Shield Corporation Limited

Shield Corporation essentially has two business segments, namely oral care and baby care. In oral care it caters to all age groups, with three adult range categories: expert care, family care and essential care while the children's category is called Shield Champs. Products in the baby care segment include diapers, feeders, teething, utensils and other hygiene essentials for infants.

Shareholding pattern

Majority of the company is held by the directors, CEO and their spouses - nearly 75 percent - out of which approximately 14 percent is owned by the chairman, Mr. Ebrahim Qassim. Other than sponsor shareholding, 25 percent is owned by the local general public, while 'others' own an insignificant share.

Past performance

Shield Corporation Limited bulk of the sales is in the domestic market. In the past half-decade its revenue has been on the rise, albeit at a fluctuating rate. FY14 saw a fall in top-line of nearly 4 percent compared to an increase of almost 15 percent in FY13. This was due to uncertain sales tax rate in the beginning of FY14 which adversely impacted the sales for the rest of the period.

To rectify the situation, the company undertook some restructuring of its sales team; it reduced the sales force number in areas where sales seemed negligible and added resources where there was greater probability of revenue generation.

On the export side, Shield actively engaged with target markets in Afghanistan and Uganda, both of which did not perform as per expectations resulting in falling exports as well. In FY14, Shield recorded a profit of Rs 23 million which is the lowest ever since FY10.FY15 reaped better results where Shield's top-line increased by approximately 6 percent as per expectations. As the company had reorganized its sales team to improve sales in the previous year, it managed to increase revenue in the following period. According to company's annual report, cost of production increased due to national and provincial budgets 2014-15, despite the fall in oil prices.

In addition to better sales, another factor that contributed to profitability was a fall in bank rate from 10 percent in July 2014 to 6.5 percent in June 2015 which reduced finance cost for the year by 50 percent. Moreover, the company also managed to reduce selling and distribution expenses for the year.

Sales followed an upward trend in FY16 as well, increasing by nearly 24 percent year-on-year. Cost of imported raw material declined due to reduced oil prices; however, this was offset by federal and provincial budgets 2015-16 in addition to regulatory duty levied and additional custom duty in December 2015.

Shield Corporation also focused on marketing efforts which is evidenced by the increased expenditure by 50 percent year-on-year. Thus gross margins improved while net margins were marginally affected due to increase in taxation for the year.

The top-line continued to increase in FY17 although at a lower rate than before, around 7 percent as compared to about 24 percent in FY16. Better profitability during that period could be attributed to curtailed costs of production. According to the company's annual report they were also able to negotiate with suppliers and vendors which helped to improve margins for the period.

Furthermore, the company earned one-off income generated from sale of office premises; however it was offset by the increase in taxation and in expenses related to hiring professional staff thereby causing net margins to rather reduce from 3 percent in FY16 to 2.77 percent in FY17.

FY18 remained a challenging year for the country due to general elections which brought unpredictability in the external environment; exports performed poorly which led to the devaluation of PKR which in turn affected the purchasing power of the consumer. In the backdrop of this, Shield Corporation was able to grow top-line by only 1 percent as compared to approximately 7 percent in FY17. Moreover, it also curtailed costs in majority of the areas thereby increasing margins at both, gross and net levels.

FY19 experienced a host of problems in the economy which adversely affected the business. Unpredictability revolving around presentation of the fiscal budget twice in a year, KSE100 fell from 41,911 to 33,774 while inflation surged to double digit figure. In FY19, Shield Corporation saw a higher rate of growth in top-line at almost 6 percent; this was also accompanied by higher costs of production due to rupee devaluation resulting in higher cost of imported raw materials and increase in custom duties. Profitability was also marred by elevation in finance cost due to increase in usage of short-term financing facilities and increase in bank rate.

Quarterly performance

Shield Corporation experienced better results in the first quarter of FY20, with sales increasing by around 14 percent though profitability could not command similar incline due to currency devaluation which increased the cost of production. Another increment was seen in finance cost due to high bank rates and taxation. As a result, bottom-line saw only marginal improvement as a percentage of sales.

Future outlook The country has undergone economic slowdown with rising inflation, bank rates, and custom/regulatory among other factors; policies are expected to be more stringent due to IMF extended fund arrangement. All of these factors are expected to have an adverse impact on sales as consumer's purchasing power is also negatively affected. Shield Corporation plans to invest in new technology, focus on baby care segment which has performed better and explore export markets to maintain sustainability and profitability.

================================================================
Shield Corporation Limited: Quarterly results
================================================================
Rs (mn)                                 1QFY20   1QFY19      YoY
================================================================
Sales                                      446      393    13.5%
Cost of sales                            (306)    (260)    17.7%
Gross profit                               140      133     5.3%
Selling and distribution expenses         (61)     (87)   -29.9%
Administrative and general expenses       (17)     (17)     0.0%
Other operating expenses                   (3)      (2)    50.0%
Other operating income                       2        1   100.0%
Operating profit                            61       28   117.9%
Finance costs                             (21)      (7)   200.0%
Profit before taxation                      40       21    90.5%
Taxation                                  (19)      (5)   280.0%
Profit for the period                       21       16    31.3%
================================================================

Source: Comapany accounts

====================================================
SCL: Shareholding pattern
====================================================
Category                                           %
====================================================
Directors, CEO, and their spouse(s)            74.46
Local general public                           25.48
Others                                          0.06
====================================================
Total                                            100
====================================================

Source: Company accounts; as at June 30, 2019

Copyright Business Recorder, 2019