| Engro Corporation Limited - 2009 |
|
Balance Sheet As at December 31, 2009
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(Amounts in thousand)
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Note 2009 2008
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(Restated)
Note 19.2
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ASSETS
Non-Current Assets
Property, plant and equipment 4 69,517,512 33,552,912
Intangible assets 5 122,704 122,858
Long term investments 6 12,988,657 11,091,857
Deferred employee compensation expense 7 2,787 96,078
Derivative financial instruments 8 - 39,993
Long term loans and advances 9 328,907 218,820
82,960,567 45,122,518
Current Assets
Stores, spares and loose tools 10 961,117 800,091
Stock-in-trade 11 422,607 4,680,896
Trade debts 12 2,514,425 261,508
Deferred employee compensation expense 7 87,278 93,213
Loans, advances, deposits and prepayments 13 1,469,155 1,899,124
Other receivables 14 275,714 452,168
Derivative financial instruments 8 76,209 1,481,626
Taxes recoverable 536,167 618,746
Short term investments 15 450,857 67,811
Cash and bank balances 16 3,955,342 1,687,038
10748,871 12,042,221
TOTAL ASSETS 93,709,438 57,164,739
EQUITY & LIABILITIES
Equity
Share capital 17 2,979,426 2,128,161
Share premium 18 10,550,061 7,152,722
Employee share option compensation reserve 7 288,258 305,052
Hedging reserve 19 (609,719) 127,307
General reserve 4,429,240 4,429,240
Unappropriated profit 9,250,972 6,911,124
23,908,812 18,925,445
Total Equity 26,888,238 21,053,606
Liabilities
Non-Current Liabilities
Borrowings 20 58,565,354 27,756,714
Derivative financial instruments 8 612,842 918,050
Deferred liabilities 21 988,169 1,319,432
Employee housing subsidy 22 211,785 73,319
Retirement and other service benefits obligation 23 47,581 44,265
60,425,731 30,111,780
Current Liabilities
Trade and other payables 24 3,160,852 2,915,274
Accrued interest / mark-up 25 1,366,022 804,390
Current portion of:
borrowings 20 810,100 76,600
other service benefits obligations 23 20,600 18,334
Short term borrowings 26 195,753 1,711,275
Derivative financial instruments 8 740,043 155,160
Unclaimed dividends 102,099 318,320
6,395,469 5,999,353
Total Liabilities 66,821,200 36,111,133
Contingencies and Commitments 27
TOTAL EQUITY & LIABILITIES 93,709,438 57,164,739
======================================================================================Profit and Loss Account For the year ended December 31, 2009(Amounts in thousand except for earnings per share) ======================================================================================
Note 2009 2008
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(Rupees)
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Net sales 28 30,171,520 23,317,198
Cost of sales 29 (23,240,176) (17,120,635)
Gross profit 6,931,344 6,196,563
Selling and distribution expenses 30 (1,945,176) (1,657,815)
4,986,168 4,538,748
Other operating income 31 1,973,467 2,754,330
Other operating expenses 32 (424,110) (579,556)
Finance cost 33 (1,320,579) (1,508,948)
(1,744,689) (2,088,504)
Profit before taxation 5,214,946 5,204,574
Taxation 34 (1,257,696) (964,144)
Profit for the year 3,957,250 4,240,430
Earnings per share - basic and diluted 35 Rs.14.08 Rs.16.81
======================================================================================Statement of Comprehensive Income For the year ended December 31, 2009======================================================================================
(Amounts in thousand)
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Note 2009 2008
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(Restated)
note 19.2
(Rupees)
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Profit for the year 3,957,250 4,240,430
Other comprehensive income
Hedging reserve - cash flow hedges 19
Gains/(losses) arising during the year (226,520) 1,819,395
Adjustment for amounts transferred to initial
carrying amount of hedged items (capital work in progress) (907,366) (3,219,517)
(1,133,886) (1,400,122)
Income tax relating to hedging reserve 396,860 490,043
Other comprehensive income for the year, net of tax (737,026) (910,079)
Total comprehensive income for the year 3,220,224 3,330,351
======================================================================================Statement of Changes in Equity For the year ended December 31, 2009(Amounts in thousand) =========================================================================================================================================================
Share Share Employee Hedging General Un Total
capital premium share option reserve reserve profit -appropriated
compensation
reserve
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Balance as at January 1, 2008 1,934,692 3,963,977 272,990 1,037,386 4,429,240 4,102,366 15,740,651
Total comprehensive income for the
year ended December 31, 2008, as restated
Profit for the year - - - - - 4,240,430 4,240,430
Other comprehensive income
cash flow hedges net of tax - - (910,079) - - (910,079)
- - - (910,079) - 4.240,430 3,330,351
Transactions with owners
Shares issued during the year in the ratio of 1
for every 10 shares Rs 175 per share
(including share premium net of share issue cost) 193,469 3,188,745 - - - - 3,382,214
Effect of changes in number of share options
issued (note 7.2) - - 32,062 - - - 32,062
Final dividend for the year ended December 31,
2007 @ Rs. 3 per share - - - - - (580,408) (580,408)
interim dividends
1st @ Rs. 2 per share - - - - - (425,632) (425,632)
2nd @ Rs. 2 per share - - - - - (425,632) (425,632)
193,469 3,188,745 32,062 - - (1,431,672) 1,982,604
Balance as at December 31, 2008, as restated 2,128,161 7,152,722 305,052 127,307 4,429,240 6,911,124 21,053,606
Balance as at January 1, 2009, as
previously reported 2,128,161 7,152,722 305,052 2.157,769 4.429.240 6.911,124 23,084,068
Effect of change in fair values of cash flow
hedges (note 19) - - - (2,030,462) - - (2,030,462)
Balance as at January 1, 2009, as restated 2,128,161 7,152,722 305,052 127,307 4,429,240 6,911,124 21,053,606
Total comprehensive income for the
year ended December 31, 2009
Profit for the year - - - - - 3,957,250 3,957,250
Other comprehensive income
cash flow hedges, net of tax - - - (737,026) - - (737,026)
- - - (737,026) - 3.957,250 3,220,224
Transactions with owners
Shares issued during the year in the ratio of 4
for every 10 shares @ Rs. 50 per share
(including share premium net of share issue cost) 851,265 3,397,339 - - - - 4,248,604
Effect of changes in number of share options
issued (note 7.2) - - (16,794) - - - (16,794)
Final dividend for the year ended December 31,
2008 Rs. 2 per share - - - - - (425,632) (425,632)
interim dividends
1st @ Ps. 2 per share - - - - - (595,885) (595,885)
2nd @ Rs. 2 per share - - - - - (595,885) (595,885)
851,265 3,397,339 (16,794) - - (1,617,402) 2,614,408
Balance as at December 31, 2009 2.979,426 10,550,061 288,258 (609,719) 4,429,240 9,250,972 26,888,238
=========================================================================================================================================================Statement of Cash Flows For the year ended December 31, 2009(Amounts in thousand) ======================================================================================
Note 2009 2008
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(Rupees)
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Cash flows from operating activities
Cash generated from operations 38 8,775,252 2,412,558
Retirement and other service benefits paid (140,636) (72,940)
Financial charges paid (758,947) (1,090,518)
Taxes paid (1,226,858) (574,977)
Payment to Engro Foods Limited for acquisition
of tax losses 34.2 (450,000) (622,103)
Long term loans and advances - net (110,087) (169,399)
Net cash generated from/(used in) operating activities 6,088,724 (117,379)
Cash flows from investing activities
Purchases of property, plant and equipment (PPE) (36,352,361) (20,214,342)
Sale proceeds on disposal of PPE 58,366 87,727
Deferred income received 96,305 -
Long term investments (1,896,800) (3,327,375)
Income on deposits/other financial assets 14,370 52,807
Dividends received 1,862,500 2,604,075
Net cash used in investing activities (36,217,620) (20,797,108)
Cash flows from financing activities
Proceeds from issue of shares - net 4,248,604 3,382,214
Proceeds from borrowings 31,957,387 12,412,394
Repayments of borrowings (76,600) (1,301,600)
Dividends paid (1,833,623) (1,306,419)
Net cash generated from financing activities 34,295,768 13,186,589
Net increase/(decrease) in cash and cash equivalents 4,166,872 (7,727,898)
Cash and cash equivalents at beginning of the year 43,574 7,771,472
Cash and cash equivalents at end of the year 39 4,210,446 43,574
======================================================================================Notes to the Financial Statements For the year ended December 31, 2009(Amounts in thousand) 1. LEGAL STATUS AND OPERATIONS Engro Chemical Pakistan Limited (the Company) is a public listed company incorporated in Pakistan under the Companies Ordinance, 1984 and its shares are quoted on Karachi, Lahore and Islamabad stock exchanges of Pakistan. The principal activity of the Company is manufacturing, purchasing and marketing of fertilizers. The Company has also invested in joint ventures and other entities engaged in chemical terminal and storage, PVC resin manufacturing and marketing, control and automation, food and energy businesses. The Company's registered office is situated at 7th & 8th Floors, The Harbor Front Building, HC # 3, Block 4, Marine Drive, Clifton, Karachi. 1.1. The Board of Directors in their meeting of April 28, 2009 decided to divide the Company into two companies by separating its fertilizer undertaking from the rest of the undertaking that is to be retained in the Company. In this regard, a wholly owned subsidiary namely Engro Fertilizers Limited was incorporated on June 29, 2009. The division was to be effected through a Scheme of Arrangement under Section 284 to 288 of the Companies Ordinance, 1984 whereby (a) the fertilizer undertaking would be transferred and vested in Engro Fertilizers Limited against the issuance of ordinary shares of Engro Fertilizers Limited to the Company; (b) the retention of the retained undertaking in the Company and the change of the name of the Company to Engro Corporation Limited. Engro Corporation Limited would then become a Holding Company and oversee the business of new fertilizer subsidiary as well as business of its other existing subsidiariesssociates. The de-merger required the approval of the High Court of Sindh. After obtaining the requisite approvals from the creditors and the shareholders of the Company, the High Court approved the Scheme of Arrangement (Scheme) on December 9, 2009. The Scheme came into effect on January 1, 2010 (Effective Date). In accordance with the Scheme, the fertilizer business, including all assets, liabilities, agreements, arrangements and other matters were automatically be transferred to Engro Fertilizers Limited on the Effective Date against the issuance of 9,999,993, in addition to existing 7, fully paid ordinary shares of Rs. 10 each plus the share premium. Such share premium is to be based on the net assets so transferred over Rs. 100,000 being the paid up face value of Engro Fertilizers Limited. The retained undertaking comprises of specific assets and liabilities as of the aforementioned effective dates identified in the Scheme, which among other items include Investments/Shareholdings, Joint Venture Agreements, all reserves including goodwill, employee share option compensation reserve, share premium, capital & revenue reserves but excluding hedging reserve. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1. Basis of preparation 2.1.1. These financial statements have been prepared under the historical cost convention, except for remeasurement of certain financial assets and financial liabilities at fair value through profit or loss and derivative hedging instruments at fair value. 2.1.2. These financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 (the Ordinance), directives issued by the Securities and Exchange Commission of Pakistan (SECP) and approved financial reporting standards as applicable in Pakistan. Approved financial reporting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the provisions of the Ordinance. Wherever, the requirements of the Ordinance or directives issued by the SECP differ with the requirements of these standards, the requirements of the Ordinance and of the said directives have been followed. 2.1.3. The preparation of financial statements in conformity with the above requirements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity. or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. 2.1.4. Initial application of standards, amendments or an interpretation to existing standards a).Standards, amendments to published standards and interpretations that are effective in 2009 and are relevant to the Company �.IAS 1 (revised), 'Presentation of financial statements' (effective from January 1, 2009). The revised standard prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). Where entities restate or reclassify comparative information, they are required to present a restated balance sheet as at the beginning of comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The Company has preferred to present two statements; a profit and loss account (income statement) and a statement of other comprehensive income. Comparative information has also been represented so that it is in conformity with the revised standard. As this change only impacts presentation aspects, there is no impact on profit for the year. Further, the Company has restated comparative information to incorporate the effect of change in fair values of cash flow hedges, as more fully explained in note 19. However, as the aforementioned change does not effect the balance sheet as at the beginning of the comparative period (balance sheet as at January 1, 2008 / December 31, 2007), it has not been presented in these financial statements. �.IAS 23 (amendment), 'Borrowing costs' (effective from January 1, 2009). The amendment requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The option of immediately expensing those borrowing costs is removed. The Company's current accounting policy is in compliance with this amendment, and therefore there is no effect on the Company's financial statements. �.IFRS 2 (amendment), 'Share-based payment' (effective from January 1, 2009). The amended standard deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. As such these features would need to be included in the grant date fair value for transactions with employees and others providing similar services, that is, these features would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. �.The SECP vide S.R.O. 411 (1) / 2008 dated April 28, 2008 notified the adoption of IFRS 7 'Financial Instruments: Disclosures'. IFRS 7 is mandatory for Company's accounting periods beginning on or after the date of notification i.e. April 28, 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. As IFRS 7 deals only with disclosures, there is no impact on profit for the year. �.IFRS 7 Financial instruments - Disclosures' (amendment) - effective January 1, 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of the fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on profit for the year. �.IFRS 8 'Operating Segments' (effective from January 1, 2009). IFRS 8 replaces IAS 14, 'Segment reporting'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes, and introduces detailed disclosures regarding the reportable segments and products. There is no impact of the new standard on the Company's financial statements. b).Standards, amendments to published standards and interpretations that are effective in 2009 but not relevant to the Company The other new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 1, 2009 are considered not to be relevant or to have any significant effect on the Company's financial reporting and operations. c).Standards, amendments to published standards and interpretations to existing standards that are not yet effective and have not been early adopted by the Company �.IAS 1 (amendment), 'Presentation of financial statements'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Company will apply IAS 1 (amendment) from January 1, 2010. It is not expected to have a material impact on the Company's financial statements. �.IAS 27 (revised), 'Consolidated and separate financial statements. (effective from July 1, 2009). The revised standard requires the effects of all transactions with non controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognised in profit or loss. The Company will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from January 1. 2010. �.IAS 38 (amendment), 'Intangible assets'. The amendment is part of the IASB's annual improvements project published in April 2009 and the Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in any impact on the Company's financial statements. �.IAS 39 (amendment); 'Cash flow hedge accounting'. This amendment provides clarification when to recognise gains or losses on hedging instruments as a reclassification adjustments in a cash flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment clarifies that gains or losses should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects profit or loss. The Company will apply IAS 39 (amendment) from January 1, 2010. It is not expected to have any significant affect on the Company's financial statements. �.IFRS 2 (amendments). 'Group cash-settled and share-based payment transactions in addition to incorporating IFRIC 8, 'Scope of IFRS 2', and IFRIC 11, IFRS 2 - Group and treasury share transactions', the amendments expand on the guidance in IFRIC 11 to address the classification of the Company's arrangements that were not covered by that interpretation. The new guidance is not expected to have a material impact on the Company's financial statements. �.IFRS 3 (revised), 'Business combinations' (effective from July 1, 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquire at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Company will apply IFRS 3 (revised) prospectively to all business combinations from January 1, 2010. �.IFRS 5 (amendment), 'Measurement of non-current assets (or disposal groups) classified as held-for-sale'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of AS 1. The Company will apply IFRS 5 (amendment) from January 1, 2010. It is not expected to have a material impact on the Company's financial statements. �.IFRIC 17, 'Distribution of non-cash assets to owners' (effective on or after July 1, 2009). The interpretation is part of the IASB's annual improvements project published in April 2009. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The Company will apply IFRIC 17 from January 1, 2010. It is not expected to have a material impact on the Company's financial statements. �.IFRIC 18, 'Transfers of assets from customers' (effective for periods beginning on or after July 1, 2009). The interpretation provides guidance on how to account for items of property, plant and equipment received from customers or cash that is received and used to acquire or construct specific assets. This interpretation is only applicable to such assets that are used to connect the customer to a network or to provide ongoing access to a supply of goods or services or both. This interpretation is not expected to have a material impact on the Company's financial statements. There are a number of minor amendments in other IFRS and IAS which are part of annual improvement project published in April 2009 (not addressed above). These amendments are unlikely to have any impact on the Company's financial statements and therefore have not been analysed in detail. 2.2. Property, plant and equipment 2.2.1. Owned assets. These are stated at historical cost less accumulated depreciation and impairment losses, if any, except freehold land and capital work in progress which are stated at cost. Historical cost includes expenditure that is directly attributable to the acquisition of the items including borrowing costs (note 2.24). The cost of self constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where major components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit and loss account during the financial period in which they are incurred. Disposal of asset is recognised when significant risk and rewards incidental to ownership have been transferred to buyers. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'Other operating expenses/income' in the profit and loss account. Depreciation is charged to the profit and loss account using the straight line method whereby the cost of an operating asset less its estimated residual value is written off over its estimated useful life at rates given in note 4.1. Depreciation on addition is charged from the month following the month in which the asset is available for use and on disposals upto the preceding month of disposal. Depreciation method, useful lives and residual values are reviewed annually. 2.2.2. Leased assets Leases in terms of which the Company assumes substantially all the risks and rewards of ownership, are classified as finance lease. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and present value of minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Outstanding obligations under the lease less finance cost allocated to future periods are shown as a liability. Finance cost under lease agreements are allocated to the periods during the lease term so as to produce a constant periodic rate of finance cost on the remaining balance of principal liability for each period. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. 2.3. Intangible assets a).Computer software and licenses Costs associated with maintaining computer software programmes are recognised as an expense when incurred. However, costs that are directly attributable to identifiable software and have probable economic benefits exceeding the cost beyond one year. are recognised as an intangible asset. Direct costs include the purchase cost of software (license fee) and related overhead cost. Expenditure which enhances or extends the performance of computer software beyond its original specification and useful life is recognised as a capital improvement and added to the original cost of the software. Computer software and license cost treated as intangible assets are amortised from the date the software is put to use on a straight-line basis over a period of 3 to 5 years. b).Rights for future gas utilisation Rights for future gas utilisation represents premium paid to the Government or Pakistan for allocation or 100 MMCFD natural gas for a period of twenty years from Qadirpur gas field at a predetermined price for a period of ten years commencing from the date of commercial production. The rights will be amortised from the date of commercial production on a straight-line basis over the remaining allocation period. 2.4. Impairment of non-financial assets Assets that are subject to depreciationmortisation are reviewed at each balance sheet date to identify circumstances indicating occurrence of impairment loss or reversal of previous impairment losses. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sale and value in use. Reversal of impairment loss is restricted to the original cost of the asset. 2.5. Non-current assets (or disposal groups) held-for-sale Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit and loss account. 2.6. Investments Investment in subsidiary and joint venture companies are initially recognised at cost. At subsequent reporting dates, the recoverable amounts are estimated to determine the extent of impairment losses, if any. and carrying amounts of investments are adjusted accordingly. Impairment losses are recognised as an expense. Where impairment losses subsequently reverse, the carrying amounts of the investments are increased to the revised recoverable amounts but limited to the extent of initial cost of investments. A reversal of impairment loss is recognised in the profit and loss account. 2.7. Financial assets 2.7.1. Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss, held to maturity, loans and receivables and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. a).Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. b).Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company's loans and receivables comprise 'loans and deposits', 'trade debts and other receivables' and 'cash and cash equivalents' in the balance sheet. c).Held to maturity financial assets Held to maturity financial assets are non derivative financial assets with fixed or determinable payments and fixed maturity with a positive intention and ability to hold to maturity. There were no held to maturity financial assets at the balance sheet date. d).Available-for-sale financial assets. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose off it within 12 months of the end of the reporting date, 2.7.2. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date - the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the profit and loss account. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the profit and loss account within 'other operating income/expenses' in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the profit and loss account as part of other income when the Company's right to receive payments is established. Changes in fair value of monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive income, When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the profit and loss account as 'gains and losses from investment securities'. Interest on available-for-sale securities calculated using the effective interest method is recognised in the profit and loss account as part of other income. Dividends on available for sale equity instruments are recognised in the profit and loss account as part of other income when the Company's right to receive payments is established. The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and loss account on equity instruments are not reversed through the profit and loss account. Impairment testing of trade debts and other receivables is described in note 2.12. 2.8. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle either on a net basis, or realise the asset and settle the liability simultaneously. 2.9. Derivative financial instruments and hedging activities Derivatives are recognised initially at fair value; attributable transaction cost are recognised in profit and loss account when incurred. Subsequent to initial recognition, derivatives are measured at fair values, and changes therein are accounted for as described below: a).Cash flow hedges Changes in fair value of derivative hedging instruments designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent the hedge is ineffective, changes in fair value are recognised in profit and loss account. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, the hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non financial asset, the amount recognised in equity is transferred to carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to profit and loss account in the same period that the hedge item affects profit and loss account. b).Other non-trading derivatives. When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss. The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposure. Further, the Company also has issued a conversion option with the IFC loan availed during the year. The fair values of various derivative instruments used for hedging and the conversion options are disclosed in note 8. 2.10. Stores, spares and loose tools These are valued at weighted average cost except for items in transit which are stated at invoice value plus other charges paid thereon till the balance sheet date. For items which are slow moving and / or identified as surplus to the Company's requirements, adequate provision is made for any excess book value over estimated realisable value. The Company reviews the carrying amount of stores and spares on a regular basis and provision is made for obsolescence. 2.11. Stock-in-trade These are valued at the lower of cost and net realizable value. Cost is determined using weighted average method except for raw materials in transit which are stated at cost (invoice value) plus other charges incurred thereon till the balance sheet date. Cost in relation to finished goods includes applicable purchase cost and manufacturing expenses. The cost of work in process includes material and proportionate conversion costs. Net realisable value signifies the estimated selling price in the ordinary course of business less all estimated costs of completion and costs necessarily to be incurred in order to make the sales. 2.12. Trade debts and other receivables These are recognised initially at fair value plus directly attributable transaction costs, if any and subsequently measured at amortised cost using effective interest rate method less provision for impairment, if any. A provision for impairment is established if there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of provision is charged to profit and loss account. Trade debts and other receivables considered irrecoverable are written-off. 2.13. Cash and cash equivalents Cash and cash equivalents in the statement of cash flows includes cash in hand, balance with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts / short term borrowings. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet. 2.14. Share capital Ordinary shares are classified as equity and recognised at their face value. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 2.15. Employees' share option scheme The grant date fair value of equity settled share based payments to employees is initially recognised in the balance sheet as deferred employee compensation expense with a consequent credit to equity as employee share option compensation reserve. The fair value determined at the grant date of the equity settled share based payments is recognised as an employee compensation expense on a straight line basis over the vesting period. When an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of an employee compensation expense in profit or loss, employee compensation expense in profit or loss will be reversed equal to the amortised portion with a corresponding effect to employee share option compensation reserve in the balance sheet. When a vested option lapses on expiry of the exercise period, employee compensation expense already recognised in the profit or loss is reversed with a corresponding reduction to employee share option compensation reserve in the balance sheet. When the options are exercised, employee share option compensation reserve relating to these options is transferred to share capital and share premium account. An amount equivalent to the face value of related shares is transferred to share capital. Any amount over and above the share capital is transferred to share premium account. 2.16. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings Using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 2.17. Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. 2.18. Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively. 2.18.1. Current The current income tax charge is based on the taxable income for the year calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 2.18.2. Deferred Deferred tax is recognised using the balance sheet method, providing for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 2.19. Employees' housing subsidy scheme Employee compensation expense under Housing Subsidy Scheme is recognised as an expense on a straight line basis over the vesting period with a corresponding credit to employee housing subsidy shown as long term liability in the balance sheet. When an employee leaves the company before the vesting period and after recognition of an employee compensation expense in profit or loss, employee compensation expense in profit or loss will be reversed equal to the amortised portion with a corresponding effect to employee housing subsidy in the balance sheet. On expiry of the vesting period, amounts disbursed under the scheme will be set-off against the employee housing subsidy. 2.20. Employee benefits 2.20.1. Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contribution into a separate entity and will have no legal or constructive obligation to pay further amounts, Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. The Company operates: defined contribution provident fund for its permanent employees. Monthly contributions are made both by the Company and employees to the fund at the rate of 10% of basic salary. defined contribution pension fund for the benefit of management employees. Monthly contributions are made by the Company to the fund at rates ranging from 12.5% to 13.75% of basic salary. 2.20.2. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than the defined contribution plan. The Company's net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in current and prior periods; that benefit is discounted to determine its present value. The calculation is performed annually by a qualified actuary using the projected unit credit method, related details of which are given in note 37 to the financial statements. Actuarial gains/losses in excess of corridor limit (10% of the higher of fair value of assets and present value of obligation) are recognised over the average remaining service life of the employees. Contributions require assumptions to be made of future outcomes which mainly includes increase in remuneration. expected long-term return on plan assets and the discount rate used to convert future cash flows to current values, Calculations are sensitive to changes in the underlying assumptions. The Company also operates: defined benefit funded pension scheme for its management employees. defined benefit funded gratuity schemes for its management and non-management employees. The pension scheme provides life time pension to retired employees or to their spouses. Contributions are made annually to these funds on the basis of actuarial recommendations. The pension scheme has been curtailed and effective from July 1, 2005, no new members are inducted in this scheme (note 37.1.10). Actuarial gains on curtailment of defined benefit pension scheme (curtailed) is recognised immediately once the certainty of recovery is established. The Company also operates unfunded scheme for resignation gratuity of certain management employees. Provision is made annually to cover the liability under the scheme. Annual provision is also made under a service incentive plan for certain category of experienced employees to continue in the Company's employment. 2.20.3. Employees' compensated absences The Company accounts for compensated absences on the basis of unavailed leave balance of each employee at the end of the year. 2.21. Provisions Provisions are recognised when me Company has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect current best estimate. 2.22. Foreign currency transactions and translation These financial statements are presented in Pakistan Rupees, which is Company's functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. 2.23. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and is reduced for marketing allowances. Revenue is recognised on the following basis: Sales revenue is recognised when product is dispatched to customers. Income on deposits and other financial assets is recognised on accrual basis. Dividend income from investments is recognised when the Company's right to receive payment has been established. 2.24. Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred except where such costs are directly attributable to the acquisition, construction or production of a qualifying asset in which case such costs are capitalised as part of the cost of that asset. Borrowing costs includes exchange differences arising on foreign currency borrowings to the extent these are regarded as an adjustment to borrowing costs. 2.25. Research and development costs Research and development costs are charged to income as and when incurred. 2.26. Government grant Government grant that compensates the Company for expenses incurred is recognised in the profit and loss account on a systematic basis in the same period in which the expenses are recognised. Government grants are deducted from related expense. 2.27. Earnings per share The company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders' of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary share holders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. 2.28. Transactions with related parties Sales, purchases and other transactions with related parties are carried out on commercial terms and conditions. 2.29. Dividend and appropriation to reserves Dividend and appropriation to reserves are recognised in the financial statements in the period in which these are approved. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 3.1. Property, plant and equipment The Company reviews appropriateness of the rate of depreciation, useful life, residual value used in the calculation of depreciation. Further where applicable, an estimate of recoverable amount of assets is made for possible impairment on an annual basis. 3.2. Impairment of investments in subsidiaries, associates and joint venture In making an estimate of future cash flows from the Company's financial assets including investment in subsidiaries, joint ventures and associates, the management considers future dividend stream and an estimate of the terminal value of these investments. 3.3. Investments stated at fair value through profit and loss Management has determined fair value of certain investments by using quotations from active market and conditions and information about the financial instruments. These estimates are subjective in nature and involve some uncertainties and matters of judgment. 3.4. Derivatives The Company reviews the changes in fair values of the derivative hedging financial instruments at each reporting date based on the valuations received from the contracting banks. These valuations represent estimated fluctuations in the relevant currencies/interest rates over the reporting period and other relevant variables signifying currency and interest rate risks. The Company has calculated the fair value of conversion option on IFC loan using the option pricing model. 3.5. Stock-in-trade and stores & spares The Company reviews the net realisable value of stock-in-trade and stores & spares to assess any diminution in the respective carrying values. Net realisable value is determined with reference to estimated selling price less estimated expenditures to make the sales, 3.6. Income Taxes In making the estimates for income taxes payable by the Company, the management looks at the applicable law and the decisions of appellate authorities on certain issues in the past. 3.7. Fair value of employee share options The management has determined the fair value of options issued under the Employee Share Option Scheme at the grant date using Black Scholes pricing model. The fair value of these options and the underlying assumptions are disclosed in note 7. 3.8. Provision for retirement and other service benefits obligations The present value of these obligations depend on a number of factors that are determined on actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of these obligations. The present values of these obligation and the underlying assumptions are disclosed in notes 37.1.3 and 37.1.6 respectively. 4. PROPERTY, PLANT AND EQUIPMENT ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Operating assets (note 4.1) 6,156,969 5,689,276
Capital work in progress
Expansion and other projects (note 4.5) 63,233,217 27,706,486
Capital spares (note 4.6) 127,326 157,150
63,360,543 27,863,636
69,517,512 33,552,912
======================================================================================4.1. Operating assets================================================================================================================================================================
(Amounts in thousand)
================================================================================================================================================================
Land Building Plant and Plant and Catalyst Furniture, Vehicles Total
Freehold Leasehold Freehold Leasehold Machinery machinery (note 43) fixture and
held for equipment
disposal
================================================================================================================================================================
(Rupees)
================================================================================================================================================================
As at January 1, 2008
Cost 22,101 166,876 592,101 332,726 9,825,878 151,394 326,408 372.,032 298,981 12,088,497
Accumulated depreciation - (44,105) (265,855) (49,214) (4,989,648) (126,087) (218,828) (280,631) (138,507) (6,112,875)
Net book value 22,101 122,771 326,246 283,512 4,836,230 25,307 107,580 91,401 160,474 5,975,622
Year ended December31, 2008
Opening net book value 22,101 122,771 326,246 283,512 24,836,230 25,307 107,580 91,401 160,474 5,975,622
Additions including
Transfers (note 4.5) 60,048 - 11,374 276 67,516 - - 100,021 134,384 373,619
Disposals / transfers
Cost - (14,596) - - (984) (151,394) - (449) (14,786) (182,209)
151,394 151,394
Accumulated depreciation - 4,985 - - 214 126,087 - 390 6,802 138,478
(126,087) (126,087)
- (9,611) - - 24,537 (25,307) - (59) (7,984) (18,424)
Depreciation charge(note 4.2) - (3,283) (23,668) (7,659) (465,924) - (46,601) (41,290) (53,116) (641,541)
Net book value 82,149 109,877 313,952 276,129 4,462,359 - 60,979 150,073 233,758 5,689,276
As at January 1, 2009
Cost 82,149 152,280 603,475 333,002 10,043,804 - 326,408 471,604 418,579 12,431,301
Accumulated depreciation - (42,403) (289,523) (56,873) (5,581,445) - (265,429) (321,531) (184,821) (6,742,025)
Net book value 82,149 109,877 313,952 276,129 4,462,359 - 60,979 150,073 233,758 5,689,276
Year ended December 31, 2009
Opening net book value 82,149 109,877 313,952 276,129 4,462,359 - 60,979 150,073 233,758 5,689,276
Additions including
Transfers (note 4.5) 48,519 - 443,891 5,218 388,437 - 103,307 81,422 118,117 1,188,911
Disposals / transfers
Cost - - (32) (2,121) (54,042) (77,403) (86,606) (220,204)
(5,405) 3,348 (986) 3,371 (328) -
Accumulated depreciation - - 32 2,121 44,516 - - 76,341 62,432 185,442
- - 3,982 (2,818) 39 - - 240 (1,443) -
- - (1,423) 530 (10,473) - - 2,549 (25,945) (34,762)
Depreciation charge (note 4.2) - (3,080) (39,619) (8,426) (476,333) - (36,632) (56,285) (66,081) (686,456)
Net book value 130,668 106,797 716,801 273,451 4,363,990 - 127,654 177,759 259,849 6,156,969
As at December 31, 2009
Cost 130,668 152,280 1,041,929 339,447 10,377,213 - 429,715 478,994 449,762 13,400,008
Accumulated depreciation - (45,483) (325,128) (65,996) (6,013,223) - (302,061) (301,235) (189,913) (7,243,039)
Net book value 130,668 106,797 716,801 273,451 4,363,990 - 127,654 177,759 259,849 6,156,969
Annual rate of depreciation (%) - 2 to 5 2.5 to 10 2.5 5 to 10 Nil 20 to 33.33 10 to 25 12 to 25
================================================================================================================================================================4.2. Depreciation charge for the year has been allocated as follows:======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Cost of sales (note 29) 620,792 607,452
Selling and distribution expenses (note 30) 38,383 30,734
Capital work in progress (note 4.5.2) 27,281 3,355
686,456 641,541
======================================================================================4.3. The Collector of Customs had disallowed exemption from custom duty and sales tax amounting to Rs. 48,236 in prior years in respect of the 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 favor of the Company. The Supreme Court of Pakistan dismissed the Department's appeal there against in 2005 and upheld the Sindh High Court judgment in Company's favor. During the year. the Department refunded the payments made by the Company, aggregating to Rs. 22,207 (note 14). against the aforementioned disallowances.4.4. The details of operating assets disposed/written off during the year are as follows: =========================================================================================================
(Amounts in thousand)
=========================================================================================================
Description and Sold to Cost Accumulated Net book Sale
method of disposal depreciation value Proceeds
=========================================================================================================
(Rupees)
=========================================================================================================
Building - Freehold
Assets written off 2,153 2,153 - -
Plant & machinery
Insurance claim 15,622 8,162 7,460 13,046
Assets written off 38,420 36,354 2,066 -
54,042 44,516 9,526 13,046
Vehicles
By Company policy Askari Hazoor Syed 835 576 259 261
to existing/separating Abbas Shahani 835 589 246 261
executives Abdul Aleem Khokar 896 420 476 900
Adil Aziz Khan 795 596 199 279
Ahmad Abbas Mirza 879 618 261 220
Ahmed Nadeem 900 436 464 422
Ahsan Zafar Syed 879 591 288 220
Akhtar Kamal Sami 886 595 291 261
Ali Imam Naqvi 900 366 534 900
Arshaduddin Ahmed 1,003 580 423 529
Attaullah Shah Bokhari 795 596 199 310
Fahd Khawaja 900 225 675 620
Farhan Akram 1,500 352 1,148 1,500
Farid Intisar 886 512 374 886
Iftikhar Ahmed Dar 795 596 199 310
Imran Anwer 1,003 596 407 561
Irfan Nadeem Khan 1,002 663 339 352
Irfan Nadeem Khan 1,857 206 '1,651 1,607
Jahangir Piracha 879 577 302 220
Syed Khalid Siraj Subhani 1,288 966 322 322
Mohammad Azhar Malik 835 562 273 261
Mohammad Amir Zubair 896 476 420 900
Mohammad Saifullah Tareen 1,060 166 894 861
Mahmood Siddiqi 835 617 218 261
Mumtaz Akhtar 795 596 199 345
Muneeza Azfar 900 323 577 564
Nasir Iqbal 879 567 312 326
Nauman Shaikh 900 253 647 647
Naveed A. Hashmi 879 626 253 220
Muhammad Pervaiz Hamayoun 886 429 457 288
Ruhail Mohammed 1,309 864 445 327
Syed Salman Bin Aslam 1,695 874 821 914
Tahir Jawaid 1,328 833 495 332
Tahir Rasheed 835 626 209 261
UmarAli Khan 900 309 591 414
Ummat Rasool 1,309 777 532 327
Wajid Hussain Junejo 879 604 275 220
Yousuf Mohiuddin 795 596 199 310
Sale through bid Abdul Lateef Bawany 795 795 - 588
Ahmed Jawed 886 471 415 640
Akbar Khan 1,625 1,625 - 808
Ameer Raza Khan 2,258 2,212 46 1,670
Atif Zulfiqar 348 348 - 176
Aurangzeb Shah 680 680 - 430
Azbar Khan 1,470 1,213 257 883
Danish Younus 560 504 56 311
Faisal Abdul Aziz 1,432 1,170 262 962
Farooq Raza 3,295 3,075 220 1,656
Humayun Qureshi 436 436 - 195
Kashif Farooq 3,900 3,133 767 2,579
M.Aslam 6,690 6,355 335 315
M. Kamran Chippa 1,660 1,549 111 957
Maisuddin 2,750 2,584 166 1,468
Matloob Elahi 560 504 56 295
Mohammad Asghar 555 500 55 270
Mohammad Iftikhar 769 '769 - 531
Mohammad Yasir 555 555 - 302
Muhammad Ali Siddiqui 550 495 55 273
Muhammad Kamran 2,770 2,450 320 1,388
Rehan Mithani 900 408 492 634
Shahid Mansoor 555 500 55 350
Sultan Jan Mohd 1,026 923 103 561
Tehzeebul Hasan 555 496 59 300
Wali Mohammad Khan 5,530 5,262 268 2,286
Zia-ur-Rehman 4,218 1,181 3,037 3,760
Zulfiqar Ahmed Khan 1,650 1,485 165 852
86,606 62,432 24,174 44,159
Furniture, fixture
& equipment
Sale through bid Abdul Hameed 445 311 134 140
Assets written off 72,429 71,527 902 -
Items having net book value
upto Rs. 50 each 4,529 4,503 26 1,021
77,403 76,341 1,062 1,161
2009 220,204 185,442 34,762 58,366
2008 30,815 12,391 18,424 87,727
=========================================================================================================4.5. Capital work in progress - Expansion and other projects==============================================================================================================
(Amounts in thousand)
==============================================================================================================
Plant and Building & Furniture, Advances to Other Total
machinery civil works fixture and Suppliers ancillary
equipment costs
==============================================================================================================
(Rupees) (notes 4.5.2)
==============================================================================================================
Year ended December 31, 2008
Balance as at January 1, 2008 6,201,928 943,437 33,152 20,088 644,447 7,843,052
Additions during the year 15,065,293 2,458,687 181,730 757,735 1,714,744 20,178,189
Transferred to:
operating assets (note 4.1) (67,516) (11,650) (100,021) (134,384) - (313,571)
intangible assets (note 5) - - (1,184) - - (1,184)
Balance as at December 31, 2008 21,199,705 3,390,474 113,677 643,439 2,359,191 27,706,486
Year ended December 31, 2009
Balance as at January 1, 2009 21,199,705 3,390,474 113,677 643,439 2,359,191 27,706,486
Additions during the year 26,552,353 4,545,384 89,841 (225,606) 5,616,498 36,578,470
Transferred to:
operating assets (note 4.1) (388,437) (449,109) (81,422) (118,117) - (1,037,085)
intangible assets (note 5) - - (14,654) - - (14,654)
Balance as at December 31, 2009 47,363,621 7,486,749 107,442 299,716 7,975,689 63,233,217
==============================================================================================================4.5.1. Capital work in progress includes Rs. 47,081,203 (2008: Rs. 23.064.182) and Rs. 7,459,458(2008: Rs. 3,365,197) with respect to Urea expansion project for plant & machinery and building & civil works respectively. The expansion project expected to be complete by third quarter 2010, adjacent to the existing Daharki Plant, will cost approximately US$ 1 050,000 (2008: US$ 1,050,000) and will have a capacity of 1 .3 million tons of urea per annum.4.5.2. The ancillary costs include net borrowing costs capitalized amounting to Rs. 5,342,066 (2008: Rs. 1,481 .633) at borrowing rates ranging from 11. .52% to 17.22% (2008: 11 .52% to 17.22%). The other capitalised cost includes depreciation and amortisation (note 4.2 & 5.1), salaries, wages & benefits, legal & professional charges, etc. 4.6. During the year, the Company reclassified spares of capital nature from stores, spares and loose tools to capital work in progress. Such a change, made for better presentation, has no effect on the profit and loss account. 5. INTANGIBLE ASSETS =============================================================================
(Amounts in thousand)
=============================================================================
Software Rights for
and future gas Total
licenses utilisation
=============================================================================
(Rupees)
=============================================================================
As at January 1, 2008
Cost 112,312 102,312 214,624
Accumulated amortisation (80,757) - (80,757)
Net book value 31,555 102,312 133,867
Year ended December 31, 2008
Opening net book value 31,555 102,312 133,867
Additions at cost (note 4.5) 1,184 - 1,184
Amortisation charge (note 5.1) (12.193) - (12.193)
Closing net book value 20,546 102,312 122,858
As at January 1, 2009
Cost 113,496 102,312 215,808
Accumulated amortisation (92,950) - (92,950)
Net book value 20,546 102,312 122,858
Year ended December 31, 2009
Opening net book value 20,546 102,312 122,858
Additions at cost (note 4.5) 14,654 - 14,654
Write off
Cost (11,577) - (11,577)
Accumulated amortisation 11,577 - 11,577
Amortisation charge (note 5.1) (14,808) - (14,808)
Closing net book value 20,392 102,312 122,704
As at December 31, 2009
Cost 116,573 102,312 218,885
Accumulated amortisation (96,181) - (96.181)
Net book value 20,392 102,312 122,704
=============================================================================5.1. Amortisation charge for the year has been allocated as follows:======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Cost of sales (note 29) 9,448 6,961
Selling and distribution expenses (note 30) 3,899 4,285
Capital work in progress (note 4.5.2) 1,461 947
14,808 12,193
======================================================================================5.2. The Company does not have any internally generated intangible assets.6. LONG TERM INVESTMENTS ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Subsidiary companies - at cost (note 6.1) 12,533,657 10,636,857
Joint venture company - at cost
Engro Vopak Terminal Limited
45,000,000 Ordinary shares of
Rs. 10 each, equity held 50% (2008: 50%) 450,000 450,000
Others - at cost
Arabian Sea Country Club Limited
500,000 Ordinary shares of Rs. 10 each 5,000 5,000
Agri mall (Private) Limited (note 6.2)
12,988,657 11,091,857
======================================================================================6.1. Subsidiary companies============================================================================================
2009 2008
============================================================================================
Equity Investment Equity Investment
% held at cost % held at cost
============================================================================================
(Rupees) (Rupees)
============================================================================================
Quoted
Engro Polymer & Chemicals Limited
292,400,000 (2008: 292,400,000)
Ordinary shares of Rs. 10 each 56.19 2,847,200 56.19 2,847,200
Unquoted
Engro Eximp (Private) Limited
10,000 (2008: 10,000) Ordinary
shares of Rs. 10 each 100 100 100 100
Advance against issue of share capital 480,000 -
480,100 100
Engro Management Services (Private) Limited
250,000 (2008: 250,000) Ordinary
shares of Rs, 10 each 100 2,500 100 2,500
Engro Foods Limited
542,300,000 (2008: 430,000,000)
Ordinary shares of Rs. 10 each 100 5,423,000 100 4,300,000
Advance against issue of share capital - 50,000
5,423,000 4.350,000
Engro Energy Limited
304,000,000 (2008: 304,000,000)
Ordinary shares of Rs. 10 each (note 6.1.1) 95 3,040,000 95 3,040,000
Engro Power Gen Limited
6,010,000 (2008: Nil) Ordinary shares
of Rs. 10 each 100 60,100 100 -
Advance against issue of share capital 298,800 15,100
358,900 15,100
Engro Fertilizers Limited
7 (2008: Nil) Ordinary shares of
Rs. 10 each (note 6.1.2) 100 - - -
Avanceon Limited
25,066,667 (2008: 25,066,667) Ordinary
shares of Rs. 10 each 62.67 381 957 62.67 381 .957
12,533,657 10,636,857
============================================================================================6.1.1. The Shareholders in the Extraordinary General Meeting (EOGM) held on November 27, 2009 have consented to the Company's proposed transfer of 304 million ordinary shares of Rs. 10 each in Engro Energy Limited to Engro Power Gen Limited (EPGL) in exchange for the same number of fully paid-up shares of EPGL. Such a transfer, to be effected upon completion of legal and other formalities, is on account of the Company's overall restructuring of its businesses to enable all direct subsidiaries to operate as holding companies for their respective lines of business.6.1.2. Engro Fertilizers Limited has been incorporated on June 29, 2009 as a public unlisted company under the Companies Ordinance, 1984 for the transfer and vesting of fertilizer business, as referred to in note 1.1. As at December 31, 2009, the issued share capital comprise of seven ordinary shares of Rs. 10 each, held by seven employees of the Company as nominees thereof, 6.2. This represents the Company's share in the paid-up share capital of the investee transferred free of cost to the Company under a joint venture agreement. 6.3. Value of the above investments, based on the net assets of the investee companies as at December 31 was as follows: ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Engro Polymer & Chemicals Limited 3,593,712 3,688,167
Engro Fertilizers Limited - -
Engro Eximp (Private) Limited [including advance against issue 499,386 3,283
of share capital amounting to Rs. 480,000 (2008: Nil)
Engro Management Services (Private) Limited 2,663 2,579
Engro Foods Limited [including advance against issue of
share capital amounting to Nil (2008: Rs. 50,000)] 3,370,148 2,731,747
Engro Energy Limited 2,928,318 2,984,011
Engro Vopak Terminal Limited 512,178 503,607
Engro PowerGen Limited [including advance against
issue of share capital Rs. 298,800 (2008: Rs. 15,100)] 290,857 3,824
Avance on Limited 58,392 49,584
Arabian Sea Country Club Limited (June 30, 2009) 3,197 3,043
Agri mall (Private) Limited (June 30, 2008) (4,096) (4,096)
======================================================================================7. EMPLOYEE SHARE OPTION SCHEMEUnder the Employee Share Option Scheme (the Scheme), senior employees who are critical to the business operations are granted options to purchase 5 million newly issued ordinary shares at an exercise price of Rs, 277 per ordinary share. As per the Scheme, the entitlements and exercise price are subject to adjustments because of issue of right shares and bonus shares. The number of options granted to an employee is calculated in accordance with the criticality of employee to the business and their ability and is subject to approval by the Compensation Committee. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither right to dividends nor voting rights. Vesting period has started from the date of grant, for employees who were granted shares on or before June 30. 2008 and shall end on December 31, 2010, where after these options can be exercised within a period of two years ending December 31, 2012. For options granted after June 30, 2008. The vesting period will end such number of days after December 31, 2010 as is equal to the number of days between the date the initial option letters were issued and the date of grant of the later options. However, the latter options can also only be exercised upto December 31, 2012. In 2008, the grant date was changed to August 23, 2007, from the date approved in the original Scheme. Further, consequent to the issue of right shares in 2008 and in the current year, the entitlements were increased to 5,500,000 shares and 7,700,000 shares respectively and the exercise price was adjusted to Rs. 267.73 per share and Rs. 205.52 per share respectively. These changes have been duly approved by the Securities and Exchange Commission of Pakistan (SECP). The aforementioned reduction in exercise price has no effect on the fair value of share options recognised in the financial statements. 7.1. Deferred employee compensation expense ======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Balance as at January 1 189,291 244,066
Options issued during the year - 37,989
Options lapsed due to employee resignation (16,794) (5,927)
Amortisation for the year (82,432) (86,837)
Balance as at December 31 90,065 189,291
-Current portion shown under current assets (87,278) (93,213)
Long term portion of deferred employee compensation expense 2,787 96,078
======================================================================================7.2. Employee share option compensation reserve======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Balance as at January 1 305,052 272,990
Options issued during the year - 37,989
Options lapsed due to employee resignation (16,794) (5,927)
(16,794) 32,062
Balance as at December 31 288,258 305,052
======================================================================================7.3. Movement in share options outstanding at end of the year is as follows:======================================================================================
(Number)
======================================================================================
Balance as at January 1 4,631,818 4,145,000
Options issued during the year - 576,818
Options lapsed during the year (255,000) (90,000)
(255,000) 486,818
Balance as at December 31 4,376,818 4,631,818
======================================================================================7.3.1. The above mentioned share options do not include the effect of right shares which make the total number of share options outstanding at end of the year 6,740,300.7.4. The Company used Black Scholes pricing model to calculate the fair value of share options at the grant date. The fair value of the share options as per the model and underlying assumptions are as follows: ======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Fair value of the share options at grant date Rs. 65.86
Share price at grant date Rs. 220
Exercise price Rs. 277
Annual volatility 34.54%
Risk free rate used 10.77%
======================================================================================7.5. Employee-wise detail of options granted to senior management personnel/other personnel upto or in excess of five percent of total options granted is as follows:======================================================================================
(Amounts in thousand)
======================================================================================
Name of employee No. of share options
======================================================================================
Asad Umar 700,000
Syed Khalid S. Subhani 560,000
Ruhail Mohammed 420,000
M. Asif Sultan Tajik 280,000
Andalib Alavi 280,000
Tahir Jawaid 280,000
Inamullah Naveed Khan 280,000
Muhammad Khalid Mir 280,000
Abdul Samad Khan 280,000
======================================================================================7.5.1. Above mentioned shares include the impact of right shares.7.6. Consequent to the demerger, as referred to in note 1.1, the employees transferred to Engro Fertilizers Limited will be granted new share options under a new scheme of Engro Fertilizers Limited on surrender of existing share options. The new scheme is finalized and is awaiting approval by the Board of Directors of Engro Fertilizers Limited and Securities and Exchange Commission of Pakistan (SECP). 8. DERIVATIVE FINANCIAL INSTRUMENTS ================================================================================================
(Amounts in thousand)
================================================================================================
2009 2008 Restated
================================================================================================
Assets Liabilities Assets Liabilities
================================================================================================
Conversion option on IFC loan (note 20.4) - 338,647 - -
Cash flow hedges
Foreign exchange forward contracts (note 8.1) 22,637 157,329 1,174,173 -
Foreign exchange option contracts (note 8.2) 53,572 4,468 347,446 -
Interest rate swaps (note 8.3) - 852,441 - 1,073,210
76,209 1,014,238 1,521,619 1,073,210
76,209 1,352,885 1,521,619 1,073,210
Less: Current portion shown under Current
assets / liabilities
Conversion option on IFC loan - 338,647 - -
Cash flow hedges
Foreign exchange forward Contracts 22,637 157,329 1,134,180 -
Foreign exchange option Contracts 53,572 4,468 347,446 -
Interest rate swaps - 239,599 - 155,160
76,209 401,396 1,481,626 155,160
76,209 740,043 1,481,626 155,160
- 612,842 39,993 918,050
================================================================================================8.1. Foreign exchange forward contracts8.1.1. The Company entered into various forward exchange contracts to hedge its foreign currency exposure. As at December 31, 2009, the Company had foreign exchange forward contracts to purchase Euros 9,543 (2008: Euros 130,505) at various maturity dates matching the anticipated payment dates for commitments with respect to urea expansion project. The fair value of these contracts amounted to Rs. 22,637 (2008: Rs. 714,762). During the year, the Company identified that the fair values of these contracts as at December 31, 2008 were overstated by Rs. 3,123,787. This has been adjusted in the current year by restating the comparative figure from Rs. 4,297,960 to Rs. 1 174,173. This however has no impact on the profit for the year ended December 31, 2008, as the fair values were recognised in the hedging reserve (note 19). 8.1.2. The Company entered into various US$:PKR forward contracts to hedge its foreign currency exposure. As at December 31, 2009, the Company had forward contracts to purchase US$ 85,000 (2008: US$ 159,027) at various maturity dates to hedge its foreign currency loan obligations. The fair value of these Contracts is negative amounting to Rs. 157,329 (2008: Rs. 459,411 positive). 8.2. Foreign exchange option contracts The Company entered into various foreign exchange option contracts to hedge its currency exposure against US dollar relating to the expansion project. At the year end the Company had foreign exchange options amounting to Euro 12,628 (2008: Euro 55,669). The net fair value of these contracts amounted to Rs. 49,104 (2008: Rs. 347,446). 8.3. Interest rate swaps 8.3.1. The Company entered into an interest rate swap agreement to hedge its interest rate exposure on floating rate committed borrowing under an Offshore Islamic Finance Facility agreement, for a notional amount of US$ 150,000 amortising up to September 2014. Under the swap agreement, the Company would receive USD LIBOR from Citibank N. A. Pakistan on notional amount and pay fixed 3.47% which will be settled semi-annually. The fair value of the interest rate swap as at December 31, 2009 is negative amounting to Rs. 542,385 (2008: Rs. 648,277). 8.3.2. The Company entered into another interest rate swap agreement to hedge its interest rate exposure on floating rate committed borrowing from a consortium of Development Finance Institutions for a notional amount of US$ 85,000 amortising upto April 2016. Under the swap agreement, the Company would receive USD-LIBOR from Standard Chartered Bank on notional amount and pay fixed 3.73% which will be settled semi-annually. The fair value of the interest rate swap as at December 31, 2009 is negative amounting to Rs. 310,056 (2008: Rs. 424.933). 9. LONG TERM LOANS AND ADVANCES - Considered good ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Long term loans
Executives (notes 9.1 and 9.2) 282,246 137,836
Other employees (note 9.3) 218,439 121,785
500,685 259,621
Less: Current portion shown under current assets (note 13) 413,096 40,801
87,589 218,820
Sub-ordinated loan to Avanceon Limited, a wholly owned
subsidiary (note 9.5) 241,318 -
328,907 218,820
======================================================================================9.1. Reconciliation of the carrying amount of loans and advances to executives======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Balance as at January 1 137,836 79,385
Disbursements 206,282 133,615
Repayments (61,872) (75,164)
Balance as at December 31 282,246 137,836
======================================================================================9.2. Includes interest free service incentive loans to executives of Rs. 58,437 (2008: Rs. 47,367) repayable in equal monthly installments over a three years period or in one lump sum at the end of such period and disbursements to executives under housing subsidy scheme amounting to Rs. 184,002 (2008: Rs. 52,970). It also includes advance of Rs. 33,717 (2008: Rs. 28,349) and Rs. 6,090 (2008: Rs. 9,150) to employees for car earn out assistance and house rent advance respectively.9.3. Includes interest free loans given to workers of Rs. 6,988 (2008: Rs. 22,665) pursuant to Collective Labor Agreement and disbursement to workers under housing subsidy scheme amounting to Rs. 211,450 (2008: Rs. 99.120). 9.4. The maximum amount outstanding at the end of any month from the executives aggregated to Rs. 282,246 (2008: Rs. 141,143). 9.5. The loan carries mark-up at the rate of six months KIBOR plus a margin of 4% payable on quarterly basis. The loan is subordinated to the facilities provided to the subsidiary by its banking creditors and is repayable in two installments due on October 23, 2011 and April 23, 2012. 10. STORES, SPARES AND LOOSE TOOLS ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Consumable stores 133,728 143,797
Spares 867,660 681,179
Loose tools 3,247 4,028
1,004,635 829,004
Less: Provision for surplus and slow moving items 43,518 28,913
961,117 800,091
======================================================================================11. STOCK-IN-TRADE======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Raw materials (note 11.1) 284,733 1,091,557
Packing materials 19,259 51,277
303,992 1,142,834
Work-in-process 6,115 9,027
Finished goods - own manufactured product 112,500 396,198
purchased product (notes 11.1 & 11.2) - 3,132,837
112,500 3,529,035
422,607 4,680,896
======================================================================================11.1. These include provision for write-down of inventories of raw materials and finished goods to net realisable value amounting to Nil (2008: Rs. 276,022) and Nil (2008: Rs. 578,350) respectively.11.2. Consequent to restructuring of businesses, as referred to in note 1.1. the entire trading operations effective from January 1, 2010 will be handled by Engro Eximp (Private) Limited, a wholly owned subsidiary. Accordingly, the stock in hand as at December 31. 2009 of goods purchased from them has been returned. Effective January 1, 2010, Engro Fertilizers Limited will act as the selling agent thereof. 12. TRADE DEBTS ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Considered good
Secured (note 12.1) 2,508,564 243,546
Unsecured 5,861 17,962
2,514,425 261,508
Considered doubtful 8,873 8,059
2,523,298 269,567
Provision for impairment (note 12.2) (8,873) (8,059)
2,514,425 261,508
======================================================================================12.1. These debts are secured by way of bank guarantees and inland letters of credit.12.2. The movement in provision during the year is as follows: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Balance as at January 1 8,059 8,159
Provision made/(written back) during the year and
recognised in selling and distribution expenses 814 (100)
Balance as at December 31 8,873 8,059
======================================================================================12.3. As at December 31, 2009 trade debts aggregating to Rs. 132,741 (2008: Rs. 191,567) were past due but not impaired. These relate to various customers for which there is no recent history of default. The ageing analysis of these trade debts is as follows:======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Upto 3 months 118,959 191,567
3 to 6 months 13,782 -
More than 6 months - -
132,741 191,567
======================================================================================12.4. As at December 31, 2009 trade debts aggregating to Rs. 8,873 (2008: Rs. 8,059) were impaired and provided for, which are past due for more than six months.13. LOANS, ADVANCES, DEPOSITS AND PREPAYMENTS ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Current portion of long term loans and advances to
executives and other employees
- considered good (note 9) 413,096 40,801
Sub-ordinated loan to Engro Eximp (Private)
Limited, a wholly owned subsidiary (note 13.1) 770,000 1,100,000
Advances and deposits 178,157 439,225
Transaction costs paid for unavailed
financing facilities (note 13.2) - 188,696
Prepayments:
insurance 85,823 81,820
others 27,895 53,103
1,474,971 1,903,645
Provision for impairment (note 13.3) (5,816) (4,521)
1,469,155 1,899,124
======================================================================================13.1. The loan carries mark-up at rates not being lower than the mark-up payable by the Company for ordinary commercial finance of like maturities, presently at 15% per annum (2008: 15.13% per annum). The loan is subordinated to the facilities provided to the subsidiary by its banking creditors and is repayable on demand, taking into account the financing requirements of the subsidiary. Due to the nature of the transaction the sale and repurchase of underlying assets has not been recorded in the financial statements.13.2. Consequent to draw down of the syndicated finance, these have been transferred to/netted there against. 13.3. As at December 31, 2009, loans and advances aggregating to Rs. 5,816 (2008: Rs. 4,521) were impaired and provided for, which are past due for more than six months. The movement in provision during the year is as follows: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Balance as at January 1 4,521 4,521
Provision made during the year 1,295 -
Balance as at December31 5,816 4,521
======================================================================================14. OTHER RECEIVABLES======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Receivable from Government of Pakistan for:
customs duty (note 4.3) - 22,207
-subsidy (note 14.1) - 198,150
sales tax (note 14.2) 57,135 57,135
others 19,277 13,560
76,412 291,052
Accrued income on deposits / bonds 5,300 -
Receivable from pension fund (note 37.1.1) 31,887 31,187
Workers' profits participation fund (note 14.3) - 5,738
Sales tax refundable - 6,567
Due from:
Subsidiary Companies
Engro Eximp (Private) Limited 4,466 794
Engro Foods Limited 1,062 4,015
Engro Polymer & Chemicals Limited 3,220 874
Engro Energy Limited 270 202
Avanceon Limited 10,392 1,964
Engro Fertilizers Limited 519 -
Engro PowerGen Limited 2,072 -
Joint venture
Engro Vopak Terminal Limited, net (note 14.4) 112,102 90,252
Claims on foreign suppliers 18,828 15,922
Less: Provision for impairment (note 14.7) 295 295
18,533 15,627
Others 9,623 5,414
Less: Provision for impairment (note 14.7) 144 1,518
9,479 3,896
275,714 452,168
======================================================================================14.1. The total amount of subsidy for the year was Nil (2008: Rs. 572,946) of which Nil (2008: Rs. 198,150) was receivable on account of compensation for mandatory reduction in sales price. This compensation is provided by the Government of Pakistan on imported/purchased inventory.14.2. During 2008, Model Customs Collectorate raised a sales tax demand of Rs. 57,135 on certain imports of Mono Ammonium Phosphate (MAP) 10:50:0 based on the actual import value rather than the deemed value as prescribed by SRO 609 (1) / 2004. The Company has paid the demand made under protest and filed an appeal before the Collector, Sales Tax and Federal Excise. Further, the Ministry of Food, Agriculture and Livestock had also recommended through its letter dated June 27, 2008 that the aforementioned grade of MAP should be assessed at deemed value of import with retrospective effect. The management therefore is confident that the issue would be decided in Company's favor. 14.3. Workers' profits participation fund ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Receivable/(payable) as at January 1 5,738 (3,747)
Allocation for the year (note 32) (280,072) (279,515)
Amount paid to the Trustees of the Fund 271,948 289,000
Receivable/(payable) as at December 31 (2,386) 5,738
======================================================================================14.4. This includes dividend receivable of Rs. 112,500 (2008: Rs. 90,000).14.5. The maximum amount due from joint venture/subsidiary companies at the end of any month during the year aggregated to as follows: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Subsidiary Companies
Engro Eximp (Private) Limited 66,012 2,066
Engro Foods Limited 22,045 75,414
Engro Energy Limited 6,809 31,819
Engro Polymer & Chemicals Limited 11,621 159,249
Avanceon Limited 13,899 2,225
Engro PowerGen Limited 2,073 5,717
Engro Management Services (Private) Limited 3 19
Engro Fertilizers Limited 519 -
Joint venture
Engro Vopak Terminal Limited 135,509 93,134
======================================================================================14.6. As at December 31, 2009, receivables aggregating to Rs. 59.061 (2008: Rs. 57.292) were past due but not impaired. The ageing analysis of these receivables is as follows:======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Upto 3 months 9,953 23,501
3 to 6 months - 1,941
More than 6 months 49,108 31,850
59,061 57,292
======================================================================================14.7. As at December 31, 2009, receivables aggregating to Rs. 439 (2008: Rs. 1,813) were deemed to be impaired of which Rs. 439 (2008: Rs. 1,813) were considered doubtful being outstanding for more than six months and provided for. The ageing analysis of these receivables is as follows:======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
3 to 6 months - 344
More than 6 months 439 1,469
439 1,813
======================================================================================14.8. The movement in provision during the year is as follows:======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Balance as at January 1 1,813 344
Provision (reversed)/made during the year (1,374) 1,469
Balance as at December 31 439 1,813
======================================================================================15. SHORT TERM INVESTMENTS======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Financial assets at fair value through profit or loss
Fixed income placements 75,795 67,811
Money market funds (note 15.1) 375,062 -
450,857 67,811
======================================================================================15.1. These represents investments in various money market funds which are valued at their respective net assets values at balance sheet date.16. CASH AND BANK BALANCES ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Cash at banks on
deposit accounts 3,491,666 29,195
current accounts (note 16.1) 458,826 11,328,691
In hand
cheques/demand drafts - 324,302
cash 4,850 4,850
3,955,342 1,687,038
======================================================================================16.1. This includes Nil (2008: Rs, 1,325,438) held in foreign currency bank accounts for letter of credit payments relating to urea expansion project.17. SHARE CAPITAL ===============================================================================================
(Amounts in thousand)
===============================================================================================
2009 2008 2009 2008
===============================================================================================
(Number of shares) (Rupees)
===============================================================================================
Authorised Capital
Ordinary shares of Rs. 10 each
350,000,000 300,000,000 (note 17.1) 3,500,000 3,000,000
2009 2008 2009 2008
(Number of shares) (Rupees)
Issued, subscribed and paid-up capital
Ordinary shares of Rs. 10 each
185,354,484 100,228,038 fully paid in cash 1,853,545 1,002,280
Ordinary shares of Rs. 10 each
112,588,079 112,588,079 issued as fully paid bonus shares 1,125,881 1,125,881
297,942,563 212,816,117 2,979,426 2,128,161
===============================================================================================17.1. During the year, the authorised capital was increased to 350,000,000 ordinary shares of Rs. 10 each,17.2. Movement in issued, subscribed and paid-up capital during the year. ===============================================================================================
2009 2008 2009 2008
===============================================================================================
(Number of Shares) (Rupees)
===============================================================================================
212,816,117 193,469,198 At January 1 2,128,161 1,934,692
Ordinary shares of Rs. 10 each
issued during the year ended
December 31 as fully paid
85,126,446 19,346,919 right shares (note 17.3) 851,265 193,469
297,942,563 212,816,117 2,979,426 2.128,161
===============================================================================================17.3. These right shares were issued during the year at a premium of Rs. 40 per share (2008: Rs. 165 per share).17.4. Associated companies held 144,390,600 (2008: 88,857,572) ordinary shares in the Company at year end. 18. SHARE PREMIUM ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Balance as at January 1 7,152,722 3,963,977
Shares issued during the year (note 17.3) 3,405,058 3,192,242
Issue cost - net of tax (7,719) (3,497)
Balance as at December 31 10,550,061 7,152,722
======================================================================================19. HEDGING RESERVE======================================================================================
2009 2008
======================================================================================
(Restated)
======================================================================================
(Rupees)
======================================================================================
Fair values of:
Foreign exchange forward contracts (note 19.2 & 8.1) (134,692) 1,174,173
Foreign exchange option contracts (note 8.2) 49,104 347,446
Interest rate swaps (note 8.3) (852,441) (1,073,210)
Arrangement fee - (252,552)
(938,029) 195,857
Deferred tax 328,310 (68,550)
(609,719) 127,307
======================================================================================19.1. Hedging reserve primarily represents the effective portion of changes in fair values of designated cash flow hedges.19.2. Fair values of foreign exchange forward contracts as at December 31, 2008. recognised in hedging reserve, have been adjusted by the Company in the current year by restating the comparative figure from Rs. 4,297,960 to Rs. 1,174,173, as more fully explained in note 8.1.1. The net effect after tax of this amounts to Rs. 2,030,462. 20. BORROWINGS - Secured (Non-participatory) =======================================================================================================================================================
(Amounts in thousand)
=======================================================================================================================================================
Unavailed credit
Note Mark- up Instalments as at December
rate p.a. Number Commencing 31, 2009 2009 2008
=======================================================================================================================================================
from (Rupees)
=======================================================================================================================================================
Long term finance utilised
under mark-up arrangements:
National Bank of Pakistan 3 months KIBOR + 1.3% 8 quarterly October 31, 2009 - 525,000 600,000
MCB Bank Limited 3 months KIBOR + 1.3% 8 quarterly March 11, 2010 - 400,000 400,000
Habib Bank Limited 6 months KIBOR + 1.1% 8 half yearly September 30, 2010 - 1,000,000 1,000,000
Allied Bank Limited 6 months KIBOR + 1.1% 8 half yearly December 25, 2010 - 2,000,000 2,000,000
Askari Bank Limited 6 months KIBOR + 1.1% 8 half yearly December 25, 2010 - 250,000 250,000
Citibank NA. 6 months KIBOR + 1.1% 8 half yearly December 25, 2010 - 100,000 100,000
HSBC Middle East Limited 6 months KIBOR + 1.75% 8 half yearly December 25, 2010 - 250,000 250,000
Standard Chartered Bank
(Pakistan) Limited 6 months KIBOR + 1.1% 8 half yearly December 25, 2010 - 500,000 500,000
National Bank of Pakistan 6 months KIBOR + 1.1% 8 half yearly September 4, 2011 - 1,500,000 1,500,000
Syndicated finance 20.1 6 months KIBOR + 1.8% 11 half yearly February 27, 2012 6,125,000 12,012,004 175,000
Islamic offshore finance 20.2 6 months LIBOR + 2.57% 8 half yearly March 27, 2011 - 12,509,214 6,434,924
DFI Consortium finance 20.3 6 months LIBOR + 2.6% 11 half yearly April 15, 2011 - 7,170,987 1,743,488
International Finance Corporation 20.4 6 months LIBOR + 6% 3 half yearly September 15, 2015 - 3,794,812 -
Bank Islami Pakistan Limited 20.5 6 months KIBOR + 2.4% 14 half yearly May 26, 2016 - 500.000 -
Pak Kuwait Investment Company
(Private) Limited 20.5 6 months KIBOR + 2.35% 10 half yearly April 29, 2012 - 494,357 -
Faysal Bank Limited 20.5 6 months KIBOR + 2.35% 9 half yearly November 26, 2012 - 1,497,683 -
Certificates
Term Finance Certificates - 2nd issue 20.6 6 months KIBOR + 1.55% - 3,968,819 3,967,426
Term Finance certificates - 3rd issue 20.7 6 months KIBOR + 2.4% - 1,974,360 -
Sukuk Certificates 20.8 6 months KIBOR + 1.5% - 2,984,459 2,982,472
Privately Placed Sub-Ordinated
Term Finance Certificates 20.9 5,943,759 5,930,004
59,375,454 27,833,314
Less: Current portion shown under
current liabilities 810,100 76,600
58,565,354 27,756,714
=======================================================================================================================================================20.1. The Company has entered into a syndicated finance agreement with Allied Bank Limited, Bank Al-Falah Limited, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan, Standard Chartered Bank (Pakistan) Limited and United Bank Limited amounting to Rs. 18,300,000 of which Rs. 12,175,000 was disbursed as at December 31, 2009 (2008: Rs. 175,000). Some of the banks have sold down their share to other banks.20.2. The Company has also entered into an offshore Islamic Finance Facility Agreement of US$ 150,000 with Citi Bank, Dubai Islamic Bank, Habib Bank Limited, National Bank of Pakistan, SAMBA Financial Group and Standard Chartered Bank. As at December 31, 2009 the Company has availed the full amount of facility (2008: US$ 84,000). 20.3. The Company has also entered into an agreement amounting to US$ 85,000 with a consortium of Development Finance Institutions comprising of DEG, FMO and OFID. As at December 31, 2009 the Company has availed the full amount of finance (2008: US$ 22,200). 20.4. The Company has contracted a loan with International Finance Corporation (IFC) for US$ 50.000, divided into Tranche A (US$ 15,000) and Tranche B (US$ 35,000). Tranche A gives IFC an option to convert the loan amount of US$ 15,000 into ordinary shares of the Company at Rs. 205 per ordinary share calculated at the dollar rupee exchange rate prevailing on the business day prior to the date of the notice issued by IFC to exercise the conversion option. Such conversion option, shall always remain upon the shares of the Company on transfer of the loan consequent to demerger referred to in note 1.1 and can be exercised within a period of no more than five years from the date of disbursement of the loan (December 28, 2009). Tranche B, however, is not convertible. As at December 31, 2009, the Company has availed the full amount of loan. The fair value of the conversion option, included in note 8, is calculated on the date of disbursement, using option pricing model. The residual amount, representing the loan liability component is shown as long term borrowings. The loan recognised in the balance sheet is as follows: ======================================================================================
(Rupees)
======================================================================================
(Amounts in thousand)
======================================================================================
Total loan disbursed (Tranche A and Tranche B) 4,225,000
Transaction cost (91,541)
Net proceeds 4,133,459
Fair value of conversion option Tranche A (note 8) (338,647)
Loan liability component as at December 31, 2009 3,794,812
======================================================================================20.5. The Company has arranged these finance facilities, during the year, for its urea expansion project.20.6. The Company issued secured and listed Term Finance Certificates (TFCs) of Rs. 4,000,000. The TFCs are structured to redeem 0.28% of principal in the first 84 months and remaining 99.72% principal in two equal semi-annual installments. The Company has appointed First Dawood Islamic Bank as trustee in respect of these TFCs. 20.7. The Company has issued during the year, listed and secured Term Finance Certificates (TFCs) of Rs. 2,000,000 which comprises of Private Placement of Rs. 1,500,000 and Initial Public Offer of Rs. 500,000. The TFCs are structured to redeem as follows: ====================================================================================== Year Redemption %age ====================================================================================== 1 0.04% 2 0.04% 3 7.96% 4 7.96% 5 12% 6 12% 7 60% ======================================================================================The Company has appointed IGI Investment Bank Limited as trustee in respect of these TFCs. 20.8. The Company has issued privately placed Sukuk Certificates based on diminishing Musharika amounting to Rs. 3,000,000. The principal amount is payable after seven years in two semi-annual equal installments. 20.9. The Company has issued Privately Placed TFCs amounting to Rs. 4,000,000 (PPTFC Issue I) and Rs. 2,000,000 (PPTFC Issue II) respectively instead of the previously planned sub-ordinated Listed TFC of Rs. 6,000,000. The PPTFCs are perpetual in nature with a five year call and a ten year put option. The PPTFC II issue has mark-up of six months KIBOR plus 1.7% and the PPTFC II issue has mark-up of six months KIBOR plus 1.25%. The Company has appointed IGI Investment Bank Limited as trustee in respect of these TFCs. 20.10. The above finances, excluding perpetual sub-ordinated TFCs and IFC Loan, are secured by an equitable mortgage upon the immovable property of the Company and hypothecation charge over current and future fixed assets of the Company. Perpetual subordinated TFCs and IFC loan are secured by a sub-ordinated floating charge over all present and future fixed assets excluding land and buildings. 20.11. In view of the substance of the transactions, the sale and repurchase of assets under long term finance have not been recorded in these financial statements. 20.12. The above loans are being utilised for urea expansion project, base business operations and diversification initiatives. 21. DEFERRED LIABILITIES ======================================================================================
2009 2008
======================================================================================
(Restated)
======================================================================================
(Rupees)
======================================================================================
Deferred taxation (note 21.1) 891,864 1,319,432
Deferred income (note 21.2) 96,305 -
988,169 1319,432
======================================================================================21.1. Deferred taxation======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Credit / (debit) balances arising on account of:
accelerated depreciation allowance 1,257,152 1,129,211
net borrowing costs capitalised (note 34.1) - 518,571
fair values of hedging instruments (note 21.1.1) (328,310) 68,550
provision for:
retirement benefits (23,863) (21,910)
inventories, slow moving stores &
spares and doubtful receivables (20,526) (314,188)
others 7,411 (60,802)
891,864 1,319,432
======================================================================================21.1.1. Deferred tax on fair value of foreign exchange forward contracts as at December 31, 2008, has been adjusted by the Company during the year by restating the comparative figure from Rs. 1,119,775 to Rs. 68,550, as more fully explained in note 8.1.1.21.2. Deferred income During the year, the Company received an amount of Rs. 96,627 from Engro Energy Limited (EEL), a subsidiary company, for the right to use Company's infrastructure facilities at Daharki Plant by the employees of EEL. The amount is being amortised over a period of twenty five years. 22. EMPLOYEE HOUSING SUBSIDY In 2008, the Company announced a medium term Employee Housing Subsidy Scheme for its employees who were not entitled for Employee Share Options. Under this scheme, the Company planned to disburse housing subsidy upto the closing date i.e. December 31, 2009. This would be amortised over a period of 2.5 years of employee service being the vesting period of the scheme. As at December 31, 2009, the Company completed disbursements of Rs. 395,606 (2008: Rs. 152,223), as referred to in note 9.2 and 9.3. The amount amortised in the profit and loss account aggregated to Rs. 106,985 (2008: Rs. 69,587). The expected future charge will be Rs. 134,226 and Rs. 26,776 for 2010 and 2011 respectively. 23. RETIREMENT AND OTHER SERVICE BENEFITS OBLIGATIONS ======================================================================================
2009 2008
======================================================================================
(Amounts in thousand)
======================================================================================
Payable to Separation Gratuity Plan - unfunded (note 37) - 652
Other service benefit plan 68,181 61,947
Less: Current portion shown under current liabilities 20,600 18,334
47,581 43,613
47,581 44,265
======================================================================================24. TRADE AND OTHER PAYABLES======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Creditors (note 24.1) 593,372 390,717
Payable to Engro Foods Limited (a subsidiary company)
for taxable losses acquired (note 34.2) - 450,000
Accrued liabilities (note 24.2) 1,116,378 727,165
Advances from customers 1,099,390 1,063,530
Deposits from dealers refundable on termination of dealership 11,073 10,553
Contractors' deposits and retentions 60,022 29,513
Workers' profits participation fund (note 14.3) 2,386 -
Workers' welfare fund 106,428 106,216
Sales tax payable 2,135 -
Others 169,668 137,580
3,160,852 2,915,274
======================================================================================24.1. This includes payable of Rs. 22,720 (2008: Rs. 7,507) to Engro Eximp (Private) Limited (a wholly owned subsidiary) on account of purchased products.24.2. Accrued liabilities ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Salaries, wages and other employee benefits 262,276 184,528
Vacation accruals 93,427 64,159
Freight accruals 54,302 47,196
Consultancy services - 178,088
Others 706,373 253,194
1,116,378 727,165
======================================================================================25. ACCRUED INTEREST / MARK-UP======================================================================================
2009 2008
======================================================================================
Rupees
======================================================================================
Accrued interest / mark-up on secured:
long term borrowings 1,355,503 660,387
short term borrowings 10,519 144,003
1,366,022 804,390
======================================================================================26. SHORT TERM BORROWINGS � SecuredThe facilities for short term finances available from various banks amount to Rs. 6,550,000 (2008: Rs. 6,750,000). including Rs. 200,000 (2008: Rs. 200,000) for Bank Guarantees interchangeable with short term finance. The rates of mark-up ranges from 12.39% to 17.75% (2008: 10.40 % to 17.30%) and the facilities are secured by floating charge upon all present and future stocks including raw and packaging materials, finished goods, stores and spares and other merchandise and on all present and future book debts of the Company. 27. CONTINGENCIES AND COMMITMENTS Contingencies 27.1. Claims, including pending lawsuits, against the Company not acknowledged as debts amounted to Rs. 47,658 (2008: Rs. 27,911). 27.2. Corporate guarantees of Rs. 273,482 (2008: Rs. 500,600) have been issued in favor of subsidiary companies. 27.3. Bank guarantees of Rs. 1,148,676(2008: Rs. 141,126) have been issued in favor of third parties. 27.4. The Company is contesting the penalty of Rs, 99,936 (2008: Rs. 99,936) paid and expensed in 1997, imposed by the State Bank of Pakistan (SBP) for alleged late payment of foreign 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 the Court's decision. 27.5. The Company had commenced two separate arbitration proceedings against the Government of Pakistan for non-payment of marketing incidentals relating to the years 1983-84 and 1985-86 respectively. The sole arbitrator in the second case has awarded the Company Rs. 47,800 (2008: Rs. 47,800) whereas the award for the earlier years is awaited. The award for the second arbitration has not been recognised due to inherent uncertainties arising from its challenge in the High Court of Sindh. 27.6. The Company has extended project completion support to the lenders of Engro Energy Limited for US$ 15,400 (2008: US$ 15,400) and a further support to the lenders of Engro Polymer and Chemicals Limited for US$ 12,200 (2008: US$ 10,000). These project supports are contingent upon occurrence or non-occurrence of specified future events. 27.7. ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Commitments
Plant and machinery 3,999,846 26,846,940
======================================================================================27.8. ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Employee housing subsidy scheme - 214,362
======================================================================================28. aNET SALES======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Own manufactured products (note 28.2) 16,138,641 16,029,188
Less: Sales tax 2,185 520,365
16,136,456 15,508,823
Purchased products 14,078,152 7,921,944
Less: Sales tax 43,088 113,569
14,035,064 7,808,375
Net sales 30,171,520 23,317,198
======================================================================================28.1. Sales are net of marketing allowances of Rs. 177,970 (2008: Rs.103,609).28.2. This includes sale of Liquid Ammonia amounting to Rs. 13,662 (2008: Nil). 29. COST OF SALES ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Raw materials consumed, net of write down (note 11.1) 3,763,746 4,391,860
Salaries, wages and staff welfare (note 29.1) 1,066,923 949,834
Fuel and power 2,981,411 2,584,851
Repairs and maintenance 495,232 368,955
Depreciation (note 4.2) 620,792 607,452
Amortisation (note 5.1) 9,448 6,961
Consumable stores 149,120 174,655
Staff recruitment training, safety and other expenses 60,757 68,292
Purchased services 145,273 288,252
Travel 42,224 46,703
Communication, stationery and other office expenses 23,839 37,356
Insurance 137,016 72,910
Rent, rates and taxes 62,144 50,873
Other expenses 18,978 24,187
Manufacturing cost 9,576,903 9,673,141
Add: Opening stock of work-in-progress 9,027 7,952
Less: Closing stock of work-in-progress 6,115 9,027
2,912 (1,075)
Cost of goods manufactured 9,579,815 9,672,066
Add: Opening stock of finished goods manufactured 396,198 397,129
Less: Closing stock of finished goods manufactured 112,500 396,198
283,698 931
Cost of sales - own manufactured products 9,863,513 9,672,997
purchased products (note 29.2) 13,376,663 7,447,638
23,240,176 17,120,635
======================================================================================29.1. Salaries, wages and staff welfare includes Rs. 67,284 (2008: Rs. 56,315) in respect of staff retirement benefits.29.2. Cost of sales - purchased products ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Opening stock 3,132,837 1,677,287
Add: Purchases 10,243,826 8,903,188
Less: Closing stock - 3,132,837
13,376,663 7,447,638
======================================================================================30. SELLING AND DISTRIBUTION EXPENSES======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Salaries, wages and staff welfare (note 30.1) 400,361 346,032
Staff recruitment, training, safety and other expenses 36,961 47,214
Product transportation and handling 1,146,295 802,704
Repairs and maintenance 9,249 24,367
Advertising and sales promotion 66,864 68,222
Rent, rates and taxes 103,640 100,797
Communication, stationery and other office expenses 16,008 25,889
Travel 29,757 40,776
Depreciation (note 4.2) 38,383 30,734
Amortisation (note 5.1) 3,899 4,285
Purchased services 19,085 85,545
Donations 48,573 42,316
Other expenses 26,101 38,934
1,945,176 1,657,815
======================================================================================30.1. Salaries, wages and staff welfare includes Rs. 33,794 (2008: Rs. 29,827) in respect of staff retirement benefits.31. OTHER OPERATING INCOME ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Dividend income (note 31.1) 1,885,000 2,605,396
Income on deposits / other financial assets 19,670 2,594
Service charges 25,255 22,567
Fair value of derivative interest
rate swap (ineffective portion) - 407
Reversal of Defined Benefit
Pension Plan (curtailed) (note 37.1.10) 5,700 30,997
Gain on disposal of property, plant and equipment 23,604 69,303
Net foreign exchange gain on bank accounts - 18,036
Others 14,238 5,030
1,973,467 2,754,330
======================================================================================31.1. Dividend income======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Subsidiary companies
Engro Eximp (Private) Limited 1,435,000 2,200,000
Engro Polymer & Chemicals Limited - 157,896
Joint venture
Engro Vopak Terminal Limited 450,000 247,500
1,885,000 2,605,396
======================================================================================32. OTHER OPERATING EXPENSES======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Workers' profits participation fund (note 14.3) 280,072 279,515
Workers' welfare fund 106,428 106,216
Research and development (including salaries and wages) 16,081 78,126
Net foreign exchange loss on bank accounts 13,282 -
Auditors' remuneration (note 32.1) 7,545 1,905
Professional tax 213 200
Others 489 113,594
424,110 579,556
======================================================================================32.1. Auditors' remuneration======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Fee for the audit of annual financial statements 1,350 1,350
review of half yearly financial statements 300 150
Certifications, audit of retirement funds and
other advisory services 4,435 123
Tax services 1,200 -
Reimbursement of expenses 260 282
7,545 1,905
======================================================================================33. FINANCE COST======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Interest/mark-up on
long term borrowings 870,103 824,662
short term borrowings 450,476 684,286
1,320,579 1,508,948
======================================================================================34. TAXATION======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Current
-for the year 1,135,050 949,607
for prior years (note 34.1) 170,242 -
1,305,292 949,607
Deferred
-for the year 132,187 14,537
for prior years (note 34.1) (179,783) -
(47,596) 14,537
1,257,696 964,144
======================================================================================34.1. The current and deferred tax is net of adjustment in respect of net borrowing cost capitalised in prior years.34.2. The Company in its tax return for financial years 2006 to 2008 (tax years 2007 to 2009) claimed the benefit of Group Relief under Section 59B of the Income Tax Ordinance, 2001 (the Ordinance) on losses acquired for an equivalent cash consideration from its wholly owned subsidiary, Engro Foods Limited (EFL), amounting to Rs. 428,744, Rs. 622,103 and Rs. 450,000 respectively. The Tax Department raised a demand of Rs. 476,479 (rectified to Rs. 406,644) and Rs. 910,845 for financial years 2006 and 2007, on disallowance of mainly Group Relief (in both years), inter corporate dividend (in 2007) besides certain other issues. The Company has paid Rs. 170,000 and Rs. 400,000 respectively there against. Stay by the High Court of Sindh for payment of balance amount for financial year 2006 has been granted pending decision of the appeal filed by the Company before the Income Tax Appellate Tribunal (ITAT). However for financial year 2007, stay has been granted by the Tax Department till April 30, 2010. The main contention for disallowance of Group Relief, among others, being the non-designation of the Company as well as the subsidiary company as 'companies' entitled to Group Relief by the Securities & Exchange Commission of Pakistan (SECP), a requirement of Section 59B of the Ordinance. The Company had applied for such a designation but remained pending with SECP for want of related regulations not framed then. These regulations have been framed by SECP subsequently in December 2008 under which the Company alongwith other subsidiaries have been registered as a Group and a fresh application for the aforesaid designation will now be filed. The Commissioner Inland Revenue (Appeals) taking cognizance of the above and other factors has, vide order dated November 13, 2009, decided the issue of Group Relief in Company's favor for the financial year 2007, while for 2006 it is pending at the ITAT level as stated above. The Company has filed tax returns up to financial year 2008 of which tax returns from financial years 2003 2008 have been filed under the self assessment scheme. All assessments for income years 1995 to 2002 have been finalized by the Department and are in appeal at either the CIT or ITAT level on various issues, the major one being apportionment of gross profit and expenses between normal income and Final Tax Regime (FTR) income. The Company is confident that all the above issues, including the issue of Group Relief, will be ultimately decided in its favor without any additional tax liability. 34.3. Relationship between tax expense and accounting profit The tax on the Company's profit before tax differs from the theoretical amount that would arise using the.Company's applicable tax rate as follows: ======================================================================================
2009 2008
======================================================================================
(Amounts in thousand)
======================================================================================
Profit before tax 5,214,946 5,204,574
Tax calculated at the rate of 35% 1,825,231 1,821,601
Depreciation on exempt assets not deductible
for tax purposes 34,495 34,495
Effect of exemption from tax on certain income (509,135) (770,000)
Effect of applicability of lower tax
rate and other tax credits/debits (92,895) (121,952)
Tax charge for the year 1,257,696 964,144
======================================================================================35. EARNINGS PER SHAREThere is no dilutive effect on the basic earnings per share of the Company. since the average market price of the Company's share is less than the exercise price of the options granted on Company's shares to employees (as per Company's policy, note 2.15 and note 7) and lender (note 20.4). These options may have a potential dilutive impact on basic earnings per share in future periods. The basic earnings per share of the Company is based on: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Profit after taxation 3,957,250 4,240,430
Weighted average number of Ordinary shares (in thousand) 281,119 252,247
======================================================================================36. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVESThe aggregate amounts charged in these financial statements for remuneration, including all benefits, to chief executive, directors and executives of the Company are given below: =============================================================================================================
2009 2008
=============================================================================================================
Directors Executives Directors Executives
Chief Chief
Executive Others Executive Others
=============================================================================================================
(Rupees)
=============================================================================================================
Managerial remuneration 39,640 37,066 847,737 28,154 30,817 652,283
Retirement benefits funds 3,929 4,154 116,932 3,338 3,606 96,909
Other benefits 10,147 15,413 182,314 8,920 12,522 119,631
Fees - 7,708 - - 840 -
Total 53,716 64,341 1,146,983 40,412 47,785 868,823
Number of persons including
those who worked part of the year 1 13 415 1 9 385
=============================================================================================================36.1. 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.37. RETIREMENT BENEFITS 37.1. Defined benefit plans The latest actuarial valuation of the defined benefit plans was carried out as at December 31, 2009, using the Projected Unit Credit Method. Details of the defined benefit plans are as follows: 37.1.1. Balance sheet reconciliation ======================================================================================================================================
(Amounts in thousand)
======================================================================================================================================
Defined Benefit Pension Plan Defined Benefit Gratuity Defined Benefit Separation
Funded (Curtailed) Plans Funded Gratuity Plan Un-funded
======================================================================================================================================
2009 2008 2009 2008 2009 2008
======================================================================================================================================
Present value of funded obligation 28,703 29,311 310,479 267,158 - -
Fair value of plan assets (62,645) (67,276) (346,583) (291,946) - -
Surplus (33,.942) (37,965) (36,104) (24,788) - -
Present value of unfunded obligation - - - - - 652
unrecognised actuarial gain 2,055 6,778 28,873 24,788 - -
Unrecognised past service cost - - 7,231 - - -
Net (asset)/liability at end of the year (31,887) (31,187) - - - 652
======================================================================================================================================37.1.2. Movement in net (asset)/liability recognised======================================================================================================================================
(Amounts in thousand)
======================================================================================================================================
Defined Benefit Pension Plan Defined Benefit Gratuity Defined Benefit Separation
Funded (Curtailed) Plans Funded Gratuity Plan Un-funded
======================================================================================================================================
2009 2008 2009 2008 2009 2008
======================================================================================================================================
Net (asset)/liability at beginning of the year (31,187) (17,629) - - 652 652
(Reversal)/expense recognised (5,700) (30,997) 11,334 13,600 (652) -
Amounts received from/(paid to) the Fund 5,000 17,439 (11,334) (13,600) - -
Net (asset)/liability at end of the year (31,887) (31,187) - - - 652
======================================================================================================================================37.1.3. Movement in defined benefit obligation======================================================================================================================================
(Amounts in thousand)
======================================================================================================================================
Defined Benefit Pension Plan Defined Benefit Gratuity Defined Benefit Separation
Funded (Curtailed) Plans Funded Gratuity Plan Un-funded
======================================================================================================================================
2009 2008 2009 2008 2009 2008
======================================================================================================================================
Present value of defined benefit obligation at
beginning of the year 29,311 358,974 267,158 228,681 - -
Current service cost - - 17,345 14,936 - -
Interest cost 4,172 29,351 39,540 22,658 - -
Settlement in respect of pensioners - (298.819) - - - -
Benefits paid during the year (2,501) (23.072) (4,755) (12,698) - -
Actuarial (gain)/loss on obligation (2.279) (37,123) 540 13,581 - -
Unrecognised past service cost - - (10,198) - - -
Liability transferred in respect of
inter-company transfer - - 849 - - -
Present value of defined benefit obligation at
end of the year 28,703 29,311 310,479 267,158 - -
======================================================================================================================================37.1.4. Movement in fair value of plan assets======================================================================================================================================
(Amounts in thousand)
======================================================================================================================================
Defined Benefit Pension Plan Defined Benefit Gratuity Defined Benefit Separation
Funded (Curtailed) Plans Funded Gratuity Plan Un-funded
======================================================================================================================================
2009 2008 2009 2008 2009 2008
======================================================================================================================================
Fair value of plan assets
at beginning of the year 67,276 438,769 291,946 245,039 - -
Expected return on plan assets 9,866 36,553 41,882 24.097 - -
(Repayment to)/contribution by the Company (5.000) (17.439) 11,334 13,600 - -
Benefits paic during the year (2.501) (23.072) (4.755) (12.698) - -
Settlement in respect of the pensioners - (298,819) - - - -
Actuarial gain/(loss) on plan assets (6,996) (68,716) 5,327 21,908 - -
Liability transferred in respect of
inter-company transfer - - 849 - - -
Fair value of plan assets at end of the year 62.645 67,276 346,583 291,946 - -
======================================================================================================================================37.1.5. Charge for the year==========================================================================================================
Defined Benefi Plan Defined Benefit
Funded (Curtailed) Gratuity Plans Funded
==========================================================================================================
2009 2008 2009 2008
==========================================================================================================
(Rupees)
==========================================================================================================
Current service cost - - 17,345 14,936
Interest cost 4,172 29,351 39,540 22,658
Expected return on plan assets (9.866) (36,553) (41,882) (24,097)
Recognition of curtailment gain (note 37.1.10) - (22,102) - -
Amortisation of unrecognized past service cost - - (64) -
Amortisation of transitional obligation - - (439) -
Recognition of past service cost - - (2,464)
Net actuarial (gain)/loss recognised during
The year (6) (1,693) (702) 103
(5,700) (30,997) 11,334 13,600
==========================================================================================================37.1.6. Principal actuarial assumptions used in the actuarial valuation==========================================================================================================
Defined Benefi Plan Defined Benefit
Funded (Curtailed) Gratuity Plans Funded
==========================================================================================================
2009 2008 2009 2008
==========================================================================================================
(Rupees)
==========================================================================================================
Discount rate 12% 15% 12% 15%
Expected per annum rate of return on plan assets 12% 15% 12% 15%
Expected per annum rate of increase in pension 4.5% 7.5% - -
Expected per annum rate of increase in future salaries - - 12% 15%
==========================================================================================================37.1.7.==========================================================================================================
Defined Benefi Plan Defined Benefit
Funded (Curtailed) Gratuity Plans Funded
==========================================================================================================
2009 2008 2009 2008
==========================================================================================================
(Rupees)
==========================================================================================================
Actual return on plan assets 2,870 (32,163) 47,209 46,005
==========================================================================================================37.1.8. Plan assets comprise of the following==========================================================================================================
2009 2008
==========================================================================================================
(Rupees) (%) (Rupees) (%)
==========================================================================================================
Fixed income instruments 269,802 66% 7,417 2%
Cash 23,493 6% 13,021 4%
Others 115,933 28% 338,784 94%
409,228 359,222
==========================================================================================================37.1.9. The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date.37.1.10. During the year, the Company recognised a gain of Rs. 5,700 (2008: Rs. 30,997) on curtailed defined benefit plan. In 2005,ployees. the Company had setup a Defined Contribution Pension Fund known as Engro Chemical Pakistan Limited MPT Employees Pension Fund (the Fund) for the benefit of management em Employees joining the Company from July 1, 2005 onwards were to become members of the new Fund. Members of the then existing pension fund (a defined benefit plan) were given a one-time option exercisable upto June 15, 2005 to join the new Fund effective from July 1, 2005. 37.1.11. Comparison of five years ========================================================================================================================
2009 2008 2007 2006 2005
========================================================================================================================
(Rupees)
========================================================================================================================
Present value of defined
benefit obligation (339.182) (296,469) (587,655) (536,209) (538,407)
Fair value of plan assets 409,228 359,222 683,808 722,867 605,797
Surplus/(deficit) 70,046 62,753 96,153 186,658 67,390
========================================================================================================================37.1.12. Effective from January 1, 2009, the normal retirement age for employees was increased from 58 years to 60 years, which resulted in negative past service cost of Rs. 10,198. As required under IAS-19, vested portion of this Cost amounting to Rs. 2,464 was recognised immediately, whereas the non vested portion of Rs. 503 will be amortised over the average period to vesting for the plan participants. which is worked out to be approximately 15 years for MPT and 18 years for Non-MPT employees.37.1.13. Expected future cost for the year ending December 31, 2010 is as follows: ======================================================================================
(Rupees)
======================================================================================
MPT Pension Fund (4,073)
MPT Gratuity Fund 10,839
Non-MPT Gratuity Fund 6,608
======================================================================================37.2. Defined contribution plansAn amount of Rs. 121,044 (2008: Rs. 95,714) has been charged during the year in respect of defined contribution plans maintained by the Company. 38. CASH GENERATED FROM OPERATIONS ======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Profit before taxation 5,214,946 5,204,574
Adjustment for non-cash charges and other items:
Depreciation 659,175 642,488
Amortisation 13,347 11,246
Profit on disposal of property, plant and equipment (23,604) (69,303)
Provision for retirement and other service benefits obligations 146,218 78,317
Income on deposits/other financial assets (19,670) (20,630)
Dividend income (1,885,000) (2,605,396)
Financial charges 1,320,579 1,508,948
Employee share compensation expense 65,174 66,673
Employee housing subsidy expense 106,985 69,587
Provision for surplus and slow moving stores and spares 14,605 7,523
Provision for doubtful trade debts 814 (100)
Provision for other receivables (1,374) (1,469)
Provision for loans, advances, deposits and prepayments 1,295 -
Working capital changes (note 38.1) 3,161,762 (2,479,900)
8,775,252 2,412,558
======================================================================================38.1. Working capital changes======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Decrease/(increase) in current assets:
Stores, spares and loose tools (175,631) (223,891)
Stock-in-trade 4,258,289 (1,990,743)
Trade debts (2,253,731) 1,147,477
Loans, advances, deposits and prepayments 428,674 (1,009,503)
Other receivables - net 208,583 (123,632)
2,466,184 (2,200,292)
Increase/(decrease) in current liabilities:
Trade and other payables including other
service benefits - net 695,578 (279,608)
3,161,762 (2,479,900)
======================================================================================39. CASH AND CASH EQUIVALENTS======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Cash and bank balances (note 16) 3,955,342 1,687,038
Short term borrowings (195,753) (1,711,275)
Short term investments (note 15) 450,857 67,811
4,210,446 43,574
======================================================================================40. FINANCIAL INSTRUMENTS BY CATEGORY======================================================================================
(Amounts in thousand)
======================================================================================
2009 2008
======================================================================================
Financial assets as per balance sheet
Loans and receivables
Loans, advances and deposits 1,644,174 1,756,826
Trade debts 2,514,425 261,508
Other receivables 167,415 117,624
Cash and bank balances 3,955,342 1,687,038
8,281,356 3,822,996
Fair value through profit and loss
Short term investments 450,857 67,811
Derivatives used for hedging
Derivatives 76,209 1,521,619
Financial liabilities as per balance sheet
Financial liabilities measured at amortised cost
Borrowings 59,571,207 29,544,589
Retirement and other service benefits obligations 68,181 62,599
Trade and other payables 1,680,932 1,667,531
Accrued interest/mark-up 1,366,022 804,390
Unclaimed dividends 102,099 318,320
62,788,441 32,397,429
Fair value through profit and loss
Conversion option on IFC loan 338,647 -
Derivatives used for hedging
Derivatives 1,014,238 1,073,210
======================================================================================41. FINANCIAL RISK MANAGEMENT41.1. Financial risk factors The Company's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on having cost efficient funding as well as to manage financial risk to minimize earnings volatility and provide maximum return to shareholders. Risk management is carried out by the Company's Finance and Planning Department under policies approved by the Management Committee. a).Market risk i).Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. This exists due to the Company's exposure resulting from outstanding import payments, foreign currency loan liabilities and related interest payments. A foreign exchange risk management policy has been developed and approved by the management. The policy allows the Company to take currency exposure for limited periods within predefined limits while open exposures are rigorously monitored. The Company ensures to the extent possible that it has options available to manage exposure, either through forward contracts, options or prepayments, etc. subject to the prevailing foreign exchange regulations. The Company is exposed to currency risk on commitments to purchase plant and machinery in connection with urea expansion project (note 4.5.1) denominated primarily in Euros. However, as at December 31, 2009, this exposure is minimal since major procurements have been completed. The Company has entered into Euro-Dollar forward exchange contracts/options to hedge its currency risk, most of which have a maturity of less than one year from the reporting date (note 8). The Company's ability to mitigate foreign exchange risk has however been curtailed by the State Bank of Pakistan which has disallowed issuance of new forward covers against letters of credit. On foreign currency borrowing of US$ 235,000 for the urea expansion project, the Company maintains a minimum Rupee-Dollar hedge of US$ 85,000 as per lender covenants. IFC loan of US$ 50,000 which was drawn down end of December 2009 has not been hedged so far. The impact of other devaluation/revaluation on post tax profit for the year is negligible since all foreign currency borrowings/funds relates to the project, hence gain/loss arising is capitalised. ii).Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's interest rate risk arises from short and long term borrowings. These are benchmarked to variable rates which expose the Company to cash flow interest rate risk. The Company analyses its interest rate exposure on a regular basis by monitoring interest rate trends to determine whether they should enter into hedging alternatives. Interest rate risk arising on foreign currency loans are hedged through interest rate swaps (note 8). Rates on short term loans vary as per market movement. As at December 31, 2009, if interest rates on Company's borrowings had been 1% higher/lower with all other variables held constant, post tax profit for the year would have been lower/higher by Rs. 53,548 (2008: Rs. 67,421), mainly as a result of interest exposure on variable rate borrowings. iii).Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from currency risk or interest rate risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors effecting all similar financial instruments traded in the market. The Company is not exposed to equity securities price risk as all of its investments are in subsidiary companies which are stated at cost. The Company's investments in money market mutual funds are exposed to price risk related to interest rate instruments. b).Credit risk Credit risk represents the risk of financial loss being caused if counter party fails to discharge an obligation. Credit risk arises from deposits with banks and financial institutions, trade debts, loans, advances. deposits, bank guarantees and other receivables. The credit risk on liquid funds is limited because the counter parties are banks with a reasonably high credit rating or mutual funds which in turn are deposited in banks and government securities. The Company maintains an internal policy to place funds with commercial banks/mutual funds having a minimum short term credit rating of Al + The Company is exposed to a concentration of credit risk on its trade debts by virtue of all its customers being agri-based businesses in Pakistan. However, this risk is mitigated by applying individual credit limits and by securing the majority of trade debts against bank guarantees and by the fact that the exposure is spread over a wide customer base. The credit risk arising on account of acceptance of these bank guarantees is managed by ensuring that the bank guarantees are issued by banks of reasonably high credit ratings as approved by the management. The Company monitors the credit quality of its financial assets with reference to historical performance of such assets and available external credit ratings. The carrying values of financial assets which are neither past due nor impaired are as under: ======================================================================================
2009 2008
======================================================================================
Loans, advances and deposits 1,644,174 1,756,826
Trade debts 2,381,684 69,941
Other receivables 108,354 60,332
Short term investments 450,857 67,811
Bank balances 3,950,492 1,357,886
8,535,561 3,312,796
======================================================================================The credit quality of receivables can be assessed with reference to their historical performance with no or negligible defaults in recent history, however, no losses incurred. The credit quality of Company's bank balances can be assessed with reference to external credit ratings as follows:==============================================================================
Bank Rating Rating
Agency Short term Long term
==============================================================================
Askari Bank Limited PACRA A1+ AA
Allied Bank Limited PACRA Al + AA
Bank Al-Habib Limited PACRA Al + AA+
Bank Al-Falah Limited PACRA Al + -AA
Barclay's Bank plc S&P Al + AA-
Citibank N. A. S&P Al A+
Deutsche Bank AG S&P Al A+
Faysal Bank Limited JCR-VIS Al + AA
Habib Bank Limited JCR-VIS Al + AA+
HSBC Bank Middle East Limited Moody's P1 AA2
MCB Bank Limited PACRA Al + AA+
National Bank of Pakistan JCR-VIS Al + MA
Royal Bank of Scotland Limited PACRA Al + AA
Standard Chartered Bank (Pakistan) Limited JCR-VIS Al + AA+
United Bank Limited JCR-VIS Al + AA+
============================================================================== c).Liquidity riskLiquidity risk represents the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities. Due to dynamic nature of the business, the Company maintains flexibility in funding by maintaining committed credit lines available. The Company's liquidity management involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to contractual maturity dates. ========================================================================================================
2009 2008
========================================================================================================
Maturity Maturity Maturity Maturity
Upto after Total Upto after Total
Rupees in Thousand One Year One Year One Year One Year
========================================================================================================
(Rupees)
========================================================================================================
Derivatives 740,043 612,842 1,352,885 155,160 918,050 1,073,210
Trade and other payables 1,680,932 - 1,680,932 1,667,531 - 1,667,531
Accrued interest/mark-up 1,366,022 - 1,366,022 804,390 - 804,390
Retirement & other service
benefits obligations 20,600 47,581 68,181 18,986 43,613 62,599
Borrowings 1,005,853 58,565,354 59,571,207 1,787,875 27,756,714 29,544,589
Unclaimed dividends 102,099 - 102,099 318,320 - 318,320
4,915,549 59,225,777 64,141,326 4,752,262 28,718,377 33,470,639
========================================================================================================41.2. Capital risk managementThe Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefit for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions, To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders or issue new shares. The management seeks to maintain a balance between higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Company ensures that the total long term borrowings to equity ratio does not exceed 73.5:26.5 as per lender covenants. The total long term borrowings to equity ratio as at December 31, 2009 and 2008 are as follows: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Total borrowings 59,375,454 27,833,314
Total equity 26,888,238 21,053,606
86,263,692 48,886,920
Total borrowings to equity ratio 69% 57%
======================================================================================The Company finances its operations through equity, borrowings and management of working capital with a view to maintaining an appropriate mix between various sources of finance to minimise risk.41.3. Fair value estimation Effective January 1, 2009, the Company adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices in active markets for identical assets or liabilities (level 1) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2) Inputs for the asset or liability that are not based on observable market data (level 3) The following table presents the Company's assets and liabilities that are measured at fair value as at December 31, 2009: ==================================================================================================
(Amounts in thousand)
==================================================================================================
Level 1 Level 2 Level 3 Total
==================================================================================================
Assets
Financial assets at fair value through profit and loss
Short term investments (money market funds) 375,062 - - 375,062
Derivative financial instruments
Derivatives used for hedging - 76,209 - 76,209
375,062 76,209 - 451,271
Liabilities
Financial liabilities measured at amortised cost
Retirement and other service benefits obligations - 68,181 - 68,181
Derivative financial instruments
Derivatives used for hedging - 1,014,238 - 1,014,238
Conversion option on IFC loan - 338,647 - 338,647
- 1,421,066 - 1,421,066
==================================================================================================41.4. Fair value of financial assets and liabilitiesThe carrying value of all financial assets and liabilities reflected in the financial statements approximate their fair values. 42. TRANSACTIONS WITH RELATED PARTIES Related parties comprise subsidiaries, joint venture companies, other companies with common directors. retirement benefit funds, directors and key management personnel. Details of transactions with related parties during the year, other than those which have been disclosed elsewhere in these financial statements, are as follows: ======================================================================================
2009 2008
======================================================================================
(Rupees)
======================================================================================
Subsidiary companies
Purchases and services 10,614,781 7,768,018
Sales 734 -
Services rendered 186,267 37,373
Rent 17,646 -
Associated companies
Purchases and services 1,236,921 5,028,589
Dividend paid 751,280 597,769
Payment of interest on TFCs and repayment
of principal amount 7,051 1,624
Right shares issued (including share premium) 1,777,152 1,413,643
Investment in mutual funds 699,250 -
Redemption of mutual funds 611,025 -
Joint ventures
Services rendered 2,215 1,540
Others
Dividend paid 50,195 41,949
Right shares issued (including share premium) 314,732 26,889
Remuneration of key management personnel 153,441 121,395
======================================================================================43. DONATIONSDonations include the following in which a director or his spouse is interested: ========================================================================================
(Amounts in thousand)
========================================================================================
Interest Name and Address 2009 2008
in Donee of Donee
========================================================================================
Mr. Hussain Dawood Director Pakistan Centre for Philanthropy 850 -
Mr. Hussain Dawood Chairman Karachi Education Initiative 13,000 -
and Mr. Asad Umar Director
Mr. Asad Umar and Member Lahore University of Management
Mr. Shahzada Dawood Sciences, Lahore 300 300
14,150 300
========================================================================================44. PRODUCTION CAPACITY===========================================================
Designed Actual
Annual Production
Capacity 2009 2008
===========================================================
Metric Tons
===========================================================
Urea Plant (note 44.1) 975,000 952,024 995,020
NPK Plant (note 44.2) 160,000 91,821 97,669
===========================================================44.1. Urea Plant also produced 561 metric tons (2008: NIL) of Liquid Ammonia for outside sale. Actual production was below designed annual capacity due to planned maintenance shutdown.44.2. Actual production was below the designed annual capacity due to planned shut downs as per market demand for NPK products. 45. LOSS OF CERTAIN ACCOUNTING RECORDS During 2007, a fire broke out at PNSC Building, Karachi where the Head Office and Registered Office of the Company was located. Immediately following this event the Company launched its Disaster Recovery Plan due to which operational disruption and financial impact resulting from this incident remained minimal. The fire destroyed a substantial portion of its hard copy records related to the financial years 2005, 2006 and the period January 01, 2007 to August 19, 2007 although, electronic data remained intact due to the Company's Disaster Recovery Plan. The Company launched an initiative to recreate significant lost records and was successful in gathering the same in respect of the financial year 2007. Hard copy records related to the already reported financial years 2005 and 2006 have not been recreated. 46. NON-ADJUSTING EVENT AFTER BALANCE SHEET DATE The Board of Directors in its meeting held on January 22, 2010 has proposed a final cash dividend of Rs. 2 per share (2008: Rs. 2 per share final cash dividend) and bonus issue in the ratio of 1 share for every 10 shares held i.e. 10% bonus, for approval of the members at the Annual General Meeting to be held on February 27, 2010. The financial statements for the year ended December 31, 2009 do not include the effect of the proposed cash dividend and bonus issue, which will be accounted for in the financial statements for the year ending December 31, 2010. 47. DATE OF AUTHORISATION FOR ISSUE These financial statements were authorised for issue on January 22, 2010 by the Board of Directors of the Company. |