| ICI Pakistan Limited |
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| (Annual
Report 1996) |
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| Company
Information |
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| Board
of Directors: |
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The Executive Committee: |
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| Naseem
S Mirza |
|
Munnawar Hamid |
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| (Chairman) |
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|
Chief Executive |
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| Munnawar
Hamid |
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| (Chief
Executive) |
|
Mahmood Saeed |
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| Irtiza
Husain |
|
Executive Director |
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| M J Jaffer |
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| Razi-ur-Rahman
Khan |
|
Azhar A. Malik |
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| I
M Macfarlane |
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Executive Director |
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| (Alternate:
Javed H Malik) |
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| Azhar
A Malik |
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| Mahmood
Saeed |
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| General
Managers: |
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| Imran Agha |
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| Ijaz Ahmad |
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| Sheikh
M Aslam |
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| J S Butt |
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| Javed
H Malik |
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| Waqar
A Malik |
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| John
D Mehta |
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| Jehangir
B Nawaz |
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| Khalid
B Osmany |
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| Rashiq Sufi |
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| Company
Secretary: |
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| Sheikh
M Aslam |
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| Bankers: |
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| ABC
International Bank Plc |
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| ABN-AMRO
Bank NV |
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| A1
Faysal Investment Bank Limited |
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| Allied
Bank of Pakistan Limited |
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| American
Express Bank Limited |
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| ANZ
Grindlays Bank Lid |
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| Australia
& New Zealand Banking Group Limited |
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| Bank
of America NT&SA |
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| Banque
Indosuez |
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| Citibank NA |
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| Deutsche
Bank |
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| Emirates
Bank International PJSC |
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| Faysal
Bank Limited |
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| Habib
Bank Limited |
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| Habib
Credit & Exchange Bank Limited |
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| Habib
Bank AG Zurich |
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| HongKong
& Shanghai Banking Corporation Limited |
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| Muslim
Commercial Bank Limited |
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| MashreqBank
psc |
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| Midland
Bank plc |
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| National
Bank of Pakistan |
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| National
Westminster Bank PLC |
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| Pakistan
Kuwait Investment Company (Private) Limited |
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| Societe
Generale, The French and International Bank |
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| Standard
Chartered Bank |
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| The
Bank of Tokyo-Mitsubishi Limited |
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| United
Bank Limited |
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| Auditors: |
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| A
F Ferguson & Co |
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| Registered
Office: |
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| ICI
House, 5 West Wharf, Karachi 74000 |
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Statistical Data |
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Year at a Glance |
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|
Rs Million |
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1996 |
1995 |
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| Turnover |
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8,152 |
7,013 |
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| Profit
before taxation |
|
814 |
888 |
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| Taxation |
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| Current |
|
134 |
295 |
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| Deferred |
|
138 |
4 |
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| Profit
after taxation |
|
542 |
589 |
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| Dividend |
|
325 |
290 |
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| Gross
assets employed (excluding capital work-in-progress) |
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7,834 |
5,455 |
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| Paid-up
capital |
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1,856 |
580 |
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| Shareholders'
equity |
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9,304 |
3,067 |
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| Earnings
per share after taxation - Rupees |
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2.92 |
10.17 |
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| Number
of employees |
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1,835 |
1,873 |
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|
Report of the Directors
for the Year Ended 31 December 1996 |
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| The
Directors take pleasure in presenting |
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| their
Report together with the audited |
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| accounts
of the Company for the year ended |
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| 31
December 1996. |
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|
Board of Directors |
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| Mr
Naseem S Mirza will relinquish office as |
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| Chairman/Director
at the conclusion of the |
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| Annual
General Meeting to be held on |
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| 17
April 1997 after 38 years of association |
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| with
the Company. He became a Director |
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| of
the Company in 1973 and was |
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| Chairman
& Chief Executive for 12 years |
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| and
Chairman for over a year and a half. |
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| The
Board has approved the |
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| appointment
of Mr Desmond O'Shea as |
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| Chairman/Director
in place of Mr Naseem |
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| S
Mirza. Mr Desmond O'Shea is the |
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| Regional
Executive - Asia, Imperial |
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| Chemical
Industries PLC, and is based |
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| in London. |
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| Dr
lain M Macfarlane, Group Manager- |
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| Regional
Business, Imperial Chemical |
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| Industries
PLC, who has been on the Board |
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| of
ICI Pakistan Limited since September |
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| 1993
will also relinquish office after the |
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| Annual
General Meeting on 17 April 1997 |
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| on
his appointment as Regional Executive - |
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| Western
Hemisphere. |
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| Subject
to approval by the shareholders, |
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| it
is proposed to increase the number of |
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| elected
Directors of the Company from eight |
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| to
nine and to elect Mr Rashiq Sufi, who has |
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| been
with the Company for over fifteen |
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| years
and has broad based experience of its |
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| operations,
against the additional position. |
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| The
Board places on record its |
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| appreciation
of the valuable services |
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| rendered
by Mr Naseem S Mirza and |
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| Dr
lain M Macfarlane and extends a warm |
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| welcome
to Mr Desmond O'Shea and |
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| Mr
Rashiq Sufi. |
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| Overview |
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| During
1996 the Government once again made numerous |
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| fiscal
changes to meet IMF conditionalities. Rising taxes |
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| and
levies together with falling tariffs on finished goods |
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| imports
restricted selling prices and margins for |
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| domestically
manufactured products. To check monetary |
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| expansion
and lower the fiscal deficit to meet targets |
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| agreed
with the IMF, interest rates increased to an all time |
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| high.
All these combined to create difficult trading |
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| conditions
in general and for some businesses in |
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| particular. |
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| Your
Directors are pleased to report that despite these |
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| problems
the Company performed well during the year. All |
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| businesses
showed strong volume growth, and supported |
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| by
essential restructuring throughout the Company were |
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| able
to control costs and improve productivity. As a |
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| consequence
all businesses performed excellently and |
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| achieved
record profits, except Polyester Fibre and |
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| Pharmaceuticals
where margins came under |
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| unprecedented
external pressure and caused a very |
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| significant
adverse swing of Rs 476 million in operating |
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| profit
compared to 1995. However the exceptional |
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| performance
of the other businesses almost totally made |
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| up
for it and overall operating profit at Rs 975.5 million in |
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| 1996
was very near to previous year's. In addition, total |
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| turnover
exceeded Rs 8 billion, a 16% improvement over |
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| last year. |
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| The
Company's polyester staple fibre expansion has |
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| been
successfully commissioned and commercial |
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| production
commenced in February 1997. Progress on the |
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| US$
450 million PTA project is proceeding on the 'fast |
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| track'
as planned and is expected to be commissioned by |
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| the
end of the year. |
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| The
Board wishes to express its deepest appreciation |
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| for
the hard work and efforts put in by staff at all levels and |
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| the
co-operation and support of all its customers, |
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| distributors
and dealers in achieving these results during a |
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| year
of unprecedented difficulties. |
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| A
detailed review follows: |
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| Polyester |
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| The
plant operated at full capacity with |
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| production
during the year remaining at |
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| about
last year's level, but continued |
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| buoyancy
in domestic demand resulted in |
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| sales
volume being 18% higher. However, |
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| selling
prices remained under pressure |
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| throughout
the year as a result of |
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| unprecedented
low prices quoted by |
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| exporters
from the Far East and Saudi |
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| Arabia,
for whom Pakistan remains a |
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| marginal
market. |
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| With
raw material prices slow in |
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| adjusting
to lower polyester staple fibre |
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| prices,
quite unlike the traditional trend, |
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| out
for the better part of the year. As raw |
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| material
prices fully adjusted to the low |
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| fibre
prices and the November devaluation |
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| brought
relief for local selling prices, |
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| profitability
returned to the Business but too |
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| late
in the year, and consequently the |
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| Business
recorded an operating loss of |
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| Rs
31.8 million in 1996. |
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| The
issue of dumping continues to |
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| threaten
the local polyester staple fibre |
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| industry
and has now assumed greater |
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| significance
as import duties fall in line with |
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| IMF
conditionalities. Your Company has |
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| lobbied
very strongly for effective anti- |
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| dumping
legislation and has been assured |
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| of
appropriate Government action. |
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| Work
on the Expansion project was |
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| completed
in December 1996, and after |
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| successful
commissioning earlier this year |
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| it
is now in commercial production giving |
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| the
Sheikhupura plant an expanded total |
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| polymerisation
capacity of over 91,000 |
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| tonnes
per annum and a fibre capacity of |
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| about
60,000 tonnes per annum. |
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| Soda Ash |
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| The
industrial relations situation at |
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| Khewra
normalised in February 1996 and a |
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| two
yearly wage agreement was signed |
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| with
the Union. Plant operations as a |
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| consequence
normalised and production |
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| as
well as productivity and efficiencies |
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| improved
substantially leading to record |
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| production
of 190,235 tonnes against |
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| 165,698
tonnes last year despite severe |
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| gas
curtailment in the first quarter. |
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| Whereas
business conditions in the |
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| glass
sector remained subdued owing to |
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| excess
capacity and sluggish demand from |
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| the
beverage industry, and the silicate |
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| market
showed marginal growth amidst |
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| increased
competition, the overall Soda |
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| Ash
market showed strong growth driven |
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| by
the paper and detergent segments. |
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| Record
production during the year enabled |
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| the
Business to almost fully support this |
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| growth,
albeit owing to low production in |
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| 1995
there was still need to supplement it |
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| with
imports of 3,000 tonnes during the first |
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| quarter
of 1996 to fully service customer |
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| needs.
As a result, turnover increased by |
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| 38%
compared to last year. A price |
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| increase
of 10% in December 1996 |
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| allowed
partial recovery of the significant |
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| increase
in input costs, particularly in gas |
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| and
electricity. However, higher production |
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| and
improved conversion efficiencies |
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| enabled
operating profit to increase by |
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| 86%
compared with last year. |
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| Sales
of Sodium Bicarbonate also grew |
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| significantly
over 1995 with ICI gaining a |
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| stronghold
in the market. Calcium |
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| Carbonate
has achieved market |
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| acceptance
and further increase in |
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| production
in line with demand is expected. |
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| Paints |
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| Weak
market conditions prevailed |
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| throughout
the year as a result of political |
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| and
economic uncertainty. The Motors |
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| segment
continued to face weak trading |
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| conditions
which, compounded by |
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| increased
taxation, led to lower car sales |
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| and
forced automobile manufacturers to |
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| curtail
production. The tractor, motorcycle |
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| and
cycle industries also came to a virtual |
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| standstill
for similar reasons. Nevertheless, |
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| it
was possible in the case of Decorative |
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| products
to not only consolidate market |
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| positions
but also to increase share |
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| through
strong brand marketing, and in the |
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| case
of Refinish paints to increase volumes |
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| significantly
as a result of strong demand |
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| for
the high quality 2-pack system |
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| introduced
last year. Consequently, despite |
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| an
overall marginal growth in the national |
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| paints
market, the Paints Business |
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| achieved
a record 27% growth in turnover |
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| over 1995. |
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| Although
Rupee devaluation and |
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| firming
up of chemical prices in the last |
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| quarter
brought margins under pressure, |
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| stable
raw material costs prevailed for the |
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| better
part of the year which together with a |
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| strict
control on fixed costs and improved |
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| production
efficiencies enabled the |
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| Business
to increase its margins. |
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| Combined
with higher Decorative and |
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| Refinish
volumes this has resulted in |
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| operating
profit for the year to be higher by |
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| 51%
compared with last year. |
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| Sales
tax on the organised sector of the |
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| industry
was increased by another 3% in |
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| the
year, bringing the total excise duty and |
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| sales
tax charge to 28%. This together with |
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| fixed
capacity tax on the unorganised |
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| sector,
though briefly removed during the |
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| year
but reinstated, continued to place the |
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| latter
at a very unfair advantage versus the |
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| organised
sector. Your Company continues |
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| to
lobby for a reduction in this taxation |
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| burden
and the removal of capacity tax |
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| which
should not only produce level playing |
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| fields
but also increase Government |
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| revenue
from the unorganised sector. |
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|
| Agrochemicals |
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| and
Seeds |
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| Your
Company's Agrochemicals Business |
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| was
singularly successful in achieving a |
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| major
strategic objective during the year |
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| which
was to expand its product portfolio. |
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| Four
new herbicides, one in rice and three |
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| in
cotton were established in the market by |
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| the
Business, which has significantly |
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| broadened
its product base and |
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| appropriately
reduced over-dependence on |
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| cotton
insecticides. During the 1996 cotton |
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| season,
late and sporadic rainfall |
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| accompanied
by high temperatures |
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| resulted
in low boll-worm infestation levels, |
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| which
had an unfavourable impact on |
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| overall
market size and adversely affected |
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| sales
of 'Karate'. However, this was more |
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| than
compensated by the new products of |
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| the
expanded portfolio and compared with |
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| last
year, the Business registered an |
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| improvement
of 47% in sales volume and |
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| 16%
in turnover. With this growth and an |
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| increase
in occupacity of its formulation |
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| plant,
through expanded toll manufacturing |
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| and
packaging services for other suppliers, |
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| the
Business recorded a significantly |
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| higher
operating profit as well. |
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| The
Seeds' Business once again had |
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| an
exceptional year compared with last |
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| year
as turnover and sales volume were up |
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| by
101% and 53% respectively, leading to |
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| a
significant increase in operating profit. |
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| The
Business maintained its lead position |
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| in
the sunflower and fodder hybrid markets |
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| and
was also the first to successfully test |
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| market
hybrid Canola seed, Hyola 42, to |
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| which
initial response has been |
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| encouraging. |
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|
| Pharmaceuticals |
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| The
Pharmaceuticals Business increased |
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| its
turnover by 15% over last year. Margins, |
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| however,
came under severe pressure due |
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| to
a combination of repeated Rupee |
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| devaluations,
imposition of import duty and |
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| a
levy of non-adjustable sales tax on |
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| imported
raw material. Although the |
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| Government
allowed a price increase of |
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| 6%
towards the end of the year, it was |
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| insufficient
to offset the significantly high |
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| increase
in input costs. |
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| The
Medical segment of the Business |
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| continued
to strengthen its market position |
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| showing
a healthy sales growth over last |
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| year
with cardiovascular products once |
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| again
taking the lead. 'Merenem', an |
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| injectable
antibiotic, was successfully |
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| launched
during the latter half of the year |
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| along
with the 'Alphosyl' range of products |
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| for
skin treatment. Performance of the |
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| anaesthetic,
antiseptic and NSAIDS ranges |
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| was
steady with continued good market |
|
| acceptance. |
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| The
Animal Health segment continued |
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| to
show volume growth compared with last |
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| year
despite strong competition from |
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| cheaper
generic products. Sales of |
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| anthelmentics
were steady and the newly |
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| introduced
poultry products range achieved |
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| initial
market penetration. |
|
|
| Chemicals |
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|
| The
Chemicals Business demonstrated |
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| record
growth in profitability over last year |
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| as
turnover and sales volume increased by |
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| 36%
and 22% respectively. Turnover in |
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| Specialty
Chemicals was considerably |
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| higher
than last year mainly because of |
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| higher
sales in the Paint Lattices and |
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| Textile
Auxiliaries segments. In General |
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| Chemicals,
turnover was also significantly |
|
| higher
than 1995 primarily due to higher |
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| sales
of titanium dioxide and nickel |
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| catalyst.
Introduction of the NALCO range |
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| of
water treatment chemicals and a strong |
|
| demand
for polyurethanes by the domestic |
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| appliances
and footwear sectors also |
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| helped
to increase turnover. |
|
|
|
| Pure
Terephthalic |
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| Acid
(PTA) |
|
|
|
|
| Progress
on the US $ 450 million plant to |
|
| manufacture
Pure Terephthalic Acid at |
|
| Port
Qasim is proceeding according to a |
|
| fast track' plan. Detailed
engineering |
|
| design
is complete and equipment |
|
| ordering
and shipments are nearing |
|
| completion.
Civil works are almost |
|
| complete
and steel work erection and |
|
| installation
of pipework are at an |
|
| advanced
stage of progress. |
|
|
| All
long-term agreements for |
|
| infrastructural
support including raw |
|
| materials
handling, supply of raw water |
|
| and
industrial gases, power from KESC |
|
| and
natural gas from SSGC are in place, |
|
| and
construction activities for making |
|
| these
services available are progressing |
|
| as
scheduled. |
|
|
| Recruitment
activity is significantly |
|
| complete
and selected technical staff |
|
| have
already received training in the UK in |
|
| preparation
for plant commissioning |
|
| activities,
which are expected to be |
|
| complete
by end 1997. Commercial |
|
| negotiations
with customers are in hand |
|
| and
a market seeding programme with |
|
| imported
ICI product will be implemented |
|
| during
the year, ahead of the |
|
| commencement
of local commercial |
|
| production
expected from January, 1998 |
|
| onwards. |
|
|
| Strong
Government support continues |
|
| for
this investment as a whole as well as |
|
| for
Project construction on the ground |
|
| which
has enabled progress on the 'fast |
|
| track'. |
|
|
| Profit,
Finance |
|
| and
Taxation |
|
|
| Operating
profit for 1996 at Rs 975.5 million was |
|
| marginally
below 1995. An interim dividend of 17.5% |
|
| was
paid in September and as already explained in the |
|
| half-yearly
Directors' report, it was not considered |
|
| appropriate
that the capital from the rights which was |
|
| received
in December 1996 should rank for dividend in |
|
| 1996
and accordingly the Directors do not recommend a |
|
| final
dividend for 1996. |
|
|
| The
Profit and Loss appropriations for the year are as follows: |
|
|
| The
net profit of the Company for the year before providing for |
|
Rs'000 |
|
| taxation
but after provision has been made for depreciation is: |
|
814,457 |
|
|
| Less:
provision for taxation |
|
|
| Current |
|
134,071 |
|
| Deferred |
|
138,369 |
|
|
---------- |
|
|
272,440 |
|
|
---------- |
|
| Profit
after taxation |
|
542,017 |
|
| Unappropriated
profit brought forward |
|
190,008 |
|
|
---------- |
|
| Profit
available for appropriation |
|
732,025 |
|
| Appropriations |
|
| Interim
dividend @ Rs 1.75 per share |
|
324,738 |
|
| Transfer
to General Reserve |
|
200,000 |
|
524,738 |
|
|
---------- |
|
| Unappropriated
profit carried forward |
|
207,287 |
|
|
========== |
|
|
| Local
currency debt funding arrangements for the PTA |
|
| project
are proceeding satisfactorily as planned, |
|
| ABN-AMRO
Bank was given a mandate to raise |
|
| Rs
1 billion which was accomplished by a 3-year term loan |
|
| of
Rs 325 million from Pakistan Kuwait Investment |
|
| Company
(Private) Limited and a Rs 675 million term loan |
|
| arranged
through a syndicate of banks. In addition, your |
|
| Company
issued Term Finance Certificates of |
|
| Rs
1 billion in September 1996 which was by far the |
|
| largest
issue in the Pakistan stock market, and it gives |
|
| your
Directors great pleasure to inform you that The |
|
| Pakistan
Credit Rating Agency rated the issue "AA", the |
|
| highest
given to any private sector company. The issue |
|
| was
oversubscribed one and a half times which is a further |
|
| confirmation
of investor confidence in your Company. |
|
| Approximately
two-thirds of the local currency funding is |
|
| now
complete and the remaining will be obtained during |
|
| 1997,
arrangements for which are in hand. |
|
|
| In
order to raise equity capital for part financing the |
|
| PTA
project, right shares at par were issued in the ratio |
|
| of
13 new shares for every four shares held, following a |
|
| Special
Resolution approved in the last AGM increasing |
|
| the
authorised share capital to Rs 10 billion. |
|
