engro polymer & chemicals ltd
TRANSCRIPT
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Financial Statements for theHalf Year ended June 30, 2009
Engro Polymer & Chemicals Ltd.
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COMPANY INFORMATION
Chairman Asad Umar
President & Chief Executive Asif Qadir
Directors Isar Ahmad
Shahzada Dawood
Masaharu Domichi
Takeshi Hagiwara
Shabbir Hashmi
Waqar A. Malik
Khalid Mansoor
Khalid S. Subhani
Company Secretary Arshaduddin Ahmed
Board Audit Committee Isar Ahmad
Masaharu Domichi
Shabbir Hashmi
Khalid S. Subhani
Bankers Allied Bank Ltd.
Askari Commercial Bank Ltd.
Bank Al Falah Ltd.
Bank Al Habib Ltd.
Barclays Bank Plc., Pakistan
Citibank N.A.
Deutsche Bank AG
Dubai Islamic Bank Ltd.
Samba Bank Ltd. (Formerly Crescent Commercial Bank Ltd.)
Faysal Bank Ltd.
Habib Bank Ltd.
Hongkong Shanghai Banking Corporation
MCB Bank Ltd.
Meezan Bank Ltd.
National Bank of Pakistan
NIB Bank Ltd.
Standard Chartered Bank (Pakistan) Ltd.
United Bank Ltd.
Auditors A. F. Ferguson & Co., Chartered Accountants
State Life Building No. 1-C, I.I. Chundrigar Road, Karachi.
Registered Office First Floor, Bahria Complex I, 24 M.T. Khan Road, Karachi - 74000
Manufacturing Facility EZ/1/P-II-1, Eastern Zone, Bin Qasim, Karachi.
Share Registration Office FAMCO Associates (Private) Limited [Formerly Ferguson Associates (Private) Limited]
1st Floor, State Life Building 1-A, I.I. Chundrigar Road, Karachi - 74000,
Tel: 2427012, 2426597, 2425467
Website www.engropolymer.com
UAN 111-411-411
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DIRECTORS REPORT &
UNAUDITED CONDENSEDINTERIM FINANCIAL STATEMENTSFOR THE HALF YEAR ENDED JUNE 30, 2009
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KarachiJuly 24, 2009
Half Yearly Report 2009
4
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
DIRECTORS REPORT TO THE SHAREHOLDERS ON UNCONSOLIDATEDCONDENSED INTERIM FINANCIAL STATEMENTS FOR THE HALF YEAR ENDEDJUNE 30, 2009
On behalf of the Board of Directors of Engro Polymer & Chemicals Limited, we are pleased to present the unauditedaccounts of the Company for the six months ended June 30, 2009.
Business Review
Domestic sales of PVC during the quarter ended June 30, 2009 were the highest ever for any quarter at 35,500tons as compared to 30,200 tons sold during same period last year. The increase in sales volumes was driven byhigher usage in public sector projects and agricultural sector. In addition to this, rising price trend of PVC contributedto increased buying by customers. Domestic sales of PVC during first six months were 64,400 tons as comparedto 55,600 tons during the same period in 2008. Production for the quarter was 34,600 tons taking total productionfor six months to 60,900 tons versus 49,800 tons in 1H08.
Global PVC price rose to reflect higher feedstock prices driven by hike in oil prices. Availability of VCM during thequarter remained tight as key manufacturers underwent planned shutdowns with no significant reduction in demandresulting in a squeeze in the PVC-VCM margin to US$ 146 per ton in 2Q09 as compared to US$ 273 per ton in
the same period last year.
The Company successfully launched sale of Caustic soda and Sodium hypochlorite to domestic customers at theend of second quarter. During this period, the Company sold 760 tons and 464 tons of Caustic soda and Sodiumhypochlorite respectively. Market has been quite receptive and the Company is confident that it will be able tocapture a sizeable share of the caustic soda market due to its high quality product, competitive pricing, dedicateddistribution fleet and commitment to a high level of customer service.
Revenue during the first six months was Rs. 4,945 million, an increase of 13% over same period 2008. Duringsecond quarter, the Company earned a profit after tax of Rs. 82 million. Profit after tax for six months is Rs. 7 millionas compared to Rs. 427 million last year mainly because of the lower PVC-VCM margin, higher depreciation andfinancial costs due to the addition of new PVC plant and Utilities.
Near Future Outlook
PVC plants are running satisfactorily. The Chlor-alkali and EDC plants have been successfully tested and havecommenced production. The Company exported 3,800 tons of EDC in July. VCM plant is under trials, commercialoperation of the integrated complex is expected to be achieved in third quarter. Infrastructure to sell up to 12 MWof power to KESC is complete, whereas work on the remaining 6 MW will be completed by mid-August. Supply ofpower is expected to commence in third quarter.
Demand of PVC in domestic market in third quarter is expected to be lower due to slow down of activity duringRamadan and Eid holidays. Based on progress made by the Company in entering the caustic soda market, theCompany will continue to penetrate the domestic market to sell out its production and will also explore exportopportunities.
The profitability of the Company will be dependent on successful commissioning of the VCM plant as it will allowthe economic benefits of a fully integrated site to flow.
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Lahore Office: 505-509, 5th Floor, Alfalah Building, P.O. Box 39, Shahrah-e-Quaid-e-Azam, Lahore-54000, Pakistan Tel: (92-42) 6285078-85 Fax: (92-42) 6285088
Islamabad Office: PIA Building, 3rd Floor, 49 Blue Area, Fazal-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan Tel: (92-51)2273457-60 Fax: (92-51) 2277924
Kabul Office: House No. 4, Street No. 3, District 6, Road Karte-3, Kabul, Afghanistan. Tel: (93-799) 315320-203424
A.F.Ferguson & Co.Chartered Accountants
State Life Building No. 1-CI.I. Chundrigar Road, P.O. Box 4716
Karachi-74000, Pakistan
Telephone: (021) 2426682-6 / 2426711-5Facsimile: (021) 2415007 / 2427938
A member firm of
AUDITORS REPORT TO THE MEMBERS ONREVIEW OF UNCONSOLIDATED CONDENSED INTERIMFINANCIAL INFORMATION
Introduction
We have reviewed the accompanying unconsolidated condensed interim balance sheet of Engro Polymer andChemicals Limited as at June 30, 2009 and the related unconsolidated condensed interim profit and loss account,unconsolidated condensed interim statement of comprehensive income, unconsolidated condensed interim statement
of changes in equity and unconsolidated condensed interim cash flow statement together with the notes formingpart thereof (here-in-after referred to as the condensed interim financial information), for the half year then ended.Management is responsible for the preparation and presentation of this condensed interim financial informationin accordance with approved accounting standards as applicable in Pakistan. Our responsibility is to express aconclusion on this condensed interim financial information based on our review.
The figures of the condensed interim profit and loss account and the condensed interim statement of comprehensiveincome for the quarters ended June 30, 2008 and 2009 have not been reviewed, as we are required to review onlythe cumulative figures for the half year ended June 30, 2009.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, Review of
Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an audit conductedin accordance with International Standards on Auditing and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensedinterim financial information as of and for the half year ended June 30, 2009 is not prepared, in all material respects,in accordance with approved accounting standards as applicable in Pakistan.
Chartered AccountantsKarachiDate: July 24, 2009
Engagement Partner:Sohail Hasan
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Half Yearly Report 2009
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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
Note
17
18
19
20
21
June 30,
2009
June 30,
2008
June 30,
2009
June 30,
2008
Rupees
Net sales
Cost of sales
Gross profit
Distribution and marketing expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Finance costs
Profit before taxation
Taxation
Profit for the period
Earnings per share - basic and diluted
The annexed notes 1 to 26 form an integral part of this unconsolidated condensed interim financial information.
2,566,120
(2,235,216)
330,904
(102,259)
(50,634)
(39,450)
41,254
179,815
(60,641)
119,174
(37,162)
82,012
0.16
2,473,419
(1,924,091)
549,328
(80,919)
(47,022)
(101,571)
25,673
345,489
(7,752)
337,737
(100,035)
237,702
0.46
4,945,407
(4,530,009)
415,398
(181,957)
(78,138)
(87,564)
55,121
122,860
(119,005)
3,855
3,200
7,055
0.01
4,368,754
(3,457,100)
911,654
(149,291)
(69,639)
(132,091)
88,420
649,053
(15,560)
633,493
(206,398)
427,095
0.83
Half year endedQuarter ended
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
(Amounts in thousand except for earnings per share)
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Half Yearly Report 2009
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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
June 30,
2009
June 30,
2008
June 30,
2009
June 30,
2008
Rupees
Profit for the period
Other comprehensive income:
Hedging reserveGain arising during the period
Less:- Reclassification adjustments for
(gains)/losses included in profit and loss- Adjustments for amounts transferred to
initial carrying amount of hedged items
Income tax relating to hedging reserve
Other comprehensive income for the period - net of tax
Total comprehensive income for the period
The annexed notes 1 to 26 form an integral part of this unconsolidated condensed interim financial information.
Half year endedQuarter ended
82,012
76,029
592
2,160
(27,573)
51,208
133,220
237,702
14,754
(911)
(4,845)
8,998
246,700
7,055
46,755
932
5,012
(18,445)
34,254
41,309
427,095
14,754
(911)
(4,845)
8,998
436,093
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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Rupees
Balance as at January 1, 2008 (Audited)
Final dividend for the year endedDecember 31, 2007 - Rs. 0.54 per share
Total comprehensive income for the half yearended June 30, 2008
Share capital issued
Share issuance cost, net
Balance as at June 30, 2008 (Unaudited)
Total comprehensive loss for the half yearended December 31, 2008
Options granted during the period
Share issuance cost, net
Balance as at December 31, 2008 (Audited)
Unvested options lapsed during the period
Total comprehensive income for the half yearended June 30, 2009
Balance as at June 30, 2009 (Unaudited)
ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
(Amounts in thousand)
Total
5,176,819
(252,896)
436,093
1,381,818
(59,637)
6,682,197
(121,908)
9,858
(4,282)
6,565,865
(266)
41,309
6,606,908
Unappropriatedprofit
315,603
(252,896)
427,095
489,802
(73,810)
415,992
7,055
423,047
Hedgingreserve
8,998
8,998
(48,098)
(39,100)
34,254
(4,846)
Employeesshare
compensationreserve
9,858
9,858
(266)
9,592
Sharepremium
425,216
614,141
(59,637)
979,720
(4,282)
975,438
975,438
Sharecapital
4,436,000
767,677
5,203,677
5,203,677
5,203,677
The annexed notes 1 to 26 form an integral part of this unconsolidated condensed interim financial information.
Half Yearly Report 2009
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Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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Half Yearly Report 2009
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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLITED CONDENSED INTERIM CASH FLOW STATEMENT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
22
Note
Half yearended
June 30, 2008
Half yearended
June 30, 2009
RupeesCASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operationsFinance costs paidLong term loans and advancesProvisionsIncome tax paid
Net cash inflow from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipmentPurchases of intangible assetsRetention money against project paymentsProceeds from disposal of operating assetsShort term investmentsProceeds from sale of short term investmentsIncome on short term investments and bank deposits
Net cash outflow from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term borrowing
Proceeds from issue of share capitalShare issuance costRepayments of long term borrowingDividend paid
Net cash inflow from financing activities
Net increase in cash and cash equivalentsCash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
The annexed notes 1 to 26 form an integral part of this unconsolidated condensed interim financial information.
2,014,197(720,706)
39,60210,968
(92,450)
1,251,611
(1,734,605)(1,495)
(418,625)3,390
(484,073)
29,157
(2,606,251)
3,355,596
(130,000)
3,225,596
1,870,956(745,295)
1,125,661)
991,276)(47,720)28,910)40,316)
(41,529)
971,253)
(4,180,570)(930)
242,7091,167
(1,500,000)4,094,905
34,798
(1,307,921)
1,947,298)
327,465)(91,750)
(1,305,429)(252,896)
624,688)
288,020)200,844)
488,864)
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
(Amounts in thousand)
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Half Yearly Report 2009
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ENGRO POLYMER & CHEMICALS LIMITEDNOTES TO THE UNCONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
1. LEGAL STATUS AND OPERATIONS
Engro Polymer & Chemicals Limited (the Company) was incorporated in Pakistan in 1997 as a public unlisted company
under the Companies Ordinance, 1984. The Company was listed on Karachi Stock Exchange in 2008 and on Islamabadand Lahore Stock Exchanges during the current period.
The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is 1st Floor, BahriaComplex I, M. T. Khan Road, Karachi. The Companys principal activity is to manufacture, market and sell Poly VinylChloride (PVC), PVC compounds and other related chemicals.
In 2006, the Company commenced work on expansion plan in respect of its existing capacity and backward integrationproject (the Project). The Projects total cost is estimated at US$ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power plant. The new plants are being setup adjacent to theCompanys existing PVC facilities in the Port Qasim Industrial Area.
2. BASIS OF PREPARATION
This condensed interim financial information is unaudited and has been prepared in accordance with the requirements of
the International Accounting Standard 34 Interim Financial Reporting. The figures for the half yearended June 30, 2009 have, however, been subjected to limited scope review by the auditors, as required by the Code ofCorporate Governance.
This condensed interim financial information is being submitted to the shareholders in accordance with section 245 of theCompanies Ordinance, 1984 and should be read in conjunction with the audited annual financial statements of the Companyfor the year ended December 31, 2008.
3. ACCOUNTING POLICIES
3.1 Except as disclosed below, the accounting policies adopted in the preparation of this condensed interim financial informationare consistent with those applied in the preparation of audited annual financial statements of the Company for the yearended December 31, 2008.
3.2 The following new standards and amendments to standards are mandatory for the first time for the financial year beginningJanuary 1, 2009:
- IAS 1 (revised), Presentation of financial statements. The revised standard prohibits the presentation of items ofincome and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equityare required to be shown in a performance statement.
Companies can choose whether to present one performance statement (the statement of comprehensive income) ortwo statements (the profit and loss account and the statement of comprehensive income).
The Company has elected to present two statements; a profit and loss account and a statement of comprehensiveincome. The condensed interim financial information has been prepared under the revised disclosure requirements.
- The SECP vide S.R.O. 411 (1) / 2008 dated April 28, 2008 notified the adoption of IFRS 7 Financial Instruments:
Disclosures. IFRS 7 is mandatory for companys accounting periods beginning on or after the date of notification i.e.April 28, 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of IFRS will onlyimpact the format and extent of disclosures presented in the financial statements. The Company will consider therequirements of IFRS 7 in the annual financial statements for the year ending December 31, 2009.
- In addition to above, following new standards and amendments to standards are mandatory for the first time for thefinancial year beginning January 1, 2009 and are also relevant for the Company. However, the adoption of these newstandards and amendments to standards did not have any significant impact on the financial information of the Company:
(Amounts in thousand)
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IFRS 2 (Amendment), Share based payment IAS 19 (Amendment), Employee benefits IAS 23 (Amendment), Borrowing costs IAS 27 (Revised), Consolidated and separate financial statements IAS 36 (Amendment), Impairment of assets IAS 38 (Amendment), Intangible assets IAS 39 (Amendment),Financial instruments: Recognition and measurement
3.3 The following new standards, amendments to standards and interpretations are mandatory for the first time for the financialyear beginning January 1, 2009, but are not currently relevant to the Company:
IAS 28 (Amendment), Investment in associates IFRS 8, Operating segments IFRIC 13, Customers loyalty programmes IFRIC 15, Agreement for the construction of real estate IFRIC 16, Hedges of a net investment in a foreign operation
4. ACCOUNTING ESTIMATES
The preparation of this condensed interim financial information in conformity with the approved accounting standardsrequires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the processof applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based onhistorical experience and other factors, including expectation of future events that are believed to be reasonable underthe circumstances. Actual results may differ from these estimates.
In preparing this condensed interim financial information, the significant judgments made by management in applying the
Company's accounting policies and the key sources of estimation and uncertainty are the same as those that apply toannual financial statements for the year ended December 31, 2008.
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
5. PROPERTY, PLANT AND EQUIPMENT
Operating assets, at net book value - notes 5.1 and 5.2 4,648,183 1,987,643
Capital work-in-progress - note 5.3 13,698,529 14,147,123
18,346,712 16,134,766
5.1. Additions to operating assets during the period/year were as follows, which mainly
relates to capitalisation of new Poly Vinyl Chloride (PVC) plant during the period:
Leasehold land 3,348
Building on leasehold land 168,221
Plant and machinery 2,621,816
Furniture, fixtures and office equipment 11,209 19,940Vehicles 14,355 20,384
2,815,601 43,672
Half Yearly Report 2009
12
5.2. During the period, assets costing Rs. 7,987 (December 31, 2008: Rs. 9,936), having net book value of Rs. 2,504(December 31, 2008: Rs. 3,622) were disposed off for Rs. 3,390 (December 31, 2008: Rs. 3,971).
(Amounts in thousand)
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Half Yearly Report 2009
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5.3 Capital work-in-progress mainly relates to the Project and comprises of:
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
Plant and machinery 11,417,963 12,523,057
Ethylene pipeline and power cables 63,602 61,486Water and gas pipelines 246,193 233,016
Building on leasehold land 29,992 163,301
Other ancillary costs - note 5.3.1 1,934,062 1,140,230
Furniture, fixtures and equipment 2,471 19,170
Advances for vehicles 4,246 6,863
13,698,529 14,147,123
6. INTANGIBLE ASSETS Computer SoftwareAdditions made during the period amounted to Rs. 1,495 (December 31, 2008: Rs. 7,180).
(Amounts in thousand)
5.3.1 The ancillary costs, directly attributable to the Project, comprise:
Salaries, wages and benefits 358,416 315,240
Training and travelling expense 73,397 74,439
Borrowing costs, including mark-up on finances
being capitalized at the rate of 15.25%
(December 31, 2008: 13.45%) - net 1,089,174 591,713
Legal and professional charges 33,640 43,103
Storage and handling 260,481
Depreciation charge 22,102 13,763
Others 96,852 101,972
1,934,062 1,140,230
7. STOCK-IN-TRADE
Raw and packing materials - note 7.1 879,243 327,670
Work-in-progress 18,780 21,293
Finished goods 177,946 810,355
1,075,969 1,159,318
7.1 This includes stock-in-transit amounting to Nil (December 31, 2008: Rs. 155,925) and stocks held at the storage facilitiesof Engro Vopak Terminal Limited, a related party, amounting to Rs. 566,332 (December 31, 2008: Rs. 22,148).
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Half Yearly Report 2009
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(Amounts in thousand)
10. BORROWINGS
During the period:
- the Company entered into a Syndicated Term Finance Agreement with a consortium of local banks on February 21,2009 for Rs. 1,500,000. The facility is repayable in thirteen semi annual installments commencing six months fromCommercial Operations date of the Project or six months from December 30, 2009 (whichever is earlier). The facilitycarries mark-up at the rate of 3% over six months KIBOR and monitoring fee of Rs. 300 for the first year and Rs. 500per annum, thereafter. Commitment fee at rate of 0.15% per annum is also payable on that part of the finance that
has not been drawn. During the period, Company has drawn down Rs. 1,100,000 against the facility.
- the Company has drawn down the remaining balance of US$ 30,000 against the loan agreement/facility with InternationalFinance Corporation (IFC). There is no change in the terms and conditions of the loan.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate swap agreements for notional amounts aggregating to US$ 40,000, with banksto hedge its interest rate exposure on floating rate foreign currency borrowings from International Finance Corporation(IFC). Under the swap agreements, the Company would receive six month USD-LIBOR on respective notional amountsand will pay fix rates, which will be settled semi annually. Details of the swap agreements are as follows:
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
8. DEFERRED EMPLOYEES COMPENSATION EXPENSE
Balance at beginning of the period/year 4,381
Add: Deferred employees compensation expense recognizedon grant date 9,858
Less:
- Unvested share options lapsed during the period/year (89)
- Amortization for the period/year (2,161) (5,477)
2,131 4,381
9. SHORT TERM INVESTMENTS
At fair value through profit or loss
Mutual fund securities 488,702
Fair value as atDecember 31, 2008
60,154
60,154
Fair value as atJune 30, 2009
19,96884
(10,641)(1,956)
7,455
Fixed Rate%
3.3853.0052.7952.800
TerminationDate
June 15, 2017June 15, 2017June 15, 2017June 15, 2017
EffectiveDate
December 15, 2008June 15, 2009June 15, 2009June 15, 2009
NotionalAmounts
US $
15,0005,000
15,0005,000
40,000
Rupees
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Half Yearly Report 2009
15
12. DEFERRED INCOME TAX
Credit/(Debit) balances arising due to:
- accelerated depreciation allowance
- net borrowing costs capitalized
- recoupable carried forward taxlosses and minimum turnovertax - note 12.1
- unrealized foreign exchange lossesand provision for retirement andother service benefits
- provision against custom duty and
SED refundable
- fair value of hedging instruments
- share issuance cost, net to equity
- others
UnauditedJune 30,
2009
AuditedDecember 31,
2008
Rupees
1,048,034)
334,160)
(903,492)
(43,713)
(6,454)
(2,609)
(51,566)
(1,277)
373,083)
548,080)
160,054)
(221,243)
(25,243)
(6,454)
(21,054)
(51,566)
_
382,574)
12.1 Deferred income tax asset is recognized for tax losses and minimum turnover tax available for carry-forward to theextent that the realization of the related tax benefit through future taxable profits is probable. The aggregate taxlosses available for carry-forward at June 30, 2009 amount to Rs. 2,318,287 (December 31, 2008: Rs. 439,677),on which the deferred income tax asset has been recognized.
13. SHORT TERM BORROWINGS
Running finance utilized under mark-uparrangements - note 13.1
Short term finance
UnauditedJune 30,
2009
AuditedDecember 31,
2008
35,645
_
35,645
717,568
125,000
842,568
(Amounts in thousand)
Rupees
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Half Yearly Report 2009
16
13.1 The aggregate facilities for running finance available from various banks, representing the sales price of all mark-uparrangements, amounts to Rs. 1,700,000 (December 31, 2008: Rs. 1,275,000). The corresponding purchase price ispayable on various dates during the ensuing year. Mark-up is chargeable at rates net of prompt payment rebate and isbased on relevant KIBOR plus 1.25% to 3%. During the period, the mark-up rates, net of prompt payment rebate, rangedfrom 12.39% to 17.37% per annum (December 31, 2008: 10.37% to 17.6% per annum). The facilities are secured by afloating charge over stocks and book debts.
14. TRADE AND OTHER PAYABLES
Includes amount due to following related parties:
- Mitsubishi Corporation
- Engro Vopak Terminal Limited
UnauditedJune 30,
2009
AuditedDecember 31,
2008
Rupees
1,155,217
86,830
1,242,047
740,811
15,046
755,857
15. PROVISIONS
As at June 30, 2009, the Company had paid Rs. 95,163 (December 31, 2008: Rs. 91,616) on account of Special ExciseDuty (SED) on import of plant and machinery for the Project. Out of this amount it has adjusted Rs. 58,476(December 31, 2008: Rs. 54,929) in the monthly sales tax returns against SED on goods produced and sold by theCompany. The Company had approached the Federal Board of Revenue to obtain a clarification in respect of the adjustmentof SED made by the Company in monthly sales tax returns. Pending such clarification the Company based on prudencehad made provision for the amount adjusted of Rs. 58,476 and for the balance remaining of Rs. 36,687 included in loans,advances, deposits, prepayments and other receivables. However, during the period, the Company received show causenotices from the Additional Collector (Adjudication) Federal Board of Revenue, stating that the Company, by adjustingthe aforementioned SED, has violated the provisions of the Federal Excise Act, 2005 and the Federal Excise Rules, 2005read with SRO 655(1)/2007 and that the amount adjusted is recoverable from the Company under the Federal Excise Act,2005 alongwith default surcharge and penalty. In response to these notices the Company has filed a Constitutional Petitionbefore the Honourable High Court, Sindh, on May 18, 2009. The High Court is in the process of evaluating the ConstitutionalPetition. The Company is confident that the ultimate outcome of the matter will be in its favour, however, based on prudenceis maintaining the aforementioned provision. Further, a provision of Rs. 7,421 for surcharge and penalty thereagainst uptoJune 30, 2009 has also been made.
16. CONTINGENCIES AND COMMITMENTS
16.1 Commitments
- Capital expenditure for the Project referred to in note 1, under the contracts signed as at June 30, 2009 but not yetincurred amounts to Rs. 108,544 (December 31, 2008: Rs. 1,305,738).
- Performance guarantees issued by banks on behalf of the Company as at June 30, 2009 amounts to Rs. 591,450(December 31, 2008: Rs. 264,200).
(Amounts in thousand)
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17. COST OF SALES
Half Yearly Report 2009
17
Opening stock of work-in-progress 31,810 13,817 21,293 22,861
Raw and packing materials consumed 1,934,633 1,460,616 3,326,793 2,811,732Salaries, wages and staff welfare 43,504 19,535 86,803 47,451Fuel, power and gas 71,567 31,545 175,831 67,178Repairs and maintenance (2,137) 1,098 21,443 4,731Depreciation 69,701 41,718 139,489 83,947Consumable stores 13,781 6,978 19,651 8,840Purchased services 5,313 5,442 10,018 9,708
Storage and handling 44,308 30,999 87,127 64,238Training and travelling expenses 1,001 1,829 1,728 2,496Communication, stationery and otheroffice expenses 613 450 856 733
Insurance 8,377 2,431 20,430 4,863Other expenses 3,340 2,196 4,918 2,196
2,194,001 1,604,837 3,895,087 3,108,113
Closing stock of work-in-progress (18,780) (14,018) (18,780) (14,018)
Cost of goods manufactured 2,207,031 1,604,636 3,897,600 3,116,956
Opening stock of finished goods 206,131 619,628 810,355 640,170
Closing stock of finished goods (177,946) (300,173) (177,946) (300,173)
28,185 319,455 632,409 339,997
Cost of sales - own manufactured product 2,235,216 1,924,091 4,530,009 3,456,953- purchased product _ _ 147
2,235,216 1,924,091 4,530,009 3,457,100
June 30,
2009Rupees
June 30,
2008
Quarter ended
June 30,
2009
June 30,
2008
Half Year ended
(Amounts in thousand)
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Half Yearly Report 2009
18
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Rupees
18. DISTRIBUTION AND
MARKETING EXPENSES
Salaries, wages and staff welfare 13,751 9,342 26,473 19,080
Advertising, sales promotion andentertainment 11,176 10,522 20,817 15,712
Product transportation and handling 73,621 52,013 124,382 98,531
Rent, rates and taxes 444 1,241 1,874 1,751
Purchased services (985) 1,414 790 4,347
Insurance 282 197 552 354
Depreciation 849 1,105 1,907 1,992
Training and travelling expenses 1,827 2,775 2,885 4,014
Communication, stationery and other
office expenses 472 1,204 965 1,826
Others 822 1,106 1,312 1,684
102,259 80,919 181,957 149,291
19. ADMINISTRATIVE EXPENSES
Salaries, wages and staff welfare 25,557 25,652 32,790 39,650
Rent, rates and taxes 4,493 3,469 7,748 5,485
Purchased services 4,130 2,459 8,508 4,257
Insurance 107 44 208 44
Depreciation 1,205 1,631 2,550 2,706
Amortization 429 168 739 318
Training and travelling expenses 9,819 6,118 15,832 8,406
Communication, stationery and
other office expenses 2,140 2,310 5,358 3,281Others 2,754 5,171 4,405 5,492
50,634 47,022 78,138 69,639
20. OTHER OPERATING EXPENSES
Legal and professional charges 1,378 140 2,305 210
Auditors' remuneration 267 240 267 440
Donations 1,467 108 1,375 450
Provision against custom duty
refundable 18,043 18,043
Sales tax receivable written off 219 219
Workers' profit participation fund 206 18,288 206 34,059Workers' welfare fund 78 7,315 78 13,623
Foreign exchange loss - net 35,905 57,218 82,793 65,047
Others 149 540
39,450 101,571 87,564 132,091
Quarter ended Half year ended
(Amounts in thousand)
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Half Yearly Report 2009
19
Quarter ended Half year ended
(Amounts in thousand)
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Rupees
Quarter ended Half year ended
(Amounts in thousand)
21. FINANCE COST
Interest/Mark-up on:- long trem borrowings- short term financesGuarantee commissionBank charges and others
52,7484,570
3163,007
60,641
4,876819
2,057
7,752
97,98816,698
6253,694
119,005
9,9582,276
3,326
15,560
June 30, 2009 June 30, 2008
Rupees
22. CASH GENERATED FROM OPERATIONS
Profit before taxation 3,855 633,493
Adjustments for non cash chargesand other items:
Provision for staff retirement and other
service benefits 539 3,470
Depreciation charge 143,946 88,645
Ineffective portion of changes in fair value of
derivative financial instrument ( 9 11 )
Amortization charge 739 318
Income on deposits (45,666) (46,234)
Amortization of deferred employee
compensation expense 1,984
Realized gain on short term investments (1,977) (33,635)Unrealized fair value gain on short term
investments (4,629) (2,053)
Provision against custom duty refundable 18,043
Provision against special excise duty 339
Finance costs 119,005 15,559
Profit on disposal of operating assets (886) (173)
Operating assets written off 243
Working capital changes - note 22.1 1,797,287 314,172
2,014,197 991,276
22.1 Working capital changes
(Increase) / Decrease in current assets
Stores and spares (31,665) (7,375)
Stock-in-trade 83,349 186,134
Trade debts (85,715) (1,888)
Loans, advances, deposits, prepayments
and other receivables (net) 115,592 (143,818)
81,561 33,053
Half year ended
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25. DATE OF AUTHORIZATION FOR ISSUE
This unconsolidated condensed interim financial information was authorized for issue on July 24, 2009 by the Board ofDirectors of the Company.
26. CORRESPONDING FIGURES
In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, theunconsolidated condensed interim balance sheet and unconsolidated condensed interim statement of changes in equityhave been compared with the balances of annual audited financial statements of preceding financial year, whereas, the
unconsolidated condensed interim profit and loss account, unconsolidated condensed interim statement of comprehensiveincome and the unconsolidated uncondensed interim cash flow statement have been compared with the balances ofcomparable period of immediately preceding financial year.
Half Yearly Report 2009
21
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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22
and its subsidiary company
DIRECTORS REPORT &
UNAUDITED CONSOLIDATED CONDENSEDINTERIM FINANCIAL STATEMENTSFOR THE HALF YEAR ENDED JUNE 30, 2009
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KarachiJuly 24, 2009
Half Yearly Report 2009
23
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
DIRECTORS REPORT TO THE SHAREHOLDERS ON CONDENSEDCONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE HALF YEARENDED JUNE 30, 2009
On behalf of the Board of Directors of Engro Polymer & Chemicals Limited, we are pleased to present the unauditedconsolidated accounts of the Company for the six months ended June 30, 2009.
Business Review
Domestic sales of PVC during the quarter ended June 30, 2009 were the highest ever for any quarter at 35,500tons as compared to 30,200 tons sold during same period last year. The increase in sales volumes was driven byhigher usage in public sector projects and agricultural sector. In addition to this, rising price trend of PVC contributedto increased buying by customers. Domestic sales of PVC during first six months were 64,400 tons as comparedto 55,600 tons during the same period in 2008. Production for the quarter was 34,600 tons taking total productionfor six months to 60,900 tons versus 49,800 tons in 1H08.
Global PVC price rose to reflect higher feedstock prices driven by hike in oil prices. Availability of VCM during thequarter remained tight as key manufacturers underwent planned shutdowns with no significant reduction in demandresulting in a squeeze in the PVC-VCM margin to US$ 146 per ton in 2Q09 as compared to US$ 273 per ton in
the same period last year.
The Company successfully launched sale of Caustic soda and Sodium hypochlorite to domestic customers at theend of second quarter. During this period, the Company sold 760 tons and 464 tons of Caustic soda and Sodiumhypochlorite respectively. Market has been quite receptive and the Company is confident that it will be able tocapture a sizeable share of the caustic soda market due to its high quality product, competitive pricing, dedicateddistribution fleet and commitment to a high level of customer service.
Revenue during the first six months was Rs. 4,965 million, an increase of 14% over same period 2008. Duringsecond quarter, the Company earned a profit after tax of Rs. 82 million. Profit after tax for six months is Rs. 13million as compared to Rs. 428 million last year mainly because of the lower PVC-VCM margin, higher depreciationand financial costs due to the addition of new PVC plant and Utilities.
Near Future Outlook
PVC plants are running satisfactorily. The Chlor-alkali and EDC plants have been successfully tested and havecommenced production. The Company exported 3,800 tons of EDC in July. VCM plant is under trials, commercialoperation of the integrated complex is expected to be achieved in third quarter. Infrastructure to sell up to 12 MWof power to KESC is complete, whereas work on the remaining 6 MW will be completed by mid-August. Supply ofpower is expected to commence in third quarter.
Demand of PVC in domestic market in third quarter is expected to be lower due to slow down of activity duringRamadan and Eid holidays. Based on progress made by the Company in entering the caustic soda market, theCompany will continue to penetrate the domestic market to sell out its production and will also explore exportopportunities.
The profitability of the Company will be dependent on successful commissioning of the VCM plant as it will allowthe economic benefits of a fully integrated site to flow.
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Lahore Office: 505-509, 5th Floor, Alfalah Building, P.O. Box 39, Shahrah-e-Quaid-e-Azam, Lahore-54000, Pakistan Tel: (92-42) 6285078-85 Fax: (92-42) 6285088
Islamabad Office: PIA Building, 3rd Floor, 49 Blue Area, Fazal-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan Tel: (92-51)2273457-60 Fax: (92-51) 2277924
Kabul Office: House No. 4, Street No. 3, District 6, Road Karte-3, Kabul, Afghanistan. Tel: (93-799) 315320-203424
A.F.Ferguson & Co.Chartered Accountants
State Life Building No. 1-CI.I. Chundrigar Road, P.O. Box 4716
Karachi-74000, PakistanTelephone: (021) 2426682-6 / 2426711-5
Facsimile: (021) 2415007 / 2427938
A member firm of
AUDITORS REPORT TO THE MEMBERS ONREVIEW OF CONSOLIDATED CONDENSED INTERIMFINANCIAL INFORMATION
Introduction
We have reviewed the accompanying consolidated condensed interim balance sheet of Engro Polymer andChemicals Limited and its subsidiary company, Engro Polymer Trading (Private) Limited as at June 30, 2009 andthe related consolidated condensed interim profit and loss account, consolidated condensed interim statement of
comprehensive income, consolidated condensed interim statement of changes in equity and consolidated condensedinterim cash flow statement together with the notes forming part thereof (here-in-after referred to as the consolidatedcondensed interim financial information), for the half year then ended. Management is responsible for the preparationand presentation of this consolidated condensed interim financial information in accordance with approved accountingstandards as applicable in Pakistan. Our responsibility is to express a conclusion on this consolidated condensedinterim financial information based on our review.
The figures of the condensed interim profit and loss account and the condensed interim statement of comprehensiveincome for the quarters ended June 30, 2008 and 2009 have not been reviewed, as we are required to review onlythe cumulative figures for the half year ended June 30, 2009.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, Review ofInterim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an audit conductedin accordance with International Standards on Auditing and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidatedcondensed interim financial information as of and for the half year ended June 30, 2009 is not prepared, in all
material respects, in accordance with approved accounting standards as applicable in Pakistan.
Chartered AccountantsKarachiDate: July 24, 2009
Engagement Partner:Sohail Hasan
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Half Yearly Report 2009
26
ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
Note
17
18
19
20
21
June 30,
2009
June 30,
2008
June 30,
2009
June 30,
2008
Rupees
Net sales
Cost of sales
Gross profit
Distribution and marketing expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Finance costs
Profit before taxation
Taxation
Profit for the period
Earnings per share - basic and diluted
The annexed notes 1 to 26 form an integral part of this consolidated condensed interim financial information.
2,566,194
(2,235,216)
330,978
(102,259)
(50,634)
(39,500)
41,303
179,888
(60,653)
119,235
(37,162)
82,073
0.16
2,473,419
(1,924,091)
549,328
(80,919)
(47,120)
(102,782)
36,228
354,735
(7,753)
346,982
(106,363)
240,619
0.47
4,965,472
(4,530,009)
435,463
(194,754)
(78,138)
(87,614)
60,656
135,613
(120,963)
14,650
(1,399)
13,251
0.03
4,368,754
(3,456,540)
912,214
(149,291)
(69,737)
(133,302)
90,533
650,417
(15,561)
634,856
(206,398)
428,458
0.83
Half year endedQuarter ended
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
(Amounts in thousand except for earnings per share)
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Half Yearly Report 2009
27
ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
June 30,
2009
June 30,
2008
June 30,
2009
June 30,
2008
Rupees
Profit for the period
Other comprehensive income:
Hedging reserve
Gain arising during the period
Less:- Reclassification adjustments of
(gains)/losses included in profit and loss
- Adjustments for amounts transferred toinitial carrying amount of hedged items
Income tax relating to hedging reserve
Other comprehensive income for the period - net of tax
Total comprehensive income for the period
The annexed notes 1 to 26 form an integral part of this consolidated condensed interim financial information.
Half year endedQuarter ended
82,073
76,029
592
2,160
(27,573)
51,208
133,281
240,619
14,754
(911)
(4,845)
8,998
249,617
13,251
46,755
932
5,012
(18,445)
34,254
47,505
428,458
14,754
(911)
(4,845)
8,998
437,456
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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Rupees
Balance as at January 1, 2008 (Audited)
Final dividend for the year endedDecember 31, 2007 - Rs. 0.54 per share
Total comprehensive income for the half yearended June 30, 2008
Share capital issued
Share issuance cost, net
Balance as at June 30, 2008 (Unaudited)
Total comprehensive loss for the half yearended December 31, 2008
Options granted during the period
Share issuance cost, net
Balance as at December 31, 2008 (Audited)
Unvested options lapsed during the period
Total comprehensive income for the half yearended June 30, 2009
Balance as at June 30, 2009 (Unaudited)
ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
(Amounts in thousand)
Total
5,177,628
(252,896)
437,456
1,381,818
(59,637)
6,684,369
(126,203)
9,858
(4,282)
6,563,742
(266)
47,505
6,610,981
Unappropriatedprofit
316,412
(252,896)
428,458
491,974
(78,105)
413,869
13,251
427,120
Hedgingreserve
8,998
8,998
(48,098)
(39,100)
34,254
(4,846)
Employeesshare
compensationreserve
9,858
9,858
(266)
9,592
Sharepremium
425,216
614,141
(59,637)
979,720
(4,282)
975,438
975,438
Sharecapital
4,436,000
767,677
5,203,677
5,203,677
5,203,677
The annexed notes 1 to 26 forn an integral part of this consolidated condensed interim financial informaion.
Half Yearly Report 2009
28
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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Half Yearly Report 2009
30
ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYNOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009
1. LEGAL STATUS AND OPERATIONS
The Group consists of Engro Polymer and Chemicals Limited (the Company) and its wholly owned subsidiary company
Engro Polymer Trading (Private) Limited.
The Company was incorporated in Pakistan in 1997 as a public unlisted company under the Companies Ordinance, 1984.The Company was listed on Karachi Stock Exchange in 2008 and on Islamabad and Lahore Stock Exchanges during thecurrent period. The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is1st Floor, Bahria Complex I, M. T. Khan Road, Karachi. The Companys principal activity is to manufacture, market andsell Poly Vinyl Chloride (PVC), PVC compounds and other related chemicals.
In 2006, the Company commenced work on expansion plan in respect of its existing capacity and backward integrationproject (the Project). The Projects total cost is estimated at US$ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power plant. The new plants are being setup adjacent to theCompanys existing PVC facilities in the Port Qasim Industrial Area.
2. BASIS OF PREPARATION
This consolidated condensed interim financial information is unaudited and has been prepared in accordance with therequirements of the International Accounting Standard 34 Interim Financial Reporting. The figures for the half yearended June 30, 2009 have, however, been subjected to limited scope review by the auditors.
This condensed interim financial information is being submitted to the shareholders in accordance with section 245 of theCompanies Ordinance, 1984 and should be read in conjunction with the audited annual financial statements of the Companyfor the year ended December 31, 2008.
3. ACCOUNTING POLICIES
3.1 Except as disclosed below, the accounting policies adopted in the preparation of this condensed interim financial informationare consistent with those applied in the preparation of audited annual financial statements of the Company for the yearended December 31, 2008.
3.2 The following new standards and amendments to standards are mandatory for the first time for the financial year beginningJanuary 1, 2009:
- IAS 1 (revised), Presentation of financial statements. The revised standard prohibits the presentation of items ofincome and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equityare required to be shown in a performance statement.
Companies can choose whether to present one performance statement (the statement of comprehensive income) ortwo statements (the profit and loss account and the statement of comprehensive income).
The Company has elected to present two statements; a profit and loss account and a statement of comprehensiveincome. The condensed interim financial information has been prepared under the revised disclosure requirements.
- The SECP vide S.R.O. 411 (1) / 2008 dated April 28, 2008 notified the adoption of IFRS 7 Financial Instruments:
Disclosures. IFRS 7 is mandatory for companys accounting periods beginning on or after the date of notification i.e.April 28, 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of IFRS will onlyimpact the format and extent of disclosures presented in the financial statements. The Company will consider therequirements of IFRS 7 in the annual financial statements for the year ending December 31, 2009.
- In addition to above, following new standards and amendments to standards are mandatory for the first time for thefinancial year beginning January 1, 2009 and are also relevant for the Company. However, the adoption of these newstandards and amendments to standards did not have any significant impact on the financial information of the Company:
(Amounts in thousand)
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IFRS 2 (Amendment), Share based payment IAS 19 (Amendment), Employee benefits IAS 23 (Amendment), Borrowing costs IAS 27 (Revised), Consolidated and separate financial statements IAS 36 (Amendment), Impairment of assets IAS 38 (Amendment), Intangible assets IAS 39 (Amendment),Financial instruments: Recognition and measurement
3.3 The following new standards, amendments to standards and interpretations are mandatory for the first time for the financialyear beginning January 1, 2009, but are not currently relevant to the Company:
IAS 28 (Amendment), Investment in associates IFRS 8, Operating segments IFRIC 13, Customers loyalty programmes IFRIC 15, Agreement for the construction of real estate IFRIC 16, Hedges of a net investment in a foreign operation
4. ACCOUNTING ESTIMATES
The preparation of this condensed interim financial information in conformity with the approved accounting standardsrequires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the processof applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based onhistorical experience and other factors, including expectation of future events that are believed to be reasonable underthe circumstances. Actual results may differ from these estimates.
In preparing this condensed interim financial information, the significant judgments made by management in applying the
Company's accounting policies and the key sources of estimation and uncertainty are the same as those that apply toannual financial statements for the year ended December 31, 2008.
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
5. PROPERTY, PLANT AND EQUIPMENT
Operating assets, at net book value - notes 5.1 and 5.2 4,648,183 1,987,643
Capital work-in-progress - note 5.3 13,698,529 14,147,123
18,346,712 16,134,766
5.1. Additions to operating assets during the period/year were as follows, which mainly relates to capitalisation of new Poly
Vinyl Chloride (PVC) plant during the period:
Leasehold land 3,348
Building on leasehold land 168,221
Plant and machinery 2,621,816
Furniture, fixtures and office equipment 11,209 19,940Vehicles 14,355 20,384
2,815,601 43,672
Half Yearly Report 2009
31
5.2 During the period, assets costing Rs. 7,987 (December 31, 2008: Rs. 9,936), having net book value of Rs. 2,504 (December31, 2008: Rs. 3,622) were disposed off for Rs. 3,390 (December 31, 2008: Rs. 3,971).
(Amounts in thousand)
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Half Yearly Report 2009
32
5.3 Capital work-in-progress mainly relates to the Project and comprises of:
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
Plant and machinery 11,417,963 12,523,057
Ethylene pipeline and power cables 63,602 61,486Water and gas pipelines 246,193 233,016
Building on leasehold land 29,992 163,301
Other ancillary costs - note 5.3.1 1,934,062 1,140,230
Furniture, fixtures and equipment 2,471 19,170
Advances for vehicles 4,246 6,863
13,698,529 14,147,123
6. INTANGIBLE ASSETS Computer Software
Additions made during the period amounted to Rs. 1,495 (December 31, 2008: Rs. 7,180).
(Amounts in thousand)
5.3.1 The ancillary costs, directly attributable to the Project, comprise:
Salaries, wages and benefits 358,416 315,240
Training and travelling expense 73,397 74,439Borrowing costs, including mark-up on finances
being capitalized at the rate of 15.25%
(December 31, 2008: 13.45%) - net 1,089,174 591,713
Legal and professional charges 33,640 43,103
Storage and handling 260,481
Depreciation charge 22,102 13,763
Others 96,852 101,972
1,934,062 1,140,230
7. STOCK-IN-TRADE
Raw and packing materials - note 7.1 879,243 327,670
Work-in-progress 18,780 21,293
Finished goods
- own manufactured product 177,946 810,355
- purchased product 220 155
178,166 810,510
1,076,189 1,159,473
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7.1 This includes stock-in-transit amounting to Nil (December 31, 2008: Rs. 155,925) and stocks held at the storage facilitiesof Engro Vopak Terminal Limited, a related party, amounting to Rs. 566,332 (December 31, 2008: Rs. 22,148).
Half Yearly Report 2009
33
10. BORROWINGS
During the period:
- the Company entered into a Syndicated Term Finance Agreement with a consortium of local banks on February 21,
2009 for Rs. 1,500,000. The facility is repayable in thirteen semi annual installments commencing six months fromCommercial Operations date of the Project or six months from December 30, 2009 (whichever is earlier). The facilitycarries mark-up at the rate of 3% over six months KIBOR and monitoring fee of Rs. 300 for the first year and Rs. 500per annum, thereafter. Commitment fee at rate of 0.15% per annum is also payable on that part of the finance thathas not been drawn. During the period, Company has drawn down Rs. 1,100,000 against the facility.
- the Company has drawn down the remaining balance of US$ 30,000 against the loan agreement/facility with InternationalFinance Corporation (IFC). There is no change in the terms and conditions of the loan.
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into interest rate swap agreements for notional amounts aggregating to US$ 40,000, with banksto hedge its interest rate exposure on floating rate foreign currency borrowings from International Finance Corporation(IFC). Under the swap agreements, the Company would receive six month USD-LIBOR on respective notional amountsand will pay fix rates, which will be settled semi annually. Details of the swap agreements are as follows:
Unaudited Audited
June 30, December 31,
2009 2008
Rupees
8. DEFERRED EMPLOYEES COMPENSATION EXPENSE
Balance at beginning of the period/year 4,381
Add: Deferred employees compensation expense recognized
on grant date 9,858
Less:
- Unvested share options lapsed during the period/year (89)
- Amortization for the period/year (2,161) (5,477)
2,131 4,381
9. SHORT TERM INVESTMENTS
At fair value through profit or loss
Mutual fund securities 488,702 43,648
Fair value as atDecember 31, 2008
60,154
60,154
Fair value as atJune 30, 2009
19,96884
(10,641)(1,956)
7,455
Fixed Rate%
3.3853.0052.7952.800
TerminationDate
June 15, 2017June 15, 2017June 15, 2017June 15, 2017
EffectiveDate
December 15, 2008June 15, 2009June 15, 2009June 15, 2009
NotionalAmounts
US $
15,0005,000
15,0005,000
40,000
Rupees
(Amounts in thousand)
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Half Yearly Report 2009
34
12. DEFERRED INCOME TAX
Credit/(Debit) balances arising due to:
- accelerated depreciation allowance
- net borrowing costs capitalized
- recoupable carried forward taxlosses and minimum turnovertax - note 12.1
- unrealized foreign exchange lossesand provision for retirement andother service benefits
- provision against custom duty and
SED refundable
- fair value of hedging instruments
- share issuance cost, net to equity
- others
UnauditedJune 30,
2009
AuditedDecember 31,
2008
Rupees
1,048,034)
334,160)
(903,492)
(43,713)
(6,454)
(2,609)
(51,566)
(1,277)
373,083)
548,080)
160,054)
(221,243)
(25,243)
(6,454)
(21,054)
(51,566)
_
382,574)
12.1 Deferred income tax asset is recognized for tax losses and minimum turnover tax available for carry-forward to theextent that the realization of the related tax benefit through future taxable profits is probable. The aggregate tax
losses available for carry-forward at June 30, 2009 amount to Rs. 2,318,287 (December 31, 2008: Rs. 439,677),on which the deferred income tax asset has been recognized.
13. SHORT TERM BORROWINGS
Running finance utilized under mark-uparrangements - note 13.1
Short term finance
UnauditedJune 30,
2009
AuditedDecember 31,
2008
Rupees
35,645
_
35,645
717,568
125,000
842,568
(Amounts in thousand)
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Half Yearly Report 2009
35
13.1 The aggregate facilities for running finance available from various banks, representing the sales price of all mark-uparrangements, amounts to Rs. 1,700,000 (December 31, 2008: Rs. 1,275,000). The corresponding purchase price ispayable on various dates during the ensuing year. Mark-up is chargeable at rates net of prompt payment rebate and isbased on relevant KIBOR plus 1.25% to 3%. During the period, the mark-up rates, net of prompt payment rebate, rangedfrom 12.39% to 17.37% per annum (December 31, 2008: 10.37% to 17.6% per annum). The facilities are secured by afloating charge over stocks and book debts.
14. TRADE AND OTHER PAYABLES
Includes amount due to following related parties:
- Mitsubishi Corporation
- Engro Vopak Terminal Limited
UnauditedJune 30,
2009
AuditedDecember 31,
2008
Rupees
1,155,217
86,830
1,242,047
740,811
15,046
755,857
15. PROVISIONS
As at June 30, 2009, the Company had paid Rs. 95,163 (December 31, 2008: Rs. 91,616) on account of Special ExciseDuty (SED) on import of plant and machinery for the Project. Out of this amount it has adjusted Rs. 58,476(December 31, 2008: Rs. 54,929) in the monthly sales tax returns against SED on goods produced and sold by theCompany. The Company had approached the Federal Board of Revenue to obtain a clarification in respect of the adjustmentof SED made by the Company in monthly sales tax returns. Pending such clarification the Company based on prudencehad made provision for the amount adjusted of Rs. 58,476 and for the balance remaining of Rs. 36,687 included in loans,advance, deposits, prepayments and other receivables. However, during the period, the Company received show causenotices from the Additional Collector (Adjudication) Federal Board of Revenue, stating that the Company, by adjustingthe aforementioned SED, has violated the provisions of the Federal Excise Act, 2005 and the Federal Excise Rules, 2005read with SRO 655(1)/2007 and that the amount adjusted is recoverable from the Company under the Federal Excise Act,2005 alongwith default surcharge and penalty. In response to these notices the Company has filed a Constitutional Petitionbefore the Honourable High Court, Sindh, on May 18, 2009. The High Court is in the process of evaluating the ConstitutionalPetition. The Company is confident that the ultimate outcome of the matter will be in its favour, however, based on prudenceis maintaining the aforementioned provision. Further, a provision of Rs. 7,421 for surcharge and penalty thereagainst uptoJune 30, 2009 has also been made.
16. CONTINGENCIES AND COMMITMENTS
16.1 Commitments
- Capital expenditure for the Project referred to in note 1, under the contracts signed as at June 30, 2009 but not yetincurred amounts to Rs. 108,544 (December 31, 2008: Rs. 1,305,738).
- Performance guarantees issued by banks on behalf of the Company as at June 30, 2009 amounts to Rs. 591,450(December 31, 2008: Rs. 264,200).
(Amounts in thousand)
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17. COST OF SALES
Half Yearly Report 2009
36
Opening stock of work-in-progress 31,810 13,817 21,293 22,861
Raw and packing materials consumed 1,934,633 1,461,705 3,326,793 2,811,732Salaries, wages and staff welfare 43,504 19,535 86,803 47,451Fuel, power and gas 71,567 31,545 175,831 67,178Repairs and maintenance (2,137) 1,098 21,443 4,731Depreciation 69,701 41,718 139,489 83,947Consumable stores 13,781 6,978 19,651 8,840Purchased services 5,313 5,442 10,018 9,708
Storage and handling 44,308 30,999 87,127 64,238Training and travelling expenses 1,001 1,829 1,728 2,496Communication, stationery and other
office expenses 613 303 856 733Insurance 8,377 2,431 20,430 4,863Other expenses 3,340 1,107 4,918 1,107
2,194,001 1,604,690 3,895,087 3,107,024
Closing stock of work-in-progress (18,780) (14,018) (18,780) (14,018)
Cost of goods manufactured 2,207,031 1,604,489 3,897,600 3,115,867
Opening stock of finished goods 206,131 619,628 810,355 640,170
Closing stock of finished goods (177,946) (300,173) (177,946) (300,173)
28,185 319,455 632,409 339,997
Cost of sales - own manufactured product 2,235,216 1,923,944 4,530,009 3,455,864- purchased product _ 147 _ 676
2,235,216 1,924,091 4,530,009 3,456,540
June 30,
2009Rupees
June 30,
2008
Quarter ended
June 30,
2009
June 30,
2008
Half Year ended
(Amounts in thousand)
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Half Yearly Report 2009
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June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Rupees
18. DISTRIBUTION AND
MARKETING EXPENSES
Salaries, wages and staff welfare 13,751 9,342 26,473 19,080
Advertising, sales promotion andentertainment 11,176 10,522 20,817 15,712
Product transportation and handling 73,621 52,013 137,179 98,531
Rent, rates and taxes 444 1,241 1,874 1,751
Purchased services (985) 1,414 790 4,347
Insurance 282 197 552 354
Depreciation 849 1,105 1,907 1,992
Training and travelling expenses 1,827 2,775 2,885 4,014
Communication, stationery and other
office expenses 472 1,204 965 1,826
Others 822 1,106 1,312 1,684
102,259 80,919 194,754 149,291
19. ADMINISTRATIVE EXPENSES
Salaries, wages and staff welfare 25,557 25,652 32,790 39,650
Rent, rates and taxes 4,493 3,469 7,748 5,485
Purchased services 4,130 2,459 8,508 4,257
Insurance 107 142 208 142
Depreciation 1,205 1,631 2,550 2,706
Amortization 429 168 739 318
Training and travelling expenses 9,819 6,118 15,832 8,406
Communication, stationery and
other office expenses 2,140 2,310 5,358 3,281
Others 2,754 5,171 4,405 5,492
50,634 47,120 78,138 69,737
20. OTHER OPERATING EXPENSES
Legal and professional charges 1,378 141 2,305 211
Auditors' remuneration 317 255 317 455
Donations 1,467 108 1,375 450
Provision against custom duty
refundable 18,043 18,043
Sales tax receivable written off 219 219
Workers' profit participation fund 206 18,288 206 34,059
Workers' welfare fund 78 7,315 78 13,623
Foreign exchange loss - net 33,828 57,218 82,793 65,047
Others 2,226 1,195 540 1,195
39,500 102,782 87,614 133,302
Quarter ended Half year ended
(Amounts in thousand)
Quarter ended Half year ended
(Amounts in thousand)
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21. FINANCE COST
Interest/Mark-up on:- long term borrowings- short term finances
Guarantee commissionBank charges and others
Quarter ended Half year ended
(Amounts in thousand)
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Rupees
Quarter ended Half year ended
(Amounts in thousand)
52,7484,570
3163,019
60,653
4,876819
2,058
7,753
97,98816,698
6255,652
120,963
9,9582,276
3,327
15,561
June 30, 2009 June 30, 2008
Rupees
22. CASH GENERATED FROM OPERATIONS
Profit before taxation 14,650 634,856
Adjustments for non cash charges
and other items:
Provision for staff retirement and other
service benefits 539 3,470
Depreciation change 143,946 88,645
Ineffective portion of changes in fair value of
derivative financial instrument (911)
Amortization of deferred employee
compensation expense 1,984
Amortization charge 739 318
Income on deposits (45,666) (46,529)
Realized gain on short term investments (1,977) (33,635)
Unrealized fair value gain on short term
investments (4,629) (3,877)
Provision against custom duty refundable 18,045
Provision against special excise duty 339
Finance costs 120,963 15,560
Profit on disposal of operating assets (886) (173)
Operating assets written off 243
Working capital changes - note 22.1 1,748,394 315,979
1,978,057 992,330
22.1 Working capital changes
(Increase) / Decrease in current assets
Stores and spares (31,665) (7,375)
Stock-in-trade 83,284 186,663
Trade debts (39,127) (1,888)
Loans, advances, deposits, prepayments
and other receivables (net) 18,800 (142,515)
31,292 34,885
Half year ended
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25. DATE OF AUTHORIZATION FOR ISSUE
This consolidated condensed interim financial information was authorized for issue on July 24, 2009 by the Board ofDirectors of the Company.
26. CORRESPONDING FIGURES
In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, theconsolidated condensed interim balance sheet and consolidated condensed interim statement of changes in equity havebeen compared with the balances of consolidated annual audited financial statements of preceding financial year, whereas,
the consolidated condensed interim profit and loss account, consolidated condensed interim statement of comprehensiveincome and the consolidated condensed interim cash flow statement have been compared with the balances of comparableperiod of immediately preceding financial year.
Half Yearly Report 2009
40
Asif Qadir Masaharu DomichiPresident & Chief Executive Director
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