The Management and Shareholders of Actavis Company Hf - Research Paper Example

Analysis and Valuation of Actavis Company Hf Table of Contents Introduction 4 Research Question 4 Hypothesis 5 Methodology 5 The empirical model 5 Company Overview 6 Ownership 6 Strategy 6 Products 6 Customization 7 Internationalization 7 Strategic Analysis 8 Generic drugs attracting retailers 8 Emerging Threats 8 Analysis of the market and players (competitors) 8 Market Segmentation 8 Segment Strategy for Target Market 9 Competitor Analysis: Glasco Smithkline 10 Industry Analysis 10 Five Porter’s Analysis 10 Financial Analysis 11 Financial Statements 11 Key Statistics 12 Valuation Measures 12 Financial Highlights 12 Fiscal Year 12 Profitability 12 Management Effectiveness 12 Income Statement 12 Balance Sheet 13 Cash Flow Statement 13 (Mullaney 27) 13 The Capital Structure of Actavis Company Hf 13 Equity Ratio 14 Cost of Equity 14 Cost of Debt 14 Historical growth rate: 15 Industrial growth rate: 15 Conclusion 15 Bibliography 16 Introduction However, Actavis Company Hf. (Actavis) engages in sales way above the average by selling at an average of five thousand six hundred dollars. Actavis Company Hf. (Actavis) participates in the B2C EC framework without physical stores as well intermediaries and provides products coming at a rate that averages four times cheaper compared to competitors in the market. Through this, evidence exists to demonstrate that Actavis Company Hf. (Actavis) is the most successful generic developer and supplier. Among others, Actavis Company Hf. (Actavis) competes directly with physical stores pharmaceuticals and online pharmaceuticals retailers. Competitors try to convince clients that it is an exceptional experience to buy pharmaceuticals from physical stores as opposed to purchasing them online. In this case, Actavis Company Hf. (Actavis) rivals persuade customers to insist on seeing; touching, as well as comparing pharmaceuticals yet these factors are only possible if the client visits the stores. Actavis Company Hf. (Actavis) Inc started a year before the turn of the twenty first century. This began when a client bought an existing company, InternetPharmaceuticalss.com following casual treatment by one of the stores. The management and shareholders of Actavis Company Hf. (Actavis) are specific that the business objectives are, work towards increasing the quantity of client base by more than forty percentile every year, apply superior pricing making it difficult for customers to avoid or reject, and build and maintain a business running on its own cash flow as well. Actavis Company Hf. (Actavis) aims at providing clients with the most affordable prices on the market on all prescriptions. The business targets offering convenience and excellent customer service relations exceeding expectations held by clients. Research Question Based on the approval of the Basel II model, this discourse defines the research question in the following way: Are efforts geared towards the manufacture of generic drugs efficient in minimizing the effects of diseases while at the same time easing people on the costs of medication. The framework of the Basel II structure in the subprime crisis forms the basis within which professionals question the proposals. This area covers the inadequacy of the level of original drugs to cure as well as minimize diseases considering the rising costs. Hypothesis The focus on examining the efficiency of generic pharmaceuticals during the implementation of the proposals in Basel I model report executed from 2002 is part of the entire discourse. However, the discourse does not aim at testing the Basel I framework. Instead, it assess the efficiency of the generic drugs in relation to the degree of satisfying the two aspects of the problem namely, increasing number of diseases and increasing costs of medication. The discourse tests the hypotheses listed below: H.i.1: Increasing the number of generic drugs influences the level of patient satisfaction (risk) positively (negatively) H.i.2: Enhancing the pharmaceuticals influences the rate at which more patient’s access medication thereby reducing deaths greatly H.i.3: Pharmaceutical Companies experiencing increased costs of manufacturing should adapt developing generic drugs alongside the original products. Methodology The empirical model Experts define regulatory capital ratios as a threat weighted capital ratio with the capital of banks occupying the numerator and denominator sat on with risk-weighted assets: Capital Ratio (CR) = Capital (C)/ Risk weighted assets (RWA) = c/Total Assets (A)/ (RWA/A) = Level of capital or leverage/Level of risk. Company Overview Actavis Company Hf. (Actavis) formerly referred to as Pharmaco Hf., remains one of the largest and leading pharmaceutical companies. Actavis engages in developing, producing, and distribution of generic pharmaceuticals rated as first-class by experts in the industry. The Company has eight hundred and thirty marketed products in the product portfolio in addition to several therapeutic fields and hospital applications as well. Furthermore, the company has three hundred and thirty products in pending registrations and in the pipeline. Among many other clients, the company has medical practitioners, wholesalers, pharmacies, pharmaceutical manufacturers, and health authorities as primary customers. The company runs businesses in more than forty countries falling in three subdivisions namely, Europe, North America, and Asia Pacific. The Company headquarters is at Zug, Switzerland. Actavis strives to become the sole leading player in the developing, producing, and supplying drugs in the generic industry. To achieve this fete, the company pursues an expansion strategy into the emerging market besides introducing new products based on customer demands. Ownership Actavis Company Hf. (Actavis) is formerly Pharmaco Hf., is one of the leading pharmaceutical company engaged in the development, manufacturing and selling of first-class generic pharmaceuticals. Actavis Company Hf. (Actavis) is headquartered in Zug, Switzerland. It distributes drugs at reduced prices to members of the community both to customers walking in and out and by mail order. Strategy Products Actavis Company Hf. (Actavis) sells a variety of prescription medicines to patients based in Southampton and the United Kingdom at large (Great Britain 63). The company sells both original drugs also referred to as name brands and generic drugs as well. For a client to buy products through mail, then he or she must take the initiative to contact Actavis Company Hf. (Actavis) on phone from his or her location. Three options are available to the customer after making the call over the phone and include mailing the order, using the fax, or mail in the prescription. When Actavis Company Hf. (Actavis) receives, the order payment arranges follow and after completion, the company then sends the drugs to the customer using either U.P.S or U.S.P.S. On the other hand, members from the local community have an opportunity to get in the shop at the front office and pick medications as prescribed. It is necessary to comprehend that the company will offer medications only to customers who pay for drugs themselves (Aiken 116). The low prices at which the prescriptions sell will serve as the attracting factor to this group of clients. Prices will remain to a level that even competitors in the market would not match. For most residents in Southampton and across the nation without medication plans among them most of the elderly running over sixty-five years old, lower prices become the greatest relieve they can get considering the increasing monthly expenditure (Jack 41). Customization Actavis Company Hf. (Actavis) Inc was the first company in the industry to provide customization. This service gives room to clients to customize their drugs. On their website, the company offers the Build Your Own drug alternative making it possible for customers to choose their shape, size, degree of clarity, and colour of the pharmaceuticals. The company is so effective that it delivers goods within forty-eight hours of submitting payments. The company boasts of more than seven thousand loose pharmaceuticals. Internationalization The company should consider going to other parts of the world besides Asia Pacific, Europe, and North America. Recently, the company opened more stores in the United Kingdom and Canada. The company the same strategy applied in the United Sates of selling its products online. Economists count the European market as one of the fastest growing in the industry and it is advisory for Actavis Company Hf. (Actavis) to take advantage of the dames to expand its products. Strategic Analysis Generic drugs attracting retailers Actavis Company Hf. (Actavis) provides to customers and potential clients with generic drugs that have clients and other buyers from the emerging market. Various generic drugs are on offer on the company website. If the company takes the initiative to expand, its target market to cover the entire emerging market in the process of offering daily health drugs would be great business venture. Emerging Threats The biggest threat to the success of Actavis Company Hf. (Actavis) Inc business is competition from rivals in the market. Direct competitors are local stores that sell high-end generic drugs (Mullaney 20). The biggest single competitor is Glasco SmithKline because it aims at securing the African market. Analysis of the market and players (competitors) The target market for Actavis Company Hf. (Actavis) falls into two different categories constituting customers making orders through the mail and the second category entails local clients who walk in and out of the store to buy their drugs (Kurson 19). To reach, attract, and retain these customers, the company will employ various tactics. Market Segmentation Customers making orders by mail fall in the first category of mail order clients and do so through this means to save money that would go to postages (Burns 53). The management projects that most them would be aged, mainly people with more than fifty years. Statistics show that overall, elderly people use more drugs compared to people in the young generation. Only maintenance medication will available on mail orders. They are directions on people on treatment that calls for regular medication. New patients must walk into the shop for proper guidelines (Warner 22). It is likely that customers in the mail order segment would buy drugs for use over several months. This means that most of them engage in bulk buying. Customers walking in and out of the store shop are also interested in purchasing medications at lower prices. Contrary to mail order clients, customers in this group have a tendency of buying drugs on monthly basis and mainly at higher prices. One characteristic of this group customers is that they do not have a particular demographic description apart from the fact that they most of them would consist of residents of Southampton. In addition to those paying for medication out of pocket, the other segment will submit insurance policy claims for re-imbursement after paying for medication in cash. Segment Strategy for Target Market To attract the two different segments, Actavis Company Hf. (Actavis) will apply two different strategies. The management at the company estimates that customers interested in mail orders will outdo the other group walking in and out of the store shop. The business will use advertisements in magazines to reach this group of the market in addition to newsletters covering an over-55 crowd (Van Wart 78). This class is always in need of drugs and spends lot of money on the same. The company will put adverts in monthly newsletters and magazines as part of this strategy. The local weekly and daily newspapers will be at hand to serve local clients. Competitor Analysis: Glasco Smithkline The need for people to access and use affordable, clean, and reliable pharmaceuticals is a primary factor of economic growth, social development, as well as having a sustainable environment. Homes, offices, and other institutions require pharmaceuticals to maintain various things cool and run other important activities. Hospitals for instance, need pharmaceuticals to keep medicines cool apart from running other rooms such as operation theatres. Pharmaceuticals drive the future of any society because it allows learners to read and research all round the clock because of sufficient lighting. Radios, televisions, refrigerators, and microwaves among other gadgets use pharmaceuticals to entertain, educate, inform, reduce the burden on women, and improve the standards of living. However, it is necessary to note that Glasco SmithKline discovered that among the essential uses of pharmaceuticals is having supplying pharmaceuticals generic drugs to people across the globe among them East China. Hundreds of thousands of people lack access to reliable and affordable pharmaceuticals in both Shanghai Zhejiang and Jiangsu. Industry Analysis Five Porter’s Analysis The current contemporary and competitive business environment offers demands that make understanding of strategic issues that business companies such as Actavis Company Hf. (Actavis) face as they strive to develop success strategies. Porter’s five forces is a powerful management tool considered by the management at Actavis Company Hf. (Actavis). The strategy comes in addition to value chain and the balanced scorecard model. Porter’s five forces are important to managers when they make strategic decisions that influence the performance of the company both internally and externally. The forces help the management to execute long-term strategies for the business organization in the process of building and maintaining a competitive advantage. Similarly, it is logical to posit that Actavis Company Hf. (Actavis) does not have the capacity to sustain long-term competitive advantage in the industry. This is not because the company fully develops and supplies generic drugs. Internet companies exist such as EBay that take advantage of the influence of infrastructure to maintain customers and in the process keep competitors away from encroaching into their market niche. The company can engage such companies for online marketing in new areas. This is the Achilles-heel for Actavis Company Hf. (Actavis) because it does not operate an efficient network influence. In most cases, the company operates as a broker between customers and pharmaceuticals dealers. Using Five Porter’s analysis demonstrates that the company is under various constraints apart from the influence of competitors (Mullaney 22). Fierce competition is in the pharmaceuticals retail business. Actavis Company Hf. (Actavis) ought to understand this well. Traditional players in the sector include Glasco SmithKline & Co. New channels of communication that bring different forms of interaction come with new ways of exchanging goods and services and this, will continue increasing competition. The other problem comes from original pharmaceuticals introduced by other players in the industry. Google insight offers one of the best ways of getting information about Actavis Company Hf. (Actavis) along with its products. The Actavis Company Hf. (Actavis) website displays various descriptions that give room to customers to place various orders based on various qualities of pharmaceuticals. Financial Analysis Financial Statements The financial statements indicate that for over one year, movement on Actavis Company Hf. (Actavis) has been little in their bottom line area ranging from five-and-half billion United States dollars to five billion and sic million dollars. In the top section, the company also experienced little changes in revenue ranging from twenty-seven billion United States dollars to twenty-eight billion dollars. Key Statistics Data provided by Capital IQ, except where noted. Valuation Measures   Market Cap (intraday)5: 54.77B Enterprise Value (Nov 17, 2014)3: 120.02B Trailing P/E (ttm, intraday): 9.39 Forward P/E (fye Dec 31, 2015)1: 8.81 PEG Ratio (5 yr expected)1: 1.52 Price/Sales (ttm): 0.70 Price/Book (mrq): 1.48 Enterprise Value/Revenue (ttm)3: 1.54 Enterprise Value/EBITDA (ttm)6: 10.21(Mullaney 23) However, the statements also demonstrate positive movements for the corporation since it has cut down on the percentage of sales associated with the cost of goods sold from a whooping eight point nine percentage to slightly less than eight point five percent. On the other hand, Actavis Company Hf. (Actavis) experienced a drop in their bottom line from forty-one billion and seven million United States dollars down to thirty-seven billion. Financial Highlights   Fiscal Year Fiscal Year Ends: Dec 31 Most Recent Quarter (mrq): Sep 30, 2014 Profitability Profit Margin (ttm): 7.48% Operating Margin (ttm): 11.23% Management Effectiveness Return on Assets (ttm): 3.82% Return on Equity (ttm): 16.53% Income Statement Revenue (ttm): 77.95B Revenue Per Share (ttm): 118.79 Qtrly Revenue Growth (yoy): 4.50% Gross Profit (ttm): 14.31B EBITDA (ttm)6: 11.76B Net Income Avl to Common (ttm): 5.83B Diluted EPS (ttm): 8.89 Qtrly Earnings Growth (yoy): -1.10%(Dess, Dumpkin, & Eisner 66) The debt-to-equity ratio for Actavis Company Hf. (Actavis) reduced in twenty eleven to two thousand and twelve but recorded slight improvements from two thousand and twelve to two thousand and thirteen. The debt-to-capital ratio faced the same fate as it deteriorated in two thousand and eleven through to two thousand and twelve. The trend in the subsequent financial year was similar to that in the debt-to-equity ratio. Balance Sheet Total Cash (mrq): 11.20B Total Cash Per Share (mrq): 17.06 Total Debt (mrq): 76.71B Total Debt/Equity (mrq): 207.77 Current Ratio (mrq): 1.06 Book Value Per Share (mrq): 55.94 Cash Flow Statement Operating Cash Flow (ttm): 3.50B Levered Free Cash Flow (ttm): 165.62M (Mullaney 27) The Capital Structure of Actavis Company Hf Debt-to-value ratio is one of significant risk factors applied in identifying the risk rate of lenders’ mortgage. To get the ratio, experts divide total liability by total assets. Debt Ratio = Total liability/total asset Primarily, a high-debt-ratio closely relates to the company’s high market risk. Reports by Thomson One Banker show total liability for 2012 at $ 27830 while the total assets stood at $ 39519. The estimation gives the proportion of the debt ratio as 70.42 percent. Comparatively, there was an increase in the total assets from 2008 at $ 37920 to $ 39519 in 2012. Increase in total assets results in reducing payments to back debts and reduction in funded capital (Mullaney 33). Equity Ratio Accountants and other stakeholders use the equity ratio to know the proportion of the asset benefitting from the finances given by shareholders. Total equity/ total assets = Equity ratio The Thomson report on Actavis Company Hf’s financial statements indicates that the company’s total equity stood at $ 11480 as at 30th June 2012 coming on the back of $ 39519 as total assets. From the figures, the equity ratio for the same financial period is 29.05 percent. Compared to the previous figures the equity ratio was 31.68 percent in 2008 and 32.33 percent two years later. Cost of Equity The CAPM framework is an essential methodology of estimating the cost of equity RE=Rf +β (RM-Rf) It is possible to apply information given in the report to calculate the cost of equity RE=Rf +β (RM-Rf) =3.09%+ 0.23 × 7.0%=4.70% Cost of Debt Accountants correlate the process of estimating the cost of debt with the results of WACC. The RBA website gives the credit rate of Actavis Company Hf. as A, which means it is possible to calculate the cost of debt using information from the capital market. Here, RD = 4.7% The yearly financial ratio has the debt of value as $ 11958, a figure given by Thomson One Banker as well. The total of value is $ 39519. The figures give the percentage of debt capital structure as WD = 30.25% Equity components = (69.73%* 4.71%) + (30.27% * 4.8% * (1-30%) = 4.28% Historical growth rate: Enterprise Value = =$161,561.78 The historical growth rate for the company is -6.43 percent. Experts take the mean of historical growth rates covering the last five financial years. Industrial growth rate: The entire pharmaceutical a growth rate averaging two point five percent each year Enterprise Value==1,013,031.75(Mikler 31) Conclusion Actavis Company Hf. (Actavis) has the opportunity of expanding its business by engaging in daily life accessories such as wallets and purses apart from bridal accessories that cover weeding and engagement rings. Integrating pharmaceuticals with various types of things would help the company maintain the elegance attached to its brand. It is also advisable for the company to engage in the sales of other medical equipment in addition to pharmaceuticals. Brand awareness is another aspect that the company should invest to gain international recognition. Actavis Company Hf. (Actavis) should also consider holding exhibitions for their products in big conferences and may more forums. It is important for the company to open stores in different parts where they sell their generic drugs. Bibliography Aiken, C., 2010, Transformational Leadership. Chicago: McGraw-Hill Publishers. Burns, J., 2010, Leadership. New York: Harper Perennial. Dess, G., Lumpkin, G. & Eisner, A., 2008, Strategic Management. Boston: McGraw-Hill Irwin. Great Britain, 2007, Success and failure in the UK manufacturing industry. London, The Stationery Office. Jack, W., 2007, Plunketts Automobile Industry Almanac 2008 Automobile, Truck and Specialty Vehicle Industry Market Research, Statistics, Trends & Leading Companies. Plunkett Research Ltd. Jones, G. R., 2007, Strategic management: an integrated approach. Boston, Mass, Houghton Mifflin. Khanh, P.-G., 2011, Radical innovation and open innovation creating new growth opportunities for business; illumination with a case study in the LED industry. Hamburg, Diplomica-Verl. Kurson, K., 2002, Leadership. New York: Hyperion. Mikler, J., 2009, Greening the car industry varieties of capitalism and climate change. Cheltenham, UK, Edward Elgar. Mullaney, T., 2007, Actavis Company Hf. (Actavis)s Real Sparkle. Business Week Online, 00077135, 6/8/2004 JCK, Actavis Company Hf. (Actavis). Van Wart, M., 2011, The business of leadership: an introduction. Armonk, N.Y., M.E. Sharpe. Warner, A. G., 2010, Strategic analysis and choice a structured approach. New York, Business Expert Press. Read More