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Glaxosmithkline Consumer promotion expenses 19% of Oct-Dec Op Income

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BENGALURU: Nutritional products and OTC drug major Glaxosmithkline Consumer Healthcare spent Rs 164.78 crore or 18.96 per cent of Income from operations in the quarter ended 31 December  towards advertisement and promotion. This was the highest amount spent on advertising and promotion by the company in terms of percentage of operating income as well as in value terms over seven consecutive quarters starting quarter ended 30 June, 2012.

Note : (1) GCHL?s fiscal ends on December 31, however in keeping with standard conventions in India, the following periods have been used in this report:

Q1-2013 is the Quarter ended June 30, 2012; Q2-2013 is the quarter ended September 30, 2012

Q2-2013 is the quarter ended December 31, 2012 ; Q4-2013 is the quarter ended March 31, 2013

Q1-2014 is the quarter ended June 30, 2013 ; Q2-2014 is the quarter ended September 30, 2013 and Q3-2014 is the quarter ended December 31, 2013.

(2)Rs 1 Crore  = Rs 100,00,000 = Rs 100 lakhs = 10 million

The company?s nutritional products brands include Horlicks, Boost, Foodles , while its OTC drugs brands include Crocin, Eno and Iodex.

Let us look at the company?s results over the seven quarters under consideration:

Figure A shows that Linear PAT as percentage of Op Inc is trending downwards. Ad Exp as both percentage of Op Inc and Total Expense (Total Exp) is trending upwards linearly. The company explains the lower PAT to high inflation in milk and milk powders and dilution in PAT growth due to higher tax rates. GHCL plans to partially offset this by renewed focus on various cost control initiatives.

However, as per Figure B below, in value terms, PAT trend is almost flat linearly over the seven quarters, with GCHL reporting maximum PAT in quarter ended 31 March 2013 at Rs 156.41 crore, the lowest being Rs 69.65 crore in Q3-2013. The company reported PAT at Rs 79.79 crore in Q3-2014. Operating Income peaked in quarter ended 30 September, 2013 at Rs 1014.08 crore, with Rs 734.51 crore in quarter ended 31 December 2012 being the lowest operating income over the seven quarters under consideration. Operating income in the quarter ended 31 December, 2013 was Rs 869 crore.

As mentioned above, the company?s Ad Exp in quarter ended 31 December, 2014 was the highest, both in terms of percentage of operating income and in rupee value. As figure C shows, the company?s q-o-q change in percentage terms for Op Inc as well as Ad Exp have been zigzag lines, however the linear rate of change tending downwards for both.

GCHL says that it has had a good overall performance with Health Food Drinks (HFD) and Foods growing at 17 per cent and 29 per cent respectively in quarter ended 31 December, 2014. Its domestic volume growth has been 11 per cent, while exports grew by 36 per cent. It claims that GHCL continues to hold second position in Oats; Horlicks Kesar Badam launched during the quarter.

The company claims that its HFD brands comprising Horlicks and Boost grew 17 per cent, while its packaged foods brands comprising of Horlicks biscuits, Horlicks Nutribics, Foodles (noodles), Horlicks Oats and Boost Biscuits grew 29 per cent during the period.

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