Sector overview - oral, fabric, and dishwashing
Colgate Palmolive is the market leader in the oral care sector in Pakistan with 36 percent share in 2016. Increased awareness of dental sensitivity issues through media campaigns by GSKCH and Colgate helped increased sales of Colgate Sensitive. Brand loyalty and accessing untapped segments are the most important factors influencing growth and share of oral care in Pakistan.
In Pakistan, bar detergents are widely used in lower-income rural and urban households as they do not own washing machine. Some consumers also use shredded bar detergents in washing machines as they believe them to be gentler on clothes than washing power. There is huge potential in bringing this sector over to the use of laundry powder.
Fabric softeners are expected to the most dynamic of laundry care product in terms of future sales, as per Euromonitor. This is mostly due to heavy investment in ATL advertising and product distribution by category leader Unilever. Colgate's brand Softlan has a smaller share of the segment.
In terms of laundry detergents, Unilever's Surf Excel was the leading brand in 2017. However, overall the leader in laundry detergent brands in value terms was Colgate Palmolive through combined sales of Bonus, Brite and Express.
Colgate Palmolive remained the leader in the dishwashing sector in 2017 because of its brand Lemon Max, leading to a decline in main competition Unilever's brand Vim. Though there is competition from smaller cheaper domestic brands, MNC's account for the lion's share of the dishwashing segment. Bars are expected to remain the dominant format with currently low levels of awareness and penetration of liquids and pastes.
Financial history
Sales and gross profits have grown continuously for the company over the last few years, though net profit has stagnated as of late.
In FY14, top line increased by over 15 percent year-on-year, and bottom line increased by nearly 7 percent. Media and promotion helped drive sales while appreciation of rupee against the dollar contributed to lower raw material costs hence better gross margins. Palmolive soap sales growth was under pressure due to cheaper imported products. Among new product launches were Colgate SlimSoft Charcoal tooth brush and Colgate Sensitive Pro-Relief.
While sale grew marginally in FY15 by 6 percent, net profit grew significantly by over 30 percent. Reduced oil prices helped lower costs of raw material and freight and increase gross profit margin by 17 percent to 32 percent. Colgate Super Flexi toothbrush was launched in FY15.
Sales and net profit continued their upward trajectory in FY16 with growth rates of 6 percent and 27 percent year-on-year, respectively. Volume growth and lower oil prices contributed to increase in turnover and profitability. Brite and Bonus Tristar were re-launched to power the washing powder category. A new variant of the Palmolive bar soap line, Flawless Clean, was also launched along with toothbrush Colgate Tri Tip.
Strong performance by major brands of Colgate Palmolive led to top line growing by 13 percent and profit after tax growing by 16 percent in FY17. While sales continue to rise in FY18, growth in net profit was non-existent. Devaluation of rupee put downward pressure on gross margins which was further exacerbated with the increase in global oil prices.
1QFY19 Performance
Top line rose due to an increase in prices to adjust the impact of a higher cost of production. As the full impact of devaluation of the currency could not be passed on to the consumer, gross margin dipped down for the firm. Downward pressure on margins resulted in a rationalisation of media and promotion spending which led to a lower selling and distribution cost. Administrative expenses grew because of employee related costs and depreciation expenses.
Future outlook
Profits of the company are susceptible to exchange rate fluctuations. If and when Pakistan enters the IMF program, it is possible there will be a new bout of devaluation, which will impact the company's margins.
In the first quarter of the year, profits were defended in part through lower media and promotion expenses. Since Colgate is an FMCG company, a continuous stream of ATL and BTL activities are essential to defend and increase market share but may lead profits to decline.
On the positive side, Colgate Palmolive remained a market leader in oral care, laundry care and dishwashing categories. Since there has been a shift from unbranded to branded laundry care in recent years, the organised sector's sales will continue to rise. Factors such as female literacy and female employment will also drive sales of Colgate Palmolive's offerings.
However, trends such as rising population, higher household incomes and urbanisation bode well for the company in the long run. In the immediate and short run the company's margins will most likely remain under pressure.
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Colgate Palmolive-financial snapshot
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Rs. (mn) 1QFY19 1QFY18 YoY
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Turnover 11,125 10,129 10%
Cost of goods sold 8,484 7,675 11%
Gross Profit 2,545 2,604 -2%
Selling & distribution costs 1,269 1,306 -3%
Administrative expenses 124 108 15%
Profit from operations 1,171 1,169 0%
Profit After tax 801 817 -2%
EPS 13.91 14.19 -2%
Gross profit margin 23% 26% -11%
Net profit margin 7% 8% -11%
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Source: company accounts
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Pattern of shareholding
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Categories of Shareholders Shares Held %
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Directors, Chief Executive Officer, and their spouses and minor children 2,338,893 5
Associated Companies, undertakings and related parties 28,121,500 59
NIT and ICP 201 -
Banks, Development Financial Institutions,
Non Banking Financial Institutions, Insurance Companies 2,287 0.01
Modarabas and Mutual Funds 1,016 -
Shareholders holding 10% 40,685,648 85
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General Public
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a. Local 503,340 1
b. Foreign 0
Others 16,987,692 35
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Shareholders holding 5% and above
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Siza (Pvt) Limited 8,334,616 17%
Siza Services (Pvt) Limited 12,123,267 25%
Premier Fashions (Pvt) Limited 5,841,299 12%
Iqbal Ali Lakhani 2,327,687 5%
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Source: company accounts