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OXFORD BROOKS UNIVERSITY

RESEARCH AND ANALYSIS PROJECT

ON

ICI PAKISTAN LIMITED

FOR

BSc. (Hons.) IN APPLIED ACCOUNTING

SEPTEMBER 2008

(TOTAL WORDS : 6498) EXCLUDING WORDS

IN TABLES

PRESENTED BY

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Research and analysis Project, ICI pakistan. 2

CONTENTS

SR. # PARTICULARS PAGE

1 INTRODUCTION 3

2 AIMS AND OBJECTIVES 4

3 OVERALL RESEARCH APPROACH 6

4 INFORMATION GATHERING 7

5 ACCOUNTING TECHNIQUES USED 11

6 ANALYSIS 13

Ratio analysis 14

Performance of subsidiary 20

Swot analysis 21

Porter analysis 23

7 CONCLUSION 26

8 RECOMMENDATION 28

9 REFERENCES 29

10 APPENDICES

APPENDIX-A PROFIT&LOSS ACCOUNT 30

APPENDIX-B BALANCE SHEET 31

APPENDIX-C SALES TREND 32

APPENDIX-D GROSS VS NET PROFIT 33

APPENDIX-E EPS VS DPS 34

APPENDIX-F PAT& CAPITAL EXPENDITURES 35

APPENDIX-G CAPITAL&DEBT STRUCTURE AND 36

CAPITAL EMPLOYED




1. Introduction

1.1 Topic chosen and its content

After being eligible for B.S.C in applied accounting degree, I decided to avail this opportunity

and went through all the topics listed in guidelines for research and analysis project. It

was important to identify the topic in which I could apply my best capabilities. I gave a

deep thought in selection of the topic and finally reached at the conclusion of trying

“An analysis of business and financial performance of an organization over a

three years period”

In choosing the topic the reason that forced me to select this are, firstly, the topic should be easily

understandable and its context should be clear to me. Secondly, I should have the

required capabilities regarding the topic and should not be struck in between the project.

Thirdly, the information should be easily accessible, after thinking deeply, I decided to

work on

ICI PAKISTAN LIMITED

1.2 REASONS FOR SELECTION

AREA OF PRIME INTEREST.

The main reason why I chose the topic is because I already had an interest in carrying out

financial analysis of different companies in different business segments; on the other

hand, analyzing financial situation of a company is both interesting and full of learning as

it helps you to know how a company deals with different financial problems it faces and

also gives you a much wider view of a particular industry in which company is.




CORRELATED TO ACCA SYLLABUS

Being an ACCA student, it is essential for one to learn the key skills and analyzing financial

situation by interpreting financial statements analyzing performance measurement, and

environment analysis as this is an integral part of ACCA syllabus.

READILY ACCESSIBLE INFORMATION.

ICI Pakistan ltd is a plc; therefore its information is widely available in the shape

Of articles in newspapers, magazines and information can be easily be viewed on

Internet which is up-to-date, relevant, meaningful and understandable.

THE COMPANY.

Another reason for choosing Ici Pakistan is its contribution towards various

sectors of Pakistan such as agricultural sector , textile sector and fertilizer sector

of Pakistan through its polyester, chemical and life sciences businesses, hence

analysis of financial situation of ICI Pakistan will enable me to cultivate a better

understanding of Pakistan‟s economy.

2. AIMS AND OBJECTIVES

Aims and objectives of this analysis is to evaluate in detail the financial

Performance of ICI Pakistan from FY05 to FY07, in terms of

EFFICIENCY-TO effectively interpret what are the factors behind increase and

decrease in sales of company.

PROFITABILTY- TO asses a firm‟s ability to create economic value in

excess of value expended, to grow, remain solvent and repay debt. (John E

. McKinley, 1984)




SHORT TERM SOLVENCY AND LIQUIDITY- TO indicate how well

company is controlling aspects of its working capital and to review whether company

will be able to pay off its short tern obligations on timely basis.

LONG TERM SOLVENCY AND STABILITY-TO evaluate how much

company owes in relation to its size, whether it is getting into heavier debt or improving

its situation.

SHAREHOLDERS INVESTMENT RATIOS-TO assess value of

investment in the ordinary shares of a company and the prospects of the financial gain.

PURPOSE OF SWOT ANALYSIS:

is to provide you with a realistic understanding of your organization in relation to

its internal and external environment ,so you can better formulate strategy in

pursuit of its mission(KINICKI ,2003)

Critical assessment of the strengths, weaknesses, opportunities, and threats in

relation to internal and environmental factors affecting ICI Pakistan will be

carried out in order to establish its current situation. A strength and weakness

analysis will help in identifying strength that should be exploited and

weaknesses which should be improved. It may be thought of as a review in detail

of core competences , those company has and those it needs.

PURPOSE OF PORTERS ANALYSIS – is to develop a broad and

sophisticated analysis of company‟s competitive position. The competitive environment

is structured by five forces

1) barriers to entry

2) substitute products

3) bargaining power of customers

4) bargaining power of suppliers

5) competitive rivalry (BPP , 2006)

After evaluating the ratios and the environment, the next and last part of my report would be to

draw a conclusion regarding the over all performance of the organization and to provide

recommendation based on my analysis.




3- Overall Research Approach: The topic requires knowledge of financial ratios and their interpretation, applying Business

performance measurement models, analyzing trends, drawing conclusions and making

recommendations. I have applied my knowledge that I had learned during my studies

and have enhanced my knowledge through further research and have eventually

developed the appropriate skills required from me to prepare this Research & Analysis

Project.

For the discussion, I have calculated different financial ratios using balance sheets and profit &

loss accounts of the company for financial years 2005 to 2007. I have also discussed on

the trends of important critical success factors using figures from financial statements and

discussing the relation between them. After discussion of different key ratios and key

financial figures I have applied and discussed some Business Performance evaluation

models to develop a better understanding of business and financial performance of the

company. I have drawn conclusions of my overall findings and have given some

appropriate recommendations for better performance in future period.

3.1- RESEARCH QUESTIONS

How to select the topic to work on?

How to select an organization to work on?

What are the requirements of doing OBU project?

Approximately how much time is required to complete the project?

What are the businesses of the ICI (Pakistan) limited?

What sources are used to collect information?

What are problems faced and ethical issues arise?

What is the Market share of ICI?

What are the project objectives?

How was the performance of ICI over the past years?




What are the future prospects of the company?

What are strength, weaknesses, opportunities and threats?

What are the limitations of information and Analysis techniques used?

4- INFORMATION GATHERING.

Research can be defined as the collection, collation and analysis of data. (Dave Hall, Rob

Jones, Carlo Raffo, 1999)

To perform an accurate financial analysis it was vital to get accurate data..i bought

together data from different sources to prepare a comprehensive report. A wide

information base was available due to choice of organization.

SOURCES AND REASONS FOR THEIR USE.

Due to nature of topic, both primary and secondary sources equally provided

appropriate and valuable information. The latter enabling cost effective analysis

of several data sources then the former one which proved to be challenging.

PRIMARY SOURCES (FIELD RESEARCH):

Primary data is information collected specifically for the study by means of field

research (BPP, 2006)

An interview was held with Mr.Abdul Ahsin who is the Management Accountant

of ICI Pakistan. In the interview, I asked him about the company and business,

profile and other questions that were relevant for the purposes of completing my

research and analysis project. He also provided me the annual accounts of last

three years of the company. Later, a number of meetings were arranged with Mr.

Imran qureshi, marketing manager of soda ash business, Mr Ali zaman , business

manager of polyester business and Mr atif khalid, business development manager




of chemical business of ICI. These meetings was reasonably informative and

supported a great deal in finding, in depth, the opportunities and threats ICI

Pakistan is facing. Mr Imran qureshi ask me to feel free to contact him for

any other queries over telephone which proved helpful later on. What I learned in

these meetings helped in my SWOT analysis and as well as in analysis of ICI‟s

competitive position under porter‟s five forces model. Though these meetings

were pretty much useful, later I preferred using secondary research methods to

draw together data because primary research methods were too much time

consuming.

SECONDARY SOURCES (DESK RESEARCH):

Secondary data is „data neither collected directly by the user nor specifically for the user

often under conditions that are not well known to the user‟ (American Marketing

association) (Bpp 2006)

Secondary data was collected from a numerous sources like

Annual Audited Accounts proved to be the most relevant, accurate and valuable

information source. The major area of Analysis section (Ratio Analysis) is based on the

information available form this source

Reading articles from the business section of newspapers such as (daily times,

pakakhbar, down newspaper) ) and business magazines (business recorder, Pakistan

economist) to gain most up-to-date review on ICI pakistan and the manufacturing sector

of Pakistan.

Consulting Foulks Lynch textbooks and BPP textbooks for ACCA to sharpen

my technical knowledge in some areas of report that require in-depth understanding.

I studied articles from acca student accountant to improve both soft (effective report

writing) and technical (interpretation of accounts) skills.




I gathered some more data from the publicly available management report of the

company, which was not available in the annual accounts. This helped me to carry further

breakup analysis of the company.

I surfed the internet to find as much data on different sites such as search engine

www.google.com.pk),company website www.icipakistan.com, Karachi stock exchange

website (www.kse.com.pk).

4.1- Description of methods used to get information

Electronic Research was facilitated by the Internet through search engines such as Google, Ask

Jeeves, MSN and Lycos. These led to websites that provided further links to other sites

ultimately leading to data that was critical in the financial and environmental analysis.

Traditional research accompanied the aforementioned methods. This included sorting out useful

data from general statistics found in books, magazines and accounting journals. Most

material was subscribed to, but some was obtained through a university library (i.e. The

Lahore University of Management Sciences).

As a result of these sources, an enormous amount of information on ICI PAKISTAN as well as

the manufacturing industry as a whole was collected.

4.2- Limitation of information gathering.

Limitation of gathering information from primary resources was that It was difficult to

convince management of ici Pakistan, that I am not from there competitors.

Mr Hamza, my friend currently enrolled in chemical engineering programe at

university of engineering and technology, Lahore, once he had done internship in

chemical business of ICI Pakistan ,he was out of Lahore for internship in descon



http://www.google.com.pk),company/


chemical company, , I done e-mail to him so many times, also got information I required,

but there was little opportunity to raise issues and concerns.

I read newspapers, business magazines , to get relevant articles on ICI Pakistan

which was a time consuming task.

Whenever I surfed internet especially, google website,bunch of irrelevant information

was always there, and finding relevant information cause great irritation at times.

4.3- Ethical issues arose during information gathering.

Ethics is “concerned with right and wrong and how conduct should be judged to be good

or bad it is about how we should live our lives and ,in particular, how we should behave

towards other people” (ACCA paper Bpp P1,professional accountant)

Acca members must comply with fundamental principles set out in acca code of

ethics.members have to show integrity, objectivity, professional,

competence,confidentiality and professional behaviour). During information gathering,

following ethical issues arose and every time attempt was made to resolve them.

My meeting with management accountant was key starting point in my project.

Initially I have to convince him the purpose for which I need his help, by giving

reference of ACCA Lahore office and address of my CFE college, and that I am not

from competitor side, he give me annual accounts and some information, which gave

me insight idea of ICI Pakistan. I got his mobile number and i call him in a few

days time, he gave me rough response. I went to his office again, and he said I am not

here to waste my time on your discussion, go elsewhere. I felt ashamed at that time, but

after requesting once more that this project will gave me graduation and it will make

important mark to my career, I tried to extract as much information I can in that

twenty minute discussion with him, after that I never went to him again.

During process of deciding the organization, my friend asked me to choose a

commercial bank ,on which he prepare analysis last attempt, so I will be getting much




help from his research. After thinking deeply, I decline because it was impairing

objectivity and there was no value addition to me.

5- ACCOUNTING TECHNIQUES USED

I carried my analysis by using various analytical by using various analytical

techniques which address financial and non-financial aspects affecting financial situation

of ICI Pakistan ltd, such as

5.i- RATIO ANALYSIS.

Single most important technique of financial analysis in which quantities are converted

into ratios for meaningful comparisons, with past ratios and ratios of other firms in the

same or different industries. Ratio analysis determines trends and exposes strengths or

weaknesses of a firm.(business dictionary.com)

Limitations

Ratio analysis is carried out by calculating ratios from entitys financial

statements. The businesses apply creative accounting in trying to show the better

financial performance or position which can be misleading to the users of

financial reports..

Price changes as a result of inflation, changing business environment, changing

accounting policies between different accounting years and changing accounting

standards may effect comparison of financial performance over the years

It is useful for detecting trend, it raise questions rather then answering them.

5.2- Swot analysis

A tool of situation analysis, SWOT (strengths, weaknesses, opportunities, and




threats) is used in the preliminary stage of strategic decision-making where it

provides the basic framework for strategic analysis( Johnson et al 1989)

Limitation

Swot usage rarely amounts to much more than a poorly structured, very general,

hastily conducted exercise that produces unverified, vague and inconsistent inventories of

factors regarded by the proposing individuals as most important components of their

organization‟s strategic situation. The way SWOT analysis is often conducted does not

allow for proper communication, discussion, and verification of all external and internal

factors proposed by all involved. On such occasions, SWOT results prove less reliable an

input to the strategy generation process than they are capable of being(Baramuralikrishna

and Dugger 1998)

Conversion of weaknesses into strengths in order to take advantage of opportunities

can only be done by effective management with years of experience, hence each

organization cannot benefit from swot analysis.

5.3- Porters five forces analysis

Frequently used to identify an industry's structure in order to determine corporate

strategy, Porter's model can be applied to any segment of the economy to search for

profitability and attractiveness(micheal E. porters 1980 book, competitive strategy )

LIMITATION

This model was designed for analyzing individual business strategies. it does not

cope with synergies and interdependencies within the portfolio of large corporations.

Model underestimate and underemphasize the importance of existing strengths

of organization .




6 - ANALYSIS

COMPANY HISTORY.

ICI public limited company, UK which was formed in dec.7, 1926, is the ultimate

holding company of ICI Pakistan ltd. ICI Pakistan start its operations in Pakistan in 1944

by establishing its first manufacturing site for the production of soda ash at Khewra. It

went public in 1952 and is now listed on all three Pakistan stock exchanges (Karachi,

Lahore and Islamabad stock exchange).ICI Pakistan start its paints and specialty

chemicals business in Pakistan in 60,s, life sciences business in 70,s and polyester

business in 80,s. Now Akzonobel, a fortune 500 company listed on Amsterdem stock

exchange is ultimate holding company of ICI Pakistan as a result of formal offer from

AKZONOBEL for acquisition of ICI PLC UK was approved on January 2008.

BUSINESS PROFILE:

ICI Pakistan has, and continues to develop, a portfolio of businesses that are major

players within their respective industries, bringing together outstanding

knowledge of customer needs with leading edge technology platforms to provide

superior products to its customers. 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, Polyurethane‟s, and Adhesives and arranges

manufacture on a toll basis of Pharmaceutical and Animal Health products. It also

markets Seeds and in addition is engaged in trading in various specialized

chemicals for use in industries in Pakistan.

FINANCIAL PERFORMANCE:




The ratios have been calculated and other quantitative financial data has been taken from

Annual Audited Financial Statements of ICI Pakistan ltd from 2005 to 2007.

3.4.1. EFFICIENCY (TURNOVER RATIOS)

RATIOS FY2005 FY2006 FY2007

Sales (PKR Million) 21,054 21,948 25,973

Growth in sales (1.2%) 4.24% 18%

Total sales revenue of ICI Pakistan show a decline in 2005,but show growth onwards

with significant growth of 18%in 2007.The major contribution towards the increase has

come from polyester business of ICI pakistan, which show increase in sales

revenue to Rs10345mn in FY07 from Rs 8545mn in FY06, a growth of 22%. In FY2006

there was a deficit in sales revenue of 8.12% then FY2005 (Rs 9145mn).The main reason

for this significant growth in FY07 was successful commissioning of new line 6 as part of

the asset modernization and improvement plan in 2006 to replace line 1 at a cost of Rs

968mn.,in polyester business, which lead to 3% increase in production level, as a result

of which higher volume of polyester fibre sold in FY07 with 113027 tonnes (2006-96339

tonnes).Another reason of growth was anti-dumping duty on import of polyester from

Indonesia, south korea,and Thailand in FY2007 by national tarrif commission of

Pakistan. Soda ash business also show increase in revenue to Rs 4936mn in FY07

from Rs 4395mn in FY06, growth of 12.3% , as compared to revenue growth of 10% in

FY2006 then FY05(Rs 4073mn).Main reason for increase in growth was the increase in

sales volume of 277732 tonnes of soda ash in FY2007, 12% more then FY06(2006-

248081tonnes , 2005- 230500tonnes ), as a result of expansion of soda ash plant at a

cost of Rs 1Bn in 2007 and also due to increased selling prices in order to recover

escalating costs of inputs such as coke (prices increased by 56% in Q4 07 over the same

period last year)..Sales revenue in the paints business increased to Rs 5812mn in




FY07 from Rs 5072mn in FY06, a growth of 14.5% ,while sale growth in FY2006 was

23% as compared to FY05 (Rs4114mn).This increase of 23% was primary due to launch

of premium product (range- 5 in 1 technology brand dulux pentalite classic) in the

decorative segment of paints business in FY2006, and due to rapid growth in refinish

segment as a result of rapid expansion in overall car population in 06/07, however the

decrease in sales growth in FY07 as compared to FY06 is due to termination of technical

services agreememt between Kansai paints Japan and ICI Pakistan citing change in

control of ICI group. Life sciences business also show revenue growth of 21%(

from Rs 2236mn in FY06 to Rs 2236mn in FY07), while revenue growth was 7.39% in

FY06 then FY05(Rs2082mn).This continuous growth is as a result of robust demand in

existing product range and diversification of portfolio. All segments of chemical

business also shown revenue growth of 19% in FY07( from Rs2229mn in FY06 to Rs

2653mn in FY07), as compared to revenue growth of 9.4% in FY06 then FY05(Rs

2036mn) .The main reason for this significant revenue growth was due to the fact that in

Q2 of 2007 transfer of manufacturing technology takes place from national starch &

chemical company as a result of which national starch products of ICI were successfully

sold to customers in the tobacco industry.




PROFITABILITY RATIOS.

Ratios FY 2005 FY2006 FY2007

ROCE 18..23% 21.5% 23.7%

PROFIT BEFORE

TAX(RS. MN)

1612

2118

2769

PRE-TAX PROFIT/SALES

7.6% 9.6% 10.6%

GROSS PROFIT MARGIN

OPERATING PROFIT

MARGIN

16%

8.7%

18.6%

11.29%

18.5%

11.43%

Gross profit margin is stable for the last two years since its increase in FY05,

reason is that sales and cost of sales both increase by 18% and 17.6% respectively in

FY07.Operating profit margin show a growth of 2.5% in FY06 then FY05 , and slight

growth in FY07..Pre-tax profit to sales ratio show improvement of 3% since 2005 as a

result of increase in pre tax profit to Rs 2768mn in FY07 from Rs 1461mn in FY05.as a

result of increase in income on short term deposits, However the main reason of this is

28% increase in other operating income comprising of return which rises to Rs. 10.9mn

in 2007 from Rs. 4.8mn in 2006(FY05-4.83mn) on loan due from subsidiary

(ICI powergen ltd).company has also worked well on its short term running finance

reducing finance charges from Rs 287mn in 2005 to Rs 146mn in 2007, a decrease of

96%.All this collectively helped company to maintain 31% growth in pre-tax profit over

three years. ROCE is showing continuous and stable growth, primarily due to continuous

growth in company profits. There has been no new share issue in three years and any

change in companys equity is as a result of growth in profits available to shareholders

and surplus on revaluation of property plant & equipment (FY07-Rs1012mn, FY06-

1124mn, FY05-494mn). As far as impact of individual businesses on overall profitability

is concerned, polyester business operating profit was Rs 624mn in FY07,as

compared to Rs. 466mn in FY06 (FY05-Rs.329mn)., Growth was primarily as a result of

decrease in advertisement expense by 155% and salaries and benefit expense by 58% in




FY07 then FY06. Soda ash business show operating profit of Rs 863mn in

2007,an increase of 36% then 2006(2005 – Rs .590mn).This significant increase is due to

higher sales volumes, increase in soda ash prices , reduction in energy usage, and

effective control over non-productive costs. paints business show operating profit

of Rs 853mn in 2007 , 3% less then 2006, mainly due to pressure on unit margins of

industrial segment, and higher advertisement of (Rs 6mn) ,however operating profit

increased by 63% in 2006 then 2005, mainly due to successful launch of dulux pentalite

classic product in FY06. Life sciences business shown operating profit growth

of 70% since 2005(FY07-Rs403, FY06-Rs329 ,FY05-Rs237mn) as a result of strong

performance of its pharmaceutical segment as a result of successful launch of branded

generics product in this segment to plug the demand gap for quality antibiotics.

chemical business show a stable growth in operating profit of 36% in

FY07(Rs211mn) since FY05 (Rs150mn) as a result of well performing polyurethanes

segment on the back of growth in appliances,insulation and footware segments which

compensated subdued growth in general chemical segment.

Short term solvency and liquidity


Current ratio 1.103 1.292 1.44

Quick ratio .676 .860 1.075

Stock turnover period(days) 60 55 46

Trade debtors period(days) 13 12 15

Trade creditors period(days) 65 73 60

Cash and bank balance(Rs

in mn)

1687 1791 3615

Net Cash from operating

activities(Rs in mn)

2521 3477 4102

Current ratio show steady growth over the three years. Investigation of components of




ratio predicts that reason for escalating amounts of current assets relative to current

liabilities is the increase in trade debts to Rs1049mn in FY07 from Rs730mn in

FY06(FY05-635mn),however it is notable that among these trade receivable , amount of

unsecured trade debts are Rs 901mn in FY07 which were Rs544mn in FY06(FY05-

Rs272mn), as a result of which provision of doubtful debts has been increased by 32% in

FY07.Another reason for growth in current ratio is decrease from advances from

customers from Rs 211mn in FY06 to Rs185 in FY07 (FY05 Rs 192mn).Quick ratio also

showing growth, reason is the increase in cash balance to Rs3615mn in FY07, from

Rs1791mn(FY05-1687mn).It seems adequate for company to pay its short term

obligations on timely basis. Significant reason for increase in cash balance in FY07 is

zero payment in respect of finance leases (FY06-Rs1239mn), which is also evident from

zero finance charge upon finanace lease in FY07. Debtor turnover days decrease in

FY06 as compare to FY05, then again increase in FY07. Reason is again increase in

advances from customers in FY06 and decrease in advances from customers in FY07,

Crediter turnover days increase in FY06 but again decrease in FY07.main reason is 26%

increase in purchases in FY07 then FY06.Mainly polyester business showing significant

in purchases of Rs 8056mn in FY07 then purchases of Rs 6296 in FY06 (Rs 6263 in

FY05) ,it is also evident from 15% production increase of polyester fibre in FY07

(110,656 tonnes) then FY06(96,559 tonnes ) .There has been continuous fall in inventory

days. Year end inventory fall to Rs2311mn in FY07 from Rs2347 in FY06(FY05-

Rs2511mn).Reason has been the increase in overall production volumes to 419,788

metric tones in FY07 then FY06(379,751) a increase of 10.5% and by 7% in FY06 then

FY05( 353,168 metric tones).Irrespective of stable dividened payments of (Rs763 in

FY07, FY06 and Rs-832 in FY05) cash flow indicaters of ICI Pakistan witnessed healthy

improvement in cash reserves with positive cash generated from operations of Rs

4102mn in FY07(FY06- 3477, FY-05 Rs2521).

Long term solvency and stability.





Interest Cover (times) 6.41 7.76 20.1

EBITDA/ Interest (times) 9.12 10.20 26.20

Interest cover as well as earning before interest tax depreciation amortization increase since FY05

with significant growth in FY07. Reason is that company does not have any long term loan and

finance cost on short term finance has decreased to Rs146mn in FY07 from Rs319mn in FY06,

a decrease of 118% (FY05-287mn).

SHAREHOLDERS INVESTMENT RATIOS.


EPS 16.23 10.49 12.86

MARKET

VALUE/SHARE

PRICE-EARNING

RATIO

140

8.65

115

11.01

196

15.29

DIVIDENED/SHARE

6 5.5 5.5

DIVIDENED YIELD

4.27 4.76 2.80

DIVIDENED

PAYOUT(%)

37 52 43

( www.kse.com.pk)

EPS increased by 23% in FY2007 in relation to FY2006 as a result of increase in profit

after tax by 33% in FY07 as compared to however it is notable that EPS decrease after

2005. the reason for high EPS in 2005 is due to high profit after tax as as result of

deferred tax asset (Rs 640mn). Growing price earning ratio is evident of investors

confidence in company. Company dividend payout ratio increases significantly in 2006

as compare to 2005 and decrease in 2007, reasons are major reserves were kept in

business for growth as evident from expansion of 50ktpa soda ash plant in 2007.

Company also announces the 65ktpa expansion of its soda ash plant in 2007, it is on the

way and is expected to be completed in June 2009.




Company‟s dividend yield decrease in 2007, however increase in share price is more than

sufficient to compensate investors for their return on investment

PERFORMANCE OF SUBSIDIARY

ICI Pakistan powergen limited, a unlisted public company is a wholly owned

subsidiary of Ici Pakistan limited, since its first year of operation in 1991, company has continued

to generate uninterrupted captive electricity to run polyester plant of ICI Pakistan ltd efficiently.

Operating result

Net sales income for the year ended Dec.07 is Rs 230mn then Rs 222mn in 2006 which is a

increase of 3.6% as a result of increase in operating rate of polyester plant as a result of post asset

modernization and improvement project in 2006.Company incurred operating loss of Rs

146.8mn in 2007 then a loss of Rs 132.4mn in 2006(2005 Rs37.6mn).Main reason is the bullish

trend in crude oil prices and domestic furnace oil prices which arose to Rs 33600/tonne at the end

of the year 2007 from an average Rs.19990/tonne at the end of Q4 2006(www.energy.com.pk).

ICI Pakistan in its annual general meeting held on July 20, 2007 approved RS.600MN (400MN in

equity and 200mn loan) investment in ICI Pakistan Powergen ltd for a waste heat recovery and

power plant project known as Co–gen, that will provide cheap energy to the company and will

result in significantly reducing the variable cost of power plant of Powergen ltd, by substituting

the expensive production of both electric power and steam with the relatively low-cost electric

power and steam. The project is expected to commission in July 2008.



http://www.energy.com.pk/


SWOT ANALYSIS.

STRENGHTS.

Continuous growth in earnings (increase of 23% since 2005)

Management quality and technical skills of its employees remains its core strength.

Strong brand awareness, reputation in terms of its goodwill, image built with excellent

performance in respective businesses since its start of operation in Pakistan since 1944.

Market leader in soda ash business and Intron-A, a drug produced by pharmaceutical

division of life sciences business covering 70% and 80% respectively of country‟s

requirement for these commodities.

Strong cash reserves, with funds available from various banks in the form of term

finance.

In- house power generation ability through its wholly owned subsidiary, ICI powergen

ltd.

Rapid growth in long term investments worth Rs 582mn in FY07 (FY06-RS 212.5mn,

FY05 -RS 212.5).

Strong balance sheet structure.

ICI Pakistan ltd is awarded the third best corporate report award for the year 2006 by

institute of chartered accountants of Pakistan and institute of cost and management

accountants of Pakistan.

ICI Pakistan ltd has been assigned with long term credit rating of AAA, and short term

credit rating of A1,means company have exceptionally strong capacity for timely

payment of financial commitments, by Pakistan,s leading credit rating agency, pacra

(www.pacra.com)

Pure terephthalic acid (PTA) is a essential intermediate used in manufacture of polyester

fibre, and ICI Pakistan has its own plant of PTA in port qasim.



http://www.pacra.com/


WEAKNESSES

Company is fully equity financed, not availing the opportunity of bank loan available as

debt finance is cheaper then equity.

Company should make a review to its credit policy as its unsecured trade debts increased

by 50% in FY06, and by 65% in FY07, may lead to bad debts in future.

Tall and complex organization structure hence same work passes through many hands

lead to slow decision making.

OPPERTUNITIES

As a result of acquisition of ICI plc, Uk by Akzonobel , worlds biggest decorative

paints company and chemical industry leader, will bring with it exciting

opportunities which should benefit ICI Pakistan ltd in future.

In the fiscal budget 2007-08, government announced 3.5% R&D support for

polyester fiber manufacturers.

On 12 Nov 2007 Pakistan and Malaysia signed free trade agreement to boost trade,

and ICI Pakistan ltd has trade with ICI Malaysia ltd in paints business.

(www.pakakhbar.com)

Pakistan paint industry is meeting 90% demand for this commodity in Afghanistan

and will soon start to export in Tajikistan.(www.pakakhbar.com)

THREATS

Higher inflation in country, significant increase in commodity prices, law and order

concerns, prevailing political unrest and rising oil prices may adversely affect business

environment as it is evident from drop in GDP forecast by state bank of Pakistan from 7-

7.4% to 6.6-7% in FY07-08.(www.sbp.org.pk)

Company has payable of Rs 16mn to ICI companies in foreign countries and there is

continuous depreciation of rupee against foreign currencies.



http://www.pakakhbar.com/


Extending gas load shedding and rising coke prices will have significant adverse impact

upon soda ash industry and will pressurize the margins.

Presence of substitute products.

PORTERS FIVE FORCES OF COMPETITIVE ANALYSIS.

Threats of entry. Barriers to entry for new entrants in the manufacturing sector industry with

respect to ICI Pakistan ltd are listed below,

Huge capital investment is required.

Needs years of experience to attain the same level of experience as ICI Pakistan being in

Pakistan for 60 years.

Strong brand loyalty has been developed by ICI Pakistan ltd.

ICI is market leader in soda ash, Intron-a and markets with 70%and, 80%, market share

respectively.

Massive investment is required to compete the dealership network of existing players in

polyester fibre business mainly ICI Pakistan ltd, Ibrahim fibres and Deewan salman fibre

ltd.

Power of buyers.

Power of buyers is being deduced, as only few sellers are present in paints business ,ICI

Pakisan ltd and Berger paints being the two key brands.

Power of buyers is also deduced as a result of increase in polyester fibre prices to about

92/kg from 89/kg in last quarter of 2007 due to its shortage, and further hike of Rs,5/kg is

expected in couple of days.( Tanveer ahmed ,all Pakistan textile association spokesman,

2007)

ICI Pakistan ltd, Engro chemical Pakistan ltd, and Monsanto Pakistan are the suppliers of

hybrid corn seeds and so the power of customers cannot be deduced as they have choice

of suppliers available.




Power of suppliers.

Ammonia is a important raw material used in soda ash business, and government of

Pakistan has provide subsidy of Rs.70 on di-ammonium phosphate and price has been

fixed at 400.(govt.budget 2007-08), hence power of suppliers has been deduced..

Mono-ethylene glycol is important raw material used in polyester fibre business There

are only two global manufacturers (Dow chemical company, USA and equate

petrochemical company , Kuwait), hence power of buyers such as ICI Pakistan has been

deduced, also evident from increase in prices of MEG from RS 840/tonne at beginning of

the 2007 to RS 1720/tonne at the end of the year.(annual report,2007)

Coke, another important raw material used in soda ash business .There are two major

suppliers of coke, Pakistan steel mill and from china. Prices increased by 56% in Q4 of

2007, one of the reason was the strong demand and increase in export tax in china

(annual report, 2007), hence again the power of buyers has been deduced.

Threat of substitutes.

Threat of substitute products which are available from competitors, such as

Sodium bicarbonate, a product of soda ash business used as baking soda. Substitute for

this product is potassium bicarbonate produced by Ittehad chemicals ltd.

Polyurethanes, a important product of chemical business, used as insulation for

refrigeraters, deep freezers, and flat roof surfaces. Substitute of this product is

polystyrene produced by Umair petrochemicals.

Ternomin and proxin produced by pharmaceutical division of life sciences business.

substitute products are blockium and neoprox produced by highnoon ltd and merck pvt

ltd respectively.

There is no substitute product of polyester fibre, it is a important synthetic cotton used in

textile industry.




Competitive rivalry.

Rivalry is faced due to following,

Increasing market size and demand.

Competition will increase with import of polyester fiber at low import duty from 6.5%

to 3.5%(national textile brief, Oct 2007)

Foreign investors are allowed to hold 100% equity of industrial and manufacturing sector

without permission of government (www.pakboi.gov.pk)

Wise pharmaceutical company is expected to start its operations in Rawalpindi in

2008.(www.brecorder.com)

Nippon paint of Japan announced on 26-nov-07 to invest $25mn in Pakistan over next

three years, which will include manufacturing facility in Kasur near Lahore. Nippon

paints is largest paint manufacturer in asia.(www.pakakhbar.com



http://www.pakboi.gov.pk/

http://www.brecorder.com/

http://www.pakakhbar.com/


CONCLUSION.

Keeping in mind the aims and objectives of this report and based upon above analysis,

following conclusion can be drawn.

The manufacturing business like ICI Pakistan ltd has paid a significant contribution towards

various sectors of Pakistan economy. In the first half of 2007 and in initial months of fiscal

year 2007-08, economy continued to grow at good pace. However higher inflation, law and

order concerns in Q4, 2007 and significant increase in commodity prices( e.g, coke) put

corporate sector profitability under pressure and adversely effect business environment.

Despite the effect of increasing commodity prices, given the strong local demand, ICI have

been able to transfer the impact of rising feedstock prices to end customers of soda ash.

Despite the fact that textile industry of Pakistan is facing serious challenges, polyester fiber

demand is increasing continuously and this trend is expected to continue going forward

thereby maintaining industry margins. Steps have been taken by government of Pakistan in

order to smooth up the playing field for local manufacturing industry, announcing 3.5% R&D

support and imposition of anti-dumping duty on import of polyester fiber will certainly help

polyester industry to tackle challenging issues and contribute towards national economy.

Conclusion on financial analysis

Company has shown tremendous growth in sales and profitability over the three year period.

Major contribution is from polyester business as a result of modernization plan in 2006, the

capacity of polyester plant increased to almost 90% from 79% in FY06. this coupled with

rising soda ash prices and rapid expansion in car population, will have positive impact on

respective businesses and will result in growth of sales and profitability in future.

Current and quick ratio Of ICI Pakistan is satisfactory over three year period. Cash and bank

balance has shown a growth of 114% from FY05 to FY07, and this has resulted in increased

and stable dividend for shareholders over three year period. Debtor turnover days and

inventor turnover days is quite satisfactory and will help to improve overall cash cycle, hence

liquidity in future.

The increase in EPS figures shows that company‟s profits are on increasing trend and every

year they have more to offer to their shareholders than in previous year. The DPS figure is




quite satisfactory and there is a notable increase in this figure during 2005. All these factors

are contributing to the increasing trend in market value per share of ICI. Increasing PE ratio

shows increasing investors‟ confidence in ICI and hope about its future even better than

present.

ICI,S interest cover and EBITDA/interest has been quite satisfactory over the three year

period. if this trend continue in future, company will be having significant operating cash

flows left after paying interest, however it should be noted that company is 100% equity

financed and is currently enjoying a virtually risk free capital structure however foregoing

benefit of cheaper loan finance , as interest on loan is corporation tax deductible.

Conclusion on SWOT analysis and Porters analysis:

Efficient management is its core strength, while workforce is also highly experienced and

their combine efforts have managed to develop its strengths over time to create a strong brand

loyalty and market share of 70% or more in some of its products. ICI is ready to accept all the

challenges, such as reduction in import duty on polyester fiber and rising cost of raw

materials, as opportunities for the development of their skills. Free trade agreement with

Malaysia and export opportunity of paints to Tajikistan will give ICI access to international

market. ICI Pakistan could take further research and development activities particularly in

pharmaceutical and chemical businesses to minimize the threat of substitute products by

using their strength of strong financial capability. ICI has successfully developed a quality

culture with its seven core values of (safety health& security of employees, valuing people,

innovation, business excellence, customer obsession, transparency, and ethics).

ICI Pakistan is in a good competitive position, where barriers of entry are high for new

manufacturers. Overall both buyers and suppliers have low powers, however moderate

amount of competitive rivalry is experienced in paints and pharmaceutical sector in the form

of Nippon paints and wise pharmaceutical company, and rivalry is expected to grow as new

players are expected to enter the market due to government policies of low import duty on

polyester fiber and allowing foreign investors to hold 100% equity of manufacturing sector.

This along with rising costs and higher inflation could aggravate the situation for local

manufacturers in future.




RECOMMENDATION

My recommendation to management of ICI is that they should pursue a strategy of product

development by launching new brands in paints business and in pharmaceutical division as

room of growth is there, and market development as they will be targeting many new un-

tapped regions to capitalize new opportunities .this will proved to be superlative as they will be

initiating export of paints to Tajikistan. Overall ICI Pakistan has the potential to become one

of the leading manufacturing entities in Pakistan in their respective businesses, achieving

ambitious growth targets by attaining world-class standards in everything they will do.

Believing in their logo of ‘REACHING GREATER HEIGHTS’ and pursing a strategy

based on long-term relationship building with buyers, the development of a thriving

business for the benefit of stakeholders is within range. ICI is a customer-focused

business, seeking to provide excellent products and services that deliver enjoyment and

value-for-money.




REFERENCES

1 www.accaglobal.com

2 www.brecorder.com

3 www.dawn.com

4 www.pakistaneconomist.com

5 www.pacra.com

6 www.kse.com.pk

7 www.finance.gov.pk

8 www.business.com

9 www.icipakistan.com

10 Management report 2006-07, published by Ici Pakistan limited.

11 National textile brief , 2007.

12 www.ptj.com.pk/wed%202007/10-07/10-07-pdf/hrshaikh.pdf

13 Baars, Wouter (2006). Project Management Handbook (open source),

version 1.1, Edita-knaw

14 Tanveer ahmed (2007), all pakistan textile assiciation spokesman, “ A

further hike of Rs 5 per kilogramme is expected in a couple of days for

polyester staple fibre”.Daily times (sep 2007)

15 Textile news and updates newsletter ,sep 2007 edition.

16 Adam j koch faculty of the School of Business, Swinburne University

of Technology, Hawthorn, Victoria. Australia. ” swot does not need to

be recalled, it need to be enhanced”

17

18 BBP (2005), Success in your Research & Analysis Report, London BPP

19 BBP (2007), Strategic Financial Management, London BPP

20 BBP (2007), Strategic Business Planning & Development, London BPP

21 James C. Van Horn, John M. Wachowicz, Jr (1992) Fundaments of Financial

Management, “8th Edition” Prentice Hall, Englewood Cliffs, New Jersey 07632.



http://www.accaglobal.com/

http://www.brecorder.com/

http://www.dawn.com/

http://www.pakistaneconomist.com/

http://www.pacra.com/

http://www.finance.gov.pk/

http://www.business.com/

http://www.icipakistan.com/

http://www.ptj.com.pk/wed%202007/10-07/10-07-pdf/hrshaikh.pdf

http://www.projectmanagement-training.net/handboekprojectmanagement/downloads/handbook_projectmanagement_english11a.pdf


22 Ford John Kingston (1981) A Framework for Financial Analysis, Prentice Hall,

Englewood Cliffs, New Jersey.

23 Government of Pakistan (2006-2007) Economic Survey of Pakistan, Finance

division, Islamabad, Pakistan.

24 Staff report (2007) “ICI Pakistan to further expand soda ash plant”.

Daily times april 2007

25 Mr Richard loth: article on financial ratio tutorial in “How to Profit

from Reading Annual Reports" (1993) and "Select Winning Stocks

Using Financial Statements" (1999),

26 Patrick Rael, 2004 “how to read a primary and secondary source” a guide for

college students.

27 Lahore Stock Exchange (LSE), Record Room, “ICI Press Releases”

28 Institute of Leadership & Management (ILM), Record Room, “ICI Press Releases”

29 ICI Limited Financial Statements (2005 to 2007).

