| Engro Chemical Pakistan Limited |
|
|
|
|
|
|
|
|
| Annual
Report 2000 |
|
|
|
| CONTENTS |
|
|
| Company
Information |
|
| Notice
of Meeting |
|
| Financial
Highlights |
|
| Directors'
Report |
|
| Board
of Directors |
|
| Pattern
of Holding of Shares |
|
| Auditors'
Report |
|
| Balance Sheet |
|
|
| Profit
& Loss Account |
|
| Statement
of Changes in Equity |
|
| Cash
Flow Statement |
|
| Notes
to the Accounts |
|
| Ten
Years at a Glance |
|
| Corporate
Committees |
|
|
|
| COMPANY
INFORMATION |
|
|
| Board
of Directors |
|
| Shaukat
R. Mirza, Chairman |
|
| Zaffar
A. Khan, President & Chief Executive |
|
| S.
Naseem Ahmad |
|
| Javed Akbar |
|
| Raymond Chiu |
|
| Parvez Ghias |
|
| David V. Johns |
|
| Pervaiz Kausar |
|
| Istaqbal Mehdi |
|
| Nisar
A. Memon |
|
| Asif Qadir |
|
| Asad Umar |
|
|
| Secretary |
|
| Andalib Alavi |
|
|
|
| Bankers |
|
| ABN
AMRO Bank N.V |
|
| Standard
Chartered Grindlays Bank Limited |
|
| Citibank N.A. |
|
| Faysal
Bank Limited |
|
| Habib
Bank Limited |
|
| Muslim
Commercial Bank Limited |
|
| National
Bank of Pakistan |
|
| Standard
Chartered Bank |
|
| Union
Bank Limited |
|
| United
Bank Limited |
|
|
| Auditors |
|
| A.
F. Ferguson & Co. |
|
| Chartered
Accountants |
|
|
| Registered
Office |
|
| PNSC Building |
|
| Moulvi
Tamizuddin Khan Road |
|
| Karachi |
|
|
|
| NOTICE
OF MEETING |
|
|
| NOTICE
IS HEREBY GIVEN that the Thirty-fifth Annual General Meeting of Engro
Chemical |
|
| Pakistan
Limited will be held at Karachi Marriott Hotel, Abdullah Haroon Road, Karachi
on |
|
| Thursday,
April 12, 2001 at 10:00 a.m. to transact the following business: |
|
|
| A.
Ordinary Business |
|
|
| 1)
To receive and consider the Audited Accounts for the year ended December 31,
2000 and |
|
| the
Directors' and Auditors' Reports thereon |
|
|
| 2)
To declare a final dividend at the rate of Rs. 3:00 per share for the year
ended |
|
| December 31, 2000 |
|
|
| 3)
To appoint Auditors and fix their remuneration |
|
|
| B.
Special Business |
|
|
| 4)
To Consider, and if thought fit, to pass the following Resolution as an
Ordinary Resolution: |
|
| "Resolved that: |
|
|
| a)
A sum of Rs. 181,351,870 (Rupees one hundred and eighty one million three
hundred |
|
| and
fifty one thousand eight hundred and seventy only) out of the free reserves
of the |
|
| Company
be capitalized and applied towards the issue of 18,135,187 ordinary |
|
| shares
of Rs. 10/- each as bonus shares in the ratio of 15:100 i.e. 15% on ordinary |
|
| shares
held by the Members whose names appear on the Members Register on |
|
| February
22, 2001. These bonus shares shall rank pari passu in all respects with the |
|
| existing
shares but shall not be eligible for the dividend declared for the year ended |
|
| December 31, 2000. |
|
|
| b)
Members entitled to fractions of shares shall be given the sale proceeds of
their |
|
| fractional
entitlements for which purpose the fractions shall be consolidated into whole |
|
| shares
and sold on the Karachi Stock Exchange. |
|
|
| c)
For the purpose of giving effect to the foregoing, the directors be and are
hereby |
|
| authorised
to give such directions as they deem fit to settle any questions or any |
|
| difficulties
that may arise in the distribution of the said bonus shares or in the payment |
|
| of
the sale proceeds of the fractions." |
|
|
| A
statement under Section 160 of the Companies Ordinance, 1984 setting forth
all material facts |
|
| concerning
the Resolution contained in item (4) of the Notice which will be considered
for |
|
| adoption
at the Meeting is annexed to this Notice of Meeting being sent to Members. |
|
|
|
|
By Order of the Board |
|
|
|
|
|
|
|
|
|
Andalib Alavi |
|
| Karachi, |
|
|
Chief Legal Advisor & |
|
| Dated:
January 30, 2001 |
|
Company Secretary |
|
|
| N.B. |
|
|
| (1)
The share transfer books of the Company will be dosed and no transfers of
shares will be |
|
| accepted
for registration from Thursday, February 22, 2001 to Thursday, March 8, 2001
(both |
|
| days
inclusive). Transfers received in order at the Registered Office of the
Company upto the |
|
| close
of business (4: 30 p.m.) on Wednesday, February 21, 2001 will be in time for
the |
|
| purposes
of payment of the final dividend, issue of bonus shares and entitlement to
attend and |
|
| vote
at the Annual General Meeting. |
|
|
| (2)
A member entitled to attend and vote at this Meeting shall be entitled to
appoint another person, |
|
| as
his/her proxy to attend, speak and vote instead of him/her, and a proxy so
appointed shall |
|
| have
such rights, as respects attending, speaking and voting at the Meeting as are
available to |
|
| a
member. 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. |
|
|
| Statement
under Section 160 of the Companies Ordinance 1984 |
|
| This
statement is annexed to the Notice of the Thirty-fifth Annual General Meeting
of Engro |
|
| Chemical
Pakistan Ltd. to be held on April 12, 2001 at which certain special business
is to be |
|
| transacted.
The purpose of this Statement is to set forth the material facts concerning
such |
|
| special
business. |
|
|
| Item
(4) of the Agenda |
|
| The
Board of Directors recommend that taking into account the financial position
of the Company |
|
| the
issued capital of the Company be increased by capitalization of free reserves
amounting to |
|
| Rs.
181,351,870 and the issue of bonus shares in the ratio of 15:100 i.e. 15%.
The Directors of |
|
| the
Company are interested in the business to the extent of their shareholding in
the Company. |
|
|
|
|
|
|
By Order of the Board |
|
|
|
|
|
|
|
|
|
Andalib Alavi |
|
| Karachi, |
|
|
Chief Legal Advisor & |
|
| Dated:
January 30, 2001 |
|
Company Secretary |
|
|
|
|
| FINANCIAL
HIGHLIGHTS |
|
|
|
|
2000 |
1999 |
|
|
|
|
| Sales Revenue |
|
Rs. Million |
8,394 |
8,628 |
|
| Earnings
after Tax |
|
Rs. Million |
1,126 |
1,048 |
|
| No.
of Shares Outstanding |
|
(000's) |
120,901 |
120,901 |
|
| Earnings
per share - Basic and diluted |
Rs. |
9.32 |
8.66 |
|
| Dividend |
|
Rs./Share |
7.00 |
6.00 |
|
| Return
on Capital Employed |
|
(%) |
21 |
22 |
|
| Current Ratio |
|
|
1.27 |
1.10 |
|
| Debt:
Equity Ratio |
|
|
37:63 |
37:63 |
|
| Capital
Expenditure |
|
Rs. Million |
578 |
337 |
|
| Long
Term Investments |
|
Rs. Million |
-- |
171 |
|
| (during
the year) |
|
|
|
|
| Market
Capitalization (yr. end) |
|
Rs. Million |
8,342 |
15,173 |
|
| Market
Capitalization (yr. end) |
|
US$ Million |
143 |
292 |
|
|
|
|
|
|
| THE
DIRECTORS' REPORT |
|
|
| The
Board of Directors of Engro Chemical Pakistan Limited is pleased to present
the |
|
| thirty-fifth
annual report and the audited accounts of the Company for the year |
|
| ended
December 31, 2000. |
|
|
|
|
|
| FERTILIZER
INDUSTRY ENVIRONMENT |
|
|
|
|
|
| The
urea market environment changed significantly during the course of the |
|
| year.
Excess supply, declining prices and lower product demand characterized the |
|
| market
during the first half of the year. In the second half the supply/demand |
|
| balance
improved and customer demand firmed up. The price of urea in the |
|
| international
market increased as did prices in the domestic market. However, |
|
| local
urea prices stayed well below international prices. |
|
|
|
|
| Overall,
the domestic demand for urea in 2000 decreased by 2% to 4.0 million |
|
| tons
whereas indigenous production was 3.9 million tons versus 4.0 million tons in |
|
| 1999.
Supply exceeded demand throughout the year due to carry over of |
|
| 0.4
million of urea inventory. No imports were necessary. In fact, the excess
supply |
|
| enabled
the industry to export a little over 0.1 million tons during 2000. The |
|
| closing
inventory at the year end was 0.1 million tons. |
|
|
| The
demand for phosphatic fertilizers fared better than urea and registered a |
|
| growth
of 8% to 1.6 million tons. The growth in demand is partly attributed to |
|
| speculative
buying by dealers due to the steady rise in international price of DAP. |
|
|
| MARKETING |
|
|
| The
Company's total fertilizer sales volume at 1,023,000 tons was 4% lower |
|
| than
last year as there was no requirement to sell imported urea versus |
|
| 46,000
tons said in 1999. Engro urea sales were 800,000 tons which was |
|
| marginally
lower than last year. The Company's share of the urea market was |
|
| 20%
essentially limited by product supply. The declining trend of urea price |
|
| bottomed
out during the first half of 2000 and then moved up as domestic |
|
| supply/demand
balance improved and the international price of urea firmed up. |
|
|
|
|
|
| THE
DIRECTORS' REPORT |
|
|
| The
Company arranged timely imports of phosphatic and potassic fertilizers to |
|
|
|
| promote
balanced fertilization. The confidence of farmers in the Engro brand |
|
|
|
| name
enabled the Company to sell 223,000 tons of DAP, NP, MOP and |
|
|
|
| NPK
fertilizers representing an increase of 2% over 1999. |
|
|
|
|
|
| The
Company's commitment to provide expert technical guidance and support to |
|
| the
farming community continued during the year. A record of over 8,000 soil |
|
|
|
| samples
were tested free of cost at the three laboratories which were also |
|
|
|
| upgraded
to analyze micro nutrient deficiencies. Several successful seminars |
|
|
|
| on
sugarcane, potato and mango crop were organized for the promotion of |
|
| balanced
fertilizer usage. Experts from the national research institutions were |
|
| invited
to share their experiences. In view of the irrigation water shortages,
farmers |
|
| were
advised on techniques to deal with the situation effectively. Technical |
|
| literature
on this aspect and booklets on different crops were published and |
|
| distributed
among the farmers. The Company maintained its thrust at |
|
| enhancement
of product brand image through television and radio advertising. |
|
|
| MANUFACTURING |
|
|
|
|
|
|
|
|
| The
production of Engro urea at 807,700 tons was marginally higher |
|
|
| than
last year's record production but lower than the design capacity of |
|
| 850,000
tons due to equipment limitation. New redesigned equipment to |
|
| overcome
the limitation is on hand and ready for installation during the plant |
|
| maintenance
shutdown of March 2001. |
|
|
|
|
|
|
|
| The
Company's gas utilization efficiency improved during the year |
|
| and
was the best ever on record. Further, the Company has engineered and |
|
| developed
several projects to improve product quality, operational reliability |
|
| and
environmental performance. These projects are in various stages of |
|
| implementation. |
|
|
| The
Manufacturing Division made good progress towards ISO 9002 certification |
|
| of
the plant site. All necessary procedures were documented in |
|
| preparation
to receive the external auditors early in 2001. |
|
|
| The
Company has a total gas allocation of 103 MSCFD of Mari Gas of which 42 |
|
| MSCFD
is covered by an agreement that expires in 2013 and is then renewable |
|
| for
another 10 years. The gas supply contract for the bulk of the balance |
|
| quantity
expired in 1998 but with a 10 year renewal provision which has the |
|
| approval
of the Government. Mari Gas Company Limited (MGCL) whilst |
|
| supplying
the required gas has been withholding formal renewal of this |
|
| contract
as they wish to add certain new provisions in the contract. Discussions are |
|
| underway
and it is expected that renewal will be formalized early in 2001. |
|
|
|
|
| FINANCIAL
RESULTS |
|
|
| In
2000, the Company earned a profit after tax of Rs.1,126 million as compared
to |
|
| Rs.1,048
million achieved during the previous year. The profit improvement of 7% is |
|
| attributed
partially to the favourable market environment of the second half of the year |
|
| and
several other beneficial events and adjustments. These include cost control
measures |
|
| adopted
by the Company, the first dividend from Engro Vopak Terminal Limited,
insurance |
|
| claim
on loss of profit due to equipment failure, foreign exchange gains, reversal
of a |
|
| penalty
accrual and lower taxation charges. |
|
|
| Your
Board recommends that the net profit of Rs. 1,126 million earned during the
year |
|
| together
with the balance of unappropriated profit of Rs.5 million brought forward
from |
|
| prior
year be appropriated as follows: |
|
|
|
|
|
Million Rupees |
|
|
| Total
profit available for appropriation |
|
1,131.7 |
|
|
|
|
|
|
| Appropriations |
|
|
| Transfer
to general reserve |
|
100.0 |
|
| Transfer
to reserve for issue of bonus shares |
|
181.4 |
|
| First
interim dividend on 120.901 million shares of Rs.10 |
|
|
|
| each
at Rs.2.00 per share declared on August 12, 1999 |
|
241.8 |
|
|
|
|
| Second
interim dividend on 120.901 million shares of Rs.10 |
|
|
|
| each
at Rs.2.00 per share declared on November 3, 1999 |
|
241.8 |
|
|
|
|
|
|
| Proposed
final dividend on 120.901 million shares of Rs.10 |
|
|
|
| each
at Rs.3.00 per share |
|
362.7 |
|
|
|
|
------------------ |
|
| Total
Dividend for the year |
|
846.3 |
|
|
|
|
------------------ |
|
| Unappropriated
profit carried forward |
|
4.0 |
|
|
========== |
|
|
| The
Board recommends that bonus shares in the ratio of fifteen bonus shares for
every |
|
| one
hundred shares, i.e. 15% be issued by capitalization of Rs. 181.4 million out
of the |
|
| free
reserves of the Company. The said bonus shares will not be eligible for the
dividend |
|
| declared
for the year ended December 31, 2000. The shareholders equity as at |
|
| December
31, 2000 was Rs.5,219 million compared to Rs.4,939 million last year. |
|
|
| During
the year the Company restructured and refinanced some of its loans to take |
|
| advantage
of the reduction in rates prevailing in the market. This resulted in a
significant |
|
| savings
in markup costs. |
|
|
| Pakistan
Credit Rating Agency (PACRA) in its recent annual review of the |
|
| Company's
creditworthiness, has retained Engro's long and short term |
|
| ratings
as "Single A Plus" and "Single A One" respectively. These
ratings reflect |
|
| the
Company's financial and management strength and are applicable |
|
| to
the potential senior unsecured creditors and denote a low expectation |
|
| of
credit risk and the capacity for timely payment of financial commitment. The |
|
| Company's
debt to equity ratio for the year ending 2000 is 37:63, the same as |
|
| in
1999. The current ratio for the year closed at a healthy 1.27. |
|
|
|
| The
Company continued with its policy of keeping the shareholders and the public |
|
| informed
of its operations by way of quarterly releases of the business results |
|
| to
the press and stock exchanges in the country. Security analyst briefings were |
|
| also
held regularly to explain business developments in the Company and its |
|
| joint
ventures. This information was regularly posted on the Company's |
|
| web page. |
|
|
| In
recognition of its financial performance, the Company was once |
|
| again
selected for the "Top 25 Companies Award" of the Karachi Stock |
|
| Exchange
for year 1999. This would make the 18th time that the Company |
|
| has
won this award since its inception 21 years ago. |
|
|
| SAFETY
& ENVIRONMENT |
|
|
|
|
|
|
|
|
| The
Manufacturing Division achieved 5.2 million man-hours (MMH) without lost |
|
| workday
injury (LWI) to any Company employee over a 4 year period. This is a |
|
| significant
achievement and is an all time record since the start up of our plant in |
|
| 1968.
In addition, the Division completed 3.72 MMH without a LWI to |
|
| employees
of our contractors. The Non-Manufacturing functions also maintained |
|
| their
excellent safety record and by year end they had achieved 4.1 MMH over a |
|
| period
of 12.7 years without a LWI. Particularly creditable is the effort of |
|
| marketing
sales force who have achieved 12 million kilometers of safe driving over |
|
| a
period of 20 years without a LWI. |
|
|
|
|
|
|
|
| As
part of our continuing efforts to excel in safety, an external safety audit
was |
|
| conducted
by a leading consultant from USA. The audit reconfirmed Engro's high |
|
| standards
in safety and also suggested new programs to continuously enhance |
|
| safety
effectiveness. The specialist also conducted extensive courses on |
|
| process
hazard analysis and effective incident investigation. |
|
|
| Efforts
continued to improve the environmental performance of our plant. |
|
| Capital
expenditure of Rs.32 million was incurred in working towards compliance |
|
| with
the requirements of National Environment Quality Standards. |
|
|
| EMPLOYEE
RELATIONS AND ORGANIZATION DEVELOPMENT |
|
|
| The
Company suffered high attrition of skilled technical and engineering |
|
| resources
reflecting the brain drain phenomena that is prevailing in the |
|
| country.
Aggressive recruitment was undertaken to support the Company's |
|
| business
needs, including its growth and diversification programs. Structured |
|
| orientation
and training programs were organized to facilitate early assimilation |
|
| of
the new hires. |
|
|
|
|
|
|
|
|
| To
enhance work productivity, the Company continued with its program to |
|
| develop
the softer skills of its non-management (NMPT) employees. |
|
|
| Specially
designed interactive training sessions were organized for around 500 |
|
| NMPT
employees. |
|
|
|
|
|
|
|
|
| The
overall industrial climate and employee relations remained cordial |
|
| throughout
the year. The new Collective Labour Agreement with both the Daharki |
|
| and
Karachi Unions are due for negotiations in July 2001. |
|
|
|
|
|
|
|
| INFORMATION
TECHNOLOGY |
|
|
| During
the year, the Company rolled out a comprehensive customer servicing |
|
| application
called Management Information and Dealer Accounting |
|
| System
(MIDAS). All sales officers and warehouses throughout the marketing |
|
| regions
were given access to dial up connectivity via elaborate communication |
|
| infrastructure
to provide timely and quality support to dealers. |
|
|
| The
computer applications and systems provide our employees leading edge |
|
| technology
to create business process efficiencies. Initiatives taken during the |
|
| year
will result in implementation of a new financial system and integration of |
|
| databases
for better planning, customer servicing and decision making. |
|
|
| COMMUNITY
AND SOCIAL WELFARE |
|
|
|
|
|
| The
Company continued with its program of making sustainable contributions |
|
| for
the welfare of the less privileged people, specially those living in |
|
|
| surrounding
communities around Daharki. Salient projects undertaken |
|
| during
the year include: |
|
|
|
|
|
| *
Establishment of a centre at Daharki for training of teachers to improve |
|
| the
quality of education in the interior of Sindh. During the year 87 |
|
| teachers
from 62 schools were trained at the centre. |
|
|
| *
The Eye Clinic Centre at Daharki established by the Company |
|
| performed
350 cataract, 370 minor surgeries and IOL's implants on more |
|
| than
225 patients. |
|
|
| *
A Dialysis Centre was significantly progressed at the Rural Health |
|
| Centre
Daharki to provide relief to patients suffering from kidney and |
|
| renal diseases. |
|
|
| *
Free snake bite treatment provided to over 3,000 victims at the |
|
|
|
| Company's
clinic. |
|
|
|
|
|
|
|
| *
The Company and its employees contributed funds to the Pakistan Red |
|
|
|
| Crescent
Society for relief to the people of the drought affected areas. |
|
|
|
|
|
|
| *
Medical facilities upgraded in the cardiac ward of Civil Hospital |
|
|
|
| in Sukkur. |
|
|
|
|
|
|
| *
A donation was made to the Nuclear Medicine Program at the Aga Khan |
|
|
|
| University
Hospital in Karachi. |
|
|
|
|
|
|
| *
Malaria eradication program was undertaken in Daharki and the |
|
|
|
| surrounding
villages. |
|
|
|
|
|
|
| *
Substantial financial support was provided to several reputable and |
|
|
|
| well
established institutions to carry out social welfare work. |
|
|
|
|
| UREA
BUSINESS GROWTH PLANS |
|
|
| The
Company is studying several possibilities to further add capacity to meet the
growing |
|
| demand
of its customers. These include further de-bottlenecking of the existing
plant at |
|
| Daharki,
acquisition through the privatization process of Pak Saudi Fertilizer Limited
(PSFL) |
|
| and
development of new grassroots facilities. The Company is expected to firm up
its plans |
|
| after
the Government has made known the much awaited fertilizer policy. In the
meanwhile, |
|
| the
Company has completed detailed engineering of a de-bottlenecking proposal
which can |
|
| be
commissioned by 2002. This project will increase the Daharki plant's capacity
to |
|
| 930,000
tons per annum and improve its energy efficiency. In parallel, the Company
has |
|
| been
pre-qualified by the Privatization Commission to bid for PSFL. The technical
and |
|
| financial
due diligence is currently being pursued. |
|
|
|
| JOINT
VENTURES |
|
|
|
|
|
| Engro
Vopak Terminal Ltd. (EVTL) |
|
|
|
|
|
| The
name of our joint venture was changed from Engro Paktank Terminal |
|
| Limited
(EPTL) to Engro Vopak Terminal Limited (EVTL) as a result of the global |
|
| merger
of our partner Royal Pakhoed with Van Ommeren. Engro continues to |
|
| hold
50% of EVTL equity. |
|
|
|
|
|
| During
the year 2000, the volume of chemicals handled by EVTL increased by |
|
| 38%
and revenue increased by 18%. The after tax profit of EVTL is Rs.208 million |
|
| for
the year 2000 versus Rs.220 million in 1999. The higher rupee devaluation in |
|
| year
2000 resulted in additional provision for foreign exchange loss on |
|
| outstanding
dollar loans. EVTL declared its maiden dividend of 10% in December |
|
| 2000,
which resulted in Rs.45 million additional earnings for Engro Chemical |
|
| Pakistan Ltd. |
|
|
|
|
|
|
| During
the year under review, the 5 KT LPG storage facility of EVTL could not be |
|
| activated
as import of LPG became uneconomic for Pakistani importers |
|
| because
of high international LPG prices. Close monitoring and continued efforts |
|
| will
be made to utilize the LPG facilities in 2001. EVTL's new project activity in |
|
| 2000
consisted of construction of a 2.7 km stainless steel pipeline, which will |
|
| enable
Monoethylene Glycol (MEG) chemical to be imported safely at |
|
| Port Qasim. |
|
|
| Engro
Asahi Polymer & Chemicals Ltd. (EAPCL) |
|
|
|
|
|
|
|
| EAPCL
is a joint venture with Asahi Glass and Mitsubishi Corporation and Engro |
|
| owns
50% of the equity. |
|
|
|
|
|
|
|
|
| EAPCL
completed its first full year of operations. Production of PVC resin was |
|
| 63
KT from the 100 KT capacity plant. The Company sold 36 KT in the domestic |
|
| market
and achieved a market share of 95%. In addition a sizable volume of |
|
| 26
KT valued at US$ 17 million was exported. The Company is being |
|
|
| presented
the FPCCI export trophy award for non-traditional items. As a |
|
| consequence
of the smaller than anticipated domestic market and also |
|
| due
to the unusually low margin between the raw material VCM and PVC, the |
|
| Company
is expected to suffer an after tax loss of Rs.356 million in 2000. The |
|
| Company
is making efforts to expand the size of the domestic market through |
|
| development
of new applications, and is also focusing on enhancing operational |
|
| efficiency.
A notable achievement of EAPCL was securing ISO 9002 |
|
| certification
for the entire operations of the Company in its very first year. |
|
|
| OTHER
VENTURES |
|
|
| NPK
Fertilizers |
|
|
| The
construction of 100,000 tons per annum capacity NPK plant at Port Qasim |
|
| is
on schedule with start-up expected in April 2001. The availability of NPK |
|
| fertilizer
will promote balanced supply of nutrients to crops thereby improving farm |
|
| yields.
The project will meet an important agricultural input need of the country. |
|
| This
will be the first plant of its kind in Pakistan and is budgeted to cost |
|
| US$ 10.0 million. |
|
|
| Seeds |
|
|
