Engro Polymer & Chemicals Limited (“EPCL”)...Engro Polymer & Chemicals Ltd. Our Mission To...

Engro Polymer & Chemicals Ltd.

Engro Polymer & Chemicals Limited (“EPCL”)

First Analyst Briefing August 1st 2008


Company Snapshot

Sole manufacturer of PVC resin in Pakistan

Company established in October,1997 initially as a Joint venture of Engro Chemical Pakistan Limited ( 50% ) Asahi Glass Company Limited (30%) Mitsubishi Corporation Limited ( 20%)

100,000 tons PVC plant commissioned at Port Qasim, Karachi in

Nov,1999

Making five grades of PVC resin 58, 60, 67R, 67S, and 72.


Our Mission

To create value for our customers by offering quality products at competitive price, on time deliveries, business development and technical support to achieve growth. We are also committed to

enhance value for our stakeholders while maintaining high standards of ethics, safety & environmental responsibility


Our Present Operations

VCM PVC

Pipes

Shoes

Artificial Leather

Film/Shrink wrap

Compounding

Rigid Sheet

Garden Hose

Geomembrane

Drip Irrigation

PVC Applications


Our Distribution Network

EPCL Customers

Dealers (4)

Karachi Lahore Islamabad Faisalabad Multan Quetta

Warehouses

North (3) South (1)


Our Business

EPCL Volumes and Margins

020406080

100

2000

2001

2002

2003

2004

2005

2006

2007

KT

050100150200

$/to

n

Domestic Exports Delta

VCM imported under contract from Qatar Vinyl Corporation (QVC), accounts for 90-95% of total variable cost

Catalysts, gas and packing material are other variable costs

Domestic sale in 2007 was the highest ever at 94 KT and resulted in complete sell

out of plant production

EPCL price generally follows international price trend and local import factor


Performance Highlights Operating Summary (In '000' tons) 2000 2001 2002 2003 2004 2005 2006 2007

Production 65 69 84 90 87 91 97 94

Domestic Sales 37 58 66 67 66 72 85 94

Export Sales 26 12 16 25 17 22 5 0

Financial Summary (Rs million) 2000 2001 2002 2003 2004 2005 2006 2007

Net Sales Revenue

2,590

2,712

3,236

3,950

5,100

5,474

5,343 6,040

Operating Profit

(78)

102

312

291

603

422

596 567

Profit After Tax

(342)

(184)

185

163

365

305

379 421

Dividends

-

-

-

-

89

178

329 374

Shareholders Equity

1,432

1,248

1,433

1,596

1,872

1,998

2,048 5,178


PVC Consumption Pattern in the region

0

2

4

6

8

10

Per Capita Consumption 2007 8.68 7.54 1.03 1.24 0.66

Thailand China Indonesia India Pakistan

Source: CMAI

Kg/

Pers

on


EPCL HIGHLIGHTS 1H 2008


PVC MARKET ENVIRONMENT 1H 2008

International PVC prices sustained rising trend and reached record level in 1H 08

PVC resin Imports were negligible i.e. 370 MeT compared to 3,500 MeT in 1H 07

EPCL volumes increased by 14% compared to same period last year.

The growth in demand was driven by construction, infrastructure and agriculture sectors.

EPCL Market share in PVC domestic market (including scrap imports) was 77%


Pipe52%

Art. Leather10%

Garden Hose10%

Compounding8%

Others6%

Twist / Shrink wrap2%Film / Packaging

2%

Rigid Sheet3%

Shoes7%

EPCL Application Wise Sales - 1H 2008


EPCL Key Events – 1H 2008

No NEQS excursion

Achieved best ever 1st half production (49,800 MT vs 48,650 MT in 2006) Achieved best ever Quarterly Sale of 30,240 MT in Q2 2008

Received ACCA-WWF Environment award for third consecutive year, invited to panel of judges. Best ever Quarterly Rs 237 M and First Half Rs 427 M Profit After Tax


OPERATING HIGHLIGHTS 1H 2008

1H 2008

Actual 1H 2007

Actual

Full Year 2007

Actual

Production KT 50 43 94

Sales Volume –Domestic KT 56 49 94

Sales Volume –Export KT 1 - -

EPCL PVC –VCM Margin $/ton 333 267 277

Export Netback $/ton 144 - -


EPCL PVC VCM DELTA

200

230

260

290

320

350

380

410

Jun-

07

Jul-0

7

Aug-

07

Sep-

07

Oct-0

7

Nov-

07

Dec-

07

Jan-

08

Feb-

08

Mar

-08

Apr-0

8

May

-08

Jun-

08

MONTH

USD

PER

TON


Half year ended June 30, 2008

Half year ended June 30, 2007 Explanation

Net sales 4,368,754 3,015,761

Cumulative effect of price and volume (domestic volume higher by 6,781 MT and exportof 1,244 MT). Additionally the increase in price w as on average of USD178 per ton inaddition to deval benefit

Less: Cost of sales 3,457,100 2,587,515

Gross profit 911,654 428,246 Impact of higher contribution margin due to favorable VCM-PVC margin and highervolume

Less: Distribution and marketing expenses 149,291 116,005 Less: Administrative expenses 69,639 41,822

Less: Other Operating expenses 132,091 21,160

Variance include 18M provision created against VCM custom duty currently under litigation and 65M loss from currency f lucutations. Also, Workers profit particiapation fund and Workers Welfare Fund accrual increased by 28M in the current period due to higher net income versus accual last year for the same period.

Add: Other operating income 88,420 36,239 Interest income on surplus funds + equity fund invested and sale of electricity to ECPLOperating profit 649,053 285,498

Less: Finance costs 15,560 22,223 High product demand and favorable delta reduced our w orking capital f inancing requirement + repayment of few long term loans

Profit before tax 633,493 263,275

Less: Provision for taxation 206,398 81,933

Taxation has increased due to higher profitability

Profit after tax 427,095 181,342

Earnings per share - basic and diluted (Rupees) 0.83 1.02 Due to increase in number of shares outstandingDividend 252,896 373,800 Profit available for appropriation 489,802 75,369

Impact of higher transportation cost (on back of rise in oil price), salary increase andother expenses in line w ith higher inf lation

FINANCIAL HIGHLIGHTS 1H 2008


EPCL PVC EXPANSION AND BACK INTEGRATION


Expansion and Back Integration Plan…. Key Features Relocated EDC/VCM plant from FPC Baton Rouge

New PVC Plant of 50 kt from CNCEC

103 kt Chlor-Alkali Plant from CNCEC

Integrated utilities for the entire Complex

Project Commissioning Additional PVC capacity of 50 KT expected to come online in 4Q 2008

Integrated complex is planned to be completed by the end of second

quarter 2009.


Expansion and Back Integration Plan

Salt

Textiles

Water Treatment

Soaps & Detergents

Ethylene Export

Domestic

Energy

Caustic Soda

PVC VCM EDC Chlorine

Existing EPCL

Others

2,500 KWH

1.5 MT

0.29 MT

0.6 MT

0.18 MT

0.83 MT 1.0 MT


Rationale for Expansion & Back Integration PVC EXPANSION: • PVC resin Domestic Market expected to grow well, and EPCL domestic

demand expected to reach capacity by end of 2007

VCM : • Availability of VCM in region expected to remain tight with growing

competition

CHLOR ALKALI : • Sole manufacturer in South with better Margins due to 100% chlorine

utilization for value added PVC • Proximity to port for exports • 100% Captive Power (Gas based) • Ion Exchange Membrane Process


EPCL Back Integration Margin

0

200400

600800

1,0001,200

1,4001,600

1,800M

ar-9

4

Dec

-94

Sep

-95

Jun-

96

Mar

-97

Dec

-97

Sep

-98

Jun-

99

Mar

-00

Dec

-00

Sep

-01

Jun-

02

Mar

-03

Dec

-03

Sep

-04

Jun-

05

Mar

-06

Dec

-06

Sep

-07

Jun-

08

$/to

n

PVC Ethylene Margin - Back Integration


Contribution Margin Comparison Post Expansion and Back Integration

USD/Ton

Salt 11

Ethylene 637

Others

Catalysts and chemicals 40

Utilities 191

Packing and Bagging 18

TOTAL VARIABLE COST 897

Before Expansion and Back Integration

USD/Ton

VCM 831

Others

Catalysts and chemicals 19

Utilities 19

Packing and Bagging 15

TOTAL VARIABLE COST 884

Post Expansion and Back Integration

REVENUE USD/Ton

PVC 1,162

NAOH 373

TOTAL REVENUE 1,535

All numbers given in per ton of PVC Numbers based on 1H 2008 results

Post Expansion and Back Integration

REVENUE USD/Ton

PVC 1,162

NAOH -

TOTAL REVENUE 1,162


Existing shareholders Shareholding structure after offer of sale is as follows:-

Shareholding No of Shares

Engro Chemical Pakistan Limited 56% 292,400,000 Mitsubishi Corporation 11% 57,000,000 International Finance Corporation 15% 76,200,000 EPCL Employees Trust 3% 18,000,000 Private Placement Investors 5% 26,767,677 General Public 10% 50,000,000

Total 100% 520,367,677


EDC / VCM Plant in Baton Rouge USA – June 2007

December 2007


PVC II Construction Site

Cyclones


UTILITIES CONSTRUCTION SITE Cooling Tower

De-min Water Plant

Effluent Treatment Pond

Pipe Rack

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