ICI Pakistan Limited

The half yearly financial result of ICI Pakistan Limited for the period ending June 30, 2012 was released yesterday. An improved second quarter performance could do little to brighten the 1HCY12 results as the Companys profit for the period stood at Rs462.2 million compared to Rs972.5 millions same period last year. After the demerger, transfer and divestment of its paints business in Akzo Nobel Pakistan Limited, ICI Pakistan operates in segments which include PSF, Soda Ash, life sciences and chemicals. The Companys top line declined by 6.93 percent during 1HCY12 - yet the decline could have been more if it were not for the slight year-on-year increase in net sales during 2QCY12. Segment-wise performance for 1HCY12 shows that nearly half of the net sales came from the PSF segment, 22.2 percent from the Soda Ash division, 16.7 percent from the life sciences segment and 11.6 percent from the chemicals division. The PSF division threw up an operating loss of Rs137 million, whereas the rest of the divisions were in operating profit, with soda ash contributing Rs393 million to the operating profit. The cost of sales declined by 7.34 percent during the period, thereby exhausting 39 bps less of net sales than the same period last year. This showed in an improvement in gross margin for the period to 11.63 percent - even though the gross profit figure is 3.7 percent lower than what it was in 1HCY11. A surge in operating expenditures during the period is responsible for constriction in the ensuing margins. Both the distribution-cum-selling expenses and the administrative expenses grew in double digits during the period, by 13.12 percent and 47.7 percent respectively. The half-yearly results include a one-off charge of Rs124 million for the costs incurred on the demerger of the Companys paints business. These two expenditure heads collectively consumed 202 bps more of net sales in 1HCY12 over same period last year. Resultantly, the operating profit declined by a massive 31.73 percent over 1HCY11; and the operating margin shed 163 bps to settle at 4.47 percent for the period. Not much relief came from the non-operating performance either - other than nearly halving of expenditures on funds for workers profit participation and welfare to Rs52.2 million - as the financial charges increased by over 3.3 times during the period. The other operating income decreased by 4.5 percent and the other operating charges swelled by nearly 27 percent - but these two accounts had low impact due to their low volumes. The top line decline along with soaring operating expenditures and financial costs more than halved the ICIs net profits for the period to Rs462.23 million. The net margins, therefore, slipped by 265 bps over previous year to come down to 2.76 percent in 1HCY12. The EPS for the period came out to be Rs5.0, compared to Rs7.01 same period last year. The board approved an interim dividend of Rs3.5 per share. It must be noted that ICIs profits declined by 38.85 percent during the period if only continued operations of the Company are taken into account. During 1HCY11, ICI accumulated net profits of Rs755.9 million from its continued operations and Rs216.6 million from the now-discontinued operations. Recently, AkzoNobels wholly owned subsidiary, Omicron, signed an agreement with Younus Brothers Group for divestment of their 75.8 percent shareholding in ICI Pakistan Limited. According to the management, this will be completed subject to regulatory approvals. For the coming quarters, the management expects the declining PSF margins, uncertainty over future downstream demand and rising cost of alternative fuel, to be of serious concern for the Companys PSF and Soda Ash businesses. The management is expecting to operationalise the Coal Fired Boiler Project in 2013, which may help manage the soaring costs of alternate fuel.

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ICI Pakistan Limited
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Rs (mn)                        1HCY12     1HCY11        chg
Net Sales                     16,729     17,974         -7%
Cost of sales                (14,783)   (15,954)        -7%
Gross margin                   11.63%     11.24%          -
Operating profit                 748      1,096        -32%
Financial charges               (170)       (39)       338%
Profit for the period            462        973        -52%
Net margin                      2.76%      5.41%          -
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Source: KSE notice