WEB DESK: Colgate Palmolive Ltd (KSE: COLG) has done a wonderful job with its bottom line in the financial year 2015. The consumer goods giant clocked in a whopping Rs 2,222 million in after-tax profit.
This is 31.24 percent higher than what the company achieved in FY14, but it is 1.5 percent lower that reported in nine months, ended in March.
Nevertheless, this has improved the net profit margin by 200 bps for the company. However, what should be worrisome is that this growth is largely attributable to 157 percent growth, in other income.
The firms net turnover grew by five percent to reach Rs24 billion in FY15. This is much lower than 15 percent that COLG achieved in FY14. Competition in fabric detergents and dishwashing is intensifying for the company. On the other hand, the oral health care sector of the company is growing without any significant challenge.
The company has taken advantage of low commodity prices and raw material costs. The cost of goods sold has declined by 454 bps to 68 percent. Other expenses in terms of sales went up by 2017 basis points.
Both selling and administrative expenses also grew during the financial year. But thats the nature of FMCG business since they have to spend higher on advertisement and sales promotion spend and employee related costs.
Other income has always tended to be on the higher side in the FMCG companies under Lackson group of companies, and COLG is not different. Other income clocked in Rs362 million, largely due to the realization of profits on short-term investments. The finance cost is also on the higher side largely; due to bank commission and other charges.
Without a doubt COLG, over the last five years has invested significantly in brand and product innovations, which translated into strong market penetration. However, competition is growing specifically from its biggest competitor Unilever Pakistan. During the year company has reduced its prices in some categories to attract the customers. However in the long-run, this strategy could be problematic, the dependence on other income is already mounting.
Source: BR research