2014

Term Report
Analysis of Financial Statements

Sanofi Pakistan

Asma Ahmed
Submitted to: Sir Maqbool-UR-Rehman
8/17/2014
 Table of Contents
EXECUTIVE SUMMARY .................................................................................................................................. 4
NATIONAL INDUSTRY ANALYSIS ................................................................................................................ 5
GLOBAL INDUSTRY ANALYSIS ................................................................................................................ 9
COMPANY ANALYSIS-Sanofi Pakistan ............................................................................................. 14
FINANCIAL ANALYSIS- SANOFI PAKISTAN ................................................................................... 15
CONCLUSION ........................................................................................................................... 26

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 PREFACE
This term report has been written as a term project in regard to the course of Analysis of
Financial Statements. The report covers a thorough analysis of the pharmaceutical
manufacturing sector both in the local and national perspective along with the sectors key facts
and figures .It also highlights the sectors inherent strengths, threats, weaknesses and
opportunities. Further the report sheds light on one of the leading pharmaceutical of the
country, Sanofi Pakistan, along with its complete financial analysis. The analysis includes
common-size and trend analysis along with the financial ratios of the company.

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 EXECUTIVE SUMMARY

Pharmaceutical sector is one of the potent sectors of the country contributing approximately
10% to the country’s GDP having a growth-rate of 12%, there are 30 multinational companies
operating in the country with nine listed on the Karachi stock exchange. The company has
exports of $190million worth. The industry is regulated by the DRUG Regulatory Authority of
Pakistan. Substantial investment and up-gradation in the industry following Good
Manufacturing Practices (GMP), in accordance with the domestic as well as international
Guidance had lead the industry to opportunities. Currently the industry is manufacturing a
variety of product ranging from simple pills to sophisticated Biotech, Oncology and Value Added
Generic compounds. It had penetrated to over 30 different countries in Africa, Middle East, Far
East, Europe, CIS States, Russian Federation, etc,. International sales have gone almost double
during last five years. However the industry is faced with challenges from ineffective drug
regulations and unpredictable policies. Opportunities lie ahead in risen pharma products
demand from population growth rate, rising life expectancy and consequent rise in older age
group along with increasing urbanization, number of doctors and private investment in new
hospitals and clinics.

The global pharmaceutical market had been dominated by North America and Europe. The total
level of pharmaceutical revenue worldwide had reached nearly one trillion U.S. dollars. After a
long period of strong US market dominance, the UK, and Europe as a whole, are facing
increasing competition from emerging economies, such as China, Brazil and India. Global API
market is expected to witness enormous growth prospects due to consistent rise in biotechnology and
generic sectors and consistent growth in new medical technologies, patent expirations of branded drugs
in near future, rigorous initiatives by regulatory authorities promoting the use of generic drugs and
increased use of imported raw pharma ingredients from emerging economies. The industry is
expected to register growth led by aging population, changing lifestyles, hectic daily activities,
unhealthy eating habits, increasing incidence of chronic diseases across the entire global
population however one of the largest challenges will be capturing growth in rural areas, which
until now have been too fragmented to effectively enter. The biggest threat that Global
pharmaceuticals face is that of counterfeit medicines.

Sanofi Aventis is a subsidiary of SECIPE. The company is engaged in serving the cause of health
and well being through research and development, manufacture and sales of pharmaceutical
products. It focuses its activities in seven therapeutic areas namely: cardiovascular, thrombosis,
oncology, central nervous system, diabetes, internal medicines and vaccines. The market share
0f the company is 4% with 10% growth rate. The company has the capacity to produce 115
million packs annually. Its op brands are Flagyl, Clexane, Amaryl and Lantus.

The company had over the years maintained growing profit margins despite rising operating
expenditures subject to general inflation and currency depreciation along with continuous plant
expansions in the infrastructure. The years 2007, 2008 and 2009 witnessed a minor erode in the
profits in percentage terms due to some internal organizational constraints but the company

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came over it in the later years. The share price of the company had been quiet high that
indicates a positive investor outlook regarding growth and profitability of the company.

NATIONAL INDUSTRY ANALYSIS

Major players

Pfizer Glaxo smith kline

Novartis Sanofi
Roche Eli lilly
Johnsons & Johnsons Astrozeneca
Merck Abott

Listed on Karachi Stock Exchange (KSE)

Abbott Lab. Otsuka Pak

Ferozsons (Lab) Sanofi-Aventis
GlaxoSmithKline The Searle Comp
Highnoon (Lab) Wyeth Pak Ltd
IBL HealthCare

Key statistics

Province National Multinational Total Units

Punjab 194 05 199
Sindh 91 23 114
KPK 45 - 45
Balochistan 5 2 7
Azad Kashmir 3 - 3
Total 338 30 368

Economic

Growth Rate 12%

Contribution to GDP 10.90%
Contribution to large scale manufacturing
Tablets 10.70%
Liquids/Syrups 14.10%

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Market size $1.4 billion
Market Share
Multinationals 45%
Locals 55%
Demand fulfillment
local 70%
value 55%
Employment
direct 700,00
indirect 150,000
Number of products
Local 2956
Multinational 193
Exports $ 190 Million
Raw active material import 91%

Industry Specified (tax and trade incentives)

Duty on import of raw materials and 5%

chemicals.
Corporate tax rate (Public/Private 35%
companies)
Exemptions on custom duty
On formulation of dosage forms for In excess of 10% ad valorem and sales tax.
pharmaceutical materials.
Packing material. In excess of 10% ad valorem
Bulk manufacturing of pharmaceutical raw In excess of 5% ad valorem and sales tax.
material.
Subsidy restored to facilitate pharmaceutical 50%
companies for registration of their products
in foreign countries.

Imports (Medicine) US $ 252 million Consumption

Switzerland 54.7m UK 17.6 m Generics 1.067 m US $
China 29.5 m France 16.1 OTC Medicines 0.319 m US $
Germany 27.6 m Patented products 0.231 m US
$

Registered drugs

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 local 10807
imported 655
vetenary 1122

Demand Indicators
Infant Mortality Rate (IMR) 76.7
(per 1000 persons)
Maternal Mortality Rate (MMR) 350
(per 100,000 live births)
Under -5mortality rate 101
(per 1000 persons)
Parasite Incidence of Malaria 0.75
(per 1000 persons)
Incidence of TB (per 100,000 persons) 181
Fertility Rate (percentage) 4.1
Contraceptive prévalence rate % 30
Births attended by skilled persons % 19
Population growth rate 1.9
965

Hospitals
Dispensaries 4,916
Basic Health Units 4,872
Rural Health Centers 595
MCH Centers 1,138
TB Centers 371
First Aid Points: 1,080

Distribution

Pricing

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The prices of pharmaceuticals products in Pakistan is regulated by the DRUG REGULATORY
AUTHORITY OF PAKISTAN (DRAP), which inclines to sell medicines at a ceiling price however
lately measures have been taken due to severe enforcement from the pharma manufacturers
for a rise in drug prices.

Regulations
1. Drug Regulatory Authority of Pakistan Act, 2012
Drugs Act, 1976
2. SROs
The Drugs (Labeling and Packing) Rules, 1986
3. The Drugs (Licensing, Registering & Advertising) Rules, 1976
4. The Drugs (Appellate Board) Rules, 1976
5. The Drugs (Research) Rules, 1978
6. The Drugs (Federal Inspectors, Federal Drug Laboratory & Federal Government Analysts)
Rules, 1976
7. The Drugs (Imports & Exports) Rules, 1976
8. The Drugs (Specifications) Rules, 1978
9. The Northern Areas Drugs Rules, 1996
10. Pharmacy Act, 1967

SWOT

OPPORTUNITIES
 Pakistan has a high population growth rate, rising life expectancy and consequent rise in
older age group, yet Pakistan has more than 50% of its population below the age of 19
years. Infant mortality is high, as is maternal mortality. All these factors along with
increasing urbanization, number of doctors and private investment in new hospitals and
clinics should stimulate demand for pharmaceutical products and health care services.

STRENGTHS

• Substantial investment and up-gradation in the industry following Good Manufacturing

Practices (GMP), in accordance with the domestic as well as international Guidance.
Currently the industry manufacturing a variety of product ranging from simple pills to
sophisticated Biotech, Oncology and Value Added Generic compounds.
• Pakistan Pharma Industry boasts of quality producers and many units are approved by
regulatory authorities all over the world. Pakistani pharma market has achieved the ever-
increasing export performance figures of medicines to over 30 different countries in Africa,
Middle East, Far East, Europe, CIS States, Russian Federation, etc,. International sales have
gone almost double during last five years.

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• It is noteworthy that Pakistan’s pharmaceutical exports to Afghanistan have grown by 30%
per annum for the last five years. With a share of almost one-fifth in Pakistan’s total
exports of pharmaceutical goods to the world, Afghanistan received Pakistani drugs worth
$29.1 million in 2011.Sri Lanka, the Philippines, Vietnam and Sudan are other major export
destinations for Pakistan-made drugs.

WEAKNESS

• Pharmaceutical spending accounts for less than 1% of the country's GDP, comparable to
levels in some neighboring countries.
• Deteriorating business environment in the wake of high cost of production (cost of active
pharmaceutical ingredients in particular) as well as cap drug price by the government for
the last seven years.
• An issue which is unique to the local industry is that with the passing of the functions of
MOH to provinces under the 18th amendment, concerns loom over the future of the
regulatory framework of the industry. Too much extent, the viability of the pharmaceutical
companies depends upon the progress in this regard. The decision on setting up an
autonomous Drug Regulatory Authority (DRA) and passing of DRA Bill is a step that has
lifted hopes in the industry with regard to the delay of registration and pricing of the
medicines and pharmaceutical products

THREATS

• Closedowns of operation by major pharmaceuticals such as Bristoll-Myers Squibb and

Merck.
• Due to A lack of predictable policy and an ineffective regulatory authority, Investment in
the Pharma sector drastically decreased between 2010 and 2014 to Rs4 billion against Rs14
billion between 2007 and 2010. The exports of pharmaceutical showed a minus growth of
approximately 17% during 2012-2013 as against 35% growth during the preceding year.
• Rise in the cost of production due to constant devaluation of the Pakistani rupee against
other currencies as 92 percent of the basic raw material is imported in large quantities
from the US, UK, Germany, Japan, and China.
• About 40 to 50 per cent of medicines being sold in the country were counterfeit, which
might cause prolonged illness or even death of patients.

GLOBAL INDUSTRY ANALYSIS

 The total level of pharmaceutical revenue worldwide had reached nearly one trillion
U.S. dollars. North America is responsible for the largest portion, generating more than
40 percent of these revenues.

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  NYC-based Pfizer is the world’s largest pharmaceutical company. In 2012, the company
generated some 47 billion U.S. dollars in pure pharmaceutical sales, while total
revenue stood at nearly 60 billion U.S. dollars
 Branded, patented medicines by far make up the largest share of pharmaceutical
revenues. Seretide, a drug treating respiratory diseases, generated nearly nine billion
U.S. dollars of revenue worldwide. Oncologics continue to be the leading therapeutic
class based on revenue. In 2012, cancer drugs made almost 62 billion U.S. dollars of
revenue globally. Other major therapy classes were pain drugs, antihypertensives and
antidiabetics.

Global Pharma Market Percentages

70% Latin Aameica, 65%

60%

50%
North America, 38%
40%
Europe, 29%
30%
Asia/Australia &
20% Africa, 15%
Japan, 12%
10%

0%
North America Europe Japan Asia/Australia & Latin Aameica
Africa

Revenue of the worldwide pharmaceutical market

964.8 961.5
1000 799 830.8 891.3
726.4
648.7
498 559.9 601.2
390.2 427.6
500

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue (billion US $)

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After a long period of strong US market dominance, the UK, and Europe as a whole,are facing
increasing competition from emerging economies, such as China, Brazil and India.

From 2003–2007, the UK was ranked as the fifth or sixth nation in the worldwide pharmaceutical
market, but has since fallen to 10th position. China has remained one of the strongest growing countries
in the world throughout the recession. The UK places itself amongst the top 10 of global
pharmaceutical markets, but has slipped from sixth in 2007 to ninth position in 2012.

Global pharmaceutical top markets, 2012 and 2010

2012 2010
Country Rank $ (Mill) Growth Rank $ (Mill) Growth (%)
(%)
USA 1 326,892 -1 1 319,552 6
Japan 2 112,067 0 2 96,355 7
China 3 81,698 22 3 54,865 21
Germany 4 42,333 -6 4 42,181 2
France 5 36,674 -8 5 38,529 -5
Brazil 6 29,112 -6 7 26,259 38
Italy 7 26,231 -8 6 26,639 -2
Canada 8 21,877 -2 9 21,655 13
UK 9 21,635 0 10 20,297 2
Spain 10 19,935 -12 8 22,220 -2

Global pharmaceutical market forecast, 2009-2014

The value of the global pharmaceutical market is expected to grow by 5–7% in 2011 to US$880 billion,
compared with a 4–5% pace in 2010, according to IMS Health. The breakdown of these figures by
geographical area is shown in the graph below.

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Market share for products launched in the last five years, 2012

The chart below is a measure of uptake for new medicines. Although the UK has traditionally been seen
as an early launch market, the share of the market attributable to products launched in the previous five
years is lower than most comparable countries.

Strengths

 The global pharmaceutical market is forecasted to grow to US$ 842 billion in 2010, an equivalent
CAGR of 6.9% over the next five years. The strong growth in the ten European market that
joined the European Union in 2004 will help to boost European sales over the next five years. Of
the leading product classes in 2005, cytostatics and angiotensin-II inhibitors generated the
greatest year on year growth. There were sixteen blockbuster drugs in 2005, generating
combined sales of US$ 18.1 billion. The total pharmaceutical sales from the top ten companies
accounted for more than 40% of the total market.
 Emerging markets such as China, South Korea, Brazil, Russia and Turkey experienced double-
digit growth signaling an important shift occurring in the pharmaceutical industry.
 Global API market is expected to witness enormous growth prospects due to consistent rise in
biotechnology and generic sectors and consistent growth in new medical technologies, patent
expirations of branded drugs in near future, rigorous initiatives by regulatory authorities
promoting the use of generic drugs and increased use of imported raw pharma ingredients from
emerging economies. Increased market fragmentation and reduction in the overall research and
development expenses are some of the factors which might hamper the growth of the market.
Some of the major market players competing in API market are GlaxoSmithKline
Pharmaceuticals Limited, AstraZeneca plc, Novartis AG, Pfizer, Inc. and F. Hoffmann-La Roche
Ltd.

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Opportunities and threats

 The industry is expected to register growth led by aging population, changing lifestyles,
hectic daily activities, unhealthy eating habits, increasing incidence of chronic diseases
across the entire global population providing growth opportunities for the industry
players.
 The global pharmaceutical market faces major challenge from increasing investment
and strict regulation.
 The landscape in emerging markets seems to be becoming more favourable for foreign
players. Rising incomes, the growth of health insurance and more favorable healthcare
policies have helped spur growth.
 One of the largest challenges will be capturing growth in rural areas, which until now
have been too fragmented to effectively enter. Global pharmaceutical and healthcare
companies will also find themselves coming up against local competitors that may have
the upper hand when it comes to leveraging local relationships and established
procurement systems to undercut newcomers in pricing.

Global Weakness-Counterfeit Medicines

 World Health Organisation estimates; fake medicines represent 10 per cent of the global
pharmaceutical industry at some 45 billion Euros and have started to penetrate drug markets in
the developed world.
 Some products in China have a counterfeit constituent of 50% to 85%,some 37% of antibiotics
and anti-malarials on the WHO essential drugs list in Nigeria and Thailand are substandard
A recent survey by the WHO of seven African countries found that between 20% and 90% of all
anti-malarials failed quality testing
95% of drugs in Nigeria are fake & 80% of them are being exported from India.
 Seizures of bogus prescription medicines jumped 24% to 1,513 incidents in 2007, and illicit
versions of 403 different prescription drugs were confiscated in 99 countries, according to the
Pharmaceutical Security Institute, a Vienna, Virginia-group funded by 26 drug makers. The $3
billion (Rs.12,870 Crore) in counterfeit drugs seized include generic copies that violate patent
laws and products that lack active chemical ingredients or contain improper dosages.
 Fake drugs account for 7-15% of the total quantity of medicines circulated in the market in
developed countries and the percentage is 25% in developing ones.
In Vietnam an investigation shows that 64% of anti malarial tablets contained no active
ingredient, which eventually led to the death of patients. In India 7% of medicines were found
counterfeit and Indian companies were accused of exporting counterfeits to African markets.

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 COMPANY ANALYSIS

Sanofi Pakistan

The group is a global leader in health care, research and development and is well known for its
regional approach to business operations. In the pharmaceutical industry it is a global leader. In
Pakistan it is the fifth largest pharmaceutical company. It was incorporated in 1976 and was
previously known as Aventis Limited. The name was changed to Sanofi Aventis in September
2005 when Aventis SA was acquired by Sanofi Synthelabo. Sanofi Aventis is a subsidiary of
SECIPE. The company is engaged in serving the cause of health and well being through research
and development, manufacture and sales of pharmaceutical products. It focuses its activities in
seven therapeutic areas namely: cardiovascular, thrombosis, oncology, central nervous system,
diabetes, internal medicines and vaccines.

During the year so far, Sanofi Aventis was also seen to enter the consumer health care business
where it overtook Selsun Blue. The products of the company consist of prescription medicines,
vaccines, generic medicines and consumer health care products. It uses its regional distribution
network to market its products to the retailers and the wholesalers while its institutional agents
for marketing to the government and private hospitals.

Growth 10%
Market share 4%
Plant Capacity 115 million packs annually

Product line Brands

Diabetics 7
Oncology 8
Allergy 5
sleep disorders 2
Emergency care 8
Antibiotics 6
Diarrhea 5
Gastric diseses 2
Anti malaria 1

PRODUCT PORTFOLIO AND HIGHLIGHTS

Sanofi Aventis has a wide range medicines, vaccine and health care products in its global
portfolio. Amongst those that it markets and sells in Pakistan include Actonel, Amaryl, Clexane,
Eloxatin, Epilim, Flagyl, Lantus, Nasacort, Stilnox, Telfast, Taxotere, Tritace.
The company has well-sought insulin and diabetes market that it addresses fairly well. The
company is a pioneer in insulin and has a range of oral anti-diabetic products. Lantus launched

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a little over a decade ago has enabled the company to investigate the possibility of
regenerating the insulin-producing cells in the body. Nine of the company's pharmaceutical
brands are market leaders in the therapeutic category and another eight are number two in
other categories. Flagyl has maintained the market leadership position for many years. No Spa
is another success story.

Growth- (2012)
60%

40%

20% Growth

0%
Lantus Amaryl Flagyl Clexane

FINANCIAL ANALYSIS

SANOFI PAKISTAN
Common Size Analysis
Income statement

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Percentage----%------
NET SALES 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Cost of sales (0.70) (0.70) (0.73) (0.72) (0.76) (0.76) (0.72) (0.67) (0.66) (0.69)
GROSS PROFIT 0.30 0.30 0.27 0.28 0.24 0.24 0.28 0.33 0.34 0.31
Distribution and marketing costs (0.17) (0.18) (0.18) (0.18) (0.16) (0.17) (0.19) (0.17) (0.17) (0.15)
Administrative expenses (0.03) (0.03) (0.02) (0.03) (0.02) (0.03) (0.03) (0.03) (0.02) (0.02)
Other operating expenses (0.03) (0.03) (0.01) (0.01) (0.02) (0.01) (0.02) (0.01) (0.01) (0.01)
Other income 0.00 0.03 0.02 0.02 0.02 0.01 0.01 0.00 0.13 0.12
(0.22) (0.20) (0.20) (0.20) (0.18) (0.20) (0.23) (0.21) (0.01) (0.00)
OPERATING PROFIT 0.09 0.10 0.07 0.09 0.06 0.04 0.05 0.11 0.13 0.13
Finance costs (0.03) (0.02) (0.01) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.01)
PROFIT BEFORE TAXATION 0.06 0.08 0.06 0.07 0.04 0.02 0.03 0.09 0.12 0.12
Taxation (0.03) (0.03) (0.03) (0.03) (0.01) (0.01) (0.01) (0.03) (0.04) (0.04)
NET PROFIT FOR THE YEAR 0.04 0.06 0.03 0.04 0.02 0.01 0.02 0.06 0.08 0.08

The company had witnessed continuous growth over the years, along with growing sales
revenue which is attributable to its strategy of introducing new products, adding new lines

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 of business, maintaining leadership of its key brands by accelerating growth, innovative
marketing campaigns and consistent sales efforts despite the bad law and order situation
prevalent within the country.

 The years 2007 witnessed declining trend in the company’s profitability. The main causes
can be attributed to deregistration of its brand Novalgin following year, higher than
expected time taken for regulatory approvals of new products and line extensions as well
as for import permit extensions for a couple of existing products, strong competition from
cheaper generics, negative impact on markets due to the political and social environment
in the country.
 In 2008, profit margin eroded, the main cause being fire incidence at the electrical sub-
station building situated at the Karachi manufacturing site of the Company. Immediately
following this event, the Company launched its disaster recovery plan due to which there
was only marginal operational impact of this incident. However, due to use of rented
generators until restoration of the sub-station, fuel and power cost as well as labor costs
increased considerably which also impacted the gross margin and administration expenses
of the company during the year under report.
 Company’s cost of sales and operating are soaring continuously due to rising level of
inflation, depreciation of the Pakistani rupee having impact on cost categories including
fuel, hotels related costs, airfare, forward exchange cover for our imports and interest
rates charged by banks. Frequent power breakdowns also played their part.
 In 2007 due to divestment of Wah manufacturing site and shifting its entire production
facility to one place reduced the overall borrowings and related borrowings costs for the
company.
 In the year 2007, distribution and marketing expenses have increased, 23% as a percentage
of sales, primarily due to selling expenses pertaining to the addition of the vaccines
business.
 Sales increases are volume increases since pharmaceuticals experience price ceilings by the
regulatory authorities of the country.

Balance sheet
 In 2009 approximately 33% sales were made on credit to large hospitals and government
institutions.
 An amount of Rs.592.9 million in 2010, 0.42 % of total assets was capitalized and
transferred to fixed assets, which primarily represented capitalization of liquid
manufacturing project (i.e. shifting of entire production facility to one place - at Karachi).
The liquid project as mentioned in our earlier reports was completed well within the
project time-line with commercial production starting in the month of April 2010.
 The years 2006, 2007 and 2008 have shown higher inventories due to declining sales,
along with increasing short term borrowings.

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  Company has made higher credit sales in the years 2013 and 2012, the rise can be
attributed to the company’s export sales in the Afghanistan pharmaceutical market on
credit terms.
 The fixed assets of the company had risen continuously due its consistent investment on
new technologies and plant innovations for the sake of modernization and expansion of
manufacturing facilities.

Common size-Balance Sheet

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Percentage------%-----------
ASSETS
NON-CURRENT ASSETS
Fixed assets
Property, plant & equipment 0.28 0.30 0.35 0.42 0.40 0.33 0.33 0.35 0.30 0.40
Intangible assets 0.000053 0.000007 0.006398 0.000101 0.000244 0.000570
Long-term loans 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Long-term deposits 0.00 0.00 0.00 0.00 0.01 0.01
Deffered Taxation 0.00 0.00 0.01
0.28 0.30 0.36 0.42 0.40 0.33 0.33 0.35 0.31 0.42
CURRENT ASSETS
Stores and spares 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.02
Stock-in-trade 0.38 0.36 0.38 0.34 0.37 0.44 0.44 0.40 0.51 0.40
Trade debts 0.14 0.17 0.07 0.05 0.05 0.06 0.06 0.07 0.04 0.04
Short-term loans & advances 0.01 0.01 0.01 0.00 0.01 0.01 0.01 0.01 0.01 0.01
Trade deposits & short-term prepayments 0.02 0.01 0.01 0.02 0.01 0.01 0.01 0.02 0.07 0.03
Other receivables 0.06 0.01 0.03 0.04 0.05 0.04 0.04 0.06 0.03 0.02
Taxation - payment less provision 0.11 0.13 0.14 0.12 0.09 0.09 0.09 0.05 0.02 0.02
Cash at banks 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04

Noncurrent assets classified as held for sale 0.00 0.00 0.00 0.00
0.72 0.70 0.64 0.58 0.60 0.67 0.67 0.64 0.69 0.58

TOTAL ASSETS 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
EQUITY AND LIABILITIES
SHARE CAPITAL AND RESERVES
Share Capital 0.01 0.02 0.02 0.03 0.03 0.04 0.04 0.05 0.05 0.06
Reserves 0.33 0.35 0.34 0.41 0.34 0.42 0.01 0.01 0.24 0.23
0.34 0.37 0.36 0.44 0.37 0.46 0.05 0.06 0.29 0.29
NON-CURRENT LIABILITIES
Long-term financing 0.08 0.03 0.11 0.03 0.13
Long term financing subject to financial lease 0.00 0.00
Deferred taxation 0.02 0.03 0.04 0.04 0.00
0.10 0.03 0.07 0.15 0.03 0.13
CURRENT LIABILITIES
Trade and other payables 0.25 0.31 0.32 0.29 0.30 0.28 0.28 0.27 0.28 0.37
Accrued mark-up 0.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00
Short term borrowings 0.06 0.29 0.22 0.22 0.13 0.20 0.01
Running finances utilized under mark-up arrangements - secured 0.24 0.26 0.21 0.07 0.03
Current maturity of long term financing 0.02 0.04 0.04 0.06 0.04
Current maturity of liability against asset subject to finance lease 0.00 0.00 0.00
dividends 0.00 0.00
0.56 0.60 0.57 0.41 0.60 0.51 0.51 0.43 0.55 0.42
CONTINGENCIES AND COMMITMENTS

TOTAL EQUITY AND LIABILITIES 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

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Horizontal Analysis
Income statement

2013 2012 2011 2010 2009 2008 2007 2006 2005

NET SALES 1.77 1.71 1.40 0.94 1.12 0.37 0.23 0.20 0.08
Cost of sales 1.79 1.73 1.55 1.01 1.32 0.50 0.28 0.17 0.04
GROSS PROFIT 1.72 1.67 1.07 0.78 0.65 0.07 0.10 0.26 0.18
Distribution and marketing costs 1.98 2.20 1.86 1.24 1.14 0.55 0.55 0.36 0.22
Administrative expenses 3.12 2.84 2.30 2.05 1.65 1.13 0.83 1.17 0.32
Other operating expenses 4.70 4.23 0.64 0.24 2.26 0.31 0.46 (0.04) 0.10
Other income (0.90) (0.35) (0.58) (0.74) (0.74) (0.87) (0.95) (0.95) 0.13
119.19 110.07 93.47 76.11 77.41 54.81 56.04 50.37 0.13
OPERATING PROFIT 0.89 1.12 0.31 0.30 (0.06) (0.58) (0.56) 0.05 0.13
Finance costs 7.82 5.02 3.28 3.92 3.96 2.30 1.46 1.87 1.31
PROFIT BEFORE TAXATION 0.41 0.85 0.10 0.05 (0.34) (0.78) (0.70) (0.07) 0.05
Taxation 0.66 0.61 0.40 0.28 (0.38) (0.67) (0.71) (0.07) (0.11)
NET PROFIT FOR THE YEAR 0.26 0.99 (0.06) (0.09) (0.32) (0.84) (0.69) (0.07) 0.13

 Company’s increased activities on advertisement and promotions also resulted in the

rise of operating expenses. The increase is attributable to both the pharmaceuticals as
well as vaccines businesses. With increased spending on advertising and promotional
activities coupled with higher staff cost mainly on account of special allowance given to
sales force the company is increasing its investment in new businesses in order to drive
future business growth for overall sustainability of the business / company.
 Other income of the company mainly comprise of the gains recognized on the disposal
of its fixed assets and scrap sales.
 Company has higher finance costs in the year 2013 (3% as a percentage of sales) due to
borrowings for the purpose of financing capital expenditures, inventory requirements
and other working capital needs.

Term Report-AFS Page 18

BALANCE SHEET-Horizontal Analysis
Base year 2004

2013 2012 2011 2010 2009 2008 2007 2006 2005

ASSETS
NON-CURRENT ASSETS
Fixed assets
Property, plant & equipment 2.09 1.72 1.56 1.36 -1.00 0.32 0.33 0.17 0.06
Intangible assets
Long-term loans 1.73 1.94 1.53 1.09 -1.00 0.26 0.26 0.23 0.22
Long-term deposits -0.71 -0.63 -0.66 -0.66 -1.00 -1.00 -1.00 -1.00 -0.17
Deffered Taxation -1.00 -1.00 -1.00 -1.00 94.76 -1.00 -1.00 -1.00 -0.88
1.96 1.62 1.51 1.27 -1.00 0.27 0.27 0.13 0.04
CURRENT ASSETS
Stores and spares 0.60 0.55 0.40 0.26 -1.00 0.36 0.36 0.28 0.16
Stock-in-trade 3.11 2.31 1.77 0.93 -1.00 0.81 0.81 0.34 0.80
Trade debts 13.68 14.27 3.89 1.54 18.43 1.23 1.23 1.38 0.35
Short-term loans & advances 0.85 0.32 0.12 -0.27 -1.00 0.13 0.15 -0.01 0.25
Trade deposits & short-term prepayments 1.48 0.27 0.21 0.04 -0.15 -0.45 -0.45 -0.01 1.93
Other receivables 14.67 0.57 5.02 4.27 46.52 3.31 3.31 4.03 2.01
Taxation - payment less provision 31.30 31.13 26.06 16.38 5.78 8.50 8.50 3.32 0.53
Cash at banks -0.58 -0.91 -0.93 -0.96 -0.54 -0.96 -0.96 -0.93 -0.88

Noncurrent assets classified as held for sale

4.45 3.45 2.31 1.25 -0.69 0.89 0.89 0.48 0.72

TOTAL ASSETS 3.40 2.68 1.97 1.26 -1.00 0.64 0.64 0.34 0.43
EQUITY AND LIABILITIES
SHARE CAPITAL AND RESERVES
Share Capital 0.00 0.00 0.00 0.00 -1.00 0.00 0.00 0.00 0.00
Reserves 5.27 4.65 3.43 3.02 7.79 2.00 -0.93 -0.93 0.50
4.11 3.62 2.67 2.35 -1.00 1.56 -0.72 -0.72 0.39

NON-CURRENT LIABILITIES
Long-term financing 1.67 -0.33 1.00 4.44 -1.00 -1.00 -1.00 -0.67
Long term financing subject to financial lease
Deferred taxation
2.39 -0.17 0.54 1.76 -1.00 -1.00 -1.00 -1.00 -0.64

CURRENT LIABILITIES
Trade and other payables 1.95 2.07 1.52 0.77 -1.00 0.25 0.25 -0.04 0.09
Accrued mark-up
Short term borrowings 29.62 -1.00 -1.00 -1.00 40.51 40.51 18.86 32.02
Running finances utilized under mark-up arrangements - secured
Current maturity of long term financing 1.00 1.80 1.00 13.29 -1.00 -1.00 -1.00 1.00
Current maturity of liability against asset subject to finance lease
dividends -1.00 -1.00 -1.00 -1.00 1035.24 -1.00 -1.00 -1.00 0.24
4.84 4.23 3.01 1.18 -1.00 0.98 0.98 0.36 0.85

CONTINGENCIES AND COMMITMENTS

TOTAL EQUITY AND LIABILITIES 3.40 2.68 1.97 1.26 0.21 0.64 0.64 0.34 0.43

Term Report-AFS Page 19

Ratio Analysis

Liquidity
Net cash used in operating activities (351726.00) (141099.00) (6649.00) 880332.00 (466424.00) 198393.00 30070.00 510413.00 (259917.00) 694599.00
Trade payables 935849.00 922545.00 758011.00 443477.00 295635.00 594104.00 410684.00 269014.00 410485.00 399904.00
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Liquidity Ratios

Current ratio X 1.27 1.16 1.13 1.41 0.99 1.31 1.31 1.48 1.27 1.37
Quick ratio X 0.61 0.56 0.47 0.57 0.37 0.44 0.44 0.55 0.34 0.42
Cash flow liquidity X (0.096) (0.043) (0.003) 0.643 (0.259) 0.160 0.024 0.596 (0.224) 1.106
Recievable days DAYS 38 40 14 9 8 12 13 14 9 7
Payable days DAYS 55.87 56.13 49.53 36.75 21.16 65.90 53.32 38.16 65.66 66.53
Inventory days Days 146.33 119.99 107.96 95.14 79.09 119.46 139.82 113.11 171.80 99.20
Operating cycle DAYS 183.94 159.87 122.41 104.42 87.34 131.04 152.74 127.17 180.63 106.29
Cash conversion cycle DAYS 128.07 103.74 72.88 67.67 66.18 65.15 99.43 89.00 114.96 39.76

 Company’s current ratio is satisfactory since it is above 1.00 over the years however the quick
ratio is quiet low indicating that the company has tied up inventories that can be attributed to
the fact that the company exports raw active materials from abroad and keeps stock to deal
with any unexpected demand break through form the market. Years 2013 witnessed higher
receivable (36 days), inventory 146 days) and payable days (55 days) due to its credit sales into
the Afghanistan Pharmaceutical market.
 Years 2006 and 2007 declining profitability trend had their impact on the liquidity ratios, as can
be seen in their rising trend.

Liquidity
200.00
liquidity ratios

150.00
Current ratio X
100.00
Recievable days DAYS
50.00 Payable days DAYS
0.00 Inventory days Days
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Year

Term Report-AFS Page 20

Activity

Activity Ratios 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Recievable turnover x 9.71 9.15 25.25 39.34 44.26 31.51 28.25 25.96 41.34 51.50
Payable turnover x 6.53 6.50 7.37 9.93 17.25 5.54 6.85 9.56 5.56 5.49
Inventory turnover x 2.49 3.04 3.38 3.84 4.61 3.06 2.61 3.23 2.12 3.68
Fixed asset turnover X 4.76 5.30 4.98 4.37 5.63 5.50 4.92 5.44 5.45 5.32
Total asset turnover x 1.35 1.58 1.73 1.84 2.25 1.79 1.60 1.92 1.62 2.14
 In 2009 the company exhibits highest receivable turnover (44.56 times). This increase in
collection period is also attributable to the vaccines credit sales made to large
Government institutions in the last quarter of 2009.
 Fixed asset turnover of the company is in the range of 4 to 5 times that is a good
indicator of the company’s effective capacity utilization and consistent investments in
fixed assets.
 Total assets turnover was higher in the year 2009 (2.25 X), that can be attributed to the
expansion of the Haemaccel plant and upgrading of the IQC laboratory were completed
during the first quarter of the year 2009.

60.00

50.00

40.00 Recievable turnover x

Activity

30.00 Payable turnover x

Inventory turnover x
20.00
Fixed asset turnover X
10.00
Total asset turnover x
0.00
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Year

Term Report-AFS Page 21

Leverage and coverage

 Approximately half of the firm’s assets are financed with debt that makes it quiet risky.
 Company financed through long term debt in the years 2011, 2010 and 2013 for the
purpose of plant expansions, technological innovations and working capital
requirements.

Leverage ratios 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

Debt ratio % 0.66 0.63 0.64 0.56 0.60 0.51 0.51 0.43 0.58 0.55
Debt to equity ratio % 1.93 1.71 1.75 1.29 1.61 1.11 10.31 7.12 1.90 1.76
Long term debt to capitalization % 0.18 0.07 0.20 0.09 0.29

 Company has sufficient earnings to pay off its finance cost, that can be seen in its Times
interest earned ratio. The cash interest coverage and cash flow adequate cash flows
from operations that company use to pay off its finance cost, dividends and cover its
capital expenditures.

Coverage ratios 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Times Interest earned x 3.32 5.47 4.74 4.09 2.93 1.97 2.78 5.68 7.59 15.51
cash interest coverage ratio x 1.49 0.80 0.05 (7.23) 1.63 (2.99) (0.32) (6.65) 4.68 (22.89)
cashflow adequacy x (0.21) (0.63) (0.71) (4.27) (0.17) (0.33) (0.80) (2.22) 0.34 (12.37)

coverage and leverage

20.00
15.00
10.00 Debt ratio %
5.00 Debt to equity ratio %
0.00 Times Interest earned x
-5.00 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
cashflow adequacy x
-10.00
-15.00

Term Report-AFS Page 22

Profitability

 Despite continuous rise in the operating as well as manufacturing costs the company
has maintained increasing profit margins due to its line extensions, new product
developments and penetration in the new markets.
 Year 2006 had shown a higher ROA, fundamental reason behind this being heavy
investments by the company in-relation to its declining margins in the year. The decline
in margins is attributed mainly to high inflation along with freeze in prices of the
product by the authorities.

Profitability 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Gross margin % 0.30 0.30 0.27 0.28 0.24 0.24 0.28 0.33 0.34 0.31
Operating margin % 0.09 0.10 0.07 0.09 0.06 0.04 0.05 0.11 0.13 0.13
Net Profit margin % 0.04 0.06 0.03 0.04 0.02 0.01 0.02 0.06 0.08 0.08
Cashflow margin % 0.02 0.04 0.06 0.19 0.01 0.08 0.07 0.20 (0.02) 0.15
Return on assets % 0.05 0.09 0.05 0.07 0.06 0.02 0.03 0.11 0.13 0.17
Return on equity % 0.14 0.24 0.14 0.15 0.15 0.03 0.63 1.89 0.43 0.53
Financial leverage index x 5.74 3.44 4.05 3.68 5.44 (4.54) 45.94 21.10 3.83 3.44
Adjusted ROA 0.02 0.07 0.04 0.04 0.03 (0.01) 0.01 0.09 0.11 0.15

Profitability
2.00
Gross margin %
1.50
Operating margin %
1.00 Net Profit margin %

0.50 Cashflow margin %

Return on assets %
0.00
Return on equity %
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
(0.50)

Term Report-AFS Page 23

Market

Market ratios 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Earning per share Rs. 32.124 50.520 23.805 23.228 17.354 3.968 7.808 23.538 28.806 25.394
Market to book ratio 73.075 76.728 14.481 14.2 14.8 21.1 21.405 28.8075 30.4 25.775
Price Earning ratio 22.75 15.19 6.08 6.11 8.53 53.18 27.42 12.24 10.55 10.15
Dividend payout ratio % 0.25 0.42 0.43 0.40 0.35 0.56 0.30 0.30 0.30
Dividend yield % 0.02 0.07 0.07 0.05 0.01 0.02 0.02 0.03 0.03

weighted average shares-10 per share 9644.76 9644.76 9644.76 9644.76 9644.76 9644.76 9644.76 9644.76 9644.76 9644.76
Market price per share (last closed) 730.75 767.28 144.81 142 148 211 214.05 288.075 304 257.75
Dividend per share 12.5 10 10 7 1.4 4.4 7.1 8.7 7.5
 Company earnings per share have shown an increasing trend over the years, that a good
indicator of the company’s profitability however its dividend yield is significantly low.
Company enjoys prestige in its market price per share that is undeniably a good omen as
investors do perceive for the company to have good future prospects and growth.
Company though not serving investors in dividends it surely had saved earnings for
continuous growth and sustainability that will pay the investors in the form of share
price appreciation.

100%
90%
80%
70%
60% Dividend per share

50% Market price

40% Dividend yield
30% Earning per share
20%
10%
0%
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

Term Report-AFS Page 24

Cash-flow summary
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Inflows
Cash generated from operations 148,443 368,763 483,042 1,175,506 57,523 366,877 253,382 775,187 485,134
Income tax 258,077
Long-term loans (net) 590 2,543 2,583
Retirement benefits paid
Long-term deposits (net) 999 100 3,565 1,182 2,326
Sale proceeds from disposal of operating fixed assets 18,262 7,413 13,708 23,515 16,355 48,060 1,947 4,816 3,079 2,821
Sale proceeds from disposal of non-current assets
classified as held for sale 225,000 58,500
Interest received 41 49 863 325 3,112 375 1,003 3,504 3,176 2,991
Short term borrowings obtained 400,000 530,000 270,000
Long-term financing obtained 500,000 500,000 250,000
Total Inflows 1,068,335 601,225 497,613 1,699,346 668,033 417,995 259,897 784,689 278,581 999,023

Outflows
Cash generated from operations (71,819)
Finance costs paid (212,623) (147,797) (107,919) (121,974) (143,916) (65,554) (91,849) (78,484) (53,316) (31,109)
Income tax paid (252,853) (339,396) (380,583) (171,299) (148,078) (105,613) (132,309) (174,412) (124,398)
Long-term loans (net) (1,128) (1,189) (1,841) (587) (56)
Retirement benefits paid (36,282) (21,181) (60) (2,616) (13,035) (12,123) (17,328)
Long-term deposits (net) (360) (1,284) (103) (25) (119)
Capital expenditure (464,558) (318,603) (385,648) (208,086) (323,181) (534,800) (186,824) (140,448) (95,749) (212,292)
Sale proceeds from disposal of non-current assets
classified as held for sale
Short term borrowings obtained (530,000) (315,000)
Repayment of long-term financing (125,000) (175,000) (200,000) (62,500) (125,000) (62,500)
Long-term financing obtained (100,000) (170,000)
Repayment of liability against asset subject to finance lease (2,453) (2,630) (2,246) (1,963) (1,211)
Dividends paid (120,007) (95,996) (96,024) (67,284) (13,510) (42,271) (68,278) (83,624) (52,840) (76,912)
Total outflows (1,213,776) (1,102,091) (1,173,609) (1,102,507) (631,180) (748,238) (644,479) (785,028) (473,332) (652,816)

Net increase/(decrease) in cash (145,441) (500,866) (675,996) 596,839 36,853 (330,243) (384,582) (339) (194,751) 346,207

 Company has successfully maintained positive operating cash flows except in 2005. In
2005 in relation to a corporate merger the company started selling 5 new products 4 of
which were previously marketed by another local player in Pakistan. Since it was the
initial stage for the product under the company name it resulted in negative operating
cash flows for the company.
 Due to continuous investments in capital assets and loan repayments the company
mostly has shown decrease in cash flows over the years.
 Taxes and dividends have been paid constantly.

Term Report-AFS Page 25

 1400000.00

1200000.00

1000000.00

800000.00
Cash from operations
600000.00
finance cost
400000.00 capital expenditure
200000.00 Fixed assets sold
longterm loan paidoff
0.00
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Dividends paid
(200000.00)

(400000.00)

(600000.00)

(800000.00)

CONCLUSION

Upon thorough analysis of the company it can be extracted that the company though faced
with competitive situations both in the market scenario as well as in business operations terms,
has maintained positive bottom lines and had generated good margins. It had continuous
spending on capacity expansions, product launches, line extensions and plant renovation and
improvement. Company has a lot of growth prospect in the future locally as well globally in the
emerging markets. Nine of the company's pharmaceutical brands are known as market leaders
in the therapeutic category and another 8 are number two in other categories. One of the
fastest growing brands during CY11 has been claforal.

Flagyl has maintained the market leadership position for many years. No Spa is another success
story which originally belonged to Searle .The company has well-sought insulin and diabetes
market that it addresses fairly well. Some success also poured in from the company's
penetration in Afghanistan, where export sales during 9MCY12 reached Rs 68.2 million. Also the
launch of new drugs in the diabetes and gastro esophageal disorders therapeutic areas during
July and August 2012, namely Insuman, Meldere, was an achievement for the tough priced
industry.

Term Report-AFS Page 26

Company has given good investment returns to its investors in the form of capital appreciation
of its share price and paid off its liabilities on time. It had only one time negative operating cash
flow attributed to corporate merger else it had generated positive operating cash flows. The
company has always focused on inorganic growth opportunities that include new potential
segments, innovations and portfolio developments.

Locally the company is faced with challenges in the prospect of regulations and pricing.
However it is constantly working on the sales growth improvement, it has entered into the
generics and animal health care business. The company had taken over Chattem product and
plans further line extensions to its product lines.

Term Report-AFS Page 27