Pharmaniaga Berhad: An analysis

1.0 Introduction

Pharmaniaga Berhad was founded in 1994 and nowadays it is one of the largest integrated local healthcare company and leading pharmaceutical companies in Malaysia. According to Pharmaniaga annual report 2008, Pharmaniaga was incorporated on August 1998 and become a first local healthcare company listed on Bursa Malaysia Securities. The company was enlisting a capacity more than two thousand strong staff force. The company’s principal activities involves in generic pharmaceuticals manufacturing, logistics and distribution of pharmaceutical and medical products, supply of medical products and services, sales and marketing as well as hospital equipping. (Pharmaniaga Berhad, 2009) Pharmaniaga become a member of United Engineers (M) Bhd (UEM Group) and gained the status of Government Linked Company (GLC). The company also builds a strong international presence in Brunei, Hong Kong, Singapore, Zimbabwe, Iraq etc.

In the business area, Pharmaniaga has built an excellent distribution network that spreads throughout Malaysia with the four main distribution centers in Juru, Shah Alam, Kinabalu and Kuching. Over in Indonesia, their distribution network comprises 29 branches and the main warehouses was locates in Jakarta, Surabaya and Bandung. (Logistics of Pharmaniaga, 2009) Pharmaniaga also have excellent project management skill to make sure their customers meet with their timeliness and objective. Their projects are requiring thoroughness, coordination and flexibility and provide the integrated, comprehensive and systematic hospital equipment planning and ongoing assistance with the equipment management services. (Medical Planning and equipping of Pharmaniaga, 2009) Furthermore, Pharmaniaga also achieves the quality standard in their laboratory and product. The certificate acquire by Pharmaniaga including PIC/S, GMP, ISO9001, OHSAS19001, ISO14001, SAMMISO/IEC17025 and BE. (Manufacturing of Pharmaniaga, 2009) In marketing, Pharmaniaga was driven a deep understand of human behavior and try to provide their agents, partners, customers or consumers an excellent services. (Marketing of Pharmaniaga, 2009)

2.0 Financial Ratios of Pharmaniaga Berhad for Years 2006, 2007 and 2008

Calculation of financial ratios of Pharmaniaga Berhad for years 2006, 2007 and 2008 are referring to appendix A.

3.0 Analysis of Financial Ratios of Pharmaniaga Berhad for Years 2006, 2007 and 2008

The current ratio of Pharmaniaga Berhad in years 2006, 2007 and 2008 are almost the same. The company was maintaining their current ratios in 1.25:1 in year 2006, 1.19:1 in year 2007 and 1.22:1 in year 2008. The company has enough current assets to meet their payment schedule. The quick ratios of 1:1 are considered satisfactory, but Pharmaniaga has less than 1 and having average of 0.8:1 on those three years. This is because the current assets of company are highly depending on inventory.

An inventory turnover and total assets turnover of Pharmaniaga was keep increased over the 3 year. However, the growing from year 2006 to 2007 is inconspicuous, but for year 2008, the inventory turnover was increase 22.5% and total assets turnover increase 22.3% compare with 2007. It was indicating that the firm is using their assets more efficiently year by year in generating sales. Stock turnover rate are measuring the efficiency of stock management. The stock turnover period of Pharmaniaga is 69 days on 2006, 68 days on 2007 and 55 days on 2008. During the year 2008, the stock turnover period was shortening 13 days compare with year 2007, it’s because decreasing 10.9% of inventories and increasing the cost of sales.

The debt ratios indicate the debt proportion of company. The debts ratios of Pharmaniaga on 2006 and 2007 are almost the same, which is 60.5% and 59%. However, the debt ratios on 2008 were drop 9.4% because of the total liabilities of company on 2008 was decrease. According the annual report 2008, the company was pulling down the amount of loans and borrowing and it was result in drops of debt ratios (Annual report 2008, Page 176). Moreover, the debtors’ collection period will affect the liquidity of the company. The debtors’ collection period is 77 days on year 2006, 87days on 2007 and decrease to 44 days on 2008. Wide margin dropping of debtors’ collection period in year 2008 is reason by decrease of total trade receivables amount. It is indicate the liquidity of company are better than 2007. Furthermore, the creditors’ payment periods of Pharmaniaga on year 2006 is 87 days, 95 days in 2007 and 81 days on 2008. According the annual report 2008, page 173, the credits terms of trade payables are granted to group range between 30 days to 120 days and the company may losses the possible cash discount if longer period of pay debt. Thus, the company maintains their creditors’ payment in between the terms of granted.

The gross profit margin ratio states how much the profit of the company make for every cent of sales. The gross profit margin ratio of 2006 is 14.5%, it was increase to 17% in 2007. Reason of increasing gross profit because of company was largely improved in concession sales, and supplies the equipment to government hospitals. Also, the company was reduced financing costs, and lowers the depreciation charges (Annual report 2007, page 36). For the year 2008, it has increased slightly 0.8% compare with 2007 because the company was success maintains their sales. The variation of net profit margin and operating profit margin are almost the same. The net profit margin of 2006 is 1.33% and operating profit margin ratios is 2.6%. For the years 2007, the percentages of both ratios (4.37% of net profit margin, 6.6% of operating profit margin), was evidently increase and the reasons is Pharmaniaga success improved their sales by cooperation with the government hospitals (Annual report 2007, page 36). However, the company was improved slightly for the both ratios which are 4.7% of net profit margin and 7% of operating profit margin on year 2008.

An earnings per share (EPS) serves as indicator the profitability of a company. An EPS of Pharmaniaga on years 2006 is RM0.13, it has increase to RM0.48 on year 2007 and continuing increase to RM0.57 on year 2008. The Pharmaniaga’s EPS on year 2007 has success grew up 269% compare with year 2006. The reason is Pharmaniaga increasing their net profit by cooperation with the government hospitals (Annual report 2007, Page 36). On the year 2008, Pharmaniaga preserve their net profit and again grew 19% compare with the EPS of year 2007. The Price/earnings ratios (P/E) are a single most important number to the investor when considering comparing the company’s value from the same industry. The P/E ratio of Pharmaniaga in year 2006 is RM31.23 for every RM1.00 of earnings. However, on year 2007, the P/E ratio was increase to RM6.70 for every RM1.00 of earnings. This is because of evidently increased of the EPS. Again on year 2008, the P/E ratio was increase slightly to RM4.60.

Return on common equity (ROE) measures a profitability of organization to revealing how much the profit a company is generates with the investor’s money. The percentage of ROE on year 2006 is 4.5%, it has increase to 14.8% on year 2007 and slightly increase to 15.8% on year 2008. Evidently increase of ROE on 2007 was indicate the Pharmaniaga was efficiency generate the profit to the company with the money shareholders have invested. On the 2008, the organization has success maintain their net profit and the common stock equity. The return on total assets (ROA) provides a standard for the evaluating how efficiently the financial management has employs the average dollar invested on the firm’s assets. The ROA on year 2006 is 1.7% and a low ROA has indicates the earnings are lower for the amounts of assets. However, the ROA has increase 4.1% to 5.8% on year 2007 and continuing increase slightly to 7.7% on year 2008. It was indicate the company has increase profits being generated from the assets employed on year 2007 and 2008.

4.0 Strategic review of Pharmaniaga and recommendations for company’s future strategic direction

Most of the organizations have done the analyzing of strategy for their own company. In these testing times, the organization which having a clear strategy and understood to strategy is crucial because it will provide the company clarity of purpose and vision that will set up the best chance of success. Pharmaniaga is a market leader in Malaysia, therefore, Pharmaniaga aim to expand their business and become a leader of Asian market (M. Rizal. 2007). SWOT analysis is the important and useful strategy that can help the Pharmaniaga identify what are the company’s strength, weakness, opportunities and threat. Thus, the recommendations for Pharmaniaga’s future strategy direction are able the organization to develop a countermeasure for dealing with unfavorable situation.

4.1 SWOT Analysis (Strategy Review)

SWOT framework has described and develops in the late 1960’s by Kenneth Andrews, Edmund P, C. Roland Christiansen and William D. Guth. A SWOT analysis is strategic planning method or an instrumental framework to identify and evaluate the strengths, weaknesses, opportunities and threats for a particular company (NetMBA.com). The Appendix B on page 14 is a diagram of present the SWOT analysis for Pharmaniaga.

Strength

In the strength analysis, the strength of Pharmaniaga including the integration of many subsidiary companies to run their production and services, outstanding of product’s quality, mature of production skill and technique, extensive experience and efficiency logistics systems to process delivery.

Pharmaniaga having eleven subsidiaries companies to run their business in sector manufacturing, logistics, marketing, research & development, medical planning, quipping and distribution (Pharmaniaga.com. 2009). Integration of those different sectors has aid in meeting with customer’s needs and expectancy. Furthermore, Pharmaniaga also able to control their productions through integration and reduces the shortage of products to supply the different level of customers.

The Pharmaniaga’s quality management systems have certified to the ISO1009 standards. According the annual report 2008, Pharmaniaga achieves Quality Management Excellence Award from Ministry of International Trade and Industry. This excellence award was reflecting the Pharmaniaga delivering value to customers through the superior quality products and services. Since Pharmaniaga become a market leader of pharmaceutical industry, therefore, the organization has extensive experience and mature skill or technique to operate their business such as efficiency logistics systems. These experience and skill may help the organization improve their operation performance.

Weaknesses

The weakness of Pharmaniaga is higher operation cost and maintenance cost, lack of developing the strategy to maximize the capacities and lack of internal control and internal communication.

According the star online 2006, the Pharmaniaga Berhad managing director, Azhar Hussain has make up a key issue among all the generics player is cost competitiveness. However, the weakness of Pharmaniaga is related to the high operation and maintenance costs. To reduce the operation cost, organization has developed relevant strategies to decrease the wasting of resources and ensure the maximum capacities. Moreover, the Pharmaniaga also carefully to set their budget for maintenance costs to make sure the spending for every cent is worthwhile. Pharmaniaga has operating an eleven subsidiaries company (Pharmaniaga.com. 2009), the challenges of organization is the internal control and the communications between the subsidiary companies.

Opportunities

The few opportunities of Pharmaniaga are market development, product development, diversification, increase the productivity or quality systems and joint venture with pharmaceutical company to increase market share.

The Pharmaniaga has operating their business across more than eight countries which is Malaysia, Indonesia, China, Vietnam, Cambodia, Myanmar and Singapore etc (Annual report 2008. Page 38). Since the rapid growth and development of their business, the organizations have the opportunity to expand their business into their countries. Pharmaniaga has ample resources and experiences to seek an opportunities for new geographical. However, to expand their business to worldwide, the Pharmaniaga also will seek for strategic expansion to increase their productivities and quality systems to push the organization to world class level.

Since the Pharmaniaga have extensive experience, mature skill and technique, the organizations also have opportunities to develop a new product into the new market. Pharmaniaga may exploit an opportunities to increase capacity of organization. On the other hand, Pharmaniaga also can joint venture or merger with the existing pharmaceutical company to increase the market share (Marketing Management 13th ed. Kotler & Keller). The benefit of joint venture may reduce the cost and competition on market.

Threats

There are four threats to the Pharmaniaga such as buying attitude and purchasing power of customers, affect of local competitor and international competitor, and challenges of maintaining profitability.

The buyer behavior and purchasing power of customers is complex and strong, therefore the Pharmaniaga have a challenges to deal with their customer. Moreover, since the attitude of the customers is like to compare the product prices and quality with the similar product, therefore, the Pharmaniaga have to compete with their local competitors even international competitors either in prices or quality. This is a challenging to the Pharmaniaga because Pharmaniaga is a market leader in Malaysia and they have to strive and preserve their current position. However, the organization may treat this challenges as motivate to improve the company’s performances.

Another Challenges of Pharmaniaga is maintain the profitability of the organization. The demand and supply of product always is balancing state and Pharmaniaga try to supply the sufficient products to the customer’s demand for particular products to maximize their profits. The fact of demands and excess supply may affect the Pharmaniaga’s profitability (M. Rizal. 2007). Pharmaniaga have developed a countermeasure to deal with the challenges of maintaining profitability of organization.

4.2 Ansoff Matrix Analyses (Future Strategy Direction)

The Ansoff Matrix analysis is design to helps the business decide their products and the market growth strategy. Therefore, this Ansoff Matrix analysis is the important strategy to the Pharmaniaga in expanding their future business either in local and worldwide.

Market Penetration

The market penetration is the growth strategy that the Pharmaniaga focuses on selling the existing products in existing markets. This strategy is important to Pharmaniaga because retaining the existing customers is cheaper than attract new customers. The objective of market penetration including aim to increase usage of existing customers, maintain and increase their sales without drifting from original product, secure to dominance of the growth markets and restructure the mature market by driving out competitors.

To implement the market penetration, Pharmaniaga has to improve the product quality and reduce the cost and provide the cheaper price; attracting the non-users of the products and convincing the current customers use more the company’s product. Pharmaniaga may improve their quality systems and develop a pricing strategy to maintain their product’s quality and the prices of product. Furthermore, to attracting the current customers and non-users, the organization can use the marketing communications tools such as advertising, sales promotion and personal selling etc (Ansoff, 1989, Lynch, 2003). Those marketing communications tools are able the Pharmaniaga provide the distinct information to their current customers and non-users of product.

Market Development

The market development is the strategy that Pharmaniaga seeks to sell their existing products into the new markets or new geographical markets. Since Pharmaniaga’s business across more than eight countries which is Malaysia, Indonesia, China, Vietnam, Cambodia, Myanmar and Singapore etc (Annual report 2008. Page 38), Pharmaniaga have the opportunities to expand their business to other Asian country even European country. The organization can choose the new market entry modes such as direct or indirect exporting the product, joint venture, merger or alliance (Marketing Management 13th ed. Kotler & Keller).

To develop the new market in existing country, the Pharmaniaga have to develop different pricing policies, new packaging and new product dimensions to attract the different customers to create a new distribution channels and new market segments. The cost of develop new market in existing country is low because the Pharmaniaga already know the culture, buyer behavior, competitor status and the geographical.

4.3 Conclusion

In conclusion, from the SWOT analysis, their many opportunities for Pharmaniaga either increase their market share or extend their company size, therefore the organization may develop a new future strategy direction from these analysis.

Besides the SWOT analysis, Pharmaniaga also has the necessary to continuous develop and evaluate another strategy such as Porter’s five forces, Porter’s generic strategy or Porter’s diamond model to create a competitive advantage and core competence to the organization. As well as Pharmaniaga is a market leader of Malaysia’s pharmaceutical market, the organization needs to maintain and improve their performance to retain the current position.

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