UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
(Amendment No. 1)


CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 7, 2019 (April 10, 2019)


TRONOX HOLDINGS PLC
(Exact name of registrant as specified in its charter)



England and Wales
001-35573
98-1467236
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)

263 Tresser Boulevard, Suite 1100
 
25 Bury Street, 3rd Floor
Stamford, Connecticut 06901
 
London SW1Y 2AL, England
(Address of principal executive offices, including zip code)

(203) 705-3800
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Title of each class
 
Name of each exchange on which registered
Ordinary Shares, par value $0.01 per share
 
New York Stock Exchange

Trading Symbol: TROX



Explanatory Note:

As previously announced, on April 10, 2019, the Federal Trade Commission (“FTC”) issued an Order and Decision allowing Tronox Holdings plc, a public limited company incorporated under the laws of England and Wales (“Tronox” or the “Company”), to consummate the acquisition (the “Cristal Transaction”) of the titanium dioxide (“TiO2”) business of The National Titanium Dioxide Company Limited, a limited company organized under the laws of the Kingdom of Saudi Arabia (“Cristal”), subject to the divestiture of Cristal’s North American TiO2 business to INEOS Enterprises, a division of INEOS.  On April 11, 2019, the Company filed a Current Report on Form 8-K announcing the completion on April 10, 2019 of the Cristal Transaction.

Pursuant to the FTC’s Order and Decision issued in connection with the Cristal Transaction, on May 2, 2019, the Company filed a Current Report on Form 8-K announcing that on May 1, 2019 the Company completed the sale (the “Ashtabula Transaction”) by Tronox Limited, a wholly-owned subsidiary of the Company, of Cristal Holdings Inc., to INEOS Joliet US Holdco, LLC, a Delaware limited liability company and a wholly-owned indirect subsidiary of INEOS AG, for proceeds of approximately $700 million in cash, subject to a customary post-closing working capital adjustment. The Cristal Transaction, together with the related Ashtabula Transaction, is referred to as the herein “Acquisition Transactions.”

This amendment to the Current Report on Form 8-K filed on April 11, 2019 is for the purpose of filing the required financial statements of Cristal and the required pro forma financial information relating to the Acquisition Transactions within 71 calendar days after the date of the Current Report on Form 8-K filed on April 11, 2019.

Item 9.01.
Financial Statements and Exhibits.

(d)
Exhibits

Exhibit
No.
Description
Consent of BDO Dr. Mohamed Al Amri & Co.
Audited Consolidated Financial Statements of the National Titanium Dioxide Company Limited (Cristal) and Independent Auditors Report.
99.2
Unaudited pro forma condensed combined financial statements for the year ended December 31, 2018 for Tronox Holdings plc and its subsidiaries.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

   
TRONOX HOLDINGS PLC
     
Date: May 7, 2019
By:
/s/ Jeffrey Neuman
 
Name:
Jeffrey Neuman
 
Title:
Senior Vice President, General Counsel and Secretary




Exhibit 23.1

Consent of Independent Auditors


We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-213159) and Form S-3 (No. 333-220765) of Tronox Limited of our report dated February 28, 2019, relating to the consolidated financial statements of National Titanium Dioxide Company Limited (“Cristal”) which appears in this Form 8-K/A of Tronox Holdings plc.

/s/ BDO Dr. Mohamed Al Amri & Co.
Riyadh
Kingdom of Saudi Arabia
May 7, 2019




Exhibit 99.1

THE NATIONAL TITANIUM DIOXIDE COMPANY LIMITED (CRISTAL)

CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS REPORT FOR THE YEAR ENDED
31 DECEMBER 2018


The National Titanium Dioxide Company Limited (Cristal)
TABLE OF CONTENTS
FOR THE YEAR ENDED 31 DECEMBER 2018

Independent Auditors Report
1 - 2
   
Consolidated Financial Statements
 
   
Consolidated Statement of Financial Position
3
   
Consolidated Statement of Profit or Loss and Comprehensive Profit or Loss
4
   
Consolidated Statement of Cash Flows
5
   
Consolidated Statement of Changes in Equity
6
   
Notes to the Consolidated Financial Statements
7 - 66


P.O. Box 8736, Riyadh 11492
Tel: +966 11 278 0608
Fax: +966 11 278 2883

Independent Auditor’s Report

Board of Directors
The National Titanium Dioxide Company Limited
Jeddah, Kingdom of Saudi Arabia

We have audited the accompanying consolidated financial statements of National Titanium Dioxide Company Limited and its subsidiaries (“Cristal”), which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, the consolidated statements of profit or loss and comprehensive profit or loss, the consolidated statements of cash flow and consolidated statements of changes in equity for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Titanium Dioxide Company Limited and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

For Dr. Mohamed Al-Amri & Co
/s/ Gihad Al-Amri
Certified Public Accountant
Registration No. 362

Jeddah, on 28th February 2019

2

The National Titanium Dioxide Company Limited (Cristal)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018

   
Note
   
31 Dec 18
   
31 Dec 17
 
ASSETS
       
SR '000
   
SR '000
 
CURRENT ASSETS
                 
Cash and cash equivalents
         
488,777
     
429,875
 
Accounts receivable and prepayments
   
6
     
1,612,667
     
2,016,121
 
Inventories
   
7
     
2,650,869
     
2,271,530
 
Due from related parties
   
8
     
62,315
     
228,799
 
                         
TOTAL CURRENT ASSETS
           
4,814,628
     
4,946,325
 
                         
NON-CURRENT ASSETS
                       
Property, plant and equipment
   
9
     
5,975,612
     
6,272,587
 
Investments accounted for using the equity method
   
10
     
511,855
     
514,298
 
Investments at fair value through other comprehensive income
   
11
     
7,672
     
7,298
 
Goodwill
   
12
     
638,315
     
662,161
 
Other intangible assets
   
13
     
234,645
     
290,169
 
Due from related parties
   
8
     
427,602
     
775,091
 
Deferred income tax assets
   
14
     
220,174
     
287,107
 
Exploration and evaluation costs
   
15
     
297,389
     
374,685
 
Other assets
   
16
     
151,668
     
117,684
 
                         
TOTAL NON-CURRENT ASSETS
           
8,464,932
     
9,301,080
 
                         
TOTAL ASSETS
           
13,279,560
     
14,247,405
 
                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                       
                         
CURRENT LIABILITIES
                       
Accounts payable and accruals
   
17
     
1,241,659
     
1,521,087
 
Provisions
   
18
     
151,483
     
169,555
 
Employee benefits
   
19
     
3,307
     
2,651
 
Short term loans
   
20
     
5,029
     
17,440
 
Due to related parties
   
8
     
163,937
     
373,252
 
Current portion of long term loans
   
21
     
50
     
80,618
 
                         
TOTAL CURRENT LIABILITIES
           
1,565,465
     
2,164,603
 
                         
NON-CURRENT LIABILITIES
                       
Long term loans
   
21
     
5,696,700
     
6,720,791
 
Employee benefits
   
19
     
334,934
     
255,943
 
Due to related parties
   
8
     
1,576,116
     
1,244,820
 
Deferred income tax liabilities
   
14
     
223,030
     
271,094
 
Provisions
   
18
     
392,485
     
404,432
 
Other liabilities
   
22
     
41,142
     
54,457
 
                         
TOTAL NON-CURRENT LIABILITIES
           
8,264,407
     
8,951,537
 
                         
TOTAL LIABILITIES
           
9,829,872
     
11,116,140
 
                         
EQUITY
                       
Equity attributable to the shareholders' of the parent company
                       
Capital
   
23
     
2,362,500
     
2,362,500
 
Statutory reserve
   
24
     
613,576
     
539,101
 
Capital contribution
   
25
     
305,320
     
305,320
 
Retained earnings
           
215,585
     
(457,261
)
Other reserves
           
(169,039
)
   
249,795
 
                         
Total equity attributable to the shareholders' of the parent company
     
3,327,942
     
2,999,455
 
NON-CONTROLLING INTEREST
   
26
     
121,746
     
131,810
 
                         
TOTAL SHAREHOLDERS’ EQUITY
           
3,449,688
     
3,131,265
 
                         
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
           
13,279,560
     
14,247,405
 

The attached notes 1 to 40 form part of these consolidated financial statements.

3

The National Titanium Dioxide Company Limited (Cristal)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2018

   
Note
   
2018
   
2017
 
         
SR '000
   
SR '000
 
                         
Sales
   
30
     
8,373,944
     
8,035,598
 
Cost of sales
           
(5,743,340
)
   
(6,107,905
)
                         
GROSS PROFIT / (LOSS)
           
2,630,604
     
1,927,693
 
                         
EXPENSES
                       
Selling and distribution
           
(452,512
)
   
(442,411
)
General and administration
           
(608,138
)
   
(692,466
)
Impairment of assets
   
33
     
(230
)
   
(114,987
)
                         
             
(1,060,880
)
   
(1,249,864
)
                         
PROFIT / (LOSS) FROM OPERATIONS
           
1,569,724
     
677,829
 
                         
Other income / (expenses), net
   
32
     
(13,616
)
   
33,396
 
Financial charges
           
(373,905
)
   
(365,048
)
Share of the profit / (loss) of associate accounted for using the equity method
   
10
     
(152,443
)
   
(94,306
)
                         
PROFIT / (LOSS) BEFORE ZAKAT AND INCOME TAX AND NON-CONTROLLING INTEREST
           
1,029,760
     
251,871
 

                       
Zakat and income tax
   
14
     
(252,958
)
   
94,746
 
                         
NET PROFIT / (LOSS) BEFORE NON-CONTROLLING INTEREST
           
776,802
     
346,617
 
                         
(Income) / loss attributable to non-controlling interest
   
26
     
(32,050
)
   
(27,630
)
                         
NET PROFIT / (LOSS) FOR THE YEAR
           
744,752
     
318,987
 
                         
OTHER COMPREHENSIVE INCOME
                       
                         
NET PROFIT / (LOSS) FOR THE YEAR AFTER ZAKAT AND INCOME TAX
           
776,802
     
346,617
 
                         
Items to be classified to profit or loss in subsequent periods
                       
Foreign currency translation
           
(377,662
)
   
333,300
 
Cash flow hedges
           
3
     
1
 
                         
Net other comprehensive income / (loss) to be reclassified to profit or loss in subsequent periods
           
(377,659
)
   
333,301
 
                         
Items not to be classified to profit or loss in subsequent periods
                       
Re-measurement of defined benefit plan
           
(40,034
)
   
45,778
 
Changes in the fair value of equity investments through other comprehensive income
           
1,428
     
(880
)

                       
Net other comprehensive income / (loss) not to be reclassified to profit or loss in subsequent periods
           
(38,606
)
   
44,898
 
                         
TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE YEAR
           
360,537
     
724,816
 

The attached notes 1 to 40 form part of these consolidated financial statements.

4

The National Titanium Dioxide Company Limited (Cristal)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018

   
2018
   
2017
 
   
SR '000
   
SR '000
 
OPERATING ACTIVITIES
           
Profit / (loss) before zakat and income tax and non-controlling interest
   
1,029,760
     
251,871
 
Adjustments for:
               
Depreciation
   
604,398
     
600,451
 
Amortisation
   
32,846
     
34,052
 
Asset impairment
   
230
     
114,987
 
Impairment loss recognised on exploration and evaluation
   
443
     
-
 
Deferred income tax
   
(234,089
)
   
52,004
 
Loss on disposal of assets
   
32,290
     
27,404
 
Employees' terminal benefits, net
   
79,647
     
(12,598
)
                 
     
1,545,525
     
1,068,171
 
Changes in operating assets and liabilities:
               
Accounts receivable and prepayments
   
403,454
     
(495,037
)
Inventories
   
(379,339
)
   
(33,899
)
Accounts payable and accruals
   
(279,428
)
   
(132,813
)
Due to related parties
   
(483,864
)
   
149,287
 
Due from related parties
   
509,415
     
(104,291
)
Other assets and liabilities
   
75,154
     
46,750
 
 
               
Net cash provided by / (used in) operating activities
   
1,390,917
     
498,168
 
                 
INVESTING ACTIVITIES
               
Purchase of property, plant and equipment
   
(589,125
)
   
(479,857
)
Investments
   
-
     
(4,286
)
Other intangible assets
   
(992
)
   
(560
)
Exploration and evaluation
   
(12,713
)
   
(14,889
)
Foreign currency translation
   
240,419
     
(261,527
)
                 
Net cash provided by / (used in) investing activities
   
(362,411
)
   
(761,119
)
                 
FINANCING ACTIVITIES
               
Net movement in short term loans
   
(12,411
)
   
(45,777
)
Capital contributions from shareholders
   
-
     
65,916
 
Borrowings of subordinated loans from shareholders
   
-
     
238,275
 
Foreign currency movement in non-controlling interest
   
(20,722
)
   
(5,144
)
Net movement in long term loans
   
(498,814
)
   
(375,276
)
Distributions to non-controlling interest
   
(21,392
)
   
-
 
                 
Net cash provided by / (used in) financing activities
   
(553,339
)
   
(122,006
)
                 
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
   
475,167
     
(384,957
)
Cash and cash equivalent at the beginning of the period
   
429,875
     
436,633
 
Foreign currency translation adjustments and other reserves movements
   
(416,265
)
   
378,199
 
                 
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
   
488,777
     
429,875
 
                 
MAJOR NON-CASH TRANSACTIONS
               
                 
Transfer of AMIC shareholder interest free loan to capital contribution
   
150,000
     
-
 
Transfer of power project assets under construction to AMIC
   
145,442
     
-
 
Transfer of novated SIDF Bridge Facility to AMIC
   
605,845
     
-
 

The attached notes 1 to 40 form part of these consolidated financial statements.

5

The National Titanium Dioxide Company Limited (Cristal)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018

   
Available to owners of the parent
             
 
                         
Other reserves
             
                                                             
  
 
Capital
   
Statutory
reserve
   
Capital
contribution
   
Retained
earnings
   
Foreign
currency
translation
reserve
   
Cash flow
hedging reserve
and OCI on
marketable
securities
   
Employee
benefits reserve
   
Total
   
Non-controlling
interest
   
Total
 
                                                             
 
 
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
   
SR '000
 
                                                             
Balance as at 1 January 2017
   
2,362,500
     
507,202
     
239,404
     
(744,349
)
   
(119,162
)
   
4,376
     
(13,618
)
   
(128,404
)
   
109,324
     
2,345,677
 
Net profit / (loss) for the period
   
-
     
-
     
-
     
318,987
     
-
     
-
     
-
     
-
     
27,630
     
346,617
 
Net movement during the period
   
-
     
-
     
65,916
     
-
     
-
     
-
     
-
     
-
     
(5,144
)
   
60,772
 
Transfer to statutory reserve (note 24)
   
-
     
31,899
     
-
     
(31,899
)
   
-
     
-
     
-
     
-
     
-
     
-
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
333,300
     
(879
)
   
45,778
     
378,199
     
-
     
378,199
 
 
                                                                               
Balance as at 31 December 2017
   
2,362,500
     
539,101
     
305,320
     
(457,261
)
   
214,138
     
3,497
     
32,160
     
249,795
     
131,810
     
3,131,265
 
 
                                                                               
Balance as at 1 January 2018
   
2,362,500
     
539,101
     
305,320
     
(457,261
)
   
214,138
     
3,497
     
32,160
     
249,795
     
131,810
     
3,131,265
 
Net profit / (loss) for the period
   
-
     
-
     
-
     
744,752
     
-
     
-
     
-
     
-
     
32,050
     
776,802
 
Net movement during the period
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(42,114
)
   
(42,114
)
Transfer to statutory reserve (note 24)
   
-
     
74,475
     
-
     
(74,475
)
   
-
     
-
     
-
     
-
     
-
     
-
 
IAS 19 transfer (note 19)
   
-
     
-
     
-
     
2,569
     
-
     
-
     
(2,569
)
   
(2,569
)
   
-
     
-
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
(377,662
)
   
1,431
     
(40,034
)
   
(416,265
)
   
-
     
(416,265
)
 
                                                                               
Balance as at 31 December 2018
   
2,362,500
     
613,576
     
305,320
     
215,585
     
(163,524
)
   
4,928
     
(10,443
)
   
(169,039
)
   
121,746
     
3,449,688
 

The attached notes 1 to 40 form part of these consolidated financial statements.

6

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
1
ACTIVITIES

The National Titanium Dioxide Company Limited (Cristal) (the “Company” (or) the “Parent Company” (or) “Cristal”) is a Limited Liability Company registered in the Kingdom of Saudi Arabia under Commercial Registration number 4030062296 dated 20/3/1409 (corresponding to 30 October 1988) with branches in Madinah and Yanbu having Commercial Registration numbers 003673 and 4030062296/002. The results, assets and liabilities of the branches are included in these consolidated financial statements.

The Company obtained its Foreign Capital Investment License by Ministerial Decision No. 201 dated 25/4/1408 (corresponding to 16 December 1987), as amended by various Ministerial Decisions, the last of which is Ministerial Decision No. 1325 dated 5/9/1425 (corresponding to 19 October 2005). The Company started commercial production on 1 June 1992.

The principal activity of the Company and its subsidiaries (hereinafter referred to together as the “Group”) is manufacturing and marketing of Titanium Dioxide (TiO2). One of the subsidiaries is engaged in mineral exploration, development of mineral tenements, mining and processing mineral sands and sale of separated mineral sands products. The Company’s principal place of business is Sari Street (in front of Airport Municipality), Al-Rabwah District, P.O. Box 13586, Jeddah 21414, Kingdom of Saudi Arabia.

The Company is owned 79% by National Industrialization Company (the “Holding” Company or “Tasnee”) a Saudi joint stock company, 20% by Gulf Investment Corporation, a corporation registered under an agreement entered into by the Gulf Cooperation Council, and 1% by Dr. Talal Al-Shair, a Saudi national.

The majority of the activities of the subsidiaries are in the United States of America, United Kingdom, Australia, Brazil and France.

2
BASIS OF PREPARATION AND CONSOLIDATION

2.1
BASIS OF PREPARATION

The consolidated financial statements comprise the financial statements of the Group. The consolidated financial statements are expressed in Saudi Riyals, being the functional currency of the Parent Company and have been rounded off to the nearest thousand Saudi Riyals, except when otherwise specified.

These consolidated financial statements include the financial statements of the Parent Company and the following wholly owned subsidiaries:

Name
 
Principal field of activity
 
Country of
incorporation
 
% of ownership
 
           
2018
   
2017
 
                     
Cristal Inorganic Chemicals Limited / Cristal Inorganic Chemicals Netherlands Cöoperatief W.A.  (“CIC”) (see note (a) below)
 
Manufacture and marketing of Titanium Dioxide (TiO2)
 
Cayman Islands / Netherlands
   
100
%
   
100
%
                         
Cristal Australia Pty Limited (“CAPL”)
 
Mineral exploration and mining
 
Australia
   
100
%
   
100
%
                         
Cristal Metals (“Cristal US”)
 
Manufacturing of Titanium Metal Powder
 
 
United States of America
   
100
%
   
100
%
                         
Cristal US Holdings LLC (“Cristal LLC”)
 
Manufacturing of Titanium Metal Powder
 
United States of America
   
100
%
   
100
%
                         
Hong Kong Titanium Products Company Limited (“Cristal China”) (see note (b) below)
 
Manufacturing of Titanium Dioxide (TiO2) and Sulphuric acid
 
China
   
-
     
100
%

7

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
a)
CIC conducts its Brazilian operations under its subsidiary, Millennium Inorganic Chemicals do Brazil S.A., a publicly-held company traded on the São Paulo Stock Exchange (“BOVESPA”) with a 28% non-controlling interest.

Cristal Inorganic Chemicals Netherlands Cöoperatief W.A. and subsidiaries, was transferred by Cristal Inorganic Chemicals Limited to Cristal effective January 1, 2017 as part of a corporate reorganization in which Cristal Inorganic Chemicals Limited was liquidated.

b)
In 2015, the Parent Company acquired 100% shareholding in Hong Kong Titanium Products Company Limited, which owns 100% shareholding in Jiangxi Tikon Titanium Limited Company (“Tikon”). Tikon operates a titanium dioxide manufacturing plant in FuZhou in the Jiangzi province of China.

Effective January 1, 2018, the Parent Company contributed the shares of Cristal China at the book value of $14.4 million to CIC as an additional contribution to the members capital and then in turn Cristal International B.V. (“CIBV”) issued new shares in its capital to CIC which shares were paid up in kind by way of transfer of the Cristal China shares.  Cristal China continues to hold a 100% interest in Tikon.

As such the Parent Company controls 100% of the shareholdings in both Cristal China and Tikon and they have been treated as fully owned subsidiaries of the Parent Company in these consolidated financial statements.

Investment in associate

In 2014, the Company along with TASNEE incorporated a company named Advanced Metal Industries Cluster Company Limited (“AMIC”). AMIC is engaged to setup industrial projects relating to titanium metals of various types and other related substances including titanium ore, iron ore and manufacturing of titanium dioxide through high pressure oxidization. AMIC is yet to commence its commercial activities.

Compliance with IFRS

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed in Kingdom of Saudi Arabia and other standards and pronouncements issued by Saudi Organization of Certified Public Accountants (SOCPA).

(i)
Historical cost convention
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities (including derivative instruments) that are measured at fair value.

The consolidated financial statements comprise the financial statements of the Company, its subsidiaries, associates and joint arrangements as on 31 December 2018.

8

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(ii)
Subsidiaries

Subsidiaries are all entities over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:


-
Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

-
Exposure, or rights, to variable returns from its involvement with the investee

-
The ability to use its power over the investee to affect its returns

The Company does not have control over the operations and management of AMIC; however, with its 50% equity ownership has significant influence. Therefore, AMIC is considered as an associate of the Company and accounted for using equity method of accounting (note 10).

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:


-
The contractual arrangement(s) with the other vote holders of the investee

-
Rights arising from other contractual arrangements

-
The Group’s voting rights and potential voting rights

-
Any additional fact and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time decisions need to be made, including voting patterns at previous shareholders meetings.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.

Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. When a Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

If the Group loses control over a subsidiary, it:

Derecognises the assets (including goodwill) and liabilities of the subsidiary 
Derecognises the carrying amount of any non-controlling interest
Derecognises the cumulative translation differences, recorded in equity
Recognises the fair value of the consideration received  
Recognises the fair value of any investment retained 
Recognises any surplus or deficit in profit or loss 
Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities

9

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(iii)
Associates

Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method (see (iv) below), after initially being recognized at cost.

(iv)
Joint arrangements

Under IFRS 11 Joint Arrangements, joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining whether significant influence or joint control are similar to those necessary to determine control over subsidiaries.

Investments in joint arrangements are classified as either joint ventures or joint operations. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement.

The Group does not have either joint ventures or joint operations.

Joint ventures

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position.

Joint operations

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and liabilities of the joint operation. The Group recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses.

Equity method

Under the equity method of accounting, the investments are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post acquisition profits or losses of the investee in profit and loss, and the Group’s share of other comprehensive income of the investee in other comprehensive income. After the share in the investee is reduced to zero, a liability is recognised only to the extent that there is an obligation to fund the investee's operations or any payments have been made on behalf of the investee. Dividends received or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of the investment.

Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in the other comprehensive income (“OCI”) of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate and joint venture are eliminated to the extent of the interest in the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group.

When necessary, adjustments are made to bring the accounting policies of the associate or joint venture in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognises the loss as ‘Share of profit of an associate and a joint venture’ in the consolidated statement of profit or loss.

10

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss.

2.2
Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. All contingent consideration (except that which is classified as equity) is measured at fair value with the changes in fair value in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its consolidated financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which generally does not exceed one year from the date of acquisition, the Group retrospectively adjusts the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. Any additional assets or liabilities are also recognized during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGU) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof. A CGU is identified consistently from period to period for the same asset or types of assets, unless a change is justified.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash generating unit retained.

11

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2.3
Revenue recognition

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer.

Sale of goods

Revenue is recognized when control of the products has transferred, being when the products are either delivered to the customers, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs based on contractual terms of the contract, when the risks of obsolescence and loss have been transferred to the customer and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or that there is objective evidence that all criteria for acceptance have been met.

Revenue recognized is measured at the transaction price as agreed in the sales contract. The transaction price is adjusted for any variable consideration in form of price concessions, discounts, rebates, refunds, credits etc. The Group estimates the variable consideration as the expected value of the likely transaction price adjustment. The Group includes in the transaction price some or all of an amount of variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the associated variable consideration is subsequently resolved.

Transaction price adjustments in case of Group entities involve primarily adjustments relating to subsequent price adjustments in case of certain sales which are made on provisional basis, discounts, rebates and other concessions which are offered by the Group entities to customers. A contract liability is recognised for expected discounts, concessions, and rebates payable to customers in relation to sales made until the end of the reporting period.

Rendering of services

Revenue from providing services is recognised over a period of time as the related services are performed. For fixed-price contracts, revenue is recognised based on the ‘percentage of completion’ method which measures actual service provided to the end of the reporting period as a proportion of the total services to be provided. Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

2.4
Selling, Marketing and General and Administrative expenses

Selling and marketing expenses principally comprise costs incurred in marketing and sale of the subsidiaries products. Other expenses are classified as general and administrative expenses.

General and administrative expenses include direct and indirect costs not specifically attributable to cost of sales.

Allocations between general and administrative expenses and cost of sales, when required, are made on a consistent basis.

2.5
Foreign currency translation

The Group’s consolidated financial statements are presented in Saudi Riyals, which is also the Parent Company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency spot rate at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transaction.

12

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Group companies

On consolidation, the assets and liabilities of foreign operations are translated into Saudi Riyals at the rate of exchange prevailing at the reporting date and their statement of profit or loss are translated at exchange rates prevailing at the dates of the transactions or the average rate for the period. The exchange differences arising on the translation are recognised in consolidated statement of other comprehensive income. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in the consolidated statement of profit or loss.

2.6
Zakat and Income Tax

The Company and its subsidiaries in the Kingdom of Saudi Arabia are subject to the Regulations of General Authority of Zakat and Tax (“GAZT”) in the Kingdom of Saudi Arabia.

Overseas subsidiaries and branches are subject to income tax as per rules and regulations of the country in which they reside.

Zakat

Saudi and other Gulf Cooperation Council country shareholders in the Company and its subsidiaries in the Kingdom of Saudi Arabia are subject to Zakat which is then included in the consolidated statement of profit or loss.

Zakat is provided on an accruals basis and computed at the higher of adjusted net income for Zakat purposes for the year or Zakat base calculated per the Regulations. Any difference in the previously recorded estimate is recognized when the final assessment is approved by GAZT.

Current income tax

Foreign shareholders in the Company’s subsidiaries in the Kingdom of Saudi Arabia are subject to income tax.

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.

Deferred taxes

Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

13

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2.7
Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment in value, except for freehold land and assets under construction which are stated at cost and are not depreciated. Assets under construction represent all costs relating directly to the projects in progress and are capitalized as property and equipment when the project is completed.

Cost includes all expenditure directly attributable to the construction or purchase of the item of property, plant and equipment. Such costs include the cost of replacing parts of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, costs of major maintenance and repairs incurred as part of substantial overhauls or turnarounds of major units at the Group's manufacturing facilities are capitalized and generally amortized using the straight line method over the period until the next planned turnaround, the cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated statement of profit or loss as incurred.

Any subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group and cost can be measured reliably.

Certain subsidiaries of the Group recognize provisions related to the expected cost for the decommissioning of certain assets and rehabilitation and mine closure costs. The present value of such expected costs for the decommissioning of the asset after its use or rehabilitation and mine closure costs, is included in the cost of the respective asset if the recognition criteria for a provision are met.

Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives as follows;

Asset class
Useful lives (in years)
Land
Indefinite
Land improvements, Buildings & Building improvements
5-40
Machinery, Equipment, Furniture, and Fixtures
1-30
Assets under construction
Not depreciated
Mine development
3-26

Impact of change in the useful life and residual value on the transition date for some entities has been considered prospectively from 1 January 2017.

The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

Stores and spares having a useful life of more than one year are depreciated over their estimated useful lives.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

2.8
Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

14

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2.9
Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and a reduction in the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the consolidated statement of profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.

2.10
Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in the consolidated statement of profit or loss when it is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives (see below in other intangibles) are not amortised, but are tested for impairment annually or at each reporting date when there is an indicator of impairment, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of profit or loss when the asset is derecognised.

Goodwill

Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on 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. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes.

15

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Research and development costs

Research and development costs are charged to the consolidated statement of profit or loss during the period incurred, except for the clear and specified projects, in which development costs can be recovered through the commercial activities generated by these projects. In this case, the development costs are considered intangible assets and are amortized using the straight-line method over a period of seven years.

Other intangibles

Other intangible assets, consisting primarily of trademarks, trade names, technology and customer relationships, are valued at fair value with the assistance of independent appraisers, effective from the date of acquisition of the subsidiary. A subsidiary, Cristal Inorganic Company's trade name is considered an intangible asset with an indefinite life and is not being amortized but instead is measured for impairment at least annually, or when events indicate that an impairment exists.

Other intangible assets also include patents and license costs. These assets are amortized using the straight-line method over the shorter of their estimated useful lives or the terms of the related agreements.

2.11
Exploration and evaluation costs

Pre-license costs are recognized in the consolidated statement of profit or loss.

Exploration and evaluation costs, including the costs of acquiring licenses, are capitalized as exploration and evaluation assets ("E&E assets") on an area of interest basis pending determination of the technical feasibility and commercial viability of the project. When a license is relinquished or a project is abandoned, the related costs are recognized in the consolidated statement of profit or loss immediately.

E&E assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see the impairment of assets policy note). For the purposes of impairment testing, E&E assets are allocated to cash-generating units consistent with the determination of areas of interest.

Once the technical and commercial viability of extracting a mineral resource is determined, E&E assets attributable to those reserves are first tested for impairment and then reclassified from E&E assets to mine development assets within property and equipment.

Expenditure deemed to be unsuccessful is recognized in the consolidated statement of profit or loss immediately.

2.12
Impairment of non-financial assets

Goodwill and assets with indefinite life are tested for impairment annually.

For other assets, the Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (“CGU”) fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecasts which are prepared separately for each of the Group’s CGU to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

16

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of profit or loss.

Impairment recognized previously on goodwill is not reversed.

The impairment testing conducted on the date of transition is based on the assumptions used under the previous GAAP as on that date. The estimates which were not required under the previous GAAP (for example the interest rate) are based on facts and circumstances exiting as on the transition date.

2.13
Inventories

Cost of raw materials, consumables, spare parts and finished goods is determined on a weighted average cost basis. Cost of work in progress and finished goods includes cost of material, labor and an appropriate allocation of indirect overheads. Inventories are valued at the lower of cost and net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs to sell.

2.14
Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and on hand and short-term deposits and murabaha with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

2.15
Employee benefits

Short term obligations

Liabilities for wages and salaries and any other short term benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognized in respect of employees services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the statement of financial position.

Post employment obligations

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when the employees have rendered service entitling them to the contributions.

Defined benefit plans

The cost of providing benefits under the defined benefit plans is determined using the projected unit credit method. Re-measurements, comprising actuarial gains and losses, are recognised immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

The present value of the defined benefit obligation for entities in Saudi Arabia has been determined by discounting the estimated future cash outflows by reference to US bond yields (as the Saudi Riyal is pegged to the US dollar) adjusted for an additional risk premium reflecting the possibility of the linkage being broken.

Past service costs are recognised in the consolidated statement of profit or loss on the earlier of the date of the plan amendment or curtailment and the date on which the Group recognises related restructuring costs. Net interest is calculated by applying the discount rate to the net defined benefit liability. The Group recognises the changes in the net defined benefit obligation under ‘Cost of sales’, ‘General and administration’ and ‘Selling and distribution’ expenses in the consolidated statement of profit or loss.

17

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2.16
Provisions and contingent liabilities

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the consolidated statement of profit or loss net of any reimbursement.

Decommissioning liabilities

The Group records an estimated liability for the future cost to close its facilities under certain lease agreements and the scheduled closure of certain landfills and recognizes the cost over the useful life of the related asset. The Group records a discounted liability for the fair value of an asset retirement obligation and a corresponding increase to the carrying value of the related long-lived asset is recorded at the time the asset is acquired. The Group amortizes the amount added to property and equipment and recognizes accretion expense in connection with the discounted liability over the estimated remaining life of the respective long-lived asset.

Rehabilitation and mine closure costs

Provision is made for anticipated costs of restoration and rehabilitation work necessitated by disturbance arising from exploration, evaluation, development and production activities. Costs included in the provision comprise land reclamation, plant removal and on-going re-vegetation programs. Rehabilitation and mine closure costs are provided for at the present value of the expenditures expected to settle the obligation at the reporting date, based on current legal requirements and technology. Future rehabilitation and mine closure costs are reviewed annually and any changes are reflected in the present value of the provision at the end of the reporting period. The cost of rehabilitation and mine closure is capitalized as property and equipment to the extent it gives rise to future economic benefits. The amount capitalized is depreciated as part of property and equipment using the units of production method.

Restructuring provisions

A restructuring provision is recognized when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.

Environmental remediation costs

Anticipated expenditures related to investigation and remediation of contaminated sites, which include current and former plant sites and other remediation sites, are accrued when it is probable a liability has been incurred and the amount of the liability can reasonably be estimated. Only ongoing operations and monitoring costs, the timing of which can be determined with reasonable certainty, are discounted to present value. Future legal costs associated with such matters, which generally cannot be estimated, are not included in these liabilities.

Contingent liabilities

Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.

2.17
Overburden costs

Expenditure associated with the removal of mine overburden is deferred and charged to the consolidated statement of profit or loss as the mineral is extracted. The balance of the amount deferred is reviewed at each reporting date to determine the amount (if any) which is no longer recoverable out of future revenue. Any amounts so determined are written off.

18

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2.18
Accounts receivables

Accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. For impairment of financial assets refer to Note 2.20 (i) (IV).

2.19
Accounts payable

These amounts represent liabilities for goods and services provided to the group prior to the end of financial period which are unpaid. The amounts are unsecured. Accounts payable are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

2.20
Financial instruments

Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

i)
Financial assets

The Group determines the classification of its financial assets at initial recognition. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

(I) Classification

The financial assets are classified in the following measurement categories:


a)
Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and

b)
Those to be measured at amortised cost.

For assets measured at fair value, gains and losses will either be recorded in the consolidated statement of profit and loss or other comprehensive income. For investments in equity instruments, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.

(II) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of profit or loss as incurred.

Debt Instrument

Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. The Group classifies debt instruments at amortised cost based on the below:


a)
The asset is held within a business model with the objective of collecting the contractual cash flows, and

b)
The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. Employee loans, shareholder loans to joint venture entities are carried at amortized cost.

19

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Equity Instrument

If the Group elects to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments shall continue to be recognised in the consolidated statement of profit or loss as other income when the Groups’ right to receive payments is established. There are no impairment requirements for equity investments measured at fair value through other comprehensive income. Changes in the fair value of financial assets at fair value through profit or loss shall be recognised in other gains/(losses) in the consolidated statement of profit and loss as applicable.

(III) Derecognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the assets expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of the transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralized borrowing for the proceeds received.

(IV) Impairment of Financial Assets

The Group applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the financial assets and credit risk exposure that are debt instruments and are measured at amortised cost e.g., loans, deposits, trade receivables.

Expected credit losses is the probability-weighted estimate of credit losses (i.e. present value of all cash shortfalls) over the expected life of the financial asset. A cash shortfall is the difference between the cash flows that are due in accordance with the contract and the cash flows that the company expects to receive. The expected credit losses consider the amount and timing of payments and hence, a credit loss arises even if the Group expects to receive the payment in full but later than when contractually due. The expected credit loss method requires to assess credit risk, default and timing of collection since initial recognition. This requires recognising allowance for expected credit losses in the consolidated statement of profit or loss even for receivables that are newly originated or acquired.

Impairment of financial assets is measured as either 12 month expected credit losses or life time expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. ‘12 month expected credit losses’ represent the expected credit losses resulting from default events that are possible within 12 months after the reporting date. ‘Lifetime expected credit losses’ represent the expected credit losses that result from all possible default events over the expected life of the financial asset.

Trade receivables are of a short duration, normally less than 12 months and hence the loss allowance measured as lifetime expected credit losses does not differ from that measured as 12 month expected credit losses. The Group uses the practical expedient in IFRS 9 for measuring expected credit losses for trade receivables using a provision matrix based on ageing of receivables.

The Group uses historical loss experience and derived loss rates based on the past twelve months and adjusts the historical loss rates to reflect the information about current conditions and reasonable and supportable forecasts of future economic conditions. The loss rates differ based on the ageing of the amounts that are past due and are generally higher for those with the higher ageing.

(V) Income Recognition

Interest income

For all financial instruments measured at amortised cost and interest bearing financial assets, interest income is recognised using the effective interest rate (EIR), which is the rate that discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset.

When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original EIR of the instrument, and continues unwinding the discount as interest income. Interest income on impaired financial asset is recognised using the original EIR.

20

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Dividends

Dividends receivable from financial instruments are recognised in the consolidated statement of profit or loss only when the right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the group, and the amount of the dividend can be measured reliably.

ii)
Financial liabilities

The Group determines the classification of its financial liabilities at initial recognition.

(I) Classification

The financial liabilities are classified in the following measurement categories:

a)
Those to be measured as financial liabilities at fair value through profit or loss,

b)
Those to be measured at amortised cost

(II) Measurement

All financial liabilities are recognised initially at fair value. Financial liabilities accounted at amortised cost like loans and borrowings are accounted at the fair value determined based on the effective interest rate method (EIR) after considering the directly attributable transaction costs.

The Group classifies all financial liabilities as subsequently measured at amortised cost, except for financial liabilities at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value.

The effective interest rate (“EIR”) method calculates the amortised cost of a debt instrument by allocating interest charge over the relevant effective interest rate period. The effective interest rate is the rate that exactly discounts estimated future cash outflow (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. This category generally applies to borrowings, trade payables etc.

The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments. The Group measures financial liabilities (except derivatives) at amortised cost.

(III) Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated statement of profit or loss.

2.21
Derivative financial instruments and hedge accounting

Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.

The Group’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The group documents at the inception of the hedging transaction the economic relationship between hedging instruments and hedged items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The group documents its risk management objective and strategy for undertaking various hedge transactions at the inception of each hedge relationship.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

21

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Derivatives that are not designated as hedges

The Group enters into certain derivative contracts to hedge risks which are not designated as hedges. Such contracts are accounted for at fair value through profit and loss and are included in other income/(losses).

Derivatives that are designated as cash flow hedges

The effective portion of changes in the fair value of derivatives such as forward contracts and interest rate swaps that are designated and qualify as cash flow hedges is recognised in the other comprehensive income in cash flow hedging reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other income/ (losses).

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss within other income/ (losses).

If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.

2.22
Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

2.23
Statutory reserve

In accordance with the Company’s Article of Association, the Company must transfer 10% of the net income in each year to the statutory reserve until it has built a reserve equal to one half of the capital. This reserve is not available for distribution.

3
USE OF CRITICAL ESTIMATES AND JUDGEMENTS

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual result may differ from these estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are addressed below;

(i)
Impairment reviews

IFRS requires management to undertake an annual test for impairment of indefinite lived assets and, for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

22

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Impairment testing is an area involving management judgement, requiring inter alia an assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:


a)
growth in earnings before interest, tax, depreciation and amortization (EBITDA), calculated as adjusted operating profit before depreciation and amortization;

b)
timing and quantum of future capital expenditure;

c)
long-term growth rates;

d)
selection of discount rates to reflect the risks involved; and

e)
quantum of mining reserves expected to be extracted over the period under consideration.

Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s impairment evaluation and hence results.

(ii)
Estimation of useful life and residual value

The useful life used to amortise or depreciate intangible assets or property, plant and equipment respectively relates to the expected future performance of the assets acquired and management’s judgement based on technical evaluation of the period over which economic benefit will be derived from the asset. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. An asset’s expected life residual value has a direct effect on the depreciation charged in the consolidated statement of profit or loss.

The useful lives and residual values of Group’s assets are determined by management based on technical evaluation at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life such as changes in technology.

(iii)
Impairment losses on trade and other receivables

Trade and other receivables are stated at their amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. Estimated irrecoverable amounts are based on the ageing of the receivable balances and historical experience adjusted appropriately for the future expectations. Individual trade receivables are written off when management deems them not to be collectible.

(iv)
Measurement of defined benefit obligations

The Company’s net obligation in respect of defined benefit schemes is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted.

The present value of the obligation is determined based on actuarial valuation at the statement of financial position date by an independent actuary using the Projected Unit Credit Method, which recognises each period of service as giving rise to an additional unit of employee benefit entitlement and measures. The obligation is measured at the present value of the estimated future cash flows. The discount rates used for determining the present value of the obligation under defined benefit plan are determined by reference to US bond yields, (as the Saudi Riyal is pegged to the US dollar) adjusted for an additional risk premium reflecting the possibility of the linkage being broken.

(v)
Estimate of zakat, current and deferred income tax

The Group’s zakat and tax charge on ordinary activities is the sum of the total zakat, current and deferred tax charges. The calculation of the Group’s zakat and total tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material profits/losses and/or cash flows.

The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits, reference is made to the latest available profit forecasts. Where the temporary differences are related to losses, relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits.

23

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(vi)
Determining whether the Group or a company part of it is acting as an agent or principal

Principles of IFRS 15 are applied by identifying each specified (i.e. distinct) good or service promised to the customer in the contract and evaluating whether the entity under consideration obtains control of the specified good or service before it is transferred to the customer. This assessment requires significant judgement based on specific facts and circumstances.

4
NEW STANDARDS AND AMENDMENTS ISSUED AND NOT YET EFFECTIVE

The following are the new standards and amendments to standards that are effective for annual periods beginning after 31 December 2018.  Where earlier application is permitted the Group has not early adopted them in preparing these consolidated financial statements.

(a)
IFRS 16 - Leases

IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions.

Involving the Legal Form of a Lease

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16

Determining whether an arrangement contains a lease

On transition to IFRS 16, the Group can choose whether to:

Apply the IFRS 16 definition of a lease to all its contracts; or

Apply a practical expedient and not reassess whether a contract is, or contains, a lease.

Transition

As a lessee, the Group can either apply the standard using a:

Retrospective approach; or

Modified retrospective approach with optional practical expedients.

The lessee applies the election consistently to all of its leases. The Group currently plans to apply IFRS 16 initially on 1 January 2019. The Group has not yet determined which transition approach to apply.

As a lessor, the Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease.

(b)
IFRS 17 - Insurance contracts

In May 2017, the IASB issued IFRS 17 – Insurance Contracts, which was initially effective for annual periods beginning on or after 1 January 2021. The standard introduces a new measurement model for insurance contracts. Early adoption is permitted if IFRS 9 and 15 have been applied as on the application date for this standard.

The Group has not yet undertaken an assessment to determine potential impacts on the amounts reported and disclosures to be made under the applicable new standards or amendments to existing standards.

(c)
Annual Improvements to IFRSs 2015–2017 Cycle

IFRS 3 Business Combinations and IFRS 11 Joint Arrangements
Clarifies how a company accounts for increasing its interest in a joint operation that meets the definition of a business.

-
If a party maintains (or obtains) joint control, then the previously held interest is not remeasured.

-
If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value.

24

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
IAS 12 Income Taxes
Clarifies that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognised consistently with the transactions that generated the distributable profits, i.e. in profit or loss, other comprehensive income or equity.

IAS 23 Borrowing Costs
Clarifies that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale, or any non-qualifying assets, are included in that general pool. As the costs of retrospective application might outweigh the benefits, the changes are applied prospectively to borrowing costs incurred on or after the date an entity adopts the amendments.

IFRIC 23 Uncertainty over Income Tax Treatments
Seeks to bring clarity to the accounting for income tax treatments that have yet to be accepted by tax authorities. The key test is whether it’s probable that the tax authority will accept the Group’s chosen tax treatment.

(d)
Other Amendments

The following amendment to standards are not yet effective and none are expected to have a significant impact on the Group’s consolidated financial statements:

-
Prepayment Features with Negative Compensation (Amendments to IFRS 9)

-
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)

-
Plan Amendments, Curtailment or Settlement (Amendments to IAS 19)

Management anticipates that these new standards, interpretations and amendments will be adopted in the Group’s consolidated financial statements for the period beginning January 1, 2019 or as and when they are applicable and adoption of these new standards, interpretations and amendments, except for IFRS 16 will not have a material impact on the consolidated financial statements of the Group in the period of initial application.

The application of IFRS 16 may have significant impact on amounts reported and disclosures made in the Group’s consolidated financial statements with respect to right-of-use assets and lease liabilities.  However, it is not practicable to provide a reasonable estimate of the effects of the application of these standards until the Group performs a detailed review.

25

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
5
APPLICATION OF NEW STANDARDS AND AMENDMENTS APPLIED

The Group has adopted, as appropriate, the following new and amended IASB Standards, effective 1 January 2018.


(a)
Annual Improvements to IFRSs 2014–2016 cycle


IFRS 1 First-time Adoption of IFRS - The amendments in IFRS 1 deletes the short term exemptions in IFRS 1 that relates to disclosure about financial instruments (IFRS 7), Employee benefits (IAS 19), and investment entities (IFRS 12 and IAS 27). The reporting period to which the exemptions applied have already passed and as such, these exemptions are no longer applicable.

IAS 28 Investments in Associates and Joint Ventures - A venture capital organisation, or other qualifying entity, may elect to measure its investments in an associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment basis.
A non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture. Effective retrospectively for annual periods beginning on or after 1 January 2018; early application is permitted.

There is no impact of above amendments on these consolidated financial statements.


(b)
IFRS 15 - Revenue from contracts with customers

The Group opted to early adopt IFRS 15. Based on the transitional provisions provided under the standard 1 January 2017 is the date of initial application. Further, the Group has opted for full retrospective method along with the following practical expedients:


Completed contracts that began and ended within the same reporting period have not been restated.

Transaction price on the date of completion of the contract has been used instead of re-estimating the variable consideration for comparative periods.


(c)
Amendments to IFRS 15 - Revenue from Contracts with Customers

The amendments add clarifications in the following areas:


Identifying performance obligations;

Principal versus agent considerations; and

Licensing application guidance.

The amendments introduce additional practical expedients for entities transitioning to IFRS 15 on (i) contract modifications that occurred prior to the beginning of the earliest period presented and (ii) contracts that were completed at the beginning of the earliest period presented.

There is no impact of above amendments on these consolidated financial statements.


(d)
IFRS 9 – Financial instruments

The Company opted to early adopt IFRS 9 Financial Instruments.  Based on the transitional provisions under the standard, January 1, 2017 is the date of initial application.   The application of IFRS 9 did not have a significant impact on amounts reported and disclosures made in the Company’s consolidated financial statements with respect to the Company’s financial assets and financial liabilities.


(e)
Amendments to IFRS 2 “Share Based Payment”

The amendments clarify accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

There is no impact of above amendments on these consolidated financial statements.

26

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018

(f)
Amendments to IFRS 4 “Insurance Contract” and IFRS 9 “Financial Instruments”

The amendments provide two options for entities that issue insurance contracts within the scope of IFRS 4. This include an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach; and an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

There is no impact of above amendments on these consolidated financial statements.


(g)
Amendment to IAS 40 “Investment Property”

The amendments are intended to clarify that an entity can only reclassify a property to/from investment property when, and only when, there is evidence that a change in the use of the property has occurred.

There is no impact of above amendments on these consolidated financial statements.


(h)
IFRIC 22 - Foreign Currency Transaction and Advance Consideration

The Interpretation clarifies that when an entity pays or receive consideration in advance in a foreign currency, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense, or income is the date of advance consideration i.e. when the prepayment or income receive in advance liability was recognized.

6
ACCOUNTS RECEIVABLE AND PREPAYMENTS

   
2018
   
2017
 
   
SR '000
   
SR '000
 
             
Trade accounts receivable
   
1,187,202
     
1,422,513
 
Provision for impairment
   
(11,760
)
   
(12,921
)
                 
Trade accounts receivable, net
   
1,175,442
     
1,409,592
 
Prepayments
   
437,225
     
606,529
 
                 
     
1,612,667
     
2,016,121
 

The carrying value of the trade accounts receivable approximates fair value.

The Group sells a broad range of industrial and performance chemicals and mineral sands to a diverse group of customers operating throughout the world.  Accordingly, there is no significant concentration of risk in any one particular country. Credit limits, ongoing credit evaluation, and account-monitoring procedures are utilized to minimize credit risk and to determine the allowance for doubtful accounts.  Collateral is generally not required, but may be used under certain circumstances or in certain markets, particularly in lesser-developed countries of the world.  The Group performs ongoing credit evaluations of its customers’ financial condition and, in certain circumstances, requires letters of credit.

27

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Trade receivables disclosed above include amounts that are past due at the end of reporting period for which the Group has not recognized an allowance for doubtful receivables because there has not been a significant change in the credit quality and the amounts are considered fully recoverable. Aging of receivables that are past due but not impaired are summarized below:

   
2018
   
2017
 
   
SR '000
   
SR '000
 
                 
0 - 90 days
   
49,671
     
35,351
 
91 - 180 days
   
3,477
     
2,301
 
181 - 360 days
   
14,123
     
1,271
 
More than 360 days
   
3,428
     
498
 
                 
     
70,699
     
39,421
 

The aging of trade accounts receivable which are past due and considered impaired by management is as follows:

   
2018
   
2017
 
   
SR '000
   
SR '000
 
                 
0 - 90 days
   
2,681
     
-
 
91 - 180 days
   
172
     
-
 
181 - 360 days
   
2,310
     
-
 
More than 360 days
   
6,597
     
12,921
 
                 
     
11,760
     
12,921
 

The movements in the provision for impairment of receivables are as follows:

   
2018
   
2017
 
   
SR '000
   
SR '000
 
             
Opening balance
   
12,921
     
11,663
 
Charge for the year
   
4,104
     
260
 
Reductions/Payments
   
(3,622
)
   
(18
)
Foreign currency movements
   
(753
)
   
(5,382
)
Adjustments/Other
   
(890
)
   
6,398
 
                 
Closing balance
   
11,760
     
12,921
 

7
INVENTORIES

   
2018
   
2017
 
   
SR '000
   
SR '000
 
             
Finished goods
   
1,360,873
     
1,061,687
 
Work-in-process
   
308,805
     
332,453
 
Raw materials
   
771,394
     
686,953
 
Spare parts and supplies
   
226,118
     
207,582
 
Reserve for spare parts and supplies
   
(16,321
)
   
(17,145
)
                 
     
2,650,869
     
2,271,530
 

28

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
The movement in reserve for spare parts and supplies is as follows:

   
2018
   
2017
 
   
SR '000
   
SR '000
 
             
Opening balance
   
17,145
     
94,147
 
Additions
   
1,543
     
3,089
 
Reductions/Payments
   
(939
)
   
(10,382
)
Adjustments/Other
   
(150
)
   
(71,269
)
Foreign currency movements
   
(1,278
)
   
1,560
 
                 
Closing balance
   
16,321
     
17,145
 

The cost of inventory recognized as an expense during the year was SR 5.02 billion (2017: SAR 5.19 billion).

8
RELATED PARTY TRANSACTIONS

The Company had transactions with the following related parties:

Parent:
National Industrialization Company (Tasnee)
   
Non-controlling shareholders:
Gulf Investment Corporation (GIC)
 
Dr. Talal Al-Shair
   
Associates:
Advanced Metal Industries Cluster Company Limited (AMIC)
   
Affiliate:
Advanced Metal Industries Cluster and Toho Titanium Company Limited
   
Fellow group subsidiaries:
Rowad National Plastics Company
 
National Batteries Company (Battariat)

29

The National Titanium Dioxide Company Limited (Cristal)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Amounts due from and due to these related parties consist of the following:

   
2018
   
2017
 
   
SR '000
   
SR '000
 
National Industrialization Company (Tasnee)
           
- Services provided and recharged costs
   
45,223
     
9,458
 
Advanced Metal Industries Cluster Company Limited (AMIC)
               
- Services provided and recharged costs
   
4,967
     
38,291
 
Advanced Metal Industries Cluster and Toho Titanium Company Limited
               
- Services provided and recharged costs
   
4,436
     
175,346
 
Rowad National Plastics Company
               
- Services provided and recharged costs
   
7,619
     
5,634
 
National Batteries Company (Battariat)
               
- Services provided and recharged costs
   
70
     
70
 
                 
Due from related parties - current
   
62,315
     
228,799
 
                 
Advanced Metal Industries Cluster Company Limited (AMIC)
               
- Interest bearing loans
   
427,602
     
775,091
 
                 
Due from related parties - non-current
   
427,602
     
775,091
 
                 
National Industrialization Company (Tasnee)
               
- Services provided and recharged costs
   
158,623
     
127,938
 
Advanced Metal Industries Cluster Company Limited (AMIC)
               
- Ore purchases, services provided and recharged costs
   
-
     
32,838
 
Advanced Metal Industries Cluster and Toho Titanium Company Limited
               
- Services provided and recharged costs
   
5,314
     
212,476
 
                 
Due to related parties - current
   
163,937
     
373,252
 
                 
National Industrialization Company (Tasnee)
               
- Interest bearing loans
   
1,089,926
     
1,066,819
 
Advanced Metal Industries Cluster Company Limited (AMIC)
               
- Ore purcahses, services provided and recharged costs
   
302,442
     
-
 
Gulf Investment Corporation (GIC)
               
- Interest bearing loans
   
178,790
     
173,151
 
Dr. Talal Al-Shair