5 engro-fertilizers-annual-report-2016

(Amounts in thousand)

c) Liquidity risk

Liquidity risk represents the risk that the Group 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 Group maintains flexibility in funding by maintaining committed credit lines available.

The Group’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 Group’s financial liabilities into relevant maturity groupings based on the
remaining period at the balance sheet date to contractual maturity dates. The amounts disclosed in the
table are the contractual undiscounted cash flows.

2016 2015

Maturity Maturity Maturity Maturity

upto after Total upto after Total

one year one year one year one year

-------------------Rupees------------------- -------------------Rupees-------------------

Financial liabilities 249,653 - 249,653 366,484 - 366,484
Derivatives
Trade and other payables 12,903,002 - 12,903,002 16,401,746 - 16,401,746
Accrued interest / mark-up
Borrowings 599,676 - 599,676 851,684 - 851,684

5,171,515 29,379,946 34,551,461 10,736,586 25,289,658 36,026,244

18,923,846 29,379,946 48,303,792 28,356,500 25,289,658 53,646,158

38.2 Capital risk management

The Group’s objective when managing capital are to safeguard the Group’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 Group 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 Group may adjust the dividend payment to
shareholders or issue new shares.

The total long term borrowings to equity ratio as at December 31, 2016 based on total long term borrowings
of Rs. 34,551,461 and total equity of Rs. 41,648,384 was 46%:54%.(2015: 46%:54%)

The Group 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 minimize risk.

199 engro fertilizers

(Amounts in thousand)

38.3 Fair value estimation

The table below analyzes financial instruments carried at fair value by valuation method. The different
levels have been defined as follows:

- Quoted prices (unadjusted) 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 (i.e. as prices) or indirectly (i.e. derived from prices) (level 2)

- Inputs for the asset or liability that are not based on observable market data (level 3)



Level 1 Level 2 Level 3 Total

----------------------------------- Rupees-----------------------------------

Assets

Financial assets at fair value - 1,039,782 - 1,039,782
through profit and loss
- Short term investments

Liabilities - 54,654 - 54,654
Derivatives - 194,999 - 194,999
- Derivative financial instruments
- Conversion option on IFC loans

- 249,653 - 249,653

Valuation techniques used to derive Level 2 fair values

Level 2 fair valued instruments comprise short term investments and hedging derivatives which include
forward exchange contracts and conversion option on IFC loans. These forward foreign exchange
contracts have been fair valued using forward exchange rates that are received from the contracting
banks and financial institutions. The fair value of conversion options on IFC loan is determined using the
option pricing model where its determinants are derived from observable market inputs.

Short term investments comprise treasury bills and fixed income placements which are valued using
discounted cash flow model.


There were no transfers amongst the levels during the year.

Annual Report 2016 200

(Amounts in thousand)

38.4 Fair value of financial assets and liabilities

The carrying value of all financial assets and liabilities reflected in the financial statements approximate
their fair values.

39. TRANSACTIONS WITH RELATED PARTIES

Related parties comprises of Parent Company, associated companies and other companies with
common director, retirement benefits 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:

2016 2015
-----------------Rupees-----------------

Parent Company

Dividend paid 6,526,428 6,570,543

Purchases and services 254,568 229,368

Receipt against disposal of investment - 4,400,000

Consideration for acquisition of subsidiary - 4,383,000

Services provided to Parent Company 25,521 25,400

Royalty 745,010 929,158

Reimbursements 193,809 214,557

Mark-up paid on short term subordinated loan 13,697 -

Use of assets 1,378 3,109

Repayment of sub-ordinated loan 3,000,000 -

Receipt of sub-ordinated loan 3,000,000 -

Associated companies 118,656 130,109
Purchases and services
Sale of products 1,338 1,459
Purchase of tax losses
Purchase of product - 956,791
Services provided
Reimbursements - 41,662
Funds collected against sales made on behalf of an associate
Payment of mark-up on TFCs and repayment of principal amount 84,751 71,973
Purchase of mutual fund units
Redemption of mutual fund units 102,523 225,874
Donation
Markup on loans - 2,035,579
Loans issued
Loans returned 54,847 18,739
Use of assets
- 490,000

- 491,210

57,500 55,000

- 20,299

- 57,484

- 1,005,301

3,488 5,343

Contribution to staff retirement benefits 18,939 19,519
Pension fund 93,518 83,844
Gratuity fund 107,875 101,606
Provident fund
200,396 174,508
Others
Remuneration of key management personnel

201 engro fertilizers

(Amounts in thousand)

40 DONATIONS

Donations include the following in which a director or his spouse is interested:

Interest in Name and 2016 2015
Donee address of Donee
Engro Foundation --------------Rupees---------------
President
Khalid Siraj Subhani President 57,500 55,000
Ghias Khan Trustee
Ruhail Mohammed

41 PRODUCTION CAPACITY

Designed annual Actual Remarks
capacity (note 41.1) production

Metric Tons Metric Tons

2016 2015 2016 2015

Urea plant I & II 2,275,000 2,275,000 1,881,016 1,967,552 Production
planned as per
NPK plant 100,000 100,000 94,610 126,074 market demand



42. NUMBER OF EMPLOYEES



Number of employees as at Average number of employees



2016 2015 2016 2015

Management employees 654 625 640 548
Non-management employees 531 527 530 604
1,185 1,152 1,170 1,152

43. PROVIDENT FUND

The employees of the Group participate in Provident Fund maintained by Engro Corporation (the

Parent Company). Monthly contribution are made both by the Holding Company and employees to the
fund maintained by the Parent Company at the rate of 10% of basic salary. Accordingly, the following
information is based upon the latest unaudited financial statements of the provident fund maintained by
the Parent Company as at June 30, 2016 and the audited financial statements as at June 30, 2015.

Annual Report 2016 202

(Amounts in thousand)

2016 2015
-----------------Rupees-----------------

Size of the fund - Total assets 3,205,658 3,161,499

Cost of the investments made 2,800,793 2,333,996
Percentage of investments made 94% 87%

Fair value of investments 3,015,867 2,736,879

The break-up of investments is as follows:

2016 2015 %
Rupees % Rupees
8
National Savings Scheme 790,505 26 223,037 38
Government securities 702,336 23 1,045,090 43
Listed securities 927,211 31 1,164,311
Balances with banks in 11
savings account 595,815 20 304,441 100
3,015,867 100 2,736,879

43.1 The investments out of the fund have been made in accordance with the provisions of section 227 of
the Companies Ordinance, 1984 and the rules formulated for the purpose.

44. SEASONALITY

The Holding Company’s fertilizer business is subject to seasonal fluctuations as a result of two
different farming seasons viz, Rabi (from October to March) and Kharif (from April to September).
On an average fertilizer sales are more tilted towards Rabi season. The Holding Company manages
seasonality in the business through appropriate inventory management.

45. LOSS OF CERTAIN ACCOUNTING RECORDS

During 2007, a fire broke out at PNSC Building, Karachi where the Parent Company’s registered office
was located. Immediately following this event the Parent 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, including that of Fertilizer Undertaking,
related to the financial years 2005, 2006 and the period January 1, 2007 to August 19, 2007 although,
electronic data remained intact due to the aforementioned Disaster Recovery Plan. The Parent
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 financial years 2005
and 2006 have not been recreated.

203 engro fertilizers

(Amounts in thousand)

46. NON-ADJUSTING EVENT AFTER BALANCE SHEET DATE

The Board of Directors in its meeting held on February 08, 2017 has proposed a final cash dividend
of Rs. 2.50 (2015: Rs. 3.00) per share in addition to interim dividend already paid at Rs. 4.50
(2015: Rs. 3.00) per share for the year ended December 31, 2016, for approval of the members at the
Annual General Meeting to be held on March 30, 2017.

47. CORRESPONDING FIGURES

During the year for better presentation, the following reclassification has been made:

Description Head of account in financial Head of account in financial Rupees
statements for the year ended statements for the year ended

December 31, 2015 December 31, 2016

Income from sale under Net sales Other income 2,611,879

government subsidy





48. DATE OF AUTHORISATION FOR ISSUE



These financial statements were authorised for issue on February 8, 2017 by the Board of Directors of

the Holding Company.

Ruhail Mohammed Ghias Khan
Chief Executive Chairman

Annual Report 2016 204