History

In 1957, the search for oil by Pak Stanvac, an Esso/Mobil joint venture led to the discovery of the Mari Gas field near Daharki a small, remote area in Upper Sindh province at the time. Esso

proposed the establishment of a urea plant in that area which led to a fertilizer plant agreement signed in 1964. In the subsequent year, Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso and 25% by the general public. The construction of a urea plant commenced at Daharki in 1966 and production began in 1968. At US $43 million with an annual production capacity of 173,000 tons, it was the single largest foreign investment by a multinational corporation in Pakistan at the time. A full-fledged marketing organization was established which undertook agronomic programs to educate the farmers of Pakistan. As the nations first fertilizer brand, Engro (then Esso) helped modernize traditional farming practices to boost farm yields, directly impacting the quality of life not only for farmers and their families, but for the nation at large. As a result of these efforts, consumption of fertilizers increased in Pakistan, paving the way for the Companys branded urea called Engro, an acronym for Energy for Growth. As part of an international name change program, Esso became Exxon in 1978 and the Company was renamed Exxon Chemical Pakistan Limited. The Company continued to prosper as it relentlessly pursued productivity gains and strived to attain professional excellence. In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with leading international and local financial institutions, bought out Exxons 75% equity. This was at the time and perhaps still is the most successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business, and diversification into other businesses. Along the way, a major milestone in plant capacity upgrade coincided with the employee led buy-out; innovatively optimizing our resources, Engro relocated fertilizer manufacturing plants from the UK and US to its Daharki plant site an international first.

Engro Chemical Pakistan Limited then started a journey of venturing into other sectors including foods, energy, industrial control and automation, PVC resin manufacturing and marketing, and chemical terminal and storage. In 2009 plans were announced of demerging the fertilizer business into an independent operating company. The expansion and growth in the company necessitated a change in the way the company operated and conducted business. Keeping in view the operations of multi category businesses, expansion strategy and growth vision, the management decided that the various businesses would be better served if the Company was converted to a holding company. As a result it was decided to demerge the fertilizer business and establish a holding company structure to manage the affairs of various businesses. Engro Fertilizers Limited was incorporated in June 2009 to manage the fertilizer business post demerger. The demerger required the approval of the High Court of Sindh, which was granted on December 9, 2009 after obtaining the requisite approvals from the creditors and shareholders of the Company. The demerger became effective from January 1, 2010. Consequently, all fertilizer business assets and liabilities have been transferred to Engro Fertilizers Limited against the issue of shares to the Company. To reflect the change in the scope of mandate and scale of operations, Engro Chemical Pakistan Limited has been renamed as Engro Corporation Limited with effect from January 1, 2010. Engro Corp, as the holding company is responsible for the long term vision of the company, overseeing the performance of the subsidiaries and affiliates, allocation of capital, management of talent, leadership development, HR guiding policies, leadership role in public relations and CSR activities, control structures, legal and IT support.

Board of Directors
Hussain Dawood (Chairman) Asad Umar (President & Chief Executive) Asif Qadir Arshad Nasar Shahzada Dawood

Shabbir Hashmi Isar Ahmad Khalid Mansoor Ruhail Mohammed Khalid S. Subhani Muhammad Aliuddin Ansari Abdul Samad Dawood Saad Raja

Auditors
A. F. Ferguson & Co. Chartered Accountants State Life Building No. 1-C I. I. Chundrigar Road Karachi-74000, Pakistan.

Last five Year Performance Report

Millions Rupees Net Sale Revenue Operating Profit Profit Before Tax Profit After Tax Property plant and Equipment Capital Expenditure Long Term Investment Net Current Assets

2009 30172 4986 5215 3957 6260 36352 1897 4353

2008 23317 4539 5205 4240 5812 20214 3327 6043

2007 23183 3279 4235 3155 6109 8298 4108 10421

2006 17602 2756 3445 2547 6318 391 1480 2042

2005 18276 2641 3220 2319 6351 377 748 2211

CALCULATION OF WORKING CAPITAL.

WORKING CAPITAL=CURRENT ASSETS CURRENT LIABLITIES CURRENT ASSETS RS.

Stores, spares and loose tools Stock-in trade 422607 Trade debts 2514425 Deferred employee compensation expense 87278 Loans, advances, deposits and prepayments 1469155 Other receivables
275714

96117

Cash and bank balances 3955342 Derivative Other receivables 536167 Short term investments 450857

TOTAL CURRENT ASSETS CURRENT LIABILITIES

Trade and other payables 3160852 Short term borrowings 1366022 Accrued interest / mark-up 810100 Current portion of: - borrowings 20600 - other service benefits obligations 195753 Derivative financial instruments 740043 Unclaimed dividends 102099

10748865 RS.

TOTAL CURRENT LIABILITIES

WORKING CAPITAL=10748871-6395469 =4353396

6395469

COMPOSITION OF NON CURRENT ASSETS

PROPERTY,PLANT,EQUIPMENT INTANGIBLE ASSETS LONG TERM INVESTMENT DEFFERED EMPLOYEECOMPENCATION EXPENSES DARIVATIVE FINANCIAL INSTRUMENT LONG TERM LOAN ,ADVANCES

FINANCIAL ASSETS:
Those assets that can be converted into loan value of cash with out losing any significant value. Cash Account receivable Marketable securities Composition of financial assets of ENGRO CHAMICAL: CASH TRAD DEBT OTHER RECEIVABLE

3955342 2514425 275714

Method for charging depreciation:

Depreciation is charged to profit and loss account using straight line method whereby the cost of operating assets is less then their estimated book value over their estimated useful life at following rates.

Different rates for different operating Assets:

Land Building Plant Catalyst furniture free hold machinery - 2to5 2.5 to10 2.5 5 to 10 Lease hold machinery Fixture Equipment Vehicles 22 to 33 Nili 10 to 25 12to25

Policy for Account receivable:

Organization has established provision for impairment for bad debts. If there is an objective evidence that the company will not be able to collect all amount due according to the original term of receivable. This provision charged to profit&loss account.

Policy for payments:

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. Payable: 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.
SHORT TERM BORROWINGS - Secured

The 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. NON- CURRENT LIABILITIES

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). 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 Company has arranged these finance facilities, during the year, for its urea expansion project. 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. 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 1 2 3 4 5 6 7 Redemption Percentage 0.04 0.04 7.96 7.96 12 12 60

Rs. 3,000,000. The principal amount is payable after seven years in two semi-annual equal installments 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 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 I issue has mark-up of six months KIBOR plus 1.7% and the PPTFC II issue has markup of six months KIBOR plus 1.25%. The Company has appointed IGI Investment Bank Limited as trustee in respect of these TFCs. charge over all present and future fixed assets excluding land and buildings.

Taxes
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 thereagainst. 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.