Colgate Palmolive (Pakistan) Limited

Colgate Palmolive Pakistan, one of the leading manufacturers of personal care and consumer products in the country, began its operations back in 1985 when the US granted the firm license to manufacture and market Colgate Palmolive products in Pakistan. Currently, the firm is engaged in the production and marketing of some of the leading international brands of oral and personal care products, bringing a few of the world's most trusted household names such as Colgate Toothpaste and Palmolive Naturals to the Pakistani market.
FINANCIAL HIGHLIGHTS The period under review saw Colgate Palmolive's top line reach nearly Rs 18.6 million, an increase of 8.2 percent over the same period last year, even as the firm's profit from operations and gross profits in absolute terms show weakening from the same period last year.
While on the surface all seems relatively well for the consumer goods giant -given that the severe energy shortfalls leaching away profits from almost all of the production intensive industries have become a norm- there might be a few things amiss once the numbers are given a closer look. At the close of the third quarter, Colgate's revenue growth at 7.5 percent is only marginally improved quarter on quarter as the firm comes under pressure from the continued competitive pressure in the local market.
Not only that, but the firm's GP as a percentage of net sales has shed some 108 bps during the nine month period, largely because of the pressure cast by rapidly increasing prices of raw material, which for Colgate are highly sensitive to exchange rate movements as a majority of them are imported into the country.
Additionally, expenses were also driven up by the increased depreciation costs which went up as a result of intensive investments in plant and machinery during the last two quarters. Interestingly, the firm's P&L statement, at the nine month mark shows that the biggest accretion has been in the selling and distribution expenses which as a percentage of net sales has increased by 15.38 percent over the same period last year.
Consistently climbing throughout the last year, these are in lieu of increased investments in advertising and promotional campaigns for the company's products. However, apart from contributing towards significant volume growth seen in 4QFY12, these expenses have in all effect had little to show in terms of absolute growth in sales volumes throughout the three quarters of FY13.
In fact the 8.2 percent growth in the top line mentioned previously can be largely accounted for by price adjustments of various products during this period rather than any hefty growth in demand and subsequent volumes sold, as the firm tries to pass off some of the rising costs on to the consumers.
Filtering down, the tame performance for the quarter may have resulted in a red bottom line were it not for the company's concentrated efforts to bring down the administrative expenses, which as a percentage of net sales shed 7 bps during the quarter under review. Additionally, increased income from investments also buttressed the bottom line, which resulted in a three percent appreciation in the Net Profit after Tax.
MARKETING & OPERATIONAL HIGHLIGHTS As competition continues to heat up for a number of Colgate's products in the personal and fabric care categories, the firm has geared up for further increases in investments on the advertisements front.
In this lieu, one of the biggest expenses has been incurred on account of the rebranding of the firm's Surface Care products including the Lemon Max range. Additionally, during the period under review, a new variant of the Colgate Sensitive toothpaste "Colgate Multi-protection" was introduced into the market for which extensive brand activation, in-store promotions and PR activities were carried out.
Moreover, continuation of the 'Bright Smiles, Bright Futures' campaign and the seventh "Colgate Dental Health Week" was also part of this quarter's agenda wherein the company improved its reach into smaller rural towns. On the whole, the quarter was characterised by a new integrated marketing communication plan, where the firm has been actively engaging with consumers at identified high impact touch points across the country.
FUTURE OUTLOOK While this year marred the financial health of many companies, consumer goods manufacturers have been relatively spared in the face of the gloomy economic and political climate of the country. However, Colgate Palmolive's struggles are only now becoming visible, with the firm needing an immediate pick-me up in terms of sales volumes.
In the face of rising costs of utilities, packaging material and raw material, improvements in operational efficiency are also a must if the firm plans to substantiate and keep up its margins. Moreover, apart from internal cost efficiency, the firm might also need to re-evaluate some of the existing product lines- especially in the Detergents category where the competition is heating up very fast. In this lieu, focused re-branding for the firm's lower priced detergent variants such as Bonus Tristar would be a timely intervention as it seems to be losing ground to some of the new entrants into the market.

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Colgate Palmolive Pakistan Ltd

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                                   FY10        FY11        FY12

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Profitability

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Gross profit margin                0.33        0.29        0.29

Net Profit Margin                  0.10        0.08        0.09

ROE                                0.32        0.27        0.29

ROA                                0.24        0.18        0.21

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Liquidity

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Current Ratio                      2.85        2.21        2.68

Equity as a % of total assets      0.74        0.68        0.70

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Capital Efficiency

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Inventory turnover                   58          67          72

Debtors turnover                     10           8          10

Total asset turnover               2.33        2.21        2.37

Fixed asset turnover               5.98        5.20        6.47

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Gearing Ratios

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Gearing Ratio                      0.34        0.47        0.42

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Source: Company Records

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Operating Results @ 9MFY13

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Rs (mn)                          9MFY12      9MFY13       % chg

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Turnover                         17,229      18,648          8%

Gross profit                      4,061       4,192          3%

as a % to Net Sales               29.32       28.24   (108) bps

Selling and Distribution costs    2,035       2,282         12%

as a % to Net Sales               14.69       15.38      69 bps

Profit from Operations            1,777       1,704         -4%

NPAT                              1,148       1,183          3%

EPS                               26.33       27.13          3%

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