Dawood Hercules Corporation Limited

FTM Project Report

Submitted by: Muneza Naeem Registration No.: Fa-2014/ M. Sc. EM / 014

Introduction Dawood Hercules Corporation Limited (DH Corp) is an investment holding company with

associated business interests which range from information technology and financial services to

food, fertilizer, chemicals manufacturing and storage, and energy. They ensure abiding

commitment to conducting business with the highest levels of integrity and professionalism.

Vision

Dawood Hercules envisions itself to be the leading investor and wealth creator of value driven

businesses.

Mission

The main mission of Dawood Hercules is profit maximization. The company achieves it by

investing in businesses that share their vision and investment criteria to achieve growth and yield

results on a consistent basis. They further aim to create intrinsic value by incorporating

efficiency and capability within their existing operations and investments.

DH Corp focuses on managing its investments including its 100% owned subsidiary DH

Fertilizers Limited, a 38% ownership of its associated company Engro Corporation Limited and

a recent acquisition of a 14% stake in The Hub Power Company Limited, Pakistan‘s largest

private sector power producer.

We believe businesses should develop intellectual as well as financial capital. Our commitment

extends to encouraging sustainable business practices to protect our nation's human, natural and

cultural resources. Finally and most importantly, it is our unequivocal belief that ethical business

conduct is the only way to secure a better future for us all.

History

In 1948, Ahmed Dawood starts Dawood Group which would become the basis of many future

businesses. From 1952 to 1960, the group set up Dawood Cotton Mills in Karachi, Burewala

Textile Mills Limited in Punjab, Dawood Cotton Mills Limited set up in Karachi, Lawrencepur

Woolen & Textile Mills became operational and produced yarn for hand knotted carpets,

blankets for Armed Forces, tweed and worsted fabrics and the group establishes Central

Insurance Company. The company operated in all major cities of Pakistan and transacted all

conventional forms of insurance covers successfully. In 1960, radical steps were taken to expand

and modernize the production facilities in Lawrencepur Woolen & Textile Mills.

Formed in 1961, The Dawood Foundation is today one of the largest private charitable trusts in

the country. The foundation has contributed funds for establishing schools, colleges, hospitals,

dispensaries and towards scholarships for students. In 1967, Pakistan‘s first Nylon Yarn

Producer, Dilon Limited was established.

The company stepped into a new business line i.e. Chemicals establishing Dawood Hercules

Chemicals Limited as a joint venture between the Dawood Group and Hercules Chemicals Inc.

of the USA. It was the first provate sector venture in Pakistan to receive a loan by the World

Bank. In 1971, Karnaphuli Paper Mills, Karnaphuli Rayon & Chemicals Limited, Dawood Jute

Mills and Dawood Shipping Company were founded in East Pakistan. But Group investments in

East Pakistan were lost with the creation of Bangladesh. The East Pakistan industrial

undertakings constituted almost 60% of the Group‘s activities. Moving on, the business

enterprise suffers further setbacks as the Government of Pakistan nationalizes a number of large

Pakistani industrial undertakings; the Group lost its flagship company, Dawood Petroleum Ltd.

Despite of all these losses, the group did not step back in opening new set ups. In 1984, a new

polyester plant was installed at Dilon unit with the daily capacity 4.5 ton of flat and textured

filament yarn. Burewala Textile Mills became Pakistan‘s first spinning and weaving mill to

receive the prestigious ISO 9001 certification. Lawrencepur Woolen & Textile Mills obtained

ISO 9001 certification in April, 1998.

In 2002, Hussain Dawood elected Chairman of Dawood Hercules Chemicals Limited. Elixir

Securities, a full service brokerage firm was acquired the same year. The group acquired 10%

shares of Sui Northern Gas Pipelines.

In 2004. Dawood Lawrencepur Limited was created in 2004 as a result of the amalgamation of

all textile companies of the Dawood Group. The Group acquires a majority stake in Inbox

Business Technologies Pvt. Ltd. - Pakistan's leading computer brand.

In June 2010, Dawood Hercules Chemicals Limited announces the demerger of its fertilizer

business. The fertilizer business is transferred to a wholly owned and newly incorporated

subsidiary - DH Fertilizers Ltd.

In 2011, Dawood Hercules Chemicals Limited becomes Dawood Hercules Corporation Limited

(DH Corp.), a holding company which focuses on exploring investment opportunities. Central

Insurance renamed as Cyan Limited, becomes an equity investment company. DH Corp. and its

affiliates collectively acquire 16.42% stake comprising 190mn shares in Hub Power

Company Limited (HUBCO).

Success Stories

Hard work is the key to success, says Ahmed Dawood, founder of Dawood Group of Companies

and one of the most outstanding personalities of trade and industry.

Ahmed Dawood had lost all his business assets worth millions of rupees, spread all over India

including Bantwa, Madras, Calcutta, Bombay and other cities at the time of creation of Pakistan

in 1947. He had to face another serious setback at the time of Dhaka fall in 1971. At that time he

again lost huge industrial and business projects like Kernafuly Paper Mills Limited, Kernafuly

Rayon and Chemicals Limited, Dawood Jute Mills and Dawood Shipping Company with a fleet

of 25 cargo ships. All these assets slipped out of his hand with the separation of the then East

Pakistan. Dawood Group of Companies had to suffer huge losses due to nationalization policy

enforced during Bhutto regime. Major industrial projects of Dawood Group including Dawood

Petroleum and Central Life Insurance Company Limited were nationalized by the then

government in 1974.

Despite all these losses, Dawood Group managed to weather the storm and continued to retain its

leading position on the economic front of the country.

According Ahmed Dawood, who is a firm believer, "Time and circumstance snatched everything

from me but Almighty Allah continued to shower His blessings."

Dejected with the nationalization policy of the government, Dawood left Pakistan for the United

States along with his wife for a diversion. He proved his business acumen during his stay abroad

and set up an oil exploration company which successfully discovered six oil wells in Texas. He,

however, returned home in 1977. Despite the adversity it has faced, the group has proven itself in

ventures like textiles, chemicals, technology and financials.

Product Profile

Dawood Hercules Corporation Limited (DH Corp.) is an investment holding company with

diverse business interests ranging from IT and financial services to food, fertilizer, chemicals

manufacturing and storage, property development, and energy.

The business interests of Dawood Hercules are diverse and varying.

DH Fertilizers Limited

DH Fertilizers Limited (DHFL) is a Urea fertilizer manufacturing

and marketing concern. It was established in 1968 as a joint

venture with Hercules Chemicals Inc. of the USA. The 445,000

tons Urea plant is located in Sheikhupura, Punjab.

DH Fertilizers manufactures and markets Urea under the brand

name ―Bubber Sher‖, which has consistently delivered quality

and value for more than 35 years, and today it I recognized as a household name for farmers and

agriculturalists.

Dawood Lawrencepur Limited

Dawood Lawrencepur Limited has emerged from the amalgamation of

Lawrencepur Woolen and Textile Mills Limited, Dawood Cotton Mills

Limited, Burewala Textile Mills Limited, and Dilton Limited. For the past

half a century these companies embodies tradition and quality – common

threads that now bind them together for the collective benefit of all

customer, shareholders, employees, and other stakeholders.

The company is principally engaged in the manufacture and sale of yarns and fabrics made from

natural and artificial fibres in various blends. It also offers numerous fabric and clothing product

lines under the well-known ―Lawrencepur‖ umbrella brand.

Tenega Generasi Limited

Tenaga Generasi Limited is a wholly-owned subsidiary of Dawood

Lawrenceout Limited (DLL). The company is in the process of setting

up a 50MW Wind Energy Project in the main wind corridor of Gharo,

Sindh – near Karachi, ata projected cost of USD 130nm.

TGL is one of the pioneers of wind energy in the country.

Inbox Business Technologies (Private) Limited

Established in 2000, Inbox has successfully redefined the Pakistani

computing industry. Inbox has branch offices in 7 cities with over 175

employees. With the acquisition of ThreeSixtyDegreez, a local software

development house, Inbox offers a strong and unique combination of

technology solution, industry expertise and consulting capabilities. It delivers best value for

money to its customers through integrated approach to customize software. It is the first

company in Pakistan to achieve the much-coveted Intel Premier Provider status.

Pebbles (Private) Limited

Pebbles (Private) Limited is a Real Estate venture established to create

quality based sustainable building Project Management and Development.

The Dawood Group entered the Reas Estate market in 1964, with the

construction of Dawood Centre, one of the most prestigious business

addresses in Pakistan to date. It is the only member company of USGBC

(United States Green Building Council (in Pakistan and is a registered member of ABAD

(Association of Builders and Developers).

Elixir Securities Pakistan (Private) Limited

Elixir Securities Pakistan (Private) Limited is a leading

securities firm in Pakistan providing a full range of services to

its corporate and instituitional clients domestically and

internationally. It is one of the largest and most active brokerage firms in Pakistan. Elixis has a

membership seat on the Karachi Stock Exchange. The company is among the top three brokerage

firms in Pakistan in terms of client trading volumes and handles the largest chunk of the total

annual foreign portfolio investment.

Cyan Limited

Cyan Limited is a public listed company focused on making equity

investments in high potential companies. Investing with Cyan will give

investors an access to sectors of the Pakistani economy that are not

adequately represented on the Stock Markets. Cyan also manages a

portfolio of listed securities. The liquid portfolio is invested and the

income generated is re-allocated towards equity investments in high potential private limited

companies, as and when opportunities are identified. The Growth Equity portfolio focuses on

investing in Pakistan‘s core strengths.

Data Collection Methodology

The finalized project report is documented with data and information from several sources. The

major source of information is Dawood Hercules official website, Wikipedia and several other

sites having interview from Dawood Hercules leadership.

Further key contribution to the report has been taken from the published reports which includes

introduction to the company, its goals, portfolio, leadership of the company, highlights,

director‘s reports and financial statements.

The information about the business interests and the flagship companies of Dawood Hercules as

been obtained from their relevant websites.

Market/Industry Analysis Among the top 5 Volume leaders in Chemical Industry Fauji Fert Bin was top volume leader

with a volume of 8,092,000 trader shares; followed by Engro Fertilizer Ltd. With volume of

7,331,500 trader shares and third in the series is Corp with 7,331,500 trader shares. Engro‘s

profitability has improved significantly during the nine months and Dawood Hercules having

invested in Engro are equally successful.

Newspapers/Journals/Secondary Market Research

Reon Energy completes 125 kWp solar power project at Was Nobel

July 23, 2014

Reon Energy Solutions has recently completed a 125 kWp solar power installation

commissioned by Wah Nobel Group of Companies.

The successful completion of the project bears testament to Reon's capability as a world-class

renewable energy solutions provider and also reiterates Wah Nobel as a leader in adopting new

technologies of high quality, safety and reliability. The inauguration of the project was held on

July 14, 2014. Shahid Pracha, Chairman Reon Energy Solutions & Chief Executive Dawood

Hercules Corporation, while appreciating POF's initiative said, "Solar is a new technology for

Pakistan and the POF following on its rich tradition of innovation leadership has been amongst

the first to embrace it in a significant way‖. Inam ur Rahman, CEO, Reon Energy Solutions,

regarded the project as a positive start towards acquiring energy self-sufficiency.

Dawood Lawrencepur to set up a renewable energy company

July 8, 2014

Dawood Lawrencepur Limited (DLL) is planning to set up a renewable energy company, said

company secretary Hafsa Shamsie on Monday. The board of directors of DLL has decided to set

up a wholly-owned subsidiary under the name of Reon Energy Limited, which would solely

focus on the renewable energy business. The board also decided to invest Rs. 10 million as

equity in the proposed subsidiary. The company already has a renewable energy division called

Reon Energy Solutions.

HUBCO plans $900m coal-run power projects

June 20, 2014

The Hub Power Company Limited (Hubco) plans to develop coal-based projects of up to

660MW at a cost of $800-900 million. Hubco CEO Khalid Mansoor told that the company had

already sought NTDC approval for power evacuation and would be shortly seeking Letters of

Intent (LoI) from Private Power and Infrastructure Board (PPIB). The company is working on

the project´s feasibility and it would take 12 to 18 months to achieve the financial closure of the

project, he said. The board of directors of Hubco in its meeting on June 19 also approved equity

investment of $20 million in Sindh Engro Coal Mining Company (SECMC). This investment

would be aimed at coal-mining which would revolutionize the power sector.

Elengy receives license to build LNG terminal at PQ

June 19, 2014

The Oil and Gas Regulatory Authority (Ogra) issued a licence to Elengy Terminal Pakistan

Limited (ETPL) – a subsidiary of Engro Corporation – to construct a terminal at Port Qasim

(PQ) for landing and re-gasification of liquefied natural gas (LNG) to be imported early next

year. The license was issued after ETPL fulfilled all requirements of Ogra‘s LNG rules. An

ETPL official said the company was fully geared to start construction of the terminal within few

days. The terminal would have installed capacity to handle about 600mmcfd of LNG.

Nawaz, Zardari launch Thar coal project

Jan 31, 2014

THARPARKAR / MITHI: Prime Minister Nawaz Sharif and former president Asif Ali Zardari

attended the groundbreaking ceremony of Engro's open pit mining project in Thar. The project is

a joint venture between Engro Powergen and the government of Sindh. Initially the project

would projide 660MW of power to the energy-starved industrial units once completed in 2017.

Engro Corporation's Chairman Hussain Dawood said that the project was a major milestone that

would serve as a game changer in the energy sector. The Thar Coal Power Company would

produce 3,960MW of electricity, in six phases, from the coal in Block II of the project.

Engro Fertilizers Listed at KSE

Jan 16, 2014

The Karachi Stock Exchange allowed listing and quotation of shares of Engro Fertilizers

Limited. The market lot of the company was aimed at 500 shares of Rs. 10 each, while the

opening price of shares of the company was Rs. 28.25 per share as determined through book

building process.

Engro Fertilizer is 2nd

in Chemicals industry on the basisi of volume of shares which is

7,331,500. Though the current price is 73.02 but the price is improving at a constant pace.

Dawood Hercules’ profits soar From InpaperMagazine

Oct 14, 2013 07:27am

―DAWOOD Hercules Corporation, a holding company with ownership stakes in corporate

stalwarts like Engro Corporation and Hub Power Company, saw its half yearly profits

skyrocket — thanks to the improved performances of its associated companies.‖

The share prices of business improved after the peaceful change of civilian government. The new

government was attributed as being business favoring. By mid-year 2013, Dawood Hercules

owned roughly 38 percent stake in Engro Corporation. Fertilizer plant of Dawood Hercules and

Engro are almong the top four fertilizer plants getting the Lion‘s share of gas. Thus, the

profitability of the company increased as the share prices of Engro increased.

In its half yearly report, Dawood Hercules Corporation attributed good performance to higher

production /sales of DAP. It also referred to the recent stellar financial performances of Engro

and Hubco.

Share Price Analysis on KSE

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Monthly averaged graph represent the average share prices for the month. The share prices on

KSE show a continuous rising trend. The rise can be partly attributed to the changed government

favored for businesses. The share prices reach peak valu in April-14 and have started increasing

after Aug-14.

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Closing Stock…

Pattern of shareholding

Category-wise Pattern of Shareholding as at December 31, 2013

Shareholders

Category - Alias

Shareholders Category Number of

Shareholders

Total Shares

Held

Percentage

%

Category A Directors, Chief Executive Officer,

and their spouses and minor

children.

6 48,156,848 10.01

Category B Associated Companies,

undertakings and related parties

4 97,725,260 20.30

Category C NIT and ICP 1 2,120,896 0.44

Category D Banks Development Financial

Institutions, Non-Banking Financial

Institutions

14 9,288,117 1.93

Category E Insurance Companies 4 13,716,860 2.85

Category F Modarbas and Mutual Funds 5 131,023 0.03

Shareholders holding 10% 2 144,584,964 30.04

Category G Others 57 8,873,914 1.84

Category H General Public:

Sub Category I a. Local 3,783 26,435,486 5.49

Sub Category J b. Foreign 12 274,838,692 57.10

Total (excluding : Shareholders

holding 10%)

3,886 481,287,116 100.00

62% of the shares are held by general public and the biggest share is held be Foreign General

Public i.e. 57%.And 20% are held by associated companies, undertakings and related parties.

Horizontal Analysis

Balance Sheet Analysis ---------------------------------------Rs in million -----------------------------------------

Particulars 2008 2009

(Restated)

2010 2011 2012

(Restated)

2013

Share Capital and Reserves

Issued, subscribed and paid up capital 1094 1,094 1,203 4,813 4,813 4,813

Revenue reserves 20,415 18,785 21,021 20,293 20,890 24,111

Fair value reserve (4,127) 4 136 0 1 0

Shareholder‘s equity with FVR 12,383 19,883 22,360 25,106 25,704 28,924

Non-Current Liabilities 6,670 6,742 5,675 5,744 7,822 6,296

Sub Total 24,053 26,624 28,035 30,850 33,526 35,220

Current Liabilities

Current portion – long term loan 0 0 661 0 216 1,996

Short term financing – secured 70 1,197 46 0 32 905

Trade and other payables 538 648 695 642 302 892

Markup payable on secured loans 276 280 233 9 32 54

Provision for taxation 693 858 686 29 0 0

Sub Total 1,577 2,983 2,320 680 582 3,847

Total 25,630 29,607 30,355 31,530 34,109 39,066

-----------------------------------------------Rs in million ----------------------------------

---------

Particulars 2008 2009

(Restated)

2010 2011 2012

(Restated)

2013

Assets

Property, plant and equipment 1,396 2,075 2,238 2,247 2,229 2,009

Long term investments 19,206 21,543 22,425 24,702 20,814 34,393

Long term loans and advances 1 2 2 2 1 0

Sub Total 20,603 23,621 24,665 26,951 33,044 36,401

Current Assets

Stores, spares and loose tools 1,026 1,303 1,074 678 676 768

Stock in trade 90 83 216 151 52 72

Trade debts 9 10 2 3 0 40

Loans, advances, deposit, prepayments

and other receivables including

advance income tax

735 913 708 66 298 308

Short term investments 2,233 3,399 2,440 2,951 3 1,335

Cash and bank balances 934 278 1,250 731 36 143

Sub Total 5,027 5,987 5,690 4,579 1,065 2,665

Total Assets Employed 25,630 29,607 30,355 31,530 34,109 39,066

---------------------------- Percentage Change -------------------------------

Particulars 09 Over 08 10 Over 09 11 Over 10 12 Over 11 13 Over 12

Share Capital and Reserves

Issued, subscribed and paid up capital 0% 10% 300% 0% 0%

Revenue reserves -8% 12% -3% 3% 15%

Fair value reserve -100% 3307% -100% 100% -100%

Shareholder‘s equity with FVR 14% 12% 12% 2% 13%

Non-Current Liabilities 1% -16% 1% 36% -20%

Sub Total 11% 5% 10% 9% 5%

Current Liabilities

Current portion – long term loan 0% 100% -100% 100% 825%

Short term financing – secured 1606% -96% -100% 100% 2702%

Trade and other payables 20% 7% -8% -53% 195%

Markup payable on secured loans 2% -17% -96% 275% 66%

Provision for taxation 24% -20% -96% -100% 0%

Sub Total 89% -22% -71% -14% 560%

Total 16% 3% 4% 8% 15%

------------------------------ Percentage Change -----------------------------

--

Particulars 09 Over 08 10 Over 09 11 Over 10 12 Over 11 13 Over 12

Assets

Property, plant and equipment 49% 8% 0% -1% -10%

Long term investments 12% 4% 10% 25% 12%

Long term loans and advances 92% -31% 31% -37% -100%

Sub Total 15% 4% 9% 23% 10%

Current Assets

Stores, spares and loose tools 27% -18% -37% 0% 14%

Stock in trade -7% 160% -30% -66% 39%

Trade debts 14% -79% 26% -88% 12003

Loans, advances, deposit, prepayments

and other receivables including

advance income tax

24% -22% -91% 354% 3%

Short term investments 52% -28% 21% -100% 50933%

Cash and and balances -70% 350% -42% -95% 302%

Sub Total 19% -5% -20% -77% 150%

Total Assets Employed 16% 3% 4% 8% 15%

Profit and Loss Analysis --------------------------------------Rs. in million -------------------------------------------

Particulars 2008 2009 2010 2011 2012 2013

Sales – net 7.429 11,040 8,716 6,310 4,602 4,840

Cost of goods sold 4,312 7,080 5,214 4,044 3,816 4,051

Gross Profit 3,116 3,960 3,501 2,266 786 789

Distribution expenses 72 392 268 67 76 96

Administrative expenses 318 328 432 418 443 641

Impairment loss 100 3,791 2 587 0 -

Other expenses 184 160 116 82 9 39

Other income 510 151 462 351 488 280

Result from operating activities 2,952 -560 3,145 1,462 746 294

Finance cost 901 985 910 811 915 850

Share of profit from associate net of tax 1,850 1,331 1,956 2,981 1,275 4,618

Profit before tax 3,900 -213 4,191 3,632 1,107 4,063

Income tax expenses 838 925 943 739 123 459

Profit after tax 3,063 -1,138 3,248 2,893 984 3,604

--------------------------------Percentage Change---------------------------------

Particulars 09 Over 08 10 Over 09 11 Over 10 12 Over 11 13 Over 12

Sales – net 49% -21% -28% -27% 5%

Cost of goods sold 64% -26% -22% -6% 6%

Gross Profit 27% -12% -35% -65% 0%

Distribution expenses 442% -32% -75% 13% 26%

Administrative expenses 3% 32% -3% 6% 45%

Impairment loss 3679% -100% 24449% -100% 0%

Other expenses -13% -27% -29% -89% 319%

Other income -70% 206% -24% 39% -43%

Result from operating activities -119% -662% -54% -49% -61%

Finance cost 9% -8% -11% 13% -7%

Share of profit from associate net of tax -28% 47% 52% -57% 262%

Profit before tax -105% -2063% -13% -70% 267%

Income tax expenses 2% -22% -22% -83% 274%

Profit after tax -137% -385% -11% -66% 266%

Vertical Analysis

Balance Sheet Analysis ---------------------------------------Rs in million -----------------------------------------

Particulars 2008 2009

(Restated)

2010 2011 2012

(Restated)

2013

Share Capital and Reserves

Issued, subscribed and paid up capital 1094 1,094 1,203 4,813 4,813 4,813

Revenue reserves 20,415 18,785 21,021 20,293 20,890 24,111

Fair value reserve (4,127) 4 136 0 1 0

Shareholder‘s equity with FVR 12,383 19,883 22,360 25,106 25,704 28,924

Non-Current Liabilities 6,670 6,742 5,675 5,744 7,822 6,296

Sub Total 24,053 26,624 28,035 30,850 33,526 35,220

Current Liabilities

Current portion – long term loan 0 0 661 0 216 1,996

Short term financing – secured 70 1,197 46 0 32 905

Trade and other payables 538 648 695 642 302 892

Markup payable on secured loans 276 280 233 9 32 54

Provision for taxation 693 858 686 29 0 0

Sub Total 1,577 2,983 2,320 680 582 3,847

Total 25,630 29,607 30,355 31,530 34,109 39,066

-----------------------------------------------Rs in million ----------------------------------

---------

Particulars 2008 2009

(Restated)

2010 2011 2012

(Restated)

2013

Assets

Property, plant and equipment 1,396 2,075 2,238 2,247 2,229 2,009

Long term investments 19,206 21,543 22,425 24,702 20,814 34,393

Long term loans and advances 1 2 2 2 1 0

Sub Total 20,603 23,621 24,665 26,951 33,044 36,401

Current Assets

Stores, spares and loose tools 1,026 1,303 1,074 678 676 768

Stock in trade 90 83 216 151 52 72

Trade debts 9 10 2 3 0 40

Loans, advances, deposit, prepayments

and other receivables including

advance income tax

735 913 708 66 298 308

Short term investments 2,233 3,399 2,440 2,951 3 1,335

Cash and bank balances 934 278 1,250 731 36 143

Sub Total 5,027 5,987 5,690 4,579 1,065 2,665

Total Assets Employed 25,630 29,607 30,355 31,530 34,109 39,066

---------------------------------------Percentage --------------------------------------------

Particulars 2008 2009 2010 2011 2012 2013

Share Capital and Reserves

Issued, subscribed and paid up capital 4% 4% 4% 15% 14% 12%

Revenue reserves 80% 63% 69% 64% 61% 62%

Fair value reserve -16% 0% 0% 0% 0% 0%

Shareholder‘s equity with FVR 68% 67% 73% 80% 75% 74%

Non-Current Liabilities 26% 23% 19% 18% 23% 16%

Sub Total 94% 90% 92% 98% 98% 90%

Current Liabilities

Current portion – long term loan 0% 0% 2% 0% 1% 5%

Short term financing – secured 0% 4% 0% 0% 0% 2%

Trade and other payables 2% 2% 3% 2% 1% 2%

Markup payable on secured loans 1% 1% 1% 0% 0% 1%

Provision for taxation 3% 3% 2% 0% 0% 0%

Sub Total 6% 10% 8% 2% 2% 10%

Total 100% 100% 100% 100% 100% 100%

-----------------------------------------Percentage--------------------------------------------

Particulars 2008 2009 2010 2011 2012 2013

Assets

Property, plant and equipment 5% 7% 7% 7% 7% 5%

Long term investments 75% 73% 74% 78% 90% 88%

Long term loans and advances 0% 0% 0% 0% 0% 0%

Sub Total 80% 80% 81% 85% 97% 93%

Current Assets

Stores, spares and loose tools 4% 4% 4% 2% 2% 2%

Stock in trade 0% 0% 1% 0% 0% 0%

Trade debts 0% 0% 0% 0% 0% 0%

Loans, advances, deposit, prepayments

and other receivables including

advance income tax

3% 3% 2% 0% 1% 1%

Short term investments 9% 12% 8% 9% 0% 3%

Cash and ank balances 4% 1% 4% 2% 0% 1%

Sub Total 20% 20% 19% 15% 3% 7%

Total Assets Employed 100% 100% 100% 100% 100% 100%

Profit and Loss Analysis --------------------------------------Rs. in million -------------------------------------------

Particulars 2008 2009 2010 2011 2012 2013

Sales – net 7.429 11,040 8,716 6,310 4,602 4,840

Cost of goods sold 4,312 7,080 5,214 4,044 3,816 4,051

Gross Profit 3,116 3,960 3,501 2,266 786 789

Distribution expenses 72 392 268 67 76 96

Administrative expenses 318 328 432 418 443 641

Impairment loss 100 3,791 2 587 0 -

Other expenses 184 160 116 82 9 39

Other income 510 151 462 351 488 280

Result from operating activities 2,952 -560 3,145 1,462 746 294

Finance cost 901 985 910 811 915 850

Share of profit from associate net of tax 1,850 1,331 1,956 2,981 1,275 4,618

Profit before tax 3,900 -213 4,191 3,632 1,107 4,063

Income tax expenses 838 925 943 739 123 459

Profit after tax 3,063 -1,138 3,248 2,893 984 3,604

-----------------------------------------Percentage -------------------------------------------

Particulars 2008 2009 2010 2011 2012 2013

Sales – net 100% 100% 100% 100% 100% 100%

Cost of goods sold 58% 64% 60% 64% 83% 84%

Gross Profit 42% 36% 40% 36% 17% 16%

Distribution expenses 1% 4% 3% 1% 2% 2%

Administrative expenses 4% 3% 5% 7% 10% 13%

Impairment loss 1% 34% 0% 9% 0% 0%

Other expenses 1% 1% 1% 1% 0% 1%

Other income 7% 1% 5% 6% 11% 6%

Result from operating activities 40% -5% 36% 24% 16% 6%

Finance cost 12% 9% 10% 13% 20% 18%

Share of profit from associate net of tax 25% 12% 22% 47% 28% 95%

Profit before tax 53% -2% 48% 58% 24% 83%

Income tax expenses 12% 8% 11% 12% 3% 9%

Profit after tax 41% -10% 37% 46% 21% 74%

Issues discussed in Directors Report and Auditors Report

Economic Overview – Pakistan

The report has discussed the major change of government and its effects on the economy of

Pakistan. Projects like LNG terminal Project, Thar coal mining and projects we launched. Steps

were taken to improve the export economy of the company.

Further, there are several constraints related to electricity and gas shortages continued to plague

the industrial sector. The report states that the government will be able to achieve Rupee Dollar

stability only if government plans to float a Eurobond issue, get projected privatization and 3G

Licensing (auctioned this year) and hasten the disbursement of coalition support funds.

Fertilizer Market Overview

Urea production suffered in 2013 due to instable policies by government regarding gas supply.

The production was 16% higher but only utilization 75% of the production capacity. The Urea

sales in 2013 were 13% higher that usual so the gap between production and demand was met by

importing 0.9 million tons of the Urea.

Local production of 0.7 million ton of DAP was 15% higher while the demand was 1.7 million

tons. Pakistan took advantage by importing to cater for supply demand gap as the DAP prices

dropped in International market.

Business Overview

Fertilizers (DH Fertilizers Limited)

Due to inconsistent policies by the government and inadequate supply of the gas for just 56 days,

Dawood Hercules Fertilizers have continuously been facing reduced production of Urea.

Investments – Energy

HUBCO‘s profitability for the year ended September 30, 2013 improved due to currency

devaluation and lower financing cost. The backlog of circular debt was paid off by the

government by June. However receivables from WAPDA and NTDC started accumulating again

and stood at Rs. 38.8 million by September.

The government has signed a Memorandum of Understanding with HUBCO to convert its

Residual Furnace Oil plant to coal. However if the government is unable to pay the outstanding

amounts and demonstrate that the ‗circular debt‘ would not build up again, HUBCO would not

be able to arrange financing for the coal conversion project. Further, the Government has not

announced specific policy incentives regarding this.

Investments – Other

Engro Corporation Limited (Engro): Engro‘s profitability has improved significantly during

the nine months. Engro Fertilizers shares were also listed on Karachi Stock Exchange in January.

Further, government contracted Elengy Terminal Pakistan Limited to set up Pakistan‘s first ever

LNG Terminal which will increase the country‘s gas supply by 10-15%.

e2e Business Enterprises (Private) Limited: Rice Bran Oil project is being set by e2e Business

Enterprises (Private) Limited in partnership with the Company has commenced in earnest and

various major items of imported plant & machine. The plant commissioning date is in rice

harvesting season in Q4 2014.

Financial Performance

The consolidated gross profit was higher than 2012 but operating profit was lesser due to one-off

expense incurred on a management consultancy exercise to chalk out the Group‘s future strategic

focus. Consolidated finance cost for 2013 was Rs 65 million lower than 2012 mainly due to

lower borrowing rates and repayment of loan installments. Consolidated tax charge is Rs 363

million higher than the previous year.

Engro‘s consolidated profit was substantially higher due to profits from its fertilizer subsidiary.

As a result the profit after tax was higher.

HUBCO‘s consolidated profit after tax for the year was higher due to devaluation of PKR versus

US$ and lower financing cost. Half yearly profit was lower compared to previous year by Rs.

4,741 million.

Earnings per share

The unconsolidated earnings per share for the year 2013 were Rs. 0.89 per share compared to Rs.

0.35 per share for the year 2012. Consolidated earnings per share for the year were Rs 7.49

(2012: Rs. 2.04) per share.

Market capitalization and book value

At the close of the year, the market capitalization of the COmpay as Rs. 27,010 million (2012:

Rs. 15,661 million) with a market value of Rs. 56.12 per share (2012: Rs. 32.54 per share) and a

book value of Rs. 19,479 million (2012: Rs. 19,532 million) or Rs. 40.47 per share (2012: Rs.

40.59 per share).

Appropriation

A final cash dividend of Rs. 1 per share (10%) for approval by the shareholders in the 46th

Annual General Meeting was recommended by Board.

Contribution to the national exchequer and economy

During the year, in aggregate, a sum of Rs. 1,073 million (2012: Rs. 1,004 million) was paid as

taxes and levies. Furthermore, the contribution to the national exchequer as a withholding tac

agestn under different provisions of the Income Tac Ordinance 2001 amounted to Rs. 133

million (2012: Rs. 141 million).

Provident and gratuity funds

Fair value of the assets of the funded defined benefit gratuity plan was Rs. 19.5 million as at

December 31,2013. Based on the actuarial valuation, the value of assets of defined contribution

plan was Rs. 19.48 million as on December 31, 2013.

Auditors Report

A.F. Ferguson & Co. Chartered Accountants are the auditors and the audit committee has

recommended the re-appointment of A.F,. Ferguson & Co. Following are the conclusions in the

report by auditor:

1- Proper books of accounts have been maintained by the company.

2- The balance sheet and profit and loss account have been drawn up in conformity with the

Companies Ordinance 1984.

3- The expenditure incurred during the year was for the purpose of the Company‘s business

4- All business conducted and expenditure incurred were in accordance with the objects of

the Company.

5- Zakat deductible at the source under the Zakat and Ushr Ordinance was deducted by the

company and deposited in the Central Zakat Fund.

Financial Ratios and Analysis The financial statement enables the users to perform the comprehensive financial analysis and

helps to determine the viability of a business to assist in making important financial and

investment decisions. While it is relates to the accounting, it is less focused on manipulating the

numbers of a business than it is in looking at the business or market sector as a whole and

attempting to figure out how it will behave in the future. Financial analysts also conduct research

into the business itself or the broader market to report to management a suggested course of

action to increase the efficiency, profitability and growth of the business.

The financial analysis facilitates in predicting the future business trend, and bring into light the

strengths and weaknesses of a particular business. The evaluated financial ratios are usually

compared with the results of previous years and across the board to determine the relative

viability, efficiency & profitability of the business.

Liquidity Analysis /Operation Ratios:

The liquidity analysis determines the extent of company‘s financial capability to finance its short

term debts and its ability to take up the financing or investing activities and future business

commitments.

Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations.

This is done by comparing a company's most liquid assets (or, those that can be easily converted

to cash), its short-term liabilities.

In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a

clear signal that a company can pay its debts that are coming due in the near future and still fund

its ongoing operations. On the other hand, a company with a low coverage rate should raise a red

flag for investors as it may be a sign that the company will have difficulty meeting running its

operations, as well as meeting its obligations.

Profitability Ratios

It determines a company's revenue generation verses the expenditures incurred to earn that

revenue. As such, the profitability rations figures out the extent of the income generation.

Every firm is most concerned with its profitability. One of the most frequently used tools of

financial ratio analysis is profitability ratios which are used to determine the company's bottom

line earnings. Profitability measures are important to company managers and owners alike. If a

small business has outside investors who have put their own money into the company, the

primary owner certainly has to show profitability to those equity investors.

The ratios are used to assess a business's ability to generate earnings as compared to its expenses

and other relevant costs incurred during a specific period of time. For most of these ratios,

having a higher value relative to a competitor's ratio or the same ratio from a previous period is

indicative that the company is doing well.

Activity Analysis/ Turnover Ratios

It determines that how well a company can use its assets to return greater profits. Shareholder

return ratios show how well the company returns some of its profits to shareholders.

An indicator of how rapidly a firm converts various accounts into cash or sales.

It measure company‘s sales per another asset account—the most common asset accounts used

are accounts receivable, inventory, and total assets. Activity ratios measure the efficiency of the

company in using its resources. Since most companies invest heavily in accounts receivable or

inventory, these accounts are used in the denominator of the most popular activity ratios.

Ratio Analysis

Ratio Unit 2008 2009 2010 2011 2012 2013 Gross Profit (PR) % 41.95 35.87 40.17 35.91 17.08 16.31

Net Profit to Sales (PR) % 41.23 (10.31) 37.27 45.85 21.38 74.47

Operating Profit Margin (PR) % 39.73 (5.07) 36.09 23.17 16.20 6.08

EBITDA margin (PR) % 66.53 8.34 60.90 73.48 48.48 105.77

Earnings Per Share (SHR) Rs. 28.00 (9.46) 6.75 6.01 2.04 7.49

Inventory Turnover (AR) Time 9.01 81.93 34.83 22.01 37.53 65.10

Age of Inventory (AR) Days 40.50 4.46 10.48 16.58 9.72 5.61

Debtors Turnover (AR) Time 1,095.5 1,171.5 1,433.6 2,619.73 3,053.01 241.11

Average Collection Period (AR) Days 0.33 0.31 0.25 0.14 0.12 1.51

Operating Cycle (AR) Days 40.84 4.77 10.73 16.72 9.84 7.12

Total Assets Turnover (AR) Time 0.29 0.37 0.29 0.20 0.13 0.12

Fixed Assets Turnover (AR) Time 5.32 5.32 3.89 2.81 2.06 2.41

Break-up Value of Share Rs. 158.91 181.77 185.83 52.16 53.41 60.10

Dividend Yield (SHR) % 1.13 2.22 2.52 2.36 3.07 1.78

Dividend Payout Ratio (SHR) % 8.93 (38.44) 18.52 16.64 48.92 13.35

Return on Equity (PR) % 17.62 (5.72) 14.53 11.52 3.83 12.46

Debt Equity Ratio (FLR) Time 0.36 0.32 0.26 0.19 0.27 0.24

Current Ratio (LR) Time 3.19 2.01 2.45 6.74 1.83 0.69

Quick Ratio (LR) Time 3.13 1.98 2.36 6.52 1.74 0.67

Total Debt Ratio (FLR) Time 0.32 0.33 0.26 0.20 0.25 0.26

Interest Cover Ratio (FLR) Time 5.33 0.78 5.61 5.48 2.21 5.78

Dividend Cover Ratio Time 11.20 (2.60) 5.40 6.01 2.04 7.49

Market Value per Share Rs. 220.30 179.81 198.36 42.39 32.54 56.12

Market Capitalization Rs. In Million 24,097 19.668 23,867 20,402 15,661 27,010

Price Earnings Ratio (SHR) Times 7.87 (19.01) 29.39 7.05 15.95 7.49

LR = Liquidity Ratio

PR = Profitability Ratio

AR = Activity Ratio

SHR = Shareholders Ratio

FLR = Financial Leverage Ratio

Activity Ratio Analysis:

The average collection period indicates the number of days for

which the company collects payables from the customers. It is

apparent from the graph that the average collection period has

increased in 2013 to 1.51 days. Though greater than previous

years, it is significantly less. The increase can be attributed to

the large scale projects and investments initiated in 2013.

The inventory turnover was high back in 2009 and after 2011 is

improving. Though a high inventory turnover is good but the

company should try to stabilize it.

The debtors turnover ratio indicates the number of times the

debtors clear the debt or make payments. Ideally, the debtors

turnover ratio should be very high. But as already discussed,

receivables are pending on WAPDA and other government

projects. This is the reason for low debtors turnover ratio in

2013. Though WAPDA made payments but by the end of 2013

the reveivables had started to pile up.

Liquidity Ratios Analysis:

The liquidity position of the company shows a decreasing trend.

From 2008 to 2013 the current ratio has decreased from 2.45 to 0.69.

Further, the quick ratio also has a declining trend from 2008 to 2013.

Profitability Ratios Analysis:

Gross Profit indicates what portion of sales is available

to meet expenses and generate profit after taking into

account the cost of goods sold. From the graph, we see

a declining trend of gross profit since 2008. This is

mainly due to the electricity and gas crisis in Pakistan.

The projects initiated to cater for it will complete in a

year or two and then there will be a rise in the gross

profit.

The Return on Equity (ROE) measures profitability

related to ownership. It indicates the a company‘s

efficiency to generate profits from every unit of

shareholders‘s equity. Though it is not possible to make

a solid judgment about it from the graph but the ratio

has improved after 2012. And with startup of new

projects and investments, it is expected to rise. Further,

the share prices on KSE show a gradual rising trend.

Financial Leverage Ratios Analysis:

Debt to equity ratio is a long term solvency ratio that

indicates the soundness of long-term financial policies

of the company. In the graph, less than 1 ratio indicates

that the portion of assets provided by stockholders is

greater than the portion of assets provided by creditors.

Creditors usually like a low debt to equity ratio because

a low ratio (less than 1) is the indication of greater

protection to their money.

Interest Coverage Ratio indicates the capacity of an

organization to pay its interest obligations. An interest

cover of 2 implies that the entity has sufficient

profitability to bear twice the amount of its current

finance cost. Thus, interest coverage ratio should be

high always. As apparent from the graph, the ratio

stayed almost constant for 2010 and 2011 after which it

dropped to 2. But for 2013 it has taken a leap to 6.

Shareholders Ratio Analysis:

The dividend payout ratio measures the percentage

of net income that is distributed to shareholders in

the form of dividends during the year. Since

investors want to see a steady stream of

sustainable dividends from a company, the

dividend payout ratio analysis is important. A

consistent trend in this ratio is usually more

important than a high or low ratio.As seen from

the graph, the dividend payout ratio is not stable and

decreased in 2013.

The price earnings ratio, often called the P/E ratio or

price to earnings ratio, is a market prospect ratio that

calculates the market value of a stock relative to its

earnings by comparing the market price per share by

the earnings per share. In other words, the price

earnings ratio shows what the market is willing to

pay for a stock based on its current earnings. In

general a higher ratio means that investors anticipate

higher performance and growth in the future. It also

means that companies with losses have poor PE ratios. But for Dawood Hercules, the ratio is

constant from 2011 to 2013.

Non-Financial Information

Corporate Social Responsibility Policy

DH Corp is fully committed to the principle of Corporate Social Responsibility (CSR). The

company aims to be known for transparent and ethical in all its dealings as well as bringing an

effective contributor to the community in which it operates. Following are the core values in all

aspects of their work, including the fulfillment of social responsibility:

Integrity

Diversity

Accountability

Commitment to Excellence

Teamwork

CSR Strategies DH Corp pursues to achieve corporate and social objectives by focusing on four strategic areas:

Transparency – Open and transparent business dealings and respect and abide by the

local laws and regulations.

Creating a great Workplace – addressing the needs and aspirations of employees through

the continuing development of diversity, work-life balance and health and well-being

policies and initiatives.

Community Impact – encouraging and assisting projects in support of the wider

community.

Environment – further developing environmental management practices in our businesses

that minimize waste and maximize efficiencies.

Existing Policies Existing policies in some areas may already, at least in part, address the issues listed above, and

initial work will focus on integrating these with CSR principles. In order to establish the

'baseline' of CSR work that is already taking place, a framework will be drawn up, detailing

corporate programs.

Guiding Principles

DH Corp recognizes the need to integrate business values and operations to meet the

expectations of stakeholders like investors, employees, suppliers, the community and the

environment.

Social, economic and environmental responsibilities to these stakeholders are integral to

business. Thus, they aim to demonstrate these responsibilities through actions and within

corporate policies.

Feedback, complaints and compliments from stakeholders are taken seriously and where

possible, open dialogue is maintained to ensure the fulfillment of requirements outlined

within this policy.

Openness and honesty in communicating policies, strategies, targets, performance and

governance to stakeholders to ensure commitment to sustainable development.

DH Corp make the necessary resources available to realize our corporate responsibilities

where possible. The responsibility for delivery lies with all employees.

In relation to community involvement, DH Corp looks for potential partners and staff

who can work together to raise funds and aid the charity in a practical way.

In selecting either a charity for this support or working with a charity in a team building

scenario, DH Corp supports programs which are inclusive in nature and reach across all

social and community backgrounds. Support is not given to individuals or groups with

political or sectarian connections.

Partnership Focus

They strive to improve environmental performance in businesses through implementation

of sustainable development and environmental policies.

They ensure a high level of business performance while minimizing and effectively

managing risk.

They encourage dialogue with local communities for shared benefit.

They encourage their employees to help local community organizations and activities.

They operate an equal opportunities policy for all present and potential future employees.

They offer their employees clear and fair terms of employment and provide resources to

enable their continued development.

They maintain forums for employee consultation and business involvement.

They provide safeguards to ensure that all employees are treated with respect and without

sexual, physical or mental harassment.

They provide, and strive to maintain, a clean, healthy and safe working environment.

They shall uphold the values of honesty, partnership and fairness in our relationships with

stakeholders.

Contracts with suppliers will clearly set out the agreed terms, conditions and the basis of

our relationship.

Reporting

CSR activity undertaken by DH Corp affiliated businesses is reported to the Board on a regular

(at least annual) basis. In addition, CSR activity is publicized both through the internal

communication, and externally as appropriate, through a variety of media.

DH Corp businesses aim to maintain a framework of current and future CSR programs that are

run within their business areas and report on these to the Board.

Review for company and its competitors Among the top 5 Volume leaders in Chemical Industry Fauji Fert Bin was top volume leader

with a volume of 8,092,000 trader shares; followed by Engro Fertilizer Ltd. Currently ENGRO is

3rd

in Volume Leaders. Dawood Hecules has investments in ENGRO so Dawood is earning

heavy returns from ENGRO.

Overall production of fertilizers is lesser compared to the capacity for all chemical companies in

Pakistan due to the limited gas supply in Pakistan.

The top competitor of Dawood Hercules is Fauji Fertilizers with annual capacity of 551,000

metric tons of urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons of DAP.

Overall Financial Analysis & Conclusions Drawn The overall financial position of the Dawood Hercules is good as it is one of the leading

chemical manufacturing companies in Pakistan.

The company has a versatile portfolio of businesses and has investments made in other

businesses.

Dawood Hercules is also engaged in long term projects which become very profitable after

completion.