Annual Report • Jun 30, 2022
Annual Report
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for the period 23 September 2021 (Date of Incorporation) up to and including 31 December 2021
1 Francis Street Dundalk, A91 XK38 Ireland
Company Number 704377
The Company's register number is 704377
Registered office address and Business Office Address if different from the registered office: 1 Francis Street, Dundalk, A91 XK38, Ireland
Directors:
The secretary:
Cafico Secretaries Limited (resigned 26 May 2022) Mulvaney Co Sec Limited (appointed 26 May 2022)
Auditors:
Roberts Nathan
Bankers:
Citibank, N.A. London Branch
Corporate service advisors:
Cafico Secretaries Limited (resigned 26 May 2022) Mulvaney Co Sec Limited (appointed 26 May 2022)
Trustees to the noteholders:
Citicorp Trustee Company Limited
| Directors' Report 3 | |
|---|---|
| Balance Sheet 14 | |
| Profit and loss Account 15 | |
| Statement of cash flows 16 | |
| Statement of changes in equity - 17 - | |
| Notes to the 2021 Financial Statements - 18 - |
The Directors present their Directors' report and the audited financial statements of LUKOIL Capital Designated Activity Company ('the Company') for the period 23 September 2021 (date of incorporation) up to and including 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 and Lukoil Finance B.V.
The Company was incorporated on 23 September 2021 and was a wholly owned subsidiary of LUKOIL INTERNATIONAL GmbH domiciled in Austria. On 15 October 2021, LUKOIL INTERNATIONAL GmbH transferred its stake in the Company to PJSC LUKOIL domiciled in Russia.
The Company is registered under number 704377 at the Companies Registration Office in Dundalk, Ireland.
The company has no branches including registered or operating outside of the state during the current period.
On 26 October 2021 the Company issued USD 1,150,000 thousand of redeemable bonds due 26 April 2027 and USD 1,150,000 thousand of redeemable bonds due 26 October 2031 and registered these on the London Stock Exchange. The bonds are unconditionally guaranteed by PJSC LUKOIL, the ultimate parent company.
The Company has sufficient assets to meet all bond obligations. The cash generated from interest income on loans granted and the fee income for the provision of funds to PJSC LUKOIL covers all bond interest costs and any administrative expenses.
The Company granted a USD 14,411 thousand short-term loan and a USD 2,300,000 thousand longterm loan during the period to LUKOIL Group companies as disclosed in note 6. The funds to grant short-term loan was raised mainly by issuing shares of the company and the funds to grant long term loans were generated from the issuance of bonds. USD 3,003 thousand of the short-term loan has been repaid at balance sheet date.
Total assets as at the balance date is USD 2,323,090 thousand and mainly relate to the loans granted to LUKOIL Group companies and respective interest receivable.
At 31 December 2021 the net assets of the Company amounted to USD 12,408 thousand.
Interest income for the reporting period amounted to USD 13,296 thousand and results mainly from loans given to Group companies. In addition, the Company recognised income related to the fee for the provision of funds amounting to 3,898 thousand in accordance with the loan agreements with parent company. For details, please refer to notes 6 and 10 of the notes to the financial statements. Interest expense amounted to USD 13,381 thousand.
The net result for the period is a profit of USD 808 thousand.
The Directors do not recommend payment of a dividend.
These financial statements have been prepared on the basis of the going concern assumption and cover the period from 23 September (the date of incorporation) to 31 December 2021. As this is the Company's initial period of operation and thus there is no comparative information.
The Company's liquidity and solvency 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 and fee for the provision of funds to PJSC LUKOIL covers all bond interest costs and any administrative expenses.
Net cash from operating activities is negative in an amount of USD 2,307,548 thousand mainly due to loans issued to Group companies.
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 the 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 to Group companies and receivables presented under financial fixed assets, other receivables and cash. The maximum amount of credit risk that the Company incurred is USD 2,324,109 thousand, consisting of USD 2,310,800 thousand loans and USD 13,296 thousand of interest receivable and cash.
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the loans to group companies and the 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 of the parent company since all significant loans are receivable from PSJC LUKOIL. As such, there is a concentration of credit risk with this counterparty and geographically with Russia. Management of the Company assess and reviews the risk for PSJC LUKOIL and group companies, and does not consider it likely that 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 expected credit loss (ECL) based on a publicly available market study. The ECL related to receivables under loan agreements with Group companies amounted USD 667 thousand 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 guaranteed by the parent company. 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 management.
The risk of default to Bond holders 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.
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 moderate as a relatively low number of 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 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 of 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 behaviour. 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 a 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.
The Board of Directors (the "Board") of the Company is responsible for establishing and maintaining adequate internal control and risk management systems for the Company in relation to the financial reporting process.
Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing the LUKOIL Group operated shared service centre to maintain the accounting records of the Company independently. 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.
Given the contractual obligations of the Group Shared Services Centre, the Board has concluded that there is currently no need for the Company to have a separate internal audit function in order for the Board to perform effective monitoring and oversight of the internal control and risk management systems of the Company in relation to the financial reporting process.
No person has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over the Company's share capital. There are no restrictions on voting rights.
With regard to the appointment and replacement of directors, the Company is governed by its Constitution, Irish Statute comprising the Companies Act 2014 and the Listing Rules of the London Stock Exchange. The Constitution itself may be amended by special resolution of the shareholders.
The Board is responsible for managing the business affairs of the Company in accordance with the Constitution of the Company, which allows it to enter into contracts and perform all tasks necessary to conduct the business of the Company. The directors may delegate certain functions to the LUKOIL Group shared service centre and other parties, subject to supervision and direction by the directors.
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 detailed in 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. Managements 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.
Due to nature of the Company's principal activity being 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 the above mentioned 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".
The Board's policy is to maintain its working capital at an optimal level for operations and ensure that there is always sufficient cashflows 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 qualifies as a "qualifying company" under Section 110 of the Taxes Consolidation Act 1997 ("TCA").
To ensure that adequate accounting records are kept in accordance with sections 281 to 285 of the Companies Act 2014, the directors have established appropriate books to adequately record the transactions of the company. The directors also ensure that the company retains the source documentation for these transactions. The accounting records are maintained at the office of LUKOIL Group operated shared service centre.
The Company complies with relevant rules and regulations regarding environmental issues.
The Company did not have employees in 2021.
The company did not enter into or carry on any research and development activities during the current period.
The Company has three Directors. The Directors received USD 19 thousand as remuneration in that capacity during the year.
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 well-diversified 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 Rating Agency 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, it can have an impact on the Company's future borrowings from third parties.
At the moment, there are no sanctions related to LUKOIL Group or its top management. There are also no 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 satisfied contractual interest payments under the 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 6 and 8 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:
The secretary who served throughout the reporting period was Cafico Secretaries Limited (resigned 26 May 2022). On 26 May 2022 the Company appointed Mulvanay Co Sec Limited.
As at 31 December 2021 directors and the secretary have no interests in the shares of the company.
| Name | Class of shares | Number held |
|---|---|---|
| x 1,000 | ||
| PJSC LUKOIL | Ordinary Shares | 10,000 |
There were no changes in shareholdings between 31 December 2021 and the date of signing the financial statements.
In accordance with section 330 of the Companies Act 2014, so far as the person who is director at the time this report is approved is aware, there is no relevant audit information of which the statutory auditors are unaware. The director has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and they has established that the statutory auditors are aware of that information.
The auditors, Roberts Nathan, (Chartered Certified Accountants and Statutory Audit Firm) have indicated their willingness to continue in office in accordance with the provisions of section 383(2) of the Companies Act 2014.
Dundalk, 30 June 2022
R. Collins Director (appointed 21 April 2022) B. Williams Director (appointed 21 April 2022)
C. Birch Director
The directors are responsible for preparing the Director's Report and the financial statements in accordance with applicable Irish law and regulations.
Irish company law requires the director's to prepare financial statements for each financial year. Under the law the directors' have elected to prepare the financial statements in accordance with the Companies Act 2014 and IFRS "International Financial Reporting Standards as adopted by the EU" issued by the Financial Reporting Council. Under company law, the directors' must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the company as at the financial year end date and of the profit or loss of the company for the financial year and otherwise comply with the Companies Act 2014.
In preparing these financial statements, the directors are required to:
The directors' are responsible for ensuring that the company keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the company, enable at any time the assets, liabilities, financial position and profit or loss of the company to be determined with reasonable accuracy, enable them to ensure that the financial statements and Director's Report comply with the Companies Act 2014 and enable the financial statements to be readily and properly audited. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each persons who is a director at the date of approval of this report confirms that:
Signed on behalf of the board
R. Collins Director
B. Williams Director
C. Birch Director
To follow with the audited version
As at 31 December 2021 (before profit appropriation)
| Non-current assets | Note | 31 December 2021 USD '000 |
|---|---|---|
| Loans to Group companies | 6 | 2,299,333 |
| 2,299,333 | ||
| Current assets | ||
| Loans to Group companies | 6 | 11,467 |
| Interest receivable | 6 | 13,296 |
| Cash and Cash equivalents | 7 | 13 |
| 24,776 | ||
| Current liabilities | ||
| Interest payable | 8 | 13,289 |
| Tax liabilities | 666 | |
| Other payables | 506 | |
| 14,461 | ||
| 10,315 | ||
| Total assets less current liabilities | 2,309,648 | |
| Non-current liabilities | ||
| Bonds issued | 8 | 2,296,054 |
| 2,296,054 | ||
| 13,594 | ||
| Shareholder's equity | ||
| Share capital | 11,600 | |
| Result after tax for the period | 1,994 | |
| Total shareholder's equity | 9 | 13,594 |
for the period from 23 September 2021 (date of incorporation) up to and including 31 December 2021
| 23 September to 31 December 2021 |
||
|---|---|---|
| Note | USD '000 | |
| Interest income and other similar revenues | 10 | 17,194 |
| Interest expense and other similar charges Foreign exchange (loss)/gain |
11 | (13,381) (249) |
| Net Interest income / (loss) | 3,564 | |
| Allowance for expected credit loss on the receivables from Group companies |
(667) | |
| General and administrative expenses | (243) | |
| Result for the period before taxation | 2,654 | |
| Income tax expense | 12 | (660) |
| Result for the period after taxation | 1,994 | |
| Other comprehensive income | - | |
| Total comprehensive income attributable to owners of the company |
1,994 |
for the period from 23 September 2021 (date of incorporation) up to and including 31 December 2021
| 23 September to 31 December 2021 |
||
|---|---|---|
| USD '000 | ||
| Cash flows from operating activities | ||
| Profit before income tax | 2,654 | |
| Adjustments for: | ||
| Interest income | 10 | (17,194) |
| Interest expense | 11 | 13,289 |
| Allowance for expected credit loss | 667 | |
| Unwinding of bonds issued | 92 | |
| (3,146) | ||
| Changes in: | ||
| (Increase)/Decrease in receivables | - | |
| Increase/(Decrease) in payables | 454 | |
| 454 | ||
| Loan given | (2,314,411) | |
| Loans repaid | 3,003 | |
| Interest received | 3,898 | |
| Interest paid | 8 | - |
| Corporate income tax refund (paid) | - | |
| Net cash from/(used in) operating activities | (2,307,548) | |
| Net cash from investing activities | - | |
| Proceeds from issue of bonds | 2,299,250 | |
| Bond issue cost capitalised | 8 | (3,288) |
| Issued share capital | 11,600 | |
| Net cash from financing activities | 2,307,561 | |
| Net increase/(decrease) in cash at bank | 13 | |
| Cash at bank at 1 January | - | |
| Cash at bank at 31 December | 7 | 13 |
for the period from 23 September 2021 (date of incorporation) up to and including 31 December 2021
| Share capital USD '000 |
Result for the period USD '000 |
Total USD '000 |
|
|---|---|---|---|
| Balance as at the beginning of the reporting period |
- | - | - |
| Changes during the reporting period: | |||
| Issuances of shares |
11,600 | - | 11,600 |
| Total comprehensive income |
- | 1,994 | 1,994 |
| Balance as at 31 December 2021 | 11,600 | 1,994 | 13,594 |
LUKOIL Capital Designated Activity Company ('the Company') is a private company with limited liability incorporated in Dublin, Ireland, on 23 September 2021. Initially the Company was a wholly owned subsidiary of LUKOIL INTERNATIONAL GmbH domiciled in Austria.
On 26 October 2021, LUKOIL INTERNATIONAL GmbH transferred its stake in the Company to the ultimate parent company, 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 704377 at the Companies Registration Office in Dundalk, Ireland.
These financial statements of the Company cover the period from 23 September to 31 December 2021. As this is the Company's initial period of operation there is no comparative information.
These financial statements 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".
In assessing the going concern status of the company, management of the company alongside the management of the Group have taken account of its financial position, principal risks and uncertainties, sources of cash generation, its borrowings and other available credit facilities as well as anticipated compliance with covenants of any borrowings, and its capital expenditure commitments and plans.
To assess the sensitivity of the going concern assessment in light of the additional sanctions imposed on certain Russian institutions and individuals by the global community from February 2022, in addition to the potential for further sanctions and Russian counter-sanctions that could impact the company, management has considered if there would be sufficient resources available through other entities within the Group. Whilst performing this assessment, management has considered the cash balances to which it has access across the group as well as any potential sanctions which could restrict the movement of funds within certain jurisdictions.
The Group expects to retain the ability to move funds between the jurisdictions in which the Group operates to settle obligations as they fall due but also has mitigating actions available if additional sanctions are raised regarding the movement of funds.
The Group has taken legal advice on the implications of the sanctions to date as part of this assessment. None of the Group's entities, nor its significant shareholders are currently subject to any specific sanctions.
The Board is therefore satisfied that the Group's forecasts and projections show that the Group has adequate resources to continue in operational existence for at least 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing the financial statements for the year ended 31 December 2021.
These financial statements are the statutory financial statements of the Company. These financial statements have been prepared in accordance with International Financial Reporting Standards and with Section 292 Companies Act 2014 under Irish law.
The financial statements are approved by the Board of Directors on 30 June 2022.
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 to make judgements, form opinions and make estimates and assumptions that influence the application of principles and the reported values of assets, liabilities, 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 observable market 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 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, income related to fees for provision of funds under loans with parent company 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 creditadjusted effective interest rate is calculated using estimated future cash flows including ECL. The calculation of the effective interest rate includes transaction costs, 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 functional currency of the company at exchange rates at the dates on which the transaction occurs.
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 originate. 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:
• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the company's continuing recognition of the assets.
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:
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 par 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.
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 balance sheet, 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 balance sheet 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:
• debt securities that are determined to have low credit risk at the reporting date; and
• other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
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 debtor is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realising security (if any is held); or
• the financial asset is more than 90 days past due.
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:
• 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, movements in loans and group receivables are generally considered to be operating activities and classified as such in the cash flow statement.
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 following amendments to the standards are effective for annual periods beginning 1 January 2022 and after, available for early adoption:
Definition of Accounting Estimate (Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors);
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12 Income Taxes).
The above new and amended standards are not expected to have a significant impact on the Compane's 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 | |||||||||
| Borrowings to Group companies |
6 | 2,310,800 | - | 2,310,800 | - | 2,290,226 | 11,467 | 2,301,693 | |
| Interest receivable | 6 | 13,296 | - | 13,296 | - | - | 13,296 | 13,296 | |
| Other receivables | - | - | - | - | - | - | - | ||
| Cash and Cash equivalents | 7 | 13 | - | 13 | - | - | 13 | 13 | |
| 2,324,109 | 2,324,109 | - | 2,290,226 | 24,776 | 2,315,002 | ||||
| Financial liabilities not measured at fair value | |||||||||
| Interest payable | 8 | - | 13,289 | 13,289 | - | 13,289 | - | 13,289 | |
| Other payables | - | 1,172 | 1,172 | - | - | 1,172 | 1,172 | ||
| Bonds issued | 8 | - | 2,296,054 | 2,296,054 | 2,285,625 | - | - | 2,285,625 | |
| - | 2,310,515 | 2,310,515 | 2,285,625 | 13,289 | 1,172 | 2,300,086 |
The following table shows the valuation techniques used in determining the fair value of Level 2 and 3 financial instruments.
| Level | Type | Valuation technique |
|---|---|---|
| Level 2 | Loans to group companies |
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. |
| Level 3 | Loans to group companies |
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 loans to group companies, interest receivables, other receivables and cash. The maximum amount of credit risk that the Company incurred is USD 2,324,109 thousand, consisting of USD 2,310,800 thousand loans and USD 13,296 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 the 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 of the ultimate parent company since all significant loans are receivable from PSJC LUKOIL. As such, there is a concentration of credit risk with this counterparty and geographically with Russia. Management of the Company assess and reviews the risk for PSJC LUKOIL and other 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.
At 31 December 2021 the ultimate parent has a credit rating of Baa2 based on Moody's evaluation (refer to "Subsequent events" for information related to changes in credit rating). The company has benchmarked the credit risk against public sources and calculated the ECL based on a publicly available market study. The ECL related to receivables under loan agreements with Group companies amounted USD 667 thousand and 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. As no issues regarding the credit risk of the assets has been identified, the Company considers risks associated with liquidity as negligible at an acceptable level to management.
The risk of default to Bond holders 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 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 | |
|---|---|---|---|---|---|
| USD '000 | USD '000 | USD '000 | USD '000 | USD '000 | |
| Bonds Issued | - | - | - | 2,300,000 | 2,300,000 |
| Interest Payable | 13,289 | - | - | - | 13,289 |
| Tax liabilities and Other Payable | 1,172 | - | - | - | 1,172 |
| Total payable amount | 14,461 | - | - | 2,300,000 | 2,314,461 |
| Loans to group companies | 11,467 | - | - | 2,300,000 | 2,311,467 |
| Interest receivable | 13,296 | - | - | - | 13,296 |
| Cash and cash equivalents | 13 | - | - | - | 13 |
| Total receivable amount | 24,776 | - | - | 2,300,000 | 2,324,776 |
| Net amount | 10,315 | - | - | - | 10,315 |
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 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 |
Currency | Face value |
Carrying amount |
|
|---|---|---|---|---|---|
| USD '000 | USD '000 | ||||
| Loans granted to LUKOIL Group company (Lukoil Finance B.V.) | |||||
| Loan maturing 31 December 2021 | 0.64% | 0.64% | EUR | 11,467 | 11,467 |
| 11,467 | 11,467 | ||||
| Loans granted to Parent entity (PJSC LUKOIL) | |||||
| Loan maturing 26 April 2027 | 2.80% | 3.00% | USD | 1,150,000 | 1,149,167 |
| Loan maturing 26 October 2030 | 3.60% | 3.80% | USD | 1,150,000 | 1,149,166 |
| 2,300,000 | 2,299,333 | ||||
| 2,311,467 | 2,310,800 |
The loans granted to the ultimate parent, issued to satisfy the financing requirement of bond repayments and interest commitments are all unsecured, bear fixed interest rates and are due to be received at maturity. The effective interest is included in the profit and loss account as 'Interest income' and includes both the nominal interest and a fixed annual fee for the provision of funds.
Movements in the loans receivable are as follows:
| 2021 | |
|---|---|
| USD '000 | |
| At beginning of period | - |
| Movements: | |
| Issuance of Non-Current loans | 2,300,000 |
| Allowance for ECL on Non-Current loans | (667) |
| Issuance of current loans | 14,411 |
| Current loans repaid | (3,003) |
| Effect of foreign currency translation | 59 |
| Interest and fees for the provision of funds accrued | 17,194 |
| Interest and fees for the provision of funds received | (3,898) |
| As 31 December 2021 | |
| Non-Current loans to group companies | 2,299,333 |
| Current Loans to group companies | 11,467 |
| Interest and fees for the provision of funds receivable | 13,296 |
| 2,324,096 |
Current loans and interest receivable have an estimated maturity of less than one year. The carrying values of the recognised current receivables approximate their respective fair values.
Movements in allowances for expected credit loss on receivables from Group companies:
| 2021 | |
|---|---|
| USD '000 | |
| At beginning of period | - |
| Movements: | |
| Amounts of allowances recognised | 667 |
| Amounts of reversal of allowances | - |
| As 31 December 2021 | 667 |
At the balance sheet date, the cash and cash equivalents consists of cash at bank and amounts to USD 13 thousand and is at free disposal of the Company.
On 26 October 2021 the Company issued two tranches of non-convertible bonds totalling USD 2,300,000 thousand which were registered on the London Stock Exchange. The first tranche of 1,150,000 thousand has maturity of 5,5 years and a coupon yield of 2.80% per annum, the second tranche of 1,150,000 thousand has a maturity of 10 years and a coupon yield of 3.60% per annum. The Bonds are unconditionally guaranteed by PJSC LUKOIL, the parent company, to the bond holders. The terms and conditions of bonds issued are as follows:
| Nominal interest rate |
Effective interest rate |
Currency | Face value |
Amortised cost |
|
|---|---|---|---|---|---|
| USD '000 | USD '000 | ||||
| Bonds maturing 2027 Bonds maturing 2030 |
2.800% 3.600% |
2.835% 3.621% |
USD USD |
1,150,000 1,150,000 |
1,148,042 1,148,011 |
2,300,000 2,296,053 Interest is payable semi-annually in arrears, with the final payment due on 26 April 2027 and 26 October 2030. Accrued interest outstanding on the Bonds at the balance sheet date was USD 13,289 thousand. The effective interest is included in the profit and loss account as 'Interest expense'.
Movements in the bonds issued to third parties are as follows:
| 2021 | |
|---|---|
| USD '000 | |
| At beginning of period | - |
| Movements: | |
| Bond issued | 2,300,000 |
| Transaction costs | (4,039) |
| transaction costs realized as part of the effective | |
| interest | 92 |
| Interest accrued | 13,289 |
| Interest paid | - |
| As at 31 December 2021 | |
| Non-Current Bonds issued | 2,296,053 |
| interest payable | 13,289 |
| 2,309,342 |
Current interest payable on bonds issued have an estimated maturity of less than one year. The carrying values of the recognised current liabilities approximate their respective fair values.
At incorporation, the Company issued 10,000 thousand ordinary shares. All shares have an exercise price of EUR 1,000 per share. Share capital has been converted from Euros to US dollars at the transaction date using an exchange rate of EUR 1 = USD 1.160013.
Holders of these shares are entitled to dividends as declared from time to time, and are entitled to one vote per share at general meetings of the Company.
| Ordinary shares 2021 | ||
|---|---|---|
| x 1,000 | ||
| Issued at incorporation | 10,000 | |
| On issue at 31 December – fully paid | 10,000 | |
The result after tax for 2021 is presented as "Result for the year" At the General Meeting, it will be proposed to appropriate the result of the current year to Other Reserves.
| 23 Sep 2021 – 31 Dec 2021 USD '000 |
|
|---|---|
| Interest income from loans to Group companies | 13,296 |
| Fees for the provision of funds | 3,898 |
| 17,194 | |
The interest income relating to the loans is based on the effective interest rates detailed in Note 6.
| 23 Feb 2021 – 31 Dec 2021 USD '000 |
|
|---|---|
| Interest expense on bonds issued to third parties Foreign exchange loss |
13,381 |
| 249 13,630 |
|
The interest expense relating to the bonds is based on the effective interest rates detailed in Note 8.
| 23 Sep 2021 – | |
|---|---|
| 31 Dec 2021 | |
| USD '000 | |
| Current income tax | 660 |
| Income tax expense | 660 |
The Company is subject to corporate income tax in Ireland at the statutory rate of 25% on the taxable amount. The corporate income tax charge for 2021 is USD 660 thousand and is payable in Euros.
Reconciliation of effective tax rate
| 23 Sep 2021 – | |
|---|---|
| 31 Dec 2021 | |
| USD '000 | |
| Result before tax | 2,654 |
| Income tax using the applicable tax rate in Ireland | 664 |
| Tax effect of: | |
| Non-deductible expenses and tax exempt income | (4) |
| Tax expense | 660 |
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 23 September 2022.
The Company has entered into a reimbursement contract with the parent company relating to a guarantee provided by PJSC LUKOIL to the bond holders. In case that the Company will not meet its obligations to bond holders, such obligations would be paid by guarantor, PJSC LUKOIL. If this is occur,, the Company would be liable to reimburse the amount paid by the guarantor with interest calculated in accordance with the reimbursement contract (3 Month LIBOR +3%).
Transactions with related parties occur 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 other subsidiaries within LUKOIL Group, shareholders, Directors and key management personnel. Transactions are transfers of resources, services or obligations, regardless of whether anything has been charged.
The Company has three Directors. The Directors received USD 19 thousand as remuneration in that capacity during the year.
In 2021 the Company has no employees in Ireland and during the year incurred no wages and salaries. Directors and supervisory board members remuneration is invoiced to the company.
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 | |
| Professional services provided by other Group companies | 6 |
The following fees were charged to the Company as referred to in Section 322 (2) Companies Act 2014:
| 2021 | |
|---|---|
| USD '000 | |
| Statutory audit of annual accounts | 85 |
| Other assurance services | - |
| 85 | |
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.
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, entities and individuals. These sanctions have also been extended to certain Russian businesspersons and their families as well as 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 the 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 Rating Agency 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, it can have an impact on the Company's future borrowings from third parties.
Given, the downgrading of the Standard and Poor's rating agency of the Parent Company's (PJSC LUKOIL) to CCC- on March 7th 2022 the impact of this on the maximum 12 month ECL provision at the year end would have been to increase the provision recognised to USD 318,181 thousand. Due to the fact that these circumstances did not exist at the reporting date of 31 December 2021, there is no reasonable expectation that these assumptions would have been included in the assessment and therefore is considered a non adjusting post balance sheet event.
At the moment, there are no sanctions related to LUKOIL Group or its top management. There are also no 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 satisfied contractual interest payments under the bond contracts.
The financial statements were prepared and approved by the Board of Directors of the Company in Dundalk, 30 June 2022.
R. Collins Director
B. Williams Director
C. Birch Director
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