31st October 2014
9M 2014 BUSINESS REVIEW
F INANCIAL H IGHLIGHTS – 9M 2014
Notes: 1 - Subsidiary profit-after-tax numbers are reported at 100%, Engro Consolidated profit-after-tax numbers excludes non-controlling interest
2 - Includes losses of 559m pertaining to Discontinued Operations i.e. Engro Foods Canada
Revenue increased by 14% vs same period last year mainly driven by higher Urea and DAP sales
Turbulence in the international commodity prices affected the Ethylene-PVC price delta in the petrochemical business, AMF inventory in the Foods business, and a bearish rice market coupled with an unprecedented appreciation in the PKR / USD exchange rate, resulted in decrease in PAT by 23% vs last year
Rs. Million Revenue PAT 1
Business YTD 2014 YTD 2013 YTD 2014 YTD 2013
Engro Fertilizers 43,692 34,422 5,511 3,234
Engro Foods 31,020 28,023 2522 1,240
Engro Polymer 17,147 18,137 (33) 552
Engro Powergen Qadirpur 9,262 8,074 1,553 1,578
Engro Eximp 21,233 18,817 (2,693) (442)
Engro Vopak 1,547 1,485 1,027 890
Engro Corporation (Consolidated) 122,397 107,764 4,441 5,731
FERTILIZERS
3
2013 Business Results
2014 Business Results
FERTILIZERS – UREA MARKET
Urea Industry (MT)
9M 2014 9M 2013
Production 3.6 3.5
Sales 4.1 4.2
Imports 0.4 0.4
Domestic Urea production rose by 1.7% YoY due to better gas supply to the industry
Industry sales slipped by 2.3% in 9M 2014 as compared to 9M 2013 mainly on account of 2Q 2014 which was a weak demand period because of:
• GoP price equalization between imported and local urea which led to temporary dealer uncertainty on margins
• Slight delay in wheat harvest limited window for early BT cotton sowing
Limited domestic production and delayed imports have placed the market in a tight supply situation and imports are crucial to meet Rabi demand
International urea prices averaged USD 323/ton (CFR Karachi) in 9M 2014, equivalent to local cost of PKR 2,300/bag (inclusive of ancillary charges) vs local average price of PKR 1,796/bag. Local prices are now PKR 1,813/bag after PKR 25/bag hike effective July 03, 2014
Current China price, CFR Karachi stands at USD 319/ton vs a low of USD 282/ton in Jun’14. Recent recovery in international prices is on account of calls from Chinese Fertilizer Association not to sell below cost
Benefit passed on by local urea producers to the farmers in 9M 2014 is around PKR 27 B
2013 Business Results
2014 Business Results
FERTILIZERS – BUSINESS H IGHLIGHTS
1,332 1,322
1,065 1,066
Production (KT) Sales (KT)
Urea Operations
9M 2014 9M 2013 EFert continued to receive uninterrupted gas supply to run both of its
plant during 9M 2014. Gas supply from SNGPL, however, was reduced in May 2014 from 17 MMSCFD to 6 MMSCFD due to diversion to the power sector and is expected to remain at current levels through winter months in 4Q
9M 2014 Urea production was 1,332 KT (+25% YoY) due to continuous operation of both urea plants
9M 2014 Urea sales were 24% higher on a YoY basis at 1,322 KT which increased the company’s urea market share to 32% from 26%
Profitability led by higher production/sales and lower financial cost, partly offset by higher gas cost (due to incomplete pass through of GIDC hike in Dec’13)
Fuel GIDC was hiked by PKR 50/MMBTU to PKR 150/MMBTU effective July 1, 2014
In Aug’ 14, the Supreme Court deemed the GIDC Act 2011 as unconstitutional. Subsequently, the Government appealed the decision and also re-imposed GIDC under a Presidential Ordinance. Stay order has been obtained by EFert
2013 Business Results
2014 Business Results
FERTILIZERS – BUSINESS H IGHLIGHTS (CONTD.) Gas Update
Engagement continues with Mari and SNGPL for implementation of concessionary gas price arrangement. Substantial progress has been made by the company on attainting its contractual obligation of feed gas pricing at 70 cents for Enven
Implementation is expected shortly where EFert awaits endorsement from OGRA
There has been no progress on Long Term Gas / KPD Allocation to fertilizer sector
Other Highlights
EFert has met its lenders covenant of repayment of 33% of Senior Debt (outstanding as at June 2012) prior to dividend payment, during 3Q 2014
IFC has USD 15 M (on ECorp) and USD 9 M (on EFert) share conversion options related to two of their loans. During April 2014, IFC exercised its option and converted USD 7 M in ECorp shares and in July 2014 also converted USD 5 M in EFert shares. IFC is likely to exercise the remaining options in due course
2013 Business Results
2014 Business Results
FERTILIZERS – BUSINESS H IGHLIGHTS (CONTD.)
Phosphates Business
In 9M 2014 international DAP prices averaged USD 453/Ton (CFR Karachi) - 11.4% lower YoY. SOP prices averaged USD 567/ton (FOB) - 3.3% higher YoY
The domestic DAP market grew by 5% in 9M 2014 while the Potash market grew 39%
PKR 14 B subsidy on phosphate and potash fertilizers (PKR 400/bag for DAP and SOP) announced by the Government in Finance Bill 2014 seems unlikely to be implemented by the year-end
Given upcoming peak season and subdued dealer purchases earlier in the year, industry is expecting to rebound in 4Q
EXIMP was able to achieve healthy margins during 9M 2014 due to correctly timing the purchases when the prices were low
EXIMP sold 202 KT of DAP during 9M 2014 vs 174 KT during same period last year
Higher volumes and better margins resulted in strong performance for the commodity trading business
FOODS
8
2013 Business Results
2014 Business Results
28,085
2,634
25,889
2,266
Dairy & Juices Ice cream
Revenue (Rs. mn)
666
(122)
1,560
(136)
Dairy & Juices Ice cream
Profit After Tax (Rs. mn)
9M 2013 9M 2014
FOODS – BUSINESS H IGHLIGHTS Dairy & Juices Revenue increase of 8% vs same period in 2013
Volumetric increase of 7% in dairy and beverages segment vs. 9M 2013 as
operational challenges were overcome while an estimated 11% growth in total UHT industry vs. 9M 2013 was witnessed
Gross margins have decreased mainly due to higher milk prices which were not passed on to consumers due to market environment and price cut taken on Tarang
Olpers has regained its lost ground and witnessing volumetric growth
UHT Market share as per Nielsen was over 50%
Ice Cream & Frozen Desserts Volume increase of 21% vs 9M 2013
Omore’s market share rose to 28% vs. 25% in 9M 2013
2013 Business Results
2014 Business Results
FOODS – BUSINESS H IGHLIGHTS (CONTD.)
Fresh Dairy
16 “Mabrook” outlets are operational while 24 outlets are in development phase
Engro Foods Canada - Discontinued
After a strategic review Company has decided to exit its Canadian operations so focus could be achieved in growing local operations where opportunities are enormous
Have entered into a Share Purchase Agreement (SPA) with a Canadian registered company for sale
of its North American businesses Subject to satisfaction of all conditions precedent as set out in the SPA, it is expected that the
transaction shall completed during first half of November 2014. As a result, a one-off pre-tax impairment charge of PKR 438 million has been recorded in 3Q 2014, taking the YTD loss to
PKR 559million
RICE
11
2013 Business Results
2014 Business Results
32.7
17.9
20.8
28.7
9M 2014 9M 2013
Sales Volume (kt)
Export Domestic
6,425
4,684
9M 2014 9M 2013
Revenue PKR (mn)
(3,311)
(834)
9M 2014 9M 2013
PAT PKR (mn)
R ICE – BUSINESS H IGHLIGHTS
Despite significant increase in paddy (raw material) prices in 4Q 2013, international rice prices did not increase in line with paddy prices due to:
Middle Eastern governments implementing strict price controls and buyers
reluctant to commit volumes Iran’s import volumes fell from 120KT per month in Nov 2013 – Feb 2014 to 55KT
levels between Mar 2014 - May 2014 which depressed both Indian and Pakistani basmati prices
Excess supply and significant build up of inventory in both India and Pakistan
The unusual PKR appreciation hit export margins and also affected local rice prices
Due to the above reasons, the Rice business incurred a loss of PKR 3,311 M in 9M 2014
vs. PKR 834 M in 9M 2013
YTD 2014, Muridke Plant husked 72KT of paddy and processed 7.7KT of rice
Business exported 32.7KT of rice during the period - a growth of 83% year-on-year. Local sales for the period were 20.8KT vs 28.7KT during the corresponding period in 2013
Management is re-evaluating the scale of the rice business, changing the business model
to reduce the exposure to commodity price volatility and focusing on reduction of fixed costs
2013 Business Results
2014 Business Results
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
PK
R/T
on
R ICE – H ISTORICAL PRICES*
*Local Super Basmati UFR White Prices
PETROCHEMICALS
14
2013 Business Results
2014 Business Results
PETROCHEMICALS – BUSINESS H IGHLIGHTS 9M 2013 9M 2014
109 115 87 106
124 85
PVC VCM Caustic Soda
Production (KT)
91
69
105
73
PVC Caustic Soda
Domestic Sale Volume (KT)
17,147
18,137
Revenues
(33)
552
PAT
Ethylene prices remained firm due to tight supply driven by cracker shutdowns and relatively lower supplies from Middle East whereas PVC price was restricted by excess availability of carbide based material from China
Lower sales volume for both PVC and caustic soda coupled with lower
margins, higher gas price and lower exchange rate heavily impacted the bottom line
5% regulatory duty imposed during 3Q on imports of Ethylene and EDC by Federal Board of Revenue (matter is being pursued with relevant Government authorities for recourse)
15 KT p.a. PVC debottlenecking project completed in 3Q increasing the PVC annual capacity to 171KT
In 3Q 2014, company achieved market share of 72.3%
* Market share is based on our best estimates and have not been verified by an independent source
POWER
16
2013 Business Results
POWER – BUSINESS H IGHLIGHTS Net Electrical Outage was higher in 9M 2014 vs. 9M 2013 due to lower
accumulated outage
Billable Availability Factor was lower due to outages (mainly due to issues at OGDCL’s end)
EPQL achieved a PAT of PKR 1,553 M in 9M 2014 vs. PKR 1,578 M in the comparative period
Total receivables from PEPCO stood at PKR 3,129 M as at Sep 30, 2014 vs. PKR 1,416 M as at December 31, 2013 due to a buildup of circular debt
Offer for Sale
ECorp along with EPowergen successfully offered 25% of its share capital (80.95 M shares at a price of Rs 30.02 per share) through an equal combination of private placement and initial public offer
The shares have been duly allotted to the successful investors and EPQL has been formally listed on KSE on 27th October
2014 Business Results
1,300 1,261
9M 2014 9M 2013
Net Electrical Outage (GWh)
93.60 %
90.60%
9M 2014 9M 2013
Load Factor
100% 100.5%
9M 2014 9M 2013
Billable Availability Factor
CHEMICAL STORAGE & HANDLING
18
2013 Business Results
2014 Business Results
9M 2014
9M 2013
1,547 1,485
Revenue (Rs. Mn)
CHEMICALS STORAGE & HANDLING
1,027 890
PAT (Rs. Mn)
Engro Vopak Terminal Company continues to perform well due to its unique position in the chemical handling
industry
Profits have increased primarily due to exchange gain of 25mn in 9M 2014 vs. exchange loss of 85mn in 9M 2013
LNG Update Work on the fast track LNG terminal is on schedule to achieve commissioning by the due date
i.e. 31 March 2015
Expected to be one of the fastest implementations of a LNG terminal anywhere in the world and at one of the most competitive rates available globally
SINDH ENGRO COAL MINING CO.
20
2013 Business Results
2014 Business Results
SECMC Update
As of 30th September 2014, Engro’s holding in SECMC is 26%. However, management control
remains with Engro Coal tariff rules and framework being finalized and as soon as the rules are notified coal tariff
petition will be submitted to TCEB which are expected this month
1M BCM have been removed by local OB contractor. As per current rate 3M BCM job would be finished by March 2015 (as per original contract duration of 9 months)
SECMC has acquired possession of 6,000 acres of land including 3,842 acres held by private
landowners. Payments are being made to the landowners against the awarded land
Financial close for the Project is expected by June 2015
2013 Business Results
Q & A
2014 Business Results