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ICI Pakistan Limited

Annual Report 1999

CONTENTS

ICI Pakistan Limited

COMPANY INFORMATION

Board of Directors

Munnawar Hamid one

(Chairman & Chief Executive)

A B Anderson

J S Butt

Barry Hallam

M J Jaffer

Azhar A Malik

Istaqbal Mehdi

Desmond O'Shea

Rashiq Sufi

M Nawaz Tiwana

S Imran Agha

(Alternate Director to A B Anderson)

Waqar A Malik

(Alternate Director to Desmond O'Shea)

Audit & Remuneration Sub Committees of the Board

Audit Sub Committee

Senior Remuneration Sub Committee

M J Jaffer

M Nawaz Tiwana

(Chairman)

Desmond O'Shea

Azhar A Malik (by invitation)

Munnawar Hamid one (by invitation)

John Way

(Group Internal Auditor - by invitation)

Executive Management Team

Munnawar Hamid OBE

Khalid B Osmany

Azhar A Malik

Feroz Rizvi

Barry Hallam

S Imran Agha

Rashiq Sufi

Jehangir B Nawaz

J S Butt

Waqar A Malik

Nausheen Ahmad

Company Secretary

Nausheen Ahmad

Bankers

ABC International Bank Plc

Faysal Bank Limited

ABN-Amro Bank NV

Habib Bank Limited

Al-Faysal Investment Bank Limited

Habib Bank AG Zurich

Allied Bank of Pakistan Limited

Muslim Commercial Bank Limited

American Express Bank Limited

Mashreq Bank psc

ANZ Grindlays Bank Limited

Midland Bank Plc

Askari Commercial Bank Limited

National Bank of Pakistan

Australia & New Zealand. Banking Group Limited

Oman International Bank S.A.O.G.

Bank Alfalah Limited

Pakistan Kuwait Investment Company (Private) Limited

Bank of America NT & SA

Societe Generale, The French and International Bank

Citibank NA

Standard Chartered Bank

Credit Agricole Indosuez

The Bank of Punjab

Deutsche Bank

The Bank of Tokyo-Mitsubishi, Ltd

Emirates Bank International PJSC

The Hongkong & Shanghai Banking Corporation 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

1999

1998

Turnover

16,510

11,062

Loss before taxation

(3,736)

(2,469)

Taxation

Current

(74)

(54)

Deferred

379

Loss after taxation

(3,810)

(2,144)

Gross assets employed (excluding capital work-in-progress)

34,955

30,590

Paid-up capital

12,618

7,886

Shareholders' equity

9,972

9,050

------------------

Earnings per share after taxation - Rupees

(4.20)

(2.72)

==========

Number of employees

1,717

1,788

==========

BOARD OF DIRECTORS

Desmond O'Shea

Non-Executive Director

M J Jaffer

Non-Executive Director

A Razak Dawood

Non-Executive Director

M Nawaz Tiwana

Non-Executive Director

Istaqbal Mehdi

Non-Executive Director

Alexander B Anderson

Non-Executive Director

The Directors would like to present their Report with the audited

accounts of the Company for the year ended 31 December 1999.

Subsequent to the election of an

eleven-member Board of Directors in

the forty-seventh Annual General

Meeting held on 21 April 1999, the

following changes have taken place on the

Board of the Company.

Mr. Munnawar Hamid, in addition to his role

as Chief Executive, took over as Chairman

of the Board in place of Mr. Desmond O'Shea

at the conclusion of the last Annual General

Meeting on 21 April 1999.

Mr. A Razak Dawood, non-executive Director,

resigned from the Board of the Company

with effect from 4 November 1999 upon his

appointment as Federal Minister for

Commerce and Industry. Mr. A Razak

Dawood joined the Company as non-

executive Director on 18 April 1997 and was

also a member of the Board's Sub

Committee on Audit, and a Trustee of the ICI

Pakistan Management Staff Pension Fund.

Mr. Desmond O'Shea who joined the

company as non-executive

Chairman/Director on 17 April 1997,

resigned from the Board of the Company

with effect from 31 December 1999 in view

of his impending retirement from ICI Plc UK

in early 2000. Mr. Desmond O'Shea was also

a member of the Board's Sub-Committees

on Audit and Senior Remuneration.

Mr. A B Anderson who was elected to the

Board of the Company on 21 April 1999 as

non-executive Director, also submitted his

resignation from the Board of the

Company with effect from 31 December

1999, in view of his impending retirement

from ICI Plc UK in early 2000.

In exercise of the powers conferred under

the Law, three new appointments were

consequently made as follows, each for a

term of office commencing 1 January 2000

and to expire on 20 April 2002, in order to

bring the Board to its full strength of

eleven Directors.

* Dr Hafiz A Pasha, who currently

heads the Social Policy and

Development Centre. He is considered

one of the foremost economists of the

country and is presently a member of

the Government's Economic Advisory

Board. He has also served as Federal

Commerce Minister, Deputy Chairman

Planning Commission and Finance

Advisor with the rank of Federal

Minister in various Governments.

From 1976 - 1990, he was Joint

Director of the Applied Economics

Research Centre at the University of

Karachi. He was also Director of the

Institute of Business Administration,

Karachi University, and for a short

period held the position of Vice

Chancellor, Karachi University

* Mr. Steve Hamlett, who is currently

based in the Head Office of ICI Plc UK

and has taken over as Vice President

Asia from Mr. Desmond O'Shea. He

has a long and varied experience with

ICI Plc UK in the field of Finance &

Commercial Management:

* Dr James P Carrick, who assumes the

responsibility of Vice President

Manufacturing and Engineering, ICI

Plc UK upon Mr. Anderson's

retirement. He has extensive

experience in this area and specializes

in PTA technology and was associated

with the setting up of ICI Pakistan's

PTA Plant in its initial stages.

In addition to the above changes, National

Investment Trust (NIT) Limited nominated

its Managing Director, Mr. Istaqbal Mehdi

as its Nominee Director on the Board of

the Company in place of Mr. Nasim Beg

who resigned from the Board of the

Company with effect from 20 December

1999. The appointment of Mr. Istaqbal

Mehdi as Nominee Director of NIT takes

effect from 23 December 1999 and shall

expire on 20 April 2002.

The Board places on record its

appreciation of the valuable services

rendered by the outgoing Directors in a

particularly difficult period and extends a

warm welcome to the new appointees.

The Board's Sub-Committees on Audit and

Senior Remuneration, constituted to

assure good governance, met regularly

during the year and submitted their

considered recommendations to the Board.

Overview

Operating profit in the non-PTA Portfolio

of Businesses for 1999 was Rs 1,112.3

million, which represents a 25% increase

over 1998. This significant improvement

was achieved despite a continuing

economic recession and political

uncertainty in the country during 1999,

and was only possible as a result of your

Company's continuous commitment to

improving manufacturing efficiencies and

employee productivity, vigilant monitoring

of fixed costs and increasing market

shares. It is estimated that about two-

thirds of this improvement in profit has

come directly as a result of these internal

management actions.

The PTA Business has completed its first

full year's operation during which it was

possible to concentrate on improving

manufacturing efficiency and streamline

fixed costs on a consistent basis. As a

result, operating loss for the full year was

restricted to a level lower than that for the

six months operation in 1998, despite the

persistence of the cyclical downturn and

prices reaching unprecedented lows in

early 1999.

Very significant efforts were made to

reduce the Company's financial charges for

the full year despite which they remained

high and, together with a continuing PTA

loss, negated the strong improvements in

operating performance, resulting in a loss

before tax of Rs 3,736.2 million.

A number of specific significant

milestones were, however, achieved in

the Company during the year:

* All major Businesses exceeded

production records except

Agrochemicals which, nevertheless,

still registered an increase in

production over 1998.

* In the Polyester Business, the CP

Plant exceeded original design

capacity for the second consecutive

year by 5%.

* Market shares were increased in the

Polyester, Soda Ash, Paints, Uniqema

and Polyurethane Businesses, while

the Seeds Business and

Cardiovascular segment of the

Pharmaceuticals Business continued

to maintain their lead market positions.

* Manpower productivity in the non-

PTA Businesses, as measured by

turnover per employee, increased by

23% over 1998.

* The Polyester, Soda Ash and

Chemicals Businesses received ISO

9002 certification, and Paints, in

addition, received ISO 9001 and ISO

14001 certifications. The ISO 14001

certification of Paints, for exemplary

environmental performance, is in

particular, a source of pride as your

Company has the privilege of being

the first in Pakistan to achieve it.

* In the PTA Business, design flow sheet

throughput rate capability was

successfully tested on a number of

occasions as efficiencies continued to

improve on the back of process

optimisation and consistent on-line

operations. The Business also exported

8,000 tonnes of PTA to China in its first

full year of operation, which has

successfully established its position as

a regional PTA manufacturer.

* All Businesses and Functional areas

made a smooth and uninterrupted

transition across the Millennium date

change and operations continued

normally.

* The Company was awarded second

position for 'Best Presented Accounts'

in the non-financial sector for its 1998

Annual Report, by the South Asian

Federation of Accounts (SAFA) - a

recognised body of SAARC.

A detailed review follows.

PURE TEREPHTHALIC ACID (PTA)

The Company's PTA Plant at Port Qasim completed its first full year of

operation and was able to consolidate its manufacturing capability.

The Plant's capability to achieve design flow sheet throughput rate was

successfully tested on a number of occasions....as manufacturing

efficiencies continued to improve on the back of process optimisation

and consistent on-line operations....The Business exported 8,000

tonnes of product to China....which successfully established its

position as a regional PTA manufacturer.

The Company's PTA Plant at Port

Qasim completed its first full year of

operation and was able to

consolidate its manufacturing capability.

The Plant's capability to achieve design

flow sheet throughput rate was

successfully tested on a number of

occasions in the second half of the year, as

manufacturing efficiencies continued to

improve on the back of process

optimisation, consistent on-line operations

and commissioning of a waste recovery

filter. The Plant also surpassed one million

man-hours without a Reportable Injury Accident.

Product quality adequately met customer

expectations and the Business was

successful in improving its market share

to close to 60% of the domestic market.

Additionally, the Business exported 8,000

tonnes of product to China during the

second half of the year, which successfully

established its position as a regional PTA

manufacturer. Strategic raw material

purchase agreements have been concluded

on competitive terms with a number of

international suppliers, which will enable

the Business to improve its overall

competitiveness.

Following unprecedented lows in PTA

margins in early 1999, as the cyclical

downturn in the international PTA

industry deepened, the market revived

towards mid-1999 due to a strengthening

of the petrochemical chain. However, by

late November, Asian PTA prices

readjusted downward again due to

reduced buying from China and a

temporary slump in the Asian filament and

fabric markets. Domestically, a robust

cotton crop and consequently lower cotton

prices led to a change in blend economics

in favour of cotton, which in turn, resulted

in depressed fibre demand and ultimately

a softening of PTA prices towards the

year-end. However, a full year's sales,

together with relatively improved margins,

better conversion efficiencies and effective

control on fixed costs enabled the

Business to restrict its full-year operating

loss to Rs 1,845.2 million in 1999 compared

with the operating loss of Rs 1,867.6

million for only the six months ended 31

December 1998. PTA prices and margins,

however, are forecast to show

improvement in the second half of 2000 as

the Asian market continues to grow at 8%

per annum and absorbs excess product, a

trend which is expected to enable the PTA

cycle to peak towards the end of 2001.

Polyester

....the Polyester Business achieved record sales....resulting

in a volume and market share increase of 20% and 3%,

respectively, over 1998. The growth in sales was supported by

an all round outstanding performance of the Plant, which

achieved 16% higher production compared with 1998, setting

a new record in the Plant's history.

During 1999, there was considerable

improvement in the regional staple

fibre industry, mainly due to the

economic recovery in the Far East,

increasingly rational occupacity strategies

of the regional producers and an overall

strengthening of the petrochemical chain

as crude oil prices firmed. An overall

improvement in margins was consequently

registered in the region. However, the

threat of dumping and inclusion of PSF in

the 'No Duty - No Drawback' (NDND)

scheme in the second half of the year,

despite strong opposition by domestic

fibre producers, continued to threaten