Still recovering from the modalities of the circumstances leading eventually to the spin off of PPTA, ICI Pakistan had a reasonably successful year in 2003.
The dramatic decline in EPS to Rs 5.52, from Rs 13.36 in 2002 must be viewed in the back drop of the huge Deferred Tax Asset Recognition write back amounting to Rs 8.23 per share in 2002.
In the year under review, while Polyester and General Chemicals have increased sales substantially, their contributions to operating profit have fallen to a new low. Soda Ash and Paints have rescued the bottom line from a free fall by doing very well.
The immediate future is clouded with uncertainty, though the vibrant company may be expected to come up in the long run. The march to past glory will, however, be a hard slog, to use a current political term.
Big sales makers among ICI Divisions in 2003 are not big profit earners!
Do you recall the Lion-Tamer-And-The-Lion item from a circus show you may have seen, live or on film?
Did you wonder why the Tamer holds a chair between him and the lion (with the four legs of the chair pointing towards the tiger)?
Simple! The ploy confuses the lion; It does not know which leg to tackle first. The Reviewer of an ICI Report to its shareholders shares with the lion a similar predicament. Is ICI a Polyester Company?
Is it a Soda Ash Company? Or a General Chemicals or Paints or "Others" Company? With one business going down, a second coming up and a third facing uncertainty, how does the reviewer catch the essence of the Company's performance in its entirety?
You are right! That is a concern of the reviewer alone. One must therefore take a deep breath and jump in!
1. PSF: Iraq war and Sars affected the downstream petrochemical industries whose output is input to PSF manufacturers. Demand for PSF grew but not to the estimated level.
An over supply situation in addition to the above had the effect of lowering the net margin.
Operating profit at Rs 24.2 millions was well below Rs 71.5 millions earned in 2003 even though sales at Rs 8,648 millions (Rs 6,923 millions in 2002) were 23% higher.
2. GENERAL CHEMICALS: Production doubled over last year "mainly due to higher demand for locally blended Polyol". Dollar based indent commissions were eroded by a stronger Rupee but introduction of new product lines and ready sales reduced its negative impact.
While furnace oil imports fell, import of steam coal was stated by ICI. Operating profit rose 41% to Rs 121 millions (Rs 85.7 millions).
3. SODA ASH: Record production was achieved but price had to be reduced due to reduction of import duty on the item from 20% to 10%. Imports from China and Ukraine resulted in an over supply situation.
The operating profit fell 25% to Rs 415 millions (Rs 554 millions) while sales fell marginally to Rs 3,179 millions (Rs 3,257 millions).
4. PAINTS: Growing construction activity and booming auto sales helped improve paint sales volume by 23%. Operating profit rose 33% to Rs 395 millions (297 millions) while sales value rose 21% to Rs 2,989 millions (2,478 millions).
5. OTHERS: All 3 segments of the Life Sciences Business - the Medical Segment, the Animal Health Segment and the Seeds Segment did well during the year with sales rising 14% to Rs 1,901 millions (1,665) and operating profit by as much as 195% to Rs 133 millions (68.1 millions).
THE COMPANY: To sum up, while Polyester and General Chemicals were the main contributors to sales accounting together for 65% of total sales, the major share (74%) of the operating profit was earned by Soda Ash and Paints.
Net sales improved to Rs 18,127 millions, a big jump of 48% over 2002. But gross profit at Rs 2,664 millions was only 14% higher than in 2002.
With administrative and selling expenses rising dramatically the operating profit at Rs 1,088 millions stood no more than just 1% higher than in 2002.
Much lower financial charges helped to give an increased profit before tax of Rs 807 mln (compared to Rs 723 millions in 02), an increase of 11.5%.
A tax write back of as much as Rs 1,132 millions in 2002 (mainly on account of "deferred tax asset recognised") had yielded an earning per share of Rs 13.36, while no such largesse was available in the current year whose earning per share amounted to Rs 5.52. The payout is a judicious cash dividend of Rs 2.5 per share (Rs 2.25 in 2002).
ICI's substantial investment of 25% equity of Pakistan PTA Limited amounting to Rs 408 millions is yet (as of end 2003) to yield any profit.
In the immediate future, the Company foresees continued pressure of competition though inclusion of PSF in the Duty and Tax Remission on Exports (DTRE) will be of help.
Among shareholders, ICI Omicron B.V. holds nearly 76% equity and thus controls the Company. CDC's account holders (number unknown) hold another 19% plus. Nearly 4% is held by a little over 12,400 individuals.
The share is quite liquid, over 44 millions shares having changed hands in the month of April 04 at prices ranging between Rs 80.50 and Rs 91.50.
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Performance Statistics (Million Rupees)
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Year Ending 31 December 2003 2002
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Liabilities:
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Authorised Capital: 15,000 15,000
Paid up Capital: 1,388 1,388
Capital reserves: 3,245 3,051
Unappropriated Profit: 3,261 2,737
Equity: 5,115 4,591
Non-Current Liabilities: 754 2,263
Current Liabilities: 8,263 6,933
Total Liabilities: 14,132 13,787
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Assets:
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Operating Assets: 5,182 5,427
Capital Work in Progress: 345 316
Investments: 2,334 2,323
Other Non-Current Assets: 965 398
Current Assets: 5,306 4,619
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Sales, Profits & Payout:
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Net Sales: 18,127 12,219
Gross Profit: 2,664 2,327
Operating Profit: 1,088 1,077
Other Income: 187 329
Financial charges: 391 631
Other Charges: 78 52
Profit Before Tax: 807 723
Profit After Tax: 766 1,855
Cash Dividend (Rs): 2.50 2.25
Stock Dividend (%): Nil Nil
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Ratios:
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Earning/Share (Rs): 5.52 13.36
Cash Payout Ratio (%): 45.3 16.8
Share Pr. on 25/5/04 (Rs): 81.00 -
P/E Ratio: 14.7 -
Book Value of Share: 36.85 33.08
P/BV Ratio: 3.20 -
Gross Margin (%): 14.7 19.2
Net Margin (%): 4.2 15.3
Debt/Equity Ratio: 0:100 0:100
Current Ratio: 0.64 0.67
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COMPANY INFORMATION: Chairman: M.J. Jaffer, Chief Executive: Jonathan R. Stoney Directors: Mueen Afzal, Syed Imran Agha, Philip Gillett, Steve Hamlett, Asif Jooma, Tariq Iqbal Khan, Khursheed Marker, M. Nawaz Tiwana. Chief Financial Officer (Alternate Director): Feroz Rizvi. Company Secretary: Nausheen Ahmad. Registered Office: ICI House, 5 West Wharf, Karachi-74000. Phone: 111-100-200.
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