Engro Fertilizers Limited is serving farmers and the nation for more than 50 years.

Our range
of products are spread over a wide spectrum. Our services besides agriculture, also cover
education, health, livelihood and environment. Through our significant initiatives in different
sectors of the economy, we have made sure that farmers are rewarded for their efforts, and
Pakistan continues its journey on the road of progress and prosperity. With the spread of our
© 2019, Engro role, the trust between Engro and the people of Pakistan has steadily grown, enabling us to
All Rights Reserved. No part of this publication may be reproduced realize milestones of success, together!
without the prior written permission of the publisher.
about the annual report Overview
Throughout this report we focus on the relationships between factors, both external and internal, that enable
Engro Fertilizers Limited to create value.
Our annual integrated report provides a holistic assessment of the group’s ability to create value. This report
also includes information with non-financial aspects which, if not managed, could have a material impact on our
performance as well as on our business.
The Annual Report is developed for a wide range of stakeholders, including employees, local communities,
non-governmental organizations (NGOs), customers and government. The aim of our integrated reporting
approach is to enable our stakeholders to make a more informed assessment of the value of Engro Fertilizers
Limited and its prospects.
This Annual Report also forms part of our communication on the efforts towards implementing and promoting 10
Principles of the United Nations Global Compact and United Nations Sustainable Development Goals (SDGs).
Scope and Boundaries of this Report
Engro Fertilizers Limited Annual Report covers the reporting period from January 1, 2019 to December 31, 2019
and provides an overview of the operations of Engro Fertilizers Limited and its subsidiaries.
Reporting Framework
This Report has been prepared in compliance with the following frameworks:
• The accounting and reporting standards as applicable in Pakistan comprise:
– International Financial Reporting Standards (IFRS Standards), issued by the International Accounting
Standards Board (IASB) as notified under the Companies Act, 2017; and
– Provisions of and directives issued under the Companies Act, 2017.
• Where the provisions of and directives issued under the Companies Act, 2017 differ from IFRS Standards, the
provisions of and directives issued under the Companies Act, 2017 have been followed.
• Integrated Reporting (IR) framework issued by the International Integrated Reporting Council (IIRC).
• Reporting requirements of Companies Act 2017, Listed Companies Code of Corporate Governance, 2018 and
Listing Regulations of the Pakistan Stock Exchange (PSX).
• Best practices on Corporate Reporting as promoted by Joint Committee of Institute of Chartered Accountants
of Pakistan (ICAP) and Institute of Cost and Management Accountants of Pakistan (ICMAP) and South Asian
Federation of Accountants (SAFA).
External Assurance

Review Report on Compliance with Code of A. F. Ferguson & Co. Chartered Accountants
Corporate Governance
Independent Auditor’s Report on the Audit of A. F. Ferguson & Co. Chartered Accountants
Financial Statements
Independent Auditor’s Report on the Audit of A. F. Ferguson & Co. Chartered Accountants
Consolidated Financial Statements
Independent Assurance Report on Statement A. F. Ferguson & Co. Chartered Accountants
of Compliance with the Sukuk (Privately
Placed) Regulations, 2017
Entity’s Credit Rating Pakistan Credit Rating Agency

Board’s Approval
The Board of Directors of Engro Fertilizers Limited acknowledges its responsibility to ensure the integrity of this
Annual Report. The Directors’ Review Report and statutory financial statements included in the report have been
approved by the Board for circulation in its meeting held on February 17, 2020.
We are passionate about
transforming the agricultural
landscape, bringing
change and helping the
farmers grow.
 contents
company overview financial review

11 Company information
12 2019 at a glance
13 Notice of annual general
meeting
103 Chairman’s review
106 CEO’s review
108 Key highlights

15 2019 - a year of achievements

17 Where it all began
19 Accelerating forward
109 2019 a defining year
111 Directors’ report to the
shareholders
127 Forward looking
statement

21 Building a legacy

23 Core values

24 Code of conduct
129 Quarterly analysis
133 Horizontal and vertical
analysis
139 Financial information
summary

Business rationale of

25 Ownership structure and

relationship with group
companies 27 Overview of group
companies
31 Board of directors
140 Financial ratios
142 major capital
expenditure and
projects
- Economic value added
- Free cash flows
143 Six years analysis

33 39 41 151 Statement of value

153 154
- Composition of local vs
Directors’ profiles Management team Organizational structure addition and imported materials Cash flow statement
distribution - Foreign currency sensitivity - direct method
analysis

43 Portfolio
59 Leadership competency
model
60 SWOT analysis
financial statements

61 Significant factors
affecting the external
environment 63 Competitive landscape
and market positioning
65 Our business model
158 Auditor’s report on
consolidated
financial statements 163
Consolidated financial
statements for the year
ended December 31,
2019

67 Value chain
69 Strategic objectives
71 Resource allocation plan

224 Auditor’s report on

standalone financial
statements 229
Standalone financial
statements for the year
ended December 31,
2019

73 Our approach to risk

management and our
top risks
other information

corporate governance 287 Shareholder information

289 Pattern of
shareholding
294 Categories of
shareholding

81 Board committees
82 Functional committees
83 Our governance framework

295 Key shareholding

and shares traded
300 Proxy form

302 Standard request form

Statement of compliance

91 Stakeholders’ engagement
policy
92 Report of audit committee
95 with code of corporate
governance

Independent assurance
304 Electronic credit
mandate form
305 Electronic credit
mandate form (urdu)
307 Standard request
form (urdu)

Auditor’s review report on Statement of compliance report on statement of

97 statement of compliance
with code of corporate
governance 98 with the sukuk (privately
placed) regulations, 2017
99 compliance with the sukuk
(privately placed)
regulations, 2017 309 Proxy form (urdu)
324 Directors’ report
(urdu)

07 engro fertilizers limited annual report 2019 08

 company information 2019 at a glance
• Urea sales of 435 KT
• Phosphates sales of 85 KT
BOARD OF DIRECTORS
Mr. Ghias Khan (Chairman)
Microfinance
Mobilink Microfinance Bank
Quarter 1 •
•
Revenue of PKR 23.7 B
Successful turnaround of enVen Plant
Mr. Nadir Salar Qureshi (Chief Executive) Telenor Microfinance Bank • Restructuring of Commercial Division
• EPS of PKR 3.0
Mr. Abdul Samad Dawood
Mr. Asad Said Jafar
Mr. Asim Murtaza Khan AUDITORS
Mr. Javed Akbar A. F. Ferguson & Co. • Urea sales of 452 KT
Mr. Hasnain Moochhala Chartered Accountants

Quarter 2
• Phosphates sales of 113 KT
Ms. Sadia Khan State Life Building No. 1-C, • Revenue of PKR 27 B
I. I. Chundrigar Road Karachi-74000, Pakistan • Successful turnaround of Base Plant
Tel: +92 (21) 32426682-6 / 32426711-5 • Establishment of separate Supply
CHIEF FINANCIAL OFFICER Fax: +92 (21) 32415007 / 32427938 Chain Division
• EPS of PKR 2.38
Mr. Imran Ahmed

REGISTERED OFFICE
COMPANY SECRETARY 7th & 8th Floor, The Harbor Front Building,
Ms. Schaane Ansari HC # 3, Marine Drive, Block 4, Clifton, • Official launch of Engro Logistics – Engro
Karachi-75600, Pakistan Fertilizers Limited’s venture into the
logistics paradigm

Quarter 3
Tel: +92 (21) 35297501-10
BANKERS Fax: +92 (21) 35810669 • 10 million commercial man hours achieved
• Secured second position for the best
Conventional Website: www.engrofertilizers.com
Corporate Report for 2018 in the Chemical
Allied Bank Limited www.engro.com
sector
Askari Bank Limited • Urea sales of 444 KT
Bank Al Habib Limited • Phosphates sales of 105 KT
Bank Alfalah Limited SHARE REGISTRAR • Revenue of PKR 27.1 B
Citi Bank N.A M/s. FAMCO Associates (Pvt) Limited • EPS of PKR 2.49
Deutche Investitions und 8-F, Near Hotel Faran, Block-6, PECHS,
Entwicklungsgesellschaft (DEG) Shahrah-e-Faisal, Karachi, Pakistan
Faysal Bank Limited Tel: +92 (21) 34380104-5, 34384621-3
Habib Bank Limited Fax: +92 (21) 34380106
Habib Metropolitan Bank Limited • Highest ever annual Urea production was
JS Bank Limited achieved
MCB Bank Limited • 1SAP go-live
National Bank of Pakistan • Won the 2019 Shared Value Award for

Quarter 4
Project PAVE
Samba Bank Limited
• Awarded Gold Medal at the Annual Strategic
Silk Bank Limited Forum at the IFA General Meeting, held in
Soneri Bank Limited Paris-Versailles
Standard Chartered Bank (Pakistan) Limited • Won in “Top 25 Companies of the Year
The Bank of Punjab before 2018” award in the PSX Awards
United Bank Limited • Won 6 awards at the Global Diversity and
Inclusion Benchmarks (GDIB) Awards
Shariah Compliant • Urea sales of 626 KT
Bank Islami Pakistan Limited • Phosphates sales of 242 KT
Al Baraka Islamic Bank (Pakistan) Limited • Revenue of PKR 43.6 B
• EPS of PKR 4.8
Dubai Islamic Bank (Pakistan) Limited
Meezan Bank Limited

11 engro fertilizers limited annual report 2019 12

 notice of annual
entities are requested to provide their NTN. While that city. The Company will intimate members
providing their CNIC / NTN, shareholders must regarding venue of video conference facility at
quote their respective folio numbers. The least five (5) days before the meeting along with
physical shareholders are requested to notify any complete information necessary to enable them

general meeting
change in their addresses to the share registrar to access such facility. In order to avail this
of the Company and in case of CDC facility please provide the following information to
shareholders to their broker (participant). our share registrar:
6) In compliance with section 150 read with Division
I of Part III of the First Schedule of the Income I / We, __________________ of ________________
Tax Ordinance, 2001 withholding tax on dividend being a member of Engro Fertilizers Limited, holder of
income will be deducted for ‘filer’ and ‘non-filer’
shareholders at 15% and 30% respectively. A __________ Ordinary Share(s) as per Register Folio
NOTICE IS HEREBY GIVEN that the Eleventh Annual General Meeting of Engro Fertilizers Limited (the ‘filer’ is a taxpayer whose name appears in the
“Company”) will be held at Karachi School of Business & Leadership, National Stadium Road, Opp. Liaquat Active Taxpayers List (ATL) issued by the FBR No. / CDC Account No. ______________ hereby opt for
National Hospital, Karachi on Tuesday, March 31, 2020 at 10:00 a.m. to transact the following business: from time to time and a ‘non-filer’ is a person video conference facility at _________________.
other than a filer. To enable the Company to
withhold tax at 15% for filers, all shareholders are
A) Ordinary Business 2) A member entitled to attend and vote at this
advised to ensure that their names appear in the
1) To receive, consider and adopt the Standalone meeting shall be entitled to appoint another
latest available ATL on FBR website, otherwise
and Consolidated Audited Financial Statements person as his / her proxy to attend, speak and
tax on their cash dividend will be deducted at ___________________
of the Company for the year ended December vote instead of him / her, and a proxy so
30% for non-filers. Withholding tax exemption
31, 2019 together with the Directors' and appointed shall have such rights, as respects Signature of Member
from the dividend income shall only be allowed if
Auditors' Reports, thereon and the Chairman’s attending, speaking and voting at the meeting as
a copy of valid tax exemption certificate is made
Review Report. are available to a member. Proxy forms, in order
available to the share registrar of the Company
to be effective, must be received by the Update under the Companies (Investment in
2) To declare, as recommended by the Directors, by the first day of book closure.
Company not less than forty-eight (48) hours Associated Companies or Associated
the payment of a final cash dividend at the rate of before the meeting. A proxy need not be a 7) The FBR has clarified that in case of joint Undertakings) Regulations, 2017
PKR 2 per share (20%) for the year ended member of the Company. account, each holder is to be treated individually
December 31, 2019. as either a filer or non-filer and tax will be Note relating to Engro Corporation Limited:
3) Pursuant to Companies (Postal Ballot)
3) To appoint Auditors for the year 2020 and fix their deducted on the basis of shareholding of each Engro Corporation Limited is the majority shareholder
Regulations 2018, for the purpose of election of
remuneration. The Members are hereby notified joint holder as may be notified by the of Engro Fertilizers Limited. In 2016, the shareholders
Directors and for any other agenda item subject
that the Audit Committee and the Board of shareholder, in writing as follows, to the approved a short-term loan / financing facility of up to
to the requirements of sections 143 and 144 of
Directors have recommended the name of Company’s share registrar, otherwise it will be PKR 6 billion for Engro Corporation Limited, which
the Companies Act, 2017, members will be
retiring auditors M/s A. F. Ferguson & Co. for assumed that the shares are equally held by the was initially for a period of one (1) year and renewal of
allowed to exercise their right of vote through
re-appointment as auditors of the Company. joint shareholders: the same for four (4) further periods of one (1) year
postal ballot, that is voting by post or through any
electronic mode, in accordance with the each. This short-term facility has not been utilized to
By the order of the Board requirements and procedures contained in the
Company
Name
Folio / CDS
Account No.
Total
Shares
Principal Shareholder Joint Shareholder
date since approval, however, it is being renewed as
aforesaid Regulations. earlier approved by the shareholders. There has been
Karachi Schaane Ansari Name & Shareholding Name & Shareholding
CNIC No. proportion CNIC No. proportion no material adverse change in the financial
4) In accordance with the provisions of section 242 No. of shares No. of shares
statements of Engro Corporation Limited since the
February 17, 2020 Company Secretary
of the Companies Act, 2017, a listed Company is approval of this facility.
required to pay cash dividend only through 8) In pursuance to Circular No. 10 of 2014 dated
electronic mode directly into the bank account May 21, 2014, if the Company receives consent
N.B. designated by the entitled shareholders. from members holding in aggregate ten percent
1) The Share Transfer Books of the Company will be Accordingly, the shareholders are requested to (10%) or more shareholding residing at
closed from Wednesday, March 25, 2020 to provide the information mentioned on an geographical location, to participate in the
Tuesday, March 31, 2020 (both days inclusive). E-Dividend Mandate Form available at the meeting through video conference at least seven
The transfers received in order at the office of the website of the Company to the share registrar. (7) days prior to the date of the meeting, the
Company’s share registrar, M/s. FAMCO The CDC account holders must submit their Company will arrange video conference facility in
Associates (Private) Limited, 8-F, Near Hotel information directly to their broker (participant) / that city subject to availability of such facility in
Faran, Block 6, PECHS, Shahrah-e-Faisal, CDC.
Karachi, PABX Nos. (92-21) 34380101-5 and 5) In accordance with the directives of the SECP,
email [email protected] by the close of the dividends of shareholders whose CNIC
business (5:00 p.m.) on Tuesday, March 24, copies have not been received by the Company
2020 will be treated to have been in time for the shall not be electronically credited until receipt
purposes of payment of final dividend to the thereof. Therefore, the individual shareholders
transferees and to attend and vote at the who have not submitted their CNIC copies are
meeting. requested to send the same at the earliest to the
share registrar of the Company. Corporate

13 engro fertilizers limited annual report 2019 14

15 engro fertilizers limited annual report 2019 16
 Our story begins with one company’s enterprising was established which undertook agronomic capacity upgrade at Daharki coincided with the project in 2007.
decision to strive ahead and invest when another had programs to educate farmers of Pakistan. As the employee led buyout in 1991. Engro also relocated The state-of-the-art plant enVen 3.0, stands tall at 125
bowed out. In 1957, Pak Stanvac – an Esso / Mobil nation’s first branded fertilizer manufacturer, the fertilizer manufacturing plants from the UK and US to meters – dubbed the tallest structure in Pakistan. The
joint venture – stumbled upon vast deposits rich in Company helped modernize traditional farming its Daharki plant site – an international first. Over the total cost of this expansion is approximately US $1.1
natural gas in Mari, while pursuing viable oil practices and boost farm yields, directly impacting years that followed, Engro Chemicals Pakistan Limited billion, with the expanded facility making Engro one of
exploration in Sindh. With Pak Stanvac focused the quality of life of the farmers and their families, and started venturing into other sectors namely: foods, the largest Urea manufacturers in Pakistan, besides
exclusively on oil exploration, the discovery shifted the the nation at large. Farmer education programs energy, chemical storage and handling, trading, substantially cutting the cost of Urea imports to
impetus to Esso, which decided to invest on the increased consumption of fertilizers in Pakistan, industrial automation, and petrochemicals. national exchequer.
massive industrial potential of Mari gas field. Esso paving way for the Company’s branded Urea called By 2009, Engro was fast growing and had already
proposed establishment of a giant Urea plant in “Engro” – an acronym for “Energy for Growth”. In 2013, the Company forayed into the capital markets
diversified its business portfolio in as many as seven to raise necessary capital required to fund
Daharki, about ten miles from the Mari gas fields, In 1978, Esso became Exxon as part of an different industries. The continuous expansions and
which would use natural gas produced as its primary development capex on securing additional gas
international name change. The Company was, diversifications in the Company’s enterprises supplies along with restructuring of the balance sheet
raw material to churn out Urea fertilizer. therefore, renamed Exxon Chemical Pakistan Limited. necessitated a broad restructuring in Engro to optimize the capital structure of the Company. The
Talks with the Government of Pakistan bore fruit in In 1991, Exxon decided to divest its fertilizer business Chemicals Pakistan Limited, which subsequently IPO was a roaring success, oversubscribed four times
1964 and an agreement was signed allowing Esso to on a global basis. The employees of Exxon Chemical demerged to form a new Engro subsidiary – Engro in the book building process whilst being
set up a Urea plant with an annual capacity of Pakistan Limited – in partnership with leading
Fertilizers Limited. oversubscribed for three times at the time of public
173,000 tons. Esso brought in state-of-the-art design, international and local financial institutions – bought After the necessary legal procedures and approvals, issue.
commercially tried facilities, and a highly out Exxon’s 75% equity. This was, and perhaps still is, the Sindh High Court sanctioned the demerger on
distinguished pool of technical expertise to ensure a In 2019, the Company has ventured into logistics
the most successful employee buy-out in Pakistan’s December 9, 2009. The demerger became effective space with 135 plus trucks in service, aiming to
smooth start up. Total investment made was US $46M corporate history. Renamed Engro Chemicals from January 1, 2010. Subsequently, all fertilizer
– the single largest foreign investment in Pakistan to deliver “movement with precision”.
Pakistan Limited, the Company went from strength to business assets and liabilities have been transferred
date then. strength with its consistent financial performance, to Engro Fertilizers Limited against the issue of shares As we forge ahead, we aim to build on our world-class
The plant started production on December 4, 1968. growth of its core fertilizer business, and to the parent company, Engro Corporation Limited. experience of five decades to forward our vision of
diversification into other enterprises. A major plant transforming the agricultural landscape of Pakistan.
To boost sales, a full-fledged marketing organization The Company undertook its largest Urea expansion

17 engro fertilizers limited annual report 2019 18

 accelerating forward

Head Office
Daharki Plant
Zarkhez Plant

Zonal Sales Offices:

Central
South
North

Warehouse

S. No. Description Address

1 Head Office 7th & 8th Floor, Harbor Front Building, Marine Drive, Block 4, Clifton, Karachi
2 Daharki Plant Daharki, District Ghotki, Sindh
3 Zarkhez Plant EZ/ 1 / P – 1 – II Eastern Zone, Port Qasim, Karachi
4 Zonal Office - North 4th Floor, 19-A, Ali Block, New Garden Town, Lahore
5 Regional Office - Faisalabad 3rd Floor, Liaqat Road, Mezan Executive Tower, Faisalabad
6 Regional Office - Sahiwal Alayan Centre ,Police Line Road, Sahiwal
7 Regional Office - Gujranwala Al Hamd Plaza, U Market, City Housing Society, Gujranwala
8 Zonal Office - Central 3rd Floor, Mehr Fatima Tower, Opp. High Court, Old Bahawalpur Road, Multan
9 Regional Office - Bahawalpur Awaisi Plaza , Plot # 14-D, Aziz Bhatti Shaheed Road, Model Town 'A'
10 Regional Office - Daharki Marketing Office Daharki Plant
11 Regional Office - DG Khan Taunsa Road, Chowk Chobara, Dera Ghazi Khan
12 Zonal Office - South 6th Floor, State Life Building, Thandi Sadak, Hyderabad
13 Regional Office - Nawabshah Near Bilawal Stadium, Main Kazi Ahmed Road, Nawabshah
14 Regional Office - Sukkur Plot # E 37, Pak Memon Cooperative Housing Society, Old Arain Road

19 engro fertilizers limited annual report 2019 20

 building a legacy

1957 1968 1992 2007 2011 2015 2016 2019

Mari gas field Urea plant Relocation of Started construction of enVen capitalized and Highest ever Achieved lowest ever Highest ever
discovered by Esso commissioned. world-scale ammonia world’s largest started commercial production of Urea Total Recordable consolidated revenue
Mobil joint venture. and Urea plants single-train Urea plant production. (1968 KT) as well as Injury Rate of 0.05. (PKR 121 billion).
1991 (PakVen 600) from - enVen. highest ever Urea Achieved highest ever Highest ever Urea
1964 Exxon divests its USA and UK – 2013 sales (1878 KT). phosphates sales of production (2,003 KT).
equity from fertilizer capacity enhancement 2010 Successful IPO Only fertilizer 534 KT.
Signed agreement Best ever safety at
business globally; the 278 KT to 600 KT. Demerger of Engro conducted and company registered
with the government to Daharki Plant TRIR of
set up a Urea plant company is renamed Chemicals Pakistan oversubscribed 3x with Dupont to achieve 2018
1998 0.03.
with an annual as Engro Chemicals Limited and transfer of during the process. a Level 4 rating in 2nd highest ever
capacity of 173,000 Pakistan Limited Debottlenecking of fertilizer business to a Safety Management Successful Go-live of
consolidated revenue
tons. through an employee relocated plants – separate company. 2014 Systems Acquisition of SAP S4 / HANA.
(PKR 109 billion).
led buyout. capacity enhancement Engro Fertilizers Achieved highest ever Engro Eximp’s Stepped into the
from 600 KT to 850 KT Limited. Engro Phosphates business. Highest ever fertilizer
1965 Urea sales in the logistics paradigm
by 1998 and further Chemicals renamed sales (2,834 KT).
The company was history of Engro aiming to deliver
enhancement to 950 Engro Corporation Fertilizers Limited of Engro Fertilizers “movement with
incorporated as Esso
KT by 2006. Limited. 1,818 KT Limited marketing precision”.
Pakistan Fertilizer
Limited to consequently resulting team is the only team
manufacture and in highest ever market in Pakistan to achieve
market fertilizers. share of 32% for Urea a Dupont Level 4 rating
in 2014. in Safety Systems.
21 engro fertilizers limited annual report 2019 22
 core values code of conduct
Managing Business Soliciting
Relationships Customers,
Employees’ dealings with Suppliers, Vendors
customers, suppliers,
contractors, competitors, or any and Contractors
person or organization doing or
Employees will not solicit vendors
seeking to do business with the
Has impeccable character and lives Company (our business
and suppliers, or avail offers for
anything of value which could be
by highest standards of integrity interfaces) must be in the best
perceived to create obligations in
interest of the Company, must
and accountability. exclude any consideration of
order to keep, increase or obtain
Engro business. Actions that
personal preference or
might involve a conflict of
advantage, and must avoid
interest, or the appearance of
conflicts of interest, apparent or
one, will be disclosed to senior
otherwise.
management.

Empowerment with Promoting a Our Commitment to

Accountability Positive Work Engro’s
Each Engro employee is Environment Stakeholders
responsible for his / her own
behavior and will be held To ensure a workplace where We will adhere to the highest
Cares deeply about environmental accountable for it. We are employees feel safe, respected, ethical standards, foster trust,
responsible for complying with all and appreciated, we will attract, and always act in the best
impact and safety of people. induct, develop, retain, and interest of our shareholders, our
applicable laws and company
policies & procedures. motivate high caliber talent who customers, our families, our
are qualified, capable, and vendors / suppliers, the
willing to contribute towards the communities where we operate
achievement of Company in, and each other.
objectives.

Legal Compliance Protecting

When taking decisions to
conduct business, employees
Company’s Assets
must ensure they are aware of We must use the Company’s
their actions and choose not to physical assets / equipment
violate the law. carefully and diligently, and take
Nurtures passion to serve country, steps to protect our Company’s
proprietary and confidential
community and company, with information.
strong belief in the dignity
and value of people.

23 engro fertilizers limited annual report 2019 24

 ownership structure
and relationship with group companies

Dawood Hercules
Corporation Limited

Engro Corporation Limited

Engro Elengy Terminal Engro Eximp Engro Vopak FrieslandCampina Engro

Engro Infiniti Engro Energy Engro Polymer Engro Eximp FZE Pakistan Limited
Fertilizers Pakistan Agriproducts Terminal
Limited
(56.3%)

Engro
Fertilizers Enfreshare (Private)
Engro Digital
Limited Limited
Agritrade
(100%)

Engro Powergen Engro Energy Engro Powergen

Sindh Engro Coal Mining Co Siddiqsons Energy
Thar (Pvt) Ltd Services Qadirpur

Ultimate Parent Company Company

Parent Company Subsidiaries Associates / JV

25 engro fertilizers limited annual report 2019 26

 overview of
group companies Engro Eximp Agriproducts (Private) Limited (EEAPL) is a private limited company incorporated in Pakistan. The
principal activity of EEAPL is to produce, manufacture and trade all kinds of raw, processed and prepared food
products, including agriculture, dairy and farming products.

Engro Corporation Limited (the Parent Company) is a public listed company incorporated in Pakistan and its
shares are quoted on Pakistan Stock Exchange Limited. The Parent Company is a subsidiary of Dawood Engro Vopak Terminal Limited (EVTL), a joint venture of the Holding Company, is a public unlisted company
Hercules Corporation Limited (the Ultimate Parent Company). The principal activity of the Parent Company is to incorporated in Pakistan. EVTL is a joint venture of the Holding Company and Royal Vopak Netherlands B.V.
manage investments in subsidiary companies, associated companies and joint ventures, engaged in fertilizers, EVTL has been granted the exclusive concession right and license to design, finance, insure, construct, test,
PVC resin manufacturing and marketing, food, energy, LNG, maintaining and operating telecommunication commission, complete, operate, manage and maintain an Integrated Liquid Chemical Terminal and Storage
infrastructure and chemical terminal and storage businesses. Farm at the south western zone of Port Qasim on Build, Operate and Transfer (BOT) basis.

Elengy Terminal Pakistan Limited (ETPL) is a public unlisted company incorporated in Pakistan. The principal FrieslandCampina Engro Pakistan Limited (FCEPL), formerly Engro Foods Limited, is a public listed company,
business of ETPL is to establish and operate a terminal for handling, re-gasification, storage, treatment and incorporated in Pakistan. FCEPL is a subsidiary of FrieslandCampina Pakistan Holdings B.V., which is a
processing, along with import, export and trading of Liquefied Natural Gas (LNG), Regasified Liquefied Natural Gas subsidiary of Zuivelcoöperatie FrieslandCampina UA (the Ultimate Parent Company).
(RLNG), Liquid Petroleum Gas (LPG), Natural Gas Liquid (NGL), and all other related liquids, gases and chemical The principal activity of FCEPL is to manufacture, process and sell dairy products, beverages, ice cream and
and petroleum products. Engro Elengy Terminal (Private) Limited (EETPL) is a wholly owned subsidiary of ETPL. frozen desserts. FCEPL also owns and operates a dairy farm.

27 engro fertilizers limited annual report 2019 28

 Engro Energy Limited (EEL), a wholly owned subsidiary of the Parent Company, is a public unlisted company Engro Infiniti (Private) Limited, (EInfiniti) was incorporated as a wholly owned subsidiary of Engro Corporation
incorporated in Pakistan. It is established with the primary objective to analyze potential opportunities in the Limited. The primary objective of EInfiniti is to analyze potential opportunities inside and outside Pakistan and to
power sector and undertake supply and service-related contracts and Independent Power Projects (IPPs) based make available digital assets and ventures related to intellectual capital, data collection and analytics of every
on feasibilities of new ventures. kind and any activities relating to or ancillary thereto.
Following are the companies in which EEL owns 50% or more of the voting rights or are directly controlled by Following are the subsidiaries of EInfiniti:
EEL: • Engro Digital Limited (EDL) is a public unlisted company, established with primary objective of analyzing
• Engro Energy Services Limited (EESL) was established as a wholly owned subsidiary of EEL with the primary potential opportunities and making available digital and technology services and products inside and outside
objective of analyzing potential opportunities in the power sector and undertaking service related contracts for Pakistan.
Independent Power Projects (IPPs) based on feasibility of new ventures and to provide operations and • Enfrashare (Private) Limited was incorporated in Pakistan as a private limited company and principally
maintenance services to IPPs. engaged in buying, building, maintaining and operating telecommunication infrastructure and any products
• Engro Powergen Qadirpur Limited (EPQL) is a public listed company incorporated in Pakistan with the primary and by-products and any activities relating to or ancillary, thereto.
objective to undertake the business of power generation, distribution, transmission and sale.
• Engro Powergen Thar (Private) Limited (EPTL) was established with the primary objective to develop 2 x 330
MW mine mouth power plants at Thar Block II, Sindh.
• Sindh Engro Coal Mining Company Limited (SECMC) was formed under a Joint Venture Agreement (JVA),
dated September 8, 2009, between the Government of Sindh (GoS), EEL and the Parent Company. The
aforementioned JVA is consequent to the selection of SECMC as GoS’s joint venture partner, through an
International Competitive Bidding process, for the development, construction and operations of an open cast
lignite mine in Block-II of Thar Coal Field, Sindh (the Project).
• EEL entered into a Joint Venture Agreement (JVA), dated May 04, 2018 with Siddiqsons Limited (SL) and Arif
Habib Equity (Private) Limited (AHEPL) for the joint development of approximately 330 MW of coalfired power
generation facility in Block - II, District Tharparkar, Sindh, through a joint venture company, namely Siddiqsons
Energy Limited (SEL).

Engro Polymer and Chemicals Limited (EPCL) is a public listed company incorporated in Pakistan. The principal
activity of EPCL is to manufacture, market and sell Poly Vinyl Chloride (PVC), Vinyl Chloride Monomer (VCM),
Caustic Soda and other related chemicals. It is also engaged in supply of surplus power generated from its
power plants to Engro Fertilizers Limited (NPK Plant).
Following are the subsidiaries of EPCL:
• Engro Polymer Trading (Private) Limited, incorporated to purchase, market and sell Poly Vinyl Chloride (PVC),
PVC compounds, Caustic Soda and other related chemicals.
• Engro Peroxide (Private) Limited, incorporated to manufacture and market Hydrogen Peroxide and related
chemicals.
• Engro Plasticizer (Private) Limited incorporated to manufacture and market Chlorinated Paraffin Wax and other
related chemicals.

29 engro fertilizers limited annual report 2019 30

board of directors
Left to Right
Standing: Asim Murtaza Khan; Javed Akbar; Abdul Samad Dawood; Hasnain Moochhala
Sitting: Asad Said Jafar; Nadir Salar Qureshi; Ghias Khan; Sadia Khan
 directors’
profiles
Ghias Khan Nadir Salar Qureshi
Chairman and Non-Executive Director Chief Executive Officer and Executive Director

Ghias Khan is the 4th President & CEO of Engro platform, laying the foundation for a digital future. Nadir Salar Qureshi is the Chief Executive Officer of Company, Bain & Company, Carrier Corporation and
Corporation. Since he came on board at the end of Under his guidance, Engro has also earned numerous Engro Fertilizers Limited since December 2018. He Abraaj Capital, leading up to his most recent role as
2016, Ghias has been instrumental in revamping awards, both locally and globally, for enabling a joined Engro Corporation Limited in March 2017 as Chief Investment Officer at Makara Capital in
Engro’s strategy, culture, and global outreach. Ghias, thriving business environment, investing in the Chief Strategy Officer. He completed his MBA from Singapore. Nadir also serves as a Director on the
along with the Board of Directors, has defined a development of its people, upholding high standards Harvard Business School, and his Bachelors and Boards of:
powerful central narrative for Engro Corporation that of Corporate Governance, and promoting Health, Masters degrees in Nuclear Engineering from MIT. He • Engro Vopak Terminal Limited
will chart its path for years to come. Safety & Environment in the workplace. brings with him expertise in multiple sectors across
the GCC, Turkey, Australia, ASEAN and the EU. He is • Engro Fertilizers Limited Agritrade (Private) Limited
There have been several notable achievements for Former CEO of Inbox Business Technologies, an
Engro under Ghias’ guidance thus far. He has enterprise technology company that he co-founded in also experienced in consulting, private equity and • Engro Polymer & Chemicals Limited
stewarded Engro’s renewed commitment in the 2001 and remained with till 2015, Ghias grew the finance. Nadir began his career with Engro Chemical
Pakistan Limited as a Business Analyst and then • Engro Energy Limited
petrochemical sector, with several growth initiatives in employees to over 1,900 and pivoted the company
Engro Polymer & Chemicals and other greenfield from a computer manufacturer to a systems moved on to organizations such as Hub Power • Pakistan Energy Gateway Limited
projects, consolidated the management of all energy integrator, and then to a technology-enabled digital
assets under one platform with a long-term strategy of services company. In his final year at Inbox, it was
investing in the overall energy value chain, paved the voted the largest technology company in Pakistan by
way for more cooperation with our long-time partner, Domestic Spend. Ghias has also previously served as
Royal Vopak, through their entry in Engro Elengy, and Executive Director of Dawood Hercules.
was contributory in the robust turnaround of the rice
Currently, Ghias also serves as Chairman on the
business of Engro Eximp Agriproducts, which won its
Boards of Engro Fertilizers Limited, and holds
first-ever Top Exporter Award in 2018. In addition,
directorship on the Boards of the following:
during his Presidency, Engro’s Thar Power Plant
achieved commercial operations and set out to fulfill • Engro Corporation Limited (CEO)
its promise of contributing 660 MW to the national grid • Engro Polymer & Chemicals Limited
and a global record was set by Engro Elengy • Engro Energy Limited
amongst LNG terminals with the fastest 200
ship-to-ship transfers. Finally, with a firm belief that • Sindh Engro Coal Mining Company Limited
connectivity is the conduit that enables social and • Thar Power Company Limited
financial inclusion, Ghias was involved in the launch of • Engro Eximp Agriproducts (Private) Limited
Enfrashare. Enfrashare aims to drive the development • Engro Foundation (Trustee)
Abdul Samad Dawood
of the country’s connectivity infrastructure and has Non-Executive Director
already partnered with all major telcos in the country. • Engro Digital Limited
• Engro Infiniti (Private) Limited
Ghias is leading several innovative transformations at Abdul Samad Dawood has 16 years of experience in • Engro Corporation Limited
Engro, including an extensive HR transformation that • Karachi School of Business Leadership (KSBL)
management and governance. He joined the Engro
focuses on revamping all talent management, • Enfrashare (Private) Limited • Dawood Hercules Corporation Limited
Corporation Board in 2009 and now serves as Vice
development, and reward philosophies. In this vein, Ghias holds an MBA from the Institute of Business Chairman of the Board. • Dawood Lawrencepur Limited
Ghias was the force behind the launch of the Engro Administration, Karachi. He was part of the Hong Kong
He is also Chairman of the Board of • FrieslandCampina Engro Pakistan Limited
Leadership Academy, which serves as a platform to under-16 cricket team, has represented Pakistan in the
develop effective leaders. Further, Ghias is FrieslandCampina Engro Pakistan Limited, and serves • Dawood Corporation (Private) Limited
junior bridge team, and, in 2015, won the amateur
spearheading Engro’s OneSAP initiative, which is as a Director on the Boards of:
singles championship at Karachi Golf Club. • Dawood Industries Limited
bringing the group onto a singular technology
33 engro fertilizers limited annual report 2019 34
 • Patek (Private) Limited Private Limited, The Hub Power Company Limited,
Tenaga Generasi Limited, Dawood Lawrencepur
• Reon Energy Limited
Limited, Pebbles Private Limited, and World Wildlife
• Pakistan Business Council (PBC) Fund for Nature – Pakistan. He was previously Chief
• Enfrashare (Pvt.) Limited Executive of Dawood Hercules Corporation Limited
and Cyan Limited, and also commands operational
In addition, he is a Trustee on the Board of The experience gained at Dawood Lawrencepur Limited
Dawood Foundation and a member of the Young and Dawood Hercules Chemicals.
Presidents’ Organization.
Abdul Samad Dawood is a graduate in Economics
He has previously served as Independent Director of from University College London, UK, and a Certified
International Industries Limited and Independent Director of Corporate Governance from the Pakistan
Non-Executive Director of Sui Northern Gas Pipelines Institute of Corporate Governance.
Limited. He has also served on the Boards of Engro
Eximp Private Limited, Inbox Business Technologies

Javed Akbar
Non-Executive Director

Javed Akbar is a Chemical Engineer and has over 40 • Engro Vopak Terminal Limited
years of experience in fertilizer and chemical business • Javed Akbar Associates (Private) Limited
with Exxon, Engro and Vopak in Pakistan and
overseas. He was part of the buyout team in 1991 • Engro Powergen Thar (Private) Limited
when Exxon divested its stake in Engro. Prior to his • Reon Energy Limited
retirement in 2006, he was Chief Executive of Engro
Vopak Terminal Limited, a joint venture between • The Hub Power Company Limited
Engro and Royal Vopak of Holland. After retirement, • Narowal Energy Limited
he established a consulting company specializing in
• Laraib Energy Limited
analyzing and forecasting petroleum, petrochemical
and energy industry trends and providing strategic • Hub Power Services Limited
insight. He currently serves on the Boards of: • Engro Fertilizers Limited Agritrade (Private) Limited
Hasnain Moochhala
Non-Executive Director

Hasnain Moochhala joined the Board of Engro • Engro Energy Limited

Fertilizers Limited in 2019. He joined Engro • Engro Eximp FZE
Corporation Limited as Chief Financial Officer in June
2017. Prior to this, he has had a career in Commercial • Elengy Terminal Pakistan Limited
Finance, M&A, Corporate Governance, Treasury and • Engro Elengy Terminal (Private) Limited
Audit over 30 years across Europe and Asia. The last
20 years of his career was with Royal Dutch Shell in • Engro Powergen Thar (Private) Limited
various roles, including Finance Director Shell • Engro Corporation Limited Provident Fund
Pakistan, Head of Finance for Shell Lubricants Asia (Trusteeship)
Pac, Head of Downstream M&A East and Finance
• Engro Corporation Limited MPT Employees Defined
Manager Upstream Joint Ventures. His key
Contribution Gratuity Fund (Trusteeship)
achievements in prior roles include the delivery of
material M&A transactions, the formulation of global • Engro Corporation Limited MPT Employees Defined
best practice in Joint Venture Governance, cost Contribution Pension Fund (Trusteeship) Sadia Khan
leadership and the building of strategic partnerships • Engro Corporation Limited MPT Gratuity Fund Independent Director
with various stakeholders. Hasnain has also led, (Trusteeship)
coached and mentored teams in Singapore and
Pakistan, as well as virtual teams across Asia Pacific • Engro Fertilizers Limited MPT Employees Pension Sadia Khan is the President & CEO of the Pakistan University and Yale University, Sadia started her
and Europe. He also holds directorship on the Boards Fund (Trusteeship) Institute of Corporate Governance (PICG). She has career at Lehman Brothers in New York. After
of the following: • Engro Fertilizers Limited Non MPT Employees pursued a versatile career path traversing investment obtaining her MBA from INSEAD in France, she has
Gratuity Fund (Trusteeship) banking, financial regulation, family businesses and worked with various international institutions and local
• Engro Polymer Chemical Limited
entrepreneurship across three continents. With regulatory authorities, including the Asian
• Engro Powergen Qadirpur Limited • Engro Foods Limited Employees Gratuity Fund Masters degrees in Economics from both Cambridge Development Bank in the Philippines, the Securities &
(Trusteeship)

35 engro fertilizers limited annual report 2019 36

 Exchange Commission of Pakistan and the State Bank • Oil & Gas Development Company of Pakistan
of Pakistan. For the past two decades, Sadia has (OGDCL)
remained a passionate advocate of corporate • Pakistan Institute of Corporate Governance (PICG)
governance and currently serves on the following (Not-for-Profit) as CEO
boards:
Her book entitled “Corporate Governance Landscape
• Delta Shipping of Pakistan” was published by Oxford University Press
• Delta Transport in 2017.
• INSEAD In 2014, the French Government conferred on her, the
prestigious French award, "Chevalier de l'Ordre
• Karandaaz
National du Mérite" (Knight of the National Order of
• Pakistan Cables Merit). Sadia is the President of the global INSEAD
• Siemens (Pakistan) Engineering Co. Ltd Alumni Association since 2015. She also serves as the
Honorary Consul General of Finland in Karachi.
Asad Said Jafar
Independent Director

Asad Said Jafar is the Chairman & CEO of Signify serves as a member of International Advisory Board at
Pakistan Limited (formerly Philips Pakistan Limited), a NED University of Engineering and Technology.
position he has held since January 2009.
Before Philips, Asad worked in various management
Asad has a strong track record of delivering positions at ICI Pakistan Limited from 1988 to 1996 in
outstanding value to shareholders, partners, engineering, manufacturing, project management and
customers and employees and is passionate about planning, having joined the company as a
innovation, entrepreneurship and business Management Trainee.
transformation to drive competitiveness and customer
Asad holds a Bachelors degree in Electrical
value. He has driven the transformation and
Engineering from NED University, Karachi, Pakistan
revitalization of the Philips portfolio in Pakistan to
and a Masters degree in Business Administration
become a focused lighting technology company
(MBA) from the Imperial College Business School,
offering a complete range of conventional and LED
London, UK, where he studied as a Chevening
lighting solutions including its connected lighting
scholar.
systems and data-enabled services.
Asad continues to consider learning a priority and has
He joined Philips in 1998 and has held senior
completed several management development
leadership positions across various businesses and
programs including the ‘Leading a Business’ Program
functions in Pakistan, Indonesia, Thailand and
Asim Murtaza Khan at Ashridge Business School, UK. He attended the
Independent Director Singapore. From 2001 to 2008 he was posted
‘Philips Simplicity Brand 1000’ Program at Chicago
overseas. He was the Head of Supply Chain
Graduate School of Business (London campus) as
Management for Philips in Indonesia followed by a
well as the ‘Business Marketing Strategy’ Program at
Asim Murtaza Khan is working as Advisor to the Technology, UK. He is an alumnus of the Kellogg role in Bangkok, Thailand where he was responsible
Kellogg School of Management, Northwestern
Chairman CEO (Honorary) with the Petroleum Institute School of Management, Northwestern University, for establishing the ASEAN Luminaries Supply Group.
University, USA. He is often invited to address
of Pakistan (PIP) since January 2019 subsequent to USA. He is the Chair of the Petroleum Engineering This was set up to support the immense growth
business professionals and student audiences at
leaving the position of CEO PIP (Honorary) which he Advisory Board and Member Academic Council, NED potential for Philips lighting business in the ASEAN
corporate and academic events.
held since November 2015. Prior to that he worked for University of Engineering & Technology. He also region. In his last expatriate posting he was the
Pakistan Petroleum Limited (PPL) for over 32 years. serves on the Boards of: Director of Supply Chain Management for Philips
He was also responsible for Bolan Mining Enterprises, Lighting ASEAN based in Singapore.
• Pakistan LNG Terminals Limited
a 50:50 joint venture of PPL and the Government of As a seasoned business leader, Asad served as the
Balochistan for mining of barites, iron ore and • Agritech Limited
President of Overseas Investors Chamber of
lead-zinc; and was one of the founder Directors of • Central Council, Institution of Engineers Pakistan. Commerce and Industry (OICCI) in 2014. He is
PPL’s overseas subsidiary companies, PPL Europe currently serving on the Board of Directors of Engro
E&P Ltd. and PPL Asia E&P B.V. Asim was appointed In the past he has been the Chairman on the Boards
of Petroleum Institute of Pakistan (PIP), Pakistan Fertilizers Limited. Previously he has served on the
MD/CEO of PPL by the Government of Pakistan on Board of Directors of Pakistan Institute of Corporate
May 12, 2011. After completing the contract term as Institute of Corporate Governance (PICG), Community
Development Board of the Government of Sindh, and Governance (PICG) and Engro Polymer & Chemicals
MD / CEO, he served PPL as Executive Director until Limited.
superannuation in February 2015. He earned his has served as the Chair of the Technical and
Bachelors in Mechanical Engineering from NED Operations Committee of the Pakistan Petroleum Asad is a member of the Institute of Business
University of Engineering and Technology, Karachi, Exploration and Production Companies Association Administration (IBA) Corporate Leaders Advisory
followed by Masters in Mechanical Engineering from (PPEPCA). Board (ICLAB). He regularly mentors MBA students
the University of Manchester Institute of Science and as part of the Karachi School of Business &
Leadership (KSBL) CEO Mentorship Program. He also
37 engro fertilizers limited annual report 2019 38
management team
Left to Right
Imran Ahmed (Chief Financial Officer); Amir Iqbal (Chief Commercial Officer); Nadir Salar Qureshi
(Chief Executive Officer); Syed Shahzad Nabi (Divisional Head Manufacturing); Salman Goheer
(Divisional Head Supply Chain)
 organizational structure
CEO

C o m m e rc i a l D i v i s i o n Supply Chain Division C o r p o r ate Au d i t D e p a r tm e nt* H u m a n R e s o u rc e s M a n u f a c tu r i n g F i n a n c e & Ac c o u nti n g

Te c h n i c a l O p e r ati o n s
HSE & T Medical Z a r k h e z Pl a nt D H K Ad m i n i s tr ati o n
S e c ti o n S e c ti o n

Pro c e s s Mechanical Pro d u c ti o n M a i nte n a n c e I& E Finance & General

Engineering Engineering Engineering Engineering Engineering Planning Accounting

Number of Employees value, emerging from the acquisition of valued raw

materials, incorporating addition of value at
Engro Fertilizers Limited has an employee base of
Ad m i n & S o u rc i n g Supply manufacturing facilities and enhancing value by
Wa re h o u s i n g Lo g i s ti c s 1,260 people, gracing efficiency in the Organization’s
& Pro c u re m e nt E xc e l l e n c e collaborating with people, systems, consumers and
operating activities including plant operations and
other stakeholders. Detailed illustration of Engro
head office activities. Appropriate disclosure of total
Fertilizers Limited’s value chain structure and value
and average employees can be identified on page
creation model is embedded at page 67.
220.
Significant factors affecting the External
Employees 2019 2019 Female Differently Environment
avg able
Efficient management calls for identification of
Factory 731 723 5 7
significant factors affecting the external environment
Non-Factory 529 549 54 5
for Engro Fertilizers Limited, resulting in the
Phosphate Total 1,260 1,272 59 12 emergence of a diverse response framework. The
Specialty C ro p framework encompasses an array of risk factors and
Base Business Unit / C o m m e rc i a l
Fe r ti l i ze r Science Brands Engro Fertilizers Limited’s position within Value strategic impacts, disclosed in detail on page 61.
Business International E xc e l l e n c e
Business D e p a r tm e nt
Trade Division Chain and how we create value? Significant changes from prior year
Engro Fertilizers Limited takes pride in exploring Significant changes from FY2018, have been
horizons, creating value-added products and disclosed in their relevant sections, contributing to the
contributing to the community. Our Value Chain changing paradigms and strategic management.
* Fu n c ti o n a l l y re p o r ts to th e B o a rd Au d i t C o m m i t te e a n d a d m i n i s tr ati ve l y to th e C EO. reflects our business actions and how we create

41 engro fertilizers limited annual report 2019 42

 At Engro Fertilizers Limited, when we talk about our The only Company providing seeds to harvest chain. It also offers services to farmers to improve This is precisely why we strive to combine innovation
undying commitment to deliver the highest standards solutions with a portfolio comprising 3 categories of their farming practices. and quality with customer needs and expectations,
of quality, our focus goes well beyond how our brands Seeds, 21 variants of Fertilizers and 42 products of and are a proud sole provider of seeds to harvest
With 195 vehicles on the road in 2019, Engro
and services will fare amongst our target audience, Pesticides, Engro Fertilizers Limited’s range of solutions in Pakistan.
Logistics intends to bring innovation and efficiency to
rather, how they will impact our consumer’s lives. products and services cover all stages of agri value the existing logistics Industry of Pakistan.
43 engro fertilizers limited annual report 2019 44
 products fertilizers

Engro Urea
Engro is the first Company to have established a Urea Urea is the most important and widely utilized
production facility in Pakistan, a landmark event in the Nitrogenous fertilizer in the world. It contains 46%
agricultural sector of the country. The fact that Urea is Nitrogen and is readily soluble in water. It is the most
the most extensively used fertilizer in the country, concentrated solid Nitrogen fertilizer that is produced
gives Engro Urea a special standing in the domestic in both prilled and granular form; Engro Fertilizers
fertilizer market. Limited produces prilled Urea.
Engro Fertilizers Limited started with an annual Urea is commonly used for basal as well as foliar
production of 173,000 tons in 1968 and through application, as an ingredient of liquid fertilizers and as
various debottlenecking and expansion steps, the raw material in NP / NPK complexes.
capacity was increased to 975,000 tons per year by
2005. Moreover, to meet the local farmers’ demand,
the Company setup the world’s largest single train
Urea plant in 2011 with a capacity of 1.3 million tons,
taking the total annual capacity to 2.3 million tons.

Engro DAP
A plant requires three major nutrients for healthy deregulation of imports, the private sector took over
growth, namely Nitrogen, Phosphorus and Potassium. and Engro became one of the largest importers in the
Di-Ammonium Phosphate (DAP), which contains 18% country. Engro Fertilizers Limited has been marketing
Nitrogen and 46% Phosphorus, is the most widely DAP since 1996 and is a trusted brand due to its
used source of Phosphorus for the plant. DAP helps in consistently high quality products, which is monitored
seed germination, strengthens the roots of the plant, through stringent quality checks. Furthermore, Engro
improves flowering and grain formation. DAP has high water solubility and characteristic pH
which ensures optimal soil distribution.
Till 1994, DAP was imported in Pakistan by the
Fertilizer Import Department (FID), thereafter, due to Engro DAP is marketed in 50 kg bags.
45 engro fertilizers limited annual report 2019 46
 Neem Coated
Engro NP Urea
Engro started producing NP in 2005 and has been Engro NP is available in 3 different grades: 22:20 and Neem Coated Urea is the Urea coated with Neem resulting in high yield and effective pest control
extensively marketing the product across Pakistan in 20:20 (imported) for lower Sindh where Engro enjoys seed oil. Neem oil serves as an effective inhibitor if management. There is reduction in environmental
different variants. NP formulations contain Nitrogen a high market share and strong brand equity. coated on Urea. Neem coating leads to gradual pollution of ground water due to leaching of nitrates
and Phosphorus in almost equal quantity and has Alternatively, Engro NP 18:18 is marketed in upper release of Urea, helping plants gain more nutrient and gaseous emission due to neem coating.
been especially important to Pakistani farmers, given Sindh and the rest of the country.
the peculiar deficiency of both components in most of Engro NP is sold in 50 kg bags.
the Pakistani soils. Due to higher ‘N’ content a few
farmers also use E-NP for top dressing during crop
growth stage.

Zarkhez Plus
Plants require three major nutrients (i.e. Nitrogen, grades of 50 kg bags with nutrient proportions
Phosphorus and Potassium) for quality & higher yield. suitable for sugarcane, vegetables, potato, fruit
Zarkhez Plus, introduced in 2002, is the only branded orchards and tobacco. The grades are popular

Zorawar fertilizer in Pakistan which contains all three nutrients.

Presence of all the macro nutrients results in
synergistic plant nutrient uptake. The resultant yield is
among progressive farmers due to its convenience,
high crush strength, appropriate granule size, and
free flowing nature.
of high quality; sucrose content of sugarcane • Zarkhez Green Plus (NPK 8-23-18), available in 50
Zorawar is a high-value Phosphatic Fertilizer which Additionally, it improves grain health in cereals, increases, quality and size of potato improves, and kg bags, is consumed on vegetables and other
has 10% Nitrogen (N) and 50% Phosphorus (P2O5). It produces more flowers, supports better fruiting in fruits and vegetables appear and taste better. cash crops.
has low pH and comparatively better water solubility cotton, vegetables, fruit trees, and helps in timely Zarkhez Plus is a high quality fertilizer containing
compared to other Phosphatic fertilizers, which ripening of crops. correct proportions of the three nutrients in each of its • Zarkhez Blue (NPK 17-17-17) and Zarkhez Brown
ensures greater availability of nutrients to the plant. granule thus making the fertilizer application very (NPK 15-15-15), available in 50 kg bags, are
Engro Zorawar is available in 50 kg bags.
Zorawar improves seed germination, bolsters root convenient for the farmers. In addition to consumed on fruits and orchards.
development, improves tillering in major crops such convenience, it also helps ensure uniform and • Zarkhez Tobacco (NPK 12-12-18), available in 50
as wheat, rice and sugarcane. balanced nutrient application. kg bags, is used for tobacco crop.
Zarkhez Plus is currently available in three different
47 engro fertilizers limited annual report 2019 48
 Zabardast Urea Zingro
Zinc is a micronutrient, which the crop requires in 33% Granular Zinc Sulphate Monohydrate and is
Zabardast Urea (ZU) is yet another leap forward by Bioactive Zinc with synergetic advantages of small dosages and it compliments functions of major 99.99% water soluble.
Engro Fertilizers Limited in pioneering next generation microbial support to mobilize nutrients in soil and nutrients. Over the years, zinc deficiency has been
fertilizer in Pakistan. The product is developed in enhance crop resistance. ZU expressed great Zingro has evolved to become the leading brand in
well established on a variety of crops specifically rice.
collaboration with Niha Corp USA and was launched potential in all crops by saving separate zinc use cost, the micronutrient category and is accredited to
Zingro brings to the market the trust of Engro and
in 2017. It has unique combination of Nitrogen (42%), increasing yield, improving quality, enriching zinc converting the image of the category to a highly
high-quality standard which has made it distinct from
Bioactive Zinc (1%) and consortium of beneficial contents in produce, and enhancing farmers' acceptable one. Zingro has won the prestigious
all the competition. It is the market leader in a highly
microbes. ZU marveled efficiency of Nitrogen and profitability. “Brand of the Year” award for 2009 in the
fragmented industry. Zingro acts as a tonic and gives micronutrient category.
quick response and a better yield. Zingro contains

Engro
Ammonium
Sulphate Zoron
Zoron is a micronutrient brand which encompasses and foliar application. Zoron is recommended for
Engro Ammonium Sulphate is used primarily where plants against diseases, especially against fungus 20% water soluble boron contents. It increases cotton, cereals (rice, maize, oat), vegetables (onion,
there is a need for supplemental N and S to meet the attacks and helps in transportation of nutrients in efficacy of other fertilizers, nourishes the plant, potato, tomato, cauliflower), fruits (apple, banana,
nutritional requirement of growing plants, 21% plants. In this form Ammonia (Ammonium Sulphate) is increases yield, reduces boll’s deformation, reduces grapes, guava, apricot, pear, peach, plum), rose and
Nitrogen and 24% Sulphate. There is a growing released slowly, and compared to Urea (Ammonium shedding of flower and fruits, and enhances quality of other ornamental plants.
realization in farmers that Sulphur is an important Nitrate) Nitrogen uptake of plants is better. After the product. Zoron can be used as basil application
macronutrient, hence, is used by farmers as a source application, crops look lush green and better
of Sulphur. It helps increase resistance power in compared to Urea application.

49 engro fertilizers limited annual report 2019 50

 Engro SOP Potash Power
Potash Power is very high value and ideal source of N of electrolytes inside the cell to acquire frost
Potassium is also applied as a straight fertilizer in the fruits, orchards, and tobacco. SOP contains 50% and K fertilizer containing 13% Nitrogen (N) and 44% resistance. It increases fruit size, fruit appearance,
form of SOP or Sulphate of Potash. SOP is low Potassium nutrient and 17.5% Sulphur. SOP is Potassium (K2O). It is low pH fertilizer which makes organoleptic features and shelf life. Potash Power
chloride form of Potassium. Engro SOP was launched considered as a premium quality Potash. Using SOP availability of other nutrients to the soil and is 100% outperforms other potassium fertilizers for crops such
in a 50 kg SKU in both granular and powder forms, not only improves quality and crop yields, but also water soluble fertilizer. It is very much suitable for as cotton, wheat, rice, sugarcane, sunflower, maize,
targeting all potash loving crops such as potato, makes plants more resilient to drought, frost, insects basil and foliar application with high efficiency flowers, and fruits at mid to late stage application for
maize, sugarcane, wheat, rice, cotton, vegetables, and even diseases. irrigation system (Sprinkler & Pivot). Potash Power improving health, yield, optimal plant nutrition and
helps to build thick cell walls, increases concentration quality of crop.

Phos Power
Phos Power is a 100% water soluble product and has choked nasals of the drip system. It is suitable for
17% Nitrogen and 44% Phosphorus. It is imported fertigation or flooding during crop growth stage as
from Europe and is best suited for drip, pivots and booster application. Phos Power can also be used on

Engro MOP
sprinkles. Being an acidic fertilizer, it opens the alkaline soils.

In addition to potash based blended fertilizer NPK, of granular Potassium. It is also relatively price
Potassium can also be applied in form of straight competitive compared to other forms of Potassium
fertilizer, out of which one widely used kind of available in the market. The chloride content of MOP
Potassium-based fertilizer is MOP or Muriate of is helpful for a soil where chloride level is low.
Potash. We launched Engro MOP in a 50 kg SKU Chloride content also improves the yield of produce

Engro SSP
targeting all potash loving crops such as potato, as it increases disease resistance in crops by
maize, sugarcane, wheat, rice, cotton, vegetables, promoting thickness of the outer cell walls. It also
fruits, orchards and tobacco. MOP contains 60% improves color, flavor and storing quality of fruits and
Potassium nutrient and is the most concentrated form vegetables.

Single Super Phosphate (SSP) has a nutrient value of throughout the market, while there is an established
18% (P2O5) and added benefit of gypsum (CaSO4). market for this category. Engro is fulfilling the need for
Engro SSP is produced through Imported Rock a quality player in the market for SSP which can uplift
Phosphate. Our strategy is to leverage Engro’s brand the farmer’s confidence. The target market for the
image and provide the farmers with an extremely product is price sensitive, low-medium income
good quality product, which is not available in the farmers with small-medium land holdings and also
market at the moment. Over the years, SSP faced normal SSP users across Pakistan. The product is
severe negative feedback due to lack of product targeted on all crops.
quality, with spurious manufacturers present
51 engro fertilizers limited annual report 2019 52
 crop protection
Truce Xtra 88.8% WG
Active Ingredient: Mesotrione + Atrazine Truce Xtra is one of the premium selective, post
Indication: Herbicide emergence herbicides for sugarcane and maize
marketed by Engro. It is a broad-spectrum herbicide
SKU: 400 grams and controls broad leaves, narrow leaves and sedges
Crops: Maize, Sugarcane with excellent crop safety.

Librel Zn
Indication: Chelated Zinc Librel Zinc is quality Chelated Zinc, researched,
developed and produced by BASF. Product

Pivot
SKU: 500 grams
formulation is designed to ensure maximum Zinc
Crops: Multiple offtake in plants. It’s water solubility gives the flexibility
to be used as foliar, through fertigation or
broadcasting. Liberal Zinc is suitable for all zinc
deficient soils and can be used in sugarcane, cotton,
maize, wheat, orchards, vegetable and rice. Active Ingredient: Pyraclostrobin + Pivot is a premium product and mixture of two strong
Dimethomorph fungicides for early Blight, late Blight and Downy
Indication: Fungicides mildew in potatoes and vegetables.

SKU: 250 grams

Crops: Potatoes, Vegetables

Liberal TMX
Active: Boron Librel TMX is a combination of 5 essential nutrients,
Veyong Jinteng 40% WG
Indication: Nutrient produced at BASF, Germany. It is highly water soluble
and gives the flexibility to be used as foliar, through
SKU: 300 grams fertigation or broadcasting. Liberal TMX not only Active Ingredient: Dinotefuran + Pymetrozin This is a new insecticide launched by Engro last year.
provides nutrient supplements, but is also used to Indication: Insecticides It was very well received in fields by farmers. The
Crops: Multiple
enhance fruit quality and crop stress management. It product is used against Jassids, Hoppers & Aphids.
is recommended to be used on sugarcane, cotton, SKU: 100 grams
maize, wheat, orchards, vegetable and rice. Crops: Rice, Cotton, Wheat, Vegetables

53 engro fertilizers limited annual report 2019 54

 seeds
Winsta 30 WP
Active Ingredient: Bispyribac + Bensulfuron Winsta is a post emergence rice herbicide used on
Indication: Herbicides transplanted and direct seeded rice.

SKU: 100 grams

Crop: Rice

Bharosa Hybrid Rice Gold

SKU: 2 Kg Bharosa Seeds is a registered trademark of Engro. It
Crop: Rice was launched in 2011 and since then it is considered
a trusted brand amongst the farming community.
Engro offers Seeds of Rice OPVs and Rice Hybrid
under the brand name of Bharosa.

Sulphur 80% WG
Indication: Fungicides Sulphur is considered as 4th essential nutrient after
SKU: 1 Kg three macro nutrient elements of NPK. Moreover, it is
a very effective and safe fungicide against leaf spots
Crops: Multiple in rice and powdery mildew in mango and cucurbits.
It possesses very good solubility and absorption
properties. Its good stickiness ensures proper
coverage and resists rain fastness. It can be applied

Bharosa Hybrid Wheat

through foliar or through soil application.

SKU: 50 Kg Bharosa Seeds is a registered trademark of Engro. It

Crop: Wheat was launched in 2011 and since then it is a
considered trusted brand amongst the farming
community.
Engro offers Seeds of Wheat OPVs under the brand
name of Bharosa.
55 engro fertilizers limited annual report 2019 56
 services
Logistics
In 2019, the Company entered into the long haul logistics business. This service arm of the
Company will help in consolidating the end-to-end supply chain function of the Company,
and at the same time bring innovation and efficiency to the existing logistics industry of
Pakistan. In its first year of operations, the fleet size has grown to 195 vehicles comprising a
mix of flat bed, containerized and refrigerated vehicles.

Agribusiness Solutions Chunyu MC T70

Expanding its footprint in local agri-value chain, Crop: Wheat & Rice
Agribusiness Solutions Division was established to Harvester has a 154 hp engine, which ensures high
serve the farmer community with services, which are performance with low fuel consumption besides it also
not readily available and will make the crops’ value provides good grain quality due to second threshing
chain efficient. of not fully threshed ears. Moreover, reliable crop flow
Farm Mechanization Services is assured with a feeding drum and a single rotor,
which separates the grain from the straw. The straw is
In Pakistan, the level of farm mechanization discharged on the left-hand side of the harvester.
throughout the agri-value chain is low to medium.
Engro aims to raise the level of farm mechanization in Corn Cob Picker
the country and make it more accessible to the Crop: Maize
farmers. Current offering includes mechanized
harvesting services. Since 2018, the Division has Corn Cob Picker’s knife type design with a special
served a total of 1,400 acres for harvesting of wheat, support device is better suited to harvest the inverted
rice and maize crops. corn. The harvest is more efficient without hitting the
grain. The machine can pick corn dried or in green
form and fill it in the bucket mounted behind the
tractor. This machine can pick cobs from four rows
planted with 26-inch (66 cm) row spacing,
simultaneously.
57 engro fertilizers limited annual report 2019 58
 strengths
• Strong brand recognition
• Lean organizational structure,
creating more customer value weaknesses
via efficient operations
puts people first • Wide product and services
• Mature industry with declining /
stagnant market growth
portfolio, offering farmers
• Reliance on depleting natural
complete range of seed to
resources
harvest solutions
• Phosphate and Potash based
acts entrepreneurial thinks engro • Financial sustainability and
price elastic products in the
strong balance sheet position
portfolio
• Quality and efficiency of
Human Resource
• Renowned engineering
excellence

leadership competency model

analysis

opportunities
• Alignment of gas pricing to
fertilizer policy
threats
• Improved production through • Inconsistent gas supply and
utilization of idle capacity elevating costs of production
fosters collaboration executes with excellence • Capacity to build horizontal • Devaluation resulting in
and vertical integrations, increased cost of doing
improving on the Company’s business
supply chain • Challenging farm economics
• Invest in energy efficient • Excess supply of Urea through
demonstrates adaptability technological advancements non-indigenous gas source
• Identify alternate sources of • Inconsistent government
raw materials policies and pressures on
• Identify and address issues of fertilizer pricing
low farmer yields via positive
interventions

59 engro fertilizers limited annual report 2019 60

 significant factors
affecting the external environment

• Probability of advancement in major gas projects (e.g. TAPI) will positively influence the
availability of Engro Fertilizers Limited’s primary raw material.
Engro Fertilizers Limited’s Discourse / Impact: Continued engagement with the government • Not coping with technological advancement may create competitive disadvantages and
on opportunities to improve gas availability. operational inefficiencies
• Change of government introduces economic changes, which can impact the farmers at Engro Fertilizers Limited’s Discourse / Impact: Engro Fertilizers Limited continues to invest
large. in latest ERP, IT infrastructure and manufacturing technology.
Engro Fertilizers Limited’s Discourse / Impact: Carry out pilots and engage with the • The farming industry of Pakistan fails to employ technological advancements due to lack of
relevant government bodies to ensure sustainable improvements in farm economics. information and resources.
• Policy makeovers and regulatory changes consequently impacting the business Engro Fertilizers Limited’s Discourse / Impact: Introduce latest agri technology, balanced
Political economics. Technological nutrients and farm practices amongst farmers to support improved yields.
Engro Fertilizers Limited’s Discourse / Impact: Work closely with the government to provide
necessary inputs into the policy making process.

• FX changes adversely impact the dollar-linked prices of primary raw materials and • Nitrogen and Phosphorous deficient soil in Pakistan results in increased demand for
imports. fertilizers.
Engro Fertilizers Limited’s Discourse / Impact: Strategic procurement and considerate Engro Fertilizers Limited’s Discourse / Impact: Increased reliance on Urea and DAP
pricing decisions to avoid full impact of these fluctuations. fertilizers provides an opportunity to continue addressing enhanced and consistent
demand.
• Rising interest rates inflate cost of borrowing for the Company, also aggravating costs for
farmers operating on credit. • Water supply is attributed as a scarce resource in Pakistan, leading to hindrance in the
farming process and thus adversely affecting fertilizer supply to consumers.
Economic Engro Fertilizers Limited’s Discourse / Impact: Timely and strategic drawdowns and Environmental
repayments, resulting in effective management of financial cost. Low cost agri financing for Engro Fertilizers Limited’s Discourse / Impact: Continually educating the farmers regarding
small farmers. efficient water use as well as increased use of water efficient crops.

• Over reliance of farmers on Urea, resulting in an unbalanced consumption of nutrients,

affecting the ‘P’ and ‘K’ markets.
Engro Fertilizers Limited’s Discourse / Impact: Enhanced focus on creating awareness • Laws and Amendments introduced, relating to crucial cost components such as GIDC /
amongst farmers towards balanced use of fertilizers. Engagement with relevant Gas prices as well as freight regimes, significantly impact the costs of fertilizer
government bodies to promote supportive policy making in this regard. manufacturers.

• An imbalance in the political or social environment can lead to unrest in the neighboring Engro Fertilizers Limited’s Discourse / Impact: Continued engagement with the government
areas of operational facility. for sustainable solutions that promote industry and agri sector of Pakistan.

Engro Fertilizers Limited’s Discourse / Impact: Efforts to contribute to sustainable Legal

Social development and growth in the communities we operate in.

Quarter wise Urea Production and Sales Quarter wise other Fertilizers Sales

Effect of Seasonality on Business Q4 2019 Q4 2019

The Company's fertilizer business is subject to seasonal fluctuations as a result of two different farming seasons Q3 2019 Q3 2019
viz, Rabi (from October to March) and Kharif (from April to September). On an average, fertilizer sales are more
tilted towards Rabi season. The Company manages seasonality in the business through appropriate inventory Q2 2019 Q2 2019
management and production / import planning, keeping our products available according to the customers’
demand. Q1 2019 Q1 2019

100 200 300 400 500 600 50 100 150 200 250

Urea sales (KT) Urea production (KT) Specialty Fertilizers sales (KT) Phosphates sales (KT)

61 engro fertilizers limited annual report 2019 62

 competitive landscape Power of Suppliers

and market positioning

Supply Chain is a crucial arena of operational excellence for Engro Fertilizers Limited. For the Company to
continue growing, it is essential that it enjoys a sustainable framework, which offers an uninterrupted and smooth
supply of inputs. Engro Fertilizers Limited enjoys strategic partnership with its business suppliers, be it for
smooth access to raw materials or capital inputs.
Procurement of raw material and industrial machinery is regulated by the Company’s manufacturing, supply
chain and commercial departments in accordance with the approved planning and budgeting guidelines, an
aspect of back-end operation that grows steadily given the strategic relationships in place. The Company
primarily procures continuous supply of gas from Sui Northern Gas Pipelines Limited & Mari Petroleum Company
Limited.
Engro Fertilizers Limited has evolved to deliver to the nutritional upbringing of the agricultural Supplier paradigm evolves on a credit operating structure and Engro Fertilizers Limited’s high credit worthiness
lands of Pakistan. Positioned in the fertilizer industry as one of the largest players, Engro is reflected by the credit ratings issued by PACRA. For the year, PACRA maintained the company’s long-term
Fertilizers Limited has a state-of-the-art operational facility which has helped it to capture a credit rating of ‘AA’ and short-term credit rating of ‘A1+’.
significant market share, functioning along a sustainable paradigm that evolves around
various business segments to promote excellence. Its competitive landscape & market
positioning delivers Engro Fertilizers Limited’s strategic proposition within the sector.

Competition in the Fertilizer Industry Power of Customers

Fertilizer industry of Pakistan harbors an array of competitors, who operate on various scales and organizational
Engro Fertilizers Limited takes pride in delivering with excellence to its consumers for more than 50 years. The
structure. In case of Urea, the industry comprises other indigenous and LNG based fertilizers manufacturers who
Company treasures the relationship it enjoys with its customers and continues to facilitate the trust they have in
have made significant investments in capital equipment and operates with high fixed cost structures. Engro
us. As part of our impact on the agricultural landscape of Pakistan, Engro Fertilizers Limited offers value added
Fertilizers Limited, during the year, captured 32% of market share for Urea.
services to farmers, which will promote sustainability and growth with agri-environment.
In case of imported fertilizers, during 2019, the Company catered to 28% of the market for phosphates, a
Structural aspects of these services range from consumer awareness to soil testing and trade discounts to after
category in which locally produced fertilizer and imported product range, serve as the primary competitor.
services. Developing along the lines of continuous technological advancements, the Company regularly takes
The competition within the industry is dynamic, from traditional players, who enjoy economies of scale, given into consideration its’ consumers’ feedback. Engro Fertilizers Limited has an annual survey, which promotes
their high output range to relatively small producers, who fail to minimize fixed expenditure per unit given the continuous reforms and transformation in business practices and products.
current market share they capture. Engro Fertilizers Limited enjoys the ability to spread fixed expenditure over its
output base, hence capturing a competitive edge against players in the industry.

Potential of New Entrant into the Industry

Threat of Substitute Products
Traditionally, fertilizer industry is part of the manufacturing sector and embeds a highly capital-intensive
operational structure. The potential risk and threat from new entrants in the industry is minimal, given various Fertilizers are crucial for progressive growth of crop yield as adequate provision of nutrients in required quantity
factors including high initial capital cost, significant competition from major players and the competitive supply of is essential to fulfill the market demand for crops. Substitution strategy among nutrient bases is largely not
industry’s primary raw material, natural gas. possible, and therefore each nutrient has its role to deliver in improving crop base.

Furthermore, for a new entrant to succeed, an efficient operational unit, excelling human resource, financial Engro Fertilizers Limited undertakes extensive research to develop an articulate product base that caters to the
reserves and a vast commercial network are crucial factors to capture a significant market share. needs of the farmers, fulfilling their demand and positively contributing to the nutritional needs of the economy’s
agriculture landscape. Technological advancement continues to contribute to improvement in agri-yield globally
The Urea industry available capacity is in excess of demand. LNG based plants enter into the market as LNG is and our Company continues to incorporate innovative enhancement in its offerings.
made available to them.

63 engro fertilizers limited annual report 2019 64

 our business model Outputs

Engro Fertilizers Limited continues to grow and prosper on the back of operational excellence and sustainable
progress. The Company takes pride in maintaining quality deliverance, reflective of its strong brand recognition
in the country. Our business stands high on the principles of integrity and sustainable growth. We take pride in
adding value to our inputs with the use of highly efficient operational activities, to develop an array of fertilizer
solutions for the farmers of Pakistan. Engro Fertilizers Limited continues to contribute to the country’s
agri-landscape, while maximizing returns for its stakeholders and the same is inculcated in our business model.

Engro Fertilizers Limited’s range of products and agricultural solutions.

Inputs

We provide quality products to our customers, • Urea sales: 1,958 KT

offering wide range of fertilizers that include Urea,
• Phosphates sales: 569 KT
NPK and Di-Ammonium Phosphate (DAP) fertilizers.
We are the only fertilizer manufacturer in Pakistan, • Specialty fertilizer sales: 220 KT
providing an array of agri-inputs including seeds and
Natural Gas | Finances | Infrastructure | Procurement | Workforce
crop protection.
Some of the outputs are produced locally, whereas
others are imported.
Engro Fertilizers Limited ensures the most effective • Raw materials consumed: Rs. 22 B
use of its inputs, which encompass our raw materials • Trading products imported: Rs. 36 B
including natural gas as well as imported fertilizers,
our manufacturing and operational infrastructure, our • CAPEX: Rs. 4 B Outcomes
capital structure and financing as well as our human • Equity: Rs. 43 B
and intellectual capital.
• Number of employees: 1,260

| | |
Business Activities
Revenue and Cash Flows Brand Loyalty Customer Satisfaction Community Welfare

Engro Fertilizers Limited’s efficient and proactive • Total revenue: Rs. 121.4 B
operations ensure ever increasing revenues and cash
Manufacturing and Operational Efficiency | Warehousing and Distribution flows all the while solidifying our customer base. Our
• Operating cash flows: Rs. 22 B
one stop agri-solutions ensure that our consumers • Salaries: Rs. 4.5 B
remain satisfied by our products and the same is • Dividends: Rs. 13.0 per share
periodically measured via our Trade Satisfaction
Engro Fertilizers Limited takes pride in operating one • Production: 2 million Tons (Urea) • Contribution to national exchequer: Rs. 22 B
studies. Engro Fertilizers Limited also strongly
of the biggest and most efficient production facilities, • Total recordable injury rate (TR / IR): 0.05 believes in giving back to the society and therefore • CSR contribution: Rs. 265 M
which converts indigenous gas into Urea fertilizers.
• Manufacturing facilities: 3 corporate social responsibility is firmly inculcated into
Simultaneously, the Company employs a very
our culture.
proactive and outreaching distribution network that • Warehouses: over 100 locations
ensures timely product availability to our consumers.
• Total man-hours: 12.5 million

65 engro fertilizers limited annual report 2019 66

 value chain
Position within the Value Chain – How we create value?
Engro Fertilizers Limited takes pride in exploring nature, creating value-added products and contributing to the
community. At Engro Fertilizers Limited, efficient collaboration with resources and customers allows the
Organization to develop a functionally efficient and sustainable value chain. We treasure the contribution by our
stakeholders in the form of feedback at every step of the value chain, propelling us to achieve the goal of an
eco-friendly value chain.
Our Value Chain reflects in our business actions and our value creation model, highlighting the process of value
creation at each level of activity. For sustainable development, we regularly engage with our stakeholders and
consistently collaborate with our business partners.

Manufacturing Transportation Distribution Consumers Shareholders Community

Capital inputs undergo Robust transportation network, An articulate network of dealers Farmers benefit from the Value is created for our Uplifting lives and contributing to
processing to produce fertilizers both in-house and outsourced, for Engro Fertilizers Limited's availability of fertilizers and shareholders through profits, the community's well-being is at
delivers efficiently product range high yields growth and sustainability the heart of Engro Fertilizers
Limited's operations

• Total Urea production • Robust setup of transportation • Wide distribution network • Captured market share of • Earned a profit after tax of • Engro Fertilizers Limited has
capacity of 2.275 million MT channels across the country throughout the country to 32% for Urea and 28% for Rs. 16.9 B always been a purpose driven
for timely distribution improve the availability of our Phosphates during 2019 organization, striving to
• Raw materials consumed: • Earnings per share: Rs. 12.6
brand at all purchase points improve the lives of people
PKR 22 B • Highest ever product handling • Highest ever Potash industry • Declared dividend per share living in low-income
of 2.8 MT during the year • Over 100 permanent market share achieved of 60%
• Achieved highest ever annual of Rs. 13 (final dividend communities
warehousing locations
Urea production of 2 million • Record import handling of 275 • Sales revenue: Rs. 121 B pending members approval in
• Engro Fertilizers Limited
MT KT in October 2019 • Close collaboration with (an increase of 11% on YoY AGM)
undertakes community
dealers in providing value to basis)
• Two successful plant • One of the leading long haul • Dividend payout ratio: 102.8% engagement to deliver a
our consumers
turnarounds accomplished fleets in the country through • Consumer analytics serve as positive impact in Pakistan
our E-Logistics business, • 10 million safehours logged by a crucial insight, hence Engro with focus on, but not limited
• Lowest ever manufacturing
which became cash flow commercial and supply chain Fertilizers Limited conducts to, the following:
TR / IR of 0.03 at our Daharki
positive in its first year of teams consumer satisfaction survey
Plant – Community investment and
operations every year
• Total factory employees: 731 infrastructure development
– Education & Environment
– General & Healthcare
– Total CSR contribution in
FY2019: Rs. 265 M vs
Rs.100 M last year

67 engro fertilizers limited annual report 2019 68

 strategic objectives
Relevance in
Strategic Objectives Strategic Actions Strategic Nature Resource Allocation Measurable KPI
Strategic Excellence
Enhance farmer Increase interaction at farmer level to Long-term Efficient employment of Human Capital, • Yield per acre on pilots Will continue to be
productivity pilot various initiatives of improving primarily the network of communication relevant in the
farmer productivity. adopted by the commercial department, foreseeable future.
with financial provisions, facilitate farmers'
Liaison with relevant stakeholders to
education and improve agri-yields.
support use of balanced nutrients.

Optimize on Make efficient use of available gas to Long-term. Financial strength and operational efficiency of • Capacity utilization of Plant 1 Will continue to be
manufacturing excellence improve capacity utilization of trade and manufacturing paradigms, evolve and Plant 2 relevant in the
manufacturing facility. the infrastructure facilities to achieve optimal foreseeable future.
advancement.

Leverage brand name to Use Engro’s strong brand name to Medium-term Amalgamation of competent human resource, • Market share Will continue to be
increase top-line improve presence across all regions in financial capital, manufacturing capabilities • Growth in revenue relevant in the
the country and introduce wide range and an articulate trade and distribution foreseeable future.
of products and services. network with Engro's integral image, aims to
enhance the presence and visibility of the
brand.

Become the farmer's Enter new areas within the agri-value Long-term Technological capital, in combination with • Growth in revenue Will continue to be
preferred partner by offering chain to offer seed to harvest social, research and human resource relevant in the
complete Agri-solutions solutions. allocation, to develop and embed advanced foreseeable future.
solution range.

Achieving operational Work on improving plant utilization and Medium-term Engro Fertilizers Limited enjoys a history of • Plant energy index Will continue to be
efficiency energy efficiency. best practice implementation frameworks, relevant in the
International benchmarking. employment of all capital bases, to achieve foreseeable future.
optimization.

Providing agri-inputs at Facilitate the local farmers by Medium-term Manufacturing excellence, financial feasibility, • Local vs International Will continue to be
optimal prices providing inputs at affordable prices. social resources and intellectual capital Urea prices relevant in the
Immediately passing on full impact of introduce cost economization to local farmers, foreseeable future.
GIDC reduction through decrease of enhancing inputs cost efficiency and farmers'
Urea prices. value functionality.

Corporate social Focusing on improving quality of life of Medium / Long-term Social, financial and intellectual capacities are • Number of lives impacted On going.
responsibility people in communities in which we enjoined to facilitate the implementation of through our livelihood projects
operate. CSR projects, enhancing Daharki's social • Number of students at school
infrastructure. • Number of patients treated

Relevance of Measurable KPIs in Future Strategic Excellence Significant Changes in Objectives and Strategies
The Organization takes pride in efficiently identifying and designing relevant and tangible performance Engro Fertilizers Limited has an articulate and structural paradigm of business objectives and strategies. In
indicators. The measurable KPIs take into consideration, the planning and implementation attributed to the FY2019, there were no significant changes in the strategic objectives framework of the Organization as
continuous achievement of defined strategic aims and objectives. Therefore all of the aforementioned KPIs will
compared to the previous year.
continue to be relevant in the foreseeable future.
Detailed Resource Allocation Plan
In addition to the strategic allocations, a detailed resource allocation plan is outlined on page 71.
69 engro fertilizers limited annual report 2019 70
 resource allocation
The Company operates its Treasury Management shareholder returns. The Company does this by
System with a focus to enhance profitability, increase minimizing its financing cost and maximizing its
shareholder return and preserve invested capital. The financial income. Working capital requirements are

plans
Company endeavors to maintain a diversified portfolio met through internal cash generation and short-term
of investment by placing funds in government borrowing, whereas long-term borrowing is availed to
securities / money market, TDRs and other investment meet capex requirements (if required) and to ensure
schemes. balance sheet optimization. External financing
includes both local and foreign financing which is
Key objectives of the Treasury Management System
obtained after exhaustive evaluations of offers in hand
are as follow:
and market conditions, ensuring maximization of
• Based on cash flow projections, surplus funds shareholder value.
The Company aims to achieve strategic objectives by During the year, the Company covered ground on its are identified for investment by matching
In 2019, the Company continued to concentrate its
optimizing available resources. This would be done by Long-term reliability plans for efficiency enhancement maturity dates of investments with working
efforts on reducing costs of financing. Improved
primarily leveraging on its strong brand equity with of its manufacturing facility. Engro Fertilizers Limited capital / other funding requirements of the
industry dynamics and resultant cash generation
efficient utilization of the Company’s core strengths aims to make headway into this project to ensure Company, to ensure sufficient liquidity to
allowed the Company to delay its drawdown of fresh
which include but are not limited to: improved and efficient operations. meet operational needs of the Company
long-term loans towards the tail-end of the year, for
• financial strength During the year, Engro Fertilizers Limited sold 100% of • Such investments are placed in short-term financing of capital expenditure, in contrast to
its stake in Engro Eximp FZE, a subsidiary established securities to ensure optimal returns with repayments of long-term loans made over the course
• competent human resource
as a trading arm in the Jebel Ali Free Zone in Emirate highly credible institutions to curtail credit risk of the year. Long-term borrowings at year end 2019
• manufacturing excellence of Dubai to Engro Corporation Limited. • Investment portfolio is adequately diversified stand at PKR 31 billion (2018: PKR 30.8 billion). All
• strong HSE standards Changes in Objectives and Strategies to earn maximum returns while maintaining debt repayments maturing this year were paid by their
Engro Fertilizers Limited aims at becoming the prudent level of risk and exposure due dates and there have been no defaults in
Whereas, the Company’s long-term strategies and
preferred partner of the farmer by providing an array repayment of any debt during the year. Total equity as
objectives have stayed intact compared to last year, Debt management and capital structure
of solutions. This will be through achievement of the at December 31, 2019 stands at PKR 43.3 billion
Engro Fertilizers Limited is continuously exploring The Company places great emphasis on value
smart strategic objectives which are easily (2018: PKR 45.5 billion).
opportunities to expand its footprint within the maximization, which in turn leads to higher
measurable and will remain relevant in the agriculture industry. The Company has already
foreseeable future. Engro Fertilizers Limited will undertaken several initiatives at the farmer level and
continue to deploy its resources to ensure efficient aims at establishing itself as a one stop solution for all
utilization of local resources and to eliminate farmer needs.
dependence on imported fertilizers.
Liquidity and Cash Flow Management
The Company will continue to monitor the strategic
Treasury Management and Strategy to Overcome
objectives on an annual basis and will make
Liquidity Problems
amendments, if needed, based on changes in the
internal and external environment. To manage its working capital in the most efficient
manner, the Company has a proactive Treasury
Significant Plans and Decisions
Management System in place. Cash generation
With the Company having achieved significant realized through sales and borrowings from banks are
success in the Fertilizer arena, the Company has built used to meet the liquidity requirements of the
on its momentum of expanding its portfolio in the Company. Further, effective controls on credit sales
agriculture industry by introducing various new and securing advance payment against sales assist in
products in the Seeds and Pesticides business. Engro managing its liquidity position.
Fertilizers Limited plans to escalate the business
The Company invests any additional funds at the most
going forward by enriching its portfolio with increased
competitive rates, which, in turn, adds to its
focus on products which could better assist in
investment income and duly provides the Company
enhancing farmer productivity and profitability.
with additional funds to meet its operational needs.
The Company has also ventured into logistics space
The Company has been able to successfully maintain
during the year aiming to deliver “movement with
its long-term and short-term credit rating of ‘AA’ and
precision”. Within its first year, the “E-Logistics”
‘A1’ respectively through its prompt, coherent and
Division became cash flow positive and already has
effective methods of managing its business,
one of the leading long haul fleets in the country.
investments, cash and liabilities (long-term and
71 engro fertilizers limited
short-term). annual report 2019 72
 our approach to risk
Broad types of risk which are used for categorization of risk response options and preparing
of risk and opportunities are as follows: implementation plans for selected response options.
• Strategic Risk Using a prioritized list of quantified risks requiring
response options, the leadership can make informed

management and our

Strategic risks are risks that affect or are strategic decisions about how to allocate resources to
created by an organization's business risks reflected in the Enterprise Risk Register.
strategy and strategic objectives.
Monitoring and Reporting
• Commercial Risk

top risks
The ERM Risk Register is reviewed on periodic basis
Commercial risks refer to potential losses to ensure updation for changes in external and
arising from the trading partners or the internal environment. The ERM Risk Register and
market in which the Company operates. mitigation strategies are also presented to the
• Operational Risk Management Committee and the Board Audit
Committee on bi-annual basis in the form of Risk Heat
Operational risk refers to the risk of loss Maps.
resulting from inadequate or failed internal
processes, people and systems or from Key Risks, Related Opportunities and Mitigation
Engro Fertilizers Limited uses a well-defined external events. Strategies
framework to understands and manages the risks Following are the major risks and opportunities
• Financial Risk
faced across the entire Organization. We define risks effecting availability, quality and affordability of
Formulation of Identification Financial risk is an umbrella term for multiple
as situations or actions with the potential to threaten capitals in the short, medium and long-term, which
Strategy and of Risk and types of risk associated with financing,
our ability to deliver on our strategic priorities and, may affect our business operations along with the
Business Opportunities profitability, liquidity and credit. The Company's
ultimately, to create value. Objectives management assessment of their source, likelihood,
overall risk management program focuses on impact and the mitigating strategies implemented by
Risk Governance and Oversight
having cost efficient funding as well as to the Company for these risks:
At Engro Fertilizers Limited, the Board of Directors manage financial risk to minimize earnings
have the overall responsibility for ensuring that Monitoring volatility and provide maximum return to
Risk
Company has a robust process in place for and shareholders. The Company’s policy for
Assessment
assessment of principal risks facing the Company, Reporting management of financial risk are explained in
including those that would threaten the business notes to the financial statements for the year
model, future performance, solvency or liquidity. The ended December 31, 2019. Financial Risk
Board Audit Committee is responsible to perform Implement
Include Credit Risk, Market Risk and Liquidity
oversight of the Enterprise Risk Management Risk Prioritization Risk.
methodology approved by the Board has been Response of Risks
Risk Assessment
implemented across the organization. In addition, the
Board Compensation Committee focuses on risks The process involves consideration of the causes and
relating to Human Capital, including assessment of sources of risk, the probability that the risk event will
compensation programs and succession planning. occur, their positive or negative consequences and
magnitude, and the likelihood that those
Further, various management committees have been Formulation of Strategy and Business Objectives
consequences may occur. The Board has approved
constituted which perform regular oversight of
At Engro Fertilizers Limited, the focus of ERM is to formal criterion for assessment of the ‘likelihood’ and
performance of the Company with respect to
ensure achievement of the Organization objectives. ‘impact’ which is used by the management for risk
Organization & Employee Development, Health Safety
Defining the Organization’s strategy and objectives is assessment. Each risk is assigned a rating and
& Environment, Execution of Planned Capital Projects,
pre-requisite to identifying risks and opportunities. recorded in the Risk Register. Risk assessment
Business Continuity Planning and Business Process
During this step, the management defines strategy provides the basis for evaluation and decisions
Reengineering.
and objectives for different areas of the Organization. regarding risk response or treatment.
Engro Fertilizers Limited, Internal Audit function
Identification of Risks and Opportunities Prioritization of Risk
provides independent and objective evaluations while
reporting directly to the Audit Committee on the The purpose of this step is to identify a The purpose of this step is to develop a prioritized list
effectiveness of governance, risk management and comprehensive list of risks and events that may of enterprise-level risks for response options. By
control processes. potentially impact the achievement of Organization’s ranking and prioritizing the enterprise-level risks,
mission and strategic objectives. In order to identify Engro leadership can respond as appropriate with
Enterprise Risk Management Process
enterprise-level risks to be managed, a structured strategic allocation of resources while responding to
Engro Fertilizers Limited has implemented an and systematic “Enterprise Risk Register” is used. the risks. In order to develop ranking, the risks are
Enterprise Risk Management (ERM) methodology ranked according to Impact Likelihood rating.
Identifying associated opportunities is also integral to
which provides a structured, disciplined and
this process where considering our business model Implements Risk Responses
consistent approach to risk management that
and external environment an assessment is made as
facilitates risk-informed decision making throughout The purpose of this step is to select a combination of
to how Engro Fertilizers Limited can leverage
the Organization. Engro Fertilizers Limited uses a risk response options that will optimize Engro’s
opportunities to ultimately create value.
well-defined process to assess its risks, opportunities resources in managing its portfolio of risks. The
and material issues: process involves identifying and assessing the range
73 engro fertilizers limited annual report 2019 74
 Risk description: Depletion of allocated gas field affecting production of Urea. Risk description: Decline in international Urea prices allowing for imports resulting in the
Company’s market share.
Associated Objective: Providing agri-inputs at optimal prices / Achieve operational excellence.
Associated Objective: Leverage brand name to increase top-line.
Risk Type Capital Impacted Source Likelihood Impact
Risk Type Capital Impacted Source Likelihood Impact
Operational Manufactured Capital / External Medium High Commercial Financial Capital / External Low High
Natural Capital Manufacturing Capital

Opportunity • Invest to improve energy index of both Base and enVen plants. Opportunity Increase domestic market share through import of Urea.
• Identify alternate sources of gas / energy and invest in other businesses.
Mitigation Plan • Continue to focus towards cost optimization.
• Currently, international Urea prices USD 259/T - landed equivalent
Mitigation Plan • Engro Fertilizers Limited is actively evaluating alternate sources of gas /
Rs. 2,410/bag) is significantly higher than the domestic fertilizer prices of
energy.
Rs. 1,850/bag.
• Continue to invest in additional plant efficiency improvements.
• Continue to actively monitor international fertilizer prices, trends and
industry demand / supply dynamics.

Risk description: Continuous changes in government policies and regulations affecting Risk description: Adverse movement in foreign exchange / interest rates impacting profitability
Company’s competitiveness. of the Company.
Associated Objective: Providing agri-inputs at optimal prices. Associated Objective: Achieving operational efficiency / Facilitate the local farmers by providing
inputs at cheaper prices.
Risk Type Capital Impacted Source Likelihood Impact
Risk Type Capital Impacted Source Likelihood Impact
Strategic Financial Capital External Medium High
Financial Financial Capital External Medium Low
Opportunity Improving agricultural productivity of Pakistan resulting in market growth.
Opportunity FX / Interest rates hedging arrangements.
Mitigation Plan The Company is actively monitoring changes occurring in regulatory
framework and engages with government and other stakeholders to Mitigation Plan • The Company's treasury function actively monitors movements in market
provide explain dynamics and issues impacting the industry to enable rates and open positions.
sustainable and progressive policy making. • Any cost increase due to the changes in market rates to be passed on to
the end consumer.

Risk description: Allocation of expensive gases to old plants at Petroleum Policy 2012 or LNG Risk description: Reduced gas pressure affecting ability of the plant to run at full capacity.
making them uncompetitive. Associated Objective: Providing agri-inputs at optimal prices / Achieve operational excellence.
Associated Objective: Achieving operational efficiency. Risk Type Capital Impacted Source Likelihood Impact
Risk Type Capital Impacted Source Likelihood Impact
Operational Manufactured Capital External Low High
Financial Financial Capital / External Medium High Opportunity Invest to improve gas availability.
Manufacturing Capital
Mitigation Plan Continue to make investments in compression facilities.
Opportunity Utilize existing idle capacity of base plant to meet domestic Urea demand.

Mitigation Plan Continue to convince the government to provide a level playing field to all
players by allocating gas on fertilizer industry rate in line with the Fertilizer
Policy as charging higher prices increases the cost of doing business and
increase input cost of farmers.
Engaging with the government to allocate more gas to Base Plant, which can
convert it to Urea in most efficient manner.

75 engro fertilizers limited annual report 2019 76

 Risk description: Oversupply in local Urea market leading to price competition and decline in market share. Risk description: Plant shutdown due to equipment failure leading to equipment failure.
Associated Objective: Achieving operational efficiency / Facilitate the local farmers by providing Associated Objective: Optimize on manufacturing excellence / Facilitate the local farmers by
inputs at cheaper prices. providing inputs at cheaper prices.
Risk Type Capital Impacted Source Likelihood Impact Risk Type Capital Impacted Source Likelihood Impact
Commercial Financial Capital / External Medium Medium Operational Financial Capital / Internal Low High
Relationship Capital Manufacturing Capital

Opportunity Export Urea to earn valuable Forex for the country. Opportunity Increase plant reliability to international benchmarks.

Mitigation Plan • The Company enjoys a strong brand and loyal customer base and holds Mitigation Plan • Preventive maintenance plan in place with specific measures for
34% market share of local Urea sales. monitoring and maintenance of Plant vulnerabilities.
• The Company will continue to invest in brand development and long-term • The Company has planned CAPEX to enhance reliability of it’s plants.
customer relationships. • Inventory of critical plant components maintained to ensure timely
replacement in case of failure.
• Business interruption insurance coverage obtained.

Risk description: Downturn in domestic demand for Urea sales. Risk description: Attrition of critical personnel hindering the operations of the Company.
Associated Objective: Achieving operational efficiency / Facilitate the local farmers by providing Associated Objective: Optimize on manufacturing excellence / Achieving operational efficiency.
inputs at cheaper prices.
Risk Type Capital Impacted Source Likelihood Impact
Risk Type Capital Impacted Source Likelihood Impact
Operational Human Capital Internal Low Low
Commercial Financial Capital / External Low Medium
Opportunity Motivated, zealous and ever efficient team that personifies the Company’s
Manufactured Capital values, ensuring continued excellence over the years.
Opportunity • Export Urea to earn valuable Forex for the country.
Mitigation Plan • The Company has formal succession planning process, which is
• Diversify into other product / markets.
stewarded by the Management Committee and the Board.
• Formal training and development plan in place for each critical position.
Mitigation Plan • The Company actively monitors the factors affecting demand for Urea • Human Resource policies developed with focus on employee retention
and optimizes its production and marketing strategies. and engagement.
• The Company will continue to invest in brand development, market • Employee Engagement surveys conducted annually by independent
development and long-term customer relationships. consultants to assess employee engagement level.
• Subject to regulatory approvals, the Company also has the option to • Continue on our journey of HR transformation to completely revamp our
export surplus quantity. human capital development system.

77 engro fertilizers limited annual report 2019 78

 board committees functional committees
The board has established the following two committees: These committees act at the operational level in an advisory capacity to the Chief Executive, providing
recommendations relating to the businesses and employee matters

Board Compensation Committee (BCC) Board Audit Committee (BAC) Management Committee Committee for Organizational and
The committee meets multiple times through the year The committee meets at least once every quarter and Management Committee is headed by the President & Employee Development (COED)
to review and recommend all elements of the assists the Board in fulfilling its oversight CEO and includes the divisional heads of all
Compensation, Organization and Employee responsibilities, primarily in reviewing and reporting departments. The committee meets to discuss The COED is responsible for the review of
Development policies relating to the senior executives' financial and non-financial information to Company’s performance and works in an advisory Compensation, Organization, Training and
remuneration and to approve all matters related to the shareholders, systems of internal control and risk capacity to the President & CEO. Development matters of all employees. The members
remuneration of the executives of the company and management and the audit process. It has the power of COED at Engro Fertilizers are as follows:
members of the management committee. to call for information from management and to Members
consult directly with the external auditors or their Members
The Chief Executive Officer Attends Board advisors as considered appropriate. Mr. Nadir Salar Qureshi – Chairman
Compensation Committee meetings by invitation. The Mr. Amir Iqbal Mr. Nadir Salar Qureshi – Chairman
committee met twice during 2019. The Chief Financial Officer regularly attends the Board Mr. Syed Shahzad Nabi Mr. Amir Iqbal
Audit Committee meetings by invitation to present the Mr. Imran Ahmed Mr. Salman Goheer
Members accounts. After each meeting, the Chairman of the Mr. Salman Goheer Mr. Imran Ahmed
Committee reports to the Board. The Committee met Mr. Fahd Khawaja
Ms. Sadia Khan – Chairperson five times during 2019. The Secretary of the Management Committee is Ms. Mr. Azhar Malik
Mr. Asim Murtaza Khan Nida Fatima Hashmi. Mr. Majid Latif
Mr. Javed Akbar Members
The Secretary of the COED is Mr. Syed Shahzad Nabi.
The Secretary of the Committee is Mr. Imran Ahmed. Mr. Asad Said Jafar – Chairman
Mr. Asim Murtaza Khan Corporate HSE Committee Capex Committee
Mr. Hasnain Moochhala This committee is responsible for bringing in This committee is responsible to oversee and approve
Salient features of terms of reference Mr. Javed Akbar excellence in the sectors of Health, Safety and capital expenditure strategies including its alignment
Environment. with approved Corporate Plan.
The terms of reference of the BCC are defined in the The Secretary of the Committee is Mr. Zaib Zaman.
charter of the committee. The salient features are Members Members
mentioned below:
Salient features of terms of reference
Mr. Nadir Salar Qureshi – Chairman Mr. Syed Shahzad Nabi – Chairman
• To ensure Corporate standards / Human The terms of reference of the Board Audit Committee Mr. Syed Shahzad Nabi Mr. Salman Goheer
Resource policies and fundamental beliefs are are defined in the Charter of the Committee, duly Mr. Amir Iqbal Mr. Imran Ahmed
aligned with the Corporate guidelines approved by the Board of Directors. The salient Mr. Imran Ahmed Mr. Majid Latif
• To recommend the performance evaluation, features are stated below: Mr. Salman Goheer Mr. Azhar Malik
development and succession plans of the Mr. Fahd Khawaja Mr. Haider Ali Isani
Company’s executives • To recommend to the Board the appointment and Mr. Azhar Malik
• Review the Company’s management resources, removal of external auditors Mr. Majid Latif The Secretary of the Capex Committee is Mr. Syed
succession planning and development activities • To review quarterly, half-yearly and annual Talha Raza.
• Review and approve relevant Human Resource financial statements The Secretary of the Corporate HSE Committee is Mr.
policies • To review the internal control systems and internal Asim Rasheed Qureshi.
audit function
• To review the enterprise risk management system
and assess the adequacy and monitoring of the Pricing Committee
same by the management. This committee is responsible to oversee and approve
• To monitor management’s compliance with all product pricing strategies including its alignment with
Company’s policies including complaints approved Corporate Plan.
received through the Speak Out – Whistle Blower
Policy Members
• To monitor compliance of statutory requirements
Mr. Nadir Salar Qureshi – Chairman
Mr. Amir Iqbal
Mr. Imran Ahmed

The Secretary of the Pricing Committee is Ms. Nida

Fatima Hashmi.

81 engro fertilizers limited annual report 2019 82

 our governance framework For information on remuneration of Directors and CEO
in 2019, please refer note 33 to the Consolidated
advances made by the company and fixing a
monetary limit thereof;
Financial Statements.
With a strong legacy system spanning over four decades, Engro Fertilizers continues to optimize its • Defining the level of materiality, keeping in view
governance framework by institutionalizing its core values, policies and principles across the board. Selection of independent Directors the specific circumstances of the company and
For the purpose of selection of independent directors, the recommendations of any technical or
assistance is sought from the online database executive sub-committee of the Board that may
maintained by entities notified by Securities and be set up for the purpose;
Board Of Directors Code of Corporate Governance. Exchange Commission of Pakistan (SECP) under the • Review and approval of related party
The Board of Directors carries out its duties with a Directors’ Training Companies (Manner and Selection of Independent transactions;
sense of objective judgment and in good faith in the Directors) Regulations, 2018.
The Board has arranged Directors’ Training program • Appointment, removal, remuneration, terms and
best interests of the Company and its stakeholders. conditions of employment of Chief Executive
for Mr. Nadir Salar Qureshi during the year. All the other Performance Evaluation of Directors
There are eight (8) numbers of Directors on the Board, Officer, Chief Financial Officer, Company
directors have already completed this program in The Board has developed a formal mechanism for
comprising of three (3) Independent Directors, four (4) Secretary and Head of Internal Audit;
previous years. evaluation of board’s own performance, members of
Non-Executive Directors and one (1) Executive
Director. The Board collectively has the responsibility Directors’ Remuneration board and of its committees. The assessment was • Constitution of committees and appointment of
for ensuring that the affairs of the Company are carried out four times in the current year and the Committee Chairs and approving their terms of
The Board of Directors have approved a formal policy
governed competently and with integrity. results/ feedbacks were evaluated to bring reference;
which set out the requirements and methodology for
improvement in the evaluation process. The
Biographical details of all the Directors are given in the determining the remuneration for Non-Executive • Governance of risk and determining Company’s
performance evaluation focuses on:
previous section. Directors including Independent Directors of the level of risk tolerance including annual review;
Company. The policy entails: • Clarity of agenda and objectives;
In compliance with best practices of corporate • Powers vested with the Board as per Section 183
governance, the positions of the chairman of the Board • The remuneration shall be appropriate and • Preparation for the meetings; of the Companies Act; and
of Directors and the office of the Chief Executive are commensurate with the level of responsibility and • Quality and diversity of discussions ; • Significant issues to be placed for decision of the
held by separate person. Mr. Ghias Khan, expertise of the Directors; Board of Directors as per Clause 14 of the Code
Non-Executive Director, is the Chairman of the Board • Clarity of decisions and outcomes;
• It shall be aimed at attracting and retaining the of Corporate Governance, as and when
and Mr. Nadir Salar Qureshi is the Chief Executive Directors needed to govern the Company • Quality of discussion topics; and applicable.
Officer (CEO) of the Company. In addition to the being successfully and to encourage value addition; • Overall satisfaction. Matters Delegated to the Management
CEO of the Company, Mr. Nadir Salar Qureshi holds
non-executive directorship on the Board of the • It shall not be at a level that could be perceived Matters decided and delegated by board of directors All matters not specifically reserved for the Board and
following companies: to compromise or influence in any way the have been entrusted to the CEO of the Company who
independence of the Director; The Board is committed to ensuring effective
• Engro Vopak Terminal Limited; delegation of financial powers as is permissible has the primary responsibility for routine business
• No Director shall determine his/her own according to the legal framework and have approved operations of the Company. The authorities necessary
• EFert Agritrade (Private) Limited; remuneration nor of a Director who may be a for the day‐to‐day management of the organization and
formal policy on Delegation of Finance Powers. The
• Engro Polymer and Chemicals Limited; related party; policy establishes: the implementation of corporate objectives have been
delegated to management of the Company and is
• Engro Energy Limited; and • No remuneration shall be paid to Executive This policy establishes: documented in form of a Limits of Authority Manual
Directors, Chief Executive Officer and
• Pakistan Energy Gateway Limited. • Matters specifically reserved for determination by (LOAM).
Non-Executive Directors who are employees in
Meeting of the Board of Directors other Engro entities, for attending meetings of the the Board of Directors; and Brief roles and responsibilities of the Chairman of
A calendar for the meetings of Board is issued Board and its committees; and • Matters delegated to the Management to the Board:
annually. The meetings schedule significant matters as • The Board, if deems appropriate, may engage empower it to act effectively and make key Every meeting of the Board is be presided by a
agenda for review, discussion and approval of the independent consultant to determine the decisions. Chairman. The chairman of a board meeting by virtue
Board. The Board met eight (8) times this year (all the appropriate level of remuneration of its Directors The powers of the Board of Directors and the of his position and nature of his duties is responsible for
Board meetings during the year were held in Pakistan) and recommend to the Board for consideration management of the Company have been defined in the the leadership of the board and to ensure that the
and discussed matters relating to inter alia long-term and approval. said policy with special reference to, and in board plays an effective role in fulfilling its
planning, giving consideration to both the opportunities compliance with, the Companies Act 2017, the Code of responsibilities and amongst other things, he is
The Company has a documented policy which
and risks to future strategy. Corporate Governance and the Articles of Association empowered to:
generally restricts employees from holding
Notices along with agendas of the meetings including directorships in companies that are not subsidiaries or of the Company. • to issue letter to directors setting out their role,
relevant material, detailed analysis on businesses and joint ventures of Engro Corporation Limited. However, In addition to approving the vision, core values, obligations, powers and responsibilities at the
information on significant matters where the Board is the President of Engro Corporation Limited or the corporate strategy and the policies for conduct of beginning of term of each director
required to make a decision or give its approval, are Chairman of the Company, may make exceptions to business of the Company, matters specifically • set the agenda of the meeting of the Board and
circulated to Board members in advance of the this general rule in special circumstances. All reserved for the Board in relation to delegation of ensure that reasonable time is available for
meetings. expenses incurred by an employee serving as a financial powers are listed below: discussion of the same
director of a company that is not a subsidiary or joint
Directors’ Orientation • Investment and disinvestment of funds where the • ensure that the minutes of meetings of the board
venture of ECL in accordance with this policy will be for
The Company had its elections during the year and the maturity period of such investments is six months of directors are kept in accordance with th
that employee’s own account. The employee may
Chairman had communicated in detail the duties, roles or more; requirements of Section 178 and 179 of the
accept and retain annual fees, meeting fees, other
and responsibilities, powers, term of office and remuneration or reimbursed expenses specifically • Determination of the nature of loans and Companies Act, 2017
remuneration of Directors required under the related to service as a director.
Companies Act 2017, the Articles of the Company and

83 engro fertilizers limited annual report 2019 84

 Role of the Chief Executive Officer (CEO): Board of Directors and circulated to the to the and objectives. To achieve this, an appropriate Investors’ Grievance Policy
Roles and responsibilities of the Company’s CEO are shareholders within the specified time limit. framework is adopted by the management and The Company strives to develop and maintain
duly assigned by the Board of Directors of the The annual standalone and consolidated financial approved by the Board. Detail on the Company’s ERM trustworthy relations with all its stakeholders, including
Company. The Chief Executive Officer is vested with statements of the Group for the year ended December programe is mentioned in the Risk and Opportunities shareholders and investors. It recognizes the
the general control of the business of the Company and 31, 2019 have been audited by the External Auditors section of this annual report. importance of timely and fair disclosure of all material
amongst other things, he is empowered to: and recommended by the Board in its meeting held on Internal Control Framework information to them, without advantage to any
• enter into any trade contracts on behalf of the February 17, 2020 for shareholders’ approval in the particular investor, group or investment advisor /
Responsibility: The Board is ultimately responsible to
Company in the ordinary way of business Annual General Meeting to be held on March 31, 2020. analyst, in order to enable them to make informed
ensure that a system of sound internal control is
decisions about investing in the Company.
• to do all other acts and things in the ordinary Other financial and non-financial statements enclosed established, which is effectively implemented and
course of business which he may consider with statutory financial statements are in conformity maintained at all levels within the Company. However, The Company’s contact details are disclosed in
necessary or conducive to the interests of the with the applicable regulatory requirements. such a system is designed to govern rather than “Company Information” section of this annual report
Company eliminate the risk of failure to achieve business and on it’s website under “Investors relation” section to
Conflict of Interest Among Board Members
objectives. The Board, whilst maintaining its overall facilitate shareholders / other investors’ and timely
Performance evaluation of CEO A formal code of conduct is in place that promotes responsibility for governance of risk within the resolve their complaints, if any.
Performance of the CEO is evaluated through a ethical culture in the company and prevents conflict of Company, has delegated the detailed design and Policy for Communication to Investors / Shareholders
comprehensive inhouse evaluation structure, which interest in capacity as member of the board, senior operation of the system of internal controls to the Chief
measures performance based on specific, conduct also includes a section on fiduciary duties of Executive. The Board of Directors have approved a formal
measurable, achievable, realistic and time bound Directors ‘which included the following: document policy for communication with investors /
Framework: The Company maintains an established shareholders. The said policy aims to to develop and
objectives. Furthermore, performance of the CEO is • Duty not to place themselves in a position of control framework comprising clear structures,
also gauged by analyzing core competencies maintain trustworthy relations with its stakeholders,
conflict between their personal interests and authority limits, and accountabilities, well
exhibited in achieving the objectives. including shareholders and investors. It recognizes the
those of the company – this includes the duty to communicated and understood policies and importance of timely and fair disclosure of all material
Governance over related party transactions disclose any such personal interests to the procedures and budgeting for review processes. All information to them, without advantage to any
Company and the duty not to make secret and/or policies and control procedures are documented in
The Board has approved a formal documented policy particular investor, group or investment analyst, in
incidental profits at the expense of the company. manuals. The Board establishes overall corporate
for governance over transactions between the order to enable them to make informed decisions about
• Duty to account for profits, and not to make strategy and the Company's business objectives. investing in the Company’s equity and debt
Company and one or more of its Related Parties which Divisional management integrates these objectives into
provides a framework for governance and reporting of secret or incidental profits. instruments.
divisional business strategies with supporting financial
Related Party Transactions. This Policy is intended to • Duty not to act on behalf of Company in any objectives. Interaction with major shareholders
ensure due and timely approval, disclosure and matter in which he/she has an interest that
reporting of transactions between the Company and Review: The Board meets atleast once in a quarter, to Engro Corporation Limited continues be the major
conflicts, or may conflict, with his duties to his/her
any of its Related Parties in compliance with the consider the Company‘s financial performance, shareholder in the Company and its President & CEO is
company.
applicable laws. financial and operating budgets and forecasts, also the Chairman of the Company’s Board of
The Directors’ of the Company excuse themselves from business growth and development plans, capital Directors.
The said policy: the meetings when the matters under discussion expenditure proposals and other key performance Further, other interactions include the annual general
• defines the type of contracts / agreements that involve a conflict or potential conflict of interest with the indicators. meeting, extra ordinary general meetings, corporate
can be made with related part; activities of any undertaking in which they may hold a
The Board Audit Committee receives reports on the briefings/road shows, responding to investor queries
real or beneficial interest
• defines the pricing policy for related party system of internal financial controls from the external either raised on email, website or on telephone.
transactions; Compliance Statement and internal auditors and reviews the process for Investors’ Relations Section on Corporate Website
The Board of Directors has duly complied with the monitoring the effectiveness of internal controls.
• defines the framework for review, reporting and The investors’ relations section on the Company’s
approval for transactions not at arm’s length; and Listed Companies (Code of Corporate Governance) There is a Company-wide policy governing appraisal website (www.engrofertilizers.com) is updated
specifies the methodology for approval for Regulations and the 'Corporate and Financial and approval of investment expenditure and asset regularly to provide detailed and latest company
transactions in which Director(s) have interest. Reporting Framework' of the Securities & Exchange disposals. Post completion reviews are performed on information including financial highlights, investor
Commission of Pakistan. all material investment expenditure.
Responsibility for Statutory Financial Statements information and other requisite information.
Risk Management Process Audit: Engro Fertilizers has an Internal Audit function, Furthermore, the Company’s website also contains the
In accordance with the requirement of the applicable link to SECP’s investor education portal, ‘Jamapunji’.
All activities undertaken by a business entity carry an manned with suitably qualified and experienced staff.
regulatory framework, CEO and CFO management are
element of risk. At Company, the exposure to these The Board Audit Committee annually reviews the To better facilitate investors, shareholders and other
responsible for the preparation and fair presentation of
risks is managed through the practice of Enterprise appropriateness o f resources and authority of this stakeholders, the Company’s website is maintained in
the financial statements in accordance with the
Risk Management (ERM). The purpose of ERM is to function. The Head of Internal Audit functionally reports both English and Urdu.
accounting and reporting standards as applicable in
identify potential risks and to define the strategy for to the Audit Committee. The Board Audit Committee
Pakistan and the requirements of Companies Act, 2017 Analyst Briefings Sessions
managing the impact of these risks, as well as the approves the audit program, based on an annual risk
(XIX of 2017) and for such internal controls as
mechanisms to effectively monitor and evaluate assessment of the operating areas. The Internal Audit Continuing with its policy of promoting transparency
management determines is necessary to enable the
identified strategies. function carries out reviews on the financial, and stakeholder engagement, during the year the
preparation and presentation of financial statements
operational and compliance controls, and reports on Company conducted four analyst briefing sessions
that are free from material misstatement, whether due It is the policy of the Company to view ERM as integral
findings to the Board Audit Committee, Chief Executive where the CFO of the Company briefed the
to fraud or error. to the creation, protection and enhancement of
and the divisional management. stakeholders about the financial and operational
These financial statements were approved by the shareholder’s value by managing the uncertainties that
performance of the Company. Enough opportunity was
could influence the achievement of corporate goals

85 engro fertilizers limited annual report 2019 86

 provided for Question & Answer during these sessions. and support its long-term business strategy. The IT Governance Framework aims to achieve the presented on a quarterly basis to the Board Audit
These analyst briefing sessions were attended by Corporate tax strategy is governed by the following following objectives: Committee (BAC).
representatives of PSX, investment analysts and other principles:
• Alignment of IT goals with business Below is the number of whistleblowers reported during
stakeholders. Details of the analyst briefings held • Ensuring high level of tax compliance in every the year 2019:
during 2019 are as follows: • Meet stakeholders’ requirements relating to risk
jurisdiction where the Company has operations;
optimization, resource optimization and value No. of whistle blower complaints investigated and
• Making material business decisions after taking delivery closed during the year 30
Quarter Date Agenda
into account optimized tax solutions;
Q4 2018 February 11, 2019 To discuss the following: • Support the decision-making process regarding No. of whistle blower complaints in progress 2
• details of released financial results; • Ensuring minimum exposure through prevention governance and management of IT by providing
Q1 2019 April 22, 2019 • dividend payouts; and reduction of significant tax risks; sufficient information and reports Concerns can be raised at “Speak Out” hotline
Q2 2019 August 08, 2019 • overall business performance; +9221-35296012,
• Key challenges and outlook; and • Developing and fostering open, honest and good • Achieve effective and prudent IT project
Q3 2019 October 18, 2019 • Any other matters. working relationships with tax authorities and management and IT resources management email to [email protected] or
undertaking all dealings in a professional, processes written to P.O. Box 3851, Clifton Post Office, Karachi
Annual General Meeting courteous and timely manner;
• Enabling enterprise business strategies by Human resource management policies including
The Company’s Annual General Meeting (AGM) was • Ensuring open communication channels within developing technological infrastructure and preparation of a succession plan.
held on March 28, 2019, which was attended by the Engro group to encourage smooth flow of information systems
Chairman of the Board, Chairman of Board Audit information. The Company has a documented Human Resource
• Ensure the necessary protection of assets management policy which aims to attract, induct,
Committee, Chief Executive Officer and other senior Policy for safety records of the company. through optimization of IT Risk Management
management of the Company to address queries and develop, retain and motivate high calibre talent who
The Company has a documented Record Retention • Comply with legal and regulatory requirements, are qualified, capable and willing to contribute their
clarifications sought by the Board of Directors.
Policy to ensure the safety of the records for periods internal controls and monitoring, and related best towards accomplishment of Company objectives.
During the last AGM, queries and clarifications were that exceed the minimum requirement prescribed by policies and procedures To complement this policy several other policies have
sought on the Company’s financial statements, which Companies Act, 2017 and other applicable regulatory been developed for recruitment, compensation and
• Maximize the satisfaction level of end user with
were resolved to the satisfaction of the Shareholders. requirements. organizational development. The Company’s HR
respect to IT services
Apart from the said queries, no significant issues or In addition, the Company has a formally documented policies have been developed encompassing following
concern was raised by the shareholders. • Employ a comprehensive sourcing strategy to
Business Continuity Plan (BCP) complemented by a principles:
manage third parties/vendors relationships
Steps taken by the management to encourage formal Disaster Recovery Plan (DRP). The BCP and Equal Opportunity
DRP specifies the policy and procedures implemented Whistleblower Policy – “Speak Out!”
minority shareholders to attend the general • Provide equal opportunity to all job applicants
at the Company for the safety of critical electronic, hard The Board of Directors of the Company have
meetings copy data and processes to ensure all critical functions through clearly defined and consistently applied
established a Whistleblower system which allows
Notice of Annual General Meeting is sent to all continue in case of a disruption or disaster. induction standards.
employees, suppliers, customers and contractors to
shareholders of the Company at least twenty-one days The main purpose of the Company policies for safety of speak out about any concerns they have regarding • Create a work environment where every
before the date fixed for meeting. Such notice is ERP systems and business records are as follows: business ethics, safety, environmental performance, employee has an equal opportunity to develop
published in Urdu and English languages in at least in harassment and other employment related matters or their skills and talents.
• Define roles and responsibilities of all functions
one issue each of daily newspaper of respective other possible breaches of compliance. The Company Training and Development
and departments to ensure that a proper
language having nationwide circulation Further, notice also has specific procedures in place to increase
mechanism is in place within their department for • To meet employee and organizational needs,
of AGM is also placed on Company’s website. The awareness of the policy.
backup of electronic data and digitization and provide opportunities to employees for
Company encourages maximum participation from all archival of critical hard copy documents. In order to further strengthen the Company’s Ethics acquisition of knowledge for technical and
the shareholders including minority shareholders. compliance program and promote adherence to sound managerial skills through classroom and
• Define arrangements for storage of ERP systems
business conduct, all employees, customers, suppliers on-the-job learning.
The Company also encourages stakeholders to attend and business data at secure location with state of
and contractors are encouraged to report serious
Analyst Briefing Sessions for the year and the art protections against physical deterioration, Performance Management
concerns that could have a significant impact on these
pre-announces the calendar of these events through fire, natural disasters etc.
organizations, such as actions that: • Have a transparent and merit based performance
annual financial report at the start of the year. • Availability of suitable alternate site for backup of management system in place.
• are unlawful or may damage the reputation of the
Policy for procurement of goods and services critical information systems including defining the
Corporation or an affiliate • Have a formal career development and
methodologies for replication of applications on
The aim of our procurement policy is to obtain the alternate site based on industry best • are fraudulent and lead to a loss of assets succession planning system.
sustainable competitive advantage through efficient practices. • Clearly defined system for career progression
sourcing of goods and services that maximizes value • may be intended to result in incorrect financial
• Provide mechanism and arrangements for reporting based on merit and potential.
for the Company based on innovation, principles of risk
/ return benefit, ensuring product quality, timely digitization (through a Document Management • are in violation of various corporate policies Compensation and Benefits
deliveries, reliability and controls. Solution) and archival of critical hard copy governing business conduct
dataand for backup of critical electronic data. • Rewards policies aligned with best companies in
This policy establishes a foundation for our discipline • are in violation of Safety Health & Environmental the market that compete for high quality talent.
and serve as guidelines in our daily activities as we IT Governance Policy. standards applicable to the business • Clear linkage of reward policies with performance
interact with external suppliers and service providers. Information Technology (IT) Governance is an integral and potential.
• give rise to harassment, discrimination or other
Corporate Tax Strategy part of enterprise governance and consists of the unfair employment practices
Leadership, Organizational Structures and Processes. Diversity and Non-Discrimination
The Board of Directors have approved a formal IT Governance aims to ensure that IT activities are As per the requirements of the policy, confidentiality of • Provide an environment free from all forms of
document for Corporate Tax Strategy which defines aligned with business objectives and that stakeholder complainants is maintained to protect them from any discrimination and harassment at workplace.
principles aiming to plan, devise and implement requirements of Value Delivery, Risk Optimization, and form of retaliation or victimization for genuinely held
tax-efficient and optimized solutions for the Company Resource Optimization are addressed. The Enterprise concerns that are raised in good faith. Further, all • Foster gender diversity at all levels within the
concerns reported are investigated confidentially by Company
the Corporate Audit Department (CAD) which are also • Policies aimed at creating flexible and conducive

87 engro fertilizers limited annual report 2019 88

 working arrangements for all. • Conserve natural resources & energy by Efforts to Implement Governance Practices
The Company’s Succession Planning policy is aimed at continuously improving our processes and Exceeding Legal Requirements
ensuring seamless business continuity, through a measuring performance With a strong legacy system spanning over five
stronger talent pipeline for future leadership positions. • Continuously improve our processes to minimize decades, Engro Fertilizers continues to optimize its
Keeping People Development at the core and pollution and waste governance framework by institutionalizing its core
recognizing that change is imminent, focus is on skill values, policies and principles across the board to
‘Corporate Social Responsibility’ section of the
enhancement through an indigenous learning surpass the legal requirements and adhere to global
Directors’ report to the shareholders outlines the
architecture called Transitional Training Model (TTM) Best Practices and Standards of governance.
Company’s Social and Environmental practices and
for all current and future business needs to ensure Following additional governance practices
interventions during the year.
readiness in times of dynamicity. Career growth for implemented by the management include:
employees has also been mapped keeping in view, the Disaster Recovery and Business Continuity
individual’s potential, experience, display of Engro Planning • Adoption of best reporting practices prescribed
competencies along with other factors. Each employee by ICAP / ICMAP and SAFA to make the
The Company has a documented Disaster Recovery
is provided training and development opportunities Company’s affairs more transparent and to give
Plan (DRP) and Business Continuity Plan (BCP) which
and is equipped with the necessary tools and better insight of the Company’s affairs, policies
describes the business continuity and recovery
resources to perform at the job. and strategies.
strategies and related procedures for the Company. It
Measurable objective to implement gender also provides policies and procedures whereby the • Implementation of Health, Safety and Environment
diversity policy critical business processes can be restored in a timely Policy for better and safe work place environment
and orderly manner and can be operated on an interim for employees, workers and surrounded
To encourage gender diversity at all levels within the community.
basis, thereby helping to ensure that all critical
Company, the Board has defined measurable KPIs
business functions continue in the case of a disruption • Implementation of various social projects for
which includes:
or disaster. This plan is carefully followed during welfare of the community as part of it’s Corporate
• Proportion of female employees to total number of periodic testing exercises to thoroughly train recovery Social Responsibility (CSR).
management employees; and personnel and ensure that strategies and actions
accurately reflect current business recovery • Adoption of a strict insider trading policy
• Proportion of female hires to total number of hires whereby all employees of the Company are
during the year. requirements.
restricted from trading in shares of the Company.
The Board monitors progress against the said KPIs on Compliance of International Financial Reporting
Standards (IFRS) • Restriction of employees of group companies to
periodic basis. During 2019, the Company has been adhere to close period requirements.
able to achieve significant headway in this regard and The management of the Company strongly believes in
closed the year at a permanent female employees’ adherence to unreserved compliance with all the • All of the Directors of the company have attended
population percentage of 8% as well as 14% of new applicable International Accounting Standards (IAS) / Directors’ training program exceeding the legal
hires being females. The Company aims to build on this IFRS issued by International Accounting Standards requirement prescribed by Code of Corporate
momentum in the future and elevate its status as one of Board (IASB) and as adopted by SECP vital to fair Governance Regulations, 2017.
the most diversity fostering entities in the Country. preparation and presentation of financial information. • The Company endeavors to replicate the best
Social and Environmental Responsibility Policy Compliance to IFRS encourages sufficient disclosures practices to its privately owned subsidiaries.
of the financial statements that are beneficial for
The Company believes that businesses, in their normal informed decisions of stakeholders. Financial
course of operations, create positive and adverse statements for the year have been prepared in
impacts. The Company is committed to improve it’s accordance with the accounting and reporting
understanding of social and environmental impacts of standards issued by IASB as are applicable in
it’s business and it will quantify the impact on the lives Pakistan. IFRS adoption status is in detail is explained
of it’s customers, suppliers and communities in which it in note 2 of annexed consolidated financial statements.
operates and will strive to minimize adverse impacts.
The associated funding requirement will be part of the Integrated Reporting
business cost. The Company is committed towards adoption of
The Company’s Social Responsibility policies and International Integrated Reporting (IR) Framework to
practices include: give an overview of how the Company’s strategy,
governance, performance and prospects, in the
• Statement of ethics and business practices context of its external environment, leads to the
• Policy for handling conflict of interest creation of value over the short, medium and long term.
The Company has considered the following content
• Employee Code of Conduct elements of IR Framework in this report:
• Policy for soliciting customers, suppliers, vendor • Organizational overview and external
and contractors environment
• Allocation of approximately 1% of profit before • Governance
taxes for social investments
• Business model
The Company aims to be recognized as a world class
performer in the field of Health, safety and • Risks and opportunities
environmental management. For this it will: • Strategy and resource allocation
• Comply with all applicable environmental laws, • Performance
regulations and apply responsible standards
where law and regulations does not exist • Outlook
• Basis of presentation

89 engro fertilizers limited annual report 2019 90

 report of the audit committee
stakeholders’ engagement policy for the year ended December 31, 2019
The Company regards its stakeholder engagement as an important element of corporate responsibility. It
Composition Meetings during 2019
believes that adherence to the highest ethical standards fosters trust. The Company consider itself to be
answerable to its stakeholders, customers, vendors and suppliers and the communities where it operates.
The Committee is appointed by the Board and at the The Committee met five times during the year. The
year-end comprised of two Independent Directors: attendance of the members at these meetings is stated in
Frequency of Engagement the Director’s Report. The Chief Financial Officer (CFO) and
S. No. Stakeholder Group Engagement Process Effect and Value the Head of Internal Audit attended all meetings. The BAC
Category Name
meets external auditors at least once a year, without CFO
1 Analysts Quarterly Analyst briefings Helps in responding to various queries and a. Independent directors Mr. Asad Said Jafar and Head of Internal Audit being present and when matters
clarifying the Company’s stance in the
Mr. Asim Murtaza Khan pertaining to their functions come up for consideration.
market to create a positive and transparent
image of the Company. The BAC met the external auditors two times during the
b. Non-executive directors Mr. Hasnain Moochhala
year.
Mr. Javed Akbar
2 Shareholders Regular Annual General Engagement allow the Company to
meeting, annual increase the confidence of providers of Role of the Committee
and quarterly capital. Mr. Asad Said Jafar holds a bachelor’s degree in Electrical
reports. Engineering from NED University, Karachi and an MBA The Committee assists the Board to effectively carry out
degree from Imperial College Business School, London, its supervisory oversight responsibilities on financial reporting
3 Customers and Regular Periodic formal The success of the Company depends
suppliers and informal upon the loyalty of our customers and UK. and compliance, internal controls and risks, internal and
meetings / well-being of our customers and suppliers. external audit functions of the Company.
conferences and Our continuous engagement enables us to Mr. Asim Murtaza Khan is working as Advisor to the
technical support understand our customer needs and come Chairman and CEO (Honorary) Petroleum Institute of The Audit Committee believes that it has carried out
services up with the right products for them. Pakistan (PIP) since January 2019. He has also worked responsibilities to the full, in accordance with Terms of
for Pakistan Petroleum Limited (PPL) for over 32 years. Reference approved by the Board. Evaluation of the Board
4 Banks and Regular Meetings on Access to the financial markets to pursue
performance, which also included members of the Audit
other lenders negotiation of growth of the Company.
rates on various Mr. Javed Akbar is a Chemical Engineer and has over 40 Committee was carried out separately and is detailed in
financing matters, years of experience in fertilizer and chemical business with the Annual Report.
Exxon, Engro and Vopak in Pakistan and overseas.
5 Media Occasional Different Effective awareness is created regarding The Committee has concluded its annual review of the
communication the Company and the products and Mr. Hasnain Moochhala is a Chartered Accountant from operations of the Company for the year ended December
mediums such as services offered, indirectly having a the Institute of Chartered Accountants from England & 31, 2019 and reports that:
press releases are positive impact.
Wales (ICAEW). He is working as the Chief Financial Officer
used on need
basis to apprise of Engro Corporation Limited. • The Committee reviewed the quarterly and annual
the general public financial statements of the Company and
about new The Head of Internal Audit of the Company functions as recommended them for approval of the Board;
developments the Secretary to the Committee.
and activities • The standalone and consolidated financial
The names and profiles of the Audit Committee members statements of the Company for the year ended
6 Regulators Regular Meetings with Understanding and ensuring all legal and
officials, regulatory requirements are complied with. are given in Directors Profile section of the Annual Report December 31, 2019 have been prepared on a going
submissions of 2019. concern basis under requirements of Companies
data for Engaging with the government to address Act 2017, incorporating the requirements of the
review and matters impacting the cost of doing Charter of the Committee Code of Corporate Governance, International
compliance business such as GIDC, subsidy and sales Financial Reporting Standards and other applicable
tax receivables. The terms of reference of the Committee are clearly defined regulations;
in the Charter of the Committee which is duly approved
Ensure continuation of the common
by the Board of Directors. The salient features are stated • These financial statements present a true and fair
objective of the Government and the
below: view of the Company’s state of affairs, results of
Company to transform the agriculture
landscape of Pakistan. operations, profits, cash flows and changes in equity
• To recommend to the Board the appointment and of the Company and its subsidiaries for the year
7 Local Regular Meetings and • Community engagement, an enabling removal of external auditors; under review;
Committees one-on-one part of our social investment. • To review quarterly, half-yearly and annual financial
engagements statements; • Appropriate accounting policies have been
• The ability to incorporate needs and
• To review the internal control systems and internal consistently applied and all applicable accounting
values of people living in communities in
audit function; standards were followed in preparation of the
policy development and planning,
decision-making, service delivery and • To monitor management’s compliance with all financial statements for the year ended December
assessment is at the heart of smart Company’s policies including complaints received 31,2019;
sustainable social interventions. through the Speak Out – Whistle Blower System; and
• To monitor compliance of statutory requirements. • The Chairman of the Board, Chief Executive Officer,
a director and the Chief Financial Officer have

91 engro fertilizers limited annual report 2019 92

 endorsed the separate and consolidated financial meeting involving announcement of interim / final Committee has ensured staffing of personnel with Annual Report 2019
statements of the Company, while the Directors’ results, distribution to shareholders or any other sufficient internal audit acumen and that the function
Report is signed by the Chairman and the Chief business decision which could materially affect the has all necessary access to Management with the • The Company has issued a comprehensive Annual
Executive Officer. They acknowledge their share price. right to seek information and explanations. Report which besides presentation of the financial
responsibility for true and fair presentation of the statements and the Directors’ Reports of the
Company’s financial condition and results, Risk Management and Internal Control • Coordination between the External and Internal Company, also discloses other information to offer
compliance with regulations, applicable accounting Auditors was facilitated to ensure efficiency and an in depth understanding about the management
standards and establishment and maintenance of • The Company has developed a sound mechanism contribution to the Company’s objectives, including style, the policies set in place by the Company, its
system of internal controls of the Company; for identification of risks, assigning appropriate a reliable financial reporting system and compliance performance during the year, and future prospects
criticality level and devising appropriate mitigation with laws and regulations. to various stakeholder of the Company.
• Accounting estimates are based on reasonable and measures which are regularly monitored and
prudent judgment. Proper and adequate accounting implemented by the management across all major External Audit • The information has been disclosed in the form of
records have been maintained by the Company in functions of the Company and presented to the Audit ratios, trends, graphs, analysis, explanatory notes
accordance with the Companies Act, 2017. The Committee for information and review. • The statutory auditors of the Company, A. F. Ferguson and statements etc., and the Audit Committee
financial statements comply with the requirements & Co., Chartered Accountants, have completed their believes that the Annual Report 2019 gives a detailed
of the Fourth Schedule to the Companies Act, 2017 • The Company has devised and implemented an audit assignment of the Company’s financial view of how the Company evolved, its state of affairs
and the external reporting is consistent with effective internal control framework which also includes statements and the statement of compliance with the and future prospects.
management processes and adequate for shareholder an independent internal audit function. Code of Corporate Governance for the year ended
needs; December 31, 2019 and shall retire on the conclusion
• The Internal Audit department is responsible for of the 11th Annual General Meeting;
• Proper, accurate and adequate accounting records monitoring of compliance, inherent and other risks
have been maintained by the Company; associated with operations of the Company. • The Committee has reviewed and discussed audit
observations with the external auditors. A meeting Asad Said Jafar
• The Company’s system of internal control is sound • The Company’s approach towards risk management was also held with the external auditors in the absence Chairman, Audit Committee
in design and has been continually evaluated for has been disclosed in the risk assessment portion of of the management;
effectiveness and adequacy; the Annual Report. The types and detail of risks
along-with mitigating measures are disclosed • The external auditors have direct access to the
• The Company has issued a “Statement of Compliance therein. Committee and Internal Audit Department, thereby
with the Code of Corporate Governance” which has ensuring the effectiveness, independence and
also been reviewed and certified by the External Internal Audit objectivity of the audit process;
Auditors of the Company;
• The Company’s system of internal controls is sound • A.F. Ferguson & Co., Chartered Accountants also
• Understanding and compliance with Company codes in design and has been continually evaluated for provide taxation services to the Company. The firm
and policies has been affirmed by the members of effectiveness and adequacy. has no financial or other relationship of any kind with
the Board, the Management and employees of the the Company except that of External Auditor and
Company. Equitable treatment of shareholders has • The Audit Committee has ensured the achievement Taxation Consultant.
also been ensured; of operational, compliance, risk management, financial
reporting and control and safeguarding of the • The performance, cost and independence of the
• The Committee has reviewed all related party assets objectives of the Company. external auditors is reviewed annually by the
transactions and recommended them for approval Committee. The Audit Committee obtained
of the Board; • The Internal Audit function has carried out its duties confirmation from the external auditors in its meeting
under the charter defined by the Committee. The that the engagement team, other partners and staff
• Trading and holdings of Company’s shares by Committee has reviewed material Internal Audit in the firm, and the firm have complied with the
Directors & executives or their spouses were notified findings, taken appropriate actions and brought the applicable requirements regarding independence.
in writing to the Company Secretary along with the matters to the Board’s attention where required.
price, number of shares, form of share certificates • The Committee is satisfied with the performance of
and nature of transaction which were notified by the • Audit Committee has provided proper arrangement the External Auditors. The engagement partner on
Company Secretary to the Board within the stipulated for staff and management to report to Audit the audit was Mr. Waqas Aftab Shaikh. Being eligible
time. All such holdings have been disclosed Committee in confidence, concerns, if any, about for reappointment under the Code of Corporate
in the Pattern of Shareholding. The Annual Secretarial actual or potential improprieties in financial and other Governance, the Committee has recommended to
Compliance Certificates are being filed regularly within matters. Adequate remedial and mitigating measures the Board the reappointment of A.F. Ferguson and
stipulated time. are applied, where necessary. Co., Chartered Accountants for the year 2020. A
resolution to this effect has been proposed at the
• Closed periods were duly determined and announced • The Head of Internal Audit has direct access to the forthcoming Annual General Meeting.
by the Company, precluding the directors, executives Chairperson of the Audit Committee and the
and all employees of all Engro companies from dealing
in the shares of the Company, prior to each Board

93 engro fertilizers limited annual report 2019 94

 statement of compliance with listed companies
(code of corporate governance) regulations, 2019
year ended december 31, 2019
The company has complied with the requirements of the Chairman and, in his absence, by a director 15. The Board has set up an effective internal audit
the Regulations in the following manner:- elected by the Board for this purpose. The Board function who are considered suitably qualified and
has complied with the requirements of Act and the experienced for the purpose and are conversant
1. The total number of directors are Eight as per the Regulations with respect to frequency, recording with the policies and procedures of the company;
following: and circulating minutes of meeting of the Board;
16. The statutory auditors of the company have
a. Male: Seven 8. The Board have a formal policy and transparent confirmed that they have been given a satisfactory
b. Female: One procedures for remuneration of Directors in rating under the Quality Control Review program
accordance with the Act and these Regulations; of the Institute of Chartered Accountants of
2. The composition of the Board is as follows: Pakistan and registered with Audit Oversight
9. The Board has arranged Directors’ Training Board of Pakistan, that they and all their partners
program for Mr. Nadir Salar Qureshi in 2019. All are in compliance with International Federation of
Category Name
Directors on the Board have been duly certified as Accountants (IFAC) guidelines on code of ethics
i. Independent directors Mr. Asad Said Jafar trained directors; as adopted by the Institute of Chartered
Mr. Asim Murtaza Khan Accountants of Pakistan and that they and the
Ms. Sadia Khan 10. The Board has approved appointment of chief partners of the firm involved in the audit are not a
ii. Non-executive directors Mr. Ghias Khan financial officer, company secretary and head of close relative (spouse, parent, dependent and
Mr. Abdul Samad Dawood internal audit, including their remuneration and non-dependent children) of the chief executive
Mr. Hasnain Moochhala terms and conditions of employment and officer, chief financial officer, head of internal
Mr. Javed Akbar complied with relevant requirements of the audit, company secretary or director of the
iii. Executive directors Mr. Nadir Salar Qureshi Regulations; company;

iv. Female directors Ms. Sadia Khan

11. Chief financial officer and chief executive officer 17. The statutory auditors or the persons associated
duly endorsed the financial statements before with them have not been appointed to provide
3. The directors have confirmed that none of them is approval of the Board; other services except in accordance with the Act,
serving as a director on more than seven listed these Regulations or any other regulatory
companies, including this company; 12. The Board has formed committees comprising of requirement and the auditors have confirmed that
members given below: they have observed IFAC guidelines in this regard;
4. The company has prepared a “Code of Conduct” and
and has ensured that appropriate steps have i. Audit Committee Mr. Asad Said Jafar -
been taken to disseminate it throughout the Chairman 18. We confirm that all requirements of regulations 3,
company along with its supporting policies and Mr. Javed Akbar 6, 7, 8, 27,32, 33 and 36 of the Regulations have
procedures; Mr. Hasnain Moochhala been complied with.
Mr. Asim Murtaza Khan
5. The Board has developed a vision/mission ii. The Board Ms. Sadia Khan -
statement, overall corporate strategy and Compensation Chairperson
significant policies of the company. The Board has Committee i.e.HR and Mr. Javed Akbar
ensured that complete record of particulars of the Remuneration Committee Mr. Asim Murtaza Khan
significant policies along with their date of
approval or updating is maintained by the 13. The terms of reference of the aforesaid committees Ghias Khan Nadir Salar Qureshi
company; have been formed, documented and advised to Chairman Chief Executive Officer
the committee for compliance;
6. All the powers of the Board have been duly
exercised and decisions on relevant matters have 14. The frequency of meetings of the committee were
been taken by the Board/ shareholders as as per following:
empowered by the relevant provisions of the
Companies Act 2017 (the Act) and these a. Audit Committee (five meetings held during the
Regulations; year)
b. The Board Compensation Committee (two
7. The meetings of the Board were presided over by meetings held during the year)

95 engro fertilizers limited annual report 2019 96

 statement of compliance with the sukuk
independent auditor’s review report
(privately placed) regulations, 2017
on statement of compliance contained in listed companies
(code of corporate governance) regulations, 2019
This Statement is being presented to comply with the
requirements under Sukuk (Privately Placed) b. Guidelines of the relevant Shariah Standards,
Regulations 2017 issued by the Securities and issued by the Accounting and Auditing
Exchange Commission of Pakistan (SECP). This Organization of the Islamic Financial
Statement of Compliance (the Statement) is for the year Institutions (AAOIFI), as notified by the
ended December 31, 2019. Securities and Exchange Commission of
Pakistan (the SECP);
Engro Fertilizers Limited (the Company) entered into an
arrangement for issue of Sukuk amounting to Rs. 3,200 c. Requirements of the relevant Islamic Financial
Million on July 08, 2014 for a period of 5 years which Accounting Standard as notified by the SECP;
To the members of Engro Fertilizers Limited
was fully repaid during the year. We state that the and
Company was in compliance with the Sukuk features
Review Report on the Statement of Compliance contained in Listed Companies (Code of Corporate Governance)
and Shariah requirements in accordance with the d. Other compliances specified in the Sukuk
Regulations, 2019
Sukuk (Privately Placed) Regulations, 2017 till the (Privately Placed) Regulations 2017 issued by
repayment of the Sukuk. the SECP.
We have reviewed the enclosed Statement of Compliance with the Listed Companies (Code of Corporate
Governance) Regulations, 2019 (the Regulations) prepared by the Board of Directors of Engro Fertilizers Limited We specifically confirm that:
for the year ended December 31, 2019 in accordance with the requirements of regulation 36 of the Regulations.
• The Company has established policies and
The responsibility for compliance with the Regulations is that of the Board of Directors of the Company. Our procedures for all Sukuk related transactions to
responsibility is to review whether the Statement of Compliance reflects the status of the Company’s compliance comply with Sukuk features and Shariah
with the provisions of the Regulations and report if it does not and to highlight any non-compliance with the requirements;
Ghias Khan Nadir Salar Qureshi
requirements of the Regulations. A review is limited primarily to inquiries of the Company’s personnel and review Chairman Chief Executive Officer
of various documents prepared by the Company to comply with the Regulations. • The Company has implemented and maintained
such internal control and risk management
As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and systems that are necessary to mitigate the risk of
internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required non-compliances of the Sukuk features and
to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an Shariah requirements, whether due to fraud or
opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks. error;

The Regulations require the Company to place before the Audit Committee, and upon recommendation of the • The Company has a process to ensure that the
Audit Committee, place before the Board of Directors for their review and approval, its related party transactions management and where appropriate those
and also ensure compliance with the requirements of section 208 of the Companies Act, 2017. We are only charged with governance, and personnel
required and have ensured compliance of this requirement to the extent of the approval of the related party responsible to ensure the Company’s compliance
transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out with the Sukuk related features and Shariah
procedures to assess and determine the Company’s process for identification of related parties and that whether requirements are properly trained and systems
the related party transactions were undertaken at arm’s length price or not. are properly updated.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of The Sukuk features and Shariah requirements in
Compliance does not appropriately reflect the Company's compliance, in all material respects, with the accordance with Sukuk (Privately Placed) Regulations,
requirements contained in the Regulations as applicable to the Company for the year ended December 31, 2019. 2017 comprises of the following:

a. Requirements of Shariah Structure and

Transaction Documents as stated in the
approval of Meezan Bank Limited’s Shariah
Advisor, with respect to Sukuk transactions:

• Investment Agency Agreement

• Declaration of Trust
• Musharaka Agreement
• Payment Agreement
• Purchase Undertaking
Chartered Accountants • Istisna Agreement
Karachi • Agency Agreement
Date: March 9, 2020 • Security Documents

97 engro fertilizers limited annual report 2019 98

independent assurance report on
statement of compliance with the sukuk
(privately placed) regulations, 2017

INDEPENDENT ASSURANCE REPORT TO THE BOARD OF DIRECTORS ON THE The procedures selected by us for the engagement depend on our judgment, including an assessment of the risks of
STATEMENT OF COMPLIANCE WITH SUKUK (PRIVATELY PLACED) REGULATIONS, 2017 material non-compliances with the Criteria. In making those risk assessments; we have considered internal controls
relevant to the Company’s compliance with the Criteria in order to design procedures that are appropriate in the
Scope of our Work circumstances, for gathering sufficient appropriate evidence to determine that the Company was not materially
non-compliant with the Criteria. Our engagement was not for the purpose of expressing an opinion on the effectiveness
We have performed an independent assurance engagement of Engro Fertilizers Limited (the Company) to express an of the Company’s internal control.
opinion on the annexed Statement of Compliance (the Statement) with the requirements of Sukuk (Privately Placed)
Regulations, 2017 as notified by the Securities and Exchange Commission of Pakistan as of December 31, 2019. Our procedures applied to the selected data primarily comprised of:

Applicable Criteria - Inquiry and evaluation of the systems, procedures and practices in place with respect to the Company’s
compliance with the Criteria;
The criteria for the assurance engagement against which the underlying subject matter (Statement of Compliance for
the year ended December 31, 2019) is assessed comprises of compliance with the features and Shariah requirements - Verification of Sukuk related transactions on sample basis to ensure the Company’s compliance with the
of Sukuk in accordance with the requirements of Sukuk (Privately Placed) Regulations, 2017. Our engagement was Criteria during the year;
carried out as required under Rule 12 of Chapter V of the Sukuk (Privately Placed) Regulations, 2017 as notified by the
Securities and Exchange Commission of Pakistan. - Review of Shariah structure and transaction documents, term sheet and Shariah approval letter issued by the
Shariah Advisor of the Sukuk; and
Responsibility of Company’s Management
- Review of the annexed Statement based on our procedures performed and conclusion reached.
The responsibility for the preparation and fair presentation of the Statement (the subject matter information) and for
compliance with the features and Shariah requirements of Sukuk in accordance with the requirements of Sukuk We believe that the evidences we have obtained through performing our aforementioned procedures were sufficient
(Privately Placed) Regulations, 2017 is that of the management of the Company. The management is also responsible and appropriate to provide a basis for our opinion.
for the design, implementation and maintenance of appropriate internal control procedures with respect to such
compliance and maintenance of relevant documentation/records. The management is also responsible to ensure that Conclusion
the personnel involved are conversant with the Criteria for the purpose of the Company’s compliance.
Based on our independent assurance engagement, in our opinion, the annexed Statement for the year ended
Our Independence and Quality Control December 31, 2019 has been prepared, in all material respects, in compliance with the features and Shariah
requirements of Sukuk in accordance with Sukuk (Privately Placed) Regulations, 2017.
We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Restriction on use and distribution
Code) and we have fulfilled our other ethical responsibilities in accordance with the Code.
This report is issued in relation to the requirements as stipulated under Rule 12 of Chapter V of the Sukuk (Privately
The firm applies International Standard on Quality Control 1 “Quality Control for Firms That Perform Audits and Reviews Placed) Regulations, 2017 and is not to be used or distributed for any other purpose. This report is restricted to the
of Historical Financial Information, And Other Assurance and Related Services Engagements” and accordingly facts stated herein and the attachment.
maintains a comprehensive system of quality control including documented policies and procedures regarding
compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Responsibility of Independent Assurance Provider

Our responsibility is to express our conclusion on the Statement for the year ended December 31, 2019 based on our
independent assurance engagement, performed in accordance with the International Standard on Assurance Chartered Accountants
Engagements 3000 ‘Assurance Engagements other than Audits or Reviews of Historical Financial Information’ (ISAE Karachi
3000). This standard requires that we plan and perform the engagement to obtain reasonable assurance about whether Date: March 9, 2020
the annexed Statement reflects the status of the Company’s compliance with the features and Shariah requirements of Engagement Partner: Waqas Aftab Sheikh
Sukuk in accordance with the requirements of Sukuk (Privately Placed) Regulations, 2017 and is free from material
misstatement.

99 engro fertilizers limited annual report 2019 100

 chairm an’s
review
Ghias Khan, Chairman and Non-Executive Director

Dear Shareholders, The Company maintains the highest standards of On business performance front, the Company As a purpose-driven Organization, doing good while
safety and environment at its plant sites and has produced highest ever Urea production of 2 million doing well is embedded in our DNA. The Company
secured international certifications in this regard, tons. The commercial and supply chain teams led continued to make social impact in the fields of
On behalf of the Board of Directors, I am pleased to besides contributing significantly to the neighboring from the front as the Company recorded the highest education, livelihood, health and infrastructure –
present to you the Annual Report of Engro Fertilizers communities through our CSR function in the areas of ever revenue of PKR 121 billion during the year. All of further details of our projects and impact have been
Limited reflecting the overall performance of the health, education, livelihoods, environmental this could not have been possible without the shared in the report. We are humbled to share that our
Company and achievements of its management for the protection, etc. contribution of the support functions. Project PAVE was recognized globally, at the Asia
year ended December 31, 2019. Responsible Enterprise Awards 2019 in Taiwan, and
I am pleased to inform that the Company’s On the business development front, the Company
Firstly, I would like to offer my gratitude to each one of Shared Value Awards 2019 in Australia, for
manufacturing facilities at Daharki achieved TRIR of established a unified Supply Chain function,
you for your continued confidence in Engro Fertilizers empowering farmers, building their capacities with
0.03, which is the lowest in the Company’s history integrating operations across 3 separate operating
Limited. Your confidence and trust help us create trainings and quality equipment, and effectively
despite 2 back to back mega turnarounds, sections, and successfully launched Engro Logistics
greater benefits for the country and the communities in improving their yield and livelihoods. Under our CSR
representing the Company’s commitment to safety. with a promising outlook towards improving food
which we operate. Secondly, I would like to wing, we also launched Engro Ehsaas Project in 2019,
During the year, the plant sites recorded +15 Million access and security for the people of Pakistan.
congratulate the entire team of Engro Fertilizers Limited which is an employee volunteer program to improve
safe man-hours, whereas the commercial teams People development has always been our priority and
for their continued drive to be the corporate vanguards engagement, promote and strengthen the sense of
recorded +10 million safe man-hours. with the launch of HR transformation journey during
of the country by raising the benchmarks and community serving across the people of our
Among prestigious awards and accolades on HSE this the year, we have ensured that the Company Company.
achieving incredible milestones, despite challenges on
year, the Company was awarded for Excellence in continues to be well led in the achievement of its
multiple fronts, including the economic environment of In continuation of our efforts to solve the low
Safety, Environmental Compliance, and Energy objectives. Through our enhanced focus on improving
the country. agricultural productivity problem in the country, the
Efficiency at the International Fertilizers Association gender diversity in our workforce, we ensured that we
Pakistan’s agricultural sector depicted a meager Company initiated ENGRO Experience Program,
Awards in Paris. Engro Fertilizers Limited was also have access to the entire talent pool of the Country.
growth rate of 0.8% in FY2019, owing to severe water wherein complete Seeds to Harvest solution was
recognized for Best HSE Practices and Fire Safety To ensure that our people have the right tools to
shortages and challenging farm economics. Overall, provided in line with best agronomic practices. The
Management at NFEH’s 9th Fire Safety & Security manage the increasingly challenging environment and
the crop sector showed a negative growth whereas, intervention resulted in an average yield increase of
Awards. The National Safety Council (NSC) USA to pursue the growth therein, the Board has supported
some respite was achieved through positive 27% per acre. As this program grows, it will increase
recognized Engro Fertilizers Limited Daharki as a implementation of the upgraded version of SAP. The
contribution from livestock sector. productivity of rice growers of the country and will
breeding ground / nursery for the next generation of One SAP project endorsed as Pakistan’s largest SAP help improve food security in Pakistan.
The country witnessed one of the massive devaluations safety leaders through the first ten years of the Rising S/4 HANA digital business transformation was
of PKR during the year leading to inflationary Stars of Safety Awards. The Zarkhez Plant achieved I am pleased to report that the performance of the
successfully rolled out in Oct 2019, leveraging
pressures, whereas interest rates also continued their the highest ever score of 86%, beating the previous Board remained par excellence throughout the year,
technology and global expertise to enable efficiency
upward momentum and the policy rate peaked at score of 83%, putting Engro in first place across the and their contributions effectively steered the
and further optimize resources throughout the
13.25%. In addition, prices of gas and other utilities entire green office network in Pakistan under the Company towards achievement of its objectives and
Company.
also witnessed substantial increase during the year. umbrella of WWF Finland. creation of value for the stakeholders. The Board was

103 engro fertilizers limited annual report 2019 104

 CEO’s
instrumental in company-wide policy transformations On behalf of the Board, I would like to thank all
that benefited the overall culture of the Organization. stakeholders for their support and trust. As we look
The Board’s expertise was also integral to the launch forward to the evolving market landscape, I am
of new business ventures that will prove pivotal for the certain that Engro Fertilizers Limited has all the
agricultural landscape, warranting food security for necessary ingredients to perform exceptionally each
our country. The Board upheld the values and year, deliver on its promises and achieve the
integrity synonymous to the Company’s brand, while expectations of our stakeholders. We look forward to
playing a pivotal role in augmenting the Company’s your continued support in this very important journey
reputation globally, setting a precedence for others to of enabling growth for Pakistan and making it a food
follow. Promoting a culture of transparency and secure and self-sufficient country. Pakistan Zindabad!
maintaining its reputation for good governance, the

review
Board continued to demonstrate resilience against a
challenging business environment, exercised
strategic decision-making to maximize wealth and
provide long-term attractive returns for our
shareholders besides staying socially responsible for Ghias Khan
the well-being and uplifting of the communities we Chairman
operate in.
We keep striving to set the standard for corporate
governance in Pakistan to ensure that a long-term
focus on prudence, efficiency and innovation are even
more firmly embedded in our DNA. The Board Audit
Committee continues to ensure that the high
Nadir Salar Qureshi,
standards of governance and ethics are maintained. Chief Executive Officer and Executive Director
Board Compensation Committee steered us to take
the right decisions relating to our most valuable
resource i.e. our people.
I am extremely grateful to the untiring contributions of Dear Shareholders, Overall Engro Fertilizers Limited’s Consolidated Profit after
my fellow Board members which led to an outstanding Tax for 2019 stands at PKR 16.9 billion, versus PKR 17.4
year of achievements. Under the leadership of the billion in 2018. In the same vein, I am pleased to report that
Board, the Company earned the 2nd position for 'Best The year 2019, has arguably been one of the best in the in addition to interim dividends already paid at PKR 11.0 per
Corporate Reports 2018’ at the prestigious awards history of Engro Fertilizers Limited (EFert). We continued to share, we are proposing a final dividend of PKR 2.0 for the
organized by ICAP & ICMAP. We also won the Merit build upon our legacy of 50+ years and set records across year ended December 31, 2019 for approval of the
Certificate for the Best Corporate Report in SAFA. our spectrum of business endeavors. These efforts did not members at the Annual General Meeting bringing the total
go unrecognised as we won awards for safety, dividend for 2019 to PKR 13.0 per share.
Above all, we are proud of the accolade received at
manufacturing, financial performance, environmental
the Pakistan Stock Exchange Awards, where Engro stewardship, gender diversity and social inclusion. I am
I would also like to shed light on some noteworthy
Fertilizers Limited was recognized amongst the top 25 developments during the year:
incredibly privileged to lead the team that made this
Companies of the Years 2017 & 2018. Our efforts on possible and with the able stewardship of our Board 1. This year, Engro Fertilizers Limited entered the logistics
people front were acknowledged as we received 6 enabled us to deliver these outstanding results. space aiming to deliver “movement with precision”. This
awards on Global Diversity and Inclusion Benchmarks First and foremost, we offer our thanks to the Almighty as we
business, despite volatile regulations in the axle load
(GDIB). regime, scaled up to 135 vehicles and delivered
had one of the safest years with lowest TRIR of 0.03 in the
promising results in the first year of its launch.
I would also like to place on record, my appreciation history of Daharki plant; and 10 million man-hours logged by
for the exemplary performance of our Chief Executive our commercial division without a lost work incident. The 2. The Company went live with an upgraded SAP with
achievement is a recognition of our relentless commitment effect from 1st of October, which has brought an
Officer under whose brilliant leadership, the Company
to ensuring safety is at the heart of everything we do. unprecedented level of data availability and
was able to scale new heights in facets of financial transparency to us as a management team. We look
performance and stakeholder outreach as well On the production front, our manufacturing division
forward to the next phase of moving from one universal
etching its already established agri-footprint across achieved a historic milestone of over 2M tons of Urea
system-enabled version of the truth to build business
production, an all-time high on the back of improved plant
the nation. intelligence on this data platform now available to us.
efficiency and better gas availability. What makes this feat
Moving forward, our aim is to deliver sustainable and our safety statistics truly remarkable was the fact that The past year was absolutely transformative for your
results in both operational and financial terms and Engro Fertilizers Limited was able to achieve this despite Company as the Company achieved several milestones.
develop deeper connections with our customers and two back-to-back plant turnarounds at our Daharki site. The relentless dedication and hard work of the team over
hosting communities. Engro Fertilizers Limited will the year has delivered an outcome which is nothing less
Not to be outdone, our commercial division recorded the
than outstanding.
continue to be a resilient, tested Company, which is highest ever monthly sales in December with volumes of
defined by its governance, risk management, steady nearly 500 KT. These sales could not have been achieved We set off on our journey of HR Transformation, a complete
and sustainable growth, and readiness to adapt and had our Supply Chain Division not stepped up to ensure revamp of our human capital development system that for
reinvent as and when the need arises. timely delivery of not only the highest ever December the first time measures the how and not just the what. This
volumes but the highest import and shipment deliveries in will be a critical tool in resetting our culture and changing
the history of the Company. behavior of our managers in developing our people with
actionable evidence-based feedback. Engro Fertilizers

105 engro fertilizers limited annual report 2019 106

 key highlights
Limited has always prided itself as one of the breeding Scan the following for a video on review of the
grounds for leaders. The investment in the system financial performance of the Company by the Chief
demonstrates our continued commitment towards Executive Officer
harnessing the human potential by investing in our people,
the most valuable asset of Engro Fertilizers Limited.
At Engro Fertilizers Limited, we place Diversity and
Inclusion (D&I) at the top of our priorities. Pakistan, despite
having women as 50% of the graduates, severely lags when
it comes to them joining the workforce as only 25% of the
graduate women are part of the current workforce. The Financial Highlights
discrepancy is concerning and raises important questions
about the future fabric of the workforce. Engro Fertilizers Q 1 2019 Q 2 2019
Limited realizes its responsibility as we have taken
substantial steps to increase women headcount at our
workplace. During the year, we introduced an extensive

16.9
company-wide D&I policy framework. In line with our Revenue Profit after tax Cash generated from operations
commitment, we introduced a Day Care Facility at Daharki
to provide an enabling environment for working mothers at
Daharki. In recognition of our steps, your Company was the
winner of 6 Global Diversity and Inclusion Benchmark
Awards.
Rs.121 bn Rs. bn Rs. 22 bn
2019 121 2019 16.9 2019 22
At Engro Fertilizers Limited, we believe in doing good while
doing well. We recognize that a strong foundation for growth Q 3 2019 Q 4 2019
2018 109 2018 17.4 2018 23
is only laid if the growth encompasses the development of
the communities in which we operate. Building on this
philosophy of inclusive growth, your Company continued to
work on engaging communities through initiatives of

36.9 12.6
sustainable growth. During the year, the Company scaled EBITDA Earnings per share Dividend per share
up its contribution by 165% to PKR 265 Mn on various
community welfare, education, healthcare, environment and
infrastructure development projects. This serves as a
testament of our steadfast devotion to Corporate Social
Responsibility.
Rs. bn Rs. Rs.13 per share
Engro Fertilizers Limited remains committed in its pursuit of 2019 36.9 2019 12.64 2019 13
addressing the most pressing issues of our time while 2018 31.5 2018 13.04 2018 11
continuing to measurably improve the lives of our
colleagues, customers, shareholders and the communities
in which we live and operate.
Going forward, 2020 will bring another set of Operational Highlights
unprecedented challenges with regulatory headwinds and
potentially the largest turnaround in the history of the
Company. However, with the continued guidance of our
sage Board, the help of our unreservedly committed
management team and unflinching resolve, I am absolutely

2,003 1,958 569

convinced that InshAllah, our esteemed management team Urea production (in KT) Urea sales (in KT) Phosphate sales (in KT)
and employees will collectively overcome these and any
other challenges that may come our way.
On behalf of the Board and the Management Committee, I KT KT KT
would like to thank all our employees and business partners
for making this year an outstanding year in terms of
2019 2,003 2019 1,958 2019 569
achievements and performance. It is only by collective
efforts of our exceptionally motivated team and value chain 2018 1,928 2018 1,986 2018 626
partners that I feel confident that we will be able to achieve
our goals and deliver on our promise of growth.

Total Recordable Injury

0.05 1,260
Rate (TRIR) Management employees

Nadir Salar Qureshi,

2019 0.05 2019 1,260
Chief Executive Officer
2018 0.09 2018 1,252
107 engro fertilizers limited annual report 2019 108
 2019 a defining year

• National Safety Council USA for Safety Leadership • Shared Value Awards Australia for PAVE • CSR Initiative on Shoestring • PSX Awards for Top 25 Companies
• 9 Annual Fire Safety Excellence Awards
th
• 16 Annual Environment Excellence Awards
th
• 6 Global Diversity & Inclusion Benchmark Awards
th
• 2nd Best Corporate Report 2018 by ICAP
• Asia Responsible Enterprise Awards for PAVE • CSR Initiatives for Livelihood & Health by NFEH • Pink Ribbon Breast Cancer Awareness Awards • Merit Certificate by SAFA
• Green Office Certification by WWF • Best Environment Performance & Tree Plantation Award • Gold Medal by International Fertilizer Association, Paris

109 engro fertilizers limited annual report 2019 110

 directors’
to the shareholders
report
Directors’ Report and payment of overdue receivables of PKR 20 B. milestone of highest ever urea production of 2,003 KT, • Engro Logistics
On behalf of the Board of Directors of Engro Fertilizers compared to 1,928 KT produced in 2018, an increase
GIDC Scenario The Company has ventured into logistics space
Limited, we are pleased to submit the Directors’ of 4% primarily due to better plant efficiency coupled
In January 2020, the Economic Coordination during the year aiming to deliver “movement with
Report and the audited financial statements of the with higher gas availability. Domestic urea sales
Committee of the Cabinet (ECC) approved a proposal precision”. Within its first year, the Company became
Company for the year ended December 31, 2019. during the year clocked in at 1,958 KT compared to
by the Ministry of Industries and Production for an out cash flow positive and already has one of the leading
1,986 KT in 2018, exhibiting a decrease of 1% YoY.
of court settlement for fertilizer sector, to reduce Gas long haul fleets in the country.
Market Review Despite an oversupplied market due to year-long
Local urea industry increased by 7% during the year Infrastructure Development Cess (GIDC) on gas production from LNG based plants (760 KT vs 203 KT • Financial Review
with urea offtake at 6,183 KT versus 5,797 KT in 2018, consumed by the fertilizer manufacturers from PKR last year) and urea imports by the Government, Engro Sales revenue for the Company clocked in at PKR
with channel inventory hovering around 400 KT at 405/bag to PKR 5/bag and to pass on the Fertilizers Limited was able to capture market share in 121.4 billion for 2019, depicting an increase of 11%
year end. Increase in urea industry was mainly due to proportionate benefit to the farmers by way of line with its avails share. In December 2019, despite as compared to the previous year (PKR 109.2 billion).
higher avails and pre-buying in anticipation of reduced urea prices. The Ministry of Energy has industry inventory overhang crossing 1,000 KT, Engro This was on the back of higher fertilizer market prices
increase in urea prices post the news of gas price subsequently notified the decision of the ECC on Fertilizers Limited captured market share of 34% and improved product availability led by enhanced
hike in December 2019. January 28, 2020. Consequently, Engro Fertilizers versus 32% avails share. production versus last year.
Limited reduced urea prices by PKR 160/bag to pass
Industry urea production in 2019 clocked in at 6,144 on the proportionate impact of GIDC. • Phosphates Gross profit for the year 2019 is PKR 39.5 billion as
KT vs 5,706 KT last year, an increase of 8%. Higher The Company was able to maintain market share of compared to PKR 35.3 billion last year, an increase of
production is mainly attributable to operation of LNG Gas Pricing
28% despite weak agronomic demand in peak Rabi 12%. Other operating income increased to PKR 4.4
based plants and higher production by Engro In December 2019, OGRA recommended an increase season. Engro Fertilizers’ phosphates sales were billion versus PKR 2.1 billion in 2018 mainly as a result
Fertilizers Limited due to improved plant efficiency in gas prices, whereby prices for fertilizer feed gas recorded at 569 KT in 2019 vs 626 KT last year. of increased interest income on short-term
and higher gas availability. Moreover, import of 100 would have increased from PKR 300/mmBTU to PKR investments as well as reversal of prior year liability in
KT urea in July 2019 also added to the industry 707/mmBTU (136% increase), whereas for fertilizer • Specialty Fertilizer Business
respect of Workers’ Welfare Fund. Finance costs shot
supply. Industry urea inventory as at year end stood fuel gas, prices would have increased from PKR The Company’s Specialty fertilizers (Zarkhez, Engro up to PKR 3.9 billion from PKR 2.1 billion in 2018
at 200 KT in line with last year. 1,021/mmBTU to PKR 1,343/mmBTU (32% increase). NP, MOP / SOP / AS) sales registered an increase of mainly due to significant rise in policy rate of State
On the international front, urea prices declined to USD In response to OGRA’s recommendation, the Ministry 5% YoY to clock in at 220 KT compared to 210 KT last Bank of Pakistan (SBP).
259/T (landed equivalent PKR 2,410/bag) from USD of Petroleum has worked out certain revisions in the year. The overall potash market decreased to 44 KT in
For the year 2019, the Company has delivered a profit
300/T in Q4 2018 (landed equivalent of PKR sector wise gas prices where it recommended an 2019 vs 51 KT in 2018 as a result of the drastic
after tax of PKR 18.6 billion (on a standalone basis),
2,450/bag), due to oversupply in global market increase of 5% for fertilizer feed gas price and an increase in Potash prices on the back of rupee
an increase of 11% over PKR 16.7 billion in 2018,
coupled with lower demand from India. Domestic urea increase of 64% for fertilizer fuel gas price in line with devaluation. The Company was able to increase
resulting in a 11% increase in EPS (13.9 in 2019
prices increased from PKR 1,740/bag in 2018 to PKR RLNG rates currently at PKR 1,672/mmBTU. This market share to 60% compared to 44% last year in a
versus 12.5 in 2018).
2,040/bag in 2019 to pass on the impact of gas price revision creates an unfortunate disparity amongst shrinking market, driven by competitive pricing
strategy. Consolidated profit after tax for 2019 stands at PKR
hike and general inflation. Despite this increase, local sectors as prices for other captive power gas
16.9 billion, versus PKR 17.4 billion in 2018, as a
urea selling prices continue to be at a significant consumers will only increase by 15%. However, the • Crop Science Division
result, consolidated earnings per share have
discount to international prices. price increase recommended by OGRA and
The Company continued to expand its footprint in the decreased to PKR 12.64 vs. PKR 13.04 last year.
While the Government’s subsidy scheme on urea has subsequent amendment by Ministry of Petroleum is
Crop Sciences business (seeds and pesticides), Lower consolidated profitability includes one-off tax
been discontinued, the fertilizer industry continues to yet to be approved by the Government.
whilst almost doubling topline to PKR 1.3 billion from impact of higher future Corporate Tax rates
bear financial costs owing to long outstanding Segment Analysis PKR 0.7 billion in 2018. introduced via the Finance Act, 2019.
subsidy receivables from the Government. As an
• Urea
industry, we continue to engage with the Government
for streamlining the subsidy disbursement mechanism During the year, the Company achieved a historic

111 engro fertilizers limited annual report 2019 112

 Profit Appropriation and Reserve Transfers long-term loans towards the tail-end of the year, for At Engro Fertilizers Limited we focus on meeting the
At the beginning of the year, Engro Fertilizers Limited financing of capital expenditure, in contrast to Promoting UN Global needs of today without compromising the needs of
repayments of long-term loans made over the course tomorrow. Therefore, we want to incorporate
carried reserves of PKR 32.2 billion, of which, PKR 4.0
of the year. Long-term borrowings at year end 2019
Compact (UNGC) sustainable development in our overall operations
Principles and
billion was approved as final dividend for the year
2018 by the shareholders. During the current year, stand at PKR 31 billion (2018: PKR 30.8 billion). All throughout the Company.
debt repayments maturing this year were paid by their
Engro Fertilizers Limited earned a profit after tax of
PKR 16.9 billion and declared two interim dividends due dates and there have been no defaults in Sustainable Development Health, Safety &
repayment of any debt during the year. Total equity as
aggregating PKR 14.7 billion (PKR 11 per share). The
total reserves as at the end of the year, as detailed in at December 31, 2019 stands at PKR 43.3 billion Goals (SDGs) Environment
the “Dividends and Appropriations” table below stood (2018: PKR 45.5 billion). During the year, PACRA Engro Fertilizers Limited believes in inclusive growth We at Engro Fertilizers Limited have always placed
at PKR 29.9 billion: maintained Engro Fertilizers’ long-term credit rating of and shared purpose towards a sustainable value utmost importance on the safety of our employees.
AA and short-term credit rating of A1+. chain. We aim to develop a strong organizational We work hard to provide a positive health,
Dividends and Appropriation PKR in millions Auditors’ Report on the Financial Statements culture that extends benefits for all the company-wide environment and safety culture to our employees
Opening reserves 32,170 employees and stakeholders. We embrace backed by processes and training. We remain
Business processes, strategic financial actions and committed to providing the safest working
Final dividend 2018: PKR 3 per share (4,006) community responsibility as one of our core values,
expenditure incurred during the year have been environment to our employees, particularly at our
shared by every member of the group. Our robust and
Net profit 2019 16,871 reviewed by the Auditors who have issued unqualified manufacturing facilities while vigilantly fulfilling our
effective organizational structure promotes CSR to environmental duties and responsibilities. We also
audit opinion on the Company’s Separate and
Other comprehensive income 264 each member of the Organization. aspire to raise the bar above globally acceptable
Consolidated Financial Statements for the year ended
Realization of exchange revaluation (685) December 31, 2019. Engro Fertilizers Limited strongly believes in the standards every year.
reserve to P&L on disposal of significance of prevalent environmental challenges,
Future Prospects and Market Outlook 2019 Audits and Certifications
subsidiary
and therefore plays a proactive role in implementing
Engro Fertilizers Limited achieved highest ever rating
Available for Appropriation 44,614 Globally, urea demand in 2020 is expected to grow and promoting sustainable initiatives within the in the “Environment Management System” (EMS) audit
Appropriations marginally by around 1.7% while supply is expected Organization as well as beyond the organizational conducted by a multi-craft team led by Engro
to catch up, where on one hand new capacities will boundaries. We strongly support United Nations Corporation’s renowned Safety, OHIH & EMS Internal
- 1st Interim 2019: PKR 5 per share (6,676) enter the international market while on the other hand, Sustainable Development Goals (UNSDGs) and Expert. In addition, Internal Audits for Health & Safety
- 2nd Interim 2019: PKR 6 per share (8,012) certain key capacities in China are forecasted to shut encourage our employees to participate in a collective standards in accordance with DuPont guidelines were
Closing Reserves 29,926 down. International urea prices are expected to trend effort towards attaining these goals. The Organization carried out by all departments under the supervision
higher on the back of (i) higher demand from India gives primal importance to its stakeholders and of department managers. In addition to a successful
Dividends and Subsequent Events due to pre buying for Kharif season (ii) additional strongly believes in the value of the people. The IMS surveillance audit, Engro Fertilizers Limited
demand from Europe, Brazil and US and (iii) reduced pivotal Sustainability Goals for the organizations are achieved distinction and an all-time high score for
The Board is pleased to propose a final dividend of “IFA-Protect & Sustain” re-certification.
export supply from China as Chinese suppliers are decided by a thorough assessment of our
PKR 2 per share in addition to interim dividend
currently better in the domestic market versus export stakeholder’s concerns and our organizational To ensure hygiene and quality for food handling &
already paid at PKR 11 per share (total dividend: PKR
prices. sustainability strategy. Where we believe our safety, surveillance audits of all food clubs and
13 per share) for the year ended December 31, 2019 canteens were conducted as per HACCP standards.
Local urea demand for 2020 is expected to normalize operations and projects contribute to the achievement
for approval of the members at the Annual General
at 5.8 Mt as compared to 6.2 Mt in 2019. Production of these goals, these icons will appear in this report: Cultivating the HSE-First Mindset
Meeting to be held on March 31, 2020.
for 2020 is expected to be 5.6 Mt (excluding LNG NO ZERO GOOD HEALTH Innovations were introduced under the umbrella of a
There were no other material changes affecting the 1 2 3
plants) while the gap between demand and supply POVERTY HUNGER AND WELL-BEING revitalized “Inherent Safety Program”, involving the
financial position of the Company till the date of this report.
will be met by adequate channel inventory. entire employee and manpower base, making our
Capital Structure and Long-term Debt Management routine gadgets and practices inherently the safest.
International DAP prices are expected to remain
The HSE Department at Engro Fertilizers Limited,
In 2019, the Company continued to concentrate its relatively soft in 2020. Until demand picks up for followed a remarkable tradition by organizing a drive
efforts on reducing costs of financing. Improved Kharif season, prices are likely to continue to face under the banner of “Pause For Safety” for all
industry dynamics and resultant cash generation
allowed the Company to delay its drawdown of fresh
downward pressure. 4 QUALITY
EDUCATION 5 GENDER
EQUALITY 6 CLEAN WATER
AND SANITATION employees involved in plant operations at our
manufacturing facilities. Their focus was developed
on specific HSE hazards, emergency operations and
safe work practices. The outlined efforts by the HSE
Community of Engro Fertilizers Limited are to be
accredited for achieving an all-time low injury rate in
7 AFFORDABLE AND
CLEAN ENERGY 8 DECENT WORK AND
ECONOMIC GROWTH 9 INDUSTRY
INNOVATION AND
our history.
INFRASTRUCTURE Other prominent initiatives launched by Engro
Fertilizers Limited to inculcate HSE practices amongst
our employees, were:
• “School of EMS”;
• “Hazardous Waste Segregation”; and
12 RESPONSIBLE
CONSUMPTION 13 CLIMATE
ACTION 15 LIFE
ON LAND • “WRAP - Waste Reduction Always Pays”
AND PRODUCTION programs.
These projects strive to change the mindsets and
behaviors of our employees, both on personal and
professional fronts.
113 engro fertilizers limited annual report 2019 114
 In addition, our Occupational Health Program places developing infrastructure, educational capacities and At year end, the enrollment at our government schools
significance on industrial hygiene and occupational Corporate Social livelihood strength, in and around Daharki. These stood at 1,565 students. Our Katcha School Network
medicine. In accordance with this strategy, various
“Health Awareness Programs” were launched in 2019.
Responsibility developments are part of our efforts in enhancing
community building, income generation and the
continues to operate as per plan (1,519 students),
including the operations at first girls’ middle school in
These programs were accustomed to train Being a part of one of the largest conglomerates in provision of basic health and safety services. Ghazi Chachar (56 female students) with support from
employees, keeping them abreast of the numerous Pakistan, Engro Fertilizers Limited has always been a CDP, private donors and Engro. We have invested in
During the year, three RO plants at CAER villages and
technological changes evolving in the current purpose driven Organization. We aspire to exceed the teachers trainings, including 4 female teachers and
Daharki were successfully converted to solar power,
paradigm and enlightening them with various Safety & expectations of business goals and endeavor to fulfill building capacity of teachers to adopt better
ensuring availability of clean water along with energy
Health-related aspects of their jobs. sustainable social goals. This vision is demonstrated pedagogies.
conservation. Additionally, infrastructure improvements
by our CSR wing – Engro Foundation – which strives
were undertaken for sewerage including maintenance Sahara Welfare School continues to deliver quality
to improve the lives of people living in low-income
and repair of the main line connection and pumping education in the vicinity of our manufacturing facility in
CLIMATE communities with impact investments.
3 GOOD HEALTH
AND WELL-BEING 13 ACTION station at Jung village and upgradation of drainage Daharki throughout the year where infrastructure
Engro Fertilizers Limited undertakes community system at Jan Muhammad Bughio village. In line with developments in the last two years have helped beef
engagement initiatives including social investments our strategy, upliftment work was also carried out at up the student enrollments. During the year, we
and business inclusive projects, combining financial Daharki Railway Station platform. introduced a blended learning model for primary
and managerial resources to enrich lives and pave school children at government adopted schools in
Other community infrastructure enhancements include
the way for sustainable living. We aspire to positively district Ghotki.
installation of solar lights in educational facilities in
impact Pakistan with a focus on, but not limited to, the
Awards and Recognition Daharki and Ghotki. Furthermore, this year Engro Fertilizers Limited
following:
organized a large-scale inter-school science festival in
Our expertise and efforts in all three domains of HSE • Community investment and infrastructure district Ghotki, accommodating the participation of
were recognized by various reputed national and development CLEAN WATER
7 AFFORDABLE AND more than 60 schools. More than 800 students
international organizations:
• Education
6 AND SANITATION CLEAN ENERGY
participated in this first-of-its-kind event and Engro
Fertilizers Limited distributed cash vouchers and
• Annual Environmental Excellence Award by • Livelihood trophies to the top 3 projects.
“National Forum of Environment & Health”
on environmental performance and Million • Agri-Value chain projects
Tree Plantation. • Health-care services

• Annual Fire Safety Excellence Award by

• Energy conservation Education 4 QUALITY
EDUCATION 5 GENDER
EQUALITY 8 DECENT WORK AND
ECONOMIC GROWTH

“Fire Protection Association of Pakistan” for • Protecting the environment Education has always been one of the most important
exhibiting excellence in fire prevention parts of our CSR strategy. We have worked endlessly
• Sports promotion and development
& safety. to provide quality education to the underprivileged
Our aspirations go beyond corporate philanthropy communities around our manufacturing facility, while
• Gold Medal Awarded at IFA - Annual and we aim to build a sustainable inclusive business improving quality and learning outcomes at all levels.
Strategic Forum, in light of our performance strategy. We work with development partners and
regarding IFA’s “Protect & Sustain standard” take pride in our employees’ direct association with
and HSE & energy benchmarks. social work for the communities and farmers,
maximizing social impact and sustainability.
• National Safety Council (NSC) USA, Engro Fertilizers Limited has established a dedicated
recognized Engro Fertilizers Limited as a CAER (Community Awareness Emergency Response)
breeding ground / nursery for emerging safety Committee whose primary role is to provide guidance
leaders. and training to all communities (present within 2 kms)
regarding the Emergency Response of their village in
Our HSE Performance in 2019 accordance with the established HSE procedures and
Over the course of 2019, Engro Fertilizers Limited has along with ensuring social development of these villages.
had numerous safety and health-related initiatives Community Investment and Infrastructure
impactfully executed. An efficient strategic outlook Development
along with an effective policy implementation are the
Community Engagement and Infrastructural
key drivers for our annual performance:
Development are the key components of our social
Our HSE Performance investment strategy which endeavors to improve the
Total Recordable Injury Rate (TRIR) 0.05 general standard of living as well as play its part in
revamping the agri-landscape of Pakistan. We take
Loss Workday Injury (LWI) 0 pride in designing and implementing efficiency
Total Man-hours 12.5 M enhancing policies that tend to the needs and values
Fatalities 0 of people residing in our target communities. Keen
assessment and optimal delivery is key to sustainable
Recordable Injuries 3
social interventions.
In 2019, Engro Fertilizers Limited has invested in

115 engro fertilizers limited annual report 2019 116

 Livelihood graduates were 380, swelling the VTC alumni pool to
2,858 graduates till date. New trainees were inducted Agri-value Chain Projects Healthcare Services
Technical Training College (TTC), Daharki so they could learn skills that would make them Partnerships and Value Expansion (PAVE) for Our Health projects continued to provide essential
valuable employees or entrepreneurs as well as inclusive seed systems services to supporting communities. The Sahara
The Technical Training College (TTC),
contributing members of the community. Clinic treated a total of 14,995 vs 9,528 patients in the
Daharki, established with the help of Engro PAVE Pakistan is a 2.5 year (2017 – 2020)
last year, while the singular snake-bite treatment
Fertilizers Limited, serves as the center of GIZ Project: business inclusive project jointly funded by
facility treated a total of 7,608 patients during 2019.
Scan for video our skills training programs. The college During the year, TTC also received support from DFAT (Department of Foreign Affairs and
offers a 3-year Diploma in Associated Engineering German development agency GIZ (Deutsche Scan for video Trade) Australia and Engro Fertilizers More than 430 awareness sessions were conducted
(DAE) in Chemical and Mechanical technologies, as Gesellschaft für Internationale Zusammenarbeit) to Limited, which aims to develop the seed value chain for Hepatitis Awareness and attended by 12,900
well as a short-term vocational training programs for train 160 young men and women in 4 different trades of rice, wheat and vegetables in Pakistan, making it participants. A total of 3,400 people were vaccinated,
the youth living in the Daharki vicinity. Over the years, (welding, fabrication, machinery and web design). more inclusive for smallholder farmers by building on while 104 HC patients were treated and cured during
we have helped the College develop and deploy a their capacities and creating market linkages for the year.
placement software, which will act as a student them. During the year, more than 4,400 (including During 2019, we also conducted free of
databank and will be used for tracking alumni
employment for impact evaluation and governance of 1 NO
POVERTY 4 QUALITY
EDUCATION
600+ female) beneficiaries have been engaged in the
project.
cost eye camp for district Ghotki which
benefited more than 2,500 patients.
the college. Scan for video
The project won two regional awards during the year, Furthermore, in partnership with the
Diploma in Associated Engineering (DAE) one in the social empowerment category at Asia National Rural Support Program, a free of cost
Program: Responsible Enterprise Awards held at Taipei, artificial limb camp was also conducted, which
Taiwan. The second award was for Best Shared Value benefited more than 150 patients.
In 2019, the total DAE strength stood at 381 students.
Out of these, 144 students were new inductees, while Project through cross-sector partnership held at
we were privileged to witness the graduation of 141 Melbourne, Australia.
students and their joining of alumni ranks, bringing the 5 GENDER
EQUALITY 8 DECENT WORK AND
ECONOMIC GROWTH
Scan to hear about the PAVE project from local farmers
total Alumni network to 529 individuals. on its impact towards capacity building and shifting
them from traditional to modern farming practices.
Vocational Courses: Scan for video

Total trainees enrolled in our Vocational Training

Center (VTC) in 2019 were 160. The number of
2 ZERO
HUNGER 5 GENDER
EQUALITY

8
GOOD HEALTH
DECENT WORK AND
ECONOMIC GROWTH 12 RESPONSIBLE
CONSUMPTION 3 AND WELL-BEING
AND PRODUCTION

117 engro fertilizers limited annual report 2019 118

 Energy Conservation Protecting the Environment Sports Promotion and Development operating paradigms and undertake the development
2019 predominantly remained the year of operating • Carbon Footprint Reduction • Sponsorship of Quetta Gladiators - Pakistan and implementation of new initiatives, enhancing
the plant at best energy efficiency levels. Innovative Super League employee performance and business development.
Engro Fertilizers Limited developed a carbon footprint
engineering solutions were adopted to overcome load The following is HR’s contribution to drive Engro
reduction plan in accordance with international Engro Fertilizers Limited as part of Engro Group, was
limitation (furnace sway) at Base Plant, thereby, Fertilizers’ success:
standards in 2017, with the aim to bring Company one of the sponsors of Quetta Gladiators’ team in PSL
enabling plant operations at maximum possible load performance in line with globally acceptable levels for 2019, and is also the sponsor for the 2020 season. Agricultural Internship Program 2019
(135%) and efficiency. Making use of latest technolo- a Fertilizer complex. Consequently, in 2019, Engro
gy, Advance Process Controller was commissioned at • Sports & Community Events • Engro Fertilizer’s first ever internship program
Fertilizers Limited successfully met its carbon footprint
enVen plant enhancing Ammonia production by District Boxing Tournament and Hard Ball Cricket for agri-based interns was introduced this
reduction target.
approximately 9 Metric Tons/day. Moreover, teething Tournament were arranged for youth of Ghotki district, year. The program targeted a potential
issues of Feed Gas Enrichment (FGE) unit were • One Million Tree Project candidate base of around 150 students, who
to promote sports in the region, which witnessed the
resolved that resulted in our enVen Plant to surpass its In pursuit of our Green Pakistan Vision, we are utilizing participation of 26 clubs. went through recruitment testing pipeline. Of
nameplate capacity and operate at 102% load hundreds of acres of barren land held by Sindh Forest these 150 applications, 19 candidates were
(highest ever operations at best efficiency) Jung Mela at an enhanced and larger scale was awarded the opportunity to experience
Department by virtue of an MoU, to grow trees on their organized by Engro Fertilizers Limited. It was one of
land in District Ghotki. Approximately two hundred & field-based internship at Engro Fertilizers
Two mega back-to-back turnarounds of enVen & Base the most successful community events, which
seventy thousand trees have been planted, whereas a Limited.
Plants respectively, contributed to a energy conserva- received appreciation from locals as well as the
tion drive by effective machine overhaul, exchangers further 350 acres of land is being prepared to imple- district administration. • Maintaining diversity and promoting equal
cleaning and catalysts replacement. ment our four-year plan for sustainable development gender opportunities, 2 female interns were
and plantation. also inducted as part of this field-based agri
Our Commitment to Our Internship program.

9 INDUSTRY
INNOVATION AND
INFRASTRUCTURE
12 RESPONSIBLE
CONSUMPTION 12 RESPONSIBLE
CONSUMPTION 13 CLIMATE
ACTION 15 LIFE
ON LAND
People Talent Management
AND PRODUCTION AND PRODUCTION Engro Fertilizers Limited is proud of having a Human Resource at Engro Fertilizers Limited is
motivated, zealous and ever efficient team that responsible to introduce and promote efficiency within
personifies the Company’s values, ensuring continued workforce management, an art within itself, talent
excellence over the years. The Human Resource management allows the firm to promote organizational
Department focuses on strategic policies, efficiently sustainability and continuity. Over the course of the
defined contribution and medical plans, attractive year, talent management was seamlessly established
compensation packages and incorporating a healthy by the following strategic tools:
environment which allows its people to enhance • Stewarding of talent internally and externally
productivity at an individual level as well as the larger through our automated tracking system
organization.
• Creation of a conducive environment by
2019 was the year for ‘HR Transformation’, evolving the developing a diverse talent pool including
Human Resource Function of Engro Fertilizers Limited gender diversity and transforming our hiring
to introduce philosophical changes in the various practices.

119 engro fertilizers limited annual report 2019 120

 name of the initiative suggests, inculcates the Department of Engro Fertilizers Limited in line with
realization that we are morally accountable for the international best practices. The framework helps
well-being of our community, given the privilege we identifying critical positions for business growth and
enjoy and the good quality of life we tend to sustainability.
experience.
The framework acts as a key element in optimization
The idea behind the concept is to: of resources and ensuring a healthy pipeline of
• Inculcate a mindset of ‘giving back’, homegrown talent, enabling Managers to develop a
underlining a message of social responsibility systematic and focused succession plan for their
in the Organization. departments and the Company as a whole.

• Encourage employees to contribute to the

social development of our country by
Business Ethics &
exposing and enabling them to a variety of
volunteering opportunities.
Anti-corruption Measures
Engro Fertilizers Limited ensures compliance with all
• Enable employees to interact and connect regulatory and governance requirements while
with each other over matters other than conducting its business and has formulated various
business, aiming to create a shared sense of policies and standards which are continuously
purpose, engagement and motivation. monitored with the help of specific committees. Such
In light of our focus on transformation, in an attempt to policies include:
inspire change for the Company and the country, we • Code of Conduct
believe in: • Fraud Risk Management
Gender Diversity post-training effectiveness framework. • Providing access to lifelong learning • Governance of Conflicts of Interest
At Engro Fertilizers Limited, we take pride in providing Rewards Transformation opportunities that ensure capacity and • Statement of Ethics and Business Practices
everyone an equal opportunity at employment and capability enhancement of people. • Whistleblower Policy
Engro along with McKinsey & Company has • Governance of Transactions/Contracts with
growth. To proactively infuse the concept of diversity • Promoting hygiene, good health and an
formalized a Talent Strategy Paradigm which Related Parties
and promote an encouraging environment: overall well-being to relieve the country
maintains focus on high performance. All systems,
• 3-point framework for gender diversity was
created with its implementation is in full swing,
structures and processes within the Human Resource
function of Engro Fertilizers Limited have been •
of preventable diseases.
Realizing the full productive potential of
Consumer Protection
capturing the areas of Gender Inclusive
Culture, Recruitment & Retention of women.
modified to support with the designed strategy. To
start with, the following areas have been aligned:
women in all spheres for the growth of our Measures
country and promoting an environment that
At Engro Fertilizers Limited, we believe in
• Extensive work has been done on gender • Employees grading structure has been exhibits the same.
safeguarding the interests of our farmers through
sensitization sessions, conducting an restructured and transformed by the inclusion New Performance Management System – adequate consumer protection measures such as:
organization wide role mapping exercise, of broader bands and career streams SuccessFactors
creating gender inclusive policies, source • Providing retail price list to all dealers to
• Salary structures have been harmonized Engro Fertilizers’ HR is home to an effective ensure farmers are not exploited.
female candidates to fill vacant positions, and
across the group aligning the rewards mix performance management system. This was reflected
engaging with existing female employees at • Providing education and guidance to farmers
Engro Fertilizers Limited. • Variable pay has been redesigned, effectively in a successful rollout of new performance
regarding the best usage of fertilizer,
rewarding high performance management system for Tier III and above employees.
• Engro Fertilizers Limited won 6 awards at the recommended nutrition mix and better use of
During the course of the year, a total of 330
Global Diversity & Inclusion Benchmarks Engro Fertilizers Limited takes pride in evolving as other inputs to enhance the yield.
employees were trained on the new system, ensuring
(Standards for Organizations around the Engro’s first subsidiary to successfully implement all • Providing education to farmers on improving
100% coverage of the target employee base.
World). GDIB globally evaluates organizations the outlined changes as per strategy within July’s the soil health.
on the development and implementation of Salary and Increment cycle. Engro Experience Survey
Diversity and Inclusion (D&I) best practices. • Providing free of cost soil sampling services
Capturing the experience of our people is immensely
Field Incentive Plan to farmers across Pakistan (approximately
critical to further enhancing our employee experience.
A Field Incentive Plan was introduced for the Field 24,000 soil tests are conducted annually).
The Engro Experience Survey was successfully rolled
5 GENDER
EQUALITY
Force of Engro Fertilizers Limited, ensuring alignment
with the changing conditions of the fertilizer market
out, capturing a healthy response rate of 94%. From
the response generated, low scoring areas were
• Ensuring timely delivery of product through
our extensive distribution and dealer network.
and to have a more direct linkage established
highlighted via a comprehensive analysis procedure.
between the rewards system and performance, KPI’s,
and targets.
Managers for all department were provided with the Contribution to National
opportunity to develop action plans against the
Field employees now enjoy an enhanced control over identified areas. Designed plans, brought forth by the Exchequer
their variable pay segment. They attribute it to the departments are being stewarded by the HR function
Regional Sales Managers Capability Development: During the year 2019, Engro Fertilizers Limited
targets achieved and their performance delivery. on a quarterly basis.
contributed over Rs. 22 billion (2018: Rs. 19.5
To enhance commercial capabilities in the newly Head-office based CSR – Engro Ehsaas Business Critical Positions billion) towards the National Exchequer by way of
created layer within the hierarchy, Engro Fertilizers’ Government taxes, duties and levies.
first ever RSM Development Program was executed. A unique initiative that brings employees at our head An objective methodology to identify business critical
The efficiency of the program was analyzed with a office together to create social impact. ‘Ehsaas’ as the positions was developed internally by the HR Further, value addition in terms of savings in foreign

121 engro fertilizers limited annual report 2019 122

 exchange amounted to approximately US$ 561 million
through import substitution of 1,983 KT of urea and Internal Control Directors’ Remuneration Pension, Gratuity &
related products manufactured and sold in the The Board of Directors has duly approved the
country by Engro Fertilizers Limited in 2019.
Framework remuneration of the members of the Board for
Provident Fund
• Responsibility: attending meetings of the Board and its committees. The employees of the Company participate in
Statement of Charity The Board is ultimately responsible for the Company’s The remuneration is determined with the level of
responsibility and expertise, to attract and retain the
Retirement Funds maintained by Engro Corporation
(the Parent Company). The Company contributes to
systems of internal control and for reviewing its
Account best talent while ensuring that their independence is plans that provide post-employment and retirement
effectiveness. However, such a system is designed to
not compromised in any manner. benefits for its employees. These include DC
manage rather than eliminate the risk of failure to
Rs. in million 2019 2018 provident fund, DC gratuity plan and DB gratuity
achieve business objectives and can provide only No remuneration shall be paid to Executive Directors,
plans. The value of net assets of Provident Fund (as at
Community Welfare & Infrastructure 87 47 reasonable rather than absolute assurance against Chief Executive Officer and Non-Executive Directors
June 30, 2019) and Gratuity and Pension funds (as at
material misstatement or loss. The Board, whilst who are employees in other Engro entities, for
Education 34 29 December 31, 2018) based on their respective
maintaining its overall responsibility for managing risk attending meetings of the Board and its committees.
General 19 audited accounts are:
11 within the Company, has delegated the detailed
The Board, if deems appropriate, may engage
Healthcare 105 design and operation of the system of internal controls Provident Fund: PKR 3,826 million (Engro Fertilizers’
6 independent consultants to determine the appropriate
to the Chief Executive. share: PKR 1,451 million)
Environment 20 7 level of remuneration of its Directors and recommend
Grand Total 265 100 • Framework: to the Board for consideration and approval. DC Pension Fund: PKR 556 million (Engro Fertilizers’
Directors’ are also entitled to reimbursement of share: PKR 336 million)
The Company maintains an established control
framework comprising clear structures, authority limits, expenses incurred in connection to attendance of the DB Pension Fund: PKR 38 million (All Engro
and accountabilities, well understood policies and Board and/or Board Committee meetings. Fertilizers Limited)
procedures and budgeting for review processes. All Detail of the remuneration paid to Directors during the DC Gratuity Fund: PKR 1,728 million (Engro
policies and control procedures are documented in year is given in Note 33 of the attached consolidated Fertilizers’ share: PKR 657 million)
manuals. The Board establishes corporate strategy and financial statements.
the Company's business objectives. Divisional DB NMPT Gratuity Fund: PKR 176 million (All Engro
Management integrates these objectives into divisional Fertilizers Limited)
business strategies with supporting financial objectives. DB MPT Gratuity Fund: PKR 188 million (Engro
• Review: Fertilizers’ share: PKR 114 million)

The Board meets every quarter to consider the

Company‘s financial performance, financial and
operating budgets and forecasts, business growth
and development plans, capital expenditure
proposals and other key performance indicators.
The Board Audit Committee receives reports on the
system of internal financial controls from the external
and internal auditors and reviews the process for
monitoring the effectiveness of internal controls. There
is a company-wide policy governing appraisal and
approval of investment expenditure and asset
disposals. Once projects are completed, reviews are
performed on all material investment expenditure.
• Adequacy of Internal Financial Controls:
The Board of Directors has employed an articulate
paradigm of internal financial controls, promoting the
culture of moral conduct and ethical obligation within
the Company systems and processes.

123 engro fertilizers limited annual report 2019 124

 Auditors Statement of Director Board Composition & a.
b.
Male: Seven
Female: One
The existing auditors, A. F. Ferguson & Co., Chartered
Accountants retire and being eligible, have offered
Responsibilities Attendance In 2019, the Board of Directors held 8 meetings to
cover its complete cycle of activities. The attendance
themselves for re-appointment. The Board Audit The Directors confirm the compliance with Corporate The total number of Directors are eight as per the
record of the Directors is as follows:
Committee recommends their appointment as auditors and Financial Reporting Framework of the Securities following:
for the year ending December 31, 2020 and Exchange Commission of Pakistan and Code of
Corporate Governance for the following matters: Ghias Khan Non-Executive Director - Chairman 8/8
Pattern of Shareholding 1. The financial statements, prepared by the Nadir Qureshi Executive Director 8/8
Management of the Company, present fairly its Javed Akbar Non-Executive Director 8/8
As at December 31, 2019, Associated Companies
state of affairs, the result of its operations, cash
and Directors of the Company held the following Abdul Samad Dawood Non-Executive Director 5/8
flows and changes in equity.
number of shares: Asad Said Jafar Independent Director 8/8
2. The Company has maintained proper books of
% of accounts. Sadia Khan Independent Director 7/8
Particulars Shareholding Asim Murtaza Khan Independent Director 8/8
3. Appropriate accounting policies have been
consistently applied in preparation of the Hasnain Moochhala* Non-Executive Director 7/8
Associated Companies and Related 56.27% financial statements. Accounting estimates are
*Joined Board as Director w.e.f. February 18, 2019.
based on reasonable prudent judgment.
Directors and Dependents 0.003%
4. International Financial Reporting Standards, as
applicable in Pakistan, have been duly followed
A detailed pattern of shareholding is disclosed in in preparation of the financial statements.
Pattern of shareholding section of the Annual Report
BCC Composition
2019. 5. The system of internal control is sound in design
and has been effectively implemented and Sadia Khan (Chairperson) 2/2

6.
monitored.
There is no doubt about the Company's ability to
& Attendance Asim Murtaza Khan (Director) 2/2
continue as a going concern. In 2019, the Board Compensation Committee held 2
meetings to cover its complete cycle of activities. The Javed Akbar (Director) 2/2
7. There has been no material departure from the attendance record of the Directors is as follows:
best practices of Corporate Governance, as
detailed in the Regulations of Rule Book of
Pakistan Stock Exchange.
8. One of the Directors has obtained certification of
the Directors’ Training program during the year.
All the other Directors have also completed this BAC Composition In 2019, the Board Audit Committee held 5 meetings
to cover its complete cycle of activities. The
program in previous years.
& Attendance attendance record of the Directors is as follows:

Mr. Asad Said Jafar – Chairman 5/5

Mr. Asim Murtaza Khan – Member 3/5
Mr. Hasnain Moochhala - Member 4/5
Mr. Javed Akbar – Member 5/5
Ms. Sadia Khan – Member 1/5

• Ms. Sadia Khan was replaced by Mr. Hasnain • Mr. Asim Murtaza Khan joined the BAC as a
Moochhala as a member of the BAC during member during the year.
the year.

Chairman Chief Executive Officer

125 engro fertilizers limited annual report 2019 126

 forward-looking
costs. Engro Fertilizers Limited contributes to farmer to ensure smooth progression, engages with
education, by employing technological and social Government and other stakeholders to provide
capital, creating awareness by introducing explain dynamics and issues impacting the industry

statement
comprehensive solutions, highlighting best practices, hence deliver its role in sustainable and progressive
outlining the properties of soil and disseminating policy making. Adverse movement in Foreign
adequate use of scarce water supply. Exchange/Interest Rates harbors an unfavorable
The Company looks forward to study the agricultural impact on the profitability of the Company, resulting in
Engro Fertilizers Limited’s treasury function to actively
landscape from a holistic lens, building on a
multi-dimensional paradigm where product monitor FX movements in market rates and open
positions.
enhancement, regions’ agri-yield, farmers’ living
Source of Information and Assumptions Used For Over the period, the Company delivered on its
standards, financial planning and government’s Higher reliance of farmers on Urea and their
Projections / Forecasts promise of exploring avenues to maximize product support promote sustainable growth and continue resistance on making balanced nutrient usage may
portfolio by achieving increased sales of specialty profitability in the years to come. eventually hurt the market for ‘P’ and ‘K’ variants. As
Engro Fertilizers Limited has an articulate paradigm
fertilizers as compared to previous years. Recently an environmental and social challenge, it can be
which assesses the assumptions and analysis base Response Framework for Future Challenges and
introduced range of various new products in the Crop catered by creating farmer awareness on the benefits
employed by the Organization, to build on its narrative Uncertainties
Sciences division aimed to help the farmers benefit of balanced fertilizers usage through engagements,
and quantitative forecasts. Projections embed
from a wide array of agricultural solutions at their Engro Fertilizers Limited has a highly efficient product trials and pilots. As a long-term strategy,
detailed information and guidelines from historic data,
disposal. response framework to cater to future challenges and Engro Fertilizers Limited plans on working with the
current trends and future forecasts. Adjustments are
incorporated to align production, distribution and Devaluation of Pakistani Rupee had adverse impacts uncertainties. One of the primary challenges include government to introduce subsidy plans to encourage
financial outlay with the objectives of the Company. on the Company’s costs. The trading portfolio was the depletion of allocated gas field which may affect farmers to invest in ‘P’, ‘K’ and other value-added
majorly impacted as well as our dollar linked natural the production of Urea, in response to which the variants.
Economic indicators, market perspectives, global Organization is evaluating alternate sources of gas /
gas resulted in an increase in the costs of production Comprehensive and coherent strategic guidelines
projections, regulatory framework, political outlay and energy along with continued effort to invest in further
and affected gross margins. The recent slash in GIDC with active monitoring of changes in the operating,
internal developments are some of the crucial plant efficiency improvements.
by the Economic Coordination Committee (EOC) has economic, political and social environment allow
contributors to the annual and future forecasting
allowed Engro Fertilizers Limited to pass on the Continuous changes in government policies and Engro Fertilizers Limited to develop along organic
guidelines. Engro Fertilizers’ internal organizational
resulting benefit to the farmers, hence delivering agri regulations may impact the Company’s lines, contributing to Company’s top line growth and
framework, encompasses various functional divisions
inputs at optimal prices and achieving progress on competitiveness, an uncertainty which is actively the country’s economic success.
such as Commercial, Supply Chain, Finance &
sustainable grounds. monitored by Engro Fertilizers Limited. The Company,
Accounting, Human Resources and Manufacturing
which contribute to the compilation of information and Forward Looking Statement
data for financial projections. Engro Fertilizers Limited continues to grow and
Internal specialized experience and secondary enhance on the lines of operational excellence and
market information define the primary sources of sustainable progress. The Company takes pride in
information compilation and assessment, therefore, for maintaining quality deliverance, sufficing to its strong
the annual corporate planning exercise, no external brand recognition in the country. Effectively designed
advice was sought. lean organizational structure, with manufacturing
capabilities, an articulate trade network, measures to
Analysis of Last Year’s Forward Looking comprehend farmer economics and a wide product
Statement / Status of Projects portfolio that caters to an array of farmer demands are
Engro Fertilizers Limited, in line with the Company’s the pillars supporting the Company’s legacy.
aim of leveraging its strong brand name, achieved its Engro Fertilizers Limited enjoys a sustainable capacity
second highest Profit after Tax in FY2019 of PKR 16.9 to integrate synergies, accommodate new products,
billion (on a consolidated basis) which reflects the incorporate advanced technology, and develop
Organization’s enhanced agri footprint in the country. end-to-end agri based value added solutions for its
Continuing on Engro Fertilizers Limited’s operational ultimate beneficiaries. With an aim to contribute to
excellence, the Organization looks forth to ensure high farmer productivity, continuous progress of
maximum efficiency of production facilities. In line with operational excellence, strategic partnership activities
this, significant headway has been made in the with farmers, enhancing Engro Fertilizers Limited’s
long-term reliability projects of manufacturing market and giving back to the community, the
facilities, aiming to promote sustenance and building Organization adapts to a sustainable framework of
on its part to guarantee food security for the country. resource allocation where efficient employment of
During the year, enhanced utilization of production capital basis can help Engro Fertilizers Limited
capabilities determined the Company’s invaluable role achieve its strategic objectives.
in curtailing the current account deficit by value On the political facet, stable regulatory policies and
addition in terms of savings in foreign exchange improvements in existing government projects is
amounted to approximately US$ 561 million through crucial for sustainable progress. The economic
import substitution of 1,983 KT of urea and related factors, such as the rupee’s depreciation along with
products manufactured and sold in the country by high borrowing cost, impacts the procurement of
Engro Fertilizers Limited. imported materials and aggravates farmers’ credit

127 engro fertilizers limited annual report 2019 128

 quarterly analysis
Profit after tax (rupees in million)
7,000
(Rupees in million) 6,363

Description Q1 Q2 Q3 Q4 FY 2019 6,000

Net sales 23,652 26,990 27,106 43,607 121,355
5,000
Cost of sales (16,053) (18,475) (18,267) (29,020) (81,815)
Gross profit 7,599 8,515 8,839 14,587 39,540 4,007
4,000
Selling and distribution expenses (1,636) (1,745) (2,069) (3,286) (8,736) 3,325
3,177
Administrative expenses (282) (309) (296) (361) (1,248) 3,000
Other income 1,012 1,427 1,214 699 4,352
Other operating expenses (406) (581) (503) (1,133) (2,623) 2,000

Finance cost (799) (1,220) (1,210) (658) (3,887)

1,000
Profit before tax 5,488 6,087 5,975 9,848 27,398
Tax (1,481 (2,910) (2,650) (3,485) (10,526)
Profit after tax 4,007 3,177 3,325 6,363 16,871 Q1 Q2 Q3 Q4

EPS 3.00 2.38 2.49 4.77 12.64

Production (KT) 445 460 545 553 2,003

Earnings / Dividends per share
Urea Sales (KT) 436 452 444 626 1,958
EPS DPS

6
1000
Quarter wise sales volumes (KT) 6.00

900 44
5.50 5 4.77
800
5.00
242 4.50
700
600 4.00
56 66
54
500 113 105 3.50
3.0
85
400 3.00
2.49
2.38
300 2.50
2*
436 452 444 626
200 2.00

100 1.50
1.00
Q1 Q2 Q3 Q4 0.50 Nil

Urea Phosphates Speciality Fertilizer Q1 Q2 Q3 Q4

*Final dividend for the year ended December 31, 2019 recommended for approval of members at the Annual General Meeting.

129 engro fertilizers limited annual report 2019 130

 QUARTER 1 Sales Revenue The Company’s DAP and Zorawar sales during the Cost of Sales and Other Operational Costs
period stood at 105 KT vs 153 KT last year, reflecting
Production Sales Finance Cost Net Profit Urea sales during the period clocked in at 452 KT a dip of 31% due to demand impetus amid fears of Gross Profit of the Company was recorded at PKR
compared to 496 KT in 2Q 2019, a decrease of 9% rising international prices in 3Q 2018. 14.6 B for 4Q 2019, compared to PKR 11.4 B in the
445 KT 436 KT PKR. 799 Mn PKR. 4,007 Mn YoY owing to lower avails. Engro Fertilizers Limited same period last year, an increase of 28%. This was
DAP and Zorawar sales during 2Q 2019 stood at 113 The Company’s Specialty Fertilizer sales clocked in at majorly due to a jump of 28% in Urea volumes and
Production KT vs 121 KT last year, down 7% YoY, on the back of 66 KT in 3Q 2019 vs 62 KT during the same period Urea prices versus same period last year. However,
The Company’s urea production in 1Q 2019 stood at strong pre-buying amid fears of increase in interna- last year, an increase of 6%. the growth was partially dragged down by lower DAP
445KT compared to 517KT in the corresponding tional prices in 2Q 2018. volumes and prices.
period last year, a decrease of 14% YoY, mainly due Net Sales Revenue witnessed a slight decrease of 4%
to a plant shutdown during the quarter. The Company’s Specialty Fertilizer sales clocked in at owing to lower Urea and Phosphate sales in 3Q 2019 Finance Cost
56 KT in 2Q 2019 vs 38 KT during the same period versus same period last year.
Sales Revenue last year, an increase of 47% owing to competitive Finance cost clocked in at PKR 658 M (vs PKR 651 M
pricing and better avails. Cost of Sales and Other Operational Costs last year) as short term borrowing for curtailed on the
Urea Sales clocked in at 436KT compared to 497KT in back of robust sales in the quarter.
1Q 2018, reflecting a decrease of 12% owing to low Net Sales Revenue was 18% higher in 2Q 2019 Gross Profit of the Company was recorded at PKR 8.8
production. Engro Fertilizers Limited DAP and compared to 1Q 2018 on the back of increase in Urea B for 2Q 2019, compared to PKR 9.9 B in the same Profit
Zorawar sales during 1Q 2019 stood at 85 KT vs 54 prices from PKR 1,490/bag in 2Q 2018 to PKR period last year, a decline of 10%. The decrease in
KT last year, up 57% YoY, resulting in a higher market 1,830/bag in 1Q 2019. The increase in revenue was net revenue completely translated into gross profit as Company’s consolidated profit stood at PKR 6.4 B vs.
share of 43% vs 15% for the same period last year. partially offset by lower volumes of Urea and Phos- cost of sales remained flattish in 3Q 2019 relative to PKR 5.2 B in the corresponding period last year.
The business continued to enjoy positive momentum phates in 2Q 2019 versus same period last year. 3Q 2018. Selling & distribution expenses were higher Higher profitability was led by higher Urea volumes
from last year. by 5% on the back of axle load regime being imple- and prices and lower effective tax rate.
Cost of Sales and Other Operational Costs mented resulting in higher handling costs. The com-
The Company’s Specialty Fertilizer sales clocked in at pany received a higher other income in 3Q 2019 due ANALYSIS OF VARIATION IN INTERIM ACCOUNTS
54KT in 1Q 2019 vs 44KT during the same period last Gross Profit of the Company was recorded at PKR 8.5 to income on investment in PIBs and Treasury bills. WITH FINAL ACCOUNTS
year, an increase of 23%. B for 2Q 2019, compared to PKR 6.7 B in the same
period last year, an increase of 27% despite higher Finance Cost Efert’s net sales grew from PKR 24 B in Q1 to PKR 121
Net Sales Revenue for the quarter recorded a 30% COGS which increased by 14% YoY because of the B in full year 2019. Company’s highest quarterly sales
growth primarily due to i) increase in Urea prices from higher gas prices. S&D expenses saw an increase of Finance cost clocked in at PKR 1,210 M (vs PKR 534 were in the last quarter mainly on the back of robust
an average of PKR 1,370/bag in 1Q 2018 to PKR 9% owing to inflationary pressures and higher M last year) mainly as a result of higher policy rates
handling costs of trading products and outstanding long-term portion during the period. Urea sales that stretched the yearly demand upto 6.18
1,700/bag in 1Q 2019, ii) growth of Phosphates and M tons. The pricing throughout the year remained on
Blended fertilizer volumes, and iii) escalation in prices the uptrend owing to inflationary pressures, gas price
of Trading products on the back of Rupee deprecia- Finance Cost Profit
tion. However, the effect was partially offset by lower increases and rupee devaluation that extended from
Urea volumes which witnessed a decline of 12%. Finance cost was higher at PKR 1,220 M (vs PKR 362 Company’s consolidated profit stood at PKR 3.3 B vs. the previous year.
M last year) mainly as a result of i) higher policy rates, PKR 5.1 B in the corresponding period last year.
ii) increase in foreign exchange loss due to devalua- Lower profitability was led by lower Urea and Phos- Company’s Gross profit in the first quarter clocked in
Cost of Sales and Other Operational Costs
tion and iii) recognition of fair value loss on sales tax phate volumes, higher finance cost and higher at PKR 7.6 B but closed the year at PKR 39.5 B due to
Gross Profit of the Company was recorded at PKR 7.6 bonds. effective tax rate. high sales volume in the last quarter. However, the
B for 1Q 2019, compared to PKR 7.3 B in the same margins in comparison to last year remained flattish.
period last year, an increase of 4%. COGS showed a Profit QUARTER 4
Even on the quarterly basis, the company was able
40% YoY escalation compared to the COGS in 1Q maintain its gross margins throughout the year with
2018 owing to gas price increases. Company’s consolidated profit stood at PKR 3.2 B vs. Production Sales Finance Cost Net Profit
PKR 3.3 B in the corresponding period last year on minimal variation.
account of higher effective tax rate owing to withdraw- 553 KT 626 KT PKR. 658 Mn PKR. 6,363 Mn
Finance Cost The profit before tax also followed the similar trend as
al of 1% successive reduction in corporate tax rate up
till tax year 2023. the PBT jumped in the last quarter owing to high
Finance cost was higher at PKR 799 M (vs PKR 512 M Production
last year) as a result of higher policy rates. volumes of Urea as compared to preceding quarters.
QUARTER 3 The Company’s urea production in 4Q 2019 clocked The notable reduction in Finance cost in the last
Profit in at 553 KT compared to 500 KT in the corresponding quarter was reflective of the improved cash cycle
Production Sales Finance Cost Net Profit period last year on the back of increased efficiencies
and better gas avails. owing to robust sales.
Company’s consolidated profit stood at PKR 4.0 B vs. 545 KT 444 KT PKR. 1,210 Mn PKR. 3,325 Mn
PKR 3.9 B in the corresponding period last year, The net margin of the company was significantly
resulting in EPS of PKR 3.00 vs. last year’s EPS of PKR Sales accentuated in the 1st Quarter owing to lower tax rate
2.91. The improvement in PAT was due to lower Production
in Finance act 2018. However, with the reversal of 1%
effective tax rate owing to lower tax rate in Finance The Company was able to sell 626 KT of Urea in 4Q
The Company’s urea production in 3Q 2019 clocked 2019 as compared to 490 KT in 4Q 2018. The compa- successive reduction in corporate tax rate which led
Act 2018. to higher effective tax rate in the subsequent quarters,
in at 545 KT compared to 497 KT in the corresponding ny was able to push volumes on a possible sentiment
QUARTER 2 period last year on the back of increased inefficien- of Urea price increases on the back of gas price the net margin had normalized by the year end.
cies and better gas avails. escalation.
Production Sales Finance Cost Net Profit
Sales The Company’s DAP and Zorawar sales during the
460 KT 452 KT PKR. 1,220 Mn PKR. 3,117 Mn Sales during the period clocked in at 444 KT com- period stood at 242 KT vs 298 KT last year, reflecting
pared to 503 KT in 3Q 2018, a decrease of 12% YoY a dip of 19% due to lower than expected agronomic
Production owing to recent uncertainty in market regarding urea demand which was affected by dull cotton crop.
prices linked with GIDC decision.
The Company’s Urea production in 2Q 2019 stood at The Company’s Specialty Fertilizer sales clocked in at
460KT compared to 414KT in the corresponding 44 KT in 4Q 2019 vs 38 KT during the same period
period last year, an increase of 11% YoY on account last year, an increase of 16%.
of i) lower production in 2Q 2018 due to plant
turnaround and ii) higher gas avails in 1Q 2019.

131 engro fertilizers limited annual report 2019 132

 horizontal analysis
Consolidated Statement of Financial Position
(Amounts in millions)
2019 19 Vs. 18 2018 18 Vs. 17 2017 17 Vs. 16 2016 16 Vs. 15 2015 15 Vs. 14 2014 14 Vs. 13 2013
EQUITY AND LIABILITIES Rs. % Rs. % Rs. % Rs. % Rs. % Rs. % Rs.
EQUITY
Share capital 13,353 - 13,353 - 13,353 0.3 13,309 - 13,309 1.0 13,183 7.8 12,228
Share premium 3,385 - 3,385 - 3,385 8.1 3,132 - 3,132 38.5 2,261 20,454.5 11
Advance against issue of shares - - - - - - - - - - - (100.0) 2,119
Exchange revaluation reserves - (100.0) 409 392.8 83 654.5 11 (21.4) 14 100.0 - - -
Hedging reserve - - - - - - - (100.0) (4) (89.7) (39) (73.6) (148)
Remeasurement of post employment benefits (57) 26.7 (45) (4.3) (47) 74.1 (27) (32.5) (40) 185.7 (14) (33.0) (21)
Unappropraited profits 26,598 (6.4) 28,421 10.6 25,696 1.9 25,223 (2.7) 25,921 35.8 19,088 75.4 10,880
43,279 (4.9) 45,523 7.2 42,470 2.0 41,648 (1.6) 42,332 22.8 34,479 37.5 25,069

NON-CURRENT LIABILITIES
Borrowing 22,192 (13.7) 25,715 12.9 22,784 (22.5) 29,380 16.2 25,290 (29.9) 36,091 (31.8) 52,896
Working capital loan from Parent Company - - - - - - - - - - - (100.0) 3,000
Derivative financial instruments - - - - - - - - - (100.0) 7 (99.5) 1,531
Deferred taxation 12,183 71.6 7,099 (24.4) 9,388 25.3 7,492 27.3 5,888 14.3 5,150 12.6 4,574
Deferred liabilities 257 1.3 254 5.8 240 6.2 226 14.4 198 4.0 190 2.8 185
34,632 4.7 33,068 2.0 32,412 (12.6) 37,098 18.2 31,375 (24.3) 41,438 (33.4) 62,186
CURRENT LIABILITIES
Trade and other payables 37,686 29.5 29,095 32.5 21,966 46.7 14,969 (15.4) 17,702 (28.4) 24,727 37.3 18,012
Accrued interest / mark-up 588 38.0 426 (28.4) 595 1.9 584 (31.5) 852 (37.4) 1,362 (8.0) 1,480
Taxation - net - (100) 3,408 273.3 913 (17.3) 1,104 (57.4) 2,593 283.6 676 100.0 -
Current portion of
- Borrowings 8,760 71.9 5,096 (37.2) 8,120 57.0 5,172 (51.8) 10,737 35.7 7,913 170.6 2,924
- Retirement and other service benefits obligations 56 9.9 51 2.0 50 2.0 49 2.1 48 11.6 43 (2.0) 44
Short-term borrowings 1,986 96.6 1,010 (80.8) 5,264 175.6 1,910 2,446.7 75 100.0 - - -
Unclaimed dividend 60 (9.0) 66 164.0 25 25.0 20 233.3 6 100.0 - - -
Derivative financial instruments - - - - - (100.0) 250 (31.7) 366 (66.4) 1,090 411.6 213
49,136 25.5 39,152 6.0 36,933 53.5 24,058 (25.7) 32,379 (9.6) 35,811 57.9 22,673

TOTAL EQUITY AND LIABILITIES 127,047 7.9 117,743 5.3 111,815 8.8 102,804 (3.1) 106,086 (5.0) 111,728 1.6 109,928

ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 65,924 (3.3) 68,204 (1.0) 68,923 (1.8) 70,168 (2.8) 72,199 (3.7) 74,963 (5.5) 79,315
Intangible assets 5,071 13.0 4,488 0.3 4,475 0.5 4,451 (0.2) 4,462 3,681.4 118 (14.8) 138
Deferred taxation - - - - - - - (100.0) 73 100.0 - - -
Long term loans and advances 164 14.9 143 5.6 135 11.6 121 (24.4) 160 70.2 94 (14.0) 109
71,159 (2.3) 72,834 (1.0) 73,533 (1.6) 74,740 (2.8) 76,894 2.3 75,175 (5.5) 79,562
CURRENT ASSETS
Store, spares and loose tools 5,301 (0.5) 5,325 0.9 5,280 8.0 4,887 5.3 4,639 (1.6) 4,714 7.9 4,369
Stock-in-trade 12,478 8.1 11,538 51.1 7,636 12.3 6,799 (3.3) 7,029 538.4 1,101 (20.3) 1,382
Trade debts 14,175 55.6 9,110 68.1 5,419 (28.6) 7,585 235.3 2,262 198.8 757 (0.2) 758
Derivative financial instruments - - - - - - - (100.0) 29 100.0 - (100.0) 130
Loans, advances, deposits and prepayments 2,949 116.3 1,363 17.8 1,157 69.4 683 14.8 595 37.4 433 (30.8) 626
Other receivables 9,412 3.8 9,067 3.0 8,807 26.1 6,986 414.1 1,359 7,052.6 19 (32.6) 28
Taxation - net 2,542 100 - - - - - (100.0) 705 100.0 - (100.0) 557
Accrued income 106 96.1 54 116.0 25 100 - - - - - - -
Short-term Investments 5,512 (28.6) 7,722 (5.4) 8,163 684.9 1,040 (91.1) 11,650 (53.6) 25,084 38.9 18,058
Cash and bank balances 3,413 367.9 730 (59.4) 1,796 2,038.1 84 (90.9) 924 (79.2) 4,445 (0.3) 4,458
55,888 24.4 44,909 17.3 38,282 36.4 28,064 (3.9) 29,192 (20.1) 36,553 20.4 30,366

TOTAL ASSETS 127,047 7.9 117,743 5.3 111,815 8.8 102,804 (3.1) 106,086 (5.0) 111,728 1.6 109,928

133 engro fertilizers limited annual report 2019 134

 vertical analysis
Consolidated Statement of Financial Position
(Amounts in millions)
2019 2018 2017 2016 2015 2014
EQUITY AND LIABILITIES Rs. % Rs. % Rs. % Rs. % Rs. % Rs. %
EQUITY
Share capital 13,353 10.5 13,353 11.3 13,353 11.9 13,309 12.9 13,309 12.5 13,183 11.8
Share premium 3,385 2.7 3,385 2.9 3,385 3.0 3,132 3.0 3,132 3.0 2,261 2.0
Exchange revaluation reserves - - 409 0.3 83 0.1 11 0.0 14 0.0 - -
Hedging reserve - - - - - - - - (4) (0.0) (39) (0.0)
Remeasurement of post employment benefits (57) (0.0) (45) (0.0) (47) (0.0) (27) (0.0) (40) (0.0) (14) (0.0)
Unappropraited profits 26,598 20.9 28,421 24.1 25,696 23.0 25,223 24.5 25,921 24.4 19,088 17.1
43,279 34.1 45,523 38.7 42,470 38.0 41,648 40.5 42,332 39.9 34,479 30.9

NON-CURRENT LIABILITIES
Borrowing 22,192 17.4 25,715 21.8 22,784 20.4 29,380 28.6 25,290 23.8 36,091 32.3
Derivative financial instruments - - - - - - - - - - 7 0.0
Deferred taxation 12,183 9.6 7,099 6.0 9,388 8.4 7,492 7.3 5,888 5.5 5,150 4.6
Deferred liabilities 257 0.2 254 0.2 240 0.2 226 0.2 198 0.2 190 0.2
34,632 27.2 33,068 28.1 32,412 29.0 37,098 36.1 31,375 29.6 41,438 37.1
CURRENT LIABILITIES
Trade and other payables 37,686 29.6 29,095 24.7 21,966 19.6 14,969 14.6 17,702 16.7 24,727 22.1
Accrued interest / mark-up 588 0.5 426 0.4 595 0.5 584 0.6 852 0.8 1,362 1.2
Taxation - net - - 3,408 2.9 913 0.8 1,104 1.1 2,593 2.4 676 0.6
Current portion of
- Borrowings 8,760 6.9 5,096 4.3 8,120 7.3 5,172 5.0 10,737 10.1 7,913 7.1
- Retirement and other service benefits obligations 56 0.0 51 0.0 50 0.0 49 0.0 48 0.0 43 0.0
Short-term borrowings 1,986 1.6 1,010 0.9 5,264 4.7 1,910 1.9 75 0.1 - -
Unclaimed dividend 60 0.0 66 0.1 25 0.0 20 0.0 6 0.0 - -
Derivative financial instruments - - - - - - 250 0.2 366 0.3 1,090 1.0
49,136 38.7 39,152 33.3 36,933 33.0 24,058 23.4 32,379 30.5 35,811 32.1

TOTAL EQUITY AND LIABILITIES 127,047 100.0 117,743 100.0 111,815 100.0 102,804 100.0 106,086 100.0 111,728 100.0

ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 65,924 51.9 68,203 57.9 68,923 61.6 70,168 68.3 72,199 68.1 74,963 67.1
Intangible assets 5,071 4.0 4,488 3.8 4,475 4.0 4,451 4.3 4,462 4.2 118 0.1
Deferred taxation - - - - - - - - 73 0.1 - -
Long term loans and advances 164 0.1 143 0.1 135 0.1 121 0.1 160 0.2 94 0.1
71,159 56.0 72,834 61.9 73,533 65.8 74,740 72.7 76,894 72.5 75,175 67.3
CURRENT ASSETS
Store, spares and loose tools 5,301 4.2 5,325 4.5 5,280 4.7 4,887 4.8 4,639 4.4 4,714 4.2
Stock-in-trade 12,478 9.8 11,538 9.8 7,636 6.8 6,799 6.6 7,029 6.6 1,101 1.0
Trade debts 14,175 11.1 9,110 7.7 5,419 4.8 7,585 7.4 2,262 2.1 757 0.7
Derivative financial instruments - - - - - - - - 29 0.0 - -
Loans, advances, deposits and prepayments 2,949 2.3 1,363 1.2 1,157 1.0 683 0.7 595 0.6 433 0.4
Other receivables 9,412 7.4 9,067 7.7 8,807 7.9 6,986 6.8 1,359 1.3 19 0.0
Taxation - net 2,542 2.0 - - - - - - 705 0.7 - -
Accrued income 106 0.1 54 0.0 25 - - - - - - -
Short-term Investments 5,512 4.3 7,722 6.6 8,163 7.3 1,040 1.0 11,650 11.0 25,084 22.5
Cash and bank balances 3,413 2.7 730 0.6 1,796 1.6 84 0.1 924 0.9 4,445 4.0
55,888 44.0 44,909 38.1 38,282 34.2 28,064 27.3 29,192 27.5 36,553 32.7

TOTAL ASSETS 127,047 100.0 117,743 100.0 111,815 100.0 102,804 100.0 106,086 100.0 111,728 100.0

135 engro fertilizers limited annual report 2019 136

 horizontal and vertical analysis
Consolidated Statement of Profit or Loss
(Amounts in millions)
2019 19 Vs 18 2018 18 Vs 17 2017 17 Vs 16 2016 16 Vs 15 2015 15 Vs 14 2014 14 Vs 13 2013
Rs. % Rs. % Rs. % Rs. % Rs. % Rs. % Rs.

Horizontal Analysis
Sales 121,355 11.1 109,197 41.6 77,129 10.9 69,537 (18.6) 85,421 39.1 61,425 22.5 50,129
Cost of Sales (81,816) 10.7 (73,880) 37.0 (53,911) 3.5 (52,098) (6.5) (55,724) 43.5 (38,822) 38.6 (28,008)
Gross profit 39,539 12.0 35,317 52.1 23,218 33.1 17,439 (41.3) 29,697 31.4 22,603 2.2 22,121

Selling and distribution expenses (8,736) 9.1 (8,008) 10.5 (7,245) 8.1 (6,705) 22.7 (5,466) 23.1 (4,441) 26.5 (3,511)
Administrative expenses (1,248) (16.0) (1,485) 14.8 (1,293) 42.6 (907) 1.2 (896) 16.1 (772) 28.5 (601)
Other income 4,352 111.1 2,062 (64.8) 5,866 (28.0) 8,143 85.4 4,393 79.4 2,449 121.6 1,105
Other expenses (2,623) 71.2 (1,532) 24.1 (1,234) 7.4 (1,149) (43.5) (2,034) 54.3 (1,318) (36.0) (2,060)
Operating profit 31,285 18.7 26,354 36.5 19,312 14.8 16,821 (34.5) 25,694 38.7 18,521 8.6 17,054
Finance cost (3,887) 87.7 (2,071) (21.8) (2,648) (16.9) (3,187) (31.1) (4,627) (30.2) (6,625) (23.6) (8,670)
Net profit before taxation 27,398 12.8 24,283 45.7 16,664 22.2 13,634 (35.3) 21,067 77.1 11,896 41.9 8,384
Provision for taxation (10,526) 53.3 (6,869) 24.7 (5,509) 26.6 (4,351) (30.4) (6,249) 69.5 (3,687) 27.7 (2,887)
Net profit after taxation 16,871 (3.1) 17,414 56.1 11,156 20.2 9,283 (37.4) 14,818 80.5 8,209 49.3 5,497

2019 2018 2017 2016 2015 2014

Rs. % Rs. % Rs. % Rs. % Rs. % Rs. %
Vertical Analysis
Sales 121,355 100 109,197 100 77,129 100 69,537 100 85,421 100 61,425 100
Cost of Sales (81,816) (67.4) (73,880) (67.7) (53,911) (69.9) (52,098) (74.9) (55,724) (65.2) (38,822) (63.2)
Gross profit 39,539 32.6 35,317 32.3 23,218 30.1 17,439 25.1 29,697 34.8 22,603 36.80

Distribution and marketing expenses (8,736) (7.2) (8,008) (7.33) (7,245) (9.4) (6,705) (9.6) (5,466) (6.4) (4,441) (7.2)
Administrative expenses (1,248) (1.0) (1,485) (1.4) (1,293) (1.7) (907) (1.3) (896) (1.0) (772) (1.3)
Other income 4,352 3.6 2,062 1.9 5,866 7.6 8,143 11.7 4,393 5.1 2,449 4.0
Other expenses (2,623) (2.2) (1,532) (1.4) (1,234) (1.6) (1,149) (1.7) (2,034) (2.4) (1,318) (2.1)
Operating profit 31,285 25.8 26,354 24.1 19,312 25.0 16,821 24.2 25,694 30.1 18,521 30.2
Finance cost (3,887) (3.2) (2,071) (1.9) (2,648) (3.4) (3,187) (4.6) (4,627) (5.4) (6,625) (10.8)
Net profit before taxation 27,398 22.6 24,283 22.2 16,664 21.6 13,634 19.6 21,067 24.7 11,896 19.4
Provision for taxation (10,526) (8.7) (6,869) (6.3) (5,509) (7.1) (4,351) (6.3) (6,249) (7.3) (3,687) (6.0)
Net profit after taxation 16,871 13.9 17,414 15.9 11,156 14.5 9,283 13.4 14,818 17.3 8,209 13.4

137 engro fertilizers limited annual report 2019 138

 financial information summary financial ratios
2019 2018 2017 2016 2015 2014
Profitability Ratios
(Amounts in millions)
Return on equity (Profit after tax) % 38.0 39.6 26.5 22.1 38.6 27.6
2019 2018 2017 2016 2015 2014 Return on equity (Profit before tax) % 61.7 55.2 39.6 32.5 54.9 40.0
Return on capital employed % 22.4 23.3 14.9 12.0 18.9 10.3
Summary of Consolidated Statement of Pre tax margin % 22.6 22.2 21.6 19.6 24.7 19.4
Financial Positions Pre tax margin (Including subsidy) % 22.6 22.0 20.3 17.6 23.9 19.4
Share capital 13,353 13,353 13,353 13,309 13,309 13,183 Profit markup % 48.3 47.8 43.1 33.5 53.3 58.2
Reserves 29,926 32,170 29,117 28,339 29,023 21,296 Profit markup (Including subsidy) % 48.3 49.5 52.3 48.6 58.0 58.2
Shareholders’ funds / Equity 43,279 45,523 42,470 41,648 42,332 34,479 Gross profit ratio % 32.6 32.3 30.1 25.1 34.8 36.8
Borrowings 30,952 30,811 30,904 34,552 36,027 44,004 Gross profit ratio (Including subsidy) % 32.6 33.1 34.3 32.7 36.7 36.8
Net profit to sales % 13.9 15.9 14.5 13.4 17.3 13.4
Capital employed 74,231 76,334 73,374 76,200 78,358 78,481
Net profit to sales (Including subsidy) % 13.9 15.8 13.6 12.0 16.8 13.4
Deferred liabilities 12,440 7,353 9,628 7,718 6,086 5,340
EBITDA Rs. In million 36,962 31,548 24,404 21,857 30,456 23,273
Property,plant & equipment 65,924 68,204 68,923 70,168 72,199 74,963
EBTDA Rs. In million 33,075 29,477 21,757 18,670 25,829 16,647
Long term assets 71,159 72,834 73,533 74,740 76,894 75,175
Growth in EBITDA % 17.2 29.3 11.7 (28.2) 30.9 5.8
Current assets 55,888 44,909 38,282 28,064 29,192 36,553
Growth in EBTDA % 12.2 35.5 16.5 (27.7) 55.2 24.8
EBITDA margin to sales % 30.5 28.9 31.6 31.4 35.7 37.9
EBITDA margin to sales (Including subsidy) % 30.5 28.6 29.7 28.2 34.6 37.9
Operating leverage ratio Times 1.7 0.9 1.4 1.9 1.0 0.4
Summary of Consolidated Statement of Return on assets % 13.8 15.2 10.4 8.9 13.6 7.4
Profit or Loss Growth in operating revenue % 11.1 41.6 10.9 (18.6) 39.1 22.5
Growth in operating revenue (Including subsidy) % 9.9 34.5 6.1 (12.1) 43.3 22.5
Sales 121,355 109,197 77,129 69,537 85,421 61,425 Capital expenditure to total assets % 3.0 3.7 3.5 3.0 1.8 0.6
Gross profit 39,539 35,317 23,218 17,439 29,697 22,603
Operating profit 31,285 26,354 19,312 16,821 25,694 18,521 Liquidity Ratios
Profit / (loss) before tax 27,398 24,283 16,664 13,634 21,067 11,896 Current ratio Times 1.1 1.1 1.0 1.2 0.9 1.0
Profit / (loss) after tax 16,871 17,414 11,156 9,283 14,818 8,209 Quick / Acid test ratio Times 0.8 0.7 0.7 0.7 0.5 0.9
EBITDA 36,962 31,548 24,404 21,857 30,456 23,273 Cash and cash equivalents to current liabilities Times 0.1 0.0 (0.0) 0.0 0.4 0.2
Cash flow from operations to sales Times 0.2 0.2 0.3 0.1 0.1 0.4
Cash flow from operations to sales (Including subsidy) Times 0.2 0.2 0.3 0.1 0.1 0.4
Summary of Consolidated Statement of Long term liabilities / current liabilities % 70 84 88 154 97 116
Cash Flows
Activity / Turnover Ratios
Net cash flow from operating activities 21,989 23,405 25,435 4,478 11,512 26,408 No. of days in inventory Days 54 47 49 48 27 12
Net cash flow from investing activities 4,503 (6,635) (8,109) (1,676) 19,180 (22,604) Inventory turnover Times 6.8 7.7 7.5 7.5 13.7 31.3
Net cash flow from financing activities (22,547) (16,981) (17,714) (14,254) (24,774) (20,783) Debtors turnover ratio. Times 10.4 15.0 11.9 14.1 56.6 81.1
Changes in cash & cash equivalents 3,944 (211) (387) (11,452) 5,918 (16,978) Debtors turnover ratio (Including subsidy) Times 6.7 7.8 6.2 9.1 42.4 81.0
Cash & cash equivalents – Year end 4,030 (190) (304) 14 11,470 5,538 No. of days in receivables Days 35 24 31 26 6 5
No. of days in receivables (Including subsidy) Days 54 47 59 40 9 5
Trade payables turnover ratio Times 2.5 2.9 2.9 3.2 2.6 1.8
Trade payables turnover ratio (excluding GIDC) Times 4.6 4.6 3.7 3.5 3.8 3.0
Summary of Actual Production
No. of days in payables Days 149 126 125 114 139 201
No. of days in payables (excluding GIDC) Days 79 80 98 105 95 121
Urea 2,003,035 1,928,080 1,806,977 1,881,016 1,967,552 1,818,937
Operating cycle Days (41) (32) (17) (26) (104) (185)
NPK 134,784 132,790 109,059 94,610 126,074 117,193
Operating cycle (excluding subsidy and GIDC) Days 10 (8) (18) (31) (62) (105)
Total assets turnover ratio Times 0.99 0.95 0.72 0.67 0.78 0.55
Total assets turnover ratio (Including subsidy) Times 0.99 0.96 0.77 0.74 0.81 0.55
Fixed assets turnover ratio Times 1.8 1.6 1.1 1.0 1.2 0.8
Fixed assets turnover ratio (Including subsidy) Times 1.8 1.6 1.2 1.1 1.2 0.8
Current assets turnover (Including subsidy) Times 2.40 2.66 2.48 2.70 2.68 1.84
Current assets turnover Times 2.40 2.63 2.33 2.43 2.60 1.84
Operating working capital turnover Times 19 31 29 170 (70) 15
Capital employed turnover Times 1.61 1.46 1.03 0.90 1.09 0.77
Revenue per employee Rs. 96,313 87,218 64,221 58,731 74,279 54,071
Net income per employee Rs. 13,390 13,909 9,289 7,841 12,886 7,225

139 engro fertilizers limited annual report 2019 140

 business rationale of major capital
financial ratios
2019 2018 2017 2016 2015 2014
expenditure and projects
Investment /Market Ratios
Earnings per share - basic Rs./ share 12.6 13.0 8.4 7.0 11.1 6.3
Earnings per share - diluted Rs./ share 12.6 13.0 8.4 6.9 11.1 6.3
Engro Fertilizers Limited operates in an ever-changing availability and transparency has been made
Earnings growth - basic % -3.1% 56.0% 19.8% -37.3% 77.1% 35.0% paradigm of manufacturing and technological available to the company. The Company looks forward
Earnings growth - diluted % -3.1% 56.0% 21.0% -37.9% 76.9% 35.0% enhancements and therefore disciplined capital to the next phase of moving from one universal system
Market value per share allocation remains a key priority for it. Throughout the enabled version of the truth to building true business
- Year end Rs./ share 73.4 69.1 67.7 68.0 84.1 78.1 year, the Company continued its spend on projects intelligence on this data platform now available.
- High during the year Rs./ share 79.0 83.5 74.4 86.3 100.7 78.2 under improved capital governance, review and During the year, major capital expenditure was also
- Low during the year Rs./ share 60.4 66.5 51.6 61.0 71.5 31.1 optimization processes and Board oversight. These directed to improve efficiency of the Company’s
Cash dividend per share Rs./ share 13.0 11.0 8.5 7.0 6.0 3.0 robust governance processes prioritize safety critical manufacturing facilities. Engro Fertilizers Limited
Breakup value per share Rs./ share 32.4 34.1 31.8 31.3 31.8 26.2 and business continuity capital to be spent, therefore made significant capital investments to not only
Breakup value per share - incuding surplus on revalation Rs./ share 32.4 34.1 31.8 31.3 31.8 26.2 not hurting the business or impacting on operational enhance efficiency but also to ensure production
Breakup value per share - including investment in maintenance costs. longevity. Every such investment project employs a
related party at market value and surplus on revaluation. Rs./ share 32.4 34.1 31.8 31.3 31.8 26.2 During the year, the Company ventured into the detailed evaluation to determine the cashflow
Price earning ratio Times 5.8 5.3 8.1 9.7 7.6 12.4
logistics space aiming to deliver “movement with requirements, business rationale and paybacks as
Change in market value added % 17.3 (2.7) (2.1) (29.9) 0.7 (353.4)
precision”. The related capital expenditure in this well as operational intricacies so as to have an end to
Price to book ratio Times 2.3 2.0 2.1 2.2 2.6 3.0
regard amounting to over PKR 1.5 Billion has helped end picture of the benefits and associated costs of the
Dividend yield ratio % 17.7 15.9 12.6 10.3 7.1 3.8
the business command one of the largest long haul project.
Dividend payout ratio % 102.0 84.4 101.7 100.3 53.9 47.7
Dividend cover ratio % 97.2 118.5 98.4 99.7 185.7 209.7
fleets in the country and has enabled the facet to The Company also made headway into projects
Retention (after interim & proposed cash) % (2.8) 15.6 (1.7) (0.3) 46.1 52.3 expand its operations many folds in the first year of encompassing the replacement of integral equipment
operations. at the Company’s plants through advance payments
Capital Structure Ratios A very important project that commanded a capital to vendors. These projects are expected to continue
Financial leverage ratio Times 0.7 0.7 0.7 0.8 0.9 1.3 expenditure of over PKR 600 million during the year in FY2020 whereby completion will help ensure
Earning assets to total assets % 6.5 6.6 7.3 1.0 11.8 26.4 was the SAP transformation and implementation sustained and efficient production.
Weighted average cost of deposit % 21.6 6.2 2.3 2.4 6.3 8.1 through which an unprecedented level of data
Weighted average cost of debt % 12.6 6.7 8.1 9.0 11.6 13.3
Debt to equity ratio (as per book) % 71.5 67.7 72.8 83.0 85.1 127.6
Debt to equity ratio (as per market value) % 31.6 33.4 34.2 38.2 32.2 42.7
Interest cover ratio Times 8.0 12.7 7.3 5.3 5.6 2.8

141 engro fertilizers limited annual report 2019 142

 six years analysis
Horizontal Analysis of Current Liabilities Trade debts have increased from Rs. 14,175 Non-current assets
Consolidated Statement of Financial Position million in 2019 from Rs. 757 million in 2014. The Property plant and equipment as a percentage of
Current liabilities mainly comprise of Trade and increase is mainly due to higher secured credit total non current assets stood at 93% vs 99.7% in
Shareholders’ Equity other payables, current portion of Long-term given to customers to gain market share. 2014. This is mainly due to steady depreciation
borrowings and taxes payable. Trade and other charge over the years of our Base and Enven
Share capital has increased from Rs. 13,183 payables have increased to Rs. 37,686 million in Other receivables have increased from Rs. 19 production facilities partially offset by major
million to Rs. 13,353 million during the last six 2019 from Rs. 24,727 million in 2014 million in 2014 to Rs. 9,412 million in 2019 mainly capital expenditures during this time primarily on
years. This is mainly due to injection of further representing an increase of 52%. This increase is due to increase in Receivables from Government plant efficiency, gas compression facilities and
capital in 2015, through issuance of 12.5 million mainly due to increase in accrual in respect of of Pakistan on account of Subsidy and Sales Tax. implementation of new ERP software in 2019.
ordinary shares and issuance of 4.4 million Gas Infrastructure Development Cess (GIDC),
ordinary shares upon exercise of conversion which is not being paid from October 2016 Vertical Analysis of Current assets
option by International Finance Corporation. onwards due to pending litigation. Consolidated Statement of Financial Position
Further, reserves have been increased Stock-in-trade has increased from 3% of total
significantly due to better profitability and Non-Current Assets Shareholders’ Equity current assets in 2014 to 22% in 2019 due to
effective reserves retention and payout policies. consistently high closing inventory levels over the
Capital Structure Non-Current assets mainly comprise of Property Shareholders’ equity stands at 34% of total equity years as a result of depressed market conditions.
Debt Equity
Plant & Equipment and Intangible assets. and liabilities compared to 31% in 2014. This is In order to promote sales amongst high market
100% Property, plant and equipment have decreased mainly attributable to increased unappropriated competition, increased secured credit sales have
by 12% in comparison with 2014. This is mainly profits of the Group representing increased been offered which have resulted in trade debts
90%

80%

70%

60%
due to the major capital investments in profitability with a healthy and consistent increasing from 2% of total current assets in 2014
50% debottlenecking and optimization of Base and dividend payout strategy. to 25% in 2019.
Enven Plant netted of by depreciation charge for
40%

30%

20%

10%
each financial year. During 2019, intangible Non-current liabilities Other receivables have significantly increased to
0% assets increased to Rs. 5,071 million mainly due 17% of total current assets in 2019 in comparison
to investment in implementation of new ERP Long term borrowings (including current portion) to 2014 due mainly due to buildup of subsidy
2014 2015 2016 2017 2018 2019

Non-Current Liabilities software. have significantly reduced from 57% of Total receivable from the Government of Pakistan. No
Liabilities in 2014 to 37% during the current year. movement has been observed in this buildup
Non-current liabilities majorly comprise of Balance Sheet Analysis (Assets)
Property, Plant & Equipment Other Non Current Assets Current Assets
This is in line with our long-term debt structure during the current year.
Long-Term borrowings from Financial Institutions, strategy. Deferred liabilities as a percentage of
Deferred Taxation and Deferred Liabilities. 100%
non-current liabilities have increased from 12% in Horizontal Analysis of
Borrowings have decreased from Rs. 36,091 80%
2014 to 35% during the current year mainly due Consolidated Statement of Profit or Loss
million in 2014 to Rs. 22,192 in 2019, in line with 60%
to temporary differences due to accelerated Profit and Loss Analysis (Income)
the Company’s capital structure strategy. During 40%
depreciation allowance accentuated by change Revenue Other Income

2019, Sukuk Certificates have been completely 20%

in future applicable tax rates promulgated via the 100%
90%

redeemed and repaid. Deferred tax liability has 0%

2014 2015 2016 2017 2018
Finance Act 2019. 80%

increased from Rs. 5,150 million in 2014 to

70%
60%

Rs. 12,183 million in 2019. Deferred tax liability

50%

Current Assets Current liabilities 40%

as at December 31, 2019 is mainly represented

30%
20%

by temporary differences due to accelerated Current assets mainly comprise of stores and Trade and other payables as a percentage of
10%
0%

depreciation allowance. spares, stock in trade, trade debts, other total current liabilities stood at 77% as at the
2014 2015 2016 2017 2018

Balance Sheet Analysis (Equity and Liabilities)

receivables, short term investments and bank year-end as against 69% in 2014. This has Sales
Equity Non Current Liabilities Current Liabilities balances. Over the past six years, current assets increased on account of increase in liabilities
100%
have been increased by Rs. 19,335 million. relating to Gas Infrastructure Development Cess The Group’s major sales comprise of Urea and
80%
(GIDC), which is being withheld from 2016 Phosphates.
Stock-in trade increase from Rs. 1,101 million in onwards. In 2014 and 2015, the Group was able to sell
2014 to Rs. 12,478 million in 2019 mainly due to 1,818KT and 1,878KT urea respectively, which
60%

higher production during 2019 and depressed was significantly reduced to 1,652KT in 2016 due
40%

20%
market of Phosphates and other specialty to depressed market conditions for the entire
0% fertilizers. agricultural industry. However, revised strategy
2014 2015 2016 2017 2018

143 engro fertilizers limited annual report 2019 144

 and aggressive approach to increase market Gross profit Profit and Loss Analysis (Expenses) Net Profit
share of the Group was able to increase the Cost of Sales
Finance Cost
Distribution Cost
Other Expenses
Adminitrative Expenses
Taxation
sales of urea and phosphates from 2,186KT to Gross profit of the Group has increased to Rs. The Group’s net profit has increased to Rs.
2,463KT in 2017. 39,539 million in 2019 as compared to Rs. 22,603 16,871 million from Rs. 8,209 million in 2014.
100%

million in 2014. Although a significant downfall in 80% Even though, 2016 was not a fruitful year for the
In 2018, the Group was able to achieve its profitability was witnessed in 2016 due to 60%
fertilizers industry, the Group was still able to
highest ever consolidated revenue of over PKR depressed market conditions for the fertilizer clock in net profit of Rs. 9,283 million which was
100 billion. Increase versus last year was due to industry, increased sales in subsequent years on increased significantly in subsequent financial
40%

increase in phosphates sales by 125KT and urea the back of concentrated commercial strategy 20% years through capturing better market share,
sales by 24KT. Continuation of the same and better agronomic demand helped the Group 0%
increase in production levels and increased in
approach by the Group accentuated by record recuperate and clock in an increase of 75% over 2014 2015 2016 2017 2018 2019
sales volume.
urea production by the Company resulted in the period of six years.
further increase in sales by 11% in 2019, Finance costs Vertical Analysis of
resultantly reaching the highest ever sales Operating profit Consolidated Statement of Profit or Loss
revenue mark of Rs. 121 billion. Finance cost of the Group has reduced
Operating profit of the Group has increased by significantly from Rs. 6,626 million to Rs. 3,887 Gross Profit
Sales Revenue Year-Wise (Rs. In Million) Rs. 12,764 million which is mainly due to the million over the period of six years. This is mainly
140,000 following: due to gradual repayments of long-term Gross profit has increased to Rs. 39,539 million
borrowings that were contracted at the time in 2019 as compared to Rs. 22,603 million in
120,000 - Increase in gross profit of the group by 75% investment in new production facility. Better 2014. Although a significant downfall in
over the period of six years which is mainly liquidity position on the back of increased sales profitability was witnessed in 2016 due to
100,000 due to significant increase in sales; over the years has enabled the Group to reduce depressed market conditions for the fertilizer
of short-term borrowings from financial industry, increased sales in subsequent years on
80,000 - Increase by Rs. 6,076 million over the period institutions consequently reducing finance costs. the back of concentrated commercial strategy
in operating expenses has resulted in and better agronomic demand helped the Group
60,000
adverse impact on operating profit of the Taxation achieve and overall increase of 75% over the last
Group. This is mainly due to increased six years.
40,000
product transportation expenses on the back Taxation has increased significantly on the back
of increased offtake; of significant increase in profits of the Group over Taxation
20,000
the period of six years. Further, change in
- Further, better profitability of the Group applicable tax rates along with additional levies Tax charge as a percentage of turnover
-
2014 2015 2016 2017 2018 2019 during the year as compared to 2014 has have also contributed in overall increase of tax increased from 6% in 2014 to 9% in 2019. The
resultantly increased the workers’ profit charge of the Group by Rs. 6,839 million over the increase is mainly due to increase in profit
Cost of sales participation fund and workers welfare fund last six years. margins and decrease in corporate tax rates
charge of the Group from Rs. 1,569 million in from 33% in 2014 to 29% in 2019. The effect of
Cost Analysis (Rs. in million)
The variation in cost of sales is almost in line with 2014 to Rs. 1,935 million during the current reduction in corporate tax rates was subdued by
the variation of sales over the last six years. year; and Cost of sales Selling and distribution expenses the imposition of super tax and changes in tax
Administrative expenses Other operating expenses
Production from Urea and NPK plant increased Finance cost Taxation regimes on imported fertilizer to final / minimum
from 1,936 KT in 2014 to 2,138 KT during the - Other income of the group has increased 115,000 tax.
current year, the highest ever production level in over the period 2015-2018 primarily due to
95,000
the history of the Company. Gradual increase in income under Government subsidy scheme. Net Profit
gas prices, inflationary effect and currency Furthermore, increased investments in 75,000

devaluation have also contributed to increase in securities and short-term debt instruments Net profit as a percentage of sales stood at
55,000
cost of sales by Rs. 42,994 million over the has resulted in overall increased other 13.4% in 2014 compare to 13.9% in 2019. Net
period of six years. income from Rs. 2,449 million in 2014 to Rs. 35,000 profit margin increased to 16% during 2018
4,352 million in 2019. mainly due one-off reversal of deferred tax
15,000
liability post introduction of gradual reduction of
(5,000) 2014 2015 2016 2017 2018 2019 corporate tax rates made via Finance Act 2018.

145 engro fertilizers limited annual report 2019 146

 Analysis of Cashflows from financing activities bodies. The shareholding of Engro Corporation Liquidity Ratios
Consolidated Statement of Cashflows Limited as at 31 December 2019 was 56.27%.
Net cash utilized in financing activities have The Company’s current ratio throughout the
Cash Flow Analysis (Rs. in Million) increased from Rs. 20,783 million to Rs. 22,547 Market capitalization sensitivity years has clocked in at around 1.1 times
million in 2019. This is mainly due to reduced whereas, which remained consistent with the
Net cash flows from operating activities Net cash flows in financing activities

Net cash flows in investing activities

finance cost, due to reduced level of borrowings As at December 31, 2019, Engro Fertilizers’ average current ratios of preceding six years.
market capitalization stood at Rs. 98,011 million.
partially set off by increased dividend payments However, cash and cash equivalent to current
A consequent change of 5% in the market price
as compared to previous years. liabilities has been improved to 0.1 times in 2019
of EFert’s share would result in a change of Rs.
25,000

in comparison with the ratio of 2016 which was

20,000

4,901 million in the market capitalization.

Sensitivity Analysis of significantly reduced on account of increased
15,000

10,000

5,000
Share Price of the Holding Company Analysis of withholding of GIDC.
-

(5,000)
2014 2015 2016 2017 2018 2019
Financial Ratios of the Group
Engro Fertilizers’ share price is affected by
Liquidity Analysis (Rs. In Million)
(10,000)

internal and external factors. Furthermore, the

Current Assets Current Liabilities Current Ratio Quick Ratio

Profitability Ratios
(15,000)

(20,000)
Company’s performance directly impacts its 60,000 1.5

share price. Certain external factors that impact

(25,000)

Despite a decline in 2016 when Government

50,000
1.2

the share price include the economic and pricing pressures had limited revenue growth, 40,000

political environment of the Country, as well as

0.9

the group was able to catch the highest ever 30,000

Cashflows from operating activities Governmental regulations, macro-economic growth of 41.6% in 2018 which has further been 20,000
0.6

indicators as well as stakeholder sentiments. The improved by 11.1% in 2019. 10,000

0.3

In 2014, cashflows from operating activities were Company regularly monitors these ever-changing - -

Rs. 26,408 million which has been reduced to Rs. factors and remains vary of their impacts. 2014 2015 2016 2017 2018 2019

21,989 million in 2019 mainly due to increased Share Price Analysis

Gross Profit and Net Profit
tax payments. Significant taxable losses due to 90.0000
Trade Volume Lue (in 000’s) High (PKR) Low (PKR) Price (PKR)
12,000
(Rs. in Million & in Percentage) Activity / Turnover Ratios
Net Profit Ratio 2019 Gross Profit Ratio 2018
accelerated depreciation over capital
80.0000
10,000
70.0000 Gross Profit Net Profit
expenditure resulted in minimum tax payments in 60.0000 8,000 45,000 40% Higher credit sales have resulted in higher
2014. On the other hand, tax over increased debtor turnover of 35 days in 2019 compared to
50.0000
6,000

40,000
40.0000

35%
profitability coupled with import stage tax 30.0000

20.0000
4,000
six years’ average of 21 days since 2014. Urea
payments by its trading subsidiary have resulted 35,000
demand led to the Company being able to
2,000
10.0000
30%

in drastically increased tax payments in 2019. offload its fertilizer stock during 2019, however,
0.0000 0

30,000
9

19

9
-1

-1

-1

-1

-1

-1

-1

-1

-1

-1

-1

Adverse effect of such has been partially set off high imported fertilizer inventory at the end of
ul-
an

eb

ar

pr

ay

un

ug

ep

ct

ov

ec
-J

-O
-M

-A

-M

-N
-J

-J

-D
-F

-A

-S

25%
01
01

01

01

01
01

01

01

01
01

01
01

by increased profitability. Shareholder relations and share price

25,000
2018 and 2019 resulted in reduced inventory
20%
20,000
turnover ratio of 6.8.
Cashflows from investing activities The company has continued engagement with 15%

shareholders as well as potential investors over 15,000

Creditor turnover days have increased to 149
Cash flows from investing activities majorly the last year. The Company has regularly held 10,000
10% days compared to six years’ average of 142
comprise of purchase and disposal of property Security Analysts briefings during the year where days. The Company’s operating cycle was thus
extensive information over the operating
5%
plant and equipment and short-term investments. 5,000
recorded at negative 41 days compared to
These cashflows have increased from negative performance of the Company as well as market 0% negative 68 days on six-year average.
-
cashflows of Rs. 22,603 million in 2014 to a outlook and strategy has been shared. 2014 2015 2016 2017 2018 2019

positive position of Rs. 4,503 million in 2019. This

While the company’s share price increased from Operating Life Cycle Ratios in Days
is because the Group invested heavily in In 2019, gross profit margin has been reduced to
Rs. 71.8 at 1 January 2019 to Rs. 73.43 on 31 250
short-term investments in 2014 in anticipation of
Inventory Debtors Creditors

December 2019, this is still lower than the 32.6% in comparison with 36.8% in 2014 due to
expected payments due in lieu of certain levies. maximum share price achieved during the year rising inflation, substantial currency devaluation
200

(Rs. 79). Our shareholder base comprises of and increase in prices of services. However, net 150

Furthermore, in 2019, the Group has disposed of companies, individuals, pension and provident profit has been improved to 13.9% in comparison 100
its entire holding in its subsidiary, Engro Eximp funds, insurance companies, banks and with 13.4% in 2014 on account of effective
FZE against total consideration of Rs. 1,973
50
investment companies, and other corporate treasury management and cost controls.
million. -

2014 2015 2016 2017 2018 2019

147 engro fertilizers limited annual report 2019 148

 Production and Sales Volume (K Tons) EBITDA and Principal Debt Repayments - Net
Production Sales Market Share
Investment / Market Ratios of the Company, interest cover ratio was 8.0 2,500 35% EBITDA Principal Debt Payments - Net

times in 2019 vs 12.7 in 2018. 34%

40,000

Earnings per share stood at Rs 12.64 for the year 2,000

33% 30,000
ended 2019 registering a 3% decrease over the Capital Structure
1,500
last year on account of reduction in net profits. Debt Equity 32%
20,000

Despite mixed trends witnessed at the Stock 100%

1,000
31%

Exchange, the Company’s share was traded on 30%

10,000

PSX between a range of Rs 60.4 and Rs 79,

80%
500
-
29%
closing at Rs 73.4 at the year-end, relatively 2014 2015 2016 2017 2018 2019

higher by Rs 4.3 compared to last year.

60%
- 28%

The price to earnings as at December 31, 2019 is 2014 2015 2016 2017 2018 2019

5.8 compared to the high of 12.4 times in 2014.

40%

The breakup value per share of the Company

was logged in at Rs. 32.4/share in 2019 20%

increasing from Rs. 26/share in 2014.

0%
2014 2015 2016 2017 2018 2019 Return on Equity & Capital Employeed Equity and Net Assets Per Share
Earnings, Breakup Value & Market Value (Rs. in million & in Percentage) Equity Net Assets / Share
50,000 40.0
(in Rs. Per Share) Equity Capital Employeed

Earnings Per Share Breakup Value Market Value

Market share information 100,000 50.00 45,000
35.0

40,000
140
40.00 30.0
80,000

Engro Fertilizers Limited has consistently been a

35,000
120 25.0
30,000

100 key player in the fertilizer industry, providing 60,000 30.00

25,000 20.0

80
nutritional support to the agri-landscape of 40,000 20.00
20,000
15.0

Pakistan. Contributing to sustainable growth and

15,000
60
10.0
10.00 10,000

innovative enhancement of the economy’s crop

20,000
40
5.0
5,000

yield, EFert’s sizeable market share reflects the

20
- - - -
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019

same.
-
2014 2015 2016 2017 2018 2019

Dividend payout ratios during 2019 was 102.8%, 2014 2015 2016 2017 2018 2019
against a six years’ average total payout of Urea 32% 34% 30% 30% 34% 32%*
81.8% and stood 22% higher than cash payout of Phosphates 24% 22% 24% 22% 28% 28%**
the year 2018.
*Market Share is in line with the avails share Variance Analysis (Rs. in million)
Dividend Ratios (in Percentages) ** Market share was maintained in a declining 25,000
Dividend Yield Dividend Cover Dividend Payout industry
250
20,000
1,090
200
728 237 2,290 1,816
Market Share Information
4,223 3,658
150

100
40% Urea Phosphates 15,000
35%
50
30% 10,000
17,414 16,871
-
2014 2015 2016 2017 2018 2019 25%

20% 5,000
Capital Structure Ratios 15%

10% -

Financial leverage ratio of 0.7 times which is

5%
PAT 2018 Gross profit Selling & Administrative Other Other Finance cost Taxation PAT 2019
distribution expenses income operating
consistent with preceding two years. Debt to
0%
2014 2015 2016 2017 2018 2019 expenses expenses
equity ratio also changed slightly to 42:58
compared to 40:60 recorded in 2018. In view of Source: National Fertilizer Development Centre
significant increase in finance cost because of (NFDC) publication
higher interest rates and financing requirements

149 engro fertilizers limited annual report 2019 150

 statement of value addition
and distribution dupont analysis
(Rupees in Million)
2019 2018
38%
Wealth Generated Return on Equity
Total revenue inclusive of sales-tax and other income 128,232 114,857
Bought-in-materials and services (74,623) (66,167)
53,609 48,690
Wealth Distributed
Taxes, duties and development surcharge to Govt. of Pakistan 21,838 19,540
Salaries, benefits and other costs of employees 5,070 4,370
Dividend to Shareholders 18,694 14,688
Mark-up / interest expense on borrowed money 3,887 2,071 13% 34%
Donation towards education, health, environment and natural disaster 265 100 Return on Owner’s Equity
Retained for reinvestment & future growth, depreciation, amortisation and retained profit 3,855 7,920 Assets Ratio
53,609 48,690

Wealth Generated (Rs. in million)

70,000

14% 95% 43,279* 127,047*

60,000

50,000
13,375
8,456
Net Profit Margin X Assets Turnover Owner’s Equity
Total Assets

40,000

30,000
53,609
48,690
20,000

10,000

-
Wealth Generated 2018 Revenue & Other Income Bought In Wealth Genearated 2019

16,871* 121,355* 127,047* 83,768*

Net Profit Sales Total Assets Total Liabilities

Wealth Distributed (Rs. in million)

60,000

60,000 1,816 165 4,066

4,006
2,298 700 49,136*
50,000 121,355* 121,355* Current Liabilities
Sales Sale
40,000

30,000
53,609
48,690
20,000

10,000

-
104,484* 127,047* 34,632*
Wealth Distributed Taxes, Duties and Salaries, Benefits Dividend to Mark-up/Interest Donation towards Retained for Wealth Distributed Non-current
2018 Development and other Costs of Shareholders expense on education, health, Reinvestment & 2019 Total Cost Total Assets
Surcharge to Govt. Employees Borrowed Money environment and Future Groth, Liabilities
of Pakistan natural disaster Depreciation,
Amortisation and
Retained Profit

* Amount in PKR millions

151 engro fertilizers limited annual report 2019 152

 cashflow statement - direct method

economic value added (Rupees in thousand) 2019 2018

----------------Rupees---------------
Economic value added (EVA) is a measure of a company’s financial performance based on the residual wealth Cash Flows From Operating Activities
calculated by deducting its cost of capital from its operating profit, adjusted for taxes on cash basis (NOPAT).
Cash receipts from customers - net 113,219,166 104,390,928
2019 2018 Cash paid to suppliers / service providers
(Rupees in thousand) ----------------Rupees---------------
and employees - net (78,466,437) (75,051,153)
NOPAT 19,304,740 19,328,486 Payment to Workers’ Welfare fund - net - (92,972)
Payment to Workers’ Profit Participation fund - net (1,318,571) (1,204,792)
Income tax paid (11,445,373) (6,864,007)
Less: cost of capital (13,867,478) (12,553,208) Subsidy received from Government - 2,226,838
Net cash generated from operating activities 21,988,785 23,404,842
Economic value added 5,437,262 6,775,278
Cash Flows From Investing Activities

free cash flows

Purchases of property, plant and equipment and intangibles (4,018,508) (4,495,017)
Proceeds from disposal of property, plant and equipment 751,219 28,586
Purchase of short term investments (34,018,249) (55,615,966)
2019 2018 Proceeds from sale of short term investments 37,404,980 52,966,271
(Rupees in thousand) ----------------Rupees--------------- Proceeds from disposal of subsidiary 1,927,286 -
Net cash generated from operating activities 21,988,785 23,404,842 Income on deposits / other financial assets 2,455,880 481,129
Net cash generated from / (utilised in) investing activities 4,502,608 (6,634,997)
Capital expenditures - net (3,267,289) (4,466,431)
Cash Flows From Financing Activities
Free cash flows 18,721,496 18,938,411
Proceeds from long term borrowings 5,000,000 8,183,497
Net repayment of borrowings (122,417) (103,170)
Repayments of long term borrowings (5,122,417) (8,286,667)
Free cash flow available to equity shareholders 18,599,079 18,835,241 Finance cost paid (3,724,924) (2,230,533)
Dividends paid (18,699,817) (14,647,515)
Net cash utilised in financing activities (22,547,158) (16,981,218)
Free cash flows to equity shareholders represent the cash a company can generate after required investment
to maintain or expand its asset base and net repayment of debt. It is a measurement of a company’s financial
performance and health. Net increase in cash and cash equivalents 3,944,235 (211,373)
Cash and cash equivalents at beginning of the year (190,032) (304,293)

composition of local vs imported materials

Exchange gain translation 275,754 325,634
Cash and cash equivalents at end of the year 4,029,957 (190,032)

Engro Fertilizers Limited procures majority of its raw materials used for manufacturing locally. However, a
sizeable chunk of its raw materials used for production of specialty fertilizers is imported. At the same time,
Engro Fertilizers Limited largely depends on foreign sources for its traded portfolio (primarily Phosphates based
products). The imported content accounts for close to 69% of its total raw material/import of materials cost.

foreign currency sensitivity analysis

Based on the Company’s results for the current year, a 10% variation in exchange rate would have led to an
impact of Rs. 4B on cost of goods sold. Currency risk sensitivity over financial instruments is disclosed in Note
38 of the Consolidated Financial statements and Note 39 of the Standalone financial statements.

153 engro fertilizers limited annual report 2019 154

independent auditor’s report

To the members of Engro Fertilizers Limited

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the annexed consolidated financial statements of Engro Fertilizers Limited and its subsidiary (the
Group), which comprises the consolidated statement of financial position as at December 31, 2019, and the
consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated
statement of changes in equity, the consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies and other explanatory
information.

In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of
the Group as at December 31, 2019, and of its consolidated financial performance and its consolidated cash flows
for the year then ended in accordance with the accounting and reporting standards as applicable in Pakistan.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan.
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of
the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with
the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted
by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical
responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.

annual report 2019 158

Following are the key audit matters:

S.No. Key audit matters How the matter was addressed in our audit S.No. Key audit matters How the matter was addressed in our audit

1. Income tax and Sales tax provisions and The Holding Company has obtained ad-interim stay of the minutes of the meetings of those charged with
contingencies orders against the GIDC Act, 2015 from the Sindh High governance;
(Refer note 21 and 29 to the consolidated financial Court which has restrained the gas supplying
statements) companies from charging and / or recovering the cess - read correspondence of the Holding Company with the
under the GIDC Act, 2015 till the final decision on this regulatory authorities and Holding Company’s external
The Group has recognized provisions and has disclosed Our audit procedures included the following: matter. In a separate case, Peshawar High Court legal counsel;
contingent liabilities in respect of certain income tax passed a judgment on May 31, 2017 validating the
and sales tax matters, which are pending adjudication - obtained and examined details of the pending tax new GIDC Act, against which the Holding Company - obtained confirmation from external legal counsel in
before various appellate and legal forums. matters and discussed the same with the Group’s has filed a petition in the Supreme Court of Pakistan, respect of the current developments in the case including
management; which is pending to date alongwith petitions of various their assessment of the potential outcome of the matter;
Provisions and contingencies require management of other companies raised on the grounds similar to those and
the Group to make judgements and estimates in relation - circularized confirmations to the Group’s external legal being contested by the Holding Company. Further,
to the interpretation of laws, statutory rules, regulations, and tax advisors for their views on matters being handled subsequent to year end, the Federal Government - assessed the adequacy of provisioning based on the
and the probability of outcome and financial impact, if by them; through notification dated January 28, 2020 has advice of the legal counsel and the appropriateness of
any, on the Group in respect of such provisions and reduced the GIDC on gas consumed by fertilizer related disclosures made in the consolidated financial
contingencies. - involved internal tax professionals to assess manufacturers to Rs. 5/MMBTU with effect from statements in accordance with the accounting and
management’s conclusions on contingent tax matters January 28, 2020. reporting standards.
Due to significance of amounts involved, inherent and evaluated the consistency of such conclusions with
uncertainties with respect to the outcome of these the views of management and external legal and tax The management believes that the provision recorded
matters and use of significant management judgement advisors engaged by the Group; as at December 31, 2019 in respect of GIDC represents
and estimates to assess the same including related the management’s current best estimate of the potential
financial impacts, we have considered provisions and - checked correspondence of the Group with the relevant liability. Due to significance of the amounts involved in
contingent liabilities relating to income tax and sales authorities including judgments or orders passed by the the aforementioned matter and the legal forum at which
tax matters involving the Group as a key audit matter. competent authorities in relation to the issues involved this matter is currently pending, the ultimate outcome
or matters which have similarities with the issues involved; and the resultant accounting in the consolidated
financial statements is subject to the exercise of
- checked mathematical accuracy of the calculations significant judgement which may change over time as
underlying the provisions, if any; and new facts emerge and the legal case progresses.

- assessed the adequacy of the related disclosures made Therefore, we have considered this to be a key audit
by the Group in the consolidated financial statements matter.
with respect to the applicable accounting and reporting
standards.

2. Provision in respect of Gas Infrastructure

Development Cess
(Refer note 19.1 to the consolidated financial
statements)

As at December 31, 2019, the Group carries a provision Our audit procedures included the following:
of Rs. 18,944 million in respect of Gas Infrastructure - obtained an understanding of the background facts
Development Cess (GIDC). pertaining to provision recorded in respect of GIDC
through meetings with the management and review

159 engro fertilizers limited annual report 2019 160

 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
Information Other than the Financial Statements and Auditor’s Report Thereon • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
Management is responsible for the other information. The other information comprises the information included in the
annual report, but does not include the consolidated and unconsolidated financial statements and our auditor’s reports • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
thereon. the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
Our opinion on the consolidated financial statements does not cover the other information and we do not express any exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial
form of assurance conclusion thereon. statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information to cease to continue as a going concern.
and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, in a manner that achieves fair presentation.
we are required to report that fact. We have nothing to report in this regard.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
Responsibilities of Management and Board of Directors for the Consolidated Financial Statements within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with the accounting and reporting standards as applicable in Pakistan and the requirements of Companies Act, 2017 and We communicate with the Board of directors regarding, among other matters, the planned scope and timing of the audit
for such internal control as management determines is necessary to enable the preparation of consolidated financial statements and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
that are free from material misstatement, whether due to fraud or error.
We also provide the Board of directors with a statement that we have complied with relevant ethical requirements
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue regarding independence, and to communicate them all relationships and other matters that may reasonably be thought
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of to bear on our independence, and where applicable, related safeguards.
accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative
but to do so. From the matters communicated with the Board of directors, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We
Board of directors are responsible for overseeing the Group’s financial reporting process. describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with The engagement partner on the audit resulting in this independent auditor’s report is Waqas Aftab Sheikh.
ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgement and maintain A. F. Ferguson & Co.
professional skepticism throughout the audit. We also: Chartered Accountants
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional Karachi
omissions, misrepresentations, or the override of internal control. Date: March 9, 2020

161 engro fertilizers limited annual report 2019 162

 consolidated statement of financial position
as at december 31, 2019

(Amounts in thousand) (Amounts in thousand)

Note 2019 2018

----------------Rupees--------------- Note 2019 2018
ASSETS ---------------Rupees-------------
EQUITY & LIABILITIES
Non-current assets
Equity
Property, plant and equipment 4 65,924,426 68,203,956
Share capital 14 13,352,993 13,352,993
Intangible assets 5 5,071,003 4,487,771
Reserves
Long-term loans and advances 6 163,791 142,644
71,159,220 72,834,371 Share premium 15 3,384,904 3,384,904
Exchange revaluation reserve 15 - 408,817
Current assets Remeasurement of post employment benefits 15 (56,639) (44,729)
Unappropriated profit 15 26,598,202 28,421,170
Stores, spares and loose tools 7 5,301,092 5,325,287 29,926,467 32,170,162
TOTAL EQUITY 43,279,460 45,523,155
Stock-in-trade 8 12,477,638 11,538,309
Liabilities
Trade debts 9 14,174,520 9,109,671
Non-current liabilities
Loans, advances, deposits and prepayments 10 2,948,706 1,363,411
Borrowings 16 22,192,098 25,715,045
Other receivables 11 9,412,251 9,066,639 Deferred taxation 17 12,182,426 7,100,022
Deferred liabilities 18 257,403 254,246
Accrued income 105,910 54,038 34,631,927 33,069,313
Current liabilities
Taxation - net 2,542,457 -
Trade and other payables 19 37,685,215 29,094,910
Short-term investments 12 5,511,544 7,722,469 Accrued interest / mark-up 587,866 425,920
Taxation - net - 3,408,022
Cash and bank balances 13 3,413,473 729,836 Current portion of:
55,887,591 44,909,660 - borrowings 16 8,760,351 5,095,584
TOTAL ASSETS 127,046,811 117,744,031 - deferred liabilities 18 56,036 51,487
Short-term borrowings 20 1,985,910 1,009,968
Unclaimed dividend 60,046 65,672
49,135,424 39,151,563
TOTAL LIABILITIES 83,767,351 72,220,876

Contingencies and Commitments 21

TOTAL EQUITY AND LIABILITIES 127,046,811 117,744,031

The annexed notes from 1 to 47 form an integral part of these consolidated financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan

Chief Financial Officer Chief Executive Chairman

163 engro fertilizers limited annual report 2019 164

 consolidated statement of profit or loss consolidated statement of comprehensive income
for the year ended december 31, 2019 for the year ended december 31, 2019

(Amounts in thousand except for earnings per share) (Amounts in thousand)

Note 2019 2018 Note 2019 2018
------------------Rupees---------------- ----------------Rupees--------------

Profit for the year 16,871,223 17,413,518

Net sales 22 121,354,758 109,196,586
Other comprehensive income:
Cost of sales 23 (81,814,870) (73,880,139)
Items potentially re-classifiable to Profit or Loss
Gross profit 39,539,888 35,316,447
Exchange differences on translation of foreign operations 275,754 325,634
Selling and distribution expenses 24 (8,736,345) (8,007,915)
Items not potentially re-classifiable to Profit or Loss
Administrative expenses 25 (1,248,191) (1,485,002)
Remeasurement of post employment benefits obligations (16,774) 3,642
29,555,352 25,823,530
Tax relating to remeasurement of post employment
Other income 26 4,351,782 2,061,954 benefits obligations 4,864 (1,056)

Other operating expenses 27 (2,622,661) (1,532,350) (11,910) 2,586

Finance cost 28 (3,886,870) (2,070,933)
Other comprehensive income for the year, net of tax 263,844 328,220
(6,509,531) (3,603,283)
Profit before taxation 27,397,603 24,282,201
Total comprehensive income for the year 17,135,067 17,741,738
Taxation 29 (10,526,380) (6,868,683)

Profit for the year 16,871,223 17,413,518 Total comprehensive income attributable to
- continued operations 16,823,127 17,398,166
- discontinued operations 30 311,940 343,572
Profit attributable to 17,135,067 17,741,738
- continued operations 16,835,037 17,395,580
- discontinued operations 30 36,186 17,938
16,871,223 17,413,518 The annexed notes from 1 to 47 form an integral part of these consolidated financial statements.

Earnings per share - basic and diluted

- continued operations 12.61 13.03
- discontinued operations 0.03 0.01
31 12.64 13.04

The annexed notes from 1 to 47 form an integral part of these consolidated financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan Imran Ahmed Nadir Salar Qureshi Ghias Khan
Chief Financial Officer Chief Executive Chairman Chief Financial Officer Chief Executive Chairman

165 engro fertilizers limited annual report 2019 166

 consolidated statement of changes in equity consolidated statement of cash flows
for the year ended december 31, 2019 for the year ended december 31, 2019

(Amounts in thousand) Reserves (Amounts in thousand) Note 2019 2018

Capital Revenue -----------------Rupees-------------
Share Share Exchange Remeasurement Unappropriated Total
capital premium revaluation of post profit
reserve employment Cash Flows From Operating Activities
benefits
---------------------------------------------------Rupees----------------------------------------------- Cash generated from operations 35 33,529,490 30,322,653
Balance as at January 1, 2019 13,352,993 3,384,904 408,817 (44,729) 28,421,170 45,523,155 Retirement and other service benefits paid (89,672) (45,695)
Taxes paid (11,445,373) (6,864,007)
Transactions with owners Long-term loans and advances (5,660) (8,109)
Dividends:
- Final 2018: Rs. 3.00 per share - - - - (4,005,898) (4,005,898) Net cash generated from operating activities 21,988,785 23,404,842
- 1st interim 2019: Rs. 5.00 per share - - - - (6,676,497) (6,676,497)
- 2nd interim 2019: Rs. 6.00 per share - - - - (8,011,796) (8,011,796) Cash Flows From Investing Activities
- - - - (18,694,191) (18,694,191)
Total comprehensive income for the
year ended December 31, 2019 Purchases of property, plant and equipment and intangibles (4,018,508) (4,495,017)
Proceeds from disposal of property, plant and equipment 751,219 28,586
Profit for the year - - - - 16,871,223 16,871,223 Purchase of short-term investments (34,018,249) (55,615,966)
Other comprehensive income:
- exchange revaluation - - 275,754 - - 275,754
Proceeds from sale of short-term investments 37,404,980 52,966,271
- remeasurements, net of tax - - - (11,910) - (11,910) Proceeds from disposal of subsidiary company 1,927,286 -
- - 275,754 (11,910) 16,871,223 17,135,067 Income on deposits / other financial assets 2,455,880 481,129
Realization of exchange revaluation reserve
to profit or loss on disposal of subsidiary - - (684,571) - - (684,571)
Net cash generated from / (utilised in) investing activities 4,502,608 (6,634,997)

Balance as at December 31, 2019 13,352,993 3,384,904 - (56,639) 26,598,202 43,279,460 Cash Flows From Financing Activities
Balance as at January 1, 2018 13,352,993 3,384,904 83,183 (47,315) 25,695,946 42,469,711
Proceeds from long-term borrowings 5,000,000 8,183,497
Repayments of long-term borrowings (5,122,417) (8,286,667)
Transactions with owners Finance cost paid (3,724,924) (2,230,533)
Dividends paid (18,699,817) (14,647,515)
Dividends:
- Final 2017: Rs. 3.00 per share - - - - (4,005,898) (4,005,898)
- 1st interim 2018: Rs. 4.00 per share - - - - (5,341,198) (5,341,198) Net cash utilised in financing activities (22,547,158) (16,981,218)
- 2nd interim 2018: Rs. 4.00 per share - - - - (5,341,198) (5,341,198)
- - - - (14,688,294) (14,688,294) Net increase / (decrease) in cash and cash equivalents 3,944,235 (211,373)
Total comprehensive income for the
year ended ended December 31, 2018
Cash and cash equivalents at beginning of the year (190,032) (304,293)
Profit for the year - - - - 17,413,518 17,413,518
Other comprehensive income: Exchange gain translation 275,754 325,634
- exchange revaluation - - 325,634 - - 325,634
- remeasurements, net of tax - - - 2,586 - 2,586
- - 325,634 2,586 17,413,518 17,741,738 Cash and cash equivalents at end of the year 36 4,029,957 (190,032)

Balance as at December 31, 2018 13,352,993 3,384,904 408,817 (44,729) 28,421,170 45,523,155

The annexed notes from 1 to 47 form an integral part of these consolidated financial statements. The annexed notes from 1 to 47 form an integral part of these consolidated financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan Imran Ahmed Nadir Salar Qureshi Ghias Khan
Chief Financial Officer Chief Executive Chairman Chief Financial Officer Chief Executive Chairman

167 engro fertilizers limited annual report 2019 168

consolidated notes to the financial statements
for the year ended december 31, 2019

(Amounts in thousand) (Amounts in thousand)

1. LEGAL STATUS AND OPERATIONS 2.1 Basis of preparation

Engro Fertilizers Limited (the Holding Company) is a public company incorporated in Pakistan on June 29, 2009 as a 2.1.1 These consolidated financial statements have been prepared under the historical cost convention, except for
wholly owned subsidiary of Engro Corporation Limited (the Parent Company), which is a subsidiary of Dawood Hercules re-measurement of certain financial assets and liabilities at fair value through profit or loss and recognition of certain
Corporation Limited (the Ultimate Parent Company). The Holding Company is listed on Pakistan Stock Exchange Limited staff retirement benefits at present value.
(PSX).
2.1.2 Statement of compliance
The Holding Company is engaged in the manufacturing, purchasing and marketing of fertilizers, seeds and pestisides
and providing logistics services. The business units of the Holding Company include the following: These consolidated financial statements have been prepared in accordance with the accounting and reporting standards
as applicable in Pakistan. The accounting and reporting standards applicable on the Group comprise of:

- International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB)
Business Unit Geographical Location
as notified under the Companies Act, 2017 (the Act); and
Head / Registered Office 7th & 8th floors, The Harbour Front Building, Plot Number
- Provision of and directives issued under the Act.
HC-3, Block 4, Scheme Number 5, Clifton, Karachi.
Where provisions of and directives issued under the Act differ from the requirements of IFRSs, the provisions of and
Engro Daharki Plant District Ghotki, Sindh.
directives issued under the Act have been followed for the preparation and presentation of the consolidated financial
statements.
Engro Zarkhez Plant EZ/ 1 / P – 1 – II Eastern Zone, Port Qasim, Karachi.
2.1.3 The preparation of consolidated financial statements in conformity with the above requirements requires the use of
certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying
1.1 The 'Group' consists of: Holding Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where
Holding Company: Engro Fertilizers Limited assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

Subsidiary Companies: Companies in which the Holding Company owns over 50% of voting rights, or companies 2.1.4 Initial application of a Standard, Amendment or an Interpretation to an existing Standard
controlled by the Holding Company:
a) Standards, amendments to published standards and interpretations that are effective for the year and
1.1.1 Engro Eximp FZE (EEF) was incorporated in the Jebel Ali Free Zone, Emirate of Dubai, on August 4, 2011 as a wholly are relevant to the Group
owned subsidiary of the Holding Company. During the year, the Holding Company entered into a Share Purchase
Agreement (the Agreement) with the Parent Company for sale of its entire holding in its subsidiary, EEF effective July The following new standards and interpretation to the accounting and reporting standards as applicable in Pakistan
17, 2019. Through the Agreement, the Parent Company has purchased 100% holding of the Holding Company in EEF are effective for the first time for the year beginning on January 1, 2019 and are relevant to the Holding Company:
for a total consideration of Rs. 1,972,505.
- IFRS 9 "Financial Instruments" addresses the classification, measurement and recognition of financial assets
1.1.2 EFert Agritrade (Private) Limited (EAPL) was incorporated on July 6, 2017, as a wholly owned subsidiary of the Holding and financial liabilities and replaces the related guidance in IAS 39 "Financial Instruments: Recognition and
Company to carry out trading and distribution of imported fertilizer as part of the business reorganization. The Holding measurement" that relates to the recognition, classification and measurement of financial assets and financial
Company transferred its business of trading and distribution of imported fertilizer to the new subsidiary and holds 10,000 liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. It
ordinary shares of Rs. 10 each in EAPL. retains but simplifies the mixed measurement model and establishes three primary measurement categories
for financial assets: amortised cost, Fair Value through Other Comprehensive Income (FVOCI) and Fair Value
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES through Profit or Loss (FVPL). The basis of classification depends on the entity’s business model and the
contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to
The significant accounting policies applied in the preparation of these consolidated financial statements are set out be measured at fair value through profit or loss with the irrevocable option at inception to present changes
below. These policies have been consistently applied to all the years presented, unless otherwise stated. in fair value in OCI, without subsequent recycling to consolidated profit or loss.

The standard also includes an expected credit losses (ECL) model that replaces the current incurred loss
impairment model. The ECL model involves a three-stage approach whereby financial assets move through
the three stages as their credit quality changes. The stage dictates how an entity measures impairment losses
and applies the effective interest rate method. A simplified approach is permitted for financial assets that do
not have a significant financing component (e.g. trade receivables). On initial recognition, entities will record
a loss equal to the 12 month ECL (or lifetime ECL for trade receivables), unless the assets are considered
credit impaired.

169 engro fertilizers limited annual report 2019 170

(Amounts in thousand) (Amounts in thousand)

For financial liabilities, there are no changes to classification and measurement except for the recognition of - IFRS 15 'Revenue from Contracts with Customers' supersedes IAS 11 'Construction Contracts', IAS 18
changes in own credit risk in other comprehensive income, for liabilities designated at fair value through 'Revenue' and related interpretations and it applies to all revenue arising from contracts with customers,
consolidated profit or loss. unless those contracts are in the scope of other standards. The standard introduces a single five-step model
for revenue recognition with a comprehensive framework based on the core principle that an entity should
IFRS 9 also relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
tests. It requires an economic relationship between the hedged item and hedging instrument and for the recognise revenue representing the transfer of promised goods or services under separate performance
‘hedged ratio’ to be the same as the one management actually use for risk management purposes. obligations under the contract to customer at an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard requires entities to exercise
The adoption of IFRS 9 has resulted in change in accounting policies of the Group. The Group has applied judgement, taking into consideration all of the relevant facts and circumstances when applying each step of
IFRS 9 retrospectively, however, it has elected not to restate comparative information as permitted under the the model to contracts with their customers. The Holding Company has assessed that significant performance
transitional provisions of the standard. The reclassifications and the adjustments arising from the new
obligation in its contracts with customers are discharged at a single point of time, and therefore, there is no
impairment rules are, therefore, not reflected in the consolidated statement of financial position as at December
31, 2018 and furthermore have not been recognised in the opening consolidated statement of financial significant financial impact of this standard on the consolidated financial statements of the Group.
position as on January 1, 2019 as the effects were not material.
- IFRS 16 ‘Leases’ replaces the previous lease standard: IAS 17 Leases. It will result in almost all leases being
Furthermore, on January 1, 2019, the management has assessed which business models apply to the recognised on the consolidated statement of financial position, as the distinction between operating and
financial instruments held by the Group and has classified its financial instruments into the appropriate IFRS finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial
9 categories as follows:
liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The Group
has assessed that the application of this standard does not have any material financial impact on the
Original classification New classification consolidated financial statements of the Group.
under IAS 39 under IFRS 9
- IFRIC 23 'Uncertainty over tax treatments' - clarifies how the recognition and measurement requirements of
Financial assets IAS 12 ‘Income taxes’, are applied where there is uncertainty over income tax treatments.The IFRS IC had
Loans, advances and deposits Loans and receivables Amortised cost
clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies
Trade debts Loans and receivables Amortised cost
Other receivables Loans and receivables Amortised cost to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred
Accrued income Loans and receivables Amortised cost and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax
Short term investments treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment
- Term Deposit Receipts Held to maturity Amortised cost will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or
- Treasury Bills Held to maturity Fair value through OCI not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is
Cash and Bank balances Loans and receivables Amortised cost
uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty
Financial liabilities regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax
Borrowings Amortised cost Amortised cost losses and credits and tax rates.The impact of the above interpretation is not material on the consolidated
Trade and other payables Amortised cost Amortised cost financial statements of the Group.
Accrued interest / mark-up Amortised cost Amortised cost
Short term borrowings Amortised cost Amortised cost There are certain other amendments to published accounting and reporting standards and interpretations that
are applicable for the financial year beginning on January 1, 2019 but are considered not to be relevant or do
Moreover, no material differences were noted in prior year figures as a result of applying the new expected credit not have any significant effect on the Group's financial reporting and operations and, therefore, have not been
loss model on the adoption of IFRS 9. The reclassifications of the financial instruments also did not result in any disclosed in these consolidated financial statements.
changes to measurements. Hence, there was no restatement of opening balances and reserves. Furthermore,
there is no impact on the consolidated statement of profit or loss, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows.

171 engro fertilizers limited annual report 2019 172

(Amounts in thousand) (Amounts in thousand)

b) Standards, amendments to published standards and interpretations that are not yet effective and have Inter-company transactions, balances, income and expenses on transactions between group companies are
not been early adopted by the Group eliminated. Profits and losses (unrealized) are also eliminated. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the Group.
The following amendments are not effective for the financial year beginning on January 1, 2019 and have not
been early adopted by the Group: ii) Transactions and non-controlling interests

IAS 1, 'Presentation of financial statements and IAS 8, 'Accounting policies, changes in accounting The Group treats transactions with non-controlling interests that do not result in loss of control as transactions
estimates and errors (effective for the accounting periods beginning on and after January 1, 2020) with equity owners of the Group. The difference between fair value of any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on
These amendments and consequential amendments to other IFRSs: (i) use a consistent definition of materiality disposals to non-controlling interests are also recorded in equity.
throughout IFRSs and the Conceptual Framework for Financial Reporting; (ii) clarify the explanation of the definition
of material; and (iii) incorporate some of the guidance in IAS 1 about immaterial information. These amendments iii) Disposal of subsidiaries
are not expected to have a significant impact on the Group's financial statements.
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured
There are certain other standards and amendments to the published accounting and reporting standards that to its fair value, with the change in carrying amount recognized in consolidated statement of profit or loss. The
are not yet effective and are considered not to have any significant effect on the Group's financial reporting and fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as
operations and, therefore, have not been disclosed in these consolidated financial statements. an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive
income in respect of that entity are accounted for as if the Group had directly disposed off the related assets or
2.1.5 Basis of consolidation liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to
consolidated profit or loss.
i) Subsidiaries
2.2 Property, plant and equipment
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of 2.2.1 Owned assets
potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Group controls another entity. These are stated at historical cost less accumulated depreciation and impairment losses, if any, except freehold land
and capital work in progress which are stated at cost. Historical cost includes expenditure that is directly attributable
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-recognized to the acquisition of the items including borrowing costs (note 2.21). The cost of self constructed assets includes the
from the date the control ceases. These consolidated financial statements include Engro Fertilizers Limited (the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition
Holding Company) and all companies in which it directly or indirectly controls, beneficially owns or holds more for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are
than 50% of the voting securities or otherwise has power to elect and appoint more than 50% of its directors located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that
(the Subsidiaries). equipment.

The Group uses the acquisition method of accounting to account for business combinations. The consideration Where major components of an item of property, plant and equipment have different useful lives, they are accounted
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and for as separate items of property, plant and equipment.
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 expensed as incurred. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when
Identifiable assets acquired and liabilities (including contingent liabilities) assumed in a business combination are it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged
recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s to the consolidated statement of profit or loss during the financial year in which they are incurred.
proportionate share of the acquiree’s identifiable net assets.
Disposal of asset is recognised when significant risk and rewards incidental to ownership have been transferred to
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously buyers. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising recognised within ‘Other operating expenses / income’ in the consolidated statement of profit or loss.
from such re-measurement are recognized in consolidated statement of profit or loss.
Depreciation is charged to the consolidated statement of profit or loss using the straight line method, except for catalyst
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value whose depreciation is charged on the basis of number of production days, whereby the cost of an operating asset
of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this is less than the less its estimated residual value, if significant, is depreciated over its useful life. Depreciation on addition is charged
fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized from the month following the month in which the asset is available for use and on disposals up to the preceding month
in consolidated statement of profit or loss. of disposal.

173 engro fertilizers limited annual report 2019 174

(Amounts in thousand) (Amounts in thousand)

2.2.2 Leased assets Impairment is reversed only if there have been changes in estimates used to determine recoverable amounts and only
to the extent that the revised recoverable amount does not exceed the carrying values that would have existed, had
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership, are classified as there been no recognition of impairment, except impairment of goodwill which is not reversed.
finance lease. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value
and present value of minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance The useful lives of intangible assets are reviewed at each reporting date to determine whether events and circumstances
with the accounting policy applicable to similar owned asset. Outstanding obligations under the lease less finance continue to support an indefinite useful life assessment for the asset.
cost allocated to future periods are shown as a liability.
2.4 Impairment of non-financial assets
Finance cost under lease agreements are allocated to the periods during the lease term so as to produce a constant
periodic rate of finance cost on the remaining balance of principal liability for each period. Assets that are subject to depreciation / amortisation are reviewed at each reporting date to identify circumstances
indicating occurrence of impairment loss or reversal of previous impairment losses. An impairment loss is recognised
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
that the Group will obtain ownership by the end of the lease term. higher of an asset's fair value less cost to sale and value in use. Reversal of impairment loss is restricted to the original
cost of the asset.
2.3 Intangible assets
2.5 Non - current assets (or disposal groups) held-for-sale
a) Computer software and licenses
Non-current assets (or disposal groups) are classified as assets held-for-sale when their carrying amount is to be
Costs associated with maintaining computer software programmes are recognised as an expense when incurred. recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower
However, costs that are directly attributable to identifiable software and have probable economic benefits exceeding of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale
the cost beyond one year, are recognised as an intangible asset. Direct costs include the purchase cost of transaction rather than through continuing use. Impairment losses on initial classification as held for sale and subsequent
software (license fee) and related overhead costs. gains or losses on remeasurement are recognised in the consolidated statement of profit or loss.

Expenditure which enhances or extends the performance of computer software beyond its original specification 2.6 Financial assets
and useful life is recognised as a capital improvement and added to the original cost of the software.
2.6.1 Classification, initial recognition and measurement
Computer software and 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 4 years. Financial assets are classified into appropriate categories on initial recognition and are subsequently measured at
amortised cost at fair value through other comprehensive income or at fair value through profit or loss. The management
b) Rights for future gas utilization determines the classification of financial assets into appropriate categories based on the Group’s business model for
managing the financial assets and the contractual terms of the cash flows.
Rights for future gas utilization represent premium paid to the Government of Pakistan for allocation of 100
MMSCFD natural gas for a period of 20 years for Enven plant. The rights are being amortised from the date of A financial asset is measured at amortised cost if both of the following conditions are met:
commercial production on a straight-line basis over the remaining allocation period.
a) the financial asset is held within a business model whose objective is to hold financial assets in order to
c) Goodwill collect contractual cash flows; and

Goodwill represents the difference between the consideration paid for acquiring interests in a business and the b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
fair value of the Group's share of its net assets at the date of acquisition and is carried at cost less accumulated of principal and interest on the principal amount outstanding.
impairment, if any.
A financial asset is measured at fair value through other comprehensive income if both of the following conditions are met:
d) Right to use the brand
a) the financial asset is held within a business model whose objective is achieved by both collecting contractual
These are stated at cost less impairment, if any. cash flows and selling financial assets; and

The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
that the carrying values may not be recoverable. If any such indication exists, assets or cash generating units are tested of principal and interest on the principal amount outstanding.
for impairment. Also, goodwill is tested for impairment atleast once a year and other intangibles with indefinite life are
tested for impairment at reporting date. Where the carrying value exceeds the estimated recoverable amount, these
are written down to their recoverable amount and the resulting impairment is charged to consolidated statement of
profit or loss.

175 engro fertilizers limited annual report 2019 176

(Amounts in thousand) (Amounts in thousand)

A financial asset is measured at fair value through profit or loss if it is not measured at amortised cost or at fair value 2.8 Offsetting financial instruments
through other comprehensive income.
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
All financial assets are recognised at the time when the Group becomes a party to the contractual provisions of the position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle
instrument. Financial assets at amortised cost are initially recognised at fair value and are subsequently measured at either on a net basis, or realize the asset and settle the liability simultaneously. The legally enforceable right must not
amortised cost using the effective interest method. The amortised cost is reduced by impairment losses, if any. Interest be contingent on future events and nust be enforceable in the normal course of business and in the event of default,
income and impairment losses are recognised in consolidated statement of profit or loss. Financial assets carried at insolvency or bankruptcy of the Group or the counterparty.
fair value through other comprehensive income are initially and subsequently measured at fair value, with gains and
losses arising from changes in fair value recognised in other comprehensive income. Financial assets carried at fair 2.9 Stores, spares and loose tools
value through profit or loss are initially recorded at fair value and transaction costs are expensed in the consolidated
statement of profit or loss. Realised and unrealised gains and losses arising from changes in the fair values of the These are valued at weighted average cost except for items in transit which are stated at invoice value plus other
financial assets and liabilities held at fair value through profit or loss are included in the consolidated statement of profit charges paid thereon till the reporting date. For items which are slow moving and / or identified as surplus to the
or loss in the period in which they arise. Group's requirements, adequate provision is made for any excess book value over estimated realisable value. The
Group reviews the carrying amount of stores and spares on a regular basis and provision is made for obsolescence.
2.6.2 Derecognition
Spare parts of capital nature which can be used only in connection with an item of property, plant and equipment are
Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been shown separately as major spare parts and stand by equipment.
transferred and the Group has transferred substantially all the risks and rewards of ownership. On derecognition of a
financial asset, in its entirety, the difference between the asset’s carrying amount and the sum of the consideration 2.10 Stock-in-trade
received and receivable is recognised in consolidated statement of profit or loss and consolidated statement of
comprehensive income. These are valued at the lower of cost and net realisable value. Cost is determined using weighted average method
except for raw materials in transit which are stated at cost (invoice value) plus other charges incurred thereon till the
2.6.3 Impairment of financial assets reporting date. Cost in relation to finished goods includes applicable purchase cost and manufacturing expenses. The
cost of work in process includes material and proportionate conversion costs.
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried
at amortised cost and at fair value through other comprehensive income. The impairment methodology applied depends Net realisable value signifies the estimated selling price in the ordinary course of business less all estimated costs of
on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified completion and costs necessary to be incurred in order to make the sales.
approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the
receivables except for debts due from the Government of Pakistan which have been exempted from the application 2.11 Trade debts and other receivables
of Expected Credit Loss model under IFRS 9 for a limited period of three years upto June 30, 2021 by the Securities
and Exchange Commission of Pakistan (SECP) through its S.R.O 985(I) / 2019 dated September 2, 2019. These are recognised initially at fair value plus directly attributable transaction costs, if any and subsequently measured
at amortised cost using effective interest rate method less provision for impairment, if any. A provision for impairment
2.7 Financial liabilities is established if there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of receivables. The amount of provision is charged to consolidated statement of profit or loss. Trade
The Group recognises a financial liability in its consolidated statement of financial position when, and only when, it debts and other receivables considered irrecoverable are written-off.
becomes party to the contractual provisions of the instrument. At initial recognition, the Group measures a financial
liability at its fair value minus, in the case of a financial liability not at fair value through profit or loss, transaction costs 2.12 Cash and cash equivalents
that are directly attributable to the acquisition or issue of the financial liability. Subsequently, financial liabilities are stated
at amortised cost. Cash and cash equivalents in the consolidated statement of cash flows includes cash in hand, balance with banks,
other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts / short
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where term borrowings. Bank overdrafts are shown within short term borrowings in current liabilities on the consolidated
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms statement of financial position.
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 new liability, and the difference in respective carrying amounts is recognized in 2.13 Share capital
the consolidated statement of profit or loss.
Ordinary shares are classified as equity and recognised at their face value. Incremental costs directly attributable to
the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

177 engro fertilizers limited annual report 2019 178

(Amounts in thousand) (Amounts in thousand)

2.14 Borrowings The Group contributes to:

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried - defined contribution provident fund for its permanent employees. Monthly contributions are made both by the
at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised Group and employees to the fund at the rate of 10% of basic salary;
in the consolidated statement of profit or loss over the period of the borrowings using the effective interest rate method.
- defined contribution pension fund for the benefit of those management employees who have not opted for defined
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the contribution gratuity fund as explained in note 2.17.3. Monthly contributions are made by the Group to the fund
liability for at least 12 months after the reporting date. at rates ranging from 12.5% to 13.75% of basic salary; and

2.15 Trade and other payables - defined contribution gratuity fund for the benefit of those management employees who have selected to opt out
of defined benefit gratuity fund and defined contribution pension plans as more fully explained in note 2.17.3.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the Monthly contributions are made by the Group to the fund at the rate of 8.33% of basic salary.
effective interest rate method.
All of the aforementioned funds are managed by the Parent Company.
These are classified as current liabilities if payment is due within 12 months or less (or in the normal operating cycle
of the business if longer). If not, they are presented as non-current liabilities. 2.17.2 Defined benefit plans

2.16 Current and deferred income tax A defined benefit plan is a post-employment benefit plan other than the defined contribution plan. The Group's net
obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees
The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated statement have earned in return for their service in current and prior periods; that benefit is discounted to determine its present
of profit or loss, except to the extent that it relates to items recognised in the consolidated statement of comprehensive value. The calculation is performed annually by a qualified actuary using the Projected Unit Credit method, related
income or directly in equity. In this case the tax is also recognised in the consolidated statement of comprehensive details of which are given in note 34 to the consolidated financial statements.
income or directly in equity, respectively.
Remeasurements (actuarial gains / losses) in respect of defined benefit plan are recognised directly in equity through
Current consolidated statement of comprehensive income.

The current income tax charge is based on the taxable income for the year calculated on the basis of the tax laws Contributions require assumptions to be made of future outcomes which mainly include increase in remuneration,
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. expected long-term return on plan assets and the discount rate used to convert future cash flows to current values.
Calculations are sensitive to changes in the underlying assumptions.
Deferred
The Group also contributes to:
Deferred tax is recognised using the balance sheet method, providing for all temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred - defined benefit funded pension scheme for its management employees.
tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based
on the laws that have been enacted or substantively enacted by the reporting date. - defined benefit funded gratuity schemes for its management and non-management employees.

A deferred tax asset is recognised to the extent that is probable that future taxable profits will be available against The pension scheme provides life time pension to retired employees or to their spouses. Contributions are made
which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced annually to these funds on the basis of actuarial recommendations. The pension scheme has been curtailed and
to the extent that it is no longer probable that the related tax benefit will be realised. effective from July 1, 2005, no new members are inducted in this scheme.

2.17 Employee benefits 2.17.3 In June 2011, the Group gave a one time irrevocable option to selected members of MPT Employees' Defined Benefit
Gratuity Fund and Defined Contribution Pension Fund to join a new MPT Employee's Defined Contribution Gratuity
2.17.1 Defined contribution plans Fund (the Fund), a defined contribution plan. The present value, as at June 30, 2011, of the defined benefit obligation
of those employees, who accepted this offer, were transferred to this Fund. Furthermore, from July 2011 onwards,
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contribution into a the monthly contributions to Defined Contribution Pension Fund of such employees were discontinued.
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions
to defined contribution plans are recognised as an employee benefit expense in consolidated statement of profit or 2.17.4 Service incentive plan
loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction
in future payments is available. The Group recognizes provision and an expense under a service incentive plan for certain category of experienced
employees to continue in the Group’s employment.

179 engro fertilizers limited annual report 2019 180

(Amounts in thousand) (Amounts in thousand)

2.17.5 Employees' compensated absences 2.21 Borrowing costs

The Group accounts for compensated absences on the basis of unavailed leave balance of each employee at the end Borrowing costs are recognised as an expense in the period in which they are incurred except where such costs are
of the year. directly attributable to the acquisition, construction or production of a qualifying asset in which case such costs are
capitalized as part of the cost of that asset. Borrowing costs includes exchange differences arising on foreign currency
2.18 Provisions borrowings to the extent these are regarded as an adjustment to borrowing costs.

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events 2.22 Research and development costs
and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation. Provisions are reviewed at each reporting date and adjusted to reflect current Research and development costs are charged to consolidated statement of profit or loss as and when incurred.
best estimate.
2.23 Government grant
2.19 Foreign currency transactions and translation
Government grant that compensates the Group for expenses incurred is recognised in the consolidated statement of
2.19.1 These consolidated financial statements are presented in Pakistan Rupees, which is the Group’s functional currency. profit or loss on a systematic basis in the same period in which the expenses are recognised.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and 2.24 Earnings per share
from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the consolidated statement of profit or loss. The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Holding Company by the weighted average
2.19.2 The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss
economy) that have a functional currency different from the presentation currency are translated into the presentation attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects
currency as follows: of all dilutive potential ordinary shares.

- assets and liabilities for each reporting date presented are translated at the average closing rate at the date of 2.25 Segment reporting
that reporting date;
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
- income and expenses for each consolidated statement of profit or loss item are translated at average exchange decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
rates, unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on performance of the operating segments, has been identified as the Board of Directors of the Group that makes strategic
the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions; and decisions.

- all resulting exchange differences are recognized as a separate component of equity. 2.26 Dividend and appropriation to reserves

2.20 Revenue recognition Dividend and appropriation to reserves are recognised in the consolidated financial statements in the period in which
these are approved.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the
amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
receivable and is reduced for marketing allowances. Revenue is recognised on the following basis:
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
- In case of sale of goods, when control is transferred to customers which coincides with dispatch of goods to the expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates
customers; and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related
actual results. Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
- Revenue in respect of services is recognized when the services have been rendered; amounts of assets and liabilities within the next financial year are as follows:

- Income on deposits and other financial assets is recognised on accrual basis; 3.1 Property, plant and equipment

- Commission and sub-licensing income is recognised on accrual basis in accordance with the substance of the The Group reviews appropriateness of the rate of depreciation, useful life, residual value used in the calculation of
relevant agreement; and depreciation. Further where applicable, an estimate of recoverable amount of assets is made for possible impairment
on an annual basis.
- Dividend income on equity investment is recognised when the Company's right to receive the dividend is
established.

181 engro fertilizers limited annual report 2019 182

 (Amounts in thousand)

4.1 Operating assets

Land Building on
(Amounts in thousand) Freehold Leasehold Freehold Leasehold Plant and Gas Office
(note 4.4) machinery pipeline Catalyst equipment Vehicle Total
------------------------------------------------------------------------Rupees--------------------------------------------------------------------------
3.2 Income taxes As at January 1, 2018

Cost 155,773 144,900 2,726,333 440,178 95,511,944 2,525,843 1,397,152 1,039,812 409,605 104,351,540
In making the estimates for income taxes, the management considers the applicable laws and the decisions / judgments Accumulated depreciation - (53,827) (1,134,812) (146,875) (34,939,982) (759,799) (1,173,896) (745,858) (281,090) (39,236,139)
of appellate authorities on certain issues in the past. Accordingly, the recognition of current and deferred taxes is made Net book value 155,773 91,073 1,591,521 293,303 60,571,962 1,766,044 223,256 293,954 128,515 65,115,401
taking into account these judgments and the best estimates of future results of operations of the Group.
Year ended December 31, 2018

Net book value - January 1, 2018 155,773 91,073 1,591,521 293,303 60,571,962 1,766,044 223,256 293,954 128,515 65,115,401
3.3 Provision for retirement and other service benefits obligations
Transfers from CWIP (note 4.6.1) - - 76,791 - 3,796,585 - 213,900 218,011 224,532 4,529,819

The present value of these obligations depend on a number of factors that are determined on actuarial basis using Disposals / write offs (note 4.3)
various assumptions. Any changes in these assumptions will impact the carrying amount of these obligations. The Cost - - - - - - - (10,650) (39,710) (50,360)
present value of these obligations and the underlying assumptions are disclosed in note 34 respectively. Accumulated depreciation - - - - - - - 8,649 34,441 43,090

- - - - - - - (2,001) (5,269) (7,270)

3.4 Impairment of goodwill and right to use the brand
Depreciation charge (note 4.2) - (3,394) (116,661) (11,008) (4,675,076) (121,872) (88,085) (84,704) (65,476) (5,166,276)

Determining the recoverable value of goodwill and right to use the brand involves use of significant estimates and
assumptions. In making the aforementioned fair valuation estimates discounted cash flow approach is used. The Net book value 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674
underlying assumptions used for such valuation are disclosed in note 5.1. As at January 1, 2019

Cost 155,773 144,900 2,803,124 440,178 99,308,529 2,525,843 1,611,052 1,247,173 594,427 108,830,999
3.5 Contingencies and Provisions
Accumulated depreciation - (57,221) (1,251,473) (157,883) (39,615,058) (881,671) (1,261,981) (821,913) (312,125) (44,359,325)

Net book value 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674
Significant estimates and judgements are being used by the management in accounting for contingencies and provisions
relating to legal and taxation matters being contested at various forums based on applicable laws and the decisions Year ended December 31, 2019

/ judgements. Net book value - January 1, 2019 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674

Transfers from CWIP (note 4.6.1) - - 98,496 - 1,871,241 - 371,195 77,914 1,334,157 3,753,003
4. PROPERTY, PLANT AND EQUIPMENT Disposals / write offs (note 4.3)
2019 2018
Cost - (47,616) - - (542,658) - - (314,329) (53,578) (958,181)
--------------Rupees------------
Accumulated depreciation - 19,378 - - 542,658 - - 313,799 44,969 920,804

Operating assets at net book value (note 4.1) 62,586,001 64,471,674 - (28,238) - - - - - (530) (8,609) (37,377)

Depreciation charge (note 4.2) - (1,861) (105,637) (10,937) (4,939,986) (111,141) (151,847) (174,879) (105,011) (5,601,299)
Capital work in progress (CWIP) (note 4.6) 2,572,476 3,159,249 Reclassifications:

Cost - - (764) 301 55,486 (10,850) - (19,948) 17,695 41,920

Major spare parts and stand-by equipment 765,949 573,033 Accumulated depreciation - - 20 - (31,668) - - 4,936 (15,208) (41,920)

- - (744) 301 23,818 (10,850) - (15,012) 2,487 -

65,924,426 68,203,956
Net book value 155,773 57,580 1,543,766 271,659 56,648,544 1,522,181 568,419 312,753 1,505,326 62,586,001

As at December 31, 2019

Cost 155,773 97,284 2,900,856 440,479 100,692,598 2,514,993 1,982,247 990,810 1,892,701 111,667,741

Accumulated depreciation - (39,704) (1,357,090) (168,820) (44,044,054) (992,812) (1,413,828) (678,057) (387,375) (49,081,740)

Net book value 155,773 57,580 1,543,766 271,659 56,648,544 1,522,181 568,419 312,753 1,505,326 62,586,001

No. of
Annual rate of depreciation (%) - 2 to 5 2.5 to 10 2.5 5 to 10 5 production days 10 to 25 10 to 25

4.2 Depreciation charge for the year has been allocated as follows: 2019 2018
---------Rupees----------
Cost of sales (note 23) 5,478,693 5,087,585
Selling and distribution expenses (note 24) 110,472 67,553
Administrative expenses (note 25) 12,134 11,138
5,601,299 5,166,276

183 engro fertilizers limited annual report 2019 184

 (Amounts in thousand)
2019 2018
4.6 Capital work in progress -------------Rupees------------
(Amounts in thousand)
Plant and machinery 2,076,215 2,758,651
Building and civil works including gas pipeline 158,954 219,037
4.3 The details of operating assets disposed / written off during the year are as follows: Furniture, fixture and equipment 125,815 10,891
Advances to suppliers 136,672 2,374
Others 74,820 168,296
2,572,476 3,159,249
Description and Sold to Cost Accumulated Net book Sale Gain 4.6.1 Balance as at January 1 3,159,249 3,396,331
method of disposal depreciation value proceeds
Additions during the year 3,825,592 4,333,447
---------------------------------Rupees---------------------------------
Transferred to:
Items having net book value - operating assets (note 4.1) (3,753,003) (4,529,819)
- intangible assets (note 5) (659,362) (40,710)
more than Rs. 500 each
Balance as at December 31 2,572,476 3,159,249
Leasehold Land Engro Polymer &
(note 4.4) Chemicals Limited 47,616 19,378 28,238 708,000 679,762 5. INTANGIBLE ASSETS Goodwill Right to Software Rights for
(note 5.1) use the and future gas Total
Vehicle brand licenses utilization
(note 5.1)
By Company policy to As at January 1, 2018 ---------------------------------------Rupees-------------------------------------
separating executive M. Asif Sultan Tajik 15,061 9,712 5,349 9,325 3,976 Cost 183,806 4,170,995 327,513 102,312 4,784,626

Items having net book value Accumulated amortisation - - (275,833) (33,319) (309,152)
Net book value 183,806 4,170,995 51,680 68,993 4,475,474
of upto Rs. 500 each
Year ended December 31, 2018
Office equipment, vehicles Net book value - January 1, 2018 183,806 4,170,995 51,680 68,993 4,475,474
and machinery Various 895,504 891,714 3,790 33,894 30,104
Transfers from CWIP (note 4.6.1) - - 40,710 - 40,710
Year ended December 31, 2019 958,181 920,804 37,377 751,219 713,842 Amortisation (note 5.3) - - (23,302) (5,111) (28,413)
Net book value 183,806 4,170,995 69,088 63,882 4,487,771
Year ended December 31, 2018 50,360 43,090 7,270 28,586 21,316 As at December 31, 2018
Cost 183,806 4,170,995 368,223 102,312 4,825,336
4.4 During the year, the Holding Company has sold leasehold land measuring approximately 60 acres situated within Plot
No. EZ/I/P-II located at East Industrial Zone, Port Qasim, Karachi to Engro Polymer and Chemicals Limited, an associated Accumulated amortisation - - (299,135) (38,430) (337,565)
Net book value 183,806 4,170,995 69,088 63,882 4,487,771
company, against a total consideration of Rs. 720,000. Bifurcation fee amounting to Rs. 12,000 was incurred on sale
of this land. Year ended December 31, 2019
Net book value - January 1, 2019 183,806 4,170,995 69,088 63,882 4,487,771
4.5 Particulars of immovable properties i.e land and building in the name of the Holding Company are as follows:
Transfers from CWIP (notes 4.6.1 and 5.2) - - 659,362 - 659,362
Location Total area Write-off
(acreage) Cost - - (9,884) - (9,884)
Accumulated amortisation - - 9,884 - 9,884
Daharki plant & colony 726 - - - - -
Zarkhez plant land at Port Qasim 112.5
Amortisation (note 5.3) - - (71,019) (5,111) (76,130)
Reclassification
Cost - - 3,085 - 3,085
Accumulated amortisation - - (3,085) - (3,085)
- - - - -
Net book value 183,806 4,170,995 657,431 58,771 5,071,003
As at December 31, 2019
Cost 183,806 4,170,995 1,020,786 102,312 5,477,899
Accumulated amortisation - - (363,355) (43,541) (406,896)
Net book value 183,806 4,170,995 657,431 58,771 5,071,003

185 engro fertilizers limited annual report 2019 186

(Amounts in thousand) (Amounts in thousand)

5.1 Goodwill and Right to use the brand

6.1 Reconciliation of the carrying amount of loans and advances to executives 2019 2018
The recoverable amount of cash generating unit is the higher of value in use or fair value less cost to sell. Value in use
is calculated as the net present value of the projected cash flows of the cash generating unit to which the asset ----------Rupees---------
belongs, discounted at risk-adjusted discount rate. Balance as at January 1 195,299 185,974
Disbursements 156,300 155,252
Details relating to the discounted cash flow model used to determine the value in use are as follows: Repayments / amortisation (120,525) (145,927)
Balance as at December 31 231,074 195,299
Valuation basis Value in use
6.2 Details of loans and advances to executives
Key assumptions - Sales growth rates
- Discount rate
Service incentive loans 185,725 148,826
Determination of assumptions - Growth rates are internal forecasts based on both internal and
Advances in respect of :
external market information and past performance.
- Car earn out assistance 3,811 12,100
- Cost reflects past experience, adjusted for inflation and expected
- House rent 17,684 15,855
changes.
- Retention loan 127 5,702
- Salary 9,939 6,421
- Discount rate is primarily based on weighted average cost of capital.
- Others 13,788 6,395
231,074 195,299
Terminal growth rate 2.5%
Period of specific projected cash flows 5 years
6.3 The maximum amount outstanding from executives at the end of any month during the year aggregated to
Discount rate 16.0%
Rs. 314,249 (2018: Rs. 208,895).
The valuation indicates sufficient headroom such that a reasonably possible change to key assumptions is unlikely to 6.4 Includes interest free loans given to workers pursuant to Collective Labour Agreement.
result in an impairment of the related goodwill and right to use the brand.
6.5 Represents loans granted to employees according to Group's policy. These loans are interest free, are repayable
5.1.1 Right to use the brand is in respect of selling Phospate fertilizers, acquired under an agreement with the Holding within 1 to 4 years and are secured to the extent of the provident fund balance and retirement benefits, if vested, of
Company, that has been valued using Relief from Royalty Method and is considered to have an indefinite life. the respective employees.
5.2 Relates to cost incurred on implementation of new ERP i.e. SAP. 6.6 The carrying values of the loan and advances are neither past due nor impaired.
2019 2018
-----------Rupees--------- 7. STORES, SPARES AND LOOSE TOOLS 2019 2018
5.3 Amortisation for the year has been allocated as follows:
----------Rupees---------
Cost of sales (note 23) 15,790 15,599
Consumable stores, spares and loose tools 5,919,907 5,792,688
Selling and distribution expenses (note 24) 15,290 11,530
Less: Provision for surplus and slow moving items (note 7.1) 618,815 467,401
Administrative expenses (note 25) 45,050 1,284
5,301,092 5,325,287
76,130 28,413

6. LONG TERM LOANS AND ADVANCES- Considered good 7.1 Provision for surplus and slow moving items
Executives (notes 6.1, 6.2, 6.3, 6.5 and 6.6) 231,074 195,299
Balance as at January 1 467,401 233,487
Other employees (notes 6.4, 6.5 and 6.6) 41,373 71,488
Charge for the year 177,813 233,914
272,447 266,787
Reversal during the year (26,399) -
Less: Current portion shown under current assets (note 10) 108,656 124,143
Balance as at December 31 618,815 467,401
163,791 142,644

187 engro fertilizers limited annual report 2019 188

(Amounts in thousand) (Amounts in thousand)

8. STOCK-IN-TRADE 2019 2018

9.3 Provision for impairment against trade debts 2019 2018
------------Rupees----------
----------Rupees---------
Raw materials 980,126 1,478,579
Packing materials 135,070 225,849 Balance as at January 1 18,230 -
Work in process 48,169 27,517 Charge for the year (note 27) 30,569 18,230
1,163,365 1,731,945 Balance as at December 31 48,799 18,230
Finished goods:
- manufactured product 2,238,488 853,481
- purchased and packaged products (note 8.1) 9,104,570 8,982,883 10. LOANS, ADVANCES, DEPOSITS AND PREPAYMENTS
11,343,058 9,836,364 Considered good

Less: Provision for net realisable value of raw material 28,785 30,000
products / manufactured products (note 8.2) 12,477,638 11,538,309 Current portion of long term loans and advances to
executives and other employees (note 6) 108,656 124,143
8.1 Includes stock-in-transit amounting to Nil (2018: Rs. 612,638).
Advances and deposits (note 10.1) 1,287,609 239,984
8.2 Provision for impairment against net realisable value of purchased and packaged product / manufactured product
Prepayments
2019 2018 - Insurance 429,067 308,323
------------Rupees---------- - Others 1,123,374 690,961
2,948,706 1,363,411
Balance as at January 1 30,000 -
Charge for the year 28,785 30,000 10.1 Includes advance amounting to Rs. 369,777 (2018: Nil) in respect of vehicles.
Written-off during the year (30,000) -
Balance as at December 31 28,785 30,000
11. OTHER RECEIVABLES 2019 2018
9. TRADE DEBTS -----------Rupees-----------
Subsidy receivable from Government of Pakistan
Considered good (notes 11.1 and 11.2) 6,368,366 6,368,366
- Secured (note 9.1) 13,275,370 9,014,194 Sales tax receivable 2,763,999 2,342,694
- Unsecured (note 9.2) 899,150 95,477
14,174,520 9,109,671 Due from Parent Company - 244,844
Considered doubtful 48,799 18,230
14,223,319 9,127,901 Due from associated companies:

Less: Provision for impairment against trade debts (note 9.3) 48,799 18,230 - Engro Polymer & Chemicals Limited 69,772 27,630
14,174,520 9,109,671 - Engro Powergen Qadirpur Limited 8,519 -
- Engro Digital Limited 584 2,239
9.1 These debts are secured by way of bank guarantee and inland letter of credit. - Engro Powergen Thar (Private) Limited 12,749 939
- Thar Foundation 260 -
9.2 Includes Nil (2018: Rs. 340) due from FrieslandCampina Engro Pakistan Limited, an associated company. - Engro Foundation 23,525 172
- FrieslandCampina Engro Pakistan Limited 2,202 -
- Engro Eximp Agri Products (Private) Limited 1,877 496
- Sindh Engro Coal Mining Company Limited 410 808
- Engro Infiniti Limited 8,245 -
- Engro Vopak Terminal Limited 560 502
-
Receivable from Defined Benefit Gratuity Fund MPT 38,634 22,982
Workers' profits participation fund (note 11.3) - 51,434
Claims receivable 99,546 2,225
Others 13,003 1,308
9,412,251 9,066,639

189 engro fertilizers limited annual report 2019 190

(Amounts in thousand) (Amounts in thousand)

11.1 During 2015, the Government of Pakistan (GoP) notified payment of subsidy on sold products at the rate of Rs. 500 per 13. CASH AND BANK BALANCES 2019 2018
50 kg bag of Di Ammonia Phosphate (DAP) and Rs. 217 per 50 kg bag of Nitrophos (N) and Nitrogen, Phosphorous -----------Rupees-----------
and Potassium (NPK) fertilizers (based on phosphorous content). This subsidy scheme was effective till May 27, 2016. Cash at banks in:

During 2016, a new subsidy scheme was announced by the GoP, effective June 25, 2016 whereby subsidy was payable - deposit accounts (note 13.1) 2,787,647 14,055
on sold products at the rate of Rs. 156 per 50kg bag of Urea and Rs. 300 per 50 kg bag of DAP and for Nitrophos 22:20 - currrent accounts (note 13.2) 622,911 714,581
& 18:18 grade (based on phosphorus content) and Nitrogen, Phosphorus and Potassium (NPK) fertilizers (based on 3,410,558 728,636
phosphorus content).
Cash in hand 2,915 1,200
During 2017, another subsidy scheme was announced by GOP, effective July 01, 2017. Under the new subsidy scheme 3,413,473 729,836
aforementioned rates were replaced with Rs. 100 per 50kg bag for Urea only. This subsidy scheme was effective till June
30, 2018. In line with the notification issued for the said scheme, Ministry of National Food Security and Research has
appointed third party auditors for verification of subsidy claims which is underway. 13.1 Deposit accounts carry return at the rate ranging from 10.30% to 11.30% (2018: 5.40% to 8.00% ) per annum.

11.2 As at December 31, 2019, the aggregate provision in respect of receivable from GOP amounts to Rs. 155,127 13.2 Includes Rs. 617,591 (2018: Rs. 708,803) held in foreign currency bank accounts.
(2018: Rs. 155,127).
2019 2018 14. SHARE CAPITAL 2019 2018
11.3 Workers' profits participation fund -----------Rupees----------- -----------Rupees---------
Authorised Capital
Balance as at January 1 51,434 (4,129) 1,400,000,000 (2018: 1,400,000,000)
Charge for the year (note 27) (1,461,099) (1,149,229) Ordinary shares of Rs. 10 each 14,000,000 14,000,000
Interest expense - (697)
Payments during the year 1,318,571 1,205,489 Issued, subscribed and paid-up capital
Balance as at December 31 (91,094) 51,434 258,132,299 (2018: 258,132,299) Ordinary shares of
Rs. 10 each, fully paid in cash 2,581,323 2,581,323

11.4 The maximum amount due from the Parent Company and associated companies at the end of any month during the year 9,999,993 (2018: 9,999,993) Ordinary shares of
is as follows: 2019 2018 Rs. 10 each issued as at January 1, 2010
-----------Rupees----------- on transfer of fertilizer undertaking 100,000 100,000
Parent Company 310,977 244,844
1,062,800,000 (2018: 1,062,800,000) Ordinary shares of
Associated Companies Rs. 10 each, issued as fully paid bonus shares 10,628,000 10,628,000
- FrieslandCampina Engro Pakistan Limited 9,245 2,480
- Engro Powergen Qadirpur Limited 8,519 21,022 4,367,083 (2018: 4,367,083) Ordinary shares of
- Engro Energy Limited - 3,795 Rs. 10 each issued upon exercise of
- Sindh Engro Coal Mining Company Limited 6,069 4,113 conversion option by International Finance
- Engro Polymer & Chemicals Limited 80,824 - Corporation (IFC) 43,670 43,670
- Engro Powergen Limited 9,592 - 13,352,993 13,352,993
- Engro Powergen Thar Limited 12,749 1,075
- Engro Thar Foundation 260 - 14.1 As at reporting date, the Parent Company held 56.27% (2018: 56.27%) of the share capital of the Holding Company.
- Engro Vopak Terminal Limited 661 672
- Engro Eximp Agriproducts (Private) Limited 2,023 2,530 14.2 These fully paid Ordinary shares carry one vote per share and right to dividend.
- Engro Digital Limited 1,025 2,685 2019 2018
- Engro Elengy Terminal (Private) Limited - 313 15. RESERVES -----------Rupees---------
- Engro Foundation 23,525 11,384
- Engro Eximp FZE 81,974 - Capital reserves
Share premium 3,384,904 3,384,904
Exchange revaluation reserves - 408,817
12. SHORT TERM INVESTMENTS 3,384,904 3,793,721
Revenue reserves
Treasury Bills 5,305,337 - (56,639) (44,729)
Remeasurement of post employment benefits
Pakistan Investment Bonds - 6,244,613 26,598,202 28,421,170
Unappropriated profit
Term Deposit Receipts 206,207 1,477,856 26,541,563 28,376,441
5,511,544 7,722,469 29,926,467 32,170,162

191 engro fertilizers limited annual report 2019 192

(Amounts in thousand) (Amounts in thousand)

16. BORROWINGS - Secured (Non-participatory) 16.4 Following are the changes in the long term borrowings for which cash flows have been classified as financing
activities in the consolidated statement of cash flows:
Installments
2019 2018
Note Mark - up Number Commenced / 2019 2018 -------------Rupees-----------
rate per annum Commencing from ---------------Rupees--------------
Long term finance utilised Balance as at January 1 30,810,629 30,903,878
under mark-up arrangements:
Borrowings availed during the year 5,000,000 8,183,497
Amortization of transaction cost 16,884 10,521
Senior Lenders Repayment of borrowings (5,122,418) (8,286,667)
Allied Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 2,000,000 2,000,000 Exchange loss / (gain) 247,353 (600)
Allied Bank Limited 6 Months KIBOR + 0.2% 4 half yearly June 28, 2022 2,100,000 2,100,000
Allied Bank Limited 16.1 3 months KIBOR + 0.35% 6 half yearly June 20, 2022 2,500,000 - Balance as at December 31 30,952,448 30,810,629
Deutsche Investitions
und Entwicklungsgesellschaft 6 Months LIBOR + 3.75% 9 half yearly December 15, 2019 2,071,917 2,082,897
Dubai Islamic Bank 17. DEFERRED TAXATION
Pakistan Limited 6 months KIBOR + 0.4% 4 half yearly November 28,2018 200,000 600,000
MCB Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 4,000,000 4,000,000
MCB Bank Limited 6 months KIBOR + 0.20% 4 half yearly December 29, 2021 3,000,000 3,000,000 Credit / (Debit) balances arising on account of:
MCB Bank Limited 6 Months KIBOR + 0.05% 4 half yearly March 28, 2021 1,500,000 1,500,000 - Accelerated depreciation allowance 12,393,426 11,187,680
MCB Bank Limited 16.1 3 months KIBOR + 0.25% 6 half yearly June 30, 2022 2,500,000 - - Alternative Corporate Tax - (3,962,572)
National Bank of Pakistan 6 Months KIBOR + 0.2% 4 half yearly June 28, 2022 1,000,000 1,000,000
Standard Chartered Bank - Provision for:
(Pakistan) Limited 6 Months KIBOR + 0.9% 13 half yearly June 14, 2013 - 199,687 - staff retirement benefits (12,729) (1,056)
Samba Bank Limited 6 Months KIBOR + 0.9% 14 half yearly April 1, 2013 - 99,852 - surplus and slow moving stores and spares and
Syndicated finance 6 months KIBOR + 0.4% 6 half yearly June 26, 2019 6,080,532 9,109,666 doubtful receivables (198,271) (124,030)
United Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 4,000,000 4,000,000

Certificates 12,182,426 7,100,022

Privately Placed Subordinated 18. DEFERRED LIABILITIES
Sukuk Certificates 16.3 6 months KIBOR + 1.75% 10 half yearly January 9, 2015 - 1,118,527

30,952,449 30,810,629 Deferred income (note 18.1) 57,654 61,519

Less: Current portion shown
under current liabilities 8,760,351 5,095,584 Service benefit obligation 255,785 244,214
Less: Current portion shown under current liabilities (56,036) (51,487)
22,192,098 25,715,045
199,749 192,727

16.1 During the year, the Holding Company obtained long term finances from MCB Bank Limited and Allied Bank Limited 257,403 254,246
of Rs. 2,500,000 each, to finance the capital expenditure. These borrowings have the same charge as on the borrowings
from other existing Senior Lenders. 18.1 This represents Rs. 96,627 received from Engro Powergen Qadirpur Limited (EPQL), an associated company, for the
right to use the Holding Company's infrastructure facilities at Daharki Plant by the employees of EPQL for a period of
16.2 All senior debts are secured by an equitable mortgage upon immovable property of the Holding Company and equitable twenty five years. The amount is being amortised over such period.
charge over current and future fixed assets excluding immovable property of the Holding Company.

16.3 Privately Placed Subordinated Sukuk (PPSS) has been completely paid off during the year. These carried a subordinate
mortgage upon immovable property of the Holding Company and a subordinate charge over current and future fixed
assets excluding immovable property.

193 engro fertilizers limited annual report 2019 194

(Amounts in thousand) (Amounts in thousand)

19. TRADE AND OTHER PAYABLES 2019 2018 20. SHORT TERM BORROWINGS
------------Rupees---------
Holding Company

Creditors 6,820,292 4,482,782 The Company has funded facilities for short term finances available from various banks and institutional investors
Accrued liabilities (note 19.1) 26,709,732 17,540,249 amounting to Rs. 15,125,000 (2018: Rs. 16,850,000) along with non-funded facilities of Rs. 3,827,000 (2018: Rs.
Advances from customers 1,133,976 4,174,150 3,827,000) for bank guarantees. The rates of markup on funded bank overdraft facilities ranged from 0.2% to 0.5%
per annum over 1-month & 3-month KIBOR and all facilities are secured by floating charge upon all present and future
Payable to Parent Company 249,680 - stocks including raw and packaging materials, finished goods, stores and spares and other merchandise and on all
present and future book debts, outstanding monies, receivable claims and bills of the Company. The Company has
Payable to; utilised Rs. 1,546,685 (2018: Rs. 636,878) from funded facilities as at the reporting date.
- FrieslandCampina Engro Pakistan Limited - 1,562
- Engro Energy Limited 2,863 2,052 Subsidiary Company
- Engro Powergen Qadirpur Limited - 1,635
- Engro Polymer & Chemicals Limited - 202,362 The facilities for short term running finances, available from various banks, aggregate to Rs. 12,725,000 (2018: Rs.
- Engro Elengy Terminal (Private) Limited 1,631 1,373 14,217,000). The rates of markup on the funded bank overdraft facilities ranged from 0.2% to 0.5% per annum over
- Engro Eximp FZE 138,294 - 1-month & 3-months KIBOR. These facilities are secured by floating charge upon all present and future stocks including
- Defined Contribution Provident Fund 22,888 32 raw and packaging materials, finished goods, stores and spares and other merchandise and on all present and future
- Defined Contribution Provident Fund NMPT 6,991 90 book debts, outstanding monies, receivable claims and bills of the Holding Company. As at December 31, 2019, the
- Defined Contribution Gratuity Fund MPT 7,753 - Company has utilised Rs. 439,225 (2018: Rs. 373,090) out of the aforementioned facilities.
- Defined Contribution Pension Fund 23,502 -
- Defined Benefit Gratuity Fund NMPT 216,694 149,067 21. CONTINGENCIES AND COMMITMENTS

Deposits / Retention from dealers and contractors (note 19.2) 203,073 95,447 Contingencies
Workers' welfare fund (WWF) (note 19.3) 1,264,956 1,790,523
Workers' profits participation fund 91,094 - 21.1 As at December 31, 2019, bank guarantees of Rs.3,400,747 (2018: Rs. 2,982,754) have been issued in favour of
Witholding tax payable 302,798 199,923 third parties.
Others 488,998 453,663
37,685,215 29,094,910 21.2 As at December 31, 2019 claims, including pending lawsuits, against the Holding Company not acknowledged as
debts amount to Rs. 61,914 (2018: Rs. 58,680).
19.1 Includes Rs. 18,943,544 (2018: Rs. 12,576,404) on account of Gas Infrastructure Development Cess (GIDC) payable
from October 2016 onwards. The Federal Government challenged the decision of the Sindh High Court (SHC), which 21.3 The Holding Company has entered into Dealer Finance Agreements (DFAs) with different banks amounting to Rs.
declared the GIDC as ultra vires and unconstitutional in case of another company, and obtained a direction from a 4,500,000 (2018: Rs. 4,500,000) consequent to which the banks will provide financial assistance to dealers approved
Larger Bench of SHC suspending the order. However, the Holding Company obtained an injunction / stay order based by the Holding Company. In respect to DFA amounting to Rs. 3,000,000 the Holding Company has agreed to bear
on the fact that since the Holding Company is not a party to the case, hence, the suspension is not applicable to the 5% to 10% of the principal in case of default by the dealers. As at December 31, 2019, the banks have made
Holding Company's case. The Government preferred an appeal before the SHC for suspension of the injunction / stay disbursements to dealers under the DFAs amounting to Rs. 3,337,876 (2018: Rs. 1,254,832) maturing on various
order, hearing of which is underway. In a separate case, Peshawar High Court passed a judgment on May 31, 2017 future dates.
validating the new GIDC Act and the same has been challenged by the petitioners in the Supreme Court of Pakistan.
21.4 The Holding Company had filed a constitutional petition in the Hight Court of Sindh (HCS) against the Ministry of
During the current year, GIDC Amendment Ordinance 2019 was promulgated by the Federal Government which Petroleum and Natural Resources (MPNR), Ministry of Industries and Production (MIP) and Sui Northern Gas Pipeline
provided for 50% waiver of outstanding liability as at December 31, 2018 and 50% reduction in prospective GIDC on Company Limited (SNGPL) for continuous supply of 100 mmscfd gas per day to the Holding Company's new plant
feed and fuel gas. Subsequently, the said Ordinance was withdrawn by the Federal Government and the matter is now (Enven) and to prohibit from suspending, discontinuing or curtailing the aforementioned supply. The HCS in its order
pending decision of the Supreme Court of Pakistan. dated October 18, 2011, has ordered that SNGPL should supply 100 mmscfd of gas per day to the Holding Company’s
new plant. However, five petitions have been filed in the Supreme Court of Pakistan against the aforementioned order
Subsequent to year end, the government through notification dated January 28, 2020, has reduced GIDC on gas of the HCS by SNGPL, MPNR, Agritech Limited, Pak Arab Fertilizers and Kohinoor Mills Limited alongwith twenty one
consumed by fertilizer manufactures to Rs. 5/MMBTU with effect from January 28, 2020. other companies (mainly engaged in textile business). The aforementioned petitions are pending for further hearing.
The Holding Company’s management, as confirmed by the legal advisor, considers the chances of these petitions
19.2 The amount is kept in separate term deposits account as per the terms of agreements and is not utilised for the purpose being allowed to be remote.
of the business of the Group.

19.3 During the year, provision made for Workers welfare fund under the Sindh Workers Welfare Fund ACT, 2014 for tax
years 2013 to 2015 amounting to Rs. 999,423 has been reversed, based on a legal advice.

195 engro fertilizers limited annual report 2019 196

(Amounts in thousand) (Amounts in thousand)

Further, the Holding Company upon continual curtailment of gas after the aforementioned decision of the HCS has 21.8 On July 3 2018, the Deputy Commissioner Inland Revenue (DCIR), LTU raised an order for the period June 2016 to
filed an application in respect of Contempt of Court under Article 199 & 204 of the Constitution of Pakistan. The July 2017 with a demand of Rs. 1,006,000 mainly on account of further sales tax to be charged on sales to unregistered
Holding Company, in the aforementioned application has submitted that SNGPL and MPNR have failed to restore persons. The Holding Company filed an appeal thereagainst with the Commissioner Inland Revenue (Appeals) (CIRA)
full supply of gas to the Holding Company’s plant despite the judgment of the HCS in Holding Company’s favor. A who disposed off the appeal in favor of the taxation department on September 24, 2018. A constitutional petition
show cause notice has also been issued against MPNR and SNGPL dated December 31, 2011 by the HCS. The against the said order has been filed with the HCS and stay for recovery of demand against CIRA's order was obtained
application is pending for hearing and no orders have yet been passed in this regard. on October 31, 2018. The Holding Company also filed an appeal against CIRA decision which is pending before the
Appellate Tribunal Inland revenue. The Holding Company's management believes that the chances of ultimate success
21.5 All Pakistan Textile Processing Mills Association (APTMA), Agritech Limited (Agritech), Shan Dying & Printing Industries are very good, as confirmed by legal advisor, hence, no provision has been made in this respect
(Private) Limited and twenty seven others have each contended, through separate proceedings filed before the Lahore
High Court that the supply to the Holding Company’s new plant is premised on the output from Qadirpur gas field 21.9 In the year 2017, the High Court of Islamabad in its order dated June 8, 2017 declared that the income derived by
exceeding 500 mmscfd by 100 mmscfd and, therefore, the Gas Sale and Purchase Agreement (GSA) dated April 11, the Contractor from its contract with the Holding Company, is subject to tax as per Clause 4 of Article 5 of Double
2007 between the Holding Company and Sui Northern Gas Pipeline Company Limited (SNGPL) be declared void ab Taxation Treaty between Pakistan and the Netherlands. Thus confirming demand order issued of Rs 1,178,391. In
initio because the output of Qadirpur gas field has infact decreased. Agritech has additionally alleged discrimination respect thereof, the Contractor preferred an appeal in the Supreme Court of Pakistan (SCP). During the year, the
in that it is receiving less gas than the other fertilizer companies on the SNGPL system. The Holding Company has SCP decided the case on ex-parte basis against the contractor and review application for case restoration has been
out rightly rejected these contentions, and is of the view that it has a strong case for the reasons that (i) 100 mmscfd filed by the Contractor. It is expected that on adjudication on the merits of the case, the exposure will not exceed
gas has been allocated to the Holding Company through a transparent international competitive bidding process held Rs. 200,000 for the Holding Company. Although certain implications arise under the terms of the Contract, the
by the Government of Pakistan, and upon payment of valuable license fee; (ii) GSA guarantees uninterrupted supply chances of any obligation crystallising on part of the Holding Company given the time lines of any separate proceedings
of gas to the new plant, with right to first 100 mmcfd gas production from the Qadirpur gas field; and (iii) both the under the Income Tax Ordinance, 2001 are remote. Accordingly, no provision has been made in respect of the demand
Holding Company and the Qadirpur gas field are located in Sindh. Also neither the gas allocation by the Government order issued by tax department.
of Pakistan nor the GSA predicates the gas supply from Qadirpur gas field producing 100 mmscfd over 500 mmscfd.
No orders have been passed in this regard and the petition has also been adjourned sine die given that similar matter
is pending in Supreme Court of Pakistan. However, the Holding Company’s management, as confirmed by the legal 21.10 Commitments 2019 2018
advisor, considers chances of petitions being allowed to be remote. ------------Rupees-----------

21.6 The Holding Company in the year 2013, along with other fertilizer companies, received a show cause notice from the Commitments in respect of capital expenditure
Competition Commission of Pakistan (CCP) for initiating action under the Competition Act, 2010 in relation to and other operational items 7,364,808 1,874,155
unreasonable increase in fertilizer prices. The Holding Company has responded in detail that factors resulting in such
increase were mainly the imposition of infrastructure cess and sales tax and partially the gas curtailment. The CCP
has issued an order in March 2013, whereby it has held that the Holding Company enjoys a dominant position in the
urea market and that it has abused this position by unreasonable increases of urea prices in the period from December
2010 to December 2011. The CCP has also held another fertilizer company to be responsible for abusing its dominant
position. In addition, the CCP has imposed a penalty of Rs. 3,140,000 and Rs. 5,500,000 on the Holding Company
and the other fertilizer company, respectively. An appeal has been filed in the Competition Appellate Tribunal (CAT) and
a writ has been filed in the HCS and stay has been granted against the recovery of the imposed penalty. Hearings
have been conducted at CAT where Farmer Association has filed an internal application.

In case of other fertilizer company, the CAT has transferred the case back to the CCP for reassessment. The Holding
Company has challenged the composition of the CAT. The Holding Company's management believes that the chances
of ultimate success are very good, as confirmed by legal advisor, hence, no provision has been made in this respect.

21.7 During 2015, the Holding Company received a sales tax order from the tax department for the year ended December
31, 2013 pertaining to discharge of output tax liability, on assumed production of urea amounting to Rs. 402,875 and
on presumption that output tax liability is not being discharged by the Holding Company on advances received from
dealers amounting to Rs. 1,844,075. The Holding Company filed an appeal thereagainst with the Commissioner Inland
Revenue (Appeals) [CIR (A)] which decided the matters in favour of the Holding Company. The department thereafter
challenged the decision of the CIR(A) with the Appellate Tribunal Inland Revenue , which is pending to be heard. No
provision has been made by the Holding Company in this respect.

197 engro fertilizers limited annual report 2019 198

(Amounts in thousand) (Amounts in thousand)

22. NET SALES 24. SELLING AND DISTRIBUTION EXPENSES 2019 2018
2019 2018
-------------Rupees----------- -------------Rupees-----------
Gross sales:
- manufactured product 79,194,233 67,029,060 Salaries, wages and staff welfare (note 24.1) 1,029,806 950,964
- purchased and packaged product 44,593,196 45,766,185 Staff recruitment, training, safety
- services 92,533 - Training, HSE and other related expenses 206,514 153,009
123,879,962 112,795,245 Product transportation and handling 5,104,919 4,756,308
Less: Sales tax 2,525,204 3,598,659 Royalty (note 24.2) 1,170,423 914,263
121,354,758 109,196,586 Repairs and maintenance 56,015 7,580
Advertising and marketing 312,274 445,077
Rent, rates and taxes 423,996 381,768
23. COST OF SALES Communication, stationery and other office expenses 33,676 25,738
Travelling 176,740 155,218
Cost of sales - Manufactured product Depreciation (note 4.2) 110,472 67,553
Raw materials consumed 21,590,127 17,168,622 Amortisation (note 5.3) 15,290 11,530
Salaries, wages and staff welfare (note 23.1) 2,951,589 2,444,767 Purchased services 68,411 98,938
Fuel and power 12,331,215 8,083,386 Insurance 19,476 35,148
Repairs and maintenance 1,833,880 1,079,238 Others 8,333 4,821
Depreciation (note 4.2) 5,478,693 5,087,585 8,736,345 8,007,915
Amortisation (note 5.3) 15,790 15,599
Consumable stores 1,033,230 862,533
Training, HSE and other related expenses 300,916 274,783 24.1 Salaries, wages and staff welfare includes Rs. 89,230 (2018: Rs. 61,554) in respect of staff retirement benefits.
Purchased services 878,504 794,517
Travelling 70,475 52,963 24.2 Royalty is paid to the Parent Company which has its registered office at 8th floor, The Harbour Front Building, Plot
Communication, stationery and other office expenses 63,348 59,144 Number HC-3, Block 4, Scheme Number 5, Clifton, Karachi.
Insurance 458,875 418,796 2019 2018
Rent, rates and taxes 55,272 52,638 -------------Rupees-----------
Other expenses 3,002 21,047 25. ADMINISTRATIVE EXPENSES
Manufacturing cost 47,064,916 36,415,618
Salaries, wages and staff welfare (note 25.1) 484,407 450,442
Add: Opening stock of work in process (note 8) 27,517 18,526 Training, HSE and other related expenses 96,783 96,245
Less: Closing stock of work in process (note 8) (48,169) (27,517) Repairs and maintenance 24,796 12,686
Cost of goods manufactured 47,044,264 36,406,627 Rent, rates and taxes 55,395 466,319
Communication, stationery and other office expenses 24,367 56,766
Add: Opening stock of finished goods (note 8) 853,481 1,733,036 Travelling 23,769 24,063
Less: Closing stock of finished goods (note 8) (2,238,488) (853,481) Depreciation (note 4.2) 12,134 11,138
45,659,257 37,286,182 Amortisation (note 5.3) 45,050 1,284
Cost of sales - Purchased and packaged product Purchased services 465,627 341,544
Opening stock - net of NRV (note 8) 8,982,883 4,638,428 Insurance 7,925 1,195
Add: Purchases during the year 36,248,515 40,938,412 Other expenses 7,938 23,320
Less: Closing stock - net of NRV (note 8) (9,075,785) (8,982,883) 1,248,191 1,485,002
36,155,613 36,593,957
81,814,870 73,880,139 25.1 Salaries, wages and staff welfare includes Rs. 42,547 (2018: Rs. 47,774) in respect of staff retirement benefits.

23.1 Salaries, wages and staff welfare includes Rs. 192,251 (2018: Rs. 146,850) in respect of staff retirement benefits.

199 engro fertilizers limited annual report 2019 200

(Amounts in thousand) 2019 2018 (Amounts in thousand)
--------------Rupees------------
26. OTHER INCOME 28. FINANCE COST 2019 2018
---------------Rupees-----------
Income from sales under Government subsidy (note 11.1) - 1,271,334 Interest / mark-up / return on:
- long term borrowings
On financial assets - interest / mark up arrangements 3,121,262 1,589,740
Income on bank accounts under: - shariah permissible arrangements 231,248 320,552
- shariah permissible arrangements 16,596 267 3,352,510 1,910,292
- interest / mark up arrangements - 28,228 - short term borrowings
Income on Treasury Bills, Term Deposit Certificates and - interest / mark up arrangements 348,399 149,087
Pakistan Investment Bonds 1,714,893 465,077 - shariah permissible arrangements 13,125 10,931
Foreign exchange gain - 128,196 361,524 160,018
Gain on disposal of sibsidiary (note 30.1) 804,571 -
Others 20,180 - Foreign exchange loss - net 172,129 -
2,556,240 621,768 Bank charges 707 623
On non-financial assets 3,886,870 2,070,933
Gain on disposal of property, plant and equipment (note 4.3) 713,842 21,316
Rental income 2,899 40,558 29. TAXATION
Reversal of liability for workers' welfare fund 999,423 -
Scrap sales 45,425 12,033 Current
Others (note 26.1) 33,953 94,945 - for the year (note 29.5) 5,315,987 8,243,535
1,795,542 168,852 - for prior years (notes 29.6 and 29.7) 123,125 914,354
4,351,782 2,061,954 5,439,112 9,157,889

26.1 This includes an amount of Nil (2018: Rs. 42,368) charged to the Parent Company. Deferred 5,087,268 (2,289,206)
2019 2018
--------------Rupees------------
27. OTHER OPERATING EXPENSES 10,526,380 6,868,683

Workers' profits participation fund (note 11.3) 1,461,099 1,149,229

Workers' welfare fund 473,856 143,227
29.1 During the year 2015, the income tax department amended the assessment filed by the Holding Company for tax year
Research and development 31 244
2014. The Holding Company filed an appeal before the Commissioner Inland Revenue (Appeals) (CIRA) against the
Auditors' remuneration (note 27.1) 11,296 8,918
disallowances, which mainly pertained to exchange gain and loss, loss on derivative and losses purchased from Engro
Legal and professional 62,017 51,722
Eximp Agriproducts (Private) Limited, an associate, under section 59B of the Income Tax Ordinance, 2001 resulting in
Donation (note 27.2) 265,170 100,424
additions to taxable income of Rs. 3,191,963. In addition the tax department raised demand for the Alternative Corporate
Provision against sales tax receivable 244,000 -
Tax (ACT) through the same order, for which the Holding Company specifically obtained a stay order.
Provision against trade debts 30,569 18,230
Others 74,623 60,356
During the year, the matter was heard by CIRA and favorable decision was made in respect of exchange losses and
2,622,661 1,532,350
acceptance of prior years tax refunds, whilst other additions made by the tax department in respect of ACT, loss on
derivatives and group relief under section 59B were maintained in the order. The Holding Company has filed an appeal
27.1 Auditors' remuneration
against the order of CIRA before the Income Tax Appellate Tribunal.
Fee for:
29.2 During the year, the income tax department amended the assessment filed by the Holding Company for the tax years 2015,
- audit of annual financial statements 2,865 4,721
2016 and 2017. The Holding Company filed appeals there against before the Commissioner Inland Revenue Appeals (CIRA)
- review of half yearly financial information 1,206 555
for disallowances made in the orders which mainly included proration of expenses to exempt/FTR incomes, exchange loss
- review of compliance with the Code of Corporate Governance 50 45
disallowances, loss on derivatives and losses purchased from Engro Eximp Agriproducts (Private) Limited under section
- certifications, advices and audit of retirement funds 2,277 191
59B of the Income Tax Ordinance, 2001, resulting in cumulative addition of Rs. 16,173,826 to taxable income of these tax
- taxation services 4,295 2,889
years. During the year, CIRA passed an order for tax years 2015, 2016 and 2017 maintaining most of the additions made
Reimbursement of expenses 603 517
by taxation officer in the amendment order, whilst allowing deletion of expenses on allocation basis to exempt income and
11,296 8,918
claim of exchange losses on realised basis. The Holding Company, as well as the tax department, has filed appeals against
the order of CIRA before the Appellate Tribunal (ITAT). The matter was heard by the ITAT for tax year 2015 and 2016 on
27.2 During the year, the Holding Company made donations to Engro Foundation amounting to Rs. 230,200 (2018: Rs.
January 7, 2020 and the order has been reserved for judgement. The Holding Company is confident of a favourable outcome
96,000). Mr. Ghias Khan, the Chairman of the Board, and Mr. Nadir Salar Qureshi, the Chief Executive Officer of the
of the appeals.
Company, are also the trustees of Engro Foundation.

201 engro fertilizers limited annual report 2019 202

(Amounts in thousand) (Amounts in thousand)

29.3 During the year 2014, the income tax department amended the assessment filed by the Holding Company for tax years ● Group Relief (Financial year 2006 to 2008): Rs. 1,500,847
2010 and 2011.The Holding Company filed appeals thereagainst before the Appellate Tribunal Inland Revenue (ATIR) against
the said disallowances, which through its decision provided relief in respect of certain items and confirmed certain ● Inter-Corporate Dividend (Financial year 2007 to 2008): Rs. 336,500
disallowances in favor of the tax department. The said disallowances included the charge in respect of exchange gain and
loss incurred for tax year 2010 and tax year 2011, and loss on derivative for tax year 2011 raising a demand in respect of ● G.P. Apportionment (Financial years 1995 to 2002): Rs. 653,000
these years in aggregate of Rs. 1,075,466. The Holding Company had challenged the said decision before the High Court
of Sindh (HCS), which is pending to be heard, however, the Holding Company is confident of a favourable outcome. The Holding Company is confident that all the aforementioned pending issues will eventually be decided in its favor.
Therefore, no provision in respect of this is being maintained in these consolidated financial statements.
29.4 During the year 2018, the Holding Company had filed a suit in the HCS, contesting both the retrospective and prospective
application of the Alternative Corporate Tax (ACT) under section 113C. On January 27, 2018, the Supreme Court of Pakistan 29.9 As a result of merger of Engro Eximp (Private) Limited (EXIMP) with the Holding Company, all pending tax issues of
passed an order requiring that a minimum of 50% of tax calculated by the taxation authorities be deposited with taxation EXIMP have been transferred to the Holding Company. Major pending issue pertains to exercise of option to be taxed
authorities to maintain / entertain a suit filed / to be filed with any Court of Pakistan. Pursuant to this, the Holding Company under the Normal Tax Regime (NTR) by EXIMP for the years 2012 and 2013, resulting in an aggregate refund of Rs.
made payment of Rs 615,600 in respect of ACT for tax year 2014 to maintain its stay granted by the HCS. However, in 796,000. The tax department had not accepted the said treatment for tax year 2013, however, the matter was decided
respect of tax years 2015, 2016 and 2017, since no amendments to the returns filed by the Holding Company were received in favor of the Holding Company by the Commissioner Income Tax Appeals(CIT(A)), against which the tax department
from the tax department, therefore, suits thereagainst were withdrawn by the Holding Company. Later, on September 13, has filed an appeal with the Income Tax Appellate Tribunal (ITAT). However, the department has given appeal effect order
2018, the Holding Company received recovery notice for payment in respect of tax years 2015, 2016 and 2017 against to the aforementioned favourable decision of the CIT(A) for tax year 2013.
which a constitutional petition was filed by the Holding Company with the HCS. Stay for recovery of ACT has been granted
in respect of the constitutional petition. During the year, in respect of tax year 2013, the matter was decided by the ITAT in favor of the Holding Company and
the departments appeal in this respect was rejected. The management is confident for a favorable outcome on this case
During the year, persuant to the approval of the Board of Directors of the Holding Company on May 10, 2019, the Holding and therefore no provision is being maintained in these consolidated financial statements in this respect.
Company withdrew its cases pending in HCS in respect of ACT for tax years 2014 to 2017 and discharged the related net
tax liability amounting to Rs. 1,995,054.
29.10 Relationship between tax expense and accounting profit
29.5 This includes Rs. 401,090 (2018: Rs. 200,197) in respect of prior year taxes withheld at source at the time of imports of
The tax on the Holding Company's profit before tax differs from the theoretical amount that would arise using the
inventories by EAPL under section 148 of the Income Tax Ordinance and sold during the year.
Holding Company's applicable tax rate as follows:
2019 2018
29.6 The Holding Company had filed a suit in the HCS, contesting the applicability of Super Tax, under section 4B 'Super Tax
--------------Rupees-----------
for rehabilitation of temporary displaced persons' of the Income Tax Ordinance, 2001 (the Ordinance), as unconstitutional
and ultravires to the laws. On January 27, 2018, the Supreme Court of Pakistan passed an order requiring that a minimum
Profit before taxation 27,397,603 24,282,201
of 50% of tax calculated by the taxation authorities be deposited with the taxation authorities to maintain / entertain a suit
filed / to be filed with any Court of Pakistan. Pursuant to this, the legal suits filed against applicability of Super Tax were
Tax calculated at the rate of 29% (2018: 29%) 7,945,305 7,041,838
withdrawn by the Holding Company.
Depreciation not deductible for tax purposes 528 7,660
During the year, the Holding Company received recovery notice from Federal Board of Revenue (FBR) for payment of Super
Tax effect of:
Tax in respect of tax year 2018. The Holding Company has filed a constitutional petition against the same in the HCS and
- Expenses not allowed for tax 82,444 243,501
stay thereagainst has been obtained. Adequate provision for Super Tax for the respective tax years are being maintained
- Final / Special Tax Regime and exempt income 772,023 422,219
in these consolidated financial statements.
Effect of:
29.7 This includes provision in accordance with section 4B 'Super Tax for rehabilitation of temporarily displaced persons' of the
- Tax credits - (267,040)
Income Tax Ordinance, 2001.
- Prior year tax charge 123,125 914,354
- Incremental tax charge for Super Tax - 554,703
29.8 As a result of demerger in the year 2009, all pending tax issues of the then Parent Company, Engro Chemical Pakistan
- Change in deferred tax liability rates
Limited had been transferred to the Holding Company. Major issues pending before the taxation authorities are described
due to reduction in tax rates (note 29.11) 1,602,955 (2,048,552)
below:
Tax charge for the year 10,526,380 6,868,683
In previous years, the taxation department had filed reference applications in the HCS against the below-mentioned ATIR’s
29.11 Through Finance Act 2018, corporate tax rates for year ended December 31, 2018 and onwards were reduced by 1%
decisions in Holding Company’s favor. No hearing has been conducted to-date. The reference application includes the
for each subsequent tax year uptil tax year 2023 (financial year ending December 31, 2022). Subsequently, through
following matters:
Finance Act, 2019, the said change was deleted and corporate tax rates were fixed at 29% for tax year 2019 and
onwards. This represents amount of related charge / (reversal) in deferred tax related to aforementioned changes.

203 engro fertilizers limited annual report 2019 204

(Amounts in thousand) (Amounts in thousand)
2019 2018
30. DISCONTINUED OPERATIONS 30.5 Net cashflows attributable to discontinued operations --------------Rupees-----------

As explained in note 1.1.1, the Holding Company has disposed of its entire investment in EEF, the summary of which is as Net cash generated from / (utilized in) operating activities 398 (26,891)
follows: Net cash generated from investing activities - 47,809
Net cash utilized in financing activities (42,957) (73,665)
(42,559) (52,747)
2019
30.1 Summary of gain on disposal of EEF
Note -----Rupees---- 31. EARNINGS PER SHARE (EPS)

Sale proceed on disposal 1,972,505 31.1 Basic EPS has been calculated by dividing the profit attributable to equity holders of the Holding Company by weighted
Less : Net assets of the subsidiary 30.2 (1,852,505) average number of ordinary shares in issue during the year.
120,000
Realized exhange gain on translation of reserves 30.3 684,571 31.2 As at December 31, 2019, there is no dilutive effect on the basic earnings per share of the Holding Company. EPS is
804,571 based on following :
2019 2018
30.2 An analysis of assets and liabilities attributable to discontinued operations as at the time of disposal is as follows: --------------Rupees-----------
Profit for the year
2019
- continued operations 16,835,037 17,395,580
Assets attributable to discontinued operations -----Rupees---- - discontinued operations 36,186 17,938
16,871,223 17,413,518
- Advances, deposits and prepayments 5,371
- Trade debts 222,108
- Accrued income 48,488 ----Numbers (in thousands)----
- Short-term investments 1,630,724 Weighted average number of shares for
- Balance with banks 45,219 determination of basic / diluted EPS 1,335,299 1,335,299
1,951,910

Liabilities associated with discontinued operations 32. FINANCING STRUCTURE / MODE

661 2019 2018
- Service benefits obligations 98,744 Conventional mode:
--------------Rupees-----------
- Trade and other payables 99,405
Assets
1,852,505 Short term investments 5,511,544 7,722,469
Cash and bank balances 3,248,048 589,906
30.3 Amount recognised in other comprehensive income and 8,759,592 8,312,375
accumulated in equity relating to discontinued operations 684,571 Liabilities
Long term borrowings 29,752,449 27,892,415
Short term borrowings 1,910,901 941,307
2019 2018
30.4 Financial performance of discontinued operations is as follows: 31,663,350 28,833,722
--------------Rupees-----------
Shariah compliant mode:
Administrative expenses (2,490) (6,584)
Other income 40,351 37,095 Assets
Other operating expenses (968) (11,950) Cash and bank balances 165,425 139,930
Finance cost (707) (623)
Liabilities
Profit before taxation 36,186 17,938 Long term borrowings 1,200,000 2,918,214
Short term borrowings 75,009 68,661
Taxation - - 1,275,009 2,986,875

Profit for the period 36,186 17,938

Other comprehensive income 275,754 325,634

Total comprehensive income for the period 311,940 343,572

205 engro fertilizers limited annual report 2019 206

(Amounts in thousand) (Amounts in thousand)

33. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES - Discount rate fluctuation -  The plan liabilities are calculated using a discount rate set with reference to corporate
bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by
33.1 The aggregate amounts for remuneration, including all benefits, to chief executive, directors and executives of the Group an increase in the value of the current plans’ bond holdings.
are given below:
2019 2018 - Investment risks - The risk of the investment underperforming and not being sufficient to meet the liabilities. This
Directors Executives Directors Executives risk is mitigated by closely monitoring the performance of investments.
Chief Others Chief Others
- Risk of insufficiency of assets - This is managed by making regular contribution to the Fund as advised by the actuary.
Executive Executive
------------------Rupees------------------ -----------------Rupees------------------
- In addition to above, the pension fund exposes the Holding Company to Longevity Risk i.e. the pensioners survive
Managerial remuneration longer than expected.
including bonus 96,532 1,109 1,978,815 73,888 1,300 1,745,893
Retirement benefits funds 4,489 94 185,838 10,943 110 186,050 34.2 Valuation results
Other benefits 20 1 25,544 14 4 54,370
Fees - 10,154 - - 2,050 - The latest actuarial valuation of the defined benefit plans was carried out as at December 31, 2019, using the Projected
Total 101,041 11,358 2,190,197 84,845 3,464 1,986,313 Unit Credit Method. Details of the defined benefit plans are as follows:

Number of persons, Defined Benefit

including those who Defined Benefit Gratuity Plans - Funded Pension Plan-Funded
worked part of the year 2 8 384 3 7 345 (Curtailed)
NMPT MPT
2019 2018 2019 2018 2019 2018
33.2 These amounts are net off salaries, wages and others staff benefits incurred on behalf of EAPL and subsequently
--------------------------------------Rupees----------------------------------
charged to EAPL.
34.2.1 Consolidated statement of financial
33.3 The Holding Company also provides vehicles and certain household items for use of some executives and directors. position reconciliation

33.4 Premium charged in respect of directors' indemnity insurance policy, purchased by the Holding Company during the Present value of obligation 394,314 325,678 64,519 104,068 24,018 24,600
year, amounted to Rs. 304 (2018: Rs. 295). Fair value of plan assets (177,620) (176,611) (112,936) (136,832) (38,277) (38,104)
Deficit / (surplus) of funded plans 216,694 149,067 (48,417) (32,764) (14,259) (13,504)
34. RETIREMENT AND OTHER SERVICE BENEFITS
Payable to Defined Contribution Gratuity
34.1 Salient features Fund - - 9,736 9,736 - -
Payable in respect of inter-transfers - - 46 46 - -
The Parent Company offers a defined post-employment gratuity benefit to permanent management and non-management Unrecognised asset - - - - 14,259 13,504
employees. In addition, until June 30, 2005, the Holding Company offered a defined post-employment pension benefit to
management employees in service which has been discontinued and the plan now only covers a handful of retired pensioners. Net liability / (asset) at end of the year 216,694 149,067 (38,635) (22,982) - -

The gratuity and pension funds are governed under the Trusts Act, 1882, Trust Deed and Rules of Fund, Companies 34.2.2 Movement in net liability / (asset)
Act, 2017, the Income Tax Ordinance, 2001 and the Income Tax Rules, 2002. recognised

Responsibility for governance of plan, including investment decisions and contribution schedule lie with Board of Trustees Net liability / (asset) at beginning of the year 149,067 131,832 (22,982) (29,899) - -
of the Fund. Charge / (Reversal) for the year 37,071 27,770 (785) 2,361 (1,621) (970)

The Holding Company faces the following risks on account of gratuity and pension funds: Remeasurements charged to OCI
(note 34.2.7) 31,642 (8,198) (14,868) 4,556 1,621 970
- Final salary risks - The risk that the final salary at the time of cessation of service is greater than what was assumed.
Since the benefit is calculated on the final salary, the benefit amount would also increase proportionately. Liability in respect of promotion out (1,086) (2,337) - - - -

- Asset volatility - Most assets are invested in risk free investments of 3,5 or 10 year SSC’s, RIC’s, DSC’s or Net liability / (asset) at end of the year 216,694 149,067 (38,635) (22,982) - -
Government Bonds. However, investments in equity instruments is subject to adverse fluctuations as a result of
change in the market price.

207 engro fertilizers limited annual report 2019 208

(Amounts in thousand) (Amounts in thousand)

Defined Benefit Defined Benefit

Defined Benefit Gratuity Plans - Funded Pension Plan-Funded Defined Benefit Gratuity Plans - Funded Pension Plan-Funded
(Curtailed) (Curtailed)
NMPT MPT NMPT MPT
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
--------------------------------------Rupees---------------------------------- --------------------------------------Rupees----------------------------------
34.2.3 Movement in defined 34.2.7 Remeasurement recognised in consolidated
benefit obligation statement of comprehensive income

As at beginning of the year 325,678 296,881 104,068 146,542 24,600 29,156 (Gain) / Loss from change in
Current service cost 17,512 16,364 3,149 5,325 - - experience assumptions 29,812 (2,115) (69) (1,356) (1,132) 2,636
Interest cost 42,599 26,217 10,112 10,116 2,881 2,384 Loss / (Gain) from change in financial
Benefits paid during the year (19,545) (10,576) (52,741) (56,559) (3,929) (4,042) assumptions (656) 1,244 - - 1,598 (5,534)
Liability in respect of promotion out (1,086) (2,337) - - - -
Remeasurements charged Remeasurement of obligation 29,156 (871) (69) (1,356) 466 (2,898)
to OCI (note 34.2.7) 29,156 (871) (69) (1,356) 466 (2,898)
Expected return on plan assets 23,040 14,811 14,047 13,080 4,502 3,354
As at end of the year 394,314 325,678 64,519 104,068 24,018 24,600 Actual return on plan assets (21,625) (23,111) (28,912) (8,242) (4,102) (2,254)
Difference in fair value opening 1,071 973 66 1,074 - 821
34.2.4 Movement in fair value of
plan assets Remeasurement of plan assets 2,486 (7,327) (14,799) 5,912 400 1,921

At beginning of the year 176,611 165,049 136,832 186,223 38,104 40,713 Effect of asset ceiling - - - - 755 1,947
Expected return on plan assets 23,040 14,811 14,047 13,080 4,502 3,354 31,642 (8,198) (14,868) 4,556 1,621 970
Benefits paid during the year (19,545) (10,576) (52,741) (56,559) (3,929) (4,042)
Remeasurements charged 34.2.8 Principal actuarial assumptions
to OCI (note 34.2.7) (2,486) 7,327 14,799 (5,912) (400) (1,921) used in the actuarial valuation

Discount rate 11.3% 13.3% 11.3% 12.8% 11.3% 12.8%

As at end of the year 177,620 176,611 112,936 136,832 38,277 38,104 Expected per annum rate of return
on plan assets 11.3% 13.3% 11.3% 12.8% 11.3% 12.8%
34.2.5 Charge / (reversal) for the year Expected per annum rate of increase
in salaries - next year 10.3% 12.3% 11.3% 12.8% - -
Current service cost 17,512 16,364 3,149 5,325 - - Expected per annum rate of increase in
Net interest cost 19,559 11,406 (3,934) (2,964) (1,621) (970) salaries-long term 10.3% 12.3% 11.3% 12.8% - -
37,071 27,770 (785) 2,361 (1,621) (970)

34.2.9 Demographic Assumptions

34.2.6 Actual return on plan assets 21,625 23,111 28,912 8,242 4,102 2,254
Mortality rate SLIC SLIC SLIC PMA-PFA
(2001-05) - I (2001-05) - I (2001-05) - I (80) - 2
Rate of employee turnover Light Heavy - -

209 engro fertilizers limited annual report 2019 210

(Amounts in thousand) (Amounts in thousand)

34.2.10 Sensitivity Analysis 34.2.14 Expected future cost / (reversal) for the year ending December 31, 2020 is as follows:
Rupees
The impact of 1% change in following variables on defined benefit obligation is as follows:

Increase in assumption Decrease in assumption - Gratuity Fund - NMPT 44,831

Gratuity Funds Gratuity Funds - Gratuity Fund - MPT (2,660)

Pension Pension
NMPT MPT Fund NMPT MPT Fund
- Pension Fund (1,521)
-------------------------------------Rupees------------------------------------
34.2.15 Historical information of staff retirement benefits:
2019 2018 2017 2016 2015
Discount rate 359,920 61,836 22,928 433,810 67,360 25,215
-------------------------------Rupees--------------------------------
Long Terms Salary Increases 433,810 67,360 - 359,333 101,132 -
Logn Terms Pension Increases - - 25,343 - 61,812 22,800 Gratuity Fund - NMPT
Present value of defined benefit obligation 394,314 325,678 296,881 238,301 228,376
34.2.11 Maturity Profile Fair value of plan assets (177,620) (176,611) (165,049) (168,767) (169,638)
Gratuity Funds
Deficit 216,694 149,067 131,832 69,534 58,738
Time In Years NMPT MPT Pension Fund
-------------------------Rupees----------------------- Gratuity Fund - MPT
1 27,197 4,413 3,910 Present value of defined benefit obligation 64,519 104,068 146,542 137,729 149,332
2 24,539 6,982 3,910 Fair value of plan assets (112,936) (136,832) (186,223) (165,178) (166,957)
3 16,424 10,266 3,910 Surplus (48,417) (32,764) (39,681) (27,449) (17,625)
4 35,405 2,033 3,910
5-10 232,246 95,986 3,910 Pension Fund
11-15 450,279 7,534 3,910 Present value of defined benefit obligation 24,018 24,600 29,156 32,132 33,367
16-20 861,586 13,230 3,910 Fair value of plan assets (38,277) (38,104) (40,713) (44,213) (40,835)
20+ 1,838,393 - 3,910 Surplus (14,259) (13,504) (11,557) (12,081) (7,468)

Weighted average duration (years) 8.72 4.16 4.54 34.3 Defined contribution plans

An amount of Rs. 289,363 (2018: Rs. 226,016) has been charged during the year in respect of defined contribution
Defined Benefit Gratuity Plans - Funded Defined Benefit Pension plans maintained by the Parent Company.
NMPT MPT* Plan - Funded (Curtailed)
35. CASH GENERATED FROM OPERATIONS 2019 2018
2019 2019 2019 --------------Rupees------------
34.2.12 Plan assets comprise of
the following: Rupees (%) Rupees (%) Rupees (%) Profit before taxation 27,397,603 24,282,201

Fixed income instruments 128,077 72 87,876 78 38,277 100 Adjustment for non-cash charges and other items:
Investment in equity instruments 49,543 28 25,060 22 - - Depreciation (note 4.2) 5,601,299 5,166,276
Amortisation of intangibles (note 5.3) 76,130 28,413
177,620 100 112,936 100 38,277 100 Amortisation of deferred income (3,865) (3,865)
Gain on disposal of property, plant and equipment (note 26) (713,842) (21,316)
Provision for retirement and other service benefits 85,130 68,496
* The employees of the Holding Company in respect of gratuity are members of Defined Benefit Gratuity Fund maintained Income on deposits / other financial assets (2,556,240) (493,572)
and opearated by the Parent Company. Accordingly, the above information is based upon the plan assets of Engro Gain on disposal of subsidiary (note 30.1) (804,571) -
Corporation Limited Gratuity Fund. Exchange loss on revaluation of long term borrowings 247,353 -
Amortization of transaction cost on borrowings 16,884 10,521
34.2.13 The expected return on plan assets was determined by considering the expected returns available on the assets Finance cost (note 28) 3,622,633 2,060,412
underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption Provision for net realisable value of stock-in-trade (note 8) 28,785 30,000
yields as at the reporting date. Provision for surplus and slow moving stores and spares (note 7) 177,813 233,914
Reversal of provision of stores and spares (note 7) (26,399) -
Provision against trade debts (note 9) 30,569 18,230
Provision against sales tax receivable (note 27) 244,000 -
Working capital changes (note 35.1) 106,208 (1,057,057)
33,529,490 30,322,653
211 engro fertilizers limited annual report 2019 212
(Amounts in thousand) (Amounts in thousand)
2019 2018
35.1 Working capital changes ------------Rupees---------- 38. FINANCIAL RISK MANAGEMENT

(Increase) / Decrease in current assets 38.1 Financial risk factors

- Stores, spares and loose tools (127,219) (279,407)
- Stock-in-trade (998,114) (3,932,095) The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and
- Trade debts (5,317,525) (3,709,153) other price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on having cost
- Loans, advances, deposits and prepayments (1,550,371) (5,274) efficient funding as well as to manage financial risk to minimize earnings volatility and provide maximum return to
- Other receivables (589,612) (236,815) shareholders.
(8,582,841) (8,162,744)
Risk management is carried out by the Group's Finance and Planning department under policies approved by the
Decrease in trade and other payables 8,689,049 7,105,687 Management Committee.
106,208 (1,057,057)
a) Market risk
36. CASH AND CASH EQUIVALENTS
i) Currency risk
Cash and bank balances (note 13) 3,413,473 729,836
Short term investments with original maturity Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
less than 3 months (note 12) 2,602,394 90,100 changes in foreign exchange rates.
Short term borrowings (note 20) (1,985,910) (1,009,968)
4,029,957 (190,032) This exists due to the Group's exposure resulting from outstanding import payments, foreign currency loan
liabilities and related interest payments. A foreign exchange risk management policy has been developed and
approved by the management. The policy allows the Group to take currency exposure for limited periods within
37. FINANCIAL INSTRUMENTS BY CATEGORY predefined limits while open 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.
Financial assets at amortised cost subject to the prevailing foreign exchange regulations.

- Loans, advances and deposits 1,190,280 506,771 As at December 31, 2019, if exchange rates had been 1% higher / lower with all other variables held constant,
Trade debts 14,174,520 9,109,671 post tax profit for the year would have been lower / higher by Rs. 9,743.
Other receivables 6,648,252 6,723,945
Accrued income 105,910 54,038 ii) Interest rate risk
Short term investment 206,207 1,477,856
Cash and bank balances 3,413,473 729,836 Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
25,738,642 18,602,117 of changes in market interest rates. The Group's interest rate risk arises from long-term borrowings and short-term
Financial assets at Fair value through other investments. Borrowing are benchmarked to variable rates which expose the Group to cash flow interest rate
comprehensive income risk, whereas short-term investment are fixed rate placements and expose the Group to fair value interest rate risk.

- Short term investments 5,305,337 6,244,613 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.

Financial liabilities at amortised cost As at December 31, 2019, if interest rates had been 1% higher / lower with all other variables held constant, post
tax profit for the year would have been lower / higher by Rs. 194,730.
Long term borrowings 30,952,449 30,810,629
Trade and other payable 34,892,391 22,930,314 b) Credit risk
Accrued interest / mark-up 587,866 425,920
Short term borrowings 1,985,910 1,009,968 Credit risk represents the risk of financial loss being caused if counter party fails to discharge an obligation.
68,418,616 55,176,831
Credit risk arises from deposits with banks and financial institutions, trade debts, loans, advances, deposits,
bank guarantees and other receivables. The credit risk on liquid funds is limited because the counter parties are
banks with a reasonably high credit rating or mutual funds which in turn are deposited in banks and government
securities. The Group maintains an internal policy to place funds with commercial banks and mutual funds of
asset management companies having a minimum short term credit rating of A1 and AM3 respectively. However,
the Group maintains operational balances with certain banks of lower rating for the purpose of effective collection
of bank guarantees and to cater to loan disbursements.

213 engro fertilizers limited annual report 2019 214

(Amounts in thousand) (Amounts in thousand)

The Group is exposed to a concentration of credit risk on its trade debts by virtue of all its customers being c) Liquidity risk
agri-based businesses in Pakistan. However, this risk is mitigated by applying individual credit limits and by
securing the majority of trade debts against bank guarantees and inland letter of credit. Liquidity risk represents the risk that the Group will encounter difficulties in meeting obligations associated with
financial liabilities.
The credit risk arising on account of acceptance of these bank guarantees is managed by ensuring that the bank
guarantees are issued by banks of reasonably high credit ratings as approved by the Board of Directors. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability
of funding through an adequate amount of committed credit facilities. Due to dynamic nature of the business,
The Group monitors the credit quality of its financial assets with reference to historical performance of such assets the Group maintains flexibility in funding by maintaining committed credit lines available.
and available external credit ratings. The carrying values of financial assets which are neither past due nor impaired
are as under: The Group's liquidity management involves projecting cash flows and considering the level of liquid assets
2019 2018 necessary to meet these, monitoring statement of financial position liquidity ratios against internal and external
------------Rupees---------- regulatory requirements and maintaining debt financing plans.

Loans, advances and deposits 1,190,280 506,771 The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining
Trade debts 14,174,520 9,109,671 period at the reporting date to contractual maturity dates. The amounts disclosed in the table are the contractual
Other receivables 6,648,252 6,723,950 undiscounted cash flows.
Accrued income 105,910 54,038
Short term investments 5,511,544 7,722,469 2019 2018
Bank balances 3,410,558 728,636
31,041,064 24,794,096 Maturity Maturity Maturity Maturity
upto after Total upto after Total
The credit quality of receivables can be assessed with reference to their historical performance with no or negligible one year one year one year one year
defaults in recent history. The credit quality of Group's bank balances and short term investments can be assessed
with reference to recent external credit ratings as follows: ---------------------Rupees------------------- ---------------------Rupees-------------------
Rating
Rating Agency Short Term Long Term Financial liabilities
Long term borrowings 8,760,351 22,192,098 30,952,449 5,095,584 25,715,045 30,810,629
Allied Bank Limited PACRA A1+ AAA Trade and other payables 34,892,391 - 34,892,391 22,930,314 - 22,930,314
Accrued interest / mark-up 587,866 - 587,866 425,920 - 425,920
Askari Bank Limited PACRA A1+ AA+
Short term borrowings 1,985,910 - 1,985,910 1,009,968 - 1,009,968
Bank Alfalah Limited PACRA A1+ AA+
46,226,518 22,192,098 68,418,616 29,461,786 25,715,045 55,176,831
Bank Al Habib Limited PACRA A1+ AA+
Bank Islami Pakistan Limited PACRA A1 A+
The Bank of Punjab PACRA A1+ AA
Albaraka Bank (Pakistan) Limited PACRA A1 A
38.2 Capital risk management
Citi Bank N.A. MOODY'S P1 Aa3
Dubai Islamic Bank (Pakistan) Limited JCR-VIS A1+ AA The Group's objective when managing capital are to safeguard the Group's ability to continue as a going concern in
Faysal Bank Limited PACRA A1+ AA order to provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure
Habib Bank Limited JCR-VIS A1+ AAA to reduce the cost of capital. The Group manages its capital structure and makes adjustments to it in the light of changes
Habib Metropolitan Bank Limited PACRA A1+ AA+ in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to
JS Bank Limited PACRA A1+ AA- shareholders or issue new shares.
MCB Bank Limited PACRA A1+ AAA
Meezan Bank Limited JCR-VIS A1+ AA+ The total long term borrowings to equity ratio as at December 31, 2019 based on total long term borrowings of Rs.
National Bank of Pakistan PACRA A1+ AAA 30,952,449 (2018: Rs. 30,810,629) and total equity of Rs. 43,279,460 (2018: Rs. 45,523,155) was 42%:58%
Samba Bank Limited JCR-VIS A1 AA (2018: 40%:60%).
Silk Bank Limited JCR-VIS A2 A-
The Group finances its operations through equity, borrowings and management of working capital with a view to maintaining
Soneri Bank Limited PACRA A1+ AA-
an appropriate mix between various sources of finance to minimize risk.
Standard Chartered Bank (Pakistan) Limited PACRA A1+ AAA
United Bank Limited JCR-VIS A1+ AAA

215 engro fertilizers limited annual report 2019 216

(Amounts in thousand) (Amounts in thousand)

38.3 Fair value estimation 39. TRANSACTIONS WITH RELATED PARTIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly Following are the names of associated companies, undertakings and other related parties with whom the Group had
transaction in the principal (or most advantageous) market at the measurement date under current market conditions entered into transactions or had agreements and arrangements in place during the year:
(i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
Name of Related parties Direct shareholding Relationship
As at December 31, 2019, all financial assets and financial liabilities are carried at amortised cost except for investment
in Treasury Bills which are carried at their fair values.
Engro Corporation Limited 56.27% Parent Company
The carrying value of all financial assets and liabilities reflected in the consolidated financial statements approximate their EFERT Agritrade (Private) Limited 100% Subsidiary Company
fair values. The Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the Engro Eximp FZE N/A Subsidiary of Parent Company
inputs used in making the measurements. The fair value hierarchy has the following levels: Dawood Lawrencepur Limited N/A Associate of Parent Company
Engro Digital Limited N/A Subsidiary of Parent Company
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level1); Engro Elengy Terminal (Private) Limited N/A Subsidiary of Parent Company
Engro Eximp Agriproducts (Private) Limited N/A Subsidiary of Parent Company
- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly FrieslandCampina Engro Pakistan Limited N/A Associate of Parent Company
(i.e. as prices) or indirectly (i.e. derived from prices) (level 2); and Engro Foundation N/A Associate of Parent Company
Engro Polymer & Chemicals Limited N/A Subsidiary of Parent Company
- Inputs for the asset or liability that are not based on observable market data (level 3). Engro Powergen Qadirpur Limited N/A Subsidiary of Parent Company
Engro Infiniti (Pvt) Ltd N/A Subsidiary of Parent Company
The table below analyses financial instruments carried at fair value by valuation method. Engro Powergen Thar (Private) Limited N/A Subsidiary of Parent Company
Engro Vopak Terminal Limited N/A Associate of Parent Company
Sindh Engro Coal Mining Company Limited N/A Associate of Parent Company
Pakistan Institute of Corporate Governance (PICG) N/A Associate of Parent Company
Level 1 Level 2 Level 3 Total Dawood Foundation N/A Associate of Parent Company
Karachi School of Business and Leadership N/A Associate of Parent Company
----------------------------Rupees----------------------------- Abdul Samad Dawood N/A Director
Assets
Asad Said Jafar N/A Director
Asim Murtaza Khan N/A Director
Short term investments
Javed Akbar N/A Director
FV through OCI - 5,305,337 - 5,305,337
Sadia Khan N/A Director
Nadir Salar Qureshi N/A Chief Executive Officer
Amir Iqbal N/A Key Management Personnel
Asif Sultan Tajik N/A Key Management Personnel
These represents Treasury Bills which are valued using discounted cash flow model.
Mohammad Azhar Malik N/A Key Management Personnel
Mohsin Ali Mangi N/A Key Management Personnel
38.4 Fair value of financial assets and liabilities Muhammad Majid Latif N/A Key Management Personnel
Imran Ahmed N/A Key Management Personnel
The carrying value of all financial assets and liabilities reflected in the consolidated financial statements approximate their Salman Goheer N/A Key Management Personnel
fair values. Shahzad Nabi N/A Key Management Personnel
Fahd Khawaja N/A Key Management Personnel
FrieslandCampina Engro Pakistan Limited
Employees Gratuity Fund N/A Associate of Parent Company
Engro Corporation Limited. - DC Pension Fund N/A Post Employment Benefits
Engro Corporation Limited. - MPT Gratuity Fund N/A Post Employment Benefits
Engro Corporation Limited. - NMPT Gratuity Fund N/A Post Employment Benefits
Engro Corporation Limited. - DB Pension Fund N/A Post Employment Benefits
Engro Corporation Limited. - DC Gratuity Fund N/A Post Employment Benefits
Engro Corporation Limited. - Provident Fund N/A Post Employment Benefits

217 engro fertilizers limited annual report 2019 218

(Amounts in thousand) (Amounts in thousand)

39.2 Related parties comprises of Parent Company, associated companies and other companies with common director, 41. OPERATING SEGMENT RESULTS
retirement benefits funds, directors and key management personnel.
Urea Phosphate Special Fertilizers Others Total
Details of transactions with related parties during the year, other than those which have been disclosed elsewhere in Business

these financial statements, are as follows: 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
2019 2018 --------------------------------------------------------------------Rupees------------------------------------------------------------------------------

----------Rupees-----------
Sales 70,886,927 58,906,475 39,331,492 41,163,843 12,004,398 11,750,897 1,732,570 974,030 123,955,386 112,795,245
Parent Company Inter-segment sales
Less: Sales tax
1,387,354
(1,402,488)
1,041,104
(1,987,779)
-
(782,535)
-
(957,572)
-
(329,849)
-
(651,483)
-
(10,332)
-
(1,825)
1,387,354 1,041,104
(2,525,204) (3,598,659)
Dividend paid 10,518,369 8,264,433 70,871,793 57,959,801 38,548,957 40,206,271 11,674,548 11,099,414 1,722,238 972,204 122,817,536 110,237,690
Purchases and services 513,558 408,698
Services provided to Parent Company 56,776 52,128 Profit before taxation 24,495,013 20,099,662 2,811,585 3,915,430 740,713 930,572 (649,708) (663,463) 27,397,603 24,282,201
Reimbursements made:
- by the Company 206,865 118,061
- to the Company 211,818 513,455 Segment assets
Unallocated assets
96,561,557
-
87,801,147
-
14,394,706
-
15,842,336
-
4,942,794
-
5,001,673
-
2,116,827
-
592,532
-
118,015,884 109,237,688
9,030,927 8,506,343
Expenses incurred on behalf of the Company - 14,106 Total assets 96,561,557 87,801,147 14,394,706 15,842,336 4,942,794 5,001,673 2,116,827 592,532 127,046,811 117,744,031

Associated companies Depreciation and amortization 5,570,615 5,159,153 - - 75,767 35,536 31,047 - 5,677,429 5,194,689
Purchases and services 159,465 99,219 Capital expenditure 2,427,433 4,202,264 - - 33,125 33,735 1,365,033 97,448 3,825,591 4,333,447
Sale of products 2,798 340
Services provided 82,778 106,259
Reimbursements 2019 2018
- by the Company 88,122 15,838 ----------Rupees-----------
- to the Company 13,722 61,159 41.1 Reconciliation of reportable segment net sales
Proceeds against sale of land 705,600 -
Total net sales for reportable segment 122,817,536 110,237,690
Payment of mark-up on TFCs and repayment of principal amount - 1,025 Elimination of intersegment net sales (1,387,354) (1,041,104)
Donations 230,200 96,000 Elimination of net sales to subidiary (75,424) -
Dividend paid to Trustees of FrieslandCampina Engro Pakistan Limited Total net sales 121,354,758 109,196,586
Employees Gratuity Fund 1,104 -

Contribution to staff retirement benefits 41.2 Reconciliation of reportable segment total assets
Pension fund 56,493 17,759
Gratuity fund 132,274 119,773 Total assets for reportable segments 118,015,884 109,237,688
Add:
Provident fund 145,808 134,265
- Accrued income 105,910 54,038
- Short term investments 5,511,544 7,722,469
Dividend paid to staff retirement benefits - Cash and Bank balances 3,413,473 729,836
Pension fund 994 1,438 9,030,927 8,506,343
Gratuity fund 4,502 3,607 Total assets 127,046,811 117,744,031
Provident fund 8,568 7,068

Others 42. NUMBER OF EMPLOYEES

Remuneration of key management personnel 281,594 269,019 Number of employees Average number of employees
as at December 31, as at December 31,
40. PRODUCTION CAPACITY
2019 2018 2019 2018
Disigned annual capacity Actual production Remarks
Metric Tons Metric Tons Management employees 729 722 748 722
Non-management employees 531 530 524 509
2019 2018 2019 2018
1,260 1,252 1,272 1,231
Urea plant I & II 2,275,000 2,275,000 2,003,035 1,928,080 Production
planned as per
NPK plant 100,000 100,000 134,784 132,790 market demand

219 engro fertilizers limited annual report 2019 220

(Amounts in thousand)

43. PROVIDENT FUND

The employees of the Holding Company participate in the Provident Fund maintained by the Parent Company. The
investments out of the provident funds have been made in accordance with the provisions of Section 218 of the Companies
Act, 2017 and the conditions specified there under.

44. SEASONALITY

The Company's fertilizer business is subject to seasonal fluctuations as a result of two different farming seasons viz,
Rabi (from October to March) and Kharif (from April to September). On an average fertilizer sales are more tilted towards
Rabi season. The Company manages seasonality in the business through appropriate inventory management.

45. NON-ADJUSTING EVENT AFTER THE REPORTING DATE

The Board of Directors in its meeting held on February 17, 2020 has proposed a final cash dividend of Rs. 2 per share
for the year ended December 31, 2019 amounting to Rs. 2,670,599 for approval of the members at the Annual General
Meeting to be held on March 31, 2020.

46. CORRESPONDING FIGURES

Corresponding figures and balances have been rearranged and reclassified, wherever necessary, for the purpose of
comparison, the effects of which are not material.

47. DATE OF AUTHORISATION FOR ISSUE

These consolidated financial statements were authorised for issue on February 17, 2020 by the Board of Directors of
the Holding Company.

Imran Ahmed Nadir Salar Qureshi Ghias Khan

Chief Financial Officer Chief Executive Chairman

221 engro fertilizers limited

independent auditor’s report

To the members of Engro Fertilizers Limited

Report on the Audit of the Financial Statements

Opinion

We have audited the annexed financial statements of Engro Fertilizers Limited (the Company), which comprise the
statement of financial position as at December 31, 2019, and the statement of profit or loss, the statement of
comprehensive income, the statement of changes in equity, the statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies and other
explanatory information, and we state that we have obtained all the information and explanations which, to the best
of our knowledge and belief, were necessary for the purposes of the audit.

In our opinion and to the best of our information and according to the explanations given to us, the statement of
financial position, the statement of profit or loss, the statement of comprehensive income, the statement of
changes in equity and the statement of cash flows together with the notes forming part thereof confirm with the
accounting and reporting standards as applicable in Pakistan and give the information required by the Companies
Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the
Company’s affairs as at December 31, 2019 and of the profit and other comprehensive loss, the changes in equity
and its cash flows for the year then ended.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan.
Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of
the Financial Statements section of our report. We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by
the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities
in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial statements of the current period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.

annual report 2019 224

Following are the key audit matters:

S.No. Key audit matters How the matter was addressed in our audit S.No. Key audit matters How the matter was addressed in our audit

1. Income tax and Sales tax provisions and The Company has obtained ad-interim stay orders the minutes of the meetings of those charged with
contingencies against the GIDC Act, 2015 from the Sindh High Court governance;
(Refer note 23 and 31 to the financial statements) which has restrained the gas supplying companies
from charging and / or recovering the - read correspondence of the Company with the regulatory
The Company has recognized provisions and has Our audit procedures included the following: cess under the GIDC Act, 2015 till the final decision authorities and Company’s external legal counsel;
disclosed contingent liabilities in respect of certain on this matter. In a separate case, Peshawar High
income tax and sales tax matters, which are pending - obtained and examined details of the pending tax Court passed a judgment on May 31, 2017 validating - obtained confirmation from external legal counsel in
adjudication before various appellate and legal forums. matters and discussed the same with the Company’s the new GIDC Act, against which the Company has respect of the current developments in the case including
management; filed a petition in the Supreme Court of Pakistan, which their assessment of the potential outcome of the matter;
Provisions and contingencies require management of is pending to date alongwith petitions of various other and
the Company to make judgements and estimates in - circularized confirmations to the Company’s external companies raised on the grounds similar to those being
relation to the interpretation of laws, statutory rules, legal and tax advisors for their views on matters being contested by the Company. Further, subsequent to - assessed the adequacy of provisioning based on the
regulations, and the probability of outcome and financial handled by them; year end, the Federal Government through notification advice of the legal counsel and the appropriateness of
impact, if any, on the Company in respect of such dated January 28, 2020 has reduced the GIDC on gas related disclosures made in the financial statements in
provisions and contingencies. - involved internal tax professionals to assess consumed by fertilizer manufacturers to Rs. 5/MMBTU accordance with the accounting and reporting standards.
management’s conclusions on contingent tax matters with effect from January 28, 2020.
Due to significance of amounts involved, inherent and evaluated the consistency of such conclusions with
uncertainties with respect to the outcome of these the views of management and external legal and tax The management believes that the provision recorded
matters and use of significant management judgement advisors engaged by the Company; as at December 31, 2019 in respect of GIDC represents
and estimates to assess the same including related the management’s current best estimate of the potential
financial impacts, we have considered provisions and - checked correspondence of the Company with the liability. Due to significance of the amounts involved in
contingent liabilities relating to income tax and sales relevant authorities including judgments or orders passed the aforementioned matter and the legal forum at which
tax matters involving the Company as a key audit by the competent authorities in relation to the issues this matter is currently pending, the ultimate outcome
matter. involved or matters which have similarities with the issues and the resultant accounting in the financial statements
involved; is subject to the exercise of significant judgement which
may change over time as new facts emerge and the
- checked mathematical accuracy of the calculations legal case progresses.
underlying the provisions, if any; and
Therefore, we have considered this to be a key audit
- assessed the adequacy of the related disclosures made matter.
in the financial statements with respect to the applicable
accounting and reporting standards.

2. Provision in respect of Gas Infrastructure

Development Cess
(Refer note 21.1 to the financial statements)

As at December 31, 2019, the Company carries a Our audit procedures included the following:
provision of Rs. 18,943 million in respect of Gas
Infrastructure Development Cess (GIDC). - obtained an understanding of the background facts
pertaining to provision recorded in respect of GIDC
through meetings with the management and review of

225 engro fertilizers limited annual report 2019 226

 • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
Information Other than the Financial Statements and Auditor’s Report Thereon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty
Management is responsible for the other information. The other information comprises the information included in the exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements
annual report, but does not include the financial statements and our auditor’s report thereon. or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance cease to continue as a going concern.
conclusion thereon.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing whether the financial statements represent the underlying transactions and events in a manner that achieves fair
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge presentation.
obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have We communicate with the Board of directors regarding, among other matters, the planned scope and timing of the audit
nothing to report in this regard. and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Responsibilities of Management and Board of Directors for the Financial Statements We also provide the Board of directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate them all relationships and other matters that may reasonably be thought
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the to bear on our independence, and where applicable, related safeguards.
accounting and reporting standards as applicable in Pakistan and the requirements of Companies Act, 2017 (XIX of 2017)
and for such internal control as management determines is necessary to enable the preparation of financial statements that From the matters communicated with the Board of directors, we determine those matters that were of most significance
are free from material misstatement, whether due to fraud or error. in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going rare circumstances, we determine that a matter should not be communicated in our report because the adverse
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Report on Other Legal and Regulatory Requirements
Board of directors are responsible for overseeing the Company’s financial reporting process.
Based on our audit, we further report that in our opinion:
Auditor’s Responsibilities for the Audit of the Financial Statements
a) proper books of account have been kept by the Company as required by the Companies Act, 2017 (XIX of 2017);
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable b) the statement of financial position, the statement of profit or loss, the statement of comprehensive income, the
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as statement of changes in equity and the statement of cash flows together with the notes thereon have been drawn
applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or up in conformity with the Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account and
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the returns;
economic decisions of users taken on the basis of these financial statements.
c) investments made, expenditure incurred and guarantees extended during the year were for the purpose of the
As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgement and maintain Company’s business; and
professional skepticism throughout the audit. We also:
d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and deposited in the Central Zakat Fund established under section 7 of that Ordinance.
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud The engagement partner on the audit resulting in this independent auditor’s report is Waqas Aftab Sheikh.
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. A. F. Ferguson & Co.
Chartered Accountants
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
Karachi
Date: March 9, 2020

227 engro fertilizers limited annual report 2019 228

statement of financial position
as at december 31, 2019

(Amounts in thousand) (Amounts in thousand)

Note 2019 2018 Note 2019 2018

------------------Rupees---------------- EQUITY & LIABILITIES ------------------Rupees----------------
ASSETS
Equity
Non-current assets
Share capital 16 13,352,993 13,352,993
Property, plant and equipment 4 65,924,426 68,203,956
Reserves
Intangible assets 5 5,071,003 4,487,771
Share premium 17 3,384,904 3,384,904
Investment in subsidiaries 6 100 560,416
Reserve on amalgamation 17 (304,027) (304,027)
Remeasurement of post employment benefits 17 (56,993) (45,083)
Long term loans and advances 7 162,852 140,784
Unappropriated profit 17 26,475,684 26,606,961
71,158,381 73,392,927
29,499,568 29,642,755
TOTAL EQUITY 42,852,561 42,995,748
Current assets
Liabilities
Stores, spares and loose tools 8 5,301,092 5,325,287
Non-current liabilities
Stock-in-trade 9 3,568,895 2,959,696
Borrowings 18 22,192,098 25,715,045
Trade debts 10 10,009,934 2,374,797
Deferred taxation 19 12,182,426 7,100,022
Deferred liabilities 20 254,538 252,050
Working capital loan to subsidiary 11 16,245,774 13,677,700
34,629,062 33,067,117
Current liabilities
Loans, advances, deposits and prepayments 12 1,735,337 702,171
Trade and other payables 21 40,648,651 28,649,601
Other receivables 13 8,639,451 8,322,330
Accrued interest / mark-up 554,985 405,620
Taxation - net - 3,203,439
Accrued income 779,897 439,345
Current portion of:
- borrowings 18 8,760,351 5,095,584
Taxation - net 2,757,547 -
- deferred liabilities 20 55,585 51,267
Short term borrowings 22 1,546,685 636,878
Short-term investments 14 5,501,944 6,334,613
Unclaimed dividend 60,046 65,672
51,626,303 38,108,061
Cash and bank balances 15 3,409,674 642,060
TOTAL LIABILITIES 86,255,365 71,175,178
57,949,545 40,777,999
Contingencies and Commitments 23
TOTAL ASSETS 129,107,926 114,170,926
TOTAL EQUITY AND LIABILITIES 129,107,926 114,170,926

The annexed notes from 1 to 48 form an integral part of these financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan

Chief Financial Officer Chief Executive Chairman

229 engro fertilizers limited annual report 2019 230

statement of profit or loss statement of comprehensive income
for the year ended december 31, 2019 for the year ended december 31, 2019

(Amounts in thousand except for earnings per share) (Amounts in thousand)

Note 2019 2018 2019 2018
------------------Rupees---------------- ------------------Rupees-----------------

Net sales 24 79,236,924 66,141,478 Profit for the year 18,562,914 16,668,684

Cost of sales 25 (46,524,154) (38,232,280) Other comprehensive income:

Gross profit 32,712,770 27,909,198 Items not re-classifiable to Profit or Loss

Selling and distribution expenses 26 (6,772,924) (6,367,371) Remeasurement of post employment benefits obligations (16,774) 3,642

Administrative expenses 27 (1,197,714) (1,446,802) Tax relating to remeasurement

of post employment benefits obligation 4,864 (1,056)
24,742,132 20,095,025
Other comprehensive (loss) / income for the year, net of tax (11,910) 2,586
Other income 28 8,801,596 4,877,969

Other operating expenses 29 (2,620,254) (1,518,014) Total comprehensive income for the year 18,551,004 16,671,270

Finance cost 30 (3,687,828) (2,055,153)

(6,308,082) (3,573,167)
The annexed notes from 1 to 48 form an integral part of these financial statements.
Profit before taxation 27,235,646 21,399,827

Taxation 31 (8,672,732) (4,731,143)

Profit for the year 18,562,914 16,668,684

Earnings per share - basic and diluted 32 13.90 12.48

The annexed notes from 1 to 48 form an integral part of these financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan Imran Ahmed Nadir Salar Qureshi Ghias Khan
Chief Financial Officer Chief Executive Chairman Chief Financial Officer Chief Executive Chairman

231 engro fertilizers limited annual report 2019 232

statement of changes in equity statement of cash flows
for the year ended december 31, 2019 for the year ended december 31, 2019

(Amounts in thousand) Reserves (Amounts in thousand)

Capital Revenue
Share Share Reserve on Remeasurement Unappropriated Total Note 2019 2018
capital premium amalgamation of post profit Cash Flows From Operating Activities -----------------Rupees----------------
employment
benefits
---------------------------------------------------Rupees---------------------------------------------------- Cash generated from operations 36 32,734,532 34,873,494
Retirement and other service benefits paid (73,060) (48,862)
Balance as at January 1, 2019 13,352,993 3,384,904 (304,027) (45,083) 26,606,961 42,995,748
Taxes paid (9,546,447) (4,730,156)
Transactions with owners Long-term loans and advances - net (22,068) (6,249)
Dividends:
Net cash generated from operating activities 23,092,957 30,088,227
- Final 2018: Rs. 3.00 per share - - - - (4,005,898) (4,005,898)
- 1st interim 2019: Rs. 5.00 per share - - - - (6,676,497) (6,676,497)
- 2nd interim 2019: Rs. 6.00 per share - - - - (8,011,796) (8,011,796) Cash Flows From Investing Activities
- - - - (18,694,191) (18,694,191)
Total comprehensive income for
Purchases of property, plant and equipment and intangibles (4,018,508) (4,495,017)
the year ended December 31, 2019
Proceeds from disposal of property, plant and equipment 4.3 751,219 28,586
Profit for the year - - - - 18,562,914 18,562,914 Disbursement of working capital loan to subsidiary (32,021,900) (40,477,400)
Other comprehensive income: Payment received against working capital loan to subsidiary 29,453,826 28,799,700
- remeasurements, net of tax - - - (11,910) - (11,910)
Purchase of short-term investments (34,008,649) (54,211,448)
- - - (11,910) 18,562,914 18,551,004
Proceeds from sale of short-term investments 37,353,711 52,966,271
Balance as at December 31, 2019 13,352,993 3,384,904 (304,027) (56,993) 26,475,684 42,852,561 Proceeds from disposal of subsidiary company 6.1 1,972,505 -
Dividends received 1,813,716 1,474,088
Income on deposits / other financial assets 2,077,785 835,367
Balance as at January 1, 2018 13,352,993 3,384,904 (304,027) (47,669) 24,626,571 41,012,772

Transactions with owners Net cash generated from / (utilised in) investing activities 3,373,705 (15,079,853)
Dividends:
Cash Flows From Financing Activities
- Final 2017: Rs. 3.00 per share - - - - (4,005,898) (4,005,898)
- 1st interim 2018: Rs. 4.00 per share - - - - (5,341,198) (5,341,198)
- 2nd interim 2018: Rs. 4.00 per share - - - - (5,341,198) (5,341,198) Proceeds from long-term borrowings 5,000,000 8,183,497
- - - - (14,688,294) (14,688,294) Repayment of long-term borrowings (5,122,418) (8,286,667)
Finance cost paid (3,274,226) (2,183,181)
Total comprehensive income for
the year ended December 31, 2018 Dividends paid (18,699,817) (14,647,515)

Profit for the year - - - - 16,668,684 16,668,684 Net cash utilised in financing activities (22,096,461) (16,933,866)
Other comprehensive income :
- remeasurements, net of tax - - - 2,586 - 2,586
- - - 2,586 16,668,684 16,671,270 Net increase / (decrease) in cash and cash equivalents 4,370,201 (1,925,492)

Balance as at December 31, 2018 13,352,993 3,384,904 (304,027) (45,083) 26,606,961 42,995,748 Cash and cash equivalents at beginning of the year 95,182 2,020,674

Cash and cash equivalents at end of the year 37 4,465,383 95,182

The annexed notes from 1 to 48 form an integral part of these financial statements.
The annexed notes from 1 to 48 form an integral part of these financial statements.

Imran Ahmed Nadir Salar Qureshi Ghias Khan Imran Ahmed Nadir Salar Qureshi Ghias Khan
Chief Financial Officer Chief Executive Chairman Chief Financial Officer Chief Executive Chairman

233 engro fertilizers limited annual report 2019 234

notes to the financial statements
for the year ended december 31, 2019
(Amounts in thousand) (Amounts in thousand)

1. LEGAL STATUS AND OPERATIONS 2.1.4 Initial application of a standard, amendment or an interpretation to an existing standard

Engro Fertilizers Limited (‘the Company’) is a public company incorporated in Pakistan on June 29, 2009 as a wholly a) Standards, amendments to published standards and interpretations effective during the year
owned subsidiary of Engro Corporation Limited (the Holding Company), which is a subsidiary of Dawood Hercules
Corporation Limited (the Ultimate Parent Company). The Company is listed on Pakistan Stock Exchange Limited (PSX). The following new standards and interpretation to the accounting and reporting standards as applicable in
Pakistan are effective for the first time for the year beginning on January 1, 2019 and are relevant to the
The Company is engaged in the manufacturing, purchasing and marketing of fertilizers, seeds and pestisides and Company:
providing logistics services. The business units of the Company include the following:
- IFRS 9 "Financial Instruments" addresses the classification, measurement and recognition of financial
Business Unit Geographical Location assets and financial liabilities and replaces the related guidance in IAS 39 "Financial Instruments:
Recognition and Measurement" that relates to the recognition, classification and measurement of financial
Head / Registered Office 7th & 8th floors, The Harbour Front Building, Plot Number HC-3, assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and
Block 4, Scheme Number 5, Clifton, Karachi. hedge accounting. It retains but simplifies the mixed measurement model and establishes three primary
measurement categories for financial assets: amortised cost, Fair Value through Other Comprehensive
Engro Daharki Plant District Ghotki, Sindh. Income (FVOCI) and Fair Value through Profit or Loss (FVPL). The basis of classification depends on the
entity’s business model and the contractual cash flow characteristics of the financial asset. Investments
Engro Zarkhez Plant EZ/ 1 / P – 1 – II Eastern Zone, Port Qasim, Karachi. in equity instruments are required to be measured at fair value through profit or loss with the irrevocable
option at inception to present changes in fair value in OCI, without subsequent recycling to profit or loss.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The standard also includes an expected credit losses (ECL) model that replaces the current incurred
The significant accounting policies applied in the preparation of these financial statements are set out below. These loss impairment model. The ECL model involves a three-stage approach whereby financial assets move
policies have been consistently applied to all the years presented, unless otherwise stated. through the three stages as their credit quality changes. The stage dictates how an entity measures
impairment losses and applies the effective interest rate method. A simplified approach is permitted for
2.1 Basis of preparation financial assets that do not have a significant financing component (e.g. trade receivables). On initial
recognition, entities will record a loss equal to the 12 month ECL (or lifetime ECL for trade receivables),
2.1.1 These financial statements have been prepared under the historical cost convention, except for re-measurement of unless the assets are considered credit impaired.
certain financial assets and liabilities at fair value through profit or loss and recognition of certain staff retirement
benefits at present value. For financial liabilities, there are no changes to classification and measurement except for the recognition
of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through
2.1.2 Statement of compliance profit or loss.

These financial statements have been prepared in accordance with the accounting and reporting standards as IFRS 9 also relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
applicable in Pakistan. The accounting and reporting standards applicable on the Company comprise of: tests. It requires an economic relationship between the hedged item and hedging instrument and for
the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes.
- International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board
(IASB) as notified under the Companies Act, 2017 (the Act); and The adoption of IFRS 9 has resulted in change in accounting policies of the Company. The Company
has applied IFRS 9 retrospectively, however, it has elected not to restate comparative information as
- Provision of and directives issued under the Act. permitted under the transitional provisions of the standard. The reclassifications and the adjustments
arising from the new impairment rules are, therefore, not reflected in the statement of financial position
Where provisions of and directives issued under the Act differ from the requirements of IFRS, the provisions of and as at December 31, 2018 and furthermore have not been recognised in the opening statement of financial
directives issued under the Act have been followed for the preparation and presentation of the financial statements. position as on January 1, 2019 as the effects were not material.

2.1.3 The preparation of financial statements in conformity with the above requirements requires the use of certain critical Furthermore, on January 1, 2019, the management has assessed which business models apply to the
accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s financial instruments held by the Company and has classified its financial instruments into the appropriate
accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions IFRS 9 categories as follows:
and estimates are significant to the financial statements are disclosed in note 3.

235 engro fertilizers limited annual report 2019 236

(Amounts in thousand) (Amounts in thousand)

Original classification New classification - IFRIC 23 'Uncertainty over tax treatments' - clarifies how the recognition and measurement requirements of
under IAS 39 under IFRS 9 IAS 12 ‘Income taxes’, are applied where there is uncertainty over income tax treatments.The IFRS IC had
clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies
Financial assets to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred
Loans, advances and deposits Loans and receivables Amortised cost and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax
Trade debts Loans and receivables Amortised cost treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment
Working capital loan to subsidiary Amortised cost Amortised cost will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or
not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is
Other receivables Loans and receivables Amortised cost
uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty
Accrued income Loans and receivables Amortised cost regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax
Short term investments losses and credits and tax rates.The impact of the above interpretation is not material on the financial
- Term Deposit Receipts Held to maturity Amortised cost statements of the Company.
- Treasury Bills Held to maturity Fair value through OCI
Cash and bank balances Loans and receivables Amortised cost There are certain other amendments to published accounting and reporting standards and interpretations
that are applicable for the financial year beginning on January 1, 2019 but are considered not to be relevant
or do not have any significant effect on the Company's financial reporting and operations and, therefore,
Financial liabilities have not been disclosed in these financial statements.
Borrowings Amortised cost Amortised cost
Trade and other payables Amortised cost Amortised cost b) Standards, amendments to published standards and interpretations that are not yet effective and
Accrued interest / mark-up Amortised cost Amortised cost have not been early adopted by the Company
Short term borrowings Amortised cost Amortised cost
The following amendments are not effective for the financial year beginning on January 1, 2019 and have not
been early adopted by the Company:

Moreover, no material differences were noted in prior year figures as a result of applying the new expected IAS 1, 'Presentation of financial statements and IAS 8, 'Accounting policies, changes in accounting
credit loss model on the adoption of IFRS 9. The reclassifications of the financial instruments also did not estimates and errors (effective for the accounting periods beginning on and after January 1, 2020)
result in any changes to measurements. Hence, there was no restatement of opening balances and reserves.
Furthermore, there is no impact on the statement of profit or loss, statement of comprehensive income, These amendments and consequential amendments to other IFRSs: (i) use a consistent definition of materiality
statement of changes in equity and statement of cash flows. throughout IFRSs and the Conceptual Framework for Financial Reporting; (ii) clarify the explanation of the
definition of material; and (iii) incorporate some of the guidance in IAS 1 about immaterial information. These
- IFRS 15 'Revenue from Contracts with Customers' supersedes IAS 11 'Construction Contracts', IAS 18 amendments are not expected to have a significant impact on the Company's financial statements.
'Revenue' and related interpretations and it applies to all revenue arising from contracts with customers,
unless those contracts are in the scope of other standards. The standard introduces a single five-step model There are certain other standards and amendments to the published accounting and reporting standards
for revenue recognition with a comprehensive framework based on the core principle that an entity should that are not yet effective and are considered not to have any significant effect on the Company's financial
recognise revenue representing the transfer of promised goods or services under separate performance reporting and operations and, therefore, have not been disclosed in these financial statements.
obligations under the contract to customer at an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard requires entities to exercise
judgement, taking into consideration all of the relevant facts and circumstances when applying each step of 2.2 Property, plant and equipment
the model to contracts with their customers. The Company has assessed that significant performance
obligation in its contracts with customers are discharged at a single point of time, and therefore, there is no 2.2.1 Owned assets
significant financial impact of this standard on the financial statements of the Company.
These are stated at historical cost less accumulated depreciation and impairment losses, if any, except freehold
- IFRS 16 ‘Leases’ replaces the previous lease standard: IAS 17 Leases. It will result in almost all leases being land and capital work in progress which are stated at cost. Historical cost includes expenditure that is directly
recognised on the statement of financial position, as the distinction between operating and finance leases is attributable to the acquisition of the items including borrowing costs (note 2.22). The cost of self constructed
removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset
rentals are recognised. The only exceptions are short-term and low value leases. The Company has assessed to a working condition for its intended use, and the costs of dismantling and removing the items and restoring
that the application of this standard does not have any material financial impact on the financial statements the site on which they are located. Purchased software that is integral to the functionality of the related equipment
of the Company. is capitalised as part of that equipment.

237 engro fertilizers limited annual report 2019 238

(Amounts in thousand) (Amounts in thousand)

Where major components of an item of property, plant and equipment have different useful lives, they are accounted b) Rights for future gas utilization
for as separate items of property, plant and equipment.
Rights for future gas utilization represent premium paid to the Government of Pakistan for allocation of 100
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only MMSCFD natural gas for a period of 20 years for Enven plant. The rights are being amortised from the date of
when it is probable that future economic benefits associated with the item will flow to the Company and the cost of commercial production on a straight-line basis over the remaining allocation period.
the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and
maintenance are charged to the statement of profit or loss during the financial period in which they are incurred. c) Goodwill

Disposal of asset is recognised when significant risk and rewards incidental to ownership have been transferred to Goodwill represents the difference between the consideration paid for acquiring interests in a business and the
buyers. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are fair value of the Company's share of its net assets at the date of acquisition and is carried at cost less accumulated
recognised within ‘Other operating expenses / income’ in the statement of profit or loss. impairment, if any.

Depreciation is charged to the statement of profit or loss using the straight line method, except for catalyst whose d) Right to use the brand
depreciation is charged on the basis of number of production days, whereby the cost of an operating asset less its
estimated residual value, if significant, is depreciated over its estimated useful life. Depreciation on addition is charged These are stated at cost less impairment, if any.
from the month following the month in which the asset is available for use and on disposals up to the preceding month
of disposal. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate
that the carrying values may not be recoverable. If any such indication exists, assets or cash generating units are tested
Depreciation method, useful lives and residual values are reviewed annually. for impairment. Also, goodwill is tested for impairment atleast once a year and other intangibles with indefinite life are
tested for impairment at reporting date. Where the carrying value exceeds the estimated recoverable amount, these
2.2.2 Leased assets are written down to their recoverable amount and the resulting impairment is charged to statement of profit or loss.

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership, are classified Impairment is reversed only if there have been changes in estimates used to determine recoverable amounts and only
as finance lease. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value to the extent that the revised recoverable amount does not exceed the carrying values that would have existed, had
and present value of minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance there been no recognition of impairment, except impairment of goodwill which is not reversed.
with the accounting policy applicable to similar owned asset. Outstanding obligations under the lease less finance
cost allocated to future periods are shown as a liability. The useful lives of intangible assets are reviewed at each reporting date to determine whether events and circumstances
continue to support an indefinite useful life assessment for the asset.
Finance cost under lease agreements are allocated to the periods during the lease term so as to produce a constant
periodic rate of finance cost on the remaining balance of principal liability for each period. 2.4 Impairment of non-financial assets

Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain Assets that are subject to depreciation / amortisation are reviewed at each reporting date to identify circumstances
that the Company will obtain ownership by the end of the lease term. indicating occurrence of impairment loss or reversal of previous impairment losses. An impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
2.3 Intangible assets higher of an asset's fair value less cost to sale and value in use. Reversal of impairment loss is restricted to the original
cost of the asset.
a) Computer software and licenses
2.5 Investment in subsidiary
Costs associated with maintaining computer software programmes are recognised as an expense when incurred.
However, costs that are directly attributable to identifiable software and have probable economic benefits exceeding Investments in subsidiary companies are initially recognised at cost. These are subsequently measured at cost less
the cost beyond one year, are recognised as an intangible asset. Direct costs include the purchase cost of software accumulated impairment, if any. Where impairment losses subsequently reverse, the carrying amount of the investments
(license fee) and related overhead costs. are increased to the revised amounts but limited to the extent of initial cost of investments. A reversal of impairment
loss is recognised as an income.
Expenditure which enhances or extends the performance of computer software beyond its original specification
and useful life is recognised as a capital improvement and added to the original cost of the software. 2.6 Non-current assets (or disposal groups) held-for-sale

Computer software and license cost treated as intangible assets are amortised from the date the software is put Non-current assets (or disposal groups) are classified as assets held-for-sale when their carrying amount is to be
to use on a straight-line basis over a period of 4 years. recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower
of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale
transaction rather than through continuing use. Impairment losses on initial classification as held for sale and subsequent
gains or losses on remeasurement are recognised in the statement of profit or loss.

239 engro fertilizers limited annual report 2019 240

(Amounts in thousand) (Amounts in thousand)

2.7 Financial assets 2.7.3 Impairment of financial assets

2.7.1 Classification, initial recognition and measurement The Company assesses on a forward looking basis the expected credit losses associated with its debt instruments
carried at amortised cost and at fair value through other comprehensive income. The impairment methodology applied
Financial assets are classified into appropriate categories on initial recognition and are subsequently measured at depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies
amortised cost at fair value through other comprehensive income or at fair value through profit or loss. The management the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial
determines the classification of financial assets into appropriate categories based on the Company’s business model recognition of the receivables except for debts due from the Government of Pakistan which have been exempted from
for managing the financial assets and the contractual terms of the cash flows. the application of Expected Credit Loss model under IFRS 9 for a limited period of three years upto June 30, 2021 by
the Securities and Exchange Commission of Pakistan (SECP) through its S.R.O 985(I) / 2019 dated September 2, 2019.
A financial asset is measured at amortised cost if both of the following conditions are met:
2.8 Financial liabilities
a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows; and The Company recognises a financial liability in its statement of financial position when, and only when, it becomes
party to the contractual provisions of the instrument. At initial recognition, the Company measures a financial liability
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of at its fair value minus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are
principal and interest on the principal amount outstanding.the contractual terms of the financial asset give rise on directly attributable to the acquisition or issue of the financial liability. Subsequently, financial liabilities are stated at
specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. amortised cost.

A financial asset is measured at fair value through other comprehensive income if both of the following conditions are met: 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 same lender on substantially different terms, or the terms
a) the financial asset is held within a business model whose objective is achieved by both collecting contractual of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the
cash flows and selling financial assets; and original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognized in
the statement of profit or loss.
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding. 2.9 Offsetting financial instruments

A financial asset is measured at fair value through profit or loss if it is not measured at amortised cost or at fair value Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when
through other comprehensive income. there is a legally enforceable right to offset the recognized amounts and there is an intention to settle either on a net
basis, or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent
All financial assets are recognised at the time when the Company becomes a party to the contractual provisions of on future events and must be enforceable in the normal course of business and in the event of default, insolvency or
the instrument. Financial assets at amortised cost are initially recognised at fair value and are subsequently measured bankruptcy of the Company or the counterparty.
at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses, if any.
Interest income and impairment losses are recognised in profit or loss. Financial assets carried at fair value through 2.10 Stores, spares and loose tools
other comprehensive income are initially and subsequently measured at fair value, with gains and losses arising from
changes in fair value recognised in other comprehensive income. Financial assets carried at fair value through profit These are valued at weighted average cost except for items in transit which are stated at invoice value plus other
or loss are initially recorded at fair value and transaction costs are expensed in the statement of profit or loss. Realised charges paid thereon till the reporting date. For items which are slow moving and / or identified as surplus to the
and unrealised gains and losses arising from changes in the fair values of the financial assets and liabilities held at fair Company's requirements, adequate provision is made for any excess book value over estimated realisable value. The
value through profit or loss are included in the statement of profit or loss in the period in which they arise. Company reviews the carrying amount of stores and spares on a regular basis and provision is made for obsolescence.

2.7.2 Derecognition Spare parts of capital nature which can be used only in connection with an item of property, plant and equipment are
shown separately as major spare parts and stand by equipment.
Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been
transferred and the Company has transferred substantially all the risks and rewards of ownership. On derecognition 2.11 Stock-in-trade
of a financial asset, in its entirety, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable is recognised in statement of profit or loss and statement of comprehensive income. These are valued at the lower of cost and net realisable value. Cost is determined using weighted average method
except for raw materials in transit which are stated at cost (invoice value) plus other charges incurred thereon till the
reporting date. Cost in relation to finished goods includes applicable purchase cost and manufacturing expenses. The
cost of work in process includes material and proportionate conversion costs.

241 engro fertilizers limited annual report 2019 242

(Amounts in thousand) (Amounts in thousand)

Net realisable value signifies the estimated selling price in the ordinary course of business less all estimated costs of Deferred
completion and costs necessary to be incurred in order to make the sales.
Deferred tax is recognised using the balance sheet method, providing for all temporary differences between the carrying
2.12 Trade debts and other receivables amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based
These are recognised initially at fair value plus directly attributable transaction costs, if any and subsequently measured on the laws that have been enacted or substantively enacted by the reporting date.
at amortised cost using effective interest rate method less provision for impairment, if any. A provision for impairment
A deferred tax asset is recognised to the extent that is probable that future taxable profits will be available against
is established if there is objective evidence that the Company will not be able to collect all amounts due according to
which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced
the original terms of receivables. The amount of provision is charged to statement of profit or loss. Trade debts and
to the extent that it is no longer probable that the related tax benefit will be realised.
other receivables considered irrecoverable are written-off.
2.18 Employee benefits
2.13 Cash and cash equivalents
2.18.1 Defined contribution plans
Cash and cash equivalents in the statement of cash flows includes cash in hand, balance with banks, other short-term
highly liquid investments with original maturities of three months or less, and bank overdrafts / short term borrowings.
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contribution into a
Bank overdrafts are shown within short term borrowings in current liabilities on the statement of financial position.
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions
to defined contribution plans are recognised as an employee benefit expense in statement of profit or loss when they
2.14 Share capital
are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future
payments is available.
Ordinary shares are classified as equity and recognised at their face value. Incremental costs directly attributable to
the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
The Company contributes to:
2.15 Borrowings - defined contribution provident fund for its permanent employees. Monthly contributions are made both by the
Company and employees to the fund at the rate of 10% of basic salary;
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried
at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised - defined contribution pension fund for the benefit of those management employees who have not opted for defined
in the statement of profit or loss over the period of the borrowings using the effective interest rate method. contribution gratuity fund as explained in note 2.18.3. Monthly contributions are made by the Company to the
fund at rates ranging from 12.5% to 13.75% of basic salary; and
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of
- defined contribution gratuity fund for the benefit of those management employees who have selected to opt out
the liability for at least 12 months after the reporting date.
of defined benefit gratuity fund and defined contribution pension plans as explained in note 2.18.3. Monthly
contributions are made by the Company to the fund at the rate of 8.33% of basic salary.
2.16 Trade and other payables
All of the aforementioned funds are managed by the Holding Company.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest rate method.
2.18.2 Defined benefit plans
These are classified as current liabilities if payment is due within 12 months or less (or in the normal operating cycle A defined benefit plan is a post-employment benefit plan other than the defined contribution plan. The Company's
of the business if longer). If not, they are presented as non-current liabilities. net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees
have earned in return for their service in current and prior periods; that benefit is discounted to determine its present
2.17 Current and deferred income tax value. The calculation is performed annually by a qualified actuary using the Projected Unit Credit method, related
details of which are given in note 35 to the financial statements.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of profit or loss,
except to the extent that it relates to items recognised in the statement of comprehensive income or directly in equity. Remeasurements (actuarial gains / losses) in respect of defined benefit plan are recognised directly in equity through
In this case, the tax is also recognised in the statement of comprehensive income or directly in equity, respectively. statement of comprehensive income.

Current Contributions require assumptions to be made of future outcomes which mainly include increase in remuneration,
The current income tax charge is based on the taxable income for the year calculated on the basis of the tax laws expected long-term return on plan assets and the discount rate used to convert future cash flows to current values.
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Calculations are sensitive to changes in the underlying assumptions.

243 engro fertilizers limited annual report 2019 244

(Amounts in thousand) (Amounts in thousand)

The Company also contributes to: - Income on deposits and other financial assets is recognised on accrual basis;
- defined benefit funded pension scheme for its management employees. - Commission and sub-licensing income is recognised on accrual basis in accordance with the substance of the
- defined benefit funded gratuity schemes for its management and non-management employees. relevant agreement; and

- Dividend income on equity investment is recognised when the Company's right to receive the dividend is established.
The pension scheme provides life time pension to retired employees or to their spouses. Contributions are made
annually to these funds on the basis of actuarial recommendations. The pension scheme has been curtailed and 2.22 Borrowing costs
effective from July 1, 2005, no new members are inducted in this scheme.
Borrowing costs are recognised as an expense in the period in which they are incurred except where such costs are
2.18.3 In June 2011, the Company gave a one time irrevocable option to selected members of MPT Employees' Defined directly attributable to the acquisition, construction or production of a qualifying asset in which case such costs are
Benefit Gratuity Fund and Defined Contribution Pension Fund to join a new MPT Employee's Defined Contribution capitalized as part of the cost of that asset. Borrowing costs includes exchange differences arising on foreign currency
Gratuity Fund (the Fund), a defined contribution plan. The present value, as at June 30, 2011, of the defined benefit borrowings to the extent these are regarded as an adjustment to borrowing costs.
obligation of those employees, who accepted this offer, were transferred to this Fund. Furthermore, from July 2011
onwards, the monthly contributions to Defined Contribution Pension Fund of such employees were discontinued. 2.23 Research and development costs

2.18.4 Service incentive plan Research and development costs are charged to statement of profit or loss as and when incurred.

The Company recognizes provision under a service incentive plan for certain category of experienced employees to 2.24 Government grant
continue in the Company’s employment.
Government grant that compensates the Company for expenses incurred is recognised in the statement of profit or
2.18.5 Employees' compensated absences loss on a systematic basis in the same period in which the expenses are recognised.

The Company accounts for compensated absences on the basis of unavailed leave balance of each employee at the 2.25 Earnings per share
end of the year.
The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated
2.19 Provisions by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable
is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
amount of the obligation. Provisions are reviewed at each reporting date and adjusted to reflect current best estimate. potential ordinary shares.

2.20 Foreign currency transactions and translation 2.26 Segment reporting

These financial statements are presented in Pakistan Rupees, which is the Company’s functional currency. Foreign Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the performance of the operating segments, has been identified as the Board of Directors of the Company that makes
translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised strategic decisions.
in the statement of profit or loss.
2.27 Dividend and appropriation to reserves
2.21 Revenue recognition
Dividend and appropriation to reserves are recognised in the financial statements in the period in which these are approved.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the
amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
receivable and is reduced for marketing allowances. Revenue is recognised on the following basis:
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including
- In case of sale of goods, when control is transferred to customers which coincides with dispatch of goods to the expectations of future events that are believed to be reasonable under the circumstances. The Company makes
customers; estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. Estimates and assumptions that have a significant risk of causing a material adjustment to
- Revenue in respect of services is recognized when the services have been rendered;
the carrying amounts of assets and liabilities within the next financial year are as follows:

245 engro fertilizers limited annual report 2019 246

(Amounts in thousand) (Amounts in thousand)

4.1 Operating assets Land Building on

3.1 Property, plant and equipment Freehold Leasehold

(note 4.4)
Freehold Leasehold Plant and
machinery
Gas
pipeline Catalyst
Office
equipment Vehicles Total
------------------------------------------------------------------------Rupees--------------------------------------------------------------------------
As at January 1, 2018
The Company reviews appropriateness of the rate of depreciation, useful life, residual value used in the calculation of
depreciation. Further where applicable, an estimate of recoverable amount of assets is made for possible impairment Cost 155,773 144,900 2,726,333 440,178 95,511,944 2,525,843 1,397,152 1,039,812 409,605 104,351,540

on an annual basis. Accumulated depreciation - (53,827) (1,134,812) (146,875) (34,939,982) (759,799) (1,173,896) (745,858) (281,090) (39,236,139)

Net book value 155,773 91,073 1,591,521 293,303 60,571,962 1,766,044 223,256 293,954 128,515 65,115,401
3.2 Income taxes Year ended December 31, 2018

Net book value - January 1, 2018 155,773 91,073 1,591,521 293,303 60,571,962 1,766,044 223,256 293,954 128,515 65,115,401
In making the estimates for income taxes, the management considers the applicable laws and the decisions / judgments
Transfers from CWIP (note 4.6.1) - - 76,791 - 3,796,585 - 213,900 218,011 224,532 4,529,819
of appellate authorities on certain issues in the past. Accordingly, the recognition of current and deferred taxes is made
taking into account these judgments and the best estimates of future results of operations of the Company. Disposals / write offs (note 4.3)

Cost - - - - - - - (10,650) (39,710) (50,360)

3.3 Provision for retirement and other service benefits obligations Accumulated depreciation - - - - - - - 8,649 34,441 43,090

- - - - - - - (2,001) (5,269) (7,270)

The present value of these obligations depend on a number of factors that are determined on actuarial basis using Depreciation charge (note 4.2) - (3,394) (116,661) (11,008) (4,675,076) (121,872) (88,085) (84,704) (65,476) (5,166,276)
various assumptions. Any changes in these assumptions will impact the carrying amount of these obligations. The
present value of these obligations and the underlying assumptions are disclosed in note 35. Net book value 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674

As at January 1, 2019
3.4 Impairment of goodwill and right to use the brand
Cost 155,773 144,900 2,803,124 440,178 99,308,529 2,525,843 1,611,052 1,247,173 594,427 108,830,999

Determining the recoverable value of goodwill and right to use the brand involves use of significant estimates and Accumulated depreciation - (57,221) (1,251,473) (157,883) (39,615,058) (881,671) (1,261,981) (821,913) (312,125) (44,359,325)

assumptions. In making the aforementioned fair valuation estimates discounted cash flow approach is used. The Net book value 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674

underlying assumptions used for such valuation are disclosed in note 5.1. Year ended December 31, 2019

Net book value - January 1, 2019 155,773 87,679 1,551,651 282,295 59,693,471 1,644,172 349,071 425,260 282,302 64,471,674
3.5 Contingencies and Provisions Transfers from CWIP (note 4.6.1) - - 98,496 - 1,871,241 - 371,195 77,914 1,334,157 3,753,003

Disposals / write offs (note 4.3)

Significant estimates and judgements are being used by the management in accounting for contingencies and provisions
relating to legal and taxation matters being contested at various forums based on applicable laws and the decisions Cost - (47,616) - - (542,658) - - (314,329) (53,578) (958,181)

/ judgements. Accumulated depreciation - 19,378 - - 542,658 - - 313,799 44,969 920,804

- (28,238) - - - - - (530) (8,609) (37,377)

Depreciation charge (note 4.2) - (1,861) (105,637) (10,937) (4,939,986) (111,141) (151,847) (174,879) (105,011) (5,601,299)
4. PROPERTY, PLANT AND EQUIPMENT 2019 2018 Reclassifications:
-------------Rupees------------ Cost - - (764) 301 55,486 (10,850) - (19,948) 17,695 41,920

Accumulated depreciation - - 20 - (31,668) - - 4,936 (15,208) (41,920)

Operating assets at net book value (note 4.1) 62,586,001 64,471,674 - - (744) 301 23,818 (10,850) - (15,012) 2,487 -

Net book value 155,773 57,580 1,543,766 271,659 56,648,544 1,522,181 568,419 312,753 1,505,326 62,586,001

Capital work in progress (CWIP) (note 4.6) 2,572,476 3,159,249 As at December 31, 2019

Cost 155,773 97,284 2,900,856 440,479 100,692,598 2,514,993 1,982,247 990,810 1,892,701 111,667,741
Major spare parts and stand-by equipment 765,949 573,033 Accumulated depreciation - (39,704) (1,357,090) (168,820) (44,044,054) (992,812) (1,413,828) (678,057) (387,375) (49,081,740)

Net book value 155,773 57,580 1,543,766 271,659 56,648,544 1,522,181 568,419 312,753 1,505,326 62,586,001
65,924,426 68,203,956
No. of
Annual rate of depreciation (%) - 2 to 5 2.5 to 10 2.5 5 to 10 5 production 10 to 25 10 to 25
days

4.2 Depreciation charge for the year has been allocated as follows: 2019 2018
----------Rupees----------
Cost of sales (note 25) 5,478,693 5,087,585
Selling and distribution expenses (note 26) 110,472 67,553
Administrative expenses (note 27) 12,134 11,138
5,601,299 5,166,276

247 engro fertilizers limited annual report 2019 248

(Amounts in thousand) (Amounts in thousand)
2019 2018
4.3 The details of operating assets disposed / written off during the year are as follows: ------------Rupees------------
4.6 Capital work in progress

Plant and machinery 2,076,215 2,758,651

Description and Sold to Cost Accumulated Net book Sale Gain Building and civil works including gas pipeline 158,954 219,037
method of disposal depreciation value proceeds Furniture, fixture and equipment 125,815 10,891
---------------------------------Rupees--------------------------------- Advances to suppliers 136,672 2,374
Others 74,820 168,296
Items having net book value 2,572,476 3,159,249
more than Rs. 500 each
4.6.1 Balance as at January 1
3,159,249 3,396,331
Leasehold Land Engro Polymer & 3,825,592 4,333,447
19,378 28,238 708,000 679,762 Additions during the year
(note 4.4) Chemicals Limited 47,616
Transferred to:
- operating assets (note 4.1) (3,753,003) (4,529,819)
Vehicle - intangible assets (note 5) (659,362) (40,710)

By Company policy to Balance as at December 31 2,572,476 3,159,249

separating executive M. Asif Sultan Tajik 15,061 9,712 5,349 9,325 3,976

Items having net book value 5. INTANGIBLE ASSETS Goodwill Right to Software Rights for
of upto Rs. 500 each (note 5.1) use the and future gas Total
brand licenses utilization
(note 5.1)
Office equipment, vehicles Various
and machinery 895,504 891,714 3,790 33,894 30,104 ----------------------------------------------Rupees--------------------------------------------
As at January 1, 2018
Cost 183,806 4,170,995 327,513 102,312 4,784,626
Year ended December 31, 2019 958,181 920,804 37,377 751,219 713,842 Accumulated amortisation - - (275,833) (33,319) (309,152)
Net book value 183,806 4,170,995 51,680 68,993 4,475,474
Year ended December 31, 2018 50,360 43,090 7,270 28,586 21,316
Year ended December 31, 2018
Net book value - January 1, 2018 183,806 4,170,995 51,680 68,993 4,475,474
Transfers from CWIP (note 4.6.1) - - 40,710 - 40,710
4.4 During the year, the Company has sold leasehold land measuring approximately 60 acres situated within Plot Amortisation (note 5.3) - - (23,302) (5,111) (28,413)
Net book value 183,806 4,170,995 69,088 63,882 4,487,771
No. EZ/I/P-II located at East Industrial Zone, Port Qasim, Karachi to Engro Polymer and Chemicals Limited, an
associated company, against a total consideration of Rs. 720,000. Bifurcation fee amounting to Rs. 12,000 was As at December 31, 2018
incurred on sale of this land. Cost 183,806 4,170,995 368,223 102,312 4,825,336
Accumulated amortisation - - (299,135) (38,430) (337,565)
Net book value 183,806 4,170,995 69,088 63,882 4,487,771
4.5 Particulars of immovable properties i.e. land and building which are in the name of the Company are as follows:
Year ended December 31, 2019
Net book value - January 1, 2019 183,806 4,170,995 69,088 63,882 4,487,771
Transfers from CWIP (notes 4.6.1 and 5.2) - - 659,362 - 659,362
Location Total Area (Acreage) Write-off
Cost - - (9,884) - (9,884)
Accumulated amortisation - - 9,884 - 9,884
Daharki plant & Colony 726
- - - - -
Zarkhez plant land at Port Qasim 112.5 Amortisation (note 5.3) - - (71,019) (5,111) (76,130)
Reclassifications:
Cost - - 3,085 - 3,085
Accumulated amortisation - - (3,085) - (3,085)
- - - - -
Net book value 183,806 4,170,995 657,431 58,771 5,071,003
-
As at December 31, 2019
Cost 183,806 4,170,995 1,020,786 102,312 5,477,899
Accumulated amortisation - - (363,355) (43,541) (406,896)
Net book value 183,806 4,170,995 657,431 58,771 5,071,003

249 engro fertilizers limited annual report 2019 250

(Amounts in thousand) (Amounts in thousand)

5.1 Goodwill and Right to use the brand 6.1 Engro Eximp FZE (EEF) was incorporated in the Jebel Ali Free Zone, Emirate of Dubai, on August 4, 2011 as a wholly
owned subsidiary of the Company. During the year, the Company entered into a Share Purchase Agreement (the
The recoverable amount of cash generating unit is the higher of value in use or fair value less cost to sell. Value in use Agreement) with the Holding Company for sale of its entire holding in EEF effective July 17, 2019 for a total consideration
is calculated as the net present value of the projected cash flows of the cash generating unit to which the asset belongs, of Rs. 1,972,505.
discounted at risk-adjusted discount rate.
6.2 EFert Agritrade (Private) Limited (EAPL) was incorporated on July 6, 2017 as a wholly owned subsidiary of the Company
Details relating to the discounted cash flow model used to determine the value in use of goodwill and right to use the to carry out trading and distribution of imported fertilizer. As part of the business reorganization in 2017, the Company
brand are as follows: transferred its business of trading and distribution of imported fertilizer to EAPL and holds 10,000 ordinary shares of
Rs. 10 each in EAPL.
Valuation basis Value in use
6.3 No new investment in associated companies and undertakings have been made during the year.
Key assumptions - Sales growth rates
- Discount rate
7. LONG TERM LOANS AND ADVANCES - Considered good 2019 2018
Determination of assumptions - Growth rates are internal forecasts based on both internal and
-----------Rupees---------
external market information and past performance.
Executives (notes 7.1, 7.2, 7.3, 7.5 and 7.6) 229,720 193,616
- Cost reflects past experience, adjusted for inflation and expected Other employees (notes 7.4, 7.5 and 7.6) 41,373 70,464
changes. 271,093 264,080

- Discount rate is primarily based on weighted average cost of capital. Less: Current portion shown under current assets (note 12) 108,241 123,296

Terminal growth rate 2.5% 162,852 140,784

Period of specific projected cash flows 5 years
Discount rate 16% 7.1 Reconciliation of the carrying amount of loans
and advances to executives
The valuation indicates sufficient headroom such that a reasonably possible change to key assumptions is unlikely to
result in an impairment of the related goodwill and right to use the brand. Balance as at January 1 193,616 185,974
Disbursements 152,147 148,375
5.1.1 Right to use the brand is in respect of selling Phospate fertilizers, acquired under an agreement with the Holding Company, Repayments / amortisation (116,043) (140,733)
that has been valued using Relief from Royalty Method and is considered to have an indefinite life Balance as at December 31 229,720 193,616

5.2 Relates to cost incurred on implementation of new ERP i.e. SAP. 7.2 Details of loans and advances to executives

Service incentive loans 184,374 147,274

2019 2018
5.3 Amortisation for the year has been allocated as follows: -----------Rupees-------- Advances in respect of :
- Car earn out assistance 3,811 12,100
Cost of sales (note 25) - House rent 17,681 15,724
15,790 15,599 - Retention loan
Selling and distribution expenses (note 26) 127 5,702
15,290 11,530 - Salary
Administrative expenses (note 27) 9,939 6,421
45,050 1,284 - Others 13,788 6,395
76,130 28,413
229,720 193,616

6. INVESTMENT IN SUBSIDIARIES 7.3 The maximum amount outstanding from executives at the end of any month during the year aggregated to Rs. 311,752
- 560,316 (2018: Rs. 208,895).
Engro Eximp FZE (note 6.1)
100 100 7.4 Includes interest free loans given to workers pursuant to Collective Labour Agreement.
EFert Agritrade (Private) Limited (note 6.2)
100 560,416
7.5 Represents loans granted to employees according to Company's policy. These loans are interest free, are repayable
within 1 to 4 years and are secured to the extent of the provident fund balance and retirement benefits, if vested, of the
respective employees.

251 engro fertilizers limited annual report 2019 252

(Amounts in thousand) (Amounts in thousand)

7.6 The carrying values of the loan and advances are neither past due nor impaired.

10. TRADE DEBTS 2019 2018

8. STORES, SPARES AND LOOSE TOOLS 2019 2018 -----------Rupees----------
-------------Rupees---------- Considered good
Consumable stores, spares and loose tools - Secured (note 10.1) 9,515,258 2,320,074
5,919,907 5,792,688
- Unsecured (note 10.2) 494,676 54,723
Less: Provision for surplus and slow moving items (note 8.1) 10,009,934 2,374,797
618,815 467,401
5,301,092 5,325,287
Considered doubtful 48,799 18,230
8.1 Provision for surplus and slow moving items 10,058,733 2,393,027

Balance as at January 1 Less: Provision for impairment against trade debts (note 10.3) 48,799 18,230
467,401 233,487
Charge for the year 10,009,934 2,374,797
177,813 233,914
Reversal during the year (26,399) -
Balance as at December 31 618,815 467,401
10.1 These debts are secured by way of bank guarantee and inland letter of credit.

10.2 Includes Nil (2018: Rs. 340) due from FrieslandCampina Engro Pakistan Limited, an associated company.
9 STOCK-IN-TRADE 2019 2018
10.3 Provision for impairment against trade debts
-----------Rupees----------
Raw materials 980,126 1,478,579
Packing materials 53,569 145,230 Balance as at January 1 18,230 -
Work in process 48,169 27,517 Charge for the year (note 29) 30,569 18,230
1,081,864 1,651,326 Balance as at December 31 48,799 18,230
Finished goods:
- manufactured product 2,238,488 853,481
- purchased and packaged product (note 9.1) 277,328 484,889 11. WORKING CAPITAL LOAN TO SUBSIDIARY
2,515,816 1,338,370
Less: Provision for net realisable value of purchased and packaged Represents unsecured loan given to EAPL amounting to Rs. 16,245,774 (2018: Rs. 13,677,700). The mark-up is
products / manufactured products (note 9.2) 28,785 30,000 receivable on quarterly basis at the rate of 1 months KIBOR + 0.5%. This amount is received on an annual basis.
3,568,895 2,959,696

9.1 Includes stock-in-transit amounting to Nil (2018: Rs. 32,855). 12. LOANS, ADVANCES, DEPOSITS AND PREPAYMENTS 2019 2018
-----------Rupees----------
9.2 Provision for impairment against net realisable value of purchased and packaged products / manufactured products Considered good
Current portion of long term loans and advances to
executives and other employees (note 7) 108,241 123,296

Advances and deposits (note 12.1) 1,052,748 204,681

2019 2018
Prepayments
-------------Rupees---------- - Insurance 429,067 308,173
- Others 145,281 66,021
Balance as at January 1 30,000 -
1,735,337 702,171
Charge for the year 28,785 30,000
Written-off during the year (30,000) -
Balance as at December 31 28,785 30,000
12.1 Includes advance amounting to Rs. 369,777 (2018: Nil) in respect of vehicles.

253 engro fertilizers limited annual report 2019 254

(Amounts in thousand) (Amounts in thousand)

13. OTHER RECEIVABLES 2019 2018 13.4 The maximum amount due from the Holding Company, subsidiary and associated companies at the end of any
-----------Rupees----------- month during the year is as follows:
Subsidy receivable from Government of
2019 2018
Pakistan (notes 13.1 and 13.2) 6,368,366 6,368,366 -----------Rupees---------
Sales tax receivable 1,968,840 1,515,209
Holding Company 310,977 272,283
Due from Holding Company - 272,283 Subsidiary Company
- EFERT Agritrade (Private) Limited 184,042 7,602
Due from associated companies:
Associated Companies
- Engro Polymer & Chemicals Limited 69,772 27,630 - FrieslandCampina Engro Pakistan Limited 9,245 2,480
- Engro Powergen Qadirpur Limited 8,519 - - Engro Powergen Qadirpur Limited 8,519 21,022
- Engro Digital Limited 584 2,239 - Engro Energy Limited - 3,795
- Engro Powergen Thar (Private) Limited 12,749 939 - Sindh Engro Coal Mining Company Limited 6,069 4,113
- Thar Foundation 260 - - Engro Polymer & Chemicals Limited 80,824 -
- Engro Foundation 23,525 172 - Engro Energy Limited 9,592 -
- FrieslandCampina Engro Pakistan Limited 2,202 - - Engro Powergen Thar Limited 12,749 1,075
- Engro Eximp Agri Products (Private) Limited 1,877 424 - Thar Foundation 260 -
- Sindh Engro Coal Mining Company Limited 410 636 - Engro Vopak Terminal Limited 661 672
- Engro Infiniti Limited 8,245 - - Engro Eximp Agriproducts (Private) Limited 2,023 2,530
- Engro Vopak Terminal Limited 560 502 - Engro Digital Limited 1,025 2,685
- Engro Eximp FZE 74,554 56,317 - Engro Elengy Terminal (Private) Limited - 313
Receivable from Defined Benefit Gratuity Fund MPT 38,635 22,982 - Engro Foundation 23,525 11,384
Workers' profits participation fund (note 13.3) - 51,434 - Engro Eximp FZE 81,974 62,640
Claims receivable 47,350 2,225
Others 13,003 972
8,639,451 8,322,330 14. SHORT-TERM INVESTMENTS

Treasury Bills 5,305,337 -

13.1 During 2015, the Government of Pakistan (GoP) notified payment of subsidy on sold products at the rate of Rs. 500 per Pakistan Investment Bonds - 6,244,613
50 kg bag of Di Ammonia Phosphate (DAP) and Rs. 217 per 50 kg bag of Nitrophos (N) and Nitrogen, Phosphorous Term Deposit Receipts 196,607 90,000
and Potassium (NPK) fertilizers (based on phosphorous content). This subsidy scheme was effective till May 27, 2016. 5,501,944 6,334,613

During 2016, a new subsidy scheme was announced by the GoP, effective June 25, 2016 whereby subsidy was payable
on sold products at the rate of Rs. 156 per 50kg bag of Urea and Rs. 300 per 50 kg bag of DAP and for Nitrophos 15. CASH AND BANK BALANCES
22:20 & 18:18 grade (based on phosphorus content) and Nitrogen, Phosphorus and Potassium (NPK) fertilizers (based
on phosphorus content).
Cash at banks in:
During 2017, another subsidy scheme was announced by GOP, effective July 01, 2017. Under the new subsidy scheme
- deposit accounts (note 15.1) 2,787,647 14,055
aforementioned rates were replaced with Rs. 100 per 50kg bag for Urea only. This subsidy scheme was effective till
June 30, 2018. In line with the notification issued for the said scheme, Ministry of National Food Security and Research - currrent accounts (note 15.2) 619,112 626,805
has appointed third party auditors for verification of subsidy claims which is underway. 3,406,759 640,860

13.2 As at December 31, 2019, the aggregate provision in respect of receivable from GOP amounts to Rs. 155,127 (2018: Cash in hand 2,915 1,200
Rs. 155,127). 3,409,674 642,060

2019 2018
13.3 Workers' profits participation fund -----------Rupees----------- 15.1 Deposit accounts carry return at rates ranging from 10.30% to 11.30% (2018: 5.40% to 8.00%) per annum.

Balance as at January 1 51,434 (4,129) 15.2 Includes Rs. 617,591 (2018: Rs. 621,027) held in foreign currency bank accounts.
Charge for the year (note 29) (1,461,099) (1,149,229)
Interest expense - (697)
Payments during the year 1,318,571 1,205,489
Balance as at December 31 (91,094) 51,434

255 engro fertilizers limited annual report 2019 256

(Amounts in thousand) (Amounts in thousand)

16. SHARE CAPITAL 2019 2018 18. BORROWINGS - Secured (Non-participatory)

-----------Rupees-----------
Authorised Capital
1,400,000,000 (2018: 1,400,000,000) Installments
Ordinary shares of Rs. 10 each 14,000,000 14,000,000 Note Mark - up Number Commenced / 2019 2018
rate per annum Commencing from ---------------Rupees--------------
Issued, subscribed and paid-up capital
258,132,299 (2018: 258,132,299) Ordinary shares of Long term finance utilised
under mark-up arrangements:
Rs. 10 each, fully paid in cash 2,581,323 2,581,323
Senior Lenders
9,999,993 (2018: 9,999,993) Ordinary shares of Allied Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 2,000,000 2,000,000
Rs. 10 each issued as at January 1, 2010 Allied Bank Limited 6 Months KIBOR + 0.2% 4 half yearly June 28, 2022 2,100,000 2,100,000
Allied Bank Limited 18.1 3 months KIBOR + 0.35% 6 half yearly June 20, 2022 2,500,000 -
on transfer of fertilizer undertaking 100,000 100,000 Deutsche Investitions
und Entwicklungsgesellschaft 6 Months LIBOR + 3.75% 9 half yearly December 15, 2019 2,071,917 2,082,897
1,062,800,000 (2018: 1,062,800,000) Ordinary shares of Dubai Islamic Bank
Rs. 10 each, issued as fully paid bonus shares 10,628,000 10,628,000 Pakistan Limited 6 months KIBOR + 0.4% 4 half yearly November 28,2018 200,000 600,000
MCB Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 4,000,000 4,000,000
MCB Bank Limited 6 months KIBOR + 0.20% 4 half yearly December 29, 2021 3,000,000 3,000,000
4,367,083 (2018: 4,367,083) Ordinary shares of MCB Bank Limited 6 Months KIBOR + 0.05% 4 half yearly March 28, 2021 1,500,000 1,500,000
Rs. 10 each issued upon exercise of MCB Bank Limited 18.1 3 months KIBOR + 0.25% 6 half yearly June 30, 2022 2,500,000 -
conversion option by International Finance National Bank of Pakistan 6 Months KIBOR + 0.2% 4 half yearly June 28, 2022 1,000,000 1,000,000
Standard Chartered Bank
Corporation (IFC) 43,670 43,670 (Pakistan) Limited 6 Months KIBOR + 0.9% 13 half yearly June 14, 2013 - 199,687
13,352,993 13,352,993 Samba Bank Limited 6 Months KIBOR + 0.9% 14 half yearly April 1, 2013 - 99,852
Syndicated finance 6 months KIBOR + 0.4% 6 half yearly June 26, 2019 6,080,532 9,109,666
United Bank Limited 6 months KIBOR + 0.15% 4 half yearly March 29, 2020 4,000,000 4,000,000
16.1 As at reporting date, the Holding Company held 56.27% (2018: 56.27%) of the share capital of the Company. Certificates
Privately Placed Subordinated
16.2 These fully paid Ordinary shares carry one vote per share and right to dividend. Sukuk Certificates 18.3 6 months KIBOR + 1.75% 10 half yearly January 9, 2015 - 1,118,527

30,952,449 30,810,629
Less: Current portion shown
2019 2018 under current liabilities 8,760,351 5,095,584
17. RESERVES -----------Rupees-----------
22,192,098 25,715,045
Capital reserves
Share premium 3,384,904 3,384,904
Reserve on amalgamation (note 17.1) (304,027) (304,027)
3,080,877 3,080,877 18.1 During the year, the Company obtained long term finances from MCB Bank Limited and Allied Bank Limited of Rs. 2,500,000
Revenue reserves each, to finance the capital expenditure. These borrowings have the same charge as on the borrowings from other existing
Remeasurement of post employment benefits (56,993) (45,083) Senior Lenders.
Unappropriated profit 26,475,684 26,606,961
26,418,691 26,561,878 18.2 All senior debts are secured by an equitable mortgage upon immovable property of the Company and equitable charge
29,499,568 29,642,755
over current and future fixed assets excluding immovable property of the Company.

17.1 This reserve was created upon amalgamation of Engro Eximp (Private) Limited with the Company. 18.3 Privately Placed Subordinated Sukuk (PPSS) has been completely paid off during the year. These carried a subordinate
mortgage upon immovable property of the Company and a subordinate charge over current and future fixed assets
excluding immovable property.

257 engro fertilizers limited annual report 2019 258

(Amounts in thousand) (Amounts in thousand)

18.4 Following are the changes in the long term borrowings for which cash flows have been classified as financing activities 21. TRADE AND OTHER PAYABLES 2019 2018
in the statement of cash flows: ------------Rupees---------

Creditors 6,791,564 4,477,450

2019 2018 Accrued liabilities (note 21.1) 24,708,431 16,634,680
------------Rupees---------- Advances from customers 579,446 4,071,104
Payable to Holding Company 249,680 -
Balance as at January 1 30,810,629 30,903,878
Payable to:
Borrowings availed during the year 5,000,000 8,183,497
- FrieslandCampina Engro Pakistan Limited - 1,562
Amortization of transaction cost 16,884 10,521
- Engro Energy Limited 2,863 2,052
Repayment of borrowings (5,122,418) (8,286,667)
- Engro Powergen Qadirpur Limited - 1,635
Exchange loss / (gain) 247,354 (600)
- Engro Polymer & Chemicals Limited - 202,362
Balance as at December 31 30,952,449 30,810,629
- Engro Elengy Terminal (Private) Limited 1,631 1,373
- EFERT Agritrade (Private) Limited 5,868,898 732,166
- Defined Contribution Provident Fund MPT 22,448 32
19. DEFERRED TAXATION
- Defined Contribution Provident Fund NMPT 6,991 90
- Defined Contribution Gratuity Fund MPT 7,753 -
Credit / (Debit) balances arising on account of:
- Defined Contribution Pension Fund 23,502 -
- Accelerated depreciation allowance 12,393,426 11,187,680
- Defined Benefit Gratuity Fund NMPT 216,694 149,067
- Alternative Corporate Tax - (3,962,572)
- Provision for:
Deposits / Retention from dealers and contractors (note 21.2) 197,573 89,947
- staff retirement benefits (12,729) (1,056)
Workers' welfare fund (note 21.3) 1,264,956 1,790,523
- surplus and slow moving stores and spares
Workers' profits participation fund (note 13.3) 91,094 -
and doubtful receivables (198,271) (124,030)
Witholding tax payable 127,423 41,896
12,182,426 7,100,022
Others 487,704 453,662
40,648,651 28,649,601
20. DEFERRED LIABILITIES
21.1 Includes Rs. 18,943,544 (2018: Rs. 12,576,404) on account of Gas Infrastructure Development Cess (GIDC) payable
from October 2016 onwards. The Federal Government challenged the decision of the Sindh High Court (SHC), which
Deferred income (note 20.1) 57,654 61,519 declared the GIDC as ultra vires and unconstitutional in case of another company, and obtained a direction from a Larger
Bench of SHC suspending the order. However, the Company obtained an injunction / stay order based on the fact that
Service benefit obligations 252,469 241,798 since the Company is not a party to the case, hence, the suspension is not applicable to the Company's case. The
Less: Current portion shown under Government preferred an appeal before the SHC for suspension of the injunction / stay order, hearing of which is underway.
current liabilities (55,585) (51,267) In a separate case, Peshawar High Court passed a judgment on May 31, 2017 validating the new GIDC Act and the
196,884 190,531 same has been challenged by the petitioners in the Supreme Court of Pakistan.
254,538 252,050
During the current year, GIDC Amendment Ordinance, 2019 was promulgated by the Federal Government which provided
for 50% waiver of outstanding liability as at December 31, 2018 and 50% reduction in prospective GIDC on feed and fuel
20.1 This represents Rs. 96,627 received from Engro Powergen Qadirpur Limited (EPQL), an associated company, for the gas. Subsequently, the said Ordinance was withdrawn by the Federal Government and the matter is now pending decision
right to use the Company's infrastructure facilities at Daharki Plant by the employees of EPQL for a period of twenty of the Supreme Court of Pakistan.
five years. The amount is being amortised over such period.
Subsequent to year end, the government through notification dated January 28, 2020, has reduced GIDC on gas consumed
by fertilizer manufacturers to Rs. 5/MMBTU, with effect from January 28, 2020.

21.2 The amount is kept in separate term deposits account as per the terms of agreements and is not utilised for the purpose
of the business of the Company.

21.3 During the year, provision made for Workers welfare fund under the Sindh Workers Welfare Fund Act, 2014 for tax years
2013 to 2015 amounting to Rs. 999,423 has been reversed, based on a legal advice.

259 engro fertilizers limited annual report 2019 260

(Amounts in thousand) (Amounts in thousand)

22. SHORT TERM BORROWINGS of valuable license fee; (ii) GSA guarantees uninterrupted supply of gas to the new plant, with right to first 100 mmcfd
gas production from the Qadirpur gas field; and (iii) both the Company and the Qadirpur gas field are located in Sindh.
The Company has funded facilities for short term finances available from various banks and institutional investors Also neither the gas allocation by the Government of Pakistan nor the GSA predicates the gas supply from Qadirpur
amounting to Rs. 15,125,000 (2018: Rs. 16,850,000) along with non-funded facilities of Rs. 3,827,000 (2018: Rs. gas field producing 100 mmscfd over 500 mmscfd. No orders have been passed in this regard and the petition has
3,827,000) for bank guarantees. The rates of markup on funded bank overdraft facilities ranged from 0.2% to 0.5% also been adjourned sine die given that similar matter is pending in Supreme Court of Pakistan. However, the Company’s
per annum over 1-month & 3-month KIBOR and all facilities are secured by floating charge upon all present and future management, as confirmed by the legal advisor, considers chances of petitions being allowed to be remote.
stocks including raw and packaging materials, finished goods, stores and spares and other merchandise and on all
present and future book debts, outstanding monies, receivable claims and bills of the Company. The Company has 23.6 The Company in the year 2013, along with other fertilizer companies, received a show cause notice from the Competition
utilised Rs. 1,546,685 (2018: Rs. 636,878) from funded facilities as at the reporting date. Commission of Pakistan (CCP) for initiating action under the Competition Act, 2010 in relation to unreasonable increase
in fertilizer prices. The Company has responded in detail that factors resulting in such increase were mainly the imposition
23. CONTINGENCIES AND COMMITMENTS of infrastructure cess and sales tax and partially the gas curtailment. The CCP has issued an order in March 2013,
whereby it has held that the Company enjoys a dominant position in the urea market and that it has abused this position
Contingencies by unreasonable increases of urea prices in the period from December 2010 to December 2011. The CCP has also
held another fertilizer company to be responsible for abusing its dominant position. In addition, the CCP has imposed
23.1 As at December 31, 2019, bank guarantees of Rs. 2,610,188 (2018: Rs. 2,582,754) have been issued in favour of a penalty of Rs. 3,140,000 and Rs. 5,500,000 on the Company and the other fertilizer company, respectively. An appeal
third parties. has been filed in the Competition Appellate Tribunal (CAT) and a writ has been filed in the HCS and stay has been
granted against the recovery of the imposed penalty. Hearings have been conducted at CAT where Farmer Association
23.2 As at December 31, 2019 claims, including pending lawsuits, against the Company, not acknowledged as debts has filed an internal application.
amount to Rs. 61,914 (2018: Rs. 58,680).
In case of other fertilizer company, the CAT has transferred the case back to the CCP for reassessment. The Company
23.3 The Company has entered into Dealer Finance Agreements (DFAs) with different banks amounting to Rs. 4,500,000 has challenged the composition of the CAT. The Company's management believes that the chances of ultimate success
(2018: Rs. 4,500,000) consequent to which the banks will provide financial assistance to dealers approved by the are very good, as confirmed by legal advisor, hence, no provision has been made in this respect.
Company. In respect to DFA amounting to Rs. 3,000,000 the Company has agreed to bear 5% to 10% of the principal
in case of default by the dealers. As at December 31, 2019, the banks have made disbursements to dealers under the 23.7 During 2015, the Company received a sales tax order from the tax department for the year ended December 31, 2013
DFAs amounting to Rs. 3,337,876 (2018: Rs. 1,254,832) maturing on various future dates. pertaining to discharge of output tax liability, on assumed production of urea amounting to Rs. 402,875 and on
presumption that output tax liability is not being discharged by the Company on advances received from dealers
23.4 The Company had filed a constitutional petition in the Hight Court of Sindh (HCS) against the Ministry of Petroleum amounting to Rs. 1,844,075. The Company filed an appeal thereagainst with the Commissioner Inland Revenue
and Natural Resources (MPNR), Ministry of Industries and Production (MIP) and Sui Northern Gas Pipeline Company (Appeals) [CIR(A)] which decided the matters in favour of the Company. The department thereafter challenged the
Limited (SNGPL) for continuous supply of 100 mmscfd gas per day to the Company's new plant (Enven) and to prohibit decision of the CIR(A) with the Appellate Tribunal Inland Revenue , which is pending to be heard. No provision has
from suspending, discontinuing or curtailing the aforementioned supply. The HCS in its order dated October 18, 2011, been made by the Company in this respect.
has ordered that SNGPL should supply 100 mmscfd of gas per day to the Company’s new plant. However, five petitions
have been filed in the Supreme Court of Pakistan against the aforementioned order of the HCS by SNGPL, MPNR, 23.8 On July 3 2018, the Deputy Commissioner Inland Revenue (DCIR), LTU raised an order for the period June 2016 to
Agritech Limited, Pak Arab Fertilizers and Kohinoor Mills Limited alongwith twenty one other companies (mainly engaged July 2017 with a demand of Rs. 1,006,000 mainly on account of further sales tax to be charged on sales to unregistered
in textile business). The aforementioned petitions are pending for further hearing. The Company’s management, as persons. The Company filed an appeal thereagainst with the Commissioner Inland Revenue (Appeals) (CIRA) who
confirmed by the legal advisor, considers the chances of these petitions being allowed to be remote. disposed off the appeal in favor of the taxation department on September 24, 2018. A constitutional petition against
the said order has been filed with the HCS and stay for recovery of demand against CIRA's order was obtained on
Further, the Company upon continual curtailment of gas after the aforementioned decision of the HCS has filed an October 31, 2018. The Company also filed an appeal against CIRA decision which is pending before the Appellate
application in respect of Contempt of Court under Article 199 & 204 of the Constitution of Pakistan. The Company, in Tribunal Inland revenue. The Company's management believes that the chances of ultimate success are very good,
the aforementioned application has submitted that SNGPL and MPNR have failed to restore full supply of gas to the as confirmed by legal advisor, hence, no provision has been made in this respect.
Company’s plant despite the judgment of the HCS in Company’s favor. A show cause notice has also been issued
against MPNR and SNGPL dated December 31, 2011 by the HCS. The application is pending for hearing and no 23.9 In the year 2017, the High Court of Islamabad in its order dated June 8, 2017 declared that the income derived by the
orders have yet been passed in this regard. Contractor from its contract with the Company, is subject to tax as per Clause 4 of Article 5 of Double Taxation Treaty
between Pakistan and the Netherlands. Thus confirming demand order issued of Rs 1,178,391. In respect thereof,
23.5 All Pakistan Textile Processing Mills Association (APTMA), Agritech Limited (Agritech), Shan Dying & Printing Industries the Contractor preferred an appeal in the Supreme Court of Pakistan (SCP). During the year, the SCP decided the case
(Private) Limited and twenty seven others have each contended, through separate proceedings filed before the Lahore on ex-parte basis against the contractor and review application for case restoration has been filed by the Contractor.
High Court that the supply to the Company’s new plant is premised on the output from Qadirpur gas field exceeding It is expected that on adjudication on the merits of the case, the exposure will not exceed Rs 200,000 for the Company.
500 mmscfd by 100 mmscfd and, therefore, the Gas Sale and Purchase Agreement (GSA) dated April 11, 2007 between Although certain implications arise under the terms of the Contract, the chances of any obligation crystallising on part
the Company and Sui Northern Gas Pipeline Company Limited (SNGPL) be declared void ab initio because the output of the Company given the time lines of any separate proceedings under the Income Tax Ordinance, 2001 are remote.
of Qadirpur gas field has infact decreased. Agritech has additionally alleged discrimination in that it is receiving less Accordingly, no provision has been made in respect of the demand order issued by tax department.
gas than the other fertilizer companies on the SNGPL system. The Company has out rightly rejected these contentions,
and is of the view that it has a strong case for the reasons that (i) 100 mmscfd gas has been allocated to the Company
through a transparent international competitive bidding process held by the Government of Pakistan, and upon payment

261 engro fertilizers limited annual report 2019 262

 (Amounts in thousand)

23.10 Commitments 2019 2018

--------------Rupees------------ 26. SELLING AND DISTRIBUTION EXPENSES 2019 2018
-------------Rupees-----------
Commitments in respect of capital expenditure
and other operational items 6,565,922 1,684,473
Salaries, wages and staff welfare (note 26.1) 1,029,806 950,964
Training, HSE and other related expenses 206,514 153,009
Product transportation and handling 3,159,794 3,122,913
24. NET SALES
Royalty (note 26.2) 1,170,423 914,263
Repairs and maintenance 56,015 7,580
Gross sales:
Advertising and marketing 312,164 445,077
- manufactured product 79,194,233 67,029,060
Rent, rates and taxes 405,812 374,619
- purchased and packaged product 1,450,607 1,547,430
Communication, stationery and other office expenses 33,676 25,738
- services 167,957 -
Travelling 176,740 155,218
80,812,797 68,576,490
Depreciation (note 4.2) 110,472 67,553
Amortisation (note 5.3) 15,290 11,530
Less: Sales tax 1,575,873 2,435,012
Purchased services 68,411 98,938
79,236,924 66,141,478
Insurance 19,475 35,148
25. COST OF SALES
Others 8,332 4,821
6,772,924 6,367,371
Cost of sales - Manufactured product
Raw materials consumed 21,590,127 17,168,622
26.1 Salaries, wages and staff welfare includes Rs. 89,230 (2018: Rs. 61,554) in respect of staff retirement benefits.
Salaries, wages and staff welfare (note 25.1) 2,951,589 2,444,767
Fuel and power 12,331,215 8,083,386
26.2 Royalty is paid to the Holding Company which has its registered office at 8th floor, The Harbour Front Building, Plot Number
Repairs and maintenance 1,833,880 1,079,238
HC-3, Block 4, Scheme Number 5, Clifton, Karachi.
Depreciation (note 4.2) 5,478,693 5,087,585
Amortisation (note 5.3) 15,790 15,599
Consumable stores 1,033,230 862,533
Training, HSE and other related expenses 300,916 274,783 2019 2018
27. ADMINISTRATIVE EXPENSES
Purchased services 878,504 794,517 -------------Rupees-----------
Travelling 70,475 52,963
Salaries, wages and staff welfare (note 27.1) 437,703 415,961
Communication, stationery and other office expenses 63,348 59,144
Training, HSE and other related expenses 96,783 96,245
Insurance 458,875 418,796
Repairs and maintenance 24,796 12,686
Rent, rates and taxes 55,272 52,638
Rent, rates and taxes 55,395 462,956
Other expenses 3,002 21,047
Communication, stationery and other office expenses 23,877 56,410
Manufacturing cost 47,064,916 36,415,618
Travelling 22,976 24,063
Add: Opening stock of work in process (note 9) 27,517 18,526
Depreciation (note 4.2) 12,134 11,138
Less: Closing stock of work in process (note 9) (48,169) (27,517)
Amortisation (note 5.3) 45,050 1,284
Cost of goods manufactured 47,044,264 36,406,627
Purchased services 465,627 341,544
Add: Opening stock of finished goods (note 9) 853,481 1,733,036
Insurance 7,925 1,195
Less: Closing stock of finished goods (note 9) (2,238,488) (853,481)
Others 5,448 23,320
45,659,257 37,286,182
1,197,714 1,446,802
Cost of sales - Purchased and packaged product
Opening stock - net of NRV (note 9) 484,889 530,653
Add : Purchases during the year 628,551 900,334
27.1 Salaries, wages and staff welfare includes Rs. 42,547 (2018: Rs. 47,774) in respect of staff retirement benefits.
Less: Closing stock - net of NRV (note 9) (248,543) (484,889)
864,897 946,098
46,524,154 38,232,280

25.1 Salaries, wages and staff welfare includes Rs. 192,251 (2018: Rs. 146,850) in respect of staff retirement benefits.

263 engro fertilizers limited annual report 2019 264

(Amounts in thousand) (Amounts in thousand)

28. OTHER INCOME 2019 2018

-------------Rupees------------ 29.1 Auditors' remuneration 2019 2018
--------------Rupees------------
Income from sales under Government subsidy (note 13.1) - 1,271,334 Fee for:
- audit of annual financial statements 2,615 2,375
On financial assets - special audit / review of half yearly financial information 1,126 480
Income on bank accounts under: - review of compliance with the Code of Corporate Governance 50 45
- shariah permissible arrangements 16,596 267 - certifications, secondments and other advisory services 2,277 191
- interest / mark up arrangements - 28,228 - taxation services 4,295 2,889
Income on working capital loan to subsidiary company 1,402,347 771,326 Reimbursement of expenses 512 417
Income on Treasury Bills, Term Deposit Certificates and 10,875 6,397
Pakistan Investment Bonds 1,673,890 427,980
Dividend income (note 28.1) 1,813,716 1,474,088 29.2 During the year, the Company made donations to Engro Foundation amounting to Rs. 230,200 (2018: Rs. 96,000).
Gain on disposal of subsidiary (note 6.1) 1,412,189 - Mr. Ghias Khan, the Chairman of the Board, and Mr. Nadir Salar Qureshi, the Chief Executive Officer of the Company,
Foreign exchange gain - 128,196 are also the trustees of Engro Foundation.
Others 13,210 -
6,331,948 2,830,085 30. FINANCE COST 2019 2018
--------------Rupees------------
On non-financial assets Interest / mark-up / return on:
Commission income (note 28.2) 597,488 607,698 - long term borrowings under:
Gain on disposal of property, plant and equipment (note 4.3) 713,842 21,316 - interest / mark up arrangements 3,121,262 1,589,740
Rental income 2,899 40,558 - shariah permissible arrangements 231,248 320,552
Reversal of liability for workers' welfare fund (note 21.3) 999,423 - 3,352,510 1,910,292
Scrap sales 45,425 12,033 - short term borrowings under:
Sub-licensing income from subsidiary 76,618 - - interest / mark up arrangements 150,064 140,773
Others (note 28.3) 33,953 94,945 - shariah permissible arrangements 13,125 4,088
2,469,648 776,550 163,189 144,861
Foreign exchange loss - net 172,129 -
8,801,596 4,877,969 3,687,828 2,055,153

31. TAXATION
28.1 This comprises of dividend income received from EAPL and Engro Eximp FZE amounting to Rs. 1,771,331 (2018:
Rs.1,405,000) and Rs. 42,385 (2018: Rs. 69,088), respectively. Current
- for the year 3,462,339 6,191,075
28.2 Represents commission earned as a selling agent of imported fertilizer on behalf of EAPL, subsidiary company. - for prior years (note 31.5) 123,125 829,274
3,585,464 7,020,349
28.3 This includes an amount of Nil (2018: Rs. 42,368) charged to the Holding Company.
2019 2018 Deferred 5,087,268 (2,289,206)
-------------Rupees------------ 8,672,732 4,731,143
29. OTHER OPERATING EXPENSES

Workers' profits participation fund (note 13.3) 1,461,099 1,149,229 31.1 During the year 2015, the income tax department amended the assessment filed by the Company for tax year 2014.
Workers' welfare fund 473,856 143,227 The Company filed an appeal before the Commissioner Inland Revenue (Appeals) (CIRA) against the disallowances,
Research and development 31 244 which mainly pertained to exchange gain and loss, loss on derivatives and losses purchased from Engro Eximp
Auditors' remuneration (note 29.1) 10,875 6,397 Agriproducts (Private) Limited, an associate, under section 59B of the Income Tax Ordinance, 2001 resulting in additions
Legal and professional 60,030 40,741 to taxable income of Rs. 3,191,963. In addition the tax department raised demand for the Alternative Corporate Tax
Donations (note 29.2) 265,170 100,424 (ACT) through the same order, for which the Company specifically obtained a stay order.
Provision against sales tax receivable 244,000 -
Provision against trade debts (note 10.3) 30,569 18,230 During the year, the matter was heard by CIRA and favorable decision was made in respect of exchange losses and
Others 74,624 59,522 acceptance of prior years tax refunds, whilst other additions made by the tax department in respect of ACT, loss on
2,620,254 1,518,014 derivatives and group relief under section 59B were maintained in the order. The Company has filed an appeal against
the order of CIRA before the Income Tax Appellate Tribunal.

265 engro fertilizers limited annual report 2019 266

(Amounts in thousand) (Amounts in thousand)

31.2 During the year, the income tax department amended the assessment filed by the Company for the tax years 2015, In previous years, the taxation department had filed reference applications in the HCS against the below-mentioned
2016 and 2017. The Company filed appeals there against before the Commissioner Inland Revenue Appeals (CIRA) ATIR’s decisions in Company’s favor. No hearing has been conducted to-date. The reference application includes the
for disallowances made in the orders which mainly included proration of expenses to exempt/FTR incomes, exchange following matters:
loss disallowances, loss on derivatives and losses purchased from Engro Eximp Agriproducts (Private) Limited under
section 59B of the Income Tax Ordinance, 2001, resulting in cumulative addition of Rs. 16,173,826 to taxable income ● Group Relief (Financial year 2006 to 2008): Rs. 1,500,847
of these tax years. During the year, CIRA passed an order for tax years 2015, 2016 and 2017 maintaining most of ● Inter-Corporate Dividend (Financial year 2007 to 2008): Rs. 336,500
the additions made by taxation officer in the amendment order, whilst allowing deletion of expenses on allocation ● G.P. Apportionment (Financial years 1995 to 2002): Rs. 653,000
basis to exempt income and claim of exchange losses on realised basis. The Company as well as the tax department
has filed appeals against the order of CIRA before the Appellate Tribunal (ITAT). The matter was heard by the ITAT for The Company is confident that all the aforementioned pending issues will eventually be decided in its favor. Therefore,
tax year 2015 and 2016 on January 7, 2020 and the order has been reserved for judgement. The Company is confident no provision in respect of this is being maintained in these financial statements.
of a favourable outcome of the appeals.
31.7 As a result of merger of Engro Eximp (Private) Limited (EXIMP) with the Company, all pending tax issues of EXIMP
31.3 During the year 2014, the income tax department amended the assessment filed by the Company for tax years 2010 have been transferred to the Company. Major pending issue pertains to exercise of option to be taxed under the
and 2011.The Company filed appeals thereagainst before the Appellate Tribunal Inland Revenue (ATIR) against the Normal Tax Regime (NTR) by EXIMP for the years 2012 and 2013, resulting in an aggregate refund of Rs. 796,000.
said disallowances, which through its decision provided relief in respect of certain items and confirmed certain The tax department had not accepted the said treatment for tax year 2013, however, the matter was decided in favor
disallowances in favor of the tax department. The said disallowances included the charge in respect of exchange of the Company by the Commissioner Income Tax Appeals(CIT(A)), against which the tax department has filed an
gain and loss incurred for tax year 2010 and tax year 2011, and loss on derivative for tax year 2011 raising a demand appeal with the ITAT. However, the department has given appeal effect order to the aforementioned favourable decision
in respect of these years in aggregate of Rs. 1,075,466. The Company had challenged the said decision before the of the CIT(A) for tax year 2013.
High Court of Sindh (HCS), which is pending to be heard, however, the Company is confident of a favourable outcome.
During the year, in rescpect of tax year 2013, the matter was decided by the ITAT in favor of the Company and the
31.4 During the year 2018, the Company had filed a suit in the HCS, contesting both the retrospective and prospective departments appeal in this respect was rejected. The management is confident for a favorable outcome on this case
application of the Alternative Corporate Tax (ACT) under section 113C. On January 27, 2018, the Supreme Court of and therefore no provision is being maintained in these financial statements in this respect.
Pakistan passed an order requiring that a minimum of 50% of tax calculated by the taxation authorities be deposited
with taxation authorities to maintain / entertain a suit filed / to be filed with any Court of Pakistan. Pursuant to this, 31.8 Relationship between tax expense and accounting profit
the Company made payment of Rs 615,600 in respect of ACT for tax year 2014 to maintain its stay granted by the
HCS. However, in respect of tax years 2015, 2016 and 2017, since no amendments to the returns filed by the The tax on the Company's profit before tax differs from the theoretical amount that would arise using the Company's
Company were received from the tax department, therefore, suits thereagainst were withdrawn by the Company. applicable tax rate as follows:
Later, on September 13, 2018, the Company received recovery notice for payment in respect of tax years 2015, 2016
and 2017 against which a constitutional petition was filed by the Company with the HCS. Stay for recovery of ACT
has been granted in respect of the constitutional petition. 2019 2018
--------------Rupees------------
During the year, persuant to the approval of the Board of Directors of the Company on May 10, 2019, the Company
withdrew its cases pending in HCS in respect of ACT for tax years 2014 to 2017 and discharged the related net tax Profit before taxation 27,235,646 21,399,827
liability amounting to Rs. 1,995,054.
Tax calculated at the rate of 29% 7,898,337 6,205,949
31.5 The Company had filed a suit in the HCS, contesting the applicability of Super Tax, under section 4B 'Super Tax for Depreciation not deductible for tax purposes 528 7,660
rehabilitation of temporary displaced persons' of the Income Tax Ordinance, 2001 (the Ordinance), as unconstitutional
and ultravires to the laws. On January 27, 2018, the Supreme Court of Pakistan passed an order requiring that a Tax effect of:
minimum of 50% of tax calculated by the taxation authorities be deposited with the taxation authorities to maintain / - Expenses not allowed for tax 82,444 243,502
entertain a suit filed / to be filed with any Court of Pakistan. Pursuant to this, the legal suits filed against applicability - Final / Special Tax Regime and exempt income (1,034,657) (674,852)
of Super Tax were withdrawn by the Company.
Effect of:
During the year, the Company received recovery notice from Federal Board of Revenue (FBR) for payment of Super - Tax credits - (267,040)
Tax in respect of tax year 2018. The Company has filed a constitutional petition against the same in the HCS and - Prior year tax charge 123,125 829,274
stay thereagainst has been obtained. Adequate provision for Super Tax for the respective tax years are being maintained - Incremental tax charge for Super Tax - 435,202
in these financial statements. - Change in deferred tax liability due to reduction in tax rates (note 31.9) 1,602,955 (2,048,552)
Tax charge for the year 8,672,732 4,731,143
31.6 As a result of demerger in the year 2009, all pending tax issues of the then Parent Company, Engro Chemical Pakistan
Limited had been transferred to the Company. Major issues pending before the taxation authorities are described below.

267 engro fertilizers limited annual report 2019 268

(Amounts in thousand) (Amounts in thousand)

31.9 Through Finance Act 2018, corporate tax rates for year ended December 31, 2018 and onwards were reduced by 1% 34. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES
for each subsequent tax year uptil tax year 2023 (financial year ending December 31, 2022). Subsequently, through
Finance Act, 2019, the said change was deleted and corporate tax rates were fixed at 29% for tax year 2019 and 34.1 The aggregate amounts for remuneration, including all benefits, to the chief executive, directors and executives of the
onwards. This represents amount of related charge / (reversal) in deferred tax related to aforementioned changes. Company are given below:
2019 2018
32. EARNINGS PER SHARE (EPS) Directors Executives Directors Executives
Chief Others Chief Others
32.1 Basic EPS has been calculated by dividing the profit attributable to equity holders of the Company by weighted average
Executive Executive
number of ordinary shares in issue during the year. -----------------Rupees---------------- -----------------Rupees----------------
32.2 As at December 31, 2019, there is no dilutive effect on the basic earnings per share of the Company. EPS is based on Managerial remuneration
following : including bonus 94,713 - 1,941,512 69,196 - 1,718,524
Retirement benefits funds 4,346 - 183,132 8,658 - 183,867
Other benefits 17 - 25,544 14 - 54,209
2019 2018 Fees - 9,654 - - 1,700 -
--------------Rupees------------ Total 99,076 9,654 2,150,188 77,868 1,700 1,956,600

Profit for the year 18,562,914 16,668,684 Number of persons,

including those who
worked part of the year 1 5 382 2 5 343
---Numbers (in thousands)---

Weighted average number of ordinary shares at 34.2 These amounts are net off salaries, wages and others staff benefits incurred on behalf of EAPL and subsequently
beginning of the year 1,335,299 1,335,299 charged to EAPL.

34.3 The Company also provides vehicles and certain household items for use of some executives and directors.

33. FINANCING STRUCTURE / MODE 34.4 Premium charged in respect of directors' indemnity insurance policy, purchased by the Company during the year,
amounted to Rs. 304 (2018: Rs. 295).
Conventional mode:
35. RETIREMENT AND OTHER SERVICE BENEFITS
Assets
Short term investments 5,501,944 6,334,613 35.1 Salient features
Cash and bank balances 3,244,331 502,130
Working capital loan to subsidiary 16,245,774 13,677,700 The Company offers a defined post-employment gratuity benefit to permanent management and non-management
24,992,049 20,514,443 employees. In addition, until June 30, 2005, the Company offered a defined post-employment pension benefit to
management employees in service which has been discontinued and the plan now only covers a handful of retired
Liabilities pensioners.
Long term borrowings 29,752,449 27,892,415
Short term borrowings 1,471,676 568,217 The gratuity and pension funds are governed under the Trusts Act, 1882, Trust Deed and Rules of Fund, Companies
31,224,125 28,460,632 Act, 2017, the Income Tax Ordinance, 2001 and the Income Tax Rules, 2002.
Shariah compliant mode:
Responsibility for governance of plan, including investment decisions and contribution schedule lie with Board of Trustees
Assets of the Funds.
Cash and bank balances 165,343 139,930
The Company faces the following risks on account of gratuity and pension funds:
Liabilities
Long term borrowings 1,200,000 2,918,214 - Final salary risks - The risk that the final salary at the time of cessation of service is greater than what was assumed.
Short term borrowings 75,009 68,661 Since the benefit is calculated on the final salary, the benefit amount would also increase proportionately.
1,275,009 2,986,875
- Asset volatility - Most assets are invested in risk free investments of 3,5 or 10 year SSC’s, RIC’s, DSC’s or Government
Bonds. However, investments in equity instruments is subject to adverse fluctuations as a result of change in the market
price.

269 engro fertilizers limited annual report 2019 270

(Amounts in thousand) (Amounts in thousand)

- Discount rate fluctuation -  The plan liabilities are calculated using a discount rate set with reference to corporate Defined Benefit
bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset Defined Benefit Gratuity Plans - Funded Pension Plan-Funded
by an increase in the value of the current plans’ bond holdings. (Curtailed)
NMPT MPT
- Investment risks - The risk of the investment underperforming and not being sufficient to meet the liabilities. 2019 2018 2019 2018 2019 2018
This risk is mitigated by closely monitoring the performance of investments. --------------------------------------Rupees----------------------------------
35.2.3 Movement in defined
- Risk of insufficiency of assets - This is managed by making regular contribution to the Fund as advised by the benefit obligation
actuary.
As at beginning of the year 325,678 296,881 104,068 146,542 24,600 29,156
- In addition to above, the pension fund exposes the Company to Longevity risk i.e. the pensioners survive longer Current service cost 17,512 16,364 3,149 5,325 - -
than expected. Interest cost 42,599 26,217 10,112 10,116 2,881 2,384
Benefits paid during the year (19,545) (10,576) (52,741) (56,559) (3,929) (4,042)
35.2 Valuation results Liability in respect of promotion out (1,086) (2,337) - - - -
Remeasurments charged to OCI
The latest actuarial valuation of the defined benefit plans was carried out as at December 31, 2019, using the Projected (note 35.2.7) 29,156 (871) (69) (1,356) 466 (2,898)
Unit Credit Method. Details of the defined benefit plans are as follows:
As at end of the year 394,314 325,678 64,519 104,068 24,018 24,600
Defined Benefit
Defined Benefit Gratuity Plans - Funded Pension Plan-Funded 35.2.4 Movement in fair value of
(Curtailed) plan assets
NMPT MPT
2019 2018 2019 2018 2019 2018 At beginning of the year 176,611 165,049 136,832 186,223 38,104 40,713
--------------------------------------Rupees---------------------------------- Expected return on plan assets 23,040 14,811 14,047 13,080 4,502 3,354
35.2.1 Statement of financial position Benefits paid during the year (19,545) (10,576) (52,741) (56,559) (3,929) (4,042)
reconciliation Remeasurments charged to OCI
(note 35.2.7) (2,486) 7,327 14,799 (5,912) (400) (1,921)
Present value of obligation 394,314 325,678 64,519 104,068 24,018 24,600
Fair value of plan assets (177,620) (176,611) (112,936) (136,832) (38,277) (38,104) As at end of the year 177,620 176,611 112,937 136,832 38,277 38,104
Deficit / (surplus) of funded plans 216,694 149,067 (48,417) (32,764) (14,259) (13,504)
35.2.5 Charge / (reversal) for the year
Payable to Defined Contribution
Gratuity Fund - - 9,736 9,736 - - Current service cost 17,512 16,364 3,149 5,325 - -
Payable in respect of inter-transfers - - 46 46 - - Net interest cost 19,559 11,406 (3,934) (2,964) (1,621) (970)
Unrecognised asset - - - - 14,259 13,504 37,071 27,770 (785) 2,361 (1,621) (970)

Net liability / (asset) at end of the year 216,694 149,067 (38,635) (22,982) - -
35.2.6 Actual return on plan assets 21,625 23,111 28,912 8,242 4,102 2,254

35.2.2 Movement in net liability / (asset)

recognised

Net liability / (asset) at beginning

of the year 149,067 131,832 (22,982) (29,899) - -
Charge / (Reversal) for the year 37,071 27,770 (785) 2,361 (1,621) (970)

Remeasurements charged
to OCI (note 35.2.7) 31,642 (8,198) (14,868) 4,556 1,621 970
Liability in respect of promotion out (1,086) (2,337) - - - -

Net liability / (asset) at end of the year 216,694 149,067 (38,635) (22,982) - -

271 engro fertilizers limited annual report 2019 272

(Amounts in thousand) (Amounts in thousand)

Defined Benefit 35.2.10 Sensitivity Analysis

Defined Benefit Gratuity Plans - Funded Pension Plan-Funded
(Curtailed) The impact of 1% change in following variables on defined benefit obligation is as follows:
NMPT MPT
2019 2018 2019 2018 2019 2018 Increase in assumption Decrease in assumption
--------------------------------------Rupees---------------------------------- Gratuity Funds Gratuity Funds
Pension Pension
NMPT MPT Fund NMPT MPT Fund
35.2.7 Remeasurement recognised in statement of -------------------------------------Rupees------------------------------------
other comprehensive income

(Gain) / loss from change in Discount rate 359,920 61,836 22,928 433,810 67,360 25,215
experience assumptions 29,812 (2,115) (69) (1,356) (1,132) 2,636 Long terms salary increases 433,810 67,360 - 359,333 101,132 -
(Gain) / Loss from change in financial Logn terms pension increases - - 25,343 - 61,812 22,800
assumptions (656) 1,244 - - 1,598 (5,534)
35.2.11 Maturity profile
Gratuity Funds
Remeasurement of obligation 29,156 (871) (69) (1,356) 466 (2,898)
Time in years NMPT MPT Pension Fund
Expected return on plan assets 23,040 14,811 14,047 13,080 4,502 3,354 -------------------------Rupees-----------------------
Actual return on plan assets (21,625) (23,111) (28,912) (8,242) (4,102) (2,254) 1 27,197 4,413 3,910
Difference in fair value opening 1,071 973 66 1,074 - 821 2 24,539 6,982 3,910
3 16,424 10,266 3,910
Remeasurement of plan assets 2,486 (7,327) (14,799) 5,912 400 1,921 4 35,405 2,033 3,910
5-10 232,246 95,986 3,910
Effect of asset ceiling - - - - 755 1,947 11-15 450,279 7,534 3,910
31,642 (8,198) (14,868) 4,556 1,621 970 16-20 861,586 13,230 3,910
20+ 1,838,393 - 3,910
Defined Benefit
Weighted average duration (years) 8.72 4.16 4.54
Defined Benefit Gratuity Plans - Funded Pension Plan-Funded
(Curtailed)
NMPT MPT
Defined Benefit Gratuity Plans - Funded Defined Benefit Pension
2019 2018 2019 2018 2019 2018 NMPT MPT* Plan - Funded (Curtailed)
35.2.8 Principal actuarial assumptions
used in the actuarial valuation 2019 2019 2019
35.2.12 Plan assets comprise of
the following: Rupees (%) Rupees (%) Rupees (%)
Discount rate 11.3% 13.3% 11.3% 12.8% 11.3% 12.8%
Expected per annum rate of return Fixed income instruments 128,077 72 87,876 78 38,277 100
on plan assets 11.3% 13.3% 11.3% 12.8% 11.3% 12.8% Investment in equity instruments 49,543 28 25,060 22 - -
Expected per annum rate of increase 177,620 100 112,936 100 38,277 100
in salaries - next year 10.3% 12.3% 11.3% 12.8% - -
Expected per annum rate of increase in
salaries-long term 10.3% 12.3% 11.3% 12.8% - - *The employees of the Company in respect of gratuity are members of Defined Benefit Gratuity Fund maintained and
operated by the Holding Company. Accordingly, the above information is based upon the plan assets of Engro
35.2.9 Demographic assumptions Corporation Limited Gratuity Fund.

Mortality rate SLIC SLIC SLIC PMA-PFA 35.2.13 The expected return on plan assets was determined by considering the expected returns available on the assets
(2001-05) - I (2001-05) - I (2001-05) - I (80) - 2 underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption
Rate of employee turnover Light Heavy - - yields as at the balance sheet date.

273 engro fertilizers limited annual report 2019 274

(Amounts in thousand) (Amounts in thousand)
2019 2018
35.2.14 Expected future cost / (reversal) for the year ending December 31, 2020 is as follows: 36.1 Working capital changes -------------Rupees-----------
Rupees
(Increase) / Decrease in current assets
- Gratuity Fund - NMPT 44,831
- Stores, spares and loose tools (127,219) (279,407)
- Stock-in-trade (637,984) 538,743
- Gratuity Fund - MPT (2,660)
- Trade debts (7,665,706) 1,091,474
- Loans, advances, deposits and prepayments (1,033,166) (778)
- Pension Fund (1,521)
- Other receivables (net) (561,121) 206,979
35.2.15 Historical information of staff retirement benefits: (10,025,196) 1,557,011
2019 2018 2017 2016 2015
-------------------------------Rupees-------------------------------- Increase in trade and other payables 11,982,276 7,045,163
1,957,080 8,602,174
Gratuity Fund - NMPT
Present value of defined benefit obligation 394,314 325,678 296,881 238,301 228,376 37. CASH AND CASH EQUIVALENTS
Fair value of plan assets (177,620) (176,611) (165,049) (168,767) (169,638)
Deficit 216,694 149,067 131,832 69,534 58,738 Cash and bank balances (note 15) 3,409,674 642,060
Short term investments with original maturity
Gratuity Fund - MPT less than 3 months 2,602,394 90,000
Present value of defined benefit obligation 64,519 104,068 146,542 137,729 149,332 Short term borrowings (note 22) (1,546,685) (636,878)
Fair value of plan assets (112,936) (136,832) (186,223) (165,178) (166,957) 4,465,383 95,182
Surplus (48,417) (32,764) (39,681) (27,449) (17,625)

Pension Fund 38. FINANCIAL INSTRUMENTS BY CATEGORY

Present value of defined benefit obligation 24,018 24,600 29,156 32,132 33,367
Fair value of plan assets (38,277) (38,104) (40,713) (44,213) (40,835) Financial assets at amortised cost
Surplus (14,259) (13,504) (11,557) (12,081) (7,468)
Loans, advances and deposits 954,064 468,761
35.3 Defined contribution plans Trade debts 10,009,934 2,374,797
An amount of Rs. 289,363 (2018: Rs. 226,016) has been charged during the year in respect of defined contribution Working capital loan to subsidiary 16,245,774 13,677,700
plans maintained by the Holding Company. Other receivables 6,670,611 6,807,121
Accrued income 779,897 439,345
36. CASH GENERATED FROM OPERATIONS 2019 2018 Short-term investments 196,607 90,000
-------------Rupees---------- Cash and bank balances 3,409,674 642,060
Profit before taxation 27,235,646 21,399,827 38,266,561 24,499,784

Adjustment for non-cash charges and other items: Financial assets at Fair value through other
Depreciation (note 4.2) 5,601,299 5,166,276 comprehensive income
Amortisation of intangibles (note 5) 76,130 28,413
Amortization of deferred income (3,865) (3,865) Short-term investments 5,305,337 6,244,613
Gain on disposal of property, plant and equipment (note 28) (713,842) (21,316)
Provision for retirement and other service benefits 83,730 66,577 Financial liabilities at amortised cost
Income on deposits / other financial assets (2,418,337) (1,227,801)
Gain on disposal of subsidiary (note 28) (1,412,189) - Long-term borrowings 30,952,449 30,810,629
Exchange loss on revaluation of long term borrowings 247,353 - Trade and other payable 38,585,732 22,746,078
Amortisation of transaction cost on borrowings 16,884 10,521 Accrued interest / mark-up 554,985 405,620
Finance cost 3,423,591 2,044,632 Short-term borrowings 1,546,685 636,878
Dividends received (note 28) (1,813,716) (1,474,088) 71,639,851 54,599,205
Provision for net realisable value of stock-in-trade (note 9.2) 28,785 30,000
Provision for surplus and slow moving stores and spares (note 8) 177,813 233,914
Reversal of provision of stores and spares (note 8) (26,399) -
Provision against trade debts (note 10.3) 30,569 18,230
Provision against sales tax receivable (note 29) 244,000 -
Working capital changes (note 36.1) 1,957,080 8,602,174
32,734,532 34,873,494

275 engro fertilizers limited annual report 2019 276

(Amounts in thousand) (Amounts in thousand)

39. FINANCIAL RISK MANAGEMENT The credit risk arising on account of acceptance of these bank guarantees is managed by ensuring that the bank
guarantees are issued by banks of reasonably high credit ratings as approved by the Board of Directors.
39.1 Financial risk factors
The Company's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk The Company monitors the credit quality of its financial assets with reference to historical performance of such
and other price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on having assets and available external credit ratings. The carrying values of financial assets which are neither past due nor
cost efficient funding as well as to manage financial risk to minimize earnings volatility and provide maximum return to impaired are as under:
shareholders.

Risk management is carried out by the Company's Finance and Planning department under policies approved by the 2019 2018
Management Committee. -----------Rupees------------

a) Market risk Loans, advances and deposits 954,064 468,761

Trade debts 10,009,934 2,374,797
i) Currency risk Working capital loan to subsidiary 16,245,774 13,677,700
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of Other receivables 6,670,611 6,807,121
changes in foreign exchange rates. Accrued income 779,897 439,345
Short-term investments 5,501,944 6,334,613
This exists due to the Company's exposure resulting from outstanding import payments, foreign currency
Bank balances 3,406,759 640,860
loan liabilities and related interest payments. A foreign exchange risk management policy has been developed
43,568,983 30,743,197
and approved by the management. The policy allows the Company to take currency exposure for limited
periods within predefined limits while open exposures are rigorously monitored. The Company 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 credit quality of receivables can be assessed with reference to their historical performance with no or negligible
defaults in recent history. The credit quality of Company's bank balances and short term investments can be
As at December 31, 2019, if exchange rates had been 1% higher / lower with all other variables held constant, assessed with reference to recent external credit ratings as follows:
post tax profit for the year would have been lower / higher by Rs. 9,744.

ii) Interest rate risk Rating

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
Rating Agency Short Term Long Term
of changes in market interest rates. The Company's interest rate risk arises from long-term borrowings and
short-term investments. Borrowing are benchmarked to variable rates which expose the Company to cash
Allied Bank Limited PACRA A1+ AAA
flow interest rate risk.
Askari Bank Limited PACRA A1+ AA+
The Company analyses its interest rate exposure on a regular basis by monitoring interest rate trends to Bank Alfalah Limited PACRA A1+ AA+
determine whether they should enter into hedging alternatives. Bank Al Habib Limited PACRA A1+ AA+
Bank Islami Pakistan Limited PACRA A1 A+
As at December 31, 2019, if interest rates had been 1% higher / lower with all other variables held constant, The Bank of Punjab PACRA A1+ AA
post tax profit for the year would have been lower / higher by Rs. 76,335. Albaraka Bank (Pakistan) Limited PACRA A1 A
Citi Bank N.A. MOODY'S P1 Aa3
b) Credit risk Dubai Islamic Bank (Pakistan) Limited JCR-VIS A1+ AA
Credit risk represents the risk of financial loss being caused if counter party fails to discharge an obligation. Faysal Bank Limited PACRA A1+ AA
Habib Bank Limited JCR-VIS A1+ AAA
Credit risk arises from deposits with banks and financial institutions, trade debts, loans, advances, deposits, bank Habib Metropolitan Bank Limited PACRA A1+ AA+
guarantees and other receivables. The credit risk on liquid funds is limited because the counter parties are banks JS Bank Limited PACRA A1+ AA-
with a reasonably high credit rating or mutual funds which in turn are deposited in banks and government securities. MCB Bank Limited PACRA A1+ AAA
The Company maintains an internal policy to place funds with commercial banks and mutual funds of asset Meezan Bank Limited JCR-VIS A1+ AA+
management companies having a minimum short term credit rating of A1 and AM3 respectively. However, the National Bank of Pakistan PACRA A1+ AAA
Company maintains operational balances with certain banks of lower rating for the purpose of effective collection Samba Bank Limited JCR-VIS A1 AA
of bank guarantees and to cater to loan disbursements. Silk Bank Limited JCR-VIS A2 A-
The Company is exposed to a concentration of credit risk on its trade debts by virtue of all its customers being Soneri Bank Limited PACRA A1+ AA-
agri-based businesses in Pakistan. However, this risk is mitigated by applying individual credit limits and by Standard Chartered Bank (Pakistan) Limited PACRA A1+ AAA
securing the majority of trade debts against bank guarantees and inland letter of credit. United Bank Limited JCR-VIS A1+ AAA

277 engro fertilizers limited annual report 2019 278

(Amounts in thousand) (Amounts in thousand)

c) Liquidity risk

Liquidity risk represents the risk that the Company will encounter difficulties in meeting obligations associated As at December 31, 2019, all financial assets and financial liabilities are carried at amortised cost except for investment
with financial liabilities. in Treasury Bills which are carried at their fair values.
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability
of funding through an adequate amount of committed credit facilities. Due to dynamic nature of the business, The carrying value of all financial assets and liabilities reflected in the financial statements approximate their fair values.
the Company maintains flexibility in funding by maintaining committed credit lines available. The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy has the following levels:
The Company's liquidity management involves projecting cash flows and considering the level of liquid assets
necessary to meet these, monitoring statement of financial position liquidity ratios against internal and external - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level1);
regulatory requirements and maintaining debt financing plans.
The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e.
period at the reporting date to contractual maturity dates. The amounts disclosed in the table are the contractual as prices) or indirectly (i.e. derived from prices) (level 2); and
undiscounted cash flows.
- Inputs for the asset or liability that are not based on observable market data (level 3).

2019 2018

Maturity Maturity Maturity Maturity The table below analyses financial instruments carried at fair value by valuation method.
upto after Total upto after Total
one year one year one year one year

---------------------Rupees------------------- ---------------------Rupees-------------------
Level 1 Level 2 Level 3 Total
Financial liabilities
Long term borrowings 8,760,351 22,192,098 30,952,449 5,095,584 25,715,045 30,810,629 ----------------------------Rupees-----------------------------
Assets
Trade and other payables 38,585,732 - 38,585,732 22,746,078 - 22,746,078
Accrued interest / mark-up 554,985 - 554,985 405,620 - 405,620
Short term investments
Short term borrowings 1,546,685 - 1,546,685 636,878 - 636,878
49,447,753 22,192,098 71,639,851 28,884,160 25,715,045 54,599,205
Fair value through other
comprehensive income - 5,305,337 - 5,305,337
39.2 Capital risk management

The Company's objective when managing capital are to safeguard the Company's ability to continue as a going concern
These represents Treasury Bills which are valued using discounted cash flow model.
in order to provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital. The Company manages its capital structure and makes adjustments to it in the light of
changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend 39.4 Fair value of financial assets and liabilities
payment to shareholders or issue new shares.
The total long term borrowings to equity ratio as at December 31, 2019 based on total long term borrowings of Rs. The carrying value of all financial assets and liabilities reflected in the financial statements approximate their fair values.
30,952,449 (2018: Rs.30,810,629) and total equity of Rs. 42,852,561 (2018: Rs. 42,995,748) was 42%:58% (2018:
42%:58%).
The Company finances its operations through equity, borrowings and management of working capital with a view to
maintaining an appropriate mix between various sources of finance to minimize risk.

39.3 Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the
principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price)
regardless of whether that price is directly observable or estimated using another valuation technique.

279 engro fertilizers limited annual report 2019 280

(Amounts in thousand) (Amounts in thousand)

40. TRANSACTIONS WITH RELATED PARTIES 40.2 Details of transactions with related parties during the year, other than those which have been disclosed elsewhere in
these financial statements, are as follows:
40.1 Following are the names of associated companies and undertakings and other related parties with whom the 2019 2018
Company had entered into transactions or had agreements and arrangements in place during the year: ------------Rupees-------------
Holding Company
Dividend paid 10,518,369 8,264,433
Name of Related Parties Direct Shareholding Relationship Purchases and services 513,558 408,698
Services provided to Holding Company 56,776 52,128
Engro Corporation Limited 56.27% Holding Company Reimbursements made:
EFERT Agritrade (Private) Limited 100% Subsidiary Company - by the Company 206,865 118,061
Engro Eximp FZE N/A Subsidiary of Holding Company - to the Company 211,818 513,455
Engro Digital Limited N/A Subsidiary of Holding Company
Engro Elengy Terminal (Private) Limited N/A Subsidiary of Holding Company Subsidiary companies
FrieslandCampina Engro Pakistan Limited N/A Associate of Holding Company Disbursement of working capital loan to subsidiary 32,021,900 40,477,400
Engro Foundation N/A Associate of Holding Company Repayment received against working capital loan disbursed to subsidiary 29,453,826 28,799,700
Engro Polymer & Chemicals Limited N/A Subsidiary of Holding Company Reimbursements made:
- by the Company 83,395 29,604
Engro Powergen Qadirpur Limited N/A Subsidiary of Holding Company
- to the Company 22,235 131,782
Engro Infiniti (Pvt) Ltd N/A Subsidiary of Holding Company Commission received 597,488 607,698
Engro Powergen Thar (Private) Limited N/A Subsidiary of Holding Company Dividend received 1,813,715 1,474,088
Engro Vopak Terminal Limited N/A Associate of Holding Company Services provided 75,424 -
Sindh Engro Coal Mining Company Limited N/A Associate of Holding Company Funds collected against sales made on behalf of subsidiary 39,640,757 41,266,651
Karachi School of Business and Leadership N/A Associate of Holding Company Income on working capital loan to subsidiary company 1,402,346 771,326
Amir Iqbal N/A Key Management Personnel
Asif Sultan Tajik N/A Key Management Personnel Associated companies
Mohammad Azhar Malik N/A Key Management Personnel Purchases and services 159,465 99,219
Mohsin Ali Mangi N/A Key Management Personnel Sale of products 2,798 340
Muhammad Majid Latif N/A Key Management Personnel Services provided 82,778 106,259
Reimbursements made:
Imran Ahmed N/A Key Management Personnel
- by the Company 88,122 15,838
Salman Goheer N/A Key Management Personnel - to the Company 13,722 61,159
Shahzad Nabi N/A Key Management Personnel Proceed against sale of land 705,600 -
Abdul Samad Dawood N/A Director Payment of mark-up on TFCs and repayment of principal amount - 1,025
Asad Said Jafar N/A Director Donations 230,200 96,000
Asim Murtaza Khan N/A Director Dividend paid to Trustees of FrieslandCampina Engro Pakistan Limited
Javed Akbar N/A Director Employees Gratuity Fund 1,104 -
Sadia Khan N/A Director
Nadir Salar Qureshi N/A Chief Executive Officer Contribution to staff retirement benefits
FrieslandCampina Engro Pakistan Limited Pension fund 56,493 17,779
Employees Gratuity Fund N/A Assosiate of Holding Company Gratuity fund 130,828 118,611
Provident fund 144,058 132,870
Engro Corporation Limited - DC Pension Fund N/A Post Employment Benefits
Engro Corporation Limited - MPT Gratuity Fund N/A Post Employment Benefits Dividend paid to staff retirement benefits
Engro Corporation Limited - NMPT Gratuity Fund N/A Post Employment Benefits Pension fund 994 1,438
Engro Corporation Limited - DB Pension Fund N/A Post Employment Benefits Gratuity fund 4,502 3,607
Engro Corporation Limited - DC Gratuity Fund N/A Post Employment Benefits Provident fund 8,568 7,068
Engro Corporation Limited - Provident Fund N/A Post Employment Benefits
Others
Remuneration of key management personnel 259,208 249,190

281 engro fertilizers limited annual report 2019 282

(Amounts in thousand) (Amounts in thousand)

41. OPERATING SEGMENT RESULTS 43. NUMBER OF EMPLOYEES

Number of employees Average number of employees
Urea Specialty Fertilizers Others Total
Business as at December 31, as at December 31,

2019 2018 2019 2018 2019 2018 2019 2018

2019 2018 2019 2018
---------------------------------------------------------------Rupees----------------------------------------------------------------

Sales 70,886,926 58,906,475 8,193,300 8,695,985 1,732,571 974,029 80,812,797 68,576,490 Management employees 725 717 743 717
Inter-segment sales
Sales tax
1,387,354
(1,402,488)
1,041,104
(1,987,779)
-
(163,053)
-
(445,408)
-
(10,332)
-
(1,826)
1,387,354
(1,575,873)
1,041,104
(2,435,012)
Non-management employees 531 530 524 509
70,871,792 57,959,801 8,030,247 8,250,577 1,722,239 972,203 80,624,278 67,182,581 1,256 1,247 1,267 1,226

Profit before taxation 24,495,013 20,099,662 816,770 459,409 1,923,863 840,756 27,235,646 21,399,827
44. PROVIDENT FUND

Segment assets 96,776,647 89,154,502 4,205,999 3,312,406 18,433,765 14,265,018 119,416,411 106,731,926
Unallocated assets - - - - - - 9,691,515 7,416,018 The employees of the Company participate in the Provident Fund maintained by the Holding Company. The investments
Total assets 96,776,647 89,154,502 4,205,999 3,312,406 18,433,765 14,265,018 129,107,926 114,147,944 out of the provident fund have been made in accordance with the provisions of Section 218 of the Companies Act,
2017 and the conditions specified there under.
Depreciation and amortization 5,570,615 5,159,153 75,767 35,536 31,047 - 5,677,429 5,194,689

Capital expenditure 2,427,433 4,202,264 33,125 33,735 1,365,033 97,448 3,825,592 4,333,447 45. SEASONALITY

The Company's fertilizer business is subject to seasonal fluctuations as a result of two different farming seasons viz,
2019 2018 Rabi (from October to March) and Kharif (from April to September). On an average fertilizer sales are more tilted towards
------------Rupees------------- Rabi season. The Company manages seasonality in the business through appropriate inventory management.
41.1 Reconciliation of reportable segment net sales
46. NON-ADJUSTING EVENT AFTER THE REPORTING DATE
Total net sales for reportable segment 80,624,278 67,182,581
Less: Elimination of intersegment net sales (1,387,354) (1,041,104) The Board of Directors in its meeting held on February 17, 2020 has proposed a final cash dividend of Rs. 2 per share
Total net sales 79,236,924 66,141,477 for the year ended December 31, 2019 amounting to Rs. 2,670,599 for approval of the members at the Annual General
Meeting to be held on March 31, 2020.

41.2 Reconciliation of reportable segment total assets 47. CORRESPONDING FIGURES

Total assets for reportable segments 119,416,410 106,731,926

Add: Corresponding figures and balances have been rearranged and reclassified, whereever necessary, for the purpose of
- Accrued income 779,897 439,345 comparison, the effects of which are not material.
- Short term investments 5,501,944 6,334,613
- Cash and Bank balances 3,409,674 642,060 48. DATE OF AUTHORISATION FOR ISSUE
- Unallocated assets 9,691,516 7,416,018
Total Assets 129,107,926 114,147,944 These financial statements were authorised for issue on February 17, 2020 by the Board of Directors of the Company.

42. PRODUCTION CAPACITY

Designed Annual Capacity Actual Production Remarks

Metric Tons Metric Tons
2019 2018 2019 2018

Urea plant I & II 2,275,000 2,275,000 2,003,035 1,928,080 Production

planned as per
NPK plant 100,000 100,000 134,784 132,790 market demand Imran Ahmed Nadir Salar Qureshi Ghias Khan
Chief Financial Officer Chief Executive Chairman

283 engro fertilizers limited annual report 2019 284

 shareholder information
Annual General Meeting Quarterly Results

The annual shareholders meeting will be held at 10:00 a.m. on March 31, 2020 at Karachi School of Business The Company issues quarterly financial statements. The planned dates for release of the quarterly results in
& Leadership, Karachi. 2020 are:

Shareholders as of March 25, 2020 are encouraged to participate and vote. • 1st quarter: April 22, 2020
• 2nd quarter: August 10, 2020
Any shareholder may appoint a proxy to vote on his or her behalf. Proxies should be filed with the company
• 3rd quarter: October 21, 2020
at least 48 hours before the meeting time.

CDC Shareholders or their Proxies are requested to bring with them copies of their Computerized National The Company holds quarterly briefings with Security Analysts to discuss the results and the business
Identity Card or passport alongwith the Participant’s ID number and their account number at the time of environment. These sessions are planned to be held on:
attending the Annual General Meeting in order to facilitate their identification.
• 1st quarter: April 22, 2020
Ownership • 2nd quarter: August 10, 2020
• 3rd quarter: October 21, 2020
On December 31, 2019, there were 25,535 shareholders on record of the Company’s ordinary shares.

Circulation of Annual Reports through CD/DVD/USB All annual/quarterly reports and presentations from quarterly briefings are regularly posted at the Company’s
website: www.engro.com and www.engrofertilizers.com
As notified by the Securities and Exchange Commission of Pakistan (SECP) vide S.R.O. 470(I)/2016 dated
May 21, 2016 and in continuation with the SRO.787(1)/2014 dated 8th September, 2014, and approved by The Company reserves the right to change any of the above dates.
the Shareholders in the Annual General Meeting of the Company held on March 30, 2017, the Company shall
circulate its annual balance sheet, and profit and loss account, auditor’s report and directors report etc. Change of Address
(“Annual Audited Accounts”) to its members through CD/DVD/USB at their registered addresses, save for
those who opt for a hardcopy of the Annual Audited Accounts. The standard request forms for electronic All registered shareholders should send information on changes of address to:
transmission is available at the Company’s website www.engrofertilizers.com. M/s. FAMCO Associates (Private) Limited
8-F, Near Hotel Faran Nursery,
Alternatively members can fill up the Standard Request Forms respectively in the Annexures section at the Block-6 P.E.C.H.S. Shahra-e-Faisal
end of the report. Karachi-74000

E-Dividend Mandate (Mandatory)

In accordance with the provisions of Section 242 of the Companies Act, 2017, a listed company, is required
to pay cash dividend ONLY through electronic mode directly into the bank account designated by the
entitled shareholders. Accordingly, the shareholders are requested to provide the information mentioned on
an E-Dividend Mandate Form available at the Company’s website www.engrofertilizers.com and send the
same to your brokers/the Central Depository Company Ltd. if the shares are held in the electronic form or to
the Company’s Shares Registrar if the shares are held in paper certificate form. For ease of shareholders,
E-Dividend Mandate Form is also provided at the end of the report.

Analyst’s Briefing Held During the Year

Engro Fertilizers continued to apprise its stakeholders of the relevant updates about the Company as well as
the Fertilizer industry by conducting four Analyst Briefings during the year, one at the end of every quarter.
The briefings were attended by analysts as well as our stakeholders. The attendees were briefed on the
performance of the Company during the period, both from a financial and an operational perspective. At the
end of every session, a Q&A session was conducted to ensure that a comprehensive revelation of the
Company’s progress was conveyed. The presentation was also uploaded on the website after every analyst
briefing for the benefit of all stakeholders.

287 engro fertilizers limited annual report 2019 288

 pattern of shareholding
As at December 31, 2019 As at December 31, 2019

No. of Shareholdings No. of Shareholdings

No of shareholders From To Total Shares Held No of shareholders From To Total Shares Held
3,855 1 100 121,319 7 245,001 250,000 1,741,548
9,646 101 500 4,316,638 6 250,001 255,000 1,517,600
3,817 501 1,000 3,552,296 1 255,001 260,000 256,000
4,187 1,001 5,000 11,001,735 4 260,001 265,000 1,057,000
1,293 5,001 10,000 10,268,591 3 265,001 270,000 806,000
590 10,001 15,000 7,627,636 4 270,001 275,000 1,091,120
354 15,001 20,000 6,447,695 4 275,001 280,000 1,111,000
265 20,001 25,000 6,194,470 2 280,001 285,000 568,500
166 25,001 30,000 4,725,003 2 285,001 290,000 580,000
102 30,001 35,000 3,361,112 2 290,001 295,000 589,500
114 35,001 40,000 4,364,382 10 295,001 300,000 2,996,474
69 40,001 45,000 2,965,768 3 300,001 305,000 910,060
130 45,001 50,000 6,378,595 1 305,001 310,000 306,500
57 50,001 55,000 3,018,195 1 310,001 315,000 311,025
52 55,001 60,000 3,062,535 2 315,001 320,000 640,000
47 60,001 65,000 2,970,976 2 320,001 325,000 646,000
31 65,001 70,000 2,130,662 2 325,001 330,000 657,000
41 70,001 75,000 2,993,251 4 330,001 335,000 1,331,820
29 75,001 80,000 2,268,168 2 335,001 340,000 678,632
15 80,001 85,000 1,254,509 5 340,001 345,000 1,718,000
25 85,001 90,000 2,210,557 4 345,001 350,000 1,394,192
19 90,001 95,000 1,779,050 2 350,001 355,000 705,130
58 95,001 100,000 5,781,213 3 355,001 360,000 1,074,000
12 100,001 105,000 1,229,157 1 360,001 365,000 360,500
14 105,001 110,000 1,516,704 5 370,001 375,000 1,864,028
10 110,001 115,000 1,136,718 1 375,001 380,000 379,000
19 115,001 120,000 2,241,461 1 385,001 390,000 385,500
18 120,001 125,000 2,225,067 6 395,001 400,000 2,400,000
14 125,001 130,000 1,786,256 1 400,001 405,000 402,382
10 130,001 135,000 1,332,681 1 405,001 410,000 409,000
14 135,001 140,000 1,935,867 1 410,001 415,000 412,000
11 140,001 145,000 1,559,661 1 415,001 420,000 419,000
20 145,001 150,000 2,979,821 2 420,001 425,000 845,931
5 150,001 155,000 760,082 1 430,001 435,000 434,006
4 155,001 160,000 637,902 1 445,001 450,000 450,000
7 160,001 165,000 1,135,334 1 455,001 460,000 458,500
9 165,001 170,000 1,508,273 2 460,001 465,000 928,000
10 170,001 175,000 1,729,500 2 465,001 470,000 933,500
5 175,001 180,000 895,933 1 470,001 475,000 472,500
6 180,001 185,000 1,091,916 5 485,001 490,000 2,444,500
6 185,001 190,000 1,125,690 6 495,001 500,000 3,000,000
5 190,001 195,000 972,500 1 500,001 505,000 501,542
19 195,001 200,000 3,781,778 1 505,001 510,000 509,000
6 200,001 205,000 1,220,329 2 510,001 515,000 1,026,000
6 205,001 210,000 1,251,774 3 515,001 520,000 1,551,540
2 210,001 215,000 423,500 1 525,001 530,000 530,000
8 215,001 220,000 1,746,234 2 530,001 535,000 1,069,500
7 220,001 225,000 1,561,086 2 540,001 545,000 1,084,500
4 225,001 230,000 916,524 3 545,001 550,000 1,645,334
4 230,001 235,000 933,526 1 550,001 555,000 555,000
3 235,001 240,000 712,005 1 555,001 560,000 558,000
3 240,001 245,000 727,500 1 560,001 565,000 563,500

289 engro fertilizers limited annual report 2019 290

 As at December 31, 2019 As at December 31, 2019

No. of Shareholdings No. of Shareholdings

No of shareholders From To Total Shares Held No of shareholders From To Total Shares Held
1 570,001 575,000 575,000 2 1,315,001 1,320,000 2,635,500
3 595,001 600,000 1,800,000 3 1,335,001 1,340,000 4,006,500
1 600,001 605,000 600,500 2 1,345,001 1,350,000 2,698,136
2 610,001 615,000 1,225,068 3 1,355,001 1,360,000 4,072,220
1 625,001 630,000 627,880 1 1,380,001 1,385,000 1,385,000
2 640,001 645,000 1,288,000 1 1,400,001 1,405,000 1,401,810
1 645,001 650,000 650,000 1 1,425,001 1,430,000 1,428,000
3 650,001 655,000 1,956,000 1 1,475,001 1,480,000 1,475,189
3 660,001 665,000 1,990,827 1 1,485,001 1,490,000 1,488,000
2 665,001 670,000 1,333,500 1 1,500,001 1,505,000 1,504,000
2 685,001 690,000 1,372,789 1 1,510,001 1,515,000 1,514,129
1 690,001 695,000 694,500 1 1,525,001 1,530,000 1,527,500
4 695,001 700,000 2,796,000 1 1,545,001 1,550,000 1,546,500
2 705,001 710,000 1,412,500 1 1,550,001 1,555,000 1,554,500
1 735,001 740,000 735,500 1 1,580,001 1,585,000 1,585,000
1 745,001 750,000 746,000 1 1,615,001 1,620,000 1,619,930
1 755,001 760,000 756,000 1 1,635,001 1,640,000 1,639,500
1 770,001 775,000 771,500 1 1,640,001 1,645,000 1,645,000
2 780,001 785,000 1,564,500 1 1,650,001 1,655,000 1,655,000
1 785,001 790,000 785,761 1 1,710,001 1,715,000 1,713,000
1 795,001 800,000 800,000 1 1,715,001 1,720,000 1,717,500
1 805,001 810,000 809,500 1 1,740,001 1,745,000 1,744,718
1 825,001 830,000 828,221 1 1,825,001 1,830,000 1,829,000
4 830,001 835,000 3,331,086 1 1,830,001 1,835,000 1,830,500
1 845,001 850,000 845,500 2 1,855,001 1,860,000 3,715,000
2 850,001 855,000 1,708,000 1 1,895,001 1,900,000 1,900,000
1 865,001 870,000 865,364 1 1,900,001 1,905,000 1,904,500
1 890,001 895,000 891,000 1 1,910,001 1,915,000 1,913,500
2 895,001 900,000 1,799,500 1 1,950,001 1,955,000 1,955,000
2 915,001 920,000 1,836,000 1 1,955,001 1,960,000 1,958,000
1 940,001 945,000 944,212 1 1,980,001 1,985,000 1,980,500
1 950,001 955,000 952,000 2 1,995,001 2,000,000 4,000,000
1 960,001 965,000 964,000 1 2,010,001 2,015,000 2,012,000
2 990,001 995,000 1,987,114 1 2,035,001 2,040,000 2,036,000
4 995,001 1,000,000 3,998,000 1 2,110,001 2,115,000 2,114,893
1 1,000,001 1,005,000 1,000,878 1 2,200,001 2,205,000 2,201,120
1 1,005,001 1,010,000 1,010,000 1 2,220,001 2,225,000 2,222,482
1 1,025,001 1,030,000 1,026,500 1 2,225,001 2,230,000 2,225,500
1 1,040,001 1,045,000 1,045,000 1 2,285,001 2,290,000 2,285,500
1 1,060,001 1,065,000 1,062,000 1 2,295,001 2,300,000 2,299,064
1 1,070,001 1,075,000 1,071,521 1 2,310,001 2,315,000 2,311,500
2 1,095,001 1,100,000 2,196,544 1 2,350,001 2,355,000 2,355,000
1 1,100,001 1,105,000 1,104,500 1 2,470,001 2,475,000 2,471,500
2 1,125,001 1,130,000 2,255,300 1 2,475,001 2,480,000 2,477,000
1 1,130,001 1,135,000 1,133,500 1 2,495,001 2,500,000 2,500,000
1 1,155,001 1,160,000 1,157,105 1 2,585,001 2,590,000 2,589,500
1 1,165,001 1,170,000 1,168,016 1 2,595,001 2,600,000 2,600,000
1 1,180,001 1,185,000 1,180,500 1 2,605,001 2,610,000 2,608,500
2 1,195,001 1,200,000 2,398,500 1 2,690,001 2,695,000 2,695,000
1 1,230,001 1,235,000 1,230,800 1 2,820,001 2,825,000 2,822,500
1 1,265,001 1,270,000 1,267,995 1 2,850,001 2,855,000 2,851,000
1 1,270,001 1,275,000 1,272,582 1 2,915,001 2,920,000 2,917,500

291 engro fertilizers limited annual report 2019 292

 categories of shareholding
As at December 31, 2019

No. of Shareholdings
No of shareholders From To Total Shares Held
1 2,970,001 2,975,000 2,974,000 As at December 31, 2019
1 2,995,001 3,000,000 3,000,000 S. No. Shareholders’ Category No. of Shareholders No. of Shares Percentage
1 3,050,001 3,055,000 3,053,000
1 3,075,001 3,080,000 3,080,000 1 Directors, Chief Executive Officer, and their
1 3,095,001 3,100,000 3,096,500 spouse and minor children 8 34,381 0.003
1 3,120,001 3,125,000 3,125,000
1 3,150,001 3,155,000 3,152,783 2 Associated Companies, Undertakings and
1 3,255,001 3,260,000 3,260,000 related Parties 1 751,312,049 56.27
1 3,355,001 3,360,000 3,357,000
1 3,640,001 3,645,000 3,643,000 3 NIT and ICP - - -
1 3,825,001 3,830,000 3,829,500
1 3,890,001 3,895,000 3,891,500 4 Banks, Development Financial Institutions,
1 3,935,001 3,940,000 3,940,000 Non Banking Financial Institutions 35 59,135,138 4.43
3 3,995,001 4,000,000 11,998,000
1 4,035,001 4,040,000 4,035,500 5 Insurance Companies 25 17,407,484 1.30
1 4,090,001 4,095,000 4,092,900
1 4,320,001 4,325,000 4,324,500 6 Modarabas and Mutual Funds 86 78,850,400 5.91
1 4,420,001 4,425,000 4,424,500
1 4,495,001 4,500,000 4,500,000 7 Share holders holding 10% 1 751,312,049 56.27
1 4,915,001 4,920,000 4,915,500
1 4,995,001 5,000,000 5,000,000 8 General Public :
1 5,370,001 5,375,000 5,373,000 a. local 24,808 203,422,112 15.23
1 5,795,001 5,800,000 5,799,856 b .Foreign
1 6,010,001 6,015,000 6,011,000
1 6,175,001 6,180,000 6,177,847 9 Others 572 225,137,811 16.86
1 6,200,001 6,205,000 6,202,500
1 6,665,001 6,670,000 6,669,000
1 6,700,001 6,705,000 6,700,500
1 7,710,001 7,715,000 7,713,116
1 7,995,001 8,000,000 8,000,000
1 8,145,001 8,150,000 8,150,000
1 8,435,001 8,440,000 8,435,491
1 8,720,001 8,725,000 8,723,880
1 8,935,001 8,940,000 8,936,000
1 10,235,001 10,240,000 10,238,500
1 23,050,001 23,055,000 23,054,200
1 751,305,002 751,315,000 751,312,049
25,535 1,335,299,375

293 engro fertilizers limited annual report 2019 294

 key shareholding and
shares traded CDC - TRUSTEE ATLAS ISLAMIC STOCK FUND 1,315,500
CDC - TRUSTEE ATLAS STOCK MARKET FUND 3,891,500
Information of shareholding required under reporting framework is as follows:
CDC - TRUSTEE AWT ISLAMIC STOCK FUND 47,000
1. Associated Companies, undertakings & related parties CDC - TRUSTEE FAYSAL MTS FUND - MT 28,500
CDC - TRUSTEE FIRST CAPITAL MUTUAL FUND 20,000
Engro Corporation Limited 751,312,049
CDC - TRUSTEE FIRST HABIB STOCK FUND 38,500
2. Directors, CEO & their spouses & minor children CDC - TRUSTEE HBL - STOCK FUND 834,500
CDC - TRUSTEE HBL EQUITY FUND 110,000
Mr. Ghias Khan 1
Mr. Nadir Salar Qureshi 1 CDC - TRUSTEE HBL IPF EQUITY SUB FUND 71,200
Mr. Javed Akbar 26,524 CDC - TRUSTEE HBL ISLAMIC ASSET ALLOCATION FUND 66,500
Mr. Abdul Samad Dawood 6,632
CDC - TRUSTEE HBL ISLAMIC EQUITY FUND 242,000
Mr. Hasnain Moochhala 1
Mr. Asad Said Jafar 1 CDC - TRUSTEE HBL MULTI - ASSET FUND 53,000
Ms. Sadia Khan 1 CDC - TRUSTEE HBL PF EQUITY SUB FUND 79,000
Mr. Asim Murtaza Khan 1220
CDC - TRUSTEE JS ISLAMIC DEDICATED EQUITY FUND (JSIDEF) 1,645,000
3. Executives (Approximately) 795,596 CDC - TRUSTEE JS ISLAMIC FUND 275,000
CDC - TRUSTEE JS ISLAMIC PENSION SAVINGS FUND-EQUITY ACCOUNT 84,000
4. Public Sector Companies & Corporations 9,703,486
CDC - TRUSTEE JS LARGE CAP. FUND 211,000
5. Banks, Development Finance Institutions, 88,310,309 CDC - TRUSTEE JS PENSION SAVINGS FUND - EQUITY ACCOUNT 85,000
Non-Banking Finance Institutions, Insurance CDC - TRUSTEE KSE MEEZAN INDEX FUND 1,348,136
Companies, Takaful, Modaraba and Pension Funds
CDC - TRUSTEE LAKSON EQUITY FUND 1,096,544
6. Mutual Funds CDC - TRUSTEE LAKSON ISLAMIC TACTICAL FUND 62,560
CDC - TRUSTEE LAKSON TACTICAL FUND 162,706
ASIAN STOCKS FUNDS LTD. 1 CDC - TRUSTEE MEEZAN ASSET ALLOCATION FUND 1,062,000
CDC - TRUSTEE ABL ISLAMIC PENSION FUND - EQUITY SUB FUND 25,000 CDC - TRUSTEE MEEZAN BALANCED FUND 1,829,000
CDC - TRUSTEE ABL PENSION FUND - EQUITY SUB FUND 25,000 CDC - TRUSTEE MEEZAN ISLAMIC FUND 23,054,200
CDC - TRUSTEE ABL STOCK FUND 1,385,000 CDC - TRUSTEE MEEZAN TAHAFFUZ PENSION FUND - EQUITY SUB FUND 3,357,000
CDC - TRUSTEE AKD INDEX TRACKER FUND 146,275 CDC - TRUSTEE NAFA ISLAMIC PRINCIPAL PROTECTED FUND - II 51,500
CDC - TRUSTEE AL AMEEN ISLAMIC DEDICATED EQUITY FUND 785,761 CDC - TRUSTEE NATIONAL INVESTMENT (UNIT) TRUST 663,827
CDC - TRUSTEE AL MEEZAN MUTUAL FUND 3,053,000 CDC - TRUSTEE NBP BALANCED FUND 534,500
CDC - TRUSTEE AL-AMEEN ISLAMIC ASSET ALLOCATION FUND 276,500 CDC - TRUSTEE NBP ISLAMIC ACTIVE ALLOCATION EQUITY FUND 809,500
CDC - TRUSTEE AL-AMEEN SHARIAH STOCK FUND 2,201,120 CDC - TRUSTEE NBP ISLAMIC REGULAR INCOME FUND 141,000
CDC - TRUSTEE ALFALAH CAPITAL PRESERVATION FUND II 70,000 CDC - TRUSTEE NBP ISLAMIC SARMAYA IZAFA FUND 3,643,000
CDC - TRUSTEE ALFALAH GHP ALPHA FUND 655,000 CDC - TRUSTEE NBP ISLAMIC STOCK FUND 3,260,000
CDC - TRUSTEE ALFALAH GHP ISLAMIC DEDICATED EQUITY FUND 168,007 CDC - TRUSTEE NBP MAHANA AMDANI FUND - MT 2,500
CDC - TRUSTEE ALFALAH GHP ISLAMIC STOCK FUND 2,114,893 CDC - TRUSTEE NBP SARMAYA IZAFA FUND 543,500
CDC - TRUSTEE ALFALAH GHP ISLAMIC VALUE FUND 59,000 CDC - TRUSTEE NBP SAVINGS FUND - MT 23,000
CDC - TRUSTEE ALFALAH GHP STOCK FUND 916,500 CDC - TRUSTEE NBP STOCK FUND 4,915,500
CDC - TRUSTEE ALFALAH GHP VALUE FUND 359,000 CDC - TRUSTEE NIT ISLAMIC EQUITY FUND 1,857,000
CDC - TRUSTEE APF-EQUITY SUB FUND 237,500 CDC - TRUSTEE NIT-EQUITY MARKET OPPORTUNITY FUND 992,114
CDC - TRUSTEE APIF - EQUITY SUB FUND 409,000 CDC - TRUSTEE PICIC GROWTH FUND 964,000
CDC - TRUSTEE ASKARI ASSET ALLOCATION FUND 54,000 CDC - TRUSTEE PICIC INVESTMENT FUND 705,500
CDC - TRUSTEE ATLAS ISLAMIC DEDICATED STOCK FUND 344,500 CDC - TRUSTEE UBL ASSET ALLOCATION FUND 73,000

295 engro fertilizers limited annual report 2019 296

 CDC - TRUSTEE UBL CAPITAL PROTECTED FUND-III 5,000 7. Shareholders Holding five percent or more Voting Rights in the Listed Company:
CDC - TRUSTEE UBL DEDICATED EQUITY FUND 22,318
Engro Corporation Limited 751,312,049
CDC - TRUSTEE UBL RETIREMENT SAVINGS FUND - EQUITY SUB FUND 167,800
CDC - TRUSTEE UBL STOCK ADVANTAGE FUND 830,801 8. Details of purchase/sale of shares by Directors, Executives*
CDC TRUSTEE - MEEZAN DEDICATED EQUITY FUND 756,000 and their spouses / minor children during 2019

CDC-TRUSTEE AL-AMEEN ISLAMIC RET. SAV. FUND-EQUITY SUB FUND 513,000

CDC-TRUSTEE FIRST HABIB ISLAMIC STOCK FUND 77,500 S. No. Name of holder Date Sale / Purchase No of Shares Rate Per Share
CDC-TRUSTEE HBL ISLAMIC STOCK FUND 341,500 1 Wasimullah Laghari 1/8/2019 Bought 2000 76.49
CDC-TRUSTEE NITIPF EQUITY SUB-FUND 101,000 2 Rana Muhammad Arif 1/31/2019 Sold 1000 75.3
3 Muhammad Yousaf 2/1/2019 Bought 3000 75.75
CDC-TRUSTEE NITPF EQUITY SUB-FUND 15,000 4 Goheer Saleem 2/22/2019 Bought 1000 75
MC FSL - TRUSTEE JS GROWTH FUND 187,500 5 Ghulam Qadir 2/26/2019 Bought 9000 74.45
6 Ghulam Qadir 3/4/2019 Bought 1000 75.74
MCBFSL - TRUSTEE ABL ISLAMIC STOCK FUND 1,180,500 7 Ghulam Qadir 3/11/2019 Bought 1000 73.9
MCBFSL - TRUSTEE HBL ISLAMIC DEDICATED EQUITY FUND 119,500 8 Ghulam Qadir 4/4/2019 Bought 1000 71.1
9 Ali Akbar 4/8/2019 Bought 2000 70
MCBFSL - TRUSTEE JS VALUE FUND 263,000 10 Ghulam Qadir 4/18/2019 Bought 1000 71
MCBFSL - TRUSTEE PAK OMAN ADVANTAGE ASSET ALLOCATION FUND 46,000 11 Ali Akbar 5/3/2019 Bought 3000 68.34
12 Ghulam Qadir 5/3/2019 Bought 1500 68.49
MCBFSL - TRUSTEE PAK OMAN ISLAMIC ASSET ALLOCATION FUND 136,500
13 Bilal Qasim 5/6/2019 Bought 500 68
MCBFSL TRUSTEE ABL ISLAMIC DEDICATED STOCK FUND 163,500 14 Bilal Qasim 5/8/2019 Bought 1000 67
15 Bilal Qasim 5/8/2019 Bought 500 66
MCBFSL-TRUSTEE ABL ISLAMIC ASSET ALLOCATION FUND 19,500
16 Ali Akbar 5/13/2019 Bought 500 64
TRI-STAR MUTUAL FUND LIMITED 91 17 Bilal Qasim 5/13/2019 Bought 2000 64
18 Ali Akbar 5/17/2019 Bought 2000 63
19 Ghulam Qadir 6/19/2019 Bought 25000 64.52
TOTAL: 78,479,854 20 Muhammad Munawar Ahmed Shahid 6/26/2019 Bought 25500 64.25
21 Muhammad Munawar Ahmed Shahid 6/28/2019 Bought 44500 64
22 Noorhanuuddin 7/4/2019 Bought 5000 66.5
23 Ghulam Qadir 7/5/2019 Bought 7500 65.8
24 Ghulam Qadir 7/17/2019 Bought 500 65.25
25 Ali Akbar 8/9/2019 Bought 2500 63.61
26 Goheer Saleem 8/19/2019 Sold 500 60.75
27 Goheer Saleem 8/19/2019 Sold 500 60.85
28 Ghulam Qadir 8/21/2019 Bought 1000 66.44
29 Ali Akbar 8/27/2019 Bought 5000 64.95
30 Ali Akbar 8/30/2019 Bought 2500 65.75
31 Muhammad Yousaf 9/3/2019 Bought 21000 66.4
32 Ghulam Qadir 9/5/2019 Bought 2000 66.2
33 Ghulam Qadir 10/3/2019 Bought 1500 67.5
34 Rasheed Ahmed 10/30/2019 Bought 10000 68.8
35 Rasheed Ahmed 10/2/2019 Bought 2000 68.5
36 Rasheed Ahmed 9/18/2019 Bought 5000 67
37 Rasheed Ahmed 10/21/2019 Bought 3000 72.7
38 Ghulam Qadir 10/25/2019 Bought 2500 71.6
39 Wasimullah Laghari 11/1/2019 Bought 1000 71.69
40 Ali Akbar 11/1/2019 Bought 1500 71.58
41 Mohammad Ateeq ul Hassan 11/6/2019 Bought 20000 75.35
42 Farooq Ahmed 11/8/2019 Bought 1000 76.98
43 Syed Usman Ahmed 5/28/2019 Bought 3000 68.37
44 Farooq Ahmed 11/19/2019 Bought 500 70.2
45 Farooq Ahmed Qureshi 12/3/2019 Bought 1500 69.54
46 Noorhanuddin 12/3/2019 Bought 14000 69.7
47 Noorhanuddin 12/11/2019 Bought 15000 74.7
48 Ali Akbar 12/12/2019 Bought 1600 73.88
49 Ali Akbar 12/16/2019 Sold 1600 73.96

* For the purpose of declaration of share trades, all employees of the Company are considered as “Executive”

297 engro fertilizers limited annual report 2019 298

proxy form

I/We
of being a member of ENGRO FERTILIZERS LIMITED
and holder of
(Number. of shares)

Ordinary shares as per share Register Folio No. and/or CDC

Participant I.D. No. and Sub Account No. , hereby appoint
of or failing him
of

as my/our proxy to vote for me/us and on my/our behalf at the 11th Annual general meeting of the Company to be held on
the 31st day of March, 2020 and at any adjournment thereof.

Signed this day of 2020.

WITNESSES:
1) Signature :

Name :

Address :

CNIC Or :

Passport No.

Signature
(Signature should agree with the specimen
registered with the Company)
2) Signature :

Name :

Address :

CNIC Or :

Passport No.

Note:
Proxies in order to be effective, must be received by the Company not less than 48 hours before the meeting. A Proxy need
not be a member of the Company.

CDC Shareholders and their proxies are each requested to attach an attested photocopy of their Computerized National
Identity Card or Passport with this proxy form before submission to the Company.

annual report 2019 300

standard request form
circulation of annual audited accounts
The Share Registrar Date:
Engro Fertilizers Ltd.
FAMCO Associates (Pvt.) Ltd.
8-F, Near Hotel Faran
Nursery, Block-6,
P.E.C.H.S. Karachi

Subject: Request for Hard Copy of Annual Audited Accounts

of Engro Fertilizers Limited

Dear Sirs,

As notified by the Securities and Exchange Commission of Pakistan (SECP) vide S.R.O. 470(I)/2016 dated May 21, 2016 and
approved by the Shareholders in the Annual General Meeting of the Company held on March 30, 2017, the Company is
circulating its annual balance sheet, and profit and loss account, auditor’s report and directors report, etc. (“Annual Audited
Accounts”) to its members through CD/DVD/USB at their registered addresses, save for those who opt for a hardcopy of the
Annual Audited Accounts by filling out the details below and sending it to the Company’s Share Registrar and Company
Secretary.

I/We, ________________________________ S/o, D/o, W/o ________________________ being a registered shareholder of Engro
Fertilizers Limited with the particulars as mentioned below would request that my/our name be added to the list of
Shareholders of the Company who opt for delivery of a hardcopy of the Annual Audited Accounts of the Company and hereby
request you send to me/us the Annual Audited Accounts in hard copy form at my/our registered address as contained in the
member register instead of providing the same through CD/DVD/USB.

Particulars

Name of Shareholder

Folio No. / CDC ID No.

CNIC / NICOP / Passport No.

Land Line Telephone No. (if any)

Cell No. (if any)

Yours truly,

Shareholder’s Signature

Copy to:
Company Secretary
Engro Fertilizers Limited
7th & 8th Floor, HC # 3, The Harbor Front
Building, Block 4, Karachi – 75600

annual report 2019 302

electronic credit mandate (mandatory)

Dear Shareholder,

ELECTRONIC CREDIT MANDATE (Mandatory)

We wish to inform you that in accordance with the provisions of Section 242 of the Companies Act, 2017, it is mandatory for a listed company
to pay cash dividend to the shareholders only through electronic mode directly into the bank account designated by the entitled shareholders.
Please note that in case of non-communication of Bank account details by the shareholders to their respective Registrars, Participant/CDC
IAS within the afore-mentioned time frame, the Company would be constrained to act in accordance with the provisions of the law for
withholding the amount of dividend which may be payable by the Company on or after November 01, 2017.

In order to receive your dividends directly in your Bank account, please complete the particulars as mentioned below and return this letter
duly signed along with a copy of your CNIC to the Registrar of the Company M/s FAMCO Associates (Pvt.) Limited, 8-F, Near Hotel Faran,
Nursery, Block 6, P.E.C.H.S., Shahrah-e-Faisal, Karachi.

CDC shareholders are requested to submit their dividend mandate and CNIC directly to their broker (participant)/CDC.

Yours faithfully,
For Engro Fertilizers Limited

Company Secretary

SHAREHOLDERS SECTION:
I hereby communicate to receive my dividends directly in my Bank account as detailed below:

Shareholder details
Name of the Shareholder
CDC Participant ID & Sub Account No. / CDC IAS
CNIC / NICOP / Passport / NTN No. (Please attach copy)
Contact Number (LandLine & Cell Nos.)
Shareholders Address

Shareholder’s Bank account details

Title of Bank Account
IBAN (See Note 1 below)
Banks Name
Branch Name & Code No,.
Branch Address

It is stated that the above particulars given by me are correct to the best of my knowledge and I shall keep the Company informed in case of
any changes in the said particulars in future.

Shareholder’s Signature

Note: Please provide complete IBAN after checking with your concerned branch to enable electronic credit directly into your bank account)

The payment of cash dividend will be processed on the basis of the IBAN number alone. The company is entitled to rely on the IBAN number as per your instructions. The company
shall not be responsible for any loss, damage, liability or claim arising, directly or indirectly, from any error, delay, or failure in performance of any of its obligations hereunder which is
caused by incorrect payment instructions and /or due to any event beyond the control of the company.

annual report 2019 304

305 engro fertilizers limited
307 engro fertilizers limited
309 engro fertilizers limited
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 DECENT WORK AND
8 ECONOMIC GROWTH

317 engro fertilizers limited annual report 2019 318

 DECENT WORK AND
8 ECONOMIC GROWTH

DECENT WORK AND

8 ECONOMIC GROWTH

AFFORDABLE AND CLEAN WATER

7 CLEAN ENERGY 6 AND SANITATION

319 engro fertilizers limited annual report 2019 320

 NO ZERO GOOD HEALTH
1 POVERTY 2 HUNGER 3 AND WELL-BEING

QUALITY GENDER CLEAN WATER

4 EDUCATION 5 EQUALITY 6 AND SANITATION

AFFORDABLE AND DECENT WORK AND INDUSTRY

7 CLEAN ENERGY 8 ECONOMIC GROWTH 9 INNOVATION AND
INFRASTRUCTURE

RESPONSIBLE CLIMATE LIFE

12 CONSUMPTION
AND PRODUCTION
13 ACTION 15 ON LAND

321 engro fertilizers limited annual report 2019 322

 one off

323 engro fertilizers limited annual report 2019 324

+92-21-111-211-211
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