No conclusive reasons could be found behind the phenomenon

By Syed M. Aslam
Aug 31 - Sep 06, 1996

Multinational pharmaceutical company Hoechst Pakistan Limited has reported an unprecedented pre-tax loss of Rs 45.837 million for the six months ended June 30, 1996.

The company has suffered the loss despite a 22 per cent increase in net sales from Rs 718 million for half year ended June 30, '95 to Rs 888.8 million.

In the last ten years since 1986, except for '87 and '88 the German pharmaceutical giant has only been in red in 1987 and 1988 when it reported pre-tax losses of Rs 5.8 and 41.4 million respectively. It earned a pre-tax profit of Rs 40.170 million last year.

The pre-tax loss of Rs 45.837 million during the first six months of this year thus surpasses the losses that the company incurred in the whole of '87 and '88.

The pre-tax loss added with current taxation of Rs 18.350 million and deferred taxation of Rs 3.242 million, has resulted in earning Hoechst an after-tax loss of Rs 67.429 million compared to a profit of Rs 10.025 million during the comparative period last year.

It has also turned the unappropriated profit of Rs 10.110 million for the six months ended June 30, '95 into an unaccumulated loss of Rs 66.803 million for the six months ended June 30 this year.

Engaged in pharmaceutical, agriculture, chemicals, and indenting businesses in Pakistan during the two comparative half years as the net sales increased by over 22 per cent and the costs of goods sold increased by about 29 per cent from Rs 610.288 to 787.105 million the gross profit decreased by six per cent from Rs 108.009 to 101.741 million. The company suffered an operating loss of Rs 2.364 million compared to an operating profit of Rs 34.496 million during the corresponding periods.

The un-audited half yearly results show that Hoechst's financial and other charges increased almost threefold from Rs 29.205 to 84.629 million while its administration and selling expenses increased from Rs 82 to 113 million.

Even an over 300 per cent increase in 'other income' from Rs 13 to 41 million was not able to save the company from the unprecedented loss.

Silence on the part of Hoechst, however, despite PAGE's efforts to contact company officials, leaves us without any conclusive reasons for the losses.

While the net sales of Hoechst went up by 28 per cent from Rs 1532 million in '94 to Rs.1960 million in '95, the pre-tax profit decreased by 44 per cent from Rs 72 to 40 million respectively.

The company had attributed the loss mainly to the increase in the financing cost, increase in prices of raw materials used in its chemical division, and the devaluation of the Pak rupee.

The '95 annual report had predicted that '96 "will be a challenging year mainly due to poor results of the subsidiaries in '95, introduction of regulatory duty, rupee devaluation, and other cost increases without a corresponding increase in sales prices.

Other companies

Also having predicted that '96 will be a difficult year due to the above cited reasons, another multinational, Ciba-Geigy Pakistan Limited reported a pre-tax profit of Rs 3.538 million for the six months ended June 30, '96 compared to a pre-tax loss of Rs 4.703 million in the comparative period last year.

Similarly, yet another multinational, Reckitt & Colman, reported a pre-tax profit of Rs 82.347 million during the same period which increased by 7.16 per cent from Rs 76.842 million during the corresponding period last year.

These results show that Hoechst's case is not likely to be a trend for the industry.

What remains to be seen is whether Hoechst would be able to cut its losses or would the company report the record losses for the year ending December 31, '96.