Gillette Pakistan Limited

Gillette Pakistan Limited (PSX: GLPL) was set up as a public limited company in 1986 under the Companies Ordinance, 1984. It is part of Procter & Gamble group globally. A large part of the shares of Gillette Pakistan Limited are held by Series Acquisition B.V. that in turn is a wholly owned subsidiary of P&G, USA.

Gillette Pakistan Limited markets and sells blades and razors, with its office located at Clifton, Karachi. Its product range is further divided into starter kits, custom razors, shave sets, beard care and body, etc.

Shareholding pattern

As at June 30, 2020, a major chunk of shares, over 90 percent, were held by associated companies, undertakings and related parties. Within this, nearly all the shares are owned by Series Acquisition B.V.- an investment management firm. Some 4 percent shares are held by “individuals” followed by 3.5 percent in joint stock companies; the directors, CEO, their spouses and minor children own a negligible share. The remaining shares are with the rest of the shareholder categories.

Historical operational performance

Apart from seeing a declining topline between the years FY16 through FY18, Gillette Pakistan has witnessed a growing revenue. Profit margins, on the other hand, dipped in FY17 after which they picked up in FY18 and continued to grow there on.

During FY17, revenue contracted by a little over 3 percent. Cost of production, however, jumped to consume 82 percent of revenue, as suppliers of the company increased prices. The full effect of this cost increase was not transferred to customers in order to remain competitive. Moreover, distribution expense is another significant expense for the company as it claimed more than 16 percent of revenue. The company spends a notable amount here, for wider reach and distribution for Gillette consumers. Other expenses were unusually high due to foreign exchange loss on foreign currency liabilities. Therefore, the loss incurred in FY16 of Rs 29 million was elevated to Rs 193 million in FY17.

Revenue for FY18 remained nearly flat as it contracted by less than 1 percent. On the other hand, the company was able to gain some profitability due to a steep decline in cost of production as a percentage of revenue. Cost of purchases of finished goods reduced by 32 percent year on year. This was due to negotiating for better supply prices. Distribution expense continued to consume a significant portion of revenue, whereas other expenses also rose to claim nearly 6 percent of revenue. This was due to foreign exchange loss more than doubling year on year. Therefore, while the net margin was better than previous year, it was recorded at less than 1 percent.

After witnessing a declining topline for three consecutive years, Gillette Pakistan saw its revenue rising by 7.3 percent during FY19. Cost of production reduced marginally, close to 67 percent. However, bottomline improved due to a reduction in other expenses, from claiming nearly 6 percent of revenue in FY18, to 2 percent in FY19. Moreover, contribution by other income also increased during the year to double digits in value terms, that was previously less than Rs 10 million in the preceding two years. This was sourced from interest income on term deposits and savings accounts. Thus, profit after tax doubled year on year and net margin improved to over 8 percent.

Revenue was once again nearly flat in FY20 as it increased by less than 1 percent. Cost of production was undeterred at around 66 percent keeping gross margins flat too at around 33 percent. Improvement in bottomline was brought about due to a combination of factors- lesser spending on advertising due to the outbreak of Covid-19 pandemic in addition operation efficiency. This decreased share of distribution expense in revenue while, on the other hand, other income made up 3 percent of revenue- a level last seen in FY15. This came from interest income. Other expenses also witnessed a decline owing to relatively greater stable exchange rate that kept exchange losses in check. Thus, net margin improved to 11 percent- the highest seen in seven years.

Quarterly results and future outlook

During the first quarter of FY21, revenue was higher by 2 percent year on year, however, increases in costs kept profit margins lower comparatively. Although if it were to be compared with the second quarter of FY21, the latter saw higher revenue, but costs exceeded 90 percent of revenue, with relatively little support coming from other income. Thus comparing, 1HFY21 with the same period last year, the company’s profitability was lower in former due to the loss incurred in the second quarter of FY21. The Covid-19 development has brought about several challenges for the economy and the world- uncertainty, higher costs, supply chain constraints, etc. that is leading to slower growth and lower profitability- hence a longer time period to regain momentum.