Engro Corporation on Wednesday announced its First Half (1H) results where strong performance of its fertilizer and commodity trading businesses were kept in check by a challenging business environment in its rice, polymer and food businesses. On a consolidated basis, Engro Corporation recorded a 16 percent increase in revenue from Rs 66,874 million in 1H13 to Rs 77,541 million in the current reporting period.
The increase in revenue was driven by higher fertilizer sales at Engro Fertilisers and Engro EXIMP. Profit before tax (inclusive of non-controlling interest) was also higher by 11 percent amounting to Rs 5,351 million as compared to Rs 4,822 million during 1H13. However, higher tax provisions by the businesses resulted in decreasing profit after tax attributable to shareholders of the Company from Rs 3,341 million in 1H13 to Rs 2,684 million in 1H14. The Company also announced an interim cash dividend of Rs 2/share for the year ending December 31, 2014.
The sustained profitability is mainly attributable to the equalisation of imported and local fertilizer prices which resulted in the increase in uptake of local fertilizer and consequent increase in market share by 10 percent; and also higher sales by our trading business - Engro Eximp. The performance of the fertilizer and trading arm of the Corporation was partly offset by unprecedented substantial appreciation in the Rs/USD exchange rate during 1H2014 coupled with prevailing bearish rice market sentiment that together affected the rice processing business. This was further impacted by the performances of both foods and the petrochemicals business that suffered lower profitability due to depressed margins.
Taking a more detailed view of the companies, the Company's flagship fertilizer business continues to demonstrate improved performance as both plants receive temporary gas allocation of 60mmscfd from Mari. This has directly resulted in increasing sales that have registered an upsurge by 35 percent consequently increasing the market share of the Company to 33 percent vs.23 percent during 1H14. The increase can be attributed to improved market conditions with lower off-take of imported urea and higher product availability due to increased production. The fertilizer business has illustrated this performance on the back of a sharp increase in Gas Infrastructure Development Cess (GIDC) - where GIDC on feed and fuel gas was raised by Rs 103/MMBTU and Rs 50/MMBTU respectively - which the domestic fertilizer industry continues to partially absorb as a substantial portion of the cost increase.
The consolidated revenues of the Company's foods business registered an increase of 6.2 percent over the same period last year ie Rs 20,100 million as opposed to Rs 18,933 million; however, the profitability remained low primarily due to lower margins in the dairy segment as a direct consequence of higher milk prices which were not passed on to consumer due to market environment. Going forward the business aims to enhance its focus on maintaining the market share in UHT segment and continue innovation, brand differentiation and business expansion including diversification into new product lines while carrying out a strategic review on its Canadian operations.
The trading business - Engro Eximp -reflected an increase in sales volume of 18.5 percent over previous period as a result of correctly timing the purchases from both the local and international markets in the wake of rising international prices of DAP. The business also continues to manage the rice processing business of the Company whereby the business under its "Bharosa Seed Programme", generated orders for over 875 tons of seeds to farmers for 2014 crop, making it the biggest basmati seed provider in Pakistan. The programme aims at improving farmer yields and product quality thereby improving the Company's own milling recoveries. Despite a strong operational performance, however, the business posted a consolidated loss primarily due to the substantial appreciation in the Rs/USD exchange rate in a span of few weeks during March 2014 coupled with deep bearish rice market sentiment prevailing throughout 1H14, which more than offset the earnings from the phosphate business.
The profitability of the petrochemicals business suffered due to lower margins and volumes impacting the bottom line earnings whilst rupee appreciation during 1H resulted in lower Rs based revenues; however, gain on foreign exchange liabilities provided support to the overall profitability. The performance was further compounded by the imposition of five percent duty rate - towards the end of June 2014 - on Company's primary raw material Ethylene and EDC through an amendment by the Federal Board of Revenue. Going forward the business aims to complete the second phase of PVC debottlenecking by early 3Q14 which will enhance the Company's capacity of PVC production thereby allowing it to convert its surplus VCM into PVC which will result in better margins.
The energy business - Engro Powergen Qadirpur plant - achieved a milestone of four years of operations and continues to demonstrate healthy performance statistics whilst maintaining its focus on plant performance improvement initiatives to ensure its reliability and availability to the national grid and ensure maximum benefit for all stakeholders. In addition, the Company's first foray into international power projects - GEL Utility Limited - in Nigeria is well underway and targets to achieve commercial operation in August 2014. Generation license to GEL has been granted and first Nigerian O&M team members have also been successfully hired and deployed whilst Engro Power Services Nigeria has also been incorporated to undertake O&M operations.
Meanwhile, Sindh Engro Coal Mining Company (SECMC) has successfully acquired possession of 3,842 acres of land for start of physical work. Site mobilisation, camp set-up and other utilities have been put in place for the 3.0 Million BCM local OB removal job. Engro's holding in SECMC was reduced to 32 percent, however, the management control of SECMC remains with Engro.
The chemical handling and storage business - Engro Vopak - continued to reflect strong performance and recorded revenue of Rs 1,018 million and profit after tax of Rs 713 million during 1H 2014. Similarly, Engro Elengy Terminal (Private) Limited (EETL) formally signed the LNG Service Agreement (LSA) with Sui Southern Gas Company Limited. The Company has successfully signed various agreements including Implementation Agreement with Port Qasim Authority as well as agreement for Engineering, Procurement & Construction and Time Charter Party agreement of Floating Storage & Re-gasification Unit. Going forward, the business aims to ensure that the project gets commissioned on March 31, 2015.-PR

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                                    1H' 2014                  1H' 2013
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COMPANY                    Revenue     Profit     Revenue       Profit
                          After Tax                          After Tax
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Engro Corp Stand-alone     1,030        1,130       1,128        1,469
Engro Fertilisers         27,657        3,375      20,519        1,425
Engro EXIMP               13,274       (2,108)     10,139        (352)
Engro Polymers            11,903          123      12,031          425
Engro Foods               20,100          329      18,933        1,113
Engro PowerGen             6,516        1,143       5,179        1,032
Engro Corp Consolidated   77,541        2,684*     66,874       3,341*
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