Industry overview The decorative paints market in recent times has seen an onslaught of aggressive competition by both local and multi-national players. With local competitors starting to make forays into the premium segment, ANPL with its Dulux brand responded with rolling out its largest ever ATL Media Campaign in 2016. Though this increased turnover, the additional expenses decreased the bottom line in 2016.
ANPL's performance coating business consists of seven sub business units. Specialty finishes is the largest segment followed by protective coatings, vehicle refinish and metal coatings. The specialty finishes segment is focused on automotive sector, supplying coatings to tractor, passenger car, commercial vehicle and motorcycle manufacturers. Thus increases in vehicle production and sales favourably affects AkzoNobel's turnover.
The specialty chemicals business is categorized into five segments with each segment providing a range of products and solutions to a wide array of industries. APNL supplies specialty chemicals to the construction, paint, sugar, and pharmaceutical sectors among others. On the back of CPEC, construction is expected to rise especially with the housing boom, which has increased demand for paint as well. The bumper sugar crops this year should result in increase in sales of chemicals used by the intermediate sugar segment.
Operational overview Though AkzoNobel has not reached the peak of its production that it did in 2013, its production volume has been increasing steadily over the last 3 years. Furthermore, ANPL has been working towards its operational eco-efficiency side resulting in a 22 percent decline in hazardous waste generation.
Financial overview The latest financial results posted by AkzoNobel for 1HFY17 saw a healthy growth in the top line as well as the bottom line. Increased channel engagement, launch of innovative products, increase in demand for automotive OEMs and the commencement of CPEC projects have resulted in growth of sales.
Sales in the paints division of AkzoNobel were also promoted through an effective media campaign to support DuluxWeathershield paints through all major TV channels. The turnover of the tractor industry also continued to rise as a result of a favourable change in the sales tax rate and government subsidies. AkzoNobel was also able to sell paints and coatings to new energy and industrial projects.
Oil supply reduction agreement by Opec at the start of the year gave rise to higher raw material prices. This, along with global supply shortages, resulted in higher cost of sales. Despite higher cost of sales and marketing expenses, ANPL saw significant growth in the bottom line and EPS.
Future outlook As energy supply shortages ease somewhat, prospects for AkzoNobel within Pakistan's economy appear positive. Accelerating progress on CPEC related projects and increased focus of federal and provincial governments on developments project in view of anticipated elections in early 2018 bode well for the business.
Paints and varnishes sector grew by 21.28 percent as per the Pakistan Economic Survey 2015-2016. A report by SBP indicates that housing finance portfolio increased by 5.42 percent in the second half of 2016 as compared to the first half. Taking this as one of the indicators of the boom in the housing sector, the paint industry is expected to continue increasing.
As the construction sector and paint sector rise, so do the cement sector, resulting in an increase in sales in ANPL's specialty chemicals that cater to these industries. With sugar production likely to rise in FY18, the demand for AkzoNobel's chemicals used by sugar intermediaries should rise as well.
2016 was a good year for tractors, with production and sales of tractors at a year high. AkzoNobel partners with Millat tractors and Al-Ghazi to become the primary supplier of coatings in the tractor segment. Millat tractors in particular achieved high growth with sales and production numbers rising by nearly 70 percent in FY17, which bodes well for ANPL specialty chemicals segment.
The commercial vehicle segment also reflected an upsurge in sales. APNL has partnered with HinoPak whose production of trucks increased by 21 percent though production of buses declined, in FY17.
If Pakistan's economy continues to remain stable, CPEC and the rise in industries to which ANPL caters to should enable it to continue earn healthy profits.
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2016 2015 2014 2013 2012
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Profitability ratios
Gross profit margin (%) 42 41 36 37 33
Net profit margin (%) 10 11 9 12 8
Return on equity (%) 22 27 27 30 7
Efficiency Ratios
Asset turnover (times) 1.01 1.17 1.23 1.24 0.65
Current asset turnover (times 1.7 1.84 2.01 1.97 0.85
Inventory turnover (days) 54 48 58 65 78
Liquidity Ratios
Current ratio 2.05:1 2.08:1 1.82:1 2.00:1 4.25:1
Quick ratio 1.72:1 1.79:1 1.54:1 1.54:1 3.82:1
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Source: company accounts
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Pattern of Shareholding
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Shares held Percentage
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Directors, CEO and their spouses and minor children 70 0
Associated Companies, Undertakings and related parties 35,209,665 75.81
NIT & ICP 0 0
Banks, DFI & NBFI 2,197,988 4.73
Insurance Companies 1,392,466 3
Modarabas and Mutual Funds 701,668 1.51
Shareholders holding 10% 35,209,665 75.81
General Public (Local) 5,184,454 11.16
General Public (Foreign) 0 0
Others 1,757,009 3.78
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Source: company accounts
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Akzo Nobel Pakistan Limited - condensed profit & loss account
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Rs(000) 1HFY17 1HFY16 YoY
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Net Sales 2,927,312 2,632,338 11.2%
Cost of sales -1,757,229 -1,496,093 17.5%
Gross Profit 1,170,083 1,136,245 3.0%
Selling and Distribution expenses -577,099 -598,704 -3.6%
Administrative and general expenses -163,794 -160,287 2.2%
Operating Profit 429,190 377,254 13.8%
Finance cost -640 -3,580 -82.1%
Other charges -34,632 -31,837 8.8%
-35,272 -35,417 -0.4%
Other income 58,902 84,410 -30.2%
Profit before taxation 452,820 426,247 6.2%
Taxation -157,673 -167,241 -5.7%
Profit after taxation 295,147 259,006 14.0%
EPS (Rs) 6.36 5.58 14.0%
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Source: company accounts
Copyright Business Recorder, 2017