AkzoNobel ICI Directors Report Q3 2011 Tcm102-69144

8/3/2019 AkzoNobel ICI Directors Report Q3 2011 Tcm102-69144

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REVIEW OF THE DIRECTORS FOR THE QUARTER & NINE MONTHS ENDED SEPTEMBER 30, 2011

The Directors are pleased to present their review together with the un-audited financial statements of the

Company for the quarter and nine months ended September 30, 2011.

Your Company posted net sales income of Rs 10.03 billion and Rs 30.5 billion for the quarter and ninemonths ended September 30, 2011 respectively which were 18 percent and 19 percent higher compared

with same periods last year.

Operating result and profit after tax for Q3 2011 at Rs 898 m and Rs 571 m was lower by 18 percent and

16 percent respectively compared to same period last year. Extended gas outages in the Polyester and the

Soda Ash plants during the quarter dragged the Q3 results. The impact of gas outages on operating result

during Q3 over the same period last year, was in excess of Rs140 m (after tax Rs 91 m).

Operating result and profit after tax for the nine months ended September 30, 2011 at Rs 2,308 m and Rs

1,543 m were 20 percent and 16 percent lower respectively compared with the corresponding period last

year. The impact of gas outages on operating result during nine months over the same period last year,

was in excess of Rs 650 m (after tax Rs 423 m).

Chemicals and Life Sciences businesses of ICI Pakistan Limited during the nine months ended 30

September 2011 have posted significant growth in their bottom line while the Paints business has shown

improvement with a manifold increase in operating results for Q3 2011 as compared to same period last

year.

Q3 2011 EPS was Rs 4.11 per share compared with Rs 4.92 per share in Q3 2010.

The coal fired boilers project, approved by the Board of Directors earlier, in order to safeguard the Soda

Ash business from margin erosion due to gas shortages, is on track and expected to be completed in Q2

2013.

FINANCIAL PERFORMANCE

A summary of Q3 and nine months with comparatives is as follows:

Q 3 January - September

8,483

10,034

2010

2011

Netsales,commission&tollincome(Rsm)

25,550

30,472

1.05,001.010,001.015,001.020,001.025,001.030,001.0

2010

2011


1,101

898

2010

2011

Opera5ngresult(Rsm)

2,873

2,308

1.0 501.0 1,001.01,501.02,001.02,501.0

2010

2011

Opera5ngresult(Rsm)

683

571

2010

2011

Profita:ertax(Rsm)

1,848

1,543

1.0 501.0 1,001.0 1,501.0

2010

2011

Profita:ertax(Rsm)



Polyester Staple Fibre Business (PSF)


Demand for PSF in the domestic market remained subdued amid slow global economic conditions and on

account of gas outages. With similar conditions in China, the largest PSF market, buyers all around

remained cautious of the volatilities in upstream feedstock prices and changing blend economics.

International cotton prices were stable to weak due to expectations of a surplus crop. In the domestic

market, cotton prices were subject to further uncertainities regarding loss to cotton crop due to recent

floods.

Sales volume during the quarter was lower by 9 percent. Feedstock prices witnessed significant increase.

Regional PTA and MEG prices were higher by 44 percent and 57 percent respectively, compared with Q3

2010. PSF prices were higher by 32 percent compared with the same quarter last year and partially

compensated for higher PTA and MEG prices. Consequently, unit margins over feedstock were lower

compared with the same period last year.

Gross margin was also impacted by higher gas outages. The number of equivalent gas zero days in Q3

2011 and nine months period September 30, 2011 increased to 36 days and 136 days from 17 days and 65

days respectively, compared to same period last year. Gas outages, forced the business to incur additional

cost in excess of Rs 70 m and Rs 300 m in Q3 2011 and nine months period September 30, 2011

compared to last year on expensive furnace oil.

Q3 2011, operating result at Rs 238 m was 58 percent (Rs 328 m) lower than the same period last year.

Operating profit for the nine months at Rs 970 m was 32 percent (Rs 451 m) lower than same period last

year

In Q4, PSF demand will be influenced by blend economics as well as availability of gas in winters to the

textile industry. Margins in the business are predicated on gas availability and direction of feedstock

prices.

4.92

4.11

2010

2011

Earningspershare(Rs)

13.31

11.12

‐ 5.0 10.0 15.0

2010

2011

Earningspershare(Rs)

4,516

5,415

1.0 1,001.02,001.03,001.04,001.05,001.0

2010

2011


12,928

16,290

1.0 5,001.0 10,001.0 15,001.0

2010

2011


566

238

1.0 101.0 201.0 301.0 401.0 501.0

2010

2011

Opera5ngresult(Rsm)

1,421

970

1.0 201.0401.0601.0801.01,001.01,201.01,401.0

2010

2011

Opera5ngresult(Rsm)



Soda Ash Business


Global demand for Soda Ash has been firm in 2011, with positive reports on the demand side in nearly all

key regions. Due to rising costs and firmness of demand, prices have gone up in most markets. The

domestic market continues to remain hostage to the ongoing energy crises and law and order situation.

Industrial segments are facing the dual challenge of weak downstream demand, coupled with eroding

margins due to the increased dependence on more expensive alternative fuels.

The number of equivalent gas zero days in Q3 2011 and nine months ended September 30, 2011

increased to 36 days and 135 days from 21 days and 91 days compared to last year, resulting in an

additional cost of more than Rs 70 m and Rs 350 m in the use of expensive alternate fuels. Business hastaken various cost saving initiatives to mitigate the adverse impact on profitability. Major work has been

done in the areas of energy and water conservation.

Domestic sales volumes for Q 3 2011 were at par with same period last year. However, overall sales

volumes for the quarter were 7 percent lower than the same period last year due to reduced exports which

were not feasible using expensive alternative fuels.

Operating profit for Q 3 2011 at Rs 413 m was 2 percent higher than same period last year on the back of

better unit margins through effective price management and energy and water conservation initiationundertaken. For nine months ended September 30, 2011 operating result at 710 m was 14 percent lower

compared to the same period last year.

The coal fired boilers project, approved by the Board of Directors earlier, to safeguard the business from

margin erosion due to gas shortages, is on track.

In Q4 gas outages are likely to be significantly higher compared with the same period last year. The

global economic slowdown is likely to affect the regional Soda Ash market.

Paints Business


1,659

1,785

1.0 501.0 1,001.0 1,501.0

2010

2011


4,862

5,159

1.0 1,001.02,001.03,001.04,001.05,001.0

2010

2011


404

413

0.5 100.5 200.5 300.5 400.5

2010

2011

Opera5ngresult(Rsm)

823

710

0.5 200.5 400.5 600.5 800.5

2010

2011

Opera5ngresult(Rsm)

964

1,237

1.0 201.0 401.0 601.0 801.01,001.01,201.0

2010

2011


3,515

3,701

1.0 501.01,001.01,501.02,001.02,501.03,001.03,501.0

2010

2011




The market was soft during Q3 2011, an unusual phenomena since Q3 historically is high volume period,

due to extended monsoon and security issues in the south. The key market drivers for the industry are predicting a contracting market. The Business is continuing to focus on development work in the market,

specifically in the area of customer engagement and service level. Price increases have restored lost

margins due to cost push in raw materials in H1 2011. Success in development initiatives with “industry”

customers are paying dividends, and the business is set to increase its share and margins within the OEMs

segment.

Q3 2011 and nine month ended September 30, 2011 sales volumes are 7 percent and 13 percent lower

than same period last year due to factors mentioned above. Despite lower volumes, relentless focus by the

Business on improving margins has paid off and operating profit of Rs 127.3m in Q3 2011 is significantly

better than the same period last year, demonstrating that consumer value has been preserved.

Volumes are likely to remain subdued. The Business will maintain focus on development work, reducing“non value adding” cost, higher customer engagement and service levels. With increasing alignment with

AkzoNobel Global resources the Business expects to see a larger palette of relevant projects to add to its

innovation portfolio.

Life Sciences Business


Net sales income for Q3 2011 was higher by 28 percent compared to same period last year.

Pharmaceutical, Animal Health and Seeds segments posted double digit growth driven by higher volumes

and product diversification.

Operating result for Q3 2011 at Rs 71.5 m was higher by 3 percent compared with the same period last

year, as increased sales were partially offset by increase in selling and distribution expenses to support

product diversification and volume growth. Operating result for the nine months at Rs 272 m was 9

percent higher than same period last year.

9

127

2010

2011

Opera5ngresult(Rsm)

198

133

2010

2011

Opera5ngresult(Rsm)

824

1,055

1.0 201.0 401.0 601.0 801.0 1,001.0

2010

2011


2,487

3,319

1.0 501.01,001.01,501.02,001.02,501.03,001.0

2010

2011


70

72

1.0 11.0 21.0 31.0 41.0 51.0 61.0 71.0

2010

2011

Opera5ngresult(Rsm)

250

272

1.0 51.0 101.0 151.0 201.0 251.0

2010

2011

Opera5ngresult(Rsm)



Overall the business expects to perform well in Pharmaceutical and Animal Health. However, Seeds

segment performance in Q4 2011 depends on farm economics for sunflower seeds. The recent floods in

Sindh may negatively impact sales in Sindh.

Chemicals Business


Overall sales volume for Q3 2011 was 14 percent lower compared to the same period last year on the back of lower sales in textile segment which continued to be marred by extensive energy outages in the

downstream industry and lower demand for polyurethanes from the appliances sector. However, trading

segment continued to perform strongly due to higher downstream demand.

The effect of lower sales volumes were significantly compensated by better unit margins. Operating result

for Q3 2011 at Rs 49 m was lower by 5 percent compared to the same period last year. Operating result

for nine months ended September 30, 2011 at Rs 224 m was 23 percent higher than the same period last

year due to strong performance by the Trading segment.

Going forward, energy outages in the downstream industry are expected to negatively impact volumes.

Future Outlook

In Q4, industrial sector in the North is likely to face the brunt of extended gas outages. The global

economic recession is also likely to impact exports from China and is expected to negatively impact the

PSF and Soda Ash industry in China. Life Sciences and Chemicals businesses are expected to perform

well.

608

723

1.0 101.0201.0301.0401.0501.0601.0701.0

2010

2011


2,054

2,491

1.0 501.0 1,001.0 1,501.0 2,001.0

2010

2011


52

49

1.0 11.0 21.0 31.0 41.0 51.0

2010

2011

Opera5ngresult(Rsm)

182

224

1.0 51.0 101.0 151.0 201.0

2010

2011

Opera5ngresult(Rsm)



REVIEW OF THE DIRECTORS FOR THE QUARTER & NINE MONTHS ENDED SEPTEMBER 30,2011

The Directors are pleased to present their review together with the un-audited Group results of ICI

Pakistan Limited for the quarter and nine months ended September 30, 2011. The ICI Pakistan Group

comprises of ICI Pakistan Limited and ICI Pakistan PowerGen Limited, a wholly owned subsidiary.

The Directors review, giving a commentary on the performance of ICI Pakistan Limited for the quarter

and nine months ended September 30, 2011 has been presented separately.

In wake of global demand supply dynamics, the crude oil prices fell during the quarter and were lower

than the average prices of Q2 2011. However, it remained above the average prices of same period last

year. Gas prices were increased by 14 percent during the quarter by OGRA.

Electricity sales volume for the quarter and nine months ended September 30, 2011 was 28 percent and

24 percent lower than same period last year due to lower demand from Polyester business of ICI Pakistan

Limited.

Operating result for the quarter and nine months ended September 30, 2011 at Rs 26.31 m and Rs 73.04

m were 31 percent and 24 percent lower than the same period last year mainly due to lower sales

volumes.

Future Outlook

Furnace oil prices are expected to rise steadily and are currently at Rs 65,679 per ton.

Documents

AkzoNobel ICI Directors Report Q3 2011 Tcm102-69144