Report for the Quarter and Nine Months ended September 30 ... · Report for the Quarter and Nine...

Report for the Quarter and

Nine Months ended September 30, 2008

Nine Months Report – September 2008

CONTENTS

Company Information 2

Directors’ Report 3

Unaudited Condensed Interim Financial Statements 4

Unaudited Condensed Consolidated Interim Financial Statements 18


2

COMPANY INFORMATION

Chairman Asad Umar

President & Chief Executive Asif Qadir

Directors Isar AhmadKhalid MansoorKhalid S. SubhaniMasaharu DomichiShabbir HashmiShahzada DawoodTakeshi HagiwaraWaqar A. Malik

Company Secretary Arshaduddin Ahmed

Board Audit Committee Isar AhmadKhalid S. SubhaniShabbir HashmiMasaharu Domichi

Bankers Allied Bank Ltd.Askari Commercial Bank Ltd.Bank Al Falah Ltd.Bank Al Habib Ltd.Citibank N.A.Samba Bank Ltd. (Formerly Crescent Commercial Bank Ltd.)Faysal Bank Ltd.Habib Bank Ltd.Hongkong Shanghai Banking CorporationMCB Bank Ltd.Meezan Bank Ltd.National Bank of PakistanNIB Bank Ltd.Standard Chartered Bank (Pakistan) Ltd.United Bank Ltd.

Auditors A. F. Fergusons & Co., Chartered AccountantsState Life Building No. 1-C, I.I. Chundrigar Road, Karachi.

Registered Office First Floor, Bahria Complex I24 M.T. Khan Road, Karachi - 74000

Manufacturing Facility EZ/1/P-II-1, Eastern Zone, Bin Qasim, Karachi.

Share Registration Office FAMCO Associates (Private) Limited [Formerly Ferguson Associates (Private) Limited]4th Floor, State Life Building 2-A, I.I. Chundrigar Road, Karachi - 74000

Website www.engropolymer.com


3

DIRECTORS� REPORT

The Board of Directors of Engro Polymer & Chemicals Ltd. is pleased to present the unaudited accounts of theCompany for the third quarter ended September 30, 2008.

Business Review

Domestic sales volume during 3Q 2008 was 22 thousand tons down from 25 thousand tons in 3Q 2007. This wasprimarily due to Eid and declining price trend which put the customers on a wait and see mode. Year to datedomestic sales were 78 thousand tons showing a growth of 5% over the corresponding period last year. Productionfor the nine months was a record 75 thousand tons, an increase of 12% over the same period last year.

Poly Vinyl Chloride (PVC) and Vinyl Chloride Monomer (VCM) prices remained high initially but began to declinein mid-August due to the beginning of a recessionary trend affecting majority of the world economies. InternationalPVC prices fell from a peak of US$1270 per ton in July to US $995 in September. The PVC-VCM margin alsodeclined due to sharply dropping PVC prices.

The Profit after tax for 3Q 2008 was Rs.159 million as compared to Rs.126 million for 3Q 2007 and that for thenine months ended September 2008 was Rs. 586 million as against Rs. 308 million for corresponding period lastyear. The increase in profit was attributable to strong PVC-VCM margin.

Company’s expansion project for increasing PVC capacity by 50 thousand tons is as per schedule and is undercommissioning phase. The overall back integration project is also as per schedule and will come online by end ofsecond quarter 2009.

Near Future Outlook

Due to ongoing turmoil in global economies, international prices of PVC and VCM have significantly declined havinga negative impact on margins. The profitability in 4Q 2008 will be substantially under pressure due to compressionof PVC-VCM margin and high value inventory. In addition the ongoing power crisis and tight cash liquidity may alsoaggravate and result in lower domestic consumption of PVC resin.

Asif Qadir Masaharu DomichiPresident & Chief Executive Director

KarachiOctober 21, 2008

4

UNAUDITED CONDENSEDINTERIM FINANCIAL STATEMENTSFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)CONDENSED INTERIM BALANCE SHEET (UNAUDITED)AS AT SEPTEMBER 30, 2008

(Audited)December 31,

2007September 30,

2008

Rupees

45

6

7

8

9

1011

12

13

14

Note

12,406,829 7,41950,000

119,632 12,583,880

106,279 1,294,137

250,962 163,202 36,262 39,750

1,208,642 249,904

3,349,138

15,933,018

5,203,677 974,003 38,512 9,625

648,773 6,874,590

– 6,874,590

5,306,877 428,268 485,935

6,221,080

60,000 –

354,022 2,349,876

73,450 2,837,348

15,933,018

4,708,761 6,91450,000 96,971

4,862,646

95,719 919,455 178,472 253,361 38,012

– 2,914,504

200,844 4,600,367

9,463,013

4,436,000 425,216

––

315,603 5,176,819

1,054,353 6,231,172

1,370,000 –

357,198 1,727,198

60,000 35,429

– 1,409,214

–1,504,643

9,463,013


5

ASSETS

Non-Current Assets

Property, plant and equipmentIntangible assetsLong term investmentLong term loans and advances

Current Assets

Stores and sparesStock-in-trade Trade debts - considered good, secured Loans, advances, deposits, prepayments and other receivables Tax recoverableDerivative financial instrumentShort term investmentsCash and bank balances

TOTAL ASSETS

EQUITY AND LIABILITIES

Share capital Share premiumHedging reserveCompensation reserveUnappropriated profit

Advance Against Issue of Share Capital

Non-Current Liabilities

Long term finances and morabahas Retention money against project paymentsDeferred liabilities

Current Liabilities

Current portion of - long term finances and morabahas - long term loanShort term borrowingTrade and other payablesProvisions

Contingencies and Commitments

TOTAL EQUITY AND LIABILITIES

The annexed notes 1 to 21 form an integral part of these condensed interim financial information.


(Amounts in thousand)


6

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

Note

15

16

17

Nine Monthsended

Sep. 30, 2008

Nine Monthsended

Sep. 30, 2007

Quarterended

Sep. 30, 2008

Quarterended

Sep. 30, 2007

Rupees

Rupees

Net sales

Cost of sales

Gross profit

Distribution and marketing expenses

Administrative expenses

Other operating expenses

Other operating income

Operating profit

Finance costs

Profit before taxation

Taxation

Profit for the period

Earnings per share - basic and diluted


6,536,068

(5,190,710)

1,345,358

(229,771)

(120,794)

(269,867)

133,027

857,953

(21,624)

836,329

(250,263)

586,066

1.13

4,684,630

(3,992,226)

692,404

(179,480)

(62,330)

(36,081)

74,356

488,869

(31,412)

457,457

(149,899)

307,558

1.46

2,167,314

(1,733,610)

433,704

(80,480)

(51,155)

(137,776)

44,607

208,900

(6,064)

202,836

(43,865)

158,971

0.31

1,668,869

(1,404,711)

264,158

(63,475)

(20,508)

(14,921)

38,117

203,371

(9,189)

194,182

(67,966)

126,216

0.46


(Amounts in thousand except for earnings per share)


7

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

Rupees

Balance as at December 31, 2006 / January 1, 2007

Issue of Share Capital

Profit for the nine months ended Sep. 30, 2007

Dividends

- 1st interim - Re. 0.33 per share - 2nd interim - Re. 1.00 per share - 3rd interim - Re. 0.77 per share

Balance as at Sep. 30, 2007 / Oct. 1, 2007

Profit for the three months ended December 31, 2007


Share issuance cost, net

Balance as at December 31, 2007 / January 1, 2008 (audited)

Final dividend for the year ended December 31, 2007 - Re. 0.54 per share




Effective portion of changes in fair value of cash flow hedge - net

ESOS Compensation Reserve

Balance as at September 30, 2008



Issued,subscribedand paid-up

capital

1,780,000

1,894,000

–

– – –

–

3,674,000

–

762,000

–

4,436,000

–

–

767,677

–

–

–

5,203,677

Sharepremium

–

–

–

– – –

–

–

–

457,200

(31,984)

425,216

–

–

614,141

(65,354)

–

–

974,003

Hedgingreserve

–

–

–

– – –

–

–

–

–

–

–

–

–

–

–

38,512

–

38,512

Employeeshare

CompensationReserve

–

–

–

– – –

–

–

–

–

–

–

–

–

–

–

–

9,625

9,625

Unappropriatedprofit

267,827

–

307,558

(58,740) (178,000) (137,060)

(373,800)

201,585

114,018

–

–

315,603

(252,896)

586,066

–

–

–

–

648,773

Total

2,047,827

1,894,000

307,558

(58,740) (178,000) (137,060)

(373,800)

3,875,585

114,018

1,219,200

(31,984)

5,176,819

(252,896)

586,066

1,381,818

(65,354)

38,512

9,625

6,874,590



8

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)CONDENSED INTERIM CASH FLOW STATEMENT (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

18

Note

Nine monthsended

Sep. 30, 2007

Nine monthsended

Sep. 30, 2008

RupeesCASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operationsFinance costs paidLong term loans and advancesRetention money against project paymentsProvisionsIncome tax paid

Net cash inflow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipmentPurchases of intangible assetsProceeds on disposal of operating assetsShort term investments - netReturn on balances with banks / TFC / US Dollar Bonds

Net cash outflow from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long term financeRepayment of long term financeProceeds from issue of Share CapitalShare issuance cost - netRepayments of: - long term finances and morabahas - long term loanShort term borrowingsDividend paid

Net cash inflow from financing activities

Net increase in cash and cash equivalentsCash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period


1,405,248) (54,270) (22,661) 428,268)

73,450) (129,862)

1,700,173)

(7,665,156) (993)

1,236) 1,705,862

43,253) )

(5,915,798))

5,306,877) (1,340,000)

327,465) (65,354)

(30,000) (35,429)

354,022 (252,896)

4,264,685

49,060) 200,844)

249,904)

1,031,498) (47,718)

(145,638) –) –)

(21,282)

816,860)

(1,748,516) (3,926) 1,540) –

46,468) )

(1,704,434)

1,160,000) (50,000)

1,894,000) –

– (69,737)

(376,570) (422,038)

2,135,655

1,248,081) 432,315)

1,680,396)




9

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

1. LEGAL STATUS AND OPERATIONS

1.1 The Company was incorporated in Pakistan in 1997 under the Companies Ordinance 1984. In July 2008, the Companywas listed on Karachi Stock Exchange.

1.2 The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is 1st Floor, BahriaComplex I, M. T. Khan Road, Karachi. The Company’s principal activity is to manufacture, market and sell Poly VinylChloride (PVC), PVC compounds and other related chemicals.

1.3 In 2006, the Company commenced work on its expansion plan in respect of its existing capacity and backward integrationproject (the Project). The project’s total cost is estimated at US $ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power Utilities plants. The new plants are being setup adjacentto the Company’s existing PVC facilities in the Port Qasim Industrial Area.

2. STATEMENT OF COMPLIANCE

These condensed interim financial statements are unaudited and are being submitted to the shareholders in accordancewith section 245 of the Companies Ordinance, 1984 and have been presented in condensed form in accordance with therequirements of International Accounting Standard 34 – ‘Interim Financial Reporting’.

3. ACCOUNTING POLICIES

The accounting policies adopted in the preparation of these condensed interim financial statements are the same as thoseapplied in the preparation of the audited annual financial statements of the Company for the year ended December 31,2007, except for the following accounting policy in respect of derivative financial instruments and hedging as well asemployee share option scheme adopted during the period ended September 30, 2008.

Derivatives financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequentlyremeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative isdesignated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certainderivatives as either:

(a) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or

(b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The overall risk management strategy includes reasons for undertaking hedge transactions and entering into derivatives.The objectives of this strategy are to:

– minimize foreign currency exposure’s impact on the Company’s financial performance; and

– protect the Company’s cash flow from adverse movements in foreign currency exchange rates.

(a) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit and loss account, together with any changes in the fair value of the hedged asset or liability that areattributable to the hedged risk.


(b) Cash flow hedge

On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsettingchanges in the cash flows of hedged items. If and when a derivative is no longer expected to be highly effective,hedge accounting is discontinued.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedgesis recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the profitand loss account or the cost of the related non-financial asset (for e.g. inventory or fixed assets), as applicable.

Amounts accumulated in equity are reclassified to the profit and loss account in the periods when the hedgeditem affects profit or loss account i.e. when the transaction occurs. The gain or loss relating to the effectiveportion of interest rate swaps hedging variable rate borrowings is recognised in the profit and loss account orthe cost of the related asset for which the borrowing is being utilised. However, when the forecast transactionthat is hedged results in the recognition of a non-financial asset (for e.g. inventory or fixed assets) the gainsand losses previously deferred in equity are transferred from equity and included in the initial measurement ofthe cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in case of inventoryor in depreciation in case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, anycumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transactionis ultimately recognised in the profit and loss account or the cost of the related non-financial asset (for e.g. inventory orfixed assets) as applicable. When a forecast transaction is no longer expected to occur, the cumulative gain or loss thatwas reported in equity is immediately transferred to the profit and loss account.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 10. Movements on thehedging reserve are shown in statement of changes in equity. The full fair value of a hedging derivative is classified as anon-current asset or liability when the remaining maturity of hedged item is more than 12 months, and as a current assetor liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as acurrent asset or liability.

Employees’ Share Option Scheme

The grant date fair value of equity settled share based payments to employees is initially recognised in the balance sheetas deferred employee compensation expense with a consequent credit to equity as deferred employee compensation reserve.

The fair value determined at the grant date of the equity settled share based payments is recognised as an employeecompensation expense on a straight line basis over the vesting period.

When an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of anemployee compensation expense in profit or loss, employee compensation expense in profit or loss will be reversed equalto the amortised portion with a corresponding effect to deferred employee compensation reserve in the balance sheet.

When a vested option lapses on expiry of the exercise period, employee compensation expense already recognised in theprofit or loss is reversed with a corresponding reduction to deferred employee compensation reserve in the balance sheet.

When the options are exercised, deferred employee compensation reserve relating to these options is transferred to sharecapital and share premium account. An amount equivalent to the face value of related shares is transferred to share capital. Any amount over and above the share capital is transferred to share premium account.

4. PROPERTY, PLANT AND EQUIPMENTUnaudited Audited

September 30, December 31,2008 2007

Rupees

Operating fixed assets - note 4.1 and 4.2 2,018,951 2,133,053

Capital work-in-progress

- the project - note 4.3` 10,363,144 2,565,400

- others 24,734 10,308

10,387,878 2,575,708

12,406,829 4,708,761


10



11

4.1. Capitalisation of operating assets during

the period / year were as follows:

Unaudited AuditedSeptember 30, December 31,

2008 2007Rupees

Leasehold land 3,346 8,550

Furniture, fittings and office equipment 13,728 12,660

Vehicles 11,349 18,770

28,423 39,980

4.2 During the period:

– assets costing Rs.1,725, having a net book value of Rs. 1,351, were disposed off for Rs. 1,236; and

– assets costing Rs. 3,298 having a net book value of Rs. 243, were written off, resulting due to an independent physicalverification exercise carried out during the period.

4.3 Cost capitalised todate relating to the Project:


2008 2007Rupees

Plant and machinery 9,171,235 1,923,749

Building on leasehold land 140,084 100,650

Other ancillary costs - note 4.3.1 778,954 341,736

Ethylene pipeline and power cables 56,615 30,250

Water and gas pipelines 216,256 169,015

10,363,144 2,565,400

4.3.1 Other ancillary costs, directly attributable to the Project, capitalised todate, are as follows:


2008 2007Rupees

Salaries, wages and benefits 245,376 92,989

Legal and professional charges 46,371 21,945

Training and travelling expense 70,166 45,590

Borrowing costs, including mark-up on finances

capitalised 301,320 134,431

Bank Charges 31,825 1,766

Depreciation 11,259 5,269

Others 72,637 39,746

778,954 341,736


7. LOANS, ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Included in other receivables is an amount representing custom duty refundable of Rs. 18,043. During the period, theCollector of Customs issued an order dated April 11, 2008, disposing off the refund applications filed by the Company forthe refund of this duty paid at import stage. The Company based on the advice of its tax consultant, has filed an appealbefore the Collector of Customs (Appeals), Karachi dated May 31, 2008 against the aforementioned order. However, theCompany on basis of prudence has made provision against the aforementioned refundable amount in these financialstatements.


12

9. SHARE CAPITAL

During the period the Company issued 76,767,677 ordinary shares of Rs. 10 each at a subscription price of Rs.18 pershare to various investors. Of this JS Global Capital Limited (JS Global), one of the investors, made available 50 millionordinary shares out of its total shareholding in the Company to the general public through listing at the Karachi StockExchange under an Offer for Sale dated May 31, 2008. The Company was listed on Karachi Stock Exchange in July 2008.

10. HEDGING RESERVE

Hedging reserve mainly represents the effective portion of changes in the fair values of designated cash flow hedges.

During the period, the Company purchased forward exchange contracts having various maturity dates to hedge its Dollarcurrency exposure of US $ 71,152 representing the anticipated cash outflows for the Project payments and financing.

5. INTANGIBLE ASSETS

Additions made during the period amounted to Rs. 1,055 (December 31, 2007: Rs. 2,785).


2008 2007 Rupees

6. STOCK-IN-TRADE

Raw and packing materials 691,486 256,277

Work-in-progress 18,178 22,861

Finished goods

- own manufactured product 584,473 640,170

- purchased product – 147

584,473 640,317

1,294,137 919,455


2008 2007 Rupees

8. CASH AND BANK BALANCES

Cash in hand 935 834

Cash at bank on

- current accounts 8,598 97,072

- saving accounts 240,371 102,938

248,969 200,010

249,904 200,844



13

At period end, the Company owned forward exchange contracts to purchase US $ 30,000 at various maturitydates. The fair values of these contracts amounted to Rs. 81,000 at period end.

11. EMPLOYEES’ SHARE COMPENSATION RESERVE

The employees' share option scheme (the Scheme) was originally approved by the shareholders in their ExtraordinaryGeneral Meeting (EGM) held on October 8, 2007. According to the scheme, senior employees who are critical to thebusiness operations, shall be granted options to purchase five million three hundred thousand newly issued ordinary sharesat an exercise price of Rs. 22 per ordinary share. The number of options granted is calculated in accordance with the abilityand criticality of employee to the business, subject to approval by the Compensation Committee. The options carry neitherright to dividends nor voting rights. Vesting period shall start from the date of grant and shall end on December 31, 2009,where after the options can be exercised within a period of two years. Future employees who join by October 31, 2008and those who are promoted by the same date, may also be granted options, however, the length of vesting period shallbe the same as enjoyed by first recipients of options.

During the period, the Company proposed certain changes relating to "date of grant" in the originally approved scheme.In September 2008, Securities and Exchange Commission of Pakistan approved the amendment as approved by shareholdersin their EGM held on June 27, 2008.

The effect of grant of share options has been incorporated in these condensed interim financial statements. The amountsrecognised in profit and loss account and balance sheet are as follows:

(Rupees)Employees’ share option compensation reserve and deferred employee

compensation expense recognised on grant date 9,625

Less: Amortisation for the period October 8, 2007 to September 30, 2008 4,278

Closing balance as on September 30, 2008 5,347

The Company used Black Scholes pricing model to calculate the fair value of share options at the grant date.The fair value of the share options as per the model and underlying assumptions are as follows:

Total number of share options issued 5,175Fair value of the share options at grant date Rs. 1.86Share price at grant date Rs. 18Exercise price Rs. 22Annual Volatility 15.13%Risk free rate used 10.12%

12. LONG TERM FINANCES AND MORABAHAS

12.1 The Company entered into a Syndicated Term Finance Agreement on October 12, 2007 for Rs. 5,700,000.The facility is repayable in seventeen semi-annual installments commencing 30 months after May 9, 2008, theeffective date. The facility carries mark-up at the rate of 2.25% over six months Karachi Inter Bank Offered Rate(KIBOR) and monitoring fee of Rs. 700 per annum. Commitment fee at the rate of 0.15% per annum isalso payable on that part of the finance that has not been drawn. During the period, Company has drawn downRs. 3,200,000 against the facility.

Transaction costs amounting to Rs. 108,311 have been netted-off against the drawn amount of finance, as per policy.

12.2 During the period, on February 15, 2008, the Company repaid the bridge finance facility amounting to Rs. 1,240,000.This facility was arranged to meet the intermediate funding requirements of the Project.

12.3 The Company, effective June 21, 2007, entered into a loan agreement with the International Finance Corporation(IFC) consisting of:

i) Loan A, amounting to US $ 30,000; and

ii) Loan B, amounting to US $ 30,000.

The loans, obtained to finance the Project referred to in note 1.3, carry an interest at the rate 2.6% to 3% above 6 monthsLIBOR with a commitment fee at the rate of 0.50% per annum on that part of the loan that has not been disbursed. Theloans are to be repaid in fifteen half yearly installments commencing from June 15, 2010.


13. PROVISIONS

The Company has paid Rs. 73,450 on account of Special Excise Duty (SED) on import of plant and machinery for theProject. The Company has adjusted this SED in the monthly sales tax returns against SED on goods produced and soldby the Company. The Company has approached Federal Board of Revenue (FBR) to obtain clarification in respect of theadjustment of SED made by the Company in monthly sales tax return. Pending such clarification, the Company,based on prudence, has made provision of the aforementioned SED in these financial statements.

14. CONTINGENCIES AND COMMITMENTS

14.1 Commitments

– Performance guarantees issued by banks on behalf of the Company as at September 30, 2008 amounted to Rs. 264,281 (December 31, 2007: Rs. 301,431).

– Contracts signed in respect of capital expenditure for the Project, but not executed as at September 30, 2008amounted to Rs. 3,706,784 (December 31, 2007 Rs. 7,897,193).


14

Nine Months Nine Months Quarter Quarterended ended ended ended

Sep. 30, 2008 Sep. 30, 2007 Sep. 30, 2008 Sep. 30, 2007 Rupees

Opening stock of work-in-progress 22,861 16,051 14,018 13,553

Raw and packing materials consumed 4,656,691 3,171,583 1,844,959 1,180,594Salaries, wages and staff welfare 75,752 78,587 28,301 28,470Fuel, power and gas 113,566 100,072 46,388 33,103Repairs and maintenance 9,663 12,505 4,932 1,630Depreciation 125,879 126,508 41,932 42,303Consumable stores 14,191 22,131 5,351 3,938Purchased services 14,730 16,558 5,022 8,476Storage and handling 100,570 94,344 36,332 34,413Training and travelling expenses 6,469 6,879 3,973 2,750Communication, stationery and other office expenses 1,890 1,183 1,157 299Insurance 7,306 11,637 2,443 3,328Other expenses 2,386 4,180 190 291

5,129,093 3,646,167 2,020,980 1,339,595

Closing stock of work-in-progress (18,178) (16,175) (18,178) (16,175)

Cost of goods manufactured 5,133,776 3,646,043 2,016,820 1,336,973

Opening stock of finished goods 640,170 588,065 300,173 310,125Closing stock of finished goods (584,473) (242,387) (584,473) (242,387)

55,697 345,678 (284,300) 67,738

Cost of goods sold - own manufactured product 5,189,473 3,991,721 1,732,520 1,404,711 - purchased product 1,237 505 1,089

5,190,710 3,992,226 1,733,609 1,404,711

–

–

15. COST OF SALES



15

17.1 Expenses directly attributable to the Project have been capitalised, as referred to in note 4.3.



16. DISTRIBUTION AND MARKETING EXPENSES

Salaries, wages and staff welfare 31,537 28,796 12,457 10,896Advertising, sales promotion and entertainment 21,652 16,784 5,940 6,332Product transportation and handling 152,665 112,692 54,134 38,889Rent, rates and taxes 3,569 3,454 1,818 851Purchased services 6,649 4,875 2,302 1,393Insurance 646 219 292 89Depreciation 3,090 3,014 1,098 972Training and travelling expenses 6,126 5,574 2,112 1,937Communication, stationery and other office expenses 1,817 2,181 (9) 1,196Other expenses 2,020 1,891 336 920

229,771 179,480 80,480 63,475

17. ADMINISTRATIVE EXPENSES

Salaries, wages and staff welfare 68,170 35,060 28,520 11,802Rent, rates and taxes 9,414 6,115 3,930 2,307Purchased services 8,731 5,284 4,474 1,926Insurance 152 36 108 12Depreciation - note 17.1 4,374 2,813 1,349 1,013Amortisation Training and travelling expenses 13,506 7,606 5,100 2,117Communication, stationery and other office expenses 7,264 3,476 3,983 1,156Other expenses 9,183 1,940 3,691 175

120,794 62,330 51,155 20,508

– – – –



16

Nine Months Nine Monthsended ended

Sep, 30, 2008 Sep, 30, 2007Rupees

18. CASH GENERATED FROM OPERATIONS

Profit before taxation 836,329 457,457

Adjustments for non cash chargesand other items:

Provision for staff retirement and other service benefits 8,336 3,591 Depreciation 132,856 132,176 Employee share compensation expenses 9,625 Amortisation 488 49 Income on deposits / TFC / US Dollar Bonds (42,434) (49,033)Finance costs 21,624 31,412 Loss on disposal/ write off of operating assets (358) (176)Operating assets written off 243 Working capital changes - note 18.1 438,539 456,022

1,405,248 1,031,498

18.1 Working capital changes

Decrease / (Increase) in current assets

Stores and spares (10,560) (2,815) Stock-in-trade (374,682) 485,122 Trade debts (72,490) (67,573)

Loans, advances, deposits, prepayments and other receivables (net) 89,852 13,254

(367,880) 427,988

Increase in current liabilities

Trade and other payables 806,419 28,034438,539 456,022

–

–



17

19. TRANSACTIONS WITH RELATED PARTIES

Sales, purchases and other transactions with related parties are carried out on commercial terms and conditions.Following transactions were carried out with related parties during the period:

20. DATE OF AUTHORISATION FOR ISSUE

These condensed interim financial statements were authorised for issue on October 21, 2008 by the Board of Directorsof the Company.

21. CORRESPONDING FIGURES

Corresponding figures in the balance sheet and statement of changes in equity comprise of balances as per the annualaudited financial statements for the year ended December 31, 2007, whereas corresponding figures in the profit and lossaccount and cash flow statement comprise of balances of comparable period as per the condensed interim financialstatements for the nine months ended September 30, 2007.


Sep. 30, 2008 Sep. 30, 2007

Rupees

Holding Company Purchase of services 9,971 3,688Sale of services 1,831 2,277Sale of steam and electricity 25,397 26,816Use of operating assets 765 1,639Pension fund contribution 2,208 1,620Provident fund contribution 3,322 2,430

Associated Companies Purchase of goods 4,707,808 3,240,723Sale of goods 78,648 111

Subsidiary Company Purchase of goods 1,089 –Reimbursements 23 –

Related parties by virtue ofcommon directorshipPurchase of goods 1,577 –Purchase of services 110,152 94,816Sale of services 1,256 –Insurance 458 1,443Directors fee 10 –Reimbursements 71 –

Key management personnelManagerial remuneration 85,824 63,605Retirement benefits 5,737 4,201Other benefits 45,598 29,588

Number of employees 45 37



18

and its subsidiary company

UNAUDITED CONDENSED CONSOLIDATEDINTERIM FINANCIAL STATEMENTSFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)AND ITS SUBSIDIARY COMPANYCONDENSED CONSOLIDATED INTERIM BALANCE SHEET (UNAUDITED)AS AT SEPTEMBER 30, 2008 (Audited)

December 31,2007

September 30,2008

Rupees

45

6

7

8

9

1011

12

13

14

Note

Non-Current Assets

Property, plant and equipmentIntangible assetsLong term loans and advances

Current Assets

Stores and sparesStock-in-trade Trade debts - considered good, secured Loans, advances, deposits, prepayments and other receivables Tax recoverableDerivative financial instrumentShort term investmentsCash and bank balances

TOTAL ASSETS

EQUITY AND LIABILITIES

Share capital Share premiumHedging reserveCompensation reserveUnappropriated profit

Advance Against Issue of Share Capital

Non-Current Liabilities

Long term finances and morabahas Retention money against project paymentsDeferred liabilities

Current Liabilities

Current portion of - long term finances and morabahas - long term loanShort term borrowingTrade and other payablesProvisions

Contingencies and Commitments

TOTAL EQUITY AND LIABILITIES


12,406,829 7,419

119,633 12,533,881

106,279 1,294,292

250,962 166,576 36,230 39,750

1,208,642 300,876

3,403,607

15,937,488

5,203,677 974,003 38,512 9,625

652,892 6,878,709

– 6,878,709

5,306,877 428,268 485,934

6,221,079

60,000 –

354,022 2,350,228

73,450 2,837,700

15,937,488

4,708,761 6,914

96,971 4,812,646

95,719 920,139 178,472 256,944

37,911–

2,914,504 247,856

4,651,545

9,464,191

4,436,000 425,216

––

316,412 5,177,628

1,054,353 6,231,981

1,370,000 –

357,198 1,727,198

60,000 35,429

– 1,409,583

–1,505,012

9,464,191


19

ASSETS




20

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)AND ITS SUBSIDIARY COMPANYCONDENSED CONSOLIDATED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

Note

15

16

17

Nine Monthsended

Sep. 30, 2008

Nine Monthsended

Sep. 30, 2007

Quarterended

Sep. 30, 2008

Quarterended

Sep. 30, 2007

Rupees

Rupees

Net sales

Cost of sales

Gross profit

Distribution and marketing expenses

Administrative expenses

Other operating expenses

Other operating income

Operating profit

Finance costs

Profit before taxation

Taxation

Profit for the period

Earnings per share - basic and diluted


6,536,068

(5,189,061)

1,347,007

(229,771)

(120,892)

(271,078)

135,999

861,265

(21,626)

839,639

(250,263)

589,376

1.14

4,691,457

(3,999,392)

692,065

(179,664)

(62,508)

(36,081)

74,356

488,168

(31,419)

456,749

(149,933)

306,816

1.45

2,167,314

(1,732,521)

434,793

(80,480)

(51,155)

(137,776)

45,466

210,848

(6,065)

204,783

(43,865)

160,918

0.31

1,668,869

(1,404,710)

264,159

(63,475)

(20,508)

(14,921)

38,117

203,372

(9,190)

194,182

(67,996)

126,186

0.46


(Amounts in thousand except for earnings per share)


21

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)AND ITS SUBSIDIARY COMPANYCONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

Rupees

Balance as at December 31, 2006 / January 1, 2007

Rights Issue


Dividends

- 1st interim - Re. 0.33 per share - 2nd interim - Re. 1.00 per share - 3rd interim - Re. 0.77 per share

Balance as at Sep. 30, 2007 / Oct. 1, 2007

Profit for the three months ended December 31, 2007



Balance as at December 31, 2007 / January 1, 2008 (audited)

Final dividend for the year ended December 31, 2007 - Re. 0.54 per share




Effective portion of changes in fair value of cash flow hedge - net

ESOS Compensation Reserve

Balance as at September 30, 2008



Issued,subscribedand paid-up

capital

1,780,000

1,894,000

–

– – –

–

3,674,000

–

762,000

–

4,436,000

–

–

767,677

–

–

–

5,203,677

Sharepremium

–

–

–

– – –

–

–

–

457,200

(31,984)

425,216

–

–

614,141

(65,354)

–

–

974,003

Hedgingreserve

–

–

–

– – –

–

–

–

–

–

–

–

–

–

–

38,512

–

38,512

ESOSCompensation

Reserve

–

–

–

– – –

–

–

–

–

–

–

–

–

–

–

–

9,625

9,625

Unappropriatedprofit

268,530

–

306,816

(58,740) (178,000) (137,060)

(373,800)

201,546

114,866

–

–

316,412

(252,896)

589,376

–

–

–

–

652,892

Total

2,048,530

1,894,000

306,816

(58,740) (178,000) (137,060)

(373,800)

3,875,546

114,866

1,219,200

(31,984)

5,177,628

(252,896)

589,376

1,381,818

(65,354)

38,512

9,625

6,878,709



22

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)AND ITS SUBSIDIARY COMPANYCONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

18

Note

Nine Monthsended

Sep. 30, 2007

Nine Monthsended

Sep. 30, 2008

RupeesCASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operationsFinance costs paidLong term loans and advancesRetention money against project paymentsProvisionsIncome tax paid

Net cash inflow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipmentPurchases of intangible assetsProceeds on disposal of operating assetsShort term investments - netReturn on balances with banks / TFC / US Dollar Bonds

Net cash outflow from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long term financeRepayment of long term financeProceeds from issue of Share CapitalShare issuance cost - netRepayments of: - long term finances and morabahas - long term loanShort term borrowingsDividend paid

Net cash inflow from financing activities

Net increase in cash and cash equivalentsCash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period


1,406,237) (54,270)

(22,661) 428,268)

73,450) (129,862)

1,701,162)

(7,665,156) (993)

1,236) 1,705,861

46,225) )

(5,912,827))

5,306,877) (1,340,000)

327,465) (65,354)

(30,000) (35,429)

354,022 (252,896)

4,264,685

53,020) 247,856)

300,876)

1,038,214) (47,725)

(145,641) –) –)

(21,278)

823,570)

(1,748,519) (3,926) 1,540) –

46,468) )

(1,704,437)

1,160,000) (50,000)

1,894,000) –

– (69,737)

(376,570) (422,038)

2,135,655

1,254,788) 471,897)

1,726,685)




23

ENGRO POLYMER & CHEMICALS LIMITED(Formerly ENGRO ASAHI POLYMER & CHEMICALS LIMITED)AND ITS SUBSIDIARY COMPANYNOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

1. LEGAL STATUS AND OPERATIONS

1.1 The Group consists of Engro Polymer and Chemicals Limited (Formerly Engro Asahi Polymer and Chemicals Limited) (theCompany) and its wholly owned subsidiary company, Engro Polymer Trading (Private) Limited [Formerly Engro AsahiTrading (Private) Limited].

1.2 The Company is a subsidiary of Engro Chemical Pakistan Limited. The address of its registered office is 1st Floor, BahriaComplex I, M. T. Khan Road, Karachi. The Company’s principal activity is to manufacture, market and sell Poly VinylChloride (PVC), PVC compounds and other related chemicals.

1.3 In 2006, the Company commenced work on its expansion plan in respect of its existing capacity and backward integrationproject (the Project). The project’s total cost is estimated at US $ 240,000, which includes construction of Ethylene DiChloride, Vinyl Chloride Monomer (VCM), Chlor Alkali and Power Utilities plants. The new plants are being setup adjacentto the Company’s existing PVC facilities in the Port Qasim Industrial Area.

2. STATEMENT OF COMPLIANCE

These condensed interim financial statements are unaudited and are being submitted to the shareholders in accordancewith section 245 of the Companies Ordinance, 1984 and have been presented in condensed form in accordance with therequirements of International Accounting Standard 34 – ‘Interim Financial Reporting’.

3. ACCOUNTING POLICIES

The accounting policies adopted in the preparation of these condensed interim financial statements are the same as thoseapplied in the preparation of the audited annual financial statements of the Company for the year ended December 31,2007, except for the following accounting policy in respect of derivative financial instruments and hedging as well asemployees share option scheme adopted during the period ended September 30, 2008.

Derivatives financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequentlyremeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative isdesignated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certainderivatives as either:

(a) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or

(b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The overall risk management strategy includes reasons for undertaking hedge transactions and entering into derivatives.The objectives of this strategy are to:

– minimize foreign currency exposure’s impact on the Company’s financial performance; and

– protect the Company’s cash flow from adverse movements in foreign currency exchange rates.

(a) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit and loss account, together with any changes in the fair value of the hedged asset or liability that areattributable to the hedged risk.


(b) Cash flow hedge

On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsettingchanges in the cash flows of hedged items. If and when a derivative is no longer expected to be highly effective,hedge accounting is discontinued.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedgesis recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the profitand loss account or the cost of the related non-financial asset (for e.g. inventory or fixed assets), as applicable.

Amounts accumulated in equity are reclassified to the profit and loss account in the periods when the hedgeditem affects profit or loss account i.e. when the transaction occurs. The gain or loss relating to the effectiveportion of interest rate swaps hedging variable rate borrowings is recognised in the profit and loss account orthe cost of the related asset for which the borrowing is being utilised. However, when the forecast transactionthat is hedged results in the recognition of a non-financial asset (for e.g. inventory or fixed assets) the gainsand losses previously deferred in equity are transferred from equity and included in the initial measurement ofthe cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in case of inventoryor in depreciation in case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, anycumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transactionis ultimately recognised in the profit and loss account or the cost of the related non-financial asset (for e.g. inventory orfixed assets) as applicable. When a forecast transaction is no longer expected to occur, the cumulative gain or loss thatwas reported in equity is immediately transferred to the profit and loss account.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 10. Movements on thehedging reserve are shown in statement of changes in equity. The full fair value of a hedging derivative is classified as anon-current asset or liability when the remaining maturity of hedged item is more than 12 months, and as a current assetor liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as acurrent asset or liability.

Employees’ Share Option Scheme

The grant date fair value of equity settled share based payments to employees is initially recognised in the balance sheetas deferred employee compensation expense with a consequent credit to equity as deferred employee compensation reserve.

The fair value determined at the grant date of the equity settled share based payments is recognised as an employeecompensation expense on a straight line basis over the vesting period.

When an unvested option lapses by virtue of an employee not conforming to the vesting conditions after recognition of anemployee compensation expense in profit or loss, employee compensation expense in profit or loss will be reversed equalto the amortised portion with a corresponding effect to deferred employee compensation reserve in the balance sheet.

When a vested option lapses on expiry of the exercise period, employee compensation expense already recognised in theprofit or loss is reversed with a corresponding reduction to deferred employee compensation reserve in the balance sheet.

When the options are exercised, deferred employee compensation reserve relating to these options is transferred to sharecapital and share premium account. An amount equivalent to the face value of related shares is transferred to share capital.Any amount over and above the share capital is transferred to share premium account.

4. PROPERTY, PLANT AND EQUIPMENTUnaudited Audited

September 30, December 31,2008 2007

Rupees

Operating fixed assets - note 4.1 and 4.2 2,018,951 2,133,053

Capital work-in-progress

- the project - note 4.3` 10,363,144 2,565,400

- others 24,734 10,308

10,387,878 2,575,708

12,406,829 4,708,761


24



25

4.1. Capitalisation of operating assets during

the period / year were as follows:


2008 2007Rupees

Leasehold land 3,346 8,550

Furniture, fittings and office equipment 13,728 12,660

Vehicles 11,349 18,770

28,423 39,980

4.2 During the period:– assets costing Rs.1,725, having a net book value of Rs. 1,351, were disposed of for Rs. 1,236; and

– assets costing Rs. 3,298 having a net book value of Rs. 243, were written off, resulting due to an independent physicalverification exercise carried out during the period.

4.3 Cost capitalised todate relating to the Project:


2008 2007Rupees

Plant and machinery 9,171,235 1,923,749

Building on leasehold land 140,084 100,650

Other ancillary costs - note 4.3.1 778,954 341,736

Ethylene pipeline and power cables 56,615 30,250

Water and gas pipelines 216,256 169,015

10,363,144 2,565,400

4.3.1 Other ancillary costs, directly attributable to the Project, capitalised todate, are as follows:


2008 2007Rupees

Salaries, wages and benefits 245,376 92,989

Legal and professional charges 46,371 21,945

Training and travelling expense 70,166 45,590

Borrowing costs, including mark-up on finances

capitalised 301,320 134,431

Bank Charges 31,825 1,766

Depreciation 11,259 5,269

Others 72,637 39,746

778,954 341,736


7. LOANS, ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Included in other receivables is an amount representing custom duty refundable of Rs. 18,043. During the period, theCollector of Customs issued an order dated April 11, 2008, disposing off the refund applications filed by the Company forthe refund of this duty paid at import stage. The Company based on the advice of its tax consultant, has filed an appealbefore the Collector of Customs (Appeals), Karachi dated May 31, 2008 against the aforementioned order. However, theCompany on basis of prudence has made provision against the aforementioned refundable amount in these financialstatements.


26

9. SHARE CAPITAL

During the period the Company issued 76,767,677 ordinary shares of Rs. 10 each at a subscription price of Rs.18 pershare to various investors. Of this JS Global Capital Limited (JS Global), one of the investors, made available 50 millionordinary shares out of its total shareholding in the Company to the general public through listing at the Karachi StockExchange under an Offer for Sale dated May 31, 2008. The Company was listed on Karachi Stock Exchange in July 2008.

10. HEDGING RESERVE

Hedging reserve mainly represents the effective portion of changes in the fair values of designated cash flow hedges.

During the period, the Company purchased forward exchange contracts having various maturity dates to hedge its Dollarcurrency exposure of US $ 71,152 representing the anticipated cash outflows for the Project.

5. INTANGIBLE ASSETS

Additions made during the period amounted to Rs. 1,055 (December 31, 2007: Rs. 2,785).


2008 2007 Rupees

6. STOCK-IN-TRADE

Raw and packing materials 691,486 256,277

Work-in-progress 18,178 22,861

Finished goods

- own manufactured product 584,473 640,170

- purchased product 155 831

584,628 641,001

1,294,292 920,139


2008 2007 Rupees

8. CASH AND BANK BALANCES

Cash in hand 935 834

Cash at bank on

- current accounts 9,433 97,252

- saving accounts 290,508 149,770

299,941 247,022

300,876 247,856



27

At period end, the Company owned forward exchange contracts to purchase US $ 30,000 at various maturity dates matchingthe anticipated payment dates for commitments with respect to the Project. The fair values of these contracts amountedto Rs. 81,000 as at period end.

11. EMPLOYEES’ SHARE COMPENSATION RESERVE

The employees' share option scheme (the Scheme) was originally approved by the shareholders in their ExtraordinaryGeneral Meeting (EGM) held on October 8, 2007. According to the scheme, senior employees who are critical to thebusiness operations, shall be granted options to purchase five million three hundred thousand newly issued ordinary sharesat an exercise price of Rs. 22 per ordinary share. The number of options granted is calculated in accordance with the abilityand criticality of employee to the business, subject to approval by the Compensation Committee. The options carry neitherright to dividends nor voting rights. Vesting period shall start from the date of grant and shall end on December 31, 2009,where after the options can be exercised within a period of two years. Future employees who join by October 31, 2008and those who are promoted by the same date, may also be granted options, however, the length of vesting period shallbe the same as enjoyed by first recipients of options.

During the period, the Company proposed certain changes relating to "date of grant" in the originally approved scheme.In September 2008, Securities and Exchange Commission of Pakistan approved the amendment as approved by shareholdersin their EGM held on June 27, 2008.

The effect of grant of share options has been incorporated in these condensed interim financial statements. The amountsrecognised in profit and loss account and balance sheet are as follows:

(Rupees)Employees’ share option compensation reserve and deferred employee

compensation expense recognised on grant date 9,625

Less: Amortization for the period October 8, 2007 to September 30, 2008 4,278

Closing balance as on September 30, 2008 5,347

The Company used Black Scholes pricing model to calculate the fair value of share options at the grant date. The fairvalue of the share options as per the model and underlying assumptions are as follows:

Total number of share options issued 5,175Fair value of the share options at grant date Rs. 1.86Share price at grant date Rs. 18Exercise price Rs. 22Annual Volatility 15.13%Risk free rate used 10.12%

12. LONG TERM FINANCES AND MORABAHAS

12.1 The Company entered into a Syndicated Term Finance Agreement on October 12, 2007 for Rs. 5,700,000.The facility is repayable in seventeen semi-annual installments commencing 30 months after May 9, 2008, theeffective date. The facility carries mark-up at the rate of 2.25% over six months Karachi Inter Bank Offered Rate(KIBOR) and monitoring fee of Rs. 700 per annum. Commitment fee at the rate of 0.15% per annum isalso payable on that part of the finance that has not been drawn. During the period, Company has drawn downRs. 3,200,000 against the facility.

Transaction costs amounting to Rs. 108,311 have been netted-off against the drawn amount of finance, as per policy.

12.2 During the period, on February 15, 2008, the Company repaid the bridge finance facility amounting to Rs. 1,240,000.This facility was arranged to meet the intermediate funding requirements of the Project.

12.3 The Company, effective June 21, 2007, entered into a loan agreement with the International Finance Corporation(IFC) consisting of:

i) Loan A, amounting to US $ 30,000; and

ii) Loan B, amounting to US $ 30,000.

The loans, obtained to finance the Project referred to in note 1.3, carry an interest at the rate 2.6% to 3% above 6 monthsLIBOR with a commitment fee at the rate of 0.50% per annum on that part of the loan that has not been disbursed. Theloans are to be repaid in fifteen half yearly installments commencing from June 15, 2010.


13. PROVISIONS

The Company has paid Rs. 73,450 on account of Special Excise Duty (SED) on import of plant and machinery for theProject. The Company has adjusted this SED in the monthly sales tax returns against SED on goods produced and soldby the Company. The Company has approached Federal Board of Revenue (FBR) to obtain clarification in respect of theadjustment of SED made by the Company in monthly sales tax return. Pending such clarification, the Company,based on prudence, has made provision of the aforementioned SED in these financial statements.

14. CONTINGENCIES AND COMMITMENTS

14.1 Commitments

– Performance guarantees issued by banks on behalf of the Company as at September 30, 2008 amounted to Rs. 264,281 (December 31, 2007: Rs. 301,431).

– Contracts signed in respect of capital expenditure for the Project, but not executed as at September 30, 2008amounted to Rs. 3,706,784 (December 31, 2007 Rs. 7,897,193).


28



Opening stock of work-in-progress 22,861 16,051 14,018 13,553

Raw and packing materials consumed 4,655,758 3,171,583 1,844,026 1,180,594Salaries, wages and staff welfare 75,752 78,587 28,301 28,470Fuel, power and gas 113,566 100,072 46,388 33,103Repairs and maintenance 9,663 12,505 4,932 1,630Depreciation 125,879 126,508 41,932 42,303Consumable stores 14,191 22,131 5,351 3,938Purchased services 14,730 16,558 5,022 8,476Storage and handling 100,570 94,344 36,332 34,413Training and travelling expenses 6,469 6,879 3,973 2,750Communication, stationery and other office expenses 1,890 1,183 1,157 299Insurance 7,306 11,637 2,443 3,328Provision against special excise duty 399 Other expenses 1,987 4,180 1,279 290

5,128,160 3,646,167 2,021,136 1,339,594

Closing stock of work-in-progress (18,178) (16,175) (18,178) (16,175)

Cost of goods manufactured 5,132,843 3,646,043 2,016,976 1,336,972

Opening stock of finished goods 640,170 588,065 300,173 310,125Closing stock of finished goods (584,628) (242,387) (584,628) (242,387)

55,542 345,678 (284,455) 67,738

Cost of goods sold - own manufactured product 5,188,385 3,991,721 1,732,521 1,404,710 - purchased product 676 7,671

5,189,061 3,999,392 1,732,521 1,404,710

– – –

– –


15. COST OF SALES


29

17.1 Expenses directly attributable to the Project have been capitalised, as referred to in note 4.3.



16. DISTRIBUTION AND MARKETING EXPENSES

Salaries, wages and staff welfare 31,537 28,796 12,457 10,896Advertising, sales promotion and entertainment 21,652 16,784 5,940 6,332Product transportation and handling 152,665 112,876 54,134 38,889Rent, rates and taxes 3,569 3,454 1,818 851Purchased services 6,649 4,875 2,302 1,393Insurance 646 219 292 89Depreciation 3,090 3,014 1,098 972Training and travelling expenses 6,126 5,574 2,112 1,937Communication, stationery and other office expenses 1,817 2,181 1,196Other expenses 2,020 1,891 327 920

229,771 179,664 80,480 63,475

17. ADMINISTRATIVE EXPENSES

Salaries, wages and staff welfare 68,170 35,060 28,520 11,802Rent, rates and taxes 9,414 6,115 3,929 2,307Purchased services 8,731 5,284 4,474 1,926Insurance 250 214 108 12Depreciation - note 17.1 4,374 2,813 1,350 1,013Amortization Training and travelling expenses 13,506 7,606 5,100 2,117Communication, stationery and other office expenses 7,264 3,476 3,983 1,156Other expenses 9,183 1,940 3,691 175

120,892 62,508 51,155 20,508

– – – –

–



30


Sep, 30, 2008 Sep, 30, 2007Rupees

18. CASH GENERATED FROM OPERATIONS

Profit before taxation 839,639 456,749

Adjustments for non cash chargesand other items:

Provision for staff retirement and other service benefits 8,336 3,591 Depreciation 132,856 132,176 Employee share compensation expenses 9,625 Amortization 488 49 Income on deposits / TFC / US Dollar Bonds (45,406) (49,033)Finance costs 21,624 31,419 Loss on disposal of operting assets (358) (176)Operating assets written off 243 Working capital changes - note 18.1 439,189 463,439

1,406,237 1,038,214

18.1 Working capital changes

Decrease / (Increase) in current assets

Stores and spares (10,560) (2,816) Stock-in-trade (374,153) 492,111 Trade debts (72,490) (67,570)

Loans, advances, deposits, prepayments and other receivables (net) 89,990 16,316

(367,213) 438,041

Increase in current liabilities

Trade and other payables 806,402 25,398

439,189 463,439

–

–



31

19. TRANSACTIONS WITH RELATED PARTIES

Sales, purchases and other transactions with related parties are carried out on commercial terms and conditions.Following transactions were carried out with related parties during the period:

20. DATE OF AUTHORISATION FOR ISSUE

These condensed interim financial statements were authorised for issue on October 21, 2008 by the Board of Directorsof the Company.

21. CORRESPONDING FIGURES

Corresponding figures in the balance sheet and statement of changes in equity comprise of balances as per the annualaudited financial statements for the year ended December 31, 2007, whereas corresponding figures in the profit and lossaccount and cash flow statement comprise of balances of comparable period as per the condensed interim financialstatements for the nine months ended September 30, 2007.


Sep. 30, 2008 Sep. 30, 2007

Rupees

Holding Company Purchase of services 9,971 3,688Sale of services 1,831 2,277Sale of steam and electricity 25,397 26,816Use of operating assets 765 1,639Pension fund contribution 2,208 1,620Provident fund contribution 3,322 2,430

Associated Companies Purchase of goods 4,707,808 3,240,723Sale of goods 78,648 111

Related parties by virtue ofcommon directorshipPurchase of goods 1,577 –Purchase of services 110,152 94,816Sale of services 1,256 –Insurance 458 1,443Directors fee 10 –Reimbursements 71 –

Key management personnelManagerial remuneration 85,824 63,605Retirement benefits 5,737 4,201Other benefits 45,598 29,588

Number of employees 45 37



Report for the Quarter and Nine Months ended September 30 ... · Report for the Quarter and Nine...

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