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SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP) (A Saudi Arabian Mixed Limited Liability Company in development phase) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 AND INDEPENDENT AUDITOR’S REPORT
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 AND INDEPENDENT AUDITOR’S REPORT
1
CONTENTS Page
Independent auditor’s report 2
Consolidated statement of financial position 3
Consolidated statement of operations 4
Consolidated statement of cash flows 5
Consolidated statement of changes in shareholders’ equity 6
Notes to the consolidated financial statements 7-23
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Consolidated statement of operations
(All amounts in thousands of Saudi Riyals unless otherwise stated)
4
For the year ended
31 December
Note 2013 2012
Income - -
Operating expenses
General and administrative expenses 14 (325,849) (374,250)
Foreign exchange gains 532 118
Loss from operations (325,317) (374,132)
Finance income - -
Net loss for the year (325,317) (374,132)
Loss per share (Saudi Riyals):
Loss from operations (0.47) (1.16)
Net loss for the year (0.47) (1.16)
Weighted average number of shares outstanding (in millions)
697.86
321.82
The notes on pages 7 to 23 form an integral part of these consolidated financial statements.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Consolidated statement of cash flows
(All amounts in thousands of Saudi Riyals unless otherwise stated)
5
For the year ended
31 December
Note 2013 2012
Cash flows from operating activities
Net loss for the year (325,317) (374,132)
Adjustments for non-cash items:
Depreciation and amortization 8,9 6,468 5,577
Changes in working capital:
Advances and other receivables 387 15,090
Inventories 42,672 (99,101)
Accounts payable (26,407) 31,131
Accrued and other liabilities 107,251 62,430
Accrued liabilities - related parties (5,041) (58,346)
Net cash used in operating activities (199,987) (417,351)
Cash flows from investing activities
Additions to assets under construction (7,614,721) (12,770,346)
Finance income capitalized (180) (243)
Finance income received 180 243
Net cash used in investing activities (7,614,721) (12,770,346)
Cash flows from financing activities
Share capital contribution 3,562,500 1,125,000
Proceeds from borrowings 1,061,658 9,237,905
Proceeds from loans from shareholders 3,187,500 1,875,000
Net cash generated from financing activities 7,811,658 12,237,905
Net change in cash and cash equivalents (3,050) (949,792)
Cash and cash equivalents at beginning of year 17,549 967,341
Cash and cash equivalents at end of year 4 14,499 17,549
Non-cash transactions
No transfers were made during the year from assets under construction to property plant and equipment (2012: Saudi Riyals 10.21 million) and intangible assets (2012: Saudi Riyals 0.53 million).
The notes on pages 7 to 23 form an integral part of these consolidated financial statements.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Consolidated statement of changes in shareholders’ equity
(All amounts in thousands of Saudi Riyals unless otherwise stated)
6
Saudi Aramco
TOTAL
Total
Share capital
Balance at 1 January 2012 1,523,438 914,062 2,437,500
Share capital contributed 703,125 421,875 1,125,000
Balance at 31 December 2012 2,226,563 1,335,937 3,562,500
Balance at 1 January 2013 2,226,563 1,335,937 3,562,500
Share capital contributed 2,226,562 1,335,938 3,562,500
Balance at 31 December 2013 4,453,125 2,671,875 7,125,000
Statutory reserve
Balance at 1 January 2012 & 2013 and 31 December 2012 & 2013
-
-
-
Accumulated losses
Balance at 1 January 2012 (545,457) (321,740) (867,197)
Net loss for the year (233,833) (140,299) (374,132)
Zakat - - -
Income taxes - - -
Balance at 31 December 2012 (779,290) (462,039) (1,241,329)
Balance at 1 January 2013
(779,290) (462,039) (1,241,329)
Net loss for the year (203,323) (121,994) (325,317)
Zakat - - -
Income taxes - - -
Balance at 31 December 2013 (982,613) (584,033) (1,566,646)
Total shareholders’ equity at 31 December 2013 3,470,512 2,087,842 5,558,354
Total shareholders’ equity at 31 December 2012 1,474,342 872,898 2,321,171
The notes on pages 7 to 23 form an integral part of these consolidated financial statements.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
7
1. GENERAL INFORMATION
Saudi Aramco Total Refining & Petrochemical Company (SATORP) (“the Company”) and its subsidiary (collectively the “Group”) are engaged in the construction of refinery facilities at Jubail II Industrial City, with the objective to manufacture and sell refined, petrochemical and other related hydrocarbon products. The Company is a Saudi Arabian mixed limited liability company licensed under industrial investment license No.2/1/2222, issued by the Saudi Arabian General Investment Authority on 25 Sha’aban, 1429 H (26 August 2008) and was registered on 6 Ramadan, 1429H (6 September 2008) under commercial registration number 2055009745. The Company’s principal place of business and address of its registered office is Al Jubail 35741 – 7821, Al Jubail Industrial City. The Group is owned 62.5% by Saudi Arabian Oil Company (“Saudi Aramco”) and 37.5% by TOTAL Refining Saudi Arabia SAS Limited (“TOTAL”) registered in France, a wholly owned subsidiary of TOTAL S.A. The Group is jointly controlled by Saudi Aramco and TOTAL. The accompanying consolidated financial statements include the financial information of the Company and its subsidiary Arabian Aramco Total Services Company (“AATSC”), a Saudi closed joint stock company, that was incorporated on 21 Sha’aban 1431H (2 August 2010). The Company has an ownership of 99.998% in AATSC at 31 December 2013 (2012: 99.998%). On 9 October 2011, the Group issued Sukuk amounting to Saudi Riyals 3,749.9 million at par value maturing on 20 December 2025. The Sukuk issuance bears a rate of return based on a market related margin payable semi-annually in arrears. The Sukuk repayments are semi-annual from 20 December 2014 through 20 December 2025. The Group is currently in its development stage and is in the process of constructing its refinery facility. The Group is carrying out testing of certain elements of the refinery, as a result of which inventories of feedstock, intermediate and refined products arose at the end of the year and shipments of heavy fuel oil and other refined products were made in the last two quarters of the year. The results of these activities were recognized within assets under construction in the Statement of financial position. The Group is expected to commence commercial operations during 2014. At 31 December 2013, the total estimated project cost of the refinery facilities is Saudi Riyals 48.53 billion (2012: Saudi Riyals 48.58 billion). This includes development phase operating costs of Saudi Riyals 1.7 billion (2012: Saudi Riyals 2 billion) and finance fees and interest costs of Saudi Riyals 2.63 billion (2012: Saudi Riyals 1.96 billion). To date the Group has incurred Saudi Riyals 45.62 billion of project related costs (2012: Saudi Riyals 38.9 billion). At 31 December 2013, the Group had capital commitments of Saudi Riyals 1 billion (2012: Saudi Riyals 4.43 billion) (note 16.2) and operating lease commitments of Saudi Riyals 578.48 million (2012: Saudi Riyals 609.3 million) (note 16.3). At 31 December 2013, the Group’s current liabilities exceeded its current assets by Saudi Riyals 1.66 billion (2012: Saudi Riyals 1.92 billion). Pursuant to Article 6.3 of the Shareholders Agreement Saudi Aramco and TOTAL shall continue to ensure that the Group is sufficiently funded to meet its anticipated operational and capital requirements (note 12).
The accompanying consolidated financial statements were authorized for issue by the Board of Directors on 20 February 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented. 2.1 Basis of preparation
The accompanying consolidated financial statements of the Group have been prepared under the historical cost convention on the accrual basis of accounting and in compliance with standards promulgated by the Saudi Organization for Certified Public Accountants ("SOCPA").
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
8
2.2 Critical accounting estimates and judgments
The preparation of financial statements in conformity with accounting principles generally accepted in Saudi Arabia requires the use of certain critical accounting estimates that affect the reported amounts of assets and liabilities at the date of the Statement of financial position and the reported amounts of expenses during the reporting period. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. No significant estimates were made by management during the year. The critical judgement made by management in applying its accounting policies is in relation to the determination of the date of commencement of operations. At 31 December 2013 management considered the various units within the refinery to still be under commissioning as they are not operating as intended by management. Once the plant is operating as management originally intended, the Group will commence to depreciate the plant over its estimated useful life and will cease to capitalise borrowing costs. Such borrowing costs, along with operating costs and revenues, will be recognised in the Statement of operations. 2.3 Consolidation
Investment in subsidiary Subsidiaries are entities over which the Group has the power to govern the financial and operating policies to obtain economic benefit generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.4 Foreign currency translation (a) Functional and presentation currency
The currency of the primary economic environment in which the Group operates is U.S.Dollars (“USD” or “the functional currency”). These financial statements are presented in Saudi Riyals which is the Group’s presentation currency. (b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Statement of operations within foreign exchange gains and losses. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Statement of operations within finance income or cost to the extent that these are adjustments to finance income or cost. 2.5 Cash and cash equivalents
Cash and cash equivalents include cash in hand and at banks, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
9
2.6 Inventories
Inventories include raw materials, intermediate products, finished goods and consumables used for production. Inventories are carried at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Cost is determined using the weighted average method.
2.7 Property, plant and equipment, Intangible assets and Assets under construction
Property, plant and equipment and Intangible assets are carried at historical cost less accumulated depreciation and amortization. Assets under construction are carried at historical cost and are transferred to property, plant and equipment and intangible assets when ready for use as intended by management. Historical cost includes expenditure that is directly attributable to the construction of the assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the Statement of operations during the financial period in which they are incurred. No depreciation and amortization is charged on assets under construction until transferred to property, plant and equipment and intangible assets. Depreciation and amortization is charged to the Statement of operations, using the straight-line method, to allocate the costs of the related assets to their residual values over the following estimated useful lives:
Number of years
Computer and office equipment 4 Software licenses and implementation 5 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.8). Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the Statement of operations. 2.8 Impairment of non-current assets
Non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which 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 (cash-generating units). Non-current assets other than intangible assets that suffered impairment are reviewed for possible reversal of impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately in the Statement of operations. Impairment losses recognized on intangible assets are not reversible. 2.9 Financial assets
The Group’s financial assets consist of loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
10
Loans and receivables, which are measured at amortized cost using the effective interest method, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the Statement of financial position date. These are classified as non-current assets. The Group assesses at each Statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
At 31 December 2013 and 2012, the Group’s loans and receivables comprised cash and cash equivalents, amounts due from related parties and other receivables. 2.10 Borrowings
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of operations over the period of the borrowings using the effective interest method. Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of those assets. Other borrowing costs are charged to the Statement of operations. 2.11 Accounts payable and accrued liabilities
Accounts payable and accrued liabilities represent amounts obligated to be paid for goods and services received, whether or not billed to the Group.
2.12 Provisions for liabilities
Provisions are recognized when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses. 2.13 Finance income
Finance income is recognized using the effective interest method. 2.14 Current and deferred income taxes and zakat
In accordance with the regulations of the Department of Zakat and Income Tax (“DZIT”), the Group is subject to zakat attributable to the Saudi shareholder (Saudi Aramco) and to income taxes attributable to the foreign shareholder (TOTAL). Provisions for zakat and income taxes are charged to the equity accounts of the Saudi and the foreign shareholders, respectively. Additional amounts payable, if any, at the finalization of final assessments are accounted for when such amounts are determined. Deferred income taxes are recognized on all major temporary differences between net income (loss) and taxable income (loss) during the period in which such differences arise, and are adjusted when related temporary differences are reversed. Deferred income tax assets on carry forward losses are recognized to the extent that it is probable that future taxable income will be available against which such carry-forward tax losses can be set off. Deferred income taxes are determined using tax rates which have been enacted on the Statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. The Group withholds taxes on certain transactions with non-resident parties in the Kingdom of Saudi Arabia as required under Saudi Arabian Income Tax Law. 2.15 Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of operations on a straight-line basis over the period of the lease.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
11
2.16 General and administrative expenses
General and administrative expenses include direct and indirect costs not specifically part of production costs as required under generally accepted accounting principles.
2.17 Employee end of service benefits
Employee end of service benefits required by Saudi Labor and Workman Law are accrued by the Group and charged to the Statement of operations. The liability is calculated as the current value of the vested benefits to which the employee is entitled, should the employee leave at the reporting date. Benefit payments are based on employees’ final salaries and allowances and their cumulative years of service, as stated in the laws of Saudi Arabia. 2.18 Share capital
Ordinary shares are classified as equity. Incremental costs, if any, directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 2.19 Segment reporting
Business segment
A business segment is a group of assets or operations that are: (i) engaged in revenue producing activities; (ii) the results of its operations are continuously analyzed by management in order to make decisions related to
resource allocation and performance assessment; and (iii) financial information is separately available. Geographical segment
A geographical segment is a group of assets or operations engaged in revenue producing activities within a particular economic environment that are subject to risks and returns different from those operating in other economic environments.
The Group operates only in the Kingdom of Saudi Arabia within a single business and geographical segment.
3. FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Financial instruments carried on the Statement of financial position comprise cash and cash equivalents, amounts due from related parties, other receivables, accounts payable, accrued and other liabilities, accrued liabilities-related parties, borrowings and loans from shareholders. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates. The Group’s financial activity is denominated principally in U.S. Dollars and Saudi Riyals. As a result of SAMA’s historical ability to maintain the target exchange rate between these currencies, management believes the Group does not have significant exposure to currency risk.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
12
Interest rate risk is the exposure to various risks associated with the effect of fluctuations in the prevailing
interest rates on the Group’s financial position and cash flows. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. At 31 December 2013, if interest rates on borrowings had been 10 basis points higher with all other variables held constant, borrowing costs capitalized for the year would have been Saudi Riyals 39.26 million higher (2012: Saudi Riyals 29.4 million higher), mainly as a result of higher interest expense on floating rate borrowings.
Price risk is the risk that the Group is exposed to changes in the price of commodities. As the Group is still in the
commissioning and testing phase, it is not currently exposed to significant price risk. At 31 December 2013 the Group had no investments in marketable securities. Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a
financial loss. The Group’s investment policy limits exposure to credit risk arising from investment activities. The policy requires that cash and cash equivalents, be invested in financial institutions with strong credit ratings. The policy sets investment limits with financial institutions based on ratings by Fitch Ratings Ltd. The maximum credit exposure of the Group approximates the carrying value of its cash and cash equivalents. At 31 December 2013 and 2012, investment limits were to financial institutions assigned long-term bank ratings of “A” or better. The Group has no other significant concentration of credit risk.. Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated
with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet obligations as they become due (note 1). The following table analyses the Group's financial liabilities based on the remaining period at 31 December 2013 and 2012 to the contractual maturity date. The current liabilities disclosed in the table are the contractual undiscounted cash flows and equal their carrying values as the impact of discounting is not significant. 31 December 2013
Less
than 3 months
Between 3 months
and 1 year
Between 1 year and 2 years
Between 2 years
and 5 years
Over 5 years
Borrowings (note 18) - 754,407 1,662,909 6,042,060 22,860,806
Loans from shareholders (note 17.3) - - - - 8,385,079
Accounts payable (note 10) 454,597 - - - -
Accrued and other liabilities (note 11) 896,461 - - - -
Accrued liabilities-related parties (note 17.2) 5,316,166 - - - -
6,667,224 754,407 1,662,909 6,042,060 31,245,885
31 December 2012
Less
than 3 months
Between 3 months
and 1 year
Between 1 year and 2 years
Between 2 years
and 5 years
Over 5 years
Borrowings (note 18) - - 754,407 5,480,485 24,023,632
Loans from shareholders (note 17.3) - - - - 5,063,839
Accounts payable (note 10) 242,127 - - - -
Accrued and other liabilities (note 11) 1,907,471 - - - -
Accrued liabilities-related parties (note 17.2) 116,970 - - - -
2,266,568 - 754,407 5,480,485 29,087,471
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
13
3.2 Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure may be adjusted by increasing the amount of capital contributions and obtaining borrowings.
3.3 Fair value estimation
Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. Management believes that the fair values of the Group’s financial assets and liabilities are not materially different from their carrying values.
4. CASH AND CASH EQUIVALENTS
31 December
2013 2012
Cash at bank 14,239 17,359
Cash in hand 260 190
14,499 17,549
5. ADVANCES AND OTHER RECEIVABLES
31 December
2013 2012
Advances to and receivables from suppliers and contractors
158,507
169,613
Other receivables 172,303 61,805
330,810 231,418
Advances to contractors are secured by bank guarantees and are recovered over the length of the contracts at a rate equal to 10% of progress payments.
6. INVENTORIES
31 December
2013 2012
Raw materials 369,175 -
Intermediate products 871,326 57,572
Finished goods 1,376,589 -
Consumables 56,428 41,529
2,673,518 99,101
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
14
7. ASSETS UNDER CONSTRUCTION
1 January
2013
Additions
Transfers 31 December
2013
Assets under construction 38,966,442 6,660,900 - 45,627,342
1 January
2012
Additions
Transfers 31 December
2012
Assets under construction 28,616,846 10,360,334 (10,738) 38,966,442
Assets under construction represent initial works on the refinery site and other projects including front end engineering and design study (“FEED”) costs of Saudi Riyals 1.25 billion (2012: Saudi Riyals 1.25 billion), project costs of Saudi Riyals 41.48 billion (2012: Saudi Riyals 35.74 billion), site preparation of Saudi Riyals 0.68 billion (2012: Saudi Riyals 0.65 billion) and finance costs of Saudi Riyals 2.21 billion (2012: Saudi Riyals 1.37 billion). The refinery complex and the plant facilities of the Group are constructed on land leased under a 30 Hijra year operating lease agreement with the Royal Commission for Jubail and Yanbu (note 16.3). The lease is renewable by the Company for two similar periods under mutually agreed terms and conditions for the benefit of the Company.
8. PROPERTY, PLANT AND EQUIPMENT
1 January
2013
Additions
Transfers 31 December
2013
Cost
Computer and office equipment 19,894 - - 19,894
Accumulated depreciation
Computer and office equipment (8,998) (4,100) - (13,098)
10,896 6,796
1 January
2012
Additions
Transfers 31 December
2012
Cost
Computer and office equipment 9,690 10,204 - 19,894
Accumulated depreciation
Computer and office equipment (5,718) (3,280) - (8,998)
3,972 10,896
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
15
9. INTANGIBLE ASSETS
1 January
2013
Additions
Transfers 31 December
2013
Cost
Software licenses and implementation 17,828 - - 17,828
Accumulated amortization
Software licenses and implementation (12,815) (2,368) - (15,183)
5,013 2,645
1 January
2012
Additions
Transfers 31 December
2012
Cost
Software licenses and implementation 17,294 534 - 17,828
Accumulated amortization
Software licenses and implementation (10,518) (2,297) - (12,815)
6,776 5,013
10. ACCOUNTS PAYABLE
31 December
2013 2012
Payables:
- Capital expenditure 406,127 167,249
- Operating expenditure 48,470 74,878
454,597 242,127
11. ACCRUED AND OTHER LIABILITIES
31 December
2013 2012
Project costs 444,096 1,440,394
Retentions 336,052 380,468
Other 116,313 86,609
896,461 1,907,471
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
16
12. SHARE CAPITAL
The total authorized number of ordinary shares are 712.5 million (2012: 356.25 million) with a par value of Saudi Riyals 10 per share. Shares issued, which are fully paid, are as follows: As at 31 December 2013
Shareholder’s name
Number of shares
Percentage of shareholding
Par value of each share
(Saudi Riyals)
Total value of
shares
Saudi Aramco 445,312,500 62.5% 10 4,453,125
TOTAL 267,187,500 37.5% 10 2,671,875
712,500,000 100% - 7,125,000
As at 31 December 2012 Shareholder’s name
Number of shares
Percentage of shareholding
Par value of each share
(Saudi Riyals)
Total value of
shares
Saudi Aramco 222,656,250 62.5% 10 2,226,563
TOTAL 133,593,750 37.5% 10 1,335,937
356,250,000 100% - 3,562,500
13. STATUTORY RESERVE
In accordance with Regulations for Companies in Saudi Arabia, the Company and its subsidiary are required to
establish a statutory reserve by appropriation of 10% of the profit for the period until the reserve equals 50% of the share capital. This reserve is not available for dividend distribution. No transfer was made for the year ended 31 December 2013 (2012: Nil) as the Company reported a net loss and its subsidiary had nil earnings.
14. GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended
31 December
2013 2012
Employee benefit expense (note 15) 190,659 169,979
Rental 32,669 45,889
Contracted services 29,694 50,054
Training 27,453 16,288
Materials and utilities 7,142 12,081
Travel and accommodation costs 6,903 4,880
Depreciation and amortization 6,468 5,577
Recruitment 3,454 5,663
Maintenance 3,235 20,047
Professional services 1,690 4,126
Others 16,482 39,666
325,849 374,250
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
17
15. EMPLOYEE BENEFIT EXPENSE
For the year ended
31 December
2013 2012
Salaries and wages 165,609 153,244
Other benefits 25,050 16,735
190,659 169,979
16. CONTINGENCIES AND COMMITMENTS
16.1 Contingencies
(1) Bank guarantees
The Group has issued bank guarantees as of 31 December 2013 amounting to Saudi Riyals 221.94 million (2012: Saudi Riyals 340 million) arising in the ordinary course of business. (2) Zakat
The Company has received a zakat assessment for the year 2010 amounting to Saudi Riyals 24 million. The Company recorded a provision for zakat of Saudi Riyals 9 million and filed an appeal with the DZIT for the remainder (note 19(2)). Management is confident that there are sufficient grounds not to make a provision for the full amount of zakat claim. 16.2 Capital commitments
The capital expenditure contracted by the Group but not incurred till 31 December 2013 is Saudi Riyals 1 billion (2012: Saudi Riyals 4.43 billion).
16.3 Operating lease commitments
The Group has various operating leases for its refinery land, Jubail port and offices. Rental expenses for the year ended 31 December 2013 amounted to Saudi Riyals 30.96 million (2012: Saudi Riyals 43.47 million). Future minimum rental commitments under these operating leases are as follows:
Year ending 31 December: 31 December
2013 2012
2013 - 30,886
2014 25,511 25,496
2015 22,855 22,855
2016 22,855 22,855
2017 22,855 22,855
2018 22,855 22,855
2019 through to 2039 461,549 461,487
578,480 609,289
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
18
17. RELATED PARTY MATTERS
Pursuant to the Shareholders’ Agreement, subsequent to the formation of the Group, the shareholders continued to contribute certain goods and services including the provision of office space, office furniture and personnel to the Group. At the date of the Statement of financial position, the Group had not been fully invoiced for the amounts pertaining to these goods and services. Amounts not invoiced have been included within accruals. 17.1 Transactions with related parties
For the year ended
31 December
2013 2012
Raw materials and services received from
shareholders:
Saudi Aramco 8,736,345 174,085
TOTAL 240,045 253,114
8,976,390 427,199
Deliveries made to shareholders:
Saudi Aramco 3,121,911 -
TOTAL 2,135,744 -
5,257,655 -
17.2 Balances with related parties arising from sales/purchases of goods/services
(1) Amounts due from related parties:
31 December
2013 2012
Saudi Aramco 1,537,889 -
TOTAL 1,202,354 -
2,740,243 -
Amounts due from related parties represent balances due from shareholders for the respective quantities of heavy fuel oil and other products delivered during the project commissioning and testing phase.
(2) Accrued liabilities – Related parties:
31 December
2013 2012
Accrued liabilities:
Saudi Aramco
- Purchase of raw materials 5,218,674 -
- Secondee costs 20,731 27,180
- Apprentices training - 6,488
5,239,405 33,668
TOTAL
- Secondee costs 58,353 79,926
- Technical assistance 18,408 3,376
76,761 83,302
5,316,166 116,970
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
19
17.3 Loans from shareholders
31 December
2013 2012
Loans from shareholders:
Saudi Aramco 5,246,554 3,170,747
TOTAL 3,138,525 1,893,092
8,385,079 5,063,839
The subordinated shareholder loans are interest bearing at a rate of LIBOR + 1.3% per annum with maturity of 30 years. The corresponding finance cost is Saudi Riyals 322.58 million (2012: Saudi Riyals 188.84 million) which has been accrued and capitalized.
17.4 Key management compensation
Key management personnel include the President & CEO, CFO, VP Manufacturing, VP of Human Resources and Support Services, Manager Technical & Operations, Project Director, all of whom are employees of the Group’s shareholders. Key management personnel compensation includes annual pay, benefits, deferred compensation, bonuses and termination benefits all of which are paid for by the Group’s shareholders and recharged to the Group. The management charge from shareholders in respect of key management compensation amounted to Saudi Riyals 17.9 million for the year ended 31 December 2013 (2012: Saudi Riyals 17.15 million). However, it is not possible to ascertain the separate elements of the management charge in respect of salaries and other short term benefits, post-employment and termination benefits and other long term benefits.
18. BORROWINGS
During 2010 and 2011 the Group entered into long-term financing facility arrangements with various lenders. These financing agreements limit the creation of additional liens and/or financing obligations and are secured over the non-current assets of the Group. Details of the financing facilities are as follows:
The Group granted security over its assets and rights to the Onshore and Offshore Issuer Security Agents, each of which will hold such security for the benefit of the secured parties, which include the Sukuk certificate holders and each of the service providers. Saudi Aramco and TOTAL provide guarantees in the form of Debt Service Undertakings in favor of the above lenders with respect to the Group’s utilization of these facilities. These guarantees will terminate at the earlier of the actual completion date, as defined in the Security Trust and Intercreditor Deed, or the repayment of the relevant facilities in full.
Note USD
Facilities SAR'000
SAR Facilities SAR'000
Total
SAR‘000
Wakala 18.1 562,500 750,000 1,312,500
Commercial 18.2 5,925,000 1,818,750 7,743,750
Export Credit Agencies 18.3 9,041,250 1,125,000 10,166,250
Public Investment Fund 18.4 4,875,000 - 4,875,000
Procurement 18.5 1,931,250 2,115,000 4,046,250
Sukuk 18.6 - 3,749,900 3,749,900
22,335,000 9,558,650 31,893,650
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
20
As at 31 December 2013 the following amounts were drawn from the above financing facilities:
31 December
2013 2012
Wakala 1,312,500 1,179,284
Commercial 7,743,750 7,743,750
Export Credit Agencies 9,592,782 9,254,340
Public Investment Fund 4,875,000 4,875,000
Procurement 4,046,250 3,456,250
Sukuk 3,749,900 3,749,900
31,320,182 30,258,524
Less: unamortized transaction costs (534,986) (579,683)
30,785,196 29,678,841
Less: current portion of borrowings (754,407) -
30,030,789 29,678,841
Movements in unamortized transaction costs are as follows:
31 December
2013 2012
Balance as at 1 January 579,683 624,378
Less: amortization (44,697) (44,695)
Balance as at 31 December 534,986 579,683
18.1 Wakala facilities
On 24 June 2010 the Group entered into Shari’a compliant Islamic Facility Agreements ("IFAs") with two lenders. The facilities are repayable in twenty-three unequal installments on a semi-annual basis commencing 20 December 2014. Commission is payable on amounts drawn and is calculated at a market rate plus margin. 18.2 Commercial facilities
On 24 June 2010 the Group entered into two commercial facility agreements with a number of banks. The facilities are repayable in twenty-three unequal installments on a semi-annual basis commencing 20 December 2014. Commission is payable on amounts drawn and is calculated at a market rate plus margin. 18.3 Export Credit Agency facilities
On 24 June 2010 the Group entered into facility agreements with six export credit agencies. The facilities are repayable in twenty-three unequal installments on a semi-annual basis commencing 20 December 2014. Commission is payable on amounts drawn and is calculated at a market rate plus margin. 18.4 Public Investment Fund
On 24 October 2010 the Group entered into facility agreements with the Public Investment Fund. The facilities are repayable in twenty-three unequal installments on a semi-annual basis commencing 20 December 2014. Commission is payable on amounts drawn and is calculated at a market rate plus margin. 18.5 Procurement Facility
On 21 September 2010 the Group entered into facility agreements with a number of banks. The facilities are repayable in twenty-three unequal installments on a semi-annual basis commencing 20 December 2014. Commission is payable on amounts drawn and is calculated at a market related margin.
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
21
18.6 Sukuk
On 9 October 2011, the Group issued Sukuk amounting to Saudi Riyals 3,749.9 million at par value maturing on 20 December 2025. The Sukuk issuance bears a rate of return based on a market related margin payable semi-annually in arrears. The Sukuk repayments are semi-annual from 20 December 2014 through 20 December 2025. The Group has provided an undertaking to the Sukuk holders to purchase the Sukuk from the Sukuk holders semi-annually on 20 June and 20 December during the period from 20 December 2014 to 20 December 2025 as per an agreed schedule. As at the date of the Statement of financial position, the carrying values of the Group’s borrowings approximate to their fair value. The covenants of the long-term financing facilities require the Group to maintain certain financial and other conditions, such as lenders’ prior approval for dividends distribution above a certain amount, to limit the amount of annual capital expenditure and certain other requirements. Maturity profile of long term financing facilities
Year ending 31 December: 31 December
2013 2012
2014 754,407 754,407
2015 1,662,989 1,662,989
2016 1,864,202 1,864,202
2017 1,953,295 1,953,295
2018 2,224,563 2,224,563
2019 through to 2025 22,860,726 21,799,068
31,320,182 30,258,524
19. ZAKAT AND INCOME TAXES
(1) Components of the zakat base
The Company and its subsidiary file separate zakat and income tax declarations on an unconsolidated basis. The components of the zakat base principally comprise of share capital, loans from shareholders, borrowings and adjusted net loss, less deductions for non-current assets and certain other items. Zakat is payable at 2.5% of the greater of the zakat base and adjusted net income. The components of the zakat base attributable to the Saudi shareholder are as follows:
For the year ended
31 December
2013 2012
Share capital at the beginning of the year 2,226,563 1,523,437
Loans from shareholders 5,240,674 3,164,899
Borrowings 19,240,748 18,549,276
Accounts payable and accruals 741,421 1,110,785
Advances and receivables (99,067) (106,008)
Total non-current assets (28,517,089) (24,365,219)
Accumulated losses (775,831) (541,998)
Loss for the year (203,323) (233,833)
Approximate zakat base (2,145,904) (898,661)
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
22
(2) Provision for zakat and income tax
The Company did not provide for zakat or income taxes for the year ended 31 December 2013 and 2012 as it had both a negative zakat base and adjusted net loss for the year. The Company provided for zakat of Saudi Riyals 9 million for the year ended 31 December 2011 that relates to the zakat assessment of 2010 (note 19(3)). At the date of these consolidated financial statements AATSC had recorded a provision for zakat of Saudi Riyals 58.6 million (2012: Saudi Riyals 58.6 million) on account of its operating activities for the year. No deferred tax assets, related to the accumulated income tax loss, were recognized by the Company as management believes that sufficient taxable profits may not be available in the near-term against which to utilize such accumulated income tax loss. (3) Status of final assessments
The Company has received a preliminary zakat assessment for the year 2010 amounting to USD 6.4 million. The Company has filed an appeal against the additional zakat assessment. The appeal is currently under review by DZIT. Management believes that no significant liability will arise upon ultimate resolution of this appeal and accordingly no provision has been made in the accompanying consolidated financial statements. AATSC has not received an assessment from DZIT since its inception.
20. LOSS PER SHARE
Loss per share for the years ended 31 December 2013 and 2012 has been computed by dividing the loss from operations and net loss for each year by the weighted average number of shares outstanding during such years.
21. Cumulative information for the period from 6 September 2008 (date of commercial registration) to 31
December 2013:
The following disclosures have been included to comply with SOCPA Accounting Standard 1 ‘General Presentation and Disclosure’ for companies in development phase:
21.1 Cumulative consolidated statement of operations
Period from
6 September 2008 to 31 December
2013 2012
Income - -
Operating expenses
General and administrative expenses (1,581,668) (1,255,819)
Foreign exchange gains 2,406 1,874
Loss from operations (1,579,262) (1,253,945)
Finance income 21,837 21,837
Net loss for the period (1,557,425) (1,232,108)
SAUDI ARAMCO TOTAL REFINING & PETROCHEMICAL COMPANY (SATORP)
(A Saudi Arabian Mixed Limited Liability Company)
Notes to the consolidated financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
23
21.2 Cumulative consolidated statement of cash flows
Period from
6 September 2008 to 31 December
Note 2013 2012
Cash flows from operating activities
Net loss for the period (1,557,425) (1,232,108)
Adjustments for non-cash items:
Depreciation and amortization 8,9 28,281 21,813
Finance income (21,837) (21,837)
Changes in working capital:
Advances and other receivables (1,628) (2,015)
Inventories (56,429) (99,101)
Accounts payable 48,471 74,878
Accrued and other liabilities 202,861 95,610
Accrued liabilities - related parties 50,318 55,359
Net cash used in operating activities (1,307,388) (1,107,401)
Cash flows from investing activities
Additions to assets under construction (44,518,993) (36,904,272)
Finance income capitalized (4,751) (4,571)
Finance income received 26,588 26,408
Net cash used in investing activities (44,497,156) (36,882,435)
Cash flows from financing activities
Share capital contribution 7,125,000 3,562,500
Proceeds from borrowings 31,320,182 30,258,524
Transaction costs paid (688,639) (688,639)
Proceeds from loans from shareholders 8,062,500 4,875,000
Net cash generated from financing activities 45,819,043 38,007,385
Net change in cash and cash equivalents 14,499 17,549
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period 4 14,499 17,549
Non-cash transactions
The cumulative transfers from assets under construction to property, plant and equipment were Saudi Riyals 19.9 million (2012: Saudi Riyals 19.9 million) and to intangible assets were Saudi Riyals 17.8 million (2012: Saudi Riyal 17.8 million).
ARABIAN ARAMCO TOTAL SERVICES COMPANY (A Saudi Closed Joint Stock Company)
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 AND INDEPENDENT AUDITOR’S REPORT
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013 AND INDEPENDENT AUDITOR’S
REPORT
1
CONTENTS Page
Report of independent auditor 2
Statement of financial position 3
Statement of operations 4
Statement of cash flows 5
Statement of changes in shareholders’ equity 6
Notes to the financial statements 7-12
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Statement of operations
(All amounts in thousands of Saudi Riyals unless otherwise stated)
4
For the year ended
31 December
Note 2013 2012
Revenue
Commission income 9 74,445 70,723
Expense
Commission expense 7 (74,445) (70,723)
Net income for the year - -
The notes on pages 7 to 12 form an integral part of these financial statements.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Statement of cash flows
(All amounts in thousands of Saudi Riyals unless otherwise stated)
5
For the year ended
31 December
Note 2013 2012
Cash flows from operating activities
Net income for the year - -
Changes in working capital:
Receivable from parent 9 634 (59,058)
Zakat payable 8 - 58,592
Accrued commission payable (634) 466
Net cash generated from operating activities - -
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of year 2,000 2,000
Cash and cash equivalents at end of year 4 2,000 2,000
The notes on pages 7 to 12 form an integral part of these financial statements.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Statement of changes in shareholders’ equity
(All amounts in thousands of Saudi Riyals unless otherwise stated)
6
Share capital
Statutory
reserve
Retained earnings
Total
Note
1 January 2012 2,000 - - 2,000
Transfer to statutory reserve 6 - - - -
Zakat 8 - - (58,623) (58,623)
Zakat recoverable 9 - - 58,623 58,623
31 December 2012 2,000 - - 2,000
1 January 2013 2,000 - - 2,000
Transfer to statutory reserve 6 - - - -
Zakat 8 - - (58,623) (58,623)
Zakat recoverable 9 - - 58,623 58,623
31 December 2013 2,000 - - 2,000
The notes on pages 7 to 12 form an integral part of these financial statements.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
7
1. GENERAL INFORMATION
Arabian Aramco Total Services Company ("the Company”) is a Saudi closed joint stock company incorporated under Ministerial Resolution No Q/268, dated 21 Sha’aban 1431H, corresponding to 2 August 2010 (date of incorporation). The Company’s principal place of business and address of its registered office is Al Jubail 35741 – 7821, Al Jubail Industrial City. The objectives for which the Company is formed are the execution of certain service contracts in construction, development, operating and managing certain of Saudi Aramco Total Refining and Petrochemical Company (SATORP)'s projects. The Company is owned 99.998% by Saudi Aramco Total Refining and Petrochemical Company (SATORP) ("SATORP" or “parent”) a Saudi Arabian mixed limited liability company, and 0.0005% each by Mr. Ahmed Al-Ghannam, Mr. Abdulaziz Al-Akkas, Mr. Saeid Al-Shahrani and Mr. Hamad Al-Sulaiman, all Saudi Nationals. Costs associated with the Company's formation and its day to day operations were paid for by SATORP and will not be recharged to the Company. On 9 October 2011, the Company issued Sukuk amounting to Saudi Riyal 3,749.9 million maturing in 2025. The proceeds from the Sukuk issuance were transferred to SATORP to be utilized in the construction of its refinery facilities (Note 9). As part of the Sukuk issuance the Company entered into various Shari’a compliant agreements, with SATORP and other parties which amongst other things govern the construction of the underlying Sukuk assets which represent certain refinery facilities of SATORP. The Sukuk bears a market related return payable semi-annually in arrears (Note 7). These financial statements were authorized for issue by the Board of Directors on 20 February 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these financial statements are set out below and have been consistently applied to all periods presented. 2.1 Basis of preparation
The accompanying financial statements of the Company have been prepared in accordance with the historical cost convention on the accrual basis of accounting and in compliance with accounting standards promulgated by the Saudi Organization for Certified Public Accountants ("SOCPA"). 2.2 Critical accounting estimates and judgments
The preparation of financial statements in conformity with accounting principles generally accepted in Saudi Arabia requires the use of certain critical accounting estimates that affect the reported amounts of assets and liabilities at the date of the Statement of financial position and the reported amounts of revenues and expenses during the reporting period. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. No significant assumptions and estimates were required to be made at the Statement of financial position date. 2.3 Cash and cash equivalents
Cash and cash equivalents include cash at bank with original maturities of three months or less.
2.4 Financial assets
The Company’s financial assets consist of loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
8
Loans and receivables, which are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the Statement of financial position date. These are classified as non-current assets. The Company assesses at each Statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. At 31 December 2013 and 2012, the Company’s loans and receivables comprised of Cash and cash equivalents, Receivable from parent and Loan to parent. 2.5 Borrowings
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the Statement of operations over the period of the borrowings using the effective interest method. 2.6 Revenue
Commission income The Company earns commission income on the proceeds from Sukuk issuance transferred to SATORP at a rate of return based on Saudi Arabian Inter Bank Offer Rate (“SAIBOR”) plus a specified margin. Commission is recognized when earned. 2.7 Expense
The Company’s expenses comprise of commission to Sukuk holders and are accounted for on an accrual basis. 2.8 Segment reporting
Business segment
A business segment is a group of assets or operations that are: (i) engaged in revenue producing activities; (ii) the results of its operations are continuously analyzed by management in order to make decisions related to
resource allocation and performance assessment; and (iii) financial information is separately available. Geographical segment
A geographical segment is a group of assets or operations engaged in revenue producing activities within a particular economic environment that are subject to risks and returns different from those operating in other economic environments.
The Company operates only in the Kingdom of Saudi Arabia within a single business and geographical segment.
2.9 Zakat and income taxes
In accordance with the regulations of the Department of Zakat and Income Tax (“DZIT”), the Company is subject to zakat attributable to the Saudi shareholders and to income taxes attributable to the parent's foreign shareholder. Provisions and reimbursement for zakat and income taxes are charged to the equity accounts of the Saudi and the foreign shareholder, respectively. Additional amounts payable, if any, at the finalization of final assessments are accounted for when such amounts are determined.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
9
Deferred income taxes are recognized on all major temporary differences between financial income and taxable income during the period in which such differences arise, and are adjusted when related temporary differences are reversed. Deferred income tax assets on carry forward losses are recognized to the extent that it is probable that future taxable income will be available against such carry-forward tax losses. Deferred income taxes are determined using tax rates which have been enacted by the Statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. No such temporary differences existed at 31 December 2013 and 2012.
3 FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. Financial instruments carried on the Statement of financial position comprise Cash and cash equivalents, Receivable from parent, Loan to parent, Accrued commission payable, Zakat payable and Sukuk. Credit risk is the risk that one party will fail to discharge an obligation and cause the other party to incur a
financial loss. The Company’s investment policy limits exposure to credit risk arising from investment activities. Credit risk arises from Cash and cash equivalents, Receivable from parent and Loan to parent. The policy requires that Cash and cash equivalents be invested in financial institutions with strong credit ratings. The policy sets investment limits with financial institutions based on ratings by Fitch Ratings Ltd. The maximum credit exposure of the Company approximates the carrying value of its Cash and cash equivalents, Receivable from parent and Loan to parent. At 31 December 2013 and 2012, investment limits were to financial institutions assigned long-term ratings of “A” or better. Loan to parent is secured as part of the Sukuk facility agreements (Note 9). The Company has no other concentration of credit risk. Interest rate risk is the exposure 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 arises from borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk which is offset by Loan to parent held at variable rates. Price risk is the risk that the Company is exposed to changes in the price of commodity investments. The
Company is not currently exposed to price risk. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates. The Company’s financial activity is denominated principally in Saudi Arabian Riyals. The Company currently does not have exposure to currency risk. Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments
associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet any future commitments.
3.2 Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure may be adjusted by increasing the amount of capital contributions and obtaining borrowings.
3.3 Fair value estimation
Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. Management believes that the fair values of the Company’s financial assets are not materially different from their carrying value.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
10
4 CASH AND CASH EQUIVALENTS
31 December
2013 2012
Cash at bank 2,000 2,000
5 SHARE CAPITAL
The total authorized number of ordinary shares is 200,000 shares with a par value of Saudi Riyals 10 per share. Shares issued, which are fully paid, are as follows: As at 31 December 2013 and 2012
Shareholder’s name
Number of
shares
Percentage of shareholding
Par value of each share
(Saudi Riyals)
Total value of shares
(Saudi Riyals)
SATORP 199,996 99.9980% 10 1,999,960
Mr. Ahmed Al-Ghannam 1 0.0005% 10 10
Mr. Abdulaziz Al-Akkas 1 0.0005% 10 10
Mr. Saeid Al-Shahrani 1 0.0005% 10 10
Mr. Hamad Al-Sulaiman 1 0.0005% 10 10
200,000 100% - 2,000,000
6 STATUTORY RESERVE
In accordance with Regulations for Companies in Saudi Arabia, the Company is required to establish a statutory reserve by appropriation of 10% of the net income for the year until the reserve equals 50% of the share capital. This reserve is not available for dividend distribution. No transfer was made for the years ended 31 December 2013 and 2012 as there was no net income for the years.
7 BORROWINGS
On 9 October 2011, the Company issued Sukuk amounting to Saudi Riyals 3,749.9 million at par value maturing on 20 December 2025. The Sukuk issuance bears a rate of return based on a market related margin payable semi-annually in arrears. The Sukuk repayments are semi-annual from 20 December 2014 through 20 December 2025.
The Company granted security over its assets and rights to the Onshore and Offshore Issuer Security Agents, each of which will hold such security for the benefit of the secured parties, which include the Sukuk certificate holders and each of the service providers.
31 December
2013 2012
Sukuk 3,749,900 3,749,900
Less: current portion of sukuk (79,498) -
Non-current portion of sukuk 3,670,402 3,749,900
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
11
All remuneration, fees, costs, charges and expenses due by the Company relating to the Sukuk issuance are borne by SATORP and include transaction costs of Saudi Riyals 46.8 million. As at the date of the Statement of financial position the carrying value of the Sukuk approximates its fair value. The aggregate repayment schedule of borrowings is as follows:
31 December
2013 2012
2014 79,498 79,498
2015 179,620 179,620
2016 206,994 206,994
2017 214,119 214,119
2018 251,993 251,993
Thereafter 2,817,676 2,817,676
3,749,900 3,749,900
8 ZAKAT AND INCOME TAXES
(i) Components of the zakat base are as follows:
31 December
2013 2012
Share capital 2,000 2,000
Sukuk 3,749,900 3,749,900
Zakat base 3,751,900 3,751,900
The zakat base comprises shareholders’ equity and Sukuk. Zakat is payable at 2.5% of the greater of the zakat base or adjusted net income attributable to the Saudi shareholders.
(ii) Provision for zakat and income tax
31 December
2013 2012
1 January 58,623 31
Provision for the year 58,623 58,623
Recovery for the year (58,623) (31)
31 December 58,623 58,623
No income tax is due as the Company has no adjusted net income for the years ended 31 December 2013 and 2012.
ARABIAN ARAMCO TOTAL SERVICES COMPANY
(A Saudi Closed Joint Stock Company)
Notes to the financial statements for the year ended 31 December 2013
(All amounts in thousands of Saudi Riyals unless otherwise stated)
12
9 RELATED PARTY MATTERS
The Company’s related party is its parent company, SATORP. Transactions during the year with SATORP are as follows:
31 December
2013 2012
Commission earned 74,445 70,723
Zakat recoverable 58,623 58,623
133,068 129,346
Balances at the year-end are as follows:
31 December
2013 2012
Receivable from parent 60,653 61,287
Loan to parent 3,749,900 3,749,900
3,810,553 3,811,187
Loan to parent
During 2011, the Company transferred to SATORP proceeds from its Sukuk issuance to part fund the construction of its refinery facilities. This loan bears commission at a rate of return based on a market related margin. The loan principal is repayable semi-annually from 20 December 2014 through 20 December 2025.
The Company benefits from a package of common representations, warranties, positive and negative undertakings and events of default granted by or agreed to by its parent in favor of all of the common credit facility participants (including the Company) in respect of their common credit facilities, which includes the Sukuk facility, provided to the parent. Furthermore, the Company, as a senior participant and secured party is the beneficiary of certain rights with respect to the other senior participants and secured parties, such as certain rights to receive proceeds of enforcement of the security documents under the Sukuk.
10 EARNINGS PER SHARE
Earnings per share from operating, non-operating and net income for the years ended 31 December 2013 and 2012 are computed based on the weighted average number of shares outstanding during such year of 200,000 shares. The Company had nil earnings during the years.