ANALYSIS OF FINANCIAL STATEMENT

GILLETTE PAKISTAN LIMITEDINDUSTRY: PERSONAL GOODS (textile)

Sir Analysis of Financial StatementKarachi, Pakistan.

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INTRODUCTIONGillette Pakistan Limited markets and sells blades and razors, personal care products, and beauty care appliances in Pakistan. It operates through Shave Care and Braun Products segments. Gillette Pakistan Limited is a subsidiary of The Series Acquisition B.V.

PROFILE OF COMPANYGillette Pakistan Limited was incorporated on December 9, 1986 as a public limited company under the Companies Ordinance, 1984 and is listed on Karachi and Lahore Stock Exchanges in Pakistan. This company is own by Proctor & Gamble. INVESTOR INFORMATIONAs a listed public company, Gillette Pakistan Limited submits comprehensive financial statements to the Securities and Exchange Commission of Pakistan (SECP) and the Karachi and Lahore Stock Exchanges.Market price Rs. 389.9

GOVERNANCEThe Company encourages representation of non-executive directors and directors representing minority interests on its Board of Directors. The Board has developed a vision / mission statement, overall corporate strategy and significant policies of the Company which has been signed by all employees.INVESTOR RELATIONSThe Company is a subsidiary of Series Acquisition B.V., Netherlands, which is a wholly owned subsidiary of P&G, USA. The parent company holds 91.4% of the issued share capital of the Company while rest of the share capital is held by other individuals and corporate.INDUSTRY ASSOCIATIONSThe Company is represented on several business associations and key executives of the company are working on committees of these associations.CORE VALUES As they work towards Vision, three core Values define the way they operate:AchievementWe are dedicated to the highest standards of achievement in all areas of our business. We strive to consistently exceed the expectations of both external and internal customers.

IntegrityMutual respect and ethical behavior are the basis for our relationships with colleagues, customers and the community. Fair practice is the hallmark of the Company.

CollaborationThey work closely together as one team to improve the way we do business every day. We communicate openly and establish clear accountability for making decisions, identifying issues and solutions and maximizing business opportunities.

Companys Secrets/ Strengths

No Direct Competitor Bargain power ( Steel is being supplied by one supplier in this way company have space to get bulk discounts) No loans, no long term payables Greater opportunity for new investors Greater opportunity for seeking loans from financial institutions. Overall growth for shareholders in long term.

Gillette accused of taking too big a cut from its customers

As the world's biggest razor manufacturer launched a billion-dollar lawsuit against its nearest rival, analysts found evidence that it is charging exorbitant prices. Adam Lusher reports

It might be the best a man can get, but the man seems to need very deep pockets.As a court battle loomed last week for control of the world's 3.75 billion razor market, analysts claimed that Gillette, the world's biggest blade manufacturer, is charging prices that are allowing it to milk almost unheard-of profit margins from its customers.The apparently exorbitant prices, which last week prompted protests from customers angry about the high cost of shaving, were disclosed in a report published by Morgan Stanley, the global investment bank, that noted "growing consumer resistance to paying ever-higher prices for razors and blades".Javier Escalante, the co-author of the report, said: "There's no place that Gillette doesn't make money, good money. Gillette averages 37.8 per cent operating margins on its blades and razors. That is pretty hefty: a healthy, healthy operating margin. There are very few industries where you can generate that. With most consumer staples you are talking about margins in the low teens."The revelations came as Gillette, which controls 72 per cent of the world's wet shave razor market and takes 90 per cent of the $1.5 billion annual global profits, filed a billion-dollar lawsuit against its nearest rival.

Is a growing/declining industry?

Gillette is growing company; it is being continuously in the positive sloping graph.This represent the potential growth of current year, company having the developing and increasing trend.Analyzing the three (2011, 2012 & 2013) years, Company had been working at its optimal. Current assets are being increased along with a certain decrease the current liabilities.Profit margins are multiplying every upcoming year, through this we can predict the companys future would be prospering and will have higher share in the market.

Recommendation a buy/sell/hold on the stock given current stock prices

Stock market price is 389.9 Yes, the investor can invest or buy more shares of Gillette, because it is very apparently clear from three years of analysis that company will be having a continuous growth in future as well.It could be considered among one of companies which come under the tag of less risky and high profit generating company which will be discussed further in report.Gillettes return on equity is increasing from 0.128 in 2011, 0.14 in 2012 and 0.37 in 2013. It will clearly give reasons to shareholder to stick to this company because of increasing returns every year.

GILLETTE PAKISTAN LIMITED 1. COMMONSIZINGINCOME STATEMENT

2011%2012%2013%

Sales 1,032,769 100.00 1,408,301 100.00 1,769,225 100.00

COGS 768,631 74.42 1,071,362 76.07 1,143,145 64.61

Gross Profit 264,138 25.58 390,939 27.76 626,080 35.39

Other operating Income 51,998 5.03 26,379 1.87 43,474 2.46

Selling ,M & D Expense 218,669 21.17 253,704 18.01 257,467 14.55

Administration Expense 35,248 3.41 33,056 2.35 47,379 2.68

Other operating Expense 19,491 1.89 2,691 0.19 29,465 1.67

Bank Charges 311 0.03 314 0.02 50 0.00

Profit Before Tax 42,417 4.11 127,571 9.06 335,193 18.95

Income Tax expense 66,982 6.49 65,981 4.69 81,780 4.62

Profit after tax 24,565 2.38 61,950 4.40 253,413 14.32

In Common sizing, we are considering sales as a benchmark (100%). In 2011, Cost of goods sold were 42.4%, Gross profit were 25.5% to sales.Profit before tax is 4.1% and net profit is 2.38% to net sales.

In 2012, Cost of goods sold were 76.07%, Gross profit were 27.76% to sales.Profit before tax is 9.06% and net profit is 4.40% to net sales.

In 2013, Cost of goods sold were 74.61%, Gross profit were 35.39% to sales.Profit before tax is 18.95% and net profit is 14.32% to net sales.

Here, Cost of Goods Sold is the major contributing factor in the increasing trend of net profits because each year it had kept on falling. When cost of goods fell, the selling and Distribution expense has also decreased.

BALANCE SHEET

2011%2012%2013%

ASSETS

NON-CURRENT ASSETS

Property , plant and Equip5,2820.73177,3350.938

long term loans120.0017

Long term deposits1380.01801380.0184380.04

CURRENT ASSETS-

Stock in355,18249.1991256,82432.855450,54536.99

Trade Debt135,03218.7044149,67819.148144,53911.87

Loans and advances18,0862.505221,6632.7711690.01

Trade Deposits3070.04252,4620.3151,3250.11

Interest receivable 8690.12042,8200.3612,3180.19

Prepayments2,0550.17

Other receivables21,1862.934624,2453.10213,0781.07

Other Financial Assets120,45916.6857240,00030.703375,42030.82

Sales tax Refundable31,3514.342711,3071.44644,9483.69

Taxation -net 32,2764.470823,9313.06134,0312.79

Cash and Bank balances1,7480.242141,2795.281149,07112.24

Current Assets716,49699.2476774,20999.0441,217,49999.96

Total Asset721,928100.00781,682100.001,217,937100.00

EQUITY

Share Capital and Reserves

Issued and Subscribed Capital192,00026.5954192,00024.562192,00015.76

Un appropriate Capital172,73223.9265234,32229.977487,73540.05

Total Equity364,73250.5219426,32254.539679,73555.81

-

LIABILITIES

CURRENT LIABLILITIES-

Trade and other payable357,19649.8532355,36045.461536,65544.06

Deferred liability1,5470.13

Contingencies -

Total Equity and liabilities721,928781,6821,217,937100.00

In common sizing balance, considering total assets as a bench mark (100%) all other balance sheet items are being compared with it.

In 2011, fixed assets were 0.76% to total assets and current assets were 99.24%Current liabilities were 49.85% and there is no long term liability.

In 2012, fixed assets were 0.93% and current assets were 99.04% of total assets.Current liabilities were 45.46% and no long term liabilities.

In 2013, there are no fixed assets and current assets were 99.96% of total assets.Current liabilities were 44.06% to total assets and long term liabilities 0.13%.

2. INDEX ANALYSISINCOME STATEMENT

2011Indexing2012Indexing 2013Indexing

201120122013

1,032,7691001,408,301136.36171,769,225171.31

Sales

768,6311001,071,362139.38571,143,145148.72

COGS

264,138100390,939148.0056626,080237.02

Gross profit

Other operating Income50.730843,47483.61

51,998100

26,379

Selling ,Marketing and Distribution Expense218,669100116.0219257,467117.74

253,704

Administration Expense35,24893.7812147,379134.42

10033,056

Other operating Expense19,49113.8063729,465151.17

1002,691

311100.96465016.07

Bank Charges100314

Profit Before Tax42,417300.7544335,193790.23

100127,571

Income Tax expense66,98298.5055781,780122.09

10065,981

24,56561,950252.1881253,4131031.6

Profit after tax100

In Indexing, First year to be considered as base year and every upcoming year is compared with that base year.

Sales: In 2011, Sales were 100%, in 2012 & 2013 sales had shoot up by 36% and 71% respectively.COGS: In 2011, COGS were 100%, in 2012 & 2013 COGS increased 39% & 48% respectively. As the Sales increase the COGS would also increase in order to meet the current demand company has to increase its raw material and production capacity.

Gross profit: As the sales had increased with higher percentage compare to COGS, the figures of gross profit had a multiplier impact over the three years.In 2011, it was 100 % but it kept on increasing in 2012 Gross profit become 148% and in 2013 it reached to 237%.

Other operating income: Other operating income had reduced to 50% in 2012 because decrease Interest income on term deposits and decreased Duty refund on re-export of products.

Selling, Marketing and Distribution Expense: It also had increase in 2012 & 2013 by 16% and 17% respectively. Selling and distribution expense had increased because of higher sales company need to increase its distribution in order to maintain the availability of product on time.

Profit before Tax: In 2011, it was considered as 100% but the company had fully utilized its capacity and manages to reached increase its profit before tax to 200% and 690% in 2012 and 2013 respectively.Profit after tax: Net profit kept on growing from 100% to 252% to 1031%. It is because the Net Sales had increased with high percentage which had helped company to achieve higherNet profit.

BALANCE SHEET

2011%2012%2013%

Assets

Non-Current Assets

Property , plant and Equip5,2821007,335138.87-

long term loans12100-

Long term deposits138100138100.00438317.39

Current Assets

Stock in355,182100256,82472.31450,545126.85

Trade Debt135,032100149,678110.85144,539107.04

Loans and advances18,08610021,663119.781690.93

Trade Deposits3071002,462801.951,325431.60

Interest receivable 8691002,820324.512,318266.74

Prepayments2,055

Other receivable21,18610024,245114.4413,07861.73

Other Financial Assets120,459100240,000199.24375,420311.66

Sales tax Refundable31,35110011,30736.0744,948143.37

Taxation -net 32,27610023,93174.1434,031105.44

Cash and Bank balances1,74810041,2792361.50149,0718,528.09

Current Assets716,496100774,209108.051,217,499169.92

Total Asset721,928100781,682108.281,217,937168.71

Equity

Share Capital and Reserves

Issued and Subscribed Capital192,000100192,000100.000192,000100.00

Un appropriate Capital172,732100234,322135.656487,735282.37

Total Equity364,732100426,322116.886679,735186.37

Liabilities

Current Liabilities

Trade and other payable357,196100355,36099.4861,5470.43

Deferred liability536,65574.4

Contingencies and other commitments-

Total Equity and liabilities721,928781,682108.2771,217,937168.71

Current Assets to Current liabilities (current ratio): Currents assets are kept on increasing because of increase of stock in trade in 2013, in the same manner current liabilities are showing downward trend.This represent that company is in good liquidity condition with less risk involved and can easily access loans from the market.Fixed assets includes only Long term deposits which is increasing because of Marine insurance in 2013

3. RATIO ANALYSISRATIOS

201120122013

Current Ratio2.0062.272.18

The current ratio for the year 2011 shows that the company has high liquidity and enough working capital. It has increased in the year 2012 which shows improvement It has slightly declined in the year 2013 whichis due to increase in liabilities.

Quick Ratio1.0121.461.43

The company has increasing trend in the quick ratio. It indicates that the company has enough leverage against liquidity risk.

Working Capital359300418849680844

The company has increasing trend in the working capital. It shows that the company has enough cash to pay off its liabilities.

Receivable Turnover48.749.2612.13

The receivable turnover ratio in the year 2011 was very high, which indicates that receiving of payments were very slow. The ratio has declined in the following year indicating that receivables are collected more quickly.

Inventory Turnover2.163.962.54

Inventory turnover is high in the year 2011 and has increased in the following years. It indicates that the firm is selling and managing inventories efficiently.

Fixed asset turnover195.53191.99741

In the year 2011 and 2012 the company had high fixed asset turnover. The assets were being used efficiently. In the year 2013 the company sold off its fixed assets.

Inventory Turnover in days168.6787.50143.86

The inventory turnover in days in the year 2011 shows that the company had enough stock but lower sales. In the year 2012 the sales increased. In the year 2013, sales decreased due to which the company had stock for longer period.

Total Assets Turnover1.4311.891.45

The total assets turnover of the company indicates that the company is utilizing and managing its assets efficiently.

Debt Ratio49.54544

We can see a declining trend in the debt ratio. Debt ratio indicates the percentage of assets financed with debts.

Debt-to-Equity Ratio0.9790.830.49

Debt to equity ratio is very high in the year 2011. It indicates that the company is facing huge financial risks The ratio has declined in the year 2012 but still it is facing some risks. In 2013, the ration has declined and the company is less risker.

Gross Profit Margin25.5757135.3927.75

The gross profit margin has increased in the year 2012. It is due to the fact that the sales increased.

Profit Margin2.3794.4014.2

The profit margin has increasing trend. It is due to increase in sales. As the inventory expenses were lesser in 2013, the profit margin is high.

Return on Assets0.03400.0780.21

The company has used its assets efficiently as we can see from the increasing trend. The profit generated through the utilization of assets has been done effectively.

Return on Equity12.8%14%37%

The return on equity indicates the return received on the shareholders investment. The ROE is having an increasing trend. It shows sustainability. More investors will be attracted to invest in the shares of the company.

4. INVENTORY VALUATIONFIFO method is used except for the goods in transit which is estimated at actual cost.

5. DEFFERED TAX

Deferred tax is not booked as the majority of the income of the Company falls under the final Tax Regime of Income Tax Ordinance, 2001.