Engro Corporation Annual Report 2010 - SEARCHABLE
Engro Corporation Annual Report 2010 - SEARCHABLE
Engro Corporation Annual Report 2010 - SEARCHABLE
The management team at Engro is responsible for conceptualizing became Exxon Chemical Pakistan Limited. The business continued
and articulating goals that bring our people together in pursuit of to prosper as it relentlessly pursued productivity gains and strived
our objectives. It leads the company with a firm commitment to the to attain professional excellence.
structure has evoived to create a more transparent and accessible on a global basis, the employees of Exxon Chemical Pakistan
The c o m p a n y is also defined by its history, which reflects a rich From its inception as Esso Pakistan Fertilizer C o m p a n y Limited in
legacy of innovation and growth. The seeds for the c o m p a n y were 1965 to Engro Corporation Limited in 2 0 1 0 , Engro has c o m e a
s o w n following the discovery of the Mari gas field by Esso / Mobil long way a n d will continue working towards its vision of b e c o m i n g
in 1957. Esso proposed the establishment of a urea plant, and the a premier Pakistani c o m p a n y with a global reach.
The business plays a pivotal role in ensuring the sustainability of commissioning of Pakistan's first cryogenic import facility for
the domestic PVC industry and provides support through the provision Ethylene.
03
Engro Powergen Limited Engro Eximp Private Limited
Engro Powergen Limited seeks to develop power projects in Pakistan Engro Eximp Private Limited trades in c o m m o d i t y fertilizers such
to help reduce the power shortage in the country a n d earn a as DAP, MAP, MOP and SOP, and micro-nutrients like Zinc Sulphate.
competitive return for shareholders. It supplies these fertilizers as raw materials to Engro Fertilizer's
Zarkhez plant for manufacturing blended c o m p o u n d fertilizers.
The business has set up its first venture into the power sector, with Engro Eximp has been the largest importer of phosphates a n d
a 2 2 0 MW power plant in Qadirpur. This is Engro's first Independent potash fertilizers in Pakistan over the last few years and has also
Power Project (IPP) a n d it utilizes permeate gas, t h u s reducing recently expanded into the regional trade of fertilizers.
c a r b o n emissions.
W i t h a vision to expand into n e w a n d profitable trading avenues,
The Sindh Engro Coal Mining C o m p a n y Limited is a joint venture Engro Eximp has established a fast growing basmati rice trading
b e t w e e n the Government of Sindh a n d Engro Powergen, to mine business. T h e business will procure high quality basmati paddy
coal from Thar Block II. The project has c o m p l e t e d its technical, from farmers and export finished basmati rice to B 2 B customers
e c o n o m i c a n d environmental feasibility assessment a n d aims to across the w o r l d . As part of this initiative, Engro has set up a large,
utilize the ample reserves of coal in the Thar Desert for power state-of-the-art rice processing mill in Muridke; the heart of the
generation. basmati growing area in Pakistan.
05
engro at a glance
Investment
40 70
- 2,160 _
Total Employees
3,202
J Daharki j_] Karachi J Sukkur [J Qadirpur | J Muridke & Lahore J Sahiwal |_| Others
01
C o m p a n y Introduction
Engro at a glance 06
Key Figures 10
C o m p a n y Information 12
Notice of Meeting 13
T h e Board of Directors 16
Directors' Profiles 18
Core Values 24
Corporate Governance 26
Board C o m m i t t e e s 28
Functional Committees 29
Directors' Report
30 Business Review
Health, Safety a n d Environment
33
37
Employee Relations a n d
Organizational Development 39
Social Investments 40
Corporate A w a r d s 42
Results for the year 43
Dividends 44
Value Addition 45
Key Shareholding a n d Shares Traded 60
Pattern of Holding of the Shares 52
Shareholder Information 56
Standalone A c c o u n t s
58 Statement of Compliance
Review Report on Statement of Compliance
59
61
Auditors' Report on Compliance
with Employee Share Option S c h e m e 62
Auditors' Report t o the M e m b e r s 63
Standalone Financials 64
Consolidated A c c o u n t s
Financials at a glance
Market Capitalization
Capital Expenditure Rs Million (Year End) Rs Million
2009 2010 2009 2010
53,894
21,153 54,604
63,519
Market Capitalization
Total Assets Rs Million (Year End) USD Million
2009 2010 2009 2010
132,105
164,778 649
742
JS Bank Limited
Board of Directors Bank Al-Habib Limited
Bank Al-Fa!ah Limited
Hussain D a w o o d , Chairman
Askari Bank Limited
A s a d Umar, President & Chief Executive
Citibank Limited
Asif Qadir
NIB Bank Limited
Arshad Nasar
Shahzada D a w o o d
Shabbir Hashmi
Isar A h m a d Auditors
Khalid Mansoor
Ruhail M o h a m m e d A.F. Ferguson & C o m p a n y
Chartered Accountants
Khalid Siraj Subhani
M u h a m m a d Aliuddin Ansari State Ufe Building No. 1 -C
I.I. Chundrigar Road
Abdul S a m a d D a w o o d
Karachi-74000, Pakistan
Saad Raja
Tel: +92(21) 3 2 4 2 6 6 8 2 - 6 / 3 2 4 2 6 7 1 1 - 5
Fax +92(21) 3 2 4 1 5 0 0 7 / 3 2 4 2 7 9 3 8
Company Secretary
Andalib Alavi Registered Office
7th & 8th Floors, The Harbor Front Building,
HC # 3, Marine Drive, Block 4, Clifton,
Bankers
Karachi-75600, Pakistan
Tel: +92(21) 3 5 2 9 7 5 0 1 - 3 5 2 9 7 5 1 0
Standard Chartered Bank Pakistan Limited
M C B Bank Limited Fax:+92(21) 3 5 8 1 0 6 6 9
NOTICE IS HEREBY GIVEN that the Forty Fifth Annual General "5. The share capital of the C o m p a n y is Rs. 4,500,000,000
Meeting of Engro Corporation Limited will be held at Karachi Marriott (Rupees Four Billion Five Hundred Million) divided into
Hotel, Abdullah Haroon Road, Karachi on Thursday, March 3 1 , 4 5 0 , 0 0 0 , 0 0 0 Ordinary Shares of Rs. 1 0 / - (Rupees Ten)
2011 at 10,00 a.m. to transact the following business: each."
A. Ordinary Business (6) To consider, a n d if thought fit, to pass the following Resolution
as an Ordinary Resolution:
(1) To receive a n d consider the Audited A c c o u n t s for the year
ended December 31, 2 0 1 0 a n d the Directors' a n d Auditors' "RESOLVED that
Reports thereon.
(a) A s u m of Rs. 6 5 5 , 4 7 3 , 6 3 0 (Rupees Six Hundred Fifty Five
(2) To declare a final dividend at the rate of Rs. 2.00 per share for Million Four Hundred Seventy Three Thousand Six Hundred
the year ended December 31, 2 0 1 0 . and Thirty only) out of the free reserves of the C o m p a n y
be capitalised a n d applied towards the issue of 65,547,363
(3) To appoint Auditors a n d fix their remuneration. ordinary shares of Rs. 10/- each as bonus shares in the
ratio of 1:5 i.e. 2 0 % on ordinary shares held by the members
B. Special Business w h o s e names appear on the Members Register on March
1 7 , 2 0 1 1 . These bonus shares will rank pari passu in all
(4) To consider, a n d if thought fit, to pass the following resolution respects with the existing shares but shall not be eligible
as a Special Resolution: for the dividend declared for the year ended December 3 1 ,
2010.
"RESOLVED that the Authorized Capital of the C o m p a n y be (c) For the purpose of giving effect to the foregoing, the directors
increased from Rs. 3 , 5 0 0 , 0 0 0 , 0 0 0 to Rs. 4 , 5 0 0 , 0 0 0 , 0 0 0 be a n d are hereby authorised to give s u c h directions as
(Rupees Four Billion Five Hundred Million) a n d that: they d e e m fit to settle any question or any difficulties that
may arise in the distribution of the said bonus shares or in
(a) Cause 5 of the Memorandum of Association of the Company the payment of the sale proceeds of the fractions."
be and is hereby a m e n d e d to read as follows:
13
notice of
N.B.
(1) The Share Transfer Books of the C o m p a n y will be closed from Rights, a n d therefore it is thought prudent to obtain shareholder
Thursday, March 17, 2011 t o Thursday, March 3 1 , 2 0 1 1 (both approval for the s a m e at the A G M .
days inclusive). Transfers received in order at the office of our
Registrar, M/s. FAMCO Associates (Private) Limited, 1st Floor, S o m e of the Directors of Engro are interested in the business to
State Life Building No. 1-A, I.I. Chundrigar Road, Karachi-74000 the extent that they are also nominee Directors of E.Polymer a n d
by the close of business (5:00 p.m) on Wednesday, March 16, hold one share each as nominees of Engro, while Mr. Asif Qadir
2011 will be treated in t i m e for the purpose of payment of final holds (including 1 nominee share) 1,607,776 shares of E.Polymer.
dividend a n d issuance of bonus shares to the transferees, a n d
to attend the meeting. The information required under SRO 865(1 )/2000 for equity
investment is provided below:
(2) A m e m b e r entitled to attend a n d vote at this Meeting shall be
entitled to appoint another person, as his/her proxy to a t t e n d , (i) N a m e of investee C o m p a n y or a s s o c i a t e d u n d e r t a k i n g :
speak a n d vote instead of him/her, a n d a proxy so appointed Engro Polymer & Chemicals Limited
shall have such rights, as respects attending, speaking a n d
voting at the Meeting as are available to a member. Proxies, (ii) Nature, a m o u n t a n d e x t e n t of investment:
in order to be effective, must be received by the C o m p a n y not Acquisition of shares of E.Polymer for an amount of upto Rs.
less than 48 hours before the Meeting. A proxy need not be 562 million. The shares will be acquired directly from E.Polymer
a m e m b e r of the Company. through its Rights issue as further equity injection.
Statement under Section 160 of the Companies (iii) Average market price of the shares intended to be purchased
Ordinance, 1984 during preceeding 6 months:
Rs. 12.56
This Statement is annexed to the Notice of the Forty Fifth Annual
General Meeting of Engro Corporation Limited to be held on March
(iv) B r e a k - u p value of shares:
3 1 , 2011 at w h i c h certain Special Business is to be transacted.
Rs. 10.42 (as at e n d December, 2010)
The purpose of this Statement is to set forth the material facts
concerning such Special Business.
(v) Price at w h i c h shares will be p u r c h a s e d :
Rs. 10 per share. However, incase volatility in the stock market
Item (4) of the Agenda d o e s not m a k e it possible or practical to have a Rights issue
at par, offer by E.Polymer a n d subscription by Engro at lower
Engro Polymer & Chemicals Limited (E.Polymer) is a Subsidiary of
t h a n par may have to be considered.
Engro, with other large shareholders being the International Finance
Corporation (15%) a n d Mitsubishi Corporation (10.24%). E.Polymer
(vi) Earning / (Loss) per share of investee c o m p a n y in last 3 years:
has executed a major expansion a n d b a c k integration project by
Rs. 0.68, Rs. (0.35) a n d Rs. (1.22) in 2 0 0 8 , 2 0 0 9 a n d 2 0 1 0
expanding its PVC resin production capacity by 5 0 , 0 0 0 t o n s (to a
respectively.
total of 150,000 t o n s per annum) and b a c k integrating by setting
up an EDC / V C M plant with a capacity of 150,000 t o n s pa and
(vii) S o u r c e s of f u n d s f r o m w h e r e shares will be p u r c h a s e d :
a chlor-alkali unit to produce 106,000 t o n s pa of caustic soda and
Internal cash generation a n d possible further debt, ff required.
9 4 , 0 0 0 t o n s pa of chlorine, alongwith a 65 MW power plant and
allied equipment a n d facilities. The project is now complete and in
(viii)Period f o r w h i c h i n v e s t m e n t will b e m a d e :
production. However d u e delays in completion, E.Polymer h a d to
Long t e r m .
borrow an extra Rs. 9 5 0 million from banks. The terms of the loan
are that repayment is to be m a d e in one lump sum and the banks
(ix) P u r p o s e of i n v e s t m e n t :
can require E.Polymer to implement a Rights issue, incase a majority
To provide comfort to and to enable repayment of the loans of
of the banks feel that internal cash generation may not be sufficient
the lenders to E.Polymer a n d to provide further equity to
to repay the loans. As the C o m p a n y o w n s 5 6 % of the shares of
E.Polymer.
E.Polymer, it w o u l d be obliged to subscribe to its portion of the
15
F l a p o p e n left s i d e
enabling growth,
enabling excellence.
enabling growth,
enabling excellence.
Launched 11 brands since inception.
Hussain Dawood
Chairman
Hussain D a w o o d graduated with an M B A from the Kellogg School He also serves as a M e m b e r of t h e G o v e r n m e n t of Pakistan
of Management, Northwestern University, USA, a n d is a graduate Education Task Force, Director of t h e Pakistan Business Council,
in Metallurgy from Sheffield University, UK. He is Chairman of Engro Pakistan Centre for Philanthropy, Beaconhouse National University
Corporation Umited, D a w o o d Hercules Chemicals Umited, Pakistan and is a Global Charter M e m b e r of The Indus Entrepreneurs (TIE).
Poverty Alleviation Fund and T h e D a w o o d Foundation. His social He is the Honorary Consul of Italy in Lahore a n d w a s conferred the
responsibilities include Chairmanship of t h e International Advisory a w a r d "Ufficiale Ordine al Merito della Repubblica Italiana" by t h e
Council of t h e Cradle to Cradle Institute in San Francisco, Karachi Italian Government. He joined t h e board in 2 0 0 3 .
Education Initiative / Karachi School for Business & Leadership.
19
directors' profile
21
directors' profile
4
1
J
Safety, Health & Environment Ethics & Integrity
We will manage and utilize resources and operations in such a way We do care h o w results are achieved a n d will demonstrate honest
that the safety and health of our people, our neighbors, our customers and ethica! behavior in al! our activities. Choosing the course of
a n d our visitors is ensured. We believe our safety, health a n d highest integrity is our intent a n d we will establish and maintain the
environmental responsibilities extend beyond protection and highest professional a n d personal standards. A well-founded
enhancement of our o w n facilities, a n d we are c o n c e r n e d a b o u t reputation for scrupulous dealing is itself a priceless asset.
the distribution, use a n d after use disposal of our p r o d u c t s .
We have leaders of high integrity, energy and enthusiasm w h o have objectives, its plans a n d the thinking behind t h e m .
professional c o m p e t e n c e is a necessary foundation. elements of a healthy, creative and high-performing work environment.
Having fun in our w o r k should be a normal experience for everyone.
define quality as understanding the customer's expectations, ideas that result in improved solutions a n d services to customers.
agreeing on performance and value, a n d providing p r o d u c t s a n d We encourage challenges to the status quo and seek organizational
services that meet expectations a hundred percent of the time. Our environments in which ideas are generated, nurtured and developed.
External & Community Involvement We believe that high-performing teams containing appropriate
diversity c a n achieve w h a t individuals alone cannot. Consciously
using the diversity of style, a p p r o a c h a n d skills afforded by t e a m s
We believe that society must have industrial organizations that it
is a strength, which we must continue building into our organization.
can trust. Trust and confidence are earned by our performance, by
o p e n a n d direct communication, and by active involvement in the
communities where we live and c o n d u c t our business. Diversity & International Focus
Candid & Open Communications We value differences in gender, race, nationality, culture, personality
a n d style because diverse solutions, approaches a n d structures
We value communications that are courteous, candid and o p e n are more likely to meet the needs of c u s t o m e r s a n d achieve our
25
corporate governance
The Board is ultimately responsible for Engro's system of internal this function. T h e Head of Internal Audit functionally reports to the
control and for reviewing its effectiveness. However, such a system Audit Committee. T h e Board Audit C o m m i t t e e approves the audit
is designed to manage rather than eliminate the risk of failure to program, based on an annual risk assessment of the operating
achieve business objectives, a n d can provide only reasonable a n d areas. The Internal Audit function carries out reviews on the financial,
not absolute assurance against material misstatement or loss. operational a n d compliance controls, a n d reports on findings to
the Board Audit Committee, Chief Executive and the divisional
The Board, whilst maintaining its overall responsibility for managing management.
Framework: Since April 2 0 0 9 , the Board has comprised of five executives, four
The company maintains an established control framework comprising independent non-executive Directors a n d four non executive
clear structures, authority limits, and accountabilities, well understood Directors, w h o had the collective responsibility for ensuring that the
policies a n d procedures a n d budgeting for review processes. All affairs of Engro are managed competently a n d with integrity.
policies a n d control procedures are d o c u m e n t in manuals. The
Board establishes corporate strategy a n d the C o m p a n y ' s business A non-executive Director, Mr Hussain D a w o o d , chairs the Board
objectives. Divisional management integrates these objectives into a n d the Chief Executive Officer is Mr A s a d Umar. Biographical
divisional business strategies with supporting financial objectives. details of the Directors are given on pages 18 a n d 23.
The Board meets quarterly to consider Engro's financial performance, schedules the matters reserved for discussion a n d approval. T h e
financial and operating budgets a n d forecasts, business g r o w t h full Board met ten times including meetings for longer term planning,
and development plans, capital expenditure proposals a n d other giving consideration b o t h to the opportunities a n d risks of future
The Board Audit Committee receives reports on the system of All Board members are given appropriate documentation in advance
internal financial controls from the external and internal auditors of each Board meeting. This normally includes a detailed analysis
and reviews the process for monitoring the effectiveness of internal on businesses a n d full papers on matters where the Board will be
27
board
committees
T h e Board has established three committees, which are chaired The Chief Financial Officer regularly attends the Board Audit
by independent non-executive directors. These committees are as Committee meetings by invitation to present the accounts. After
follows: each meeting, the Chairman of the Committee reports to the Board.
The C o m m i t t e e met 7 times during 2 0 1 0 .
Board Compensation Committee
Director's Names
T h e c o m m i t t e e meets at least o n c e every quarter to review a n d Shabbir Hashmi (Chairman)
r e c o m m e n d all elements of the C o m p e n s a t i o n , Organization a n d Isar A h m e d
Employee Development policies relating to the senior executives' Aliuddin Ansari
remuneration and to approve all matters related to the remuneration Abdul S a m a d D a w o o d
of executive directors a n d members of the management committee.
T h e Secretary of the C o m m i t t e e is Naveed A Hashmi, General
The President and Chief Financial Officer attend Board Compensation Manager Corporate Audit
Committee meetings by invitation. The committee met 3 times
during 2 0 1 0 . The Board Investment Committee
Director's Names The C o m m i t t e e assists the Board in reviewing the C o m p a n y ' s
Hussain D a w o o d (Chairman) investment transactions and performances, oversee the Company's
Shabbir Hashmi capital and financial resources a n d advise on future strategy. The
Arshad Nasar Committee meets on a need basis, but at least three times a year
Shahzada D a w o o d and reguiariy reports to the Board.
engro foundation
Engro F o u n d a t i o n serves as a single platform for c o m m u n i t y
engagement activities and social investments of Engro affiliates. By
pooling their financial and managerial resources under the Foundation,
Engro affiliates seek to create large scale social impact through
w h i c h people have a c c e s s to choices a n d opportunities for
development. Engro Foundation is governed by a Board of Trustees.
Board of Trustees
A s a d U m a r (Chairman)
Khalid M a n s o o r
Khalid Siraj S u b h a n i
Sarfaraz A R e h m a n
Tahir J a w a i d
29
F l a p o p e n left s i d e
enabling growth,
enabling excellence.
enabling growth,
enabling excellence
The largest single train ammonia - urea
plant in the world, setup with an investment
of USD 1.1 billion.
2 1 , 0 5 0
19,018
1,828
14,618
79,976
| Foods Polymers Powergen | Eximp | Avanceon | Fertilizers
engro
engro powergen
qadirpur limited
95%
ENGRO VOPAK TERMINAL LTD.
engro polymer & chemicals -AVANCEON
50% 56% 63%
Engro Corporation Limited is a holding company, created following the conversion of Engro Chemical Pakistan Limited
on January 1, 2010. Engro Corp provides the long term vision for the company as well as the guiding policies, and
oversees performance of the subsidiaries and affiliates.
business review
Fertilizers
The c o m p a n y ' s fertilizers business h a d been incorporated as a urea plant with a capacity of 1.3 million t o n s a n d is t h e largest
subsidiary of Exxon Chemicals Private Limited in 1964. Following private sector industrial investment of approximately US$ 1.1 billion.
a number of transitions over the last four decades, the c o m p a n y The a d d e d capacity will not only meet t h e country's urea needs
evolved into Engro Fertilizers Limited as of January 1, 2 0 1 0 after but also save foreign exchange of approximately U S $ 5 0 0 million
a demerger, and remains a fully o w n e d subsidiary of Engro at current pricing. The plant w a s unable to continue operating as
ever floods in the country's history. Pakistan's domestic urea on t h e agricultural e c o n o m y of Pakistan by increasing the cost of
production stood at 5.21 million tons in the past year, only marginally inputs to the farmers and costing the national economy by importing
higher as c o m p a r e d to 5.05 million t o n s in 2 0 0 9 . This w a s despite more expensive urea a n d providing subsidy for the same.
of 2 0 1 0 . During the year the c o m p a n y produced 972,000 t o n s of tons from 1.8 million tons in 2009 due to floods and high international
urea, which is 2% higher than the 952,000 t o n s produced in 2009. and domestic prices. The business sold 327,000 tons of phosphates
T h e gas curtailment impact w a s offset by a record production in in 2 0 1 0 , against 3 5 7 , 0 0 0 t o n s in 2 0 0 9 , achieving a market share
the first half, as well as no planned turnaround during the year. The of 2 3 % in 2 0 1 0 Vs 21 % in 2 0 0 9 . Despite lower sales, the g r o w t h
33
T h e NP industry declined by 1 7 % c o m p a r e d to 2 0 0 9 , In line with UHT category. In 2 0 1 0 , the company also entered the dairy powder
a decline in the phosphate market, a n d accordingly, E-NP sales business with the launch of Tarang P o w d e r which achieved a 4%
decreased to 35,000 tons in 2 0 1 0 from 45,000 tons during 2009, market share by the end of the year. Olpers grew by 9% to 137
although E-NP market share remained at around 1 0 % . The million liters.
c o m p a n y ' s Zarkhez plant p r o d u c e d a total of 100,000 t o n s of
blended fertilizers, which includes 6 3 , 0 0 0 t o n s of Zarkhez a n d The ice cream market g r e w by 2 0 % to 71 million liters f r o m 59
3 7 , 0 0 0 t o n s of E-NP, as c o m p a r e d to a total of 9 2 , 0 0 0 t o n s million liters in 2009. Industry volume growth was driven by increased
p r o d u c e d during 2 0 0 9 . competitive activities between Walls and Omore increasing consumer
awareness. In addition, heavy competition kept prices d o w n , making
Foods ice cream more affordable for the consumers. O m o r e volumes
increased by 1 0 0 % to 12.2 million liters in 2 0 1 0 from 6.1 million
Engro Foods IJmited is a wholly o w n e d subsidiary engaged in the liters in 2 0 0 9 , and Omore market share w a s estimated at 1 7 %
manufacture, processing a n d sales of dairy products, ice cream during 2010. However, the brand m a d e an operational loss due to
and fruit juices. In addition, the company also operates a dairy farm, continued investment in the Omore' brand.
manufacturer of PVC in the country and also manufactures a n d 2 0 0 9 . During the year, 9 3 , 0 0 0 tons of Caustic soda w a s produced
markets caustic soda. The business p r o d u c e s all its energy f r o m as c o m p a r e d to 39,000 t o n s in 2009. Caustic soda sales remained
its c o m b i n e d cycle power plants and sells any surplus energy to strong during the year a n d c o m p a n y sold 8 0 , 0 0 0 t o n s as against
the Karachi Electric Supply C o m p a n y (KESC). 27,000 tons in 2009. The company also produced and sold 20,000
t o n s of Sodium Hypochlorite.
35
Government of Sindh for the development, construction a n d The c o m p a n y has received a s h o w cause notice from the
operation of an o p e n coal mine facility in Block 2 of the Thar Coal Competition Commission of Pakistan regarding the exclusivity
Field. clause in its Implementation Agreement (IA) with Port Qasim Authority.
T h e c o m p a n y believes the IA is valid in its totality a n d is defending
Chemical Storage and Terminal the matter before the Commission.
Engro Vopak Terminal Limited is a 5 0 : 5 0 joint venture with Royal Automation and Control
Vopak of the Netherlands, a n d is engaged in the handling and
storage of chemicals a n d LPG. The c o m p a n y completed 13 years Avanceon Limited is engaged in automation and control engineering
of safe operations without lost w o r k injury in November 2 0 1 0 . The services. The c o m p a n y has a wholly o w n e d subsidiary in Jebel Ali
terminal continues to maintain the highest levels of health, safety Free Zone, UAE, which in turn has a 7 0 % interest in its US subsidiary.
and quality standards, and w a s rated the highest amongst all Vopak The company continued its focus on health, safety a n d environment
terminals in Asia in a Terminal Health Assessment c o n d u c t e d in initiatives in 2 0 1 0 and achieved zero Lost Work Injury (LWI) during
2010. t h e year.
During the year, efforts continued to position for the LNG import Despite tough economic conditions, the c o m p a n y had an increase
terminal at Port Qasim, a n d the c o m p a n y has received a No in n e w business a n d revenues over the last year. However, this
Objection Certificate (NoC) f r o m the Port Qasim Authority for t h e revenue of Rs 5 5 6 million remained below breakeven point due to
project site at Khiprianwala to c o n d u c t a feasibility study. difficulties in its energy S B U .
The c o m p a n y ' s actual throughput for the year w a s 1,104 k t o n s Due to the lasting impact of the recession, customers remained
vs. 1,063 k t o n s in 2 0 0 9 , including LPG import of 31 k t o n s vs. cautious with their capital expenditures, with the c o m p a n y ' s U A E
40 k t o n s in 2 0 0 9 . Engro V o p a k also achieved a first in the history subsidiary facing a decline in order generation a n d sales, mainly
of LPG imports in the country by handling the largest ship (5,000 attributable to the macro-economic environment of the UAE.
tons) to d o c k in Pakistan. The increased annual throughput is mainly However, t h e c o m p a n y ' s US subsidiary demonstrated a robust
attributable to higher import of Phos Acid a n d the first full year of turn around, increasing its revenues a n d making a profit for 2 0 1 0 .
operation of the V C M plant at Engro Polymer & Chemicals Limited.
The c o m p a n y is highly conscious of its HSE responsibility a n d t h o s e associated with our business processes. This involved
continued to w o r k relentlessly t o w a r d s increasing efficiencies a n d improving air a n d water quality, exploiting internal energy resources
reducing environmental impact of all of its industrial and office a n d helping to create n e w j o b s a n d avenues for environmentally-
locations during 2 0 1 0 . The c o m p a n y continued its endeavor to conscious g r o w t h .
align HSE management systems a n d processes to international
best practices including Occupational Safety and Health Every employee involved in plant operations at any of our manufacturing
Administration (OSHA) and Dupont Workplace Safety Standards. facilities is given an overview of the process and operating procedures,
All HSE systems and processes are regularly assessed and audited with an emphasis on specific HSE hazards, emergency operations
internally as well as by third parties. and safe w o r k practices. The Occupational Health program at Engro
includes aspects of industrial hygiene and occupational medicine.
The company is committed to reduce its carbon footprint a n d water All employees are also trained and kept up to date on technological
usage and as a result, a number of initiatives have been taken at changes a n d safety related aspects of their jobs. The company has
all stages of production a n d at all levels in the company. All of established environment management programs at its facilities to
Engro's facilities are NEQS compliant and follow the highest comply to environmental laws a n d regulations.
standards for ensuring health a n d safety of its employees and all
The following table highlights the results of a successful year of best practices at all Engro businesses:
AVANCEON 0.5 0 0 0 0
EXIMP 0.23 0 0 0 0
37
Being a socially responsible company, Engro has a continuing focus The polymer business has a comprehensive Environmental
on environmental aspects of its operations a n d risk mitigation plans Management System (EMS), certified a n d regularly audited under
in place. Environmental awareness is deeply rooted in the company's ISO 14001:2004. The business has also established and maintained
values and w o r k culture, and Engro continues to invest in upgrading a procedure for including environmental management in consideration
systems a n d improving standards to international benchmarks. of planning, design, production, marketing and disposal stages
where appropriate a n d implementable.
As a responsible employer, Engro respects its employees' rights In the last year, the c o m p a n y continued to invest in the professional
a n d endeavor to provide a safe a n d healthy workplace, fair policies development of its employees. Various in-house a n d outsourced
a n d procedures, freedom of opinion a n d expression a n d o p e n training courses, seminars a n d w o r k s h o p s in the areas of
dialogue with all employees. In 2 0 1 0 , the c o m p a n y continued to management, plant operation a n d maintenance, information
w o r k towards enhancing employee satisfaction, offering attractive technology, finance, etc. were arranged throughout the year.
and fair compensation and benefits, increasing gender diversity,
enabling personal and professional development a n d providing The c o m p a n y also continued its dedication towards creating a
opportunities for g r o w t h and to nurture future corporate leaders. rewarding life experience for employees through efforts during the
flood relief. The company initiated a special leave policy for employees
The c o m p a n y demonstrated engagement in diversity, proactive w h o sought to volunteer for flood relief w o r k , a n d the c o m p a n y ' s
inclusion and equal opportunity as an investment in our people and volunteer network, Envison, organized opportunities for Engro
our future g r o w t h . T h e c o m p a n y ' s c o m m i t m e n t to provide equal employees t o donate time, money a n d g o o d s .
opportunity to all employees a n d applicants for employment in
a c c o r d a n c e with its values a n d all applicable laws, directives a n d
regulations is constantly reaffirmed through its policies a n d best in-
class practices.
39
social investments
As part of the company's enduring commitment towards improving approximately Rs. 2 5 0 million from internal sources a n d external
the life of its stakeholders, a n d especially host communities, Engro partners and volunteers to support the residents of the hardest hit
contributed over Rs.136 million under its social investments areas. T h e c o m p a n y ' s efforts w e r e concentrated in district Ghotki
c o m m i t m e n t in 2 0 1 0 , as c o m p a r e d to Rs. 58 million in 2 0 0 9 . and Sukkur in Sindh and districts Muzaffargarh and Layyah in
Punjab.
After an evaluation of the social impact of Engro's efforts, t h e
c o m p a n y m a d e a decision to create the Engro Foundation, Education holds special significance for the company, and is a major
established with the m a n d a t e to enhance the c o m p a n y ' s key focus area, especially in the communities that host our manufacturing
corporate social responsibilities in its geogarphical s c o p e of facilities. Over the years, Engro has partnered with institutions like
operations. The Foundation serves as a single platform for community Sahara Welfare Trust a n d The Citizen's Foundation for the
engagement activities a n d social investments of Engro affiliates. By development of educational facilities in these areas. Engro has also
pooling their financial and managerial resources under the Foundation, established a Training a n d Resource Center fTARC) to provide a
Engro affiliates seek to create large scale social impact. dedicated resource for the training of teachers involved in these
Major investments include education, health, water and sanitation, schools. In addition, Engro is also supporting 11 schools in the
with the main focus of activities being the communities in the vicinity Katcha (riverine belt) area along the Indus. Engro has also initiated
of the c o m p a n y ' s manufacturing sites a n d supply chains. The a Government School A d o p t i o n program with the support of the
Foundation also has employee giving volunteering programs to provincial education department a n d local communities. At present,
support employees' efforts in their communities. Engro supports 13 schools a r o u n d Daharki a n d Qadirpur, with an
enrollment of 1,600 students. Till date, Engro's investments in
Engro was also heavily involved in the relief and rehabilitation efforts education have reached out to 3,309 students, in addition to funding
the employment of 55 teachers across 25 schools.
following the floods during the summer of 2 0 1 0 . Engro organized
41
corporate awards
The company was ranked Pakistan's leading company for Corporate The polymer business w a s a w a r d e d a c o m m e n d a t i o n for
Social Responsibility (CSR), by the first Asian Sustainability c o m m i t m e n t to excellence in sustainability reporting by t h e Asian
Rating (ASR). Sustainability Rating.
The company received the A C C A - W W F 'Best Sustainability' Award The f o o d s business w o n the 'Best Place to W o r k ' for the s e c o n d
during the year. time from the P S H R M .
The c o m p a n y w a s honored with the Investor Relations A w a r d by The c o m p a n y w o n the seventh consecutive national forum of
the CFA Association of Pakistan for the year 2 0 1 0 . environment a n d health (NFEH) annual environment awards.
1
The fertilizers business received 'Brand of the Year awards for t w o W o n the 5th CSR National Excellence award from CSR Association
of its products. of Pakistan.
Revenue of Businesses
24,000 -r
21,000 - -
18,000
15,000--
12,000--
9,500--
6,000--
3,000--
| 2010 2009
Flap inside
PAT of businesses
4000 T-
3500 --
3000 - -
2500--
2000 - -
i 1500--
CL
1000--
500 - -
-500 - -
-1000--
| 2010 2009
performance
over the years
Rs Million
1990 2004 2006 2007 2009 2010
Revenues
PAT
Total A s s e t s £
A s s e t s as of Dec 3 1 , 1 9 8 9
dividends
The Board is pleased to propose a final dividend of Rs. 2 per share. The total dividend attributable to the year is Rs. 6 per share versus
Rs. 6.00 per share paid last year.
Million R u p e e s
Bonus shares issued in ratio of 1 share for every 10 shares held (298)
First interim dividend on 3 2 7 , 7 3 6 , 8 1 9 shares of Rs. 10 each at Rs. 2.00 per share declared
o n July 2 8 , 2 0 1 0 (655)
S e c o n d interim dividend on 3 2 7 , 7 3 6 , 8 1 9 shares of Rs. 10 each at Rs. 2.00 per share declared
o n October 2 8 , 2 0 1 0 (655)
S u b s e q u e n t Effect
Proposed final dividend on 3 2 7 , 7 3 6 , 8 1 9 shares of Rs. 10 each at Rs. 2 per share (655)
2010 2009
Rupees in Million % Rupees in Million %
Wealth Generated
28,297 18,744
Wealth Distributed
To employees
Salaries, benefits a n d other costs 4,836 17.09% 3,134 16.72%
To Government
Taxes, duties a n d development surcharge 9,646 34.09% 7,790 41.56%
To Society
Donation towards education, health, environment a n d natural disaster 136 0.48% 0.31%
To Providers of Capital
- Dividend to Shareholders 2,203 7.78% 1,617 8.63%
28,297 18,744
45
The product w a s successfully received by the investor market and
Cash Flow and Capital Investment managed to raise approximately Rs. 3.5 bn by the end of 2010,
a n d w a s fully subscribed to the worth of Rs 4 billion before its official
Lower Cash w a s generated from operations during the year (Rs
close in January 2 0 1 1 . In addition to raising funds for subsidiaries
5,876 million versus Rs 15,410 million in 2009) on account of higher
the TFCs will also help to develop the corporate debt market of
working capital of Rs 15,037 million as c o m p a r e d to last year. This
Pakistan where participation from retail investors has been almost
increase in working capital is attributed to higher stores a n d spares
negligible in the past. With individuals subscribing to almost 8 0 %
for the Urea Expansion project, higher procurement a n d inventories
of the Issue, Engro Rupiya Certificate has provided a successful
of rice a n d W A P D A receivables (2009:NIL). Taxes paid for the year
arternative for the company to raise funds from a previously untapped
a m o u n t e d to Rs 2,378 million v s . Rs 1,956 million last year based
investor base. Through partnerships with leading financial institutions,
on withholding tax deducted at import stage on purchased fertilizers
Engro has positioned the product as a convenient investment option
a n d on the regulations governing income tax.
with returns that are superior to Bank Deposits and National Saving
S c h e m e s . T h e instrument is secured on certain assets of t h e
Total long term investments of 2,409 million were m a d e during the
C o m p a n y a n d has been rated AA by PACRA.
year including investment of Rs 1,577 million in the Foods Business,
Rs 28 million in Power business and Rs 804 million in Petrochemical
Business. Pakistan's first ever OTC
Engro Fertilizers IJmited provided Pakistan with its first Over-the-
Additions to property, plant a n d equipment s t o o d at Rs 2 1 , 0 0 0
Counter (OTC) listing at the Karachi S t o c k Exchange on January
million representing expenditure towards construction of the Urea
1 7 , 2 0 1 1 . The c o m p a n y listed their private commercial paper worth
Fertilizer expansion project of Rs 1 5 , 0 0 0 million a n d additions of
Rs. 1 billion through the OTC market which makes it the first OTC
Rice plant a n d Foods expansion.
listing in the country as well as the first commercial paper to be
listed. The purpose of the OTC market is to provide investors with
Capital Investment, Capital Structure
an efficient a n d transparent source of investment, as well as
and Finance
encourage the corporate sector to fund their expansions and new
industries through this means in a cost effective manner.
During the year, the c o m p a n y issued 1 0 % bonus shares which
increased t h e paid-up capital of the c o m p a n y to Rs 3 , 2 7 7 million.
Shareholders' funds (excluding hedging reserves) at the year e n d Major Judgement Areas
totalled Rs 35,042 million. This increase is d u e to issuance of bonus
shares as well as retained profit. Main areas related to Group relief & Group tax, sales tax, special
excise duty, apportionment of gross profit etc. in the subsidiaries
are detailed in Notes to the A c c o u n t s (Note 38)
Net long t e r m borrowings at year e n d increased to Rs 104,695
million (2009: Rs 86,518 million) primarily for financing the company's
Urea Expansion Project for Rs 11,936 million and Foods expansion Management Information Systems
for Rs 2 , 3 0 0 million a n d Rs 3 , 3 8 4 million raised through Engro
Rupiya Certificate Issue. We continue to enhance efficiencies by increasing the S A P footprint
in the C o m p a n y from the existing implementation of financial,
accounting a n d h u m a n resource applications.
T h e balance sheet gearing (Company's long term d e b t to equity
ratio) for the year e n d e d 2 0 1 0 is 7 5 : 2 5 (2009 - 75:25). However
aforementioned ratio d o e s not factor in revaluation of base urea Accounting Standards
plant at Daharki, post revaluation Debt to Equity d r o p s to
68 : 3 2 . The liquidity position of the C o m p a n y remains robust with The accounting policies of the Company fully reflect the requirements
a year-end current ratio of 1.54 (2009 - 1 . 4 7 ) . of the Companies Ordinance 1984 and such approved International
A c c o u n t i n g Standards and International Financial Reporting
Standards as have been notified under this Ordinance as well as
Engro Rupiya Certificates (TFC)
through directives issued by the Securities a n d Exchange
Commission of Pakistan.
T h e C o m p a n y issued a fixed return Term Finance Certificate (TFC)
to target retail investors in the last quarter of 2 0 1 0 . Branded as the
Engro Rupiya Certificates, the T F C offered a return of 1 4 . 5 % per
annum, over a period of 3 years with semi-annual profit payments.
risks m a n a g e d by the Treasury function are liquidity risk, interest share options. The details of each s c h e m e is explained in n o t e 9
Interest Rate Management retirement benefits to its employees. These include a contributory
provident f u n d , a defined contributory (DC) pension plan, a non
contributory gratuity scheme for all employees a n d a defined benefit
At the end of 2 0 1 0 , Engro C o r p ' s consolidated borrowings were
(DB) pension scheme for the annuitants retired before July 1, 2 0 0 5
Rs. 104 billion. A significant portion of this amount is of foreign
(db pension for annuitants has m o v e d to efert).
currency, which is linked to LIBOR (note 22 of the accounts). Interest
rates on foreign currency borrowings are hedged through a fixed
interest rate swap for the entire tenor of the loans (note 10 of the The above mentioned plans are f u n d e d s c h e m e s recognized by
accounts). The local currency borrowings are all based on KIBOR the tax authorities. The latest actuarial valuation of m a n a g e m e n t
which is monitored regularly for adverse movements which may be pension a n d gratuity schemes w a s carried out at December 3 1 ,
mitigated by fixing the same. 2 0 1 0 a n d the financial statements of these have been audited up
to December 3 1 , 2009. The latest audited accounts for the provident
fund cover year ended June 3 0 , 2010. The C o m p a n y has fully paid
Liquidity Risk
all its obligations on all the above schemes.
47
5. The system of internal control is sound in design and has been
Auditors
effectively implemented a n d monitored.
T h e c o m p a n y ' s stock is amongst the actively t r a d e d shares on all Mr. Shahzada D a w o o d 10/10
The main challenge facing the polymer business will remain the
Foods smooth operation of the V C M plant thereby providing stable margins
The f o o d s business continues to increase its market share in the for the business.
processed milk a n d ice cream segments. The c o m p a n y further
intends to increase geographical reach for ice cream and strengthen The macro e c o n o m i c situation of the country a n d more specifically
its position in this segment. 2011 will also see the beginning of the fiscal deficit will remain a major challenge. Higher interest rates
sales from its o w n rice processing plant, as well as entering t h e a n d higher devaluation rates arising d u e to the fiscal situation will
halal food business in America a n d Canada through its planned directly affect t h e profitability of the company.
acquisition of 'Al Safa Halal' (subject to regulatory approvals). This
will be Engro f o o d s first international venture. The Board w o u l d like to take this opportunity to express its
appreciation for its dealers, customers, government, joint venture
Petrochemicals partners, d o n o r s , bankers, suppliers, employees a n d other
PVC domestic d e m a n d is expected to be stable to strong in 2011 stakeholders for their dedication, support and cooperation throughout
on account of reconstruction activities in flood affected areas, t h e year.
d e m a n d from agricultural sector a n d pipe exports to Afghanistan.
However Government spending in other areas is expected to remain
limited. Power load shedding and gas supply curtailment will continue
to adversely affect d e m a n d . Caustic S o d a d e m a n d is expected to
remain strong a n d the c o m p a n y is expected to sell capacity.
Powergen
Based on current d e m a n d supply situation the Qadirpur power
plant is expected to achieve very high dispatch rates. W o r k will
continue on the Thar Coal Mining and Power Project.
49
key shareholding
and shares traded
Information of shareholding required under reporting framework is as follows:
2. NITandlCP
Hussain D a w o o d 196,409
A s a d Umar 1,478,343
Isar A h m a d 8,108
M u h a m m a d Aliuddin Ansari 3,850
Abdul Samad Dawood 111,930
Shahzada D a w o o d 540,007
Shabbir Hashmi 27,913
Khalid Mansoor 367,240
Ruhail M o h a m m e d 6,375
Arshad Nasar 210
Asif Qadir 616,958
S a a d Raja 110
Khalid S. Subhani 454,945
4. Executives 3,487,064
Name
March 0 2 , 2 0 1 0 18,297* - -
M r s . Kulsum D a w o o d March 02, 2010 96,200* - -
(w/o. Mr. Hussain Dawood) December 6, 2 0 1 0 9837***** - 182.00
* 1 0 % Bonus shares
:
* Shares sold on Karachi S t o c k Exchange
* Shares sold to Ms.Kulsum D a w o o d
* Shares sold to Mr.Abdul S a m a d D a w o o d
* Shares purchased from Mr. Shahzada D a w o o d
* Shares purchased from Ms.Sabrina D a w o o d
'* Shares gifted to Mst. Azmeh D a w o o d (daughter)
51
pattern of holding of shares
Pattern of holding of the shares held by the shareholders as at December 31, 2010
Number of Shareholding Total Shares Held Number of Shareholding Total Shares Held
53
pattern of holding of shares
Pattern of holding of the shares held by the shareholders as at December 31, 2010
55
shareholder information
C D C Shareholders or their Proxies are requested to bring with t h e m have the dividends deposited directly in their bank accounts should
copies of their Computerized National Identity Card or passport contact our Registrar's, M/s. FAMCO Associates (Private) Ltd.
125 -
57
F l a p o p e n left s i d e
enabling growth,
enabling excellence.
enabling growth,
enabling excellence
V **
standalone accounts
• Financial Statements
statement of compliance with the
code of corporate governance
This statement is being presented to c o m p l y with the C o d e of C o r p o r a t e G o v e r n a n c e contained in the listing regulations of Karachi,
Lahore and Islamabad Stock Exchanges for the purpose of establishing a framework of g o o d governance, whereby a listed c o m p a n y is
managed in compliance with the best practices of corporate governance.
The C o m p a n y has applied the principles contained in the C o d e in the following manner:
2. The directors have confirmed that none of t h e m is serving as a director in more than t e n listed companies, including this Company.
3. All t h e resident directors of the C o m p a n y are registered as taxpayers a n d none of t h e m has defaulted in payment of any loan to a
banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange.
5 . A 'Statement of Ethics a n d Business Practices', has been circulated to all the directors a n d employees of t h e Company, which is in
the process of being signed.
6. The Board has developed a vision/mission statement, overall corporate strategy a n d significant policies of the Company. A complete
record of particulars of significant policies along w i t h the dates on w h i c h they w e r e a p p r o v e d or a m e n d e d has b e e n maintained.
7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination
of remuneration and terms a n d conditions of employment of t h e CEO a n d other executive directors, have been taken by the Board.
8. T h e meetings of the Board were presided over by the Chairman a n d the Board met at least once in every quarter. Written notices
of the Board meetings, along with the agenda, were circulated at least seven days before the meetings. The minutes of the meetings
were appropriately recorded and circulated.
9. The m e m b e r s of the Board are well aware of their duties a n d responsibilities as outlined by corporate laws a n d listing regulations.
10. T h e Board has a p p r o v e d appointment of CFO, C o m p a n y Secretary a n d H e a d of Internal Audit, including their remuneration a n d
terms and conditions of employment, as determined by the C E O .
11. T h e Directors' Report for this year has been prepared in compliance with the requirements of the C o d e a n d fully describes the salient
matters required to be disclosed.
12. The financial statements of the C o m p a n y were duly endorsed by CEO and CFO before approval of the Board.
13. The directors, CEO and executives do not hold any interest in the shares of the C o m p a n y other than that disclosed in the pattern
of shareholding.
14. The Company has complied with all the corporate and financial reporting requirements of the Code.
15. The Board has formed an audit committee. It comprises of 4 members all of w h o m are non-executive directors including the Chairman.
59
16. The meetings of the audit committee were held at least once every quarter prior to approval of interim a n d final results of the C o m p a n y
and as required by the Code. The terms of reference of the committee have been formed and advised to the committee for compliance.
18. The statutory auditors of the C o m p a n y have confirmed that they have been given a satisfactory rating under the quality control review
programme of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses a n d minor
children do not hold shares of the C o m p a n y and that the firm and all its partners are in compliance with International Federation of
A c c o u n t a n t s (IFAC) g u i d e l i n e s o n c o d e o f e t h i c s a s a d o p t e d b y I n s t i t u t e o f C h a r t e r e d A c c o u n t a n t s o f P a k i s t a n .
19. The statutory auditors or the persons associated with t h e m have not been appointed to provide other services except in accordance
w i t h t h e listing r e g u l a t i o n s a n d t h e a u d i t o r s h a v e c o n f i r m e d t h a t t h e y h a v e o b s e r v e d IFAC g u i d e l i n e s i n t h i s r e g a r d .
2 0. The Related Party transactions have been placed before the Audit C o m m i t t e e a n d a p p r o v e d by the Board of Directors alongwith
pricing m e t h o d s for such transactions.
21. We confirm that all other material principles contained in the C o d e have been complied w i t h .
Karachi
Dated: February 14, 2011
We have reviewed the Statement of C o m p l i a n c e with the best practices contained in the C o d e of Corporate Governance for t h e year
ended December 3 1 , 2 0 1 0 prepared by the Board of Directors of Engro Corporation Limited to comply with the Listing Regulations of
the Karachi, Lahore, and Islamabad Stock Exchanges where the C o m p a n y is listed.
The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Company. Our responsibility
is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of
the C o m p a n y ' s compliance with the provisions of the C o d e of Corporate Governance a n d report if it does not. A review is limited primarily
t o inquiries o f the C o m p a n y p e r s o n n e l a n d review o f various d o c u m e n t s p r e p a r e d b y the C o m p a n y t o c o m p l y w i t h the C o d e .
As part of our audit of financial s t a t e m e n t s we are required to obtain an understanding of the a c c o u n t i n g a n d internal control systems
sufficient to plan the audit a n d develop an effective audit a p p r o a c h . We are not required to consider whether the Board's statement on
internal control covers all risks a n d controls, or to form an opinion on the effectiveness of s u c h controls, the C o m p a n y ' s corporate
governance procedures and risks.
Further, Listing Regulations of the Karachi, Lahore a n d Islamabad S t o c k Exchanges require the C o m p a n y to place before the Board of
Directors for their consideration a n d approval, related party transactions distinguishing between transactions carried out on terms equivalent
to those that prevail in arm's length transactions and transactions which are not executed at arm's length price, recording proper justification
for using such alternate pricing m e c h a n i s m . Further, all such transactions are also required to be separately placed before the audit
c o m m i t t e e . We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by
the Board of Directors a n d placement of s u c h transactions before the audit c o m m i t t e e . We have not carried o u t any p r o c e d u r e s to
determine whether the related party transactions were undertaken at a r m ' s length price or not.
Based on our review, nothing has c o m e to our attention which causes us to believe that the Statement of Compliance does not appropriately
reflect the C o m p a n y ' s compliance, In ail material respects, with the best practices contained in the C o d e of Corporate Governance.
Chartered Accountants
Karachi
Dated: February 14, 2011
61
auditors' report to the
members on compliance
with employees share option scheme
We have audited the Engro Corporation Limited's compliance as of December 3 1 , 2 0 1 0 with:
(i) the Employees Share Option Scheme (the Scheme) as approved by the shareholders of the Company; and
(ii) the Public Companies (Employees Stock Option Scheme) Rules, 2001 (the Rules) issued by the Securities a n d Exchange Commission
of Pakistan vide S R O 300(1) 2 0 0 1 dated May 1 1 , 2 0 0 1 .
The responsibility for implementation of the S c h e m e , as approved by the shareholders of the C o m p a n y a n d in accordance with the Rules,
i n c l u d i n g m a i n t e n a n c e o f p r o p e r b o o k s o f a c c o u n t s a n d r e c o r d s i n r e s p e c t t h e r e t o , i s that o f t h e C o m p a n y ' s m a n a g e m e n t .
Our responsibility is to provide an opinion based on our evidence gathering procedures in a c c o r d a n c e with International Standards on
Auditing applicable to compliance auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the C o m p a n y has complied with the S c h e m e and the Rules. An audit includes examining appropriate evidence on a test
basis. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the C o m p a n y w a s , in all material respects, in c o m p l i a n c e with the S c h e m e and the Rules as of D e c e m b e r 3 1 , 2 0 1 0 .
Chartered Accountants
Karachi
Dated: February 14, 2 0 1 1 .
It is the responsibility of the C o m p a n y ' s management to establish a n d maintain a system of internal control, a n d prepare a n d present the
above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984.
Our responsibility is to express an opinion on these statements based on our audit.
We c o n d u c t e d our audit in a c c o r d a n c e with the auditing standards as applicable in Pakistan. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An
audit includes examining, on a test basis, evidence supporting the a m o u n t s a n d disclosures in the above said statements. An audit also
includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation
of the above said statements. We believe that our audit provides a reasonable basis for our opinion a n d , after due verification, we report
that:
(a) as more fully explained in note 35 to the financial statements, due to a fire at the C o m p a n y ' s old premises on August 19, 2 0 0 7 certain
records, documents a n d b o o k s of account of the C o m p a n y relating to prior years were destroyed. Records in electronic form remained
intact and certain hard copy records relating to financial year 2005 and 2006 have not been recreated;
(b) in our opinion, except for the matter referred to in paragraph (a), proper b o o k s of account have been kept by the C o m p a n y as required
by the Companies Ordinance, 1984;
(ii) the expenditure incurred during the year w a s for t h e purpose of the C o m p a n y ' s business; a n d
(iii) the business c o n d u c t e d , investments m a d e a n d the expenditure incurred during the year w e r e in a c c o r d a n c e with the objects of
the C o m p a n y ;
(d) in our opinion a n d to the best of our information a n d a c c o r d i n g to the explanations given to us, the balance sheet, profit a n d loss
account, statement of comprehensive income, statement of changes in equity a n d statement of cash flows, together with the notes
forming part thereof c o n f o r m with approved accounting standards as applicable in Pakistan, a n d , give the information required by
the Companies Ordinance, 1984, in the manner so required a n d respectively give a true a n d fair view of the state of the C o m p a n y ' s
affairs as at D e c e m b e r 3 1 , 2 0 1 0 a n d of the profit, total comprehensive income, changes in equity a n d its cash flows for the year then
e n d e d ; and
(e) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980) w a s d e d u c t e d by the C o m p a n y
a n d deposited in the Central Zakat Fund established under Section 7 of that Ordinance.
Chartered Accountants
Karachi
Dated: February 14, 2011
63
balance sheet
as at december 31, 2010
(Amounts in thousand)
Assets
Non-current assets
Property, plant a n d equipment A 136,178 69,517,512
27,896,393 82,960,567
Current assets
Stores, spares a n d loose tools 1.3 - 961,117
3,114,550 10,748,871
Liabilities
Non-current liabilities
Borrowings 13 - 58,565,354
Derivative financial instruments 1.3 - 612,842
Deferred liabilities 14 1,297 988,169
Employee housing subsidy 1.3 - 211,785
Retirement and other service benefits obligations 15 1,550 47,581
2,847 60,425,731
Current liabilities
Trade a n d other payables 16 267,044 3,160,852
Accrued interest / mark-up / profit 17 65,000 1,366,022
Current portion of:
- borrowings 13 3,384,536 810,100
- other service benefits obligations 15 - 20,600
Short term borrowings 1.3 - 195,753
Derivative financial instruments 1.3 - 740,043
Taxation 57,247 -
The annexed notes from 1 to 38 form an integral part of these financial statements.
65
profit and loss account
for the year ended december 31, 2010
(Amounts in thousand except for earnings per share)
Restated
Earnings per share - basic a n d diluted 26 Rs. 5.11 Rs. 12.73
The annexed notes from 1 to 38 form an integral part of these financial statements.
Other c o m p r e h e n s i v e i n c o m e
H e d g i n g reserve - c a s h f l o w h e d g e s
Losses arising during the year - (226,520)
Adjustment for amounts transferred to
initial carrying amount of hedged items (capital w o r k in progress) _ (907,366)
- (1,133,886)
Income tax (Deferred) relating to hedging reserve - 396,860
Other comprehensive income for the year, net of tax (737,026)
The annexed notes from 1 to 38 form an integral part of these financial statements.
Hussain D a w o o d A s a d Umar
Chairman President & C E O
67
statement of changes in equity
for the year ended december 31, 2010
(Amounts in thousand)
(Rupees)
Balance as at January 1, 2009 2,128,161 7,152,722 305,052 127,307 4,429,240 6,911,124 21,053,606
Balance as at December 3 1 , 2009 2,979,426 10,550,061 288,258 (609,719) 4,429,240 9,250,972 26,888,238
Interim dividends
- 1 s t ® Rs. 2 per share (655,473) (655,473)
- 2nd @ Rs. 2 per share - - - - - (655,473) (655,473)
The annexed notes from 1 to 38 form an integral part of these financial statements.
The annexed notes from 1 to 38 form an integral part of these financial statements.
k
Hussain D a w o o d A s a d Umar
Chairman President & C E O
69
notes to the financial statements
for the year ended december 31, 2010
(Amounts in thousand)
1.2 The Board of Directors in their meeting on April 2 8 , 2 0 0 9 d e c i d e d to divide the C o m p a n y into t w o c o m p a n i e s by separating its
fertilizer undertaking from the rest of the undertaking that w a s to be retained in the C o m p a n y (Retained Undertaking). In this regard,
a wholly o w n e d subsidiary namely Engro Fertilizers Limited was incorporated on June 2 9 , 2 0 0 9 . The division w a s effected on January
1, 2 0 1 0 (the Effective Date) through a S c h e m e of Arrangement (the Scheme) whereby:
a) the Fertilizer Undertaking has been transferred and v e s t e d in Engro Fertilizers Limited against the issuance of ordinary shares
of Engro Fertilizers Limited to the Company, as summarized in note 1.4; a n d
b) the retention of the Retained Undertaking in the C o m p a n y along with the change of name of the C o m p a n y to Engro Corporation
Limited. Engro Corporation Limited henceforth will function as a Holding C o m p a n y to oversee the business of the new fertilizer
subsidiary as well as business of its other existing subsidiaries/associates.
71
(Amounts in thousand)
Liabilities
Borrowings including current portion 13 59,375,454 59,375,454
Derivative financial instruments including
current portion of Rs, 7 4 0 , 0 4 3 1,352,885 1,352,885
Deferred liabilities:
- Deferred taxation 890,965 I 891,864
- Deferred income 96,305 96,305
987,270 988,169
Employee housing subsidy 2.20 211,785 211,785
Retirement a n d other service benefits
obligations including current portion 15 67,245 68,181
Trade a n d other payables 16.2 3,009,325 3,160,852
A c c r u e d interest / mark-up 17 1,366,022 1,366,022
Short t e r m borrowings 195,753 195,753
Unclaimed dividends 102,099
255,461 66,565,739 66,821,200
A d j u s t m e n t pertaining t o transfer o f
Fertilizer U n d e r t a k i n g (note 1.4) (10,739,144) 10,739,144
1.4 Net assets of the Fertilizer Undertaking transferred to Engro Fertilizers Limited
The net assets of the Fertilizer Undertaking transferred to Engro Fertilizers Umited as at January 1 , 2 0 1 0 amounted to Rs. 10,739,144,
as summarized below:
(Rupees)
Total assets (note 1.3) 76,695,164
Less: Total liabilities (note 1.3) 66,565,739
Net assets transferred to Engro Fertilizers Limited 10,129,425
A d d : Hedging reserve (negative) - refer note below 609,719
Adjustment pertaining to transfer of Fertilizer Undertaking 10,739,144
Engro Fertilizers IJmited in return issued 9 , 9 9 9 , 9 9 3 , in addition to existing 7, fully paid ordinary shares of Rs. 10 e a c h plus share
premium to the C o m p a n y against the above net adjustment as follows:
(Rupees)
Share's par value 100,000
Share premium 10,639,144
10,739,144
H e d g i n g Reserve
As per the Scheme of Arrangement, the hedging reserve a n d revaluation surplus/reserves as at January 1, 2010 is to be transferred
to Engro Fertilizers Limited, whereas only the revaluation surplus/reserves (hedging reserve omitted) is to be d e d u c t e d by Engro
Fertilizers Limited from the net assets so transferred to determine the share premium amount over and above the Rs. 100,000 share
capital. Such omission of hedging reserve created a difference of an equivalent a m o u n t in the balance sheet. Therefore, this being
an inadvertent omission in the S c h e m e of Arrangement, the management has also included the hedging reserve (negative) in the
determination of share premium to eliminate the aforementioned difference. Further, in the opinion of the Company's management,
s u p p o r t e d by t h e legal advisor, the n e e d for a m e n d m e n t to the S c h e m e of Arrangement in respect of s u c h inclusion of h e d g i n g
reserve d o e s not arise as it d o e s not in any w a y adversely affect the interest of t h e shareholders or creditors.
2.1.2 T h e s e financial s t a t e m e n t s have been prepared in a c c o r d a n c e with t h e requirements of the C o m p a n i e s Ordinance, 1 9 8 4 (the
Ordinance), directives issued by the Securities a n d Exchange C o m m i s s i o n of Pakistan (SECP) a n d a p p r o v e d financial reporting
standards as applicable in Pakistan. A p p r o v e d financial reporting standards c o m p r i s e of such International Financial Reporting
Standards (IFRS) issued by the International A c c o u n t i n g Standards Board as are notified under the provisions of the Ordinance.
Wherever, the requirements of the Ordinance or directives issued by the S E C P differ with the requirements of these standards, the
requirements of the Ordinance a n d of the said directives have been followed.
73
(Amounts in thousand)
2.1.3 The preparation of financial statements in conformity with the above requirements requires the use of certain critical a c c o u n t i n g
estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. T h e
areas involving a higher degree of judgment or complexity, or areas where assumptions a n d estimates are significant to the financial
statements are disclosed in note 3.
The following a m e n d m e n t s to published standards are mandatory for the financial year beginning January 1, 2 0 1 0 .
• IFRS 5 (amendment), 'Non-current assets held for sale a n d discontinued operations'. T h e a m e n d m e n t clarifies that IFRS 5
specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued
operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation)
a n d paragraph 125 (sources of estimation uncertainty) of IAS 1. Currently, as C o m p a n y d o e s not have any non-current asset
(or disposal group) classified as held for sale or d i s c o n t i n u e d operations, therefore this a m e n d m e n t has no i m p a c t on t h e
Company's financial statements.
• IAS 1 (amendment), 'Presentation of financial statements'. T h e a m e n d m e n t is part of t h e lASB's annual improvements project
published in April 2 0 0 9 . The a m e n d m e n t provides clarification that the potential settlement of a liability by the issue of equity is
not relevant to its classification as current or non current. By amending the definition of current liability, the a m e n d m e n t permits
a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of
cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required
by the counterparty to settle in shares at any time. Such amendment has no effect on the C o m p a n y ' s financial statements as
there is no s u c h liability on C o m p a n y ' s balance sheet, w h i c h requires settlement by issue of its o w n equity.
T h e other n e w standards, a m e n d m e n t s a n d interpretations that are mandatory for accounting periods beginning on or after
January 1, 2 0 1 0 , are considered not to be relevant or to have any significant effect on the C o m p a n y ' s financial reporting a n d
operations.
c) S t a n d a r d s , a m e n d m e n t s t o p u b l i s h e d s t a n d a r d s a n d i n t e r p r e t a t i o n s t h a t are n o t y e t e f f e c t i v e a n d h a v e n o t b e e n early
adopted by the Company
The following new standards, amendments to published standards and interpretations are not mandatory for accounting periods
beginning on or after January 1 , 2 0 1 0 a n d have not been early a d o p t e d by the Company.
• IFRS 9 'Financial instruments' (effective for periods beginning on or after January 1, 2013). This standard is the first step in the
process to replace IAS 3 9 , 'Financial instruments: recognition a n d measurement'. IFRS 9 introduces new requirements for
classifying a n d measuring financial assets and is likely to affect the Company's accounting for its financial assets. The C o m p a n y
is yet to assess t h e full impact of IFRS 9, however, initial indications are that it may not affect the Company's financial assets
significantly, as currently the C o m p a n y d o e s not have any assets classified as 'available for sale'.
• IAS 24 (revised), 'Related party disclosures'. IAS 24 (revised) is mandatory for periods beginning on or after January 1, 2 0 1 1 .
Earlier application, in whole or in part, is permitted. The revised standard clarifies and simplifies the definition of a related party
and removes the requirement for government-related entities to disclose details of all transactions with the government a n d
other government-related entities.
• IFRIC 14 (Amendment) 'Prepayments of a minimum funding requirement' (effective for periods beginning on or after January
1, 2011), The a m e n d m e n t s correct an unintended c o n s e q u e n c e of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset,
m i n i m u m funding requirements and their interaction'. Without the a m e n d m e n t s , entities are not permitted to recognize as an
asset s o m e voluntary prepayments for minimum funding contributions. This was not intended w h e n IFRIC 14 was issued, and
the a m e n d m e n t corrects this. The Company's retirement benefit f u n d s are not subject to any m i n i m u m funding requirement,
hence, these a m e n d m e n t s will have no impact on the Company's financial statements.
• IFRIC 19 'Extinguishing financial liabilities with equity instruments' (effective for periods beginning on or after January 1, 2011).
The interpretation clarifies the accounting by an entity w h e n the terms of a financial liability are renegotiated and result in the
entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap).
It requires a gain or loss to be recognized in profit or loss, w h i c h is measured as the difference between the carrying amount
of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot
be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished.
The C o m p a n y has not renegotiated the terms of a financial liability and offered any of its shares to its creditors, therefore, this
interpretation is not expected to have any material impact on the Company's financial statements.
A m e n d m e n t s to following standards as a result of improvements to International Financial Reporting Standards 2010, issued by
IASB in May 2010:
• IFRS 7 (Amendment), 'Financial instruments: Disclosures' (effective for periods beginning on or after January 1, 2011). The
a m e n d m e n t emphasizes the interaction between quantitative and qualitative disclosures a b o u t the nature and extent of risks
associated with financial instrument. The a m e n d m e n t will only affect t h e disclosures in the Company's financial statements.
• IAS 1 (Amendment) 'Presentation of financial statements' (effective for periods beginning on or after January 1, 2011). The
amendment clarifies that an entity will present an analysis of other comprehensive income for each c o m p o n e n t of equity, either
in the statement of changes in equity or in the notes to the financial statements. The amendment will only affect the disclosures
in the Company's financial statements.
• IAS 34 (Amendment) 'Interim financial reporting' (effective for periods beginning on or after January 1, 2011). This amendment
provides g u i d a n c e to illustrate h o w to apply disclosure principles in IAS 34 and a d d disclosure requirements a r o u n d the
circumstances likely to affect fair values of financial instruments and their classification, transfers of financial instruments between
different levels of the fair value hierarchy, changes in classification of financial assets, changes in contingent liabilities and assets.
There are a number of other minor amendments and interpretations to other published standards that are not yet effective, and
are also not relevant to the C o m p a n y and therefore have not been presented here.
75
(Amounts in thousand)
2.2.1 O w n e d assets
These are stated at historical cost less accumulated depreciation and impairment losses, if any, except free-hold land a n d capital
w o r k in progress w h i c h are stated at c o s t . Historical cost includes expenditure that is directly attributable to the acquisition of the
items including borrowing c o s t s (note 2.25). The cost of self constructed assets includes the cost of materials a n d direct labor, any
other costs directly attributable to bringing the asset to a working condition for its intended use, a n d the costs of dismantling a n d
removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the
related equipment is capitalised as part of that equipment.
Where major c o m p o n e n t s of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items of property, plant a n d equipment.
S u b s e q u e n t c o s t s are included in the asset's carrying a m o u n t or recognised as a separate asset, as appropriate, only w h e n it is
probable that future economic benefits associated with the item will flow to the C o m p a n y a n d the cost of the item c a n be measured
reliably. The carrying a m o u n t of the replaced part is derecognised. All other repairs a n d maintenance are charged to the profit a n d
loss a c c o u n t during the financial period in which they are incurred.
Disposal of asset is recognised w h e n significant risk a n d rewards incidental to ownership have been transferred to buyers. Gains
a n d losses on disposals are determined by comparing the proceeds with the carrying a m o u n t a n d are recognised within 'Other
operating expenses/ income' in the profit and loss account.
Depreciation is c h a r g e d to the profit a n d loss account using the straight line m e t h o d whereby t h e cost of an operating asset less
its estimated residual value is written off over its estimated useful life at rates given in note 4 . 1 . Depreciation on addition is charged
from the m o n t h following the month in which the asset is available for use a n d on disposals upto the preceding m o n t h of disposal.
Finance c o s t under lease agreements are allocated to the periods during the lease t e r m so as to produce a constant periodic rate
of finance cost on the remaining balance of principal liability for each period.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the C o m p a n y
will obtain ownership by the end of the lease t e r m .
Expenditure which enhances or extends the performance of c o m p u t e r software beyond its original specification a n d useful life
is recognised as a capital improvement a n d a d d e d to the original cost of the software.
C o m p u t e r software a n d license cost treated as intangible assets are amortised from the date the software is put to use on a
straight-line basis over a period of 3 to 5 years.
The aforementioned intangible assets have been transferred to the Fertilizer Undertaking, as referred to in note 1.3.
2.6 Investments
Investment in subsidiary and joint venture companies are initially recognised at cost. At subsequent reporting dates, the recoverable
a m o u n t s are estimated to determine the extent of impairment losses, if any, a n d carrying a m o u n t s of investments are adjusted
accordingly, Impairment losses are recognised as an expense. Where impairment losses subsequently reverse, the carrying amounts
of the investments are increased to the revised recoverable amounts but limited to the extent of initial cost of investments. A reversal
of impairment loss is recognised in the profit a n d loss account.
2.7.1 Classification
The C o m p a n y classifies its financial assets in the following categories: at fair value through profit or loss, held to maturity, loans and
receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
77
(Amounts in thousand)
b) L o a n s a n d receivables
Loans a n d receivables are non-derivative financial assets with fixed or determinable payments that are not q u o t e d in an active
market. They are included in current assets, except for maturities greater than 12 m o n t h s after the e n d of the reporting period.
These are classified as non-current assets.
c) H e l d to m a t u r i t y financial assets
Held to maturity financial assets are non derivative financial assets with fixed or determinable payments a n d fixed maturity with
a positive intention a n d ability to hold to maturity.
2.7.2 Recognition a n d m e a s u r e m e n t
Regular purchases a n d sales of financial assets are recognised on the trade date - the d a t e on which the C o m p a n y c o m m i t s to
purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried
at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, a n d
transaction c o s t s are e x p e n s e d in the profit a n d loss a c c o u n t . Financial assets are derecognised w h e n the rights to receive c a s h
flows f r o m the investments have expired or have been transferred a n d the C o m p a n y has transferred substantially all risks a n d
rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently
carried at fair value. Loans a n d receivables are s u b s e q u e n t l y carried at a m o r t i s e d c o s t using t h e effective interest m e t h o d .
Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented
in the profit a n d loss a c c o u n t within 'other operating income/expenses' in the period in w h i c h they arise. Dividend i n c o m e from
financial assets at fair value through profit or loss is recognised in the profit a n d loss a c c o u n t as part of other i n c o m e w h e n the
C o m p a n y ' s right to receive payments is established.
Changes in fair value of monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive
income. W h e n securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in
equity are included in the profit a n d loss account as 'gains a n d losses from investment securities'.
Interest on available-for-sale securities calculated using the effective interest m e t h o d is recognised in t h e profit a n d loss account
as part of other income. Dividends on available for sale equity instruments are recognised in the profit a n d loss account as part of
other income w h e n the Company's right to receive payments is established.
The C o m p a n y assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of
financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from
equity and recognised in the profit and loss account. Impairment losses recognised in the profit a n d loss account on equity instruments
are not reversed through t h e profit a n d loss account. Impairment testing of trade d e b t s a n d other receivables is described in note
2.13.
2 . 8 Financial liabilities
Financial liabilities are recognized at the time when the C o m p a n y b e c o m e s a party to the contractual provisions of the instrument.
All financial liabilities are recognised initially at fair value less directly attributable transactions costs, if any, a n d subsequently measured
at amortised cost using effective interest rate m e t h o d .
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing
financial liability is replaced by another from the s a m e lender on substantially different terms, or the t e r m s of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the original liability a n d the recognition of
a new liability, and the difference in respective carrying amounts is recognized in the profit a n d loss a c c o u n t .
If the hedging instrument no longer meets the criteria for hedge a c c o u n t i n g , expires or is sold, terminated or exercised, the
hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until
the forecast transaction o c c u r s . W h e n the h e d g e d item is a non-financial asset, the amount recognised in equity is transferred
to carrying a m o u n t of the asset w h e n it is recognised. In other cases t h e a m o u n t recognised in equity is transferred to profit
a n d loss a c c o u n t in the same period that the hedge item affects profit a n d loss account.
b) O t h e r n o n - t r a d i n g derivatives
When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, aii changes
in its fair value are recognised immediately in profit or loss.
Effective January 1, 2 0 1 0 , derivative financial instruments balance has been transferred to the Fertilizer Undertaking in accordance
w i t h the s c h e m e of arrangement (notes 1.3 & 1.4).
79
(Amounts in thousand)
Effective January 1, 2 0 1 0 , stores a n d spares balance has been transferred to the Fertilizer Undertaking in a c c o r d a n c e with the
s c h e m e of arrangement (notes 1.3 & 1.4).
2.12 Stock-in-trade
These are valued at the lower of cost and net realizable value. Cost is determined using weighted average m e t h o d except for raw
material in transit w h i c h are stated at cost (invoice value) plus other charges incurred thereon till the balance sheet date. Cost in
relation to finished g o o d s includes applicable purchase cost a n d manufacturing expenses. T h e c o s t of w o r k in process includes
material a n d proportionate conversion c o s t s .
Net realisable value signifies the estimated selling price in the ordinary course of business less all estimated c o s t s of completion
a n d costs necessarily to be incurred in order to m a k e the sales.
Effective January 1, 2 0 1 0 , stock-in-trade balance has been transferred to the Fertilizer Undertaking in accordance with the s c heme
of arrangement (notes 1.3 & 1.4).
The fair value determined at the grant date of the equity setlled share based payments is recognised as an employee compensation
expense on a stright line basis over t h e vesting period.
W h e n an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of an employee
c o m p e n s a t i o n expense in profit or loss, employee compensation expense in profit or loss will be reversed equal to the amortised
portion with a corresponding effect to employee share option compensation reserve in the balance sheet.
W h e n a vested option lapses on expiry of the exercise period, employee c o m p e n s a t i o n expense already recognised in the profit
or loss is reversed with a corresponding reduction to employee share option compensation reserve in the balance sheet.
When the options are exercised, employee share option compensation reserve relating to these options is transferred to share capital
and share premium account. An amount equivalent to the face value of related shares is transferred to share capital. Any amount
over and a b o v e the share capital is transferred to share premium account.
2.17 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference b e t w e e n the p r o c e e d s (net of transaction costs) and t h e redemption value is recognised in the profit a n d loss
a c c o u n t over the period of the borrowings using the effective interest m e t h o d .
Borrowings are classified as current liabilities unless the C o m p a n y has an unconditional right to defer settlement of the liability for
at least 12 months after the balance sheet date.
These are classified as current libilites if payment is d u e with in o n e year or less (or in the normal operating cycle of the business if
longer). If not, thay are presented as non-current libiiites.
2.19.1 Current
T h e current i n c o m e tax c h a r g e is based on the taxable i n c o m e for the year calculated on t h e basis of the t a x laws enacted or
s u b s t a n t i v e l y e n a c t e d a t t h e b a l a n c e s h e e t d a t e , a n d any a d j u s t m e n t t o t a x p a y a b l e i n r e s p e c t o f p r e v i o u s y e a r s .
2.19.2 Deferred
Deferred tax is recognised using the balance sheet m e t h o d , providing for all temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes a n d the a m o u n t s u s e d for taxation purposes. Deferred tax is measured at
the t a x rates that are e x p e c t e d to be applied to the t e m p o r a r y differences w h e n they reverse, b a s e d on t h e laws that have been
enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that is probable that future taxable profits will be available against which temporary
difference c a n be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
W h e n an employee leaves the c o m p a n y before the vesting period a n d after recognition of an employee compensation expense in
profit or loss, employee compensation expense in profit or loss will be reversed equal to the amortised portion with a corresponding
effect to employee housing subsidy in the balance sheet.
81
(Amounts in thousand)
On expiry of the vesting period, amounts disbursed under the s c h e m e will be set-off against the employee housing subsidy.
Effective January 1, 2 0 1 0 , e m p l o y e e s ' housing subsidy s c h e m e balance has been transferred to the Fertilizer Undertaking in
a c c o r d a n c e with the scheme of arrangement (notes 1.3 & 1.4).
The C o m p a n y operates:
- defined contribution provident fund for its permanent employees. Monthly contributions are m a d e b o t h by the C o m p a n y a n d
employees to the fund at the rate of 1 0 % of basic salary.
- defined contribution pension fund for the benefit of management employees. Monthly contributions are m a d e by the C o m p a n y
to the fund at rates ranging from 1 2 . 5 % to 1 3 . 7 5 % of basic salary.
Contributions require assumptions to be m a d e of future outcomes which mainly includes increase in remuneration, expected long-
t e r m return on plan assets and the discount rate used to convert future cash flows to current values. Calculations are sensitive to
c h a n g e s in the underlying assumptions.
The C o m p a n y operates defined benefit f u n d e d gratuity scheme for its management employees.
Effective January 1, 2 0 1 0 , the C o m p a n y has only retained defined benefit funded gratuity schemes for its management employees,
in accordance with the s c h e m e of arrangement, as referred to in note 1.2.
Annual provision is also m a d e under a service incentive plan f o r certain category of experienced e m p l o y e e s to continue in t h e
C o m p a n y ' s employment.
2.22 Provisions
Provisions are recognised w h e n the C o m p a n y has a legal or constructive obligation as a result of past events a n d it is probable
that an o u t f l o w of resources will be required to settle t h e obligation a n d a reliable estimate c a n be m a d e of t h e a m o u n t of the
obligation. Provisions are reviewed at each balance sheet date a n d adjusted to reflect current best estimate.
- Royalty income from associated/group companies is recognized on an accrual basis in accordance w i t h the agreement entered
therewith.
- Dividend income from investments is recognised w h e n the Company's right to receive payment has been established.
83
(Amounts in thousand)
As at December 3 1 , 2 0 0 9
Cost 130,668 152,280 1,041,929 339,447 10,377,213 429,715 478,994 449,762 13,400,008
Accumulated depreciation - (45,483) (325,128) (65,996) (6,013,223) (302,061) (301,235) (189,913) (7,243,039)
Net book value 130,668 106,797 716,801 273,451 4,363,990 127,654 177,759 259,849 6,156,969
As at January 1,2010
Retained Undertaking after
transfer (note 1.3)
Cost 2,120 75,705 77,825
Accumulated depreciation (792) (22,394) (23,186)
Net book value 1,328 53,311 54,639
As at December 3 1 , 2010
Cost 60,008 91,348 151,356
Accumulated depreciation (3,219) (31,054) (34,273)
Net book value 56,789 60,294 117,083
85
(Amounts in thousand)
C o s t of sales 620,792
Selling a n d distribution expenses 38,383
Administrative expenses (note 21) 18,333
Capital w o r k in progress (note 4.4) 27,281
18,333 686,456
4 . 3 The details of operating assets disposed off during the year are as follows:
Year e n d e d D e c e m b e r 3 1 , 2 0 1 0
Balance as at January 1, 2 0 1 0
Retained Undertaking after
transfer (note 4.4.1)
Expenditures incurred during the year 67,631 36,432 104,063
Transferred to operating assets (note 4.1) (57,888) (27,080) (84,968)
Balance a s a t December 3 1 , 2 0 1 0 9,743 9,352 19,095
4.4.1 All of capital work-in-progress as at December 3 1 , 2 0 0 9 related to the Fertilizer Undertaking and as such has been transferred (note
1.3), which substantially pertains to Urea expansion project.
Others - at cost
Arabian Sea Country Club Limited
500,000 Ordinary shares of Rs. 10 each 5,000 5,000
Agrimali (Private) Limited (Note 5.2) -_
26,136,701 12,988,657
87
(Amounts in thousand)
Unquoted
Engro Fertilizers Limited
1,072,800,000(2009:7)
Ordinary shares of Rs. 10 each (note 5.1.2) 100 10,739,144 100
Avanceon Limited
2 5 , 0 6 6 , 6 6 7 (2009: 25,066,667)
Ordinary shares of Rs. 10 e a c h 62.67 381,957 62.67 381,957
5.1.2 Engro Fertilizers Limited, in addition to issuance of shares on transfer of Fertilizer Undertaking, as referred to in note 1.4, has issued
bonus shares to the C o m p a n y (i) in the ratio of 2,880 shares for even/ 100 shares held and (ii) in the ratio of 260 shares for even/
100 shares held in t h e s e c o n d a n d fourth quarter respectively.
513 T h e C o m p a n y transferred 2 7 2 , 0 0 0 , 0 0 0 ordinary shares of Rs. 10 each ( 8 5 % holding of share capital) in Engro Powergen Qadirpur
Limited (formerly, Engro Energy Limited) to Engro PowerGen Limited a wholly o w n e d subsidiary of t h e C o m p a n y , against c a s h
consideration, on account of the Company's overall restructuring of its business to enable all direct subsidiaries to operate as holding
companies for their respective lines of business. With regard to the remaining 1 0 % holding, the C o m p a n y may divest it but no firm
decision has been taken as at December 3 1 , 2 0 1 0 .
5.2 This represents the C o m p a n y ' s share in the paid-up share capital of the investee transfered free of cost to the C o m p a n y under a
joint venture agrement.
5.3 Value of the above investments, based on the net assets of the investee companies as at December 31 w a s as follows:
2010 2009
(Rupees)
Engro Polymer & Chemicals Limited 3,925,355 3,593,712
89
(Amounts in thousand)
For options granted after June 3 0 , 2 0 0 8 , the vesting period will end such number of days after December 3 1 , 2 0 1 0 as is equal to
the n u m b e r of days between the date the initial option letters were issued and the date of grant of the later options. However, the
latter options c a n also only be exercised upto December 3 1 , 2 0 1 2 .
In 2 0 0 8 , the grant date w a s c h a n g e d to A u g u s t 2 3 , 2 0 0 7 , from the date approved in the original s c h e m e . Further, consequent to
the issue of right shares in 2 0 0 8 a n d in the current year, the entitlements were increased to 5,500,000 shares a n d 7,700,000 shares
respectively a n d the exercise price w a s adjusted to Rs. 2 6 7 . 7 3 per share a n d Rs. 2 0 5 . 5 2 per share respectively. These c h a n g e s
have been duly approved by the Securities and Exchange Commission of Pakistan (SECP). The aforementioned reduction in exercise
price has no effect on the fair value of share options recognized in the financial statements.
C o n s e q u e n t to the demerger, as referred to in note 1.2, the employees transferred to Engro Fertilizers Limited have surrendered
their existing share options against which new share options have been granted under a n e w scheme of Engro Fertilizers Limited.
6.3.1 T h e above mentioned share options do not include the effect of bonus a n d right shares w h i c h m a k e the total n u m b e r of share
options outstanding at e n d of the year to 1,924,230.
6.4 Further, consequent to the b o n u s issue in the current year, the entitlements w e r e increased to 1,924,230 shares f r o m 1,749,300
shares (adjusted with the effect of forfeiture) respectively and the exercise price w a s adjusted to Rs. 186.84 from Rs. 2 0 5 . 5 2
respectively. These changes have been duly approved by the SECP. The aforementioned reduction in exercise price has no effect
on the fair value of share options recognized in the financial statements.
6.5 T h e C o m p a n y used Black Scholes pricing model to calculate the fair value of share options at the grant date. T h e fair value of the
share options as per the model and underiying assumptions are as follows:
6.6 Employee-wise detail of options granted to senior management personnel/other personnel upto or in excess of five percent of total
options granted is as follows:
91
(Amounts in thousand)
T h e loan carries m a r k - u p b a s e d on a margin of 1 % over a n d above m a r k - u p payable by the C o m p a n y for rupee finances of like
maturities, s u c h mark-up being payable on a semi-annual basis. The loan is subordinated to the facilities provided to the subsidiary
by its banking creditors a n d is repayable in one lump s u m payment d u e on September 15, 2 0 1 5 .
7.3 The loan carries mark-up at the rate of six months KIBOR plus a margin of 4% payable on a quarterly basis. The loan is sub-ordinated
to the facilities provided to the subsidiary by its banking creditors a n d is repayable in t w o installments d u e on O c t o b e r 2 3 , 2011
a n d April 2 3 , 2 0 1 2 respectively.
Other Receivables
2010 2009
Due from:
Subsidiary c o m p a n i e s
- Engro Eximp (Private) Limited 86 4,466
- Engro Foods Limited 1,390 1,062
- Engro Polymer & Chemicals Limited 902 3,220
- Engro Powergen Qadirpur Limited 485 270
(formerly, Engro Energy Limited)
- Avanceon Limited 44,615 10,392
- Engro Fertilizers Limited 54,062 519
- Engro PowerGen Limited 196 2,072
- Engro Foods Supply Chain Limited 227 -
Joint Venture
- Engro Vopak Terminal Limited, net (note 9.1 J 90,185 112,102
192,148 134,103
Claims on foreign suppliers, net of provision
for impairment of Rs. 295 (note 1.3) 18,533
Others, net of provision for impairment of
Rs. 144 (note 1.3) 750 9,479
197,453 275,714
93
(Amounts in thousand)
9.1 This mainly includes dividend receivable amounting Rs. 9 0 , 0 0 0 (2009: Rs. 112,102).
9.2 The maximum amount due from joint venture/subsidiary companies at the end of any month during the year aggregated to as follows:
2010 2009
(Rupees)
Subsidiary c o m p a n i e s
- Engro Eximp (Private) Limited 3,268 66,012
- Engro Foods Limited 18,950 22,045
- Engro Powergen Qadirpur Limited 4,034 6,809
(formerly, Engro Energy Limited)
- Engro Polymer & Chemicals Limited 13,183 11,621
- Avanceon IJmited 44,615 13,899
- Engro PowerGen Limited 1,432 2,073
- Engro Management Services (Private) Limited 2,138 3
- Engro Fertilizers Limited 64,863 519
Joint venture
- Engro Vopak Terminal Limited 180,551 135,509
As at December 3 1 , 2 0 1 0 , receivables aggregating to Rs. 3 1 , 4 1 5 (2009: Rs. 59,061) were past d u e but not impaired. The ageing
/sis of these receivables is as follows:
2010 2009
(Rupees)-
10.1 These represents investments in various money market funds which are valued at their respective net assets value at balance sheet date.
10.2 The corresponding amount of short term investments aggregating to Rs. 450,857 were transferred to the Fertilizer Undertaking (note 1.3)
11.2 T h e corresponding a m o u n t of cash a n d bank balances include Rs. 4 5 4 , 1 2 6 transferred to the Fertilizer Undertaking (note 1.3).
12 Share Capital
12.1 Authorised Capital
Issued, s u b s c r i b e d a n d p a i d - u p capital
12.2 Movement in issued, subscribed and paid-up capital during the year
12.3 During the year, the C o m p a n y issued b o n u s shares in the ratio of 1 share for every 10 shares held.
12.4 Associated companies held 158,516,740 (2009: 144,390,600) ordinary shares in the C o m p a n y at year end.
95
(Amounts in thousand)
13. Borrowings
2010 2009
(Rupees)
13.1 Represents subscription money received (net of transaction c o s t of Rs. 178,319) from the general public against t h e issuance of
Engro Rupiya Certificates (the Certificates). T h e Certificates are available by January 1 4 , 2 0 1 1 on first c o m e first serve basis or earlier
if the issue a m o u n t of Rs. 4 , 0 0 0 , 0 0 0 is reached. The profit is payable semi-annually at the fixed rate of 1 4 . 5 % f r o m the date of
investment by the Certificate holders. The Certificates are structured to redeem 0.1 % of principal in five equal semi-annual installments
in the first thirty m o n t h s and the remaining 9 9 . 9 % principal in thirty sixth month from the date of issue. The Certificate holder, however,
may ask the C o m p a n y for early redemption at any time from the date of investment subject to service charge of 2% of the outstanding
issue price.
These Certificate are secured by way of first ranking floating charge over all the present and future movable properties of the Company
except for present a n d future trade mark, copy rights and certain investment in subsidiary companies.
IGI Investment Bank Limited has been appointed as trustees in respect of these certificates.
- provision for:
- retirement benefits (525) (23,863)
- inventories, s l o w moving stores a n d spares and doubtful receivables (20,526)
- others 7,411
1,297 891,864
The corresponding amount include Rs. 6 7 , 2 4 5 , transferred to the Fertilizer Undertaking (note 1.3).
Accrued liabilities
Salaries, w a g e s a n d other employee benefits 77,411 262,276
Vacation accruals 8,366 93,427
Freight accruals - 54,302
Advertisement 45,996 -
Commission 50,000 -
Consultancy services 2,228 -
Others 21,305 706,373
205,306 1,116,378
The corresponding amount of trade a n d other payables include Rs. 3,009,325 transferred to the Fertilizer Undertaking (note 1.3).
17.1 Represents profit accrued in respect of subscription money received against Engro Rupiya Certificate (note 13.1)
97
(Amounts in thousand)
"B2 The C o m p a n y in addition to above has also issued a Corporate Guarantee to International Finance Corporation (IFC) for U S D 8 0 , 0 0 0
under the A m e n d e d Agreement entered into by the Subsidiary C o m p a n y with IFC. As at December 3 1 , 2010, U S D 50,000 has been
availed while U S D 3 0 , 0 0 0 is still undisbursed. Further, IFC has an option to convert a tranche of the disbursed loan amounting to
U S D 15,000, into ordinary shares of the C o m p a n y at Rs. 2 0 5 per ordinary share (Rs. 186.84 as at D e c e m b e r 3 1 , 2010) calculated
at the dollar rupee exchange rate prevailing on the business day prior to the date of notices issued by IFC to exercise the conversion
option. Such option is to be exercised within a period of no more than five years from the date of disbursement of loan (i.e. December
2 8 , 2009).
The C o m p a n y has entered during the year into an agreement with the Subsidiary C o m p a n y that in the event IFC exercises the
aforementioned conversion o p t i o n , the IFC loan a m o u n t then outstanding against the Subsidiary C o m p a n y w o u l d stand reduced
by the conversion option a m o u n t and the Subsidiary C o m p a n y w o u l d pay the rupee equivalent of the corresponding conversion
a m o u n t to the C o m p a n y w h i c h w o u l d simultaneously be given to the Subsidiary C o m p a n y as a subordinated loan, carrying mark-
up payable by the C o m p a n y for rupee finances of like maturities plus a margin of 1 %. The effect of IFC conversion in substance
w o u l d result in a loan from the C o m p a n y having the same repayment terms / dates as that of the extinguished loan of IFC i.e. three
half yearly installments c o m m e n c i n g from September 15, 2 0 1 5 .
18.3 Represents Corporate Guarantee amounting to USD 10,000 issued to Allied Bank Limited to open DSRA letter of credit in favour
of the Subsidiary C o m p a n y ' s senior long t e r m lenders.
18.4 The C o m p a n y has extended project completion support to the lenders of the Engro P o w e r g e n Qadirpur Limited for U S D 1 5 , 4 0 0
(2009: USD 15,400) and a further support to the lenders of Engro Polymer a n d Chemicals Umited for Nil (2009: USD 12,200). These
project supports are contingent u p o n occurrence or non-occurrence of specified future events.
20 Royalty Income
The C o m p a n y has granted Engro Fertilizers Limited, a Subsidiary C o m p a n y (note 1.2), the right to use trade marks and c o p y rights
for marketing of fertilizer products under a licensing agreement effective January 1, 2010.
21 Administration Expenses
2010
(Rupees)
21.1 Salaries, wages a n d staff welfare includes Rs. 19,213 in respect of staff retirement benefits.
N o n financial a s s e t s :
Service charges 6,397 25,255
Employees share option compensation
expense written b a c k 101,224
Gain on disposal of property, plant and equipment 286 5,700
Defined benefit pension plan expense written back - 23,604
Others 17,428 14,238
433,947 88,467
22.1 Include Rs. 94,612 in respect of profit earned on subordinated loan to subsidiary companies.
99
(Amounts in thousand)
24 Finance Cost
Interest/mark-up on
- long t e r m borrowings 75,000 870,103
- short t e r m borrowings 7,118 450,476
Other financial charges 10,013 -_
92,131 1,320,579
25 Taxation
Current
- for the year 135,618 1,135,050
- for prior years - 170,242
135,618 1,305,292
Deferred
- for the year 398 132,187
- for prior years - (179,783)
398 (47,596)
136,016 1,257,696
-(Numbers)-
Weighted average number of (Restated)
ordinary shares (in thousand) 327,737 309,231
2010 2009
Directors Executives Directors Executives
Chief Others Chief Others
Executive Executive
-(Rupees)-
101
(Amounts in thousand)
27.1 The C o m p a n y also makes contributions based on actuarial calculations to pension and gratuity funds and provides certain household
items for use of s o m e employees a n d directors. Cars are also provided for use of s o m e employees a n d directors.
27.2 Premium charged in the financial statements in respect of directors indemnity insurance policy, purchased by the C o m p a n y during
the year, a m o u n t e d to R s . 7 9 1 .
28 Retirement Benefits
28.1 As per the S c h e m e a n d u p o n transfer of Fertilizer Undertaking, as referred to in note 1.3, except for M P T Employees Gratuity Fund,
all other f u n d s (the f u n d s maintained under defined benefit pension plan and defined benefit gratuity plan) have been transferred
to the Fertilizer Undertaking. Accordingly, the balances receivable f r o m / p a y a b l e to the aforementioned f u n d s , to the extent of
employees of the Fertilizer Undertaking, have also been transferred.
M o v e m e n t in n e t (assetVliability r e c o g n i s e d
M o v e m e n t in d e f i n e d benefit o b l i g a t i o n
282.4 M o v e m e n t in fair v a l u e of p l a n a s s e t s
Defined Benefit Defined Benefit
Gratuity Plans Pension Plan
Funded Funded (Curtailed)
2010 2009 2010 2009
-(Rupees)-
2 8 . 2 5 C h a r g e f o r t h e year
(Rupees).
103
(Amounts in thousand)
2010 2009
Rupees % Rupees
282.8 Plan assets c o m p r i s e of t h e f o l l o w i n g
28.2.9 The e x p e c t e d return on plan assets w a s determined by considering the expected returns available on the assets underlying t h e
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
sheet date.
28210 C o m p a r i s o n of five y e a r s
2010 2009 2008 2007 2006
-(Rupees)---
Present value of defined benefit obligation (115,956) (339,182) (296,469) (587,655) (536,209)
Fair value of plan assets 125,199 409,228 359,222 683,808 722,867
Surplus / (Deficit) 9,243 70,046 62,753 96,153 186,658
28.211 Expected future cost for the year ending December 3 1 , 2011 in respect of the retained MPT Gratuity fund on demerger amounts
t o Rs.6,000.
2010 2009
(Rupees)
29.1 Working capital changes
(Increase) / decrease in current assets
- Stores, spares a n d loose tools (175,631)
- Stock-in-trade - 4,258,289
- Trade debts - (2,253,731)
- Loans, advances, deposits a n d prepayments (15,563) 428,674
- Other receivables (net) 8,435 208,583
(7,128) 2,466,184
Increase / (decrease) in current liabilities
- Trade and other payables including other service benefits (net) 116,230 695,578
109,102 3,161,762
- Derivatives u s e d for h e d g i n g
Derivatives 76,209
Financial liabilities as per balance sheet
- Financial liabilities m e a s u r e d at a m o r t i s e d c o s t
Borrowings 59,571,207
Trade a n d other payable 217,173 1,680,932
A c c r u e d interest / mark-up 65,000 1,366,022
Unclaimed dividends 180,630 102,099
462,803 62,720,260
- Fair value t h r o u g h profit a n d loss
Conversion option on IFC loan 338,647
- Derivatives u s e d f o r h e d g i n g
Derivatives 1,014,238
105
(Amounts in thousand)
Risk management is carried out by t h e C o m p a n y ' s Finance a n d Planning department under policies approved by the Management
Committee.
a) M a r k e t risk
i) C u r r e n c y risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates.
The C o m p a n y has given guarantees in favour of its subsidiary c o m p a n i e s amounting to U S D 105,400 (2009: USD 27,600). The
devaluation/revaluation of currency will only impact contingent liabilities a n d the impact on post tax profit for the year is negligible.
iii) O t h e r p r i c e risk
Other price risk is the risk that t h e fair value or future c a s h flows of a financial instrument will fluctuate because of changes in
market prices (other t h a n t h o s e arising f r o m currency risk or interest rate risk), whether t h o s e c h a n g e s are caused by factors
specific to the individual financial instrument or its issuer, or factors effecting all similar financial instruments traded in the market.
The C o m p a n y is not exposed to equity securities price risk as all of its investments are in subsidiary companies which are stated
at c o s t . Further, the C o m p a n y ' s investments in money market mutual funds are e x p o s e d to price risk d u e to changes in NAV
of mutual funds.
As D e c e m b e r 3 1 , 2 0 1 0 , if fair value (NAV) had been 1 % higher/lower with all other variables held constant post tax profit for
the year w o u l d have been higher / lower by Rs. 17,735 (2009: Rs.3,376).
b) Credit risk
Credit risk represents the risk of financial loss being caused if counter party fails to discharge an obligation.
Credit risk arises from deposits with banks and financial institutions, loans a n d advances, deposits, bank guarantees a n d other
receivables. The credit risk on liquid funds a n d mutual fund securities is limited because counter parties are financial institutions
with a reasonably high credit rating. The C o m p a n y maintains an internal policy to place f u n d s with commercial banks/mutual
funds having a minimum short t e r m credit rating of A 1 / A M 3 .
The C o m p a n y monitors the credit quality of its financial assets with reference to historical performance of s u c h assets a n d
available external credit ratings. T h e carrying values of financial assets w h i c h are neither past due nor impaired are as under:
2010 2009
(Rupees)-
4,715,908 8,535,561
The credit quality of receivables can be assessed with reference to their historical performance with no or negligible defaults in
recent history, however, no losses incurred. The credit quality of C o m p a n y ' s liquidity can be assessed with reference to external
credit ratings as follows:
c) Liquidity risk
Liquidity risk represents the risk that the C o m p a n y will encounter difficulties in meeting obligations associated with financial liabilities.
The C o m p a n y ' s liquidity management involves projecting cash flows and considering the level of liquid assets necessary to meet
these, monitoring balance sheet liquidity ratios against internal a n d external regulatory requirements a n d maintaining debt
financing plans.
These objectives are achieved by maintaining sufficient cash and marketable securities.
The table below analyses the C o m p a n y ' s financial liabilities into relevant maturity groupings based on the remaining period at
the balance sheet date to contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash
flows.
107
(Amounts in thousand)
2010 2009
Maturity Maturity Maturity Maturity
upto after Total upto after Total
o n e year one year one year one year
-(Rupees)-
Financial liabilities
The C o m p a n y manages its capital structure and makes adjustments to it in the light of changes in economic conditions. To maintain
o r a d j u s t t h e c a p i t a l s t r u c t u r e , t h e C o m p a n y m a y a d j u s t t h e d i v i d e n d p a y m e n t t o s h a r e h o l d e r s o r issue n e w s h a r e s .
The management seeks to maintain a balance between higher returns that might be possible with higher levels of borrowings a n d
the advantages a n d security afforded by a s o u n d capital position.
The C o m p a n y finances its operations through equity, borrowings and m a n a g e m e n t of working capital with a view to maintaining
an appropriate mix between various sources of finance to minimise risk.
2010 2009
(Rupees)-
Subsidiary c o m p a n i e s
Purchases and services 10,614,781
Sales 734
Services rendered 149,053 186,267
Mark up from subsidiaries 94,612
Disbursement of loan 1,500,000
Mark up paid to subsidiaries 7,116
Rent 17,646
Repayment of loan 300,000
Royalty Income 257,584
Associated companies
Purchases a n d services 4,271 1,236,921
Dividend paid 574,111 751,280
Payment of interest on TFCs a n d repayment of principal amount 7,051
Right shares issued (including share premium) 1,777,152
Donations 38,750
Investment in Mutual Funds 1,332,000 699,250
Redemption of investment in Mutual Funds 945,490 611,025
Joint ventures
Services rendered 1,504 2,215
Others
Dividend paid 19,446 50,195
Remuneration of key management personnel 102,726 153,441
Right shares issued (including share premium) 314,732
109
(Amounts in thousand)
34 Donations
Donations include the following in w h i c h a director or his spouse is interested:
Interest Name and address 2010 2009
in Donee of Donee
(Rupees)-
The fire destroyed a substantial portion of its hard c o p y records, related to the financial years 2 0 0 5 , 2 0 0 6 a n d the period January
1, 2 0 0 7 to A u g u s t 19, 2 0 0 7 although, electronic d a t a remained intact d u e to the aforementioned Disaster Recovery Plan. The
C o m p a n y launched an initiative to recreate significant lost records a n d w a s successful in gathering t h e s a m e in respect of the
financial year 2 0 0 7 . Hard c o p y records related to the already reported financial years 2 0 0 5 a n d 2 0 0 6 have not been recreated.
The financial statements do not include the effect in respect of the above, which will be a c c o u n t e d for in the finanical statements
for the year ending December 3 1 , 2 0 1 1 .
38 Corresponding Figures
Corresponding figures have been rearranged a n d reclassified for better presentation, wherever considered necessary, the effect of
w h i c h is not material.
enabling growth,
enabling excellence.
enabling growth,
enabling excellence.
Engro relief efforts
Meals Livestock Healthcare
2,547,361 101,847
Liquid Milk (Litres Equivalent) Hand Pumps & Community Latrines
448,556 100
Patients Treated Shelter Tent
4,829 3,850
Water (Litres) Fodder Support
16,300 10,000
Hygiene Kits
3,600
Engro rehab efforts
Khushaal Livestock Program
FMD Vaccination Oat Seed and Fertilizer
9,1 33 (households) 2,500 (households)
FMD Vaccination Mineral Mixture packages
52,1 71 (animals) 4,084 (households)
consolidated accounts
Financial Statements
auditors' report
to the members
We have audited the annexed consolidated financial statements comprising consolidated balance sheet of Engro Corporation Limited
(formerly, Engro Chemicals Pakistan Limited, the Holding Company) a n d its subsidiary c o m p a n i e s (the Group) as at December 3 1 , 2 0 1 0
and the related consolidated profit a n d loss account, consolidated statement of comprehensive income, consolidated statement of changes
in equity a n d consolidated statement of cash flows, together with notes forming part thereof, for the year then e n d e d . We have also
expressed separate opinion on the financial statements of the Holding C o m p a n y a n d its subsidiary companies e x c e p t for Avanceon FZE
(UAE), A v a n c e o n LP (USA) a n d Engro Innovative Inc (USA), subsidiary c o m p a n i e s of A v a n c e o n Limited, w e r e audited by other firms of
auditors w h o s e reports have been furnished to us and our opinion, in so far as it relates to the a m o u n t s included for s u c h c o m p a n i e s , is
based solely on the reports of s u c h auditors. These financial statements are responsibility of Holding C o m p a n y ' s m a n a g e m e n t . Our
Our audit w a s c o n d u c t e d in accordance with the International Standards on Auditing a n d accordingly s u c h test of accounting records
In our opinion the consolidated financial statements present fairly the financial position of Engro Corporation Limited (formerly, Engro
Chemicals Pakistan Limited, the Holding Company) a n d its subsidiary c o m p a n i e s as at D e c e m b e r 3 1 , 2 0 1 0 a n d the results of their
Without qualifying our opinion we draw attention to note 50 to the consolidated financial statements and more fully explained therein, due
to a fire at the Holding Company's old premises on August 1 9 , 2 0 0 7 , certain records, d o c u m e n t s a n d b o o k s of a c c o u n t of t h e Holding
C o m p a n y relating to years ended December 3 1 , 2007, 2 0 0 6 a n d 2 0 0 5 were destroyed. To date, the Holding C o m p a n y has been able
Chartered Accountants
Karachi
113
consolidated balance sheet
as at december 31, 2010
(Amounts in thousand)
Assets
Non-current assets
Property, plant a n d equipment 4 128,712,148 110,487,943
131,082,013 112,181,650
Current assets
Stores, spares and loose tools 12 4,910,941 1,451,532
33,696,439 19,923,726
Liabilities
Non-current liabilities
Borrowings 22 89,151,849 84,142,153
Derivative financial instruments 10 805,154 632,777
Obligations under finance lease 23 18,998 20,587
Deferred taxation 24 2,471,226 1,687,298
Employee housing subsidy 25 347,886 211,785
Deferred liabilities 26 117,279 96,163
92,912,392 86,790,763
Current liabilities
Trade a n d other payables 27 12,614,214 9,608,000
A c c r u e d interest / mark-up 28 2,619,453 1,800,428
Current portion of:
- borrowings 22 15,543,787 2,375,675
- obligations under finance lease 23 13,310 18,246
- deferred liabilities 26 23,047 22,961
Short term borrowings 29 5,715,775 1,302,766
Derivative financial instruments 10 1,040,829 740,043
Unclaimed dividends 180,630 102,099
37,751,045 15,970,218
Total Liabilities 130,663,437 102,760,981
Contingencies a n d C o m m i t m e n t s 30
Total Equity & Liabilities 164,778,452 132,105,376
The annexed notes from 1 to 54 form an integral part of these consolidated financial statements.
115
consolidated
profit and loss account
for the year ended december 31, 2010
(Amounts in thousand except for earnings per share)
Profit attributable t o :
- Owners of the Holding C o m p a n y 6,790,049 3,806,918
- Non Controlling Interest (349,047) (88,116)
6,441,002 3,718,802
Restated
Earnings p e r share - basic a n d diluted 39 20.72 12.24
The annexed notes from 1 to 54 form an integral part of these consolidated financial statements
H e d g i n g reserve - c a s h f l o w h e d g e s 20
(1,828,460) (226,998)
Losses arising during the year
Less:
65,267 22,557
- Reclassification adjustments for losses/ (gains) included in profit and loss
- Adjustments for amounts transferred to initial carrying 1,245,762 (889,226)
a m o u n t of hedged items (capital w o r k in progress) (517,431) (1,093,667)
I n c o m e t a x relating t o :
Hedging reserve - cash flow hedges 181,100 382,783
Revaluation reserve on business combination 7,691 7,691
188,791 390,474
Other comprehensive income for the year, net of tax (235,618) (743,762)
The annexed notes from 1 to 54 f o r m an integral part of these consolidated financial statements.
117
consolidated statement of
statement of changes in equity
for the year ended december 31, 2010
(Amounts in thousand)
Attributable to owners of the Holding Company-
Share Snare Employee Hedging Revaluation Maintenance Exchange General Unappro- Sub Non controlling Total
premium share option reserve reserve on reserve revaluation reserve priated total Interest
compensation business reserve Profit
reserve combination
(Rupees)
Balance as at 1 January, 20X39 2,128,161 7,152,722 327,020 105,337 125,102 (31,532) 4,429240 6,198,004 20,434,054 3,113,677 23,547,731
he annexed notes 'rem 1 to 54 form an ntsgral car! of these consolidated financial statements.
It
Hussain D a w o o d Asad Umar
Chairman President & C E O
(3,259,453) 6,416,433
Net increase/ (decrease) in cash a n d cash equivalents
6,089,897 (326,536)
Cash a n d cash equivalents at beginning of the year
43 2,830,444 6,089,897
Cash and cash equivalents at end of the year
The annexed notes from 1 to 54 f o r m an integral part of these consolidated financial statements.
k
Hussain D a w o o d Asad Umar
Chairman President & C E O
119
notes to the consolidated
financial statements
for the year ended december 31, 2010
(Amounts in thousand)
1.1 The Board of Directors in their meeting on April 2 8 , 2009 decided to divide the Holding C o m p a n y into t w o companies by separating
its Fertilizer Undertaking f r o m the rest of the undertaking that w a s to be retained in the Holding C o m p a n y (Retained Undertaking).
In this regard, a wholly o w n e d subsidiary namely Engro Fertilizers Limited w a s incorporated on June 2 9 , 2 0 0 9 . T h e division w a s
effected on January 1, 2 0 1 0 (the Effective Date) through a S c h e m e of Arrangement (the Scheme) whereby:
a) t h e Fertilizer Undertaking has been transferred a n d vested in Engro Fertilizers Limited against the issuance of ordinary shares
of Engro Fertilizers Limited to the Holding C o m p a n y ; a n d
b) the retention of the Retained Undertaking in the Holding C o m p a n y along with the c h a n g e of the name of the Holding C o m p a n y
to Engro Corporation Limited. Engro Corporation Limited henceforth will function as a Holding C o m p a n y to oversee the business
of the n e w fertilizer subsidiary as well as business of its other existing subsidiaries/associates.
Subsidiary c o m p a n i e s , companies in which the Holding C o m p a n y o w n s over 5 0 % of voting rights, or companies directly controlled
by the Holding C o m p a n y :
Associated Company:
- Agrimall (Private) Limited
- Arabian Sea Country Club Limited
Engro Fertilzers Limted has been involved in the construction a n d setup of the Urea expansion project (Enven Plant) adjacent to
existing Dharki Plant. The capacity of Enven Plant will be 1.3 million t o n s of Urea per a n n u m , but could not continue for a reasonable
period, as required for commissioning of commercial production, d u e to curtailment of gas by Sui Northern Gas Pipeline Limited
(SNGPL) for forty five days from January 7, 2 0 1 1 . The production is n o w e x p e c t e d to c o m m e n c e by end of Febuary 2011 a n d
commercial production will be declared o n c e fully tested.
Engro F o o d s L i m i t e d
Engro Foods Limited, a wholly o w n e d subsidiary of the Holding C o m p a n y w a s incorporated in Pakistan on April 2 6 , 2 0 0 5 , under
the Companies Ordinance, 1984, as a private limited c o m p a n y and w a s converted to an unlisted public limited c o m p a n y effective
from April 2 7 , 2 0 0 6 . The principal activity of Engro Foods Limited is to manufacture, process a n d sell dairy, Ice c r e a m a n d other
f o o d products. Engro Foods Limited also o w n s and operates a dairy farm. During the year, Engro Foods Limited has c o m m e n c e d
commercial production of juices, hence further widening the portfolio of its products.
Further, Engro Foods Supply Chain (Private) Limited, a 7 0 % o w n e d subsidiary of Engro Foods Limited, w a s incorporated in Pakistan
on November 3, 2009, under the Companies Ordinance, 1984. The principal activity of this sub-subsidiary is to produce, manufacture
and trade all kinds of raw, processed and prepared food products including agriculture, dairy and farming products. A rice processing
plant in district Sheikhupura is currently under construction. During the year, the drying unit of the plant w a s c o m m i s s i o n e d a n d
commercial production c o m m e n c e d from November 7, 2 0 1 0 whereas the milling unit is expected to be commissioned in the first
half o f 2 0 1 1 .
a) Fertilizer Trading: Engro Eximp (Private) Limited imports a n d sells different types of fertilizers a n d other related p r o d u c t s a n d
are being sold to the dealers through Engro Fertilizers Umited which has been appointed as a selling agent under an Agreement
effective January 1, 2010.
b) Rice Trading: Engro Eximp (Private) Limited is also engaged in rice business whereby bulk quantities of unprocessed rice and
p a d d y are p r o c u r e d from local suppliers, p r o c e s s e d a n d p a c k e d for selling locally as well as for e x p o r t to foreign b u y e r s .
Processing of rice is being o u t s o u r c e d .
Engro Eximp (Private) Limited also o w n s 3 0 % ordinary shares of Engro Foods Supply Chain (Private) Limited.
121
(Amounts in thousand)
Avanceon Limited
% age of holding of
Avanceon Limited
- Avanceon Free Z o n e Establishment, UAE; 100%
- Engro Innovative Inc., USA; 100%
- Innovative Automation (Private) Umited; 100%
- Avanceon LP, USA; a n d 70%
- Avanceon GP LLC, USA. 70%
• A v a n c e o n Free Z o n e Establishment, UAE is a Free Z o n e Establishment with limited liability f o r m e d under the laws of Jebel AH
Free Zone Authority, U.A.E a n d w a s registered on February 2 8 , 2 0 0 4 . The principal activity of the establishment is to trade in
p r o d u c t s of automation a n d control equipment and provide related technical support.
• Engro Innovative Inc., USA a wholly o w n e d subsidiary of Avanceon Free Zone Establishment w a s incorporated in the State of
Pennsylvania on October 2 5 , 2 0 0 6 , as a Corporation Service C o m p a n y under the provisions of Business Corporation L a w of
1 9 8 8 . Its principal activity is to explore investment opportunities in automation industry in USA a n d provide related technical
support f r o m its holding companies.
• Innovative Automation (Pvt.) Limited w a s incorporated in Pakistan as a private c o m p a n y limited by shares under the Companies
Ordinance, 1984 on December 0 4 , 2 0 0 8 . It is a wholly o w n e d subsidiary of Avanceon Limited.
• Avanceon LP, USA (formerly Advanced Automation LP - ALP) a 7 0 % o w n e d subsidiary of Engro Innovative Inc., is a Pennsylvania
Limited Partnership. The Partnership provides innovative technology solutions to clients in various industries. The Partnership
designs, d e v e l o p s , implements and provides s u p p o r t of a u t o m a t e d manufacturing p r o c e s s for their c u s t o m e r s .
• Avanceon GP LLC, a 7 0 % o w n e d subsidiary of Engro Innovative Inc., is a Pennsylvania IJmited Liability Corporation, w h i c h is
a general partner with 0.01 % general partner interest in Avanceon LP.
Engro P o l y m e r a n d C h e m i c a l s Limited
Engro Prolymer a n d Chemicals Limited as a 5 6 . 1 9 % o w n e d subsidiary of t h e Holding Company. Engro Polymer a n d Chemicals
IJmited, incorporated in Pakistan in 1997 under the Companies Ordinance, 1984, is listed on Karachi, Lahore a n d Islamabad Stock
Exchanges. T h e principal activity of Engro Polymer a n d Chemicals Limited is to manufacture, market a n d sell Poly Vinyl Chloride
(PVC), PVC c o m p o u n d s caustic s o d a a n d other related chemicals. It is also engaged is supply of surplus power generated from
its p o w e r plant to Engro Fertilizers IJmited (NPK Plant) and Karachi Electricity C o m p a n y Umited.
Engro P o w e r G e n Limited
Engro PowerGen Limited is a wholly o w n e d subsidiary incorporated as a private limited c o m p a n y in Pakistan on May 3 1 , 2 0 0 8
under the Companies Ordinance, 1984, a n d w a s converted to an unlisted public c o m p a n y effective August 1 1 , 2009. It is established
with the primary objective to analyse potential opportunities in the Power Sector and undertake Independent Power Projects (IPPs)
based on feasibilities of new ventures. Following are the subsidiaries of Engro PowerGen Limited.
% age of holding of
Engro PowerGen Limited
Engro Powergen Qadirpur Limited 85%
(formerly Engro Energy Limited)
Sindh Engro Coal Mining C o m p a n y Limited 60%
The Holding Company, had last year initiated the process of transferring its entire (95%) holding of 3 0 4 million shares of Rs. 10
each in Engro Powergen Qadirpur Limited (formerly Engro Energy Limited) to the Engro PowerGen Limited. Such transfer being
on a c c o u n t of Holding C o m p a n y ' s overall restructuring of its business to enable all direct subsidiaries to o p e r a t e as holding
companies of their respective lines of business. However, after approval from the shareholders for transferring a lower number,
the Holding C o m p a n y has transferred during the year 272 million shares ( 8 5 % of share capital) in Engro Powergen Qadirpur
Limited to Engro PowerGen Limited at par value of Rs. 10 each against cash consideration, while retaining 1 0 % holding. By
virtue of such transfer, Engro Powergen Qadirpur Limited has n o w b e c o m e a subsidiary of Engro PowerGen Limited. However,
the ultimate holding of the Holding C o m p a n y remains at 9 5 % .
During the year, Engro Powergen Qadirpur Limited completed construction a n d testing of its 2 1 7 . 3 MW c o m b i n e d cycle power
plant and has c o m m e n c e d commercial operations on March 2 7 , 2 0 1 0 . The electricity generated is transmitted to the National
Transmission a n d Despatch C o m p a n y (NTDC) under the Power Purchase Agreement (PPA) dated October 26, 2 0 0 7 , valid for
a period of 25 years.
• Sindh Engro Coal Mining C o m p a n y Limited is a public unlisted company, incorporated in Pakistan on October 15, 2 0 0 9 under
the Companies Ordinance, 1984. ft has been formed under a Joint Venture Agreement (JVA), dated September 8, 2 0 0 9 , between
the Government of Sindh, Coal a n d Energy Development Department (GoS), the Engro PowerGen Limited a n d the Holding
!
Company. The aforementioned JVA is consequent to the selection of the Engro PowerGen Limited as GoS s joint venture partner,
through an International Competitive Bidding process, for the development, construction and operation of an o p e n cast mine
facility in Block II of Thar Coal Field, Sindh, with an annual mining capacity of 6.5 million tons of coal which will be subsequently
increased to 22 million t o n s in later years of mining. In this regard, as per JVA, the Sindh Engro Coal Mining C o m p a n y Limited
initiated a Detailed Feasibility Study (DFS) in November 2 0 0 9 by a t e a m of International Consultants a n d local experts to confirm
the technical, environmental, social and e c o n o m i c viability of the Project.
During the year, Sindh Coal Authority, Coal and Energy Development Department, Government of Sindh (GoS/SCA), allocated
an area of 7 9 . 6 s q . km in Thar Coal Field, District Thar, pursuant to M e m o r a n d u m of Understanding (MoU), d a t e d March 3 1 ,
2010, signed between the Sindh Engro Coal Mining C o m p a n y Limited a n d GoS/SCA, to carry out a feasibility study. As agreed
in the M o U , G o S / S C A requested the Director General Mines a n d Mineral Development Department, G o v e r n m e n t of Sindh to
issue an exploration license for the aforementioned area to the Sindh Engro Coal Mining C o m p a n y U m i t e d , which w a s granted
on August 8, 2 0 1 0 . Further on successful completion of technical feasibility Sindh Engro Coal Mining C o m p a n y Limited, as
directed by G o S vide its letter d a t e d N o v e m b e r 12, 2 0 1 0 , has applied to Director General Mines a n d Minerals Development
Department on November 3 0 , 2 0 1 0 for t h e mining lease for a period of 30 years, extendable to mine's life. However, efforts
are being m a d e for closure on timely availability of all the required infrastructure a n d tariff to c o n f i r m e c o n o m i c viability
of the Project.
123
(Amounts in thousand)
Further, the Project's approval, through Sindh Engro Coal Mining C o m p a n y Limited, is linked to a n d dependent on the feasibility
of mine mouth power plant (approximately 600-1200 MW) to be o w n e d and constructed by Engro PowerGen IJmited. A separate
feasibility in this regard shall be c o n d u c t e d by Engro PowerGen Limited.
• Engro PowerGen Limited has been granted a Letter of Intent (LOI) on October 12, 2 0 1 0 by the Alternate Energy Development
Board (AEDB) for establishing an approximately 50 MW Wind Power Generation Project in Gharo W i n d Corridor. Under the LOI,
feasibility study including other various mildstone to be completed / achieved within a period of eighteen m o n t h s thereof.
2.1.2 These consolidated financial statements have been prepared in accordance with the requirements of the C o m p a n i e s Ordinance,
1984 (the Ordinance), directives issued by the Securities a n d Exchange C o m m i s s i o n of Pakistan (SECP) a n d a p p r o v e d financial
reporting standards as applicable in Pakistan. A p p r o v e d financial reporting s t a n d a r d s c o m p r i s e of s u c h International Financial
Reporting S t a n d a r d s (IFRS) issued by the International A c c o u n t i n g Standards Board as are notified under the provisions of the
Ordinance. Wherever, the requirements of the Ordinance or directives issued by the SECP differ with t h e requirements of these
standards, the requirements of the Ordinance a n d the said directives have b e e n followed.
2.1.3 The preparation of consolidated financial statements in conformity with the above requirements requires t h e use of certain critical
a c c o u n t i n g estimates. It also requires m a n a g e m e n t to exercise its j u d g m e n t in t h e p r o c e s s of applying the Group's accounting
policies. The areas involving a higher degree of j u d g m e n t or complexity, or areas where assumptions a n d estimates are significant
to t h e consolidated financial statements are disclosed in note 3.
• IFRS 3 (revised), 'Business c o m b i n a t i o n s ' , and consequential a m e n d m e n t s to IAS 2 7 , 'Consolidated a n d separate financial
statements', are effective prospectively to business combinations for which the acquisition d a t e is on or after the beginning of
the first annual reporting period beginning on or after 1 July 2 0 0 9 .
The revised standard continues to apply the acquisition m e t h o d to business combinations but w i t h s o m e significant changes
c o m p a r e d with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date,
with contingent payments classified as debt subsequently remeasured through the statement of comprehensive income. There
is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or
at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related c o s t s are expensed. As
no business combination transaction (where IFRS 3 is applicable) has been incurred on or after the beginning of the first annual
reporting period beginning on or after 1 July 2009, therefore this amendment has no impact on the Group's financial statements.
IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change
in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting
w h e n control is lost. Any remaining interest in t h e entity is re-measured to fair value, and a gain or loss is recognised in profit
or loss. As on overall Group level, there is no change in control, therefore there is no impact of this amendment on the Group's
financial statements.
• IFRS 5 (amendment), 'Non-current assets held for sale and discontinued operations'. The a m e n d m e n t clarifies that IFRS 5
specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued
operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation)
and paragraph 125 (sources of estimation uncertainty) of IAS 1. Currently, as G r o u p d o e s not have any non-current asset (or
disposal group) classified as held for sale or discontinued operations, therefore this amendment has no impact on the Group's
financial statements.
• IFRS 8 (Amendment), 'Disclosure of information about segment assets'. This a m e n d m e n t clarifies that an entity is required to
disclose a measure of s e g m e n t assets only if that measure is regularly reported to the chief operating decision-maker. The
Group's current policy and disclosures are in line with this amendment.
• IAS 1 (amendment), 'Presentation of financial statements'. The amendment is part of the lASB's annual improvements project
published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is
not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits
a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of
cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required
by the counterparty to settle in shares at any time.
• IAS 17 (Amendment) 'Classification of leases of land a n d buildings' (effective f r o m January 1, 2010). The a m e n d m e n t deletes
the specific guidance regarding classification of leases of land, so as to eliminate inconsistency with the general guidance on
lease classification. As a result, leases of land should be classified as either finance or operating, using the general principles
of IAS 17. The Group's current accounting policy is in line with the requirements of IAS 17 and the Ordinance, a n d therefore,
there is no impact of this amendment on the Group's financial statements.
• IAS 39 (amendment); 'Cash flow hedge accounting'. This a m e n d m e n t provides clarification w h e n to recognize gains or losses
on hedging instruments as a reclassification adjustments in a cash flow hedge of a forecast transaction that results subsequently
in the recognition of a financial instrument. The a m e n d m e n t clarifies that gains or losses should be reclassified from equity to
profit or loss in the period in w h i c h the hedged forecast cash flow affects profit or loss. The Group's current accounting policy
is in compliance with this a m e n d m e n t and therefore there is no impact on the Group's financial statements.
125
(Amounts in thousand)
c) S t a n d a r d s , a m e n d m e n t s t o p u b l i s h e d s t a n d a r d s a n d i n t e r p r e t a t i o n s t o e x i s t i n g s t a n d a r d s t h a t are n o t y e t e f f e c t i v e a n d
h a v e not b e e n early a d o p t e d b y t h e G r o u p .
T h e following n e w standards, a m e n d m e n t s to published standards a n d interpretation are not effective (although available for
early adoption) for the accounting period beginning on or after January 1, 2 0 1 0 a n d have not been early adopted by the Company.
• IFRS 9 'Financial instruments' (effective for periods beginning on or after January 1, 2013). This standard is the first step in the
process to replace IAS 3 9 , 'Financial instruments: recognition a n d m e a s u r e m e n t ' . IFRS 9 introduces new requirements for
classifying a n d measuring financial assets and is likely to affect the Group's accounting for its financial assets. The Group is yet
to assess the full impact of IFRS 9, however, initial indications are that it may not affect the Group's financial assets significantly,
as currently t h e Group d o e s not have any material assets classified as 'available for sale'.
• IAS 24 (Revised), 'Related party disclosures'. IAS 24 (revised) is mandatory for periods beginning on or after January 1, 2 0 1 1 .
Earlier application, in whole or in part, is permitted. The revised standard clarifies a n d simplifies the definition of a related party
a n d removes the requirement for government related entities to disclose details of all transactions with the government a n d
other government related entities.
• IAS 32 (amendment) 'Classification of rights issues'. The amendment applies to annual periods beginning on or after February
1, 2 0 1 0 . Earlier application is permitted. The a m e n d m e n t addresses the accounting for rights issues that are denominated in
a currency other than t h e functional currency of the issuer. Provided certain conditions are met, s u c h rights issues are n o w
classified as equity regardless of the currency in which t h e exercise price is denominated. Previously, these issues h a d to be
a c c o u n t e d for as derivative liabilities.
• IFRIC 14 (Amendment) 'Prepayments of a minimum funding requirement' (effective for periods beginning on or after January
1, 2011). T h e a m e n d m e n t s correct an unintended c o n s e q u e n c e of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset,
m i n i m u m funding requirements a n d their interaction'. Without the a m e n d m e n t s , entities are not permitted to recognize as an
asset s o m e voluntary prepayments for minimum funding contributions. This w a s not intended w h e n IFRIC 14 w a s issued, a n d
the amendment corrects this. The Group's retirement benefit funds are not subject to any minimum funding requirement, hence,
these a m e n d m e n t s will have no i m p a c t on the Group's financial statements.
• IFRIC 19 'Extinguishing financial liabilities with equity instruments' (effective for periods beginning on or after January 1, 2011).
The interpretation clarifies the accounting by an entity w h e n the t e r m s of a financial liability are renegotiated a n d result in t h e
entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap).
It requires a gain or loss to be recognized in profit or loss, which is measured as the difference between the carrying amount
of the financial liability a n d the fair value of the equity instruments issued, if t h e fair value of t h e equity instruments issued cannot
be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished.
The Group has not renegotiated the t e r m s of a financial liability a n d offered any of its shares to its creditors, therefore, this
interpretation is not expected to have any material impact on the Group's financial statements.
• IFRS 7 (Amendment), 'Financial instruments: Disclosures' (effective for periods beginning on or after January 1, 2011). T h e
a m e n d m e n t emphasizes the interaction b e t w e e n quantitative a n d qualitative disclosures about the nature a n d extent of risks
a s s o c i a t e d w i t h financial i n s t r u m e n t . T h e a m e n d m e n t will only affect t h e disclosures in t h e G r o u p ' s financial s t a t e m e n t s .
• IAS 1 (Amendment) 'Presentation of financial s t a t e m e n t s ' (effective for periods beginning on or after January 1, 2 0 1 1 ) . T h e
amendment clarifies that an entity will present an analysis of other comprehensive income for each c o m p o n e n t of equity, either
in the statement of changes in equity or in the notes to the financial statements. The amendment will only affect the disclosures
in the Group's financial statements.
• IAS 34 (Amendment) 'Interim financial reporting' (effective for periods beginning on or after January 1, 2011). This a m e n d m e n t
provides g u i d a n c e to illustrate h o w to apply disclosure principles in IAS 34 a n d a d d disclosure requirements around (a) t h e
circumstances likely to affect fair values of financial instruments and their classification, (b) transfers of financial instruments
b e t w e e n different levels of the fair value hierarchy a n d (c) changes in classification of financial assets, changes in contingent
liabilities a n d assets. The a m e n d m e n t will only affect the disclosures in the G r o u p ' s c o n d e n s e d interim financial information.
Consequently, the Holding C o m p a n y is not required to account for a portion of Engro Powergen Qadirpur Limited's Power Purchase
Agreement (PPA) with NTDC as a lease under IAS - 1 7 . If the Holding C o m p a n y were to follow IFRIC - 4 / IAS - 1 7 , the arrangement
under the PPA w o u l d have been recorded as a finance lease. Had the lease been recognized as 'finance lease', the profit for the
year would have been higher by approximately Rs. 3 1 6 , 0 0 0 .
2.1.6 Basis of c o n s o l i d a t i o n
i) Subsidiaries
Subsidiaries are all entities over which the holding company has the power to govern the financial and operating policies generally
a c c o m p a n y i n g a shareholding of more than one half of the voting rights. The existence a n d effect of potential voting rights that
are currently exercisable or convertible are considered w h e n assessing whether the group controls another entity. Subsidiaries
are fully consolidated from the d a t e on w h i c h control is transferred to the G r o u p . They are de-recognized from the d a t e the
control ceases. The consolidated financial statements include Engro Corporation Limited (formerly, Engro Chemical Pakistan
Limited) a n d all c o m p a n i e s in w h i c h it directly or indirectly controls, beneficially o w n s or holds m o r e t h a n 5 0 % of t h e voting
securities or otherwise has power to elect a n d appoint more than 5 0 % of its directors.
127
(Amounts in thousand)
The g r o u p uses the acquisition m e t h o d of accounting to a c c o u n t for business combinations. T h e consideration transferred for
the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred a n d the equity interests issued
by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are e x p e n s e d as incurred. Identifiable assets acquired a n d liabilities a n d contingent
liabilities a s s u m e d in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-
by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling
interest's proportionate share of the acquiree's net assets.
Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising
from contingent consideration a m e n d m e n t s . Cost also includes direct attributable costs of investment.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree a n d the acquisition-date
fair value of any previous equity interest in t h e acquiree over t h e fair value of t h e group's share of t h e identifiable net assets
acquired is recorded as goodwill. If this is less than the fair value of the net assets of t h e subsidiary acquired in the case of a
bargain purchase, t h e difference is recognised directly in t h e statement of comprehensive income.
Inter-company transactions, balances a n d unrealised gains on transactions between group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries have been c h a n g e d where necessary to ensure consistency with
the policies a d o p t e d by the G r o u p .
W h e n the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value,
with the c h a n g e in carrying amount recognised in profit or loss. The fair value is the initial carrying a m o u n t for the p u r p o s e s of
subsequently a c c o u n t i n g for the retained interest as an associate, joint venture or financial asset. In addition, any a m o u n t s
previously recognised in other comprehensive income in respect of that entity are a c c o u n t e d for as if the group had directly
disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income
are reclassified to profit or loss.
Where major c o m p o n e n t s of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items of property, plant a n d equipment.
Subsequent c o s t s are included in the asset's carrying a m o u n t or recognised as a separate asset, as appropriate, only w h e n it is
probable that future e c o n o m i c benefits associated with the item will flow to t h e Group a n d t h e cost of the item can be measured
reliably. T h e carrying a m o u n t of the replaced part is derecognised. All other repairs a n d maintenance are charged to the profit and
loss a c c o u n t during the financial period in which they are incurred.
Disposal of asset is recognized w h e n significant risk and rewards incidental to ownership have been transferred to buyers. Gains
a n d losses on disposals are determined by c o m p a r i n g the p r o c e e d s with the carrying a m o u n t a n d are recognised within 'Other
operating expenses/ income' in the profit and loss account.
Depreciation is c h a r g e d to profit and loss account using the straight line m e t h o d whereby the cost of an operating asset less its
estimated residual value is written off over its estimated useful life. Depreciation on addition is charged from the month following
the m o n t h in which the asset is available for use a n d on disposals upto the preceding m o n t h of disposal.
2.2.2 L e a s e d assets
Leases in terms of which the Group a s s u m e s substantially all the risks a n d rewards of ownership, are classified as finance lease.
Upon initial recognition, the leased asset is measured of at an amount equal to the lower of its fair value a n d present value of minimum
lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable
to that asset, Outstanding obligations under the lease less finance cost allocated to future periods are s h o w n as a liability.
Finance cost under lease agreements are allocated to the periods during t h e lease term so as to p r o d u c e a constant periodic rate
of finance cost on the remaining balance of principal liability for each period.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company
will obtain ownership by the e n d of the lease term.
Gains or losses arising from changes in fair value less estimated point-of-sale costs of livestock a n d milk are recognized in the profit
a n d loss account.
Crops in the g r o u n d a n d at the point of harvest at balance sheet date are measured at cost being an approximation of fair value,
as t h e s e are presently being used as internal c o n s u m p t i o n for cattle feed a n d have a very short biological transformation a n d
consumption cycle.
129
(Amounts in thousand)
Expenditure relating to the aforementioned feasibility studies, which support the technical feasibility a n d commercial viability of an
area, are capitalized as exploration a n d evaluation assets.
Capitalised exploration a n d evaluation expenditure is recorded at cost less impairment charges. As the asset is not available for
use, it is not depreciated.
C a s h flows associated with exploration a n d evaluation expenditure are classified as investing activities in the statements of cash
flows.
b) C o m p u t e r S o f t w a r e a n d Licenses
C o s t s associated with maintaining c o m p u t e r software p r o g r a m m e s are recognized as an expense w h e n incurred. However,
costs that are directly attributable to identifiable software and have probable economic benefits exceeding the cost beyond one
year, are recognized as an intangible asset. Direct costs include the purchase cost of software (license fee) and related overhead
cost.
Expenditure w h i c h enhances or extends the performance of computer software b e y o n d its original specification a n d useful life
is recognized as a capital improvement a n d a d d e d to the original cost of the software.
C o m p u t e r software a n d license cost treated as intangible assets are amortised from the date the software is put to use on a
straight-line basis over a period of 3 to 10 years.
d) O t h e r intangible assets
Other intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation
is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed
at t h e e n d of each annual reporting period, with the effect of any c h a n g e s in estimate being a c c o u n t e d for on a prospective
basis.
2.8 Investments
T h e Group's interest in jointly controlled entity and associated c o m p a n i e s have been a c c o u n t e d for using equity m e t h o d in these
consolidated financial statements.
b) Loans a n d receivables
Loans a n d receivables are non-derivative financial assets with fixed or determinable payments that are not q u o t e d in an active
market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period,
which are classified as non-current assets.
131
(Amounts in thousand)
Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented
in t h e profit a n d loss a c c o u n t within 'other operating income/expenses' in the period in w h i c h they arise. Dividend i n c o m e f r o m
financial assets at fair value through profit or loss is recognised in the profit a n d loss a c c o u n t as part of other i n c o m e w h e n the
Group's right to receive payments is established.
Changes in fair value of monetary a n d non-monetary securities classified as available-for-sale are recognised in other comprehensive
income. W h e n securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in
equity are included in the profit a n d loss a c c o u n t as 'gains a n d losses from investment securities'.
Interest on available-for-sale securities calculated using the effective interest m e t h o d is recognised in t h e profit a n d loss a c c o u n t
as part of other income. Dividends on available for sale equity instruments are recognised in the profit a n d loss a c c o u n t as part of
other income w h e n the Group's right to receive payments is established.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing
financial liability is replaced by another from the s a m e lender on substantially different terms, or the t e r m s of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of
a n e w liability, a n d t h e d i f f e r e n c e i n r e s p e c t i v e c a r r y i n g a m o u n t s i s r e c o g n i z e d i n t h e p r o f i t a n d l o s s a c c o u n t .
If the hedging instrument no longer meets the criteria for hedge a c c o u n t i n g , expires or is sold, terminated or exercised, the hedge
accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast
transaction occurs. W h e n the hedged item is a non-financial asset, the a m o u n t recognised in equity is transferred to the carrying
a m o u n t of the asset w h e n it is recognised. In other cases the amount recognised in equity is transferred to profit or loss in t h e s a m e
period that the hedge item affects profit a n d loss account.
O t h e r n o n - t r a d i n g derivatives
W h e n a derivative financial instrument is not held for trading, a n d is not designated in a qualifying hedge relationship, all changes
in its fair value are recognised immediately in profit a n d loss account.
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposure. Further, the Holding
Company has also issued a conversion option on IFC loan to Engro Fertilizers Limited. The fair values of various derivative insturments,
the conversion option and other derivatives used for hedging purposes, are disclosed in note 10.
2.15 Stock-in-trade
These are valued at the lower of c o s t a n d net realizable value. C o s t is determined using weighted average m e t h o d e x c e p t for raw
material and certain purchased products in transit which are stated at c o s t (invoice value) plus other charges incurred thereon till
the balance sheet date. Cost in relation to finished g o o d s includes applicable purchase cost and manufacturing expenses. The cost
of w o r k in process includes material and proportionate conversion costs.
Net realisable value signifies the estimated selling price in the ordinary c o u r s e of business less all estimated c o s t s of completion
a n d c o s t s necessarily to be incurred in order to make the sales.
The fair value determined at the grant date of the equity settled share based payments is recognized as an employee compensation
expense on a straight line basis over the vesting period.
133
(Amounts in thousand)
W h e n an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of an employee
c o m p e n s a t i o n expense in profit a n d loss a c c o u n t s , employee c o m p e n s a t i o n expense in profit a n d loss a c c o u n t will be reversed
equal to the amortized portion with a corresponding effect to employee share option compensation reserve in the balance sheet.
W h e n a vested option lapses on expiry of t h e exercise period, employee c o m p e n s a t i o n expense already recognized in t h e profit
a n d loss account is reversed with a corresponding reduction to employee share option compensation reserve in the balance sheet.
When the options are exercised, employee share option compensation reserve relating to these options is transferred to share capital
a n d share premium account. An amount equivalent to the face value of related shares is transferred to share capital. A n y a m o u n t
over a n d above the share capital is transferred to share premium account.
2.20 Borrowings
Borrowings are recognised initially at fair value, net of transaction c o s t s incurred. Borrowings are subsequently carried at amortised
c o s t ; any difference b e t w e e n the proceeds (net of transaction costs) and the redemption value is recognised in the profit a n d loss
a c c o u n t over the period of the borrowings using the effective interest m e t h o d .
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 m o n t h s after the balance sheet date.
These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business
if longer). If not, they are presented as non-current liabilities.
2.22.1 Current
The current i n c o m e tax c h a r g e is b a s e d on the taxable i n c o m e for t h e year calculated on the basis of t h e tax laws e n a c t e d or
substantively enacted at the balance sheet date, a n d any adjustment to tax payable in respect of previous years.
2222 Deferred
Deferred tax is recognised using the balance sheet m e t h o d , providing for all temporary differences b e t w e e n the carrying amounts
of assets a n d liabilities for financial reporting purposes a n d the a m o u n t s u s e d for taxation purposes. Deferred tax is measured at
the t a x rates that are e x p e c t e d to be applied to the temporary differences w h e n they reverse, b a s e d on the laws that have been
enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that is probable that future taxable profits will be available against which temporary
difference can be utilised. Deferred tax assets are reviewed at each reporting date a n d are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
When an employee leaves the Group before the vesting period a n d after recognition of an employee compensation expense in t h e
profit a n d loss account, employee c o m p e n s a t i o n expense in the profit a n d loss a c c o u n t will be reversed equal to the amortised
portion with a corresponding effect to employee housing subsidy in the balance sheet.
On expiry of the vesting period, a m o u n t s disbursed under the s c h e m e will be set-off against the employee housing subsidy.
• a defined contribution pension f u n d for the benefit of m a n a g e m e n t employees. Monthly contributions are m a d e by the Holding
C o m p a n y to the fund at the rate ranging from 1 2 . 5 % to 1 3 . 7 5 % of basic salary.
Engro Fertilizers Limited a n d Engro Eximp (Private) Limited contributes in the aforementioned defined contribution plans, operated
by the Holding Company.
Engro Foods Limited, Engro Polymer a n d Chemicals Limited, Engro P o w e r G e n Limited a n d A v a n c e o n Limited o p e r a t e defined
contribution provident funds for their permanent employees. Monthly contributions are m a d e both by t h e Subsidiary C o m p a n i e s
and their employees to the funds at the rate of 1 0 % of basic salary.
Contributions require assumptions to be m a d e of future o u t c o m e s which mainly includes increase in remuneration, expected long-
term return on plan assets a n d the discount rate used to convert future cash flows to current values. Calculations are sensitive to
changes in the underlying assumptions.
The Holding C o m p a n y operates defined benefit funded gratuity s c h e m e s for its m a n a g e m e n t employees.
135
(Amounts in thousand)
Annual provision is also made under a service incentive plan for certain category of experienced employees to continue in the Holding
Company's employment.
Engro Fertilizers Limited and Engro Eximp (Private) Limited contributes to the aforementioned Funded defined benefit plan, operated
by the Holding Company.
The pension s c h e m e provides life time pension to retired employees or to their spouses. Contributions are made annually to these
f u n d s on t h e basis of actuarial recommendations. The pension s c h e m e has been curtailed and effective f r o m July 0 1 , 2005, no
new m e m b e r s are inducted in this scheme.
Actuarial gains on curtailment of defined benefit pension scheme (curtailed) is recognised immediately once the certainty of recovery
is established.
Annual provision is also made under a service incentive plan for certain category of experienced employees to continue in the Engro
Fertilizers Limited's employment.
Actuarial gains and losses are recognized over the e x p e c t e d future services of current m e m b e r s , using t h e r e c o m m e n d e d
approach under IAS 19 - Employee Benefits as determined by the actuary.
• defined benefit unfunded pension scheme for t w o of its management employees. Pension is calculated by multiplying last d r a w n
pensionable salary, as per the Scheme, to the years of service.
• defined benefit f u n d e d gratuity s c h e m e for its management employees. The s c h e m e provides gratuity based on employees'
last d r a w n salary. Gratuity is payable on retirement, seperation or death to ex-employees, or their spouses thereafter.
• defined benefit u n f u n d e d s c h e m e for death in service gratuity for its permanent employees. Gratuity is payable on death of
employee to surviving spouse and dependent childem.
• defined benefit funded gratuity schemes for its management and non-management employees.
225 Provisions
Provisions are recognized w h e n the Group has a legal or constructive obligation as a result of past events a n d it is probable that
outflow of e c o n o m i c benefits will be required to settle the obligation and a reliable estimate of the a m o u n t c a n be made. However,
provisions are reviewed at each balance sheet date a n d adjusted to reflect current best estimate.
2.26.2The results a n d financial position of all the g r o u p entities (none of which has the currency of a hyper-inflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
• assets a n d liabilities for e a c h balance sheet presented are translated at t h e closing rate at the d a t e of that balance sheet;
• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); a n d
2.26.3 The Holding C o m p a n y ' s share of e x c h a n g e revaluation reserve on translation of foreign operations of a Subsidiary Company,
A v a n c e o n L i m i t e d , h a s n o w b e e n r e f l e c t e d a s a s e p a r a t e c o m p o n e n t o f equity. P r e v i o u s l y i t w a s r e f l e c t e d u n d e r
unappropriated profits.
137
(Amounts in thousand)
• Contract revenue a n d c o n t r a c t costs relating to long-term construction c o n t r a c t s are recognised as revenue a n d expenses
respectively by reference to stage of completion of contract activity at the balance sheet date. Stage of completion of a contract
is determined by applying 'cost-to-cost m e t h o d ' . Under c o s t - t o - c o s t m e t h o d , stage of completion of a contract is determined
by reference to the proportion that contract cost incurred to date bears to the total estimated contract cost. When it is probable
that contract c o s t s will exceed total contract revenue, the e x p e c t e d loss is recognised as an expense immediately. W h e n the
o u t c o m e of a construction contract c a n not be estimated reliably, revenue is recognised only to the extent of contract c o s t s
incurred that it is probable will be recoverable.
3.5 Derivatives
The Group reviews the changes in fair values of the derivative hedging financial instruments at each reporting d a t e b a s e d on the
valuations received from the contracting banks. These valuations represent estimated fluctuations in the relevant currencies/interest
rates over the reporting period a n d other relevant variables signifying currency a n d interest rate risks. T h e Group has calculated
the fair value of conversion option on IFC loan using the option pricing model.
139
(Amounts in thousand)
AsatJanuary 1,2009
Cost 247,035 321,640 1,650,248 602,237 110,670 15,599,841 12,943 326,408 720.790 26,906 640,462 52,401 20,311,584
Disposals
Cost • - (32) (2,121) (80.756) • (78,486) - (117,336) (11,043) (289.773)
Accumulated depreciation 32 2,121 48,126 76,575 81,545 10,740 219,139
- - - - (32,630) - (1,910) - (35,79!) (303) (70,634)
Reclassifications
Cost • • (5,405) 3,348 (986) • 8.371 (5,000) 8,358 (8,686)
Accumulated depreciation 3,982 (2,818) 39 1.515 (1275) 5,099 (6.542)
- - (1,423) 530 - (947) - 9,886 (6,275) 13,457 (15,228) -
Adjustments
Cost - - (2,788) - (1,375) 792 323 (3,048)
Accumulated depreciation 3,284 1,420 (102) (279) 4,323
- - 496 - - 45 690 44 1,275
Depreciation charge - (4,526; (124,350) (18,459) (14,798) (1,304,679) (2,896) (36,632) (108,067) (5,133) (124,418) (11,774) (1,755,722)
Net book value 472,523 258,781 2,054,303 547,222 389,531 21,327,887 8,475 127,654 353,680 6,769 524,645 7,603 26,179,073
AsatJanuary 1,2010
Cost 472,523 319,068 2,528,030 775,763 471,334 29,795,425 12,946 429,715 824,665 22,698 827,086 48,551 36,527,804
Accumulated depreciation (60,287) (473,727) (128,541) (81,803) (8,467,538) (4,471) (302.061) (470,985) (15,929) (302,441) (40,948) (10,348,731)
Net book value 472,523 258,781 2,054,303 647,222 389,531 21,327,887 8,475 127,654 353,680 6,769 524,645 7,603 26,179,073
Disposals
Cost - (49,560) (18,547) - (126) - (20,558) - (115,592) (15,077) (219,460)
Accumulated depreciation 9,994 18,547 71 19,943 66,736 13,124 127,415
- (39,566) - (55) - (615) - (49,856) (1,953) (92,045)
Depreciation charge - (9,373) (205,543) (19,012) (54,158) (2,340,253) (2,630) (31,740) (129,802) (5,223) (172,408) (7,452) (2,977,594)
Net book value 490,114 294,061 5,061,985 665,565 1,611,434 48,604,361 5,845 152,037 433,357 5,127 776,705 5,984 58,106,575
As at December 31,2010
Cost 490,114 353,727 5,722.708 813,118 1,747,395 59,412,081 12,946 485,838 1,014,201 26,279 1,185,818 41,260 71,305,485
Accumulated depreciation (59,666) (660,723) (147,553) (135,961) (10,807,720) (7,101) (333,801) (580,844) (21,152) (409,113) (35,276) (13,198,910)
Net book value 490,114 294,061 5,061,985 665,565 1,611,434 48,604,361 5,845 152,037 433,357 5,127 776,705 5,984 58,106,575
4.2 Depreciation charge for the year has been allocated as follows:
2010 2009
(Rupees)
C o s t of sales (note 32) 2,634,394 1,589,923
Selling and distribution expenses (note 33) 214,488 118,112
Capital w o r k in progress (note 4.6.3) 128,712 47,687
2,977,594 1,755,722
4.3 Includes equipment costing Rs. 135,469 (2009: Rs. 129,872) having net b o o k value of Rs. 9 3 , 3 3 7 (2009: Rs. 101,720) m o u n t e d
on transport contractors' vehicles. Also includes freezers and trikes held by third parties costing Rs. 482,023 (2009: Rs. 244,634),
having net book value of Rs. 3 9 2 , 2 5 8 (2009: Rs. 218,634).
4.4 Includes exchange loss capitalised a m o u n t i n g to Rs 2 9 4 , 0 0 0 pertaining to Engro P o w e r g e n Qadirpur Limited, a subsidiary of
Engro PowerGen Limited, as more fully explained in note 3 1 . 4 .
4.5 The details of operating assets disposeoTwritten off during the year are as follows:
Land - Leasehold
Land at Port Qasim Coca-Cola Beverages 49,560 9,994 39,566 339,250
Company Limited
Vehicles
By Company policy Inamullah Naveed Khan 1,328 994 334 332
to existing/separating executives Shamsuddin Sheikh 2,750 1,848 902 875
Naveed A. Hashmi 1,859 407 1,452 1,520
Khalid Mansoor 2,750 1,977 773 875
Mr. Asif Qadir 2,750 2,020 730 875
Syed Murtaza Azhar Rizvi 1,265 433 832 925
Sarfaraz A. Rehman 1,327 996 331 332
Khawaja Rizwan 395 348 47 120
Babur Sultan 2,500 1,680 820 625
Ali Akbar 2,483 1,591 892 621
Riaz Hussain Shah 839 563 276 210
Imran Ahmed 875 623 252 300
Adeel Ahmed Khan 504 406 98 102
Babur Mughal 504 406 98 102
Usman Saif 600 439 161 237
Zainab Hameed 899 323 576 565
Saud Farooq 632 356 276 310
Azam Shighri 600 349 251 179
Naveed Shigri 654 282 372 315
Syed Imran 631 521 110 131
Mazhar Hasnani 1,269 80 1,189 1,170
Sarfaraz Ahmed Soomro 595 595 - 119
Zeeshan Mehmood 530 530 - 119
Choudary Faisal Aslam 550 550 - 119
Khurram Ali Khan 540 540 - 119
Fahim Amir 540 540 - 119
Imran Quershi 540 540 - 119
Ramzan Dogar 560 560 - 119
Sheikh Abu Bakar 520 520 - 119
Faisal Ishrat 540 540 - 119
141
(Amounts in thousand)
Insurance claims EFU General Insurance Ltd. 25,535 10,193 15,342 20,822
Insurance claims EFU General Insurance Ltd. 386 132 254 303
Assets written off 1,921 1,921 - -
Items having net book value upto Rs.50 each 18,251 17,890 361 3,817
20,558 19,943 615 4,120
143
(Amounts in thousand)
Transferred to
- operating assets (note 4.1) (12,843,185) (1,382,161) (154,062) (292,729) (1,526,559) (16,198,696)
- intangible assets (note 7) (42,151) - (42,151)
Balance a s a t December 3 1 , 2 0 0 9 63,842,649 7,734,725 192,195 293,243 12,118,732 84,181,544
Year e n d e d D e c e m b e r 3 1 , 2 0 1 0
Balance as at January 1, 2 0 1 0 63,842,649 7,734,725 192,195 293,243 12,118,732 84,181,544
Additions during the year 8,642,098 3,624,262 386,819 478,431 8,453,087 21,584,697
Transferred to
- operating assets (note 4.1) (26,573,208) (4,294,161) (213,540) (472,863) (3,309,084) (34,862,856)
- intangible assets (note 7) (30,890) - (50,605) (138,578) - (220,073)
- stores a n d spares (1,154,316) . . . . (1,154,316)
- Reclassification (467,615) 2,063,379 (14,355) 58,578 (1,639,987)
4.6.1 Capital w o r k in progress includes Rs. 4 4 , 2 5 6 , 9 7 6 (2009: Rs. 47,081,203) a n d Rs. 8 , 3 6 5 , 8 7 9 (2009: Rs. 7,459,458) with respect
to Enven Plant for plant & machinery and building & civil w o r k s respectively. Engro Fertilizers Limited c o m m e n c e d trial production
on D e c e m b e r 2 9 , 2 0 1 0 b u t c o u l d not continue for a reasonable period, as required for commissioning of commercial production,
d u e to curtailment of gas by Sui Northern Gas Pipeline Limited (SNGPL) for forty five days from January 7, 2 0 1 1 . Engro Fertilizers
IJmited, therefore, n o w expects to c o m m e n c e production by end of February 2011 a n d will declare commercial production o n c e
fully t e s t e d . However, certain c o m p o n e n t s related to the Enven Plant, a m o u n t i n g to Rs. 1 0 , 5 9 9 , 1 0 6 have b e e n transferred to
operating assets being c o m p l e t e in all respects for its intended use.
- Engro Polymer a n d Chemicals Limited has declared commercial operations of the V C M plant a n d transferred the related c o s t s
of the plant to operating assets.
On c o m m e n c e m e n t of commercial production of juices by Engro Foods Limited, the related plant, machinery a n d equipment
has been transferred to operating assets on February 2 8 , 2 0 1 0 . Further, drying unit of its subsidiary's rice processing plant
c o m m e n c e d commercial production and has been transferred to operating assets on November 7, 2 0 1 0 while the construction
of t h e milling plant is still in progress. Engro Foods Limited is also in the phase of expansion in respect of ice cream plant.
4.6.3 T h e ancillary c o s t s includes net borrowing cost of Rs. 1 1 , 3 3 0 , 2 4 5 (2009: Rs. 6,645,866) capitalized at borrowing rates ranging
f r o m 1 1 . 5 2 % to 17.22% ( 2 0 0 9 : 1 1 . 5 2 % to 17.22%). Other ancillary cost also includes interest on investment in Subsidiary Company
amounting to Rs. 77,508 (2009: Rs. 803,083). The ancillary c o s t s , other than net borrowing costs and storage & handling cost,
capitalised include depreciation, amortization, salaries, wages and benefits, legal and professional charges, etc. Upon aforementioned
c o m m e n c e m e n t of commercial production and transfer of cost from capital work-in-progress to operating assets, the related ancillary
cost has also been allocated to plant a n d machinery, pipelines and building & civil w o r k in their respective cost ratio.
6 Biological Assets
2010 2009
(Rupees)
Dairy livestock (note 6.1)
- mature 257,537 415,147
- immature 164,066 19,759
421,603 434,906
Crops - feed stock 6,690 3,967
428,293 438,873
- 3 (2009: 15) mature Bulls a n d 77 (2009: 23) immature male calves. Mature Bulls are used for insemination and subsequent
disposal at the end of their inseminating life.
145
(Amounts in thousand)
6.3 The deaths during the year mainly occurred a m o n g the immature dairy livestock on account of an infection, w h i c h has n o w been
fully controlled. The C o m p a n y has recovered Rs. 63,085 from the insurance c o m p a n y against s u c h deaths.
6.4 The valuation of dairy livestock as at D e c e m b e r 3 1 , 2 0 1 0 has been carried out by an independent valuer in a c c o r d a n c e with
International Valuation Standards issued by International Valuation Standards Committee. In this regard, the valuer has examined
the physical condition of the livestock as at December 3 1 , 2010, assessed the key assumptions and estimates and also relied on
representations m a d e by t h e Engro Foods Limited. Further, in the absence of an active market of Engro Foods Limited's dairy
livestock in Pakistan, market and replacement values of these animals from most relevant active market being Australia, have been
used as basis of valuation model by the independent valuer. Mature bulls a n d immature calves were not included in the fair valuation
due to the insignificant value in use.
7 Intangible Assets
Software and Rights for future Development Other Total
licenses gas utilization cost intangible
(Rupees)
As at January 1, 2009
Cost 162,122 102,312 6,000 419,912 690,346
A c c u m u l a t e d amortization (112,291) - (6,000) (1,222) (119,513)
Net b o o k value 49,831 102,312 418,690 570,833
Year e n d e d December 3 1 , 2 0 0 9
Opening net b o o k value 49,831 102,312 41 3,690 570,833
-
Additions at cost 42,151 - - - 42,151
Write-off
Cost (11,577) - - - (11,577)
A c c u m u l a t e d amortisation 11,577 - - - 11,577
As at January 1, 2010
Cost 192,696 102,312 6,000 419,912 720,920
A c c u m u l a t e d amortization (128,340) - (6,000) (1,222) (135,562)
Net b o o k value 64,356 102,312 - 418,690 585,358
Year e n d e d D e c e m b e r 3 1 , 2 0 1 0
Opening net b o o k value 64,356 102,312 - 418,690 585,358
Additions at c o s t 218,022 - - 2,051 220,073
Adjustment of exchange revaluation 5 - - 117,875 117,880
Write-off
Cost (287) - - - (287)
A c c u m u l a t e d amortisation 271 - - - 271_
(16) - - - (16)
Adjustment of exchange revaluation (D " - (D (2)
Amortization charge (45,816) - - (154) (45,970)
Closing net b o o k value 236,550 102,312 - 538,461 877,323
As at December 3 1 , 2010
Cost 410,435 102,312 6,000 539,838 1,058,585
A c c u m u l a t e d amortization (173,885) - (6,000) (1,377) (181,262)
Net b o o k value 236,550 102,312 - 538,461 877,323
147
(Amounts in thousand)
7.1 Amortization charge for the year has been allocated as follows:
2010 2009
(Rupees)
Cost of sales (note 32) 4,166 9,532
Selling a n d distribution expenses (note 33) 33,532 16,240
Capital w o r k in progress (note 4.6.3) 8,272 1,854
45,970 27,626
Engro V o p a k Terminal L i m i t e d
At beginning of the year 494,780 486,210
A d d : Share of i n c o m e after tax for the year 554,725 458,570
Less:
- Dividend received during the year 450,000 337,500
- Dividend receivable 90,000 112,500
509,505 494,780
2010 2009
(Rupees)
- Total assets 5,400,154 5,512,256
- Total liabilities 4,346,350 4,487,901
- Total equity 1,053,804 1,024,355
- Total revenue 2,302,747 2,135,658
- Profit for the year 1,109,449 917,141
8.4 This represents the G r o u p ' s share in the paid-up share capital of the investee transferred free of cost to the Group under a joint
venture agreement.
For options granted after June 3 0 , 2 0 0 8 , the vesting period will end such number of days after December 3 1 , 2 0 1 0 as is equal to
the number of days between the date the initial option letters were issued and the date of grant of the later options. However, the
latter options c a n also only be exercised upto December 3 1 , 2012.
In 2 0 0 8 , the grant date w a s c h a n g e d to August 2 3 , 2 0 0 7 , from the date approved in the original s c h e m e . Further, consequent to
the issue of right shares in 2008 a n d in the current year, the entitlements were increased to 5.5 million ordinary shares a n d 7.7 million
ordinary shares respectively a n d the exercise price w a s adjusted to Rs. 2 6 7 . 7 3 per share a n d Rs. 205.52 per share respectively.
These changes have been duly approved by the Securities and Exchange Commission of Pakistan (SECP). The aforementioned
reduction in exercise price has no effect on the fair value of share options recognized in the consolidated financial statements.
Subsequent to the demerger, as referred to in note 1.1, the employees transferred to Engro Fertilizers Limited have surrendered
their existing share options against w h i c h n e w share options have b e e n granted under a new s c h e m e of Engro Fertilizers Limited
(note 9.2).
Further, consequent to the b o n u s issue in the current year, the entitlements w e r e increased to 1,924,230 shares f r o m 1,749,300
shares respectively a n d t h e exercise price w a s adjusted to Rs. 1 8 6 . 8 4 f r o m Rs. 2 0 5 . 5 2 respectively. These c h a n g e s have been
duly approved by the SECP. The aforementioned reduction in exercise price has no effect on the fair value of share options recognized
in the consolidated financial statements.
For options which were initially granted by the Holding C o m p a n y after J u n e 3 0 , 2 0 0 8 , the vesting period will e n d such n u m b e r of
days after December 3 1 , 2 0 1 0 as is equal to the number of days between the date the initial option letters were issued a n d the date
of grant of the later options by the Holding Company. However, the later options c a n also only be exercised upto December 3 1 , 2 0 1 2 .
149
(Amounts in thousand)
The above S c h e m e w a s conceptually approved by the Securities and Exchange Commission of Pakistan (SECP) before the transfer
of Fertilizer Undertaking to Engro Fertilizers Limited, referred to in note 1.1, whereas the formal approval w a s granted subsequently
on J u n e 1 0 , 2 0 1 0 . As the vesting period has started f r o m January 1, 2 0 1 0 a n d the S c h e m e being considered a continuation of
the old S c h e m e a n n o u n c e d by t h e Holding Company, a c h a r g e b a s e d on fair value of share o p t i o n s i.e. Rs. 1 1 . 9 4 per share,
calculated as on January 1, 2 0 1 0 , has been recognised in these consolidated financial statements.
Further, post demerger a n d c o n s e q u e n t to issue of bonus shares, the exercise price w a s also adjusted to Rs. 27.22 per share,
however, such adjustment has no effect on the fair value of share options recognised in the financial statements. The approval from
SECP in this regard has been requested vide letter dated December 2 9 , 2 0 1 0 .
During 2 0 0 8 , Engro Polymer a n d Chemicals Limited p r o p o s e d certain changes relating to 'grant d a t e ' in the originally a p p r o v e d
S c h e m e . These changes were approved by the shareholders in their EGM held on June 2 7 , 2 0 0 8 , and subsequently by the SECP
on September 2 5 , 2 0 0 8 . As per t h e approved c h a n g e to the S c h e m e the 'grant d a t e ' is the d a t e of E G M held on October 8, 2 0 0 7 ,
w h e n the S c h e m e w a s originally a p p r o v e d .
During the year, Engro Polymer and Chemicals Limited has adjusted the exercise price of the share options from Rs. 22 per share
to Rs. 19.41 per share a n d has increased the total entitlement from 5 , 3 0 0 , 0 0 0 shares to 6 , 7 5 7 , 5 0 0 shares c o n s e q u e n t to the
issuance of right shares during the year, w h i c h has been duly approved by the SECP. The aforementioned reduction in exercise
price has no effect on the fair value of share options recognised in these consolidated financial statements.
T h e n u m b e r of options granted has been calculated in accordance with the criticality of employee to the business a n d their ability,
subject to the approval of the Compensation Committee. The options carry neither right to dividends nor voting rights. Vesting period
has started f r o m the d a t e of grant a n d ended on D e c e m b e r 3 1 , 2 0 1 0 , where after these options c a n be exercised within a period
of t w o years. Employees w h o joined by June 30, 2 0 0 9 and those w h o were promoted by the same date, were also granted options.
However, the length of vesting period is the same as for the initial recipients of options.
Under the Scheme, vesting period c o m m e n c e d from the date of grant and e n d e d on December 3 1 , 2 0 1 0 . Those eligible employees
w h o joined the Engro Foods Umited after the date of grant but before December 3 1 , 2008 are also entitled to these options, however,
their vesting period will c o m m e n c e when they attained the right to these options and will comprise of the same number of days as
the vesting period of all other eligible employees. The m a x i m u m n u m b e r of options to be issued to an eligible employee is for 2.5
million ordinary shares. The options are exercisable within 4 years in 2 0 1 1 , 2 0 1 2 , 2 0 1 3 a n d 2 0 1 4 at the exercise prices of Rs. 17
per share, Rs. 19 per share, Rs. 21 per share and Rs. 23 per share respectively.
151
(Amounts in thousand)
9.9 The Holding C o m p a n y a n d Subsidiary Companies used Black Scholes pricing model to calculate the fair value of share options at
the grant date. T h e fair value of the share options as per the model and underlying assumptions are as follows:
Holding
Company Subsidiary C o m p a n i e s
Engro Engro Engro Engro Engro Avanceon
Corporation Fertilizers Polymer and Foods Powergen Limited
Limited Limited Chemicals Limited Qadirpur
Limited Limited
10.1.2 Engro Fertilizers Limited entered into various US$: PKR forward contracts to hedge its foreign currency exposure. As at December
3 1 , 2 0 1 0 , Engro Fertilizers Limited had forward c o n t r a c t s to purchase U S $ 8 5 , 0 0 0 (January 1, 2 0 1 0 : (note 1.1) U S $ 85,000) at
various maturity dates to hedge its foreign currency loan obligations. The fair value of these contracts is negative amounting to
Rs. 2 3 4 , 0 5 5 (January 1, 2 0 1 0 : (note 1.1) Rs. 157,329 negative).
10.2.2 Engro Foods Limited entered into various foreign exchange option contracts to hedge its currency exposure having maturity dates
approximately matching with the anticipated payment dates for c o m m i t m e n t s with respect to import of plant a n d machinery. The
gain on settlement of these options amounted to Rs. 9,694 and the fair value of outstanding contracts amounted to Rs. 5 1 0 positive
(2009: Nil).
Engro Fertilizers Limited entered into another interest rate s w a p agreement to hedge its interest rate exposure on floating rate
committed borrowing from a consortium of Development Finance Institutions for a notional amount of US$ 85,000 (January 1, 2 0 1 0 :
(note 1.1) U S $ 85,000) amortising u p t o April 2 0 1 6 . Under the s w a p agreement, t h e C o m p a n y w o u l d receive USD-LIBOR f r o m
Standard Chartered Bank on notional amount and pay fixed 3 . 7 3 % which will be settled semi-annually. T h e fair value of the interest
rate s w a p as at December 3 1 , 2010 is negative and amounted to Rs. 466,995 (January 1, 2010: (note 1.1) Rs. 310,056 negative).
103.2 During the year Engro Polymer and Chemicals Limited has entered into a cross currency interest rate s w a p agreement for the
notional a m o u n t of US $ 4,000 with a bank to hedge its interest rate exposure on floating rate local currency borrowings from a
c o n s o r t i u m of local banks under a Syndicate Finance Agreement. Under t h e s w a p agreement, the C o m p a n y w o u l d receive six
month KIBOR on the relevant Pak Rupees notional a m o u n t and will pay six m o n t h ' s USD-LIBOR plus 0 . 9 5 % , o n the relevant U S $
notional a m o u n t which will be settled semi annually. As at December 3 1 , 2 0 1 0 , Engro Polymer and Chemicals Limited has an
outstanding cross currency interest rate s w a p agreement with a local bank for a notional amount of US $ 3,594. As at December
3 1 , 2 0 1 0 , the fair value of interest rate s w a p agreement is positive Rs. 8 1 6 .
As at December 3 1 , 2 0 1 0 , the Engro Polymer a n d Chemicals Limited has outstanding interest rate s w a p agreements with banks
for the notional amounts aggregating to US$ 34,666 to hedge its interest rate exposure on the floating rate foreign currency borrowings
from Internationa! Finance Corporation (IFC). Under the swap agreements, the Engro Polymer and Chemicals Limited would received
six m o n t h s USD-LIBOR on respective notional a m o u n t s a n d will pay fix rates, w h i c h will be setted semi annually. The fair value as
at the balance sheet date of the aforementioned interest rate s w a p agreements aggregated to Rs. 111,680 negative.
153
(Amounts in thousand)
11.2 This includes interest free services incentive loans to executives amounting to Rs. 7 1 , 7 8 2 (2009: Rs. 61,730) repayable in equal
monthly instalments over a three years period or in one lump s u m at the e n d of such period a n d disbursements to executives under
housing subsidy s c h e m e amounting to Rs.182,910 (2009: Rs. 184,002). It also includes advances of Rs. 45,802 (2009: Rs. 34,762)
a n d Rs. 8,231 (2009: Rs. 36,102) to employees for car earn out assistance a n d house rent advance respectively.
11.3 This includes interest free loans a n d advances to executives and employees of Engro Polymer a n d Chemicals Limited for house
rent, vehicles, h o m e appliances a n d investments given in accordance with the terms of employment a n d for purchase of the Engro
Polymer a n d Chemicals Limited's shares under the Employees' Share S c h e m e (ESS) introduced/announced by Engro Polymer and
Chemicals Limited Employees' Trust. Loans for house rent a n d investments are repayable in 18 to 36 equal monthly installments.
2 0 % of the loans for purchase of Engro Polymer and Chemical Limited's share under ESS are repayable at the e n d of m o n t h 1 , 1 2
a n d 24 a n d the balance 4 0 % is repayable at the end of m o n t h 30 from the expiry date of t h e Option Period. Advances for vehicles
a n d h o m e a p p l i a n c e s are c h a r g e d t o p r o f i t a n d l o s s a c c o u n t o v e r a p e r i o d o f 3 y e a r s a n d 5 y e a r s , r e s p e c t i v e l y .
11.4 Includes interest free loans given to w o r k e r s of Rs. 4 9 , 4 4 6 ( 2 0 0 9 : Rs. 6,988) pursuant to Collective L a b o u r A g r e e m e n t a n d
disbursement to workers under housing subsidy scheme amounting to Rs. 186,124 (2009: Rs. 211,450).
11.5 T h e m a x i m u m a m o u n t outstanding at the e n d of any m o n t h f r o m the executives of the G r o u p aggregated Rs. 3 9 8 , 6 5 4 (2009:
Rs. 406,504).
12.1 Engro Fertilizers Limited has purchased stores and spares for its new Enven Plant aggregating Rs. 2,446,407, of w h i c h Rs. 148,712
are of capital nature (note 4.7) based on initial assessment.
12.2 Engro Powergen Qadirpur Limited, a subsidiary of Engro PowerGen Limited, purchased stores and spares with plant and machinery
under the Supply (Engineering and Procurement) Contract amounted to Rs. 1,154,316 of w h i c h , spares of capital nature amounting
to Rs. 7 5 8 , 4 6 6 have been reflected under property, plant and equipment (note 4.7).
13 Stock-in-Trade
2010 2009
(Rupees)
Raw materials and packing materials (note 13.1 & 13.2) 3,065,106 2,473,461
Unprocessed rice (note 13.3) 1,701,354 -
Fuel stock (note 13.4) 471,270 22,323
Work-in-process 53,313 62,663
Finished goods
- own manufactured product 2,105,269 863,140
- purchased product (note 13.1) 1,482,939 401,607
Less: Provision for slow moving inventory (35,574) (3,223)
3,552,634 1,261,524
8,843,677 3,819,971
13.1 This includes stocks-in-transit amounting to Rs. 1,540,653 (2009: Rs. 248,065) and s t o c k s held at t h e storage facilities of Engro
Vopak Terminal Limited, amounting to Rs. 6 0 1 , 0 5 0 (2009: Rs. 595,104) and D a w o o d Hercules Chemical Limited, a related party,
amounting to Rs. 4,425 (2009: Rs. 1,635).
13.2 This includes carrying value of PVC resin in respect of finished goods of the Engro Polymer and Chemicals Umited, net of realisable
value reduction of Rs. 17,162 (2009: Rs. 21,084). This also includes Rs. 30,731 (2009: Rs. 23,940) in respect of finished g o o d s of
Engro Foods Limited carried at net realisable value and Rs. 3 5 , 1 0 2 (2009: Rs. 19,387) in respect of stock held by third parties.
13.3 Includes unprocessed rice in possession of third party contractors amounting to Rs. 1,484,674 (2009: Nil) for processing on behalf
of Engro Eximp (Private) Limited.
13.4 Represents High Speed Diesel (HSD) purchased by Engro Powergen Qadirpur Umited, a subsidiary of Engro PowerGen Umited, for
operating the power plant in case supply of gas is unavailable. As per clause (b) of section 5.14 of the power purchase agreement, Engro
Powergen Qadirpur Limited is required to maintain HSD at a level sufficient for operating the power plant, at full load for seven days.
14 Trade Debts
2010 2009
(Rupees)
Considered g o o d
- secured (note 14.1) 4,755,732 2,794,542
- unsecured (note 14.2) 383,017 741,991
5,138,749 3,536,533
Considered doubtful 131,784 40,507
5,270,533 3,577,040
Less: Provision for impairment (note 14.3) 139,125 40,507
5,131,408 3,536,533
155
(Amounts in thousand)
14.1 The balance of trade d e b t s are secured by w a y of b a n k guarantees a n d letters of credit from c u s t o m e r s . Trade d e b t s of Engro
P o w e r g e n Qadirpur Limited, a subsidiary of Engro PowerGen Limited, amounting to Rs. 2 , 9 6 5 , 4 3 0 (2009: Nil), are secured by a
guarantee from the Government of Pakistan under the Implementation Agreement. An amount of Rs. 527,999 (2009: Nil) with respect
to Engro Powergen Qadirpur IJmited, a subsidiary of Engro PowerGen Limited, will be invoiced after the revised tariff a n d quarterly
indexation have been notified in the official Gazzette of Government of Pakistan inclusive of the effect of the Review Petition amounting
to Rs. 6 1 , 3 0 0 , as more fully explained in n o t e 3 1 . 2 . 1 .
14.2 This includes d u e from Mitsubishi Corporation, Cadbury Pakistan Limited and D a w o o d Hercules Chemicals IJmited, related parties,
amounting to Nil (2009: Rs. 164,228), Nil (2009: Rs. 123) a n d Rs. 7 1 2 (2009: Rs. 16,318) respectively.
As at D e c e m b e r 3 1 , 2 0 1 0 , trade debts aggregating to Rs. 139,125 (2009: Rs. 40,507) were impaired a n d provided for, which are
past d u e for more than six months.
As at D e c e m b e r 3 1 , 2 0 1 0 , trade d e b t s aggregating to Rs. 1,795,870 (2009: Rs. 132,741) were past d u e b u t not impaired. These
relate to various customers for w h i c h there is no recent history of default. The ageing analysis of these trade d e b t s is as follows:
2010 2009
(Rupees)
1,795,870 132,741
15.1 This represents interest free advances to executives for house rent, given in accordance with the Group's policy.
15.2 The m a x i m u m aggregate amount due from executives at the end of any m o n t h during the year w a s Rs. 7,279 (2009: Rs. 4,805).
15.3 Represents interest free loan to Descon Engineering Limited, a contractor to t h e Enven Plant, given by Engro Fertilizers Limited. The loan,
repayable on d e m a n d , is given against a Corporate Bond/Guarantee a n d promissory note.
15.4 Represents payments m a d e to Sui Northern Gas Pipeline Limited by Engro Fertilizers Limited, under Take or Pay arrangement in respect of
the Enven Plant a s p e r t h e a g r e e m e n t . E n g r o Fertilizers L i m i t e d i s c o n f i d e n t t h a t s u c h p r e p a y m e n t s will b e a d j u s t e d , p r i o r
to the expiry period against the expected gas c o n s u m p t i o n in the c o m i n g m o n t h s u p o n commisioning of Enven Plant.
15.5 As at December 3 1 , 2 0 1 0 , loans and advances aggregating to Rs. 1,512 (2009: Rs. 5,816) were impaired a n d provided for, w h i c h are past
due for more than six months. The movement in provision during the year is as follows:
2010 2009
(Rupees)
Balance as at January 1 5,816 4,521
A d d : Provision made during the year (4,304) 1,295
Balance as at December 31 1,512 5,816
Other Receivables
Receivable from Government of Pakistan for:
- sales tax (note 16.1 a n d 16.2) 783,775 686,507
Less: Provision for impairment 140 121,539
783,635 564,968
- Special excise duty refundable 36,687 36,687
Less: Provision for impairment 36,687 36,687
- -
- Customs duty claims refundable (note 16.3) 18,043 18,043
Less: Provision for impairment 18,043 18,043
157
(Amounts in thousand)
16.1 Include Rs. 5 7 , 1 3 5 of Engro Fertilizers Limited in respect of sales t a x receivable from the Government of Pakistan, levied in 2 0 0 8
on certain imports of M o n o A m m o n i u m Phosphate (MAP) 10:50:0 based on the actual import value rather than the d e e m e d value
as prescribed by SRO 609(1 )/2004. Engro Fertilizers IJmited had paid the d e m a n d m a d e under protest a n d filed an appeal before
the Collector, Sales Tax a n d Federal Excise. Further, the Ministry of Food, Agriculture and Livestock had also recommended through
its letter dated June 2 7 , 2 0 0 8 that the said grade of MAP should be assessed at d e e m e d value of import with retrospective effect.
An appeal has been filed before the Collector, Sales Tax and Federal Excise and the management is confident that it will be decided
in the Engro Fertilizers Limited's favour a n d the aforementioned a m o u n t paid under protest would be fully recovered.
16.2 Includes sales tax refundable of Engro Foods Limited, amounting to Rs. 518,439 (2009: Rs. 409,328). Sales tax has been zero rated
on Engro Foods Limited's supplies (output), raw materials, c o m p o n e n t s a n d assemblies imported or p u r c h a s e d locally by the
C o m p a n y for manufacturing in respect of its dairy operations. Further, partial sales tax refunds claim on purchase of Hydrogenated
Palm Oil (HPO), amounting to Rs. 192,293 for the year 2 0 0 7 to 2 0 0 9 were refunded by the sales tax authorities during the year
a n d accordingly entire provision of Rs. 121,539 (December 3 1 , 2 0 0 9 : Rs. 121,539) has been reversed.
16.3 The Collector of C u s t o m s through his order dated April 1 1 , 2 0 0 8 , disposed off the refund applications filed by Engro Polymer a n d
Chemicals Limited for the refund of c u s t o m duty paid amounting to Rs. 1 8 , 0 4 3 (2009: 18,043), at import stage on import of Vinyl
Chloride Monomer. Engro Polymer a n d Chemicals Limited based on the advice of its tax consultant, has filed an appeal before the
Collector of C u s t o m s (Appeals), Karachi dated May 3 1 , 2 0 0 8 against the aforementioned order on w h i c h no progress has been
made. However, based on prudence, full provision is carried against the aforementioned c u s t o m duty refundable.
16.4 The m a x i m u m a m o u n t s due from joint venture at the end of any month during the year aggregated as follows:
2010 2009
(Rupees)
Joint venture
- Engro Vopak Terminal Limited [includes dividend of
Rs. 9 0 , 0 0 0 (2009: Rs. 112,500)] 180,551 135,509
16.5 Includes marketing support subsidy receivable, under an agreement dated July 5, 2 0 1 0 , for quantity size discount and investment
support allowance, net off a m o u n t due on account of packaging material purchased by Engro Foods Limited. The receivable is less
than one m o n t h old and has been cleared subsequently.
16.6 As at December 3 1 , 2 0 1 0 receivables aggregating to Rs. 2 2 , 7 9 6 (2009: Rs. 59,061) were past d u e b u t n o t impaired. The ageing
analysis of these loans a n d advances is as follows:
2010 2009
(Rupees)
16.7 As at December 3 1 , 2010, receivables aggregating to Rs. 58,662 (2009: Rs. 180,533) were deemed to be impaired being outstanding
for more than six m o n t h s a n d provided for.
4,426,188 512,255
17.1 These represents foreign a n d local currency deposits with various banks.
17.2 These represents investments in mutual funds a n d are valued at their respective net assets values as at the balance sheet dates.
18.1 Includes Rs. 20,742 (2009: Rs. 24,193) kept in a separate b a n k a c c o u n t in respect of security deposits.
18.2 This includes Rs. 16,757 (2009: Rs. 735,898) held in foreign currency bank a c c o u n t s for letter of credit payments relating to expansion
projects of the Group.
18.3 Represents banking instruments received by Engro Foods Limited f r o m distributors at regional offices in respect of future sales but
not yet deposited in the bank account.
159
(Amounts in thousand)
ig Share Capital
19.1 Authorised Capital
2010 2009 2010 2009
(No. of Shares) (Rupees)
350,000,000 350,000,000 Ordinary shares of Rs. 10 each 3,500,000 3,500,000
I s s u e d , s u b s c r i b e d a n d p a i d - u p capital
19.2 Movement in issued, subscribed and paid-up capital during the year
2010 2009 2010 2009
(No. of Shares) (Rupees)
297,942,563 212,816.117 As at January 1 2,979,426 2,128,161
19.3 During the year, the Holding C o m p a n y issued bonus shares in the ratio of 1 share for every 10 shares.
19.4 Associated companies held 158,516,740 (2009: 144,390,600) ordinary shares in the Holding C o m p a n y at year end.
Hedging Reserve
2010 2009
(Rupees)
Fair values of:
- Forward foreign exchange contracts (note 10.1) (231,417) (134,692)
- Foreign currency option contracts (note 10.2) (11,954) 49,104
- Interest rate s w a p s (note 10.3) (1,232,022) (872,376)
(1,475,393) (957,964)
Less: Deferred tax 516,385 335,287
Less: Minority interest 31,570 5,677
547,955 340,964
(927,438) (617.000)
20.1 Hedging reserve primarily represents the effective portion of changes in fair values of designated cash flow hedges.
21 Maintenance Reserve
In a c c o r d a n c e with the Power Purchase Agreement (PPA), Engro Powergen Qadirpur Limited, a subsidiary of Engro PowerGen
Limited, is required to establish a n d maintain a separate reserve f u n d (the Fund) with a depository institution for payment of major
maintenance expenses. Any interest i n c o m e resulting from the depository arrangements of t h e Fund shall remain in the Fund.
Under the PPA, l / 2 4 t h of the annual operating a n d maintenance budget of the Power Plant less fuel expenses is to be deposited
into the Fund on each capacity payment date untill s u c h reserve equal to nine s u c h deposits. After t h e s e c o n d agreement year and
thereafter the Fund may be re-established at such other level that the Engro Powergen Qadirpur Limited and National Transmission
and Despatch C o m p a n y (NTDC) mutually agree.
22 Borrowings
Secured (Non-participatory)
Unavailed
credit
Note Mark - up as at 2010 2009
rate p.a. Instalments year end (note 22.15)
Number Commencing
from -(Rupees)-
Engro Corporation Umited
Usted & Secured Engro Rupiya
Certificate 22.1 14.5% 6 half yearly January 15,2011 3,384,536
Silk Bank Limited 22.6 6 Months Kibor + 2.35% 10 half yearly January 2 1 , 2 0 1 3 299,405 -
Standard Chartered Bank 22.6 6 Months Kibor + 2.^0% 10 half yearly September 17, 2012 - 989,094 -
161
(Amounts in thousand)
Unavailed
credit
Note Mark - up as at 2010 2009
rate p.a. Instalments year end (note 22.15)
Number Commencing
from (Rupees)
Samba Bank Limited 22.6 6 Months KIBOR + 2.40% 10 half yearly September 30, 2012 - 495,934 -
National Bank of Pakistan 22.7 6 Months KIBOR + 2.40% 6 half yearly March 2 8 , 2 0 1 3 990,949 -
Habib Bank IJmited 22.12 6 Months KIBOR + 1.5% Buliet October 28, 2011 1,000,000 -
Allied Bank IJmited 22.12 6 Months KIBOR + 1 % Bullet November 29,2011 - 149,942 -
Habib Metropolitan
Bank Limited 22.6 6 Months KIBOR + 2.40% 10 half yearly June 2 1 , 2013 199,965 -
Standard Chartered
Bank Limited 22.13 6 Months KIBOR + 1.5% 3 instalments April 18, 2011 1,500,000 -
Certificates
Term Finance Certificates
- 2nd Issue 22.8 6 months KIBOR + 1.55% - 3,970,694 3,968,819
Term Finance Certificates
- 3rd Issue 22.9 6 months KIBOR + 2.4% - 1,972,993 1,974,360
Sukuk Certificates 22.10 6 months KIBOR + 1.5% - 2,986,590 2,984,459
Privately Placed Sub-Ordinated
Term Finance Certificates 22.11 - 5,959,269 5,943,759
71,311,686 59,375,454
Master Istisna finance I 22.17 6 months KIBOR + 1.5% 6 half yearly November 2010 100,000 -
Master Istisna finance II 22.17 6 months KIBOR + 2% 3 half yearly June 2011 200,000 -
International Finance
Corporation (IFC) 6 months LIBOR+2.6 to 3% 15 half yearly June 2010 4,415,708 5,010,830
12,264,653 12,151,556
Engro Foods Limited
Royal Bank of Scotland 6 month KIBOR+ 1.4% 6 half yearly August 21,2009 175,000 291,667
Syndicated Finance I 6 month KIBOR i- 0.69% 4 half yearly February 20, 2015 1,500,000 1,500,000
Syndicated Finance II 22.19 6 month KIBOR + 2.6% 5 half yearly July 10, 2012 1,200,000 200,000
Habib Bank IJmited 6 month KIBOR + 2.25% 6 half yearly September 3, 2011 - 500,000 500,000
Syndicated Finance III 22.19 6 half yearly February 16,2013 500,000 -
Syndicated Finance IV 22.20 10.40% 6 half yearly January 22, 2013 250,000 -
Syndicated Long
Term Finance 22.20 10.40% 6 half yearly March 3,2012 665,051 -
Certificate
Sukuk Certificates 6 month KIBOR + 0.69% 4 half yearly July 13,2015 950,000 950,000
5,740,051 3,441,667
Unavailed
credit
Note Mark - up as at 2010 2009
rate p.a. Instalments year end (note 22.15)
Number Commencing
from —(Rupees)-
Avanceon Limited
MCB Bank Limited 22.22 6 months KIBOR + 2.25% 16 quarterly September 30,2009 1,250 18,750 20,000
Faysal Bank Limited 22.23 6 months KIBOR + 2% 20 quarterly September30,2008 22,500 27,500 37,500
Habib Bank Limited 22.24 3 months LIBOR + 3%
with a floor of 8% 20 quarterly December 31,2007 99,020 82,610 114,841
128,860 172,341
Engro PowerGen Limited
DFI Consortium finance 22.25 6 months LIBOR + 3% 20 half yearly December 15,2010 659,214 11,865,850 11,376,810
104,695,636 86,517,828
Less: Current portion shown under current liabilities 15,543,787 2,375,675
89,151,849 84,142,153
These Certificate are secured by way of first ranking floating charge over all t h e present a n d future movable properties of Engro
Corporation Limited except for present a n d future trade mark, c o p y rights a n d certain investment in subsidiary companies.
IGI Investment Bank Limited has been appointed as trustees in respect of these certificates.
Engro Fertilizers L i m i t e d
2 2 . 2 This represents the syndicated finance agreement with Allied Bank Limited, Bank Alfalah Limited, Habib Bank Limited, M C B Bank
Limited, National Bank of Pakistan, Standard Chartered and United Bank U m i t e d , w h i c h w a s fully disbursed as at D e c e m b e r 3 1 ,
2 0 1 0 (January 1, 2010: (note 1.1) Rs. 12,175,000). S o m e of the banks have sold down their share to other banks.
2 2 . 3 This represents an offshore Islamic Finance Facility Agreement of U S $ 1 5 0 , 0 0 0 with Citi Bank, Dubai Islamic Bank, Habib Bank
Umited, National Bank of Pakistan, S A M B A Financial Group a n d Standard Chartered Bank.
2 2 . 4 This represents an agreement amounting to US$ 8 5 , 0 0 0 with a consortium of Development Finance Institutions comprising of DEG,
FMO and OFID.
163
(Amounts in thousand)
22.5 The Holding C o m p a n y entered into a C Loan Agreement (Original Agreement) dated September 2 9 , 2 0 0 9 with International Finance
Corporation (IFC) for USS 50,000, divided into Tranche A (US$ 15,000) and Tranche B (US$ 35,000). Both Tranche A and B were
fully disbursed as at December 3 1 , 2 0 0 9 and transferred to Engro Fertilizers Limited under the scheme of demerger effective January
1, 2010. However, the option given to convert the Tranche A loan amount of US$ 15,000 shall remain upon the Holding Company's
ordinary shares at Rs. 2 0 5 per ordinary share (Rs. 186 as at December 3 1 , 2010) calculated at the dollar rupee exchange rate
prevailing on the business d a y prior to t h e date of the notices issued by IFC to exercise the conversion option. Such option is to
be exercised within a period of no more than five years from the date of disbursement of the loan (December 28, 2009). Tranche
B however, is not convertible. The Holding Company, upon shareholders' approval in the Annual General Meeting of February 27,
2010, has entered during the year into an agreement with the Engro Fertilizers Limited that in the event IFC exercises the aforementioned
conversion option (Tranche A), the loan amount then outstanding against the Engro Fertilizers Limited w o u l d stand reduced by the
conversion option a m o u n t and Engro Fertilizers IJmited w o u l d pay the rupee equivalent of the corresponding conversion amount
to the Holding C o m p a n y which w o u l d simultaneously be given to Engro Fertilizers Limited as a subordinated loan, carrying mark-
up payable by the Holding C o m p a n y for rupee finances of like maturities plus a margin of 1 %. The effect of IFC conversion in
substance w o u l d result in a loan from the Holding c o m p a n y having the s a m e repayment terms / dates as that of Tranche A. The
fair value of the conversion o p t i o n , included in note 10, on the date of disbursement and as at December 3 1 , 2 0 1 0 a m o u n t e d to
Rs. 3 3 8 , 6 4 7 a n d Rs. 3 6 7 , 4 4 2 respectively. The conversion option alongwith the residual amount of Tranche A, representing the
loan liability c o m p o n e n t , is s h o w n under current liabilities. The liability c o m p o n e n t classified as long t e r m last year has accordingly
been reclassified.
On December 2 2 , 2010, the Engro Fertilizers Limited and IFC have entered into an A m e n d e d Agreement for further disbursement
of US$ 3 0 , 0 0 0 over a n d above the aforementioned disbursed amount of US$ 50,000. Such a m e n d m e n t is pending for approval
of the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan, hence the amount has not been disbursed
as at December 3 1 , 2 0 1 0 . The salient features of the Original Loan remain essentially the same. The additional loan of US$ 30,000
is divided into (i) 3 0 % convertible loan on the shares of the Engro Fertilizers Limited at Rs. 41.67 per share and (ii) 7 0 % non-convertible
loan. The additional loan is repayable by September 15, 2017 in three equal installments and carries interest at six months LIBOR
plus a spread of 6% or 1 0 % d e p e n d i n g on t h e listing status of t h e Engro Fertilizers Limited at various intervals. However, the
management of Engro Fertilizers Limited is confident that it will c o m p l y with the requirements of listing and avail the spread of 6%
for the entire loan tenure.
The entire loan is subordinated to other parallel senior debt of the Engro Fertilizers IJmited and guaranteed by the Holding C o m p a n y
to IFC through a Corporate Guarantee.
22.6 Engro Fertilizers Limited has arranged these finance facilities for the Urea expansion project.
22.7 Engro Fertilizers Limited has arranged this facility for a project related to the existing Urea facility.
22.8 This represents secured and listed Term Finance Certificates (TFCs) of Rs. 4,000,000. The TFCs are structured to redeem 0 . 2 8 %
of principal in the first 84 m o n t h s and remaining 9 9 . 7 2 % principal in t w o equal semi-annual instalments. Engro Fertilizers Limited
has appointed First D a w o o d Islamic Bank as trustees in respect of these TFCs.
Year Redemption % a g e
1 &2 0.04%
3&4 7.96%
5&6 12%
7 60%
IGI Investment Bank Limited has been appointed as trustee in respect of these TFCs.
22.10 Engro Fertilizers Limited has issued privately placed Sukuk Certificates based on diminishing Musharika amounting to Rs. 3,000,000.
The principal a m o u n t is payable after seven years in t w o semi-annual equal instalments.
22.11 Engro Fertilizers Umited has issued Privately Placed TFCs amounting to Rs. 4 , 0 0 0 , 0 0 0 (PPTFC Issue I) a n d Rs. 2 , 0 0 0 , 0 0 0 (PPTFC
Issue II) respectively. The PPTFCs are perpetual in nature with a five year call a n d a ten year put option. The PPTFC I issue has mark-
up of six months KIBOR plus 1.7% whereas the PPTFC II issue has mark-up of six months KIBOR plus 1.25%. IGI Investment Bank
Umited has been appointed as trustees in respect of these TFCs.
22.12 These loans are secured against a ranking charge over the assets of Engro Fertilizers Limited.
22.13 This loan is secured against a ranking c h a r g e over the assets of the Engro Fertilizers U m i t e d a n d C o r p o r a t e Guarantee by the
Holding Company.
22.14 T h e above finances, excluding those covered in notes 22.5, 2 2 . 1 1 , 22.12 a n d 2 2 . 1 3 , are secured by an equitable mortgage u p o n
the immovable property of the Engro Fertilizers Limited a n d hypothecation charge over current a n d future fixed assets of Engro
Fertilizers Limited. Perpetual subordinated TFCs and IFC loan are secured by a subordinated floating charge over all present and
future fixed assets excluding land a n d buildings of Engro Fertilizers Limited.
22.15 Prior period balance of Engro Fertilizers Limited represents amount transferred to Engro Fertilizers Limited by the Holding Company,
consequent to demerger (note 1.1).
22.17 During the year, the Engro Polymer and Chemicals Limited has entered into t w o Master Istisna Agreements (the Agreements) for
facilities of Rs. 100,000 a n d Rs. 200,000, respectively. T h e entire amount of the facilities has been drawn d o w n by the Engro Polymer
and Chemicals Umited. All a m o u n t s d u e under the Agreements are payable in tranches by w a y of a series of Istisna transactions,
each Istisna transaction being treated as a separate agreement. Since t h e m a n a g e m e n t ' s intention is to roll over e a c h Istisna
transaction on repayment date to the expiry date of the facilities, the above mentioned financing has been included in long term
borrowings. The Istisna facilities are secured as follows:
i) Master Istisna I facility is secured by a joint pari passu equitable mortgage over land a n d buildings and a pari passu hypothecation
charge over plant a n d machinery, s t o c k s a n d receivables amounting to Rs. 134,000; a n d
165
(Amounts in thousand)
ii) Master Istisna II facility is secured by a mortgage over land and buildings subordinated to the mortgage listed in note 2 2 . 1 8
and hypothecation by way of subordinated charge over all present and future fixed assets of the Engro Polymer and Chemicals
Limited amounting to Rs. 2 6 7 , 0 0 0 .
22.18 The finances, other than those referred to in note 22.16 a n d 22.17 are secured by:
(ii) a first mortgage by deposit of title deeds over leasehold land together with the buildings, plant, machinery a n d other equipment
thereon; a n d
- a first charge over all present and future moveable fixed Assets other than Project Assets.
Engro F o o d s Limited
22.19 During the year, Engro Foods Limited has further utilized the Syndicated Term Finance Facility II obtained from a syndicate of banks
led by M C B Bank IJmited to the extent of Rs. 1,000,000 a n d also obtained a new Syndicated Term Finance Facility III amounting
to Rs. 5 0 0 , 0 0 0 from a syndicate of banks led by NIB Bank IJmited.
22.20 On June 9, 2 0 1 0 , Engro Foods Supply Chain (Private) Limited, a subsidiary of Engro Foods Limited, entered into a 5 year Syndicated
Term Finance Facility (STFF) with a syndicate of banks to the extent of Rs. 1,500,000. Subsequently, on A u g u s t 3 0 , 2 0 1 0 , a
supplemental syndicated term finance facility w a s entered into by the Engro Foods Limited with the syndicate, according to which
the STFF w a s reduced to Rs. 5 0 0 , 0 0 0 a n d the balance of Rs. 1,000,000 w a s converted into a Syndicated Long Term Finance
Facility (LTFF) in accordance with the plant and machinery scheme, set out by S B P (MFD Circular no. 7, dated December 3 1 , 2007).
LTFF currently carries m a r k - u p at the rate of 1 0 . 4 0 % per a n n u m . M a r k - u p is subject to c h a n g e by S B P f r o m time to t i m e through
its notifications.
22.21 The above finances are secured by a registered sub-ordinate floating charge / mortgage over the present a n d future operating assets
of the Engro Foods Limited u p t o m a x i m u m of Rs. 8 , 7 3 2 , 5 0 0 .
A v a n c e o n Limited
22.22 This facility is secured against 1 st registered pari passu equitable mortgage / hypothecation charge of Rs. 2 5 5 million over current
a n d fixed assets of the A v a n c e o n Limited. In addition to this the facility is collaterally secured by t h e c o r p o r a t e guarantee of the
Holding C o m p a n y covering 6 2 . 6 7 % of t h e total f u n d e d exposure a n d t h e personal guarantees of t h e sponsoring Directors.
22.23 This facility is secured against 1 st registered pari passu hypothecation c h a r g e on all present a n d future current a n d fixed assets
of Avaceon Limited for Rs. 167 million. In addition to this, the facility is collaterally secured by the corporate guarantee of the Holding
C o m p a n y covering 62.67 % of the total f u n d e d exposure and the personal guarantees of the sponsoring directors.
22.24 This facility is secured against letter of comfort from Avanceon Limited, corporate guarantees f r o m Engro Innovative Inc., personal
guarantees of three directors of A v a n c e o n Limited a n d an undertaking from the Holding C o m p a n y to maintain (at minimum) its
current shareholding in Avanceon Limited.
The above finances are secured by an equitable mortgage u p o n the immovable property of Engro Powergen Qadirpur Umited and
the hypothecation charge against current a n d future assets of Engro P o w e r g e n Qadirpur Limited, except receivables from NTDC
in respect of Energy Purchase Price.
22.26 In view of the substance of the transactions, the sale a n d repurchase of assets under long t e r m finances have not been recorded
as such in these consolidated financial statements.
23.1 It includes m a r k - u p free leases of milk cooling chillers, obtained by Engro Foods Limited, under a tripartite arrangement with the
Bank of Punjab and Pakistan Dairy Development Corporation (PDDC). Under this arrangement, m a r k - u p will be borne by PDDC
whereas Engro Foods Umited's obligation is restricted to the extent of principal amount, payable in 20 equal installments by April
15, 2 0 1 3 . The principal outstanding under this arrangement a m o u n t s to Rs. 7,368 (2009: Rs. 9,710).
23.2 Engro Foods Umited has entered into lease arrangements of vehicles with various financial institutions. Out of the gross present
value of minimum lease payments, Rs.1,021 (2009: Rs. 3,571) pertains to obligations arising from sale a n d lease b a c k of assets.
T h e liabilities under the lease agreements are payable by the year 2 0 1 1 a n d are subject to finance charge at the rate of 12.31 % to
1 4 . 1 0 % ( 2 0 0 9 : 1 4 . 1 9 % to 17.42%) per annum which has been used as the discount factor. Engro Foods Limited intends to exercise
its option to purchase the leased vehicles for Re. 1 each u p o n the completion of the respective lease periods under the agreements.
The gain arising on sale a n d lease b a c k arrangements, calculated as the difference between the sale proceeds (fair value) paid by
the financial institutions and carrying amount of the vehicles is deferred and amortized over the lease t e r m .
23.3 The a m o u n t of future p a y m e n t s for the finance leases a n d the period in w h i c h t h e s e p a y m e n t s will b e c o m e d u e are as follows:
2010 2009
Minimum Finance Present value of Present value of
lease p a y m e n t s costs m i n i m u m lease m i n i m u m lease
payments payments
Rupees
Not later than one year 15,904 2,594 13,310 18,246
Later than one year but not later than 5 years 20,784 1,786 18,998 20,587
36,688 4,380 32,308 38,833
167
(Amounts in thousand)
24 Deferred Taxation
2010 2009
(Rupees)
Credit / (debit) balances arising on a c c o u n t of:
- Accelerated depreciation allowance 8,442,891 5,340,447
- Net borrowing costs capitalised - 207,133
- Fair value of hedging instruments (516,385) (335,287)
- Recoupable carried forward tax losses (note 24.1) (4,878,393) (3,352,092)
- Tax on subsidiary reserves 7,690 18,589
- Tax on fair value adjustment 139,598 153,200
- Recoupable m i n i m u m turnover t a x (513,965) (201,438)
- Unrealized foreign exchange losses, unpaid
liabilities a n d provision for retirement and other service benefits (63,004) (70,444)
- Share issuance cost (57,709)
-Others (89,497) (72,810)
2,471,226 1,687,298
24.1 Deferred i n c o m e tax asset is recognised for tax losses available for carry forward to the extent that the realization of the related
tax benefit through future taxable profits is probable. The aggregate tax losses available for carry forward on w h i c h t h e deferred
income tax asset has been recognized a s a t December 3 1 , 2 0 1 0 a m o u n t t o :
2010 2009
(Rupees)
The expected future charge will be Rs. 20,845 a n d Rs. 3 0 3 for 2 0 1 1 and 2 0 1 0 respectively.
26 Deferred Liabilities
2010 2009
(Rupees)
Deferred income on sale and leaseback arrangement for vehicles (note 26.1) 30 111
Retirement and other service benefits obligations (note 26.2) 117,249 96,052
117,279 96,163
27.1 Include a m o u n t s d u e to related parties, Nil (2009: Rs. 730) d u e to Inbox Business Technologies (Private) Limited, Rs. 1,690,399
(2009: Rs. 1,152,402) due to Mitsubishi Corporation a n d Rs. 8 6 , 6 7 9 (2009: Rs. 77,045) due to Engro Vopak Terminal Limited.
2010 2009
(Rupees)
2 7 . 2 Workers' profits participation fund
Payable at the beginning of the year 31,045 18,887
Interest charge for the year 1,676 4,034
Allocation for the year (note 35) 294,156 280,072
Less: A m o u n t paid to the Trustees of the Fund (302,399) (271,948)
Payable to the fund 24,478 31,045
169
(Amounts in thousand)
27.3 In 2 0 0 9 , Engro Polymer a n d Chemicals Limited received a letter from the Assistant Collector (Survey) Large Taxpayers Unit regarding
the utilization of raw materials imported under SRO 565(l)/2006 on a concessionary basis from c u s t o m s duty. T h e letter alleged
that the Engro Polymer a n d Chemicals Umited had violated the provisions of the SRO by utilizing the concessionary imports in
manufacturing a n d selling the intermediary product Ethylene Di Chloride (EDC) rather than its utilization in the production of the final
p r o d u c t Poly Vinyl Chloride (PVC). Engro Polymer a n d Chemicals Limited responded to the letter explaining its view that imports
under the said S R O w e r e allowable for 'PVC Manufacturing Industry' as a w h o l e , w h i c h includes manufacturing of intermediary
p r o d u c t s . During t h e year, the tax department has s h o w n its disagreement with the Engro Polymer a n d Chemicals Umited's view
and has d e m a n d e d further information, to which the Engro Polymer and Chemicals Limited has responded.
Although, no formal order creating a d e m a n d has yet been received by Engro Polymer and Chemicals Limited, however, based on
p r u d e n c e , a provision a m o u n t i n g to Rs. 4 7 , 2 2 7 (2009: Nil) in respect of c u s t o m d u t y on s u c h raw materials has been m a d e .
27.4 As at D e c e m b e r 3 1 , 2 0 1 0 , Engro Polymer a n d Chemicals Limited had paid Rs. 94,611 (2009: Rs. 94,611) on a c c o u n t of Special
Excise Duty (SED) on import of plant and machinery for the Project. Out of this amount Engro Polymer a n d Chemicals Umited has
adjusted Rs. 57,924 (2009: Rs. 57,924) in the monthly sales tax returns against SED on goods produced a n d sold by Engro Polymer
a n d Chemicals Umited. Engro Polymer and Chemicals Umited had approached the Federal Board of Revenue to obtain a clarification
i n r e s p e c t o f t h e a d j u s t m e n t o f S E D m a d e b y Engro P o l y m e r a n d C h e m i c a l s L i m i t e d i n m o n t h l y s a l e s t a x r e t u r n s .
Pending s u c h clarification, the Engro Polymer a n d Chemicals Limited based on p r u d e n c e h a d m a d e provision for the adjusted
a m o u n t of Rs. 5 7 , 9 2 4 a n d for the balance remaining of Rs. 36,687 included in loans, advance deposits, prepayments a n d other
receivables. However, in 2 0 0 9 , the Engro Polymer and Chemicals Limited received s h o w cause notices from the Additional Collector
(Adjudication) - Federal Board of Revenue, stating that the Engro Polymer and Chemicals Limited, by adjusting the aforementioned
SED, has violated the provisions of t h e Federal Excise Act, 2 0 0 5 a n d t h e Federal Excise Rules, 2 0 0 5 read with SRO 655(1 V 2 0 0 7
a n d that the a m o u n t adjusted is recoverable from t h e Engro Polymer a n d Chemicals Umited u n d e r the Federal Excise Act, 2 0 0 5
alongwith default surcharge a n d penalty. During the year, the Engro Polymer and Chemicals Limited w a s granted a stay order from
the Honourable High Court of Sindh against the recovery notice issued by the Additional Commissioner in respect of the d e m a n d .
Engro Polymer a n d Chemicals Limited filed an appeal with Commissioner Inland Revenue (Appeals) against t h e order issued by
the Additional Commissioner a n d the appeal w a s decided against the Engro Polymer a n d Chemicals Limited. Engro Polymer a n d
Chemicals Limited has n o w filed an appeal with the Income Tax Appellate Tribunal against the decision of Commissioner Inland
Revenue (Appeals).
Engro Polymer a n d Chemicals Limited is confident that the ultimate o u t c o m e of the matter will be in its favour, however, b a s e d on
p r u d e n c e is carrying a provision in this respect. Further, a provision surcharge a n d penalty thereon a m o u n t i n g to Rs. 2 5 , 8 7 1
(2009: Rs. 12,570) has also been m a d e .
28 Accrued Interest/Mark-Up
2010 2009
(Rupees)-
A c c r u e d interest/mark-up on secured:
- long t e r m borrowings 2,545,406 1,777,872
- short term borrowings 74,047 22,556
2,619,453 1,800,428
29.2 During the year, Engro Polymer a n d Chemicals Limited extended its short term financing arrangement of Rs. 2 0 0 , 0 0 0 (with a local
bank) upto February 2 8 , 2 0 1 1 . T h e finance carries mark-up at the equivalent State Bank of Pakistan rate plus 1 % per annum. The
finance is secured by a floating charge of Rs. 2 5 0 , 0 0 0 u p o n all present a n d future current assets of Engro Polymer a n d Chemicals
Limited. Further, during the year, Engro Polymer a n d Chemicals Limited has also obtained short-term finance from a local b a n k
amounting to Rs. 2 5 0 , 0 0 0 . The facility carries mark-up at the rate of 13.9% per annum and is repayable by January 19, 2 0 1 1 . The
facility is secured by a joint pari passu floating charge over all present a n d future stocks a n d receivables.
29.3 During the year, Engro Powergen Qadirpur Limited, a subsidiary of Engro PowerGen Limited, entered into the Working Capital Facility
Agreement (the Agreement) with Allied Bank Limited, NIB Bank Limited, KASB Bank Limited, The Bank of Punjab, Habib Metropolitan
Bank Limited and Soneri Bank Limited. The available working capital facility under the Agreement amounts to Rs. 2,000,000 (2009:
Nil). The facility carries m a r k - u p at t h e rate of 3 m o n t h s KIBOR plus 2 % . The facility is secured by (i) present a n d future energy
payment receivables from the Power Purchaser a n d (ii) first charge over all current assets, except receivable f r o m NTDC in respect
of Capacity Purchase Price, and subordinated charge over present and future plant, machinery equipments and other movable
assets of Engro P o w e r g e n Qadirpur Limited. The use of facility is restricted f o r payments of operations a n d maintenance cost of
the Power Plant (upto 1 0 % of the facility amount) and payments to fuel suppliers against purchase of fuel.
2 9 . 4 T h e facilities of A v a n c e o n Limited are secured by a corporate guarantee of the Holding C o m p a n y of 6 2 . 6 7 % of the total f u n d e d
exposure alongwith personal guarantees of sponsoring directors.
29.5 During t h e year, Engro Eximp (Private) Limited obtained f u n d s under the Export Refinance S c h e m e (ERF) of t h e State Bank of
Pakistan. The funds outstanding under the ERF-II facility a m o u n t to Rs 9 6 , 0 7 2 as at D e c e m b e r 3 1 , 2 0 1 0 carrying m a r k - u p at the
current rate of 1 0 % per annum.
2 9 . 6 T h e facilities for opening letters of credit a n d guarantees of subsidiary companies as at December 3 1 , 2 0 1 0 amounts to Rs. 9,417,757
(2009: Rs. 6,299,000).
Unsecured
29.7 During the year, Engro Fertilizers Limited issued a Commercial Paper in September, 2 0 1 0 having a face value of Rs. 1,000,000 at
discount, for a period of 6 m o n t h s carrying mark-up of 1 4 . 1 4 % per a n n u m . These were listed on Karachi S t o c k Exchange Over-
The-Counter market subsequent to the year end.
171
(Amounts in thousand)
30.2 The Holding C o m p a n y in addition to above has also issued a Corporate Guarantee to International Finance Corporation (IFC) for
USD 80,000 under the A m e n d e d Agreement entered into by Engro Fertilizers Limited with IFC (note 2 2 . 5 ) .
30.3 Represents Corporate Guarantee amounting to USD 10,000 issued to Allied Bank Limited to o p e n DSRA letter of credit in favour
of the Engro Powergen Qadirpur Umited senior long term lenders.
3 0 . 4 T h e Holding C o m p a n y a n d Engro Fertilizers Umited, by virtue of the s c h e m e of demerger have extended project completion support
to the lenders of the Engro P o w e r g e n Qadirpur Limited, a subsidiary of Engro P o w e r G e n Limited for U S D 15,400 (2009: U S D
15,400). These projects s u p p o r t s are contingent u p o n o c c u r r e n c e or n o n - o c c u r r e n c e of specified future events. T h e project is
c o m p l e t e a n d lender N O C s are awaited.
30.5 Claims, including pending lawsuits, against the Engro Fertilizers Limited not acknowledged as debts a m o u n t e d to Rs. 36,018 (2009:
Rs. 47,658).
30.6 Bank guarantees of Rs. 3,830,939 (2009: Rs. 2,480,283) have been issued in favour of third parties. This includes b a n k guarantee
which has been given by Engro Powergen Qadirpur Limited, a subsidiary of Engro PowerGen Umited to Sui Northern Gas Pipelines
Umited (SNGPL) amounting to Rs. 1,596,126 (2009: Rs.1,353,701) in accordance with the terms of Gas Supply Agreement between
the Engro Powergen Qadirpur Umited a n d the SNGPL. As per the aforesaid agreement, the Engro P o w e r g e n Qadirpur Limited is
required to provide b a n k guarantee in favor of S N G P L for an a m o u n t equivalent to three m o n t h s contractual quantities of gas.
30.7 Post dated cheques issued to c u s t o m s & excise department for clearance of Rockwell Automation a n d Honeywell shipments a n d
to IGI Insurance c o m p a n y limited as security against insurance guarantees issued by t h e m in favor of AES Lalpir a n d Nestle Ltd
for performance of contracts amounting to Rs. 10,003 ( 2 0 0 9 : 1 0 , 2 7 1 ) .
30.8 Engro Fertilizers Limited is contesting the penalty of Rs. 99,936 paid a n d expensed in 1997, imposed by the State Bank of Pakistan
(SBP) for alleged late payment of foreign exchange risk cover fee on long term loans a n d has filed a suit in the High Court of Sindh.
A partial refund of Rs. 6 2 , 6 1 8 w a s , however, recovered in 1999 from S B P and the recovery of the balance a m o u n t is dependent
on the Court's decision.
30.9 Engro Fertilizers Limited had c o m m e n c e d t w o separate arbitration proceedings against the Government of Pakistan for non-payment
of marketing incidentals relating to the years 1983-84 a n d 1 9 8 5 - 8 6 respectively. The sole arbitrator in the second case has awarded
the G r o u p Rs. 4 7 , 8 0 0 w h e r e a s t h e a w a r d f o r t h e earlier years is a w a i t e d . T h e a w a r d for t h e s e c o n d arbitration has not b e e n
recognised d u e to inherent uncertainties arising from its challenge in the High Court of Sindh.
30.10 During the year, a lawsuit has been filed against Engro Foods Supply Chain (Private) Limited, a subsidiary of Engro Foods Limited,
in the Civil Court, Sheikhupura by certain previous co-workers claiming pre-emptive rights over a portion of the land, acquired by
Engro Foods Supply Chain (Private) Limited of rice processing plant. Engro Foods Supply Chain (Private) Limited has filed its written
statement thereagainst and the case is currently being heard. However, Engro Foods Supply Chain, based on the opinion of legal
advisor is confident that the matter will be decided in its favour a n d accordingly, the financial effect, if any, has not been recognized
in these consolidated financial statements.
30.12 Letter of credits other than for capital expenditure 143,732 2,863,584
30.13 Avanceon LP (USA), a subsidiary of Avanceon Limited is obligated under non-cancellable operating leases for c o m p u t e r & office
equipment which expire at various dates through 2 0 1 1 .
The future lease c o m m i t m e n t s related to non-cancellable operating leases as of December 3 1 , are as follows:
2010 2009
(Rupees)-
30.14 Avanceon Limited leases its facilities from Cornerstone Investments (a related party) under an operating lease at a monthly rental
of Rs. 2,349 (2009: Rs. 2,324). The lease shall expire on April 3 0 , 2 0 1 1 and future c o m m i t m e n t s in respect thereof a m o u n t to Rs.
9,396 all of which are d u e not later than one year.
30.15 Engro Polymer and Chemicals Limited has entered into operating lease arrangements with Al-Rahim Trading Terminal a n d D a w o o d
Herculies Limited - a related party, for storage a n d handling of Ethylene Di Chloride (EDC) a n d Caustic s o d a , respectively. T h e total
lease rentals due under these lease arrangements are payable in monthly installments till July 3 1 , 2019. The future aggregate lease
payments under these arrangements are as follows:
2010 2009
(Rupees)
31 Net Sales
O w n manufactured product (note 31.1 to 31.3) 63,194,878 44,554,782
Less: Sales tax 2,986,339 2,167,280
60,208,539 42,387,502
173
(Amounts in thousand)
31.1 Includes export sales by Engro Foods Limited, Engro Polymer and Chemicals Limited, Avanceon Limited a n d Engro Eximp (Private)
Umited amounting to Rs. 2 0 , 9 9 8 (2009: 15,994), Rs. 2 , 0 9 4 , 0 4 3 (2009: Rs.1,463,441), Rs. 185,028 (2009: Rs. 259,224) a n d Rs.
3 6 2 , 3 7 0 (2009: Rs. 114,303) respectively.
31.2 Includes sale of electricity by Engro Polymer a n d Chemcials Umited and Engro Powergen Qadirpur U m i t e d , a subsidiary of Engro
PowerGen Umited amounting to Rs. 114,541 (2009: Rs. 214,924) a n d Rs. 5,727,336 (2009: Nil) respectively.
31.2.1 Under t h e Power Purchase Agreement b e t w e e n Engro P o w e r g e n Qadirpur Limited, subsidary of Engro P o w e r G e n Limited a n d
National Transmission Company, the reference tariff a p p r o v e d by NEPRA is to be adjusted on the d a t e of start of Commercial
Operations (COD). Accordingly, Engro Powergen Qadirpur Limited u p o n achieving C O D on March 2 7 , 2 0 1 0 , filed an application
with NEPRA on April 19, 2 0 1 0 for tariff adjustment/re-determination. The NEPRA approved the revised tariff on November 2, 2 0 1 0 ,
with certain modifications, in particular revising the d e b t to USD 1 3 4 . 3 0 9 million, t h e related notification in the official gazette of
G o v e r n m e n t of Pakistan is e x p e c t e d shortly. S u c h NEPRA revised tariff resulted in an additional revenue, capacity a n d energy,
amounting to Rs. 5 2 6 , 1 9 9 , including the allowed quarterly indexations thereon. Engro P o w e r g e n Qadirpur Limited, however, has
not accepted such revised tariff a n d has filed a Review Petition thereagainst with NEPRA, in particular the arbitrary reduction of debt
to USD 134.309 million from USD 142.63 million. Engro Powergen Qadirpur Limited being confident that its Review Petition w o u l d
be upheld has recognized revenue amounting to Rs. 5 2 7 , 9 9 9 net of adjustment effect, in respect of LIBOR rate used by NEPRA.
The aforementioned amount, however, will be invoiced after the tarrif have been duly notified in the official gazette.
3 1 . 3 Sales are net of marketing allowances of Rs. 1 2 3 , 5 4 2 (2009: Rs. 177,970), special excise duty Rs. 120,773 (2009: Rs. 103,998)
a n d discounts 9 4 , 4 3 8 of Rs. (2009: Rs. 174,579).
S u b s e q u e n t to year e n d , SECP vide S.R.O 87(1)/2011 d a t e d February 3, 2 0 1 1 has granted waiver f r o m the requirements of IAS
21 a n d IAS 39 to all the Independent Power Projects (IPPs), not covered under Circular 11 of 2 0 0 8 , for a period of one year. Whereby,
capitalization of exchange differences, as allowed to IPPs under the 1994 p o w e r policy, is also allowed to all IPPs having foreign
c u r r e n c y l o a n s . Further, s u c h IPPs shall not be p e r m i t t e d to r e c o g n i s e e m b e d d e d derivatives as required u n d e r IAS 3 9 .
In view of the a b o v e S.R.O, e x c h a n g e loss a m o u n t i n g to Rs. 2 9 4 , 0 0 0 has b e e n capitalised to Property, plant a n d equipment
(note 4.4) a n d has not recognised the aforementioned e m b e d d e d derivatives.
32 Cost of Sales
2010 2009
(Rupees)
Raw a n d packing materials c o n s u m e d including unprocessed rice 32,634,540 21,775,169
Salaries, wages a n d staff welfare (note 32.1) 2,118,689 1,618,171
Fuel a n d power 4,833,217 4,184,779
Repairs a n d maintenance 850,164 789,094
Depreciation (note 4.2) 2,634,394 1,589,923
Amortization (note 7.1) 4,166 9,532
Consumable stores 518,701 244,636
32.1 Salaries, wages a n d staff welfare includes Rs. 135,677 (2009: Rs. 106,944) in respect of staff retirement benefits.
2010 2009
-(Rupees)-
175
(Amounts in thousand)
Salaries, wages a n d staff welfare include Rs. 114,692 (2009: Rs. 95,432) in respect of staff retirement benefits.
Financial assets:
Income on deposits / other financial assets 399,862 133,821
Exchange gain 11,355 23,157
Auditors' remuneration:
The aggregate a m o u n t c h a r g e d in respect of auditors' remuneration, including remuneration of auditors' of foreign subsidiaries,
is as follows:
Fee for the
- audit of annual financial statements 8,110 6,869
- review of half yearly financial statements 1,015 1,000
Certifications, audit of retirement benefit funds other
advisory services and review of compliance
with C o d e of Corporate Governance 11,972 4,891
Tax services 90 1,840
Reimbursement of expenses 1,343 1,152
22,530 15,752
Finance Cost
Interest/mark-up on
- Long term borrowings 3,324,269 1,571,528
- Short term borrowings 776,021 598,367
A c c r u e d interest on Workers' profits participation fund (note 27.2) 1,676 4,034
Others 98,920 47,810
4,200,886 2,221,739
177
(Amounts in thousand)
38 Taxation
2010 2009
(Rupees)
Current
- for the year 1,333,929 1,613,568
- for prior years (409,471) 170,505
924,458 1,784,073
Deferred
- for the year 1,039,056 (197,303)
- for prior years (127,383) (243,289)
911,673 (440,592)
1,836,131 1,343,481
38.1 As a result of demerger, as referred to in n o t e 1.1, all pending tax issues of the Fertilizer Undertaking of the Holding C o m p a n y have
been transferred to Engro Fertilizers Limited. Major issues pending before the tax authorities are described below:
The Holding C o m p a n y in its tax return for financial years 2006 to 2 0 0 8 (tax years 2 0 0 7 to 2009) claimed the benefit of Group Relief
under section 5 9 B of the Income Tax Ordinance, 2001 (the Ordinance) on losses acquired for an equivalent cash consideration from
its wholly o w n e d subsidiary, Engro Foods Umited, amounting to Rs. 428,744, Rs. 6 2 2 , 1 0 3 and Rs. 4 5 0 , 0 0 0 respectively.
The tax department raised a d e m a n d of Rs. 4 7 6 , 4 7 9 (rectified to Rs. 406,644), Rs. 9 1 0 , 8 4 5 a n d Rs. 1,670,814 for financial years
2 0 0 6 , 2 0 0 7 a n d 2 0 0 8 respectively, mainly on a c c o u n t of disallowance of Group Relief (in all three years), inter corporate d M d e n d
(in 2 0 0 7 a n d 2008) a n d write d o w n of inventories to net realisable value (in 2008) besides certain other issues. Uptill last year, the
Holding C o m p a n y h a d paid Rs. 1 7 0 , 0 0 0 a n d Rs. 4 0 0 , 0 0 0 for 2 0 0 6 a n d 2 0 0 7 respectively. Stay by the High Court of Sindh for
payment of balance a m o u n t for financial year 2 0 0 6 w a s granted to the Holding C o m p a n y pending decision of the appeal filed by
the Holding C o m p a n y before the Income Tax Appellate Tribunal (ITAT). However, for financial year 2 0 0 7 the issue of Group Relief
w a s decided by the Commissioner Inland Revenue (Appeals I) in Holding C o m p a n y ' s favour against w h i c h the tax department filed
an appeal with ITAT. During the current year, the Engro Fertilizers Limited, n o w contesting all pending tax issues of the Holding
Company, paid Rs. 600,000 for financial year 2 0 0 8 , while stay for payment for the balance amount w a s granted by the tax department
till December 3 1 , 2 0 1 0 . Appeals has also been filed by the Engro Fertilizers Limited with the Commissioner Inland Revenue (Appeals
I). T h e tax department u p o n expiry of the stay period has raised a payment d e m a n d of Rs. 5 0 9 , 2 1 8 on January 2 7 , 2 0 1 1 , against
which the management intends to apply its refunds pending with the tax department.
The main contention for disallowance of Group Relief, a m o n g others, being the non-designation of the Holding C o m p a n y and the
Engro Foods U m i t e d as ' c o m p a n i e s ' entitled to Group Relief by the Securities & Exchange C o m m i s s i o n of Pakistan (SECP), a
requirement of section 5 9 B of the Ordinance. The Holding C o m p a n y had applied for such a designation but remained pending with
SECP for w a n t of related regulations not framed t h e n . These regulations were f r a m e d by SECP subsequently in December 2 0 0 8
a n d on resubmission of application the Holding C o m p a n y alongwith other subsidiaries have been registered as a Group. Designation
has also been granted for Group Relief and Group Taxation during the year.
During the year, orders were received for cases pending at ITAT relating to financial years 2 0 0 6 a n d 2 0 0 7 . The major issues of Group
Taxation a n d Group Relief have been decided in t h e Engro Fertilizers Limited favour in both t h e years. Further, all the assessments
of the Holding Company, for income years 1995 to 2 0 0 2 which were in appeal at the ITAT level have been decided during the year.
The major o n e being apportionment of gross profit a n d expenses between normal income a n d Final Tax Regime (FTR) income has
been remanded back to the tax department by ITAT with specific directions for apportionment of gross profit on the basis of turnover
as claimed by the Holding Company. Engro Fertilizers Umited, therefore has written back provision amounting to Rs. 4 6 3 , 7 8 4 , in
respect of the aforementioned years. The tax department however, may file reference application against the ITAT decisions before
the Sindh High Court.
38.2 During the year, in respect of Engro Foods Limited, the Commissioner Inland Revenue has raised a d e m a n d of Rs. 337,386 for tax
year 2 0 0 8 by raising an order to disallow provision for gratuity, advances and stock written-off, repair and maintenance, provision
for b o n u s , sales p r o m o t i o n a n d advertisement expenses. In addition, t h e aforementioned order has treated the consideration
receivable f r o m the Holding Company, on surrender of tax loss as i n c o m e . Engro Foods Limited has filed an appeal before the
Commissioner Appeals against s u c h order, w h i c h is yet to be heard. Engro Foods Limited has also filed a petition thereagainst
before the Sindh High Court, whereby the jurisdiction of the Commissioner Inland Revenue has been challenged for passing s u c h
an order, The Sindh High Court considering the legal issues involved has instructed the tax department not to take any coercive
action till the hearing of the appeal.
38.3 Further during the year, in respect of Engro Eximp (Private) Limited, t h e tax department raised d e m a n d s of Rs 2 3 9 , 9 0 2 and Rs
1,708,621 for financial years 2 0 0 6 and 2 0 0 8 respectively, mainly on the disallowance of subsidy received by Engro Eximp (Private)
Limited on imported phosphatic fertilizer from the Government of Pakistan as allowable expense. The Commissioner Inland Revenue,
on the Engro Eximp (Private) Limited's appeal thereagainst, had set aside the aforementioned a m e n d e d orders with the directions
to the Additional Commissioner Inland Revenue for denovo proceedings.
The Additional Commissioner Inland Revenue has initiated the proceedings as directed, which are in progress. Engro Eximp (Private)
Limited is however confident that the above issue will be d e c i d e d in the their favour without any additional tax liability a n d as s u c h
the Group has not made provision for the aforementioned d e m a n d in the consolidaed financial statements.
38.4 Following are the taxation matters pertaining to Engro Polymer and Chemicals Limited:
38.4.1 During the year, Engro Polymer a n d Chemicals Limited received a notice of d e m a n d of Rs. 213,172 in respect of Tax year 2008.
The Deputy Commissioner Inland Revenue has m a d e various additions to the returned income amounting to Rs. 207,370 and has
not considered the brought forward losses amounting to Rs. 974,770 resulting in the aforementioned tax d e m a n d . The additions
to income are mainly on account of trading liabilities and finance costs incurred in relation to the expansion Project. The aforementioned
brought forward losses have been amended d u e to revision of returns as per the ITAT Order mentioned in note 38.4.3.
Engro Polymer a n d Chemicals Limited has filed an appeal against the aforementioned d e m a n d with t h e C o m m i s s i o n e r Inland
Revenue (Appeals), which is currently pending. While the appeal proceedings were pending, the Officer Inland Revenue (OIR) adjusted
a sum of Rs. 180,768 in the aforementioned demand against Engro Polymer and Chemicals Limited's assessed refunds. Consequently,
Engro Polymer and Chemicals Limited has paid the balance amount of Rs. 32,404 'under protest'. Further, the OIR has issued t w o
s h o w cause notices d a t e d D e c e m b e r 9, 2 0 1 0 for the levy of additional tax relating to Tax year 2 0 0 8 aggregating to Rs. 8,106.
Subsequent to year e n d , replies to the s h o w cause notices have been filed for withdrawal thereof. Engro Polymer and Chemicals
Limited's management is of the view that since the matter is pending with the Commissioner Inland Revenue (Appeals), no cohesive
recovery measures can be initiated unless a decision is obtained f r o m an independent f o r u m outside the departmental hierarchy.
Further, no formal order creating a demand has been received to date in response of s h o w cause replies submitted by Engro Polymer
and Chemicals Limited.
The management of Engro Polymer and Chemicals Limited, based on the advice of its tax consultant, is confident that the ultimate
o u t c o m e of the aforementioned matter w o u l d be favorable and consequently the Group has not recognized the effects for the same
in the consolidated financial statements.
384,2 During the m o n t h of December 2010, Engro Polymer and Chemicals Limited has also received a notice of d e m a n d of Rs. 163,206
in respect of Tax year 2009. The Deputy Commissioner Inland Revenue has made various additions to the returned income amounting
to Rs. 546,050 and has not considered the brought forward losses amounting to Rs. 4 9 9 , 3 7 6 resulting in the aforementioned tax
d e m a n d , The additions to income are mainly on account of trading liabilities and finance costs incurred in relation to the expansion
Project. The aforementioned brought forward losses have been amended due to revision of returns as per the ITAT Order mentioned
in note 38.4.3.
179
(Amounts in thousand)
The entire d e m a n d of Rs. 163,206 has been adjusted vide OIR order dated December 2 0 , 2 0 1 0 against assessed refundable taxes.
Subsequent to year end, Engro Polymer and Chemicals Limited has filed an appeal against the aforementioned d e m a n d with the
Commissioner Inland Revenue (Appeals), which is currently pending.
The management of Engro Polymer and Chemicals IJmited, based on the advice of its tax consultant, is confident that the ultimate
o u t c o m e of the aforementioned matter w o u l d be favorable and consequently the Group has not recognized the effects for the s a m e
in the consolidated financial statements.
38.4.3 While finalizing t h e assessment for t h e assessment year 2 0 0 0 - 2 0 0 1 , t h e Taxation Officer h a d disallowed t h e claim of First Year
Allowance (FYA) by Engro Polymer a n d Chemicals IJmited on the grounds that Engro Polymer a n d Chemicals Limited had not met
the criteria for claiming this allowance as required under the repealed Income Tax Ordinance, 1979. Engro Polymer a n d Chemicals
IJmited h a d filed an appeal against this disallowance w h i c h w a s decided by t h e Commissioner of Income Tax (Appeals) in favor of
the Company. The department, therefore, filed second appeal before the Income Tax Appellate Tribunal (ITAT). A similar disallowance
h a d also been m a d e for the assessment year 2 0 0 1 - 2 0 0 2 by the Taxation Officer in 2 0 0 3 . However, u p o n appeal, this matter w a s
ultimately d e c i d e d in Engro Polymer a n d Chemicals Limited's favor in 2 0 0 5 by t h e Income Tax Appellate Tribunal (ITAT).
During the year, the ITAT in departmental appeal pertaining to assessment year 2 0 0 0 - 2 0 0 1 , d e c i d e d the aforementioned matter
against Engro Polymer a n d Chemicals Limited by departing from the previous order for the a s s e s s m e n t year 2 0 0 1 - 2 0 0 2 . The
disallowance of FYA a m o u n t s to Rs. 1,884,359.
This disallowance resulted in tax deductible timing differences, the effects of which have been recognized in the consolidated financial
s t a t e m e n t s after taking into a c c o u n t the consequential effects of the ITAT Order in the t a x years s u b s e q u e n t to 2 0 0 0 - 2 0 0 1 .
Consequently, Engro Polymer a n d Chemicals IJmited has revised its income tax returns for the tax years 2 0 0 3 to 2 0 0 7 a n d 2 0 0 9
resulting in a tax liability of Rs. 8 6 , 7 6 9 for Tax year 2 0 0 8 , w h i c h has been settled by adjustment o u t of recoupable minimum tax
brought forward of prior years a n d refunds available in other tax years as mentioned in note 38.4.1 above.
(Numbers)
(Restated)
Weighted average number of ordinary shares (in thousand) 327,737 310,913
There is no dilutive effect on the basic earnings per share of the Group since the average annual market share price of the Holding
Company's share is still marginally less than the exercise price of the options granted on the Holding Company's shares to employees
(note 9) a n d IFC (note 22.5). However, b a s e d on t h e year e n d market share price as at D e c e m b e r 3 1 , 2 0 1 0 t h e diluted earnings
per share of the Group calculates to Rs. 20.61 per share.
2010 2009
Directors Executives Di rectors Executives
Chief Others Chief Others
Executive Executive
-(Rupees)-
40.1 T h e Group also makes contributions based on actuarial calculations to pension a n d gratuity funds and provides certain household
items for use of s o m e employees. Cars are also provided for use of Chief Executives and directors and s o m e employees.
40.2 Premium charged in the consolidated financial statements in respect of directors indemnity insurance policy, purchased by the Group
during the year, a m o u n t e d to Rs. 3,558.
181
(Amounts in thousand)
41 Retirement Benefits
41.1 Defined benefit plans
The latest acturial valuation of the defined benefit plans w a s carried out as at December 3 1 , 2 0 1 0 , using the Projected Unit Credit
M e t h o d . Details of the defined benefit plans are as follows:
41.1.1 Engro C o r p o r a t i o n L i m i t e d , H o l d i n g C o m p a n y
41.1.1.2 M o v e m e n t in n e t (asset)/liability r e c o g n i s e d
Net (assetyiiability at beginning of the year (31,187)
(Reversal)/expense recognised 1,762 11,334 (5,700)
A m o u n t s received from/(paid to) the Fund (1,762) (11,334) 5,000
Net (assetyiiability at end of the year (31,887)
41.1.1.3 M o v e m e n t in d e f i n e d benefit o b l i g a t i o n
As at beginning of the year 68,020 267,158 - 29,311
Current service cost 3,449 17,345
Interest cost 8,309 39,540 - 4,172
Benefits paid during the year (4,755) - (2,501)
Actuarial (gain)/loss on obligation 27,757 540 - (2,279)
Unrecognised past service cost (10,198)
• a b i l i t y transferred in respect of inter-company transfer 8,421 849 -_ -_
As at e n d of the year 115,956 310,479 - 28,703
41.1.15 C h a r g e f o r t h e year
Defined Benefit Defined Benefit
Gratuity Plans Pension Plan
Funded Funded (Curtailed)
2010 2009 2010 2009
(Rupees).
Current service cost 3,449 17,345
Interest c o s t 8,309 39,540 4,172
Expected return on plan assets (9,579) (41,882) (9,866)
Amortisation of unrecognized past service cost (129) (64)
Amortisation of transitional obligation (439)
Recognition of past service cost (2,464)
Net actuarial (gain)/loss recognised during the year (288) (702)
-(Rupees)-
2010 2009
Rupees % Rupees
41.1.18 Plan assets c o m p r i s e of t h e f o l l o w i n g
41.1.1.9 The expected return on plan assets w a s determined by considering the e x p e c t e d returns available on the assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
sheet date.
183
(Amounts in thousand)
41.1.1.10 C o m p a r i s o n of five y e a r s
Present value of defined benefit obligation (115,956) (339,182) (296,469) (587,655) (536,209)
Fair value of plan assets 125,199 409,228 359,222 683,808 722,867
Surplus / (Deficit) 9,243 70,046 62,753 96,153 186,658
41.1.1.11 Expected future c o s t for the year ending December 3 1 , 2011 in respect of the retained M P T Gratuity f u n d on demerger a m o u n t s
t o Rs.6,000.
41.12.3 M o v e m e n t in d e f i n e d benefit o b l i g a t i o n
As at beginning of the year after transfer of
Fertilizer Undertaking 241,276 28,703
Current service cost 17,735
Interest cost 29,510 3,264
Benefits paid during the year (6,785) (3,197)
Actuarial (gain)/loss on obligation (8,235) 2,460
Unrecognised past service cost
• a b i l i t y transferred in respect of inter-company transfer (3,978)
As at e n d of the year 269,523 31,230
Defined Defined
Benefit Benefit
Gratuity Plans Pension Plan
Funded Funded (Curtailed)
2010 2009
-(Rupees)-
41.12.4 M o v e m e n t in fair value of p l a n assets
As at beginning of the year 263,645 62,645
Expected return on plan assets 30,947 7,337
(Repayment to) / Contribution by the C o m p a n y 15,470 (31,887)
Benefits paid during the year (6,785) (3,197)
Settlement in respect of the pensioners
Actuarial gain/ (loss) on plan assets (12,594) (43)
Liability transferred in respect of inter-company transfer (1,103)
As at e n d of the year 289,580 34,855
41.125 C h a r g e f o r t h e year
Current service cost 17,735
Interest c o s t 29,510 3,264
Expected return on plan assets (30,947) (7,337)
Amortisation of unrecognized past service c o s t (372)
Amortisation of actuarial (gain) / loss (456)
15,470 (4,073)
-(Rupees)-
41.12.7 A c t u a l return on plan assets 18,353 7,294
185
(Amounts in thousand)
2010 2009
Rupees % Rupees %
Fixed income instruments 206,428 71% 31,695 91%
Cash 32,149 11% 1,526 4%
Others 51,003 18% 1,634 5%
289,580 34,855
41.1.2.9 The expected return on plan assets w a s determined by considering the e x p e c t e d returns available on the assets underlying the
c u r r e n t i n v e s t m e n t policy. E x p e c t e d yields on fixed interest i n v e s t m e n t s are b a s e d on g r o s s r e d e m p t i o n yields as at the
balance sheet date.
411210 During t h e year, the Subsidiary C o m p a n y recognised a gain of Rs. 4 , 0 7 3 on curtailed defined benefit plan. In 2 0 0 5 , the Holding
Company had setup a Defined Contribution Pension Fund known as Engro Chemical Pakistan Limited (renamed as Engro Corporation
Limited) MPT Employees Pension Fund (the Fund) for the benefit of m a n a g e m e n t employees, including those transfered to the
C o m p a n y after demerger. Employees joining the Holding C o m p a n y from July 1, 2 0 0 5 o n w a r d s to b e c o m e m e m b e r s of the new
Fund. Members of then existing pension fund (a defined benefit plan) were given a one-time option exerciseable upto June 15, 2 0 0 5
to join the n e w Fund effective July 1, 2 0 0 5 .
411211 E x p e c t e d f u t u r e c o s t f o r t h e y e a r e n d i n g D e c e m b e r 3 1 , 2 0 1 1 is as f o l l o w s :
Rupees
41.13.2 M o v e m e n t in t h e d e f i n e d benefit o b l i g a t i o n s
Obligations as at January 1 78,994 68,644 26,048 22,888 4,523 3,359
Current service cost 8,551 6,841 3,844 3,270 759 680
Interest c o s t 12,081 9,704 3,988 3,300 537 481
Actuarial losses / (gains) 12,660 - 5,683 - (842) 3
Benefits paid (1,851) (6,195) (4,130) (3,410) - -
Lability recognized in respect of transfers 400 - 55 - - -
187
(Amounts in thousand)
41.1.3.6 E x p e c t e d f u t u r e c o s t s f o r t h e year e n d i n g D e c e m b e r 3 1 , 2 0 1 1 :
Rupees
- P e n s i o n Fund 12,379
- Gratuity Fund 5,631
- Additional Death Gratuity S c h e m e 1,593
19,603
41.1.89 The expected return on plan assets w a s determined by considering the expected returns available on t h e assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
sheet date.
Pension F u n d
Present value of defined
benefit obligation 110,835 78,994 68,644 53,267 44,310
Fair value of plan assets (97,803) (88,607) (73,582) (62,237) (47,516)
Deficit / (Surplus) 13,032 (9,613) (4,938) (8,970) (3,206)
Gratuity F u n d
Present value of defined
benefit obligation 35,488 26,048 22,888 19,600 16,145
Fair value of plan assets (30,903) (27,618) (21,821) (21,742) (15,665)
Deficit / (Surplus) 4,585 (1,570) 1,067 (2,142) AW
41.13.11 During the year, Rs. 20,322 (2009: Rs. 22,620) has been recognized in the profit a n d loss account in respect of defined contribution
provident f u n d .
41.1.4.1 B a l a n c e s h e e t reconciliation
2010 2009
(Rupees)
Present value of defined benefit obligation 7,913 3,742
Fair value of plan assets (5,099) (2,009)
Deficit 2,814 1,733
Unrecognised actuarial loss / (gain) 68 (432)
Unrecognised past service cost (471) (504)
Net liability at end of the year 2,411 797
41.14.3 M o v e m e n t in d e f i n e d benefit o b l i g a t i o n
As at January 1 3,742 2,186
Current service cost 1,383 531
Interest cost 529 365
Actuarial loss on obligation (87) 156
Unrecognized past service cost - 504
Liability transferred in respect of inter-company transfer 2,346
As at December 31 7,913 3,742
189
(Amounts in thousand)
41.1.4.5 C o s t c h a r g e d f o r t h e year
2010 2009
(Rupees)
Current service cost 1,383 531
Interest cost 529 365
Expected return on plan assets (335) (295)
Amortisation of prior service cost 33
Net actuarial loss recognized in current year 4_ 9_
1,614 610
2010 2009
Rupees Rupees %
41.1.4.8 Plan assets c o m p r i s e of t h e f o l l o w i n g :
C a s h a n d cash equivalents 5,051 99 1,981 99
Others 48 1 28 1
5,099 100 2,009 100
411.4.9 The e x p e c t e d return on plan assets w a s determined by considering the expected returns available on the assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
sheet date.
411.4.11 Expected future cost for the year ending December 2011 is Rs. 2,078.
41.1.5 Engro F o o d s L i m i t e d , S u b s i d i a r y C o m p a n y
41.15.1 T h e latest actuarial valuation of the schemes w a s carried out as at December 3 1 , 2 0 1 0 using the 'Projected Unit Credit M e t h o d ' .
Details of the defined benefit plans are as follows:
Unfunded
Gratuity Fund Gratuity Scheme Pension Scheme Total
2010 2009 2010 2009 2010 2009 2010 2009
Rupees
41.15.2 Reconciliation of o b l i g a t i o n s
a s a t year e n d
Present value of defined
benefit obligation (137,469) (77,010) (137,469) (77,010)
Fair value of plan assets 82,509 58,688 82,509 58,688
Deficit (54,960) (18,322) (54,960) (18,322)
Present value of unfunded
obligations (3,168) (1,307) (2,372) (4,475) (2,372)
Receivable from / (Payable to)
group companies (1,410) 2,530 1,120
Unrecognized actuarial
(gain)/ioss 40,593 18,322 462 (2,125) (213) 38,930 18,109
Net liability at end of the year (15,777) (176) (3,432) (2,585) (19,385) (2,585)
41.15.3 M o v e m e n t in liability
Net liability at beginning
o f t h e year . . . . (2,585) (1,892) (2,585) (1,892)
Charge for the year (31,554) (21,250) (176) - (847) (693) (32,577) (21,943)
Contributions 15,777 21,250 . . . . 15,777 2 1,250
Net liability at end of the year (15,777) - (176) (3,432) (2,585) (19,385) (2,585)
41.15.4 M o v e m e n t in fair v a l u e of
plan assets
Fair value of plan assets at
beginning of the year 58,688 29,417
- - - 58,688 29,417
Expected return on plan assets 8,752 5,508 - - - 8,752 5,508
Contributions for the year 15,777 21,250 - - - 15,777 21,250
Transfers from ECL 4,054 2,845 - - - 4,054 2,845
Benefits paid during the year (2,096) (2,096) - - - (2,096) (2,096)
Actuarial gain / (loss) on assets (2,666) 1,764 - - - (2,666) 1,764
Fair value of plan assets at e n d
of the year 82,509 58,688
- - - 82,509 58,688
191
(Amounts in thousand)
Unfunded
Gratuity Fund Gratuity Scheme Pension Scheme Total
2010 2009 2010 2009 2010 2009 2010 2009
Rupees
41.1.55 M o v e m e n t in p r e s e n t value of
d e f i n e d benefit o b l i g a t i o n s /
unfunded obligations
Present value of defined benefit
obligations at beginning of the year 7 7 , 0 1 0 39,033 2,372 1,570 79,382 40,603
- -
Service cost 28,764 19,610 176 - 530 453 29,470 20,063
Interest cost 10,783 6,739 - - 317 252 11,100 6,991
Transfers from ECL 2,645 2,845 2,530 - - - 5,175 2,845
Benefits paid during the year (2,096) (2,096) - - - - (2,096) (2,096)
Acturial (gain) / loss 20,363 10,879 462 - (1,912) 97 18,913 10,976
Present value of defined benefit
obligation / unfunded obligation
of the year 137,469 77,010 3,168 1,307 2,372 141.944 79,382
-
41.1.56 C o s t c h a r g e d to profit
a n d loss a c c o u n t
Current service cost 28,764 19,610 176 - 530 453 29,470 20,063
Interest cost 10,783 6,739 - - 317 252 11,100 6,991
Expected return on plan assets (8,752) (5,508) - - - - (8,752) (5,508)
Recognition of actuarial
759 - 397
(gain) / loss 409 - - (12) 759
C o s t for the year 31,554 21,250 176 - 847 693 32,577 21,943
41.1.5.7 In addition, salaries, wages a n d benefits also include Rs. 7 3 , 7 0 0 (2009: Rs. 53,301) in respect of defined contribution provident fund.
Unfunded
Gratuity Fund Gratuity Scheme Pension Scheme
2010 2009 2010 2009 2010 2009
Discount rate 14.5% 12% 14.5% 14.5% 14%
Expected per a n n u m rate of return on plan assets 14.5% 12% 14.5% 12%
Expected per a n n u m rate of increase in future salaries 14.5% 12% 14.5% - 14.5% 12%
Expected per a n n u m rate of increase in pension 6.5% 4%
Rupees
41.159 A c t u a l return on plan a s s e t s 6,086 5,967
Gratuity Fund
2010 2009
Rupees % Rupees %
Held to maturity investments
- Pakistan Investment Bonds (PIBs) 3,239 4% 3,313 6%
- Term Finance Certificates (TFCs) 17,351 21% 9,467 16%
- Term Deposit Receipts (TDRs) - - 6,000 10%
- Regular Income Certificates (RICs) 19,000 23% 19,000 32%
- Treasury Bills 19,479 24% 1,000 2%
59,069 72% 38,780 66%
Mutual funds (Income Fund) - Units 8,962 11% 19,005 32%
Usted securities 1,826 2% - -
Balances with b a n k s 11,537 14% - -
Others 1,115 1% 903 2%
82,509 100% 58,688 100%
411.511 The expected return on plan assets has been determined by considering the expected returns available on the assets underlying
the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
s h e e t d a t e . E x p e c t e d r e t u r n o n e q u i t y i n v e s t m e n t s reflect l o n g - t e r m real r a t e s o f r e t u r n e x p e r i e n c e d i n t h e m a r k e t
41.1512 E x p e c t e d c o n t r i b u t i o n s t o p o s t e m p l o y m e n t b e n e f i t p l a n s f o r t h e y e a r e n d i n g D e c e m b e r 3 1 , 2 0 1 1 are R s . 5 1 , 5 7 3 .
Defined Benefit
Gratuity Plans Funded
2010 2009
(Rupees)
Present value of funded obligation 2,670
Fair value of plan assets (2,842)
Surplus (172)
Unrecognised actuarial gain 358
Unrecognized prior service cost 29
Net liability at end of the year 215
193
(Amounts in thousand)
41.1.63 M o v e m e n t in n e t liability r e c o g n i s e d
Defined Benefit
Gratuity Plans Funded
2010 2009
(Rupees)
Net liability at beginning of the year
Expense recognised 215
Net liability at e n d of the year 215
41.1.64 M o v e m e n t in p r e s e n t v a l u e of d e f i n e d benefit o b l i g a t i o n
As at beginning of the year
Defined benefit obligations in respect of
employees transferred from group c o m p a n i e s 1,183
Current service cost 244
Interest cost 145
Actuarial loss on obligation 1,098
As at e n d of the year 2,670
41.1.66 C h a r g e f o r t h e year
Current service cost 244
Interest cost 145
Expected return on plan assets (167)
Recognition of past service cost (2)
Net actuarial (gain) recognised during the year (5)
215~
(Rupees)-
41.1.68 A c t u a l return on plan a s s e t s 1,424
2010 2009
Rupees % Rupees %
Debt Instrument 2,266 80 - -
Equity Instrument 482 17 - -
Cash, interest accrued and others 94 3 - -
2,842 - - -
41.1.610 The expected return on plan assets w a s determined by considering the expected returns available on the assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance
sheet date.
41.1.611 Expected future cost for the year ending December 3 1 , 2011 is Rs 5 5 7 .
411612 Defined c o n t r i b u t i o n p l a n s
An amount of Rs 8,153 (2009: Rs 3,663) has been charged during the year in respect of defined contribution plans maintained by
the Holding Company.
195
(Amounts in thousand)
Risk management is carried out by the Group's Finance a n d Planning departments under guidance of t h e respective Management
Committees,
a) M a r k e t risk
i) C u r r e n c y risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates.
This exists d u e to the Group's exposure resulting from outstanding import payments, foreign currency loan liabilities a n d related
interest payments. A foreign exchange risk m a n a g e m e n t policy has b e e n developed a n d a p p r o v e d by the management. The
policy allows the Group to take currency exposure for limited periods within predefined limits while o p e n exposures are rigorously
monitored. The Group ensures to the extent possible that it has options available to manage exposure, either through forward
contracts, options or prepayments, etc. subject to the prevailing foreign exchange regulations.
The Subsidiary C o m p a n y Engro Fertilizers Limited is exposed to currency risk on c o m m i t m e n t s to purchase plant a n d machinery
in connection with Urea expansion project denominated primarily in Euros. However, as at December 3 1 , 2 0 1 0 this exposure
is minimal since major procurements have been completed.
The Subsidiary C o m p a n y Engro Fertilizers Limited has entered into Euro-Dollar forward exchange contracts / options to hedge
its currency risk, most of which have a maturity of less than one year from the reporting date. The G r o u p ' s ability to mitigate
foreign exchange risk has however been curtailed by the State Bank of Pakistan which has disallowed issuance of new forward
covers against letters of credit.
On foreign currency borrowing of US$ 2 8 5 , 0 0 0 , the Subsidiary C o m p a n y Engro Fertilizers Limited has Rupee/US $ hedge of
US$ 85,000.
The impact of other devaluation/revaluation on post tax profit for the year of the Subsidiary C o m p a n y Engro Fertilizers Umited
is negligible since all foreign currency borrowings/funds relates to the project, hence gain/loss arising is capitalized.
The Subsidiary C o m p a n y Engro Foods Umited exposure to currency risk is limited as all the foreign purchases are m a d e against
on sight letter of credit where the payment is made on the date of delivery with no credit period. The subsidiary company Engro
Foods Limited imports plant a n d machinery a n d certain raw material w h i c h exposes to currency risk, primarily with respect to
liabilities d e n o m i n a t e d in US Dollars. T h e subsidiary c o m p a n y Engro Foods Limited used to manage the currency risk relating
to US Dollars through forward exchange contracts, however since 2 0 0 8 , is unable to hedge its foreign exchange risk exposure
due to restriction on forward covers i m p o s e d by The State Bank of Pakistan. Currently, t h e subsidiary c o m p a n y Engro Foods
Limited manages its currency risk through prepayments a n d close monitoring of currency markets. However during the year
the subsidiary c o m p a n y Engro Foods Limited also entered into Euro-Dollar option contracts to manage its currency risk relating
to payment against import of plant and machinery in Euros, which have a maturity of less than one year from the reporting date.
The Subsidiary C o m p a n y Engro P o w e r g e n U m i t e d ' s exposure resulting f r o m outstanding import payments, foreign currency
loan liabilities a n d related interest payments is limited as all the fluctuation in foreign exchange rates will be recovered through
adjustment in tariff as per Power Purchase Agreement.
197
(Amounts in thousand)
The Subsidiary C o m p a n y Avanceon Limited is e x p o s e d to currency risk arising primarily with respect to the United States Dollar
(USD). Currently, the Group's foreign exchange risk exposure is restricted to foreign currency interest bearing loans and borrowings,
creditors a n d debtors. The G r o u p ' s exposure to foreign currency changes for all other currencies is not material.
The Subsidiary C o m p a n y Engro Polymers a n d Chemical Limited is e x p o s e d to currency risk arising primarily with respect to
US Dollars. The risk arises from outstanding payments for imports, recognised assets a n d liabilities in foreign currency a n d future
commercial transactions. The subsidiary c o m p a n y Engro Polymers and Chemical Limited used to m a n a g e the currency risk
relating to US Dollars through forward e x c h a n g e contracts, however since 2 0 0 8 , is unable to hedge its foreign exchange risk
exposure d u e to restriction on forward covers i m p o s e d by The State Bank of Pakistan. Currently, the subsidiary c o m p a n y Engro
Polymers a n d Chemical Limited manages its currency risk through close monitoring of currency market. At d e c e m b e r 3 1 , 2 0 1 0
the financial assets a n d liabilities exposed to foreign exchange risk amount to Rs. 265,289 (2009: Rs.248,323) and Rs. 6,055,444
(2009: Rs. 7,009,120) respectively.
The Subsidiary C o m p a n y Engro Eximp (Private) Limited is not materially exposed to currency risk as there are no material foreign
currency denominated balances as at year e n d .
At December 3 1 , 2 0 1 0 , if the Pakistan Rupee had weakened/strengthened by 5% against the US Dollars with all other variables
held c o n s t a n t , consolidated post tax profit for the year w o u l d have been lower/ higher by Rs. 3 3 2 , 9 9 2 (2009: Rs. 2 2 1 , 6 4 1 ) ,
mainly as a result of foreign exchange losses/gains on translation of US Dollar denominated liabilities.
The Group analyses its interest rate exposure on a regular basis by monitoring interest rate trends to determine whether they
should enter into hedging alternatives.
Interest rate risk of t h e Subsidiary C o m p a n y Engro Fertilizers Limited arising on foreign currency loans are h e d g e d through
interest rate s w a p s . Rates on short term loans vary as per market movement.
Interest rate risk of the subsidiary c o m p a n y Avanceon Umited arises from long-term finances a n d running finance facilities. Long
term a n d short term running finances obtained are benchmarked to variable rates which expose the subsidiary c o m p a n y to cash
flow interest rate risk. T h e Subsidiary C o m p a n y Avanceon Umited Rupee based loans have a prepayment o p t i o n , w h i c h c a n
be exercised u p o n any adverse m o v e m e n t . Rates of short t e r m loans vary as per market m o v e m e n t of 6 - m o n t h KIBOR. T h e
Subsidiary C o m p a n y further manages its exposure to interest rate risk by managing a n d maintaining a mix of fixed a n d floating
rate borrowings.
Interest rate risk arising on foreign currency loans of Engro Fertilizers Limited a n d Engro Polymer & Chemicals U m i t e d are
h e d g e d t h r o u g h interest rate s w a p s . S u c h interest rate s w a p s have t h e e c o n o m i c effect of converting floating rates to fixed
rates. Under the interest rate s w a p agreement, the Group has agreed with the banks to exchange, at half yearly intervals, the
difference between fixed contracted rates a n d the floating rate interest amounts calculated by reference to the agreed notional
amounts. Rates on short t e r m loans vary as per market movement.
Engro P o w e r g e n U m i t e d ' s exposure to interest rate risk is limited as the unfavorable fluctuations in t h e interest rates will be
recovered through adjustment in tariff as per Power Purchase Agreement
The Subsidiary C o m p a n y Engro Foods Limited has no significant interest bearing financial assets, the Subsidiary Company's
income and opearting cashflows are substantially independent of changes in market interest rates. Further, there are no borrowings
at fixed rates, the Subsidiary C o m p a n y is not e x p o s e d to fair value interest rate risk. The Subsidiary C o m p a n y ' s interest rate
risk arises primarily from long and short term borrowing. The Subsidiary C o m p a n y is also subject to interest rate risk f r o m
obligation under finance lease. Borrowings at variable rates e x p o s e d the Subsidiary C o m p a n y to cashflow interest rate risk. As
there are no borrowings at fixed rates, t h e Subsidiary C o m p a n y is not e x p o s e d to fair value interest rate risk. T h e Subsidiary
C o m p a n y analyses its interest rate exposure on a regular basis by monitoring existing facilities against prevailing market interest
rate risk and taking into account various other financing options available. For borrowing at variable rates, the rates are determined
in advance for stipulation periods with reference to KIBOR.
To m a n a g e its c a s h flow interest rate risk, the Subsidiary C o m p a n y Engro Polymers a n d Chemical Limited has entered into
floating to fixed rate interest swaps on its foreign currency borrowings a n d floating to floating rate cross currency interest s w a p
on its local borrowings. Under the interest rate s w a p agreements, the Subsidiary C o m p a n y has agreed with the b a n k s to
exchange, at half yearly intervals, the difference between contracted rates a n d the floating rate interest a m o u n t s calculated by
reference to the agreed notional amounts.
The Subsidiary C o m p a n y Engro Eximp (Private) Umited analyses its interest rate exposure on a regular basis by monitoring base
interest rate trends in relation to the balance of utilized funds / borrowing.
A s a t D e c e m b e r 3 1 , 2 0 1 0 , i f interest rates o n G r o u p ' s b o r r o w i n g s h a d been 1 % higher/lower with all other variables held
constant, consolidated p o s t tax profit for the year w o u l d have been lower/higher by Rs. 1 6 8 , 6 2 8 (2009: Rs. 1 2 4 , 1 0 5 ) , mainly
as a result of interest exposure on variable rate borrowings.
iii) O t h e r p r i c e risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices (other than t h o s e arising from currency risk or interest rate risk), whether t h o s e c h a n g e s are caused by factors
specific to the individual financial instrument or its issuer, or factors effecting all similar financial instruments traded in the market.
The Group's investments in money market mutual funds are exposed to price risk related to interest rate instruments.
b) Credit risk
Credit risk represents the risk of financial loss being caused if counter party fails to discharge an obligation.
Credit risk arises from deposits with banks and financial institutions, trade debts, loans, advances, deposits, bank guarantees
a n d other receivables. The credit risk on liquid funds is limited because the counter parties are banks with a reasonably high
credit rating or mutual f u n d s w h i c h in turn are d e p o s i t e d in b a n k s a n d g o v e r n m e n t securities. T h e Group maintains internal
policies to place funds with commercial banks/mutual funds having a m i n i m u m short term credit rating of A1 a n d A M 3 .
Engro Fertilzers Umited and Engro Eximp (Private) Limited is exposed to a concentration of credit risk on its trade debts by virtue
of all its customers being agri-based businesses in Pakistan. However, this risk is mitigated by applying individual credit limits
a n d by securing t h e majority of trade d e b t s against b a n k guarantees inland letter of credits a n d by t h e fact that the exposure
is spread over a w i d e c u s t o m e r base.
Engro Polymer & Chemicals Limited is not materially e x p o s e d to credit risk as unsecured credit is provided to selected parties
with no history of default. Moreover, major part of trade debts is secured by bank guarantees and letters of credit from customers.
199
(Amounts in thousand)
The Subsidiary C o m p a n y Avanceon Limited is exposed to a concentration of credit risk on its trade debts, w h i c h is mitigated
by a credit control policy and applying individual credit limits. The Subsidiary C o m p a n y is also e x p o s e d to the credit risk of
commercial b a n k s on a c c o u n t of a c c e p t a n c e of bank guarantees as security against trade d e b t s . T h e Subsidiary C o m p a n y
accepts bank guarantees of banks of reasonably high credit ratings as approved by the management.
The Subsidiary C o m p a n y Engro Foods IJmited a t t e m p t s to control credit risk arising on receivable f r o m Tetra Pak Pakistan
Limited t h r o u g h legally binding contracts that are signed between t h e t w o parties. The Subsidiary C o m p a n y is not materially
exposed to credit risk on trade debts as the Subsidiary C o m p a n y has the policy of receiving the sales value prior to or at the
t i m e of supply of the products and credit is only granted to f e w reputed customers with g o o d credit standings, with w h o m the
Subsidiary C o m p a n y has written terms of arrangement.
The Group monitors the credit quality of its financial assets with reference to historical performance of such assets and available
external credit ratings. The carrying values of financial assets which are neither past due nor impaired are as under:
2010 2009
(Rupees)
Loans a n d advances 1,723,784 1,226,222
Trade d e b t s 3,335,538 3,403,792
Other receivables 477,323 481,571
Short term investments 4,426,188 512,255
Bank balances 4,120,031 6,880,408
14,082,864 12,504,248
The credit quality of receivables can be assessed with reference to their historical performance with no or negligible defaults in
recent history, however, no losses incurred. The credit quality of G r o u p ' s bank balances can be assessed with reference to
external credit ratings as follows:
c) Liquidity risk
Uquidity risk represents the risk that the Group will encounter difficulties in meeting obligations associated with financial liabilities.
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through
an a d e q u a t e a m o u n t of c o m m i t t e d credit facilities. Due to d y n a m i c nature of t h e business, the G r o u p maintains flexibility in
funding by maintaing c o m m i t t e d credit lines available.
The G r o u p ' s liquidity management involves projecting cash flows a n d considering the level of liquid assets necessary to meet
these, monitoring balance sheet liquidity ratios against internal a n d external regulatory requirements a n d maintaining debt
financing plans.
The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the
balance sheet date to contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows.
201
(Amounts in thousand)
2010 2009
Maturity Maturity Maturity Maturity
upto after Total upto after Total
o n e year o n e year o n e year one year
-(Rupees)
Financial liabilities
Derivatives 1,040,829 805,154 1,845,983 740,043 632,777 1,372,820
Trade a n d other payables 9,092,435 9,092,435 7,014,005 7,014,005
A c c r u e d interest / m a r k - u p 2,619,453 2,619,453 1,800,428 1,800,428
Liabilities against assets
subject to finance lease 13,310 18,998 32,308 18,246 20,587 38,833
Borrowings 21,259,562 89,151,849 110,411,411 3,678,441 84,142,153 87,820,594
Unclaimed dividends 180,630 180,630 102,099 102,099
34,206,219 89,976,001 124,182,220 13,353,262 84,795,517 98,148,779
The Group manages its capital structure and makes adjustments to it in the light of changes in e c o n o m i c conditions. To maintain
or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares.
The regulatory regime in w h i c h the Group operates, renders the value of the equity to a b o n d given the guaranteed ROE of 1 5 %
with an indexation allowed under the Power Purchase Agreement for changes in US $ / PKR exchange rate.
The m a n a g e m e n t seeks to maintain a balance between higher returns that might be possible with higher levels of borrowings and
the advantages a n d security afforded by a s o u n d capital position.
The G r o u p ' s strategy is to ensure c o m p l i a n c e with the Prudential Regulations issued by t h e State Bank of Pakistan a n d is in
a c c o r d a n c e with agreements executed w i t h financial institutions so that t h e total long t e r m b o r r o w i n g s to equity ratio d o e s not
exceed the lender covenants. The total long term borrowings to equity ratio as at December 3 1 , 2 0 1 0 a n d 2 0 0 9 are as follows:
2010 2009
(Rupees)
Total Long Term Borrowings 104,695,636 86,517,828
Total Equity 34,115,012 29,344,395
138,810,648 115,862,223
The Group finances its operations through equity, borrowings and m a n a g e m e n t of w o r k i n g capital w i t h a view to maintaining an
appropriate mix between various sources of finance to minimise risk.
4 6 . Segment reporting
A Business segment is a group of assets a n d operations engaged in providing products that are subject to risk a n d returns that
are different from those of other business segments.
Type o f s e g m e n t s Nature of b u s i n e s s
Fertilizer Manufacture, purchase and market fertilizers.
Polymer Manufacture, market and sell Polyvinyl Chloride (PVC), PVC compounds, Caustic soda and related chemicals.
Food Manufacture, process a n d sell dairy and other food products.
Power Includes Independent Power Projects (IPP)
Other operations Includes engineering a n d automation businesses.
203
Fertilizer Polymer Food Power Other operations Elimination - net Consolidated
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Segment profit after tax / (loss) 5,842,073 3,993,564 (770,281) (193,696) 176,860 (434,599) 1,099,583 (141,595) 272,812 24,594 (180,045) 470,534 6,441,002 3,718,802
Segment assets 103,137,514 94,179,878 24,157,962 22,799,495 14,030,946 9,004,026 19,075,705 16,164,759 32,113,990 1,181,901 (28,247,170) (11,724,463) 164,268,947 131,605,596
Investment in joint venture /
associate (note 8) 509,505 499,780 509,505 499,780
Total segment assets 103,137,514 94,179,878 24,157,962 22,799,495 14,030,946 9,004,026 19,075,705 16,164,759 32,113,990 1,181,901 (27,737,651) (11,224,633) 164,778,452 132,105,376
Total segment liabilities 88,366,216 67,272,354 17,172,102 16,403,852 8,486,607 5,633,878 14,378,817 12,593,457 5,011,202 1,052,812 (2,751,504) (195,372) 130,663,440 102,760,981
Depreciation (note 4.2) 791,117 686.456 1,016,117 519.802 713,640 511.955 384,688 10.377 47.596 29.972 24,436 (2.840) 2,977,594 1.755.722
Amortization of intangibles (note 7.1) 19.111 14.808 4.764 3.701 14.160 7.793 fi.361 831 1.574 815 (32?) 45.970 27.626
(Amounts in thousand)
J o i n t Ventures
Purchase of services 1,030,972 1,564,559
Services rendered 1,504 3,829
Others
Dividends paid 19,446 50,195
Right shares issued (including share premium) 314,732
Remuneration of key management personnel 419,763 396,412
48. Donations
Donations include the following in w h i c h a director or his s p o u s e is interested:
Interest Name and address 2010 2009
in D o n e e of D o n e e
-(Rupees)-
Mr. Zafar A. Siddiqui President Rotary Club of Karachi Metropolitan 230
Mr. Hussain D a w o o d Director Pakistan Centre for Philanthropy 850
Mr. Hussain D a w o o d Chairman Karachi Education Initiative 150 13,000
a n d Mr. A s a d Umar Director
Mr. A s a d Umar and Member Lahore University of Management
Mr. Shahzada D a w o o d Sciences, Lahore 300
Mr. A s a d Umar a n d
Mr. Khalid Siraj Subhani Engro Foundation 71,040
71,190 14,380
205
(Amounts in thousand)
* Actual production w a s below the designed annual capacity due to planned s h u t d o w n s as per market d e m a n d for N P K p r o d u c t s .
49.1 Urea plant also p r o d u c e d 611 metric tons (2009: 561) of Uquid A m m o n i a for outside sale.
49.2 The new V C M plant with a capacity of 220,000 Metric tons c o m m e n c e d commercial production from September 3 0 , 2 0 1 0 .
The fire destroyed a substantial portion of its hard c o p y records related to the financial years 2 0 0 5 , 2 0 0 6 a n d the period January
0 1 , 2 0 0 7 to August 19, 2 0 0 7 although, electronic data remained intact due to the Company's Disaster Recovery Plan. The Holding
C o m p a n y launched an initiative to recreate significant lost records a n d w a s successful in gathering t h e s a m e in respect of the
financial year 2 0 0 7 . Hard c o p y records related to the already reported financial years 2 0 0 5 a n d 2 0 0 6 have not been recreated.
- an increase in the authorised share capital of the Holding C o m p a n y from Rs. 3,500,000 to Rs. 4 , 5 0 0 , 0 0 0 ;
- a final cash divided of Rs. 2 . 0 0 per share (2009: Rs. 2.00 per share final c a s h divided);
- a b o n u s issue in t h e ratio of 1 share for every 5 shares held i.e. 2 0 % b o n u s ( 2 0 0 9 : 1 share for every 10 shares held i.e.
1 0 % bonus); a n d
- an investment of Rs. 5 6 2 , 0 0 0 in Engro Polymer & Chemicals Umited by w a y of subsicription of right shares.
207
financials at a qlance
(Million Rupees) 2010 2009 2008 2007 2006 2005 2004 2003 2002
Net sales Revenue 79,976 58,152 40,973 34,120 20,240 18,756 13,067 12,010 10,893
Operatin Profit 11,983 7,278 6,608 4,399 2,821 3,308 2,642 2,885 2,327
Profit Before tax 8,277 5,062 5,184 3,952 2,917 3,260 2,811 2,709 1,989
Profit after tax* 6,790 3,807 4,126 2,877 2,107 2,279 1,719 1,595 1,156
Employee c o s t s 4,836 3,134 2,456 1,922 1,284 860 828 756 668
Worker's Funds 493 423 458 360 253 215 156 167 112
Property, Plant
a n d Equipment 130,373 111,526 59,169 24,052 10,794 7,608 7,159 7,234 7,194
Capital Expenditure 21,152 53,893 36,213 11,081 1,149 1,088 523 402 823
Total Assets 164,778 132,105 80,801 48,973 20,054 14,397 13,538 13,024 14,288
Long Term Borrowings 89,152 84,142 40,738 18,284 2,382 2,900 2,592 3,236 3,322
Net Current Assets (4,055) 3,953 8,382 15,077 4,946 2,354 1,722 1,903 804
Dividends A n d Share
Total Equity 34,115 29,344 23,547 18,006 9,796 7,540 6,791 6,298 5,334
Share Outstanding
at year e n d (in Million) 327 298 213 193 168 153 153 153 139
D M d e n d Per Share (Rs) 6.0 6.0 6.0 7.0 9.0 11.0 8.5 8.0 7.5
Dividend Payout Rate 29% 47% 31% 45% 72% 74% 76% 77% 90%
and holder of
(Number of Shares)
of or failing him
of
as my proxy to vote for me a n d on my behalf at the annual general meeting of the C o m p a n y to be held on the 31 st day of March, 2011
a n d at any adjournment thereof.
WITNESSES:
1) Signature :
Name :
Address :
CNICor :
Passport No.:
Signature
Signature should agree with the specimen
2) Signature
registered with the Company
Name
Address
C N I C or :
Passport N o . :
Note:
Proxies in order to be effective, must be received by the C o m p a n y not less than 48 hours before the meeting. A Proxy need not be a
C D C Shareholders a n d their proxies are each requested to attach an attested p h o t o c o p y of their Computerized National Identity Card
or Passport with this proxy form before submission to the Company.
209
111-211-211
engro.com