Performance Report: Evaluation of GSK plc's Performance

This performance report evaluates GSK plc's performance, including a SWOT analysis, financial analysis, and balanced scorecard. It provides an overview of the company, analyzes its external environment using PESTEL analysis, and assesses its financial performance. The report concludes with findings and recommendations.

Performance Report

Contents
Executive Summary.................................................................................................................1
Introduction..............................................................................................................................2
Background, Purpose, and Structure.................................................................................2
Literature Review.....................................................................................................................3
SWOT Analysis.....................................................................................................................3
Financial Analysis.................................................................................................................4
Ratio Analysis.......................................................................................................................4
Balance Scorecard................................................................................................................4
External Analysis – PESTEL Analysis...............................................................................5
Performance Analysis..............................................................................................................5
External Influencers.............................................................................................................5
Financial Analysis.................................................................................................................8
Balanced Scorecard.........................................................................................................................9
Appendices.........................................................................................................................................12
Appendix 1.....................................................................................................................................12
Appendix 2.....................................................................................................................................13
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Executive Summary
The study is based on an evaluation of GSK plc's performance. This was done in order to
recognize and comprehend the organization's key performance indicators, constraints, and
areas for improvement. The author provides an overview of the company, including its
history and current position. The literature in financial ideas used in external, internal, and
financial analysis has been critically debated in this report.
The PESTEL analysis was used to examine GSK's external environment, which revealed
important negative effects from political, economic, and legal factors, as well as opportunities
in social, technical, and environmental areas. This was then assessed in terms of internal
analysis using a SWOT analysis.
Profit margins, liquidity, and profitability ratio were used to evaluate GSK's financial
performance over a period. The strategic theme of business development, as well as
operational and cost efficiency, was used to create a balanced scorecard. Financial, customer,
internal business, and learning and development objectives, measures, and KPIs have been
created for the four views. The report concludes with appropriate findings and
recommendations regarding GSK's performance.
Introduction
Background, Purpose, and Structure
GlaxoSmithKline (GSK) is one of the biggest pharmaceutical research and development
firms, developing, manufacturing, and marketing a wide range of quality human personal
care products (Prange and Kattenbach, 2019). The company's headquarters are in the United
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Kingdom, but it also has a presence in the United States of America. The firm employs over
1,03,000 people and operates two distinct core businesses. Pharmaceuticals and personal care
products are the two subsidiaries. Seretide and Advair are two of GSK's most popular
products, accounting for over 85% of the company's sales (COPD). Anti-malaria drugs,
Zentel, Pentosam, antiretrovirals, and TB drugs are among the company's other important
products (GlaxoSmithKline 2013).
Andrew Witty, CEO of GSK, took a strong a philanthropic gesture by donating one-fifth of
total profits to undeveloped countries to establish health services, and promote malaria
vaccine pricing at just 5% more than the cost for lower-income countries to improve the
company's credibility (Weeden, 2011).
"We function like crazy to deal with the next excellent medicine, understanding that it is
likely to get used a lot in developed countries, but we could do something for developing
countries," says Andrew Witty, CEO of GSK (Boseley, 2009).
This report seeks to uncover the secrets to this global pharmaceutical market leader's success
by examining the internal, external, and financial factors that influence its performance. This
would reveal the reasons that contributed to its success as well as its limits.
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Literature Review
This report evaluates GSK plc's performance using the analytical techniques critically
discussed below.
SWOT Analysis
The SWOT analysis has often been regarded as a highly rated and valued tool for strategic
planning and analysis of an organization's resources and climate, and it is widely used by
small and medium businesses in the UK. The conventional method of gaining insights into
how to achieve the optimal alignment is to do a SWOT study, which looks into strengths,
weaknesses, opportunities, and threats (Ansoff, 1965) (Refer Fig. 1 in Appendix 1). Despite
the internal emphasis, the strengths and weaknesses must be analyzed in light of the
company's main performance indicators, as well as the demands and competitors in its
environment (Thompson et al., 2017). This gives a glimpse into how to use opportunities and
strengths to resolve threats and weaknesses. Furthermore, the ambiguity and inadequate
prioritization of SWOT factors can prevent specific and reliable solutions from emerging.
Financial Analysis
Ratio Analysis
By giving significance to such estimates, the use of ratios to analyze financial statements
allows for a better analysis of the company's results. Financial ratio analysis provides insight
into the different dimensions of a business, such as performance, productivity, even liquidity,
and helps to determine the firm's overall uncertainty. Even then, several drawbacks must be
taken into account during the study. The comparability of such ratios will be harmed if a
company's accounting practices have evolved. Furthermore, owing to the likelihood of
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exceptions and misleading statements, financial assumptions derived regarding a company's
financial condition could be unreliable (Faello, 2015).
Balance Scorecard
“A strategic planning system that relies on financial and non-financial success results to
determine areas of change within the company,” according to the balanced scorecard
(Christian, 2019). Balanced scorecards are preferred by businesses for calculating and
providing feedback. Data analysis is key to creating quantitative outputs because corporate
executives collect, evaluate, and use data to make informed decisions for the business (Refer
Fig. 2 in Appendix 1). The balanced scorecard paradigm supports positive behavior in an
organization by isolating four distinct fields that need to be reviewed. The balanced scorecard
would provide insight into the company as a whole when looking at business goals. The
balanced scorecard model can be used to define where value is added within an organization
using policy tracing. A balanced scorecard may also be used to develop organizational
strategic plans and goals.
External Analysis – PESTEL Analysis
PESTEL research gives useful insight into the operational problems that every business in the
market, and therefore the company in question, continues to face. (Refer Appendix).
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Performance Analysis
External Influencers
GSK plc has shown its industry leadership by outperforming its competitors. External
influences on GSK's success have been examined using PESTEL analysis.
Political: GlaxoSmithKline plc operates in the Drug Manufacturers and major industries in
more than various countries, exposing the company to a variety of political threats. Trade
policies and tariffs relating to healthcare, the risk of military intervention, bureaucracy and
involvement in drug manufacturers, the legal system for contract compliance, the level of
corruption, pricing regulations, and taxation are all important considerations concerning
GSK's market and can lead to a drop in revenue (Khan et al., 2015).
After a long time, the government gave the pharmaceutical sector a devaluation price
adjustment, which helped to reduce any margin decline. Changing government regulations
that affect the pharmaceutical industry could have an effect on our stock values, based on
how favorable or unfavorable the policies are (Refer Fig. 3 in Appendix).
Economic: The aggregate demand and aggregate expenditure in an economy are determined
by macroeconomic variables such as inflation, savings rate, interest rate, foreign exchange
rate, and economic cycle. Microenvironmental considerations such as competition standards
affect the firm's competitive edge.
The devaluation of the rupee increased the cost of imports and locally purchased materials.
Furthermore, High inflation and slow economic growth would have an effect on the
company's success. The increase in the Company's cost of sales was primarily due to
currency depreciation and inflation (See Fig. 4). If the Pakistan Rupee had devalued or
improved by 5% against the US Dollar on December 31, 2019, and all other factors remained
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stable, profit before tax for the year would have been Rs. (0.24) million lower or higher
(GSK, 2020)
Social: Shared views and attitudes of the people play a significant role in how
GlaxoSmithKline plc marketers perceive and design brand messages for customers in a
particular market. Cameron (2012), on the other hand, identifies the most important societal
influence in the present climate as rising levels of consumer dissatisfaction toward vast
numbers of profits made by pharmaceutical firms and declining representations of large
pharmaceutical companies.
Technological: GSK places a strong emphasis on research and development, especially in
the function of the immune system, biology, and emerging technological changes (GSK,
2020). The Business expects to introduce a new ERP system in 2020, to take advantage of
technological advancements and achieve operating efficiencies. It also wants to transform its
office space into a Smart Office. Furthermore, they are currently working on launching
electroceuticals that will be beneficial to treat chronic infections and diseases (kollewe,
2017).
Environmental: Ecological considerations also have a direct effect on GSK's marketing
policy, such as issues relating to global warming, the impact of GSK's operations on the
atmosphere, and stakeholders' reactions to this impact. GSK aspires to be the most
environmentally responsible healthcare business in the world. Employees became interested
in a Tree Planting Campaign as a result of this.
Legal: The Organization maintains that all relevant laws and rules are implemented. It also
keeps up to date with new legislation and ensuring that the appropriate agencies are following
them. Similarly, when implementing human resource policies, anti-discrimination legislation
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must be closely examined, since unfair lawsuits against employers impair the organization's
reputation and affect its ability to recruit and maintain talent.
SWOT Analysis
Strength: GSK Plc has developed a reputation for successfully targeting international
markets. The expansion also enabled the company to diversify its sales streams and reduce
economic cycle risk in the markets it serves. A successful logistics network guarantees that
the products are available anywhere and improves its ability to deliver newer products to
customers as quickly as possible. GSK's dedication to technological enabled R&D growth
aids in the company's market place strengthening.
Weakness: In several countries, GSK has been accused of illegally promoting prescription
medications, charging misleading prices, and failing to disclose safety results (BBC, 2016).
For example, allegations of endorsing antidepressants that were not approved by the FDA in
the United States. These events have a detrimental effect on the company's public reputation.
Opportunities: In recent years, GSK has been growing its business by synthetic means. For
example, in 2016, ViiV, GSK's HIV expert firm, partnered with Pfizer and Shionogi, and in
2015, GlycoVaxyn was acquired in Switzerland. The rising demand for high-quality
healthcare goods during Covid-19 provides opportunities for pharma firms like GSK to boost
both their bottom and top lines.
Threat: In certain jurisdictions, medication prices are controlled by statute. A new pricing
reform strategy has been proposed, in which prescription costs may be reduced (GSK, 2020).
GSK Plc's commodity is also threatened by counterfeit and low-quality imitations, especially
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in emerging and low-income markets. GSK Plc's sustainability can be jeopardized by can raw
material costs.
Financial Analysis
The financials of GSK were examined using the ratios listed below (See Appendix).
Return on Capital Employed (ROCE) and Return on Equity (ROE) have been used to assess
profitability.
ROCE (Return on Capital Employed) is a metric that measures how efficiently capital is used
to produce profits, and it has risen in 2017. However, in 2019, the rate of increase was 1.3
percent, down from 0.5 percent in 2018. This may be because the company invested less in
capital and thereby was less effective than in 2017 (GSK, 2020).
The ability of a company to produce profits from shareholder investments is measured by its
return on equity (ROE). In 2018, the return on equity (ROE) fell by 0.7 percent, indicating
that shareholders' money was well spent. While there was a reduction in ROCE in 2019, it
was still marginally higher than the rate of increase in 2018. As a result, ROE indicates that
GSK has progressed at a slower rate over the past year, but has maintained its overall
position. (Khan et al., 2015)
GSK's liquidity has been assessed using the current and quick ratios. In comparison to the
previous year, the current ratio has decreased by 2.4 percent. As of December 31, 2019, this
was primarily due to a decrease in trade debts and an increase in payable balances, which was
partly offset by an increase in inventories. The quick/acid test ratio has remained constant at
1.02 times, and the cash to current liabilities ratio has remained constant at 0.44 times.
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The Asset Turnover Ratio is used to assess GSK's operational effectiveness because it reflects
the company's ability to produce sales from its assets. The total assets turnover ratio rose to
1.6 in 2019 from 1.5 in 2018, owing to higher net sales that were partly offset by higher
capital spending. Due to a major rise in net sales, the fixed assets turnover ratio increased to
3.9 in 2019 from 3.8 in 2018. (GSK, 2020)
Balanced Scorecard
GSK plc's balanced scorecard focuses on operational and cost efficiency, as well as business
development. Although GSK is already the industry leader, the firm must continuously
develop its corporate practices to retain its position in the global market. Encourage
workforce performance through bonuses to make sure their priorities are consistent with the
broader targets to improve overall organizational performance while retaining the same
degree of quality goods and services. (kollewe, 2017).
The next step for the company to see as an alternative approach to its current market activities
is diversification and globalization. It is well understood that the next century will be
dominated by healthcare products, which is why the industry will need to move on to begin
producing a variety of products that address new-age illnesses and health issues. (kollewe,
2017).
Conclusion & Recommendation
To summarize, we may assume that GSK can exploit its expertise and facilities to become the
leading pharmaceutical products group. However, the firm has a long way to go before it
becomes a significant player in the world of Consumer Healthcare products.
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Furthermore, its other focus areas, such as vaccine development, are a special domain that is
less studied by those around the globe. Overall, the organization must concentrate on its plans
to ensure the appropriate execution and management systems are in place.
Customers should be sold environmentally friendly goods. It should be built in such a way
that it is both affordable and eliminates emissions. This is an increasing potential need, and
the business will inevitably need to invest in technology that will allow it to extend its
operations to appeal to a much larger audience. (Khan et al., 2015)
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Appendices
Appendix 1
Figure 1: SWOT Analysis
Figure 2: Balanced Scorecard
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Appendix 2
Figure 3: Changes in Share prices
Figure 4: Cost of Sales
Figure 5: 2018 overall performance
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Figure 7
Figure 8: Scorecard
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Figure 6: Assets Turnover Ratio