|Impact of Merger with Sahara Petrochemicals Company:
On 11 Ramadan 1440H corresponding to 16 May 2019G, Sipchem acquired 100% shares and voting interests in Sahara Petrochemicals Company ("Sahara") and obtained control of Sahara. Sahara has investments in various industrial projects which is manufactured in the Kingdom of Saudi Arabia and the petrochemical products are sold across Middle East, Europe, Asia and America. Taking control of Sahara enables the Group to increase its overall market share and experience reduction in costs through economies of scale.
In order to comply with IFRS 3 – Business Combinations, assets and liabilities of Sahara have been re-measured at their fair value on the date of acquisition.
As the business combination was legally completed on 16 May 2019, Sahara Petrochemicals Company financials can only be combined from the date of the business combination as per IFRS. Further, for the purpose of consolidation, Sahara financials were combined with effect from 1 June 2019. Management considers that the impact of the transactions from 16 May 2019 to 31 May 2019 is not material to the consolidated financial statements. For all remaining reporting periods in 2019, Sipchem will continue to consolidate Sahara from 1 June 2019.
Sahara contributed revenues of SR 911.5 million and net profit of SR 120.4 million for the period from June to December 2019 (period of 7 months) to the Group.
If the acquisition had occurred on 1 January 2019, management estimates that Sahara would have contributed revenues of SR 1,512.4 million and net profit of SR 307.9 million to the Group. Therefore, the total consolidated revenue of the Group would have been SR 6,040.6 million and consolidated net profit attributable to shareholders of Sipchem would have been SR 487.0 million.
In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2019. Therefore, these amounts have been calculated using the results of Sahara and of its affiliates and adjusted for the additional depreciation that would have been charged assuming the fair value adjustments to property, plant and equipment had applied from 1 January 2019.
Further, the business combination has resulted in SR 600.9 million of goodwill. Goodwill represents the excess of consideration over the net fair value of the acquired assets and liabilities. The goodwill recognized in this transaction largely consists of the acquired workforce and expected synergies resulting from the business combination. Synergies will result from building on the competitive advantages and complimentary capabilities of Sahara and Sipchem to provide benefits commercially, operationally and functionally and from driving efficiency and productivity of the closely situated industrial asset portfolios of each of Sahara and Sipchem in Jubail.
The Company has adopted IFRS 16 - Leases effective January 1, 2019. Consequently, the accounting treatment of certain operating leases has changed, and right-of-use assets and corresponding lease liabilities have been recognized in Group’s Consolidated Interim Statement of Financial Position. The impact on Group’s Net Profit is not material.
Profit Per Share:
The profit per share has been calculated for the period ending 31 December 2019 on the basis of weighted average number of shares (580,555,555) after the company capital increase which was approved by the Extraordinary General Assembly’s 16/05/2019 for the purpose of acquiring all the shares of the shareholders of Sahara Petrochemicals Company.