BUSINESS STRATEGIES & RISK MANAGEMENT

Strategic Agility: Navigating Risks and Seizing Opportunities for Exceptional Business Growth

Description of the Company’s Significant Plans, Decisions, Forecasts and Risks:

Future Plans and Forecasts:

Advanced has achieved an operating profit of SAR 273.5 million during 2023 in spite of the severe downturn in the global petrochemical business.

The current petrochemical market dynamics continues to be very challenging due to low spreads between the feedstock and product prices. This has been primarily caused due to slower global growth in addition to several capacity additions in China. Needless to say, safety, plant reliability and dynamic marketing strategy will play a key role in in mitigating the challenges. Further, several efficiency and profit improvement programs are planned to be implemented, some of which are commissioning by mid 2024, completion of Turnaround maintenance by Feb 2024 in order to fully utilize enhanced catalyst performance for the rest of year, implementation of shared services for efficient resource utilization etc. Another strategy is centralizing sales and marketing function, and we have formed Advanced Global Marketing Company (AGMC) to handle sales from the existing as well as the new facilities.

Another critical activity to be successfully completed is the start up of our new PDH-PP project which is expected by second half of 2024. Further, in 2024, efforts will be maximized towards operational & maintenance readiness to ensure smooth and sustainable operations of the new plant(s).
From a growth strategy point of view, Advanced is evaluating several growth projects including a cracker complex; production of protein feed etc. It is noteworthy to mention that Advanced has signed the Support Framework Agreement with SHAREEK to enable Advanced to maximize its domestic investment plan, in which Advanced was selected as one of the companies eligible to participate in SHAREEK Program.

From the challenges point of view, SK Advanced’s business has been negatively impacted due to the market down turn, resulting in a loss in the share of profits of SKA, in spite of Advanced making an operating profit of SAR 273.5 Million in 2023. We are working very closely with them wherein several improvement plans and mitigation measures have put in place to minimize the impact of the market downturn to the maximum extent possible.

There are challenges also being faced with regards to product logistics cost, due to the tensions around the Red Sea. However, we are managing this situation by dynamically placing the product(s) into those regions to minimize the impact.

 

 

 

 

 

 

ADVANCED POLYOLEFINS
INDUSTRY COMPANY
(APOC)

Advanced follows both short-term as well as long-term business strategies. The short-term strategy is normally based on yearly companywide business objectives which focuses on Responsible Care, Human Capital, Commercial, Manufacturing Excellence and Profitability. These objectives are closely monitored on a monthly and quarterly basis by all levels in the organization, to take proactive and timely actions to ensure the KPIs and goals in the key areas are being achieved.

2023 Advanced has obtained feedstock allocation from the Ministry of Energy (MOE) for Cracker complex project

As already announced in the Saudi Exchange's website, Advanced is currently executing its Propane Dehydrogenation; Polypropylene & Isopropanol (PDH-PP-IPA) project in Jubail - 2, Saudi Arabia, with approximately twice its current size, which is expected to come on stream during second half of 2024. This project aims to produce various specialized PP product grades which will provide an edge for Advanced to penetrate value added PP segments.

Further, Advanced has renewed the feedstock allocation from the Ministry of energy in 2023, to set up an integrated world scale cracker complex, which will focus on producing various downstream products to enhance local consumption and employment.

 

 

 

 

 

 

PDH-PP PROJECT

Advanced Polyolefins Industry Company (APOC) is executing the new greenfield propane dehydrogenation (PDH), polypropylene (PP) and isopropanol (IPA) complex with all required offsite and utilities in Jubail Industrial City, Saudi Arabia . The complex (currently undergoing construction) will be operated by APOC.

The Project will consist of:

  • A single train PDH with a total nameplate capacity of 843 000 tons per year of Propylene using CATOFIN Technology.
  • Two PP trains, each with a nameplate capacity of 400 000 tons per year of Polypropylene using Spheripol and Spherizon technologies from LyondellBasell repsecitvely.
  • AAn IPA plant with a nameplate capacity of 70 000 tons per year of Isopropanol Commissioning is currently planned for Q4, 2026.

The scope of work for the Project has been divided into three different packages as follows:

  • PDH/UTOS: the PDH plant as well as utilities and offsites associated with the plant, performed by Samsung Engineering Co.
  • PP: both polypropylene plants, the warehouse and associated works performed by Tecnimont.
  • OSBL: The scope includes pipelines to bring feedstock and utilities to the site as well as all non process buildings. Separate local contractors are employed per discipline.
  • IPA: The Front End Engineering Design (FEED) has been completed and EPC award is planned in Q1, 2024.

Overall Project Progress Status

The overall project has completed more than 39 million safe manhours. The overall Project Execution Phase has achieved an Actual Progress about 88%.

 

 

 

 

 

 

RISK MANAGEMENT

Advanced has its own risk management platform wherein key business risks already identified were being continuously monitored with very clear action and mitigation plans.

The risk assessment process is carried out continuously at the strategic and operational level, whereby the relevant procedures are monitored periodically and continuously in order to deal with them and take the necessary preventive measures to minimize these risks. A dedicated Enterprise Risk Management Committee is involved in reviewing the business risks on a periodic basis to evaluate the residual risk and take any further preventive actions, as required.

The Board of Directors periodically reviews the top risks to ensure that special programs are in place in order to minimize the impact. The Executive Management of the Company also ensures that the risk management processes, and the followed systems operate efficiently at all levels of the Company.

Further, a business risk revalidation was carried out in 2022, in coordination with third party experts, wherein the current risks were re-validated and new potential risks were identified. These business risks were categorized into “high”; “medium” and “low” risks, and controls as well as mitigations, as applicable, are in place. Further, the risk validation was done in 2023 by the internal team and outcome was presented to the Board.

Below is an insight into a few common and specific risks pertaining to the industry:

Advanced, similar to the rest of the petrochemical industries, may be sometimes exposed to some interruptions of its operating units, and to minimize the risks of these interruptions, the Company applies a comprehensive reliability program for all its units in addition to procuring comprehensive insurance for all its assets and business. The Company continuously monitors the management of these risks and takes preventive measures that contribute to raising awareness and limiting their impact.

With regards to the risks identified in 2023, based on a risk revalidation done in 2022, the following are the continuing high risks:

Market price fluctuation:

Price fluctuation has been retained as “high” risk considering the current market behavior. Mitigations and close monitoring in the areas of cost optimization and sales efficiency improvement are already in place.

Equity investments:

Considering the high share of losses from Advanced affiliate in South Korea (SK Advanced) mainly due to drop in product prices and spreads, this risk has been retained as “high”. Mitigations and close monitoring with regards to actions to be taken to minimize the impact, are already in place.

Financing cost:

Due to the current increasing trend in the financing cost (SIBOR and LIBOR), and considering Advanced current growth requirements etc, “financing cost” has been retained as “high” risk. Mitigations and actions are being put in place for efficient cash management.

Other high risks which are typical are “Critical spare parts management” and “Cyber security breach”. All relevant mitigations are in place and under close monitoring.

All of the above risks will be monitored on a regular basis to ensure mitigations and actions are in place as well as to review the requirement of further re-classification, if required.