DESCON OXYCHEM

LIMITED
Investor Presentation
June 2020

Imran Qureshi – CEO M. Saqib Abbas - CFO

Imran.Qureshi@descon.com Saqib.Abbas@descon.com
+92 322 7707198 +92 322 4491716
 TABLE OF
CONTENT
INTRODUCTION Introduction

Corporate overview

Business overview

Production Overview

Growth drivers

Financial overview
 Group profile
ENGINEERIN
G

POWER

CHEMICALS

DSCON
15,000 EMPLOYEES
26 NATIONALITIES
7 COUNTRIES

• Annual revenue over half a billion USD.

• Descon has been in business for over 4 decades.

3
Core values

4
Company video

5
 Company profile

PAKISTAN’S LEADING PEROXIDE

PRODUCER

Vision
Winning together with our customers, our ambition is to enhance local and regional footprint while
delivering sustainable value to all stakeholders.

Ambition 2023 About Descon Oxychem

Today Incorporated 2004
We are a leading company in the Pakistan Hydrogen Peroxide market Status Listed at PSX (2008)
Tomorrow Commercial production 2009
We are determined to: Major business Manufacturing of H2O2
 Strengthen our domestic market leadership position
 Establish a footprint in new segments & regional markets Name-plate capacity
 Achieve success through winning together with our customers driven Initial 28,000 MT
by best cost propositions, motivated people and effective teamwork Post BMR 39,294 MT
Production – Post BMR 41,300 MT
6
Paid-up capital PKR 1.5 billion
 Goals and culture

A Framework for our Future OUR GOALS

Profitable Sales Manufacturing Engaged

Growth Excellence Employees

OUR PRIORITIES

 Customer Delight  Openness & Honesty

 Lowest cost producer  Corporate Governance
 Energy for change  Innovation
 Diversity & Inclusiveness  Performance Culture
 Diversification  Sense of Urgency

OUR FOUNDATIONS

Continuous
Leadership Accountability
Improvement

Delivering sustainable value to customers, Open to

Teamwork Safety
employees & shareholders communication

7
Board of directors
Taimur Dawood, Chairman Faisal Dawood, Director
 MD of Gray Mackenzie Engineering Services BV, the Netherlands  Vice-Chair of Descon Engineering
 >15 years of work experience in product marketing, project finance, strategy  Served in management roles in the engineering and chemicals divisions of
development. and implementation, turnaround mgt., and M&A Descon around the world
 In 2001-2011, successfully ran Descon Chemicals as CEO  Holds a Bachelor’s degree in Materials Science and Engineering from Cornwell
 Industrial Engineering degree from Purdue University and MBA from Columbia University and an MBA from Columbia University
University (both in US)

Asif Qadir, Independent Director Ali Asrar Hossain Aga, Independent Director
 Director of Thal and Tri-Pack Films; CEO of Engro Polymer Trading; and  Managing Partner & Head of Industrial Practice at Ward Howell International
Chairman at Inbox Business Tech and Unicol Pvt  Previously worked and served on the board of ICI Pakistan and was the CEO of
 Sits at the board of numerous institutions, including the SEC and PSX the Soda Ash Business
 Previously worked as Director & SVP of Engro Corp.  Has a degree in Chemical Engineering from the University of Punjab and an
 Undergraduate degree from Columbia University MBA from Drexel University

Farooq Nazir, Director Haroon Waheed, Independent Director

 Worked with PWC and EY before his stint at Unilever, where he embarked on a  Recognized Business HR Leader with 30 plus years of broad based Multinational
management career that included executive and management roles across 3 and Local functional business experience.
continents  CEO and Managing Partner at SYNGRO Consulting Pvt. Limited
 Joined Tetley GB in London and took up board responsibility for the company’s  Worked as Group Head HR at Fatima Group
joint venture in Pakistan  Holds LL.M from Monash University, Melbourne, Australia.
 Experienced in strategic, financial and risk management

Mehreen Dawood, Director Imran Qureshi, Director and CEO

 Runs a furniture business manufacturing semi-classic designs furniture for high-  20 years experience in the chemicals industry
end segments  Worked as MD of J&P Coats Pakistan, as Business Manager Performance
 Has investments in various Descon Companies Coatings of AkzoNobel Coatings, and Business Manager with ICI Paints
 Philanthropist and a member of Marie Adelaide Leprosy Center, Citizen  Bachelor of Engineering degree from NED University, Karachi
Foundation, and Family Foundation  MBA from Southeastern University (Washington D.C.)

9
 Management team

Imran Qureshi, Chief Executive Officer M Saqib Abbas, Chief Financial Officer
 20 years experience in the chemicals industry  ICAP Member having rich experience in financial
 Worked as MD of J&P Coats Pakistan, as Business Manager planning, business partnering, stakeholder management
Performance Coatings of AkzoNobel Coatings, and Business and risk management.
 Joined Descon in 2013 and appointed DOL’s CFO in
Manager with ICI Paints
 Bachelor of Engineering degree from NED University, Karachi 2015
 MBA from Southeastern University (Washington D.C.)  Worked as Head of Finance & Accounts with MFI for
over 4 years.
M Mushfiq Hussain, Works Manager Aqsa Rustam, HR Business Partner
 Certified HR Business Professional and holds a Bachelor
 Chemical engineer with more than 17 years experience of in
degree in Management and Business Computing with
Pakistan’s large scale process industries.
total work experience of 8 years.
 His career spanned through functions like Operations, Project
 Associated with multiple MNCs like Beiersdorf
Startup / Commissioning & Health, Safety & Environment in
Pakistan, a leading Personal care company, Nestle
the fertilizer industry. Driving Manufacturing Excellence @
Pakistan and INTECH Process Automation
DOL.

Adil Akbar – RSM(North) Fawad-Ul-Islam Hirani RSM(South) Ali Kamal Pasha - Manager (BD)
Over 10 years of experience of Sales & Over 12 years of experience in Textile / Over 10 years experience of Sales &
Marketing in Chemical Sector Chemical Sector Marketing in Chemical Sector

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Key Partners

External Internal Credit Rating

Auditors Auditors Agency

Key Financing
Share Registrar
Partner
11
 Milestones
2004 2009 2011 2016
 Incorporated as  Got listed on KSE  ISO 9001  Continues Plant
Private Company  Start of Commercial certification - SGS Debottlenecking
under Companies Production  First PAT of PKR 180  2nd PAT of PKR 45
Ordinance 1984 Million Million

2017 2018 2019 2020

 Highest Production  Plant Capacity  Manufacturing  Launch of Aseptox (Food Grade
achieved of 34,697 MT Expansion by 25% Excellence Program & Beverages product –Tetra Pak)
 ISO 18001, ISO 14001 approved by the Board Launched  Launch of SaniDol –
Certification by - SGS  7-Million Safe Man Multipurpose Disinfectant and
 Early Complete Hours & Zero TRIR Sanitizer
Repayment of  First Ordinary  Manufacturing Excellence giving
Syndicate Facility dividend of 10% Energy and Chemical Savings
 Highest PAT of PKR 418M & first 12
accumulated profit reported.
 Cash Dividend 10%, Bonus
Shares 16%
Shareholder structure

Major Shareholders (as of Jun-20) No. of Shares %

DEL CHEMICALS (PRIVATE) LIMITED (CDC) 52,033,550 34.4847

DESCON ENGINEERING LIMITED 48,888,866 32.4006

EVLI EMERGING FRONTIER FUND (CDC) 9,927,000 6.5790

DESCON CORPORATION (PVT.) LIMITED 8,725,250 5.7826

OTHERS – FOREIGN / JOINT STOCK COMPANIES 13,441,889 8.9085

MUTAL FUNDS – CDC 3,811,500 2.5260

OTHERS 1,344,854 0.8913

Total 100.0

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 Business strategy
Manufacturing
 HSE – move towards system - based organization.
 Become lowest cost producer
Sales & Marketing
 Process improvements to meet quality requirements of food-grade & export market
 Retention & realignment of critical customer base
 Reduce reliance on textile segment
 Marketing of hydrogen peroxide through digital platforms
Human Capital
 Business partnering to deliver strategy through right talent
 Talent factory / capability building through Talent Assessment Program
 Embedded code of business ethics & conduct across DOL
Finance & Governance
 Strengthen control environment by strong oversight of risk, compliance and code of corporate governance
 Optimize the cost of capital and leveraging.

15
Geographic footprint

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 COVID-19 business impact and measures

• With Textile closure (contributing 80% of sales), business quickly responded to the
available opportunity & launched “SaniDol”, a multipurpose sanitizer / disinfectant on
March 2020.

• The launch was possible with business not going for the lockdown even for a day and the
cross functional team was put in place to deliver SaniDol.

• Sales Team was strengthened by moving technical people into it

• Social Media was used successfully to promote the product

• CSR was also used to create a positive image for the Company as well as the Group

• Donated around 33 MT of product to various Government Institutions

• Crude prices also helped the Company to improve margins in last quarter.

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COVID-19 disinfectant opportunity – List of Customers

18
 DOL DONATED 33 MT OF SANIDOL

 Ministry of Health - GOVT of Punjab 10 MT  IG Punjab Police 2.5 MT

 CCPO Office Lahore 2.5 MT

 IG Motorways and Highways 2.5 MT 19
Value chain
Suppliers Customers

20
 Capacity expansion

Currently undergoing capacity expansion of

8400 MT P.A (25%) to maintain leadership
position

Estimated project cost is around PKR 1.3

billion

100% of the project ordering has been

completed

Capacity is expected to come online by 2 nd

quarter of current FY.

Plant is expected to achieve further

efficiencies in energy and chemical indices.

21
 Risk Management
The objective of the ERM is to ensure that:

 Significant risks are identified, measured, analyzed and monitored;

 Sufficient, timely and accurate information is reported to the ERMC and Board Audit Committee; and

 Responses to identified risks are appropriately formulated and implemented in an effective and efficient manner.

RISKS RISKS RESPONSE

Market Risk (COVID-19) Robust launch of SaniDol.

Frequent Project Reviews

Plant Expansion
Finalized Robust Replacement Strategy.
Turnover in Critical Positions.
Manufacturing Excellence & PKR 84 M were
realized in FY19-20.
Plant Reliability
Entry into New Segments
New Entrants Export Market access with Tetra Pak

22
Works Overview

23
 Production volumes
Production Trend (MT)

40,000

30,000

20,000

10,000

20.1 29.7 27.8 26.3 32.5 32.1 32.2 34.6 33.2 30.8 33.9
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Production Trends Linear (Production Trends)

24
Production process
Oxygen Working solution
with dissolved
Hydrogen peroxide
Oxidation
Hydrogenated
Working
solution
Demineralized
Filtration water Hydrogen
Hydrogen Extraction Peroxide
Degassing
Recycle
catalyst Separated
Filtration Water
Pd Catalyst Water
Separation
Hydrogenation and drying
Hydrogen
Regenerated working solution

Regeneration
 Health and safety (HS)
Health and safety philosophy HS Way Forward 2022

Culture, Leadership &

1 Governance 1
DOL HSE Culture step
transformation
Enhance line
HS
Philosophy 2
Risk Recognition & responsibility &
ownership
2
Mitigation
Introduce sustainability
Manage Continuous 3 targets for business
continuity
3 Improvement
HSE Management
system upgradation 4

26
 Health and safety (HS)
Field visits GL sessions
HS development process Series of sessions were
Site visits were conducted to
identify the gaps in field, conducted individually with all
whereas interaction at shop floor GLs to identify potential areas
level was ensured for an improvement

1 2 3 4 5

System review
All procedures and systems Interviews
were reviewed, with an Workshops with all Gap analysis
approach to develop the departments were Based on the initial gap analysis
complete understanding of undertaken & inputs were and the priority areas set by the
existing practices taken from shop floor level management, HSE Roadmap
Each training session developed. Current systems are
ended with a thorough aligned with DuPont’s safety
debrief to identify the management system to bring about
overlap and gaps in HSE a cultural transformation at our
systems site 27
 ESG & Sustainability
Policies and Practices Certifications

ISO 9001

OHSAS 18001 ISO 14001

28
 ESG & Sustainability
UN Sustainable Development Goals
1. Health, Safety & Well-being 4. Chemical Consumptions
• Zero TRIR without LTI • Bring chemical indices inline with
Chematur guidelines by 2023.
• Implement HSE roadmap by 2022
• Training manhours/employee : 4 per month
• ISO 45001 Certification by 2021 5. Water Management
• Reduce water consumption : 10% by
2023 compliance on hazardous & non-
hazardous wastes with EPA & PEPA.

2. Energy Management
• Reduce NG index : 3% by 2023 6. Waste Handling
• Reduce power index : 5% by 2023 • 100% compliance on hazardous & non-
hazardous wastes with EPA & PEPA

3. Renewable Energy 8. Gender Equality

• Renewable energy mix : 10% by 2023 • 10% female employees at
works by 2023 29
GROWTH
DRIVERS
 Competitive landscape and market share
Market share: Pakistan Unique Competitive Advantages
 Plant Technology, Chematur (DOL) vs Chinese (SPL)
 Capacity utilization is @ 117% (DOL) vs 82% (SPL)
 Cost of production is 25% less then SPL.
Imports  DOL is increasing production capacity by 25%

50%
50% 32%
32% 18%
18%
34,000
34,000 22,000
22,000 12,000
12,000

Dominance in growing and undersupplied local market

31
 Partnerships and joint ventures
Partnerships Business Proposition

Marketing alliance
 Locally-available product
 Cost or working capital
 Quick delivery and service
 Safety

 Business growth
 Improved yield
 Opportunity for export

Development & Validation Aseptox 35

 Foreign exchange saving
 Export opportunity
 Taxes and employment

 Services business growth

 Customer satisfaction
 Tetra Pak seen as full-service provider

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 Product applications
Current Applications Potential Applications
Mining Textile Cosmetics Livestock
An oxidant, recovery agent or Environmentally-friendly
oxygen source chemical used as bleaching
agent

Water
Poultry treatment

Food and beverages

Disinfection (antimicrobial agent)

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Business outlook

- Keep striving towards being the Lowest cost producer (energy conservation and efficiency
projects).

- Keep the plant running at an Optimum level without any unplanned breakdowns.

- Achievement of optimum sales mix post expansion.

- Retention of critical Human Resources.

- Development of plans for entering into down streams and up streams products.

- Generation of maximum returns for the stakeholders.

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Financial
Overview
 Dividend policy, history and capital raising

2008
CAPITAL RAISES 2011 2013
Capital – PKR 1 Billion
Foundation (2008) Inter-co Loan – PKR 409 M Inter-co Loan – PKR 710 M
Syndicate Loan -1.4 Billion

DIVIDEND HISTORY Dividend Policy Statement

Year Preference Ordinary Bonus Shares Company’s fundamental policy for allocating profits for dividend
distribution purposes is to generate appropriate returns for
shareholders while enhancing its financial position and operational
2020 PKR 150 Million 16% foundations. Specifically, the Company aims to pay stable dividends
in consideration of the balance of unappropriated profits. In
deciding whether to propose a dividend and determining the
2019 PKR 184 Million PKR 102 Million dividend amount, the Board will comply with the legal
requirements, take into account the Company’s financial position,
its operational needs, its capital expenditure requirements, its
liquidity position, general business conditions and any restrictions
2018 PKR 264 Million pursuant to its contractual
arrangements within its key contracts and financing documents.

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Financial highlights
Revenues (PKR m)
3,000
2,500
2,000
1,500
1,000
500
1,409 1,582 1,961 2,088 2,705 2,642
-
2015 2016 2017 2018 2019 2020

Revenues Linear (Revenues)

EBITDA (PRK m)
1,000 33% 35%
30% 31%
900 30%
27%
800 24%
700 25%
600 19%
20%
500
15%
400
300 10%
200
5%
100
299 382 529 633 835 866
- 0%
2015 2016 2017 2018 2019 2020

EBITDA EBITDA Margin 37

Financial highlights
Gross Profit (PKR m)
1,000 33% 35%
30% 31%
900 30%
800 26%
700 22% 25%
600 19%
20%
500
400 15%
300 10%
200
5%
100 268 343 507 616 831 861
- 0%
2015 2016 2017 2018 2019 2020

Gross profit GP margin

Net profit (PKR m)

1,000 35%
30%
800 25%

600 15% 15% 16% 20%

10% 15%
400 10%
3% 5%
200 0%
(119)
-8% 45 205 322 394 418 -5%
-
-10%
(200) -15%
2015 2016 2017 2018 2019 2020

Net Profit NP margin 38

Financial highlights

Retained Earnings (PRK m)

300

200

100
182
-
(643) (607) (403) (344) (236)
(100)

(200)

(300)

(400)

(500)

(600)

(700)
2015 2016 2017 2018 2019 2020

RE Linear (RE)

39
Important Ratios
2015 2016 2017 2018 2019 2020

Earning Per Share (1.17) 0.44 2.01 3.16 3.87 3.42

Price Per Share 4.72 6.03 18.35 19.30 28.81 29.85
P/E ratio NA 13.67 9.13 6.11 9.31 8.73

60%
50%

40% 37%

26% 28%
20% 22%
18%
20% 13% 12%
6%
3%
0%

-20%
-31%

-40%
2015 2016 2017 2018 2019 2020

Return on equity Return on capital employed

40
Debt and Equity ratios

100%

17%

80%
51%

60%
90%
93%
100% 100%

83%
40%

49%
20%

10%
7%
0%
2015 2016 2017 2018 2019 2020

Equity Debt

41
THANK YOU

Q&A