Engro : Transmission of Quarterly Report for the three months ended March 31, 2023 (Revised)

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 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 Elengy Terminal Pakistan Limited, set up a

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state-of-the-art LNG 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 Terminal Limited 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 Limited

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 (Private) Limited is a wholly-owned subsidiary of Engro Infiniti, 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 Agri Products (Private) Limited is a wholly-owned subsidiary of the Holding Company 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 are pleased to submit their report along with the condensed interim financial statements of the Company for the first quarter ended March 31, 2023.

Global growth remained low in the first quarter of 2023 in the face of elevated inflation, escalated geopolitical tensions and rising concerns on global financial stability. Major economies in the world moved towards monetary tightening to combat inflationary pressures, however, risk of a global recession still remain heightened. Resultantly, global commodity prices eased from the 2022 peak amid widespread efforts to curtail demand.

Pakistan's economy continues to struggle in the wake of ballooning inflation on the back of higher energy prices, massive depreciation of the Rupee and the ongoing foreign exchange crisis. Moreover, political instability in the Country posed further challenges to the economy overall. Given the precarious state of foreign exchange reserves, businesses across Pakistan are facing difficulties on account of varying concerns, including import restrictions and foreign services procurement.

In response to significant inflationary pressures and imbalances that emerged in the external sector and financial markets, State Bank of Pakistan (SBP) tightened monetary policy by 500 bps (16% to 21%). The GoP is taking measures in an effort to successfully secure the IMF bailout package which is critical to avert a default on its foreign debt.

Engro's presence in the essential sectors of the economy has enabled our portfolio to be resilient in these challenging times. However, it is important to acknowledge that the external environment is likely to remain uncertain and may pose challenges in the future.

Business Review

On a standalone basis, the Company posted a PAT of PKR 6,040 million against PKR 6,877 million for the comparative period, translating into an EPS of PKR 10.63 per share. The 12% decrease in profitability is primarily on account of lower dividend from Engro Polymer & Chemicals due to reversal of commodity cycle and increase in gas prices.

On a consolidated basis, the Company's revenue grew by 10%, to PKR 97,332 million in the first quarter compared to PKR 88,333 million in Q1 2022. The consolidated Profit-After-Tax (PAT) for the quarter was PKR 8,797 million, while PAT attributable to the shareholders is PKR 4,647 million against PKR 7,972 million in the comparative period, resulting in an

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Earnings per Share (EPS) of PKR 8.18 compared to PKR 13.84 in same period last year. Major variance was attributable to the macroeconomic headwinds resulting in commodity cycle reversal, lower DAP demand and increasing cost pressures.

A brief review of our business segments is as follows:

Fertilizers

Fertilizer business showed strong performance and recorded a revenue of PKR 43,991 million compared to PKR 36,813 million in Q1 2022, primarily driven by increase in urea price. The Company's PAT stood at PKR 4,404 million versus PKR 5,511 million in the same period last year, mainly affected by higher gas prices and lower margins on phosphate.

Urea sales during the period stood at 551 KT vs 549 KT, translating to a market share of 34% for the period. Phosphate sales stood at 65 KT vs 79 KT during the same period in 2022.

International Urea price witnessed a massive decrease, falling to USD 253/ton (landed equivalent PKR 4,715/bag) amidst lower energy prices by the end of March 2023 compared to USD 456/T (landed cost equivalent to PKR 6,705/bag) at the end of December 2022. International phosphate prices decreased to USD 603/T on the back of 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 ~37% over international prices. This enabled import substitution to the tune of USD 410 million in this quarter, wherein Engro Fertilizers' contribution stood at USD 139 million.

Petrochemicals

The Polymer business recorded a revenue of PKR 17,978 million compared to revenue of PKR 23,127 million in the same period last year. The Company's PAT stood at PKR 1,183 million against PKR 4,714 million in the same period last year, mainly attributable to commodity cycle reversal.

The business recorded domestic sales of 46 KT, translating to a market share of 87% versus 62 KT and a market share of 96% in the same period last year. As a result, the business has enabled import substitution of USD 23 million. Post serving the local PVC demand, the business export sales stood at 8 KT, including caustic soda exports of 3 KT, generating foreign exchange of USD 6 million for the quarter.

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Telecommunication Infrastructure

Enfrashare continued to expand its national footprint and achieved a scale of 3,488 tower sites by end of Q1 with a 1.18x tenancy ratio, catering to all four Mobile Network Operators (MNOs) in Pakistan. The business captured a market share of 52% 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 quarter, with total colocation tenants of 619 in March 2023 versus 325 in similar period last year, representing an increase of 90%. Resultantly, leading to 81% increase in revenue in comparison to Q1 2022.

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 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 dispatched 514 GWH to the national grid, compared to 610 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 three years and is necessary to ensure the plant safety, reliability, and efficiency.

Qadirpur Power Plant: During the period, the plant dispatched a Net Electrical Output of 262 GWH to the national grid with a load factor of 56% compared to 27% in the same period last year. The business posted a PAT of PKR 438 million for the current period as compared to PKR 151 million in same period last year due to higher capacity payments on the back of higher period weighing factor.

Foods & Rice

FrieslandCampina Engro Pakistan demonstrated a topline growth of 62%, reporting a revenue of PKR 22,651 million against PKR 13,971 million in the same period last year, due to volumetric growth driven by the expansion of its distribution network.

The business recorded a PAT growth of 49% to PKR 990 million in Q1 2023 versus PKR 664 million for the comparative period. The Company took multiple business initiatives across its portfolio

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including cost optimization and strategic price increases resulting in high profitability.

Engro Eximp Agriproducts recorded 1.3 KT basmati rice exports during the quarter versus 12.7 KT SPLY due to reduced procurement during the previous paddy season on account of floods in the country. Resultantly, rice business generated revenue of USD 1.6 million through export versus USD 10.2 million in Q1 2022.

Terminal Operations

The LNG terminal handled 19 cargoes, in line with Q1 2022, delivering 55 bcf re-gasified LNG in to the SSGC network, accounting for ~15% of the total gas supply of the Country. The chemical terminal handled 134 KT against 381 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.

Shares Buyback

The Company announced a share buyback of up to 70 million ordinary shares in December 2022, which was subsequently approved by the shareholders in the EOGM dated January 26, 2023. The said purchase of shares commenced from Feb 3, 2023, and will continue till July 25, 2023, in accordance with the regulatory guidelines of the SECP.

As of March 31, 2023, the Company has purchased 36.75 million shares under this buyback scheme.

Distribution to Shareholders

During the first quarter Board meeting, the directors conducted a comprehensive analysis of the investment opportunities available, prevailing economic situation including but not limited to the prohibitive cost of capital and challenges on import of plant, machinery and raw materials, and the capital structure of the Company. After extensive deliberation, the Board concluded that keeping in view the current circumstances, the most optimum utilization of cash was to pay dividends to shareholders, as a result the Board decided to declare a PKR 40.0 per share dividend.

It is worth noting that this decision will not have a significant impact on long-term investment program of the Company which will continue to be funded by retaining future dividends and/or capital reallocation. Within its long-term investment program, Engro will continue to strive for global competitiveness within the businesses it operates and continue to explore opportunities for increasing exports and international footprint.

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