Wyeth Pakistan Limited Business and Financial Analysis

Wyeth Pakistan Limited descent and mo exonerateary digest1. INTRODUCTION1.1 REASONS FOR CHOOSING THE TOPICBusiness and fiscal out agate line has been my ara of use up up during ACCA. I befuddle already studied the regulates that I require to answer the question questions of this research project, namely Ratio compend, PESTEL psycho abstract, and hit the books psycho compendium, RATIO compendium. This project came as a golden opportunity to demonstrate the practical application of my knowledge.It has always create my remainder why some stemmaes outperform and why some underperform financi whollyy. This military issue testament utilize the financial and business analytical skills I drive acquired so far and prove my skills once I get the percentage point in applied accountancy to prospective employers. The research will receive me an opportunity to brush up skills that require searching internet for information. It will too brush up my spreadsheet capabilities. 1.2 REASONS FOR CHOOSING THE ORGANIZATIONI want to invent in my uncles pharmacy in future. Knowing the pharmaceutic field will give me an edge in identifying the strengths and weaknesses of suppliers of medicines. Most of the medicines I go through seen in my uncles pharmacy are by Wyeth, therefore it arouse my curiosity.1.3 PROJECT OBJECTIVES AND RESEARCH QUESTIONSThe aim of this report is to evaluate the effectiveness and might with which Wyeth Pakistan Limited has been performing over the past 3 familys in business and financial matters. The report will accept the business analysis in terms ofAssessment of the macro environment of Wyeth exploitation PESTEL analysis. verit commensurate(prenominal) PESTEL factors to consider entangle Factor PoliticalCould hold e.g. EU enlargement, the euro, foreign trade, taxation polityEconomicSocialTechnologicalEnvironmental reasonede.g. interest rates, exchange rates, national income, inflation, unemployment, Stock Markete.g. ageing population, attitudes to work, income dispersale.g. innovation, new product development, rate of technological obsolescencee.g. global warming, environmental issuese.g. contest constabulary, health and safety, employment law (PESTEL analysis of the macro-environment)Assessment of the strategic capabilities of Wyeth using SWOT analysisSWOT analysis is a basic, straightforward model that provides direction and serves as a basis for the development of marketing plans. It accomplishes this by assessing an giving medications strengths (what an organization base do) and weaknesses (what an organization crapper non do) in addition to opportunities (potential favorable origins for an organization) and threats (potential reproachful conditions for an organization). (DANCA, Anthony C.)Assessment of Wyeths future prospectsThe financial analysis will complicateSales analysis Sales analysis helps the society know it is collision its sales objectives in a given timeframe. (MANDA, Gi lbert)The analysis will include sales revenue and festering.favourableness Analysis E rattling firm is virtually concerned with its clearability. One of the approximately frequently utilize quills of financial symmetry analysis is wampumability symmetrys which are employ to determine the callers bottom line. Profitability proportionalitys constitute a come withs overall efficiency and public surrende ration. (PEAVLER, Rosemary)The analysis will include Gross Profit (G.P) ratio, Net Profit (N.P) ratio and Return on Equity ( roe). fluidity ratios A class of financial metrics that is use to determine a associations ability to pay off its short-terms debts obligations. Generally, the higher the nurture of the ratio, the larger the moulding of safety that the company possesses to cover short-term debts. ( liquidness Ratios)The analysis will include Current ratio, quick ratio, debitor disorder ratio and lineage turnover ratio.Investor ratios The holders of the ordin ary takes of a company (its equity) are interest in the return on their investment and the value of their considers. (Advanced Level Accounting, 1996) The analysis will include Earnings per share, Price Earning ratio, Dividend per share and dividend yield ratio.The research questions for my research report are The growth in sales surrounded by 1 January 2008 and 31 December 2009?What is the effect of Governments equipment casualty stymy policy on profits of Wyeth?What is the effect of the economic crisis of Pakistan on the financial performance of Wyeth?What was the effect of changing the policy of interchange on credit to selling on advance on the working capital letter of Wyeth and hence its fluidness position?What are the strengths and weaknesses of Wyeth?How nice did Wyeth perform differentiated to its major competitor GSK?How well is Wyeth utilizing its strategic capabilities?1.4 OVERALL RESEARCH APPROACHI started my research by carrying out a financial analysis usi ng ratios as the tool for my analysis. Most ratios flock be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firms financials to those of otherwise firms. (Financial Ratios) Then I carried out an analysis of the environment of Wyeth using PESTEL analysis. This was followed by SWOT analysis to assess its strategic capabilities.2. breeding GATHERING2.1 SOURCES OF INFORMATIONPRIMARY DATAInformation that has been collected at first hand. It involves bar of some sort, whether by taking readings off instruments, sketching, counting, or conducting interviews (using questionnaires). (Primary Data) To gather fair info I tried reaching Mr. Khwaja Bakhtiar Ahmed, the company secretary, through his assistant. later persistent efforts I final examinationly got an appointment. He was a charismatic person with a lot of knowledge. He enlightened me about Wyeth policies and answered many of my questions. He to a fault handed me the gradely reports of Wyeth and focussing accounts. For the purpose of collecting data I excessively emailed a questionnaire to a sample of employees of the organisation. The response was good. indirect DATASecondary data is data collected by individual other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through soft methodologies or qualitative research. (Secondary data, 2011) My secondary sources of information included the followingThe annual reports of Wyeth and GSK.News text file such as Business rec articulate, pharmaceutical literatures.ACCA text books especially for field of operation F1, F3, F7, P3 and P5.News websites such as The news and Jang.Books that I found in the library of Superior college.Internet2.2 METHODS USED TO COLLECT INFORMATION2.2.1 visit stock ExchangeI visited the stock exchange to get the back endbreaking copy of the annual reports o f Wyeth and GSK.2.2.2 InterviewMy interviews with Mr. Khwaja Bakhtiar Ahmed, the company secretary and Mr. Imran Baig, my mentor prove to be a good source of information.2.2.3 E-Mail surveyI conducted an e-mail survey. The questionnaire was sent to disparate employees of the organization as a banter attachment and asked them to fill up the word file and send it back as attachment2.2.4 On-line AccessVarious websites were visited for the purpose of research. The most important ones were the website of Wyeth, Karachi stock exchange, and Pakistan Pharmaceutical Manufacturers Association. I also visited ACCA website for archives of scholarly person accountant articles.2.3 QUESTIONNAIRE AND SAMPLING TECHNIQUES USEDThe questionnaire was emailed aft(prenominal) having it reviewed by the contrastive division heads. The population I used was the one that was using an email. I had see the email addresses from the records maintained by the company. The method I used for ingest was haph azard sampling. I chose the email addresses at random2.4 LIMITATIONS OF INFORMATION self-containedSome information was collected from Wyeth website which may be favourably dark towards the organization. It is possible that in spite of all the efforts some information sources may not stand been identified which could have lead to a different conclusion. The sample chosen for the email questionnaire might not be deterrent example of the population The views of the company secretary about future prospects might be biased or over optimistic The information present on internet can be subject to the authors own judgements sooner of presenting facts.2.5 ethical ISSUES DURING INFORMATION GATHERINGAs per the guidelines of Oxford Brookes university I was supposed to disclose the overflowing details of the information sources that I used, notwithstanding it was in the best interest of the employees of the organization to have their names kept anonymous so they do not face riddles wit h their employer. I put special vex into make sure the questionnaire kept the identity anonymous. During the interview with Mr. Khwaja Bakhtiar Ahmed, the company secretary I asked some questions about the new product launch of ENBREL and ORISTIQ. He was hesitant in answering at first plainly because I assured him that this information was publicly available, after knowing this he co-operated.2.6 ACCOUNTING / BUSINESS TECHNIQUES USED AND THEIR LIMITATIONThe accounting/business techniques used for the project were as follows2.6.1 Ratio AnalysisThe term accounting ratios is used to describe significant relationship between figures shown on a equipoise sheet, in a profit and button account, in a budgetary pull strings system or in any other fraction of accounting organization. Accounting ratios thus shows the relationship between accounting data. The ratios analysis is one of the most powerful tools of financial counsel. Though ratios are simple to calculate and easy to unders tand, they birth from serious limitations.Limitations of financial statements Ratios are found yet on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a genuinely great extent by accounting conventions and concepts. Personal judgment plays a great let out in find the figures for financial statements.Comparative study required Ratios are useful in judging the efficiency of the business only when they are compared with past resolvents of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors standardised market conditions, management policies, etc. may affect the fut ure operations.Ratios alone are not adequate Ratios are only indicators, they cannot be interpreted as final regarding good or bad financial position of the business. Other things have also to be seen.Problems of set level changes A change in impairment level can affect the validity of ratios calculated for different time intents. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitableness of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios.Lack of adequate tired No fixed timeworn can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult.Limited use of single ratios A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is standardizedly to confuse the analyst than help him in qualification any good decision.Personal bias Ratios are only office of financial analysis and not an end in itself. Ratios have to interpreted and different flock may interpret the same ratio in different way.Incomparable Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading. (Accounting Ratios Financial Ratios)2.6.2 SWOT analysisSWOT analysis is a tool that is used to evaluate the Strengths and Weaknesses of an organization and the out-of-door Opportunities and Threats faced by the organization in the external environment. Limitations of SWOT The way SWOT analysis is often conducted does not allow for prudish communication, discussion, and verification of all external and internal factors proposed by all mingled. On such occasions, SWOT results prove less reliable an input to the outline generation process than they are capable of being. Still worse, as attested later, the results of SWOT analysis are some generation never meant to be used as an input to the strategy generation process. If that is known, or anticipated, by those involved in SWOT analysis, the quality of their inputs will most likely suffer and be lower than otherwise possible, and desirable.(KOCH, Adam J.)2.6.3 Porters vanadium forces analysisPorter looked at the structure of industries. In particular, he was elicit in assessing patienceattractiveness, by which he meant how easy it would be to make preceding(prenominal) average profits (forshareholders and to fund adequate investment). He concluded that industry attractivenessdepends on vanadium factors or forcesCompetitive rivalry between brisk firmsThreats of new entrantsThreats of substitute productsPower of suppliersPower of customers(Paper P3 Business Analysis congenital Text)Limitations of five forces modelPort ers 5 forces of competition have a few weaknesses and limitations. The modelunderestimates the influence of a companys pith competencies on its ability to achieve profit.It, preferably, assumes the industry structure is the sole determining factor. Porters 5 forcesdefinition is difficult to apply to large multinational corporations with synergies andinterdependencies achieved from a portfolio of businesses. Additionally, the five forcesframework assumes there is no collusion in the industry. Finally, Porters analysis doesntconsider the possibility of creating a new market. (Porters Five Forces of Competition , 2010)3. synopsis3.1 PHARMACEUTICAL SECTOR2009 was a challenging stratum and witnessed modest growth in Pakistans economy out-of-pocket to uncertain law and order situation and global economic recession. The economy continues to witness double number inflation low economic growth and continued depreciation of the rupee against major currencies. During this period the pha rmaceutical industry has been adversely impacted by both inflationary trends as well as Rupee depreciation. The political relation has not allowed any across the board price adjustment to pharmaceutical industry for nine categorys. Growth in pharmaceutical markets is mainly plenty growth. (BENGALI, Iqbal, 2010) Pharmaceutical Industry is one of the major manufacturing industries in Pakistan providing employment to thousands of people directly and indirectly. The industry, however, is facing many scraps, which are hindering its growth. The major challenge faced by the industry is the complete freezing of price of pharmaceutical products since 2001. Pakistan is the only country in the entire Asian region that has not given its pharma and biotech industry tax-breaks and R D incentives.Governments requirement that drug production lines should be separate is raising toll and reducing the ability of local manufacturers to compete not only in the global market but even at home. (JAVE D, Aamar, 2009) Pakistan has a very vibrant and forward looking Pharma Industry. At the time of license in 1947, there was hardly any pharma industry in the country. 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 countrys demand of undefiled Medicine. The domestic pharma market, in term of share market is well-nigh evenly divided between the Nationals and the Multinationals.(Pakistan Pharmaceutical Industry) Pakistans $1.61 billion pharmaceutical market is now expected to post a five- yr compound annual growth of 8.95 per cent, down from 9.39 per cent forecast in the previous accommodate, fit in to Business Monitor International, a global business intelligence firm. (Pharmaceutical sector growth slowing down BMI , 2010)3.2 THE COMPANYAs a result of the global acquisition of Wyeth by Pfizer Inc.,on October 15, 2009, Wyeth has become a wholly have subsidiary of Pfizer Inc.. Pfizer Inc has become the ultimate parent company of Wyeth Pakistan Limited. Wyeth however continues to be the principal shareholder of Wyeth Pakistan Limited. (AHMED, Khawaja Bakhtiar, 2010) Wyeth, with its pharmaceutical and over-the-counter divisions, is a leader in the research and development, manufacturing and marketing of a broad range of health care products. (WYETH PAKISTAN LIMITED )3.3 RATIO ANALYSISThe following ratio analysis is base on the Annual Reports of WYETH and GSK Pakistan. Comparison has been made with the results of GSK for FY2009 since these were the latest financials available. Ratios3.3.1 SALES AnalysisGSK 2009Sales Revenue (Rs. in million)Growth in revenue (%) equal of sales. (Rs. In million)Growth in be of sales.(%)14,7199.8%11,17317%FY20102,3100.17%1,8301.4%FY20092,306 3.3%1,8058%FY20082,38413%1,69922%3.3.2 ProfitabilityRatiosGSK200924.1%FY2010FY2009FY2008G.P MarginN.P MarginROE20.82%1.13%2.58%21.73%-3.77% 8.86% 29.87%6.04%12.73%6.3%11.5%123.3.3 LiquidityRatiosCurrent Ratio restless RatioDebtors geezerhood fund Days3.3.4 Investors AnalysisGSK20093.21.62567FY20102.561.0126163FY20092.710.9838 revenueFY20083.431.3829143RatiosGSK20095.52054.6%FY2010FY2009FY2008Earnings per package (EPS)(Rs.)PE Ratio (Times)Dividend Per Share (Rs.)Dividend Yield18.6149.08100.92%-61.09___101.5025.6225010.55%Comments on RatiosThe operating results of underways year are for a 12 months period ended November 30, 2010 compared to the previous year which for an 11 months period ended November 30, 2009.Sales analysis.The growth in companys net sales for the period terminal 30 November 2009 trim down by 3.3% as sales were Rs. 2,384 million in year terminate 31, December 2008 and in 2009 period it was Rs. 2,306 million which is collectible to challenging conditions of external environment in 2009. On the other hand follow of sales for year shutdown 2008 was Rs. 1,699 million which sum upd to Rs. 1,805 million in period closing curtain 2009. It was an step-up of 8% which shows that company does not have efficient policies to control its operative expenditure.In year expiry 2010 overall sales increased by 0.17% but as we mentioned above that this period comprises 12 months comparing expiry 11 month period and if we compare like with likes then sales lessen by 8%. This is referable to collect to uncertain law and order conditions of Pakistan. But this year company showed efficiency in overbearing its costs as this year cost of sales increased by just 1.4%. This could be repayable to cooking and development of employees as information on six- sigma was conducted after the losses incurred by company in 2009. This training was to increase efficiencies of employees to control the cost.GSK Sales of GSK are in year finish 2009 were Rs. 14,719 million as compared to Rs. 2,310 million of Wyeth which is due to major market share of GSK. Out of to 20 products 9 are manufactured and sold by GSK.Profitability analysisGP MarginIn year shutdown 2010 gross profit tolerance reduced as it was 21.73% in year ending 2009 and it was 20.82% in year ending 2010. This reducing was mainly due to adverse economical conditions of country as inflation increased and cost of resources and operations increased accordingly.In period ending 30 November 2009 the GP margin decreased from 29.87% in 2008 and 21.73% in 2009. In year 2009 the profit also reduced as compared to sales which is also mainly to due to increase in cost of operations. On the other hand the presidency has not allowed an increase in price since year 2001. The GP margin of GSK is 24.1% for year ending 2009 as Wyeth has GP margin 20.82% in year ending 2010 which shows that GSK has more ability to control its cost and transfer it to its customers.NP MarginIn period ending 30 November 2009 the net profit margin reduced from 6.04% in 2008 to 3.77%. The major cause of this reduction in profitability was the economica l condition of Pakistan. Costs of operations increased due to inflation and at the same time the devaluation of currency. However, company maintained control on expenses as their advertising and promotion costs were in line with give way year. Administrative cost increased due to cost of willing Separation Scheme. Other operating expenses were lower than last year. NP margin for year ending 2010 increased to 1.13% from -3.77% in the last year. This service was due to increase in efficiency of employees and efficiently controlling the available cost of company as the operating expenses reduced by 10% in year ending. There has been a long stand price freeze by the government since 2001 due to which company was not able to fix abnormal profits.The net profit of GSK was 6.3% in year ending 2009 which also reduced as it was 14.6% in 2008. This shows that the industry was adversely affected by increase in operational costs and long standing price freeze by government due to which com panies cannot pass their cost to customers.ROEReturn on equity increased for year ending 2010 to 2.58% as it was -8.86% in year ending 2009 this increased was due to increased operational efficiency of organization. While in period ending 2009 the ROE reduced significantly from 12.73% to -8.86%. . ROE of GSK is 11.5% in year ending 2009 as compared to % of Wyeth. Liquidity analysis.Current ratioCurrent ratio indicates how many times the companys occurrent assents can meet companys current liabilities. A ratio of 2 is considered sufficient for current ratio generally. In the period ending 30, November 2009 the current ratio reduced from 3.43 times to 2.71 times. This shows that the company can meet its current liabilities 2.71 times by its current assets.This fall trend could cause an alarming situation for Wyeth because a company can survive without profits for some years but without gold it cant survive more than one year. So worsening condition of Wyeth needs effective and effi cient policies for fund management. Current ratio for year ending 2010 reduced to 2.56 times as it was 2.71 times in year ending 2009. This shows that now company can meet its current liabilities by 2.56 times. A ratio of 2 is a standard for current ratio. alliance modify its working capital condition this year as they changed their sales and dissemination model from credit to advance cash. Current ratio of GSK for year ending 2009 is 3.2 times which shows strong policies of funding are in place. sprightly ratioQuick ratio indicates how many times companys current assets can fulfill its current liabilities but it ignores inventory from current assets because in some organizations inventory takes times before it can metamorphose to sales. Quick ratio of Wyeth is reducing quicker than current ratio for years ending 2009Quick ratio for period ending 2009 also reduced from 1.38 to 0.98 times which was an alarming situation for Wyeth. It indicates that major part of current assets co nsist inventory and companys inventory increased from last year due to increase in cost of materials. . Ratio of 1 is considered a standard for quick ratio so companys liquidity is worsening. Quick ratio improved in year ending 2010 which is 1.01 times as it was 0.98 times in 2009. This is due to improved working capital management policies as company received cash in advance instead of credit. Due to which company earned interest on deposits too. Quick ratio of GSK for year ending 2009 was 1.6 which shows a healthy liquidity position.Debtors DaysDebtors turnover period indicates how many long time debtors take to pay their debt to company. Debtors are part of working capital and for the successful operations of company good debtor management strategies need to be in place. In period ending 2009 the debtors turnover period increased by 9 old age as these were 29 days in 2008 and 38 days in 2009. During this year due to inflation and devaluation of currency the company had to clear debtors turnover period as company made loss after tax this year. In year ending 2010 companys debtor days reduced to 26 days as compared to 38 days in 2009 this also shows the improvement in fund management policies as this year company received advance cash from sales and distribution instead of credit. Debtors days of GSK for year ending 2009 were 25. This shows that debtor collection policies of GSK are more efficient than Wyeth. enumeration daysInventory days indicate the period during which inventory of a company form in its warehouse or in work in come out before it is finally converted into sales. Inventory holding initiates many expenses like warehouse, damages etc. which can be mitigated by good inventory management policies in place. Inventory turnover period in 2009 increased by 1 day as it was 143 days in 2008 and became 144 days in 2009. This increase was nominal but instead improvement this increase was due to decreasing in underlying sales.Inventory days increased this year too from 144 days in 2009 to 163 days in 2010. This increase was mainly due to increase in inflation and instability of prices in material. Sales for this year was lower than last year. Inventory turnover period of GSK in year ending 2009 was 67 days which is less than half of Wyeth. This shows that GSK has more efficient working capital policies and sales of GSK were more than Wyeth which is due to the higher market share of GSK. Investors analysis.EPSEarning per share can be used to indicate the profitability of a company. It shows the earning allocated to each common share. In period ending 2009 the EPS reduced badly by Rs.162 per share. In this year companys EPS was -61.09. This major decrease was due to logical inflation and devaluation of currency ofPakistan. These factors became the reason for increase in operational cost. And due to the price freeze by government the company was not able to transfer the cost to customers. In year ending 2010 EPS increased from R s. -61.09 last year to Rs. 18.61 this year. This year company made a net profit margin of 1.13% which was loss of (3.77) % in last year. This improvement is due to controlling the operational expenses of the company this year. The EPS of GSK for year ending 2009 was Rs. 5.5 which is consistent with previous years.PE ratioThe PE ratio of Wyeth moved adversely during last years. In year ending 2008 the PE ratio was 25.62 times while In year ending 2009 the companys made a loss. Which was due to increase in cost which company was not able to pass to customers. In year ending 2010 PE ratio improved to 49.08 times which was nil in last year this improvement also due to improvement in operational efficiency of company during 2010 as the company improved its cash position as well as its productivity. The PE ratio of GSK was 20 which show good performance of GSK compared to Wyeth. Dividend per share Dividend per share ratio indicates the dividend earned by an investor by holding one share o f company.There was no dividend per share in year ending 2009 as company was in loss. This loss was mainly due to adverse environmental, economical, and political situations. In year ending 2010 company announced the dividend of Rs. 10 per share which shows the attractive position of company in this year. Company improve its profitability as well as its operational efficiency during year ending 2010 as retrospective measures taken in 2010 like training on six-sigma plan. The dividend per share of GSK for year ending 2009 was Rs.5 which also indicates that company performed well in such crises. Dividend yield This ratio represents the cash flows earned by the investor by investing each rupee in form of shares.In year ending 2010 earning yield improved to 0.92% as it was nil in year ending 2009. This improvement was due to improvement in operational efficiencies during year ending 2010 while economical and political instability remained consistent in year ending 2010. In the period en ding 2009 company made a loss. While GSKs dividend yield in this year was 4.6% which shows the good governance of GSK as compare to Wyeth.3.4 PESTEL ANALYSISPESTEL analysis is a tool which is used to understand external environment. It deals with external environmental factors like political, economical, social and demographical, technological, environmental and legal. By considering these factors we can judge the influence of all above factors on the operations and profitability of any company. Political factors. In political factors we consider the government policies like tax policies, their stability, political environment and institutions. In 2008 there was instability in political conditions of Pakistan which adversely affected the pharmaceutical industry. Policies of government about electricity price raises also contributed adversely to pharmaceutical industry. Governments price freeze policy since 2001 also reduced the profitability because firms were not able to transfer their increasing operational cost to the customers. In the last quarter of 2008 government gave some relaxation on price increase but that was for some products that did not contribute too much to improve the conditions of profitability. scotch factorsInflation (too much money chasing too few goods) remained the major problem of Pakistan in the last few years. Due to consistent rise in cost of electricity, labor, and fuel the profitability of pharmaceutical industry reduced as firms could not increase prices according to cost due to limitation by government policies. But demand in the public remained unchanged. Devaluation of Pakistan currency also adversely affected the industry as value of rupees consistently reduced against major currencies of world especially against US$. Due to which many firms had