Akzo Nobel Pakistan Limited

Akzo Nobel traces its history in Pakistan to 1944 when Khewra Soda Ash Company, predecessor of ICI Pakistan Limited, set up a manufacturing facility in Khewra. In 1952, ICI was set up as a public limited company; However, its presence predates creation of Pakistan.
In 1965, ICI UK acquired 50 percent interest in a paints company in Lahore which was converted to a public limited company, Paintex Limited in 1973. In 2008, ICI Pakistan Limited became part of the Akzo Nobel Group, one of the largest coatings and chemical companies in the world.
In 2011, ICI Pakistan's Board of Directors approved a proposal from its holding company Akzo Nobel N.V. to restructure its interest by the separation of the paints business into a separate legal entity. Through de-merger, Akzo Nobel Pakistan Limited started operating as a separate legal entity from June 2012.
Industry and operational overview
The decorative paints market in recent times has seen an onslaught of aggressive competition by both local and multi-national players. With local competitors starting to make forays into the premium segment, ANPL with its Dulux brand responded with rolling out its largest ever ATL Media Campaign in 2016.
ANPL's performance coating business consists of seven sub business units. Specialty finishes is the largest segment followed by protective coatings, vehicle refinish and metal coatings. The specialty finishes segment is focused on automotive sector, supplying coatings to tractor, passenger car, commercial vehicle and motorcycle manufacturers.
The specialty chemicals business is categorised into five segments with each segment providing a range of products and solutions to a wide array of industries. APNL supplies specialty chemicals to the construction, paint, sugar, and pharmaceutical sectors among others. It was announced in February this year that it's specialty chemicals business with be a separated and sold, a plan which is in process currently.
Financial overview
After the de-merger, the year AkzoNobel started operations had a difficult business environment with contracting markets, regulatory changes and general air of uncertainty. Weak industrial activity, on-going energy crisis and the decline in automotive industry did not help matters. Despite these challenges, the company managed net sales income of Rs 4.8 billion and PAT of Rs 365 million.
In 2013, net sales rose by 11 percent as result of customer engagement and brand building initiatives with PAT nearly doubling. Political instability and intense competition in decorative paints category led to net sales income falling by 7 percent with PAT falling by 24 percent in 2014.
Performance improved in 2015 with turnover 4 percent higher and gross profit 14 percent higher due to lower raw material costs as a result of significant reduction in petroleum prices. 2016 was a good year for tractors, with production and sales of tractors at a year high. AkzoNobel partnered with Millat tractors and Al-Ghazi to become the primary supplier of coatings in the tractor segment.
This helped increase top-line growth of 7 percent. As raw material prices remained subdued, gross margins increased by 8 percent. However, promotional schemes and media campaigns led to selling and distribution expenses increasing by 13 percent, therefore operating profit was only 4 percent higher as compared to 2015. PAT was lower by 9 percent since other income was 26 percent lower as well.
Last year 2017, the company experienced double digit growth with turnover being 11 percent higher and PAT being 17 percent higher. This was despite raw material prices increasing during the year due to higher crude oil prices. Higher prices and cost saving measures helped drive the top and bottom-line.
1QFY18
As PKR devalued, the prices of raw materials continued on their upward trajectory. This has led the company to increases prices on most product lines but it has put the margins under pressure. Sales increased sluggishly with growth stemming from an increase in demand from tractors segment, sales to infrastructure projects, and new product launches. Metal coatings range also helped support the top-line.
Regulatory duty on key raw materials also led to an increase in cost of goods sold. Operating profit and profit after tax was lower because of impact of raw material cost increase was not offset completely by the rise in prices. However, Akzo Nobel is not the only company that has been impacted by these changes - all major competitors increased their prices in the first quarter of the current year. To increase its market share, Akzo Nobel launched Dulux Promise range as part of its two-brand strategy model and to capitalise on the brand pull of Dulux.
Future outlook
In the short term, run up to the election is expected to create political uncertainty which is expected to affect consumer demand and spending on infrastructure projects. Continued devaluation of the currency and higher petroleum prices are expected to continue putting pressure on margins.
In the long term, CPEC continues to be a positive driving force. Akzo Noble plans to continue to invest in brand building initiatives and product promotion to increase awareness of ICI Dulux. For this purpose, new product lines will be launched such as Dulux Promise to main shelf space in the retail channel and support top-line growth.

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Akzo Nobel Pakistan Limited

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Rs (mn)                                1QFY18   1QFY17     YoY

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Sales                                   1,557    1,470      6%

Cost of sales                            (972)    (882)    10%

Gross profit                              585      588     -1%

Selling and distribution expenses        (285)    (286)     0%

Administrative and general expenses       (87)     (81)     7%

Operating profit                          213      222     -4%

Finance cost                               (1)      (0)   233%

Other charges                             (22)     (18)    22%

Other income                               42       36     17%

Profit before tax                         232      239     -3%

Tax                                       (68)     (70)    -3%

Profit after tax                          163      168     -3%

EPS Rs.                                  3.52     3.63     -3%

Gross profit margin                        38%      40%    -6%

Net profit margin                          10%      11%    -8%

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Source: company accounts

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Pattern of shareholding (as at Dec 31, 2017)              Shares held       %

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Directors, CEO and their spouses and minor children                60    0.00

Associated Companies, Undertakings and related parties     35,209,665   75.81

NIT & ICP                                                           0     0.0

Banks, DFI & NBFI                                           1,509,712    3.25

Insurance Companies                                         1,411,881    3.04

Modarabas and Mutual Funds                                    540,768    1.16

General Public (Local)                                      3,699,174    7.96

General Public (Foreign)                                            0     0.0

Others                                                      4,072,060    8.77

Shareholding holding 5% or more voting rights

ICI Omicron B.V.                                           35,209,665   75.81

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