Engro Chemical Pakistan Ltd.

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Engro Chemical Pakistan Ltd.


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SHARE CAPITAL AND RESERVES

Share capitalAuthorised200,000,000 Ordinary shares of Rs. 10 each 2,000,000 2,000,000

Issued, subscribed and paid-up168,234,087 Ordinary shares of Rs. 10 each 1,682,340 1,682,340

ReservesShare premium 1,068,369 1,068,369Revenue 4,429,240 4,429,240Unappropriated profit 2,008,902 2,190,148

7,506,511 7,687,757

9,188,851 9,370,097

NON CURRENT LIABILITIES

Redeemable capital 6 4,684,436 1,800,000Deferred taxation 1,122,227 1,127,139Retirement and other service benefits 28,446 41,165

5,835,109 2,968,304

CURRENT LIABILITIES

Current portion of:

- redeemable capital 1,087,500 1,087,500- liability against asset subject to finance lease 1,753 2,321- other service benefits 19,372 16,477

Short term borrowings 7 2,572,877 1,299,961Trade and other payables 8 1,193,042 1,081,745Taxation 75,375 72,051Unclaimed dividends 67,360 82,360

5,017,279 3,642,415

CONTINGENCIES AND COMMITMENTS 9

20,041,239 15,980,816

Unconsolidated Condensed Interim Balance Sheetas at March 31, 2007(Amounts in thousand) Unaudited Audited

Note March 31, December 31,2007 2006

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(Amounts in thousand)

FIXED ASSETS

Property, plant and equipment 10 6,570,628 6,557,603Intangible assets 116,868 18,062

6,687,496 6,575,665

LONG TERM INVESTMENTS 11 4,001,196 3,657,596

LONG TERM LOANS, ADVANCES ANDOTHER RECEIVABLES 55,406 63,109

CURRENT ASSETS

Stores, spares and loose tools 729,708 688,568Stock-in-trade 12 1,900,637 923,448Trade debts 13 589,143 623,349Loans, advances, deposits and prepayments 444,102 416,758Other receivables and other assets 14 996,998 998,565Short term investments 234,562 228,518Cash and bank balances 4,401,991 1,805,240

9,297,141 5,684,446

20,041,239 15,980,816

The annexed notes 1 to 22 are an integral part of these unconsolidated condensed interim financial statements.

Hussain Dawood Asad UmarChairman President and Chief Executive

Unaudited Audited


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Unconsolidated Condensed InterimProfit and Loss Account (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand except for earnings per share)

Net sales 1,918,064 2,928,261Less: Cost of sales 15 1,215,545 1,964,398

GROSS PROFIT 702,519 963,863

Less: Selling and distribution expenses 16 229,476 290,672

473,043 673,191

Add: Other income 142,036 176,930

615,079 850,121

Less: Finance cost and other charges 105,712 128,021Workers Welfare Fund 10,434 11,709Workers Profits Participation Fund 25,468 36,105

141,614 175,835

PROFIT BEFORE TAXATION 473,465 674,286

Less: Taxation:- Current 17 154,921 206,128- Deferred (4,912) (3,328)

150,009 202,800

PROFIT AFTER TAXATION 323,456 471,486

(Restated)

Earnings per share - Basic and diluted 18 1.92 2.92

Appropriations have been reflected in the statement of changes in equity.



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Note March 31, March 31,2007 2006

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Unconsolidated Condensed InterimStatement of Changes in Equity (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand)

Share Reserves Total

Capital Share Revenue Unappropriated

Premium Profit

Rupees

Balance as at January 1, 2006 1,529,400 - 4,429,240 1,416,926 7,375,56

Final dividend for the year endedDecember 31, 2005 @ Rs. 5.00per share - - - (764,700) (764,70

Net profit and total recognisedincome and expense for the three

months period ended March 31, 2006 - - - 471,486 471,48

Balance as at March 31, 2006 1,529,400 - 4,429,240 1,123,712 7,082,35

Right Share Issue in ratio of 1 for every 10 shares@ Rs. 80 per share (including sharepremium net of share issue expenses) 152,940 1,068,369 - - 1,221,30

Net profit and total recognisedincome and expense for the nine monthsperiod ended December 31, 2006 - - - 2,075,840 2,075,84

1st Interim Dividend 2006@ Rs. 3.00 per share - - - (504,702) (504,70

2nd Interim Dividend 2006

@ Rs. 3.00 per share - - - (504,702) (504,70

Balance as at December 31, 2006 /January 1, 2007 (audited) 1,682,340 1,068,369 4,429,240 2,190,148 9,370,09

Final Dividend for the year endedDecember 31, 2006@ Rs. 3.00 per share - - - (504,702) (504,70

Net profit and total recognisedincome and expense for the threemonths period ended March 31, 2007 - - - 323,456 323,45

Balance as at March 31, 2007 (unaudited) 1,682,340 1,068,369 4,429,240 2,008,902 9,188,85




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CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 19 (242,074) (28,509)Retirement and other service benefits paid (26,051) (32,148)Payment of finance cost (131,585) (137,438)Taxes paid (151,597) (153,657)Long term loans and advances (net) 7,703 3,489

Net cash outflow from operating activities (543,604) (348,263)

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditure (270,612) (34,328)Sales proceeds on disposal of properly, plant and equipment 1,964 1,860Investment in subsidiary companies (397,000) (251,800)Income on deposits / other financial assets 36,430 24,097Dividends received 138,535 241,250

Net cash outflow from investing activities (490,683) (18,921)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of finance lease obligation (568) (536)Repayment of redeemable capital (400,000) -Proceeds from redeemable capital 3,284,436 -Dividends paid (519,702) (554,678)

Net cash inflow / (outflow) from financing activities 2,364,166 (555,214)

Net increase / (decrease) in cash and cash equivalents 1,329,879 (922,398)

Cash and cash equivalents at the beginning of the period 733,797 1,280,501

Cash and cash equivalents at the end of the period 20 2,063,676 358,103


Hussain Dawood Asad Umar

Chairman President & Chief Executive

Unconsolidated Condensed InterimCash Flow Statement (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand)

Note March 31, March 312007 2006

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Notes to the Unconsolidated Condensed InterimFinancial Statements (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand)

1. Engro Chemical Pakistan Limited (the Company) is a public listed company incorporated in Pakistan. The principal activity of theCompany is manufacturing, purchasing and marketing of fertilizers. The Company has also invested in joint ventures / otherentities engaged in chemical related activities, industrial automation, food and energy businesses.

2. The accounting policies adopted by the Company in the preparation of these unconsolidated condensed interim financial statementsare the same as those for the preceeding annual unconsolidated financial statements for the year ended December 31, 2006.

3. These unconsolidated interim financial statements have been presented in condensed form in accordance with the requirementsof International Financial Reporting Standard (IFRS) IAS 34 - Interim Financial Reporting.

These unconsolidated condensed interim financial statements are unaudited and are being submitted to the shareholders asrequired by Section 245 of the Companies Ordinance, 1984.

4. The preparation of these unconsolidated condensed interim financial statements requires management to make judgements,estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities,income and expenses. Actual results may differ from these estimates.

In preparing these unconsolidated condensed interim financial statements, the significant judgements made by the management

in applying accounting policies, key estimates and uncertainty includes:- Residual value and useful life estimation of fixed assets.- Taxation.- Fair values of financial assets and liabilities.

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

6. REDEEMABLE CAPITAL

During the year the Company has entered into long term finance agreements with Habib Bank Limited and Allied Bank Limitedamounting to Rs. 1 billion and Rs. 2 billion respectively for a period of seven years with a three year grace period. The mark-upis chargeable at the rate of 1.75% over six months KIBOR. These facilities are secured by an equitable mortgage upon theimmovable property located at Daharki and floating charge over current and future fixed assets of the Company.

7. SHORT TERM BORROWINGS

This includes short term foreign exchange import loans of USD 41,976 obtained to fund the Letter of Credit payment relating toUrea Expansion Project. These loans carry mark-up at rates of 1.75% over six months LIBOR. These facilities are secured by afloating charge over current and future fixed assets and long term investments of the Company.

The facility for short term finance available from various banks amounts to Rs. 3,000,000 (2006 Rs. 3,000,000). The rates ofmark-up ranges from 10.2% to 11.5% (2006: 10.07% to 11.53%) and the facilities are secured by floating charge upon all currentand future moveable properties of the Company.

8. TRADE AND OTHER PAYABLES

Creditors 707,456 508,859Accrued liabilities 201,098 341,516Payable to funds 10,483 -

Payable to defined contribution pension fund 3,601 3,764Advances from customers 58,674 40,253Finance cost accrued on secured:

- redeemable capital 26,416 54,895- short term borrowings 35,894 33,288

Deposits from dealers refundable ontermination of dealership 10,273 10,222

Contractors deposits and retentions 7,463 5,618Workers profits participation fund 25,468 -Workers welfare fund 80,650 70,216Others 25,566 13,114

1,193,042 1,081,745

Unaudited AuditedMarch 31, December 31,

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9. CONTINGENCIES AND COMMITMENTS

Contingencies

9.1 Claims, including pending lawsuits, against the Company not acknowledged as debts amounted to Rs. 27,91(2006: Rs. 48,911).

9.2 Corporate guarantees of Rs. 273,650 (2006: 304,732) have been issued in favour of subsidiary companies.

9.3 Performance guarantees of Rs. 670,500 (2006: 670,500) have been issued in favour of third parties, including Rs. 605,000 ifavour of Ministry of Industries, Government of Pakistan (GoP) for participating in bidding for gas allocation.

9.4 The Company is contesting the penalty of Rs. 99,936, paid and expensed in 1997, imposed by the State Bank of Pakistan (SBPfor alleged late payment of foreign exchange risk cover fee on long term loans and has filed a suit in the High Court of Sindh. partial refund of Rs. 62,618 was however, recovered in 1999 from SBP and the recovery of the balance amount is dependent oCourt's decision.

9.5 The Company had commenced two separate arbitration proceedings against the Government of Pakistan for non-payment omarketing incidentals relating to the years 1983-84 and 1985-86. The sole arbitrator in the second case has awarded theCompany Rs. 47,800 and it is hoped that the award for the earlier years will be announced shortly. The award for the seconarbitration has not been recognized due to inherent uncertainties arising from its challenge in the High Court.

Commitments

9.6 Plant and machinery 35,096,414 74,795

9.7 Capital Commitment for future rights for Gas Utilisation - 101,000

9.8 Commitment to subscribe 2,700,000 shares of Engro Energy (Private) Limited. - 27,000

10. PROPERTY, PLANT AND EQUIPMENT

10.1 Additions to fixed assets including intangible assets during the period amounted to Rs. 137,968 (2006: Rs. 644,568) anddeletions at cost therefrom were Rs. 4,453 (2006: Rs. 65,082).

10.2 The Collector of Customs had disallowed exemption from custom duty and sales tax amounting to Rs. 48,236 in prior years irespect of the first catalyst and other items being part and parcel of the expansion plant on the contention that these items donot fall under the definition of "plant and machinery" which is exempt under the relevant SRO. The Company challenged thDepartment's contention through a constitutional petition in the High Court of Sindh which stayed the recovery of the amounclaimed and in December 1994 decided the petition in favour of the Company. The Department filed an appeal in the SupremCourt. During the 2nd quarter 2005, the Supreme Court of Pakistan dismissed the appeal and upheld the Sindh High Cou

judgment in Company's favour. Payments totaling Rs. 22,207 made to the Department during the pendency of the petition in thHigh Court of Sindh on their contention that the stay order had expired, are now refundable to the Company, for which aapplication has been filed with the Department.

10.3 This includes Urea Expansion Project related Capital work-in-progress amounting to Rs. 225,965 (2006: Rs. 64,704).


Unaudited AuditedMarch 31, December 3

2007 2006Rupees

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11. LONG TERM INVESTMENT

Unquoted

Subsidiaries - at cost Equity % Held

Engro Eximp (Private) Limited 100% 100 100Engro Management Services (Private) Limited 100% 2,500 2,500Engro Innovative Automation (Private) Limited

formerly Innovative Automation & Engineering(Private) Limited 51% 81,957 81,957

Engro Foods Limited: 100%- Paid-up Share Capital 1,500,000 1,000,000- Advance against issue of share capital 402,500 602,500

Engro Energy (Private) Limited: 100%- Paid-up share capital 125,000 15,000- Advance against issue of share capital 70,000 83,000

Engro Asahi Polymer & Chemicals Limited 80% 1,364,139 1,417,539

3,546,196 3,202,596Joint Venture - at cost

Engro Vopak Terminal Limited 50% 450,000 450,000

Others - at cost

Arabian Sea Country Club Limited 5,000 5,000Agrimall (Private) Limited (note 11.1) - -

4,001,196 3,657,596

11.1 This represents the Company's share in the paid-up share capital of Agrimall (Private) Limited transferred free of cost to theCompany under a joint venture agreement.

12. STOCK-IN-TRADE

Raw Materials 378,042 323,306Work-in-process 960 3,644

Finished goods - own manufactured product 646,945 163,202- purchased product 874,690 433,296

1,521,635 596,498

1,900,637 923,448

13. TRADE DEBTS

Considered good 589,143 623,349Considered doubtful 7,923 7,923

597,066 631,272

Less: Provision for doubtful debts (7,923) (7,923)

589,143 623,349

14. OTHER RECEIVABLES AND OTHER ASSETS

14.1 Other receivables include Rs. 336,446 (2006: Rs. 645, 248) on account of compensation for mandatory reduction in sales priceby the Government of Pakistan on phosphatic and potassic fertilizer inventory during 2006.

14.2 During the first quarter, the Company had entered into two seperate options contracts costing Rs. 352 million for a tenure of 6months to mitigate currency risk. The cumulative notional amount is Euros 335.62 million representing the anticipated outflowsfor the Urea Expansion Project. The structure of both contracts encapsulates both call and put features so as to provideprotection while also offering participation to the Company. The fair value of these options amounted to Rs. 346 million.



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15. COST OF SALES

Raw materials consumed 688,081 734,07Salaries, wages and staff welfare 159,688 133,66Fuel and power 522,876 480,28Repairs and maintenance 42,964 33,49Depreciation 151,887 147,67Consumable stores 22,850 17,66Staff recruitment, training, safety and other expenses 12,029 6,68Purchased services 28,151 19,44Travel 3,884 6,42Communication, stationery and other office expenses 5,356 6,93Insurance 19,065 13,29Rent, rates and taxes 2,146 2,03Other expenses 8,883 9,02

Manufacturing Cost 1,667,860 1,610,70

Add : Opening stock of work-in-process 3,644 1,03

Less : Closing stock of work-in-process 960 2,01

2,684 (978

Cost of goods manufactured 1,670,544 1,609,72

Add : Opening stock of finished goods manufactured 163,202 318,67Less : Closing stock of finished goods manufactured 646,945 523,14

(483,743) (204,47

Cost of goods sold - own manufactured product 1,186,801 1,405,25- purchased product 28,744 559,14

1,215,545 1,964,39

16. SELLING AND DISTRIBUTION EXPENSES

Salaries, wages and staff welfare 57,268 50,91Staff recruitment, training, safety and other expenses 4,434 4,38Product transportation and handling 115,469 185,38Repairs and maintenance 2,392 5,06Advertising and sales promotion 10,862 8,53Rent, rates and taxes 13,718 9,98Communication, stationery and other office expenses 4,737 4,60Travel 4,373 5,63Depreciation / amortization 5,500 5,64Purchased services 939 2,31Other expenses 9,784 8,20

229,476 290,67


March 31, March 312007 2006

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17. TAXATION

The Company has filed tax returns up to income year 2005. All assessments up to income year 2002 have been finalized by theDepartment and appealed against. For income years June 1995 and June 1996, assessments were set-aside by theCommissioner (Appeals) which was maintained by the Income Tax Appellate Tribunal (ITAT). The Department is currently

conducting hearings on these set-asides. The appeals for income years ended June 1997, December 1997 and December 1998have been decided in favour of the Company by the appellate authorities. For December 1998, the Company has receivedfavourable decision from the Commissioner (Appeals) on the issue of incorporating correct turnover numbers in the assessment.For June 1997 and December 1997 the Company has filed an appeal before ITAT on grounds of error in calculation ofdepreciation which it believes to be an error of fact and should be rectified.

For income years December 1999 to December 2002, the Company is in Appeal with ITAT on the most important contentiousissue of apportionment of gross profit and selling and distribution expenses. The Company has also filed reference withAlternative Dispute Resolution Committee (ADRC) of the Central Board of Revenue (CBR) on the issue of apportionment ofgross profit and selling and distribution expenses for these four years which is currently in progress.

For these four years, the Department has also filed appeals with ITAT on certain issues which were decided in favour of theCompany by the Commissioner (Appeals). For income years December 2003, December 2004 and December 2005, incometax returns have been filed under self assessment schemes. The management is confident that all pending issues will beultimately resolved without any additional liability.

18. EARNINGS PER SHARE

There is no dilutive effect on the basic earnings per share of the Company, which is based on:

Profit after taxation 323,456 471,486

(Restated)

Weighted average number of Ordinary shares - (in thousand) 168,234 161,350

19. CASH GENERATED FROM OPERATIONS

Profit before taxation 473,465 674,286

Adjustment for non-cash charges and other items:

Depreciation / Amortization 157,387 153,327Profit on disposal of fixed assets (570) (802)Provision for retirement and other service benefits 26,548 23,457Income on deposits / other financial assets (45,165) (19,601)Dividend Income (89,000) (106,250)Finance cost 105,712 76,120Working capital changes (note 19.1) (870,451) (829,046)

(242,074) (28,509)19.1 Working capital changes

(Increase) / decrease in current assets

Stores, spares and loose tools (41,140) (27,685)Stock-in-trade (977,189) (147,078)Trade debts 34,206 182,272Loans, advances, deposits and prepayments (27,344) 20,409Other receivables and other assets 14,166 (89,040)

(997,301) (61,122)Increase / (decrease) in current liabilities

Trade and other payableincluding other service benefits (net) 126,850 (767,924)

(870,451) (829,046)

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20. CASH AND CASH EQUIVALENTS

Cash and bank balances 4,401,991 298,893Short term investments 234,562 434,820Short term borrowings (2,572,877) (375,610)

2,063,676 358,10321. TRANSACTIONS WITH RELATED PARTIES

AssociatesPurchases and services 266 7,996Retirement benefits 22,043 18,895Dividends paid 210,729 319,287

Joint VentureServices rendered 286 574Dividends income - 66,750

SubsidiariesServices rendered 6,046 335

Purchases and services 468,263 286,771Dividend received 143,300 39,500Long term investment made 347,000 251,800Markup from a subsidiary 5,225 4,275

OthersRemuneration paid to key management personnel / directors 17,314 16,403Dividends paid 2,797 6,392

Balances due from- Joint Venture 148 90,080- Subsidiaries (including subordinated loan of Rs. 190,000 to

Engro Eximp (Private) Limited, wholly owned subsidiary) 335,396 265,122

Balances due to Subsidiary 370,817 -

22. DATE OF AUTHORIZATION FOR ISSUE

These unconsolidated condensed interim financial statements were authorized for issue on April 25, 2007 by the Board ofDirectors of the Company.




2007 2006Rupees

March 31, March 31,2007 2006

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Engro Chemical Pakistan Ltd.and its subsidiary companies

Consolidated Financial Statements


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First Quarter 2007 Report to the Shareholders -Engro Chemical Pakistan Limited and its subsidiaryCompanies

On behalf of the Board of Directors of Engro Chemical Pakistan Limited, we are pleased to present the un-

audited group consolidated accounts for the first quarter ended March 31, 2007 consists of:

Holding Company

Engro Chemical Pakistan Limited

Subsidiary companies, i.e., each of those companies in which the Holding Company owns over 50% of

voting rights.

Engro Eximp (Private) Limited (100% equity held);

Engro Management Services (Private) Limited (100% equity held);

Engro Innovative Automation (Private) Limited (51% equity held);Engro Foods Limited (100% equity held);

Engro Energy (Private) Limited (100% equity held); and

Engro Asahi Polymer and Chemicals Limtied (80% equity held)

The un-audited group consolidated results also accounts for our share of profit in Engro Vopak Terminal

Limited, a 50% owned joint venture.

The consolidated net profit for the first quarter 2007 was Rs. 209 million compared to Rs. 415 million for the

same period last year. The primary reason for decrease in profits are lower Urea demand; operating and

pre-operating losses at Engro Foods (Private) Limited, Engro Innovative Automation (Private) Limited and

Engro Energy (Private) Limited.

Our share of the first quarter earnings from Engro Asahi was Rs. 48 million vs. Rs. 60 million in the same

period last year. During this quarter, Engro Asahi declared and paid dividends of Rs. 1.00 per share of which

our share was Rs. 89 million. Engro Foods incurred a loss of Rs. 62 million in the first quarter 2007 which

was better than their plan. Engro Innovative Automation (Private) Limited incurred net losses of Rs. 35

million for the quarter ended March 2007. Pre-operating losses at Engro Energy during the first quarter

March 2007 amounted to Rs. 27 million. Our share in Engro Vopak profit was Rs. 59 million compared to

Rs. 49 million last year.


Chairman President and Chief Executive

KarachiApril 25, 2007

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SHARE CAPITAL AND RESERVES

Share capitalAuthorised200,000,000 Ordinary shares of Rs.10 each 2,000,000 2,000,000

Issued, subscribed and paid-up 1,682,340 1,682,340

ReservesShare premium 1,068,369 1,068,369Revaluation reserve on business combination 195,274 197,316Revenue 4,429,240 4,429,240Unappropriated profit 1,566,727 1,861,933

7,259,610 7,556,858

8,941,950 9,239,198

MINORITY INTEREST 574,684 556,973

9,516,634 9,796,171NON CURRENT LIABILITIES

Redeemable capital 6 5,630,686 2,347,500Long term loan - 34,811Liabilities against assets subject to finance leases 25,886 24,027Deferred taxation 1,380,089 1,395,024Retirement and other service benefits 50,985 59,089

7,087,646 3,860,451

CURRENT LIABILITIES

Current portion of- redeemable capital 1,202,500 1,252,500- long term loan 69,406 69,623- liabilities against assets subject to finance leases 11,578 10,557- other service benefits 19,372 24,133

Short term borrowings 7 3,615,441 2,020,372Trade and other payables 8 3,035,357 2,894,897Taxation 55,430 42,999Unclaimed dividends 67,360 82,360

8,076,444 6,397,441

CONTINGENCIES AND COMMITMENTS 9

24,680,724 20,054,063

Consolidated Condensed Interim Balance Sheetas at March 31, 2007(Amounts in thousand) Unaudited Audited


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FIXED ASSETS

Property, plant and equipment 10 11,535,298 10,754,229Intangible assets 422,582 40,158

11,957,880 10,794,387

LONG TERM INVESTMENTS 533,908 474,851

LONG TERM LOANS, ADVANCES,DEPOSITS AND OTHER RECEIVABLES 72,478 73,965

CURRENT ASSETS

Stores, spares and loose tools 854,463 814,057Stock-in-trade 11 2,999,692 2,303,641Trade debts 12 1,157,118 1,169,881Loans, advances, deposits and prepayments 611,004 355,531Other receivables and other assets 13 1,020,891 1,391,247Short term investments 234,562 228,518Cash and bank balances 5,238,728 2,447,985

12,116,458 8,710,860

24,680,724 20,054,063

The annexed notes 1 to 21 are an integral part of these consolidated condensed interim financial statements.


Chairman President and Chief Executive

Unaudited AuditedNote March 31, December 31,

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Consolidated Condensed InterimProfit and Loss Account (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand except for earnings per share)

16

Net sales 4,189,898 3,113,947

Less: Cost of sales 14 3,152,794 2,108,962

GROSS PROFIT 1,037,104 1,004,985

Less: Selling and distribution expenses 15 595,622 417,891

441,482 587,094

Add: Other income 67,509 66,134

Less: Finance cost and other operating charges 163,877 135,129Workers Welfare Fund 12,286 11,709Workers Profits Participation Fund 30,342 36,105

206,505 182,943

Add: Share of income from Joint Venture 59,057 109,311

PROFIT BEFORE TAXATION 361,543 579,596

Less: Taxation:- Current 16 170,764 213,245- Deferred (12,212) (37,614)

158,552 175,631

PROFIT AFTER TAXATION 202,991 403,965

Attributable to:- Equity holders of Holding Company 209,496 414,725- Minority interest (6,505) (10,760)

202,991 403,965

(Restated)

Earnings per share - Basic and diluted 17 1.25 2.57

Appropriations have been reflected in the statement of changes in equity.



Note March 31, March 31,2007 2006

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Consolidated Condensed InterimStatement of Changes in Equity (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand) Reserves

Share Share Revaluation Revenue Unappro- Sub Minority Total

Capital Premium reserve on priated Profit total interestbusiness

combination(Rupees)

Balance as at January 1, 2006 1,529,400 - - 4,429,240 1,529,146 7,487,786 53,004 7,540,7

Final Dividend for the year endedDecember 31, 2005 @ Rs.5.00per share - - - - (764,700) (764,700) - (764,7

Net profit and total recognised incomeand expense for the three monthsperiod ended March 31, 2006 - - - - 414,725 414,725 (10,760) 403,9

Balance as at March 31, 2006 1,529,400 - - 4,429,240 1,179,171 7,137,811 42,244 7,180,0

Rights shares issue in ratio of 1 forevery 10 shares @ Rs. 80 per share(including share premium net of share

issue expenses) 152,940 1,068,369 - - - 1,221,309 - 1,221,3

Net profit and total recognised incomeand expense for the nine monthsperiod ended December 31, 2006 - - - - 1,692,166 1,692,166 42,711 1,734,8

Revaluation reserves on existingholding of acquired subsidiary - - 197,316 - - 197,316 - 197,3

Total recognised income and expensefor the nine months period endedDecember 31, 2006 - - 197,316 - 1,692,166 1,889,482 42,711 1,932,

1st Interim dividend@ Rs. 3.00 per share - - - - (504,702) (504,702) - (504,7

2nd Interim dividend@ Rs. 3.00 per share - - - - (504,702) (504,702) - (504,

Addition to minority interest due to

change in status of a joint ventureto a subsidiary company - - - - - - 491,466 491,4

Dividend pertaining to minority interest - - - - - - (19,448) (19,4

Balance as atDecember 31, 2006 /January 1, 2007 (Audited) 1,682,340 1,068,369 197,316 4,429,240 1,861,933 9,239,198 556,973 9,796,

Final Dividend for the year endedDecember 31, 2006 @ Rs. 3.00per share - - - - (504,702) (504,702) - (504,7

Net profit and total recognised incomeand expense for the three monthsperiod ended March 31, 2007 - - - - 209,496 209,496 (6,505) 202,

Dividend pertaining to minority interest - - - - - - (35,600) (35,6

Addition to minority interest due to

acquisition of a subsidiary company - - - - - - 60,633 60,6Amortization of revaluation surplus arising

on acquisition of a subsidiary company - - (2,042) - - (2,042) (817) (2,8

Balance as atMarch 31, 2007 (Unaudited) 1,682,340 1,068,369 195,274 4,429,240 1,566,727 8 ,941,950 574,684 9,516,6


Hussain Dawood Asad UmarChairman President and Chief Executiv


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CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 18 92,299 (72,310)Retirement and other service benefits paid (38,188) (32,148)Finance cost (168,721) (133,163)Taxes paid (158,333) (168,445)Long term loans and advances 1,487 (31,044)

Net cash outflow from operating activities (271,456) (437,110)

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditure (1,119,330) (286,154)Sale proceeds on disposal of fixed assets 2,761 1,860

Income on deposits / other financial assets 45,303 19,822Acquisition of a subsidiary net of cash acquired (226,896) -Dividends received 90,000 66,750

Net cash outflow from investing activities (1,208,162) (197,722)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from redeemable capital 3,684,436 -Repayment of redeemable capital (451,250) (6,250)Liabilities against assets subject to finance leases - net 2,880 11,196Repayment of long term loans (35,028) -Dividends paid (519,702) (554,678)

Net cash inflow / (outflow) from financing activities 2,681,336 (549,732)

Net increase / (decrease) in cash and cash equivalents 1,201,718 (1,184,564)

Cash and cash equivalents at the beginning of the period 656,131 1,408,274

Cash and cash equivalents at the end of the period 19 1,857,849 223,710



Consolidated Condensed InterimCash Flow Statement (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand)

Note March 31, March 32007 2006

Rupees


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Notes to the Consolidated Condensed InterimFinancial Statements (Unaudited) for theThree Months Period ended March 31, 2007(Amounts in thousand)

1. These consolidated condensed interim financial statements include the financial statements of Engro Chemical Pakistan Limited(ECPL) "Holding Company" and each of those companies in which it owns over 50% of voting rights; [Engro Eximp (Private)Limited, Engro Management Services (Private) Limited, Engro Foods Limited, Engro Energy (Private) Limited, Engro AsahiPolymers & Chemicals Limited and Engro Innovative Automation (Private) Limited - "the Group"].

Engro Eximp (Private) Limited, Engro Management Services (Private) Limited, Engro Foods Limited and Engro Energy (Private)Limited are wholly owned subsidiaries of ECPL while the controlling interest in Engro Asahi Polymer & Chemicals Limited is 80%and Engro Innovative Automation (Private) Limited is 51%.

The financial statements of the subsidiary companies have been consolidated on a line by line basis. The carrying value ofinvestments held by ECPL is eliminated against the subsidiaries' shareholders' equity in the consolidated condensed interimfinancial statements.

Minority Interest are presented as a separate item in these consolidated condensed interim financial statements. Allintercompany balances and transactions have been eliminated.

The Group's interest in jointly controlled entity, Engro Vopak Terminal Limited has been accounted for using Equity Method.

2. The accounting policies and methods of computation adopted in the preparation of these consolidated condensed interimquarterly financial statements are the same as those for the preceding annual financial statements for the year ended December31, 2006.

3. These consolidated condensed interim financial statements have been prepared in condensed form in accordance with therequirements of International Financial Reporting Standard (IFRS) IAS 34 - Interim Financial Reporting.

These consolidated condensed interim financial statements are unaudited and are being submitted to the shareholders asrequired by Section 245 of the Companies Ordinance, 1984.

4. The preparation of these consolidated condensed interim financial statements requires management to make judgements,estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities,income and expenses. Actual results may di ffer from these estimates.

In preparing these consolidated condensed interim financial statements, the significant judgements made by the management in

applying accounting policies, key estimates and uncertainty includes:

- Residual value and useful life estimation of fixed assets.- Taxation.

5. The Holding 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 urea and phosphatic fertilizers sales are moretilited towards Rabi season. The Holding Company manages seasonality in the business through appropriate inventorymanagement.

6. REDEEMABLE CAPITAL

During the year the Holding Company has entered into long term finance agreements with Habib Bank Limited and Allied BankLimited amounting to Rs. 1 billion and Rs. 2 billion respectively, for a period of seven years with a three year grace period. Themark-up is chargeable at the rate of 1.75% over six months KIBOR. These facilities are secured by an equitable mortgage uponthe immovable property located at Daharki and floating charge over current and future fixed assets of the Holding Company.

7. SHORT TERM BORROWINGS

This includes short term foreign exchange loans of USD 41,976 obtained to fund the Letter of Credit payment relating to UreaExpansion Project of the Holding Company. These loans carry mark-up at rates of 1.75% over six months LIBOR. These facilitiesare secured by a floating charge over current and future fixed assets and long term investments of the Holding Company.

The facility for short term running finance available to the Group from various banks amounts to Rs. 4,698,000 (2006:Rs. 4,530,000). The rates of mark-up range from 6.8% to 12.9% (2006: 6.5% to 13.6%) and the facili ties are secured by floatingcharge upon all current and future moveable properties of the Group.


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8. TRADE AND OTHER PAYABLES

Creditors 1,968,627 1,781,694Accrued liabilities 559,912 701,428Payable to defined contribution pension fund 3,601 3,764Payable to funds 16,033 13,828Advances from customers 152,211 110,515Finance cost accrued on secured:

- redeemable capital and long term loans 32,974 71,545- short term borrowings 59,649 42,245

Deposits from dealers refundable ontermination of dealership 10,273 10,647

Contractors' deposits and retentions 18,508 15,764Workers' profits participation fund 30,624 -Workers' welfare fund 82,610 70,216Sales tax payable 25,166 9,961Dividend payable to minority shareholders 35,600 19,448Others 39,569 43,842

3,035,357 2,894,897

9. CONTINGENCIES AND COMMITMENTS

Contingencies

9.1 Claims, including pending lawsuits, against the Group not acknowledged as debts amounted to Rs. 27,911 (2006: Rs. 48,911).

9.2 Performance guarantees of Rs. 1,188,943 (2006: Rs. 1,118,443) have been issued by various banks on behalf of the Groupincluding Rs. 605,000 in favour of Ministry of Industries, Government of Pakistan on behalf of the Holding Company foparticipating in bidding for gas allocation.

9.3 The Group is contesting the penalty of Rs. 99,936 (2006: Rs. 99,936) paid and expensed in 1997, imposed by the State Bankof Pakistan (SBP) for alleged late payment of foreign exchange risk cover fee on long term loans and has filed a suit in the HighCourt of Sindh. A partial refund of Rs. 62,618 (2006: Rs. 62,618) was, however, recovered in 1999 from SBP and the recoveryof the balance amount is dependent on the Court's decision.

9.4 The Group had commenced two separate arbitration proceedings against the Government of Pakistan for non-payment of

marketing incidentals relating to the years 1983-84 and 1985-86 respectively. The sole arbitrator in the second case has awardedthe Group Rs. 47,800 (2006: Rs. 47,800) and it is hoped that the award for the earlier years will be announced shortly. The awardfor the second arbitration has not been recognised due to inherent uncertainties arising from its challenge in the High Court.

Commitments

9.5 Plant and machinery 36,058,026 864,433

9.6 Capital commitment for future r ights for Gas uti lisation - 101,000

10. PROPERTY, PLANT AND EQUIPMENT

Additions to fixed assets including intangible assets and assets acquired through acquisitions during the period amounted to Rs

574,565 (2006: Rs. 5,623,369) and deletions at cost therefrom were Rs. 5,931 (2006: Rs. 66,924).

10.1 The Collector of Customs had disallowed exemption from custom duty and sales tax amounting to Rs. 48,236 in prior years inrespect of first catalyst and other items being part and parcel of the expansion plant on the contention that these items do nofall under the definition of "plant and machinery" which is exempt under the relevant SRO. The Holding Company challenged theDepartment's contention through a constitutional petition in the High Court of Sindh which stayed the recovery of the amountclaimed and in December 1994 decided the petition in favour of the Holding Company. The Department filed an appeal in theSupreme Court. During the 2nd Quarter 2005, the Supreme Court of Pakistan dismissed the appeal and upheld the Sindh HighCourt judgement in the Holding Company's favour. Payments totalling Rs. 22,207 made to the Department during the pendencyof the petition in the High Court of Sindh on their contention that the stay order had expired, are now refundable to the HoldingCompany, for which an application has been filed with the Department.

(Amounts in thousand)Unaudited AuditedMarch 31, December 31

2007 2006Rupees

Unaudited AuditedMarch 31, December 31

2007 2006Rupees


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11. STOCK-IN-TRADE

Raw materials 872,486 836,224Work-in-process 18,203 23,382

Finished goods - own manufactured product 1,307,622 956,457- purchased product 801,381 487,578

2,109,003 1,444,035

2,999,692 2,303,641

12. TRADE DEBTS

Considered good 1,157,118 1,169,881Considered doubtful 10,094 8,651

1,167,212 1,178,532

Less: Provision for doubtful debts 10,094 8,651

1,157,118 1,169,881

13. OTHER RECEIVABLES AND OTHER ASSETS

13.1 The other receivables include Rs. 345,896 (2006: Rs. 960,492) on account of compensation for mandatory reduction in salesprice by the Government of Pakistan on phosphatic and potassic fertilizer inventory during 2006.

13.2 During the first quarter, the Company had entered into two separate options contracts costing Rs. 352 million for a tenure of 6months to mitigate currency risk. The cumulative notional amount is Euros 335.62 million representing the anticipated outflowsfor the Urea Expansion Project. The structure of both contracts encapsulates both call and put features so as to provideprotection while also offering participation to the Company. The fair value of these options amounted to Rs. 346 million.

14. COST OF SALES

Raw materials consumed 2,026,359 836,518Salaries, wages and staff welfare 271,397 137,006Fuel and power 572,613 482,924

Repairs and maintenance 69,867 33,541Depreciation / amortization 220,253 155,412Consumable stores 28,009 17,669Staff recruitment, training, safety and other expenses 13,749 6,684Purchased services 87,188 19,445Travel 10,668 6,727Communication, stationery and other office expenses 11,066 7,048Insurance 23,326 13,806Rent, rates and taxes 4,785 2,160Other expenses 14,359 9,377

Manufacturing Cost 3,353,639 1,728,317

Add : Opening stock of work-in-process 23,382 1,032Less : Closing stock of work-in-process 18,203 2,010

5,179 (978)

Cost of goods manufactured 3,358,818 1,727,339

Add : Opening stock of finished goods manufactured 956,457 318,675Less : Closing stock of finished goods manufactured 1,307,622 536,615

(351,165) (217,940)

Cost of goods sold - own manufactured product 3,007,653 1,509,399- purchased product 40,504 532,661- others 104,637 66,902

3,152,794 2,108,962


Unaudited Audited

March 31, December 31,2007 2006

Rupees

March 31, December 31,

2007 2006Rupees


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15. SELLING AND DISTRIBUTION EXPENSES

Salaries, wages and staff welfare 172,356 96,679Staff recruitment, training, safety and other expenses 4,434 4,389Product transportation and handling 184,217 185,383Repairs and maintenance 3,796 6,802Advertising and sales promotion 102,525 76,069Rent, rates and taxes 24,205 10,714Communication, stationery and other office expenses 24,467 7,653Travel 25,392 9,346Depreciation / amortization 14,291 9,522Purchased services 9,316 2,314Other expenses 30,623 9,020

595,622 417,891

16. TAXATION

The Holding Company has filed tax returns up to income year 2005. All assessments up to income year 2002 have been finalizedby the Department and appealed against. For income years June 1995 and June 1996, assessments were set-aside by theCommissioner (Appeals) which was maintained by the Income Tax Appellate Tribunal (ITAT). Department is currently conductinghearings on this set-aside. The appeals for income years ended June 1997, December 1997 and December 1998 have been

decided in favour of the Holding Company by the appellate authorities. For December 1998, the Holding Company has receivedfavourable decision from the Commissioner (Appeals) on the issue of incorporating correct turnover numbers in the assessmentFor June 1997 and December 1997 the Holding Company has filed an appeal before ITAT on grounds of error in calculation odepreciation which Holding Company believes to be an error of fact and should be rectified.

For income years December 1999 to December 2002, the Holding Company is in Appeal with ITAT on all these years on themost important contentious issue of apportionment of gross profit and selling and distribution expenses. The Holding Companyhas also filed reference with Alternative Dispute Resolution Committee (ADRC) of the Central Board of Revenue (CBR) on theissue of apportionment of gross profit and selling and distribution expenses for these four years. CBR has constituted theCommittee which is currently in progress. For these four years, the Department has also filed appeals with ITATon certain issueswhich were decided in favour of Holding Company by the Commissioner (Appeals).

For income years December 2003, December 2004 and December 2005, income tax returns have been filed under selassessment schemes. The Holding Company's management is confident that all pending issues will be ultimately resolvedwithout any additional liability.

17. EARNINGS PER SHARE - BASIC AND DILUTED

There is no dilutive effect on the basic earnings per share of the Company, which is based on:

Profit after taxation (attributable to the shareholders of the Holding Company) 209,496 414,725

(Restated)

Weighted average number of Ordinary shares (in thousand) 168,234 161,350

18. CASH GENERATED FROM OPERATIONS

Profit before taxation 361,543 579,596

Adjustment for non-cash charges and other items:

- Depreciation and amortization 234,544 164,934- Profit on disposal of fixed assets (746) (802)- Provision for retirement and other service benefits 25,323 25,993

- Depreciation on Revaluation Surplus arising onBusiness Combination 1,225 -

- Income on deposits / other financial assets (53,373) (15,327)- Share of income from joint venture company (59,057) (109,311)- Finance cost 147,554 71,845- Working capital changes (note 18.1) (564,714) (789,238)

92,299 (72,310)

(Amounts in thousand)March 31, March 31,

2007 2006Rupees

March 31, March 31,2007 2006

Rupees


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18.1 WORKING CAPITAL CHANGES

(Increase) / decrease in current assets

- Stores, spares and loose tools (40,406) (50,887)- Stock-in-trade (696,051) (689,834)- Trade debts 12,763 228,375- Loans, advances, deposits and prepayments (255,473) (2,539)- Other receivables and other assets 288,426 44,279

(690,741) (470,606)Increase / (decrease) in current liabilities

- Trade and other payables including otherservice benefits (net) 126,027 (318,632)

(564,714) (789,238)19. CASH AND CASH EQUIVALENTS

Cash and bank balances 5,238,728 419,502Short term investments 234,562 434,820

Short-term borrowings 3,615,441 (630,612)

1,857,849 423,710

20. TRANSACTIONS WITH RELATED PARTIES

Associates

Purchases and services 30,146 20,574Services rendered 1,338 575Retirement Benefits 45,898 20,953Dividend Income - 66,750Dividend paid 210,729 319,287

Others

Dividend paid 2,797 6,392Remuneration paid to key management personnel / directors 39,422 24,738

Balance due from Joint Venture 11,939 90,080

21. DATE OF AUTHORIZATION FOR ISSUE

These consolidated condensed interim financial statements were authorised for issue on April 25, 2007 by the Board of Directorsof the Holding Company.


March 31, March 31,

2007 2006Rupees

Unaudited Audited

March 31, December 31,2007 2006

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Company Information

Board of DirectorsHussain Dawood, ChairmanAsad Umar, President and Chief ExecutiveIsar Ahmad

Shahzada DawoodShabbir HashmiKhalid MansoorRuhail MohammedArshad NasarAsif Qadir

Khalid Siraj Subhani

SecretaryAndalib Alavi

Chief Financial OfficerRuhail Mohammed

Members of Audit CommitteeShabbir Hashmi, ChairmanIsar AhmadShahzada Dawood

Arshad Nasar

The secretary of committee is Naveed A. Hashmi, Corporate Audit Manager.

AuditorsKPMG Taseer Hadi & Co.

Chartered Accountants

Share RegistrarM/s. Ferguson Associates (Private) Limited

Fourth Floor, State Life Buliding 2A, I.I. Chundrigar Road, Karachi - 74000.

BankersABN AMRO Bank N.V.Allied Bank of Pakistan LimitedAskari Commercial Bank LimitedBank Al-Habib LimitedBank Al-Falah LimitedThe Bank of Tokyo - Mitsubishi UFJ LimitedCitibank N.A.Faysal Bank LimitedHabib Bank Limited

Habib Metropolitan Bank LimitedThe Hongkong and Shanghai Banking Corporation LimitedJS Bank LimitedMeezan Bank LimitedMCB Bank LimitedNational Bank of PakistanStandard Chartered Bank Pakistan Limited

United Bank Limited

Registered OfficePNSC Building Moulvi Tamizuddin Khan Road Karachi

Engro Chemical Pakistan Ltd.

Documents

Transcript of Engro Chemical Pakistan Ltd.