Engro : Transmission of Financial Statements for the six-months ended June 30, 2023

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FAMCO Associates (Private) Limited

8-F, Near Faran Hotel, Nursery, Block-6 PECHS, Shahrah-e-Faisal, Karachi

registered office

8th Floor, The Harbour Front Building,

HC # 3, Marine Drive, Block 4, Clifton, Karachi-75600, Pakistan Tel: +92(21) 35297501 - 35297510, Fax:+92(21) 35810669 e-mail: info@engro.com, website: www.engro.com

auditors

A.F. Ferguson & Co Chartered Accountants

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

Karachi-74000, Pakistan

Tel: +92(21) 32426682-6 /32426711-5

Fax +92(21) 32415007 / 32427938

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About Us

Engro Corporation Limited is one of Pakistan's largest conglomerates with a business portfolio spanning across four verticals including food & agriculture, energy & related infrastructure, petrochemicals, and telecommunication infrastructure. At Engro, our ambition is to become the premier Pakistani enterprise with a global reach.

The management team at Engro is responsible for conceptualizing and articulating goals that bring our people together in pursuit of our objectives. It leads the Company with a firm commitment to the values and spirit of Engro. In our journey to become more growth-oriented and sustainable, our management structure has evolved to create a more transparent and accessible organization.

Our growth is driven by our people. Our culture is dynamic and energetic, with emphasis on our core values and loyalty of our employees. Our work environment promotes leadership, integrity, teamwork, diversity, and excellence.

Our History

Today, Engro is one of Pakistan's most progressive, growth-oriented organizations, managed under a holding structure that works towards better management and oversight of subsidiaries and affiliates that are part of Engro's capital investments in Pakistan.

The Company is also defined by its history, which reflects a rich legacy of innovation and growth. The seeds for the Company were sown following the discovery of the Mari gas field by Esso/Mobil in 1957. Esso proposed the establishment of a urea plant, and the Esso Pakistan Fertilizer Company Limited was established in 1965 with production beginning in 1968. At US $43 million with an annual production capacity of 173,000 tons, this was the single largest foreign investment by a multinational corporation in Pakistan at the time. As the nation's first fertilizer brand, the Company also pioneered the education of farmers in Pakistan, helping to modernize traditional farming practices to boost farm yields, directly impacting the quality of life for farmers and the Nation.

In 1978, Esso was renamed Exxon, globally, and the Company became Exxon Chemical Pakistan Limited. The business continued to prosper as it relentlessly pursued

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productivity gains and strived to attain professional excellence. In 1991, following a decision by Exxon to divest its fertilizer business on a global basis, the employees of Exxon Chemical Pakistan Limited decided to buy out Exxon's share. This was, and perhaps still is, the most successful employee buy-out in the corporate history of Pakistan. Renamed Engro Chemical Pakistan Limited, the company continued to go from strength-to-strength, reflected in its consistent financial performance, growth, and diversification.

In 2009, a decision was made to demerge the fertilizer business into an independent operating company to ensure undivided focus on the business's expansion and growth. In the best interests of a multi category business, 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; Engro Corporation Limited.

From its inception as Esso Pakistan Fertilizer Company Limited in 1965 to Engro Corporation Limited in 2010, Engro has come a long way and will continue working towards its vision of becoming a premier Pakistani company with a global reach.

Engro Corporation Limited

Engro Corporation Limited is a holding company, created following the conversion of Engro Chemical Pakistan Limited on January 1, 2010. Engro Corp is one of Pakistan's largest conglomerates with the Company's business portfolio in four verticals, which include food & agri, petrochemicals, energy & related infrastructure and telecom infrastructure.

Engro Fertilizers Limited

Engro Fertilizers Limited - a 56% owned subsidiary of Engro Corporation - is a premier fertilizer manufacturing and marketing company having a portfolio of fertilizer products with significant focus on balanced crop nutrition and increased yield. As one of the 50 largest fertilizer manufacturers of the world, we have close to 6 decades of operations as a world-class facility with a wide range of fertilizer brands, besides urea, which include some of the most trusted brand names by Pakistani farmers. These include brands like Engro Zarkhez, Zingro, and Engro DAP, amongst others.

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Engro Polymer & Chemicals Limited

Engro Polymer & Chemicals Limited - a 56% owned subsidiary of Engro - is the only fully integrated chlor-vinyl chemical complex in Pakistan and produces poly-vinyl chloride (PVC), caustic soda, sodium hypochlorite, hydrochloric acid and other chlorine by-products. The business was set up as a state-of-the-art plant in 1997, as a 50:50 joint venture, with Mitsubishi and Asahi Glass with Asahi subsequently divesting its shareholding in 2006.

Engro Energy Limited

Engro Energy Limited is a wholly-owned subsidiary of Engro Corporation and it owns and operates Engro Powergen Qadirpur Limited, a 224-megawatt power plant and the group's first initiative in the power sector of Pakistan. Engro Powergen Qadirpur Limited was listed on the Karachi Stock Exchange in October 2014 where 25% of the shares were offered to the public. As of now, Engro Powergen Qadirpur Limited is 69% owned by Engro Energy Limited. Engro Energy Limited is also involved in the Thar Coal project. The project operates a coal mine under Sindh Engro Coal Mining Company (SECMC) and operations of two 330MW mine mouth power plants under Engro Powergen Thar Limited in the first phase. SECMC is a joint venture company formed in 2009 between the Government of Sindh (GoS) and Engro Energy Limited & Affiliates. SECMC's shareholders include Government of Sindh, Engro Energy Limited, Thal Limited, Habib Bank Ltd, CMEC Thar Mining Investment Limited, Huolinhe Open Pit Coal Investment Company Limited, and Hub Power Company Limited (HUBCO). The Sindh Coal Authority has awarded a 95.5 square kilometer area of the coalfield, known as Block II, to SECMC for exploration and development of coal deposits. Within this block, there is an estimated amount of exploitable lignite coal reserves of 1.57 billion tons. In 2010, SECMC completed the Bankable Feasibility Study for Thar Block II Coal Mining Project by engaging internationally renowned Consultants such as RWE-Germany,Sinocoal-China,SRK-UK, and HBP Pakistan, meeting all national/international standards. Thar Coal Project achieved its Commercial Operations Date (COD) in July 2019 and has since been providing low cost electricity to the national grid.

Elengy Terminal Pakistan Limited

Elengy Terminal Pakistan Limited (ETPL) is a 56% owned subsidiary of Engro Corporation. The Company won the contract to handle liquefied natural gas (LNG) and thereafter acquired FSRU vessel on lease from a US-based company - Excelerate Energy. Engro Elengy Terminal Limited, a wholly owned subsidiary of ETPL, set up a state-of-the-art LNG

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terminal, at Port Qasim. The terminal - which is also one of the most cost-efficient terminals in the region - has a capacity for regasification of up to 600 mmcfd.

Engro Vopak Terminal Limited

Engro Vopak is a joint venture with Royal Vopak of the Netherlands - the world's largest bulk liquid chemical handling company. The business is engaged in handling, storage, and regasification of liquid & gaseous chemicals, Liquefied Petroleum Gas (LPG), petrochemicals, and bio-fuels. Engro Vopak's terminal is Pakistan's first cryogenic facility that handles 70% of all liquid chemical imports into Pakistan, including Paraxylene (PX), Acetic Acid (AA), Vinyl Chloride Monomer (VCM), Ethylene Dichloride (EDC), Mono Ethylene Glycol (MEG), Ethylene along with Phosphoric Acid (PA) imports, which are pumped directly to customers' facilities.

FrieslandCampina Engro Pakistan

FrieslandCampina Engro Pakistan Limited is a 40% owned associated company engaged in the manufacturing, processing, and marketing of dairy products and frozen desserts. The business owns two milk processing plants in Sukkur and Sahiwal and operates a dairy farm in Nara, Sindh. In its continued efforts to 'elevate consumer delight worldwide', the business has established several brands that have already become household names in Pakistan, such as Olper's (UHT milk, low-fat milk, and cream), Omoré (frozen desserts), Tarang (tea whitener), and Dairy Omung (UHT dairy liquid and dessert cream).

Engro Enfrashare (Private) Limited

Engro Enfrashare is a wholly-owned subsidiary of Engro Connect, with a purpose to make connectivity more accessible and affordable for everyone. By aiding increased efficiency for network users, and already partnered with all of the Country's major Mobile Network Operators, Engro Enfrashare aims to help facilitate financial and social inclusion. While its expertise and investment in connectivity infrastructure allow mobile operators to reduce cost of access to consumers, Engro Enfrashare aims to engage with all stakeholders in the telecom ecosystem in order to realize a larger goal of digitizing Pakistan.

Engro Eximp Agri Products (Private) Limited

Engro Eximp Agriproducts is a wholly-owned subsidiary of the Engro Corporation and it manages the procurement, processing, and marketing of rice. The Company owns and operates a state-of-the-art paddy processing plant near Muridke and has an installed capacity of 144KT.

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The Directors of Engro Corporation Limited would like to express their deepest sorrow and heartfelt condolences on the untimely demise of Mr. Shahzada Dawood, our esteemed Vice Chairman, and his beloved son, Mr. Suleman Dawood.

Mr. Dawood's contributions to Engro Corporation were exceptional, as he had served on the Board since 2003. Over his remarkable 20-year tenure, he was immensely pleased with the work Engro was doing to contribute in solving Pakistan's most pressing issues. He strongly believed that companies that nurture a partnership between management led by professionals and shareholders with a long-term vision are geared for success and outperform other businesses by unlocking substantial value for all stakeholders. He cared deeply for Engro's employees and our colleagues who had the privilege to work with him can attest to his humility, approachability, and eagerness to embrace fresh ideas. Mr. Dawood also made substantial efforts to help Engro expand its horizon and develop a global mindset that would lead towards creating an international footprint.

Mr. Shahzada's legacy will forever inspire us, and his contributions to Engro Corporation and the larger community will be remembered with utmost respect.

The Directors of Engro Corporation Limited hereby submit their report, along with the condensed interim financial statements of the Company for the half year ended June 30, 2023.

The global economy continues to gradually recover from the pandemic and the conflict between Russia and Ukraine. Global growth remained meager in the second quarter of 2023, albeit showed signs of resilience amid ease of global commodity prices and supply chain disruptions from the 2022 peak. However, inflation remained elevated, prompting central banks to implement policy rate hikes as a measure to combat inflation and mitigate the risk of a global recession, while also ensuring financial stability.

Pakistan's economy continues to struggle with soaring inflation driven by a surge in energy prices, sharp depreciation of the Pak Rupee, and an ongoing foreign exchange crisis. Businesses continued to face challenges on account of varying concerns, including import restrictions and foreign services procurement.

In response to significant inflationary pressures, State Bank of Pakistan (SBP) continued to tighten the monetary policy by 600 bps (16% to 22%) during the first half of 2023. In addition, the Government of Pakistan (GoP) took austerity measures in the budget 2023-24 to secure the IMF bailout package. As a result, additional super tax was increased to 10% prospectively, with

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the imposition of a one-time super tax of 6% on 2022 earnings, in addition to the 4% applied last year.

The applicability of additional taxes in various forms is creating an adverse impact on the formalized corporate sector of the country as the disparity between the formal and informal sector continues to grow substantially. In frontier and emerging markets, it is critical for corporations and industrial houses to accumulate capital for funding future growth and industrialization. The same becomes challenging under high taxation regimes which hamper productivity, thereby adversely impacting the investment capability of the country. Funds that are generated through positive economic activity are heavily taxed and utilized for managing the operational expenses budgeted by the government. These funds are critical for generating further economic activity and can help in Pakistan's growth.

In light of the above, the Company had challenged multiple taxation of inter-corporate dividend (ICD) at Sindh High Court (SHC). During the period, the SHC adversely decided the matter which was subsequently challenged before the Supreme Court of Pakistan (SCP). A stay order has been granted to the Company against this matter.

Relief from multiple taxation of ICD was introduced in Pakistan as part of a larger reform to promote best global practices in the corporate sector via formation of 'holding company' structures. During this period, Engro, like various other business groups in Pakistan, transformed itself into the holding company structure with separate subsidiaries for each business segment.

Removal of ICD relief has an adverse impact on the Group's cashflows and its enterprise value, therefore, the Company is actively pursuing resolution of this matter through engagement with various stakeholders directly and through different business forums, highlighting global precedence, significance of the matter and its adverse impact on corporatization and new investments in Pakistan.

In a commendable move to address the pressing economic issues, the GoP has successfully secured a 9-month IMF Stand-By Arrangement (SBA) of USD 3 billion. The immediate disbursement of USD 1.2 billion from this package has forestalled the looming threat of default by providing much needed relief in the short term. Post the IMF-deal, import restrictions have been eased thus enabling businesses to effectively meet consumer demands.

Engro Corporation Limited's strategic presence in critical sectors of the economy has enabled our portfolio to be resilient in these

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challenging times, which is partially hedged against volatility in foreign exchange and interest rates. The Company will continue to contribute towards the recovery of our economy at this pivotal juncture.

Business Review

On a standalone basis, Engro Corporation Limited posted a Profit-After-Tax (PAT) of PKR 9,451 million against PKR 12,481 million for the comparative period, translating into an EPS of PKR 17.09. The 24% decrease in profitability is attributable to lower dividends from Engro Polymer & Chemicals Limited and Engro Fertilizers Limited as a result of the additional super tax on both businesses and the reversal of commodity cycle in the polymer business, partly offset by lower research and business development expenses in the current year.

On a consolidated basis, the Company's revenue grew by 14% to PKR 202,482 million against PKR 177,455 million for the comparative period. The consolidated PAT for first half of the year was PKR 21,474 million, while PAT attributable to the shareholders is PKR 10,574 million against PKR 7,414 million in the comparative period, resulting in an Earnings per Share (EPS) of PKR 19.12 compared to PKR 12.87 in the same period last year. Major variance is attributable to higher earnings from dollar denominated businesses, a one-off tariff true-up adjustment last year and higher costs incurred on research and business development last year, which has been partially offset by reversal of the commodity cycle.

A brief review of our business segments is as follows:

Fertilizers

The Fertilizers business showed strong performance and recorded a revenue of PKR 82,366 million compared to PKR 75,136 million in H1 2022, primarily driven by an increase in urea price. The Company's PAT stood at PKR 5,464 million versus PKR 5,413 million in the same period last year.

Urea sales during the period stood at 1,034 KT vs 1,098 KT, translating to a market share of 33%. Phosphate sales stood at 109 KT vs 154 KT during the same period in 2022.

International urea prices witnessed a massive decrease, falling to USD 260/ton (landed equivalent PKR 3,706/bag) amidst lower energy prices by the end of June 2023, as compared to USD 436/T (landed cost equivalent to PKR

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4,898/bag) at the start of the year. International phosphate prices decreased to USD 480/T on the back of a decline in global crop prices. In the midst of global commodity price volatility, the local fertilizer industry ensured availability of locally produced urea to farmers at a significant discount of ~41% over international prices. This enabled import substitution to the tune of USD 1 billion in the H1, wherein Engro Fertilizers' contribution stood at USD 346 million.

Petrochemicals

The Polymer business recorded a revenue of PKR 37,022 million compared to revenue of PKR 45,404 million in the same period last year. The Company's PAT stood at PKR 2,745 million against PKR 7,052 million in the same period last year, mainly attributable to commodity cycle reversal and lower margins on exports.

The business recorded domestic sales of 92 KT, translating to a market share of 91% versus 121 KT and a market share of 96% in the same period last year. As a result, the business has enabled import substitution of USD 45 million. Post serving the local PVC demand, the business's export sales stood at 21 KT, including caustic soda exports of 12 KT, generating foreign exchange of USD 12 million for the period.

Telecommunication Infrastructure

Enfrashare continued to expand its national footprint and achieved a scale of 3,644 tower sites by the end of June 2023 (vs 2,937 sites in June 2022) with a 1.18x tenancy ratio, catering to all four Mobile Network Operators (MNOs) in Pakistan. The business captured a market share of 60% in Built to-Suit (B2S) towers rollout during the period.

The growth potential in the business is further demonstrated by the colocation opportunities witnessed during the H1, with total colocation tenants of 88 in June 2023, representing a market share of 74%. Resultantly, revenue increased by 83% in comparison to H1 2022. The business is well positioned to capture the growth expected in the sector, driven by increase in data usage, localization of smart phone assembly and other policy-level interventions made by the Government of Pakistan.

Energy

Coal Mine: Mining operations continued smoothly, supplying coal to Engro Powergen Thar, Thar Energy and ThalNova Power. To meet the potential increase in demand for energy, the Management has committed to initiate Phase III of the expansion

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to enhance capacity to 11.4 million tons per year, approval for which has been sought from the Government of Sindh.

Thar Power Plant: Engro Powergen Thar Limited achieved a collection of 91% from inception to date, bringing it at par with other coal IPPs. During the first half, the Plant achieved availability of 74%, dispatching 1,464 GWH to the national grid as compared to 1,504 GWH in the same period last year. Plant availability remained low, primarily due to a major planned maintenance and inspection activity which typically occurs once every five years and is necessary to ensure its safety, reliability, and efficiency.

Qadirpur Power Plant: During the period, the Plant dispatched a Net Electrical Output of 496 GWH to the national grid, compared to 331 GWH in the same period last year, due to outage for scheduled major inspection. The business posted a PAT of PKR 1,221 million for the current period, as compared to PKR 406 million in the same period last year, due to higher capacity payments on the back of improved period weighing factor and efficiencies on higher dispatch.

Foods & Rice

FrieslandCampina Engro Pakistan demonstrated a topline growth of 53%, reporting a revenue of PKR 47,015 million against PKR 30,771 million in the same period last year due to price increases and growth in sales volumes.

The business recorded a PAT growth of 41% amounting to PKR 1,326 million in H1 2023 versus PKR 938 million for the comparative period. The Company took multiple business initiatives across its portfolio, including the expansion of its distribution network, cost optimization and strategic price increases, resulting in high profitability.

Engro Eximp Agriproducts recorded basmati rice exports of

5.4 KT during the first half versus 25.6 KT in the same period last year due to reduced procurement during the season. Resultantly, the rice business generated revenue of USD 7.4 million through export versus USD 21 million in H1 2022.

Terminal Operations

Shares Buyback

The Company announced the closure of the purchased period on July 25, 2023, in relation to the buyback of shares, as approved by its Members vide Special Resolution dated January 26, 2023.

During the purchase period from February 03, 2023, to July 25, 2023, the Company purchased an aggregate of 39,536,762 shares representing 6.86% of the issued and paid-up capital of the Company for a total value of PKR 11,610 million at an average purchase price of PKR 293.6/- per share (Dividend adjusted price of PKR 253.6/- per share).

Distribution to Shareholders

The Board of Directors of Engro Corporation Limited endeavors to maximize total shareholder returns and is pleased to propose an interim cash dividend of PKR 2.00 per share for the second quarter ended on June 30, 2023. This is in addition to the interim cash dividend of PKR 40.00 per share given during the first quarter of 2023. The dividend for the second quarter 2023 will take the total interim cash dividend to PKR 42.00 per share for the year ending December 31, 2023.

Near-Term Outlook

In 2023, we are committed to expanding our business operations across the four key verticals and explore new opportunities for growth, with a focus on creating sustainable value and maintaining a resilient and agile business model.

Fertilizers

Agriculture in Pakistan is facing significant challenges due to a combination of climate change and political and economic uncertainty. As the economy relies on agricultural output heavily, the obstacles expected in the upcoming months are significant. Right government interventions and assistance from relevant agencies, we believe, can bring about a recovery. Our Company remains dedicated to playing its part by providing discounted prices on essential fertilizers from international markets.

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economic activity; however, we expect a slow recovery in the second half due to IMF funding.

Telecommunication Infrastructure

The business outlook for Enfrashare remains strong owing to growing demand for mobile data usage and high-quality services, driving MNOs to enhance availability and quality through aggressive Built-to-Suit roll outs. The present macroeconomic situation will result in inflationary pressures, requiring further cost optimization for the business.

Engro Enfrashare will continue to maintain its market leadership as an Independent Tower Company through internal and external growth opportunities. It is on track to reach the earlier-set goal of becoming a 5,000+ Tower Company by the year 2024/2025.

Energy

Energy security remains one of the most pressing issues in Pakistan. Engro is using indigenous resources to help alleviate the energy crisis and uplift economic growth of the Country. To reduce Pakistan's reliance on imported fuels, our mining business is currently operating at a capacity of 7.6 million TPA and will continue to expand up to 11.4 million TPA by mid-2024. The Management is also collaborating with cement manufacturers and power producers, currently using imported coal, to optimize indigenous Thar coal.

The business is also evaluating various greenfield projects and opportunities in renewable energy and mining space.

Terminal Operations

The LNG terminal is working to alleviate energy shortages. As the market demand for energy grows, we will continue to

explore new opportunities to increase shareholder value.

Engro Vopak's unique position in the liquid chemicals handling industry allows it to remain a market leader in the chemical handling and storage business, with expectations to perform even better. However, marine LPG imports are expected to remain under pressure due to imports through the Taftan Border area.

Foods

The challenging macroeconomic circumstances may result in moderation in consumer discretionary spending and hamper our growth momentum. However, the Company will prioritize a consistent supply of nutritious and safe products. It will continue driving growth by proactively engaging with suppliers and distributors to ensure a seamless supply chain and focus on improving profitability.

Acknowledgment

The Directors would like to express their deep appreciation to our shareholders who have consistently demonstrated their confidence in the Company. We would also like to place on record our sincere appreciation for the commitment, dedication and innovative thinking put in by each member of the Engro family and are confident that they will continue to do so in the future.

The LNG terminal handled 37 cargoes, in line with H1 2022, delivering 110 bcf re-gasified LNG in to the SSGC network, accounting for ~15% of the total gas supply of the Country. The chemical terminal handled 451 KT against 720 KT during the same period last year. The decrease is mainly attributable to chemical volumes due to slowdown in economic activity pertaining to LC opening issues.

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The Polymer business plays a pivotal role in preserving foreign currency through import substitution, as well as generating foreign currency through exports. The business remains committed to serving as a key feedstock supplier to major Pakistani industries like construction and textile. Businesses operating in this sector are struggling as the demand has been adversely affected by the slowdown in construction and

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