PROFORMA SKELETON FINANCIAL STATEMENTS FOR …chemanol.com/media/pdf/2015_IFRS.pdf · PROFORMA SKELETON FINANCIAL STATEMENTS FOR THE ... reviewed and finalized by SOCPA as of the

Methanol Chemicals Company(A Saudi Joint Stock Company)

PROFORMA SKELETON FINANCIAL STATEMENTSFOR THE YEAR ENDED31 DECEMBER 2017

Methanol Chemicals Company (A Saudi Joint Stock Company)For the year ended 31 December 2017

Contents

Statement of profit or loss ...................................................................................................................... 1

Statement of other comprehensive income ............................................................................................... 2

Statement of financial position ................................................................................................................ 4

Statement of changes in equity ................................................................................................................ 6

Statement of cash flows ......................................................................................................................... 7

Notes to the financial statements ............................................................................................................. 8

Methanol Chemicals Company (A Saudi Joint Stock Company)For the year ended 31 December 2017

Assumptions and Limitations:

These proforma financial statements are prepared keeping in view the following matters:

· Our assessment of the IFRS conversion has been based on the review of relevant accountingstandards applicable to the Company; accounting standards which are not applicable have not beenreviewed. The key impact areas have been identified based on the information provided anddiscussion made with the management of the Company.

· The IFRS conversion work has been finalized based on guidance on accounting standards alreadyreviewed and finalized by SOCPA as of the date of preparation of these pro-forma skeleton financialstatements. We are not responsible to update these financials for any subsequent changesannounced by SOCPA with respect to different accounting standards which have not yet beenreviewed by SOCPA.

· Our Services are advisory in nature and the it does not form part of an assurance report or opinion,nor our work or services constitute an audit, review, or other form of assurance, as those terms areidentified by the International Auditing and Assurance Standards Board (“IAASB”) or the relevantlocal standards. Accordingly, we have not express any form of assurance on accounting matters,financial statements, or other financial information or internal controls as part of the Services.

· These pro-forma skeleton financial statements for the year ended 31 December 2017 has beenfinalized with notes and disclosures based on circumstances exits as on the date of transition i.e. 1January 2016, management need to amend these financials for any updated information andprogress made from the date of issuance of these pro-forma skeleton financial statements till actualfinalization of these financials for the year ended 31 December 2017.

· The date of first time adoption of IFRS is in line with local rules/guidance issued by the relevantregulators;

· Audited financial statements of the Company for the year ended 31 December 2015 under previousGAAP are used while preparing these financial statements;

· These proforma financial statements should be read in conjunction with the notes to the financialstatements;

· These proforma financial statements does not contain accounting policies and notes on derivativesand hedging accounting;

· The Company will early adopt the IFRS 9 – ‘Financial Instruments’ and IFRS 15 – ‘Revenue fromContract with Customers’ in its entirety; limited disclosures have been provided based on the aboveunderstanding, which can be improved when these standards will be actually implemented whilefinalizing these financials for the year ended 31 December 2017; and

· Disclosure in the financial statements for zakat is kept consistent to previous GAAP presentation.

Methanol Chemicals Company (A Saudi Joint Stock Company)STATEMENT OF PROFIT OR LOSSFor the year ended 31 December 2017

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2017 2016Notes SR SR

Revenue 6 xxxxxx xxxxxxCost of sales xxxxxx xxxxxxGross profit xxxxxx xxxxxx

Other operating income 6.1 xxxxxx xxxxxxSelling and marketing expenses 7 xxxxxx xxxxxxAdministrative expenses 8 xxxxxx xxxxxxOther operating expenses xxxxxx xxxxxxOperating profit xxxxxx xxxxxx

Finance income xxxxxx xxxxxxFinance charges xxxxxx xxxxxxProfit before Zakat xxxxxx xxxxxxZakat expense 9 xxxxxx xxxxxxProfit for the year xxxxxx xxxxxx

Earnings per share: 10

Basic profit per share xxxxxx xxxxxxDiluted profit per share xxxxxx xxxxxx

Methanol Chemicals Company (A Saudi Joint Stock Company)STATEMENT OF OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2017

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2017 2016Notes SR SR

Profit for the year xxxxxx xxxxxx

Other comprehensive income to be reclassified to profit or loss insubsequent periods: - -

Net total other comprehensive income not to be reclassified toprofit or loss in subsequent periods:

- -

Other comprehensive income not to be reclassified to profit or lossin subsequent periods:

Re-measurement gains and (losses) on defined benefit plans 20 xxxxxx xxxxxx

Net total other comprehensive income not to be reclassified toprofit or loss in subsequent periods:

xxxxxx xxxxxx

Total other comprehensive income for the year xxxxxx xxxxxx

Total comprehensive income for the year xxxxxx xxxxxx

Methanol Chemicals Company (A Saudi Joint Stock Company)STATEMENT OF OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2017

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Paragraph 10 of IAS 1 suggests titles for the primary financial statements, such as ‘statement of profit orloss and other comprehensive income’ or ‘statement of financial position’. Entities are, however,permitted to use other titles, such as ‘income statement’ or ‘balance sheet’.

IAS 1.82(a) requires disclosure of total revenue as a line item on the face of the statement of profit orloss. The Company may elect to present the various types of revenue on the face of the statement ofprofit or loss as currently this information is presented in the notes.

IAS 1.99 requires expenses to be analysed either by their nature or by their function within thestatement of profit or loss, whichever provides information that is reliable and more relevant. If expensesare analysed by function, information about the nature of expenses must be disclosed in the notes. TheCompany has presented the analysis of expenses by function.

The Company presents operating profit in the statement of profit or loss; this is not required by IAS 1.The terms ‘operating profit’ or ‘operating income’ are not defined in IFRS. IAS 1.BC56 states that theIASB recognises that an entity may elect to disclose the results of operating activities, or a similar lineitem, even though this term is not defined. The entity should ensure the amount disclosed isrepresentative of activities that would normally be considered to be ‘operating’. For instance, “it wouldbe inappropriate to exclude items clearly related to operations (such as inventory write-downs andrestructuring and relocation expenses) because they occur irregularly or infrequently or are unusual inamount. Similarly, it would be inappropriate to exclude items on the grounds that they do not involvecash flows, such as depreciation and amortisation expenses” (IAS 1.BC56). In practice, other titles, suchas EBIT, are sometimes used to refer to an operating result.

The Company may elect to present two statements, a statement of profit or loss and a statement of othercomprehensive income or a single statement of comprehensive income combining the two elements. If atwo-statement approach is adopted, the statement of profit or loss must be followed directly by thestatement of comprehensive income.

Re-measurement gains and losses on defined benefit plans are recognised in OCI and transferredimmediately to retained earnings (see IAS 1.96 and IAS 19.122).

IAS 1.82A requires that items that will be reclassified subsequently to profit or loss, when specificconditions are met, must be Company on the face of the statement of other comprehensive income.Similarly, items that will not be reclassified must also be Company together. In order to make thesedisclosures, an entity must analyse whether its OCI items are eligible to be subsequently reclassified toprofit or loss under IFRS.

Methanol Chemicals Company (A Saudi Joint Stock Company)STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

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2017 2016As at 1 January

2016Notes SR SR SR

AssetsNon-current assetsProperty, plant and equipment 11 xxxxxx xxxxxx 1,909,821,534Intangible assets 12 xxxxxx xxxxxx 19,884,383

xxxxxx xxxxxx 1,929,705,917Current assetsInventory 14 xxxxxx xxxxxx 130,552,690Trade and other receivables 15 xxxxxx xxxxxx 169,100,253Prepayments and other assets 16 xxxxxx xxxxxx 37,447,074Cash and short-term deposits 17 xxxxxx xxxxxx 164,094,691Total current assets xxxxxx xxxxxx 501,194,708Total assets xxxxxx xxxxxx 2,430,900,625

Equity and liabilitiesEquityIssued capital 18 xxxxxx xxxxxx 1,206,000,000Statutory reserve 18 xxxxxx xxxxxx 116,968,764Retained earnings xxxxxx xxxxxx (101,283,812)Total equity xxxxxx xxxxxx 1,221,684,952

Non-current liabilitiesLong term bank loans 13 xxxxxx xxxxxx 384,493,120Net employee defined benefit liabilities 20 xxxxxx xxxxxx 43,540,189

xxxxxx xxxxxx 428,033,309Current liabilitiesTrade and other payables 21 xxxxxx xxxxxx 31,517,109Accrued expenses and other liabilities 22 xxxxxx xxxxxx 79,972,686Current portion of long term bank loans 13 xxxxxx xxxxxx 320,392,569Short term bank loan 13 xxxxxx xxxxxx 329,300,000Provisions 23 xxxxxx xxxxxx 20,000,000

xxxxxx xxxxxx 781,182,364Total liabilities xxxxxx xxxxxx 1,209,215,673Total equity and liabilities xxxxxx xxxxxx 2,430,900,625

Methanol Chemicals Company (A Saudi Joint Stock Company)STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

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IFRS 1.21 requires an entity’s first IFRS financial statements to present at least three statements offinancial position, two statements of profit or loss and other comprehensive income, two separatestatements of profit or loss (if presented), two statements of cash flows and two statements of changesin equity and related notes, including comparative information for all statements presented.

In accordance with IAS 1.60, the Company has presented current and non-current assets, and currentand non-current liabilities, as separate classifications in the statement of financial position. IAS 1 doesnot require a specific order of the two classifications; the Company has elected to present non-currentbefore current IAS 1 allows entities to present assets and liabilities in order of liquidity when thispresentation is reliable and more relevant.

Methanol Chemicals Company Limited (A Saudi Joint Stock Company)STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2017

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Issued capital Statutory reserve Retained earnings TotalSR SR SR SR

As at 1 January 2017 xxxxxx xxxxxx xxxxxx xxxxxxProfit for the period - - xxxxxx xxxxxxOther comprehensive income - - xxxxxx xxxxxx

Total comprehensive income xxxxxx xxxxxx xxxxxx xxxxxx

Issue of share capital (Note 18) xxxxxx xxxxxx xxxxxx xxxxxxTransfer to statutory reserve - xxxxxx xxxxxx xxxxxxDividends - - xxxxxx xxxxxx

At 31 December 2017 xxxxxx xxxxxx xxxxxx xxxxxx

As at 1 January 2016 1,206,000,000 116,968,764 78,943,069 1,401,911,833Profit for the period - - xxxxxx xxxxxxOther comprehensive income - - xxxxxx xxxxxx

Total comprehensive income xxxxxx xxxxxx xxxxxx xxxxxx

Issue of share capital (Note 18) xxxxxx xxxxxx xxxxxx xxxxxxTransfer to statutory reserve - xxxxxx xxxxxx xxxxxxDividend - - xxxxxx xxxxxx

At 31 December 2016 xxxxxx xxxxxx xxxxxx xxxxxx

Chemanol Chemicals Company Limited (A Saudi Joint Stock Company)STATEMENT OF CASH FLOWSFor the year ended 31 December 2017

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Notes 2017 2016SR SR

OPERATING ACTIVITIES

Profit for the year xxxxxx xxxxxx

Non cash adjustments to reconcile profit before Zakat to net cashflow:

Depreciation of property, plant and equipment 11 xxxxxx xxxxxxAmortization of intangibles xxxxxx xxxxxxImpairment charge for credit losses on receivables xxxxxx xxxxxxEmployees’ defined benefits provision 20 xxxxxx xxxxxxLoss/ (gain) on sale of property, plant and equipment xxxxxx xxxxxx

xxxxxx xxxxxx

Working capital adjustments:Increase/ Decrease in trade and other receivables xxxxxx xxxxxx

Increase/ Decrease in inventories xxxxxx xxxxxx Increase/ Decrease in prepayment and other assets xxxxxx xxxxxx

Increase/ Decrease in trade and other payables xxxxxx xxxxxxIncrease/ Decrease in due to related parties xxxxxx xxxxxx

Employees’ defined benefits paid 20 xxxxxx xxxxxxZakat paid 9 xxxxxx xxxxxxNet cash generated from operating activities xxxxxx xxxxxx

INVESTING ACTIVITIES

Additions to property, plant and equipment 11 xxxxxx xxxxxxProceeds from sale of property, plant and equipment xxxxxx xxxxxxAdditions to intangible assets 12 xxxxxx xxxxxxNet cash used in investing activities xxxxxx xxxxxx

FINANCING ACTIVITIESRepayment of short term loans xxxxxx xxxxxxRepayments of long-term loans xxxxxx xxxxxxDividends paid 19 xxxxxx xxxxxxNet cash generated from financing activities xxxxxx xxxxxxNet changes in cash and cash equivalents xxxxxx xxxxxxCash and cash equivalents at January 01 of the year 17 xxxxxx xxxxxx

Cash and cash equivalents at December 31, 2017 xxxxxx xxxxxx

(We assume that the Company does not have major cash and cash equivalents in a foreign currency)

* Zakat is not covered in the definition of Income Tax as per IAS 12. As per the existing practice of thecompany we have taken profit for the year for preparing statement of cash flows. IAS 12 is still under reviewby SOCPA.

Methanol Chemicals Company Limited (A Saudi Joint Stock Company)NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 2017

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1. Corporate information

The financial statements of Methanol Chemicals Company (“Chemanol” or “the Company”) for the yearended 31 December 2017 were authorized for issue in accordance with a resolution of the directors onxxxx. Chemanol is a Saudi Joint Stock Company registered in Saudi Arabia under Commercial Registrationnumber 2055001870 dated Dhu Al- Hijjah 28, I 409H corresponding to July 31,1989. It is licensed toengage in the production of formaldehyde liquid and urea formaldehyde liquid or their mixture withdifferent concentrations, paraformaldehyde, formaldehyde resins, hexane methylene tetramine, phenolformaldehyde resins, concrete improvers, methanol, carbon monoxide, di-methylamine, mono-methylamine, tri-mon-methylamine, di-methyl formamide, di-methyl carbon, penta aritheretol, sodiumformate and acetaldehyde, as per ministerial resolution number (616/Saud) dated Safar 12, 1429H,corresponding to February 19, 2008.

The Company was converted from a limited liability Company into a joint stock Company in accordancewith Ministerial Resolution No. 286 dated Dhul al-Qa'dah 4, 1428H, corresponding November 14, 2007.

2. Significant accounting policies

2.1 Basis of preparation

The financial statements of the Company have been prepared in accordance with International FinancialReporting Standards (IFRS) as adopted by Saudi Organization for Certified Public Accountants (“SOCPA”).

For all periods up to and including the year ended 31 December 2016, the Company prepared its financialstatements in accordance with the accounting standards promulgated by SOCPA. These financialstatements for the year ended 31 December 2017 are the first financial statements that the Company hasprepared in accordance with IFRS as adopted by SOCPA. Refer to Note 3 for information on how theCompany adopted IFRS.

The financial statements have been prepared on a historical cost basis. The financial statements arepresented in Saudi Riyals.

2.2 Standards earlier adopted

(a) IFRS 9 – Financial Instruments

IFRS 9 – “Financial Instruments” is effective for annual periods commencing on or after 1 January 2018.The Company has elected to earlier adopt IFRS 9 retrospectively from January 1, 2017. Financialstatements for the period ended December 31, 2017 are the first financial statements that the Companyhas prepared in accordance with IFRS as adopted by SOCPA, accordingly, IFRS 1 exceptions andexemptions have been applied that are discussed in note 3. Transitional provision of IFRS 9 does not applyexcept for some provisions as allowed by IFRS 1 and opted by the Company.

Financial assets

As per the IFRS 9, the Company classified its financial assets (trade and other receivables) as measured atamortized cost based on the Company’s business model to hold the financial assets to collect thecontractual cash flows and contractual cash flow are solely payment of principal and interest on principalamount outstanding.

The Company has not recognized any financial asset in the categories of measured at fair value throughprofit or loss and measured at fair value through other comprehensive income.

Financial liabilities

As per IFRS 9 the Company has classified its financial liabilities (bank loans and trade and other payables)as measured at amortized cost.


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Impairment

For trade receivables the Company applied the simplified approach permitted by IFRS 9, which requireslifetime expected credit losses to be recognized from initial recognition of the receivables.

For Complete details in respect of application of IFRS 9 please refer to note 2.3(i).

b) IFRS 15 – Revenue from Contract with Customers

IFRS 15 – “Revenue from Contracts with Customers” was issued in May 2014 and is effective for annualperiods commencing on or after 1 January 2018. The Company has elected to earlier adopt IFRS 15retrospectively from January 1, 2017.

The Company has contracts with customers (that also include marketers) in which supply of thepetrochemical is the only performance obligation. The Company recognized revenue at a point in timewhen control of the asset is transferred to the customer that is on delivery of the goods. The Companywas already recognizing the revenue on delivery of the goods under SOCPA.

As per IFRS 15, revenue from contracts with the customers is recognised at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods or services to acustomer (excluding the amounts collected on behalf of third parties). The effect of any financingcomponent, non-cash consideration and consideration paid to customer shall also be considered.Consideration paid or payable to customers commonly takes the form of discounts coupons, and are theonly deduction allowed from the amount of revenue recognized. Under previous GAAP Company wasrecognizing the revenue from sale of products to marketers at the netback price, after netting of certainselling and distribution expenses that the company is liable to reimburse to marketer on actual basis aspre the terms of the contract. The said expenses are not allowed to be adjusted against the revenue. Inthis respect, the company adopted IFRS 1 exemption related to first time application of IFRS. As per thesaid exemption the company has used the expedient in para C5 (a) of transitional provision of IFRS 15 andaccordingly not restated contracts that have been completed before January 1, 2017. The table belowshow the effect of booking the revenue at gross amount on the various line items in the financialstatements for the year ended December 31, 2016. Company has assessed that there is no impact onretained earnings as at January 1, 2016.

The Company assesses its revenue arrangements against specific criteria to determine if it is acting asprincipal or agent. The Company has concluded that it is acting as a principal in all of its arrangementswith customers (include marketers).

December 31, 2016 Balance as perSOCPA

FinancialImpact

Balance asper IFRS 15

SR SR SR

Revenue xxxx xxxx xxxx

Cost of revenue xxxx xxxx xxxx

Gross profit xxxx xxxx xxxx

The application of the new accounting policy has required management to make the following judgments:

Satisfaction of performance obligations


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The Company assessed each of its contracts with customers to determine whether performanceobligations are satisfied over time or at a point in time in order to determine the appropriate methodof recognising revenue. The Company determined that in all the agreements entered into withcustomers to provide petrochemicals, the performance obligation is satisfied at point in time.

Determination of transaction prices

The Company determined the transaction price in respect of each of its contracts with customers(including marketers) and assessed the impact ,if any, of variable consideration, the existence ofsignificant financing component, any non-cash consideration and amount paid or payable to thecustomers. The Company determined that there is no major impact of above items on transactionprice.

Transfer of control in contracts with customers

The Company assessed when control over the assets that are the subject of the contract is transferredto the customers (including marketers). In the case of all contracts for providing petrochemicals, theCompany determined that the control of goods is transferred to the customers (including marketers)upon delivery or shipment of the goods.

The Company assessed its contracts with the customers based on specific criteria of IFRS 15 anddetermined that the Company is acting as principal in all the contracts with the customers (includingmarketers).

2.3 Summary of significant accounting policies

We have added the detailed significant policies on all major IFRS adopted by SOCPA for Companyreference purposes. Some of them are not applicable to the Company as per the financial statements Dec31, 2015.

(a) Current versus non-current classification

Following are the significant accounting policies applied by the Company in preparing its financialstatements:

The Company presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:Ø Expected to be realised or intended to sold or consumed in the normal operating cycleØ Held primarily for the purpose of tradingØ Expected to be realised within twelve months after the reporting period, orØ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting periodAll other assets are classified as non-current.

A liability is current when:Ø It is expected to be settled in the normal operating cycleØ It is held primarily for the purpose of tradingØ It is due to be settled within twelve months after the reporting period, orØ There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting periodThe Company classifies all other liabilities as non-current.

b) Fair value measurement


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Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement is basedon the presumption that the transaction to sell the asset or transfer the liability takes place either:

Ø In the principal market for the asset or liability, orØ In the absence of a principal market, in the most advantageous market for the asset or liability

The fair value of an asset or a liability is measured using the assumptions that market participants woulduse when pricing the asset or liability, assuming that market participants act in their economic bestinterest. A fair value measurement of a non-financial asset takes into account a market participant'sability to generate economic benefits from the asset’s highest and best use or by selling it to anothermarket participant that would utilise the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficientdata are available to measure fair value, maximising the use of relevant observable inputs and minimisingthe use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed inthe financial statements are categorised within the fair value hierarchy. This is described, as follows,based on the lowest level input that is significant to the fair value measurement as a whole:

Ø Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesØ Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observableØ Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable.

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis,the Company determines whether transfers have occurred between levels in the hierarchy by re-assessingcategorisation (based on the lowest level input that is significant to the fair value measurement as awhole) at the end of each reporting period. The Company determines the policies and procedures for bothrecurring fair value measurement, and for non-recurring measurement.

External valuers are involved for valuation of significant assets. The involvement of external valuers isdecided by the Company after discussion and approval by the Company’s Audit Committee. Selectioncriteria include market knowledge, reputation, independence and whether professional standards aremaintained. The Company decides, after discussions with the Company’s external valuers, which valuationtechniques and inputs to use for each case.

At each reporting date, the Company analyses the movements in the values of assets and liabilities whichare required to be remeasured or re-assessed as per the Company’s accounting policies. For this analysis,the Company verifies the major inputs applied in the latest valuation by agreeing the information in thevaluation computation to contracts and other relevant documents. The Company also compares thechange in the fair value of each asset and liability with relevant external sources to determine whetherthe change is reasonable.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities onthe basis of the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy, as explained above. Fair value related disclosures for financial instruments that are measuredat fair value or where fair values are disclosed are discussed in note 13.

c) Revenue recognition

Revenue from contracts with customers

Revenue is recognised to the extent that the Company has satisfied the performance obligations undercontracts for sale of goods with customers. The company has contracts with customers (that also includemarketers) in which supply of the petrochemicals is the only performance obligation. The company


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recognized revenue at a point in time when control of the goods is transferred to the customer, generallyon delivery or shipment of the goods to the customers.

The Company assessed its contracts with the customers based on specific criteria of IFRS 15 anddetermined that Company is acting as principal in all the contracts with the customers (includingmarketers).

Revenue is measured at the fair value of the consideration received or receivable, taking into accountcontractually defined terms of payment, excluding taxes and duty and is recorded net of trade discountsand volume rebates. The company assesses the impact, if any, of variable consideration, the existence ofsignificant financing component, any non-cash consideration and amount paid or payable to thecustomers on transaction price.

Dividend

Dividend is recognised in the profit and loss when:

Ø The Company’s right to receive the payment is established, which is generally when shareholdersapprove the dividend;

Ø It is probable that the economic benefits associated with the dividend will flow to the entity; andØ The amount of the dividend can be measured reliably.

Interest income

Interest revenue is calculated using the effective interest rate method. The effective interest rate is theinterest rate that exactly discounts the estimated stream of future cash payment or receipts over theexpect life of the financial instrument or when appropriate over the shorter period.

d) Foreign currencies

The Company’s financial statements are presented in Saudi Riyals which is also the functional currency ofthe Company.

Transactions in foreign currencies are initially recorded by the Company in its functional currency usingthe spot rate at the date of the transaction it first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are retranslated in the functionalcurrency using the spot rate of exchange ruling at the reporting date. Differences arising on settlement ortranslation of monetary items are recognized in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translatedusing the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fairvalue in a foreign currency are translated using the exchange rates at the date when the fair value isdetermined. The gain or loss arising on translation of non-monetary measured at fair value is treated inline with the recognition of gain or loss on change in fair value in the item (i.e., the translation differenceson items whose fair value gain or loss is recognized in OCI or profit or loss are also recognized in OCI orprofit or loss, respectively).

e) Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and/or accumulatedimpairment losses, if any. Such cost includes the cost of replacing parts of the property, plant andequipment and borrowing costs for long-term construction projects if the recognition criteria are met.When significant parts of property, plant and equipment are required to be replaced at intervals, theCompany recognizes such parts as individual assets with specific useful lives and depreciates themaccordingly. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount


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of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair andmaintenance costs are recognized in the profit or loss as incurred. The present value of the expected costfor the decommissioning of the asset after its use is included in the cost of the respective asset if therecognition criteria for a provision are met.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

Number of yearsBuildings 33.33Leasehold improvements 5Furniture and fixtures 7-10Computer 4-8Plant equipment and capital spares 10-20Plant overhaul 3Motor vehicles 4Catalysts More than 1 and upto 3

An item of property, plant and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) isincluded in the statement of profit or loss when the asset is derecognized.

The residual values, useful lives and methods of depreciation of property, plant and equipment arereviewed at each financial year end and adjusted prospectively, if appropriate.

Capital work in progress is states at cost less impairment losses, if any, and is not depreciated until theasset is brought into commercial operations.

f) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less accumulated amortisation and accumulatedimpairment losses, if any. Internally generated intangible assets, excluding capitalised development costs,are not capitalised and expenditure is recognised in the statement of profit or loss when it is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over their useful economic lives and assessed forimpairment whenever there is an indication that the intangible asset may be impaired. The amortisationperiod and the amortisation method for an intangible asset with a finite useful life are reviewed at least atthe end of each reporting period. Changes in the expected useful life or the expected pattern ofconsumption of future economic benefits embodied in the asset are accounted for by changing theamortisation period or method, as appropriate, and are treated as changes in accounting estimates. Theamortisation expense on intangible assets with finite lives is recognised in the statement of profit or lossin the expense category consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually,either individually or at the cash-generating unit level. The assessment of indefinite life is reviewedannually to determine whether the indefinite life continues to be supportable. If not, the change in usefullife from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference betweenthe net disposal proceeds and the carrying amount of the asset and are recognised in the statement ofprofit or loss when the asset is derecognised.


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g) Leases

The determination of whether an arrangement is (or contains) a lease is based on the substance of thearrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of thearrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right touse the asset or assets, even if that right is not explicitly specified in an arrangement.

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transferssubstantially all the risks and rewards incidental to ownership to the Company is classified as a financelease.

As a Lessee

Finance leases that transfer to the Company substantially all of the risks and benefits incidental toownership of the leased item, are capitalized at the commencement of the lease at the inception date fairvalue of the leased property or, if lower, at the present value of the minimum lease payments. Leasepayments are apportioned between finance charges and reduction of the lease liability so as to achieve aconstant rate of interest on the remaining balance of the liability. Finance charges are recognized infinance costs in the statement of profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certaintythat the Company will obtain ownership by the end of the lease term, the asset is depreciated over theshorter of the estimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognized as anoperating expense in the statement of profit or loss on a straight-line basis over the lease term.

As a Lessor

Leases in which the Company does not transfer substantially all the risks and benefits of ownership of theasset are classified as operating leases. Initial direct costs incurred in negotiating and arranging anoperating lease are added to the carrying amount of the leased asset and recognised over the lease termon the same bases as rental income. Contingent rents are recognised as revenue in the period in whichthey are earned.

h) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset thatnecessarily takes a substantial period of time to get ready for its intended use or sale are capitalised aspart of the cost of the respective asset. All other borrowing costs are expensed in the period in whichthey occur. Borrowing costs consist of interest and other costs that an entity incurs in connection withthe borrowing of funds.

i) Financial instruments — initial recognition and subsequent measurement

The Group applied the classification and measurement requirements for financial instruments under IFRS9 ‘Financial Instruments’ for the year ended December 31, 2017. Refer to Note 2.2 (a) - Early adoptionfor further details of IFRS 9.

(i) Recognition and derecognition of financial instruments

A financial asset or financial liability is recognised in the balance sheet when the Company becomes aparty to the contractual provisions of the instrument, which is generally on trade date.

The Company derecognizes a financial asset when the contractual cash flows from the asset expire or ittransfers its rights to receive contractual cash flows on the financial asset in a transaction in whichsubstantially all the risks and rewards of ownership are transferred. Any interest in transferred financial


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assets that is created or retained by the Company is recognised as a separate asset or liability. A financialliability is derecognized from the balance sheet when the company has discharged its obligation or thecontract is cancelled or expires.

(ii) Classification and measurement of financial instruments

The Company classified its financial assets into the following measurement categories:

(a) Measured at amortised cost;

(b) Fair value through profit or loss; or

(c) Measured at fair value through other comprehensive income; or

The classification depends on the Company’s business model for managing financial assets and thecontractual terms of the financial assets cash flows.

The Company classifies its financial liabilities as those measured at amortized cost.

Financial instruments at fair value through profit or loss are recognised initially at fair value withtransaction costs recognised in the income statement as incurred. All other financial instruments arerecognised initially at fair value plus directly attributable transaction costs.

The company initially measures the trade receivable at the transaction price as the trade receivable do notcontain a significant financing component.

(iii) Measurement

Financial instruments measured at amortized cost

A financial asset is measured at amortized cost if it is held within a business model whose objective is tohold assets in order to collect contractual cash flows and the contractual terms represent contractualcash flows that are solely payments of principal and interest.

The Company classifies its financial liabilities as those measured at amortized cost.

Financial instruments measured at fair value through profit or loss

Financial assets measured at fair value through profit or loss comprise items specifically designated asfair value through profit or loss on initial recognition and financial assets held within a business modelwhose objective is to hold assets in order to collect contractual cash flows and the contractual termsrepresent contractual cash flows that are not solely payments of principal and interest.

Financial instruments held at fair value through profit or loss are initially recognised at fair value, withtransaction costs recognised in the income statement as incurred. Subsequently, they are measured atfair value and any gains and losses are recognised in the income statement as they arise.

Upon initial recognition, financial instruments may be designated as fair value through profit or loss.Restrictions are placed on the use of the designated fair value option and the classification can only beused:

Ø In respect of an entire contract if a host contract contains one or more embedded derivatives.

Ø If designating the financial instruments eliminates or significantly reduces measurement orrecognition inconsistencies (i.e. eliminates an accounting mismatch) that would otherwise arisefrom measuring financial assets or liabilities on a different basis.

Ø If financial assets and liabilities are both managed and their performance evaluated on a fairvalue basis in accordance with a documented risk management or investment strategy.

On initial recognition, for a financial asset the fair value option is only applied if it eliminates an


16

accounting mismatch that would otherwise arise from measuring items on a different basis. The abovefair value option criteria remains unchanged for a financial liability.

Financial instruments held for trading

A financial instrument is classified as held for trading, if it is acquired or incurred principally for thepurpose of selling or repurchasing in the near term, or forms part of a portfolio of financial instrumentsthat are managed together and for which there is evidence of short-term profit taking, or it is a derivativenot in a qualifying hedge relationship.

Trading derivatives and trading securities are classified as held for trading and recognised at fair value.

Investments at fair value through other comprehensive income (FVOCI)

Debt instruments

Investments in debt instruments are measured at fair value through other comprehensive income wherethey have:

Ø contractual terms that give rise to cash flows on specified dates, that represent solely paymentsof principal and interest on the principal amount outstanding; and

Ø are held within a business model whose objective is achieved by both collecting contractual cashflows and selling financial assets.

These debt instruments are initially recognised at fair value plus direct attributable transaction costs andsubsequently measured at fair value. Gains and losses arising from changes in fair value are included inother comprehensive income within a separate component of equity. Impairment gains or losses, interestrevenue and foreign exchange gains and losses are recognised in profit and loss. Upon disposal, thecumulative gain or loss previously recognised in other comprehensive income is reclassified from equityto the income statement.

Equity instruments

Investment in equity instruments are measured at fair value through other comprehensive income, wherean irrevocable election has been made by the management on initial recognition. The Company can makean irrevocable election (on an instrument-by-instrument basis) to designate investments in equityinstruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held fortrading. Amounts presented in other comprehensive income are not subsequently transferred to profit orloss. Dividends on such investments are recognised in profit or loss unless the dividend clearlyrepresents a recovery of part of the cost of the investment. Fair value reserve includes the cumulative netchange in fair value of equity investment measured at FVTOCI. When such equity instruments arederecognised, the related cumulative amount in the fair value reserve is transferred to retained earnings.

Investments in debt instruments classified as at amortised cost:

Debt instruments that meet the following conditions are subsequently measured at amortised cost lessimpairment loss:

Ø the asset is held within a business model whose objective is to hold assets in order to collectcontractual cash flows; and

Ø the contractual terms of the instrument give rise on specified dates to cash flows that are solelypayments of principal and commission on the principal amount outstanding.

(iv) Offsetting

Financial assets and liabilities are offset and the net amount is presented in the balance sheet when theCompany has a legal right to offset the amounts and intends to settle on a net basis or to realize the assetand settle the liability simultaneously.

(v) Impairment of financial instruments


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At each reporting date, the Company applies a three-stage approach to measuring expected credit losses(ECL) on financial assets accounted for at amortized cost and FVOCI, lease receivable, contract asset,certain loan commitments and financial guarantees to which to impairment requirements of IFRS 9 areapplicable. Assets migrate through the following three stages based on the change in credit quality sinceinitial recognition:

i) Stage 1: 12-months ECL

For exposures where there has not been a significant increase in credit risk since initial recognition andthat are not credit impaired upon origination, the portion of the lifetime ECL associated with theprobability of default events occurring within the next 12 months is recognized.

ii) Stage 2: Lifetime ECL –not credit impaired

For credit exposures where there has been a significant increase in credit risk since initial recognition butthat are not credit impaired, a lifetime ECL is recognized.

iii) Stage 3: Lifetime ECL –credit impaired

Financial assets are assessed as credit impaired when one or more events that have a detrimental impacton the estimated future cash flows of that asset have occurred. For financial assets that have becomecredit impaired, a lifetime ECL is recognized and interest revenue is calculated by applying the effectiveinterest rate to the amortized cost (net of provision) rather than the gross carrying amount.

Objective evidence that financial assets are impaired can include significant financial difficulty of theborrower , default or delinquency by a borrower, restructuring of a loan or advance by the Bank on termsthat the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy,the disappearance of an active market for a security, or other observable data relating to a group ofassets such as adverse changes in the payment status of borrowers or issuers in the group, or economicconditions that correlate with defaults in the group.

The company considers the probability of default upon initial recognition of asset and whether there hasbeen a significant increase in credit risk on an ongoing basis throughout each reporting period. To assesswhether there is a significant increase in credit risk the company compares the risk of a default occurringon the asset as at the reporting date with the risk of default as at the date of initial recognition. Itconsiders available reasonable and supportive forwarding-looking information. Especially the followingindicators are incorporated:

Ø Actual or expected significant adverse changes in business, financial or economic conditions thatare expected to cause a significant change to the borrower’s ability to meet its obligations

Ø Actual or expected significant changes in the operating results of the borrower

Ø Significant increases in credit risk on other financial instruments of the same borrower

Ø Significant changes in the expected performance and behavior of the borrower, includingchanges in the payment status of borrowers and changes in the operating results of theborrower

Ø Macroeconomic information (such as market interest rates or growth rates)

Ø Past due information adjusted for future information

Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than30 days past due in making a contractual payment. This is a rebuttable assumption


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The company considers evidence of impairment at both a specific asset and collective level. Allindividually significant financial instruments found not to be specifically impaired are then collectively(with similar risk characteristics) assessed for any impairment that has been incurred but not yetidentified.

Impairment losses for a financial instrument are recognised in the statement of profit or loss andreflected in impairment for credit losses. Interest on impaired assets continues to be recognised throughthe unwinding of the discount. When a subsequent event causes the amount of impairment loss todecrease, the decrease in impairment loss is reversed through the statement of profit or loss.

The loss allowance in respect financial assets measured at FVTOCI shall be recognised in othercomprehensive income and shall not reduce the carrying amount of the financial asset in the statement offinancial position.

When an asset is uncollectible, it is written off against the related provision. Such assets are written offafter all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off reduce the amount of the expense in theincome statement. If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment was recognised, thepreviously recognised impairment loss is reversed by adjusting the provision. The amount of the reversalis recognised in the income statement.

The Company measures the loss allowance at an amount equal to lifetime expected credit losses for alltrade receivables and contracts assets that result from contracts with the customers.

j) Impairment of non-financial assets

Disclosures relating to impairment of non-financial assets are summarized in the following notes:

Accounting policy disclosures Note 2.3 (j)Disclosures for significant assumptions Note 4Property, plant and equipment Note 11Intangible assets Note 12

The Company assesses, at each reporting date, whether there is an indication that an asset may beimpaired. If any indication exists, or when annual impairment testing for an asset is required, theCompany estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of anasset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount isdetermined for an individual asset, unless the asset does not generate cash inflows that are largelyindependent of those from other assets or group of assets. When the carrying amount of an asset or CGUexceeds its recoverable amount, the asset is considered impaired and is written down to its recoverableamount.

In assessing value in use, the estimated future cash flows are discounted to their present value using adiscount rate that reflects current market assessments of the time value of money and the risks specificto the asset. In determining fair value less costs of disposal, recent market transactions are taken intoaccount. If no such transactions can be identified, an appropriate valuation model is used.These calculations are corroborated by valuation multiples, quoted share prices for publicly tradedcompanies or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which areprepared separately for each of the Company’s CGUs to which the individual assets are allocated. Thesebudgets and forecast calculations generally cover a period of five years. A long-term growth rate iscalculated and applied to project future cash flows after the fifth year.


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Impairment losses o are recognized in the statement of profit or loss in expense categories consistentwith the function of the impaired asset, except for properties previously revalued with the revaluationtaken to OCI. For such properties, the impairment is recognized in OCI up to the amount of any previousrevaluation.

For asset, an assessment is made at each reporting date to determine whether there is an indication thatpreviously recognized impairment losses no longer exist or have decreased. If such indication exists, theCompany estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss isreversed only if there has been a change in the assumptions used to determine the asset’s recoverableamount since the last impairment loss was recognized. The reversal is limited so that the carrying amountof the asset does not exceed its recoverable amount, nor exceed the carrying amount that would havebeen determined, net of depreciation, had no impairment loss been recognized for the asset in prioryears. Such reversal is recognized in the statement of profit or loss unless the asset is carried at arevalued amount, in which case, the reversal is treated as a revaluation increase.

Intangible assets with indefinite useful lives are tested for impairment annually as at 31 December at theCGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

k) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories isprincipally based on the weighted average principle, and includes expenditure incurred in acquiring theinventories, production or conversion costs and other costs incurred in bringing them to their existinglocation and condition. In the case of manufactured inventories and work in progress, cost includes anappropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimatedcosts of completion and selling expenses.

l) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at banks, cash on hand andshort-term deposits with a maturity of three months or less, net of outstanding bank overdrafts which aresubject to an insignificant risk of changes in value.

m) Convertible preference shares

Convertible preference shares are separated into liability and equity components based on the terms ofthe contract.

On issuance of the convertible preference shares, the fair value of the liability component is determinedusing a market rate for an equivalent non-convertible bond. This amount is classified as a financial liabilitymeasured at amortised cost (net of transaction costs) until it is extinguished on conversion orredemption.

The remainder of the proceeds is allocated to the conversion option that is recognised and included inequity. Transaction costs are deducted from equity. The carrying amount of the conversion option is notremeasured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertiblepreference shares, based on the allocation of proceeds to the liability and equity components when theinstruments are initially recognised.

n) Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted fromequity. No gain or loss is recognised in the profit or loss on the purchase, sale, issue or cancellation of theCompany’s own equity instruments. Any difference between the carrying amount and the consideration, ifreissued, is recognised in the share premium. Voting rights related to treasury shares are nullified for theCompany and no dividends are allocated to them. Share options exercised during the reporting period aresatisfied with treasury shares.


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o) Cash dividend to owners of equity

The Company recognises a liability to make cash or non-cash distributions to owners of equity when thedistribution is authorised and the distribution is no longer at the discretion of the Company. A distributionis authorised when it is approved by the shareholders. A corresponding amount is recognised directly inequity.

Non-cash distributions are measured at the fair value of the assets to be distributed with fair valuere-measurement recognised directly in equity.

Upon settlement of the distribution of non-cash assets, any difference between the carrying amount ofthe liability and the carrying amount of the assets distributed is recognised in profit or loss.

p) Provisions

General

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result ofa past event, it is probable that an outflow of resources embodying economic benefits will be required tosettle the obligation and a reliable estimate can be made of the amount of the obligation. Where theCompany expects some or all of a provision to be reimbursed, for example under an insurance contract,the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.The expense relating to a provision is presented in the statement of profit or loss net of anyreimbursement.

If the effect of the time value of money is material, provisions are discounted using a discount rate thatreflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in theprovision due to the passage of time is recognized as a finance cost.

Restructuring provisions

Restructuring provisions are recognized only when the Company has a constructive obligation, which iswhen a detailed formal plan identifies the business or part of the business concerned, the location andnumber of employees affected, a detailed estimate of the associated costs, and an appropriate timeline,and the employees affected have been notified of the plan’s main features.

Decommissioning liability

Decommissioning costs are provided for at the present value of expected costs to settle the obligationusing estimated cash flows and are recognized as part of the cost of the relevant asset. The cash flowsare discounted at a rate that reflects the risks specific to the decommissioning liability. The unwinding ofthe discount is expensed in the statement of profit or loss as a finance cost. The estimated future costs ofdecommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated futurecosts or in the discount rate applied, are added to or deducted from the cost of the asset.

Provision for inventory obsolescence

When inventories become old or obsolete, an estimate is made of their net realizable value. Forindividually significant amounts this estimation is performed on an individual basis. Amounts which arenot individually significant, but which are old or obsolete, are assessed collectively, and an allowanceapplied according to the inventory type and the degree of ageing or obsolescence based on expectedselling prices. Inventories are measured at the lower of cost and net realizable value.

q) Zakat

Zakat is provided for in accordance with Saudi Arabian fiscal regulations. The provision is charged to thestatement of income. Additional income, if any, that become due on finalization of assessment areaccounted for in the year in which assessment is finalized.


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r) Pensions and other post-employment benefits

The Company is operating an unfunded post-employment defined benefit plans. The cost of providingbenefits under the defined benefit plan is determined using the projected unit credit method. Actuarialgains and losses are recognized in full in the period in which they occur in other comprehensive income.Such actuarial gains and losses are also immediately recognized in retained earnings and are notreclassified to profit or loss in subsequent periods. Re-measurements are not reclassified to profit or lossin subsequent periods.

Past service costs are recognized in profit or loss on the earlier of:

Ø The date of the plan amendment or curtailment

and

Ø The date on which the Company recognizes related restructuring costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. TheCompany recognizes the following changes in the net defined benefit obligation under ‘cost of sales’,‘administration expenses’ and ‘selling and distribution expenses’ in the statement of profit or loss (byfunction):

Ø Service costs comprising current service costs, past-service costs, gains and losses oncurtailments and non-routine settlements

Ø Net interest expense or income

The defined benefit asset or liability comprises the present value of the defined benefit obligation, lesspast service costs and less the fair value of plan assets out of which the obligations are to be settled.However, currently the plan is unfunded and has no assets.

s) Selling, marketing, general and administrative expenses

Selling, marketing and general and administrative expenses include direct and indirect costs notspecifically part of cost of revenues as required under generally accepted accounting principles.Allocations between selling, marketing and of general and administrative expenses, cost of revenues,when required, are made on a consistent basis.

3 First time adoption of IFRS

Financial statements, for the year ended 31 December 2017, are the first the Company has prepared inaccordance with IFRS. For periods up to and including the year ended 31 December 2016, the Companyprepared its financial statements in accordance with Saudi Organization of Certified Public Accountants(SOCPA).

Accordingly, the Company has prepared financial statements which comply with IFRS applicable forperiods ending on or after 31 December 2017, together with the comparative period data as at and forthe year ended 31 December 2016, as described in the summary of significant accounting policies. Inpreparing these financial statements, the Company’s opening statement of financial position wasprepared as at 1 January 2016, the Company’s date of transition to IFRS. This note explains the principaladjustments made by the Company in restating its SOCPA financial statements, including the statement offinancial position as at 1 January 2016 and the financial statements as at and for the year ended 31December 2016.

3.1 Exemptions


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IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certainrequirements under IFRS.

The Company has applied the following exemptions:

· The Company has elected to measure certain items of property, plant and equipment at fair valueat the date of transition to IFRS, January 1, 2016. (Management needs to consider this pointwhile addressing the PPE componentization issue. If the retrospective calculate the adjustmentand not opt for deemed cost exemption then this point shall be removed).

· The Company has applied the transitional provision in IFRIC 4 Determining whether anArrangement Contains a Lease and has assessed all arrangements based upon the conditions inplace as at the date of transition to IFRS, January 1, 2016.

· The Company has applied the transitional provisions in IAS 23 Borrowing Costs and has notrestated for borrowing costs capitalized under SOCPA prior to 1 January 2016.

· IFRS 1 exemption related to first time application of IFRS 15 has been applied. In accordance withthe said exemption the company has used the expedient in para C5 (a) of transitional provision ofIFRS 15 and has not restated contracts that were completed before January 1, 2016.

3.2 Estimates

The estimates at 1 January 2016 and at 31 December 2016 are consistent with those made for the samedates in accordance with SOCPA (after adjustments to reflect any differences in accounting policies) apartfrom the Employee defined benefit plan where application of SOCPA did not require estimations asrequired under IAS 19. The estimates used by the Company to present these amounts in accordance withIFRS reflect conditions at 1 January 2016, the date of transition to IFRS and as of 31 December 2016.


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3.3 Company reconciliation of equity as at 1 January 2016 (date of transition to IFRS)

SOCPA *RemeasurementIFRS as at 1

January 2016Notes SR SR SR

AssetsNon-current assetsProperty, plant and equipment A,B 2,045,402,674 (135,581,140) 1,909,821,534

Intangible assets 19,884,383 - 19,884,383

2,065,287,057 (135,581,140) 1,929,705,917

Current assetsInventory C 155,797,033 (25,244,343) 130,552,690Trade and other receivables 169,100,253 - 169,100,253Prepayments and other assets 37,447,074 - 37,447,074Cash and short-term deposits 164,094,691 - 164,094,691

526,439,051 (25,244,343) 501,194,708Total assets 2,591,726,108 (160,825,483) 2,430,900,625

Equity and liabilitiesEquityIssued capital 1,206,000,000 - 1,206,000,000Statutory reserve 116,968,764 - 116,968,764Retained earnings 78,943,069 (180,226,881) (101,283,812)

1,401,911,833 (180,226,881) 1,221,684,952Non-current liabilitiesLong term bank loan D 380,782,253 3,710,867 384,493,120Net employee defined benefit liabilities E 30,947,722 12,592,467 43,540,189

411,729,975 16,303,334 428,033,309

Current liabilitiesTrade and other payables F 51,517,109 (20,000,000) 31,517,109


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Accrued expenses and other liabilities 79,972,686 - 79,972,686Current portion of long term bankloans D 317,294,505 3,098,064 320,392,569Provisions F - 20,000,000 20,000,000

Short term bank loans 329,300,000 - 329,300,000778,084,300 3,098,064 781,182,364

Total liabilities 1,189,814,275 19,401,398 1,209,215,673Total equity and liabilities 2,591,726,108 160,825,483 2,430,900,625

3.4 Company reconciliation of equity as at 31 December 2016

SOCPA*Remeasure

ment

IFRS as at 31December

2016Notes SR SR SR

AssetsNon-current assetsProperty, plant and equipment A,B xxxx xxxx xxxxIntangible assets xxxx xxxx xxxx

xxxx xxxx xxxx

Current assetsInventory C xxxx xxxx xxxxTrade and other receivables xxxx xxxx xxxxPrepayments and other assets xxxx xxxx xxxxCash and short-term deposits xxxx xxxx xxxx

Total assets xxxx xxxx xxxx

Equity and liabilitiesEquityIssued capital xxxx xxxx xxxxStatutory reserve xxxx xxxx xxxxRetained earnings xxxx xxxx xxxx

Total equity xxxx xxxx xxxx

Non-current liabilitiesLong term bank loan D xxxx xxxx xxxx


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Net employee defined benefit liabilities E xxxx xxxx xxxxxxxx xxxx xxxx

Current liabilitiesTrade and other payables F xxxx xxxx xxxxAccrued expenses and other liabilities xxxx xxxx xxxxCurrent portion of long term bank loans D xxxx xxxx xxxxZakat payable xxxx xxxx xxxxProvisions F xxxx xxxx xxxx

xxxx xxxx xxxxTotal liabilities xxxx xxxx xxxxTotal equity and liabilities xxxx xxxx xxxx

3.5 Company reconciliation of total profit and loss statement for the year ended 31 December 2016

Notes SOCPA*Remeasureme

nts

IFRS forthe year

ended 31December

2016SR SR SR

Revenue from contracts with customersCost of sales

xxxxxxxx

xxxxxxxx

xxxxxxxx

Gross profit xxxx xxxx xxxx

Other operating income xxxx xxxx xxxxSelling and marketing expenses xxxx xxxx xxxxAdministrative expenses xxxx xxxx xxxxOther operating expenses xxxx xxxx xxxxOperating profit xxxx xxxx xxxx

Operating profitFinance income xxxx xxxx xxxxFinance charges xxxx xxxx xxxxProfit before Zakat xxxx xxxx xxxxZakat expense xxxx xxxx xxxxProfit for the year xxxx xxxx xxxx


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3.6 Company reconciliation of other comprehensive income for the year ended 31 December 2016

SOCPA*Remeasure

ments

IFRS for theyear ended

31 December2016

Notes SR SR SR

Profit for the year xxxx xxxx xxxx

Other comprehensive income

Other comprehensive income to bereclassified to profit or loss in subsequentperiods:

Fair value loss/ gain on cash flow hedge - xxxx xxxx

Net total other comprehensive income tobe reclassified to profit or loss insubsequent periods: - xxxx xxxx

Other comprehensive income not to bereclassified to profit or loss in subsequentperiods:

Re-measurement gains and (losses) ondefined benefit plans - xxxx xxxx


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Net total other comprehensive income notto be reclassified to profit or loss insubsequent periods: xxxx xxxx

Total other comprehensive income for theyear

xxxx xxxx

Total comprehensive income for the year xxxx xxxx

* In the reconciliation we have included a column for remeasruement only and all the adjustments relatedto reclassification, presentation and remeasurement are shown in the same column. However, separatecolumns may also be inserted.

Notes to the reconciliation of equity as at 1 January 2016 and 31 December 2016 and totalcomprehensive income for the year ended 31 December 2016.

A) Depreciation of property, plant and equipment

IAS 16 requires significant component parts of an item of property, plant and equipment to bedepreciated separately. At the date of transition to IFRS, an increase/ decrease of xxx (31 December2016: xxx) was recognized in property, plant and equipment net of accumulated depreciation due toseparate depreciation of significant components of property, plant and equipment. These amounts wererecognized in retained earnings.

B) Impairment of property, plant and equipment

At the date of transition to IFRS, the Company determined that the recoverable amounts of its 2 plants,which are considered as separate CGUs were less than the carrying amounts. The recoverable amount wasbased on the plants’ value in use. This resulted in impairment loss of SR (158,415,149) as at 1 January2016 that was recognized in retained earnings. This has an impact on the depreciation for the year endedDecember 31, 2016 and it was reduced by xxxx.

C) Inventory

At the date of transition to IFRS, certain catalyst and critical spares amounting to SR 25,244,343 thatwere classified as inventory under SOCPA were reclassified as PPE as per IAS 16.Additional accumulateddepreciation of SR xxx (31, December 2016: xxx) was recognized in retained earnings.

D) Amortized cost

As per the requirements of IFRS 9, The company classified the long term loans as measured at amortizedcost. As at January 1, 2016 the difference between the amortized cost and SOCPA carry value of longterm loans amounting to SR 6,808,931 was recognized in retained earnings. Out of the above difference,SR 3,098,064 was related to the current portion of long term loan. The interest expense for the yearended December 31, 2016 was reduced by xxxx .

E) Defined benefit obligation

Under SOCPA, the Company recognized costs related to post-employment benefits of employees ascurrent value of the vested benefit to which an employee is entitled. Under IFRS, such liabilities arerecognized on actuarial basis. As at 1 January , 2016,the difference between the provision as per SOCPAand provision based on actuarial valuation amounting to SR 12,592,467 was recognized in retained


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earnings and for the year ended 31 December 2016 expense amounting to SR xxx was charged to incomestatement and actuarial gain loss amounting SR xxx was recognized in retained earnings.

F) Provisions

Previsions amounting to SR 20,000,000 were shown separately on the face of balance sheet as per therequirement of IAS 1 . Under SOPCA the same was aggregated under trade and other payables.

G) Statement of cash flows

The transition from SOCPA to IFRS did not have a material impact on the statement of cash flows.

4. Significant accounting estimates and assumptions

The preparation of the Company’s financial statements requires management to make judgments,estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities,and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about theseassumptions and estimates could result in outcomes that require a material adjustment to the carryingamount of the asset or liability affected in future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year, are described below. The Company based itsassumptions and estimates on parameters available when the financial statements were prepared.Existing circumstances and assumptions about future developments, however, may change due to marketchanges or circumstances arising beyond the control of the Company. Such changes are reflected in theassumptions when they occur.

iii. Impairment of financial assets

The Company measures the loss allowance based on lifetime expected credit losses for all tradereceivables and contracts assets that result from contracts with the customers.

iv. Defined benefit plans (pension benefits)

The cost of defined benefit post-employment benefits and the present value of the related obligation aredetermined using actuarial valuations. An actuarial valuation involves making various assumptions whichmay differ from actual developments in the future. These include the determination of the discount rate,future salary increases, withdrawal before normal retirement age, mortality rates etc. Due to thecomplexity of the valuation, the underlying assumptions and its long-term nature, a defined benefitobligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at eachreporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate,yield and duration of Saudi government bonds obligation with at least an ‘A’ rating or above, as set by aninternationally acknowledged rating agency, and extrapolated as needed along the yield curve tocorrespond with the expected term of the defined benefit obligation. The underlying bonds are furtherreviewed for quality. Those having excessive credit spreads are removed from the analysis of bonds onwhich the discount rate is based, on the basis that they do not represent high quality bonds.

Age-wise “light” withdrawal rates are used in carrying out the valuation. These age-wise withdrawalrates are generally used in the MENA region to carry out the actuarial valuation of end of service benefitSchemes of companies in Oil & Gas and Energy sectors.

The rates assumed are based on the LIC (1975-79) Ultimate mortality tables, rated down one year. In


29

the absence of any standard mortality tables in the region, these rates are generally used in Kingdom ofSaudi Arabia in carrying out the actuarial valuation of EoSB Schemes. If any other mortality table is usedit will not make any significant difference in the results.

A further detail about post-employment benefit obligation is provided in Note 25.

v. Impairment of non-financial assets

Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which isthe higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposalcalculation is based on available data from binding sales transactions, conducted at arm’s length forsimilar assets or observable market prices less incremental costs for disposing of the asset. The value inuse calculation is based on a DCF model. The cash flows are derived from the budget for the next fiveyears and do not include restructuring activities that the Company is not yet committed to or significantfuture investments that will enhance the asset’s performance of the CGU being tested. The recoverableamount is most sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.

5. Segment information

For management purposes, the Company is organized into business units based on its plants and has 2operating segments, as follows:

· Formaldehyde segment:· Methanol & MA- DMF segment:

The Company operates its activities within the Kingdom of Saudi Arabia only.

No operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of makingdecisions about resource allocation and performance assessment. Segment performance is evaluatedbased on profit or loss and is measured consistently with profit or loss in the financial statements.

Year ended31 December 2017 Formaldehyde

Methanol & MA-DMF Total

SR SR SR

Revenue from contracts with customersExternal customers xxxx xxxx xxxxInter-segment xxxx xxxx xxxxTotal revenue xxxx xxxx xxxx

Income/(expenses)Depreciation and amortization xxxx xxxx xxxxFinance charges xxxx xxxx xxxxFinance income xxxx xxxx xxxx

Segment profit xxxx xxxx xxxx


Total liabilities xxxx xxxx xxxx

Other disclosures

Capital expenditure xxxx xxxx xxxx


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Inter-segment revenues are eliminated upon consolidation and reflected in the ‘adjustments andeliminations’ column. All other adjustments and eliminations are part of detailed reconciliations presentedfurther below.

Year ended31 December 2016 Formaldehyde


SR SR SR

Revenue from contracts with customersExternal customers xxxx xxxx xxxxInter-segment xxxx xxxx xxxxTotal revenue xxxx xxxx xxxx

Income/(expenses)Depreciation and amortization xxxx xxxx xxxxFinance charges xxxx xxxx xxxxFinance income xxxx xxxx xxxx

Segment profit xxxx xxxx xxxx



Other disclosures


Year endedAs at January 1, 2016 Formaldehyde


SR SR SR



Other disclosures


Adjustments

Zakat expense, certain financial assets and liabilities were not allocated to segments as these weremanaged on Company level.

Capital expenditure consists of additions of property, plant and equipment and intangible assets.

Reconciliation of profit 2017 2016SR SR

Segment profit xxxx xxxxZakat xxxx xxxx


31

Company profit xxxx xxxx

2017 2016

As at1 January

2016Reconciliation of assets SR SR SRSegment operating assets xxxx xxxx xxxxPrepayments and other assets xxxx xxxx xxxxCash and other bank deposits xxxx xxxx xxxxTotal assets xxxx xxxx xxxx

2017 2016

As at1 January

2016Reconciliation of liabilities SR SR SRSegment operating liabilitiesAccrued expenses and other liabilities xxxx xxxx xxxxLong term bank loans xxxx xxxx xxxxShort term bank loans xxxx xxxx xxxx


Geographical informationSaudi

ArabiaForeign

countries TotalDecember 31, 2017 SR SR SRRevenue from external customers xxxx xxxx xxxxDecember 31, 2016Revenue from external customers xxxx xxxx xxxx

December 31, 2017 SR SR SRRevenue from external customers xxxx xxxx xxxx

6. Revenue

In the following table revenue has been disaggregated by primary geographical market and major productsor services.

Formaldehyde Methanol & MA- DMF Total

2017 2016 2017 2016 2017 2016PrimarygeographicalmarketsMiddle east xxxx xxxx xxxx xxxx xxxx xxxx


32

Africa xxxx xxxx xxxx xxxx xxxx xxxxEurope xxxx xxxx xxxx xxxx xxxx xxxxTotal revenue xxxx xxxx xxxx xxxx xxxx xxxx

Main products andservicesSNF xxxx xxxx xxxx xxxx xxxx xxxxDMF xxxx xxxx xxxx xxxx xxxx xxxxMethanol xxxx xxxx xxxx xxxx xxxx xxxxPenta xxxx xxxx xxxx xxxx xxxx xxxxOthers xxxx xxxx xxxx xxxx xxxx xxxxTotal revenue xxxx xxxx xxxx xxxx xxxx xxxx

Revenue receivable in respect of contracts with the customers have been included in trade and otherreceivables and shown separately in note 15.

6.1 Other operating income2017 2016

SR SRForeign exchange loss xxxx xxxx(Loss)/ gain on sale of property, plant and equipment xxxx xxxxOthers xxxx xxxx

xxxx xxxx

7. Selling and marketing expenses2017 2016

SR SR

Freight xxxx xxxxSales commission xxxx xxxxEmployee costs xxxx xxxxCustom charges xxxx xxxxExternal manpower services xxxx xxxxOthers xxxx xxxx

8. Administrative expenses2017 2016

SR SR

Employee costs xxxx xxxxDepreciation xxxx xxxxExternal manpower services xxxx xxxxProject evaluation costs xxxx xxxxProfessional fees xxxx xxxxCredit loss impairment xxxx xxxxUtilities and common expenses xxxx xxxxTravel and air fares xxxx xxxxTadawul fees xxxx xxxxAdvertising xxxx xxxxRents xxxx xxxxOthers

xxxx xxxx xxxx xxxx


33

8.1 Personnel cost

2017 2016SR SR

Included in cost of sales xxxx xxxxIncluded in administrative expenses xxxx xxxxIncluded in selling and distribution expenses xxxx xxxx

8.2 Depreciation

xxxx xxxx

2017 2016SR SR

Included in cost of sales xxxx xxxxIncluded in administrative expenses xxxx xxxxIncluded in selling and distribution expenses xxxx xxxx

xxxx xxxx

8.3 Amortization2017 2016

SR SRIncluded in cost of sales xxxx xxxxIncluded in administrative expenses xxxx xxxxIncluded in selling and distribution expenses xxxx xxxx

xxxx xxxx9. Zakat

During the year, the Company received final assessment for the years ended December 31, 2009 andDecember 3 I, 2010 from DZIT. As per the assessment order, the Company is due a refund of SR 4.8million in respect of zakat paid for the years 2009 and 2010.The Company has filed its Zakat declarationfor all the years up to 2013 and paid Zakat accordingly and the assessment is awaited.

a) The Zakat (credit)/charge for the year ended December 31 comprises of the following:

2017 2016SR SR

Charge for the year xxxx xxxxOver provision for prior years xxxx xxxx

xxxx xxxx

b) Summary of the items included in the Zakat base for the year ended 31 December is as follows:

2017 2016SR SR

c)Capital xxxx xxxx

Adjusted equity and provision at the beginning of the year xxxx xxxx


34

Net adjusted income xxxx xxxx

Deductions for the year xxxx xxxx

Zakat xxxx xxxx

c) The movement in the Zakat provision is as follows:

2017 2016SR SR

Balance at beginning of the year xxxx xxxxZakat (credit)/charge for the year xxxx xxxxPayments during the year xxxx xxxx(Receivable)/Payable at end of the year xxxx xxxx

10. Earnings per share

Earnings per share (Basic) for profit and loss attributable to ordinary shares holders ended 31 December2017 and 2016 are computed based on the weighted average number of shares outstanding during suchyears. The diluted earnings per share are the same as the basic earnings per share as the Company doesnot have any dilutive instruments in issue

2017 2016

Profit for the year attributable to equity holders of the companyxxxx

xxxxWeighted average number of shares outstanding during the year xxxx xxxx

Basic and Dilutive earnings per share xxxx xxxx


34

11. Property, plant and equipmentBuildings and

lease holdimprovement

s

Furniture,fixture and

officeequipment

Plantequipment andcapital spares

MotorVehicles

Computers CatalystPlant

Overhaul

Capital workin progress

*Total

Cost: SR SR SR SR SR SR SR SR SR

At 1 January 2016 360,431,828

23,103,833 2,611,210,375 10,336,823 10,088,345

60,834,504

40,866,659 29,100,795 3,145,973,162Additions xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

Disposals xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

Transfers xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

At 31 December 2016 xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxxxxxx

xxxx xxxx xxxx xxxxAdditions


Transfers xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

At 31 December 2017 xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxxAccumulated Depreciations andimpairment:At 1 January 2016 75,700,544 15,982,095 907,736,650 8,584,364 8,738,284 50,566,47

733,262,074 - 1,100,570,48

8Depreciation charge for the year xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx



Depreciation charge for the year xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

Disposals Xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx


Net book value:



At 1 January 2016 284,731,28 7,121,738 1,384,233,093 1,752,459 1,350,061 10,268,02 7,604,585 29,100,795 1,909,821,53


35

4 7 4


35

11.1 Capital work in progress

Management shall detail about nature of capital work in progress as per the stats at December 31, 2017.

11.2 Property, plant and equipment

Property plant and equipment of with a carrying amount of xxxx (2016: xxxx, 1 January 2016: xxxx) aresubject to a first charge to secure xxxx SIDF bank loans (Note 13).

12. Intangibles

SoftwarePipeline service

agreement TotalSR SR SR

Cost

At 1 January 2016 17,538,223 15,750,000 33,288,223Additions xxxx xxxx xxxx

At 31 December 2016 xxxx xxxx xxxxAdditions xxxx xxxx xxxx

At 31 December 2017 xxxx xxxx xxxx

AmortizationAt 1 January 2016 9,072,590 4,331,250 13,403,840Additions xxxx xxxx xxxx

At 31 December 2016 xxxx xxxx xxxxAmortization xxxx xxxx xxxx


Net book valueAt 31 December 2017 xxxx xxxx xxxx


At 1 January 2016 8,465,633 11,418,750 19,884,383

Estimated value of the right to use pipelines owned by other parties for transporting raw materialsand finished goods are treated as intangible assets and are amortized over the estimated period offuture economic benefits.

On March 7, 2010, the Company entered into a Pipeline Services Agreement ('PSA ') for three years,which provides the Company with a contractual right to use the pipeline for ammonia supply. During2013, the PSA was extended to 26 December, 201 3. Management is in the process of obtaining anextension to the PSA. The Company has capitalized the esti mated amount payable in respect of thecapital i nvestment component, which amounts to SR 1 5.75 million. The intangible assets have beenamortized over twenty years, on the basis that this is the estimated useful life of the asset. TheManagement believes that the ammonia supply will continue for the foreseeable future.

Computer software mainly includes SAP and other programs which management has capitalized during2014 and amortization is calculated on four years of useful life.


36

13. Financial instruments

13.1 Financial assets measured at amortized cost

2017 2016As at

1 January 2016SR SR SR

Trade and other receivablesTrade receivables xxxx xxxx 170, 110,352Less: credit loss impairment xxxx xxxx 1,010,099Total financial assets measure at amortized costmeasured at amortized cost

xxxx xxxx 169,100,253

13.2 Financial liabilities at amortized cost

2017 2016As at

1 January 2016SR SR SR

Bank loans

Saudi industrial development fund xxxx xxxx 378,412,568Murabaha Facility from a syndicate of banks xxxx xxxx 319,664,190Short term bank loans xxxx xxxx 329,300,000Total bank loan xxxx xxxx 1,041,985,000

Trade and other payables

Trade payable xxxx xxxx 51,435,090Due to related party xxxx xxxx 82,019Other payables xxxx xxxx 1,478,007Total financial liabilities measured at amortized cost xxxx xxxx 1,094,980,116

Current portion of long term bank loans xxxx xxxx 320,392,569Noncurrent portion of long term bank loans xxxx xxxx 384,493,120

Total financial liabilities measured at amortized cost xxxx xxxx 1,094,980,116

On May 15, 2011, the Company reached an agreement with the SIDF to restructure the existingoutstanding debt balance. The restructured debt amounting to SR 600,000,000 will be payable in 15instalments, with the first and last instalment due on January 9, 2012 and October 25, 2018,respectively.

The term loans of the Saudi Industrial Development Fund ('SIDF') are secured by a mortgage over property,plant and equipment.

In December 2007, the Company entered into a Murabaha Facility Agreement with a syndicate of banks,namely; Arab Banking Corporation (B.S.C), Riyadh Bank, Samba Financial Company, Saudi Holding Bank,National Commercial Bank and SABB (collectively called as "Murabaha Facility Participants") to provideProject Murabaha Facility of SR 940 million, refinance Murabaha Facility of SR 37.5 million, and WorkingCapital Murabaha Facility and Standby Murabaha Sub-Facility of SR 150 million. The Project MurabahaFacility loan amounting to SR 525 million has been repaid on availing of the SIDF loan.

In October 2009, the Company entered into a Project Cost Overrun Murabaha Facility Agreement with asyndicate of banks, namely; Arab Banking Corporation (B.S.C), Riyadh Bank, Samba Financial Company,Saudi Holding Bank, National Commercial Bank and SABB (collectively called as "The Project Cost OverrunMurabaha Facility Participants") to provide Project Cost Overrun Murabaha Facility of SR 326 million to


37

finance ongoing expansion projects. As per the agreement, the amounts drawn under this facility wereoriginally repayable i n two years from drawdown note i.e. November 18, 2011.

On June 5, 2011, the Company entered into a refinancing agreement with a syndicate of banks, namely;SABB, Riyadh Bank and Samba Financial Company (collectively called as "The Murabaha FacilityParticipants") to refinance both i) the outstanding balance under the Project Murabaha Facility & theWorking Capital Facility Agreement of SAR 506 million dated December 26, 2007 ii) the Cost OverrunFacility Agreement of SAR 326 million dated October 27, 2009.

As per the new Murabaha Facility Agreement dated June 5, 2011 , the Project Murabaha Facilityamounting to SR 682 million will be payable in 14 semi-annual instalments starting from July 201 1 toDecember 2017. The Working Capital Murabaha Facility amounting to SR 150 million will be payable i n I 0semi-annual instalments starting from January 2013 to December 2017.

The facilities are secured by promissory notes. The Company is required to comply with certain covenantsunder all of above facilities. The instalments due within one year from the balance sheet date are shown ascurrent liabilities. (Management shall update the notes as per the status at December 31, 2017.)

13.3 Impairment of financial instruments

The Company measures the loss allowance at an amount equal to lifetime expected credit losses for alltrade receivables that result from contracts with the customers. Company uses a probability matrix for theprovision that is disclosed in note 15.

13.4 Measurement of fair values

The Company's financial assets and financial liabilities are measured at amortised cost except for certaininterest rate swaps which are carried at fair value.

The Company has not disclosed the fair value for financial instruments such as short term trade and otherreceivables, trade and other payables and cash and bank balances, because their carrying amounts are areasonable approximation of fair values largely because of short term maturity of these instruments. Fairvalues of loan from Saudi industrial development fund and Murabaha facility loans that are carried atamortized are not significantly different from the carry values.

The table below analyses financial instruments, by the level in the fair value hierarchy into which the fairvalue measurement is categorised:

31 December 2017 Level 1 Level 2 Level 3Total fair

valueSAR SAR SAR SAR

Financial assets measured at fair value (ifany)

xxxx xxxx

xxxx xxxx xxxx xxxx

Fair value

31 December 2016 Level 1 Level 2 Level 3Total fair

value


38

SAR SAR SAR SARFinancial assets measured at fair value (ifany)

xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx

Fair value

1 January 2016 Level 1 Level 2 Level 3Total fair

value

Financial assets measured at fair value (ifany)

xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx

(If any of the financial asset or liability is measured at fair value then the management shall be required todisclose the level and method used for the measurement of fair value).

13.6 Financial instruments risk management objectives and policies

The Company’s principal financial liabilities comprise loans and borrowings, trade and other payables. Themain purpose of these financial liabilities is to finance the Company’s operations and to provide guaranteesto support its operations. The Company’s principal financial assets include trade and other receivables, andcash and short-term deposits that arrive directly from its operations.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior managementoversees the management of these risks. The Company’s financial risk activities are governed byappropriate policies and procedures and that financial risks are identified, measured and managed inaccordance with Company policies and Company risk appetite. It is the Company’s policy that no trading inderivatives for speculative purposes may be undertaken. The Board of Directors reviews and agreespolicies for managing each of these risks, which are summarised below

Market riskMarket risk is the risk that the fair value of future cash flows of a financial instrument will fluctuatebecause of changes in market prices. Market prices comprise three types of risk: interest rate risk,currency risk and other price risk such as equity price risk and commodity price risk. Financial instrumentsaffected by market risk include loans and borrowings and derivative financial instruments.

Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in market interest rates. The Company’s exposure to the risk of changes in marketinterest rates relates primarily to the Company’s obligations with floating interest rates. Fixed amount ofinterest on long term loan is approximately around 60% of total interest payment. To manage the variableinterest, the Company enters into interest rate swap, in which it agrees to exchange, at specified intervals,the difference between fixed and variable rate interest amounts calculated by reference to an agreed-uponnotional principal amount.

Interest rate sensitivityThe following table demonstrates the sensitivity to a reasonably possible change in interest rates on thatportion of loans and borrowings, after the impact of hedge accounting. With all other variables held


39

constant, the Company’s profit before zakat is affected through the impact on floating rate borrowings, asfollows:

Increase/ decreasein basis points

Effect on profitbefore zakat

SR2017SAR xxx Xxx

2016 xxx XxxSAR

Foreign Currency risk

Currency risk is the risk that the value of a financial instrument may fluctuate due to changes in foreignexchange rates. The Company's transactions are principally in Saudi Riyal, United States dollar As SaudiRiyals are pecked with the USD so there is no foreign currency risk in case of USD payment Sometransaction are in Euros, however, the same are not considered to represent a significant risk to theCompany.

Credit riskCredit risk is the risk that counterparty will not meet its obligations under a financial instrument orcustomer contract, leading to a financial loss. The Company is exposed to credit risk from its operatingactivities (primarily for trade receivables) and from its financing activities, including deposits with banksand financial institutions, foreign exchange transactions and other financial instruments.

Trade receivables

Customer credit risk is managed subject to the Company’s established policy, procedures and controlrelating to customer credit risk management. Credit quality of the customer is assessed based on anextensive credit rating scorecard and individual credit limits are defined in accordance with thisassessment. Outstanding customer receivables are regularly monitored and any shipments to majorcustomers are generally covered by letters of credit or other forms of credit insurance. At 31 December2017, the Company had xx customers (2016: xx customers, 1 January 2016: xxx customers) that owed itmore than SR xxxx each and accounted for approximately xx% (2016: xx%, 1 January 2016: xx%) of allreceivables owing. There are fix xxx customers (2016: xxx customers, 1 January 2016: xxx customers)with balances greater than SR xx million accounting for just over xxx% (2016: xx%, 1 January 2016: xx%) ofthe total amounts receivable.

The requirements of impairment are analysed at each reporting date on an individual basis for majorcustomers. Additionally minor receivables are grouped into homogenous group and analysed forimpairment collectively. The maximum amount of exposure is the carrying amount of the receivabledisclosed in note 15. The Company does not hold any collateral as security.

The Company measures the loss allowance at an amount equal to lifetime expected credit losses for alltrade receivables and contracts assets that result from contracts with the customers. Company use aprobability matrix for provisioning. For further detail please refer to note 15.

Financial instruments and cash deposits


40

Credit risk from balances with banks and financial institutions is managed by the Company’s treasurydepartment in accordance with the Company’s policy. Investments of surplus funds are made only withapproved counterparties and within credit limits assigned to each counterparty. Counterparty credit limitsare reviewed by the Company’s Board of Directors on an annual basis, and may be updated throughout theyear. The limits are set to minimise the concentration of risks and therefore mitigate financial loss throughpotential counterparty’s failure to make payments.

Liquidity riskLiquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. Liquidity risk may result from an inability to sell a financial assetquickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis thatsufficient funds are available through committed credit facilities to meet any future commitments.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through theuse of bank loans. The Company assessed the concentration of risk with respect to refinancing its debtand concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within12 months can be rolled over with existing lenders.

The table below summarises the maturity profile of the Company’s financial liabilities based on contractualundiscounted payments:

As at 31 December 2017On

demandLess than3 months

3 to 12months

1 to 5years > 5 years Total

SR SR SR SR SR SRBank loans xxxx xxxx xxxx xxxx xxxx xxxxOther liabilities xxxx xxxx xxxx xxxx xxxx xxxxTrade and other payables xxxx xxxx xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx xxxx xxxx

As at 31 December 2016On


3 to 12months




As at 1 January 2016On


3 to 12months




Excessive risk concentration


41

Concentrations arise when a number of counterparties are engaged in similar business activities, oractivities in the same geographical region, or have economic features that would cause their ability tomeet contractual obligations to be similarly affected by changes in economic, political or other conditions.Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting aparticular industry.

In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specificguidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risksare controlled and managed accordingly. Selective hedging is used within the Company to manage riskconcentrations at both the relationship and industry levels.

Capital management

The primary objective of the Company’s capital management is to ensure that it maintains a strong creditrating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in economicconditions and the requirements of the financial covenants. To maintain or adjust the capital structure, theCompany may adjust the dividend payment to shareholders, return capital to shareholders or issue newshares.

The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt.The Group’s policy is to keep the gearing ratio between xxx% and xxx%. The Company includes within netdebt, profit bearing loans and borrowings, trade and other payables, less cash and cash deposits

(Management need to review all of the above sample policies and amend as applicable in case of Companyas at December 31, 2017)

14. Inventories

2017 2016As at 1

January 2016SR SR SR

Raw materials (at cost) xxxx xxxx 26,516,252Finished goods ( at cost) xxxx xxxx 45,426,834Spare parts(at cost) xxxx xxxx 48,900,370Consumables( at cost) xxxx xxxx 18,532,407Packing materials (at cost) xxxx xxxx 4,311,534Raw materials (at net realizable value) xxxx xxxx xxxxFinished goods (at net realizable value) xxxx xxxx xxxxSpare parts(at net realizable value) xxxx xxxx 17,671,621Consumables(at net realizable value) xxxx xxxx xxxxPacking materials (at net realizable value) xxxx xxxx xxxx

xxxx xxxx xxxxProvision for slow moving items xxxx xxxx (5,561,985)

xxxx xxxx 130,552,690

During the year inventory carried at net realizable value amounting to xxxx ( 2016: xxxx) was recognized asan expense. This is recognized as cost of revenue.

15. Trade and other receivables

2017 2016

As at 1January

2016SR SR SR


42

Receivable in respect of contractswith the customers

xxxx xxxx 170,110,352

Less: allowance for credit impairment xxxx xxxx 1,010,099

xxxx xxxx 169,100,253

Trade receivables are non-profit bearing and are generally on terms of 45 to 120 days.

As at 31 December 2017, trade receivables with an initial carrying value of SR xxx (2016: xxx, At Jan2016 : xxx)) were impaired and fully provided for. See below for the movements in the provision forimpairment of receivables

Individual Collective TotalSR SR SR

1 January 2016 xxxx xxxx xxxxProvision xxxx xxxx xxxxProvision reversal xxxx xxxx xxxxWritten off xxxx xxxx xxxx31 December 2016 xxxx xxxx xxxxProvision xxxx xxxx xxxxProvision reversal xxxx xxxx xxxxWritten off xxxx xxxx xxxxProvision xxxx

xxxx xxxx

31 December xxxx xxxx xxxx

Following is the provision matrix used by the company for provision in case of trade receivables:

Total

Neither pastdue nor

impaired

Past due but not impaired

< 6 months6 to 12months

12 monthsto 18

months

18 monthsto 24months

>24months

SR SR SR SR SR SR SR

Provision 0% 10% 25% 50% 100%2017 xxxx xxxx xxxx xxxx xxxx xxxx xxxx2016 xxxx xxxx xxxx xxxx xxxx xxxx xxxxAs at 1 January2016

1,010,099 xxxx xxxx 131,571 236,322 - 622,206

Balance2017 xxxx xxxx xxxx xxxx xxxx xxxx xxxx2016 xxxx xxxx xxxx xxxx xxxx xxxx xxxxAs at 1 January2016

170,110,352 159,584,544 7,442,607 1,515,708

945,287 - 622,206

16. Prepayments and other assets


2016


43

SR SR SR

Prepayments xxxx xxxx 7,692,073Advances to suppliers xxxx xxxx 15,233,628House rent allowance receivable fromemployees

xxxx xxxx 7,066,559

Other receivables xxxx xxxx 2,974,189

Receivable from DZIT xxxx xxxx 4,480,625xxxx xxxx 37,447,074

17. Cash and cash equivalents


2016SR SR SR

Cash on hand xxxx xxxx 5,281Cash at banks xxxx xxxx 164,089,410

xxxx xxxx 164,094,691

18. Share capital

2017 2016

As at 1January

2016‘000 ‘000 ‘000

Authorized shares

Ordinary shares of xxxx each xxxx xxxx 120,600

Ordinary shares issued and fully paidSR

‘000

At 1 January 2016 1,206,000Issued during the year xxxx

At 31 December 2016 xxxx

Issued during the year xxxx

At 31 December 2017 xxxx

Management shall add details of shares issues during the year 2016 and 2017.

18.1 Statutory reserve

In accordance with the Regulations of Companies' Law in the Kingdom of Saudi Arabia and the Company'sArticles of Association, the Company should transfer 10% of the net profits for the year to a statutoryreserve until such reserve equals 50% of its share capital. No transfer to statutory reserve for the year2017 as the reserve has exceeded 50% of the Company's share capital. This reserve is not available fordistribution to shareholders.


44

18.2 gain or loss on remeasurement of defined benefit obligation

2017 2016SR SR SR SR

Retained earning Total Retained earning TotalRe-measurement on definedbenefit plans xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx

19. Dividends

On xxxx the General Assembly approved the Board of Directors recommendation regarding the distributionof cash dividends of SR xxxx million for the year ended 31 December 2017 at SR xxxx per share, whichhave been paid fully during the xxxx quarter of 2018 (2016: SR xxx million).

Management may add details of dividend paid during the year 2016 and 2017. If any.

20. Post-employment benefit plan

The group has a post-employment defined benefit plan .The benefits are required by Saudi Labor andWorkman Law. The Company and its subsidiaries recognized that benefits in the consolidated incomestatement. The benefit is based on employees’ final salaries and allowances and their cumulative years ofservice, as stated in the laws of Saudi Arabia.

The following table summarises the components of the net benefit expense recognized in the statement ofprofit or loss and statement of other comprehensive income and amounts recognized in the statement offinancial position.

Net benefit expense recognised in profit or loss 2017 2016SR SR

Current service cost xxxx xxxxInterest cost on benefit obligation xxxx xxxx

Net benefit expense xxxx xxxx

Movement in the present value of defined benefit obligation

SRDefined benefit obligation at 1 January 2016Interest cost xxxxCurrent service cost xxxxActuarial gain or loss on the obligation xxxx

Benefits paid xxxx

Defined benefit obligation at 31 December 2016 xxxxInterest cost xxxxCurrent service cost xxxx

Benefits paid xxxx

Defined benefit obligation at 31 December 2017 xxxx

Movement in net liability recognizedSR

Net liability as at 1 January 2016 xxxx


45

Charge recognized in statement of profit or loss 43,540,189Actuarial gain or loss on the obligation recognized in the OCI xxxxBenefits paid xxxx

Net liability at 31 December 2016 xxxxCharge recognized in statement of profit or loss xxxxActuarial gain or loss on the obligation recognized in the OCI xxxx

Benefits paid xxxx

Net liability at 31 December 2017 xxxx

Reconciliation of net liability recognized in the statement of financial positions

SRNet liability as at 1 January 2016 43,540,189Charge recognized in statement of profit or loss xxxxActuarial gain or loss on the obligation recognized in the OCI xxxx

Benefits paid xxxx

Net liability at 31 December 2016 xxxxCharge recognized in statement of profit or loss xxxxActuarial gain or loss on the obligation recognized in the OCI xxxxBenefit paid xxxx

Net liability at 31 December 2017 xxxx

Significant assumptions used in determining the post-employment defined benefit obligation includes thefollowing:


2016% % %

Discount rate xxxx xxxx 5%

Future salary increases xxxx xxxx 5%

Death in serviceLIC (1975-79) Table LIC (1975-79)

TableLIC (1975-79)

Table

Withdrawal beforenormal retirement life Age wise Age wise Age wise

A quantitative sensitivity analysis for discount rate assumption on the defined benefit obligation as at 31December 2017 and 2016 and as at January 1, 2016 is shown below:

Assumptions Discount rate

Sensitivity Level1%

increase1%

decreaseSR SR

Defined benefit obligation as at2017

xxxx xxxx


46

Defined benefit obligation as at2016

xxxx xxxx

Defined benefit obligation as atJanuary 1, 2016

xxxx xxxx

The sensitivity analyses above have been determined based on a method that extrapolates the impact onthe defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end ofthe reporting period. The sensitivity analysis is based on a change in a significant assumption, keeping allother assumptions constant. The sensitivity analysis may not be representative of an actual change in thedefined benefit obligation as it is unlikely that changes in assumptions would occur in isolation of oneanother.

The average duration of the defined benefit obligation at the end of the reporting period is xxx Years.

21. Trade and other payable


2016SR SR SR

Trade payables xxxx xxxx 31,517,109Due to related parties xxxx xxxx -Other payables xxxx xxxx -

xxxx xxxx 31,517,109

22. Accrued expenses and other liabilities


2016SR SR SR

Accrued expenses xxxx xxxx 68,709,729Advances from customers xxxx xxxx 9,784,950Other liabilities xxxx xxxx 1,478,007

xxxx xxxx 79,972,686

23. Other provisions


2016SR SR SR

Provision against supply chain xxxx xxxx 20,000,000xxxx xxxx 20,000,000

24. Contingencies and commitments

(Management needs to update as per the contingencies and commitments as at December 31, 2007).

Operating lease commitments

The Company's factory premises are situated in the Jubail Industrial Area and have been constructedon land leased from the Royal Commission for Jubail and Yanbu ('the Commission') for a period of 25years from April 16, 1990 corresponding to Ramadan 21 , 141 OH at an annual rent of SR 1 10,430.The Company has entered in a land lease arrangement with Sea Ports Authority of King Fahad IndustrialPort, Al -Jubail for a period of 20 years from April 1 1, 2006 corresponding to Shawwal 13, I 427H at


47

an annual lease rent of SR 310,044. The Company has entered into another land lease arrangementwith the Commission for a period of30 years from July 20, 2007 corresponding to Rabi II 3, 1428H atan annual rent of SR 290,728. The Company has the option of renewing the lease arrangement onexpiry of the initial lease arrangement.

(Management shall the note update as per the status as at December 31, 2017).

Future minimum rentals payable under non-cancellable operating leases are, as follows:

2017 2016

As at1 January

2016SR SR SR

Within one year xxxx xxxx XxxxAfter one year but not more than five years xxxx xxxx XxxxMore than five years xxxx xxxx Xxxx

xxxx xxxx Xxxx

25. Related party transactions and balances

In the ordinary course of business, the Company undertakes transactions with other companies that havecertain common shareholders. All such transactions are executed on commercial terms that are approvedby management.

There were no sales of finished goods during the current year to affiliated companies (2016: SR Nil).

The cost of sales and expenses include amounts of SR xxxx (2016: SR xxxx) in respect of purchase ofinventories and services provided by companies affiliated to shareholders.

Amounts receivable from companies affiliated to shareholders in respect of advances paid are included inPrepayments and other current assets under note.

Amounts payable to companies affiliated to shareholders are included in accrued expenses and othercurrent liabilities.

Year-end balances resulting from transactions with related parties are listed below:

a) Due to related parties

2017 2016As at 1

January 2016SR SR SR

Zamil group xxxx xxxx 75,566Yusuf Bin Ahmed Kanoo xxxx xxxx 6,453

xxxx xxxx 82,019

b) Transactions with key management personnel:

Key management personnel of the Company comprise of the board of directors and key members ofmanagement having authority and responsibility for planning, directing and controlling the activities of theCompany.


48

i) Directors loans


ii) Other Directors interests


The key management personnel compensation is as follows:

2017 2016SR SR

Short-term employee benefits xxxx xxxxEnd of service benefits xxxx xxxxTermination benefits xxxx xxxx

Total compensation paid to key management personnel xxxx xxxx


26. Standards issued but not yet effective

Management will be required to update as per the status as at December 31, 2017.

27. Post balance sheet events

Management needs to document post balance sheet events.

Documents

PROFORMA SKELETON FINANCIAL STATEMENTS FOR …chemanol.com/media/pdf/2015_IFRS.pdf · PROFORMA SKELETON FINANCIAL STATEMENTS FOR THE ... reviewed and finalized by SOCPA as of the