a past of pride. a future of fulﬁlment. 2017 · mr. farhan muhammad haroon secretary mr. irfan...

A past of pride. A future of fulfilment. Third Quarter Report2017

GlaxoSmithKline Consumer Healthcare Pakistan Limited

Board of DirectorsMrs. Annelize Roberts Mr. Sohail MatinMr. Husain LawaiMr. Syed Anwar MahmoodMr. Syed Azeem Abbas NaqviMs. Emine Tasci KayaMr. Farhan Muhammad Haroon

Audit CommitteeMr. Husain LawaiChairman

Mr. Syed Anwar MahmoodMr. Syed Azeem Abbas Naqvi

SecretaryMs. Muzna Hussain

Human Resource and Remuneration CommitteeMr. Syed Anwar MahmoodChairman

Mr. Sohail MatinMr. Syed Azeem Abbas Naqvi

Corporate Information

SecretaryMr. Ahmad Ali Zia

Integration and Supply Network Optimization CommitteeMs. Emine Tasci Kaya Chairman

Mr. Syed Azeem Abbas NaqviMr. Sohail MatinMr. Farhan Muhammad Haroon

SecretaryMr. Irfan Qureshi

Management CommitteeMr. Sohail MatinMr. Farhan Muhammad HaroonMrs. Sadia NasirMr. Ahmed Jamil BalochMr. Shoaib RazaMr. Irfan QureshiMr. Mazhar Shams

Company SecretaryMr. Farhan Muhammad Haroon

Head of Internal AuditorMs. Muzna Hussain

BankersCitibank NAStandard Chartered Bank Pakistan

AuditorsA.F. Ferguson & Co.Chartered Accountants

Legal AdvisorsMandviwalla & Zafar& ZafarRasheed Razvi & Associates

Registered Office35 – Dockyard Road, West Wharf,Karachi – 74000

Tel: 92–21-111 –475–725(111 – GSK – PAK)

Fax: 92-21-323-148-98, 323-111-22

Share RegistrarCentral Depository Company of Pakistan Limited

Websitewww.gsk.com.pk

Directors’ ReportDear Stakeholders,

We are pleased to present your

Company’s unaudited financial

information for the nine months

ended September 30, 2017. This

financial information is submitted in

accordance with Section 245 of

the Companies Ordinance, 1984.

The business started its operations

independently as a new entity from

April 1, 2016, therefore prior year

operations only represent

performance of six months

compared to full nine months

during the current period.

Review of Operating Results

The journey that we started in 2016

as a new Company based on a

single shared goal of becoming the

first and best Fast Moving

Consumer Healthcare Company

driven by Science and Values has

now started to reap benefits and

yield results. The Company

continued the momentum during

the quarter and the nine-month

period of 2017 with robust growth

in all categories that we operate in.

The Turnover of Rs 5,917 million

was 26.7% higher than the

combined business results of

GlaxoSmithKline Consumer

Healthcare Pakistan Limited

(GSKCH) and GlaxoSmithKline

Pakistan Limited during the

comparative period. The key drivers

behind this growth were 2 major

brands owned and managed by the

Company, i.e. Panadol with 40.7%

and Sensodyne with 37.1%.

During the year 2016 a fire incident

hampered the results of the

Company and adversely affected its

Gross Margins. However, without

taking into account the loss caused

by the fire incident, the Gross

Margin of your Company for the

nine-month ended September 30,

2017 showed an improvement from

37.7% to 38.1%. The insurance

claim was later received in full.

Selling, marketing and distribution

expenses are in line with the

Company strategy of pursuing High

Growth Plans where the

promotional activities and marketing

spend has been aligned to achieve

the set objectives. We believe that

in order to achieve the long-term

objectives, it is very important that

the Company continues to invest in

the brands not only to increase

consumption but also to build these

brands to have sustainable growth

in the near and distant future.

The Company also intends to

expand its footprint in the Skin

Health Category as well as

enhance its existing position of

strength in the Oral Healthcare

Category by expanding current

range of SKUs and brand offering

for its customers. During the year,

your Company launched

Paradontax to tap into the Bleeding

Gums’ Category within Oral

Healthcare.

Other income in this period was

recorded at Rs. 140.5 million,

which primarily represents interest

income on surplus funds and

insurance claim from business

interruption losses that occurred

due to the fire incident in the year

2016.

Your Company posted a net profit

after tax of Rs. 493.8 million for

reasons briefly outlined in the

preceding paragraphs.

Future Outlook and Challenges for the Year End 2017

As we approach the end of first full

year of operations, we feel very

confident that Company is all set to

achieve its long-term plans and

continue to maintain focus on

driving value through continuous

innovation and focusing on the right

investment strategy in our key and

flagship brands.

Our Company, in line with the

global strategy, has set out new

long term priorities focusing on

innovation, improvement in

performance and building trust.

These strategic priorities are being

successfully executed to enable us

2Third quarter report 2017

GSK

to fulfill the dynamic needs of our

Consumers, Customers and

Healthcare Professionals.

As a big portion of our portfolio is

regulated and price controlled by

the Drug Regulatory Authority of

Pakistan (DRAP), therefore our

growth and investment plans are

dependent on how sustainable the

regulatory environment is.

Conducive pricing and registration

framework is critical to fuel growth

and innovation. This will allow us to

grow our business portfolio and

deliver value to our shareholders in

future; since we believe that

together we can create a lasting

positive impact on the society around

us through the work that we do.

The Company also intend to

effectively drive innovations and

aggressively tap into new consumer

touchpoints like Digital and

E-Commerce arena in order to

enhance growth and prosperity.

We continue to invest in our brands

and empower our people to deliver

new products and solutions which

will help in preserving our footprint

as market share leaders in our

respective brand categories.

Furthermore, we have strong plans

for the upcoming year and we are

anticipating a healthy financial

performance primarily due to the

launch of new variants in the

Nutrition category and our Oral

Health Care Portfolio.

We are hopeful that our Company

will contribute towards the

economic wellbeing of Pakistan by

delivering best quality products for

consumers which enables them to

“Do More. Feel Better. Live Longer”

along with generating value for our

respective shareholders.

Acknowledgment

On behalf of the Board I would like

to place on record our appreciation

for the commitment and passion

demonstrated by the staff to help

achieve the Company’s objectives

over this period.

By Order of the Board

Sohail MatinChief Executive Officer

KarachiOctober 23, 2017

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4Third quarter report 2017

GSK

Condensed Interim Balance Sheetas at September 30, 2017

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Un-audited Audited September 30 December 31Rupees Note 2017 2016

NON-CURRENT ASSETS

Fixed assets 5 124,377,632 131,649,092 Deferred taxation 15,540,012 17,313,012 Long-term loans to employees 830,817 638,747

140,748,461 149,600,851 CURRENT ASSETS

Stock-in-trade 846,187,557 563,611,708 Trade debts 292,643,992 315,941,587 Loans and advances 6 1,005,704,866 1,023,064,438 Prepayments 313,995,368 - Interest accrued 39,216,850 1,902,192 Refunds due from government 1,331,399 17,242,440 Other receivables 20,906,648 120,374,628 Taxation - payments less provision - 8,059,307 Cash and bank balances 992,074,025 670,342,359

3,512,060,705 2,720,538,659

TOTAL ASSETS 3,652,809,166 2,870,139,510

SHARE CAPITAL AND RESERVES

Share capital 955,501,830 955,501,830 Reserves 1,135,103,685 641,074,562

2,090,605,515 1,596,576,392 NON-CURRENT LIABILITIES

Staff retirement benefits 9,599,891 8,546,444 CURRENT LIABILITIES

Taxation 112,903,729 -

Trade and other payables 1,439,700,031 1,265,016,674

TOTAL LIABILITIES 1,562,203,651 1,273,563,118

COMMITMENTS 7 - -TOTAL EqUITy AND LIABILITIES 3,652,809,166 2,870,139,510

The annexed notes 1 to 15 form an integral part of this condensed interim financial information.

Chief Exeutive DirectorChief Financial Officer

Third quarter report 2017

Quarter ended Quarter ended September 30 September 30 September 30 September 30Rupees Note 2017 2016 2017 2016

Net sales 8 2,170,721,200 1,623,732,674 5,917,182,974 3,075,972,479 Cost of sales (1,415,248,889) (1,014,294,183) (3,660,244,889) (2,437,729,622)

Gross profit 755,472,311 609,438,491 2,256,938,085 638,242,857

Selling, marketing and distribution expenses 9 (461,148,623) (275,618,909) (1,331,664,219) (565,468,020)

Administrative expenses (45,977,920) (34,723,291) (153,335,686) (75,135,701)

Other operating expenses (17,467,447) - (69,327,000) (14,097,824)

Other income 10 20,155,433 520,966,674 140,466,419 525,330,181

Operating profit 251,033,754 820,062,965 843,077,599 508,871,493

Financial charges (14,185,911) - (14,340,050) (70,626)

Profit before taxation 236,847,843 820,062,965 828,737,549 508,800,867

Taxation (50,580,746) (95,000,000) (334,972,000) (185,945,361)

Profit / (loss) after taxation 186,267,097 725,062,965 493,765,549 322,855,506

Other comprehensive income - - - -

Total comprehensive income / (loss) 186,267,097 725,062,965 493,765,549 322,855,506

Earnings per share - basic 11 Rs. 1.95 Rs. 7.59 Rs. 5.17 Rs. 5.06


Condensed Interim Profit and Loss Accountfor the nine months ended September 30, 2017 (Un-audited)

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Nine months ended Nine months ended

GSK

September 30 September 30Rupees Note 2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 12 560,594,686 147,458,179 Payment for defined benefits obligations (12,585,524) (115,402) Taxes paid (212,235,964) (114,079,696) (Increase) / decrease in long-term loans to employees (192,070) (135,675)

Net cash generated from operating activities 335,581,128 33,127,406 CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditure (26,726,330) (18,191,867) Proceeds from sale of operating assets 12,876,868 -

Net cash (used in)/generated from investing activities (13,849,462) (18,191,867) CASH FLOWS FROM FINANCING ACTIVITIES

Issue of shares - 99,970

Net (decrease) / increase in cash and cash equivalents 321,731,666 15,035,509

Cash and cash equivalents at beginning of the period 670,342,359 3,090

Cash received from GlaxoSmithKline Pakistan Limited under the Scheme of Arrangement - 768,893,226 Cash and cash equivalents at end of the period 13 992,074,025 783,931,825


Condensed Interim Cash Flow Statementfor the nine months ended September 30, 2017 (Un-audited)

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Capital Reserves Revenue Reserves

Reserves arising Accumulated loss/ Share as per scheme of unappropriatedRupees capital arrangement note 1.1 profit Total

Balance as at January 01, 2016 30 - (252,700) (252,670)

Issuance of right shares 99,970 - - 99,970

Transfer of GSK Consumer Healthcare Division from GSK Pakistan Limited under the Scheme of Arrangement 955,401,830 102,177,107 - 1,057,578,937

Total comprehensive income/(loss) for the nine month endedSeptember 30, 2016 - - 322,855,506 322,855,506

Balance as at September 30, 2016 955,501,830 102,177,107 322,602,806 1,380,281,743

Balance as at January 01, 2017 955,501,830 102,177,107 539,161,029 1,596,839,966

Total comprehensive income for the nine months ended September 30, 2017 - - 493,765,549 493,765,549

Balance as at September 30, 2017 955,501,830 102,177,107 1,032,926,578 2,090,605,515


Condensed Interim Statement of Changes in Equityfor the nine months ended September 30, 2017 (Un-audited)

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GSK

1. THE COMPANy AND ITS OPERATIONS

The Company was incorporated in Pakistan as a public unlisted company under the provisions of Companies Ordinance, 1984 on March 31, 2015 principally to effect the demerger of Consumer Healthcare business of GlaxoSmithKline Pakistan Limited under a Scheme of Arrangement as described below. It is engaged in manufacturing, marketing and sale of consumer healthcare products. The registered office of the Company is at

35 - Dockyard Road, West Wharf, Karachi 74000. The Company was listed in Pakistan Stock Exchange on March 22, 2017.

Due to the pending transfer of marketing authorisations and certain permissions for the Over the Counter (OTC) products of the Company with Drug Regulatory Authority of Pakistan (DRAP), GSK Pakistan, for and on behalf of the Company is engaged in the procurement, manufacturing, marketing and managing the related inventory and receivable balances pertaining to such products against a services fee charged by GSK Pakistan.

As the scheme of arrangement was approved by High Court of Sindh and its order was submitted to the Registrar

of Companies on April 01, 2016, the comparative interim profit and loss account only represents six months results, hence not comparable.

2. BASIS OF PREPARATION As per the requirements of circular no. CLD/CCD/PR(11)/2017 and the related press release dated October 04,

2017 issued by Securities and Exchange Commission of Pakistan (SECP) in continuation of circular no. 17 of 2017 dated July 20th, 2017 issued by the SECP, the companies whose financial year closes on or before December 31, 2017 shall prepare their financial statements in accordance with the provisions of the repealed Companies Ordinance, 1984 owing to difficulties faced by them as well as their auditors to comply with the provisions of Companies Act 2017. Accordingly, this condensed interim financial information has been prepared in accordance with the requirements of the International Accounting Standard (IAS) 34, Interim Financial Reporting and provisions of and directives issued under the Companies Ordinance, 1984. In case where requirements differ, the provisions of or directives issued under the Companies Ordinance, 1984 have been followed.

The condensed interim financial information should be read in conjunction with the financial statements for the year

ended December 31, 2016.

2.1 Changes in accounting standards, interpretations and pronouncements a) Standards, interpretations and amendments to published approved accounting standards that are

effective and relevant

Following amendments to existing standards and interpretations have been published and are mandatory for accounting periods beginning on or after January 1, 2017, and are considered to be relevant to the Company’s operations.

lAS 7, ‘Cashflow statements’ - This amendment requires disclosure to explain changes in liabilities for which cashflows

have been, or will be classified as financing activities in the statement of cashflows. The amendment is part of the lASB’s Disclosure Initiative. In the first year of adoption, comparative information need not be provided.

The change will impact the disclosures of the Company’s annual financial statements.

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Selected Notes to and Forming Part of the Condensed Interim Financial Statementsfor the nine months ended september 30, 2017 (Un-audited)


b) Standards, interpretations and amendments to published approved accounting standards that are effective but not relevant

Except as stated above, the new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 1, 2017, are considered not to be relevant for Company’s financial statements and hence have not been detailed here.

c) Standards, interpretations and amendments to published approved accounting standards that are not effective

Amendments to IFRS 2, ‘Share based payments’ clarifies the measurement basis for cash-settled, share-based

payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority.

Except as stated above, new standards, amendments and interpretations that are not yet effective are considered not to be relevant for the Company’s financial statements and hence have not been detailed here.

3. ACCOUNTING POLICIES

The accounting policies and the methods of computation adopted in the preparation of this condensed interim financial information are the same as those applied in the preparation of the financial statements for the year ended December 31, 2016.

Taxes on income are accrued using the average tax rate that is expected to be applicable to the full financial year.

Actuarial valuations are carried out on annual basis. The last actuarial valuation was carried out on December 31, 2016, therefore no impact has been calculated for the current period and comparative condensed financial information has also not been adjusted for the same reason.

4. ACCOUNTING ESTIMATES, JUDGEMENTS AND FINANCIAL RISK MANAGEMENT

The preparation of condensed interim financial information in conformity with approved accounting standards requires management to make estimates, assumptions and use judgments that affect the application of policies and reported amounts of assets and liabilities and income and expenses. Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Revisions to accounting estimates are recognised prospectively commencing from the period of revision.

Judgements and estimates made by the management in the preparation of this condensed interim financial information are the same as those that were applied to financial statements as at and for the year ended December 31, 2016.

The Company’s financial risk management objectives and policies are consistent with those disclosed in the financial

statements as at and for the year ended December 31, 2016.

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GSK

Additions (at cost) Disposals (at net book value)

Selected Notes to and Forming Part of the Condensed Interim Financial Statementsfor the nine months ended september 30, 2017 (Un-audited)

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Un-audited Audited September 30 December 31Rupees 2017 2016

5. FIXED ASSETS Operating assets - note 5.1 96,500,696 74,916,221 Capital work-in-progress 27,876,936 56,732,871

124,377,632 131,649,092

5.1 Details of additions to and disposals of fixed assets are as follows:

September 30 September 30 September 30 September 30 Rupees 2017 2016 2017 2016

Transfer from GSK Pakistan under the Scheme of Arrangement - 75,171,389 - -Plant and Machinery - - 4,782,327 -Office equipments 24,747,264 1,509,355 8,028,964 -Furniture and fixtures - - 47,133 -

Vehicles 30,636,500 45,570,839 9,604,491 -

55,383,764 122,251,583 22,462,915 -

6. LOANS AND ADVANCES

This includes an amount of Rs. 1 billion in respect of a loan given to GlaxoSmithKline OTC (Private) Limited, an associated company, on December 22, 2016 for the purchase of land, building and manufacturing facility from Novartis Pharma (Pakistan) Limited. The tenure of the loan is eleven months. Interest is receivable quarterly at the rate quoted by a designated bank for advances / loan in Pakistani Rupees for the respective interest period.

7. COMMITMENTS

Commitments for capital expenditure outstanding as at September 30, 2017 amounted to Rs. 17.75 million (December 31, 2016: Rs. 32.33 million).

8. NET SALES During the year ended December 31, 2015, the Drug Regulatory Authority of Pakistan (DRAP) issued the Drug

Pricing Policy 2015 (the Policy) vide a notification dated March 5, 2015. Under the Policy, pending hardship cases were to be decided within a period of nine months from the date of notification of the Policy. Prior to the promulgation of the Policy, GSK Pakistan had submitted applications for hardship price increase in respect of certain products which also included Over the Counter (OTC) drugs transferred to the Company from GSK Pakistan under the Scheme of Arrangement.

The Company increased prices of its certain products since DRAP did not decide on the hardship cases within the stipulated nine months period. GSK Pakistan filed a suit before the High Court of Sindh (‘SHC’) in order to avail the hardship price increase. The SHC passed an interim order in this regard, and accordingly notified to DRAP and Federation of Pakistan not to take any coercive action against GSK Pakistan in respect of hardship price increases.

Third quarter report 2017 12

On December 19, 2016, SHC passed Judgement in respect of the case (‘the Judgement’). The DRAP, in pursuance of the said Judgment issued a letter on December 28, 2016 requiring the Company to recall all the products from the market on which GSK Pakistan (on behalf of the Company - refer note 1) availed the price increase. The Company, based on the legal advice, believes that there are certain ambiguities in the Judgement and has filed an Appeal against the Judgement before the SHC in respect of which the SHC has notified to DRAP and Federation of Pakistan not to take any coercive action pursuant to the Judgement.

The management of the Company believes that there are strong grounds of Appeal to support the stance of the Company on hardship price increases.

9. SELLING, MARKETING AND DISTRIBUTION EXPENSES

This includes advertising and sales promotion expenses of Rs. 953 million (September 30, 2016: Rs. 400.50 million).

September 30 September 30

Rupees 2017 2016

10. OTHER INCOME Income on deposit accounts 19,088,153 12,465,849

Interest income on loan to GlaxoSmithKline OTC (Private) Limited - note 6 53,341,917 - Insurance claim recovery 68,036,349 511,810,585

Others - 1,053,747

140,466,419 525,330,181

September 30 September 30Rupees 2017 2016

11. EARNINGS PER SHARE

Profit / (loss) after taxation 493,765,549 322,855,506

Weighted average number of outstanding shares 95,550,183 63,815,963

Earnings per share - basic Rs. 5.17 Rs. 5.06

11.1 A diluted earnings per share has not been presented as the Company did not have any convertible instruments in issue which would have any effect on the earnings per share if the option to convert is exercised.

GSK


12. CASH GENERATED FROM OPERATIONS

Profit before taxation 828,737,549 508,800,867

Add / (less): Adjustments for non-cash charges and other items Depreciation 17,590,236 5,741,200 (Gain) / loss on disposal of operating fixed assets 3,530,686 - (Reversal) / provision for doubtful debts 263,574 - Provision for staff retirement benefits 13,638,971 4,674,707 Profit before working capital changes 863,761,016 519,216,774 Effect on cash flow due to working capital changes

(Increase) / decrease in current assets Stock-in-trade (282,575,848) 349,447,430 Trade debts 23,297,595 (220,011,322) Loans and advances 17,359,573 (28,093,588)

Prepayments (313,995,368) (2,007,911) Interest accrued (37,314,658) 12,594,616 Refunds due from government 15,911,041 17,391,952

Other receivables 99,467,980 (498,908,021)

(477,849,685) (369,586,844) (Decrease) / increase in current liabilities

Trade and other payables 174,683,355 (2,171,751)

Provisions - -

(303,166,330) (371,758,595)

560,594,686 147,458,179


13. CASH AND CASH EqUIVALENTS

Cash and bank balances 42,074,025 83,931,825 Short term investments - Term deposit receipts 950,000,000 700,000,000 992,074,025 783,931,825

Selected Notes to and Forming Part of the Condensed Interim Financial Statementsfor the nine months ended September 30, 2017 (Un-audited)

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14. TRANSACTIONS WITH RELATED PARTIES

Relationship Nature of transactions

Associated companies: a. Purchase of goods 3,182,386,619 1,739,275,266 b. Expenses cross charged by GlaxoSmithKline Pakistan Limited 90,609,894 60,406,596 c. Interest income on loan to

GlaxoSmithKline OTC (Private) Limited 53,341,917 - d. Management fees charged by GlaxoSmithKline Pakistan Limited 9,780,000 6,000,000

Staff retirement funds: a. Expense charged for retirement benefit plans 13,386,389 7,626,000

b. Payments to retirement benefit plans 12,332,942 3,066,000

Key management personnel: a. Salaries and other employee benefits 66,971,000 39,425,000

b. Post-employment benefits 4,905,000 2,693,000

15. DATE OF AUTHORISATION FOR ISSUE

This condensed interim financial information was approved and authorised for issue by the Board of Directors of the Company on October 23, 2017.


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GlaxoSmithKline Consumer Healthcare Pakistan Limited35 - Dockyard Road, West Wharf, Karachi - 74000GlaxoSmithKline Consumer Healthcare Pakistan Limited is a member ofGlaxoSmithKline Group of Companies.

© GlaxoSmithKline Consumer Healthcare Pakistan Limited

a past of pride. a future of fulﬁlment. 2017 · mr. farhan muhammad haroon secretary mr. irfan...

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