ANNUAL REPORT 2015 - petrochem.com.sa · The National Petrochemical Company (Petrochem) was, ......
Transcript of ANNUAL REPORT 2015 - petrochem.com.sa · The National Petrochemical Company (Petrochem) was, ......
His Royal Highness
Prince Mohammed Bin Salman Bin Abdulaziz Al-Saud
Deputy Crown Prince, Second Deputy Prime Minister and Minister of Defense
His Royal Highness
Prince Mohammed Bin Naif Bin Abdulaziz Al-Saud
Crown Prince, Deputy Prime Ministerand Minister of Interior
Custodian of the Two Holy Mosques
King Salman Bin Abdulaziz Al-Saud
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Chairman’s Statement 6Company Activity 8Company Project 8Company Financial Results 11Potential Risks 15Profits Distribution Policy 16Company Loans 17Company Management 18Regular Entitlements Data 24Transaction with Related Parties 24Commitments towards Governance Law 26General Disclosures 27Representations of the Board of Directors and senior executives 28
Recommendations to the Company Ordinary General Assembly 29Consolidated Financial Statements For The Year Ended 31 December 2015 32
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Chairman’s StatementIn the name of Allah, most benevolent, ever merciful,
To the National Petrochemical Company Shareholders, Peace, mercy and blessings of Allah be upon you,
On behalf of my colleagues the Board of Directors of Petrochem, I am pleased to present to you the Annual Board Report for the financial year ending 31/12/2015.
Overall, 2015 witness high fluctuation in the products prices, resulting from in-stability of the world oil price. However, the company benefited from the lower feedstock cost that are linked to international oil prices, particularly in the second and third quarters of 2015. At the subsidiary level, (Saudi Polymers Company) enjoyed a good year in performance levels and high efficiency of production. In 2015, Petrochem was able to achieve outstanding financial results that led to an increase in net income by 17% from last year, which increased from SR774 million in 2014 to SR. 906 million in 2015. Moreover, SPCo was successful in complet-ing all of its obligations required by its lenders under the financing agreements, which led to the project sponsors being released from certain financial guaran-tees. Although the economic indicators predict that in 2016 the oil prices will remain at low prices, there is still hope that the market demand could improve and that the products prices would gradually start improving.
Finally, on behalf of the Board Members, I would like to express our sincere grat-itude and respect to the Government of the Custodian of the Two Holy Mosques for the continuous support of the Industrial Sectors throughout the Kingdom.
Chairman,
Hamad Saud Al-Sayari
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H.E. Hamad S. AlSayari(Chairman of the Board)
Abdulrahman S. Alismail(Managing Director)
Suliman M.Al-Mandeel(Vice Chairman of the
Board)
Riyadh A. Al-Zahrani(Board Member)Representing the
General Organization of Social Insurance
Abdullah M. AlFayez(Board Member)
Hytham M. AlHamidi(Board Member)
Farraj M.Abothenain(Board Member)
Abdulaziz A. Alkhamis(Board Member)
Representing the PublicPension Agency
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I- Company Activity:The National Petrochemical Company (Petrochem) was, established on 08 RABI’1/1429H (corresponding to 16/03/2008) as a Saudi joint stock Company registered in Riyadh, Kingdom of Saudi Arabia, under Commercial Registration number 1010246363 dated 08 RABI’1/1429H corresponding to (16/03/2008). Its Headquarters are located in the city of Riyadh, with a paid up capital of 4,800 Million Saudi Riyals. The Company (Petrochem) activity is focused on the development, establishment, operation, management and maintenance of petrochemical factories, gas, petroleum and other industries, wholesale and retail trade in material and petrochemical products and its derivatives. Currently, Petrochem activity covers investments in its subsidiaries, Saudi Polymers
Company, which produces petrochemical products, and Gulf Polymers Distribution Company, which distributes Saudi Polymers Company products.
II- Company Project:Saudi Polymers Company (SPCo), which is Petrochem’s first Project, is a limited liability company with a capital of 4,800 Million Saudi Riyals and Commercial Registration number 2055008886 issued in Jubail on 29/11/1428H (corresponding to 09/12/2007G), located in Al-Jubail Industrial City. Petrochem owns 65% of SPCo and the remaining 35% is owned by Arabian Chevron Phillips Petrochemical Company Ltd. SPCo started its commercial production in the fourth quarter of 2012, and has production capacity as shown below:
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Design Capacity KTAMaterial
1,220Ethylene
440Propylene
1001-Hexene
1,100Polyethylene
400Polypropylene
100Polystyrene GPPS
100Polystyrene HIPS
The total sales value of SPCo during 2015 was 6,546 Million Saudi Riyals compared to 7,225 Million Saudi Riyals in 2014. Saudi Polymers Company achieved a net profit of 1,431 Million Saudi Riyals in 2015 compared to net Profit of 1,178 Million Saudi Riyals in 2014.
Below is the company’s geographical sales distribution during 2015:
SAUDI ARABIA
EUROPE
ASIA 57%
34%
9%
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The chart below shows the ownership percentage of Petrochem in SPCo, as well as major share-holder ratios in Petrochem.
Saudi Industrial Inv. Group
50%
Public17.6%
GOSI16.2%
PPA16.2%
Petrochem 65%
Arabian Chevron Phillips
Petrochemical Company Ltd
35%
Saudi Saudi Saudi Polymers Polymers Polymers CompanyCompanyCompany
All products of Saudi Polymers Company sold outside the Kingdom are marketed by the Gulf Polymers Distribution Company FZCo (GPDC) which is owned with the same ownership ratio as the Saudi Polymers Company (65% Petrochem, and 35% Arabian Chevron Phillips Petrochemical Company Ltd). Chevron Phillips Chemical International Sales Inc. (CPCIS) provides marketing support to GPDC for SPCo’s products, under a Distributor Agency Agreement entered into between CPCIS and GPDC.
GPDC is registered and located in the Dubai Airport free zone, United Arab Emirates. Its activity is limited to the storage, sale, and distribution of the Saudi Polymers Company products. GPDC was, established on 15/02/2011 as a limited liability company, with a capital of 2 million AED. The total sales of Gulf Polymers Distribution Company in 2015 was SR 6,456 Million compared to SR 6,792 Million in 2014 and achieved net profit SR 200 Million in 2015
compared to net profit SR 160 Million in 2014.
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III- Company Financial Results: A- Company Business Results Summary for the Fiscal Year 2015:
The external auditor report shows the consolidated financial statements for the period ending 31/12/2015 where all the data of its subsidiaries are fully consolidated (Saudi Polymers Company and Gulf Polymers Distribution Company).
Balance Sheet
20112012201320142015Balance sheet (millions Riyals)
Assets
1,822,81,083,22,534,34,269,55,245,3Total current assets
18,174,319,303,418,471,417,783,717,114,9Total noncurrent assets
19,99720,386,621,005,722,053,222,360,2Total assets
Liabilities and Shareholder`s equity:
48,21,083,82,329,72,102,32,252,5Total current liabilities
13,632,913,671,813,121,313,137,011,807,8Total noncurrent liabilities
13,681,114,755,615,451,015,239,314,060,3Total liabilities
6,3165,631,05,554,76,813,98,299,9Total shareholder`s equity
19,99720,386,621,005,722,053,222,360,2Total liabilities and shareholder`s equity
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Income Statement
20112012201320142015Income Statement (millions Riyals)
-857,94,436,7 7,858,57,304,2Sales
-(1,336,7)(3,710,2)(5,559,5)(4,822,4)Cost of sales
-(478,9)726,5 2,299,12,481,8Gross profit (loss)
-(52,9)(310,6)(492,6)(467,7)Sales and distribution
(47,1)(150,5)(250,5)(300,9)(251,5)General and administrative
(47,1)(682,3)165,4 1,505,61,762,6Profit (loss) from continuing operations
10,850,8- 2,84,3Other income
-(14,45) (203,4)(174,1)(155,5)Finance overheads
--- --Amortization of pre start cost
--- --Foreign currency differences
--- --Finance expenses
(36,3)(646,0)(38,0)1,334,31,611,4Profit (loss) before minority interest and Zakat
12,0221,410,2(484,8)(579,2)Minority interest shares in gain (loss) in subsidiary companies
(24,3)(424,6)(27,8)849,51,032,2Net profit (loss) before Zakat
(39,8)(39,0)(38,3)(75,1)(125,3)Zakat
(64,1)(463,5)(66,1)774,5906,9Net profit (loss) for the year
(0,13)(0,97)(0,14)1,611,89Earnings (losses) per share in Riyals
The internal Sales between Saudi Polymers Company and Gulf Polymer Distribution Company FZCo was excluded from the total sales and the cost of sales in order to consolidate the financial statements.
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B- The Major Differences in Operational Results Against Last Year.
Items in (millions Riyals) 2015 2014 Changes +/- Changes %
Gross profit 2,481,8 2,299,1 182,7 8%
Profit from operations 1,762,6 1,505,6 257 17%
Net profit 906,9 774,5 132,4 17%
The reasons behind the Company profit increase during 2015 compared to the prior year is due to the following:
1) Saudi Polymers Company’s operating rates reached a steady operating state during the year which led to a 13% increase in production compared to the previous year.
2) Improvement of profit margin compared to the previous year, due to a higher decrease in the average feedstock cost, compared to the decrease in the average of prices of
goods sold.
3) In 2014, SPCo had one unscheduled shutdown on 14 of March 2014, and took 10 days to gradually increase the production rate to its normal level. This stoppage had affected the company financial result by about (30) million Riyal in its first quarter of 2014.
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Petrochem’s plan to convert its financials from SOCPA to IFRS:During 2013, SOCPA has approved an IFRS convergence plan by which all listed entities in the Saudi stock market would be required to report under IFRS as adopted by SOCPA effective 2017. Accordingly, Petrochem has prepared the following plan to convert its Financial Statements from SCOPA to IFRS by the dateline:1) The company, with assistance from an
independent External Auditor, will prepare a plan for transitioning to International accounting auditing standards for Petrochem and its subsidiaries, in order to prepare its financials according to IFRS standards.
2) Petrochem will prepare the year end 2015 financial statements balances and all 2016 quarters, according to IFRS standards during 2016 for internal use, in addition to the full year end of 2016 using the IFRS standards. This will be used during the official 2017 IFRS preparation, as it will have the 2016 numbers to compare with.
3) As a result Petrochem and its subsidiaries will have all what they need to issue their 2017 financial statements according to the International financial reporting standards (IFRS).
D-The Company Future Forecast:Saudi Polymers Company will continue to focus on improving performance and promoting production efficiency and increased capacity levels during 2016. However, it is difficult to forecast results for 2016 and the years ahead. 2015 witnessed severe price declines in petrochemical products prices due to lower global oil prices, which are expected to impact Company results during 2016. Understandably, products prices will largely be affected by the changes in the economic situation of developed and semi-developed marketplaces.
With reference to the Resolution of the Council of Ministers dated Monday 17 Rabi Al-Awwal 1437 corresponding to December 28, 2015 regarding the increase in the prices of energy products and electricity tariff, Petrochem expects the financial impact of this increase to be between 40 to 50 million Riyal on its result for the year 2016, which was announced on Tadawul on 7/1/2016, but the actual financial impact will mainly depend on the market prices during the year.
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IV - Potential Risks:
There are potential risks that might affect the Company’s results, classified as follows:
1) Operational Risks: 1.1- The operational performance level is
dependent on a number of equipment and technological processes, which are subject to failure and breakdown.
1.2- Risk in supply of basic materials (feedstocks) and meeting the terms and conditions of feedstock supply agreements with Aramco.
1.3- Changes in raw materials prices. 1.4 - Risks related to interest rates.
2) Marketplace Risk:2.1- The high level of competition will
affect the supply and demand situation for the Company’s products.
2.2 - Crude oil prices.3) The Global economic situation and its
impact on Company products demand and hence its products prices.
4) Uncertainties associated with changes to legislation in markets where the Company sells its products.
5) Increasing number and complexity of applicable environmental laws could impact future results and cash flows if applicable to the Company’s operations.
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V- Profits Distribution Policy:
According to the Company Article of Association the company distribute annual dividend after all the general administrative and other costs are deducted and as follows:-1) Retain 10% of annual net profits as statutory
reserve, and the Ordinary General Assembly can stop this retainer if the reserve reaches half of the paid in capital.
2) The Ordinary General Assembly can upon proposal from the Board of Directors retain and additional 5% of the net profit to form contractual reserve and assigned it to a purpose or specifics purposes.
3) Then distribute from the balance a dividend payment to shareholders equal to 5% of the paid capital.
4) Upon completing the above step, allocate (10%) to the Board of Directors remuneration and then distribute the rest to the shareholders as additional dividend.
Although, 2015 was a good year as operations at SPCo stabilized in all production lines and ended the year with positive results, SPCo has yet to start distributing dividends to its shareholders. The distribution of dividends by SPCo are restricted under SPCo’s lender financing agreements until certain conditions specified in the financing agreements are met. In addition, the economic indicators predict that in 2016 the oil prices will remain at low prices and that will be reflected in the Company products prices; therefore, Petrochem will not be dividing out any profits for the 2015 financial year. The table below shows retained earnings balance:
Descriptions Balance (Thousand Riyals)
Retained earnings balance as of 1/1/2015 84,133
Net profit on 31/12/2015 906,888
Statutory reserveTransfers10% 90,689
Accumulated retained earnings as of 31/12/2015 900,332
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VI- Company Loans:
1) Sukuk The National Petrochemical Company completed the process of issuing Sukuk compatible with the Islamic Sharia Laws in June-2014 with the value of SR 1,200 Million and for a period of 5 years, the return on bonds is SIBOR (6 months) + 1.7% and the objective of
issuing these Sukuk is to cover the Company’s operational expenses, and finance its SPCo project when it needs shareholders support.
Riyadh Capital and Deutsche Securities acted as managers for this issuance.
2) Saudi Polymers Company Loans as follows:Outstanding Loans Amount (Millions Riyals)
Loan Duration (year)**
Year-end balance
Paid dur-ing the
yearAdditions
Beginning Year Bal-
anceTotal Loan
AmountThe Lenders
785017001,0201,200Saudi Industrial Devel-opment Fund
7,52,31042002,7303,000Public Investment Fund
117,66255508,2189,258International and Local Commercial Banks*
10,8221,145011,96813,458Total
* Under Commercial Banks are 18 banks: 7 local & the rest are International banks.* * Loan repayment started during 2013.
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VII - Company Management:
A) Board of Directors Members:National Petrochemical Company Board of Directors consists of 8 members and the tenure of the current Board of Directors ends on April, 10th 2016.
Petrochem board Member During 2015
Name Position Capacity
Hamad Saud Al-Sayari Chairman Non-Executive
Suliman Mohammed Almandeel Vice Chairman Non-Executive
Abdullah Mohammed Al-Fayez Member Independent
Farraj Mansour Abothenain Member Independent
Abdulaziz Abdulrahman Al-Khamis Member Non-Executive
Hytham Mohammed AlHamidi Member Independent
Riyadh Otaibi Al-Zahrani Member Non-Executive
Abdulrahman Saleh Alismail Managing Director Executive
Board Members who are Members in other Companies :
Name Joint Stock Companies
Hamad Saud Al-Sayari Chairman, Saudi Industrial Investment Group
Suliman Mohammed Almandeel Member, Saudi Industrial Investment Group
Abdullah Mohammed Al-Fayez Member, Tawuniya Cooperative Insurance Company
Member, Al Ra’idah Investment Company
Farraj Mansour Abothenain
Member, National Shipping Company
Member, Astra Industries
Member, Bawan Company
Abdulaziz Abdulrahman Al-KhamisMember, Saudi Investment Bank
Member, Saudi International Petrochemical Co.
Hytham Mohammed AlHamidiMember, Saudi Company for Hardware.
Member, Rana Investment Company
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B) Board of directors meeting:
The Board of Directors held 4 meetings during 2015 and Members attendance was as follows:
Member nameMeetings dates in 2015
Total19/2 12/4 27/10 16/12
Hamad Saud Al-Sayari 4 out of 4
Suliman Mohamed Almandeel 4 out of 4
Abdullah Mohammed Al-Fayez 4 out of 4
Farraj Mansour Abothenain 4 out of 4
Abdulaziz Abdulrahman Al-Khamis x 3 out of 4
Hytham Mohammed AlHamidi 4 out of 4
Riyadh Otaibi Al-Zahrani 4 out of 4
Abdulrahman Saleh Alismail 4 out of 4
C) Remuneration & Benefits paid to the Board of Directors:
DescriptionExecu-
tive Board Members
Non-Executive & Independent Board Members
5 senior executives who received higher benefits
& remuneration from company including CEO
& FCO
Total
Salaries & wage 0 0 2,080,308 2,080,308
Allowances 218,000 1,547,000 782,968 2,547,968
Annual Remunerations 0 0 1,464,024 1,464,024
Incentive plans or any remunerations or tangible
0 0 0 0
Total 218,000 1,547,000 4,327,300 6,092,300
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D) Board of Directors Ownership:
Shares owned by the Board of directors, including their wives and dependent children:
Name of The Member 31/12/2014 31/12/2015
Change % Personal Properties
Company Represented
Personal Properties
Company Represented
Hamad Saud Al-Sayari (chairman) 100,000 - 100,000 - -
Suliman Mohamed Al -Mandeel (Vice Chairman)
1,000 - 1,000 - -
Abdullah Mohammed Al-Fayez 2,000 - 2,000 - -
Farraj Mansour Abothenain 141,000 - 25,000 - -82,2%
Abdulaziz Abdulrahman Al-Khamis (PPA Rep.) - 78,000,000 - 78,000,000 -
Hytham Mohammed AlHamidi 1,000 - 1,000 - -
Riyadh Otaibi Al-Zahrani(GOSI Rep.)
- 78,000,000 - 78,000,000 -
Abdulrahman Saleh AlIsmail (Member)
1,000 - 1,000 - -
Note: There are no Debt Capital on the board members.
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H) Ownership of Senior Executives: The shares owned by the Senior Executives, including their wives and dependent children:
Name 31/12/2014 31/12/2015 Changes%
Personal Properties Personal Properties
Ali Abdullah Al-Begmi 3,296 3,730 13%
Turki Nasser Al-Hajiri - - -
Note: There are no Debt Capital on the Senior Executives.
F) Board of Directors Committees:
Audit Committee:The Committee held five meetings during the Fiscal year 2015 .
The Audit Committee functions include the Followings:
l Study Company Accounts Policy. l Recommends selecting the accounts
internal Audit. l Study the annual financial statements and
interim before approving and publishing them.
l Validate the adequacy of control activity design in the company and effectiveness of its suitability.
l Assess the company readiness to monitor and face high probable risks.
l Appoint the internal audit and validate his independence and Study the company audit plan.
l Appoint the internal audit in the associated companies and
l Study reports issued and follow up closely the implementation plan of the internal audit recommendations.
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The Audit Committee consists of three members, all possess the practical experience, and professional qualifications that empower them to participate fully in the internal committee works.
Audit Committee Members:
1) Abdullah Mohammed Al-Fayez (Chairman) 2) Khalid Salem Al-Rowais 3) Riyadh Otaibi Al-Zahrani.
Executive Committee:The executive committee held two meetings during 2015 and its functions include the following:
1) Assume the Board of Directors’ responsibilities in cases that the full Board could not meet.
2) The Committee should, after every meeting, submit a report to the Board includes narrating to all the actions taken in the meeting held on behalf of the Board.
3) The Committee have the right to seek whenever it needs the help of independent consultants to carry out special assignments that might assist the committee in executing its functions. The committee decides on the compensation of the independent consultant.
Executive Committee Members:
1) Hamad Saud Al-Sayari (Chairman) 2) Suliman Mohammed Al-Mandeel 3) Abdulaziz Abdulrahman Al-Khamis 4) Abdulrahman Saleh Al-Ismail
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Nomination and Remuneration Committee:The Committee held one meeting during 2015 and its functions include the followings:
1) Recommends nomination to the Board and it should take into account not to nominate any person convicted in violated honor or honesty crimes.
2) Perform annually review of appropriate skills required by the board members, preparing competency description and qualifications, additionally they are required to specify the time required by the Board Members to perform their required duties.
3) Review the Board structure and recommend any changes that might be required.
4) Identify the Board strength and weakness and suggest ways to rectify in line with the Company interest.
5) Annually verify the independence of the Independent Board Members and that no conflict of interest exists if the Member holds a membership in a Board at another company.
6) Make clear policies as per recognized performance standards for Board Members and Senior Executives remunerations.
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Nomination and Remuneration Committee Members:
1) Farraj Mansour Abu-Thenain (Chairman) 2) Hytham Mohammed AlHamidi3) Riyadh Otaibi Al-Zahrani.
Social Responsibility Committee:The Social committee held one meetings during Fiscal year 2015. The committee responsibility includes the following:
1) Develop principal standards of the company social contribution
2) Develop and follow up Social responsibility programs in which the company participates
to build a since of responsibility among the company and its staff .
3) Encouge the company’s role in adopting policies, initiatives, and programs of social responsibility stakeholders, customers, suppliers, and environment and for the whole community to enrich the Company reputation.
4) Submit recommendation to the Board on the annual budget of the Company social contribution.
Social Responsibility Committee Members:
1) Hamad Saud Al-Sayari (Chairman) 2) Suliman Mohammed Al-Mandeel 3) Abdullah Mohammed Al-Fayez
VIII – Regular Entitlements Data:
Due (SR)Paid (SR)Payment Description
45,199521,149GOSI
00Withholding Tax
125,301,10961,483Zakat
012,655Chamber Of Commerce & Visas Fees
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IX- Transaction with Related Parties: During 2015, Transactions were made with related parties as follows:
Remarks
Transaction Amount
(Thousand SR)Transaction typeRelationName of Re-lated Party
20142015- Commission for Letters of Credit against Petrochem obligations towards Project Lenders.- Saudi Industrial Investment Group provides sup-port services to Petrochem when-ever needed, which Petrochem has to regularly pay for as a result there is no fixed value and duration contract between the two companies.
1,397698Bank Guarantee Commission
Major Stake-holder
Saudi Indusial Investment Group Co *
1160Finance commission
1,0921,092Shared services
(25,018)0Financing Received (paid)
130,0000Sukuk
This reflect the transactions be-tween Petrochem subsidiaries. As Petrochem fully consolidated with its subsidiaries, these transaction appear in Petrochem Finan-cials statements.
0(65,625)Repayment of sub-ordinated loan
(non-controlling partner in a subsidi-
ary)
Arabian Chev-ron Phillips
Petrochemical Company (317,708)(293,258)Marketing Fees
290,843174,709Sales
(Affiliated Company)
Saudi Chevron Phillips Com-
pany
(61,234)(38,616)Purchase
(159,559)(382,476)Cost of Sales – Ser-vices provided
(126,514)(116,377)General & adminis-tration expenses -services provided
181,24894,215Sales(Affiliated Company)
Jubail Chevron Phillips Com-
pany (1,357,410)(858,198)Purchase
(142,425)(157,654)General & adminis-tration expenses -services provided(Affiliated
Company)
Chevron Phil-lips Chemical International
Sales LLC (317,708)(293,258)Marketing Fees
* Note: There are two Board members that sit on both Petrochem and SIIG Board (Mr. Hamad Saud AlSayari, and Suliman Mohammed AlMadeel). It is worth mentioning that the two Board members don’t represent SIIG, and they are prevented from voting for the above related party transactions.
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X- Commitments towards Governance Law:On November 12th-2006, the Capital Market Authority (CMA) council issued guidance on governance laws of joint stock companies; the law covers the basis and standards that regulate the joint stock company’s performance.
DateApproved by the General Assembly
Approved by the BoardRegulation#
11/10/2009Work discipline policy regulation1
15/11/2009
Shareholders rights policy2
Principles for choosing the execu-tive committee members policy3
The board of directors responsibili-ties policy4
Conflict of interest policy5
19/1/2010Disclosure and transparency policy6
General policy7
22/3/2010General Authority Policy8
20/4/2010
Principles for choosing the nomi-nation and remuneration commit-tee members
9
Principles for choosing auditing committee members10
Policies and procedures for choos-ing the council of the board of di-rectors members
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27/12/2011Related parties regulation12
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The table below shows the remaining policy in the guidance rules in the corporate governance law, that the company has yet to implement :
Requirements stated in Guidance Regulation Reason for not Implementing
Adoption of cumulative voting method
The Company adopts the standard voting method as per companies laws issued by Ministry of Commerce and also the company article of association do not include the cumulative voting method
Investors who are judicial persons and who act on behalf of others - e.g. investment funds- shall disclose in their annual report their voting policies and actual voting and ways of dealing with any materials conflict of interest that may affect the practice of the fundamental rights in relation to their investment.
The company bylaw does not include judicial persons who act on behalf of others.
Judicial person who is entitled under the company’s Articles of Association to appoint representatives in the Board of Directors, is not entitled to nomination vote of other members of the Board of Directors.
The company bylaw does not include judicial persons who is entitled to appoint representatives.
On April, 28th-2014 the General Assembly approved the company internal governance law by consolidating the policies approved before, in one regulation in compliance with the CMA council requirements number (2012/40/3) dated 17-2-1434H corresponding to December, 30th-2012.
XI- General Disclosures: l During 2015 No person or party has
informed the Company about any personal interest in any voting shares.
l The company has not issued or granted debt instruments convertible into shares, or any right options, warrants, or the right
of subscription during the fiscal year 2015.
l Petrochem announced on 1/4/2015 on Tadawul’s website, its subsidiary Saudi Polymers Company completed all of its obligations required under the financing agreements with its local and international
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lenders. Therefore, certain financial obligations and recourse have transferred from the project sponsors to Saudi Polymers Company. Petrochem also noted that this will not have any financial impact on its results.
l On 27/1/1437H Ministry of Commerce and Industry decided to adjust the Companies Law, according to that, Petrochem will start working on adjusting its bylaw to be in line with the new company law.
l With reference to the Ministerial Resolution dated Monday December 28, 2015 regarding the increase in utilities and feedstock prices, Petrochem expects this increase to have a direct impact between SR 40 to 50 million on its 2016 results. It is worth mentioning that the actual financial impact will be mainly dependent on the market prices of feedstock and products during the year.
The annual Audit Results of the Internal Control Procedures Effectiveness :
An Internal Audit is an objective assurance and consulting activity designed to add value and improve Company operations. It also helps the organization to achieve its goals by providing
systematic grounds for improving control and operations effectiveness, of which the company control performance is concerned.
The internal audit conducted several internal periodical operation audits along with specific ones that led to confirmation of performance accuracy and effectiveness. In addition to contributing, to review of interim and Audited financial statements and coordinating external bodies audit activities.
The Board of directors looked in to committee report on the audit results presented by the internal audit and no major remarks were found.
XII- Representations of the Board of Directors and senior executives:
The Board declares that: 1) Accounting records are prepared in the right
manner.2) The internal Audit system is prepared on
correct basis and effectively implemented.3) There is no doubt mentioned in the company’s
ability to continue its activity.4) There is no interest in members of the Board
of Directors or Chief Executive Officer or Chief Financial Officer or Senior Executives in the Company’s contracts.
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XIII- Recommendations to the Company Ordinary General Assembly:
The Board of Directors recommends to the company Ordinary General Assembly to approve the followings:
1) Financial Statements and report of Accounts for the fiscal year ending December 31st 2015.
2) Report of Accounts for the fiscal year ending December 31, 20163) Board of Directors report for the fiscal year ending December 31st 2015.4) Board of Directors discharge for the fiscal year December, 31st -20155) Appointing the account auditor recommended by the audit committee to audit
the financial statements for the fiscal year 2016 and assign their fees.6) The financial transactions that took place during the year ending December,
31st -2015 with the Saudi Industrial Investment Group Company which are considered transactions with related parties and licensing them for the upcoming year as the Saudi Industrial Investment Group Company is considered as a major shareholder in Petrochem. In addition, there are two Board members who sit on both Petrochem and SIIG Boards (Mr. Hamad Saud AlSayari, and Suliman Mohammed AlMadeel), but who do not represent SIIG in their membership.
7) Board voting for the new period that start on 11/4/2016, for three years.
Finally yet importantly, the Board of Directors extends its sincere gratitude to the government of the Custodian of The Two Holy Mosques for their continuous support to the Industrial Sector.
Board of Directors
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National Petrochemical Company (“Petrochem”)(A Saudi Joint Stock Company)
Consolidated Financial Statements For the year ended 31 December, 2015and independent auditor’s report
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National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2015
INDEX PAGE
Independent auditor’s report 33
Consolidated balance sheet 34
Consolidated statement of income 35
Consolidated statement of cash flows 36
Consolidated statement of changes in equity 37
Notes to the consolidated financial statements 38 – 53
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2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3 2,395,126 1,171,853
Short term deposits 640,000 559,000
Accounts receivable 850,227 988,614
Prepayments and other receivables 4 118,410 85,261
Due from related parties 5 222,771 221,688
Inventories 6 1,018,811 1,243,139 TOTAL CURRENT ASSETS 5,245,345 4,269,555 NON-CURRENT ASSETS
Employees loans 4 48,625 48,551
Projects under construction 7 311,347 104,224
Property, plant and equipment, net 8 16,754,952 17,630,931 TOTAL NON-CURRENT ASSETS 17,114,924 17,783,706 TOTAL ASSETS 22,360,269 22,053,261 LIABILITIES AND EQUITY CURRENT LIABILITIES
Accounts payable 127,147 205,104
Accruals and other credit balances 9 350,021 370,448
Due to related parties 5 204,148 231,669
Current portion of term loans 11 1,296,420 1,145,503
Zakat 10 274,755 149,515 TOTAL CURRENT LIABILITIES 2,252,491 2,102,239 NON-CURRENT LIABILITIES
Non-current portion of term loans 11 9,492,315 10,770,858
Sukuk 12 1,200,000 1,200,000
Subordinated loan from a non-controlling partner in a subsidiary 13 1,066,172 1,131,797
End of service benefits 14 49,331 34,441 TOTAL NON-CURRENT LIABILITIES 11,807,818 13,137,096 TOTAL LIABILITIES 14,060,309 15,239,335 EQUITY
SHAREHOLDERS’ EQUITY
Share capital 1 4,800,000 4,800,000
Statutory reserve 101,817 11,128
Retained earnings 900,332 84,133 TOTAL SHAREHOLDERS’ EQUITY 5,802,149 4,895,261 Non-controlling interests 2,497,811 1,918,665 TOTAL EQUITY 8,299,960 6,813,926
TOTAL LIABILITIES AND EQUITY 22,360,269 22,053,261
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)CONSOLIDATED BALANCE SHEETAs at 31 December, 2015 (Amounts in SR’000)
2,395,126
640,000
850,227
118,410
222,771
1,018,811
5,245,345
48,625
311,347
16,754,952
17,114,924
22,360,269
127,147
350,021
204,148
1,296,420
274,755
2,252,491
9,492,315
1,200,000
1,066,172
49,331
11,807,818
14,060,309
4,800,000
101,817
900,332
5,802,149
2,497,811
8,299,960
22,360,269
2014
1,171,853
559,000
988,614
85,261
221,688
1,243,139
4,269,555
48,551
104,224
17,630,931
17,783,706
22,053,261
205,104
370,448
231,669
1,145,503
149,515
2,102,239
10,770,858
1,200,000
1,131,797
34,441
13,137,096
15,239,335
4,800,000
11,128
84,133
4,895,261
1,918,665
6,813,926
22,053,261
2015Note
35National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)CONSOLIDATED STATEMENT OF INCOMEFor the year ended 31 December, 2015 (Amounts in SR’000)
For the year ended 31 December
Note
2015
2014
SALES 7,304,171 7,858,516
Cost of sales (4,822,401) (5,559,454)
GROSS PROFIT 2,481,770 2,299,062 EXPENSES
Selling and marketing 15 (467,651) (492,555)
General and administrative 16 (251,544) (300,896) INCOME FROM MAIN OPERATIONS 1,762,575 1,505,611 Finance charges 17 (155,539) (174,191)
Other income 4,300 2,886 INCOME BEFORE ZAKAT AND NON-CONTROLLING
INTERESTS 1,611,336 1,334,306 Zakat 10 (125,302) (75,098) INCOME BEFORE NON-CONTROLLING INTERESTS 1,486,034 1,259,208 Non-controlling interests share in net income of the subsidiaries (579,146) (484,757) NET INCOME FOR THE YEAR 906,888 774,451
EARNINGS PER SHARE (SR)
Income from main operations 18 3.67 3.14
Net income 1.89 1.61
2015
7,304,171 7,304,171 7,304,171
(4,822,401)
2,481,770 2,481,770 2,481,770
(467,651)
(251,544)
1,762,575 1,762,575 1,762,575
(155,539)
4,300
1,611,336 1,611,336 1,611,336
(125,302)
1,486,034 1,486,034 1,486,034
(579,146)
906,888 906,888 906,888
3.67
1.89
2014
7,858,516
(5,559,454)
2,299,062
(492,555)
(300,896)
1,505,611
(174,191)
2,886
1,334,306
(75,098)
1,259,208
(484,757)
774,451
3.14
1.61
36
OPERATING ACTIVITIES
Income before zakat and non-controlling interests 1,611,336 1,334,306
Adjustments to reconcile income before zakat and non-controlling
interests to net cash provided by operating activities:
End of service benefits, net 14,890 12,747
Depreciation 804,001 802,250
Amortization of deferred charges 17,877 23,318
Gain from disposal of property, plant and equipment - (125)
Movements in operating assets and liabilities:
Accounts receivable 138,387 (300,590)
Prepayments and other receivables and employee loans (33,223) (16,722)
Inventories 224,328 (312,182)
Accounts payable (77,957) (39,158)
Accruals and other credit balances 54,847 7,124
Related parties, net (28,604) 41,200
Zakat paid (62) (481)
Net cash provided by operating activities 2,725,820 1,551,687
INVESTING ACTIVITIES
Short term deposit (81,000) (559,000)
Additions to property, plant and equipment and projects under construction (210,419) (168,161)
Proceeds from disposal of property, plant and equipment - 125
Net cash used in investing activities (291,419) (727,036)
FINANCING ACTIVITIES
Proceeds from Sukuk issuance - 1,200,000
Term loans and short term loans repaid (1,145,503) (1,525,504)
Repayment of subordinated loan from a non-controlling partner in a subsidiary (65,625) -
Net cash used in financing activities (1,211,128) (325,504)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,223,273 499,145
Cash and cash equivalents at the beginning of the year 1,171,853 672,708
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 2,395,126 1,171,853
Non cash transactions
Adjustments to property, plant and equipment against accruals 75,274 -
1,611,336
14,890
804,001
17,877
-
138,387
(33,223)
224,328
(77,957)
54,847
(28,604)
(62)
2,725,820
(81,000)
(210,419)
-
(291,419)
-
(1,145,503)
(65,625)
(1,211,128)
1,223,273
1,171,853
2,395,126
75,274
1,334,306
12,747
802,250
23,318
(125)
(300,590)
(16,722)
(312,182)
(39,158)
7,124
41,200
(481)
1,551,687
(559,000)
(168,161)
125
(727,036)
1,200,000
(1,525,504)
-
(325,504)
499,145
672,708
1,171,853
-
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December, 2015(Amounts in SR’000)
2015 2014
37
Sh
are
capi
tal
Stat
utor
y re
serv
e
Re
tain
ed
earn
ings
To
tal
N
on-
cont
rolli
ng
inte
rest
s
To
tal
Bala
nce
as
at
1 J
an
uary
, 201
5
4,8
00,0
00
11,1
28
84,1
33
4,8
95,2
61
1,9
18,6
65
6,8
13,9
26
Net
in
co
me
for
the
yea
r
- -
906,8
88
90
6,8
88
57
9,1
46
1,4
86,0
34
Tra
nsf
er t
o s
tatu
tory
res
erv
e -
90,6
89
(9
0,6
89)
- -
-
B
ala
nce
as
at
31 D
ecem
ber
, 20
15
4,8
00,0
00
10
1,8
17
900,3
32
5,8
02,1
49
2,4
97,8
11
8,2
99,9
60
Bal
ance
as
at 1
Jan
uar
y,
20
14
4,8
00,0
00
1,7
80
(6
80,9
70)
4,1
20,8
10
1,4
33,9
08
5,5
54,7
18
Net
incom
e fo
r th
e yea
r -
- 774,4
51
77
4,4
51
48
4,7
57
1,2
59,2
08
Tra
nsf
er t
o s
tatu
tory
res
erve
- 9,3
48
(9
,348)
- -
-
Bal
ance
as
at 3
1 D
ecem
ber
, 20
14
4,8
00,0
00
11,1
28
84,1
33
4,8
95,2
61
1,9
18,6
65
6,8
13,9
26
Shar
e ca
pita
l
4,8
00,0
00 - -
4,8
00,0
00
4,8
00,0
00 - -
4,8
00,0
00
Stat
utor
yre
serv
e
11,1
28 -
90,6
89
10
1,8
17
1,7
80 -
9,3
48
11,1
28
Reta
ined
ea
rnin
gs
84,1
33
906,8
88
(90,6
89)
900,3
32
(68
0,9
70)
774,4
51
(9,3
48)
84,1
33
Tota
l
4,8
95,2
61
90
6,8
88
-
5,8
02,1
49
4,1
20,8
10
77
4,4
51 -
4,8
95,2
61
Non
-co
ntro
lling
in
tere
sts
1,9
18,6
65
6,8
13,9
26
57
9,1
46
1,4
86,0
34
-
2,4
97,8
11
1,4
33,9
08
5,5
54,7
18
48
4,7
57
1,2
59,2
08
-
1,9
18,6
65
6,8
13,9
26
Tota
l
1,9
18,6
65
6,8
13,9
26
57
9,1
46
1,4
86,0
34 -
8,2
99,9
60
1,4
33,9
08
5,5
54,7
18
48
4,7
57
1,2
59,2
08 -
1,9
18,6
65
6,8
13,9
26
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December, 2015(Amounts in SR’000)
38
1. ORGANIZATION AND ACTIVITIES
National Petrochemical Company (“Petrochem” or “the Company”) is a Saudi Joint Stock Company registered in
Riyadh, Kingdom of Saudi Arabia under Commercial Registration number 1010246363 dated 8 Rabi Al Awal,
1429H (corresponding to 16 March, 2008G), and was formed pursuant to the Ministry of Commerce and
Industry`s resolution number 53Q dated 16 Safar, 1429H (corresponding to 23 February, 2008G). Petrochem is engaged in the development, establishment, operation, management and maintenance of
petrochemical, gas, petroleum and other industrial plants, wholesale and retail trading in petrochemical materials
and products, and owning land, real estate and buildings for its own benefit. Details of the Group’s operations are
set out in note 2 below.
The Company’s share capital amounts to SR 4,800,000,000 and consists of 480,000,000 shares with par value of
SR 10 each.
The financial year of the Company and its subsidiaries starts on January 1 and ends on December 31 of each
calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared under the historical cost convention on the accruals
basis of accounting in accordance with generally accepted accounting principles applicable in the Kingdom of
Saudi Arabia. The figures in these consolidated financial statements are rounded to the nearest thousand.
Significant accounting policies adopted in the preparation of these consolidated financial statements are
summarized below:
Basis of Consolidation
For the purposes of consolidation, intra-Group transactions and balances are eliminated between the Company
and its subsidiaries, and non-controlling interests (the Company’s other partners in consolidated subsidiaries) are
calculated based on the subsidiaries’ net assets and net income.
The subsidiaries included in these consolidated financial statements are as follows:
Shareholding % Country of
Incorporation Subsidiaries companies 2015 2014
Saudi Polymers Company (“SPCo”) 65 65 Saudi Arabia
Gulf Polymers Distribution Company FZCO 65 65 UAE Saudi Polymers Company (“SPCo”) SPCo is a Mixed Limited Liability Company, registered in Jubail in the Kingdom of Saudi Arabia under
Commercial Registration number 2055008886 dated 29 Dhu Al Qedah, 1428H (corresponding to 9 December,
2007G). SPCo is engaged in production and sale of ethylene, propylene, hexene, gasoline, polyethylene,
polypropylene and polystyrene.
Gulf Polymers Distribution Company FZCO (“GPDCo”) GPDCo is a Free Zone Limited Liability Company registered in the Dubai Airport Free Zone, in the United Arab
Emirates, dated 12 Rabi Awal, 1432H (corresponding to 15 February, 2011G). GPDCo`s activity is restricted to
selling and storing SPCo’s polymer products.
Accounting Estimates The preparation of consolidated financial statements in accordance with generally accepted accounting principles
requires the use of estimates and judgments which might affect the valuation of recorded assets, liabilities and the
disclosure of contingencies in the notes to the consolidated financial statements at the balance sheet date and the
reported amounts of revenues and expenses during the reporting period. Although these estimates are based on
the best information available to the management at the date of issuing the consolidated financial statements, the
actual end results might differ from those estimates.
Country of
Incorporation
Saudi Arabia
UAE
Shareholding %
2015 2014
65 65
65 65
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
39
Accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that
year, or in the year of revision and future years if the revision affects both current and future years. The
significant items of estimation uncertainty and critical adjustments in applying accounting policies that have the
most significant effect on the amounts recognized in the consolidated financial statements are as follows:
• estimated useful economic lives and residual values of property, plant and equipment • estimated costs of long term contracts • allowances for doubtful debts • provisions and accruals • allowances for slow moving inventory Cash and Cash Equivalents Cash and cash equivalents include cash on hand, balances and deposits with banks, and all highly liquid
investments with maturity of three months or less from their acquisition date.
Accounts Receivable Accounts receivable is stated net of provisions. Provision is made for accounts receivable where recovery is
considered doubtful by the management.
Employee Home Ownership Program The Company has a home ownership program that offers home ownership opportunities for its Saudi
employees. The Company provides interest-free housing loans for eligible employees to purchase or construct
their own residential units. Such loans are repayable in installments over a maximum period of 15 years and
are secured by mortgage over property purchases. The installments repayable within one year are classified as
other receivables under current assets.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined as follows: Raw materials, spare parts and catalysts - purchase cost on the weighted average basis. Work in progress & finished goods - cost of direct materials and labor plus attributable
overheads based on a normal level of activity
Net realizable value is selling price less costs to sell. Investments in subsidiaries Investments in subsidiaries are consolidated where the Company has control, which usually represents over 50%
of their capitals. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation except the platinum catalyst ,
which is stated at cost. Expenditure on maintenance and repairs is expensed, while expenditure for improvement
is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight
line method and residual values. Assets sold or otherwise disposed of and the related accumulated depreciation is
removed from the accounts at the time of disposal. The estimated operational useful lives are as follows:
Buildings 25 years
Lease improvement The lesser of lease period or 5 years
Plant and equipment 4 - 25 years
Office equipment and furniture 4 - 10 years
Computers and communications devices 4 years
Vehicles 4 - 5 years
Projects Under Construction Projects under construction are accounted for at cost until the asset is ready for its intended use, thereafter they
are capitalized in the relevant assets categories. Projects under construction include the cost of contractors,
materials, services, borrowing costs, salaries and other direct costs and overheads allocated on a systematic basis.
Projects under construction are not depreciated.
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
40
Turnaround costs Planned turnaround costs are deferred and amortized over the period until the next planned turnaround.
Should unplanned turnaround costs occur prior to the previously envisaged date of a planned turnaround, then
the previously unamortized turnaround costs are immediately expensed and the new turnaround costs are
deferred and amortized over the period likely to benefit from such costs. The amortization is charged to cost
of sales in the consolidated statement of income.
Borrowings and Borrowing Costs Borrowings are recognized at the proceeds received less transaction costs (deferred charges – see below).
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement
of the liability for at least 12 months after the balance sheet date.
Borrowing costs that are directly attributable to the construction of an asset are capitalized up to the stage
when substantially all the activities necessary to prepare the qualifying asset for its intended use are
completed, and thereafter, are charged to the consolidated statement of income.
Deferred charges comprise agency and upfront fees on term loans and are amortized over the period of the related
loans using the effective rate method. The amortization is capitalized in the cost of the plant under construction,
until the project is ready for its intended use, and thereafter, is charged to the consolidated statement of income.
Impairment of Non-Current Assets At each balance sheet date, the carrying amounts of non-current assets are reviewed to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the assets is estimated in order to determine the extent of the impairment loss. Where it is not possible
to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the
cash-generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the
carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment loss is
recognized as an expense in the consolidated statement of income immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is
increased to the revised estimate of its recoverable amount, but the increased carrying amount does not exceed
the carrying amount that would have been determined, had no impairment loss been recognized for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is recognized as income immediately in the
consolidated statement of income.
Accounts payable and accruals Liabilities are recognized for amounts to be paid in the future for goods or services received or when the risks
and rewards associated with the goods are transferred to the Group, whether invoice by the suppliers or not.
Zakat and Income Tax Zakat is provided for in accordance with the Regulations of the Department of Zakat and Income Tax (DZIT)
in the Kingdom of Saudi Arabia and on the accruals basis. The provision is charged to the consolidated
statement of income. Differences, if any, resulting from the final zakat assessments are adjusted in the year of
their finalization. The zakat charge is computed on the basis of the zakat base for each of the Company and its
subsidiaries separately.
Foreign partners in subsidiaries are subject to income tax, which is included in non-controlling interests in the
consolidated financial statements, if applicable.
Provisions Provisions are recognized when the Group has an obligation (legal or constructive) arising from a past event,
and the costs to settle these obligations are both probable and may be measured reliably.
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
41
Employees’ End of Service Benefits Employees’ end of service benefits, required by Saudi Arabian Labor Law, are provided in the consolidated
financial statements based on the employees' length of service.
Statutory Reserve In accordance with the Company’s Articles of Association, 10% of annual net income is required to
be set aside to form a statutory reserve until such reserve equals 50% of paid-in capital, at which
time the Company may discontinue such transfers. The reserve is not currently available for
distribution to the Shareholders.
Revenue Recognition Sales represent the invoiced value of goods supplied and are recognized when the significant risks and rewards
of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably,
normally on delivery to the customer.
Other income is recognized when earned.
Expenses All direct expenses related to revenue recognition including salaries, wages, cost of goods and indirect costs
which are related to revenue, are recorded as cost of revenues. Selling and marketing expenses includes
salaries, marketing and distribution expenses and indirect costs which are related to selling and marketing. All
other expenses are recorded as general and administrative and expenses. Shared expenses are allocated
between cost of revenues and general and administrative, and selling and marketing expenses, on a consistent
basis as determined by management.
Foreign Currencies The Company maintains its accounts in Saudi Riyals. Transactions denominated in foreign currencies are
converted into Saudi Riyals at rates prevailing at the dates of such transactions. Monetary assets and liabilities
recorded in foreign currencies are converted into Saudi Riyals at rates prevailing on the balance sheet date.
Gains and losses from settlement and translation of foreign currencies are included in the consolidated
statement of income.
Financial statements of foreign subsidiaries of the Company are translated into Saudi Riyals by using
exchange rates prevailing on the balance sheet date for assets and liabilities, and average exchange rates for
revenues, expenses, gains and losses. The remaining shareholders’ equity, except retained earnings, is
translated into Saudi Riyals using the prevailing exchange rate at the inception date for each item. Translation
differences are recognized as a separate line item within shareholders’ equity in the consolidated financial
position.
Earnings per Share Earnings per share are calculated by using the weighted average number of shares outstanding during the year.
The Company’s share capital consists of common shares only.
Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or
services (a business segment) or in providing products or services within a particular economic environment (a
geographic segment), which is subject to risks and rewards that are different from those of other segments.
Fair value
The fair values of commission-bearing items are estimated based on discounted cash flows using commission
rates for items with similar terms and risk characteristics.
3. CASH AND CASH EQUIVALENTS
Bank balances of Saudi Polymers (Subsidiary Company) amounting to SR 2,325 million (31 December 2014:
SR 1,124 million) are assigned as security against loan facilities from The Public Investment Fund and a
consortium of commercial banks (note 11).
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
42
4. PREPAYMENTS AND OTHER RECEIVABLES
(Amounts in SR ’000) 2015 2014
Prepaid expenses 29,744 29,995
Advances to suppliers 51,734 20,996
Cash margins 16,455 16,455
Employees loans - current portion 18,577 15,148
Others 1,900 2,667
118,410 85,261
Non-current portion of employee loans 48,625 48,551
5. RELATED PARTIES TRANSACTIONS AND BALANCES
The following are the details of related parties transactions during the year ended 31 December:
(Amounts in SR ’000)
Amount of transaction
Related party Nature of transaction 2015 2014
Saudi Industrial Investment Group (majority shareholder) Bank guarantee commissions
charged 698 1,397
Finance commissions charged - 116 Shared services provided 1,092 1,092
Finance payments - (25,018)
Investment in Sukuk 130,000
Arabian Chevron Phillips Petrochemical Company (non-
controlling partner in a subsidiary)
Repayment of subordinated loan (65,625) -
Committees, Board of Directors and Petrochem’s Senior
Executives
Expenses, remunerations, salaries
and benefits 6,092 5,253
Saudi Chevron Phillips Company (affiliated company) Sales 174,709 290,843
Purchases (38,616) (61,234)
Cost of sales - services provided (282,476) (159,559)
General & administration expenses -
services provided (116,377) (126,514)
Jubail Chevron Phillips Company (affiliated company) Sales 94,215 181,248
Purchases (857,198) (1,357,410)
Chevron Phillips Chemical International Sales LLC
(affiliated company)
General & administration expenses -
services provided (157,654) (142,425)
Marketing fees (293,258) (317,708)
The amounts due from and due to related parties were as follows:
Amounts due from related parties:
(Amounts in SR ’000) 2015 2014
Saudi Chevron Phillips Company 180,775 185,581
Jubail Chevron Phillips Company 41,996 36,107
222,771 221,688
2015
29,744
51,734
16,455
18,577
1,900
118,410
48,625
2015
698
-
1,092
-
(65,625)
6,092
174,709
(38,616)
(282,476)
(116,377)
94,215
(857,198)
(157,654)
(293,258)
2015
180,775
41,996
222,771
2014
29,995
20,996
16,455
15,148
2,667
85,261
48,551
2014
1,397
116
1,092
(25,018)
130,000
-
5,253
290,843
(61,234)
(159,559)
(126,514)
181,248
(1,357,410)
(142,425)
(317,708)
2014
185,581
36,107
221,688
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
43
Amounts due to related parties:
(Amounts in SR ’000) 2015 2014
Saudi Industrial Investment Group 356 161
Saudi Chevron Phillips Company 88,208 72,196
Jubail Chevron Phillips Company 71,953 72,841
Chevron Phillips Chemical International Sales LLC 43,631 86,471
204,148 231,669
Saudi Industrial Investment Group owns SR 130 million of the Company’s Sukuk (2014: SR 130 million). As set out in note 13, a non-controlling partner has provided a loan to one of the Group’s subsidiaries, the amount
outstanding as at December 31, 2015 being SR 1,066,172 thousand (2014: SR 1,131,797 thousand).
6. INVENTORIES
(Amounts in SR ’000) 2015 2014
Finished goods 549,840 761,744
Spare parts 354,052 354,788
Raw materials 1,718 2,014
Catalysts 113,201 124,593
1,018,811 1,243,139
7. PROJECTS UNDER CONSTRUCTION
Projects under construction amounting to SR 311,347 thousand as of 31 December 2015 related to the cost of
construction of additional units and facilities for the plant in SPCo (2014: SR 104,224 thousand).
8. PROPERTY, PLANT AND EQUIPMENT, NET
(Amounts in SR ’000)
Buildings Plant and equipment
Platinum catalyst
Furniture and office equipment
Computers and communication
devices Vehicles
Total Cost:
At the beginning of
the year 679,954 18,533,966 24,462 144,012 385 29,536 19,412,315 Transfer from projects
under construction 1,770 1,526 - - - - 3,296 Adjustments (435) (74,839) - - - - (75,274)
At the end of the year 681,289 18,460,653 24,462 144,012 385 29,536 19,340,337 Depreciation: At the beginning of
the year 61,013 1,643,253 - 63,925 313 12,880 1,781,384
Charge for the year 27,248 742,313 - 28,475 38 5,927 804,001
At the end of the year 88,261 2,385,566 - 92,400 351 18,807 2,585,385 Net book amounts:
At 31 December
2015 593,028 16,075,087 24,462 51,612 34 10,729 16,754,952 At 31 December 2014 618,941 16,890,713 24,462 80,087 72 16,656 17,630,931
2015
549,840
354,052
1,718
113,201
1,018,811
2015
356
88,208
71,953
43,631
204,148
2014
761,744
354,788
2,014
124,593
1,243,139
2014
161
72,196
72,841
86,471
231,669
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
44
The plant is constructed on land leased from the Royal Commission for Jubail and Yanbu. The lease is initially
for a period of 30 years commencing from 29 Thul-Qi’dah 1428H (corresponding to 9 December 2007) and is
renewable for further periods thereafter. The machinery and equipment of the plant are pledged as collateral
against various loan facilities (note 11).
9. ACCRUALS AND OTHER CREDIT BALANCES
(Amounts in SR ’000) 2015 2014
Accrued liabilities 312,206 340,142
Other liabilities 37,815 30,306
350,021 370,448
10. ZAKAT AND INCOME TAX
The movement in the zakat provision for the year ended December 31 was as follows:
(Amounts in SR ’000) 2015 2014
Balance at the beginning of the year 149,515 74,898
Zakat provision for the year 125,302 75,098
Payments during the year (62) (481)
Balance at the end of the year 274,755 149,515
Status of Zakat assessments of the Company Zakat returns have been filed with the Department of Zakat & Income Tax (DZIT) up to the year 2014, zakat
has been settled accordingly and the Company has received a restricted certificate. A number of assessments
have been issued by the DZIT: • DZIT has issued an assessment to the Company for the year 2014 claiming additional Zakat of SR 52.5
million. The Company has provided an appeal against the claim within the allowed period. The
management believes that the provision made in the consolidated financial statements is adequate to cover
any differences that may arise from this claim. • DZIT has issued an assessment to the Company for the year 2012 claiming additional Zakat of SR 35.5
million. The Company has provided an appeal against the claim within the legal period. Since then, the
DZIT has claimed for the years of 2011, 2012 and 2013, which combined, resulted in a difference of SR
95.5 million. This claim includes the 2012 difference that was appealed against by the Company.
Petrochem is working on appealing against this claim during the allowed period. • The DZIT Elementary Committee has issued a decision for the year 2010 and claimed an additional Zakat
amount of SR 74.42 million. The Elementary Committee has issued its ruling, reducing the claim by the
amount of SR 74.10 million and now claims additional Zakat amounting to SR 241,485. The Company
and the DZIT appealed against the ruling before the Higher Appeal Committee. The management believes
that the ultimate outcome of this appeal will be in the favor of Petrochem. Status of Zakat and Income Tax Assessments for the Subsidiaries Companies SPCo has filed zakat returns with the DZIT for all years up to the year 2014. The zakat assessment for the year
2008 has been finalized; however, final assessments for the years from 2009 to 2014 have not yet been raised
by the DZIT. SPCo has recorded a provision for income tax related to its non-Saudi partner for the year ended 31 December
2015 of SR 298 thousand. No income tax has been recognized in prior years due to taxable losses at SPCo. GPDCo, which is registered in the Dubai Airport Free Zone, is exempt from income tax.
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
2015
312,206
37,815
350,021
2015
149,515
125,302
(62)
274,755
2014
340,142
30,306
370,448
2014
74,898
75,098
(481)
149,515
45
11. TERM LOANS
Term loans which were obtained from the following parties to finance the construction work of the plant at
SPCo were outstanding as follows:
(Amounts in SR ’000) 2015 2014
Syndicated commercial banks 11.1 5,848,076 6,270,829
Syndicated commercial banks – guaranteed 11.2 1,814,250 1,947,000
Public Investment Fund (“PIF”) 11.3 2,310,000 2,730,000
Saudi Industrial Development Fund 11.4 850,000 1,020,000
10,822,326 11,967,829
Less: Current portion of term loans
Syndicated commercial banks 563,670 422,753
Syndicated commercial banks – guaranteed 132,750 132,750
Public Investment Fund (“PIF”) 420,000 420,000
Saudi Industrial Development Fund 180,000 170,000
Current portion of term loans 1,296,420 1,145,503
9,525,906 10,822,326
Less: deferred charges (33,591) (51,468)
Long term portion of term loans 9,492,315 10,770,858
The movement in unamortized deferred charges in respect of these financing facilities is as follows:
(Amounts in SR ’000) 2015 2014
Cost
At the beginning and ending of the year 238,369 238,369
Amortization
At the beginning of the year (186,901) (163,583)
Amortization of the year (17,877) (23,318) At the end of the year (204,778) (186,901)
Net book value 33,591 51,468
Unamortized deferred charges consist of agency and upfront fees on the term loans from the PIF and SIDF.
11.1 The loan facility of SR 7,046 million obtained from a consortium of commercial banks is subject to
annual commission of LIBOR plus a margin progressively increasing from 0.8% to 1.15% over the life of the
loan. The repayment of this loan is by 22 semi-annual installments which commenced on 15 June 2013 and
with amounts ranging from 2 % – 20% of the utilized loan amount. The loan is secured by the assignment of
residual proceeds in project bank accounts of SPCo, and a pledge and assignment over onshore bank accounts
of SPCo.
2015
5,848,076
11.2 1,814,250
11.3 2,310,000
11.4 850,000
10,822,326
563,670
132,750
420,000
180,000
1,296,420
9,525,906
(33,591)
9,492,315
2015
238,369
(186,901)
(17,877)
(204,778)
33,591
2014
6,270,829
1,947,000
2,730,000
1,020,000
11,967,829
422,753
132,750
420,000
170,000
1,145,503
10,822,326
(51,468)
10,770,858
2014
238,369
(163,583)
(23,318)
(186,901)
51,468
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
46
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
11.2 The loan facility of SR 2,212 million obtained from a consortium of commercial banks is guaranteed
by the Export-Import Bank of the USA, and is subject to commission at LIBOR plus 0.06% per annum. The
repayment of this loan is by 22 successive semi-annual instalments which commenced on 15 June 2013, with
amounts ranging from 3% to 8% of the utilized loan amount. The loan is secured by the assignment of
residual proceeds of plant and equipment at SPCo, a charge and assignment over secured project documents of
SPCo, a charge and assignment over offshore project bank accounts of SPCo, and a pledge and assignment
over onshore project bank accounts of SPCo. 11.3 The loan facility of SR 3,000 million obtained from the PIF is subject to annual commission of
LIBOR plus 0.5%, together with an upfront fee of 0.50% of the nominal amount of the loan which has been
paid (deferred charges). The repayment of this loan is by 15 semi-annual installments which commenced on
31 December 2013, whereby 1% of the utilized loan amount was repaid for the first two installments and the
remaining 13 payments ranging from 7% to 9% thereafter. The loan is secured by residual proceeds of plant
and equipment of SPCo, a charge and assignment over secured project documents of SPCo, a charge and
assignment over offshore project bank accounts of SPCo, and a pledge and assignment over onshore project
bank accounts of SPCo. 11.4 The two equal loans obtained from SIDF of SR 1,200 million each, were subject to an upfront
commission at LIBOR and 7.5% of the nominal amounts of the loans and were drawn-down to finance the
construction of the SPCo petrochemical plant. The repayment of these loans is by 14 semi-annual installments
which commenced on 18 December 2013 with amounts ranging from 4.17% to 8.33% of the utilized loan
amount. The loans are secured by liens on SPCo’s plant and equipment for the Ethylene, Metathesis, 1-
hexane, and Polyethylene units, and assignment of insurance proceeds and technology rights of SPCo.
SPCo is required to comply with covenants under all the above-noted loan facility agreements.
The maturities of the loans are as follows:
(Amounts in SR ’000) 2016 1,296,420
2017 1,340,670
2018 1,380,671
2019 1,420,669
2020 1,424,921
After 2020 3,958,975
10,822,326
12. SUKUK On 25 Shaban, 1435H, (corresponding to 23 June, 2014G), Petrochem issued Sukuk amounting to SR 1.2
billion at par value of SR 1,000,000 each with no discount or premium. The Sukuk issuance bears a variable
rate of return at SIBOR plus 1.7 % margin, payable semi-annually. The Sukuk is due at maturity at par value
on its expiry date of 20 Shawal, 1440H (corresponding to 23 June, 2019G).
13. SUBORDINATED LOAN FROM A NON-CONTROLLING PARTNER IN A SUBSIDIARY
The subordinated loan from Arabian Chevron Phillips Petrochemical Company Limited (“non-controlling
partner”) is a commission-free loan granted to SPCo; its repayment is subject to the minimum level required to
be maintained by the terms of the commercial loan facility agreements (note 11). The movement of the loan during the year was as follows: (Amounts in SR ’000) 2015 2014 At the beginning of the year 1,131,797 1,131,797
Repayments made (65,625) -
At the end of the year 1,066,172 1,131,797
1,296,420
1,340,670
1,380,671
1,420,669
1,424,921
3,958,975
10,822,326
2015
1,131,797
(65,625)
1,066,172
2014
1,131,797
-
1,131,797
47
14. END OF SERVICE BENEFITS (Amounts in SR ’000) 2015 2014
At the beginning of the year 34,441 21,694
Provisions for the year 18,146 13,906
Payments during the year (3,256) (1,159)
At the end of the year 49,331 34,441
15. SELLING AND MARKETING EXPENSES (Amounts in SR ’000) 2015 2014 Marketing fees 293,258 317,708
Warehousing rent and maintenance 91,354 94,060
Shipping and distribution 47,479 43,235
Employees costs 8,258 7,065
Currency exchange losses 19,631 27,133
Others 7,671 3,354
467,651 492,555
16. GENERAL AND ADMINSTRATION EXPENSES
(Amounts in SR ’000) 2015 2014 Employees costs 132,297 181,270
Depreciation 66,351 66,360
Professional fees 897 10,794
Bank commissions 7,425 6,622
Expenses and fees of Committees and the Board of Directors of
the Company, and salaries and benefits of Senior Executives 6,092 5,253
Support services and general utilities 3,304 3,416
Others 35,178 27,181
251,544 300,896
17. FINANCE CHARGES
(Amounts in SR ’000) 2015 2014 Interest on term loans 104,437 118,140
Amortization of deferred charges (note 11) 17,877 23,318
Other service charges 33,225 32,733
155,539 174,191
18. EARNINGS PER SHARE
The weighted average of outstandings common shares for the years 2015 and 2014 is 480,000,000 shares. The
loss per shares from the Other Activities is SR (-1.78) and SR (-1.52) respectively, it is calculated based on
dividing total financial charges, other income, Zakat and Non-controlling interests share in net income of the
subsidiaries on the average outstanding common shares.
2015
34,441
18,146
(3,256)
49,331
2015
293,258
91,354
47,479
8,258
19,631
7,671
467,651
2015
132,297
66,351
897
7,425
6,092
3,304
35,178
251,544
2015
104,437
17,877
33,225
155,539
2014
21,694
13,906
(1,159)
34,441
2014
317,708
94,060
43,235
7,065
27,133
3,354
492,555
2014
181,270
66,360
10,794
6,622
5,253
3,416
27,181
300,896
2014
118,140
23,318
32,733
174,191
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
48
19. CONTINGENT LIABILITIES
During 2010, Petrochem and the non-controlling partner resolved to increase the capital of SPCo by SR 3,394
million, which may result in the non-controlling partner incurring additional costs; the management of
Petrochem decided to compensate the non-controlling partner by making annual payments in the future based on
the future earnings of SPCo, and considering the non-distributable cash as a result of the proposed capital
increase. The Group’s local banks have issued on behalf of the Group and during the normal course of business cycle,
bank guarantees of SR 857.3 million (2014: SR 857.3 million).
20. SEGMENTAL INFORMATION
In respect of performance appraisal and allocation of resources, Petrochem’s management is of the opinion
that all activities and operations of the Group comprise one single operating segment, the petrochemical
sector. Therefore, financial reports are issued only for geographical segments. The operating assets of the Group are located in the Kingdom of Saudi Arabia. Sales of the Group by
geographical segment were as follows:
2015 %
2014 %
Domestic 9 9
Asia 58 57
Europe/Africa 33 34
100 100
21. CAPITAL COMMITMENTS
The balance of unused capital expenditure approved by the Board of Directors in connection with the
construction of additional units and facilities for the SPCo plant was SR192.4 million (2014: SR 332 million).
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Commission Rate Risk Commission rate risk is the risk that the value of financial instruments will fluctuate due to changes in market
commission rates. The Group is subject to commission rate risk on deposits and loans that the Group has
received or incurred, including deposits, bank facilities and Sukuk. The Group aims to minimize commission
rate risk through monitoring fluctuations in commission rates and taking precautions when needed.
Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments
associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset
quickly at an amount cost to its fair value. Financial liabilities of the Group consist of various loan and Sukuk,
accounts payable, other liabilities and amounts due to related parties. The Group tries to minimize liquidity
risk by ensuring the availability of bank facilities, plus managing the accounts receivable collection period and
other debtors and the payments period for suppliers and other creditors.
Credit Risk Credit risk represents the possibility of default of any party in repaying the liability of financial instruments
and causing financial loss to the Group. The Group’s financial instruments that may expose to it to credit risk
are mainly represented by cash at banks and accounts receivable. The Group deposits its cash in financial
institutions with high credit ratings; in addition, the Group has a policy regarding the sum of money deposited
in a single bank. The Group does not expect that there is any significant credit risk caused by this policy. The
Group does not expect any significant credit risk from accounts receivable as the Group has a large base of
clients which operate in several fields, in addition, the Group follows up accounts receivable balances on a
regular basis.
2015 %
9
58
33
100
2014%
9
57
34
100
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015
49
Foreign Currency Risk Foreign currency risk arises from fluctuations in financial instruments value due to fluctuations in prevailing
exchange rates. The Group does not perform any material transactions in currencies other than Saudi Riyals
and US Dollars which have a fixed exchange rate between each other. The Group monitors fluctuations in
other foreign currency exchange rates in which it trades and does not expect any material foreign currency risk
relating thereto.
Fair Value of Financial Instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable
willing parties in an arm’s length transaction. The Group’s financial assets consist of cash on hand and at
banks, accounts receivable, and due from related parties. The Group’s financial liabilities consist of term
loans, Sukuk, subordinated loan from non-controlling partner, accounts payable, other liabilities and amounts
due to related parties. The fair values of the Company’s financial assets and liabilities are not materially
different from their carrying values.
23. COMPARATIVE FIGURES
Certain of the prior year figures have been re-classified to conform with the current year’s presentation.
24. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved by the Board of Directors on Jumada al-Awaal 13 1437H
(corresponding to 23 February 2016G).
National Petrochemical Company (“Petrochem”) (A Saudi Joint Stock Company)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December, 2015