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AdvancedStatements.pdf
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES
(A SAUDI JOINT STOCK COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
INDEX
PAGE
Independent auditor’s report 1-5
Consolidated statement of profit or loss 6
Consolidated statement of comprehensive income 7
Consolidated statement of financial position 8
Consolidated statement of changes in equity 9
Consolidated statement of cash flows 10-11
Notes to the consolidated financial statements 12-59
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 12 -
1. CORPORATE INFORMATION
Advanced Petrochemical Company (the “Company”) is a Saudi joint stock company registered in Dammam, Kingdom
of Saudi Arabia under commercial registration number 2050049604 dated 27 Sha’ban, 1426H (corresponding to 1
October 2005). The paid-up share capital of the Company is SR 2,164,734,000 divided into 216,473,400 shares of SR 10
each. During the Company’s extraordinary General Assembly meeting held on 18 Muharram, 1441H (corresponding to
17 September 2019), an increase in share capital by 10% was approved by the shareholders by way of issuance of bonus
shares. The increase in share capital was funded from the retained earnings account through the distribution of one share
for every ten shares held by the existing shareholders. The number of shares increased from 196,794,000 shares to
216,473,400 shares which represents an increase of 19,679,400 shares. The earning per share (note 27) for the
comparative year has been adjusted retrospectively to reflect the treatment of effect of issuance of bonus shares as required
by the relevant accounting standard.
The consolidated financial statements as at 31 December 2019 include the financial statements of the Company and the
following subsidiaries (collectively referred to as the “Group”):
Effective
ownership
Advanced Renewable Energy Company (“AREC”) - note (a) 100%
Advanced Global Investment Company (“AGIC”) - note (b) 100%
Notes:
a- Advanced Renewable Energy Company (“AREC”), is a mixed limited liability company registered in
Jubail, Kingdom of Saudi Arabia under commercial registration No. 2055015327 dated 27 Rabi’I 1433H
(corresponding to 19 February 2012). 5% of this investment is held under a related party’s name, on behalf of the
Company. The related party has assigned its share to the Company and accordingly, the Group included 100%
financial statements of AREC in the condensed consolidated financial statements.
b- Advanced Global Investment Company (“AGIC”) is a mixed limited liability company registered in Jubail,
Kingdom of Saudi Arabia under commercial registration No. 2055017024 dated 12 Ramadan
1433H (corresponding to 1 August 2012). 5% of this investment is held under a related party’s name, on behalf of the
Company. The related party has assigned its share to the Company and accordingly, the Group included 100%
financial statements of AGIC in the condensed consolidated financial statements.
During 2014, AGIC made 100% investment in Advanced Global Holding Limited (“AGHL”), a limited liability company incorporated in Luxembourg. AGHL has not been consolidated in these consolidated financial statements due to immaterial financial position.
The Group is licensed to engaged in production and selling Polypropylene, Polysilicon and Polysilicon downstream
products which includes Photovoltaic cells and Photovoltaic, and establishing, operating and investing in industrial
projects including petrochemical, chemical, basic and conversion industries and industries relating to renewable energy
both within and outside the Kingdom of Saudi Arabia.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 13 -
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards ("IFRS") that are endorsed in the Kingdom of Saudi Arabia ("KSA") and other standards and pronouncements
that are issued by Saudi Organization for Certified Public Accountants ("SOCPA") (collectively referred to as "IFRS as
endorsed in KSA").
These consolidated financial statements are prepared using historical cost convention expect for the equity investments at
fair value through other comprehensive income (“FVOCI”) which is measured at fair value. For employees’ defined benefit
liabilities, actuarial present value calculation is used. These consolidated financial statements are presented in Saudi Riyals
(“SR”) which is also the functional currency of the Group. All values are rounded to the nearest thousands (“SR ‘000”),
expect when otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31
December 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls
an investee if, and only if, the Group has:
- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
- Exposure, or rights, to variable returns from its involvement with the investee - The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when
the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
- The contractual arrangement(s) with the other vote holders of the investee - Rights arising from other contractual arrangements - The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the subsidiary. Profit or loss and each component of Other Comprehensive Income (“OCI”) are attributed to the equity holders of the Group
and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling
interest and other components of equity, while any resultant gain or loss is recognised in the consolidated statement of profit
or loss. Any investment retained is recognised at fair value.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 14 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in an associate
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate
in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The
considerations made in determining significant influence is similar to those necessary to determine control over
subsidiaries. The Group’s investment in its associate is accounted for using the equity method.
Under the equity method, the investment in an associate is initially recognised at cost. The carrying
amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the
acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither
amortised nor individually tested for impairment.
The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associate. Any
change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change
recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the
consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group
and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the consolidated statement of
profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries
of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. When
necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on
its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the
investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value, and then recognises the loss as ‘Share
in results of an associate’ in the consolidated statement of profit or loss.
Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair
value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of
the retained investment and proceeds from disposal is recognised in the consolidated statement of profit or loss. Current versus non-current classification
The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current
classification. An asset is current when it is: - Expected to be realised or intended to be sold or consumed in normal operating cycle - Held primarily for the purpose of trading - Expected to be realised within twelve months after the reporting period, or - Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 15 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Current versus non-current classification (continued)
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets
and liabilities.
Fair value measurement
The Group measures financial instruments and non-financial assets at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-
financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest
and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the
fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 16 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement (continued)
For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
External valuers are involved for valuation of significant assets, if required. The involvement of external valuers is decided
by the Group after discussion and approval by the Group’s Audit Committee. Selection criteria include market knowledge,
reputation, independence and whether professional standards are maintained. The Group decides, after discussion with the
Group’s external valuers, which valuation technique and inputs to use for each case.
At each reporting date, the Group analyses the movements in the values of assets and liabilities, which are required to be
remeasured or re-assessed as per the Group’s accounting policies. For this analysis, the Group verifies the major inputs
applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant
documents. The Group also compares the change in the fair value of each asset and liability with relevant external sources to
determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Revenue recognition Sale of goods The Group recognises revenue when control of the products sold, transfers to the customer, which shall be considered in the
context of a five step approach and applying the applicable pricing terms.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined
terms of payment and excluding taxes or duty. Revenue arrangements are assessed against specific criteria to determine
whether the Group is acting as a principal or agent.
For international markets, all of the sales are made to the marketers of the Group under off take agreements. Upon delivery
of products to the Marketers, sales are recorded at provisional selling prices which are later adjusted based upon actual selling
prices received by Marketers from third parties, after deducting costs of shipping, distribution and marketing. Adjustments
are recorded as they become known to the Group.
Variable pricing – preliminary pricing
Certain products in certain markets may be sold with variable pricing arrangements. Such arrangements determine that a
preliminary price is charged to the customer at the time of transfer of control of the products while the final price for the
products can only be determined by reference to a time period ending after that time. In such cases, and irrespective of the
formula used for determining preliminary and final prices, revenue is recorded at the time of transfer of control of the products
at an amount representing the expected final amount of consideration that the Group receives.
Where the Group records an ‘accounts receivable’ for the preliminary price, subsequent changes in the estimated final price
shall not be recorded as revenue until such point in time at which the actual final price is determined (as long as these changes
result from changes in the market price/market price index of the products). They may however be considered in subsequent
re-measurement as a financial asset at fair value. Such re-measurement may be recorded as a separate revenue.
All other updates to the preliminary price is recorded against revenue with the additional receivable amount recorded under
a contract asset or contract liability. Such contract asset or liability is derecognised against an accounts receivable at the point
in time at which the actual final price is determined.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 17 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
Dividend
Dividend is recognised when the Group’s right to receive the payment is established, which is generally when the shareholders
approves the dividend. Finance income
For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (EIR).
EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in finance
income in the consolidated statement of profit or loss. Earnings on time deposits are recognised on an accrual basis.
Expenses
Operating costs are recognised on a historical cost basis. Production costs and direct expenses are classified as cost of sales. Selling and distribution expenses principally comprise of costs incurred in the distribution and sale of the products. All other
expenses other than cost of sales and financial charges are classified as general and administrative expenses. General and administrative expenses include direct and indirect costs not specifically part of production costs. Allocations
between general and administrative expenses and production costs, when required, are made on a consistent basis.
Zakat and income tax
Zakat and current tax
Zakat is provided in accordance with the Regulations of the General Authority of Zakat and Tax (“the GAZT”) in the
Kingdom of Saudi Arabia. Under the revised zakat standard issued by SOCPA, zakat provision is charged to the consolidated
statement of profit or loss, as IAS 12 'Income Taxes' do not provide any guidance on the accounting treatment of zakat. Non-
Saudi shareholder in the Group are subject to income tax in the Kingdom of Saudi Arabia.
Current income tax assets and liabilities for current and prior periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date. Current income tax is recognised in the consolidated statement of profit or loss.
Management periodically evaluates positions taken in the Group’s tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are
recognised for all taxable temporary differences. Deferred tax assets are recognised on all deductible temporary difference,
carry forward of unused tax credits and unused tax losses only to the extent that it is probable that taxable profit will be
available against which these assets can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset/liability to be
utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the deferred tax asset to be recovered.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 18 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Zakat and income tax (continued)
Deferred income tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting
date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are
recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation
authority.
Withholding tax
The Group withholds taxes on certain transactions with non-resident parties in the KSA, including dividend payments to
the non-resident shareholders, as required under Saudi Arabian Income Tax Law.
Value added tax
Expenses and assets are recognised net of the amount of value added tax, except:
- When the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority,
in which case, the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense
item, as applicable.
- When receivables and payables are stated with the amount of value added tax included. The net amount of value added
tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
consolidated statement of financial position.
Foreign currencies
The Group’s consolidated financial statements are presented in Saudi Riyal, which is also the Group’s functional currency.
For each entity, the Group determines the functional currency and items included in the financial statements of each entity
are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign
operation, the gain or loss that is reclassified to the consolidated statement of profit or loss reflects the amount that arises
from using this method.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot
rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are recognised in the consolidated statement of profit or
loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment in a foreign
operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is
reclassified to consolidated statement of profit or loss. Tax charges and credits attributable to exchange differences on those
monetary items are also recorded in OCI.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 19 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies (continued)
Transactions and balances
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation
of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in
fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or
consolidated statement of profit or loss are also recognised in OCI or consolidated statement of profit or loss,
respectively).
Group companies
On consolidation, the assets and liabilities of foreign operations are translated into Saudi Riyals at the rate of exchange
prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the
dates of the transactions. The exchange differences arising on translation for consolidation are recognised in OCI. On
disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to the
consolidated statement of profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts
of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and
translated at the spot rate of exchange at the reporting date
Cash dividend and non-cash distribution to equity holders of the Group
The Group recognises a liability to make cash or non-cash distributions to equity holders of the Group when the
distribution is authorised and the distribution is no longer at the discretion of the Group. As per the corporate laws in
the KSA, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised
directly in equity.
Property, plant and equipment
Property, plant and equipment and capital work-in-progress are stated at cost, net of accumulated depreciation and
accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment
and borrowing costs for long-term construction projects (qualifying assets), if the recognition criteria are met.
When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises
such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major
inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the
recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated statement of
profit or loss as incurred. Further, the Group capitalised the spare parts having value above SR 50,000 and meeting the
capitalization criteria; and depreciate them over the plant life.
Depreciation is calculated from the date the item of property, plant and equipment are available for intended use or in
respect of self-constructed assets, from the date such assets are completed and ready for the intended use.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 20 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment (Continued)
Depreciation is calculated on a straight-line basis over the useful life of the asset as follows:
Years
Plant, machinery and equipment 10 - 25
Capital spares 10 - 20
Buildings and leasehold improvements 10 - 33
Furniture, fixtures and office equipment 3 - 8
Catalysts 2 - 8
Laboratory and safety equipment 5
Vehicles and trucks 4 - 10
Land and capital work-in-progress which are not ready for its intended use, are not depreciated.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or
when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included
in the consolidated statement of profit or loss when the asset is derecognised.
The assets residual values, useful lives and methods of depreciation are reviewed, and adjusted prospectively if
appropriate, at each financial year-end.
Planned turnaround costs are deferred and amortised over the period until the date of next planned turnaround. Should
unexpected turnaround occur prior to the previously envisaged date of planned turnaround, then the previously
unamortised turnaround costs are immediately expensed and the new turnaround costs are deferred and amortised over
the period likely to benefit from such costs.
Intangible assets
Intangible assets acquired separately are measured at cost upon initial recognition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is
recognised in the consolidated statement of profit or loss when it is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are
amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible
asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful
life are reviewed at least at each financial yearend. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset, are accounted for by changing the amortisation period
or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible
assets with finite lives is recognised in the consolidated statement of profit or loss in the expense category consistent
with the function of the intangible asset.
The useful life of an intangible asset with a definite life is reviewed regularly to determine whether there is any indication
that its current life assessment continues to be supportable. If not, the change in the useful life assessment is made on a
prospective basis. Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually
either individually or at the aggregated cash generating unit level.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 21 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets (Continued)
Gains or losses arising from derecognising an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the consolidated statement of profit or loss when the asset
is derecognised.
Impairment of non-current assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An
asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (“CGU”) fair value less costs to sell and its
value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset or CGU is considered impaired and is written down to its recoverable amount.
In assessing the value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessment of the time value of money and the risks specific to the asset.
The Group’s impairment calculation is based on detailed budgets and forecast calculations which are prepared separately
for each of the Group’s CGU’s to which the individual assets are allocated. These budgets and forecast calculations are
generally covering a five-year period. For longer periods, a long-term growth rate is calculated and applied to project future
cash flows after the budget period.
Impairment losses of continuing operations, including impairment on working capital, if applicable, are recognised in the
consolidated statement of profit or loss in those expense categories consistent with the function of the impaired asset
For assets other than goodwill, an assessment is made at each financial year-end as to whether there is any indication that
previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group’s
estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognised. This reversal is limited such that the recoverable amount doesn’t exceed what the carrying amount would have
been, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in
the consolidated statement of profit or loss.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds. Investment income earned on the temporary investment of specific
borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs eligible for capitalisation.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 22 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, at amortised cost, fair value through other comprehensive income
(OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not
contain a significant financing component or for which the Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for
which the Group has applied the practical expedient are measured at the transaction price
determined under IFRS 15. Refer to the accounting policies for revenue recognition.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give
rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount
outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to
generate cash flows. The business model determines whether cash flows will result from collecting contractual cash
flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the
Group commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
Financial assets at amortised cost (debt instruments)
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon
derecognition (equity instruments)
Financial assets at fair value through profit or loss
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 23 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities (continued)
Financial assets (continued)
Subsequent measurement (continued)
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of
the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are
subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified
or impaired.
The Group’s financial assets at amortised cost includes trade receivables.
Financial assets at fair value through OCI (debt instruments)
The Group measures debt instruments at fair value through OCI if both of the following conditions are met:
• The financial asset is held within a business model with the objective of both holding to collect contractual cash
flows and selling and;
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment
losses or reversals are recognised in the consolidated statement of profit or loss and computed in the same manner
as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon
derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 24 -
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities (continued)
Financial assets (continued)
Subsequent measurement (continued)
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments:
Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other
income in the consolidated statement of profit or loss when the right of payment has been established, except
when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to
impairment assessment.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets
designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to
be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of
selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified
as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows
that are not solely payments of principal and interest are classified and measured at fair value through profit or
loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at
amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value
through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting
mismatch.
Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position
at fair value with net changes in fair value recognised in the consolidated statement of profit or loss.
This category includes derivative instruments and listed equity investments which the Group had not irrevocably
elected to classify at fair value through OCI. Dividends on listed equity investments are also recognised as other
income in the consolidated statement of profit or loss when the right of payment has been established.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:
- The rights to receive cash flows from the asset have expired; Or
- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement;
And either;
(a) the Group has transferred substantially all the risks and rewards of the asset, or
(b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 25 -
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities (continued)
Financial assets (continued)
Derecognition (continued)
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the
asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that
case, the Group also recognises an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of
the original carrying amount of the asset and the maximum amount of consideration that the Group could be
required to repay.
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair
value through profit or loss. ECLs are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale
of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs Therefore,
the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at
each reporting date. The Group has established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
For debt instruments at fair value through OCI, the Group applies the low credit risk simplification. At every
reporting date, the Group evaluates whether the debt instrument is considered to have low credit risk using all
reasonable and supportable information that is available without undue cost or effort. In making that evaluation,
the Group reassesses the internal credit rating of the debt instrument. In addition, the Group considers that there
has been a significant increase in credit risk when contractual payments are more than 30 days past due.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in
certain cases, the Group may also consider a financial asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 26 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities (continued)
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss,
loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables,
net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts
and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the
near term. This category also includes derivative financial instruments entered into by the Group that are not
designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives
are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the consolidated statement of profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the
initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any
financial liability as at fair value through profit or loss.
Loans and borrowings
This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or
loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortisation is included as finance costs in the consolidated statement of
profit or loss. This category generally applies to interest-bearing loans and borrowings.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 27 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets and financial liabilities (continued)
Financial liabilities (continued)
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the
original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in
the consolidated statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle
on a net basis, to realise the assets and settle the liabilities simultaneously.
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 expenditures 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 finished goods 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 estimated costs of
completion and the estimated costs necessary to complete a sale.
Cash and cash equivalents
Cash and cash equivalents comprise cash at banks, cash on hand, short term deposits, demand deposits and
highly liquid investments with original maturity of three months or less, net of outstanding bank overdrafts
which are subject to an insignificant risk of changes in value. For the purpose of consolidated statement of cash
flows, cash and cash equivalents consist of cash in hand, bank balances, and short-term deposits with an original
maturity of three months or less.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. Where management of the Group expects some or all
of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the
consolidated statement of profit or loss net of any reimbursement. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 28 -
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Provisions (continued)
Onerous contract
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable cost of meeting its obligation under the contract.
Provision for inventory obsolescence
When inventories become old or obsolete, an estimate is made for their net realisable value. For individually significant
amounts, this amount is performed on an individual basis. Amounts which are not individually significant, but which
are old or obsolete, are assessed collectively, and an allowance applied according to the inventory type and degree of
ageing or obsolescence based on expected selling prices. Inventories are measured at the lower of cost and net realisable
value.
Employees’ terminal benefits and other benefits
Employees' end-of-service benefits
The Group operates a non-funded employee end-of-service benefit plan, which is classified as defined benefit obligation
under IAS 19 'Employee Benefits'. A defined benefit plan is a plan which is not a defined contribution plan. The liability
recognised in the consolidated statement of financial position for a defined benefit plan is the present value of the defined
benefit obligation at the end of the reporting period less the fair value of plan assets at that date. The defined benefit
obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined
benefit obligation is determined by discounting estimated future cash outflows using market yields at the end of the
reporting period of high quality corporate bonds that have terms to maturity approximating to the estimated term of the
post-employment benefit obligations. Actuarial gains and losses arising from changes in actuarial assumptions and
experience adjustments are recognised in equity through the consolidated statement of comprehensive income in the
period in which they arise.
Employees' saving plan
The Group maintains an employees' saving plan for its Saudi employees. The contributions from the participants
are deposited in separate bank account and liability is established for the Group’s contributions. The Group’s
contribution under the saving plan is charged to the consolidated statement of profit or loss.
Employees' home ownership program
Unsold housing units constructed for eventual sale to eligible employees are included under land and buildings and
are depreciated over 33 years. Upon signing the sale contract with the eligible employees, the relevant housing units are
classified under other non-current assets.
Statutory reserve
In accordance with the Saudi Arabian Regulations for Companies, the Group must set aside 10% of its consolidated
income for the year after deducting losses brought forward in each year until it has built up a reserve equal to 30% of
the capital. The Group may resolve to discontinue such transfers when the reserve totals 30% of the capital. The reserve
is not available for distribution.
Contingencies
Contingent liabilities are not recognised in the consolidated statement of financial position. They are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Liabilities which are
probable are recorded in consolidated statement of financial position under accounts payable and accruals. A contingent
asset is not recognised in the consolidated statement of financial position but disclosed when an inflow of economic
benefits is probable.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 29 -
4. CHANGES IN ACCOUNTING POLICES
New and amended standards and interpretations
The Group applied IFRS 16 Leases for the first time. The nature and effect of the changes as a result of adoption of
this new accounting standard is described below.
Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the
consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or
amendments that have been issued but are not yet effective.
IFRS 16 – “Leases”
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15
Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a
Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases
and requires lessees to account for most leases under a single on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as
either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact
for leases where the Group is the lessor.
The Group applied modified retrospective method, which requires the recognition of the cumulative effect of initially
applying IFRS 16 at, 1 January 2019, to the retained earnings and not restate prior years. Since the Group recognized
the right-of-use assets at the amount equal to the lease liabilities, adjusted by the amount of any prepaid lease
payments relating to that lease recognized at consolidated statement of financial position as at 31 December 2018,
therefore, there was no impact to the retained earnings at the date of initial application.
The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that
were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also
elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12
months or less and do not contain a purchase option (‘short- term leases’), and lease contracts for which the
underlying asset is of low value (‘low-value assets’).
The effect of adoption of IFRS 16 as at 1 January 2019 (increase / (decrease) is as follows:
1 January 2019
Assets
Right of use assets 13,983
Prepayments 615
Total Assets
14,598
Liabilities
Lease liabilities 13,983
Total Liabilities
13,983
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 30 -
4. CHANGES IN ACCOUNTING POLICES (continued)
IFRS 16 – “Leases” (continued)
Nature of the effect of adoption of IFRS 16
The Group has lease contracts for plant and port land, and office building. Before the adoption of IFRS 16, the Group
classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease
was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of
the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were capitalised at the
commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of
the minimum lease payments.
Lease payments were apportioned between interest (recognised as finance costs) and reduction of the lease liability.
In an operating lease, the leased land was not capitalised and the lease payments were recognised as rent expense in
profit or loss straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under
prepayments and trade and other payables, respectively.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except
for short-term leases and leases of low-value assets. The standard provides specific transition requirements and
practical expedients, which has been applied by the Group
Leases previously accounted for as operating leases
The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases,
except for short-term leases and leases of low-value assets. The right-of-use assets were recognised based on the
amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously
recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted
using the incremental borrowing rate at the date of initial application.
The Group also applied the available practical expedients wherein it:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics.
• Relied on its assessment of whether leases are onerous immediately before the date of initial application.
• Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of
initial application.
• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application.
• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December
2018 as follows:
Operating lease commitments as at 31 December 2018 18,149
Discounting impact for gross lease liability (4,166)
Lease liability as at 1 January 2019
13,983
Gross lease liabilities at 1 January 2019 have been discounted using a weighted average incremental borrowing rate
of 4.19%.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 31 -
4. CHANGES IN ACCOUNTING POLICES (continued)
IFRS 16 – “Leases” (continued)
Summary of new accounting policies
Set out below are the new accounting policies of the Group upon adoption of IFRS 16, which have been applied from
the date of initial application:
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of
lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter
of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase
option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease
term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an
index or a rate are recognised as expense in the period on which the event or condition that triggers the payment
occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the
lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying
asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e., those leases
that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It
also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of
low value (i.e., below SR 18,750). Lease payments on short-term leases and leases of low-value assets are recognised
as expense on a straight-line basis over the lease term.
Variable lease payments
Some leases contain variable payments that are linked to the usage / performance of the leased asset. Such payments
are recognised in consolidated statement of profit or loss and comprehensive income.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 32 -
4. CHANGES IN ACCOUNTING POLICES (continued)
IFRS 16 – “Leases” (continued)
Summary of new accounting policies (continued)
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.
The Group has the option, under some of its leases to renew the leases at the end of lease term. The Group applies
judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all
relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the
Group reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
Amounts recognised in the consolidated statement of financial position and statement of profit or loss
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements
during the period:
Right-of-use assets Lease Liabilities
As at 1 January 2019 14,598 13,983
Accumulated depreciation (1,201) -
Interest expense - 560
Payments - (1,015)
Current portion of lease liability - (1,190)
As at 31 December 2019 13,397 12,338
The maturity analysis of lease liabilities is disclosed in note 28.
The following are the amounts recognised in profit or loss during the period;
2019
Depreciation expense of right-of-use assets (included in cost of sales) 1,009
Depreciation expense of right-of-use assets (included in general and administration expenses) 192
Interest expense on lease liabilities 560
Expense relating to short-term leases (included in cost of sales) 608
Expense relating to short-term leases (included in general and administrative expenses) 961
Total amount recognised in profit or loss 3,330
The Group had total cash outflows for leases of SR 2.58 million in 2019 (2018: 2.22 million).
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 33 -
4. CHANGES IN ACCOUNTING POLICES (continued)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does
it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The
Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates
• How an entity considers changes in facts and circumstances
The Group determines whether to consider each uncertain tax treatment separately or together with one or more
other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
The Group applies significant judgement in identifying uncertainties over income tax treatments. Since the Group
operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its
consolidated financial statements.
Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly
those relating to transfer pricing. The Group determined, based on its tax compliance and transfer pricing study,
that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation
authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group.
Amendments to IFRS 9: Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive
income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal
amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that
classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an
event or circumstance that causes the early termination of the contract and irrespective of which party pays or
receives reasonable compensation for the early termination of the contract. These amendments had no impact on
the consolidated financial statements of the Group.
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during
a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during
the annual reporting period, an entity is required to determine the current service cost for the remainder of the period
after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net
defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. An
entity is also required to determine the net interest for the remainder of the period after the plan amendment,
curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan
and the plan assets after that event, and the discount rate used to remeasure that net defined benefit liability (asset).
The amendments had no impact on the consolidated financial statements of the Group as it did not have any plan
amendments, curtailments, or settlements during the period.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 34 -
4. CHANGES IN ACCOUNTING POLICES (continued)
Amendments to IAS 28: Long-term interests in associates and joint ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which
the equity method is not applied but that, in substance, form part of the net investment in the associate or joint
venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in
IFRS 9 applies to such long-term interests. The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate
or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in
the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures. These amendments had no impact on the consolidated financial statements as the Group does not have long-term
interests in its associate and joint venture.
Annual Improvements 2015-2017 Cycle
• IFRS 3 Business Combinations The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the
requirements for a business combination achieved in stages, including remeasuring previously held interests in the
assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously
held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted.
These amendments had no impact on the consolidated financial statements of the Group as there is no transaction
where joint control is obtained.
• IFRS 11 Joint Arrangements
An entity that participates in, but does not have joint control of, a joint operation might obtain joint control of the
joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The
amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the
first annual reporting period beginning on or after 1 January 2019, with early application permitted.
These amendments had no impact on the consolidated financial statements of the Group as there is no transaction
where a joint control is obtained.
• IAS 12 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions
or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the
income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where
it originally recognised those past transactions or events. An entity applies the amendments for annual reporting
periods beginning on or after 1 January 2019, with early application permitted. When the entity first applies those
amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of
the earliest comparative period. Since the Group’s current practice is in line with these amendments, they had no
impact on the consolidated financial statements of the Group.
• IAS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop
a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale
are complete. The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual
reporting period in which the entity first applies those amendments. An entity applies those amendments for annual
reporting periods beginning on or after 1 January 2019, with early application permitted. Since the Group’s
current practice is in line with these amendments, they had no impact on the consolidated financial statements
of the Group.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 35 -
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of these consolidated financial statements requires management to make judgments, estimates and
assumptions that may affect the reported amount of assets and liabilities, revenues, expenses and the accompanying
disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates which could
result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future
periods.
In particular, information about significant areas of estimation, uncertainty, and critical judgments in applying
accounting policies (that have the most significant effect on the amount recognised in the consolidated financial
statements) includes:
Deferred tax assets/liabilities
The management determines the estimated tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for tax purposes. Judgment is required to determine
which arrangements are considered to be a tax on income as opposed to an operating cost. Judgment is also required to
determine whether deferred tax assets are recognised in the consolidated statement of financial position. Deferred tax
assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Group will
generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets. Assumptions about
the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates of future
taxable income are based on forecast cash flows from operations and judgment about the application of existing tax laws
in each jurisdiction.
Impairment of inventories
Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate
is made of their net realisable value. For individually significant amounts this estimation is performed on an individual
basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a
provision applied according to the inventory type and the degree of ageing or obsolescence, based on anticipated selling
prices.
Useful lives of property, plant and equipment and intangible assets
The management determines the estimated useful lives of its property, plant and equipment and intangible assets for
calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear
and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be
adjusted where the management believes the useful lives differ from previous estimates.
Impairment test of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is
the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is
based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market
prices less incremental costs for disposing off the asset. The value in use calculation is based on a Discounted Cash Flow
("DCF") model. The cash flows are derived from the budget for the next five years and do not include restructuring
activities that the Group is not yet committed to or significant future investments that will enhance the performance of the
Cash Generating Unit ("CGU") being tested. The recoverable amount is sensitive to the discount rate used for the DCF
model as well as the expected future net cash-inflows and the growth rate used for extrapolation purposes.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 36 -
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)
Provisions
By their nature, provisions are dependent upon estimates and assessments whether the criteria for recognition have been
met, including estimates of the probability of cash outflows. Management’s estimates related to provisions for
environmental matters are based on the nature and seriousness of the contamination, as well as on the technology required
for clean up. Provisions for litigation are based on an estimate of the costs, taking into account legal advice and other
information presently available. Provisions for termination benefits and exit costs, if any, also involve management’s
judgement in estimating the expected cash outflows for severance payments and site closures or other exit costs.
Provisions for uncertain liabilities involve management’s best estimate of whether cash outflows are probable.
Valuation of defined benefit obligations
The cost of the defined benefit pension plan and other post-employment medical benefits and the present value of
the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various
assumptions that may differ from actual developments in the future. These include the determination of the discount
rate, future salary increases and other assumptions. Due to the complexities involved in the valuation and its long-
term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are
reviewed at each reporting date and there has been no material change in the related assumptions in the current period.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management
considers the interest rates of corporate bonds in currencies consistent with the currencies of the post-employment
benefit obligation with at least an ‘AA’ rating or above, as set by an internationally acknowledged rating agency, and
extrapolated as needed along the yield curve to correspond with the expected term of the defined benefit obligation.
The underlying bonds are further reviewed for quality. Those having excessive credit spreads are excluded from the
analysis of bonds on which the discount rate is based, on the basis that they do not represent high quality corporate
bonds.
6. NEW IFRS STANDARDS, AMENDMENTS AND INTERPRETATIONS ISSUED BUT NOT YET
EFFECTIVE
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended
standards and interpretations, if applicable, when they become effective.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard
for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17
will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance
contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as
well as to certain guarantees and financial instruments with discretionary participation features. A few scope
exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts
that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on
grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts,
covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:
• A specific adaptation for contracts with direct participation features (the variable fee approach)
• A simplified approach (the premium allocation approach) mainly for short-duration contracts
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 37 -
6. NEW IFRS STANDARDS, AMENDMENTS AND INTERPRETATIONS ISSUED BUT NOT YET
EFFECTIVE (continued)
IFRS 17 Insurance Contracts (continued)
IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early
application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS
17. This standard is not applicable to the Group.
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help
entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum
requirements for a business, remove the assessment of whether market participants are capable of replacing any missing
elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a
business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided
along with the amendments.
Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application,
the Group will not be affected by these amendments on the date of transition.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to
clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or
obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific reporting
entity.
The amendments to the definition of material is not expected to have a significant impact on the Group’s consolidated
financial statements.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 38 -
7. PROPERTY, PLANT AND EQUIPMENT
Plant
Capital
spares
Buildings and
leasehold
improvements
Machinery
and
equipment
Furniture,
fixtures
and
office
equipment Catalyst
Laboratory
and safety
equipment
Vehicles
and
trucks
Capital
work-in-
progress
Total
2019
Cost:
At 1 January 2019 3,016,564 162,872 124,392 92,806 10,521 230,758 19,557 5,315 164,032 3,826,817
Additions - 4,128 - 3,025 88 - - 508 73,098 80,847
Transfers from CWIP 3,270 - 53,734 1,632 - - 1,737 - (188,455) (128,082)
Transfers from inventory (note 13) - 25,357 - - - - - - - 25,357
Disposals (7,672) (1,116) - - (107) (315) (869) (826) - (10,905)
At 31 December 2019 3,012,162 191,241 178,126 97,463 10,502 230,443 20,425 4,997 48,675 3,794,034
Depreciation:
At 1 January 2019 1,471,191 37,755 35,364 48,239 8,499 187,475 16,043 3,846 - 1,808,412
Charge for the year 166,984 9,102 7,126 9,354 472 18,672 1,337 1,064 - 214,111
Disposals (5,297) (361) - - (107) - (868) (826) - (7,459)
At 31 December 2019 1,632,878 46,496 42,490 57,593 8,864 206,147 16,512 4,084 - 2,015,064
Net Book Value:
At 31 December 2019 1,379,284 144,745 135,636 39,870 1,638 24,296 3,913 913 48,675 1,778,970
Capital work-in-progress primarily represents costs incurred for Turn around maintenance (materials and catalysts) and new Propane Dehydrogenation (PDH) &
Polypropylene plant (PP) Project. During the year, the Group had not capitalised any financial charges (2018: SR nil). During the year, the Group has transferred SR 128.1
million from CWIP to other non-current assets upon completion of HOP Phase-2.
Buildings and plant facilities of the Group are constructed on a land leased at nominal annual rent from the Royal Commission of Jubail and Yanbu for 30 Hijra years ending
1456H.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 39 -
7. PROPERTY, PLANT AND EQUIPMENT (Continued)
Plant
Capital
spares
Buildings and
leasehold
improvements
Machinery
and
equipment
Furniture,
fixtures
and
office
equipment Catalyst
Laboratory
and safety
equipment
Vehicles and
trucks
Capital
work-in-
progress
Total
2018 Cost:
At 1 January 2018 2,813,636 102,691 121,206 65,704 9,670 175,691 19,126 5,509 246,512 3,559,745
Additions - 60,181 - 397 964 - - 161 205,904 267,607
Transfers 202,928 - 3,186 26,772 - 55,067 431 - (288,384) -
Disposals - - - (67) (113) - - (355) - (535)
At 31 December 2018 3,016,564 162,872 124,392 92,806 10,521 230,758 19,557 5,315 164,032 3,826,817
Depreciation:
At 1 January 2018 1,308,355 30,026 28,791 39,946 8,097 168,963 14,901 3,299 - 1,602,378
Charge for the year 162,836 7,729 6,573 8,360 446 18,512 1,142 902 - 206,500
Disposals - - - (67) (44) - - (355) - (466)
At 31 December 2018 1,471,191 37,755 35,364 48,239 8,499 187,475 16,043 3,846 - 1,808,412
Net Book Value:
At 31 December 2018 1,545,373 125,117 89,028 44,567 2,022 43,283 3,514 1,469 164,032 2,018,405
Allocation of depreciation charge for the year is as follows:
2019 2018
Cost of sales (note 24) 203,451
197,023
General and administration expenses (note 25) 10,615 9,433
Selling and distribution expenses 45 44
214,111 206,500
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 40-
8. INTANGIBLE ASSETS
31 December
2019
31 December
2018
At the beginning of the year 2,439 3,334
Additions 792 348
Amortisation (1,139) (1,243) At the end of the year 2,092 2,439
9. INVESTMENT IN AN ASSOCIATE
The Group has an investment in SK Advanced Co. Limited, classified as investment in an associate in these
consolidated financial statements. It was incorporated in accordance with the Commercial Act of the Republic of
Korea and it’s shareholders are SK Gas Co. Limited 45%, AGIC 30% and 25% by Petrochemical Industries Company
K.S.C. It operates a PDH Plant with nameplate capacity of 600,000 MT per annum. The summarised financial position
and operating results of the associate is given below:
31 December
2019
31 December
2018
Current assets 542,307 1,065,691
Non-current assets 2,730,649 2,758,154
Current liabilities 381,055 1,255,141
Non-current liabilities 865,519 737,307
Equity 2,026,382 1,831,397
The Group’s carrying amount of the investment 637,483 579,074
2019 2018
Sales 2,524,979 2,924,848
Costs of sales (2,187,735) (2,548,919)
Selling, general and administration expenses (32,388) (35,323)
Other income and expenses (21,361) (37,696)
Profit before tax 283,495 302,910
Income tax expense (33,871) (70,945)
Profit for the year
249,624
231,965
Group’s share of profit for the year
76,587
66,878
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 41-
9. INVESTMENT IN AN ASSOCIATE (Continued) The movement in investment in an associate is as follows:
31 December
2019
31 December
2018
At the beginning of the year 579,074 534,382
Share of results for the year 76,587 66,878
Exchange differences on translation of foreign operations (18,178) (22,186) At the end of the year 637,483 579,074
10. INVESTMENT IN AN UNCONSOLIDATED SUBSIDIARY Effective percentage
of ownership
31 December
2019
31 December
2018
2019 2018
Advanced Global Holding Limited (“AGHL”) 100% 100% 376 376
In 2014, AGIC made 100% investment in AGHL, a limited liability company incorporated in Luxembourg. The share
capital contribution in AGHL was kept in its bank account and there were no other assets or liabilities, including
contingent liabilities at the balance sheet date. AGHL does not have any operations for the reported year.
11. EQUITY INVESTMENT AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
31 December
2019
31 December
2018
Cost:
At the beginning of the year 470,913 470,913
Additions 28,385 -
At the end of the year 499,298 470,913
Valuation adjustments:
At the beginning of the year 138,286 189,859
Net movement during the year (55,136) (51,573)
At the end of the year 83,150 138,286
Net carrying value 582,448 609,199
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 42-
11. EQUITY INVESTMENT AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (continued)
At 31 December 2019, equity investment at fair value through other comprehensive income comprise strategic
investments in listed entities (Tasnee and Aramco) and is presented at fair value. All equity investment at fair value
through other comprehensive income are in Saudi Riyals and inside KSA.
12. OTHER NON-CURRENT ASSETS
31 December
2019
31 December
2018
Employees’ home ownership program (note a) 254,452 138,586
Others 5,501 5,501
259,953 144,087
a) It represents balances related to employees’ Home Ownership Program (HOP). The Group started building residential houses for its employees in 2013. In May 2016, completed housing units were distributed to direct hire
Saudi employees under a long term repayment agreement in Phase-I. Further, in July 2019, additional completed
housing units were distributed in Phase-2. The employees pays 17% of their monthly basic salary in addition to
their housing allowance which is being applied as loan repayment/installment until the total HOP loan is fully
repaid. As at reporting date, SR 254.45 million represents non-current portion and SR 17.48 million represents
current portion.
13. INVENTORIES
31 December
2019
31 December
2018
Spare parts 114,008 103,947
Transfer to capital spares (note 7) (25,357) -
88,651 103,947
Finished goods 2,137 16,005
Semi-finished goods 20,616 15,442
Catalyst 15,611 6,549
Others 12,610 13,080
139,625 155,023
Less: Provision for slow moving items (7,636) (3,000)
131,989 152,023
The spare parts inventory primarily relates to periodic maintenance of plants and machinery and accordingly, is
expected to be utilized over a period exceeding one year.
During the year, the Group has transferred SR 25.4 million from spare parts inventory to capital spares.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 43-
14. TRADE RECEIVABLES
31 December
2018
31 December
2019
Trade receivables 311,135 276,660
Less: Provisions for doubtful debts (79) (79) 311,056 276,581
Trade receivables are non-interest bearing and are generally on 30 to 45 days terms. At 31 December 2019, trade
receivables at nominal value of SR 0.08 million (2018: SR 0.08 million) were impaired and provided for. Other
receivables are excluded as these are not related with the payment behavior of customers. See below for the movements in the provisions for doubtful debts:
31 December
2019
31 December
2018
At the beginning of the year 79 79
Utilised during the year - - At the end of the year 79 79
The ageing analysis of trade receivable is as follows:
Total
Neither
past due nor
impaired
Past due but not impaired SAR ‘000
< 30
days
30 – 60
days
60 – 90
days
90 – 120
days
>120
days
31 December 2019 311,056 303,277 7,390 - - - 389
31 December 2018 276,581 275,358 481 20 - 200 522
See note 28 on credit risk of trade receivables, which discusses how the Group manages and measures credit quality
of trade receivables that are neither past due nor impaired.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 44 -
15. PREPAYMENTS AND OTHER CURRENT ASSETS
31 December
2019
31 December
2018
Prepayments 12,408 15,662
Net VAT refundable from GAZT 5,294 23,692
Current portion of employees’ HOP receivable (note 12) 17,479 12,026
Deposits 17 2,375
Advances to suppliers 1,608 3,162
Accrued commission income - 4,006
Others 119 521
36,925 61,444
16. SHORT TERM INVESTMENTS
Short term investments consist of murabaha deposits with regional banks with a term of more than 90 days up to one
year from original placement date and are denominated in Saudi Riyals and US Dollars. These deposits earn financial
income at an average rate of 2.48% to 2.72% per annum (31 December 2018: 2.90% to 3.47% per annum). There is
no outstanding short term investments as of 31 December 2019, as they were used to repay Sukuk.
17. CASH AND CASH EQUIVALENTS
31 December
2019
31 December
2018
Bank balances and cash 47,899 106,470
Short term murabaha investments - 86,250
47,899 192,720
Short term murabaha investments are kept with local commercial banks and are maintained in Saudi Riyals and US
Dollars. All short term murabaha investments were liquidated in November 2019 and used to repay Sukuk. There is
no outstanding short term murabaha investments as of 31 December 2019.
18. SHARE CAPITAL
31 December
2019
31 December
2018
Authorised shares
Ordinary shares of SR 10 each 2,164,734 1,967,940 Shares issued and fully paid (See Note 1)
Ordinary shares of SR 10 each 2,164,734 1,967,940
19. BANK FACILITY
During the year, the Group entered into a Murabaha Facility Agreement ("Agreement") with a local commercial
bank amounting to SR 250 million, bearing a commission rate of SIBOR plus a specified margin. At 31 December
2019, the entire facility is unutilised.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 45 -
20. SUKUK
31 December
2019
31 December
2018
Sukuk - 1,000,000
Less: Present value discounting using EIR method - (702) - 999,298
During the year, the Group has paid the full maturity value of its Sukuk amounting to SR 1 billion on its maturity date
of 17 November 2019.
21. EMPLOYEES’ TERMINAL BENEFITS AND OTHER BENEFITS
The following table represents the components of the defined benefit and other liabilities:
31 December
2019
31 December
2018
Present value of defined benefit obligation 99,752 89,056 Less: fair value of plan assets - - Net defined liability (Note 21.2) 99,752 89,056 Other long term benefit (i.e. employees’ saving plan) (note 21.1) 10,809 12,634 Employees terminal benefits and other benefits 110,561 101,690
Note 21.1 The movement in employees' saving plan was as follows:
31 December
2019
31 December
2018
At the beginning of the year 12,635 9,612
Provision during the year 3,289 3,254
Payment during the year (5,115) (231) At the end of the year 10,809 12,635
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 46-
21. EMPLOYEES’ TERMINAL BENEFITS AND OTHER BENEFITS (continued)
Note 21.2 The amounts recognised and the movements in the net defined benefits obligation over the year are as
follows:
At 1 January 2018 92,135
Service cost 13,176
Interest cost 3,522
Benefits paid (1,074)
Actuarial losses on re-measurement of net defined benefits obligation (18,703)
At 31 December 2018 89,056
Service cost 11,339
Interest cost 4,792
Benefits paid (11,445)
Actuarial gains on re-measurement of net defined benefits obligation 6,010
At 31 December 2019 99,752
Employees’ terminal benefits are determined by actuarial valuations using a method based on projected end-of-career
salaries (“The Projected Unit Credit Method”). Appropriate assumptions concerning mortality, employee turnover
and interest rates are applied to determine the Group’s projected benefit obligation for long-term employee benefits.
Actuarial gains and losses are recognised immediately through the consolidated statement of other comprehensive
income, a component of shareholder’s equity. Past service costs are recognised directly in the consolidated statement
of profit or loss in the reporting period as incurred.
The principal actuarial assumptions used for valuing pension obligations are as follows (in percentages):
31 December
2019
31 December
2018
Discount rate 3.20% 5.15%
Salary increase rate for first two years 3.00% 4.00%
Long term salary increase rate 3.20% 5.15%
A change in the material actuarial assumptions would have the following effects on the defined benefit obligation:
31 December
2019
31 December
2018
Discount rate: Increase by 0.5% points (7,558) (6,272) Decrease by 0.5% points 8,410 6,977
Long term salary increase rate: Increase by 0.5% points 6,187 5,136
Decrease by 0.5% points (5,705) (4,731)
The sensitivity analysis above have been determined based on a method that extrapolates the impact on the defined
benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 47 -
21. EMPLOYEES’ TERMINAL BENEFITS AND OTHER BENEFITS (continued)
The sensitivity analysis is based on a change in a significant assumption, keeping all other assumptions constant. The
sensitivity analysis may not be representative of an actual change in the defined benefit obligation as it is unlikely
that changes in the assumptions would occur in isolation of one another. The following payments are expected against the defined benefit liability in future years:
31 December
2019
31 December
2018
Within the next 12 months (next annual reporting period) 2,626 3,235
Between 2 and 5 years 15,682 12,227
Beyond 5 years upto 10 years 24,212 22,262
42,520 37,724
The average duration of the defined benefit plan obligation at 31 December 2019 is 15.96 years (2018: 14.83 years).
22. ACCRUALS AND OTHER CURRENT LIABILITIES
31 December
2019
31 December
2018
Accrued purchases and expenses 206,644 194,920
Others 1,631 4,419
208,275 199,339
The Group’s exposure to currency and liquidity risk related to accounts payable, accruals and other liabilities is
disclosed in note 28.
23. ZAKAT AND INCOME TAX
The major components of zakat and income tax expense are:
2019 2018
Zakat and current income tax:
Zakat charge 28,310 27,640
Current income tax charge 1,276 963
29,586 28,603
Deferred tax:
Relating to origination and reversal of temporary differences (277) (201)
29,309 28,402
Movement in zakat and income tax liability for the year was as follows:
2019 2018
At 1 January 24,156 21,237
Current year provision 29,586 28,603
Payments during the year (28,309) (25,684) At 31 December 25,433 24,156
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 48-
23. ZAKAT AND INCOME TAX (continued)
Zakat
Charge for the year
The zakat charge consists of: 2019 2018
Current year provision 24,144 24,127
Adjustment relating to prior years 4,166 3,513 Charge for the year 28,310 27,640
The principal elements of the zakat base are as follows:
2019 2018
Non-current assets 3,274,719 3,353,580
Non-current liabilities 123,915 102,983
Opening shareholders’ equity 3,224,322 3,113,441
Zakatable income 773,324 749,752
Dividends paid 553,270 551,304 The difference between the financial and the zakatable results are mainly due to provisions which are not allowed
in the calculation of zakatable results.
Income tax
Charge for the year
The income tax charge consists of:
2019 2018
Current year provision 1,285 963
Adjustment relating to prior years (9) - Charge for the year 1,276 963
No reconciliation of taxable profit and accounting profit relating to tax provision provided as there are no
significant reconciling items that needs to be disclosed.
Status of assessments
Advanced Petrochemical Company (“The Company”)
The Company has been filing its annual Zakat & Income Tax returns with the General Authority of Zakat and
Tax (the “GAZT”) for the years 2005 to 2018. A provisional assessment was received from GAZT covering the
periods 2005 to 2013. However, this is currently under discussion/protest with GAZT and management believed
that there will be no significant liability once the final assessment is issued.
Advanced Renewable Energy Company (“AREC”)
AREC has been filing its annual Zakat & Income Tax returns with the GAZT for the years 2013 to 2018.
However, there’s no assessment received so far from the GAZT with respect of those years.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 49 -
23. ZAKAT AND INCOME TAX (continued)
Status of assessments (continued)
Advanced Global Investment Company (“AGIC”)
AGIC has been filing its annual Zakat & Income Tax returns with the GAZT for the years 2013 to 2018.
However, there’s no assessment received so far from the GAZT with respect of those years.
Zakat and income tax base has been computed based on the Company's understanding of the zakat and income
tax regulations enforced in the Kingdom of Saudi Arabia. The zakat and income tax regulations in Saudi Arabia
are subject to different interpretations. The assessments to be raised by the GAZT could be different from the
declarations filed by the Company and its subsidiaries.
Deferred tax
The deferred tax comprises of timing differences relating to:
31 December
2019
31 December
2018
Deferred tax asset
Provisions allowed on cash basis 143 124
Deferred tax liability
Accelerated depreciation differential for tax purposes (1,159) (1,417) Deferred tax liabilities, net 1,016 1,293
Reconciliation of deferred tax liabilities, net was as follows: 31 December
2019
31 December
2018
At 1 January 1,293 1,494
Tax expense reversed in profit or loss during the year (277) (201) At 31 December 1,016 1,293
24. COST OF SALES
2019 2018
Raw materials, utilities, consumables and change in inventories 1,344,877 1,600,996
Salaries and related benefits 90,202 80,772
Depreciation (note 7) 203,451 197,023
Depreciation on right-of-use assets (note 4) 1,009 -
Others 55,774 41,843
1,695,313 1,920,634
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 50 -
25. GENERAL AND ADMINISTRATION EXPENSES
2019 2018
Salaries and related benefits 91,186 70,234
Depreciation (note 7) 10,615 9,433
Contracted services 7,330 7,340
Legal and professional 4,166 3,100
Director’s remuneration, allowances and expenses 4,351 2,421
Software licenses and fees 2,523 1,987
Depreciation on right-of-use assets (note 4) 192 -
Communication 877 1,433
Advertising and promotions 737 847
Rent 977 1,199
Others 17,641 9,409 140,595 107,403
26. SEGMENT INFORMATION
A segment is a distinguishable component of the Group that is engaged in providing products or services (a business
segment) or in providing products or services within a particular economic environment (a geographic segment),
which is subject to risks and rewards that are different from those of other segments.
The Group's management is of the view that all activities and operations of the Group comprise of a single operating
segment for the purpose of decision making with respect to performance appraisal and resources allocation.
Substantial portion of the Group’s sales are made to the marketers and Group’s operations are related to one
operating segment. Accordingly, segmental analysis by geographical and operating segment has not been presented.
Operating assets of the Group are located in the KSA. The sales are geographically distributed between domestic
sales in the Kingdom representing more than 5% of the total sales and overseas sales represent less than 95% of the
total sales.
27. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity
holders of the Group by the weighted average number of ordinary shares during the year.
The earnings per share for the comparative year has been adjusted retrospectively as explained in Note 1.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2019 2018
Net profit attributable to equity holders of the Group 759,308 716,960
Weighted average number of ordinary shares (‘000) 216,473 216,473
Earnings Per Share (SR) 3.508 3.312
There has been no item of dilution affecting the weighted average number of ordinary shares.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 51-
28. RISK MANAGEMENT
Overview
The Group has exposure to the following risks from its use of financial instruments:
credit risk
liquidity risk
market risk
operational risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives,
policies and processes for measuring and managing risk, and the Group’s management of capital. Further
quantitative disclosures are included throughout these consolidated financial statements.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The Board’s Executive Committee is also responsible for developing and monitoring the
Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group,
through its training and management standards and procedures, aims to develop a disciplined and constructive
control environment in which all employees understand their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies
and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the
Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both
regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the
Audit Committee.
Financial instruments principally include cash and cash equivalents, short term investments, trade receivables,
equity investment at fair value through other comprehensive income, trade payables, other current liabilities,
dividend payable, sukuk and other non-current liabilities.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the Group’s receivables from customers and equity
investment at fair value through other comprehensive income.
Trade receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each marketing agent
who act as the exclusive sales agent of the product. The trade receivable from these marketing agents is cover
through standby letter of credit issued by credit-worthy financial institutions. At 31 December 2019, the Group had
4 marketing agents that owed more than SR 281 million and accounted for approximately 90% of all receivables
owing.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 52 -
28. RISK MANAGEMENT (continued)
Credit risk (continued)
Trade receivables (continued)
The Group trades only with recognised, credit worthy third parties. It is the Group’s policy that all direct customers
who wish to trade on credit terms are subject to credit verification procedures. Credit quality of the customer is
assessed based on an extensive credit rating scorecard. In addition, receivable balances are monitored on an ongoing
basis with the result that the Group’s exposure to bad debts is not significant.
Credit limits are established for all customers using an internal and external rating criterion. Credit quality of the
customer is assessed based on an extensive credit rating scorecard. Outstanding customer receivables are regularly
monitored.
The Group has established a credit policy under which each new customer is analysed individually for
creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s
review includes external ratings, when available, and in some cases bank references. Purchase limits are established
for each customer, which represents the maximum open amount without requiring approval from the Executive
Committee; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness
may transact with the Group only on a prepayment basis.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade
and other receivables and investments. The main components of this allowance are a specific loss component that
relates to individually significant exposures, and a collective loss component established for groups of similar assets
in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based
on historical data of payment statistics for similar financial assets.
Equity investment at fair value through other comprehensive income
The Group limits its exposure to credit risk by investing only in liquid securities with approved counterparties and
within credit limit assigned to each counterparty by the Investment Committee. Management actively monitors
credit ratings and given that the Group only has invested in securities with high credit ratings, management does
not expect any counterparty to fail to meet its obligations.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in
accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and
within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of
Directors on an annual basis, and may be updated throughout the year subject to approval of the Group’s Investment
Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through a
counterparty’s potential failure to make payments.
The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31
December 2019 and 2018 is the carrying amounts as illustrated in Note 14 except for financial guarantees.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s
reputation.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 53 -
28. RISK MANAGEMENT (continued)
Liquidity risk (continued)
The Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 90
days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances
that cannot reasonably be predicted, such as natural disasters. Additionally, access to sources of funding is available
and debt maturing within 12 months can be rolled over with existing lenders, if required.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the
same geographical region, or have economic features that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative
sensitivity of the Group’s performance to developments affecting a particular industry.
In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines
to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and
managed accordingly. Selective hedging is used within the Group to manage risk concentrations at both the
relationship and industry levels.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments:
Year ended 31 December 2019
On
Demand
SR ‘000
Less than
3 months
SR ‘000
3 to 12
months
SR ‘000
1 to
5 years
SR ‘000
More than
5 years
SR ‘000
Total
SR ‘000
Interest bearing loans and borrowings:
- Lease liabilities 295 - 895 2,897 9,845 13,932 - Sukuk - - - - - - Trade payables and other liabilities 112,321 169,124 1,571 5,854 7,435 296,305
Dividends payable 5,414 - - - 5,414
118,030
169,124 2,466
8,751
17,280
315,651
Year ended 31 December 2018
On
Demand
SR ‘000
Less than
3 months
SR ‘000
3 to 12
months
SR ‘000
1 to
5 years
SR ‘000
More than
5 years
SR ‘000
Total
SR ‘000
Interest bearing loans and borrowings:
- Lease liabilities - - - - - - - Sukuk - - 1,000,000 1,000,000
Trade payables and other liabilities 143,623 183,631 6,193 3,421 4,012 340,880 Dividends payable 4,709 - - - - 4,709
148,332
183,631 1,006,193
3,421
4,012 1,345,589
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 54-
28. RISK MANAGEMENT (continued)
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices
will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimising the
return.
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other
than the respective functional currencies of Group entities, primarily US Dollars. The Group is not significantly
subject to fluctuations in foreign exchange rates in the normal course of its business as the Group did not undertake
significant transactions during the year in currencies other than Saudi Riyals and US Dollars which is pegged against
Saudi Riyal.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates. The Group’s
exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term borrowing which
expose the Group to cash flow interest rate risk.
The Group’s receivables and fixed rate borrowings carried at amortised cost are not subject to interest rate risk as
defined in IFRS 7, since neither the carrying amount nor the future cash flows will fluctuate because of a change in
market interest rates. Hence, the Group is not exposed to fair value interest rate risk.
The exposure of the Group’s borrowing to interest rate changes and the contractual re-pricing dates of the fixed interest
rate borrowings at the end of the reporting period are as follows:
Interest rate exposure
31 December 31 December
2019 2018
Variable interest rate – repricing dates 6 months or less - 1,000,000
Interest rate sensitivity analysis
Profit or loss and equity is sensitive to higher / lower interest expense from long term borrowings as a result of
changes in interest rates. The Group’s profit before tax is affected as follows:
31 December 31 December
2019 2018
Interest rate – increase by 100 basis points - (10,139)
Interest rate – decrease by 100 basis points - 10,139
Commodity risk
The Group is exposed to the impact of market fluctuations of the price of various inputs to production including
propane, propylene, natural gas and electricity. From time to time, the Group manages some elements of commodity
price risk through the use of fixed price contracts.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 55-
28. RISK MANAGEMENT (Continued)
Equity price risk
The Group’s listed equity securities are susceptible to market price risk arising from uncertainties about future
values of the investment securities. The Group manages the equity price risk through diversification and by placing
limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Group’s senior
management on a regular basis. The Group’s Board of Directors reviews and approves all equity investment
decisions.
At the reporting date, the exposure to equity securities at fair value listed on the Saudi Stock Exchange was SR
582.4 million. Given that the changes in fair values of the equity investments held are strongly positively correlated
with changes of the Saudi Stock Exchange market index, the Group has determined that a decrease of 20% on the
Saudi Stock Exchange market index could have an impact of approximately SR 116.5 million on the other
comprehensive income or equity attributable to the Group, depending on whether the decline is significant or
prolonged. An increase of 20% in the value of the listed securities would only impact equity, but would not have an
effect on the consolidated statement of profit or loss.
Change in equity
price
Effect on equity/other
comprehensive income
% 2019 2018
Equity investment at fair value through other
comprehensive income
+/- 20 116,480 121,840
Capital management
The Group’s objectives when managing capital are to
safeguard their ability to continue as a going concern, so that they can continue to provide returns for
shareholders and benefits for other stakeholders and
maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the following gearing ratio:
The gearing ratios as at the end of year were as follows:
31 December 31 December
2019 2018
Long term debt - 999,298
Total equity 3,350,331 3,224,322
Capital and long term debt 3,350,331 4,223,620
Debt to equity ratio 0 0.310
No changes were made in the objectives, policies or processes for managing capital during the years ended 31
December 2019 and 2018.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 56-
28. RISK MANAGEMENT (Continued)
Fair Value
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. As the consolidated financial statements are prepared under the historical cost
convention, differences can arise between the book values and fair value estimates. Management believes that the
fair values of the financial assets and liabilities are not materially different from their carrying values.
The Group has categorised its financial assets and liabilities into a three-level fair value hierarchy, based on the
nature of the inputs used in determining fair value. The hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3).
Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the
Group that are included in each category at 31 December 2019.
Level 1: Financial assets and liabilities whose values are based on unadjusted quoted prices for identical
assets or liabilities in an active market.
Level 2: Financial assets and liabilities whose values are based on quoted prices in markets that are not
active or model inputs that are observable either directly or indirectly for substantially the full term of the
asset or liability.
Level 3: Financial assets and liabilities whose values are based on prices or valuation techniques that
require inputs that are both unobservable and significant to the overall fair value measurement. These
inputs reflect management’s own assumptions about the assumptions a market participant would use in
pricing the asset or liability.
Year ended 31 December 2019
SR ‘000 Level 1
SR ‘000 Level2
SR ‘000 Level 3
SR ‘000
Assets measured at fair value
Equity investment at fair value through
other comprehensive income
582,448 582,448 - -
Year ended 31 December 2018
SR ‘000 Level 1
SR ‘000
Level2
SR ‘000
Level 3
SR ‘000
Assets measured at fair value
Equity investment at fair value through
other comprehensive income
609,199 609,199 - -
The Group has not disclosed the fair value of financial instruments such as cash and cash equivalent, trade
receivables, trade payable, accruals and other current liabilities, because their carrying amounts are a reasonable
approximation of fair value largely because of short term maturity of these instruments.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 57-
28. RISK MANAGEMENT (Continued)
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments
that are carried at amortised cost in the consolidated financial statements as at 31 December 2019:
Carrying value Fair value
Financial liabilities
Lease liabilities 13,528 13,528
The fair value of the financial assets and liabilities is included in the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following
methods and assumptions were used to estimate the fair values:
Cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
Floating-rate borrowings approximate their carrying amounts largely due to the fact that the floating rate approximates the market interest rate.
The fair value of loans from banks and other financial indebtedness as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt or similar
terms and remaining maturities.
29. COMMITMENTS AND CONTINGENCIES
At 31 December 2019, Capital commitments contracted but not yet incurred amounted to SR 20.4 million in respect
of the new PDH and PP project (2018: SR 8.0 million in respect of employees’ home ownership program).
The Group has signed a five years agreement for the purchase of 80,000 MT per annum of propylene (an
intermediate product) which have been used in the production of polypropylene since 1 October 2014. In 2017, this
agreement is extended up to 31 July 2023 with increase in the quantity to 100,000 MT per annum.
Contingencies
The Group’s banker has given payment guarantees on behalf of the Group in favor of Saudi Aramco for the propane
and sales gas supply agreements and others amounting to SR 301.95 million (2018: SR 301.95 million).
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 58-
30. DIVIDENDS
On 8 December 2019, the Board of Directors proposed to distribute final cash dividend of SR 0.65 per share (totaling
SR 140.7 million for the fourth quarter of 2019. This will be paid during 2020 subsequent to approval by the General
Assembly in their next meeting to be held in March 2020.
On 13 October 2019, the Board of Directors resolved to distribute interim cash dividend for the third quarter of 2019 of
SR 0.65 per share (totaling SR 140.7 million).
On 23 May 2019, the Board of Directors resolved to distribute interim cash dividend for the second quarter of 2019 of
SR 0.70 per share (totaling SR 137.8 million).
On 19 March 2019, the Board of Directors resolved to distribute interim cash dividend for the first quarter of 2019 of
SR 0.70 per share (totaling SR 137.8 million).
On 18 December 2018, the Board of Directors proposed to distribute final cash dividend of SR 0.70 per share (totaling
SR 137.8 million) for the fourth quarter of 2018. This has been approved by the General Assembly in their meeting
held on 19 March 2019.
As at 31 December 2019, dividend amounting to SR 5.4 million (2018: SR 4.7 million) is outstanding and is shown
under current liabilities.
31. RELATED PARTY TRANSACTIONS AND BALANCES
Related parties represent major shareholders, associated company, subsidiaries, key personnel of the Company and
entities controlled, jointly controlled or significantly influenced by such parties.
During the year, no significant transactions with the related parties resulting in the balances other than those
disclosed in note 1 to the consolidated financial statements.
Compensation of key management personnel
2019 2018
Salaries and allowances 10,458
10,224
Short term and other benefits 23,519
5,857
33,977
16,081
The amounts disclosed in the table are the amounts recognised as an expense during the reporting year related to
key management personnel.
The non-executive directors do not receive pension entitlements from the Group. The Group has paid SR 2.78
million (2018: SR 2.42 million) as directors’ remuneration, allowances and expenses during the year.
ADVANCED PETROCHEMICAL COMPANY AND ITS SUBSIDIARIES (A SAUDI JOINT STOCK COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in Saudi Riyals thousands unless otherwise stated)
- 59 -
32. SUBSEQUENT EVENT
In the opinion of management, there have been no significant subsequent events since the year ended 31 December
2019 that would have a material impact on the financial position of the Group as reflected in these consolidated
financial statements.
33. COMPARATIVE AMOUNTS
Other than the change in earnings per share referred to in note 26, no other changes were made to the comparative
amounts.
