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    October 29, 2014

    Engro Q3 Results- Engro paves way to a positive financial close

    Karachi, October 29: Engro Corporation today announced its 3rd Quarter results where strong performance of its fertilizer businesses were kept in check by a challenging business environment in its rice, polymer and food businesses.

    On a consolidated basis, Engro Corporation recorded a 14% increase in revenue from PKR 107,764 million during the first three quarters of 2013 to PKR122,397 million for the current reporting period. The increase in revenues was mainly driven by higher fertilizer sales at Engro Fertilizers and Engro EXIMP coupled with a recovery in sales volumes at Engro Foods and Power generation businesses. Despite the increase in revenue, the profit-after-tax (PAT), attributable to the shareholders of the Company, remained at PKR 4,441 million as compared to PKR 5,731 million during same period last year. This was mainly due to the turbulence in the international commodity prices which affected the Ethylene-PVC price delta in the petrochemical business, AMF inventory in the foods business and the selling prices of rice coupled with an unprecedented appreciation in the PKR / USD exchange rate.

    A summary of company-wise financial:


    YTD 2014

    YTD 2013

    Company Revenue Profit After Tax Revenue Profit After Tax
    Engro Corp Stand-alone 1,441 1,399 2,840 2,893
    Engro Fertilizers 43,692 5,511 34,422 3,234
    Engro EXIMP 21,233 (2,693) 18,817 (442)
    Engro Polymers 17,147 (33) 18,137 552
    Engro Foods 31,020 252 28,023 1,240
    Engro PowerGen 9,266 1,594 8,074 1,527
    Engro Corp Consolidated 122,397 4,441* 107,764 5,731*

    * Excluding Non-controlling interest

    Taking a more detailed view of the companies, the Company’s flagship fertilizer business continues to demonstrate improved performance as both plants receive temporary gas allocation of 60 MMSCFD from Mari. This has directly resulted in increasing sales that have registered an upsurge by 24% consequently increasing the market share of the Company to 32% for the first three quarters of 2014 vs. 26% during comparative period last year. The increase can be attributed to improved market conditions with lower off-take of imported urea and higher product availability due to increased production. The fertilizer business has illustrated this performance on the back of a sharp increase in Gas Infrastructure Development Cess (GIDC) – where GIDC on feed and fuel gas was raised by PKR 103/MMBTU and PKR 50/MMBTU respectively – which the domestic fertilizer industry continues to partially absorb as a substantial portion of the cost increase.

    The Company’s foods business achieved revenue growth of 11% vs the same period last year but gross profit percentage reduced from 25% to 19% due to higher milk prices which were not passed on to consumer due to market environment and consumer promotions to boost sales. However, the company showed significant improvement in its volumes as Dairy and Ice Cream segments witnessed volumetric growth of 7% and 21% respectively over the comparative period. The company reported an after-tax profit of PKR252 million or PKR0.33 per share during the nine-month period ending on September 30, 2014, down by 80% when compared with PKR1.2 billion or PKR1.62 per share it earned in the corresponding period previous year. The decline in profit was mainly due to the loss incurred on its North American business. The company’s Board carried out strategic review of its Canadian operations and decided to exit it, so focus can be achieved in growing local operations where opportunities are enormous. As a result, Engro Foods Netherlands (parent company of Engro Foods Canada) entered into a Share Purchase Agreement (SPA) with a Canadian registered company for sale of its North American businesses, which includes Engro Foods Canada. Subject to satisfaction of all conditions precedent as set out in the SPA, it is expected that the transaction shall complete by the end of October 2014. As a result of this sale, a one-off pre-tax impairment charge of PKR 438 million has been recorded in these accounts and North American business has been classified as ‘Discontinued Operations’.

    The trading business – Engro Eximp –reflected an increase in sales volume of 16% over previous period as a result of correctly timing the purchases from both the local and international markets in the wake of rising international prices of DAP. The business also continues to manage the rice processing business of the Company whereby the Company, under its “Bharosa Seed Program”, generated orders for 880 tons of seeds for 2014 crop, making it the biggest basmati seed provider in Pakistan. This seed volume represents 27,800 tons of paddy production by farmers. The program aims to improve farmer yields and product quality thereby improving the Company’s own milling recoveries. The Company incurred a consolidated loss-after-tax of PKR 2,693 million for the nine months ended September 30, 2014 as compared to loss-after-tax of PKR834 million for previous period. The higher loss is primarily due to the substantial appreciation in the PKR / USD exchange rate in a span of few weeks during March 2014 coupled with deep bearish rice market sentiment prevailing throughout the period, which has more than offset the earnings from the phosphate business.
    The profitability of the petrochemicals business suffered due to lower margins and volumes impacting the bottom line earnings while rupee appreciation during the period resulted in lower PKR based revenues; Engro Polymer and Chemicals Limited posted a loss of PKR33 million or loss per share of PKR0.05 during the first nine months of 2014 compared to a profit of PKR552 million or an earnings per share (EPS) of PKR0.83 in the same period previous year. Despite higher polyvinyl chloride (PVC) and caustic soda prices, revenues of the company declined by 5% year-on-year to Rs17.14 billion during the nine months of 2014 due to lower volumetric sales. PVC domestic sales dampened during the current period due to electricity load shedding at customers’ end and decline in export of pipes and fittings to Afghanistan market due to duty imposition there. PVC price and exchange rate uncertainty during earlier part of the year also affected sales for the period. PVC-Ethylene price delta continued to remain stable in 3Q 2014 as compared to 2Q 2014, however towards the end of June 2014, the FBR imposed 5% regulatory duty on imports of Ethylene and EDC, which increased Company’s raw material cost and impacted its profitability and cash position. This matter is being pursued with relevant Government authorities for recourse. The Company successfully completed the PVC debottlenecking project during third quarter which has increased PVC production capacity by 15KT per annum. The capacity enhancement will allow the Company to convert its surplus VCM into PVC which will result in better margins for the Company. PVC resin production during the first nine months of 2014 was 108.7KT as compared to 105.6KT in the same period previously. Vinyl Chloride Monomer (VCM) plant produced 115.4KT vs 124.1KT last year. VCM production was lower due to operational issues at the plant earlier during the period. Caustic Soda production during the period was 87.3KT against 84.5KT during same period last year. The Company sold 90.6KT PVC in domestic markets during the nine months period as compared to 103.9KT in same period last year. The Company exported 9.8KTPVC to partially offset lower domestic sales. In the domestic Caustic Soda market, long product supply pressures affected Company’s prices. During the period, the Company sold 68.7KT Caustic Soda as compared to 71.4KT last year. 2.9KT Caustic Soda was also exported to manage competitive pressures in the domestic market. The Company also sold 14.6KT of Sodium Hypochlorite and 12KT of HCl during the period.

    During the period, the energy business has listed its plant – Engro Powergen Qadirpur Limited, on the Karachi Stock Exchange. The private placement and initial public offer received a tremendous response and the shares were oversubscribed by 2.28 times. The company plans to expand its operations from the equity raised from the stock market. Generation license to GEL Nigeria has been granted and first Nigerian O&M team members have also been successfully hired and deployed while Engro Power Services Nigeria has also been incorporated to undertake O&M operations.
    The total revenue billed during the period to PEPCO was PKR 9,809 million against which total receipts from PEPCO were PKR 8,862 million during the period. Over dues from PEPCO stood at PKR 1,342 million as at September 30, 2014 against over dues of PKR 1,204 million as on December 31, 2013.The Company earned a net profit of PKR 1,553 million as compared to PKR1,578 million for the same period last year.

    Meanwhile, Sindh Engro Coal Mining Company (SECMC) has successfully acquired possession of 3,842 acres of land for start of physical work. Site mobilization, camp set-up and other utilities have been put in place for the 3.0 Million BCM local OB removal job. SECMC has achieved its first milestone of removing 1 million BCF of land. The company plans to gain all the equity which sums to around $800m by the end of Q1 2015. The Company has successfully acquired possession of 3,842 acres of land for start of physical work. Site mobilization, camp set-up and other utilities have been put in place for the 3.0 Million BCM local OB removal job. All HSE Systems for monitoring & reporting activities have been implemented to ensure injury-free work environment.

    The chemical handling and storage business – Engro Vopak – continued to reflect strong performance and recorded revenue of PKR 1,547 million and profit after tax of PKR 1,027 million during the first nine months of 2014. Similarly, Engro Elengy Terminal (Private) Limited (EETL) plans to sign the LNG Service Agreement (LSA) with Sui Southern Gas Company Limited for second LNG terminal. The Company has successfully signed various agreements including Implementation Agreement with Port Qasim Authority as well as agreement for Engineering, Procurement & Construction and Time Charter Party agreement of Floating Storage & Regasification Unit. Going forward, the business aims to ensure that the project gets commissioned on March 31, 2015. The construction of the LNG terminal is likely to finish off in January 2015.

    Engro Corporation is well positioned to play its role in creating inclusive growth for the Country while working on high impact areas of the economy such as the energy sector through its involvement with the Thar coal and the LNG import terminal projects.