Engro Chemical Pakistan Limited

Engro Chemical Pakistan Limited
Annual Report 2001
CONTENTS
Company Information
Notice of Meeting
Financial Highlights
Directors' Report
Board of Directors
Pattern of Holding of Shares
Auditors' Report
Balance Sheet
Profit & Loss Account
Statement of Changes in Equity
Cash Flow Statement
Notes to the Accounts
Corporate Governance
Ten Years at a Glance
COMPANY INFORMATION
BOARD OF DIRECTORS
Nisar A. Memon, Chairman
Zaffar A. Khan, President & Chief Executive
S. Naseem Ahmad
Javed Akbar
Farid Dossani
Parvez Ghias
Shabbir Hashmi
Pervaiz Kausar
Tariq Iqbal Khan
Asif Qadir
Asad Umar
SECRETARY BANKERS
Andalib Alavi ABN AMRO Bank N.V
Standard Chartered Grindlays Bank Limited
Citibank N.A.
Faysal Bank Limited
Habib Bank Limited
Muslim Commercial Bank Limited
National Bank of Pakistan
Standard Chartered Bank
Union Bank Limited
United Bank Limited
AUDITORS
A. F. Ferguson & Co.
Chartered Accountants
REGISTERED OFFICE
PNSC Building
Moulvi Tamizuddin Khan Road
Karachi
NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the Thirty-sixth Annual General Meeting of Engro Chemical Pakistan -'
Limited will be held at Karachi Marriott Hotel, Abdullah Haroon Road, Karachi on Thursday,
March 28, 2002 at 10.00 a.m. to transact the following business:
1. To receive and consider the Audited Accounts for the year ended December 31, 2001 and the
Directors' and Auditors' Reports thereon.
2. To declare a final dividend at the rate of Rs. 3.50 per share for the year ended
December 31 2001.
3. To appoint Auditors and fix their remuneration.
By Order of the Board
Andalib Alavi
Karachi, Chief Legal Advisor &
Dated: January 30, 2002 Company Secretary
N.B.
1. The share transfer books of the Company will be closed and no transfers of shares will be
accepted for registration from Thursday, March 14, 2002 to Thursday, March 28, 2002 (both
days inclusive). Transfers received in order at the Registered Office of the Company upto the
close of business (4:30 p.m.) on Wednesday, March 13, 2002 will be in time for the purposes
of payment of the final dividend and entitlement to attend the Annual General Meeting.
2. A member entitled to attend and vote at this Meeting shall be entitled to appoint another person,
as his/her proxy to attend, speak and vote instead of him/her, and a proxy so appointed shall
have such rights, as respects attending, speaking and voting at the Meeting as are available to
a member. Proxies, in order to be effective, must be received by the Company not less than
48 hours before the Meeting. A proxy need not be a member of the Company.
FINANCIAL HIGHLIGHTS
2001 2000
Sales Revenue Rs. Million 8,220 8,394

Earnings after Tax Rs. Million 1,064 1,126
No. of Shares Outstanding (000's) 139,036 120,901
Earnings per share - Basic and diluted Rs. 7.65 9.32
Dividend Rs./Share 7.50 7.00
Return on Capital Employed (%) 19 21
Current Ratio 1.23 1.27
Debt: Equity Ratio 36:64 37:63
Capital Expenditure Rs. Million 435 0.58
Market Capitalization (yr. end) Rs. Million 7,195 8,342
Market Capitalization (yr. end) US$ Million 119 143
Price to Earnings Ratio 7.47 6.69
Net Assets Per Share Rs. 37.70 43.20
THE DIRECTORS' REPORT
The Board of Directors of Engro Chemical

Pakistan Limited is pleased to present the
thirty-sixth annual report and the audited
accounts of the Company for the year ended
December 31, 2001.
FERTILIZER OPERATIONS
The year 2001 was a difficult period for the
agriculture sector in the economy. Shortage of
irrigation water both in the summer and winter
cropping seasons, reduced urea demand.
Additionally, the Government increased the price
of gas and levied General Sales Tax (GST) on a
deemed price of urea and requested the
producers to absorb the charge. The industry
agreed to help ease the financial burden on the
farming community who were suffering the impact
of drought conditions.
The demand for urea in 2001 declined by 1% to
4.0 million tons, while the indigenous production
increased by 7% to 4.2 million tons mainly on
account of better capacity utilization of the more
recently constructed plants. There was a nominal
import of 0.1 million tons early in the year, due to
low inventory levels in the country, but thereafter
supply was well in excess of demand for the rest
of the year.
The price of urea in the domestic market was

steady most of the year and remained at least
20% below international prices.
Engro Urea Business

Engro urea sales in 2001 were 795,000 tons,
marginally lower compared to 800,000 tons
achieved last year. The sales volume included a
limited quantity of 16,000 tons of purchased urea
which was imported and sold in the beginning
of the year to meet the market demand. The
Company held its overall urea market share of 20%.
The Company continued to provide technical

solutions and agronomic advice to the farming
community throughout the year free of cost. Over
7,000 soil samples were tested at the three Engro
laboratories to determine nutrient deficiencies in
the soil. Several seminars were held which were
well attended by the farmers and agri scientists,
to promote the use of fertilizer. In a bid to ease
the severity of the drought conditions, farmers
were advised on effective water management
techniques and shown successful demonstration
plots of cotton and maize crop substitution in
traditional rice growing areas. Additionally,
technical literature on efficient production
technology of fruit crops was published and
distributed free amongst the farmers. During the
year, the Company expanded its television and
radio advertising campaign to promote the
expanded product slate of NPK fertilizers and seeds.
The production of Engro urea at 790,000 tons

was down 2% from the previous best level of
808,000 tons achieved last year. The shortfall
was mainly due to equipment limitations. A new
redesigned rotor, to overcome the limitation, was
installed during the planned April 2001 plant
shutdown. However, other issues surfaced which
precluded achievement of the design production
rates. A concerted effort was made to overcome
these issues and plant operations were
significantly smoothened towards the end of the
year. Further programs to enhance long term
reliability of the plant have been developed to
achieve design capacity of 850,000 tons p.a.
These programs will be implemented during
2002 alongwith capital investment projects of
Rs.342 million.
In addition, a new innovative project was

executed which improved the physical attributes
of our product such as prill size and reduced fines
content. This has been appreciated by our
customers.
The Company has a total gas allocation of 103
MSCFD of Mari Gas, of which 42 MSCFD is
covered by an agreement that expires in 2013
and is then renewable for another 10 years.
The gas supply contract for the bulk of the
balance quantity expired in 1998 but with a 10
year renewal provision which has the approval of
the Government. Mari Gas Company Limited,
whilst supplying the required gas, has been
withholding formal renewal of this contract as
they wish to add certain new provisions in the
contract. Efforts to resolve the differences will be
continued and it is hoped that renewal will be
formalized in 2002. In the meanwhile, the supply
of gas to the fertilizer producers has been further
assured under the new Fertilizer Policy
announced by the government.
Phosphates
In 2001, the industry demand for DAP fertilizer
declined by 5% over last year to 1.2 million tons
due to drought conditions and the relatively high
price of DAP.
The Company arranged DAP imports to promote

balanced fertilization and sold 161,000 tons
compared to 194,000 tons in 2000. The shortfall
was partly due to reduced demand and partly to
insufficient supply sourcing in a period of
uncertainty related to levy of GST in Pakistan. The
Government imposed a 15% GST on the selling
price of phosphatic and other fertilizers effective
September 2, 2001.
NPK Fertilizers
The Company achieved mechanical completion
of its new 100,000 tons per annum NPK plant at
Port Qasim in April 2001. The project was
completed on schedule and within the budget
amount of US$ 10 million. An aggressive
marketing campaign promoting the benefits and
use of NPK fertilizer application to crops was
launched with the commencement of production
in June 2001 The project is expected to meet an
important agricultural input need of the country in
promoting balanced supply of nutrients to crops
and improvement of farm yields.
The plant encountered teething problems

upon start up which limited production
rates and incurred higher than anticipated
operating and maintenance expense.
During the period June-December 2001,
four different NPK grades totalling
31,000 tons were produced of which
24,000 tons were sold and well received
in the market. The NPK business recorded
a loss of Rs.109 million. Focused
management attention and a few months
of operational experience has brought
about appreciable improvements in plant
operations. The plant is now operating in
excess of 80% of its design capacity and
some reduction of operating expense has
been achieved. Further cost reductions are
required which are being worked upon to
make the business profitable within the
next couple of years.
Seeds Business
The Company completed its first year of entry into
the seeds business by marketing high quality
hybrid seeds of corn, sunflower and sorghum and
was able to achieve a modest market share of
about 4%. A good impact was created in the
market place with the establishment of our brand
name for seeds - "Bemisal". The immediate thrust
of the seed business is to increase sales volumes
to achieve an economic scale of operation. In
addition to growth in sale of hybrid seeds, the
Company has also made arrangements to launch
sales of open pollinated seeds of cotton, rice and
wheat in 2002.
FINANCIAL RESULTS
The Company earned a profit after tax of Rs.1,064 million in 2001 as compared to Rs.1,126
million achieved during the previous year. The profit numbers were impacted by a number of
favourable and unfavourable events which cumulatively resulted in a profit decline of ,.5.5%. Gains
were made through improvement in margins and an increase in dividend income from Engro Vopak
Terminal Ltd. However, the gains were more than offset by the cost of GST absorption, loss of
production and sales volume, high maintenance costs and start up losses on NPK and seeds
operation.
Your Board recommends that the net profit of Rs. 1,064 million earned during the year together with
the balance of unappropriated profit of Rs.4 million brought forward from prior years be
appropriated as follows:
Million Rupees
Total profit available for appropriation 1,068.1
Appropriations
Transfer to general reserve 20.0
First interim dividend on 139,036 million shares of Rs. 10 each

at Rs.2.00 per share declared on August 9, 2001 278.1
Second interim dividend on 139,036 million shares of

Rs.10 each at Rs.2.00 per share declared on October 25, 2001 278.1
Proposed final dividend on 139,036 million shares of

Rs. 10 each at Rs.3.50 per share. 486.6
------------------
Total Dividend for the year 1,042.8
------------------
Unappropriated profit carried forward 5.3
==========
The Board elected not to recommend the issuance of bonus shares versus the 15% bonus share
announcement of last year. The Board expressed their disappointment at the recent levy of a 10%
withholding tax on bonus shares. The shareholders' equity as at December 31, 2001 was over
Rs.5,240 million compared to Rs.5,219 million last year.
The eight year income tax holiday period granted to the Company for its 1993 plant expansion at
Daharki expired on September 30, 2001. While an agreement approved by the Central Board of
Revenue formed the basis for apportioning revenue and expenses between exempt and taxable
income, nearly all previously assessed tax returns are being disputed by the tax authorities at the
end of the 8 year tax holiday. This is a major disappointment and the Company is taking
appropriate action to defend its position.
During the year, the Company issued the first

tranche of Rs. 500 million Term Finance
Certificates for financing the ongoing capital
expenditure program. It is the first occasion that
the Company used a capital market instrument to
raise finance. The issue was rated AA- and was
significantly oversubscribed.
Pakistan Credit Rating Agency (PACRA) in its

recent annual review of the Company's
creditworthiness, has retained Engro's long and
short term ratings as "Single A Plus" and "Single
A One" respectively. These ratings reflect the
Company's financial and management strength
and denote a low expectation of credit risk and
the capacity for timely payment of financial
commitment. The Company's debt to equity ratio
for the year ending 2001 is 36:64 compared to
37:63 in 2000. The current ratio for the year
closed at a healthy 1.23.
The Company continued with its policy of keeping

the shareholders and the public informed of its
operations by way of quarterly releases of the
business results to the press and stock exchanges.
Security Analyst briefings were also held
regularly to explain business developments in the
Company and its joint ventures. This information
was regularly posted on the Company's web
page. The Company was recently recognized by
the Institute of Chartered Accountants and the
Institute of Cost and Management in Pakistan for
the presentation quality of the annual accounts.
The Company received the top award in its
category of industries. Further, in recognition of
its financial performance, the Company was once
again selected for the "Top 25 Companies
Award" of the Karachi Stock Exchange for the
year 2000. The Company has won this award for
the 19th time and holds the distinction of being
the most frequent winner amongst all companies.
SAFETY & ENVIRONMENT

The Manufacturing Division at Daharki achieved
6.4 million man-hours (MMH) without lost
workday injury (LWI) to any Company employee
over a 5-year period. This is a significant
achievement and an all time record since the start
up of the plant in 1968. In addition, the Division
completed 5.7 MMH without an LWI to
employees of our contractors. However, at the
new NPK plant at Port Qasi, one case of an LWI
to a Company employee was recorded post start
up of the facility. Efforts are underway to improve
the safety standards of own and contractor
employees at this site. The Non-manufacturing
functions also maintained their excellent safety
record and by year end they had achieved over
4.5 MMH over a period of 13.7 years without an
LWI. Particularly creditable is the effort of
marketing sales force who have achieved 13
million kilometers of safe driving over a period of
21 years without suffering an LWI.
As part of our continuing efforts to ensure high

standards of risk management, an external survey
was conducted by a leading insurance broker
from the U.K. The audit reconfirmed Engro's high
standards of risk management, but also
suggested new programs to further enhance
safety effectiveness.
The Company is firming plans with a renewed

international engineering firm to undertake a
comprehensive project to improve the
environmental performance of the plant site at
Daharki. The Company is committed to meeting
all environmental standards and to achieving
excellence in this field of operation.
EMPLOYEE RELATIONS AND

ORGANIZATION DEVELOPMENT
In early 2001, the Company initiated a
programme to revisit its "Corporate Vision 2005"
developed in mid 1990's. The new vision titled,
"Vision 2010" is in the process of being
developed and will be cascaded throughout the
organization.
The Company, as part of its focus to ensure

quality management systems, made good
progress towards achieving ISO certification.
During the year, Daharki manufacturing site was
awarded ISO 9002 while the Business Functional
Group comprising of all business support
functions received the new ISO 9001
certification. Work is progressing to achieve
similar certification for the remaining functions of
the organization in 2002.
The Company continued to suffer attrition of

skilled technical and engineering resources,
reflecting the brain drain phenomena prevailing
amongst the qualified professionals in the
country. Record recruitment was undertaken to
support the Company's business needs, including
its growth and diversification programs.
Structured orientation programs were offered to
facilitate early assimilation of the new hires and
training and employee development activities
were stepped up to enhance the overall
workforce productivity.
The overall industrial climate and employee

relations remained cordial throughout the year.
New Collective Labour Agreements were
successfully concluded with both the Daharki and
Karachi Unions for periods of 27 months and 36
months respectively, effective July 2001.
The Company continued to make sizable

contributions for projects in health care and
education to help improve the quality of life of the
less privileged people especially of those residing
in public communities around Daharki. Salient
projects and activities undertaken during the year
include:
* Launching a major school project in Daharki

which will be managed by "The Citizen's
Foundation", an organization promoting
quality education in low income areas of
Pakistan. The school will be made
operational in 2002 and when completed,
will accommodate 750 students selected on
merit. The Company will fully fund the
construction cost of Rs.20 million, spread
over three years.
* The employees of the Company largely

funded the construction of a school cum clinic
for a neighbouring community at Daharki.
* Over 1,050 teachers were trained during the
year at the Training & Resource Centre
established in Daharki in collaboration with
Ali Institute to improve the quality of
education in the local schools of the area.
* A free eye camp was held at Kot Diji in the

interior Sindh where 2,300 patients were
examined in the OPD and 285 cataract
surgeries and 254 IOL implants were
performed.
* At the Eye Care Centre built by the Company

in Daharki, 657 surgeries were performed
and IOLs were planted in more than 396
needy patients.
* Free snake bite treatment was provided to

more than 3,500 victims at the Company's
clinic in Daharki.
* 260 dialysis were performed on kidney

patients at the Dialysis Centre established at
Daharki.
* The blood bank donated 200 pints of blood

to poor patients.
* A donation was made towards the setting up

of the Pakistan Philanthropy Centre.
The Company also provided Financial assistance

to a number of renowned charitable institutions
across the country for providing relief to the needy.
JOINT VENTURES
Engro Vopak Terminal Ltd. (EVTL)

Engro Vopak Terminal Limited is a joint venture
with Vopak of The Netherlands in which Engro
owns 50% equity. The terminal at Port Qasim
completed 4 years of safe and environmentally
friendly operations and achieved ISO 9001
certification.
EVTL's revenue generated by handling bulk

chemicals increased by 20% in 2001. The after
tax profit of EVTL was Rs.297 million for the year
2001 versus Rs.206 million in year 2000. EVTL
declared a dividend of 25% for the year 2001
versus 10% in 2000. Engro's share of the
dividend payout amounts to Rs.112.5 million.
Since December 2001, the LPG storage facility of

EVTL has started to handle imported LPG after
remaining idle for 20 months. We expect
opportunistic LPG imports to continue in 2002 to
meet pocket shortages in the growing market of
Pakistan. Discussions are also underway to
establish the import of Monoethylene Glycol
(MEG) through the EVTL terminal. This would be
the seventh product on EVTL's slate.
Engro Asahi Polymer & Chemicals Ltd. (EAPCL)

Engro Asahi Polymer & Chemicals Limited is a
joint venture with Asahi Glass and Mitsubishi
Corporation of Japan in which Engro owns 50%
of the equity.
EAPCL incurred a loss of Rs.181 million

(unaudited) which is significantly lower than
previous year's loss of Rs.342 million. The
September 11 incident in U.S.A. led to a sharp
fall in the price of PVC and an erosion in the
margin over its raw material VCM. The PVC price
and the PVC-VCM margin reached the lowest
level recorded since 1985. This was the principal
cause of the loss recorded in 2001. Production
increased to 69,000 tons from 65,000 tons in
2000 and domestic sales increased by almost
60% to 58,000 tons from 36,500 tons in 2000.
Exports were curtailed to 12,400 tons primarily
due to the low margins available in the
international market. The Company has been
nominated once again for FPCCI's export trophy.
The Company also obtained ISO 14001
certification making it one of the few companies
in Pakistan to achieve this distinction.
As part of increasing efficiency, the Company

started procurement of its raw material VCM,
from nearby Qatar. Due to the short lead time, the
Company is now able to operate with lower VCM
inventory and also save on demurrage.
Market development efforts to increase domestic

sales of PVC together with the anticipated
improvement in the PVC-VCM margins are
expected to make EAPCL profitable in 2002.
BUSINESS GROWTH PLANS

The new Fertilizer Policy announced by the
Government is attractive for expansion of existing
units but does not appear feasible for new grass
root plants. In view of this, the Company has
initiated a study to determine its long term
fertilizer business strategy. Engro plans to pursue
the acquisition of Pak Saudi Fertilizer Limited
through the privatization process for which it
has been prequalified as a potential bidder.
The Company has also completed detailed
engineering of a de-bottlenecking proposal that
will increase the Daharki plant's capacity
to 930,000 tons per annum and improve its
energy efficiency.
Engro's new "Vision 2010" seeks to align the

Company's future business thrust with the
fundamental strengths of the country. Aside from
its core business of fertilizer, it seeks accelerated
growth of its NPK and seeds businesses, and
the continued pursuit of new opportunities in
Agribusiness, Information Technology and
Infrastructure projects.
AUDITORS
The auditors, A.F. Ferguson & Company, retire and offer themselves for re-appointment.
PATTERN OF SHAREHOLDING
Major shareholders of Engro Chemical are its employees, annuitants and the ECPL Employees Trust,
CDC Group plc, International Finance Corporation (IFC), and Dawood Group entities including
Dawood Hercules Chemicals Limited. Other shareholders are local and foreign institutions and the
general public.
The lawsuit filed by the Company against certain Dawood Group companies is pending decision
in the High Court of Sindh. It will be recalled the case had been filed on grounds of violations of
provisions of law by the Dawood Group of companies in the acquisition of Engro shares.
During the year there was no appreciable shift in the share holding structure of the Company.
A statement of the pattern of shareholding as at December 31, 2001 is shown on page 33
of this report.
The Company's shares are traded on all the Stock Exchanges of the country.
BOARD OF DIRECTORS
The tragic demise of Mr. Shaukat R. Mirza, Chairman of the Board of Directors on July 26, 2001
was a great loss to the Company, the industry and the country. His contributions to the growth and
development of the Company as well as the high standards of professionalism and corporate
governance that he enunciated were recalled and greatly appreciated by the Board of Directors. In
recognition, the Company has instituted a merit scholarship named after him.
Mr. Nisar A. Memon was unanimously elected as the new Chairman of the Board. Mr. Memon has
been a director since April, 1994.
Mr. Shabbir Hashmi and Mr. Farid Dossani, representatives of CDC Group plc and IFC were
nominated as directors of the Company in place of Mr. David V. Johns and Mr. Raymond Chiu
respectively. Mr. Tariq Iqbal Khan, Chairman and Managing Director NIT and Managing Director
ICP was co-opted as Director of the Company in place of Mr. Istaqbal Mehdi. The Board
wishes to place on record its warm appreciation for the valuable contributions made by
Messrs. David V. Johns, Raymond Chiu and Istaqbal Mehdi.
OUTLOOK AND CHALLENGES

Events of 2001 and the concerted efforts of the Government has put Pakistan on a new course
which, given domestic stability, could transform the economy of the country. It is hoped that the fiscal
space that has become available is utilized well to stimulate the economy and uplift social sectors
especially education, science and technology. Projects to enhance the supply of irrigation water
including water conservation, must be pursued on priority. This would not only overcome a major
limitation being faced by agriculture but will also boost the rural economy. Initiatives of the
Government to improve the tax collection machinery based on the principles of equity and
reasonableness are essential to bring improvement in investor confidence. Much needs to be done
in this area to improve the business climate. It is also hoped the Government will revisit its decision
to tax bonus shares as there is no economic rationale for this tax.
The Company's near term focus is to improve the reliability of its plant at Daharki and to improve
the efficiency of its recently commissioned NPK plant. The Company will continue to pursue its twin
strategy of growing its core fertilizer business and seeking profitable opportunities to diversify in its
field of interest. The new Fertilizer Policy of the Government has specified the feed gas pricing
bases. This removes the uncertainty on this account which deterred long term planning. It is to be
noted that the Company's tax liability will increase in future as the tax holiday on the earnings of
the 1993 expansion have ended. Further, the Government is contemplating charging GST on urea
on the actual selling price, versus the current basis of deeming the price of urea. This will result in
a product price hike.
Your Board would like to take the opportunity to express its appreciation to the Engro dealers and
to the employees of the Company for their dedication and hard work throughout the year. We also
acknowledge the support and cooperation received from the Government, our suppliers, contractors
and all other stakeholders.
Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
BOARD OF DIRECTORS
Mr. Nisar A. Memon

Chairman
Mr. Zaffar A. Khan

President & Chief Executive
Mr. S. Naseem Ahmad
Chairman & Managing Director
Pakistan Security Printing Corporation
Mr. Javed Akbar

Vice President
Mr. Farid Dossani

Senior Country Manager
International Finance Corporation
Mr. Parvez Ghias

Vice President
Mr. Shabbir Hashmi

Country Manager
CDC Capital Partners
Mr. Pervaiz Kausar

Vice President
Mr. Tariq Iqbal Khan

Managing Director, ICP
Chairman & Managing Director, NIT
Mr. Asif Qadir

Senior Vice President
Mr. Asad Umar

Senior Vice President
PATTERN OF HOLDING OF SHARES

Pattern of holding of the Shares held by the Shareholders of
Engro Chemical Pakistan Ltd. as at December 31, 2001
No. of Shareholding Total

Shareholders From To Shares Held
1,116 1 100 49,433

1,939 101 500 560,194
1,341 501 1000 1,003,597
3,051 1001 5000 7,054,525
712 5001 10000 4,969,175
310 10001 15000 3,853,027
135 15001 20000 2,331,681
110 20001 25000 2,501,441
89 25001 30000 2,432,646
46 30001 35000 1,513,235
29 35001 40000 1,081,768
22 40001 45000 926,837
20 45001 50000 948,739
22 50001 55000 1,150,773
26 55001 60000 1,500,266
13 60001 65000 753,021
14 65001 70000 951,880
9 70001 75000 648,837
13 75001 80000 1,009,292
5 80001 85000 409,044
6 85001 90000 524,495
3 90001 95000 282,273
7 95001 100000 684,671
4 100001 105000 405,952
4 105001 110000 432,444
3 110001 115000 331,637
7 115001 120000 833,929
2 120001 125000 241,840
2 125001 130000 254,589
3 135001 140000 412,570
1 140001 145000 144,500
1 145001 150000 150,000
2 150001 155000 306,703
1 155001 160000 158,700
2 160001 165000 327,236
2 165001 170000 332,281
2 170001 175000 346,369
2 175001 180000 356,335
1 185001 190000 185,515
1 190001 195000 194,409
3 195001 200000 599,485
1 205001 210000 206,194
1 210001 215000 213,700
1 255001 230000 457,172
1 235001 240000 238,452
2 245001 250000 496,371
1 255001 260000 256,168
1 270001 275000 273,618
2 275001 280000 554,184
1 280001 285000 284,052
2 290001 295000 582,783
1 310001 315000 311,669
1 325001 330000 325,500
1 340001 345000 342,700
1 345001 350000 348,534
1 350001 355000 354,870
1 380001 385000 382,099
1 400001 405000 401,775
1 405001 410000 410,000
1 420001 425000 423,003
1 455001 460000 456,815
1 525001 530000 526,343
1 530001 535000 534,500
1 545001 550000 545,750
1 600001 605000 603,129
1 605001 610000 608,925
1 660001 665000 662,445
1 705001 710000 710,000
1 925001 930000 928,894
1 995001 1000000 1,000,000
1 1095001 1100000 1,097,540
1 1400001 1405000 1,404,725
1 1555001 1560000 1,558,706
1 1880001 1885000 1,882,385
1 1990001 1995000 1,991,208
1 2300001 2305000 2,301,479
1 2915001 2920000 2,915,715
1 3335001 3340000 3,338,571
1 3445001 3450000 3,450,000
1 3650001 3655000 3,652,170
1 4140001 4145000 4,144,232
1 5030001 5035000 5,030,629
1 8750001 8755000 8,752,413
1 13900001 13905000 13,903,642
1 27015001 27020000 27,018,031
------------------ ------------------
9,128 139,036,435
========== ==========
PATTERN OF HOLDING OF SHARES
PERCEN
CATEGORIES OF NUMBER OF SHARES TAGE
SHAREHOLDERS SHARE HELD
HOLDERS
INDIVIDUALS 8,779 42,302,399 30.43
INVESTMENT COMPANIES 44 398,605 0.29
INSURANCE COMPANIES 17 14,138,748 10.16
JOINT STOCK COMPANIES 110 33,720,798 24.25
FINANCIAL INSTITUTIONS 105 40,544,747 29.16
MODARABA COMPANIES 15 135,313 0.10
TRADE ASSOCIATIONS 2 5,420 --
CO-OPERATIVE SOCIETIES 3 1,420,022 1.02
SECURITIES & EXCHANGE
COMMISSION OF PAKISTAN 1 1 --
OTHERS 52 6,370,382 4.59
------------
------------------ ------------------ ------
TOTAL 9,128 139,036,435 100.00
=======
========== ========== ===
On behalf of the Board of Directors
Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of Engro Chemical Pakistan Limited as at
December 31, 2001 and the related profit and loss account, statement of changes in equity and
cash flow statement, together with the notes forming part thereof, for the year then ended and we
state that we have obtained all the information and explanations which, to the best of our
knowledge and belief, were necessary for the purposes of our audit.
It is the responsibility of the Company's management to establish and maintain a system of internal
control, and prepare and present the above said statements in conformity with the approved
accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility
is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the above said statements are free of any material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit
also includes assessing the accounting policies and significant estimates made by management, as
well as, evaluating the overall presentation of the above said statements. We believe that our audit
provides a reasonable basis for our opinion and, after due verification, we report that:
(a) in our opinion, proper books of account have been kept by the Company as required by the
Companies Ordinance, 1984;
(b) in our opinion:
(i) the balance sheet and profit and loss account together with the notes thereon have been
drawn up in conformity with the Companies Ordinance, 1984 and are in agreement
with the books of account and are further in accordance with accounting policies
consistently applied;
(ii) the expenditure incurred during the year was for the purpose of the Company's
business; and
(iii) the business conducted, investments made and the expenditure incurred during the year
were in accordance with the objects of the Company;
(c) in our opinion and to the best of our information and according to the explanations given to
us, the balance sheet, profit and loss account, statement of changes in equity and cash flow
statement together with the notes forming part thereof conform with the approved accounting
standards as applicable in Pakistan, and, give the information required by the Companies
Ordinance, 1984, in the manner so required, and respectively give a true and fair view of
the state of the Company's affairs as at December 31, 2001 and of the profit, changes in
equity and its cash flows for the year then ended; and
(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII
of 1980), was deducted by the Company and deposited in the Central Zakat Fund
established under Section 7 of that Ordinance.
A.F.
Ferguson
Karachi, & Co.
Chartere
d
Accounta
Dated: January 30, 2002 nts
BALANCE SHEET
AS AT DECEMBER 31, 2001
(AMOUNTS IN THOUSAND)
Note 2001 2000

(Rupees)
SHARE CAPITAL AND RESERVES

Share Capital
Authorised
200,000,000 Ordinary shares of Rs. 10 each 2,000,000 2,000,000
=======
========== ===
Issued, subscribed and paid-up 3 1,390,364 1,209,012
Reserves -capital -- 181,352

-revenue 3,844,240 3,824,240
------------
------------------ ------
3,844,240 4,005,592
Unappropriated profit 5,283 3,997
------------
------------------ ------
3,849,523 4,009,589
------------
------------------ ------
5,239,887 5,218,601
REDEEMABLE CAPITAL AND ACCRUED MARK-4 2,463,173 2,325,343
LONG TERM AND DEFERRED LIABILITIES

Long term loans and related payable 5 528,925 745,224
Deferred taxation 6 776,955 703,133
Retirement and other service benefits 7 155,981 123,892
------------
------------------ ------
1,461,861 1,572,249
CURRENT LIABILITIES
Current portion of
- redeemable capital and accrued mark-up 4 341,905 210,248
- long term loans and related payable 5 197,395 389,767
Short term running finance 8 582,270 87,319
Creditors, accrued and other liabilities 9 1,650,593 1,396,479
Proposed dividend 486,628 362,704
------------
------------------ ------
3,258,791 2,446,517
CONTINGENCIES AND COMMITMENTS 10
------------
------------------ ------
12,423,712 11,562,71
0
=======
========== ===
FIXED ASSETS
Operating assets 11 6,584,723 6,367,857
Capital work-in-progress 12 276,853 531,366
------------
------------------ ------
6,861,576 6,899,223
LONG TERM INVESTMENTS 13 1,340,000 1,341,475
LONG TERM LOANS AND ADVANCES 14 151,988 150,744
DEFERRED COSTS 15 59,689 65,376
CURRENT ASSETS
Stores, spares and loose tools 16 590,079 600,351
Stock-in-trade 17 424,870 368,752
Trade debts 18 424,045 233,345
Loans, advances, deposits and prepayments 19 179,121 142,193
Other receivables 20 259,532 229,857
Taxation 499,460 353,351
Government of Pakistan Special US Dollar Bonds 21 695,940 669,959
Cash and bank balances 22 937,412 508,084
------------
------------------ ------
4,010,459 3,105,892
------------
------------------ ------
11,562,71
12,423,712 0
=======
========== ===
The annexed notes form an integral part of these accounts.

Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED DECEMBER 31, 2001
(AMOUNTS IN THOUSAND EXCEPT FOR EARNINGS PER SHARE)
Note 2001 2000

(Rupees)
Sales 23 8,220,158 8,393,880

Less: Cost of goods sold 24 5,478,193 5,458,856
------------
------------------ ------
GROSS PROFIT 2,741,965 2,935,024
109,129,5
Less: Selling and distribution expenses 25 1,005,997 00
Other operating income 20.1 -- 70,000
------------
------------------ ------
PROFIT FROM OPERATIONS 1,735,968 1,913,729
Other income 26 198,588 218,886
------------
------------------ ------
1,934,556 2,132,615
------------
------------------ ------
Less: Financial charges 27 645,795 683,525
Other charges 28 97,500 99,233
------------------ ------------
------
743,295 782,758
------------
------------------ ------
PROFIT BEFORE TAXATION 1,191,261 1,349,857
Provision for taxation 29 127,201 223,528
------------
------------------ ------
PROFIT AFTER TAXATION 1,064,060 1,126,329
=======
========== ===
Earnings per share - Basic and diluted 30 Rs. 7.65 Rs. 8.10
=======
========== ===
Appropriations have been reflected in the statement of changes in equity.
Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
STATEMENT OF CHANGES IN EQUITY

Share Capital Reserve Revenue Unappro- Total

Capital - Issue of Reserve - priated
Bonus General Profit
Shares
(Rupees)
Balance as at January 1, 2000 1,209,012 -- 3,724,240 5,328 4,938,580

Net profit for the year -- -- -- 1,126,329 1,126,329
------------
------------------ ------------------ ------------------ ------ ------------------
1,209,012 -- 3,724,240 1,131,657 6,064,909
Appropriations
Dividends - 1st interim @ 20% -- -- -- (241,802) (241,802)
- 2nd interim @ 2 -- -- -- (241,802) (241,802)
- final @ 30% -- -- -- (362,704) (362,704)
Transfer to - reserve for issue of
bonus shares -- 181,352 -- (181,352) --
- general reserve -- -- 100,000 (100,000) --
------------
------------------ ------------------ ------------------ ------ ------------------
(1,127,66
-- 181,352 100,000 0) (846,308)
Balance as at
December 31, 2000/January 1,20 1,209,012 181,352 3,824,240 3,997 5,218,601
Bonus shares issued during the ye 181,352 (181,352) -- -- --

Net profit for the year -- -- -- 1,064,060 1,064,060
------------
------------------ ------------------ ------------------ ------ ------------------
1,390,364 -- 3,824,240 1,068,057 6,282,661
Appropriations
Dividends - 1st interim @ 20 -- -- -- (278,073) (278,073)
- 2nd interim @ 2 -- -- -- (278,073) (278,073)
- proposed final -- -- -- (486,628) (486,628)
Transfer to general reserve -- -- 20,000 (20,000) --
------------
------------------ ------------------ ------------------ ------ ------------------
(1,062,77
-- -- 20,000 4) (1,042,774)
------------
------------------ ------------------ ------------------ ------ ------------------
Balance as at December 31, 2001 1,390,364 -- 3,844,240 5,283 5,239,887
=======
========== ========== ========== === ==========
Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
CASH FLOW STATEMENT

Note 2001 2000

(Rupees)
CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operations 32 2,275,503 2,722,911
Retirement and other service benefits paid (70,834) (52,972)
Financial charges paid (670,302) (707,929)
Taxes paid (199,488) (273,630)
Long term loans and advances (1,244) 15,651
Deferred costs (10,148) (69,869)
------------------ ------------
------
Net cash inflow from operating activities 1,323,487 1,634,162
CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure (435,012) (578,418)
Sale proceeds on disposal of fixed assets 9,845 14,940
Income on deposits/bonds 47,379 60,110
Dividends received 45,000 --
------------
------------------ ------
Net cash (outflow) from investing activities (332,788 (503,368)
CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from redeemable capital 500,000 949,000
Repayment of redeemable capital (214,869 (566,658)
Repayment of long term loans (405,497 (388,714)
Dividends paid (909,975 (750,354)
------------
------------------ ------
Net cash (outflow) from financing activities (1,030,341) (756,726)
------------
------------------ ------
Net (decrease)/increase in cash and cash equivalents (39,642) 374,068
Cash and cash equivalents at the beginning of the year 1,090,724 716,656
------------
------------------ ------
Cash and cash equivalents at the end of the year 33 1,051,082 1,090,724
=======
========== ===
Zaffar A.
Nisar A. Memon Khan
Chairman Chief
Executiv
e
NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED DECEMBER 2001
(AMOUNTS IN THOUSAND) ~!
1. STATUS AND NATURE OF BUSINESS

The Company is a public listed company incorporated in Pakistan under the Companies
Act, 1913 (now Companies Ordinance, 1984). The principal activity of the Company is
in the manufacturing, purchasing and marketing of fertilizers. In addition, the Company has
diversified its business portfolio by investing in joint venture companies established
to engage in chemical related activities and is also looking at other opportunities
for investment. During the year, the Company has also commenced marketing of imported
seeds.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of presentation

These accounts have been prepared under the historical cost convention, in accordance
with the requirements of the Companies Ordinance, 1984 and International Accounting
Standards, as applicable in Pakistan.
2.2 Retirement and other service benefits

The Company operates defined benefit funded pension and gratuity schemes for its
management employees. The pension scheme provides lifetime pension to retired
employees or to their spouse. Contributions are made annually to these funds on the basis
of actuarial recommendations.
The Company also operates unfunded schemes for resignation gratuity of certain
management employees and for retirement of other employees. Provisions are made to
cover obligations on the basis of actuarial recommendations.
Consequential to the adoption of IAS 19 - Revised, the actuarial valuation for the above
pension and gratuity schemes as at December 31, 1998 determined a transitional
obligation of Rs. 85,858 net of a transitional asset of Rs. 820, which is being recognized
on a straight line basis over a period of five years commencing from January 1, 1999.
Rupees
Net Liability:
Present value of benefit obligation at December 31, 1998 396,471
Fair value of plan assets/book reserve (310,613)
------------------
Funded status 85,858
Transitional obligation recognized (net) upto December 31, 2001 (51,516)
------------------
Transitional obligation to be recognized in future years 34,342
==========
Further, the cost recognized in the current year in respect of pension, gratuity and unfunded
gratuity schemes amounted to Rs. 23,200, Rs. 6,920 and Rs. 7,990 respectively. The
actuarial valuation of the above funds was carried out as of December 31, 2001.
The projected unit credit method based on the following significant assumptions is used for
valuation of all the schemes mentioned above:
- discount rate at 12% per annum;

- expected rate of increase in salaries for employees ranges from 11% to 12%
per annum; and
- expected rate of interest on investment at 12% per annum.
The Company recognises actuarial gains/losses over the expected future service of current
members.
The amounts recognised in the balance sheet are as follows:

Defined Defined Defined
Benefit Benefit Benefit
Separatio
Pension Plan Gratuity Plans n
Gratuity
Plan
Rupees
Present value of funded obligation 417,332 97,564 --

Fair value of plan assets 356,550 90,328 --
------------
------------------ ------------------ ------
60,782 7,236 --
Present value of unfunded obligations -- 29,538 21,349
Unrecognised actuarial gain / (losses) 31,826 14,896 (6,632)
Unrecognised transitional obligation (27,764) (6,908) 328
------------
------------------ ------------------ ------
64,844 44,762 15,045
=======
========== ========== ===
Net liability at the beginning of the year 56,822 38,586 12,488

Net expense 34,752 14,962 2,279
Amount allocated to capital work-in-progress 807 238 92
Contributions - net of receivable from associates (27,537) (9,024) 186
------------
------------------ ------------------ ------
64,844 44,762 15,045
=======
========== ========== ===
The Company also operates a defined contribution provident fund for its employees.
Monthly contributions are made both by the Company and the employees to the fund at
the rate of 10% of basic pay.
Provision is also made under an incentive plan for certain category of experienced
employees to continue in the Company's employment.
2.3 Taxation
The current taxation charge is computed under existing tax law on income determined
to be taxable at the applicable rates and allows for the tax exemption referred to in
note 29.1.
Deferred taxation has been provided on all major timing differences using the
liability method.
2.4 Fixed assets

Operating assets are stated at cost less accumulated depreciation whereas capital work-in-
progress is stated at cost. Borrowing and other related costs specific to a project during its
construction period are capitalised.
Depreciation is charged to income using the straight-line method whereby the cost of an
operating asset is written off over its estimated service life. Depreciation on additions
during the year is charged on a pro-rata basis from date of use.
Maintenance and repairs are charged to income as and when incurred. Major renewals
and betterments are capitalised and the assets so replaced, if any, other than those kept as
standby items, are retired.
Gains and losses on disposal of assets are included in income currently.
2.5 Long term investments

These are stated at cost, except where a permanent diminution in value is deemed to have
occurred in which case their cost is appropriately reduced.
2.6 Deferred costs

Initial fill of the catalysts in the ammonia plant are capitalised with plant and machinery.
Cost of subsequent replacement of catalysts is deferred and charged to income in equal
installments over the earlier of their anticipated useful lives or five years. Deferred costs
which are to be charged to income within twelve months of the balance sheet date are
included in current assets with the remaining costs shown with long term assets.
2.7 Stores, spares and loose tools

Stores, spares and loose tools are valued at weighted average cost except for items in
transit which are valued at cost. A provision is made for any excess book value over
estimated realisable value of items identified as surplus to the Company's requirements.
Adequate provision is also made for slow moving items.
2.8 Stock-in-trade
Stock-in-trade is valued at the lower of cost and net realisable value. Cost which includes
applicable purchase cost and manufacturing expenses is arrived at on a weighted average
basis For raw materials, and on a last-in-first-out basis For finished goods. The cost of
work-in-process includes material and proportionate conversion costs.
2.9 Foreign currency translation

Assets and liabilities in foreign currencies are translated into Pak Rupees at rates of
exchange prevailing at the balance sheet date except for foreign currency loans and bank
balances held out of disbursement of such loans where the exchange rate is guaranteed.
Such liabilities and assets are translated at the guaranteed rates. Exchange gains and losses
are included in income currently.
2.10 Revenue recognition

Sales are recorded when product is despatched to customers.
2.11 Marketing incidentals

The Company defers the recording of items of marketing incidentals disputed by the
Government in previous years.
2.12 Research and development costs

Research and development costs are charged to income as and when incurred.
2001 2000
(Rupees)
3. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

40,352,000 Ordinary shares of Rs. 10 each fully
paid in cash 403,520 403,520
98,684,435 Ordinary shares of Rs. 10 each issued

as fully paid bonus shares
(2000: 80,549,248) 986,844 805,492
------------
------------------ ------------------ ------
139,036,435 1,390,364 1,209,012
=======
========== ========== ===
4. REDEEMABLE CAPITAL AND ACCRUED

MARK-UP- Secured (Non-participatory)
Long term finance utilised under mark-up arrangements:
- Pak Libya Holding Company (Pvt) Limited (PLHC) -- 19,642

- National Development Finance Corporation (NDFC) 19,256 53,613
- National Bank of Pakistan [NBP (1)] 20,645 47,274
- National Bank of Pakistan [NBP (2)] 500,000 500,000
- Crescent Investment Bank (Cresbank) -- 4,242
- Habib Bank Limited (HBL) 510,000 570,000
- ABN Amro Bank (ABN) - syndicated 595,000 665,000
- Muslim Commercial Bank Limited (MCB) 300,000 300,000
- United Bank Limited (UBL) - syndicated 349,000 349,000
------------
------------------ ------
Term Finance Certificates (TFCs) 500,000 --
------------------ ------------
------
2,793,901 2,508,771
Add: Accrued mark-up during grace period 11,177 26,820
------------
------------------ ------
2,805,078 2,535,591
Less: Current portion shown under current liabilities 341,905 210,248
------------
------------------ ------
2,463,173 2,325,343
=======
========== ===
The particulars of the above long term finance and TFCs are given in notes
4.1 to 4.11 below:
4.1 Lender Sale Purchase Prompt Rate of Installments

price price payment mark-up
rebate per annum Number Commencing from
(Rupees)
16 half
PLHC 100,000 204,507 29,481 15% yearly June 1994
18 half
NDFC 195,000 656,280 230,742 16% yearly January 1994
30
NBP (1) 140,000 303,517 -- 16.43% quarterly June 1994
10 half
NBP (2) 500,000 973,194 170,350 12.8% to 18%* yearly December 2002
16 half
Cresbank 40,000 97,019 15,838 16.50% yearly January 1994
10 half
HBL 600,000 1,689,405 627,386 13.25%to 18%* yearly July 2000
10 half
ABN 700,000 1,364,894 190,553 13.5% to 19%* yearly July 2000
6 half
MCB 300,000 530,944 75,057 13.5% to 17%* yearly July 2002
6 half
UBL 350,000 612,740 98,527 12.5% to 17.5%* yearly February 2003
* depending on auction rates of SBP treasury bills
4.2 The TFCs issued during the year represent the first tranche out of Rs. 1,500,000 to be issued
in a maximum of three tranches over a period of 36 months. The rate of profit is subject to a
base rate of the weighted average of the last three cut-off rates of the 5 year Pakistan
Investment Bonds plus 1.15% with a floor of 13% p.a. and a cap of 17% p.a. The TFCs have
a tenor of five years with an embedded call option for early redemption exercisable by the
Company after the third year with three months notice. The principal amount of TFCs is to be
repaid in four equal semi-annual installments in arrears after a grace period of thirty-six months
from the date of issue.
4.3 The above finances, except for HBL (note 4.4) and MCB/UBL/NBP (2)/TFCs (Note 4.10) are
secured by:
i) an equitable mortgage upon the immovable property of the Company;
ii) hypothecation of the current and future movable property of the Company; and
iii) a first floating charge on all the business, undertaking and goodwill of the Company
and its properties, assets and rights, current and future;
ranking pari passu with each other and with the long term loans along with the exceptions
referred to in note 5.4.
4.4 The HBL financing is secured by an equitable mortgage upon the immovable property of the
Company ranking pari passu with mortgages referred to in notes 4.3, 4.10 and 5.4.
4.5 Accrued mark-up during grace period relates to NDFC and NBP finance.
4.6 The syndicated finance is led by ABN. Other members of the syndicate are NBP and MCB.
4.7 The HBL and part of ABN finance had been obtained for the plant retrofit expansion project.
4.8 The syndicated finance led by UBL was obtained to refinance existing debts. The other
participant is Union Bank Limited.
4.9 The NBP (2) finance was obtained for the NPK Plant.
4.10 The MCB, UBL, NBP (2) and TFC finances are secured by:
i) an equitable mortgage upon the immovable property of the Company ranking pari
passu with mortgages referred to in notes 4.3, 4.4 and 5.4; and
ii) a first floating charge on all the business, undertaking and goodwill of the Company
and its properties, assets and rights, current and future; ranking pari passu with the
charges mentioned in notes 4.3 and 5.4.
4.11 In view of the substance of the transactions, the sale and repurchase of assets referred to in note 4.1
above have not been recorded in these accounts.
5. LONG TERM LOANS AND RELATED PAYABLE
Limit in Outstanding
foreign in foreign
Currency currency currency
2001 2000 2001 2000
-- (Rupees)--
Loans- Secured
International Finance
Corporation (IFC)
First Loan
First A Loan US$ 27,000 -- 4,200 -- 100,775
Second A Loan Yen 408,000 -- 60,000 -- 16,752
Third A Loan US$ 6,000 -- 900 -- 21,595
B Loan US$ 5,000 -- 716 -- 17,181
Second Loan
Second A Loan US$ 9,000 5,786 7,071 235,844 288,253
Second B Loan US$ 9,000 4,500 6,000 183,433 244,578
Commonwealth Development
Corporation (CDC)
First Loan £ Stg 5,668 -- 810 -- 35,807
Second Loan US$ 11,000 7,071 8,643 286,626 350,050
National Development Finance

Corporation (ND US$ 8,000 808 2,248 20,417 56,826
------------
------ ------------------
726,320 1,131,817
Related payable
Exchange risk cover (note 5.2) -- 3,174
------------
------ ------------------
726,320 1,134,991
Less: Current portion shown under current liabilities
- Loans 197,395 386,593
- Related payable -- 3,174
------------
------ ------------------
197,395 389,767
------------
------ ------------------
528,925 745,224
=======
=== ==========
The particulars of the loans in note 5 above are given in notes 5.1 to 5.5 below:
Repayme
nt
Number
5.1 Loans Rate of interest of
half
per annum Currency Commencing yearly
installme
from nts
IFC - First Loan

January
First A 10.75% US$ 14 1995
January
Second A 8.75% Yen 14 1995
Third A 2.25% above six
January
months LIBOR US$ 14 1995
B 2% above six months
January
LIBOR US$ 14 1995
IFC - Second Loan

Second A 2.75% above six months
LIBOR US$ 14 July 1999
Second B 2.5625% above six
January
months LIBOR US$ 12 1999
January
CDC - First Loan 11% £ Stg 14 1995
- Second Loan 9% US$ 14 July 1999
January
NDFC 16% Rupees 18 1994
5.2 An exchange risk cover for the principal and interest was obtained from the State Bank of
Pakistan (SBP) in respect of IFC- First Loan and CDC - First Loan. The cover fee was payable
at the time of payment of each installment of the respective loans.
An exchange risk cover for the principal amount only has been obtained from National
Bank of Pakistan in respect of IFC - Second Loan and CDC - Second Loan and the cover fee
is payable annually in advance.
5.3 Repayment in Pak Rupees of IFC - First Loan and CDC - First Loan, fully repaid during the
year, was determined at exchange rates prevailing on L/C opening date. Repayment in Pak
Rupees of IFC - Second Loan and CDC - Second Loan was determined at the exchange rates
prevailing at the date of each disbursement.
5.4 The loans are secured by:
a) an equitable mortgage ranking pari passu with each other and with redeemable
capital referred to in notes 4.3, 4.4 and 4.10 on the Company's immovable property;
b) hypothecation by way of first charge ranking pari passu with each other and with
redeemable capital referred to in note 4.3 on all current and future movable property
of the Company; and
c) a First floating charge ranking pari passu with each other and with the redeemable
capital referred to in notes 4.3 and 4.10 above on all the business, undertaking and
goodwill of the Company and its properties, assets and rights, current and future,
except movable assets to an aggregate maximum amount of Rs. 1,305,000 (2000:
Rs. 1,305,000) already encumbered for short term running finance requirements
referred to in note 8.
5.5 The IFC - Second Loan and CDC - Second Loan were obtained for the plant retrofit
expansion project.
2001 2000
(Rupees)
6. DEFERRED TAXATION
On accelerated depreciation allowances 856,817 802,289
Debit arising on tax loss carried forward -- (32,725)
Debits arising in respect of provisions
and unpaid liabilities (79,862) (66,431)
------------
------------------ ------
776,955 703,133
=======
========== ===
7. RETIREMENT AND OTHER SERVICE BENEFITS
7.1 Movements in net liability recognized

Retirement benefits:
Opening balance 107,896 78,539
Expense recognized 51,993 57,972
Amount allocated to capital work-in-progress 1,137 --
Contributions made (36,375) (28,615)
------------
------------------ ------
124,651 107,896
Less: Payable to funds (note 9) 27,870 34,288
------------
------------------ ------
Closing balance 96,781 73,608
Other service benefit plan 59,200 50,284
------------------ ------------
------
155,981 123,892
=======
========== ===
7.2 Actual returns on funded plan assets during 2000 were Rs. 49,798.
8. SHORT TERM RUNNING FINANCE - Secured

Finance utilised from banks 582,270 87,319
=======
========== ===
The facility for short term running finance available from various banks amounts to
Rs. 1,782,500 (2000: Rs. 1,734,500), which represents the aggregate of sale price of all
mark-up arrangements between the Company and the banks with a corresponding purchase
price of Rs. 2,292,816 (2000: Rs. 2,168,467). The purchase prices are payable on
various dates by September 30, 2002.
Under the agreements the purchase price is subject to prompt payment rebates of
Rs. 304,585 (2000: Rs. 232,116). The rates of mark-up net of prompt payment rebates
range from Rs. 0.2986 to Rs. 0.3698 (2000: Rs. 0.3288 to Rs. 0.3836) per rupee one
thousand per day.
Finance upto Rs. 1,087,500 (2000: Rs. 1,087,500) is secured by a floating charge upon
all current and future movable property of the Company upto an aggregate maximum
amount of Rs. 1,305,000 (2000: Rs. 1,305,000) referred to in note 5.4 and the balance
of Rs. 695,000 (2000: Rs. 647,000) is secured by lien over Special US Dollar Bonds
referred to in note 21
9. CREDITORS, ACCRUED AND OTHER LIABILITIES

Creditors 1,042,235 721,058
Accrued expenses 169,810 165,807
Payable to retirement benefits funds (note 7.1) 27,870 34,288
Advances from customers 28,321 144,130
Financial charges accrued on secured
- redeemable capital and long term loans 154,856 177,528
- short term running finance 42,692 25,709
Deposits from dealers refundable on
termination of dealership 6,807 6,444
Sales tax payable 53,701 --
Contractors' deposits and retentions 25,979 30,728
Workers' profits participation fund (note 9.1) 14,060 21,269
Workers' welfare fund 5,869 --
Unclaimed dividends 74,835 66,664
Unpaid dividends 3,558 2,854
------------
------------------ ------
1,650,593 1,396,479
=======
========== ===
Deposits from dealers and contractors are non-interest bearing.
9.1 Workers' profits participation fund

Balance at the beginning of the year 21,269 6,489
Interest on funds utilised in the Company's business 1,036 20
Allocation for the year 63,061 71,045
Less: Amount paid to the Trustees of the Fund 71,306 56,285
------------
------------------ ------
14,060 21,269
=======
========== ===
10. CONTINGENCIES AND COMMITMENTS

CONTINGENCIES
10.1 Contingencies include the following:

Claims against the Company not acknowledged
as debts (including pending law suits) 30,850 34,150
Indemnity bonds and corporate guarantees
(note 10.2) 15,253 57,483
Penalty claimed on delayed payment of
peripheral development charges (note 27.1) 30,712 30,712
Disputed imported duties on crane 21,000 21,000
------------
------------------ ------
97,815 143,345
=======
========== ===
10.2 Under the concessions available to the fertilizer industry, qualifying machinery was
imported and duty/tax exemptions were availed on submission of indemnity bonds and
corporate guarantees. The Company has submitted the machinery installation certificates
required for the release of indemnity bonds.
10.3 The Company is contesting the penalty of Rs.99,936, paid and expensed in 1997,
imposed by the State Bank of Pakistan (SBP) for late payment of forward exchange risk
cover fee on long term loans and has filed a suit in the High Court of Sindh. A partial refund
of Rs. 62,618 was, however, recovered in 1999 from SBP and the recovery of the balance
amount is dependent on Court's decision.
COMMITMENTS
10.4 Capital commitments outstanding

Plant and machinery 292,203 89,267
=======
========== ===
11. OPERATING ASSETS
11.1 Statement of operating assets

Accumul
Cost Additions/ Cost ated Depreciation Accumulated
depreciat
Jan. 1, (disposals) Dec. 31, ion for the depreciation
2001 *transfers 2001 Jan. 1, year/ Dec. 31,
2001 (disposals) 2001
*transfers
(Rupees)
Tangible Assets
Freehold land 4,247 3,084 9,925 -- -- --
*2,594
Leasehold land 192,396 -- 192,396 22,018 4,042 26,060
Building on
- freehold land 178,568 8,169 167,347 28,237 4,059 32,176
*(19,390) *(120)
- leasehold land -- 270,889 270,889 -- 4,515 4,515
Housing Colony 155,735 2,741 174,908 91,440 11,349 101,895
(1,104) (1,071)
*17,536 *177
Railway siding 1,119 -- 1,119 1,119 -- 1,119
Roads, fences and 93,816 4,840 98,789 19,843 4,019 23,870
airstrip *133 *8
Plant and machinery 7,799,109 324,172 8,123,148 2,089,144 388,739 2,477,875
*(133) *(8)
Furniture, fixtures 250,443 24,522 266,608 127,228 23,391 143,515
and equipment (7,407) (7,030)
*(950) *(74)
Vehicles 113,571 40,125 137,083 61,195 20,559 68,751
(16,823)
*210
------------
------------------ ------------------ ------------------ ------ ------------------ ------------------
8,789,004 678,542 9,442,212 2,440,224 460,673 2,879,776
(25,334) (21,121)
Intangible assets
Software 33,185 10,983 44,168 14,108 7,773 21,881
------------
------------------ ------------------ ------------------ ------ ------------------ ------------------
8,822,189 689,525 9,486,380 2,454,332 468,446 2,901,657
(25,334) (21,121)
=======
========== ========== ========== === ========== ==========
2000 8,711,260 125,862 8,822,189 2,020,873 446,970 2,454,332
(14,933) (13,511)
=======
========== ========== ========== === ========== ==========
11.2 The Collector of Customs had disallowed exemption from custom duty and sales tax amounting to
Rs. 48,236 in prior years in respect of first catalyst and other items being part and parcel of the
expansion plant on the contention that these items do not fall under the definition of "plant and
machinery" which is exempt under the relevant SRO. The Company challenged the Department's
contention through a constitutional petition in the High Court of Sindh which stayed the recovery of
the amount claimed and in December 1994 decided the petition in favour of the Company. The
Department filed a petition for leave to appeal in the Supreme Court which was granted on October
26, 1996. The case will now be fixed for regular hearing of the main appeal. The Company's
management is of the view that the Supreme Court will uphold the decision of the High Court and
as such has not made any provision of the aforesaid amount in the accounts. Payments,
without prejudice and under protest, totalling Rs. 22,207 made in 1994 to the Department
during the pendency of the petition in the High Court on their contention, inter alia, that the
stay order had expired have been shown as receivable (note 20).
11.3 The current year additions include Rs. 496,105 capitalised on account of the NPK Plant.
11.4 Particulars of disposal of fixed assets:
Description and Sold to Cost Accumul Net book Sale

ated
depreciat
method of disposal ion value proceeds
(Rupees)
Vehicles
By Company policy Mr. Andalib Alavi 599 599 -- 90
to existing/separating Mr. Parvez Ghias 2,000 2,000 -- 300
executives Mr. S. Imran ul Haque 599 599 -- 90
Mr. Khalid Mansoor 667 256 411 421
Mr. Asif Tajik 429 143 286 278
Mr. Asif Qadir 2,051 2,051 -- 308
Mr. Sajid Ahmad 739 148 591 584
Mr. Abdul Samad Khan 520 104 416 403
Mr. Majid Hasan 359 359 -- 54
Mr. Mudassar Y. Rathore 360 360 -- 54
Mr. Mir Kaisar Yakub 360 360 -- 54
By insurance claim New Hampshire Insurance 926 77 849 985

Company, Karachi 739 222 517 690
769 51 718 750
Items having book
value upto Rs. 5 5,706 5,691 15 4,033
------------
------------------ ------ ------------------ ------------------
16,823 13,020 3,803 9,094
------------
------------------ ------ ------------------ ------------------
Furniture, fixtures and equipment

By Company policy to Mr. Shaiq Husain 79 54 25 29
separating executives Mr. Nisar A. Choudhry 38 38 -- --
Mr. Abdul Majeed Bhutto 37 37 -- --
Mr. Sajid Ahmad 63 63 -- --
Mr. R. D. Tahir 50 50 -- 9
Donated Kidney Centre 35 35 -- --
Hussaini Blood Bank 61 61 -- --
IBP School for Special Children 40 40 -- --
Sahara Welfare Society 36 27 9 --
Ida Rieu Poor Welfare Association for
Hostel of School for Blind & Deaf 119 83 36 --
ABSA School for the Deaf Childre 29 21 8 --
Eye Care Society at JPMC 93 64 29 --
Items having book

value upto Rs. 5 7,831 7,528 303 713
------------
------------------ ------ ------------------ ------------------
8,511 8,101 410 751
------------
------------------ ------ ------------------ ------------------
25,334 21,121 213 9,845
=======
========== === ========== ==========
12. CAPITAL WORK-IN-PROGRESS

Plant and machinery (note 12.1) 229,392 285,463
Furniture, fixtures and equipment 11,136 31,074
Building and civil works 32,106 211,731
Advances to suppliers 4,219 3,098
------------
------------------ ------
276,853 531,366
=======
========== ===
12.1 The Company has undertaken an 'Energy Conservation Project' (Encon), aimed at improving
the overall site energy efficiencies of Daharki plant. The expenditure above includes
Rs. 79,115 (2000: Rs. 5,937) relating to this project.
13. LONG TERM INVESTMENTS

Joint venture companies, unquoted
- at cost (note 13.1) 1,340,000 1,340,000
Other associated company, unquoted

Arabian Sea Country Club Limited (note 13.5)
500,000 Ordinary shares of Rs. 10 each 5,000 5,000
Less: Provision for diminution in value of investment 5,000 3,525

------------
------------------ ------
-- 1,475
------------
------------------ ------
1,340,000 1,341,475
=======
========== ===
13.1 Joint Venture Companies

Investment at cost -
Name of Company Equity December 31, Chief
Executiv
and description of interest % held 2000/2001 e
Engro Vopak Terminal Limited

45,000,000 Ordinary
shares of Rs. 10 each
Mr. Javed
(2000: 45,000,000) 50 450,000 Akbar
Engro Asahi Polymer &

Chemicals Limited
89,000,000 Ordinary
shares of Rs. 10 each
Mr. Asif
(2000: 89,000,000) 50 890,000 Qadir
------------------
Rupees 1,340,000
==========
13.2 Both Engro Vopak Terminal Limited (EVTL) and Engro Asahi Polymer & Chemicals Limited
(EAPCL) are also the Company's associated undertakings.
The aggregate share of the Company's interest in the joint venture companies under various
headings is noted in 13.3 below and is based on their unaudited accounts for the year ended
December 31, 2001. The comparative figures are however based on the audited accounts.
2001 2000
(Rupees)
13.3 Aggregate share of interest in joint venture companies

Current assets 835,120 1,031,652
Long term assets 2,735,162 2,850,224
------------
------------------ ------
3,570,282 3,881,876
Less:
Current liabilities 746,365 1,001,807
Long term liabilities 1,500,515 1,501,953
------------
------------------ ------
2,246,880 2,503,760
------------
------------------ ------
Share of net assets 1,323,402 1,378,116
=======
========== ===
Contingencies 272,530 272,078
Commitments -- 6,324
=======
========== ===
Income 1,857,478 1,761,663
Expenses 1,799,693 1,829,429
=======
========== ===
13.4 The Company has agreed to extend financial support, if required, both to EVTL upto US$
7,500 plus Rs. 58,500 and to EAPCL upto US$ 5,000. This support is by way of either further
share subscriptions or provision of subordinated loans.
13.5 The break-up value of Arabian Sea Country Club Limited's shares based on the
audited accounts for the year ended June 30, 2001 was nil (2000: Nil). The Chief Operating
Officer is Mr. Aslam Mohsin Ali.
14. LONG TERM LOANS AND ADVANCES-

Considered good
Executives 121,359 125,451
Other employees 54,988 41,328
------------
------------------ ------
176,347 166,779
Less: Installments recoverable within twelve

months (note 19) 24,359 16,035
------------
------------------ ------
151,988 150,744
=======
========== ===
No amount was outstanding for a period exceeding three years.
This includes services incentive loans to executives of Rs. 32,345 (2000: Rs. 29,273)
repayable in equal monthly installments over a three year period or in one lump sum at the
end of such period and loans given to workers of Rs. 20,311 (2000: Rs. 4,253) pursuant
to Collective Labour Agreement. It also includes advances of Rs. 121,624
(2000: Rs. 131,437) to employees for the purchase of Company's shares and these
advances are repayable over a five year period.
The maximum amount outstanding at the end of any month from the executives aggregated
Rs. 131,851 (2000: Rs. 135,351).
15. DEFERRED COSTS

Catalyst cost 104,100 93,952
Less: Current portion (note 19) 44,411 28,576
------------
------------------ ------
59,689 65,376
=======
========== ===
16. STORES, SPARES AND LOOSE TOOLS

Consumable stores 115,710 129,993
Spares 525,110 515,428
Loose tools 4,381 4,543
------------
------------------ ------
645,201 649,964
Less: Provision for surplus and slow moving items 55,122 49,613
------------
------------------ ------
590,079 600,351
=======
========== ===
17. STOCK-IN-TRADE
Raw materials 198,424 203,840
Work-in-process 29,579 --
------------
------------------ ------
Finished goods - own manufactured product 147,876 47,650
- purchased product 48,991 117,262
------------
------------------ ------
196,867 164,912
------------
------------------ ------
424,870 368,752
=======
========== ===
The cost of finished goods on the basis of first-in-first-out method amounts to Rs. 199,215
(2000: Rs. 180,829). The purchased product amount includes stock-
in-transit of nil (2000: Rs. 224,846).
18. TRADE DEBTS

Considered good - Secured 179,907 135,222
- Unsecured 244,138 98,123
------------
------------------ ------
424,045 233,345
Considered doubtful - Unsecured 2,139 4,704
------------
------------------ ------
426,184 238,049
Less: Provision for doubtful debts 2,139 4,704
------------
------------------ ------
424,045 233,345
=======
========== ===
19. LOANS, ADVANCES, DEPOSITS

AND PREPAYMENTS
Loans and advances to employees recoverable within
twelve months, considered good (note 14)
- executives 11,226 10,445
- other employees 13,133 5,590
------------
------------------ ------
24,359 16,035
Advances and deposits with
- statutory authorities 306 288
- others 35,675 37,162
Margins against letters of credit 5,300 8,910

Deferred costs -current portion (note 15) 44,411 28,576
Prepayments 69,070 51,222
------------
------------------ ------
179,121 142193
=======
========== ===
20. OTHER RECEIVABLES

Receivable from Government for:
customs duty and sales tax (note 11.2) 22,207 22,207
development surcharge 5,915 5,915
foreign exchange risk cover -- 7,569
subsidy on purchased product 13,560 13,560
------------
------------------ ------
41,682 49,251
Accrued income on deposits/bonds 7,878 15,214
Due for services rendered 11 7,851
Due from joint venture companies
- dividend 112,500 45,000
- others 511 1,621
Insurance claim - (note 20.1) 70,000 103,000
------------
------------------ ------
Claims on foreign suppliers 7,145 3,675
Less: Provision for doubtful receivables 295 295
------------
------------------ ------
6,850 3,380
------------
------------------ ------
Others 20,149 4,589
Less: Provision for doubtful receivables 49 49
------------
------------------ ------
20,100 4,540
------------
------------------ ------
259,532 229,857
=======
========== ===
The maximum amount due from joint venture companies at the end of any month during
the year aggregated Rs. 2,187 (2000: Rs. 2,443).
20.1 In November 1999 and March 2000, the Company's manufacturing plant suffered
breakdown of the synthesis gas compressor rotors. After the second failure, a derated rotor
was installed which resulted in loss of production, sales and operating profit.
Insurance claim for the recovery of material damage, received during the year, amounted to
Rs. 46,928, of which Rs. 33,000 was recognised on provisional basis in the year 2000
(note 24).
The Company, upon expiry of the indemnity period during the current year as specified in
the business interruption policy, has filed its final claim amounting to Rs. 123,183, of which
Rs. 70,000 was recognised in the year 2000. Due to the interpretation of certain clauses of
the policy, the claim has not yet been finalised. The Company is vigorously pursuing the matter
with the insurers for the settlement of its final claim. The Company's management, however, is
certain that the final settlement would not be lower than the amount of claim recognised
last year. As a matter of prudence, the additional amount of claim has not been recognised
as income.
21. GOVERNMENT OF PAKISTAN SPECIAL US DOLLAR BONDS

In 1999, the Company converted its foreign currency deposits of US$ 11,550 into
Government of Pakistan Special US Dollar Bonds of three years maturity. Profit is payable on
these bonds at a rate of 2% above six months LIBOR and are held under lien by banks as
referred to in note 8.
2001 2000
(Rupees)
22. CASH AND BANK BALANCES

With banks
- on deposit accounts
local currency 500 300

foreign currency- US$ 3,020 (2000: US$ 1,300) 181,955 76,050
------------
------------------ ------
182,455 76,350
- on current accounts 33,075 64,163
- on special account related to dealers and
suppliers deposits 7,800 7,800
- on special accounts for plant expansion -

US$ Nil (2000: US$ 296) -- 12,055
- on saving accounts
local currency 117,431 138,602
foreign currency- US$ 266 (2000: US$ 1,189) 16,035 69,565
------------
------------------ ------
133,466 208,167
In hand
- cheques 576,986 135,779
- cash 3,630 3,770
------------
------------------ ------
937,412 508,084
=======
========== ===
23. SALES
Own manufactured product 6,344,951 5,580,261
Less: Sales tax- (note 23.1) (379,875) --
------------
------------------ ------
5,965,076 5,580,261
Purchased product 2,444,889 2,813,619

Less: Sales tax (189,807) --
------------
------------------ ------
2,225,082 2,813,619
------------
------------------ ------
Net Sales 8,220,158 8,393,880
=======
========== ===
23.1 Includes Rs. 353,960 absorbed by the Company in respect of own manufactured urea at
the request of the Government.
24. COST OF GOODS SOLD

Raw materials consumed 973,923 688,998
Salaries, wages and staff welfare (note 24.1) 397,088 365,876
Fuel and power 1,294,481 1,285,815
Repairs and maintenance, net of
insurance claim - Rs. 13,928 (2000: Rs. 33,000) 204,106 159,084
Depreciation 449,835 430,156
Consumable stores 122,846 109,981
Staff recruitment, training, safety and other expenses 20,035 17,257
Purchased services 82,630 53,401
Travel 17,797 13,116
Communication, stationery and other office expenses 23,061 21,211
Insurance 26,893 15,969
Rent, rates and taxes 3,083 2,724
Other expenses 26,322 18,086
Manufacturing cost 3,642,100 3,181,674

Less: Closing stock of work-in-process 29,579 --
------------
------------------ ------
Cost of goods manufactured 3,612,521 3,181,674
------------
------------------ ------
Add: Opening stock of finished goods manufactured 47,650 26,762
Less: Closing stock of finished goods manufactured 147,876 47,650
------------
------------------ ------
(100,226) 20,888)
------------
------------------ ------
Cost of goods sold - own manufactured product 3,512,295 3,160,786
- purchased product 1,965,898 2,298,070
------------
------------------ ------
5,478,193 5,458,856
=======
========== ===
24.1 Salaries, wages and staff welfare include:

Current service cost 13,673 12,551
Interest cost 41,403 37,669
Expected return on plan assets (32,116) (23,935)
Transitional obligation recognized 10,303 10,303
Net actuarial gains recognized in year (66) --
------------
------------------ ------
Defined benefit plans 33,197 36,588
Defined contribution plan 13,720 9,194
------------
------------------ ------
60,786 55,929
=======
========== ===
25. SELLING AND DISTRIBUTION EXPENSES

Salaries, wages and staff welfare (note 25.1) 161,336 150,089
Staff recruitment, training, safety and other expenses 15,180 11,007
Product transportation and handling 459,791 486,240
Marketing allowance 214,169 313,871
Repairs and maintenance 7,310 6,648
Advertising and sales promotion 44,570 28,377
Rent, rates and taxes 19,859 22,344
Communication, stationery and other office expenses 23,107 16,933
Travel 15,360 11,526
Purchased services 9,933 10,075
Provision against doubtful trade debts -- 4,704
Other expenses 16,771 12,667
------------
------------------ ------
1,005,997 1,091,295
=======
========== ===
25.1 Salaries, wages and staff welfare include:

Current service cost 7,123 6,931
Interest cost 21,567 20,802
Expected return on plan assets (16,729) (13,218)
Transitional obligation recognized 6,869 6,869
Net actuarial gains recognized in year (34) --
------------
------------------ ------
Defined benefit plans 18,796 21,384
Defined contribution plan 8,156 4,572
------------
------------------ ------
35,719 32,842
=======
========== ===
26. OTHER INCOME

Dividend income From EVTL, a joint venture company 112,500 45,000
Income on deposits/bonds 40,043 61,985
Service charges 7,997 11,477
Profit on disposal of fixed assets 5,632 13,518
Foreign exchange gain-net 29,567 83,742
Sundries 2,849 3,164
------------
------------------ ------
198,588 218,886
=======
========== ===
27. FINANCIAL CHARGES
Interest on - workers' profits participation fund

(note 9.1) 1,036 20
- long term loans 111,476 154,735
Mark-up on - redeemable capital 326,151 328,782
- short term finance 123,543 119,148
Exchange risk fee, admin. fee and others 83,589 111,552
------------
------------------ ------
645,795 714,237
Less: Charges for delayed payment (27.1) -- 30,712
------------
------------------ ------
645,795 683,525
=======
========== ===
27.1 In 1997, the Company, as a matter of prudence, accrued Rs. 30,712 being penalty claimed
by the Port Qasim Authority for delayed payment of Peripheral Development Charges. On the
basis of legal opinion obtained, the Company reversed the provision in 2000 and is now
being disclosed as a contingent liability (note 10.1).
28. OTHER CHARGES

Workers' profits participation fund 63,061 71,045
Workers' welfare fund 5,869 --
Research and development including salaries
and wages 25,308 26,358
Auditors' remuneration
- statutory audit 925 875
- fee for tax and other advisory services 256 235
- audit of provident, gratuity, pension,
workers' profits participation funds,
dividend remittance and other certifications 286 399
- reimbursement of expenses 220 121
------------
------------------ ------
1,687 1,630
Provision for diminution in value of investment (note 13) 1,475 --

Professional tax 100 200
------------
------------------ ------
97,500 99,233
=======
========== ===
29. PROVISION FOR TAXATION

Current - for the year 53,379 119,958
Deferred - for the year 73,822 103,570
------------
------------------ ------
127,201 223,528
=======
========== ===
29.1 The provision for taxation has been made after taking into account the impact of a tax
holiday granted to the Company on the 1993 expansion for a period of eight years, which
expired on September 30, 2001. The tax exempt profit has been determined on the basis
confirmed and assessed by the tax authorities.
29.2 Subsequent to year end, the Deputy Commissioner of Income Tax has issued revised
assessment orders for the assessment year 1997-1998 and 1998-1999 whereby the
income from trading in purchased/imported fertilizers has been assessed under section
80C in addition to disallowance of certain expenses. The Company disputes the
Department's contention and as such is in the process of filing an appeal against the above
assessment. The Company's management is confident that the ultimate outcome would be
in their favour and as such no provision in the accounts has been made for the additional
tax demand resulting from the aforementioned assessment amounting to Rs. 120,435, net of
necessary rectification.
29.3 Under the new fertilizer policy, effective from July 1, 2001, income from trading in imported
fertilizer by a manufacturer would be subject to normal tax. The necessary amendments by
the Central Board of Revenue (CBR) in the Income Tax law for the same are still awaited. The
Company is confident that such amendments are expected very shortly, hence provision for
the current year has been made in the accounts under normal basis. Had the provision been
made on the assumption of section 80C, the current year income tax charged would be
higher by Rs. 69,724.
30. EARNINGS PER SHARE

There is no dilutive effect on the basic earnings per share of the Company, which is
based on:
2001 2000
Profit after taxation (Rupees) 1,064,060 1,126,329

Weighted average number of Ordinary shares 139,036 139,036
31. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

The aggregate amounts charged in the accounts for remuneration, including all benefits, to
chief executive, directors and executives of the Company are given below:
2001 2000
Directors Directors
Chief Chief
Executiv
Executive Others Executives e Others Executives
(Rupees)
Fees -- 11 -- -- 19 --
Managerial remuneration 6,546 10,786 252,725 5,895 10,555 236,100
Retirement benefits 558 972 20,934 288 546 11,159
Other benefits 1,708 2,565 17,713 1,717 1,902 25,129
------------
------------------ ------------------ ------------------ ------ ------------------ ------------------
Total 8,812 14,334 291,372 7,900 13,022 272,388
=======
========== ========== ========== === ========== ==========
Number of persons,
including those who
worked part of the year 1 10 292 1 10 270
=======
========== ========== ========== === ========== ==========
31.1 The Company also makes contributions based on actuarial calculations to pension and
gratuity funds and provides certain household items for use of some employees. Cars are also
provided for use of some employees and directors. Employees based at plant site, Daharki,
are also provided with schooling and subsidised club facilities. Monetary values of these
facilities relating to the above employees are not readily available.
31.2 Technical advisory fees paid during the year Rs. 480 (2000: Rs. 480) to two non-executive
directors (2000: two).
2001 2000
(Rupees)
32. CASH GENERATED FROM OPERATIONS

Profit before taxation 1,191,261 1,349,857
Adjustment for non-cash charges and other items:
Profit on disposal of fixed assets (5,632) (13,518)
Provision for retirement and other service benefits 96,505 88,771
Income on deposits/bonds (40,043) (61,985)
Dividend income (112,500) (45,000)
Financial charges 645,795 683,525
Provision for diminution in value of investment 1,475 --
Working capital changes (note 32.1) 30,196 274,291
------------
------------------ ------
2,275,503 2,722,911
=======
========== ===
32.1 Working capital changes

(Increase)/Decrease in current assets
Stores, spares and loose tools 42,745 10,272
Stock-in-trade (24,614) (56,118)
Trade debts 2,274 (190,700)
Loans, advances, deposits and prepayments 2,115 (21,093)
Other receivables (net) (101,356) 30,489
------------
------------------ ------
(227,150) (78,836)
Increase/(Decrease) in current liabilities

Creditors, accrued and other liabilities (net) 257,346 353,127
------------
------------------ ------
30,196 274,291
=======
========== ===
33. CASH AND CASH EQUIVALENTS
Cash and bank balances 937,412 508,084
Government of Pakistan Special US Dollar Bonds 695,940 669,959
Short term running finance (582,270) (87,319)
------------
------------------ ------
1,051,082 1,090,724
=======
========== ===
34. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
34.1 Financial assets and liabilities

Interest/mark-up bearing Non-Interest/mark-up bearing
Maturity
Maturity upto Maturity after Total upto Maturity after Total
one year one year one year one year
(Rupees)
Financial Assets
Loans and advances -- -- -- 24,359 151,988 176,347
Trade debts -- -- -- 424,045 -- 424,045
Other receivables -- -- -- 217,850 -- 217,850
Government of Pakistan
US Dollar Bonds 695,940 -- 695,940 -- -- --
Cash and bank balances 323,721 -- 323,721 613,691 -- 613,691
------------
------------------ ------------------ ------------------ ------ ------------------ ------------------
1,019,661 -- 1,019,661 1,279,945 151,988 1,431,933
=======
========== ========== ========== === ========== ==========
Financial Liabilities
Redeemable capital
and accrued mark-up 332,020 2,461,881 2,793,901 9,885 1,292 11,177
Long term loans and
related payable 197,395 528,925 726,320 -- -- --
Short term
running finance 582,270 -- 582,270 -- -- --
Creditors, accrued and
other liabilities -- -- -- 1,498,102 -- 1,498,102
Dividends -- -- -- 486,628 -- 486,628
------------
------------------ ------------------ ------------------ ------ ------------------ ------------------
1,111,685 2,990,806 4,102,491 1,994,615 1,292 1,995,907
=======
========== ========== ========== === ========== ==========
a) Financial assets and liabilities exposed to foreign exchange rate risk included in
above amount to Rs. 893,930 and Rs. 34,268 respectively.
b) Financial liabilities exposed to fixed interest rate risk and floating interest rate risk
included in above amount to Rs. 346,944 and Rs. 3,755,547 respectively.
34.2 Risk management

Overall, risks arising from the Company's financial assets and liabilities are limited.
a) Interest rate risk management

The floating rate liabilities comprise short term finance and certain long term finance.
The interest rate on these is fixed in advance for a stipulated period by reference to SBP
treasury bill rates or LIBOR. Floating rate liabilities denominated in Pakistani rupees are
also capped.
b) Foreign exchange rate risk management

Loans payable by the Company in foreign currency are covered against devaluation of
Pakistani rupees to the extent indicated in note 5.
c) Credit risk management
The Company is exposed to a concentration of credit risk on its trade debts amounting
to Rs. 424,045 by virtue of all its customers being agri-based businesses in Pakistan.
To minimise such credit risk, the Company applies limits to its customers besides
obtaining bank guarantees.
In addition to the above, the Company may become exposed to credit risk upon
crystallization of its obligation to support its joint venture companies to the extent
mentioned in note 13.4.
Concentration of credit risk on cash based financial assets is minimised by dealing with
a variety of major banks.
34.3 Fair value of financial assets and liabilities

The carrying value of all financial assets and liabilities reflected in the financial statements
approximate their fair values.
2001 2000
(Rupees)
35. TRANSACTIONS WITH ASSOCIATED UNDERTAKINGS

Service charges recoverable 2,067 1,830
Purchases and services 85,582 23,547
36. DONATIONS
Donations include the following in which a director or his spouse is interested:
Interest in Name and address of Donee 2001 2000

Donee (Rupees)
Mr. Nisar A. Memon President

Mr. Asad Umar Member The Reformers, Karachi 200 200
Mr. Parvez Ghias Member
Spouse of Mr. Pervaiz Kausar Member Committee of The Citizen's
Foundation, Karachi -- 50
Spouse of Mr. Parvez Ghias Member Committee of Citizen's School

Development Foundation, Karachi 25 25
Spouse of Mr. Pervaiz Kausar President Behbood Association, Karachi 200 200
Mr. Zaffar Ahmad Khan Member Resource Development

Committee, Aga Khan University
Hospital, Karachi -- 1,000
Spouse of Mr. Asif Qadir Member Sahara Welfare Society, Daharki 150 150
Mr. Zaffar Ahmad Khan Non - Pakistan Centre for Philanthropy 500 --
Executive
Director
37. PRODUCTION CAPACITY
Designed Actual Production

Annual 2001 2000 Remarks
Capacity
Metric Tons
Urea 850,000 790,119 807,646 Note 37.1

NPK 100,000 31,169 -- Commissioned during the
year/capacity for future growth
37.1 The shortfall in production was mainly due to the operation of the synthesis gas compressor
derated rotor until April 2001 and vibration problems in one of the compressor stages.
38. NUMBER OF EMPLOYEES

Total number of permanent employees as at December 31, 2001 was 761 (2000: 730).
39. DATE OF AUTHORISATION FOR ISSUE
These financial statements were authorised for issue on January 30, 2002 by the Board of
Directors of the Company.
40. CORRESPONDING FIGURES

Previous year's figures have been rearranged and reclassified wherever necessary for the
purposes of comparison.
Zaffar A.
Nisar A. Memon Khan
Chief
Executiv
Chairman e
CORPORATE GOVERNANCE
The Board of Directors of Engro Chemical Pakistan Ltd., is committed to upholding the highest
standards of corporate governance. The Board of Directors held seven meetings during 2001.
The Board has construed the following Committees for greater focus on certain important aspects of
corporate governance explained below:
Board Audit Committee (BAC)

The Board Audit Committee is responsible for reviewing reports of the Company's financial results,
audits, and adherence to standards of the system of management controls. The committee
recommends to the Board of Directors the selection of the Companys auditor and reviews the
procedures for ensuring their independence with respect to the services performed for the Company.
The BAC is composed of outside directors who are not officers or employees of Engro. These
directors are independent of management and free of any relationship that would interfere with their
exercise of independent judgment as members of this committee. The committee held four meetings
in 2001.
Members
Nisar A. Memon (Chairman)
S. Naseem Ahmed
Shabbir Hashmi
Tariq Iqbal Khan
Azhar I. Farooq (Secretary)
Board Compensation Committee (BCC)

The Board Compensation Committee has responsibility for reviewing the performance and
approving all the elements of compensation for the President, executive directors and certain other
senior management positions. The BAC also approves the employee development and succession
plans for the CEO and all senior executives.
All members of this committee except the CEO of the Company are outside directors. The CEO
excludes himself from deliberations of the Committee on matters that pertain to him. The committee
held three meetings in 2001.
Members
S. Naseem Ahmed (Chairman)
Farid Dossani
Zaffar A. Khan
Nisar A. Memon
Salim Azhar (Secretary)
The following Committees act at the operating level in an advisory capacity to the CEO,
providing recommendations relating to businesses and employee matters:
COMMITTEE FUNCTION MEMBERS
Management Review and endorse long term Zaffar A. Khan (Chairman)

Committee strategic plans, capital and Javed Akbar
expense budgets development Salim Azhar
and stewardship of business Parvez Ghias
plans and review the Pervaiz Kausar
effectiveness of the risk Khalid Mansoor
management processes and Asif Qadir
internal control. Asif Saeed
Khalid S. Subhani
Asad Umar
S. Imran-ul-Haq (Secretary)
COED Responsible for Compensation, Zaffar A. Khan (Chairman)

Committee Organization and Employee Javed Akbar
Development of all employees Parvez Ghias
excluding employee directors Pervaiz Kausar
and senior executives Asif Qadir
Khalid S. Subhani
Asad Umar
Salim Azhar (Secretary)
TEN YEARS AT A GLANCE
2001 2000 1999 1998 1997 1996

(Million Rupees)
Net Sales Revenue 8,220 8,394 8,628 8,366 6,659 7,168

Operating Profit 1,736 1,914 1,980 2,230 1,721 1,923
Profit before Tax 1,191 1,350 1,342 1,807 1,337 1,645
Profit after Tax 1,064 1,126 1,048 1,488 1,202 1,386
Employee Costs 594 544 467 437 361 320
Taxes, Duties &
Development Surcharge 2,266 1,762 1,489 1,607 1,417 1,110
Workers' Funds 69 71 71 95 81 100
Property, Plant and
Equipment 6,585 6,368 6,690 6,650 3,808 3,579
Capital Expenditure 435 578 337 1,465 1,921 494
Long Term Investments -- -- 171 531 188 455
Long Term Liabilities 2,992 3,070 2,908 3,469 3,069 1,618
Net Current Assets 751 659 256 468 756 650
Dividends and Shares

Shareholders Fund 5,240 5,219 4,939 4,616 3,952 3,407
Shares Outstanding at
Year End in million 139.0 120.9 120.9 100.7 87.6 70.1
Dividend per Share, Rs 7.5 7.0 6.0 8.0 7.5 8.0

Dividend Payout Rate 98.0% 75.1% 69.2% 54.2% 54.7% 40.5%
Bonus Shares -- 15% -- 20% 15% 25%
Right Shares -- -- -- -- -- --
Premium (Rs/Share) -- -- -- -- -- --
(Thousand Metric Tons)

Engro Urea Production 790 808 807 707 666 738
Engro Urea Sales 779 800 806 712 652 740
Engro NPK Production 31 -- -- -- -- --
Engro NPK Sales 24 -- -- -- -- --
Purchased Fertiliser Sales 181 223 264 318 202 306

Engro Chemical Pakistan Limited

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Engro Chemical Pakistan Limited

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Engro Chemical Pakistan Limited

Annual Report 2001

3. To appoint Auditors and fix their remuneration.

By Order of the Board

Sales Revenue Rs. Million 8,220 8,394

THE DIRECTORS' REPORT

The Board of Directors of Engro Chemical

The price of urea in the domestic market was

Engro Urea Business

The Company continued to provide technical

The production of Engro urea at 790,000 tons

In addition, a new innovative project was

The Company arranged DAP imports to promote

The plant encountered teething problems

Total profit available for appropriation 1,068.1

First interim dividend on 139,036 million shares of Rs. 10 each

Second interim dividend on 139,036 million shares of

Proposed final dividend on 139,036 million shares of

During the year, the Company issued the first

Pakistan Credit Rating Agency (PACRA) in its

The Company continued with its policy of keeping

SAFETY & ENVIRONMENT

As part of our continuing efforts to ensure high

The Company is firming plans with a renewed

EMPLOYEE RELATIONS AND

The Company, as part of its focus to ensure

The Company continued to suffer attrition of

The overall industrial climate and employee

The Company continued to make sizable

* Launching a major school project in Daharki

* The employees of the Company largely

* A free eye camp was held at Kot Diji in the

* At the Eye Care Centre built by the Company

* Free snake bite treatment was provided to

* 260 dialysis were performed on kidney

* The blood bank donated 200 pints of blood

* A donation was made towards the setting up

The Company also provided Financial assistance

Engro Vopak Terminal Ltd. (EVTL)

EVTL's revenue generated by handling bulk

Since December 2001, the LPG storage facility of

Engro Asahi Polymer & Chemicals Ltd. (EAPCL)

EAPCL incurred a loss of Rs.181 million

As part of increasing efficiency, the Company

Market development efforts to increase domestic

BUSINESS GROWTH PLANS

Engro's new "Vision 2010" seeks to align the

OUTLOOK AND CHALLENGES

Mr. Nisar A. Memon

Mr. Zaffar A. Khan

Mr. Javed Akbar

Mr. Farid Dossani

Mr. Parvez Ghias

Mr. Shabbir Hashmi

Mr. Pervaiz Kausar

Mr. Tariq Iqbal Khan

Mr. Asif Qadir

Mr. Asad Umar

PATTERN OF HOLDING OF SHARES

No. of Shareholding Total

1,116 1 100 49,433

PATTERN OF HOLDING OF SHARES

On behalf of the Board of Directors