February 16, 2024 (MLN): Engro Fertilizers Limited (PSX: EFERT) unveiled its profitability for the year 2023, wherein the profit after tax clocked in at Rs26.19 billion [EPS: Rs19.61] compared to a profit of Rs16bn [EPS: Rs11.98] in the previous year.
This increase reflects efficiency through cost optimization, increased production from the long-term reliability projects executed during 2022.
The earnings in dollar terms, however, registered negative growth compared to 2017-2021 earnings.
Along with the results, the company declared a final cash dividend for the year at Rs8 per share i.e. 80%.
This is in addition to interim cash dividends already paid at Rs12.50 per share i.e. 125%.
Economic turbulence was the main theme for the year 2023 with heightened inflation and interest rates.
The Rupee also faced significant pressures due to external debt repayments, coupled with declining export proceeds and remittances, and was at its historic lowest against the US dollar.
During PKR devaluation and international price volatility, the local fertilizer industry has ensured that farmers continue to benefit from lower domestic urea prices.
MRP of urea stood at Rs3,596 per bag at year end, at a discount of 40% to international prices.
This delta constitutes a contribution of approximately Rs330bn (based on Dec’23 international and local prices) per annum towards farmer income in Pakistan.
Furthermore, the presence of a domestic urea manufacturing industry enabled import substitution to the tune of $2.3bn, including Engro Fertilizers’ share of $835 million.
Gas prices for the fertilizer sector were increased significantly in 2023 and Engro Fertilizers is additionally affected by significant rupee devaluation impacting Petroleum Policy, 2012 gas pricing applicable on its 950KT Base Plant.
Accordingly, the company increased urea prices to address the rising cost of production and to incorporate FED applicable from July 2023.
The retrospective increase in super tax levy led to higher effective tax rate of 47% compared to 40% last year, further pressurizing company’s profitability.
During the year 2023, the company contributed nearly Rs34.7bn towards the National Exchequer by way of government taxes, duties, and levies, compared to Rs11.6bn in 2022.
The company’s urea production increased by 18.3% during the year and stood at 2,313 KT vs 1,955 KT in 2022, mainly because of reduced outages at both plants.
Consequently, its urea sales also improved by 20.3% to reach 2,327 KT as compared to 1,935 KT in 2022.
As a result, EFFERT's market share increased to 35% for the year as compared to 29% in 2022.
The Phosphates business managed volumetric sales of 365 KT compared to last year’s sales of 333 KT and the company managed to earn good margins on these sales through efficient procurement and effective sales management.
These developments translate into a sales revenue of Rs223.7bn compared to a sales revenue of Rs157bn in 2022.
The cost of sales also rose by 32.62% YoY but was lesser than proportionate to sales increase, which improved the gross profit by 68.73% YoY to Rs72.3bn in 2023.
The gross margins improved to 32.32% as compared to 27.29% in SPLY.
Despite significant interest rate hikes during the year the company’s interest expense reduced by 27% to reach Rs1.9bn through efficient working capital management.
During the review period, Interest income on cash balances increased by RS1.5bn mainly due to higher interest rates in 2023.
Since the implementation of axle load regime, the company’s average freight cost has increased by 45%.
On the expense side, the company observed a rise in Distribution costs by 32.04% YoY and other expenses by 73.15% YoY to clock in at Rs13.05bn and Rs4.37bn respectively during the review period.
On the tax front, the company paid a higher tax worth Rs23.5bn against the Rs10.56bn paid in the corresponding period of last year, depicting a rise of 122.59% YoY.
| Consolidated (un-audited) Financial Results for year ended 31 December, 2023 (Rupees in '000) | |||
|---|---|---|---|
| Dec 23 | Dec 22 | % Change | |
| Sales | 223,704,592 | 157,016,930 | 42.47% |
| Cost of sales | (151,407,364) | (114,169,791) | 32.62% |
| Gross Profit | 72,297,228 | 42,847,139 | 68.73% |
| Distribution costs | (13,053,158) | (9,885,983) | 32.04% |
| Administrative expenses | (4,006,506) | (2,216,597) | 80.75% |
| Other losses | (2,978,062) | (1,362,871) | 118.51% |
| Other Income | 3,714,027 | 2,325,361 | 59.72% |
| Other expenses | (4,369,431) | (2,523,538) | 73.15% |
| Finance cost | (1,910,830) | (2,621,808) | -27.12% |
| Profit before taxation | 49,693,268 | 26,561,703 | 87.09% |
| Taxation | (23,502,166) | (10,558,414) | 122.59% |
| Net profit for the period | 26,191,102 | 16,003,289 | 63.66% |
| Basic earnings/ (loss) per share | 19.61 | 11.98 | – |
Amount in thousand except for EPS
The company, along with other major fertilizer manufacturers, is committed to Gas Pressure Enhancement Facilities (PEF) project, to jointly develop and install pressure enhancement facilities at gas suppliers’ delivery node to sustain the current level of pressure of gas, it said.
The company’s expected share of capital expenditure is $100m.
Through its nationwide network of warehouses and dealers, the company ensured continuous fertilizer supply across the country.
Recently, Engro Fertilizers, along with other fertilizer manufacturing companies, in a joint gathering called upon the dealers across the country to ensure sale of urea fertilizer on announced Market Retail Price (MRP).
Attended by major fertilizer dealers from across the country, the convention facilitated a strategic discourse on vital topics such as fertilizer demand and supply situation, urea imports by the Government of Pakistan to fill the demand-supply gap, and the development of effective strategies to ensure the availability of urea and other fertilizers at manufacturer-recommended prices.
The company strives to be a leader in the industry in its gender diversity by opening avenues to women from various socio-economic backgrounds to operate in unconventional roles. In 2023, 40% of entrant level positions were occupied by women and a larger number of women are now in leadership roles across the company.
Going beyond gender, and to help integrate differently abled individuals into its own workforce, the company collaborated with the Karachi Down Syndrome to launch its internship program and inducted its first batch of interns in 2023.
The company’s Corporate Social Responsibility (CSR) programs are structured to maximize the effects of its investments in the communities.
To help empower differently abled individuals and those in need of sustainable income, 12 livelihood projects were awarded to widows and persons with disabilities.
Addressing water scarcity, the company installed 12 Reverse Osmosis (RO) plants, powered by solar energy, delivering 15 million liters of clean water to 4,000 families.
The company has established various schools in rural areas with a total enrollment of 535 in 2023. In healthcare, the Company offers free clinics, hearing aid camps, and urgent treatments for snake and dog bites.
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Posted on: 2024-02-16T09:21:31+05:00
