Chemicals: ICI PAKISTAN LIMITED - Analysis of Financial Statements Financial Year 2002 - 2003 Q 2009
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 has 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 trading various specialised chemicals use in industries in Pakistan.
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. 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.
FINANCIAL PERFORMANCE (2003 Q 2009)
ICI in 3Q09 saw a major decline in most of its profitable sectors. The paints and chemicals sector saw 30% and 34% decline in revenues. As a result, most of the operating revenues saw a huge decline except for the polyester section. The main reason to this was the low demand led by slow economic condition that has been prevailing in the country. The operating results were mostly accountable to the external factors mentioned above, in addition, power outages and uncertainty too led to this decline.
Moreover, administration expense and selling expense too saw a rise of about 9% in 3Q09. This too added to the lower operating results. Considering the profitability of the company over the 3Q09 and 3Q08. Though the company saw a major turn down in many of the segments of production. However the profitability ratios showed a rising trend compared to 3Q09. Gross profit with respect to the comparable period was 3% higher. This shows that the company was able to cut down its extra administrative expenses, which increased the gross profit margin.
Moreover PBT and PAT too saw a rise over 3Q09. There was a 12.53% and 17.18% increase respectively. This was mainly attributed to the other income that mounted up to Rs 91m. The second factor was due to the decrease in the financial charges that resulted in variable exchange rate and improved cash position that will be discussed in the next part. Financial charges saw a reduction of about 75% for the nine months ended of 2009.
The liquidity condition as at 30 September 2009 was favorable for ICI. It was 1.87x compared to 1.92 at the year-end of 2008. This shows that the company was able to maintain its Current Ratio as compared to the previous years. The explanation behind this is because of the increase in Current Assets, which was proportionately more than the increase in the Current Ratio. Secondly, the main attribution to the rise in Current Assets was the holding of the cash and bank balances. As the economy was going through liquidity crunch, ICI managed to keep its liquidity in a stable position that could be fulfilled if it needed. Secondly current liabilities did not see a huge rise as the only liability they had was of Trade Payable which showed insignificant increase.
The trend in 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 50 ktpa 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.
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 quite 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 to this 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.
Considering the Debt Management ratios, there has been a diminutive deterioration in their ratios. First debt to equity ratio saw a decline from 0.40 in 2008 to 0.51 in September 2009. This was because of the long-term loan that was taken during the FY09 period. This leads to the second ratio, which is the Long term Debt to equity, which declined from 0.06 to 0.09 in September 2009. Though it deteriorated, however remained in the satisfactory position for the company to take further debt, if needed. The current financial charges were declined; this could be motivating for the company to take further debt on low charges. Lastly considering the TIE ratio, we saw decline in the interest earned for the nine months ended in 2009.
It decreased from 25.32 days to 26.23 days. Though not a considerable decline however the deterioration took place. The reason for this was a decline in the EBIT that had resulted in the lower revenues this year. The company has not yet announced any dividend yet for the nine months ended in 2009. As we can see from the above diagram the company's prices greatly increased in the nine months period ended as the investors showed a great confidence and invested heavily in the stock market for the company shares. The rise shows that the conditions were improving throughout the 2009 period for the company, as there had been a severe decline because of the major break down of the KSE indexes.
FUTURE OUTLOOK
The current economic condition is on reviving, as there has been signs of recovery seen. A few factors, such as reduction in interest rates and credit rating upgrading are positive signs for the company's growth opportunities. Moreover, the local demand for paints and other segments would increase as the demand for infrastructure development would increase. ICI has always been a profitable business for its shareholders and also for the society at large. The philanthropic causes, the company participates in, shows the CSR that ICI pay emphasis.
However, with all positive factors, there occur detrimental factors as well that would led to constraint for ICI to prosper in the coming year. Disturbing Security Environment, energy shortages that were the main cause of high administrative expense in the nine months ended 2009. This would not only affect the production but also the demand from the downstream industries. Keeping these factors in mind, ICI can perform better than the other industry competitors based on its past performance and the future opportunities, which it can gain by investing their skills.
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ICI FINANCIALS
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INCOME STATEMENT 2002 2003 2004 2005 2006 2007 2008 2009
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Turnover 15,073,813 22,156,265 21,303,498 21,054,298 21,947,688 25,973,009 31,921,873 7,913,366
Gross Profit 2,327,095 2,664,367 2,755,709 3,351,698 4,083,210 4,806,120 5,647,341 1,515,770
Operating Profit 1,077,114 1,087,681 1,346,788 1,842,542 2,480,998 2,622,102 2,910,600 -
Profit Before Tax 723,094 806,552 2,898,950 1,612,401 2,117,797 2,768,523 3,129,908 819,396
Net Profit 1,854,732 766,244 2,846,368 2,253,257 1,455,628 1,784,800 2,068,872 557,373
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BALANCE SHEET 2002 2003 2004 2005 2006 2007 2008 2009
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Total Equity 4,591,014 5,114,863 8,053,980 9,493,072 10,265,010 11,398,450 12,683,880 13,013,216
Current Liabilities 6,932,541 8,262,583 5,194,379 5,891,930 5,436,275 6,276,103 4,281,110 5,458,798
Non-current Liabilities 1,478,895 74,568 82,601 90,604 104,079 119,571 739,900 1,114,294
Current Assets 4,618,700 5,305,892 7,179,045 6,500,138 7,023,855 9,058,107 8,232,427 10,226,826
Non-current Assets 9,168,174 8,825,935 6,738,979 9,469,783 9,905,729 9,748,184 10,435,258 10,299,071
Total Assets 13,786,874 14,131,827 13,918,024 15,969,921 16,929,584 18,806,291 18,667,685 20,525,897
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LIQUIDITY 2002 2003 2004 2005 2006 2007 2008 2009
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Current Ratio 0.67 0.64 1.38 1.1 1.29 1.44 1.92 1.87
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ASSET MANAGEMENT 2002 2003 2004 2005 2006 2007 2008 2009
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Inventory Turnover 57.09 43.85 60.43 54.73 50.08 40.43 39.36 158.76
Days Sales Outstanding 16.06 10.46 13.78 11.06 11.99 14.54 11.32 45.66
Operating Cycle 73.15 54.3 74.21 65.79 62.07 54.97 50.68 204.42
Total Asset Turnover 1.09 1.57 1.53 1.32 1.3 1.38 1.71 0.39
Sales/Equity 3.28 4.33 2.65 2.22 2.14 2.28 2.52 0.61
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DEBT MANAGEMENT 2002 2003 2004 2005 2006 2007 2008 2009
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Debt to Asset Ratio 0.61 0.59 0.38 0.37 0.33 0.34 0.27 0.32
Debt to Equity Ratio 1.83 1.63 0.66 0.63 0.54 0.56 0.40 0.51
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
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PROFITABILITY 2002 2003 2004 2005 2006 2007 2008 2009
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Gross Profit Margin 15.44 12.03 12.94 15.92 18.6 18.50 17.69 -
Profit Margin 12.3 3.46 13.36 10.7 6.63 6.87 6.48 -
Return on Assets 13.45 5.42 20.45 14.11 8.6 9.49 11.08 -
Return on Equity 40.4 14.98 35.34 23.74 14.18 15.66 16.31 -
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MARKET VALUE 2002 2003 2004 2005 2006 2007 2008 2009
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EPS 13.36 5.52 20.51 16.23 10.49 12.86 14.91 11.40
Price/Earnings 4.04 15.4 4.37 8.85 11.01 15.29 4.61 -
Book Value 38.73 44.25 62.25 71.95 82.05 89.41 98.32 -
Year End Market Price 53.95 85 89.65 140.5 115.5 196.65 68.71 164.71
Dividend per share 2.25 2.5 4 5 5.5 5.50 6.00 6.00
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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].
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