Colgate Palmolive, a small soap and candle business that William Colgate started around 2 centuries back, has evolved into one of the biggest FMCGS of the world, at present it has presence in more than 200 countries. Its brands (Colgate, Mennen, Palmolive, Ajax, Soft soap and Hill's pet nutrition) are globally recognised for their high quality and are trusted by customers.
Company's success lies behind its commitment to advancing technology, focus on the changes in customer needs and its commitment to core corporate values, ie, caring, global teamwork and continuous improvements. In Pakistan the FMCG giant is engaged in making products under oral, personal, surface and fabric care segments. Toothpastes, soaps, detergents, fabric cleaners are amongst the main products that the Company manufactures.
Highlights FY11 Compared to FY10 when the net turnover rose by just 2 percent, in FY11 the net turnover experienced a robust growth of around 23 percent. The sluggish growth in the FY10 was primarily owed to the massive devastation caused by floods.
All segments of the Company experienced volumetric growth in FY11; however, leading it was the home care segment which is also the largest segment. The powdered detergents segment of the Company, which includes Brite, Bonus active, Express power and Bonus tristar showed strong growth.
Re-launch of Brite, with 'Stain magnets' formula for superior cleaning entrusted the confidence of the brand and helped build brand equity. In addition, robust campaigns, which include interaction with the target, market at various points boosted sales. In the dishwashing segment the lemon Max bar continued to be the market leader, driving the growth was the brands focus on superior grease cutting. The new vibrant looks and strong promotional campaigns further boosted demand.
Profitability Despite strong top line growth, the trend of improving gross margins couldn't continue in FY11. The gross margins after jumping from 25 percent to 33 percent in FY10 remained declined in FY11. The surge in raw material and packaging costs by 35 percent and 43 percent in FY11, compared to FY10 are the main contributors to the increase in cost of manufacturing. In addition Company attributes the decline in gross margins to depreciation expense that rose by roughly 41 percent in FY11; this increase is due to large capital investments in plant and machinery.
In absolute terms the gross profit rose by 8.6 percent in FY11 over FY10, this increase is led by the selective price increases. On the operating side Company successfully managed to limit its selling and distribution expenses, which stood at 14.9 percent of the sales in FY11 compared to 16 percent in FY10. Despite a 30 percent increase in freight, the considerably small (9.6 percent increase) in advertising and sales cost in FY11, compared to 40 percent in FY10, restrained the operating expenses.
Company attributes continuous improvement and prudent spending as the main reason behind balancing the selling and distribution expenses. Despite restraining the operating expenses the overall operating margin fell from 15 percent in FY10 to 13 percent in FY11, as the effect of higher cost of sales prevailed.
Company had a very good start in FY12, as the turnover grew by 37 percent in the 1QFY12 compared to the same period of last year. However, a sizable chunk of the increase is attributed to the low base effect, due to floods in the 1QFY11 that slowed down the sales. Despite surge in fuel cost the gross, operating and net profitability of the Company improved in 1QFY12, this improvement is somewhat attributed to the selective price increases.
Assets/liabilities The total assets of the Company rose by 25 percent in FY11, the increase was led by the roughly 43 percent increase in the property plant and equipment (PPE). The robust growth that PPE has experienced over the past couple of years continued in FY11, this is owed to the continued efforts to increase capacity, and balance and modernise manufacturing facilities. The stock in trade both raw material and in warehouse rose by 79 percent in FY11, a simultaneous increase in the trade and other payable led by increase in bills payable, surged the liabilities.
Activity ratio The Company's ability to collect its receivables improved as the debtor's turnover fell from 10 to 8 days in FY11. However, the number of days of inventory rose, reflecting worsening ability to convert inventory into sales. The total asset turnover stayed at 2 times; however, the property plant and equipment turnover declined, due to a sizable increase in the PPE; the large investments made in PPE would, however, reap benefits in the future.
Liquidity The short-term solvency position of the firm worsened on account of the short-term liabilities that rose by 65 percent in FY11 compared to FY10. The increase is primarily on account of the surge in trade and other payables. On the current assets side roughly 41 percent increase was seen, surge in stock in trade is the main contributor to this increase. Resultantly, the current ratio of the firm declined from 2.8 in FY10 to 2.2 in FY11.
The quick ratio that is considered a better reflector of the short-term solvency position of the Company stood at 0.8 in FY11 compared to 1.5 in FY10. The main reason is the 79 percent spike in the total inventory of the Company.
Outlook Despite increase in overall sales the Company is expected to see decline in profitability as the power outages and rising raw material cost would continue to inflate the cost of production. In addition the inflationary environment and the weakening economic condition of the household are threatening the demand for Company's products. However, in the long run Company has good prospects as the large investment made in infrastructure development in presence of a large population is expected to pay off.
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Colgate-Palmolive
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FY11 chg FY10 chg FY09
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Net turnover 14150 23% 11529 2% 11264
COGS 9989 30% 7699 -9% 8482
Gross profit 4160 9% 3829 38% 2781
Gross profit margin 29% -11% 33% 35% 25%
Operating profit 1796 1% 1775 49% 1194
Operating profit margin 13% -18% 15% 45% 11%
PAT 1167 1% 1151 54% 749
Net profit margin 8% -17% 10% 50% 7%
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Source: Company accounts
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Colgate-Palmolive
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Ratio FY11 FY10 FY09
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Return ratios
ROE 27 32 28
ROC 27 35 29
Solvency ratios
Current ratio 2.2 2.8 2.5
Quick ratio 0.8 1.5 1.5
Efficiency ratios
Debtors turnover (days) 8 10 11
Inventory turnover (days) 67 58 46
Total asset turnover (times) 2 2 3
Market ratios
Dividend yield 2 3 5
Price earning ratio 20.82 16.09 11.79
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Source: Company accounts
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