Qasimraza555@gmail.com Page 1“Engro Chemicals Limited Pakistan”“Issues in weaknesses of financial operations and Internal Control of ECPL”Subject: Corporate GovernanceSubmitted To: Sir Ishtiaq AhmedClass: MBA-V Submitted By:1. Qasim Raza 11313Department of Management ScienceNATIONAL UNIVERSITY OF MODERN LANGUAGESSECTOR H-9, ISLAMABAD
Qasimraza555@gmail.com Page 2Issues in weakness of financial operations and InternalControl of Engro Chemicals Ltd:Engro focuses on flawless implementation of the significant growth initiatives in all businesses;fertilizers, food, energy, chlor-vinyl, chemical storage and industrial automation. Engro has also plannedto continue to sources and retain its quality people to sustain its growth.Urea demand is expected to be problematic whilst phosphate demand expected to be affecting by highinternational pricesThe board would like to take opportunity to express its appreciation to the dealers and employees for theirdedication throughout the year. The Board also acknowledge the support and cooperation received fromthe Government, Joint ventures, Partners, Bankers , Suppliers, Contractors and other Stakeholders.These are following challenges and issues are faced by the organization;1. Shortage of irrigation water:Both during the Rabi (winter) and Kharif (summer) season for crop sowing, it led to reducedformer income. As a result overall, urea off take fell by 1% to 4 metric tons, whereas demand forDAP (Di- Ammonium Phosphate) fertilizer dropped by 5% to 1.2 metric tons. ECPL faced amarginal declined in Urea volumes (0.6%) and 17% declined in sales of imported DAP fertilizers.The sale dropped in case of DAP is attributable to drought condition and insufficient supplysourcing in a period of uncertainty relating to GST levy in Pakistan. The Govt. imposed 15%GST on the selling price of DAP and other fertilizers w.e.f Sep 02, 2001.2. Increase in Gas Prices:Fertilizer policy was announced in August 2002, which maintain subsidy on feedstock (gas used araw material - constituting 20% of COGS/Ton) with fixed feedstock price increases stipulated forthe next 5 years. However, fuel stock (gas used for the running plant – constituting 40% ofCOGS/Ton) prices would continue to be deregulated and adjust every 6 months. Now fuel stockprices are deregulated after 3 months.3. Start up losses on NPK operations:ECPL expanded into 100k NPK (blended fertilizer) plant, which came to operations in Apr ’02.However, initial testing problems sakes to 24k tons against production of 31k tons. NPK businessshowed a loss of PKR 109 million.
Qasimraza555@gmail.com Page 34. Loss of Production:ECPL’s Urea production during the year was down by 2% to 790k tons on account of certainproductions issues which were significantly smoothened towards the end of year.5. Does not hold Market Premium:Engro Urea does not command the same market premium as its competitor Fauji fertilizerproduction “Sona”. However, Sona Urea sold mainly in the Punjab province. Whereas, Engro has a strong niche in Sindh province.6. Financial Risks:ECPL expands their business day by day in different product lines, by a larger segment withvalue- added supply chain. It may be affects ECPL by major financial risks includes; salesreductions, declined share price, technological faults, greater overhead expenses, shortage ofnecessary resources, expensive raw material and high prices of their products in the market.7. Market Shares:ECPL hold only 19% of the market shares rather than its competitor FFP holds 40% ofthe market shares.8. Economic Crises:ECPL also faced economic crises in Pakistan due to bad situation of stock market by war andterror, political instability etc. However, local and foreign investor did not willing to invest incompanies situated in Pakistan.9. Expenses on Training:ECPL spend huge amount on their employees training by highly qualified professionaland experts. This receives large amount of remuneration from organizaatiom to providetheir expertise.