Gillette Pakistan Limited (PSX: GLPL) was established in 1986 as a public limited companyin 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 aninvestment management firm. Individuals and joint stock companies, each own over 3percent shares, while the directors, CEO, their spouses, and minor children own a negligibleshare. 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 yearsbetween 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 percentto revert to near Rs 2 billion levels. While a marginal decline in the cost of production kept the grossmargin more or less flat around 33 percent, the net margin recorded at 8.35 percent, wassupported by a reduction in other expenses. The latter made up almost 6 percent of revenuein the previous year, compared to 2 percent in the current period. Moreover, income frominterest on term deposits and savings accounts further raised the bottom line which wasrecorded 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 invalue terms. Gross margin was also stable at 33 percent, while net margin grew to 11.3percent. This was due to a number of factors such as curtailed advertising expenses inresponse to the outbreak of the Covid-19 pandemic that resulted in strict lockdowns, preventingin-store shopping to a large extent. Other expenses were reduced due to a stable exchange ratethat 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 222million, the highest seen since FY14.
Topline somewhat recovered in FY21 as it posted a growth of 9.7 percent, crossing Rs 2billion 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 wassignificant inflationary pressure in the economy, as well as the rupee losing value against the USdollar which raised the cost of imported inputs. This is reflected in the higher cost of productionthat 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 ashare of revenue, a major dent in profitability had been created. Thus, the net margin fell fromlast 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 sinceFY15. 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 nearly75 percent of revenue, gross margin improved to over 25 percent. However, operating andnet margins fell to 6.4 percent and negative 0.9 percent, respectively. Administrative andother expenses depicted prominent increases as a share in revenue, the former due toan increase in salaries, wages, and benefits, and the latter due to considerable net exchangeloss. Coupled with this was the decline in other income that nearly disappeared, from Rs 65million in the previous year to Rs 9 million in FY22. With the addition of significant taxationexpenses, 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 wasattributed to higher distribution, better sales mix, and improved in-store strategies. Thecompany managed to improve profitability on the back of a drop in production cost that wasdown to 67 percent of revenue, compared to 79 percent in the corresponding period lastyear. Thus, the gross margin improved considerably from almost 21 percent in 1QFY22 to 33percent in 1QFY23. However, growth in net margin was marginal from a net loss of Rs 2million in 1QFY22 to a net profit of Rs 8 million. This growth in net margin was lesspronounced due to an increase in expenses as a share in revenue, particularly other expensesand interest expenses.
The company earned almost Rs 1 billion in its first quarter of FY23 already, which isnoteworthy 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 firstquarter. The company also seems impacted by fluctuation in the exchange rate as it hasincurred considerable exchange loss in the previous year as well indicating largeunfavorable movements in the exchange rate will elevate the company’s other expenses.