Pursuing Opportunities for Sustainable Growth
Since becoming a public company in 2008, Chemanol has made steady
progress, highlighted by improved profitability, higher production
levels and strengthened institutional capability. In 2012, the
Company placed particular focus on optimizing its ability to
identify and capture new opportunities for long-term sustainable
growth.
METhANOL ChEMiCALs COMPANy
P.O. Box 3139, Dammam 31471 Kingdom of Saudi Arabia Tel: +966 3
8144 694 Fax: +966 3 8144 678 Email:
[email protected]
www.chemanol.com
01 Profile
02 Financial Highlights
04 Board of Directors
06 Chairman’s Statement
08 CEO’s Report
25 Statement of Changes in Equity
26 Notes to the Financial Statements
Contents
Disclaimer This annual report contains forward-looking statements
about the Company’s future plans, strategies, beliefs and
performance that are not historical facts. They are based on
current expectations, estimates, forecasts and projections about
the industries in which the Company operates and beliefs and
assumptions made by the management. As these expectations,
estimates, forecasts and projections are subject to a number of
risks, uncertainties and assumptions, actual results may differ
materially from those projected. The Company, therefore, wishes to
caution readers not to place undue reliance on forward-looking
statements. Furthermore, the Company undertakes no obligation to
update any forward-looking statements as a result of new
information, future events or other developments. Risks,
uncertainties and assumptions mentioned above include, but are not
limited to, commodity prices; exchange rates and economic
conditions; the outcome of pending and future litigation; and the
continued availability of financing, financial instruments and
financial resources. The information contained in this annual
report and on the Company’s website includes information provided
for the purpose of helping investors make informed decisions. It
was not created to solicit investors to buy or sell Chemanol’s
stock. The final decision and responsibility for investments rests
solely with the reader of this annual report.
Profile, Vision, Mission and Values
Profile
Methanol Chemicals Company (Chemanol) is a major grass-root second
generation petrochemicals company.
Chemanol manufactures premium-grade methanol derivatives including
aqueous and urea formaldehydes, superplasticizers, amino resins,
hexamethylene tetramine, paraformaldehyde, dimethyl formamide,
methylamines, pentaerythritol, and sodium formate. These products
have applications in industries as diverse as agriculture,
automobiles, pharmaceuticals and construction.
Established in 1989 as the Saudi Formaldehyde Chemicals Company –
the first private sector petrochemicals company in the GCC – the
Company changed its name to Methanol Chemicals Company following a
successful IPO in 2008. Today, Chemanol is one of the most
integrated and low-cost methanol and derivatives producers
globally; and one of the world’s largest formaldehyde producers
situated in a single location, and the biggest in the GCC.
A closed Saudi joint-stock company with a paid-up capital of SAR
1.2 Billion, Chemanol’s major shareholders are leading
industrialists from across the GCC. Located in Al Jubail Industrial
City, the Company has a total annual production capacity of just
about one million metric tons, and exports 26 product grades to
over 50 countries in more than 21 different industries.
Vision
Chemanol aspires to be recognized as a major pioneering and
reliable specialty petrochemicals company in the GCC.
Mission
The Business
To be a major supplier and cater to the clientele spread around the
globe, at most competitive prices.
The Values
Chemanol is committed to a clean environment and holds tremendous
value for human life and its safety.
1 METhANOL ChEMiCALs COMPANy 2012 Annual Report
2012 2011 2010 2009 2008+31%
Earnings per share (SAR) 0.76
0.58
Net Profit (SAR) 91,429
income from Operations (SAR)
Total Production (Metric Tons) 873.39
793.69 764.00
327.00 368,06
income statement (sR ‘000) 2012 2011 2010 2009 2008
Sales 920,747 829,737 589,495 402,302 570,669
Cost of Sales 703,297 637,924 470,579 304,954 448,684
Gross Profit 217,449 191,813 118,916 97,348 121,985
Operating Income 119,895 110,822 40,045 30,702 45,940
Financial Charges 37,643 39,942 29,007 8,048 12,362
Net Profit 91,429 70,212 6,041 22,055 38,236
Balance sheet (sR ‘000) 2012 2011 2010 2009 2008
Assets
Current Assets 533,865 505,242 438,569 484,097 612,226
Non-current Assets
Total Assets 2,924,209 3,025,452 3,092,773 3,032,727
2,639,920
Liabilities
Non-current Liabilities
Capital 1,206,000 1,206,000 1,206,000 1,206,000 1,206,000
Retained Earnings 260,702 180,019 118,403 114,811 96,780
Owners’ Equity 1,573,239 1,483,413 1,414,776 1,410,580
1,390,343
Cash Flow (sR ‘000) 2012 2011 2010 2009 2008
From Operating Activities 234,955 125,277 85,388 70,155
33,435
From Investing Activities -34,878 -85,472 -251,879 -473,547
-949,764
From Financing -7,337 -14,055 -134,271 -104,256 361,895
Key Ratios 2012 2011 2010 2009 2008
Current Ratio (%) 2.2 2.0 0.7 1.9 2.9
Gross Margin (%) 23.6 23.1 20.2 24.2 21.4
Net Profit Margin (%) 9.9 8.5 1.0 5.5 6.7
Operating Margin (%) 13.0 13.4 6.8 7.6 8.1
Return on Assets (%) 3.1 2.3 0.2 0.7 1.4
Return on Equity (%) 5.8 4.7 0.4 1.6 2.7
5 Year Financial Summary3 Methanol CheMiCals CoMpany 2012 Annual
Report
Pursuing Opportunities for Sustainable Growth
To support its ambitious targets for strategic growth, Chemanol
focused its efforts in 2012 on optimizing operational efficiency,
reliability and productivity; and strengthening its capabilities in
the critical support areas of human capital, information
technology, quality, research and development, and marketing.
In addition, the Company enhanced its pioneering enterprise
resource planning platform with an emphasis on maintenance and EHSS
systems while capitalizing on the experience and expertise of its
employees.
4 Methanol CheMiCals CoMpany 2012 Annual Report
During 2012, Chemanol entered new markets, and achieved higher
penetration in high-priced markets such as Japan, South America and
the USA.
5 Methanol CheMiCals CoMpany 2012 Annual Report
Board of Directors
1. Abdullah M. Al Mazrui Chairman
Mr Abdullah Al Mazrui is Chairman of Emirates Insurance Company,
Mazrui Holding Company, The National Investor, Aramex, Jashanmal
National Company, Deepa United Group, Modecor, and the
International School of Choueifat. He is a Board Member of National
Investment Corporation, Dun & Bradstreet, Emirates Specialities
Company, Abu Dhabi Education Council, and Abu Dhabi Economic
Council. He is also an Advisory Board Member of Insead, Abu Dhabi;
and EDHEC Business School, France. Mr Al Mazrui holds a BA (Honors)
degree from Chapman University, California, USA.
2. Khaled A. A. Al Zamil Board Member Chairman of Executive
Committee and Nomination & Remuneration Committee
Mr Khaled Al Zamil is President of Zamil Group Holding Company. He
is Chairman of the Middle East Battery Company; and a Board Member
of Zamil Industrial Investment Company, Dar Al Yaum Printing and
Publishing, and Prince Sultan Rehabilitation Center. Mr Al Zamil
holds a BSc in Civil Engineering from the University of Southern
California, Los Angeles, USA.
3. Badr A. Kanoo Board Member
Mr Badr Kanoo is responsible for the Yusuf bin Ahmed Kanoo Group’s
Commercial Division operations within the GCC. He is a Board Member
of the Yusuf bin Ahmed Kanoo Group, with oversight of Investments
and Joint Ventures; Barclay’s Saudi Arabia; and the Saudi Company
for Ground Services. Mr Kanoo graduated from Mercer University,
Georgia, USA, with a major in Management.
4. sami M. y. Jalal Board Member
Mr Sami Jalal is a Board Member of Mohammed Jalal and Sons. He is
Chairman and Founder of the Bahrain Business Angels Holding Company
(Tenmou); Chairman of Jalal Ionics, Bahrain; and Vice Chairman of
Bahrain Electromechanical Services Company. He is a Board member of
Intershield, Bahrain; United Paper Industry, Bahrain; TRAFCO,
Bahrain; Modecor, Saudi Arabia; AIRMECH, Bahrain; and MCSC,
Bahrain. He is also Founder and Treasurer of Al Rahma Centre
Charity Organisation, Bahrain; and a Member of the Bahrain
Management Society. Mr Jalal holds an MBA from the USA.
5. Adib A. h. Al Zamil Board Member Chairman of the Audit
Committee
Mr. Adib Abdullah Al Zamil is Managing Director - Finance and
Investments at Zamil Group Holding Company. He also serves on the
Board of Directors and the Executive Committee of the Zamil Group;
and is a Board Member of Zamil Industrial Investments Company. In
addition to various Audit Committees, he is a Board Member of
several Saudi joint stock companies, including banks and
investments companies. Mr Al Zamil holds a degree in Business
Administration from the USA.
6. hamad M. h. Al Manea Board Member
Mr. Hamad Al Manea is the Vice Chairman and Managing Director of
Mohamed Al Manea Holding Company, having joined the family business
in 1984. The Group’s extensive activities cover a range of sectors
such as oil and gas, mining, real estate, trading and services. He
is a Board Member of several companies listed on the Qatar Stock
Exchange, including Doha Bank, Qatar General Insurance &
Reinsurance and Qatar Navigation. Mr Al Manea holds a BSc degree in
Industrial Administration from the University of Michigan, Ann
Arbor, Michigan, USA.
7. Mishal h. A. Kanoo Board Member
Mr. Mishal Kanoo is the Deputy Chairman of the Kanoo Group. He is
Chairman of Dubai Express, Johnson Arabia, BRC Arabia, and Kone
Cranes Industrial Services; and Vice Chairman of United Arab
Chemical Carriers. He is also a Board Member of several companies,
including Middle East Container Repair Company, International
Paint, Hydroturf, AXA Insurance, and Engineering FZC. Mr. Kanoo
holds an MBA in Finance from the University of St Thomas, Texas,
USA; and an Executive MBA from the American University of Sharjah,
UAE.
8. Abdulmohsen F. Al Nafisi Board Member
Mr Abdulmohsen Al Nafisi is Chairman of Fahad A. Al Nafisi &
Sons Group. He has been actively involved in contributing to the
growth of the family business for the past 32 years. His diverse
background in multicultural and global environments covers
contracting, manufacturing, trading and investments. Mr Al Nafisi
holds a degree in Electrical Engineering from the University of
Southern California, Los Angeles, USA.
9. Abdullah Ali Al-sanea Board Member
Mr Abdullah Al-Sanea is the Owner and CEO of SAN Consult (KSA). For
over 30 years, he has held senior management positions and acted as
a consultant in the plastics and petrochemicals industries. He is a
Board Member of the Higher Institute for Plastics (Riyadh) and the
Saudi Standards, Metrology & Quality Organisation; and a Member
of several industry bodies, including the Society of Plastics
Engineers, and the National Plastics Industry Committee. Mr
Al-Sanea holds a BSc degree in Industrial Management from the King
Fahd University of Petroleum & Minerals, Saudi Arabia.
7 Methanol CheMiCals CoMpany 2012 Annual Report
Chairman’s Statement
Abdullah M. Mazrui Chairman
“Our harmonious and professional team has once again demonstrated
its commitment to pursue new opportunities for long-term
sustainable growth.”
8 Methanol CheMiCals CoMpany 2012 Annual Report
On behalf of the Board of Directors, I have the pleasure to present
the annual report and financial statements of Methanol Chemicals
Company (Chemanol) for the year ended 31 December 2012. With the
grace of God, this proved to be another highly successful year for
Chemanol, during which we reached new heights of profitability and
production, and continued to strengthen our organizational
capability.
I am pleased to report that Chemanol posted a record financial
performance in 2012, with net profit increasing by 30.2 percent to
SAR 91.4 million compared with SAR 70.2 million in 2011.
Owners’ equity grew to SAR 1.6 Billion, with return on equity of 6
percent; while earnings per share increased to SAR 0.76. As a
result of this strong financial performance, I am delighted to
announce that the Board is recommending a dividend distribution of
50H/share for 2012.
As the first dividend to be paid since our Company went public in
2008, this marks a significant financial milestone.
Driving this financial performance was an increase of 10 percent in
total production to a record 873 thousand metric tons in 2012. This
was the result of increased sales and higher margins; and improved
operational efficiency, reliability and quality. It also
illustrates the success of the many initiatives introduced during
the year to enhance our organizational infrastructure, improve
operational standards, and implement our Responsible Care
Program.
Above all, it reflects the loyalty, dedication and hard work of our
people, whom we recognize as the key drivers of Chemanol’s
continued growth and development. Our harmonious and professional
team has once again demonstrated its commitment to pursue new
opportunities for long-term sustainable growth.
Our achievements during another year of volatile market conditions,
has placed the Company in a strong position to take advantage of
the potential improvement in the global economy in 2013. God
willing, Chemanol will continue to scale new heights of
profitability, production and market leadership. The Board has
every confidence in Management’s ability to implement our ambitious
strategic and business objectives, and to enhance returns to our
shareholders.
In 2012, the current term of the Board of Directors expired, and
all Directors were re-elected by the Shareholders. I would like to
take this opportunity to welcome Mr Abdullah Ali Al-Sanea, who
joined the Board during the year as an independent and
non-executive director.
I am confident that the Board will benefit greatly from his
extensive industrial experience.
On behalf of my fellow Directors, I would like to express my
sincere appreciation to our shareholders for their continued
encouragement and wise counsel. Their unwavering support provides
us with renewed confidence and optimism in facing the challenges
that lie ahead. With the grace of God, our improved performance in
the coming years will reflect their trust and confidence; while
contributing to the prosperity of all Chemanol’s
stakeholders.
Abdullah M. Mazrui Chairman
Pursuing Opportunities for Sustainable Growth
Chemanol has identified new business opportunities in a number of
key areas. These include product development, which involves the
different grading and tailoring of existing products to meet
customers’ exact specifications; together with creating new
products based on alternative feedstock.
The Company also made plans to enter new niche markets that offer
higher profit margins; as well as maximizing the business potential
of the Kingdom of Saudi Arabia. This will be reinforced by
transforming Chemanol into a world-class learning and
performance-oriented organization.
10 Methanol CheMiCals CoMpany 2012 Annual Report
During 2012, the Company successfully identified new areas for
growth, including the innovative utilization of alternative
feedstock for new specialty chemicals in niche markets that exhibit
high, stable demand dynamics, such as pharmaceuticals
11 Methanol CheMiCals CoMpany 2012 Annual Report
CEO’s Report
I am pleased to report that 2012 proved to be a highly successful
year for Chemanol, during which we continued to build upon the
record achievements of 2011. This is reflected in our improved
financial results and production levels; and the success of new
initiatives to further strengthen our organizational resources and
core competencies.
Khalid ibrahim Al Rabiah Chief Executive Officer
“Based on our excellent performance during the year, we remain
positive about the ability of the Chemanol team to implement our
strategy and achieve our challenging business objectives.”
12 Methanol CheMiCals CoMpany 2012 Annual Report
Chemanol reported record financial results for 2012. Revenues grew
to SAR 920.7 million, an increase of 11 percent over 2011; while
net profit increased by 30.2 percent to SAR 91.4 million from SAR
7.2 million the previous year. Our strong year-on-year performance
results mainly from an increase in sales, higher margins and
improved cost control.
During 2012, total production increased to a record 873 thousand
metric tons, constituting 96 percent of the Company’s total
available annual production capacity of just under one million
metric tons. This reflects our ongoing commitment to adopt a
systematic approach to improve operational efficiency, reliability
and quality.
The success of concerted marketing campaigns in local and global
markets constituted another important contributor to Chemanol’s
performance in 2012. We were successful in enhancing sales in
markets that offer higher margin potential, and entering new
markets. We also grew our client base, responding promptly to
customers’ specific requirements with customised product
variations. At the same time, we focused on proactive planning,
constantly keeping a watchful eye on market fluctuations and
emerging trends, both locally and globally.
Our continued investment in market research and business
intelligence, which provides us with a better understanding of
regional and international demand patterns, is critical to
successful forecasting by Chemanol.
Since the financial crisis of 2008, the world has witnessed a four-
year downward trend, with all major economies in relative states of
stagnation and stress, and the predicted global economic recovery
for 2012 failing to materialize. The US economy remained stagnant;
China and India – which are key strategic markets for Chemanol –
witnessed a slowdown in economic growth; and the Eurozone crisis
showed no signs of abating.
These factors contributed to the price of methanol falling by
around US$ 50 compared with the previous year, contrary to industry
forecasts pointing to a continued rise in methanol prices. With the
interim resolution of the US fiscal cliff, and the Greece financial
bail-out finally being agreed, the year ended on a slightly more
optimistic note, underlined by nascent signs of renewed global
economic recovery. However, concerns still remain about medium-term
prospects for recovery of the US economy and its subsequent global
impact; the continued economic slowdown in China and India; and the
long-term financial issues facing Europe.
Against this scenario, Chemanol took proactive steps to pursue
opportunities for sustainable growth. These include maintaining our
leadership position as a major manufacturer of specialty chemicals
though the innovative utilization of alternative feedstock for new
products in niche markets that exhibit high, stable demand
dynamics; as well as continuing to diversify the grading and range
of applications of our existing product basket to meet customers’
specific requirements. Equally important is the exploration of new
high-growth markets, and ensuring access to the right technologies
through new strategic alliances and joint ventures.
To support these strategic imperatives, we conducted a major
restructuring of our organization during the year to improve
efficiency and productivity; continued to enhance our pioneering,
industry-leading utilisation of ERP system-based applications; and
further strengthened our management team with the recruitment of
additional well-qualified, experienced and talented professionals.
A key development in 2012 was the implementation of the Company’s
new environment, health, safety and security (EHSS) management
system, which underlines our corporate social responsibility
commitment to act as a responsible and caring petrochemicals
company. This represents a major step forward to achieving formal
accreditation by the Gulf Petrochemicals & Chemicals
Association as a ‘Responsible Care Company’.
Based on our excellent performance during the year, we remain
positive about the ability of the Chemanol team to implement our
strategy and achieve our challenging business objectives. We have
made considerable progress in putting in place the key ingredients
for continued future success; and will continue to exert the utmost
effort to ensure the prosperity of all stakeholders. Underlying
these considerable achievements in 2012 was the continued positive
contribution of our people. They are the Company’s most important
asset, and the key drivers of our long-term sustainable growth.
Once again, our people demonstrated their willingness and ability
to work together to embrace change, respond to new challenges, and
meet business targets with a results-oriented and innovative
attitude.
During the year, we supported the professional development and
personal welfare of our people with the introduction of a number of
important initiatives. These include a new salary and grading
structure; new staff benefits such as a home ownership scheme; and
a new succession planning policy. Priority was given to learning
and development, with the introduction of new training programs for
management and staff; together with the continued enhancement of
the Company’s information technology infrastructure. We also made
good progress in transforming Chemanol into a performance-driven
organization, and aligning professional and career development with
the Company’s vision, mission and strategy. A new incentive scheme
was introduced, with the staff annual bonus now being based on a
combination of company, departmental and individual performance,
measured against key performance indicators.
In conclusion, I would like to thank our Board of Directors for its
support and guidance; our clients for their loyalty and trust; our
business partners for their cooperation and encouragement; and our
management and staff for their professionalism and hard work.
Khalid ibrahim Al Rabiah Chief Executive Officer
13 Methanol CheMiCals CoMpany 2012 Annual Report
Pursuing Opportunities for sustainable Growth
All aspects of the Company’s activities – including setting
strategic and business plans; and developing new initiatives,
programs and ideas – are based on a highly systematic approach
under an industry-leading ERP platform. Regular audits and reviews
are conducted to ensure there is no deviation from the strategic
road map and business plan. An ideal example of this approach is
Chemanol’s environmental, health, safety and security (EHSS)
management system, which supports the strategic goal of becoming a
‘Responsible Care Company’.
14 Methanol CheMiCals CoMpany 2012 Annual Report
A key development in 2012 was the implementation of the Company’s
new environment, health, safety and security (EHSS) management
system, which underlines our corporate social responsibility
commitment to act as a responsible and caring petrochemicals
company.
15 Methanol CheMiCals CoMpany 2012 Annual Report
Operations
Production
Chemanol’s total production in 2012 increased by 10 percent to
873,390 metric tons, compared with 793,690 metric tons the previous
year. This constituted 96 percent of the Company’s total available
annual production capacity of 912,040 metric tons in a variety of
product lines comprising feedstock, intermediates and finished
goods.
During the year, the Company revised its production targets upwards
following a fall in the price of methanol by almost US$ 50, which
was contrary to industry forecasts pointing to a continued rise in
methanol prices. As a result of ongoing process enhancements,
improved reliability, and the optimization of human resources,
production costs were further reduced in 2012.
Maintenance
Chemanol maintained a high degree of operating reliability in 2012,
with all production plants running either in line with, or in
excess of, their design capacities; despite some power-related
technical challenges encountered during the year.
The Company has developed a highly systematic world- class
maintenance organization, with preventive, corrective and
predictive maintenance programs fully-integrated under a
leading-edge enterprise resource planning (ERP) platform.
Additional systems enhancement was carried out during 2012 to
further enhance operating efficiency and reliability in certain
areas.
Quality
During 2012, Chemanol continued to improve the effectiveness of its
Quality Management System, with the Company’s 9001:2000
accreditation being re-certified to the new standard ISO 9001:2008.
Quality control testing is carried out at every stage of the
production cycle, involving raw materials, intermediates and
finished products, to ensure the highest standards of customer
satisfaction.
Through a team of highly trained quality personnel, a state-
of-the-art laboratory, and computerized library resources, Chemanol
continuously evaluates feedback from customers, and provides them
with timely technical support.
During the year, the Company commenced the process of achieving
accreditation to the ISO 17025 international laboratory standard in
2013.
Research & Development
Innovation is a key strategic driver for Chemanol’s long-term
sustainable growth and competitiveness edge. In 2012, the Company
developed new specialty products with diversified applications such
as water treatment.
These are currently at a pilot stage of production, prior to going
commercial in 2013. Enhancements were also made to existing product
lines, including the customization of products to meet customers’
specific requirements.
Business Review16 Methanol CheMiCals CoMpany 2012 Annual
Report
Exports by Key Markets 2012
Marketing
Concerted sales and marketing efforts during the year resulted in
record sales and profitability for the Company in 2012, with margin
improvements on most products. Key activities included improving
marketing processes, with increased reliance on informed
decision-making and the utilization of professional marketing
tools; supported by strong market research, a focus on maximizing
volumes and margins, and diversifying the customer base.
The Company constantly explores ways to open up new markets for its
products, and to focus on high-margin areas as well as emerging
markets. During 2012, Chemanol entered new markets, and achieved
higher penetration in high-priced markets such as Japan, South
America and the USA. Renewed emphasis was placed on customer
relationship management, with the provision of value-added services
such as technical support and advice; as well as tailor-made
products to meet specific customer requirements.
Chemanol’s investment in sophisticated market research and business
intelligence activities enables it to continually monitor and
analyze trends and indicators, manage fluctuations, and perform
more accurate forecasting. In 2012, the Company was successful in
identifying markets for products with higher margins for which
production was increased, thus maximizing its competitive advantage
and profit.
New Project Development
Established as a specialty chemicals company, Chemanol’s strategy
involves identifying niche products that will complement and
diversify its current basket of products, and ensure enhanced
competitiveness of its supply chain.
During 2012, the Company successfully identified new areas for
growth, including the innovative utilization of alternative
feedstock for new specialty chemicals in niche markets that exhibit
high, stable demand dynamics, such as pharmaceuticals. This
illustrates Chemanol’s policy of aligning its product development
to the long-term industrial strategy of the Saudi Government, which
seeks to optimize the use of feedstock allocation to the
petrochemicals sector in the manufacture of high-value downstream
products.
Environment, Health, Safety & Security (EHSS)
Chemanol is committed to protecting the environment; preserving the
health and safety of its employees and communities; assuring the
safe and secure operations of its processes; and complying with all
applicable laws and regulations.
Accordingly, the Company is in the process of implementing the
Responsible Care Program (RCP) of the Gulf Petrochemicals and
Chemicals Association (GPCA), with full accreditation planned by
2015 at the latest.
RCP is based on seven codes of practice covering occupational
health and safety, process safety management, product stewardship,
security, distribution, and pollution. In order to achieve RCP
status, the Company has developed a fully-integrated environmental,
health, safety, security (EHSS) management system.
In 2012, a gap analysis for conformance with RCP requirements was
conducted, together with development of a plan to bridge all
identified gaps. These were presented to the GPCA, and resulted in
approval for Chemanol to use the Responsible Care logo.
31% India
27% Others
2% Belgium
5% China
2% Thailand
2% Italy
4% Jordan
3% Pakistan
Business Review (continued)
To support the implementation of the EHSS management system, a
number of key initiatives were introduced during the year. These
include the establishment of a Responsible Care Committee; the
regular auditing of new processes and procedures, with a subsequent
corrective action plan; and the implementation of a communications
process, and a recognition and rewards system. Six awareness
campaigns were conducted during 2012, involving 125 awareness,
training and safety sessions totalling 114,478 hours; together with
46 specialized EHS training courses comprising 11,455 hours.
Environment
An Environmental Management System was developed, incorporating the
establishment of environmental risk identification procedures; and
risk assessments were carried out at all plants, including the
monitoring of emissions and leakages to ensure compliance with
regulatory requirements.
A Waste Management System was also implemented to manage and
monitor the treatment, recycling and disposal of all waste
materials. With the majority of the Company’s processes now
automated under a comprehensive SAP enterprise resource planning
platform, the use of printers and paper has been significantly
reduced. Chemanol is among a few select organizations in the MENA
region to initiate and implement the ‘total paperless office’
concept, rendering it a committed ‘green’ company.
Additionally, the Company maintained compliance with the European
Union’s bylaw concerning the Registration, Evaluation,
Authorization and Restriction of Chemicals (REACH), for all
products that it exports to European countries.
Health
Chemanol conducted a Health Assessment Noise Survey, and
established a complementary Hearing Conservation program. A number
of awareness campaigns were also conducted during the year. These
included potential health hazards resulting from raw materials,
chemicals production, and emissions; as well as diabetes and the
need for regular health checks; hand and eye injuries; and safety
while working at heights. Specialized training was carried out for
First Aid, including cardiopulmonary resuscitation (CPR)
techniques.
Safety
An EHSS risk matrix and criteria were established, while policies
and procedures were developed and implemented for permit-to-work,
hazard analysis, and incident management. During 2012, there was a
significant reduction in the incident rate for employees and
contractors, with all incidents being thoroughly investigated and
reported. The direct hire incident rate decreased to 0.4 in 2012
from 1.2 the previous year, while the contractor incident rate
dropped to 0.5 from 0.68. Accordingly, the overall incident rate
fell to 0.46 for 2012 from 0.95 in 2011. The number of lost time
injuries also declined, with three being recorded in 2012 compared
with five the previous year. In addition, there was a significant
improvement in number of near misses reported. A total of 2,310
near misses and unsafe conditions were reported in 2012,
substantially above the Company target of 1,000 set at the
beginning of the year. The rate of incidents and near misses was
used to evaluate safety performance, which is now included as a key
performance indicator in staff appraisals and the allocation of
annual bonuses.
Security
Security was enhanced during the year with the development of new
employee ID cards; the introduction of a new electronic gate pass
system for visitors and materials delivery; and the erection of
high-security perimeter fencing for the Formaldehyde plant. The
Company’s emergency response team participated in 53 training
sessions on rescue, first aid and dealing with major fires and
leaks, totalling 8,513 hours. Seven emergency response mock drills
were carried out by Chemanol; together with a separate drill in
collaboration with Jubail Area Mutual Aid Association (JAMA’A), who
rated the Company’s preparedness for emergencies as ‘very
good’.
Human Capital Development
Chemanol considers its people to be the Company’s most important
asset, and the key driver of long-term sustainable growth.
Accordingly, in 2012, several new human capital development
initiatives were introduced in response to the industry-wide
challenge of attracting, developing, and retaining qualified and
experienced staff.
In line with the ongoing development of the Human Resources
Development division, a fully-automated human resources management
system (HRMS) was installed and integrated with the Company’s SAP
platform; and a new dedicated Learning & Development function
was created. At the same time, in order to meet business needs and
strategic growth objectives, and improve efficiency and
productivity, a comprehensive restructuring of the Company’s
manpower was carried out.
18 Methanol CheMiCals CoMpany 2012 Annual Report
A new recruitment policy was developed during the year, including
the innovative and successful use of social media channels to
provide information about the Company, and source and attract
suitable candidates.
At the end of 2012, the headcount totalled 485, with Saudi
nationals constituting 46 percent of the workforce. Chemanol
introduced new staff benefits, including a home ownership scheme
for Saudi national staff, in order to enhance staff retention and
provide security for employees’ families. The Company also
conducted an independent employee engagement survey, and developed
an action plan to follow up on the results.
Encouragingly, the survey revealed good levels of general
satisfaction, and a higher level of satisfaction for internal
communications and teamwork.
Chemanol placed particular emphasis on training and development
during 2012. Selective in-house training was provided for senior
management, covering key competency areas such as teamwork and
team-building; learning needs analysis as part of annual staff
appraisal; employee engagement and leadership development. Staff
training was focused primarily on supporting the implementation of
the new environment, health, safety and security management system;
and the application of new IT systems.
Good progress was made during the year in transforming the Company
into a performance-driven organization, and aligning professional
and career development with Chemanol’s vision, mission and
strategy.
A new incentive scheme was introduced, with the staff annual bonus
now being based on a combination of company, departmental and
individual performance against set key performance indicators
(KPIs), including profitability, production targets and
safety.
Information Technology
Chemanol views the utilization of leading-edge information and
communications technology (ICT) as a key strategic driver, business
enabler and competitive edge. The Company is recognized as a
regional pioneer and leader in the application of widespread
applications of SAP enterprise resource planning (ERP) software.
All core company processes are fully automated and integrated under
a single homogeneous platform. Importantly, decision-making is
enhanced through the provision of daily updated information to
management dashboards regarding financial, production, sales and
business intelligence data. During 2012, Chemanol continued to
upgrade its ICT infrastructure with the implementation of new
systems and applications, enhanced information security, and
improved end-user IT support.
A comprehensive range of in-house training programs was conducted
for business process owners, core members and ‘train-the-trainers’
personnel. These covered key areas such as human resources and
financial control; production planning, materials management, and
plant maintenance; warehouse management and logistics; and quality
management.
Corporate Social Responsibility
Chemanol is committed to playing a pivotal role in society as a
responsible and caring petrochemicals company. In order to promote
community and social welfare, the Company continued its active
participation in programs and initiatives directed towards the
development of educational, health and environmental
awareness.
Corporate Governance
Chemanol aspires to the highest standards of corporate governance.
The Company has implemented the provisions adopted in the List of
Corporate Governance in the Kingdom of Saudi Arabia issued by the
Council of the Capital Market Authority – in accordance with
Resolution No. 1-212-2006 dated 21/10/1421AH (corresponding to
12/11/2006) and in compliance with the listing and inclusion
regulations dated 22/01/2012 – and also in accordance with the
Company’s bylaws.
19 Methanol CheMiCals CoMpany 2012 Annual Report
4 5
1. Mr Khalid i. Al Rabiah Chief Executive Officer
Mr Khalid Rabiah has over 29 years’ professional experience, of
which 19 have been spent in the areas of strategic and financial
planning, and business development. Prior to joining Chemanol, he
was Vice President - Finance at Saudi Arabian Amiantit Company. Mr
Rabiah actively participated in executing Amiantit’s ambitious
growth strategy and geographic expansion, setting up new
manufacturing plants around the globe, including Egypt, Turkey,
India, China, Germany, Spain and North and South America. He holds
a Bachelor’s degree in Accounting from the University of Toledo,
Ohio, USA.
2. Mr Mohammed Al safadi Vice President – Operations
Mr Mohammed Al Safadi has over 20 years’ experience in the fields
of petrochemical plant operations, pre-commissioning,
commissioning, trouble-shooting and start- up. Prior to joining
Chemanol, he was General Manager of the newly-established Bakri
International Energy Group. Previously, Mr Al Safadi spent 19 years
with SABIC, where he started his career at Petrokemya. He holds a
BSc degree in Chemical Engineering from the King Saud University,
Saudi Arabia; and has attended the Leadership Development Programme
at London Business School, UK.
3. Mr Moustafa M. Elkamash CPA Chief Financial Officer
Mr Moustafa Elkamash has over 20 years’ experience in finance,
accounting, auditing and strategic planning. Prior to joining
Chemanol, he was Group Finance Director & Group Controller at
Orascom Construction Industries, Cairo, Egypt. Previously, Mr
Elkamash was Finance Manager at Allianz Egypt; and Assistant
Financial Controller at Garden Botanika, Seattle, USA. He also has
four years’ experience with Big Four auditing firms in Egypt and
the USA. A Certified Public Accountant from the California Board of
Accountancy, USA; Mr Elkamash holds a BSC in Accounting from the
University of Cairo, Egypt.
4. Mr Khalid Moharrum General Manager - Operations
Mr Khalid Moharrum has over 16 years’ experience spent working for
Chemanol. He started as a Shift Engineer and then progressed
through various supervisory and management roles in production,
operations, maintenance and project management, to his present
position. Mr Moharrum has played an instrumental role in increasing
formaldehyde capacity At Chemanol by 150,000 tons per year through
the modification of two series reactors. He holds a BSc honours
degree in Applied Chemical Engineering from the King Fahd
University of Petroleum & Minerals, Saudi Arabia.
5. Dr Gasem Falattah General Manager - Maintenance
Dr Gasem Falattah has over 20 years’ experience in the
petrochemical industry. Prior to joining Chemanol, he was
Maintenance & Reliability Manager at the Advanced Petrochemical
Company. Previously, he was with Saudi Aramco for 13 years, after
starting his career as a Research Engineer at the King Fahd
University of Petroleum & Minerals. Dr Falattah holds a PhD in
Composite Engineering from the University of Newcastle, UK; an MSc
in Mechanical Engineering and a BSc in Applied Mechanical
Engineering from the King Fahd University of Petroleum &
Minerals, Saudi Arabia; and has attended the Management
Acceleration Programme at INSEAD. He has been a Member of the US
National Association of Corrosion Engineers (NACE) since
1995.
6. Mr sanjeev Gokhale General Manager - Marketing & Sales
Mr Sanjeev Gokhale has over 26 years’ experience in petrochemicals,
specialty and fine chemicals, agrochemicals, pharmaceuticals and
fragrance chemicals. Prior to joining Chemanol, he was General
Manager - Exports at SI Group India Limited. Previously, he worked
with Lupin Agrochemicals (now Cheminova), Excel Industries, and
Godrej & Boyce Manufacturing Company. Mr Gokhale holds a Master
of Management Studies degree from SP Jain Institute of Management
& Research, Mumbai, India; and a BTech degree in Chemical
Engineering from the Institute of Technology, Banaras Hindu
University, Varanasi, India.
7. Dr Mohamed Abdullah Manager - Business Development
Dr Mohamed Abdullahi has over 31 years’ experience in chemicals and
mining. Prior to joining Chemanol, he acted as a consultant for the
development of several chemical and petrochemical projects in Saudi
Arabia with international companies. Before this, he was Senior
Vice President with APICORP, Project Development Manager with A. H.
Algosaibi & Brothers Company, and a Research Scientist at King
Fahd University of Petroleum & Minerals. Dr Abdullahi holds a
PhD in Chemistry and a DIC in Physical Chemistry from Imperial
College, University of London, UK; an MSc in Analytical Chemistry
from Chelsea College, University of London, UK; and a BSc in
Chemistry from Lafoole University, Somalia.
8. Mr Mohammed Al Ajmi Manager - Human Resources
Mr Mohammed Al Ajmi has 8 years’ experience in the fields of human
resources, employee relations, benefits and compensation,
administration and general services, and government relations;
gained with manufacturing, steel and real estate companies. Prior
to joining Chemanol, he was HR & Administration Superintendent
with ArcelorMittal. Previously, he was HR & Administration
Manager with Al-Oula Real Estate Company, and HR section head with
Universal Metal Coating Company (UNICOIL). Certified as an HR
professional by the UK Chartered Institute of Personnel &
Development (CIPD), Mr Al Ajmi holds a Bachelor’s degree in
Education, and a Higher Studies Diploma in Management.
9. Mr Maher Al-Dughaim Manager - Environment, Health, Safety &
Security
Mr Maher Al-Dughaim has over 19 years’ experience in the field of
industrial safety; and has been actively involved in integrated
management system developments, global audits, accident
investigations and risk assessments. Prior to joining Chemanol, he
was Corporate Safety Head at SABIC; and previously worked at the
Saudi Electricity Company as a Safety Engineer. Mr Al- Dughaim
holds a BSc in Operations Research from the King Saud University,
Saudi Arabia. He is certified as a Safety Management Systems
Auditor / Lead Auditor by NICS (Australia) and as a Quality Safety
Auditor by ROSPA (UK); and is a Member of the Gulf Petrochemicals
& Chemicals Association (GPCA).
21 METhANOL ChEMiCALs COMPANy 2012 Annual Report
Pursuing Opportunities for Sustainable Growth
Chemanol has set ambitious and challenging targets for achieving
sustainable long- term growth. These cover key areas such as
growing the Company’s turnover and profitability, production levels
and market share; and maintaining its status as a major leading
manufacturer of specialty chemicals.
Through its systematic approach, and identification of new business
opportunities, Chemanol is confident of achieving these targets,
and thereby providing enhanced returns for shareholders, and
greater security and prosperity for all stakeholders.
22 Methanol CheMiCals CoMpany 2012 Annual Report
Based on our excellent performance during the year, we remain
positive about the ability of the Chemanol team to implement our
strategy and achieve our challenging business objectives.
23 Methanol CheMiCals CoMpany 2012 Annual Report
Financial statements For The Year Ended 31 December 2012
24 Financial StatementsMethanol CheMiCals CoMpany 2012 Annual
Report
25 Independent Auditors’ Report to the Shareholders
26 Balance Sheet
29 Statement of changes in equity
30 Notes to the financial statements
Contents
Independent Auditors’ Report
KPMG Al Fozan & Al Sadhan, a partnership registered in Saudi
Arabia and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
KPMG Al Fozan & Al Sadhan
Al Subeaei Towers King Abdulaziz Road P O Box 4803 Al Khobar 31952
Kingdom of Saudi Arabia
Tel +966 3 887 7241 Fax +966 1 887 7254 www.kpmg.com.sa License No.
46/11/323 issued 11/3/1992
The Shareholders Methanol Chemicals Company Dammam, Kingdom of
Saudi Arabia
We have audited the accompanying financial statements of Methanol
Chemicals Company (“the Company”) which comprise the balance sheet
as at December 31, 2012 and the related statements of income, cash
flows and changes in equity for the year then ended and the
attached notes 1 through 25 which form an integral part of the
financial statements.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation
of these financial statements in accordance with generally accepted
accounting standards in the Kingdom of Saudi Arabia and in
compliance with article 123 of the Regulations for Companies and
the Company’s Articles of Association and for such internal control
as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error. Management has provided us with all
the information and explanations that we require relating to our
audit of these financial statements.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with generally accepted auditing standards in the Kingdom of Saudi
Arabia. Those standards require that we comply with relevant
ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of
material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, we consider internal controls relevant to the entity’s
preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the
effectiveness of the entity’s internal controls. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the financial statements taken as a whole:
1) present fairly, in all material respects, the financial position
of the Company as at December 31, 2012, and the results of its
operations and its cash flows for the year then ended in accordance
with generally accepted accounting standards in the Kingdom of
Saudi Arabia appropriate to the circumstances of the Company;
and
2) comply with the requirements of the Regulations for Companies
and the Company’s Articles of Association with respect to the
preparation and presentation of financial statements.
For KPMG Al Fozan & Al Sadhan
Tareq Abdulrahman Al Sadhan License No. 352
Al Khobar, February 21, 2013 Corresponding to: Rabi’ Thani 11,
1434H
26 Methanol CheMiCals CoMpany 2012 Annual Report
Balance Sheet As at December 31, 2012 Expressed in Saudi Arabian
Riyals
Note 2012 2011
ASSETS Current assets Cash and cash equivalents 4 114,777,303
122,114,884 Margin deposits with bank 500,000 500,000 Trade
receivables 251,468,777 226,301,554 Inventories 5 121,445,541
118,249,916 Prepayments and other current assets 6 45,673,579
38,075,696 Total current assets 533,865,200 505,242,050
Non-current assets: Intangible assets 7 13,781,250 14,568,750
Deferred charges 8 1,768,228 4,741,092 Long term prepaid expenses 9
30,992,729 36,545,584 Property, plant and equipment 10
2,343,802,441 2,464,354,999 Total non-current assets 2,390,344,648
2,520,210,425 Total assets 2,924,209,848 3,025,452,475
LIABILITY AND EQUITY Current liabilities: Trade payables 56,498,531
46,500,384 Short term loans 11 - 40,000,000 Current portion of
long-term bank debts 11 142,625,000 124,790,000 Current portion of
long term obligations 7 3,087,500 5,250,000 Accrued expenses and
other current liabilities 12 40,289,265 33,133,819 Zakat provision
13 4,901,401 3,996,440 Total current liabilities 247,401,697
253,670,643
Non-current liabilities: Long-term bank debts 11 1,075,925,000
1,261,175,000 Long term obligations 7 - 3,087,500 Employees’ end of
service benefits 27,643,478 24,106,278 Total non-current
liabilities 1,103,568,478 1,288,368,778 Total liabilities
1,350,970,175 1,542,039,421
EQUITY Share capital 14 1,206,000,000 1,206,000,000 Share premium
15 72,850,071 72,850,071 Statutory reserve 33,686,753 24,543,813
Retained earnings 260,702,849 180,019,170 Total equity
1,573,239,673 1,483,413,054 Total liabilities and equity
2,924,209,848 3,025,452,475
The Interim Financial Statements appearing on pages 1 to 17 were
approved by the management on behalf of Board of Directors of the
Company on February 20, 2013, and have been signed on their behalf
by:
Mustafa Mohamed El Kamash Khalid Al Rabiah Adeeb Abdullah Al Zamil
Chief Financial Officer Chief Executive Officer Board Member
The accompanying notes 1 through 25 form an integral part of these
financial statements.
27 Methanol CheMiCals CoMpany 2012 Annual Report
Statement of Income For the year ended December 31, 2012 Expressed
in Saudi Arabian Riyals
Note 2012 2011
Selling and distribution expenses 17 (68,991,497) (59,994,571)
General and administrative expenses 18 (25,590,062) (18,041,480)
Amortisation of deferred charges 8 (2,972,864) (2,955,265)
Operating income 119,895,312 110,821,611
Other income, net 19 14,077,491 2,332,704 Financial charges
(37,643,403) (39,942,354) Income before Zakat 96,329,400 73,211,961
Zakat 13 (4,900,000) (3,000,000) Net income 91,429,400
70,211,961
Earnings per share 20 0.76 0.58
The accompanying notes 1 through 25 form an integral part of these
financial statements.
28 Methanol CheMiCals CoMpany 2012 Annual Report
Statement of Cash Flows For the year ended December 31, 2012
Expressed in Saudi Arabian Riyals
Note 2012 2011
Cash flow operating activities: Net income for the period
91,429,400 70,211,961 Adjustment to reconcile net income to net
cash provided by operating activities: Depreciation 10 150,587,184
151,433,588 Amortisation 9,313,219 10,009,558 Employees’ end of
service benefits, net 3,537,200 2,832,073 Zakat charge 4,900,000
3,000,000 Gain from disposal of property, plant and equipment
(406,523) (756,306)
259,360,480 236,730,874
Changes in operating assets and liabilities: Trade receivables and
prepayments and other current assets (32,765,106) (45,720,095)
Inventories (3,195,625) (34,217,813) Trade payables and accrues
expenses and other current liabilities 15,550,812 (27,932,970)
Zakat paid 13 (3,995,039) (3,583,418) Net cash provided by
operating activities 234,955,522 125,276,578
Cash flow from investing activities: Additions to property, plant
and equipment (30,071,351) (17,996,957) Proceeds from disposal of
property, plant and equipment 443,248 1,057,438 Net movement in
amounts due to project contractors - (53,176,129) Additions to long
term prepaid expenses - (10,543,635) Payment of long term
obligations (5,250,000) (4,812,500) Net cash used in investing
activities (34,878,103) (85,471,783)
Cash flow from financing activities: Net movement in short term
loans (40,000,000) (1,606,587) Net movement in long term loans
(167,415,000) (52,252,834) Net cash used in by financing activities
(207,415,000) (53,859,421)
Net decrease in cash and cash equivalents (7,337,581)
(14,054,626)
Cash and cash equivalents at the beginning of the year 122,114,884
136,169,510 Cash and cash equivalent at the end of the year 4
114,777,303 122,114,884
The accompanying notes 1 through 25 form an integral part of these
financial statements.
29 Methanol CheMiCals CoMpany 2012 Annual Report
Statement of Changes in Equity For the year ended December 31, 2012
Expressed in Saudi Arabian Riyals
Share capital
Share premium
Statutory reserve
Net income for the year - - - 70,211,961 70,211,961
Directors’ remuneration - - - (1,574,788) (1,574,788)
Balance at December 31, 2011 1,206,000,000 72,850,071 24,543,813
180,019,170 1,483,413,054
Net income for the year - - - 91,429,400 91,429,400
Directors’ remuneration - - - (1,602,781) (1,602,781)
Balance at December 31, 2012 1,206,000,000 72,850,071 33,686,753
260,702,849 1,573,239,673
The accompanying notes 1 through 25 form an integral part of these
financial statements.
30 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Methanol Chemicals Company (“Chemanol” or “the Company”) is a Saudi
Joint Stock Company registered in Saudi Arabia under Commercial
Registration number 2055001870 dated Dhu Al-Hijjah 28, 1409H
corresponding to July 31, 1989. It is licensed to engage in the
production of formaldehyde liquid and urea formaldehyde liquid or
their mixture with different concentrations, paraformaldehyde,
formaldehyde resins, hexane methylene tetramine, phenol
formaldehyde resins, concrete improvers, methanol, carbon monoxide,
di-methylamine, mono-methylamine, tri-mon-methylamine, di-methyl
formamide, di-methyl carbon, penta aritheretol, sodium formate 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 accordance with Ministerial Resolution No.
286 dated Dhul al-Qa’dah 4, 1428H, corresponding November 14,
2007.
2. BASIS OF PREPARATION
(a) Statement of compliance
The accompanying financial statements have been prepared in
accordance with the generally accepted accounting standards in
Saudi Arabia issued by the Saudi Organization for Certified Public
Accountants (SOCPA).
The financial statements were authorized for issue by the Board of
Directors on February 20, 2013.
(b) Basis of measurement
The financial statements have been prepared on a historical cost
basis using the accrual basis of accounting and the going concern
concept.
(c) Functional and presentation currency
These financial statements are presented in Saudi Arabian Riyals
(SR) which is the functional currency of the Company.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make
judgments, estimates and assumptions that affect the application of
policies and reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in future periods
affected.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all periods presented in the financial statements.
Certain comparative figures in notes 5, 6, 10 and 11 have been
reclassified to conform to the current year’s presentation.
a. Trade receivables
Trade receivables are stated at original invoice amount less
provisions made for amounts which in the opinion of the management
may not be received. Bad debts are written off when
identified.
b. Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost of inventories is principally based on the weighted
average principle, and includes expenditure incurred in acquiring
the inventories, production or conversion costs and other costs
incurred in bringing them to their existing location and condition.
In the case of manufactured inventories and work in progress, cost
includes an appropriate 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 estimated costs of completion and
selling expenses.
31 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
c. Property, plant and equipment
Property, plant and equipment are measured at cost, less
accumulated depreciation and accumulated impairment. Cost includes
expenditure that is directly attributable to the acquisition of the
asset. Finance costs on borrowings to finance the construction of
qualifying assets are capitalized during the period of time that is
required to complete and prepare the asset for its intended
use.
Subsequent expenditure is capitalized only when it increases the
future economic benefits embodied in the item of property, plant
and equipment. All other expenditure is recognized in the Statement
of Income when incurred.
Depreciation is charged to the Statement of Income on a
straight-line basis over the estimated useful lives of individual
items of property, plant and equipment.
The estimated useful lives of assets for current and comparative
periods are as follows:
Years
Buildings 33.33 Improvements on leasehold lands 5 Furniture,
fixtures and office equipments 7 to 10 Computers and software 4 to
8 Plant, equipment and capital spares 10 to 20 Motor vehicles 4
Catalysts 1 to 3
Capital work in progress is stated at cost less impairment losses,
if any, and is not depreciated until the asset is brought into
commercial operations.
d. Intangible assets
Estimated value of the right to use pipelines owned by other
parties for transporting raw materials and finished goods are
treated as intangible assets and are ammortised over the estimated
period of future economic benefits.
e. Deferred charges
Costs relating to software licence fees and implementation thereof
are treated as deferred charges and amortised over the estimated
period of future economic benefits.
f. Long term prepaid expenses
Loan appraisal fees of the Saudi Industrial Development Fund
(‘SIDF’) are treated as long term prepaid expenses and amortised
over the period of the loan. Amortisation is capitalized up to the
date the plant is available for its intended use.
g. Impairment of assets
Financial assets, property, plant and equipment and other
non-current assets are reviewed at each reporting date to determine
whether there is any indication of impairment. An impairment loss,
if any, is recognized for the amount by which the carrying amount
of the asset exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and value
in use. For the purpose of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows.
h. Long term obligations
Long term obligations represent the amount payable in respect of
the acquisition costs of intangible assets.
i. Trade payables and accruals
Liabilities are recognized for amounts to be paid in future for
goods or services received, whether billed by the supplier or
not.
32 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
j. Employees’ end of service benefits
Employees’ end of service benefits, calculated in accordance with
Saudi Arabian labour regulations, are accrued and charged to the
Statement of Income. The liability is calculated at the current
value of the vested benefits to which the employee is entitled,
should his services be terminated at the balance sheet date.
k. Share premium
Share premium represents the excess amount collected over the face
value of shares issued and is shown net of expenses incurred in
relation to the share issue.
l. Revenue recognition
Revenue from sales is recognized upon delivery or shipment of
products and when the risks and rewards have passed to the
customer. Revenue is recorded net of returns, trade discounts and
volume rebates.
Any other income is recognized when the realization of income is
virtually certain.
m. Operating leases
Payments under operating leases are recognized in the Statement of
Income on a straight line basis over the term of the lease. Lease
incentives received are recognized as an integral part of the total
lease expense over the term of the lease.
n. Expenses
Selling and distribution expenses are those arising from the
Company’s efforts underlying the marketing, selling and
distribution functions. All other expenses, excluding direct costs
and financial charges, are classified as general and administrative
expenses. Allocations of common expenses between cost of sales,
selling and marketing and general and administrative expenses, when
required, are made on a consistent basis.
o. Zakat
Zakat, computed in accordance with Saudi Arabia Tax and Zakat
regulations, is accrued and charged to the Statement of
Income.
p. Foreign currency translation
Transactions denominated in foreign currencies are translated to
the functional currency of the Company at the exchange rates ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currency at the balance sheet date are
translated to the functional currency of the Company at the foreign
exchange rate ruling at that date. Exchange differences arising on
translation are recognized in the Statement of Income
currently.
q. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and cash at banks
which is available to the Company without any restrictions.
r. Earnings per share
Earnings per share from net income are calculated by dividing the
net income for the period by the weighted average number of shares
outstanding during the period.
33 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
s. Segmental reporting
A segment is a distinguishable component of the Company that is
engaged in providing products, services (a business segment) or in
providing products or services within a particular economic
environment (a geographic segment), which is subject to risks and
rewards that are different from those of other segments. Because
the management views the whole activities of the Company as one
operating segment, reporting is provided by geographical segment
only.
t. Dividends
Interim dividends are recorded as a liability in the period in
which they are approved by the Board of Directors. Final dividends
are recorded in the period in which they are approved by the
shareholders.
u. Fair values
The fair value of commission-bearing items is estimated based on
discounted cash flows using commission rates for items with similar
terms and risk characteristics.
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31 comprise of the
following:
2012 2011
Cash in hand 60,278 6,760 Cash at bank on current accounts
59,942,025 122,108,124 Short term bank deposits 54,775,000 -
114,777,303 122,114,884
The short term bank deposits have maturity period of 15 days and
carry the interest rate in the range of 0.08% to 0.2%.
5. INVENTORIES
2012 2011
121,445,541 118,249,916
6. PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets at December 31, comprise of
the following:
2012 2011
Advances to suppliers 18,815,565 29,281,813 Amount due from
insurers 14,900,000 - House rent allowance receivable from
employees 5,723,324 2,422,694 Prepaid expenses 4,344,341 5,548,776
Other receivables 1,391,446 822,413 Amounts due from companies
affiliated to shareholders 498,903 -
45,673,579 38,075,696
34 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
7. INTANGIBLE ASSETS 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. Payments will be made over the 3 year period,
commencing April 2010.
The Company has capitalised the estimated amount payable in respect
of the Capital Investment Component, which amounts to SR 15.75
million. The intangible assets have been amortised over twenty
years, on the basis that this is the estimated useful life of the
asset. The Management believes that the ammonia supply will
continue for the foreseeable future.
8. DEFERRED CHARGES
The movement in deferred charges for the year ended December 31, is
as follows: 2012 2011
Cost At January 1 14,776,298 14,776,298 Additions during the year -
- At December 31 14,776,298 14,776,298
Accumulated amortization At January 1 10,035,206 7,079,942 Charge
for the year 2,972,864 2,955,264 At December 31 13,008,070
10,035,206 Net book value at December 31 1,768,228 4,741,092
Deferred charges represent software license and implementation
costs and are amortised over the period of five years from the date
of successful implementation.
9. LONG TERM PREPAID EXPENSES
The movement in long term prepaid expenses for the year ended
December 31 is as follows: 2012 2011
Cost At January 1 55,543,635 45,000,000 Additions during the year -
10,543,635 At December 31 55,543,635 55,543,635
Accumulated amortization At January 1 18,998,051 13,125,008 Charge
for the year 5,552,855 5,873,043 At December 31 24,550,906
18,998,051 Net book value at December 31 30,992,729
36,545,584
Long term prepaid expenses represent the mainly SIDF funding
appraisal costs and also include Murabaha facility appraisal and
restructuring costs and are being amortized over a period of six to
nine years.
35 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
10. PROPERTY, PLANT AND EQUIPMENT The movement in property, plant
and equipment during the year ended December 31, 2012 is analyzed
as under:
Building and improvement on leasehold
land
Additions 149,500 1,552,644 1,345,484 19,058,482 1,516,424
6,448,817 30,071,351
Transfers from CWIP - 443,037 14,618 2,569,088 (3,026,743) -
-
Disposals - (26,660) - (1,141,888) - - (1,168,548)
Accumulated depreciation
Eliminated on disposals - (26,660) - (1,105,163) - -
(1,131,823)
Balance at December 31 43,294,044 10,890,177 11,324,876 535,960,226
- 31,478,994 632,948,317
Net book value
At December 31, 2012 313,490,783 7,096,618 4,348,892 2,011,720,272
5,532,381 1,613,495 2,343,802,441
At December 31, 2011 324,011,007 6,973,255 4,670,406 2,118,394,838
7,042,700 3,262,793 2,464,354,999
The Company’s factory premises are situated in the Jubail
Industrial Area and have been constructed on land leased from the
Royal Commission for Jubail and Yanbu (‘the Commission’) for a
period of 25 years from April 16, 1990 corresponding to Ramadan 21,
1410H at an annual rent of SR 110,430. The Company has entered into
land lease arrangement with Sea Ports Authority of King Fahad
Industrial Port, Al – Jubai for a period of 20 years from April 11,
2006 corresponding to Shawwal 13, 1427H at an annual lease rent of
SR 310,044. The Company has entered into another land lease
arrangement with the Commission for a period of 30 years from July
20, 2007 corresponding to Rabi ll 3, 1428H at an annual rent of SR
290,728. The Company has the option of renewing the lease
arrangement on expiry of the initial lease arrangement.
The term loans of the Saudi Industrial Development Fund (‘SIDF’)
are secured by a mortgage over property, plant and equipment.
36 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
11. BANK DEBTS
a. Short-term bank debts
The Company has working capital facilities with local banks.
Commission is charged on the short-term loans at commercial rates.
The short-term loans were secured by promissory notes, which were
fully repaid during the year.
b. Long-term bank loans Long-term bank loans at December 31
comprise of the following:
2012 2011
Saudi Industrial Development Fund (note a) 540,000,000 600,000,000
Murabaha facility from a syndicate of banks (note b) 528,550,000
635,965,000 Project cost overrun Murabaha Facility from a syndicate
of banks (note b) 150,000,000 150,000,000
1,218,550,000 1,385,965,000
Current portion shown under current liabilities 142,625,000
124,790,000 Non-current portion shown under non-current liabilities
1,075,925,000 1,261,175,000
1,218,550,000 1,385,965,000
a) On May 15, 2011, the Company reached an agreement with the SIDF
to restructure the existing outstanding debt balance. The
restructured debt amounting to SR 600,000,000 will be payable in 15
installments, with the first and last installment 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.
b) 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 Group, Saudi
Hollandi Bank, National Commercial Bank and SABB (collectively
called as “Murabaha Facility Participants”) to provide Project
Murabaha Facility of SR 940 million, refinance Murabaha Facility of
SR 37.5 million, and Working Capital Murabaha Facility and Standby
Murabaha Sub-Facility of SR 150 million. The Project Murabaha
Facility loan amounting to SR 525 million has been repaid on
availment of the SIDF loan.
In October 2009, the Company entered into a Project Cost Overrun
Murabaha Facility Agreement with a syndicate of banks, namely; Arab
Banking Corporation (B.S.C), Riyadh Bank, Samba Financial Group,
Saudi Hollandi Bank, National Commercial Bank and SABB
(collectively called as “The Project Cost Overun Murabaha Facility
Participants”) to provide Project Cost Overrun Murabaha Facility of
SR 326 million to finance ongoing expansion projects. As per the
agreement, the amounts drawn under this facility were originally
repayable in 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 Group (collectively called as “The Murabaha Facility
Participants”) to refinance both i) the outstanding balance under
the Project Murabaha Facility & the Working Capital Facility
Agreement of SAR 506 million dated December 26, 2007, ii) the Cost
Overrun Facility Agreement of SAR 326 million dated October 27,
2009.
As per the new Murabah Facility Agreement dated June 5, 2011, the
Project Murabaha Facility amounting to SR 682 million will be
payable in 14 semi-annual installments starting from July 2011 to
December 2017. The Working Capital Murabaha Facility amounting to
SR 150 million will be payable in 10 semi-annual installments
starting from January 2013 to December 2017.
The facilities are secured by promissory notes. The Company is
required to comply with certain covenants under all of above
facilities. The installments due within one year from the balance
sheet date are shown as current liabilities.
37 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities as at December 31,
comprise of the following:
2012 2011
Accrued expenses 38,592,661 31,945,144 Amount due to project
contractor - 227,036 Amounts due to companies affiliated to
shareholders 489,705 137,992 Advance from customers 1,206,899
823,647
40,289,265 33,133,819
13. ZAKAT
a) The Department of Zakat and Income Tax (“DZIT’) has raised final
Zakat assessment for all years up to 31 December 2008. The Company
has filed its Zakat declaration for all the years upto 2011 and
paid Zakat accordingly and the assessment is awaited.
b) The Zakat charge for the year ended December 31 comprises of the
following:
2012 2011
For current year 4,901,401 3,916,249 For previous year (1,401)
(916,249) Balance at end of the year 4,900,000 3,000,000
c) Summary of the items included in the Zakat base for the year
ended 31 December is as follows:
2012 2011
d) The movement in the Zakat provision is as follows:
2012 2011
Balance at beginning of the year 3,996,440 4,579,858 Charged during
the year 4,900,000 3,000,000 Payment during the year (3,995,039)
(3,583,418) Balance at end of the year 4,901,401 3,996,440
14. SHARE CAPITAL
Share capital is divided into 120,600,000 shares (2011: 120,600,000
shares) of SR 10 each.
15. SHARE PREMIUM
During the year ended December 31, 2008, 60,300,000 shares, having
a face value of SR 10 each, were issued at a premium of SR 2 per
share. Share premium amounted to SR 72,850,071 as at December 31,
2012 (2011: SR 72,850,071).
38 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
16. DIRECTORS’ REMUNERATION
The Board of Directors’ remuneration has been shown as an
appropriation in the Statement of Changes in Equity in accordance
with the Company’s by-laws.
17. SELLING AND DISTRIBUTION EXPENSES
Selling and distribution expenses during the year ended December
31, are summarized as follows:
2012 2011
68,991,497 59,994,571
18. GENERAL AND ADMINISTRTIVE EXPENSES
General and administrative expenses during the year ended December
31, are summarized as follows:
2012 2011
Employee costs 15,996,910 12,306,660 Depreciation 2,351,003
1,904,999 Travel and air fares 480,720 392,684 Professional fees
1,015,697 416,251 External services 822,299 839,118 Advertising
579,670 130,127 Utilities and common expenses 475,652 381,227 Rents
275,462 210,004 Consumables 71,568 122,593 Withholding tax
1,194,264 246,706 Others 2,326,817 1,091,111 25,590,062
18,041,480
19. OTHER INCOME, NET
Other income, net during the year ended December 31, are summarized
as follows:
2012 2011
Insurance proceeds 14,900,000 - Foreign exchange (loss)/gain
(1,889,100) 596,268 Gain on disposal of assets 406,523 756,306
Others 660,068 980,130 14,077,491 2,332, 704
39 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
20. EARNINGS PER SHARE
Earnings per share for the year ended December 31, 2012 have been
computed by dividing the net income for such period by the
weighted-average number of ordinary shares outstanding during the
year ended December 31, 2012 of 120,600,000 shares.
21. CAPITAL COMMITMENTS
As at December 31, 2012, the Company had capital expenditure
commitments of SR 4.84 million (2011: SR 4.77 million).
The future aggregate minimum lease commitments under
non-cancellable operating leases are as follows:
2012 2011
Not later than 1 year 711,159 711,159 Later than 1 year but not
later than 5 years 2,464,376 2,573,161 Later than 5 year till lease
period 7,914,763 8,517,137
11,090,298 11,801,457
22. RELATED PARTY TRANSACTIONS AND BALANCES
In the ordinary course of business, the Company undertakes
transactions with other companies that have certain common
shareholders. All such transactions are executed on commercial
terms that are approved by management.
There were no sales of finished goods during the current year to
affiliated companies (2011: SR Nil).
The cost of sales and expenses include amounts of SR 3,826,814
(2011: SR 455,020) in respect of purchase of inventories and
services provided by companies affiliated to shareholders.
Amounts receivable from companies affiliated to shareholders in
respect of advances paid are included in trade receivables and
prepayments under note 5.
Amounts payable to companies affiliated to shareholders are
included in accounts payable and accruals under note 11.
23. CONTINGENT LIABILITY
At December 31, 2012, the Company has a contingent liability of SR
65,725,256 (2011: SR 43,978,168) in respect of bank guarantees and
letter of credits issued by the Company’s banks in respect of bid
bonds, contracts advance payments and performance bonds.
24. SEGMENT INFORMATION
The management of the Company views the whole business activities
of the Company as one operating segment for performance assessment
and resources allocation. Accordingly, reporting is provided by
geographical segment only. SR 619 million (67%) of the sales are
through export (2011: SR 571 million (69%)).
40 Notes to the Financial Statements For the year ended December
31, 2012 Expressed in Saudi Arabian Riyals
Methanol CheMiCals CoMpany 2012 Annual Report
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial instruments carried on the balance sheet include cash and
cash equivalents, margin deposits with the bank, trade receivables
and prepayments, inventories, trade payables and accruals, short
term loans, current portion of term loans and long term obligations
and zakat provision.
Credit risk is the risk that one party will fail to discharge an
obligation and will cause the other party to incur a financial
loss. The Company has no significant concentration of credit risks.
Cash and cash equivalents are placed with national and
international banks with sound credit ratings. Trade and other
accounts receivable are actively monitored by the management for
recoverability and impairment and are stated at their estimated
realizable values.
Fair value and cash flow interest rate risks are the exposures to
various risks associated with the effect of fluctuations in the
prevailing interest rates on the Company’s financial position and
cash flows. The Company’s interest rate risk arise mainly from
short-term borrowings and long term debts, which are at floating
rates of interest. All deposits and debts are subject to re-pricing
on a regular basis. Management monitors the changes in interest
rates and believes that the fair value and cash flow interest rate
risks to the Company could be significant.
Liquidity risk is the risk that an enterprise will encounter
difficulty in raising funds to meet commitments associated with
financial instruments. Liquidity risk may result from the inability
to sell a financial asset quickly at an amount close to its fair
value.
Liquidity risk is managed by monitoring on a regular basis that
sufficient funds are available to meet the Company’s future
commitments.
Currency risk is the risk that the value of a financial instrument
will fluctuate due to changes in foreign exchange rates. The
Company’s transactions are principally in Saudi Riyal, United
States dollar and Euro. Transactions in Saudi Riyal and United
States dollar are not considered to represent a significant risk to
the Company.