Verticle and horizental analysis of engro foods

Group 6

Shafaqat AliSobia NazeerSumaira WarisFarwa Akhtar

Introduction of engro foods

§Engro stands for “energy for

growth”.§

The company was incorporated in 1965

INTRODUCTION TO ENGRO FOODS LIMITED

• Engro Foods Limited is a subsidiary of Engro Corporation Limited.

• Its have been more than 40 years in fertilizer and chemical.

• Engro Foods Limited was officially launched as a fully owned subsidiary of Engro in 2004.

• Two processing plants at Sukkur and Sahiwal.

• Sales:The revenue

has grown at a very rapid pace from 2006 level . This is primarily attributable to product innovation launch of new segment.

• Gross Profit:Gross profit ratio has significantly improved

from 7.2% in 2007 is 25.7% in 2012.The significant in gross profit is consequence of efficiency in production and economies of scale due to exponential growth in business volume.

• Distribution of Marketing Expenses:

In order to support continuous growth trajectory, significant expenditure has been incurred for brand building which led to manifold increase in marketing costs . with many brands now in a very established position , the marketing cost now stand at 12% of revenue in 2012 compared to 26% in 2007.

• Administration & other Expenses:

These expenses have increased primarily due to larger support functions required to manage the business growth . the expenses under these heads are mostly fixed in nature and therefore, have witnessed reduction in reiation to revenue.

• Finanance Cost:Finance costs increased with the

higher amount of long term borrowings due to lowerings of interest of borrowing.

• Provision of taxation:Directly

attributable to increase in profitability.

Balance Sheet

• 1)Equity :With time to time

capital injections from the parent company and private placement 2011, The share capital has reached to 8.4 million in 2012 from Rs. 2.2 billion in 2006 .The company incurred losses in earlier years . However the recent profit has significantly increased company overall equity position.

• 1)Long Term Finances:in order

to mention the growth momentum ,the company continues to finance a portion of its capital requirements by raising long term loans .Therefore the long term loans have significantly increased over years . The ratio of long term loans to equity has gone down to 38:62in 2012 compared to 55:45 in 2007.The company has been able to reduce this ratio due to its higher cash generation capacity.

• 2) Deferred taxationDue to taxation losses in earlier years of

operation , the company ‘s deferred tax liability has increased significantly.

• Current Liabilities

• 1)current portion of Long term finances:The increase is consequential to higher

borrowing.• 2)Trade Payable:

Trade payables quadrupled over the years in line with the rising business volume.

• 3)Accrued interest:Increase in borrowings over the years has led to high

year end accruals for financing obligations

• Non current Assets•

• 1)Plant , property and equipment:property , plant and

equipment has witnessed a very large increase over the year . This is due to continuous investment in production facilities and infrastructure to support growing scale of business.

•

• 2)Long term investment:In 2009 and

2010,the Engro food is invested in rice processing . The subsidiary was later sold to another group company as part of group strategy.

• 3)Biological Assets:This represents value of animals

purchased at the time of establishment of company dairy farm in Nara.

•

• 5)Advance against shares of Engro Foods Natherland:This represents advance

paid to Engro corps for the purchase of shares Engro foods Natherland . The company is already managing the al Safa business in America and Canada markets.

• 5)Stock in Trade:

• The increase in line with the continuous increase in overall business volume . On average, the company maintains at least a months inventory to meet sales demand and production requirements.

• 6)Other ReceivablesThe increase in

receivables is primarily due to two factors

» Increase in sales tax refunds from the government arising mainly on input tax paid at the time of imports.

» Increase in receivable from Tetra under cost sharing arrangements . This is the direct consequence of increase in business volume.

• 7)Short term Investment / cash:Cash and

short term investments were retained in 2010 & 2011 to finance upcoming commitments.