ICI PAKISTAN LIMITED

ICI Pakistan Limited is the number one paints and coatings company in Pakistan with its brand Dulux, a household name. It is one of the pioneers of the PSF technology in Pakistan and has been manufacturing polyester staple fiber, since 1982 in Sheikhupura near Lahore. It is a market leader for Soda Ash and caters to approximately 70 percent of the country's requirement for this commodity.
The plant has been modernised and expanded since it began its operations in 1944 and has an annual capacity of 350ktpa. It is also the largest provider of paint solutions in Pakistan. The chemical business plant is based in Karachi and has been operational since 1968.It comprises general chemicals, specialty chemicals, and national starch products. The general chemicals business imports, blend, distributes and sells over 250 products from over a dozen well-reputed international trading partners serving every key industry in Pakistan.
The specialty chemicals business manufactures and markets textile auxiliaries, adhesives, paint lattices, crop protection emulsifiers and a range of process chemicals. ICI Pakistan was acquired by AkzoNobel on January 2, 2008, which is the largest global paints and Coatings Company and a major producer of specialty chemicals. Headquartered in Amsterdam, the Netherlands, AkzoNobel is a Global Fortune 500 company, consistently ranked as one of the leaders on the Dow Jones Sustainability Index. With operations in more than 80 countries, it has 55,000 people around the world committed to excellence and delivering 'Tomorrow's Answers Today(tm). AkzoNobel supplies industries and consumers world-wide with innovative products. Its portfolio includes well known brands such as Dulux(r), Sikkens(r), International(r) and Eka(r).
FINANCIAL ANALYSIS OF ICI PAKISTAN LIMITED
Profitability Sales revenue increased from Rs 32 billion in FY09 to Rs 39 billion in FY10, an increase of 22 percent. Significant contributions from Polyester (45 percent) were seen in this regard, followed by soda ash (20 percent) and paints (17 percent).
Pick-up in the global economic activity and low cotton crop in China, Pakistan and USA has resulted in an increase in the demand for polyester. Higher consumption of soda ash was experienced in the emerging markets of China, India and Brazil during the first three quarters of FY10. In chemicals, sales volume decreased by six percent due to lower demand on account of extensive gas load shedding and impact of floods in the third quarter of FY10.
Overall sales volume for the chemicals business was two percent higher in the first half of FY11 compared to the same period last year. At the same time, the cost of sales has maintained a rising trend, increasing by 25 percent from FY09 to FY10. Soda Ash business had to incur an additional cost of over Rs 500 million on alternate fuels compared to 2009. Also, greater exports of this product resulted in higher freight charges incurred by the company.
Despite rising costs and a lukewarm economic environment, the company managed to increase profits by 19 percent in FY10. This can be attributed to strong margin management and good cost control by the company. Higher sales and better gross profit margins in polyester resulted in the highest ever operating result of Rs 2,022 million in FY10, 86 percent higher compared to FY09.
However, trends have changed with the rising gap between supply and demand of gas. Profit after tax for the first half of FY11 at Rs 973 million was 17 percent lower compared to first half of FY10 due to lower operating result in the second quarter of FY11. Forecast of a bumper domestic cotton crop led to a sharp reduction in cotton prices, affecting the PSF prices. This, along with additional costs due to gas shortages led to a decline in the operating profit for the first half of the FY11, which was 14 percent lower than the same period last year.
For soda ash, operating result at Rs 895 million was 14 percent lower than in FY09 as the impact of higher revenue was dragged down by the higher usage of more expensive furnace oil during gas outages. As a result of this, the profits for the company were influenced as can be seen by a marginal increase of 0.5 percent in the EBIT ratio since FY 08. The positive profit generating capacity of the company can be seen by the rise in the Return on Equity (ROE) ratio, which increased by 10 percent in FY10. Net income by sales has shown a significant increase of 12.88 percent only in the first half of FY11.
Liquidity The short term liquidity does not seem to be a concern for the company with the rising trend of the current ratio. A 13 percent increase in the current ratio took the value from 1.92 in FY09 to 2.17 in FY10. The quick ratio has also increased to 1.39 in FY10 compared with 1.27 in FY09. The half year FY11 ratio also signals a healthy liquidity position with the value of 1.16.
Debt Management The company has maintained zero long-term debt since FY08. The interest expense has fallen over the years, having a marginally positive impact on the company's profits. It fell from Rs 219 million in FY08 to Rs 163 million in FY10.
Operational Efficiency The company has shown strong operational performance, with a rise in the fixed asset turnover ratio form 2.97 in FY08 to as high as 3.87 in FY10.
Market Value Earnings per share (EPS) for FY10 were Rs 17.50, which is 19 percent higher compared to with its value in FY09. In the first half of FY11, however, the EPS was 17 percent lower compared to the same period last year.
Future Prospects Macro economic outlook is very challenging and business conditions are expected to remain difficult. The debilitating power cuts and widening gap between demand and supply of gas in the absence of a sound energy policy and ad hoc allocation of gas to the manufacturing units, has badly affected the industrial sector of Pakistan. If the government does not move to address these issues it will damage the industrial sector of Pakistan with far reaching consequences.
Results in the second half of FY11 will be influenced by the gas outages that are going to be more pronounced in the winter of 2010. The slowdown of the global economy is also going to influence outcomes in the last six months of FY11. The company aims to focus on customers, energy conservation, cost management and implementation of the coal-fired boiler project.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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