table of contents Board of Directors 2

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2 Board of Directors 2 table of contents QAFCO Policy 4 Chairman s Message 6 Management Report 8 Independent Auditors Report 16 Consolidated Balance Sheet 17 Consolidated Income Statement 18 Consolidated Statement of Cash Flows 19 Consolidated Statement of Changes in Equity 20 Notes to the Consolidated Financial Statements 21 P.O. Box 50001, Mesaieed, Qatar Tel. (+974) , Fax (+974) admin@qafco.com.qa

3 His Highness Sheikh Hamad Bin Khalifa Al-Thani Emir of the State of Qatar His Highness Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani Heir Apparent

4 board of directors Mr. Abdulla Hussein Salatt Chairman Mr. Faisal M. Al-Suwaidi Vice Chairman 2

5 Mr. Abdul Aziz Ahmed Al-Malki Member Mr. Thorlief Enger Member Mr. Jassim Mohamed Nama Member Mr. Edward Cavazuti Member Mr. Meshaal Mohamad Abdulla Al-Mahmoud Member Mr. Khalifa Abdulla Al-Sowaidi Managing Director 3

6 QAFCO policy Mission We shall operate the plants efficiently, safely and environmentally responsibly to produce and supply ammonia and urea at the quality required by our customers and to carry out investments to maximize shareholders returns. Vision Largest quality ammonia and urea producer. Our main objectives are to: Achieve highest possible production at comparatively low cost. Operate the plants with maximum online factor. Operate the plants safely and in an environmentally responsible manner. Meet customers expectations with regard to quality and timely delivery. 4

7 We are committed through our occupational health and safety, environmental and quality management systems to: Increase the competency of personnel and use of adequate technology to enhance customers satisfaction, environmental and safety performance. Control operational risks and prevent pollution. Implement occupational health & safety, environmental and quality management systems as a prime line responsibility at all levels of our organisation and continually improve their performance and effectiveness. Comply with all relevant Qatari legislations, regulations and standards adopted by the company. Communicate this policy to our employees and contractors and make it available to interested parties and the public. Monitor, study and record the environmental impacts of our operations caused by discharges to the sea and emissions to air for possible reductions. Encourage re-use and recycling and manage our solid waste to reduce environmental impacts. Conduct regular reviews of relevant occupational health and safety, environmental and quality activities for compliance with the adopted standards. Involve and consult with our employees on matters related to our occupational health and safety systems. Open information and communication with all parties affected by or interested in our activities. 5

8 chairman s message Mr. Abdulla Hussein Salatt Chairman The year 2008 was a historic year for Qatar Fertiliser Company (QAFCO). During the year, QAFCO posted its highest-ever net profit, which was 180 percent more than the profit forecasted for the period. The phenomenal increase in net profit was a result of higher production, exports and product prices. During 2008, QAFCO registered record production figures for both ammonia and urea. While ammonia production was 4.5 percent above the targeted output, urea production was 2.7 percent more than the target. Our exports also exceeded the pre-determined target, resulting in a further increase in QAFCO s share in the international fertiliser market. Ammonia and urea also maintained record prices till the third quarter of In 2008 we opened a new marketing office in Vietnam as part of our efforts to expand the marketing reach of our products. While our business relations with the fertiliser markets in America and Africa continue to be sound, we are exploring new ways to expand the scope of our marketing efforts and thereby increase our presence in the Asian and European markets. During 2008, our expansion plans progressed according to schedule. The Qatar Melamine and Urea-1 revamp projects are progressing well. Once operational, the Qatar Melamine project, which is now in its final stages of construction and commissioning, will pave the way for the development of tertiary industries. This will in turn positively contribute to the development of the national economy. 6

9 Our ammonia production was 4.5 percent above the targeted output, and our urea production was 2.7 percent more than the target. Our exports also exceeded their targets, resulting in a further increase in our share in the international fertiliser market. Significant progress have also been achieved in the QAFCO-V project. All the construction activities inside the premises of the project are gathering momentum and most of the equipment needed for the project have been ordered, with first deliveries expected in February Our Qatarisation plans are progressing in line with the State s policy in this regard. Many of our Qatari employees who had gone abroad for training and higher education have taken up their positions in the Company. The extensive training programmes that we have in place have elevated many of our Qatari employees to pivotal positions within our corporate structure. QAFCO has started to feel the impact of the present global economic crisis, as the credit crunch had its ripple effect on many economies around the world. Oil prices have nose-dived and gas prices have fallen drastically. However, thanks to a relatively stable banking system and the availability of liquidity, the effect of the global economic meltdown has not been as profound in Qatar as it has been in other parts of the world. QAFCO s liquidity position continues to be solid, allowing the Company to meet its financial obligations and maintain its expansion plans. However, it would be affected by the economic recession in the main consumer markets around the globe. Self belief, resolve and maximum utilisation of available resources are the need of the hour. Inspired by the far-sighted vision of HH Sheikh Hamad Bin Khalifa Al-Thani, Emir of the State of Qatar and HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent, as well as the valuable directives of HE Abdulla Bin Hamad Al Attiyah, Deputy Prime Minister and Minister of Energy and Industry, we continue to focus on achieving our ultimate goal of becoming the world s largest producer of urea and ammonia. Finally, I would like to express my gratitude to the members of the QAFCO Board of Directors and the shareholders, Industries Qatar and Yara International for their unwavering support. I am also grateful to the Management and staff of Qatar Fertiliser Company for their sincere contributions to the ongoing success of QAFCO. I am confident that they will help us to scale even further heights of success. Sincerely, Abdulla Hussein Salatt Chairman of QAFCO Board of Directors 7

10 management report Mr. Khalifa Abdulla Al-Sowaidi Managing Director The year 2008, our 35th year of operations, was marked by landmark events and significant achievements that will be etched forever on the pages of QAFCO s history. In April 2008, HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent, laid the foundation stone of the QAFCO-V project and thereby paved the way for QAFCO to become the largest single site producer of urea and ammonia. During the event the foundation stone for the Qatar Melamine project was also laid. Once operational, it will be the largest producer of melamine in the Middle East. During 2008, QAFCO registered its highest-ever net profit of 4.68 billion, an increase of 81% compared to last year. Production Figures of the Ammonia Plants in QAFCO Budgeted Actual Ammonia 1 360, ,203 Ammonia 2 400, ,665 Ammonia 3 592, ,398 Ammonia 4 735, ,286 (Figures are in metric tons) Production QAFCO s production facilities yielded exemplary results during the year under review. Almost all the plants attained their budgeted targets with absolute conformance to the safety standards. Once again, our ammonia and urea production exceeded their budgeted targets. In fact, QAFCO set new records in urea production during the year. Ammonia Production Ammonia production at QAFCO exceeded its budgeted target by 4.5% as 2.18 million metric tons of ammonia was produced during the year under review, against a budgeted production figure of 2.08 million metric tons. This was the result of the combined effort of all the four ammonia plants, wherein every plant crossed their production projections. 8

11 Urea Production During the year QAFCO posted record urea production figures. The 2008 annual production figure of 2.99 million metric tons of urea was the highest ever recorded in its history. The previous record of 2.97 million metric tons was posted in Production Figures of the Urea Plants in QAFCO Budgeted Actual Urea 1 403, ,209 Urea 2 489, ,515 Urea 3 780, ,034 Urea 4 1,243,800 1,231,380 (Figures are in metric tons) Maintenance One of our main targets is to operate our plants efficiently and with maximum online factor. This is ensured by our Maintenance Department, who pursue a predictive maintenance strategy alongside the daily and periodic maintenance schedules of the plants and other support facilities. The excellent figures that we achieved in 2008 were the result of a high level of operational efficiency and the continued attention we give to maintenance. During 2008, planned shutdowns were carried out at both Ammonia-1 and Urea-1 plants. This project, along with the unplanned shutdowns of QAFCO plants, were completed within their estimated duration and without lost-time accidents. Production of Ammonia & Urea in the Last 10 years Shutdown (Planned & Unscheduled) 9

12 management report (cont d.) Marketing The first three quarters of the year 2008 saw a very steep rise in the demand for fertiliser in the international market. The rise in demand was not just for the traditional needs of food cultivation. Ironically, it was the bio fuel sector that was demanding for more quantities of fertiliser. The masses of land under cultivation for bio fuels, particularly in the USA and Brazil, pushed the world s fertiliser supply to its limits. Meanwhile, delays in the new fertiliser projects in Oman, Iran and Egypt along with major shutdowns in the fertiliser plants across the globe further accentuated the dent on the fertiliser supply. Apart from this, one of the largest exporters of urea, China, imposed high taxes on exports. This, in turn, also limited the supplies in the global fertiliser market. However, a sharp drop in the demand for fertiliser and bio fuel, as a result of the global financial crisis, the fall in grain prices and the increase in supply from all producers, prompted the fertiliser markets to adopt a downward trend during the last quarter of The strong demand experienced in major markets in combination with the high cost of energy and raw materials during the first three quarters of 2008 created a highly lucrative environment for QAFCO. The Company seized the opportunity and capitalized on it. The marketing strategies that we have in place ensured that we play a very significant role in meeting the world s pressing demand for fertiliser. During the year under review our exports spiraled up and we continued to expand our share in the international market. Our new office in Vietnam is in tune with our marketing plans to expand further east. Meanwhile, our business relationships with the fertiliser markets in Asia and Africa continue to be on solid grounds. We are now expecting to expand the reach of our marketing activities to the European markets as well. Ammonia Exports At the end of the year under review, our ammonia exports stood at 451,000 MT compared to a budgeted target of 425,000 MT. Our ammonia exports reached India, Jordan, the USA, China, Australia, Korea and other markets. India and Jordan accounted for 46 and 29 percent respectively of our total ammonia export. Urea Exports During the year under review, our urea sales soared to a new record of 3.09 million MT. USA, Thailand, India and South Africa were the major importers of our urea. USA s share in our urea exports increased from last year due to the additional demand from their bio fuel sectors. QAFCO Ammonia Exports in 2008 QAFCO Urea Exports in

13 Ammonia and Urea Prices in 2008 Prices Fertiliser prices rose sharply in the first three quarters of 2008, as a result of the rise in fertiliser demand in the international market. However, the fertiliser prices commenced their downward journey in the fourth quarter. The downward curve became steeper towards the end of the year due to the drop in DAP and MAP prices, the financial crises in non-fertiliser industries like capalactum, rubber, mining etc., and the volatility in the raw material prices of sulphur, rock phosphate etc. The sharp drop in oil and gas prices also contributed to the overall decline in ammonia and urea prices. Price Comparison in the Last 10 years However, by the end of the year we had achieved record prices for our products. Our ammonia and urea were sold in international markets at an average price of US$ 453 per ton and US$ 475 per ton respectively. Financial Results Total Operating Costs The Company pursues a systematic approach that aims to ensure that cost-effectiveness matches market demand and maximizes profitability. In 2008, our variable production cost stood at 833 million against the plan of 546 million, a variation of 53%. This was primarily due to the increase in the cost of natural gas by 53% and chemicals by 30%. The increase in variable cost is mainly due to the increase in gas cost as the gas price formula is linked to the product prices. The actual general operating cost varied by 10% and the general operating cost stood at 526 million against a plan of 476 million. Profit Despite the increase in the total operating cost, QAFCO s net profit in 2008 reached 4.68 billion, the highest ever in its history. This is a 180% increase over the profit projected for the year. The herculean appreciation in the net profit was due to the steep hike in ammonia and urea prices and the excellent export figures. Net Profit in the Last 10 years 11

14 management report (cont d.) QAFCO and the Global Financial Crisis The global economic recession and the credit crisis has had no effect on QAFCO. Our liquidity position is quite solid, allowing us to pursue our expansion projects and honour our commitments without any risk. Safety QAFCO gives utmost priority to safety and considers it as an integral part of its business. During the year under review, the lost-time accidents were restricted to the minimum. There was only one lost-time accident, as envisaged in the budget plan. The lost days were 11 compared to 5 in the budget plan. We take pride in reporting that our oldest plant, Urea-1, has been running without any lost-time accidents for the past 9 years and the QAFCO-V project has completed 3 million man-hours without any lost-time accidents over the 13-month period from the contract date. As part of our safety awareness programmes, a traffic week, which included lectures on safety, was organised. The session was attended by the QAFCO Management, Head of Sections and over 140 QAFCO employees. A shutdown safety campaign was also conducted in QAFCO to increase awareness during shutdowns. All the involved employees and contractors participated in the training session. QAFCO Employees Safety Training Shutdown 2008 Lost-Time Accidents and Days Lost Safety Training Statistics Induction Training for New QAFCO Employees : 167 Emergency Response Training : 105 (3 times a year) Shutdown Training for QAFCO Employees (Refresher) : 401 Risk Assessment Training for QAFCO Employees : 45 Environment Environment has always been our prime area of focus. We are committed to the safe preservation of the environment. A lot of our time and energy is focused on minimizing the impact of our operations on the environment. During the year under review, a Time Bound Compliance Action Plan (TBCAP) for all the environment issues was developed in a project schedule format and was approved for exemption by the Heir Apparent s office. Based on this TBCAP, QAFCO has received its renewed consent to operate. QAFCO has also developed an online waste exchange and donation system, that will help companies to exchange or donate their obsolete material/ chemicals among member companies. The online system will be managed and operated by QAFCO. As part of its commitment towards its environment, QAFCO took the lead in undertaking a study on residual chlorine in Mesaieed. We have also developed an Environmental Management Programme for the conservation and preservation of the existing habitat at Al Besheriya Island. 12

15 QAFCO has established and is presently implementing a number of environmental projects to reduce its emissions to the air, particularly NOx emissions by introducing De-NOx technology. Communication has also been established with MIC to utilise the new MIC Hazardous Waste Treatment Centre (HWTC) to treat QAFCO s hazardous wastes. Environment Training Statistics Environment Awareness Course Total number of participants in 2008: 297 Environmental Aspects/Impacts Identification & Evaluation (Refresher Course) for the Sections Environmental Representatives Total number of participants: 31 Quality Increasing production output without compromising on quality is the core focus of our operations. QAFCO s vision is to become the largest quality ammonia and urea producer in the world. Over the years the Company has been striving to achieve that through its expansion projects and by effectively utilising its management systems. QAFCO is now the world s largest single site producer of urea, and is poised to become the world s largest producer of both ammonia and urea after the completion of the QAFCO-V plant. With a view towards aligning the Company s goals with its ongoing development, the QAFCO Policy has been revised. QAFCO s vision has been changed to Largest Quality Ammonia and Urea Producer. QAFCO has also decided to change the certification body for its Integrated Management Systems. Bureau Veritas has been selected as its new business partner for certifying the Company s adherence to the ISO 9001:2000, ISO 14001:2004 and OHSAS 18001:2007 Management Systems. Process approach is the focus of the ISO 9001 standard. In order to derive the complete benefits of this approach the QAFCO management has decided to conduct training sessions on process approach for the Management, Head of Sections and Internal Auditors in order to familiarise them with this approach, its advantages and how to make the processes more effective and efficient. The Quality Section also conducted in-house quality awareness training sessions for QAFCO employees. A total of 41 employees participated in the training programme. The Laboratory Section has reviewed the important methods for chemical analyses and has introduced modifications in order to satisfy the ISO requirements. Human Resources QAFCO has always believed in recruiting and retaining highly proficient personnel in order to comply with the benchmarks it has already set at various levels of its operations. Our Qatarisation plans are consistent with Qatar Petroleum s general policy in this regard. Working with this objective in mind, we seek to provide career opportunities to Qatari nationals. QAFCO is working closely with Qatar Petroleum s Human Resources Department in order to implement its Qatarisation plans for the next five years. 13

16 management report (cont d.) 8 national developees have been inducted into the Company s workforce following the completion of their development programs. During the period under review 13 Qatari nationals were undergoing advanced studies in their respective areas of specialisation, 17 were on current company scholarship at different universities in Qatar and 7 underwent CPP, TMP and FPP training. Apart from this, 4 were undergoing on-the-job training and 19 were developees. As part of its ongoing efforts to upgrade the competency of its employees, QAFCO conducted and arranged a wide range of local and overseas training programmes in 2009, amounting to a total of 1,227 training man-days, including 596 local training man-days and 631 overseas training man-days. Qatari nationals received 66.6% of the local training man-days and 66.05% of the overseas training man-days. QAFCO-V Project On 26th April 2008, HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent, laid the foundation stone for the QAFCO-V project. The project will raise the Company s annual ammonia output to 3.8 million MT and its urea production to 4.3 million MT per annum, thus making QAFCO the world s largest single site producer of ammonia. The project is progressing ahead of schedule with half of the engineering works completed. Over 90% of the equipment have been ordered with the first equipment delivery (4 gas turbines) expected at the site in February The construction activities related to the QAFCO-V project, inside the existing premises of QAFCO, have already started and is expected to gather momentum in the coming period. Around 3,000 people are on the site for the construction activities. Their present focus is on concrete works, steel structure erection and underground pipe installation. Melamine and Urea-1 Revamp Projects Alongside the foundation stone laying ceremony of the QAFCO-V project, HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent, also laid the foundation stone for the Qatar Melamine project. The project, once functional, will be the largest producer of melamine in the Middle East. The project is progressing according to schedule. The construction works of the melamine plant by Qcon are at its peak and the EPC contractor, Eurotecnica, is finalising their project activities at the site. Work on the Urea-1 revamp project, which will provide the necessary feed for the Qatar Melamine plant, is also progressing as per schedule. The EPC contractor, Urea Casale, has completed the engineering and procurement work for the Urea-1 revamp. The final phase of construction and the start of commissioning activities are also in progress under the supervision of an integrated team from QAFCO and Casale. QAFCO is adequately prepared to handle the additional stress these projects will place on the existing infrastructure. Apart from the Urea-1 revamp, our laboratory facilities have also been expanded in order to absorb the analytical requirements from an additional melamine plant, two ammonia plants and a urea plant (QAFCO-V). 14

17 GFC Performance Indicators GFC Profits ( ) ( Million) Gulf Formaldehyde Company During 2008 the GFC plant operated safely and at an appropriate level of efficiency. The Company s production of UFC-85, during the year under review, was 30,940 tons against the budget of 31,320 tons. GFC achieved sales figures of 30,425 tons, of which more than 70 percent was sold to QAFCO and the remaining to OMIFCO. The average sales price achieved was USD 545/t compared to the budget of USD 454/t. The total variable and operating cost at the end of December 2008 were million and 6.42 million respectively was a profitable year for Gulf Formaldehyde Company (GFC), even though the net profit was less than the budgeted profit for the year under review. By the end of the year the Company had achieved a net profit of 6.99 million against the budget of 8.64 million. The main reasons for the deviation from the budget was lesser sales volumes and more variable cost. Conclusion The year 2008 has been a landmark year for QAFCO. We set new production records, new export records and are all set to become the largest single site producer of urea and ammonia in the world. In these transient times of recession we believe that we will come out unscathed. The fertiliser market is expected to pick up after the initial downturn in the last quarter. The focus will again shift to areas where raw materials are cheaper and are easier to acquire. Qatar is blessed with its abundance of natural gas, the primary component for producing ammonia and urea, and hence QAFCO expects to be at the forefront of the fertiliser industry. With this hope we are surging ahead and are welcoming the new year with renewed vigor. While we celebrate the success of the year that went by, I would like to express our gratitude to QAFCO s Board of Directors for their wise counsel that has led us to the path envisaged by HH Sheikh Hamad Bin Khalifa Al-Thani, Emir of the State of Qatar and HH Sheikh Tamim Bin Hamad Bin Khalifa Al-Thani, the Heir Apparent. We are also thankful to HE Abdulla Bin Hamad Al Attiyah, Deputy Prime Minister and Minister of Energy and Industry for his able guidance. I also express my sincere appreciation and gratitude to the Management and employees of QAFCO, with whom I look forward towards yet another year of rewards and laurels. Sincerely, Khalifa Abdulla Al-Sowaidi Managing Director 15

18 independent auditors report TO THE SHAREHOLDERS OF QATAR FERTILISER COMPANY (Q.S.C.C) Report on the Financial Statement We have audited the accompanying financial statements of Qatar Fertiliser Company (Q.S.C.C) and its subsidiary ( the Group ), which comprise the consolidated balance sheet as at 31 December 2008 and the consolidated income statement, consolidated statement of cash flows and consolidated statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. The consolidated financial statements of the Group for the year ended 31 December 2007 were audited by another auditor whose report dated 13 February 2008 expressed an unqualified opinion. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2008 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Legal and Other Requirements Furthermore, in our opinion, proper books of account have been kept by the Company, an inventory count has been conducted in accordance with established principles, and the consolidated financial statements comply with the Qatar Commercial Companies Law No. 5 of 2002 and the Company s Articles of Association. We have obtained all the information and explanations we required for the purpose of our audit and, we are not aware of any violations of the above mentioned law or the Articles of Association having occurred during the year which might have had a material effect on the business of the Group or on its financial position. Firas Qoussous of Ernst & Young 18 February 2009 Auditor s Registration No. 236 Doha, Qatar 16

19 consolidated balance sheet at 31 December 2008 Notes ASSETS Non-current assets Property, plant and equipment 3 4,931,598,323 2,418,906,942 Project under development 4 1,352,590,814 1,267,435,006 Catalysts 5 25,087,826 18,663,236 6,309,276,963 3,705,005,184 Current assets Inventories 6 307,093, ,811,224 Accounts receivable and prepayments 7 675,648, ,180,548 Other financial assets ,006,487 Bank balances and cash 8 5,018,916,534 3,440,700,384 6,162,664,421 4,383,692,156 TOTAL ASSETS 12,471,941,384 8,088,697,340 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 9 1,000,000,000 1,000,000,000 Legal reserve ,258, ,559,400 Cumulative changes in fair values (446,409,569) Retained earnings 7,713,985,307 4,930,658,427 8,471,833,957 6,134,217,827 Minority interest 15,324,657 14,728,199 Total equity 8,487,158,614 6,148,946,026 Non-current liabilities Term loan 12 1,780,273,519 Other financial liability ,414,545 Employees end of service benefits 13 64,502,340 62,287,673 2,231,190,404 62,287,673 Current liabilities Accounts payable and accruals 14 1,286,421,161 1,748,856,671 Other financial liability ,001,511 Income tax payable ,169, ,606,970 1,753,592,366 1,877,463,641 Total liabilities 3,984,782,770 1,939,751,314 TOTAL EQUITY AND LIABILITIES 12,471,941,384 8,088,697,340 The attached notes 1 to 29 form part of these consolidated financial statements. Abdulla Hussein Salatt Chairman of the Board Khalifa Abdulla Al-Sowaidi Managing Director 17

20 consolidated income statement year ended 31 December 2008 Notes Sales -net 20 6,119,548,364 3,645,765,337 Cost of sales 21 (1,447,416,950) (1,088,076,588) GROSS PROFIT 4,672,131,414 2,557,688,749 Other income ,840, ,042,947 Selling and distribution costs 23 (113,378,612) (66,847,466) Administrative expenses 24 (185,470,866) (151,771,632) PROFIT FOR THE YEAR 25 4,686,122,157 2,549,112,598 Attributable to: Equity holders of the parent 4,684,025,699 2,547,369,496 Minority interest 2,096,458 1,743,102 PROFIT FOR THE YEAR 4,686,122,157 2,549,112,598 The attached notes 1 to 29 form part of these consolidated financial statements. 18

21 consolidated statement of cash flows year ended 31 December 2008 Notes OPERATING ACTIVITIES Profit for the year 4,686,122,157 2,549,112,598 Adjustment for: Depreciation of property, plant and equipment 3 260,163, ,862,070 Amortisation of catalysts 5 8,269,008 7,869,001 Provision for employees end of service benefits 13 18,252,736 29,702,514 Interest income 22 (188,613,553) (140,491,954) Working capital changes: 4,784,193,704 2,750,054,229 Inventories (24,281,884) (52,236,028) Accounts receivable and prepayments 102,094,980 4,393,221 Accounts payable and accruals (462,435,510) 278,936,471 Cash from operating activities 4,399,571,290 2,981,147,893 Employees end of service benefits paid 13 (13,082,738) (9,390,663) Advance paid against end of service benefits 13 (2,955,331) (21,968,865) Net cash from operating activities 4,383,533,221 2,949,788,365 INVESTING ACTIVITIES Purchase of property, plant and equipment 3 (2,548,334,505) (515,576,812) Contribution to project under development 4 (349,402,521) (40,021,495) Additions to catalysts 5 (14,693,598) (14,090,162) Movement in time deposits maturing after 90 days (1,335,520,343) (1,343,707,657) Interest income ,613, ,491,954 Net cash used in investing activities (4,059,337,414) (1,772,904,172) FINANCING ACTIVITIES Proceeds from term loan 12 1,820,000,000 Finance arrangement changes paid (42,360,606) Dividend paid to equity holders of the parent 11 (1,900,000,000) (1,300,000,000) Dividend paid to minority interest (1,500,000) (3,000,000) Net cash used in financing activities (81,500,000) (1,345,360,606) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 242,695,807 (168,476,413) Cash and cash equivalents at 1 January 97,580, ,057,140 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 8 340,276,534 97,580,727 The attached notes 1 to 29 form part of these consolidated financial statements. 19

22 consolidated statement of changes in equity year ended 31 December 2008 Attributable to equity holders of the parent Cumulative Share Legal changes in Retained Minority capital reserve fair values earnings Interest Total Balance at 1 January ,000, ,898,366 4,481,949,965 15,985,097 4,902,833,428 Profit for the year ,547,369,496 1,743,102 2,549,112,598 Increase in share capital 750,000,000 (750,000,000) Transfer to legal reserve 48,661,034 (48,661,034) Dividend paid to minority shareholders (3,000,000) (3,000,000) Dividends paid (Note 11) (1,300,000,000) (1,300,000,000) Balance at 31 December ,000,000, ,559,400 4,930,658,427 14,728,199 6,148,946,026 Net unrealised loss on cash flow hedges (Note 16) (446,409,569) (446,409,569) Total expenses for the year recognised directly in equity (446,409,569) (446,409,569) Profit for the year ,684,025,699 2,096,458 4,686,122,157 Total income and expenses for the year (446,409,569) 4,684,025,699 2,096,458 4,239,712,588 Transfer to legal reserve 698,819 (698,819) Dividend paid to minority shareholders (1,500,000) (1,500,000) Dividends paid (Note 11) (1,900,000,000) (1,900,000,000) Balance at 31 December ,000,000, ,258,219 (446,409,569) 7,713,985,307 15,324,657 8,487,158,614 The attached notes 1 to 29 form part of these consolidated financial statements. 20

23 notes to the consolidated financial statements at 31 December CORPORATE INFORMATION Qatar Fertiliser Company (Q.S.C.C) ( the Company ) was incorporated on 29 September 1969 as a Qatari Shareholders Closed Company ( Q.S.C.C ) in the State of Qatar. The Company is engaged in the production and sale of Urea and Ammonia. The Company s registered office is at P.O. Box 50001, Mesaieed, State of Qatar. The shareholders and their shareholding interests in the Company are as follows: Name of the Country of shareholder incorporation Interests Industries Qatar (IQ) Qatar 75% Yara Netherland BV Netherland 15% Fertiliser Holdings ASA Norway 10% IQ is the immediate parent of the Company, which is a 70% owned subsidiary of Qatar Petroleum (QP). Thus QP is the ultimate parent of the Company. The consolidated financial statements of the Group for the year ended 31 December 2008 were authorised for issue in accordance with a resolution of the Board of Directors on 18 February SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiary, Gulf Formaldehyde Company (Q.S.C.C) (together referred to as the Group ). The Company has 70% interest in Gulf Formaldehyde Company (Q.S.C.C), a limited liability company registered under Commercial Registration No in the State of Qatar and is engaged in the production and sale of Urea Formaldehyde Concentrate ( UFC ). Subsidiary is fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continues to be consolidated until the date that such control ceases. The financial statements of the subsidiary are prepared for the same accounting period as the parent company, using consistent accounting policies. Basis of preparation The consolidated financial statements of Qatar Fertiliser Company and its Subsidiary, Gulf Formaldehyde Company, (together the Group ) have been prepared in accordance with International Financial Reporting Standards and applicable requirements of Qatar Commercial Company Law No. 5 of These consolidated financial statements have been presented in Qatari Riyals. The consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of derivative financial instruments. IASB Standards and Interpretations issued but not adopted The following IASB standards have been revised and issued but are not yet mandatory and have not yet been adopted by the Group. IAS 1 Presentation of Financial Statements (Revised) The application of revised IAS 1, which will be effective for the year ending 31 December 2009, will result in amendments to the presentation of the consolidated financial statements. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Capital work-inprogress is not depreciated. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows: Buildings and foundations years Plant, machinery and equipment 5-20 years Vehicles and mobile equipment 3 years Expenditure incurred over 200,000 on new or to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure over 200,000 is capitalised only when it increases future economic benefits of the related item of property, plant and equipment. All other expenditure is recognised in the income statement as the expense is incurred. All significant intra-group balances, income and expenses and unrealised gains and losses from intra-group transactions are eliminated in full. 21

24 22 notes to the consolidated financial statements at 31 December SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the asserts are written down to their recoverable amount, being the higher of their fair value less costs to sell and value in use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised. The asset s residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. Capital work-in-progress will be transferred to property, plant and equipment when the asset is ready for its indented use. Project under development Project under development will be transferred to property, plant and equipment upon commencement of commercial production of the relevant asset. Catalysts Catalysts are initially recorded at cost. Subsequently, they are measured at cost less accumulated amortisation and any impairment in value. Catalysts are amortised over the estimated useful lives of 2 to 5 years. Catalysts not in use at the plant are kept under inventories and stated at the lower of cost and net realisable value. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are those expenses incurred in bringing each product to its present location and condition, as follows: Packing materials, chemicals, weighted average supplies and spare parts purchase cost Finished goods and weighted average cost of direct goods for resale materials, direct labor, other direct costs, plus attributable overheads based on normal level of capacity. Net realisable value is based on estimated selling price less any further costs expected to be incurred on completion and disposal. Impairment and uncollectibility of financial assets An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the income statement. Impairment is determined as follows: a) For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the income statement; b) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective interest rate. Accounts receivable Accounts receivable are stated at original invoice amount less a provision for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank balances and short term deposits with an original maturity of three months or less. Interest bearing loan Interest bearing loan is recognised initially at fair value of the amounts borrowed, less directly attributable transaction costs. Subsequent to initial recognition, the loan is measured at amortised cost using the effective interest method, with any differences between the cost and final settlement values being recognised in the income statement over the period of the borrowing. Installments due within one year at amortised cost are shown as a current liability. The costs of raising finance applicable to amounts already drawn down are amortised over the period of the loan using the effective yield method. Gains or losses are recognised in the income statement when the liabilities are derecognised.

25 notes to the consolidated financial statements at 31 December 2008 Borrowing costs Borrowing costs attributable to acquisition or construction of property, plant and equipment (qualifying assets) are capitalised as part of cost of the asset up to the date of the asset is ready for its intended use. Other borrowing costs are recognised as an expense in the period in which they are incurred. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Derecognition of financial assets and liabilities a) Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. b) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. End of service benefits The Group provides end of service benefits to its employees in accordance with employment contracts and Qatari Labour Law. The entitlement to these benefits is based upon the employees final salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. Under Law No 24 of 2002 on Retirement and Pensions, the Group makes a contribution to a government fund for Qatari employees calculated as a percentage of the Qatari employees salaries. The Group s obligations are limited to these contributions, which are expensed as due. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and the costs to settle the obligation are both probable and able to be reliably measured. Foreign currencies Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Derivative financial instruments and hedging Derivative financial instruments are contracts, the value of which are derived from one or more underlying financial instruments or indices, and include a call option to repurchase equity at a predetermined price. The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the income statement. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is calculated by reference to the market valuation of the swap contracts. 23

26 24 notes to the consolidated financial statements at 31 December SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative financial instruments and hedging (continued) For the purpose of hedge accounting, hedges are classified as: fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or unrecognised firm commitment (except for foreign currency risk); or cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting change in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the criteria for hedge accounting are accounted for as follows: Fair value hedges The change in the fair value of a hedging derivative is recognised in the income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in profit or loss. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity. The Group uses interest rate swap contracts to hedge its risk associated primarily with interest rate fluctuations relating to the interest charged on its interest bearing loans and borrowings. These are included in the balance sheet at fair value and any resultant gain or loss on interest rate swaps contracts that qualify for hedge accounting is recognised in the consolidated statement of changes in equity and subsequently recognised in the income statement when the hedged transaction affects profit or loss. For cash flow hedges which meet the strict criteria for hedge accounting, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the income statement. The Group uses forward currency contracts to hedge its risks associated with foreign exchange rate fluctuations. These are included in the balance sheet at fair value and any subsequent resultant gain or loss on forward currency contracts is recognised in the consolidated income statement. Use of estimates The preparation of consolidated financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Revenue Sale of goods Sale of goods is recognised when the risk and rewards of the product is transferred to the buyer, which is at the time of loading at the terminal in Mesaieed, State of Qatar and the amount can be measured reliably. Revenue from sale of goods is recorded net of direct costs such as freight and insurance. Interest income Interest income is recognised as the interest accrues. Operating leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Income Taxes Taxation is provided in accordance with the Qatar Income Tax Law.