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INTRODUCTION 1.1 AGRICULTUREPakistan is an agricultural country. In the past decades, Pakistan has progressed from a purely agriculture based economy to a relatively balanced economy dependent on services and other commodity producing sectors as well. Although agriculture continues to perform an important role in the overall GDP, however in recent times it has been outpaced by rapid growth in non agricultural sectors.

Share of agriculture output to overall GDP stood at 21% to total GDP in FY08 employing 44 percent of the workforce, whereas industrial sector contributed about 26%. As per experts estimation the share of agriculture cannot go down further, as many industrial sector such textile, sugar and fertilizer are also depend on agriculture. These industries provide input, as well as derived input from agriculture. However, in the future, the share of agriculture in overall GDP is estimated to start rising henceforth as the population demand for food rises.

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1.2 ECONOMIC ENVIRONMENTFertilizer consumption world wide is highly correlated with macroeconomic growth of the country. Likewise, Pakistan has witnessed robust economic growth in the last few years. The countrys GDP has grown at a CAVR of 7.55% over the past 3 years and future prospects are positive. The strong economic performance has been accompanied by an increase in agriculture growth, per acre yield and resultant demand. Pakistans agriculture output has suffered in the recent past due to adverse weather conditions and crop spoilage. The government is committed to improve agriculture performance through the following measures: i. ii. iii. iv. Irrigation system improvement Subsidy to farmer Encouraging use of fertilizer Above average credit disbursement

As a result of these policies, yield per hectare of Pakistan is showing gradual improvement although it is low as compared to the other countries. Currently it stands at 1.44tn per hectare.

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The low yield can be explained in a large part by the low fertilizer use in Pakistan. Fertilizer consumption in Pakistan stands at 162.5kg/hectare.

The fertilizer policy aimed at providing low cost fertilizers to the farmer so as to enable them to improve yields. It encourages manufacturers to invest in the country and subsidizes their most important feed stock gas rates. In the future these measures are expected to results in great use of fertilizers and thereby create demand for it.

Generally, fertilizer consumption closely follows production in a country subject to the availability of raw materials and also because of the relation between fertilizers consumption and economic growth.

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1.3 WORLD FERTILIZER SITUATION1.3.1 CONSUMPTION AND PRODUCTION

World fertilizer consumption increased exponentially in the period of 1950_1990. This growth was spurred by the rise in food demand by the burgeoning world population. Attaining higher production given the same amount of land can be done through three ways: i. ii. iii. Turning more land into arable land through better irrigation Using High Yielding Seeds (HYS) Using fertilizers to improve soil content

Improvement in soil content is the most convenient and frequently followed method. Moreover, it has gained widespread use as food demand rises.

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The exponential growth in world fertilizer consumption experienced a brief downturn in the early 1990s due to the collapse of fertilizer consumption in the countries of central Europe and the Former Soviet Union, following structural changes and economic problems. However, post that brief downturn, growth in fertilizer consumption is again on the rise and rapid growth is expected to continue in the future.

According to the IFA estimates, world fertilizer consumption is expected reach 163.7mntpa in 2011 from 143.3mntpa in 2007. A Sharpe shift in actual consumers of fertilizer has also occurred over the period in view. From a 12:88 ratio of developing : developed nations consumption in early 1960s has now become 65:35.

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Interestingly, over a third of the worlds total production is in just two countries namely China and India. Hence, Production of fertilizers becomes concentrated in countries, who are also the users.

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Another factor that determines location of production is resources availability. The most common feedstock used across the world is natural gas and availability of natural gas reserves, therefore, facilities production.

Because of the relative location of producing and consuming countries, large quantities of fertilizer materials are shipped internationally. As a proportion of worlds dry bulk trade, only coal, iron ore and grain exceed trade of fertilizers and their raw material.

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1.3.2

OUTLOOK

The international Fertilizer Association (IFA) produces forecast of world fertilizer usage and production. Following estimates are taken from IFA: Till the year 2030, the increasing world population and higher standards of living in developing countries will demand a substantial increase in global cereal production. Problem in supply-demand are likely to occur because agricultural production in developing countries is not keeping pace with this increase in demand.

The increase in demand can be met through increase in cultivated area; however, this appears only as a possibility in Africa and Latin America. In most other parts of the world the increase in demand must be met through greater yield, which will most certainly require increased use of fertilizers. Growth in production is expected to outpace fertilizer consumption. According to IFA estimates world urea supply is expected to reach 178.8mntpa in 2011 from 145.2mntpa in 2008.Most of the forecasted increase in fertilizer capacity is expected to arise from China and Saudi Arabia.

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1.4 PAKISTAN FERTILIZER INDUSTRYPakistans economy is agro-based; however our cultivable land is deficient in nutrient contents. This deficiency can only be overcome through the balanced use of fertilizer. Presently, there are ten manufacturing units in Pakistan. Out of these, four units are located in the public sector and six are operating in the private sector. The province-wise distribution of units confirms that 5 units are located in Punjab, 3 in Sindh and 2 in the NWFP.

Fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85% of all fertilizers produced in the country. Although other types of fertilizers are also produced in Pakistan, the bulk of whose demand is imported. The main reason for this concentration on nitrogenous fertilizers is that its main raw material i.e. natural gas is cheaply available in the country. The raw material for other fertilizers such as potassium and phosphate has to be imported. The local fertilizer companies meet almost 80% of Pakistans Fertilizer requirement. The total installed capacity is over 5,124 million tones /annum. It mainly comprises of 4,180 million tones for urea and remaining for NP, DAP, CAN and SSP.20%

80% Local Manufacture Import

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1.4.1

FERTILIZER INDUSTRY BRIEFDESCRIPTIONS Fertilizer Industry Expansion stage Growth Industry 24.29% Fertilizer industry is fast growing industry, being aided by Government of Pakistan, as it is associated with agriculture. Pakistan, being an agriculture country will have to support all industries which are directly related to Agriculture to ensure maximum benefits as well as maximum production. Current the sector is growing with almost 35% rate. Dawood Hercules Company Ltd, Fauji Fertilizers Company Ltd, Fauji Fertilizers Bin Qasim Company Ltd, Engro Chemicals Pakistan Ltd,

PARTICULARS Sector Sector Life Cycle Type of Industry Growth rate

Historical Performance

Market Player

Threats Risks & mitigation

Supplier (Row material), Consumer (Less purchasing power) Inflation rate, Interest rate, Environmental problems, Political instability Overall profitability of fertilizer sector increased 45% Increased in fertilizer demand by 18% Fertilizer sector is the 2nd largest consumer of gas

Financial Indicators

1.4.2

MARKET DYNAMICS Demand Supply situation11

1.4.2.1

The fertilizer industry in Pakistan has an oligopoly structure. The product I differentiated and there are 10 firms in the industry. Four of them are listed and other is unlisted. The entry or exit of a single player can affect pricing. There is no single dominant industry leader. The four largest firms are deemed to be price setters. These include i. ii. iii. iv. Fauji Fertilizers Company Limited Engro Chemical Pakistan Limited Fauji Fertilizers Bin Qasim Limited Dawood Hercules Company Limited

However, government regulations and subsidies to farmers prevent these firms from exploiting their market power to arrange price setting agreement.

The current situation in the industry is one of excess demand. Currently, domestic supply capacity is 5.8mntpa (million tones per annum) and demand is 6.8mntpa.

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Overall industry capacity has shown a CAGR of 5.5% from CY90 to Cy07 whereas sales have shown a CAGR of 5.3% from CY90 to CY07 i.e. supply has grown faster that demand. Given the same pace, the situation is expected to reverse in the Pakistan (TCP), which imports foreign fertilizer that it sells on to domestic producers and distributors at a subsidized rate. TCP only imports urea and local manufacturers themselves and they earn good margins on it especially when international phosphate prices rise and local importers have significant amount of DAP inventory on hand. 1.4.2.2

Market Player

The table below show industry concentrated measures. The 4 firms concentration ratio, which is the sum of the market shares of the four largest producers, is 94.5%. The market is dominated y the four largest firms. Entry by a new firm is unlikely to significantly decrease concentration. Also mergers and acquisitions are unlikely in the industry, therefore, it is expected that manufacturers will grow through expansion.

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1.4.3

Industry Outlook

Presently,

industry

capacity

stands

at

5.8mntpa.Domestic

demand

is

6.8mntpa.Fertilizer demand is expected to grow at a CAGR of 5.25% from 2007 to 2012.

As for capacity, the three major players have planned following capacity expansion plans. These, as well as others, will take overall industry capacity to 7.5mntpa in the year 2010 at which time Pakistans fertilizer industry will face excess supply situation.

Exports may become possible if such a situation arises, which will have special implication for fertilizers industry.

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COMPANY PROFILE

Company Name Nature of Business Share in Market Date of Formation

Engro Chemical Pakistan Limited Manufacturing & Marketing 20% (2nd largest) 1965

Food Fertilizer PVC Resin Power Generation Industry Automation Chemical handling & Storage Lahore Stock Exchange Karachi Stock Exchangeth

Product Portfolio

Listed

Islamabad Stock Exchange 7 & 8th Floor, The Harbor Front Building, Registered Office HC # 3,Marine Drive, Block 4,Clifton, Karachi 75600, Pakistan. Chairman Chief Executive Company Secretary Hussain Dawood Asad Umer Andlib Alavi

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Asif Qadir Khalid S. Subhani Khalid Mansoor Ruhail Mohammad Isra Ahmad Shezada Dawood Shabbir Hashmi Arshad Nasar

Board of Director

Auditor

KPMG Taseer Hadi & Co. Charted Accountants

ABN AMRO Bank N.V. Allied Bank Limited Askari Commercial Bank Bank Al-Habib Bank Al-Falah Bank of Tokyo Citibank N.A. Crescent Commercial Bank Faysal Bank Limited Habib bank Limited Habib Metropolitan Bank Limited The Hong Kong and Shanghai Banking Corporation Limited Meezan Bank Limited MCB Bank Limited National Bank of Pakistan Standard Chartered Bank United Bank Limited JS Bank Limited

Banks

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1.4.4

ENGRO CHEMICAL PAKISTAN LIMITED

Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan. A premier fertilizer manufacturing and marketing Company with specific product line that focuses on balanced crop nutrition and increased yield for the farmer. Its production is based in Daharki, Sindh and Karachi. It is included in the KSE 100 stock index at the Karachi Stock Exchange and also listed on the Lahore and Islamabad Stock exchanges.

1.4.5

HISTORY

The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991, when Exxon decided to divest their fertilizer business on a global basis and sold off its equity of 75% shares in Company. The Employees of Engro, in partnership with leading international and local financial institutions bought out Exxons equity and the company was renamed as Engro Chemical Pakistan Limited. Engro accomplished significant progress not only in its base urea fertilizer business but also in diversification projects.

1.4.6

VISION

To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders

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1.4.7

CORE VALUES

According to Engro Chemical Pakistan Limited

Our employees performance can only flourish in a sound work environment. That is why ENGRO is committed to supporting its leadership culture through systems and policies that foster open communication, maintain employee and partner privacy, and assure employee health and safety.

Focus toward Safety, health & environment Ethics and integrity Leadership Quality &continuous improvement Enthusiastic pursuit of profit External & community involvement Candid & open communications Enjoyment & fun Innovation Individual growth & development Teamwork & partnership Diversity & international focus

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1.5 BUSINESSThe Company is engaged in the manufacturing and marketing fertilizer with product line that focuses on balanced crop nutrition. The Company also owns joint venture/subsidiaries, which are engaged in chemical terminal & storage, polyvinyl chloride (PVC) resin manufacturing and marketing, control and automation, food and energy businesses.

1.5.1

ENGRO CHEMICAL PAKISTAN LIMITED (ECPL)

The Companys current manufacturing base includes urea name plate capacity of 975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year. A premier brand and nationwide presence ensure sellout production. Additionally, the company imports and sells phosphates fertilizers for balanced fertility and improved farm yields. Engros share of Pakistans phosphates market mirrors or exceeds its urea market share.

Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at Daharki. The US$ 1 billion project is well underway and on track for commercial production in mid 2010. This addition will increase Engros urea market share to 35% from 19% at present.

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1.5.2

ENGRO VOPAK TERMINAL LIMITED (EVTL)

50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in terminal operations. EVTL operates a bulk liquid chemical terminal at Port Qasim, Karachi. It has an impeccable safety record of handling a range of chemicals and LPG for over 10 years.

EVTL is building Pakistans first cryogenic Ethylene storage facility and expects to be ready by early 2009. Given its experience with gasses, cryogenics, a brown field location and international operating standards, EVTL is well-positioned to build a LNG terminal, being pursued by the Government of Pakistan.

1.5.3 (EPCL)

ENGRO POLYMER AND CHEMICALS LIMITED

Also at Port Qasim, this 56% Engro owned Company is involved in manufacturing, marketing and selling Polyvinyl Chloride (PVC).

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EPCL is undergoing expansion involving PVC production increase of 50,000 tones (current capacity: 100,000 tons p.a) and back integration through setting up of an EDC/VCM plant and a Chlor alkali plant.

1.5.4LTD)

AVANCEON (ENGRO INNOVATIVE AUTOMATION PVT.

A 63% owned subsidiary of Engro, Avanceon is the leading global automation business, providing process & control solutions. It also offers Power & Energy Management software solutions as well as High-End software that integrate production and business applications. Previously operating in Pakistan and UAE, they have now penetrated in the USA market with the merger of ENGRO Innovative and Advance Automation. Advance Automation is an award winning technology solutions provider to manufacturers in North American and has been awarded as the System Integrator of the Year 2007 by Control Engineering.

Synchronizing to a single brand worldwide with all the engineering Standards, processes, brand identity and global brand recognition was a huge task and due to

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various different cultural factors it was even complex then perceived. After months of hard work AVANCEON emerged as the new name and the true Global Automation Player. The new company name will help to reinforce the single brand identity that has emerged over the last 16 months as the two formerly separate companies have successfully worked to become a single global enterprise.

1.5.5

ENGRO FOODS LIMITED (EFL)

Engro Foods, a wholly owned subsidiary had its first full year of operations in 2007. The Company continued expanding with additions to brand portfolio, milk production and distribution capacities. The portfolio now includes four impressive brands; Olper's milk, Olpers cream, Olwell and Tarang. Olpers market share peaked at 17% during 2007.

EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The companys milk collection network now boasts over 700 village milk collectors and 400 milk collection centers. Covering 2400 villages across Pakistan, the activities of the Company touch the lives of almost 51,000 farmers.

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An exciting new venture is the diversification of dairy portfolio into ice cream. Work has commenced full throttle for detailed engineering and market study with a view to launch of first ice cream in 2009. Also on EFL slate is the establishment of a dairy farm with milking expected to start in second quarter 2009.

1.5.6

ENGRO ENERGY LIMITED (EEL)

This wholly owned subsidiary is setting up an Independent Power Plant near Qadirpur in Sindh; Targeting 2009 for commercial operations, the power project will have a net output of 217 MW.

The plant will utilize low heating value permeate gas from Qadirpur gas field which is currently being flared.

1.5.7

ENGRO EXIMP (PVT.) LIMITED (EEPL)

Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of fertilizer imports.

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INDUSTRY ANALYSIS 2.1 PORTERS FIVE FORCESEngro is taken from the company logo "Energy for Growth". Engro Chemical Pakistan Limited (ECPL) is a Pakistani fertilizer manufacturing and marketing company is a primary target for an analysis using Michael Porters 5-Forces Model (5-Forces). We have applied the 5-Forces analysis into the respective divisions: 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 Supplier Power Barriers to Entry Threat of Substitutes Buyer Power and Degree of Rivalry Competitive rivalry

GRAPHICAL REPRESENTATION

Threat of Entrant

Bargaining Power of Supplier

Competitive Rivalry

Bargaining Power of Buyer

Threat of Substitute Product

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2.1.1

SUPPLIER POWER

Supplier Power is analyzed though supplier concentration, importance of volume to supplier, differentiation of inputs, switching costs of firms in the industry, etcetera. Suppliers are powerful if there are only a few suppliers, a large number of purchasers, and significant costs of switching suppliers. Supplier power is strongly buttressed when a supplier has control over prices.

Suppliers in this industry are not concentrated.

They act as separate groups

competing for the same project through the bid system that is prevalent in chemical Industry. Volume is of significant concern. The, large chemical industry is not affected in terms of supply volume giving suppliers any leverage. The Companys current manufacturing base includes urea nameplate capacity of 975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year.

2.1.2

BUYER POWER

Engro Chemical Pakistan Limited (ECPL) A premier brand and nationwide presence ensure sellout production to Pakistani and international customers, due to flexible demand delivery and low down payments.

Buyers have power over when they are concentrated, purchase a significant portion of new production, and pose a credible threat to purchases from competitors.

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2.1.3

BARRIERS TO ENTRY (Threat of Potential Entry)

Identifying the possibility and probability of new entrants in an industry is critical because they can intrude on market share and profitability of existing competitors. Economies of scale, product differentiation, capital requirements, switching costs and government policy all affect the Industry.

The economies of scale realized by Engro make it almost impossible for new entrants. The governmental red tape that must be overcome in this industry is paramount to the success of a prospective Fertilizer Company.

Massive ecological and environment surveys must be done before companies can begin production. The required capital and the ability to work with in the industry

are the two primary barriers to entry to the Market

The government regulates the pricing of natural gas, the most input to the fertilizer industry. Natural gas is used a fuel and as raw material or feed stick.

Previously the government's policy was to supply fuel gas at rate pegged t high surplus Fuel oil, while feed stick at lower rates.

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2.1.4

THREAT OF SUBSTITUTES

The threat of substitutes entails a consideration of such things as switching costs, buyer inclination to substitute and the price-performance trade-off of substitutes. Most individuals would like to make an investment with the purchase of a particular product of an organization.

Many organizations do realize that substitutes are there but they must develop such a product that satisfies their customer. When prices become exorbitantly high,

Companies mainly watch out for a decreased demand.

2.1.5

DEGREE OF COMPETITIVE RIVALRY

The growth rate of the Chemical market is tremendous; however, it is limited in many respects. The growth for the demand and the production of Urea is enormous. We believe the growth in the actual number of competitors is merely a related effect of the costly barriers to entry.

The market is both mature and developing at the same time. The maturity of the market can be illustrated by the Interventions and helps to carry out a cost benefit analysis of a policy provided that governments know the tradeoff between efficiency and non efficiency goals.

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EXTERNAL ENVIIRONMENT 3.1 PEST ANALYSISA scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: 4.1.1 4.1.2 4.1.3 4.1.4 Political / Legal Factor Economic Factor Social Factor Technological Factor

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro environmental factors. PEST Analysis Framework

Environmental Scan / External Analysis / Microenvironment | P.E.S.T \ Microenvironment \ Internal Analysis

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3.1.1

POLITICAL / LEGAL FACTOR

Political factors include government regulations and legal issues and define both formal and informal rules under which the firms operate. The rule and regulations that the cement industries follow are as follows:

4.1.1. 1 4.1.1. 2 4.1.1.3 4.1.1.4

Employment laws Tax policies Environment regulations Political stability

3.1.1.1

Employment Laws

The labor policy issued by the Government of Pakistan lays down the parameters for the growth of trade unionism, the protection of workers' rights, the settlement of industrial disputes, and the redress of workers' grievances. The policy also provides for the compliance with international labor standards ratified by Pakistan.

At present, the labor policy as approved in year 2002 is in force. The minimum wages for unskilled worker is Rs. 2,500. The minimum threshold of income for taxation of salaried individuals has been enhanced from Rs. 150,000 to 180,000 per annum.

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3.1.1.2

Tax Policies

According to the tax memorandum 2008, the cement industries have to abide by the following rules:

o Tax rate is 35%. o For income years 2003 2007 income turn returns have been filled under self assessment scheme by the company. o The company confident that all pending issues will be ultimately resolved without any additional liability.

3.1.1.3

Environment Regulations

At present Pakistan industries follow the Pakistan Environmental Protection Act, 1997. The Pakistan government has now become conscious of the environmental pollution. It has set some specific laws that all the manufacturing industries have to follow according to the Pakistan Environmental Protection act, 1997.

Efforts to reduce environmental footprint were vigorously pursed. Environmental friendly disposal of chromate sludge continued and it is expected that chromate sludge will be removed in year 2009.

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3.1.1.4

Political Stability

Since the day Pakistan got its independence, political condition of Pakistan is getting worse day after day and minute after minute. The present situation regarding the political stability is negative in Pakistan. This political instability has been in process since the fate full attack of 9/11, 2001. This instability has affected the businesses adversely. The poor security situation and uncertainty leading up to the parliamentary elections in February have caused a capital flight from Pakistan, and its rupee currency has fallen 13% against the US dollar since January 2008. However, the stepping down of Pervaiz Musharraf as president has shown some hope for the reviving of the political stability.

According to the survey conducted by IRI (international republican institute), 52% of the people expected that the things will get better now that there is a new government but still there are many factors that are prevailing up till now and are the cause of the unrest.

Moreover, the geographical region where Pakistan is located, having the neighbors such as India and Afghanistan, and the pertaining international situation regarding the war against terrorism, not only the direct investors have stepped back even the investors who have made investments in the country are backing up. The demonstrations, social unrest, suicidal attacks and terrorists attacks on different areas as well are highest risks to the companys operations.

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3.1.2

ECONOMIC FACTORS

Economic factors affect the purchasing power of potential customers and the firms cost of capital. Economic factors can not be excluded for operating any business including fertilizers. Following are the factors affecting the macro economy: 4.1.2.1 4.1.2.2 4.1.2.3 4.1.2.4 Economic growth Inflation rate Interest rates Exchange rates

3.1.2.1

Economic Growth

The manufacturing sector growth continued 5.73% in 2008-09, which is slightly more moderate than 5.27% for the year 2007. Economic conditions are not very sound. The increasing inflation, imposition of new taxes, rising fuel charges and changes in government economic policies has discouraged investment in fertilizer.

If Pakistan keeps on getting better grants and loans waivers or if any other economy boosting factor such as controlled inflation rate and economic growth take place, it will benefit the entire industry.

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3.1.2.2

Interest Rates

The monetary policy of Pakistan is controlled by the state bank of Pakistan. The state bank, in order to control the inflation has taken measures and tightened up the monetary policies. Pakistan has raised its main interest rate by 1 percentage point to 13 % to help fight inflation.

3.1.2.3

Exchange Rates

The exchange rates of Pakistan with respect to the U.S. dollar, has declined. The Pakistani rupee has depreciated since the proclamation of emergency rule in November 2007. In other words we can say that the value of the rupee has fallen as the time passed by.

3.1.2.4

Inflation Rate

Inflation is one of these core problems. This thing is really hurting the purchasing power of Pakistani consumers. The inflation in year 2008 has recorded to be the highest according to the Federal Bureau of Statistics. Consumer Price jumped to 17.21% in March 2008 according to the statistics given by Federal Bureau of Statistics. In April 2008, the Pakistan inflation accelerated at it fasted pace and the inflation is still increasing. The reason behind this is that in April 2008 the food prices rose 25.5 percent from a year ago and fuel prices climbed 8.6 percent and the tension among the political leaders.

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3.1.3

SOCIAL FACTORS

Health consciousness among the people of Pakistan has been increasing day by day. The citizens of Pakistan are getting aware of their duties in order to maintain the healthy environment. Government is taking several steps in order to educate, how important it is for the people to live in the healthy environment.

The government discourages the operation of the industries with in the city by charging these factories with environmental charges. In spite of this discouragement, there are many factories that are running inside the city, discharging poisonous gases and chemicals. By the passage of time, the people as well along with the government are discouraging such activities and demand for clean environment.

During 2008, Engro maintained high health, safety and environment standards. Companys occupational health evaluation was carried out by DuPont Safety Resources consultant, in an endeavor to keep it abreast with the World-Class Safety Standards; Engro has adopted DuPonts Safety Management Systems under an agreement, with the world-renowned DuPont Safety Resources, in 2003

Urea manufacturing site has got ISO 9001:2000 & ISO 14001:2004, OHSAS 18001:1999, & SA 8000:2001 certifications.

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3.1.4

TECHNOLOGICAL FACTORS

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. The Pakistani industries not only have to compete among them selves but with the international market as well. Pakistan is steadily automating particularly its manufacturing sectors to stir quality production and ensure skilled management, as it would ensure a good place for the country in the global competitive market.

According to the report issued by the ministry of technology, the government will invest in various fiscal and non-fiscal incentives to nurture, develop, and promote the use of IT in organizations, to increase their efficiency and productivity. The strategies focus on promotion of venture capital industry through incentives, recognition of software development as a priority industry for financing by the banks, creation of investment friendly environment, and building investors confidence.

In recent years, technology has been seen to be progressing at very fast rate all over the world. It has helped to raise income and alleviate poverty in the developing countries. The change in technology can be seen in the Pakistani industries as well.

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3.2 CONCLUSIONWhen the rate of change inside the company is exceeded by the rate of change outside the company, the end is near. (Jack Welch, former Chief Executive Officer of General Electric)

According to the Engro Chemical Pakistan Limited:

The economic condition of Pakistan has strong impact on Engro chemical Pakistan Limited. As Pakistan inflation rate is entering in galloping inflation rate, so the company revises its strategies accordingly. As for as Chemical industry is concerned, there is much competition in political, economical, social and technological factors especially price competition.

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INTERNAL ENVIRONMENT 4.1 SWOT ANALYSISA scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan: SWOT Analysis Framework

Environmental Scan / Internal Analysis /\ Strengths Weaknesses | SWOT Matrix \ External Analysis /\ Opportunities Threats

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4.1.1

STRENGTHS

A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths in Engro include:

4.1.1.1

Quality Assurance

Quality is of most importance at any Organization. It is a focus and goal that permeates every department and technical section of the Firm. The quality process used addresses the needs of its customers. Through constant monitoring, with a focus on continuous improvement, ensures that clients are satisfied with the services they receive. 4.1.1.2

Cost-Effective Approach

Focus also set on designing cost-effective approaches for the delivery of companys services. 4.1.1.3

Professional Team

High Quality and Skilled Professionals Dedicated laboratory professionals of departments and ancillary support staff make the target achievable.

4.1.1.4

Access To Distribution Networks

Engro has a strong distribution network in all over the Pakistan so it can provide services in everywhere in the country.

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4.1.1.5

Natural Resources

Engro has new technological devices to seeking and using the natural resources in the fertilizer industry.

4.1.1.6

Strong Brand Names

Engro has a good brand name in market for their good quality and better services because it works since 1965 in Pakistan. It has a strong brand image in the farmers mind. It is strength for Engro to compete in the fertilizers industry with other brands as Fauji Fertilizers and.

4.1.1.7

Good Reputation Among Customers

Because targeted customers of Engro are satisfied with the services provided by the Company it has a strong brand image in the customers mind which create a good reputation of Engro in customers mind.

4.1.1.8

Cost Advantages

Engro works since 1965 in Pakistan so it has cost advantages from new entrant in industry because it has more work experience in different situation of fluctuation in business cycle.

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4.1.2

WEAKNESSES

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses of Engro

Higher Cost Wastage of row material Delay in capacity expansion Large investment needed for business expansion Workers leave the organization after working one yearLack of online market facility to access international buyers

Disputes between Middle level and Lower management Relative weak position in fertilizer market as compare to the Fauji fertilizer Some pesticides produce by the company may dangerous for human health.

Dependence on supply and price of international market raw material and natural gas

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4.1.3

OPPORTUNITIES

The external environmental analysis may reveal certain new opportunities for profit and growth. Some of them are

4.1.3.1

Market Demand

At present the demand for fertilizers in the domestic market is increasing. Engro is benefiting quite well at present. This has given Engro a golden opportunity to capture the market with very less competition. The demand of fertilizer outside Pakistan has been increasing rapidly, providing Engro a good chance to explore these markets. 4.1.3.2

Attractive Export Avenues

The current excess demand situation has prompted capacity expansions which are likely to open up profitable export avenues post 2010.Industry supply is expected to reach 7.5mntpa by 2010 which will be higher than local demand. This surplus is likely to be exported to the neighboring countries in the excess supply of fertilizer in the near future. 4.1.3.3

Technology

New technology is an opportunity for the industry. Engro has enough finance to capture the new technological production system. New technology will affect the operation of business and production level of the organization in a positive manner.

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4.1.3.4

Increased Funding by Government

Pakistans fertilizer manufacturers have low resource cost to feedstock gas subsidy advanced by the Government. Through this subsidy manufactures are able to get feed stock gas at significantly lower rates than the market which improves their profitability. Government has decided to increase fertilizer industry funding. This is an opportunity for ENGRO because previously due to weather conditions, pest attacks and other reasons there was lots of wastage of crops but now that can be reduced as industry will be better able to provide fertilizers for longer time periods. 4.1.3.5

Awareness

Government programs and excess demand of fertilizers in Pakistan aware the farmer in Pakistan. So it is a golden opportunity for firms to provide better services to potential customers. 4.1.3.6

Second largest Market Share

Engro capture the 21% market share. It is at 2nd position after Fauji fertilizer in Pakistan. This is an opportunity for ENGRO as there is lot of growth in this part of the sector. 4.1.3.7

Investment Portfolios

Engro is a dominant player who hold attractive investment portfolio. Engro invests in various subsidiaries as Engro Food, Power, and Fertilizers etc so Engro has the opportunity of high risk high reward I n future in the business.

47

4.1.4

THREATS

Changes in the external environmental also may present threats to the firm. Potential unfavorable conditions for an Engro face such threats 4.1.4.1

Competition

The company is highly vulnerable to price competition since it faces higher cost of production per bag. The rocketing increase in prices of gas, and even 300 % increase in the price of coal has been affecting badly to companys profitability. Competition may pose a threat because the company will have to maintain its leadership in an expanding market. 4.1.4.2

Perceptions and Price Differentials

Consumers perceptions and price differentials can cause a threat for the company. It is important that Engro comes up to the expectations of the customers and fulfills its conformance quality that is the company meets its promised specifications. 4.1.4.3

New Entrants

The fertilizer industry in Pakistan has an oligopoly structure. Products are differentiated among firms. The entry and exit of a single player can affect pricing. 4.1.4.4

OthersEnvironmental problems Emergence of substitute products New regulations imposed by new Government

48

4.2 SOWT MATRIXA firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:Valuable Strength Critical WeaknessFi r m st at u s

ECPL

Environmental status Abundant Environmental Opportunities Critical Environmental Threats

49

4.2.1

CONCLUSION

After anglicizing the current Strengths, Weaknesses, Opportunities and Threats the main results are given as under and a strategy is also recommended here to help the company to get profit advantages in future:

4.2.1.1

Current Status

As Engro chemical Pakistan Limited has more valuable strength and has more market opportunities, so that Growth Strategy is much more helpful for it. That is the time to expand its business. Following is an important recommended strategy to grow up the business.

4.2.1.2

Recommended Strategy

Expansion strategy refers to expand the business after collecting information from broad environment and task factors. Engro Chemical is also currently following this strategy in order to meet the organizational goal and customers need. Engro has to operate in whole over the country in order to become the market leader. That is the best suitable strategy to meet the competition.

50

51

BOSTON CONSULTING GROUP MATRIX 5.1 BCG MATRIXFor more effective planning and operations, a multi-business or multi-product organization should be divided according to its major markets o products. Each such entity is called a strategic business unit (SBU). Using this matrix, an organization classified each of such SBU according to the factor like i. ii. Market Share Industry Growth Rate

The BCG matrix is shown below:

HighIn d u st ry G ro w th

Low

ECPL

Market Share High Low

52

5.1.1

CONCLUSION

Under the light of BCG matrix, I can examine that Engro Chemical Pakistan Ltd is existing in the category of Question MARK because of low market share 20% and high business growth rate. In order to be the market leader, Engro Chemical Pakistan Ltd has to improve its market position.

5.1.2

STRATEGY UNDER BCG MATRIX

This is the exact time for Engro Chemical Pakistan Ltd to grow more rapidly with the showing of its internal strength to the market to make the market favorable. Following are the main strategies that will be helpful for Engro Chemical Pakistan Ltd to get a better market position.

5.1.2.1

Differentiation Strategy

Engro Chemical Pakistan Ltd has to provide good quality products and more values to its consumers, so that it will be beneficial to become the market leader. 5.1.2.2

Cost Leadership Strategy

Engro Chemical Pakistan Ltd has to consider its cost to improve its profitability ratio. 5.1.2.3

Focused Strategy

Focus strategy refers to the focus on the customer, focus on the target market, identify them and serve them better.

53

54

6.1 BALANCE SHEETENGRO CHEMICAL PAKISTAN LIMITED Summarized Consolidated Balance Sheet As at December 31, 2008(Rs. IN 000) 2004 2005 2006 2007 2008

CURRENT ASSETSCash and Bank balances In Banks Deposit / Saving accounts Current accounts In Hand Cash Cheqes / Cash in transit CASH AND BANK BALANCES Short term Investment Held - to Maturity Certificates of Investment Available - for Sale Financial assets at fair value P/L -Pakistan Special US bonds -Certificates of investment -Certificates of deposit -Fixed income / money market funds SHORT TERM INVESTMENTS Total Absolute Liquid Assets Other Receivables including Derivatives Receivable from Government of Pakistan Customs duty and sales tax Subsidy Sales tax Others Accrued income on deposit / bonds Receivable from Pension Funds Worker's Profit Participation Fund Sales tax / special excise duty refundable Less: Provision for doubtful receivable Fair value of option contracts Due from Joint Venture: Engro Vopak Terminal Limited Engro Asahi Polymer & Chemical Ltd Claims on suppliers and companies Less: Provision for doubtful receivable1,349,045 175,695 3,333 175,712 1,703,785 832,445 243,520 3,510 284,944 1,364,419 1,845,726 226,600 4,915 370,744 2,447,985 1,538,937 199,956 13,069 381,025 2,132,987 413,416 1,374,454 403,953 5,785 2,197,608

25,000

0

0

0

0

686,682 25,000 50,000 102,541 889,223 2,593,008

0 0 25,000 113,016 138,016 1,502,435

0 0 0 228,518 228,518 2,676,503

0 0 0 10,322,832 10,322,832 12,455,819

0 0 0 2,067,074 2,067,074 4,264,682

22,207 0 0 13,560 35,767 10,179 5,520 0 2,530 0 2,530 0 215 41 10,815 295

22,207 0 0 13,560 35,767 5,857 0 0 0 0 0 0 135,006 2,739 36,689 295

40,402 960,492 0 15,409 1,016,303 5,737 73,120 3,222 93,946 140 93,806 0 90,080 0 40,528 731

22,207 1,046,779 0 13,560 1,082,546 33,095 17,629 0 200,052 140 199,912 2,002,572 88,931 0 103,525 295

22,207 3,085,352 57,135 14,174 3,178,868 30 31,187 0 434,914 91,231 361,726 347,446 90,252 0 39,333 295

55

Non Current assets held for disposal Others Less: Provision for doubtful receivable OTHER RECEIVEABLE & DERIVATIVES Trade Debts Considered good Secured Unsecured Considered doubtful Less: Provision for doubtful debts TRADE DEBTS Total Liquid Assets Stock-in-Trade Raw material Work-in-process Finished goods Own manufactured products Purchased products Provision for slow moving inventory STOCK-IN-TRADE Stores, Spares, and Loose Tools Consumable stores Spares Loose tools including in transit Provision for surplus n slow moving items STORES, SPARES, AND LOOSE TOOLS Loan, Advance & Prepayment Loan & advance to employees considered good Advances and deposits Transaction costs paid for facility Prepaid insurance Prepayments Less: Provision for doubtful receivables LOAN,ADVANCE & PREPAYMENT DEFERRED COMPENSATION EXPENSE TAXATION TOTAL CURRENT ASSETS

2004 10,520 0 2,612 49 2,563 67,335

2005 36,394 0 7,229 49 7,180 254,943

2006 39,797 25,308 17,923 49 17,874 1,391,247

2007 103,230 0 54,219 49 54,170 3,593,533

2008 39,038 0 86,676 4,554 82,122 8,388,635

204,606 409,211 613,817 8,431 622,248 8,431 613,817 3,274,160

343,825 343,825 687,650 8,447 696,097 8,447 687,650 2,445,028

682,090 487,791 1,169,881 8,651 1,178,532 8,651 1,169,881 5,237,631

1,551,276 301,568 1,852,844 17,202 1,870,046 17,202 1,852,844 17,902,196

313,060 445,431 758,491 33,541 792,032 33,541 758,491 13,411,808

241,424 2,720 140,262 133,754 0 274,016 518,160

810,712 1,032 318,675 784,292 0 1,102,967 1,914,711

836,224 23,382 956,457 487,578 0 1,444,035 2,303,641

1,110,088 45,297 1,194,921 1,431,989 0 2,626,910 3,782,295

2,438,019 63,381 1,445,233 3,185,107 -1,833 4,628,507 7,129,907

97,381 543,476 3,565 644,422 -57,134 587,288

95,130 584,822 3,260 683,212 -17,310 665,902

89,027 735,903 2,966 827,896 -13,839 814,057

124,882 808,651 3,241 936,774 -21,390 915,384

165,838 1,135,194 0 1,301,032 -28,913 1,272,119

54,371 60,800 0 135,590 44,381 295,142 818 294,324 0 162,399 4,836,331

35,763 140,487 0 3,074 57,285 236,609 818 235,791 0 0 5,261,432

55,576 192,490 0 60,116 50,428 358,610 3,079 355,531 0 0 8,710,860

76,513 297,928 295,300 174,479 247,595 1,091,815 4,521 1,087,294 0 592,272 24,279,441

113,158 628,551 188,696 81,820 148,003 1,160,228 4,521 1,155,707 103,343 869,056 23,941,940

56

2004

2005

2006

2007

2008

NON CURRENT ASSETLong term investment Joint Venture Companies Associated companies: Arabian Sea Country Club Limited Agrimall ( Private ) Limited LONG TERM INVESTMENT DEFERRED COMPENSATION EXPENSE Long term Loan, Receivable & Derivative Executives Other employees Less: Installments recoverable within twelve months Fair value of forward foreign exchange contract Less: Current portion Others Long term Loans, Receivable & Derivative TOTAL NON CURRENT ASSETS1,489,504 0 0 1,489,504 0 1,457,163 0 0 1,457,163 0 469,851 5,000 0 474,851 0 488,517 5,000 0 493,517 0 486,210 5,000 0 491,210 101,826

71,783 34,878 106,661 54,371 52,290 0 0 0 0 52,290 1,541,794

57,699 14,910 72,609 35,763 36,846 65,117 32,000 33,117 0 69,963 1,527,126

101,813 16,728 118,541 55,576 62,965 37,000 26,000 11,000 0 73,965 548,816

196,510 28,567 225,077 76,513 148,564 11,448 11,448 0 5,372 153,936 647,453

264,752 163,976 428,728 97,670 331,058 4,297,960 4,257,966 39,994 6,340 377,392 970,428

FIX ASSETSProperty, Plant and Equipment Operating assets Capital work in process PROPERTY, PLANT AND EQUIPMENT Biological assets Dairy Livestock Mature Immature Crops-feed stock BIOLOGICAL ASSETS Intangible assets Software and Licenses Rights for future gas utilization Development cost Covenants Goodwill INTANGIBLE ASSETS TOTAL FIX ASSETS6,506,518 615,206 7,121,724 6,408,940 1,158,575 7,567,515 10,136,01 6 618,213 10,754,22 9 11,193,382 12,277,606 23,470,988 11,495,113 46,640,640 58,135,753

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

9,085 980 10,065 0 10,065

24,238 273,461 297,699 9,127 306,826

11,466 0 3,900 0 22,854 38,220

22,410 0 2,700 0 15,822 40,932

22,836 0 1,500 0 15,822 40,158 10,794,38 7

43,778 102,312 300 611 418,690 565,691

49,831 102,312 0 0 418,690 570,833

7,159,944

7,608,447

24,046,744

59,013,412

57

TOTAL ASSETS

13,538,06 9 2004

14,397,00 5 2005

20,054,06 3 2006

48,973,638 2007

83,925,780 2008

SHARE CAPITAL AND RESERVESShare Capital Authorized: Ordinary shares of 10 each Issued, Subscribed and Paid-up Ordinary shares of 10 each fully paid in cash Ordinary shares of 10 each fully paid in bonus shares SHARE CAPITAL Reserves Share premium Balance as at January 1, Share issued during the year at premium Issued cost SHARE PREMIUM Employee share option reserve Balance as at January 1, Amount recognised on grant date Balance as at December 31, EMPLOYEE SHARE OPTION RESERVE Hedging reserve Fair values of: Foreign exchange forward contract Foreign exchange option contract Interest rate swap Arrangement fee Deferred tax Minority interest HEDGING RESERVE REVALUATION RESERVES GENERAL RESERVES UNAPPROPRIATED PROFITS RESERVES2,000,000 2,000,000 2,000,000 300,000,00 0 300,000,000

403,520 1,125,880 1,529,400

403,520 1,125,880 1,529,400

556,460 1,125,880 1,682,340

808,811 1,125,881 1,934,692

1,002,280 1,125,881 2,128,161

0 0 0 0

0 0 0 0

0 1,070,581 -2,212 1,068,369

1,068,369 2,902,038 -6,430 3,963,977

3,963,977 3,192,242 -3,497 7,152,722

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

272,990 59,957 -5,927 327,020

0 0 0 0 0 0 0 0 0 4,429,240 779,566 5,208,806 6,738,206

0 0 0 0 0 0 0 0 0 4,429,240 1,529,146 5,958,386 7,487,786 53,004 7,540,790

0 0 0 0 0 0 0 0 197,316 4,429,240 1,861,933 7,556,858 9,239,198 556,973 9,796,171

2,002,572 0 0 2,002,572 -164,159 -801,027 0 1,037,386 135,304 4,429,240 3,510,345 13,076,252 15,010,944 2,995,746 18,006,690

4,297,960 347,446 -1,133,364 3,512,042 -164,159 -1,229,214 17,130 2,135,799 125,102 4,429,240 6,166,472 20,336,355 22,464,516 3,113,677 25,578,193

MINORITY INTEREST TOTAL SHARE CAPITAL AND RESERVES

53,101 6,791,307

58

2004

2005

2006

2007

2008

CURRENT LIABILITIESCurrent Portion of: Long term finance Obligations under finance lease Deferred liability Redeemable capital CURRENT PORTION Short Term Borrowings Financing utilized from banks SHORT TERM BORROWINGS Trade & Payable including Derivative Creditors Accrued liability Payable to contribution Pension Fund Payable to Provident Fund Advances from customers fair value of interest rate swaps Finance cost accrued on: redeemable capital and long term loans short term borrowings Deposit refundable on termination Contractor's deposits and retentions Worker's profit participation fund Worker's welfare fund Sales tax payable Dividend payable to minority Provision for infrastructure fee Provision for special excise duty Others trade & payable including derivative594,500 2,311 22,471 1,089,000 1,708,282 0 4,215 20,230 692,500 716,945 69,623 10,557 24,133 1,252,500 1,356,813 35,429 17,007 20,339 1,397,080 1,469,855 321,915 20,038 20,023 0 361,976

31,825 31,825

94,161 94,161

2,020,372 2,020,372

901,953 901,953

4,591,218 4,591,218

336,538 322,732 0 0 592,168 0 40,363 2,095 6,957 8,560 1,594 16,121 0 0 0 0 0 1,327,128

728,680 401,199 450 0 672,980 0 64,154 26,813 7,486 11,282 6,716 27,297 5,544 0 0 0 9,263 1,961,864

1,781,694 701,428 3,764 13,828 110,515 0 71,545 42,245 10,647 15,764 0 70,216 9,961 19,448 0 0 43,842 2,894,897

4,131,909 1,185,214 8,703 8,569 616,858 0 465,148 25,838 13,988 138,888 3,747 99,879 91,502 0 178,599 0 71,116 7,039,958

1,530,954 1,817,248 0 0 1,331,801 155,160 1,006,237 222,652 13,063 297,530 18,887 115,575 0 0 260,088 54,929 184,291 7,008,415

UNCLAIMED DIVIDENDS

47,703

77,870

82,360

193,067

318,320

TAXATION TOTAL CURRENT LIABILITY

0 3,114,938

56,551 2,907,391

42,999 6,397,441

0 9,604,833

0 12,279,929

NON CURRENT LIABILITIESLong term finance Obtained from bank Less: shown under current liabilities LONG TERM FINANCE0 0 0 0 0 0 104,434 -69,623 34,811 35,429 -35,429 0 41,060,739 -321,915 40,738,824

59

2004

2005

2006

2007

2008

Redeemable Capital Redeemable Capital Less: shown under current liabilities REDEEMABLE CAPITAL Derivatives Fair value of interest rate swaps shown under current liabilities DERIVATIVES Obligations under finance lease Present value of minimum lease payments shown under current liabilities OBLIGATIONS UNDER FINANCE LEASE Deferred taxation Credit / Debit balances arising 0n A/c Accelerated depreciation allowance Net borrowing cost capitalized Fair value of derivative instruments Recoupable carried forward tax losses Tax on subsidiary reserves Tax on fair value adjustment Recoupable minimum turnover tax Provision for -retirement benefits -inventory & doubtful receivable -others DEFERRED TAXATION EMPLOYEE HOUSING SUBSIDY Deferred liabilities Deferred income on sales for vehicles Retirement and other service benefits DEFERRED LIABILITIES MONEY ON PROJECT PAYMENT TOTAL NON CURRENT LIABILITY

3,681,500 -1,089,000 2,592,500

3,592,500 -692,500 2,900,000

3,600,000 -1,252,500 2,347,500

19,681,342 -1,397,080 18,284,262

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

1,133,364 -155,160 978,204

6,826 -2,311 4,515

12,301 -4,215 8,086

34,584 -10,557 24,027

47,035 -17,007 30,028

49,423 -20,038 29,385

1,026,353 0 0 0 0 0 0 -31,845 -23,176 -5,037 966,295 0

1,036,710 0 0 -9,149 0 0 0 -22,132 -6,058 -4,930 994,441 0

1,930,439 0 0 -728,835 25,005 263,088 -59,453 -20,175 -4,383 -10,662 1,395,024 0

2,202,465 128,079 691,590 -105,727 62,906 180,406 -108,077 -62,010 -7,487 -4,559 2,977,586 0

2,380,058 678,625 1,119,775 -231,956 40,367 166,803 -93,520 -47,153 -320,642 -91,322 3,601,035 73,319

25,480 43,034 68,514 0 3,631,824

3,495 42,802 46,297 0 3,948,824

3,928 55,161 59,089 0 3,860,451

1,103 69,136 70,239 0 21,362,115

700 92,746 93,446 553,445 46,067,658

TOTAL EQUITY AND LIABILITY

13,538,06 9

14,397,00 5

20,054,06 3

48,973,638

83,925,780

60

7.2 INCOME STATEMENTENGRO CHEMICAL PAKISTAN LIMITED Summarized Profit & Loss Account As at December 31, 2008(Rs. IN 000)2004 2005 18,756,82 0 0 18,756,82 0 0 0 0 18,756,82 0 2006 2007 2008

Sales Own manufactured products Less: Sales tax Purchased product / services rendered Less: Sales tax NET SALES Cost of Sales Raw and packing material consumed Salaries, wages and staff welfare Fuel and power Repair and maintenance Depreciation and amortization Consumable stores Staff recruitment, training, staff and other Purchased services Storage and handling Travel Communication and office expenses Insurance Rent, rate and taxes Stock-finished goods written off Provision against sales tax refundable Other expenses Manufacturing cost Add: Opening stock of work in proces Less: Closing stock of work in proces Cost manufactured of good Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of goods sold Own manufactured product Purchased product Other COST OF SALES13,067,65 6 0 13,067,65 6 0 0 0 13,067,65 6 13,177,573 1,046,727 12,130,846 8,606,068 496,879 8,109,189 20,240,035 22,343,696 1,938,405 20,405,291 14,282,058 566,738 13,715,320 34,120,611 35,304,462 2,156,007 33,148,455 7,938,161 113,569 7,824,592 40,973,047

2,287,659 542,305 1,460,233 236,462 560,912 76,143 23,869 98,569 0 21,245 29,368 53,756 4,817 0 0 25,170 5,420,508 9,668 2,720 6,948 5,427,456 156,342 140,262 16,080 5,443,536 3,703,230 184,325 9,331,091

3,025,095 543,705 1,655,614 283,577 592,006 74,824 31,938 101,542 0 22,862 28,971 51,343 4,817 0 0 11,751 6,428,045 2,720 1,032 1,688 6,429,733 140,262 318,675 -178,413 6,282,766 7,441,100 348,966 14,072,83 2

3,827,890 729,817 2,129,482 276,451 694,210 96,718 43,434 100,772 0 49,113 30,514 62,301 13,454 0 0 24,592 8,078,748 14,370 23,382 -9,012 8,069,736 1,038,745 956,457 82,288 8,152,024 6,312,103 633,054 15,097,181

9,993,898 961,972 2,209,906 419,736 918,207 144,233 48,759 135,205 120,277 60,748 76,824 93,721 20,538 1,914 0 21,009 15,226,947 23,382 45,297 -21,915 15,205,032 956,457 1,194,921 -238,464 14,966,568 10,223,898 947,900 26,138,366

16,704,322 1,243,248 2,954,371 665,318 1,045,361 195,965 68,292 329,558 139,405 88,668 102,284 101,434 69,152 528 36,361 30,188 23,774,455 45,297 63,381 -18,084 23,756,371 1,194,921 1,445,550 -250,629 23,505,742 5,375,140 1,230,466 30,111,348

61

GROSS PROFIT

3,736,565 2004

4,683,988 2005

5,142,854 2006

7,982,245 2007

10,861,699 2008

Selling and distribution expenses Salaries, wages and staff welfare Staff recruitment, training, safety other Product transportation and handling Repair and maintenance Advertising and sales promotion Rent, rate and taxes Communication and office expenses Travel Depreciation / amortization Purchased services Donations Others SELLING AND DISTRIBUTION EXPENSES OPERATIVE INCOME Other Income Income on deposits / financial assets Commission income Service charges Unrealized fair value gain on investment Fair value of interest rate swap Reversal of resignation gratuity provision Gain on defied benefit pension plan Negative goodwill recognized Profit on disposal of fixed assets Gain arising from sale cost of bio assets Foreign exchange gain Others OTHER INCOME Other operating charges Worker's profits Participation fund: Holding Company Subsidiary Companies Worker's welfare fund Legal and professional charges R&D (including salaries and wages) Loss on sales of fixed assets Loss on death / sales of biological assets Amortization of Goodwill Foreign exchange loss Auditor's remuneration statutory audit half yearly review fee for other services reimbursement of expenses Less: Intangible assets/work-in-progress

243,531 17,618 594,812 13,607 61,532 32,068 30,919 26,017 27,559 17,388 0 29,316 1,094,367 2,642,198

259,342 24,680 802,649 19,068 62,893 42,411 27,978 34,140 26,958 24,353 0 51,306 1,375,778 3,308,210

481,960 28,933 1,014,884 16,606 421,487 74,383 42,346 85,535 39,885 36,817 35,419 42,669 2,320,924 2,821,930

857,363 54,448 1,322,994 30,144 756,094 138,519 84,333 120,109 65,778 29,489 42,810 80,614 3,582,695 4,399,550

1,098,859 47,214 1,320,076 71,901 831,715 200,045 132,815 176,857 104,882 120,423 42,316 106,549 4,253,652 6,608,047

47,162 0 5,653 0 0 0 0 0 12,816 0 3,501 20 69,152

48,722 0 15,307 65,117 24,749 0 0 0 0 1,425 0 11,417 166,737

50,075 250 2,332 0 4,675 0 113,047 195,190 6,575 1,902 5,000 42,579 421,625

198,096 0 8,346 49,135 2,135 3,276 17,629 227,889 1,260 0 841 1,222 509,829

259,355 192,094 18,452 0 407 0 30,997 309,157 71,248 55,979 83,624 17,001 1,038,314

123,565 32,674 0 0 31,937 0 0 7,032 0 1,403 0 1,025 247 2,675 -820

171,716 0 43,067 0 68,790 1,431 0 7,032 0 1,424 0 603 189 2,216 -315

184,778 2,402 67,151 5,944 33,954 0 0 0 0 1,849 0 1,134 228 3,211 0

228,747 30,988 99,879 48,016 16,297 21,687 2,062 0 21,508 3,196 150 3,347 983 7,676 0

279,515 24,625 154,569 131,782 3,075 409 786 0 230,257 4,296 300 1,678 853 7,127 0

62

1,855

1,901 2005 200 0 0 294,137

3,211 2006 250 0 0 297,690

7,676 2007 20 0 5,678 482,558

7,127 2008 210 2,352 134,876 969,583

Professional tax Unrealized fair value loss on investment Others OTHER OPERATING CHARGES Finance cost Mark-up / interest on: long term finance short term borrowings Interest on worker's profits participation fund Others FINANCE COST

2004 700 0 0 197,763

279,853 3,947 30 3,964 287,794 485,557

246,955 42,947 82 1,265 291,249 585,386

340,026 78,161 470 19,583 438,240 735,930

530,446 158,047 0 29,165 717,658 1,200,216

858,420 832,472 0 47,061 1,737,953 2,707,536

Share of income from joint venture Engro Vopak Terminal Limited Share of income before taxation Share of provision for taxation Share of income from joint venture PROFIT BEFORE TAXATION Taxation Current - for the year - prior year Deferred - for the year TAXATION PROFIT AFTER TAXATION Attributable to -Equity holder of Holding Company -Minority interest

585,440 -211,176 374,264 2,600,057

521,176 -150,017 371,159 3,260,720

632,339 -222,771 409,568 2,917,193

360,375 -116,709 243,666 3,952,829

373,211 -128,018 245,193 5,184,018

751,671 0 117,572 869,243 1,730,814

948,791 0 28,146 976,937 2,283,783

863,888 0 -85,537 778,351 2,138,842

1,125,461 53,525 -59,945 1,119,041 2,833,788

1,181,926 0 -204,598 977,328 4,206,690

1,719,253 11,561

2,278,980 4,803

2,106,891 31,951

2,876,520 -42,732

4,125,754 80,936

63

64

TREND PERCENTAGE ANALYSIS 8.1 BRIEFComparing analytical data for a current period with similar computation for prior years afford some basis for judging whether the condition of the business is improving or worsening. This comparison of data over time is sometimes called horizontal or trend analysis, to express the idea for reviewing data for a number of consecutive periods. The changes in financial statement items from a base year to following years are expressed as trend percentages to show the extent and direction of change. Two steps are necessary to compute trend percentages.

First, a base year is selected and each item in financial statement for the base year is given a weight of 100%.

Second step is the express each item in the financial statement for following years as a percentage of its base year amount.

It is distinguished from vertical or static analysis, which refers to the review of financial information for only one accounting period. In addition to determining whether the situation is improving or becoming worse, horizontal analysis may aid in making estimates of future prospects. Because changes may reverse their direction at any time, however, projecting past trends into the future always involves risk. The Trend analysis of Engro Chemicals is given on next pages.

65

ENGRO CHEMICAL PAKISTAN LIMITED Trend Analysis Profit & Loss Account As at December 31, 2008

2004Sales Own manufactured products Less: Sales tax Purchased product / services rendered Less: Sales tax NET SALES Cost of Sales Raw and packing material consumed Salaries, wages and staff welfare Fuel and power Repair and maintenance Depreciation and amortization Consumable stores Staff recruitment, training, staff and other Purchased services Storage and handling Travel Communication and other office expenses Insurance Rent, rate and taxes Stock-finished goods written off Provision against sales tax refundable Other expenses Manufacturing cost Add: Opening stock of work in process Less: Closing stock of work in process Cost manufactured of good Add: Opening stock of finished goods manufactured Less: Closing stock of finished goods manufactured Cost of goods sold Own manufactured product Purchased product Other COST OF SALES GROSS PROFIT 100.00% 0.00% 100.00% 0.00% 0.00% 0.00% 100.00%

2005143.54% 0.00% 143.54% 0.00% 0.00% 0.00% 143.54%

2006100.84% 100.00% 92.83% 100.00% 100.00% 100.00% 154.89%

2007170.98% 185.19% 156.15% 165.95% 114.06% 169.13% 261.11%

2008270.17% 205.98% 253.67% 92.24% 22.86% 96.49% 313.55%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

132.24% 100.26% 113.38% 119.92% 105.54% 98.27% 133.81% 103.02% 0.00% 107.61% 98.65% 95.51% 100.00% 0.00% 0.00% 46.69% 118.59% 28.13% 37.94% 24.29% 118.47% 89.71% 227.20% -1109.5% 115.42% 200.94% 189.32% 150.82% 125.36%

167.33% 134.58% 145.83% 116.91% 123.76% 127.02% 181.97% 102.23% 0.00% 231.17% 103.90% 115.90% 279.30% 0.00% 0.00% 97.70% 149.04% 148.63% 859.63% -129.71% 148.68% 664.41% 681.91% 511.74% 149.76% 170.45% 343.44% 161.79% 137.64%

436.86% 177.39% 151.34% 177.51% 163.70% 189.42% 204.28% 137.17% 100.00% 285.94% 261.59% 174.35% 426.36% 100.00% 0.00% 83.47% 280.91% 241.85% 1665.3% -315.4% 280.15% 611.77% 851.92% -1482% 274.94% 276.08% 514.25% 280.12% 213.63%

730.19% 229.25% 202.32% 281.36% 186.37% 257.36% 286.11% 334.34% 115.90% 417.36% 348.28% 188.69% 1435.58% 115.90% 100.00% 119.94% 438.60% 468.53% 2330.18% -260.28% 437.71% 764.30% 1030.61% -1558.6% 431.81% 145.15% 667.55% 322.70% 290.69%

66

2004Selling and distribution expenses Salaries, wages and staff welfare Staff recruitment, training, safety and other Product transportation and handling Repair and maintenance Advertising and sales promotion Rent, rate and taxes Communication and other office expenses Travel Depreciation / amortization Purchased services Donations Others SELLING AND DISTRIBUTION EXPENSES OPERATIVE INCOME Other Income Income on deposits / Other financial assets Commission income Service charges Unrealized fair value gain on investment Fair value of interest rate swap Reversal of resignation gratuity provision Gain on curtailed defied benefit pension plan Negative goodwill recognized Profit on disposal of fixed assets Gain arising from sale cost of biological assets Foreign exchange gain Others OTHER INCOME Other operating charges Worker's profits Participation fund: Holding Company Subsidiary Companies Worker's welfare fund Legal and professional charges R&D (including salaries and wages) Loss on sales of fixed assets Loss on death / sales of biological assets Amortization of Goodwill Foreign exchange loss Auditor's remuneration statutory audit half yearly review fee for other services reimbursement of expenses Less: Intangible assets/work-in-progress 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00%

20050.00% 11.38% 0.00% 1905.9% 40.11% 2502.9% 61.67% 241.74% 153.89% 160.90% 0.00% 91.96% 125.71% 125.21%

20060.00% 11.39% 0.00% 3542% 47.02% 3164.7% 53.71% 1620.0% 269.90% 243.54% 100.00% 136.05% 212.08% 106.80%

20070.00% 11.39% 0.00% 6300.9% 88.49% 4125.5% 97.49% 2906.1% 502.63% 485.01% 120.87% 224.38% 327.38% 166.51%

20080.00% 11.40% 0.00% 8075.6% 76.73% 4116.4% 232.55% 3196.8% 725.88% 763.83% 119.47% 357.76% 388.69% 250.10%

100.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 100.00% 100.00% 100.00%

103.31% 0.00% 270.78% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 57085% 241.12%

106.18% 100.00% 41.25% 0.00% 18.89% 0.00% 0.00% 0.00% 51.30% 133.47% 142.82% 212895% 609.71%

420.03% 0.00% 147.64% 75.46% 8.63% 0.00% 0.00% 0.00% 9.83% 0.00% 24.02% 6110.0% 737.26%

549.92% 76837% 326.41% 0.00% 1.64% 0.00% 0.00% 0.00% 555.93% 3928.3% 2388% 85005% 1501.5%

100.00% 100.00% 0.00% 0.00% 100.00% 0.00% 0.00% 100.00% 0.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00%

138.97% 0.00% 100.00% 0.00% 215.39% 100.00% 0.00% 100.00% 0.00% 101.50% 0.00% 58.83% 76.52% 82.84% 38.41% 102.48%

149.54% 7.35% 155.92% 100.00% 106.32% 0.00% 0.00% 0.00% 0.00% 131.79% 0.00% 110.63% 92.31% 120.04% 0.00% 173.10%

185.12% 94.84% 231.92% 807.81% 51.03% 1515.5% 100.00% 0.00% 100.00% 227.80% 100.00% 326.54% 397.98% 286.95% 0.00% 413.80%

226.21% 75.37% 358.90% 2217.0% 9.63% 28.58% 38.12% 0.00% 1070.5% 306.20% 200.00% 163.71% 345.34% 266.43% 0.00% 384.20%

67

2004Professional tax Unrealized fair value loss on investment Others OTHER OPERATING CHARGES Finance cost Mark-up / interest on: long term finance short term borrowings Interest on worker's profits participation fund Others FINANCE COST 100.00% 0.00% 0.00% 100.00%

200528.57% 0.00% 0.00% 148.73%

200635.71% 0.00% 0.00% 150.53%

20072.86% 0.00% 100.00% 244.01%

200830.00% 100.00% 2375.4% 490.28%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

88.24% 1088.0% 273.33% 31.91% 101.20% 120.56%

121.50% 1980.2% 1566.6% 494.02% 152.28% 151.56%

189.54% 4004.2% 0.00% 735.75% 249.37% 247.18%

306.74% 21091% 0.00% 1187.2% 603.89% 557.61%

Share of income from joint venture Engro Vopak Terminal Limited Share of income before taxation Share of provision for taxation SHARE OF INCOME FROM JOINT VENTURE PROFIT BEFORE TAXATION Taxation Current - for the year - prior year Deferred - for the year TAXATION PROFIT AFTER TAXATION

100.00% 100.00% 100.00% 100.00%

89.02% 71.04% 99.17% 125.41%

108.01% 105.49% 109.43% 112.20%

61.56% 55.27% 65.11% 152.03%

63.75% 60.62% 65.51% 199.38%

100.00% 0.00% 100.00% 100.00% 100.00%

126.22% 0.00% 23.94% 112.39% 131.95%

114.93% 0.00% -72.75% 89.54% 123.57%

149.73% 100.00% -50.99% 128.74% 163.73%

157.24% 0.00% -174.02% 112.43% 243.05%

68

8.1.1

NET SALES

This is the amount of net revenues earned from sales of goods during the particular period. It is determined by deducting sales tax from own manufactured and purchased products or services rendered of that period. Fiscal year 2004 is considered as base for analyzing the net sales which are consider as base for the analysis.

Amounts2004 NET SALES 100.00% 2005 2006 2007 261.11% 2008 313.55%

143.54% 154.89%

Graphical Representation

NET SALES350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 2004 2005 2006 2007 2008

Source: Engro Annual Report

69

InterpretationNet Sales are showing positive optimistic trend. Its increasing year by year and reaches to the 313.55% in FY08 as compared to the FY04 and further explanations are given as under. FY2005: Sales of the FY05 grew by 43% mainly due to high phosphate, imported urea and zerkhez volume and supported by higher unit selling prices of all fertilizers. FY2006: Sales for the year were grown by 54% supported by higher unit selling price of urea, phosphate and zerkhez and an increase volume of zerkhez. FY2007:The FY07 proved to be good one for Engro, Sales for the year 07 higher by 161% as compared to the base year 2004,due to mainly to higher turnover of Phosphate and Zerkhez ---driven by Increase in crude oil prices emphasis on cultivation for bio fuels--- and an increase in demand Urea in market. This is mainly due to the market plan that focused on consumption of fertilizers at grass root level Field activity include 30 farmer information seminars, and sponsorship at regional level. FY2008: Engro delivered strongest results to date in 2008 .Sales of the year 2008, 313% compared with 261% in 2007, Sales did not grow much because of low phosphate sales -through offset by high phosphate prices driven by change in demand and demand of food grains and international economic down turn-, however urea sales were 12% than the last year despite acute shortage. This extra ordinary growth is attributed to increase in area under BT cotton, requiring more urea, and negative growth of last year.

70

8.1.2

COST OF GOODS SOLD

This is the amount of purchase price and direct expenses of the merchandise sold during the particular period. It is determined by adding beginning inventory of material and net purchases with the deduction of ending inventory from both. Fiscal year 2004 is considered as base for analyzing the cost of good sold which are consider as base for the analysis.

Amounts

2004 COST OF GOOD SOLD 100.00%

2005

2006

2007 280.12%

2008 322.70%

150.82% 161.79%

Graphical RepresentationCOST OF GOODS SOLD

350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 2004 2005 2006 2007 2008

Source: Engro Annual Report

71

InterpretationCost of good Sold are showing healthy trend. Its increasing year by year and reaches to the 322.70% in FY08 as compared to the FY04 and further explanations are given as under. FY2005: Cost of good sold of the FY05 grew by 50.82% mainly due to high purchase prices of row material consumed in process, and increase in prices of fuel at the international level. FY2006: Cost of good sold for the year was grown by 61% supported by higher unit price of urea, phosphate and zerkhez and an increase volume of zerkhez. FY2007: Cost of good sold for the year 07 higher by 61% as compared to the base year 2004,due to mainly to higher production of Phosphate and Zerkhez ---driven by Increase in crude oil prices emphasis on cultivation for bio fuels--- and an increase in demand Urea in market. This is mainly due to the market plan that focused on consumption of fertilizers at grass root level Field activity include 30 farmer information seminars, and sponsorship at regional level. FY2008: Cost of good sold of the year 2008, 322% compared with 280% in 2007, Cost of good sold grow much because of increase in raw material consumed in business process and in manufacturing cost -through offset by high phosphate prices driven by change in demand and demand of food grains and international economic down turn-, however urea remand were 12% than the last year despite acute shortage. This extra ordinary growth is attributed to increase in area under BT cotton, requiring more urea, and negative growth of last year.

72

8.1.3

Gross Profit

It is determined by deduction of Cost of good sold from net sales. It helps to determine the future prices of merchandise. Fiscal year 2004 is considered as base for analyzing the cost of good sold which are consider as base for the analysis.

Amounts

2004 Gross Profit 100.00%

2005

2006

2007 213.63%

2008 290.69%

125.36% 137.64%

Graphical RepresentationGROSS PROFIT

300.00%

250.00%

200.00%

150.00%

100.00%

50.00%

0.00% 2004 2005 2006 2007 2008

Source: Engro Annual Report

73

InterpretationGross profits are showing positive trend. Its increasing year by year and reaches to the 290.69% in FY08 as compared to the FY04 and further explanations are given as under. FY2005: Gross profit of the FY05 grew by 25% mainly due to high phosphate, imported urea and zerkhez volume and supported by higher unit selling prices of all fertilizers. FY2006: Gross profit for the year were grown by 37.64% supported by higher unit selling price of urea, phosphate and zerkhez and an increase volume of zerkhez. FY2007:The FY07 proved to be good one for Engro, Gross profit for the year 07 higher by 113.63% as compared to the base year 2004,due to mainly to higher turnover of Phosphate and Zerkhez ---driven by Increase in crude oil prices emphasis on cultivation for bio fuels--- and an increase in demand Urea in market. This is mainly due to the market plan that focused on consumption of fertilizers at grass root level Field activity include 30 farmer information seminars, and sponsorship at regional level. FY2008: Engro delivered strongest results to date in 2008. Gross profit of the year 2008, 290.69% compared with 213.63% in 2007, Gross profit did not grow much because of low phosphate sales -through offset by high phosphate prices driven by change in demand of food grains and international economic down turn, however CGS handled the situation and leads the Gross profit at the rate of 27% as compared to the FY2007.

74

8.1.4

Net Profit

The total of all the selling, administrative and general expenses is deducted from gross profit. The reminder is known as Net profit from operating or net business income. Fiscal year 2004 is considered as base for analyzing the cost of good sold which are consider as base for the analysis.

Amounts

2004 Net Profit 100.00%

2005

2006

2007 163.73%

2008 243.05%

131.95% 123.57%

Graphical RepresentationNET PROFIT

20 0 5 .0 %

20 0 0 .0 %

10 0 5 .0 %

10 0 0 .0 %

5 .0 % 0 0

0 0 .0 % 20 04 20 05 20 06 20 07 20 08

Source: Engro Annual Report

75

InterpretationNet Profits of Engro Chemical Pakistan Ltd are showing healthy optimistic trend. Its increasing year by year and reaches to the 243.05% in FY08 as compared to the FY04 and further explanations are given as under.

FY2005: Net Profits from the operations registered significant increase at 31% despite of higher gas prices and cost of other inputs, like transportation (due to the rise of deazal prices) because of volume and average sales price growth. Urea profitability grew due to better production and better margins. Zarkhez business continued to benefit from operational efficiency and inventory gains due to timely purchase of raw materials. FY2006: Net Profits for the year was grown by 23.57% than 2005 principally because of higer urea volumes due to better production and capital gain on sale of land to Engro Asahi of Rs. 131 million. FY2007: Net Profits at 63% higher than base year principally because of higher other incomes from joint ventures and subsidies. Increase in selling price fertilizers is an other reason of increase in net profit of Engro chemical Pakistan Ltd. FY2008: Net Profits of the year 2008, 243.05% compared with 163.73% in 2007, Engro delivered strongest results to date in 2008 Net Profits after taxation of 143.05% increase as compared to the initiative date,79.32% increase from 2007 primarily due to increased income from affiliates.

76

ENGRO CHEMICAL PAKISTAN LIMITED Trend Analysis Balance Sheet As at December 31, 2008(Rs. IN 000) 2004 2005 2006 2007 2008

CURRENT ASSETSCash and Bank balances In Banks Deposit / Saving accounts Current accounts In Hand Cash Cheqes / Demand draft / Cash in transit CASH AND BANK BALANCES Short term Investment Held - to - Maturity Certificates of Investment Available - for - Sale Financial assets at fair value through P/L -Govt of Pakistan Special US bonds -Certificates of investment -Certificates of deposit -Fixed income / money market funds SHORT TERM INVESTMENTS Total Absolute Liquid Assets Other Receivables including Derivatives Receivable from Government of Pakistan Customs duty and sales tax Subsidy Sales tax Others Accrued income on deposit / bonds Receivable from Pension Funds Worker's Profit Participation Fund Sales tax / special excise duty refundable Custom duty claim refundable Less: Provision for doubtful receivable Fair value of interest rate swaps Current portion of forward contract Fair value of foreign exchange option contracts Due from Joint Venture: Engro Vopak Terminal Limited Engro Asahi Polymer & Chemical Limited Claims on suppliers and insurance companies 100.00% 100.00% 100.00% 100.00% 100.00% 61.71% 138.60% 105.31% 162.17% 80.08% 136.82% 128.97% 147.46% 211.00% 143.68% 114.08% 113.81% 392.11% 216.85% 125.19% 30.65% 782.30% 12119.80% 3.29% 128.98%

100.00%

0.00%

0.00%

0.00%

0.00%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

0.00% 0.00% 50.00% 110.22% 15.52% 57.94%

0.00% 0.00% 0.00% 222.86% 25.70% 103.22%

0.00% 0.00% 0.00% 10067.03 % 1160.88% 480.36%

0.00% 0.00% 0.00% 2015.85% 232.46% 164.47%

100.00% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 0.00% 0.00% 100.00% 0.00% 0.00% 0.00%

100.00% 0.00% 0.00% 100.00% 100.00% 57.54% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00%

181.93% 100.00% 0.00% 113.64% 2841.45% 56.36% 1324.64% 100.00% 3713.28% 0.00% 100.00% 3707.75% 81.25% 0.00% 0.00% 41897.67 % 0.00% 374.74%

100.00% 108.98% 0.00% 100.00% 3026.66% 325.13% 319.37% 0.00% 7907.19% 0.00% 100.00% 7901.66% 35.78% 0.00% 100.00% 41363.26 % 0.00% 957.24%

100.00% 321.23% 100.00% 104.53% 8887.71% 0.29% 564.98% 0.00% 17190.28% 100.00% 65165.00% 14297.47% 0.00% 100.00% 17.35%

100.00% 100.00% 100.00%

62793.5% 6680.49% 339.24%

41977.67% 0.00% 363.69%

77

Less: Provision for doubtful receivable

100.00% 2004 100.00% 0.00% 100.00% 100.00% 100.00% 100.00%

100.00% 2005 345.95% 0.00% 276.76% 100.00% 280.14% 378.62%

247.80% 2006 378.30% 100.00% 686.18% 100.00% 697.39% 2066.16%

100.00% 2007 981.27% 0.00% 2075.77% 100.00% 2113.54% 5336.80%

100.00% 2008 371.08% 0.00% 3318.38% 9293.88% 3204.14% 12458.06%

Non Current assets held for disposal Others Less: Provision for doubtful receivable OTHER RECEIVEABLE & DERIVATIVES Trade Debts Considered good secured unsecured Considered doubtful Less: Provision for doubtful debts TRADE DEBTS Total Liquid Assets Stock-in-Trade Raw material Work-in-process Finished goods Own manufactured products Purchased products Provision for slow moving inventory STOCK-IN-TRADE Stores, Spares, and Loose Tools Consumable stores Spares Loose tools including in transit Provision for surplus and slow moving items STORES, SPARES, AND LOOSE TOOLS Loan, Advance, Deposit & Prepayment Loan & advance to executives & employees considered good Advances and deposits Transaction costs paid for un availed facility Prepaid insurance Prepayments Less: Provision for doubtful receivables LOAN,ADVANCE,DEPOSIT & PREPAYMENT DEFERRED COMPENSATION EXPENSE TAXATION TOTAL CURRENT ASSETS

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

168.04% 84.02% 112.03% 100.19% 111.87% 100.19% 112.03% 74.68%

333.37% 119.20% 190.59% 102.61% 189.40% 102.61% 190.59% 159.97%

758.18% 73.69% 301.86% 204.03% 300.53% 204.03% 301.86% 546.77%

153.01% 108.85% 123.57% 397.83% 127.29% 397.83% 123.57% 409.63%

100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00%

335.80% 37.94% 227.20% 586.37% 0.00% 402.52% 369.52%

346.37% 859.63% 681.91% 364.53% 0.00% 526.99% 444.58%

459.81% 1665.33% 851.92% 1070.61% 0.00% 958.67% 729.95%

1009.85% 2330.18% 1030.38% 2381.32% 100.00% 1689.14% 1376.00%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

97.69% 107.61% 91.44% 106.02% 30.30% 113.39%

91.42% 135.41% 83.20% 128.47% 24.22% 138.61%

128.24% 148.79% 90.91% 145.37% 37.44% 155.87%

170.30% 208.88% 0.00% 201.89% 50.61% 216.61%

100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00%

65.78% 231.06% 0.00% 2.27% 129.08% 80.17% 100.00% 80.11% 0.00% 0.00% 108.79%

102.22% 316.60% 0.00% 44.34% 113.63% 121.50% 376.41% 120.80% 0.00% 0.00% 180.11%

140.72% 490.01% 100.00% 128.68% 557.89% 369.93% 552.69% 369.42% 0.00% 364.70% 502.02%

208.12% 1033.80% 63.90% 60.34% 333.48% 393.11% 552.69% 392.66% 100.00% 535.14% 495.04%

78

2004 NON CURRENT ASSET Long term investment Joint Venture Companies Associated companies: Arabian Sea Country Club Limited Agrimall ( Private ) Limited LONG TERM INVESTMENT DEFERRED COMPENSATION EXPENSE Long term Loan, Receivable & Derivative Executives Other employees Less: Installments recoverable within a year Fair value of forward foreign exchange contract Less: Current portion Others Long term Loans, Receivable & Derivative TOTAL NON CURRENT ASSETS FIX ASSETS Property, Plant and Equipment Operating assets Capital work in process PROPERTY, PLANT AND EQUIPMENT Biological assets Dairy Livestock mature Immature Crops-feed stock BIOLOGICAL ASSETS Intangible assets Software and Licenses Rights for future gas utilization Development cost Covenants Goodwill INTANGIBLE ASSETS TOTAL FIX ASSETS

2005

2006

2007

2008

100.00% 0.00% 0.00% 100.00% 0.00%

97.83% 0.00% 0.00% 97.83% 0.00%

31.54% 100.00% 0.00% 31.88% 0.00%

32.80% 100.00% 0.00% 33.13% 0.00%

32.64% 100.00% 0.00% 32.98% 100.00%

100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 100.00% 100.00%

80.38% 42.75% 68.07% 65.78% 70.46% 100.00% 100.00% 100.00% 0.00% 133.80% 99.05%

141.83% 47.96% 111.14% 102.22% 120.41% 56.82% 81.25% 33.22% 0.00% 141.45% 35.60%

273.76% 81.91% 211.02% 140.72% 284.12% 17.58% 35.78% 0.00% 100.00% 294.39% 41.99%

368.82% 470.14% 401.95% 179.64% 633.12% 6600.37% 13306.14% 120.77% 118.02% 721.73% 62.94%

100.00% 100.00% 100.00%

98.50% 188.32% 106.26%

155.78% 100.49% 151.01%

172.03% 1995.69% 329.57%

176.67% 7581.30% 816.32%

0.00% 0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00% 0.00%

100.00% 100.00% 100.00% 0.00% 100.00%

266.79% 27904.18% 2957.76% 100.00% 3048.45%

100.00% 0.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00%

195.45% 0.00% 69.23% 0.00% 69.23% 107.10% 106.26% 106.34%

199.16% 0.00% 38.46% 0.00% 69.23% 105.07% 150.76% 148.13%

381.81% 100.00% 7.69% 100.00% 1832.02% 1480.09% 335.85% 361.75%

434.60% 100.00% 0.00% 0.00% 1832.02% 1493.55% 824.22% 619.92%

TOTAL ASSETS

79

2004 SHARE CAPITAL AND RESERVES Share Capital Authorized: Ordinary shares of 10 each Issued, Subscribed and Paid-up Ordinary shares of 10 each fully paid in cash Ordinary shares of 10 each fully paid in bonus shares SHARE CAPITAL Reserves Share premium Balance as at January 1, Share issued during the year at premium Issued cost SHARE PREMIUM Employee share option reserve Balance as at January 1, Amount recognized on grant date Balance as at December 31, EMPLOYEE SHARE OPTION RESERVE Hedging reserve Fair values of: Foreign exchange forward contract Foreign exchange option contract Interest rate swap Arrangement fee Deferred tax Minority interest HEDGING RESERVE REVALUATION RESERVES ON COMBINATIONS GENERAL RESERVES UNAPPROPRIATED PROFITS RESERVES 100.00% 100.00% 100.00% 100.00%

2005

2006

2007

2008

100.00% 100.00% 100.00% 100.00%

100.00% 137.90% 100.00% 110.00%

15000.00 % 200.44% 100.00% 126.50%

15000.00% 248.38% 100.00% 139.15%

0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00%

0.00% 100.00% 100.00% 100.00%

100.00% 271.07% 290.69% 371.03%

371.03% 298.18% 158.09% 669.50%

0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00%

100.00% 100.00% 100.00% 100.00%

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

100.00% 0.00% 0.00% 100.00% 100.00% 100.00% 0.00% 100.00%

214.62% 100.00% 100.00% 175.38% 100.00% 153.45% 100.00% 205.88%

0.00% 100.00% 100.00% 100.00% 100.00%

0.00% 100.00% 196.15% 114.39% 111.12% 99.82% 111.04%

100.00% 100.00% 238.84% 145.08% 137.12% 1048.89% 144.25%

68.57% 100.00% 450.29% 251.04% 222.77% 5641.60% 265.14%

63.40% 100.00% 791.01% 390.42% 333.39% 5863.69% 376.63%

MINORITY INTEREST TOTAL SHARE CAPITAL AND RESERVES

100.00% 100.00%

80

2004 CURRENT LIABILITIES Current Portion of: Long term finance Obligations under finance lease Deferred liability Redeemable capital CURRENT PORTION Short Term Borrowings Financing utilized from banks SHORT TERM BORROWINGS Trade & Payable including Derivative Creditors Accrued liability Payable to contribution Pension Fund Payable to Provident Fund Advances from customers Current portion of fair value of interest rate swaps Finance cost accrued on: redeemable capital and long term loans short term borrowings Deposit dealers refundable on termination of dealership Contractor's / suppliers deposits and retentions Worker's profit participation fund Worker's welfare fund Sales tax payable Dividend payable to minority shareholder Provision for infrastructure fee Provision for special excise duty Oth