ICI PAKISTAN WORKING CAPITAL MANAGEMENT

GROUP MEMBERS

PRESENTED BYFaiza AmbreenMehwish Atique

KhadijaMusarrat Rukhsar

PRESENTED TOSir Mirza Raza Ali

PREAMBLE The chemical industry of Pakistan is the most

emerging industry of Pakistan. The economic survey has added that during July-

March 2013-14 positive growths was witnessed in Chemicals sector at 6.71 percent.

The major inflow of FDI is from US, Hong Kong, UK, Switzerland and UAE in Oil & gas exploration, financial business, power, communications and Chemicals remained major sectors for foreign investors.

The global chemicals industry is the largest manufacturing industry in the world, with sales of $2.5 trillion in 2010. Pakistan's industry is facing pressures from globally competitive markets so Pakistan needs to exploit chemical industry potential at its best.

INTRODUCTION OF ICI PAKISTAN:

ICI Pakistan Limited was founded as a public limited company in 1952.ICI Pakistan was acquired by Younas Brother Group in December 2012 after its parent shareholder AkzoNobel decided to divest its shares from all other ICI owned businesses in Pakistan, except the paints business. ICI is one of the largest quoted companies on the Karachi, Lahore and Islamabad Stock Exchanges with a paid up share capital of Rs. 923,591 thousands in 2014. The company has over 1107 employees after the demerger. ICI Businesses:

Today, ICI Pakistan’s four businesses,1. Polyester 2. Soda Ash 3. Chemicals 4. Life Sciences 

OVERVIEW OF CHEMICAL INDUSTRY Pakistan is the developing country but the market is

gradually come into existence in organized and unorganized sector.

Normally each year the investment is done between the Rs.550-600 billions.

The chemical industry of Pakistan is lagging behind due to some challenges: rely on its imports and foreign materials lack of industrial infrastructure and technology in

Pakistan standard not upto the mark lack of resources and weak trade policies of the

ministries

Key Players of Chemical Industry of Pakistan:

The three top players of the industry are identified on the basis of the shares trading volume. These players are maintaining their position in top companies of the chemical sector in KSE and became part of KSE-100 index since its birth and representing the chemical sector due to their excellent financial and operational performance. ICI is also the part of KSE-100 index but the major key players of this sector include: Fatima Fertilizers Company Limited Engro Fertilizers Limited Fauji Fertilizer Company Limited

Growth Pattern of ici pakistan

COMPONENTS OF WORKING CAPITAL CYCLE

Risk Management:

Audit Committee of ICI plays a vital role to manage the risk management

By internal and external audit the company improves the risk management effectiveness

The Audit Committee ensure take correct action plans and their responsibilities regarding ICI Pakistan financial statements, risk management, internal control, checking regulatory requirements, the external auditors performance and the performance of the internal audit function.

The external auditors are appointed by the shareholders on yearly basis at the annual general meeting. The in-charge of auditors checks the progress of every five years as per local regulations.

Cont…

review procedures on the regular basis

timely basis to the senior management and board of directors

Customer Strategy:

ICI Pakistan uses competitive strategy Their main focus is to target those customers who

want premium quality of goods and services and they can pay premium prices as well.

ICI Pakistan has divided their customers as a percentage of sales like Uniqema is the trading company of chemicals in United States they capture 25% sales from them. Like National starch bought 7.5%, Paints 30% and Quest 33%.

There are major consumers which are P&G, Unilever, General mills, Pepsi Co., Kimberly Clark, Sara Lee, Sygenta, Unicharm, BP Castrol, and Crown Cork.

Sales Management:

Advanced Sales : 

amount paid in advance paying money at the time when the product has been sold

Secured Sales:  When the sales are made the customer opened the letter of credit (LC) in

which the terms and conditions were given where the customer can pay their amount in different ranges between 30days, 90days or 120 days.

Credit Sales :  The credit sales only allocated to only those customers as per the

financial position of the customer. ICI Pakistan made the decision in the meeting where the list and credit limit is finalized which is sent to the sales department and the finance department.

 

INVENTORY MANAGEMENT

Distribution:ICI Pakistan has 4 warehouses:

Karachi Lahore Peshawar Islamabad

The channels of distributions of ICI Pakistan are two ways:

Factory Warehouse Dealers

Customers Factory Warehouse Customers.

Cont…

Transportation

ICI Pakistan is identified by the ICI Global Location Numbers (GLN). A location number is the numeric code that identifies any legal functional or physical entity within a business and the organization.

The efficient flow of goods and exchange of information between partners through EDI messages to identify the parties involved in the transaction e.g. buyers, suppliers, place of delivery and place of departure.

Cont…

ICI Pakistan uses 6 types of modes to move their products air truck rail 5% ship pipeline 50% chemicals transported. electronic transportation.

FINANCIAL ANALYSIS OF ICI PAKISTAN

Components of

Working Capital

Increase ∕

Decrease

Impact on Current Ratio

Stock-in-trade ↑ In recent years, the sale

turnover is increased significantly that’s why the stock-in-trade is increased in the recent years like 2014 and ultimately current ratios are improved.

Accounts Receivable ↓ The customers of the

company are made payments early which is a very healthy sign for the company as company doesn’t need to extend its credit terms with the suppliers and able to make payments on time this increases the prepayments in recent years and the current ratio improves.

Prepayments ↑ The company is able to

make prepayments due to its customers’ on time payments which make it able to avail discounts by making prepayments and current ratio improves due to this opportunity.

Components of

Working Capital

Increase ∕

Decrease

Impact on Current Ratio

Payables↑

By increasing payables the company tries to settle some of the short term payments like interest payments and this act of the company gives a positive impact on the current ratio.

Short term

borrowings

↑ Through increasing short term borrowings for financing its expansion projects’ interest payments; it tries to reduce the burden on the working capital by reducing the interest payables and also avail good credit terms from its creditors and reliefs the current ratio.

RATIO ANALYSIS OF ICI PAKISTAN

2014 2013 2012 2011 20100

1

2

Current Ratio

ICI PAK ENGRO FAUJI 2014 2013 2012 2011 20100

0.2

0.4

0.6

0.8

1

1.2

1.4

Quick Ratio

ICI PAKENGRO FAUJI

Company

2014

2013

2012

2011

2010

ICI Pakista

n

1.38 1.31 1.05 1.22 2.17

Engro Fertilize

rs

1.02 1.34 0.55 0.81 0.83

Fauji Fertilize

rs

0.67 0.77 1.14 1.04 0.86

COMPANY

2014

2013

2012

2011

2010

ICI Pakista

n

0.70 0.61 0.42 0.76 1.39

Engro Fertilize

r

0.86 1.28 0.48 0.71 0.77

Fauji fertilize

rs

0.59 0.66 1.01 0.93 0.73

COMPANY

2014

2013

2012 2011

2010

ICI Pakistan

0.11 0.10 0.09 0.5 0.85

Engro Fertilizer

s

0.12 0.20 0.09 0.03 0.11

Fauji Fertilizer

s

0.28 0.38 0.61 0.38 0.32

2014 2013 2012 2011 20100

102030405060708090

Debt to Equity Ratio

COMPANY

2014 2013

2012

2011

2010

ICI Pakistan

28.36

19.28

3.22

- -

Engro Fertilizer

s

56 77 81 79 84

Fauji Fertilizer

s

9 15 13 10 20

2014 2013 2012 2011 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

ICI PAKENGROFAUJI

Cash Ratio

2014 2013 2012 2011 20100

5

10

15

20

25

30

35

Inventory turnover Ratio

ICI PAK ENGRO FAUJI

COMPANY

2014 2013 2012 2011 2010

ICI Pakistan

6.53 6.27 5.18 7.15 6.71

Engro Fertilize

rs

12 20 30 34 32

Fauji Fertilize

rs

2 2 2 2 1

2014 2013 2012 2011 20100

2

4

6

8

10

12

Debtor Turnover Ratio

ICI PAK ENGRO FAUJI

COMPANY

2014

2013

2012

2011

2010

ICI Pakistan

8.23

7.23

4.88

5.91

8.90

Engro Fertilize

rs

- - - - -

Fauji fertilizer

s

3 11 9 1 3

2014 2013 2012 2011 20100

20406080

100120140

Creditor Turnover Ratio

ICI PAK FAUJI

2014 2013 2012 2011 2010

-150-100

-500

50Operating Cycle

ICI PAK FAUJI

COMPANY

2014

2013

2012

2011

2010

ICI Pakista

n

37.55

42.23

46.87

37.17

40.06

Engro Fertilize

rs

- - - - -

Fauji Fertilize

rs

124 42 6 11 6

COMPANY

2014 2013 2012

2011

2010

ICI Pakistan

26.51 27.66 18.94

19.28

20.03

Engro Fertilize

rs

- - - - -

Fauji Fertilize

rs

-119 -29 5 -8 -2

Relationship of Current Ratio with Profitability in Case of ICI Pakistan:

Year Current Ratio

Net Profit Ratio

Relationship

2010 2.17 6.91 -

2011 1.22 ↓ 4.31 ↓ Positive

2012 1.05 ↓ 2.81 ↓ Positive

2013 1.31 ↑ 3.19 ↑ Positive

2014 1.38 ↑ 4.45 ↑ Positive

FUTURE financial PLANS of ici pakistan.

In 2015:-ICI Pakistan is going to invest in several new projects including a coal fired power plant with process steam extraction at the Soda Ash Plant in Khewra and a power and steam project at the Polyester site in Sheikhupura.

In 2016:-Investment of Rs 960millions in a joint venture with Unibrands Private limited in the existing business of import and distribution from which they will launch NutriCo manufacture Morinaga milk a japan’s formula for infants.

CONCLUSION

The company faces worst financial shocks in FY12 due to the demerger of ICI Pakistan from Akzonobel Pakistan and acquired by the Younas Brothers in the same year.

Cont… The company moves towards the

aggressive financing instead of conservative financing and relies more on debts than equity financing. Company also have expansion and diversification plans in the coming years.

Cont…

The company has mitigated the risk partially by introducing new brands and continuous engagement with the policy makers in the Government.Their main focus is to target those customers who want premium quality of goods and services and they can pay premium prices as well.

Cont…

Company tries to improve its financial position by making its working capital efficient and tries to maintain its financial position in line with the industry but successful to some extent.

RECOMMENDATION

The company should focus on decreasing receivable turnover days so that the collection is faster and can be invested quickly and increase the gross and net profit as per the industry trend.

Cont…

Company should efficiently manage their long term loans otherwise long term debt definitely hurts the company’s financial situation.