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ICI Pakistan Limited

Annual Report 1995

Contents

Company Information

Board of Directors

Naseem S Mirza

(Chairman)

Munnawar Hamid

(Chief Exccutive)

Irtiza Husain

M J Jaffer

I M Macfarlane

(Alternate Javed H Malik)

Azhar A Malik

Mahmood Saeed

M Asadullah Sheikh

General Managers

Imran Agha

Ijaz Ahmad

Adeeb Ahmed

Sheikh M Aslam

Tariq Hamid

Javed H Malik

Jehangir B Nawaz

Khalid B Osmany

Feroz Rizvi

Rashiq Sufi

Company Secretary

Sheikh M Aslam

Bankers

ABN AMRO Bank

Al Faysal Investment Bank Limited

Allied Bank of Pakistan Limited

American Express Bank Limited

ANZ Grindlays Bank PLC

Bank of America NT&SA

Banque Indosuez

Citibank NA

Deutsche Bank

Emirates Bank International Limited

Habib Bank Limited

Habib Credit & Exchange Bank Limited

Hongkong & Shanghai Banking Corporation Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

Societe Generale

Standard Chartered Bank

The Bank of Tokyo Limited

United Bank Limited

Auditors

A F Ferguson & Co

Registered Office

ICI House 5 West Wharf Karachi-74000

Statistical Data

Year at a Glance

Rs Million

1995

1994

Turnover

7,013.26

5,587.50

Profit before taxation

888.02

808.65

Taxation

Current

295.00

220.60

Deferred

3.54

68.53

Profit after taxation

589.48

519.52

Dividend

289.95

Gross assets employed

(excluding capital work-in-progress)

4,705.00

3,370.00

Paid-up capital

579.89

Shareholders' equity

3,067.23

1,496.02

Earnings per share after taxation - Rupees

10.17

8.96

Number of employees

1873

1856

Report of the Directors for the Year Ended 31 December 1995

The Directors take pleasure in presenting their Report together

with the audited accounts of the Company for the year ended 21, December 1995.

BOARD OF DIRECTORS

Mr Naseem S Mirza relinquished the office

of Chief Executive on 31 August 1995 and

Mr Munnawar Hamid took over as the

Chief Executive from I September 1995.

Mr Munnawar Hamid, who was appointed

to the Board on I January 1993, has been

with the Company for over 27 years and

has broad based experience of its

operations. Mr Naseem S Mirza will

continue as Chairman and the Board places

on record its appreciation of the valuable

services rendered by Mr Naseem S Mirza

during his tenure as Chief Executive.

Overview

The year under review saw frequent fiscal

changes by the Government to meet macro

economic targets agreed with the IMF,

particularly in the latter part of the year.

The Rupee devaluation in October 1995 and

the imposition of regulatory duty on all

imports resulted in increasing inflation. As

the Government attempted to tighten

monetary expansion, an escalation in

interest rates occurred simultaneously.

These measures produced difficult business

conditions which, together with the

continuing unsatisfactory law and order

situation in Karachi, adversely affected

trading.

The Directors are pleased to report that,

despite the above mentioned difficulties,

your Company had another record year in

1995. Total turnover exceeded Rs 7 billion,

representing an improvement of 26 % over

last year. Operating profit crossed the

billion Rupee mark for the first time and

was 9 % higher than last year. All

Businesses showed improved performance

over last year except Soda Ash where profit

was slightly lower, as a result of loss of

production due to IR problems and gas

curtailment. Your Directors are also

pleased to report that a USD 450 million

investment for the manufacture of PTA was

sanctioned by the Board during the year.

This investment - the most ambitious so far

- represents another important landmark in

the history of the Company and will more

than quadruple its asset base besides

contributing significantly to the national

economy.

The Board wishes to express its deep

appreciation for the hard work and efforts

put in by staff at all levels and the

cooperation and support of all its

customers, distributors and dealers

towards achieving these results.

A detailed review follows:

POLYESTER:

Demand for locally

manufactured polyester

staple fibre was buoyant

during the first quarter of 1995 due

to shortage of cotton as a result of a

poor crop, as well as tight

availability of polyester fibre

internationally. However, continuous

supply of locally produced fibre was

ensured to the textile industry, and

although prices rose following the

very sharp increase in international

prices, they were kept below the

price of imported fibre. In March

1995, the Government cut back on

duty drawback rates, ostensibly to

remove subsidies as required by the

World Trade Agreement.

This adversely affected

exports of all textile

products and

particularly those of

blended yarn, severely

impacting the Polyester

market which remained static for the

rest of the year. Although the duty

drawback rates were later revised

upwards, the adverse effects were so

significant that exports have still not

been fully restored to earlier levels.

Prices of PTA and MEG continued

to escalate throughout the year. In

the first six months the Business

was able to absorb these increases

through its ability to raise selling

price, which was lost in the second

half of the year when

imported fibre prices

softened and margins

came under severe

pressure. However, higher

margins realised in the

first half of the year

enabled the Business to acrueve an

operating profit of Rs 434.5 million

which is 14% higher than last year.

The changes announced in the

recent Federal Budget have further

decreased the net protection to the

domestic fibre industry to a minimal

level. Even though, with improved

efficiencies and economies of scale,

the local fibre industry can compete

profitably at this very low level of

protection, an adequate mechanism

must exist to protect the local

industry against dumping This issue

is particularly pressing as certain

international fibre producers, who

have always considered Pakistan as

a dumping ground for their product,

have again resorted to dumping

Activities relating to plant

capacity expansion at Sheikhupura

are progressing according to

schedule and its commissioning

is expected by the end

of 1996.

SODA ASH:

The industrial relations

situation at Khewra

remained unsatisfactory

for nearly nine months of the

year, and this together with gas

curtailment in the winter

months, caused a production

shortfall of about 20,000

tonnes, against

enhanced capacity

brought on-line in

December 1994. The

industrial relations

situation has now normalised

and the two-year wage

agreement has been signed

with the Union. However, gas

curtailment, which has now

become a regular event in

winter, is still expected to

adversely impact

production during 1996.

Demand for Soda Ash

remained strong with

growth in most segments o

the market, particularly in

paper and glass. Sales, however,

were affected by lower

production resulting from

difficulties mentioned above and

the Company had to augment

supply with 2000 tonnes of

imported product to service its

customers.

The Sodium Bicarbonate

Plant was successfully

commissioned within

budget and on schedule in

April 1995. The product has

attained market acceptance

and compares very favourably

in terms of quality with both

the locally produced as well as

imported product.

The waste containment

project which yields salable

quantity of calcium carbonate

continued to face production

and marketing difficulties

which are being addressed.

PAINTS:

The paints market was

generally strong

compared to last year.

Consequently, Decorative

volumes exhibited a healthy

increase both in the north

and southern regions despite

the difficult trading conditions

in Karachi due to the law and

order situation. The Motors

segment faced difficulties as a

result of traditional resistance

from local automobile

manufacturers to price

increases as well as lower

car production due to

frequent strikes in

Karachi. Refinish volume

improved considerably with the

introduction of a superior high

quality 2 pack car refinishing

system as well as the

opportunity provided by the

conversion of yellow cabs to

private ownership

Margins throughout the year

were under pressure as selling

prices remained out of

step with the rising

raw material prices.

However, higher sales volumes

in the Decorative and Refinish

segments enabled operating

profit for the year to exceed

last year's level by 13%.

The organized sector in this

industry continues to be highly

taxed with sales tax and excise

duty level at 15% and 10%

respectively. The places it at a

severe disadvantage opposite

the unorganized sector which is

subject ot a fixed tax system.

Despite an equalising

adjustment, announced in the

last budget, through levy of

higher sales tax on raw

materials at the import stage

for all sectors of the industry,

the gap still

remains sizeable

requiring further

Government action.

AGROCHEMICALS & SEEDS:

Turnover in

Agrochemicals

improved

following the highest

ever sale of 'karate',

the main product of

the Business. This

was primarily due to a

quantum increase in the

domestic price of

cotton in 1994,

consequent to which

a larger crop was

sown in 1995 and

spraying levels were expected

to increase. Improved financial

liquidity of the farmers,

resulting from the good profits

made in 1994, was the main

factor in support of this

expansion. During the year a

wheat herbicide was launched

which received good market

acceptance.

The Seeds Business

continued to maintain its

dominance in sunflower and

fodder segments, which

doubled turnover

compared with

last year.

PHARMACEUTICALS, ANIMALS HEALTH &

CONSUMER PRODUCTS:

Pharmaceuticals sales

improved by 36% over

last year against the

backdrop of more consistent

Governmental pricing policies.

Margins, however, came

under pressure in the

last quarter due to delay

in price increase

approvals for regulated

products. Consequently,

the higher input costs

resulting from devaluation of

the Rupee and imposition of

regulatory duty on raw

materials imports could not be

off-set.

The Medical segment of the

Business continued to

consolidate its position as

the market leader in the

Cardiovascular sector with

strong growth in the major

products namely Tenormin,

Inderal and Zestril. In

addition, new products were

introduced to strengthen the

portfolio. The Animal Health

segment maintained its

leadership in the field of

anthelmintic medicines

supported by aggressive sales

promotion efforts and a strong

farmer education programme,

leading to an increase in sales

by 56% compared with last

year. The Consumer Products

segment continued to

strengthen its position in the

Public Health range and

successfully entered the Oral

Hygiene sector with the

introduction of

the 'Ore' range of

of products.

CHEMICALS:

Turnover in Specialty

Chemicals increased

significantly over last

year primarily due to

higher sales in the core

segment, Textile

Auxiliaries, as the

textile processing

sector strengthened

during the year. In the

General Chemicals

segment, turnover and profit

showed satisfactory increases

due to improved sales of

titanium dioxide and nickel

catalyst, and also due to the

strong position in locally

blended rigid polyurethanes,

used by the domestic

appliances

industry.

PURE TEREPHTHALIC ACID:

On 18 September 1995

your Company approved

an investment of USD

450 million in a plant to

produce Pure

Terephthalic Acid (PTA)

which is used in the

manufacture of

polyester fibre and

yarn, and resin for PET bottles

and packaging films. The

Plant, with an annual

capacity of 400,000 tonnes,

will be located at Port

Qasim, Karachi and is

expected to be

commissioned by the end of<