SAUDI STEEL PIPE COMPANY

Transcription

1 [A ] Interim F inancial Statements and Auditor's Report For the quarter ended September 30, 2011 CONTENT: Auditor's Report Balance Sheets Income Statements Statement of Changes in Shareholders' Equity Statement of Cash Flows Notes to Financial Statements INDEX

2 AHMED ALZAMIL License No. 54 Ol ~J...~;; Certified Public Accountants &Management Consultants Licence No. 20 l ~J,-~~ ~ uj-~ol~1 III'_"..1 AUDITORS' REPORT. REVIEW ON INTERIM FINANCIAL STATEMENTS To The Shareholders Saudi Steel Pipe Company (A ) Dammam, Saudi Arabia We have reviewed the accompanying interim balance sheets of Saudi Steel Pipe Company (a ) as of September 30, 2011 and 2010 and the related interim income statements for the three-month and nine-month period ended September 30, 2011 and 2010 and the interim statements of cash flows and changes in shareholders equity for the period then ended, together with the notes to financial statements which are considered as integral part of the interim financial statements. These interim financial statements are the responsibility of the company's management submitted to us together with all the information and explanations we requested. We conducted our limited review in accordance with the standard of review on interim financial reporting issued by the Saudi Organization of Certified Public Accountants (SOCPA). A review primarily consists of applying analytical procedures to the financial data and making inquiries to persons responsible for financial accounting matters. Our limited review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with generally accepted accounting standards in the Kingdom of Saudi Arabia. AHMED ALZAMIL. AHMED ALZAMIL License No. 54 October 17, 2011 (19-Dhul-Qa'da-1432H) P.O. Box 6224, Dammam 31442, Saudi Arabia Tel.: (03) / Fa:< : (03) AI-\ aha Mall - Second Floor - Office No abmedalzamil@ hotmnil.com : ~,j~!...w.j-:' ~J~I~...r&lI4S.4l1,,",tty ~La..>..ll, inl,,:,. ~ (.,.)AYVrVli; ~~ (.,-)MVyrl( / AntVA : ':",.u:i \0 ~J~ - ~Wljj,jJ1 - I$J~\ l...>ljoil ~

3 INTERIM BALANCE SHEETS As at September 30, 2011 and September 30, 2010 Amounts in Saudi Riyal Assets Current Assets: Cash and cash equivalents Short-term investment Trade accounts receivable - net Inventories Prepayments and other assets Total Current Assets Non-Current Assets: Property, plant and equipment-net Projects in progress Pre-operating expenses Deferred expenses Long-term investments Total Assets Notes c,6 7 2e 2f 2d,8 30-Sep-ll Unaudited 30-Sep-l0 42,329,480 15,006,600 18,000, ,000, ,199, ,825, ,745, ,807,984 17,348,834 10,660, ,623, ,301, ,870, ,430,150 3,169,774 29,450, , , ,000 67, ,550,000 45,000, ,643, ,635,190 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued expenses Dividend payable 13 Total Current Liabilities 65,750,769 57,794,642 38,250, ,000,769 57,794,642 Non-Current Liabilities Long-term loan End-of-service indemnities Total Liabilities Shareholders' Equity: Authorized and issued share capital; 51 million shares par value of SR 10 per share Share premium Employee share ownership program (ESOP): 618,790 shares at SR 25 per share Legal reserve Retained earnings Total Shareholders' Equity Total Liabilities & Shareho id~ ' Equity..-" 11 2h 1 1,9 2i 59,790,000 23,195,000 31,149, , ,940, ,774, ,000, ,000, ,447, ,447,384 (15,469,750) (15,820,925) 32,699,200 25,405,446 40,026,454 72, ,703, ,860, ,643, ,635,190 RIYADH AL RABIAH Vice-Chairman & Managing Director General Manager The accompanying notes are integral part ofthe statements. 2

4 SAUDI STEEL PIPE COM PANY INTERIM INCOME STATEMENTS For the three-month and nine-month periods ended September 30, 2011 and September 30, 2010 Amounts in Saudi Riyal Notes UNAUDITED THREE MONTHS ENDED SEPTEMBER 30, UNAUDITED NINE MONTHS ENDED SEPTEMBER 30, Sales 140,142, ,106, ,080, ,410,828 Cost of goods sold (122,174,756) (90,834,737) (380,622,311) (352,028,198) Gross profit 17,968,190 13,272,113 76,458,011 74,382,631 General and administration expenses (6,240,735) (4,665, '160) (17,766,988) (16,107,716) Selling and distribution expenses (1,708,730) (1,808,100) (6,465,289) (6,282,230) Operating income 10,018,726 6,798,554 52,2 25,735 51,992,685 Financing charges 11 (414,08 3) (99,519) (750,111) (99,519) Other income net of other expenses (203,233) (1 51,954) 277,282 (168,128) NET INCOME 9,401,409 6,547,081 51, 752,906 51,725,038 Earning per share in Saudi Riyals RIYADH AL RABIAH A HMED AL DEBASI Vice-Chairman & Managing D irecror G-eneral Manager The accompanying notes are integral part ofthe statements. 3

5 INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the quarter ended September 30, 2011 Employee Share Retained Ownership Capital Premium Legal Reserve Earning P~ram Balance as at December 31, ,000, ,447,384 32,699,200 (15,469,750) 85,348,419 Net Income for the quarter ended March 31, ,013,467 Provision for zakat & income taxes (2,836,697) Dividend (51,000,000) Balance as at March 31, ,000, ,447,384 32,699,200 (15,469,750) 52,525,189 Net Income for the quarter ended June 30, 2011 Provision for zakat & income taxes 21,338,030 (2,817,236) Balance as at June 30, ,000, ,447,384 32,699,200 (15,469,750) 71,045,983 Net Income for the quarter ended September 30, ,401,409 Provision for zakat & income taxes (2)70,939) Dividend (38,250,000) Balance as at September 30, ,000, ,447,384 32,699,200 (15,469,750) 40,026,454 RIYA DH AL RABIAH Vice-Chairman & Managing Director AHMED AL DEBASI General Manager Finance Manager The accompanying notes are Integral part ofthe statements. 4

6 SAUDI STEEl PIPE COMPANY INTERIM STATEMENTS OF CASH FLOWS For the nine-month period ended September 3D, 2011 and September 3D, 2010 Amounts in Saudi Riyal Cash Flows From Operating Activities: Net income Adjustments to ReconCile Net Income to cash Provided by (Used In) Operating Activities : Depreciation Amortization of Pre-operating expenses Loss / (Gain) on disposal of assets Provision for Income Tax & Zakat Changes in : Trade Accounts Receivable Inventories Prepayments and Other Assets Pre-Operating & DeFerred Expenses Accounts Payable and Accrued Expenses End-oF-service indemnities 30-Sep-l1 51,752,906 16, 145,954 68,025 (56,731) (7,824,871) 8,329,027 (70,367,909) (7,899,389) 27,10 1,008 2,200,501 Unaudited 30-Sep-10 51,725,038 14,899,196 68,025 32,563 (8,032,898) (30,844,473) 19,420,123 (2,318,231) (67,500) (2,363,507) 2,695,984 Net Cash Provided By Operating Activities 19,448,521 45,214,320 Cash Flows From I nvesting Activities: Additions to Property, Plant and Equipment (4,350,556) (166,637,693) Proceeds from Disposal of Assets 115,563 43,000 Projects in Progress (6,001,524) (14,138,904) Short-term Investments 77,000, ,000,000 Long-term Investments (60,950,000) Net Cash Provided!(Used) By Investing Activities 5,813,483 (7,733,597) Cash Flows From Financing Activities: Premium on re-acquisition of share Employee Share Ownership Program Loans Dividend Payment Net Cash Used by Financing Activities 30,440,000 (51,000,000) (20,560,000) 320, ,350 23,195,000 (127,500,000) (103,516,350) Increase! (Decrease) Of Cash 4,702,004 (66,035,627) Cash and Cash Equivalents, Beginning of the Year 37,627,476 81,042,227 Cash and Cash Equivalents, End of the Period 15,006,600 RIYADH A L RABIAH Vice-Chairman & Managing DirecJ.I)r AHMED AL DEBASI General Manager The accompanying notes are integral part ofthe statements. 5

7 1. ORGANIZATION AND OPERATIONS Saudi Steel Pipe Company (referred herein as "The Company") is a Saudi Arabian company originally organized as limited liability company registered under the Commercial Registration Number 9144 dated 27/07/1400H (10/06/1980G) in the City of Dammam, Kingdom of Saudi Arabia. During the year 2008, the company's legal entity have been transformed from limited liability to closed joint stock company. The company's subscribed capital stock have been increased from 1,200,000 share (at SR 100 per share) to 35,000,000 shares (at SR10 per share). Such increases were taken from the company's retained earnings and were effective from the issuance of Ministerial Resolution No. F-187 on 3/6/1429H (07/06/2008G) and amended Commercial Registration No dated 14/06/1429H (18/06/2008G). On June 27, 2009, the company offered to public 16,000,000 new shares to increase the capital by 31.4% of the total share capital at an initial public offering of SR 25 per share with a nominal value of SR 10 per share. The company's authorized and issued share after the initial public offering is 51 million shares at SR 10 per share held by the following shareholders as at September 30, 2011: Shareholders Number of Shares % Nationality Shares Capital Owned Rabiah & Nassar Group Saudi 20,403, ,030, % Hu Steel Co. Ltd. Korean 8,350,650 83,506, % Al-Khorayef Sons Co. Saudi 4,504,500 45,045, % Fahad Mohammed Saja Saudi 1,391,775 13,917, % Ahmed Mubarak Al-Debasi Saudi 350,000 3,500, % Public Saudi 15,381, ,812, % Employee Share Program Total Saudi/Non Saudi 618,790 6,187, % 51,000, ,000, % The Company was originally engaged in the following activities: a) Manufacturing of black and galvanized steel pipes. b) Production of ERW/HFI galvanized and threaded Steel pipes and seamless pipes. c) Pipes with three layer external coating by Polyethylene and Polypropylene in different diameters. d) Pipes with epoxy coating inside. e) Bended pipes in different diameters. f) Space frame. g) Submerged Arc Welded Pipes. During the extraordinary general assembly in second quarter of 2011, the company then amended its business activities to the following: a) Manufacturing of Metal Products, Petrochemicals, and Mineral Composites. b) Marketing of industrial products locally and overseas. c) Purchasing industrial and commercial lands for expansion purposes, and purchasing real estate for Employee Housing Program. 6

8 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis Of Presentation The financial statements are prepared using the historical cost convention on a going-concern basis and accrual method of accounting. b. Inventories Inventories are individually valued at lower of cost or net realizable value. An allowance for the decrease of inventory value are provided at the time of valuation and charged to current operation. Subsequent recoveries and decreases of realizable value are adjusted against the allowance account. c. Property, Plant, and Equipment Property, plant and equipment are carried at cost. Expenditures that significantly add to the productive capacity or extend useful lives of the assets are capitalized while maintenance and minor repairs are charged to operations as incurred. Gain or loss is recognized upon sale or disposal of the asset and the related asset cost and accumulated depreciation are deleted from the books. Depreciation starts on the month of acquisition and cease the month before the disposal using the straight-line method. Costs incurred for the construction of qualifying assets are initially charged to constructions in progress and reclassified to specific assets account upon completion. Depreciations are computed based of the following useful life of the assets: Machineries & Equipment Building Structures Vehicles Furniture & Fixture Office Equipment Useful Life 10 to 15 Years 25 to 33 Years 10 Years 4 Years 4 Years 4 Years d. Long-term Investments The Company accounts for investments which has a significant influence under the equity method. Under the equity method, the Company records the investment at cost, which is adjusted subsequently by the Company s share in the net income (loss) of the investee, the investee s distributed dividends and any changes in the investee s equity, to reflect the Company s share in the investee s net assets. These investments are reflected in the interim balance sheet as non-current assets. The Company s share in the net income (loss) of the investee will presented in the interim statement of income. e. Pre-operating Expenses Costs of establishments and studies for new induction bending factory amortize for the period of five (5) years. f. Deferred Charges Costs that are benefited only within the period which they are incurred are charged to operations and costs that will benefit or recoverable in future period are deferred. 7

9 g. Foreign Currency Transactions Assets and liabilities held in foreign currencies are converted to Saudi Riyals at year-end exchange rate and transactions denominated in foreign currencies are converted to Saudi Riyals at rates prevailing on transaction dates. Exchange differentials arising from the settlement / translation of foreign denominated receivables and payables at exchange rates different from that previously recorded are recognized as other income or loss. h. Employees' End Of Service Benefits Employees end of service benefits is provided for in the books in accordance with the Saudi Labor and Workmen Law. i. Statutory Reserve In accordance with its Memorandum of Association and the Commercial Code of Saudi Arabia, the Company appropriates 10% of net income as legal reserve until such reserve reaches 50% of the Company s capital. The reserve is not available for distribution. j. Revenue Recognition Revenue is recognized and recorded upon delivery and acceptance of the products by the customer. Revenue is presented net of sales discount and return. k. Interim Result of Operations Interim financial statements and result of operations may or may not give an accurate indication of the annual statements and result of operations. l. Comparative Statements The financial statements have been presented with comparative figures of the same period in previous year in accordance with the standard of interim financial statements. 8

10 3. Cash & Cash Equivalents 30-Sep Sep-10 Cash in Banks - Local Currency 12,222,789 13,767,518 Cash in Banks - Foreign Currency 29,781, ,082 Cash on Hand 325, ,000 TOTAL 42,329,480 15,006,600 During the year, the company opened a euro-denominated account with Credit Suisse Zurich, Switzerland amounting to SR million. This new account is part of Cash in Banks-Foreign Currency. 4. Short-Term Investment 30-Sep Sep-10 Morabaha - 100,000,000 Positive Banking Deposits 18,000,000 15,000,000 18,000, ,000,000 a.) The company entered into short-term Islamic Trade Transactions. Morabaha investment with Local Bank for a Commodity b.) Positive Banking are deposits with zero interest in local banks to give the customers of the company, who are evaluated and chosen by the bank, a zero interest facility to buy the company's products with the same cash prices. 5. Inventories 30-Sep Sep-10 Inventories comprise of the following: Raw materials 143,837, ,714,189 Finished goods and by-products 49,817,978 40,976,689 Spare parts & supplies 28,706,810 20,619,789 Work in-process 20,403,007 15,092,214 Materials in-transit 3,980,212 3,405,103 Total 246,745, ,807,984 9

11 6. Property, Plant and Equipment Particulars Land Machinery & equipments Buildings & structures Furniture & fixtures Office & electrical equiments Cost Balance at 31 December ,850, ,759,824 89,789,620 3,734,358 2,752,012 11,840, ,726,669 Additions - 2,622, ,297-62, ,925 4,350,556 Disposal , ,583 Transfer from project in progress - 2,084,855 1,539, ,624,740 Balance at 30 September ,850, ,466,839 92,225,802 3,169,775 2,814,186 12,610, ,137,382 Vehicles Total Accumulated depreciation Balance at 31 December ,029,593 42,419,402 2,471,354 2,052,330 6,653, ,626,184 Additions - 11,864,588 2,397, , ,485 1,416,126 16,145,954 Disposal , ,751 Balance at 30 September ,894,181 44,816,619 2,282,140 2,203,815 8,069, ,266,387 Net book value At 30 September ,850, ,572,658 47,409, , ,370 4,541, ,870,995 At 31 December ,850, ,587,749 47,370,218 1,263, ,321 5,350, ,100,485 Pursuant to the Board Resolution during the regular meeting on December 15, 2009, the Board approved the purchase of land for the company's headquarter and future expansions. The land area of 811, m2 located in Global Industrial City, Dammam Riyadh Highway was acquired at the total cost of million Saudi Riyal. 7. Projects in Progress This pertain to the upgradings and modifications on existing plants. Costs incurred are initially charged to projects in progress and reclassified to specific asset account. Movement of project in progress account is shown below: Medium Diameter plant Induction Bending plant Small Diameter plant Total Balance at 31 December , , ,990 Addition 2,119,969 3,220, ,152 6,001,524 Transferred to Property Plant & Equipment (1,497,500) (1,105,250) (1,021,990) (3,624,740) Balance at 30 September ,469 2,115, ,152 3,169,774 10

12 8. Long-term Investments Details of long-term investments are as follows: Investment with Global Pipe Company 45,000,000 Investment with Titanium and Steel Manufacturing Co. (TSM) 25,600,000 Investment with Chemical Development Co. (CDC) 60,950,000 Total 131,550,000 Global Pipe Company The company entered into joint venture agreement to establish Global Pipe Company, a limited liability company with an objective of manufacturing various type of Large Welded pipes up to 60 inches and Large structural tubular pipes. The total share capital of Global Pipe Company is fixed at SR 125 million of which, 35% attributed to Saudi Steel Pipe. Acquisition of major equipment and machines are 90% ordered, expected to be on site by fourth quarter of All offices now transferred at site and buildings construction has now started. Overall project progress is 55% completed. Expected commercial production will start by second quarter of Titanium and Steel Manufacturing Company (TSM) Another joint venture agreement was concluded during the year 2010 to establish "Titanium and Steel Manufacturing Company Limited" with objective of manufacturing stationary process equipment such as heat exchangers and pressure vessels. The company total share capital at SR 32 million of which Saudi Steel Pipe owned 70% of the total share and 30% is owned by TSM Tech Company, a Korean company registered in Ulsan City, Korea. Registrations and licensing were completed on last quarter of 2010 and factory site land was allocated in Dammam Second Industrial City. Engineering designs has finished, site preparations and development works has started in third quarter of Expected commercial production will start by end of Chemical Development Company (CDC) In August 2011, the Company subscribed 5,300,000 shares of Chemical Development Company (CDC) with a total purchase price of SR million or SR per share. The investment represents 20% of CDC's total current issued shares. This is in pursuant to the private placement offering by CDC to increase its capital for the construction of its polysilicon plant. The plant will be based in Jubail Industrial City 2 that will produce 12,350 tonnes (in two phases) of polysilicon, the main material used in the manufacture of solar products. 11

13 9. Employee Share Ownership Program The company acquired 700,000 shares of new shares offered to the public for the employee share program. This employee share program is divided into four type of shares, namely; free shares, credit shares, cash shares and future shares. As of the end of the period, 81,210 of the shares have been issued to qualified employees. The remaining shares will be distributed to the employees gradually according to the program. The employee shares program are initially recorded in the balance sheets as a deduction to shareholders equity and will be eliminated upon issuance to employees. 10. Zakat & Income Tax The Saudi Partners are subject to Zakat calculated according to regulations promulgated by the government authorities computed at 2.5%. The Foreign partner is subjected to Income tax at a flat rate of 20% on the taxable income and 5% withholding tax on dividends. a. b. c. Under SOCPA standard 11, the provision for Zakat of Saudi partners and income tax of foreign partner is presented as a direct charge to Retained Earnings. The corresponding liability account is reflected with other current obligations under the heading Accounts Payable and Accrued Expenses in the Balance Sheets. The income tax computation of the foreign partner has been made after considering the tax holiday on the expansion project which commenced from the year 2001 until end of June Computation and provision of estimated Zakat and Income Tax liability are made quarterly. Adjustments arising from final zakat assessments are recorded in the period in which such assessments are approved. 11. Long-Term Loan The Saudi Industrial Development Fund (SIDF) granted the Company a long-term loan to finance the expansion projects with an approved amount of SR million. In August 2011, additional drawdowns were received intended for the 20" upgrading project and new induction bending factory amounting to SR 18.8 million and SR million, respectively. Total drawdowns for these loans as of September 30, 2011 now at SR million. All financing charges recognized were related to these loans. 12. Related Party Transactions Sales and purchases to/from companies related to Saudi Steel Pipes Company, Directors and major Shareholders are valued and priced the same as the normal transactions with non-related parties. 12

14 13. Dividend Distribution of dividend was approved during the General Assembly held on March 7, Dividend of 1 Saudi Riyal per share, representing 10% of the capital was paid to shareholders, registered in the company's record on the day of the General Assembly. The dividend was paid on March 21, During the board of director's meeting last September 26, 2011, they have approved to distribute dividend of SR 0.75 per share to all shareholders of record as of September 28, Such dividend is scheduled to be paid on October 22, Commitments The Company is contingently liable to open letters of credit and bank guarantees aggregating to SR million as of September 30, Earnings Per Share Earnings per share is computed using the weighted average number of outstanding shares for the period in accordance with SOCPA standard. ***** 13