RISING expenses at Colgate Palmolive Pakistan impacted its bottom line in the quarter ended September 30. The drop in the company’s after-tax profit was surprising, given healthy growths in earnings of other major companies in this booming sector this year.

The firm’s earnings were mainly pulled down by higher selling and distribution costs, which jumped 15.5 per cent to Rs826.16 million, from Rs715.57 million in the same quarter last year.

This was followed by an 18 per cent YoY rise in administrative expenses, which reached Rs51.68 million.

Higher ‘employee-related expenses’ seemed to be at the centre of Colgate Palmolive Pakistan’s explanations for the increase in its distribution and administrative expenses. Key management personnel were paid about Rs14.62 million in the three months, up about 40 per cent from Rs10.25 million in the same period last year.

The firm also attributed its high distribution costs to an increase in the prices of raw and packaging materials, as well as fuel and energy. The company has said in the past that it was forced to resort to more expensive in-house generation due to frequent power closures.

While a breakdown of costs for the quarter ended September 30 is not available yet, ‘salaries, wages and other benefits’ had accounted for a cumulative Rs879.275 million in expenses under various heads in the year ended June 30 (FY13), up 16.7 per cent from the prior year, according to the company’s Annual Report 2013.

The company was also forced to spend heavily on marketing this year, in the wake of ever-rising competition for consumers’ shrinking wallets. Colgate Palmolive Pakistan had spent over Rs1.75 billion on advertising and sales promotion in FY13, up 9.4 per cent from the prior year’s total of Rs1.6 billion. The company engaged in various health education programmes in cities and rural areas to expand its customer base.

And all that advertising and product diversification seems to have had a positive effect, as the company’s net sales for the quarter ended September 30 rose by a healthy 15 per cent YoY to Rs5.47 billion. The share in total sales of personal care, home care and ‘other’ products stayed virtually unchanged from last year at 23 per cent, 73 per cent and four per cent, respective.

The company said in its latest quarterly report that it was able to extend its leadership share in the oral care segment, and kept onto its dominant position in the home care category.

Yet, the consumer giant’s cost of goods rose by 16.8 per cent to Rs3.97 billion, pulling down its gross margin to 27.39 per cent, from 28.5 per cent.

The company posted a profit-after-tax of Rs371.87 million for the quarter, down a marginal 1.3 per cent from last year. The corresponding earnings-per-share worked out at Rs7.75, down from Rs7.86.

Meanwhile, the consumer giant said that the depreciating rupee impacted its other expenses, which went up by 22.3 per cent YoY to Rs60.67 million mainly due to forex losses.

For the year ended June 30, the company had paid Rs152.58 million in dividend and another Rs86.76 million in ‘royalty charges’ to its foreign partner, Colgate Palmolive USA, according to its annual report for FY13.

Going forward, the company has mentioned rising prices, an uncertain law and order situation, ongoing power crisis and a depreciating rupee as key challenges for the consumer goods sector. The firm is also aware of the intense competition in this segment, and has foreseen that it will need to spend heavily on various products to maintain its market share.— Ali Raza Mehdi