Akzo Nobel Pakistan Limited

Condensed Interim Financial Information For the Quarter and Nine months period ended 30 September 2012

Contents
Company Information

Review of the Directors

Condensed Interim Balance Sheet

Condensed Interim Profit and Loss Account

Condensed Interim Statement of Comprehensive Income

Condensed Interim Statement of Changes in Equity

Condensed Interim Cash Flow Statement

Notes to the Condensed Interim Financial Information

Company Information
Board of Directors
Mueen Afzal Jehanzeb Khan Bart Kaster Asad I A Khan
Chairman (Non-Executive) Chief Executive Non-Executive Non-Executive

James Thick Peter Tomlinson Zia U Syed

Non-Executive Non-Executive Executive

Audit Sub Committee

Asad I A Khan Mueen Afzal Bart Kaster
Chairman (Non-Executive) Non-Executive Non-Executive

Human Resource & Remuneration Sub Committee

Mueen Afzal Peter Tomlinson Jehanzeb Khan
Chairman (Non-Executive) Non-Executive Chief Executive

Chief Financial Officer

Zia U Syed

Company Secretary
Saira Soofi

Executive Management Team

Jehanzeb Khan Rizwan Afzal Shahid Sultan Butt Muddassir Khalid Fawad A A Mirza
Chief Executive Operations Manager Technical Manager (R&D) Human Resource Business Partner Business Excellence & Compliance Manager

Mohsin Raza Naqvi Imran Qureshi Syed Imran Qutab Bashar Rasheed Zia U Syed

Marketing Manager - Industrial Business Business Manager - Decorative Business Marketing Manager - Refinish Business Supply Chain Manager Chief Financial Officer

Bankers
Citibank N.A. Deutsche Bank Limited A.G Habib Bank Limited Habib Metropolitan Bank Limited Standard Chartered Bank Limited United Bank Limited

Internal Auditors
Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants

External Auditors
KPMG Taseer Hadi & Co., Chartered Accountants

Registered Office
State Life Building 1-A, Ground Floor, I. I. Chundrigar Road, Karachi - 74000 Tel: (021) 32422344, 32467406 Fax: (021) 32428310

Shares Registrar
FAMCO Associates (Pvt) Ltd 1st Floor, State Life Building 1-A, I. I. Chundrigar Road, Karachi - 74000 Tel: (021) 32427012, 32426597, 32420755 Fax: (021) 32426752

Head Office
346, Ferozepur Road, Lahore - 54600 Tel: (042) 111-551-111 Fax: (042) 35835011 www.akzonobel.com/pk/paints

Review of the Directors

For the Quarter & Nine Months Ended 30 September 2012
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 30 September 2012. Akzo Nobel Pakistan Limited was listed on the Karachi, Lahore and Islamabad stock exchanges in July 2012, and operates as a public listed company. The shares of your Company were allotted to the members in accordance with the Scheme of Arrangement for the reconstruction of ICI Pakistan Limited sanctioned by the High Court of Sindh by its order dated May 17, 2012 and was completed in accordance with its terms on 1 June 2012.

Business performance
During the quarter the business of your Company faced many challenges in the form of continuing energy crisis, poor law and order situation, inflationary pressures and adverse movements in exchange rate parity. All these factors affected paint consumption at both industrial and general consumers end. Moreover, paints consumption was affected by an extended monsoon and lower off take during Ramadan. Pursuing a policy of openness and transparency with customers a decision was taken to discontinue placement of tokens which has negatively impacted volumes as expected. However, your Company has managed to mitigate the adverse impact through stringent control on costs, enhanced focus on product mix, price and margin management. Auto OEM segment volumes have been lower as certain models (not meeting Euro II standards) were discontinued, and relaxation given by the Government on import of used and hybrid cars. Given the difficult market and economic conditions, volumes were lower this quarter as compared to the same period last year. However, through better margin management, product mix, enhanced customer engagement and focus on quality and cost controls we have been able to generate a higher per unit gross margin than the comparative period last year. While prices of raw materials increased in earlier part of the year, as the year progressed prices stabilized internationally mainly due to lower global demand. The prices of locally regulated raw materials, e.g. solvents continued to increase during the year. The availability and prices of local materials remained under pressure mainly due to ongoing energy crises whereby suppliers passed on the additional cost of self generated electricity. The Company was able to generated revenue of Rs. 4,841 million and a profit before tax of Rs. 322 million for the nine months period ended September 30, 2012. Rs. in million For the nine months period ended 30 September 2012 Turnover Gross Profit Operating Profit Profit before tax Profit after tax Earnings per share Rs 4,841 1,174 135 322 193 4.16

Future outlook
The decorative market is expected to pick up momentum in Q4 2012 and in the short run the production activity in the tractor segment is likely to improve with the introduction of the Green Tractor Scheme. The macroeconomic outlook forecast indicates low GDP growth in the coming years with stagnant disposable incomes. Despite the adverse factors, your Company is focused on premium product quality, customer engagement, customer satisfaction, customer retention, strong cost controls and margin management.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Condensed Interim Balance Sheet (Unaudited) As at 30 September 2012
Amounts in Rs '000 (Unaudited) 30 September 2012 (Audited) 31 December 2011

ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred tax assets - net Long-term loans Long-term deposits and prepayments

Note

5 6

1,430,046 50,262 1,480,308 158,174 58,843 2,339 219,356 1,699,664

1,351,504 71,933 1,423,437 183,658 38,630 1,894 224,182 1,647,619 36,310 757,165 267,083 49,605 21,301 3,630,807 223,175 4,985,446 6,633,065

Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Cash and bank balances Total assets EQUITY AND LIABILITIES Share capital and reserves Authorised capital 100,000,000 (31 December 2011: 100,000,000) ordinary shares of Rs. 10 each Issued, subscribed and paid-up capital 46,443,320 (31 December 2011: 70) ordinary shares of Rs. 10 each Allocated share capital pursuant to the Scheme of demerger Capital reserves Unappropriated profit Total equity Surplus on revaluation of property, plant and equipment LIABILITIES Non-current liabilities Staff retirement benefits Current liabilities Trade and other payables Taxation payable Contingencies and commitments Total equity and liabilities

8 9 10 11

30,929 684,911 372,147 27,680 10,151 12,406 4,167,250 5,305,474 7,005,138

1,000,000 12 464,433 156,202 4,402,332 5,022,967 886,877

1,000,000 1 464,432 156,202 4,206,787 4,827,422 889,088

50,513 14 1,029,907 14,874 1,044,781 7,005,138

25,061 814,922 76,572 891,494 6,633,065

15

The annexed notes from 1 to 25 form an integral part of this condensed interim financial information.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Condensed Interim Profit and Loss Account (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 For the nine For the three months period months period ended 30 ended 30 September 2012 September 2012 1,494,080 (374,785) 1,119,295 16 (758,183) 361,112 (191,284) (113,619) 56,209 (985) (10,263) (11,248) Other operating income Profit before taxation Taxation Profit after taxation Earnings per share - Basic and diluted - Rupees 18 17 75,395 120,356 (41,113) 79,243 1.71 4,841,449 (1,212,350) 3,629,099 (2,455,152) 1,173,947 (637,807) (401,159) 134,981 (2,397) (28,559) (30,956) 217,640 321,665 (128,331) 193,334 4.16
For the three months period ended 30 September 2011 (Represented / Restated)

Note Turnover Sales tax, excise duty and discounts Sales - net Cost of sales Gross profit Selling and distribution expenses Administrative and general expenses Operating result Financial charges Other operating charges

1,658,993 (422,107) 1,236,886 (823,170) 413,716 (194,477) (91,933) 127,306 (261) (12,732) (12,993) 82,452 196,765 (67,000) 129,765 2.79

The annexed notes from 1 to 25 form an integral part of this condensed interim financial information.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Condensed Interim Statement of Comprehensive Income (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 For the three months period ended 30 September 2012 Profit for the period Other comprehensive income Total comprehensive income for the period 79,243 79,243 For the nine months period ended 30 September 2012 193,334 193,334
For the three months period ended 30 September 2011 (Represented / Restated)

129,765 129,765

Surplus / (deficit) arising on revaluation of certain classes of property, plant and equipment has been reported in accordance with the requirements of the Companies Ordinance, 1984, as a separate line item below equity.

The annexed notes from 1 to 25 form an integral part of this condensed interim financial information.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Condensed Interim Statement of Changes in Equity (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 Issued, subscribed and paid-up share capital Transferred from ICI Pakistan Limited pursuant to the Scheme of demerger 70 ordinary shares of Rs. 10 each fully paid in cash Total comprehensive income for the three months period ended 30 September 2011 - (Represented / Restated) Transfer from surplus on revaluation of property, plant and equipment in respect of incremental depreciation for the period - net of deferred taxation Balance as on 30 September 2011 - (Unaudited) Total comprehensive income for the three months period ended 31 December 2011 Transfer from surplus on revaluation of property, plant and equipment in respect of incremental depreciation for the period - net of deferred taxation 1 Allocated share capital 464,432 Capital reserves Unappropriated profit

Total

156,202 -

4,018,997 129,765

4,639,631 1 129,765

1 -

464,432 -

156,202 -

54 129,819 4,148,816 57,916

54 129,819 4,769,451 57,916

464,432 (464,432) -

156,202 -

55 57,971 4,206,787 193,334

55 57,971 4,827,422 193,334

Balance as on 31 December 2011 - (Audited) Share capital allotted to shareholders pursuant to the Scheme of demerger Total comprehensive income for the nine months period ended 30 September 2012 Transfer from surplus on revaluation of property, plant and equipment in respect of incremental depreciation for the period - net of deferred taxation

1 464,432 -

464,432 464,433

(464,432) -

156,202

2,211 195,545 4,402,332

2,211 195,545 5,022,967

Balance as on 30 September 2012 - (Unaudited)

The annexed notes from 1 to 25 form an integral part of this condensed interim financial information.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Condensed Interim Cash Flow Statement (Unaudited) For the Nine Months Period Ended 30 September 2012

Amounts in Rs '000
For the three months period ended 30 September 2011 (Represented / Restated)

Note Cash flows from operating activities Profit before taxation Adjustments for: Depreciation and amortisation Gain on disposal of property, plant and equipment Staff retirement benefits Provision for doubtful debts Reversal of provision against stock-in-trade Mark-up on bank deposits and receivable from ICI Pakistan Limited Movement in: Working capital Long-term loans Long-term deposits and prepayments Net cash generated from operations Taxation paid Net cash generated from operating activities Cash flows from investing activities Payments for capital expenditure Proceeds from disposal of property, plant and equipment Mark-up received on bank deposits and from ICI Pakistan Limited Net cash used in investing activities Cash flows from financing activities Dividends paid Net cash used in financing activities Net cash generated during the period Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Movement in working capital (Increase) / decrease in current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Increase in current liabilities Trade and other payables 20 20 19

For the nine months period ended 30 September 2012 321,665 122,206 (824) 25,452 10,770 (19,118) (152,499) 307,652 3,847,589 (20,213) (445) 4,134,583 (164,545) 3,970,038 (179,302) 840 152,499 (25,963) 3,944,075 223,175 4,167,250

196,765 29,443 (2,652) 6,612 (2,658) (41,130) 186,380 (139,764) (10,723) (854) 35,039 35,039 (14,294) 41,130 26,836 (63,302) (63,302) (1,427) 242,270 240,843

5,381 91,372 (115,834) 21,925 11,150 3,618,401 3,632,395 215,194 3,847,589

4,083 (239,805) 87,945 (18,753) 34,888 (51,353) (182,995) 43,231 (139,764)

The annexed notes from 1 to 25 form an integral part of this condensed interim financial information.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer

Akzo Nobel Pakistan Limited Notes to the Condensed Interim Financial Information (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 1. Status and nature of business Akzo Nobel Pakistan Limited (the Company) is incorporated in Pakistan and is listed on the Karachi, Lahore and Islamabad Stock Exchanges. ICI Omicron B.V. (a fully owned subsidiary of AkzoNobel N.V.) holds the majority shares of the Company. The Company is engaged in the manufacture of paints and trading of specialty chemicals. The Companys registered office is situated at Ground Floor, State Life Building 1-A, I.I. Chundrigar Road, Karachi. In accordance with the Scheme of Arrangements ("the Scheme") dated 16 September 2011 and approved by the shareholders of ICI Pakistan Limited on 09 February 2012 and sanctioned by the High Court of Sindh vide its order announced on 17 May 2012 and filed with the registrar of companies on 01 June 2012 ("Completion Date"), the Paints Business of ICI Pakistan Limited has been demerged with effect from 01 July 2011 ("Effective Date"), and transferred to and vested in the Company. 2. Basis of preparation 2.1 This condensed interim financial information has been presented in accordance with the requirements of the International Accounting Standard (IAS) 34 - Interim Financial Reporting and is being submitted to the shareholders as required by section 245 of the Companies Ordinance, 1984 and the Listing Regulations of Karachi, Lahore and Islamabad Stock Exchanges. This condensed interim financial information does not include all the information required for full annual financial statements and should be read in conjunction with audited financial statements of the Company, for the six months ended 31 December 2011 (incorporating the effects of demerger). 2.2 This condensed interim financial information is presented in Pakistan Rupees which is also the Company's functional currency. 3. Significant accounting policies The accounting policies and the methods of computation adopted in the preparation of this condensed interim financial information are the same as those applied in the preparation of the financial statements for the six months period ended 31 December 2011 (incorporating the effects of demerger). Amendments to certain existing standards and interpretations on approved accounting standards effective during the period were not relevant to the Company's operations and did not have any impact on the accounting policies of the Company. 4. Critical accounting estimates and judgments Judgments and estimates made by the management in the preparation of the condensed interim financial information are the same as those that were applied to the financial statements as at and for the six months period ended 31 December 2011 (incorporating the effects of demerger). 5. Property, plant and equipment Note Operating property, plant and equipment - at net book value Capital work-in-progress - at cost 5.1 5.2 (Unaudited) 30 September 2012 1,400,824 29,222 1,430,046 (Audited) 31 December 2011 1,309,397 42,107 1,351,504

5.1 This includes the cost of operating property, plant and equipment that have been added / disposed off during the nine months period ended 30 September 2012, detail of which is as follows: Additions / Transfers For the nine months period ended 30 September 2012 Buildings on freehold land Plant and machinery Furniture and equipment 15,501 103,617 71,839 190,957 For the three months period ended 30 September 2011 14,800 6,028 3,697 24,525 Disposals For the nine months period ended 30 September 2012 2,596 112 2,708 For the three months period ended 30 September 2011 -

Akzo Nobel Pakistan Limited Notes to the Condensed Interim Financial Information (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 (Unaudited) 30 September 2012 18,021 4,989 6,212 29,222 6. Intangible Assets Intangible Assets - at net book value 6.1 50,262 71,933 6.1 This includes additions of intangible assets amounting Rs. 1.335 million during the nine months period ended 30 September 2012. 7. Long term loans - Considered good Due from Directors, executives and employees Less: current portions shown under current assets 7.1 7.1 80,885 (22,042) 58,843 69,362 (30,732) 38,630 (Audited) 31 December 2011 42,107 42,107

5.2 The following is a detail of capital work-in-progress: Civil works and buildings Plant and machinery Equipments

Note

7.1 Loans for purchase of motor cars, motor cycles and house building are repayable between two to ten years. These loans are interest free and granted to the key management personnel, employees including executives of the Company in accordance with their terms of employment. 7.2 The maximum aggregate amount of long term loans due from the Directors, executives and employees at the end of any month during the period was Rs. 6.251 million and Rs. 43.749 million (31 December 2011: Rs. 7.367 million and Rs. 49.742 million), respectively. 8. Stock-in-trade Out of the total carrying value of inventory Rs. 2.789 million (31 December 2011: Rs. 5.5 million) is measured at net realizable value. As at 30 September 2012 stock has been written down by Rs. 1.410 million (31 December 2011: Rs. 1.5 million) to arrive at its net realizable value. 9. Trade debts Considered good - Secured - Unsecured Considered doubtful Less: Provision for: - Doubtful debts - Discounts payable on sales 4,492 634,098 638,590 269,765 908,355 269,765 266,443 536,208 372,147 10. Other receivables - Unsecured This includes balance amounting to Rs. Nil (31 December 2011: Rs. 3.609 billion) receivable from an associated undertaking (ICI Pakistan Limited). 5,611 569,457 575,068 259,137 834,205 259,137 307,985 567,122 267,083

Akzo Nobel Pakistan Limited Notes to the Condensed Interim Financial Information (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 11. Cash and bank balances Note Current accounts Short term deposits Cash in hand 11.1 (Unaudited) 30 September 2012 241,071 3,910,358 15,821 4,167,250 (Audited) 31 December 2011 209,874 13,301 223,175

11.1 These represent one month short term deposits placed with a commercial bank carrying mark-up at the rates ranging from 8.60% to 8.75% per annum. 12. Issued, subscribed and paid-up capital Pursuant to the Scheme, the share capital of the Company has been allotted to the Qualifying shareholders in July 2012. 13. Short term finances The facility for running finance and issuance of letters of credit is available from a commercial bank and amounted to Rs. 475 million at a mark-up rate of 1 month KIBOR plus 1% per annum. The facility is secured by parental guarantee from AkzoNobel N.V., first pari passu hypothecation charge over the current assets of the Company amounting to Rs. 90 million and demand promissory note and counter guarantee / indemnity duly signed and stamped by the Company. 14. Trade and other payables This includes Rs. 23.989 million payable to ICI Pakistan Limited (31 December 2011: Rs. 6.135 million). 15. Contingencies and commitments 15.1 Claims against the Company not acknowledged as debts are as follows: Local bodies Sales Tax authorities Others 453 91,087 25,089 116,629 15.2 Commitments in respect of capital expenditure 53,434 453 91,087 25,224 116,764 54,000

15.3 A notice was issued by the Environmental Protection Authority (EPA) against the Company. Pursuant to this an order was passed by the EPA for violation of certain provisions of the 'Act'. The Company is of the opinion that the order was not justified and has filed an appeal against the order in the Environmental Tribunal in Lahore, which is pending. Management in consultation with its legal council is confident that the decision will be made in favour of the Company, hence no provision is recognized in this condensed interim financial information. 15.4 Commitments for rentals under operating lease / Ijarah contracts in respect of vehicles are as follows: Year 2012 2013 2014 2015 2016 3,614 10,719 9,176 7,004 1,447 31,960 Payable not later than one year Payable later than one year but not later than five years 11,836 20,124 31,960 13,053 9,491 7,751 4,871 35,166 13,053 22,113 35,166

Akzo Nobel Pakistan Limited Notes to the Condensed Interim Financial Information (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 Unaudited For the three months period ended 30 September 2012 422,830 16.1 581,582 1,004,412 Closing stock of raw and packing materials Raw and packing materials consumed Manufacturing costs Opening stock of work-in-process Closing stock of work-in-process Cost of goods manufactured Opening stock of finished goods Finished goods purchased Closing stock of finished goods (358,295) 646,117 111,241 757,358 29,669 787,027 (27,287) 759,740 274,675 23,097 1,057,512 (299,329) 758,183 16.1 Purchases include Rs. 401.652 million from ICI Pakistan Limited. 17. Other operating income This includes an interest income of Rs. 96.363 million on balance receivable from ICI Pakistan Limited till July 2012. 18. Taxation Current Deferred 27,510 13,603 41,113 19. Dividend This represents the portion of interim dividend of ICI Pakistan Limited wrongly allocated to the Paints Business subsequently reversed in December 2011 (Refer to Note 18.1 of the audited financial statements the Company for the six months period ended 31 December 2011). 20. Cash and cash equivalents Cash and cash equivalents at the beginning of the period comprise of: Cash and bank balances Short term running finance 223,175 223,175 Cash and cash equivalents at the end of the period comprise of: Cash and bank balances Short term running finance 4,167,250 4,167,250 289,270 (48,427) 240,843 310,013 (67,743) 242,270 102,848 25,483 128,331 38,957 28,043 67,000 For the nine months period ended 30 September 2012 438,071 2,019,735 2,457,806 (358,295) 2,099,511 305,700 2,405,211 35,692 2,440,903 (27,287) 2,413,616 283,402 57,463 2,754,481 (299,329) 2,455,152
For the three months period ended 30 September 2011 (Represented / Restated)

16. Cost of sales Opening stock of raw and packing materials Purchases

Note

240,103 985,300 1,225,403 (433,618) 791,785 72,667 864,452 38,479 902,931 (39,263) 863,668 435,903 7,667 1,307,238 (484,068) 823,170

Akzo Nobel Pakistan Limited Notes to the Condensed Interim Financial Information (Unaudited) For the Nine Months Period Ended 30 September 2012
Amounts in Rs '000 21. Transactions with related parties The related parties comprise parent company (ICI Omicron B.V.), ultimate parent company (AkzoNobel N.V.), related group companies, local associated company, directors of the Company, companies where directors also hold directorship, key employees (Note 22) and staff retirement funds. Details of transactions with related parties, other than those which have been specifically disclosed elsewhere in this condensed interim financial information is as follows: Unaudited For the three months period ended 30 September 2012 For the nine months period ended 30 September 2012
For the three months period ended 30 September 2011 (Represented / Restated)

Nature of relationship

Nature and description of related party transaction

Group companies Associated company

Purchase of goods, materials and services Purchase of goods and materials

15,172 40,946 56,118

61,159 401,652 462,811

182,018 109,644 291,662

21.1 The above transactions were carried out at an arm's length basis, in accordance with the Company's accounting policy. 21.2 No buying and selling commission has been paid to any associated undertaking. 22. Transactions with key management personnel During the nine months period ended 30 September 2012, key management personnel received an amount of Rs. 71.613 million (For the three months period ended 30 September 2011: Rs. 16.464 million) on account of remuneration out of which Rs. 9.448 million (For the three months period ended 30 September 2011: Rs. 2.737 million) relates to post employment benefits. 23. Financial risk management The Company's financial risk management objective and policies are consistent with that disclosed in the financial statements as at and for the six months period ended 31 December 2011. 24. Date of authorization The condensed interim financial information was authorized for issue in the Board of Directors meeting held on 24 October 2012. 25. General 25.1 Figures have been rounded off to the nearest thousand rupees except as stated otherwise. 25.2 Corresponding figures have been rearranged / reclassified wherever necessary. However, no major rearrangement / reclassification has been made during the nine months period ended 30 September 2012.

Mueen Afzal Chairman / Director

Jehanzeb Khan Chief Executive

Zia U Syed Chief Financial Officer