GOC (Pak) Limited (PSX: GOC) was established as a private limited company in 1964 under the Companies Act, 1913 (now Companies Act, 2017). It was converted into a public limited company in 1986. Previously it was known as Grays of Cambridge.

The company produces hockey sticks, cricket balls and other sports related items. It operates two business units; one produces hockey sticks and cricket balls while the second unit produces hockey sticks and accessories.

Shareholding pattern

Close to 50 percent of the shares of the company are held by associated companies, undertakings and related parties. A further breakdown of this was not revealed in the recent annual report. Directors, CEO, their spouses and minor children hold about 26 percent while roughly 20 percent of the shares are with the local general public. The remaining 7 percent is distributed between the rest of the categories.

Historical operational performance

The topline of the company has been growing consistently since FY14, with the exception of FY17 when it recorded a negative growth rate. Profit margins have also followed a similar trend whereby they reduced in FY17, but otherwise have been growing over the years.

In FY15, GOC Pak registered a growth in topline of a little over 6 percent, down from close to 17 percent in the previous year. Of this, sales of cricket balls and wooden hockey sticks rose while sales of composite hockey sticks and accessories declined. There was a general decline in domestic demand due to the war on terror, and its spillover effects on security and law. Exports were also subdued during the year as a result of unfavourable currency rates and intermittent supply of energy.

There was not much change in the internal and external environment during FY16. Domestic demand remained low while the security situation continued to affect business. The company’s revenue grew by 9 percent year on year. Of this export sales of cricket balls and accessories increased while that of composite and wooden hockey sticks continued to decline. The profit margins improved marginally as revenues and costs were largely unchanged.

In FY17 the topline fell by 19 percent- the highest drop seen thus far. It was owing to a subdued demand. Sales of all their products fell. With the expectation that composite sticks would replace the wooden hockey sticks in the market, the company focused on research and development in the area and tried to increase their market share in the composite hockey sticks category. Despite the fall in sales, the administrative costs increased significantly because of a near Rs7 million rise in traveling and conveyance costs and fee and subscription. With a decline in topline, a corresponding decline in cost of manufacturing was absent, therefore margins overall were squeezed resulting in bottomline to reduce to Rs12 million. (FY16: Rs 38 million)

GOC Pakistan regained growth momentum in FY18 whereby its topline registered a double digit growth rate of almost 12 percent. Of this, sales of composite and wooden hockey sticks along with accessories increased; sales of cricket balls declined. The company was able to curtail costs with cost of manufacturing consuming 66 percent of topline as opposed to 70 percent in the preceding year. Although other expenses increased in absolute terms; its share in revenue was negligible. The curtailment of costs at manufacturing level lifted profit margins, eventually increasing net profit to Rs26 million.

Since the company’s revenue is largely driven by export, the currency devaluation allowed topline to grow by close to 28 percent apart from an increase in volumes in FY19. Wooden hockey sticks, composite hockey sticks and accessories experienced a rise in sales while cricket balls sales remained low. Profit margins also improved with the support of more than usual ‘other income’ coming from income from financial assets, primarily net exchange gain and credit balances written back. With this, GOC Pakistan recorded a net profit of Rs72 million in FY19, the highest seen since FY14.

The capacity utilisation could not be gauged because the company is manufacturing man-made sports goods; hence the production efficiency is defined by the efficiency of the person employed.

Half yearly results and future outlook

During the six months ended December 31, 2019, topline experienced a negative growth rate of over 6 percent. This was due to changing market trends. Over the years, sales of hockey sticks had been declining but he six months ended 1HFY20 saw sales of hockey sticks declining. Instead, sales of cricket balls picked up. While most other elements of the accounts remain unchanged, administrative costs more than doubled. The breakdown of this has not been provided. With sales already declining, the hike in administrative costs geared the company towards losses, with a net loss of Rs12 million as compared to a net profit of Rs7 million in 1HFY19.

Since the company exports its goods in the international market, it faces currency risk and uncertainty in profitability as a result of changes in currency rate. An overvalued currency harms the company since its good become uncompetitive in the international market. Moreover, considering the changing trends, the company claims to continuously invest in innovation, distribution and promotion to increase market share.

Apart from hoping to increase sales of composite hockey sticks, GOC Pak is also expanding its production capacity of producing cricket balls, foreseeing demand arising from cricket playing countries such as South Africa, Australia and England as well as locally.