9m 2014 business eview - engro.com · olpers has regained its lost ground and witnessing volumetric...

31st October 2014

9M 2014 BUSINESS REVIEW

F INANCIAL H IGHLIGHTS – 9M 2014

Notes: 1 - Subsidiary profit-after-tax numbers are reported at 100%, Engro Consolidated profit-after-tax numbers excludes non-controlling interest

2 - Includes losses of 559m pertaining to Discontinued Operations i.e. Engro Foods Canada

Revenue increased by 14% vs same period last year mainly driven by higher Urea and DAP sales

Turbulence in the international commodity prices affected the Ethylene-PVC price delta in the petrochemical business, AMF inventory in the Foods business, and a bearish rice market coupled with an unprecedented appreciation in the PKR / USD exchange rate, resulted in decrease in PAT by 23% vs last year

Rs. Million Revenue PAT 1

Business YTD 2014 YTD 2013 YTD 2014 YTD 2013

Engro Fertilizers 43,692 34,422 5,511 3,234

Engro Foods 31,020 28,023 2522 1,240

Engro Polymer 17,147 18,137 (33) 552

Engro Powergen Qadirpur 9,262 8,074 1,553 1,578

Engro Eximp 21,233 18,817 (2,693) (442)

Engro Vopak 1,547 1,485 1,027 890

Engro Corporation (Consolidated) 122,397 107,764 4,441 5,731

FERTILIZERS

3

2013 Business Results


FERTILIZERS – UREA MARKET

Urea Industry (MT)

9M 2014 9M 2013

Production 3.6 3.5

Sales 4.1 4.2

Imports 0.4 0.4

Domestic Urea production rose by 1.7% YoY due to better gas supply to the industry

Industry sales slipped by 2.3% in 9M 2014 as compared to 9M 2013 mainly on account of 2Q 2014 which was a weak demand period because of:

• GoP price equalization between imported and local urea which led to temporary dealer uncertainty on margins

• Slight delay in wheat harvest limited window for early BT cotton sowing

Limited domestic production and delayed imports have placed the market in a tight supply situation and imports are crucial to meet Rabi demand

International urea prices averaged USD 323/ton (CFR Karachi) in 9M 2014, equivalent to local cost of PKR 2,300/bag (inclusive of ancillary charges) vs local average price of PKR 1,796/bag. Local prices are now PKR 1,813/bag after PKR 25/bag hike effective July 03, 2014

Current China price, CFR Karachi stands at USD 319/ton vs a low of USD 282/ton in Jun’14. Recent recovery in international prices is on account of calls from Chinese Fertilizer Association not to sell below cost

Benefit passed on by local urea producers to the farmers in 9M 2014 is around PKR 27 B



FERTILIZERS – BUSINESS H IGHLIGHTS

1,332 1,322

1,065 1,066

Production (KT) Sales (KT)

Urea Operations

9M 2014 9M 2013 EFert continued to receive uninterrupted gas supply to run both of its

plant during 9M 2014. Gas supply from SNGPL, however, was reduced in May 2014 from 17 MMSCFD to 6 MMSCFD due to diversion to the power sector and is expected to remain at current levels through winter months in 4Q

9M 2014 Urea production was 1,332 KT (+25% YoY) due to continuous operation of both urea plants

9M 2014 Urea sales were 24% higher on a YoY basis at 1,322 KT which increased the company’s urea market share to 32% from 26%

Profitability led by higher production/sales and lower financial cost, partly offset by higher gas cost (due to incomplete pass through of GIDC hike in Dec’13)

Fuel GIDC was hiked by PKR 50/MMBTU to PKR 150/MMBTU effective July 1, 2014

In Aug’ 14, the Supreme Court deemed the GIDC Act 2011 as unconstitutional. Subsequently, the Government appealed the decision and also re-imposed GIDC under a Presidential Ordinance. Stay order has been obtained by EFert



FERTILIZERS – BUSINESS H IGHLIGHTS (CONTD.) Gas Update

Engagement continues with Mari and SNGPL for implementation of concessionary gas price arrangement. Substantial progress has been made by the company on attainting its contractual obligation of feed gas pricing at 70 cents for Enven

Implementation is expected shortly where EFert awaits endorsement from OGRA

There has been no progress on Long Term Gas / KPD Allocation to fertilizer sector

Other Highlights

EFert has met its lenders covenant of repayment of 33% of Senior Debt (outstanding as at June 2012) prior to dividend payment, during 3Q 2014

IFC has USD 15 M (on ECorp) and USD 9 M (on EFert) share conversion options related to two of their loans. During April 2014, IFC exercised its option and converted USD 7 M in ECorp shares and in July 2014 also converted USD 5 M in EFert shares. IFC is likely to exercise the remaining options in due course



FERTILIZERS – BUSINESS H IGHLIGHTS (CONTD.)

Phosphates Business

In 9M 2014 international DAP prices averaged USD 453/Ton (CFR Karachi) - 11.4% lower YoY. SOP prices averaged USD 567/ton (FOB) - 3.3% higher YoY

The domestic DAP market grew by 5% in 9M 2014 while the Potash market grew 39%

PKR 14 B subsidy on phosphate and potash fertilizers (PKR 400/bag for DAP and SOP) announced by the Government in Finance Bill 2014 seems unlikely to be implemented by the year-end

Given upcoming peak season and subdued dealer purchases earlier in the year, industry is expecting to rebound in 4Q

EXIMP was able to achieve healthy margins during 9M 2014 due to correctly timing the purchases when the prices were low

EXIMP sold 202 KT of DAP during 9M 2014 vs 174 KT during same period last year

Higher volumes and better margins resulted in strong performance for the commodity trading business

FOODS

8



28,085

2,634

25,889

2,266

Dairy & Juices Ice cream

Revenue (Rs. mn)

666

(122)

1,560

(136)

Dairy & Juices Ice cream

Profit After Tax (Rs. mn)

9M 2013 9M 2014

FOODS – BUSINESS H IGHLIGHTS Dairy & Juices Revenue increase of 8% vs same period in 2013

Volumetric increase of 7% in dairy and beverages segment vs. 9M 2013 as

operational challenges were overcome while an estimated 11% growth in total UHT industry vs. 9M 2013 was witnessed

Gross margins have decreased mainly due to higher milk prices which were not passed on to consumers due to market environment and price cut taken on Tarang

Olpers has regained its lost ground and witnessing volumetric growth

UHT Market share as per Nielsen was over 50%

Ice Cream & Frozen Desserts Volume increase of 21% vs 9M 2013

Omore’s market share rose to 28% vs. 25% in 9M 2013



FOODS – BUSINESS H IGHLIGHTS (CONTD.)

Fresh Dairy

16 “Mabrook” outlets are operational while 24 outlets are in development phase

Engro Foods Canada - Discontinued

After a strategic review Company has decided to exit its Canadian operations so focus could be achieved in growing local operations where opportunities are enormous

Have entered into a Share Purchase Agreement (SPA) with a Canadian registered company for sale

of its North American businesses Subject to satisfaction of all conditions precedent as set out in the SPA, it is expected that the

transaction shall completed during first half of November 2014. As a result, a one-off pre-tax impairment charge of PKR 438 million has been recorded in 3Q 2014, taking the YTD loss to

PKR 559million

RICE

11



32.7

17.9

20.8

28.7

9M 2014 9M 2013

Sales Volume (kt)

Export Domestic

6,425

4,684

9M 2014 9M 2013

Revenue PKR (mn)

(3,311)

(834)

9M 2014 9M 2013

PAT PKR (mn)

R ICE – BUSINESS H IGHLIGHTS

Despite significant increase in paddy (raw material) prices in 4Q 2013, international rice prices did not increase in line with paddy prices due to:

Middle Eastern governments implementing strict price controls and buyers

reluctant to commit volumes Iran’s import volumes fell from 120KT per month in Nov 2013 – Feb 2014 to 55KT

levels between Mar 2014 - May 2014 which depressed both Indian and Pakistani basmati prices

Excess supply and significant build up of inventory in both India and Pakistan

The unusual PKR appreciation hit export margins and also affected local rice prices

Due to the above reasons, the Rice business incurred a loss of PKR 3,311 M in 9M 2014

vs. PKR 834 M in 9M 2013

YTD 2014, Muridke Plant husked 72KT of paddy and processed 7.7KT of rice

Business exported 32.7KT of rice during the period - a growth of 83% year-on-year. Local sales for the period were 20.8KT vs 28.7KT during the corresponding period in 2013

Management is re-evaluating the scale of the rice business, changing the business model

to reduce the exposure to commodity price volatility and focusing on reduction of fixed costs



0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

PK

R/T

on

R ICE – H ISTORICAL PRICES*

*Local Super Basmati UFR White Prices

PETROCHEMICALS

14



PETROCHEMICALS – BUSINESS H IGHLIGHTS 9M 2013 9M 2014

109 115 87 106

124 85

PVC VCM Caustic Soda

Production (KT)

91

69

105

73

PVC Caustic Soda

Domestic Sale Volume (KT)

17,147

18,137

Revenues

(33)

552

PAT

Ethylene prices remained firm due to tight supply driven by cracker shutdowns and relatively lower supplies from Middle East whereas PVC price was restricted by excess availability of carbide based material from China

Lower sales volume for both PVC and caustic soda coupled with lower

margins, higher gas price and lower exchange rate heavily impacted the bottom line

5% regulatory duty imposed during 3Q on imports of Ethylene and EDC by Federal Board of Revenue (matter is being pursued with relevant Government authorities for recourse)

15 KT p.a. PVC debottlenecking project completed in 3Q increasing the PVC annual capacity to 171KT

In 3Q 2014, company achieved market share of 72.3%

* Market share is based on our best estimates and have not been verified by an independent source

POWER

16


POWER – BUSINESS H IGHLIGHTS Net Electrical Outage was higher in 9M 2014 vs. 9M 2013 due to lower

accumulated outage

Billable Availability Factor was lower due to outages (mainly due to issues at OGDCL’s end)

EPQL achieved a PAT of PKR 1,553 M in 9M 2014 vs. PKR 1,578 M in the comparative period

Total receivables from PEPCO stood at PKR 3,129 M as at Sep 30, 2014 vs. PKR 1,416 M as at December 31, 2013 due to a buildup of circular debt

Offer for Sale

ECorp along with EPowergen successfully offered 25% of its share capital (80.95 M shares at a price of Rs 30.02 per share) through an equal combination of private placement and initial public offer

The shares have been duly allotted to the successful investors and EPQL has been formally listed on KSE on 27th October


1,300 1,261

9M 2014 9M 2013

Net Electrical Outage (GWh)

93.60 %

90.60%

9M 2014 9M 2013

Load Factor

100% 100.5%

9M 2014 9M 2013

Billable Availability Factor

CHEMICAL STORAGE & HANDLING

18



9M 2014

9M 2013

1,547 1,485

Revenue (Rs. Mn)

CHEMICALS STORAGE & HANDLING

1,027 890

PAT (Rs. Mn)

Engro Vopak Terminal Company continues to perform well due to its unique position in the chemical handling

industry

Profits have increased primarily due to exchange gain of 25mn in 9M 2014 vs. exchange loss of 85mn in 9M 2013

LNG Update Work on the fast track LNG terminal is on schedule to achieve commissioning by the due date

i.e. 31 March 2015

Expected to be one of the fastest implementations of a LNG terminal anywhere in the world and at one of the most competitive rates available globally

SINDH ENGRO COAL MINING CO.

20



SECMC Update

As of 30th September 2014, Engro’s holding in SECMC is 26%. However, management control

remains with Engro Coal tariff rules and framework being finalized and as soon as the rules are notified coal tariff

petition will be submitted to TCEB which are expected this month

1M BCM have been removed by local OB contractor. As per current rate 3M BCM job would be finished by March 2015 (as per original contract duration of 9 months)

SECMC has acquired possession of 6,000 acres of land including 3,842 acres held by private

landowners. Payments are being made to the landowners against the awarded land

Financial close for the Project is expected by June 2015


Q & A


9m 2014 business eview - engro.com · olpers has regained its lost ground and witnessing volumetric...

Documents