Group members

Manahil Jalwana Shehnaz Javiad Shumaila Jabbar Iqra Amjad

Qualitative and Quantitative Analysis of Abbott Laboratories (Pakistan) Limited

Qualitative Analysis

External Analysis

Economical and Political Factors

The inflation rate in Pakistan was last reported at 10.2 percent in November of 2011. From 2003 until 2010, the average inflation rate in Pakistan was 10.15% Health care spending per capita in Pakistan in 2011 is $62 . Total health care expenditure in 2011 was only 2.6%.

GDP Growth Rate

GDP by Sector
Sector agriculture industry services GDP % 21.2 25.4 53.4

Budget deficit
year Budget Budget deficit %age of GDP 2010-11 Rs 2,453 billion Rs 1,157 billion 6.9

2011-12

Rs 2,658 billion

Rs 1,181 billion

6.4

2012-13

Rs 2,900 billion

Rs 1,243 billion

6.1

PHARMACUETICAL INDUSTRY OF PAKISTAN

Starting from a virtual zero at the time of inception of Pakistan, the Pharmaceutical Industry is now worth more than 100 billion rupees. Today Pakistan has about 400 pharmaceutical manufacturing units including those operated by 25 multinationals present in the country. The Pakistan Pharmaceutical Industry meets around 70% of the country's demand of Finished Medicine. The domestic pharma market, in term of share market is almost evenly divided between the Nationals and the Multinationals.

THE PHARMACEUTICAL MARKET: PAKISTAN

The macroenvironmental indicators for the Pakistani pharmaceutical market are positive despite economic concerns. Economically, the Economist Intelligence Unit (EIU) projects that Pakistan will be the fourth smallest economy in the Asia Pacific region covered by Espicom in 2016. In GDP per capita terms, Pakistan will rank the second lowest in the Asia Pacific region in 2016. According to the EIU, Pakistan will

CRITICAL SUCCESS FACTORS

Critical success factor in pharmaceutical industry are: Strong R&D Good Labs High Demand Of Product Quality Availability Contract Relationship With Doctors & Pharma

MAJOR PLAYERS IN INDUSTRY

NAMES GSK ABBOTT LAB HIGHNOON LABS GETZ PHARMA SANOFI AVENTIS ROCHE MARKET SHARE 11.6% 7.9% 6.3% 3.9% 3.8% 3.1%

COUNTRY DEMAND
Pharma has inelastic demand because its demand is forever. The market for pharmaceuticals in Pakistan has been expanding at a rate of around 10 to 15% since last few years.

EXPORTS AND IMPORTS

The share of pharmaceutical industry in exports has been reached to 4.04% that was 3.28% in 2008. So far as imports are concerned Pakistan imports nearly 95%of the basic raw-material used for manufacturing from countries such as China, India, Japan, U.K, Germany, and others and major importers are in Islamabad, Karachi, Lahore, Peshawar and Quetta.

SOME KEY STATISTICS OF THE INDUSTRY

REGISTERED DRUGS REGISTERED MOLECULES R&D EXPENDITURES AVERAGE GROWTH RATE MARKET SHARE OF MULTINATIONAL COMPANIE MARKET SHARE OF LOCAL COMPANIES MARKET LEADERS 47000 1100 1% of the profit 11% 45% 55% Glaxosmithkline

DEMAND AND PRICE SENSITIVITY

Optimal pricing strategy requires understanding the factors-both clinical and economic-that are most critical to prescribing decisions. Product managers must understand patients, physicians, and MCO segments the medical conditions for which the product will be used how the product stacks up against competitors with regard to key attributes such as efficacy, safety, tolerability, and convenience.

OPPORTUNITIES FOR INVESTMENT

Pharmaceutical industry in Pakistan is producing all the major pharmaceutical dosage forms. Similarly, there are some special products e.g. immunological, anti-cancer drugs, certain antidiabetics, antidotes and products manufactured from biotechnology, which are still being imported, in the finished form. These specific areas provide excellent opportunities for investment.

Qualitative Analysis

Internal Analysis

Internal Analysis
OWNERSHIP : LEGAL STRUCTURE Abbott Laboratories (Pakistan) Limited is a public limited company. The Company is incorporated in Pakistan and its shares are quoted on the Karachi, Lahore and Islamabad stock exchanges. The KSE code of Abbott Laboratories Pakistan Ltd is ABOT.

TYPE OF BUSINESS ORGANIZATION Abbott is principally engaged in the manufacture, import and marketing of research based pharmaceutical, nutritional, diagnostic, hospital and consumer products.

Ownership
Board of Directors Munir A. Shaikh (Chairman) Asif Jooma (Chief Executive Officer) Kamran Y. Mirza Thomas C. Freyman (Alternate Director Sadi Syed) Syed Anis Ahmed Angelo Kondes Shamim Ahmad Khan Senior Management Team
Asif Jooma (Chief Executive Officer) Syed Anis Ahmed (Chief Financial Officer) Sadi Syed (Operations Director) Dr. Sarmad Maqbool (Marketing & Strategy Director) Dr. Farrukh Hafeez (Quality Assurance Director) Ayub A. Siddiqui (Head of Nutrition Division) Habib Ahmed (Head of Diagnostic Division) Syed Imtiazuddin (Head of Diabetes Care Division)

ABBOTT PAKISTAN HISTORY

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. It has the honor of being the first pharmaceutical company in Pakistan to achieve Class-A certification by a world renowned organization, Messrs Oliver Wight. Abbott Pakistan has leadership in the field of Pain Management, Anesthesia, Medical Nutrition and Anti-Infective.

FINANCIAL RELATIONSHIPS
Rating Agency Name of Banks Ratings December 31, 2010 (Rupees 000) Short term Longterm PACRA A1+ AA+

MCB Bank Limited

33

Standard PACRA Chartered Bank (Pakistan) Limited National Bank of JCR-VIS Pakistan Faysal Bank JCR-VIS

A1+

AAA-

283,872

A-1+

AAA

1,987

A-1+

AA

563

Production
PRODUCTS:

Abbott Products are been categorized in four divisions, which are as under: Abbot Pharmaceutical Products Abbot Nutritional Products Abbot Diagnostics Services Abbot Diabetes Care

Abbott Products

Volume of sales
Abbott Laboratories Pakistan Ltd. achieved their vision of Rs 10 Billion Sales by 2010 and their flagship brand Brufen achieved the Rs 1 billion mark. Brufen became Abbott Pakistan's first ever brand to have crossed the Billion Rupee barrier. It became the 6th brand in Pakistan's Pharmaceutical industry to have achieved the feat. This achievement is not only a depiction of the high volume of sales, but also a symbol of trust in the brand by the medical fraternity as well as by patients.

Breakdown of sales by product line

Pharmaceutical sales increased by 39% over last financial year Vitamins, antiinfectives, cough and cold, gastro and consumer products recorded strong double digit growth. Nutritional sales increased by 28% year due to price increase on certain products. General Health Care (GHC), Diagnostic and Diabetes Care sales grew by 34% over last financial year owing primarily to focused marketing on consumer products and increased sales of Mospel.

CAPITAL EXPENDITURE
Abbott is continuously striving to improve the productivity and efficiency of plant operations. During the year 2010-2011 a total of Rs 493 million was spent on various capital projects such as plant upgradation and procurement of manufacturing equipments for improving productivity. MANUFACTURING: Abbott Pakistan manufactures over 150 different pharmaceutical and general health care products for the local and export markets.

QUALITY OF PRODUCTS
Abbott products are of high quality and their buyers are happy with the quality of products and with the timeliness of delivery as well. They deliver consistently superior products and services which contribute significantly to improve the quality of life of the consumers. Abbott quality management system is supported by policies, processes, procedures and resources that ensure products are designed and manufactured to be safe and effective.

COMPETITORS
GSK NOVARTIS Merck & Getz Ferozons Laboratories Sanofi-Aventis Ltd Abbott Lab. Pakistan is ranked second among its competitors due to its competitive approach in the market.

Suppliers
Abbott works with more than 1,700 local suppliers and 2500 suppliers from UK,Germany, Thailand, New Zealand, Holland and Malaysia . Imported Materials Average Lead Time, By sea is approximately 75 days By air approximately 45 days. Abbott work closely with suppliers holding them to the same quality and social responsibility standards to which company hold. Abbott suppliers identify all applicable laws, regulations, ordinances, permits, Licenses, approvals, orders, standards and relevant customer requirements and ensure compliance with them.

Facilities
Two manufacturing facilities located at Landhi and Korangi in Karachi continue to use innovative technology to produce top quality pharmaceuticals products. Own concrete block building free of mortgage. Adequate energy and infrastructure. Imported machinery old but in good shape. Suppliers and distributors relations are good After manufacturing, Finished Products are again sent to the Quality Assurance Department for testing, leading to produce only good products.

Distribution
Direct Distribution is done through the manufacturing plant i.e. after manufacturing, products are distributed via ABBOTT delivery trucks to the customers according to contracts and demand.

Indirect Distribution is done by distributing through appointed distributors i.e. those distributors who have proper contracts and than they distribute the respective product to the wholesalers and different chemists.

Distribution
Abbott local distributors are: Premier AgencyMuslimabad, Karachi. Babar Medicine, Lahore. Nadeem Traders, Peshawar. Baloch Enterprise, Multan. D.S Pharma, Rawalpindi.

Quantitative analysis

Ratio analysis
2009 Net Trade Cycle 20.50 Cash Ratio 0.48 Cash Flow adequacy Cash reinvestment ratio 0.37 13% 0.38 17% 0.46 17.63 2010

Working capital

1,652,696.00

2,093,973.00

Benchmark analysis
2009 Acid Test Ratio - Industry Acid Test Ratio - Company Current Ratio - Industry Current Ratio - Company Days to Collect A/R - Industry Days to Collect A/R - Company Days in Inventory - Industry Days in Inventory - Company 1.4715 0.98612 2.515 2.03 16.29 8.06 101.29 100.38 2010 1.017 1.01381 1.91 2.19 25.58 8.26 90.266 93.50

Benchmark analysis
Asset Turnover - Industry Asset Turnover - Company Net Profit Margin - Industry Net Profit Margin - Company Return on Total Assets Industry Return on Total Assets Company Return on Equity - Industry Return on Equity - Company 2009 1.5 1.70208 7% 7% 2010 1.2776 1.89895 7% 11%

26% 12% 16% 19%

23% 20% 19% 30%

Horizontal Analysis of Inc-Statement

Description Growth in Net Sales Cost of Goods Sold Growth in Gross Profits Growth in Income Tax Expense Growth in Net Income 2009 19% 2010 30%

32% -6%

19% 59%

-29% -30%

111% 93%

Horizontal Analysis of Balance sheet

Description 2009 2010

Growth in Total Assets

-1%

17%

Growth in Total Liabilities

19%

9%

Growth in Total Equity (Net Worth)

-9%

21%

Pro-forma income statement

Average common size TOTAL REVENUES Cost of Goods Sold GROSS PROFIT TOTAL OPERATING EXPENSES, EBIT PBT NET INCOME 100.00% 2011 12,716,924.88 2012 14,707,582.38 9,629,408.59 5,078,173.79 2,568,029.43 2,519,977.80 2,514,864.99 1,735,256.85

64.35% 8,333,388.23 35.65% 16.95% 18.61% 18.57% 12.75% 4,383,536.64 2,225,785.55 2,166,253.59 2,162,017.44 1,491,792.04

Assumptions
Revenues grow by 10% that is the average historical growth rate. COGS are 64.35% of total revenues along with depreciation amount added by breakdown of depreciation. Gross profit is 35.65% of sales. Selling and general expenses are 14.6% of sales along with depreciation adjusted and same is the case with other expenses, operating and operating charges Finance cost is calculated by taking weights of finance cost to current liabilities and applying it on new short-term liabilities Income tax expense is calculated by taking average tax rates over 5 years and applying it to profit before tax.

Pro-forma Balance Sheet

2010 TOTAL CURRENT ASSETS Total non-current assets TOTAL ASSETS TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITY TOTAL LIABILITIES Total Equity TOTAL EQUITY AND LIABILITIES 3,856,673.00 1,933,748.00 5,790,421.00 1,762,700.00 115,182 1,877,882.00 3,912,539.00 5,790,421.00 4,280,006.86 2,117,348.11 6,397,354.97 2,115,314.78 115,182 2,230,496.78 4166968.55 6,397,465.33 2011 6,121,726.29 2,323,467.72 8,445,194.01 2,553,071.86 115,182 2,668,253.86 5776940.19 8,445,194.05 2012

Assumptions
Stock in trade is calculated by using inventory turnover formula. Average turnover rate was used and new cost of goods sold is divided by the average rate. Trade debts are calculated by using account receivable turnover formula. Average turnover rate was calculated of the past 5 years and new projected sales are divided by rate. Fixed assets were grown at historic average rate of growth that is 10%. Trade payables are calculated by using payable turnover formula. Average turnover rate was calculated of the past 5 years and new projected cost of sales is divided by rate. Reserves are calculated as a percentage of net income and applied on new net income.

Conclusion
Overall financial position in 2010 remained good as compared to previous years. 2010 has been a year of celebration for Abbott Pakistan as they achieved their vision of Rs 10 billion sales. By calculating and interpreting various liquidity ratios of the company we can conclude that the companys liquidity position is good and we can say that it is able to pay its short-term debts in a better way as working capital is also positive and mostly liquidity ratios are above or equal to industry performance. Therefore we are positive in extending loan to Abbot. Through solvency analysis we observed that company is 100% equity based company and the only external funding source is short-term loans. Thus it has bear lower finance charges.

Recommendations
Increase sales volume to achieve higher operating efficiency that is to reach industrys operating efficiency but not increasing asset base rather working on marketing efforts.

Manage inventories efficiently so as to avoid much capital tied up by looking at the demand patterns of consumers

Recommendations
Stay efficient and competitive by Collecting account receivables on time

Current liabilities should be paid off as often and as early as possible. It would decrease the level of current liabilities and therefore improve the current ratio. Early payments to creditors can save interest cost and earn discount which will have direct impact to the profits of the firm.

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