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Saudi International Petrochemical Company

Annual Report 2010

Sipchem Headquarters, Al-Khobar

In the name of Allah the most Compassionate, the most Merciful

The Custodian of the Two Holy Mosques

King Abdullah Bin Abdulaziz Al-Saud

His Royal Highness

His Royal Highness

Prince Sultan Bin Abdulaziz Al-Saud


Crown Prince Deputy Prime Minister Minister of Defence and Aviation and Inspector General

Prince Naif Bin Abdulaziz Al-Saud


Second Deputy Premier and Minister of Interior

Contents: 2 3 4 5 8 9 16 17 2 0 21 25 26 30 32 33 34 35 36 37 38 39 40 41 43 Chairmans Message Purpose & Values Board of Directors CEOs Message Description of the Companys Activities Description of Activities of the Companys Affiliates Plans and Future Growth Projects Under Development Risks Related to Company and Affiliates Business Financial Statements The Internal Audit The Board of Directors Board Committees Board of Directors Declaration Issue of Islamic Sukuk The General Assemblies Dividends Distribution Policy Corporate Governance Communication with Shareholders Human Resources Special Employees Programs Corporate Social Responsibility Responsible Care Consolidated Financial Statements and Auditors Report for the year ended 31 December 2010

Success can only come with hard work, dedication and a commitment to maintain the highest standards of excellence. A conviction, that human resources are the most important assets of an organization. Pursuing such a conviction is translated into assembling a cadre of employees with a wealth of experience, devotion and loyalty, that inspire motivation and growth.

Annual Report 2010 I 1

Chairmans Message

It gives me great pleasure to present to you a brief on the events and Chairmans Message achievements leading up to the financial results of the Saudi International Petrochemical Company (Sipchem) and its affiliates for the year ended 31 December 2010.
At the outset, I wish to congratulate every employee, on behalf of my colleagues and Members of the Board, for their valuable contribution to making the year extremely exciting and profitable. We not only registered a 168% increase in our net profits, but most importantly, we surpassed some of the stiffest challenges posed to us, both on the production and operations fronts. Considering the current global market trends, I can say with confidence that the year 2010 will go down as one of the most satisfying and memorable year in Sipchems history. Even as we dwell upon our achievements, we are proud to remain committed to the highest quality and excellence standards that recognized us as having one of the best Saudi working environment for three consecutive years. This year, we also received the Responsible Care Accreditation to become the first petrochemical company to be conferred with this prestigious award. I thank everyone involved for this remarkable achievement. Zero accidents and Zero incidents is our ultimate aim and we continue to stress upon promoting a culture of safety, both on and off the job site. I call upon every employee to recognize and commit themselves to their safety and of their coworkers. Our recently launched Home Ownership Program and Savings Plan is also progressing on schedule and I am confident, that our employees will benefit immensely. It is the least we can do to improve the lifestyles of our fellow citizens. Even as I speak, our new 100,000 MT Ethyl Acetate Plant in Jubail continues to stride towards reality. When completed in 2013, it will integrate our current product portfolio and satisfy all local needs in addition to meeting the demand of the international markets for Ethyl Acetate (EA). Thanks to a vast improvement in performance, our methanol and Butanediol plants recorded strong growth to boost total sales to over SR 1990 million and I am sure that we will maintain this trend in the years to come. I would like to express my thanks and gratitude to the shareholders for the confidence they entrusted in us and in additions to their unlimited support. I wish the company all the progress and success under the support of the Government of the Custodian of the Two Holy Mosques and his Crown Prince.

Abdulaziz A. Al-Zamil Chairman, Board of Directors

Purpose and Values

Purpose To be a responsible, innovative and globally recognised petrochemical company providing competitive and quality products to satisfy our customers, motivate our employees and meet Shareholders expectations. Values dhering to highest ethical standards, embracing integrity, A trust and taking responsibility for Sipchems actions. triving for operation excellence in delivering products and services. S mbracing innovation and adapting to changing conditions. E aring for the well being of Sipchems Employees, C Community and Environment.

Annual Report 2010 I 3

Board of Directors

1 2 3 4 5 6 7 8 9

Dr. Abdurrahman A. Al-Zamil Mr. Abdurrahman A. Al-Turki H.E. Eng. Abdulaziz A. Al-Zamil Dr. Abdulaziz A. Al-Gwaiz Dr. Sami M. Zaidan Mr. Fahad S. Al-Rajhi Mr. Abdulaziz A. Al-Khamis Eng. Reyadh S. Ahmed Eng. Ahmad A. Al-Ohali

Member Member Chairman Member Member Member Member Member Member and CEO Member Member
1 2 3 4 5 6 7 8 9 10 11

10 Eng. Mohammed A. Al-Ghurair 11 Dr. Saleh H. Al-Humaidan


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CEOs Message

The year 2010 represents a glowing milestone in Sipchems success and growth. Coming as it does on the heels of a massive downturn in global industrial output and a nervous economic scenario, it is the character and strength of the Sipchem team that has seen us overcome these challenges.
Despite these uncertain times, Sipchem has posted unprecedented financial results coupled with a number of major production achievements, along with a continuous emphasis on creating a safer environment. 2010 also marks a year of much excitement and hope for the future. It is commendable that Sipchem has achieved a net profit of SR 378 million (a 168% increase over the previous year) and I would like to congratulate every individual who contributed to making the year very satisfying. Such success can only come with hard work, dedication and a commitment to maintain the highest standards of excellence. As an organization blessed with the visionary leadership of the Board of Directors Sipchems success is an inevitable consequence. Another major factor behind the success of Sipchems is its conviction that human resources are the most important assets of an organization. Pursuing such conviction was translated into assembling a cadre of employees with a wealth of experience, oceans of devotion and loyalty, resulting in a management team and systems that inspire motivation, appreciation and harmony. This annual report is a testimony of our resolve and commitment to bring out the best in us, working as a team and directing our collective efforts towards making Sipchem the most profitable and the finest organization to work with. In this context, it is noteworthy that we were chosen for the third year running for the Saudi organization with the best working environment award. This award belongs to all of us, to every employee and shareholders, whose initiatives and vision have led us to the highest altars of recognition. Recently, we were also awarded the Responsible Care Accreditation in recognition of our safety standards and production processes. The year witnessed a big improvement in the performance and productivity of the plants, especially Methanol and Butanediol that enabled sales to top SR 1,993 million compared to SR 830 million in 2009. Our operating profit also grew to SR 764 million against SR 168 million a year ago resulting in an EPS of SR 1.13. It is also notable that sale prices of Sipchems produce recorded a higher price in the international market to add to the healthy bottom line. The commercial operations of the Acetyl complex with its three plants began during the year. In order to continue its planned expansion in new projects, Sipchem has initiated diversification of project financing through the issuance of Islamic Sukuks. I would like to express my thanks and gratitude to the Shareholders, Chairman and Board of Directors for all the support extended to my team. I wish the company all the progress and success under the support of the Government of the Custodian of the Two Holy Mosques and his Crown Prince. Eng. Ahmad A. Al-Ohali Chief Executive Officer

Annual Report 2010 I 5

Board of Directors Annual Report - 2010

Annual Report 2010 I 7

Description of the Companys Activities

The Saudi International Petrochemical Company (Sipchem) is considered one of the major and pioneer shareholding public companies that provide the markets with high quality basic and intermediary Petrochemical products. Sipchem was established late in the year 1999 as a Saudi closed joint stock company and in the year 2006 it became a public shareholding Company. The list of the company founders includes a good number of reputable and outstanding private sector investors (individuals and companies) from the Kingdom and GCC Countries. Through the production of significant and high quality and ready to export products, Sipchem is playing an important role in the utilization of the Kingdoms huge natural resources of hydrocarbons and utilizing them for the benefit of national economy, the companys shareholders, employees and the community in general.

The official registered office is in Riyadh and its main investment activity is in basic and intermediary petrochemical, chemical and hydrocarbon industries through the ownership, construction, operation and management of industrial projects for the production of chemical products that are used in the manufacturing of various products. Sipchem is holding a number of strategic alliances with international partners from the biggest international companies that own the latest international technologies and are having the highest marketing standing. Sipchem is committed to the highest quality standards in all its activities whether in its products or maintaining the integrity of the surrounding environment or the safety of its employees. Sipchem has set up future plans to achieve more development and growth on all aspects with the objective of becoming one of the biggest private sector companies in the Middle East Region.

Sipchem operations have been designed to utilize the available natural gas and other petrochemical raw materials in the Kingdom in a way that renders Sipchem products of competitive prices compared with the local and international markets. By the use of Sipchem chemical products as production inputs for the production of chemical product of higher value, Sipchem is aiming at maintaining this feature to climb up the petrochemical value ladder. Sipchem was able to make savings in costs and ensure the supply of materials through the operation of complementary petrochemical materials. Sipchem adopts the strategy of continued investment through marketing opportunities and adopting the use of raw materials produced by the company through its current operations by adopting the use of raw materials produced by the company through its current operations. Sipchem owns the majority stakes in all of its affiliates. The following table shows those share percentages:

Affiliate Companies

Ownership percentage

International Methanol Company (IMC) International Diol Company (IDC) International Gases Company (IGC) International Acetyl Company (IAC) International Vinyl Acetate Company (IVC) International Polymers Company (IPC) International Utilities Company (IUC) Sipchem Marketing and Services Company (SMSC)

65% 53.91% 72% 76% 76% 75% 68.58% 100%

Description of Activities of the Companys Affiliates

The International Methanol Company (IMC)


The International Methanol Company (IMC) is a limited liability company, established in the year 2002, with a capital of SR 360,970,000. The company is operating a plant for the production of Methanol with an annual production of 970 thousand metric tons. The plant is currently working with a safe and reliable design capacity. The plant produces high quality Methanol which is shipped to the companys customers regionally and internationally. The companys site is in Jubail Industrial City, Kingdom of Saudi Arabia. The good news for International Methanol Company is that the Chinese Ministry of Commerce has completed its investigations on the anti-dumping claim against Methanol producers in the Kingdom and other countries in October 2010 with the decision not to impose any antidumping duties on the Methanol exports from the Kingdom. The credit on this is due to the companys strong defense and the unlimited support from the Ministry of Foreign Affairs, the Ministry of Commerce and Industry and His Majesty the Custodian of the Two Holy Mosques Embassy in the Peoples Republic of China, the Saudi Chambers of Commerce and the Saudi Exports Council. Methanol is a hydrocarbon compound composed of carbon and hydrogen and it is a colorless and a flammable substance. Methanol is used in manufacturing a wide variety of chemical products, such as Formaldehyde and Acetic Acid. Methanol as a hydrogen carrier is being considered for fuel cell application and as an alternate fuel.

Annual Report 2010 I 9

Description of Activities of the Companys Affiliates (continued)

The International Diol Company (IDC)


The International Diol Company (IDC) is a limited liability Company established in the year 2002, with a capital of SR 431,250,000. The company is operating a plant with an annual production capacity of 75 thousand metric tons of Butanediol (BDO) and its derivatives such as Maleic Anhydride (MAn) and Tetrahydrofuran (THF). The plant is currently working with a safe and reliable design capacity. The plant produces high quality Butanediol which is shipped to the companys customers regionally and internationally. The companys site is in Jubail Industrial City, Kingdom of Saudi Arabia. The companys production reached 73 thousand metric tons in the year 2010 with a 12% increase than the previous year 2009 of 65 thousand metric tons. The companys annual production in the year 2010 is the highest since the company stared production in the year 2006. This was manifested in the companys financial performance and supported by the increase in the international prices which resulted in the achievement of considerable profits. Butanediol applications include PBT (Polybutylene Terephthalate), Thermoplastic Copolyester Elastomers, Polyurethane Polyester Plasticizers, Copolyester Hot Melt and Solventborne Adhesives.

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International Gases Company (IGC)


The International Gases Company (IGC) is a limited liability company, established in the year 2006, with a capital of SR 425,400,000. The commercial operation of Carbon Monoxide (CO) plant was successfully started in June 2010. The Company operates a Carbon Monoxide (CO) plant with a designed production capacity of 340 thousand metric tons per annum (MTPA). The plant operates with a reliable design capacity. This plant is considered to be the largest CO plant of its kind in the World. The product is used as a feedstock for the production of Acetic Acid. The plant is considered as an extra source to provide the International Diol Company (IDC) with hydrogen. The International Gases Company (IGC) production in the year 2010 was 253 thousand metric tons. The companys site is in Jubail Industrial City, Kingdom of Saudi Arabia. IGC produces pure Carbon Monoxide (CO), a colorless, practically odorless, and tasteless gas or liquid

Annual Report 2010 I 11

Description of Activities of the Companys Affiliates (continued)

International Acetyl Company (IAC)


The International Acetyl Company (IAC) is a limited liability company established in the year 2006, with a capital of SR 1,003,000,000. The commercial operation of the Acetyl plant was successfully started in June 2010. The International Acetyl Company (IAC) operates a plant for the production of Acetic Acid (AA) and Acetic Anhydride (AAn), with an annual production capacity of 460 thousand metric tons. The plant operates with a reliable design capacity. The plant produces high quality Acetic Acid and Acetic Anhydride which are exported to customers regionally and internationally. The International Acetyls Company (IAC) production in the year 2010 was 364 thousand metric tons. The companys site is in Jubail Industrial City, Kingdom of Saudi Arabia. Acetic Acid is used in the production of Vinyl Acetate, pure Terephthalic Acid and Acetate Esters. Acetic Anhydride is used in the production of Cellulose Acetate which is used for filters, fabrics, etc. Other applications for Acetic Anhydride include Cellulose Acetate Polymers, including Cellulose Acetate molding resin, Cellulose Acetate Propionate and Cellulose Acetate Butyrate. In addition, it is widely used to add the Acetyl group in the synthesis of surfactants, drugs, pesticides, dyes and additives.

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International Vinyl Acetate Company (IVC)


The International Vinyl Acetate Company (IVC) is a limited liability company established in the year 2006, with a capital of SR 676,000,000. The commercial operation of the Vinyl Acetate plant was successfully started in August 2010. The International Vinyl Acetate Company (IVC) operates a plant for the production of Vinyl Acetate Monomer plant with an annual production capacity of 330 thousand metric tons. The plant operates with a reliable design capacity. The plant produces high quality Vinyl Acetate Monomer which is exported to customers regionally and internationally. The International Vinyl Acetate Company (IVC) production in the year 2010 was 310 thousand metric tons. The companys site is in Jubail Industrial City, Kingdom of Saudi Arabia. VAM is a key intermediate in a wide range of products of which Polyvinyl Acetate, used mainly for adhesives, represents the largest volume of consumption. Polyvinyl Acetate Resins are Thermoplastic Copolymers used for making emulsion (latex) products. Major applications include interior and exterior paints, adhesives, paper coatings, and textile treatments.

Annual Report 2010 I 13

Description of Activities of the Companys Affiliates (continued)

International Utilities Company (IUC)


The International Utilities Company (IUC) is a limited liability company, established in the year 2009, with a capital of SR 2,000,000. It is owned equally by all Sipchem operating affiliates, namely, International Methanol Company (IMC), International Diol Company (IDC), International Gases Company (IGC), International Acetyl Company (IAC) and International Vinyl Acetate Company (IVC). The purpose of the company is to manage, operate and maintain utilities facilities and services at Sipchem site in Jubail Industrial City, Kingdom of Saudi Arabia.

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Sipchem Marketing and Services Company (SMSC)


Sipchem Marketing and Services Company (SMSC) is a limited liability company, established in the year 2007, with a capital of SR 2,000,000. The companys location is in Khobar, Kingdom of Saudi Arabia. Sipchem Marketing and Services Company (SMSC) functions independently in the marketing and sales of the entire range of Sipchem products in addition to other products. The company has a competent sales force team with diverse backgrounds and experience. Sipchem Marketing and Services Company (SMSC) concentrates its efforts on marketing the products to the main and strategic markets by the utilization of ways and means of the latest marketing techniques. Sipchem as being one of the major petrochemical producers has a dynamic marketing network that covers its customers locally, in the Middle East Region, Asia, the United States and Europe. To face the competition at the level of the international market, Sipchem is trying its best to attract new customers while maintaining its current customers through making available products and services presented in a reliable and effective method based on effective cost and quality standards. Today SMSC sells and markets a number of products including Methanol, Tetrahydrofuran (THF), Butanediol (BDO), Maleic Anhydride (MAn), Acetic Acid (AA) and Vinyl Acetate Monomer (VAM). SMSC has marketed products totalling 456,595 metric tons in the year 2010.

Sipchem Marketing and Services Company (SMSC) Sales (Metric tons)


Methanol BDO Equivalent Acetic Acid Vinyl Acetate 384,707 11,904 21,405 38,579

Annual Report 2010 I 15

Plans and Future Growth

Sipchem performs its business according to the strategic plans designed by the Board of Directors in all its expansions and operational processes. Sipchem also strives to create new business opportunities so as to raise up the actual value of its shareholders and to participate in the development of the national economy of the Kingdom. Sipchem also concentrates on creating new projects that have high added value to be added to the current company products through the production of derivative products. Sipchem is currently carrying out feasibility studies for several new industrial projects which are expected to be announced in the year 2011.

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Projects Under Development

International Polymers Company (IPC)


The International Polymers Company (IPC) is a limited liability company, established in the year 2009, with a capital of SR 305,840,000. Sipchem owns 75% and Hanwha Chemical Company from Korea owns 25%. This plant is considered the first of its kind in the region to produce Ethylene Vinyl Acetate (EVA). The companys location is in Jubail Industrial City, Kingdom of Saudi Arabia. The Engineering, Procurement and Construction (EPC) LSTK contract for Ethylene Vinyl Acetate (EVA) plant was awarded to GS Engineering & Construction Corporation (GSEC), Korea on December 15, 2010. The new plant, with annual capacity of 200 thousand metric tons of Ethylene Vinyl Acetate and Low Density Polyethylene, will be located in the companys complex in Jubail Industrial City. The project is scheduled for start-up in 2nd quarter 2013. The total estimated value is around SR 3 billion and is expected to make available 200 direct employment opportunities. The Ministry of Petroleum and Minerals has allocated the main feedstock (Ethane gas) which will be cracked to Ethylene by one of Sabic companies. The Vinyl Acetate Monomer (VAM), as a second feed stock will be made available from the International Vinyl Acetate Company, a Sipchem affiliate. Sipchem previously announced the execution of the technology license for this plant from ExxonMobil Chemical Technology Licensing (EMCTL). Both Sipchem Marketing Company and Hanwa will market the products of this project internationally. EVA is used in hot melt adhesives, hot glue sticks, top of the line soccer cleats. EVA is also used in Biomedical Engineering applications as a drug delivery device. EVA is one of the materials popularly known as expanded rubber or foam rubber used as padding in equipment for various sports It is typically used as a shock absorber in sports shoes. LDPE is widely used for manufacturing various containers, dispensing bottles, wash bottles, tubing, plastic bags.

Annual Report 2010 I 17

Projects Under Development (continued)

Sipchem Chemical Company

As part of third expansion program, Sipchem is currently working on the construction and operation of an Ethyl Acetate / Butyl Acetate plant with a production capacity of 100,000 metric tons in Jubail Industrial City, Kingdom of Saudi Arabia. Sipchem has signed agreements with the French company Rhodia on August 4, 2010. This includes the use of its technology, the marketing agreement and an Ethanol supply agreement. Through the use of Rhodia technology and their experience in this field. Sipchem plans to achieve significant gains in the quality of the product and reduction of the cost of the plant production that parallels or exceeds the international levels. The plant will be designed in a way to allow the production of another material, Butyl Acetate (BA). The plant will be located in Jubail Industrial City, Kingdom of Saudi Arabia.

Sipchem awarded the engineering, design and construction (LSTK) contracts for its Ethyl Acetate Plant to eTEC Engineering & Construction Company, Korea on 8 January 2011. This plant comes as a part of Sipchems growth in comprehensive downstream products in full integration with current products portfolio. The Ethyl Acetate plant is expected to start production during the first quarter of the year 2013. It is worth noting that the raw materials for the production of Ethyl Acetate such as Acetic Acid will be obtained from the international Acetyl Company (one of Sipchem Affiliates) and Ethanol will be imported from international markets. The initial estimates for the project is around SR 350 million and it will be owned wholly by Sipchem and will be financed by Sipchem as a capital in addition to loans from several other financing agencies yet to be determined.

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Sipchem Product & Application Development Centre (PADC)

Sipchem is building a corporate Product & Application Development Center [PADC] on a plot of 15,000 m2 at Dhahran Techno Valley of King Fahd University of Petroleum and Minerals [KFUPM], in the Eastern Province of Kingdom of Saudi Arabia. The PADC will be operational in mid-2012. The estimated cost of this center is in excess of SR 100 million. The PADC will have the latest Instruments and equipment for polymerization, compounding, moulding, testing, analysis, processing, and application development.

The project engineering designs are completed. The award of the construction contracts is expected during the first quarter of the year 2011. This technical center will be a new focus of polymer technology in the Kingdom; it is mandated to develop the downstream polymer converting industry in the Kingdom; it will assist Sipchem Marketing in achieving their commercial targets by new product development, competitive analysis, technical services to customers and technical market development activities; and it will improve the processes of international Polymer Company (IPC) through process optimization and polymerization research.

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Risks Related to Company and Affiliates Business

Risk of Prices Fluctuation: Risk of chemical, petrochemical products and shipping prices fluctuations. Risks of Financing: Including the availability of financing, the fluctuations of currency prices and the financial situation of the affiliated companies which are mostly dependent on financing. Plants Operation Risks: Including the general operation risks. Risks of the non-availability of the basic supply items (feedstock) Environmental Risks: The possibility of imposing more aggressive environmental regulations or any other general regulations. Market Related Risks: Competition and prices risks related to products produced by Sipchem affiliated companies.

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Financial Statements

The improvement in the operational performance of the plants resulted in the increase of production quantities and the development of the sales of the Methanol and Butanediol plants in addition to the increase of the prices of these products. This consequently led to the increase of the profit margins, improvement of work capability and productivity and reduction of costs. Sipchem has previously announced the commercial operation of the acetyl complex in the middle of the year. The reduction in the prices of the Acetic acid and the Vinyl Acetate during the year impacted the company profits. There is a minor improvement in these prices during the months of November and December 2010. Below are the financial indicators of the year 2010 compared with previous year: 1. he total profit for the year 2010 was SR 861.3 million compared with SR 235.7 million for the previous year with T 265.4% increase. 2. he operational profit for the year 2010 was SR 764.1 million compared with SR 168.3 million for the year 2009 with T 354% increase. 3. he net profit for the year 2010 was SR 378.1 million compared with SR 140.9 million for the previous year with T 168.3% increase. 4. he Earnings Per Share (EPS) was SR 1.13 compared with SR 0.42 for the previous year. T 5. The total assets for the year 2010 were SR 12 billion compared with SR 11.8 billion for the previous year with 1.7% increase.

1. Summary of the business results for the previous five years:


(Saudi Riyals)
Details 2006 2007 2008 2009 2010

Total Current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total shareholders equity and minority interest Total liabilities, shareholders equity and minority rights Net Profit Earnings Per Share (EPS) Weighted Average Number of Outstanding Shares

1,824,070,534 3,438,135,912 5,262,206,446 601,236,845 1,700,962,210 2,960,007,391 5,262,206,446 493,693,293 3.29 150,000,000

1,994,751,478 5,755,301,075 7,750,052,553 2,163,553,911 1,694,328,522 3,892,170,120 7,750,052,553 593,972,141 2.97 200,000,000

2,841,623,155 7,991,765,122 10,833,388,277 1,009,403,414 3,965,717,244 5,858,267,619 10,833,388,277 536,782,148 1.66 323,498,419

2,217,676,762 9,600,526,773 11,818,203,535 903,102,522 5,083,145,195 5,831,955,818 11,818,203,535 140,879,515 0.42 333,333,333

2,425,569,371 9,600,976,473 12,026,545,844 856,510,238 5,156,140,356 6,013,895,250 12,026,545,844 378,079,252 1.13 333,333,333

Annual Report 2010 I 21

Financial Statements (continued)

2. Development of sales, income from operations and net profit for the past five years:
(Million Saudi Riyals)
1993 944 830 537 764 168 2009 141 2010

1334

1528

773

896

494

594

1709

2006 Sales

2007 Operational Profit

2008 Net Profit

3. Total Assets and Shareholders Equity for the past five years:
(Billion Saudi Riyals)

5.3

7.8

10.8

5.0

11.8

4.9

12.0 2009 2010 4.9

2006
Assets

2.4

2007
Shareholders Equity

3.0

2008

22

378

Financial Statements (continued)

4. Significant differences in operational results from previous year:


(Saudi Riyals)
Details 2010 2009 Changes+/Change percentage

Total Profit Operational Profit Net Profit

861,353,068 764,150,970 378,079,252

235,736,699 168,331,371 140,879,515

625,616,369

265.5% 354%
168.3%

595,819,599
237,199,737

The main reason for the increase in the financial results for the year 2010 compared with the year 2009 was mainly due to the improvement in the operational performance of the plants which resulted in the increase in production and sales quantities in Methanol and Butanediol plants. In addition, the year witnessed an increase in the global sale prices of these products and also an improvement of the work efficiency, productivity, and overall cost reduction.

5. The Geographical Analysis of Companys Sales:


The marketing and sales of company products takes place in the local markets, the Middle East and the international markets. The below graph shows the geographical distribution of the company sales:

Asia Europe Local Market and Middle East Internal Sales

46.3% 20.1% 12.1% 21.5%

Annual Report 2010 I 23

Financial Statements (continued)

6. Total Debts for Sipchem and its Affiliates:


The Saudi International Petrochemical Company (Sipchem) is not committed to any long term loan agreements. The long term financing agreements are only with the companys affiliates. The table below shows the long term loan agreements and their repayments during the year 2010. (Saudi Riyals)
Company Name Total current long term loans as of 31/12/2010 Total repayments during 2010

International Methanol Company International Diol Company International Acetyl Company International Vinyl Acetate Company International Gases Company

401,351,351 977,464,249 2,569,264,136 1,819,395,451 988,648,948

42,810,811 7,000,000 76,945,211 44,084,192 10,951,052

7. Governmental Due Payments:


(Saudi Riyals)
Entity Government payments up to 31/12/2010

Zakat & Income Department General Organization for Social Insurance (GOSI)

48,937,352 16,054,487

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The Internal Audit

The company Internal Audit Committee periodically and regularly reviews the internal audit system for the different departments of the company. This audit is based on annual plans approved by the audit committee so as to make sure of the effectiveness this system and its capability of protecting company assets and ensure the competence and integrity of procedures, financial and non-financial operations and commitment of company employees with the regulations issued by the different government agencies and related regularity bodies in addition to the commitment to the companys approved internal policies and systems. The Audit Committee Continuously supervises the works of the internal audit committee and regularly reviews its reports. The scope of the internal audit department includes the following: 1. Prepare the annual strategic plan for the work of internal audit committee. 2. Auditing and periodic examinations on all administrative and operational departments and notifying their officials of the results. 3. valuating the procedures and the solutions provided by the departments E to ensure suitability and affectivity of the proposed procedures. 4. Submit reports on the auditing results and recommendations in addition to the later follow up of these results to ensure their application by the concerned departments. In addition to the above, the companys external auditor, as part of his responsibility in auditing the companys annual statement, takes an overall review of the companys internal audit system and its electronic and computer systems to ensure the availability of suitable separation between functions, control systems and strict control on company operations. The internal audit committee has not discovered any violation or any integral weakness in the companys internal audit system or different operations in the year 2010,
Annual Report 2010 I 25

The Board of Directors

1. The Composition of the Board of Directors:


The Board of Directors is composed of eleven members. The General Assembly Meeting held on 28/09/2010 elected eleven members from the fourteen Board member candidates for the Saudi International Petrochemical Company (Sipchem) for the next term of three years as of 10/12/2010 to 09/12/2013 according to the by-laws of the company. Nine members of the previous Board were re-elected, two new members were elected namely: Dr. Sami M. Zaidan and Mr. Abdulaziz A. Al-Khamis as successors for the former board members Mr. Abdullah S. Bahamdan and Eng.Ibrahim M. Al-Humaidan who did not nominate themselves for membership of the next term of the Board of Directors. The members are classified according to the definition as contained in article two of the Corporate Governance Regulations issued by the Capital Market Authority in the Kingdom of Saudi Arabia as follows:
No. Name Responsibilities Membership type

1 2 3 4 5 6 7 8 9 10 11

H.E. Eng. Abdulaziz A. Al-Zamil Dr. Abdulaziz A. Al-Gwaiz Mr. Fahd S. Al-Rajhi Eng. Reyadh S. Ahmed Dr. Sami M. Zaidan Mr. Abdulaziz A. Al-Khamis Dr. Saleh H. Al-Humaidan Dr. Abdurrahman A. Al-Zamil Mr. Abdurrahman A. Al-Turki Eng. Mohammed A. Al-Ghurair Eng. Ahmad A. Al-Ohali

Chairman Member Member Member Member Member Member Member Member Member Member / CEO

Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Independent Independent Independent Independent Executive

2. Participation of the Board Members in the other joint stock companies:


The below table shows the board members who are board members of other joint stock companies:
No. Name

Membership in other joint stock companies - Sahara Petrochemical Company (Pubic Joint Stock-KSA) - Alinma Bank (Public Joint Stock- KSA) - Al-Zamil Group Holding Company (Closed Joint Stock-KSA) - Al-Khaleeg Training & Education Co. (Pubic Joint Stock-KSA) - Al-Saqr Cooperative Insurance Co. (Pubic Joint Stock-KSA) - Investcorp Co. (Pubic Shareholding-Bahrain) - Golden Pyramids Plaza Co. (Pubic Joint Stock-Egypt) - Sahara Petrochemical Company (Pubic Joint Stock-KSA) - Al-Zamil Industrial Investment company (Pubic Joint Stock-KSA) - Al-Zamil Group Holding Company (Closed Joint Stock-KSA) - Taqa National Company (Closed Joint Stock-KSA) - Saudi Investment Bank (Pubic Joint Stock-KSA) - National Petrochemical Company (Closed Joint Stock-KSA) - Privatization Holding Company (Closed Joint Stock-Kuwait) - Gas and Oil Fields Company (Closed Joint Stock-Kuwait) - Ikarus Petroleum Industries Company (Closed Joint Stock-Kuwait) - Middle East Complex for Industrial, Engineering, Electronic and Heavy Industries (Closed Joint Stock-Jordon)

H.E. Eng. Abdulaziz A. Al-Zamil

2 3

Dr. Abdulaziz A. Al-Gwaiz Mr. Abdurrahman A. Al-Turki

Dr. Abdurrahman A. Al-Zamil

5 6

Mr. Abdulaziz A. Al-Khamis Eng. Reyadh S. Ahmed

26

7 8 9 10 11

Eng. Mohammed A. Al-Ghurair Dr. Saleh H. Al-Humaidan Mr. Fahd S. Al-Rajhi Dr. Sami M. Zaidan Eng. Ahmad A. Al-Ohali

- National Cement Company(Pubic Joint Stock-UAE) - Al-Mashreq Bank (Pubic Joint Stock-UAE) N/A N/A N/A N/A

3. Board Meeting Attendance Registers:


Sipchem board held four meetings during the year 2010, three of which during the previous term which ended on 09/12/2010 and one meeting during the current term which started on 10/12/2010 and will extend up to 09/12/2013. It is worth noting that the members who did not attend any board meetings have given proxy to other board members to represent them. The below table shows the attendance register for every board member:
Board Meetings in 2010 No Name First 27/03 Second 08/06 Third 28/09 Fourth 20/12 Total attendance

1 2 3 4 5 6 7 8 9 10 11 12 13

H.E. Eng. Abdulaziz A. Al-Zamil Dr. Abdulaziz A. Al-Gwaiz Eng. Mohammed A. Al-Ghurair Eng. Reyadh S. Ahmed Dr. Saleh H. Al-Humaidan Mr. Abdurrahman A. Al-Turki Eng. Ahmad A. Al-Ohali Dr. Abdurrahman A. Al-Zamil Mr. Fahd S. Al-Rajhi Mr. Abdullah S. Bahamdan* Mr. Ibrahim M. Al-Humaidan* Dr. Sami M. Zaidan Mr. Abdulaziz A. Al-Khamis x x x x x

4 4 4 4 4 4 4 3 3 2 1 1 1

Not a board member * Member of the previous board of directors.

Annual Report 2010 I 27

The Board of Directors (continued)

4. Description of any benefits for board members, their wives and children below eighteen years in shares or debt instruments in Sipchem:
Shares on 01 Jan.2010 Shares on 31Dec.2010 First class relatives ownership and changes

Name

No.

No.

Change %

H.E. Eng. Abdulaziz A. Al-Zamil Mr. Abdurrahman A. Al-Turki Mr. Fahd S. Al-Rajhi Eng. Mohammed A. Al-Ghurair Dr. Abdulaziz A. Al-Gwaiz Dr. Abdurrahman A. Al-Zamil Dr. Saleh H. Al-Humaidan Eng. Ahmad A .Al-Ohali Eng. Reyadh S. Ahmed Mr. Abdulaziz A. Al-Khamis Dr. Sami M. Zaidan

N/A 7,550,000 5,459,216 2,787,400 30,000 1,147,333 3,000 461,313 N/A N/A N/A

2,265 1,638 0.8362 0.009 0.344 0.001 0.138 -

N/A 7,550,000 5,340,000 2,788,400 30,000 1,140,000 3,000 202,521 N/A N/A N/A

2,265 1,602 0.8364 0.009 0.342 0.001 0.061 -

-2.2 0.04 -0.64 -56 -

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

5. Description of any benefits to senior executive management, their wives and children below 18 years in shares or debt instruments in Sipchem:
Shares on 01 Jan.2010 Shares on 31Dec.2010 First class relatives ownership and changes

Name

No.

No.

Change %

Eng. Abdul Rahman A. Al-Saif Eng. Abdullah S. Al-Saadoon Dr. Abdullatif M. Bhairi Mr. Kevin J. Hayes Mr. Khaled S. Al-Dossary Mr. Rashid M. Al-Dossari Ali H. Al-Irq

N/A N/A N/A N/A N/A 46 9

0.00 0.00

N/A N/A N/A N/A N/A 46 9

0.00 0.00

N/A N/A N/A N/A N/A N/A His wife owns 2 shares N/A

Mr. Hussain S. Al Saif

2,630

0.001

N/A

- 0.001

28

6. Shareholders who notified the company of percentage changes in their ownerships.


Two of the shareholders notified the company and the Capital Market Authority of the percentage changes in their shares ownership percentages during the year 2010 as follows:
Shares on 01 Jan.2010 Shares on 31Dec.2010

Name

No.

No.

Net Changes

change %

National Industrial Holding Group (Kuwait) Ikarus Petrochemical Holding Company (Kuwait)

27,746,282 N/A

8.3% 0

N/A 27,746,282

0 8.3%

-27, 746,282 27,746,282

-100% 100%

7. Rewards and compensations for the board members and senior executives:
The below schedule shows the rewards and compensations (salaries, benefits, etc.) paid to the board members and senior executives who have received the highest rewards and compensations from the company including the CEO and the General Manager of Finance during the year 2010: (Saudi Riyals)
Non - executive Board members/Independent Five of the senior executives who received the highest rewards and compensations.

Detail

Executive Board members

Salaries and compensations Allowances Periodic and annual rewards Incentive plans Any other compensations and any other benefits of kind paid monthly or annually

14,500 200,000 -

155,232 2,000,000 -

7,596,958 2,098,096 -

Annual Report 2010 I 29

Board Committees

1. The Audit Committee:


The Audit Committee is composed of three members. One of the members is a board member while the other two members who are experienced and specialized in the financial affairs are nominated from outside the Board of Directors. The Audit Committee supervises the management of the Internal Audit Department and recommends to the Board of Directors the assignment of the chartered accountants and determines their responsibilities, propose their annual fees and follow up the audit plan. The Committee also regularly reviews the financial systems and the risks in the company, compliance with legal requirements, statutory, accounting rules on the basis of Capital Market Authority regulations. The responsibilities of the Committee include the review of the preliminary and annual financial statements of the company before submission to the Board of Directors and study the accounting policies and make recommendations thereof to the Board. The Committee has held two meetings during the year 2010. The committee members have been re-nominated by a resolution of the board on 20/12/2010 for another term of office extending from 10/12/2010 to 09/12/2013. The table below shows the names of Audit Committee Members:
Name Identity

Mr. Fahd S. Al-Rajhi Mr. Adib A. Al-Zamil Mr. Saud S. Al-Juhani

Committee Chairman-Board Member Committee Member-Al-Zamil Holding Co. Committee Member-Public Pension Agency

2. The Nominations and Remuneration Committee


The Committee is composed of five board members of the company. The committee recommends the nomination for board membership according to the approved standards and the annual review of the capabilities required for board membership and the review of its organization chart and submit recommendations regarding the changes to be effected. The committee also deals with the determination of the strengths and weaknesses of the board and how to deal with that in a way that serves the interests of the company. The committee also lays the company policies for the compensations and remunerations of the board members and the senior executives. The committee held two meetings during the year 2010. The Committee Members have been nominated by a resolution of the Board of Directors on 20/12/2010 for the term of office extending from 10/12/2010 to 09/12/2013. The table below shows the names of the Nominations and Remunerations Committee members :
Name Identity

H.E. Eng. Abdulaziz A. Al-Zamil Dr. Abdulaziz A. Al-Gwaiz Mr. Saleh H. Al-Humaidan Mr. Fahd S. Al-Rajhi Dr. Sami M. Zaidan

Committee Chairman Committee Member Committee Member Committee Member Committee Member

30

3. The Executive Committee:


The Executive Committee is composed of six members who are all board members. The Committee submits recommendations to the Board of Directors on various subjects such as the management and direction of the activities and business affairs of the company. Also, the committee reviews and evaluates new projects and strategic decisions of companys operational priorities and investments. The Committee held one meeting during the year 2010. The Committee Members have been nominated by a resolution of the Board of Directors on 20/12/2010 for the term of office extending from 10/12/2010 to 09/12/2013. The table below shows the names of the executive Committee Members
Name Identity

H.E. Eng. Abdulaziz A. Al-Zamil Dr. Abdulaziz A. Al-Gwaiz Mr. Fahd S. Al-Rajhi Eng. Ahmad A. Al-Ohali Eng. Reyadh S. Ahmed

Committee Chairman Committee Member Committee Member Committee Member Committee Member

Annual Report 2010 I 31

Board of Directors Declaration

The Board of Directors confirms the following: hat the accounts register has been prepared in the correct format and T according to the Generally Accepted Accounting Principles (GAAP). hat the internal control system has been prepared on sound basis and is T being implemented effectively. hat there are no doubts about the companys ability to go ahead with the T performance of its activities. hat the unified financial statements have been prepared according to the T standards and the accounting systems issued by the Saudi Committee for Saudi Chartered Accountants and according to the related requirements of the Companies regulations and statute of the company with regard to the preparation and publication of financial details. hat the company has not issued any bonds and consequently has not T recovered or purchased or canceled any recoverable debt instruments. hat the company does not have any transfer rights or any subscriptions T based on debt transferable instruments to shares or selection rights or subscription rights memoranda or similar rights issued or given by the company during the year 2010. hat there is no contract to which the company is a party and that there T is or has been any substantial benefit in it to any board member or the Chief Executive Officer or the General Manager of Finance or to any person related to any one of them. hat there are no arrangements or agreements through which any of the T board members or any of the senior executive waives any salary or any compensation. hat there are no arrangements or agreements through which any of the T companys shareholders waives any profit rights.
32

Issue of Islamic Sukuk

Based on a recommendation from the Board of Directors of the Saudi International Petrochemical Company (Sipchem) during the Extra-ordinary General Assembly Meeting held on 27/11/2010 approved the amendment of article fifteen of the company by-laws to allow the company to issue negotiable debt instruments including Sukuk or bonds and approved the companys issuance of negotiable debt instruments and authorized the Board of Directors, in as far as not conflicting with the by-laws to issue debt instruments such as bonds or Sukuks inside the Kingdom of Saudi Arabia or outside it according to the systems, laws and regulations in place. Through the issuance of Islamic Sukuk, Sipchem intends to finance the companys new capital expansion projects. Sipchem always strives to diversify its financial recourses and debt instruments through the investment in all possible alternatives for the benefit of the company and its shareholders. It is expected that the issuance of Sukuk will reach SR 1.5 billion subject to increase. The Sukuk issuance is expected during the first quarter of the year 2011.

Annual Report 2010 I 33

The General Assemblies

Sipchem held three successful General Assembly meetings during the year 2010 as shown below. The company has advertized the dates of these General Assembly meetings in the Capital Market Authority (CMA) website, company website, the official newspaper and the local newspapers at least twenty five days prior to the scheduled day of the meeting. The advertisements showed the time, location and the agenda for these meetings. The company also gave the shareholders the chance to effectively participate and vote on the issues included in the agenda and informed them of the regulations that govern those meetings, the voting procedures through calling the General Assembly, the distribution of well prepared files containing enough information that enables the shareholders to take up their decisions. The company also notified the CMA about the results of these meetings immediately after their conclusions. The shareholders were also enabled to view the minutes of the meetings at the company offices or through the company website. No 1 Assembly Meeting 27/03/2010 Ordinary General Assembly Attendance % 64% Resolutions adopted 1. Approval of board report for fiscal year 2009. 2. atification of financial statement and profits and losses R account of the company as of 31/12/2009. 3. Discharge of board members for the previous year 2009. 4. pproval of the accounts auditor nominated by the audit A committee for the audit of company accounts for the fiscal year 2010. 5. pproval of the board recommendation for cash A distribution of dividends to company shareholders for year 2009 with a total amount of SR 333,333,333 with a rate of SR 1 (one) per share which represents 10% of the company capital priority in profit distribution of these shares shall be to the shareholders who are registered in the registry by the end of the Tadawl at the end of the assembly meeting. 2 28/09/2010 Ordinary General Assembly 65% 1. lection of (11) eleven members for the board E membership of Saudi International Petrochemical company (Sipchem) for the new term which extends for three years starting from 04/01/1432H corresponding to 10/12/2010 according to the By-laws of the company. 1. mendment of article fifteen of the company by-laws A by adding to paragraph (b) as regards Suluks and bonds 2. he approval of company issuing negotiable debt T instruments including Sukuk or bonds and authorize the Board of Directors, in as much not conflicting with the terms of the regulations, to issue any type of negotiable debt instruments such as bonds or Sukuk inside the Kingdom of Saudi Arabia or outside it according to the systems, laws and regulations in place.

27/11/2010 Extra-Ordinary General Assembly

66%

34

Dividends Distribution Policy

The net annual profit of the company is distributed according to article (41) of the company by-laws after the deduction of all the general expenses and other costs as follows: 1. ut aside (10%) of the net profit as a legal reserve. The normal General P Assembly may stop setting aside of such amount once these reserves reach 50% of the capital. 2. The General Assembly may, based on a proposal to the Board of Directors, set aside a certain percentage of the net profits, to establish an agreed reserve and allocate it for a special purpose or purposes. 3. rom the remaining amount and after a first payment to the shareholder F equivalent to 5% of the paid-up capital. 4. After the above, an amount not exceeding (10%) of the remaining amount shall be assigned as a compensation to the Board members taking into consideration the regulations and the instructions issued by the Ministry of Commerce in this regard. The remaining amount after that shall be distributed to the shareholders as an additional portion of the profit. On 12 April 2010 Sipchem distributed cash profits to company shareholders for the year 2009 which totaled SR 333,333,333 at the rate of SR 1 for each share which represents 10% of the companys capital. This is distributed to company shareholders who are registered in the official register of the shareholders at the end of the General Assembly meeting held on 27/03/2010. Also the Board recommended in its meeting on 20 December 2010 the increase of the companys capital by 10% from SR 3,333,333,330 to SR 3,666,666,660 through the granting one free share for every ten shares owned by the shareholders who are registered on the company register at the depositary centers of the financial papers on the Tadawul day of the Extra-Ordinary meeting of the General Assembly which will be held during the first quarter of the year 2011. The proposed increase in the capital will be covered by the transfer of SR 333, 333,330 from the retained profits as of 30/09/2010 after company acquiring the required approvals from the official entities. The reasons for the capital increase are for financing some parts of company future projects.
Annual Report 2010 I 35

Corporate Governance

Sipchem has applied all the mandatory regulations as included in the Corporate Governance list issued by the Capital Market Authority (CMA), particularly the commitment to the best practices that protect the shareholders rights and reinforce the companys commitment to declaration and transparency standards including the establishment of a company data base through its electronic site that enables its eligible shareholders, who have not received their dividends for the previous years, to know the details of their dividends. For more information about the shareholders and their dividends details, please visit the following link: http://www.sipchem.com/ar/shares.asp As part of Sipchems commitment to set up the best practices in the field of corporate governance and the development of the related standards and principles, a code of conduct has been developed and applied to all company employees during the year 2010. This code aims at the commitment to the highest moral standards in practicing all company activities. The code of conduct covers a wide range of professional practices and provides the required professional education to all company employees and reinforces the understanding and commitment to these codes to avoid any breaches that subject them to legal responsibilities. Communication sessions have been held with all company employees to explain the requirements of these codes of conduct and all company employees have signed commitment and understanding certificates. Sipchem has prepared its governance regulations according to the requirements of Article (10) paragraph (C) of the Corporate Governance Regulations issued by the Capital Market Authority and in compliance with the listing and inclusion regulations and the company by-laws. For more information about the current Corporate Governance Regulations, please visit the following link: http://www.sipchem.com/ar/Government.htm The company has applied all articles of the Corporate Governance Regulations issued by Capital Market Authority with the exception of the article below: Article (6) Voting Rights Paragraph (b) Action Do the by-laws of the company indicate that the voting method in the item for the selection of the board member in the General Assembly shall be by the cumulative voting? Reasons and details The by-laws of the company do not include the cumulative voting. The company is currently applying the normal voting system according to the Companys by-laws.

Penalties & Fines:


The Capital Market Authority has imposed fines on Saudi International Petrochemical Company (Sipchem) during the year 2010 as follows: 1. SR 50,000 (Fifty thousand Saudi Riyals) for the breach of paragraph (f) of article twenty six of the listing rules, because it has publicized its preliminary financial statement for the period ending on 31/03/2010 in one of the local newspapers on 18/04/2010 before publicizing that in the Capital Market Authority. 2. SR 50,000 (Fifty thousand Saudi Riyals) for the breach of paragraph (f) of article nine of the Corporate Governance Regulations because the annual board of Directors report attached to the annual financial statement did not contain any reference to the penalty imposed by the CMA on 19/01/2009. The Board of Directors discussed these breaches in its meeting on 28/09/2010 and set up necessary mechanisms and procedures to avoid recurrence of such breaches in future. The CMA has been informed of these mechanisms and procedures. It is worth noting that there are no penalties or sanctions or any under reserve actions on the company from any supervisory or regulatory or judicial entity

36

Communication with Shareholders

Sipchem gives the utmost attention to the Communication with shareholders. It has taken many measures to guarantee the shareholders rights to obtain information through the CMA Tadawul website and the company site www.sipchem.com. Sipchem provides comprehensive information about company activities and business through the Annual Report, periodic financial statements and dividends distribution procedures. The company is also keen to communicate with its shareholders, answer all their queries and provide them the requested information in a timely manner.

Annual Report 2010 I 37

Human Resources

Sipchem believes that its human resources play the basic role in the development of its operations and investments. The company has a clearcut strategy to attract, develop and improve human skills and capabilities and motivate its human resources. Sipchem and its affiliates strive to raise up the leadership, administrative and technical skills and capabilities of all levels of its employees. This is achieved through the internal and external training plans and programs. This is in addition to the on-the-job training which is considered as the basic company and its affiliates priorities. The Saudization programs are of particular importance to Sipchem and its Affiliates.

These programs resulted in the attainment of very good Suadization levels. Highly qualified Saudi employees are currently occupying most of the top and administrative positions. The number of the company employees by the end of the year 2010 was 729 and the percentage of Saudis was 70%. Sipchem has organized its third service award for its employees who completed five and ten years of continuous service in November 2010 where 42 employees were honored. Sipchem has organized a number of training courses during the year 2010 in cooperation with some outside training entities. The objective of these programs was to raise up and reinforce the capabilities of the administrative and technical employees. A total of 507 employees have been trained through 163 internal and external training programs on various administrative and technical areas.

38

Special Employees Programs

Home Ownership Program:


The company is currently implementing a Home Ownership Program for the company employees. The program is aimed at granting the chance to the companys Saudi employees who meet the program conditions to own housing units within the approved policies to assure comfort and stability for its employees and motivate them to continue their services with the company. The company is currently proceeding with the program as per the set schedule.

Sipchem has announced in the Initial Public Offer (IPO) in the year 2006 and the offering of shares priority rights in the year 2008, the allocation of these shares to the Sipchem employees incentive program where Al Zamil Holding Group, being one of the founders of Sipchem, and a guarantor for the Sipchem shares allocated the program as per the agreement signed between Sipchem and al Zamil Group, till Sipchem is able to complete the necessary procedures to start special portfolio for the program. On 20 December 2010 a total of 1,536,697 shares have been transferred from a portfolio under the name of Al Zamil Holding Group to a portfolio under the name of Sipchem Employee Incentive program at Al-Bilad Investment Company. The shares were transferred to the Sipchem Employee Incentive Program after the completion of the necessary procedures to open a portfolio for the program and the approval of the Capital Market Authority of the shares transfer.

Sipchem Employee Incentive Program:


Sipchem is implementing an employee incentive program which aims at encouraging the company and affiliates employees to maintain and improve their work performance and put up their utmost efforts to serve the companys interests and achieve its established objectives. The program serves as an attraction for highly qualified persons in the field of petrochemicals to join the company.

Annual Report 2010 I 39

Corporate Social Responsibility

In continuation of its social responsibility which aims at reinforcing the companys participation in the community service and development, Sipchem continued performing its obligation towards the community. Sipchem supports community social causes through annual funding as well as through active participation in activities such as the sponsorship of the second symposium of the charitable societies, organizing a blood donation campaign by company employees, supporting the Eastern Province peoples festivals and honoring outstanding orphan students. Sipchem takes its participation and responsibilities towards its community so seriously, that its Board of Directors have allocated 1% of its total net annual profit to charity, in order to support its social responsibility programs.

These contributions and participations are supervised and managed by Community Services Committee composed of representatives from various company departments. Sipchem has adopted an ambitious program to sponsor a number of orphans in the Eastern Province. This program is characterized by its comprehensive sponsorship of the orphans and their families, including their education, rehabilitation and follow-up until graduation from either a secondary school or from university. In appreciation of the companys commendable role in community service, a number of awards and plaques were presented by various entities.

40

Responsible Care

Sipchem continued the application of the highest international health and safety standards which are considered the basic values of the company in all its activities. Sipchem has achieved an outstanding record in the area of safety through the use of new standards. During 2010 Sipchem achieved very high levels that exceeded similar international companies. The company continued to maintain its safety achievements through the continuous planned training, preparation of periodic safety rehabilitation programs and the training symposia in all company plants. The company has applied the annual audit system, used in the plants, to manage the safety operations to ensure the continuous safety for employees, plants and the environment. This is in addition to the training and development programs that are implemented by specialized experts in these fields together with the continuous updating of the systems and procedures to cope up with the new requirements. These systems constitute the basic components for the achievement of best results in the safety field.

During the year 2010 Sipchem continued the application of the requirements of the Responsible Care and became one the pioneering companies that applied this international initiative. These efforts were crowned by considering Sipchem as one of the pioneering companies in the field of responsible care and being authorized to use the logo of the initiative as one of the first companies to have this privilege in the area. The responsible care initiate programs include the participation in various projects such as carbon dioxide emission, the application of product care, the improvement of safety management operations and enhance the industrial chemical awareness for all stakeholders in the area. The complete commitment to safety and environment standards ranks Sipchem in the frontier for future application of the responsible care initiative.

Annual Report 2010 I 41

42

Consolidated Financial Statements and Auditors Report for the year ended 31 December 2010

Annual Report 2010 I 43

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Contents: 45 Auditors Report 46 Consolidated Balance Sheet 47 Consolidated Statement of Income 48 Consolidated Statement of Cash Flows 49 Consolidated Statement of Shareholders Equity 50 Notes to the Consolidated Financial Statements

44

Auditors Report

Annual Report 2010 I 45

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Consolidated Balance Sheet


As at 31 December 2010

Note

2010 SR

2009 SR

ASSETS
Current assets Cash and cash equivalents Accounts receivable, prepayments and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Projects development costs Intangible assets Total non-current assets TOTAL ASSETS 6 7 8 9,505,558,802 62,624,486 32,793,185 9,600,976,473 12,026,545,844 9,517,402,751 52,032,381 31,091,641 9,600,526,773 11,818,203,535 3 4 5 1,620,643,847 596,395,125 208,530,399 2,425,569,371 1,831,202,343 307,792,014 78,682,405 2,217,676,762

LIABILITIES, SHAREHOLDERS EQUITY AND MINORITY INTEREST


Current liabilities Accounts payable, other payables and provisions Short term advances from partners Current portion of long term loans Current portion of obligation under capital lease Total current liabilities Non-current liabilities Long Term loans Obligation under capital lease Long term advances from partners Employees terminal benefits Fair value of interest rate swaps Total non-current liabilities Total Liabilities Shareholders equity and minority interest Share capital Statutory reserve General reserve Reserve for the results of sale of shares in subsidiaries Retained earnings Net change in the fair value of interest rate swaps Total shareholders equity Minority interest Total shareholders equity and minority interest 18 15 16 17 1 3,333,333,330 916,196,295 275,000,000 48,893,677 488,496,575 (140,433,506) 4,921,486,371 1,092,408,879 6,013,895,250 12,026,545,844 3,333,333,330 878,388,370 275,000,000 54,518,905 483,758,581 (102,917,751) 4,922,081,435 909,874,383 5,831,955,818 11,818,203,535 12 13 10 14 15 4,201,964,502 358,540,540 355,595,196 52,611,444 187,428,674 5,156,140,356 6,012,650,594 4,240,779,613 401,351,351 257,171,863 40,318,729 143,523,639 5,083,145,195 5,986,247,717 9 10 12 13 446,522,604 3,275,921 363,900,902 42,810,811 856,510,238 620,189,321 19,491,953 220,610,437 42,810,811 903,102,522

TOTAL LIABILITIES, SHAREHOLDERS EQUITY AND MINORITY INTEREST

46

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Consolidated Statement of Income


For the year ended 31 December 2010

Note

2010 SR

2009 SR

Sales Cost of sales

1,992,536,014 (1,131,182,946) 861,353,068 20 (97,202,098) 764,150,970 7,533,339 (107,245,781) (957,717) (3,430,350) 660,050,461 (238,029,266) 422,021,195 21 (43,941,943) 378,079,252 1.13 2.29 333,333,333

830,402,833 (594,666,134) 235,736,699 (67,405,328) 168,331,371 14,725,539 (45,388,423) 75,000,000 (1,707,959) (558,597) 210,401,931 (29,164,027) 181,237,904 (40,358,389) 140,879,515 0.42 0.50 333,333,333

GROSS PROFIT
General and administrative expenses

INCOME FROM MAIN OPERATIONS


Investment income Financial charges Provision for development cost no longer required Net expenses of pre-operating activities Other expenses

INCOME BEFORE MINORITY INTEREST AND ZAKAT


Minority interest

INCOME BEFORE ZAKAT


Zakat

NET INCOME FOR THE YEAR


Earnings per share (from net income) Earnings per share (from main operations) Weighted average number of outstanding shares

Annual Report 2010 I 47

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Consolidated Statement of Cash Flows


As at 31 December 2010

Note

2010 SR

2009 SR

CASH FLOWS FROM OPERATING ACTIVITIES


Income before zakat Adjustments for: Depreciation and amortization Employees terminal benefits, net Financial charges Minority interest Net expenses of pre-operating activities Provision projects development costs no longer required Changes in operating assets and liabilities: Receivables Inventories Payables Cash from operations Financial charges paid Zakat and income tax paid Net cash from / (used in) operating activities (288,603,111) (59,826,935) (186,494,678) 550,810,941 (107,245,781) (68,727,929) 374,837,231 (153,931,416) 28,046,097 (157,318,565) 77,105,942 (185,511,804) (66,451,091) (174,856,953) 305,188,991 12,292,715 107,245,781 238,029,266 957,717 171,023,533 6,787,980 45,388,423 29,164,027 1,707,959 (75,000,000) 422,021,195 181,237,904

CASH FLOWS FROM INVESTING ACTIVITIES


Net expenses of pre-operating activities Purchase of property, plant and equipment Additions to intangible assets Additions to projects development costs Refund of excess amount received from the minority interest Proceeds from sale of shares in subsidiaries, net Net cash used in investing activities (957,717) (359,910,675) (5,156,970) (10,592,105) (8,210,061) 78,972,062 (305,855,466) (1,707,959) (1,532,362,149) (32,299,654 ) 239,208,904 (1,327,160,858)

CASH FLOWS FROM FINANCING ACTIVITIES


Long term loans, net Repayment of obligations under capital lease Advances from partners Change in minority interest Dividends and board of Directors remuneration paid Net cash (used in) / from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year 104,475,354 (42,810,811) 82,207,301 (87,878,772) (335,533,333) (279,540,261) (210,558,496) 1,831,202,343 3 1,620,643,847 1,179,122,079 111,605,404 (203,008,051) (335,533,333) 752,186,099 (749,831,712) 2,581,034,055 1,831,202,343

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR SUPPLEMENTARY CASH FLOWS INFORMATION:
Non-cash transactions are as follows: Net change in fair value of interest rate swaps Reclassification of debt arrangement and acquisition cost and pre-operating cost from intangibles to property, plant and equipment Reclassification of project development cost to property, plant and equipment Transfer from property plant and equipment to inventory Transfer from property, plant and equipment to deferred turnaround cost

37,515,755 68,235,096 70,021,059 6,041,132

97,621,667 199,105,688 165,000,000 -

48

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Consolidated Statement of Shareholders Equity


For the year ended 31 December 2010

Share capital SR

Statutory reserve SR

General reserve SR

Reserve for the results of sale of shares in subsidiaries SR

Retained earnings SR

Net change in the fair value of interest rate swaps SR

Total SR

Balance at 1 January 2009 Results of sale of shares in subsidiaries (note 1) Net Income for the year Net change in fair value of interest rate swaps Dividends Transfer to statutory reserve Directors remuneration Balance at 31 December 2009 Balance at 1 January 2010 Results of sale of shares in subsidiaries (note 1 & 17) Net Income for the year Net change in fair value of interest rate swaps Dividends Transfer to statutory reserve Directors remuneration Balance at 31 December 2010

3,333,333,330

864,300,418

275,000,000

692,500,351

(200,539,418) 4,964,594,681

54,518,905 -

140,879,515 -

97,621,667 -

54,518,905 140,879,515 97,621,667

14,087,952

(333,333,333)
(14,087,952) (2,200,000)

(333,333,333)
(2,200,000)

3,333,333,330

878,388,370

275,000,000

54,518,905

483,758,581

(102,917,751) 4,922,081,435

3,333,333,330

878,388,370

275,000,000

54,518,905

483,758,581

(102,917,751) 4,922,081,435

37,807,925 -

(5,625,228) -

378,079,252 (333,333,333) (37,807,925) (2,200,000)

(37,515,755) -

(5,625,228) 378,079,252 (37,515,755) (333,333,333) (2,200,000)

3,333,333,330

916,196,295

275,000,000

48,893,677

488,496,575

(140,433,506) 4,921,486,371

Annual Report 2010 I 49

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements


31 December 2010

1. ORGANIZATION AND ACTIVITIES


Saudi International Petrochemical Company (the company or Sipchem) is a Saudi joint stock company, registered in the Kingdom of Saudi Arabia under commercial registration No. 1010156910 dated 14 Ramadan 1420 H (corresponding to 22 December 1999). The companys head office is in the city of Riyadh with one branch in Al-Khobar, where the head quarters for the executive management is located, which is registered under commercial registration number 2051023922 dated 30 Shawwal 1420H (corresponding to 6 February 2000). The share capital of the Company is SR 3,333 million, divided into 333.3 million shares of SR 10 each. The principal activities of the Company are to own, establish, operate and manage industrial projects especially those related to chemical and petrochemical industries. The Company incurs costs on projects under development and subsequently establishes a separate company for each project that has its own commercial registration. Costs incurred by the Company are transferred to the separate companies when they are established. The Company has the following subsidiaries (the Company and its subsidiaries hereinafter referred to as the Group:
Subsidiaries Saudi limited liability companies Effective Percentage of shareholding
2010 SR 2009 SR

International Methanol Company (IMC) International Diol Company (IDC) International Vinyl Acetate Company Ltd.(IVC) International Acetyl Company Ltd. (IAC) International Gases Company (IGC) Sipchem Marketing and Services Company (SMSC) International Utility Company Ltd (IUC) International Polymers Company (IPC)

65% 53.91% 76% 76% 72% 100% 68.58% 75%

65% 53.91% 76% 76% 72% 100% 68.58% 100%

The plants of the group are located at Jubail Industrial City, Kingdom of Saudi Arabia. On 25 January 2010, the company sold off 25% of its share in IPC to Hanwha Chemical Oversees Holdings Ltd., a South Korean company. The legal requirements for the transfer of shares to the new partner have been completed in April 2010. IAC and IGC commenced commercial operations on 5 June 2010 whereas IVC commenced commercial operations on 7 August 2010 following the successful commissioning, testing and acceptance formalities with the main contractors On 21 Dhu Al-Hijjah 1431H corresponding to 27 November 2010, the Extraordinary General Assembly has permitted the company to issue Islamic Bonds (Sukuk) so as to be compliant with Sharia Laws, for the purpose of financing the capital expansions of the companys new projects. The company is in the process of submitting a request to the Capital Market Authority for registration and listing. The companys Management expects the value of offered bonds (Sukuk) to be SR 1.5 billion and the offering process to be made during the first quarter of the year 2011. The Board of Directors of the company, at its meeting held on 14 Muharram 1432H corresponding to 20 December 2010, has recommended increasing the companys capital by %10 by way of capitalizing a part of the profits through the issuance of one bonus share for every ten shares held by the shareholder. As a result, the capital shall be increased from 3,333,333,330 to 3,666,666,660. The bonus shares shall be limited to the existing shareholders registered in the records of the company with (Tadawul) at the end of trading on the day of holding the Extraordinary General Assembly meeting which shall be determined later, following the necessary approvals of competent authorities.

50

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The accompanying consolidated financial statements have been prepared in compliance with the standards and regulations promulgated by the Saudi Organization for Certified Public Accountants. The following is a summary of significant accounting policies applied by the Company and its subsidiaries: Accounting convention The consolidated financial statements have been prepared using the historical cost convention modified to include the measurement at fair value for the interest rate swaps.

Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year.

Basis of consolidation of the financial statements


The consolidated financial statements incorporate the financial statements of the Company and financial statements of subsidiaries controlled by the Company prepared for the same year using unified accounting policies. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The consolidation of the subsidiaries financial statements in these financial statements start from the date control is obtained by the Company until the date this control is ended. The acquisition of subsidiaries is accounted for using the purchase method. The ownership shares related to other parties in the group of companies are classified under minority interest in these consolidated financial statements. All significant inter-group transactions and balances between group companies have been eliminated in preparing the consolidated financial statements.

Revenue recognition
The group markets its products through marketers. Sales are made directly to final customers and also to the Marketers distribution platforms. The sales through the distribution platforms are recorded at provisional prices at the time of shipments, which are later adjusted based on actual selling prices received by the Marketers from their final customers, after deducting the cost of shipping, distribution and marketing. Adjustments are made as they become known to the group. Local and export sales are recognized at the time of delivery of the product at the loading terminals located at the plant and at the King Fahd Industrial Port in Jubail Industrial City.

Expenses
All the year expenses except for production costs, financial charges and net expenses of pre-operating activities are classified as general and administrative expenses.

Cash and cash equivalents


Cash and cash equivalent consists of bank balances, demand deposits, cash on hand and investments that are readily convertible into known amounts of cash and have maturity of three months or less when purchased.

Accounts receivable
Accounts receivable are stated at original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Inventories
Inventories comprise of spare parts and finished goods and are stated at the lower of cost or market value. Costs of manufactured goods include raw materials, direct labor and manufacturing overheads. The cost of spare parts and finished goods are arrived at using the weighted average cost method. Appropriate provisions are made for slow moving and redundant inventories.

Annual Report 2010 I 51

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Projects development cost Projects development cost represent mainly legal and feasibility related costs incurred by the company in respect of developing new projects. Upon successful development of the projects, costs associated with the projects are transferred to the respective company subsequently established for each project. Projects development costs relating to the projects determined to be non-viable are written off immediately. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Expenditure on maintenance and repairs is expensed, while expenditure for betterment is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. The estimated useful lives of the principal classes of assets are as follows: Years Plant and machinery Buildings Vehicles Catalyst & tools Computer, furniture, fixtures and office equipment 10 25 (Year 2009: 10-20) 2 - 33.3 4 1 10 1 10

Intangible assets Intangible assets represent turnaround maintenance costs and other deferred charges. The planned turnaround costs are deferred and amortized over the year until the date of the next planned turnaround. Should an unexpected turnaround occur prior to the previously envisaged date of planned turnaround, then the previously unamortized deferred costs are immediately expensed and the new turnaround costs are amortized over the period likely to benefit from such costs. Other deferred charges are amortized over the period likely to benefit from such costs. Permanent impairment of non-current assets At the end of each fiscal year, the group reviews the carrying values of property, plant and equipment and other non-current assets to determine whether there is any indication that those assets have suffered impairment. If such indicators exist, the recoverable amount of the asset is estimated in order to determine the extent of impairment (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. The carrying value of the asset (or generating unit) is reduced to the recoverable value when the recoverable value is below the carrying value. Impairment loss is recognized as expense when incurred. Where an impairment loss subsequently reverses, the carrying value of the asset (generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash generating unit) in prior years. The reversal of impairment loss is recognized as income once identified. Derivative financial instruments Derivative financial instruments are initially recorded at cost and are re-measured to fair value at subsequent reporting dates. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the consolidated statement of income as they arise. A fair value hedge is a hedge of the exposure to changes in fair value of an asset or liability that is already recognized in the consolidated balance sheet. The gain or loss from the change in the fair value of the hedging instrument is recognized immediately in the consolidated statement of income. At the same time, the carrying amount of the hedged item is adjusted for the corresponding gain or loss since the inception of the hedge, which is also immediately recognized in the consolidated statement of income.

52

A cash flow hedge is a hedge of the exposure to variability in cash flows relating to a recognized asset or liability, an unrecognized firm commitment or a forecasted transaction. To the extent that the hedge is effective, the portion of the gain or loss on the hedging instrument is recognized initially directly in equity. Subsequently, the amount is included in the consolidated statement of income in the same year or years during which the hedged item affects net profit or loss. For hedges of forecasted transactions, the gain or loss on the hedging instrument will adjust the recorded carrying amount of the acquired asset or liability. Foreign currency transactions Foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies at the consolidated balance sheet date are translated at the exchange rates prevailing at that date. Gains and losses from settlement and translation of foreign currency transactions are included in the consolidated statement of income. Employees terminal benefits Provision is made for amounts payable under the employment contracts applicable to employees accumulated years of service at the consolidated balance sheet date. Provision for obligations A provision is recognized when the company has a legal or constructive obligation as a result of a past event, and the settlement of such obligations is probable and can be measured reliably. Zakat The group is subject to zakat and income tax regulations in the Kingdom of Saudi Arabia. Zakat and income taxes are provided on an accrual basis. Any difference between the estimated zakat for the years and the zakat provision that is calculated based on the detailed zakat base at year end are accounted for at the end of the year. Additional amounts, if any, that may become due on finalization of an assessment are accounted for in the year in which assessment is finalized. The zakat charge in the consolidated financial statements represents the zakat for the company and the companys share of zakat in subsidiaries. The zakat charge and income tax, assessable on the minority shareholders, is included in minority interest. Statutory reserve In accordance with Saudi Arabian Regulations for Companies, the parent company must set aside 10% of its net income in each year until it has built up a reserve equal to one half of the capital. The reserve is not available for distribution. Reserve for the results of sale of shares in subsidiaries The gains or losses resulting from sale of shares in subsidiaries, when the company continues to exercise control over the respective subsidiary, are booked in the reserve for the results of sale of shares in subsidiaries. Leasing Leases are classified as capital leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under capital leases are recognized as assets of the Company at the lower of the present value of the minimum lease payments or the fair market value of the assets at the inception of the lease. Finance costs, which represent the difference between the total leasing commitments and the lower of the present value of the minimum lease payments or the fair market value of the assets at the inception of the lease, are charged to the consolidated statement of income over the term of the relevant lease in order to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Rentals payable under operating leases are charged to the consolidated income statement on a straight line basis over the term of the operating lease.

Annual Report 2010 I 53

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Segmental Analysis A segment is a distinguishable component of the group that is either engaged in providing products or services (a business segment) or in providing products or services within a particular economic environment (a geographical segment) which is subject to risks and rewards that are different from those of other segments. As substantial portion of the group sales is made outside the Kingdom and all the groups products are considered within one business segment. Hence, no segmental analysis was presented. Earnings per share Basic earning per share from net income is calculated by dividing the net income for the year by the weighted average number of shares outstanding during the same year. Basic earnings per share from main operations is calculated by dividing income from main operations weighted average number of shares outstanding during the year. for the year by the

3. CASH AND CASH EQUIVALENTS


2010 SR 2009 SR

Cash and bank balances Murabaha deposits

453,818,258 1,166,825,589 1,620,643,847

466,012,505 1,365,189,838 1,831,202,343

4. ACCOUNTS RECEIVABLE, PREPAYMENTS AND OTHER RECEIVABLES


2010 SR 2009 SR

Trade receivables Accrued investment income Deposits, prepayments and other receivables

517,473,895 1,281,252 77,639,978 596,395,125

251,831,520 1,819,641 54,140,853 307,792,014

5. INVENTORIES
2010 SR 2009 SR

Finished products Spare parts and others

82,142,334 126,388,065 208,530,399

25,733,788 52,948,617 78,682,405

The spare parts inventory primarily relates to plant and machinery and, accordingly, this inventory is expected to be utilized over a period exceeding one year.

54

6. PROPERTY, PLANT AND EQUIPMENT


Vehicles, computer, furniture, fixtures & office equipment SR

Plant & equipment SR

Land & buildings SR

Catalyst & tools SR

Construction work in progress SR

Total 2010 SR

Total 2009 SR

Cost: At the beginning of the year Additions Transfers At the end of the year Depreciation: At the beginning of the year Charge for the period Transfers At the end of the year Net book amounts: At 31 December 2010 At 31 December 2009 672,785,782 241,522,053 914,307,835 8,865,481,416 1,913,805,142 7,759,466 2,348,491 10,107,957 109,159,758 42,606,340 118,460,791 48,242,993 166,703,784 91,654,131 50,149,971 37,830,359 3,578,896 41,409,255 15,039,872 10,152,117 424,223,625 7,500,689,181 836,836,398 295,692,433 1,132,528,831 9,505,558,802 9,517,402,751 539,559,852 167,286,796 129,989,750 836,836,398 2,586,590,924 13,672,166 7,179,526,162 9,779,789,252 50,365,806 68,901,908 119,267,714 168,610,762 17,033,949 72,713,204 258,357,915 47,982,476 3,604,120 7,500,689,181 10,354,239,149 8,221,667,349 325,600,441 359,910,676 (76,062,192) 1,672,485,530 460,086,270

4,862,531 (7,402,065,997) 56,449,127

424,223,625 10,638,087,633 10,354,239,149

As at 31 December 2010, property, plant and equipment include plant and equipment held under capital lease obligations which have a cost of SR 535.1 million (2009: SR 535.1 million) and accumulated depreciation of SR 155.9 million (2009: SR 135.8 million). Construction work in progress mainly comprises of costs related to IPCs plant along with projects for improvement of the groups plants and the cost of constructing Sipchems head quarters in Al-Khobar city. The property, plant and equipment are constructed over a land in Jubail Industrial City leased from the Royal Commission for Jubail and Yanbu for 30 years commencing on 16 Muharram 1423H corresponding to 30 March 2002. The lease agreements are renewable upon the agreement between the two parties. Some of the companys property, plant and equipment are pledged as security against Saudi Industrial Development Fund loans, Public Investment Fund loans and commercial loans (note 12). Construction work in progress is stated at cost and is comprised of construction costs under various agreements and directly attributable costs to bring the asset for its intended use which also includes costs of testing to ensure the asset is functioning properly, and after deducting net proceeds from the sale of production generated during the testing phase. Directly attributable costs includes employee benefits, site preparation costs, installation costs, licensing fees, professional fees and borrowing costs. Financing costs related to the projects of IAC, IVC and IGC were capitalized during the year ended 31 December 2010 in construction work in progress amounted to SR 436.5 million (2009: SR 140.1 million). In 2010 the board of directors of the group resolved to change the estimated useful lives of the plants from 20 years to 25 years based on the technical opinion of the technology licensors and consultants to better reflect the estimated useful lives of these plants. The change in estimate was accounted for prospectively with effect from 1 January 2010. As a result, net income for the year ended 31 December 2010 was higher by SR 16 million compared to the results had the old estimate been used.

Annual Report 2010 I 55

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

7. PROJECTS DEVELOPMENT COSTS


The movement in the projects development costs was as follows:
2010 SR 2009 SR

At the beginning of the year Additions during the year Provision for projects development cost no longer required Transferred to construction work in progress

52,032,381 78,827,201 (68,235,096) 62,624,486

109,732,727 32,299,654 75,000,000 (165,000,000) 52,032,381

During 2008, a provision of SR 77.6 million was made against the new projects development cost. The management of the company had not taken a decision to discontinue any ongoing projects. However, this provision was made on a conservative basis against any projects which may not be pursued further in the future at that time. Subsequently, the company successfully signed the license agreements for the projects it intends to undertake. In addition, the company entered into a joint venture agreement with other partners in which they have accepted the project development costs previously incurred by the company amounting to SR 165 million. Consequently, there was no need for the provision which the company has previously made. Therefore, the company reversed SR 75 million in 2009.

8. INTANGIBLE ASSETS
2010 SR 2009 SR

Cost: At the beginning of the year Additions Transfers from / to construction work in progress At the end of the year Amortization: At the beginning of the year Charge for the year Transfers At the end of the year Net book amount: At the end of the year 32,793,185 31,091,641 14,882,731 9,496,558 24,379,289 157,204,291 3,736,737 (146,058,297) 14,882,731 45,974,372 5,156,970 6,041,132 57,172,474 357,129,189 (311,154,817) 45,974,372

56

9. ACCOUNTS PAYABLE, OTHER PAYABLES AND PROVISIONS


2010 SR 2009 SR

Accounts payable Retentions Accrued expenses Dividends payable Other payables Zakat provision

189,514,156 8,733,255 159,608,339 28,026,665 60,640,189 446,522,604

263,282,222 40,393,227 158,385,725 21,000,000 87,783,153 49,344,994 620,189,321

10. ADVANCES FROM PARTNERS


The partners of IAC, IVC and IGC have agreed to contribute long term advances to finance certain percentage of their projects costs as per the joint venture agreements. As per the joint venture agreements, long term partners advances shall be repaid after the repayment of external indebtedness and funding of reserve accounts. At 31 December 2010, the parent Company and the minority partners had long term advances of SR 1,288.9 million and SR 313.5 million, respectively (2009: SR 799.2 million and SR 215.1 million, respectively). The parent company and the minority partners have also made short term advances of SR 22.6 million and SR 3.3 million, respectively (2009: SR 95.5 and SR 19.5 million, respectively). The long term advances do not carry any financial charges whereas the short term advances carry financial charges at normal commercial rates.

11. BANK FACILITIES


The Group has short term facilities with local commercial banks including short term revolving loans, guarantees, letters of credit, and other facilities. The revolving loans facilities carry financial charges at SIBOR/RIBOR plus a margin and are secured by promissory notes equivalent to the total facilities.

12. LONG TERM LOANS


2010 SR 2009 SR

Saudi Industrial Development Fund loans (note a) Syndicated bank loans (note b) Public Investment Fund loans (note c)

1,570,000,000 1,396,865,441 1,598,999,963 4,565,865,404

1,387,375,000 1,443,997,232 1,630,017,818 4,461,390,050 220,610,437 4,240,779,613

Less: current portion of term loans

363,900,902 4,201,964,502

Annual Report 2010 I 57

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

12. LONG TERM LOANS (continued)


a) he Saudi Industrial Development Fund (SIDF) granted loans to IDC, IAC, IVC and IGC. These loans are secured by T partners guarantees proportionate to their shareholding and a first priority mortgage on all present and future assets. The loans are repayable in unequal semi-annual installments. The loan agreements include covenants to maintain financial ratios during the loans period. Management and follow up fees are charged to the loans as stated in the loan agreements. b) IDC on one hand, and IAC, IVC and IGC on the other hand entered into two credit facility agreements with two syndicates of financial institutions. The loans are secured by partners guarantees and a second priority mortgage on the assets already mortgaged to SIDF. Under a partner support agreement for the projects financing, the partners are obligated following completion of a project to provide a letter of credit for support of operations during the life of the loans. The loans are repayable in unequal semi-annual installments. The Agreements include covenants to maintain certain financial ratios and also require maintenance of certain restricted bank accounts. The loans carry financial charges at LIBOR plus a variable margin. c) he Public Investment Fund (PIF) granted loans to IDC, IAC, IVC and IGC to finance the construction of the plants of T these companies. The obligation under this loan agreement at all times ranks at pari passu with all other creditors. The loans are repayable in unequal semi-annual installments except IDC loan which is repayable in equal semi-annual installments. The Agreements include covenants to maintain certain financial ratios. The loans carry financial charges at LIBOR plus a fixed margin. The loan agreements require the companies to enter into an interest rate swap contract to cap the financial charges associated with the PIF loans. The combined repayment schedule for the term loans is as follow:
2010 SR 2009 SR

2010 2011 2012 2013 2014 2015 After

363,900,902 423,467,875 489,940,823 544,368,427 588,796,032 2,155,391,345 4,565,865,404

138,950,452 363,900,902 423,467,875 489,940,823 544,368,427 588,796,032 1,911,965,539 4,461,390,050

58

13. OBLIGATION UNDER CAPITAL LEASE


2010 SR 2009 SR

Minimum lease payments (fixed and variable rental payments) Less: variable rental payments

541,416,862 97,254,700 444,162,162

580,052,409 93,079,436 486,972,973 42,810,811 444,162,162 42,810,811 401,351,351

Less: Payments made during the year Present value of minimum lease payments Less: current portion of obligation under capital lease

42,810,811 401,351,351 42,810,811 358,540,540

Future minimum lease payments: Within a year More than one year and less than five years More than five years 42,810,811 246,162,162 112,378,378 401,351,351 42,810,811 214,054,054 187,297,297 444,162,162

IMC entered into an Islamic lease agreement with a syndicate of financial institutions for the purpose of converting a commercial loan into an Islamic mode of financing. IMC has the right to purchase property and equipment leased for a nominal fee at the end of the leasing agreement. The companys commitment under the lease is secured by the lessors ownership of the leased assets.

14. EMPLOYEES TERMINAL BENEFITS


2010 SR 2009 SR

At the beginning of the year Provision made during the year Payments made during the year At the end of the year

40,318,729 14,845,272 (2,552,557) 52,611,444

33,530,749 8,822,990 (2,035,010) 40,318,729

15. INTEREST RATE SWAP AGREEMENTS


As at 31 December 2010, IDC, IAC, IVC and IGC had interest rate swap (IRS) contracts with local commercial banks in relation to the loans obtained from PIF and syndicated bank loans as required by the loan agreements. At 31 December 2010, the notional amount of IRS contracts was SR 2,145 million (2009: SR 2,299 million). The fair value of the interest rate swap at 31 December 2010 has decreased by SR 187.4 million (2009: SR 143.5 million) lower than the fair value at the inception of the contracts. Sipchems share of the fair value amounting to SR 140.4 million (2009: SR 102.9 million) has been recorded in equity. This amount represents what has to be paid in case the group decides to cancel the agreements. However, the group has no intention to settle the agreements. In case of the increase in the interest rates this difference will be eliminated and may become positive.

Annual Report 2010 I 59

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

16. GENERAL RESERVE


In 2007, the General Assembly approved the Board of Directors proposal to establish a general reserve of SR 275 million through transfer from retained earnings to finance the needs of the Groups future projects.

17. RESERVE FOR THE RESULTS OF SALE OF SHARES IN SUBSIDIRIES


On 30 June 2010, the Saudi Organization for Certified Public Accountants issued its opinion regarding the treatment of the difference between the fair value of the consideration received and the amount of the change in minority interest upon the sale of shares in a subsidiary without the parent company losing its control on it. Accordingly, the company changed its presentation in this regard so that such differences are presented in the reserve for the results of sale of shares in subsidiaries transactions instead of presenting them in the statutory reserve. The change has been applied retrospectively.

18. MINORITY INTEREST


2010 SR 2009 SR

International Methanol Company International Diol Company International Acetyl Company Ltd. International Vinyl Acetate Company Ltd. International Gases Company International Polymers Company

352,336,289 202,574,806 209,533,357 139,838,512 111,744,855 76,381,060 1,092,408,879

281,029,987 136,067,496 223,945,322 152,385,443 116,446,135 909,874,383

19. RELATED PARTY TRANSACTIONS


Material related party transactions during the year were as follows: - ertain foreign partners market part of the groups products. Total sales made to foreign partners amounted to SR 1,543.7 C million (2009: SR 364.7 million). - ne of the subsidiaries has bought certain fixed assets from one of the foreign partner. Total purchases of fixed assets O from the foreign partner during the year amounted to SR 20.3 million (2009: SR 19.7 million). - The company and the foreign partners of the group grant advances to the companies of the group to support their operations and comply with debt covenants. Some of the long term advances do not carry any financial charges and have no specific maturity date. Short term advances carry financial charges at normal commercial rates. The prices and terms of the above transactions are approved by the board of directors of the companies of the group.

20. GENERAL AND ADMINISTRATIVE EXPENSES


2010 SR 2009 SR

Employee costs Expenses of board of directors and board meetings for the group Depreciation Others

64,637,987 1,367,015 5,250,927 25,946,169 97,202,098

38,573,358 1,116,476 7,484,753 20,230,741 67,405,328

60

21. ZAKAT
Zakat charge: The zakat charge consists of:
2010 SR 2009 SR

Current year provision

43,941,943

40,358,389

The zakat charge for the Group was as follows:


2010 SR 2009 SR

Current year zakat charge of the company Companys share in the zakat of subsidiaries Charge in consolidated statement of income

21,084,303 22,857,640 43,941,943

32,267,120 8,091,269 40,358,389

Movement in zakat provision The movement in the zakat provision was as follows:
2010 SR 2009 SR

At the beginning of the year Provision for the year Payments made during the year At the end of the year

49,344,994 43,941,943 (32,646,748) 60,640,189

30,001,891 40,358,389 (21,015,286) 49,344,994

Status of zakat assessments The company received zakat assessments for the years from 2001 through 2008 which showed an additional amount due of SR 24.3 million. The Company filed an appeal against the assessments received from the Department of Zakat and Income Tax (DZIT). The companys assessment for the year 2009 has not been raised by the DZIT yet. The zakat assessments for IGC have been agreed with the DZIT up to 2007. The assessments of the other subsidiaries for all years have not been raised by the DZIT yet.

22. OPERATING LEASE ARRANGEMENTS


2010 SR 2009 SR

Payments under operating leases recognized as an expense during the year

2,165,207

2,165,207

The main leases are with the Royal Commission and the Port Authority. The lease with the Royal Commission is for an initial term of 30 Hijra years and is renewable upon the agreement of the two parties.

Annual Report 2010 I 61

Saudi International Petrochemical Company (Saudi Joint Stock Company)

Notes to the Consolidated Financial Statements (Continued)


31 December 2010

22. OPERATING LEASE ARRANGEMENTS (continued)


The minimum lease payments under non-cancellable operating leases are as follows:
2010 SR 2009 SR

Less than one year Year two Year three Year four Year five More than five years Net minimum lease payments

2,165,207 2,165,207 2,165,207 2,165,207 2,165,207 35,001,144 45,827,179

2,165,207 2,165,207 2,165,207 2,165,207 2,165,207 37,166,351 47,992,386

23. DIVIDENDS
In April 2010, the Company distributed cash dividends in the amount of SR 333.3 million of SR 1/ share, which equals to 10% of the share capital for shareholders on records on 11 Rabih II 1431 H corresponding to 27 March 2010.

24. CAPITAL COMMITMENTS


As at 31 December 2010 the Group had letters of credit and letters of guarantee amounting to SR 471 million (2009: SR 137.5 million) and outstanding capital commitments amounting to SR 480 million (2009: SR 63.7 million).

25. CONTINGENCIES
- Some Chinese companies filed a petition in respect of anti-dumping the Chinese market with Methanol products against companies in several countries including IMC, where the Chinese companies requested to impose anti-dumping duty. Recently, the Chinese Ministry of Commerce decided not to impose any protective duties on Saudi Methanol Exports. - Sipchem and Saudi Ethylene and Polyethylene Company (SEPC) have entered into an agreement for the supply of Ethylene to Sipchem. SEPC is claiming compensation for the failure by Sipchem to lift the annual contract quantity during the period from 1 March 2009 up to 31 December 2009, when the related plant was not yet operational. Sipchem management believes that SEPC will not be awarded any compensation.

26. FAIR VALUES


The fair values of the Groups financial assets and liabilities approximate their carrying amounts in the consolidated financial statements.

62

Saudi International Petrochemical Company

Sipchem H.Q.
P.O.Box 130 Al-Khobar - 31952 Tel : 03 801 0111 Fax : 03 801 0222

Jubail
P.O.Box 12021 Jubail Industrial City - 31961 Tel : 03 359 9999 Fax : 03 358 8182

Riyadh
P.O.Box 251 Riyadh - 11411 Tel : 01 203 7736 Fax : 01 203 7738

www.sipchem.com