ICI Pakistan Limited (PSX: ICI) boasts a long history; its establishment precedes the formation of Pakistan. It has several line of business such as manufacturing of Polyester Stable Fibre (PSF), Soda Ash which is used in the manufacturing of glass, paper and detergents; pharmaceutical products catering to various health departments such as cardiology, oncology, probiotics, etc; animal health which includes providing quality products in therapeutic categories to the industry’s livestock and poultry; last but not the least is the Chemicals and Agri Sciences which has four sub divisions- General Chemicals (GC),Polyurethanes (PU), Specialty Chemicals (SC) and Agri Sciences.
Shareholding pattern
ICI Pakistan is majorly owned by the associated companies- close to 85 percent. Of this nearly 55 percent is in the ownership of Lucky Cement Holdings (Private) Limited. Insurance companies own around 5.6 percent while the directors, CEO, their spouses and minor children hold less than 1 percent of the company.
Historical operational performance
Topline of ICI Pakistan for a large part has been increasing, with net revenue reaching Rs58 billion in FY19. Profit margins, on the other hand, have been rather fluctuating. Gross margins, in FY17 reached the highest; this level was last reached in CY07 at nearly 21 percent.
Looking at the last five years specifically, topline reduced in CY15, by around 2 percent year on year. This was primarily due to the polyester business division generating lesser revenue as a result of lower prices. This in turn was a result of the problem of oversupply, both domestically as well as regionally. Costs, as a percentage of revenue, have also experienced a decline, due to less reliance on costly fuel. During FY15, the company made their furnace oil and natural gas replacement projects operational, in the Polyester and Soda Ash lines of business, thus allowing profit margins to improve.
In FY16, topline again declined, although marginally this time. This was again attributable to lower prices in the polyester business; the revenues here reduced by 15 percent. Although the Soda Ash business, Life Sciences business and Chemicals business did grow, they were not sufficient to offset the decline from Polyester business line. However, their effect was seen in operating profits whereby Soda Ash primarily experienced higher volumes combined with lower cost of raw material and fuel expense. Some support to improving margins was also brought in by the other income which came from dividends earned from associate and subsidiary companies.
In FY17, ICI Pakistan experienced double digit growth in topline at nearly 12 percent. This was as a result of growth in all the business lines. Average prices for Polyester Stable Fibre (PSF) improved which translated into higher revenue. Soda Ash, Life Sciences and Chemicals business also performed well; the latter experienced its highest operating profit due to better sales volumes, more customers and cost efficiencies. While, costs as a percentage of revenue continued to reduce marginally, income from dividend continued to contribute to the bottomline, thus posting the highest margins after CY07.
In FY18, ICI Pakistan’s topline growth rate jumped close to 19 percent year on year. This was attributed to better performance of the Polyester business on the back of higher demand, hence higher volumes as well as prices. Life Sciences performance improved due to “integration of selected assets of Wyeth Pakistan Limited (Wyeth) and improved commercial execution and new partnerships”. Costs as a percentage of revenue increased, although only marginally, whereas the exchange loss during the year was considerable when compared to the previous year. This was largely a consequence of rupee devaluation. Profit margins reduced across the board firstly because dividend income declined, and secondly because finance costs were higher due to more debt.
The topline during FY19 increased by another 19 percent, reaching the highest figure thus far- Rs58 billion. This was attributable to improved performance in all the business segments of the company with the exception of Life Sciences. Polyester business registered a 30 growth in revenue in response to a higher demand and higher prices; Soda Ash business grew its revenue by 32 percent, due to higher sales volumes and higher selling prices. The pharmaceuticals and animal health business registered a 5 percent decline its revenue owing to political instability in addition to a ban on import of recombinant bovine somatotropin (rbST) injections which are used for livestock. Despite higher topline, profit margins failed to increase due to a further fall in income and an escalation in finance cost as a result of higher interest rates.
Half yearly results and future outlook
During the six months ended December 31, 2019, ICI’s topline grew by almost 5 percent as a result of improvement in business operations across the board except pharmaceuticals and animal health. While polyester business was driven by volumetric sales Soda Ash business improved performance due to higher prices and lower costs. Animal Health business registered a decline due to slowdown in the poultry sector. Margins improved across the board due to exchange loss in the preceding period converting into exchange gain, and a higher dividend income.
The company foresees that the challenges associated with high interest rates, inflation and currency devaluation will remain and affect the business environment of the economy. However, its consistent efforts to diversify, improve technology and explore opportunities will help to sustain the business profitably.