Saudi International Petrochemical Company

annual repor t 2013

S a u d i I n t e r n a t i o n a l Pe t r o c h e m i c a l C o m p a ny (S i p c h e m) a n n u a l r e p o r t 2 013
www.sipchem.com
In the Name of Allah the Most Compassionate, the Most Merciful
Al-Khobar
P. O. Box 130
Al-Khobar 31952
Tel : 013 801 0111
Fax : 013 801 0222

Jubail
P. O. Box 12021
Jubail Industrial City 31961
Tel : 013 359 9999
Fax : 013 358 8182

Riyadh
P. O. Box 9478
Riyadh 11413
Tel : 011 203 7736
Fax : 011 203 7738
H.R.H. Crown Prince Salman Bin Abdulaziz Al-Saud King Abdullah Bin Abdulaziz Al-Saud
Deputy Premier and Minister of Defence Custodian of the Two Holy Mosques
Kingdom of Saudi Arabia Kingdom of Saudi Arabia
The launch of our new brand ethos ‘Excellence
Everywhere’ is a reflection of Sipchem performing
better; producing better profits; achieving more
success; and most of all delivering on its aims.
Sipchem has continuously strived to improve the
utilisation of its resources whether it’s our people,
our processes, or technology and to achieve real
bottom line improvements. This sustained growth and
success is nothing but our commitment to Excellence
in all that we do.

OUR vision We challenge

assumptions every day to discover
and develop responsible solutions,
enhancing the quality of life for
generations to come.

OUR mission To grow our capability

and reach by constantly pushing the
boundaries that inspire, enhance and
sustain excellence.
 TABLE
of contents
5 Chairman’s Message
7 Board of Directors
11 CEO’s Message
13 Board of Directors’ Annual Report
67 Consolidated Financial Statements
3
EXCELLENCE in nature
Arabian Horse is known to be the oldest and the first domesticated breed
of horse originally bred in the Middle East by the Bedouins. Quick learners, alert
and sensitive the Arabians are today considered the breed of excellence in the
endurance world because of their stamina and agility.

Annual Report 2013 4

 CHAIRMAN’S message

“When Sipchem started

in December 1999, our
goal was not just to build
a great enterprise, but,
more importantly, to
contribute to the future
growth aspiration of our
country and provide
people the opportunities
to fulfill their dreams,
shape their own destiny,
May Peace, Mercy and Blessings of Allah be
upon you.
and the means to realize
In 2013 Sipchem had an excellent year -
their true and diverse
demonstrating that it can continue to move
forward in a climate characterized by economic
potential.”
and monetary uncertainty. While sticking firmly
to its long-term strategy, the organization
maintained flexibility to adapt and to take the have wasted no time in achieving these goals,
necessary actions to create value and maintain its working around the clock to meet and exceed
success. Sipchem accomplished superb financial the expectations of our shareholders.
results in spite of down time due to scheduled
maintenance of all the company's plants in 2013. The success comes from a relentless focus on
The outcome of the financial results for year innovation, execution and strong leadership. The
2013 was net profit of SR 620 million compared leadership is convinced that “the impossible”
to SR 601 million in 2012. does not exist. But with continuous improvement
and building new capabilities, “the impossible” –
When Sipchem started in December 1999, our “is possible”. This belief and action creates the
goal was not just to build a great enterprise, but competitive edge. Furthermore, by leveraging
more importantly, to contribute to the future our core competencies in areas of operational
growth aspirations of our country and provide excellence, expansion of product ranges, focus
people the opportunities to fulfill their dreams, on execution, as well as implementing relevant
shape their own destiny, and the means to realize skill-sets while nurturing its global workforce,
their true and diverse potential. Our growth Sipchem has retained and strengthened its
ambitions are not limited by borders and we competitive edge.

5
The Sipchem growth strategy is focused on Regarding the company's financial results, the
enhancing core competencies, building new General Assembly meeting held in March 2014,
capabilities, and extending geographically. This approved the payment of a cash dividend of
strategy is working, and I anticipate that the SR(0.65) so that the total cash dividend paid in
organization will continue to further improve its 2013 amounted to SR(1.25) per share.
overall performance.
In conclusion, I would like to take this opportunity
In June 2013, Sipchem initiated negotiations for to extend our sincere thanks and appreciation to
a possible merger with Sahara Petrochemicals all of our Shareholders for their valued trust and
Company, and a Non-binding Memorandum of support for Sipchem activities, to all supporting
Understanding was signed in December 2013. If governmental entities and banks for their
the merger is successful, the resulting entity will assistance and backing, and to all Sipchem’s and its
be a leading player in the petrochemical industry. affiliates’ employees, contractors and suppliers for
In April 2013, Sipchem founded a marketing wing their sincere hard work and their commitment.
in the Republic of Singapore to work alongside
Sipchem Europe. This will be a springboard for
Asia, which represents a large and attractive Abdulaziz A. Al-Zamil
market for Sipchem. Chairman

THE OUTCOME OF THE FINANCIAL

RESULTS FOR YEAR 2013 WAS NET PROFIT
OF SR 620 MILLION COMPARED TO SR 601
MILLION IN 2012.

Annual Report 2013 6

BOARD of directors

7
 8 9 10
6 7 11

2 3 4
1
5

1 - Dr. Abdulrahman A. Al-Zamil - Member 7 - Mr. Abdulaziz A. Al-Khamis - Member

2 - Mr. Abdulrahman A. Al-Turki - Member 8 - Eng. Reyadh S. Ahmed - Member
3 - H.E. Eng. Abdulaziz A. Al-Zamil - Chairman 9 - Eng. Ahmad A. Al-Ohali - Member & CEO
4 - Dr. Abdulaziz A. Al-Gwaiz - Member 10 - Eng. Mohammad A. Al-Ghurair - Member
5 - Dr. Sami M. Zaidan - Member 11 - Mr. Ibrahim H. Al-Mazyad - Member
6 - Mr. Fahad S. Al-Rajhi - Member

Annual Report 2013 8

9
EXCELLENCE in nature
Saker Falcon of Saudi Arabia is valued both for its outstanding beauty and its
ability to withstand adverse weather conditions. With an amazingly acute vision, this
bird can identify prey at a distance of several kilometres. Flying at speeds of over
100 km/hour, approaching 200 km/hour during dives, this bird exemplifies nature’s
excellent creations.

Annual Report 2013 10

 CEO’S message

SR 620 million
2013 net profit
is up by 3% on last
year’s result

I am pleased to report to you that Sipchem continued its strong overall performance in the 2013
calendar year. This achievement is highlighted by excellent total shareholder returns, increased
profits, operational excellence, and the realization of our sustainability objectives.

Throughout 2013 we continued to focus on Strong Total Shareholder Return

planned organic growth through strategic
Creating value and increasing Shareholder
investments and par tnerships. We also entered
returns remains a core strategic objective. Gross
into negotiations for a possible merger with
margin, revenue growth and earnings per share
Sahara Petrochemical Company. This merger,
targets were achieved in 2013. This reflects our
if successful, will significantly transform our
dedication to excellence and our unrelenting cost
business by providing us with a stronger
management focus.
platform to expand our activities both within
and outside of the Kingdom. Feasibility studies
including technical, financial and regulator y are Cash from Operations
underway and the results of these studies will With the softer-than-expected recovery in the global
be shared with the respective boards in due economy, Sipchem realized a net profit of SR 620
course. million, up by 3% on last year’s results. Strong netback
across the product portfolios was achieved due to
efficiency in logistics, production, and discounts.

“Throughout 2013 we continued to focus

on planned organic growth through strategic
investments and partnerships.”

11
Operational Excellence We recognized early that when we transform our
Operational excellence continues to be the business to deliver what our consumers want, to
cornerstone of our business and Responsible Care protect our environment, and by investing in our
is at its heart. In addition, performance review and employees, we achieve sustained value. In fact, these
optimization programs were undertaken throughout actions fuel our financial returns.
2013 to ensure that all of our functions are effective,
efficient and best in class. In 2013 we achieved the Royal Commission Award
for Environmental Best Performer through continuous
improvement in environmental protection as part of
Highlights of our achievements in 2013 include:
the Responsible Care (RC) initiative.
• Completing construction of our 100 KTPA(Kilo
Tonnes Per Anum) Ethyl Acetate & Butyl Acetate In 2014 we will continue to focus on:
Plant which achieved commercial operation at
the beginning of September. - Providing a safe and inclusive work place for all
of our employees so as to attract and retain the
• Securing financing of SAR 257.5 million from best talent.
the Saudi Industrial Development Fund to
support our planned 60 KTPA Polybutylene - Expanding the scope and number of
Terephthalate (PBT) Plant. This Plant located development and training programs for
in Jubail Industrial City will use Butanediol as employees focusing on core competencies,
feedstock and will capture more of the value skills required to deliver value, and SAP
chain for Sipchem. Construction of this Plant enhancement/awareness.
is on track and it is expected to commence - Executing succession plans and achieving a
operations at the end of 2014. Saudization target of 75% or more.
• Refinancing over one billion and thirty five million - Completing our Saudi national housing program
Saudi Riyals of loans in respect of our Acetic Acid providing secure and affordable housing for our
plant, the Vinyl Acetate plant and the Carbon employees working in Jubail Industrial City.
Monoxide plant with competitive variable rates,
a six month grace period and an extended In 2013 we launched our unified brand slogan
repayment period from two to four years. “Excellence Everywhere” and initiated a program
• Opening our Asia marketing office in Singapore. to improve our transparency to the investment
community. These initiatives will transform our
• Forming a new joint venture company with business by ensuring that our key stakeholders know
Hanwha Chemicals Corporation, Saudi what they can expect of us and more importantly
Specialized Products Company, for setting up what they can rely on us to deliver.
new downstream conversion projects in Saudi
Arabia. The first facility at Hail will produce 2013 was as predicted a challenging year and it
4,000 MTPA of EVA films and the second, certainly proved to be so. I am proud to report that
located at Riyadh, will manufacture steel moulds we met the challenge and that our business is now
and dies for plastic converters employing over more robust and well placed to continue to thrive in
180 people. 2014 and beyond.

The platform achieved in 2013 heralds an exciting I wish to thank all our employees, suppliers,
2014. During 2014 not only will the new plants Government of the Custodian of the Two Holy
mentioned above come on stream but we also Mosques and HRH the Crown Prince, for their
expect to achieve commercial operation of our efforts and unwavering commitment without which
200 KTPA EVA/LDPE plant. This plant will open an our progress in 2013 would not have been possible.
exciting new chapter in Sipchem’s history being
our first step in the production and marketing I look forward to working with every one of you to
of polymers. Commissioning of this plant is deliver even better results in 2014.
already underway.

Sustainability
Our commitment, to our employees, shareholders
and the communities and countries where we work, Ahmad A. Al-Ohali
to operate safely and responsibly, remains steadfast. Chief Executive Officer

Annual Report 2013 12

13
BOARD OF DIRECTORS’
annual report for the year 2013

EXCELLENCE in nature
The Arabian Oryx are considered the most specialised of the species as they
can trap body heat in their thick undercoats to keep warm while their legs darken in
the winter to absorb more heat. What takes this nature’s marvel to another level of
excellence is its uncanny ability to detect water from miles away.

Annual Report 2013 14

 DESCRIPTION of the
company’s activities

Saudi International Petrochemical Company in 2013, while it was 2.4 million metric tons in
(Sipchem) is one of the Saudi public shareholding 2012. That reduction is a result of the periodical
companies listed on the Tadawul (Saudi Capital maintenance conducted by Sipchem plants in the
Market). Sipchem was established on December first quarter of 2013.
22nd, 1999 with a current capital worth SR
3.6 billion. Sipchem is actively investing in basic The Sipchem plants cover an area of one million
and intermediary petrochemical and chemical square meters in the basic industries zone of
materials that can be utilized as feedstock for Jubail Industrial City in the Eastern Province of
manufacturing of a vast array of products that the Kingdom of Saudi Arabia. Sipchem’s strategy
provide prosperity and welfare for the mankind. is aimed at the integration of present and future
Sipchem is committed to implementing its chemical products to establish a diverse range of
activities in compliance with the highest quality value-added products that will not only contribute
standards whether in its products or maintaining to the integration and success of the industrial
the integrity of the surrounding environment or zone at Jubail but most importantly increase
the safety of its employees. Gross Domestic Product (GDP). This strategy
will support industrial development in line with
Sipchem selected Jubail Industrial City to establish the Kingdom’s comprehensive development
its industrial complex for the production of various and increase revenues and profits for Sipchem’s
petrochemical and chemical materials because shareholders.
of the availability of the entire required basic
infrastructure, the abundance of raw materials and Sipchem has become a regionally and globally
necessary petrochemical products in the Eastern recognized petrochemical leader. Due to
Province and the ease of export operations via its administrative, professional and technical
King Fahd Industrial Port. The gross production of capabilities which push it to the top of global
all existing plants is up to 2.3 million metric tons companies operating in this area.

15
DESCRIPTION of
sipchem’s affiliates

Sipchem Affiliates (Existing Plants):

1- International Methanol Company In July 2013, IMC signed with Riyad Bank an Islamic
Refunding Agreement of SR 325 million.
International Methanol Company (IMC) is a Saudi
The finance process which is consistent with
limited liability company, established in the year
the Islamic Law will grant IMC the right to an
2002 with a capital of SR 360,970,000 of which
additional finance of SR 200 million to support the
Sipchem owns 65%. IMC is operating a plant
company projects and goals.
for the production of Methanol with a designed
production capacity of 970 thousand metric
The company has scheduled regular maintenance
tons per annum (mtpa). The plant is currently
to its plant in January for four weeks and was a
working at its full designed production capacity.
positive influence on performance in production
IMC production is partially utilized as a feedstock
and operational efficiency. The company has taken
for the International Acetyl Company (IAC) plant,
all the precautions necessary to mitigate this
whereas the remaining quantity is shipped to the
impact on their obligations towards clients and
company’s customers regionally and internationally.
reduce the financial impact on the financial results
IMC’s site is in Jubail Industrial City, Kingdom of
for the year 2013.
Saudi Arabia.

Annual Report 2013 16

 DESCRIPTION OF SIPCHEM’S AFFILIATES (CONTD.)

In March 2013, IDC signed a new Funding

Agreement to refund the remaining loans from
domestic commercial banks. These loans were
to finance the establishment of the Diol plants
and facilities belonging to the IDC. As well as an
additional funding to finance expansion of some
units in the company for improved performance,
as the cost of construction and permissions
for the project is about SR 393 million and to
finance public purposes for the company by
SR 91 million. It is scheduled to complete the
expansion of the production unit entrances in
the company by the end of 2014. Under this
new agreement, the new funding will be through
Islamic facilitations compatible with the Islamic
law through the financing lease.

IDC has signed an international agreement in July

2013 to improve the Butanediol plant operations
with the South Korean Company (eTEC),
which include expansion of the entrances of the
production units, and to improve and increase the
reliability and efficiency of the Butanediol plant
facilities. The cost of construction and licensing
were SR 393 million. Construction was started
on 14th January 2013 in order to be completed
during the fourth quarter of 2014.

The company scheduled regular maintenance of

its plant in January 2013 for two weeks which had
a positive influence on performance in terms of
production and operational efficiency. The company
has taken all the precautions necessary to mitigate
this impact on their obligations towards clients and
reduce the financial impact on the financial results
for the year 2013.

3- International Gases Company

2- International Diol Company
International Gases Company (IGC) is a limited
liability company established in the year 2006 with
International Diol Company (IDC) is a limited
a capital of SR 425,400,000 of which Sipchem
liability Company established in the year 2002,
owns 72%. The International Gases Company
with a capital of SR 431,250,000 of which
(IGC) operates a plant for the production
Sipchem owns 53.91%. The company is operating
of Carbon Monoxide (CO) with a designed
a plant producing Butanediol (BDO) and its
production capacity of 340 thousand mtpa. This
derivatives such as Maleic Anhydride (MAn)
plant is considered to be the largest CO plant of
and Tetrahydrofuran (THF) with a designed
its kind in the world. Carbon Monoxide (CO) is
production capacity of 75 thousand mtpa. The
used as a feedstock for the production of Acetic
plant produces high quality Butanediol (BDO)
Acid by IAC. IGC’s site is in Jubail Industrial City,
which is shipped to the customers regionally and
Kingdom of Saudi Arabia.
internationally. IDC’s site is in Jubail Industrial City,
Kingdom of Saudi Arabia.

17
In February 2013, the IGC signed a loan refunding 5- International Vinyl Acetate Company
agreement with commercial banks, which were
obtained in 2008 from a number of local and International Vinyl Acetate Company (IVC) is a Saudi
international banks in order to finance its industry. limited liability company established in the year 2006
Under the agreement, IGC will be able to convert with a capital of SR 676,000,000 of which Sipchem
existing commercial bank loans to long-term facilities owns 76%. operates a plant for the production of
in Saudi Riyal with Riyad Bank for the amount of SR Vinyl Acetate Monomer with a designed production
61,428,024. capacity of 330 thousand mtpa. The IVC plant is
performing its work at full designed production
The company scheduled regular maintenance to its capacity producing high quality Vinyl Acetate
plant in February 2013 for four weeks which had Monomer which is shipped to customers regionally
a positive influence on performance in terms of and internationally. IVC’s site is in Jubail Industrial
production and operational efficiency. The company City, Kingdom of Saudi Arabia.
has taken all the precautions necessary to mitigate
this impact on their obligations towards clients and
reduce the financial impact on the financial results
for the year 2013.

4- International Acetyl Company

International Acetyl Company (IAC) is a limited

liability company established in 2006 with a capital
of SR 1,003,000,000 of which Sipchem owns 76%.
The International Acetyl Company (IAC) operates
a plant for producing Acetic Acid (AA) and Acetic
Anhydride (AAn) with a designed production
capacity of 460 thousand mtpa. IAC production is
partially used as a feedstock by IVC (International
Vinyl Acetate Company) to produce Vinyl Acetate
Monomer while the rest of the production is
shipped to customers regionally and internationally.
IAC’s site is in Jubail Industrial City, Kingdom of
Saudi Arabia.

In February 2013, IAC signed a loan refunding

agreement with commercial banks, which were
obtained in 2008 from a number of local and
international banks in order to finance its industry.
Under the agreement, the IAC will be able to
convert existing commercial bank loans to long-
term facilities in Saudi Riyal with Riyad Bank for the In February 2013, IVC signed a loan refunding
amount of SR 617,767,338. agreement with the commercial banks, which were
obtained in 2008 from a number of local and
The Company scheduled regular maintenance to its international banks in order to finance its industry.
plant in February 2013 for four weeks which had Under the agreement, the IVC will be able to
a positive influence on performance in terms of convert existing commercial bank loans to long-
production and operational efficiency. The company term facilities in Saudi Riyal with Riyad Bank for the
has taken all the precautions necessary to mitigate amount of SR 355,569,527.
this impact on their obligations towards clients and
reduce the financial impact on the financial results
for the year 2013.

Annual Report 2013 18

 DESCRIPTION OF SIPCHEM’S AFFILIATES (CONTD.)

SCC has signed a funding agreement of SR 257.5

6- Sipchem Chemicals Company
million with the Saudi Industrial Development
Fund. The purpose of this agreement is
Sipchem Chemicals Company (SCC) is a Saudi financing the construction operations of a plant
limited liability company established in the year that produces 63,000 mtpa of Polybutylene
2011 with a capital of SR 266٫000,000 of which Terephthalate annually. The project will add value
Sipchem owns 95% and 5% by Sipchem to Sipchem with the integration of Butanediol,
Marketing & Services Company (SMSC), an the feedstock of the project. Note that the
affiliate of Sipchem. The plant is designed to product will be wholly marketed by Sipchem.
produce 100,000 mtpa of Ethyl Acetate / Butyl The total cost amount of the project is SR 600
Acetate and 63,000 mtpa of Polybutylene million. It is scheduled to be operational by the
Terephthalate annually. SCC’s site is in Jubail end of 2014.
Industrial City, Kingdom of Saudi Arabia.
In June 2013, the SCC signed an EPC contract
The commercial operation of the Ethyl Acetate with German ThyssenKrupp Audi Ltd. for the
and Butyl Acetate plants started in September construction of a Polybutylene Terephthalate
2013. These specialist products are in line with (PBT) plant. This project will be financed
the company’s strategy to implement integrated by the Saudi Industrial Development Fund,
transformative projects with the current products par tners and commercial funding. The PBT is
in order to meet the local needs of this product, a polymer with high thermal theme used in
in addition to meeting the demand of international the automotive industr y and in the production
markets. The raw materials needed for the of electrical devices and electronics and
production of Ethyl Acetate are Acetic Acid which also in the production of materials used
is provided by the IAC (Sipchem affiliate) and in information technology. Announcing
Ethanol which is imported from the international this contract is an impor tant step towards
markets. This product is used as a solvent in achieving the expansion and transformative
manufacturing inks, industrial fluids and granules industries development program. The new PBT
used in the packaging of surfaces and coatings. project will allow Sipchem to be seen as an
international player in manufacturing polymers
and plastics engineering. Also using Butanediol
produced by the IDC (Sipchem Affiliate) as a
basic material for producing the PBT will allow
Sipchem to get benefit from its integrated
package of products and will strengthen the
added value chain.

7- International Utilities Company

International Utilities Company (IUC) is a Saudi

limited liability company, established in the year
2009, with a capital of SR 2,000,000 owned
equally by all Sipchem operating affiliates,
namely: International Methanol Company (IMC);
International Diol Company (IDC); International
Gases Company (IGC); International Acetyl
Company (IAC); and International Vinyl Acetate
Company (IVC). Sipchem’s actual ownership is
68.58% of the IUC capital. The purpose of the
company is to manage, operate and maintain
utilities, facilities and services for Sipchem’s
affiliates. IUC site is in Jubail Industrial City,
Kingdom of Saudi Arabia.

19
8- Sipchem Marketing Company (SMC) B) Sipchem Asia Pte Ltd

Sipchem Marketing Company (SMC) is a Saudi In April 2013, the Sipchem Marketing Company
limited liability company, established in the year (SMC) founded Sipchem Asia Pte Ltd which is
2007 with capital of SR 2,000,000 fully owned by fully owned by Sipchem and based in Singapore.
Sipchem. The company’s location is in Al-Khobar This has given more strategic direction to the
in the Eastern Province, Kingdom of Saudi Arabia. marketing aspect allowing the company to
Sipchem Marketing Company (SMC) works provide optimal services to its customers in
independently in the marketing and sales of the Asia by connecting them directly to SMC. This
entire range of Sipchem’s products in addition achievement, in context of the geographical
to other products. The company has a highly organization of the company as it exists in the
competent and experienced sales force with strategic markets, reflects positively on the
diverse backgrounds. company’s performance and facilitates more
growth. Singapore is a well-established and
Currently SMC sells and markets a number of important logistics and trading hub for the
products including Methanol, Butanediol (BDO), petrochemical industry and an ideal gateway
Maleic Anhydride (MAn), Tetrahydrofuran (THF), for delivering excellent service to customers
Acetic Acid (AA) and Vinyl Acetate Monomer throughout Asia. The foundation of Sipchem
(VAM). SMC has marketed 722,000 metric tons of Asia in Singapore shows the extent of SMC’s
aforementioned products in 2012 - an increase of commitment to providing its services at an
21% over 2011 which was at 597,000 metric tons. international level. This symbolizes a clear
breakthrough in meeting the needs of the
A) Sipchem Europe Cooperative UA and its customers directly and clearly demonstrates
Affiliates SMC’s interest in meeting the needs of its
customers. To emphasize transparency and to
focus on building customer relations, Sipchem
Sipchem Europe (Cooperative UA) Company was Asia will limit the selling and marketing of
established in 2011, with capital of Swiss Franc Sipchem products through other specialist
1,000,000 totally owned by Sipchem and located marketing companies.
in Amsterdam, the Netherlands. Its major activity
is to provide managerial support in marketing and
logistics fields. Aectra SA is an affiliate of Sipchem
Europe Cooperative UA which is headquartered
in Geneva, Switzerland. The main activities of
Acetra SA are marketing, logistics services and
commercial experience in European markets.
Aectra has become a major support to market
Sipchem products in Europe as it marketed and
sold 159 thousand mtpa of Sipchem’s products and
330 thousand mtpa of other companies’ products
during 2013.

Annual Report 2013 20

 AFFILIATES projects under construction

1- International Polymers Company

International Polymers Company (IPC) is a

limited liability company established in the year
2009 with a capital of SR 703٫200٫000 of which
Sipchem owns 75%. The company’s main activity
is to produce Ethylene Vinyl Acetate (EVA) and
Low-Density Polyethylene (LDPE) with a planned
production capacity of 200 thousand mtpa. This
plant is considered the first of its kind in the Middle
East to produce Ethylene Vinyl Acetate (EVA). The
project location is in Jubail Industrial City, Kingdom
of Saudi Arabia.

The total cost of the project is SR 3 billion which

will be financed by a number of loans and banking
facilities in accordance with Islamic Shariah law and
also by shares from shareholders and government
loans provided by SIDF (Saudi Industrial Development
Fund) and PIF (Public Investment Fund). IPC signed, in
June 2013, a long-term funding contract with the PIF
at value of SR 704,000,000 million.

Vinyl Acetate Monomer (VAM) will be provided as

a second feedstock by IVC (Sipchem affiliate), and
Ethane gas from Aramco to be treated by Jubail
United Petrochemical Company (Sabic Affiliate), to
be converted into Ethylene as main feedstock for
the project. Ethylene Vinyl Acetate (EVA) is used
as feedstock to produce heat soluble adhesives,
resin products and high-quality sports bandages.
Low Density Polyethylene (LDPE) is used as a
feedstock in the production of various types of
containers, bottles and medical detergents. Sipchem
has also obtained a funding loan at value of SR 600
million from the SIDF and a commercial funding in
accordance with the Shariah law including a short-
term loan at value of SR 1.4 billion from a group of
Saudi banks.

The plant is being constructed by Korean company

GS Engineering & Construction (GSEC) company.
The rate of implementation of the project
has reached to 99.7% till end of 2013 and it is
expected to be operational during the first quarter
of 2014.

21
 region which showcases Sipchem’s commitment
2- Gulf Advanced Cable Insulation towards the developmental objectives of the
Company (GACI) Kingdom which seeks to be one of the driving
forces in the field of renewable energy. The
Gulf Advanced Cable Insulation Company (GACI) Ethylene Vinyl Acetate films are used to make the
is a limited liability company established in the panels of solar cells used for generating electricity
year 2012 with a capital of SR 57٫240٫000. As from the solar energy. The company has got the
part of Sipchem’s enhancement of its capabilities necessary manufacturing technology from the
for integration of its projects and its search of Japanese firm Mitsui Chemicals Tohcello, Inc.
new products needed by local and international The establishment of this project in the city is
markets, the company had founded GACI as a joint considered to be a supportive initiative to help
venture owned equally by Sipchem and Hanwha create investment opportunities for new projects
Chemicals Company. The total cost of the plant that can use this product. The project will also
is SR 230 million and it produces electrical cable create many job opportunities for the people of
insulation materials. The basic feedstock will be this region. The factory is expected to be at the
obtained from IPC (Sipchem affiliate). The rate of phase of empirical implementation during the
implementation of the project had reached 96% till third quarter of 2014.
end of 2013 and it is expected to be operational
during the first quarter of 2014. GACI’s site is in B) Tool Manufacturing Facility (TMF) Project
Jubail Industrial City, Kingdom of Saudi Arabia. (Riyadh)

3- Saudi Specialized Products Company The total cost of the project is estimated at
(Wahaj) about 105 million riyals, with a one thousand
mtpa annual production capacity of metal
The Saudi Specialized Products Company (Wahaj) molds specialized for manufacturing plastic
is a limited liability company established in the year products. The company has got the necessary
2013 with a capital of SR 56٫320٫000 for which manufacturing technology from German
Sipchem Chemicals (Sipchem Affiliate) owns 75% company Kiefer Rkzajabu. The product will be
and Hanwha Chemicals Company owns 25%. distributed by the same firm and will be funded
SSPC’s site is in Riyadh City, Kingdom of Saudi by the company in addition to loans from local
Arabia. SSPC is responsible for the establishing financial quarters. The metal molds are used for
and operation of the downstream projects in manufacturing and forming multiple types of
both Riyadh and Hail. The total amount of the molds and alloys used in plastic and packaging
investment value is about SR 225 million. Below is factories. These provide and create the necessary
a description of the two projects: infrastructure for designing any industrial or
commercial product. The prototypes and the
A) Ethylene Vinyl Acetate (EVA) Film Project products are produced by designing templates
or alloys according to the necessary criteria. The
(Hail) industry manufacturing the molds will support
the transferred industries including polymers
The total cost of the project is estimated at about and metal panels and aluminum to procure the
SR 150 million, with a 4 thousands mtpa annual tools and alloys as per precise requirements. Not
production capacity of Ethylene Vinyl Acetate only is the institution manufacturing the molds
films. It is located on 40 thousand square meters. and new equipment, but it will also support the
The product will be distributed through Sipchem maintenance service of existing molds and alloys,
Company which is one of the Sipchem companies as high technical experience is available through
and the project will be funded by the company in the German company which is a provider of
addition to loans from local financial quarters. This technology in the field of manufacturing tools
is considered to be the first project in the Gulf and alloys.

Annual Report 2013 22

 AFFILIATES PROJECTS UNDER CONSTRUCTION (CONTD.)

4- Sipchem Technology & Creativity

Exchange (STCE)

Sipchem invests SR 225 million to establish

Sipchem Technology & Creativity Exchange (STCE)
at Dhahran Techno Valley of King Fahd University
SR 225 million
of Petroleum and Minerals (KFUPM). Sipchem
signed an MOU with the Ministry of Petroleum & INVESTED BY SIPCHEM TO
Minerals and King Fahd University of Petroleum ESTABLISH THIS CENTER
and Minerals (KFUPM) to establish this center on
a 15,000 square meters site at Dhahran Techno WHICH WILL INCLUDE 37
Valley. In line with this MOU, Sipchem will manage
and operate this center which will include 37
LABORATORIES TO COVER
laboratories to cover all fields of research, technical ALL FIELDS OF RESEARCH
services and development of products, their
applications, analysis and testing. AND DEVELOPMENT
The Center site construction has already started,
and is being designed to be modern and as per
the latest world-class standards for buildings,
laboratories and equipment. It is aimed at
developing the use of polymer products for serving
and developing the transformative industries in
that will support the national program for the
the Kingdom, where more than 860 plants are
development of industrial clusters. The Center
currently in operation.
will also promote cooperation in research using
laboratory devices and exchange of experiences
It is scheduled that the Center will focus its
between the University, other research centers
researches on the main uses of the products, i.e.
in the Kingdom, and Sipchem. Construction is
films used in manufacturing solar cells and thin
scheduled to come to an end during the fourth
sheets for agricultural uses, flexible pipes, adhesives
quarter of 2014.
for timber, paper and paints industry, electrical
cables, optical fiber cables, and other products

23
Sipchem’s strategies

Sipchem studies available investment opportunities in order to maximize profits of the company and
shareholders in accordance with the strategic plans adopted by the company and Board of Directors
since the establishment of the company. This is done within the framework of a clear strategy for the
Kingdom of Saudi Arabia which has placed great importance on industrial development to further the
enhancement of Saudi industries on par with high quality global standards prevalent among industrial
nations. In order to achieve these plans, the Board of Directors adopted a number of long and short
term programs and projects that will lead the company to achieve excellent performance that pushes it
to the top of global companies operating in this area.

A) Sipchem’s strategy depends on the B) Sipchem’s Project Strategy

following elements: Sipchem has adopted the development and
• Increase of production capacity and to optimize implementation of the best scientific global
operational capability for affiliates’ plants. practices and standards across all departments
in order to ensure that a project is implemented
• To develop long-term relations with vendors easily and smoothly. To achieve optimal
and clients to decrease operational costs. development of its projects, Sipchem has chosen
a unique approach in the implementation of
• Continuous development in quality of products these projects with quality and effectiveness. This
through research and development operations approach, for the development of large projects
and application of best international standards. ensures that at each stage of implementation,
every aspect is accurately detailed out and it uses
• To reduce costs to enhance competitiveness
the best sources of investment and finance to
among companies.
achieve the goals of each phase with risk reduction.
• Long-term investment in Saudi manpower This approach helps to expand the industry and
which reflects positively on company’s increase the work opportunities with better
performance. allocation and development of capital resources
and prioritization of distribution, and also seeks to
• Expansion in the variety of the company’s reduce the risk to a minimum.
products via investment in downstream projects
and other projects associated with the industry.

Annual Report 2013 24

 Sipchem’s Future Plans and
Expectations
1- Operation of Sipchem Projects
Sipchem is currently implementing several projects with a total investment of SR five billion, in addition
to Sipchem Creativity & Technology Center, and the staff housing project, which has cost about SR 800
million.
The commercial operations of Ethyl Acetate and Butyl Acetate plants saw successful execution in
2013. Sipchem continues to address many other challenges in 2014 with respect to the operation and
implementation of several industrial projects as follows:
1- Ethylene Vinyl Acetate and Low Density Polyethylene project of the International Polymers Company
which is expected to be operational during the first quarter of 2014.
2- Wire and Cable Compounds project of the Gulf Advanced Cable Insulation Company which is
expected to be operational during the first quarter of 2014.
3- Ethylene Vinyl Acetate (EVA) Film project of the Saudi Specialized Products Company (Sipchem
Affiliate) which is expected to be operational during the third quarter of 2014.
4- Metal Molds Production project of the Saudi Specialized Products Company (Sipchem Affiliate) which
is expected to be operational during the second quarter of 2014.
5- Polybutylene Terephthalate (PBT) project of Sipchem Chemicals which is expected to be operational
during the fourth quarter of 2014.
6- Expansion of Butanediol plant which is expected to be operational during the fourth quarter of 2014.
Concerning the prices in 2014, Sipchem expects better price stability compared to that in 2013. Sipchem’s
development plan focuses basically on the company embarking into new markets in Europe and Asia
through SMC developing detailed plans that use the best methods of operation and acquiring of abilities to
achieve the best returns for shareholders of Sipchem. Sipchem is also currently studying feasibility of many
new industrial projects and studying new investment opportunities to purchase existing shares or projects
inside and outside KSA, as well as expanding some of the existing plants to increase overall operational
efficiency; the results of which are expected to be announced during 2014.

2- Merger with Sahara Petrochemicals Company

In June 2013, Sipchem announced an initial understanding with Sahara Petrochemicals Company for a
feasibility study to be conducted regarding the merger and integration of the two companies. Sipchem
signed a Non-binding Memorandum of Understanding with the company about their proposed merger
in December 2013 in order to initiate studies and conduct a confirmatory survey to help complete
negotiations on the proposed merger between the two companies based on commercial principles of equal
integration.
The signing took place because of the fact that the initial results of the studies and negotiations on the
proposed merger indicated that it would provide a positive breakthrough to the company’s business,
provided that some conditions are agreed upon. It is expected that the proposed merger will contribute
towards enhancing the status of leading local and global companies in the field of petrochemicals, which is
expected to lead to even more important partnerships that will enhance operational efficiency. After the
proposed merger, the two companies will become a platform for continued long term growth.
With respect to the proposed merger, Sipchem has appointed HSBC Saudi Arabia Limited as its financial
advisor, Office of Ziad Samir Khoshim as legal advisor, Allen Overy Firm as an international legal advisor,
Jacobs Consultancy as technical advisor, Nexant as an advisor for market study. Sahara Petrochemicals
also appointed Morgan Stanley Company as a financial advisor, Jadaan and Associates Attorneys and Legal
Consultants as Saudi legal advisor, Clifford Chance as an international legal advisor, and IHS Inc as technical
advisor and for market study.
If the proposed merger is accomplished, it is expected to be a positive move in the best interest of the
shareholders of both companies and their employees, and would have tangible benefits for both companies.
The proposed merger supports the shared commitment to achieving an equitable result and value for
shareholders of both companies based on principles of equity to the merger. This is an important precedent

25
in the petrochemical sector in Saudi Arabia that will result in more competitive and stronger capabilities that
will be able to increase their investment in new projects in the Kingdom and at the global level. This would
also provide further growth opportunities for both management and staff and would reflect as an added
value for shareholders.
The two companies have agreed that if the proposed merger is accomplished, it will be based on the
exchange of shares of the companies whereby Sahara Petrochemicals Company will become, after the
completion of the proposed merger, a Sipchem affiliate. The company will be issued, under the terms of
the proposed merger, an equivalent of 0.685 new shares in the company in exchange for each issued share
in the Sahara Company. Therefore, in accordance with the agreed exchange rate, the companies agreed if
the proposed merger is completed, the company will issue 300,574,575 new shares for the shareholders
of the Sahara Company against all issued shares from Sahara Company. The total number of issued shares
in the company after the completion of the proposed merger will be 667,241,241 and a capital of SR
6,672,412,410 noting that the current number of shares is 366,666,666 with a capital of SR 3,666,666,660.
The memorandum does not constitute an offer, declaration or intention to make an offer by Sipchem to
the shareholders of the company or its board of directors. But Sipchem and the Sahara Company agreed
under the memorandum on further cooperation in completing the verification, survey, financial, technical,
commercial, and legal studies. The two companies also agreed upon the approval of the plan of merger
studies, corporate governance and business plan of the group after the merger, and the preparation of
documents necessary for the implementation of the proposed merger. The two companies intend to, in the
event of subsequent proposed merger agreement, sign a merger agreement that specifies possible offer to
the shareholders of the company and its board of directors (the merger). The two companies will continue
their work and to trade as usual until the completion of the proposed merger.
The two companies currently intend to complete the studies related to the proposed merger. They also
intend to sign a merger agreement during the first half of 2014. The memorandum comes to an end with
the signing of the merger agreement by the two companies or by providing a notice by any one of the two
companies to the other wishing to terminate studies, whatever the case may be.
Signing the MOU does not mean that an agreement has been made for the proposed merger between the
two companies, but that an offer will be submitted regarding the proposed merger or that it confirms to
terms or other dates for submitting another offer. Even if the two companies later agreed to the proposed
merger, it is expected that the proposed merger is subject to several conditions and endorsements, including
but not limited to gain approval of the Capital Market Authority, the extraordinary general assemblies of the
two companies and the approval of the competent governmental authorities in Saudi Arabia.

Annual Report 2013 26

 Risks related to Sipchem and its
Affiliates’ Business

RISK OF PRICES FLUCTUATION:

- Risk of chemical, petrochemical products and shipping prices
fluctuations
- International market competition which could affect both supply and
demand
- Change of the price of raw materials on which the company relies
for production

RISKS OF FINANCING:
- Including the availability of financing, the fluctuation of currency
prices and the financial situation of the affiliated companies which are
mostly dependent on financing

OPERATION RISKS:
- General operation risks
- Risks of the non availability of the basic supply items (feedstock) and
prices fluctuations
- Prices fluctuation

ENVIRONMENTAL RISKS:
- The possibility of imposing more aggressive environmental regulations
or any other general regulations

27
Annual Report 2013 28
29
EXCELLENCE in nature
The Red Sea is one of the warmest, most spectacular coral reefs outside
Southeast Asia; it provides the perfect saline ecosystem from which reefs are able
to grow. Home to more than 200 soft and hard corals, the Red Sea’s reefs epitomize
excellence through diversity; in fact, it has the highest diversity of coral reefs than
any other section of the Indian Ocean.

Annual Report 2013 30

 FINANCIAL highlights

Sipchem achieved a net profit of SR 620 million in

2013 compared to SR 601 million in 2012. Despite
the reduction of produced quantities due to the
ceasing of operations during the first quarter of
2013 for scheduled regular maintenance, this year
witnessed a slight increase in net profit with a rate
of 3% compared to the previous year. The reason of
this increase is the improvement in prices of some
products, particularly Methanol, in addition to the
reduction in financial costs.

SR 620 million
IS THE NET PROFIT FOR THE YEAR 2013

Below are the financial indicators of the year 2013 compared with the
previous year 2012:
1- The total profit for the year 2013 was SR 1,299 million compared with SR
1,268 million for the previous year; an increase of 2.4%
2- The operational profit for the year 2013 was SR 1,162 million compared
with SR 1,136 million for the previous year; an increase of 2.3%
3- The net profit for the year 2013 was SR 620 million compared with SR 601
million for the previous year; an increase of 3.2%
4- The Earnings Per Share (EPS) was SR 1.69 for 2013 and SR 1.64 for the
previous year

31
A) Summary of the business results for the previous five years:
(million saudi riyals)

Details 2009 2010 2011 2012 2013

Total current assets 2,218 2,426 4,559 4,189 4,475

Total non-current assets 9,600 9,601 10,066 11,000 12,214
Total assets 11,818 12,027 14,665 15,189 16,689
Total current liabilities 903 857 1,317 1,389 1,288

Total non-current liabilities 5,083 5,156 6,326 6,665 7,980

Total shareholders’ equity and minority 5,832 6,014 7,022 7,135 7,421
interest
Total liabilities, shareholders’ equity and 11,818 12,027 14,665 15,189 16,689
minority interest
Net profits 141 378 706 601 620
Earnings Per Share (EPS) Saudi Riyal 0.38 1.03 1.93 1.64 1.69

B) Development of sales, income from operations and net profit for the
past five years: (million saudi riyals)
SALES
INCOME FROM OPERATIONS
4,006
3,922 NET PROFIT

+2%
3,324
1,993

830
1,302
1,162
1,136
764
+2%
168
706 601 620
141 378 +3%

2009 2010 2011 2012 2013

C) Development of Assets and Shareholders Equity for the past five years:
(million saudi riyals)
ASSETS
16,689 SHAREHOLDERS EQUITY

14,665 15,189

11,818 12,027

5,630 5,626 5,793

4,922 4,921

2009 2010 2011 2012 2013

Annual Report 2013 32

 FINANCIAL HIGHLIGHTS (CONTD.)

D) Significant differences in operational results from previous year:

(million saudi riyals)

The main reason for the increase of the financial results for the year 2013 compared with the year
2012 was mainly due to the improvement of prices of some products, particularly Methanol, despite the
reduction of produced quantities due to the ceasing of operations during the first quarter of 2013 for
scheduled regular maintenance.

Details 2013 2012 Changes +/- Change %

Total Profit 1,299 1,268 +31 2.4%

Operational Profit 1,162 1,136 +26 2.3%

Net profit 620 601 +19 3.2%

E) The Geographical Analysis of Sipchem’s Sales:

(million saudi riyals)

The marketing and sales of company products take place in the local markets, the Middle East and the
International Markets. The graph here shows the geographical distribution of the company sales during 2013:

Asia
4% Europe
Inside Sales
42% Local Markets and Middle East

28%

26%

F) Total Debts for Sipchem and its Affiliates:

(million saudi riyals)

Saudi International Petrochemical Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Islamic Sukuk 5 years 1,800 1,800 - - 1,800

International Methanol Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Commercial Banks 9.6 years 535 310 - (310) -

(note 1)
Commercial Banks 10.6 years 325 - 255 - 255

Note 1: During 2013, the loan was re-scheduled by the commercial banks.

33
International Diol Company:
Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Commercial Banks (note 2) 8 years 146 42 - (42) -

Commercial Banks 10.6 years 484 - 484 (18) 466

Commercial Banks 12.6 years 524 - 140 - 140

SIDF 8.3 years 400 300 - (300) -

PIF 8.6 years 431 145 - (145) -

Partners undefined undefined 187 - (160) 27

Note 2: During 2013, the loan was re-scheduled by the commercial banks.

International Acetyl Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Commercial Banks (note 3) 9.6 years 810 618 - (618) -

Commercial Banks 12.5 years 618 - 618 (3) 615

SIDF 9.8 years 400 350 - (40) 310

PIF 11.4 years 769 577 - (77) 500

Partners undefined undefined 698 75 - 773

Note 3: During 2013, the loan was re-scheduled by the commercial banks.

International Vinyl Acetate Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Commercial Banks (note 4) 9.6 years 466 355 - (355) -

Commercial Banks 12.5 years 355 - 355 (2) 353

SIDF 9.8 years 400 350 - (40) 310

PIF 11.4 years 439 329 - (44) 285

Partners undefined undefined 536 - - 536

Note 4: During 2013, the loan was re-scheduled by the commercial banks.

International Gases Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Commercial Banks (note 5) 9.6 years 80 61.4 - (61.4) -

+Commercial Banks 8.5 years 61.4 - 61.4 (0.3) 61.1

SIDF 9.8 years 400 330 - (50) 280

PIF 11.4 years 143 107 - (14) 93

Partners undefined undefined 369 - - 369

Partners (short term) undefined undefined 13 - - 13

Note 5: During 2013, the loan was re-scheduled by the commercial banks.

Annual Report 2013 34

 FINANCIAL HIGHLIGHTS (CONTD.)

Sipchem Marketing Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Partners undefined undefined 95 4 - 99

International Polymers Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

+Commercial banks 14.6 years 704 531 173 - 704

SIDF 11 years 600 300 180 - 480

PIF 14 years 704 - 704 - 704

Partners undefined undefined 162 3 - 165

Partners (short term) undefined undefined 209 - (48) 161

Sipchem Chemicals Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

SIDF 9.6 years 165 72 - - 72

SIDF 9.9 years 257 - 98 - 98

+Commercial banks 3 years 300 - 300 - 300

Partners undefined undefined 47 238 - 285

Gulf Advanced Cables Insulation Company:

Total
Value of Balance at Withdrawing repayments Balance at
Lending Entity Loan Term Loan 2013 start during 2013 during 2013 2013 end

Partners undefined undefined 37 38 - 75

Partners (short term) undefined undefined 76 - (12) 64

G) Governmental Due Payments:

(million saudi riyals)

Entity Government payments up to 31/12/2013

Zakat & Income Department 116

General Organization for Social Insurance (GOSI) 21

35
INTERNAL AUDIT
The Internal Audit department monitors all controls
and risk management activities of the company
and its activities. The audit committee continuously
supervises the works of the Internal Audit Committee
and regularly reviews its reports.
The scope of the internal audit department includes the following:
1- Prepare the annual strategic plan for the work of Internal Audit Committee.
2- Auditing and periodic examinations of all administrative and operational
departments and notifying their officials of the results.
3- Evaluating the procedures and the solutions provided by the departments to
ensure suitability and effectiveness of the proposed procedures.
4- Submit reports on the auditing results and recommendations in addition to
following up on these recommendations to ensure their application by the
concerned departments.
The Internal Audit Department developed in 2013 an internal control system
and notified all employees of the importance of its role through awareness
newsletters.
In addition to the above, the company’s external auditor, as part of its
responsibility in auditing the company’s annual statement, takes an overall
review of the company’s internal audit system and its electronic and computer
systems to ensure the availability of suitable separation among functions, control
systems and strict control on company operations.
The Internal Audit Committee has not discovered during 2013 any violation
or any integral weakness in the company’s internal audit system or different
operations.

Annual Report 2013 36

 Board of directors

1- The Composition of the Board of Directors:

Sipchem has the privilege of having a highly experienced Board of Directors with full relevant knowledge to
explore the appropriate opportunities that help develop the company’s core business activities. The Board
is composed of eleven members elected by the General Assembly Meeting on 03/12/2013 and its term will
last for 3 years. The business of the current session started on 10/12/2013 and will last until 09/12/2016.
The members are classified according to the definition as contained in article two of the companies
governance code issued by the Capital Market Authority in the Kingdom of Saudi Arabia as follows:

No. Name Responsibilities Membership type Notes

1 H.E. Eng. Abdulaziz A. Al-Zamil Board Chairman Non-executive
Representative of Al-Zamil Holding
Group
2 Eng. Ahmad A. Al-Ohali Managing Director Executive -
and CEO
3 Eng. Reyadh S. Ahmed Member Non-executive
Representative of Ikarus
Petrochemical Holding Company
4 Mr. Abdulaziz A. Al-Khamis Member Non-executive
Representative of Public Pension
Agency
5 Dr. Sami M. Zaidan Member Non-executive
Representative of Olayan Financing
Company
6 Dr. Abdulaziz A. Al-Gwaiz Member Non-executive
7 Mr. Fahd S. Al-Rajhi Member Non-executive
8 Mr. Ibrahim H. Al-Mazyad Member Independent Membership begins
Representative of The Arab on 10/12/2013
Investment Company
9 Dr. Saleh H. Al-Humaidan Member Independent Membership ends
Representative of The Arab on 09/12/2013
Investment Company
10 Dr. Abdulrahman A. Al-Zamil Member Independent -
11 Mr. Abdulrahman A. Al-Turki Member Independent -
12 Eng. Mohammed A. Al-Ghurair Member Independent -

37
Annual Report 2013 38
 BOARD OF DIRECTORS (CONTD.)

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

The table below shows board members who participate in other joint stock companies:

No. Name Membership in other joint stock companies

1 H.E. Eng. Abdulaziz A. Al-Zamil Sahara Petrochemicals Co. (Public Joint Stock-KSA)
Alinma Bank (Joint Stock-KSA)
Al Zamil Group Holding Co. (Closed Joint Stock-KSA)
2 Eng. Ahmad A. Al-Ohali Al Bilad Bank (Public Joint Stock-KSA)
3 Dr. Abdulaziz A. Al-Gwaiz Al Khaleeg Training & Education Co. (Public Joint Stock-KSA)
4 Mr. Abdulrahman A. Al-Turki Al-Saqr Cooperative Insurance Co. (Public Joint Stock-KSA)
Investcorp Co. (Public Joint Stock-Bahrain)
Golden Pyramids Plaza Co. (Public Joint Stock-Egypt)
Zara Investment Holding Co. for hotels (Public Joint Stock-Jordan.
Dhahran International Exhibitions Co. (Closed Joint Stock-KSA)
5 Dr. Abdulrahman A. Al-Zamil Sahara Petrochemicals Co. (Public Joint Stock-KSA)
Taqa National Company (Closed Joint Stock-KSA)
6 Mr. Abdulaziz A. Al-Khamis Saudi Investment Bank (Public Joint Stock-KSA)
National Petrochemical Co. (Closed Joint Stock-KSA)
7 Eng. Reyadh S. Ahmed Privatization Holding Co. (Closed Joint Stock-Kuwait)
Noor Financial Investment Co. (Closed Joint Stock-Kuwait)
Ikarus Petroleum Industries Co. (Closed Joint Stock-Kuwait)
Middle East Complex for Industrial, Engineering, Electronic and
Heavy Industries (Closed Joint Stock-Jordan)
8 Eng. Mohammed A. Al-Ghurair National Cement Co. (Public Joint Stock-UAE)
Al-Ghurair Group (Closed Joint Stock-UAE)
Dubai Aluminium (DUBAL) (Closed Joint Stock-UAE)
9 Mr. Ibrahim H. Al-Mazyad Arab Jordan Investment Bank (Public Joint Stock-Jordan)
10 Mr. Fahd S. Al-Rajhi National Industries Co. (Closed Joint Stock-KSA)
Al Rajhi Brothers Group Co.(Closed Joint Stock-KSA)
11 Dr. Sami M. Zaidan N/A
12 Dr. Saleh H. Al-Humaidan N/A

39
3- Board meeting attendance registers:
The Sipchem Board held four meetings during the 2013 which ends on 09/12/2013 and one meeting was held by
the current board of directors which begins on 10/12/2013. It is worth noting that the members who did not attend
any board meetings authorized other board members to represent them. The below schedule shows the attendance
register for every board member:

Board meetings in 2013

First Second Third Fourth Fifth Total
No. Name 16/3/2013 04/6/2013 24/9/2013 03/12/2013 11/12/2013 attendance
1 H.E. Eng. Abdulaziz A. Al-Zamil ✓ ✓ ✓ ✓ ✓ 5
2 Eng. Ahmad A. Al-Ohali ✓ ✓ ✓ ✓ ✓ 5

3 Dr. Abdulaziz A. Al-Gwaiz ✓ ✓ ✓ ✓ ✓ 5

4 Eng. Mohammed A. Al-Ghurair ✓ ✓ ✓ ✓ ✓ 5

5 Dr. Abdulrahman A. Al-Zamil ✓ ✓ ✓ ✓ ✓ 5
6 Mr. Fahd S. Al-Rajhi ✓ ✓ ✓ ✓ ✓ 5
7 Dr. Sami M. Zaidan ✓ ✓ ✓ ✓ ✓ 5
8 Mr. Abdulaziz A. Al-Khamis ✓ ✓ ✓ ✓ ✓ 5
9 Mr. Abdulrahman A. Al-Turki ✓ X ✓ ✓ ✓ 4

10 Dr. Saleh H. Al-Humaidan ✓ ✓ ✓ ✓ 4

11 Eng. Reyadh S. Ahmed ✓ X X ✓ ✓ 3

12 Mr. Ibrahim H. Al-Mazyad ✓ 1

- Membership of Dr. Saleh H. Al-Humaidan (Representative of The Arab Investment Company) ended by the end of
board session on 09/12/2013.
- Membership of Mr. Ibrahim H. Al-Mazyad (Representative of the Arab Investment Company) began with the board
session on 10/12/2013.

Annual Report 2013 40

 BOARD OF DIRECTORS (CONTD.)

4- Description of any benefits for Board members, their wives and children below eighteen
years in shares or debt instrument in Sipchem:

Shares on Shares on First class

1 January 2013 31 December 2013 relative
ownership
Net Change and
Name No. % No. % Change % changes
H.E. Eng. Abdulaziz A. Al-Zamil 150,000 0.041% 186,600 0.051% 36,600 24% N/A
Eng. Mohammed A. Al-Ghurair 1,000,000 0.273% 700,000 0.191% - 300,000 - 30% N/A

Dr. Abdulrahman A. Al-Zamil 1,101,000 0.300% 1,001,000 0.273% - 100.000 - 9.1% N/A
Eng. Ahmad A. Al-Ohali 289,000 0.079% 289,525 0.079% 525 0.2% N/A
Dr. Abdulaziz A. Al-Gwaiz 30,000 0.008% 30,000 0.008% 0 0% N/A
Dr. Saleh H. Al-Humaidan 50,000 0.014% 50,000 0.014% 0 0% N/A
Mr. Abdulrahman A. Al-Turki 8,305,000 2.265% 8,305,000 2.265% 0 0% N/A
Mr. Fahd S. Al-Rajhi 6,111,342 1.667% 6,111,342 1.667% 0 0% N/A
Mr. Ibrahim H. Al-Mazyad 48 0% 48 0% 0 0% N/A
Eng. Reyadh S. Ahmed 0 0% 0 0% 0 0% N/A
Mr. Abdulaziz A. Al-Khamis 0 0% 0 0% 0 0% N/A
Dr. Sami M. Zaidan 0 0% 0 0% 0 0% N/A

5- Description of any benefits to senior executive management and children below 18 years
in shares or debt instruments in Sipchem:
Shares on Shares on
1 January 2013 31 December 2013 First class
relative
Net Change ownership
Name No. % No. % Change % and changes
Eng. Abdulrahman A. Al-Saif 11,000 0.003% 11,000 0.003% 0 0% N/A
Eng. Abdullah S. Al-Saadoon 11,000 0.003% 0 0% - 11,000 - 100% N/A

Mr. Hussain S. Al Saif 7,949 0.0021% 0 0% - 7,949 - 100% N/A

Mr. Rashid M. Al Dossari 50 0% 50 0% 0 0% N/A
Mr. Kevin J. Hayes 0 0% 0 0% 0 0% N/A
Mr. Abdullah N. Al-Jaber 28,152 0.0076% 28,152 0.0076% 0 0% N/A

41
6- Description of any benefit related to shares ownership percentage of major shareholders:
Below is a list of major shareholders (who own 5% and above) and number of their shares during the year
2013 as follows:
Shares on Shares on
1 January 2013 31 December 2013
Net Change
Name No. % No. % Change %
Al-Zamil Holding Group 35,549,375 9.70% 35,549,375 9.70 % 0 0%
Company
Ikarus Petrochemical Holding 30,520,910 8.32% 30,295,377 8.26 % - 225,533 - 0.74%
Company
Public Pension Agency 28,405,514 7.75% 28,405,514 7.75 % 0 0%
Olayan Financing Ltd Company 19,250,000 5.25% 19,250,000 5.25 % 0 0%

7- Description of any benefit related to shares ownership percentage of shareholders who

notified the company of these rights:
No shareholders notified the company of any benefit related to shares rights to vote except (board
members, senior executives, their wives and children under eighteen) during 2013.

8- Rewards and compensations for the board members and senior executives:
The below table shows the rewards and compensations paid to the board members and senior executives
who have received the highest rewards and compensations from the company including the CEO and the
General Manager of Finance during the year 2013:
(Saudi Riyal)
Five of the senior
Non-executive executives including the
Executive board board members/ CEO and the General
Details members independent Manager
Salaries and compensations - - 8,388,356
Allowances 19,000 196,749 -
Periodic and annual rewards 200,000 2,000,000 2,019,993
Incentive plans - - -
Any other compensations and - - -
any other benefits paid monthly
or annually

Annual Report 2013 42

 BOARD committees

1- The Audit Committee

The Audit Committee is composed of three members. One of the members is a board member while
the other two members who are experienced and specialized in the financial affairs are nominated from
outside the Board of Directors.

The Audit Committee supervises the management of the Internal Audit Department and recommends
to the Board of the Directors the assignment of the chartered accountants and determines their
responsibilities, proposes their annual fees and follows up the audit plan. The committee also regularly
reviews the financial systems and the risks in the company, compliance with legal requirements, statutory,
accounting rules on the basis of the regulations of the Capital Market Authority (CMA) and its executive
regulations. The responsibilities of the committee include the review of the preliminary and annual financial
statements of the company before submission to the Board of Directors and study of the accounting
policies and making recommendations thereof to the board. The committee has held three meetings
during the year 2013. The Audit Committee of the board’s new session which began on 10/12/2013 was
constituted as per the following table:

Audit Committee members:

Name Identity
Mr. Fahd S. Al-Rajhi Committee chairman - Board member -
Mr. Adib A. Al-Zamil Committee member - Al Zamil Group -
Holding Company
Mr. Fahd A. Sawai Committee member - Public Pension Membership begins
Agency on 10/12/2013
Mr. Saud S. Al-Juhani Committee member - Public Pension Membership ends
Agency on 09/12/2013

Date of meetings:

No. Meeting Date of Meeting

1 First 12/02/2013
2 Second 09/10/2013

43
2- The Nominations and Remunerations Committee
The committee is composed of five board members of the company. The committee recommends
the nomination for board membership according to the approved standards and the annual review of
the capabilities required for board membership and the review of its organization chart and submits
recommendations regarding the changes to be effected. The committee also deals with the determination
of the strengths and weaknesses of the board and how to deal with that in a way that serves the interests
of the company. The committee also lays the company policies for the compensations and remunerations
of the board members and the senior executives. The committee held two meetings during the year 2013.
The table below shows the names of the Nominations and Remunerations Committee members started
on 10/12/2013:

The Nominations and Remunerations Committee Members:

Name Identity
H.E. Eng. Abdulaziz A. Al-Zamil Committee chairman -
Dr. Sami M. Zaidan Committee member -
Mr. Fahd S. Al-Rajhi Committee member -
Eng. Mohammed A. Al-Ghurair Committee member Membership begins
on 10/12/2013
Mr. Ibrahim H. Al-Mazyad Committee member Membership begins
on 10/12/2013
Dr. Abdulaziz A. Al-Gwaiz Committee member Membership ends
on 09/12/2013
Dr. Saleh H. Al-Humaidan Committee member Membership ends
on 09/12/2013

Date of meetings:

No. Meeting Date of Meeting

1 First 07/11/2013
2 Second 19/12/2013

Annual Report 2013 44

 BOARD OF COMMITTEES (CONTD.)

3- The Executive Committee:

The executive committee is composed of six members; all of them are board members. The committee
submits recommendations to the board of directors on various subjects such as the management
and direction of the activities and business affairs of the company, recommendations regarding the
new projects and the company investments. Also, the committee is in charge of adopting the strategic
resolutions related to the operational priorities of the company. The committee held three meetings during
the year 2013. The Executive Committee of the board new session which began on 10/12/2013 was
constituted as per the following table:

The Executive Committee Members:

Name Identity
H.E. Eng. Abdulaziz A. Al-Zamil Committee chairman -
Eng. Ahmad A. Al-Ohali Committee member -
Eng. Reyadh S. Ahmed Committee member -
Dr. Abdulaziz A. Al-Gwaiz Committee member -
Dr. Sami M. Zaidan Committee member Membership begins
on 10/12/2013
Mr. Abdulaziz A. Al-Khamis Committee member Membership begins
on 10/12/2013
Eng. Mohammed A. Al-Ghurair Committee member Membership ends
on 09/12/2013
Mr. Fahd S. Al-Rajhi Committee member Membership ends
on 09/12/2013

Date of meetings:

No. Meeting Date of Meeting

1 First 17/04/2013
2 Second 28/05/2013
3 Third 10/06/2013

45
BOARD OF DIRECTORS’ DECLARATIONS

The Board of Directors confirms the following:

1. That the accounts register has been prepared in the correct format.
2. That the internal control system has been prepared on sound basis and is
being implemented effectively.
3. That there are no doubts about the company’s ability to go ahead with
the performance of its activities.
4. That the consolidated financial statements have been prepared according
to the standards and the accounting systems issued by the Saudi
Committee for Saudi Chartered Accountants and according to the related
requirements of the Companies regulations and statute of the company
with regard to the preparation and publication of financial details.
5. That the company has not issued any bonds and debt instruments except
what is mentioned in the “Debt Instrument issued by the Company” and
consequently has not recovered or purchased or canceled any recoverable
debt instruments.
6. That the company does not have any transfer rights or any subscriptions
based on debt transferable instruments to shares or selection rights or
subscription rights memoranda or similar rights issued or given by the
company during the year 2013.
7. That there is no contract to which the company is a party and that there
is or has been any substantial benefit in it to any board member or the
Chief Executive Officer or the General Manager of Finance or to any
person related to any one of them.
8. That there are no arrangements or agreements through which any of the
board members or any of the senior executive waives any salary or any
compensation.
9. That there are no arrangements or agreements through which any of the
company’s shareholders waives any profit rights.

Annual Report 2013 46

 PENALTIES
There are no penalties or disciplinary actions imposed on the company by the Capital Market Authority
(CMA) or any other supervisory, regulatory or jurisdictional entity. Sipchem has entered into dispute with the
construction contractor of Sipchem Technology & Creative Exchange (STCE) building at Al Dhahran after
abrogation of construction contract. This dispute has been referred to Saudi judgment; also despite progress
of litigation Sipchem and the contractor are reviewing and negotiating to settle this dispute but in vain.
Recently, the arbitration body assigned an engineering company to inspect the site and estimate the amount
of operations achieved by the Contractor. Sipchem expects that it will not be obliged to fulfill any payment
with the except for the payments due for the operations accomplished by the Contractor.

SHAREHOLDERS’ general assembly

Sipchem held its extraordinary general assembly meeting during the year 2013. The company advertised the
date of the meeting including its place and agenda more than 25 days before the meeting on the Capital Market
Authority (Tadawul) website, on the company website and in the official newspaper and the local newspapers.
The company also gave the shareholders the chance to effectively participate and vote on the issues included
in the agenda and informed them of the regulations that govern the meeting, the voting procedures through
calling the General Assembly, the distribution of well-prepared files containing enough information that enabled
the shareholders to make any decisions. The company also notified Tadawul about the results of the meeting
immediately after its conclusion. The shareholders were also able to view the minutes of the meetings at the
company offices or through the company website. Sipchem continues to develop communication channels with
shareholders and facilitates all procedures to help shareholders who are unable to attend the General Assembly
meeting, to vote remotely for assembly agenda via Tadawulati. Below are the adopted resolutions:
Assembly
No. meeting date Attendance % Resolution adopted
1- Approval of the Board`s report for the year 2012.
2- Approval of auditor’s report for financial year ended
31/12/2012.
3- Approval of the financial statement and profit/losses
statements on 31/12/2012.
4- Discharge of the board members from liability for the
previous year 2012.
16/03/2013 5- Approval of board of directors’ recommendation to
Extraordinary distribute cash dividends for shareholders for the year
1 63%
General 2012 at total amount of SR (275,000,000) at SR (0.75)
Assembly per each share representing (7.5%) of company`s capital
provided that the eligible shareholders are listed at end
of assembly meeting.
6- Approval to appoint Ernst & Young (E&Y) as nominated
by the audit committee as an auditor for the company`s
accounts for the fiscal year 2013.
7- Approval to amend Article (20) and Article (41) of the
Articles of Association.
03/12/2013 1- Election of Sipchem Board of Director Members for the
Ordinary next session (3 years) as of 07/02/1435 corresponding to
2 62%
General 10/12/2013.
Assembly

47
DIVIDENDS DISTRIBUTION POLICY

The net annual profits of the company are distributed according to

article (41) of the company by-laws after the deduction of all the
general expenses and other costs as follows:
1- Set aside (10%) of the net profits as a legal reserve. The normal General
Assembly may stop setting aside of such amount once these reserves
reach 50% of the capital.
2- The General Assembly may, based on a proposal by the Board of
Directors, set aside a certain percentage of the net profits, to establish an
agreed reserve and allocate it for a special purpose or purposes.
3- From the remaining amount and after a first payment to the shareholder
equivalent to 5% of the paid-up capital.
4- After the above, an amount not exceeding (10%) of the remaining
amount shall be assigned as a compensation to the Board members with
taking into consideration the regulation and instructions issued by Ministry
of Commerce in this regard. The remaining amount after that shall be
distributed to the shareholders as an additional portion of the profit.
5- The company may carry out the distribution of profits to its shareholders
on a regular quarterly if the financial abilities permit, provided that the
company is committed to follow conditions, regulations and circulars
issued by the Ministry of Commerce and Industry.
Cash dividends were distributed to shareholders for second half of 2012
at the rate of SR 0.75 per each share which represents 7.5% of nominal
value per each share at total of SR 275,000,000, noting that SR 0.5 had been
distributed per each share in first half of 2012. Therefore the total amount
of distribution for 2012 is SR (1.25) per share.
Cash dividends were distributed to shareholders for the first half of 2013
at rate of SR 0.6 per each share which represents 6% of nominal value per
each share at total of SR 220,000,000 per share. Also the Board of Directors
has submitted recommendation to General Assembly to distribute cash
dividends to shareholders for second half of 2013 at the rate of SR 0.65 per
each share which represents 6.5% of nominal value per each share at total
of SR 238,333,333 provided that eligibility of these dividends will be for the
listed shareholders at Tadawul, at end of meeting of General Assembly to
be held on 16/03/2014 noting that SR 1.25 had been distributed per each
share in first half of 2013.

Annual Report 2013 48

 COMMUNICATION with shareholders

Based on our core values which emphasize commitment to the highest ethical standards, ensures full
impartiality and trust-based work and responsibility. As justice is an essential axis in building communities, and
a strong motivation for building, advancement and progress, Sipchem has committed itself to the principle of
fairness in the financial market through the availability of company information to all market parties, individuals
and companies without discrimination. Also all are subject to the rules and regulations without distinction. To
this end, Sipchem Governance Regulation supports the content of the principle of disclosure and transparency
in accordance with the concept of corporate governance and financial market authority regulations and in
accordance with the companies law and the Statute of the company.

Sipchem is fully committed to achieve the principle of ‘justice’ in regards to providing the appropriate
information to enable shareholders and investors to take their investment decisions depending on adequate
and correct information. Sipchem has taken many measures to guarantee the shareholders’ rights to obtain
information through the CMA ‘Tadawul’ website and the company website www.sipchem.com
Sipchem also provides comprehensive information about company activities and business through the Annual
Report, periodic financial statements and dividends distribution procedures.

The company is also keen to communicate with its shareholders, answer all their queries and provide them
the requested information in a timely manner. Sipchem has also provided remote-vote technology to give the
opportunity to shareholders who were unable to attend the meeting of the General Assembly to vote on
assembly agenda sections.

49
CORPORATE governance

Corporate governance protects shareholder rights and

mitigates the risk of bankruptcy. Sipchem has applied all
the mandatory regulations as included in the Corporate
Governance list issued by the Capital Market Authority
(CMA), particularly the commitment to best practices
that protect the shareholders’ rights and reinforce the
company’s commitment to declaration and transparent
standards including the establishment of a company
database through its electronic site that enables its
eligible shareholders, who have not received their
dividends for the previous year.
Sipchem has prepared its governance code according to the requirements of Article (10) paragraph (C)
of the corporate governance regulation issued by the Capital Market Authority and in compliance with the
listing and inclusion regulations and the company by-laws.
Sipchem has adopted the conflicts of interest policy according to the requirements of Article (10)
paragraph (B) of the corporate governance regulation issued by the Capital Market Authority and
in compliance with provisions of the Capital Market Authority Regulations. Sipchem has applied all
articles of corporate governance with the exception of the article below:

Article Paragraph Action Reasons and details

(6) B Do the by-laws of the company indicate The by-laws of the company do not
Voting Rights that the voting method in the item for include the cumulative voting. The
the selection of the board member in company is currently applying the
the General Assembly shall be by the normal voting system according to
cumulative voting? the company’s regulations.
D Were all persons with legal entity that N/A
have the right to appoint representatives
in the board of directors as per the
company’s by-laws, committed not to
vote in the selection of other members in
the Board of Directors?
(12) I Do all persons with legal capacity – who N/A
Composition have the right to assign representatives
of the Board of according the by-law of the company on
Directors the Board not to vote on the selection of
other members of the Board of Directors?

- To know the details of dividends:, go to http://www.sipchem.com/ar/shares.asp

- For more information about the current company governance code,
please visit http://www.sipchem.com/ar/Government.htm

Annual Report 2013 50

 DESCRIPTION OF ANY DEAL between
Sipchem and interested parties
Interested parties are the major shareholders of the group, the board of directors’ members, major officials
and controlling or controlled establishments thereby. Below are the most important deals with the interested
parties during the year:

The foreign partners (Arabic Japanese Methanol Company Ltd. and Helm Arabic and Partners Ltd.) have
marketed a portion of the Group’s products for the company. The total sale of foreign partners was SR 1,710
million (2012: SR 1,796 million).

International Diol Company, one of Sipchem’s Affiliates, has purchased some fixed assets from Devy Process,
one of its foreign partners. The total purchase of fixed assets was SR 20.7 million (2012: SR 12.2 million).

The company and the minority partners (Public Pension Agency, General Organization for Social Insurance,
Abdul Latif Al Babtain Co., Arabian Company for Supply & Trading, Arabian Helm and Partners Ltd, IKARUS
Petroleum Industries, the Ministry of Islamic Affairs, Endowments, Call and Guidance, the National Energy
Company and Hanwha Chemical Corporation) have granted advances to the group companies in order to
support their operations and comply with the lender terms. Some of the long-term advances don’t have
finance costs and no dates are determined for payment thereof, while other long and short term advances
have finance costs as per the ordinary commercial prices.

51
Human resources

Sipchem aims to develop the rights of shareholders through the recruitment of human resources. It is also
working on the development of the level of staff in both theoretical and applied areas. Since the beginning
the company, the training and development programs were intensified as per specialties and administrative
steps to ensure the progress of work with highest competence standards based on newly updated training
and development administration systems.
The table below shows the number and percentage of employees in Sipchem and its affiliates as
of the end of 2013 compared to 2012:
Employees 2012 2013

No. % No. %
Saudi 612 72% 627 71%
Non-Saudi 242 28% 255 29%
Total 854 882

Annual Report 2013 52

 HUMAN RESOURCES (CONTD.)

Sipchem implemented a distinguished and intensified

program for leadership development. This program
focused on the modern theories in administration
and leadership, and tended to implement these
theories in a manner that benefit the company
employees and enhance the work flow.

Decline of Saudization percentage about 71% in 2013 is due to recruitment of non-Saudi specialized personnel
to operate new plants with advanced techniques applied for first time in the Kingdom of Saudi Arabia.
In 2013 Sipchem implemented 379 training programs in collaboration with internal and external entities
with the aim of increasing employees’ efficiency and capabilities. 2005 employees have benefited from these
programs.

Sipchem has applied via-internet training system that includes more than 350 training programs in various
technical and administrative fields, business, security and safety skills, in addition to computer courses. The
content of such training materials is prepared by Harvard Business School.

Believing in the importance of management and leadership in its affiliates, Sipchem has implemented a
distinguished and intensified program for leadership development. This program focused on the modern
theories in administration and leadership, and tended to implement these theories in a manner that benefit
the company employees and enhances the work flow. The total number of employees in this program was 45
employees from various sectors and administrative levels. The training plan for 2014 has been prepared with
350 training programs in various technical and administrative fields. Sipchem held its annual ceremony to
honor its employees who completed five or ten years in continuous service in January 2014 wherein more
than 102 employees were honored.

53
EMPLOYEES’ incentive programs
1- Sipchem Home Ownership Program (SHOP):
The company is currently implementing a Home Ownership Program for company employees. The
program is aimed at giving a chance to the company’s Saudi employees, who meet the program conditions,
to own housing units thereby supporting our policy of assuring comfort and stability for our employees
and motivating them to continue their services with the company. The company is currently proceeding
with the program as per the set schedule.

The residential units are built using prefabricated units produced by Al Rashid for Housing Units Co. with
high standards and costs that do not exceed the amounts provided for the project. The contractor has
completed its work and handed Sipchem over 42 Villas-(a) for finishing works. Sipchem has completed
receiving commercial and technical bids for finishing works. In January 2014, Al Rashid Co. began to
produce the prefabricated concrete elements for Villa-(b).

2- Sipchem Employee Incentive Program:

Sipchem implemented an Employee Incentive Program aimed at encouraging the company’s and affiliates’
employees to maintain and improve their work performance and put up their utmost efforts to serve the
company’s interests and achieve its established objectives. The program serves as an attraction for highly
qualified personnel in the field of petrochemicals to join the company.

The program is currently managed by Al Bilad Securities and Investment Co., through a special portfolio
opened for the program in 2010. A total of 102,526 shares have been transferred from the program
portfolio to the eligible employees who completed the subscription period during the year 2013. Total
number of the program shares reached 1,265,425 as of December 31, 2013.

3- Savings Program:
Sipchem initiated an Islamic Shariah-compliant savings program to motivate its employees and enhance
their loyalty to the company hence improving the work performance, and serve as an attraction for
well-qualified Saudi employees to motivate them to continue their services. The program is aimed at
helping Saudi employees to accumulate their savings to be utilized upon retirement or end of services. The
company takes a part of the subscribed employee’s salary and may invest these savings according to its
desire and it has the right to manage this investment in the way which it believes to be beneficial for the
program subscriber in accordance with the best available Islamic Shariah-compliant investment portfolio.
Also, the company has the right to invest the subscriber’s savings in investment activities in cooperation
with specialized companies and banks in accordance with the criteria of Islamic investment in a manner
that can attain benefits for the subscribers provided that such investments are in low-risk Islamic portfolios.

The savings program was initiated in 2011. Sipchem had made it compliant with Islamic Shariah so that it
attracted the biggest numbers of employees. Al-Jazeera Bank is in charge of managing the savings program
which was reviewed and approved by the bank’s Shariah Committee.

EMPLOYEES’ benefits allocations

The following table shows the allocations and compensation of Sipchem’s employees for the
year 2013 compared to 2012:

Details 2012 2013

End of Services Benefits (ESB) 82.5 99.8
Savings Program 1.4 3.2

Annual Report 2013 54

 CORPORATE social responsibility (CSR)

Social responsibility has always been

a concern for Sipchem in fulfilment of
its obligations towards the community. SR 6 million
SPENT ON CSR
As a company, Sipchem believes in
ACTIVITIES
the importance of investing in its
community and considers social
programs as part of its national duty.
Serving and meeting the needs of society is regarded as one of the most important priorities at Sipchem and
the company endeavors to have a distinctive presence in strategic areas that would enrich human/social values
and benefit the citizen in the medium and long term.

Spurred by its interest to invest in the community and based on its social responsibility objectives of enhancing
community development, Sipchem continues to play its due role in this area by way of supporting associations
and charities, whether through annual fixed material support or active participation in their activities.

Sipchem takes great pride in serving its community and has even established a dedicated team of volunteers
to continue spreading their good work. It regularly invests in training and development of human potential
so as to further the overall development of the community through coordination with the beneficiaries
in accordance with specific and approved mechanisms. In providing volunteer services at both local and
national levels, working to promote and develop the spirit of sacrifice, and in directing the powers of youth to
community service, the vision and objectives of the company are realized.

Since its foundation, Sipchem has successfully participated in several social activities throughout the Kingdom
particularly in the Eastern region. In recognition of its efforts and contributions, the company received a
number of awards and shields from several bodies; SR 6 million were cashed in 2013. The Board of Directors
of Sipchem was allocated 1% of net annual profits of affiliates for charity and community service.

Mr. Ahmad Ohali honors a student - May 19, 2013

55
Sipchem sponsors KFUPM’s 50th anniversary celebrations - October 2, 2013

Sipchem CEO Mr Al-Ohali recognizes Football team for 2nd position win at the Royal Commission Football
Championship - May 25, 2013

Annual Report 2013 56

 CORPORATE SOCIAL RESPONSIBILITY (CONTD.)

Sipchem organizes the 6th Honorary Reception for outstanding orphan students - May 19, 2013

Sipchem Volunteers team distributes school bags to orphans & needy students - September 2, 2013

Sipchem open day - March 28, 2013

57
Go-Green campaign by Sipchem Volunteers team - June 11, 2013

Sipchem Volunteers team makes friendly visits to patients in Almana Hospital - April 30, 2013

Annual Report 2013 58

 CORPORATE SOCIAL RESPONSIBILITY (CONTD.)

Sipchem Volunteers team distributes Ramadan food Sipchem Volunteers team visits patients at the
baskets to needy families - July 7, 2013 Handicapped Care Centre - December 5, 2013

Sipchem sponsors the ‘Eastern Province Summer Festival-34’ - June 15, 2013

Sipchem raises awareness of drug a buse by sponsoring Al Amal 6th Forum for Youth as exclusive sponsor
- February 18-24, 2013

59
Sipchem conducts a week long anti-smoking awareness campaign for the benefit of employees - January 12, 2013

Sipchem organizes the Umrah trip for its sponsored orphans during Ramadan - July 25, 2013

Sipchem Volunteers team distributes gifts and chocolates Sipchem Volunteers team organizes entertainment
to patients at hospitals in Dammam and Qatif and gifts for patients at the Elderly Care Center in
- November 2, 2013 Dammam - December 8, 2013

Annual Report 2013 60

 CORPORATE SOCIAL RESPONSIBILITY (CONTD.)

Closing ceremony of Sipchem Ramadan Football Championship gets underway in Jubail Club - July 26, 2013

Sipchem Volunteers team makes friendly visits to patients at the King Fahad Medical University Hospital, Khobar
- June 19, 2013

Sipchem Volunteers team undertake the task of re-painting walls with graffiti - May 29, 2013

61
Sipchem sponsors Forum for people with special needs - June 4, 2013

Sipchem sponsors the ‘Toxins around us’ campaign - January 24-25, 2013

Sipchem organizes Safety Awareness Lecture in Al-Ahsa High School, Jubail Industrial City - December 1, 2013

Annual Report 2013 62

 CORPORATE SOCIAL RESPONSIBILITY (CONTD.)

Sipchem organises an open day for Saudi Cancer Foundation’s patients and their families - February 7, 2013

Sipchem Volunteers team distributes water, juice and caps to workers as part of the ‘Beat the Heat’ campaign
- June 27, 2013

Sipchem organizes a winter clothing distribution campaign Sipchem supports World Environment Day Forum
for the needy families of Onizah - December 7, 2013 and Exhibition as Gold sponsor - June 5, 2013

63
Sipchem spends half a million SR in donations towards winter clothing campaign to cover 2034 individuals
- January 2-3, 2013

Sipchem sponsors ‘We Care’ forum held at Scitech, Al-Khobar benefiting families - March 5-7, 2013

Annual Report 2013 64

 Responsible care

Sipchem adheres to the regulations, laws and requirements of professional health and safety and follows best
practices relating to the company’s activities. It is worth to note that Sipchem was the First Petrochemical
Industrial Company in the KSA to receive the Responsible Care Certificate (RC14001).
Sipchem produces and markets several petrochemical and chemical products, and in the
framework of its efforts to achieve continuous development that meets the customers’ and
shareholder’s prospects, in addition to providing safety and comfort to its staff, Sipchem and its
affiliates are committed to the following:

1- Achieving excellence in Responsible Care Performance through implementation of the Responsible Care
2- Guiding Principles and promoting transparency with stakeholders
3- Producing the highest quality products in an efficient and environmentally safe manner
4- Measuring progress to ensure this policy
5- Continually implementing improvement measures in our Responsible Care and Quality Management
Systems
6- Complying with applicable Governance requirements

The company promotes and enhances professional health and security related risk awareness, and strives
to decrease such risks to a practically acceptable extent through the application of relevant technologies. It
regularly holds lectures and runs campaigns throughout the year directed at all employees about safety and
preservation of the environment with an aim to raise awareness about the same and to make Sipchem a
safe working environment. The outcome was accomplishment of 12 million work hours without any work
based complex injury. The under construction projects of the company also accomplished 9,990 million work
hours without any work based complex injury, Praise be to Allah. The staff training courses in the areas of
security, safety and environment have reached a thousand hours; these prepare, qualify and develop the staff
to operate and maintain the company plants in safe and secure manner.

Since it was founded, Sipchem has produced petrochemical materials in the most sustainable manner with
an aim to decreasing greenhouse gas emissions, rationalizing the use of water and energy, and reducing waste
materials. Sipchem’s Management adopts the change method which positively impacts and is reflected in the
company’s work and overall environment. It seeks to promote and enhance the priorities of sustainability for
the staff in order to achieve an effective participation towards a sustainable future. Besides this, Sipchem also
posts the safety data bulletins on its website under the subject of ‘environment without wastes’ in order to
educate all people about the nature of its products and activities.

65
BOARD OF DIRECTORS RECOMMENDATIONS
Sipchem’s Board of Directors submitted recommendations to the
Extraordinary General Assembly held on March 16, 2014 for the
following:
1- Approval of the Board’s report for the year 2013.
2- Approval of the financial statement and profit/losses statements on
31/12/2013.
3- Approval of auditor’s report for financial year ended 31/12/2013.
4- Discharge of the board members from liability for the previous year 2013.
5- Approval of Board of Directors’ recommendation to distribute cash dividends
for shareholders for the second half of 2013 at a rate of SR 0.65 per each
share representing 6.5% of nominal value of SR 238,333,333 per each share
provided that eligibility of these dividends will be for the listed shareholders at
Tadawul, at end of meeting of General Assembly noting that SR 0.6 per share
was cashed for the first half of the year 2013.
6- Approval to pay the amount of SR (2,200,000) two million and two hundred
thousand riyals as remuneration of Sipchem Board of Directors members
each Board members SR (200,000) Two hundred thousand riyals for the
financial year 2013.
7- Approval of the appointment of the external auditor as nominated by the
Audit Committee for the fiscal year 2014 to audit the company’s accounts,
the quarterly financial statement and determine their fees.

conclusion
This report is a real reflection of the continued hard work and constant unremitting efforts, which on
many occasions continued day and night, put in by the Saudi work force in the company. Each employee
of the company has performed to the best of their capacities led by the ideas, initiatives, and vision
provided by Sipchem, resulting in positive outcome for all.

At the end of 2013, the board members would like to express their thanks and appreciations to the
Custodian of the Two Holy Mosques and HRH Crown Prince for their sponsorship and support of the
company’s activities. Also, the board values all the sincere efforts put in by the governmental institutions,
and for their continued support. Thanks and appreciations are due to Sipchem’s shareholders and
employees for their sincere efforts that help the company achieve its objectives, retain its acquisitions
and interests and promote its position and competitiveness on the global platform. Sipchem’s board
members plead to Allah the Al-Mighty to bless such sincere efforts and hope that the company can
continue exceeding its performance and enhancing its capabilities so that it can play a prominent role in
supporting the economic and social development structure in Saudi Arabia.

Annual Report 2013 66

67
CONSOLIDATED
FINANCIAL STATEMENTS
and auditors’ report

EXCELLENCE in nature
Huernia Saudi-Arabica is a succulent plant of great ecological significance
particularly in arid and semi-arid parts of Saudi Arabia or the Arabian Peninsula in
general. These plants reflect excellence in the way they store water in their stems,
leaves or roots, a characteristic feature adopted by several plants to withstand high
temperature and low precipitation.

Annual Report 2013 68

 CONSOLIDATED FINANCIAL STATEMENTS
AND AUDITORS’ REPORT
for the year ended 31 december 2013

Auditors’ report 70
Consolidated balance sheet 71
Consolidated statement of income 72
Consolidated statement of cash flows 73
Consolidated statement of shareholders’ equity 75
Notes to the consolidated financial statements 76 - 91

6969
 P.O. Box 3795
4th Floor, Fluor Building
Al Khobar 31952
Saudi Arabia
Tel: +966 3 849 9500
Fax: +966 3 882 7224
www.ey.com/me
Registration No. 45

AUDITORS' REPORT TO THE SHAREHOLDERS OF

saudi international petrochemical company
(SAUDI JOINT STOCK COMPANY)

Scope of audit:
We have audited the accompanying consolidated balance sheet of Saudi International Petrochemical Company
(the “Company”) (Saudi joint stock company) and its subsidiaries (collectively referred to as the “Group”) as at
31 December 2013 and the related consolidated statements of income, cash flows and changes in shareholders’
equity for the year then ended. These consolidated financial statements are the responsibility of the Company and
have been prepared by them in accordance with the provisions of Article 123 of the Regulations for Companies
and submitted to us together with all the information and explanations which we required. Our responsibility is
to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the Kingdom of Saudi Arabia. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable degree of assurance to enable us to express an opinion
on the consolidated financial statements.

Unqualified opinion:
In our opinion, the consolidated financial statements taken as a whole:

i) present fairly, in all material respects, the consolidated financial position of the Group as at 31 December
2013 and the consolidated results of its operations and its consolidated cash flows for the year then ended in
accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia.

ii) comply with the requirements of the Regulations for Companies and the Company's by-laws in so far as they
affect the preparation and presentation of the consolidated financial statements.

for Ernst & Young

Abdulaziz Saud Alshubaibi

Certified Public Accountant
Registration No. 339

11 Rabi’ II 1435H
11 February 2014
Alkhobar

Abdulaziz A. Alsowailim 277 Abdulaziz Alshubaibi 339 Fahad M. Al-Toaimi 354 Ahmed I. Reda 356
Office in the Kingdom: Alkhobar, Jeddah, Riyadh

Annual Report 2013 70

 CONSOLIDATED balance sheet
Year Ended 31 December 2013
2013 2012
Note SR SR
ASSETS
Current assets
Cash and cash equivalents 3 2,857,603,807 3,053,454,336
Accounts receivable, prepayments and other receivables 4 1,314,330,713 857,219,312
Inventories 5 302,726,432 277,956,178
Total current assets 4,474,660,952 4,188,629,826
Non-current assets
Property, plant and equipment 6 11,547,456,930 10,648,927,193
Projects’ development costs 7 473,322,399 252,576,753
Goodwill 8 29,543,923 29,543,923
Intangible assets 9 163,765,313 69,249,396
Total non-current assets 12,214,088,565 11,000,297,265
TOTAL ASSETS 16,688,749,517 15,188,927,091

LIABILITIES, SHAREHOLDERS’ EQUITY AND MINORITY INTEREST

Current liabilities
Accounts payable, other payables and provisions 10 747,689,314 746,227,815
Bank overdrafts 12 48,744,532 -
Short term advances from partners 11 75,388,206 93,538,155
Current portion of long term loans 13 416,510,465 489,940,823
Current portion of obligation under capital lease 15 - 58,864,865
Total current liabilities 1,288,332,517 1,388,571,658

Non-current liabilities
Long term loans 13 5,354,903,733 3,976,859,248
Sukuk 14 1,800,000,000 1,800,000,000
Obligations under capital lease 15 255,000,000 251,513,515
Long term advances from partners 11 392,077,039 414,324,544
Employees’ terminal benefits 16 99,783,089 82,545,023
Fair value of interest rate swaps 17 71,754,197 130,553,193
Other non-current liabilities 5,860,886 9,235,860
Total non-current liabilities 7,979,378,944 6,665,031,383
Total liabilities 9,267,711,461 8,053,603,041

Shareholders’ equity and minority interest

Share capital 18 3,666,666,660 3,666,666,660
Statutory reserve 1,108,947,975 1,046,903,069
Reserve for the results of sale of shares in subsidiaries 19 48,893,677 48,893,677
Retained earnings 783,328,357 960,457,541
Proposed dividends 20 238,333,333 -
Net change in the fair value of interest rate swaps 17 (54,992,116) (99,492,806)
Foreign currency translation reserve 2,045,140 2,402,706
Total shareholders’ equity 5,793,223,026 5,625,830,847
Minority interests 21 1,627,815,030 1,509,493,203
Total shareholders’ equity and minority interest 7,421,038,056 7,135,324,050
TOTAL LIABILITIES, SHAREHOLDERS’ EQUITY AND
MINORITY INTEREST 16,688,749,517 15,188,927,091

The attached notes 1 to 31 form part of these consolidated financial statements.

71
CONSOLIDATED STATEMENT of income
Year Ended 31 December 2013
2013 2012
Note SR SR
Sales 22 4,005,632,539 3,921,878,521
Cost of sales (2,707,052,326) (2,654,333,208)
GROSS PROFIT 1,298,580,213 1,267,545,313
General and administrative expenses 23 (136,534,541) (131,668,476)

INCOME FROM MAIN OPERATIONS 1,162,045,672 1,135,876,837

Investment income 17,091,938 22,730,187

Financial charges (171,308,067) (183,381,198)
Other (expenses)/income (22,273,639) 11,958,088

INCOME BEFORE MINORITY INTEREST, ZAKAT AND

FOREIGN INCOME TAX 985,555,904 987,183,914
Minority interests (309,900,853) (314,496,588)
INCOME BEFORE ZAKAT AND FOREIGN INCOME TAX 675,655,051 672,687,326
Zakat and foreign income taxes 24 (55,205,996) (71,517,348)
NET INCOME 620,449,055 601,169,978

EARNINGS PER SHARE (SR)

Earnings per share (from net income) 1.69 1.64
Earnings per share (from main operations) 3.17 3.10
Weighted average number of outstanding shares 366,666,666 366,666,666

The attached notes 1 to 31 form part of these consolidated financial statements.

Annual Report 2013 72

 CONSOLIDATED STATEMENT of cash flows
Year Ended 31 December 2013
2013 2012
Note SR SR
CASH FLOWS FROM OPERATING ACTIVITIES
Income before zakat and foreign income taxes 675,655,051 672,687,326
Adjustments for:
Depreciation and amortization 558,071,107 514,391,992
Employees’ terminal benefits, net 17,238,066 16,617,735
Financial charges 171,308,067 183,381,198
Minority interest 309,900,853 314,496,588
Loss on disposal of property, plant and equipment 21,043,063 17,104
Write-off of property, plant and equipment 3,680,405 -
Investment income (17,091,938) (22,730,187)
1,739,804,674 1,678,861,756
Changes in operating assets and liabilities:
Receivables (453,968,488) (169,310,511)
Inventories (24,770,254) 3,124,784
Payables (18,529,554) 17,405,201
Cash from operations 1,242,536,378 1,530,081,230
Financial charges paid (257,762,488) (281,482,815)
Zakat and foreign income taxes paid (38,589,917) (54,225,402)
Net cash from operating activities 946,183,973 1,194,373,013

CASH FLOWS FROM INVESTING ACTIVITIES

Investment income received 17,091,938 22,730,187
Additions to property, plant and equipment (1,309,403,283) (1,208,191,312)
Additions to intangible assets (183,125,438) (54,556,806)
Additions to projects’ development costs (220,745,646) (88,360,609)
Proceeds from disposals of property, plant and equipment - 220,000
Net cash used in investing activities (1,696,182,429) (1,328,158,540)

CASH FLOWS FROM FINANCING ACTIVITIES

Bank overdrafts 48,744,532 (15,784,610)
Long term loans 1,304,614,127 480,072,171
Obligations under capital lease (55,378,380) (48,162,160)
Advances from partners (40,397,454) 57,624,522
Minority interest (205,877,332) (274,927,491)
Dividends paid (495,000,000) (641,666,666)
Board of Directors’ remuneration paid (2,200,000) (2,200,000)
Net cash from/(used in) financing activities 554,505,493 (445,044,234)
Net change in cash and cash equivalents (195,492,963) (578,829,761)
Cash and cash equivalents at the beginning of the year 3,053,454,336 3,629,881,391
Foreign currency translation reserve (357,566) 2,402,706
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 3 2,857,603,807 3,053,454,336

The attached notes 1 to 31 form part of these consolidated financial statements.

73
SUPPLEMENTARY CASH FLOWS INFORMATION:
Non-cash transactions are as follows:
2013 2012
Note SR SR
Proposed dividends 238,333,333 -
Borrowing cost capitalized over property, plant and equipment 6 86,454,421 98,101,617
Transfer to statutory reserve 62,044,906 60,116,998
Net change in fair value of interest rate swaps 17 14,382,306 35,905,199
Receivables against disposals of property, plant and equipment 3,142,913 -
Transfer from property, plant and equipment to intangible assets 6 1,158,336 6,527,938
Transfer from goodwill to intangible assets 8 - 4,438,759
Transfer from projects’ development costs to intangible assets 7 - 20,652,492

The attached notes 1 to 31 form part of these consolidated financial statements.

Annual Report 2013 74

CONSOLIDATED STATEMENT
of shareholders’ equity
Year Ended 31 December 2013

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

Net change
Reserve for in the fair Foreign
the results of value of currency
Share Statutory sale of shares Retained Proposed interest rate translation
capital reserve in subsidiaries earnings dividends swaps reserve Total
SR SR SR SR SR SR SR SR
Balance at 1 January
2012 3,666,666,660 986,786,071 48,893,677 604,937,894 458,333,333 (135,398,005) - 5,630,219,630
Net income - - - 601,169,978 - - - 601,169,978
Net change in fair value
of interest rate swaps - - - - - 35,905,199 - 35,905,199
Net change in foreign
currency translation
reserve - - - - - - 2,402,706 2,402,706
Transfer to statutory
reserve - 60,116,998 - (60,116,998) - - -
Board of Directors’
remuneration - - - (2,200,000) - - - (2,200,000)
Dividends paid (note 20) - - - (183,333,333) (458,333,333) - - (641,666,666)
Balance at 31 December
2012 3,666,666,660 1,046,903,069 48,893,677 960,457,541 - (99,492,806) 2,402,706 5,625,830,847

Balance at 1 January
2013 3,666,666,660 1,046,903,069 48,893,677 960,457,541 - (99,492,806) 2,402,706 5,625,830,847
Net income - - - 620,449,055 - - - 620,449,055
Net change in fair value
of interest rate swaps - - - - - 44,500,690 - 44,500,690
Net change in foreign
currency translation
reserve - - - - - - (357,566) (357,566)
Transfer to statutory
reserve - 62,044,906 - (62,044,906) - - - -
Board of Directors’
remuneration - - - (2,200,000) - - - (2,200,000)
Dividends paid (note 20) - - - (495,000,000) - - - (495,000,000)
Proposed dividends
(note 20) - - - (238,333,333) 238,333,333 - - -
Balance at 31 December
2013 3,666,666,660 1,108,947,975 48,893,677 783,328,357 238,333,333 (54,992,116) 2,045,140 5,793,223,026

The attached notes 1 to 31 form part of these consolidated financial statements.

75
NOTES TO THE CONSOLIDATED
financial statements
Year Ended 31 December 2013

1. ORGANIZATION AND ACTIVITIES

Saudi International Petrochemical Company (the “Company” or “Sipchem”) is a Saudi Joint Stock Company,
registered in the Kingdom of Saudi Arabia under commercial registration No. 1010156910 dated 14 Ramadan 1420
H (corresponding to 22 December 1999). The Company’s head office is in the city of Riyadh with one branch in
Al-Khobar, where the head quarters for the executive management is located, which is registered under commercial
registration number 2051023922 dated 30 Shawwal 1420H (corresponding to 6 February 2000), and a branch in
Jubail Industrial City which is registered under commercial registration number 2055007570 dated 4 Jumada I 1427H
(corresponding to 1 June 2006).

The principal activities of the Company are to own, establish, operate and manage industrial projects specially
those related to chemical and petrochemical industries. The Company incurs costs on projects under development
and subsequently establishes a separate company for each project that has its own commercial registration. Costs
incurred by the Company are transferred to the separate companies when they are established.

The Company has the following subsidiaries (the Company and its subsidiaries hereinafter referred to as (the
“Group”):

Subsidiaries Effective percentage of shareholding
2013 2012
International Methanol Company (IMC) 65% 65%
International Diol Company (IDC) 53.91% 53.91%
International Acetyl Company (IAC) - (note 1) 76% 76%
International Vinyl Acetate Company (IVC) - (note 1) 76% 76%
International Gases Company (IGC) 72% 72%
Sipchem Marketing and Services Company (SMSC) 100% 100%
International Utility Company (IUC) 68.58% 68.58%
International Polymers Company (IPC) 75% 75%
Sipchem Chemical Company (SCC) 100% 100%
Sipchem Europe Cooperatief U.A. and its subsidiaries 100% 100%
Gulf Advanced Cable Insulation Company (GACI) - (note 2) 50% 50%
Saudi Specialized Products Company (SSPC) - (note 3) 75% -
Sipchem Asia PTE (TPE) – (note 4) 100% -

Note 1 : The percentages of ownership presented above are as per the investee companies’ articles of association
and represents the Group’s ownership percentage from the investee companies’ share capital. The Group’s effective
ownership percentages of the above two companies used to record the Group’s share of results are 78.52% for
both companies. Such an increase in ownership resulted from having the Group contributing advances exceeding
its percentage of ownership to compensate a minority partner deficit in such advances, which resulted in increasing
the effective ownership in those two investments. The articles of association of the two companies have not been
updated yet (note 11).

Annual Report 2013 76

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

Note 2: Although the Company has only 50% share in the investee company, the operations of Gulf Advances Cable
Insulation Company are controlled by the Group effectively from the date of its commercial registration. Accordingly,
the investee company is treated as a subsidiary of the Group.

Note 3: The investee company has been incorporated during the year in the Kingdom of Saudi Arabia, it’s article
of association is dated 12 Safar 1435H (corresponding to 15 December 2013). However, the legal formalities of
establishing the company has been completed only in the period subsequent to the consolidated balance sheet date,
as the commercial register is issued on 4 Rabi’I 1435H (corresponding to 5 January 2014). Accordingly, the investee
company did not have any operating activities during the year.

Note 4: The investee company has been incorporated during the year in Singapore, it’s article of association is dated
13 Jumada I 1434H (corresponding to 25 March 2013). The company is engaged in marketing, sale and storage of
petrochemical products internationally.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in compliance with the standards and
regulations promulgated by the Saudi Organization for Certified Public Accountants. The following is a summary of
significant accounting policies applied by the Group:

Accounting convention
The consolidated financial statements have been prepared using the historical cost convention modified to include
the measurement at fair value for the interest rate swaps.

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

Basis of consolidation of the financial statements

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

Revenue recognition
The Group markets its products through marketers. Sales are made directly to final customers and also to the marketers’
distribution platforms.The sales through the distribution platforms are recorded at provisional prices at the time of
shipments, which are later adjusted based on actual selling prices received by the marketers from their final customers, after
deducting the cost of shipping, distribution and marketing. Adjustments are made as they become known to the Group.

Local and export sales are recognized at the time of delivery of the product at the loading terminals located at the
plant and at the King Fahd Industrial Port in Jubail Industrial City.

Expenses
All the year expenses other than cost of sales, financial charges and other expenses are classified as general and
administrative expenses.

Cash and cash equivalents

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

77
Accounts receivable
Accounts receivable are stated at original invoice amount less allowance for any uncollectible amounts. An estimate for
doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

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

Projects’ development cost

Projects’ development cost represent legal, license, feasibility related and other costs incurred by the Group in
respect of developing new projects. Upon successful development of the projects, costs associated with the projects
are transferred to the respective company subsequently established for each project. Projects development costs
relating to the projects determined to be non-viable are written off immediately.

Property, plant and equipment

Property, plant and equipment are initially recorded at cost and are stated at cost less accumulated depreciation
and any impairment in value. Freehold land and construction work in progress is not depreciated. Expenditure
on maintenance and repairs is expensed, while expenditure for betterment including borrowing costs that are
directly attributable to the acquisition, construction for long period or production of a qualifying asset is capitalized.
Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. The
estimated useful lives of the principal classes of assets are as follows:
Years
Plant and machinery 10 – 25
Buildings 2 – 33.3
Vehicles 4
Catalyst & tools 1 – 10
Computer, furniture, fixtures and office equipment 1 – 10

Intangible assets
Intangible assets mainly represent turnaround maintenance costs, upfront fees paid for existing long term off-take
agreement and other deferred charges. The planned turnaround costs are deferred and amortized over the year until
the date of the next planned turnaround. Should an unexpected turnaround occur prior to the previously envisaged
date of planned turnaround, then the previously unamortized deferred costs are immediately expensed and the
new turnaround costs are amortized over the period likely to benefit from such costs. Other deferred charges are
amortized over the estimated period of the benefits.

Business combination and goodwill

Business combinations are accounted for using the acquisition method.The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any minority interests
in the acquiree. For each business combination, the acquirer measures the minority interest in the acquiree either at fair
value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.

Goodwill is initially measured at cost being the excess of the consideration transferred over the Group’s net
identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of
the subsidiary acquired, the difference is recognized in the consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash generating units, or Groups of cash generating units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or Groups of units.

Annual Report 2013 78

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combination and goodwill (continued)

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off,
the goodwill associated with the operation disposed off is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed off in this circumstance is measured
based on the relative values of the operation disposed off and the portion of the cash-generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation
differences and goodwill is recognized in the consolidated statement of income.

Impairment of non-current assets

At each balance sheet date, the Group reviews the carrying values of its non-current assets other than goodwill to
determine whether there is any indication that those assets have suffered impairment. If such indicators exist, the
recoverable amount of the asset is estimated in order to determine the extent of impairment (if any). Where it is not
possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of
the cash generating unit to which the asset belongs.

The carrying value of the asset (or cash generating unit) is reduced to the recoverable value when the recoverable
value is below the carrying value. Impairment loss is recognized as expense when incurred.

Goodwill is tested for impairment at least annually, by assessing the recoverable amount of the cash-generating
unit (or group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-
generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit
(group of cash-generating units) to which goodwill has been allocated, an impairment loss is recognized. Impairment
losses relating to goodwill cannot be reversed in future periods.

Where an impairment loss subsequently reverses, the carrying value of the asset (cash generating unit) other than
goodwill is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognized for
the asset (cash generating unit) in prior years. The reversal of impairment loss other than goodwill is recognized as
income once identified.

Employee’s terminal benefits

Provision is made for amounts payable under the employment contracts applicable to employee’s accumulated years
of service at the consolidated balance sheet date.

Provision for obligations

A provision is recognized when the Group has a legal or constructive obligation as a result of a past event, and the
settlement of such obligations is probable and can be measured reliably.

Zakat and foreign taxes

The Group is subject to zakat regulations in the Kingdom of Saudi Arabia. Foreign income tax is also provided for in
accordance with foreign fiscal authorities in which the Group’s foreign subsidiaries operate. Zakat and income tax are
provided on an accrual basis. Any difference between the estimated zakat and foreign income tax for the year and the
zakat and foreign income tax provision that is calculated based on the detailed zakat basis at year end are accounted for
at the end of the year. The zakat and foreign income tax charge in the consolidated financial statements represents the
zakat for the Company, the Company’s share of zakat in subsidiaries and foreign income tax for foreign subsidiaries. The
zakat charge and income tax, assessable on the minority shareholders, is included in minority interest.

Statutory reserve
In accordance with Saudi Arabian Regulations for Companies, the Company must set aside 10% of its net income in
each year until it has built up a reserve equal to one half of the capital. The reserve is not available for distribution.

Reserve for the results of sale of shares in subsidiaries

The gains or losses resulting from sale of shares in subsidiaries, when the Group continues to exercise control over
the respective subsidiary, are booked in the reserve for the results of sale of shares in subsidiaries.

79
Derivative financial instruments
Derivative financial instruments are initially recorded at cost and are re-measured to fair value at subsequent
reporting dates. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting
are recognized in the consolidated statement of income as they arise.

A fair value hedge is a hedge of the exposure to changes in fair value of an asset or liability that is already recognized
in the consolidated balance sheet. The gain or loss from the change in the fair value of the hedging instrument
is recognized immediately in the consolidated statement of income. At the same time, the carrying amount of
the hedged item is adjusted for the corresponding gain or loss since the inception of the hedge, which is also
immediately recognized in the consolidated statement of income.

A cash flow hedge is a hedge of the exposure to variability in cash flows relating to a recognized asset or liability,
an unrecognized firm commitment or a forecasted transaction. To the extent that the hedge is effective, the portion
of the gain or loss on the hedging instrument is recognized initially directly in equity. Subsequently, the amount is
included in the consolidated statement of income in the same year or years during which the hedged item affects
net profit or loss. For hedges of forecasted transactions, the gain or loss on the hedging instrument will adjust the
recorded carrying amount of the acquired asset or liability.

Foreign currency transactions

Foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the consolidated balance sheet
date are translated at the exchange rates prevailing at that date. Gains and losses from settlement and translation of
foreign currency transactions are included in the consolidated statement of income.

Financial statements of foreign operations are translated into Saudi Riyals using the exchange rate at the balance
sheet date for assets and liabilities and the average exchange rate for revenues, expenses, gains and losses.
Components of equity, other than retained earnings, are held at the historical rates. Translation adjustments
are recorded as a separate component of consolidated shareholders’ equity. Translation loss that is considered
permanent is charged to the consolidated statement of income.

Leasing
Leases are classified as capital leases whenever the terms of the lease transfer substantially all of the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under capital leases
are recognized as assets of the Group at the lower of the present value of the minimum lease payments or the fair
market value of the assets at the inception of the lease. Finance costs, which represent the difference between the
total leasing commitments and the lower of the present value of the minimum lease payments or the fair market
value of the assets at the inception of the lease, are charged to the consolidated statement of income over the
term of the relevant lease in order to produce a constant periodic rate of charge on the remaining balance of the
obligations for each accounting period. Rentals payable under operating leases are charged to the consolidated
statement of income on a straight line basis over the term of the operating lease.

Segmental Analysis
A segment is a distinguishable component of the group that is either engaged in providing products or services (a
business segment) or in providing products or services within a particular economic environment (a geographical
segment) which is subject to risks and rewards that are different from those of other segments.

Earnings per share

Earnings per share from net income is calculated by dividing the net income for the year by the weighted average
number of shares outstanding during the year.

Earnings per share from main operations is calculated by dividing income from main operations for the year by the
weighted average number of shares outstanding during the year.

Annual Report 2013 80

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

3. CASH AND CASH EQUIVALENTS

2013 2012
SR SR
Murabaha deposits 1,971,037,113 1,998,896,408
Bank balances and cash 886,566,694 1,054,557,928
2,857,603,807 3,053,454,336

4. ACCOUNTS RECEIVABLE, PREPAYMENTS AND OTHER RECEIVABLES

2013 2012
SR SR
Trade account receivables 1,087,813,095 670,711,272
Deposits, prepayments and other receivables 226,517,618 186,508,040
1,314,330,713 857,219,312

5. INVENTORIES
2013 2012
SR SR
Spare parts 146,209,300 137,683,476
Finished goods 118,714,576 133,336,058
Raw materials 37,802,556 6,936,644
302,726,432 277,956,178

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

81
6. PROPERTY, PLANT AND EQUIPMENT
Vehicles,
computer,
furniture, Construction
Plant & Land & Catalyst & fixtures & office work in Total Total
equipment buildings tools equipment progress 2013 2012
SR SR SR SR SR SR SR
Cost:
At the beginning of the year 9,809,297,211 174,005,185 238,089,226 73,688,094 2,346,712,825 12,641,792,541 11,362,289,007
Additions 155,659,220 2,017,328 44,906,276 957,473 1,192,317,407 1,395,857,704 1,306,292,929
Transfers 259,033,876 15,599,638 25,622,659 391,601 (300,647,774) - -
Transfer to intangible assets - - - - (1,158,336) (1,158,336) (6,527,938)
(note 9)
Disposals (31,452,903) - - - - (31,452,903) (20,261,457)
Write-off - - (7,649,148) - - (7,649,148) -
At the end of the year 10,192,537,404 191,622,151 300,969,013 75,037,168 3,237,224,122 13,997,389,858 12,641,792,541

Depreciation:
At the beginning of the year 1,686,406,707 19,992,983 234,957,636 51,508,022 - 1,992,865,348 1,554,587,492
Charge for the year 393,245,421 5,165,423 63,485,168 6,407,238 - 468,303,250 458,302,209
Disposals (7٫266٫927) - - - - (7,266,927) (20,024,353)
Write-off - - (3٫968٫743) - - (3,968,743) -
At the end of the year 2,072,385,201 25,158,406 294,474,061 57,915,260 - 2,449,932,928 1,992,865,348

Net book value:

At 31 December 2013 8,120,152,203 166,463,745 6,494,952 17,121,908 3,237,224,122 11,547,456,930
At 31 December 2012 8,122,890,504 154,012,202 3,131,590 22,180,072 2,346,712,825 10,648,927,193

As at 31 December 2013, property, plant and equipment include plant and equipment held under capital lease obligations which
have a cost of SR 535.1 million (2012: SR 535.1 million) and accumulated depreciation of SR 216 million (2012: SR 195.9 million).

The property, plant and equipment are constructed over a land in Jubail Industrial City leased from the Royal Commission for
Jubail and Yanbu’ for 30 years commencing on 16 Muharram 1423H corresponding to 30 March 2002. The lease agreements are
renewable upon the two parties agreement.

Some of the Group’s property, plant and equipment which has a net book value of SR 6,433 thousands (2012: SR 7,312
thousands) are pledged as security against Saudi Industrial Development Fund loans, Public Investment Fund loans and
commercial loans (note 13).

Construction work in progress is stated at cost and is comprised of construction costs under various agreements and directly
attributable costs to bring the asset for its intended use which also includes costs of testing to ensure the asset is functioning
properly, and after deducting net proceeds from the sale of production generated during the testing phase. Directly attributable
costs includes employee benefits, site preparation costs, installation costs, licensing fees, professional fees and borrowing costs.

Borrowing costs relating to IDC, IPC, SCC and GACI projects were capitalized during the year with an amount of SR 86.5 million
(2012: SR 98.1 million).

Annual Report 2013 82

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

7. PROJECTS’ DEVELOPMENT COSTS

The movement in the projects’ development costs is as follows:

2013 2012
SR SR
At the beginning of the year 252,576,753 184,868,636
Additions during the year 220,745,646 88,360,609
Transfer to intangible assets (note 9) - (20,652,492)
473,322,399 252,576,753

8. GOODWILL

Pursuant to board resolutions of the Group, Sipchem European Operations was formed where Sipchem Marketing
and Servicers Company acquired 100% of the voting shares of Aectra SA (a subsidiary of Sipchem Europe
Cooperatief U.A.) on 31 December 2011, an unlisted company registered in Switzerland. Accordingly, the balance
sheet of Aectra SA has been consolidated in these consolidated financial statements.

The acquisition amount of SR 105.7 million is inclusive of SR 75.8 million cash and SR 4 million of other working
capital and also an amount of SR 33.9 million for valuation premium including contingent consideration reflected as
goodwill on the acquisition date.

During 2012, the Group completed purchase price allocation exercise on acquisition of Aectra SA. In accordance
with the exercise, the Group identified and reclassified to intangible assets SR 4.4 million related to customers
relationship and this amount is being amortised over the life of 3 years. The excess amount over the net book
value of SR 29.5 million is reflected as goodwill as shown in the consolidated balance sheet and is subject to
impairment testing.

9. INTANGIBLE ASSETS
2013 2012
Cost: SR SR
At the beginning of the year 168,088,414 81,912,419
Additions 183,125,438 54,556,806
Transfers (notes 6, 7 & 8) 1,158,336 31,619,189
At the end of the year 352,372,188 168,088,414
Amortization:
At the beginning of the year 98,839,018 42,749,235
Charge for the year 89,767,857 56,089,783
Transfers - -
At the end of the year 188,606,875 98,839,018
Net book value:
At the end of the year 163,765,313 69,249,396

The Group paid an amount of SR 37.5 million during the year, as upfront fees to an existing long term off-take
agreement. The amount is amortized over the remaining useful life of the agreement.

83
10. ACCOUNTS PAYABLE, OTHER PAYABLES AND PROVISIONS
2013 2012
SR SR
Accrued expenses 380,798,815 402,881,721
Trade accounts payable 168,937,676 115,204,925
Zakat provision 90,916,032 74,299,953
Retentions 36,156,156 86,275,606
Other payables 70,880,635 67,565,610
747,689,314 746,227,815

11. ADVANCES FROM PARTNERS

The partners of IDC, IAC, IVC, IGC, IPC, SCC and GACI have agreed to contribute long term advances to finance
certain percentage of their projects’ costs as per the joint venture agreements. As per the joint venture agreements, long
term partners’ advances shall be repaid after the repayment of external indebtedness and funding of reserve accounts.

During the year partial settlement was made by IDC to the partners. At 31 December 2013, the Company and the
minority partners had long term advances of SR 1,897 million and SR 392 million, respectively (2012: SR 1,715.1
million and SR 414.3 million, respectively). The Company and the minority partners have also made short term
advances of SR 591.5 million and SR 75.4 million, respectively (2012: SR 204.8 and SR 93.5 million, respectively). The
long term advances do not carry any financial charges except IPC whereas the short term advances carry financial
charges at normal commercial rates.

The minority partners in both IAC and IVC made contributions lesser than their prorated ownership percentage
which lead in diluting their share from these two investments' share of results. The articles of association of the two
companies have not been updated yet.

12. BANK FACILITIES

The Group has short term facilities with local commercial banks including bank overdrafts, guarantees, letters of
credit, and other facilities. The facilities are secured by corporate guarantees.

13. LONG TERM LOANS

2013 2012
SR SR
Saudi Industrial Development Fund loans (note a) 1,550,540,000 1,702,540,000
Syndicated bank loans (note b) 2,639,374,198 1,607,385,071
Public Investment Fund loans (note c) 1,581,500,000 1,156,875,000
5,771,414,198 4,466,800,071
Less: current portion of long term loans (416,510,465) (489,940,823)
5,354,903,733 3,976,859,248

a) The Saudi Industrial Development Fund (SIDF) granted loans to IDC, IAC, IVC, IGC, IPC and SCC. These loans
are secured by partners’ guarantees proportionate to their shareholding and a first priority mortgage on all present
and future assets. The loans are repayable in unequal semi-annual installments. The loan agreements include covenants
to maintain financial ratios during the loans period. Management and follow up fees are charged to the loans as
stated in the loan agreements.

Annual Report 2013 84

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

13. LONG TERM LOANS (CONTD.)

b) The Group entered into credit facility agreements with syndicates of financial institutions. The loans are secured
by partners’ guarantees and a second priority mortgage on the assets already mortgaged to SIDF. Under a partner
support agreement for the projects financing, the partners are obligated following completion of a project to provide
a letter of credit for support of operations during the life of the loans. The loans are repayable in unequal semi-annual
installments. The agreements include covenants to maintain certain financial ratios and also require maintenance of
certain restricted bank accounts. The loans carry financial charges at LIBOR plus a variable margin. During the year,
there were several refinancings which provided for reduced scheduled repayments via an extension of loan tenor.
IAC, IVC, and IGC restructured its commercial loan facility providing an additional 5 year loan tenor, conversion of
LIBOR to SIBOR, and the reduction in loan margin. IDC refinanced its commercial bank providing for an additional
6 years loan repayments, conversion of LIBOR to SIBOR, reduction in loan margin, and the ability to borrow for
expansion purposes with a 10 year loan tenor in the amount of SR 525 million. The above amount includes a balance
of SR 300 million of revolving loan with a local commercial bank.

c) The Public Investment Fund (PIF) granted loans to IDC, IAC, IVC and IGC to finance the construction of the
plants of these companies. The obligation under this loan agreement at all times ranks at pari passu with all other
creditors. The loans are repayable in unequal semi-annual installments other than that of IDC loan which is repayable
in equal semi-annual installments. The agreements include covenants to maintain certain financial ratios. The loans
carry financial charges at LIBOR plus a fixed margin. The loan agreements require the companies to enter into
an interest rate swap contract to cap the financial charges associated with the PIF loans. During the current year,
PIF granted a new loan to IPC with an amount of SR 704 million. The loan is repayable on 26 equal semi-annual
installments, and carries financial charges at SIBOR plus a fixed margin.

The combined repayment schedule for the long term loans is as follow:

2013 2012
SR SR
2013 - 489,940,823
2014 416,510,465 564,125,379
2015 526,325,855 659,800,104
2016 653,710,698 703,007,423
2017 725,021,389 695,823,936
After 3,449,845,791 1,354,102,406
5,771,414,198 4,466,800,071

14. SUKUK

On 27 November 2010, the Extraordinary General Assembly has approved the issue of Islamic Modaraba Bonds
(“Sukuk”) so as to be in compliance with Shari’a Laws, for the purpose of financing the capital expansions of the new
projects. The Company obtained the approval of the Capital Market Authority for Sukuk issuance during the second
quarter of 2011 and the first issuance completed at 29 June 2011 for an amount of SR 1,800 million which will be
for five years and carry an interest rate equal to SIBOR plus a profit margin of 1.75% per annum payable at the end
of each quarter.

85
15. OBLIGATIONS UNDER CAPITAL LEASE
2013 2012
SR SR
Minimum lease payments (fixed and variable rental payments) 356,250,599 418,048,350
Less: variable rental payments (45,872,219) (59,507,810)
310,378,380 358,540,540
Less: payments made during the year (55,378,380) (48,162,160)

Present value of minimum lease payments 255,000,000 310,378,380

Less: current portion of obligations under capital lease - (58,864,865)
255,000,000 251,513,515
Future minimum lease payments:
Within a year - 58,864,865
More than one year and less than five years 109,650,000 251,513,515
More than five years 145,350,000 -
255,000,000 310,378,380

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

During the year, the Group refinanced its capital lease obligation with a new Islamic loan facility providing an
extension of loan tenor for an additional 6 years, conversion from LIBOR to SIBOR, reduction in loan margin.

16. EMPLOYEES’ TERMINAL BENEFITS

2013 2012
SR SR
At the beginning of the year 82,545,023 65,927,288
Provision made during the year 23,200,489 27,604,211
Payments made during the year (5,962,423) (10,986,476)
At the end of the year 99,783,089 82,545,023

17. INTEREST RATE SWAP AGREEMENTS

As at 31 December 2013, IDC, IAC, IVC and IGC (collectively the “subsidiaries”) had interest rate swap (IRS)
contracts with local commercial banks in relation to the loans obtained from Public Investment Fund and syndicated
commercial loans as required by the loan agreements. At 31 December 2013, the notional amount of IRS contracts
was SR 1,333 million (31 December 2012: SR 1,599 million).

The fair value of the interest rate swap has declined as of 31 December 2013 compared to the contract date by
SR 71.5 million (31 December 2012: SR 130.6 million). The Group share amounted to SR 55 million (31 December
2012: SR 99.4 million), which has been recorded in shareholders’ equity. This amount represents what has to be
paid in case the Groups’ management decides to cancel the agreements. However, the Group’s management has no
intention to cancel the agreements. In case of the increase in the interest rates, this difference will be eliminated and
may become positive during the agreement term.

Annual Report 2013 86

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

18. SHARE CAPITAL

Share capital of the Company amounted to SR 3,666,666,660 (2012: SR 3,666,666,660) is divided into 366,666,666
shares of SR 10 each (2012: 366,666,666 shares of SR 10 each).

19. RESERVE FOR THE RESULTS OF SALE OF SHARES IN SUBSIDIARIES

This reserve represents the difference between the fair value of the consideration received and the amount of
the change in minority interests upon the sale of shares in certain subsidiaries without the Group losing its control
over it.

20. DIVIDENDS

The General Assembly of the Company, in its meeting held on 16 March 2013, approved the distribution of
cash dividends amounting to SR 458.3 million, i.e. SR 1.25 per share, equivalent to 12.5% of the share capital for
shareholders in records at the date of the General Assembly. Out of the approved dividends of SR 458.3 million,
interim dividends of SR 183.3 million have already been distributed during 2012 and the remaining dividends of SR
275 million was distributed during the first quarter of 2013.

On 14 July 2013, the board of directors proposed to distribute interim cash dividends for the first half of the year
2013 amounting to SR 220 million i.e. SR 0.6 per share, equivalent to 6% of the share capital. These dividends have
been distributed during August 2013.

The board of directors in their meeting held on 3 December 2013 proposed to distribute cash dividends amounting
to SR 238.3 million i.e. SR 0.65 per share, equivalent to 6.5% of the share capital for the approval of the General
Assembly in their next meeting which is expected to be held on March 2014. Distributions will be made to the
shareholders registered on the closing of the General Assembly meeting day.

21. MINORITY INTERESTS

2013 2012
SR SR
International Methanol Company 497,265,637 438,565,401
International Diol Company 386,470,742 361,339,690
International Acetyl Company 225,091,878 216,084,552
International Polymers Company 176,781,663 176,102,691
International Vinyl Acetate Company 155,099,740 153,854,658
International Gases Company 144,262,739 134,871,173
Gulf Advanced Cables Insulation Company 28,842,631 28,675,038
Saudi Specialized Products Company 14,000,000 -
1,627,815,030 1,509,493,203

87
22. RELATED PARTY TRANSACTIONS

Related parties represent major shareholders, directors and key management personnel of the Group, and entities
controlled or significantly influenced by such parties. Material related party transactions occurred during the year
were as follows:

- Foreign partners to the Company marketed part of the Group’s products. Total sales made through those foreign
partners amounted to SR 1,710 million (2012: SR 1,796 million).

- One of the subsidiaries bought certain fixed assets from one of the foreign partners. Total purchases of fixed
assets from the foreign partner during the year amounted to SR 20.7 million (2012: SR 12.2 million).

- The Company and the minority partners granted advances to the companies of the Group to support their
operations and comply with debt covenants. Some of the long term advances do not carry any financial charges
and have no specific maturity dates, while other long term advances and the short term advances carry financial
charges at normal commercial rates (note 11).

The prices and terms of the above transactions were approved by the Board of Directors of the companies of
the Group.

23. GENERAL AND ADMINISTRATIVE EXPENSES

2013 2012
SR SR
Employee costs 88,275,948 90,863,834
Depreciation 14,737,019 9,316,422
Expenses of board of directors and board meetings for the Group 2,042,077 1,819,208
Others 31,479,497 29,669,012
136,534,541 131,668,476

24. ZAKAT
Zakat charge:
The zakat charge consists of:
2013 2012
SR SR
Current year provision 55,205,996 71,517,348
The zakat charge for the Group was as follows:
Current year zakat charge of the Company 34,000,000 53,684,650
Company’s share in the zakat and income taxes of foreign subsidiaries 21,205,996 17,832,698
Charge in consolidated statement of income 55,205,996 71,517,348
Movement in zakat provision
The movement in the zakat provision was as follows:
At the beginning of the year 74,299,953 57,008,007
Provision for the year 55,205,996 71,517,348
Payments made during the year (38,589,917) (54,225,402)
At the end of the year 90,916,032 74,299,953

Annual Report 2013 88

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

24. ZAKAT (CONTD.)

Status of zakat assessments

The Company received zakat assessments for the years 2007 to 2010 with additional zakat liability of SR 118.3
million including additional assessments for the years 2007 and 2008. The Company does not agree with the
additional liability and has filed appeals against these assessments and additional assessments for the years 2007 and
2008. The PAC ruled in favor of DZIT in respect Company’s appeal against the DZIT’s additional assessments for the
years 2007 and 2008. The Company does not agree with the PAC decision and intends to file an appeal with HAC.

The IGC has received zakat assessments for the years 2008 to 2010 with additional zakat liability of SR 3.4 million
including additional assessments for the years 2008 to 2010. The company has accepted the assessments and the
additional liability will be settled shortly.

The IMC received withholding tax assessment for the years 2007 to 2012 for the delay fines of SR 17.7 million. The
company does not agree with the delay fines and has filed an appeal against these assessments.

All of the other companies within the Group submitted their tax and zakat declarations up to 2012 which is still
subject to the DZIT review.

25. OPERATING LEASE ARRANGEMENTS

2013 2012
SR SR
Payments under operating leases recognized as
an expense during the year 2,165,207 2,165,207

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

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

2013 2012
SR SR
Less than one year 2,165,207 2,165,207
Year two 2,165,207 2,165,207
Year three 2,165,207 2,165,207
Year four 2,165,207 2,165,207
Year five 2,165,207 2,165,207
More than five years 28,505,523 30,670,730
Net minimum lease payments 39,331,558 41,496,765

89
26. CAPITAL COMMITMENTS

As at 31 December 2013, the Group had capital commitments amounting to SR 1,047 million (31 December 2012:
SR 2,106 million).

27. CONTINGENCIES

Sipchem is currently in a dispute with the construction contractor of Sipchem’s Research and Development
Centre in Dhahran, Saudi Arabia after terminating the construction contract. This dispute has been referred to
arbitration under the current Saudi Arabian Arbitration Regulation. While this arbitration is going on, Sipchem and
the construction contractor have conducted series of negotiations for settling the dispute but without reaching any
substantive results. The Arbitration Panel has recently appointed an Engineering firm to inspect the site and assess
the extent of work which has been completed by the contractor. Sipchem believes that it will not be liable to any
payments other than what has already been accrued by Sipchem for the work completed by the contractor.

28. SEGMENTAL ANALYSIS

Petrochemical operations Marketing activities Total
SR 000 SR 000 SR 000
For the year ended 31 December 2013

Sales 3,208,188 797,445 4,005,633

Gross profit 1,273,403 25,177 1,298,580
Net assets 5,700,751 92,472 5,793,223

For the year ended 31 December 2012

Sales 3,174,194 747,685 3,921,879

Gross profit 1,248,034 19,511 1,267,545
Net assets 5,550,220 75,611 5,625,831

Marketing activities include the marketing activities of Sipchem. These marketing activities support the customer
development activities to enhance the Petrochemical operations.

No geographical segment disclosure has been prepared as 97% (2012: 97%) of sales are export sales.

Annual Report 2013 90

 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
Year Ended 31 December 2013

29. RISK MANAGEMENT

Credit risk
Credit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a
financial loss. In general most of the Group’s sales are made to reputable customers and marketers. Cash is placed
with local banks with sound credit rating.

Commission rate risk

Commission rate risk is the risk that the value of financial instruments will fluctuate due to changes in the market
commission rates. The Group is subject to commission rate risk on its commission bearing assets including bank
deposits and its commission bearing liabilities including short term loans, long term loans, sukuk, and the obligations
under capital lease. The Group has an interest rate swap contract to hedge against the variability of the commission
on term loans.

Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with
financial instruments. The Group controls its liquidity risk by ensuring that bank facilities are available. The Group’s
sales invoices are usually settled within 45 to 120 days of the date of the invoices. Payables are normally settled
within 45 to 120 days of the date of the invoices.

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 subject to fluctuations in foreign exchange rates in the normal course of its business. The Group did
not undertake significant transactions in currencies other than Saudi Riyals, US Dollars and Euros during the year.

There are transactional currency exposures also. Such exposures arise mainly from the sales or purchases made by
foreign subsidiaries in currencies of their respective countries, which are not pegged with the functional currency of
the Company.

30. FAIR VALUES

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. The Group’s financial assets consist of cash and cash equivalents and accounts
receivable; its financial liabilities consist of accounts payable, short and long term advances from partners, bank
overdrafts, term loans, sukuk, obligations under capital lease and interest rate swaps.

Management believes that fair values of the Group’s financial instruments are not materially different from their
carrying values at year end.

31. COMPARATIVE FIGURES

Certain of the prior year figures have been reclassified to conform with the presentation in the current year.

91
In the Name of Allah the Most Compassionate, the Most Merciful
Al-Khobar
P. O. Box 130
Al-Khobar 31952
Tel : 013 801 0111
Fax : 013 801 0222

Jubail
P. O. Box 12021
Jubail Industrial City 31961
Tel : 013 359 9999
Fax : 013 358 8182

Riyadh
P. O. Box 9478
Riyadh 11413
Tel : 011 203 7736
Fax : 011 203 7738
 Saudi International Petrochemical Company

annual repor t 2013

S a u d i I n t e r n a t i o n a l Pe t r o c h e m i c a l C o m p a ny (S i p c h e m) a n n u a l r e p o r t 2 013
www.sipchem.com