Colgate Palmolive (Pakistan) Limited

Colgate Palmolive Pakistan, one of the leading manufacturers of personal care and consumer products in the country, began its operations back in 1985 when the US granted the firm license to manufacture and market Colgate Palmolive products in Pakistan.
Currently, the firm is engaged in the production and marketing of some of the leading international brands of oral and personal care products, bringing a few of the world's most trusted household names such as Colgate Toothpaste and Palmolive Naturals to the Pakistani market. Working under the umbrella of the Lakson Group, the company boasts of 450 distributors across the country and has been a KSE top performer, being listed amongst the Top 25 best performing companies for seven years straight as of 2012.
FINANCIAL HIGHLIGHTS The period under review saw Colgate Palmolive's net profits hit Rs 747 billion, a 0.8 percentage decrease over the same period last year, even as the firm's net turnover and gross profits in absolute terms show improvements year-on-year.
While on the surface all seems relatively well for the consumer goods giant, there might be a few things amiss once the numbers are given a closer look.
Not only has the firm's GP shed quarter on quarter, for the period under review, Colgate's gross profits as a percentage of net sales have also taken a second successive hit, losing 67 bps as compared to the same period last year. A reason for this remains the pressure cast by rapidly increasing prices of raw material, which for Colgate are highly sensitive to exchange rate movements as a majority of them are imported into the country.
Additionally, the 8.6 percent growth in the top line can also be largely accounted for by price adjustments of various products during this period rather than any hefty growth in volume, as the firm tries to pass off some of these costs on to the consumers. Interestingly however, the firm's P&L statement, at the half year mark shows that the biggest accretion has been in the selling and distribution expenses which have increased by 20.8 percent year-on-year.
Consistently climbing throughout the last year, these are in lieu of increased investments in advertising and promotional campaigns for the company's products. However, apart from contributing towards significant volume growth seen in 4QFY12, these expenses have in all effect had little to show in terms of absolute growth in sales volumes throughout the first two quarters of FY13. Filtering down, the less than stellar performance for the quarter meant that the Net Profit after Tax also recorded a 0.8 percent depreciation, while the EPS was also marginally lowered year-on-year, reaching Rs 17.13 at the half year mark.
MARKETING & OPERATIONAL HIGHLIGHTS As competition continues to heat up for a number of Colgate's products in the personal and fabric care categories, the firm has geared up for further increases in investments on the advertisements front.
In this lieu, one of the biggest expenses has been incurred on account of the rebranding of the firm's Surface Care products including the Lemon Max range. Additionally, during the period under review, a new variant of the Colgate Sensitive toothpaste "Colgate Multi-protection" was introduced into the market for which extensive brand activation, in-store promotions and PR activities were carried out.
Moreover, continuation of the 'Bright Smiles, Bright Futures' campaign and the 7th "Colgate Dental Health Week" was also part of this quarter's agenda wherein the company improved its reach into smaller rural towns. On the whole, the quarter was characterised by a new integrated marketing communication plan, where the firm has been actively engaging with consumers at identified high impact touch points across the country.
FUTURE OUTLOOK While this year marred the financial health of many companies, consumer goods manufacturers have been relatively spared in the face of the gloomy economic and political climate of the country. However, Colgate Palmolive's struggles are only now becoming visible, with the firm needing an immediate pick-me-up in terms of sales volumes.
Another issue remains operational efficiency, which has not been as aggressively addressed by the firm as has been by major competitors including Unilever, many of whose personal and home care products are Colgate's direct competitors. In the face of rising costs of utilities, packaging material and raw material, improvements in operational efficiency are therefore a must if the firm plans to substantiate and keep up its margins. Moreover, apart from internal cost efficiency, the firm might also need to re-evaluate some of the existing product lines- especially in the detergents category. In this lieu, focused re-branding for the firm's lower priced detergent variants such as Bonus Tristar would be a timely intervention as it seems to be losing ground to some of the new entrants into the market.