Financial Analysis ICI 2008-09

1ICI Pakistan LimitedFINANCIAL ANALYSIS 2008 - 09

Ratio Analysis

Zaryab Ahmed

ARMY PUBLIC COLLEGE OF MANAGEMENT & SCIENCES

Submitted to: Mr Arshad

iICI Pakistan LimitedFINANCIAL ANALYSIS 2008 - 09

Acknowledgement

First of all we thank Almighty Allah whose invocation always makes us proud by succeeding in every field through our performance and ability, courage and patience to come up with the best out put of our struggle.

This project is product of concerted and restless efforts, knowledge, consultation and hard work, to present such report that can be stated as valuable contribution and assistance to the concerned field.

I would like to extend heartiest thanks to Sir Arshad (APCOMS), who kept guiding me during all the stages of this Analysis Report, and without whom this project could not have been completed.

I would like to thank all those working men and women who provided us with the opportunities for learning and better understanding at APCOMS.

iiICI Pakistan LimitedFINANCIAL ANALYSIS 2008 - 09

Table of Contents

1 BRIEF HISTORY...................................................................................................................................... 1

2 BUSINESSES AND PRODUCTS................................................................................................................ 2

2.1 POLYESTER - WEAVING OUR WAY FORWARD..................................................................................................22.2 PAINTS - COLORING PAKISTAN FOR 44 YEARS.................................................................................................22.3 SODA ASH - DELIVERING RELIABILITY FOR DECADES.........................................................................................32.4 ABOUT LIFE SCIENCES - COMMITTED TO IMPROVING LIVES...............................................................................32.5 ABOUT CHEMICALS - TURNING THE WHEELS OF INDUSTRY................................................................................4

3 FINANCIAL STATEMENT 2009................................................................................................................ 5

3.1 AUDITOR’S REPORT TO MEMBERS...............................................................................................................53.2 BALANCE SHEET – LIABILITIES......................................................................................................................63.3 BALANCE SHEET – ASSETS..........................................................................................................................73.4 PROFIT AND LOSS ACCOUNT.......................................................................................................................83.5 STATEMENT OF COMPREHENSIVE INCOME.....................................................................................................9

AMOUNTS IN RS ‘000............................................................................................................................. 10

4 LIQUIDITY RATIOS....................................................................................................................... 10

4.1 NET WORKING CAPITAL.....................................................................................................................104.2 CURRENT RATIO.................................................................................................................................104.3 QUICK RATIO/ACID RATIO/LIQUID RATIO..........................................................................................10

5 DEBT OR LEVERAGE RATIOS.....................................................................................................10

5.1 DEBT RATIO (DR)..............................................................................................................................105.2 DEBT EQUITY RATIO (DER)...............................................................................................................105.3 TIME INTEREST EARNED (TIE)...........................................................................................................11

6 ACTIVITY RATIOS......................................................................................................................... 11

6.1 INVENTORY TURN OVER RATIO (IT)...................................................................................................116.2 AVERAGE COLLECTION PERIOD (ACP)..............................................................................................116.3 AVERAGE PAYMENT PERIOD (APP)...................................................................................................116.4 FIXED ASSETS TURNOVER (FAT).......................................................................................................116.5 TOTAL ASSETS TURNOVER (TAT)......................................................................................................12

7 BASIC PROFITABILITY RATIOS..................................................................................................12

7.1 GROSS PROFIT MARGIN (GMP)..........................................................................................................127.2 NET PROFIT MARGIN (NMP)..............................................................................................................127.3 RETURN ON TOTAL ASSETS (ROA)....................................................................................................127.4 RETURN ON EQUITY (ROE)................................................................................................................127.5 EARNINGS PER SHARE (EPS)..............................................................................................................127.6 PRICE/EARNING (P/E) RATIO..............................................................................................................13

8 ANALYSIS TABLE................................................................................................................................. 13

9 FINANCIAL HEALTH OF COMPANY....................................................................................................... 13

9.1 LIQUIDITY RATIOS...................................................................................................................................13

iiiICI Pakistan LimitedFINANCIAL ANALYSIS 2008 - 09

9.2 DEBT OR LEVERAGE RATIOS......................................................................................................................149.3 ACTIVITY RATIOS....................................................................................................................................149.4 PROFITABILITY RATIOS.............................................................................................................................14

10 CONCLUSION...................................................................................................................................... 14

ivICI Pakistan LimitedFINANCIAL ANALYSIS 2008 - 09

Abstract ICI has consistently developed new and innovative areas of businesses, since its

formation. One of the most unique things about ICI Pakistan is the wide spectrum of products they offer and the varied industries that they service through five diverse businesses. Their five businesses are:

Polyester

Paints

Soda Ash

Life Sciences

Chemicals

Financial Analysis of the Company has been carried out using Ratio Analysis technique. The financial strength of the Company can be judged by the fact that it does not have any borrowing or loans from banks of other financial institutions. It has Net Working Capital of Rs 5.33 billion. The Company earned Rs 14.73 for ever share of Rs 10 during year 2009, showing an increase of Rs 1.31 from previous year even in the wake of current financial crises in the country. The Company is being managed very well showing constant growth.


ICIC PAKISTAN

ANALYSIS FINANCIAL REPORT 2008 – 09

1 Brief History ICI has consistently developed new and innovative areas of businesses, since its formation in December 1926, by the merger of four of the largest chemical companies in the UK. ICI Pakistan Limited was set up as a public limited company in Pakistan in 1952. However, ICI was an active presence in this part of the world well before the formation of the public limited company and indeed, even before Pakistan itself was created.

1944

The Khewra Soda Ash Company, a predecessor of ICI Pakistan Limited, set up a soda ash manufacturing facility in Khewra 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 needed for manufacturing soda ash, were available here in abundance.

1953

The Khewra Soda Ash Company was incorporated as a public limited company.

1966

The Khewra Soda Ash Company changed its name to ICI Pakistan Manufacturers Limited.

Over the next few decades, major changes took place in the company as their Specialty Chemicals and Polyester plants were commissioned, and Imperial Chemical Industries (Pakistan) Private Limited and Paintex Limited both merged into ICI Pakistan Manufacturers Limited.

1987

Company changed its name to ICI Pakistan Limited

ICI Pakistan Limited launched their Seeds business as well as the Dulux range of coatings.

Company also established ICI Pakistan PowerGen and set up the ICI Pakistan Foundation as a charitable trust.

1995

ICI Pakistan Limited set up a USD 490 million PTA manufacturing facility at Port Qasim, near Karachi.

1998

PTA manufacturing facility commissioned.

2000

The business was de-merged to form Pakistan PTA Limited, which was at the time a subsidiary of ICI Plc UK.

2007

ICI Pakistan Limited completed 50 years of continuous listing on the Karachi Stock Exchange.


2008

ICI Pakistan Limited formally became part of the AkzoNobel Group, bringing them under the banner of one of the largest coatings and chemicals companies in the world.

2 Businesses and ProductsOne of the most unique things about ICI Pakistan is the wide spectrum of products they offer and the varied industries that they service through five diverse businesses.

From home and auto paints to essential pharmaceuticals and agricultural products, to chemicals for use in every major industry, and polyester for the textile sector to soda ash for glass and detergents they have something to offer everyone.

Their five businesses are:

Polyester

Paints

Soda Ash

Life Sciences

Chemicals

2.1 Polyester - Weaving our way forward ICI Pakistan manufacture and market Polyester Staple Fibre (PSF), a man made fibre and a key substitute and complement for cotton. In a textile intensive country like Pakistan, it is a highly critical raw material that is spun into yarn, which is then woven or knitted into fabric used to make shirts, shalwar kameez, bed sheets etc. that each one of us uses.

It is hard to comprehend thus that this fibre, which so closely resembles cotton in its applications, is not grown in the fields but is a part of the petrochemicals chain, and the shirt that you wear has actually been derived from crude oil!

ICI Pakistan introduced this wonderful product to this country as far back as the early 80’s. As pioneers of the polyester staple fibre technology in Pakistan, they enabled the cotton rich textile industry to diversify their products and be more competitive in the international arena where the growth of man made fibres has been phenomenal.

2.2 Paints - Coloring Pakistan for 44 years We know from years of experience that our customers expect nothing short of the best from us. Delivering results is a part of our DNA; it’s how we do business. And so, we launch innovative products, train our teams, continuously improve our processes, and invest in research to make sure our customers have access to a wide range of high quality products, paint solutions and services.


In Pakistan, the latest surveys indicate that 97 out of 100 people know who we are! Our huge distribution setup across the country makes sure our products are available to all these potential customers.

Of course, we now have an added advantage; the world’s largest decorative and performance coatings company is backing us. With AkzoNobel and its global reach and expertise, we have lots of exciting opportunities for growth and to enter new fields.

We realize that a sustainable business needs to be responsible. While we provide leading innovation and services, we also make sure that our premium quality paint doesn’t harm our consumer or damage the environment. Additionally, we help our communities through volunteer programs and development initiatives.

Put together, all of this makes us the leading paints company in Pakistan.

At Paints we have two main segments, which are:

Decorative Coatings

Performance Coatings

2.3 Soda Ash - Delivering reliability for decades Did you know that every time you pick up a glass, read a newspaper or do your laundry, you experience the use of soda ash?

We are market leaders for this key ingredient in the manufacture of glass, paper and detergents. Soda ash is an essential commodity and we’re proud to be the largest producers of it in the country.

Our Soda Ash Plant in Khewra was established in the 1940s, even before the creation of Pakistan! Since then, we have seen tremendous growth; we currently have an annual production of 350,000 tons. Our plant is the largest of its kind in Pakistan.

We use indigenous raw materials to ensure substantial foreign exchange savings through input substitution. Over the years we have also done our bit for the locality of Khewra; we provide employment to a large number of residents of this relatively impoverished area, and we run community welfare and development initiatives to benefit the people.

2.4 About Life Sciences - Committed to improving lives We’re in the business of improving quality of life. We have a strong portfolio of well-researched leading brands, and we keep diversifying our product range so that whether you need advanced pharmaceuticals for your healthcare needs, or superior seeds to improve the quality of essential crops, we can ensure that you get the best.

Our business is diverse and we are proud of the important role we play in helping to enhance lives; for example, we market some of the leading pharmaceutical brands today such as drugs to fight life-threatening diseases like cancer.


Because of this, we are even more committed to innovation and keeping ahead of the curve with products and services that draw on the newest research and latest advances. We want to make sure our customers trust in us remains solid and that our brands remain synonymous with quality and consumer confidence.

At Life Sciences we have four divisions, which are:

Pharmaceuticals

Animal Health

Seeds

Vegetable Seeds

2.5 About Chemicals - Turning the wheels of industry We’re not stretching the truth when we say we service practically every industry in the country! Our products are essential in all kinds of manufacturing processes and in products from adhesives to paint, and from insulation for housing and refrigeration to textile auxiliaries that determine the finish of fabrics we use.

We enjoy the benefit of global insights, and knowledge amassed from a long history of serving our customers’ needs. We don’t just manufacture and market essential ingredients for today’s demanding industrial world, we also offer technical solutions, and we’ve begun exporting into the region.

Where chemicals are involved, we know we have to be extra careful about our impact on people and the world around us. Our strong emphasis on health, safety, and environment means we incorporate the best practices from around the world, providing full safety information to customers, a safe workplace for employees, and care for the environment through many of our projects focusing on sustainability.

Our two branches are:

Specialty Chemicals

General Chemicals


3 Financial Statement 2009

3.1 Auditor’s Report to Members


3.2 Balance Sheet – Liabilities


3.3 Balance Sheet – Assets


3.4 Profit and Loss Account



3.5 Statement of Comprehensive Income


Ration AnalysisAmounts in Rs ‘000

4 Liquidity Ratios

4.1 Net Working CapitalNet Working Capital = Current Assets – Current Liabilities

Year 2009 = 11,125,168 - 5,799,898 = 5,325,270

Year 2008 = 8,035,427 – 4,446,810 = 3,588,617

4.1.1 Analysis Net Working Capital has been increase by 1,736,653 which is result of increase in Current Assets and decrease in Current Liabilities. Company has Net Working capital of Rs 5.32 billion available to invest to some new project or enhancement of current facilities.

4.2 Current RatioCurrent Ration = Current Assets / Current Liabilities

Year 2009 = 11,125,168 / 5,799,898 = 1.92

Year 2008 = 8,035,427 / 4,446,810 = 1.81

4.2.1 Analysis Company has Rs 1.92 available in shape of Current Assets to pay off every Rs 1.0 of Current Liability. Liquidity has improved by 0.11 from previous year.

4.3 Quick Ratio/Acid Ratio/Liquid RatioQuick Ratio = (Current Assets-Stock)/ Current Liabilities

Year 2009 = (11,125,168 – 3,244,525) / 5,799,898 = 1.36

Year 2008 = (8,035,427 – 2,951,956) / 4,446,810 = 1.14

4.3.1 Analysis Company has Rs 1.36 available in shape of Most Liquid Assets to pay off every Rs 1.0 of Current Liability. Liquidity has improved by 0.22 from previous year, which is a very healthy sign.

5 Debt or Leverage Ratios

5.1 Debt Ratio (DR)DR = Total Liabilities/Total Assets

Year 2009 = 5,799,898 / 11,125,168 = 0.52

Year 2008 = 4,446,810 / 8,035,427 = 0.55

5.1.1 Analysis There has been significant increase in Total Assets and decrease in Total Liabilities. Company is conscious of decreasing its liabilities and increasing its Total Assets. Debt Ratio of the Company has improved.

5.2 Debt Equity Ratio (DER)DER = Long Term Debts / Stockholders’ Equity

Year 2009 = 1,208,117 / 14,414,642 = 0.08

Year 2008 = 612,954 / 13,410,921 = 0.05


5.2.1 Analysis

5.3 Time Interest Earned (TIE)TIE = Earnings before Interest & Tax / Interest

Year 2009 = Nil as there are no borrowings.

Year 2008 = Nil as there are no borrowings.

5.3.1 Analysis There has been no external borrowings by the Company in past or currently, which means all the required finances for the business are mustered from within the business. Company does not have to pay off heavy amounts on account of interest.

6 Activity Ratios

6.1 Inventory Turn over Ratio (IT)IT = COGS / Inventory

Year 2009 = 22,754,005 / 32,399,181 = 0.70

Year 2008 = 22,303,138 / 31,921,873 = 0.70

6.1.1 Analysis Company has been able to maintain the Inventory Turn over Ratio at 0.70 from previous year. However, 30% of inventory has not been turned over during the period under discussion.

6.2 Average Collection Period (ACP)ACP = Account Receivable / (Annual Sales/365)

Year 2009 = 677,111 / (28,429,897/365) = 8.69 days

Year 2008 = 749,388 / (27,798,915/365) = 9.83 days

6.2.1 Analysis Average Collection Period for Accounts Receivable is good at 8.69 days for year 2009, and has shown reduction in it from previous year. Company is making all efforts to recover its receivables at the earliest from the customers and utilising this in business. This too explains why company does have long term borrowings.

6.3 Average Payment Period (APP)APP = Account Payable / (Annual Purchases/365)

Annual Purchases = Sales – Opening Stock + Closing Stock

Year 2009

Annual Purchases = 32,399,181 – 2,951,956 + 3,244,525 = 33,691,750

AAP = 5,799,898 / (32,691,750 / 365) = 64.75 days

Year 2008

Annual Purchases= 31,921,873 – 2,311,336 + 2,951,956 = 32,562,493

AAP = 4,446,810 / (32,562,493 / 365) = 49.84 days

6.3.1 Analysis There has been decrease in payables by the Company and upward trend in average payment period. Company is holding back on payments to customers and utilising the same for its own advantages.

6.4 Fixed Assets Turnover (FAT)FAT = Net Sales / Fixed Assets

Year 2009 = 28,429,897 / 10,297,489 = 2.76


Year 2008 = 27,798,915 / 10,435,258 = 2.66

6.4.1 Analysis Company is utilising its fixed assets 2.76 times for its sales, which is good. Moreover, the there has been an increase of 0.10 on the ratio, showing an increase in the trend.

6.5 Total Assets Turnover (TAT)TAT = Sales / Total Assets

Year 2009 = 28,429,897 / 21,422,657 = 1.32

Year 2008 = 27,798,915 / 18,470,685 = 1.50

6.5.1 Analysis Company is utilising its total assets 1.32 times for its sales. There has been decrease of 0.18 on total assets turnover from last year, which is owing to increase in company’s asset during the year.

7 Basic Profitability Ratios

7.1 Gross Profit Margin (GMP)GMP = Gross Profit / Net Sales

Year 2009 = 5,675,892 / 28,429,897 = 0.20 or 20%

Year 2008 = 5,495,777 / 27,798,915 = 0.20 or 20%

7.1.1 Analysis Net Sales of the company for year 2009 have been increased and so does the Gross Profit. The increase in Gross Profit has been proportionate to increase in Net Sales. The Gross Profit Margin has been maintained, indicating same margin for both the years.

7.2 Net Profit Margin (NMP)NMP = Net Profit / Net Sales

Year 2009 = 2,044,738 / 28,429,897 = 0.07 or 7%

Year 2008 = 1,862,738 / 27,798,915 = 0.07 or 7%

7.2.1 Analysis Net sales of the company have been increase and so is the Net Profit for year 2009 from previous year. Net Profit Margin has been maintained proportionate to its increase in sales from previous year, which is reasonable.

7.3 Return on Total Assets (ROA)ROA = Net Profit / Total Assets

Year 2009 = 2,044,738 / 21,422,657 = 0.10 or 10%

Year 2008 = 1,862,738 / 18,470,685 = 0.10 or 10%

7.3.1 Analysis Company is showing good return on total assets. There has been increase in total assets in year 2009 from previous year and correspondingly company has been able to earn more profit. Return on Total Assets for both year has been same and are stable..

7.4 Return on Equity (ROE)ROE = Net Profit / Total Common Equity

Year 2009 = 2,044,738 / 14,414,642 = 0.14 or 14%

Year 2008 = 1,862,738 / 13,410,921 = 0.14 or 14%


7.4.1 Analysis There has been increase in common equity for year 2009 from previous year and so has been Net Profit. Return on equity has been stable for past two years at same ratio and is good.

7.5 Earnings per Share (EPS)EPS = Net Profit / Total Outstanding Share

Year 2009 = 2,044,738 / 138,802.3 = 14.73

Year 2008 = 1,862,738 / 138,802.3 = 13.42

7.5.1 Analysis Net earning per share of Rs 10 at Rs 14.7 is good for the year 2009. There has been an increase of Rs1.31of profit per share, which indicates that the company is making endeavours to earn max profits for its shareholders.

7.6 Price/Earning (P/E) RatioP/E Ratio = Price per Share of Common Stock / Earning Per Share

Year 2009 = 10 / 14.73 = 0.67

Year 2008 = 10 / 13.42 = 0.74

7.6.1 Analysis There has been a decrease of 0.07 in P/E Ratio, which is favourable and shows that stockholders are earning more than previous year

8 Analysis TableType of Ratio Year 2009 Year 2008 Change

Liquidity RatiosNet Working Capital 5,325,270 3,588,617 1,736,653Current Ratio 1.92 1.81 0.11Quick Ratio/Acid Ratio/Liquid Ratio 1.36 1.14 0.22Debt or Leverage RatiosDebt Ratio (DR) 0.52 0.55 - 0.3Debt Equity Ratio (DER) 0.08 0.05 0.3Time Interest Earned (TIE) Nil Nil NilActivity RatiosInventory Turn over Ration (IT) 0.70 0.70 0Average Collection Period (ACP) 8.69 days 9.83 days - 1.14Average Payment Period (APP) 64.75 day 49.84 day 14.91Fixed Assets Turnover (FAT) 2.76 2.66 0.10Total Assets Turnover (TAT) 1.32 1.50 - 0.18Basic Profitability RatiosGross Profit Margin (GMP) 0.20 or 20% 0.20 or 20% 0Net Profit Margin (NMP) 0.07 of 7% 0.07 or 7% 0Return on Total Assets (ROA) 0.10 or 10% 0.10 or 10% 0Return on Equity (ROE) 0.14 or 14% 0.14 or 14% 0Earnings per Share (EPS) 14.73 13.42 1.31Price/Earning (P/E) Ratio 0.67 0.74 - 0.07


9 Financial Health of Company

9.1 Liquidity RatiosNet Woking Capital has increased by 1.73 billion and the company has 5.32 billion which is result of increase in Current Assets and decreased in Current Liabilities. Company is more liquid than previous year. Increase in Current Ratio and Acid Ratio indicates Company’s trend to more liquidity. Company is in good shape to pay off its current liabilities.

9.2 Debt or Leverage RatiosDecrease of Debt Ratio by 0.3 indicates an overall decrease of debts and increase of Debt Equity Ratio by 0.3 indicates that the Company has increased its long term debts. Company has no borrowings or loans which show its strong financial health and investment base. There are no expenses on account of interest, which results in better profit margin for the shareholders.

9.3 Activity RatiosActivity Ratios give all the positive indicators. The company is managing its inventory turnover efficiently and keeping it constant by managing its Inventory Turnover Ratio at 0.70 for both the years. Average collection period for account receivable, which were already at 9.83 days have further been reduced by 1.14 day to 8.69 days which is very good. Average payment period has been increased 14.91 day, meaning that the company is holding on the payments or cash, thereby increasing its current assets. Fixed Assets Turnover has seen an increase of 0.10 from previous, indicating that assets are more judiciously utilised than previous year.

9.4 Profitability RatiosThe Company is giving handsome earning of Rs 14.73 per share of Rs 10 and has given an increase of Rs 1.31 in earnings per share from previous year.

10 ConclusionCompany has performed well during the past years and earning handsome profit, especially in the wake of current financial crises in the country. It has maintained very well balanced liabilities and assets, beside increase in long term liabilities over previous year. It has Rs 5.32 billion as current assets available in excess of its current liabilities. Management may take decision to further invest this amount in some new or improvement of existing Strategic Business Unit. Overall the ICI Pakistan is being managed very well.

Documents

Financial Analysis ICI 2008-09