Report on

Financial Analysis Of

2008

Prepared By: Kinzah Athar

SP08-MB-0013

Prepared For: Analysis of Financial Statement

Shahnshah Alam

Date: 13th November’09

Introduction

ICI Pakistan Limited was set up as a public limited company in Pakistan in 1952. On January 2, 2008 ICI Plc, the parent company of ICI Pakistan was formally acquired by AkzoNobel; the acquisition was approved by the shareholders of both companies as well as regulatory authorities, and the take-over process was completed, making AkzoNobel the ultimate holding company.AkzoNobel, a Fortune 500 company based in Amsterdam, is the world’s largest global producer of paints and coatings as well as one of the major manufacturers and suppliers of specialty chemicals.

The five businesses are, Polyester, Soda Ash, Paints, Chemicals and Life Sciences, A wide range of Pharmaceutical and Animal Health products manufactured on a toll basis. It also market Seeds, and in addition are engaged in trading in various specialized chemicals for use in industries across Pakistan.

ICI today is of course, a part of AkzoNobel, and the coming together of these two great companies ensures one strongly led, technologically sophisticated company with healthy and sustainable long-term growth prospects.

In 1995 ICI Pakistan Limited set up a USD 490 million PTA manufacturing facility at Port Qasim, near Karachi, which was commissioned in 1998. In 2000, the business was de-merged to form Pakistan PTA Limited, which was at the time a subsidiary of ICI Plc UK.

The turnover at ICI Pakistan Limited in 2008 was Rs 31.92 billion and the profit before tax crossed Rs 3.13 billion. It is one of the largest quoted companies on the Karachi, Lahore and Islamabad Stock Exchanges with a paid up share capital of Rs 1.39 billion. The company employs around 1300 permanent staff members.

Financial Position of the company on the basis of Analysis of financial statements

1. Liquidity Analysis

The cash ratio of ICI Company in 2008 is 0.46 which is less as compared to 2007 which was 0.57 then. It shows that liquidity of company is slightly decreased which is not a good sign.

The Current ratio is 1.9, increased as compared to 2007 1.4 which shows that company has enough cash to meet its urgency/obligations. Thus, the current ratio throws light on the company’s ability to pay its current liabilities out of its current assets

The quick ratio is also showing increasing trend from 0.9 to 1.1 which explains that company is able to use its near cash or quick assets to immediately extinguish or retire its current liabilities.

The value of working capital has increased from year 2007 to value of year 2008 which shows that firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.

The liquidity ratios of the firm have increased, illustrating that the firm may experience stability in financing its short-term obligations given that the net income for the period has also increased.

2. Leverage Analysis The debt ratio of ICI company reduces in 2008 to 26.8% from 2007 33.9% which shows that company is less leveraged by debt and is now on low risk side.

The ability of firm has now decreased to pay its interest on 1 rupee in 2008 as compared to 2007 which is shown by TIE which has been decreased from 7 to 6 times.

The increasing trend of equity ratio from 60% to 73% shows that company is more financed by equity in 2008 and is on low risk side.

The TIE ratio has showed a decline over the past year, showing a decrease in the operating profit of the company. The company's debt is decreasing continuously with respect to its equity. Hence, large assets are provided for equity financing.

3. Activity / Efficiency Analysis

The operating cycle takes 74 days against the previous year 2007 which were 76 days. Consequently the turnover ratios are higher than the previous year. This shows that the company has an efficient working capital cycle. The cash is not tied up for long and is collected in a reasonable period. Hence firm will not face liquidity problems as significant as its competitor.

The receivable days has been decreased in 2008 to 17 days from 18 in 2007 which is also good for the company.

The decreasing trend of inventory turnover days shows that company inventory has high turnover which has now been decreased to 57 days in 2008 from 58 days in 2007.

The asset turnover has been increased from 122 to 149% in 2008, shows that company is using assets efficiently and generating its sales & revenue by proper allocation of Assets but also shows that profit margins are decreased as asset turnover has now been increased.

4. Profitability Analysis

The gross profit has been decreased in 2008 to 19 % from 20% of 2007 which is also evident from asset turnover.

The operating margin has also been decreased in 2008 11.2% from 12% of 2007. This may be due to current economic recession and as well as pricing strategy to increase the asset turnover which resulting in decreasing of profits.

The net margin has been slightly decreased from 7.7% to 7.4% which shows that proper measures should be conducted by the company to avoid more decreasing trend in future.

The total return on assets has drastically increased from 9 to 11% from 2007 to 1008 which is a good sign for the company.

The return on equity has now increased from 9% to 15% from 2007 to 2008. The dependence of company on equity has now been increased.Despite the increase in sales, the gross profit margin shows has declined due to rise in the current recession of economy.

5. Marketability Analysis

The EPS has increased from 12 to 14; shows share holders confidence on the company is good.

The decreasing of P/E ratio shows that investors are paying less for each unit of net income in 2008 as compared to 2007, so the stock is cheaper compared to one with higher P/E ratio of 2007.

The increased DPS from 3.5 to 4 from 2007 to 2008 shows that stockholder will get more dividend for each share of stock he held.

Current yield also increases from 35% to 40% shows the yield company pays out to its shareholders in the form of dividends is increased from previous year.

The book value also increased from 89 to 98, which shows that company has strong image in the market and share holders have more confidence on the company’s financial position.

In 2007 the market price was 11% to book value which is now decreased to 10% to book value in 2008.

Conclusion:

The ratio analysis can help in understanding the liquidity and short-term solvency of the firm, particularly for the trade creditors and banks. Long-term solvency position as measured by different debt ratios can help a debt investor or financial institutions to evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analyzed with the help of profitability ratios.

However the ratio analyses suffer from different limitations also. The ratios need not be taken for granted and accepted at face values. These ratios are numerous and there are wide spread variations in the same measure. Ratios generally do the work of diagnosing a problem only and failed to provide the solution to the problem.

After going through the various ratios, I would like to state that: The short-term solvency of the company is quite satisfactory. Immediate solvency position of the company is also quite satisfactory. The company can meet its urgent

obligations immediately. Credit policies are effective. Over all profitability position of the company is quite satisfactory. Stock turnover rate is satisfactory. Stock of the company is moving fast in the market. The company is paying promptly to the suppliers. The return on capital employed is satisfactory.

The management should take care of inventory management and speed up the movement of stock. Effective selling technique or product modification may be adopted to face the competitors and to improve the financial position of the company by taking appropriate decisions.

(Annexure 1)

ICI Pakistan Limited Financial Ratios-- Summarized Comments

Financial RatiosYear

Spot Comment2008 2007

Liquidity Ratios

Cash Ratio 0.46 0.57 Slight decreasing trend. Fair

Current Ratio 1.922 1.448 Increasing trend, Satisfactory

Quick ratio 1.107 0.982 Increasing trend, Satisfactory

Net Working Capital 3951317 2804535 Increasing trend, Satisfactory

Operating Cycle (Days) 74.66 76.904 Decreasing trend, Satisfactory

Leverage Ratios

Debt Ratio 26.80% 33.92% Decreasing trend, Satisfactory, Low risk

Equity Ratio 73.10% 60.08% Increasing trend, Low risk

Times Interest Earned (TIE) 6.56 7.507 Decreasing trend, Unsatisfactory

Activity / Efficiency Ratios

Accounts Receivable Turnover Days 17.58 18.425 Decreasing trend, Satisfactory

Inventory Turnover Days 57.08 58.47 Slight Decreasing trend, Unsatisfactory

Asset Turnover 149.79% 122.59% Increasing trend, Satisfactory

Profitability Ratios

Margin Ratios      

Gross Margin 19.85% 20.34% Slight decreasing, Fair

Operating Margin 11.21% 12.04% Very slight decreasing, Fair

Net Margin 7.41% 7.76% Decreasing, Unsatisfactory

Return Ratios      

Return on Assets 11.18% 9.62% Increasing, Satisfactory

Return On Total Equity 15.16% 9.62% Increasing, Satisfactory

Marketability Ratios

Earning Per Share 14.9 12.85 Increasing, Satisfactory

Price Earning Ratio 0.67 0.77 Decreasing, Satisfactory

Dividend Per Share 4 3.5 Increasing, Satisfactory

Dividend / Current Yield 40% 35% Increasing, Satisfactory

Book Value 98.31 89.41 Increasing, Satisfactory

Market to Book Ratio 10.71% 11.18% Decreasing trend, Unsatisfactory

(Annexure 2)Summarized Financial Statements

ICI Pakistan Limited

Balance SheetAs at 31 December 2008

Amount in Rs '000

2008 2007 2008 2007Assets Liabilities

Non-Current Assets

10435258 9725653Non-Current Liabilities 739900

119571

Current Assets Current LiabilitiesCash & Bank Balances

1971081 3615056Payables 4281110

6250235

Stock in trade 2951956 2311336

Stores & Spares 538540 605480 Total Liabilities 5021010 6369806Receivables 749388 683461Loans & Advances 193254 137680 EquityOther Current assets 1828208 1701757Total Current Assets

8232427 9054770Total Equity 13646675 12410617

Total Assets 18667685 18780423Total Liabilities & Equities

18667685 18780423

Summary of Balance Sheet of ICI Pakistan Limited Dec 31st 2008

The overall position of balance sheet shows that company operational activities are sound. The net worth has been increased fro year 2007 amount as compared to year 2008 amount, but cash and banks are at decreasing trend which is an issue to be check & resolve.

The stock in trade and other receivables shows that company has growth due which decrease in cash occurs and as soon the stock in trade & receivables are settled, this temporary fall in cash will be recovered.

Overall investment is also showing increase in plant & equipment but a high reduction in intangible is a crucial situation.Account payable has also decreased, which is also a good sign for company’s financial position.

Overall with slight decrease, the company’s financial position is satisfactory.

(Annexure 2)ICI Pakistan Limited

Income StatementFor the year ended 31 December 2008

Amount in Rs '000Year

2008 2007

Turnover 31921873 25988351

Sales Tax, excise duty, commission & discounts -3957958 -2964228

Net Sales, commission & Toll Income 27963915 23024123

Cost of Sales -22316574 -18205369

Gross Profit 5647341 4818754

Operating Profit 3129908 2768523 Tax -1061036 -983723

Net Profit 2068872 1784800

Summary of Income Statement of ICI Pakistan Limited Dec 31st 2008

The profit & Loss account of ICI Pakistan limited in on increasing trend from 2007 to 2008 year. Overall, cost of sales increases from 18million to 22million with increase in gross profit from 4millions to 5million.

Profit before taxation has also been increased from 1million to 2million which eventually resulted into increase in net profit from year 2007 amount 1784800 to year 2008 amount 2068872.

Overall, company is on increasing trend with maximizing its profit & minimizing its losses. Company has strong image in the market which increases the confidence of shareholders on the company.

(Annexure 2)ICI Pakistan Limited

Balance Sheet (Common Size & Trend Analysis)As at 31 December 2008

Amount in Rs '000

Vertical Analysis Horizontal Analysis Vertical AnalysisHorizontal Analysis

2008 % 2007 %Change in 2008

% change in 2008

2008 % 2007 %Change in 2008

% change in 2008

Assets Liabilities

Non-Current Assets

10435258 55.9 9725653 51.78 709605 7.30Non-Current Liabilities

739900 3.96 119571 0.636 620329 518.80

Current Assets Current LiabilitiesCash & Bank Balances

1971081 10.55 3615056 19.24 1643975 45.48 Payables 4281110 22.93 6250235 33.28 1969125 31.50

Stock in trade 2951956 15.81 2311336 12.3 640620 27.72 Stores & Spares

538540 2.88% 605480 3.22 66940 11.06Total Liabilities

5021010 26.89 6369806 33.91 1348796 21.17

Receivables 749388 4.01% 683461 3.63 65927 9.65 Loans & Advances

193254 1.03% 137680 0.733 55574 40.36 Equity

Other Current assets

1828208 9.79 1701757 9.06 126451 7.43

Total Current Assets

8232427 44.09 9054770 48.183 822343 9.08Total Equity

13646675 73.1 12410617 66.08 1236058 9.96

Total Assets 18667685 100% 18780423 100% 112738 0.60Total Liabilities & Equities

18667685 100% 18780423 100% 112738 0.60

Summary of Balance Sheet (Common Size & Trend) of ICI Pakistan Limited Dec 31st 2008The Vertical analysis of ICI company balance sheet shows that non current assets are 56% in 2008 which were 52% in 2007, increased by

5%. Cash & bank balances decreased from 19% to 10% with increase in stock in trade from 12% to 15%. Stores & spares have very slight decrease with only 1% change and same as for receivable which increased from 3% to 4% in 2008. Over all total current assets are decreased 4% from previous year and are now 44% of total assets.

The non current liabilities have drastic increased with 3% of over all liability & equity in 2008. The total liabilities decreased from 33% to 26% due to decrease in account payable. Whole equity has been increased with 7% from 2007 to 2008 and is now 73% of total liabilities & Equity. Common size shows that current assets & liabilities decreased with increase in non current liabilities & Equity in 2008 as compared to previous year 2007.

The trend shows that there is only 0.6%decrease side change in complete balance sheet in 2008 as compared to 2007.

(Annexure 2)ICI Pakistan Limited

Income Statement (Common Size & Trend Analysis)

For the year ended 31 December 2008

Amount in Rs '000

Vertical Analysis Horizontal Analysis

Year Change in 2008

% change in 20082008 % 2007 %

Turnover 31921873 25988351

Sales Tax, excise duty, commission & discounts -3957958 -2964228

Net Sales, commission & Toll Income 27963915 100 23024123 100 4939792 21.45

Cost of Sales -22316574 79.8 -18205369 79.07 4111205 22.58

Gross Profit 5647341 20.2 4818754 20.92 828587 17.20

Operating Profit 3129908 11.2 2768523 12.02 361385 13.05

Tax -1061036 3.79 -983723 4.27 -77313 7.86

Net Profit 2068872 7.39 1784800 7.75 284072 15.92

Summary of Income Statement (Common Size & Trend) of ICI Pakistan Limited

Dec 31st 2008

The common size of income statement shows increase in net profit from 17 million to 20 million in 2008.The Net profit in 2008 is 2.3% of Net sales which is less than 2007 percentage of sales. It is due to percentage decrease in operating profit in 2008 which is 11% of sales in 2008, whereas, it was 12% of sales in 2007.

Trend analysis shows that percentage change in 2008 in net profit is almost 16% as compared to 2007. The gross profit has 22% change and operating profit has 13% change in 2008 as compared to 2007.