Healthcare companies on the losing side

Pharmaceutical companies stayed on the losing side of the competition in 2015 in a market that is highly price sensitive. They were easily knocked out on higher price counts as consumers struggled to spread thin resources to cover several basic needs. For this reason, the cheaper imported drugs and even fake products tended to win the consumers’ votes when it comes to who makes the sale.

Pharmaceutical companies are therefore not likely to show a strong growth in sales revenue for the 2015 operations and the ability to grow profit is likely to be affected by rising operating expenses driven by interest charges. Some of the companies here have diversified into the food sector, which has equally become highly competitive. Despite their basic nature, neither food nor medicines could guarantee a reasonable improvement in sales volume and revenue for the operators in the 2015 trading.

Fidson Healthcare

Fidson Healthcare made a big gain in profit margin in 2014, which enabled it to lift profit by 320% from just a 5.1% improvement in sales revenue. In the 2015 financial year, the growth momentum seemed to have disappeared and the pharmaceutical company managed to keep profit up against an 18% drop in turnover at the end of the third quarter. Revenue growth is expected to accelerate in the final quarter. That isn’t likely to be strong enough to prevent a drop in turnover at full year but may reduce the margin of drop to about 9% – the first decline in several years.

The main favourable development in the company’s income statement at the end of the third quarter is a drop of 30% in distribution/administrative expenses. This enabled the company to manage a 29% rise in finance costs, deal with an encroachment of input cost into revenue and keep profit from falling along with sales revenue. With a gain in profit margin, the record of moderate improvement in profit shown in the third quarter is expected to follow the company to full year despite the revenue weakness.

GlaxoSmithKline Consumer

GlaxoSmithKline Consumer lost its stable revenue growth records in 2014 when turnover slowed down to 4.6%. That led to a major profit drop in the year after two years of stagnant growth. The pharmaceutical company was unable to speed up sales revenue in the 2015 operations as per the interim reports. Sales revenue is likely to slow down further from moderate to flat growth in the 2015 trading the report of which is awaited.

The company’s profit dropped by 36.6% to the lowest figure in five years in 2014 and a more rapid fall looks likely for the 2015 financial year. Third quarter operations ended with a drop of over 67% in after tax profit and that isn’t expected to be remedied at full year. There is a considerable loss of profit margin from 6.4% in the same period last year to 2.1% at the end of the third quarter. The company is therefore set to show the lowest profit figure in many years in the 2015 earnings report.

Its challenges are other operating expenses, which surged up by 337% year-on-year in the third quarter and also administrative cost, which rose by 14.5% against a slip in sales revenue. All other main cost lines were put under control, including finance charges, which dropped by close to 18%.

May & Baker

May & Baker returned to a moderate profit in 2014 from a loss position in the preceding year. A gain of 10% in sales revenue provided the strength for the turnaround. The renewed operating strength seemed to be available still for the pharmaceutical company in the 2015 financial year. Turnover was up by 8.9% at the end of the third quarter and that spurred a recovery from a loss of over N93 million in the same period in the preceding year.

Based on the third quarter growth rate, sales revenue is expected to be flat for May & Baker at full year but profit is headed for a moderate decline from the N63 million the company reported at the end of 2014. This is a reflection of the company’s inability to stretch out profit margin, which is one of the lowest in the healthcare sector. Despite a marginal reduction, finance costs remain relatively large, which explains the company’s tiny profit margin.