Dear Shareholders,

This is the first Annual Report where I have the privilege of writing to you as President and CEO. I welcome this opportunity to share with you our 2016 performance and talk about how we are aligning internally and externally as a company to deliver a more valuable Engro to you.

The year 2016 saw us face unexpected regulatory and economic headwinds that brought topline metrics down. However our operational excellence, financial flexibility, market responsiveness and diversity of business assets resulted in resiliency that gives us momentum for 2017. We also made purposeful portfolio moves in 2016 to orient the company’s direction as dictated by our strategic priorities.

Performance in 2016

The biggest barrier to realizing tomorrow is misreading today. This is not simply another cycle of change businesses find themselves in. Rather the digital age means if we do not change how we compete, how we create value, and satisfy informed customers, our businesses will lose market leadership. Average tenure of market leaders is shorter than it has ever been. While there is widespread realization on the need to innovate almost no leader is satisfied with the innovation performance of his or her company. Innovation is genuinely hard but Engro with its history of firsts is well positioned culturally to respond to the challenge.

Engro Corporation is committed to increasing its profitability while growing its revenue sustainably and delivering superior returns to its shareholders. It is clear that to achieve that we need to reimagine how we work in the digital age. This is why we are already shifting internally around some key themes. We are striving to immerse, ideate and productize working backward from the journeys our customers are on. Already some of our biggest revenue generating businesses are sending listening teams to the field; the start of a process that will lead to differentiated product and services and in some cases uniquely positioned businesses. We are becoming even more responsive to markets. Some of our most remarkable success stories in 2016 have come from businesses that are now managed on a near real time basis as opposed to longer-term management against quarterly plans. We are investing in talent comfortable with being empowered, and working hard to build a culture and workplace that supports and retains such talent.

Engro is a group with demonstrated capabilities in conceptualization, engineering and execution of large complex technical businesses. We are working on increasing the penetration of technology for even greater efficiencies, and generation of useful data that will deliver tremendous value with fewer limits. Already as proof of concept plants in Engro are being digitized with great success that reflect in bottom line numbers.

These shifts have started to result in consistent efficient ways of running businesses and will allow us to create greater value for our customers and our shareholders. We foresee that this combination of talent, technologies and data will allow us to unmask quickly exploitable opportunities adjacent to our businesses in the value chain.

Positioning for a digital future

Our net sales were 157.2 billion PKR down from 181.65 billion PKR in the previous year. A challenging competitive environment in the dairy sector for Engro Foods, and expectation of subsidy by market affecting first half of the year sales for Engro Fertilizers, were the primary reasons for this. Regulatory changes affecting cost of goods in Engro Foods also impacted profitability of the company as well as the group, dragging gross margin down to 22.8% from 25% the year before. Profit after tax was a record 73.598 billion PKR owing to the one-off gain from partial stake sale of Engro Foods.

We displayed operational excellence this year achieving an optimal level of utilization of assets. Engro Fertilizers continued to operate both its plants with full availability of gas. Engro Elengy Terminal delivered an incredibly strong year as it hit peak operational capability with an average utilization of 99.4%. This meant handling 44 cargoes during 2016 versus just 17 in 2015. The petrochemicals business also excelled operationally with its highest ever production and strong volumetric growth in sales. Cost efficiency measures instituted this year, coupled with channels optimizations, translated into profits of PKR 660 million for the year as opposed to a loss of PKR 644 million during 2015. This was achieved while maintaining focus on high HSE standards.

We displayed operational excellence this year achieving an optimal level of utilization of assets. Engro Fertilizers continued to operate both its plants with full availability of gas. Engro Elengy Terminal delivered an incredibly strong year as it hit peak operational capability with an average utilization of 99.4%. This meant handling 44 cargoes during 2016 versus just 17 in 2015. The petrochemicals business also excelled operationally with its highest ever production and strong volumetric growth in sales. Cost efficiency measures instituted this year, coupled with channels optimizations, translated into profits of PKR 660 million for the year as opposed to a loss of PKR 644 million during 2015. This was achieved while maintaining focus on high HSE standards.

Considering the unexpected regulatory pressures that affected all players in the market we delivered a satisfactory year in 2016. Decisive moves guided by our strategic plan now give us financial flexibility that will allows us to add value to Engro shareholders for both the short and long term.

Being purpose driven creates inspiring leadership and inspired teams. Every year we strive to do more and add to our social agenda. Here are some milestones that we are humbled to have been a part of. Our employees clocked in over 12,000 volunteer hours last year. While externally in 2016, almost 400 students from under privileged backgrounds enrolled at our Technical Training Centre (TTC) in Daharki in rural Sindh. We support over 4,500 children in 33 primary schools where we run reading programs and focus on skills based education for girls. We will be aggressively expanding this program in the current year with key implementing partners. Moreover, the Farmer Connect program led by Engro Fertilizers agri team has already trained 10,000 farmers in its five year program, demonstrating water conservation techniques and yield improvement in wheat and rice crops. In health our community funded initiatives treated over 35,000 patients last year.

Our Foundation continues to work with Government and international donors focusing primarily on skills development and livelihood enhancement. We recently finalized a partnership with the Punjab Skills Development to train 9,000 dairy farmers in Southern Punjab, showing our commitment to work with provincial governments for poverty alleviation and economic development.

Looking ahead

Our commitment to profitable growth remains paramount. We are today a more focused company with an obsession with operational excellence, and greater financial flexibility that will allow us to quickly pursue this goal regardless of market conditions. We find ourselves gatekeepers to a fast growing global economy with a rapidly burgeoning middle class. Engro will continue to work with international companies that share its values to create new market niches and businesses that make sense in the digital age and deliver superior long terms sustainable returns for our shareholders. We will also look outside our borders for businesses that will benefit from our existing momentum, portfolio and shared capabilities. Finally as we learn to define our businesses broadly as part of greater value chains, we hope to selectively expand them so our existing investments benefit from scale and synergies.

As we digitize our business models, foster an innovative and agile culture, ideate and launch new ventures, we will never forget that leaving behind a better Pakistan is at the heart of what it means to be Engro. We are a different company this year from last year. We have positioned ourselves to accelerate our pace of change and respond to market conditions with leverage, on our terms. We have leadership depth at every level. While the future is promised to no one we are optimistic the best days of Engro and our country lie ahead.

Ghias Khan President & Cheif Executive Officer