Personal care:- COLGATE-PALMOLIVE (PAKISTAN) LIMITED - Analysis of Financial Statements Financial Year 2003 - H 2001 2008
Initially incorporated as National Detergents Limited, a 100% local company in 1977, Colgate-Palmolive Company, USA, granted the licence to manufacture and market their products in Pakistan in 1985.
In 1990, Colgate-Palmolive Company, joined as equity partner in the company and the name was changed to Colgate-Palmolive (Pakistan) Limited. Colgate-Palmolive offers various categories of products such as oral care, personal care, surface care and fabric care.
Recent results, (H1'08)
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Half Year 2007-08 Half Year 2006-07 Increase
Rupees in million Rupees in million %
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Gross sales 4,245 3,576 18.71
Gross Profit 1,029 906 13.58
Profit from Operations 515 468 10.04
Net Profit After Tax 329 309 6.47
EPS-Rs 17.23 16.17 6.56
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Source: Company reports
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The company continued to have a broad-base growth across all segments along with net profit after tax (NPAT) during the half year. Compared to corresponding period ended December 31, 2006, sales and NPAT increased by 18.71% and 6.47% respectively despite highly competitive market environment. Input costs intensified due to pressure by oil based and other raw materials, packaging materials, utilities and overheads. It has however managed to achieve an increase of 13.58% in gross profits compared to the previous corresponding period.
Prices of some products of the company were increased. Selling and distribution and administrative expenses also increased by 14.44% and 21.80% respectively for the reasons mentioned above.
Cost of sales has increased by 19.16% as compared to the same period last year.
Financial performance (FY03-FY07)
Over the years, Colgate has maintained an overall positive financial position and is one of the leading chemical companies in our country today. A brief analysis of Colgate's financial performance is discussed below:
Overall, the Colgate Palmolive's profitability depicted a commendable performance. Total net sales volume increased by around 18.5% over the last year, resulting in a consequent rise in the gross and net profits. The cost of sales also showed an increase, primarily due to an increase in raw material prices as a result of rising prices of petroleum based products. However, tighter controls on selling and administrative expenses focused advertisements, innovative and efficient supply chain strategies, effective communications and improved sales mix ensured that the effect of rising cost of goods sold was mitigated. Consequently, the net profit increased by around 16.35% compared to the previous year resulting in a rise in profit margin. However, the gross profit margins, as well as both ROA and ROE have shown a marginal decline in FY07 because of high COGS due to above-mentioned reasons.
The company has shown a positive liquidity trend over the years, enjoying a strong liquidity position over the years. The net cash flow stood at around Rs 420 million during 2007, indeed an enormously affirmative indicator of the company's efficient allocation of assets. The net current assets witnessed a rise in terms of cash, inventories and receivables, as have the current liabilities, especially the payables. However, thanks to a greater percentage rise in current assets, the overall liquidity position of the company is surely laudable.
A manifestation of an efficient credit policy, the days sales outstanding of the company have been following a declining trend till FY06, showing that the company is receiving cash against its receivables on a shorter period over the years. The inventory turnover ratio, however, followed a rising trend till 2005, until it declined again in 2006. This can be attributed to better credit policies and marketing practices that enabled the company to sell off its inventories to its customers more effectively and efficiently. However, one can see slight increases in both ITO and DSO in FY07 mainly due to higher receivables and higher raw and packing materials inventories. As a result the operating cycle increased by 4 days but overall, the operating cycle declined over the years, showing that the company has improved on its performance in terms of receiving cash against its inventories.
The total assets turnover ratio was disappointing as it steadily declined over the years. The total assets growth of the company outpaced the phenomenal growth showed by net sales over the years. A major portion of this increase in assets was comprised of an increase in plant and equipment, cash and bank balances, and inventories, however, the fact that the asset turnover did not show a positive trend indicates that the company needs to work more on maximizing the gains from an increase in assets. Sales/Equity too showed a marginal decline over the years because of the aforementioned reasons.
Even though, the Colgate's short-term debts showed an increase due to an increase in the creditor's liabilities and taxation, the long term liabilities portrayed a considerable decrease over the years, especially in the long term loans and the liabilities against assets subject to finance leases. Even though one can see a nominal increase in long term debts of FY07, compared to equity it has declined.
Both the total assets and total equity increased over the years, and the overall effect was manifested in a declining debt-to-asset and long-term-debt-to-equity ratio. All these ratios along with D/E ratio have shown Colgate's reduced reliance on debt financing.
Owing to a magnanimous increase in the operating profit over the years, especially during FY06 when it increased by 62.5%, and a decline in the financial charges (till FY06) of the company, the Times Interest Earned ratio of the company improved. The reason for higher TIE in FY07 is due to higher EBIT than the finance cost. This is a positive indication of the fact that the company is managing its financial obligations well and is generating enough operating profit to cover up its interest and financial expenses.
The net earnings per share increased by 64.7% in FY06 but declined in FY07 due to higher number of outstanding shares. The book value of the business increased thanks to an increase in equity facilitated by a steady rise in reserves over the years. The average market price increased considerably over the years, increasing by approximately 77%, 9%, 82% and 28.4% during 2004, 2005, 2006 and 2007 respectively. As a result P/E ratio has also posted a rising trend.
FUTURE PROSPECTS: Overall, the Colgate Palmolive has been a profitable and praiseworthy company that has managed to adapt itself to the changing marketing environment and needs of its customers. The company has been facing the challenges of inflation and cost escalations due to increasing raw material and energy costs.
The business environment will continue to be challenging as oil based raw materials and other input costs are expected to rise further and tougher market situations particularly in the later half of the next financial year can be expected. However, Colgate will use its best efforts to maintain current trends in the future as well by employing strong marketing programmes, cost reduction initiatives and product renovations. Hence one can foresee a positive outlook.
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COLGATE PALMOLIVE - CONSOLIDATED RATIOS
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2003 2004 2005 2006 2007
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Rupees in '000
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LIQUIDITY
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Current Ratio 1.51 1.36 2.01 1.91 2.14
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ASSET MANAGEMENT
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Inventory Turnover 45.42 47.70 50.30 45.34 48.20
Days Sales Outstanding 12.85 10.32 7.69 7.61 8.75
Operating Cycle 58.27 58.02 57.99 52.95 56.95
Total Asset Turnover 2.60 2.39 2.55 2.37 2.24
Sales/Equity 5.65 5.16 4.12 3.85 3.48
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DEBT MANAGEMENT
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Debt to Asset Ratio 54.91 54.35 38.12 38.48 35.59
Debt to Equity Ratio 1.19 1.17 0.62 0.63 0.55
Long Term Debt to Equity 28.15 26.96 15.75 8.67 7.32
Times Interest Earned 13.28 31.98 33.16 58.81 61.58
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PROFITABILITY
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Gross Profit Margin 27.69 28.73 27.00 32.27 31.67
Profit Margin 6.40 8.57 7.73 9.97 10.19
Return on Assets 16.63 20.51 19.70 23.63 22.82
Return on Equity 36.16 44.23 31.84 38.40 35.43
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MARKET VALUE
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Book Value 3.96 5.30 7.78 10.62 11.17
EPS 14 23 25 41 40
Average Market Price 103.89 184.46 201.06 366.05 470
Price/Earnings 7.26 7.86 8.12 8.97 11.88
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