KARACHI, April 26: At the elections to the seven-member Board of directors held at the company’s Annual General Meeting (AGM) on April 10, it became clear that the first of the two ‘hostile takeover’ bids ever witnessed in the country’s corporate history, had been averted. Months of uncertainties on whether the Dawood group (sponsors of Dawood Hercules Chemical — a competing urea producer) would take over control of Engro Chemical, were put to rest. As a result of out-of-court settlement between the parties, Dawood group took the two seats that they wanted; a stock broker sat on one of minority shareholders and the rest of the four places were occupied by nominees of Engro management. Market has been decidedly pleased with what looks like an amicable end to the dispute.
Many people wager that the willingness of Mr. Hussain Dawood, who is thought to hold 27 per cent or 36 million of the 153 million outstanding shares in Engro Chemical, to step back and let the existing management continue, is an expression of his confidence in the management. Optimists are already thinking aloud that now that the row is over, resources of the Dawood group could prove useful in facilitating Engro’s expansion plans, which had been hampered for want of larger funds. Then there is also the talk of a possible merger between Engro Chemical and Dawood Hercules — the second and third largest urea producers in the country.
Directors’ report to the shareholders for first-quarter (Q1) 2003, understandably, does not touch upon those issues. The report and financial figures were released by Engro Chemical on Wednesday (April 23).
The company posted better-than-expected after tax profit of Rs234 million for the Jan-March 2003 three months; most analysts were expecting net earnings to fall within Rs200 million. After tax profit in the corresponding period of the previous year had amounted to Rs140 million. Pretax profit also increased 76 per cent to Rs374 million, from Rs212 million in the similar period of last year. Net sales in terms of value increased 11 per cent to Rs1,623 million, from Rs1,465 million in Q1 of 2002.
Chairman S. Naseem Ahmad and Chief Executive Zaffar A.Khan, who jointly signed the Directors’ report observed that increase in net earnings was mainly attributable to higher urea sales volume, efficiencies in fuel gas consumption and lower financial charges. “These were however partially offset by recognition of presumptive tax on imported product as against normal tax in first quarter 2002”, directors said.
They reported that the overall market demand for urea during Q1 had declined by 21 per cent compared to the same period last year mainly on account of pre-stocking by dealers in December 2002. Urea sales, for the quarter was up 8 per cent to 167,000 tons, directors said adding, “Production at 240,500 tons is an all time record for any quarter”.
Operations at both the Engro Chemical’s joint ventures, Engro Vopak Terminal Limited and Engro Asahi Polymer & Chemicals were said to have been satisfactory. Feasibility study for construction of 860,000 tons per annum urea complex in Oman was progressing and it was expected to be completed in the second half of 2003. The project, when approved, would be a joint venture between Engro Chemical and Oman Oil Company of Sultanate of Oman.
Directors forecast second quarter urea sales to remain slow with modest recovery in volume on year to date basis. “However, the outlook on irrigation water availability looks promising and this is likely to keep the fertilizer demand strong as the year progresses”, directors said, but cautioned that earnings could come under pressure if the fertilizer industry was made to implement the government’s desire to lower price of urea.
The Board did not declare an interim dividend with the Q1 results and none was expected since historically, the company makes the first payout along with half-term results. For all of last year, the company had declared cash dividend at 75 per cent along with stock bonus at 10 per cent. The market price of the 10-rupee share in Engro Chemical closed at Rs77.05 on Friday.
