One of the biggest names in the pharmaceutical industry is GlaxoSmithKline Plc. (GSK, Financial). It develops, creates, discovers and manufactures pharmaceutical products. Established in 1935, the company is headquartered in Brentford, U.K. Among the most celebrated products produced by the company are Panadol and Panadol C&F for headache. The company offers therapeutic, wellness, oral health, and nutrition health products for sale.
The year 2014 proved not very good for the pharmaceutical giant. During the year, sales revenue of the company decreased from $43,899 million to $35,872 million. Sales revenues fell approximately by 18.29%. In 2012 and 2013, the amount of revenues earned by the company remained around the $42,000 million mark. No one could have fancied such a marked decrease in the company’s revenues. For an 18.29% decrease in revenues, gross profit of the company decreased by 17.61%, which was 0.68% lesser than the decrease in revenues. The proportionate decrease in the cost of sales was lesser than that in sales revenues.
The pharmaceutical and vaccine sales in the emerging markets have increased by 5%, which is a marked improvement so far. In Japan, it increased 1%, and of HIV vaccines by 15%. Sales in the U.S. decreased by 10%, undermining the growth in other geographical localities. Owing to harsh trading conditions in the primary care market and established products, the sales revenue decreased by almost 15%.
Unfavorable trading conditions have had a very negative impact on the financial performance results of 2014. Unfortunately, changes in trading conditions are hard to predict and ever harder to hedge against. Fluctuating foreign exchange rates hit corporations like a bolt from the blue and took away a major chunk of their earnings. Sales in Europe remained more or less the same.
Operating Income of the company in 2013 and 2014 decreased by 1.90% and 51.81% respectively. For an 18.29% decrease in sales revenue, a decrease in operating income by 51.81% in the 2014 financial year is incomprehensible. Operating expenses have, in 2014, increased surprisingly. The company’s sales and general expenses during the year increased from $11,542 million to $13,466 million. Research and Development expenses remained almost the same as they are unresponsive to fluctuations in sales revenue. Increase in the operating expenses has raised serious questions in regards to the ability of the company to remain efficient in the face of shrinking sales.
The proportionate decrease in the cash flows from operating activities was lesser than that in the amount of net income. Cash flows from operations during 2014 decreased by 32.53%. The unfavorable financial results of 2014 can be attributed primarily to the decrease in sales. It caused the company not to achieve the performance targets.
During the year 2014, the stock price of GlaxoSmithKline decreased from $48.22 to $42.12. Stock prices fell almost by 13%. The company, however, managed to pay dividend to the common stockholders in every quarter. In the first quarter of 2014 0.75, dividends in the second quarter 0.64, in the third quarter 0.648 and in the final quarter 0.613 was paid to the stockholders. The expected dividend for the year 2015 is 0.80. The dividend yield offered by the company is more than 3%.
As 2015 continues to gather momentum, GlaxoSmithKline has started seeing some trouble already. On March 23, 2015, Triangle Business Journal staff writer Jason deBruyn reports that the company will be conducting layoffs procedure. He went on to further state that 180 workers employed to the company’s office in North Carolina would get the axe. In the Pittsburgh area alone, the company is expecting to cut another 274 workers from off their payroll.
In order to remain competitive in the market, GlaxoSmithKline will have to work on improving its efficiency and through various risks mitigating techniques hedge against the trading risks. The profitability of the company has suffered a greater proportionate decrease than its sales revenue. There is still a lot of room for improvement and a barrage of opportunities to be capitalized upon. If the company is able to manage its finances and cost optimally, the year 2015 can bring great success to GlaxoSmithKline.
