ICI Pakistan Limited was incorporated as a public limited company in 1952 and is listed on all the three Stock Exchanges of Pakistan. ICI Pakistan is mainly engaged in the manufacture of polyester staple fiber, POY chips, soda ash, paints, specialty chemicals, sodium bicarbonate and polyurethanes. ICI Pakistan is also involved in the marketing of seeds, toll manufactured and imported pharmaceuticals and animal health products. The company also trades in general chemicals and acts as an indenting agent.
ICI Omicron B.V. the associated company of ICI Pakistan Limited and a subsidiary of ICI Plc, UK continues to own 75.81% stake in the company. ICI Pakistan has a strong portfolio comprising of five different businesses namely Polyester, Soda ash, Paints, Chemicals and Life Sciences.
The recent merger: An unprecedented strength and potential
ICI Plc, UK in a recently takeover bid was acquired by a leading supplier of specialty chemicals and world’s largest global paints and coating company AkzoNobel (based in Netherlands). On January 2, 2008, the acquisition was officially completed and Akzo Nobel and ICI Plc, UK (the company known for its scientific innovation) collaborated to form the world’s leading industrial company in coatings and chemicals - combining expertise, global experience, world-renowned brands and cutting-edge products. The merger results Akzo Nobel to become the ultimate holding company of all businesses of ICI Pakistan Limited.
Akzo Nobel has a presence in over 80 countries worldwide and employees around 68,000 personnel holding strong global positions in many markets. The company is the largest single industrial company in decorative coatings. The company possesses strong technologies, products, brands and expertise in all its respective industries. It is also a Fortune 500 company and listed on the Euronext Amsterdam stock exchange. Akzo Nobel is the Chemicals industry leader on the Dow Jones Sustainability Indexes as well as being included on the FTSE4Good Index.
ICI Pakistan Business Portfolio
Polyester ‘Surging forward’
ICI Pakistan commenced its PSF (Polyester Staple Fiber) business in 1982, with the capacity of manufacturing 12ktpa. The plant is situated at Shiekhupura near Lahore. Under the project of Asset Modernization and Improvement Plan (AMIP), the company has been able to increase it capacity to 135ktpa which also benefits the company in reducing the cost. The demand for PSF has grown at a decent rate over the years emanating from greater textile demand amidst capacity expansion and BMR activities in sector. Resultantly, the PSF segment of the company also shown improved performance with revenues registered a 5-year CAGR of 12%. The segment is the largest revenue contributor of the company.
Soda Ash ‘Advancement that shines’
The soda ash segment proved to be ICI’s cash cow in recent years. The Soda Ash facility situated in Khewra began its commercial production in 1944 and caters approx. 70% of the country’s total requirement. Soda Ash is largely consumed as a raw material in manufacturing of glass, paper, soap & detergent and in treatment of water in Pakistan. Soda Ash plant expansion and modernization at Khewra has strengthened the business to face increasing cost challenges. At present, the company is under process to increase its Soda Ash production capacity to 350ktpa, which is expected to complete during 2Q2009. The business contributes 18% and 29% in total revenue and in total operating profit of the company respectively.
Paints ‘Colours that sparkle’
ICI Pakistan’s Paints plant - based in Lahore was acquired by ICI Plc, UK in 1965 and is one of the fastest growing segments contributing 18% in total revenue and 29% in total operating profit of the company. ICI Paints has the distinction of being the pioneer of odorless technology in solvent-borne products. The leadership in colours gives consumers endless possibilities offering over 6,000 colours. ICI has been exporting Paints to Afghanistan and Middle East, while the company has already set up a business unit in Iran to market paints to its industrial sector especially autos. ICI Paints Business includes, Decorative Segment, Industrial Segment and Refinish Segment. The revenue and the operating profit of the segment have registered growth of 18% and 23% respectively, in last five years.
Life Sciences ‘Innovation that illuminates’
The Life Sciences Business comprises three divisions: Pharmaceuticals, Animal Health and Seeds. Each segment consists of a strong portfolio of leading brands and growing products. This segment’s share in total revenue and total operating profit of the company is 10% & 14% respectively. The segment’s operating profitability registered one of the highest CAGR of 43%, during the last five years (2003-2007A).
* The Pharmaceuticals Division markets a portfolio of leading and innovative brands of prescription drugs sourced from renowned principals and has launched latest product offering of “branded generics”. This segment also markets its own brands and is recently expanding it antibiotic products to increase its market share in the pharmaceutical industry.
* The Animal Health Division markets superior quality veterinary medicines for livestock and poultry from world-renowned companies as well as some of its own brands.
* The Seeds Division initiated in 1991 has evolved as one of the leading providers of hybrid seeds in the country and a market leader in both the hybrid sunflower and fodder segments. It has also registered a steady growth in the maize segment. The segment has established a wide dealer network and acquires its products from Pacific Seeds, an Australian seeds company.
Chemicals ‘Expertise that soars’
The Chemical Business, operating since 1968 in Karachi comprises of a unique and diversified portfolio encompassing General Chemicals, Specialty Chemicals, and National Starch products also supplies raw material to Paints and Life Sciences business - creating a synergy. The business has serviced the local market for almost 40 years and is now focusing to establish a permanent export base to cater the regional requirements. The business also provides the most cost effective products to local pesticides manufacturers, making ICI Chemicals the preferred supplier of emulsifiers for crop protection. The General Chemicals Business imports, blends, distributes and sells over 250 products/variants from sixteen 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. The segment contributes around 8% in total revenue and 7% in total operating profit of the company.
Financial Performance - 9M2008 result analysis
During 9M2008, ICI Pakistan posted bottom-line growth of 28% with profit after tax of PRs1,512mn (EPS PRs10.87). This was achieved mainly on the back of healthy growth in PSF segment that was also supported by improved performances of Soda ash and Life Sci & Chemical segments.
PSF: Driven the aggregate earnings
The operating profit of the segment recorded a whooping growth of 121% at PRs652mn during 9M2008 versus PRs295mn in the same period of last year. This was mainly ensued from the improved volumetric sales and better performance at gross level. The sales revenue of the segment during the period jumped to PRs9.8bn - a significant growth of 43% due to the combined effect of higher prices and volumes. Despite declining local PSF demand, the company managed to sell 14% higher PSF volumes on the back of recently increased customer base. The gross level margins of the segment were expanded by 190bps and settled at 8% mainly attributable to better unit prices as well as lower feed stock (PTA & MEG) prices during the period under review.
Soda Ash: Top-line up 26% despite 3% lower sales volume
Despite reduced sales volumes, the top-line of the company registered an increase of 26% at PRs3.8bn due to the increased soda ash prices during 9MCY08. The lower sales volumes are attributable to gas shortage resulting in production halt during the period under review. In the wake of improved operational efficiencies and price rationalization, gross margin and operating margin of the segment witnessed 130bps and 250bps improvement, respectively. Consequently, operating profit for the nine months period showed 41% increase on YoY basis. The expansion program of the company is progressing as per schedule with the cost remaining at previous revised levels of PRs1.85bn.
Paints: Margins remained under intense pressure
Due to increased demand from the Decorative & Refinish segments and relatively higher unit prices, the Paint business of the company witnessed 24% upsurge in net sales revenues with volumes surging by 15% to 33,860 kilolitres. The steep rise in raw material price could not offset completely by regular price adjustments. And the segment witnessed 5.4pps shrinkage in gross level margins. Furthermore, unprecedented rise of 47% in operating expenses also put added pressure on the margins of the segment. That said, the operating margin of the segment dropped by 7.8pps resulting in 20% decline in operating profits during the period under review.
Chemical and Life Sciences: 31% and 37% growth in revenues
Chemical and Life Sciences segments of the company showed a steady growth in sales volumes and revenues
Both segments depicted 31% and 37% respective increases in sales revenues. Improved performances of Pharma, Seed and Animal Health fueled the growth in life sciences segment while trading segment remained the only growth contributor in Chemical segment However, the chemical segment witnessed weak demand in the Specialty Chemical due to slow down in textile exports, rocketing inflation and poor law & order situation of the country. The operating level profitability of Chemicals and Life Sciences segments recorded 46% and 61% respective growth in 9MCY08.
Consequently, the overall profitability of the company at operating levels registered an increase of 33% at PRs2.7bn in the nine months of current calendar year. Furthermore, financial charges of the company grew massively by 251% to reach at PRs357mn which included exchange loss of PRs269mn. This significant jump was mainly because of exchange losses incurred during the period, resulting from depreciation of Pak rupee against major currencies and suspension of forward exchange booking against imports by the SBP. Had there been no exchange losses, the financial charges of the company would have registered a decline.
Kamran Rehmani
Research Analyst
First Capital Equities Ltd.
ICI Omicron B.V. the associated company of ICI Pakistan Limited and a subsidiary of ICI Plc, UK continues to own 75.81% stake in the company. ICI Pakistan has a strong portfolio comprising of five different businesses namely Polyester, Soda ash, Paints, Chemicals and Life Sciences.
The recent merger: An unprecedented strength and potential
ICI Plc, UK in a recently takeover bid was acquired by a leading supplier of specialty chemicals and world’s largest global paints and coating company AkzoNobel (based in Netherlands). On January 2, 2008, the acquisition was officially completed and Akzo Nobel and ICI Plc, UK (the company known for its scientific innovation) collaborated to form the world’s leading industrial company in coatings and chemicals - combining expertise, global experience, world-renowned brands and cutting-edge products. The merger results Akzo Nobel to become the ultimate holding company of all businesses of ICI Pakistan Limited.
Akzo Nobel has a presence in over 80 countries worldwide and employees around 68,000 personnel holding strong global positions in many markets. The company is the largest single industrial company in decorative coatings. The company possesses strong technologies, products, brands and expertise in all its respective industries. It is also a Fortune 500 company and listed on the Euronext Amsterdam stock exchange. Akzo Nobel is the Chemicals industry leader on the Dow Jones Sustainability Indexes as well as being included on the FTSE4Good Index.
ICI Pakistan Business Portfolio
Polyester ‘Surging forward’
ICI Pakistan commenced its PSF (Polyester Staple Fiber) business in 1982, with the capacity of manufacturing 12ktpa. The plant is situated at Shiekhupura near Lahore. Under the project of Asset Modernization and Improvement Plan (AMIP), the company has been able to increase it capacity to 135ktpa which also benefits the company in reducing the cost. The demand for PSF has grown at a decent rate over the years emanating from greater textile demand amidst capacity expansion and BMR activities in sector. Resultantly, the PSF segment of the company also shown improved performance with revenues registered a 5-year CAGR of 12%. The segment is the largest revenue contributor of the company.
Soda Ash ‘Advancement that shines’
The soda ash segment proved to be ICI’s cash cow in recent years. The Soda Ash facility situated in Khewra began its commercial production in 1944 and caters approx. 70% of the country’s total requirement. Soda Ash is largely consumed as a raw material in manufacturing of glass, paper, soap & detergent and in treatment of water in Pakistan. Soda Ash plant expansion and modernization at Khewra has strengthened the business to face increasing cost challenges. At present, the company is under process to increase its Soda Ash production capacity to 350ktpa, which is expected to complete during 2Q2009. The business contributes 18% and 29% in total revenue and in total operating profit of the company respectively.
Paints ‘Colours that sparkle’
ICI Pakistan’s Paints plant - based in Lahore was acquired by ICI Plc, UK in 1965 and is one of the fastest growing segments contributing 18% in total revenue and 29% in total operating profit of the company. ICI Paints has the distinction of being the pioneer of odorless technology in solvent-borne products. The leadership in colours gives consumers endless possibilities offering over 6,000 colours. ICI has been exporting Paints to Afghanistan and Middle East, while the company has already set up a business unit in Iran to market paints to its industrial sector especially autos. ICI Paints Business includes, Decorative Segment, Industrial Segment and Refinish Segment. The revenue and the operating profit of the segment have registered growth of 18% and 23% respectively, in last five years.
Life Sciences ‘Innovation that illuminates’
The Life Sciences Business comprises three divisions: Pharmaceuticals, Animal Health and Seeds. Each segment consists of a strong portfolio of leading brands and growing products. This segment’s share in total revenue and total operating profit of the company is 10% & 14% respectively. The segment’s operating profitability registered one of the highest CAGR of 43%, during the last five years (2003-2007A).
* The Pharmaceuticals Division markets a portfolio of leading and innovative brands of prescription drugs sourced from renowned principals and has launched latest product offering of “branded generics”. This segment also markets its own brands and is recently expanding it antibiotic products to increase its market share in the pharmaceutical industry.
* The Animal Health Division markets superior quality veterinary medicines for livestock and poultry from world-renowned companies as well as some of its own brands.
* The Seeds Division initiated in 1991 has evolved as one of the leading providers of hybrid seeds in the country and a market leader in both the hybrid sunflower and fodder segments. It has also registered a steady growth in the maize segment. The segment has established a wide dealer network and acquires its products from Pacific Seeds, an Australian seeds company.
Chemicals ‘Expertise that soars’
The Chemical Business, operating since 1968 in Karachi comprises of a unique and diversified portfolio encompassing General Chemicals, Specialty Chemicals, and National Starch products also supplies raw material to Paints and Life Sciences business - creating a synergy. The business has serviced the local market for almost 40 years and is now focusing to establish a permanent export base to cater the regional requirements. The business also provides the most cost effective products to local pesticides manufacturers, making ICI Chemicals the preferred supplier of emulsifiers for crop protection. The General Chemicals Business imports, blends, distributes and sells over 250 products/variants from sixteen 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. The segment contributes around 8% in total revenue and 7% in total operating profit of the company.
Financial Performance - 9M2008 result analysis
During 9M2008, ICI Pakistan posted bottom-line growth of 28% with profit after tax of PRs1,512mn (EPS PRs10.87). This was achieved mainly on the back of healthy growth in PSF segment that was also supported by improved performances of Soda ash and Life Sci & Chemical segments.
PSF: Driven the aggregate earnings
The operating profit of the segment recorded a whooping growth of 121% at PRs652mn during 9M2008 versus PRs295mn in the same period of last year. This was mainly ensued from the improved volumetric sales and better performance at gross level. The sales revenue of the segment during the period jumped to PRs9.8bn - a significant growth of 43% due to the combined effect of higher prices and volumes. Despite declining local PSF demand, the company managed to sell 14% higher PSF volumes on the back of recently increased customer base. The gross level margins of the segment were expanded by 190bps and settled at 8% mainly attributable to better unit prices as well as lower feed stock (PTA & MEG) prices during the period under review.
Soda Ash: Top-line up 26% despite 3% lower sales volume
Despite reduced sales volumes, the top-line of the company registered an increase of 26% at PRs3.8bn due to the increased soda ash prices during 9MCY08. The lower sales volumes are attributable to gas shortage resulting in production halt during the period under review. In the wake of improved operational efficiencies and price rationalization, gross margin and operating margin of the segment witnessed 130bps and 250bps improvement, respectively. Consequently, operating profit for the nine months period showed 41% increase on YoY basis. The expansion program of the company is progressing as per schedule with the cost remaining at previous revised levels of PRs1.85bn.
Paints: Margins remained under intense pressure
Due to increased demand from the Decorative & Refinish segments and relatively higher unit prices, the Paint business of the company witnessed 24% upsurge in net sales revenues with volumes surging by 15% to 33,860 kilolitres. The steep rise in raw material price could not offset completely by regular price adjustments. And the segment witnessed 5.4pps shrinkage in gross level margins. Furthermore, unprecedented rise of 47% in operating expenses also put added pressure on the margins of the segment. That said, the operating margin of the segment dropped by 7.8pps resulting in 20% decline in operating profits during the period under review.
Chemical and Life Sciences: 31% and 37% growth in revenues
Chemical and Life Sciences segments of the company showed a steady growth in sales volumes and revenues
Both segments depicted 31% and 37% respective increases in sales revenues. Improved performances of Pharma, Seed and Animal Health fueled the growth in life sciences segment while trading segment remained the only growth contributor in Chemical segment However, the chemical segment witnessed weak demand in the Specialty Chemical due to slow down in textile exports, rocketing inflation and poor law & order situation of the country. The operating level profitability of Chemicals and Life Sciences segments recorded 46% and 61% respective growth in 9MCY08.
Consequently, the overall profitability of the company at operating levels registered an increase of 33% at PRs2.7bn in the nine months of current calendar year. Furthermore, financial charges of the company grew massively by 251% to reach at PRs357mn which included exchange loss of PRs269mn. This significant jump was mainly because of exchange losses incurred during the period, resulting from depreciation of Pak rupee against major currencies and suspension of forward exchange booking against imports by the SBP. Had there been no exchange losses, the financial charges of the company would have registered a decline.
Kamran Rehmani
Research Analyst
First Capital Equities Ltd.
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