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OXFORD BROOKS UNIVERSITY


RESEARCH AND ANALYSIS PROJECT ON

ICI PAKISTAN LIMITED

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FOR
EXCLUDING WORDS IN TABLES

BSc. (Hons.) IN APPLIED ACCOUNTING SEPTEMBER 2008

(TOTAL WORDS : 6498)

PRESENTED BY

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CONTENTS

INTRODUCTION

2 AIMS AND OBJECTIVES 3 OVERALL RESEARCH APPROACH

4 INFORMATION GATHERING

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5 ACCOUNTING TECHNIQUES USED 6 ANALYSIS Ratio analysis

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PROFIT&LOSS ACCOUNT BALANCE SHEET SALES TREND GROSS VS NET PROFIT EPS VS DPS PAT& CAPITAL EXPENDITURES CAPITAL&DEBT STRUCTURE AND CAPITAL EMPLOYED
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Performance of subsidiary Swot analysis

Porter analysis

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8 RECOMMENDATION 9 REFERENCES 10 APPENDICES
APPENDIX-A APPENDIX-B APPENDIX-C APPENDIX-D APPENDIX-E APPENDIX-F APPENDIX-G Research and analysis Project, ICI pakistan.

7 CONCLUSION

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30 31 32 33 34 35 36 2

SR. #

PARTICULARS

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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

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

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

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work on

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.

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ICI PAKISTAN LIMITED

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three years period

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

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CORRELATED TO ACCA SYLLABUS


situation by interpreting financial statements analyzing performance measurement, and environment analysis as this is an integral part of ACCA syllabus.

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

READILY ACCESSIBLE INFORMATION.

Of articles in newspapers, magazines and information can be easily be viewed on Internet which is up-to-date, relevant, meaningful and understandable.

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

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2. AIMS AND OBJECTIVES
decrease in sales of company. McKinley, 1984)

understanding of Pakistans economy.

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THE COMPANY.

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

PROFITABILTY- TO asses a firms ability to create economic value in


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

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

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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


its situation.

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

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)

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is structured by five forces

sophisticated analysis of companys competitive position. The competitive environment

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barriers to entry substitute products bargaining power of customers bargaining power of suppliers competitive rivalry
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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

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SHAREHOLDERS INVESTMENT RATIOS-TO assess value of

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.

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(BPP , 2006)

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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

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.

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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?

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

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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.
Jones, Carlo Raffo, 1999)

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

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

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

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research

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 (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

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information base was available due to choice of organization.

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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 ICIs competitive position under porters 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

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of Pakistan.

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

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.

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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

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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

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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,

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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

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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.

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)

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financial reports..

Limitations

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

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

accounting policies between different accounting years and changing accounting standards may effect comparison of financial performance over the years

5.2-

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

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Swot analysis

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

Ratio analysis is carried out by calculating ratios from entitys financial

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

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

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threats) is used in the preliminary stage of strategic decision-making where it provides the basic framework for strategic analysis( Johnson et al 1989)

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 organizations 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 can only be done by effective management with years of experience, organization cannot benefit from swot analysis.

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LIMITATION
of organization .

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 )

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

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Limitation

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6 - ANALYSIS

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,

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

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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 Pakistans 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 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:

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

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COMPANY HISTORY.

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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.

RATIOS

Sales (PKR Million) Growth in sales

FY2005 21,054 (1.2%)

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

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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(2006248081tonnes , 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

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

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FY2006 21,948 FY2007 25,973 18% 14

3.4.1. EFFICIENCY (TURNOVER RATIOS)

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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

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sold to customers in the tobacco industry.

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PROFITABILITY RATIOS. Ratios ROCE PROFIT BEFORE TAX(RS. MN) PRE-TAX PROFIT/SALES GROSS PROFIT MARGIN OPERATING PROFIT MARGIN FY 2005 18..23% 1612 FY2006 21.5% 2118 FY2007 23.7% 2769

7.6%

16%

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

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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, FY061124mn, 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

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8.7% 11.29%

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9.6% 10.6% 18.6% 18.5% 11.43% 16

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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

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.

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RATIOS

Short term solvency and liquidity

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FY05 1.103 .676 60 13 65 1687 2521
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Current ratio Quick ratio Stock turnover period(days) Trade debtors period(days) Trade creditors period(days) Cash and bank balance(Rs in mn) Net Cash from operating activities(Rs in mn)

Current ratio show steady growth over the three years. Investigation of components of Research and analysis Project, ICI pakistan. 17

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FY06 1.292 .860 55 12 73 1791 3477

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

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FY07 1.44 1.075 46 15 60 3615 4102

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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(FY05Rs272mn), 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

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

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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(FY05Rs2511mn).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.


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

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RATIOS

FY05 6.41 Interest Cover (times) EBITDA/ Interest (times) 9.12

FY06 7.76 10.20

FY07 20.1 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. RATIOS FY05 16.23 140

EPS MARKET VALUE/SHARE

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PRICE-EARNING RATIO

DIVIDENED/SHARE DIVIDENED YIELD DIVIDENED PAYOUT(%)

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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.

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FY06 10.49 115 5.5 4.76

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FY07 12.86 196 15.29 5.5 2.80 43 ( www.kse.com.pk) 19

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Companys 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.

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

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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

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power plant project known as Cogen, 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.

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Operating result

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incurred operating loss of Rs

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SWOT ANALYSIS. STRENGHTS.

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

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 countrys

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.

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FY05 -RS 212.5). accountants of Pakistan. (www.pacra.com)

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

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

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

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.

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requirement for these commodities.

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

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

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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

OPPERTUNITIES

paints company

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.

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(www.pakakhbar.com)

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.

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 77.4% 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.

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As a result of acquisition of ICI plc, Uk by Akzonobel , worlds biggest decorative and chemical industry leader, will bring with it exciting

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lead to slow decision making.

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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

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.

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2007)

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ltd.

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

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,

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.

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Pakistan for 60 years.

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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

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.

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ltd respectively. textile industry.

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

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

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

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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 2008.(www.brecorder.com)

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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

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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

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.

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liquidity in future.

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

The increase in EPS figures shows that companys profits are on increasing trend and every year they have more to offer to their shareholders than in previous year. The DPS figure is

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corporate sector profitability under pressure and adversely effect business environment.

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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

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manufacturers in future.

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

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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 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

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.

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

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market development as they will be targeting many new un-

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REFERENCES
1 2 3 4 5 6 7 8 9 10 11 12 13 14 www.accaglobal.com www.brecorder.com www.dawn.com www.pakistaneconomist.com www.pacra.com www.kse.com.pk www.finance.gov.pk www.business.com

Management report 2006-07, published by Ici Pakistan limited. National textile brief , 2007. www.ptj.com.pk/wed%202007/10-07/10-07-pdf/hrshaikh.pdf Baars, Wouter (2006). Project Management Handbook (open source), version 1.1, Edita-knaw 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)

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Textile news and updates newsletter ,sep 2007 edition. 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

BBP (2005), Success in your Research & Analysis Report, London BPP BBP (2007), Strategic Financial Management, London BPP BBP (2007), Strategic Business Planning & Development, London BPP James C. Van Horn, John M. Wachowicz, Jr (1992) Fundaments of Financial Management, 8th Edition Prentice Hall, Englewood Cliffs, New Jersey 07632.

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www.icipakistan.com

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Ford John Kingston (1981) A Framework for Financial Analysis, Prentice Hall, Englewood Cliffs, New Jersey. Government of Pakistan (2006-2007) Economic Survey of Pakistan, Finance division, Islamabad, Pakistan.

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Daily times april 2007

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),

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Patrick Rael, 2004 how to read a primary and secondary source a guide for college students.

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Institute of Leadership & Management (ILM), Record Room, ICI Press Releases ICI Limited Financial Statements (2005 to 2007).

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

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

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