Engro Polymer & Chemicals Ltd.

8/14/2019 Engro Polymer & Chemicals Ltd.

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Financial Statements for theHalf Year ended June 30, 2009

Engro Polymer & Chemicals Ltd.


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COMPANY INFORMATION

Chairman Asad Umar

President & Chief Executive Asif Qadir

Directors Isar Ahmad

Shahzada Dawood

Masaharu Domichi

Takeshi Hagiwara

Shabbir Hashmi

Waqar A. Malik

Khalid Mansoor

Khalid S. Subhani

Company Secretary Arshaduddin Ahmed

Board Audit Committee Isar Ahmad

Masaharu Domichi

Shabbir Hashmi

Khalid S. Subhani

Bankers Allied Bank Ltd.

Askari Commercial Bank Ltd.

Bank Al Falah Ltd.

Bank Al Habib Ltd.

Barclays Bank Plc., Pakistan

Citibank N.A.

Deutsche Bank AG

Dubai Islamic Bank Ltd.

Samba Bank Ltd. (Formerly Crescent Commercial Bank Ltd.)

Faysal Bank Ltd.

Habib Bank Ltd.

Hongkong Shanghai Banking Corporation

MCB Bank Ltd.

Meezan Bank Ltd.

National Bank of Pakistan

NIB Bank Ltd.

Standard Chartered Bank (Pakistan) Ltd.

United Bank Ltd.

Auditors A. F. Ferguson & Co., Chartered Accountants

State Life Building No. 1-C, I.I. Chundrigar Road, Karachi.

Registered Office First Floor, Bahria Complex I, 24 M.T. Khan Road, Karachi - 74000

Manufacturing Facility EZ/1/P-II-1, Eastern Zone, Bin Qasim, Karachi.

Share Registration Office FAMCO Associates (Private) Limited [Formerly Ferguson Associates (Private) Limited]

1st Floor, State Life Building 1-A, I.I. Chundrigar Road, Karachi - 74000,

Tel: 2427012, 2426597, 2425467

Website www.engropolymer.com

UAN 111-411-411


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DIRECTORS REPORT &

UNAUDITED CONDENSEDINTERIM FINANCIAL STATEMENTSFOR THE HALF YEAR ENDED JUNE 30, 2009

3


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KarachiJuly 24, 2009

Half Yearly Report 2009

4

Asif Qadir Masaharu DomichiPresident & Chief Executive Director

DIRECTORS REPORT TO THE SHAREHOLDERS ON UNCONSOLIDATEDCONDENSED INTERIM FINANCIAL STATEMENTS FOR THE HALF YEAR ENDEDJUNE 30, 2009

On behalf of the Board of Directors of Engro Polymer & Chemicals Limited, we are pleased to present the unauditedaccounts of the Company for the six months ended June 30, 2009.

Business Review

Domestic sales of PVC during the quarter ended June 30, 2009 were the highest ever for any quarter at 35,500tons as compared to 30,200 tons sold during same period last year. The increase in sales volumes was driven byhigher usage in public sector projects and agricultural sector. In addition to this, rising price trend of PVC contributedto increased buying by customers. Domestic sales of PVC during first six months were 64,400 tons as comparedto 55,600 tons during the same period in 2008. Production for the quarter was 34,600 tons taking total productionfor six months to 60,900 tons versus 49,800 tons in 1H08.

Global PVC price rose to reflect higher feedstock prices driven by hike in oil prices. Availability of VCM during thequarter remained tight as key manufacturers underwent planned shutdowns with no significant reduction in demandresulting in a squeeze in the PVC-VCM margin to US$ 146 per ton in 2Q09 as compared to US$ 273 per ton in

the same period last year.

The Company successfully launched sale of Caustic soda and Sodium hypochlorite to domestic customers at theend of second quarter. During this period, the Company sold 760 tons and 464 tons of Caustic soda and Sodiumhypochlorite respectively. Market has been quite receptive and the Company is confident that it will be able tocapture a sizeable share of the caustic soda market due to its high quality product, competitive pricing, dedicateddistribution fleet and commitment to a high level of customer service.

Revenue during the first six months was Rs. 4,945 million, an increase of 13% over same period 2008. Duringsecond quarter, the Company earned a profit after tax of Rs. 82 million. Profit after tax for six months is Rs. 7 millionas compared to Rs. 427 million last year mainly because of the lower PVC-VCM margin, higher depreciation andfinancial costs due to the addition of new PVC plant and Utilities.

Near Future Outlook

PVC plants are running satisfactorily. The Chlor-alkali and EDC plants have been successfully tested and havecommenced production. The Company exported 3,800 tons of EDC in July. VCM plant is under trials, commercialoperation of the integrated complex is expected to be achieved in third quarter. Infrastructure to sell up to 12 MWof power to KESC is complete, whereas work on the remaining 6 MW will be completed by mid-August. Supply ofpower is expected to commence in third quarter.

Demand of PVC in domestic market in third quarter is expected to be lower due to slow down of activity duringRamadan and Eid holidays. Based on progress made by the Company in entering the caustic soda market, theCompany will continue to penetrate the domestic market to sell out its production and will also explore exportopportunities.

The profitability of the Company will be dependent on successful commissioning of the VCM plant as it will allowthe economic benefits of a fully integrated site to flow.


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Lahore Office: 505-509, 5th Floor, Alfalah Building, P.O. Box 39, Shahrah-e-Quaid-e-Azam, Lahore-54000, Pakistan Tel: (92-42) 6285078-85 Fax: (92-42) 6285088

Islamabad Office: PIA Building, 3rd Floor, 49 Blue Area, Fazal-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan Tel: (92-51)2273457-60 Fax: (92-51) 2277924

Kabul Office: House No. 4, Street No. 3, District 6, Road Karte-3, Kabul, Afghanistan. Tel: (93-799) 315320-203424

A.F.Ferguson & Co.Chartered Accountants

State Life Building No. 1-CI.I. Chundrigar Road, P.O. Box 4716

Karachi-74000, Pakistan

Telephone: (021) 2426682-6 / 2426711-5Facsimile: (021) 2415007 / 2427938

A member firm of

AUDITORS REPORT TO THE MEMBERS ONREVIEW OF UNCONSOLIDATED CONDENSED INTERIMFINANCIAL INFORMATION

Introduction

We have reviewed the accompanying unconsolidated condensed interim balance sheet of Engro Polymer andChemicals Limited as at June 30, 2009 and the related unconsolidated condensed interim profit and loss account,unconsolidated condensed interim statement of comprehensive income, unconsolidated condensed interim statement

of changes in equity and unconsolidated condensed interim cash flow statement together with the notes formingpart thereof (here-in-after referred to as the condensed interim financial information), for the half year then ended.Management is responsible for the preparation and presentation of this condensed interim financial informationin accordance with approved accounting standards as applicable in Pakistan. Our responsibility is to express aconclusion on this condensed interim financial information based on our review.

The figures of the condensed interim profit and loss account and the condensed interim statement of comprehensiveincome for the quarters ended June 30, 2008 and 2009 have not been reviewed, as we are required to review onlythe cumulative figures for the half year ended June 30, 2009.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, Review of

Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an audit conductedin accordance with International Standards on Auditing and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensedinterim financial information as of and for the half year ended June 30, 2009 is not prepared, in all material respects,in accordance with approved accounting standards as applicable in Pakistan.

Chartered AccountantsKarachiDate: July 24, 2009

Engagement Partner:Sohail Hasan


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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

Note

17

18

19

20

21

June 30,

2009

June 30,

2008

June 30,

2009

June 30,

2008

Rupees

Net sales

Cost of sales

Gross profit

Distribution and marketing expenses

Administrative expenses

Other operating expenses

Other operating income

Operating profit

Finance costs

Profit before taxation

Taxation

Profit for the period

Earnings per share - basic and diluted

The annexed notes 1 to 26 form an integral part of this unconsolidated condensed interim financial information.

2,566,120

(2,235,216)

330,904

(102,259)

(50,634)

(39,450)

41,254

179,815

(60,641)

119,174

(37,162)

82,012

0.16

2,473,419

(1,924,091)

549,328

(80,919)

(47,022)

(101,571)

25,673

345,489

(7,752)

337,737

(100,035)

237,702

0.46

4,945,407

(4,530,009)

415,398

(181,957)

(78,138)

(87,564)

55,121

122,860

(119,005)

3,855

3,200

7,055

0.01

4,368,754

(3,457,100)

911,654

(149,291)

(69,639)

(132,091)

88,420

649,053

(15,560)

633,493

(206,398)

427,095

0.83

Half year endedQuarter ended


(Amounts in thousand except for earnings per share)


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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

June 30,

2009

June 30,

2008

June 30,

2009

June 30,

2008

Rupees


Other comprehensive income:

Hedging reserveGain arising during the period

Less:- Reclassification adjustments for

(gains)/losses included in profit and loss- Adjustments for amounts transferred to

initial carrying amount of hedged items

Income tax relating to hedging reserve

Other comprehensive income for the period - net of tax

Total comprehensive income for the period



82,012

76,029

592

2,160

(27,573)

51,208

133,220

237,702

14,754

(911)

(4,845)

8,998

246,700

7,055

46,755

932

5,012

(18,445)

34,254

41,309

427,095

14,754

(911)

(4,845)

8,998

436,093


(Amounts in thousand)


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Rupees

Balance as at January 1, 2008 (Audited)

Final dividend for the year endedDecember 31, 2007 - Rs. 0.54 per share

Total comprehensive income for the half yearended June 30, 2008

Share capital issued

Share issuance cost, net

Balance as at June 30, 2008 (Unaudited)

Total comprehensive loss for the half yearended December 31, 2008

Options granted during the period


Balance as at December 31, 2008 (Audited)

Unvested options lapsed during the period



ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009


Total

5,176,819

(252,896)

436,093

1,381,818

(59,637)

6,682,197

(121,908)

9,858

(4,282)

6,565,865

(266)

41,309

6,606,908

Unappropriatedprofit

315,603

(252,896)

427,095

489,802

(73,810)

415,992

7,055

423,047

Hedgingreserve

8,998

8,998

(48,098)

(39,100)

34,254

(4,846)

Employeesshare

compensationreserve

9,858

9,858

(266)

9,592

Sharepremium

425,216

614,141

(59,637)

979,720

(4,282)

975,438

975,438

Sharecapital

4,436,000

767,677

5,203,677

5,203,677

5,203,677



9



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ENGRO POLYMER & CHEMICALS LIMITEDUNCONSOLITED CONDENSED INTERIM CASH FLOW STATEMENT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

22

Note

Half yearended

June 30, 2008

Half yearended

June 30, 2009

RupeesCASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operationsFinance costs paidLong term loans and advancesProvisionsIncome tax paid

Net cash inflow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipmentPurchases of intangible assetsRetention money against project paymentsProceeds from disposal of operating assetsShort term investmentsProceeds from sale of short term investmentsIncome on short term investments and bank deposits

Net cash outflow from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long term borrowing

Proceeds from issue of share capitalShare issuance costRepayments of long term borrowingDividend paid

Net cash inflow from financing activities

Net increase in cash and cash equivalentsCash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period


2,014,197(720,706)

39,60210,968

(92,450)

1,251,611

(1,734,605)(1,495)

(418,625)3,390

(484,073)

29,157

(2,606,251)

3,355,596

(130,000)

3,225,596

1,870,956(745,295)

1,125,661)

991,276)(47,720)28,910)40,316)

(41,529)

971,253)

(4,180,570)(930)

242,7091,167

(1,500,000)4,094,905

34,798

(1,307,921)

1,947,298)

327,465)(91,750)

(1,305,429)(252,896)

624,688)

288,020)200,844)

488,864)




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ENGRO POLYMER & CHEMICALS LIMITEDNOTES TO THE UNCONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

1. LEGAL STATUS AND OPERATIONS

Engro Polymer & Chemicals Limited (the Company) was incorporated in Pakistan in 1997 as a public unlisted company

under the Companies Ordinance, 1984. The Company was listed on Karachi Stock Exchange in 2008 and on Islamabadand Lahore Stock Exchanges during the current period.

The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is 1st Floor, BahriaComplex I, M. T. Khan Road, Karachi. The Companys principal activity is to manufacture, market and sell Poly VinylChloride (PVC), PVC compounds and other related chemicals.

In 2006, the Company commenced work on expansion plan in respect of its existing capacity and backward integrationproject (the Project). The Projects total cost is estimated at US$ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power plant. The new plants are being setup adjacent to theCompanys existing PVC facilities in the Port Qasim Industrial Area.

2. BASIS OF PREPARATION

This condensed interim financial information is unaudited and has been prepared in accordance with the requirements of

the International Accounting Standard 34 Interim Financial Reporting. The figures for the half yearended June 30, 2009 have, however, been subjected to limited scope review by the auditors, as required by the Code ofCorporate Governance.

This condensed interim financial information is being submitted to the shareholders in accordance with section 245 of theCompanies Ordinance, 1984 and should be read in conjunction with the audited annual financial statements of the Companyfor the year ended December 31, 2008.

3. ACCOUNTING POLICIES

3.1 Except as disclosed below, the accounting policies adopted in the preparation of this condensed interim financial informationare consistent with those applied in the preparation of audited annual financial statements of the Company for the yearended December 31, 2008.

3.2 The following new standards and amendments to standards are mandatory for the first time for the financial year beginningJanuary 1, 2009:

- IAS 1 (revised), Presentation of financial statements. The revised standard prohibits the presentation of items ofincome and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equityare required to be shown in a performance statement.

Companies can choose whether to present one performance statement (the statement of comprehensive income) ortwo statements (the profit and loss account and the statement of comprehensive income).

The Company has elected to present two statements; a profit and loss account and a statement of comprehensiveincome. The condensed interim financial information has been prepared under the revised disclosure requirements.

- The SECP vide S.R.O. 411 (1) / 2008 dated April 28, 2008 notified the adoption of IFRS 7 Financial Instruments:

Disclosures. IFRS 7 is mandatory for companys accounting periods beginning on or after the date of notification i.e.April 28, 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of IFRS will onlyimpact the format and extent of disclosures presented in the financial statements. The Company will consider therequirements of IFRS 7 in the annual financial statements for the year ending December 31, 2009.

- In addition to above, following new standards and amendments to standards are mandatory for the first time for thefinancial year beginning January 1, 2009 and are also relevant for the Company. However, the adoption of these newstandards and amendments to standards did not have any significant impact on the financial information of the Company:



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IFRS 2 (Amendment), Share based payment IAS 19 (Amendment), Employee benefits IAS 23 (Amendment), Borrowing costs IAS 27 (Revised), Consolidated and separate financial statements IAS 36 (Amendment), Impairment of assets IAS 38 (Amendment), Intangible assets IAS 39 (Amendment),Financial instruments: Recognition and measurement

3.3 The following new standards, amendments to standards and interpretations are mandatory for the first time for the financialyear beginning January 1, 2009, but are not currently relevant to the Company:

IAS 28 (Amendment), Investment in associates IFRS 8, Operating segments IFRIC 13, Customers loyalty programmes IFRIC 15, Agreement for the construction of real estate IFRIC 16, Hedges of a net investment in a foreign operation

4. ACCOUNTING ESTIMATES

The preparation of this condensed interim financial information in conformity with the approved accounting standardsrequires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the processof applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based onhistorical experience and other factors, including expectation of future events that are believed to be reasonable underthe circumstances. Actual results may differ from these estimates.

In preparing this condensed interim financial information, the significant judgments made by management in applying the

Company's accounting policies and the key sources of estimation and uncertainty are the same as those that apply toannual financial statements for the year ended December 31, 2008.

Unaudited Audited

June 30, December 31,

2009 2008

Rupees

5. PROPERTY, PLANT AND EQUIPMENT

Operating assets, at net book value - notes 5.1 and 5.2 4,648,183 1,987,643

Capital work-in-progress - note 5.3 13,698,529 14,147,123

18,346,712 16,134,766

5.1. Additions to operating assets during the period/year were as follows, which mainly

relates to capitalisation of new Poly Vinyl Chloride (PVC) plant during the period:

Leasehold land 3,348

Building on leasehold land 168,221

Plant and machinery 2,621,816

Furniture, fixtures and office equipment 11,209 19,940Vehicles 14,355 20,384

2,815,601 43,672


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5.2. During the period, assets costing Rs. 7,987 (December 31, 2008: Rs. 9,936), having net book value of Rs. 2,504(December 31, 2008: Rs. 3,622) were disposed off for Rs. 3,390 (December 31, 2008: Rs. 3,971).



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5.3 Capital work-in-progress mainly relates to the Project and comprises of:

Unaudited Audited


2009 2008

Rupees

Plant and machinery 11,417,963 12,523,057

Ethylene pipeline and power cables 63,602 61,486Water and gas pipelines 246,193 233,016

Building on leasehold land 29,992 163,301

Other ancillary costs - note 5.3.1 1,934,062 1,140,230

Furniture, fixtures and equipment 2,471 19,170

Advances for vehicles 4,246 6,863

13,698,529 14,147,123

6. INTANGIBLE ASSETS Computer SoftwareAdditions made during the period amounted to Rs. 1,495 (December 31, 2008: Rs. 7,180).


5.3.1 The ancillary costs, directly attributable to the Project, comprise:

Salaries, wages and benefits 358,416 315,240

Training and travelling expense 73,397 74,439

Borrowing costs, including mark-up on finances

being capitalized at the rate of 15.25%

(December 31, 2008: 13.45%) - net 1,089,174 591,713

Legal and professional charges 33,640 43,103

Storage and handling 260,481

Depreciation charge 22,102 13,763

Others 96,852 101,972

1,934,062 1,140,230

7. STOCK-IN-TRADE

Raw and packing materials - note 7.1 879,243 327,670

Work-in-progress 18,780 21,293

Finished goods 177,946 810,355

1,075,969 1,159,318

7.1 This includes stock-in-transit amounting to Nil (December 31, 2008: Rs. 155,925) and stocks held at the storage facilitiesof Engro Vopak Terminal Limited, a related party, amounting to Rs. 566,332 (December 31, 2008: Rs. 22,148).


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10. BORROWINGS

During the period:

- the Company entered into a Syndicated Term Finance Agreement with a consortium of local banks on February 21,2009 for Rs. 1,500,000. The facility is repayable in thirteen semi annual installments commencing six months fromCommercial Operations date of the Project or six months from December 30, 2009 (whichever is earlier). The facilitycarries mark-up at the rate of 3% over six months KIBOR and monitoring fee of Rs. 300 for the first year and Rs. 500per annum, thereafter. Commitment fee at rate of 0.15% per annum is also payable on that part of the finance that

has not been drawn. During the period, Company has drawn down Rs. 1,100,000 against the facility.

- the Company has drawn down the remaining balance of US$ 30,000 against the loan agreement/facility with InternationalFinance Corporation (IFC). There is no change in the terms and conditions of the loan.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has entered into interest rate swap agreements for notional amounts aggregating to US$ 40,000, with banksto hedge its interest rate exposure on floating rate foreign currency borrowings from International Finance Corporation(IFC). Under the swap agreements, the Company would receive six month USD-LIBOR on respective notional amountsand will pay fix rates, which will be settled semi annually. Details of the swap agreements are as follows:

Unaudited Audited


2009 2008

Rupees

8. DEFERRED EMPLOYEES COMPENSATION EXPENSE

Balance at beginning of the period/year 4,381

Add: Deferred employees compensation expense recognizedon grant date 9,858

Less:

- Unvested share options lapsed during the period/year (89)

- Amortization for the period/year (2,161) (5,477)

2,131 4,381

9. SHORT TERM INVESTMENTS

At fair value through profit or loss

Mutual fund securities 488,702

Fair value as atDecember 31, 2008

60,154

60,154

Fair value as atJune 30, 2009

19,96884

(10,641)(1,956)

7,455

Fixed Rate%

3.3853.0052.7952.800

TerminationDate

June 15, 2017June 15, 2017June 15, 2017June 15, 2017

EffectiveDate

December 15, 2008June 15, 2009June 15, 2009June 15, 2009

NotionalAmounts

US $

15,0005,000

15,0005,000

40,000

Rupees


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15

12. DEFERRED INCOME TAX

Credit/(Debit) balances arising due to:

- accelerated depreciation allowance

- net borrowing costs capitalized

- recoupable carried forward taxlosses and minimum turnovertax - note 12.1

- unrealized foreign exchange lossesand provision for retirement andother service benefits

- provision against custom duty and

SED refundable

- fair value of hedging instruments

- share issuance cost, net to equity

- others

UnauditedJune 30,

2009

AuditedDecember 31,

2008

Rupees

1,048,034)

334,160)

(903,492)

(43,713)

(6,454)

(2,609)

(51,566)

(1,277)

373,083)

548,080)

160,054)

(221,243)

(25,243)

(6,454)

(21,054)

(51,566)

_

382,574)

12.1 Deferred income tax asset is recognized for tax losses and minimum turnover tax available for carry-forward to theextent that the realization of the related tax benefit through future taxable profits is probable. The aggregate taxlosses available for carry-forward at June 30, 2009 amount to Rs. 2,318,287 (December 31, 2008: Rs. 439,677),on which the deferred income tax asset has been recognized.

13. SHORT TERM BORROWINGS

Running finance utilized under mark-uparrangements - note 13.1

Short term finance

UnauditedJune 30,

2009

AuditedDecember 31,

2008

35,645

_

35,645

717,568

125,000

842,568


Rupees


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16

13.1 The aggregate facilities for running finance available from various banks, representing the sales price of all mark-uparrangements, amounts to Rs. 1,700,000 (December 31, 2008: Rs. 1,275,000). The corresponding purchase price ispayable on various dates during the ensuing year. Mark-up is chargeable at rates net of prompt payment rebate and isbased on relevant KIBOR plus 1.25% to 3%. During the period, the mark-up rates, net of prompt payment rebate, rangedfrom 12.39% to 17.37% per annum (December 31, 2008: 10.37% to 17.6% per annum). The facilities are secured by afloating charge over stocks and book debts.

14. TRADE AND OTHER PAYABLES

Includes amount due to following related parties:

- Mitsubishi Corporation

- Engro Vopak Terminal Limited

UnauditedJune 30,

2009

AuditedDecember 31,

2008

Rupees

1,155,217

86,830

1,242,047

740,811

15,046

755,857

15. PROVISIONS

As at June 30, 2009, the Company had paid Rs. 95,163 (December 31, 2008: Rs. 91,616) on account of Special ExciseDuty (SED) on import of plant and machinery for the Project. Out of this amount it has adjusted Rs. 58,476(December 31, 2008: Rs. 54,929) in the monthly sales tax returns against SED on goods produced and sold by theCompany. The Company had approached the Federal Board of Revenue to obtain a clarification in respect of the adjustmentof SED made by the Company in monthly sales tax returns. Pending such clarification the Company based on prudencehad made provision for the amount adjusted of Rs. 58,476 and for the balance remaining of Rs. 36,687 included in loans,advances, deposits, prepayments and other receivables. However, during the period, the Company received show causenotices from the Additional Collector (Adjudication) Federal Board of Revenue, stating that the Company, by adjustingthe aforementioned SED, has violated the provisions of the Federal Excise Act, 2005 and the Federal Excise Rules, 2005read with SRO 655(1)/2007 and that the amount adjusted is recoverable from the Company under the Federal Excise Act,2005 alongwith default surcharge and penalty. In response to these notices the Company has filed a Constitutional Petitionbefore the Honourable High Court, Sindh, on May 18, 2009. The High Court is in the process of evaluating the ConstitutionalPetition. The Company is confident that the ultimate outcome of the matter will be in its favour, however, based on prudenceis maintaining the aforementioned provision. Further, a provision of Rs. 7,421 for surcharge and penalty thereagainst uptoJune 30, 2009 has also been made.

16. CONTINGENCIES AND COMMITMENTS

16.1 Commitments

- Capital expenditure for the Project referred to in note 1, under the contracts signed as at June 30, 2009 but not yetincurred amounts to Rs. 108,544 (December 31, 2008: Rs. 1,305,738).

- Performance guarantees issued by banks on behalf of the Company as at June 30, 2009 amounts to Rs. 591,450(December 31, 2008: Rs. 264,200).



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17. COST OF SALES


17

Opening stock of work-in-progress 31,810 13,817 21,293 22,861

Raw and packing materials consumed 1,934,633 1,460,616 3,326,793 2,811,732Salaries, wages and staff welfare 43,504 19,535 86,803 47,451Fuel, power and gas 71,567 31,545 175,831 67,178Repairs and maintenance (2,137) 1,098 21,443 4,731Depreciation 69,701 41,718 139,489 83,947Consumable stores 13,781 6,978 19,651 8,840Purchased services 5,313 5,442 10,018 9,708

Storage and handling 44,308 30,999 87,127 64,238Training and travelling expenses 1,001 1,829 1,728 2,496Communication, stationery and otheroffice expenses 613 450 856 733

Insurance 8,377 2,431 20,430 4,863Other expenses 3,340 2,196 4,918 2,196

2,194,001 1,604,837 3,895,087 3,108,113

Closing stock of work-in-progress (18,780) (14,018) (18,780) (14,018)

Cost of goods manufactured 2,207,031 1,604,636 3,897,600 3,116,956

Opening stock of finished goods 206,131 619,628 810,355 640,170

Closing stock of finished goods (177,946) (300,173) (177,946) (300,173)

28,185 319,455 632,409 339,997

Cost of sales - own manufactured product 2,235,216 1,924,091 4,530,009 3,456,953- purchased product _ _ 147

2,235,216 1,924,091 4,530,009 3,457,100

June 30,

2009Rupees

June 30,

2008

Quarter ended

June 30,

2009

June 30,

2008

Half Year ended



19/42


18

June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008

Rupees

18. DISTRIBUTION AND

MARKETING EXPENSES

Salaries, wages and staff welfare 13,751 9,342 26,473 19,080

Advertising, sales promotion andentertainment 11,176 10,522 20,817 15,712

Product transportation and handling 73,621 52,013 124,382 98,531

Rent, rates and taxes 444 1,241 1,874 1,751

Purchased services (985) 1,414 790 4,347

Insurance 282 197 552 354

Depreciation 849 1,105 1,907 1,992

Training and travelling expenses 1,827 2,775 2,885 4,014

Communication, stationery and other

office expenses 472 1,204 965 1,826

Others 822 1,106 1,312 1,684

102,259 80,919 181,957 149,291

19. ADMINISTRATIVE EXPENSES


Rent, rates and taxes 4,493 3,469 7,748 5,485

Purchased services 4,130 2,459 8,508 4,257

Insurance 107 44 208 44

Depreciation 1,205 1,631 2,550 2,706

Amortization 429 168 739 318


Communication, stationery and

other office expenses 2,140 2,310 5,358 3,281Others 2,754 5,171 4,405 5,492

50,634 47,022 78,138 69,639

20. OTHER OPERATING EXPENSES

Legal and professional charges 1,378 140 2,305 210

Auditors' remuneration 267 240 267 440

Donations 1,467 108 1,375 450

Provision against custom duty

refundable 18,043 18,043

Sales tax receivable written off 219 219

Workers' profit participation fund 206 18,288 206 34,059Workers' welfare fund 78 7,315 78 13,623

Foreign exchange loss - net 35,905 57,218 82,793 65,047

Others 149 540

39,450 101,571 87,564 132,091

Quarter ended Half year ended



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19




Rupees



21. FINANCE COST

Interest/Mark-up on:- long trem borrowings- short term financesGuarantee commissionBank charges and others

52,7484,570

3163,007

60,641

4,876819

2,057

7,752

97,98816,698

6253,694

119,005

9,9582,276

3,326

15,560

June 30, 2009 June 30, 2008

Rupees

22. CASH GENERATED FROM OPERATIONS

Profit before taxation 3,855 633,493

Adjustments for non cash chargesand other items:

Provision for staff retirement and other

service benefits 539 3,470


Ineffective portion of changes in fair value of

derivative financial instrument ( 9 11 )

Amortization charge 739 318

Income on deposits (45,666) (46,234)

Amortization of deferred employee

compensation expense 1,984

Realized gain on short term investments (1,977) (33,635)Unrealized fair value gain on short term

investments (4,629) (2,053)

Provision against custom duty refundable 18,043

Provision against special excise duty 339

Finance costs 119,005 15,559

Profit on disposal of operating assets (886) (173)

Operating assets written off 243

Working capital changes - note 22.1 1,797,287 314,172

2,014,197 991,276

22.1 Working capital changes

(Increase) / Decrease in current assets

Stores and spares (31,665) (7,375)

Stock-in-trade 83,349 186,134

Trade debts (85,715) (1,888)

Loans, advances, deposits, prepayments

and other receivables (net) 115,592 (143,818)

81,561 33,053

Half year ended


21/42


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25. DATE OF AUTHORIZATION FOR ISSUE

This unconsolidated condensed interim financial information was authorized for issue on July 24, 2009 by the Board ofDirectors of the Company.

26. CORRESPONDING FIGURES

In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, theunconsolidated condensed interim balance sheet and unconsolidated condensed interim statement of changes in equityhave been compared with the balances of annual audited financial statements of preceding financial year, whereas, the

unconsolidated condensed interim profit and loss account, unconsolidated condensed interim statement of comprehensiveincome and the unconsolidated uncondensed interim cash flow statement have been compared with the balances ofcomparable period of immediately preceding financial year.


21



23/42

22

and its subsidiary company

DIRECTORS REPORT &

UNAUDITED CONSOLIDATED CONDENSEDINTERIM FINANCIAL STATEMENTSFOR THE HALF YEAR ENDED JUNE 30, 2009


24/42

KarachiJuly 24, 2009


23


DIRECTORS REPORT TO THE SHAREHOLDERS ON CONDENSEDCONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE HALF YEARENDED JUNE 30, 2009

On behalf of the Board of Directors of Engro Polymer & Chemicals Limited, we are pleased to present the unauditedconsolidated accounts of the Company for the six months ended June 30, 2009.

Business Review

Domestic sales of PVC during the quarter ended June 30, 2009 were the highest ever for any quarter at 35,500tons as compared to 30,200 tons sold during same period last year. The increase in sales volumes was driven byhigher usage in public sector projects and agricultural sector. In addition to this, rising price trend of PVC contributedto increased buying by customers. Domestic sales of PVC during first six months were 64,400 tons as comparedto 55,600 tons during the same period in 2008. Production for the quarter was 34,600 tons taking total productionfor six months to 60,900 tons versus 49,800 tons in 1H08.

Global PVC price rose to reflect higher feedstock prices driven by hike in oil prices. Availability of VCM during thequarter remained tight as key manufacturers underwent planned shutdowns with no significant reduction in demandresulting in a squeeze in the PVC-VCM margin to US$ 146 per ton in 2Q09 as compared to US$ 273 per ton in

the same period last year.

The Company successfully launched sale of Caustic soda and Sodium hypochlorite to domestic customers at theend of second quarter. During this period, the Company sold 760 tons and 464 tons of Caustic soda and Sodiumhypochlorite respectively. Market has been quite receptive and the Company is confident that it will be able tocapture a sizeable share of the caustic soda market due to its high quality product, competitive pricing, dedicateddistribution fleet and commitment to a high level of customer service.

Revenue during the first six months was Rs. 4,965 million, an increase of 14% over same period 2008. Duringsecond quarter, the Company earned a profit after tax of Rs. 82 million. Profit after tax for six months is Rs. 13million as compared to Rs. 428 million last year mainly because of the lower PVC-VCM margin, higher depreciationand financial costs due to the addition of new PVC plant and Utilities.

Near Future Outlook

PVC plants are running satisfactorily. The Chlor-alkali and EDC plants have been successfully tested and havecommenced production. The Company exported 3,800 tons of EDC in July. VCM plant is under trials, commercialoperation of the integrated complex is expected to be achieved in third quarter. Infrastructure to sell up to 12 MWof power to KESC is complete, whereas work on the remaining 6 MW will be completed by mid-August. Supply ofpower is expected to commence in third quarter.

Demand of PVC in domestic market in third quarter is expected to be lower due to slow down of activity duringRamadan and Eid holidays. Based on progress made by the Company in entering the caustic soda market, theCompany will continue to penetrate the domestic market to sell out its production and will also explore exportopportunities.

The profitability of the Company will be dependent on successful commissioning of the VCM plant as it will allowthe economic benefits of a fully integrated site to flow.


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Lahore Office: 505-509, 5th Floor, Alfalah Building, P.O. Box 39, Shahrah-e-Quaid-e-Azam, Lahore-54000, Pakistan Tel: (92-42) 6285078-85 Fax: (92-42) 6285088

Islamabad Office: PIA Building, 3rd Floor, 49 Blue Area, Fazal-ul-Haq Road, P.O. Box 3021, Islamabad-44000, Pakistan Tel: (92-51)2273457-60 Fax: (92-51) 2277924

Kabul Office: House No. 4, Street No. 3, District 6, Road Karte-3, Kabul, Afghanistan. Tel: (93-799) 315320-203424

A.F.Ferguson & Co.Chartered Accountants

State Life Building No. 1-CI.I. Chundrigar Road, P.O. Box 4716

Karachi-74000, PakistanTelephone: (021) 2426682-6 / 2426711-5

Facsimile: (021) 2415007 / 2427938

A member firm of

AUDITORS REPORT TO THE MEMBERS ONREVIEW OF CONSOLIDATED CONDENSED INTERIMFINANCIAL INFORMATION

Introduction

We have reviewed the accompanying consolidated condensed interim balance sheet of Engro Polymer andChemicals Limited and its subsidiary company, Engro Polymer Trading (Private) Limited as at June 30, 2009 andthe related consolidated condensed interim profit and loss account, consolidated condensed interim statement of

comprehensive income, consolidated condensed interim statement of changes in equity and consolidated condensedinterim cash flow statement together with the notes forming part thereof (here-in-after referred to as the consolidatedcondensed interim financial information), for the half year then ended. Management is responsible for the preparationand presentation of this consolidated condensed interim financial information in accordance with approved accountingstandards as applicable in Pakistan. Our responsibility is to express a conclusion on this consolidated condensedinterim financial information based on our review.

The figures of the condensed interim profit and loss account and the condensed interim statement of comprehensiveincome for the quarters ended June 30, 2008 and 2009 have not been reviewed, as we are required to review onlythe cumulative figures for the half year ended June 30, 2009.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, Review ofInterim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an audit conductedin accordance with International Standards on Auditing and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidatedcondensed interim financial information as of and for the half year ended June 30, 2009 is not prepared, in all

material respects, in accordance with approved accounting standards as applicable in Pakistan.

Chartered AccountantsKarachiDate: July 24, 2009

Engagement Partner:Sohail Hasan


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26

ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

Note

17

18

19

20

21

June 30,

2009

June 30,

2008

June 30,

2009

June 30,

2008

Rupees

Net sales

Cost of sales

Gross profit

Distribution and marketing expenses

Administrative expenses

Other operating expenses

Other operating income

Operating profit

Finance costs

Profit before taxation

Taxation


Earnings per share - basic and diluted

The annexed notes 1 to 26 form an integral part of this consolidated condensed interim financial information.

2,566,194

(2,235,216)

330,978

(102,259)

(50,634)

(39,500)

41,303

179,888

(60,653)

119,235

(37,162)

82,073

0.16

2,473,419

(1,924,091)

549,328

(80,919)

(47,120)

(102,782)

36,228

354,735

(7,753)

346,982

(106,363)

240,619

0.47

4,965,472

(4,530,009)

435,463

(194,754)

(78,138)

(87,614)

60,656

135,613

(120,963)

14,650

(1,399)

13,251

0.03

4,368,754

(3,456,540)

912,214

(149,291)

(69,737)

(133,302)

90,533

650,417

(15,561)

634,856

(206,398)

428,458

0.83



(Amounts in thousand except for earnings per share)


28/42


27

ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

June 30,

2009

June 30,

2008

June 30,

2009

June 30,

2008

Rupees


Other comprehensive income:

Hedging reserve

Gain arising during the period

Less:- Reclassification adjustments of

(gains)/losses included in profit and loss

- Adjustments for amounts transferred toinitial carrying amount of hedged items

Income tax relating to hedging reserve

Other comprehensive income for the period - net of tax

Total comprehensive income for the period

The annexed notes 1 to 26 form an integral part of this consolidated condensed interim financial information.


82,073

76,029

592

2,160

(27,573)

51,208

133,281

240,619

14,754

(911)

(4,845)

8,998

249,617

13,251

46,755

932

5,012

(18,445)

34,254

47,505

428,458

14,754

(911)

(4,845)

8,998

437,456




29/42

Rupees

Balance as at January 1, 2008 (Audited)

Final dividend for the year endedDecember 31, 2007 - Rs. 0.54 per share


Share capital issued



Total comprehensive loss for the half yearended December 31, 2008

Options granted during the period


Balance as at December 31, 2008 (Audited)

Unvested options lapsed during the period



ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYCONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009


Total

5,177,628

(252,896)

437,456

1,381,818

(59,637)

6,684,369

(126,203)

9,858

(4,282)

6,563,742

(266)

47,505

6,610,981

Unappropriatedprofit

316,412

(252,896)

428,458

491,974

(78,105)

413,869

13,251

427,120

Hedgingreserve

8,998

8,998

(48,098)

(39,100)

34,254

(4,846)

Employeesshare

compensationreserve

9,858

9,858

(266)

9,592

Sharepremium

425,216

614,141

(59,637)

979,720

(4,282)

975,438

975,438

Sharecapital

4,436,000

767,677

5,203,677

5,203,677

5,203,677

The annexed notes 1 to 26 forn an integral part of this consolidated condensed interim financial informaion.


28



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30

ENGRO POLYMER & CHEMICALS LIMITED AND ITS SUBSIDIARY COMPANYNOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)FOR THE HALF YEAR ENDED JUNE 30, 2009

1. LEGAL STATUS AND OPERATIONS

The Group consists of Engro Polymer and Chemicals Limited (the Company) and its wholly owned subsidiary company

Engro Polymer Trading (Private) Limited.

The Company was incorporated in Pakistan in 1997 as a public unlisted company under the Companies Ordinance, 1984.The Company was listed on Karachi Stock Exchange in 2008 and on Islamabad and Lahore Stock Exchanges during thecurrent period. The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is1st Floor, Bahria Complex I, M. T. Khan Road, Karachi. The Companys principal activity is to manufacture, market andsell Poly Vinyl Chloride (PVC), PVC compounds and other related chemicals.

In 2006, the Company commenced work on expansion plan in respect of its existing capacity and backward integrationproject (the Project). The Projects total cost is estimated at US$ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power plant. The new plants are being setup adjacent to theCompanys existing PVC facilities in the Port Qasim Industrial Area.

2. BASIS OF PREPARATION

This consolidated condensed interim financial information is unaudited and has been prepared in accordance with therequirements of the International Accounting Standard 34 Interim Financial Reporting. The figures for the half yearended June 30, 2009 have, however, been subjected to limited scope review by the auditors.

This condensed interim financial information is being submitted to the shareholders in accordance with section 245 of theCompanies Ordinance, 1984 and should be read in conjunction with the audited annual financial statements of the Companyfor the year ended December 31, 2008.

3. ACCOUNTING POLICIES

3.1 Except as disclosed below, the accounting policies adopted in the preparation of this condensed interim financial informationare consistent with those applied in the preparation of audited annual financial statements of the Company for the yearended December 31, 2008.

3.2 The following new standards and amendments to standards are mandatory for the first time for the financial year beginningJanuary 1, 2009:

- IAS 1 (revised), Presentation of financial statements. The revised standard prohibits the presentation of items ofincome and expenses (that is non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equityare required to be shown in a performance statement.

Companies can choose whether to present one performance statement (the statement of comprehensive income) ortwo statements (the profit and loss account and the statement of comprehensive income).

The Company has elected to present two statements; a profit and loss account and a statement of comprehensiveincome. The condensed interim financial information has been prepared under the revised disclosure requirements.

- The SECP vide S.R.O. 411 (1) / 2008 dated April 28, 2008 notified the adoption of IFRS 7 Financial Instruments:

Disclosures. IFRS 7 is mandatory for companys accounting periods beginning on or after the date of notification i.e.April 28, 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of IFRS will onlyimpact the format and extent of disclosures presented in the financial statements. The Company will consider therequirements of IFRS 7 in the annual financial statements for the year ending December 31, 2009.

- In addition to above, following new standards and amendments to standards are mandatory for the first time for thefinancial year beginning January 1, 2009 and are also relevant for the Company. However, the adoption of these newstandards and amendments to standards did not have any significant impact on the financial information of the Company:



32/42

IFRS 2 (Amendment), Share based payment IAS 19 (Amendment), Employee benefits IAS 23 (Amendment), Borrowing costs IAS 27 (Revised), Consolidated and separate financial statements IAS 36 (Amendment), Impairment of assets IAS 38 (Amendment), Intangible assets IAS 39 (Amendment),Financial instruments: Recognition and measurement

3.3 The following new standards, amendments to standards and interpretations are mandatory for the first time for the financialyear beginning January 1, 2009, but are not currently relevant to the Company:

IAS 28 (Amendment), Investment in associates IFRS 8, Operating segments IFRIC 13, Customers loyalty programmes IFRIC 15, Agreement for the construction of real estate IFRIC 16, Hedges of a net investment in a foreign operation

4. ACCOUNTING ESTIMATES

The preparation of this condensed interim financial information in conformity with the approved accounting standardsrequires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the processof applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based onhistorical experience and other factors, including expectation of future events that are believed to be reasonable underthe circumstances. Actual results may differ from these estimates.

In preparing this condensed interim financial information, the significant judgments made by management in applying the

Company's accounting policies and the key sources of estimation and uncertainty are the same as those that apply toannual financial statements for the year ended December 31, 2008.

Unaudited Audited


2009 2008

Rupees

5. PROPERTY, PLANT AND EQUIPMENT

Operating assets, at net book value - notes 5.1 and 5.2 4,648,183 1,987,643

Capital work-in-progress - note 5.3 13,698,529 14,147,123

18,346,712 16,134,766

5.1. Additions to operating assets during the period/year were as follows, which mainly relates to capitalisation of new Poly

Vinyl Chloride (PVC) plant during the period:

Leasehold land 3,348

Building on leasehold land 168,221

Plant and machinery 2,621,816

Furniture, fixtures and office equipment 11,209 19,940Vehicles 14,355 20,384

2,815,601 43,672


31

5.2 During the period, assets costing Rs. 7,987 (December 31, 2008: Rs. 9,936), having net book value of Rs. 2,504 (December31, 2008: Rs. 3,622) were disposed off for Rs. 3,390 (December 31, 2008: Rs. 3,971).



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32

5.3 Capital work-in-progress mainly relates to the Project and comprises of:

Unaudited Audited


2009 2008

Rupees

Plant and machinery 11,417,963 12,523,057

Ethylene pipeline and power cables 63,602 61,486Water and gas pipelines 246,193 233,016

Building on leasehold land 29,992 163,301

Other ancillary costs - note 5.3.1 1,934,062 1,140,230

Furniture, fixtures and equipment 2,471 19,170

Advances for vehicles 4,246 6,863

13,698,529 14,147,123

6. INTANGIBLE ASSETS Computer Software

Additions made during the period amounted to Rs. 1,495 (December 31, 2008: Rs. 7,180).


5.3.1 The ancillary costs, directly attributable to the Project, comprise:

Salaries, wages and benefits 358,416 315,240

Training and travelling expense 73,397 74,439Borrowing costs, including mark-up on finances

being capitalized at the rate of 15.25%

(December 31, 2008: 13.45%) - net 1,089,174 591,713

Legal and professional charges 33,640 43,103

Storage and handling 260,481


Others 96,852 101,972

1,934,062 1,140,230

7. STOCK-IN-TRADE

Raw and packing materials - note 7.1 879,243 327,670

Work-in-progress 18,780 21,293

Finished goods

- own manufactured product 177,946 810,355

- purchased product 220 155

178,166 810,510

1,076,189 1,159,473


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7.1 This includes stock-in-transit amounting to Nil (December 31, 2008: Rs. 155,925) and stocks held at the storage facilitiesof Engro Vopak Terminal Limited, a related party, amounting to Rs. 566,332 (December 31, 2008: Rs. 22,148).


33

10. BORROWINGS

During the period:

- the Company entered into a Syndicated Term Finance Agreement with a consortium of local banks on February 21,

2009 for Rs. 1,500,000. The facility is repayable in thirteen semi annual installments commencing six months fromCommercial Operations date of the Project or six months from December 30, 2009 (whichever is earlier). The facilitycarries mark-up at the rate of 3% over six months KIBOR and monitoring fee of Rs. 300 for the first year and Rs. 500per annum, thereafter. Commitment fee at rate of 0.15% per annum is also payable on that part of the finance thathas not been drawn. During the period, Company has drawn down Rs. 1,100,000 against the facility.

- the Company has drawn down the remaining balance of US$ 30,000 against the loan agreement/facility with InternationalFinance Corporation (IFC). There is no change in the terms and conditions of the loan.

11. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has entered into interest rate swap agreements for notional amounts aggregating to US$ 40,000, with banksto hedge its interest rate exposure on floating rate foreign currency borrowings from International Finance Corporation(IFC). Under the swap agreements, the Company would receive six month USD-LIBOR on respective notional amountsand will pay fix rates, which will be settled semi annually. Details of the swap agreements are as follows:

Unaudited Audited


2009 2008

Rupees

8. DEFERRED EMPLOYEES COMPENSATION EXPENSE

Balance at beginning of the period/year 4,381

Add: Deferred employees compensation expense recognized

on grant date 9,858

Less:

- Unvested share options lapsed during the period/year (89)

- Amortization for the period/year (2,161) (5,477)

2,131 4,381

9. SHORT TERM INVESTMENTS

At fair value through profit or loss

Mutual fund securities 488,702 43,648

Fair value as atDecember 31, 2008

60,154

60,154

Fair value as atJune 30, 2009

19,96884

(10,641)(1,956)

7,455

Fixed Rate%

3.3853.0052.7952.800

TerminationDate

June 15, 2017June 15, 2017June 15, 2017June 15, 2017

EffectiveDate

December 15, 2008June 15, 2009June 15, 2009June 15, 2009

NotionalAmounts

US $

15,0005,000

15,0005,000

40,000

Rupees



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34

12. DEFERRED INCOME TAX

Credit/(Debit) balances arising due to:

- accelerated depreciation allowance

- net borrowing costs capitalized

- recoupable carried forward taxlosses and minimum turnovertax - note 12.1

- unrealized foreign exchange lossesand provision for retirement andother service benefits

- provision against custom duty and

SED refundable

- fair value of hedging instruments

- share issuance cost, net to equity

- others

UnauditedJune 30,

2009

AuditedDecember 31,

2008

Rupees

1,048,034)

334,160)

(903,492)

(43,713)

(6,454)

(2,609)

(51,566)

(1,277)

373,083)

548,080)

160,054)

(221,243)

(25,243)

(6,454)

(21,054)

(51,566)

_

382,574)

12.1 Deferred income tax asset is recognized for tax losses and minimum turnover tax available for carry-forward to theextent that the realization of the related tax benefit through future taxable profits is probable. The aggregate tax

losses available for carry-forward at June 30, 2009 amount to Rs. 2,318,287 (December 31, 2008: Rs. 439,677),on which the deferred income tax asset has been recognized.

13. SHORT TERM BORROWINGS

Running finance utilized under mark-uparrangements - note 13.1

Short term finance

UnauditedJune 30,

2009

AuditedDecember 31,

2008

Rupees

35,645

_

35,645

717,568

125,000

842,568



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35

13.1 The aggregate facilities for running finance available from various banks, representing the sales price of all mark-uparrangements, amounts to Rs. 1,700,000 (December 31, 2008: Rs. 1,275,000). The corresponding purchase price ispayable on various dates during the ensuing year. Mark-up is chargeable at rates net of prompt payment rebate and isbased on relevant KIBOR plus 1.25% to 3%. During the period, the mark-up rates, net of prompt payment rebate, rangedfrom 12.39% to 17.37% per annum (December 31, 2008: 10.37% to 17.6% per annum). The facilities are secured by afloating charge over stocks and book debts.

14. TRADE AND OTHER PAYABLES

Includes amount due to following related parties:

- Mitsubishi Corporation

- Engro Vopak Terminal Limited

UnauditedJune 30,

2009

AuditedDecember 31,

2008

Rupees

1,155,217

86,830

1,242,047

740,811

15,046

755,857

15. PROVISIONS

As at June 30, 2009, the Company had paid Rs. 95,163 (December 31, 2008: Rs. 91,616) on account of Special ExciseDuty (SED) on import of plant and machinery for the Project. Out of this amount it has adjusted Rs. 58,476(December 31, 2008: Rs. 54,929) in the monthly sales tax returns against SED on goods produced and sold by theCompany. The Company had approached the Federal Board of Revenue to obtain a clarification in respect of the adjustmentof SED made by the Company in monthly sales tax returns. Pending such clarification the Company based on prudencehad made provision for the amount adjusted of Rs. 58,476 and for the balance remaining of Rs. 36,687 included in loans,advance, deposits, prepayments and other receivables. However, during the period, the Company received show causenotices from the Additional Collector (Adjudication) Federal Board of Revenue, stating that the Company, by adjustingthe aforementioned SED, has violated the provisions of the Federal Excise Act, 2005 and the Federal Excise Rules, 2005read with SRO 655(1)/2007 and that the amount adjusted is recoverable from the Company under the Federal Excise Act,2005 alongwith default surcharge and penalty. In response to these notices the Company has filed a Constitutional Petitionbefore the Honourable High Court, Sindh, on May 18, 2009. The High Court is in the process of evaluating the ConstitutionalPetition. The Company is confident that the ultimate outcome of the matter will be in its favour, however, based on prudenceis maintaining the aforementioned provision. Further, a provision of Rs. 7,421 for surcharge and penalty thereagainst uptoJune 30, 2009 has also been made.

16. CONTINGENCIES AND COMMITMENTS

16.1 Commitments

- Capital expenditure for the Project referred to in note 1, under the contracts signed as at June 30, 2009 but not yetincurred amounts to Rs. 108,544 (December 31, 2008: Rs. 1,305,738).

- Performance guarantees issued by banks on behalf of the Company as at June 30, 2009 amounts to Rs. 591,450(December 31, 2008: Rs. 264,200).



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17. COST OF SALES


36

Opening stock of work-in-progress 31,810 13,817 21,293 22,861

Raw and packing materials consumed 1,934,633 1,461,705 3,326,793 2,811,732Salaries, wages and staff welfare 43,504 19,535 86,803 47,451Fuel, power and gas 71,567 31,545 175,831 67,178Repairs and maintenance (2,137) 1,098 21,443 4,731Depreciation 69,701 41,718 139,489 83,947Consumable stores 13,781 6,978 19,651 8,840Purchased services 5,313 5,442 10,018 9,708

Storage and handling 44,308 30,999 87,127 64,238Training and travelling expenses 1,001 1,829 1,728 2,496Communication, stationery and other

office expenses 613 303 856 733Insurance 8,377 2,431 20,430 4,863Other expenses 3,340 1,107 4,918 1,107

2,194,001 1,604,690 3,895,087 3,107,024

Closing stock of work-in-progress (18,780) (14,018) (18,780) (14,018)

Cost of goods manufactured 2,207,031 1,604,489 3,897,600 3,115,867

Opening stock of finished goods 206,131 619,628 810,355 640,170

Closing stock of finished goods (177,946) (300,173) (177,946) (300,173)

28,185 319,455 632,409 339,997

Cost of sales - own manufactured product 2,235,216 1,923,944 4,530,009 3,455,864- purchased product _ 147 _ 676

2,235,216 1,924,091 4,530,009 3,456,540

June 30,

2009Rupees

June 30,

2008

Quarter ended

June 30,

2009

June 30,

2008

Half Year ended



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37


Rupees

18. DISTRIBUTION AND

MARKETING EXPENSES


Advertising, sales promotion andentertainment 11,176 10,522 20,817 15,712

Product transportation and handling 73,621 52,013 137,179 98,531

Rent, rates and taxes 444 1,241 1,874 1,751

Purchased services (985) 1,414 790 4,347

Insurance 282 197 552 354

Depreciation 849 1,105 1,907 1,992


Communication, stationery and other

office expenses 472 1,204 965 1,826

Others 822 1,106 1,312 1,684

102,259 80,919 194,754 149,291

19. ADMINISTRATIVE EXPENSES


Rent, rates and taxes 4,493 3,469 7,748 5,485

Purchased services 4,130 2,459 8,508 4,257

Insurance 107 142 208 142

Depreciation 1,205 1,631 2,550 2,706

Amortization 429 168 739 318


Communication, stationery and

other office expenses 2,140 2,310 5,358 3,281

Others 2,754 5,171 4,405 5,492

50,634 47,120 78,138 69,737

20. OTHER OPERATING EXPENSES

Legal and professional charges 1,378 141 2,305 211

Auditors' remuneration 317 255 317 455

Donations 1,467 108 1,375 450

Provision against custom duty

refundable 18,043 18,043

Sales tax receivable written off 219 219

Workers' profit participation fund 206 18,288 206 34,059

Workers' welfare fund 78 7,315 78 13,623

Foreign exchange loss - net 33,828 57,218 82,793 65,047

Others 2,226 1,195 540 1,195

39,500 102,782 87,614 133,302






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38

21. FINANCE COST

Interest/Mark-up on:- long term borrowings- short term finances

Guarantee commissionBank charges and others




Rupees



52,7484,570

3163,019

60,653

4,876819

2,058

7,753

97,98816,698

6255,652

120,963

9,9582,276

3,327

15,561

June 30, 2009 June 30, 2008

Rupees

22. CASH GENERATED FROM OPERATIONS

Profit before taxation 14,650 634,856

Adjustments for non cash charges

and other items:

Provision for staff retirement and other

service benefits 539 3,470

Depreciation change 143,946 88,645

Ineffective portion of changes in fair value of

derivative financial instrument (911)

Amortization of deferred employee

compensation expense 1,984

Amortization charge 739 318

Income on deposits (45,666) (46,529)

Realized gain on short term investments (1,977) (33,635)

Unrealized fair value gain on short term

investments (4,629) (3,877)

Provision against custom duty refundable 18,045

Provision against special excise duty 339

Finance costs 120,963 15,560

Profit on disposal of operating assets (886) (173)

Operating assets written off 243

Working capital changes - note 22.1 1,748,394 315,979

1,978,057 992,330

22.1 Working capital changes

(Increase) / Decrease in current assets

Stores and spares (31,665) (7,375)

Stock-in-trade 83,284 186,663

Trade debts (39,127) (1,888)

Loans, advances, deposits, prepayments

and other receivables (net) 18,800 (142,515)

31,292 34,885

Half year ended


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25. DATE OF AUTHORIZATION FOR ISSUE

This consolidated condensed interim financial information was authorized for issue on July 24, 2009 by the Board ofDirectors of the Company.

26. CORRESPONDING FIGURES

In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, theconsolidated condensed interim balance sheet and consolidated condensed interim statement of changes in equity havebeen compared with the balances of consolidated annual audited financial statements of preceding financial year, whereas,

the consolidated condensed interim profit and loss account, consolidated condensed interim statement of comprehensiveincome and the consolidated condensed interim cash flow statement have been compared with the balances of comparableperiod of immediately preceding financial year.


40



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