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Engro Fertilizers Q3 2023 Analyst Briefing October 2023

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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Important Disclaimer

THIS PRESENTATION IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL ANY SECURITIES OR ANY INVESTMENT

This presentation has been prepared by Engro Fertilizers Limited (“EFERT”) solely for information purposes. No representation or warranty express or implied is made thereto, and no reliance should be placed on, the fairness, accuracy, sufficiency, completeness or correctness of the information or any opinion contained herein, or any opinion rendered thereto. The information contained in this presentation should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect any developments that may occur after the date of the presentation. Neither Engro nor any of its respective subsidiaries, affiliates, officials, advisors, associates, employees or any person working for, under or on behalf, shall have any responsibility and/or liability of any nature whatsoever (in contract or otherwise) for any loss whatsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation.

This presentation does not constitute or form part of a prospectus, offering circular or offering memorandum or an offer, solicitation, invitation or recommendation to purchase or subscribe for any securities and no part of it shall form the basis of, or be relied upon in connection with, or act as any inducement to enter into any arrangement, agreement, contract, commitment or investment decision in relation to any securities. This presentation shall not at all be intended to provide any disclosure upon which an investment decision could be made. No money, securities or other consideration is being solicited, and, if sent in response to this presentation or the information contained herein, will not be accepted.

The presentation may contain statements that reflect Engro’s own beliefs and expectations about the future. These forward-looking statements are based on a number of assumptions about the future, which are beyond Engro’s control. Such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. Such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Engro does not undertake any obligation to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation and it does not make any representation, warranty (whether express or implied) or prediction that the results anticipated by such forward-looking statements will be achieved. In addition, past performance should not be taken as an indication or guarantee of future results.

Certain data in this presentation was obtained from various external data sources that Engro believes to its knowledge, information and belief to be reliable, but Engro has not verified such data with independent sources and there can be no assurance, representation or warranty as to the accuracy, sufficiency, correctness or completeness of the included data. Accordingly, Engro makes no assurance, representation or warranty as to the accuracy, sufficiency, correctness or completeness of that data, and such data involves risks and uncertainties and is subject to change based on various factors.

You agree to keep the contents of this presentation strictly confidential. All or any part of this presentation may not be taken away, reproduced, copied, redistributed, retransmitted or disclosed in any manner or form and for any purpose whatsoever.

By attending this presentation, you are agreeing to be bound by the foregoing limitations.

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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Agenda

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EFERT Highlights 1 2 Industry & EFERT Business Performance Fertilizer Sector Contribution and 3 Challenges Support required from Government 4 Sustainability 5 Q&A Session 6

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Q3 2023 Analyst Briefing Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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1. EFERT Highlights

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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Financial Highlights

YTD Financial Highlights

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Revenue PKR 149 bn 34% vs SPLY

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Profitability PKR 15 Bn 57% vs SPLY

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EPS

PKR 11.27

vs. 7.19 SPLY

Quarterly Financial Highlights

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Revenue Profitability PKR 66 bn PKR 9.5 Bn 85% vs SPLY 129% vs SPLY

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EPS PKR 7.7 vs. 3.13 SPLY

EFERT has announced an interim dividend of PKR 6.0/share for Q3 2023. Cumulative PKR 12.50/share for Q3 2023 v/s PKR 8.50/share in Q3 2022.

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy

Growth Projects

Awards & Sustainability

Financial Highlights

Portfolio Performance

Business Updates

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Gas Prices – Fertilizer Sector

• We understand that the Government is actively considering gas price unification for the Fertilizer sector.

• EFERT is a strong proponent of Urea price stability and will continue to support the Governments efforts of gas price unification.

Smuggling & Hoarding of

Urea

• Urea is currently being smuggled which creates a shortage of the product in local markets.

• EFERT appreciates and supports the strict action taken by the Interim Government against smugglers and hoarders of essential commodities.

Super Tax (Finance Act 2023)

• Islamabad High Court has granted a stay order against the recovery of 6% incremental super tax (FY 2022).

• Moreover, EFERT is also considering other available legal remedies to challenge the imposition of Super Tax.

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Q3 2023 Analyst Briefing Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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2. Industry & EFERT Business Performance

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy

Growth Projects

Awards & Sustainability

Financial Highlights

Portfolio Performance

Urea Production & Sales – 9M 2023

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Production (KT) Sales (KT)
1,715
1,694 1,744 1,726
1,522
1,486
1,352
1,568
1,560
1,451
2019 2020 2021 2022 2023 2019 2020 2021 2022 2023
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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy

Growth Projects

Awards & Sustainability

Financial Highlights

Portfolio Performance

Urea & DAP Industry 9M 2023

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Urea Industry Sales – 9 Months
4,942
4,770
2022 2023
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Urea industry has grown by 4%

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DAP Industry Sales – 9 Months
991
693
2022 2023
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Phosphates industry has grown by 43%
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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy Financial Highlights

Growth Projects

Awards & Sustainability

Portfolio Performance

Industry & Urea Market Share 9M 2023

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Industry: 4.7 MT Industry: 4.9 MT
2% 4%
6% 4%
15% 13%
44%
45%
35%
32%
YTD 2022 YTD 2023
EFERT FFC Fatima Agri-tech NFML
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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy Financial Highlights

Growth Projects

Awards & Sustainability

Portfolio Performance

Industry & DAP Market Share 9M 2023

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Industry: 693 KT Industry: 991 KT
8% 7%
5% 6%
63%
70%
24%
16%
YTD 2022 YTD 2023
EFERT FFC Fatima Private
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Q3 2023 Analyst Briefing Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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3. Fertilizer Sector - Contribution and Challenges

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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International Urea Prices at a Premium of 54%

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FOB Price
USD 369/T
As of September 30, 2023
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Landed Equivalent
CFR Price
PKR 6,996/Bag
USD 383/T
Engro Urea DTP
PKR 3,286/Bag
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Domestic Discount
on Urea
54%
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*Data Source: CRU weekly report average ~PKR 289.37 FX rate

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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Fertilizer Sector - shielding farmers from International Urea price rise

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Urea Prices - Local & International
Even after a
10,000 substantial movement
9,153 in international prices,
local urea is
8,459
significantly cheaper
8,000 7,719
7,107
6,996
6,793 6,886 6,866
6,058 6,078 6,097
6,000 5,540 5,741
4,780
4,000
3,286 3,286 3,286
3,044
2,894 2,894 2,894
2,340 2,340 2,340
2,150 2,150 2,150 2,150
2,000
-
Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Spot
International urea price - Landed equivalent Local urea DTP
PKR/Bag
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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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Over the decade, Fertilizer sector has passed over 4.5X benefit to farmers

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Farmer Benefit and Subsidy 2010 – 9M 2023 (PKR Bn)
~2,433
~525
Gas subsidy by GoP net of tax Benefit passed on by Fertilizer Industry
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Gas price benefit of over 4.5X has been passed on to the farmers in the form of lower urea prices

Assumption: As per NFDC methodology, 25% incidentals plus other charges on CFR

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023
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4. Support Required from Government

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Engro Fertilizers Limited – Security Analyst Briefing 9M 2023 Pakistan Economy

Growth Projects

Awards & Sustainability

Financial Highlights

Portfolio Performance

Support Required from Government

1. Sales Tax & Refunds

• Significant mismatch between higher input tax and lower output tax on fertilizers led to piling up of substantial sales tax refunds.

• To avoid further piling up of refunds, Government through Finance Act 2022, exempted fertilizers from sales tax effective July 01, 2022. This means that input GST now becomes a cost (previously claimable) and output GST can no longer be levied.

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2. Subsidy Receivable

• The industry is facing a challenge in recovering outstanding subsidy receivable from the Government.

• Industry subsidy receivable – Rs. 19.2 Bn.

• EFERT subsidy receivable as of Sept 2023 – Rs. 6.5 Bn, outstanding since 2018 (represent gross amount before any accounting adjustment).

• The exemption has therefore resulted in increase in price of the fertilizer products.

• However, the industry is still facing challenge in recovering outstanding sales tax refunds from the Government.

• Sales tax refund for the Industry is PKR 72 Bn. as of September 2023 whereas EFERT’s share is PKR 12.1 Bn.

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5. Sustainability Initiatives

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Performance & Outlook

Awards & Sustainability

Engro Fertilizers Limited – Security Analyst Briefing 9M 2023Macroeconomic update Business Resilience

Investment Initiatives

Sustainability Initiatives

Farmer Training & Capability Development

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Education & Skills Development
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Climate Resilience

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Healthcare & Infrastructure
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Livelihood & Capacity Building
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Session