| GILLETTE PAKISTAN LIMITED |
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| ANNUAL
REPORT 1997 |
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| Contents |
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| Gillette
Pakistan Limited |
|
| Directors'
Report |
|
| Chairman's
Review |
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| Auditors'
Report |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Cash
Flow Statement |
|
| Notes
to the Accounts |
|
| Pattern
of Shareholding |
|
| Notice
of Meeting |
|
|
|
| Board
of Directors |
|
|
| ·
Jamsheed R. Rahim Chairman |
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| ·
Muhammed Amin Chief Executive |
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| ·
Jose L. Ribera (Alternate Sanaullah Qureshi) |
|
| ·
G.S. Gill (Alternate Asif S. Keshodia) |
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| ·
Andrew J. Redpath (Alternate Zafar A. Siddiqui) |
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| ·
Salim Adaya (Alternate Bashir Ismail) |
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| ·
Rashid Abdulla (Alternate Khalid Malik) |
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|
| Company
Management |
|
|
| ·
Muhammed Amin General Manager & Chief Executive |
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| ·
Asif S. Keshodia Director Finance & Company Secretary |
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| ·
Zafar A. Siddiqui Director Marketing |
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| ·
Irfan Ozturk Director Manufacturing |
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| ·
Muhammad Azhar Aqil Director Sales |
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| ·
Sohail Arif Director Human Resources |
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| Gillette
Pakistan Limited is a subsidiary of The Gillette Company, USA, a $ 10 billion
global marketer |
|
| of
premium quality products for personal care and personal use. Gillette has
always been positioned |
|
| at
the top of the global shaving products market, and also holds leadership
positions in the global |
|
| writing
instruments and several personal care and oral care markets. Recently the
Company |
|
| acquired
Duracell, the world's leading seller of alkaline batteries. With this
acquisition, Gillette has |
|
| entered
the consumer battery industry, widely believed to offer superior growth
potential. |
|
|
| Gillette
products have been marketed in the South Asia region since 1913. However,
Interpak |
|
| Shaving
Products Limited, a subsidiary of The Gillette Company, started to
manufacture in Pakistan |
|
| in
1989. With the increase of Gillette's shareholding to 75%, the Company was
renamed "Gillette |
|
| Pakistan
Limited" in- 1994. Over the years, the Gillette range of products in the
country has |
|
| diversified
and grown, and today Gillette Pakistan is successfully marketing a complete
line of shaving |
|
| systems,
disposable razors, double edge blades, personal and oral care products and,
most recently, |
|
| high-performance
batteries. |
|
|
| In
the period under review, Gillette Pakistan Limited successfully launched the
top-of-the-line |
|
| Gillette
Sensor Excel - a revolutionary new shaving system. The |
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| success
of this product is evident from the increase in sales |
|
| figures
since its launch in the country. In the disposable razor |
|
| segment,
the Company continues to lead the |
|
| market
with Gillette Blue II Long Handle and 7 O'clock II razors. Since its launch |
|
| in
1996, the Gillette Blue II razor has played a pivotal role in expanding the
market |
|
| and
has established itself as a powerful brand. The 7 O'clock Platinum and |
|
| 7
O'clock Stainless blades in the double edge blades segment continued to enjoy |
|
| their
position at the top end of the premium double edge blade market. |
|
|
| In
the current year, Gillette Pakistan Limited, with a view to expanding its
personal care business, |
|
| launched
the Gillette Series range of men's shaving preparations and personal care
products in two |
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| different
fragrances. The product launches were supported by marketing efforts both in
electronic |
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| and
print media, as well as point-of-sale displays. |
|
|
| In
the dental care market, Gillette Pakistan, with its range of Oral-B products,
sustained and |
|
| enhanced
its position, through a strategy aimed at promoting product awareness among
dental |
|
| professionals. |
|
|
| After
Gillette's acquisition of Duracell at the end of |
|
| 1996,
Gillette Pakistan launched during 1997, |
|
| Duracell
PowerCheck battery, a premium product |
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| in
the alkaline battery market that is expected to rapidly become the brand
leader in the alkaline |
|
| battery
segment of the country. |
|
|
| The
Company also initiated a mega-campaign for retail and |
|
| wholesale
dealers in support of World Cup Football 1998, an |
|
| international
sporting event being sponsored by The Gillette |
|
| Company.
Through the campaign, the Company awarded prizes |
|
| to
the winning entries, in which seven successful traders are |
|
| being
flown to France for the World Cup finals in Paris. |
|
|
| Gillette
Pakistan is committed to the corporate mission, which |
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| places
an emphasis on leadership, and the corporate values of |
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| human
resource excellence, customer focus and good |
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| citizenship.
Total Quality Management supported by employee |
|
| participation
focuses on core business values at Gillette- |
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| exemplified
by an open-door system of management and the |
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| presence
of quality action teams. |
|
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| Gillette
Pakistan is aware of its obligations as a responsible corporate citizen and
has developed a |
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| program
that covers the Company's planned initiatives in the field of education and
health. |
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| The
Company is committed to environmentally friendly production processes,
including treating |
|
| and
recycling effluent waste water, encouraging use of recycled material, and
reducing the emission |
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| of
environmentally hazardous materials. |
|
|
| Gillette
Pakistan is conscious of its responsibilities to all its stakeholders. The
Company is poised to |
|
| enter
the next millennium with a commitment to grow and enhance its business
profitability and to |
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| actively
work towards community development. |
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| Directors'
Report |
|
|
| The
Directors of your Company are pleased to present their Report and the Audited
Accounts of |
|
| the
Company together with the Auditors' Report thereon for the thirteen months
period ended |
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| on
December 31, 1997. The Company's financial results are as follows: |
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|
(Rupees in Thousand) |
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|
|
|
Thirteen months |
Year ended |
|
|
|
|
ended December |
November 30, |
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|
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|
31, 1997 |
1996 |
|
|
| Profit
before taxation |
|
|
9,843 |
5,317 |
|
| Taxation |
|
|
3,445 |
1,283 |
|
|
|
|
|
|
| Profit
after taxation |
|
|
6,398 |
4,034 |
|
| Accumulated
loss brought forward |
|
(98,663) |
(102,697) |
|
| Accumulated
loss carried forward |
|
(92,265) |
(98,663) |
|
|
| Total sales of the Company recorded an impressive growth of 45%,
which led to |
increase in profit |
|
| before tax. |
|
|
| A
detailed review of the current period results as well as future outlook is
included in the |
|
| accompanying
Chairman's review. |
|
|
| Change
of Financial Year |
|
| Your
Company has changed its financial year from year ending November 30 to year
ending |
|
| December
31, effective 1997. Consequently, the accounts for 1997 are drawn up for a
period of |
|
| thirteen
months from December I, 1996 to December 3 I, 1997. The change has been
brought to |
|
| bring
the Company's financial year in line with the financial year of its parent
company. |
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|
| Holding
Company |
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| The
Gillette Company, a company incorporated in the United States of America, is
the holding |
|
| company. |
|
|
| Pattern
of Shareholding |
|
| The
pattern of Shareholding is given on page 30 of the Annual Report. |
|
|
| Auditors |
|
| The
Gillette Company, USA, majority Shareholder, has given notice under Section
253 of the |
|
| Companies
Ordinance, 1984 for the appointment of Messrs. Taseer Hadi Khalid & Co.,
Chartered |
|
| Accountants,
Karachi to be the Auditors of the Company for the year ending December 3 I,
1998 |
|
| in
place of retiring Auditors Messrs. A. F. Ferguson & Co., Karachi. |
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|
|
| Chairman's
Review |
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|
| It
is a great pleasure to welcome you to the Eleventh Annual General Meeting of
the Company |
|
| and
to report the Company's performance for the thirteen months period ended on |
|
| December
3 I, 1997. |
|
|
| BOARD
OF DIRECTORS |
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| During
the period under review Mr. Muhammed Amin was appointed as Chief Executive of
the |
|
| Company
in place of Mr. Amar Sferi. Mr. Sferi has moved to another Gillette
operation. The Board |
|
| congratulates
Mr. Amin on his appointment and places on record its appreciation for the
valuable |
|
| services
rendered by Mr. Sferi. |
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|
| SALES
AND MARKETING |
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| 1997
has been a year of achievements. Sales at Rs. 353.3 million witnessed growth
of 45%, with |
|
| both-
domestic and export sales recorded an impressive increase. During the period
the Company |
|
| launched
Gillette's top of the line shaving system Gillette SensorExtel. The Gillette
Series |
|
| range
of shaving preparations and personal care items and a range of Duracell
batteries were also |
|
| launched
during 1997. The launch of Gillette SensorExcel further enhanced the growth
of the |
|
| shaving
systems segment and strengthened our brand leadership within the category. |
|
|
| The
disposable razors segment also experienced strong growth because of the
enhanced sales |
|
| performance
recorded by the new and improved Gillette Blue II Long Handle disposable
razor. |
|
| The
brand supported by an aggressive marketing program continued to enjoy
consumer and trade |
|
| preference,
maintaining its leadership position and contributing substantially to the
sales and profit |
|
| growth
of the Company. However, while the premium double-edged blade category showed |
|
| increase
in sales, the low-priced blade recorded relatively lower sales compared to
last year mainly |
|
| due
to the influx of smuggled blades. |
|
|
| The
sales of the oral care segment recorded increased growth in 1997 as a result
of distribution |
|
| expansion,
in-store displays and dentists' detailing. |
|
|
| The
Company also successfully launched Duracell batteries, a top of the line
alkaline battery cell |
|
| acquired
by The Gillette Company, in 1997. |
|
|
| FINANCIAL |
|
| Profit
before taxes at Rs. 9.8 million recorded an increase of 85% over last year.
Trading profit at |
|
| Rs.
II 2 million also went up by 87% over 1996. Trading margin improved from
24.5% of sales in |
|
| 1996
to 31.6% of sales in 1997. This was achieved as a result of better product
mix, reduction of |
|
| import
tariffs and the Company's successful efforts to reduce costs, despite
inflationary pressures |
|
| and
exchange devaluation. |
|
|
| Administration
and selling expenses increased from Rs. 44.2 million to Rs. 84.6 million as a
result of |
|
| heavy
investment in brand building through advertising and sales promotion
activities. The major |
|
| advertising
and sales promotion activities during the period were carried out to support
new |
|
| product
launches of Gillette SensorExcel, Gillette Series and Duracell and to
strengthen and |
|
| enhance
consumer awareness of Gillette Blue II Long Handle launched towards the end
of 1996. |
|
| Overheads
were kept under strict control and increases in expenses were mainly because
of |
|
| inflationary
trends and deployment of additional resources to support business growth.
Operating |
|
| profit
at Rs. 27.1 million was higher by 75% than the previous year's operating
profit of |
|
| Rs.
15.5 million. |
|
|
| The
growth in Company's business and new product launches required an increased
level of working |
|
| capital
which resulted in enhanced borrowings and higher interest expense.
Devaluation of Pakistan |
|
| Rupee,
during the period also contributed to an increased charge. As a result,
overall financial |
|
| expenses
increased from Rs. 10.4 million to Rs. 19.2 million. However, due to
stability in the sales |
|
| of
newly launched products, financial expenses as a percentage of sales showed a
downward trend |
|
| in
the second half of the year. |
|
|
| Profit
after tax of Rs. 6.4 million is 59% higher than 1996 profit after tax of Rs.
4.0 million. |
|
| This
translates into increased earnings per share of Rs. 0.33, against Rs. 0.21
last year. |
|
|
| FUTURE
OUTLOOK |
|
| To
achieve increased profitability through enhanced business growth, the Company
has taken many |
|
| aggressive
steps. A larger consumer franchise is being developed through more focused
marketing |
|
| activities,
new products launches and expanding distribution network. As a result of
these steps, |
|
| the
Board is optimistic that the Company's business and profitability will
improve further. |
|
|
| EMPLOYEES |
|
| I
would like to thank the Company's employees for their valuable contribution
which have made |
|
| these
results possible. |
|
|
|
| Auditors'
Report to the Members |
|
|
| We
have audited the annexed balance sheet of Gillette Pakistan Limited as at
December 3 I, 1997 |
|
| and
the related profit and loss account and the cash flow statement, together
with the notes forming |
|
| part
thereof, for the thirteen months period then ended and we state that we have
obtained all the |
|
| information
and explanations which to the best of our knowledge and belief were necessary
for the |
|
| purposes
of our audit and, after due verification thereof, we report that: |
|
|
| (a)
in our opinion, proper books of account have been kept by the Company as
required by the |
|
| Companies
Ordinance, 1984; |
|
|
| (b)
in our opinion: |
|
|
| i)
the balance sheet and profit and loss account together with the notes thereon
have been |
|
| drawn
up in conformity with the Companies Ordinance, 1984 and are in agreement with |
|
| the
books of account and are further in accordance with the accounting policies |
|
| consistently
applied; |
|
|
| ii)
the expenditure incurred during the period under report was for the purposes
of the |
|
| Company's
business; and |
|
|
| iii)
the business conducted, investments made and the expenditure incurred during
the period |
|
| under
report were in accordance with the objects of the Company; |
|
|
| (c)
in our opinion and to the best of our information and according to the
explanations given to |
|
| us,
the balance sheet, profit and loss account and the cash flow statement,
together with the |
|
| notes
forming part thereof, give the information required by the Companies
Ordinance, 1984 |
|
| in
the manner so required and respectively give a true and fair view of the
state of the |
|
| Company's
affairs as at December 3 I, 1997 and of the profit and the cash flow for the
thirteen |
|
| months
period then ended; and |
|
|
| (d)
in our opinion no zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980. |
|
|
| Karachi:
Feb 18, 1998 |
|
A.F. Ferguson & Co. |
|
|
Chartered Accountants |
|
|
|
| Balance
Sheet as at December 31, 1997 |
|
|
|
Note |
1997 |
1996 |
|
|
|
|
|
(Rupees in thousand) |
|
|
|
|
| SHARE
CAPITAL |
|
|
|
|
|
|
| Authorised
share capital |
|
|
|
| ordinary
shares of Rs. 10 each |
|
|
200,000 |
200,000 |
|
|
|
|
========== |
========== |
|
| Issued,
subscribed and fully paid-up share capital |
3 |
192,000 |
192,000 |
|
| Accumulated
loss |
|
|
(92,265) |
(98,663) |
|
|
|
|
---------- |
---------- |
|
|
|
|
99,735 |
93,337 |
|
| LONG-TERM
LOANS |
|
4 |
22,750 |
66,942 |
|
| CURRENT
LIABILITIES |
|
|
|
|
|
|
| Current
maturity of long term loans |
|
4 |
45,500 |
- |
|
| Short
term finances under mark-up arrangements |
5 |
20,122 |
15,800 |
|
| Creditors,
accrued and other liabilities |
6 |
45,486 |
40,016 |
|
|
|
|
---------- |
---------- |
|
|
|
|
111,108 |
55,816 |
|
| CONTINGENCY
AND COMMITMENTS |
|
7 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
233,593 |
216,095 |
|
|
|
|
========== |
========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Balance
Sheet as at December 31, 1997 |
|
|
|
Note |
1997 |
1996 |
|
|
|
|
|
(Rupees in thousand) |
|
|
|
|
| FIXED
ASSETS |
|
8 |
84,990 |
121,292 |
|
| CAPITAL
WORK-IN-PROGRESS |
|
|
50 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
85,040 |
121,292 |
|
| LONG-TERM
DEPOSITS |
|
9 |
1,261 |
1,200 |
|
| CURRENT
ASSETS |
|
|
---------- |
---------- |
|
| Stores
& spares |
|
10 |
4,693 |
4,862 |
|
| Stocks |
|
11 |
64,880 |
40,524 |
|
|
|
|
| Trade
debts
|
12 |
45,278 |
22,249 |
|
|
|
|
| Advances |
|
13 |
1,638 |
1,272 |
|
| Deposits
and short-term prepayments |
|
14 |
3,503 |
2,652 |
|
| Other
receivables |
|
15 |
13,187 |
10,501 |
|
| Taxation |
|
|
12,726 |
7,766 |
|
| Cash
and bank balances |
|
16 |
1,387 |
3,777 |
|
|
|
|
---------- |
---------- |
|
|
|
|
147,292 |
93,603 |
|
|
|
|
---------- |
---------- |
|
|
|
|
233,593 |
216,095 |
|
|
|
|
========== |
========== |
|
|
|
|
| Profit
& Loss Account for the Thirteen |
|
| Months
Period Ended December 31, 1997 |
|
|
|
|
Thirteen |
Year ended |
|
|
|
months ended |
November 30, |
|
|
|
December 31, |
|
|
|
Note |
1997 |
1996 |
|
|
|
|
|
(Rupees in thousand) |
|
|
|
|
| Sales |
|
17 |
353,271 |
243,563 |
|
| Cost
of goods sold |
|
18 |
241,596 |
183,829 |
|
|
|
|
---------- |
---------- |
|
| Trading
profit |
|
|
111,675 |
59,734 |
|
| Administration
and selling expenses |
|
19 |
84,585 |
44,243 |
|
|
|
|
---------- |
---------- |
|
| Operating
profit |
|
|
27,090 |
5,491 |
|
| Other
income |
|
20 |
2,509 |
780 |
|
|
|
|
---------- |
---------- |
|
|
|
|
29,599 |
6,271 |
|
|
|
|
---------- |
---------- |
|
| Financial
expenses |
|
21 |
19,157 |
0,381 |
|
| Other
charges |
|
22 |
599 |
573 |
|
|
|
|
---------- |
---------- |
|
|
|
|
19,756 |
10,954 |
|
|
|
|
---------- |
---------- |
|
| Profit
before taxation |
|
|
9,843 |
5,317 |
|
| Taxation |
|
23 |
3,445 |
1,283 |
|
|
|
|
---------- |
---------- |
|
| Profit
after taxation |
|
|
6,398 |
4,034 |
|
| Accumulated
loss brought forward |
|
|
(98,663) |
(102,697) |
|
|
|
|
---------- |
---------- |
|
| Accumulated
loss carried forward |
|
|
(92,265) |
(98,663) |
|
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Cash
Flows Statement for the Thirteen |
|
| Months
Period Ended December 3 I, 1997 |
|
|
|
|
Thirteen |
Year ended |
|
|
|
months ended |
November 30, |
|
|
|
December 31, |
|
|
|
Note |
1997 |
1996 |
|
|
|
|
|
(Rupees in thousand) |
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| Cash
generated from operations |
|
24 |
(14,396) |
4,805 |
|
| Financial
expenses paid |
|
|
(8,237) |
(9,111) |
|
| Taxes paid |
|
|
(8,405) |
(7,397) |
|
| Long-term
deposits (net) |
|
|
(61) |
197 |
|
|
|
|
---------- |
---------- |
|
| Net
cash (outflow) from operating activities |
|
(31,099) |
(11,506) |
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
---------- |
---------- |
|
| Fixed
capital expenditure |
|
|
(16,648) |
(9,112) |
|
| Sale
proceeds on disposals of fixed assets |
|
39,674 |
1,943 |
|
| Profit
on bank deposits received |
|
|
53 |
156 |
|
|
|
|
---------- |
---------- |
|
| Net
cash inflow/(outflow) from investing activities |
23,079 |
(7,013) |
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
| Long-term
loans less repayments |
|
|
1,308 |
25,595 |
|
|
|
|
---------- |
---------- |
|
| Net
cash inflow from financing activities |
|
1,308 |
25,595 |
|
|
|
|
---------- |
---------- |
|
| Net
(decrease)/increase in cash and cash equivalents |
(6,712) |
7,076 |
|
| Cash
and cash equivalents at beginning of the period/year |
(12,023) |
(19,099) |
|
|
|
|
---------- |
---------- |
|
| Cash
and cash equivalents at end of the period/year |
25 |
(18,735) |
(12,023) |
|
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Notes
to and forming part of the |
|
| Accounts
for the Thirteen Months period |
|
| Ended
December 3 I, 1997 |
|
|
|
|
| 1.
THE COMPANY AND ITS OPERATIONS |
|
|
|
|
| The
Company, which was incorporated on December 9, 1986 as a public limited
company, was |
|
| established
to manufacture razors and razor blades. The Company commenced commercial |
|
| production
in May, 1989. The shares of the Company are quoted on the Karachi and Lahore |
|
| stock
exchanges. |
|
|
| The
Company has changed its accounting year end from November to December
effective |
|
| December
I, 1996. As a consequence of this change these accounts have been prepared
for the |
|
| thirteen
months period ended December 3 I, 1997, whereas the corresponding figures are
for |
|
| the
year ended November 30, 1996. |
|
|
| 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| 2.
I Accounting convention |
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| These
accounts have been prepared under the historical cost convention. |
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| 2.2
Staff retirement benefits |
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| The
Company operates an approved funded pension fund scheme, which covers all
employees |
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| subject
to prescribed qualifying age limit. Contributions are payable to the fund on
a monthly |
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| basis
by the Company according to actuarial recommendations at a rate of 10.02% of
basic |
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| salaries
of employees. The last actuarial valuation of this fund was carried out as of
December |
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| 3
I, 1995 on the basis of the 'entry age normal method'. As of December 3 I,
1995 the liability |
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| for
past services was Rs. 7.334 million against which the market value of the
fund's assets was |
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| Rs.
8.558 million. The principal actuarial assumptions used in the valuation of
the scheme as of |
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| December
3 I, 1995 by the actuary are: |
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| - Expected rate of
growth in future salaries |
: 13% per annum |
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| - Expected rate of return on fund |
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: 13% per annum |
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| The
Company operates a provident fund scheme for its permanent employees. Equal
monthly |
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| contributions
are made, both by the Company and employees at the rate of 10% of basic pay. |
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| 2.3
Taxation |
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| The
provision for current taxation is made on the 'presumptive tax' basis under
sections 80 |
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| (c)
and 80 (cc) of the Income Tax Ordinance, 1979. The Company accounts for
deferred |
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| taxes
using the liability method on all significant timing differences, excluding
tax effect on those |
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| timing
differences which are not likely to reverse in the foreseeable future. |
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| 2.4
Fixed assets and capital work-in-progress |
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| These
are stated at cost less accumulated depreciation except leasehold land and
capital work- |
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| in-progress
which are stated at cost. |
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| Depreciation
is charged to income applying the straight-line method whereby the cost of an |
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| asset
is written off over its estimated useful life. Depreciation on additions to
and disposals of |
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| assets
during the year is charged from the month of acquisition, and to the month of
disposal |
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| respectively. |
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| Maintenance
and normal repairs are charged to income as and when incurred. Major renewals |
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| and
improvements are capitalized and assets so replaced, if any, are retired. |
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| 2.5
Stores and spares |
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| These
are valued at cost, determined on the first-in-first-out method. |
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| 2.6 Stocks |
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| All
stocks are stated at the lower of their costs and estimated net realisable
values. Costs are |
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| determined
by using the first-in-first-out method except for stocks in-transit which are
stated |
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| at
invoice values and other charges incurred. Costs relating to work-in-process
and finished |
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| goods
include proportionate production overheads. Net realisable value signifies
the estimated |
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| selling
price in the ordinary course of business less costs necessarily to be
incurred in order to |
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| make
the sale. |
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| 2.7
Trade debts |
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| Debts
considered irrecoverable are written off and provision is made against those
considered |
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| doubtful
of recovery. |
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