Saudi Basic Industries Corporation (“SABIC” or “Parent”) is a Saudi joint stock company established in accordance with Royal Decree No. M/66, dated 13 Ramadan 1396H (corresponding to 6 September 1976) registered in Riyadh under commercial registration No. . The consolidated financial statements of the Group for the year ended 31 December 2021 were authorized for publication in accordance with a resolution of the Board of Directors on 8 March 2022.
Basis of preparation and significant accounting policies 1 Basis of preparation
- Basis of consolidation
- COVID-19 impact and response
- Foreign currencies
- Estimates and assumptions
- Impairment of non-financial assets
- Estimates and assumptions (continued)
- Incremental borrowing rate for lease agreements (Notes 8 and 24.1)
- Measurement of financial instruments (Notes 11, 12, 13, 15 and 17) The Group is required to make judgments about
- Provisions
- Defined employee benefit plans (Note 25)
- Accounting for income tax (Note 34)
- Accounting for equity instruments
- Critical judgments in applying accounting standards
- Component parts of plant and equipment
- Determination of control, joint control and significant influence
- Determining the lease term of contracts with renewal and terminations options
The consolidated financial statements include the financial statements of SABIC and subsidiaries controlled by SABIC, except for joint operations which are consolidated based on the Group's relative share in the arrangement. The Group used these assumptions and estimates on an available basis when the consolidated financial statements were prepared.
Changes in accounting policies
Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments provide temporary relief to address the financial reporting effects of replacing the Interbank Offered Rate ('IBOR') with an alternative near-risk-free rate ('RFR'). The Group intends to apply practical solutions in future periods, if applicable.
IFRS issued but not yet effective
The RFR for this will be available until mid-2023 and therefore no reliable estimate can be made for the impact of the outcome of future negotiations.
IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities
Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Definition of Accounting Estimates - Amendments to IAS 8
Business combinations and goodwill
Investments in associates and joint arrangements Investments in associates
Investments in associates and joint arrangements (continued) Investments in joint arrangements
Investments in associates and joint arrangements (continued)
Current versus non-current classification
Zakat and tax Zakat
Zakat and tax (continued) Deferred tax
Property, plant and equipment
Right-of-use assets
Leases
Borrowing costs
Intangible assets
Impairment of non-current assets
Financial assets
Financial assets (continued) Initial measurement
Financial assets (continued) Impairment
Financial liabilities Initial recognition and measurement
Financial liabilities (continued) Trade and other payables
Options and forward contracts on (own) equity instruments
Options and forward contracts on (own) equity instruments (continued) Forward share purchase contracts
Offsetting of financial instruments
Inventories
Cash and bank balances
Cash dividend paid to equity holders of the Parent
Provisions General
Employee benefits
Employee benefits (continued) Defined contribution plans
Employee benefits (continued)
Revenue recognition Sales revenue
Revenue recognition (continued) Sales revenue (continued)
Finance income
FUND SPMC SABUCO AR G GPDC MALLINDA GR AMCO BRANCH AMUL Total Balance on the. i) The Group's share in the results of the net profit of the associated companies, recognized after fair value adjustments and changes in estimated results. ii) Others include the reclassification of SABUCO as a joint operation of an associate and the transfer of TAKAMUL investments related to prepaid mining fees (see note 14). The movements in investments in associated companies are as follows: i) The Group's share in the results of the net profit of the associated companies, recognized after fair value adjustments and changes in estimated results. ii) Other includes the reclassification of ARG as an associate from 'investments in equity instruments' (see note 12). In addition, due to the delay in the publication of CLARIANT's financial results for the year ended December 31, 2021, SABIC is unable to disclose the summary of financial information for the year ended December 31, 2021 in the consolidated financial statements (see explanation 10).
The disclosed information reflects the amounts presented in the available financial statements of the relevant investee and not SABIC's share of those amounts. i) The Group's investment in MWSPC includes an additional contribution to one of the shareholders in respect of mineral rights. ii) The book value of investments and the group's interest in associates includes inter-group profit allocation, zakat, income tax and other adjustments. The tables below show a summary of the financial information of the Group's significant joint ventures. The disclosed information reflects the amounts presented in the financial statements of the joint venture and not SABIC's share of those amounts.
Obligations to acquire the remaining shares of. i) The Group assessed the fair value of short-term investments, cash and bank balances, trade payables and other financial assets and liabilities, largely due to the short-term maturities of these instruments. ii). Obligations to acquire the remaining shares of. i) The Group has estimated the fair value of short-term investments, cash and bank balances, trade payables and other financial assets and liabilities, largely due to their short-term maturities. Fair value of the quoted bonds is based on price quotations at the reporting date.
Probabilities of different valuations within a range can be reasonably estimated, used in the Group's fair value assessment of these unquoted investments in equity instruments.
Cash flows related disclosures
Under Saudi Arabian Companies Regulations, SABIC must set aside 10% of its net income each year until it has built up a reserve equal to 30% of the share capital. In accordance with SABIC's Bylaws, the General Meeting may establish a general reserve as an allocation of retained earnings. This general reserve can be increased or decreased by a resolution of the shareholders and is available for distribution.
Financial information for each non-controlling interest subsidiary that is material to the group is summarized below.
Acquisition of non-controlling interests
Changes in shareholding of subsidiaries
In October 2018, SABIC Capital II BV, an indirect wholly-owned subsidiary of SABIC, issued a 5-year and 10-year bond of USD 1 billion each, equivalent to SR 7.5 billion in total. These bonds are unsecured and have coupon rates of 4.0% and 4.5% for those maturing in 5 and 10 years respectively. The bonds are listed on the Irish Stock Exchange (Euronext Dublin) and the proceeds are used to refinance maturing debt.
In September 2020, SABIC Capital I BV, an indirect wholly-owned subsidiary of SABIC, issued a 10-year and 30-year bond of USD 500 million. each, corresponding to a total of SR 3.75 billion. These bonds are unsecured and have a coupon rate of 2.15% and 3.00% for those maturing in 10 and 30 years, respectively. Both bonds are listed on the Irish stock exchange (Euronext Dublin) and the 30-year bond is dual-listed on the Taipei Exchange in Taiwan.
Included in the amounts due "within one year" are SR 2.88 billion in loans borrowed by SABIC Group subsidiaries, which were refinanced in the post-balance sheet period, please refer to note 44. During the year, SABIC Group subsidiaries entered into SR 1.03 billion of committed short-term working capital facilities.
Leases Group as a lessee
The main schemes are located in the United States of America (“US”) and in the United Kingdom (“UK”). The financing of the plans is in accordance with local laws and regulations in the countries where we are located. These defined benefit plans are managed by fiduciaries, who represent the interests of the beneficiaries and ensure that benefits can be paid in the future.
In Great Britain, the Group maintained final salary pension schemes that provide further increases in benefits for future years of service. The defined benefit plans are administered by trusts, whose Boards of Trustees, in accordance with the trustees' agreement and law, represent the interests of the beneficiaries to ensure that benefits can be paid in the future. The sensitivity analysis is intended to illustrate the inherent uncertainty in the valuation of the DBO under market conditions at the valuation date.
The sensitivities apply only to DBO and not to the net amounts recognized in the consolidated statement of financial position. All remaining unfulfilled performance obligations as of December 31, 2021 are expected to be fulfilled in the following year.
Cost of sales
Based on the nature of the expenses, costs of sales, selling and distribution expenses and general and administrative expenses can be divided as follows:
Selling and distribution expenses
Zakat
Income Tax
Income Tax (continued)
The Group has not recognized SR 9.17 billion (2020: SR 7.74 billion) of deferred income tax assets, which are largely related to tax loss carryforwards in various jurisdictions, as there is insufficient evidence to support the Group's ability to redeem such funds. The Group has available tax loss carryforwards of SR 33.92 billion (2020: SR 33.25 billion) which can be used against future taxable income. For the year ended 31 December 2021 and 2020, the Group did not record any impairment of receivables related to debts to related parties.
The Board of Directors has overall responsibility for establishing and overseeing the Group's risk management framework. The Board of Directors established the Risk Management Committee, which is responsible for developing and monitoring the Group's risk management policies. The Group's risk management policies are established to identify and analyze the risks faced by the Group, to determine appropriate risk limits and controls, and to monitor risks and comply with limits.
Risk management policies and systems are regularly reviewed to reflect changes in market conditions and the Group's activities. The group's audit committee oversees how management monitors compliance with the group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the group.
Credit risk
This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policy and processes for measuring and managing risk, and the Group's management of capital. The Group aims to develop, through its training and management standards and procedures, a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
Credit risk (continued) Trade receivables
Liquidity risk
Liquidity risk (continued)
Market risk
The net debt to equity ratio has decreased from 35% to 31% due to the repayment of short-term loans and long-term debt.
Commitments and contingencies 1 Commitments
Guarantees
Contingent liabilities
Leases
The Annual General Meeting (“AGM”), at its meeting held on 1 Ramadan 1442H (corresponding to 13 April 2021), approved a cash dividend of SR 9 billion (at SR 3 per share) for 2020, which includes interim cash dividends amounting to SR 4.5 billion (at SR 1.5 per share) for the first half of 2020, which has been recognized in equity. The remainder of the declared dividend of SR 4.5 billion was recognized in the interim condensed financial statements for the period ended June 30, 2021, which was made available for distribution in May 2021. The proposed dividends are subject to shareholder approval in Next AGM in April 2022.
In the opinion of management, since the period ended 31 December 2021, there have been no further material subsequent events that would materially affect the financial position of the Group as reflected in these consolidated financial statements. The main activities of most of the group's subsidiaries are the production, marketing and distribution of petrochemical, specialty and related products, with the exception of SABIC AN, AL BAYRONI and IBN AL-BAYTAR, which are engaged in the business of agricultural nutrients; and HADEED is engaged in the metal business. In 2021, SP.CHEM and SOCC were merged with PETROCEMYA, the commercial registrations of the subsidiaries were changed to branches, which were managed as subsidiaries until January 31, 2021.
The changes in the group's corporate structure during 2021 are related to the liquidation of SHPP Denmark Aps, SABIC Innovative Plastics Servicios Mexico S de RL de CV, High Performance Plastics Service Mexico S de RL de CV and SABIC Uruguay SA. SABIC Petrochemicals Holding US, Inc. i) SABIC MIDDLE EAST based in Lebanon and SABIC AFRICA based in Egypt are being liquidated. ii) SABIC Middle East Business Management and SABIC East Africa were established in Jordan and Egypt respectively. iii) SABIC disposed of 17% of its shares in Chemtank to Jubail Chemicals Storage & Services Company.
