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Friday, December 1, 2023

Why GSK must increase local manufacturing for margin expansion

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Consumer goods firm Glaxo SmithKline (GSK) has just reported Full Year 2019 numbers showing profits increasing by 48 percent to N917 million, despite a steep rise in cost of sales, selling and distribution.

Revenues for the consumer healthcare and pharmaceuticals maker increased by 13 percent to N20.76 billion last year compared to N18.4 billion in 2018.

However a further deep dive into the books show that costs related to imported pharmaceuticals it sells were a drag on performance.

Gross margins were equivalent to 38 percent in the consumer healthcare segment compared to 24 percent in the Pharmaceuticals segment of its sales.

This is because the firms Agbara global manufacturing site produces goods locally for the consumer healthcare segment while pharmaceuticals which are imported have higher costs.

The firm should probably explore bringing home some of the Pharmaceuticals it imports so as to reduce overall costs.

Long suffering investors will be better for it. The stock has gone nowhere in the past 5 years (see chart below) and now trades at N7.15 per share, compared to more than N40 in 2015.

In the meantime, shareholders will get a dividend of N0.55k to be paid for the year, representing 55k per ordinary share subject to the approval of shareholders.

The dividend will be payable on 24 July 2020.

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