Lotte Chemical Pakistan : Transmission of Quarterly Report for the Period Ended 30 September 2022.

REPORT FOR THE

NINE MONTHS PERIOD ENDED

30 SEPTEMBER 2022

Raising the bar

Contents

Company Information		03
Directors' Review		04
Condensed Interim Statement of Financial Position		06
Condensed Interim Statement of Profit or Loss		07
Condensed Interim Statement of Comprehensive Income		08
Condensed Interim Statement of Changes in Equity		09
Condensed Interim Statement of Cash Flows		10
Notes to the Condensed Interim Financial Statements		11

Company Information

As at 27 October 2022

Board of Directors
Sang Hyeon Lee	Chairman
Young Dae Kim	Chief Executive
IL Kyu Kim	Non-Executive
Jae Sun Park	Non-Executive
Tariq Nazir Virk	Executive
Pervaiz Akhtar	Independent
Adnan Afridi	Independent
Mohammad Zubair	Independent
Audit Committee
Pervaiz Akhtar	Chairman
IL Kyu Kim	Member
Adnan Afridi	Member
Faisal Abid	Secretary
HR & Remuneration Committee
Pervaiz Akhtar	Chairman
Sang Hyeon Lee	Member
Young Dae Kim	Member
Waheed U Khan	Secretary
Shares Sub Committee
Young Dae Kim	Chairman
Sang Hyeon Lee	Member
Mohammad Zubair	Member
Executive Management Team
Young Dae Kim	Chief Executive
Tariq Nazir Virk	Director Manufacturing
Waheed U Khan	Director Admin, HR & IT
Chief Financial Officer
Ashiq Ali
Company Secretary
Faisal Abid
Bankers		External Auditors
Askari Bank Limited		KPMG Taseer Hadi & Co.,
Citibank NA		Chartered Accountants
Deutsche Bank AG
Faysal Bank Limited		Legal Advisor
Habib Bank Limited		Naz Toosy
Industrial and Commercial Bank of China
MCB Bank Limited		Registered Office
Meezan Bank Limited		EZ/I/P-4, Eastern Industrial Zone,
National Bank of Pakistan		Port Qasim, Karachi
Standard Chartered Bank (Pakistan) Limited
United Bank Limited		Shares Registrar
		Famco Associates (Pvt) Limited
Internal Auditors		8-F, Near to Hotel Faran, Nursery,
EY Ford Rhodes		Block 6, P.E.C.H.S., Shahrah-e-Faisal,
Chartered Accountants		Karachi

Report for the nine months period ended 30 September 2022

03

Directors' Review

For the third quarter ended 30 September 2022

The Directors are pleased to present their review report for the third quarter ended 30 September 2022 together with the un-audited condensed interim financial information of the Company as at and for the third quarter and nine months period ended 30 September 2022.

Business Overview

The Crude Oil (WTI) market witnessed a bearish trend throughout the third quarter as several unpropitious factors plagued the market sentiment. Aggressive interest rate hikes by central banks of major economies to stem inflation, the strengthening US Dollar, and China's adherence to the zero-toleranceCovid-19 policy dented the global demand outlook. However, the potential reduction in energy supplies on account of Russia-Ukraine conflict, the decision by OPEC+ to reduce production despite not being able to meet production quotas, and the limited global refining capacities forced prices to rise intermittently. Crude Oil (WTI) prices averaged at US$ 92.13 per barrel for the quarter, 15.1% lower than the previous quarter.

PX (Paraxylene) prices tumbled during the third quarter on the back of weak upstream Crude Oil market amid sluggish demand for PX due to recessionary fears elicited by the slowing economic growth and the continued lockdowns in China. Keeping the lackluster demand in view and the availability of options to direct throughput to lucrative products, major producers rationalized operations to fulfill contractual obligations. A shift in global supply chains mainly driven by the Russia-Ukraine conflict resulted in arbitrage from Asia and Middle-East to the West/Europe tightening prompt supply, hence enabling producers to command high premiums. As Gasoline demand tapered towards the end of the driving season in the West, several producers reverted production to PX. The average PX price for the quarter was US$ 1,095.70 per tonne, 13% lower than the last quarter. The PX - Naphtha spread averaged at US$ 378 per tonne for the quarter.

The PTA market trended lower tracking the movement in the Paraxylene market amid weak indigenous supply/demand fundamentals. Lack of recovery in PTA operations was mainly due to poor global demand inundated by recession fears, persistent lockdowns in China and the resulting high inventories in the polyester chain. Additionally, power rationing in China during the summer season and the unwillingness of producers to pay steep premiums for spot PX cargoes ensued rate cuts at PTA facilities in China. Despite the slight improvement in Spot PTA-PX spreads during the quarter, manufacturers struggled to cope with rising feedstock costs on account of premiums and higher ocean freights on liquid cargos. The average PTA price for the quarter was US$ 845 per tonne while the average PTA margin over PX was US$ 122 per tonne compared to US$ 119 per tonne for the previous quarter.

The domestic polyester market was forced to reduce operating rates due to curtailed supply of utilities for the industry. Additionally fluctuation in exchange rates as well as inflationary pressures dampened the demand outlook citing lack of or postponement of export orders. Furthermore, floods in southern parts of the country led to disruption of inland logistics, further antagonizing producer woes. The average operating rate for the quarter was 80%.

Operations

Production volume during the quarter at 126,586 tonnes was 4% higher than the corresponding period last year while Sales volume, comprising of domestic sales only, at 126,286 tonnes was 2% lower than the corresponding quarter last year.

Directors' Review

For the third quarter ended 30 September 2022

Financial Performance

Revenue for the quarter was significantly higher than the corresponding period last year due to higher PTA price. This coupled with higher margin resulted in a gross profit of Rs 4,805 million for the quarter as compared to gross profit of Rs 1,394 million during the same period last year.

Distribution and selling expenses were 47% higher while Administrative and general expenses were 43% higher than the corresponding period last year due to overall impact of inflation.

The taxation charge for the quarter is based on statutory income tax rate and tax under Final Tax Regime (FTR) as adjusted by the movement in the deferred tax account. The taxation charge is higher due to Super tax enacted through Finance Act 2022 which is effective retrospectively at the rate of 10% for the Tax year 2022 and at the rate of 4% from Tax year 2023 onwards.

Earnings per share (EPS) for the quarter stood at Rs 1.79 per share as compared to Rs 0.41 per share for Q3 2021.

Future Outlook

Going forward, the Crude Oil market is anticipated to trend higher as demand for heating fuels is expected to increase, additionally the European Union sanctions banning imports of Russian energy products may result in aggravating the existing volatility in the market. Despite the efforts being made by OPEC+ to balance the market by reducing production, global recessionary fears and the prolonged lockdowns in the largest oil importing economy, China, might help keeping prices in check.

Paraxylene (PX) prices are forecasted to trend in line with the upstream Crude Oil market going forward. Additionally, the market is expected to gain length as new PX capacities are scheduled to start-up towards the end of the year.

The PTA prices are anticipated to characteristically follow the upstream feedstock market. Unfortunately, high inventories in the downstream polyester sector and recessionary fears may emulate the existing poor demand.

Moving ahead, the overall Polymer operations in the domestic market are expected to further come under pressure mainly due to persistent weak demand from downstream Textile and PET sector as inventories of Raw Material and Finished Goods have started to pile up. The reduction in export orders to Europe and the West as well as the ongoing energy crisis in Pakistan is forcing all the stake holders to adopt a cautious approach ahead. PTA demand from the domestic market is expected to remain depressed which may also impact LCPL sales in last quarter.

Sang Hyeon Lee	Young Dae Kim
Chairman	Chief Executive

Date: 27 October 2022

Bangkok, Thailand

Report for the nine months period ended 30 September 2022

05