ICI PAKISTAN LTD.

a critical analysis of

company and it’s policies

PRESENTED TO

ALI RAZA SYED

PRESENTED BY

RABIA AMEEN

AHSAN SHARIF

ADIL GHAFOOR

ADEEB ASLAM

YOUSAF BAJWA

ICI has consistently developed new and innovative areas of businesses, since its formation in December 1926, by the merger of four of the largest chemical companies in the UK. ICI today is a collection of world class businesses, many of them leaders in their sectors. They are strongly led, technologically sophisticated with healthy and sustainable long-term growth-prospects .

ICI’s paints brands are some of the most successful in the world. It’s starches and adhesives find their way into everything from foods to building materials, and from sports shoes to medical electronics. It’s lubricants make vehicle transmission and fridges run smoothly, and the vital ingredients in many personal and household care products come from ICI. .

ICI brings together a family of businesses with an impressive record of innovation and an ability to meet the changing needs of an increasingly global marketplace. The Company has a range of over 50,000 products, more than 38,000 employees and over 200 manufacturing facilities in 55 countries throughout the world. .

ICI Pakistan Limited is a 75.81% owned subsidiary of ICI Plc, UK. It was set up as a public limited company in Pakistan in 1952. ICI’s presence in this part of the world, however, predates the formation of the public limited company and indeed, Pakistan itself. The Khewra Soda Ash Company, a predecessor of ICI Pakistan Limited, set up a soda ash manufacturing facility in Khewra in 1944 with a capacity of 18,000 tonnes per annum. This facility was sited next to the salt range as rock salt and limestone; two key raw materials for manufacturing soda ash were available here in abundance.

M J Jaffer Steve Hamlett

(Chairman) Tariq Iqbal Khan

Azhar A Malik Waqar A Malik

(Chief Executive) Khursheed Marker

Syed Imran Agha M Nawaz Tiwana

Philip Gillett Feroz Rizvi

M J Jaffer M Nawaz Tiwana

Steve Hamlett Steve Hamlett

Khursheed Marker Azhar A Malik (by invitation)

Feroz Rizvi (by invitation)

John Way (Group Internal Auditor – by invitation)

Feroz Rizvi

Nausheen Ahmad

Azhar A Malik Waqar A Malik

Syed Imran Agha Jehangir B Nawaz

Nausheen Ahmad Feroz Rizvi

Malik M Akram Muhammad Zahir

Pervaiz A Khan

ABN AMRO Bank NV. Askari Commercial Bank Limited

Bank Alfalah Limited Citibank NA

Deutsche Bank AG Faysal Bank Limited

Habib Bank Limited Meezan Bank Limited

Muslim Commercial Bank National Bank of Pakistan

Oman International Bank Standard Chartered Bank

Union Bank Limited United Bank Limited

The Hongkong and Shanghai Banking Corporation Limited

Pakistan Kuwait Investment Company (Private) Limited

Taseer Hadi Khalid & Co., Chartered Accountants

ICI House, 5 West Wharf, Karachi-74000

Tel: 111-100-200, 2313717-22 Fax: 2311739

The company's first manufacturing plant, for Soda Ash in Khewra, was established over fifty years ago and since then, it has progressively moved to produce a diversified range of products like Paints, Polyester Fibre, Agrochemicals, Specialty Chemicals, Polyurethanes and Sodium Bicarbonate. ICI Pakistan also markets and toll manufactures Pharmaceuticals & Animal Health products besides marketing a range of Industrial Chemicals and Seeds. The trading business of the Company represents Principals across the world for ex-stock and indent sales of a range of industrial products including Polyurethanes, Acrylics and Water Treatment Chemicals.

ICI Pakistan was a pioneer in the PSF industry, which it entered into in 1982, with the commissioning of a 12, 000 tpa plant at Sheikhupura, at a cost of Rs 630 million. Successive expansions thereafter have brought polymerization capacity to 91,000 tpa (1997), which includes 60,000 tpa PSF capacity. The most recent expansion was at an estimated cost of Rs 3.2 billion, using DuPont technology.

PSF is blended with cotton and other manmade fibres such as viscose and acrylic to produce blended yarn. The future outlook for PSF demand is optimistic, based on factors including:

• a growing local population;

• limited cotton acreage;

• expanding export demand for higher value added textiles;

• a large spinning industry;

• government incentives for blended textiles.

Subsequent to the second capacity expansion, ICI Pakistan set up a wholly owned subsidiary, ICI Pakistan PowerGen Limited in 1993, a 14 MW power generation plant, in order to ensure an uninterrupted power supply for smooth plant operations and meet its increasing demand for power. ICI PowerGen, in addition to meeting the power requirements of the Polyester Plant, also provides power to other industrial customers in the vicinity.

The Polyester Plant produces premium grade polyester staple fibre, with the brand name, Terylene, which has a national image of consistency and quality. Further commitment to international standards was proven by the Business’ ISO

9002 certification in 1999. ICI Polyester takes pride in its professional relationship with customers and has proven time and again to be a responsible supplier, adhering to business principles and code of ethics.

ICI Polyester is conscious of its social responsibility, and participates in community welfare projects in areas surrounding its plant. The Polyester plant at Sheikhupura was also recognized for its environmental consciousness when the WWF survey confirmed existence of a number of rare species of plant and animal life on the plant site.

ICI Polyester remains committed to the Textile Industry of Pakistan and believes in continuous improvement in all aspects of the Business to benefit its customers.

The ICI Pakistan Polyester Fibres business is a customer-driven business, providing a consistently high quality of product and after-sales service. In view to the growing demands for value-added/specialist products, ICI’s Polyester Fibres business has expanded its product portfolio providing their customers with a distinct edge over their competition. These products include

Product with Super Brightness to cater for broad-spectrum usage.

Minimizing pilling when fabrics are subjeced to heavy industrial wshing.

Fine Denier product to improve both yarn strength, output and quality.

The Soda Ash Plant is located in the northern part of Punjab at Khewra, District Jhelum. The initial work of setting up a soda ash plant at Khewra site dates back to 1929, however, commercial production began in 1944. The original capacity of the plant was 18,000 tonnes per annum that has increased to 200,000 tonnes per annum through a number of expansion projects. The plant is currently meeting about 80% of the Country's requirement for Soda Ash, and by using locally made equipment and raw materials, provides savings to the Nation's foreign exchange reserves.

Soda Ash is an essential raw material used in the manufacturing of Glass, Detergents, Caustic Soda, Soap, Paper, Textile, Water Softener, Petroleum, Washing and Laundry Soaps.

The major raw materials used in the manufacturing of Soda Ash are Salt, Limestone and Coke. Salt and Limestone are locally available at Khewra, in abundance, whereas Coke is procured from the Pakistan Steel Mills, Karachi. Other essential requirements are Natural Gas, Furnace Oil, Ammonia and Water.

The product range was diversified in 1995 with the commissioning of a 10,000 MT Refined Sodium Bicarbonate Plant.

The basic raw materials for its manufacture are soda ash and carbon dioxide, both of which are available at the Khewra Works. The Soda Ash Business strives for continuous improvement of its already excellent SHE record. This commitment is demonstrated by the prime position given to SHE in all aspects of Business operations, and the programmes in place. In 1998, ICI Pakistan was the joint winner of the Chief Executive's Safety Award through the Soda Ash submission of ‘SITARA', safety through teamwork.

The quality initiative was first introduced at the Soda Ash Business in 1985 with a fundamental part of ‘Total Quality' being the implementation of management systems based on the principle of prevention. Subsequently, the process of Quality Improvement Teams was introduced, which improved the quality of the products and operating efficiencies. Currently, the Business is working to implement International Quality Standards (ISO-9002) in all areas of its activities.

The Soda Ash Business employs 550 permanent Staff and has 2500 people who work as Contractors and Suppliers. Most of the permanent employees are provided housing facilities on the Company's well developed residential estates. Other facilities like the Winnington School, Alkali Sports Club, Winnington Club,

hockey & football grounds, squash courts, 20 bed Winnington Hospital, with a full time Medical Superintendent and a Lady Medical Officer supported by visiting specialists and a well trained paramedical staff, are also availed by the employees. As part of its community development initiatives, the Business routinely extends support to local schools, colleges, parks and other institutions in the area.

ICI today is one of the world’s largest manufacturers of paints. With acquisitions in the Americas and Europe it produces and sells over a billion litres of paint annually. In 1965, ICI UK acquired a 50% interest in a paints company situated at Ferozepur Road, Lahore Pakistan and changed its name to Paintex Limited. In 1973 the new Company was converted into a Public Limited Company. The paints manufacturing capacity of the plant was upgraded and enhanced in 1981 and since then the Business has proceeded progressively to consolidate market share in the major segments of the decorative, automotive, industrial and refinish paints market. It has now become the undisputed leader in all the three segments.

The Refinish and Industrial Businesses were recently divested by ICI Plc to PPG. However the agreement excludes the sale from the portfolio in Pakistan. Hence these businesses will continue to be retained by ICI Pakistan and will have the additional advantage by accessing support from the new parent. PPG is today among the World market leaders in Refinish and OEM businesses. Hence ICI Paints in Pakistan will enjoy the benefits of both the old ICI Autocolor umbrella and the new innovative edge of PPG through a licensing agreement and be able to further consolidate its position in both segments i.e Refinish and Industrial Paints.

With production of nearly thirteen million litres, ICI Pakistan ‘touches the lives' of home owners, architects, paints retailers and painters, with colour throughout the country. ICI's Dulux, Duco and Paintex brands have become as much a part of the painter's vocabulary as colour choice. Dulux is a premium quality brand which provides its users the key desired attributes of premium paints - a beautiful, durable and smooth finish. Dulux has a robust range of quality products which includes premium quality interior and exterior paint, enamel and primers.

ICI Pakistan Paints has once again taken the initiative of providing the very best to its consumers by launching Master Palette, the most technically advanced tinting system that gives the consumer a choice of 6,134 discernibly different colours. From the brightest ambers to the softest pastels, from the coolest blues to the ripe reds, the Master Palette offers a plenitude of 6,134 colours to match every environment and mood.

The Paints Business accounts for nearly 20% of ICI Pakistan's annual turnover and contributes nearly 24% of the Company's profit. The impressive growth recorded by the Paints Business through aggressive marketing and refined brand management is a success story where the vital ingredient has been consistently superior quality and focus on customer satisfaction. By offering technical and free colour advisory service, ICI has set a high value on being able to advise and assist the customer about his needs for specialised applications, and resolving problems of technical specifications for the use of paints under varying conditions. Access to research and technical capability of ICI in the United Kingdom and worldwide, and Japanese collaboration and technology, often enables ICI Pakistan to serve the special needs of customers in Pakistan. The factory produces pre-treatment chemicals, conventional paints, chlorinated rubber paints, epoxy paints, heat resistant paints, automotive refinish paints, stoving paints and varnishes and Nitrocellulose based finishes.

ICI Autocolor Business, a part of ICI Pakistan Paints, is a market leader in the manufacture of paints for cars and vehicles for their repair and refurbishment.

Recently, the Company established a state-of-the-art Technical Training Centre for refinishes training, the first of its kind from a commercial enterprise in Pakistan.

The Business has a comprehensive safety, health and environment programme that receives the highest priority to ensure that the Company complies with all regulations and meets ICI international standards, both internally and externally. The recent launch of the Product Stewardship Programme is a clear indicator that ICI Pakistan is committed to pioneering SHE initiatives in the paint industry in Pakistan.

In 1998 the Paints business was awarded MRP (Manufacturing Resource Planning) II Class A for excellence in overall business operations. ICI Paints is the first company in Pakistan and 23rd in the world to be awarded MRP II Class A. ICI Paints is also the first paint company in Pakistan to receive ISO 9001 certification in all it's disciplines and it became the 3rd company in all of Pakistan to achieve the ISO 14001 certification for environmental management system. The achievement of MRP II Class A accreditation and ISO certifications is not only a reflection of commitment to excellence in service standards, customer satisfaction, safety, health and the environment but also in the pursuit of being among the world's best.

The ICI Pakistan Chemicals Business comprises of a unique and diversified portfolio encompassing Uniqema, Polyurethanes, and a Trading concern that includes representation of ICI Businesses, such as National Strach and Chemical, Chlor Chemicals, Synetix, Crosfield and as well as former ICI Businesses such as Tioxide, supplemented by imports of complementary product lines from non-ICI companies in the USA, Europe and Far East. The Business markets a diversified product range used for various applications by nearly every industry in Pakistan, prominent amongst which are textiles, paints, pharmaceuticals, personal care, food & beverage, detergents, footwear and household appliances.

In June 1999, ICI plc completed the sale of its Polyurethanes and titanium dioxide (Tioxide) business to Huntsman Corporation, USA. ICI will, however, retain a 30 percent stake in the above businesses, for a minimum of three years, through a new company Huntsman ICI Holdings, which will be 60 percent owned by the US company and remaining 10 percent by financial institutions.

This divestment excludes ICI's interest in Polyurethane and Tioxide in Pakistan and as such ICI Pakistan retains these businesses within its portfolio and will continue with them with full support from Huntsman. As Polyurethanes will be a core business for Huntsman, ICI Pakistan expects to have more focused resources available for business development.

The Uniqema Business at ICI Pakistan includes the manufacture and marketing of textile auxiliaries, adhesives and paint lattices, and the trading of personal care products to a wide range of industries. The Uniqema plant at Karachi was primarily designed to manufacture a range of textile auxiliaries. Today, with a capacity of 4,000 tonnes it manufactures and formulates a range of over 60 products used in industrial processing that call for Specialty Chemical applications. The products manufactured include textile auxiliaries for applications in preparation, dyeing and finishing of fabrics, PVA based lattices for paints, PVA based adhesives for the woodwork and packaging industries, and products for supply to end users in the jute, leather and paper industry.

For Polyurethanes, ICI Pakistan has its own blending unit with an installed capacity of over 2,000 MT/ annum with three shifts operation. It produces rigid Polyol, which is one of the two components used in thermal insulation of appliances and panels for cold storages. The various industries that the

Polyurethanes Business caters to are appliances, construction, footwear, transport and furniture. PU chemicals are also used in chemical plants and animal houses such as poultry sheds, etc. Apart from local blending, PU chemicals are also sold on direct indent and ex-stock basis for different applications.

In PU, ICI Pakistan is the market leader, in all major SBU's, with an overall share of about 63%. Polyurethanes will spearhead Huntsman/ICI's strategy to expand downstream into more specialised markets by offering globalisation and diversity. Since PU is a core business for Huntsman, more resources will be available for its development in Pakistan.

The Business handles a diversified product range from specialised chemicals used for water treatment to basic commodity chemicals used in a variety of industries including fertilizer, cement, polyester, oil and gas, plastics and paints. These products originate from ICI companies worldwide and from non ICI companies globally for whom the Business acts as agent.

The products are sold both on ex stock and indent basis directly to the customers or through commercial importers/distributors to achieve a wider market coverage.

ICI Pakistan Agrochemicals and Seeds Business ranks as one of the leading providers of Agro products in the country. Initiated in 1951, it is one of the fastest growing businesses of the company. In tandem with having five regional offices across the country in Sahiwal, Multan, Vehari, Rahim Yar Khan and Hyderabad, the Business has established a wide dealer network, which cater to the requirements of the farmers. The Business acquires it products from Zeneca PLC UK along with a host of other companies, both in Europe and Asia. The Seeds Business was launched in 1991 and in a short span of time, the Business has emerged as a market leader in both the hybrid sunflower and fodder segments and has depicted steady growth in the maize segment.

The Business places special emphasis on caring for the environment, safety, product stewardship, farmers education and training and health of its employees. It is the winner of the Chief Executive’s Safety, Health and Environment Award for 1996 and 1999. The Business was also a recipient of commendation from ICI’s PLC Chief Executive for Product Stewardship.

ICI Pakistan's Pharmaceuticals Business markets prescription drugs with a strong portfolio of innovative medical products from Astra Zeneca Pharmaceuticals UK. A focused portfolio of products is at present maintained, with strong representation in the cardiovascular, oncology and anaesthetic segments. The product range consists of Tenormin, Inderal, Zestril and Etizem (cardiovascular); Nolvadex and Zoladex (oncology); Diprivan (anaesthesia); Proxen and Synflex (NSAIDs) and Meronem (antibiotic).

ICI Pharmaceuticals' strength is in cardiovascular drugs with Tenormin, a product used for controlling hypertension and the market leader in its therapeutic segment. In addition, Inderal, Zestril and Etizem complete a comprehensive

portfolio of cardiovascular drugs, meeting the needs of treatment required to be given to patients. ICI Pharmaceuticals also specialises in drugs for the treatment of cancer. Presently, the product portfolio consists of Nolvadex, used for the treatment of breast cancer, and Zoladex, an advanced technology drug used in the treatment of prostrate cancer. Future expansion of this range will result in new therapies being introduced to further broaden the availability of cancer treatments in Pakistan.

ICI Pakistan Pharmaceuticals imports finished products and also uses toll manufacturing facility for local manufacturing from imported raw materials. At present the Business, including its Animal Health division, has a staff strength of over 120 personnel, located across Pakistan.

The Animal Health Business of ICI Pakistan is involved in the marketing of veterinary medicine for use on livestock. The portfolio consists of animal health products from Schering-Plough Animal Health Corporation. Products in the locally formulated category are liquid formulations of Nilzan, Nilverm, Zanil and Systamex, and the Business imports specialised products for direct sale in the market.

ICI Animal Health has the largest market share of the livestock market segment in Pakistan, and its products are respected in the industry as market leaders. The Business acts principally as a selling unit employing 27 staff stationed in key regions of Pakistan, to allow focused selling to farmers and government institutions.

The ICI Group comprises the International Businesses of National Starch and Chemical Company, Quest International, Uniqema, and ICI Paints - as well as the Regional & Industrial Group, made up of businesses which are more regional in their scope with principal locations in India, Pakistan, and Argentina.

ICI has world-class businesses, many of them leaders in their sectors, are strongly led, technologically sophisticated and profitable.

The paints brands are some of the most successful in the world. ICI create some of the world's top-selling fragrances. ICI’s starches and adhesives find their way into everything from foods to building materials, and from sports shoes to medical electronics. ICI also develops lubricants that make vehicle transmissions and

fridges run smoothly, and The Vital Ingredient in many personal and household care products comes from ICI.

ICI has changed so much and so quickly that sometimes it’s been difficult for those outside the company to keep up. The fast pace of change has meant than many former operations now belong to other companies.

ICI Paints

Natinoal Starch and Chemical

Quest International

Uniqema

R and I

ICI Argentina

ICI India

ICI Pakistan is the 7th largest company in the KSE 100 index, where it is listed.

The company is the leading multinational organizations working in Pakistan in the chemical industry. Following is analysis of ICI for the current period.

ICI Pakistan Limited(ICI). The Group's principal activities are to manufacture polyester staple fibre, POY chips, soda ash, paints, specialty chemicals, sodium bicarbonate and polyurethanes. The Group is also engaged in the formulation of agrochemical, marketing of seeds, toll manufactured and imported pharmaceuticals and animal health products and machinating of general chemicals. Polyester accounted for 42% of 2001 revenues; soda ash, 26%; paints, 16% and others, 16%.

ICI Pakistan Limited reported sales of 10.55 billion Rupees (US$181.60 million) for the year ending December of 2001. This represents a sharp decrease of 35.3% versus 2000, when the company's sales were 16.30 billion Rupees. Contributing to the drop in overall sales was the 3.4% decline in Paints, from 1.78 billion Pakistan Rupees to 1.72 billion Rupees. . However, these declines were partially offset by the increase in sales of Polyester (up 4.7% to 4.45 billion Rupees) and Soda Ash (up 11.9% to 2.76 billion Rupees) .

ICI Pakistan Limited currently has 1,435 employees. With sales of 10.55 billion Rupees (US$181.60 million), this equates to sales of US$126,550 per employee.

During the 12 months ending 9/30/02, ICI Pakistan Limited paid dividends totalling 2.00 Rupees per share. Since the stock is currently trading at 48.00 Rupees, this implies a dividend yield of 4.2%. During the same 12 month period ended 9/30/02, the Company reported earnings of 9.27 Rupees per share. Thus, the company paid 21.6% of its profits as dividends.

The10.55 billion Rupees in sales reported by the company in 2001-02, the cost of goods sold totalled 7.53 billion Pakistan Rupees, or 71.4% of sales (i.e., the gross profit was 28.6% of sales). This gross profit margin is better than the company achieved in 2000, when cost of goods sold totalled 73.3% of sales. In 2001, the gross margin was the highest of the previous five years (and in 1998 was as low as 14.6%).

The company's earnings before interest, taxes, depreciation and amorization (EBITDA) were 1.98 billion Rupees, or 18.8% of sales. This EBITDA to sales ratio is roughly on par with what the company achieved in 2000, when the EBITDA ratio was 19.1% of sales.

In 2001, earnings before extraordinary items at ICI Pakistan Limited were 395.08 million Pakistan Rupees, or 3.7% of sales. This profit margin is an improvement over the level the company achieved in 2000, when the profit margin was -10.8% of sales. The company's return on equity in 2001 was 11.6%. This was significantly better than the -17.7% return the company achieved in previous year.

As of December 2001, the value of the company's inventory totalled 2.65 billion Rupees. Since the cost of goods sold was 7.53 billion Rupees for the year, the company had 128 days of inventory on hand (another way to look at this is to say that the company turned over its inventory 2.8 times per year). This is an increase in days in inventory from December 2000, when the company had 2.13 billion Pakistan Rupees, which was only 65 days of sales in inventory.

Polyester Staple Fibre Fibre production for the quarter ended 30 September 2002 at 23,855 tonnes was 27% higher compared to the corresponding quarter last year. Production for the nine months was also 25% higher than the corresponding period last year, following commissioning and commencement of commercial production from the 44,000 tonnes per annum expansion of the spinning and processing plant carried out through Fayzan Manufacturing Modaraba.

Upon strong representation by the Polyester Fibre Manufacturers Group, PSF’s exclusion from the ambit of Duty and Tax Remission for Export (DTRE) was confirmed following the Budget 2002-03 proposal of its inclusion. This decision has prevented the closure of the domestic PSF industry, especially in the backdrop of a huge domestic overcapacity following on from the commissioning of expansions by both ICI Pakistan and Ibrahim Fibres and the reduction in import tariff from 25% to 20%.

Adequate levels of duty drawback rates for textile exporters and strengthening of cotton prices led to buoyant demand for PSF during the quarter. This,together with a higher level of fibre production resulted in sales volume being 8,471 tonnes higher than the same quarter last year, and this included 3,514 tonnes of exports. Sales for the nine months to 30 September 2002 were 33% higher than the corresponding period last year. Reduction in import tariff by 5%, continued strength of the Pakistani rupee against the US dollar and huge overcapacity in the local market, resulted in unit margins coming under severe pressure. Consequently, despite significant increase in volume sold, the Business had an operating loss of Rs 1.2 million, compared to an operating profit of Rs 50.8 million in the same quarter last year. Operating profit for the nine months ended 30 September 2002 at Rs 13.6 million was also substantially below the profit for the corresponding period last year by Rs 271.2 million.

Production for the quarter at 57,385 tonnes was marginally higher than the previous quarter and 6% higher than the same quarter last year. This level of quarterly production was a new record and was achieved on the back of full realisation of the benefits of the Automation, Power Co-generation and De-bottlenecking projects, together with ongoing process improvements and enhanced plant reliability.

Production for the nine months ended 30 September 2002, however, at 162,279 tonnes was marginally lower than the corresponding period last year by 904 tonnes due to the plant shutdown for tie-in of the expansion project originally planned for Q4 2001 but delayed to Q1 2002 due to non-availability of commissioning engineers following the events of September 11, 2001. The Business also experienced unprecedented gas load shedding in February 2002. Despite these constraints, conversion efficiencies were better than the corresponding nine months of 2001.

Process improvements on the refined bicarbonate plant enabled the Business to increase output as a result of which, production for the quarter under review was 42% higher than the same quarter last year. The soda ash market contracted by 2% during the nine months to 30 September 2002 compared to the same period last year as all major segments except Silicate have shown a decrease in demand. The market remained affected by the continuing slump in the Bazaar segment, which is the largest consumer of soda ash.

Consumption by other major segments, Paper and Glass, also remained marginally lower than the previous quarter. Consequently, soda ash sales during the quarter at 53,394 tonnes were 7% lower than Q2 2002 and also 8% below the same period last year. For the nine months to 30 September 2002, sales at 162,647 tonnes were 7% lower than the comparable period last year. Sodium bicarbonate sales, however, at 3,380 tonnes were 7% above the preceding quarter and 29% higher than the same period last year. On a year to date basis too, sales were 11% higher than the comparable period of 2001.

Regionally, the excess supply of soda ash persisted, particularly in China, putting intense pressure on prices. This, together with the reduction in import tariff from 25% to 20% in the Federal Budget 2002-03 and the strengthening of Pakistani rupee against the US dollar necessitated a reduction in selling price with effect from 15 July 2002 in order to remain competitive against imports. As a result of the lower sales volume, reduced selling prices and higher variable cost due to gas price increasing by 8% in January this year, operating profit for the nine months ended 30 September 2002 at Rs 388.8 million was 7% below the same period last year.

Market conditions showed very little improvement over the previous quarter due to the ongoing volatile law and order situation in Karachi and an extended monsoon season in the North of the country. Liquidity remained tight as competitors struggled to push sales in a depressed market. While premium brand sales from the Decorative segment and entire Refinish segment continued to suffer, off-take of more affordable lower tier Decorative paint was strong. Additionally, demand from the Other Equipment Manufacturers (OEM) sector of the Industrial business remained robust and demand for commercial vehicles was firm on the back of higher production levels at major car manufacturers. Consequently, despite the dull market conditions, sales volume for the quarter was marginally higher than Q2 2002 but 13% higher than the corresponding period last year as markets gradually recovered post the September 11, 2001 events. For the nine months ended 30 September 2002, overall sales volume was also 7% higher than last year. The Business continued to reduce its cost base, which together with lower import prices of raw materials due to the appreciation of the Rupee against the Dollar resulted in operating profit for the quarter being marginally above the immediately preceding quarter but 42% higher than the same quarter last year. Operating profit for the nine months ended 30 September 2002 was also 25% higher compared to the same period last year.

In Pharmaceuticals, following the removal of General Sales Tax (GST) from a number of life saving drugs, the Government, upon strong representation from consumers, announced the reversal of GST on all pharmaceutical products in August. Whilst this decision will benefit the industry in the long-run, it caused considerable uncertainty in the market during the quarter under review as distribution channels stocked substantial GST paid inventory, which could not be sold. The problem was, subsequently, resolved when the Government issued guidelines for refunds. Nevertheless, substantial sales were lost in August and early September.

Despite this setback, the Medical segment continued to leverage its leadership position in the Cardiovascular and Oncology sectors and was able to grow sales volumes by 3% for the quarter under review compared to the same period last year. For the nine months to 30 September 2002, sales volumes were 7% higher than the corresponding period last year. The Animal Health segment, however, continued to face adverse trading conditions. brought about by delayed rainfall and the liquidity crunch faced by farmers, which was further aggravated by the GST issue.

In the Chemicals Business, production for the nine months ended 30 September 2002 was 4% lower than the corresponding period last year. In Uniqema, market conditions in the value added textiles market improved as orders revived from the US, which had slowed down in the wake of September 11, 2001 events. Consequently, activity at export-oriented units was close to full capacity and this generated strong demand for Textile Auxiliaries.

In General Chemicals, the market remained flat and traders were reluctant to build inventory levels. Also, activity in key industries like cement and plastics remained below capacity. The strength of the Rupee against the Dollar also eroded the Business’s dollar based indent commissions. However, the Business was able to leverage its strong ties with major Principals and continued to develop new opportunities in the petroleum additives and hydrogenated vegetable oils industries to off s e t these sluggish market conditions. As a result, sales volumes were 24% higher than the same quarter last year and also 14% higher for the first nine months of 2002 compared to the same period last year.

In Polyurethanes, demand was robust from the Footwear and Construction sectors but was subdued from the Appliances sector. The market remained fiercely price-competitive as tariff reductions continued to lower the price differential between imported finished product and locally blended Polyol. Nevertheless, the strong performance in the Footwear and Construction sectors more than offset these adverse factors and sales volumes in this segment were 32% higher than the same quarter last year but on a year to date basis were marginally lower than the same period last year.

Overall, net sales income for the Chemicals Business at Rs. 631.0 million for the first nine months of 2002 was marginally lower than the corresponding period last year due to the lower contribution of Polyurethanes and the lower value of dollar based indent commission on account of the strong Rupee.

The operating loss of Rs 3.0 million for the nine months ended 30 September 2002 on account of an increase in furnace oil prices was substantially lower than the loss in the corresponding period last year.

So we can conclude that the chemical industry sector in Pakistan has a vast untapped potential to be used, but it is still under growth. The local companies are unable to meet the domestic sector demands for the chemicals. Therefore, we can put the chemical industry in the growing stages of industry life cycle.

ICI Pakistan is facing a tough challenge competing with the competitors in the local chemical industry. As the local chemical industry is not getting adequate support from the economic and political factors therefore the competition boils down to the quality and the price of the products.

There are several key players in the local chemical industry, major competitors of ICI include Dewan Salman Fibres ltd. , Ittehad Chemicals and Sitara Chemicals. The foreign chemical producers have also a significant impact on the local producers because of the low supply of local producers, the buyers can buy from the foreign producers. The major foreign players include the names as “Century Enka” and “J.C.T Ltd.” China is also playing a major role in the chemical industry and the Chinese products are being welcomed into Pakistan as they are cheap alternatives to expensive European or Japanese products.

Further more the advent of free trade in the year 2005 is also a problem for the manufactures of chemicals in the local markets.

The chemical industry is facing a stiff challenge in the face of increasing costs of inputs and government taxes. The production costs are rising day by day and it is very hard for these companies to improve quality. Therefore this problem is taking a serious hit on the profits of these companies.

The cost of inputs for the chemical industry in Pakistan is somewhat fixed and it is very difficult for these companies to change the cost of inputs. Also the companies are producing most of their inputs and these inputs are further used into other products from these companies. ICI is drawing the salt water from the Khewra mines near it’s vicinity free of cost under the charter of the British Rule. This salt water is then used to manufacture Soda Ash. This is a product which ICI sells separately as well as it is further used in the production of Chemicals and Paints.

Despite this fact, the profit margins are decreasing and the costs are rising.

The pragmatic solution to the above mentioned problem is to reduce the cost, not by reducing the cost of inputs, but to decrease the costs of production. Waste products are an integral part of any chemical industry. There is large amount of waste materials both in liquid and solid form. One way to reduce overhead costs is to minimize wastes and increase workers productivity.

ICI is currently having only one department for worker training and development. The basic emphasis of this department is the introduction of the SSHE plan. The SHE plan deals with industrial safety , security , employee health and environmental protection. This program mainly deals with the requirements of ISO14001 regulations.

The need is for the development of workers for increased efficiency and productivity , maintaining at the same time high standards of works and reduced wastage products.

In a study at Nissan motors, Japan. It was found out that as a group, Superintendents were aware of only 7% of the problems in the plant. Managers knew only 4% of the problems while the workers at the plant were aware of 79% of problems.

This explains how well the workers are aware of the problems in the organization and how well the first line workers can be potentially trained to make great differences in the long run to improve performance. And in a highly competitive environments even less significant differences prove to be well worth in the long run.

KAIZEN is a Japanese word meaning “change for the better” or “continuous improvement” It is a selection of better means or a change of current method for achieving an objective. In other words we can say that Kaizen is an accumulation of small changes.

Today many people know the word, and some of them can go even further to quote some technical terms to explain what it is . However we can say that no one has seen the ultimate implementation of KAIZEN as it is a never ending process. You can not be confident of KAIZEN unless you have had the experience of an implementation , because KAIZEN is not a deductive theory, it is and inductive and action based theory.

Traditionally, employees in particular first line workers are not intended to take part in any managerial programs, but this is the main difference in KAIZEN. It is specifically designed for low order workers to improve their performance. The method is given below on how to implement KAIZEN at ICI.

In the conventional management system, workers and employees are to work exactly as they are instructed in narrowly restricted job areas. Strict inspection and supervision are necessary to ensure the conformance to all standards. Employees are prohibited not to go beyond the job description and to improve their job performance.

In order to destroy conventional management system and to get rid of the groove there are two things that ICI management should do.

Management should make themselves visible on the floor, so that workers can see their management and can feel that the management is actually committed to supervise them and support KAIZEN. It is managers not the employees that change the corporate culture in the first place.

The work place is not considered to be a pleasant place by many people. Ownership plays an important role to make employees feel their work place comfortable. This also make them committed to their job. As more pleasant and comfortable the workplace is, the higher the productivity the employee show.

Recognition is one of the most powerful means to make people move forward. People want to be recognized by other people. Prizes, plaques, certificates and other methods have proven very successful to motivate people and get outstanding results from the employees.

Feed back is a pivotal part of the KAIZEN concept. Without a proper feed back it is just like firing in the dark. An employee should be given proper and prompt feedback of his activities so that he could align himself according to the goals and motives of the organization. Target should be set and then the performance of the employees should be communicated to them.

QC or Quality circles are an important means to improve quality of the outputs and reduce the wastage costs. This is a proven method around the Globe. ICI has currently very little participation in this field of quality improvement. The main emphasis of ICI is to check the quality of the output at the final stages, whereas this process ensures the quality of the out-put during the production process and throughout.

QC are small teams or groups consisting of first line employees who continuously control and improve the quality of their work, products and services. These small groups operate autonomously , utilize control concepts and techniques and other improvement tools.

Quality circles aim to develop member capabilities and approach self actualization , make the work place more pleasant, vital and satisfying. Improve customer satisfaction and contribute to society.

In our opinion, ICI needs to reduce its overhead costs to compete with the industrial rivals at a better margin. To ensure the reduction of overhead costs, it should implement KAIZEN and Quality Circles approach and incorporate it as a management plan in all of its production facilities in the country. In doing so, ICI will be able to draw more upon it’s workers abilities and can gain competitive advantage in the long run.