Pachin

NATIONAL BANK OF EGYPT

PACHIN Profile

Paints and chemical industry , Pachin (S.A.E)

Paints and chemical industry , Pachin (S.A

.E)The Business

PACHIN is the biggest Egyptian company in paints manufacturing , and the oldest, as it has been established in 1958. Since then , we became the leading company in our field , with the biggest sales volume in Egypt in the paints field through our state-of-the-art factory in Elobour city , applying the latest technologies in paints manufacturing .

Subsidiaries:

Al Obour for Paints and Chemical Industries: The Company’s object is to establish and operate a factory for the manufacture of paints, printing inks and similar products, animal charcoal and different chemicals related and complementary to these industries, and to manufacture and package all products derived from or related thereto and producing the packaging material used by the Company.

Pachin Inks: The Company’s object is the production and packaging of printing inks and different products related and complementary to it and other chemicals the related and complimentary products and chemical products and producing the packaging material used by the Company.

Board of Director Company info

NamePaints and chemical industry , Pachin (S.A.E)

Legal StatusEgyptian Joint Stock Companyquoted private company

Address -Head Office:1, Elmassanie Street , Elamiriya , P.O. Box 11887 , Cairo , Egypt

Telephone: +2 (02) 2 282 8980+2 (02) 2 282 6731+2 (02) 2 282 1036Fax: +2 (02) 2 284 4473Email: [email protected]

PositionName

Chairman & Managing DirectorShreif Mahmoud Shawky

Board MemberMr. Magdy Mohamed Said

Board memberMr. Fathi Isamil

Share holder structure

PositionName

39.75%Chemical industry holding

2.2%National bank of Egypt

58%Others

COMPANY PRODUCTS

Products

Paints and chemical industry , Pachin (S.A.E) Products Divided into three types of product.

Decorative Paints Industrial Paints Printing inks

Products

Classification of the Painting that the company produce;

2. Construction Product.

3. Lakee Product

4. Plastic painting Product

5. Wood Painting Product


.E)

Risk Analysis Paints and chemical industry , Pachin (S.A

.E)

• Raw materials are divided into three major groups, namely, pigments (titanium dioxide, zinc oxide etc.), solvents (mineral turpentine) and resins and additives.

• Asian Paints is the only paint company that manufactures PAN. The other paint companies have to import their stock. Since PAN prices generally outpace international orthoxylene prices by almost 50% paint companies end up paying a fortune when prices rise. In such a situation Asian Paints benefits by selling PAN in the open market.

• The company operates several subsidaries such as Berger International Limited, Apco Coatings, SCIB Paints and Taubmans.

• High cost and erratic availability of raw materials mark the Indian paint industry. Around 300-400 raw materials are required to manufacture different kinds of paints. The high number of raw materials and finished goods highlights the working capital intensity of the sector.

• Most of the raw materials are petroleum based. Thus paint companies benefit when the petrochemical industry goes into its cyclical downswing. A hike in the price of petroleum products raises input costs negating the impact of a cut in import tariffs on raw materials.

• Raw materials frequently run into short supply, resulting in high inventory cost. The shortage of one specific material could result in severe manufacturing problems It is estimated that 18-20% of the total raw materials used the industry are imported.

Supply Risk

Risk Analysis

• The paint industry is raw material intensive. Paint involves the mixing of various raw materials in various proportions. The raw materials are of a wide variety. On an average, raw materials account for 60% of net sales (industry average). In case of small-scale units it forms up to 70% of the net sales.


.E)

Production Risk

Risk Analysis

Demand Risk

1. Paints and Chemical Industries Company (Pachin) dominated the market, utilising state-subsidies and the exploiting the government's 30% stake in the company (which was privatised in 1997). But since 2003, medium-sized paint companies have been making headway, although Pachin is still the market leader with a 33% market share, producing over 50,000 tonnes of paint a year for Egyptian customers.

2. Nonetheless, Pachin is facing strong competition in the market, which is estimated at over 150,000 tonnes of paint manufactured per annum. Newcomers have entered the market from Saudi Arabia, Asia and Turkey, along with new Egyptian companies. "Some are significant investments of $10 million to $15 million,“

3. Multinational paint and coating firms have also entered the market, teaming up with Egyptian manufacturers. El-Mohandes/Jotun, which has expanded from marine paints to architectural paints, has been operating in Egypt for a while now, and marine paint producer Courtalds has partnered with International Paint Egypt. Almost 10,000 Egyptians now work in paint related industries.

4. increased competition has led to smaller companies almost vanishing from the market.


.E)

• The company has low collection risk as the company sell cash due to the big market share that the company have

Collection Risk

567,428573,613557,951Total liabilities

and owners equity

389,134377,570371,972Total Owner's equity

178,143195,920185,862Total liabilities

175,148193,953183,448Total Current liabilities

31,73233,36916,837Account Payable

6,12229,94539,603Bank Overdraft

200620052004

Liabilities and Owner's equity

567,428573,613557,951Total assets

775775775Investment

200,614194,305196,638Net Fixed Assets

325,604347,141326,260Total Current assets

114,849151,952145,585Total Inventory

33,35746,02959,711Notes receivables

35,31429,14027,816Net Account receivable

60,73955,92642,441Cash

200620052004

Assets

in thousandsBalance Sheet

351,070347,493339,450Total Invested Fund

389,134377,570371,972Total equity

31,73233,36916,837Total Accounts Payable

68,67175,16987,527Total Accounts Receivable

178,143195,920185,862Total Debts

133,994165,519161,339Working Investment

150,456153,188142,812working capital

Balance SheetFIN

AN

CIAL D

ATA

FINA

NCIA

L DA

TAIncome StatementSales Revenues

Net Profit

Income Statement

200620052004

476,882444,384393,525Local Sales

100%476,882100%444,384100%393,525Total Sales

79%375,39780%357,40580%313,758COGS

21%

101,48520%86,97920%79,767

Gross Profit

0%1870%2780%230

salaries and allowances Expenses

4%20,3583%15,3114%15,705G & Admin Expenses

17%80,94016%71,39016%63,832EBIT

1%2,8441%3,6221%2,855Financial Charges

2%7,4552%7,3932%8,333Other revenue

0%1630%1,5200%169Other Expenses

18%85,38817%73,64118%69,141EBT

0%1,5470%0%Tax

-1%-2,4720%960%129Capital Gain/loss

81,36917%73,73718%69,270NET Profit/loss

0

50

100

150

200

250

300

350

400

450

500

2004 2005 2006

Th

ou

san

ds

Total Sales COGS Gross Profit NET Profit/loss

NET Profit/loss

60,000

65,000

70,000

75,000

80,000

85,000

2004 2005 2006

NET Profit/loss

21%19%18%NET Profit/ Sales

200620052004

79%80%80%COGS/ Sales

200620052004

Ratio Analysis

ROS: represent that each one pound of sales generated in net profit after tax

7%13% Sales Growth Rate

476,882444,384393,525Total Sales

200620052004

Sales: Increase in sales due to increase in the volume of sales not the price, as the firm can not pass the increase in

the price of raw material to the final consumer as there are very high competition in the market.

Industry rate represent 70 % in industry but as shown above we determine that the company can not manage cost due to dramatic increase in cost of raw material, that represent each one pound of sales is incurred 0.80 pound in COGS.


.E)

Represent that each pound in sales incurred 0.04 in G&A expenses that the result of increasing in advertising expenses and promotion exp. Of the new segment in Libya.

4%3%4%G&A Exp / sales

200620052004

2004 2005 2006

EBIT Margin % 16% 16% 17%

Represent that each one pound in sales is generating 0.17 pound in net operating profit .

21%20%20%Gross Margin %

200620052004

The reverse ratio of COGS/Sales represent that each pound in sales generating 0.20 pound in gross profit

Ratio Analysis Paints and chemical industry , Pachin (S.A

.E)

Financial Ratio

200620052004Statement

Liquidity Ratios:

1.91.81.8Current Ratio (times)

1.21.01.0Acid Test Ratio (times)

0.30.30.2Cash Ratio

150,717153,188142,812Net Working Capital (In Thousands)

135,677165,519161,339Working Investment (In Thousands)

28%37%41%WI/Sales


.E)

Working capital is decreased due to of the following :Current assets :Other current assets is increased according to purchasing treasury bills with 46 million EGP. Inventory is

declining due to decreasing the permanent level of raw materialCurrent liabilities :short term banking is decreased by 80% in 2006

WI/Sales : represent that each pound in sales the company has to finance 0.28 pound in WI, declining in working investment/ sales due to decline in raw material of inventory.

Financial Ratio


Assets utilization,& turn over ratio

3.32.42.2inventory Turn over

110153167Inventory DOH

131514Account Receivable Turn over

282425Account Receivable DOH

151323Account Payable Turn over

242715Account Payable DOH

3.23.02.8NWC turnover

1.71.71.5Fixed assets turnover

1.51.31.2Total Assets Turnover


.E)

Reliance of inventory:We can accept shrinkage in inventory up to 60% shrinkage rate.

Financial Ratio


Long Term solvency or financial leverage Ratio

31%34%33%Total debt ratio

46%52%50%debt Equity ratio


.E)

Leverage :

Leverage is declined in 2006 due to declining in short term banking

Financial Ratio


Profitability Ratios:

21%20%20%Gross Profit Margin ( %)

81,36973,73769,270Net Income (In

thousands)

17%17%18%Net Income Margin (%)

14%13%12%Return on Total Assets

(%)

21%20%19%Return on Equity (%)


.E)

55,67568,89465,785Total Permanent Fund


Desired

150,456153,188142,812working capital


Actual

55,67568,89465,785Total Permanent Fund

26,79933,10432,268WI permanent level

28,87635,79033,517Shrinkage

22,97030,39029,117inventory

5,9065,4004,400A/R

Capital structure

Capital Structure Paints and chemical industry , Pachin (S.A

.E)

37.3%33.8%33.5%WC adequacy after shrinkage

-9%-10%-10%Shrinkage in WC

296,728311,351292,743CA After Shrinkage

46.2%44.1%43.8%WC adequacy

Working Capital Adequacy

Working investment161,339

Permanent Fund55,675

STB78,319

Equity28,876

LTD26,799


.E)Capital Structure

Actual

Working investment161,339

Working Capital150,452

STB6,122

Desired