Multinational Colgate-Palmolive (Pakistan) Limited (PSX: COLG) was initially incorporated in 1977 as National Detergents Limited. When the company entered into a Participation Agreement with Colgate-Palmolive USA in 1990, its name was changed to Colgate-Palmolive (Pakistan) Limited. It is currently part of the Lakson group of companies.
Market share in FMCG sector Colgate Palmolive is a household name for oral, personal, surface, and fabric care. Colgate toothpaste, Palmolive soap and shampoo, Lemon Max, and Bonus are some of its most popular brands.
2016 saw introduction of a 360-degree communication platform 'Na Cavities Ka Dar Na Pyar Main Jhijhak' of their flagship brand Colgate Maximum Cavity Protection and the launches of Colgate Sensitive Pro-Relief toothpaste and Colgate SlimSoft Tri-Tip toothbrush. Both these products were part of Colgate Palmolive's oral sensitivity management regime and served to strengthen Colgate's standing as the leader in oral health. The toothpaste brand Sparkle is also owned by Colgate Palmolive.
Variants of toothbrushes Extra Clean, Premier Clean and Classic Clean were also re-launched in 2016. An oral care in Pakistan, report by Euromonitor International stated that Colgate-Palmolive led sales with a value share of 36 percent in 2016. Palmolive's 'Flawless Clean' was launched in the bar soap portfolio and the entire bar soap range was re-launched with fresh packaging, resulting in double digit volume and value growth. Palmolive's Naturals Shampoo's distribution was expanded nation-wide, increasing visibility of the Palmolive brand.
As per Colgate's 2016 annual report, Lemon Max Bar and Max liquid increased their respective market shares with new marketing strategies. The report by Euromonitor indicates that Colgate Palmolive's share in the dishwashing segment in 2016 was 57 percent. Brite and Bonus Tristar were re-launched as well with new packaging and revitalized product bundle in 2016. As per Euromonitor International's 2017 Laundry Care in Pakistan report, Colgate Palmolive led laundry care with 24 percent market share in 2016, with Bonus brand being highly preferred among price-conscious consumers from lower socioeconomic segments. The firm's current focus is to accelerate conversion from laundry soaps to detergents through Bonus Tristar. Colgate Palmolive also owns laundry brand Express Power.
Financial outlook In FY16, Colgate Palmolive's gross revenue and profit margin increased significantly. Steady volume growth generated by timely media spending, effective promotions and engaging brand activations increased sales volume. Lower oil prices contributed to reduced material costs, utilities and freight costs. These trends continued in FY17 with all categories contributing to increased revenue due to effective product mix and strong media support behind brands. Despite the rising selling and distribution costs because of higher media and promotion spend, profit from operations continued to rise resulting in a growth in EPS.
COLG has had a good FY17 with increase in earnings of 15.5 percent year-on-year. It announced Rs 20 per share as dividend with an interim dividend of Rs 1.5. (read "Colgate Palmolive on steady growth" published on July 28th, 2017).
Pattern of shareholding The bulk of the shares are held by the Lakhani group under the companies SIZA (Pvt) Limited, SIZA Services (PVT) Limited and SIZA Commodities (PVT) Limited (which appear under associated companies, undertaking and related parties in the table). Colgate-Palmolive Co., USA and Arisaig India Fund Limited, Hong Kong hold more than 5 percent of shares each.
Performance vs. KSE 100 Given its strong financials, Colgate's share performance compared to the benchmark KSE-100 index has improved since the start of this year. Year on year, both dividends per share and earnings per share have increased in recent years.
Future outlook With an anticipated increase in commodity prices, the company is expecting pressure on margins to increase in coming months. Colgate's plans to increase prices of selected products and control costs to tackle increases in cost of raw materials. The company also anticipates pressure on margins as result of aggressive pricing strategy due to increased competition and appreciation of commodity prices. Colgate Palmolive plans to combat that by concentrating on improving distribution in both urban and rural areas through advancements in technology. As per Euromonitor, growth in oral care industry can come through brand loyalty and improved distribution networks.
With rising population, higher household incomes and urbanisation, dishwashing continues to see stable growth in demand. Lemon Max enjoys strong brand loyalty and is in tune with the trend shift from soaps to liquids and gels.
There is an increase in shift from unbranded to branded laundry care in recent years. Laundry care is expected to grow steadily, driven by Pakistan's increasing population and rising usage of washing machines. Consumers are also expected to switch from unbranded to branded products, with increasing disposable income, female literacy and female employment. Though price competition has put pressure on Colgate's margins, the trend of strong volume sales, especially of Bonus brand, is expected to continue. Overall, Colgate Palmolive is expected to continue its strong financial performance.
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Financial Summary
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Year ended June 30 2016
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Rupees in million (except EPS) 2014 2015 % change 2016 % change
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Gross Sales 29,367 31,175 6.2 33,135 6.3
Operating Income 2,477 3,295 33 4,199 27.4
Net Profit After Tax 1,693 2,222 31.2 2,819 26.8
Earnings per share (Rs.) 35.31 46.34 31.2 58.78 26.8
Shareholders' Equity 7,745 9,054 16.9 10,677 17.9
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Source: Company accounts
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Financial Highlights
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Rs (mn) 9MFY17 9MFY16 YoY (%)
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Turnover 27,713 24,429 13.4
Gross Profit 8,184 6,838 19.7
-as % to net sales 37.49% 35.92% 157 bps
Selling & Distribution Costs 4,273 3,543 20.6
-as % to net sales 19.82% 18.61% 121 bps
Administrative Expenses 282 235 19.8
-as % to net sales 1.28% 1.23% 5
Profit from Operations 3,571 3,037 17.6
Profit after Tax 2,481 2,080 19.3
Earnings per share-Rupees 51.75 43.38 19.3
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Source: Company accounts
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Pattern of Shareholders
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Categories of Shareholders Shares Held %
Directors, Chief Executive Officer, and their spouses and minor children 2,338,893 4.88
Associated Companies, undertakings and related parties 27,795,811 57.96
NIT and ICP 201 -
Banks, Development Financial Institutions, Non-Banking Financial Institutions, Insurance Co 2,287 0.01
Modarabas and Mutual Funds 1,016 -
Shareholders holding 10% 40,685,648 84.84
General Public
a. Local 833,892 1.74
b. Foreign - -
Others 16,982,829 35.41
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NOTE: Some of the shareholders are reflected in more than one category.
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Source: Company accounts
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Key Ratios
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FY16 FY15 FY14
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Rate of Return
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Post tax return on equity 26% 25% 22%
Interest Cover 179 times 161 times 139 times
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Profitability
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Gross profit margin 36% 32% 28%
Operating profit to sales 16% 14% 11%
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Liquidity
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Current Ratio 4.0:1 4.1:1 3.5:1
Quick Ratio 2.9:1 2.8:1 2.2:1
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Financial Gearing
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Debt Equity Ratio 0.0694 0.0694 0.0694
Gearing Ratio 0.28 0.28 0.32
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Capital Efficiency
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Debtors turnover 8 days 10 days 10 days
Inventory turnover 60 days 56 days 56 days
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Source: Company accounts
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