Personal care: COLGATE-PALMOLIVE (PAKISTAN) LIMITED - Analysis of Financial Statements - Financial Year 2004 - Financial Year 2010
Colgate Palmolive Pakistan initiated its operation in Pakistan in 1985 when the US granted licence to manufacture and market its products in Pakistan. It offers its products such as oral care, surface care, fabric care and personal care.
========================================================
COMPANY SNAPSHOT
========================================================
Name of company Colgate Palmolive Pakistan Limited
========================================================
Nature of Business Personal goods
Ticker Colgate Palmol
Net Turnover FY '10 Rs.11,184,930,000
Net Profit FY'10 Rs.1,151,639,000
Share price (avg.) Rs.391.20 per share
Market Capitalization 10,746,420,480
========================================================
Market comparison
The sales comparison shows that Colgate Palmolive occupies the third largest position in the chemical industry at sales of Rs. 11,529,310,000 after the biggest market player LOTPTA at Rs. 37,773,532,000 and the second largest ICI at Rs. 28,429,897,000. The sales of LOTPTA have shown the greatest increase over FY09-FY10.
Beta analysis shows that the beta of Colgate Palmolive Pakistan is quite low at 0.34, as given by the slope of the trend line. This indicates that the returns on the company's stocks are very stable and unaffected by the fluctuations in market prices.
================================================
Industry Col. Pal
================================================
LIQUIDITY
------------------------------------------------
Current Ratio 2.02 2.85
------------------------------------------------
ASSET MANAGEMENT
------------------------------------------------
Inventory Turnover 40.07 41.86
Days Sales Outstanding 30.90 10.03
Operating Cycle 70.97 18.75
Total Asset Turnover 1.31 0.35
Sales/Equity 3.46 3.22
------------------------------------------------
DEBT MANAGEMENT
------------------------------------------------
Debt to Asset Ratio 48.50 25.58
Debt to Equity Ratio 1.02 0.34
Long Term Debt to Equity 0.49 0.06
Times Interest Earned 45.99 160.86
------------------------------------------------
PROFITABILITY
------------------------------------------------
Gross Profit Margin 23.04 33.22
Profit Margin 8.44 9.99
Return on Assets 15.78 23.96
Return on Equity 29.74 32.19
------------------------------------------------
MARKET VALUE
------------------------------------------------
EPS 20.11 42
Book Value 62.14 130.22
================================================
Industry
The comparison of the company's ratios with industry averages shows that the liquidity position of Colgate Palmolive at 2.85 is better as compared to industry average of 2.02. The inventory turnover in days at 41.86 is slightly lesser than industry average of 40.07 showing that the company's inventory management has weaknesses as compared to industry. The day sales outstanding of 10.03 is also lower than industry average of 30.90 indicating that receivables are also being managed inefficiently at the company. The total assets turnover is lower at 0.35 compared to 1.31 in the industry showing that the company is not generating an adequate amount of sales as compared to the industry. Sales to equity ratio, is also lower at 3.22 compared to 3.46 because the company has lower amount of debt in its capital structure.
Debt to asset ratio is lower at 25.58 compared to 48.50 of the industry, because of lower amount of debt as compared to assets in Colgate Palmolive. Debt to equity is also lower at 0.34 compared to 1.02 for the industry. The long term debt to equity is significantly lower at 0.06 compared to 0.49, indicating that the company has quite less long-term debt as compared to industry average. The company seems to be using less leverage than it might use. The TIE is also high at 160.66 compared to 45.99 for the industry, due to the low finance cost.
The gross profit margin of Colgate Palmolive is higher at 33.22 compared to industry figure of 23.04 indicating better management of costs. The net profit margin shows a similar comparison. Return on assets and return on equity is also higher showing that the company is generating a good amount of sales according to the investment made in the company.
The EPS is high at Rs 42 compared to Rs 20.11 for the industry indicating the strong position of the company in the industry. The book value per share shows a similar comparison at Rs 130.22 compared to Rs 62.14 in the industry.
======================================================================
2009 2010 % Change
======================================================================
Turnover 13,994,706 14,583,936 4.21
Net turnover 11,184,930 11,529,310 3.08
Cost of sales 8,482,756 7,699,401 -9.23
Gross profit 2,702,174 3,829,909 41.73
Selling and distribution costs 1,345,967 1,846,098 37.16
Administrative expenses 102,024 142,021 39.20
Profit from operations 1,194,972 1,775,228 48.56
Finance costs 48,867 11,036 -77.42
Profit before taxation 1,146,105 1,764,192 53.93
Taxation 396,139 612,553 54.63
Profit after taxation 749,966 1,151,639 53.56
======================================================================
Recent performance:
The gross turnover of the company increased by 4.21% over FY09 to FY10 due to general inflationary increase in sales prices. The increase in net turnover was lower at 3.08% due to slight increase in sales tax. The cost of sales, however, fell by 9.23% and this shows that cost of manufacturing was managed better in FY10, thus improving the gross profit margin by 41.73% from Rs. 2,702,174,000 in FY09 to Rs. 3,829,909,000 in FY10.
On the other hand, the selling and distribution costs, and the administrative expenses increased by 37.16% and 39.20% respectively over FY09-FY10. This increase was due to increase in overheads as a result of high inflation as well as rupee devaluation. Frequent increases in electricity tariffs and power outages added substantially to the costs. Furthermore, due to unstable law and order situation in the country, security cost as well as insurance cost increased.
Overall, the profit from operations showed an increase of 48.56%, which is an indication of strong market position of the company. The finance cost decreased dramatically by 77.42% caused by decreased mark up payments due to divestiture of long-term loan in FY10. However this was offset by the increase in taxation by 54.63% led to an overall 53.56% increase in net profit after tax.
Ratio analysis:
The gross profit margin of the company improved from 24.16% to 33.22% over FY09-FY10 due to improved management of manufacturing costs, despite increase in raw material and oil prices. The net profit margin showed a similar increase from 6.71% to 9.99%. The return on assets improved from 19.03% to 23.96% and the return on equity from 27.77% to 32.19%, showing that the net income earned justified the investment into assets in the company.
The current ratio increased from 2.52 in FY09 to 2.85 in FY10. This was due to improving liquidity position of the company due to increase in inventory from Rs. 1.128 billion to Rs. 1.322 billion. Current maturity of long-term loan decreased from Rs. 2 million to Rs. 625,000, thus causing the current ratio to increase.
The day sales outstanding decreased slightly from 11.08 in FY09 to 10.03 in FY10. Inventory turnover in days fell from 64.67 in FY08 to 36.83 in FY09 but improved to 41.86 in FY10, showing that inventory management significantly improved over the period FY08 onward.
Total asset turnover fell significantly from 2.72 in FY08 to 0.42 in FY'09 and further declined to 0.35 in FY10. This was due to increased investment in fixed assets, however the sales did not how the expected proportionate increase, leading to this decline in total assets turnover. However, the sales to equity ratio decreased over FY09-FY10 from 4.14 to 3.22 due to issuance of further shares by the company.
The debt to assets ratio of the company decreased from 31.47 in FY09 to 25.58 in FY10 due to decrease in long-term liabilities of the company. Debt to equity ratio showed a similar trend from 0.46 in FY09 to 0.34 in FY10. Long-term debt o equity ratio decreased significantly from 7.59 in FY08 to 0.06 over FY09 to FY10 due to divestiture of long-term loan and issuance of shares in FY10. Times interest earned showed a huge increase from 24.45 in FY09 to 160.86 in FY10. This was due to significant decrease in interest expense as well as increase in EBIT in FY10.
Book value per share improved from Rs. 113.04 in FY09 to Rs. 130.22 in FY10, since the earnings of the company were reinvested instead of being paid out as dividend. The EPS showed a similar trend from Rs. 31.4 to Rs. 41.92. The market price per share increased from Rs. 360.82 to Rs. 391.2 showing that the market's confidence in Colgate Palmolive Pakistan Ltd. Improved in the FY10. The price earnings ratio declined from 11.49 in FY09 to 9.33 in FY10.
Future outlook:
Tough market conditions in the next financial year are expected. Though recent trends have shown slight signs of macro economic stability, this recovery is still fragile and is threatened by the pressures building up on the fiscal account deficit, further energy shortages, persistent inflation, uncertainty hovering around the political front and continued disruptions on account of law and order situation. Furthermore the cost of basic raw materials like oil have been showing an upward trend in the international market, which is likely to impact the margins in the up coming year.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Comments
Comments are closed for this article.