5413 Dividend Risk One of the financial covenants agreed with the lenders as

5413 dividend risk one of the financial covenants

This preview shows page 51 - 54 out of 94 pages.

5.4.13 Dividend Risk One of the financial covenants agreed with the lenders as part of debt re-profiling is a restriction on payment of dividends to shareholders until 33% of the outstanding loans as at June 30, 2012 have been paid off. Mitigant In October 2012, the Company converted its Enven plant to run on Mari gas which has resulted in 10-15% incremental production from using the same gas molecules. In the intermediate term, the Company is looking into other gas alternatives like Mari and Reti Maru to top up production from Enven. In 2014, the Long Term Gas Allocation is expected to flow from 3Q 2014 allowing the Company to run both plants, which will enable the Company to build up sufficient cash reserves to comfortably service its debt and expects to pay off 33% of its loans as at June 30, 2012 by 3Q 2015. 5.4.14 Risk of flooding Flooding can either result from heavy rains or overflow of water from the rivers. Flood waters may adversely affect crops and erode urea demand. It can potentially result in business interruption and damage plant and machinery. Mitigant Flooding of crops can severely impact farmer economic which in turn will result in demand erosion of urea but as urea is imported domestic urea demand remains unchanged. In the last three floods of 2010, 2011 and 2013, the worst was 2010 when approximately 300 KT of demand erosion took
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Page 52 of 94 place. Normally flooding can yield positive effects next year as farmers benefit from the replenished water tables. The warehouses where urea is stored is exposed to flooding but the Company makes it a priority to pick locations that are not in close proximity to barrages and hence not in the flood zones. The manufacturing facility at Daharki is not in the flood zone but the Company has secured insurance cover which will reimburse losses arising due to business interruption at the manufacturing site along with damage to plant and equipment. Note: It is stated that all material risk factors have been disclosed and that nothing has been intentionally concealed in this respect.
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Page 53 of 94 PART 6 6 FINANCIAL INFORMATION 6.1 AUDITORS’ REPORT UND ER SECTION 53(I) READ WITH CLAUSE 28 OF SECTION 2 OF PART I OF THE SECOND SCHEDULE TO THE COMPANIES ORDINANCE, 1984, FOR THE PURPOSE OF INCLUSION IN THE PROSPECTUS OF THE ENGRO FERTILIZERS LIMITED The Board of Directors August 30, 2013 Engro Fertilizers Limited D 816 7 th & 8 th Floors, The Harbour Front Building Plot No. HC-3, Block 4 Scheme No.5, Clifton Karachi. AUDITORS’ REPORT UNDER SECTION 53(1) READ WITH CLAUSE 28 OF SECTION 2 OF PART I OF THE SECOND SCHEDULE TO THE COMPANIES ORDINANCE, 1984, FOR THE PURPOSE OF INCLUSION IN THE PROSPECTUS Dear Sirs In accordance with section 53(1) read with clause 28 of section 2 of part 1 of the second schedule to the Companies Ordinance, 1984, we report that: 1. The assets and liabilities of Engro Fertilizers Limited (incorporated on January 01, 2010) as per the audited financial statements as at June 30, 2013, December 31, 2012, 2011 and 2010 are as follows: June 30, December 31, December 31, December 31, 2013 2012 2011 2010 ASSETS Non-current assets
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