sipchem ar2010

Annual Report 2010

Saudi International Petrochemical Company

Sipchem Headquarters, Al-Khobar

In the name of Allahthe most Compassionate,the most Merciful

The Custodian of the Two Holy Mosques

King Abdullah Bin Abdulaziz Al-Saud

His Royal Highness

Prince Sultan Bin Abdulaziz Al-Saud

Crown Prince

Deputy Prime Minister

Minister of Defence and Aviation

and Inspector General

His Royal Highness

Prince Naif Bin Abdulaziz Al-Saud

Second Deputy Premier

and Minister of Interior

Contents:

2 Chairman’s Message 3 Purpose & Values 4 Board of Directors 5 CEO’s Message 8 Description of the Company’s Activities 9 DescriptionofActivitiesoftheCompany’sAffiliates 16 Plans and Future Growth17 Projects Under Development20 RisksRelatedtoCompanyandAffiliatesBusiness 21 Financial Statements25 The Internal Audit 26 The Board of Directors30 Board Committees 32 Board of Directors’ Declaration 33 Issue of Islamic Sukuk 34 The General Assemblies 35 Dividends Distribution Policy36 Corporate Governance37 Communication with Shareholders 38 Human Resources 39 Special Employees Programs 40 Corporate Social Responsibility 41 Responsible Care 43 Consolidated Financial Statements and Auditors’ Report for the year ended 31 December 2010

Success can only come with hard work, dedication and a commitment to

maintain the highest standards of excellence. A conviction, that human

resources are the most important assets of an organization. Pursuing such a

conviction is translated into assembling a cadre of employees with a wealth

of experience, devotion and loyalty, that inspire motivation and growth.

Annual Report 2010 I 1

Chairman’s Message

At the outset, I wish to congratulate every employee, on behalf of my colleagues and Members of the Board, for their valuable contribution to making the year extremely exciting andprofitable.Wenotonlyregistereda168%increaseinournetprofits,butmost importantly, we surpassed some of the stiffest challenges posed to us, both on the production and operations fronts.Consideringthecurrentglobal market trends, I can say with confidencethattheyear2010willgodown as one of the most satisfying and memorableyearinSipchem’shistory.

Even as we dwell upon our achievements, we are proud to remain committed to the highest quality and excellence standards that recognized us as having one of the best Saudi working environment for three consecutiveyears.

This year, we also received the ‘Responsible Care Accreditation’

tobecomethefirstpetrochemicalcompany to be conferred with thisprestigiousaward.Ithankeveryone involved for this remarkable achievement.ZeroaccidentsandZeroincidents is our ultimate aim and we continue to stress upon promoting a culture of safety, both on and off the jobsite.Icalluponeveryemployeeto recognize and commit themselves to their safety and of their co-workers.OurrecentlylaunchedHomeOwnership Program and Savings Plan is also progressing on schedule and I amconfident,thatouremployeeswillbenefitimmensely.Itistheleastwecan do to improve the lifestyles of our fellowcitizens.

Even as I speak, our new 100,000 MT Ethyl Acetate Plant in Jubail continues tostridetowardsreality.Whencompleted in 2013, it will integrate our current product portfolio and satisfy all local needs in addition to meeting

the demand of the international marketsforEthylAcetate(EA).

Thanks to a vast improvement in performance, our methanol and Butanediol plants recorded strong growth to boost total sales to over SR 1990 million and I am sure that we will maintainthistrendintheyearstocome.

I would like to express my thanks and gratitude to the shareholders for the confidencetheyentrustedinusandinadditionstotheirunlimitedsupport.I wish the company all the progress and success under the support of the Government of the Custodian of the Two HolyMosquesandhisCrownPrince.

Abdulaziz A. Al-ZamilChairman, Board of Directors

It gives me great pleasure to present to you a brief on the events and achievements leading up to the financial results of the Saudi International Petrochemical Company (Sipchem) and its affiliates for the year ended 31 December 2010.


2


Purpose and Values

Purpose

To be a responsible, innovative and globally recognised petrochemical

company providing competitive and quality products to satisfy our

customers, motivate our employees and meet Shareholders’ expectations.

Values

• Adheringtohighestethicalstandards,embracingintegrity,

trust and taking responsibility for Sipchem’s actions.

• Strivingforoperationexcellenceindeliveringproductsandservices.

• Embracinginnovationandadaptingtochangingconditions.

• CaringforthewellbeingofSipchem’sEmployees,

CommunityandEnvironment.


Board of Directors

1 Dr. Abdurrahman A. Al-Zamil Member

2 Mr. Abdurrahman A. Al-Turki Member

3 H.E. Eng. Abdulaziz A. Al-Zamil Chairman

4 Dr. Abdulaziz A. Al-Gwaiz Member

5 Dr. Sami M. Zaidan Member

6 Mr. Fahad S. Al-Rajhi Member

7 Mr. Abdulaziz A. Al-Khamis Member

8 Eng. Reyadh S. Ahmed Member

9 Eng. Ahmad A. Al-Ohali Member and CEO

10 Eng. Mohammed A. Al-Ghurair Member

11 Dr. Saleh H. Al-Humaidan Member1

6 7 8 9 10 11

2 3 4 5

4

CEO’s Message

Despite these uncertain times, Sipchem haspostedunprecedentedfinancialresults coupled with a number of major production achievements, along with a continuous emphasis on creating a saferenvironment.2010alsomarksa year of much excitement and hope forthefuture.ItiscommendablethatSipchemhasachievedanetprofitofSR 378 million (a 168% increase over the previous year) and I would like to congratulate every individual who contributed to making the year very satisfying.

Such success can only come with hard work, dedication and a commitment to maintain the highest standards of excellence.Asanorganizationblessedwith the visionary leadership of the Board of Directors Sipchem’s success isaninevitableconsequence.Anothermajor factor behind the success of Sipchem’s is its conviction that human resources are the most important assetsofanorganization.

Pursuing such conviction was translated into assembling a cadre of employees with a wealth of experience, oceans of devotion and loyalty, resulting in a management team and systems that inspire motivation, appreciation and harmony.

This annual report is a testimony of our resolve and commitment to bring out the best in us, working as a team and directing our collective efforts towards makingSipchemthemostprofitableandthefinestorganizationtoworkwith.Inthiscontext,itisnoteworthythat we were chosen for the third year running for ‘the Saudi organization with thebestworkingenvironment’award.This award belongs to all of us, to every employee and shareholders, whose initiatives and vision have led us to the highestaltarsofrecognition.Recently,we were also awarded the ‘Responsible Care Accreditation’ in recognition of our safety standards and production processes.

The year witnessed a big improvement in the performance and productivity of the plants, especially Methanol and Butanediol that enabled sales to top SR 1,993 million compared to SR 830 millionin2009.Ouroperatingprofitalsogrew to SR 764 million against SR 168 million a year ago resulting in an EPS ofSR1.13.Itisalsonotablethatsaleprices of Sipchem’s produce recorded a higher price in the international market toaddtothehealthybottomline.

The commercial operations of the Acetyl complex with its three plants beganduringtheyear.Inordertocontinue its planned expansion in new projects, Sipchem has initiated diversificationofprojectfinancingthroughtheissuanceofIslamicSukuks.I would like to express my thanks and gratitude to the Shareholders, Chairman and Board of Directors for allthesupportextendedtomyteam.I wish the company all the progress and success under the support of the Government of the Custodian of the Two Holy Mosques and his Crown Prince.

Eng. Ahmad A. Al-OhaliChiefExecutiveOfficer

The year 2010 represents a glowing milestone in Sipchem’s success and growth. Coming as it does on the heels of a massive downturn in global industrial output and a nervous economic scenario, it is the character and strength of the Sipchem team that has seen us overcome these challenges.


Board of Directors Annual Report - 2010


Description of the Company’s Activities

The Saudi International Petrochemical Company (Sipchem) is considered one of the major and pioneer shareholding public companies that provide the markets with high quality basic and intermediary Petrochemical products.Sipchemwasestablishedlate in the year 1999 as a Saudi closed joint stock company and in the year 2006 it became a public shareholding Company.Thelistofthecompanyfounders includes a good number of reputable and outstanding private sector investors (individuals and companies) from the Kingdom and GCCCountries.Throughtheproductionofsignificantandhighqualityandready to export products, Sipchem is playing an important role in the utilization of the Kingdom’s huge natural resources of hydrocarbons and utilizingthemforthebenefitofnational economy, the company’s shareholders, employees and the communityingeneral.

TheofficialregisteredofficeisinRiyadh and its main investment activity is in basic and intermediary petrochemical, chemical and hydrocarbon industries through the ownership, construction, operation and management of industrial projects for the production of chemical products that are used in the manufacturing of variousproducts.Sipchemisholdinga number of strategic alliances with international partners from the biggest international companies that own the latest international technologies and are having the highest marketing standing.Sipchemiscommittedtothe highest quality standards in all its activities whether in its products or maintaining the integrity of the surrounding environment or the safetyofitsemployees.Sipchemhasset up future plans to achieve more development and growth on all aspects with the objective of becoming one of the biggest private sector companies intheMiddleEastRegion.

Sipchem operations have been designed to utilize the available natural gas and other petrochemical raw materials in the Kingdom in a way that renders Sipchem products of competitive prices compared with the localandinternationalmarkets.Bytheuse of Sipchem chemical products as production inputs for the production of chemical product of higher value, Sipchem is aiming at maintaining this feature to climb up the petrochemical valueladder.

Sipchem was able to make savings in costs and ensure the supply of materials through the operation of complementary petrochemicalmaterials.Sipchemadopts the strategy of continued investment through marketing opportunities and adopting the use of raw materials produced by the company through its current operations by adopting the use of raw materials produced by the company through its currentoperations.

Sipchem owns the majority stakes in allofitsaffiliates.Thefollowingtableshows those share percentages:

Affiliate Companies Ownership percentage

International Methanol Company (IMC) 65%

International Diol Company (IDC) 53.91%

International Gases Company (IGC) 72%

International Acetyl Company (IAC) 76%

International Vinyl Acetate Company (IVC) 76%

International Polymers Company (IPC) 75%

International Utilities Company (IUC) 68.58%

Sipchem Marketing and Services Company (SMSC) 100%

8

Description of Activities of the Company’s Affiliates

The International Methanol Company (IMC) is a limited liability company, established in the year 2002, with acapitalofSR360,970,000.Thecompany is operating a plant for the production of Methanol with an annual production of 970 thousand metric tons.Theplantiscurrentlyworkingwith a safe and reliable design capacity.Theplantproduceshighquality Methanol which is shipped to the company’s customers regionally andinternationally.Thecompany’ssite is in Jubail Industrial City, KingdomofSaudiArabia.

The good news for International Methanol Company is that the Chinese Ministry of Commerce has completed its investigations on the anti-dumping claim against Methanol producers in the Kingdom and other countries in October 2010 with the decision not to impose any anti-

dumping duties on the Methanol exportsfromtheKingdom.Thecrediton this is due to the company’s strong defense and the unlimited support from the Ministry of Foreign Affairs, the Ministry of Commerce and Industry and His Majesty the Custodian of the Two Holy Mosques Embassy in the Peoples Republic of China, the Saudi Chambers of Commerce and the Saudi Exports Council.

Methanol is a hydrocarbon compound composed of carbon and hydrogen anditisacolorlessandaflammablesubstance.

Methanol is used in manufacturing a wide variety of chemical products, such as Formaldehyde and Acetic Acid.Methanolasahydrogencarrieris being considered for fuel cell applicationandasanalternatefuel.

The International Methanol Company (IMC)


The International Diol Company (IDC) is a limited liability Company established in the year 2002, withacapitalofSR431,250,000. The company is operating a plant with an annual production capacity of 75 thousand metric tons of Butanediol (BDO) and its derivatives such as Maleic Anhydride (MAn) andTetrahydrofuran(THF). The plant is currently working with asafeandreliabledesigncapacity.The plant produces high quality Butanediol which is shipped to the company‘s customers regionally and internationally.Thecompany’ssiteisin Jubail Industrial City, Kingdom of SaudiArabia.

The company’s production reached 73 thousand metric tons in the year 2010 with a 12% increase than the previous year2009of65thousandmetrictons.The company’s annual production in the year 2010 is the highest since the company stared production in the year2006.Thiswasmanifestedinthecompany’sfinancialperformanceand supported by the increase in the international prices which resulted in the achievement of considerable profits.

Butanediol applications include PBT (Polybutylene Terephthalate), Thermoplastic Copolyester Elastomers, Polyurethane Polyester Plasticizers, Copolyester Hot Melt and SolventborneAdhesives.

Description of Activities of the Company’s Affiliates (continued)

The International Diol Company (IDC)

10

The International Gases Company (IGC) is a limited liability company, established in the year 2006, with acapitalofSR425,400,000.Thecommercial operation of Carbon Monoxide (CO) plant was successfully startedinJune2010.TheCompanyoperates a Carbon Monoxide (CO) plant with a designed production capacity of 340 thousand metric tons perannum(MTPA).Theplantoperateswithareliabledesigncapacity.Thisplant is considered to be the largest COplantofitskindintheWorld.

The product is used as a feedstock fortheproductionofAceticAcid.The plant is considered as an extra source to provide the International DiolCompany(IDC)withhydrogen.The International Gases Company (IGC) production in the year 2010 was253thousandmetrictons.Thecompany’s site is in Jubail Industrial City,KingdomofSaudiArabia.

IGC produces pure Carbon Monoxide (CO), a colorless, practically odorless, and tasteless gas or liquid

International Gases Company (IGC)


The International Acetyl Company (IAC) is a limited liability company established in the year 2006, with acapitalofSR1,003,000,000.Thecommercial operation of the Acetyl plant was successfully started in June2010.TheInternationalAcetylCompany (IAC) operates a plant for the production of Acetic Acid (AA) and Acetic Anhydride (AAn), with an annual production capacity of 460 thousandmetrictons.

The plant operates with a reliable designcapacity.Theplantproduceshigh quality Acetic Acid and Acetic Anhydride which are exported to customers regionally and internationally.TheInternationalAcetyls Company (IAC) production in the year 2010 was 364 thousand metrictons.Thecompany’ssiteisin Jubail Industrial City, Kingdom of SaudiArabia.

Acetic Acid is used in the production of Vinyl Acetate, pure Terephthalic AcidandAcetateEsters.

Acetic Anhydride is used in the production of Cellulose Acetate which isusedforfilters,fabrics,etc.

Other applications for Acetic Anhydride include Cellulose Acetate Polymers, including Cellulose Acetate molding resin, Cellulose Acetate Propionate and Cellulose Acetate Butyrate.Inaddition,itiswidelyused to add the Acetyl group in the synthesis of surfactants, drugs, pesticides,dyesandadditives.


International Acetyl Company (IAC)

12

The International Vinyl Acetate Company (IVC) is a limited liability company established in the year 2006, withacapitalofSR676,000,000.Thecommercial operation of the Vinyl Acetate plant was successfully started inAugust2010.TheInternationalVinyl Acetate Company (IVC) operates a plant for the production of Vinyl Acetate Monomer plant with an annual production capacity of 330 thousand metrictons.Theplantoperateswithareliabledesigncapacity.

The plant produces high quality Vinyl Acetate Monomer which is exported to customers regionally and internationally.TheInternationalVinylAcetate Company (IVC) production in the year 2010 was 310 thousand metrictons.Thecompany’ssiteisin Jubail Industrial City, Kingdom of SaudiArabia.

VAM is a key intermediate in a wide range of products of which Polyvinyl Acetate, used mainly for adhesives, represents the largest volume of consumption.PolyvinylAcetateResins are Thermoplastic Copolymers used for making emulsion (latex) products.Majorapplicationsincludeinterior and exterior paints, adhesives, papercoatings,andtextiletreatments.

International Vinyl Acetate Company (IVC)


The International Utilities Company (IUC) is a limited liability company, established in the year 2009, with a capitalofSR2,000,000.Itisownedequally 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).Thepurposeofthecompany is to manage, operate and maintain utilities facilities and services at Sipchem site in Jubail Industrial City,KingdomofSaudiArabia.


International Utilities Company (IUC)

14

Sipchem Marketing and Services Company (SMSC) is a limited liability company, established in the year 2007,withacapitalofSR2,000,000.The company’s location is in Khobar, KingdomofSaudiArabia.

Sipchem Marketing and Services Company (SMSC) functions independently in the marketing and sales of the entire range of Sipchem productsinadditiontootherproducts.The company has a competent sales force team with diverse backgrounds andexperience.

Sipchem Marketing and Services Company (SMSC) concentrates its efforts on marketing the products to the main and strategic markets by the utilization of ways and means ofthelatestmarketingtechniques.Sipchem as being one of the major petrochemical producers has a

dynamic marketing network that covers its customers locally, in the Middle East Region, Asia, the United StatesandEurope.

To face the competition at the level of the international market, Sipchem is trying its best to attract new customers while maintaining its current customers through making available products and services presented in a reliable and effective method based on effective cost and qualitystandards.

Today SMSC sells and markets a number of products including Methanol, Tetrahydrofuran (THF), Butanediol (BDO), Maleic Anhydride (MAn), Acetic Acid (AA) and Vinyl AcetateMonomer(VAM).SMSChasmarketed products totalling 456,595 metrictonsintheyear2010.

Sipchem Marketing and Services Company (SMSC) Sales (Metric tons)

Methanol 384,707

BDO Equivalent 11,904

Acetic Acid 21,405

Vinyl Acetate 38,579

Sipchem Marketing and Services Company (SMSC)


Sipchem performs its business according to the strategic plans

designed by the Board of Directors in all its expansions and operational

processes. Sipchem also strives to create new business opportunities

so as to raise up the actual value of its shareholders and to participate

in the development of the national economy of the Kingdom. Sipchem

also concentrates on creating new projects that have high added value

to be added to the current company products through the production of

derivative products. Sipchem is currently carrying out feasibility studies

for several new industrial projects which are expected to be announced

in the year 2011.

Plans and Future Growth

16

TheInternationalPolymersCompany(IPC)isalimitedliabilitycompany,established in the year 2009, with a capital of SR 305,840,000. Sipchem owns75%andHanwhaChemicalCompanyfromKoreaowns25%.ThisplantisconsideredthefirstofitskindintheregiontoproduceEthyleneVinylAcetate(EVA).Thecompany’slocationisinJubailIndustrialCity,KingdomofSaudi Arabia.

TheEngineering,ProcurementandConstruction(EPC)LSTKcontractforEthyleneVinylAcetate(EVA)plantwasawardedtoGSEngineering&ConstructionCorporation(GSEC),Koreaon December 15, 2010. The new plant, with annual capacity of 200 thousand metrictonsofEthyleneVinylAcetateandLowDensityPolyethylene,willbelocatedin the company’s complex in Jubail IndustrialCity.Theprojectisscheduledforstart-up in 2nd quarter 2013.

The total estimated value is around SR 3 billion and is expected to make available 200 direct employment opportunities. The Ministry of Petroleum and Minerals

has allocated the main feedstock (Ethanegas)whichwillbecrackedtoEthylenebyoneofSabiccompanies.The Vinyl Acetate Monomer (VAM), as a second feed stock will be made available from the International Vinyl AcetateCompany,aSipchemaffiliate.Sipchem previously announced the execution of the technology license for thisplantfromExxonMobilChemicalTechnologyLicensing(EMCTL).BothSipchemMarketingCompanyandHanwa will market the products of this project internationally.

EVAisusedinhotmeltadhesives,hot glue sticks, top of the line soccer cleats.EVAisalsousedinBiomedicalEngineeringapplicationsasadrugdeliverydevice.EVAisoneofthematerials popularly known as expanded rubber or foam rubber used as padding in equipment for various sports It is typically used as a shock absorber insportsshoes.LDPEiswidelyusedfor manufacturing various containers, dispensing bottles, wash bottles, tubing, plastic bags.

Projects Under Development

International Polymers Company (IPC)


As part of third expansion program, Sipchem is currently working on the constructionandoperationofanEthylAcetate / Butyl Acetate plant with a production capacity of 100,000 metric tonsinJubailIndustrialCity,KingdomofSaudi Arabia.

Sipchem has signed agreements with the French company Rhodia on August 4, 2010. This includes the use of its technology, the marketing agreementandanEthanolsupplyagreement. Through the use of Rhodia technology and their experience in thisfield.Sipchemplanstoachievesignificantgainsinthequalityoftheproduct and reduction of the cost of the plant production that parallels or exceeds the international levels. The plant will be designed in a way to allow the production of another material, Butyl Acetate (BA). The plant will be located in JubailIndustrialCity,KingdomofSaudiArabia.

Sipchem awarded the engineering, designandconstruction(LSTK)contractsforitsEthylAcetatePlanttoeTECEngineering&ConstructionCompany,Koreaon8January2011.This plant comes as a part of Sipchem’s growth in comprehensive downstream products in full integration with current productsportfolio.TheEthylAcetateplant is expected to start production duringthefirstquarteroftheyear2013.

It is worth noting that the raw materials fortheproductionofEthylAcetatesuchas Acetic Acid will be obtained from the internationalAcetylCompany(oneofSipchemAffiliates)andEthanolwillbeimported from international markets. The initial estimates for the project is around SR 350 million and it will be owned whollybySipchemandwillbefinancedby Sipchem as a capital in addition toloansfromseveralotherfinancingagencies yet to be determined.

Projects Under Development (continued)

Sipchem Chemical Company

18

Sipchem is building a corporate Product&ApplicationDevelopmentCenter[PADC]onaplotof15,000m2 at Dhahran Techno Valley of King Fahd University of Petroleum and Minerals [KFUPM],intheEasternProvinceofKingdomofSaudiArabia.ThePADCwill be operational in mid-2012. The estimated cost of this center is in excess ofSR100million.ThePADCwillhavethe latest Instruments and equipment for polymerization, compounding, moulding, testing, analysis, processing, and application development.

The project engineering designs are completed. The award of the construction contracts is expected duringthefirstquarteroftheyear2011.

This technical center will be a new focus of polymer technology in the Kingdom; it is mandated to develop the downstream polymer converting industry in the Kingdom; it will assist Sipchem Marketing in achieving their commercial targets by new product development, competitive analysis, technical services to customers and technical market development activities; and it will improve the processes of international PolymerCompany(IPC)throughprocess optimization and polymerization research.

Sipchem Product & Application Development Centre (PADC)


Risk of Prices Fluctuation:

Riskofchemical,petrochemicalproductsandshippingpricesfluctuations.

Risks of Financing:

Includingtheavailabilityoffinancing,thefluctuationsofcurrencypricesand

thefinancialsituationoftheaffiliatedcompanieswhicharemostlydependent

onfinancing.

Plants Operation Risks:

Including the general operation risks.

Risks of the non-availability of the basic supply items (feedstock)

Environmental Risks:

The possibility of imposing more aggressive environmental regulations or any

other general regulations.

Market Related Risks:

CompetitionandpricesrisksrelatedtoproductsproducedbySipchem

affiliatedcompanies.

Risks Related to Company and Affiliates Business

20

The improvement in the operational performance of the plants resulted in the increase of production quantities and the development of the sales of the Methanol and Butanediol plants in addition to the increase of the prices of these products. This consequentlyledtotheincreaseoftheprofitmargins,improvementofworkcapabilityandproductivityandreductionofcosts.Sipchem has previously announced the commercial operation of the acetyl complex in the middle of the year. The reduction in thepricesoftheAceticacidandtheVinylAcetateduringtheyearimpactedthecompanyprofits.Thereisaminorimprovementin these prices during the months of November and December 2010.

Belowarethefinancialindicatorsoftheyear2010comparedwithpreviousyear:1.Thetotalprofitfortheyear2010wasSR861.3millioncomparedwithSR235.7millionforthepreviousyearwith

265.4%increase.

2.Theoperationalprofitfortheyear2010wasSR764.1millioncomparedwithSR168.3millionfortheyear2009with 354% increase.

3.Thenetprofitfortheyear2010wasSR378.1millioncomparedwithSR140.9millionforthepreviousyearwith 168.3%increase.

4.TheEarningsPerShare(EPS)wasSR1.13comparedwithSR0.42forthepreviousyear.

5. The total assets for the year 2010 were SR 12 billion compared with SR 11.8 billion for the previous year with 1.7% increase.

1. Summary of the business results for the previous five years:(Saudi Riyals)

Details 2006 2007 2008 2009 2010

Total Current assets 1,824,070,534 1,994,751,478 2,841,623,155 2,217,676,762 2,425,569,371

Total non-current assets 3,438,135,912 5,755,301,075 7,991,765,122 9,600,526,773 9,600,976,473

Total assets 5,262,206,446 7,750,052,553 10,833,388,277 11,818,203,535 12,026,545,844

Total current liabilities 601,236,845 2,163,553,911 1,009,403,414 903,102,522 856,510,238

Total non-current liabilities 1,700,962,210 1,694,328,522 3,965,717,244 5,083,145,195 5,156,140,356

Total shareholders’ equity and minority interest

2,960,007,391 3,892,170,120 5,858,267,619 5,831,955,818 6,013,895,250

Total liabilities, shareholders’ equity and minority rights

5,262,206,446 7,750,052,553 10,833,388,277 11,818,203,535 12,026,545,844

NetProfit 493,693,293 593,972,141 536,782,148 140,879,515 378,079,252

Earnings Per Share (EPS) 3.29 2.97 1.66 0.42 1.13

WeightedAverageNumberofOutstandingShares

150,000,000 200,000,000 323,498,419 333,333,333 333,333,333

Financial Statements


Assets Shareholders Equity

2. Development of sales, income from operations and net profit for the past five years: (Million Saudi Riyals)

3. Total Assets and Shareholders’ Equity for the past five years: (Billion Saudi Riyals)

2006 2007 2008 2009 2010

Sales OperationalProfit NetProfit

1993

378

764

830

141

168

1709

537

944

1528

594

896

1334

773

494

2006 2007 2008 2009 2010

12.0

4.9

11.8

4.9

10.8

5.0

7.8

3.0

5.3

2.4

Financial Statements (continued)

22

4. Significant differences in operational results from previous year: (Saudi Riyals)

Details 2010 2009 Changes+/- Change percentage

TotalProfit 861,353,068 235,736,699 625,616,369 265.5%

OperationalProfit 764,150,970 168,331,371 595,819,599 354%

NetProfit 378,079,252 140,879,515 237,199,737 168.3%

Themainreasonfortheincreaseinthefinancialresultsfortheyear2010comparedwiththeyear2009wasmainlyduetotheimprovement in the operational performance of the plants which resulted in the increase in production and sales quantities in Methanol and Butanediol plants. In addition, the year witnessed an increase in the global sale prices of these products and also animprovementoftheworkefficiency,productivity,andoverallcostreduction.

5. The Geographical Analysis of Company’s Sales: Themarketingandsalesofcompanyproductstakesplaceinthelocalmarkets,theMiddleEastandtheinternationalmarkets.Thebelowgraphshowsthegeographicaldistributionofthecompanysales:


Asia 46.3%

Europe 20.1%

LocalMarketandMiddleEast 12.1%

InternalSales 21.5%


6. Total Debts for Sipchem and its Affiliates:TheSaudiInternationalPetrochemicalCompany(Sipchem)isnotcommittedtoanylongtermloanagreements.Thelongtermfinancingagreementsareonlywiththecompany’saffiliates.Thetablebelowshowsthelongtermloanagreementsandtheirrepayments during the year 2010.

(Saudi Riyals)

Company Name Total current long term loans as of 31/12/2010 Total repayments during 2010

International Methanol Company 401,351,351 42,810,811

International Diol Company 977,464,249 7,000,000

International Acetyl Company 2,569,264,136 76,945,211

International Vinyl Acetate Company 1,819,395,451 44,084,192

International Gases Company 988,648,948 10,951,052

7. Governmental Due Payments: (Saudi Riyals)

Entity Government payments up to 31/12/2010

Zakat&IncomeDepartment 48,937,352

General Organization for Social Insurance (GOSI) 16,054,487


24

ThecompanyInternalAuditCommitteeperiodicallyandregularlyreviewstheinternal audit system for the different departments of the company. This audit is based on annual plans approved by the audit committee so as to make sure of the effectiveness this system and its capability of protecting company assetsandensurethecompetenceandintegrityofprocedures,financialandnon-financialoperationsandcommitmentofcompanyemployeeswiththe regulations issued by the different government agencies and related regularity bodies in addition to the commitment to the company’s approved internalpoliciesandsystems.TheAuditCommitteeContinuouslysupervisesthe works of the internal audit committee and regularly reviews its reports. Thescopeoftheinternalauditdepartmentincludesthefollowing:

1. Prepare the annual strategic plan for the work of internal

audit committee.

2. Auditing and periodic examinations on all administrative and

operationaldepartmentsandnotifyingtheirofficialsoftheresults.

3.Evaluatingtheproceduresandthesolutionsprovidedbythedepartmentsto ensure suitability and affectivity of the proposed procedures.

4. Submit reports on the auditing results and recommendations in addition to the later follow up of these results to ensure their application by the concerned departments.

In addition to the above, the company’s external auditor, as part of his 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 between functions, control systems and strict control on company operations.

The internal audit committee has not discovered any violation or any integral weakness in the company’s internal audit system or different operations in the year 2010,

The Internal Audit


1. The Composition of the Board of Directors:The Board of Directors is composed of eleven members. The General Assembly Meeting held on 28/09/2010 elected eleven membersfromthefourteenBoardmembercandidatesfortheSaudiInternationalPetrochemicalCompany(Sipchem)forthenextterm of three years as of 10/12/2010 to 09/12/2013 according to the by-laws of the company. Nine members of the previous Boardwerere-elected,twonewmemberswereelectednamely:Dr.SamiM.ZaidanandMr.AbdulazizA.Al-KhamisassuccessorsfortheformerboardmembersMr.AbdullahS.BahamdanandEng.IbrahimM.Al-Humaidanwhodidnotnominatethemselvesformembership of the next term of the Board of Directors.

ThemembersareclassifiedaccordingtothedefinitionascontainedinarticletwooftheCorporateGovernanceRegulationsissuedbytheCapitalMarketAuthorityintheKingdomofSaudiArabiaasfollows:

No. Name Responsibilities Membership type

1 H.E.Eng.AbdulazizA.Al-Zamil Chairman Non-executive

2 Dr.AbdulazizA.Al-Gwaiz Member Non-executive

3 Mr.FahdS.Al-Rajhi Member Non-executive

4 Eng.ReyadhS.Ahmed Member Non-executive

5 Dr.SamiM.Zaidan Member Non-executive

6 Mr.AbdulazizA.Al-Khamis Member Non-executive

7 Dr.SalehH.Al-Humaidan Member Independent

8 Dr.AbdurrahmanA.Al-Zamil Member Independent

9 Mr.AbdurrahmanA.Al-Turki Member Independent

10 Eng.MohammedA.Al-Ghurair Member Independent

11 Eng.AhmadA.Al-Ohali Member / CEO Executive

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

No. Name Membership in other joint stock companies

1 H.E.Eng.AbdulazizA.Al-Zamil - Sahara Petrochemical Company (Pubic Joint Stock-KSA)- Alinma Bank (Public Joint Stock- KSA)-Al-ZamilGroupHoldingCompany(ClosedJointStock-KSA)

2 Dr.AbdulazizA.Al-Gwaiz -Al-KhaleegTraining&EducationCo.(PubicJointStock-KSA)

3 Mr.AbdurrahmanA.Al-Turki -Al-SaqrCooperativeInsuranceCo.(PubicJointStock-KSA)-InvestcorpCo.(PubicShareholding-Bahrain)-GoldenPyramidsPlazaCo.(PubicJointStock-Egypt)

4 Dr.AbdurrahmanA.Al-Zamil - Sahara Petrochemical Company (Pubic Joint Stock-KSA)-Al-ZamilIndustrialInvestmentcompany(PubicJointStock-KSA)-Al-ZamilGroupHoldingCompany(ClosedJointStock-KSA)- Taqa National Company (Closed Joint Stock-KSA)

5 Mr.AbdulazizA.Al-Khamis - Saudi Investment Bank (Pubic Joint Stock-KSA)- National Petrochemical Company (Closed Joint Stock-KSA)

6 Eng.ReyadhS.Ahmed - Privatization Holding Company (Closed Joint Stock-Kuwait)- Gas and Oil Fields Company (Closed Joint Stock-Kuwait)- Ikarus Petroleum Industries Company (Closed Joint Stock-Kuwait)- Middle East Complex for Industrial, Engineering, Electronic and Heavy Industries

(Closed Joint Stock-Jordon)

The Board of Directors

26

7 Eng.MohammedA.Al-Ghurair - National Cement Company(Pubic Joint Stock-UAE)- Al-Mashreq Bank (Pubic Joint Stock-UAE)

8 Dr.SalehH.Al-Humaidan N/A

9 Mr.FahdS.Al-Rajhi N/A

10 Dr.SamiM.Zaidan N/A

11 Eng.AhmadA.Al-Ohali N/A

3. Board Meeting Attendance Registers:Sipchem board held four meetings during the year 2010, three of which during the previous term which ended on 09/12/2010 and one meeting during the current term which started on 10/12/2010 and will extend up to 09/12/2013. It is worth noting that the members who did not attend any board meetings have given proxy to other board members to represent them. The below tableshowstheattendanceregisterforeveryboardmember:

Board Meetings in 2010

Total attendance No Name First 27/03 Second 08/06 Third 28/09 Fourth 20/12

1 H.E.Eng.AbdulazizA.Al-Zamil 4

2 Dr.AbdulazizA.Al-Gwaiz 4

3 Eng.MohammedA.Al-Ghurair 4

4 Eng.ReyadhS.Ahmed 4

5 Dr.SalehH.Al-Humaidan 4

6 Mr.AbdurrahmanA.Al-Turki 4

7 Eng.AhmadA.Al-Ohali 4

8 Dr.AbdurrahmanA.Al-Zamil x 3

9 Mr.FahdS.Al-Rajhi x 3

10 Mr.AbdullahS.Bahamdan* x 2

11 Mr.IbrahimM.Al-Humaidan* x x 1

12 Dr.SamiM.Zaidan 1

13 Mr.AbdulazizA.Al-Khamis 1

Not a board member * Member of the previous board of directors.


4. Description of any benefits for board members, their wives and children below eighteen years in shares or debt instruments in Sipchem:

Shares on 01 Jan.2010 Shares on 31Dec.2010

Change %

First class relatives

ownership and changesName No. % No. %

H.E.Eng.AbdulazizA.Al-Zamil N/A - N/A - - N/A

Mr.AbdurrahmanA.Al-Turki 7,550,000 2,265 7,550,000 2,265 - N/A

Mr.FahdS.Al-Rajhi 5,459,216 1,638 5,340,000 1,602 -2.2 N/A

Eng.MohammedA.Al-Ghurair 2,787,400 0.8362 2,788,400 0.8364 0.04 N/A

Dr.AbdulazizA.Al-Gwaiz 30,000 0.009 30,000 0.009 - N/A

Dr.AbdurrahmanA.Al-Zamil 1,147,333 0.344 1,140,000 0.342 -0.64 N/A

Dr.SalehH.Al-Humaidan 3,000 0.001 3,000 0.001 - N/A

Eng.AhmadA.Al-Ohali 461,313 0.138 202,521 0.061 -56 N/A

Eng.ReyadhS.Ahmed N/A - N/A - - N/A

Mr.AbdulazizA.Al-Khamis N/A - N/A - - N/A

Dr.SamiM.Zaidan N/A - N/A - - N/A

5. Description of any benefits to senior executive management, their wives and children below 18 years in shares or debt instruments in Sipchem:


Change %

First class relatives

ownership and changesName No. % No. %

Eng.AbdulRahmanA.Al-Saif N/A - N/A - - N/A

Eng.AbdullahS.Al-Saadoon N/A - N/A - - N/A

Dr.AbdullatifM.Bhairi N/A - N/A - - N/A

Mr.KevinJ.Hayes N/A - N/A - - N/A

Mr.KhaledS.Al-Dossary N/A - N/A - - N/A

Mr.RashidM.Al-Dossari 46 0.00 46 0.00 - N/A

AliH.Al-Irq 9 0.00 9 0.00 - His wife owns 2 shares

Mr.HussainS.AlSaif 2,630 0.001 N/A - -0.001 N/A

The Board of Directors (continued)

28

6. Shareholders who notified the company of percentage changes in their ownerships. TwooftheshareholdersnotifiedthecompanyandtheCapitalMarketAuthorityofthepercentagechangesintheirsharesownershippercentagesduringtheyear2010asfollows:


Net Changes change %Name No. % No. %

National Industrial Holding Group (Kuwait) 27,746,282 8.3% N/A 0 -27, 746,282 -100%

Ikarus Petrochemical Holding Company (Kuwait)

N/A 0 27,746,282 8.3% 27,746,282 100%

7. Rewards and compensations for the board members and senior executives:Thebelowscheduleshowstherewardsandcompensations(salaries,benefits,etc.)paidtotheboardmembersandseniorexecutiveswhohavereceivedthehighestrewardsandcompensationsfromthecompanyincludingtheCEOandtheGeneralManagerofFinanceduringtheyear2010:

(Saudi Riyals)

Detail Executive Board membersNon - executive Board members/Independent

Five of the senior executives who received the highest

rewards and compensations.

Salaries and compensations - - 7,596,958

Allowances 14,500 155,232 -

Periodic and annual rewards 200,000 2,000,000 2,098,096

Incentive plans - - -

Anyothercompensationsandanyotherbenefitsofkindpaid monthly or annually

- - -


1. The Audit Committee:TheAuditCommitteeiscomposedofthreemembers.OneofthemembersisaboardmemberwhiletheothertwomemberswhoareexperiencedandspecializedinthefinancialaffairsarenominatedfromoutsidetheBoardofDirectors.

TheAuditCommitteesupervisesthemanagementoftheInternalAuditDepartmentandrecommendstotheBoardofDirectorsthe assignment of the chartered accountants and determines their responsibilities, propose their annual fees and follow up theauditplan.TheCommitteealsoregularlyreviewsthefinancialsystemsandtherisksinthecompany,compliancewithlegalrequirements,statutory,accountingrulesonthebasisofCapitalMarketAuthorityregulations.TheresponsibilitiesoftheCommitteeincludethereviewofthepreliminaryandannualfinancialstatementsofthecompanybeforesubmissiontothe BoardofDirectorsandstudytheaccountingpoliciesandmakerecommendationsthereoftotheBoard.TheCommitteehasheldtwo meetings during the year 2010.

Thecommitteemembershavebeenre-nominatedbyaresolutionoftheboardon20/12/2010foranothertermofofficeextending from 10/12/2010 to 09/12/2013.

ThetablebelowshowsthenamesofAuditCommitteeMembers:

Name Identity

Mr.FahdS.Al-Rajhi Committee Chairman-Board Member

Mr.AdibA.Al-Zamil CommitteeMember-Al-ZamilHoldingCo.

Mr.SaudS.Al-Juhani Committee Member-Public Pension Agency

2. The Nominations and Remuneration CommitteeTheCommitteeiscomposedoffiveboardmembersofthecompany.Thecommitteerecommendsthenominationforboardmembership according to the approved standards and the annual review of the capabilities required for board membership and the review of its organization chart and submit 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 2010.

TheCommitteeMembershavebeennominatedbyaresolutionoftheBoardofDirectorson20/12/2010forthetermofofficeextending from 10/12/2010 to 09/12/2013.

ThetablebelowshowsthenamesoftheNominationsandRemunerationsCommitteemembers:

Name Identity

H.E.Eng.AbdulazizA.Al-Zamil Committee Chairman

Dr.AbdulazizA.Al-Gwaiz Committee Member

Mr.SalehH.Al-Humaidan Committee Member

Mr.FahdS.Al-Rajhi Committee Member

Dr.SamiM.Zaidan Committee Member

Board Committees

30

3. The Executive Committee:TheExecutiveCommitteeiscomposedofsixmemberswhoareallboardmembers.TheCommitteesubmitsrecommendationsto the Board of Directors on various subjects such as the management and direction of the activities and business affairs of the company. Also, the committee reviews and evaluates new projects and strategic decisions of company’s operational priorities andinvestments.TheCommitteeheldonemeetingduringtheyear2010.

TheCommitteeMembershavebeennominatedbyaresolutionoftheBoardofDirectorson20/12/2010forthetermofofficeextending from 10/12/2010 to 09/12/2013.

ThetablebelowshowsthenamesoftheexecutiveCommitteeMembers

Name Identity

H.E.Eng.AbdulazizA.Al-Zamil Committee Chairman

Dr.AbdulazizA.Al-Gwaiz Committee Member

Mr.FahdS.Al-Rajhi Committee Member

Eng.AhmadA.Al-Ohali Committee Member

Eng.ReyadhS.Ahmed Committee Member


TheBoardofDirectorsconfirmsthefollowing:

•Thattheaccountsregisterhasbeenpreparedinthecorrectformatandaccording to the Generally Accepted Accounting Principles (GAAP).

•Thattheinternalcontrolsystemhasbeenpreparedonsoundbasisandisbeing implemented effectively.

•Thattherearenodoubtsaboutthecompany’sabilitytogoaheadwiththeperformance of its activities.

•ThattheunifiedfinancialstatementshavebeenpreparedaccordingtothestandardsandtheaccountingsystemsissuedbytheSaudiCommitteeforSaudiCharteredAccountantsandaccordingtotherelatedrequirementsoftheCompaniesregulationsandstatuteofthecompanywithregardtothepreparationandpublicationoffinancialdetails.

•Thatthecompanyhasnotissuedanybondsandconsequentlyhasnotrecovered or purchased or canceled any recoverable debt instruments.

•Thatthecompanydoesnothaveanytransferrightsoranysubscriptionsbased 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 2010.

•ThatthereisnocontracttowhichthecompanyisapartyandthatthereisorhasbeenanysubstantialbenefitinittoanyboardmemberortheChiefExecutiveOfficerortheGeneralManagerofFinanceortoanypersonrelated to any one of them.

•Thattherearenoarrangementsoragreementsthroughwhichanyoftheboard members or any of the senior executive waives any salary or any compensation.

•Thattherearenoarrangementsoragreementsthroughwhichanyofthecompany’sshareholderswaivesanyprofitrights.

Board of Directors’ Declaration

32

BasedonarecommendationfromtheBoardofDirectorsoftheSaudiInternationalPetrochemicalCompany(Sipchem)duringtheExtra-ordinaryGeneralAssemblyMeetingheldon27/11/2010approvedtheamendmentofarticlefifteenofthecompanyby-laws to allow the company to issue negotiable debt instruments including Sukuk or bonds and approved the company’s issuanceofnegotiabledebtinstrumentsandauthorizedtheBoardofDirectors,inasfarasnotconflictingwiththeby-lawstoissue debt instruments such as bonds or Sukuks inside the Kingdom of Saudi Arabia or outside it according to the systems, laws and regulations in place.

ThroughtheissuanceofIslamicSukuk,Sipchemintendstofinancethecompany’snewcapitalexpansionprojects.Sipchemalwaysstrivestodiversifyitsfinancialrecoursesanddebtinstrumentsthroughtheinvestmentinallpossiblealternativesforthebenefitofthecompanyanditsshareholders.ItisexpectedthattheissuanceofSukukwillreachSR1.5billionsubjecttoincrease.TheSukukissuanceisexpectedduringthefirstquarteroftheyear2011.

Issue of Islamic Sukuk


Sipchem held three successful General Assembly meetings during the year 2010 as shown below. The company has advertized thedatesoftheseGeneralAssemblymeetingsintheCapitalMarketAuthority(CMA)website,companywebsite,theofficialnewspaperandthelocalnewspapersatleasttwentyfivedayspriortothescheduleddayofthemeeting. The advertisements showed the time, location and the agenda for these meetings.

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 those meetings, the voting procedures through calling the General Assembly, thedistributionofwellpreparedfilescontainingenoughinformationthatenablestheshareholderstotakeuptheirdecisions. ThecompanyalsonotifiedtheCMAabouttheresultsofthesemeetingsimmediatelyaftertheirconclusions.Theshareholderswerealsoenabledtoviewtheminutesofthemeetingsatthecompanyofficesorthroughthecompanywebsite.

No Assembly Meeting Attendance % Resolutions adopted

1 27/03/2010 Ordinary General Assembly

64% 1.Approvalofboardreportforfiscalyear2009.

2.Ratificationoffinancialstatementandprofitsandlossesaccountofthecompanyasof31/12/2009.

3.Dischargeofboardmembersforthepreviousyear2009.

4.Approvaloftheaccountsauditornominatedbytheauditcommittee for the audit of company accounts for the fiscalyear2010.

5.Approvaloftheboardrecommendationforcashdistribution of dividends to company shareholders for year 2009 with a total amount of SR 333,333,333 with a rate of SR 1 (one) per share which represents 10% of thecompanycapitalpriorityinprofitdistributionoftheseshares shall be to the shareholders who are registered in the registry by the end of the Tadawl at the end of the assemblymeeting.

2 28/09/2010 Ordinary General Assembly

65% 1.Electionof(11)elevenmembersfortheboardmembership of Saudi International Petrochemical company (Sipchem) for the new term which extends for three years starting from 04/01/1432H corresponding to 10/12/2010accordingtotheBy-lawsofthecompany.

3 27/11/2010 Extra-Ordinary General Assembly

66% 1.Amendmentofarticlefifteenofthecompanyby-laws by adding to paragraph (b) as regards Suluks and bonds

2.Theapprovalofcompanyissuingnegotiabledebtinstruments including Sukuk or bonds and authorize the BoardofDirectors,inasmuchnotconflictingwiththeterms of the regulations, to issue any type of negotiable debt instruments such as bonds or Sukuk inside the Kingdom of Saudi Arabia or outside it according to the systems,lawsandregulationsinplace.

The General Assemblies

34

Thenetannualprofitofthecompanyisdistributedaccordingtoarticle(41)of the company by-laws after the deduction of all the general expenses and othercostsasfollows:

1.Putaside(10%)ofthenetprofitasalegalreserve.ThenormalGeneralAssembly may stop setting aside of such amount once these reserves reach 50% of the capital.

2. The General Assembly may, based on a proposal to the Board of Directors,setasideacertainpercentageofthenetprofits,toestablishanagreed reserve and allocate it for a special purpose or purposes.

3.Fromtheremainingamountandafterafirstpaymenttotheshareholderequivalent 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 taking into consideration the regulations and the instructions issued by the Ministry ofCommerceinthisregard.Theremainingamountafterthatshallbedistributedtotheshareholdersasanadditionalportionoftheprofit.

On12April2010Sipchemdistributedcashprofitstocompanyshareholdersfor the year 2009 which totaled SR 333,333,333 at the rate of SR 1 for each share which represents 10% of the company’s capital. This is distributed tocompanyshareholderswhoareregisteredintheofficialregisterofthe shareholders at the end of the General Assembly meeting held on 27/03/2010.

Also the Board recommended in its meeting on 20 December 2010 the increase of the company’s capital by 10% from SR 3,333,333,330 to SR 3,666,666,660throughthegrantingonefreeshareforeverytensharesowned by the shareholders who are registered on the company register atthedepositarycentersofthefinancialpapersontheTadawuldayoftheExtra-OrdinarymeetingoftheGeneralAssemblywhichwillbeheldduringthefirstquarteroftheyear2011.TheproposedincreaseinthecapitalwillbecoveredbythetransferofSR333,333,330fromtheretainedprofitsasof30/09/2010aftercompanyacquiringtherequiredapprovalsfromtheofficialentities.Thereasonsforthecapitalincreaseareforfinancingsomepartsofcompany future projects.

Dividends Distribution Policy


SipchemhasappliedallthemandatoryregulationsasincludedintheCorporateGovernancelistissuedbytheCapitalMarketAuthority(CMA),particularlythecommitmenttothebestpracticesthatprotecttheshareholdersrightsandreinforcethecompany’s commitment to declaration and transparency standards including the establishment of a company data base through its electronic site that enables its eligible shareholders, who have not received their dividends for the previous years, to know the details of their dividends. For more information about the shareholders and their dividends details, please visit the followinglink:http://www.sipchem.com/ar/shares.asp

AspartofSipchem’scommitmenttosetupthebestpracticesinthefieldofcorporategovernanceandthedevelopmentofthe related standards and principles, a code of conduct has been developed and applied to all company employees during the year 2010. This code aims at the commitment to the highest moral standards in practicing all company activities. The code of conduct covers a wide range of professional practices and provides the required professional education to all company employees and reinforces the understanding and commitment to these codes to avoid any breaches that subject them to legal responsibilities.Communicationsessionshavebeenheldwithallcompanyemployeestoexplaintherequirementsofthesecodesofconductandallcompanyemployeeshavesignedcommitmentandunderstandingcertificates.

SipchemhasprepareditsgovernanceregulationsaccordingtotherequirementsofArticle(10)paragraph(C)oftheCorporateGovernanceRegulationsissuedbytheCapitalMarketAuthorityandincompliancewiththelistingandinclusionregulationsandthecompanyby-laws.FormoreinformationaboutthecurrentCorporateGovernanceRegulations,pleasevisitthefollowing link:http://www.sipchem.com/ar/Government.htm

ThecompanyhasappliedallarticlesoftheCorporateGovernanceRegulationsissuedbyCapitalMarketAuthoritywiththeexceptionofthearticlebelow:

Article Paragraph Action Reasons and details

(6) Voting Rights

(b) Do the by-laws of the company indicate that the voting method in the item for the selection of the board member in the General Assembly shall be by the cumulative voting?

The by-laws of the company do not includethecumulativevoting.Thecompany is currently applying the normal voting system according to the Company’s by-laws.

Penalties & Fines:

TheCapitalMarketAuthorityhasimposedfinesonSaudiInternationalPetrochemicalCompany(Sipchem)duringtheyear2010asfollows:

1. SR 50,000 (Fifty thousand Saudi Riyals) for the breach of paragraph (f) of article twenty six of the listing rules, because it has publicizeditspreliminaryfinancialstatementfortheperiodendingon31/03/2010inoneofthelocalnewspaperson18/04/2010beforepublicizingthatintheCapitalMarketAuthority.

2.SR50,000(FiftythousandSaudiRiyals)forthebreachofparagraph(f)ofarticlenineoftheCorporateGovernanceRegulationsbecausetheannualboardofDirectorsreportattachedtotheannualfinancialstatementdidnotcontainanyreferencetothepenaltyimposedbytheCMAon19/01/2009.

The Board of Directors discussed these breaches in its meeting on 28/09/2010 and set up necessary mechanisms and procedurestoavoidrecurrenceofsuchbreachesinfuture.TheCMAhasbeeninformedofthesemechanismsandprocedures.

It is worth noting that there are no penalties or sanctions or any under reserve actions on the company from any supervisory or regulatory or judicial entity

Corporate Governance

36

SipchemgivestheutmostattentiontotheCommunicationwithshareholders. It has taken many measures to guarantee the shareholders’rightstoobtaininformationthroughtheCMA“Tadawul”website and the company site www.sipchem.com. Sipchem provides comprehensive information about company activities and business throughtheAnnualReport,periodicfinancialstatementsanddividendsdistribution 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.

Communication with Shareholders


Sipchem believes that its human resources play the basic role in the development of its operations and investments. The company has a clear-cut strategy to attract, develop and improve human skills and capabilities and motivate its human resources. Sipchemanditsaffiliatesstrivetoraiseup the leadership, administrative and technical skills and capabilities of all levels of its employees. This is achieved through the internal and external training plans and programs. This is in addition to the on-the-job training which is considered as the basic company and itsaffiliatespriorities.TheSaudizationprograms are of particular importance to SipchemanditsAffiliates.

These programs resulted in the attainment of very good Suadization levels.HighlyqualifiedSaudiemployeesare currently occupying most of the top and administrative positions. The number of the company employees by the end of the year 2010 was 729 and the percentage of Saudis was 70%. Sipchem has organized its third service award for its employees who completed fiveandtenyearsofcontinuousservice in November 2010 where 42 employees were honored.

Sipchem has organized a number of training courses during the year 2010 in cooperation with some outside training entities. The objective of these programs was to raise up and reinforce the capabilities of the administrative and technical employees. A total of 507 employees have been trained through 163internalandexternaltrainingprograms on various administrative and technical areas.

Human Resources

38

Home Ownership Program:The company is currently implementing aHomeOwnershipProgramforthecompany employees. The program is aimed at granting the chance to the company’s Saudi employees who meet the program conditions to own housing units within the approved policies to assure comfort and stability for its employees and motivate them to continue their services with the company. The company is currently proceeding with the program as per the set schedule.

Sipchem Employee Incentive Program:Sipchem is implementing an employee incentive program which aims at encouragingthecompanyandaffiliatesemployees 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 highlyqualifiedpersonsinthefieldofpetrochemicals to join the company.

Sipchem has announced in the Initial PublicOffer(IPO)intheyear2006andthe offering of shares priority rights in the year 2008, the allocation of these shares to the Sipchem employees incentive programwhereAlZamilHoldingGroup,being one of the founders of Sipchem, and a guarantor for the Sipchem shares allocated the program as per the agreement signed between Sipchem andalZamilGroup,tillSipchemisableto complete the necessary procedures to start special portfolio for the program.

On20December2010atotalof1,536,697shareshavebeentransferredfrom a portfolio under the name of AlZamilHoldingGrouptoaportfoliounderthenameofSipchemEmployeeIncentive program at Al-Bilad Investment Company.ThesharesweretransferredtotheSipchemEmployeeIncentiveProgram after the completion of the necessary procedures to open a portfolio for the program and the approvaloftheCapitalMarketAuthorityof the shares transfer.

Special Employees Programs


In continuation of its social responsibility which aims at reinforcing the company’s participation in the community service and development, Sipchem continued performing its obligation towards the community. Sipchem supports community social causes through annual funding as well as through active participation in activities such as the sponsorship of the second symposium of the charitable societies, organizing a blood donation campaign by company employees,supportingtheEasternProvince people’s festivals and honoring outstanding orphan students.

Sipchem takes its participation and responsibilities towards its community so seriously, that its Board of Directors have allocated 1% of its total net annual profittocharity,inordertosupportitssocial responsibility programs.

These contributions and participations are supervised and managed by “CommunityServicesCommittee”composed of representatives from various company departments. Sipchem has adopted an ambitious program to sponsor a number of orphansintheEasternProvince. This program is characterized by its comprehensive sponsorship of the orphans and their families, including their education, rehabilitation and follow-up until graduation from either a secondary school or from university.

In appreciation of the company’s commendable role in community service, a number of awards and plaques were presented by various entities.

Corporate Social Responsibility

40

Sipchem continued the application of the highest international health and safety standards which are considered the basic values of the company in all its activities. Sipchem has achieved an outstanding record in the area of safety through the use of new standards. During 2010 Sipchem achieved very high levels that exceeded similar international companies. The company continued to maintain its safety achievements through the continuous planned training, preparation of periodic safety rehabilitation programs and the training symposia in all company plants.

The company has applied the annual audit system, used in the plants, to manage the safety operations to ensure the continuous safety for employees, plants and the environment. This is in addition to the training and development programs that are implemented by specializedexpertsinthesefieldstogether with the continuous updating of the systems and procedures to cope up with the new requirements. These systems constitute the basic components for the achievement of bestresultsinthesafetyfield.

During the year 2010 Sipchem continued the application of the requirements of the Responsible Careandbecameonethepioneeringcompanies that applied this international initiative. These efforts were crowned by considering Sipchem as one of the pioneeringcompaniesinthefieldofresponsible care and being authorized to use the logo of the initiative as one of thefirstcompaniestohavethisprivilegein the area. The responsible care initiate programs include the participation in various projects such as carbon dioxide emission, the application of product care, the improvement of safety management operations and enhance the industrial chemical awareness for all stakeholders in the area. The complete commitment to safety and environment standards ranks Sipchem in the frontier for future application of the responsible care initiative.

Responsible Care


Consolidated Financial Statements and Auditors’ Report

for the year ended 31 December 2010


Saudi International Petrochemical Company(Saudi Joint Stock Company)

Contents:45 Auditors’ Report 46 Consolidated Balance Sheet 47 Consolidated Statement of Income 48 Consolidated Statement of Cash Flows 49 Consolidated Statement of Shareholders’ Equity 50 Notes to the Consolidated Financial Statements

44

Auditors’ Report


Saudi International Petrochemical Company (Saudi Joint Stock Company)

Consolidated Balance Sheet As at 31 December 2010

Note2010

SR2009

SR

ASSETS

Current assets

Cash and cash equivalents 3 1,620,643,847 1,831,202,343

Accounts receivable, prepayments and other receivables 4 596,395,125 307,792,014

Inventories 5 208,530,399 78,682,405

Total current assets 2,425,569,371 2,217,676,762

Non-current assets

Property, plant and equipment 6 9,505,558,802 9,517,402,751

Projects’ development costs 7 62,624,486 52,032,381

Intangible assets 8 32,793,185 31,091,641

Total non-current assets 9,600,976,473 9,600,526,773

TOTAL ASSETS 12,026,545,844 11,818,203,535

LIABILITIES, SHAREHOLDERS’ EQUITY AND MINORITY INTERESTCurrent liabilities

Accounts payable, other payables and provisions 9 446,522,604 620,189,321

Short term advances from partners 10 3,275,921 19,491,953

Current portion of long term loans 12 363,900,902 220,610,437

Current portion of obligation under capital lease 13 42,810,811 42,810,811

Total current liabilities 856,510,238 903,102,522

Non-current liabilities

Long Term loans 12 4,201,964,502 4,240,779,613

Obligation under capital lease 13 358,540,540 401,351,351

Long term advances from partners 10 355,595,196 257,171,863

Employees’terminalbenefits 14 52,611,444 40,318,729

Fair value of interest rate swaps 15 187,428,674 143,523,639

Total non-current liabilities 5,156,140,356 5,083,145,195

Total Liabilities 6,012,650,594 5,986,247,717

Shareholders’ equity and minority interest

Share capital 1 3,333,333,330 3,333,333,330

Statutory reserve 916,196,295 878,388,370

General reserve 16 275,000,000 275,000,000

Reserve for the results of sale of shares in subsidiaries 17 48,893,677 54,518,905

Retained earnings 488,496,575 483,758,581

Net change in the fair value of interest rate swaps 15 (140,433,506) (102,917,751)

Total shareholders’ equity 4,921,486,371 4,922,081,435

Minority interest 18 1,092,408,879 909,874,383

Total shareholders’ equity and minority interest 6,013,895,250 5,831,955,818

TOTAL LIABILITIES, SHAREHOLDERS’ EQUITY AND MINORITY INTEREST

12,026,545,844 11,818,203,535

46


Consolidated Statement of Income For the year ended 31 December 2010

Note 2010SR

2009SR

Sales 1,992,536,014 830,402,833

Cost of sales (1,131,182,946) (594,666,134)

GROSS PROFIT 861,353,068 235,736,699

General and administrative expenses 20 (97,202,098) (67,405,328)

INCOME FROM MAIN OPERATIONS 764,150,970 168,331,371

Investment income 7,533,339 14,725,539

Financial charges (107,245,781) (45,388,423)

Provision for development cost no longer required - 75,000,000

Net expenses of pre-operating activities (957,717) (1,707,959)

Other expenses (3,430,350) (558,597)

INCOME BEFORE MINORITY INTEREST AND ZAKAT 660,050,461 210,401,931

Minority interest (238,029,266) (29,164,027)

INCOME BEFORE ZAKAT 422,021,195 181,237,904

Zakat 21 (43,941,943) (40,358,389)

NET INCOME FOR THE YEAR 378,079,252 140,879,515

Earnings per share (from net income) 1.13 0.42

Earnings per share (from main operations) 2.29 0.50

Weighted average number of outstanding shares 333,333,333 333,333,333


Note2010

SR2009

SR

CASH FLOWS FROM OPERATING ACTIVITIESIncome before zakat 422,021,195 181,237,904

Adjustments for:

Depreciation and amortization 305,188,991 171,023,533

Employees’terminalbenefits,net 12,292,715 6,787,980

Financial charges 107,245,781 45,388,423

Minority interest 238,029,266 29,164,027

Net expenses of pre-operating activities 957,717 1,707,959

Provision projects’ development costs no longer required - (75,000,000)

Changes in operating assets and liabilities:

Receivables (288,603,111) (153,931,416)

Inventories (59,826,935) 28,046,097

Payables (186,494,678) (157,318,565)

Cash from operations 550,810,941 77,105,942

Financial charges paid (107,245,781) (185,511,804)

Zakatandincometaxpaid (68,727,929) (66,451,091)

Net cash from / (used in) operating activities 374,837,231 (174,856,953)

CASH FLOWS FROM INVESTING ACTIVITIESNet expenses of pre-operating activities (957,717) (1,707,959)

Purchase of property, plant and equipment (359,910,675) (1,532,362,149)

Additions to intangible assets (5,156,970) -

Additions to projects’ development costs (10,592,105) (32,299,654 )

Refund of excess amount received from the minority interest (8,210,061) -

Proceeds from sale of shares in subsidiaries, net 78,972,062 239,208,904

Net cash used in investing activities (305,855,466) (1,327,160,858)

CASH FLOWS FROM FINANCING ACTIVITIESLong term loans, net 104,475,354 1,179,122,079

Repayment of obligations under capital lease (42,810,811) -

Advances from partners 82,207,301 111,605,404

Change in minority interest (87,878,772) (203,008,051)

Dividends and board of Directors’ remuneration paid (335,533,333) (335,533,333)

Net cash (used in) / from financing activities (279,540,261) 752,186,099

Net change in cash and cash equivalents (210,558,496) (749,831,712)

Cash and cash equivalents at the beginning of the year 1,831,202,343 2,581,034,055

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 3 1,620,643,847 1,831,202,343

SUPPLEMENTARY CASH FLOWS INFORMATION:Non-cash transactions are as follows:

Net change in fair value of interest rate swaps 37,515,755 97,621,667

Reclassificationofdebtarrangementandacquisitioncostandpre-operatingcostfrom intangibles to property, plant and equipment

- 199,105,688

Reclassificationofprojectdevelopmentcosttoproperty,plantandequipment 68,235,096 165,000,000

Transfer from property plant and equipment to inventory 70,021,059 -

Transfer from property, plant and equipment to deferred turnaround cost 6,041,132 -


Consolidated Statement of Cash Flows As at 31 December 2010

48

Share capital

SR

Statutory reserve

SR

Generalreserve

SR

Reserve for the results of

sale of shares in subsidiaries

SR

Retained earnings

SR

Net change inthe fair value

of interest rateswaps

SRTotal

SR

Balance at 1 January 2009 3,333,333,330 864,300,418 275,000,000 - 692,500,351 (200,539,418) 4,964,594,681

Results of sale of shares in subsidiaries (note 1) - - - 54,518,905 - - 54,518,905

Net Income for the year - - - - 140,879,515 - 140,879,515

Net change in fair value of interest rate swaps - - - - 97,621,667 97,621,667

Dividends - - - (333,333,333) - (333,333,333)Transfer to statutory reserve 14,087,952 (14,087,952)

Directors’ remuneration - - - - (2,200,000) - (2,200,000)

Balance at 31 December 2009 3,333,333,330 878,388,370 275,000,000 54,518,905 483,758,581 (102,917,751) 4,922,081,435

Balance at 1 January 2010 3,333,333,330 878,388,370 275,000,000 54,518,905 483,758,581 (102,917,751) 4,922,081,435

Results of sale of shares in subsidiaries (note 1 & 17) - - - (5,625,228) - - (5,625,228)

Net Income for the year - - - - 378,079,252 - 378,079,252

Net change in fair value of interest rate swaps - - - - - (37,515,755) (37,515,755)

Dividends - - - - (333,333,333) - (333,333,333)

Transfer to statutory reserve - 37,807,925 - - (37,807,925) - -

Directors’ remuneration - - - - (2,200,000) - (2,200,000)

Balance at 31 December 2010 3,333,333,330 916,196,295 275,000,000 48,893,677 488,496,575 (140,433,506) 4,921,486,371


Consolidated Statement of Shareholders’ Equity For the year ended 31 December 2010


1. ORGANIZATION AND ACTIVITIES

Saudi International Petrochemical Company (“the company” or “Sipchem”) is a Saudi joint stock company, registered in the KingdomofSaudiArabiaundercommercialregistrationNo.1010156910dated14Ramadan1420H(correspondingto22December1999).Thecompany’sheadofficeisinthecityofRiyadhwithonebranchinAl-Khobar,wheretheheadquartersfor the executive management is located, which is registered under commercial registration number 2051023922 dated 30 Shawwal1420H(correspondingto6February2000).ThesharecapitaloftheCompanyisSR3,333million,dividedinto333.3millionsharesofSR10each.

The principal activities of the Company are to own, establish, operate and manage industrial projects especially those relatedtochemicalandpetrochemicalindustries.TheCompanyincurscostsonprojectsunderdevelopmentandsubsequentlyestablishesaseparatecompanyforeachprojectthathasitsowncommercialregistration.CostsincurredbytheCompanyaretransferredtotheseparatecompanieswhentheyareestablished.

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

Subsidiaries – Saudi limited liability companies Effective Percentage of shareholding

2010SR

2009SR

International Methanol Company (IMC) 65% 65%

International Diol Company (IDC) 53.91% 53.91%

InternationalVinylAcetateCompanyLtd.(IVC) 76% 76%

InternationalAcetylCompanyLtd.(IAC) 76% 76%

International Gases Company (IGC) 72% 72%

Sipchem Marketing and Services Company (SMSC) 100% 100%

International Utility Company Ltd (IUC) 68.58% 68.58%

International Polymers Company (IPC) 75% 100%

TheplantsofthegrouparelocatedatJubailIndustrialCity,KingdomofSaudiArabia.

On25January2010,thecompanysoldoff25%ofitsshareinIPCtoHanwhaChemicalOverseesHoldingsLtd.,aSouthKoreancompany.ThelegalrequirementsforthetransferofsharestothenewpartnerhavebeencompletedinApril2010.

IAC and IGC commenced commercial operations on 5 June 2010 whereas IVC commenced commercial operations on 7 August 2010 following the successful commissioning, testing and acceptance formalities with the main contractors

On 21 Dhu Al-Hijjah 1431H corresponding to 27 November 2010, the Extraordinary General Assembly has permitted the companytoissueIslamicBonds(Sukuk)soastobecompliantwithShari’aLaws,forthepurposeoffinancingthecapitalexpansionsofthecompany’snewprojects.ThecompanyisintheprocessofsubmittingarequesttotheCapitalMarketAuthorityforregistrationandlisting.Thecompany’sManagementexpectsthevalueofofferedbonds(Sukuk)tobeSR1.5billionandtheofferingprocesstobemadeduringthefirstquarteroftheyear2011.

The Board of Directors of the company, at its meeting held on 14 Muharram 1432H corresponding to 20 December 2010,hasrecommendedincreasingthecompany’scapitalby%10bywayofcapitalizingapartoftheprofitsthroughtheissuanceofonebonusshareforeverytensharesheldbytheshareholder.Asaresult,thecapitalshallbeincreasedfrom3,333,333,330to3,666,666,660.Thebonussharesshallbelimitedtotheexistingshareholdersregisteredintherecordsofthe company with (Tadawul) at the end of trading on the day of holding the Extraordinary General Assembly meeting which shallbedeterminedlater,followingthenecessaryapprovalsofcompetentauthorities.


Notes to the Consolidated Financial Statements 31 December 2010

50

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

TheaccompanyingconsolidatedfinancialstatementshavebeenpreparedincompliancewiththestandardsandregulationspromulgatedbytheSaudiOrganizationforCertifiedPublicAccountants.Thefollowingisasummaryofsignificantaccounting policies applied by the Company and its subsidiaries:

Accounting conventionTheconsolidatedfinancialstatementshavebeenpreparedusingthehistoricalcostconventionmodifiedtoincludethemeasurementatfairvaluefortheinterestrateswaps.

Use of estimatesThepreparationoffinancialstatementsinconformitywithgenerallyacceptedaccountingprinciplesrequirestheuseofestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingyear.

Basis of consolidation of the financial statementsTheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandfinancialstatementsofsubsidiariescontrolledbytheCompanypreparedforthesameyearusingunifiedaccountingpolicies.ControlisachievedwheretheCompanyhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeenterprisesoastoobtainbenefitsfromitsactivities.Theconsolidationofthesubsidiaries’financialstatementsinthesefinancialstatementsstartfromthedatecontrolisobtainedbytheCompanyuntilthedatethiscontrolisended.Theacquisitionofsubsidiariesisaccountedforusingthepurchasemethod.Theownershipsharesrelatedtootherpartiesinthegroupofcompaniesareclassifiedunderminorityinterestintheseconsolidatedfinancialstatements.Allsignificantinter-grouptransactionsandbalancesbetweengroupcompanieshavebeeneliminatedinpreparingtheconsolidatedfinancialstatements.

Revenue recognitionThegroupmarketsitsproductsthroughmarketers.SalesaremadedirectlytofinalcustomersandalsototheMarketers’distributionplatforms.Thesalesthroughthedistributionplatformsarerecordedatprovisionalpricesatthetimeofshipments,whicharelateradjustedbasedonactualsellingpricesreceivedbytheMarketersfromtheirfinalcustomers,afterdeductingthecostofshipping,distributionandmarketing.Adjustmentsaremadeastheybecomeknowntothegroup.LocalandexportsalesarerecognizedatthetimeofdeliveryoftheproductattheloadingterminalslocatedattheplantandattheKingFahdIndustrialPortinJubailIndustrialCity.

ExpensesAlltheyearexpensesexceptforproductioncosts,financialchargesandnetexpensesofpre-operatingactivitiesareclassifiedasgeneralandadministrativeexpenses.

Cash and cash equivalentsCash and cash equivalent consists of bank balances, demand deposits, cash on hand and investments that are readily convertibleintoknownamountsofcashandhavematurityofthreemonthsorlesswhenpurchased.

Accounts receivableAccountsreceivablearestatedatoriginalinvoiceamountlessallowanceforanyuncollectibleamounts.Anestimatefordoubtfuldebtsismadewhencollectionofthefullamountisnolongerprobable.Baddebtsarewrittenoffasincurred.

InventoriesInventoriescompriseofsparepartsandfinishedgoodsandarestatedatthelowerofcostormarketvalue.Costsofmanufacturedgoodsincluderawmaterials,directlaborandmanufacturingoverheads.Thecostofsparepartsandfinishedgoodsarearrivedatusingtheweightedaveragecostmethod.Appropriateprovisionsaremadeforslowmovingandredundantinventories.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Projects’ development costProjects’ development cost represent mainly legal and feasibility related costs incurred by the company in respect of developingnewprojects.Uponsuccessfuldevelopmentoftheprojects,costsassociatedwiththeprojectsaretransferredtotherespectivecompanysubsequentlyestablishedforeachproject.Projectsdevelopmentcostsrelatingtotheprojectsdeterminedtobenon-viablearewrittenoffimmediately.

Property, plant and equipmentProperty,plantandequipmentarestatedatcostlessaccumulateddepreciation.Expenditureonmaintenanceandrepairsisexpensed,whileexpenditureforbettermentiscapitalized.Depreciationisprovidedovertheestimatedusefullivesoftheapplicableassetsusingthestraightlinemethod.Theestimatedusefullivesoftheprincipalclassesofassetsareasfollows:

Years

Plant and machinery 10 – 25 (Year 2009: 10-20)Buildings 2-33.3Vehicles 4Catalyst & tools 1 – 10Computer,furniture,fixturesandofficeequipment 1 –10

Intangible assets Intangibleassetsrepresentturnaroundmaintenancecostsandotherdeferredcharges.Theplannedturnaroundcostsaredeferredandamortizedovertheyearuntilthedateofthenextplannedturnaround.Shouldanunexpectedturnaroundoccur prior to the previously envisaged date of planned turnaround, then the previously unamortized deferred costs are immediatelyexpensedandthenewturnaroundcostsareamortizedovertheperiodlikelytobenefitfromsuchcosts.Otherdeferredchargesareamortizedovertheperiodlikelytobenefitfromsuchcosts.

Permanent impairment of non-current assetsAttheendofeachfiscalyear,thegroupreviewsthecarryingvaluesofproperty,plantandequipmentandothernon-currentassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedimpairment.Ifsuchindicatorsexist,therecoverableamountoftheassetisestimatedinordertodeterminetheextentofimpairment(ifany).Whereitisnotpossible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash generatingunittowhichtheassetbelongs.

The carrying value of the asset (or generating unit) is reduced to the recoverable value when the recoverable value is below thecarryingvalue.Impairmentlossisrecognizedasexpensewhenincurred.

Whereanimpairmentlosssubsequentlyreverses,thecarryingvalueoftheasset(generatingunit)isincreasedtotherevised 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.Thereversalofimpairmentlossisrecognizedasincomeonceidentified.

Derivative financial instrumentsDerivativefinancialinstrumentsareinitiallyrecordedatcostandarere-measuredtofairvalueatsubsequentreportingdates.Changesinthefairvalueofderivativefinancialinstrumentsthatdonotqualifyforhedgeaccountingarerecognizedintheconsolidatedstatementofincomeastheyarise.

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 theconsolidatedbalancesheet.Thegainorlossfromthechangeinthefairvalueofthehedginginstrumentisrecognizedimmediatelyintheconsolidatedstatementofincome.Atthesametime,thecarryingamountofthehedgeditemisadjusted for the corresponding gain or loss since the inception of the hedge, which is also immediately recognized in the consolidatedstatementofincome.


Notes to the Consolidated Financial Statements (Continued)31 December 2010

52

Acashflowhedgeisahedgeoftheexposuretovariabilityincashflowsrelatingtoarecognizedassetorliability,anunrecognizedfirmcommitmentoraforecastedtransaction.Totheextentthatthehedgeiseffective,theportionofthegainorlossonthehedginginstrumentisrecognizedinitiallydirectlyinequity.Subsequently,theamountisincludedintheconsolidatedstatementofincomeinthesameyearoryearsduringwhichthehedgeditemaffectsnetprofitorloss.Forhedges of forecasted transactions, the gain or loss on the hedging instrument will adjust the recorded carrying amount of theacquiredassetorliability.

Foreign currency transactionsForeign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesattheconsolidatedbalancesheetdatearetranslatedattheexchangeratesprevailingatthatdate.Gainsandlossesfromsettlementandtranslationofforeigncurrencytransactionsareincludedintheconsolidatedstatementofincome.

Employee’s terminal benefitsProvision is made for amounts payable under the employment contracts applicable to employee’s accumulated years of serviceattheconsolidatedbalancesheetdate.

Provision for obligationsA provision is recognized when the company has a legal or constructive obligation as a result of a past event, and the settlementofsuchobligationsisprobableandcanbemeasuredreliably.

ZakatThegroupissubjecttozakatandincometaxregulationsintheKingdomofSaudiArabia.Zakatandincometaxesareprovidedonanaccrualbasis.Anydifferencebetweentheestimatedzakatfortheyearsandthezakatprovisionthatiscalculatedbasedonthedetailedzakatbaseatyearendareaccountedforattheendoftheyear.Additionalamounts,ifany,thatmaybecomedueonfinalizationofanassessmentareaccountedforintheyearinwhichassessmentisfinalized.Thezakatchargeintheconsolidatedfinancialstatementsrepresentsthezakatforthecompanyandthecompany’sshareofzakatinsubsidiaries.Thezakatchargeandincometax,assessableontheminorityshareholders,isincludedinminorityinterest.

Statutory reserveIn accordance with Saudi Arabian Regulations for Companies, the parent company must set aside 10% of its net income in eachyearuntilithasbuiltupareserveequaltoonehalfofthecapital.Thereserveisnotavailablefordistribution.

Reserve for the results of sale of shares in subsidiariesThe gains or losses resulting from sale of shares in subsidiaries, when the company continues to exercise control over the respectivesubsidiary,arebookedinthereservefortheresultsofsaleofsharesinsubsidiaries.

LeasingLeasesareclassifiedascapitalleaseswheneverthetermsoftheleasetransfersubstantiallyalloftherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.Assetsheldundercapitalleasesarerecognizedas assets of the Company at the lower of the present value of the minimum lease payments or the fair market value of the assetsattheinceptionofthelease.Financecosts,whichrepresentthedifferencebetweenthetotalleasingcommitmentsand 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 constantperiodicrateofchargeontheremainingbalanceoftheobligationsforeachaccountingperiod.Rentalspayableunder operating leases are charged to the consolidated income statement on a straight line basis over the term of the operatinglease.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Segmental AnalysisA 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 issubjecttorisksandrewardsthataredifferentfromthoseofothersegments.AssubstantialportionofthegroupsalesismadeoutsidetheKingdomandallthegroup’sproductsareconsideredwithinonebusinesssegment.Hence,nosegmentalanalysiswaspresented.

Earnings per shareBasic earning per share from net income is calculated by dividing the net income for the year by the weighted average numberofsharesoutstandingduringthesameyear.

Basic earnings per share from main operations is calculated by dividing income from main operations for the year by the weightedaveragenumberofsharesoutstandingduringtheyear.

3. CASH AND CASH EQUIVALENTS

2010SR

2009SR

Cash and bank balances 453,818,258 466,012,505

Murabaha deposits 1,166,825,589 1,365,189,838

1,620,643,847 1,831,202,343

4. ACCOUNTS RECEIVABLE, PREPAYMENTS AND OTHER RECEIVABLES

2010SR

2009SR

Trade receivables 517,473,895 251,831,520

Accrued investment income 1,281,252 1,819,641

Deposits, prepayments and other receivables 77,639,978 54,140,853

596,395,125 307,792,014

5. INVENTORIES

2010SR

2009SR

Finished products 82,142,334 25,733,788

Spare parts and others 126,388,065 52,948,617

208,530,399 78,682,405

The spare parts inventory primarily relates to plant and machinery and, accordingly, this inventory is expected to be utilized overaperiodexceedingoneyear.



54

6. PROPERTY, PLANT AND EQUIPMENT

Plant & equipment

SR

Land &buildings

SR

Catalyst & tools

SR

Vehicles, computer, furniture,

fixtures&officeequipment

SR

Construction work in

progressSR

Total2010

SR

Total2009

SR’

Cost:

At the beginning of the year 2,586,590,924 50,365,806 168,610,762 47,982,476 7,500,689,181 10,354,239,149 8,221,667,349

Additions 13,672,166 - 17,033,949 3,604,120 325,600,441 359,910,676 1,672,485,530

Transfers 7,179,526,162 68,901,908 72,713,204 4,862,531 (7,402,065,997) (76,062,192) 460,086,270

At the end of the year 9,779,789,252 119,267,714 258,357,915 56,449,127 424,223,625 10,638,087,633 10,354,239,149

Depreciation:

At the beginning of the year 672,785,782 7,759,466 118,460,791 37,830,359 - 836,836,398 539,559,852

Charge for the period 241,522,053 2,348,491 48,242,993 3,578,896 - 295,692,433 167,286,796

Transfers - - - - - - 129,989,750

At the end of the year 914,307,835 10,107,957 166,703,784 41,409,255 - 1,132,528,831 836,836,398

Net book amounts:At 31 December 2010 8,865,481,416 109,159,758 91,654,131 15,039,872 424,223,625 9,505,558,802

At 31 December 2009 1,913,805,142 42,606,340 50,149,971 10,152,117 7,500,689,181 9,517,402,751

As at 31 December 2010, property, plant and equipment include plant and equipment held under capital lease obligations whichhaveacostofSR535.1million(2009:SR535.1million)andaccumulateddepreciationofSR155.9million(2009:SR135.8million).

Construction work in progress mainly comprises of costs related to IPC’s plant along with projects for improvement of the groups’plantsandthecostofconstructingSipchem’sheadquartersinAl-Khobarcity.

The property, plant and equipment are constructed over a land in Jubail Industrial City leased from the Royal Commission forJubailandYanbu’for30yearscommencingon16Muharram1423Hcorrespondingto30March2002.Theleaseagreementsarerenewableupontheagreementbetweenthetwoparties.

Some of the company’s property, plant and equipment are pledged as security against Saudi Industrial Development Fund loans,PublicInvestmentFundloansandcommercialloans(note12).

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 isfunctioningproperly,andafterdeductingnetproceedsfromthesaleofproductiongeneratedduringthetestingphase.Directlyattributablecostsincludesemployeebenefits,sitepreparationcosts,installationcosts,licensingfees,professionalfeesandborrowingcosts.

Financing costs related to the projects of IAC, IVC and IGC were capitalized during the year ended 31 December 2010 in constructionworkinprogressamountedtoSR436.5million(2009:SR140.1million).

In 2010 the board of directors of the group resolved to change the estimated useful lives of the plants from 20 years to 25 yearsbasedonthetechnicalopinionofthetechnologylicensorsandconsultantstobetterreflecttheestimatedusefullivesoftheseplants.Thechangeinestimatewasaccountedforprospectivelywitheffectfrom1January2010.Asaresult,netincomefortheyearended31December2010washigherbySR16millioncomparedtotheresultshadtheoldestimatebeenused.


7. PROJECTS’ DEVELOPMENT COSTS

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

2010SR

2009SR

At the beginning of the year 52,032,381 109,732,727

Additions during the year 78,827,201 32,299,654

Provision for projects’ development cost no longer required - 75,000,000

Transferred to construction work in progress (68,235,096) (165,000,000)

62,624,486 52,032,381

During2008,aprovisionofSR77.6millionwasmadeagainstthenewprojects’developmentcost.Themanagementofthecompanyhadnottakenadecisiontodiscontinueanyongoingprojects.However,thisprovisionwasmadeonaconservativebasisagainstanyprojectswhichmaynotbepursuedfurtherinthefutureatthattime.Subsequently,thecompanysuccessfullysignedthelicenseagreementsfortheprojectsitintendstoundertake.Inaddition,thecompanyentered into a joint venture agreement with other partners in which they have accepted the project development costs previouslyincurredbythecompanyamountingtoSR165million.Consequently,therewasnoneedfortheprovisionwhichthecompanyhaspreviouslymade.Therefore,thecompanyreversedSR75millionin2009.

8. INTANGIBLE ASSETS

2010SR

2009SR

Cost:


Additions 5,156,970 -

Transfers from / to construction work in progress 6,041,132 (311,154,817)

At the end of the year 57,172,474 45,974,372

Amortization:


Charge for the year 9,496,558 3,736,737

Transfers - (146,058,297)


Net book amount:




56

9. ACCOUNTS PAYABLE, OTHER PAYABLES AND PROVISIONS

2010SR

2009SR

Accounts payable 189,514,156 263,282,222

Retentions 8,733,255 40,393,227

Accrued expenses 159,608,339 158,385,725

Dividends payable - 21,000,000

Other payables 28,026,665 87,783,153

Zakatprovision 60,640,189 49,344,994

446,522,604 620,189,321

10. ADVANCES FROM PARTNERSThepartnersofIAC,IVCandIGChaveagreedtocontributelongtermadvancestofinancecertainpercentageoftheirprojects’costsasperthejointventureagreements.Asperthejointventureagreements,longtermpartners’advancesshallberepaidaftertherepaymentofexternalindebtednessandfundingofreserveaccounts.At31December2010,theparentCompanyandtheminoritypartnershadlongtermadvancesofSR1,288.9millionandSR313.5million,respectively(2009:SR799.2millionandSR215.1million,respectively).TheparentcompanyandtheminoritypartnershavealsomadeshorttermadvancesofSR22.6millionandSR3.3million,respectively(2009:SR95.5andSR19.5million,respectively).Thelongtermadvancesdonotcarryanyfinancialchargeswhereastheshorttermadvancescarryfinancialchargesatnormalcommercialrates.

11. BANK FACILITIESThe Group has short term facilities with local commercial banks including short term revolving loans, guarantees, letters ofcredit,andotherfacilities.TherevolvingloansfacilitiescarryfinancialchargesatSIBOR/RIBORplusamarginandaresecuredbypromissorynotesequivalenttothetotalfacilities.

12. LONG TERM LOANS

2010SR

2009SR

Saudi Industrial Development Fund loans (note a) 1,570,000,000 1,387,375,000

Syndicated bank loans (note b) 1,396,865,441 1,443,997,232

Public Investment Fund loans (note c) 1,598,999,963 1,630,017,818

4,565,865,404 4,461,390,050

Less: current portion of term loans 363,900,902 220,610,437

4,201,964,502 4,240,779,613


12. LONG TERM LOANS (continued)

a)TheSaudiIndustrialDevelopmentFund(SIDF)grantedloanstoIDC,IAC,IVCandIGC.Theseloansaresecuredbypartners’guaranteesproportionatetotheirshareholdingandafirstprioritymortgageonallpresentandfutureassets.Theloansarerepayableinunequalsemi-annualinstallments.Theloanagreementsincludecovenantstomaintainfinancialratiosduringtheloansperiod.Managementandfollowupfeesarechargedtotheloansasstatedintheloanagreements.

b) IDC on one hand, and IAC, IVC and IGC on the other hand entered into two credit facility agreements with two syndicatesoffinancialinstitutions.Theloansaresecuredbypartners’guaranteesandasecondprioritymortgageontheassetsalreadymortgagedtoSIDF.Underapartnersupportagreementfortheprojectsfinancing,thepartnersareobligated following completion of a project to provide a letter of credit for support of operations during the life of the loans.Theloansarerepayableinunequalsemi-annualinstallments.TheAgreementsincludecovenantstomaintaincertainfinancialratiosandalsorequiremaintenanceofcertainrestrictedbankaccounts.TheloanscarryfinancialchargesatLIBORplusavariablemargin.

c)ThePublicInvestmentFund(PIF)grantedloanstoIDC,IAC,IVCandIGCtofinancetheconstructionoftheplantsofthesecompanies.Theobligationunderthisloanagreementatalltimesranksatparipassuwithallothercreditors.The loans are repayable in unequal semi-annual installments except IDC loan which is repayable in equal semi-annual installments.TheAgreementsincludecovenantstomaintaincertainfinancialratios.TheloanscarryfinancialchargesatLIBORplusafixedmargin.TheloanagreementsrequirethecompaniestoenterintoaninterestrateswapcontracttocapthefinancialchargesassociatedwiththePIFloans.

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

2010SR

2009SR

2010 - 138,950,452

2011 363,900,902 363,900,902

2012 423,467,875 423,467,875

2013 489,940,823 489,940,823

2014 544,368,427 544,368,427

2015 588,796,032 588,796,032

After 2,155,391,345 1,911,965,539

4,565,865,404 4,461,390,050



58

13. OBLIGATION UNDER CAPITAL LEASE

2010SR

2009SR

Minimumleasepayments(fixedandvariablerentalpayments) 541,416,862 580,052,409

Less: variable rental payments 97,254,700 93,079,436

444,162,162 486,972,973

Less: Payments made during the year 42,810,811 42,810,811

Present value of minimum lease payments 401,351,351 444,162,162

Less: current portion of obligation under capital lease 42,810,811 42,810,811

358,540,540 401,351,351

Future minimum lease payments:

Withinayear 42,810,811 42,810,811

Morethanoneyearandlessthanfiveyears 246,162,162 214,054,054

Morethanfiveyears 112,378,378 187,297,297

401,351,351 444,162,162

IMCenteredintoanIslamicleaseagreementwithasyndicateoffinancialinstitutionsforthepurposeofconvertingacommercialloanintoanIslamicmodeoffinancing.IMChastherighttopurchasepropertyandequipmentleasedforanominalfeeattheendoftheleasingagreement.Thecompany’scommitmentundertheleaseissecuredbythelessor’sownershipoftheleasedassets.

14. EMPLOYEES’ TERMINAL BENEFITS

2010SR

2009SR


Provision made during the year 14,845,272 8,822,990

Payments made during the year (2,552,557) (2,035,010)


15. INTEREST RATE SWAP AGREEMENTS

As at 31 December 2010, IDC, IAC, IVC and IGC had interest rate swap (IRS) contracts with local commercial banks in relationtotheloansobtainedfromPIFandsyndicatedbankloansasrequiredbytheloanagreements.At31December2010,thenotionalamountofIRScontractswasSR2,145million(2009:SR2,299million).Thefairvalueoftheinterestrateswapat31December2010hasdecreasedbySR187.4million(2009:SR143.5million)lowerthanthefairvalueattheinceptionofthecontracts.Sipchem’sshareofthefairvalueamountingtoSR140.4million(2009:SR102.9million)hasbeenrecordedinequity.Thisamountrepresentswhathastobepaidincasethegroupdecidestocanceltheagreements.However,thegrouphasnointentiontosettletheagreements.Incaseoftheincreaseintheinterestratesthisdifferencewillbeeliminatedandmaybecomepositive.


16. GENERAL RESERVE

In 2007, the General Assembly approved the Board of Directors proposal to establish a general reserve of SR 275 million throughtransferfromretainedearningstofinancetheneedsoftheGroup’sfutureprojects.

17. RESERVE FOR THE RESULTS OF SALE OF SHARES IN SUBSIDIRIES

On30June2010,theSaudiOrganizationforCertifiedPublicAccountantsissueditsopinionregardingthetreatmentofthe difference between the fair value of the consideration received and the amount of the change in minority interest upon thesaleofsharesinasubsidiarywithouttheparentcompanylosingitscontrolonit.Accordingly,thecompanychangedits presentation in this regard so that such differences are presented in the reserve for the results of sale of shares in subsidiariestransactionsinsteadofpresentingtheminthestatutoryreserve.Thechangehasbeenappliedretrospectively.

18. MINORITY INTEREST

2010SR

2009SR

International Methanol Company 352,336,289 281,029,987

International Diol Company 202,574,806 136,067,496

InternationalAcetylCompanyLtd. 209,533,357 223,945,322

InternationalVinylAcetateCompanyLtd. 139,838,512 152,385,443

International Gases Company 111,744,855 116,446,135

International Polymers Company 76,381,060 -

1,092,408,879 909,874,383

19. RELATED PARTY TRANSACTIONS

Material related party transactions during the year were as follows:

-Certainforeignpartnersmarketpartofthegroup’sproducts.TotalsalesmadetoforeignpartnersamountedtoSR1,543.7million(2009:SR364.7million).

-Oneofthesubsidiarieshasboughtcertainfixedassetsfromoneoftheforeignpartner.TotalpurchasesoffixedassetsfromtheforeignpartnerduringtheyearamountedtoSR20.3million(2009:SR19.7million).

- The company and the foreign partners of the group grant advances to the companies of the group to support their operationsandcomplywithdebtcovenants.Someofthelongtermadvancesdonotcarryanyfinancialchargesandhavenospecificmaturitydate.Shorttermadvancescarryfinancialchargesatnormalcommercialrates.

Thepricesandtermsoftheabovetransactionsareapprovedbytheboardofdirectorsofthecompaniesofthegroup.

20. GENERAL AND ADMINISTRATIVE EXPENSES

2010SR

2009SR

Employee costs 64,637,987 38,573,358

Expenses of board of directors and board meetings for the group 1,367,015 1,116,476

Depreciation 5,250,927 7,484,753

Others 25,946,169 20,230,741

97,202,098 67,405,328



60

21. ZAKAT

Zakat charge:The zakat charge consists of:

2010SR

2009SR

Current year provision 43,941,943 40,358,389

The zakat charge for the Group was as follows:

2010SR

2009SR

Current year zakat charge of the company 21,084,303 32,267,120

Company’s share in the zakat of subsidiaries 22,857,640 8,091,269

Charge in consolidated statement of income 43,941,943 40,358,389

Movement in zakat provisionThe movement in the zakat provision was as follows:

2010SR

2009SR


Provision for the year 43,941,943 40,358,389

Payments made during the year (32,646,748) (21,015,286)


Status of zakat assessmentsThe company received zakat assessments for the years from 2001 through 2008 which showed an additional amount dueofSR24.3million.TheCompanyfiledanappealagainsttheassessmentsreceivedfromtheDepartmentofZakatandIncomeTax(DZIT).Thecompany’sassessmentfortheyear2009hasnotbeenraisedbytheDZITyet.ThezakatassessmentsforIGChavebeenagreedwiththeDZITupto2007.TheassessmentsoftheothersubsidiariesforallyearshavenotbeenraisedbytheDZITyet.

22. OPERATING LEASE ARRANGEMENTS

2010SR

2009SR

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

ThemainleasesarewiththeRoyalCommissionandthePortAuthority.TheleasewiththeRoyalCommissionisforaninitialtermof30Hijrayearsandisrenewableupontheagreementofthetwoparties.


22. OPERATING LEASE ARRANGEMENTS (continued)

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

2010SR

2009SR

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

Yearfive 2,165,207 2,165,207

Morethanfiveyears 35,001,144 37,166,351

Net minimum lease payments 45,827,179 47,992,386

23. DIVIDENDS

InApril2010,theCompanydistributedcashdividendsintheamountofSR333.3millionofSR1/share,whichequalsto10%ofthesharecapitalforshareholdersonrecordson11RabihII1431Hcorrespondingto27March2010.

24. CAPITAL COMMITMENTS

As at 31 December 2010 the Group had letters of credit and letters of guarantee amounting to SR 471 million (2009: SR 137.5million)andoutstandingcapitalcommitmentsamountingtoSR480million(2009:SR63.7million).

25. CONTINGENCIES

- SomeChinesecompaniesfiledapetitioninrespectofanti-dumpingtheChinesemarketwithMethanolproductsagainst companies in several countries including IMC, where the Chinese companies requested to impose anti-dumping duty.Recently,theChineseMinistryofCommercedecidednottoimposeanyprotectivedutiesonSaudiMethanolExports.

- Sipchem and Saudi Ethylene and Polyethylene Company (SEPC) have entered into an agreement for the supply ofEthylenetoSipchem.SEPCisclaimingcompensationforthefailurebySipchemtolifttheannualcontractquantityduringtheperiodfrom1March2009upto31December2009,whentherelatedplantwasnotyetoperational.SipchemmanagementbelievesthatSEPCwillnotbeawardedanycompensation.

26. FAIR VALUES

ThefairvaluesoftheGroup’sfinancialassetsandliabilitiesapproximatetheircarryingamountsintheconsolidatedfinancialstatements.



62

Saudi International Petrochemical Company

Sipchem H.Q.P.O.Box130Al-Khobar - 31952Tel:038010111Fax:038010222

JubailP.O.Box12021JubailIndustrialCity-31961Tel:033599999Fax:033588182

RiyadhP.O.Box251Riyadh - 11411Tel:012037736Fax:012037738

www.sipchem.com

sipchem ar2010

Documents