Engro Fertilizers Ltd. · PSX:EFERT
Engro Fertilizers — Q4 2021 Earnings Presentation
49 slides from Engro Fertilizers's earnings presentation, 2022
Slide 1: Analyst Briefing 4Q 2021
ANALYST BRIEFING 4Q 2021 www.engro.com
Slide 2: Consistent High Dividends – 104% Payout in 2021
Consistent High Dividends – 104% Payout in 2021 Engro Fertilizers has consistently paid out high dividends year on year versus the industry Dividend Yield Payout Ratio 25.0 120.0 20.0 100.0 80.0 15.0 60.0 10.0 40.0 5.0 20.0 - - 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 EFERT Industry average
Slide 3: Fertilizer Sector returns below other sectors
Fertilizer Sector returns below other sectors Industry Returns Sector Wise Returns (ROA and ROE) - 10 Year Average 80% 70% 67% 60% 50% 40% 33% 30% 26% 23% 24% 19% 20% 17% 17% 15% 12% 14% 11% 10% 10% 10% 8% 8% 4% 3% 0% 1% 0% Food and Personal E&P Auto Fertilizer Cement Chemical Power Steel OMC Refine
Slide 4: Local urea prices remained at 2012 levels whilst international prices skyrocketed
Responsible Player Safeguarding Nation’s Food Security Local urea prices remained at 2012 levels whilst international prices skyrocketed Urea Prices remained unchanged in the middle of urea shortage 4
Slide 5: Engro Fertilizers growth in profitability
Earnings Growth below market average Engro Fertilizers growth in profitability – 16% vs market average of 59% 5
Slide 6: EFERT Highlights
EFERT Highlights www.engro.com
Slide 7: 1.2x Increase in FY 2021 PAT Vs FY2020
1.2x Increase in FY 2021 PAT Vs FY2020 EFERT has announced a final dividend of PKR 5/share for 4Q 2021 Vs the PKR 4/Share in 4Q 2020. This brings the total dividend announced for FY 2021 to PKR 16.5/share vs Highest FY PAT in the PKR 13/share announced last year last 5 years supported by one-offs &
Slide 8: 2021 Earnings Growth
2021 Earnings Growth 2021 Earnings growth supported by one-offs & specials Reassessment of useful life and scrap value Inventory gains on trading portfolio Dealers’ sales tax registration 8
Slide 9: Our profitability through the quarters
Our profitability through the quarters… PAT in PKR Billions 6.6 6.2 4.4 Q4 2021 Q3 2021 Q4 2020 Q4 2021 Vs Q3 2021: Q4 2021 Vs Q4 2020: Higher PAT in Q4 2021 mainly due to higher margins in Lower PAT in Q4 2021 due to GIDC/Subsidy gain and tax Phosphates business and turnaround related activities on
Slide 10: Highest Ever Urea Sales in 2021
Highest Ever Urea Sales in 2021 Lower Production FY Urea Production (KT) due to plant FY Urea Sales (KT) turnaround/ outages 1.12x Increase 2500 2500 2264 2295 2105 2003 2057 1986 1958 2000 1928 2000 1807 1739 1500 1500 1000 1000 500 500 0 0 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 201
Slide 11: Agri Sector Performance
Agri Sector Performance www.engro.com
Slide 12: Government Policies Have Ensured Positive Momentum In Agri Sector
Government Policies Have Ensured Positive Momentum In Agri Sector Earning from Wheat and Sugarcane increased by 59% & 48% respectively; Cotton can see a minor dip while OL for Rice is positive Wheat 2019-20 2020-21 Sugarcane 2019-20 2020-21 Total expense (PKR) 35,682 38,632 Total expense (PKR) 89,81
Slide 13: Domestic Urea Prices at a discount of 84% at 2012 Levels
Domestic Urea Prices at a discount of 84% at 2012 Levels Landed Equivalent Domestic FOB Price* CFR Price Discount on Price USD 955/T USD 985/T Urea PKR 11,027/Bag 84% Over PKR Local Urea Price** 9,000 PKR 1,768/Bag / bag discount Assumption: FX Rate – 174.8 *Data Source: CRU weekly report average (1
Slide 14: Industry & EFERT Business Performance
Industry & EFERT Business Performance www.engro.com
Slide 15: Positive farm economics driving growth in fertilizers sale
Positive farm economics driving growth in fertilizers sale While Urea industry has grown by 5%, EFERT Phosphates market recorded a decline of 13% when sales volumes grew by 12% 7000 prices were 2.3 times vs last Dec 6343 6040 6000 2500 2204 5000 2000 1908 4000 1500 3000 2295 2057 1000 2000 465 1000
Slide 16: Int DAP Price has risen by a higher proportion
Int DAP Price has risen by a higher proportion 915 950 8,800 850 8,974 7,800 750 PKR/bag USD/T 6,800 650 5,800 550 4,800 450 376 3,800 3,956 350 Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Local prices International prices International DAP prices have increased by 143% in 2021 whereas loc
Slide 17: Challenges
Challenges www.engro.com
Slide 18: Tax Disallowances
Tax Disallowances EFERT has always supported the Government in its drive to widen the tax net Sales Tax/ Income Tax Disallowance ▪ Sales tax provision started since 01 Jan 2020 ▪ Pursuant to several engagements with ministries/FBR, the fertilizer industry was able to successfully obtain specific exe
Slide 19: Expiry of Concessionary Gas
Expiry of Concessionary Gas Concessionary Gas ▪ As per decision of ECC “Since, SNGPL remained unable in supplying contracted volumes of gas to Engro, it is recommended that maximum period of 10 years for concessionary pricing may be extended by the number of days for which SNGPL could not supply gas
Slide 20: Subsidy Receivable
Subsidy Receivable The industry is facing a challenge in the form of prior subsidy receivable from the government ➢ Subsidy amount recorded for the industry & EFERT is c. PKR 20 Bn & PKR 6.5 Bn respectively Subsidy ageing PKR Bn 2015 - 2016 0.11 2016 - 2017 3.9 2017 - 2018 2.4 EFERT Subsidy Receivab
Slide 21: Sales Tax Refunds
Sales Tax Refunds The industry is facing a challenge in the form of prior sales tax refunds from the government of Pakistan ➢ Sales tax refund amount recorded for the industry is PKR51.1Bn as of Nov 2021 Tax Receivable ageing PKR Bn Dec 2016 0.04 Dec 2017 0.07 Dec 2018 0.24 Dec 2019 0.36 Dec 2020 2.
Slide 22: Special Items For Discussion
Special Items For Discussion Sr. No Topic 1. Fertilizer Industry’s contribution towards the Nation 2. Reasons for increase in urea demand 3. Need for deregulation of the Fertilizer Sector www.engro.com
Slide 23: Fertilizer Industry’s contribution towards the Nation
1 Fertilizer Industry’s contribution towards the Nation www.engro.com
Slide 24: International urea prices have increased by ~242% over the last 1 year
Fertilizer industry has shielded the farmers from international urea price rise International urea prices have increased by ~242% over the last 1 year 12,000 10,657 10,830 10,000 8,626 8,000 5,777 6,000 5,313 5,185 4,680 3,838 3,771 3,807 4,000 3,606 3,289 2,895 1,619 1,669 1,669 1,669 1,669 1,669 1
Slide 25: Fertilizer sector has passed 3.5x benefit to farmers
As a result, fertilizer sector has passed 3.5x benefit to farmers Farmer Benefit and subsidy 2010-YTD 2021-PKR B 1,400 1,252 1,200 1,000 800 600 400 357 200 - Gas Subsidy by GoP net of tax (PKR B) Benefit Passed on by Fertilizer Industry (PKR B) Even though local urea prices are at a substantial dis
Slide 26: Benefit passed through urea pricing is almost 10X on spot basis
Benefit passed through urea pricing is almost 10X on spot basis Benefit passed on by fertilizer sector in the form of lower urea prices Delta between spot international prices (Rs 10,891/bag) Vs local MRP (Rs 1,768/bag) Rs 902 /bag Rs 9,120+ /bag Feed gas subsidy provided by GOP to fertilizer sector
Slide 27: Industry to provide significant import substitution and benefit to farmers
Industry to provide significant import substitution and benefit to farmers Annualized Import Substitution enabled by Annualized benefit to domestic farmers Fertilizer sector based on Average based on average international prices international prices ~USD ~PKR 3.5 524 Billion Billion ~USD 28/bag ~PKR
Slide 28: Reasons for increase in urea demand
2 Reasons for increase in urea demand www.engro.com
Slide 29: Government Policies Have Ensured Positive Momentum In Agri Sector…
Government Policies Have Ensured Positive Momentum In Agri Sector… Earning from Wheat and Sugarcane increased by 59% & 47% respectively; Cotton can see a minor dip while OL for Rice is positive Wheat 2019-20 2020-21P Sugarcane 2019-20 2020-21P Total expense (PKR) 35,682 38,632 Total expense (PKR) 88
Slide 30: …and have led to increase in area under cultivation
…and have led to increase in area under cultivation 2 Mn hectare growth over last 2 years 30
Slide 31: Improved farm economics driving better agri practices
Improved farm economics driving better agri practices • Maize area has increased over the years along with shift to hybrids thereby increasing urea demand • For rice, conventional varieties are being replaced by hybrid as well resulting higher urea demand Maize area shift from OPV to Hybrid Rice Are
Slide 32: Urea Demand has increased to 6.3 MT for 2021
Urea Demand has increased to 6.3 MT for 2021 Over last 3 years, demand has averaged at 6.2MT vs 10-year average of 5.8MT Average 5.8MT; excluding 2012 5.9MT Average 6.2MT 7,000 6,228 6,343 5,919 5,895 6,040 6,000 5,764 5,816 5,629 5,582 5,485 5,237 5,000 4,000 Sales (KT) 3,000 2,000 1,000 - 2011 201
Slide 33: Key Takeaways
Key Takeaways Benefit passed on by fertilizer sector to domestic farmers through urea pricing is almost 10X on spot basis as compared feed gas subsidy provided to fertilizer sector Industry is all set to provide annualized import substitution of USD 3.5 billion and benefit to farmers of PKR 524 bill
Slide 34: Need for deregulation of the Fertilizer Sector
3 Need for deregulation of the Fertilizer Sector www.engro.com
Slide 35: Fertilizer policy 2022-Proposal
Fertilizer policy 2022-Proposal www.engro.com
Slide 36: Key components of new fertilizer policy proposal
Key components of new fertilizer policy proposal No gas subsidy –Uniform gas rate Urea selling price to remain fully deregulated Export of excess urea capacity Encourage debottlenecking of indigenous gas-based facilities Encourage gas efficiency projects 36
Slide 37: USD ~745 Mn export opportunity without any capital outflow
USD ~745 Mn export opportunity without any capital outflow Production Capacity 7 MT Last 2-year average urea Demand 6.2 MT 445 435 600 Export 3,100 opportunity 2,400 0.8 MT USD ~745 Mn Production Capacity EFERT Fauji Fatima Agritech RLNG Fatima RLNG 37
Slide 38: Urea - Potential To Be The Top Exporter
Urea - Potential To Be The Top Exporter 800 745 Export Revenue-USD Mn 700 600 500 429 400 332 330 312 307 284 273 268 300 226 200 100 0 Urea Exports Style Textile Interloop Artistic Milliners Yunus Textile Nishat Mills Gul Ahmed Feroze1888 Soorty Artistic Fabric & Enterprises Garment Note: Export da
Slide 39: EFERT - Our Reason for Being
? EFERT- Our Reason for Being
Slide 40: we grow prosperity
‘we grow prosperity PATZON PATZOB
Slide 41: we grow hope & dreams
we grow hope & dreams
Slide 42: Ms if
Ms if pr Pe es artifieial lim 3 plogra y
Slide 43: Doing Good While Doing Well
Doing Good While Doing Well Infrastructure Medical Camp Installation of solar lights at Jung Sahara clinic organized free of cost and Baloch colony and hearing Aid camp in Daharki. Total installation of 110 benches at 566 individuals were screened, different areas of Daharki, and 126 deserving indiv
Slide 44: Awards & Recognition
Awards & Recognition No. of Awards 2021 No. of No. of Awards Awards 2019 2020 23 39 40 44
Slide 45: Awards
Awards International Safety Awards 13th International Annual CSR Summit 10th Annual International CSR 2021 – Daharki Plant & Awards 2021 Summit Awards (Employee Engagement , Livelihood & (CSR Events, Community Impact COVID’19 Crisis Management & Green & Employee Volunteer) Energy Initiative) RoSPA F
Slide 46: Awards
Awards Most innovative Fintech Data 3rd Position in Chemical and Fertilizer Health & Safety Gold Award – Solution Provider Category Daharki -Best banking tech of the year Health & Safety Silver Award -Best payment technology – Zarkhez Annual Environment Excellence Agile Finance was featured in Hazar
Slide 47: Awards
Awards Largest taxpayer Award in Amir S Chinoy Corporate Excellence CFA Society Award in the the Fertilizer Sector Award in Industrial Category Overall category of Gender Diversity at Workplace UN Women 2021 Asia Industry Stewardship 11th Annual Fire and Pacific WEPs Award- Champion 2021 award Secur
Slide 48: Awards
Awards Pakistan’s largest S4 HANA Most inclusive organization of Pakistan Rising Star of Safety award digital business GDEIB Awards 2021 transformation in the private sector-Bronze Award 48
Slide 49: Pakistan – together we grow
together we grow Pakistan