Colgate-Palmolive Pakistan Ltd (COLG) is among the leading multinational consumer goods company in Pakistan. A member of Lakson Group Company, it began its operations back in 1985 when the US based Colgate-Palmolive granted the firm license to manufacture and market Colgate-Palmolive products in Pakistan. At the moment, the company is one of the top manufacturers of personal care and consumer products within the country.
The firm produces and markets leading global brands of oral and personal-care products. Additionally, the company brought few of the world's most trusted household names such as Colgate Toothpaste and Palmolive Naturals to the Pakistani market. The company's principal class of the product comprises Personal Care, Home Care, etc. Colgate Palmolive's sales of Home Care accounted for 75 percent of its total sales of all product classes.
PAGES FROM HISTORICAL PERFORMANCE: Consumer goods sector has started showing its presence in Pakistan during 2010, and the country saw an upward trend in this industry. The fortunes of COLG also witnessed a rise during this period. Since last five years, COLG strategically spends money on its brands, effective in-store promotions and advertisement. At the same time, the toothpaste company put its attention into building good distribution networks.
The company took steps during this period to keep its core cost low and intensify the cost-saving measures that enabled to offset the higher input prices hindering most other manufacturers. Up until FY12 COLG performed well in its sales and profit. During FY12, the company saw its bottom line scored Rs 1.62 billion versus Rs 1.17 billion recorded in FY11, which was a 39 percent increase in year-on-year comparison. This massive increase in profit after tax came from 29 percent increase in sales during the period. However, then came FY13, when revenue growth slowed to 8 percent. The company also saw major problems with regards to energy woes and had to rely heavily on producing in-house power. These costs become a heavy burden on the margins of the company.
Additionally, adverse exchange rate movement caused the company to buy the raw material at higher prices that in return decreased the firm's gross profit margin to 28 percent, a 100 basis point fall. However, on a brighter note Colgate-Palmolive invested significantly during this period in plant and machinery, and that paid them well in subsequent years.
PERFORMANCE IN FY14: FY14 brought the company back in the game to some extent with turnover growing 14.6 percent year-on-year. After-tax profit also grew from Rs 1.589 billion to Rs 1.69 billion. The company received benefits from stability in exchange rates and appreciation of the rupee against the US dollar. Nevertheless, the firm's margins stayed the same, and no significant change has seen.
Again, Colgate put considerable money in its brands and store marketing. The company rolled out campaign to increase engagement at relevant touch points to drive market share. But it saw a massive competition in Palmolive soap by the influx of imported soaps at a price much lower than the raw material cost of manufacturing it.
FY15 PERFORMANCE: The last financial year was a mixed year for the company. Mix in the sense that the consumer goods giant clocked in a whopping Rs 2,222 million year-on-year, in after-tax profit. However, the alarm bell should ring at Colgate because this excellent bottom line growth has not come from top line but rather the financial investment that company has made over the years. The net turnover only grew by 4.6 percent, which is among the lowest in the industry whereas its other income saw a growth of 157 percent.
Although, COLG claims to be a market leader in the dental care sector and commands the sector, it is facing massive competition in fabric detergents and dishwashing. But despite that in home care category the company is still at the leadership position. During the period under discussion, the company reported 22 percent sale in personal care, 75 percent in home care and 4 percent in other sale items. During the financial year, Colgate took advantage of the declining commodity prices and raw material costs, which helped to increase its gross profit margin by about 320 bps.
FUTURE OUTLOOK: The director report of Colgate-Palmolive Pakistan Ltd (COLG) has clearly acknowledged the fact that the company will face intensified competition from existing players and new entrants in fabric detergents and dish washing products. This will require the company to increase investments to defend and grow market shares. Similarly, the company is also anticipating pressure on its margins due to adjustment in prices and possible rupee depreciation. Even though, the company is taking steps to increase its market share but Colgate needs to increase its top line and the policy of fighting competition by reducing the price has already started hurting the company's brand.
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Colgate Palmolive Pakistan Ltd
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Rs (mn) FY13 FY14 FY15 YoY
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Net turnover 20,267 23,226 24,310 4.67%
Cost of Sales 14,595 16,646 16,631 -0.09%
Gross Profit 5,673 6,580 7,679 16.69%
Selling and Distribution 3,120 3,811 4,214 10.58%
Administration Expenses 182 224 268 19.96%
Operating Expenses 181 209 263 25.78%
Other Income 89 141 362 157.03%
Profit from Operation 2,278 2,477 3,295 33.01%
Finance Cost 15 18 20 14.69%
Profit before Tax 2,263 2,460 3,275 33.14%
Taxation 674 766 1,053 37.36%
Profit After Tax 1,589 1,693 2,222 31.24%
Gross profit margin 28% 28% 32% UP 400 BPS
Operating profit margin 11% 11% 14% UP 300 BPS
Net profit margin 8% 7% 9% UP 200 BPS
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Source: Company Account
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