GlaxoSmithKline Pharmaceuticals (GSK) Egypt.pptx

GSK has a century-long history in Egypt.
Current focus areas include primary care, specialty care, and respiratory care.
GSK has a workforce of over 1,000 skilled individuals in Egypt.
The company operates two manufacturing facilities in the country.
They produce hundreds of millions of product packs annually for both local
consumption and export.

1. Cost of capital Analysis and Implication : GSK Egypt

2. Presence and Focus Areas: GSK has a century- long history in Egypt. Current focus areas include primary care, specialty care, and respiratory care. GSK has a workforce of over 1,000 skilled individuals in Egypt. The company operates two manufacturing facilities in the country. They produce hundreds of millions of product packs annually for both local consumption and export.

3. Stock Market Value and Ranking: GSK is the only multinational biopharma company listed on the Egyptian stock exchange. GSK's stock on the Egyptian Exchange (BIOC) is valued at EGP 27.54 per share, with a market capitalization of approximately EGP 2.97 billion (USD 62.29 million)

4. Headquarters: ▶ GSK's global headquarters is located in Brentford, London, United Kingdom. Financial Results 2022 2023 Total Revenues 29,342m 30,268m Net Profit 16,241m 5,308m Total Assets 60,146m 59,005m Shareholder Equity 10,593m 13,347m

5. Stock Market value : ▶ GSK Stock chart

6. Stock Price Fluctuation Summary Year 2022: The stock price showed significant volatility, with periods of both increases and decreases. Early in the year, the stock experienced a notable rise, likely driven by positive financial reports and market sentiment at 26.6 Mid- 2022 saw a lowest price for the stock at 22.4 However, towards the end of the year, the stock price reached it is maximum at 38.5 Stock Price Trend: The stock price experienced fluctuations, with periods of both gains and losses

7. Year 2023: The year began with a decline at 32.4. Mid- 2023 to end of the year the stock experienced a recovery and reached 36.8 , Despite the recovery, the stock price remained lower compared to the peak observed in 2022. By the end of 2023, the stock showed signs of stabilization, although it did not reach the highs of the previous year. Market capital : 2.41B 2.41B

8. Factors Influencing Performance: Financial Performance: The total revenues increased to €30,268 million, but net profit significantly dropped to €5,308 million. This decline in net profit may have created some investor concern and led to volatility in the stock price. Economic Environment: External factors such as macroeconomic conditions in Egypt, including inflation and currency fluctuations, could have impacted investor sentiment and stock performance. Operational Challenges: Any operational challenges or changes in market dynamics within the biopharma industry might have influenced the stock price movement The rise in shareholder equity from 2022 to 2023 indicates that GSK is in a stronger financial position, which is generally favorable for its stock price. While net profit is a critical factor, the overall increase in equity suggests that the company is managing its finances well and is poised for future growth, which can support a stable or potentially increasing stock price in the long term.

9. How the Government in Egypt Can Reduce Agency Costs and Maximize Firm Value Strengthening Corporate Governance : Enforce regulations for transparency and accountability. Promote the appointment of independent directors and regular audits. Incentive Structures : Encourage the use of stock options and performance-based compensation for managers. Regulatory and Legal Framework : Implement legal reforms to protect minority shareholders. Mandate comprehensive disclosure requirements. Enhancing Shareholder Rights : Strengthen voting rights on major corporate decisions. Support activist shareholders to influence management. Facilitating Market Mechanisms : Promote an active market for corporate control and competition policies..

10. 6.Economic Policies : Ensure macroeconomic stability and provide investment incentives. 7.Education and Awareness : Offer corporate governance training and increase public awareness about shareholder rights. By adopting these measures, the government can help reduce agency costs and enhance firm value for companies like GSK in Egypt.

11. Average Cost of Capital % for GSK for 2019- 2022

12. equation using the cost of equity, the cost of debt, and the proportions of total assets financed by debt capital and equity capital. Cost of Capital = WEquity . Cost of Equity + WDebt . Cost of Debt (1) Where WEquity is the proportion of total assets financed by equity capital, i.e WEquity=Equity/Assets WDebt is the proportion of total assets financed by debt, i.e WDebt=Debt/Assets Cost of Debt reflects the interest charges on the debt component. Cost of Equity reflects the cost of financing firm’s activities using equity capital.

13. Variables Jun 2023 Jun 2024 Cost of Equity % 7.94 7.94 Cost of Debt % 3.5 3.5 Debt-to- Capital Ratio % 23.97 23.97 Equity-to- Capital Ratio (E/(E+D) % 76.03% 76.03% Tax Rate % 13.68% 13.68% WACC 6.81 % 6.76%

14. GSK's WACC trend over the past five years So in summary, GSK's WACC decreased slightly from 6.81% in June 2023 to 6.76% in June 2024, driven by changes in the market value of equity and debt, the cost of equity, and the corporate tax rate. GSK's WACC has fluctuated between around 6.4% to 8.5% over the past five years, with the lowest point being 6.38% in Q2 2020 and Q2 2021, and the highest point being 8.48% in Q4 2020 and Q2 2021. As of June 2024, GSK's WACC was 6.76%, which is on the lower end of the range seen over the past five years. The company's WACC has decreased slightly from 6.81% as of June 2023.

15. How does GSK's WACC affect its investment decisions GSK uses its WACC as the discount rate when evaluating new investment projects using discounted cash flow (DCF) analysis Projects that generate returns higher than GSK's WACC are considered value- creating and are more likely to be approved for investment. Conversely, projects with returns below the WACC are value- destroying and less likely to be pursued The WACC helps determine the maximum price GSK should pay for the target to still generate returns above its cost of capital

16. In summary, GSK's WACC is a critical input in evaluating new projects, assessing acquisition targets, optimizing its capital structure, and measuring the performance of its investments. Maintaining a WACC that is lower than its return on invested capital (ROIC) of 12.07% allows GSK to create value for shareholders as it grows

17. Company name Country Market Capitalization (USD million) Revenue (USD million) EBITDA margin Net margin ROE ROA GSK Egypt 59,112 72.4 16.0% 11.0% 13.0% 9.0% Minapharm Pharmaceuticals Egypt 47.96 70.2 18.9% 17.1% 15.2% 9.1% Ibnsina Pharma Egypt 58.58 72.3 5.5% 0.83% 10.4% 2.5% Global Napi Pharmaceuticals Egypt 60.21 50.2 18.0% 14.0% 13.0% 7.5% Amoun Pharmaceutical Co Egypt 58.3 60.1 20.0% 15.0% 14.0% 8.0% Pharco Corporation Egypt 62.5 80.5 19.0% 15.0% 14.5% 8.5%

18. Insights: Market Capitalization : Highest : GSK has the highest market capitalization at USD 59,112 million, indicating strong market valuation and investor confidence. Lowest : Minapharm Pharmaceuticals has the lowest market capitalization at USD 47.96 million, suggesting a smaller market presence. Revenue : Highest : Pharco Corporation leads with a revenue of USD 80.5 million, highlighting a significant market share. Lowest : Global Napi Pharmaceuticals has the lowest revenue at USD 50.2 million, indicating a smaller scale of operations.

19. Profitability measure : Highest EBITDA Margin : Amoun Pharmaceutical Co has the highest EBITDA margin at 20.0%, indicating excellent operational efficiency. Highest Net Margin : Minapharm Pharmaceuticals has the highest net margin at 17.1%, showcasing superior profitability. Lowest Margins : Ibnsina Pharma has the lowest EBITDA (5.5%) and net margin (0.83%), suggesting challenges in profitability and operational efficiency.

20. Return Metrics : Highest ROE : Minapharm Pharmaceuticals has the highest ROE at 15.2%, indicating strong return on shareholder equity. Highest ROA : Minapharm Pharmaceuticals also leads with an ROA of 9.1%, showing effective use of assets to generate profit. Lowest ROE and ROA : Ibnsina Pharma has the lowest ROE (10.4%) and ROA (2.5%), reflecting lower efficiency in using equity and assets to generate profits.

21. Conclusion: From the revised financial data, it is evident that Pharco Corporation has the highest revenue, reflecting its strong market position. Minapharm Pharmaceuticals stands out with the highest profitability (net margin and ROA), indicating strong operational performance and asset utilization. GSK , despite having the highest market capitalization, shows a balanced performance across all metrics. Ibnsina Pharma continues to face profitability and efficiency challenges, as indicated by its low margins and return metrics. These insights can help investors and stakeholders understand the competitive landscape and make informed decisions based on financial health and market positioning in the Egyptian pharmaceutical sector.

22. Company name Country P/E (x) P/BV(x) EV/LTM Revenue (x) GlaxoSmithKline Pharmaceuticals (GSK) Egypt 64.1x 1.3 x 1.0 x Alexandria Pharmaceuticals (AXPH) Egypt 7.0 x 1.5 x 0.6 x Egyptian International Pharmaceutical Industries (EIPICO) Egypt 4.8 x 1.3 x 1.0 x Memphis Pharmaceuticals (MPCI) Egypt 2.3 x 7.5 x 0.6 x Tenth Of Ramadan Pharmaceutical Industries (RAMEDA) Egypt 16.2 x 1.9 x 1.7 x Average 18.88 2.7 0.98

23. Overall , GSK appears to be the most robust in terms of growth potential and strategic positioning, supported by substantial R&D investments and a diverse product portfolio. However, each of these companies has unique strengths and opportunities in the Egyptian pharmaceutical market

24. 4. What is the impact of GSK’s merger and acquisition strategy on its overall cost of capital? Discuss this issue in relationship with the risk- return trade- off principle:

25. GSK's merger and acquisition strategy can indeed have a significant impact on its overall cost of capital, as it influences both the risk profile and potential return of the company. 1- Risk Profile: - Increased Risk: Acquiring companies or merging with entities that have higher operational or financial risks can elevate GSK's overall risk profile. Investors will likely perceive this increased risk and demand higher returns, raising GSK's cost of equity. - Diversification: On the flip side, if GSK's M&A activities lead to greater diversification, they might mitigate certain risks (e.g., market or product risks). This could potentially lower the company's risk profile, thereby reducing its cost of capital.

26. 2- Sy nergies and Cost Savings: - Positive Synergies: Successful M&A activities can result in synergies such as cost savings, revenue enhancements, and improved efficiencies. These positive outcomes can enhance GSK's profitability and growth prospects, potentially lowering the company's perceived risk and cost of capital. - Integration Challenges: However, if the integration of the acquired entities is poorly managed, it can lead to inefficiencies, cultural clashes, and operational disruptions, which might negatively impact financial performance and increase the cost of capital .

27. 3- Market Perception: - Strategic Fit: The market's perception of the strategic fit of an acquisition plays a crucial role. Acquisitions that are seen as strengthening GSK’s core business or providing substantial strategic benefits are likely to be viewed favorably, potentially reducing the cost of capital. - Debt Levels: If M&A activities significantly increase GSK's debt levels, the company's financial risk will rise, which might increase both the cost of equity and debt.

28. In summary, the impact of GSK's M&A strategy on its cost of capital is multifaceted, depending on the nature of the acquired entities, the success of integration, and market perception. A well- executed M&A strategy that delivers synergies and strategic benefits can lower the cost of capital, while poorly managed acquisitions can have the opposite effect .

29. 5. How corporate governance inefficiencies can impact the cost of capital? Discuss this issue in relationship with agency theory:

30. 1- Agency Theory: - Conflicts of Interest: Agency theory highlights the potential conflicts between managers (agents) and shareholders (principals). Ineffective corporate governance can exacerbate these conflicts, leading to agency costs. - Monitoring Costs: Poor governance structures require more extensive monitoring by shareholders and other stakeholders to ensure that management acts in the best interests of the company, increasing the overall costs.

31. 2- Transparency and Accountability: - Lack of Transparency: Ineffective governance can result in a lack of transparency, making it difficult for investors to accurately assess the company’s performance and risks. This uncertainty can lead investors to demand higher returns, raising the cost of capital. - Accountability Issues: Without proper checks and balances, there is a higher risk of mismanagement, fraud, or unethical behavior, all of which can severely damage investor confidence and increase the perceived risk.

32. 3- Decision- Making : - Inefficient Decisions: The concentration of power and lack of independent oversight can lead to suboptimal decision- making, such as poor investment choices, inefficient capital allocation, or ignoring emerging risks. These decisions can negatively impact financial performance and increase the cost of capital .

33. Risk Management: Effective governance is crucial for robust risk management. Governance inefficiencies can lead to inadequate risk management practices, increasing the company's risk profile and cost of capital.

34. 4- Market Perception: Reputation : Strong corporate governance enhances a company’s reputation, making it more attractive to investors. Conversely, governance inefficiencies can tarnish the company's reputation, leading to higher risk premiums demanded by investors. Access to Capital: Companies with robust governance practices are generally seen as lower risk, which can facilitate access to capital at more favorable terms .

35. In conclusion Corporate governance inefficiencies can significantly impact GSK Egypt’s cost of capital by increasing agency costs, reducing transparency, leading to poor decision- making, and damaging the company’s reputation. Strong governance practices are essential to mitigate these risks and maintain a competitive cost of capital.

36. Thank You