February 22, 2016

ENGRO FERTILIZER LIMITED

SUBMITTED TO SIR SHOAIB WASEEM
MBA-5B
GROUP MEMBERS:1.
2.

Aroos Fatima Muzaffar.

Fatima Irfan.

S.NO
1

Contents
Introduction

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Page no.
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February 22, 2016

2
3
4
5
6
7
8

Vision and mission

Company information
Product line
Brief introduction about
industry
Market share and
competitors
Directors report
CCG

4-6
6-7
7-10
10-11
11-12
13-14
15

Introduction
Engro Fertilizers ltd.

Name of the company:-

History of the company:Our story begins with one companys enterprising decision to strive
ahead and invest when another had bowed out. In 1957, Pak Stanvac an
Esso/Mobil joint venture stumbled upon vast deposits rich in natural gas
in Mari while pursuing viable oil exploration in Sind. With Pak Stanvac
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February 22, 2016

focused exclusively on oil exploration, the discovery shifted the impetus

to Esso which decided to invest on the massive industrial potential of Mari
gas field. Esso proposed establishment of a giant urea plant in Daharki,
about ten miles from the Mari gas fields, which would use natural gas
produced as its primary raw material to turn out urea fertilizer.
Talks with the Government of Pakistan bore fruit in 1964, and an
agreement was signed allowing Esso to set up a urea plant with an annual
capacity of 173,000 tons. Esso brought in state-of-the-art design;
commercially tried facilities; and a highly distinguished pool of technical
expertise to ensure a smooth start up. Total investment made was US$
46M the single largest foreign investment in Pakistan to date then. The
plant started production on 4 December 1968 a few months late and
with less than 10 % over run on the original budget.
To boost sales, a full-fledged marketing organization was established
which undertook agronomic programs to educate farmers of Pakistan. As
the nations first branded fertilizer manufacturer, the Company helped
modernize traditional farming practices and boost farm yields, directly
impacting the quality of life for farmers and their families, and for the
nation at large. Farmer education programs increased consumption of
fertilizers in Pakistan; paving way for Companys branded urea called
Engro an acronym for Energy for Growth.
In 1978, Esso became Exxon as part of an international name change.
The Company was, therefore, renamed Exxon Chemical Pakistan Limited.
In 1991, Exxon decided to divest its fertilizer business on a global basis.
The employees of Exxon Chemical Pakistan Limited in partnership with
leading international and local financial institutions bought out Exxons
75% equity. This was, and perhaps still is, the most successful employee
buy-out in Pakistans corporate history.
Renamed Engro Chemical Pakistan Limited, the Company went from
strength to strength with its consistent financial performance; growth of
its core fertilizer business; and diversification into other enterprises. A
major plant capacity upgrade at Daharki coincided with the employee led
buy-out in 1991. Engro also relocated fertilizer manufacturing plants from
the UK and US to its Daharki plant sitean international first. As years
followed, Engro Chemical Pakistan Limited started venturing into other
sectors namely: foods, energy, chemical storage and handling, trading,
industrial automation and petrochemicals.
By 2009, Engro was fast growing and had already diversified its business
portfolio in as many as seven different industries. The continual
expansions and diversifications in Companys enterprises necessitated a
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broad restructuring in Engro Chemical Pakistan Ltd. which subsequently

demerged to form a new Engro subsidiary Engro Fertilizers Limited.
After the necessary legal procedures and approvals, the Sindh High Court
sanctioned the demerger on December 9, 2009. The demerger became
effective from January 1, 2010. Subsequently, all fertilizer business assets
and liabilities have been transferred to Engro Fertilizers Limited against
the issue of shares to the parent company Engro Corp.
The Company undertook its largest urea expansion project in 2007.The
state of the art plant even 3.0, stands tall at 125 meters dubbed the
tallest structure in Pakistan. The total cost of this expansion is
approximately US$ 1.1 Billion, with the expanded facility making Engro
one of the largest urea manufacturers in Pakistan, besides substantially
cutting the cost of urea imports to national exchequer.
In 2013, the Company forayed into the capital markets and tapped the
financial markets to raise the necessary capital required to fund
development capex on securing additional gas supplies along with
restructuring of the balance sheet to optimize the capital structure of the
company. The IPO was a roaring success being oversubscribed four times
in the book building process whilst being oversubscribed for three times
at the time of public issue.

Vision of Engro Fertilizers

To be a leader in the fertilizer industry with a global presence,
exceeding stakeholder expectations in the communities we
serve

Mission of Engro fertilizers

To help farmers maximize their farm produce by providing
quality plant nutrients and technical services upon which they
can depend. To create wealth by building new businesses based
on company and country strengths in Petrochemicals,
Information Technology, Infrastructure and other Agricultural
sectors

Core values of Engro fertilizers

At Engro, we support our leadership culture through unique systems and
policies which ensure open communication, foster an environment of
employee and partner privacy, and guarantee the well being and safety
of our employees.
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Our core values form the basis of everything we do at Engro; from formal
decision making to how we conduct our business to spot awards and
recognition. At Engro we never forget what we stand for.
We believe that a successful business creates much bigger economic
impact and value in the community, which dwarfs any philanthropic
contribution. Hence, sustainable business development is to be anchored
in commitment to engage with key stakeholders in the community and
society.
Ethics and integrity
We do care how results are achieved and will demonstrate honest and
ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest
professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.
Health, safety and environment
We do care how results are achieved and will demonstrate honest and
ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest
professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.
Innovation and risk-taking
We do care how results are achieved and will demonstrate honest and
ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest
professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.
Our people
We do care how results are achieved and will demonstrate honest and
ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest
professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.
Community and society

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February 22, 2016

We do care how results are achieved and will demonstrate honest and
ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest
professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.

Company information
Board of directors
1. Muhammad Alluddin Ansari Chairman
2. Ruhail Mohammad Chief Executive officer
3. Javed Akbar
4. Abdul Samad Dawood
5. Shabbir Hashmi
6. Naz Khan
7. Shahid Hamid Pracha
8. Khalid Siraj Subhani
Company secretary
Faiz Chapra
Bankers
a) Allied Bank limited
b) Askari Bank Limited
c) Bank Alfalah Limited
d) Bank Al Habib Limited
e) Bank Islami Pakistan limited
f) The Bank of Punjab
g) Barclays Bank PLC
h) Burj Bank Limited
i) Citi Bank N.A.
j) Dubai Islamic Bank (Pakistan) Limited
k) Faysal Bank Limited
l) Habib Bank limited
m)
JS Bank Limited
n) KASB Bank Limited
o) MCB Bank Limited
p) Meezan Bank Limited
q) National Bank of Pakistan
r) Samba Bank Limited
s) Silk Bank Limited
t) Soneri Bank Limited
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February 22, 2016

u) Standard Chartered Bank (Pakistan) Limited

v) Summit Bank Limited
w)United Bank Limited
x) Zarai Taraqiati Bank Limited
Auditors
A.F. Ferguson & Company

Major Product Line

For the millions of farmers across Pakistan, Engro is a name synonymous
with prosperity and vision. As Pakistans first fertilizer brand, Engro
Fertilizers [formerly: Esso Pakistan Fertilizer Company] has developed an
endearing relationship with all stakeholders across Pakistans agricultural
landscape, particularly with generations of farmers who have trusted our
brands for more than four decades.
Engro listens to its consumers, introducing novel lines of products
addressing local soil and crop needs. For farmers, Engro has been a friend
and helping hand who cares for farmer education, better yields and
sustainability. Our product lines catapult on these relationships and are
known for uniformity, high quality and excellence in research.
Engro Urea
Engro is the first company to have setup urea production facility in
Pakistan, a landmark event in agricultural sector of the country. This
together with the fact that urea is the most widely used fertilizer in the
country, gives Engro Urea a special standing in the domestic fertilizer
market. Engro Fertilizers Limited started annual production of 173,000
tons in 1968. Through various debottlenecking and expansion steps, the
capacity has been increased to 975,000 tons per year. Recently, the
company has setup worlds largest single train urea plant of 1,300,000
ton capacity. The new facility is not operating on capacity due on going
energy crises in the country. Once operational fully, it will increase
Engros production share from 19% to over 30% in Pakistan.
Engro DAP
For a healthy growth the plant requires three major nutrients namely
Nitrogen, Phosphorus and Potassium. Di-Ammonium Phosphate (DAP),
which contains 46% Phosphorus, is the most widely used source of
Phosphorus for the plant. DAP strengthens the roots of the plant and
improves nutrient uptake. DAP was imported in Pakistan by the fertilizer
import department until 1994 and since then the private sector has been
responsible for all imports.
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Engro Fertilizers has been importing and marketing DAP in the country
since 1996. Engro Fertilizers is the most trusted and one of the largest
importer of DAP in the country. Engro DAP is a product that maintains a
high quality standard and is monitored through stringent quality checks.
Engro DAP has high water solubility and characteristic pH which ensures
optimal soil distribution. Engro DAP is marketed in 50kg bags. It is
imported by Engro EXIMP and marketed by Engro Fertilizers Limited.
Engro NP
NP formulations that contain Nitrogen and Phosphorus in almost equal
quantity have been especially important to Pakistani farmers, given the
peculiar deficiency of both components in most of the Pakistani soils.
This category serves the needs of a particular niche of farming
community in the country; where application of nitrogen and phosphorus
is required in almost equal proportions. Due to higher N content a few
farmers also use E-NP for top dressing. Engro started producing NP in
2005 and has been extensively marketing the product whilst especially
enjoying a high market share in lower Sind.
Engro NP is available in 50Kg bags.
Engro Zarkhez
Plants require three major nutrients (i.e. Nitrogen, Phosphorus and
Potassium) for quality & higher yield. Zarkhez, introduced in 2002, is the
only branded fertilizer in Pakistan which contains all three nutrients.
Presence of all the macro nutrients results in synergistic plant nutrient
uptake. The resultant yield is of high quality; sucrose content of sugar
cane increases, quality and size of potato improves, fruit and vegetables
appear and taste better. Zarkhez is a high quality fertilizer containing
correct proportions of the three nutrients in each of its granule thus
making the fertilizer application very convenient for the farmer. In
addition to convenience, it also helps ensure uniform and balanced
nutrient application.
Zarkhez is currently available in three different grades of 50Kg bags with
nutrient proportions suitable for sugar cane, fruit orchards, vegetables,
potato and tobacco. The grades are popular among progressive farmers
due to its convenience, low moisture content, high crush strength,
appropriate granule size and free flowing nature.
Zarkhez is available in entire agricultural regions of Pakistan from
Hyderabad to Mardan. Engro Fertilizers limited continuously engages in
agricultural research and development in collaboration with different
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agencies. Farmer educational activities are carried out throughout the

country in pursuit of championing the cauZingro
ZINGRO-NEW-BAG--(MAY-2014)
Zinc is a micronutrient, it is a nutrient which the crop requires in small
dosages and it compliments functions of major nutrients. Over the years
zinc deficiency has been well established on a variety of crops and in rice
specifically. Zingro brings to the market the trust of Engro and high
quality standard which has made it distinct from all the competition. It is
the market leader in a highly fragmented industry. Zingro acts as a tonic
and gives quick response and a better yield. Zingro contains 33%
Granular Zinc Sulphate Monohydrate and is 99.99% water soluble. Zingro
has evolved to become the leading brand in the micronutrient category
and is accredited to converting the image of the category to a highly
acceptable one. Zingro has won the prestigious Brand of the Year
award for 2009 in the micronutrient category.
Zingro is imported by Engro EXIMP and marketed by Engro Fertilizers
Limited.se of balanced fertilization in Pakistan with the help of Engro
Farmers Club.
Engro Envy
All plants require three major nutrients (i.e. Nitrogen, Phosphorus and
Potassium) for healthy growth, good appearance and better yield in
terms of both, fruit and flowers. It contains Nitrogen, Phosphorus and
Potassium in an equal percentage of 14:14:14 and is a 1kg packet.
Furthermore it contains the added advantage of 7% sulphur which helps
plants absorb protein nitrogen, which contributes to the quality of the
vegetables or fruit produced by the plant. Engro Envy is therefore a
premium fertilizer that covers all your plants nutritional needs. The
granular nature of Envy makes it convenient for usage. In addition to
convenience, it also helps ensure uniform and balanced nutrient
application.
Engro Envy is a product designed for urban markets. It is ideal for
gardens, lawns, flower beds, fruit plants and ornamental plants. Engro
Envy has recently been launched only in Karachi but soon it is being
planned to expand its distribution to include other urban markets like
Lahore and Islamabad.
Engro MOP
In addition to potash based blended fertilizer NPK, Potassium can also be
applied in form of straight fertilizer, out of which one widely used kind of
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potassium based fertilizer is MOP or Muriate of Potash. We have launched

Engro MOP in 50 kg SKU targeting all potash loving crops such as potato,
maize, sugarcane, wheat, rice, cotton, vegetables, fruits, orchards and
tobacco. MOP contains 60% Potassium nutrient and is the most
concentrated form of granular potassium. It is also relatively price
competitive compared to other forms of potassium available in the
market. The chloride content of MOP is helpful for a soil where chloride
level is low. Chloride content also improves the yield of produce as it
increases disease resistance in crops by promoting thickness of the outer
cell walls. It also improves color, flavor and storing quality of fruit and
vegetables.

Brief Information about Industry

The chemical industry comprises the companies that produce
industrial chemicals. Central to the modern world economy, it
converts raw materials (oil, natural gas, air, water, metals, and minerals)
into more than 70,000 different products.
History
Although chemicals were made and used throughout history, the birth of
the heavy chemical industry (production of chemicals in large quantities
for a variety of uses) coincided with the beginnings of the Industrial
Revolution in general.
Industrial Revolution
One of the first chemicals to be produced in large amounts through
industrial process was sulfuric acid. In 1736, the pharmacist Joshua Ward
developed a process for its production that involved heating saltpeter and
allowing the sulfur to oxidize and combine with water. It was the first
practical production of sulfuric acid on a large scale. John Roebuck and
Samuel Garbett were the first to establish a large-scale factory in Preston
pans in 1749, which used leaden condensing chambers for the
manufacture of sulfuric acid.
Products
Polymers and plastics, especially polyethylene, polypropylene, polyvinyl
chloride, polyethylene terephthalate, polystyrene and polycarbonate
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comprise about 80% of the industrys output worldwide. These materials

are often converted to fluoropolymer tubing products and used by the
industry to transport highly corrosive materials. Chemicals are used to
make a wide variety of consumer goods, as well as thousands of inputs to
agriculture, manufacturing, construction, and service industries. The
chemical industry itself consumes 26 percent of its own output.
Major industrial customers include rubber and plastic products, textiles,
apparel, petroleum refining, pulp and paper, and primary metals.
Chemicals are nearly a $3 trillion global enterprise, and the EU and U.S.
chemical companies are the world's largest producers.
Sales of the chemical business can be divided into a few broad
categories, including basic chemicals (about 35 to 37 percent of the dollar
output), life sciences (30 percent), specialty chemicals (20 to 25 percent)
and consumer products (about 10 percent).

Market Share and Competitors

Market Share

11%
15%
48%

26%

Comparison of market share:

FFC (Fauji Fertilizer Company)48%
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FFC (Fauji Fertilizer Company)

Engro
Dawood Herculeus
National Fertilizer Company
(NFC)

February 22, 2016

Engro 26%
Dawood Herculeus15%
National Fertilizer Company (NFC) 11%

MAJOR COMPETITORS
Engro Chemical
26%
Capacity850,000
tons per annum (2
plants)
Aside from sale of
Engro urea, ECPL
also sells imported
DAP, NP, MOP and
NPK fertilizers and
hybrid seeds
Engro
Urea popular
brand in southern
part of the country

To become a
diversified chemical
company operating
internationally. A
number of projects
involving
backward& forward
integration are
under consideration.

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Comparison
Market share
Capacity

Fauji Fertilizer
48%
1,300,000 tons per
annum (1 plant)

Products

Sells pilled urea.

Affiliate (FFC
Jordan)manufacture
s granular urea
&DAP

Brands

Sona
urea very popular
product, esp. in
northern Pakistan.
Sona is granular
urea which is
perceived to be
better.
Setting up industrial
units in the fields of
petroleum refining,
paper & pulp,
mineral acid, & offshore fertilizer
manufacturing

Vision

February 22, 2016

DIRECTORS REVIEW
Financial Performance:
The company posted a profit after tax of Rs. 8,208 million in 2014
representing an increase of 49% over Rs. 5,497 million posted in
2013.
Though the industry shrank, share of locally produced branded urea
increased to 86.8% last year.
Average domestic urea price rose by only 5 % in 2014 despite the
sharp increase in Gas Infrastructure Development Cess (GIDC),
where GIDC on feed and fuel gas was raised by Rs. 103 / MMBTU
respectively during the course of the year.
International urea price averaged USD 322 / ton in 2014 (CFR
Karachi), translating into local cost of Rs. 2,264 / bag (inclusive of all
ancillary charges) as against average 2014 local price of Rs. 1,793 /
bag.
Segment Analysis:
Urea:
Engro Fertilizer Ltd produced 1,819 KT of urea, 16% higher than
1,562 KT produced in 2013.
The company reported a urea sales volume of 1,818 KT in 2014, 16%
higher than 2013. Engros 2014 urea market share increased to 32%
from 26% last year while market share in brand urea rose to 37%
from 32% a year ago.
Zarkhez:
The companys blended fertilizer (Zarkhez & Engro NP) sales for the
year increased by 32% to 125 KT compared to 95 KT during 2013.
Financial Review:
Sales revenue for 2014 was Rs. 61,425 million which was higher by
23% as compared to the corresponding period (2013: Rs. 50,129
million).
Gross profit for the year 2014 was Rs. 22,603 million as compared to
Rs. 22,121 million for the same period.
Financial charges decreases by Rs. 3,293 million to Rs. 6,625 million
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(2013: Rs. 9,918 million). This variation is mainly on account of lower

interest rate in the country and repayment of loans by the company.
Other income rose to Rs. 2,449 million from Rs. 1,151 million. In
2013 as surplus cash from high EBITDA generation was invested in
short term instruments.
As A result of above, EPS improved to Rs. 6.29 as compared to EPS
of Rs.4.66 last year.
Long term borrowing at year end 2014 were Rs. 44,003 million
(2013: Rs. 58,821 million).
The shareholders equity as at December 31, 2014 stands at Rs.
34,478 million (2013: Rs. 25,089 million).
During the year, PACRA has upgraded the long term credit rating
from A to A+. The short term rating is A1.

Risk:
Operational Risk:
Pakistans 2014 urea industry shrank by 4.5% vs. 2013 to 5,629 KT.
Financial Risk:
As part of debt re-profiling, the Inter-Creditor Agreement (ICA) was
also amended. The amended ICA allowed dividend payment only
after the repayment of 33% of the senior loans outstanding as at
June 30, 2012.

Contingencies:
In August 2014, the Supreme Court deemed the GIDC Act of 2011 as
unconstitutional, subsequent to which, the government appealed the
decision and also re-imposed GIDC under a Presidential Ordinance.
The Company has challenged the validity and promulgation of GIDC
Ordinance, 2014 before the Honorable High Court of Sindh, where in
the court has been pleased to grant a stay order.

Unusual Events/ Future Prospects:

There has been no such event highlighted by the management of Engro
Fertilizer Limited in their report.

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Code of Corporate Governance Report

The Board of Directors for Engro Chemical Pakistan Ltd responsible to the
shareholders for the management of the Company. It acknowledges the
responsibility for the system of internal financial control and is committed
to upholding the highest standards of corporate governance. Some of the
summary points are discussed below,
The company encourages representation of independent nonexecutive directors and directors representing minority interests on its
Board of Directors.
The directors have confirmed that none of them is serving as a
director on more than seven listed companies.
No casual vacancy occurred on the Board during the year.
The company has prepared a code of conduct comprising of Ethics
and Business Practices policies and has ensured appropriate steps
have been taken to disseminate it through company along with its
supporting policies and procedures.
Four of the directors attended the directors training course conducted
by the Pakistan Institute of Corporate Governance (PICG) this year.
Three directors have already completed this course earlier.
The financial statements of the company were duly endorsed by CEO
and CFO before approval of the board.
The company has complied with all the corporate and financial
reporting requirements of the CCG.
The Board has formed a Human Resource and Remuneration
Committee. It comprises three members, of whom one is an
independent director and two are non- executive directors and the
chairman of the committee is a non-executive director.

Audit report
The audit report was submitted on March 3, 2015. In the report the
auditor stated that,
1. Proper books were maintained according to the Company ordinance
1984.
2. Balance Sheet, Profit and loss and notes were according to the
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accounting policies.
3. In the Audit Report provided to the members, we have found that
the Auditor has given a clean opinion (true & fair view of the
state).
4. Zakat was deducted by the company and deposited in the Central
Zakat Fund.

Summary of Accounting Policies

Basis of preparation:
Companys financial statements have been prepared under the historical
convention cost, except for re-measurement of certain financial assets
and liabilities at fair value profit or loss.
Property, Plant and Equipment:
Company owned assets are stated at historical cost less
accumulated depreciation and impairment losses.
Depreciation is charged to the profit and loss account using the
straight line method.
Intangible Assets:
In computer software and Licenses, the
maintaining computer software programs
expense when incurred.
Computer software and license cost treated
amortized from the date the software is put
basis over a period of 4 years.

costs associated with

are recognized as an
as Intangible assets are
to use on a straight-line

Impalement of non-financial assets:

Companys assets that are subject to depreciation / amortization are
reviewed at each balance sheet date to identify circumstances
indicating occurrence of impairment loss or reversal of previous
impairment losses.
Non-current assets (or disposal groups) held-for-sale:
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Companys non-current assets (or disposal groups) are classified as

assets held for sale when their carrying amount is to be recovered
principally through a sale transaction and a sale is considered high
probable.
Impalement losses on initial classification as held for sale and
subsequent gains or losses on measurement are recognized in the
profit and loss account.
Financial Assets:
Companys financial asset is classified in this category if acquired
principally for the purpose of selling in the short-term.
Loans and receivable are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Companys regular purchases and sales of financial assets are
recognized on the trade.
Financial liabilities:
Companys all financial liabilities are recognized at the time when
the Company becomes a party to the contractual provisions of an
instrument.
Financial liabilities are extinguished when these are discharged or
cancelled or expire or when there is substantial modification in the
terms and conditions of the original financial liability or part of it.
Offsetting financial instruments:
Companys financial assets and liabilities are offset and the net
amount reported in the balance sheet when there is a legally
enforceable right to offset the recognized amounts.
Derivative financial instruments and hedging activities:
Derivatives are recognized initially at fair value; attributable
transaction cost are in profit and loss account when incurred.
Stores, spares and loose tools:
The company reviews the carrying amount of stores and spares on a
regular basis and provision is made for obsolescence.
Stock-in-trade:
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Company determine cost by using weighted average method except

raw material in transit which are stated at cost (invoice value) plus
other charges incurred thereon till the balance sheet date.
Trade debts and other receivables:
A provision for impairment is established if there is objective
evidence that the company will not be able to collect all amounts
due according to the original terms of receivables.
Cash and cash equivalents:
It 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.
Share capital:
Ordinary shares are classified as equity and recognized at their face
value.
Borrowing:
Borrowings are classified as current liabilities unless the company
has an unconditional right to defer settlement of the liability for at
least 12 months after the balance sheet date.
Trade and other payables:
Trade and other payables are recognizes initially at fair value and
subsequently measured at amortized cost using the effective
interest method.
Current and deferred income tax:
The tax is recognized in the profit and loss account, except to the
extent that it relates to items recognized in the statement of
comprehensive income or directly in equity.
Deferred tax:
Deferred tax is recognized using the balance sheet method,
providing for all temporary differences between the carrying amount
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of assets and liabilities.

Employee Benefit:
A defined contribution plan is a post-employment benefit under
which an entity pays a fixed contribution into a separate entity and
will have no legal or constructive obligation to pay further amounts.
Provisions:
Provisions are recognized when the company has a legal or
constructive obligation as a result of past events 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.
Foreign Currency transactions and translation:
These financial statements are presented in Pakistani rupees, which
is the companys
functional and presentation currency. It is
recognized in profit and loss.
Revenue Recognition:
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the company and the revenue can be
measure easily.
Revenue measured on the fair value.
Sales revenue recognized when product dispatched to the customer.
Income on deposits and other financial assets is recognized on
accrual basis.
Borrowing cost:
Borrowing costs are recognized as an expense in the period in
which they are incurred except where such costs are directly
attributable to the acquisitions, construction or production of a
qualifying asset in which case such costs are capitalized.
Research and development:
Research and development costs are charged to profit and loss
account as and when incurred.
Government Grant:
Government grants are deducted from expenses.

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Horizontal/ Vertical / Trend Analysis Of Income Statements:

Engro-analysis-of-I.S.xlsx
Intra- Company:

Sales:
Trend Analysis
2015
2014
2.79447
1.95914
Horizontal Analysis
2015 vs 2011
56262
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2014 vs 2011
30072

2013
1.59886

2012
0.97684
2013 vs 2011
18776

2011
1
2012 vs 2011
-726

February 22, 2016

As compared to 2011, the sales have been increased by 56262. The same
increase was observed in 2013& 2014 but in 2012, the sales declined.
The trend analysis of sales is also reflecting that ours sales increased about
179% in 2015 as compared to the sales in 2011.

Cost of sales:
Trend analysis
2015
3.791724

2014
2.655404

2013
1.915732

2012
1.420383

2011
1

Horizontal analysis
2015 vs 2011
40815

2014 vs 2011
24202

2013 vs 2011
13388

2012 vs 2011
6146

As compare to 2011, the companys COGS have been increased by rs. 40815.
The same increase has been observed in 2014, 2013 and 2012.
The trend analysis of COGS is also reflecting that COGS have been grown by
42% in 2012, 92%in 2013, 166% in 2014 and 279% in 2015.

Vertical analysis
2015
63%

2014
63%

2013
56%

2012
68%

2011
47%

COGS in 2011 were 47%, which became 68% in 2012, and then decline in 56%
in 2013. This shows that the COGS increased by 6% of sales in 2014 and remain
constant in 2013.

Gross profit:
Trend analysis
2015
1.923146

2014
1.350804

2013
1.321998

2012
0.589315

2011
1

Horizontal analysis
2015 vs 2011
15447

2014 vs 2011
5870

2013 vs 2011
5388

2012 vs 2011
-6872

The gross profit of 2015 increased by Rs. 15447 it is growing by 92%. However,
COGS is growing at an increasing rate as compared to the growth of sales. That
is why the gross profit is still growing but not in proportion as sales are growing.
Seems to be sales are increased by means of increase in selling price.
Trend analysis also show increasing trend which is a good sign for company.
Gross profit contributes 92%.

21 | P a g e

February 22, 2016

Vertical analysis
2015
37%

2014
37%

2013
44%

2012
32%

2011
53%

The vertical analysis shows that the gross profits were 37% of sales in 2015 and
was same in 2014 too.

Distribution and marketing expenses:

Trend analysis
2015
2.428953

2014
1.978174

2013
1.56392

2012
1.113586

2011
1

Horizontal analysis
2015
3208

2014
2196

2013
1266

2012
255

As compared to 2011 the distribution and marketing expenses has increased by

Rs.3208. The same increase has observed in 2014, 2013 and 2012.
The trend analysis shows that an increase of 143%

Vertical analysis
2015
6%

2014
7%

2013
7%

2012
8%

2011
7%

The vertical analysis indicates that the expenses fluctuated as compared to

2011 the distribution and marketing expense is lower by 1%.

Administrative expenses:
Trend analysis
2015
1.571949

2014
1.406193

2013
1.094718

2012
1.061931

2011
1

Horizontal analysis
2015 vs 2011
314

2014 vs 2011
223

2013 vs 2011
52

2012 vs 2011
34

As compared to 2011, the administrative expenses have increased to Rs. 314

from Rs. 223 in 2014.
The trend analysis indicates an increase of 57%.

Vertical analysis
2015
1%
22 | P a g e

2014
1%

2013
1%

2012
2%

2011
2%

February 22, 2016

The vertical analysis indicates that the companys administrative expenses have
declined by 1% in the year 2013 as compared to 2011 and remained 1% in
2015.

Other expenses:
Trend analysis
2015
3.116838

2014
2.264605

2013
1.474227

2012
0.697595

2011
1

Horizontal analysis
2015 vs 2011
1232

2014 vs 2011
736

2013 vs 2011
276

2012 vs 2011
-176

As compared to 2011, the other expenses have increased by Rs. 1232.

The trends indicate that company is spending 211% as compared to 2011 on
other expenses.

Vertical analysis
2015
2%

2014
2%

2013
2%

2012
1%

2011
2%

Vertical analysis indicates that in 2015 the other expenses were 2% of sales. It
had remained constant from 2013 to 2015.

Other income:
Trend analysis
2015
1.466495

2014
2.103952

2013
0.988832

2012
0.325601

2011
1

Horizontal analysis
2015 vs 2011
543

2014 vs 2011
1285

2013 vs 2011
-13

2012 VS 2011
-785

As compared to 2015, the other income has increased by Rs. 543.

The trends indicates that 46% increase to be stated comparing to 2011.

Vertical analysis
2015
2%

2014
4%

2013
1%

2012
2%

2011
4%

The vertical analysis indicates that other income were 2% of sales. The
percentage has been fluctuating for the past 4 years.

Operating profit/loss:
23 | P a g e

February 22, 2016

Trend analysis
2015
1.773776

2014
1.275463

2013
1.260382

2012
0.464913

2011
1

Horizontal analysis
2015 vs 2011
11236

2014 vs 2011
4000

2013 vs 2011
3781

2012 vs 2011
-7770

As compared to 2011, the operating profit has increased by Rs. 11236. In 2012,
the company faces loss by Rs. -7770.
The trend indicates 77% of increase in 2015.

Vertical analysis
2015
29%

2014
30%

2013
37%

2012
22%

2011
46%

The vertical analysis shows that in 2015 the operating profits were 29% of sales.
Comparing it with 2014, the operating profits have decreased.

Finance cost:
Trend analysis
2015
0.600209

2014
0.866824

2013
1.297488

2012
1.400183

2011
1

Horizontal analysis
2015 vs 2011
-3056

2014 vs 2011
-1018

2013 vs 2011
2274

2012 vs 2011
3059

As compare to 2011, the finance cost has decreased by Rs. -3056 in 2015.
The trends also indicate 60% in 2015 but it is the lowest among the past 4
years.

Vertical analysis
2015
5%

2014
11%

2013
20%

2012
35%

2011
24%

The vertical analysis shows that the cost decreased to 5% as comparing it with
2011.

Net profit before taxation:

Trend analysis
2015
3.078232

2014
1.729679

2013
1.219136

2012
-0.57467

2011
1

Horizontal analysis
2015 vs 2011

24 | P a g e

2014 vs 2011

2013 vs 2011

2012 vs 2011

February 22, 2016

14292

5018

1507

-10829

As compared to 2011, the net profit before taxation is Rs. 14292.

The trends also shows an increase of 208% which increased in a good way.

Vertical analysis
2015
24%

2014
19%

2013
17%

2012
-13%

2011
22%

The vertical analysis indicates an increase of 24% comparing it to 2011.

Provision for taxation:

Trend analysis
2015
2.68327

2014
1.61075

2013
1.26125

2012
0.4443

2011
1

Horizontal analysis
2015 vs 2011

2014 vs 2011

2013 vs 2011

2012 vs 2011

3853

1398

598

-1272

As compare to 2011, the provisions for taxation have increased by Rs. 3853.
The trend shows an increase of 168% for provision of taxation in 2015.

Vertical analysis
2015
7%

2014
6%

2013
6%

2012
3%

2011
7%

The vertical analysis indicates that in 2015, the taxation is 7%. In 2013 and
2014 the provision for taxation were 6%. Lowest was in 2012 that was 3%.

Net profit after taxation:

Trend analysis
2015
3.275283

2014
1.789015

2013
1.198126

2012
-0.63971

2011
1

Horizontal analysis
2015 vs 2011

2014 vs 2011

2013 vs 2011

2012 vs 2011

10439

3620

909

-7523

The net income for the year 2015 has increased by Rs. 10439 that is 228%
increase while comparing to 2011.

Vertical analysis
2015
17%
25 | P a g e

2014
13%

2013
11%

2012
-10%

2011
15%

February 22, 2016

The vertical analysis indicates an increase in net income by 17%

Conclusion:

From the above horizontal analysis we can say that the net income have
increased from Rs. 4588 (2011) to Rs. 15027 (2015). We can conclude that the
rate in which our sales are growing are not the same for gross profit. It may be
the cause of COGS, which is increasing at the rapid rate.
From the vertical analysis, we can state that the net income as a percentage of
sales have increased to 17% as compared to 2011, which was 15%. We can also
conclude that the company had controlled its expenses as well the financing
cost it was less as compared to the other years.

Ratio Analysis of Income Statement:

Profitability ratios

Ratio Analysis
60
50
40
30
20
10
0
-10
-20
Gr profit

Op profit

Pretax Profit Margin

Net Profit Margin

Gross Profit:
Ratio

2015

2014

2013

2012

2011

G
profit

37%

37%

44%

32%

53%

26 | P a g e

Fatima
Fert.
58%

Fauji Fert.

Ind Avg.

34%

43%

February 22, 2016

Gross Profit Ratio

0.7
0.6
0.5
0.4
Ratios

0.3
0.2
0.1
0

The Gross profit of the company is declining 53% into 2011 to 32% in 2012,
increases in 2013 by 44%, and remain SAME IN 2014 AND 2015 by 37 %, though
trends of G.P reflects an increasing trend but the declining reflects that the
impact of COGS is more influential as compared to the impact of sale, which is
the reflection that company is not managing the cost of the product.
As compared Fatima Fert. G.P is 58% and Fauji Fert. G.P is 34%, which mean are
G.P, which is lower than Fatima Fert. Means that our company is not performing
well and more than Fauji Fert. That means that our company is performing well.
As compare to the Industry, average the company is not doing well and not
meeting industry average.

Operating Profit:
Ratio

2015

2014

2013

2012

2012

OP
Profit

30%

28%

36%

22%

44%

27 | P a g e

Fatima
Fert.
48%

Fauji Fert.

Ind Avg.

26%

34%

February 22, 2016

Operting Profit Ratio

60%
50%
40%
Operting Profit Ratios
30%
20%
10%
0%
2015

2014

2013

2012

2011

Fatima Fert. Fauji Fert.

As compare to companys operating profit deceases as in 2011, 44% and in

2012, 22% than increases in 2013, decreases in 2014 and slightly increase in
2015 by 36%, 28% & 30%. So, the overall impact is because of the operating
cost which is not managed by the company.
As compared to Fatima fertilizer our company have very low Operating profit
margin, which is a bad sign and as compare to the Fauji Fertilizer our operating
profit is good. It means that Fatima fertilizer is more efficiently controlling their
operating cost.
As compare to the Industry average, our company is not meeting industry
averages.

Pretax Profit Margin:

Ratio

2015

2014

2013

2012

2012

Pretax
Profit
Margin

24%

19%

17%

-13%

22%

28 | P a g e

Fatima
Fert.
39%

Fauji Fert.

Ind Avg.

29%

31%

February 22, 2016

Pretax Profit Margin Ratio

50%
40%
30%
Pretax Profit Margin Ratio

20%
10%
0%
2015

2014

2013

2012

2011

Fatima Fert. Fauji Fert.

Ind Avg.

-10%
-20%

Companys Pretax Profit Margin is 22% in 2011, in 2012 it is -13%, increases in

2013 by 17%, than increasing in 2014 & 2015 by 19% and 24%. Increasing
trend indicates that company is becoming profitable.
As compared to Fatima fertilizer peer our pretax profit margin is very low, and as
compare to the Fauji Fertilizer profit margin is still low, which means Fatima
fertilizer and Fauji Fertilizer are more profitable than Engro Fertilizers.
As compare to the Industry Average, our company is not meeting standards.

Net Profit Margin:

Ratio

2015

2014

2013

2012

2012

Net
Profit
Margin

17%

13%

11%

-10%

15%

29 | P a g e

Fatima
Fert.
31%

Fauji Fert.

Ind Avg.

20%

23%

February 22, 2016

Net Profit Margin Ratio

35%
30%
25%
20%
15%

Net Profit Margin Ratio

10%
5%
0%
-5%
-10%
-15%

The companys net profit margin is decreasing in 2012 as compare to

2011 by by -10% from 15% and increases during 2013, 2014 and 2015 by
11%, 13% and 17%. Company only converted 17% percent of her sales
into profits.
As the trend of net profit margin shows that Fatima fertilizers margin is
higher and Fauji Fertilizer margin is also somewhat higher. As compared
to both Peer Company, this company is not able to manage its expenses

30 | P a g e

relative to its net sales.

As compare to the industry Average our company is not meeting industry
average.