Gillette Pakistan Limited

Gillette Pakistan Limited (PSX: GLPL) was established in 1986 as a public limited company in 1986 under the Companies Ordinance, 1984. The company is part of Procter & Gamble group globally. Series Acquisition B.V. is a major shareholder of Gillette Pakistan. The former is a wholly owned subsidiary of P& G, USA.

The company markets and sells blades and razors of various kinds, for example, starter kits, custom razors, shave sets, beard care, body, etc.

Shareholding pattern

As at June 30, 2022, the company is largely held by Series Acquisition B.V. which is an investment management firm. Individuals and joint stock companies, each own over 3 percent shares, while 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

The company has mostly seen a growing topline, with the exception of the three years between FY16 and FY18. Profit margins in the last six years grew between FY17 and FY20, before declining gradually thereafter until FY22.

After declining for three years consistently, the topline in FY19 registered a growth of 7.3 percent to revert to near Rs 2 billion levels. While a marginal decline in the cost of production kept the gross margin more or less flat around 33 percent, the net margin recorded at 8.35 percent, was supported by a reduction in other expenses. The latter made up almost 6 percent of revenue in the previous year, compared to 2 percent in the current period. Moreover, income from interest on term deposits and savings accounts further raised the bottom line which was recorded at Rs 164 million for the year, versus Rs 5 million in FY18.

There was a marginal change in revenue in FY20 as it remained around Rs 1.9 billion in value terms. Gross margin was also stable at 33 percent, while net margin grew to 11.3 percent. This was due to a number of factors such as curtailed advertising expenses in response to the outbreak of the Covid-19 pandemic that resulted in strict lockdowns, preventing in-store shopping to a large extent. Other expenses were reduced due to a stable exchange rate that brought down exchange losses, while other income, which came from interest income, doubled year on year in value terms to Rs 60 million. Thus, the bottom line stood at Rs 222 million, the highest seen since FY14.

Topline somewhat recovered in FY21 as it posted a growth of 9.7 percent, crossing Rs 2 billion in value terms as Pakistan witnessed a V-shape recovery with 4 percent GDP, lockdowns eased and business activities resumed to a large extent. However, there was significant inflationary pressure in the economy, as well as the rupee losing value against the US dollar which raised the cost of imported inputs. This is reflected in the higher cost of production that consumed almost 80 percent of revenue, sliding the gross margin to over 20 percent. Although it tried to curtail expenses which are reflected in lower distribution expenses as a share of revenue, a major dent in profitability had been created. Thus, the net margin fell from last year’s 11.26 percent to 1.7 percent in FY21.

In FY22, at 13.4 percent the company witnessed the highest revenue growth rate seen since FY15. Topline reached Rs 2.4 billion value terms as demand continued to recover. Moreover, the company also increased distribution. With the cost of production down to nearly 75 percent of revenue, gross margin improved to over 25 percent. However, operating and net margins fell to 6.4 percent and negative 0.9 percent, respectively. Administrative and other expenses depicted prominent increases as a share in revenue, the former due to an increase in salaries, wages, and benefits, and the latter due to considerable net exchange loss. Coupled with this was the decline in other income that nearly disappeared, from Rs 65 million in the previous year to Rs 9 million in FY22. With the addition of significant taxation expenses, the company eventually incurred a loss of Rs 22 million.

Quarterly results and future outlook

Revenue in the first quarter of FY23 was higher by over 36 percent year on year. This was attributed to higher distribution, better sales mix, and improved in-store strategies. The company managed to improve profitability on the back of a drop in production cost that was down to 67 percent of revenue, compared to 79 percent in the corresponding period last year. Thus, the gross margin improved considerably from almost 21 percent in 1QFY22 to 33 percent in 1QFY23. However, growth in net margin was marginal from a net loss of Rs 2 million in 1QFY22 to a net profit of Rs 8 million. This growth in net margin was less pronounced due to an increase in expenses as a share in revenue, particularly other expenses and interest expenses.

The company earned almost Rs 1 billion in its first quarter of FY23 already, which is noteworthy considering it posted the highest annual revenue at Rs 2.4 billion in FY22. Keeping expenses in check may make room for improved profitability as seen in the first quarter. The company also seems impacted by fluctuation in the exchange rate as it has incurred considerable exchange loss in the previous year as well indicating large unfavorable movements in the exchange rate will elevate the company’s other expenses.