ENGRO Corporation held a briefing for analysts last week and highlighted key facts regarding its performance, along with discussing its half yearly results. The company reported net earnings of Rs2.7bn, translating into earnings-per-share of Rs5.23, down 20pc from last year.

Meanwhile, second quarter earnings dropped by a big 66pc over the first quarter (QoQ). The company announced an interim cash dividend of Rs2 per share.

While the company’s di-ammonium phosphate (DAP) offtake was up a decent 21pc QoQ, its export-import (eximp) business reported a significant loss of Rs1.7bn, mainly from the rice segment. Flat contribution from other businesses further suppressed earnings.

Second quarter earnings dropped by a big 66pc over the first quarter. The company announced an interim cash dividend of Rs2 per share

After placing 50pc of Engro Powergen Qadipur for private investors in a pre-initial public offering at Rs30 per share, the conglomerate intends to go ahead with the IPO next month.

Company officials explained that an increase in paddy prices and a decline in the selling price of rice compressed margins in the eximp segment.

Besides, strict price controls by the UAE government for rice squeezed volumes as well as margins. Moreover, a higher tax on the rice business in the second quarter further affected the situation.

The loss was also a result of the change in the tax regime in the FY15 budget, which went from presumptive tax regime (PTR) to final tax regime (FTR) and carries a higher tax rate and is applied retrospectively.

Besides, the company recognised the tax liability in the second quarter, against deferring tax in the first. Going forwards, tax on the rice business is expected to remain high.

Meanwhile, lower margins and volumes of Engro Polymer and Chemicals Ltd (EPCL) led to it reporting a loss of Rs24mn in quarter. Volumes were depressed due to operational issues at the plant (which were resolved later), and due to a planned shutdown in June.

Company officials stated that EPCL plans to complete the second phase of the PVC debottlenecking by early 3QCY14, which will enhance the production capacity and allow it to convert its surplus VCM into PVC, resulting in improved margins.

At Engro Foods, operating profit dipped by 15pc QoQ, while margins declined to 5.4pc in the second quarter against 6.1pc in the previous one. Lower operating profit is mainly attributable to a new marketing strategy, which led to an 18pc QoQ increase in marketing and distribution expenses.

A one-off charge of Rs62mn related to the US-based Al-Safa further inflated other operating expenses and dragged down pre-tax earnings by 17.4pc QoQ.

The PowerGen division saw a 10pc QoQ decline in profitability due to appreciation of the rupee against the dollar.

However, Engro’s fertiliser wing reported a 35pc quarterly improvement in profitability, which partly covered up the losses of other business segments.

Although urea off-take levels were down 13pc QoQ due to lower production, the reversal of option cost due to decline in stock prices of EFERT and Engro and a lower effective tax rate propelled net earnings of the fertiliser company.

The officials confirmed that the company is engaging with SNGPL and Mari to determine the exact timing of implementation of the concessionary gas rate agreement.

—Hassaan Bin Ghafoor, Global Securities

Published in Dawn, Economic & Business, August 25th, 2014