 70,000 employees worldwide and a global presence in more than 130 countries, Abbott is committed to improving people's lives by providing cost effective health care products and services that consistently meet the needs of our customers.Abbott Pakistan is part of the global healthcare corporation of Abbott Laboratories, Chicago, USA.Abbott started operations in Pakistan as a marketing affiliate in 1948; the company has steadily expanded to comprise a work force of over 1500 employees. Currently two manufacturing facilities located at Landhi and Korangi in Karachi continue to use innovative technology to produce top quality pharmaceutical products.Abbott Pakistan has leadership in the field of Pain Management, Anesthesia, Medical Nutrition and Anti-Infectives. Our wide range of products is managed and marketed through three marketing arms.On June 29, 2005 Abbott Pakistan Achieved Class 'A' accreditation against the Oliver Wight ABCD Check list. This was an outstanding achievement, which puts Abbott Pakistan amongst some of the best global companies in terms of operational excellence.
Abbott Pakistan
Cash Flow Statement- Direct Method2014 2013
Cash flows from Operating Activities Cash receipts from customers 19,731,593.00 17,246,220.00
Cash paid to suppliers / service providers (12,091,832.00)
(11,031,262.00)
Cash paid to employees (2,269,422.00) (1,841,413.00)
Payment of royalty and technical service fee (157,575.00) (156,057.00)Payment to retirement funds (218,415.00) (189,612.00)
Income taxes paid (1,409,639.00) (1,115,769.00
)Payment of other statutory charges (249,020.00) (426,310.00)Long-term deposits - net (3,502.00) (366.00)Long-term prepayments - net (1,106.00) (1,574.00)
Net cash inflow from operating activities 3,331,081.00 2,483,858.00 Cash flows from investing Activities Fixed capital expenditure (661,443.00) (972,520.00)Sale proceeds from disposal of fixed property, plant & equipment 75,531.00 35,367.00
Interest income 426,542.00 246,662.00 Net cash outflow from investing activities (159,370.00) (690,491.00)Cash flows from Financing Activities Finance cost paid (4,774.00) (2,956.00)Dividends paid (682,607.00) (683,572.00)Net cash outflow from financing activities (687,381.00) (686,528.00)Net increase in cash and cash equivalents 2,484,330.00 1,106,839.00 Cash and cash equivalents at the beginning of the year 3,897,051.00 2,790,212.00 Cash and cash equivalents at the end of the year 6,381,381.00 3,897,051.00
Abbott Pakistan
Comments on Cash Flow Statements:
• Cash flows Cash flows from operating Activities
There is an increase in cash flows from operating activities mainly due to higher profitability and favorable working capital changes, partially offset by income taxes paid during the year.
• Cash flows from investing Activities
Net cash outflows from investing activities are decreased from prior year primarily due to increase in interest income earned and decrease in fixed capital expenditure during the year.
• Cash flows from financing Activities
Cash outflow from financing activities remained at the same level as compared to prior year.
Abbott Pakistan
Income Statement2014 2013
Net Sales including toll manufacturing service fee 19,692,354 17,217,258
COGS and services 12,142,212 10,595,612Gross Profit 7,550,142 6,621,646
Selling and distribution expenses 2,965,120 2,471,404
Administrative expenses 368,688 366,938
EBIT 4,216,334 3,783,304Other Income 475,693 273,059
Other Operating Charges 368,686 367,184
EBT 4,323,341 3,689,179Finance Cost 4,774 2,956Profit before taxation 4,318,567 3,686,223Taxation - net 1,502,255 1,157,374Profit of the year/period 2,816,312 2,528,849
Abbott Pakistan
Balance Sheet2014 2013
Fixed AssetsProperties-Plant and equipments 3,359,092 3,183,735
Intangible Assets 24,395 41,615Other Non Current Assets 62,980 44,064
Current Assets 10,319,128 7,898,590
Total Assets 13,765,595 11,168,004
Issued, subscribed and paid up capitals 979,003 979,003
Capital reserve 339,481 300,030Revenue reserve 9,553,116 7,468,232Total equity 10,871,600 8,747,265
Non current Liabilities 223,953 203,562Current Liabilities 2,670,042 2,217,177Total Liabilities 2,893,995 2,420,739
Total Equity and Liabilities 13,765,595 11,168,004
Abbott Pakistan
VERTICLE ANALYSISIncome Statement 2014 % 2013 %Net Sales including toll manufacturing service fee 19,692,354 100.00 17,217,258 100.00
COGS and services 12,142,212 61.66 10,595,612 61.54Gross Profit 7,550,142 38.34 6,621,646 38.46
Selling and distribution expenses 2,965,120 15.06 2,471,404 14.35Administrative expenses 368,688 1.87 366,938 2.13EBIT 4,216,334 21.41 3,783,304 21.97Other Income 475,693 2.42 273,059 1.59Other Operating Charges 368,686 1.87 367,184 2.13EBT 4,323,341 21.95 3,689,179 21.43Finance Cost 4,774 0.02 2,956 0.02Profit before taxation 4,318,567 21.93 3,686,223 21.41Taxation - net 1,502,255 7.63 1,157,374 6.72Profit of the year/period 2,816,312 14.30 2,528,849 14.69
Balance Sheet 2014 % 2013 %Fixed Assets
Total equity 10,871,600 78.98 8,747,265 78.3243362Non current Liabilities 223,953 1.63 203,562 1.822724992Current Liabilities 2,670,042 19.40 2,217,177 19.85293881
Total Equity and Liabilities 13,765,595 100.00 11,168,004 100
Non Current Assets 3,446,467 25.04 3,269,414 29.27482834
Current Assets 10,319,128 74.96 7,898,590 70.72517166
Total Assets 13,765,595 100.00 11,168,004 100
Abbott Pakistan
Comments on Profit and loss Statement (Income Statement)
SalesNet sales for the year increased 14% over prior year. Pharmaceutical sales for the year increased by 15% over prior year mainly due to unit growth and improved product-mix. Anti-infectives, gastro preparations, pain management, antiepileptics and women health recorded strong double digit growth. Nutritional sales for the year posted 18% growth over prior year due to volume and selective price increases in certain products. Selling and distribution expenses Increase in selling and distribution expenses by 20% from the previous year is mainly attributable to realignment of our field force and the induction of trade team. Further, freight and forwarding expenses increased due to unusual political situation during the year which resulted in unavailability of containers, hence increased freight charges. Other incomeOther income increased by 74% over prior year mainly due to increase in interest income owing to increase in cash surplus that was invested in short term deposits. TaxationThere is an increase in taxation from prior year mainly due to prior year charges and higher profitability.
Abbott Pakistan
Comments on Balance Sheet
Non-Current AssetsProperty, plant and equipment have witnessed an increase over prior year due to investment in production facilities and infrastructure to support growing scale of business.Current AssetsThere is an increase in Cash and bank balances from prior year mainly due to increase in cash generated from operations and interest income earned over the bank balances. Current liabilitiesTrade and other payables have increased over prior year in line with the rising business volume. EquityEquity grew from prior year primarily due to profit for the year, partially offset by final and interim dividends during the year.
Abbott Pakistan
Abbott Pharma Financial Analysis
Ratios Unit 2014 2013
Liquidity RatiosCurrent Ratio times 3.86 3.56Quick Ratio times 2.76 2.27Cash Ratio (Cash to Current Liabilities) times 2.39 1.76Profitibility RatiosGross Profit Ratio
%
38.30% 38.50%Net Profit to Sales (Operating Profit Margin) 14.30% 14.70%
EBTIDA margin to sales (Pretax margin) 24.20% 23.70%Return on Equity 25.90% 28.90%Return on Assets 20.50% 22.60%Investement /Market RatiosEarning per share Rs. 28.77 25.83Price earning ratio times 24.7 15.23Dividend yield ratio % 1.10% 1.80%Dividend payout ratio times 0.27 0.27
Abbott Pakistan
Comments on Financial Ratios
Profitability Ratios
The increase in profit after tax by 11% compared to prior year is mainly attributable to volume growth, favorable product mix and effective cost controls.Gross Profit ratio and Net Profit to sales ratio remained at 38% and 14% respectively, same as of previous year. These have been sustained despite increases in operating costs.
Liquidity Ratios
The increase in cash flows from operating activities is mainly attributable to improved profitability and better working capital management which accordingly resulted in increase in cash and cash equivalents by Rs. 2,484 million as compared to prior year end.Increase in cash & cash equivalents has resulted in increase in liquidity ratios such as current ratio (2014: 3.86, 2013: 3.56), quick / acid test ratio (2014: 2.76, 2013: 2.27) and cash to current liabilities (2014: 2.39, 2013: 1.76).
Investment / Market Ratios
Earnings per share increased from Rs 25.83 in 2013 to Rs 28.77 in 2014 as a result of the increase in profit after tax by 11% compared to prior year as mentioned above.P/E ratio increased from 15.23 in 2013 to 24.70 in 2014 and dividend yield ratio decreased from 1.8% in 2013 to 1.1% in 2014, mainly due to the increase in market price per share from Rs 393.50 in 2013 to Rs 710.68 in 2014.Dividend payout ratio remained same at 0.27 (times) in 2014, compared to previous year due to increase in final dividend declared from Rs 4 per share from 2013 to Rs 4.8 per share in 2014.
Feroz SonsCompany History
In 1894, Maulvi Ferozuddin Khan established the business House of Ferozsons through the creation of a publishing House - Ferozsons Limited. From the beginning, Ferozuddin Khan's vision of business extended beyond wealth creation, and firmly incorporated the enrichment of human life in the under-developed South Asian region. Thus the publishing house was created not only as a means of creating wealth, but as one of spreading literacy and education among the masses of the sub-continent in the same spirit.
Ferozsons Laboratories Limited was created in 1956As one of the first pharmaceutical manufacturing facilities in the fledgling state of Pakistan, to ensure a constant and reliable source of quality medicines for the people of the nation as experienced its birth pangs. Incorporated as a Private Limited Company in 1954, Ferozsons Laboratories Limited became Pakistan's first local pharmaceutical company to be listed on the country's stock exchanges (1960).Commencing production in 1956, we made our beginnings primarily as manufacturers of fine chemicals and galenicals, and as toll-manufacturers for multinational pharmaceutical corporations. Though now an independent entity and a public limited company listed on the country's three stock exchanges, the founder's spirit still courses through the company's veins. In our quest for maximizing returns to our shareholders and increasing market share, we have not lost sight of the fact that we exist first and foremost to improve the quality of life in the markets we serve. While maintaining the highest standards of Quality and ensuring adequate financial returns to our investors, we seek also to ensure that our products are made available at prices that are relevant to the local population in our chosen markets.
Feroz SonsCASH FLOW
OPERATIONS 2015 2014Net income 1,360 761Depreciation/depletion 197 175Non-Cash items 63 36Cash taxes paid, supplemental 356 157Cash interest paid, supplemental 15 16Changes in working capital (251) (101)Total cash from operations 1,370 873INVESTING Capital expenditures (312) (227)Other investing and cash flow items, total (46) (280)Total cash from investing (358) (507)FINANCING Financing cash flow items (15) (16)Total cash dividends paid (383) (290)Issuance (retirement) of stock, net -- --Issuance (retirement) of debt, net -- --Total cash from financing (398) (306)NET CHANGE IN CASH Foreign exchange effects -- --Net change in cash 615 60Net cash-begin balance/reserved for future use 165 106Net cash-end balance/reserved for future use 780 165SUPPLEMENTAL INCOME Depreciation, supplemental 197 175Cash interest paid, supplemental 15 16Cash taxes paid, supplemental 356 157
Feroz SonsCASH FLOW
The Company’s cash requirements are met through internal cash generation without reliance on borrowings. An effective Liquidity Management System is in place that is actively involved in assessing and planning the Company’s cash flow requirements to ensure adequate availability of funds as required by the business.The Company invests its surplus funds in a mix of sovereign investments and high credit rated bank deposits to maintain a risk averse optimum interest yielding portfolio. The Company maintains strong relationships with its banks and constantly evaluates cash management and trade solutions to improve its investment and banking operations. The Company continued to use its strong cash flows to make the required levels of investments in business necessary to sustain long term growth.Cash and cash equivalents have increased from last year mainly due to cash generated from operations. The surplus funds were largely utilized on increased capital investments for facility improvements including plant up gradation and capacity enhancement.
Feroz SonsINCOME STATEMENTREVENUE AND GROSS PROFIT 2015 2014Total revenue 5,706 3,832OPERATING EXPENSES Cost of revenue total 3,115 2,004Selling, general and admin. expenses, total 1,173 1,017Depreciation/amortization 68 62Unusual expense(income) (14) (7)Other operating expenses, total (2) (8)Total operating expense 4,346 3,071Operating income 1,360 761Other, net -- --INCOME TAXES, MINORITY INTEREST AND EXTRA ITEMS Net income before taxes 1,360 761Provision for income taxes 416 209Net income after taxes 944 552Minority interest (39) (27)Net income before extra. Items 905 526Total extraordinary items -- --Net income 905 526Inc.avail. to common excl. extra. Items 905 526Inc.avail. to common incl. extra. Items 905 526EPS RECONCILIATION Basic/primary weighted average shares 30 30Basic/primary eps excl. extra items 30 17Basic/primary eps incl. extra items 30 17Dilution adjustment -- --Diluted weighted average shares 30 30Diluted eps excl. extra items 30 17Diluted eps incl. extra items 30 17COMMON STOCK DIVIDENDS DPS - common stock primary issue 15 12Gross dividend - common stock -- 362PRO FORMA INCOME Pro forma net income -- --Interest expense, supplemental 3 9SUPPLEMENTAL INCOME Depreciation, supplemental 197 175Total special items (14) (7)NORMALIZED INCOME Normalized income before taxes 1,346 753Effect of special items on income taxes (4) (2)Income tax excluding impact of special items 412 207Normalized income after tax 934 547Normalized income avail. to common 895 520Basic normalized EPS 30 17Diluted normalized EPS 30 17
Feroz SonsBALANCE SHEETASSETS 2015 2014Cash And Short Term Investments 1640 915Total Receivables, Net 325 204Total Inventory 1431 897Prepaid expenses 2.15 54Other current assets, total 76 45Total current assets 3474 2115Property, plant & equipment, net 1742 1633Goodwill, net -- --Intangibles, net 1.49 0.94Long term investments 7.43 7.76Note receivable - long term -- --Other long term assets -- --Total assets 5226 3757LIABILITIES Accounts payable 1099 338Accrued expenses 17 22Notes payable/short-term debt 1.88 0.5Current portion long-term debt/capital leases -- --Other current liabilities, total 338 163Total current liabilities 1456 524Total long term debt 0 0Total debt 1.88 0.5Deferred income tax 101 122Minority interest 139 99Other liabilities, total -- --Total liabilities 1696 744SHAREHOLDERS EQUITY Common stock 302 302Additional paid-in capital -- --Retained earnings (accumulated deficit) 2812 2290Treasury stock - common -- --Unrealized gain (loss) 416 421Other equity, total -- --Total equity 3530 3012Total liabilities & shareholders' equity 5226 3757Total common shares outstanding 30 30Treasury shares - common primary issue 0 0
Feroz SonsVERTICAL ANALYSIS
BALANCE SHEET ANALYSIS 2015 2014 % %Share Capital and Reserves 86.91 89.91Non Current Liabilities 1.5 1.4Current Liabilities 12.4 9.5Total Equity and Liabilities 100 100Non Current Assets 43.4 54.5Current Assets 56.6 45.5Total Assets 100 100 PROFIT AND LOSS ANALYSIS % %Revenue - net 100 100Cost of sales 54.5 48.6Gross Profit 45.5 51.4Administrative expenses 4.3 6.3Selling and distribution expenses 16.6 23.7Other expenses 1.8 1.9Other income 2 3.5Operating Profit 24.7 23Finance costs 0.3 0.7Profit Before Taxation 24.7 23Taxation 7.5 5.9Profit After Taxation 16.9 16.5
Feroz SonsCOMPARISION OF FINANCIAL RATIOS
Liquidity Ratios 2014 2015Current Ratio 4.56 2.39Quick Ratio 2.87 1.72Cash Ratio 1.38 0.97
Working Capital 1394 2018
Profitability Ratios Gross Profit Margin 51.44 42.94
Operating Profit Margin 19.15 22.81Pre-Tax Margin 22.37 23.83
Net Profit Margin 16.16 15.86Dividend Payout Ratio 86.77 48.23
Efficiency Turnover Ratios
Receivable Turnover 17 19Receivable Turnover In Days 21 19
Inventory Turnover 1 1.9Inventory Turnover In days 192 187
Payable Turnover 4 2.5Payable Turnover In days 82 141Cash Conversion Cycle 131 65
Return on Investment Ratios
Return On Assets 17 28.5Return On Total Equity 17 29Dividend Cover Ratio 1.41 2.3Price Earning Ratio 16.63 25.12
Operating Efficiency Ratios
Total Asset Turnover 0.8 0.85Fixed-Asset Turnover 2.23 2.54
Equity Turnover 1.08 1.26
FINANCIAL RISK RATIOS Debt To Equity 0 0
Interest Coverage ratio 35.41 78.56Dividend Per Share 12.63 19.07
Earning Per Share 13.88 24.88
Dividend Yield 1.37 3.39
Feroz SonsRatio Analysis
Current Ratio= Current Asset / Current Liability This shows that in 2014, 2015 the company has Rs.4.56 and 2.39 to pay off the liability of Rs.1 while the industry average is at 3.45 which is definitely not a good sign for the industry as well because the industry might be at trouble and has taken more debts, but comparatively industry is at a good position. Whereas the variation can be clearly seems in the company’s ratios from proceeding years that is just enough to pay off its liability of Rs.1 but this gives not a good picture because the ratio has significantly increased in 2015 but the industry is still leading. The company should reduce its debt and raise its current assets to have an improved current ratio.
Quick Ratio= Current Asset-Inventory / Current LiabilityThis shows that in 2014, 2015 Ferozsons has quick ratio of 2.8 and 1.7 and industry average is 2.2 which means that both the industry and Ferozsons is having more cash and less inventory. In past two years the ratios of Ferozsons is showing significant declined and it shows that company is declining its cash. In 2015 the industry is comparatively at a good position than the company because the company might have more inventories and less cash or the higher liabilities. The company should either decrease its liability or increase the amount of cash or reduce the inventories.
Cash ratio = Total cash assets / Current liabilitiesCash ratio of Ferozsons in 2014 and 2015 respectively 1.38 and .97 is decreasing frequently and also lesser than the industry average i.e. 1.175. The decreasing Cash Ratio is generally a negative sign for Ferozsons, showing the company is less able to cover its obligations to creditors.
Feroz SonsDebt to Equity RatioThe debt to equity ratio of the company is zero for almost 5 years which means that the company has no debt and thus it follows the higher the ratio, the higher the debt. The company has no debt on its books.
Interest coverage = EBIT / Interest expenseFerozsons interest coverage ratio increased in 2015 from 35 to 78, increasing Interest Coverage Ratio is usually a positive sign, showing the company is able to pay its Interest Expense with its earnings. Moreover, industry average is at 56 that is far less than Ferozsons.
Inventory turnover = Turnover / Inventories Ferozsons inventory turnover ratio in 2015 showing a decreasing Inventory Turnover 192 to 187 that indicates Ferozsons is not efficiently able to convert its inventory into sales. This shows that the company has taken 5 days extra to sell-off its inventory, as a result reduced in their efficiency process. This could have been because there is an increase in sales, however the average inventory has been more than the last year's figures. Moreover, industry average showed a good picture that is at 189.
Receivables turnover = Turnover / Trade receivables The Ferozsons account receivable ratios are decreasing frequently that decreasing Accounts Receivable Turnover showed company is not successfully executing its credit policies and is slower to turn its Accounts Receivables into cash.
Fixed asset turnover = Turnover / (fixed asset – depreciation)The Ferozsons net fixed asset ratio increased from 2.23 to 2.54 in 2015 from 2014 .An increasing Fixed Asset Turnover means company has been more effective using company's investments in Net Property, Plant, and Equipment and decreasing Fixed Asset Turnover means that Ferozsons has been less effective using company's investments in Net Property, Plant, and Equipment. Moreover, the industry average showed a good picture that is at 2.38 respectively.
Total asset turnover = Turnover / Total assets The Ferozsons total assets turnover ratios in the preceding years are almost unchanged it showed that an unchanged Total Asset Turnover indicates the Ferozson’s effectiveness in using the investments made in the company (Total Assets) has remained the same.
Feroz SonsNet Profit Margin = Net Income/Sales The company’s Net Profit Margin decreased from 16 to 15 in 2015 that shows the net profit out of each dollar of sales has become smaller.
Return on Assets (ROA)It has shown a marginal increase in FY15. It has increased from 17 to 28.5. This incline has mainly resulted in a decrease in the cost of goods sold mentioned above. It has resulted in a high net income, which in turn, led to high ROA. Ferozsons had been performing well from the past few years with an increment of the ROA on year-on-year basis, however FY15 incline increase the growth of the profits of Ferozsons.
ROESimilar is the case with ROE, there has been an increase in the net equity, however, not a proportionate increase in the net income observed. In fact, in FY15, there has been a rise in net income. ROE has been on an increasing trend for the past half-decade, with earnings on the rise plus stable increase in the equity.
Gross profit margin = gross profit / sales The Ferozsons gross profit margin is decreasing slightly from the preceding years and it considered as unchanged that shows the ability of the company to control its costs while generating sales has remained the same.
Operating profit margin = Operating profit / sales The Ferozson’s increasing Operating Profit Margin from 2014 to 2015 that is 19 to 25 that indicate ferozsons has been more efficient in its day-to-day operations. Moreover, the Ferozsons is showing a good picture that it is better than the industry average is at 20.
EPSThere is an increase in the EPS observed in FY15. It has risen from 13.88 in FY14 to 24.88 in FY15. This main reason for this increase is credited to increase in the net income & decrease in the outstanding shares.
P/E RatioP/E has shown an increase in the value because the investors are still ready to pay a higher price for the shares of the company. This shows that the reliability of the company's performance with respect to local investors.
Feroz SonsDIVIDEND
The dividend per share showed an increase in FY15, because of the increase in the dividend paid out for the year. This could be because the company was not re-investing its profits for the expansionary purpose for the past 2-3 years. However it has paid out dividends to their shareholders in order to promote as a profit sharing company and attracted other investors to keep investing in the company. One reason for doing this is that the company faced a competitive financial year hence to keep trustworthy position of the company; this move can be beneficial to keep their healthy investors in tact rather than losing out on investments. Secondly, the company can argue that the investments made in previous year have paid off and that has resulted in dividend pay-out for the shareholders.