Annual Review
SIBUR-KHIMPROM VORONEZHSINTEZKAUCHUK VYNGAPUROVSKIY GAS PROCESSING PLANT WWW.SIBUR.COM
Content ANNUAL REVIEW SIBUR 2012 REVIEW ANNUAL 2012 HIGHLIGHTS 4
CHAIRMAN AND CEO STATEMENTS 6
Chairman’s Message ...... 6 CEO Letter ...... 7
SIBUR AT A GLANCE 10
What We Do ...... 12 How We Do It ...... 18 Where We Do It ...... 20 Why We Do It ...... 22
STRATEGY 26
Our Strategy ...... 28 Investment Programme ...... 30 Partnership with Leading World Producers ...... 35
BUSINESS 36
Products and Markets ...... 38 Production Capacity and Utilisation ...... 48 Transportation and Logistics ...... 52 Feedstock Sourcing ...... 54 SUSTAINABILITY 56
Our Approach ...... 58 Environment ...... 59 Health and Safety ...... 62 Employees ...... 63 Communities and Society ...... 67
CORPORATE GOVERNANCE 70
Corporate Governance ...... 72 Board of Directors ...... 73 Board Committees...... 80 Management Board ...... 82 Share Capital ...... 87 Code of Corporate Conduct...... 87 Dividends ...... 88 Key Risk Factors ...... 89
FINANCIAL INFORMATION 96
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...... 98 IFRS Combined Financial Information and Independent Auditor’s Report ...... 146
ADDITIONAL INFORMATION 200 WWW.SIBUR.COM
SIBUR 2012 2012 Highlights ANNUAL REVIEW ANNUAL
FINANCIAL PERFORMANCE
Solid results in a tough macro and market environment Vertically integrated business model supported margins and generated strong cash flow Revenue increased by 9% y-o-y to RR 271 bln EBITDA margin exceeded 30% Cash flow from operations increased by 16% y-o-y to RR 63 bln Net Debt to EBITDA at 1.00x as of 31 December 2012
OPERATIONAL PERFORMANCE
APG processing volumes increased by 2%(1) y-o-y Raw NGL fractionation volumes increased by 3% y-o-y Natural gas sales volumes increased by 16% y-o-y NGLs sales volumes increased by 2% y-o-y Petrochemical products sales volumes increased by 5% y-o-y
STRATEGIC EXECUTION
Long-term partnership with oil and gas companies strengthened advantageous feedstock access
y Weighted average maturities of multi-year supply contracts increased to exceed 11 years for APG and 12 years for NGLs Significant progress on multi-year investment programme
y Completion of investment projects in feedstock processing and petrochemicals
y Major expansion of our transportation and logistics infrastructure
y Capital expenditures increased 34% y-o-y to RR 74 bln JVs with international producers
y SINOPEC, nitrile-butadiene rubber production in Krasnoyarsk, Russia
y Solvay SA, specialty chemicals production in Dzerzhinsk, Russia
y Reliance Industries, butyl rubber production in Jamnagar, India
(1) Excluding TNK-BP’s share in processing/production volumes of Yugragazpererabotka. 4 REVENUE EBITDA 2012 HIGHLIGHTS
RR bln RR bln EBITDA margin,% 34.9% 271.3 30.9% 248.7 30.3% CEO STATEMENTS 188.6 CHAIRMAN AND
86.7 82.3 58.2 A GLANCE
2010 2011 2012 2010 2011 2012 SIBUR AT TAEYBUSINESS STRATEGY NET PROFIT OPERATING CASH FLOW(1) RR bln RR bln
62.8 60.1 62.7 54.2 51.4 40.7 SUSTAINABILITY
2010 2011 2012 2010 2011 2012 GOVERNANCE CORPORATE
CAPITAL EXPENDITURES NET DEBT/EBITDA RR bln INFORMATION FINANCIAL 74.3 1.00x
55.6 0.74x 0.78x 39.4 INFORMATION ADDITIONAL
2010 2011 2012 2010 2011 2012
(1) Net cash from operating activities. 5 Chairman’s
SIBUR 2012 Message ANNUAL REVIEW ANNUAL
Leonid Mikhelson
Chairman of the Board of Directors
SIBUR reported solid financial performance and SIBUR’s debut in the international bond markets delivered on its strategic priorities in 2012. was an important milestone for increasing external recognition of our strengths and future prospects. The Company is at the forefront of Russia’s efforts to build a modern and efficient industrial base. We On behalf of the Board, I would like to thank process natural resources in an environmentally SIBUR’s management team and employees for sustainable way to produce technologically their hard work and strategic progress in a tough advanced industrial materials that benefit Russian market environment. Their passion for success and manufacturers and consumers. At the same time, achievement of results gives us confidence about the we are enhancing international competitiveness future. and growth opportunities by building a leading petrochemicals business that leverages SIBUR’s feedstock advantages and strong partnerships with oil and gas producers.
SIBUR continues to implement best practices to create a strong, sustainable enterprise. Our contributions to Russian regional economic development, technological innovation, professional training and environmental responsibility are a source of pride for our people and for us as shareholders. We are driving operational excellence within our business and increasing transparency for our stakeholders.
6 CEO Letter 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND
Dmitry Konov
CEO and Chairman of the Management Board A GLANCE SIBUR AT TAEYBUSINESS STRATEGY
I am pleased to report that SIBUR delivered solid Second, the Russian demand outlook adds a unique financial performance in 2012 despite a challenging dimension to our growth prospects. The country’s macro and market environment. Our vertically industrial and transportation infrastructure is integrated business model held up well and our being modernised and expanded. Manufacturers balance of gas processing and petrochemicals drove are upgrading their technologies and materials profit margins and cash generation well above global applications in order to deliver high-quality goods SUSTAINABILITY petrochemicals industry averages. We also made demanded by businesses and consumers. SIBUR substantial progress in executing our growth strategy, plays a key role in this transformation, producing the and entered the new year with steadfast confidence materials required to support end-market customers. in our business. I would like to focus on a few key Our leading position in Russia helped performance
points for our investors and other stakeholders. in 2012 as the economy grew faster than most GOVERNANCE CORPORATE international markets. First, SIBUR is in an excellent strategic position with advantageous access to Western Siberian feedstock. Third, our vertical integration provides the We provide oil and gas companies with an efficient foundations for a growing petrochemicals business solution for monetising the by-products of their with a globally-competitive cost position. The INFORMATION extraction activities, and this partnership in turn ramp-up of production at our new flagship Tobolsk- FINANCIAL provides SIBUR with a unique competitive advantage. Polymer Plant will enable us to efficiently monetise In 2012, we further strengthened our cooperation SIBUR’s feedstock access, displace imports and take with oil and gas companies to cement long-term domestic market share, while also building strong access to feedstock and increase feedstock flows. international presence. INFORMATION ADDITIONAL
7 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
My final point is about building trust with within the conservative limits set by our Board. our stakeholders through good corporate In January 2013, SIBUR successfully tapped governance and corporate responsibility. These the international capital markets with its debut principles are fundamental to business success USD 1 billion Eurobond issue, securing access and we have continued to make strides in to an efficient supplemental source of funding. adopting global best practices and standards. We are committed to ensuring strong financial controls, transparency and disclosure, while operating in an environmentally sustainable and Strategic Progress socially responsible manner. In 2012 we reinforced our competitive Let’s review SIBUR’s progress this year and why advantages to position us for future growth we are excited about the future. and value creation. In particular, we extended our long-term cooperation with oil and gas companies on advantageous access to Western 2012 Financial Siberian feedstock. As a result, weighted average maturities of our multi-year supply Performance contracts have been increased to 11 years for APG and 12.5 years for NGLs. Additionally, While 2011 was a record year for both approximately 70% of our APG and NGLs energy and petrochemicals companies, the supplies for 2013 are guaranteed by multi-year macroeconomic picture in 2012 was less agreements. encouraging. Oil and oil derivative prices were essentially flat, and Russian GDP growth We completed several investment projects in decelerated to 3.4 percent for the year. feedstock processing and also made progress Moreover, global demand in several of SIBUR’s on a major expansion of our transportation and key end-customer markets weakened, leading logistics infrastructure to serve the needs of oil to lower petrochemical product prices. Tighter and gas partners. In parallel, we are expanding spreads between feedstock and petrochemicals capacity to process additional feedstock volumes also impacted margins. into energy and petrochemical products.
Against this backdrop, SIBUR delivered revenues SIBUR is uniquely positioned to monetise of RR 271 billion, an increase of 9 percent stranded Western Siberian hydrocarbons through year-on-year. Our EBITDA margin remained petrochemical products production. This year, strong at over 30 percent, while chash flow we strengthened our domestic market position from operating activities increased 16 percent. by launching new production and making However, EBITDA declined 5 percent to RR 82 selective acquisitions to meet the Russian billion from the record level achieved in 2011 – economy’s growing demand and add to our when it surged almost 50 percent year-on-year. product range.
SIBUR is a financially strong company We also advanced on our objective to develop with ample resources to support our long- large-scale petrochemicals capacity close to our term strategy. We funded the bulk of our feedstock base. We are on track for the launch investment plans from the Group’s robust cash of Tobolsk-Polymer Plant in 2013. This will flow from operations in 2012, and despite be the largest polypropylene production site a record level of capital expenditures at RR 74 in Russia, the CIS and Eastern Europe, a major billion, our balance sheet ratios remained well step in SIBUR’s strategy of creating a full-scale
8 2012 HIGHLIGHTS petrochemicals hub in Western Siberia, to and performance in these areas in this Annual become one of the most cost-competitive Review. producers globally. SIBUR employs over 30,000 people and we We are making use of the latest Russian and are a major engine of economic growth and CEO STATEMENTS international technologies to modernise our technological development in the regions and CHAIRMAN AND existing production capacity and implement new communities where we operate. I would like investment projects. In 2012, we continued to thank all of our employees for their hard to target improvements in productivity, work this year to deliver results and help us supply chain management, streamlining build a great company. Talent development and and optimisation of business processes and retention are critical to our competitiveness and A GLANCE functions, upgrades of IT infrastructure and ERP I am committed to making sure that our people SIBUR AT system implementation. see SIBUR as a great place to work.
We also made progress in introducing the SIBUR As for SIBUR’s outlook, I am particularly Production System (SPS), a multi-year project excited about the resilience of our vertically- launched in 2010 with the initial support of integrated business model to generate superior TAEYBUSINESS STRATEGY DuPont’s consulting services. SPS is an integrated margins and cash flows while supporting the management system aimed at utilising resources development of a globally cost-competitive efficiently and eliminating waste. SPS is helping petrochemicals player. I look forward to us to build a strong corporate culture through reporting on our progress as the next chapter engagement, training and development of every of our value creation story unfolds in 2013 and single one of our employees around efficient coming years. production principles and global technological best practices. SUSTAINABILITY Environmental and Social Responsibility
The biggest positive impact we have on the GOVERNANCE environment is in providing unique solutions CORPORATE for the Russian oil and gas industry to reduce harmful flaring of APG on oil fields. The volume of APG processed by SIBUR in 2012 is equivalent to preventing the release of more than five million tonnes of pollutants into the INFORMATION FINANCIAL atmosphere due to flaring.
Environmental management programmes at our sites have reduced air pollutants, waste water discharges and waste output. INFORMATION We also maintained our focus on industrial ADDITIONAL and occupational health and safety following a nearly 40 percent improvement in 2011. We provide further information on our policies
9 PRODUCTION FACILITIES Tomskneftekhim and 130,000 tonnes ofPPperannum. As of31 December2012, itsnameplate capacity totaled tonnes 245,000 ofLDPE polyethylene (LDPE)andpolypropylene (PP).Theplantislocated inTomsk. Tomskneftekhim leadingRussian ofbasicpolymers, includinglow producers isoneofthe density A GLANCE ATSIBUR WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL Business Overview
SIBUR is a uniquely positioned vertically integrated gas processing and petrochemicals company. We own and operate Russia’s largest gas processing business in terms of associated petroleum gas processing volumes and are a leader in the Russian petrochemicals industry.
We purchase by-products of the major Russian EBITDA amounted to RR 82,291 million in oil and gas companies’ extraction activities and 2012, a decline of 5.1% from RR 86,669 process them into energy products, including million in 2011. Our 2012 EBITDA margin liquefied petroleum gases (LPG), naphtha and totaled 30.3% compared to 34.9% in 2011. natural gas, and into various petrochemical Profit for 2012 amounted to RR 60,085 million products, including basic polymers, synthetic compared to RR 62,799 million in 2011, rubbers, plastics, products of organic synthesis, a decrease of 4.3%. 2012 net margin amounted as well as intermediates and other chemicals. to 22.1% versus 25.3% reported in 2011.
As of 31 December 2012, SIBUR operated SIBUR has two business segments: feedstock & 27 production sites across Russia, serving more than energy and petrochemicals. These business segments 1,500 large customers in the energy, automotive, vary significantly in their end-user markets, supply construction, fast moving consumer goods (FMCG), and demand trends, value drivers and consequently chemical and other industries in approximately 60 current and long-term profitability. However, they countries, and employing over 30,000 personnel. are highly integrated, with the dominant share of feedstock for our petrochemicals segment In 2012, our revenue totaled RR 271,330 million supplied by our feedstock & energy segment. compared to RR 248,660 million in 2011, an increase of 9.1%.
REVENUE SPLIT
Bу product Bу region
Energy products ...... 48% Russia...... 55% Petrochemicals ...... 46% Europe...... 29% Other ...... 6% Asia ...... 9% CIS...... 6% Other...... 1%
2012 2012
12 SIBUR AT A GLANCE ´ WHAT WE DO ´ BUSINESS OVERVIEW More Information Page / Link
Vertically Integrated Business Model 18
Map of Operations 20
Products and Markets 38
Production Capacity and Utilisation 48 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
INTEGRATED VALUE CHAIN FROM FEEDSTOCK TO PETROCHEMICALS
FEEDSTOCK & ENERGY PETROCHEMICALS BUSINESS STRATEGY
Oil-based Basic feedstock polymers (APG) Gas processing / Intermediates Synthetiс rubbers Gas-based fractionation feedstock Plastics & organic (NGLs) synthesis products SUSTAINABILITY
Oil-based feedstock (APG) Processing of APG into Production and sale of four categories natural gas and NGLs of petrochemical products y By-product of oil production Transportation of NGLs y Intermediates
y Sourced from oil Fractionation and other y Basic polymers GOVERNANCE CORPORATE companies processing of NGLs into y Synthetic rubbers marketable energy products y Transported via y Plastics and organic synthesis pipelines Sale of energy products products to external customers Gas-based feedstock (NGLs) and SIBUR’s petrochemicals INFORMATION FINANCIAL y Sourced from gas and segment oil companies
y Transported via pipelines and rail INFORMATION ADDITIONAL
13 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL Feedstock & Energy Segment
SIBUR owns and operates Russia’s largest and most extensive integrated infrastructure for processing and transportation of associated petroleum gas (APG) and natural gas liquids (NGLs), located primarily in Western Siberia, the largest oil and gas producing region in Russia.
Our assets’ strategic location and unique SIBUR feedstock & energy segment comprises: infrastructure makes us a long-term partner to gathering APG from major Russian oil companies oil and gas companies. We provide them with and processing it into natural gas and raw natural the most efficient, economical and environment- gas liquids (raw NGL) at our gas processing plants friendly processing solution for hydrocarbon (GPPs) feedstocks, which are by-products of oil and gas extraction. In turn, this partnership provides transportation, fractionation at our gas SIBUR with advantageous access to a reliable fractionation units (GFUs) and other processing source of raw materials for both our feedstock of NGLs, including raw NGL, LPG and naphtha, & energy and petrochemicals businesses. that we produce internally or purchase from major Russian oil and gas companies production, marketing and sales of energy products, such as natural gas, liquefied petroleum gases (LPG), naphtha, raw NGL, methyl tertiary butyl ether (MTBE) and other fuels and fuel additives. We sell these energy products on the Russian and international markets and use some of them as feedstock for our petrochemicals segment.
LPG PRODUCTION NAPHTHA PRODUCTION VOLUMES VOLUMES ‘000 tonnes ‘000 tonnes
3,625 3,774 3,398
1,363 1,295 1,262
2010 2011 2012 2010 2011 2012
14 SIBUR AT A GLANCE ´ WHAT WE DO ´ FEEDSTOCK & ENERGY SEGMENT More Information Page / Link
Vertically Integrated Business Model 18
Map of Operations 20
Products and Markets 38
Production Capacity and Utilisation 48
As of 31 December 2012 2012 HIGHLIGHTS 7 5 3 2,433 6 19,277 GPPs compressor GFUs km of gas railway rail cars CEO STATEMENTS
stations and product loading and tank CHAIRMAN AND pipelines racks wagons under management A GLANCE SIBUR AT
SIBUR’s feedstock processing infrastructure includes management, 6,222 of which are owned. seven out of the nine existing GPPs in Western The Group’s GPPs also have direct links to the Siberia, five compressor stations and three GFUs. production facilities of major oil companies operating TAEYBUSINESS STRATEGY As of 31 December 2012, SIBUR had APG in Western Siberia through a network of APG processing capacity of 23.1 billion cubic metres per transportation pipelines, a large part of which are annum(1) and raw NGL fractionation capacity of 5.2 owned by the oil companies, while SIBUR owns 913 million tonnes per annum. In 2012, SIBUR’s GPPs kilometres of these pipelines. processed 18.7 billion cubic metres of APG(1), an increase of 3.8% compared to 2011. This accounted In 2012, our feedstock & energy segment gross for over 56% of all APG processed in Russia revenue(3) totaled RR 168,091 million, or 51.7% according to the Central Dispatch Administration of of the Group’s total gross revenue. The segment’s the Fuel and Energy Complex (the “CDU-TEK”). EBITDA contribution reached RR 74,831 million in 2012, for the segment’s EBITDA margin of 44.5%. Our transportation infrastructure comprises The segment employed approximately 6,365 people SUSTAINABILITY 1,168 kilometres of raw NGL pipelines and as of 31 December 2012. 352 kilometres of natural gas pipelines as well as substantial railway transportation facilities, including six railway loading racks and rolling
stock of 19,277 rail cars and tank wagons under GOVERNANCE CORPORATE
NATURAL GAS MTBE PRODUCTION PRODUCTION VOLUMES(2) VOLUMES bln cubic metres ‘000 tonnes INFORMATION FINANCIAL 11.2 10.9 11.0 INFORMATION ADDITIONAL 415 405 398
2010 2011 2012 2010 2011 2012
(1) Including 100% of processing capacity / production of GPPs, which are controlled by (3) Including inter-segment sales. Yugragazpererabotka, the Group’s joint venture with TNK-BP. (2) Excluding TNK-BP’s share in natural gas produced by our JV with TNK-BP (Yugragazpererabotka). 15 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL Petrochemicals Segment
SIBUR is a leader in the Russian petrochemicals industry, operating an extensive production base across the country and constantly investing in capacity modernisation and expansion.
Our petrochemicals segment benefits from SIBUR’s petrochemicals segment comprises the integration with our feedstock & energy production and sales of a wide range of business, which provides it with a reliable petrochemical products: source of attractively priced raw materials. We Basic polymers, including low-density polyethylene have significant growth opportunities in the (LDPE) and polypropylene (PP) Russian market as domestic manufacturing consumption of petrochemical materials increases Synthetic rubbers, including commodity rubbers, from a low base towards global levels. SIBUR’s specialty rubbers and thermoplastic elastomers expanding output also supports the country’s Plastics and organic synthesis products, including economic modernisation and reduced reliance polyethylene terephthalate (PET), mono-ethylene on more expensive petrochemical imports. glycol and other glycols, biaxially oriented polypropylene films (BOPP-films), alcohols, expandable polystyrene (EPS), acrylates and plastic compounds Intermediates and other chemicals, including benzene, styrene, terephthalic acid, propylene, ethylene oxide, butadiene, isoprene, isobutylene, ethylene and others.
BASIC POLYMERS SYNTHETIC RUBBERS PRODUCTION VOLUMES PRODUCTION VOLUMES ‘000 tonnes ‘000 tonnes
418 373 386 432 426 423
2010 2011 2012 2010 2011 2012
16 SIBUR AT A GLANCE ´ WHAT WE DO ´ PETROCHEMICALS SEGMENT More Information Page / Link
Vertically Integrated Business Model 18
Map of Operations 20
Products and Markets 38
Production Capacity and Utilisation 48
As of 31 December 2012 2012 HIGHLIGHTS 3 1 3 14 steam basic polymers synthetic plastics CEO STATEMENTS
crackers plant and 1 large rubber and organic CHAIRMAN AND scale polypropylene plants synthesis (PP) complex near plants completion A GLANCE SIBUR AT
SIBUR’s petrochemicals business owns and operates As of 31 December 2012, the Group’s basic 18 production sites (not including joint ventures polymers production capacity was 475,000 tonnes and investment projects), comprising three steam per annum(1), synthetic rubbers production capacity TAEYBUSINESS STRATEGY cracker facilities, one basic polymers production was 622,067 tonnes per annum and plastics and plant, three synthetic rubber production plants and products of organic synthesis production capacity 14 production plants manufacturing plastics and was 975,350 tonnes per annum(2). organic synthesis products as well as a wide range of intermediate chemicals. The products of the In 2012, our petrochemicals segment gross petrochemicals segment are both sold externally revenue(3) totaled RR 135,634 million, or 41.7% and used by SIBUR for further processing to produce of the Group’s total gross revenue. The segment’s higher value-added petrochemical products. EBITDA contribution amounted to RR 16,130 million in 2012, for the segment’s EBITDA margin of 11.9%. The segment employed approximately 18,779 people as of 31 December 2012. SUSTAINABILITY GOVERNANCE CORPORATE
PLASTICS & ORGANIC SYNTHESIS INTERMEDIATES & OTHER CHEMICALS PRODUCTION VOLUMES PRODUCTION VOLUMES(4) ‘000 tonnes ‘000 tonnes INFORMATION FINANCIAL 845 3,445 3,147 2,798 607 524 INFORMATION ADDITIONAL
2010 2011 2012 2010 2011 2012
(1) Including 100% of processing capacity of NPP Neftekhimia, the Group’s joint venture with (3) Including inter-segment sales. the Gazprom Neft Group. (4) Approximately 80% of total production volumes is used internally for further intercompany (2) Production capacity of the intermediates and other chemicals product group is not provided processing into other petrochemical products in this product group and others. to avoid double counting. 17 WWW.SIBUR.COM SIBUR AT A GLANCE ´ HOW WE DO IT More Information Page / Link
Business Overview 12
Map of Operations 20 SIBUR 2012
Products and Markets 38 SIBUR Vertically Integrated Business Model Production Capacity and Utilisation 48 ILLUSTRATIVE ANNUAL REVIEW ANNUAL 2012 HIGHLIGHTS FEEDSTOCK PROCESSES PRODUCTS MARKETS
Stranded APG purchased APG NATURAL GAS CEO STATEMENTS from oil & gas companies CHAIRMAN AND GAS processed by SIBUR’s PROCESSING GPPs to produce natural RAW NGL (GPPs) RAW NGL gas and raw NGL A GLANCE SIBUR AT Raw NGL produced RAW NGL LPG internally or purchased from oil & gas companies GAS Residential Applications Fractionation/Cracking fractionated at SIBUR FRACTIONATION NAPHTHA GFUs into LPG and (GFUs) TAEYBUSINESS STRATEGY
naphtha LPG
MTBE produced from METHANOL & OTHER MTBE reaction of methanol with isobutylene as an OTHER OTHER FUELS & FUEL ADDITIVES additive to gasoline PROCESSING FEEDSTOCK AND ENERGY FEEDSTOCK NAPHTHA RAW NGL Fuel Additives/Components Power Generation SUSTAINABILITY LPG
LPG, naphtha and LPG INTERMEDIATES
raw NGL processed GOVERNANCE INTERMEDIATES CORPORATE at SIBUR’s crackers CRACKING/ into a wide range NAPHTHA OTHER CHEMICAL PROCESSING of intermediate petrochemical products Chemicals Pipes & Cables FMCG INFORMATION FINANCIAL
Intermediates INTERMEDIATES BASIC POLYMERS polymerised or otherwise processed POLYMERISATION & PPLASTICSL & ORGANIC SYNTHESIS into higher value-added OTHER PROCESSING INFORMATION petrochemical products ADDITIONAL SYNTHETIС RUBBERS
PETROCHEMICALS Automotive Construction Road Building
18 19 SIBUR AT A GLANCE ´ WHERE WE DO IT More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18 SIBUR 2012
Products and Markets 38 Map of Operations Production Capacity and Utilisation 48 ANNUAL REVIEW ANNUAL
WESTERN SIBERIA 2012 HIGHLIGHTS PROVEN OIL RESERVES Ust-Luga Transshipment Facility(1) NPP Neftekhimia Nyagan GPP(4) CEO STATEMENTS BIAXPLEN Yuzhno-Priobskiy (GPP)(2) 48 billion barrels(6) CHAIRMAN AND SIBUR-Kstovo SIBUR-Geosint PROVEN GAS RESERVES Gubkinskiy GGPP VyngapuroVyngapurovskiyovvskiy GPP trillion cubic metres SIBUR-PETF 22 A GLANCE Uralorgsintez SIBUR AT BIAXPLEN–M SIBUR-Khimprom MuravlenMuravlenkovskiyenkovskiyen GPP Headquarters SIBUR IN WESTERN SIBERIA (Moscow)
Plastic-Geosintetika GAS PROCESSING PLANTS (GPPs) BUSINESS STRATEGY (4)(4) Plastic Belozerniy GPP (4)(4) BIAXPLEN–K NizhnevartovskiyNizhnevartovvskiyv kiyiyy GPP 7 Yuzhno-BalykskiyYuzhno-Balykkskiyk y GPP Voronezhsintezkauchuk APG PROCESSING CAPACITY RusVinyl(3) billion cubic metres SIBUR-Neftekhim(5) 23 KrasnoyarKrasnoyarskiyarskiyarrskiyskiykiy ZSK per annum SUSTAINABILITY RAW NGL PROCESSING CAPACITY BIAXPLEN–NK (7) Togliattikauchuk Tobolsk-Neftekhim Tomskneftekhim 3.8 million tonnes per annum Polief Tobolsk-Polymer Plant(1) Orton GOVERNANCE PIPELINE NETWORK CORPORATE 2,433 kilometres(8)
PRODUCTION SITES WITH JOINT INFORMATION RAILWAY LOADING RACKS FINANCIAL OPERATIONS OF FEEDSTOCK & ENERGY AND PETROCHEMICALS SEGMENT (9) SIBUR’S JVs 4 FEEDSTOCK & ENERGY SEGMENT INFORMATION ADDITIONAL PETROCHEMICALS SEGMENT
(6) Source: IEA. (9) Out of 6 operated by Feedstock & Energy segment (1) Investment project. (5) Including three production sites. (7) Raw NGL processing capacity of our flagship GFU in Tobolsk (2) Investment project, JV with the Gazprom Neft Group. out of 5.2 million tonnes per annum of the Group’s total capacity. (8) (3) Investment project, JV with SolVin Holding Nederland B. V. Including APG, raw NGL and natural gas pipelines. (4) Part of Yugragazpererabotka, JV with TNK-BP. 20 21 WWW.SIBUR.COM SIBUR 2012 Competitive Strengths ANNUAL REVIEW ANNUAL
SIBUR’s feedstock access, our infrastructure, scale and strategic geographic location of our assets, as well as our vertically integrated business model provide us with major competitive advantages.
Extensive APG processing infrastructure: Advantageous Access SIBUR enjoys a particularly strong position in relation to Feedstock to the purchase of APG, which is a by-product of oil production. As most oil companies in Western Siberia lack their own APG processing infrastructure SIBUR benefits from advantageous access to and have limited means to utilise APG efficiently, APG and NGLs, including raw NGL, LPG and SIBUR’s infrastructure provides them with an naphtha. APG and raw NGL represent the principal attractive solution to process APG without incurring feedstock for our energy products, which we substantial capital expenditures or paying material either sell externally or process into petrochemical fines for APG flaring. As a result, we purchase products. LPG, naphtha and to a smaller extent APG from oil companies typically at a price that raw NGL, both produced internally and purchased substantially differs from the regulated natural gas from third parties, represent the principal prices, which reflects incurred and ongoing capital feedstock for our petrochemicals business. and operating expenditures required to construct, maintain and expand the processing infrastructure.
SIBUR processes APG into natural gas and raw NGL and sells the natural gas at prices close to regulated prices, generating significant margins and cash flows. The produced raw NGL serves as an attractive feedstock for both the feedstock & energy and petrochemicals segments.
22 SIBUR AT A GLANCE ´ WHY WE DO IT More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Map of Operations 20
Products and Markets 38
Production Capacity and Utilisation 48 2012 HIGHLIGHTS
VERTICALLY ADVANTAGEOUS INTEGRATED ACCESS TO FEEDSTOCK AND DIVERSIFIED BUSINESS MODEL CEO STATEMENTS CHAIRMAN AND
ESTABLISHED PRESENCE UNIQUE GROWTH EXTENSIVE INSTALLED AND LEADING MARKET OPPORTUNITIES ASSET BASE AS A POSITIONS ON THE AND EXECUTION BARRIER TO ENTRY GROWING RUSSIAN CAPABILITIES PETROCHEMICALS MARKET A GLANCE SIBUR AT
Access to growing volumes of attractively priced NGLs: SIBUR also benefits from an attractive Extensive Installed Asset pricing environment for NGLs. As the supply of Base as a Barrier to Entry BUSINESS STRATEGY NGLs significantly exceeds demand in Russia and particularly in Western Siberia, the NGLs produced in this region are effectively stranded. As a result, SIBUR operates the largest and most extensive prices for NGLs are determined on an export infrastructure for processing and transportation of netback basis, which reflects transportation costs feedstock in Western Siberia. This infrastructure and export duties. Transportation of NGLs out combined with the new projects at advanced of Western Siberia is costly, with transportation implementation stages would be difficult to replicate costs consistently rising, reducing the prices at as potential competitors would need to make which NGLs are available in Western Siberia. significant capital commitments with long lead This cost advantage is further supported by the times. Moreover, in order to ensure an adequate Russian Government’s policy of using export rate of return to justify such investments, it would SUSTAINABILITY duties to encourage domestic processing of energy be uneconomical for a potential competitor to products into higher value added products. construct selective processing or transportation facilities but would, instead, require to reproduce SIBUR operates a well-developed NGLs processing substantial part or the entire infrastructure to achieve
and transportation infrastructure, which puts us in a economies of scale comparable to those of SIBUR. GOVERNANCE CORPORATE strong position to consolidate NGLs flows in Western Siberia. This advantageous access to increasing supplies of NGLs provides us with a reliable source of feedstock for the growing petrochemicals business, particularly for new projects located INFORMATION in close proximity to the resource base, making FINANCIAL us one of the lowest cost producers globally. INFORMATION ADDITIONAL
23 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
compensated for the higher feedstock purchasing Established Presence and costs to our petrochemicals segment. Leading Market Positions Protection against lower oil prices: A large on the Growing Russian portion of SIBUR’s revenue is derived from the Petrochemicals Market production and sale of petrochemical products. Prices for petrochemical products are only partially correlated with oil and oil derivative prices and are SIBUR is a leading petrochemicals producer in Russia to a large extent dependent on supply and demand and enjoys strong market shares in majority of its fundamentals determined by cyclical factors in the petrochemical products. These leading market petrochemicals industry as well as demand trends in positions, combined with the growth potential of the customer industries, which are influenced by the the Russian petrochemicals market on the back of macroeconomic situation globally and in the relevant low per capita consumption and the currently high countries. Lower oil and oil derivative prices have a share of imports in certain petrochemicals underpin positive impact on SIBUR’s petrochemicals segment’s our significant further investments to increase cost base as they decrease feedstock purchasing production capacity in the petrochemicals business. costs. This partially compensates for the effect that declines in oil and oil derivative prices have on the Group’s feedstock & energy segment’s revenue.
Vertically Integrated and Diversification of product mix, customers and geographies: The integrated nature of our Diversified Business Model business implies a large and diversified range of products and product groups. Our principal energy Protection against fluctuations in feedstock products have different sensitivities to oil and gas prices: SIBUR is a net seller of energy products, prices. Our petrochemicals business comprises selling externally 100% of natural gas and over a wide range of petrochemical product groups, 60% of NGLs volumes available through internal including basic polymers, synthetic rubbers, plastics production or purchases from third-parties. and products of organic synthesis, intermediates Therefore, our feedstock & energy segment and other chemicals. We sell these products to benefits from higher natural gas and oil and oil clients in a variety of industries, including chemical, derivative prices. Historically, higher revenues automotive, FMCG, construction, agricultural, from sales of energy products have more than healthcare, and others, all of which have different demand and supply dynamics and underlying drivers.
24 SIBUR AT A GLANCE ´ WHY WE DO IT More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Map of Operations 20
Products and Markets 38
Production Capacity and Utilisation 48 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
Overall, SIBUR sells its products to approximately 1,500 large customers operating in a variety Unique Growth of industries in approximately 60 countries. As Opportunities and BUSINESS STRATEGY these customers, industries and geographies have different trends underlying supply and demand Execution Capabilities dynamics for our products, we have limited exposure to a single customer, industry or geography. Our advantageous access to feedstock and the unparalleled infrastructure in the region with the Technological and operational flexibility: largest supply of APG and NGLs in Russia provide The diversification of our feedstock and product us with unique opportunities to make significant portfolio, combined with our technological flexibility, investments in the expansion of the existing enables SIBUR to change the composition of our production capacity and in the implementation of feedstock and product mix in response to changes in new large-scale petrochemical projects in close market trends and shifts in demand fundamentals to proximity to our feedstock base. Moreover, SIBUR SUSTAINABILITY optimise purchasing, production, sales and logistics has a strong track record of developing large in order to maximise the Group’s blended margins. industrial projects in regions with difficult climate, logistical and market conditions, working with SIBUR applies a system of monthly operational leading global engineering firms. In implementing
planning in order to (1) change the composition these projects, we have developed an internal team GOVERNANCE CORPORATE of the feedstock for the petrochemicals business, of specialists that can lead the investment project (2) suspend production at various stages of management activities. Our current advanced stage the production process and (3) adjust the mix of investment projects and strong track record of of products we ultimately elect to sell to the execution position SIBUR ahead of potential new market in response to our own technological entrants, who would need to make major capital INFORMATION requirements and market conditions. commitments with substantial lead times to match FINANCIAL SIBUR’s current state of project implementation. INFORMATION ADDITIONAL
25 PRODUCTION FACILITIES Tobolsk-Polymer Plant polypropylene per annum. The project is at the commissioning stage and is scheduled for launch in2013.polypropylene for commissioningstage launch andisscheduled perannum. Theprojectisatthe productioncapacity willtotal 510,000INEOS. Theplant’s tonnes ofpropylene and500,000tonnes of processed intoUOP to polypropylene producepropylene of technology to usingthe befurther site in Tobolsk. Thecomplex propanedehydrogenation willapply the provided technology by ofaworld-classConstruction integrated Tobolsk-Neftekhim complex petrochemicals atthe STRATEGY WWW.SIBUR.COM
SIBUR 2012 Our Strategy ANNUAL REVIEW ANNUAL
SIBUR’s strategic goal is to ensure long-term profitable growth and maximise shareholder value. We leverage our integrated business model, unique cost advantages and strong demand fundamentals to substantially expand our petrochemicals business, increase our market leadership in Russia and secure strong positions in target export markets.
To achieve these objectives, we focus on long-term access to attractively priced hydrocarbon the following strategic priorities: feedstock. Our investments in the feedstock & energy segment are focused primarily on (1) expanding Cement long-term access to feedstock through and modernising our gas and product transportation expanding existing APG and NGLs processing infrastructure, (2) increasing our fractionation and transportation infrastructure and long-term capacity, and (3) enhancing our APG processing arrangements with oil and gas companies capabilities, particularly through increasing the Monetise stranded feedstock through liquid hydrocarbon recovery rates at GPPs. construction of large-scale petrochemicals production facilities Our investments and long-term supplier arrangements allow SIBUR to enjoy first-mover Capture domestic growth opportunities advantage for access to APG and NGLs in Western Pursue operational excellence Siberia on economically favourable terms.
Cement long-term access to feedstock through Monetise stranded feedstock expanding existing APG and NGLs processing through construction of large-scale and transportation infrastructure and long- petrochemicals production facilities term arrangements with oil and gas companies SIBUR is making substantial investments in Tobolsk SIBUR aims to reinforce its competitive to develop large-scale petrochemicals production positions in APG and NGLs processing and capacity near the Group’s feedstock base in Western transportation to further consolidate growing Siberia. These investments are aimed primarily at feedstock flows in Western Siberia. increasing production volumes of basic polymers, in particular through the development of the Tobolsk- We continue to develop a network of multi -year Polymer Plant and potentially the “ZapSib-2” project, contracts and joint ventures with oil and gas which is currently at a “front end engineering companies to strengthen and expand our design” stage of development. We expect these cooperation by offering an efficient solution for investments to result in further integration of our processing of by-products of oil and gas production. businesses and provide a more efficient and higher value added alternative to monetising SIBUR’s SIBUR is making investments in its existing facilities access to low cost NGLs stranded in the region. to expand the processing capacity and enhance efficiency as well as in new facilities both in existing By processing NGLs into petrochemicals in close regions of operations and new areas to secure reliable proximity to the feedstock base, we expect to realise
28 STRATEGY ´ OUR STRATEGY More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Map of Operations 20
Competitive Strengths 22
Investment Programme 30
Capital Expenditures, MD&A 141 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT significant savings on transportation charges and makes selective acquisitions to support these goals, export duties on energy products, while gaining a entering or expanding its presence in such markets strong cost advantage for our basic polymers both as BOPP-films, PET and acrylates. As part of this STRATEGY in Russia and internationally and capitalising on our strategy, SIBUR also seeks opportunities to broaden position as one of the lowest cost producers globally. its offering through cooperation with international This is expected to reduce our exposure to volatile manufacturers, licensors and customers. global energy markets and achieve more balanced operating margins for the Group as a whole. Pursue operational excellence BUSINESS Capture domestic growth opportunities We pursue operational excellence to enhance our cost advantages, reduce risks and promote According to IHS Chemical, Russia’s demand the long-term competitiveness and sustainability for basic petrochemical products is expected to of our business. We apply global best practices, grow faster than demand in many of the world’s adapted where necessary to the Russian market SUSTAINABILITY developed economies as the country’s per-capita situation, in order to improve productivity, streamline use of basic petrochemicals lags substantially and further integrate our asset base, enhance behind these economies. Moreover, much of business processes and functions, and upgrade Russia’s demand for certain petrochemicals is our IT infrastructure. SIBUR is also committed to
currently met by imports due to a shortage of disciplined and effective use of capital. We prioritise GOVERNANCE CORPORATE domestic petrochemicals capacity. This makes investment opportunities to focus on projects with the petrochemicals market in Russia relatively the best strategic fit and industry-leading returns, more attractive for domestic producers. SIBUR while increasing cash flows and maintaining balance is well positioned to capture this opportunity, sheet strength in line with our financial policy benefiting from its existing petrochemical facilities to support steady growth in the years to come. INFORMATION and its leading market positions in a variety of In addition, SIBUR continues to seek new market FINANCIAL petrochemical products and niche markets. opportunities for its products through marketing activities aimed at end-customers and industries. To secure and strengthen leadership, we are selectively developing our petrochemicals product INFORMATION offering to adapt to evolving customer needs and ADDITIONAL demand trends while strengthening our competitive position in selective higher margin specialty chemicals. SIBUR has consistently increased its investments in research and development and
29 WWW.SIBUR.COM
SIBUR 2012 Investment Programme ANNUAL REVIEW ANNUAL
In order to meet our strategic goals we are implementing investment projects to upgrade SIBUR’s feedstock processing capacity, develop our transportation infrastructure and expand the Group’s petrochemicals production capacity.
SIBUR plans to invest approximately RR 143 billion net of VAT from 2013 to 2016, out of which RR 74 billion were approved by the Board of Directors for 2013. These amounts comprise strategic investment projects approved by our Investment Committee and also include capital expenditures to maintain the existing infrastructure as well as the capitalised portion of SIBUR’s expenses related to R&D, organisational and IT projects. These amounts exclude investments under joint ventures, loans issued to joint ventures or acquisitions.
The following table presents our key approved projects and the related capital expenditures for the period from 2013 through 2016:
RR millions, except as stated
TOTAL LOCATION DESCRIPTION 2013 2014 2015 2016 2013-2016(1)
FEEDSTOCK & ENERGY
TRANSPORTATION INFRASTRUCTURE DEVELOPMENT
Western Siberia Purovsk – Pyt-Yakh – Tobolsk pipeline 16,604 17,642 13,307 - 47,553
Leningrad region Ust-Luga LPG and light oils transshipment facility 6,685(2) - - - 6,685
GAS FRACTIONATION CAPACITY MODERNISATION AND EXPANSION
Tobolsk Second GFU 6,060 3,752 - - 9,812 PETROCHEMICALS
Tobolsk Tobolsk-Polymer Plant 4,860 - - - 4,860
Kstovo Steam cracker upgrade 2,392 2,113 - - 4,505
Tobolsk “ZapSib-2” project FEED stage 3,069 - - - 3,069
Tobolsk Expansion of propylene intermediate depot 1,713 - - - 1,713
Tomsk New BOPP-film production 1,590 - - - 1,590
Novokuybyshevsk Expansion of BOPP-film production 1,137 140 - - 1,277
Blagoveshchensk Expansion of PET production 961 13 - - 974
Togliatti Expansion/upgrade of butyl rubber production 550 - - - 550
Voronezh New thermoplastic elastomers production 505 - - - 505
(1) Capital expenditure estimates in this table are based on latest approved budgets for (2) Including commissioning budget. each project. These numbers may change along the project implementation. Additionally, commissioning budgets are typically finalised closer to the completion stage. As a result, the actual amount of capital expenditures that the Group may incur may alter from the initially 30 approved amounts. STRATEGY ´ INVESTMENT PROGRAMME More Information Page / Link
Business Overview 12
Map of Operations 20
Our Strategy 28
Production Capacity and Utilisation 48
Capital Expenditures, MD&A 141 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Purovsk – Pyt-Yakh – Tobolsk pipeline Ust-Luga LPG and light oils transshipment facility
foundation for development of our petrochemicals Feedstock & Energy business in Tobolsk. The project is scheduled for completion in 2015. STRATEGY Purovsk – Pyt-Yakh – Tobolsk pipeline for raw NGL transportation Ust-Luga LPG and light oils transshipment facility SIBUR is in the process of construction of a 1,100 kilometre raw NGL pipeline connecting Purovskiy SIBUR is in the process of construction of an LPG
GCP owned by NOVATEK, Yuzhno-Balykskaya main transshipment facility at Ust-Luga sea port in the BUSINESS pumping station near Pyt-Yakh and the Tobolsk Leningrad region with an annual loading capacity of production site, where SIBUR’s flagship GFU is 1.5 million tonnes of LPG and 2.5 million tonnes of located (Purovsk – Pyt-Yakh – Tobolsk pipeline). light oils per annum. This project that is scheduled for The pipeline’s throughput capacity between completion in 2013 is expected to support growth Purovskiy GCP and SIBUR’s loading rack in Noyabrsk in LPG exports to the premium Western European SUSTAINABILITY is expected to total approximately 4 million tonnes markets. per annum, between the loading rack in Noyabrsk and Yuzhno-Balykskaya main pumping station – Second gas fractionation unit (GFU) in Tobolsk approximately 5.5 million tonnes per annum, and
between Yuzhno-Balykskaya main pumping station SIBUR is expanding its gas fractionation facility in GOVERNANCE CORPORATE and the Tobolsk production site – approximately Tobolsk through construction of a second GFU, 8 million tonnes per annum. The launch of the new which is expected to increase the overall raw NGL pipeline will enable SIBUR to replace certain parts fractionation capacity at the Tobolsk production of the existing raw NGL pipeline and is expected site to 6.6 million tonnes per annum from the to result in a substantial extension of SIBUR’s raw current 3.8 million tonnes per annum. The project is INFORMATION NGL transportation infrastructure, an increase in its scheduled for completion in 2014 and is aimed at FINANCIAL throughput capacity and reliability. handling the growing volumes of raw NGL supplies.
The project is aimed at securing our long-term access to abundant NGL resources of Western Siberia, INFORMATION and particularly its northern parts, where projected ADDITIONAL growth in wet gas production is expected to support rising supplies of raw NGL. We expect that the creation of a single infrastructure for transportation of raw NGL to its flagship GFU will create a secure
31 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Tobolsk-Polymer Plant New thermoplastic elastomers production facility in Voronezh
Siberia in close proximity to the hydrocarbon resource Petrochemicals base. The project is at the commissioning stage and is scheduled for launch in 2013. Tobolsk-Polymer Plant, an integrated propylene and polypropylene production Steam cracker upgrade in Kstovo complex SIBUR is modernising and upgrading its steam Tobolsk-Polymer Plant is a large scale world-class cracker facility in Kstovo, the Nizhniy Novgorod petrochemicals complex in Tobolsk, which has been region. The project is targeted at the expansion of the constructed to apply the propane dehydrogenation facility’s capacity from 240,000 to 360,000 tonnes technology provided by UOP to produce 510,000 of ethylene per annum and is scheduled for tonnes of propylene per annum to be further completion in 2014. processed into 500,000 tonnes of polypropylene using the technology of INEOS. Tobolsk-Polymer “ZapSib-2”, an integrated ethylene, Plant is located at the same production site as polyethylene and polypropylene production our flagship GFU. Tobolsk-Polymer is on the state complex, FEED stage top-priority project list in the region and represents a major step in execution of SIBUR’s strategy of ZapSib-2 is a greenfield construction of an integrated creating a full-scale petrochemicals hub in Western basic polymers production complex in Tobolsk and
INVESTMENT PROGRAMME 2009 – 2012A
RR bln (excl. VAT) Maintenance, R&D, IT, Tobolsk-Polymer and other and multiple 24 194 Ust-Luga smaller scale projects transshipment 24 facility, Construction and railway loading racks, 88 88 expansion of GPPs raw NGL pipelines (Vyngapurskiy, Yuzhno-Balykskiy) 60 22 82
Feedstock processing Transportation Petrochemicals Other TOTAL capacity infrastructure
32 STRATEGY ´ INVESTMENT PROGRAMME More Information Page / Link
Business Overview 12
Map of Operations 20
Our Strategy 28
Production Capacity and Utilisation 48
Capital Expenditures, MD&A 141 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Expansion of PET production in Blagoveshensk Butyl rubber production facility in Togliatti is projected to operate a steam cracker with a total the construction of a propylene railway loading rack annual capacity of 1.5 million tonnes of ethylene and additional reservoirs. The project is scheduled for (technology provided by LINDE), four polyethylene completion by the end of 2013. STRATEGY production units with a total annual capacity of 1.5 million tonnes (technology provided by INEOS), and New BOPP-film production in Tomsk one polypropylene production unit with an annual capacity of 500,000 tonnes (technology provided SIBUR plans to launch a new BOPP-film production by LyondellBasell). Currently the project is at a “front capacity of 38,000 tonnes per annum at its existing end engineering design” (FEED) stage and we plan to basic polymers production site in Tomsk. The project BUSINESS make a final investment decision after its completion is scheduled for completion by the end of 2013. no earlier than the second half of 2013. In case of a decision to proceed with the project, we believe that Expansion of BOPP-film production in it is expected to be the largest integrated facility for Novokuybyshevsk production of basic polymers in Russia. SUSTAINABILITY SIBUR aims to expand its existing BOPP-film production Expansion of a propylene depot in Tobolsk capacity at the production site in Novokuybyshevsk through the construction of a new production line with SIBUR is expanding its intermediate propylene projected capacity of 30,500 tonnes per annum.
depot at the Tobolsk production site through The project is scheduled for completion in 2014. GOVERNANCE CORPORATE
INVESTMENT PROGRAMME 2013 – 2016E(1)
RR bln (excl. VAT) Maintenance, INFORMATION
R&D, FINANCIAL Tobolsk-Polymer, IT and other 143 ZapSib-2(2) Purovsk-Pyt-Yakh- FEED and other 39 39 Tobolsk raw NGL pipeline 30 30
Second GFU INFORMATION ADDITIONAL at Tobolsk 60 14 74
Feedstock processing Transportation Petrochemicals Other TOTAL capacity infrastructure
(1) Includes only investment projects approved by the Group’s Investment Committee. (2) Decision on the “ZapSib-2” project is expected after completion In addition, SIBUR is evaluating a number of projects which are at various stages of review. of the FEED stage, no earlier than the second half of 2013. Therefore, the actual amount of capital expenditure that the Group may incur may exceed the amounts that have been formally approved. 33 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Expansion of BOPP-film production in Novokuybyshevsk RusVinyl
Expansion of PET production in Construction of a new thermoplastic Blagoveshchensk elastomers production in Voronezh
SIBUR is expanding its PET production capacity in SIBUR is in the process of construction of a new Blagoveshchensk (Bashkortostan) from 140,700 to thermoplastic elastomers production facility with an 210,000 tonnes of PET per annum. The project is annual capacity of 50,000 tonnes at the Group’s scheduled for completion in 2014. synthetic rubber plant in Voronezh. The project is scheduled for completion in 2013. Expansion and upgrade of butyl rubber production in Togliatti In addition to projects that have been formally approved by the Group’s Investment Committee and SIBUR aims to expand and upgrade its butyl rubber the “ZapSib-2” project described above, a number of facilities at the Togliatti production site and increase other projects have not yet gone through the formal its capacity from 48,000 tonnes to 53,000 tonnes approval process and are at various stages of review per annum. The project is scheduled for completion by SIBUR’s management. Therefore, the actual by the end of 2013. amount of capital expenditures that we may incur may exceed the amounts that have been formally approved.
34 STRATEGY ´ PARTNERSHIP WITH LEADING WORLD PRODUCERS
Partnership with Leading World Producers 2012 HIGHLIGHTS We partner with leading world players in the petrochemicals industry to monetise our own technologies or to acquire know-how, which enables us to strengthen our positions locally and establish presence in the CEO STATEMENTS international markets. CHAIRMAN AND A GLANCE SIBUR AT
RusVinyl, a joint venture PVC facility in Kstovo, Partnership with SINOPEC for nitrile butadiene the Nizhniy Novgorod region, Russia rubber production in Krasnoyarsk, Russia STRATEGY In June 2007, we established a 50/50% joint In October 2012, SIBUR and SINOPEC venture with SolVin Holding Nederland B.V. The INTERNATIONAL (HONG KONG), Co., Limited purpose of the JV is to construct a polyvinyl chloride (“SINOPEC”) entered into an agreement to set up a (PVC) plant with an annual capacity of 330,000 JV for nitrile-butadiene rubber (NBR) production in tonnes of PVC and 225,000 tonnes of caustic soda. Krasnoyarsk on the basis of SIBUR’s existing plant
This new complex, located in Kstovo, the Nizhny with a total production capacity of 42,500 tonnes BUSINESS Novgorod region, is scheduled for commercial launch per annum. Under the terms of this agreement, in 2014. RusVinyl is on the state top-priority project SINOPEC will hold 25% plus one share in the list in the region and is primarily aimed at satisfaction JV, while SIBUR will hold 75% minus one share. of domestic demand for PVC and import substitution. Currently the parties are in the process of obtaining the required regulatory approvals. SUSTAINABILITY Reliance Sibur Elastomers Private Limited, a joint venture for butyl rubber production in RusPav, a joint venture for development of Jamnagar, India surfactants plant in Dzerzhinsk, the Nizhniy Novgorod region, Russia
In February 2012, SIBUR entered into a joint venture GOVERNANCE CORPORATE arrangement with Reliance Industries Limited and In October 2012, SIBUR signed an agreement with established a jointly owned company Reliance Sibur Solvay SA (initially negotiations were held with Elastomers Private Limited, where SIBUR owns a Rhodia (France) prior to its acquisition by Solvay) 25.1% stake. This joint venture was established to establish RusPav, a 50/50% joint venture. The JV for the construction of a butyl rubber production was established for the development of surfactants INFORMATION facility based on SIBUR’s technology in Jamnagar and oilfield process chemicals production site in FINANCIAL with a total capacity of 100,000 tonnes per annum. Dzerzhinsk, the Nizhny Novgorod region. Launch of The butyl rubber plant construction is part of the this project is expected in 2016. Jamnagar-3 project implemented by Reliance Industries and its completion, which is preliminarily We estimate our share of capital expenditures under INFORMATION scheduled for 2015, will also depend on the timeline current and planned joint venture arrangements at ADDITIONAL of the Jamnagar-3 project execution. RR 13 billion (net of VAT) from 2013 through 2016. Such investments are typically reported as equity contributions or loans issued in the Group’s financial statements.
35 PRODUCTION FACILITIES Tobolsk-Neftekhim the nameplate capacityforthe production ofMTBEtotaled 150,000 tonnes perannum. GFU totaled 3.8million tonnes processingcapacity ofthe ofrawthe NGL per annum, andisobutylene. Asof31 asbutadiene December 2012, such and intermediate chemicals, (MTBE) butyl ether fractionating unit(GFU). Theplantalsoproducesmethyl tertiary Tobolsk-Neftekhim, located inTobolsk, gas processesraw NGL atSIBUR’sflagship BUSINESS WWW.SIBUR.COM
SIBUR 2012 Products and Markets
ANNUAL REVIEW ANNUAL Energy Products
SIBUR’s energy products, including liquefied petroleum gases (LPG), naphtha, natural gas and raw natural gas liquids (raw NGL), are sold primarily to customers in the energy, utilities and petrochemical industries in Russia and internationally. We also produce fuel additives, including methyl tertiary butyl ether (MTBE), which we sell to major oil refineries on the domestic and international markets.
In 2012, our revenue from sales of energy Liquefied Petroleum Gases (LPG) – 20.2% of products totaled RR 129,409, an increase total Group’s revenue and 42.3% of energy of 15.2% year-on-year, and accounted for products revenue in 2012 47.7% of the total Group’s revenue for
2012. Domestic sales accounted for 43.9% LPG refers primarily to propane (C3), butane
of total revenue from energy product sales, and isobutane (C4) or propane-butane mixtures. while 56.1% was attributable to exports. LPG is primarily used as a motor fuel, feedstock for petrochemicals and a heating fuel. We also use LPG, naphtha and raw NGL as feedstock for internal processing into petrochemical products: SIBUR produces LPG by fractionating raw NGL at its in 2012, 33.0% of total LPG, naphtha and raw NGL gas fractionation units (GFUs) and also purchases volumes available for sale were supplied as feedstock it directly from oil and gas companies. We sell LPG to our petrochemicals business, while external sales externally and also supply it as feedstock to our accounted for 66.0% of available for sale volumes. petrochemicals production facilities: 21.6% and 20.1% of total volumes of LPG available for sale were delivered to our petrochemicals business for further processing in 2012 and 2011 respectively.
ENERGY PRODUCTS REVENUE SPLIT
By product By region
LPG ...... 42% Russia...... 44% Naphtha ...... 20% Europe...... 46% Natural gas...... 19% Asia ...... 6% MTBE ...... 13% Customs Union ...... 3% Raw NGL ...... 3% CIS...... 1% Other Fuels and Fuel Additives...... 3%
2012 2012
38 BUSINESS ´ PRODUCTS AND MARKETS ´ ENERGY PRODUCTS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Production Capacity and Utilisation 48
Operational Review, MD&A xx
ENERGY PRODUCTS REVENUE SPLIT 2012 HIGHLIGHTS
By key end-customer industry By contract / spot
Fuels...... 34% Contract ...... 69% CEO STATEMENTS Refineries ...... 30% Spot...... 31% CHAIRMAN AND Traders ...... 21% Petrochemicals ...... 12% Energy...... 3% A GLANCE SIBUR AT 2012 2012
Naphtha – 9.5% of total Group’s revenue and Natural gas – 9.2% of total Group’s revenue 19.9% of energy products revenue in 2012 and 19.3% of energy products revenue in 2012 STRATEGY
Naphtha (C5+) refers primarily to pentane, Natural gas primarily comprises methane (C1) and isopentane, hexane and heavier fraction ethane (C2). Natural gas is primarily used as fuel hydrocarbons. Naphtha is primarily used as feedstock for power generation, residential, commercial and for energy, utilities and petrochemicals industries. industrial applications as well as feedstock in the production of methanol and mineral fertilisers.
SIBUR produces naphtha by fractionating raw NGL Ethane, if separated from natural gas, can also be BUSINESS at its GFUs and also purchases naphtha directly from used as feedstock for petrochemicals. oil and gas companies. We sell naphtha externally and also supply it as feedstock to our petrochemicals SIBUR produces natural gas at its gas processing production facilities: 39.3% and 47.8% of total plants (GPPs) through processing of associated volumes of naphtha available for sale were delivered petroleum gas (APG) purchased from oil companies, SUSTAINABILITY to our petrochemicals business for further processing which we separate into natural gas and raw NGL. in 2012 and 2011 respectively. We also purchase certain volumes of natural gas from NOVATEK. We sell natural gas to Russian oil and gas companies and, to a limited extent, to
Russian regional and municipal power companies. GOVERNANCE CORPORATE
LIQUEFIED PETROLEUM GASES (LPG)
Revenue RR bln Revenue split by market INFORMATION FINANCIAL Russia...... 22% 52.5 54.8 Export ...... 78%
34.6
INFORMATION ADDITIONAL
2010 2011 2012 2012
39 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
LPG Naphtha
While we do not supply natural gas as feedstock to Raw Natural Gas Liquids (raw NGL) – our petrochemicals business, we use certain volumes 1.4% of total Group’s revenue and 3.0% of natural gas internally, mainly as fuel at the GPPs of energy products revenue in 2012 and for own heat power generation. Raw NGL represents a wide mixture of
Methyl Tertiary Butyl Ether (MTBE) – 6.2% hydrocarbon fractions, ranging from C3 to
of total Group’s revenue and 12.9% of C6 (propane, butane, isobutane, pentane, energy products revenue in 2012 isopentane, and hexane). Raw NGL is primarily used for fractionation into energy products МТBE is a fuel additive that is used to increase and as feedstock for petrochemicals. the octane level in gasoline. SIBUR produces raw NGL at its GPPs through SIBUR produces MTBE from the reaction of methanol processing of associated petroleum gas (APG) with isobutylene and also purchases MTBE from third by separating it into natural gas and raw NGL. parties for resale. We sell 100% of MTBE externally SIBUR also purchases raw NGL from oil and gas to oil refineries in Russia and internationally. companies. We use raw NGL primarily for internal fractionation into energy products: 86.3% and 88.8% of total produced and purchased volumes of raw NGL were fractionated internally
NAPHTHA
Revenue RR bln Revenue split by market
25.7 Russia...... 13% 21.1 Export ...... 87%
15.7
2010 2011 2012 2012
40 BUSINESS ´ PRODUCTS AND MARKETS ´ ENERGY PRODUCTS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Production Capacity and Utilisation 48
Operational Review, MD&A xx 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Natural gas MTBE
NATURAL GAS
Revenue RR bln Revenue split by market STRATEGY
24.9 Russia...... 100%
17.4 15.8
BUSINESS
2010 2011 2012 2012 SUSTAINABILITY in 2012 and 2011, respectively. We also use delivered to our petrochemicals business in raw NGL as feedstock at our own petrochemical 2012 and 2011, respectively. Currently, only facilities without prior fractionation: 68.1% and small volumes of raw NGL are sold externally. 71.9% of total volumes of raw NGL available
for sale (excluding fractionation volumes) were GOVERNANCE CORPORATE
MTBE
Revenue RR bln Revenue split by market INFORMATION FINANCIAL 16.7 Russia...... 74% 14.9 Export ...... 26% 10.8
INFORMATION ADDITIONAL
2010 2011 2012 2012
41 WWW.SIBUR.COM SIBUR 2012
ANNUAL REVIEW ANNUAL Petrochemicals
SIBUR’s petrochemical products comprise basic polymers, synthetic rubbers, plastics and organic synthesis products as well as intermediates and other chemicals. Each of these product groups has particular characteristics and distinct market fundamentals, however, all of them are sold to industrial consumers and growth in each of these product groups is driven primarily by the development of the industrial sector, including key end-customer industries, such as, the automotive, construction, fast moving consumer goods (FMCG), industrial machinery, chemicals and other sectors.
In 2012, our revenue from sales of petrochemical SIBUR produces LDPE through polymerisation of products totaled RR 126,439 million, an ethylene, which is an intermediate petrochemicals increase of 3.7% year-on-year, and accounted product, produced internally. LDPE is used in for 46.6% of the total Group’s revenue for manufacturing general-purpose consumer 2012. Domestic sales accounted for 64.1% goods, coating materials for electrotechnical of total revenue from petrochemicals sales, and energy industry, film for agricultural while 35.9% was attributable to exports. industry as well as various packaging.
Basic polymers – 8.2% of total Group’s revenue SIBUR produces PP through polymerisation of and 17.5% of petrochemicals revenue in 2012 propylene, which is an intermediate petrochemicals product, produced internally. PP is used in Basic polymers produced by SIBUR include low manufacturing of general-purpose consumer goods, density polyethylene (LDPE) and polypropylene (PP), various packaging, BOPP-films, hygiene products, which are granulated thermoplastic polymers. We sell pipes, fibres and automotive components. LDPE and PP to external clients in Russia and abroad, and also use certain volumes internally, primarily in the production of higher value-added products.
PETROCHEMICAL PRODUCTS REVENUE SPLIT By product By region
Synthetic Rubbers ...... 32% Russia...... 64% Plastics & Organic Europe...... 15% Synthesis Products ...... 31% Asia ...... 11% Intermediates & Other Chemicals ...... 19% Customs Union ...... 5% Basic Polymers...... 18% CIS...... 3% Other...... 2%
2012 2012
42 BUSINESS ´ PRODUCTS AND MARKETS ´ PETROCHEMICALS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Production Capacity and Utilisation 48
Operational Review, MD&A xx 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Basic polymers have many everyday uses such as packaging Tyres are a major end-product for synthetic rubber
Synthetic rubbers – 15.2% of total Specialty rubbers comprise co-polymers such Group’s revenue and 32.5% of as nitrile-butadiene rubber (NBR), which is a petrochemicals revenue in 2012 complex mixture of unsaturated co-polymers STRATEGY of acrylonitrile and butadiene, and butyl rubber Synthetic rubbers produced by SIBUR include (IIR), which is a co-polymer of isobutylene and commodity rubbers, specialty rubbers and a small amount of isoprene. In addition to basic thermoplastic elastomers. We sell 100% of rubbers rubber properties, such as elasticity, NBR is to external customers both in Russia and abroad. characterised by oil and petrol resistance, while IIR
is characterised by gas impermeability. Specialty BUSINESS Commodity rubbers comprise polyisoprene (IR), rubbers are used mostly in the production of tyre polybutadiene (BR) and styrene-butadiene (SBR) inner tubes and vulcanising diaphragms, mechanical rubbers. These are butadiene or isoprene polymers rubber goods for automotive and machine- as well as co-polymers of butadiene and styrene, building industries, asbestos technical (frictional) which have elastic and other properties that are goods and adhesives, as well as footwear. SUSTAINABILITY partially similar to natural rubbers. Commodity rubbers are used in the production of tyres, mechanical rubber goods for automotive and machine-building industries, asbestos technical
(frictional) goods and adhesives, as well as footwear. GOVERNANCE CORPORATE
PETROCHEMICAL PRODUCTS REVENUE SPLIT By key customer industries By contract / spot INFORMATION FINANCIAL Chemicals...... 38% Contract ...... 49% Traders ...... 22% Spot...... 51% Automotive ...... 20% FMCG...... 9% INFORMATION ADDITIONAL Construction...... 5% Other...... 6%
2012 2012
43 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Thermoplastic elastomers are used in road building PET is used in plastic bottles
Thermoplastic elastomers represent a mix of abroad (with a strong focus on domestic market polymers (usually a plastic and a rubber), which for majority of the products) and also use certain consists of materials with both thermoplastic and volumes internally, primarily in the production of elastomeric properties. higher value-added products: 11.4% and 9.1% of total production volumes were used for further Plastics and organic synthesis products – processing in 2012 and 2011, respectively. 14.6% of total Group’s revenue and 31.3% of petrochemicals revenue in 2012 PET is a thermoplastic polymer resin of the polyester family and is primarily used in manufacturing of PET SIBUR’s plastics and organic synthesis product group packaging for beverages and food, as well as other comprises polyethylene terephthalate (PET), glycols, containers. biaxially oriented polypropylene films (BOPP-films), alcohols, expandable polystyrene (EPS), acrylates Glycols include mono-ethylene glycol, diethylene and plastic compounds. SIBUR produces plastics and glycol and triethylene glycol. These are viscous organic synthesis products primarily from ethylene liquids, used primarily in manufacturing of PET, and propylene derivatives, as well as a wide range polyester fiber, de-icing liquids, cooling and anti- of intermediates, which we also produce as part of freezing liquids, extragent for aromatic hydrocarbons our value chain. We sell these products to external and reagent for natural gas drying. customers in a variety of industries in Russia and
BASIC POLYMERS
Revenue RR bln Revenue split by product
LDPE...... 56% 21.8 22.2 18.8 PP...... 44%
2010 2011 2012 2012
44 BUSINESS ´ PRODUCTS AND MARKETS ´ PETROCHEMICALS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Production Capacity and Utilisation 48
Operational Review, MD&A xx 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Glycols are used in liquid coolants and anti-freeze BOPP-films are used in packaging and price tags
BOPP-films include coextruded, coated, non-heat EPS is a granulated polymer, produced from styrene sealable or homopolymer films in a variety of finishes. monomer. Expandable polystyrene is used in the BOPP-films are characterised by shrinkability, production of thermo-insulation blocks, packaging STRATEGY rigidity, transparency, sealability, twist retention, etc. materials as well as for decorative elements. BOPP-films are mainly used by the retail industry for packaging and production of price tags, as well as Acrylates include ethers of acrylic acid, butyl, methyl labels and adhesive tapes. and ethyl. Acrylates are mainly used in the production of acrylic emulsions, superabsorbents, building mixes
Alcohols include 2-ethylhexanol, butyl alcohol and adhesives used in the construction and textile BUSINESS and isobutyl alcohol. Alcohols are used in organic industries. synthesis in the production of plasticizers, acetates, acrylates, oil additives, as solvents for plastics Plastic compounds include acrylonitrile butadiene and varnish, as anti-foaming agent, as well as a styrene (ABS) plastics and polyvinyl chloride (PVC) component for perfume compounds. cable compounds, which are used primarily in the SUSTAINABILITY production of cables, polymer sheets and automobile components. GOVERNANCE CORPORATE
SYNTHETIC RUBBERS
Revenue RR bln Revenue split by product INFORMATION FINANCIAL 51.0 Commodity Rubbers ..... 72% 41.1 Specialty Rubbers ...... 21% 38.3 Thermoplastic Elastomers...... 7%
INFORMATION ADDITIONAL
2010 2011 2012 2012
45 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Alcohols are used as solvents EPS is used in home insulation materials
Intermediates and other chemicals – 8.7% We also sell these products externally, primarily of total Group’s revenue and 18.6% of to other petrochemical companies. SIBUR’s petrochemicals revenue in 2012 integrated business model enables us to change the composition of our feedstock and product mix to Intermediates and other chemicals primarily comprise optimise purchasing, production, sales and logistics benzene, styrene, terephthalic acid, propylene, in order to maximise blended Group margins. As a ethylene oxide, butadiene, isoprene, isobutylene, result, the share of external sales of intermediates ethylene and others. These chemicals are primarily and other chemicals may fluctuate significantly used internally for processing into higher value- period to period depending on market trends, shifts added petrochemical products: 82.3% and 79.9% in supply and demand fundamentals, capacity of total production volumes of intermediates and constraints and other factors. other chemicals were used for further internal processing in 2012 and 2011, respectively.
PLASTICS & ORGANIC SYNTHESIS PRODUCTS
Revenue RR bln Revenue split by product
39.6 PET ...... 29% Glycols...... 17% 24.7 BOPP-films ...... 15% Alcohols ...... 15% 18.1 EPS ...... 10% Acrylates ...... 8% Plastic Compounds ...... 6% 2010 2011 2012 2012
46 BUSINESS ´ PRODUCTS AND MARKETS ´ PETROCHEMICALS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Production Capacity and Utilisation 48
Operational Review, MD&A xx 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT Acrylates are used in acrylic emulsions Plastic compounds are used in electric cables
PETROCHEMICAL PRODUCTS REVENUE SPLIT BY MARKET Basic polymers Synthetic rubbers Plastics & organic STRATEGY synthesis
products
BUSINESS Russia... 71% Russia... 41% Russia... 75% Export .. 59% Export .. 29% Export .. 25%
2012 SUSTAINABILITY GOVERNANCE CORPORATE
INTERMEDIATES & OTHER CHEMICALS Revenue RR bln Share of production used INFORMATION for internal processing FINANCIAL 24.4 24.2 23.5 Internal processing ...... 82% External sales...... 18% INFORMATION ADDITIONAL
2010 2011 2012 2012
47 WWW.SIBUR.COM
SIBUR 2012 Production Capacity and Utilisation
ANNUAL REVIEW ANNUAL Feedstock & Energy
SIBUR has an unparalleled position with Russia’s largest and most extensive integrated infrastructure for processing and transportation of APG and NGLs. Our feedstock & energy segment operates seven gas processing plants (GPPs), three gas fractionation units (GFUs) and four MTBE production units.
The following table presents data on our feedstock & energy production sites:
Nameplate capacity Capacity as of 31 December utilisation, %
PRODUCTION SITE LOCATION PRODUCTS 2012 2011 2012 2011
GAS PROCESSING PLANTS (GPPs)
GPPs owned by Yugragazpererabotka, SIBUR’s JV with TNK-BP
Belozerniy GPP Combined processing capacity Natural gas, (billion cubic metres of APG) Khanty-Mansi raw NGL, Nizhnevartovskiy GPP 93% 87% Autonomous Area naphtha, 13.4 13.4 LPG Nyagan GPP
GPPs 100% owned by SIBUR
Gubkinskiy GPP Combined processing capacity (billion cubic metres of APG) Vyngapurovskiy GPP Khanty-Mansi Natural gas, and Yamal-Nenets 9.6 8.4 70% 79% raw NGL Muravlenkovskiy GPP Autonomous Areas
Yuzhno-Balykskiy GPP
GAS FRACTIONATION UNITS (GFUs) Processing capacity (million tonnes of raw NGL)
Tobolsk-Neftekhim Tobolsk LPG, naphtha 3.8 3.8
Uralorgsintez Tchaikovskiy (Perm region) LPG, naphtha 0.8 0.8 93% 90%
SIBUR-Khimprom Perm LPG, naphtha 0.55 0.55
MTBE PRODUCTION UNITS Production capacity (tonnes)
Uralorgsintez Tchaikovskiy (Perm region) MTBE 220,000 200,000
Tobolsk-Neftekhim Tobolsk MTBE 150,000 150,000 87%(1) 93% Togliattikauchuk Togliatti MTBE 75,000 75,000
SIBUR-Khimprom Perm MTBE 33,000 33,000
(1) Does not account for the capacity expansion at Uralorgsintez finalised by 31 December 2012
48 BUSINESS ´ PRODUCTION CAPACITY AND UTILISATION More Information Page / Link
Vertically Integrated Business Model 18
Map of Operations 20
Investment Programme 30
Products and Markets 38 Petrochemicals Capital Expenditures, MD&A 141
SIBUR owns and operates 18 production sites (not including joint ventures 2012 HIGHLIGHTS and investment projects), comprising three steam cracker facilities, one basic polymers production plant, three synthetic rubber production plants
and 14 production plants manufacturing plastics and organic synthesis CEO STATEMENTS CHAIRMAN AND products as well as a wide range of intermediate chemicals. A GLANCE SIBUR AT
The following table presents data on our basic polymers production sites:
Nameplate capacity (tonnes) Capacity
as of 31 December utilisation, % STRATEGY PRODUCT PRODUCTION SITE LOCATION 2012 2011 2012 2011
LDPE Tomskneftekhim Tomsk 245,000 230,000 109% 106%
PP Tomskneftekhim Tomsk 130,000 130,000 104% 105%
PP NPP Neftekhimia(1) Moscow 100,000 100,000 106% 114% BUSINESS
The following table presents data on our synthetic rubbers production sites: SUSTAINABILITY Nameplate capacity (tonnes) Capacity as of 31 December utilisation, % PRODUCT PRODUCTION SITE LOCATION 2012 2011 2012 2011
COMMODITY RUBBERS IR Togliattikauchuk Togliatti 80,170 60,000 76% 111% GOVERNANCE CORPORATE BR Voronezhsintezkauchuk Voronezh 91,000 91,000 93% 87%
PBR-Nd Voronezhsintezkauchuk Voronezh 30,000 30,000 49% 58%
ESBR Voronezhsintezkauchuk Voronezh 155,000 155,000 46% 49% INFORMATION
ESBR Togliattikauchuk Togliatti 97,900 97,900 58% 55% FINANCIAL
SSBR Voronezhsintezkauchuk Voronezh 23,000 23,000 74% 63%
SPECIALTY RUBBERS NBR Krasnoyarskiy ZSK Krasnoyarsk 42,500 42,500 96% 97% INFORMATION IIR Togliattikauchuk Togliatti 48,000 48,000 95% 99% ADDITIONAL
Latexes Voronezhsintezkauchuk Voronezh 19,500 19,500 13% 22%
THERMOPLASTIC ELASTOMERS SBS Voronezhsintezkauchuk Voronezh 35,000 35,000 85% 80%
(1) NPP Neftekhimia is the Group’s joint venture with the Gazprom Neft Group. SIBUR does not consolidate production volumes of NPP Neftekhimia, however it purchases almost all PP produced by the joint venture. 49 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
The following table presents data on our principal plastics and organic synthesis production sites:
Nameplate capacity (tonnes) Capacity as of 31 December utilisation, %
PRODUCT PRODUCTION SITE LOCATION 2012 2011 2012 2011
Blagoveshchensk PET Polief (Bashkortostan) 140,700 120,000 105% 105%
PET SIBUR-PETF Tver 70,000 70,000 109% 107%
Nizhniy Novgorod Glycols SIBUR-Neftekhim region 255,000 255,000 94% 96%
Alcohols (1) SIBUR-Khimprom Perm 154,700 154,700 103% 100%
Samara region BIAXPLEN NK Moscow region BIAXPLEN-M BOPP-films Kursk 111,250 25,000 76% 55% BIAXPLEN-K Nizhniy Novgorod BIAXPLEN region
Expandable polystyrene SIBUR-Khimprom Perm 100,000 50,000 102% 55%(2)
Expandable polystyrene Plastic Tula region 11,000 11,000 80% 92%
Nizhniy Novgorod Acrylates SIBUR-Neftekhim region 41,000 40,000 105% 102%
Plastic compounds
ABS plastics Plastic Tula region 23,000 23,000 58% 63%
Nizhniy Novgorod PVC compounds SIBUR-Neftekhim region 68,700 68,700 45% 50%
(1) Including 2-ethylhexanol. (2) For the purpose of capacity utilisation calculation nameplate capacity as of 31 December 2011 was used instead of weighted average capacity during the year, as the newly commissioned line was functioning in test mode most of the period. 50 BUSINESS ´ PRODUCTION CAPACITY AND UTILISATION More Information Page / Link
Vertically Integrated Business Model 18
Map of Operations 20
Investment Programme 30
Products and Markets 38
Capital Expenditures, MD&A 141 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
The nameplate capacity of our production sites combination of market demand for each particular is the capacity registered with the Federal Service product and our decision and ability to switch the for Environmental, Technological and Nuclear production between different types of products. In STRATEGY Supervision (“Rostekhnadzor”). It is defined as the addition, capacity utilisation levels below 100% may volume of products that could be produced by a reflect lost days of production due to unscheduled plant or a unit if it operates a certain number of shutdowns at our own facilities as well as at facilities hours per annum, usually less than the number of of our suppliers or customers. Capacity utilisation hours in a calendar year. As such, the nameplate exceeds 100% when we are able to run a facility capacity implicitly assumes scheduled shutdowns, more efficiently over time, upgrading the technology BUSINESS but it does not take into account possible cyclicality and implementing various debottlenecking measures. of scheduled shutdowns (for example, two year As the nameplate capacity includes scheduled maintenance cycle adopted at some of SIBUR’s shutdowns, the capacity utilisation at a particular facilities). The nameplate capacity also does not take facility may exceed 100% during those periods in into account quality, grade and other characteristics which the frequency and duration of shutdowns is SUSTAINABILITY of the products produced. For our petrochemical less than scheduled. facilities we provide capacity for each product group separately, since certain petrochemicals are used for production of other products. GOVERNANCE CORPORATE Capacity utilisation is calculated as total production as a percentage of the weighted average capacity during the year. Weighted average capacity during the year may differ from nameplate capacity as of the year-end, if the capacity was expanded or the asset INFORMATION was consolidated during the respective period. We FINANCIAL seek to operate our production facilities at optimal levels of capacity utilisation, taking into consideration prevailing general economic conditions, availability of feedstock, demand for our products and other INFORMATION factors. Capacity utilisation below 100% at GPPs ADDITIONAL is driven primarily by availability of feedstock at a particular location. Capacity utilisation below 100% at other production facilities is driven more by a
51 WWW.SIBUR.COM
SIBUR 2012 Transportation and Logistics ANNUAL REVIEW ANNUAL
Due to the extensive geographical spread of our operations, SIBUR uses various means of transportation for deliveries of its feedstock and finished products, including pipelines, railway, trucks, port facilities and multimodal transportation services. A significant part of our transportation needs are met by SIBUR’s own infrastructure, which includes APG, natural gas and raw NGL pipelines and railway facilities, such as railway loading racks and rolling stock.
as of 31 December 2012. Additionally, we have Pipeline Transportation commenced construction of Purovsk — Pyt–Yakh — Tobolsk pipeline, a new 1,100 kilometre raw NGL APG pipelines pipeline with an expected annual capacity of up to 8 million tonnes that, upon completion in 2015, APG purchased from oil companies in Western will replace certain parts of the existing raw NGL Siberia is transported via point-to-point pipelines, pipeline, provide a direct connection between the which represent direct links between oil fields and Group’s Tobolsk production site, SIBUR’s Yuzhno- oil clusters to our GPPs. These pipelines are typically Balykskaya main pumping station near Pyt-Yakh and owned and operated by the oil companies. SIBUR the Purovskiy GCP owned by NOVATEK. The project also owns some of APG pipelines with the total is expected to result in a substantial extension of length of 913 kilometres as of 31 December 2012. SIBUR’s raw NGL transportation infrastructure, an increase in its throughput capacity and reliability. Natural gas pipelines This is expected to secure our long-term access to abundant NGLs resources of Western Siberia, and SIBUR transports the natural gas it produces at its particularly its northern parts, where projected GPPs through its 352 kilometres of own gas pipelines growth in wet gas production is expected to support primarily into the Unified Gas Supply System (the rising supplies of raw NGL. UGSS), which is owned and operated by Gazprom and, to a limited extent, to regional and municipal power companies. Natural gas transportation through the UGSS is subject to tariffs regulated by the Rail Transportation Federal Tariff Service (the FTS). SIBUR uses rail for transportation of its refined Raw NGL pipelines products, intermediates and feedstock, including 100% of our LPG, naphtha and A large portion of raw NGL produced by SIBUR MTBE, significant volumes of raw NGL and from APG or purchased from oil and gas companies a major part of the petrochemical products. is transported to our GFUs via specialised raw NGL pipelines. At present, Russia does not have a SIBUR’s subsidiary ZAO Sibur-Trans, a licensed nationwide NGL pipeline system. The Group has railway operator, is responsible for handling our rail developed its own pipeline with the total length logistics, including purchasing of transportation of 1,168 kilometres and throughput capacity services from Russian Railways and acting as a of up to 4.8 million tonnes of raw NGL per year rail car fleet operator. ZAO Sibur-Trans handles
52 BUSINESS ´ TRANSPORTATION AND LOGISTICS More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Map of Operations 20
Our Strategy 28
Investment Programme 30
Capital Expenditures, MD&A 141 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT transportation within Russia as well as our export Port facilities deliveries. We own six railway loading racks used for loading and unloading NGLs into rail tank We deliver LPG, naphtha, MTBE and certain other STRATEGY wagons and operate an extensive rail car fleet, products to export markets through ports in, among which as of 31 December 2012 included 19,277 others, Odessa (Ukraine), Ilyichevsk (Ukraine), Kerch rail cars and tank wagons, 6,222 of which were (Ukraine), Riga (Latvia), St.Petersburg (Russia), owned with the remainder leased under lease Nakhodka (Russia) and Vladivostok (Russia). In agreements or transportation contracts. some ports we use third-party loading and storage
facilities, while to the majority of customers we BUSINESS Rail transportation is subject to transportation deliver on FOB basis. tariffs for access to Russia’s main railway and usage of locomotives, which is regulated by SIBUR is currently in the process of constructing an the FTS, as well as operator fees and cost of LPG and light oils transshipment facility at Ust-Luga leasing and contracting rolling stock. sea port in the Leningrad region. The project is being SUSTAINABILITY developed to support growth in our LPG exports to customers in key Western European markets.
Other Transportation Multimodal transportation services GOVERNANCE CORPORATE We use the services of Russia’s largest multimodal Truck transportation transportation operators to deliver certain volumes of the petrochemical products such as basic polymers We use trucks to transport petrochemical products, and synthetic rubbers to export markets. primarily within Russia (for basic polymers and synthetic rubbers) and to a limited extent for export INFORMATION FINANCIAL (for synthetic rubber deliveries to Europe). We do not operate our own truck fleet but use third-party services from a variety of truck transportation service Warehouses and providers. There is no single operator that handles a Distribution Centres significant portion of the Group’s truck deliveries, as INFORMATION this is a highly fragmented and competitive market. ADDITIONAL We purchase warehouse services from professional operators to store our petrochemical products in close proximity to the production sites as well as near the facilities of key customers.
53 WWW.SIBUR.COM
SIBUR 2012 Feedstock Sourcing ANNUAL REVIEW ANNUAL
We continuously work with all the largest oil and gas producers in Western Siberia with the view of extending tenors of the existing agreements and/or entering into new long-term supply contracts on both APG and NGLs supplies. Multi-year supply contracts and joint venture arrangements enhance predictability of feedstock pricing and volumes and allow better planning of the Group’s future operating expenses and investments, which is particularly important given the capital-intensive nature of the Group’s investment program.
Key types of feedstock We produce NGLs at our own GPPs and GFUs and We primarily use two major types of hydrocarbon also purchase them from third parties. feedstock: associated petroleum gas (APG) and natural gas liquids (NGLs), such as raw NGL, LPG and naphtha. Feedstock sourcing A large portion of our hydrocarbon feedstock APG is a by-product of oil production and represents is obtained from TNK-BP, primarily through our a key feedstock for our feedstock & energy business. arrangements related to the joint venture (JV) By processing APG at our gas processing plants we Yugragazpererabotka, which was established in produce natural gas and raw NGL. 2007. SIBUR owns a 51% stake in the JV, while TNK-BP’s share is 49%. Yugragazpererabotka owns NGLs, comprising raw NGL, LPG and naphtha, and operates three GPPs (Nizhnevartovskiy GPP, are used as a raw material for both the feedstock Belozerniy GPP and Nyagan GPP), three compressor & energy business and for the petrochemicals stations and APG pipelines from compressor stations business. Raw NGL is produced as a result of APG to the GPPs. SIBUR and TNK-BP operate within a processing or through stabilisation of unstable gas contractual network, under which TNK-BP supplies condensate which is obtained from processing of APG to Yugragazpererabotka for processing into raw wet gas extracted from gas fields. LPG and naphtha NGL and dry gas(1). In addition to volumes from TNK- are produced through fractionation of raw NGL. BP, Yugragazpererabotka also processes APG supplied from other oil companies. SIBUR and TNK-BP own
SIBUR’S SOURCED VOLUMES
APG bln cubic metres NGLs mln tonnes
13.0 12.7 13.0 3.3 3.4 2.8
2010 2011 2012 2010 2011 2012
(1) Equivalent to natural gas. 54 BUSINESS ´ FEEDSTOCK SOURCING More Information Page / Link
Business Overview 12
Vertically Integrated Business Model 18
Competitive Strengths 22
Our Strategy 28
Feedstock Sourcing and Mix, MD&A 98 As of 31 December 2012 2012 HIGHLIGHTS c.71% Over c.70% Over of our planned 11 years of our planned 12 years CEO STATEMENTS APG supplies weighted NGLs supplies weighted average CHAIRMAN AND for 2013 were average maturity for 2013 were maturity of our guaranteed of our multi- guaranteed under multi-year NGLs under multi- multi-year supply year APG supply (1) supply contract year supply contracts contracts A GLANCE contracts(1) SIBUR AT the feedstock and refined products, while paying Gazprom Neft, Rosneft, Surgutneftegas, LUKOIL, a processing fee to Yugragazpererabotka. SIBUR RussNeft and Northgas, primarily under multi-year pays for 51% of the total APG volumes supplied for contracts. STRATEGY processing to Yugragazpererabotka and obtains 51% of the total NGLs and dry gas volumes produced Feedstock trends by the JV. TNK-BP obtains the remaining volumes. APG volumes from oil fields located in Western Subsequently SIBUR purchases TNK-BP’s share of Siberia are expected to increase only moderately NGLs and sells to TNK-BP its share of dry gas. given the maturity profile of the region’s oil fields, BUSINESS while concentration of liquid fractions in the APG In 2012 and 2011, the APG supplies from TNK-BP may decline. We expect this trend to be partially accounted for 39.3% and 38.2% of SIBUR’s total offset by lower APG flaring rates and our efforts to APG supplies in volume terms, respectively. The raw increase the liquids recovery ratio at our GPPs. NGL supplies from TNK-BP accounted for 44.9% and 44.3% of SIBUR’s total NGLs supplies in 2012 We expect that supplies of wet gas-based NGLs SUSTAINABILITY and 2011, respectively. feedstock in Western Siberia will grow substantially faster than supplies of APG or NGLs derived from In addition to our arrangements with TNK-BP, we APG, due to the steadily growing production of purchase APG and NGLs from other major oil and gas natural gas and increasing share of wet gas in gas
companies in Western Siberia, including Gazprom, production, according to IHS CERA. GOVERNANCE CORPORATE
OUTLOOK FOR FEEDSTOCK PRODUCTION IN RUSSIA
APG bln cubic metres Unstable gas condensate mln tonnes INFORMATION FINANCIAL 2011 APG flaring – 60 100 c. 25% of produced volumes
60 40 INFORMATION ADDITIONAL
20 20
2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030
(1) Including all APG and NGL supplies from TNK-BP under JV arrangements (Yugragazpererabotka). Source: IHS CERA. 55 PRODUCTION FACILITIES gas processing plant Vyngapurovskiy Group’s GPPs amounted to 23billion cubicmetres perannum. GPPs operated by SIBUR.Asof31 December2012, total nameplate processingcapacity ofthe APG Vyngapurovskaya ofthe compressorand upgrade Vyngapurovskiy seven station. GPP isoneofthe produces naturalgasandraw NGL. in2012, TheGPPwas launched following modernisation the Vyngapurovskiy GPP, located nearNoyabrsk, processesassociated petroleum and gas(APG) SUSTAINABILITY WWW.SIBUR.COM
SIBUR 2012 Our approach ANNUAL REVIEW ANNUAL
As Russia’s largest integrated natural gas processing and petrochemicals company, SIBUR recognises that environmental and social responsibility are cornerstones of building a successful and sustainable business.
Our unique role in processing by-products SIBUR’s corporate responsibility programmes include of oil and gas extraction provides energy commitments to: companies with a solution to the important Environment: We provide environmental and environmental issue of flaring, while our economically productive solutions to flaring by the petrochemicals business turns these by-products oil and gas industry, while working to reduce the into economically useful products. We are environmental impact of our own operations committed to reducing environmental impact, improving safety and health conditions for our Health and Safety: We work in partnership employees and neighbours and supporting social with global leaders in industrial and occupational and cultural programmes in Russian society. safety to improve performance and protect our employees and neighbouring communities Employees: We strive to provide a positive work experience for our employees, both in terms of quality of life and on-the-job support Communities and Society: We actively support social and philanthropic programmes including sports and educational initiatives in the communities in which we operate.
These initiatives provide considerable benefits for SIBUR in terms of increased operational and resource efficiency, improved employee productivity and safety, and mitigation of material risks to our business.
58 SUSTAINABILITY ´ ENVIRONMENT Environment 2012 HIGHLIGHTS “BUSINESS FOR ECOLOGY” Ecological Congress, All-Russian Society for the CORPORATE PROGRAMME Protection of Nature, WWF and other non-profit environmental groups include: The programme is focused on making improvements to the environment in the regions where SIBUR 10 competitions raising ecological awareness operates through development of public initiatives, with participation of over 2,000 children CEO STATEMENTS CHAIRMAN AND involvement of community members and youth litter-collecting campaigns resulted in the engagement. In 2012, the programme budget collection of over 20 tonnes of litter by our amounted to RR 20 million, which was used to employees and residents of the respective finance more than 40 projects. regions planting of over 12,000 trees and shrubs Environmental initiatives sponsored by SIBUR in construction of bicycle lanes and parking racks A GLANCE 2012 in partnership with Green Cross, the Russian in Tobolsk, Togliatti and Krasnodar. SIBUR AT
Industry experts estimate that flaring of one million Reducing environmental impact and protecting cubic metres of APG releases into the atmosphere the health of our employees and neighbours are more than 300 tonnes of pollutants such as nitrogen fundamental operating principles at SIBUR and TAEYBUSINESS STRATEGY dioxide, soot and carbon monoxide. By contrast, prerequisites for our sustainable development. We processing of APG into energy and petrochemical strive to optimise the ecological impact and safety products provides an alternative to flaring and of our operations. Our environmental protection helps reduce environmental impact in oil-producing standards are based on international best practices, regions. Instead of a wasted by-product that harms and SIBUR regularly coordinates with major global the environment, SIBUR is able to turn APG into a chemical companies, NGOs and government source of raw materials for basic polymers, synthetic representatives on environmental management. rubbers and plastics – materials that increasingly provide substitutes for other resources utilised in various intensive industries. In 2012, we processed SUSTAINABILITY approximately 18.7 (1) billion cubic metres of APG, which is equivalent to preventing the release of above five million tonnes of pollutants into the atmosphere. GOVERNANCE CORPORATE
WATER PROTECTION PROGRAMME WASTEWATER DISCHARGE 2011–2015 The programme focuses on renovation, mln cubic metres INFORMATION reconstruction and building of new treatment FINANCIAL facilities as well as water intake facilities and 73.0(2) (3) 69.1 65.9 disposal sewers for treated outflows, and in 2012 we conducted a capital renovation of networks to address chemically polluted runoffs INFORMATION at Voronezhsintezkauchuk. In 2012, we also ADDITIONAL launched a large-scale three-year programme to modernise water-cooling towers and water circulation cycles at our production facilities. 2010 2011 2012
(1) Including TNK-BP’s share in processing volumes of Yugragazpererabotka. (2) Calculation adjusted for new methodology. (3) The 2011 result was affected inter alia by acquisition of new businesses and launch of new facilities. 59 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
ENVIRONMENTAL CLEAN-UP EFFORTS As part of our “Business for Ecology” Programme, SIBUR has initiated and developed a project to wind down utilisation of the White Sea sludge reservoir, near the city of Dzerzhinsk. The sludge reservoir was put into operation 40 years ago and is currently 97% full with more than 90% of its content dating back to Soviet times. The content is classified as “low-danger” waste (hazard class 4). Almost 60% of it is water and the rest is non-toxic low-danger insoluble salt mixes. White Sea sludge reservoir. Photo courtesy of Dmitry Medvedev (https://twitter.com/MedvedevRussia)
At each of our production facilities, we have been providing transparency regarding SIBUR’s activities developing and implementing annual and long- on environmental protection, developing co- term environmental protection programmes in order operation with governmental authorities and to reduce the impact of our operations. SIBUR’s municipalities to protect the environment, as well Environmental Policy focuses on the following as increasing international cooperation to develop priorities: environmentally clean, efficient and economically- sound technologies and equipment. applying the latest science and technology to maximise efficient use of hydrocarbon resources Environmental management at SIBUR is and provide solutions for reducing ecologically vertically integrated. The ecological service of the harmful flaring by the oil and gas industry Management Company co-ordinates environmental reducing environmental impact of the Group’s activities throughout all production facilities. There operations by integrating environmentally clean, are two regional centres – Siberia and Europe – to efficient and economically-sound technologies and oversee environmental issues at the production equipment at the Group’s new production facilities facilities. Each production facility has its own while modernising older facilities to improve department for environmental protection. reliability and safety of production
AIR PROTECTION PROGRAMME AIR POLLUTION 2012–2016 This programme was launched in 2012. It aims ‘000 tonnes to decrease emissions of pollutants into the air and reduce the industrial impact in the regions 63.2(1) 61.2 of SIBUR’s operations. Major projects under this 55.0 programme in 2012 included modernisation of flare tips at Tomskneftekhim.
2010 2011 2012
(1) The 2011 result was affected inter alia by acquisition of new businesses and launch of new facilities. 60 SUSTAINABILITY ´ ENVIRONMENT 2012 HIGHLIGHTS In July 2012, we commenced a gradual In parallel, we are in the process of transforming decommissioning of Caprolactam, an outdated Caprolactam’s production site into the “Oka chlorine and caustic soda production facility, Polymer” industrial park, which is expected to which was the source of the waste directed to accommodate polymer processing companies, the sludge reservoir. We are pleased to report R&D institutions and others. SIBUR-Neftekhim CEO STATEMENTS that in April 2013 we completed shutdown of will also retain its residence. Caprolactam’s CHAIRMAN AND the facility. The decommissioning was managed PVC production capacity will be replaced by in close cooperation with the authorities of RusVinyl, a modern and ecologically-friendly the Nizhny Novgorod region and the city PVC production complex. of Dzerzhinsk under the supervision of the Rostekhnadzor(1) regional office. A GLANCE SIBUR AT
SIBUR continuously works to reduce its own impact Programme and “Business for Ecology” Corporate on the environment. As part of the implementation Programme. of our environmental policy, Corporate Environmental TAEYBUSINESS STRATEGY Management System (“CEMS”), compliant with SIBUR aims to comply with applicable international international ISO standard 14001:2004, was regulations. Our major investment projects – implemented in 2008. In 2011, BUREAU VERITAS Tobolsk-Polymer Plant and RusVinyl – are in Certification Rus carried out a re-certification audit compliance with the Equator Principles, the credit risk of the system, and the Group’s compliance with management framework for determining, assessing requirements for the ecological management system and managing environmental and social risk applied is currently effective until April 2014. The primary by the lenders in connection with the financing of purpose of CEMS is effective management of all those projects. SIBUR is also in compliance with environment-related issues through planning and REACH Regulation, the European Union enacted achievement of targets to decrease environmental regulation on Registration, Evaluation, Authorisation SUSTAINABILITY impact. In accordance with corporate targets, all our and Restriction of Chemicals. Products exported by production facilities develop and implement annual SIBUR to the European Union contain approximately and long-term Environmental Programmes, including 70 substances and all of them are registered with the Water Resource Protection Programme, Waste the European Chemicals Agency (ECHA). SIBUR Management Programme, Air Resource Protection developed and keeps updated SDS (safety data
sheets) for each relevant product. GOVERNANCE CORPORATE
WASTE MANAGEMENT PROGRAMME SANITARY WASTE 2011–2015 GENERATION This programme includes construction of ‘000 tonnes INFORMATION additional waste storage facilities, decrease of FINANCIAL waste output, dismantling of existing industrial 159.4(2) waste, purchase of waste processing and 123.9 utilisation equipment. 89.0 INFORMATION ADDITIONAL
2010 2011 2012
(1) Federal Service for Environmental, Technological and Nuclear Supervision. (2) The 2011 result was affected inter alia by acquisition of new businesses and launch of new facilities. 61 WWW.SIBUR.COM
SIBUR 2012 Health and Safety ANNUAL REVIEW ANNUAL
We recognise our responsibility to the public and our employees and consider the Group’s industrial safety (IS) and occupational health and safety (OHS) management system to be a necessary and integral element of efficient business development.
The programme was launched in 2008 and covers state authorities, and a series of measures were the development of both industrial safety as well implemented to learn from these events and improve as health and safety standards, development of an safety. occupational health and safety management system and accident prevention system, introduction of We believe that the most efficient way to promote mandatory internal investigations for all serious industrial and occupational safety at our production accidents, provision of employees with protective facilities is to fully engage employees in corporate gear and equipment, and emergency first aid industrial and occupational safety management. functions at each production site. Starting from 2010, SIBUR has provided awards to the enterprises and individuals demonstrating From 2008 to 2011, together with DuPont, a global the strongest safety practices. In 2012, Gubkinskiy chemical industry leader in occupational safety, GPP and Belozerniy GPP won the award for Best we implemented a project on safety culture. This Enterprise in the Industrial Safety Challenge Cup and included an audit of SIBUR’s health and safety and some 1,800 employees were each given a reward industrial safety systems, development of safety equivalent to over USD 1,000 for their safety related- standards for the Group, training for the Group’s achievements. employees conducted by DuPont’s specialists, and implementation of recommended improvements to strengthen SIBUR’s safety culture.
Our production facilities are large industrial sites and ensuring workplace safety is core to our mission. Since 2010 we have reduced the lost time injury frequency rate(1) by 34% through safety improvements, and LTIFR held steady in 2012 at 0.81. In 2012, we launched our Modernisation Programme to further improve industrial safety through technological upgrades at our production sites, with implementation expected through 2016. Unfortunately these initiatives did not prevent two industrial accidents in 2012 and three in 2011 and two fatal accidents in 2012 at the Group’s production facilities. The causes have been investigated by the Group in cooperation with
(1) Lost Time Injury Frequency Rate (LTIFR) is the number of injured employees per million working hours. 62 SUSTAINABILITY ´ EMPLOYEES Employees 2012 HIGHLIGHTS SIBUR strives to create a corporate culture that allows employees to bring their own individuality to the professional environment, while sharing a common set of business values: the drive to achieve results, CEO STATEMENTS leadership and proactivity regardless of position, teamwork, readiness CHAIRMAN AND to learn and teach others, trust, mutual respect and reliability. All of SIBUR’s achievements are the result of the work of more than 30,000 people, and we aim to provide the best A GLANCE possible working environment for our employees. SIBUR AT
SIBUR has high standards for professional As of 31 December 2012, the Group had 30,635 conduct and personnel management. We are a employees, of which 21% were employed by rapidly growing business, and the professional the feedstock & energy segment and 61% TAEYBUSINESS STRATEGY development of our employees is critical to long- by the petrochemicals business, while 18% term competitiveness. The success of large-scale were engaged in logistics, sales & marketing, investment projects, productivity, and product quality administration and other centralised project are all contingent upon having a strong, motivated management and support activities. Our average team. We aim to create an efficient and transparent headcount in 2012 totaled 30,644 employees. organisational structure to help team members understand their role as well as their career growth and personal development potential. We are creating a personnel management system designed to build SIBUR’s reputation as the best employer in the eyes SUSTAINABILITY of potential employees, clients and partners. GOVERNANCE CORPORATE
LTIFR(1) PERSONNEL SPLIT
Total headcount as of 31 December 2012 INFORMATION of 30,635 FINANCIAL 1.22 Feedstock & energy ...... 21% 0.81 0.81 Petrochemicals ...... 61%
Logistics, Marketing INFORMATION and Administrative ...... 18% ADDITIONAL
2010 2011 2012
(1) Lost Time Injury Frequency Rate (LTIFR) is a number of injured employees per million working hours. 63 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
NIPIgaspererabotka. July 2012 “Our forest” campaign, “Business for Ecology” programme, in Togliatti. May 2013
conditions and individual employee performance. Compensation and In 2012, average wages at SIBUR increased by Employee Benefits 17% compared to 2011, and reached RR 43,786 per month. All changes to the remuneration system are directed at cultivating a corporate culture that A clear and transparent remuneration system is motivates personnel and, consequently, yields SIBUR’s most important competitive advantage in improved performance and competitiveness for SIBUR. attracting and retaining talent. In 2011, we completed a large-scale project to implement a systematic framework for the management of employee remuneration. Since 2012, the Group’s enterprises have utilised a unified remuneration system. Currently, Health and Wellness compensation of SIBUR’s personnel includes a base Programmes salary and performance bonuses and depends on the employee’s level. SIBUR’s compensation and It is important to SIBUR to help employees and their bonus strategy uses the market midpoint salary as families lead healthy lives. a benchmark for average base compensation and a higher-than-market-midpoint benchmark for total SIBUR’s employees receive medical benefits that go compensation. The revision of base pay is performed beyond mandatory health insurance programme annually, taking into account both labour market stipulations. Since 2011, employees at SIBUR’s
REVENUES PER EMPLOYEE HEADCOUNT AND SALARY(1)
RR mln Average headcount, people Average monthly salary, RR 8.85 8.07 43,786 37,251
30,753 30,644
2011 2012 2011 2012
(1) Includes personnel engaged in project activities. 64 SUSTAINABILITY ´ EMPLOYEES 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE
Run at SIBUR-Khimprom. September 2012 School gift packages for SIBUR employees’ children SIBUR AT 1 September 2012 enterprises are entitled to participate in the Group’s individual programmes are developed for employees Voluntary Health Insurance (VHI). We are pleased with high leadership potential. These programmes to report that 100% of SIBUR’s full-time employees include education, training, job rotation, and project STRATEGY are covered by VHI insurance. We also provide our participation. Individuals are also assigned a mentor employees with free use of various sport facilities selected from the Group’s management level. Since the and organise various health-improving activities. In program launch in 2007, more than 50% of candidates June 2012, we opened the “SIBUR-Yug” corporate have been promoted or assigned to key projects. recreational centre in Anapa, on the Black Sea coast, where our employees and their families are offered SIBUR’s Corporate University runs a number of BUSINESS recreational activities on favourable terms. programmes to develop management and leadership skills for a growing number of SIBUR’s employees. Corporate University serves as an efficient channel for education on SIBUR’s standards and corporate SUSTAINABILITY Personnel Training and values. Programmes are designed to cover all organisational levels from production facilities Career Development workers to senior management. In 2012, new programmes to strengthen managerial skills were In addition to monetary compensation, SIBUR introduced. In addition to theory, SIBUR’s Corporate
invests significantly in employee training and University provides hands-on professional education, GOVERNANCE CORPORATE development. Our employees have access to to drive improved productivity with the help of high- professional education opportunities through our level professionals, including equipment operators, Corporate University, which provides a number of power engineers and other technical specialists. training programmes in the areas of management, In 2012, 2,199 employees completed various leadership, sales and marketing, production educational programmes at our Corporate University. INFORMATION efficiency, safety, corporate services and investment FINANCIAL projects. We provide special programmes and The Personnel Development and Re-education mentorship both for young talent and employees Centre helps employees put the skills gained at the identified as having strong leadership potential. Corporate University into practice, designing individual professional development programmes and teaching INFORMATION The “Executive Talent Pool” programme employees to build on the unique capabilities of SIBUR’s ADDITIONAL cultivates talent to support the needs of our growing enterprises. The Centre prepares employees for work business. At SIBUR, there are two levels of Talent Pool on specific SIBUR projects and encourages them to initiatives: those that apply to the whole Group and participate in educational programmes. The Centre those specific to certain enterprises. Corporate and helps employees with the personal and professional
65 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
development necessary to get promoted or move to offer final year students paid internships of three to another area of the Group. The first class graduated at six months. The best performing students are offered the end of 2011, and the graduates are now putting a job at SIBUR upon graduation. In 2012, 20 students their knowledge into practice across the Group. In 2012, completed internship programmes at SIBUR. a new educational programme for project personnel was launched focusing 10% on training and classes, 20% on mentoring and feedback, and 70% on hands-on experience. More than 200 employees completed Partnerships with Higher this course in the first year. From 2013 the Centre has become a part of SIBUR’s Corporate University. Education
SIBUR’s cooperation with technical educational institutions includes facility upgrades as well as Recruitment and organising and granting scholarships for the best students and professors. SIBUR partners with Development of Entry-Level universities in Moscow, Perm, Voronezh, Togliatti, Professionals Nizhny Novgorod, Tobolsk, Tomsk, Tyumen, Nizhnevartovsk, Krasnodar, Dzerzhinsk, Krasnoyarsk, SIBUR strives to recruit and retain the best and Novosibirsk, Samara, Kazan, etc. With SIBUR’s brightest young employees. Every year, more than support, a system of specialised departments is 500 university and technical school graduates join being created within higher education institutions, the Group. As SIBUR continues to replenish its staff new specialities and training programmes are being with young talent, more than one-third of personnel added, and a mechanism for on-the-spot and skills is currently comprised of people under 35. Specially upgrade training for university professors at SIBUR’s tailored education programmes are geared towards enterprises is being developed. Leading SIBUR training young professionals at specialised schools, specialists also lecture at educational institutions. vocational and higher education institutions. We currently have agreements with Kazan National In 2012, we launched an induction programme for Research Technological University, D. Mendeleev young new hires. The programme was developed to University of Chemical Technology of Russia and support recent graduates at the start of their careers Tomsk Polytechnic University, where we established at SIBUR. As part of this programme, each employee master programmes providing scholarships and is assigned a mentor. As of the end of 2012, we access to SIBUR R&D centres to perform studies. employed more than 450 recent graduates. We also In 2012, 18 students participated in the programme.
66 SUSTAINABILITY ´ COMMUNITIES AND SOCIETY Communities and Society
In 2012 2012 HIGHLIGHTS 30 23 23 13 13 fundraising social sports school sports CEO STATEMENTS
events infrastructure schools for chemistry clubs and CHAIRMAN AND organised facilities children labs federations to sponsor developed and teens equipped supported treatment with our supported of severely assistance A GLANCE ill children SIBUR AT
SIBUR places a very high degree of importance on approximately RR 170 million to provide alternative community involvement. We are engaged with a housing for Pyt-Yakh and Nizhnevartovsk dwellers range of charity programmes and sponsorships, residing in sub-standard housing TAEYBUSINESS STRATEGY allocating resources to various social groups in the redevelopment and support of nurseries and day regions where we operate. As part of our social care centres in Tobolsk, Tchaikovskiy, Tomsk, the initiatives, we implement a range of humanitarian Kemerovskiy and the Nizhniy Novgorod regions projects and philanthropy in several regions, including Western Siberia, the Tomsk, the Nizhniy redevelopment and support of municipal Novgorod and the Leningrad regions, where we healthcare facilities in the Voronezh and the are implementing our strategic investment projects. Nizhniy Novgorod regions This includes investments in regional infrastructure, redevelopment and support of educational facilities quality of life improvement initiatives, support in Tobolsk, Togliatti and the Perm region for sports organisations, as well as promotion of SUSTAINABILITY child and youth sports, ecological initiatives and sponsorship of City Days and national festivals, Russia’s chemical science and professional education events dedicated to the promotion of chemical in cooperation with leading chemical institutes, science in the Tyumen, the Samara, the Nizhniy universities and schools. Novgorod and the Krasnoyarsk regions, the Bashkortostan Republic, Yamalo-Nenets and
In 2012, we allocated almost RR 2.5 billion to various Khanty-Mansi Autonomous Areas. GOVERNANCE CORPORATE charitable and sponsorship activities in 15 regions of Russia, a considerable increase compared to RR 1.8 billion in 2011 mainly due to sponsorships. Athletic Programmes INFORMATION Regional Development SIBUR supports professional sports organisations as FINANCIAL part of its regional sponsorship strategy. In 2012, we As a major investor in the economic development supported the Russian Basketball Federation and the of the regions where we operate, we signed Spartak Basketball Team (St. Petersburg), the Zenit agreements with certain regional governing bodies Football Club (St. Petersburg), the Torpedo Hockey INFORMATION on cooperation to address socially important Club (Nizhny Novgorod), the Tyumen Football, ADDITIONAL issues and initiatives. We support local housing Volleyball and Table Tennis Clubs, the Rubin Hockey programmes, development of social infrastructure Club (Tyumen region), the Centre for Training and and public events. In 2012, we allocated funds to Conducting Sport Events of the State Autonomous 11 regions primarily to the following causes: Enterprise of the Tyumen region, the Regional
67 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Specialised Children’s and Youth Sports School of Olympic Reserve (Tyumen), the Modern Pentathlon Education and Russian Federation, and the Caterham F1 Team. Innovation Programmes
In addition to professional sports, we support As a petrochemicals industry leader and major employer, various initiatives to promote healthy living. In SIBUR seeks to stimulate youth interest in chemistry and 2012, SIBUR sponsored more than 40 local sports chemical engineering. In 2012, we allocated funds events and competitions: The Tobolsk indoor for new laboratory equipment, educational materials, football championship, a world women’s chess workshop conferences to 12 schools and 10 universities championship in the Khanty-Mansi Autonomos and colleges in 14 cities in the regions where we Area, a children’s football tournament in Voronezh, operate. We also sponsored the Russian Chemistry a football championship for neighbourhood teams Talent Conference for School Teachers, which hosted in Nizhny Novgorod, family sport event in the 120 participants from 30 cities. Krasnoyarsk region, several charitable football and hockey competitions in the Tyumen and the Nizhniy In 2010, SIBUR established an annual Novgorod regions, and others. International Competition for Innovative Ideas in the Production and Use of Petrochemicals – IQ- Chem. The total award budget increased fourfold in three years and totalled RR 6 million in 2012.
III Annual IQ-Chem Competition Awards Ceremony. December 2012 Students and teachers receiving grants. May 2013
68 SUSTAINABILITY ´ COMMUNITIES AND SOCIETY 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
There were 292 participants from different countries, in the respective disciplines will be awarded grants. including university professors, undergraduate and Teachers of the winning students will then be eligible postgraduate students from universities, researchers, to compete for grants as well. TAEYBUSINESS STRATEGY chemical plant employees and chemistry enthusiasts aging 18 to 81. As part of the “SIBUR-Technologies” corporate scientific centre created in 2011, we plan Child Welfare to test out the best ideas, evaluate their economic feasibility and consider the possibility for further Employee engagement in community activities is part development and implementation. of our culture. Our employees support fundraising events to provide healthcare for children with serious In December 2012, we introduced new grants illnesses and arrange treatment for kids in need. In for school students and teachers. Under this 2012, we sponsored the “Simple Wonder” telethon programme, SIBUR will be promoting Chemistry, in Tomsk, the “Declaration of Love” charity concert in SUSTAINABILITY Physics and Mathematics among students to foster Moscow, and the “Doing Good” All-Russian charity and attract young talent. The programme was football and hockey matches in Tobolsk, Voronezh, launched in the Khanty-Mansi and Yamal-Nenets Nizhny Novgorod, Gorodets, Volgodonsk and other Autonomous Areas, the Voronezh, the Nizhny cities. Employees also participated in fundraising and Novgorod, the Samara and the Tyumen regions, charity events to benefit “Gift of Life,” the largest
where the winners of various school competitions Russian charity foundation, and for several orphanages. GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
SIBUR Ski Run. 2012 SIBUR Hockey Tournament. 2012
69 PRODUCTION FACILITIES Voronezhsintezkauchuk is scheduled for launch in 2013. for launch is scheduled anannualcapacity of50,000tonnes per annum elastomers productionwith A new thermoplastic 299,000 tons, latexes –19,500 elastomers –35,000tonnes perannum. tonnes, and thermoplastic As of31 December2012, totaled nameplate capacity for the productionofcommodityrubbers elastomers. latexesin Russia. Itproducescommodityrubbers, andthermoplastic Voronezhsintezkauchuk, founded in1932 inVoronezh, plants rubber oldestsynthetic isoneofthe GOVERNANCE CORPORATE WWW.SIBUR.COM
SIBUR 2012 Corporate Governance ANNUAL REVIEW ANNUAL
The management structure of SIBUR consists of the The General Shareholders’ Meeting elects the General Meeting of Shareholders, the Group’s Board Group’s Revision Commission to ensure control over of Directors, the Management Board and the Sole the preparation of accurate financial and accounting Executive Body. statements, other information about the Group’s financial and operational activities, and the status The General Meeting of Shareholders, which is of the Group’s assets. The Revision Commission the supreme governing body of ОАО SIBUR Holding, is also tasked with enhancing asset management is empowered to decide on the Group’s most critical effectiveness, mitigating SIBUR’s financial and issues and activities, expressly set forth in the Russian operational risks, and optimising internal controls. Federation Law on Joint Stock Companies and the SIBUR’s Charter, including election of the Group’s An external independent auditor conducts an Board of Directors. The most recent Annual General annual audit of the Group’s financial statements Shareholders’ Meeting took place on 25 April 2013. in accordance with Russian Accounting Standards (RAS) and consolidated financial statements in The Board of Directors is the governing body of accordance with International Financial Reporting SIBUR responsible for the strategic management Standards (IFRS). The auditor is approved by of the Group’s activities, which are aimed at the the General Shareholders’ Meeting based on the creation and enhancement of shareholder value. recommendation of the Board of Directors. The Board of Directors makes decisions on all general management issues except for those that are the All issues concerning the formation, responsibilities exclusive prerogative of the General Shareholders’ and activities of the Group’s governing and Meeting. controlling bodies are stipulated in the Charter and relevant internal documents, including: The Collegial Executive Body is the by-laws of the General Shareholders’ Meeting Management Board. The Management Board of ОАО SIBUR Holding is responsible for effective day-to-day management of the Group’s operations and implementing by-laws of the Board of Directors resolutions made by the General Shareholders’ of ОАО SIBUR Holding Meeting and the Group’s Board of Directors. by-laws of the Management Board of ОАО SIBUR Holding According to a resolution of the General Shareholders’ Meeting, powers of the Sole by-laws of the Revision Commission Executive Body were transferred to the of ОАО SIBUR Holding. Management Company. The rights and responsibilities of the Management Company Visit the Group’s website to find more are governed by the Federal Law, “On Joint Stock information on these documents Companies,” the Group’s Charter, and the agreement at www.sibur.com on transferring power of attorney between SIBUR and the Management Company. The responsibilities of the Management Company include all day- to-day management issues except for those that are the exclusive prerogative of the General Shareholders’ Meeting, the Board of Directors and the Management Board.
72 CORPORATE GOVERNANCE Board of Directors 2012 HIGHLIGHTS independence criteria established by Russian Role and Responsibility law). The members of the Group’s current Board of the Board of Directors were elected by the annual meeting of shareholders held on 26 April 2012. They will serve until the next annual General Meeting of The responsibilities of the Board of Directors include CEO STATEMENTS Shareholders unless the Board in its entirety is CHAIRMAN AND the strategic management of the Group’s business terminated prior to the expiration of its term upon a activities in compliance with the Federal Law “On decision of the Group’s shareholders. Joint Stock Companies” and SIBUR’s Charter. In accordance with the Charter, the minimum The Board of Directors determines SIBUR’s strategic number of elected members of the Board of Directors priorities, approves annual and long-term business A GLANCE is seven. The Group is committed to transparent SIBUR AT plans and annual investment programs, oversees the election procedures for each member, which, among Group’s financial activities and internal controls, and other provisions, entail the following: offers recommendations on dividend payments. the Group’s shareholders are entitled to nominate members of the Board of Directors TAEYBUSINESS STRATEGY Board Composition the Group discloses information on the composition of the current Board of Directors and on prospective candidates in a timely manner As of 31 December 2012, the Group’s Board of Directors consisted of nine persons, three of whom cumulative voting is applied in the election of were independent (in accordance with director members of the Board of Directors. Board Members as of 31 December 2012
YEAR YEAR OF SUSTAINABILITY NAME OF BIRTH TITLE APPOINTMENT
Leonid Mikhelson 1955 Director, Chairman of the Board of Directors 2011
Alexander Dyukov 1967 Director, Deputy Chairman of the Board of Directors, Chairman of the Strategy 2006 and Investments Committee GOVERNANCE CORPORATE Ruben Vardanian(1) 1968 Independent Director, Chairman of the Human Resources and Remuneration 2011 Committee, member of the Finance Committee
Oleg Golounin 1971 Director, member of the Audit Committee and Human Resources 2011 and Remuneration Committee
Dmitry Konov 1970 Director 2007 INFORMATION FINANCIAL Pavel Malyi 1970 Director, Chairman of the Finance Committee, member of the Strategy and 2011 Investments Committee
Seppo Remes(1) 1955 Independent Director, Chairman of the Audit Committee, member of the 2007 Finance Committee and the Human Resources and Remuneration Committee INFORMATION Arkadiy Samokhvalov(1) 1948 Independent Director, member of the Audit Committee and the Strategy and 2007 ADDITIONAL Investments Committee
Gennady Timchenko 1952 Director, member of the Strategy and Investments Committee 2012
(1) Independent director (in accordance with director independence criteria established by Russian law).
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Information on the Members of the Board of Directors ANNUAL REVIEW ANNUAL
Leonid Mikhelson Alexander Dyukov Chairman of the Board of Directors Deputy Chairman of the Board of Directors
Election Election Chairman of the Group’s Board of Directors Deputy Chairman of the Group’s Board of Directors since 2011 since 2011
Education Education 1977: Graduated from the Samara Institute of 1991: Graduated from the Leningrad Shipbuilding Civil Engineering with a degree in Industrial Civil Institute with a degree in Engineering Engineering. He was awarded the Order of the Badge 2001: Received an MBA from the International of Honor of the Russian Federation. Management Institute of St. Petersburg
Professional Experience Professional Experience Mr. Mikhelson began his career as a foreman of a 1996–1998: Financial Director and General Director construction and assembling company in Tyumen of Joint Venture ZAO Petersburg Oil Terminal region, where he worked on the construction of the 1998–1999: Positions of Director of Economics and first section of Urengoi-Chelyabinsk gas pipeline. Acting General Director of St. Petersburg Sea Port 1985: Chief Engineer of Ryazantruboprovodstroy 2000: Chairman of the Board of Directors of the 1987–1994: General Director of Petersburg Oil Terminal Kuibishevtruboprovodstroy, which in 1991 was 2003–2006: CEO of the Group one of the first companies in Russia to sell its shares 2006–2011: Chairman of the Group’s Board of and subsequently became a private company, Joint Directors Stock Company SNP NOVA. Mr. Mikhelson remained Since 2006: CEO, Chairman of the Management SNP NOVA’s Managing Director untill 1994. Board and a member of the Board of Directors Then Mr. Mikhelson became General Director of of OAO Gazprom Neft. Mr. Dyukov has acted as Novafininvest. President of the Board of Directors of ZAO Football Since 2002: Member of the Board of Directors Club Zenit. and Chairman of the Management Board of OAO Mr. Dyukov is also a member of the Board of NOVATEK, Executive Director. Directors of OOO National Oil Consortium, 2008–2010: Member and Chairman of the Board of ZAO Hockey Club SKA, OOO Gazprom Directors of OAO Stroytransgaz. gazomotornoye toplivo and OOO LIGA-TV. 2008–2011: Member of the Board of Directors of OOO Art Finance. SIBUR’s Board Committee Membership Mr. Mikhelson is a member of the Supervisory Board Does not serve on any Board Committees of OAO Russian Regional Development Bank.
SIBUR’s Board Committee Membership Does not serve on any Board Committees
74 CORPORATE GOVERNANCE ´ BOARD OF DIRECTORS 2012 HIGHLIGHTS Ruben Vardanian Oleg Golounin Independent Director Director
Election Election CEO STATEMENTS CHAIRMAN AND Independent Director of the Group since 2011 Director of the Group since 2011
Education Education 1992: Graduated with honors from the Moscow 1994: Graduated from the Samara State University State University with a degree in Economics with a degree in Law A GLANCE 2000: Completed executive management courses at SIBUR AT INSEAD (Fontainebleau, France) Professional Experience 2001–2005: Completed courses at the Harvard 2005–2007: General Director of OOO Novafininvest Business School (USA) 2007–2010: General Director of OOO NOVATEK- Polymer Professional Experience 2010–2012: General Director of ZAO Miracle BUSINESS STRATEGY 2004–2012: Chairman of the Board of Directors of Since 2010: Chairman of the Board of Directors of Troika Dialog OAO First United Bank (Pervobank) Since 2012: Managing Director and Chairman of the Since 2012: Director of representative office of Board of Directors of ZAO Sberbank CIB. OOO LEVIT in Moscow Mr. Vardanyan is a member of the Board of Directors of OAO AvtoVAZ, OAO KAMAZ, OAO NOVATEK, SIBUR’s Board Committee Membership Joule Unlimited, Inc (a pioneer in production of Member of the Audit Committee renewable fuel based on solar energy) and others. Member of the Human Resources and Remuneration He is also a chairman of the Board of Directors of Committee OAO Rosgosstrakh and AmeriaBank. SUSTAINABILITY Mr. Vardanian is also a member of Russia’s President’s Council on Implementation of National Projects and Demographic Policy and Russia’s President’s International Advisory Committee on Establishment of International Financial Center in the GOVERNANCE Russian Federation. CORPORATE Mr. Vardanian is a member of the Russian Government’s Competition and Entrepreneurship Council. Included in the list of “100 Future World Leaders” by The World Economic Forum (Davos) and in the Top-22 Business Leaders of Russia for INFORMATION FINANCIAL three consecutive years (rating by the “Kommersant” newspaper and Managers Association).
SIBUR’s Board Committee Membership INFORMATION Chairman of the Human Resources and ADDITIONAL Remuneration Committee Member of the Finance Committee
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Dmitry Konov Pavel Malyi Director Director
Election Election Director of the Group since 2007 Director of the Group since 2011
Education Education 1994: Graduated from the Moscow State Institute 1991: Graduated from the Moscow State Institute of International Relations (MGIMO) with a degree in of International Relations (MGIMO) with a degree in international economic relations international law 2001: Received an IMD MBA degree 1995: Graduated with a Master’s degree from the University of Chicago Law School Professional Experience Professional Experience 1998–2000: Served in the Treasury Department of OAO NK YUKOS 2004–2010: Various positions at UBS Investment 2001–2004: Various positions at AKB Trust and Bank, including Director, Executive Director, Investment Bank, including Vice President – Head of Managing Director and Head of UBS Investment the Investment Banking Department and Managing Bank in the Russian Federation, Ukraine and Director, Corporate Finance Kazakhstan 2004–2006: Various positions at the Group, 2011–2012: President of ZAO Miracle including Advisor to the President, Vice President for Since 2012: Managing Director of OOO LEVIT Corporate Policy and Strategy, Senior Vice President for Corporate Policy and Strategy, Head of the Plastics SIBUR’s Board Committee Membership and Organic Synthesis Business Unit Chairman of the Finance Committee Since 2006: CEO of the Management Company Member of the Strategy and Investments Committee Since 2007: Chairman of the Group’s Management Board. Since 2009: Chairman of the Management Board of the Management Company. Mr. Konov is a chairman of the Board of Directors of OOO RusVinyl and OOO SNHK and a member of the Board of Directors of OOO Tobolsk-Polymer 2010–2011: Member of the Board of Directors of OAO Gazprombank 2010–2012: Member of the Board of Directors of OAO Gazprom neftekhim Salavat
SIBUR’s Board Committee Membership Does not serve on any Board Committees
76 CORPORATE GOVERNANCE ´ BOARD OF DIRECTORS 2012 HIGHLIGHTS Seppo Remes Arkadiy Samokhvalov Independent Director Independent Director
Election Election CEO STATEMENTS CHAIRMAN AND Independent Director of the Group since 2007 Independent Director of the Group since 2007
Education Education 1986: Graduated from the University of Oulu 1972: Graduated from the Plekhanov Russian (Finland), where he majored in Economics Academy of Economics with a degree in economics A GLANCE 1994: Obtained a licentiate degree in Economics 1980: Received a Ph.D. in economics from the SIBUR AT from the School of Economics and Business Central Economics and Mathematics Institute of the Administration in Turku (Finland) USSR Academy of Sciences. Holds a post-graduate degree in economics and is a State Counselor of the Professional Experience Russian Federation, First Class.
Honorary Doctor of the Plekhanov Russian Academy BUSINESS STRATEGY Professional Experience of Economics and winner of the “Best Independent Director” category of the Director of the Year 2012 1998–2000: First Deputy Minister of Economics of awards. the Russian Federation Mr. Remes is a member of the Board of Directors of 2000–2003: Chairman of the Board of Directors of a number of companies, including OAO SOLLERS, ZAO International Center for Regional Development OAO Interregional Distribution Grid Company 2003–2004: Finance Director and Executive Director (IDGC) of North-West, OAO IDGC Holding, and of ZAO Guta Textil OAO Lenenergo. 2004–2006: Executive Director of ZAO Pro-Invest- Since 2007: Chairman of the Board of Directors of Consulting and General Director of OOO Pro-Invest-
EOS Russia AB. Spetsproekt SUSTAINABILITY Mr. Remes is a General Director of OOO KIURU. 2006–2008: First Deputy General Director of ZAO Strategicheskiye Aktivy Management Company SIBUR’s Board Committee Membership 2008–2012: Assistant to the Deputy Prime Minister of the Russian Federation Chairman of the Audit Committee Since 2009: Member of the Board of Directors
Member of the Finance Committee GOVERNANCE of ZAO St. Petersburg International Commodity CORPORATE Member of the Human Resources and Remuneration Exchange Committee Since 2012: Advisor to the President of OAO NK Rosneft
SIBUR’s Board Committee Membership INFORMATION FINANCIAL Member of the Audit Committee Member of the Strategy and Investments Committee INFORMATION ADDITIONAL
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Gennady Timchenko Board Activities in 2012 Director The meetings of the Board of Directors are Election held at least once every two months in the form of joint presence and in absentia. Director of the Group since 2012 To ensure an efficient and effective discharge Education of its responsibilities, the Board meets 1976: Graduated from the Leningradsky Mechanical regularly. In 2012, they held eight meetings, University with a degree in electromechanical four of which were held telephonically. engineering
Professional Experience 1982–1988: Senior Engineer at the Ministry of Topics Discussed at 2012 Foreign Trade Board meetings and 1988: Vice President of Kirishineftekhimexport, the export and trading arm of the Kirishi refinery in the respective decisions made: Leningrad region Strategic planning and investment activities: 1991: Started working for Urals Finland, which specialised in oil and petrochemical trading y review and approval of the report on execution 1994–2001: Managing Director of IPP OY Finland of the 2011 annual investment program and IPP AB Sweden, which specialised in oil and y review of the report on execution in 2011 of petrochemical trading and logistics the 5-year strategic business plan 1997: Co-founded Gunvor, a leading independent oil trading company. y review and approval of the Group’s 2013 Mr. Timchenko has more than 20 years of experience annual investment program in Russian and international energy sectors and y review and approval of regular reports on the he has built interests in trading, logistics and progress of major investment projects. transportation related companies. Since 2009: Member of NOVATEK’s Board of Directors. Mr. Timchenko is a chairman of the Board of Directors and President of the Ice Hockey Club SKA St. Petersburg. He is also a chairman of the Continental Hockey League (KHL).
SIBUR’s Board Committee Membership Member of the Strategy and Investments Committee
78 CORPORATE GOVERNANCE ´ BOARD OF DIRECTORS 2012 HIGHLIGHTS Budget planning and financing activities: Approval of an independent auditor for SIBUR’s 2012 financial statements in accordance with RAS y review and preliminary approval of the Group’s and IFRS annual report and financial statements with a recommendation for final approval by the Review of SIBUR’s remuneration system and Annual General Shareholders’ Meeting approval of key remuneration principles CEO STATEMENTS CHAIRMAN AND
y review and approval of the report on execution Approval of SIBUR’s Human Resources policy. of 2011 annual business plan, including financial and operational performance
y approval of SIBUR’s Performance Contract for 2012 and for 2013 Remuneration of the Board A GLANCE SIBUR AT y approval of the Group’s 2013 annual business As of 31 December 2012, the Group’s Board of plan Directors comprised nine individuals, including y approval of several financing transactions shareholder representatives. Members of the Board of Directors are entitled to annual compensation, y approval of the terms of the next 3-year as approved by the Annual General Shareholders’ BUSINESS STRATEGY agreement on transferring power of attorney Meeting. between SIBUR and the Management Company. In 2012 and 2011, the Group paid RR 94 million Approval of large divestitures, acquisitions and and RR 218 million net of social taxes, respectively, partnerships with international petrochemical to the members of the Board of Directors as companies compensation for the years ended 31 December 2012 and 2011, respectively. Corporate governance activities:
y approval of a revised version of the Code
of Corporate Conduct and new editions of SUSTAINABILITY SIBUR’s internal by-laws
y convening General Shareholders’ Meeting to review and approve a revised version of the Charter GOVERNANCE y review of D&O insurance options. CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
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SIBUR 2012 Board Committees ANNUAL REVIEW ANNUAL
COMMITTEE PRESENT MEMBERSHIP MEETINGS
AUDIT COMMITTEE Seppo Remes (Chairman) The Audit Committee held 6 meetings in 2012. Oleg Golounin Arkady Samokhvalov
HUMAN RESOURCES Ruben Vardanian (Chairman) The Human Resources and AND REMUNERATION Remuneration Committee Oleg Golounin COMMITTEE held 5 meetings in 2012. Seppo Remes
STRATEGY Alexander Dyukov (Chairman) The Strategy and AND INVESTMENTS Investments Committee held Vladimir Razumov (Deputy Chairman) COMMITTEE 8 meetings in 2012. Gennady Timchenko Pavel Malyi Arkadiy Samokhvalov
FINANCE Pavel Malyi (Chairman) The Finance Committee held COMMITTEE 5 meetings in 2012. Ruben Vardanian Seppo Remes
80 CORPORATE GOVERNANCE ´ BOARD COMMITTEES
ROLE OF THE COMMITTEE 2012 HIGHLIGHTS
The primary objective is to develop and make recommendations to the Board of Directors concerning the following: conducting an annual independent external audit of the Group’s financial statements, including the IFRS financial statements CEO STATEMENTS CHAIRMAN AND independent external auditor’s qualifications, the quality of the services rendered by the auditor, and whether the auditor meets independence requirements assessing the effectiveness of the internal control and risk management systems and developing recommendations for their further improvement A GLANCE Develop and make recommendations to the Board of Directors concerning the following: SIBUR AT developing the Group’s HR policy reviewing the Group’s annual performance indicators and annual and semiannual results of their execution providing recommendations on the Group’s long-term incentive program The committee submits recommendations to the Group’s Board of Directors on TAEYBUSINESS STRATEGY improvements in HR policy of the Group and the Management Company, and the criteria for determining what constitutes an Independent Director. It also compares the Group’s HR policy and incentive programs with peers and market practices, and informs the Group’s Board of Directors about the results of such analysis.
Responsible for developing and making recommendations to the Board of Directors concerning the following: defining SIBUR’s priority areas for development defining the Group’s long-term strategy, objectives and tasks, as
well as annual and long-term investment programs SUSTAINABILITY evaluating the Group’s investment process management and strategic planning process as well as the Group’s policy on cooperation with investors and shareholders and makes recommendations to the Board of Directors for improving the policy reviewing issues related to the Group’s establishment of commercial and non-commercial organisations, as well as mergers, acquisitions, divestments or pledges of the Group’s assets GOVERNANCE CORPORATE
Develop and make recommendations to the Board of Directors concerning the following: developing SIBUR’s financial strategy in line with the Group’s operational results and financial standing, as well as its strategic priorities, objectives and tasks, as approved by the Board of Directors INFORMATION SIBUR’s areas for development and its annual and long-term business plans FINANCIAL reviewing the Group’s annual report and recommending it to the Board of Directors for preliminary approval making recommendations to the Board of Directors with respect to dividend amounts and payout schedules INFORMATION reviewing issues related to the issuance or buyback of bonds and other ADDITIONAL securities, as well as the raising or issuance of loans, guarantees and pledges, when such transactions require the Board of Directors’ approval
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SIBUR 2012 Management Board ANNUAL REVIEW ANNUAL
Role and Responsibly Management Board of the Management Board Composition
SIBUR’s Management Board is the Group’s In accordance with the Group’s Charter, the Collegial Executive Body. The Management Board Management Board is formed by the Board of is responsible for the day-to-day management of Directors from the Group’s senior executives based SIBUR’s operations. The Management Board also on the recommendations of the Sole Executive Body. participates in the development and execution of the The Group’s Management Board consists of five Group’s strategy. members as of 31 December 2012.
The primary objectives of the Management Board include managing SIBUR’s assets to maximise their value and returns, improving the efficiency of internal control and risk management systems, and ensuring the protection of shareholder rights and interests. Members of the Management Board as of 31 December 2012
YEAR NAME YEAR OF BIRTH POSITION OF APPOINTMENT
Dmitry Konov 1970 Chairman of the Management Board 2007
Mikhail Karisalov 1973 Member of the Management Board 2007
Vladimir Razumov 1944 Member of the Management Board 2007
Alexey Philippovskiy(1) 1972 Member of the Management Board 2007
Kirill Shamalov 1982 Member of the Management Board 2008
(1) Alexey Phillippovskiy stepped down as the member of the Management Board and Chief Financial Officer of SIBUR. In March 2013, Pavel Malyi, who previously served on SIBUR’s Board of Directors and was the Chairman of the Board’s Finance Committee, was appointed SIBUR’s Chief Financial Officer and Deputy Chairman of the Management Board.
82 CORPORATE GOVERNANCE ´ MANAGEMENT BOARD 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
Dmitry Konov TAEYBUSINESS STRATEGY SUSTAINABILITY
Mikhail Karisalov Vladimir Razumov GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
Alexey Philippovskiy Kirill Shamalov
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ANNUAL REVIEW ANNUAL Information on Members of the Management Board Dmitry Konov Mikhail Karisalov
Election Election Chairman of the Management Board of OAO SIBUR Member of the Management Board of OAO SIBUR Holding Holding General Director of the Management Company Deputy Chairman of the Management Board and OOO SIBUR Executive Director of the Management Company OOO SIBUR See biography on page 76, Information on the Current Members of the Board Appointment of Directors Member of the Management Board since 2007, Deputy Chairman of the Management Board since 2012
Education 1998: Graduated from the Russian Civil Service Academy under the President of the Russian Federation with a degree in Management and Economics
Professional Experience 1997–2003: General Director of OOO Oblkonservprom 2003–2006: Various positions at the Group, including Advisor to the President, Director of Procurement, Head of Logistics and Capital Construction, Vice-President – Head of Hydrocarbon Feedstock Department at SIBUR 2006–2008: General Director of OAO SiburTyumenGaz. Mr. Karisalov is the Chairman of the Board of Directors of OAO NIPIgaspererabotka, OOO Yuzhno- Priobskiy GPP and a member of the Board of Directors of OOO Tobolsk-Polymer.
84 CORPORATE GOVERNANCE ´ MANAGEMENT BOARD 2012 HIGHLIGHTS Vladimir Razumov Professional Experience 1968–1983: Worked at Voronezh Synthetic Rubber Plant as an engineer, section manager, mechanic, Election shop manager and Deputy Director for Procurement Member of the Management Board of OAO SIBUR and Marketing CEO STATEMENTS CHAIRMAN AND Holding 1983: Director of the Volga Synthetic Rubber Plant Deputy Chairman of the Management Board and 1988: Head of the Main Procurement Department Executive Director of the Management Company of the USSR Ministry of the Oil Refining and OOO SIBUR Petrochemicals Industry 1989–1992: USSR Deputy Minister of the Oil Appointment Refining and Petrochemicals Industry A GLANCE 1997–1999: Vice President and First Vice President SIBUR AT Member of the Management Board since 2007, of ZAO Korporatsiya Rosshina and Vice President of Deputy Chairman of the Management board since ZAO Roskhimneft 2012 1999–2002: Vice President in charge of Production of Synthetic Rubber and Tyres, and as Senior Vice Education President in charge of Petrochemical Production at BUSINESS STRATEGY 1967: Graduated with honors from the Voronezh SIBUR Technological Institute with a degree in Engineering 2002–2003: COO of OAO Avtotor Holding 1980: Graduated from the Plekhanov Russian 2003–2005: Rejoined the Group, served as Academy of Economics, with a degree in Advisor to the President, Vice President in charge procurement of Production and Senior Vice President in charge 1987–1989: Studied at the Academy of the National of Production and Marketing, Senior Executive Vice Economy under the USSR Council of Ministers, President at SIBUR. specialising in economics and management of the Mr. Razumov is Chairman of the Board of Directors of national economy OOO Tobolsk-Polymer and a member of the Board of
Directors of ZAO SIBUR-Trans. SUSTAINABILITY GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
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Alexey Philippovskiy Kirill Shamalov
Election Election Member of the Management Board of OAO SIBUR Member of the Management Board of OAO SIBUR Holding Holding Deputy Chairman of the Management Board and Deputy Chairman of the Management Board of the Chief Financial Officer of the Management Company Management Company OOO SIBUR OOO SIBUR Appointment Appointment Member of the Management Board since 2009, Member of the Management Board since 2007, Deputy Chairman of the Management Board since Deputy Chairman of the Management Board since 2012 2012 Education Education 2004: Graduated from the St. Petersburg State 1995: Graduated from the Ural State Technical University with a degree in Law University with a degree in Engineering and Economics Professional Experience 2000–2002: Studied at Anderson Graduate School 2002: Chief Legal Counsel for foreign economic of Management at the University of California, activity at OAO Gazprom Los Angeles (UCLA), received an MBA in Finance 2004: Expert in the regional department FGUP and Strategy Rosoboronexport, where he was responsible for military-technical cooperation with Western Professional Experience European countries Prior to joining the Group, served as a consultant in 2005: Chief Lead Counsel in the legal department the Moscow office of McKinsey & Co ZAO AB Gazprombank 2004–2006: Head of the Finance and Economics 2005–2008: Expert consultant in the Economics and Department of the Group Finance Department for the Russian Government Since 2007: Chief Financial Officer of the 2008: Vice-President for Business Administration of Management Company the Group 2007–2011: Member of the Board of Directors of 2008–2009: General Director of OAO TYRE Invest OAO Russian Tyres Since 2011: Chairman of the Board of Directors of 2008–2012: Chairman of the Board of Directors of OAO SMNG and a member of the Board of Directors ZAO SIBUR-Trans of ZAO GEONOD razvedka Since 2011: Member of the Board of Directors of OOO ITSK
86 CORPORATE GOVERNANCE Share Capital Code of Corporate Conduct 2012 HIGHLIGHTS The share capital of OAO SIBUR Holding amounts to SIBUR’s Board of Directors approved a revised RR 21,784,791,000. As of 31 December 2012, the version of the Group’s Code of Corporate Conduct share capital consisted of 2,178,479,100 ordinary on 6 September 2012. The Code was developed in shares with a par value of RR 10 each. The state compliance with the current legislation of the Russian registration number is 1-01-65134-D, with a Federation, the Group’s Charter, generally accepted CEO STATEMENTS registration date of 1 September 2005. principles of corporate governance, and SIBUR’s CHAIRMAN AND strategic priorities. The amount of authorised shares totals 9,653,045,500 ordinary shares and 2,500,000,000 The Code of Corporate Conduct is intended to protect preferred shares with a par value of RR 10 each. the rights and interests of the Group’s shareholders No preferred shares have been issued. and ensure the transparency of decision-making A GLANCE processes, the accessibility of information, and SIBUR AT visibility into SIBUR’s performance. As a growing and developing company, SIBUR is committed to constant improvement of its corporate governance principles. TAEYBUSINESS STRATEGY SUSTAINABILITY GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
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SIBUR 2012 Dividends ANNUAL REVIEW ANNUAL
The General Shareholders’ Meeting makes decisions Dividend Policy on dividend payouts, as well as their amount, timing and the form of payment, on the basis of the Board of SIBUR’s dividend policy is intended to maintain a Directors’ recommendations. The Board of Directors balance between the Group’s goals and the interests develops these recommendations based on SIBUR’s of its shareholders, while respecting shareholders’ payout target of 25% of the net profit for the period rights and complying with Russian legislation and the based on the IFRS consolidated financial statements. Group’s charter documents. Our dividend policy is aimed at increasing the Group’s investment appeal In 2012, the Group has adopted a semi-annual and shareholder value. dividend payment schedule. Accrued and Paid Dividends for 2005–2012
DIVIDEND ACCRUAL PERIOD AMOUNT OF DIVIDEND PER SHARE AMOUNT OF ACCRUED DIVIDENDS (YEARS) (RR) (RR)
2005 4.59 184,460,000.00
2006 98.04 3,931,407,333.36
2007 138.81 5,566,285,719.54
9M 2008 230.67 9,249,874,842.78
2009 110.85 4,829,687,832.15
2010 - -
2011 1,000.00 21,784,791,000.00
H1 2012 3.40 7,406,828,940.00
H2 2012 3.50 7,624,676,850.00
88 CORPORATE GOVERNANCE Key Risk Factors 2012 HIGHLIGHTS The list of risks presented herein is not exhaustive and only reflects SIBUR’s opinion and estimates. This section does not include any analysis of general economic and social risks, such as the global financial crisis, CEO STATEMENTS slowdowns in economic growth or decreases in consumer purchasing CHAIRMAN AND power, among others. A GLANCE SIBUR AT
According to the relevant Management Board Key Risks resolution, key risks include events that could have a negative impact on the Group’s strategic goals, TAEYBUSINESS STRATEGY The Group’s key risks are evaluated every six months. and sufficiently and irreversibly damage or threaten The list of the risks is discussed at the meetings of the SIBUR’s business continuity. Audit Committee and approved by the Management Board along with the management’s proposed According to the Management Board resolution of actions to mitigate such risks. 20 December 2012, SIBUR’s key risks are as follows: industrial accident risks The following executive bodies are responsible for risk management at SIBUR: regulatory risks Board of Directors (Audit Committee) IT system risks Management Board risks related to non-performance of organisational SUSTAINABILITY projects Management Company risks related to non-performance of investment Subsidiaries. projects
market risks GOVERNANCE CORPORATE logistical risks. INFORMATION FINANCIAL INFORMATION ADDITIONAL
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RISK DESCRIPTION
KEY RISKS
INDUSTRIAL ACCIDENT RISK SIBUR’s operational activity may be hampered by accidents at the Group’s production sites. Such factors as obsolescence of certain equipment, control systems failure, loss of containment and other factors may lead to fires, explosions, emission of toxic fumes and other hazardous conditions that could cause personnel injuries or death, property damage, environmental damage or interruption of operations.
REGULATORY RISKS Substantive changes to the legal or regulatory framework may have a negative effect on the Group’s business and operations, particularly with respect to energy or transportation tariffs, export duties on energy products, import duties on production equipment, and taxation.
IT SYSTEM RISKS SIBUR’s business and operations may be negatively affected by failures of the Group’s key IT systems and equipment, unauthorised access to confidential information, and distortion of information during data transfers. These factors may result in a lack of information or potential information inaccuracies that could cause disruptions in the Group’s decision-making process, as well as deterioration in the quality of SIBUR’s operational and financial reporting and the overall manageability of the Group.
RISK OF NON-PERFORMANCE New organisational projects expose SIBUR to risks related to the quality, timing and cost of OF ORGANISATIONAL PROJECTS such projects. SIBUR’s successful development requires timely organisational changes aimed at improvement of the Group’s operational and financial performance, cost optimisation, enhancement of production and operational management, and higher corporate governance standards. Failure to successfully implement planned organisational projects could result in sub- optimal allocation of resources, lower production levels, and financial losses.
RISK OF NON-PERFORMANCE SIBUR’s strategic objectives include constant expansion and modernisation of the Group’s OF INVESTMENT PROJECTS production facilities and infrastructure, which requires the implementation of large-scale investment projects. Actual costs related to any projects could exceed the planned levels, and any delays in completion of these projects could adversely affect our operations. Moreover, low-quality design and construction work could decrease the efficiency of such projects and negatively affect our future operational performance.
MARKET RISKS SIBUR’s business and operational results may be negatively affected by drops in demand or decreased prices for its products as well as market share losses in its key markets.
LOGISTICAL RISKS SIBUR may face difficulties in delivering its intermediate or refined products to customers due to the limitations of the available transportation infrastructure in Russia. Insufficient rail transportation capacity and other logistical bottlenecks could negatively affect SIBUR’s ability to meet its contractual obligations related to delivery of intermediate or finished goods to customers and the Group’s operational and financial performance.
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RISK MITIGATION ACTIONS 2012 HIGHLIGHTS
SIBUR takes active steps to minimise the potential impact of such risks. Continuous monitoring of assets to prevent emergencies and accidents, introduction of advanced asset maintenance and modernisation methods. CEO STATEMENTS Promotion of industrial safety culture among employees, and continuous training of personnel, as well as strive to have appropriate insurance CHAIRMAN AND coverage in place, both for property damage and potential disruptions of operations.
SIBUR is implementing an informational and analytical system for monitoring the regulatory environment, which should enable the Group to react in a timely manner to relevant legislative changes. SIBUR also trains its employees on issues regarding anti-monopoly regulations and plays an active role in discussions and development of draft legislative bills. A GLANCE SIBUR AT
SIBUR is in the process of actively integrating its IT systems. To minimise its IT-related risks, SIBUR has implemented and continues to develop back-up and information protection systems. TAEYBUSINESS STRATEGY
SIBUR is implementing a methodology for project portfolio management and is developing both project management procedures and specific responsibilities for project team members.
SIBUR is actively developing mechanisms to make the contractor selection process more efficient, and the Group is also strengthening its in-house technical supervision capabilities to ensure adequate design and construction quality. Additionally, SIBUR aims to have proper insurance coverage for its large-scale investment projects. SUSTAINABILITY
To manage its market risks, SIBUR focuses on the following key areas: y market monitoring and analysis y conclusion of long-term agreements with both suppliers and customers GOVERNANCE y customer-oriented approach to meet our customers’ quality and service requirements CORPORATE y development of sales and distribution channels y active pre-marketing initiatives
SIBUR is developing alternative transportation routes and its own logistical infrastructure, and is optimising its delivery schedules. The Group also works in cooperation with the Russian Government and SIBUR’s logistical partners, including Russian Railways (RZD), Russia’s state- INFORMATION
owned rail transportation monopoly, to develop long-term logistical solutions. FINANCIAL INFORMATION ADDITIONAL
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RISK DESCRIPTION
OTHER RISKS
INDUSTRY RISK
Risk related to imbalances between Insufficient feedstock volumes or shortages of certain target hydrocarbon fractions may result in feedstock supply and demand for intensified competition for the feedstock and higher feedstock prices, which, in turn, could lead SIBUR’s petrochemicals business to lower rates of utilisation at the Group’s petrochemical plants and negatively affect SIBUR’s profitability.
Risk related to capacity additions by our The simultaneous completion of major petrochemical projects in Russia and abroad could result competitors in overcapacity, intensified competition among petrochemicals producers, lower prices for petrochemical products, lower rates of utilisation at SIBUR’s petrochemical plants and reduction in profitability.
Risk related to drops or lower rates of Drops or lower rates of growth in demand for petrochemical products due to a slowdown in growth in demand for petrochemical economic activity in Russia or globally could also result in lower prices for petrochemical products, products lower rates of utilisation at SIBUR’s petrochemical plants and reduction in profitability.
COUNTRY & REGIONAL RISKS
Political, economic and social risks All SIBUR’s production assets are located in the Russian Federation, which still has some features of an emerging market. Despite GDP growth, political stability, improving living standards, and other factors, the country’s economy is still developing. As it is largely commodity-based and reliant on exports of raw materials, there is a high level of dependence on the demand for raw materials in global markets.
Taxation risks related to Russia As all of our production assets are located in Russia, we are subject to a wide range of taxes, which we pay in the Russian Federation and which are imposed at the federal, regional, and local levels. In addition to income tax, significant taxes, which we are subject to, include VAT, excise duties, property tax, payments to non-budget funds and other contributions. In accordance with existing tax legislation in certain regions of the Russian Federation, we may enjoy preferential tax treatment in the form of lower local income tax and/or property tax rates.
The Russian taxation system is relatively underdeveloped. Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. These tax risks may impose additional burdens and costs on the Group’s operations, including management resources.
FINANCIAL RISKS
Foreign exchange rate fluctuations Movements of the Russian rouble against the US dollar and the euro may have a significant effect on SIBUR’s financial performance. Our functional and reporting currency is the Russian rouble. However, our sales outside of Russia are mainly denominated in US dollars with a smaller portion denominated in euro. At the same time, most of our expenses are denominated in Russian roubles. Thus, Russian rouble appreciation has a negative effect on our operational results.
A significant part of SIBUR’s borrowings is also denominated in foreign currencies, primarily in US dollars. When the Russian rouble depreciates against the USD, US dollar-denominated liabilities increase in Russian rouble terms, as do interest costs on our foreign currency-denominated borrowings.
92 CORPORATE GOVERNANCE ´ KEY RISK FACTORS
RISK MITIGATION ACTIONS 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND
To minimise its exposure to industry risks, SIBUR actively invests in the development of its feedstock gathering, processing and transportation infrastructure, aiming to consolidate hydrocarbon feedstock flows in Western Siberia and ensure reliable access to the region’s growing feedstock base. The Group’s strategy also implies construction of large-scale globally competitive petrochemical facilities, which will enable SIBUR to A GLANCE
monetise stranded low-cost feedstock, further enhance competitiveness, and reduce the Group’s exposure to industry risks. SIBUR AT TAEYBUSINESS STRATEGY
SIBUR views the political and economic situation in Russia as stable and does not see any material risk of negative developments at present.
We have not applied any tax minimisation schemes involving low tax jurisdictions either at the domestic or offshore levels. Currently SIBUR sees the level of such risks acceptable, however, adverse changes cannot be ruled out, since such risks are beyond the Group’s control. SUSTAINABILITY GOVERNANCE CORPORATE
Mitigating this currency effect, however, is the high historical level of correlation between RR/USD and RR/EUR exchange rates and oil prices. When oil prices go up, the Russian rouble tends to appreciate against major world currencies and vice versa. Prices for a large portion of our products are linked to oil prices. Hence, rising oil prices tend to increase our revenues, mitigating the negative effect of a stronger Russian rouble on our export sales. On the contrary, lower oil prices, while negatively impacting part of our sales, tend to lead to a weaker Russian INFORMATION
rouble, which has a positive effect on SIBUR’s export revenue. This works as a natural hedge against foreign exchange rate fluctuations and FINANCIAL oil price volatility.
To minimise the effect of foreign exchange rate fluctuations on our foreign currency-denominated borrowings, SIBUR aims to match the currency split of its liabilities with the currency structure of the Group’s revenues. INFORMATION ADDITIONAL
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RISK DESCRIPTION
FINANCIAL RISKS
Interest rate risk The Group’s interest rate risk arises primarily from long-term borrowings with floating interest rates.
Liquidity risk Risk that the Group would not be able to meet its financial obligations in a timely manner.
Credit risk Credit risk arises from cash and cash equivalents (including short-term deposits with banks), issued loans as well as credit exposures to customers, including outstanding receivables and committed transactions.
Cash and cash equivalents are deposited only with banks that are considered by the Group at the time of deposit to have minimal risk of default within set credit limits. Loans are typically granted to joint ventures or subsidiaries and require approvals by the Strategy and Investment Committee and the Board of Directors.
A large part of the Group’s domestic receivables come from Russia’s largest companies, including Gazprom, LUKOIL, TNK-BP, Gazprom Neft and Rosneft, which SIBUR believes to be of a high credit quality. For other domestic customers, SIBUR assesses credit quality taking into account financial position and past experience, alongside other factors. Regarding export customers, SIBUR sells to major market players including Michelin Group, Continental Group, Gunvor Group, and Naftomar LTD INC., based on a standard delay of no more than 30 days. Most other export sales are primarily secured by a letter of credit or are prepaid.
ENVIRONMENTAL RISKS
Environmental risks SIBUR’s operations are subject to potential risks of damaging or polluting the environment. The Group’s sustainable development focuses on maintaining environmental safety at production facilities, taking measures to decrease man-made impacts on the environment and increase workplace safety. SIBUR regularly monitors its operations to comply with applicable environmental laws and regulations. Compliance with these regulations may result in additional costs and obligations for SIBUR.
94 CORPORATE GOVERNANCE ´ KEY RISK FACTORS
RISK MITIGATION ACTIONS 2012 HIGHLIGHTS
SIBUR analyses its interest rate exposure on a regular basis. Financing decisions are made after a careful consideration of various scenarios and may include alternative financing at fixed interest rates. The Group currently does not use derivative instruments to hedge its interest rate risk. CEO STATEMENTS CHAIRMAN AND
Liquidity risk management at SIBUR includes maintaining sufficient cash balances and ensuring access to sufficient amounts of debt financing. Due to the dynamic nature of the underlying businesses, SIBUR’s management maintains funding flexibility by ensuring funds availability under committed credit lines and expected cash flows from operating activities. SIBUR’s management monitors rolling forecasts of the Group’s liquidity on a weekly, monthly and annual basis. This is done on the basis of a minimum amount of cash and cash equivalent balances, and undrawn credit lines.
SIBUR also has a financial policy to maintain a net debt-to-EBITDA ratio of no more than 2.5x and an EBITDA-to-interest ratio of no less than A GLANCE 7x. These objectives are stricter than bank covenants stipulated in some of our credit agreements. SIBUR AT When managing its liquidity, SIBUR aims to ensure continuity of the Group’s operations while maintaining an adequate capital structure and optimising its cost of capital.
Although collection of accounts receivable could be influenced by economic factors affecting the Group’s customers, the management believes that there is no significant risk of loss beyond the provisions already recorded in the financial statements. SIBUR also constantly monitors the status of trade receivables and the creditworthiness of customers. BUSINESS STRATEGY
SIBUR’s overall financial risk management is carried out by the central finance function. SIBUR’s Treasury manages credit risks related to transactions with financial institutions and liquidity risk. Credit risks related to operating transactions are managed by individual business units in accordance with the policies established centrally at the Group level. SUSTAINABILITY
SIBUR has undertaken measures to decrease the environmental impact its production sites may have on nearby residential territories. These include implementation of advanced scientific technologies and expertise for mitigating adverse impacts, substantial investment in environmental management activities, and resettlement costs for moving residents to housing in environmentally safe areas. The Group carries out safety education programmes for its employees on a regular basis, as well as engaging and communicating with GOVERNANCE community stakeholders and residents on the Group’s environmental activities. CORPORATE SIBUR also pursues international cooperation to develop environmentally sustainable, energy efficient and cost-effective technologies and equipment. SIBUR incurs and expects to continue to incur capital and operating costs to comply with environmental laws and regulations. INFORMATION FINANCIAL INFORMATION ADDITIONAL
95 PRODUCTION FACILITIES SIBUR-Khimprom INFORMATION FINANCIAL 154,700 tonnes, andEPS–100,000 tonnes perannum. NGL perannum. Thenameplate capacityfor production ofMTBEtotaled 33,000 tonnes, alcohols – by SIBUR.As of31 GFUtotaled December 2012, 550,000tonnes processing capacityofthe ofraw the polystyrene (EPS).SIBUR-Khimprom gasfractionation units(GFUs)owned three operates oneofthe (MTBE),alcohols,expandable butyl ether methyl petroleum tertiary naphtha, liquefied gases(LPG), SIBUR-Khimprom, products,including energy andpetrochemical located producesboth inPerm,
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations as of 31 December 2012 and for the year then ended in conjunction with our combined financial information as of and for the years ended 31 December 2012 and 2011 (hereinafter referred to as the “combined financial information”). The audited combined financial information and the related notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS).
The combined financial information excludes the results of the mineral fertilizers and tires businesses, which were divested by SIBUR in December 2011, for both years. SIBUR’s management believes that the combined financial information provides a proper basis for analysis of the underlying performance of the Group based on fully comparable data for both 2012 and 2011.
The financial and operating information contained in this MD&A comprises information on ОAO SIBUR Holding and its consolidated subsidiaries other than the divested mineral fertilizers and tires businesses (hereinafter jointly referred to as “we”, “SIBUR” or the “Group”).
SELECTED DATA(1)
Operating Results
The following table presents the Group’s key operational measures for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Processing and production volumes APG processing(2) (thousand cubic metres) 18,709,246 18,032,320 3.8% APG processing, SIBUR’s share(3) (thousand cubic metres) 12,986,326 12,697,565 2.3% Natural gas production(2) (thousand cubic metres) 16,371,383 15,806,351 3.6% Natural gas production, SIBUR’s share(3) (thousand cubic metres) 10,993,627 10,864,052 1.2% Raw NGL production(2) 4,216,067 4,175,843 1.0% Raw NGL production, SIBUR’s share(3) 2,870,761 2,864,371 0.2%
Sales volumes Natural gas sales volumes (thousand cubic metres) 10,572,284 9,144,938 15.6% NGLs sales volumes 4,060,897 3,986,810 1.9% MTBE, other fuels & fuel additives sales volumes 569,454 627,776 (9.3%) Petrochemical products sales volumes 2,269,887 2,164,387 4.9%
(1) Please note that in this and other tables of this MD&A, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding. (2) Including TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). (3) Excluding TNK-BP’s share in processing/production volumes of OOO Yugragazpererabotka. 1
98 Financial Results
The following table presents the Group's key financial measures for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 2011 %
Income statement highlights Revenue (net of VAT and export duties) 271,330 248,660 9.1% EBITDA 82,291 86,669 (5.1%) EBITDA margin, % 30.3% 34.9% Profit for the year 60,085 62,799 (4.3%) Profit margin, % 22.1% 25.3% Earnings per share (in Russian roubles) 27.6 15.7 75.8% Weighted average number of shares(1) 2,178,479,100 3,996,284,700 -
Cash flow highlights Net cash from operating activities 62,661 54,181 15.7% Net cash (used in) investing activities, including (50,992) (41,290) 23.5% Purchase of property, plant and equipment (74,274) (55,553) 33.7% Proceeds from disposal of non-core businesses(2) 17,964 38,261 (53.0%) Net cash (used in) financing activities, including (12,729) (12,526) 1.6% Dividends paid to SIBUR shareholders (29,192) - n/m
Key ratios As of 31 December 2012 As of 31 December 2011 Debt/EBITDA 1.17х 0.96х Net debt(3)/EBITDA 1.00x 0.78х EBITDA/Interest expense 118х 34х
In 2012, our revenue totaled RR 271,330 million compared to RR 248,660 million in 2011, an increase of 9.1% year-on-year. Revenue growth was driven primarily by energy products on higher production and sales volumes for majority of the products, helped by indexation of regulated natural gas prices and the Russian rouble depreciation against the US dollar on almost flat global oil and oil derivative prices in US dollar terms. Selective acquisitions that we made at the end of 2011 and in early 2012 allowed us to enter new attractive market niches and strengthen our existing positions in the petrochemicals segment. We also increased our production and launched new petrochemical capacity. This enabled us to more than compensate for the effects of the challenging market environment in petrochemicals, which was volatile throughout 2012 both globally and in Russia and resulted in stagnant demand and weak pricing trends for majority of the petrochemical products, particularly synthetic rubbers.
Our 2012 EBITDA amounted to RR 82,291 million, a year-on-year decline of 5.1% from RR 86,669 million in 2011. Our 2012 EBITDA margin totaled 30.3% compared to 34.9% in 2011, when our margins reached their historical highs partially due to a very favorable external environment, namely strong demand and record high prices for majority of petrochemical products both globally and in our key markets. The year-on-year decrease in EBITDA and EBITDA margin is primarily explained by tighter spreads between feedstock and petrochemical prices, particularly in the synthetic rubber product group, an increase in transportation expenses and higher staff costs due to changes in staff composition, higher social taxes as well as a non-cash charge related to a non-recurring change in treatment of bonus provisions.
Our profit for 2012 totaled RR 60,085 million compared to RR 62,799 million in 2011, a decrease of 4.3% year-on-year. 2012 net margin amounted to 22.1% versus 25.3% reported in 2011.
For detailed discussion on SIBUR’s operational and financial performance see the “Operational Review”, “Results of Operations” and “Liquidity and Capital Resources” sections.
(1) Taking into account treasury shares cancelation in February 2012 and 1:100 stock split in June 2012. (2) Includes proceeds from disposal of the mineral fertilizers and tires businesses net of related income tax of RR 900 million in 2012 and RR 4,295 million in 2011, as well as proceeds from the disposal of ZAO Voronezh Tire Plant and OAO Kirov Tire Plant net of related income tax of RR 438 million in 2011. (3) Net debt represents total debt less cash and cash equivalents. 2
99 The following table provides a reconciliation of EBITDA to profit for the years ended 31 December 2012 and 2011: Year ended 31 December RR millions 2012 2011
Profit for the reporting period 60,085 62,799
Loss / (gain) from disposal of Amtel Group assets 315 (1,240) Income tax expense 15,816 15,561 (Gain) / loss on disposal of investments (283) 380 Impairment of other receivables - 1,731 Share of net (income) of joint ventures and associates (751) (236) (Gain) on acquisition of subsidiaries (430) (4,957) Net finance (income) / expenses (3,040) 4,415 Impairment of property, plant and equipment 262 - Depreciation and amortization 10,317 8,216
EBITDA 82,291 86,669
OVERVIEW
SIBUR is a uniquely positioned vertically integrated gas processing and petrochemicals company. We own and operate Russia’s largest gas processing business in terms of associated petroleum gas processing volumes and are a leader in the Russian petrochemicals industry.
We have two operating and reportable segments: feedstock & energy and petrochemicals. SIBUR's feedstock and energy segment comprises (i) gathering and processing of associated petroleum gas (APG) that we purchase from major Russian oil companies, (ii) transportation, fractionation and other processing of natural gas liquids (NGLs) that we produce internally or purchase from major Russian oil and gas companies, and (iii) marketing and sales of energy products, such as natural gas, liquefied petroleum gases (LPG), naphtha, raw NGL, methyl tertiary butyl ether (MTBE) and other fuels and fuel additives. We sell these energy products on the Russian and international markets and use some of them as feedstock for our petrochemicals segment. Our petrochemicals segment produces a wide range of petrochemical products, including basic polymers, synthetic rubbers, plastics and products of organic synthesis, as well as intermediates and other chemicals.
As of 31 December 2012, SIBUR operated 27 production sites across Russia, had over 1,500 large customers operating in the energy, automotive, construction, fast moving consumer goods (FMCG), chemical and other industries in approximately 60 countries and employed over 31,000 personnel.
RECENT DEVELOPMENTS
New Contracts and Joint Ventures
In March 2013, SIBUR and TNK-BP entered into a set of agreements that define the format of cooperation between the parties within our joint venture (JV) OOO Yugragazpererabotka for the period from 2017 through 2026. The parties have extended the key agreements for supply of associated petroleum gas (APG) and purchase of products of APG processing and also have revised the guaranteed APG volumes to be supplied by TNK-BP to Nizhnevartovskiy and Belozerniy GPPs that are part of the JV. The parties have extended the term of the JV to indefinite, while terminating SIBUR’s call options. From the date of call options termination, SIBUR plans to account for its investment in OOO Yugragazpererabotka under the equity method of accounting in accordance with IFRS 11 “Joint Arrangements”. Previously, SIBUR consolidated OOO Yugragazpererabotka as a wholly-owned subsidiary on the basis of the call option agreements and accounted for TNK-BP’s contribution as long- term loans.
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100 In October 2012, SIBUR and SINOPEC INTERNATIONAL (HONG KONG), Co., Limited (“SINOPEC”) entered into an agreement to set up a JV for nitrile-butadiene rubber (NBR) production in Krasnoyarsk on the basis of SIBUR’s existing plant with a total production capacity of 42,500 metric tons per annum. Under the terms of this agreement, SINOPEC will hold 25% plus one share in the newly formed entity, while SIBUR will hold 75% minus one share. Currently the parties are in the process of obtaining regulatory approvals required for the establishment of the entity.
In October 2012, SIBUR signed an agreement with Solvay SA (initially negotiations were held with Rhodia (France) prior to its acquisition by Solvay) to establish RusPav, a 50/50% joint venture. The JV was established for the development of surfactants and oilfield process chemicals production site in Dzerzhinsk, the Nizhny Novgorod region. Launch of this project is expected in 2016.
In the period from the end of 2011 to October 2012, SIBUR and NOVATEK entered into several agreements on mutual deliveries of natural gas, including: • Between 2013 and 2022, SIBUR will deliver to NOVATEK up to 69,700 million cubic metres of natural gas. Under the terms of this agreement, natural gas will be sold to NOVATEK “ex-field”, i.e. either at our access points to the UGSS or right at SIBUR’s production sites as opposed to similar deliveries made to NOVATEK in 2012, when SIBUR was responsible for transportation via UGSS, which increased our average delivery distances and resulted in higher transportation costs. This contract was approved by the companies’ Shareholders’ Meetings in October 2012. • The parties also signed a set of agreements on supplies of natural gas from NOVATEK to SIBUR’s production facilities for internal use. These agreements are in effect through 2016.
In August 2012, SIBUR registered SIBUR Petrochemical India, the Group’s subsidiary in India. The subsidiary will focus, among other things, on supporting the construction of a butyl rubber production facility (based on SIBUR’s technology) in Jamnagar with a total capacity of 100,000 metric tons per annum within our JV (Reliance Sibur Elastomers Private Limited) with Reliance Industries. The JV was formed in February 2012. The butyl rubber plant construction is part of the Jamnagar-3 project implemented by Reliance Industries and its completion, which is preliminarily scheduled for 2015, will also depend on the timeline of the Jamnagar-3 project execution.
In May – June 2012, SIBUR entered into a number of license and design agreements with world-leading engineering and petrochemical companies to develop the design for “ZapSib-2”, the largest integrated petrochemical complex ever developed in Russia and the former Soviet Union that the Group is considering to construct in Tobolsk to expand its production of basic polymers. These agreements include: • License and FEED (Front End Engineering Design) agreements with LINDE AG (Germany) on the development of FEED documentation and the design package for an ethylene cracker unit with a total annual capacity of 1.5 million metric tons; • License agreement with INEOS (the UK) on four polyethylene production units with a total annual capacity of 1.5 million metric tons; • Agreement with TECHNIP (France) on the development of FEED documentation and the design package for the abovementioned polyethylene production units; • License agreement with LyondellBasell (The Netherlands) on a polypropylene production unit with an annual capacity of 0.5 million metric tons; • Agreement with ThyssenKrupp Uhde (Germany) on the development of FEED documentation and the design package for the abovementioned polypropylene production unit; • Master design agreement with Russia’s leading engineering institution OAO VNIPIneft; and • Design agreement on off-plot facilities and utilities with a leading R&D and engineering institution in Russian oil and gas industry OAO NIPIgaspererabotka (SIBUR’s subsidiary).
SIBUR plans to make a final investment decision on “ZapSib-2” project after completion of the FEED stage no earlier than the second half of 2013.
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101 In March 2012, we signed a long-term chartering agreement with Navigator Gas (the UK) on two ice- class 20,600 cubic metres LPG tankers. Also in March, we signed an agreement with ОАО Sovkomflot on two additional gas tankers of the same tonnage and class. The leased tankers will be used for regular year-round LPG shipments. SIBUR plans to export LPG through an LPG transshipment facility at the Ust-Luga sea port, which is currently under construction, starting 2013.
In February 2012, SIBUR signed a ten-year contract with ОАО Gazprom Neft for APG supplies to our Vyngapurovskiy GPP. The contract covers terms for the supplies between 2012 and 2016. During this period, annual APG supply volumes are expected to increase from no less than 1.2 billion cubic metres in 2012 to no less than 1.4 billion cubic metres in 2016. APG supply volumes for the period between 2017 and 2021 have not been fixed and are subject to further negotiations.
In January 2012, SIBUR signed a three-year cooperation agreement with Russian Railways (RZD), under which the Sverdlovsk Railway (an RZD branch) will ensure an annual transportation of more than six million metric tons of gas and petrochemical products from SIBUR’s plants located in the Tyumen region, the Yamal-Nenets and Khanty-Mansi Autonomous Areas in the period from 2012 through 2014. In December 2012, SIBUR and RZD further extended their cooperation and signed an additional three- year agreement, under which, in the period from 2012 through 2014, the Gorkovskaya Railway (also an RZD branch) will upgrade and modernize the railway infrastructure to support growth in volumes of transportation of feedstock and refined products from our production sites located in the Nizhniy Novgorod region as well as in the Urals from 3.0 million tons per annum in 2012 to 3.4 million tons per annum by 2014 and to 4.1 million tons per annum by 2018.
Completion of Investment Projects
In December 2012, we completed construction of a liquids recovery unit at our Yuzhno-Balykskiy GPP, which increased the GPP’s liquids recovery ratio from 90% to 98%.
In December 2012, we launched a third compressor station at the Nizhnevartovskiy GPP, which is part of SIBUR’s JV with TNK-BP (OOO Yugragazpererabotka). The project allowed to eliminate bottlenecks in APG supplies to the GPP and facilitated an increase of the APG processing capacity utilization at the plant.
In September 2012, we completed modernization of the Vyngapurovskaya compressor station, which was upgraded to a gas processing plant. As a result, the APG processing capacity at the production site increased by 750 million cubic metres per annum, while liquids recovery ratio surged from 56% to 99%.
In July 2012, we completed construction of a second expandable polystyrene production line at our production site in Perm with an annual capacity of 50 thousand metric tons. Commercial launch of the first production line of the same capacity took place in December 2011.
Acquisitions
In March 2012, we gained control of the BIAXPLEN group of companies, a producer of biaxially oriented polypropylene films (BOPP-films), by increasing our stake from 50% to 100%. At the time of the acquisition, production facilities of the BIAXPLEN group comprised three plants located in the Nizhny Novgorod, Kursk and Moscow regions with a total capacity of 78,000 metric tons of commodity films per annum. During 2012, we consolidated all our BOPP-film production facilities under the BIAXPLEN group umbrella, which included previously acquired OOO Biaxplen NK (located in the Samara region). As of 31 December 2012, the total capacity of BIAXPLEN group exceeded 100,000 metric tons per annum.
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102 Divestitures
In July 2012, SIBUR commenced a gradual decommissioning of Caprolactam, an outdated chlorine and caustic soda production facility located near the city of Dzerzhinsk, owned and operated by SIBUR- Neftekhim, SIBUR’s subsidiary. The decommissioning is managed in close cooperation with the authorities of the Nizhny Novgorod region and the city of Dzerzhinsk and under the supervision of the Federal Service for Environmental, Technological and Nuclear Supervision (“Rostekhnadzor”) regional office. In February 2013, we divested cooling and hydraulic liquids production facilities as well as ethylene chlorohydrin production units. In March 2013, we shut down the electrolysis unit as well as chlorine, electrolytic caustic, dichloroethane and liquid chlorine production lines. The final shutdown of Caprolactam is scheduled for early April 2013. In parallel, we are in the process of transforming Caprolactam’s production site into “Oka Polymer” industrial park, which is expected to accommodate polymer processing companies, R&D institutions and others. In the last six months, ten new residents have confirmed their engagement, including Kazan Synthetic Rubber Plant, Tosol-Sintez, Boryszew Plastik Rus. SIBUR-Neftekhim will also retain its residence. Caprolactam’s PVC production capacity will be replaced by a modern and ecologically-friendly PVC production complex, which SIBUR is constructing together with SolVin Holding Nederland B.V. under a JV arrangement (RusVinyl). This new complex, located in Kstovo, the Nizhny Novgorod region, is scheduled for commercial launch in 2014.
In the period from December 2011 to February 2012, SIBUR sold its 100% control of OAO Kirov Tire Plant and ZAO Voronezh Tire Plant to a joint venture between Pirelli Group and the State Corporation Rostechnologii. OAO Kirov Tire Plant and ZAO Voronezh Tire Plant owned Amtel Group’s tire production assets, which SIBUR acquired in 2011 in the course of Amtel Group’s bankruptcy.
Eurobonds and Credit Ratings
In January 2013, SIBUR placed its debut Eurobond due 2018, raising USD 1 billion in gross proceeds. The coupon rate was set at 3.914% per annum and will be paid semi-annually.
In September 2012, Moody’s upgraded SIBUR to ‘Ba1’ from ‘Ba2’ with stable outlook.
In August 2012, Fitch upgraded SIBUR to ‘BB+’ from ‘BB’ with stable outlook.
Dividends
In October 2012, SIBUR paid RR 7,407 million in dividends for the first half of 2012 (determined as 25% of profit for the first half of 2012 in accordance with IFRS consolidated financial statements).
In April 2012, SIBUR paid RR 21,785 million in dividends for the full year 2011. This amount was determined as approximately 25% of the profit for 2011 in accordance with IFRS consolidated financial statements, which included the results of the mineral fertilizers and tires businesses up to the date of their disposal in December 2011.
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103 CERTAIN FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Macroeconomic and Other Economic Trends
The overall economic conditions in Russia and globally significantly impact our operations as demand for our products is driven by consumers across a diverse range of industries, which are dependent on the state of the global economy and the economies of their respective countries.
GDP Growth
One of the key factors that drive demand for our products or otherwise affect our results of operations is GDP growth globally. SIBUR is also subject to economic risks specific to the Russian Federation as all of our production assets are located in Russia. Global GDP growth decelerated in 2012, while slowdown in growth of major regional economies, including Russia, was greater than initially expected, which resulted in stagnation of demand from key end-customer industries and led to a price correction for majority of petrochemical products.
The following table contains selected data on year-on-year GDP growth for the years ended 31 December 2012 and 2011: Year ended 31 December 2012 2011 World 2.3% 2.7% European Union (EU-15) (0.4%) 1.4% United States 2.2% 1.8% Asia 5.4% 5.9% Russia 3.4% 4.3% Source: World Bank, Eurostat, U.S. Bureau of Economic Analysis, IMF, Russian Federal State Statistics Service
Foreign Exchange Rate Fluctuations
Movements of the Russian rouble against the US dollar and the euro can have a significant effect on our financial performance. The following table presents selected data on exchange rate movements for the years ended 31 December 2012 and 2011: Year ended 31 December 2012 2011 RR/USD rate at the end of the period 30.3727 32.1961 Average RR/USD rate 31.0742 29.3874 RR/EUR rate at the end of the period 40.2286 41.6714 Average RR/EUR rate 39.9083 40.8848 Source: CBR
SIBUR's functional and reporting currency is the Russian rouble. However, our sales to countries outside of Russia (44.5% and 42.9% of total revenue in 2012 and 2011, respectively) are primarily denominated in US dollars and, to a lesser extent, in the euro, while most of our expenses are denominated in Russian roubles. As a result, depreciation of the Russian rouble relative to the US dollar or the euro positively affects our operational results, while appreciation of the Russian rouble relative to these currencies has a negative effect on our operational results.
A significant part of our borrowings is also denominated in foreign currencies, primarily in US dollars. When the Russian rouble depreciates against the US dollar, US dollar-denominated liabilities increase in Russian rouble terms, as do interest costs on SIBUR's foreign currency-denominated borrowings. Correspondingly, our financial expenses tend to increase as a result of foreign exchange losses recorded by the Group, while financial income tends to increase as a result of foreign exchange gains recorded by the Group.
The Russian rouble depreciated relative to the US dollar in 2012 compared to the average 2011 level, which had a positive effect on our export revenue and on our operational results. At the same time, the
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104 Russian rouble as of 31 December 2012 appreciated against the year-end level of 2011, which resulted in a financial income reported in SIBUR’s financial statements and largely attributable to the revaluation of our foreign currency-denominated debt. SIBUR currently does not employ any financial instruments to hedge against currency fluctuations.
Inflation
Historically Russia has reported higher inflation rates compared to developed markets. Increases in inflation may significantly affect our financial results because of an increase in operating expenses, which are linked to the general price level in Russia, such as staff costs, rent and other.
The following table presents selected data on inflation rates in Russia for the years ended 31 December 2012 and 2011 relative to the years ended 31 December 2011 and 2010: Year ended 31 December 2012 2011 Consumer price index (CPI) 6.6% 6.1% Producer price index (PPI) 5.1% 12.0% Source: Russian Federal State Statistics Service
Interest Rates
SIBUR borrows funds at both fixed and floating rates. As of 31 December 2012, 29.0% of our total borrowings were at fixed rates and 71.0% − at floating rates. As a result, our financial results are sensitive to changes in interest rates on the floating portion of our debt. SIBUR currently does not use any derivative instruments to hedge its interest rate risk.
Crude Oil, Naphtha, Raw NGL and LPG Prices
Prices for a large portion of our feedstock and processed goods are directly or indirectly linked to oil or oil derivative prices. Growth in prices for oil or oil derivatives generally has a net positive effect on our financial results because our position as a net seller of energy products allows us to mitigate the negative effect that growth in oil and oil derivative prices has on our cost base.
Crude oil prices typically influence the price of raw NGL, LPG and naphtha we purchase from third parties as feedstock. In addition to purchasing raw NGL, LPG and naphtha from third parties, however, we also produce these products at our GPPs and GFUs, and use them as feedstock for processing into petrochemical products or sell them externally. We ultimately only use a part of the overall volumes of raw NGL, LPG and naphtha that we produce and purchase from third parties as feedstock, and, as a result, we are a net seller of these products. External sales of raw NGL, LPG and naphtha accounted for 31.1% and 30.5% of our total revenue in 2012 and 2011, respectively.
Oil prices have a significant impact on Russian rouble exchange rate fluctuations. Historically, the Russian rouble has typically, though not consistently, appreciated against the US dollar and the euro when oil prices increased and depreciated against these currencies when oil prices decreased. Because prices for a large portion of our products are linked to oil prices, rising oil prices tend to increase our revenue, mitigating the negative effect of the strengthening of the Russian rouble on export sales or domestic sales linked to the US dollar or the euro (see “Foreign Exchange Rate Fluctuations” above).
Oil prices have historically been volatile and dependent on a variety of factors including, among others, market supply and demand balances, geopolitical developments affecting the principal oil producing nations and force majeure events.
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105 The following table presents average benchmark of world market prices for crude oil, naphtha and LPG for the years ended 31 December 2012 and 2011: Year ended 31 December Change USD per metric ton, except as stated 2012 2011 % Brent (USD per barrel) 111.6 111.3 0.3% Naphtha (average FOB Rotterdam/CIF NWE) 934.1 929.2 0.5% LPG (DAF Brest) 778.0 804.2 (3.3%) LPG (Sonatrach) 895.6 869.9 3.0% Source: Platts, Argus
Export Duties on LPG and Naphtha
LPG (excluding butane and isobutene) and naphtha (excluding pentane and isopentane) we export are subject to export duties, which are set monthly by the Russian Government. Export sales to the members of the Customs Union (Republic of Belarus and Republic of Kazakhstan) are not subject to export duties.
Export duty on LPG is formula-based and depends on the international benchmark price of LPG (LPG DAF Brest). When the market price for LPG is below USD 490 per metric ton, no export duty is levied. Export duty on naphtha is calculated as a percentage of export duties on crude oil (Urals). In 2010, the export duty on naphtha was set at 67% of the crude oil export duty. As of 1 July 2011, the Russian Government raised export duty on naphtha to 90% of the crude oil export duty with the aim to restrain petroleum prices growth in Russia. The rate remained unchanged in 2012.
The following table presents export duties on LPG and naphtha for the periods and as of the dates indicated: 1 quarter 2 quarter 3 quarter 4 quarter 12 months Change, % Export duties, USD / ton 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012/2011 LPG At the end of the period 157.3 150.2 237.1 189.6 76.2 192.0 197.4 221.8 197.4 221.8 (11.0%) Average for the period 180.0 166.1 197.4 137.0 92.7 182.6 187.4 218.3 164.4 176.0 (6.6%)
Naphtha At the end of the period 370.1 244.6 377.8 309.6 354.4 399.7 356.8 365.9 356.8 365.9 (2.5%) Average for the period 360.7 234.3 398.7 299.2 329.9 398.2 366.0 363.2 363.8 323.7 12.4% Source: the Russian Government
As Russia's domestic prices for raw NGL, LPG and naphtha are based on export netback prices, higher export duties reduce the domestic price for these products. This has a mixed impact on our performance: our sales of raw NGL, LPG and naphtha are negatively affected, at the same time, our feedstock purchasing costs are lower. Additionally, this increases the attractiveness of raw NGL, LPG and naphtha as feedstock for the petrochemicals business and creates rationale for processing these energy products into petrochemicals.
Natural Gas Prices
The prices at which we purchase a large portion of feedstock and sell natural gas as well as our utility costs are significantly impacted by changes in regulated domestic gas prices at which Gazprom, the major Russian gas producer, sells natural gas on the domestic market. This price regulation is effected by the Russian Government, through the Federal Tariff Service (FTS). Although this price regulation does not apply to independent gas producers, the regulated price significantly influences domestic market conditions and our effective selling prices.
In February 2011, the Government of the Russian Federation announced certain revisions to the domestic natural gas market liberalization plan. According to the revised plan, the target date for full liberalization of the domestic natural gas market is 1 January 2015 but there are various Governmental discussions indicating that this program may be further extended. The regulation of the domestic natural gas price prior to 2015 will be based on the netback parity of natural gas prices on the domestic and export markets.
As part of the liberalization plan, the FTS increased the regulated price for natural gas by 15% effective from 1 January 2011 and 1 July 2012, respectively. According to the Forecast of Socio-economic 9
106 Development for 2013, the regulated natural gas prices will be increased by 15% effective in 2013, 2014 and 2015.
The FTS under the Governmental decisions may modify the percentages published, as well as to potentially prolong the timetable toward market price liberalization based on market conditions and other factors.
The following table presents effective dates of regulated natural gas price increases: Regulated natural gas
price increase Effective date of increase % 1 January 2009 5.0% 1 April 2009 7.0% 1 July 2009 7.0% 1 October 2009 6.2% 1 January 2010 15.0% 1 January 2011 15.0% 1 July 2012 15.0%
Prices for APG, one of our key raw materials, are not regulated by the Government. There is also no benchmark market price for APG. Prices at which we purchase APG from oil companies are negotiated on a case-by-case basis and depend on a variety of factors (see “Feedstock Sourcing and Mix” below). We typically purchase APG at a price that substantially differs from the regulated domestic gas prices because of the significant capital expenditures required to develop and maintain the processing and transportation infrastructure. Most of our supply contracts, however, regularly index APG prices to reflect changes in the regulated domestic gas prices. In addition, although we are not subject to the Russian Government's regulation of prices for natural gas that we produce from APG, our effective average selling prices for natural gas are close to the regulated gas prices and typically also are indexed in line with the regulated price changes. SIBUR is a net seller of natural gas and historically our financial results have been positively impacted by increases in domestic natural gas prices.
Cyclicality of the Petrochemicals Industry
Prices of petrochemical products are subject to significant fluctuations as they are influenced by trends in global and domestic supply and demand, including differences in supply and demand between domestic and export markets. Demand is generally linked to economic activity, while supply is linked to long-term investments in capacity expansion and structural changes in feedstock supply, such as, for example, the discovery and commercialization of new feedstock sources. When significant new capacity becomes available and is not matched by corresponding growth in demand, average industry operating margins typically fall. At the same time, capacity additions require substantial lead times and when growth in demand is not matched by respective capacity expansions, average industry operating margins typically rise. As a result, the petrochemicals industry experiences periods of tight supply, leading to high capacity utilisation rates and margins, followed by periods of oversupply, leading to reduced capacity utilisation rates and margins, and, accordingly, the profit margins of petrochemical producers historically have been cyclical.
As the Group is vertically integrated into feedstock & energy business and is a net seller of energy products, which are not dependent on the cyclicality of the petrochemical industry, this partially protects the Group against margin pressures in the periods of oversupply in the petrochemicals industry. Additionally, the Group's access to attractively priced feedstock, its diversified mix as well as a diversified product portfolio puts the Group in a more advantaged position compared to majority of other petrochemical companies during market downturns in the petrochemicals industry.
10
107 Feedstock Sourcing and Mix
Types of Hydrocarbon Feedstock
To operate our business successfully we must obtain sufficient quantities of feedstock in a timely manner and at acceptable prices. Therefore, our access to feedstock and its mix have a material impact on our financial results. We primarily use two major types of hydrocarbon feedstock: associated petroleum gas (APG) and natural gas liquids (NGLs), such as raw NGL, LPG and naphtha.
APG is a by-product of oil production and represents a key feedstock for our feedstock & energy business. APG accounted for 22.7% and 18.7% of our expenses related to third-party hydrocarbon feedstock purchases in 2012 and 2011, respectively. As a percentage of total feedstock and materials costs related to third-party, APG accounted for 11.5% and 10.7% in 2012 and 2011, respectively.
NGLs, comprising raw NGL, LPG and naphtha, are used as a raw material for both the feedstock & energy business and for the petrochemicals business. Raw NGL is produced as a result of APG processing or through stabilization of unstable gas condensate which is obtained from processing of wet gas extracted from gas fields. LPG and naphtha are produced through fractionation of raw NGL. We produce NGLs at our own GPPs and GFUs and also purchase them from third parties. NGLs accounted for 77.3% and 81.3% of our expenses related to third-party hydrocarbon feedstock purchases in 2012 and 2011, respectively. As a percentage of total feedstock and materials costs, NGLs accounted for 39.2% and 46.4% in 2012 and 2011, respectively.
Feedstock Sourcing
A large portion of our hydrocarbon feedstock is obtained from TNK-BP, primarily through our arrangements related to the joint venture (JV) OOO Yugragazpererabotka, which was established in 2007. SIBUR owns a 51% stake in the JV, while TNK-BP’s share is 49%. OOO Yugragazpererabotka owns and operates three GPPs (Nizhnevartovskiy GPP, Belozerniy GPP and Nyagan GPP), three compressor stations and APG pipelines from compressor stations to the GPPs. SIBUR and TNK-BP operate within a contractual network, under which TNK-BP supplies APG to OOO Yugragazpererabotka for processing into raw NGL and dry gas(1). In addition to volumes from TNK-BP, OOO Yugragazpererabotka also processes APG supplied from other oil companies. SIBUR and TNK-BP own the feedstock and refined products, while paying a processing fee to OOO Yugragazpererabotka. SIBUR pays for 51% of the total APG volumes supplied for processing to OOO Yugragazpererabotka and obtains 51% of the total NGLs and dry gas volumes produced by the JV. TNK-BP obtains the remaining volumes. Subsequently SIBUR purchases TNK-BP’s share of NGLs and sells to TNK-BP its share of dry gas. In March 2013, SIBUR and TNK-BP changed the duration of the JV to indefinite, extended key supply contracts until 2026 and increased the guaranteed APG volumes to be supplied by TNK-BP to Nizhnevartovskiy and Belozerniy GPPs after 2016.
In 2012 and 2011, the APG supplies from TNK-BP accounted for 39.3% and 38.2% of SIBUR’s total APG supplies in volume terms, respectively. The raw NGL supplies from TNK-BP accounted for 44.9% and 44.3% of SIBUR’s total NGLs supplies in 2012 and 2011, respectively. In addition to our arrangements with TNK-BP, we purchase APG and NGLs from other major oil and gas companies in Western Siberia, including Gazprom, Gazprom Neft, Rosneft, Surgutneftegas, LUKOIL, RussNeft and Northgas, primarily under long-term contracts.
As of 31 December 2012, approximately 71.1% of our planned APG supplies for 2013 were guaranteed under multi-year supply contracts(2). Overall, as of 31 December 2012, our multi-year APG supply contracts had a weighted average maturity of 11.1 years(2).
(1) Equivalent to natural gas. (2) Including all APG and NGL supplies from TNK-BP under JV arrangements (OOO Yugragazpererabotka). 11
108 As of 31 December 2012, approximately 70.3% of our planned NGLs supplies for 2013 were guaranteed under multi-year supply contracts(1). Overall, as of 31 December 2012, our multi-year NGLs supply contracts had a weighted average maturity of 12.5 years(1).
We continuously work with all the largest oil and gas producers in Western Siberia with the view of extending tenors of the existing agreements and/or entering into new long-term supply contracts on both APG and NGLs supplies. Multi-year supply contracts and joint venture arrangements enhance predictability of feedstock pricing and volumes and allow better planning of the Group's future operating expenses and investments, which is particularly important given the capital-intensive nature of the Group's investment program.
Pricing
APG is currently, and is expected to remain, the most attractive feedstock for SIBUR, based on a number of factors: • Oil companies produce APG as a by-product of oil extraction and by law have to evacuate it from the field or otherwise utilize it. Failure to do so can result in increasingly high fines and potentially jeopardize an oil company’s license to operate the field; • Most oil companies in Western Siberia do not own gas processing facilities and have been reluctant to develop such facilities as this requires substantial capital investments, while oil companies prefer to invest in their core oil exploration and production business; • Apart from being processed into hydrocarbon feedstock at a GPP, only limited volumes of APG can be used productively, mostly for power generation or for re-injection into the reservoir; • The Russian Government has consistently increased incentives for oil companies to utilize APG. Based on the Russian Government’s resolution issued in November 2012, penalties for APG flaring exceeding permitted thresholds (currently set at 5% of APG production volumes) have been substantially increased and become material for oil companies: effective 1 January 2013, the penalty has been increased from 4.5x the standard emission charge in 2012 to 12x the standard emission charge in 2013 and 25x the standard emission charge starting from 2014. The standard emission charges depend on the type of pollutant and are regularly indexed. According to IHS CERA, the total volume of flared APG in Russia in 2011 was 16.8 billion cubic metres, while Western Siberia represented 45% of that volume.
SIBUR provides oil companies with an attractive solution for APG utilization, therefore, we are able to source APG at advantageous prices. Given the limited options for using APG and the lack of alternatives for evacuating it from oil fields, there is no market or a benchmark price for APG. APG pricing is also not subject to government regulation. As a result, we purchase APG from oil companies at prices that are negotiated on a case-by-case basis and typically substantially differ from the FTS regulated natural gas prices. The magnitude of the difference and the absolute price for APG is dependent on the following key factors: the quality and composition of APG in terms of target liquid fractions content, distance of an APG source from our GPPs, availability of collection and transportation infrastructure and capital and operating expenditures needed to construct, expand and maintain that infrastructure. The price is also dependent on the potential capital expenditures that the oil company would need to incur to construct its own gas processing capacity as an alternative to selling APG to SIBUR. Once agreed upon in absolute terms, SIBUR's APG purchase price is typically regularly indexed to reflect changes in the FTS regulated prices for natural gas (see “Natural Gas Prices” above). Additional volumes of APG that we source from oil companies (new volumes under new agreements or volumes under existing agreements that exceed initially pre-agreed or guaranteed volumes) can be supplied at a higher price due to additional capital and operating expenses incurred by oil companies to produce and deliver such volumes. Unlike APG, NGLs feedstock is priced with reference to international prices for LPG and naphtha. As the supply of NGLs significantly exceeds demand in Russia and particularly in Western Siberia, prices for NGLs are determined on an export netback basis, which reflects transportation costs and export duties. Transportation of NGLs out of Western Siberia is costly, with transportation costs consistently rising, reducing the prices at which NGLs are available in Western Siberia. Export duties are also relatively high
(1) Including all APG and NGL supplies from TNK-BP under JV arrangements (OOO Yugragazpererabotka). 12
109 due to the Russian Government's current policy of encouraging domestic processing of energy products into higher value added products. Therefore, the domestic prices for NGLs feedstock in Western Siberia are substantially lower than those available to the majority of SIBUR's international petrochemical peers. The Group's NGLs supply contracts typically contain a formula linked to the respective netbacks and reflecting the fraction content of NGLs, need for and cost of fractionation, capital expenditures required to construct and maintain the respective infrastructure as well as the availability and quality of alternative selling channels that the oil or gas company supplying the NGLs has.
Feedstock Trends
APG volumes from oil fields located in Western Siberia are expected to increase only moderately given the maturity profile of the region's oil fields, while concentration of liquid fractions in the APG may decline. We expect this trend to be partially offset by lower APG flaring rates and our efforts to increase the liquids recovery ratio at our GPPs. IHS CERA estimates that total flared APG volumes will be reduced from 16.8 billion cubic metres in 2011 to 10.4 billion cubic metres by 2015 and to 3.2 billion cubic metres by 2020.
We expect that supplies of wet gas-based NGLs feedstock in Western Siberia will grow substantially faster than supplies of APG or NGLs derived from APG, due to the steadily growing production of natural gas and increasing share of wet gas in gas production, according to IHS CERA. We expect wet gas-based NGLs to be a growing source for the future development of our petrochemicals business, particularly for projects located in Western Siberia.
Transportation Tariffs
We incur substantial transportation costs due to the geographic spread of our operations. For the transportation services we use railway and pipeline transportation as well as trucks and port facilities. While we operate our own gas and raw NGL pipelines and railway carrier fleet, we also use third-party transportation services. Third-party transportation services accounted for 18.8% and 18.2% of our total operating expenses in 2012 and 2011, respectively. Changes in transportation tariffs and prices for third- party services have a significant effect on our operating expenses.
Pipeline Transportation Tariffs
We transport our natural gas through our own gas pipelines into the Unified Gas Supply System (UGSS), which is owned and operated by Gazprom. The FTS regulates tariffs for transportation of natural gas through the UGSS for independent gas producers and reviews these tariffs on an annual basis. As of 1 January 2011, the UGSS transportation tariff was raised by 9.3%, as of 1 July 2012 it was further increased by 7.0%. According to the revised Forecast of Socio-Economic Development of the Russian Federation for 2013, which was published in September 2012, transportation tariffs for natural gas produced by independent producers will be increased in 2013, 2014 and 2015 simultaneously with the increase in regulated natural gas prices but will not exceed the forecasted inflation rate.
According to preliminary estimates of the Ministry of Economic Development, the transportation tariff will increase by 5.4% as of 1 July 2013, by 5.0% as of 1 July 2014 and by 4.8% as of 1 July 2015.
Railway Transportation Tariffs
We use rail for transportation of refined products, intermediates and feedstock, including 100% of our LPG, naphtha and MTBE, significant volumes of raw NGL and a major part of our petrochemical products.
Our rail transportation costs comprise a transportation tariff charged for access to Russia's main railway and usage of locomotives (the “Railway Tariff”), which accounts for the majority of our total rail transportation costs. The Railway Tariff is charged by Russian Railways, Russia's state-owned
13
110 monopoly, and is regulated by the FTS. The Railway Tariff is specific to types of products, types of carriers and their tonnage, transportation routes and volume of a delivery. The FTS reviews the Railway Tariff on an annual basis. The average increase in the Railway Tariff was 6.0% in 2012 and 8.0% in 2011.
Historically, we have been able to obtain discounts from the FTS on the Railway Tariff charged on export deliveries of LPG from Tobolsk GFU, which is our largest LPG production facility, on an annual basis. In 2011, the amount of the discount was 32% of the Railway Tariff, while for 2012 the FTS approved a discount in the amount of 29% of the Railway Tariff.
Electricity and Heat Tariffs
Our business is energy-intensive. Electricity and heat account for the largest portion of our energy costs. As a result, changes in tariffs for electric power and heat have a significant effect on our operating expenses.
Electricity
We make electricity purchases on a centralized basis. In addition to purchases of electricity for internal needs, we also buy electricity for further resale to third parties, which primarily include other companies located at our production sites. Revenue from sales of electricity to third parties is reported under “Other sales” in the Combined Financial Information.
The Russian electricity market has been liberalised gradually over the past few years. However, maximum levels of electricity prices remain under the supervision of the Federal Antitrust Service (FAS) and regional regulatory authorities. One of the most important factors that influences electricity prices is fuel cost (primarily natural gas and coal), and increases in natural gas prices tend to result in higher electricity prices. We also own and continue to expand our own electric power generating capacity in order to reduce our exposure to higher electricity prices from third-party suppliers. In September 2012, we launched a 7.2 MW power unit at the Vyngapurovskiy GPP's site to ensure the GPP's independence from third-party suppliers. However at the Group's level, internal electric power generation accounts for an insignificant share in total electricity consumption.
Heat Energy
We source heat energy in the form of steam and hot water from regional suppliers at regulated prices. Heat energy prices are also largely dependent on prices for natural gas. In order to minimise dependence on third-party providers, we generate a substantial portion of heat energy (approximately 50% of the total heat consumed in 2012) at our own production sites.
The following table presents volumes purchased and effective average prices for electricity and tariffs for heat for the years ended 31 December 2012 and 2011: Year ended 31 December Change 2012 2011 % Volume Average tariff Volume Average tariff Volume Average tariff Electricity (millions of kw/hour or RR per kw/hour), including 10,021 1.91 9,482 2.02 5.7% (5.4%) Internal use 8,127 1.98 8,123 2.03 0.0% (2.5%) Heat (thousands of gigacalories or RR per gigacalory) 9,856 689 9,537 653 3.3% 5.5%
SIBUR's ability to sell natural gas enables it to balance its exposure to growth in electricity and heat costs, which to a large extent are influenced by increases in natural gas prices. Going forward, however, we anticipate that natural gas sales will decline as a percentage of our total sales as a result of lower share of APG feedstock in the overall feedstock mix. As a result, SIBUR is likely to have greater exposure to increases in energy and utility costs in the future (see “Natural Gas Prices” above).
14
111 DESCRIPTION OF SELETED OPERATIONAL AND FINANCIAL ITEMS
Operating and Reportable Segments
Our business comprises two segments: feedstock & energy; and petrochemicals.
Feedstock & energy segment comprises (i) gathering and processing of associated petroleum gas (APG) that we purchase from major Russian oil companies (ii) transportation, fractionation and other processing of natural gas liquids (NGLs) that we produce internally or purchase from major Russian oil and gas companies and (iii) marketing and sales of energy products, such as natural gas, liquefied petroleum gases (LPG), naphtha, raw NGL, methyl tertiary butyl ether (MTBE) and other fuels and fuel additives. We sell these energy products on the Russian and international markets and use some of them as feedstock for our petrochemicals segment.
Petrochemicals segment comprises production and sale of a wide range of petrochemical products, including basic polymers, synthetic rubbers, plastics and organic synthesis products as well as intermediates and other chemicals.
We define our operating and reportable segments on the basis of the principal production facilities operated by each of the segments and key customers that each segment supplies to. These operating and reportable segments vary significantly in their end-user markets, supply and demand trends, value drivers and consequently current and long-term profitability. SIBUR management measures the performance of the operating and reportable segments based on the EBITDA contribution of each segment. The revenue and expenses of some of our subsidiaries, which provide primarily energy supply, transportation, processing, managerial and other services to SIBUR, are not allocated to operating and reportable segments and are reported as unallocated.
Key Product Groups and Products
In addition to our operating and reportable segments, we monitor our operational performance on the basis of our product groups or products, which we organise into two categories: energy products and petrochemical products. Energy products include LPG, naphtha, natural gas, raw NGL, MTBE, other fuels and fuel additives. Petrochemical products include such product groups as basic polymers, synthetic rubbers, plastics and organic synthesis products, and intermediates and other chemicals. The deviations between revenue split by product group and by segment are explained primarily by the following: • most of our production facilities in both feedstock & energy and in petrochemicals segments provide a range of services to third parties. Such services primarily represent processing of feedstock and intermediates, rental services, energy supply, repairs and maintenance. Revenue from these services is not included in any product group revenue and is reported separately as sales of processing services and other sales; and • our petrochemicals segment sells certain volumes of energy products, such as LPG and naphtha, to its established clients, which prefer “single window” service.
For detailed discussion on revenue dynamics by product group see the “Operational Review” section. For segment analysis see the “Segment Information” section.
Revenue
Revenue, unless otherwise stated, represents revenue from sales to third parties, which excludes any inter- segment transfers. It is reported net of VAT, excise taxes and export duties and includes transportation costs incurred in relation to the delivery of respective refined products to the customers.
15
112 Operating Expenses
Feedstock and materials. Feedstock and materials include purchases from third-party suppliers of various types of feedstock and intermediates, which are used for further processing into higher value-added products, and materials. Our key raw materials are represented by hydrocarbon feedstock, such as APG and NGLs, which comprise raw NGL, LPG and naphtha, as well as paraxylene, which is used in the production of terephthalic acid (PTA). We also purchase other feedstock and materials. Other feedstock includes methanol, which is used in the production of MTBE, and certain intermediate chemicals such as butadiene, benzene and others. We purchase intermediates in addition to our own production of intermediates primarily for further processing into higher value-added petrochemical products. Materials primarily include supplementary raw materials, spare parts, materials for auxiliary workshops and other operating supplies.
Transportation and logistics. Transportation and logistics comprise expenses related to transportation of feedstock, materials and refined products by railway, via pipelines that are not owned and operated by SIBUR, by trucks and marine vessels, as well as through multimodal transportation operators. These costs also include transshipment and storage services. Transportation and logistics costs are related to third-party services and exclude expenses associated with ZAO Sibur-Trans activities and maintenance of our own gas and product pipelines.
Energy and utilities. Energy and utilities costs primarily comprise expenses associated with purchases of electric power, heat and fuel from third-party suppliers.
Staff costs. Staff costs comprise primarily salaries, bonuses and other personnel incentives, severance payments, pension expenses and related social taxes.
Depreciation and amortisation. Depreciation comprises depreciation of property, plant and equipment calculated on a straight-line basis to allocate the cost of property, plant and equipment to its respective residual values over its respective estimated useful lives. Amortisation comprises amortisation of intangible assets calculated using a straight-line method to allocate the cost of relevant intangible assets over their estimated useful lives.
Goods for resale. Goods for resale include purchases of products from third parties for further resale externally, including finished products and intermediates.
Repairs and maintenance. Repairs and maintenance comprise services for repairs and maintenance of the Group's production facilities provided by third parties.
Services provided by third parties. Services provided by third parties comprise services related to environmental and industrial safety, R&D, design and engineering, security expenses and third-party processing services as well as legal, audit and consulting services. Processing services represent services we obtain from other petrochemical producers to process our feedstock into intermediates or refined products, which we subsequently use for production of higher value-added products or resell. Our decision to use such services depends on existing agreements, market trends, logistical issues and shortages of our own capacity.
Rent expenses. Rent expenses primarily represent rental of rolling stock for transportation of raw NGL and LPG, as we rent specialised rail cars and tank wagons, as well as general purpose rail cars. Rent expenses also include lease payments for land plots on which our facilities are located.
Taxes other than income tax. Taxes other than income tax primarily include land tax and property tax.
Charity and sponsorship. SIBUR places a very high degree of importance on social responsibility. As a major investor in the economic development of the regions where we operate, we have signed mutually beneficial agreements with a number of regional authorities, including agreements on social-economic cooperation. As part of our social initiatives, we implement a range of humanitarian projects and programmes in several regions, including Western Siberia, the Tomsk, Nizhny Novgorod and Leningrad 16
113 regions, where we are implementing our strategic investment projects. This includes investments in regional infrastructure, improvement of people’s life quality, ecological initiatives, support of sports organizations, promotion of child and youth sports, etc. We also actively promote Russia’s chemical science and professional education in cooperation with leading chemical institutions, universities and schools.
Marketing and advertising. Marketing and advertising costs are associated with promotion of SIBUR’s corporate brand and are aimed at enhancing SIBUR’s profile among our customers, suppliers, partners and general public. Majority of our marketing and advertising expenses relate to corporate sponsorships of leading Russian and regional football, hockey, basketball and volleyball teams in different regions of Russia, including Tyumen, Nizhny Novgorod, St. Petersburg, which positions us as an active promoter of Russian sports both nationally and in the regions where we operate.
Additionally, marketing and advertising costs include promotion of SIBUR’s corporate brand and selected products at industrial exhibitions, conferences and forums, as well as via TV, print media and Internet.
Change in work-in-progress and refined products balances. Change in work-in-progress and refined product balances represents an adjustment to expenses associated with the production of refined products to reflect changes in inventory balances of such products. When inventory balances of refined products increase at the end of a reporting period compared to the beginning of the respective period, operating expenses are reduced by an amount, which represents the cost of production of such refined products incurred in the reporting period, while revenue from sale of these products will be recognized in the future. When inventory balances of refined products decrease at the end of a reporting period compared to the beginning of the respective period, operating expenses are increased by an amount, which represents cost of production of such refined products incurred in the preceding periods while revenue from sale of these products were recognized in the reporting period.
Our volumes of refined product balances fluctuate from period to period depending on market conditions, changes in marketing and distribution strategy, as well as logistical constraints. They also tend to increase in the periods of completion of our major investment projects, which may trigger substantial inventory accumulation.
Operating Profit
Operating profit represents revenue less operating expenses.
Finance Income and Expenses
Finance income includes primarily interest income on bank deposits and loans issued and foreign exchange gains. Finance expenses include primarily interest expense on debt, bank charges and foreign exchange losses.
Share of Net Income / (Loss) of Joint Ventures
Share of net income / (loss) of joint ventures represents our share of post-acquisition profit or loss of joint ventures as recognised under equity accounting method.
Income Tax Expense
We do not pay corporate income tax on a consolidated basis since for taxation purposes the members of the Group are assessed individually. The statutory corporate income tax rate in Russia was set at 20% for the periods under review. The difference between our effective and statutory tax rates is typically attributable to certain non-deductible expenses and (or) non-taxable income as well as tax benefits that we may obtain in certain regions where we operate.
17
114 OPERATIONAL REVIEW
Energy Products
In 2012, revenue from sales of energy products reached RR 129,409 million compared to RR 112,337 million in 2011, an increase of 15.2% year-on-year, driven primarily by sales of natural gas, naphtha, LPG and raw NGL.
SIBUR’s revenue from sales of natural gas was positively affected by higher sales volumes and a 15% indexation of the regulated natural gas prices as of 1 July 2012 (see “Natural Gas Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details).
Our revenue from sales of naphtha, LPG and raw NGL was driven by growth in aggregate production and sales volumes on higher feedstock processing volumes and purchases from third parties: in 2012, we increased our APG processing by 2.3% and raw NGL fractionation by 2.6% compared to 2011. Additionally, our revenue from energy product sales benefited from the Russian rouble depreciation relative to the US dollar on largely flat global oil and oil derivative prices in US dollar terms. Average RR/USD exchange rate for 2012 increased by 5.7% reaching 31.0742 compared to the average RR/USD exchange rate of 29.3874 in 2011 (see “Macroeconomic and Other Economic Trends”, “Foreign Exchange Rate Fluctuations” and “Crude Oil, Naphtha, Raw NGL and LPG Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details).
In 2012, 43.9% of total external energy product sales was derived from the domestic market, while export sales accounted for 56.1%.
The following table presents a breakdown of our revenue from energy product sales for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of total revenue(1) 2011 % of total revenue(1) %
LPG 54,760 20.2% 52,502 21.1% 4.3% Domestic 11,931 21.8% 14,887 28.4% (19.9%) Export 42,829 78.2% 37,615 71.6% 13.9%
Naphtha 25,727 9.5% 21,118 8.5% 21.8% Domestic 3,264 12.7% 5,304 25.1% (38.5%) Export 22,463 87.3% 15,814 74.9% 42.0%
Natural gas, domestic sales 24,938 9.2% 17,440 7.0% 43.0%
MTBE 16,731 6.2% 14,946 6.0% 11.9% Domestic 12,419 74.2% 10,589 70.8% 17.3% Export 4,312 25.8% 4,357 29.2% (1.0%)
Raw NGL 3,911 1.4% 2,113 0.8% 85.1% Domestic 946 24.2% 1,173 55.5% (19.4%) Export 2,965 75.8% 940 44.5% 215.4%
Other fuels and fuel additives 3,342 1.2% 4,218 1.7% (20.8%) Domestic 3,341 100.0% 4,205 99.7% (20.5%) Export 1 - 13 0.3% (92.3%)
Energy products, total 129,409 47.7% 112,337 45.2% 15.2% Domestic 56,839 43.9% 53,598 47.7% 6.0% Export 72,570 56.1% 58,739 52.3% 23.5%
(1) Percentages against export and import lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue. 18
115 Liquefied Petroleum Gases (LPG)
In 2012, revenue from LPG sales increased by 4.3% year-on-year to RR 54,760 million from RR 52,502 million in 2011 due to a higher effective average selling price despite lower sales volumes.
The effective average selling price increased by 9.8% in Russian rouble terms while in US dollar terms it increased by 3.8%, which reflects the effect of the Russian rouble depreciation against the US dollar. The effective average selling price on export sales increased by 7.6% in Russian rouble terms (an increase of 1.8% in US dollar terms) due to a higher share of separate fractions, particularly those that are not subject to export duties (butane), in total sales volumes as well as higher international market prices on key sea routes (Sonatrach price indicator as one of the benchmarks provides a good example). The effective average selling price on the domestic market increased by 2.9% in Russian rouble terms while it decreased by 2.7% in US dollar terms, which is in line with DAF Brest price movement, as DAF Brest is the key price indicator in Russia since it is used for export duty calculation (see “Crude Oil, Naphtha, Raw NGL and LPG Prices” in the “Certain Factors Affecting Our Results of Operations” section for further details).
In 2012, our external LPG sales volumes decreased by 5.0% compared to 2011, as a 4.1% growth in production on higher raw NGL fractionation volumes was more than offset by lower purchases of LPG from third parties as a result of discontinuing a temporary trading arrangement used in 2011 and in the first quarter of 2012 whereby SIBUR acted as an intermediary. In addition, we increased our internal LPG supplies to the petrochemicals business: in 2012, LPG volumes supplied to our petrochemical facilities as feedstock increased to 21.6% of total available for sale volumes from 20.1% in 2011.
In 2012, domestic sales accounted for 21.8% of total LPG revenue, while 78.2% was attributable to export sales.
The following table presents data on our LPG production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
LPG Production 3,774,028 3,624,868 4.1% Purchases from third parties, including 153,876 548,019 (71.9%) Purchases for resale 61,554 275,377 (77.6%) Total production and purchases 3,927,904 4,172,887 (5.9%)
(Internal use)(1) (481,914) (585,078) (17.6%) (Increase)/decrease in stock (698) (29,008) (97.6%)
Gross sales, including 3,445,292 3,558,801 (3.2%) Intercompany sales to petrochemical business 743,826 714,710 4.1% External sales 2,701,466 2,844,091 (5.0%) Domestic 858,052 1,101,533 (22.1%) Export 1,843,414 1,742,558 5.8%
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 19
116 Naphtha
In 2012, revenue from naphtha sales increased by 21.8% year-on-year to RR 25,727 million from RR 21,118 million in 2011 on both higher sales volumes and an increase in the effective average selling price.
Our external naphtha sales volumes surged 13.2% on a 5.3% increase in production volumes as a result of growth in raw NGL fractionation volumes and a substantial decrease in internal sales of naphtha to the petrochemicals segment due to a partial substitution by raw NGL and LPG. In 2012, our internal sales of naphtha to the Group’s petrochemical facilities as a percentage of total available for sale volumes decreased to 39.3% from 47.8% in 2011. At the same time, we reported a decrease in naphtha purchases from third parties due to a temporary discontinuation of a trading arrangement with one of our suppliers as a result of an industrial accident and a long-term subsequent shutdown at their production site.
The effective average selling price increased by 7.7% in Russian rouble terms while it increased by 1.8% in US dollar terms, which was attributable to several factors, including growth in international market prices, the Russian rouble depreciation against the US dollar and a higher share of separate fractions that are not subject to export duties in sales volumes.
In 2012, domestic sales accounted for 12.7% of total naphtha revenue, while 87.3% was attributable to export sales.
The following table presents data on our naphtha production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Naphtha Production 1,362,711 1,294,536 5.3% Purchases from third parties 469,941 571,497 (17.8%) Total production and purchases 1,832,652 1,866,033 (1.8%)
(Internal use)(1) (5,230) (1,054) 396.4% (Increase)/decrease in stock (1,577) 12,151 n/m
Gross sales, including 1,825,844 1,877,130 (2.7%) Intercompany sales to petrochemical business 717,445 897,685 (20.1%) External sales 1,108,399 979,445 13.2% Domestic 135,094 282,443 (52.2%) Export 973,305 697,002 39.6%
Natural Gas
In 2012, revenue from natural gas sales increased by 43.0% year-on-year to RR 24,938 million from RR 17,440 million in 2011 on both higher sales volumes and an increase in the effective average selling price.
Natural gas sales volumes increased by 15.6% while production volumes increased by 1.2% as a result of higher volumes of APG processing. The growth in sales volumes was primarily attributable to the sale of natural gas inventories accumulated in 2011. Additionally, sales volumes increased because part of the volumes, which were previously treated as intercompany, are reported as external sales since the beginning of 2012 after SIBUR entered into an agreement with NOVATEK on mutual gas deliveries (from the beginning of 2012, SIBUR also started buying certain volumes of natural gas from NOVATEK for internal use at our production sites). In 2012, we were responsible for handling natural gas deliveries to NOVATEK via the UGSS, which resulted in a higher transportation component in our effective average selling price and a corresponding increase in transportation and logistics costs. As discussed in the “Recent Developments” section, from 2013 we will sell our natural gas to NOVATEK “ex-field” (either at our access points to the UGSS or right at SIBUR’s production sites), which should result in lower effective average selling prices on these volumes and a corresponding decrease in transportation and logistics costs.
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 20
117 The effective average selling price increased by 23.7% compared to 2011 primarily due to an increase in the average delivery distance and a higher transportation component in the Group's effective average selling price as a result of (among other factors) the new agreement with NOVATEK as discussed above. If adjusted for the transportation component, the effective average selling price increased by 9.8% primarily due to a 15% indexation of the regulated natural gas prices as of 1 July 2012.
We sell 100% of our natural gas in Russia.
The following table presents data on our natural gas production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Thousands of cubic metres except as stated 2012 2011 %
Natural gas Production(1) 16,371,383 15,806,351 3.6% Production, SIBUR's share(2) 10,993,627 10,864,052 1.2% Purchases from third parties 698,472 - n/m Total production and purchases 11,692,099 10,864,052 7.6%
(Internal use)(3) (1,315,750) (1,200,758) 9.6% (Increase)/decrease in stock 195,935 (518,356) n/m
External sales 10,572,284 9,144,938 15.6% Domestic 10,572,284 9,144,938 15.6% Export - - n/m
Methyl Tertiary Butyl Ether (MTBE)
Revenue from MTBE sales increased by 11.9% year-on-year to RR 16,731 million in 2012 from RR 14,946 million in 2011 primarily as a result of an increase in the effective average selling price despite lower sales volumes.
The effective average selling price for MTBE increased by 21.4% on higher MTBE prices on the European markets.
The decrease in MTBE sales volumes by 7.8% in 2012 compared to 2011 was due to a decrease in production volumes by 1.9% as well as higher goods-in-transit balances to export markets, and lower purchases of MTBE from third parties. The decrease in production resulted from a higher share of target products output at the expense of MTBE at our production sites, where MTBE is a by-product.
In 2012, domestic sales accounted for 74.2% of total MTBE revenue, while 25.8% was attributable to export sales.
(1) Including TNK-BP’s share in production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). (2) Excluding TNK-BP’s share in production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). (3) Including internal use at the segment’s production facilities and immaterial natural losses. 21
118 The following table presents data on our MTBE production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
MTBE Production 397,868 405,371 (1.9%) Purchases from third parties 21,078 28,972 (27.2%) Total production and purchases 418,946 434,343 (3.5%)
(Internal use)(1) (309) (305) 1.3% (Increase)/decrease in stock (15,045) 3,600 n/m
External sales 403,592 437,638 (7.8%) Domestic 292,700 299,117 (2.1%) Export 110,892 138,521 (19.9%)
Raw NGL
In 2012, our revenue from external raw NGL sales increased by 85.1% year-on-year to RR 3,911 million from RR 2,113 million in 2011 as a result of an increase in both sales volumes and the effective average selling price. External sales of raw NGL account for a minor share in our total revenue: in 2012 this share amounted to 1.4%.
External sales volumes of raw NGL increased by 53.7% in 2012, while production volumes were largely flat. The growth in sales volumes was mainly attributable to higher purchases from third parties as we started purchasing raw NGL from one of our NGLs suppliers, transfer of certain raw NGL volumes from processing to external sales due to a change in the format of cooperation with an export counterparty and a decrease in stock compared to stock accumulation in 2011. These factors were partially offset by an increase in raw NGL fractionation as well as higher volumes of raw NGL supplied to our petrochemicals business without prior fractionation: in 2012, our inter-segment supplies of raw NGL as feedstock for the cracking facilities increased by 28.2% and partially replaced naphtha. The growth in the total raw NGL volumes available for sale (both external and inter-segment) was attributable to rising supplies of raw NGLs in Western Siberia, which outpaced fractionation capacity expansion, and also to certain logistical bottlenecks in delivering raw NGL to our fractionation facilities, two of which are located outside of Western Siberia.
The effective average selling price increased by 20.4% in 2012 compared to 2011, when we observed abnormally low prices in one of our export markets. The second factor was a new contract with a domestic counterparty.
In 2012, domestic sales accounted for 24.2% of total raw NGL revenue, while 75.8% was attributable to export sales.
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 22
119 The following table presents data on our raw NGL production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Raw NGL Production(1) 4,216,067 4,175,843 1.0% Production, SIBUR's share(2) 2,870,761 2,864,371 0.2% Purchases from third parties, including 2,843,668 2,544,569 11.8% Purchases for resale - 38,575 (100.0%) Total production and purchases 5,714,429 5,408,940 5.6%
(Fractionation) (4,929,482) (4,803,389) 2.6% (Increase)/decrease in stock 1,261 (24,771) n/m
Gross sales, including 786,208 580,780 35.4% Intercompany sales to petrochemical business 535,177 417,506 28.2% External sales 251,031 163,274 53.7% Domestic 60,556 93,263 (35.1%) Export 190,475 70,011 172.1%
Other fuels and fuel additives
Other fuels and fuel additives represent an insignificant share of our total revenue (1.2% and 1.7% in 2012 and 2011, respectively). In 2012, our revenue from other fuels and fuel additives sales decreased by 20.8% year-on-year to RR 3,342 million from RR 4,218 million in 2011 primarily as a result of a 13.1% decrease in production, which led to a 12.8% decrease in sales volume. The effective average selling price decreased by 9.2% year-on-year. The decrease in production was attributable to lower production volumes of certain gasoline grades at our Uralorgsintez production site as a result of lower feedstock supplies, as we chose to sell the internally-produced C9 fraction externally due to favourable market conditions and at the same time reduced our third-party purchases of benzene-containing fractions.
The following table sets data on our production, purchases and sales volumes of other fuels and fuel additives for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as state 2012 2011 %
Other fuels and fuel additives Production 293,148 337,158 (13.1%) Purchases from third parties 8,066 1,151 600.8% Total production and purchases 301,214 338,309 (11.0%)
(Internal use)(3) (130,869) (146,751) (10.8%) (Increase)/decrease in stock (4,483) (1,420) 215.7%
External sales 165,862 190,138 (12.8%) Domestic 165,747 189,051 (12.3%) Export 115 1,087 (89.4%)
(1) Including TNK-BP’s share in production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). (2) Excluding TNK-BP’s share in production volumes of OOO Yugragazpererabotka (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section for further details). (3) Including internal use at the segment’s production facilities and immaterial natural losses. 23
120 Petrochemicals
In 2012, our revenue from sales of petrochemical products increased by 3.7% year-on-year to RR 126,439 million from RR 121,902 million in 2011. We made selective acquisitions in the plastics and organic synthesis product group at the end of 2011 and in early 2012 to enter into new attractive market niches or strengthen our existing positions. We also organically increased production in certain product groups and launched a new expandable polystyrene capacity. This more than compensated for the negative effects of stagnating demand and lower prices for majority of petrochemical products as well as certain one-off factors described further. The demand stagnation and pricing pressures was particularly noticeable in the synthetic rubber product group, where declines in benchmark prices and lower spreads between prices for feedstock and finished goods affected both revenue and margins. Additionally, we reported a material decline in sales volumes of synthetic rubbers, which was primarily attributable to (i) an industrial accident and a subsequent shutdown of our supplier’s production site from the end of 2011 until the second half of 2012, and (ii) a 13-day unscheduled shutdown at our production site in Togliatti due to an accident on a pipe rack in April 2012.
In 2012, domestic sales accounted for 64.1% of total revenue from external sales of petrochemical products, while 35.9% was attributable to export sales.
Basic Polymers
In 2012, our revenue from external sales of basic polymers increased by 1.8% year-on-year to RR 22,179 million from RR 21,782 million in 2011. The increase was primarily due to higher low density polyethylene (LDPE) revenue, which was partially offset by the reclassification of a large portion of external polypropylene (PP) sales to intercompany following the consolidation of the BIAXPLEN group of companies, which uses PP for BOPP-film production, starting from the second quarter of 2012. In 2012, domestic sales accounted for 70.8% of total basic polymers revenue, while 29.2% was attributable to export sales.
The following table presents data on our revenue from basic polymer sales for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue(1) 2011 % of revenue(1) %
PE (LDPE) 12,314 4.5% 10,978 4.4% 12.2% Domestic 7,086 57.5% 5,489 50.0% 29.1% Export 5,228 42.5% 5,489 50.0% (4.8%)
PP 9,865 3.6% 10,804 4.3% (8.7%) Domestic 8,607 87.2% 10,010 92.7% (14.0%) Export 1,258 12.8% 794 7.3% 58.4%
Total revenue 22,179 8.2% 21,782 8.8% 1.8% Domestic 15,693 70.8% 15,499 71.2% 1.3% Export 6,486 29.2% 6,283 28.8% 3.2%
Low density polyethylene (LDPE)
In 2012, our revenue from sales of LDPE increased by 12.2% year-on-year to RR 12,314 million compared to RR 10,978 million in 2011, as a result of higher sales volumes, despite a decrease in the average effective selling price.
In 2012, our LDPE sales volumes increased by 13.5% year-on-year, while production grew by 2.6%. Sales volume growth was primarily attributable to the sale of LDPE inventories accumulated in 2011 to cover a temporary LDPE shortage caused by unscheduled shutdowns and lower utilization rates of third- party production facilities in Russia and the CIS in 2012.
(1) Percentages against export and import lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue. 24
121 The effective average selling price for LDPE decreased by 1.2% year-on-year. Our export selling price decreased by 6.5%, following lower market prices in China and Europe, where the debt crisis resulted in lower demand for end products and a decline in feedstock prices. In response, SIBUR increased its share of domestic sales, where our effective average selling price increased by 2.2% as a result of the short-term deficit discussed above.
As a result, in 2012 we increased the share of domestic LDPE sales to 57.5% of total LDPE revenue in 2012 from 50.0% in 2011, while 42.5% was attributable to export sales.
Polypropylene (PP)
In 2012, our revenue from sales of PP decreased by 8.7% year-on-year from RR 10,804 million in 2011 to RR 9,865 million in 2012. The decline was primarily attributable to the consolidation of the BIAXPLEN group of companies from the second quarter of 2012 as we sell a large portion of our PP to BIAXPLEN as feedstock.
Our PP sales volumes decreased by 16.8%, while PP production volumes increased by 5.1%. Lower sales volumes were attributable to the reclassification of a large portion of our PP volumes from external sales to intercompany following the consolidation of the BIAXPLEN group of companies. We also reported a decline in our third-party PP purchases primarily due to a longer 2012 maintenance shutdown at OOO NPP Neftekhimia, our joint venture with Gazprom Neft Group, compared to 2011, in line with the two- year maintenance cycle. Additionally, OOO NPP Neftekhimia’s capacity was underutilized due to lower feedstock supplies from OAO “Gazpromneft-MNPZ”. At the same time, we reported an increase in production at our own production site in Tomsk due to a shorter maintenance shutdown in 2012 compared to 2011.
The effective average selling price for PP increased by 9.7% in 2012 versus 2011 on the back of a 10.1% increase in the domestic price as a result of a temporary PP shortage caused by unscheduled shutdowns of third-party production facilities in Russia and the CIS combined with strong demand from end-customer industries.
In 2012, domestic sales accounted for 87.2% of total PP revenue, while 12.8% was attributable to export sales.
The following table presents data on our basic polymer production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Production 385,794 372,967 3.4% PE (LDPE) 250,456 244,177 2.6% PP 135,338 128,790 5.1% Purchases from third parties 109,452 114,295 (4.2%) Total production and purchases 495,246 487,262 1.6%
(Internal use)(1) (74,081) (20,422) 262.8% (Increase)/decrease in stock 18,384 (20,750) n/m
External sales
PE (LDPE) 255,894 225,476 13.5% Domestic 135,470 107,225 26.3% Export 120,424 118,251 1.8%
PP 183,655 220,614 (16.8%) Domestic 159,292 203,985 (21.9%) Export 24,363 16,629 46.5%
External sales volumes 439,549 446,090 (1.5%) Domestic 294,762 311,210 (5.3%) Export 144,787 134,880 7.3% Synthetic Rubbers
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 25
122
In 2012, revenue from synthetic rubber sales decreased by 19.3% year-on-year to RR 41,134 million from RR 50,971 million in 2011 led by a decline in revenue from sales of commodity rubbers. Our synthetic rubber results were affected by a number of factors: first of all, stagnation in demand for synthetic rubbers on our key markets resulted in a price correction for majority of synthetic rubber grades. For instance, prices for natural rubber, which is a benchmark for several grades of synthetic rubbers as they are substitute products, declined on average by more than 30% in 2012 compared to 2011. Additionally, we reported a substantial decline in synthetic rubber sales volumes primarily due to feedstock undersupplies as a result of an industrial accident and a subsequent long-term shutdown at one of our suppliers’ production site as well as a short-term unscheduled shutdown at our production site in Togliatti.
In 2012, domestic sales accounted for 41.0% of total synthetic rubber revenue, while 59.0% was attributable to export sales.
The following table presents a breakdown of revenue from our synthetic rubber sales for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue(1) 2011 % of revenue(1) %
Commodity rubbers 29,473 10.9% 37,525 15.1% (21.5%) Domestic 12,874 43.7% 17,743 47.3% (27.4%) Export 16,599 56.3% 19,782 52.7% (16.1%)
Specialty rubbers 8,677 3.2% 10,664 4.3% (18.6%) Domestic 1,534 17.7% 2,183 20.5% (29.7%) Export 7,143 82.3% 8,481 79.5% (15.8%)
Thermoplastic elastomers 2,983 1.1% 2,782 1.1% 7.2% Domestic 2,468 82.7% 2,406 86.5% 2.6% Export 516 17.3% 376 13.5% 37.0%
Total revenue 41,134 15.2% 50,971 20.5% (19.3%) Domestic 16,876 41.0% 22,332 43.8% (24.4%) Export 24,258 59.0% 28,639 56.2% (15.3%)
Commodity rubbers
In 2012, revenue from sales of commodity rubbers decreased by 21.5% year-on-year to RR 29,473 million from RR 37,525 million in 2011 as a result of a decrease in both sales volumes and the effective average selling price.
Sales volumes of commodity rubbers decreased by 12.0% in 2012 year-on-year, while production declined by only 1.0%. The decrease in the sales volumes was primarily attributable to lower third-party purchases, which declined due to the following reasons: (i) we discontinued a product swap arrangement, where we used third-party capacity to produce polyisoprene rubbers from our own isoprene, as tight spreads between feedstock and end-product prices reduced the scheme’s economic rationale, and (ii) the local market experienced a shortage of certain types of commodity rubbers that we used to buy for resale, which was attributable to an undersupply of butadiene-based feedstock as a result of the long-term unscheduled shutdown at a major supplier’s production site, as discussed above. In addition, at the end of 2012 we reported higher commodity rubber inventories at our regional warehouses on expectations that the market environment would improve in 2013.
In 2012, the effective average selling price for commodity rubbers decreased by 10.7% compared to 2011. The decrease was attributable to the following key factors: (i) stagnant demand from tyre producers, (ii) a decrease in prices for natural rubber (a benchmark for certain types of commodity rubbers) and for butadiene, a key raw material for butadiene-based rubbers as many of our export contracts are formula-based and depend on the price for butadiene.
(1) Percentages against export and import lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue. 26
123 In 2012, domestic sales accounted for 43.7% of total commodity rubber revenue, while 56.3% was attributable to export sales.
Specialty rubbers
In 2012, our revenue from specialty rubber sales decreased by 18.6% year-on-year to RR 8,677 million from RR 10,664 million in 2011 primarily due to a decrease in the effective average selling price and, to a smaller extent, lower sales volumes.
The effective average selling price for specialty rubbers decreased by 15.2% in 2012 compared to 2011 driven by market prices for butyl rubbers and nitrile-butadiene rubbers on our key export markets (China and other Asian countries).
Our specialty rubber sales volumes decreased by 4.0% on a 2.0% decline in production and higher inventories due to higher balances of goods-in-transit on the way to China. The decline in production was primarily attributable to lower butyl rubber production as a result of the unscheduled shutdown at our Togliatti site in April 2012. This was partially compensated by an expansion of nitrile-butadiene rubber production at our production site in Krasnoyarsk.
In 2012, domestic sales accounted for 17.7% of total specialty rubber revenue, while 82.3% was attributable to export sales.
Thermoplastic elastomers
In 2012, revenue from sales of thermoplastic elastomers increased by 7.2% year-on-year to RR 2,983 million from RR 2,782 million in 2011 due to an increase in both sales volumes and the effective average selling price.
Our thermoplastic elastomers sales volumes grew by 5.1% following an increase in production volumes by 6.8%, which was partially offset by inventory accumulation. The growth in production volumes was primarily attributable to higher capacity utilization rates on the back of favourable market environment.
The effective average selling price for thermoplastic elastomers increased by 2.0% due to stronger demand from end-customer industries in Russia and better selling terms achieved on our long-term contracts.
In 2012, domestic sales accounted for 82.7% of total thermoplastic elastomers revenues, while 17.3% was attributable to export sales.
27
124 The following table presents data on our synthetic rubber production, purchases and sales volumes for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Production 423,348 426,200 (0.7%) Commodity rubbers 304,620 307,594 (1.0%) Specialty rubbers 88,859 90,629 (2.0%) Thermoplastic elastomers 29,869 27,977 6.8% Purchases from third parties 32,287 63,828 (49.4%) Total production and purchases 455,635 490,028 (7.0%)
(Internal use)(1) (650) (557) 16.8% (Increase)/decrease in stock (16,398) (4,595) 256.9%
External sales
Commodity rubbers 321,422 365,383 (12.0%) Domestic 140,217 169,480 (17.3%) Export 181,205 195,903 (7.5%)
Specialty rubbers 88,647 92,359 (4.0%) Domestic 14,342 19,092 (24.9%) Export 74,305 73,267 1.4%
Thermoplastic elastomers 28,518 27,134 5.1% Domestic 23,083 23,133 (0.2%) Export 5,435 4,001 35.8%
External sales volumes 438,587 484,876 (9.5%) Domestic 177,642 211,705 (16.1%) Export 260,945 273,171 (4.5%)
Plastics and Organic Synthesis Products
In 2012, revenue from sales of plastics and organic synthesis products increased by 60.2% year-on-year to RR 39,633 million from RR 24,742 million in 2011. The increase was primarily attributable to the consolidation of the results of OAO Acrylate, OAO Polief and the BIAXPLEN group of companies as discussed above, as well as the commercial launch of two production lines of expandable polystyrene in Perm in December 2011 and in July 2012.
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 28
125 The following table presents a breakdown of revenue from sales of our plastics and organic synthesis products for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue(1) 2011 % of revenue(1) % PET 11,488 4.2% 4,553 1.8% 152.3% Domestic 11,427 99.5% 4,391 96.4% 160.2% Export 61 0.5% 162 3.6% (62.3%)
Glycols 6,587 2.4% 7,886 3.2% (16.5%) Domestic 4,785 72.6% 6,063 76.9% (21.1%) Export 1,802 27.4% 1,823 23.1% (1.2%)
BOPP-films 6,091 2.2% 1,048 0.4% 481.2% Domestic 5,255 86.3% 1,035 98.8% 407.7% Export 836 13.7% 13 1.2% 6,330.8%
Alcohols (including 2-ethylhexanol) 5,815 2.1% 6,003 2.4% (3.1%) Domestic 2,175 37.4% 2,328 38.8% (6.6%) Export 3,640 62.6% 3,675 61.2% (1.0%)
Expandable polystyrene 4,153 1.5% 1,624 0.7% 155.7% Domestic 2,821 67.9% 1,397 86.0% 101.9% Export 1,332 32.1% 227 14.0% 486.8%
Acrylates 3,039 1.1% 790 0.3% 284.7% Domestic 782 25.7% 393 49.7% 99.2% Export 2,257 74.3% 397 50.3% 468.5%
Plastic compounds(2) 2,460 0.9% 2,838 1.1% (13.3%) Domestic 2,296 93.3% 2,639 93.0% (13.0%) Export 164 6.7% 199 7.0% (17.6%)
Total revenue 39,633 14.6% 24,742 10.0% 60.2% Domestic 29,542 74.5% 18,246 73.7% 61.9% Export 10,091 25.5% 6,496 26.3% 55.3%
PET
In 2012, our revenue from PET sales was materially impacted by a change of scope due to acquisition of control of OAO Polief, a PTA and PET producer, and consolidation of its results from November 2011. As a result, our revenue from PET sales increased by 152.3% year-on-year to RR 11,488 million in 2012 from RR 4,553 million in 2011. Our PET sales volumes increased by 169.9% year-on-year due to change of scope and sale of inventories in 2012 compared to inventory accumulation in 2011. The effective average selling price decreased by 6.5%, primarily as a result of a negative price dynamics on Asian markets throughout 2012. In 2012, domestic sales accounted for 99.5% of total PET revenue, while 0.5% was attributable to export sales.
Glycols
In 2012, our revenue from sales of glycols was also affected by the consolidation of OAO Polief due to reclassification of certain volumes from external to intercompany sales as OAO Polief uses glycols for PET production. As a result, our revenue from sales of glycols decreased by 16.5% year-on-year to RR 6,587 million in 2012 from RR 7,886 million in 2011 on a 13.9% decrease in sales volumes and a 3.0% decline in the effective average selling price. The decline in the effective average selling price was attributable to a negative price dynamics on the European markets during the first nine months in 2012, which was partially compensated by a bounce-back in the fourth quarter of the year due to seasonal growth in demand and a short-term shortage of glycols on the domestic market. In 2012, domestic sales accounted for 72.6% of total glycols revenue, while 27.4% was attributable to export sales.
(1) Percentages against export and import lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue. (2) Including ABS plastics and PVC cable compounds. 29
126 BOPP-films
In 2012, our revenue from BOPP-film sales was materially impacted by a change of scope due to acquisition of control of the BIAXPLEN group of companies and consolidation of its results from the second quarter of 2012. As a result, our revenue from BOPP-film sales increased by 481.2% year-on- year to RR 6,091 million in 2012 from RR 1,048 million in 2011 on a 437.0% increase in sales volumes. The effective average selling price increased by 8.2% primarily as a result of higher PP prices due to a temporary shortage in the domestic market, as discussed above, and also due to a change in our BOPP- films marketing strategy. In 2012, domestic sales accounted for 86.3% of total BOPP-film revenue, while 13.7% was attributable to export sales.
Alcohols
In 2012, our revenue from sales of alcohols was affected by the consolidation of OAO Acrylate from the third quarter of 2011 due to reclassification of certain volumes from external to intercompany sales as OAO Acrylate uses alcohols for acrylates production. As a result, despite a 7.8% increase in production volumes, our sales volumes increased by only 4.4%. This, combined with a 7.2% decrease in the effective average selling price resulted in a 3.1% decline in our revenue from sales of alcohols to RR 5,815 million in 2012 from RR 6,003 million in 2011. The increase in production was attributable to a shorter maintenance shutdown in 2012 compared to 2011 in accordance with our maintenance cycle at SIBUR-Khimprom. The decline in the effective average selling price was attributable to a price correction on the European and Chinese markets. In 2012, domestic sales accounted for 37.4% of total alcohols revenue, while 62.6% was attributable to export sales.
Expandable polystyrene
In 2012, our revenue from sales of expandable polystyrene rose 155.7% year-on-year to RR 4,153 million from RR 1,624 million in 2011 as a result of a 101.7% increase in sales volumes and a 26.7% growth in the effective average selling price. The increase in sales volumes was attributable to a 108.9% growth in production following the commercial launch of two production lines at Sibur-Khimprom in Perm in December 2011 and in July 2012 (each production line has an annual capacity of 50,000 tons). The growth in the effective average selling price was a result of better selling terms due to achieved improvements in the product quality as well as international market prices growth in the second half of 2012. In 2012, domestic sales accounted for 67.9% of total expandable polystyrene revenue, while 32.1% was attributable to export sales.
Acrylates
In 2012, our revenue from sales of acrylates was materially impacted by a change of scope due to acquisition of control of OAO Acrylate and consolidation of its results from the third quarter of 2011. As a result, our revenue from sales of acrylates increased by 284.7% year-on-year to RR 3,039 million in 2012 from RR 790 million in 2011 due to a 392.4% growth in volumes and a 21.9% decrease in the effective average selling price on market price corrections both globally and in Russia. The growth in sales volumes was primarily attributable to the change of scope combined with inventory sales in 2012 versus inventory accumulation in 2011 in line with the prevailing market trends. In 2012, domestic sales accounted for 25.7% of total acrylates revenue, while 74.3% was attributable to export sales.
Plastic compounds (including ABS plastics and PVC cable compounds)
In 2012, our revenue from sales of plastic compounds decreased by 13.3% year-on-year to RR 2,460 million from RR 2,838 million in 2011 as a result of a 10.5% decline in sales volumes and a 3.1% decrease in the effective average selling price. Sales volumes declined due to a 9.4% decrease in production as we discontinued production of certain low-margin grades. The decrease in effective average selling price was attributable to lower feedstock prices, particularly for polyvinyl chloride (PVC) and dioctyl phthalate (DOP). In 2012, domestic sales accounted for 93.3% of total revenue from sales of plastic compounds, while 6.7% was attributable to export sales.
30
127 The following table presents data on our production, purchases and sales volumes in plastics and organic synthesis products for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Production 844,836 607,293 39.1% PET 211,093 95,230 121.7% Glycols 240,847 243,664 (1.2%) BOPP-films 68,467 13,761 397.5% Alcohols (including 2-ethylhexanol) 160,056 148,425 7.8% Expandable polystyrene 76,770 36,741 108.9% Acrylates 43,085 20,349 111.7% Plastic compounds (1) 44,518 49,123 (9.4%) Purchases from third parties 8,565 655 1,207.6% Total production and purchases 853,401 607,948 40.4%
(Internal use)(2) (96,436) (55,322) 74.3% (Increase)/decrease in stock 24,829 (26,955) n/m
External sales
PET 230,213 85,305 169.9% Domestic 229,023 82,256 178.4% Export 1,190 3,049 (61.0%)
Glycols 169,618 196,909 (13.9%) Domestic 120,038 150,066 (20.0%) Export 49,580 46,843 5.8%
BOPP-films 70,094 13,054 437.0% Domestic 60,119 12,907 365.8% Export 9,975 147 6,685.7%
Alcohols (including 2-ethylhexanol) 138,045 132,219 4.4% Domestic 49,741 52,837 (5.9%) Export 88,304 79,382 11.2%
Expandable polystyrene 76,524 37,935 101.7% Domestic 51,077 33,499 52.5% Export 25,447 4,436 473.6%
Acrylates 53,025 10,768 392.4% Domestic 11,318 4,494 151.8% Export 41,707 6,274 564.8%
Plastic compounds 44,274 49,481 (10.5%) Domestic 41,849 46,438 (9.9%) Export 2,425 3,043 (20.3%)
External sales volumes 781,793 525,671 48.7% Domestic 563,165 382,497 47.2% Export 218,628 143,174 52.7%
Intermediates and Other Chemicals
In 2012, our revenue from sales of intermediates and other chemicals decreased by 3.7% year-on-year to RR 23,493 million from RR 24,407 million in 2011 as a result of a 13.8% decrease in sales volumes despite an 11.7% increase in the effective average selling price. The decrease in sales volumes is attributable to lower purchases from third parties as well as an increase in volumes of intermediates and other chemicals used internally. Out of 3,445 thousand tons of intermediates and other chemicals produced in 2012, approximately 82.3% were used internally for further intercompany processing compared to 79.9% in 2011.
SIBUR's integrated business model enables us to change the composition of our feedstock and product mix to optimize purchasing, production, sales and logistics in order to maximize blended Group margins. As a result, the share of external sales of intermediates and other chemicals may fluctuate significantly
(1) Including ABS plastics and PVC cable compounds. (2) Including internal use at the segment’s production facilities and immaterial natural losses. 31
128 period to period depending on market trends, shifts in supply and demand fundamentals, capacity constraints and other factors.
The following table presents a breakdown of revenue from sales of our intermediates and other chemicals for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue(1) 2011 % of revenue(1) %
Intermediates, including
Benzene 1,356 0.5% 2,348 0.9% (42.2%) Domestic 1,356 100.0% 2,348 100.0% (42.2%) Export - - - - n/m
Styrene 2,390 0.9% 2,090 0.8% 14.4% Domestic 1,297 54.3% 398 19.0% 225.9% Export 1,093 45.7% 1,692 81.0% (35.4%)
Terephthalic acid 2,593 1.0% 486 0.2% 433.5% Domestic 2,593 100.0% 486 100.0% 433.5% Export - - - - n/m
Propylene 1,637 0.6% 2,426 1.0% (32.5%) Domestic 1,251 76.4% 1,715 70.7% (27.1%) Export 386 23.6% 711 29.3% (45.7%)
Ethylene oxide 1,947 0.7% 1,907 0.8% 2.1% Domestic 1,699 87.3% 1,583 83.0% 7.3% Export 248 12.7% 324 17.0% (23.5%)
Butadiene 420 0.2% 1,358 0.5% (69.1%) Domestic 420 100.0% 1,358 100.0% (69.1%) Export - - - - n/m
Isoprene 1,482 0.5% 1,082 0.4% 37.0% Domestic 16 1.1% 24 2.2% (33.3%) Export 1,466 98.9% 1,058 97.8% 38.6%
Isobutylene 936 0.3% 742 0.3% 26.1% Domestic 743 79.4% 651 87.7% 14.1% Export 193 20.6% 91 12.3% 112.1%
Ethylene - - - - n/m
Other intermediates 2,931 1.1% 2,849 1.1% 2.9% Domestic 2,164 73.8% 2,514 88.2% (13.9%) Export 767 26.2% 335 11.8% 129.0%
Total intermediates 15,692 5.8% 15,288 6.1% 2.6% Domestic 11,539 73.5% 11,077 72.5% 4.2% Export 4,153 26.5% 4,211 27.5% (1.4%)
Other chemicals 7,801 2.9% 9,119 3.7% (14.5%) Domestic 7,355 94.3% 7,136 78.3% 3.1% Export 446 5.7% 1,983 21.7% (77.5%)
Total revenue 23,493 8.7% 24,407 9.8% (3.7%) Domestic 18,894 80.4% 18,213 74.6% 3.7% Export 4,599 19.6% 6,194 25.4% (25.8%)
(1) Percentages against export and import lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue. 32
129 The following table presents data on our production, purchases and sales volumes in intermediates and other chemicals for the years ended 31 December 2012 and 2011: Year ended 31 December Change Metric tons, except as stated 2012 2011 %
Production 3,445,000 3,147,238 9.5% Intermediates, including 2,679,355 2,391,459 12.0% Benzene 134,870 149,019 (9.5%) Styrene 161,674 122,664 31.8% Terephthalic acid 252,060 44,128 471.2% Propylene 327,992 327,441 0.2% Ethylene oxide 80,279 85,746 (6.4%) Butadiene 212,082 226,558 (6.4%) Isoprene 13,879 10,111 37.3% Isobutylene 37,427 38,883 (3.7%) Ethylene 540,382 535,080 1.0% Other intermediates 918,710 851,829 7.9% Other chemicals 765,646 755,779 1.3% Purchases from third parties 13,127 69,698 (81.2%) Total production and purchases 3,458,128 3,216,936 7.5%
(Internal use)(1) (2,835,425) (2,514,949) 12.7% (Increase)/decrease in stock (12,743) 5,763 n/m
External sales
Benzene 47,001 93,035 (49.5%) Domestic 47,001 93,035 (49.5%) Export - - n/m Styrene 53,711 51,807 3.7% Domestic 28,693 9,571 199.8% Export 25,018 42,236 (40.8%) Terephthalic acid 76,762 12,888 495.6% Domestic 76,762 12,888 495.6% Export - - n/m Propylene 47,953 67,247 (28.7%) Domestic 38,797 48,065 (19.3%) Export 9,156 19,182 (52.3%) Ethylene oxide 60,298 60,853 (0.9%) Domestic 53,242 53,317 (0.1%) Export 7,056 7,536 (6.4%) Butadiene 5,812 18,147 (68.0%) Domestic 5,812 18,147 (68.0%) Export - - n/m Isoprene 13,580 9,587 41.7% Domestic 149 196 (24.0%) Export 13,431 9,391 43.0% Isobutylene 17,967 17,555 2.3% Domestic 14,512 14,966 (3.0%) Export 3,455 2,589 33.4% Ethylene - - n/m Other intermediates 112,235 131,826 (14.9%) Domestic 77,954 114,741 (32.1%) Export 34,281 17,085 100.6% Total intermediates 435,318 462,945 (6.0%) Domestic 342,921 364,926 (6.0%) Export 92,397 98,019 (5.7%) Other chemicals 174,641 244,805 (28.7%) Domestic 166,238 221,084 (24.8%) Export 8,403 23,721 (64.6%) External sales volumes 609,960 707,750 (13.8%) Domestic 509,160 586,010 (13.1%) Export 100,800 121,740 (17.2%)
(1) Including internal use at the segment’s production facilities and immaterial natural losses. 33
130 RESULTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011
The following table presents selected data on our results of operations for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue 2011 % of revenue %
Revenue 271,330 100.0% 248,660 100.0% 9.1% Energy products 129,409 47.7% 112,337 45.2% 15.2% Petrochemical products 126,439 46.6% 121,902 49.0% 3.7% Other 15,482 5.7% 14,421 5.8% 7.4% Operating expenses (199,618) (73.6%) (170,207) (68.4%) 17.3% Operating profit 71,712 26.4% 78,453 31.6% (8.6%) Net finance income /(expense) 3,040 1.1% (4,415) (1.8%) n/m Gain on acquisition of subsidiaries 430 0.2% 4,957 2.0% (91.3%) Share of net income of joint ventures and associates 751 0.3% 236 0.1% 218.2% Impairment of other receivables - - (1,731) (0.7%) (100.0%) Gain/(loss) on disposal of investments 283 0.1% (380) (0.2%) n/m Profit before income tax 76,216 28.1% 77,120 31.0% (1.2%) Income tax expense (15,816) (5.8%) (15,561) (6.3%) 1.6% Profit from continuing operations 60,400 22.3% 61,559 24.8% (1.9%) (Loss)/gain from disposal of Amtel Group assets (315) (0.1%) 1,240 0.5% n/m Profit for the year, including: 60,085 22.1% 62,799 25.3% (4.3%) Loss attributable to non-controlling interest (41) (0.0%) (30) (0.0)% 36.7% Profit attributable to shareholders of SIBUR 60,126 22.2% 62,829 25.3% (4.3%)
Revenue
In 2012, our revenue increased by 9.1% year-on-year to RR 271,330 million from RR 248,660 million in 2011.
The following table presents a breakdown of our revenue by product group for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue 2011 % of revenue % Energy products LPG 54,760 20.2% 52,502 21.1% 4.3% Naphtha 25,727 9.5% 21,118 8.5% 21.8% Natural gas 24,938 9.2% 17,440 7.0% 43.0% MTBE 16,731 6.2% 14,946 6.0% 11.9% Raw NGL 3,911 1.4% 2,113 0.8% 85.1% Other fuels and fuel additives 3,342 1.2% 4,218 1.7% (20.8%) Total energy product sales 129,409 47.7% 112,337 45.2% 15.2% Petrochemical products Synthetic rubbers 41,134 15.2% 50,971 20.5% (19.3%) Plastics and organic synthesis products 39,633 14.6% 24,742 10.0% 60.2% Intermediates and other chemicals 23,493 8.7% 24,407 9.8% (3.7%) Basic polymers 22,179 8.2% 21,782 8.8% 1.8% Total petrochemical product sales 126,439 46.6% 121,902 49.0% 3.7% Sales of processing services 5,184 1.9% 5,171 2.1% 0.3% Other sales 10,298 3.8% 9,250 3.7% 11.3% Total revenue 271,330 100.0% 248,660 100.0% 9.1%
For a detailed discussion on revenue dynamics see the “Operational Review” section above.
34
131 Operating Expenses
In 2012, our operating expenses rose 17.3% year-on-year to RR 199,618 million from RR 170,207 million in 2011, increasing as a percentage of total revenue to 73.6% in 2012 from 68.4% in 2011. The growth in absolute and relative terms was mainly due to higher feedstock and materials, transportation, staff and repairs and maintenance costs, as well as higher depreciation and amortization, which was partially attributable to the consolidation of new businesses. The increase in the above expenses was partially offset by lower goods for resale.
The following table presents a breakdown of our operating expenses for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue 2011 % of revenue %
Feedstock and materials 63,197 23.3% 49,309 19.8% 28.2% Transportation and logistics 37,525 13.8% 30,909 12.4% 21.4% Energy and utilities 29,793 11.0% 28,950 11.6% 2.9% Staff costs 26,116 9.6% 22,091 8.9% 18.2% Depreciation and amortisation 10,317 3.8% 8,216 3.3% 25.6% Goods for resale 9,775 3.6% 15,516 6.2% (37.0%) Repairs and maintenance 7,602 2.8% 5,001 2.0% 52.0% Services provided by third parties 6,559 2.4% 6,437 2.6% 1.9% Rent 4,451 1.6% 2,962 1.2% 50.3% Taxes other than income tax 2,118 0.8% 1,543 0.6% 37.3% Charity and sponsorship 1,586 0.6% 1,051 0.4% 50.9% Marketing and advertising 871 0.3% 783 0.3% 11.2% Impairment of PPE 262 0.1% - - n/m Other 2,441 0.9% 3,415 1.4% (28.5%) Gain on disposal of property, plant and equipment (1,728) (0.6%) (308) (0.1%) (461,0%) Change in work-in-progress and refined products balances (1,267) (0.5%) (5,668) (2.3%) (77.6%) Total operating expenses 199,618 73.6% 170,207 68.4% 17.3%
Feedstock and Materials
In 2012, our feedstock and materials costs rose 28.2% year-on-year to RR 63,197 million from RR 49,309 million in 2011. As a percentage of total revenue, feedstock and materials costs increased to 23.3% in 2012 from 19.8% in 2011. The growth was primarily attributable to the consolidation of paraxylene purchases for OAO Polief starting from November 2011, higher costs associated with purchases of other feedstock and materials and, to a smaller extent, an increase in APG and NGL purchasing costs.
The following table presents information on our costs related to purchasing of feedstock and materials for the years ended 31 December 2012 and 2011: Year ended 31 December % of feedstock and % of feedstock and Change RR millions, except as stated 2012 materials expenses 2011 materials expenses %
NGLs 24,743 39.2% 22,903 46.4% 8.0% APG 7,254 11.5% 5,268 10.7% 37.7% Paraxylene 5,448 8.6% 1,090 2.2% 399.8% Other feedstock and materials 26,190 41.4% 21,580 43.8% 21.4% Change of stock (438) (0.7%) (1,532) (3.1%) (71.4%) Total feedstock and materials 63,197 100.0% 49,309 100.0% 28.2%
35
132 The following table presents selected data on our feedstock purchasing volumes for the years ended 31 December 2012 and 2011(1): Year ended 31 December Change Metric tons, except as stated 2012 2011 %
NGLs 3,405,600 3,349,138 1.7% APG (thousand cubic metres) 12,986,326 12,697,565 2.3% Paraxylene 166,810 30,014 455.8%
In 2012, our expenses related to purchasing of NGLs rose 8.0% year-on-year to RR 24,743 million from RR 22,903 million in 2011, which was attributable to a 6.2% increase in the affective average purchase price and a 1.7% increase in purchasing volumes. The increase in the average purchase price was mainly attributable to an expiry of a discount adjustment, which was previously applicable to our raw NGL purchases from TNK-BP within our JV arrangements (OOO Yugragazpererabotka), from the second quarter of 2012 (see “Feedstock Sourcing and Mix” in the “Certain Factors Affecting Our Results of Operations” section above for further details). In 2012, we also started purchasing raw NGL from a new supplier in the European part of Russia to optimize logistics and increase fractionation capacity utilization at SIBUR-Khimprom (Perm), which at the same time increased our average purchase price of raw NGL due to generally higher prices in the European part of Russia and because of a higher share of target hydrocarbon fractions in the purchased feedstock. The growth in the purchasing volumes was primarily attributable to additional volumes of attractively priced raw NGL available from one of our suppliers due to an increase in their natural gas production volumes, as well as to new purchases in the European part of Russia, as discussed above. The above factors were partially offset by lower purchasing volumes of LPG and naphtha, which are more expensive compared to raw NGL. As a percentage of total feedstock and materials expenses, NGLs purchasing costs decreased to 39.2% in 2012 from 46.4% in 2011, which was primarily attributable to the consolidation of paraxylene purchases for OAO Polief and change in stock of feedstock and materials.
In 2012, our APG purchasing expenses rose 37.7% year-on-year to RR 7,254 million from RR 5,268 million in 2011, increasing as a percentage of total feedstock and materials to 11.5% in 2012 from 10.7% in 2011. The growth in absolute and relative terms was attributable to an increase in the affective average purchase price by 34.6% and an increase in purchasing volumes by 2.3%. The increase in the effective average APG purchase price was primarily attributable to additional APG volumes purchased from one of the counterparties at a higher price in accordance with the initial agreement, as production of additional volumes is more capital intensive for the supplier. Additionally, there was a structural change in our arrangements with an existing supplier. The increase in purchasing volumes was driven by expanded cooperation with oil producers and development of APG processing infrastructure as part of our investment programme implementation.
Following the acquisition of control of OAO Polief, a PTA and PET producer, from November 2011, we consolidate paraxylene purchases, as paraxylene is used for PTA production. In 2012, our expenses related to paraxylene purchases rose 399.8% year-on-year to RR 5,448 million from RR 1,090 million in 2011, increasing as a percentage of total feedstock and materials to 8.6% from 2.2% in 2011.
In 2012, other feedstock and materials expenses increased by 21.4% year-on-year to RR 26,190 million from RR 21,580 million in 2011. The growth was mainly attributable to the reclassification of polypropylene purchases to other feedstock and materials from goods for resale following the consolidation of the BIAXPLEN group of companies from the second quarter of 2012, as it uses polypropylene as feedstock for production of BOPP-films. As a percentage of total feedstock and materials expenses, other feedstock and materials decreased to 41.4% in 2012 from 43.8% in 2011.
In 2012, we recorded a reversal of RR 438 million to our feedstock and materials costs compared to a reversal of RR 1,532 million in 2011, which was primarily related to an increase in balances of feedstock and materials in both periods, while this increase was lower in 2012 compared to 2011.
(1) Excluding volumes purchased for trading. These volumes are reported as goods for resale. 36
133 Transportation and Logistics
In 2012, our transportation and logistics costs increased by 21.4% year-on-year to RR 37,525 million from RR 30,909 million in 2011. As a percentage of total revenue, our transportation and logistics costs increased to 13.8% in 2012 from 12.4% in 2011. The increase in absolute and relative terms was attributable to three factors. First, our transportation and logistics costs were affected by longer natural gas delivery distances in 2012 compared to 2011, partially due to commencement of natural gas sales to NOVATEK (which was also reflected in revenue from natural gas sales) combined with an increase in the regulated gas transportation tariffs effective 1 July 2012. We expect that in 2013 our delivery distances on supplies to NOVATEK will decrease based on a change in delivery terms to “ex-field” under a new agreement signed in 2012 (see “Recent Developments” section and “Natural gas” subsection in the “Operational Review” section above for further details). Second, average Russian Railways tariffs increased in 2012 compared to 2011, while our discount rate on export deliveries of LPG from our Tobolsk GFU decreased (see “Transportation Tariffs” in the “Certain Factors Affecting Our Results of Operations” section for further details). Third, higher transported volumes of feedstock and refined products also contributed to the increase in our transportation and logistics expenses.
Energy and Utilities
In 2012, our energy and utilities expenses increased by 2.9% year-on-year to RR 29,793 million from RR 28,950 million in 2011, decreasing as a percentage of total revenue to 11.0% in 2012 from 11.6% in 2011. The growth in absolute terms was primarily attributable to higher fuel costs due to the reclassification of certain natural gas volumes from intercompany to external purchases following the commencement of natural gas purchases from NOVATEK (see “Natural gas” in the “Operational Review” section above for further details). The growth was also attributable to higher heat consumption due to increase in volumes and effective average tariff (see “Electricity and Heat Tariffs” in the “Certain Factors Affecting Our Results of Operations” section above for further details). The above factors were partially compensated by lower electricity expenses on a decrease in the average tariff despite higher purchasing volumes (see “Electricity and Heat Tariffs” in the “Certain Factors Affecting Our Results of Operations” section above for further details).
The following table presents data on our energy and utilities costs for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 % of revenue 2011 % of revenue %
Electricity 19,143 64.3% 20,652 71.3% (7.3%) Heat 6,694 22.5% 6,057 20.9% 10.5% Fuel 3,252 10.9% 1,727 6.0% 88.3% Other 704 2.4% 514 1.8% 37.0% Total energy and utilities 29,793 100.0% 28,950 100.0% 2.9%
Staff Costs
In 2012, our staff costs rose 18.2% year-on-year to RR 26,116 million from RR 22,091 million in 2011, increasing as a percentage of total revenue to 9.6% in 2012 from 8.9% in 2011.
In 2012, our average headcount totaled 30,644 employees, almost unchanged year-on-year, while adjusted for the effect of change of scope (accounting for both acquisitions and divestitures), it decreased by 3%. Average monthly salary increased by 17%, which was attributable to regular wage indexation and changes in the headcount composition due to a shift towards highly skilled and higher-paid employees at the production facilities and a higher share of personnel engaged in project activities on the back of extensive project implementation, primarily with respect to the investment activity.
In 2012, social taxes increased primarily due to changes in rates and grid for calculation of mandatory contributions to pension and other funds effective 1 January 2012.
In 2012, we started accruing provisions for bonuses to employees of our production facilities due to the adoption of a new motivation system and introduction of production and functional contracts with the 37
134 employees of the production facilities, which has improved the overall bonus predictability. In 2011, bonus provisions were accrued only with respect to bonuses to headquarter employees.
Depreciation and Amortisation
In 2012, our depreciation and amortisation expenses rose 25.6% year-on-year to RR 10,317 million from RR 8,216 million in 2011, increasing as a percentage of total revenue to 3.8% in 2012 from 3.3% in 2011. The increase in absolute and relative terms was attributable to the launch of new production facilities and acquisitions completed in 2011 and 2012.
Goods for Resale
In 2012, our expenses related to purchases of goods for resale declined 37.0% year-on-year to RR 9,775 million from RR 15,516 million in 2011, decreasing as a percentage of total revenue to 3.6% in 2012 from 6.2% in 2011. The decline in absolute and relative terms was mainly attributable to the following factors: first, we discontinued trading activity with the tyres and mineral fertilizers businesses divested in December 2011; second, from the second quarter of 2012, we reclassified part of polypropylene purchases to other feedstock and materials from goods for resale as a result of consolidation of the BIAXPLEN group of companies, which use polypropylene as a feedstock for production of BOPP-films; third, we stopped purchases of LPG for further resale from one of our counterparties in the second quarter of 2012.
Repairs and Maintenance
In 2012, our repairs and maintenance expenses rose 52.0% year-on-year to RR 7,602 million from RR 5,001 million in 2011, increasing as a percentage of total revenue to 2.8% in 2012 from 2.0% in 2011. The growth in absolute and relative terms was primarily attributable to increased repairs and maintenance initiatives aimed at further industrial and ecological safety improvements, industrial infrastructure development and enhancement of the existing equipment efficiency.
Services Provided by Third Parties
In 2012, our expenses related to services provided by third parties rose 1.9% year-on-year to RR 6,559 million from RR 6,437 million, decreasing as a percentage of total revenue to 2.4% in 2012 from 2.6 % in 2011.
Rent Expenses
In 2012, our rent expenses rose 50.3% year-on-year to RR 4,451 million from RR 2,962 million, increasing as a percentage of total revenue to 1.6% in 2012 from 1.2% in 2011. The growth in absolute and relative terms was largely driven by a 39.8% expansion of leased rolling stock (to 9,300 rail cars and tankers as of 31 December 2012 from 6,652 units as of 31 December 2011), which was related to longer transportation distances and lower rolling stock turnover due to Russian Railways' infrastructural bottlenecks, as well as higher volumes of transported feedstock and refined goods. In addition, SIBUR's rental rates increased year-on-year in the range of 7% to 18% depending on a particular rail car or tanker type.
Taxes Other than Income Tax
In 2012, our taxes other than income tax rose 37.3% year-on-year to RR 2,118 million from RR 1,543 million in 2011, increasing as a percentage of total revenue to 0.8% in 2012 from 0.6% in 2011. The growth was primarily attributable to a provision related to a challenged tax benefit, which we applied in 2011 and 2010 in one of the regions of our operations, as well as higher property tax as new taxable properties were commissioned and new businesses were acquired in 2011 and 2012.
38
135 Charity and Sponsorship
In 2012, our expenses related to charity and sponsorship rose 50.9% year-on-year to RR 1,586 million from RR 1,051 million in 2011, increasing as a percentage of total revenue to 0.6% in 2012 from 0.4% in 2011. The growth in absolute and relative terms was primarily attributable to new sponsorship contracts, in particular related to social initiatives in the regions, where we implement our large-scale investment projects.
Marketing and Advertising
In 2012, our expenses related to marketing and advertising rose 11.2% year-on-year to RR 871 million from RR 783 million in 2011, largely flat as a percentage of total revenue at 0.3% in both 2012 and 2011. The growth in absolute terms was attributable to the expansion of our sponsorship and sports organizations support, as well as other corporate brand promotion initiatives in Russia and internationally.
Impairment of Property, Plant and Equipment
In 2012, we recognized an impairment charge of RR 262 million, which was attributable to a gradual decommissioning of Caprolactam, an outdated chlorine and caustic soda production facility located near the city of Dzerzhinsk, the Nizhny Novgorod region. The final shutdown of the facility is scheduled for April 2013, however, the decommissioning process started in the middle of 2012. The shutdown of Caprolactam is a part of our project to wind down utilization of the White Sea sludge reservoir. This production will be replaced by a modern and ecologically-friendly PVC production complex, which SIBUR is constructing together with SolVin Holding Nederland B.V. under a JV arrangement (RusVinyl). This new complex, located in Kstovo, the Nizhny Novgorod region, is scheduled for commercial launch in 2014.
Gain on Disposal of Property, Plant and Equipment
In 2012, we recorded RR 1,728 million in a gain on disposal of property, plant and equipment primarily related to the divestment of non-core gas transportation assets.
Change in Work-In-Progress and Refined Products Balances
In 2012, we recorded a reversal of RR 1,267 million to our operating expenses as compared to a reversal of RR 5,668 million in 2011, which was related to growth in balances of refined products and higher cost of such refined products. The growth was slower in 2012 compared to 2011. In 2012, we were accumulating inventory in certain product groups due to expected improvement in market conditions in 2013. In 2011, we were building-up inventory as a result of a change in our marketing and distribution strategy in basic polymers and synthetic rubbers aimed at eliminating intermediates and dealing directly with our customers. This increased average transportation distances and required stocking up at our regional warehouses.
Operating Profit
As a result of the factors discussed above, our operating profit decreased by 8.6%, to RR 71,712 million in 2012 from RR 78,453 million in 2011. Our operating margin totaled 26.4% in 2012 and 31.6% in 2011.
Finance income and expenses, net
In 2012, we had a net finance income of RR 3,040 million as compared to a net finance expense of RR 4,415 million in 2011, primarily as a result of a foreign exchange gain, as well as lower interest expense, which was partially offset by lower interest income.
39
136 The following table presents data on our finance income and expenses for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 2011 %
Interest income 870 2,142 (59.4%) Interest expenses (696) (2,524) (72.4%) Foreign exchange gain/(loss) 2,633 (3,660) n/m Other finance income/(expense) 233 (373) n/m Total finance income/(expense) 3,040 (4,415) n/m
In 2012, our interest income decreased by 59.4% year-on-year to RR 870 million from RR 2,142 million in 2011, which was attributable to a decrease in outstanding loans issued to third parties. First, we stopped lending to the mineral fertilizers and tyres businesses divested in 2011. Second, our loans to OAO Polief and the BIAXPLEN group of companies were treated as intercompany following the consolidation from November 2011 and the second quarter 2012, respectively. Third, at the end of 2011, we changed our approach to the financing of RusVinyl's investment programme and now report our share of financing as an equity contribution as opposed to previous reporting as loans issued.
In 2012, our interest expenses decreased by 72.4% year-on-year to RR 696 million from RR 2,524 million in 2012. The decrease was mainly attributable to the capitalisation of a part of our interest expense due to a higher share of borrowings associated with funding of SIBUR’s investment program, as well as lower interest rates. Our weighted average interest rate on RR-denominated borrowings was 7.4% as of 31 December 2012 and 7.5% as of 31 December 2011. Our weighted average interest rate on USD- denominated borrowings was 2.8% as of 31 December 2012 and 3.2% as of 31 December 2011. Our weighted average interest rate on EUR-denominated borrowings was 1.8% as of 31 December 2012 and 3.0% as of 31 December 2011.
In 2012, we recorded a primarily unrealized foreign exchange gain in the amount of RR 2,633 million compared to a foreign exchange loss of RR 3,660 million reported in 2011, which was attributable to the year-end Russian rouble appreciation compared to the end of 2011 (RR/USD rate decreased by 5.7% to 30.3727 as of 31 December 2012 from 32.1961 as of 31 December 2011) and the respective revaluation of our USD-denominated debt, which also increased during 2012. On the contrary, the revaluation of our USD-denominated debt in 2011 resulted in an unrealized foreign exchange loss due to the Russian rouble depreciation.
In 2012, we recorded other finance income of RR 233 million compared to an expense of RR 373 million in 2011. The income in 2012 was mainly attributable to a recovery of a discount on non-current receivables from the BIAXPLEN group of companies, which the Group consolidated at the end of March 2012, as well as the revaluation of financial instruments, which was partially offset by an unwind of a discount on SIBUR’s liabilities to third parties. In 2011, the expense was primarily attributable to the unwind of SIBUR’s liabilities and the revaluation of financial instruments.
Gain on Acquisition of Subsidiaries
In 2012, we recognised a gain on acquisition of subsidiaries in the amount of RR 430 million. This was mainly attributable to the revaluation of a previously acquired stake in the BIAXPLEN group of companies after the Group gained 100% control at the end of March 2012.
In 2011, we recognised a gain on acquisition of subsidiaries in the amount of RR 4,957 million, which was mainly attributable to the re-measurement of previously held interest in OAO Polief and OOO National Polymers and also the re-measurement of loans and notes receivable from OAO Polief, which were impaired in 2009.
Share of Net Income of Joint Ventures and Associates
In 2012, our share of net income of joint ventures and associates totaled RR 751 million compared to RR 236 million recorded in 2011. The increase was primarily attributable to lower expenses related to the servicing of RusVinyl debt. 40
137 Gain / Loss on Disposal of Investments
In 2012, we recorded RR 283 million in a gain on disposal of investments as opposed to a loss of RR 380 million in 2011. The gain was related to the divestment of non-core transportation infrastructure assets. The loss was associated with disposals of ZAO Novokuybyshevskaya Neftekhimicheskaya Kompaniya and OAO Saranskiy zavod RTI.
Income Tax Expense
In 2012, our income tax expense increased by 1.6% year-on-year to RR 15,816 million from RR 15,561 million in 2011. Our effective income tax rate was 20.8% and 20.2% in 2012 and 2011, respectively.
Loss / Gain from Disposal of Amtel Group Assets
In 2012, we recorded RR 315 million in a loss from disposal of Amtel Group assets, which related to the disposal of ZAO Voronezh Tyre Plant. In 2011, we recorded RR 1,240 million in a gain from disposal of Amtel Group assets, which primarily related to the disposal of OAO Kirov Tyre Plant.
Profit for the Year and Profit Attributable to Shareholders of SIBUR
Our profit for 2012 decreased by 4.3% year-on-year to RR 60,085 million from RR 62,799 million in 2011. Net margin totaled 22.1% as compared to 25.3% in 2011. In 2012, profit attributable to shareholders of SIBUR decreased by 4.3% year-on-year to RR 60,126 million from RR 62,829 million in 2011.
SEGMENT INFORMATION
Our gross revenue of the feedstock and energy segment increased by 12.5% to RR 168,091 million in 2012 from RR 149,478 million in 2011. EBITDA contribution of the feedstock and energy segment increased by 9.9% year-on-year to RR 74,831 million in 2012 from RR 68,106 million in 2011. EBITDA margin of the segment totaled 44.5% in 2012 compared to 45.6% in 2011. The decrease in EBITDA margin of the feedstock and energy segment was primarily attributable to higher feedstock purchasing costs (see “Operating Expenses” in the “Results of Operations” section above for further details) and an increase in transportation, staff and repairs and maintenance costs.
Our gross revenue of the petrochemicals segment increased by 1.0% year-on-year to RR 135,634 million in 2012 from RR 134,243 million in 2011. EBITDA contribution of the petrochemicals segment decreased by 33.7% year-on-year to RR 16,130 million in 2012 from RR 24,330 million in 2011. EBITDA margin of the segment decreased to 11.9% in 2012 from 18.1% in 2011 primarily due to tighter spreads between feedstock and petrochemicals prices, which particularly negatively affected the results of our synthetic rubber product group, as well as higher cost base due to consolidation of new businesses in the plastics and organic synthesis product group. The following table presents data on our segments’ revenue and EBITDA contribution for the years ended 31 December 2012 and 2011: Year ended 31 December 2012 2011 RR millions, except as Feedstock & Petro- Feedstock & Petro- stated Energy chemicals Unallocated Total Energy chemicals Unallocated Total
Total segment revenue 168,091 135,634 21,298 325,023 149,478 134,243 18,221 301,942 Inter-segment transfers (33,656) (8,686) (11,351) (53,693) (36,329) (9,525) (7,428) (53,282) External revenue 134,435 126,948 9,947 271,330 113,149 124,718 10,793 248,660 EBITDA 74,831 16,130 (8,670) 82,291 68,106 24,330 (5,767) 86,669 EBITDA margin 44.5% 11.9% n/m 30.3% 45.6% 18.1% n/m 34.9%
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138 LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
The following table presents selected data on our net cash flows for the years ended 31 December 2012 and 2011: Year ended 31 December Change RR millions, except as stated 2012 2011 %
Net cash from operating activities, including 62,661 54,181 15.7% Operating cash flows before working capital changes 82,580 84,484 (2.3%) Changes in working capital (1,586) (11,926) (86.7%) Income tax paid (18,333) (18,377) (0.2%) Net cash (used in) investing activities, including (50,992) (41,290) 23.5% Purchase of property, plant and equipment (74,274) (55,553) 33.7% Proceeds from disposal of the mineral fertilizers and tyres businesses(1) 7,751 33,023 (76.5%) Cash from investing activities of discontinued operations (2) 6,584 2,157 205.2% Loans issued (2,041) (41,968) (95.1%) Other 10,988 21,051 (47.8%) Net cash (used in) financing activities, including (12,729) (12,526) 1.6% Dividends paid to the Company's shareholders (29,192) - n/m Effect of exchange rate changes on cash and cash equivalents (341) (810) (57.9%) Net decrease in cash and cash equivalents (1,401) (445) 214.8%
Net cash from operating activities
In 2012, our net cash from operating activities increased by 15.7% year-on-year to RR 62,661 million from RR 54,181 million in 2011. Operating cash flows before working capital changes decreased by 2.3% year-on-year to RR 82,580 million from RR 84,484 million in 2011 on the back of lower EBITDA. Income tax paid marginally decreased in 2012 and totaled RR 18,333 million as compared to RR 18,377 million in 2011. Changes in working capital had a negative impact of RR 1,586 million in 2012 versus a negative impact of RR 11,926 million in 2011.
The following table presents data on changes in working capital for the years ended 31 December 2012 and 2011: Year ended 31 December RR millions, except as stated 2012 2011 Decrease in trade and other receivables 1,720 322 (Increase) in prepayments and other current assets (3,176) (5,092) (Increase) in inventories (1,076) (7,327) Increase/(decrease) in trade and other payables 2,477 (502) (Decrease)/increase in taxes payable (1,531) 673 Changes in working capital (1,586) (11,926)
SIBUR’s management monitors its liquidity and operational efficiency on the basis of the adjusted working capital (see Appendix I for further details). Our adjusted working capital was positive RR 38,876 million and RR 35,446 million as of 31 December 2012 and 2011, respectively, a 9.7% increase year-on-year.
Our net working capital balance may fluctuate from period to period due to factors within or outside our control, such as market conditions, our tactical marketing initiatives in response to changes in market conditions, logistical constraints as well as completion of major investment projects, which could require substantial inventory accumulation.
(1) Net of related income tax of RR 900 million in 2012 and RR 4,295 million in 2011. (2) Proceeds from the disposal of ZAO Voronezh Tyre Plant and OAO Kirov Tyre Plant net of related income tax of RR 438 million in 2011.
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139 Net Cash Used in Investing Activities
In 2012, our net cash used in investing activities increased by 23.5% year-on-year to RR 50,992 million from RR 41,290 million in 2011. The growth was mainly attributable to higher capital expenditures, which rose 33.7% year-on-year to RR 74,274 million from RR 55,553 million in 2011 due to the implementation of our investment programme (see the “Capital Expenditures” section below for further details).
The growth in capital expenditures in 2012 was partially compensated by proceeds from disposals: RR 7,751 million from the disposal of mineral fertilizers businesses and RR 6,584 million from the disposal of ZAO Voronezh Tyre Plant and OAO Kirov Tyre Plant.
In 2011, we also received material amounts in net cash proceeds, including the proceeds from the disposal of the mineral fertilizers and tyres businesses in the amount of RR 33,023 million and dividend payments of RR 6,921 million from the divested businesses. At the same time, in 2011, we issued loans in the total amount of RR 41,968 million, including RR 34,250 million related to the change in ownership and spent cash on acquisition of interest in joint ventures, which was attributable to the contribution of RR 12,650 million to the share capital of OOO RusVinyl.
Net Cash Used in Financing Activities
In 2012, our net cash used in financing activities increased by 1.6% year-on-year to RR 12,729 million from RR 12,526 million in 2011. In 2012, it related primarily to the dividend payments for 2011 and the first half of 2012 in the total amount of RR 29,192 million. It was partially compensated by proceeds from new borrowings and grants and subsidies received in connection with the implementation of our key investment projects. The total amount of grants and subsidies received in 2012 totaled RR 12,761 million.
In 2011, our net cash used in financing activities primarily related to a net repayment of debt, which was partially compensated by grants and subsidies in the total amount of RR 13,632 million, as well as sale of treasury shares for a total amount of RR 6,984 million.
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140 Capital Expenditures
In 2012, our capital expenditures increased by 33.7% year-on-year to RR 74,274 million compared to RR 55,553 million in 2011 (net of VAT). The growth was attributable to our substantial investments in the development of our feedstock processing and transportation infrastructure as well as in our petrochemical projects in line with our strategic objectives.
The following table presents data on our key investment projects for the years ended 31 December 2012 and 2011: RR millions, except as stated Year ended 31 December Location Description 2012 2011 Completion Feedstock and Energy Transportation infrastructure development Western Siberia Purovsk – Pyt-Yakh – Tobolsk pipeline 21,445 553 2015 Leningrad region Ust-Luga LPG and light oils transshipment facility 6,234 6,423 2013
Gas processing capacity modernization and expansion Noyabrsk Modernization of Vyngapurovskaya compressor station and its upgrade to a gas processing plant 2,824 1,639 Completed Pyt-Yakh Recovery unit at Yuzhno-Balykskiy GPP 767(1) 920(1) Completed Nizhnevartovsk Third compressor station at Nizhnevartovskiy GPP(2) 577 1,931 Completed
Gas fractionation capacity modernization and expansion Tobolsk Second GFU 3,756 337 2014 Petrochemicals Tobolsk Tobolsk-Polymer Plant 16,958 22,463 2013 Tobolsk “ZapSib-2” project FEED stage 3,891 208 2013 Voronezh New thermoplastic elastomers production 2,743 1,015 2013 Kstovo Steam cracker upgrade 1,636 1,240 2014 Tomsk New BOPP-film production 939 22 2013
Tobolsk Expansion of propylene intermediate depot 907 12 End of 2013 Blagoveshchensk Expansion of PET production 791 46 2014 Novokuybyshevsk Expansion of BOPP-film production 690 121 2014 Togliatti Modernization/expansion of butyl rubber production 607 140 2013 Perm Expandable polystyrene production line 519 1,379 Completed
In 2012 we successfully completed several large-scale investment projects (see the “Recent Developments” section above) and continued implementation of a number of investment projects in line with SIBUR’s strategic objectives. Description of our key investment projects is presented below.
Feedstock & Energy
Purovsk – Pyt-Yakh – Tobolsk Pipeline for Raw NGL Transportation
SIBUR is in the process of construction of a 1,100 kilometre raw NGL pipeline connecting Purovskiy GCP owned by NOVATEK, Yuzhno-Balykskaya main pumping station near Pyt-Yakh and the Tobolsk production site, where SIBUR's flagship GFU is located (Purovsk – Pyt-Yakh – Tobolsk pipeline). The pipeline's throughput capacity between Purovskiy GCP and SIBUR's loading rack in Noyabrsk is expected to total approximately 4 million metric tons per annum, between the loading rack in Noyabrsk and Yuzhno-Balykskaya main pumping station – approximately 5.5 million metric tons per annum, and between Yuzhno-Balykskaya main pumping station and the Tobolsk production site – approximately 8 million metric tons per annum. The launch of the new pipeline will enable SIBUR to replace certain parts of the existing raw NGL pipeline and is expected to result in a substantial extension of SIBUR's raw NGL transportation infrastructure, an increase in its throughput capacity and reliability. The project is aimed at
(1) The difference between the amount invested during the first nine months of 2012 and during the whole year is explained by a repayment made by our EPC contractor for certain materials in accordance with the terms of the agreement. (2) Including TNK-BP's share of financing. 44
141 securing our long-term access to abundant NGL resources of Western Siberia, and particularly its northern parts, where projected growth in wet gas production is expected to support rising supplies of raw NGL. We expect that the creation of a single infrastructure for transportation of raw NGL to its flagship GFU will create a secure foundation for development of our petrochemicals business in Tobolsk. The project is scheduled for completion in 2015.
Ust-Luga LPG and Light Oils Transshipment Facility
SIBUR is in the process of construction of an LPG transshipment facility at Ust-Luga sea port in the Leningrad region with an annual loading capacity of 1.5 million metric tons of LPG and 2.5 million metric tons of light oils per annum. This project that is scheduled for completion in 2013 is expected to support growth in LPG exports to the premium Western European markets.
Second Gas Fractionation Unit (GFU) in Tobolsk
SIBUR expands its gas fractionation facility in Tobolsk through construction of a second GFU, which is expected to increase the overall raw NGL fractionation capacity at the Tobolsk production site to 6.6 million tons per annum from the current 3.8 million tons per annum. The project is scheduled for completion in 2014 and is aimed at handling the growing volumes of raw NGL supplies.
Petrochemicals
Tobolsk-Polymer Plant, an Integrated Propylene and Polypropylene Production Complex
SIBUR is in the process of construction of a large scale world-class petrochemicals complex in Tobolsk (Tobolsk-Polymer Plant). The complex will apply the propane dehydrogenation technology provided by UOP to produce 510,000 metric tons of propylene per annum to be further processed into 500,000 tons of polypropylene using the technology of INEOS. Tobolsk-Polymer Plant is located at the same production site as our flagship GFU. Tobolsk-Polymer is on the state top-priority project list in the region and represents a major step in execution of SIBUR's strategy of creating a full-scale petrochemicals hub in Western Siberia in close proximity to the hydrocarbon resource base. The project is almost completed and is scheduled for launch in 2013.
“ZapSib-2”, an Integrated Ethylene, Polyethylene and Polypropylene Production Complex, FEED Stage
SIBUR plans to make a final investment decision on the ZapSib-2 project after completion of the FEED stage no earlier than the second half of 2013. ZapSib-2 is a greenfield construction of an integrated basic polymers production complex in Tobolsk and is projected to operate a steam cracker with a total annual capacity of 1.5 million tons of ethylene (technology provided by LINDE), four polyethylene production units with a total annual capacity of 1.5 million tons (technology provided by INEOS), and one polypropylene production unit with an annual capacity of 500,000 tons (technology provided by LyondellBasell). In case of a decision to proceed with the project, we believe that it will be the largest integrated facility for production of basic polymers in Russia.
***
In December 2012, SIBUR's Board of Directors approved the 2013 capital expenditures budget in the aggregate amount of RR 74 billion (net of VAT). This excludes investments under joint ventures, loans issued to joint ventures or acquisitions. In addition to projects that have been formally approved by the Group's Investment Committee and the “ZapSib-2” project described above, a number of other projects have not yet gone through the formal approval process and are at various stages of review by SIBUR's management. Therefore, the actual amount of capital expenditures that we may incur may exceed the amounts that have been formally approved.
45
142 We expect that we will finance these capital expenditures through a combination of cash and cash equivalents, cash flows from operations as well as new borrowings within the limits of our financial policy.
Borrowings
As of 31 December 2012, our total debt amounted to RR 95,994 million compared to RR 82,910 million as of 31 December 2011, an increase of 15.8% year-on-year. Our net debt(1) increased by 21.3% year-on- year to RR 82,424 million as of 31 December 2012 from RR 67,939 million as of 31 December 2011. The increase is primarily attributable to raising funds to finance our capital expenditure programme.
The following table presents data on our total debt, cash and cash equivalents and net debt position as of 31 December 2012 and 2011: As of As of RR millions, except as stated 31 December 2012 31 December 2011 Changе, % Total debt 95,994 82,910 15.8% Cash and cash equivalents 13,570 14,971 (9.4%) Net debt 82,424 67,939 21.3%
As of 31 December 2012, all of our debt was unsecured with the exception of the US dollar equivalent of RR 17,844 million outstanding under the Tobolsk-Polymer Plant project finance facility. The financing is primarily secured by OOO Tobolsk-Polymer shares and property, plant and equipment.
The following table presents detailed information on our borrowings as of 31 December 2012 and 2011: As of 31 December RR millions, except as stated Currency Due 2012 2011
Variable rate loans UniCreditBank USD, EUR 2013-2019 5,465 858 ING Bank RR, USD, EUR 2008-2021 1,748 6,406 Nordea Bank USD 2013-2016 10,609 11,246 Vnesheconombank USD 2013-2023 17,844 13,718 Rosbank USD 2013 4,556 4,829 Sberbank of Russia RR 2012 - 3,000 HSBC Bank plc. USD 2013-2014 4,556 2,415 The Royal Bank of Scotland USD 2013 275 - RaiffeisenBank USD 2012-2013 4,556 4,829 Citibank International USD 2012-2013 7,593 431 KFW IPEX-Bank USD 2013 1,822 - RBS, JP Morgan USD 2013 9,112 -
Fixed rate loans Russian rouble denominated bonds RR 2012 - 31 Mezhregiongaz RR 2011-2014 2,285 4,547 TNK-BP RR, USD 2013-2017 4,485 4,545 Sberbank of Russia RR, USD 2012-2014 18,932 18,000 NPP Neftekhimia RR 2012-2015 625 500 TransCreditBank RR 2012 - 2,900 CreditSuisse RR 2012 - 1,500 Credit Agricole RR 2012 - 3,000 The Royal Bank of Scotland USD 2013 1,519 - Other RR, USD 2012-2013 12 155 Total debt 95,994 82,910
SIBUR aims to maintain a diversified debt portfolio with a sound balance of fixed and floating interest rate instruments. We also target improvements in our debt maturity profile.
(1) Net debt is calculated as total debt less cash and cash equivalents. 46
143 The following table presents scheduled maturities of our outstanding debt as of 31 December 2012 and 2011: As of % of total As of % of total RR millions, except as stated 31 December 2012 debt 31 December 2011 debt Change,%
Due for repayment:: Within one year 54,936 57.2% 31,194 37.6% 76.1% Between one and two years 15,175 15.8% 16,364 19.7% (7.3%) Between two and five years 12,679 13.2% 22,636 27.3% (44.0%) After five years 13,204 13.8% 12,716 15.4% 3.8% Total debt 95,994 100.0% 82,910 100.0% 15.8%
The following table presents currency split of our outstanding debt as of 31 December 2012 and 2011: As of % of total As of % of total RR millions, except as stated 31 December 2012 debt 31 December 2011 debt Change, %
Denominated in: RR 17,573 18.3% 39,910 48.1% (56.0%) Euro 2,171 2.3% 2,630 3.2% (17.5%) US Dollar 76,250 79.4% 40,370 48.7% 88.9% Total debt 95,994 100.0% 82,910 100.0% 15.8%
As of 31 December 2012, the USD-denominated debt as a percentage of total borrowings increased to 79.4% from 48.7% as of 31 December 2011. The growth in US dollar borrowings was mainly attributable to obtaining short-term financing from international banks prior to the Eurobond placement, as well as new draw-downs under the Tobolsk-Polymer project finance facility.
The following table presents our key liquidity and credit ratios as of 31 December 2012 and 2011: As of As of 31 December 2012 31 December 2011
Current ratio 0.87x 1.39x Debt to equity 0.49x 0.50x Debt/EBITDA 1.17x 0.96x Net debt(1)/EBITDA 1.00x 0.78x EBITDA/Interest expense 118x 34x
SIBUR’s financial policy stipulates maintaining a net debt to EBITDA ratio of no higher than 2.5x and EBITDA to interest expense ratio of no lower than 7x. These objectives are stricter than the bank covenants included in the Group’s most restrictive credit agreements. As of 31 December 2012, our net debt to EBITDA ratio was 1.00x compared to 0.78x as of 31 December 2011. EBITDA to interest expense ratio was 118x as of 31 December 2012 compared to 34x as of 31 December 2011. The increase in interest coverage was partially attributable to the capitalisation of a part of our interest expense due to a higher share of borrowings associated with funding of SIBUR’s investment program.
As of 31 December 2012, SIBUR had RR 74,026 million available under its existing credit facilities denominated in Russian roubles, US dollars and euro, both short- and long-term, of which RR 41,225 million were committed. Committed credit facilities include RR 17,057 million under the Tobolsk- Polymer project finance facility, which can be used only for construction of this project as well as RR 93 million of ECA-backed financing linked to particular import contracts. The remaining RR 24,075 million are available for general corporate purposes and are sufficient to cover our short-term liquidity needs.
On 31 January 2013 we placed our debut Eurobond due 2018, raising USD 1 billion in gross proceeds. The coupon rate was set at 3.914% per annum and will be paid semi-annually. The issue was 5.5 times oversubscribed with orders received from 280 international accounts.
(1) Net debt is calculated as total debt less cash and cash equivalents. 47
144 Management considers SIBUR to have a strong financial position, supported by robust internal cash generation and sustainable access to external financing. These resources enable us to finance capital expenditure needs, while meeting our debt and other obligations.
APPENDIX I: Net Working Capital
SIBUR’s net working capital position takes into account trade receivables net of advances from customers; inventory balances of refined products, goods for resale, feedstock and materials; VAT balance; trade payables net of prepayments and advances to suppliers; payables to employees; and other assets and liabilities listed in the table below.
The following table presents detailed calculation of our net working capital position as of 31 December 2012 and 2011: As of 31 December RR millions, except as stated 2012 2011 Current assets 83,145 100,169 Current liabilities (95,641) (71,908) Working capital (12,496) 28,261 Adjustmets to assets, including: (18,960) (37,611) Receivables for disposed businesses - (11,368) Loans receivable (1,222) (911) Cash and cash equivalents (13,570) (14,971) Restricted cash (890) - Assets classified as held for sale (1,044) (5,993) Listed equity securities held for trading - (1,400) Derivative financial instruments - (548) Prepaid borrowing cost (2,371) (2,784) Recoverable VAT related to assets under construction (1) 137 364 Adjustmets to liabilities, including: 70,332 44,796 Accounts payable to contractors and suppliers of property, plant and equipment 12,565 9,094 Payables for acquisition of subsidiaries 1,730 - Short term promissory notes payable 2 2,631 Interest payable 521 510 Grants and subsidies 578 700 Short-term debt and current portion of long-term borrowings 54,936 31,194 Liabilities associated with non-current assets classified as held for sale - 667 Adjusted working capital 38,876 35,446
(1) Represents non-current portion. 48
145
OAO SIBUR Holding
International Financial Reporting Standards Combined Financial Information and Independent Auditor’s Report
31 December 2012
146 147 OAO SIBUR HOLDING IFRS COMBINED STATEMENT OF FINANCIAL POSITION (In millions of Russian roubles, unless otherwise stated)
31 December 31 December Notes 2012 2011 Assets Non-current assets 6 Property, plant and equipment 207,655 151,176 7 Goodwill 9,480 6,697 8 Investments in joint ventures and associates 17,690 18,118 27 Deferred income tax assets 11,105 10,380 9 Advances and prepayments for capital construction 45,692 32,858 10 Loans receivable 743 638 11 Trade and other receivables 94 335 12 Other non-current assets 2,695 2,758 Total non-current assets 295,154 222,960 Current assets 13 Inventories 24,750 22,187 11 Trade and other receivables 15,983 20,965 11 Receivables for disposed businesses - 11,368 Prepaid current income tax 4,222 3,025 14 Prepayments and other current assets 21,464 20,749 10 Loans receivable 1,222 911 15 Cash and cash equivalents 13,570 14,971 15 Restricted cash 890 - 5 Assets classified as held for sale 1,044 5,993 Total current assets 83,145 100,169 Total assets 378,299 323,129
Liabilities and equity Non-current liabilities 16 Long-term debt 41,058 51,716 17 Grants and subsidies 30,502 19,549 27 Deferred income tax liabilities 10,171 8,110 18 Other non-current liabilities 5,171 6,512 Total non-current liabilities 86,902 85,887 Current liabilities 20 Short-term debt and current portion of long-term debt 54,936 31,194 19 Trade and other payables 36,569 29,973 Income tax payable 1,560 5,286 21 Taxes other than income tax payable 2,576 4,788 Liabilities associated with non-current assets classified as held for sale - 667 Total current liabilities 95,641 71,908 Total liabilities 182,543 157,795
22 Equity Shareholders of the parent company net investment 194,765 163,911 23 Non-controlling interest 991 1,423 Total equity 195,756 165,334 Total liabilities and equity 378,299 323,129
D.V. Konov A.N. Philippovskiy Chief Executive Officer Chief Financial Officer 27 March 2013 27 March 2013
The accompanying notes on pages 7 to 53 are an integral part of this combined financial information.
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148 OAO SIBUR HOLDING IFRS COMBINED STATEMENT OF INCOME (In millions of Russian roubles, unless otherwise stated)
Notes Year ended 31 December 2012 2011 Continuing operations 24 Revenue 271,330 248,660 25 Operating expenses (199,618) (170,207) Operating profit 71,712 78,453 26 Finance income 4,601 2,910 26 Finance expenses (1,561) (7,325) 4 Gain on acquisition of subsidiaries 430 4,957 8 Share of net income of joint ventures and associates 751 236 11 Impairment of other receivables - (1,731) Gain/(loss) on disposal of investments 283 (380) Profit before income tax 76,216 77,120 27 Income tax expense (15,816) (15,561) Profit from continuing operations 60,400 61,559 Discontinued operations 5 (Loss)/gain from disposal of Amtel Group assets (315) 1,240
Profit for the year, including attributable to: 60,085 62,799
23 Non-controlling interest (41) (30)
Shareholders of the parent company 60,126 62,829
The accompanying notes on pages 7 to 53 are an integral part of this combined financial information.
4
149 OAO SIBUR HOLDING IFRS COMBINED STATEMENT OF COMPREHENSIVE INCOME (In millions of Russian roubles, unless otherwise stated)
Year ended 31 December 2012 2011 Profit for the year from continuing operations 60,400 61,559
Profit for the year 60,085 62,799
Other comprehensive loss after tax:
Actuarial loss on post-employment benefit obligations (204) (94)
Total comprehensive income for the year from continuing operations 60,196 61,465
Total comprehensive income for the year, including attributable to: 59,881 62,705
Non-controlling interest (43) (30)
Shareholders of the parent company 59,924 62,735
The accompanying notes on pages 7 to 53 are an integral part of this combined financial information.
5
150 OAO SIBUR HOLDING IFRS COMBINED STATEMENT OF CASH FLOWS (In millions of Russian roubles, unless otherwise stated)
Year ended 31 December Notes 2012 2011 Operating activities Cash from operating activities of continuing operations before 28 income tax payment 80,994 72,558 Income tax paid from continuing operations (18,333) (18,377) 5, 28 Net cash from operating activities of continuing operations 62,661 54,181 Investing activities Purchase of property, plant and equipment (74,274) (55,553) 10, 32 Loans issued (2,041) (41,968) 8 Acquisition of interest in joint ventures and associates (169) (12,650) Purchase of listed equity securities held for trading at fair value through profit and loss - (2,050) Acquisition of interest in subsidiaries, net of cash acquired (1,811) (3,433) Proceeds from sale of financial instruments 2,273 - Proceeds from disposal of subsidiaries, net of cash disposed 307 1,110 Repayment of loans and notes receivable 536 17,008 Settlement of receivables from Amtel Group 3,629 3,081 Proceeds from sale of property, plant and equipment 5,074 5,946 Dividends received 1,365 6,921 Proceeds from disposal of the Mineral Fertilizers and Tyres businesses, net of related income tax of RR 900 and RR 4,295 for the 22 years ended 31 December 2012 and 2011, respectively 7,751 33,023 15 Transfers to restricted cash for investment activities (890) - Repayment of equity instruments of the Tyres business - 4,981 Decrease in other non-current assets, net 674 137 Cash used in investing activities of continuing operations (57,576) (43,447) Cash from investing activities of discontinued operations, net of 5 related income tax 6,584 2,157 Net cash used in investing activities (50,992) (41,290) Financing activities Proceeds from long-term debt 10,900 43,298 Repayment of long-term debt (14,794) (63,137) Proceeds from short-term debt 63,207 84,135 Repayment of short-term debt (51,870) (81,798) 17 Grants and subsidies received 12,761 13,632 22 Sale of treasury shares - 6,984 Interest received 600 757 Payment of bank fees (728) (37) Repayment of promissory notes and loans - (13,129) Interest paid (3,496) (3,509) 22 Dividends paid to the Company's shareholders (29,192) - Other (117) 278 5 Cash used in financing activities of continuing operations (12,729) (12,526) Effect of exchange rate changes on cash and cash equivalents (341) (810) Net decrease in cash and cash equivalents (1,401) (445) Cash and cash equivalents, at the beginning of the reporting year 14,971 15,416 Cash and cash equivalents, at the end of the reporting year 13,570 14,971
The accompanying notes on pages 7 to 53 are an integral part of this combined financial information.
6
151 OAO SIBUR HOLDING IFRS COMBINED STATEMENT OF CHANGES IN EQUITY (In millions of Russian roubles, unless otherwise stated)
Shareholders Non- Total of the parent controlling equity company net interest Notes investment Balance as of 31 December 2010 113,692 672 114,364 Profit for the year 62,829 (30) 62,799 Actuarial loss on post-employment benefit obligations (94) - (94) Comprehensive income for the year 62,735 (30) 62,705 Acquisition of subsidiaries - 781 781 22 Disposal of treasury shares 6,984 - 6,984 22, 32 Acquisition of treasury shares (72,374) - (72,374) Net contributions from shareholders of the Mineral 22 Fertilizers and Tyres businesses 52,874 - 52,874 Balance as of 31 December 2011 163,911 1,423 165,334 Profit for the year 60,126 (41) 60,085 Actuarial loss on post-employment benefit obligations (202) (2) (204) Comprehensive income for the year 59,924 (43) 59,881 Acquisition of non-controlling interest in subsidiaries 122 (389) (267) 22 Dividends paid (29,192) - (29,192) Balance as of 31 December 2012 194,765 991 195,756
The accompanying notes on pages 7 to 53 are an integral part of this combined financial information.
7
152 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
1 NATURE OF OPERATIONS
OAO SIBUR Holding (the “Company”) and its subsidiaries, including the recently disposed subsidiaries engaged in the activities of the Mineral Fertilizers and Tyres businesses (together referred to as the “SIBUR Group”), form a vertically integrated gas processing and petrochemicals business. This combined financial information of the Company and its subsidiaries excludes those subsidiaries engaged in the activities of the Mineral Fertilizers and Tyres businesses (together referred to as the “Group”). The Group is comprised of the Feedstock & Energy and Petrochemicals segments. The Group purchases and processes raw materials (primarily associated petroleum gas and natural gas liquids) and produces and markets energy and petrochemical products domestically and internationally.
The Group’s production facilities are located in the Russian Federation.
From June 2008 until September 2011 Non-State Pension Fund Gazfund through OAO Gazprombank (“Gazprombank”) was the Group’s ultimate parent.
Since September 2011, Mr. Leonid V. Mikhelson has been the ultimate controlling shareholder of the Group. OAO SIBUR Holding’s parent company is Sibur Limited.
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation. This combined financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). Most of the Group’s companies maintain their accounting records in Russian roubles (RR) and prepare their statutory financial statements in accordance with the Regulations on Accounting and Reporting of the Russian Federation (RAR). This combined financial information is based on the statutory records of Group companies, with adjustments and reclassifications recorded to ensure fair presentation in accordance with IFRS.
The combined financial information comprises an aggregate of the amounts included in the financial statements of OAO SIBUR Holding and its subsidiaries relating to the activities of the SIBUR Group’s Feedstock & Energy and Petrochemicals reportable segments by applying the principals of IAS 27 Consolidated and Separate Financial Statements and IAS 27R underlying the consolidation procedures. The principal entities included within the combined financial information are shown in Note 31.
The balances and financial results of the following SIBUR Group subsidiaries have been excluded from this combined financial information:
Type of activity Tyres business: OAO SIBUR-Russian Tyres Holding company, tyre sales OAO Yaroslavsky Tyre Plant Tyre production OAO Sibur-Volzhskiy Tyre cord production OOO Uralsk Tyre Plant Tyre production OAO Voltair-Prom Tyre production OAO Omskshina Tyre production OAO Volzhsky Nitric Oxygen Plant Chemical products Mineral Fertilizers business: OAO SIBUR-Mineral Fertilizers Holding company, mineral fertilizer sales OAO AZOT, Kemerovo Mineral fertilizer and caprolactam production OAO Mineralnye Udobreniya, Perm Mineral fertilizer production
7 153 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The combined financial information is different than the consolidated financial statements, as the combined financial information does reflect the inclusion of the Mineral Fertilizers and Tyres businesses, which were treated as discontinued operations in the consolidated financial statements for the year ended 31 December 2011. This difference has a significant impact only on the comparative information presented in the combined financial information. The following section summarises the accounting and other principles applied in preparing this comparative information: • Any funding of, investments in, or dividends received from the excluded entities have been recorded within movements in equity. • Proceeds/payments and associated current and deferred income tax related to the disposal of the Mineral Fertilizers and Tyres businesses received or accrued during the period of the combined financial information have been recorded within movements in equity. • The combined financial information excludes the balances, operational results, cash flows and related disclosures of entities and operations included in the Mineral Fertilizers and Tyres businesses as described above. However, the transactions and balances with these entities that the Group did not consolidate, including sales of products to Mineral Fertilizers and Tyres businesses either purchased externally or produced by the Group, have been classified as related-party transactions at the historical intercompany sales prices established by the Company; the details of such transactions and balances are included in Note 32. • The combined financial information is presented under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. • Historically, the Company has not recharged the corporate costs of the Group’s management company to any of the underlying businesses. No adjustment has been made to the combined financial information to reflect any amount which might be viewed as being attributable to the excluded entities. • The tax charges in this combined financial information have been determined based on the tax charges recorded by Group companies in their local statutory accounts. The results of the Group presented for the comparative period might have been different had the entities excluded from the combined financial information operated without control by the Company throughout the period, and thus the comparative period results are not necessarily indicative of those of future periods. The preparation of combined financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. Those areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the combined financial information are disclosed in Note 3. The principal accounting policies applied in the preparation of this combined financial information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Consolidation procedures. For the purposes of this combined financial information, subsidiaries involved in the activities of the SIBUR Group’s Feedstock & Energy and Petrochemicals reportable segments, as described above, are those companies and other entities (including special purpose entities) in which the Group holds, directly or indirectly, an interest of more than one half of the voting rights, or otherwise has the power to govern the entities’ financial and operating policies so as to obtain benefits. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are included in the combined financial information from the date on which control is transferred to the Group (acquisition date) and are excluded from the date that such control ceases.
8 154 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination, are measured at their fair values at the acquisition date, regardless of the extent of any non-controlling interest.
The Group measures non-controlling interest on a transaction-by-transaction basis, either at: a) fair value or b) the non-controlling interest's proportionate share of the acquiree’s net assets.
Goodwill is measured by deducting the acquiree’s net assets from the aggregate amount of the consideration transferred for the acquiree, as well as the amount of non-controlling interest in the acquiree and the fair value of the interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss after management reassesses whether it identified all the assets acquired, and all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued, and liabilities incurred or assumed, including the fair values of assets or liabilities from contingent consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and similar professional services. Transaction costs related to an acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the relevant cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.
Non-controlling interest is that part of the net results and equity of a subsidiary that is attributable to interests that the Company does not own, directly or indirectly. Non-controlling interest forms a separate component of the Group’s equity.
Purchases of subsidiaries from parties under common control. Purchases of subsidiaries from parties under common control are accounted for using the purchase accounting method. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, regardless of the extent of any non-controlling interest.
Assets and disposal groups classified as held for sale. Assets and disposal groups (which may include both non-current and current assets) are classified in the statement of financial position as “assets classified as held for sale” if their carrying amount will be recovered principally through a sale transaction (including loss of control over the subsidiary holding the assets) within 12 months after the reporting period and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
Non-current assets or disposal groups classified as held for sale in the current period’s statement of financial position are not reclassified or re-presented in the comparative statement of financial position to reflect the classification at the end of the current period.
Property, plant and equipment. Property, plant and equipment items are stated at cost, restated to the equivalent purchasing power of the Russian rouble as of 31 December 2002 for assets acquired prior to 1 January 2003, less accumulated depreciation and provision for impairment, where required.
Costs of minor repairs and maintenance are expensed when incurred. The cost of replacing major parts or components of property, plant and equipment items is capitalised when it is probable that future economic benefits will flow to the Group, the cost of the item can be measured reliably, and the replaced part has been retired and derecognised. Gains and losses on disposals determined by comparing proceeds with carrying amounts are recognised in profit or loss.
9 155 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Depreciation. Depreciation on property, plant and equipment items is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives:
Useful lives in years Buildings 20-60 Facilities 10-50 Machinery and equipment 5-30 Transport vehicles and other 5-20 Catalysers 3-5
The useful lives are reviewed annually taking into consideration the nature of the assets, existing practices regarding their repair and maintenance , their intended use and technological evolution of technology. A change in the useful life of a property, plant and equipment item is handled as a change in accounting estimate and is accounted for on a prospective basis.
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal if the asset was already of the age and in the condition expected at the end of its useful life. The residual value of an asset is assumed to be nil if the Group expects to use the asset until the end of its physical life. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.
Leases. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit and loss on a straight-line basis over the period of the lease.
The Group leases certain property, plant and equipment items. Leases of property, plant and equipment in which the Group carries substantially all the risk and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payment.
Each lease payment is allocated between liability and finance charges. The relevant rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment items acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
Intangible assets
a) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the acquisition date. Goodwill on acquisitions of subsidiaries is included in “intangible assets”. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses, if any. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units, or groups of cash-generating units, that are expected to benefit from the business combination in which the goodwill arose, as identified according to operating segment.
b) Acquired licences are shown at historical cost. Licences have a finite useful life from one to ten years and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight- line method to allocate the cost of licences over their estimated useful lives. Annually, at each reporting date, management assesses whether there is any indication of impairment of intangible assets. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.
10 156 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of non-financial assets. Assets that have an indefinite useful life, goodwill for example, are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
Investments in joint ventures. Joint ventures are entities over which the Group exercises joint control. Investments in joint ventures are accounted for by the equity method of accounting and are initially recognised at cost. Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. The carrying amount of joint ventures includes goodwill identified on acquisition less accumulated impairment losses, if any. The Group’s share of the post-acquisition profit or loss of joint ventures is recorded in profit or loss for the year as a share of the net income of joint ventures. The Group’s share of other post-acquisition comprehensive income of joint ventures is recognised in the Group’s other comprehensive income.
When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognise any further losses unless it has incurred obligations or made payments on behalf of the joint venture.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Associates. Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally resulting from a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of investments in associates. Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or losses of the associate is recorded in the profit or loss for the year as a share of the results of associates, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii) all other changes in the Group’s share of the carrying value of the net assets of associates are recognised in profit or loss within the share of the results of associates.
However, when the Group’s share of the losses of an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Loans and receivables. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method amount less a provision made for impairment of these receivables.
11 157 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortised cost is the amount at which the financial instrument was initially recognised less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position.
The effective interest method allocates interest income or expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest re-pricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the entire expected lifespan of the instrument. The present value calculation includes all fees paid or received between parties to a contract that are an integral part of the effective interest rate.
Inventories. Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is assigned on a weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.
Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held on call with banks, and other short-term, highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method.
Trade and other payables. Trade payables are accrued when a counterparty has performed its obligations under a relevant contract, and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Provisions for liabilities and charges. Provisions for liabilities and charges are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the relevant amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if there is little likelihood of an outflow connected to any item included in the same class of obligations. Where the Group expects a provision to be reimbursed, under an insurance contract for example, the reimbursement is recognised as a separate asset but only when reimbursement is virtually certain. Provisions are reassessed at each reporting date and changes in the provisions are reflected in the profit or loss.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in a provision due to passage of time is recognised as interest expense.
12 158 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Value added tax. Output value added tax (VAT) related to sales is payable to the relevant tax authorities upon the earlier of a) collection of receivables from customers or b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the relevant VAT invoice. The Russian tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases which have not been settled at the reporting date (VAT recoverable and payable) is recognised on a gross basis and disclosed separately as a current asset and current liability, respectively. Where a provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT. The related VAT liability is maintained until the debt is written off for tax purposes.
Grants and subsidies. Grants and subsidies are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Grants and subsidies relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the profit or loss: a) on a straight-line basis over the expected lives of the related assets, or b) in full when the assets are sold.
Debt. Debt is recognised initially at fair value, net of transaction costs incurred. Debt is subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of income over the period of the debt using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and presented as prepaid borrowing costs.
To the extent there is no evidence of the probability that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the relevant facility.
Capitalisation of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of assets that require considerable time to be prepared for their intended use or sale (qualifying assets) are capitalised as part of the costs of such assets if the commencement date for capitalisation occurred on or after 1 January 2008.
Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.
The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditures on qualifying assets. Capitalised borrowing costs are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred, less any investment income on the temporary investment of the borrowings, are capitalised.
Equity. As this combined financial information has been prepared on a combined basis, it is not meaningful to show share capital or analysis of reserves. Therefore, amounts which reflect the carrying value of investments by Group companies were aggregated and disclosed as “Equity”, while the carrying value of net assets attributable to shareholders other than the Group were presented as “Non-controlling interest”.
13 159 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income tax, is deducted from equity until the equity instruments are reissued, disposed of, or cancelled. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included back into equity.
Dividends. Dividends are recognised as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. Dividends are disclosed when they are declared after the reporting date but before the financial information is authorised for issue.
Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interest. The Group recognises the difference between the purchase consideration and the carrying amount of non-controlling interest acquired and records it as a capital transaction directly in equity. Any difference between the sales consideration and carrying amount of non-controlling interest sold is also recognised as a capital transaction in the statement of changes in equity.
Current and deferred income tax. Income taxes have been provided for in the combined financial information in accordance with Russian law as enacted or substantively enacted by the reporting date. The income tax charge or credit comprises current tax and deferred tax, and is recognised in profit or loss, unless it is recognised in other comprehensive income or directly in equity because it relates to transactions that are recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current income tax is the amount expected to be paid to or refunded by the tax authorities on taxable profits or losses for the current and prior periods. Deferred income tax is recognised using the balance sheet liability method for tax loss carry-forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit.
Deferred tax assets and liabilities are netted only within individual Group companies. Deferred tax assets for deductible temporary differences and tax loss carry-forwards are recorded only to the extent that there are sufficient taxable temporary differences, or that it is probable there will be future taxable profit against which the deductions can be utilised.
The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future.
Taxes other than income tax, VAT, excise tax and export duties are recorded within operating expenses.
Post-employment obligations. Some Group companies provide retirement benefits to their retired employees. Entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of such benefits are accrued over the period of employment using the same accounting methodology used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries.
14 160 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition. Revenues from sales of goods are recognised for financial reporting purposes at the point of transfer of ownership risks and rewards, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are delivered to the customer at the destination point.
Sales are shown net of VAT, excise tax and other similar mandatory payments. Revenues are measured at the fair value of the consideration received or receivable.
Interest income is recognised on a time-proportion basis using the effective interest method.
Classification of financial assets. The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as financial assets at fair value through profit or loss. Assets in this category are classified as current assets as they are expected to be settled within 12 months from the reporting date. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the profit or loss within finance income and finance expenses in the period in which they arise. b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date which are classified as non-current assets. The Group’s loans and receivables comprise trade and other receivables, loans and notes receivable, and cash and cash equivalents in the statement of financial position. c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months from the reporting date.
Classification of financial liabilities. Financial liabilities have the following measurement categories: a) held for trading, which also includes financial derivatives, and b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortised cost.
Recognition and measurement of financial assets. Regular purchases and sales of financial assets are recognised on the trade date, i.e. the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available- for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.
15 161 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair values of quoted financial assets are based on current bid prices. Regarding financial assets the market for which is inactive as well as unlisted securities, the Group uses valuation techniques to establish fair value. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.
At each reporting date, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its carrying value is considered an indicator that the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss) is reclassified from other comprehensive income to profit or loss for the year. Impairment losses on equity instruments are not reversed through the profit or loss.
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and the realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:
• any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by settlement systems; • the counterparty experiences a significant financial difficulty as evidenced by its financial information which the Group has obtained; • the counterparty is considering bankruptcy or a financial reorganisation; • there is an adverse change in the payment status of the counterparty as a result of changes in national or local economic conditions that impact the counterparty; or • the value of collateral, if any, significantly decreases as a result of deteriorating market conditions.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of the counterparty’s financial difficulties, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss.
16 162 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Uncollectible assets are written off against the related impairment loss provision after all necessary procedures for recovering the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the impairment loss account within the profit or loss for the year.
Foreign currency transactions. The functional currency of each of the Group’s entities included in the combined financial information is the currency of the primary economic environment in which the given entity operates. The functional currency of the Company and its subsidiaries, and the Group’s presentation currency, is the national currency of the Russian Federation, the Russian rouble (RR).
Monetary assets and liabilities, which are held by the Group entities as of 31 December 2012 and 2011, and denominated in foreign currencies, are translated into RR at the exchange rate prevailing at that date. Foreign currency transactions are accounted for at the exchange rate prevailing at the date of the transaction. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currency are recognised as exchange gains or losses in the profit or loss.
The official US dollar (USD) and euro (EUR) to Russian rouble (RR) exchange rates, as determined by the Central Bank of Russia, are as follows:
euro US dollar As at 31.12.2011 41.6714 32.1961 2011 weighted average 40.8848 29.3874 As at 31.12.2012 40.2286 30.3727 2012 weighted average 39.9083 31.0742
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision-makers. Segments with revenues, results or assets that represent 10 percent or more of all segments are reported separately.
Changes in presentation and accounting policies. Starting with the combined financial information for the year ended 31 December 2012, the Group has changed its presentation of the combined statement of comprehensive income by separating it into two statements: the statement of income and the statement of comprehensive income.
Starting from the combined financial information for the year ended 31 December 2012, the Group has amended its accounting policy regarding catalysers with useful lives of more than one year.
Catalysers with useful lives of more than one year were considered as a significant component of a complex asset and included in the statement of financial position as a part of other property plant and equipment.
Depreciation on these assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives of two to five years.
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal if the asset was already of the age and in the condition expected at the end of its useful life. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date.
Previously, such assets had been included in other non-current assets and were written off as raw material expenses in the statement of income based on the straight-line depreciation method.
17 163 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consequently, the Company reclassified RR 674 and RR 492 to the respective amounts of the statement of financial position as of 31 December 2011 and 31 December 2010.
As originally presented Reclassification As reclassified As of 31 December 2011 Non-current assets 222,960 - 222,960 Property, plant and equipment 150,502 674 151,176 Other non-current assets 3,432 (674) 2,758
As of 31 December 2010 Non-current assets 153,913 - 153,913 Property, plant and equipment 101,662 492 102,154 Other non-current assets 2,653 (492) 2,161
Changes in accounting policy did not have a material impact on the combined statement of income and combined statement of comprehensive income and the presentation of operating expenses.
In management’s opinion, the omission of the opening combined statement of financial position at 1 January 2011 would not influence the economic decisions of the financial information’s users and is not material.
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities in future financial reporting periods. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Management also makes certain judgements, apart from those involving estimates, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the financial information and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities in future financial reporting periods are as follows:
Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations (Note 33).
Deferred income tax asset recognition. The deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. In determining future taxable profits and the amount of tax benefits available to certain Group entities, management makes judgements and applies estimates based on recent taxable profits and expectations of future income that are believed to be reasonable under the circumstances.
Useful lives of property, plant and equipment. Property, plant and equipment items are stated net of accumulated depreciation. Estimating the useful life of a property, plant and equipment item is a matter of management judgement and is based on experience with similar assets. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, residual value, physical wear and tear, and the environment in which the asset is operated. Differences between such estimates and actual results may result in losses in future periods, and changes in any of these conditions or estimates may result in adjustments to future depreciation rates.
Estimated impairment of goodwill. The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amounts of cash-generating units are the higher of their fair value less costs to sell and their value-in-use calculations. These calculations require the use of estimates (Note 7).
18 164 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUED)
Estimated impairment of property, plant and equipment. Property, plant and equipment items are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGU). The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value-in-use calculations, which require the estimation of discounted cash flows. The estimation of cash flows and assumptions consider all information available at the year-end on the future development of the operating business and may deviate from actual future developments. An impairment charge is the difference between the carrying amount and the recoverable amount of CGU.
4 ACQUISITION OF SUBSIDIARIES
Acquisition of OOO Biaxplen. On 29 March 2012 the Group finalised the acquisition of control over OOO Biaxplen, a BOPP-film producer, by acquiring an additional 50 percent stake for RR 1,200 and, as a result, increased the Group’s ownership to 100 percent. The acquisition was made to strengthen the Group’s position on the growing Russian BOPP-film market as OOO Biaxplen is one of the largest BOPP-film manufacturers in Russia.
Details of the assets and liabilities acquired are as follows:
Fair values Property, plant and equipment 5,183 Intangible assets 680 Deferred income tax assets 447 Other non-current assets 6 Inventories 857 Trade and other receivables 1,294 Loans receivable 71 Cash and cash equivalents 62 Other current assets 29 Deferred income tax liabilities (656) Trade and other payables (1,279) Short-term and long-term debt (7,047) Other non-current liabilities (30) Net assets of the acquired subsidiary (383) Less: Fair value of interest previously held 1,200 Total purchase consideration 1,200 Goodwill arising on acquisition 2,783
The acquired subsidiary contributed RR 1,817 in revenue and RR 333 in profit to the Group for the period from the acquisition date to 31 December 2012. If the acquisition had occurred on 1 January 2012, the Group’s revenue and profit from continuing operations for the year ended 31 December 2012 would have been RR 273,584 and RR 60,632, respectively.
As of the acquisition date, the Group remeasured its previously held interest in OOO Biaxplen at fair value (Note 8). As a result, a RR 430 gain was recognised in the combined statement of income.
The Group’s management believes that the acquired goodwill of RR 2,783 relates mostly to expected cost savings, utilisation of the Group’s feedstock advantage, and strengthening of its competitive position through access to end customers on the growing Russian BOPP-film market.
Total purchase consideration 1,200 Less: Cash and cash equivalents of the acquired subsidiary 62 Outflow of cash and cash equivalents on acquisition 1,138
19 165 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
4 ACQUISITION OF SUBSIDIARIES (CONTINUED)
Acquisition of the Acrylate Group. In July 2011, the Group acquired a 100 percent equity stake in the Acrylate Group so as to enter a new product market. The total consideration paid was RR 1,673. The Acrylate Group is the only producer of acrylic acid in Russia.
The fair values of assets and liabilities acquired are based on a valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired are as follows:
Fair values Property, plant and equipment 2,960 Inventories 415 Trade and other receivables 48 Cash and cash equivalents 11 Loans and borrowings (61) Trade and other payables (1,221) Other current liability (50) Deferred tax liability (429) Net assets of the acquired subsidiary 1,673 Less: Cash and cash equivalents of subsidiary acquired 11 Outflow of cash and cash equivalents on acquisition 1,662
Acquisition of OOO National Polymers and OAO Polief. In 2005, the Group entered into a joint venture arrangement with ZAO Lukoil-Neftekhim to jointly control OOO National Polymers and acquire shares in OAO Polief, a terephthalic acid and polyethylene terephthalate manufacturer, located in Bashkortostan, a region of Russia.
In June 2011, the Group directly acquired an 18 percent stake in OAO Polief from OAO VTB Bank for RR 1,554, payable by 2019. This investment was recognised at the acquisition date at a fair value of RR 941, using an 8 percent market interest rate.
In October 2011, the Group acquired control over OAO Polief by means of increasing its stake in OOO National Polymers from 50 percent to 100 percent for USD 9,003,000 (RR: 283). As a result, the Group increased its ownership stake in OAO Polief to 83 percent, including direct ownership of an 18 percent stake and indirect ownership (through OOO National Polymers) of a 65 percent stake.
The fair values of the assets and liabilities of OOO National Polymers and OAO Polief at the acquisition date are based on a valuation performed by an independent professional appraiser. Details of the assets and liabilities acquired and relevant goodwill are as follows:
Fair values Property, plant and equipment 11,576 Deferred tax asset 1,183 Inventories 1,601 Trade and other receivables 1,283 Cash and cash equivalents 248 Other assets 527 Loans and borrowings (12,050) Trade and other payables (498) Other liabilities (16) Deferred tax liability (204) Net assets of the acquired subsidiary 3,650 Less: Non-controlling interest 781 Fair value of interest previously held 1,822 Recognised within gain on acquisition of subsidiaries 764 Total purchase consideration 283 Less: Cash and cash equivalents of subsidiary acquired 248 Outflow of cash and cash equivalents on acquisition 35
20 166 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
4 ACQUISITION OF SUBSIDIARIES (CONTINUED)
The gain on acquisition of these subsidiaries of RR 764 resulted mainly from the absence of other market participants interested in acquiring OAO Polief and OOO National Polymers. This gain was recognised within a gain on acquisition of subsidiaries in the combined statement of income.
As of the acquisition date, the Group remeasured its previously held interest in OAO Polief and OOO National Polymers at fair value. As a result, a further RR 877 gain was recognised in the combined statement of income.
On acquisition, the Group had loans and notes receivable from OAO Polief of RR 4,772, of which RR 3,316 was impaired during 2009 with the relevant loss recognised within impairment of notes and other receivables in this combined financial information. As of the acquisition date, the Group remeasured loans and notes receivable from OAO Polief, resulting in a RR 3,316 gain that was recognised in the combined statement of income within gain on acquisition of subsidiaries.
5 DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE
Amtel Group assets. During the period from August to November 2011, the Group acquired the Amtel Group’s subsidiary, OAO Kirov Tyre Plant, and essentially all of the assets of the Voronezh tyre plant in the course of bankruptcy. In December 2011, the Group sold its subsidiary, OAO Kirov Tyre Plant, which owned the Kirov tyre plant’s assets. In February 2012, the Group sold its newly formed subsidiary, ZAO Voronezh Tyre Plant, which owned the Voronezh tyre plant assets and was classified within assets held for sale as of 31 December 2011.
Cash from investing activities in the combined statement of cash flows for the twelve months ended 31 December 2012 includes RR 6,584 for OAO Kirov Tyre Plant and ZAO Voronezh Tyre Plant from OOO E-Volution Tyre, a joint venture of the Pirelli Group and Rostechnologii, as sale consideration. There was no operating or financing cash flows from discontinued operations.
The post-tax loss recognised on the disposal of ZAO Voronezh Tyre Plant included as a loss from discontinued operations in the combined statement of income was calculated as follows:
Total consideration 3,641 Less: net assets disposed 3,956 Post-tax loss on disposal of ZAO Voronezh Tyre Plant (315)
Assets classified as held for sale. As of 31 December 2012 and 2011, assets classified as held for sale included a number of construction projects worth RR 1,044 and RR 1,370, respectively. Additions to assets classified as held for sale were RR 2,827 and RR 1,370 for the years ended 31 December 2012 and 2011, respectively. During 2012, the Group finalised part of these construction projects, sold assets held for sale for RR 3,136, and recognised a RR 1,876 gain on disposal. The Group plans to sell the remaining property, plant and equipment items classified as assets held for sale in 2013.
21 167 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
6 PROPERTY, PLANT AND EQUIPMENT
Movements in the net book value of property, plant and equipment were as follows:
Machinery and Assets under Buildings Facilities equipment Transport construction Other Total Net book value as of 31 December 2010 11,717 18,427 18,840 6,942 44,762 1,466 102,154 Depreciation charge (508) (2,063) (3,936) (648) - (202) (7,357) Additions 22 1,465 53 123 47,954 221 49,838 Acquisition of subsidiaries (Note 4) 4,253 1,536 8,187 42 444 74 14,536 Reclassifications (17) 13 (16) 1 - 19 - Transfers 3,186 11,772 8,577 1,232 (25,681) 914 - Disposal of subsidiaries (7) (59) (151) (19) (39) (12) (287) Disposals (312) (1,583) (330) (176) (3,842) (95) (6,338) Reclassification to assets held for sale (Note 5) - (1,370) - - - - (1,370) Historical cost as of 31 December 2011 24,513 39,568 51,623 10,484 63,598 3,139 192,925 Accumulated depreciation (6,179) (11,430) (20,399) (2,987) - (754) (41,749) Net book value as of 31 December 2011 18,334 28,138 31,224 7,497 63,598 2,385 151,176 Depreciation charge (768) (3,204) (5,248) (757) - (241) (10,218) Additions 62 44 30 44 65,616 2,585 68,381 Acquisition of subsidiaries (Note 4) 2,364 268 2,453 14 16 68 5,183 Reclassifications (1) 953 (302) (19) - (631) - Transfers 4,058 15,865 10,106 280 (30,842) 533 - Impairment (115) (47) (27) (2) - (71) (262) Disposals (381) (376) (423) (99) (1,663) (836) (3,778) Reclassification to assets held for sale (Note 5) - (2,827) - - - - (2,827) Historical cost as of 31 December 2012 30,427 53,306 62,873 10,447 96,725 4,669 258,447 Accumulated depreciation (6,874) (14,492) (25,060) (3,489) - (877) (50,792) Net book value as of 31 December 2012 23,553 38,814 37,813 6,958 96,725 3,792 207,655
For 2012 and 2011, the Group capitalised interest expense of RR 3,039 and RR 1,796, respectively. The capitalisation rates were 4.26 percent and 5.45 percent, respectively.
During the year ended 31 December 2012, the Group recognised a RR 262 impairment loss for chlorine and caustic soda production assets in Dzerzhinsk, Nizhny Novgorod Region (Petrochemicals segment). The recoverable amount of the assets was determined based on its fair value less costs to sell. Fair value was determined based on market price.
No indication of impairment regarding other property, plant and equipment was noted within the reporting period. Accordingly, management did not perform any impairment test for the purposes of this combined financial information.
22 168 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
7 INTANGIBLE ASSETS
Movements in the net book value of intangible assets were as follows:
Goodwill Other Total Net book value as of 31 December 2010 6,697 730 7,427 Additions - 1,321 1,321 Amortisation charge - (842) (842) Historical cost as of 31 December 2011 6,697 2,084 8,781 Accumulated amortisation - (875) (875) Net book value as of 31 December 2011 6,697 1,209 7,906 Additions 2,783 714 3,497 Amortisation charge - (408) (408) Historical cost as of 31 December 2012 9,480 1,961 11,441 Accumulated amortisation - (446) (446) Net book value as of 31 December 2012 9,480 1,515 10,995
Amortisation of intangible assets is recorded as operating expenses in the combined statement of income.
Intangible assets other than goodwill are presented as other non-current assets in the combined statement of financial position (Note 12).
Impairment tests for goodwill
Goodwill related to the acquisition of SIBUR International GmbH and OOO Biaxplen is allocated to the Group’s cash-generating units (CGUs), which are the same as operating and reportable segments (Note 30).
An operating segment-level summary of the goodwill allocation is presented below.
31 December 31 December 2012 2011 SIBUR International GmbH: Feedstock & Energy 4,020 4,020 Petrochemicals 2,677 2,677
OOO Biaxplen: Petrochemicals 2,783 - Total goodwill 9,480 6,697
The recoverable amount of each CGU segment is the higher of its fair value less selling cost and its value- in-use calculations, and has been determined based on a value-in-use calculation. These calculations use pre-tax cash flow projections based on the management-approved five-year financial forecast. Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 3 percent. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The following key assumptions are used in the value-in-use calculation: a discount rate of 12.5-15.5 percent, oil price of USD 95-113 per bbl and Consumer Price Index of 2.9-7.5 percent.
The discount rates used are pre-tax and reflect specific risks relating to the CGU operating activity.
23 169 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
8 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
31 December 31 December 2012 2011 OOO RusVinyl 13,712 13,371 OOO NPP Neftekhimia 3,504 3,523 OOO ITSK 296 256 Reliance Sibur Elastomers Private Limited 169 - OOO Yuzhno-Priobskiy GPZ 7 6 OOO SNHK 2 2 OOO Biaxplen (Note 4) - 960 Total investments in joint ventures and associates 17,690 18,118
OOO RusVinyl. In June 2007, the Group formed a joint venture with SolVin Holding Nederland B.V. (which is ultimately controlled by Solvay SA) for the construction of a polyvinyl chloride production complex in the Nizhny Novgorod Region and contributed RR 1,400 to this joint venture.
In 2011, the Group and SolVin Holding Nederland B.V. each contributed RR 12,650 to the share capital of OOO RusVinyl and, consequently, the Group’s ownership share remained unchanged.
OOO NPP Neftekhimia. The Group has a joint venture with OAO Gazpromneft MNPZ (formerly OAO Moskovsky NPZ). This joint venture has increased the Group’s share on the Russian polypropylene market.
The table below summarises information about the Group’s major investments in joint ventures and associates.
Interest held, percent, as of 31 December Country of incorporation Nature of operations 2012 2011 OOO RusVinyl* Russia Polyvinyl chloride production 50 50 OOO NPP Neftekhimia Russia Polypropylene production 50 50 OOO ITSK Russia IT and metrology services 50 50 Reliance Sibur Elastomers Private Limited* India Butyl rubber production 25 - OOO Yuzhno-Priobskiy Associated petroleum gas GPZ* Russia processing 50 50 Production of plastics and OOO SNHK* Russia synthetic resins 50 50 OOO Biaxplen Russia BOPP-film production - 50 * investment projects
31 December 31 December 2012 2011 Investments in joint ventures and associates as of the beginning of the year 18,118 5,810 Share of net income 751 236 Additions 169 12,657 Dividends (575) (585) Disposals (773) - Investments in joint ventures and associates as of the end of the year 17,690 18,118
During 2012, the Group received dividends from OOO NPP Neftekhimia and OOO ITSK in a total amount of RR 575.
24 170 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
8 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED)
The Group’s share of the results of its principal joint ventures and associates, all of which are unlisted, and its aggregated assets and liabilities, are as follows:
As of and for the year ended 31 December 2012 Current Non-current Current Non-current Reve- Profit assets assets liabilities liabilities nues /(loss) OOO RusVinyl 2,921 22,650 459 11,298 230 341 OOO NPP Neftekhimia 952 193 154 3 2,542 431 OOO ITSK 808 38 567 1 2,532 165 Reliance Sibur Elastomers Private Limited 136 29 1 142 - - OOO Yuzhno-Priobskiy GPZ 183 1,661 208 1,616 - 1 OOO SNHK 1 - 1 - 2 2 OOO Biaxplen - - - - 964 (189)
As of and for the year ended 31 December 2011 Current Non-current Current Non-current Reve- Profit assets assets liabilities liabilities nues /(loss) OOO RusVinyl 2,329 14,726 200 3,403 229 (537) OOO Biaxplen 1,017 2,966 1,167 2,873 5,860 (11) OOO NPP Neftekhimia 795 1,397 131 1 2,828 690 OOO ITSK 550 15 306 - 1,808 132 OOO Yuzhno-Priobskiy GPZ 252 718 228 722 - (19) OOO Sintez-Invest - - - - - (19) OOO SNHK 1 - 1 - - -
9 ADVANCES AND PREPAYMENTS FOR CAPITAL CONSTRUCTION
As of 31 December 2012 and 2011, the most significant advances and prepayments for capital construction were paid to the Group’s contractors for the construction of: a polypropylene plant in Tobolsk, Tyumen Region; gas infrastructure assets in the St Petersburg area; and a natural gas liquids pipeline connecting the Purovsky gas condensate plant, the Yuzhno-Balykskaya main pumping station and the Tobolsk production site in the Tyumen Region. The Group’s most significant advances and prepayments related to capital construction projects were paid to the following contractors: LINDE-KCA- DRESDEN GmbH, Tecnimont S.p.A., ООО Tecnimont Russia, MAVEG GmbH, ООО Gazprom Mezhregiongaz, ОАО ChelPipe, TECHNIP BENELUX B.V., OOO NPA Vira Realtime and ZAO Stroytransgaz.
A large portion of the advances and prepayments made to major contractors for the provision of construction and other services and supplies has been secured by bank guarantees and letters of credit. For less significant contractors, the Group requires collateral against the advance payment made or a mix of collateral and bank guarantees from third party banks. On a monthly basis, management reviews and monitors the status of work performed under each service supply agreement. Management believes that there is no significant risk of loss related to advances and prepayments made by the Group.
25 171 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
10 LOANS RECEIVABLE
31 December 31 December 2012 2011 OOO Yuzhno-Priobskiy GPZ 1,661 638 ZAO Edas Pak 180 - OOO Biaxplen - 501 OAO Cordiant (formerly OAO SIBUR-Russian Tyres) - 410 Other 124 - Total loans receivable 1,965 1,549 Less: non-current portion (743) (638) 1,222 911
11 TRADE AND OTHER RECEIVABLES
31 December 31 December 2012 2011 Trade receivables (net of impairment provisions of RR 327 and RR 243 as of 31 December 2012 and 2011, respectively) 14,614 14,816 Other receivables (net of impairment provisions of RR 18 and RR 1,771 as of 31 December 2012 and 2011, respectively) 1,463 6,484 Total trade and other receivables 16,077 21,300 Less non-current portion: other receivables (94) (335) 15,983 20,965 Receivables for disposed businesses - 11,368
As of 31 December 2012 and 2011, respectively, RR 1,339 and RR 383 of trade receivables were secured by collateral, mainly bank guarantees.
As of 31 December 2012 and 2011, other receivables included RR nil and RR 3,500 (net of an impairment provision of RR 1,731) from the Amtel Group, respectively. The Group recognised the impairment provision during the Amtel Group’s bankruptcy and included it in impairment of other receivables in the combined statement of income. The Group received RR 3,629 during the year ended 31 December 2012.
As of 31 December 2011, receivables for disposed businesses included RR 8,589 from one of the buyers of the Group’s Mineral Fertilizers business. This receivable was fully paid in January 2012.
As of 31 December 2011, receivables for disposed businesses included RR 2,779 from OOO E-Volution Tyre for OAO Kirov Tyre Plant. This receivable was fully paid in March 2012. In February, the Group also sold ZAO Voronezh Tyre Plant, which owned Amtel Group assets in Voronezh and was classified within assets held for sale as of 31 December 2011. The transactions were classified as discontinued operations in this combined financial information.
Also, as of 31 December 2011, other receivables included RR 700 of dividends receivable from OAO Cordiant (formerly OAO SIBUR-Russian Tyres), which were received during the year ended 31 December 2012.
26 172 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
11 TRADE AND OTHER RECEIVABLES (CONTINUED)
The aging analysis of receivables that are past due but not impaired is as follows:
Trade receivables Other receivables Total As of 31 December 2012 Up to 3 months 86 464 550 3 to 6 months 80 1 81 Total 166 465 631 As of 31 December 2011 Up to 3 months 225 5 230 3 to 6 months 204 - 204 Total 429 5 434
Movements in the Group’s provision for impairment of receivables are as follows:
Trade receivables Other receivables Total As of 31 December 2010 293 31 324 Written off during the year as uncollectible (35) (14) (49) Unused amounts reversed (52) (6) (58) Impairment for receivables 37 1,760 1,797 As of 31 December 2011 243 1,771 2,014 Written off during the year as uncollectible (38) (7) (45) Usage of provision for receivables - (1,602) (1,602) Unused amounts reversed (18) (158) (176) Impairment for receivables 140 14 154 As of 31 December 2012 327 18 345
The impairment provision was accrued on trade and other receivables which are more than 365 days past due. Accrual and release of the impairment provision have been recognised as other operating expenses in the profit and loss, except for impairment of accounts receivable which do not relate to the Group’s operating activity. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.
The amount of write-offs or impairment of trade receivables experienced by the Group for the last five years was not significant.
12 OTHER NON-CURRENT ASSETS
31 December 31 December 2012 2011 Intangible assets 1,515 1,209 Raw natural gas liquids in pipelines 494 633 Recoverable VAT related to assets under construction 137 364 Other 549 552 Total other non-current assets 2,695 2,758
13 INVENTORIES
31 December 31 December 2012 2011 Refined products and work in progress (net of impairment provisions of RR 93 and RR 85 as of 31 December 2012 and 2011, respectively) 14,728 13,227 Materials and supplies (net of impairment provisions of RR 259 and RR 130 as of 31 December 2012 and 2011, respectively) 9,467 8,172 Goods for resale (net of impairment provisions of RR 11 and RR 19 as of 31 December 2012 and 2011, respectively) 555 788 Total inventories 24,750 22,187
27 173 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
14 PREPAYMENTS AND OTHER CURRENT ASSETS
31 December 31 December 2012 2011 Financial assets Listed equity securities held for trading - 1,400 Derivative financial instruments - 548 Non-financial assets VAT receivable 8,201 4,567 Recoverable VAT 4,460 3,384 Prepayments and advances to suppliers 4,323 5,142 Prepaid borrowing cost 2,371 2,784 Other prepaid taxes 1,755 1,367 Recoverable excise 300 1,275 Other current assets 191 646 Total prepayments and other current assets 21,601 21,113 Less: Non-current portion of recoverable VAT related to assets under construction (137) (364) 21,464 20,749
During the year ended 31 December 2012, the Group disposed of its investment in PhosAgro shares. A gain on the disposal in the amount of RR 31 was recognised within other finance income (Note 26). During the year ended 31 December 2012, the Group received RR 90 in dividends from PhosAgro.
15 CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents include deposits held with banks, which are readily convertible to cash and have an original maturity of less than three months, of RR 5,127 and RR 5,775 as of 31 December 2012 and 2011, respectively.
Restricted cash included OAO Vnesheconombank letters of credit worth RR 890 as of 31 December 2012 (nil as of 31 December 2011). The letters of credit were opened to finance capital construction expenditures for the construction of a polypropylene plant in Tobolsk.
16 LONG -TERM DEBT
31 December 31 December Long-term debt payable to Currency Due 2012 2011 Variable rate OAO Vnesheconombank USD 2013-2023 17,844 13,718 OAO Nordea Bank USD 2013-2016 10,609 11,246 OAO Rosbank AKB USD 2013 4,556 4,829 HSBC Bank plc USD 2013-2014 4,556 - ING Bank Group EUR, USD 2008-2021 1,404 1,627 UniCredit Bank EUR 2013-2019 909 858 Fixed rate OAO Sberbank of Russia RR 2012-2014 12,857 18,000 TNK-BP Group RR, USD 2013-2017 4,485 4,545 OOO Gazprom Mezhregiongaz RR 2011-2014 2,085 4,547 OOO NPP Neftekhimia RR 2015 625 - Russian rouble-denominated bonds RR 2012 - 31 Other USD 2012-2013 13 15 Total long-term debt 59,943 59,416 Less: current portion (18,885) (7,700) 41,058 51,716
28 174 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
16 LONG -TERM DEBT (CONTINUED) Long-term RR-denominated debt bore average interest rates of 7.4 percent and 7.2 percent as of 31 December 2012 and 2011, respectively. Long-term USD-denominated debt bore average interest rates of 3.6 percent and 3.5 percent as of 31 December 2012 and 2011, respectively. Long-term EUR- denominated debt bore average interest rates of 1.8 percent and 3.1 percent as of 31 December 2012 and 2011, respectively.
OAO Vnesheconombank. In July 2010, the Group signed an agreement with OAO Vnesheconombank for project financing for the construction of new polypropylene production facilities in the Tobolsk area. As of 31 December 2012, the Group had received RR 17,844 out of a RR 37,142 (USD 1,220,000,000) tranche covered by export credit agencies. The financing is primarily secured by OOO Tobolsk-Polymer shares and property, plant and equipment valued at RR 15,523.
OOO Gazprom Mezhregiongaz. The Group has entered into a number of agreements with OOO Gazprom Mezhregiongaz (formerly OOO Mezhregiongaz), a subsidiary of Gazprom and a related party of the Group until October 2011. Under these agreements, OOO Gazprom Mezhregiongaz provided loans to OAO SIBUR Holding in the period 2007-2012 to finance the construction of gas transport infrastructure in the regions (Note 17).
TNK-BP Group. In March 2007, the Group and the TNK-BP Group established OOO Yugragazpererabotka, located in the Tyumen Region, to process associated petroleum gas. The Group received a 51 percent stake by contributing its subsidiaries OOO Nizhnevartovskiy GPK, OOO Belozerniy GPK and OOO Truboprovodnaya Company. TNK-BP Group received a 49 percent stake by contributing cash. The Group consolidates the contributed assets through call options included in the relevant agreement. Under these call options, the Group will pay interest at an annual rate of between 10 and 20 percent on the amounts contributed by TNK-BP Group.
Accordingly, OOO Yugragazpererabotka was consolidated as a wholly owned subsidiary of the Group and TNK-BP’s contribution is accounted for as an interest-bearing long-term loan in this combined financial information.
In December 2010, the Group and TNK-BP Group additionally contributed RR 560 each to OOO Yugragazpererabotka to finance the acquisition of OOO Nyagangazpererabotka, a Group subsidiary. Accordingly, the long-term loan from TNK-BP Group was increased by RR 560 on 31 December 2010.
During the period 2007-2012, OOO Yugragazpererabotka received long-term loans from TNK-BP Group of RR 1,248 to finance capital investments in the gas processing assets of OOO Nizhnevartovskiy GPK and OOO Belozerniy GPK. The loans have an interest rate of 8 percent and mature in December 2013.
The scheduled maturities of long-term debt as of 31 December 2012 and 2011 are presented below:
31 December 31 December 2012 2011 Due for repayment: Between one and two years 15,175 16,364 Between two and five years 12,679 22,636 After five years 13,204 12,716 Total long-term debt 41,058 51,716
Long-term debt includes fixed-rate loans with carrying values of RR 20,342 and RR 24,730, and fair values of RR 20,065 and RR 24,370 as of 31 December 2012 and 2011, respectively. All other long-term debt generally has variable interest rates linked to LIBOR or EURIBOR, and the carrying amounts approximate their fair value. The Group had no subordinated debt and no debt that may be converted into an equity interest in the Group.
29 175 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
16 LONG -TERM DEBT (CONTINUED)
As of 31 December 2012 and 2011 the Group had the following committed long-term credit facilities:
Undrawn Credit limit amount As of 31 December 2012 EUR-denominated (in millions of EUR) 14 2 USD-denominated (in millions of USD) 1,425 762 RR-denominated (in millions of RR) 27,000 18,000 As of 31 December 2011 EUR-denominated (in millions of EUR) 61 4 USD-denominated (in millions of USD) 1,646 1,160 RR-denominated (in millions of RR) 36,000 15,000
As of 31 December 2012 and 2011 the total rouble equivalent of the Group’s undrawn committed long- term credit facilities was RR 41,224 and RR 52,514, respectively.
Committed credit facilities include RR 17,057 under the Tobolsk-Polymer project finance facility, which can be used solely for this construction project, as well as RR 93 of ECA-backed financing linked to specific import contracts. The remaining RR 24,075 is available for general corporate purposes.
17 GRANTS AND SUBSIDIES
As a major investor in infrastructure and social projects in the regions where it operates, the Group has signed cooperation agreements with a number of regional authorities, including investment and financial support agreements, under which the Group is entitled to a partial refund of capital expenditures incurred in the respective regions subject to certain conditions, including amounts of regional investments in business and social infrastructure and local income taxes paid. Such refunds are made after supporting documents have been submitted to the relevant authority either in the form of an income tax rebate or a direct grant of public funds.
2012 2011 Balance as of 1 January 20,249 7,286 Less: current portion (700) - Non-current portion of grants and subsidies as of 31 December 19,549 7,286 Grants and subsidies received 12,761 13,632 Recognised in profit or loss (1,930) (669) Balance as of 31 December 31,080 20,249 Less: current portion (578) (700) Non-current portion of grants and subsidies as of 31 December 30,502 19,549
30 176 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
18 OTHER NON-CURRENT LIABILITIES
31 December 31 December 2012 2011 Financial liabilities Interest payable 1,665 1,353 Payables for acquisition of subsidiaries 1,375 3,090 Promissory notes payable 568 564 Restructured liabilities - 32 Total financial non-current liabilities 3,608 5,039 Non-financial liabilities Post-employment obligations 1,562 1,296 Other liabilities 1 177 Total non-financial non-current liabilities 1,563 1,473 Total other non-current liabilities 5,171 6,512
As of 31 December 2012 and 31 December 2011, payables for acquisition of subsidiaries included payables for the acquisition of OAO Polief of RR 1,375 and RR 1,640, respectively.
As of 31 December 2011, payables for acquisition of subsidiaries included a payable to the NOVATEK Group for the acquisition of OOO Biaxplen NK of RR 1,450.
The carrying amounts of other non-current liabilities approximate their fair value.
19 TRADE AND OTHER PAYABLES
31 December 31 December 2012 2011 Financial liabilities Accounts payable to contractors and suppliers of property, plant and equipment 12,565 9,094 Trade payables 8,947 6,673 Payables for acquisition of subsidiaries 1,730 - Interest payable 521 510 Promissory notes payable 2 2,631 Other payables 61 217 Total financial trade and other payables 23,826 19,125 Non-financial liabilities Advances from customers 6,270 3,769 Payables to employees 5,800 4,059 Other payables 95 2,320 Current portion of grants and subsidies 578 700 Total non-financial trade and other payables 12,743 10,848 Total trade and other payables 36,569 29,973
As of 31 December 2012 and 2011, payables to employees included provisions for annual bonuses of RR 3,970 and RR 2,540, respectively.
As of 31 December 2012, payables for acquisition of subsidiaries included payables for the acquisitions of OAO Polief of RR 119, and OOO Biaxplen NK of RR 1,611.
31 177 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
20 SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
31 December 2012 31 December 2011 Short-term debt: RR-denominated debt 200 15,542 USD-denominated debt 35,851 7,675 EUR-denominated debt - 277 Total short-term debt 36,051 23,494 Current portion of long-term debt 18,885 7,700 54,936 31,194
Short-term RR-denominated debt bore average interest rates of 7.8 percent as of 31 December 2011. Short-term USD-denominated debt bore average interest rates of 2 percent and 2.2 percent as of 31 December 2012 and 2011, respectively. Short-term EUR-denominated debt bore an average interest rate of 2 percent as of 31 December 2011.
The carrying amounts of short-term debt approximate their fair value.
As of 31 December 2012 and 2011, the Group had no committed short-term credit facilities.
21 TAXES OTHER THAN INCOME TAX PAYABLE
31 December 2012 31 December 2011 VAT 1,386 2,416 Property tax 723 227 Social taxes 284 235 Excise tax - 1,061 Other taxes 183 849 Total taxes other than income tax payable 2,576 4,788
22 EQUITY
The Group’s equity is comprised of the net investment of shareholders of the parent company and non- controlling interest.
Treasury shares. In February 2011, Gazprombank acquired 2,005,002 shares of OAO SIBUR Holding from the Group for a cash consideration of RR 6,984.
In November 2011, as a result of the acquisition of ZAO Miracle, the Company recognised 21,784,788 treasury shares at a cost of RR 72,374 (Note 32e). In February 2012, ZAO Miracle was formally merged with OAO SIBUR Holding under Russian law, which resulted in the Company redeeming its treasury shares.
Dividends. No dividends were accrued and paid during the year ended 31 December 2011. During the year ended 31 December 2012, dividends in the amount of RR 21,785 and RR 7,407 for the year ended 31 December 2011 and for the first six month of the year 2012, respectively, were paid out.
32 178 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
22 EQUITY (CONTINUED)
Net contributions/(distributions) from/to shareholders of the Mineral Fertilizers and Tyres businesses
Year ended 31 December 2011 Proceeds from disposal of the Mineral Fertilizers and Tyres businesses, net of related income tax of RR 4,295 33,023 Receivables for disposed businesses (Note 11) 8,589 Deferred income tax related to disposal of the Mineral Fertilizers and Tyres businesses (Note 27) 1,650 Sale of equity instruments of the Mineral Fertilizers and Tyres businesses 4,981 Dividends from the disposed businesses 7,499 Other distributions to disposed businesses (2,868) Total net contributions from shareholders of the Mineral Fertilizers and Tyres businesses 52,874
In accordance with the basis of preparation, the above transactions were recognised within equity (Note 2).
23 NON-CONTROLLING INTEREST
Year ended 31 December 2012 2011 Non-controlling interest at the beginning of the reporting year 1,423 672 Non-controlling interest share of net income of subsidiaries (41) (30) Non-controlling interest share of other comprehensive income (2) - Effect of acquisition of non-controlling interest in subsidiaries (389) 781 Non-controlling interest at the end of the reporting year 991 1,423
During the year ended 31 December 2012 the Group acquired non-controlling interest share in OAO NIPIgazpererabotka, OAO Voronezhsintezkauchuk, OAO Uralorgsintez, OAO Plastic and OOO Orton (formerly KOAO Orton) (Note 31). The difference between the purchase consideration of RR 266 and the carrying amount of non-controlling interest shares acquired has been recorded in equity.
24 REVENUE
Year ended 31 December 2012 2011 Energy products: Liquefied petroleum gas 54,760 52,502 Naphtha 25,727 21,118 Natural gas 24,938 17,440 Methyl tertiary butyl ether (MTBE) 16,731 14,946 Raw natural gas liquids 3,911 2,113 Other fuels and fuel additives 3,342 4,218 Petrochemical products: Synthetic rubbers 41,134 50,971 Plastics and organic synthesis products 39,633 24,742 Intermediates and other chemicals 23,493 24,407 Basic polymers 22,179 21,782 Total energy and petrochemical products (net of excise tax, custom duties and VAT) 255,848 234,239 Sales of processing services 5,184 5,171 Other sales 10,298 9,250 Total revenue 271,330 248,660
33 179 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
25 OPERATING EXPENSES
Year ended 31 December 2012 2011 Feedstock and materials 63,197 49,309 Transportation and logistics 37,525 30,909 Energy and utilities 29,793 28,950 Staff costs 26,116 22,091 Depreciation and amortisation 10,317 8,216 Goods for resale 9,775 15,516 Repairs and maintenance 7,602 5,001 Services provided by third parties 6,559 6,437 Rent 4,451 2,962 Taxes other than income tax 2,118 1,543 Charity and sponsorship 1,586 1,051 Marketing and advertising 871 783 Impairment of property, plant and equipment 262 - Other 2,441 3,415 Gain on disposal of property, plant and equipment (1,728) (308) Change in work-in-progress and refined products balances (1,267) (5,668) Total operating expenses 199,618 170,207
26 FINANCE INCOME AND EXPENSES
Year ended 31 December 2012 2011 Foreign exchange gain from financing activities 2,556 - Foreign exchange gain from non-financing activities 77 - Interest income 870 2,142 Unwinding of discount on loans receivable and non-current accounts receivable 685 270 Fair value gain on listed equity securities held for trading 242 - Fair value gain on derivative financial instruments 53 498 Discount on borrowings and non-current accounts payable 88 - Other income 30 - Total finance income 4,601 2,910 Foreign exchange loss from financing activities - (3,660) Interest expenses (696) (2,524) Unwinding of discount on borrowings and non-current accounts payable (646) (314) Fair value loss on listed equity securities held for trading - (600) Other expenses (219) (227) Total finance expenses (1,561) (7,325)
27 INCOME TAXES
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes within one entity. The offset amounts are as follows:
31 December 31 December 2012 2011 Deferred income tax assets to be recovered after more than 12 months 8,093 9,654 Deferred income tax assets to be recovered within 12 months 3,012 726 Total deferred income tax assets 11,105 10,380 Deferred income tax liabilities to be paid after more than 12 months (8,743) (6,514) Deferred income tax liabilities to be paid within 12 months (1,428) (1,596) Total deferred income tax liabilities (10,171) (8,110)
34 180 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
27 INCOME TAXES (CONTINUED)
The movement in deferred income tax assets and liabilities during the year is as follows:
31 Business Credited/ 31 Business Credited/ 31 December combi- (charged) to December combi- (charged) to December 2012 nations and profit or loss 2011 nations and profit or loss or 2010 acquisitions or equity acquisitions equity Tax effects of taxable temporary differences Property, plant and equipment (7,795) (491) (1,798) (5,506) (633) (1,842) (3,031) Inventory (906) - (573) (333) - (333) - Investments in joint ventures and associates (199) - (68) (131) - (44) (87) Prepaid borrowing costs (723) - 191 (914) - (67) (847) Disposal of the Mineral Fertilizers and Tyres businesses - - 1,086 (1,086) - (1,086) - Others (548) - (408) (140) - (112) (28) Deferred tax liabilities (10,171) (491) (1,570) (8,110) (633) (3,484) (3,993)
Tax effects of deductible temporary differences Tax loss carry- forwards 2,846 447 (914) 3,313 1,981 662 670 Inventory 779 - 779 - - (220) 220 Trade and other receivables - - (134) 134 - 115 19 Payables to employees 1,106 - 598 508 - 8 500 Grants and subsidies 5,900 - 2,316 3,584 - 3,584 - Disposal of the Mineral Fertilizers and Tyres businesses - - (2,647) 2,647 - 2,647 - Others 474 280 194 - 194 - Deferred tax assets 11,105 447 278 10,380 1,981 6,990 1,409 Total net deferred tax assets/(liabilities) 934 (44) (1,292) 2,270 1,348 3,506 (2,584)
Differences between the recognition criteria in Russian tax regulations and IFRS give rise to temporary differences between the carrying value of certain assets and liabilities for financial reporting and income tax purposes. The tax effect of changes in these temporary differences is recorded at the statutory tax rate.
35 181 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
27 INCOME TAXES (CONTINUED)
Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefits through future taxable profits is probable. The Group did not recognise deferred income tax assets of RR 27 (2011: RR 683) regarding losses amounting to RR 136 (2011: RR 3,414) that can be carried forward against future taxable income. Under the Russian Tax Code, a tax loss can be carried forward for ten years from its origination date, after which it expires. The temporary differences associated with undistributed earnings of subsidiaries comprised RR nil and RR 1,395 as of 31 December 2012 and 2011, respectively. A deferred tax liability on these temporary differences was not recognised because management controls the timing of this temporary difference reversal, and believes that there will be no reversal in the foreseeable future.
Year ended 31 December 2012 2011 Current income tax: Current income tax on profits for the year 14,359 17,749 Adjustments for prior years 165 (332) Total current income tax 14,524 17,417 Deferred income tax: Accrual/(reversal) of temporary differences 1,292 (3,506) Temporary differences related to disposal of the Mineral Fertilizers and Tyres businesses (Note 22) - 1,650 Total deferred income tax 1,292 (1,856) Total income tax expense 15,816 15,561
The tax on the Group’s profit before income tax differs from the theoretical amount that would arise if the Russian statutory tax rate applicable to the consolidated entities’ profits were used as follows:
Year ended 31 December 2012 2011 Profit before income tax and non-controlling interest 76,216 77,120 Theoretical income tax expense at statutory rate of 20 percent (15,243) (15,424) Tax effect of items which are not deductible or assessable for taxation purposes: Non-deductible expenses (2,514) (2,683) Non-taxable income 1,941 2,546 Total income tax expense (15,816) (15,561)
36 182 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
28 CASH GENERATED FROM OPERATIONS
Year ended 31 December Notes 2012 2011 Profit before income tax from continuing operations 76,216 77,120 Adjustments to profit before income tax and non-controlling interest of continuing operations 25 Depreciation and amortisation 10,317 8,216 26 Foreign exchange (gain)/loss, net (2,633) 3,660 19 Accrual of annual bonuses 1,430 - Impairment of other receivables - 1,731 Accrual/(reversal) of provision for inventory obsolescence and valuation allowances 123 (84) 26 Interest expense 696 2,524 26 Discount on borrowings and non-current accounts payable (88) - Unwinding of discount on loans receivable and non-current accounts 26 receivable (685) (270) Unwinding of discount on borrowings and non-current liabilities and 26 other payables 646 314 26 Fair value (gain)/loss on listed equity securities held for trading (242) 600 26 Fair value gain on derivative financial instruments (53) (498) 25 Gain on disposal of property, plant and equipment (1,728) (308) 8 Share of net income of joint ventures and associates (751) (236) 26 Interest income (870) (2,142) 4 Gain on acquisition of subsidiaries (430) (4,957) (Gain)/loss on disposal of investments (283) 380 6,25 Impairment of property, plant and equipment 262 - Other adjustments 653 (1,566) Operating cash flows before working capital changes of continuing operations 82,580 84,484 Changes in working capital of continuing operations Decrease in trade and other receivables 1,720 322 Increase in prepayments and other current assets (3,176) (5,092) Increase in inventories (1,076) (7,327) Increase/(decrease) in trade and other payables 2,477 (502) (Decrease)/increase in taxes payable (1,531) 673 Total changes in working capital of continuing operations (1,586) (11,926) Cash generated from operating activities of continuing operations before income tax payment 80,994 72,558 Income tax paid from continuing operations (18,333) (18,377) Net cash from operating activities of continuing operations 62,661 54,181
37 183 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
Loans and receivables 31 December 2012 31 December 2011 Non-current financial assets Trade and other receivables 94 335 Loans receivable 743 638 Total non-current financial assets 837 973 Current financial assets Cash and cash equivalents and restricted cash 14,460 14,971 Trade and other receivables 15,983 32,333 Loans receivable 1,222 911 Total current financial assets 31,665 48,215 Total current and non-current financial assets 32,502 49,188
Financial instruments at fair value through profit and loss 31 December 2012 31 December 2011 Current financial assets Listed equity securities held for trading - 1,400 Derivative financial instruments - 548 Total current financial assets - 1,948
Financial instruments at amortised cost 31 December 2012 31 December 2011 Non-current financial liabilities Trade and other payables 3,040 4,475 Debt 41,058 51,716 Promissory notes payable 568 564 Total non-current financial liabilities 44,666 56,755 Current financial liabilities Trade and other payables 23,824 16,494 Debt 54,936 31,194 Promissory notes payable 2 2,631 Total current financial liabilities 78,762 50,319 Total current and non-current financial liabilities 123,428 107,074
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency exchange risk, cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management focuses on financial market unpredictability, and seeks to minimise potential adverse effects on the Group’s financial performance. The Group focuses on managing exposure to risks that could lead to a potential loss of RR 1,000 or more.
Financial risk management is carried out by the central finance function. The Group’s treasury manages credit risks relating to transactions with financial institutions. Credit risks relating to operating transactions are managed by the relevant business units according to written policies established at the Group level. Liquidity risk is managed by the Group’s treasury.
Foreign exchange risk. As the Group operates internationally, exports its products to Europe and Asia, and has a substantial amount of foreign currency-denominated debt, it is exposed to foreign exchange risk.
38 184 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The table below summarises the Group’s exposure to foreign currency exchange risk at the reporting date:
Denominated in As of 31 December 2012 USD EUR Other currency Cash and cash equivalents 644 1,128 15 Trade and other receivables 4,750 1,247 - Total financial assets 5,394 2,375 15 Trade and other payables 1,568 2,298 23 Debt 76,251 2,171 - Total financial liabilities 77,819 4,469 23 Denominated in As of 31 December 2011 USD EUR Other currency Cash and cash equivalents 88 571 35 Trade and other receivables 5,439 2,138 1 Total financial assets 5,527 2,709 36 Trade and other payables 1,436 213 3 Debt 40,370 2,630 - Total financial liabilities 41,806 2,843 3
The sensitivity analysis given in the table below reflects the hypothetical gain/(loss) that would occur assuming the Russian rouble had weakened/strengthened by 10 percent against the US dollar and euro, and that there were no changes in the portfolio of instruments and other variables as of 31 December 2012 and 2011, respectively.
Increase in exchange rate 31 December 2012 31 December 2011 Effect on pre-tax profit RR / USD 10% (7,243) (3,628) RR / EUR 10% (209) (14)
Decrease in exchange rate 31 December 2012 31 December 2011 Effect on pre-tax profit RR / USD 10% 7,243 3,628 RR / EUR 10% 209 14
Cash flow and fair value interest rate risk. The Group’s interest rate risk arises from short- and long- term debt. Debt issued at variable rates exposes the Group to cash flow interest rate risk. Debt issued at fixed rates exposes the Group to fair value interest rate risk. During 2012 and 2011, the Group’s debt at floating rates was denominated in Russian roubles, US dollars and euro (Notes 16 and 20). The Group’s interest-bearing assets primarily included loans receivable and cash deposits as of 31 December 2012 and 2011.
The Group analyses its interest rate exposure on a regular basis. Financing decisions are made after careful consideration of various scenarios and may include refinancing, renewing existing positions or alternative financing. The Group currently does not use derivative instruments to hedge its cash flow and fair value interest rate risk.
39 185 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The Group’s financial results are sensitive to changes in interest rates on the floating portion of its debt portfolio. If the interest rates applicable to floating rate debt were higher/lower, assuming all other variables remain constant, it is estimated that the Group’s profit before income tax would change by the amounts shown below:
31 December 31 December Increase in floating rates by 2012 2011 Effect on profit before income tax RR-denominated debt 10% - (87) USD-denominated debt 10% (191) (122) EUR-denominated debt 10% (4) (6)
31 December 31 December Decrease in floating rates by 2012 2011 Effect on profit before income tax RR-denominated debt 10% - 87 USD-denominated debt 10% 191 122 EUR-denominated debt 10% 4 6
Credit risk. Credit risk arises from cash and cash equivalents (including short-term deposits with banks), as well as from loans issued and credit exposures to customers, including outstanding receivables and committed transactions.
Cash and cash equivalents are deposited only with banks that the Group considers at the time of deposit to have minimal risk of default within set credit limits. With regard to customers, a large portion of the Group’s domestic receivables come from Russia’s largest companies, including NOVATEK Group, Cordiant Group, LUKOIL Group, TNK-BP Group, OOO Pirelli Tyre Russia, which the Group has assessed as having high credit quality. Regarding export customers, the Group has also prioritised selling to key market players including Aygaz A.S. Group, Total Group, SHV Gas Supply & Risk Management Group, Primagaz Central Europe GesmbH Group, Neste Oil Group, Continental Group, Trafigura Group, International Petroleum Products Group and Naftomar LTD INC, among others. Export sales are secured primarily by letters of credit or are prepaid. In assessing the credit quality of its customers, the Group takes into account the market segment, the relevant company’s financial position and its market share and past experience alongside other factors. Although collection of accounts receivable could be influenced by economic factors affecting these customers, management believes that there is no significant risk of loss to the Group beyond the provisions already recorded. The maximum credit risk exposure for accounts receivable is RR 16,077 and RR 32,668 as of 31 December 2012 and 2011, respectively. The Group estimates the fair value of its financial liabilities as a close-out amount that does not incorporate changes in the Group’s credit risk.
The credit risk posed by off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to adhere to the relevant contract. The Group uses the same credit policies in assuming conditional obligations as it does for on-balance sheet financial instruments, through established credit approvals, risk control limits and monitoring procedures.
40 186 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
In 2011, the Group issued a finance guarantee for 50 percent of a loan obtained by OOO RusVinyl. The maximum credit risk exposure for the guarantee issued by the Group was RR 10,917 and RR 3,089 as of 31 December 2012 and 31 December 2011, respectively and increased as a result of new tranches under existing credit facilities of OOO RusVinyl. The table below shows the credit limit and balance of cash and cash equivalents and restricted cash of the major counterparty groups as of the reporting date. As of and for the year ended 31 December 2012 Credit limit for one Bank equity Rating bank Balance Major banks >= 25,000 B+/B2 5,000 14,046 Secondary banks >= 5,000 B+/B2 2,500 7 Other banks Not set Not set Individually set 407 Total cash and cash cash equivalents and restricted cash 14,460
As of and for the year ended 31 December 2011 Credit limit for one Bank equity Rating bank Balance Major banks >= 25,000 B+/B2 5,000 12,517 Secondary banks >= 5,000 B+/B2 2,500 1,700 Other banks Not set Not set Individually set 754 Total cash and cash cash equivalents and restricted cash 14,971 No credit limits were exceeded during the reporting period, and management does not expect any losses resulting from these counterparties’ non-performance. The maximum credit risk exposure for cash and cash equivalents is RR 14,460 and RR 14,971 as of 31 December 2012 and 2011, respectively.
Liquidity risk and capital risk management. Liquidity risk management includes maintaining sufficient cash balances, available funding from an adequate amount of committed credit facilities, and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group’s management maintains funding flexibility by ensuring funds availability under committed credit lines and expected cash flows from operating activities. Management monitors rolling forecasts of the Group’s liquidity reserve, comprising the undrawn debt facilities (Notes 16 and 20) and cash and cash equivalents on the basis of expected cash flow. This is carried out at the Group level on a monthly and annual basis. In addition, the Group's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these while maintaining debt financing plans.
The table below analyses the Group’s financial liabilities in relevant maturity groupings based on the remaining period at the reporting date up to the contractual maturity date. Less than one Between one Between two Over five As of 31 December 2012 year and two years and five years years Debt 58,058 17,230 16,025 15,695 Trade and other payables 23,826 3,608 - - Total 81,884 20,838 16,025 15,695 As of 31 December 2011 Debt 34,455 18,897 26,725 15,268 Trade and other payables 19,125 5,039 - - Total 53,580 23,936 26,725 15,268
As the amounts in the table represent contractual undiscounted cash flows, they may not reconcile with those disclosed in the combined statements of financial position on debt, derivative financial instruments, trade and other payables.
41 187 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
29 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) In 2012 and 2011, the Group monitored liquidity on the basis of the net debt to EBITDA ratio, which was calculated as net debt divided by EBITDA. Net debt is calculated as total debt less cash, cash equivalents and short-term deposits. EBITDA for any period means the Group’s profit/loss for the period adjusted for income tax expense, finance income and expenses, share of net income/loss of joint ventures and associates, depreciation and amortisation, impairment of property, plant and equipment, gain/loss on disposal of investments and exceptional items.
The Group has adopted a financial policy that includes maintaining a net debt to EBITDA ratio of no higher than 2.5 and an EBITDA to interest expense ratio of no lower than 7. In addition, the policy requires the Group to maintain average forward-looking net debt/EBITDA for the three forthcoming years of not higher than 2. This policy is stricter than the contractual requirements. The net debt to EBITDA ratio was 1 and 0.78 as of 31 December 2012 and 2011, respectively. The EBITDA to interest expense ratio was 118 and 34 for the years ended 31 December 2012 and 2011, respectively.
The primary objectives of the Group’s liquidity management policy is to ensure a strong liquidity base to fund and sustain its business operations through prudent investment decisions and to maintain investor, market and creditor confidence to support its business activities.
30 SEGMENT INFORMATION
The Group operates as a vertically integrated business, gathering and processing hydrocarbon feedstock, which it obtains from major Russian oil and gas companies, and producing and selling energy products as well as a wide range of petrochemical products.
The Group’s chief operating decision-makers are the chief executive officer, two executive directors and the chief financial officer. These executives review the Group’s internal reporting in order to assess performance and allocate resources.
The Group’s management has determined two operating and reportable segments:
• Feedstock & Energy – processing of associated petroleum gas and other hydrocarbon feedstock to produce energy products, including natural gas, raw natural gas liquids and naphtha, which are marketed and sold externally and are also used as feedstock by the Petrochemicals segment. In addition, the Feedstock & Energy segment produces fuel additives, including methyl tertiary butyl ether (MTBE), 100% of which is sold externally; and • Petrochemicals – the production of basic polymers, synthetic rubbers, plastics, organic synthesis products and other petrochemical products.
The Group’s management assesses the performance of each operating segment based on their respective EBITDA contributions. The revenues and expenses of some of the Group’s subsidiaries, which primarily provide energy supply, transportation, processing, managerial and other services to other Group entities, are not allocated into the operating segments. Other information provided to management, except as noted below, is measured in a manner consistent with that in this combined financial information.
Feedstock & Energy Petrochemicals Unallocated Total Year ended 31 December 2012 Total segment revenue 168,091 135,634 21,298 325,023 Inter-segment transfers (33,656) (8,686) (11,351) (53,693) External revenue 134,435 126,948 9,947 271,330 EBITDA 74,831 16,130 (8,670) 82,291 Year ended 31 December 2011 Total segment revenue 149,478 134,243 18,221 301,942 Inter-segment transfers (36,329) (9,525) (7,428) (53,282) External revenue 113,149 124,718 10,793 248,660 EBITDA 68,106 24,330 (5,767) 86,669
42 188 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
30 SEGMENT INFORMATION (CONTINUED)
A reconciliation of EBITDA to profit before income tax is provided as follows:
Continuing operations Feedstock & Petrochemicals Unallocated Total Energy Year ended 31 December 2012 EBITDA 74,831 16,130 (8,670) 82,291 Depreciation and amortisation (4,216) (4,656) (1,445) (10,317) Impairment of property, plant and equipment - (262) - (262) Operating profit 70,615 11,212 (10,115) 71,712 Finance income - - 4,601 4,601 Finance expenses - - (1,561) (1,561) Gain on acquisition of subsidiaries - - 430 430 Share of net income of joint ventures and associates - - 751 751 Gain on disposal of investments - - 283 283 Total profit before income tax 70,615 11,212 (5,611) 76,216
Year ended 31 December 2011 EBITDA 68,106 24,330 (5,767) 86,669 Depreciation and amortisation (3,152) (3,410) (1,654) (8,216) Operating profit 64,954 20,920 (7,421) 78,453 Finance income 2,910 2,910 Finance expenses - - (7,325) (7,325) Gain on acquisition of subsidiaries - - 4,957 4,957 Share of net income of joint ventures and associates - - 236 236 Loss on disposal of investments - - (380) (380) Impairment of notes receivable - - (1,731) (1,731) Total profit before income tax 64,954 20,920 (8,754) 77,120
Geographical information. All of the Group’s production facilities are located in the Russian Federation.
The breakdown of revenues by geographical regions is as follows:
Year ended 31 December 2012 2011 Russia 150,597 141,999 Europe 79,639 66,330 Asia 23,205 23,680 CIS 14,937 13,077 Other 2,952 3,574 Total revenue 271,330 248,660
Sales to Europe mainly cover the following countries: Switzerland, Austria, Poland, France, the Netherlands, Greece, Hungary, Germany, Finland, and the Czech Republic. Sales to Asia mainly cover the following countries: China, Turkey, the United Arab Emirates, Hong Kong, Taiwan, Korea, Singapore, and India. Sales to the CIS mainly cover the following countries: Ukraine, Belarus, Kazakhstan, and Moldova.
43 189 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
31 PRINCIPAL SUBSIDIARIES
Principal wholly owned operating subsidiaries of the Group
OAO Gubkinskiy GPK** OOO Togliattikauchuk OAO Yuzhno-Balykskiy GPK** OOO Tobolsk-Neftekhim OOO Noyabrskiy GPK*, ** OAO Krasnoyarskiy ZSK OAO SIBUR-Neftekhim ZAO SIBUR-Khimprom OAO SIBUR-PETF ZAO SIBUR-Trans SIBUR International GmbH (formerly Citco Waren H m.b.H.) OOO Tomskneftekhim OAO SIBUR TyumenGaz OOO Biaxplen NK OOO SIBUR-Geotekstil*** OOO Biaxplen (from 29 March 2012) OOO SIBUR GEOSINT *OOO Noyabrskiy GPK is a holding company for Muravlenkovskiy GPK and Vyngapurovskiy GPK. ** OAO Gubkinsky GPK, OAO Yuzhno-Balykskiy GPK and OOO Noyabrskiy GPK merged with OAO SIBUR- TyumenGaz in December 2012. *** OOO SIBUR-Geotekstil merged with OOO SIBUR GEOSINT in July 2012. Other principal operating subsidiaries of the Group Effective percent of share capital held by the Group as of 31 December 31 December
2012 2011 OAO Uralorgsintez 100 97 OAO Voronezhsintezkauchuk 100 98 ООО Orton (formerly KOAO Orton) 100 99 OAO Plastic 100 99 OAO NIPIgazpererabotka 90 76 OAO Polief 83 83 OOO Yugragazpererabotka (Note 16, 34)* 51 51 * OOO Yugragazpererabotka (TNK-BP Group is the second shareholder) controls OOO Belozerniy GPK, OOO Nizhnevartovskiy GPK and OOO Nyagangazpererabotka.
32 RELATED PARTIES
For the purposes of this combined financial information, parties are generally considered to be related if one party is part of the Group’s key management or Board of Directors, has the ability to control or jointly control the other party, they are under common control, or if one party can exercise significant influence over the other party in the financial and operational decision-making process. In considering each possible related-party relationship, attention is paid to the substance of the relationship, not merely the entities’ legal form.
The nature of the related-party relationships for those related parties with whom the Group entered into significant transactions during the year ended 31 December 2012 and 2011, or had significant balances outstanding as of 31 December 2012 and 2011, are presented below.
a) Gazprombank Group
Year ended 31 December 2011 Investing and financing activities Interest expense 133 Interest income 226
In October 2011, the Gazprombank Group ceased to be a related party of the Group.
44 190 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
32 RELATED PARTIES (CONTINUED) b) Gazprom Group
Year ended 31 December 2011 Operating activities Purchases of materials and supplies 10,298 Purchases of gas transportation and other transportation services 1,738 Purchases of other goods and services 451 Total purchases 12,487 Dry gas sales 4,562 Petrochemical product sales 1,347 Sales of other goods and services 13 Total revenues 5,922
In October 2011, Gazprom Group companies ceased to be related parties of the Group. c) NOVATEK Group and OOO NOVA
During the years ended 31 December 2012 and 2011, the Group engaged in transactions with OAO NOVATEK and its subsidiaries (jointly the “NOVATEK Group”). OAO NOVATEK has been a related party of the Group since December 2010 as Mr. Mikhelson, the Group’s controlling shareholder, is also the Chairman of the Board of Directors and a shareholder of OAO NOVATEK. The Group’s transactions and balances with the NOVATEK Group during relevant periods are set out below:
31 December 2012 31 December 2011 Trade and other receivables 806 - Advances and prepayments 23 - Trade and other payables (including payables for the acquisition of subsidiaries) 1,641 1,502 Advances received 1,690 -
Year ended Year ended 31 December 2012 31 December 2011 Operating activities Purchases of natural gas 2,023 - Natural gas sales 9,434 - Liquid hydrocarbons sales 53 -
As of 31 December 2012, trade and other payables included RR 1,611 in payables to the NOVATEK Group for the acquisition of OOO Novatek-Polymer (renamed OOO Biaxplen NK in December 2010). This amount is payable by 30 September 2013. As of 31 December 2011, RR 1,450 payable to the NOVATEK Group for the acquisition of OOO Novatek-Polymer was included in other non-current liabilities.
45 191 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
32 RELATED PARTIES (CONTINUED)
During the year ended 31 December 2012 the Group engaged in transactions with OOO Nova related to the construction of a natural gas liquids pipeline connecting the Purovsky gas condensate plant, the Yuzhno-Balykskaya main pumping station and the Tobolsk production site in the Tyumen Region. OOO Nova has been under the significant influence of Mr. Mikhelson, the Group’s controlling shareholder and thus has been a related party of the Group since December 2010. The Group’s transactions and balances with OOO Nova during the relevant periods are set out below:
31 December 2012 Trade and other receivables 1,314 Advances and prepayments 521 Trade and other payables 827
Year ended 31 December 2012 Operating activities Sales of other goods and services 1,829 Purchases of other goods and services 1,831
d) Gunvor Group and Stroytransgaz Group
In October 2011, the Gunvor Group, jointly controlled by Mr. Gennady N. Timchenko, became a related party of the Group after Mr. Timchenko acquired significant influence over the Group. The Group engaged in transactions with Gunvor Group companies both before and during the period that the Gunvor Group was a related party. These transactions included sales of energy products to the Gunvor Group.
For the years ended 31 December 2012 and 2011, the Group’s revenue from the sale of energy products to Gunvor Group amounted to RR 5,248 and RR 1,846, respectively. As of 31 December 2012 and 31 December 2011, the Group’s trade receivables included trade receivables from Gunvor Group of RR 5 and RR 497, respectively.
During twelve months ended 31 December 2012, the Group entered into transactions with OAO Stroytransgaz and its subsidiary, OOO Stroytransgaz-M (together, the "Stroytransgaz companies"), the ultimate beneficiary of which is Mr. Timchenko, one of the Group’s principal shareholders. The transactions primarily included purchases by the Group from the Stroytransgaz companies of construction, repair and maintenance services. The Group’s transactions and balances with the Stroytransgaz companies during the relevant periods are set forth below: 31 December 2012 31 December 2011 Trade and other receivables 1,135 - Trade and other payables 121 4
Year ended 31 December 2012 Operating and investing activities Purchases of construction and repair and maintenance services 1,015
46 192 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
32 RELATED PARTIES (CONTINUED) e) ZAO Miracle acquisition
In December 2010, ZAO Miracle, a company ultimately controlled by Mr. Mikhelson, acquired rights to a 50 percent stake in the Company from the previous owners.
In September 2011, Mr. Mikhelson became the Group’s controlling shareholder with the acquisition of 9,141 additional shares in the Company by ZAO Miracle, which thus increased its ownership stake in the Company to 50.02 percent.
In September and October 2011, the Company provided RR 34,250 in loans to ZAO Miracle at an average interest rate of 8.5 percent, which mature in September 2013. The loans were used for the partial refinancing of bank loans that ZAO Miracle received for the acquisition of Company shares (Note 22).
In November 2011, the Company acquired a 100 percent equity stake in ZAO Miracle for RR 1. ZAO Miracle is not a business as defined by IFRS 3 Business Combinations; thus, this acquisition was not accounted for under the accounting purchase method. As a result of the acquisition, the Group recognised the following assets and liabilities of ZAO Miracle:
7 November 2011 Deferred tax assets 797 Investments in OAO SIBUR Holding shares 72,374 Short-term investments 50 Cash and cash equivalents 41 Other assets 13 Long-term loans and debt, including: (72,598) long-term loans from the Group (34,419) short-term loans and debt (676)
As a result of the acquisition, OAO SIBUR Holding effectively acquired 50 percent less one of its own shares, which were deducted from equity. Additionally, the long-term loan provided by the Group to ZAO Miracle before the acquisition was effectively settled at the acquisition date without impact on profit or loss.
In December 2011, the Company fully repaid the bank loans received by ZAO Miracle for financing the acquisition of Company shares. f) Remuneration of directors and key management
The Group’s Board of Directors comprises nine individuals, including shareholder representatives. Members of the Board of Directors are entitled to annual compensation, as approved by the Annual General Shareholders’ Meeting.
In 2012 and 2011, the Company paid RR 94 and RR 218 net of social taxes, respectively, to Board of Directors members as compensation for the years ended 31 December 2012 and 2011, respectively.
Key management has comprised 15 individuals during the third and fourth quarter of 2012 (16 during the first and second quarters of 2012). Key management personnel are entitled to salaries, bonuses, voluntary medical insurance and other employee benefits. Remuneration for key management personnel is determined by the terms set out in the relevant annual employment contracts. Remuneration of key management personnel amounted to RR 943 and RR 1,028 net of social taxes for the years ended 31 December 2012 and 2011, respectively.
47 193 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
32 RELATED PARTIES (CONTINUED)
g) Joint ventures and associates
As of 31 December 2012 and 2011, the Group had the following balances with its associated companies:
31 December 31 December 2012 2011 Loans receivable 1,661 1,139 Short-term debt 625 500 Trade and other receivables 68 1,314 Trade and other payables 423 259
Year ended 31 December 2012 2011 Operating and investing activities Purchases of materials, goods and services 4,814 7,626 Sales of materials 1,889 2,530 Interest income 675 704
h) Mineral Fertilizers
Subsidiaries belonging to the SIBUR Group’s Mineral Fertilizers business are considered related parties for the purpose of this combined financial information up to the moment when the business was disposed of by the SIBUR Group to third parties in December 2011. The following transactions which the Group performed with the Mineral Fertilizers business were included in the relevant financial information line items.
Year ended 31 December 2011 Operating and investing activities Sales of raw materials 4,346 Sales of electricity 1,025 Interest income 556 Unwinding of discount on loans receivable 270
i) Tyres
Subsidiaries belonging to the SIBUR Group’s Tyres business are considered related parties for the purpose of this combined financial information up to the moment when the business was disposed of by the SIBUR Group to third parties in December 2011. The following transactions which the Group performed with the Tyres business were included in the relevant financial information line items.
Year ended 31 December 2011 Operating and financing activities Sales of raw materials and other inventories 13,365 Sales of electricity 965 Sales of other work and services 40 Interest expense 294
48 194 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
33 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS
Operating environment. The Russian Federation displays certain characteristics of an emerging market. Tax, currency and customs legislation is subject to varying interpretations and contribute to the challenges faced by companies operating in Russia.
The international sovereign debt crisis, stock market volatility and other risks could have a negative effect on the Russian financial and corporate sectors. Management determined impairment provisions by considering the economic situation and outlook at the end of the reporting period. Provisions for trade receivables are determined using the “incurred loss” model required by the applicable accounting standards. These standards require recognition of impairment losses for receivables arising from past events and prohibit recognition of impairment losses that could arise from future events, no matter how likely those future events are.
Russia’s future economic development is dependent upon both external factors and government measures to sustain growth and change the tax, legal and regulatory environment. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment.
Legal proceedings. During the reporting period, the Group was involved in a number of court proceedings (as both plaintiff and defendant) arising in the ordinary course of business. Management believes there are no current legal proceedings or other claims outstanding which could have a material adverse effect on the Group’s operational results or financial position, and which have not been accrued or disclosed in the combined financial information.
Taxation. Russian tax, currency and customs legislation is subject to varying interpretations and changes frequently. Group management's interpretation of such legislation, as applied to the Group’s transactions and activity, may be challenged by the relevant federal and regional authorities.
The Russian tax authorities may be taking a more assertive position in their interpretation of the law and assessments, and it is possible that transactions and activities that have not been challenged in the past may now be challenged. The Supreme Arbitrazh Court has issued guidance to the lower courts on reviewing tax cases, providing a systematic roadmap for anti-avoidance claims, and it is possible that this will significantly increase the level and frequency of the tax authorities’ scrutiny. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for the three calendar years preceding the year under review.
Russian transfer pricing legislation was amended from 1 January 2012. These new transfer pricing rules appear more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). This new legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length. The Group’s management exercises its judgment about whether or not the transfer pricing documentation that the entity has prepared, as required by the new legislation, provides sufficient evidence to support the entity's tax positions and related tax returns. Given that the practice of implementing the new Russian transfer pricing rules has not yet fully developed, the impact of any challenge to an entity's transfer prices cannot be reliably predicted; however, it may be significant to the financial condition and/or overall operations of the entity.
49 195 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
33 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS (CONTINUED)
The Group includes companies incorporated outside of Russia. The Group’s tax liabilities are determined on the assumption that these companies are not subject to Russian income tax, if they are not permanently established in Russia. Russian tax law does not provide detailed rules on the taxation of foreign companies. It is possible that, with the evolution of the interpretation of these rules and changes in the Russian tax authorities’ approach, the non-taxable status of some or all of the Group’s foreign companies in Russia may be challenged. The impact of any such challenge cannot be reliably assessed; however, it may be significant to the financial condition and/or overall operations of the entity. The Group’s management believes that its interpretation of the relevant legislation is appropriate and that the Group's tax, currency and customs positions will be sustained. Where the Group’s management believes it is probable that a position cannot be sustained, an appropriate amount has been accrued for in this IFRS combined financial information.
Environmental matters. The enforcement of environmental regulation in the Russian Federation is evolving, and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. Obligations are recognised as soon as they are determined. Potential liabilities which could arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated, but could be material. Management believes that there are no likely liabilities for environmental damage, which would have a materially adverse impact on the Group’s financial position or operating results.
Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of employees in those areas where it has production operations, including contributions to the construction, development and maintenance of housing, hospitals, transport services, recreation and other social needs. Such funding is expensed as incurred.
Compliance with covenants. The Group is subject to certain covenants primarily related to its debt. Non- compliance with such covenants may result in negative consequences for the Group, i.e. increased borrowing costs. Management believes that the Group is in compliance with its covenants.
Capital commitments. In the normal course of business, the Group has entered into contracts for the purchase of property, plant and equipment. The Board of Directors has approved a capital expenditure budget for 2013 of RR 73,694 (2012: RR 68,479).
As of 31 December 2012, the Group had contractual capital expenditure commitments of RR 55,049.
50 196 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
34 EVENTS AFTER THE REPORTING DATE
On 31 January 2013, the Group issued notes worth USD 1,000,000,000 on the Irish Stock Exchange bearing 3.914 percent annual interest and maturing in 2018. The Group used the aggregate net proceeds from the notes issue for general corporate purposes and refinancing of short-term debt.
In March 2013, the Group and TNK-BP Group signed several agreements regarding their joint venture OOO Yugragazpererabotka. Under these agreements, the duration of the joint venture arrangement, which was previously set to expire in 2016, has become indefinite and the call options that had entitled the Group to purchase TNK-BP’s share in OOO Yugragazpererabotka have been terminated. Therefore, from 12 March 2013, the Group will start accounting for its investment in OOO Yugragazpererabotka in accordance with IFRS 11 Joint Arrangements in its financial statements as opposed to the previously used approach where OOO Yugragazpererabotka was consolidated as a wholly-owned subsidiary of the Group and TNK-BP’s contribution was accounted for as interest-bearing long-term loans. The results of the de- consolidation of OOO Yugragazpererabotka will be recognised within statement of income for the first quarter of 2013.
On 25 March 2013, the Company’s Board of Directors voted to distribute RR 7,625 as dividends to the Company’s shareholders by paying out a dividend of 3.5 Russian roubles per ordinary share.
35 NEW ACCOUNTING DEVELOPMENTS
Beginning from 1 January 2012, the Group has adopted the following new standards and interpretations:
Disclosures – Transfers of Financial Assets – Amendments to IFRS 7 Financial instruments: Disclosures (issued in October 2010 and effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party, yet remain on an entity's balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. Where financial assets have been derecognised, but the entity is still exposed to certain risks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood. The amendment did not have a material impact on this combined financial information.
IFRS 1 First-Time Adoption of IFRS, relating to severe hyperinflation and eliminating references to fixed dates for certain exceptions and exemptions, did not have any impact on these consolidated financial statements. The amendment to IAS 12 Income Taxes, which introduced a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, did not have a material impact on this combined financial information.
Certain new standards and interpretations have been issued that are mandatory for annual periods beginning on or after 1 January 2013 or later, and which the Group has not early adopted and which may impact on combined financial information in the future:
• IFRS 10 Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) ), replaces all of the guidance on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance. The Group is currently assessing the impact of the new standard on its combined financial information.
51 197 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
35 NEW ACCOUNTING DEVELOPMENTS (CONTINUED)
• IFRS 11 Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities—Non-Monetary Contributions by Ventures. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The previously existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. The Group is currently assessing the impact of the new standard on its combined financial information. • IFRS 12 Disclosure of Interest in Other Entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currently found in IAS 28 Investments in associates. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgments and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on the share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. The Group is currently assessing the impact of the new standard on its combined financial information. • Amended IAS 19 Employee Benefits (issued in June 2011 and effective for periods beginning on or after 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Group is currently assessing the impact of the amended standard on its combined financial information.
Certain new standards and interpretations have been issued that are mandatory for annual periods beginning on or after 1 January 2013 or later, and which the Group has not early adopted:
• IFRS 9 Financial Instruments: Classification and Measurement; • IFRS 13 Fair Value Measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013); • IAS 27 Consolidated and Separate Financial Statements, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013); • IAS 28 Investments in Associates and Joint Ventures, (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013); • Amendments to IAS 1 Presentation of Financial Statements (issued June 2011, effective for annual periods beginning on or after 1 July 2012); • Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7 Financial Instruments: Disclosures (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013); • Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 Financial instruments: Presentation (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014); • Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods beginning 1 January 2013);
52 198 OAO SIBUR HOLDING NOTES TO THE IFRS COMBINED FINANCIAL INFORMATION (In millions of Russian roubles, unless otherwise stated)
35 NEW ACCOUNTING DEVELOPMENTS (CONTINUED)
• Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012 and effective for annual periods beginning 1 January 2013); • Amendments to IFRS 1 First-Time Adoption of International Financial Reporting Standards – Government Loans (issued in March 2012 and effective for annual periods beginning 1 January 2013); • Amendments to IFRS 10, IFRS 12 and IAS 27 – Investment Entities (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014); • Other revised standards and interpretations: IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine.
The Group is currently assessing the impact of these new standards on the combined financial information.
The Group’s Head Office:
OAO SIBUR Holding
16/1 Krzhizhanovskogo St.
Moscow, GSP-7, 117997
Russia
Tel/fax: +7 (495) 777 5500
Website: www.sibur.ru (Russian) www.sibur.com (English)
53 199 WWW.SIBUR.COM
SIBUR 2012 Additional information ANNUAL REVIEW ANNUAL
Abbreviations and Units
ABBREVIATIONS GFU Gas fractionation unit GPP Gas processing plant ABS Acrylonitrile butadiene styrene plastics plastics IEA International Energy Agency APG Associated petroleum gas IHS CERA Independent industry and research consulting firm (Information BOPP-films Biaxially oriented polypropylene films Handling Services, Cambridge Energy BR Polybutadiene rubber Research Associates) CDU-TEK Central Dispatching Department IHS Independent industry and research of Fuel Energy Complex Chemical consulting firm (information Handling Services) CEMS Corporate Environmental Management System IIR Butyl rubber CIF Cost, Insurance and Freight IR Polyisoprene rubber CIS Commonwealth of Independent IS Industrial Safety States ISO International Organization for DAF Delivered At Frontier Standardization DOP Dioctyl phthalate JV Joint venture EPS Expandable polystyrene LDPE Low-density polyethylene FAS Federal Antimonopoly Service LPG Liquefied petroleum gas FEED Front end engineering design LTIFR Lost Time Injury Frequency Rate FMCG Fast moving consumer goods MTBE Methyl tertiary butyl ether FOB Free On Board NBR Nitrile-butadiene rubber FTS Federal Tariff Service NGLs Natural gas liquids GCP Gas condensate plant NGO Non-governmental organisation GDP Gross domestic product OHS Occupational Health and Safety
200 ADDITIONAL INFORMATION ´ ABBREVIATIONS AND UNITS 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE SIBUR AT
PE Polyethylene UNITS PET Polyethylene terephthalate barrel One stock tank barrel, or 42 US TAEYBUSINESS STRATEGY gallons of liquid volume PP Polypropylene bbl Barrel(s) PTA Purified terephthalic acid bcm Billion cubic metres PVC Polyvinyl chloride EUR Euro Raw NGL Raw natural gas liquid kw Kilowatt REACH Registration, Evaluation and Authorization of Chemicals mcm Million cubic metres SBR Styrene-butadiene rubber MW Megawatt SUSTAINABILITY SDS Safety data sheets RR Russian rouble SPS SIBUR Production System USD United States dollar UGSS Unified Gas Supply System
VAT Value added tax GOVERNANCE CORPORATE VHI Voluntary Health Insurance INFORMATION FINANCIAL INFORMATION ADDITIONAL
201 WWW.SIBUR.COM SIBUR 2012 ANNUAL REVIEW ANNUAL
Disclaimer
The information contained herein pertaining to SIBUR Forward looking statements are subject to inherent (the “Group”) has been provided by the Group solely risks and uncertainties, such that future events for information purposes. By reading this Annual and actual results may differ materially from those Review, you agree to be bound by the limitations set set forth in, contemplated by or underlying such out below. forward-looking statements. The Group may not actually achieve or realise its plans, intentions or The material contained in this Annual Review is expectations. There can be no assurance that the presented solely for information purposes and is Group’s actual results will not differ materially from not to be construed as providing investment advice. the expectations set forth in such forward-looking As such, it has no regard to the specific investment statements. Factors that could cause actual results objectives, financial situation or particular needs of to differ from such expectations include, but are any recipient. It should not be regarded by recipients not limited to, the state of the global economy, the as a substitute for the exercise of their own judgment. ability of the petrochemicals sector to maintain levels of growth and development, risks related There may be material variances between estimated to petrochemical prices and regional political and data set forth in this Annual Review and actual security concerns. The above is not an exhaustive results, and between the data set forth in this Annual list of the factors that could cause actual results to Review and corresponding data previously published differ materially from the expectations set forth in by or on behalf of the Group. such forward-looking statements. The Group and its Affiliates are under no obligation to update the This Annual Review contains forward-looking information, opinions or forward-looking statements statements, including (without limitation) in this Annual Review. statements, based on the current expectations and projections of the Group about future events and are subject to change without notice. All statements, other than statements of historical fact, contained herein are forward-looking statements.
202 ADDITIONAL INFORMATION ´ CONTACT INFORMATION 2012 HIGHLIGHTS CEO STATEMENTS CHAIRMAN AND A GLANCE Contact Information SIBUR AT
LEGAL ADDRESS INVESTOR RELATIONS 5/A Galernaya St. Anna Kareva St. Petersburg, 190000 Director TAEYBUSINESS STRATEGY Tel./Fax: +7 (812) 347 7777 Tel.: +7 (495) 777 5500 (*34-20) E-mail: [email protected] OFFICE IN MOSCOW [email protected] 16/1 Krzhizhanovskogo St. Moscow, GSP-7, 117997 WEBSITE Tel./Fax: +7 (495) 777 5500 www.sibur.ru (Russian version) www.sibur.com (English version) MEDIA CENTER Anna Lebed-Lastukhina International Media Relations Tel.: + 7 (495) 937 1726 SUSTAINABILITY E-mail: [email protected] GOVERNANCE CORPORATE INFORMATION FINANCIAL INFORMATION ADDITIONAL
203 TOMSKNEFTEKHIM TOBOLSK-POLYMER PLANT TOBOLSK-NEFTEKHIM