A happening 2012 with low margins for ICI

2012 was one happening year for ICI Pakistan. In addition to the much-discussed demerger of the paints business, the company also saw one of its long-fought agendas being accepted - that of the imposition of antidumping duty on PSF imports from China.
But higher prices of feedstock, energy and fuel continued to take a toll on the companys operating results. Thats why a year-on-year comparison ended up in a lot of negatives for the company in 2012. With sales slumping relative to the previous year and relatively resilient cost of sales, the gross margin of the company in 2012 went down by 1.6 percentage points relative to 2011.
Coupled with higher selling and distribution expenses, a greater bill for administrative and financial charges, and diminished other operating income, ICIs 2012 bottom line nearly halved relative to the levels seen in 2011.
For most of 2012, international and domestic cotton prices remained subdued, dampening preference for PSF blends. Prices and volume of PSF sales went towards the lows, with added pressure from low gas availability and lower margins over feedstock. Announcement of a coal-fired boiler and two coal-fired heaters for the polyester plant in Sheikhupura seem like a ray of hope about future margins.
Soda Ash, meanwhile, joined the club of sectors affected by the natural gas shortage. Operating result for the segment took a toll of the alternate use of dearer furnace oil. Anticipations of improvement in margins thanks to the much-awaited completion of the coal fired boiler project continue.
Operating performance of the chemicals business also suffered a tad, while life sciences continued to perform well, though with minimal impact to lift up the overall margins.
Going forward, expectations of strong prices of cotton at the back of aggressive Chinese buying may offer respite to PSF demand and sales. Gas outages will likely continue to afflict the companys performance in 2013, but coal fired boilers and heaters may help lower costs and prop up margins.

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ICI P&L

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(Rs mn)                         CY12           Y/Y chg

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Sales                         34,682               -2%

Cost of sales                 30,748               -1%

Gross profit                   3,933              -15%

Gross margin                   11.3%              -13%

Selling & distribution         1,087                7%

Administrative expenses        1,346               11%

Operating Profit               1,500              -37%

Operating margin                4.3%              -35%

PAT                              893              -49%

Net margin                      2.6%              -48%

EPS (Rs)                       9.67

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Source: KSE announcement