OVERVIEW (July 23 2010): ICI Pakistan Limited is a 75.81% owned subsidiary of ICI Plc, UK. It was set up as a public limited company in Pakistan in 1952. ICI's presence in this part of the world, however, predates the formation of the public limited company and indeed, Pakistan itself.

The Khewra Soda Ash Company, a predecessor of ICI Pakistan Limited set up a soda ash manufacturing facility in Khewra in 1944 with a capacity of 18,000 tonnes per annum. This facility was sited next to the salt range as rock salt and limestone; two key raw materials for manufacturing soda ash were available here in abundance.

Today, ICI Pakistan's five businesses; polyester, soda ash, paints, chemicals and life sciences manufacture and sell a range of industrial and consumer products. These include polyester staple fibres, POY chips, light and dense soda ash, sodium bicarbonate, paints for the decorative, automotive, refinish segments for industrial use and projects, specialty chemicals, polyurethanes, and adhesives and the company also arranges manufacture on a toll basis of pharmaceutical and animal health products. It also markets seeds and in addition, is engaged in the trading of various specialised chemicals for the industrial use.

The company was awarded the Corporate Excellence Award by the Management Association of Pakistan (MAP) and 2nd Prize in the chemical sector for the Best Corporate Report Award jointly organized by the Institute of Chartered Accountants of Pakistan and the Institute of Cost and Management Accountants of Pakistan. In 2008, two company businesses - chemicals and paints - recently introduced AkzoNobel (new ultimate parent company) products in Pakistan. Paints Business launched the Car Refinish brand Sikkens whereas Chemicals Business launched products within the surfactants and functional chemicals range. Work on the 65ktpa Soda Ash Expansion Project is progressing as per plan and the project is expected to be completed in the second quarter of 2009. The energy saving and cost reduction project, Cogen (waste heat recover and power plant) undertaken by the Company's wholly owned subsidiary ICI Pakistan PowerGen was successfully completed and commissioned as per plan and budget, and has started to yield envisaged savings.

Recent results 1Q10

An 18 percent increase in turnover to Rs 9.1 billion compared with the same quarter last year was achieved in a challenging economic and security environment. Operating profit was flat despite strong margin growth in the polyester fibre and the chemicals businesses as well as double-digit volume growth in the soda ash business and in the industrial, refinish, pharmaceutical and animal health segments.

ICI's operating profit growth was negatively impacted by over Rs 350 million due to the use of more expensive alternate fuel on account of the prolonged and unprecedented outages in supply of gas by the SNGPL during the quarter. PAT was Rs 396 million as compared to Rs 342 million in the same period last year.

Polyester fibre business posted an operating profit of Rs 320.34 million, which was Rs 204.7 million higher than the same quarter last year. The operating result would have been even higher but for the use of more expensive fuel as explained above.

Soda ash business sales volumes were 31 percent higher compared to the same quarter last year, despite continued weak demand from the downstream industry affected by the energy crisis, due to exports of 13,847 tonnes of soda ash to the newly developed regional markets.

In the paints business the refinish and industrial segments showed double-digit growth in sales volume, the decorative segment has also started showing signs of gradual improvement following a pick-up in painting activities. Unit margins remained healthy. Operating result for the quarter at Rs 97.97 million was Rs 14.66 million lower due to provision against doubtful debts, stores and spares amounting to approximately Rs 23 million.

In the life sciences business both pharmaceutical and the animal health segments showed double-digit volume growth. In the seeds segment, the government's initiative to grow more wheat by offering an attractive support price, continued to negatively affect on the sales volumes of the company. As a result, the operating result at Rs 87.18 million was lower by Rs 21.75 million despite the higher operating results in both pharmaceuticals and the animal health segments.

================================== COMPANY SNAPSHOT ================================== Symbol ICI Nature of Business Chemicals Current Rate Rs 156.50 Turnover 206756 Outstanding Shares 138802300 Market Capitalization 21722559950 EPS Rs 14.73 ==================================

Financial performance (FY09)

During FY09, the company faced concurrent headwinds, notably, recession in the developed world, significant decline in domestic large-scale manufacturing (LSM) sector worsened by energy shortages as well as increase in electricity and gas tariffs. In addition, continual inflation and high interest rates constrained the demand particularly in the construction and automobile sectors. When looking sector wise, the most profitable remained the polyester, on the other hand, chemicals and paints operating results were negative. This showed the decline in the total aggregate demand and hence resulting in lower turnover comparative to FY08.

Despite this, company demonstrated growth in earnings over 2008. Focus on customers, cash, costs and strength of a diverse portfolio helped to protect margins and limit the decline in volumes in a contracting economy.

Profit after tax of Rs 2.04 billion for FY09 was up by 10 percent compared with FY08. Earnings per share at Rs 14.73 in FY09 was up by 10 percent over FY08.

In FY09, the company faced profitability issues. The ratios slightly declined over the period, attributing to the economic slowdown and market conditions resulting because of it. We see a slender decline in gross profit ratio from 17.63% in FY08 to 17.52% in FY09. The main explanation is because of the cost of goods sold increased marginally with less proportionate increase in the sales revenue. Again, the economic condition and high power tariffs resulted in such slight decline.

Similar result was observed when both ROA and ROE showed decline from 11.08% in FY08 to 9.54% in FY09, similarly the ROE decreased from 16.31% to 15.17% It can again be traced back to the net income, which just increased by 9% in FY09 comparatively to the assets employed, which increased by 16%. Hence the outcome of the ROA and ROE remained low for FY09.

In FY09 the current ratio tends to be static compared to FY08. The ratio remained at 1.92x.

==================================================================== Cash and Bank Balances FY'09 FY'08 Short term deposits Rs 3,350,000 Rs 120,000 ====================================================================

The trend in the company's asset management ratios till FY08 is very encouraging and noteworthy. There has been a decline in the inventory turnover ratio, the days sales outstanding (except in FY07 where it rose due to higher trade debts) and the over all operating cycle, demonstrating that the company has been efficient in selling off its inventories and receiving cash against its receivables. A greater marketing effort by the company is a major reason for its commendable asset management as the company can easily sell off its products to the clients. Easy credit terms can be responsible for a rise in the days sales outstanding after 2005, which has now been controlled by the company, with the DSO finally reducing in FY08, for the first time since 2005. Hence this reflects a good performance of the company on the asset management platform.

Owing to a significant rise in the total assets for the past few years, the total assets turnover ratio has seen a decline till FY06 in spite of an increasing turnover. In 2003, work was initiated on the refined sodium bicarbonate plant, which was completed in 2004, hence explaining the rise in total assets for the company during these two years. The company spent Rs 396.6 million as sustenance capital in 2005 to maintain its existing assets and, in 2006, investment was made in three major projects at a cost of Rs 3.3 billion. These projects include the Asset Modernization and Improvement Project (AMIP) in polyester, soda ash 50ktpa expansion and acquisition of the manufacturing facility of Fayzan Manufacturing Modaraba (FMM). Consequently, ICI Pakistan's assets have generally been high. However, FY07 TATO ratio shows that the company has managed these fixed assets more efficiently due to which total assets turnover ratio has shown a rise. The rise in TATO in FY08 is more due to the low growth in assets, coupled with the rise in net sales, showing that the company has managed its growth plans well, also the current losses in cash balances led to low asset growth, thus this performance could not be depicted as entirely satisfactory and further efforts are needed to manage the asset turnover in the future.

In addition, the nine months ended accounts showed a considerable performance in the asset management ratios. The only area that a saw decline was the sales/equity ratio, which was 0.61 compared to 2.32 in 2008.

For the period FY09, the asset management ratios too declined. The operating cycle increased from 50days in FY08 to 60 days in FY09. This is explained by increase in the inventory turnover from 39days to 49 days in FY09. As again, the current market condition led to a low demand and hence resulting in lower asset management.

A slight deterioration is observed in FY09, as the company's liabilities increased for the period. Debt to equity reduced to 0.52 and debt to asset decreased to 0.33. As no further debt was issued for the period and term finance mounting to Rs 550 million was considered nil for FY09, these deteriorations show that the other liabilities such as trade payables and in non-current liabilities, the tax liability was a huge increase which led to the weakening of the ratios.

Leverage condition remained stable in 3Q09, with its gearing ratios constant. TIE ratio decreased from 25.32 days to 26.23 days. The reason for this marginal decrease was a decline in the EBIT that had resulted in the lower revenues this year.

The company was able to increase its earnings for the period, as EPS for FY09 was Rs 14.73 compared to Rs 13.42 in FY08. This is mainly attributed to the increase in the net income for the year, which augmented by 10% in FY09.

The P/E multiple showed a great confidence in the company as the market price of the stock increased to Rs 169.34 at year end comparatively to Rs 68.71 in FY08. Thereby, increasing the P/E multiple to 11.40 in FY09. The increment in stock price shows the level of confidence in the investors even though the market conditions and economic conditions tend to hamper the growth and profitability of various sectors.

The company paid out dividends to its shareholders, which was 40% of its earnings bringing it about to nearly Rs 7 per share.

Future outlook

Prospects of a global recovery in 2010 remain mixed. On the domestic front, there are signs of macroeconomic stability, however this hard gained recovery is threatened by the pressures building up on fiscal account, further increase in energy shortages and the unease on continued security incidents. Other than this, the market conditions remain competitive and tough to operate and post challenges for various industries. One major area that remains inevitable is the energy crisis and fares related to it, this would impede efficiency and drive up costs for the firm.

Globally, the revival of economies are taking at slower pace or remained stagnant however the debt crisis still remains issue which led to downturn of the various economies on the European front. Business environment is therefore expected to remain tough in 2010.

======================================================================================================================== ICI Financials ======================================================================================================================== INCOME STATEMENT 2002 2003 2004 2005 2006 2007 2008 2009 ======================================================================================================================== Turnover 15,073,813 22,156,265 21,303,498 21,054,298 21,947,688 25,973,009 31,921,873 32,399,181 Gross Profit 2,327,095 2,664,367 2,755,709 3,351,698 4,083,210 4,806,120 5,647,341 5,675,892 Operating Profit 1,077,114 1,087,681 1,346,788 1,842,542 2,480,998 2,622,102 2,910,600 3,027,654 Profit Before Tax 723,094 806,552 2,898,950 1,612,401 2,117,797 2,768,523 3,129,908 3,072,506 Net Profit 1,854,732 766,244 2,846,368 2,253,257 1,455,628 1,784,800 2,068,872 2,044,738 ------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ Total Equity 4,591,014 5,114,863 8,053,980 9,493,072 10,265,010 11,398,450 12,683,880 13,482,796 Current Liabilities 6,932,541 8,262,583 5,194,379 5,891,930 5,436,275 6,276,103 4,281,110 5,799,898 Non-current Liabilities 1,478,895 74,568 82,601 90,604 104,079 119,571 739,900 1,208,117 Current Assets 4,618,700 5,305,892 7,179,045 6,500,138 7,023,855 9,058,107 8,232,427 11,125,168 Non-current Assets 9,168,174 8,825,935 6,738,979 9,469,783 9,905,729 9,748,184 10,435,258 10,297,489 Total Assets 13,786,874 14,131,827 13,918,024 15,969,921 16,929,584 18,806,291 18,667,685 21,422,657 ------------------------------------------------------------------------------------------------------------------------ LIQUIDITY 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ Current Ratio 0.67 0.64 1.38 1.1 1.29 1.44 1.92 1.92 ------------------------------------------------------------------------------------------------------------------------ ASSET MANAGEMENT 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ Inventory Turnover 57.09 43.85 60.43 54.73 50.08 40.43 39.36 49.02 Days Sales Outstanding 16.06 10.46 13.78 11.06 11.99 14.54 11.32 10.22 Operating Cycle 73.15 54.3 74.21 65.79 62.07 54.97 50.68 59.23 Total Asset Turnover 1.09 1.57 1.53 1.32 1.3 1.38 1.71 1.51 Sales/Equity 3.28 4.33 2.65 2.22 2.14 2.28 2.52 2.40 ------------------------------------------------------------------------------------------------------------------------ DEBT MANAGEMENT 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ Debt to Asset Ratio 0.61 0.59 0.38 0.37 0.33 0.34 0.27 0.33 Debt to Equity Ratio 1.83 1.63 0.66 0.63 0.54 0.56 0.40 0.52 Long Term Debt to Equity 0.32 0.01 0.01 0.01 0.01 0.01 0.06 0.09 Times Interest Earned 2.72 3.11 12.38 6.72 8.44 28.42 25.23 26.23 ------------------------------------------------------------------------------------------------------------------------ PROFITABILITY 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ Gross Profit Margin 15.44 12.03 12.94 15.92 18.6 18.50 17.69 17.52 Profit Margin 12.3 3.46 13.36 10.7 6.63 6.87 6.48 6.31 Return on Assets 13.45 5.42 20.45 14.11 8.6 9.49 11.08 9.54 Return on Equity 40.4 14.98 35.34 23.74 14.18 15.66 16.31 15.17 ------------------------------------------------------------------------------------------------------------------------ MARKET VALUE 2002 2003 2004 2005 2006 2007 2008 2009 ------------------------------------------------------------------------------------------------------------------------ EPS 13.36 5.52 20.51 16.23 10.49 12.86 14.91 14.73 Price/Earnings 4.04 15.4 4.37 8.85 11.01 15.29 4.61 11.50 Book Value 38.73 44.25 62.25 71.95 82.05 89.41 98.32 89.89 Year End Market Price 53.95 85 89.65 140.5 115.5 196.65 68.71 169.34 Dividend per share 2.25 2.5 4 5 5.5 5.50 6.00 7.00 ========================================================================================================================
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.

DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].

Copyright Business Recorder, 2010