Annual Report • Jun 30, 2022
Annual Report
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For the Year Ended 31 December 2021
World Trade Center, tower H, level 24 Zuidplein 198, 1077 XV Amsterdam The Netherlands
Company Number 77250672
| Directors' Report |
2 |
|---|---|
| Balance Sheet |
11 |
| Profit and loss Account |
12 |
| Statement of Cash Flows | 13 |
| Statement of Changes in Equity |
14 |
| Notes to the 2021 Financial Statements |
15 |
| Other Information | 34 |
Management of the Company hereby presents its management report for the financial year ended on 31 December 2021.
The principal activity and objective of the Company is to act as a finance company and to raise funds for PJSC LUKOIL and its affiliated entities (together referred to as 'the LUKOIL Group' or 'the Group') through the issue of bonds. The Company's general and administrative expenses are covered by the income received from loans granted to PJSC LUKOIL (fully repaid in 2021) and Lukoil Finance B.V (issued in 2021).
The Company was incorporated on 6 February 2020 and is wholly owned subsidiary of PJSC LUKOIL domiciled in Russia.
The Company is registered under number 77250672 at the Dutch Chamber of Commerce.
The Company has sufficient assets to meet all bond obligations. The cash generated from interest income on loans given to the Group companies covers all bond interest costs and administrative expenses.
In the 2021 financial year the company restructured the loan receivable portfolio to change the counterparty to a LUKOIL Group company (from PJSC LUKOIL). As part of the change, the key terms of the loan (such as maturity date and principal amount) remain unchanged. The restructure was due to economic reasons, including the denunciation of the Dutch – Russian double tax treaty.
Total assets increased from USD 1,518,946 thousand in 2020 to USD 1,537,578 thousand in 2021. The assets mainly relate to the loans granted to LUKOIL Group companies (specifically LUKOIL Finance BV) and respective interest receivable.
As at 31 December 2021 the net assets of the Company amounted to USD 26,657 thousand (2020: USD 13,620 thousand).
The interest income on loans granted increased from USD 39,703 thousand in 2020 to USD 76,319 thousand in 2021. The significant growth is due to two key factors: full year of operations in the 2021 financial year (2020: 8 operational months) and by the premature repayment of contractual obligations by PJSC Lukoil which incurred a oneoff income of (USD 15,290 thousand).
Interest expense amounted to USD 58,467 thousand (2020: USD 38,161 thousand) is resulting mainly from issued bonds. The growth in interest expense is due to the full year of operations.
The net result for the period is a profit of USD 13,037 thousand (2020: USD 556 thousand). The increase is driven two key factors: the full year of operations in the 2021 financial year (2020: 8 operational months) and by the premature repayment of
contractual obligations by PJSC Lukoil which incurred a one-off income of (USD 15,290 thousand).
The Company's liquidity and solvability position is reviewed periodically to ensure that the Company is able to meet its obligations. The Company has sufficient access to borrowing facilities from affiliated companies.
The Company has sufficient assets to meet all bond obligations. The cash generated from interest income on loans given to the Group companies covers all bond interest costs and administrative expenses.
The Company maintains positive cash balances amounting to USD 43 thousand at year end (2020: USD 3 thousand) to ensure the liquidity. The increase in cash balance is caused by the changes in the loan receivable portfolio in the 2021 financial year.
In the normal course of business, the Company uses various financial instruments that expose the Company to credit risk, liquidity risk and market risk. These relate to financial instruments that are included on the balance sheet and relate to bonds issued or loans granted.
The Company does not make use of financial derivatives. The Company follows procedures and a code of conduct to limit the size of the credit risk for financial instruments with each counterparty and market.
The Board has responsibility for monitoring the risks throughout the Company and obtains input on entity risks from both internal sources and external sources to facilitate the Company's risk assessment process. The Board has regular meetings to review financial results and regularly discusses whether risks are changing or becoming more likely. There are currently no planned improvements to the risk management system.
Credit risk arises principally from the Company loans and receivables presented under financial fixed assets, other receivables and cash. The maximum amount of credit risk that the Company incurred is USD 1,537,578 thousand (2020: USD 1,518,946 thousand), consisting of USD 1,526,064 thousand loans (2020: USD 1,510,000 thousand) and USD 11,514 thousand (2020: USD 8,946 thousand) interest, other receivables and cash.
Credit risk is the risk of financial loss of the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's loans to group companies and corresponding interest receivable.
The Company is ultimately 100% owned by the PSJC LUKOIL, a large Russian conglomerate, which operates in the oil and gas industry. The credit risk is limited to the operations within LUKOIL Group (specifically LUKOIL Finance BV). Management of the Company assess and reviews the risk for the PSJC LUKOIL and group companies, and does not consider it likely they will fail to meet their obligations. The
Company finances entities within the Group. As such, the Company is economically dependent on the LUKOIL Group and exposed only to the credit risk generated within group companies. Management considers that the current level of exposure to credit risk is acceptable since it is limited only to the credit risk of existing group entities which do not indicate triggers of non-recoverability.
The company has benchmarked the credit risk against public sources and calculated the ECL based on a publicly available market study. The 12-month ECLs are considered not to be significant and no ECL has been recognised as at 31 December 2021 (2020: none).
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Company does not expect to encounter difficulty in meeting the obligations associated with its financial liabilities since the bonds are effectively covered by loans receivable of the same amount. Since the Company has sufficient assets to meet its liabilities, the timing of cash flows from the instruments will allow for timely repayment and no issues with regard to the credit risk of the assets has been identified the company considers risks associated with liquidity as negligible and are an acceptable level to the management.
The risk of default to Bond holders on its liabilities is mitigated with a guarantee by the ultimate parent company directly to the bond holders.
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of the financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. As there is not a significant exposure, the company only manages this risk through the determination of markets and quantity of exposure to those markets.
The Company runs an interest rate risk on interest bearing assets and liabilities. For assets and liabilities with a fixed interest rate the Company runs a fair value risk. This is the risk that the fair value of a financial instrument will fluctuate due to changes in market prices. As these instruments are not carried at fair value in the balance sheet, they do not impact the financial performance or results of the company.
The market risk exposure is considered negligible as no significant transactions have taken place in foreign currencies, movements in the fair value of long-term instruments will not impact the position or performance of the company and the nominal interest rates of the majority of loan receivables and bond payables are fixed.
Due to their short-term nature, the fair value of current financial instruments recognized on the balance sheet, including current receivables, cash and cash equivalents and current liabilities, are considered to be approximately equal to their carrying amount. Fair value of non-current financial instruments is disclosed in note 4 to the financial
statements. The Company is not affected by changes in equity prices. Management considers that the current level of exposure to market risk is acceptable.
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel and from external factors such as those arising from legal and regulatory requirements and generally accepted standards or corporate behavior. Operational risks could arise from all of the Company's operations.
Due to the nature of the Company's operations, being a finance company, management is of the opinion that the operational risks relate to its exposure to financial instruments. For detailed discussion of such risks please refer to note 5 of the notes to the financial statements. Macro-economic factors are discussed in the business environment paragraph.
Given the operations of the Company are finance in nature, the Company tracks its progress through financial KPI's, such financial KPI's have been disclosed in "Financial information".
Non-financial KPI's are limited to those applying to compliance with the Code of Business Conduct and Ethics, such KPI's are discussed in the paragraph 'Code of Corporate Conduct'.
Management relies on the accuracy and completeness of financial reporting through the use of a LUKOIL Group operated shared service centre. The shared service centre assists in the preparation, maintenance and reporting of financial records in accordance with group policies, procedures and standards. This is achieved through the application of a common structure for LUKOIL Group companies and the application of basic review and segregation of duties controls. Given the limited transactions and the simplistic nature of the Company, management considers the control system of the Company in relation to the financial reporting process to be suitable.
The Company mandatorily applies the Code of Business Conduct and Ethics of the LUKOIL Group, which regulates the most important rules of conduct for LUKOIL's company business and its employees, ethical norms for intra-corporate relations and social responsibility. During 2021, there were no identified breaches in the Code of Business Conduct and Ethics.
The Code of Business Conduct and Ethics communicates a strict no tolerance policy to fraud and in detail the relevant provisions disclosed in Anti-Corruption Policy of LUKOIL Group.
To mitigate fraud risk the Company will, where possible segregate staff duties in its processes. Management's objective is that no individual has the ability to both perpetrate and conceal errors or fraud in the normal course of their duties.
In compliance with the existing LUKOIL Group policies and regulations the Company implements process controls for the approval and execution of bank payments based on segregation of duties between authorised personnel. This includes dual signature authorisation for bank payments.
Given the environment and limited operations of the Company, management considers that the risk of fraud is low.
The business area in which the Company operates is naturally exposed to a number of legal risks, tax risks and risks in connection with the reporting to public authorities or other external reporting. The Company engages professional experts (e.g. tax advisors, notaries, LUKOIL Group legal and tax departments) to assist us in identifying and mitigating regulatory risks.
The Company issues debt instruments listed on public markets in the United Kingdom and it is domiciled, and operates from the Netherlands. As such, it is exposed to the regulatory environments of both countries.
On 31 January 2020 the United Kingdom formally left the European Union. The Withdrawal Agreement provided for a transition period lasted until 31 December 2020 and European Union law continued to apply to the United Kingdom. This transition period has now expired. Because financial services do not form part of the new partnership, a no-deal Brexit applies to financial institutions. This impacts laws and regulations that are applying to the Company.
As the Company is no longer listed on an EU regulated market as of 1 January 2021 European Union law related to entities listed on European regulated markets is no longer applicable. As a consequence of Brexit, the Company will no longer qualify as an organisatie van openbaar belang (Public Interest Entity) as from 1 January 2021, under Dutch law.
The Company continues to monitor the situation and as at now there is no significant adverse effect on the fair value of the bonds as their market value exceeds the nominal value.
Due to nature of the Company's principal activity, mainly related to its ultimate parent, domiciled in Russia, the business area in which the Company operates is naturally connected with Russian and European business environment.
The economic and financial markets of the Russian Federation display characteristics of an emerging market. The Company is part of a Russian Group and is inherently exposed to the developments in Russia. The legal, tax and regulatory frameworks in Russia continue to develop. They are subject to varying interpretations and frequent changes which, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in the Russian Federation and other countries. The financial statements reflect management's assessment of the impact of the
Russian business environment on the operations and the financial position of the company. The future business environment may differ from management's assessment.
In July – September 2014, the United States ("US"), the European Union ("EU") and several other countries imposed a set of sanctions on Russia, including sectoral sanctions which affect several Russian oil and gas companies. The US Department of the Treasury has placed the PJSC LUKOIL onto the Sectoral Sanctions Identifications List subject to Directive 4 of the Office of foreign assets control (OFAC). Directive 4 prohibits US companies and individuals from providing, exporting, or re-exporting directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area spreading from the Russian territory and claimed by the Russian Federation.
From January 2018 (based on acts adopted in August – October 2017), the US expanded abovementioned sanctions to include certain categories of international oil projects initiated on or after 29 January 2018 in any part of the world, in which companies placed on the Sectoral Sanctions Identifications List subject to Directive 4 (including the PJSC LUKOIL) have an ownership interest of 33% or more, or ownership of a majority of the voting interests.
Due to the escalation of the conflict between Russia and Ukraine in February 2022, multiple jurisdictions, including the US, the EU, the UK and others have imposed economic sanctions on Russia, various companies, and certain individuals. The events are not expected to have an immediate material impact on the business operations.
Based on the current market situation and in spite of the impact of the abovementioned events being considerable management's assessment, did not identify any indicators that PJSC LUKOIL would not be able to meet its obligations towards the Company and that the Company would not be able to continue as a going concern.
Management will continue monitoring the situation closely to ensure prompt reaction to the rapidly changing environment. More detailed overview of the situation and its impact on the Company are described in "Subsequent events".
These financial statements of the Company have been prepared on the basis of the going concern assumption.
Due to the escalation of the conflict between Russia and Ukraine in February 2022, multiple jurisdictions, including the US, the EU, the UK and others have imposed economic sanctions on Russia, various companies, and certain individuals. More detailed overview of the situation and its impact on the Company are described in "Subsequent events".
Based on the current market situation and in spite of the impact of the abovementioned events being considerable management's assessment, did not identify any indicators that PJSC LUKOIL would not be able to meet its obligations towards the Company and that the Company would not be able to continue as a going concern.
The events are not expected to have an immediate material impact on the business operations. Management will continue monitoring the current situation closely to ensure prompt reaction to the rapidly changing environment.
The Board's policy is to maintain its working capital at an optimal level for operations and ensure that there is always sufficient cash flows to meet its liabilities. The Company does this by ensuring it has sufficient assets to meet its liabilities and the timing of cash flows from its instruments will allow for timely repayment of its liabilities. The Company is not subjected to externally imposed capital requirements.
The Company complies with relevant rules and regulations regarding environmental issues.
The Company did not have employees in 2021 (2020: zero).
However, the Company incurred expenses amounted USD 119 thousand related to Service agreement, signed with Lukoil International Upstream Holding B.V. and Lukoil Finance B.V, of rendering finance, treasury and accounting services. For the purposes of the rendering of the Services, Service Providers made available certain of its employees. Thus, the fee is composed of the salaries of the Service Provider's employees rendering the services.
This is not applicable for a finance company.
The Company has three Directors. The Directors received no remuneration in that capacity during the year. The Company has one Supervisory Board member: C.P. van Overbeeke. The remuneration for the Supervisory Board is not disclosed in accordance with the exemption in Section 2:383(1) of the Dutch Civil Code.
In the 2020 financial year, in order to meet the requirements of the new EU regulation 537 (which were applicable at the time), the Company founded its own Supervisory Board that functions as Audit Committee.
Due to Brexit (and the company no longer being a Public Interest Entity), it is no longer required to have a Supervisory Board (that functions as Audit Committee), however, the Company has decided to retain it.
The Company is committed to provide equal opportunities based on relative ability, performance and potential. The goal is to ensure a diverse talent pool is assessed and retained, and all employees are provided with equal opportunities to achieve their potential. The Company has no specific diversity policy in place for the Board of Directors, however we believe that the Board of Directors has the optimal number
of members and consists of highly professional individuals of independent and welldiversified in terms of Directors' professional qualifications.
The financial statements give a true and fair view of the assets and liabilities, the financial position and the profit or loss, the Directors' report provides a true and fair view and the significant risks and uncertainties to which the Company is exposed have been described.
Due to the escalation of the conflict between Russia and Ukraine in February 2022, the U.S. has imposed additional sanctions on the Russian government, as well as Russian entities and individuals. This includes full blocking sanctions on certain Russian state-owned financial institutions, as well as on certain entities and individuals, including certain Russian businesspersons and their families, and entities and individuals involved with the building and operation of the Nord Stream 2 energy pipeline.
Similarly, the UK and EU have imposed additional sanctions measures. The UK has imposed blocking and asset freezing sanctions on certain Russian banks, entities, and individuals operating in financial and defense sectors.
The EU has designated certain Russian government officials, entities (including Russian banks), and other individuals, and imposed restrictions on capital markets, loans, and credit that target Russian sovereign debt.
On 7 March 2022, Standard and Poor's downgraded the credit ratings of over 50 Russian companies (including LUKOIL) to CCC- (2021: BBB). This is not expected to have an immediate material impact on the business operations, however can have impact to the Company's future borrowings from third parties.
At the moment, there are no sanctions related to LUKOIL Group or its top management and sanctions that prohibit or restrict business of the Company.
The events are not expected to have an immediate material impact on the business operations. Management will continue monitoring the situation closely to ensure prompt reaction to the rapidly changing environment.
In April 2022 in accordance with loan agreements the Company received payments of interest from its parent and subsequently performed contractual interest payments under bond contracts.
The Company is expected to continue acting as a finance company; the loans granted to the Group companies will fully satisfy the financing requirement of bond repayments and interest commitments.
It is expected that the receipt of loans and corresponding repayment of bonds will occur in line with the maturities as disclosed in note 5 and 7 of the financial statements.
The Company from time to time may consider further opportunities to raise additional funds for the LUKOIL Group on the basis of, and subject to, market conditions prevailing.
There is no expected change in the staffing level in the foreseeable future.
The Directors who held office during the year were as follows:
M. van der Meulen Y. Levin C. Birch
Supervisory Board:
C.P. van Overbeeke
By order of the Board Amsterdam, __________ 2022
M. van der Meulen Director
C. Birch Director
As at 31 December 2021 (before profit appropriation)
| Note | 31 Dec 2021 USD '000 |
31 Dec 2020 USD '000 |
|
|---|---|---|---|
| Fixed assets |
|||
| Loans receivable from Group companies |
6 | 1,500,000 | 1,500,000 |
| Total Fixed assets | 1,500,000 | 1,500,000 | |
| Current assets | |||
| Loans receivable from Group | 6 | ||
| companies Interest receivable from Group |
26,064 | 10,000 | |
| companies | 6 | 10,348 | 8,920 |
| Trade and other receivables | 1,123 | 23 | |
| Cash and cash equivalents | 7 | 43 | 3 |
| Total current assets | 37,578 | 18,946 | |
| Current liabilities | |||
| Interest payable on issued bonds |
8 | 8,880 | 8,880 |
| Tax liabilities | 4,718 | 229 | |
| Trade and other payables | 795 | 31 | |
| Total current liabilities | 14,393 | 9,140 | |
| Net current assets | 23,185 | 9,806 | |
| Total assets less current liabilities | 1,523,185 | 1,509,806 | |
| Non-current liabilities | |||
| Bonds issued | 8 | 1,496,528 | 1,496,186 |
| Total non-current liabilities | 1,496,528 | 1,496,186 | |
| Net assets | 26,657 | 13,620 | |
| Shareholder's equity | |||
| Share capital | 13,064 | 13,064 | |
| Other reserves | 556 | - | |
| Result of current year | 13,037 | 556 | |
| Total shareholder's equity | 9 | 26,657 | 13,620 |
For the year ended 31 December 2021
| Note | 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|---|
| Financial income/(expense) | |||
| Interest income and similar income Interest expense and similar charges Foreign exchange loss/gain |
10 11 |
76,319 (58,467) 18 |
39,703 (38,161) - |
| Net financial income / (expense) |
17,870 | 1,542 | |
| General and administrative expenses | (324) | (773) | |
| Result before tax | 17,586 | 769 | |
| Tax on result | 12 | (4,509) | (213) |
| Result after taxation | 13,037 | 556 | |
| Other comprehensive income | - | - | |
| Net result | 13,037 | 556 |
For the year ended 31 December 2021
| 2021 USD '000 |
2020 USD'000 |
||
|---|---|---|---|
| Cash flows from operating activities Result before tax Adjustments for: |
17,546 | 769 | |
| Interest income Interest expense |
10 11 |
(76,319) 58,467 |
(39,703) 38,160 |
| Changes in: | (17,852) | (1,543) | |
| (Increase)/Decrease in receivables | (1,100) | (23) | |
| Increase/(Decrease) in payables |
744 | 48 | |
| (356) | 25 | ||
| Loans given |
6 | (1,526,727) | (1,514,783) |
| Loans repaid Interest received |
6 6 |
1,510,663 74,891 |
4,783 30,783 |
| Interest paid | 8 | (58,125) | (29,063) |
| Net cash from operating activities | 40 | (1,509,029) | |
| Net cash from investing activities | - | - | |
| Proceeds from issue of bonds | - | 1,498,800 | |
| Bond issuance costs capitalised | - | (2,832) | |
| Issued share capital Net cash from financing activities |
- - |
13,064 1,509,032 |
|
| Changes in cash and cash |
|||
| equivalents | 40 | 3 | |
| Balance as at 1 January 2021 |
3 | - | |
| Balance as at 31 December 2021 |
7 | 43 | 3 |
For the year ended 31 December 2021
| Balance as at 1 | |
|---|---|
| January 2020 - - - - |
- |
| Issuances of shares 13,064 |
|
| Appropriation of the prior | |
| year result - - - - |
- |
| Result for the year - - - 556 |
556 |
| Balance as at 31 | |
| December 2020 / 1 |
|
| January 2021 13,064 - - 556 |
13,620 |
| Appropriation of the prior | |
| year result - - 556 (556) |
- |
| Result for the year - - - 13,037 |
13,037 |
| Restatement of foreign | |
| issued capital - - - - |
- |
| Balance as at 31 | |
| December 2021 13,064 - 556 13,037 |
26,657 |
LUKOIL Securities B.V. ('the Company') is a private company with limited liability incorporated in Amsterdam, the Netherlands, on 6 February 2020. The Company is a wholly owned subsidiary of PJSC LUKOIL domiciled in Russia. The Company's financial statements are included in the consolidated financial statements of the ultimate parent company.
The principal activity of the Company is to act as a finance company and to raise funds for PJSC LUKOIL and companies ultimately controlled by PJSC LUKOIL (together referred to as 'LUKOIL Group' or 'the Group') through the issue of bonds. The Company does not have any subsidiaries.
The Company is registered under number 77250672 at the Dutch Chamber of Commerce.
These financial statements cover the year 2021, which ended at the balance sheet date of 31 December 2021.
These financial statements have been prepared on the basis of the going concern assumption.
These financial statements are the statutory financial statements of the Company. These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs) and with Section 2:362(9) of the Dutch Civil Code.
The financial statements have been presented on the historical cost basis.
The financial statements are presented in USD which is the Company's functional currency. All amounts are rounded to the nearest thousand, unless otherwise indicated. The functional currency is determined as USD as this is the currency in which the majority of transactions are denominated.
The preparation of the financial statements requires management judgements to form opinions and to make estimates and assumptions that influence the application of
principles and the reported values of assets and liabilities and of income and expenditure. Actual results may differ from these estimates.
The estimates and the underlying assumptions are constantly assessed. Revisions of estimates are recognised in the period in which the estimate is revised and in future periods for which the revision has consequences.
The accounting policies related to the impairment of financial assets and fair value disclosure are in the opinion of management the most critical in preparing these financial statements and require judgements, estimates and assumptions. Information about judgments and estimation uncertainties made in applying accounting policies is included in notes 4 and 5 to the financial statements.
A number of the Company's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The fair value of a financial instrument is the amount for which an asset can be sold or a liability settled, involving parties who are well informed regarding the matter, willing to enter into a transaction and are independent from each other.
When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in note 4.
The Company has consistently applied the following accounting policies to all periods presented in these financial statements.
The Company's operating income and expenses include interest income and interest expense. Interest income or expense is recognised using the effective interest method.
The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of financial instruments to:
When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the company estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.
Transactions in foreign currencies are translated to the respective functional currencies of the company at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within net interest income / loss.
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
Financial instruments include investments in shares and bonds, trade and other receivables, cash items, loans and other financing commitments, derivative financial instruments, trade payables and other amounts payable. These financial statements contain the following financial instruments: loans and receivables (both purchased and issued) and other financial liabilities.
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value including, for an item not at FVTPL (Fair value through profit and loss), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI (Fair value through other comprehensive income) or FVTPL. The company has only identified assets at amortised cost.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers:
terms that may adjust the contractual coupon rate, including variable-rate features;
prepayment and extension features; and
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual per amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
The Company derecognises a financial asset when:
The Company enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when and only when, the company has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the net asset and settle the liability simultaneously.
The Company recognises loss allowances for ECLs on financial assets measured at amortised cost.
The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company's historical experience and informed credit assessment and including forward-looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Company considers a financial asset to be in default when:
The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of 'investment grade'. The Company considers this to be Baa3 or higher per Moody's.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
At each reporting date, the Company assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or being more than 90 days past due;
• the restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;
• it is probable that the borrower will enter bankruptcy or other financial reorganisation.
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Company individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Company expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company's procedures for recovery of amounts due.
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
The cash flow statement is prepared using the indirect method. Due to the nature of the Company's operations being financing activities, movements in loans and group receivables are generally considered to be operating activities and classified as such in the cash flow statement.
The IASB and the IFRIC have issued new and/or amended standards and interpretations which are applicable to LUKOIL Securities B.V. with effect from the 2021 financial year. The amendments to the standards and interpretations described below have been endorsed by the European Union.
The amendments to the standards and interpretations do not have any material impact on LUKOIL Securities B.V. or the impact is very limited so they will not be discussed further in these financial statements
In addition to the aforementioned new and amended standards, the IASB and IFRIC have issued new and/or amended standards which will be applicable to LUKOIL Securities B.V. in subsequent financial years. These standards and interpretations can only be applied is adopted by the European Union.
The future new and/or amended standards and interpretations are the following:
Amendments to IAS 12 'deferred Tax related to Assets and Liabilities arising from a single transaction'
IFRS 17 'Insurance Contracts'
These published future amendments to standards and interpretations are not relevant or have very limited relevant to LUKOIL Securities B.V. and/or do not have a material impact to LUKOIL Securities B.V. so they will not be discussed further in these financial statements
Management considers the company to only have one reportable segment on the basis that the company is organised around its finance services provided and it is only providing such services to the LUKOIL Group. Revenue is derived from the loans provided to the LUKOIL group companies on financing transactions.
The above new and amended standards are not expected to have a significant impact on the companies financial statements.
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| 31 December 2021 | Carrying amount | Fair Value | ||||||
|---|---|---|---|---|---|---|---|---|
| Financial assets at amortised cost |
Financial liabilities at amortised cost |
Total | Level 1 | Level 2 | Level 3 | Total | ||
| USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | ||
| Financial assets not measured at fair value | ||||||||
| Loans to Group companies | 6 | 1,526,064 | - | 1,526,064 | - | 1,535,237 | 26,064 | 1,561,301 |
| Interest receivable | 6 | 10,348 | - | 10,348 | - | - | 10,348 | 10,348 |
| Other receivables | 1,123 | - | 1,123 | - | - | 1,123 | 1,123 | |
| Cash and Cash equivalents | 7 | 43 | - | 43 | - | - | 43 | 43 |
| 1,537,578 | - | 1,537,578 | - | 1,535,237 | 37,578 | 1,572,815 | ||
| Financial liabilities not measured at fair value | ||||||||
| Interest payable | 8 | - | 8,880 | 8,880 | - | 8,880 | - | 8,880 |
| Tax liabilities and Other | ||||||||
| payables | - | 5,513 | 5,513 | - | - | 5,513 | 5,513 | |
| Bonds issued | 8 | - | 1,496,528 | 1,496,528 | 1,530,645 | - | - | 1,530,645 |
| - | 1,510,921 | 1,510,921 | 1,530,645 | 8,880 | 5,513 | 1,545,038 |
The following table shows the valuation techniques used in determining the fair value of Level 2 and 3 financial instruments.
Loans to group companies Level 2 Market comparison/discounted cash flow: The fair value is estimated considering (i) current or recent quoted prices for identical securities in active markets (ii) an adjustment to the value calculated using discount rates derived from quoted yields of securities with similar maturity and credit rating that are traded in active markets.
Loans to group companies Level 3 Discounted cash flow: The valuation model considers the present value of expected payment, discounted using risk-adjusted discount rate – the interest rate, that is a consideration for the time value of money and for the credit risk associated with the principal amount, outstanding during a particular period of time.
In the normal course of business, the Company uses various financial instruments that expose the Company to credit risk, liquidity risk and market risk. These relate to financial instruments that are included on the balance sheet and relate to bonds issued or loans granted.
The Company does not make use of financial derivatives. The Company follows procedures and a code of conduct to limit the size of the credit risk for financial instruments with each counterparty and market.
Credit risk arises principally from the Company loans and receivables presented under financial fixed assets, other receivables and cash. The maximum amount of credit risk that the Company incurred is USD 1,537,578 thousand (2020: USD 1,518,946 thousand), consisting of USD 1,526,064 thousand loans (2020: USD 1,510,000 thousand) and USD 11,514 thousand (2020: 8,946 thousand) interest, other receivables and cash.
Credit risk is the risk of financial loss of the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's loans to group companies and corresponding interest receivable.
The Company is ultimately 100% owned by the PSJC LUKOIL, a large Russian conglomerate, which operates in the oil and gas industry. The credit risk is limited to the operations within LUKOIL Group Management of the Company assess and reviews the risk for the PSJC LUKOIL and group companies, and does not consider it likely they will fail to meet their obligations. The Company finances entities within the Group. As such, the Company is economically dependent on the LUKOIL Group and exposed only to the credit risk generated within group companies. Management considers that the current level of exposure to credit risk is acceptable since it is limited only to the credit risk of existing group entities which do not indicate triggers of nonrecoverability.
The company has benchmarked the credit risk against public sources and calculated the ECL based on a publicly available market study. The 12-month ECLs are considered not to be significant and no ECL has been recognised as at 31 December 2021.
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.
The Company does not expect to encounter difficulty in meeting the obligations associated with its financial liabilities since the bonds are effectively covered by loans receivable of the same amount. Since the Company has sufficient assets to meet its liabilities, the timing of cash flows from the instruments will allow for timely repayment and no issues with regard to the credit risk of the assets has been identified the Company considers risks associated with liquidity as negligible and are at an acceptable level to the management.
The risk of default to Bond holders on its liabilities is mitigated with a guarantee by the ultimate parent company directly to the bond holders.
The following are the remaining contractual maturities of financial assets and liabilities at the reporting date. The amounts are gross and undiscounted: The amounts are undiscounted, and include contractual financial obligations and rights as of 31 December 2021 are:
| 1 year or less |
1 - 2 years | 2- 5 years | More than 5 years |
Total 2021 |
Total 2020 |
|
|---|---|---|---|---|---|---|
| USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | |
| Bonds Issued |
- | - | - | 1,500,000 | 1,500,000 | 1,500,000 |
| Interest Payable |
8,880 | - | - | - | 8,880 | 8,880 |
| Tax liabilities and Other Payable |
5,513 | - | - | - | 5,513 | 260 |
| Total payable amount |
14,393 | - | - | 1,500,000 | 1,514,393 | 1,509,140 |
| Loans to group companies |
26,064 | - | - | 1,500,000 | 1,526,064 | 1,510,000 |
| Interest receivable |
10,348 | - | - | - | 10,348 | 8,920 |
| Other receivables |
1,123 | - | - | - | 1,123 | 23 |
| Cash and cash equivalents |
43 | - | - | - | 43 | 3 |
| Total receivable amount |
37,578 | - | - | 1,500,000 | 1,537,578 | 1,518,946 |
| Net amount | 23,185 | - | - | - | 23,185 | 9,806 |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of the financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. As there is not a significant exposure, the company only manages this risk through the determination of markets and quantity of exposure to those markets.
The Company runs an interest rate risk on interest bearing assets and liabilities. For assets and liabilities with a fixed interest rate the Company runs a fair value risk. This is the risk that the fair value of a financial instrument will fluctuate due to changes in market prices. As these instruments are not carried at fair value in the balance sheet, they do not impact the financial performance or results of the company.
The market risk exposure is considered negligible as no significant transactions have taken place in foreign currencies, movements in the fair value of long term instruments will not impact the position or performance of the company and the nominal interest rates of the majority of loan receivables and bond payables are fixed.
Due to their short term nature, the fair value of current financial instruments recognised on the balance sheet, including current receivables, cash and cash equivalents and current liabilities, are considered to be approximately equal to their carrying amount. Fair value of non-current financial instruments is disclosed in note 4 to the financial statements. The Company is not affected by changes in equity prices. Management considers that the current level of exposure to market risk is acceptable.
The Board's policy is to maintain its working capital at an optimal level for operations. The Board's policy is to maintain its working capital at an optimal level for operations and ensure that there is always sufficient cash flows to meet its liabilities. The Company does this by ensuring it has sufficient assets to meet its liabilities and the timing of cash flows from its instruments will allow for timely repayment of its liabilities.
The Company is not subjected to externally imposed capital requirements.
The terms and conditions at 31 December 2021 of outstanding loans are as follows:
| Nominal interest rate* |
Effective interest rate* |
Cur rency |
Face value USD '000 |
Amortized Cost 2021 USD '000 |
Amortized Cost 2020 USD '000 |
|
|---|---|---|---|---|---|---|
| Loans granted to Group Companies (Lukinter Finance B.V.) | ||||||
| Loan maturing in 2021 | 3MLIBOR | 3MLIBOR | USD | - | - | 10,000 |
| - | - | 10,000 | ||||
| Loans granted to Group Companies (LUKOIL Finance B.V.) | ||||||
| Loan maturing 2022 | 1% | 1% | USD | 26,064 | 26,064 | - |
| Loan maturing 2030 | 4,175% | 4,175% | USD | 1,500,000 | 1,500,000 | - |
| 1,526,064 | 1,526,064 | - |
| Loans granted to Parent Company (PJSC LUKOIL) | ||||||
|---|---|---|---|---|---|---|
| Loan maturing 2030 | 3,875% | 3,997% | USD | - | - | 1,500,000 |
| - | - | 1,500,000 | ||||
1,526,064 1,526,064 1,510,000 *the table above is showing the applicable nominal and effective interest rate in place on the loan prior to the termination of the loan in the current financial year.
In the 2021 financial year the loans were refinanced. The loans were held with the ultimate parent (PJSC LUKOIL) for part of the year before being terminated and reissued to a group company (LUKOIL Finance B.V.). Key terms such as maturity date (for the long-term loan) remain unchanged (given this loan is pegged to the bond) – the interest rate under the agreements is different (refer to interest rates per above tables). The restructure occurred due to economic reasons, including the denunciation of the Dutch – Russian double tax treaty.
The effective interest is included in the profit and loss account as 'Interest income' and includes both the nominal interest and a fee for the provision of funds (only applicable for the loans that were in place with PJSC LUKOIL that were terminated in the year).
The loans granted to Lukoil Finance B.V.,are all unsecured, bear fixed interest rates and are due to be received at maturity.
Movements in the loans receivable are as follows:
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| At beginning of period Movements: |
1,518,920 | - |
| Non-current loan issued to Group company | 1,500,000 | 1,500,000 |
| Current loan issued to Group company | 26,727 | 14,783 |
| Non-current loan repaid by Group companies | (1,500,000) | - |
| Current term loan repaid by Group companies | (10,663) | (4,783) |
| Interest accrued | 76,319 | 39,703 |
| Interest received | (74,891) | (30,783) |
| As 31 December 2021 | 1,536,412 | 1,518,920 |
| Non-Current Loans receivable | 1,500,000 | 1,500,000 |
| Current Loans receivable | 26,064 | 10,000 |
| Interest receivable | 10,348 | 8,920 |
| 1,536,412 | 1,518,920 |
Current loans and interest receivable have an estimated maturity shorter than one year. The carrying values of the recognised current receivables approximate their respective fair values.
At the balance sheet date, the cash and cash equivalents consists of cash at bank and amounts to USD 43 thousand and is at free disposal of the Company.
Bonds issued in the balance sheet include bonds issued to third parties as presented below:
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| Non-current Bonds issued |
1,496,528 | 1,496,186 |
| 1,496,528 | 1,496,186 | |
| Current Interest payable on bonds issued |
8,880 | 8,880 |
| 8,880 | 8,880 | |
| As at 31 December 2021 | 1,505,408 | 1,505,066 |
In 2021 the terms and conditions of bonds issued stayed unchanged:
| Nominal interest rate |
Effective interest rate |
Currency | Face value |
Amortised cost |
|
|---|---|---|---|---|---|
| USD '000 | USD '000 | ||||
| Bonds maturing 2030 | 3.875% | 3.908% | USD | 1,500,000 | 1,496,528 |
| 1,500,000 | 1,496,528 |
The Bond due 2030 bears an interest of 3,875% per annum. Interest is payable semiannually. Accrued interest outstanding on the Bond at the balance sheet date was USD 8,880 thousand. The effective interest is included in the profit and loss account as 'Interest expense'.
The Bonds are unconditionally guaranteed by PJSC LUKOIL, the parent company, to the bond holder.
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| At beginning of period | 1,505,066 | - |
| Movements: | ||
| Bond issued | - | 1,500,000 |
| Transaction costs | - | (4,032) |
| transaction costs realized as part of the |
||
| effective interest | 342 | 218 |
| Interest accrued | 58,125 | 37,943 |
| Interest paid | (58,125) | (29,063) |
| 1,505,408 | 1,505,066 | |
| As at 31 December 2021 | ||
| Non-Current Bonds issued | 1,496,528 | 1,496,186 |
| Interest payable on Bonds |
8,880 | 8,880 |
| 1,505,408 | 1,505,066 |
Current interest payable on bonds issued have an estimated maturity shorter than one year. The carrying values of the recognised current liabilities approximate their respective fair values.
As at 31 December 2020 and 31 December 2021 the issued and paid-up share capital of the Company amounted to EUR 12,020 thousand, comprising 12,020 shares of EUR 1 each. Share capital has been converted from Euros to US dollars at the transaction date using an exchange rate of EUR 1 = USD 1.086853.
The result after tax for 2021 is presented as "Result for the year". The General Meeting will be proposed to appropriate the result of the current year to Other Reserves.
| 2021 | 2020 | |
|---|---|---|
| USD '000 | USD '000 |
|
| Interest income from loans issued to Group | ||
| companies | 59,629 | 38,034 |
| Provision of funds fee | 16,690 | 1,669 |
| Foreign exchange gain | 18 | - |
| 76,337 | 39,703 |
The interest income relating to the loans is based on the effective interest rates detailed in Note 6. Specifically, the loan with LUKOIL Finance B.V. has an effective interest rate of 4.175% (from 3 November 2021), and the loan with PJSC LUKOIL had an effective interest rate of 3.875% (up to 3 November 2021) (2020: 3.875%).
The provision of funds fee was included on the loan for PJSC LUKOIL (prepaid on 3 November 2021) and makes up part of the effective interest rate. The fixed rate per annum equated to 0.122% (2020: 0.122%). As part of the early termination on this loan, the remainder of the provision of funds fee was required to be repaid. Therefore, the income in 2021 is comprised of: fee for 2021 (USD 1,400 thousand) and early termination fee (USD 15,290 thousand).
| 2021 | 2020 | |
|---|---|---|
| USD | USD | |
| '000 | '000 | |
| Interest expense on bonds issued to | ||
| third parties | 58,467 | 38,160 |
| Foreign exchange loss | - | 1 |
| 58,467 | 38,161 |
The interest expense relating to the bonds is based on the effective interest rates detailed in Note 8.
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| Current income tax | 4,509 | 213 |
| Income tax expense | 4,509 | 213 |
The Company is subject to corporate income tax in the Netherlands at the statutory rate of 15% on the taxable amount up to and including EUR 245,000 and 25% on the excess (2020: 16.5% on the taxable amount up to and including EUR 200,000 and 25% on the excess). The corporate income tax charge for 2021 is USD 4,509 thousand (2020: USD 213 thousand) and include the following components:
Reconciliation of effective tax rate
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| Result before tax | 17,546 | 769 |
| Income tax using the applicable tax rate in the Netherlands Tax effect of: Non-deductible expenses and tax exempt income |
4,362 | 175 |
| 147 | 38 | |
| Income tax expense | 4,509 | 213 |
The income tax charge for the period 2021 included in these financial statements is an estimate and may be subject to change after the tax filing is made and clearance is obtained by the Company. The statutory deadline for filing the tax return for 2021 is 30.04.2023.
The Company has entered into reimbursement contract with the parent company related to provision of guarantee by PJSC LUKOIL to the bond holder. The expenses related to guarantee are fully covered by Lukoil Finance BV (according to loan agreements with Lukoil Finance signed in 2021). However, in case the Company will not meet its bond obligations, such bond obligations would be paid by guarantor, PJSC LUKOIL. As a result, the Company would be liable to reimburse the amount of the payment performed by guarantor increased by interest amount calculated in accordance with the reimbursement contract.
Transactions with related parties are assumed when a relationship exists between the Company and a natural person or entity that is affiliated with the Company. This includes, amongst others, the relationship between the Company and its subsidiaries, shareholders, Directors and key management personnel. Transactions are transfers of resources, services or obligations, regardless whether anything has been charged.
The Company has three Directors. The Directors received no remuneration in that capacity during the year. The Company has one Supervisory Board member: C.P. van Overbeeke (appointed 7 February 2020). The remuneration for the Supervisory Board is not disclosed in accordance with the exemption in Section 2:383(1) of the Dutch Civil Code.
In 2021 the Company has no employees in the Netherlands and during the year incurred no wages and salaries (2020: zero). Directors and supervisory board members' remuneration is invoiced to the company (if applicable).
However, the Company incurred expenses amounted USD 119 thousand related to Service agreement, signed with Lukoil International Upstream Holding B.V. and Lukoil Finance B.V, of rendering finance, treasury and accounting services. For the purposes of the rendering of the Services, Service Providers made available certain of its employees. Thus, the fee is composed of the salaries of the Service Provider's employees rendering the services.
Transactions and balances with related parties are disclosed in Note 6, 10 and 14. In addition there were the following related party transactions with other LUKOIL group companies:
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| Office Lease | 15 | - |
| Professional services provided by Group company | 17 32 |
11 11 |
The following fees were charged by KPMG Accountants N.V. to the Company as referred to in Section 2:382a(1) and (2) of the Dutch Civil Code:
| 2021 USD '000 |
2020 USD '000 |
|
|---|---|---|
| Statutory audit of annual accounts - KPMG Accountants N.V. Other assurance services related to bonds |
68 | 87 |
| issue - KPMG Accountants N.V. Other assurance services related to bonds |
- | - |
| issue - KPMG network |
- | 570 |
| 68 | 657 |
The fees mentioned in the table above are allocated to the financial year 2021 to which the work related, regardless of when the work was carried out. No other services where performed for the company by KPMG Accountants N.V. or its member firms.
Due to the escalation of the conflict between Russia and Ukraine in February 2022, the U.S. has imposed additional sanctions on the Russian government, as well as Russian entities and individuals. This includes full blocking sanctions on certain Russian state-owned financial institutions, as well as on certain entities and individuals, including certain Russian businesspersons and their families, and entities and individuals involved with the building and operation of the Nord Stream 2 energy pipeline.
Similarly, the UK and EU have imposed additional sanctions measures. The UK has imposed blocking and asset freezing sanctions on certain Russian banks, entities, and individuals operating in financial and defense sectors.
The EU has designated certain Russian government officials, entities (including Russian banks), and other individuals, and imposed restrictions on capital markets, loans, and credit that target Russian sovereign debt.
On 7 March 2022, Standard and Poor's downgraded the credit ratings of over 50 Russian companies (including LUKOIL) to CCC- (2021: BBB). This is not expected to have an immediate material impact on the business operations, however can have impact to the Company's future borrowings from third parties.
At the moment, there are no sanctions related to LUKOIL Group or its top management and sanctions that prohibit or restrict business of the Company.
The events are not expected to have an immediate material impact on the business operations. Management will continue monitoring the situation closely to ensure prompt reaction to the rapidly changing environment.
In April 2022 in accordance with loan agreements the Company received payments of interest from its parent and subsequently performed contractual interest payments under bond contracts.
The financial statements were prepared and approved by the Board of Directors of the Company in Amsterdam, _________ 2022.
M. van der Meulen Director
C. Birch Director
Supervisory Board
C.P. van Overbeeke Supervisory Board
Article 23 'Profits and Reserves' of the Company's Articles of Association dated 6 February 2020 states:
The Independent auditor's report with respect to the financial statements will follow once the audit is completed
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