KARACHI, Jan 30: The full year Engro results released by the company on Wednesday, could have caused long faces in the Research rooms of several stock brokerage firms. A flip of the coin would have given investors half a chance to be right; most forecasts having worked out, feverishly over calculators and reinforced with trend charts, proved incorrect by a long shot.

For the year to end-December 2001, Engro was visualized to post improved profit to Rs1.2 billion — or more. By contrast, the company showed 5.5 per cent slip in after tax profit to Rs1,064 million, from Rs1,126 million the earlier year. Analysts were touting final cash dividend to range between 20 to 30 per cent and most expected it to be tied to a bonus issue — as was the case in previous year.

The Board decided to pay out higher than expected final cash dividend at 35 per cent, but skipped the bonus. All of that naturally received a cool reception at the market, with the company stock losing Rs3.45 during day’s trading to close at Rs60.10. More than 10 million shares changed hands on Wednesday. The stock stood at 8 times the earning per share of Rs7.65.

Sales in terms of value, slipped 2 per cent to Rs8,220 million, from a year ago sales valued at Rs8,394 million and gross profit declined 6.6 per cent to Rs2,742 million, from Rs2,935 million. The gross margin worked out at 33.4 per cent, slightly lower than last year’s 35 per cent. Some sector analysts were hoping the company to post gross margin higher than last year’s. The company could trim selling-distribution expenses to Rs1,006 million, from Rs1,091 million. Financial and other charges also stood down to Rs743 million, from Rs783 million. “Other income” contributed Rs199 million, compared with Rs219 million the earlier year.

So where did the analysts go wrong? The bottomline was expected to be brighter due to better pricing (higher retention price) and no increase in price of gas in September 2001.

The Board issued a statement that explains the results. It said that the sales revenue had declined due to ‘supply limitation and demand shrinkage’ on account of drought conditions prevailing in the country. Production of Engro Urea was noted to be 790 thousand tons, compared with 808 thousand tons last year. Engro NPK added 31 thousand tons this year. “The company held its urea market share of 20 per cent due to strong sales in the fourth quarter”, directors said. The 2 per cent production shortfall over the previous year was said to be due to ‘equipment malfunction issues’, which were significantly smoothened towards the end of the year. During the year, the company launched into NPK and seeds business which were well received in the market.

The drop of 5.5 per cent in after tax profit was attributed to “a number of favourable and unfavourable events which cumulatively resulted in profit decline”. Gains were said to have been made through margin improvement and increase in joint venture dividend income, but those were more than offset by the cost of GST absorption, loss of production and sales volume, high maintenance costs and startup loss on the new NPK fertilizer and seed businesses. The Board said that the bonus issue had been omitted and disappointment was expressed at the recent levy of a 10 per cent withholding tax on bonus shares.

Directors have called the Annual General Meeting on March 28, at Karachi. Dividend if approved by the shareholders would be paid to those shareholders whose names appear on the Register of Members on March 14, 2002. Transfer Books are to remain closed from March 14 to 28 (both days inclusive).

The poorer results of Engro Chemical this year, should not, however, rob the company of the credit that is its due, at least on two counts. One, that inspite of its enormous size, Engro managed to announce the full year audited financial figures within only a month of the close of the year. And two, that the numbers are accompanied by a directors’ brief, which otherwise would have left both investors and analysts generally at sea.