TIDMADES
RNS Number : 0666I
ADES International Holding
19 March 2018
For the purpose of the Transparency Directive the Home Member
state of the issuer is the United Kingdom.
ADES International Holding Ltd
FY2017 Earnings Release
London, 19 March 2018
ADES International Holding Ltd Results for the year ended 31
December 2017
(London & Dubai, 19 March 2018) ADES International Holding
("ADES" or "the Company"), the London-listed company providing
offshore and onshore oil and gas drilling and production services
in the Middle East and Africa through its subsidiaries, announces
today its full-year results for the year ended 31 December
2017.
FY2017 Headline Figures
Revenue Adjusted EBITDA(1) Normalised Net Profit(2)
USD 158 million USD 80 million USD 50 million
18% y-o-y 11% y-o-y 31% y-o-y
Number of Rigs Av. Fleet Utilisation Backlog as at 31 December 2017
in FY2017(3)
14 rigs 78%
as at 31 December 2017 >90% since 2012 USD 427 million
Summary Income Statement
(USD '000) 2017 2016 % change
------------------------------ -------------- ----------- ---------
Revenues 157,590 134,116 17.5%
------------------------------ -------------- ----------- ---------
Gross Profit 79,267 70,843 11.9%
------------------------------ -------------- ----------- ---------
Gross Profit Margin 50.3% 52.8% -2.5 pts
------------------------------ -------------- ----------- ---------
Adjusted EBITDA(1) 80,318 72,227 11.2%
------------------------------ -------------- ----------- ---------
Adj. EBITDA Margin 51.0% 53.9% -2.9 pts
------------------------------ -------------- ----------- ---------
Net Profit 44,574 38,013 17.3%
------------------------------ -------------- ----------- ---------
Net Profit Margin 28.3% 28.3% 0.0 pts
------------------------------ -------------- ----------- ---------
Normalised Net Profit(2) 49,637 38,013 30.6%
------------------------------ -------------- ----------- ---------
Normalised Net Profit Margin 31.5% 28.3% 3.2 pts
------------------------------ -------------- ----------- ---------
Earnings per Share (USD) 1.16 1.19 -3.0%
------------------------------ -------------- ----------- ---------
No. of Shares 38,553,620(4) 31,900,000
------------------------------ -------------- ----------- ---------
(1) Adjusted EBITDA - Operating profit for the year before
depreciation and amortisation, employee benefit provision and other
provisions and impairment of assets under construction
(2) Normalised Net Profit - Net Profit for the year before the
one-time IPO expense of USD 5.1 million during FY2017
(3) Utilisation rate - Extent to which ADES' assets under
contract and available in the operational area are generating
revenue throughout the contract, calculated by dividing utilisation
days by potential utilisation days
(4) Based on weighted average number of shares
Financial Highlights
-- Revenue grew 17.5% year-on-year, from USD 134.1 million in
2016 to USD 157.6 million in 2017.
-- Gross profit grew 11.9% year-on-year, from USD 70.8 million
in 2016 to USD 79.2 million in 2017.
-- Adjusted EBITDA recorded USD 80.3 million in FY2017, up 11.2%
year-on-year and delivering an adjusted EBITDA margin of 51.0%.
-- Net profit rose 17.3% year-on-year to USD 44.6 million in FY2017.
-- Normalised net profit excluding the one-time IPO expense in FY2017 stood at 49.7 million.
-- Cash balances including cash equivalents stood at USD 137.0
million at 31 December 2017, supported by funds raised at IPO.
-- Net debt stood at USD 75.5 million as at 31 December 2017.
Operational Highlights
-- Maintained an exemplary safety performance, recording over
4.34 million man hours with a Recordable Injury Frequency Rate
("RIFR") (per 200,000 working hours) at 0.41, below the IADC
worldwide standard rate of 0.56 as at 31 December 2017.
-- FY2017 utilisation rate recorded 78%, which takes into
account planned recertification and upgrading projects on two
offshore rigs in Egypt and two offshore rigs in the KSA during the
year. ADES maintained a six-year average utilisation rate of 90%,
above the current average Middle East Jack-up utilisation rate of
75%(5) .
-- Total backlog as at 31 December 2017 stood at USD 427
million, compared to USD 501 million as at 31 December 2016.
-- New contract awards for Admarine III with General Petroleum
Company (GPC), Admarine 88 with Belayim Petroleum Co. (Petrobel),
while Admarine VIII was awarded a farm-in agreement with Suez Oil
Company (SUCO). Revenues from Admarine 88 and Admarine VIII
contracts are expected to commence in the first half of 2018.
-- Contract renewals and extensions, including a three-month
extension for the Admarine II jack-up barge with the Gulf of Suez
Petroleum Company (GUPCO) as well as an extension of GUPCO's
existing contract for ADES' jack-up rig, Admarine IV, for a further
six months. Admarine V was also renewed for a six-month period on a
call-out basis with an option to extend the contract for a further
six months, while GPC renewed its existing contract for ADES'
Admarine VI jack-up rig for a two-year period.
-- Acquisition of three operational jack-up rigs located in the
KSA for a total purchase price of USD 83 million - payable in a
combination of cash and ADES shares - from a subsidiary of Nabors
Industries Ltd (Nabors), subject to the satisfaction of conditions
precedent including the novation and renewal of the rigs' existing
drilling contracts with a current major client. Upon completion,
the transaction will double ADES' Arabian Gulf fleet and number of
contracted rigs.
-- Long-term agreement to establish a joint venture (JV) with a
subsidiary of Vantage Drilling International (Vantage), which will
see ADES operate Vantage's deepwater drilling units in Egyptian
waters on a bareboat charter agreement basis in line with ADES'
asset-light model and is a natural development of its strategy.
-- Finalised exclusive marketing agreements with leading
shipyards enabling ADES to market new-build offshore jack-up rigs,
including high-specification rigs, that will allow it to deploy
these assets on a revenue-sharing basis once contracted, broadening
ADES' service offering and allowing it to penetrate new markets as
well as capture a larger market share.
(5) Source: Clarksons Research - Offshore Drilling Rig Monthly
(February, 2018)
Current Trading and Outlook
-- We expect 2018 to deliver continued organic growth from
existing operations with realisation of several of the Company's
strategic efforts during 2017, including the commencement of new
contracts and securing new tenders across the region. The Nabors
acquisitions, once completed, will add to the Company's revenue and
earnings, and as a result of the expected timing of completion, we
expect overall Company revenues to be weighted materially towards
the second half of the year.
-- The Company is committed to putting in place the necessary
debt arrangements to secure and support its current operation and
future expansion. Further information on debt transactions will be
made available to the market once concluded.
-- Management is actively evaluating acquisition opportunities
that meet ADES' criteria of being located in the MENA region,
within our core line of business and will provide accretive value
to shareholders.
Commenting on the full-year performance, Dr. Mohamed Farouk,
Chief Executive Officer of ADES International said:
"In our first full-year results following our IPO on the London
Stock Exchange in May 2017, ADES has successfully sustained its
growth trajectory and delivered a strong operational and financial
performance.
Our top-line recorded growth of 18% to USD 158 million was on
the back of continued high rig utilisation rates, well above the
current average Middle East jack-up utilisation rate of 75%(6) .
This growth was supported by our increasingly diversified revenue
mix across geographies.
In addition, ADES' low-cost business model saw us maintain
EBITDA margins in excess of 50% and deliver a net profit growth
rate of approximately 17% year-on-year. Most importantly, we
continued to set the benchmark for service quality and safety
performance, with an RIFR rate of 0.41, well below the IADC
worldwide standard rate of 0.56 as at 31 December 2017.
ADES' continued success is driven by our three-pillar growth
strategy of replenishing our backlog; actively participating in
tendering activities to expand our footprint and increase market
share; and targeting smart and value accretive acquisition
opportunities. 2017 saw the Company make significant progress on
all three fronts, having been awarded new contracts while securing
renewals and extensions for existing contracts; participated in
tenders across existing and new markets; and continued to grow our
fleet, with the recent signing of a PSA to acquire three operating
offshore jack-up rigs in the Arabian Gulf.
In line with our post-IPO growth strategy of scaling-up
operations in existing and target markets, ADES will continue to
leverage its demonstrated purchasing power and streamlined
decision-making process to swiftly act on acquisition opportunities
that meet our criteria for delivering long-term sustainable growth.
To expand the range of opportunities we are able to consider, the
Company is committed to putting in place the necessary debt
arrangements to bolster our already strong cash position following
the IPO.
We expect 2018 to deliver organic growth from existing
operations, with the realisation of several of our strategic
efforts during 2017, including the commencement of new contracts
and securing new tenders across the region, as well as from the
Nabors acquisitions, which once completed, will add to our revenue
and earnings.
Given the timing of completion of the Nabors transaction and the
resulting contribution of the three rigs to revenues, we expect
overall company revenues to be weighted materially towards the
second half of the year."
(6) Source: Clarksons Research - Offshore Drilling Rig Monthly
(February, 2018)
Conference Call
ADES' management team will present the FY2017 Results and will
be available for a Q&A session with analysts and investors
today at 14:00 BST. For conference call details, please email
ades@instinctif.com
Enquiries
ADES International Holding
Hussein Badawy
Investor Relations Officer
ir@adesgroup.com
+2 (0)2527 7111
Instinctif
David Simonson
Laura Syrett
George Yeomans
ades@instinctif.com
+44 (0)20 7457 2020
About ADES International Holding (ADES)
ADES International Holding extends oil and gas drilling and
production services through its subsidiaries and is a leading
service provider in the Middle East and Africa, offering onshore
contract drilling as well as workover and production services in
Egypt, Algeria and Saudi Arabia. The Group is pre-qualified in
markets including Egypt, Saudi Arabia, Algeria, India, Mexico and
the Saudi-Kuwaiti Neutral Zone. Its over 1,200 employees serve
clients including major national oil companies ("NOCs") such as
Saudi Aramco and Sonatrach as well as joint ventures of NOCs with
global majors including BP and Eni. While maintaining a superior
health, safety and environmental record, the Group currently has a
fleet of nine jack-up offshore drilling rigs, three onshore
drilling rigs, a jack-up barge, and a mobile offshore production
unit ("MOPU"), which includes a floating storage and offloading
unit. The Group is the largest offshore drilling operator in Egypt
by number of rigs. investors.adihgroup.com
Shareholder Information
LSE: ADES INT.HDG
Bloomberg: ADES:LN
Listed: May 2017
Shares Outstanding: 42.2 million
Forward-Looking Statements
This communication contains certain forward-looking statements.
A forward-looking statement is any statement that does not relate
to historical facts and events, and can be identified by the use of
such words and phrases as "according to estimates", "aims",
"anticipates", "assumes", "believes", "could", "estimates",
"expects", "forecasts", "intends", "is of the opinion", "may",
"plans", "potential", "predicts", "projects", "should", "to the
knowledge of", "will", "would" or, in each case their negatives or
other similar expressions, which are intended to identify a
statement as forward-looking. This applies, in particular, to
statements containing information on future financial results,
plans, or expectations regarding business and management, future
growth or profitability and general economic and regulatory
conditions and other matters affecting the Company.
Forward-looking statements reflect the current views of the
Company's management ("Management") on future events, which are
based on the assumptions of the Management and involve known and
unknown risks, uncertainties and other factors that may cause the
Company's actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by these forward-looking
statements. The occurrence or non-occurrence of an assumption could
cause the Company's actual financial condition and results of
operations to differ materially from, or fail to meet expectations
expressed or implied by, such forward-looking statements.
The Company's business is subject to a number of risks and
uncertainties that could also cause a forward-looking statement,
estimate or prediction to differ materially from those expressed or
implied by the forward-looking statements contained in this
prospectus. The information, opinions and forward-looking
statements contained in this communication speak only as at its
date and are subject to change without notice. The Company does not
undertake any obligation to review, update, confirm or to release
publicly any revisions to any forward-looking statements to reflect
events that occur or circumstances that arise in relation to the
content of this communication.
Chairman's Statement
Having served on ADES' Board of Directors since its inception, I
have committed to focusing the Board's efforts both on transforming
the Company into a leading regional player and rooting its success
in sound governance standards. The Board has provided key oversight
and guidance to the Company's management as it enters its first
full year as a listed company on the London Stock Exchange.
Since then, ADES has made strong progress in realising its key
strategic platforms, managing to deliver exceptional results and
reaffirm its position as the number one player in the Egyptian
offshore drilling market by number of rigs, while simultaneously
growing its regional presence. Our fast-growing KSA operation and
expanding footprint in Algeria are helping accelerate our
transformation into a more regionally diversified Company.
Meanwhile, with oil & gas markets stabilising in recent
months and as strengthening regional emerging economies become an
increasing driver for demand, we are aiming to replicate our
success and proven growth strategy across new geographies in the
region. ADES' long-standing relationship with its clients and
exemplary safety record, its active participation in regional
tenders and its strong balance sheet put the business in an ideal
position to capture further contract wins.
The Board has throughout the year adhered to its role of
developing and cultivating ADES' values and ethics, along with
setting and meeting its strategic goals to position the Company for
long-term growth. The Board is committed to good corporate
governance practices and has put in place a framework that enables
the effective and sustainable running of the Company, in line with
our growth and vision. We are confident that we have developed
effective risk management frameworks and ensured that the necessary
resources are in place to meet ADES' goals. We believe these
efforts are a key element of our success and central to our
long-term growth and driving shareholder value.
I have great confidence in the direction of our business, which
has been driven by CEO Dr. Mohamed Farouk. Along with the senior
management team, his effective leadership and day-to-day running of
the firm has delivered a solid platform from which we are well
positioned to build on.
Mr. Ayman Abbas,
Chairman of the Board
Chief Executive Officer's Report
In our first full-year results following our May 2017 IPO on the
London Stock Exchange, ADES has successfully sustained its growth
trajectory and delivered a solid operational and financial
performance.
Our top-line recorded growth of 18% to USD 158 million was on
the back of continued high rig utilisation rates, above the current
average Middle East Jack-up utilisation rate of 75%(7) . This
growth was supported by our increasingly diversified revenue mix
across different regional geographies.
In addition, ADES' low-cost business model saw us maintain
EBITDA margins in excess of 50% and deliver a net profit growth
rate of approximately 17% year-on-year. Most importantly, we
continued to set the benchmark for service quality and safety
performance with an RIFR rate of 0.41, well below the IADC
worldwide standard rate of 0.56 as of 31 December 2017.
ADES' continued success is driven by our three-pillar growth
strategy of replenishing our backlog, actively participating in
tendering activity to expand our footprint and increase market
share while targeting smart and accretive acquisition
opportunities. 2017 saw the Company make significant progress on
all three fronts.
We closed the year with a total backlog of USD 427 million as at
31 December 2017, reflecting the realisation of value from
contractual agreements with the addition of new contract awards and
renewals, which continue to refill the backlog. In Egypt, we
maintained our market-leading position having renewed and been
awarded new contracts from leading oil nationals and joint ventures
including GPC, Petrozenima and Petrobel securing multi-million
dollar revenue streams for ADES in the upcoming years. Our ability
to sustain our backlog at a time of lower oil prices is due to our
customer-centric approach that delivers a tailored service with
superior quality and an impeccable safety record at highly
competitive rates.
ADES is also actively participating in tenders across existing
and new MENA region markets, with the aim of securing several new
contracts in the coming months. Our goal is to grow market share
and expand our presence in our target markets while building on the
success of recent ventures into Algeria and KSA. In just one year,
revenues from our KSA operation have grown significantly and now
constitute over 34% of our total revenues. We are working to
replicate this success in new markets across the MENA region.
Active participation in tenders is also supported by our exclusive
marketing agreements with leading shipyards to market new-build and
offshore jack-up rigs on a revenue-sharing basis. This innovative
model helps broaden our service offering and strengthen our ability
to enter new markets while maintaining our low-cost model.
We were also pleased to sign a long-term agreement to establish
a JV with a subsidiary of Vantage, which will see ADES operate
Vantage's deepwater drilling units in Egyptian waters on a bareboat
charter agreement basis. We expect FY2018 to be a year of tendering
for the JV and therefore do not expect any material revenue during
the coming year.
ADES' underlying competitive edge is its ability to execute
smart acquisitions and build a fleet of high-quality legacy rigs
that deliver a superior service and can be deployed at attractive
day rates. In December 2017, we signed a PSA with Nabors Drilling
International II Limited to acquire three operating offshore
jack-up rigs in the Arabian Gulf. This USD 83 million deal -
payable in a combination of cash and ADES shares - will double our
Arabian Gulf fleet and number of contracted rigs, further
strengthen our backlog and have an immediate positive impact on
revenues and cash flow-generation.
In-line with our post-IPO growth strategy of scaling-up
operations in existing and target markets, ADES will continue to
leverage its purchasing power and streamlined decision-making
process to swiftly act on acquisition opportunities that meet our
criteria for delivering long-term sustainable growth. To expand the
range of opportunities we are able to consider, the Company is
committed to putting in place the necessary debt arrangements to
bolster our already strong cash position following the IPO.
Outlook
We expect 2018 to deliver organic growth from existing
operations with realisation of several of our strategic efforts
during 2017, including the commencement of new contracts and
securing new tenders across the region as well as from the Nabors
acquisitions, which once completed, will add to our revenue and
earnings. Given the timing of completion of the Nabors transaction
and the resulting contribution of the three rigs to revenues, we
expect overall company revenues will be materially weighted towards
the second half of the year.
ADES will continue to deliver on our main strategic pillars and
build our backlog through contract renewals and extensions while
actively participating in tenders across MENA. We have made
significant progress on the latter, which we expect to update
shareholders on in the coming months, in line with our objective to
scale up our operations and penetrate new markets.
ADES is also currently evaluating financing options to enhance
its purchasing power, alongside the proceeds from the IPO, which
will position it to take advantage of a wider range of
opportunities, a key element of ADES' growth strategy. The Company
will provide an update on the progress of these discussions in due
course.
The current recovery and stabilisation of global oil prices
reinforces ADES' ability to maximise value from its business model.
We will continue executing our strategy to expand our presence in
existing markets, venture into new high-growth MENA geographies and
pursue accretive acquisition opportunities, all with the ultimate
aim of sustaining our growth trajectory and continuing to deliver
returns.
Dr. Mohamed Farouk, Chief Executive Officer
(7) Source: Clarksons Research - Offshore Drilling Rig Monthly
(February, 2018)
Operational & Financial Review
Revenue
Consolidated revenue grew 17.5% year-on-year from USD 134.1
million in 2016 to USD 157.6 million in 2017, with most of our
growth attributed to the high utilisation of our employed rigs.
Growth was also driven by the realisation of the full-year impact
of drilling and workover operations of our three offshore rigs in
the KSA (deployed in November 2016), our MOPU operations in Egypt
through Admarine I (deployed in February 2016) and our onshore
drilling operations in Algeria, through ADES 3 (deployed in October
2016).
Revenue by Country
(USD '000) FY2017 FY2016 % change
------------- -------- -------------------------- ---------
Egypt 82,298 108,502 -24%
------------- -------- -------------------------- ---------
KSA 53,738 11,552 365%
------------- -------- -------------------------- ---------
Algeria 21,554 14,062 53%
------------- -------- -------------------------- ---------
Total 157,590 134,116 18%
------------- -------- -------------------------- ---------
Revenue from Egypt fell by 24% year-on-year to USD 82.3 million
in 2017 due to scheduled upgrade projects performed on Admarine II
and Admarine VI during 2017. Although in absolute terms operations
in Egypt remained the largest for 2017, its contribution fell 29
percentage points from 81% in 2016 to 52% in 2017 as we
increasingly diversify our geographical revenue mix with increasing
contributions from Algeria and KSA. Management will continue to
expand its operations into new markets as an important strategy to
reducing the financial risk of any significant economic or
regulatory challenges faced in any of our markets.
Our operations in the KSA have quickly become an important
contributor to our total revenue after just one full year of
operations. Revenues grew considerably from USD 11.6 million in
2016 to USD 53.7 million in 2017, representing a year-on-year
growth of 365% and was the highest contributor to our top-line
growth for the period. KSA's contribution to revenues grew by 25
percentage points to 34% in 2017, representing the impact of our
three offshore rigs, Admarine 261, Admarine 262 and Admarine 266,
which were deployed in the country in November 2016. Management
expects KSA's contribution to further increase in the coming years,
particularly as upgrade works on Admarine 261 and Admarine 266 were
completed in 2017, with both rigs now expected to operate at higher
utilisation rates. It is also worth noting that Admarine 262 is
scheduled for upgrade projects in 2018.
Revenue from our operations in Algeria grew significantly
between 2016 and 2017, from USD 14.1 million to USD 21.6 million
and representing 14% of revenue in 2017. Growth was primarily
driven by revenue generated from our third new rig addition, ADES
3, which came online in October 2016. ADES 3 generated revenues of
USD 10.8 million in FY2017, up a significant 227.4% year-on-year
compared to the USD 3.3 million recorded in FY2016.
Revenue Contribution by Country
FY2017 FY2016 % change
------------------- -------------- ------- ---------
Egypt 52% 81% -29 pts
------------------- -------------- ------- ---------
KSA 34% 9% 25 pts
------------------- -------------- ------- ---------
Algeria 14% 10% 4 pts
------------------- -------------- ------- ---------
Assets by Country & Type as at 31 December 2017
MOPU Offshore Rig Onshore Rig
------------------------------------ ------------- ------------- ------------
Egypt 1 7 -
------------------------------------ ------------- ------------- ------------
KSA - 3 -
------------------------------------ ------------- ------------- ------------
Algeria - - 3
------------------------------------ ------------- ------------- ------------
Total Assets 1 10 3
------------------------------------ ------------- ------------- ------------
Revenue by Segment
(USD '000) FY2017 FY2016 % change
-------------------------- -------- -------- ---------
Drilling & Workover 117,868 99,472 18%
-------------------------- -------- -------- ---------
MOPU 25,853 15,694 65%
-------------------------- -------- -------- ---------
Jack-Up Barge & Projects 9,901 14,593 -32%
-------------------------- -------- -------- ---------
Others 3,968 4,357 -9%
-------------------------- -------- -------- ---------
Total 157,590 134,116 18%
-------------------------- -------- -------- ---------
Drilling & Workover (75% of revenues in FY2017)
Drilling & Workover, which includes onshore and offshore
drilling as well as workover services, is the Company's main source
of revenue. ADES' maintained focus on servicing clients in the
development and production phases, particularly well maintenance
and workover services, has allowed the Company to enjoy long-term,
sustainable contracts in a sub-sector that is less susceptible to
oil price fluctuations.
Drilling & Workover revenue grew by 18.5% year-on-year from
USD 99.5 million in 2016 to USD 117.9 million in 2017. Despite its
modest growth, this segment is the largest contributor to top-line
growth due to its considerable contribution to ADES's revenue,
which remained stable at 75% in FY2017 compared to the previous
year.
Revenue growth in this segment was primarily driven by the
full-year impact of new rigs which were deployed during the latter
half of 2016. These included three offshore rigs, Admarine 261,
Admarine 262 and Admarine 266 deployed in the KSA in November 2016
and the commencement of operations by ADES 3 in Algeria in October
2016.
MOPU (16% of revenues in FY2017)
MOPU services, which were launched in February 2016, generated
USD 25.9 million in revenues in 2017 and recorded year-on-year
growth of 64.7% during the period. We currently provide MOPU
services, such as crude oil processing and storage, to Petrozenima
through the deployment of Admarine I in the Gulf of Suez. The rig
was production-ready in October 2016, allowing ADES to catch the
full-year effect of production-related day rate additions during
2017. Its contribution to total revenue grew from 12% in 2016 to
16% in 2017.
Jack-Up Barge & Projects (6% of revenues in FY2017)
As part of its offshore services, ADES leases its offshore
jack-up barge, Admarine II, which is currently leased to GUPCO in
the Gulf of Suez area in Egypt. Additionally, ADES generates
project revenue primarily from contracting fees charged for
clients' outsourcing of various operating projects to third party
personnel, including maintenance, construction and repair services.
Revenue from the Company's Jack-Up Barge & Projects contributed
a combined 6% to total revenue, recording USD 9.9 million in
FY2017, down 32.2% year-on-year versus the USD 14.6 million
recorded in FY2016. This decrease was partly attributed to planned
upgrade works on Admarine II, leading the barge to be taken out of
operation, as well as an overall decline in project activity during
the year.
Others (3% of revenues in FY2017)
Other revenue includes catering revenue and the rental of
essential operating equipment that the client has not supplied.
Other revenue recorded USD 4.0 million in 2017, representing 2.53%
of total revenues.
Gross Profit
Gross profit grew 11.9% year-on-year from USD 70.8 million in
2016 to USD 79.2 million in 2017. Our gross profit margin (GPM)
fell by 2.5 percentage points, from 52.8% in 2016 to 50.3% in 2017.
The slight contraction in our GPM is attributed to the launch of
our operations in the KSA, where salary costs are higher than in
Egypt. Management is actively implementing a plan to ensure more
Saudi nationals are employed in the KSA over foreign nationals,
ahead of our planned further expansion into the country.
Operating Profit
Operating profit for the year recorded USD 58.8 million in 2017,
up 15.5% year-on-year from USD 50.9 million in 2016. Operating
profit growth was driven by capitalising on significant economies
of scale at the administrative level. As most of ADES'
administrative staff are remunerated in local currencies while our
revenue is predominantly USD-denominated, ADES' operating margin
was further enhanced by the November 2016 devaluation of the
Egyptian pound, with the Company maintaining administrative
expenses as a percentage of revenue at 12%. This saw adjusted
EBITDA increase by 11.2% year-on-year to USD 80.3 million in 2017
(USD 72.2 million in 2016), with an EBITDA margin of 51.0%.
Management also expects that the growth in our KSA operations as
well as entry into new markets over the coming few years will allow
ADES to benefit from economies of scale as we apportion our
existing on-the-ground management and crew across a growing number
of rigs without compromising on the quality and reputation of our
services or safety of our employees.
Net Finance Charges
Our finance cost amounted to USD 16.6 million in 2017,
representing a 75.5% year-on-year increase from USD 9.4 million in
2016. This was the result of the USD 55 million KSA syndication
facility taken out in November 2016 to fund the acquisition of
Admarine 261, 262 and 266.
In addition, ADES recorded a finance income of USD 7 million in
2017, representing a net-of-tax return from investing USD 120
million in Egyptian Treasury Bills; this effectively offset the
increase in finance cost bringing net charges to USD 9.5 million in
FY2017 in-line with FY2016 levels.
IPO-Related Expenses
One-time IPO expenses, in relation to the successful completion
of ADES' IPO in May 2017, stood at USD 5.1 million.
Normalised Net Profit
Normalised net profit, which excludes the one-time IPO expense
of USD 5.1 million, grew from USD 38.0 million in FY2016 to USD
49.6 million in FY2017. The ramp-up in revenues from ADES' entry
into the KSA and our operations in Algeria, combined with improved
economies of scale and the November 2016 devaluation of the
Egyptian pound, resulted in the expansion of our normalised net
profit margin of 3.2 percentage points to 31.5% in FY2017.
Balance Sheet
Assets
Total assets stood at USD 587.9 million as at 31 December 2017,
representing a 47.4% increase year-on-year from USD 398.8 million
as at 31 December 2016. Growth in our cash & cash equivalents,
resulting from our May 2017 IPO, was the main attributor to asset
growth during 2017. An increase in our net fixed assets, which grew
from USD 290.7 million as at 31 December 2016 to USD 322.4 million
as at 31 December 2017, was driven by capital expenditures related
to upgrade works on ADES' rigs, as well as the acquisition of ADES
1 for USD 5 million. Accounts receivable increased from USD 50.8
million as at 31 December 2016 to USD 66.0 million as at 31
December 2017 resulting primarily from the growth in the Company's
revenue. The Accounts receivables balance decreased by USD 5.3
million from USD 71.3 million as at 30 June 2017, demonstrating the
positive trend in collections.
Liabilities
Noncurrent liabilities consist solely of the Company's long-term
loans, which saw a decrease between 31 December 2016 and 31
December 2017 from USD 190.0 million to USD 155.8 million. The
decline came as the Company settled the current portion of its
long-term loans (CPLTD), amounting to USD 30.4 million as at 31
December 2016.
Current liabilities increased slightly from USD 103.9 million as
at 31 December 2016 to USD 114.1 million as at 31 December 2017.
The increase was due to a USD 5.2 million overdraft facility drawn
by the Company as well as an increase in the CPLTD by USD 5.6
million associated with the Company's new KSA syndicated loan.
Despite the substantial growth in the Company's operating costs,
trade and other payables only increased slightly from USD 27.9
million in FY2016 to USD 31.2 million at the close of FY2017.
Net Debt decreased from USD 230.5 million as at 31 December 2016
to USD 75.5 million, mainly driven by the Company settling the
current portion of its long-term loans (CPLTD), amounting to USD
30.4 million and the growth in our cash & cash equivalents.
Principal Risks and Uncertainties
As in any corporation, ADES is exposed to risks and
uncertainties that may adversely affect its performance. The Board
and senior management agree that the principal risks and
uncertainties facing the Company include the political and economic
situations in Egypt, Algeria, KSA and the rest of the Middle East,
foreign currency supply and associated risks, changes in regulation
and regulatory actions, environmental and occupational hazards,
failure to maintain the Company's high quality standards and
accreditations, failure to retain or renew contracts with clients,
failure to recruit and retain skilled personnel and senior
management, pricing pressures and decreased business activity in
the oil and gas industry, among others.
Going Concern
The directors are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, the directors continue to adopt the going concern
basis in preparing the condensed financial statements. The
Company's Financial Statements for the full year ended 31 December
2017 are available on the Company's website at
investors.adihgroup.com
Statement of Directors' Responsibilities
Each of the Directors confirms that, to the best of their
knowledge:
-- The preliminary financial information, which has been
prepared in accordance with International Financial Reporting
Standards ("IFRS"), give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group;
and
-- The preliminary announcement includes a fair summary of the
development and performance of the business and the position of the
Group.
After making enquiries, the Directors considered it appropriate
to adopt the going concern basis in preparing the consolidated
financial statements.
A list of current directors of the Company is maintained on the
Group's website at investors.adihgroup.com.
On behalf of the Board
Dr. Mohamed Farouk
Chief Executive Officer
Terms and Definitions
Adjusted EBITDA - Operating profit for the year before
depreciation and amortisation, employee benefit provision and other
provisions and impairment of assets under construction
Backlog - The total amount payable to the Company, based on firm
commitments represented by signed drilling and services contracts,
during the remaining term of an existing contract plus any optional
client extension provided for in such contract, assuming the
contracted rig will operate (and thus receive an operating day
rate) for all calendar days both in the remaining term and in the
optional extension period
KSA -The Kingdom of Saudi Arabia
MENA - The Middle East and North Africa
Normalised Net Profit - Net Profit for the year before the
one-time IPO expense of USD 5.1 million during FY2017
Recordable Injury Frequency Rate (RIFR) - The number of
fatalities, lost time injuries, cases or substitute work and other
injuries requiring medical treatment by a medical professional per
200,000 working hours
Utilisation Rate - The Company's calculation of its utilisation
rate refers to its measure of the extent to which its assets under
contract and available in the operational area are generating
revenue under client contracts. The Company calculates its
utilisation rate for each rig by dividing Utilisation Days by
Potential Utilisation days under a contract.
Net Debt - Total interest-bearing loans and borrowings minus
cash and cash equivalents.
ADES International Holding Ltd
and its Subsidiary
CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
USD Notes 2017 2016
-------------------------------- ------ ------------- -------------
Revenue 5 157,590,031 134,116,116
Cost of revenue 6 (78,323,458) (63,273,396)
------------- -------------
GROSS PROFIT 79,266,573 70,842,720
General and administrative 7,
expenses 29 (19,032,975) (14,713,106)
End of services cost 20 (623,817) (101,368)
Provision for impairment
of trade receivables 14 (579,115) (2,362,197)
Impairment of assets under
construction 16 - (765,291)
Provisions (274,647) (2,027,004)
------------- -------------
OPERATING PROFIT 58,756,019 50,873,754
Finance costs 8 (16,550,209) (9,428,294)
Finance income 12 7,015,552
Provision for impairment
of dividends receivable 15 (245,000) -
Loss on disposal of property
and equipment - (7,537)
Other income 2,461,500 100,794
Other expenses (1,395,025) -
Other taxes 29 (1,573,448) (241,721)
IPO expenses 9 (5,063,369) -
------------- -------------
PROFIT FOR THE YEAR BEFORE
INCOME TAX 43,406,020 41,296,996
Income tax credit/ (expense) 10 1,167,919 (3,284,273)
------------- -------------
PROFIT FOR THE YEAR 44,573,939 38,012,723
OTHER COMPREHENSIVE INCOME
Other comprehensive income
to be reclassified to profit
or loss in subsequent periods - -
Other comprehensive income
not to be reclassified to
profit or loss in subsequent
periods - -
------------- -------------
TOTAL COMPREHENSIVE INCOME 44,573,939 38,012,723
============= =============
Profit for the year and
total comprehensive income
attributable to equity holders
of the Parent 44,573,939 38,012,723
Earnings per share - basic
and diluted attributable
to equity holders of the
Parent (USD per share) 23 1.16 1.19
============= =============
The accompanying notes 1 to 29 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2017
USD Notes 2017 2016
----------------------------------- ------ ------------ ------------
ASSETS
Non-current assets
Property and equipment 16 322,441,975 290,661,449
Intangible assets 17 544,540 15,265
Available for sale financial
asset 11 1,950,000 1,950,000
------------ ------------
Total non-current assets 324,936,515 292,626,714
------------ ------------
Current assets
Inventories 13 20,919,477 17,777,071
Accounts receivable 14 65,987,303 50,789,113
Due from related parties 25 305,616 277,117
Prepayments and other receivables 15 38,773,075 32,152,163
Cash and cash equivalents 12 136,964,417 5,192,864
------------ ------------
Total current assets 262,949,888 106,188,328
------------ ------------
Total assets 587,886,403 398,815,042
============ ============
EQUITY AND LIABILITIES
Equity
Share capital 21 42,203,030 1,000,000
Share application money 21 - 30,900,000
Share premium 21 158,224,346 -
Merger reserve 1&22 (6,520,807) (6,520,807)
Legal reserve 22 6,400,000 4,481,408
Retained earnings 117,703,129 75,047,782
------------ ------------
Total equity 318,009,698 104,908,383
------------ ------------
Liabilities
Non-current liabilities
Interest-bearing loans and
borrowings 19 155,155,414 189,929,837
Provisions 20 620,083 101,368
------------ ------------
Total non-current liabilities 155,775,497 190,031,205
------------ ------------
Current liabilities
Trade and other payables 18 52,664,243 51,055,925
Interest-bearing loans and
borrowings 19 57,333,621 45,804,082
Provisions 20 1,836,000 2,933,915
Due to related parties 25 2,267,344 4,081,532
------------ ------------
Total current liabilities 114,101,208 103,875,454
------------ ------------
Total liabilities 269,876,705 293,906,659
------------ ------------
Total equity and liabilities 587,886,403 398,815,042
============ ============
The accompanying notes 1 to 29 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Share
Share Share application Merger Legal Retained
USD capital premium money reserve reserve earnings Total
---------------- ----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 1 January
2016 - - - 32,000,000 2,999,264 48,617,203 83,616,467
Profit for the
year - - - - - 38,012,723 38,012,723
Other
comprehensive
income
for the year - - - - - - -
----------- ------------ ------------- ------------- ---------- ------------- -------------
Total
comprehensive
income
for the year - - - - - 38,012,723 38,012,723
Transfer to
legal reserve
by Subsidiary
(Note 22) - - - - 1,482,144 (1,482,144) -
Consideration
to
shareholders
on
reorganisation
of the
group - - - (38,520,807) - - (38,520,807)
Dividends by
Subsidiary
(Note 24) - - - - - (10,100,000) (10,100,000)
Share
application
money - - 30,900,000 - - - 30,900,000
Share capital
issued 1,000,000 - - - - - 1,000,000
----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 31
December 2016 1,000,000 - 30,900,000 (6,520,807) 4,481,408 75,047,782 104,908,383
=========== ============ ============= ============= ========== ============= =============
Balance at 1
January 2017 1,000,000 - 30,900,000 (6,520,807) 4,481,408 75,047,782 104,908,383
Profit for the
year - - - - - 44,573,939 44,573,939
Other
comprehensive
income
for the year - - - - - - -
----------- ------------ ------------- ------------- ---------- ------------- -------------
Total
comprehensive
income
for the year - - - - - 44,573,939 44,573,939
Transfer to
legal reserve
by Subsidiary
(Note 22) - - - - 1,918,592 (1,918,592) -
Share
application
money
(Note 21) 30,900,000 - (30,900,000) - - - -
Share capital
issued (Note
21) 10,303,030 - - - - - 10,303,030
Share premium
(Note 21) - 158,224,346 - - - - 158,224,346
----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 31
December 2017 42,203,030 158,224,346 - (6,520,807) 6,400,000 117,703,129 318,009,698
=========== ============ ============= ============= ========== ============= =============
The accompanying notes 1 to 29 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
USD Notes 2017 2016
----------------------------------- ------ ------------- --------------
OPERATING ACTIVITIES
Profit for the year before
income tax 43,406,020 41,296,996
Adjustments for:
Depreciation of property
and equipment 16 20,618,505 18,450,476
Amortisation of intangible
assets 17 45,202 9,110
Provision for impairment
of trade receivables 14 579,115 2,362,197
Impairment of property
and equipment 16 - 765,291
Provisions 20 898,464 2,128,372
Interest on bank credit
facilities and loans 8 16,550,209 9,428,294
Loss on disposal of property
and equipment - 7,537
Finance income (7,015,552) -
Other income (2,461,500) -
------------- --------------
Cash from operations before
working capital changes 72,620,463 74,448,273
Inventories (680,906) (1,389,006)
Accounts receivable (15,777,305) (36,309,980)
Due from related parties (28,499) (78,254)
Prepayments and other receivables (6,620,912) (17,215,150)
Trade and other payables 3,346,719 23,451,590
Due to related parties (1,814,188) (6,612,990)
------------- --------------
Cash flows from operations 51,045,372 36,294,483
Income tax paid 10 (570,482) (427,210)
Provisions paid 20 (1,477,664) (606,730)
------------- --------------
Net cash flows from operating
activities 48,997,226 35,260,543
------------- --------------
INVESTING ACTIVITIES
Purchase of intangible assets 17 (21,579) -
Proceeds from disposal of
property and equipment - 17,455
Purchase of property and
equipment 16 (52,951,929) (134,169,024)
Interest received 12 7,015,552 -
------------- --------------
Net cash flows used in investing
activities (45,957,956) (134,151,569)
------------- --------------
FINANCING ACTIVITIES
Proceeds from interest-bearing
loans and borrowings 19 36,581,041 120,899,330
Repayment of interest-bearing
loans and borrowings 19 (59,825,925) (21,373,845)
Proceeds from increase in
share capital share application
money 21 10,303,030 31,900,000
Proceeds from share premium 21 158,224,346
Cash to shareholders on
reorganisation of the
Group, net of obligation
assumed 1 - (29,710,961)
Dividends paid - (13,552,699)
Interest paid 8 (16,550,209) (9,428,294)
------------- --------------
Net cash flows from financing
activities 128,732,283 78,733,531
------------- --------------
Net increase/ (decrease)
in cash and cash equivalents 131,771,553 (20,157,495)
Cash and cash equivalents
at the beginning of the
year 12 5,192,864 25,350,359
------------- --------------
CASH AND CASH EQUIVALENTS
AT THE OF THE YEAR 12 136,964,417 5,192,864
============= ==============
The accompanying notes 1 to 29 form an integral part of these
consolidated financial statements.
1 BACKGROUND
ADES International Holding Ltd (the "Company") was incorporated
and registered in the Dubai International Financial Centre (DIFC)
on 22 May 2016 with registered number 2175 under the Companies Law
- DIFC Law No. 2 of 2009 (and any regulations thereunder) as a
private company limited by shares. The Company's registered office
is at level 5, Index tower, Dubai International Financial Centre,
PO Box 507118, Dubai, United Arab Emirates. The principal business
activity of the Company is to act as a holding company and managing
office. The Company and its subsidiary (see below) constitute the
Group (the "Group"). The Company is owned by ADES Investments
Holding Ltd., a company incorporated on 22 May 2016 under the
Companies Law, DIFC Law no. 2 of 2009.
The Company owns Advanced Energy System (ADES) (S.A.E.) (the
"Subsidiary") that was established as an Egyptian joint stock
company in Egypt and whose shares are not publicly traded.
The Group is a leading oil and gas drilling and production
services provider in the Middle East and Africa. The Group services
primarily include offshore and onshore contract drilling and
production services. The Group currently operates in Egypt, Algeria
and the Kingdom of Saudi Arabia. The Group's offshore services
include drilling and workover services and Mobile Offshore
Production Unit (MOPU) production services, as well as
accommodation, catering and other barge-based support services. The
Group's onshore services primarily encompass drilling and work over
services. The Group also provides projects services (outsourcing
various operating projects for clients, such as maintenance and
repair services).
In 2016, pursuant to a reorganisation plan (the
"Reorganisation") the ultimate shareholders of the Subsidiary:
(i) established the Company as a new holding company with share
capital of USD 1,000,000 and made an additional capital
contribution of USD 30,900,000 for additional shares that were
allotted on 23 March 2017. No such reorganisations took place in
2017.
(ii) transferred their shareholdings in Advanced Energy System
(ADES) (S.A.E.) to the Company for a total consideration of USD
38,520,807 comprising of cash of USD 29,710,961 and the assumption
of shareholder obligation of USD 8,809,846.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The Consolidated financial statements have been prepared under
the historical cost basis.
These financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB)
and applicable requirements of United Arab Emirates laws and in
compliance with the applicable provisions of the Companies Law
pursuant to DIFC Law No. 2 of 2009.
These consolidated financial statements have been prepared on
the historical cost basis. The consolidated financial statements
are presented in United States Dollars ("USD"), which is Company's
functional and presentation currency.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiary as at 31 December
2017. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has:
a) Power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee)
b) Exposure, or rights, to variable returns from its involvement with the investee, and
c) The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting
rights results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
a) The contractual arrangement with the other vote holders of the investee
b) Rights arising from other contractual arrangements
c) The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income
(OCI) are attributed to the equity holders of the parent of the
Group and to the non-controlling interests, even if this results in
the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the consolidated financial
statements of subsidiaries to bring their accounting policies into
line with the Group's accounting policies. All intra-group assets
and liabilities, equity, income, expenses and cash flows relating
to transactions between members of the Group are eliminated in full
on consolidation. Subsidiaries are fully consolidated from the date
of acquisition or incorporation, being the date on which the Group
obtains control, and continue to be consolidated until the date
when such control ceases. The Consolidated financial statements of
the subsidiaries are prepared for the same reporting period as the
Group, using consistent accounting policies.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it:
- Derecognises the assets (including goodwill) and liabilities of the subsidiary
- Derecognises the carrying amount of any non-controlling interests
- Derecognises the cumulative translation differences recorded in equity
- Recognises the fair value of the consideration received
- Recognises the fair value of any investment retained
- Recognises any surplus or deficit in profit or loss
- Reclassifies the parent's share of components previously
recognised in OCI to profit or loss or retained earnings, as
appropriate, as would be required if the Group had directly
disposed of the related assets or liabilities
Business combination
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owner of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date.
The Group recognises any non-controlling interest in the
acquiree on an acquisition-by-acquisition basis, either at fair
value or at the non-controlling interest's proportionate share of
the recognised amounts of acquiree's identifiable net assets.
Acquisition related costs are expensed as incurred.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is re-measured to fair value at the
acquisition date; any gain or losses arising from such
re-measurement are recognised in profit or loss. Any contingent
consideration to be transferred by the Group is recognised at fair
value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration that is deemed to be an asset or
liability is recognised in accordance with IAS 39 in profit or
loss.
Contingent consideration that is classified as equity is not
re-measured, and its subsequent settlement is accounted for within
equity. The excess of the consideration transferred, the amount of
any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired is recorded as goodwill. If the total of consideration
transferred, non-controlling interest recognised and previously
held interest measured is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognised directly in the statement of
profit or loss.
Associates and joint ventures
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is
not control or joint control over those policies. A joint venture
is a type of joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the
joint venture. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties
sharing control.
The considerations made in determining significant influence or
joint controls are similar to those necessary to determine control
over subsidiaries.
2.2 CHANGES IN THE ACCOUNTING POLICIES AND DISCLOSURES
(a) New and amended standards and interpretations
The Group applied for the first time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2017. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
The nature and the effect of these changes are disclosed below.
Although these new standards and amendments applied for the first
time in 2017, they did not have a material impact on the
consolidated financial statements of the Group. The nature and the
impact of each new standard or amendment is described below:
Amendments to IAS 7 Statement of Cash Flows: Disclosure
Initiative
The amendments require entities to provide disclosure of changes
in their liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes (such as
foreign exchange gains or losses). The Group has provided the
information for both the current and the comparative period in the
consolidated statement of cash flows.
Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax
Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether
tax law restricts the sources of taxable profits against which it
may make deductions on the reversal of deductible temporary
difference related to unrealized losses. Furthermore, the
amendments provide guidance on how an entity should determine
future taxable profits and explain the circumstances in which
taxable profit may include the recovery of some assets for more
than their carrying amount.
Entities are required to apply the amendments retrospectively.
However, on initial application of the amendments, the change in
the opening equity of the earliest comparative period may be
recognised in opening retained earnings (or in another component of
equity, as appropriate), without allocating the change between
opening retained earnings and other components of equity. Entities
applying this relief must disclose that fact. The application has
no effect on the Group's consolidated financial position and
performance as the Group has no deductible temporary differences or
assets that are in the scope of the amendments.
Annual Improvements Cycle - 2014-2016
Amendments to IFRS 12 Disclosure of Interests in Other Entities:
Clarification of the scope of disclosure requirements in IFRS
12
The amendments clarify that the disclosure requirements in IFRS
12, other than those in paragraphs B10-B16, apply to an entity's
interest in a subsidiary, a joint venture or an associate (or a
portion of its interest in a joint venture or an associate) that is
classified (or included in a disposal group that is classified) as
held for sale. These amendments did not affect the Group's
consolidated financial statements as it does not have interest in
entities that is classified as held for sale other than already
disclosed in the consolidated financial statements.
(b) Standards, amendments and interpretations in issue but not effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's consolidated
financial statements are disclosed below. The Group intends to
adopt these standards, if applicable, when they become effective.
The Group is currently assessing the impact of these new standards
on the consolidated financial statements.
IFRIC Interpretation 22 Foreign Currency Transactions and
Advance Consideration
The Interpretation clarifies that, in determining the spot
exchange rate to use on initial recognition of the related asset,
expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability relating to advance
consideration, the date of the transaction is the date on which an
entity initially recognises the non-monetary asset or non-monetary
liability arising from the advance consideration. If there are
multiple payments or receipts in advance, then the entity must
determine the transaction date for each payment or receipt of
advance consideration. Entities may apply the amendments on a fully
retrospective basis. Alternatively, an entity may apply the
Interpretation prospectively to all assets, expenses and income in
its scope that are initially recognised on or after:
(i) The beginning of the reporting period in which the entity
first applies the interpretation
Or
(ii) The beginning of a prior reporting period presented as
comparative information in the financial statements of the
reporting period in which the entity first applies the
interpretation. The Interpretation is effective for annual periods
beginning on or after 1 January 2018. Early application of
interpretation is permitted and must be disclosed. However, since
the Group's current practice is in line with the Interpretation,
the Group does not expect any effect on its consolidated financial
statements.
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty that affects the
application of IAS 12 and does not apply to taxes or levies outside
the scope of IAS 12, nor does it specifically include requirements
relating to interest and penalties associated with uncertain tax
treatments. The Interpretation specifically addresses the
following:
-- Whether an entity considers uncertain tax treatments separately
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities
-- How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates
-- How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax
treatment separately or together with one or more other uncertain
tax treatments. The approach that better predicts the resolution of
the uncertainty should be followed. The interpretation is effective
for annual reporting periods beginning on or after 1 January 2019,
but certain transition reliefs are available. The Group will apply
interpretation from its effective date. Since the Group operates in
a complex multinational tax environment, applying the
Interpretation may affect its consolidated financial statements and
the required disclosures. In addition, the Group may need to
establish processes and procedures to obtain information that is
necessary to apply the Interpretation on a timely basis.
IFRS 2 Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that
address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the
classification of a share-based payment transaction with net
settlement features for withholding tax obligations; and accounting
where a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled to
equity settled. On adoption, entities are required to apply the
amendments without restating prior periods, but retrospective
application is permitted if elected for all three amendments and
other criteria are met. The amendments are effective for annual
periods beginning on or after 1 January 2018, with early
application permitted.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting for
financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective
application is required but providing comparative information is
not compulsory. For hedge accounting, the requirements are
generally applied prospectively, with some limited exceptions. The
Group is in the process of carrying out detailed impact analysis
for IFRS 9.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28
in dealing with the loss of control of a subsidiary that is sold or
contributed to an associate or joint venture. The amendments
clarify that the gain or loss resulting from the sale or
contribution of assets that constitute a business, as defined in
IFRS 3, between an investor and its associate or joint venture, is
recognised in full. Any gain or loss resulting from the sale or
contribution of assets that do not constitute a business, however,
is recognised only to the extent of unrelated investors' interests
in the associate or joint venture. The IASB has deferred the
effective date of these amendments indefinitely, but an entity that
early adopts the amendments must apply them prospectively.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The new revenue
standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or
a modified retrospective application is required for annual periods
beginning on or after 1 January 2018. Early adoption is permitted.
The Group is in the process of carrying out detailed impact
analysis for IFRS 15.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. IFRS
16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions for lessees - leases
of 'low-value' assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less). At
the commencement date of a lease, a lessee will recognise a
liability to make lease payments (i.e., the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e., the right-of-use asset). Lessees will be required
to separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g., a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases. IFRS 16 also requires lessees and lessors to make more
extensive disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
The Group is in the process of carrying out detailed impact
analysis for IFRS 16.
Current versus non-current classification
The Group presents assets and liabilities in the consolidated
statement of financial position based on current/non-current
classification. An asset is current when it is:
-- Expected to be realised or intended to be sold or consumed in the normal operating cycle;
-- Held primarily for the purpose of trading;
Expected to be realised within twelve months after the reporting
period;
Or
-- Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve months
after the reporting period.
All other assets are classified as non-current.
A liability is current when:
-- It is expected to be settled in the normal operating cycle;
-- It is held primarily for the purpose of trading;
-- It is due to be settled within twelve months after the reporting period;
Or
-- There is no unconditional right to defer the settlement of
the liability for at least twelve months after the reporting
period.
The Group classifies all other liabilities as non-current.
Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is being made.
Revenue is measured at the fair value of the consideration received
or receivable, taking into account contractually defined terms of
payment and excluding taxes or duty. The Group assesses its revenue
arrangements against specific criteria in order to determine if it
is acting as principal or agent. The Group has concluded that it is
acting as a principal in all of its revenue arrangements since it
is the primary obligor in all the revenue arrangements, has pricing
latitude, and is also exposed to credit risk.
The following specific recognition criteria must also be met
before revenue is recognised:
Rendering of services
Revenue arising from service contracts is recognised, net of
discount, in accordance with the terms of the contracts when the
services are performed.
Dividends
Revenue is recognised when the Group's right to receive the
payment is established, which is generally when shareholders
approve the dividend.
Interest income
Interest income is recognised as the interest accrues using the
effective interest rate method, under which the rate used exactly
discounts, estimated future cash receipts through the expected life
of the financial asset to the net carrying amount of the financial
asset.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they incurred.
Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at banks and on hand and short-term deposits with a
maturity of three months or less, which are subject to an
insignificant risk of changes in value.
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consist of cash and short-term deposits,
as defined above.
Income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted, at the
reporting date in the countries where the Group operates and
generates taxable income. Management periodically evaluates
positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and
establishes provisions where appropriate. The Group is not subject
to income tax in accordance with the Egyptian tax law (Egypt) and
DIFC law (UAE). The Subsidiary's Branches are subject to income tax
in accordance to Kingdom of Saudi Arabia Law and Algeria Law.
Deferred tax
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes at the
reporting date. Deferred tax liabilities are recognised for all
taxable temporary differences, except:
-- When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss
-- In respect of taxable temporary differences associated with
investments in subsidiaries, associates and interests in joint
arrangements, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future
Deferred tax assets are recognised for all deductible temporary
differences, the carry forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which
the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilised,
except:
-- When the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss
-- In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests in joint
arrangements, deferred tax assets are recognised only to the extent
that it is probable that the temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date.
Foreign currencies
The Company and its Subsidiary functional currency is USD.
Transactions in foreign currencies are initially recorded at the
date the transaction. Monetary assets and liabilities denominated
in foreign currencies are translated at the functional currency
spot rates of exchange at the reporting date. Differences arising
on settlement or translation of monetary items are recognised in
profit or loss. Non- monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined.
Inventories
Inventories are initially measured at cost and subsequently at
lower of cost using weighted average method or net realisable
value.
Property and equipment
Assets under construction, property and equipment are stated at
cost, net of accumulated depreciation and/or accumulated impairment
losses, if any. Such cost includes the cost of replacing parts of
the property and equipment and borrowing costs for long-term
construction projects if the recognition criteria are met. When
significant parts of property and equipment are required to be
replaced at intervals, the Group recognises such parts as
individual assets with specific useful lives and depreciates them
accordingly. Likewise, when a major inspection is performed, its
cost is recognised in the carrying amount of the plant and
equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognised in
the profit or loss as incurred.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets as follows:
Years
Rigs 27
Mobile Offshore Production Unit (MOPU) 5
Furniture and fixtures 10
Drilling pipes 5
Tools 10
Computers and equipment 5
Motor vehicles 5
Leasehold improvements 5
Rigs include overhaul, environment and safety costs that are
capitalised and depreciated over 5 years. No depreciation is
charged on assets under construction. The useful lives and
depreciation method are reviewed annually to ensure that the method
and period of depreciation are consistent with the expected pattern
of economic benefits from these assets. Any change in estimated
useful life is applied prospectively effective from the beginning
of year. Expenditure incurred to replace a component of an item of
property and equipment that is accounted for separately is
capitalised and the carrying amount of the component that is
replaced is written off. Other subsequent expenditure is
capitalised only when it increases future economic benefits of the
related item of property and equipment. All other expenditure is
recognised in the consolidated statement of profit or loss as the
expense is incurred.
Property and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of property and equipment may not be recoverable.
Whenever the carrying amount of property and equipment exceeds
their recoverable amount, an impairment loss is recognised in the
consolidated statement of profit or loss. The recoverable amount is
the higher of fair value less costs to sell of property and
equipment and the value in use. The fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. While value in use is the present value of
estimated future cash flows expected to arise from the continuing
use of property and equipment and from its disposal at the end of
its useful life.
Reversal of impairment losses recognised in the prior years are
recorded when there is an indication that the impairment losses
recognised for the property and equipment no longer exist or have
reduced.
An item of property and equipment is derecognised upon disposal
or when no further economic benefits are expected from its use or
disposal. Any gain or loss arising on de recognition is included in
the consolidated statement of profit or loss.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. After initial recognition, intangible assets
are carried at cost less any accumulated amortisation and any
accumulated impairment losses. Internally generated intangible
assets are not capitalised and expenditure is reflected in the
consolidated profit and loss in the year in which the expenditure
is incurred. The useful lives of intangible assets are assessed as
either finite or indefinite. Intangible assets with finite lives
are amortised over the useful economic life and assessed for
impairment whenever there is an indication that the intangible
asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life is
reviewed at least at each financial year end. Intangible assets are
amortised using the straight-line method over their estimated
useful lives (5 years).
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity. Financial assets are initially
measured at fair value, plus transaction costs. All recognised
financial assets are subsequently measured at amortised cost except
for available for sale financials assets which are measured at fair
value:
Financial assets
Financial assets are initially measured at fair value, plus
transaction costs. All recognised financial assets are subsequently
measured at amortised cost except for available for sale financials
assets which are measured at fair value:
(i) Bank balances and cash
Bank balances and cash in the consolidated statement of
financial position comprise cash in hand and at banks.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective
interest rate (EIR) method, less impairment. Interest income is
recognised by applying the EIR, except for short-term receivables
when the recognition of interest would be immaterial. The EIR
amortisation is included in finance income in the consolidated
statement of profit or loss. The losses arising from impairment are
recognised in the consolidated statement of profit or loss when
there is objective evidence that an asset is impaired. This
category generally applies to trade and other receivables. For more
information on receivables, refer to Note 14.
De-recognition of financial assets
A financial asset (or, when applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised when:
-- The rights to receive cash flows from the asset have expired, or
-- The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flow in full without material delay to a third party under a
'pass-through' arrangement, and either:
- The Group has transferred substantially all the risks and rewards of the asset, or
- The Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its right to receive cash flows
from an asset or has entered into a pass-through arrangement, it
evaluates if and to what extent it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all the risks and rewards of the asset nor
transferred control of the asset, the Group continues to recognise
the transferred asset to the extent of the Group's continuing
involvement. In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that
the Group has retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Impairment of financial assets
The Group assesses at each reporting date whether there is any
objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that has
occurred after the initial recognition of the asset (an incurred
'loss event') and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Evidence of impairment may
include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial reorganisation and
where observable data indicates that there is a measurable decrease
in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
If there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the financial assets carrying amount and the present value
of estimated future cash flows. The present value of the estimated
future cash flows is discounted at the financial assets original
effective interest rate.
For financial assets carried at amortised cost, the carrying
amount is reduced through the use of an allowance account and the
amount of the loss is recognised in the consolidated statement of
profit or loss.
Financial asset together with the associated allowance are
written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the
Group. If, in a subsequent year, the amount of the estimated
impairment loss increases or decreases because of an event
occurring after the impairment was recognised, the previously
recognised impairment loss is increased or decreased by adjusting
the allowance account. If a future write-off is later recovered,
the recovery is recognised in the consolidated statement of profit
or loss.
Financial liabilities and equity instruments issued by the
Group
Debt and equity instruments are classified as either financial
liabilities or as equity instruments in accordance with the
substance of the contractual agreements.
Financial liabilities within the scope of IAS 39 are classified
as financial liabilities at fair value through profit or loss,
loans and borrowings, or as derivative instrument as appropriate.
The Group determines the classification of its financial
liabilities at the initial recognition.
(i) Trade and other payables
Liabilities are recognised for amounts to be paid in the future
for goods or services received, whether billed by the supplier or
not.
(ii) Loans and borrowings
All loans and borrowings are initially recognised at the fair
value less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest rate
method. Gains and losses are recognised in the consolidated
statement of profit or loss when the liabilities are derecognised
as well as through the amortisation process.
(iii) Other financial liabilities
Other financial liabilities are initially measured at fair
value, net of transaction costs and are subsequently measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire. Where an existing financial liability is replaced by
another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, then
the difference in the respective carrying amounts is recognised in
the consolidated statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
Impairment of non-financial assets
The Group assesses at each reporting date whether there is an
indication that a non-financial asset may be impaired. If any
indication exists, or when annual impairment testing for an asset
is required, the Group estimates the asset's recoverable amount. An
asset's recoverable amount is the higher of an asset's or
cash-generating units (CGU) fair value less costs to sell and its
value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent
of those from other assets or groups of assets. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset
is considered impaired and is written down to its recoverable
amount. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. In determining fair value less
costs to sell, an appropriate valuation model is used. Impairment
losses of continuing operations are recognised in the consolidated
statement of profit or loss in those expense categories consistent
with the function of the impaired asset.
An assessment is made at each reporting date as to whether there
is any indication that previously recognised impairment losses may
no longer exist or may have decreased. If such indication exists,
the Group estimates the asset's or cash-generating unit's
recoverable amount. A previously recognised impairment loss is
reversed only if there has been a change in the assumptions used to
determine the asset's recoverable amount since the last impairment
loss was recognised. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor
exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the consolidated
statement of profit or loss.
Leases
The determination of whether an arrangement is, or contains a
lease is based on the substance of the arrangement at inception
date and whether the fulfilment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Group as a lessee
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor, are classified as
operating leases. Payments including prepayments, made under
operating leases (net of any incentives received from the lessor)
are recognised as expenses in the consolidated statement of profit
or loss in accordance with the terms of the lease contracts over
the lease term based on a straight line basis.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and the amount
can be reliably estimated. When the Group expects some or all of a
provision to be reimbursed, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the
consolidated statement of profit or loss net of any reimbursement.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation at the end of the
reporting period, using a rate that reflects current market
assessments of the time value of money and the risks specific to
the obligation. Provisions are reviewed at each statement of
financial position date and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation, the provision is reversed.
Contingencies
Contingent liabilities are not recognised in the consolidated
financial statements. They are disclosed unless the possibility of
an outflow of resources embodying economic benefits is remote. A
contingent asset is not recognised in the consolidated financial
statements but disclosed when an inflow of economic benefits is
probable.
Legal reserve
According to the Subsidiary's articles of association, 5% of the
net profit for the prior year of the Subsidiary is transferred to a
legal reserve until this reserve reaches 20% of the issued capital.
The reserve is used upon a decision from the general assembly
meeting based on the proposal of the Board of Directors of the
Subsidiary.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either in the
principal market for the asset or liability or the most
advantageous market for the asset or liability. The fair value of
an asset or a liability is measured using the assumptions that
market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best
interest. A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use. For assets traded in an active market,
fair value is determined by reference to quoted market bid prices.
The fair value of interest-bearing items is estimated based on
discounted cash flows using interest rates for items with similar
terms and risk characteristics. For unquoted assets, fair value is
determined by reference to the market value of a similar asset or
is based on the expected discounted cash flows. The Group uses
valuation techniques that are appropriate in the circumstances and
for which sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and minimising the
use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the Consolidated financial statements are categorised
within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
Cash dividend and non-cash distribution to equity holders of the
parent
The Group recognises a liability to make cash or non-cash
distributions to equity holders of the parent when the distribution
is authorised and the distribution is no longer at the discretion
of the Group. A distribution is authorised when it is approved by
the shareholders. A corresponding amount is recognised directly in
equity. Non-cash distributions are measured at the fair value of
the assets to be distributed with fair value remeasurement
recognised directly in equity. Upon distribution of non-cash
assets, any difference between the carrying amount of the liability
and the carrying amount of the assets distributed is recognised in
the consolidated statement of profit or loss.
Judgments
The preparation of the Group's consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets,
liabilities, and the accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
In the process of applying the Group's accounting policies,
management has made certain judgments, estimates and assumptions in
relation to the accounts receivable, customer credit periods and
doubtful debts provisions, creditors' payment period, useful lives
and impairment of property and equipment, income taxes and various
other policy matters. These judgments have the most significant
effects on the amounts recognised in the consolidated financial
statements.
Finance lease commitments - Group as lessee
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the consolidated income statement on a straight line basis over the
period of the lease. Lease incentives, typically rent free period,
is recognised in the same manner as operating lease rentals.
Available for sale financial asset
The Group holds an investment in Egyptian Drilling Chinese
Company (refer to Note 11). The Group has treated this investment
as an available for sale financial asset as the legal formalities
for change in the articles of association is not complete and
accordingly, ADES have no representation or ability to enforce
representation on the Board of Directors. The completion of these
formalities will result in the accounting of this investment from
available for sale financial asset to an associate/ joint
arrangement.
Estimates and assumptions
Impairment of trade receivables
An estimate of the collectible amount of trade receivables is
made when collection of the full amount is no longer probable. For
individually significant amounts, this estimation is performed on
an individual basis. Amounts which are not individually
significant, but which are past due, are assessed collectively and
a provision applied according to the length of time past due, based
on historical recovery rates. At the consolidated statement of
financial position date, gross trade receivables were USD
69,681,069 (2016: USD 53,903,764) and the provision for impairment
in trade receivables was USD 3,693,766 (2016: USD 3,114,651) Any
difference between the amounts actually collected in future periods
and the amounts expected will be recognised in the consolidated
statement of profit or loss.
Taxes
The Group is exposed to income taxes in certain jurisdictions.
Significant judgement is required to determine the total provision
for taxes. Uncertainties exist with respect to the interpretation
of complex tax regulations, changes in tax laws, and the amount and
timing of future taxable income. Given the wide range of
international business relationships and the long-term nature and
complexity of existing contractual agreements, differences arising
between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments
to tax income and expense already recorded. The Group establishes
provisions, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective
counties in which it operates. The amount of such provisions is
based on various factors, such as experience of previous tax audits
and differing interpretations of tax regulations by the taxable
entity and the responsible tax authority. Such differences in
interpretation may arise for a wide variety of issues depending on
the conditions prevailing in the respective domicile of the Group
companies. At the consolidated statement of financial position
date, income tax payable was USD 1,118,662 (2016: USD
2,857,063).
Impairment of non-financial assets
The Group assesses whether there are any indicators of
impairment for all non-financial assets at each reporting date. The
non-financial assets are tested for impairment when there are
indicators that the carrying amounts may not be recoverable. When
value in use calculations are undertaken, management estimates the
expected future cash flows from the asset or cash-generating unit
and chooses a suitable discount rate in order to calculate the
present value of those cash flows.
Useful lives of property, plant and equipment
The Group's management determines the estimated useful lives of
its property, plant and equipment for calculating depreciation.
This estimate is determined after considering the expected usage of
the asset or physical wear and tear. Management reviews the
residual value and useful lives annually and future depreciation
charge would be adjusted where the management believes the useful
lives differ from previous estimates. During the year the
management revised estimated useful life of rigs from 15 years to
27 years based on the technical assessment effective from 1 January
2017, which resulted in a decrease of depreciation charge by the
amount of USD 8,605,090.
Impairment of inventories
Inventories are held at the lower of cost and net realisable
value. When inventories become old or obsolete, an estimate is made
of their net realisable value. At the consolidated statement of
financial position date, gross inventories were USD 20,919,477
(2016: USD 17,777,071) with no provisions for slow moving items.
Any difference between the amounts actually realised in future
periods and the amounts expected will be recognised in the
consolidated statement of profit or loss.
Impairment of dividends receivable
The Group has dividends receivable from Egyptian Drilling
Chinese Company (refer to note 15) which is classified as available
for sale financial asset. Any difference between the amounts
actually collected in future periods and the amounts expected will
be recognised in the consolidated statement of profit or loss.
4 SEGMENT INFORMATION
Management has determined the operating segments based on the
reports reviewed by the Chief Executive Officer (CEO) that are used
to make strategic decisions. The CEO considers the business from a
geographic perspective and has identified four geographical
segments. Management monitors the operating results of its segments
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
evaluated based on profit or loss before intersegment charges.
Segment
USD Egypt Algeria KSA UAE Total
---------------------------- ------------ ------------ ----------- ------------ ------------
For the year ended
31
December 2017
Revenue 82,298,101 21,553,917 53,738,013 - 157,590,031
------------ ------------ ----------- ------------ ------------
Gross profit 66,856,413 1,862,965 10,547,195 - 79,266,573
------------ ------------ ----------- ------------ ------------
Finance costs 16,550,209 - - - 16,550,209
Finance income - - - (7,015,552) (7,015,552)
Income tax (credit)
expense - (2,005,247) 837,328 - (1,167,919)
------------ ------------ ----------- ------------ ------------
Profit 39,507,786 1,498,558 2,339,436 1,228,159 44,573,939
============ ============ =========== ============ ============
Total assets as
at 31 December
2017 427,916,290 8,279,182 21,713,922 129,977,009 587,886,403
============ ============ =========== ============ ============
Total liabilities
as at 31 December
2017 255,812,927 4,447,760 9,391,481 224,537 269,876,705
============ ============ =========== ============ ============
COGS included bareboat charter agreements between Egypt
and both KSA and Algeria "Lease agreement"
For the year ended
31
December 2017
Other segment information:
Capital expenditure 52,925,672 519 25,738 - 52,951,929
Intangible assets
additions 21,579 - - - 21,579
------------ ------------ ----------- ------------ ------------
Total 52,947,251 519 25,738 - 52,973,508
============ ============ =========== ============
Depreciation and
amortisation 17,457,917 865,290 2,340,500 - 20,663,707
============ ============ =========== ============ ============
For the year ended
31 December 2016
Revenue 108,501,995 14,062,376 11,551,745 - 134,116,116
------------ ------------ ----------- ------------ ------------
Gross profit 59,740,283 5,454,019 5,648,418 - 70,842,720
------------ ------------ ----------- ------------ ------------
Finance costs 8,722,886 61,520 643,888 - 9,428,294
Income tax expense - 2,927,210 357,063 - 3,284,273
------------ ------------ ----------- ------------ ------------
Profit 31,164,856 2,892,499 4,076,059 (120,691) 38,012,723
============ ============ =========== ============ ============
Total assets as
at 31 December
2016 285,031,429 30,001,212 83,527,793 254,608 398,815,042
============ ============ =========== ============ ============
Total liabilities
as at 31 December
2016 282,332,927 5,994,104 5,553,301 26,327 293,906,659
============ ============ =========== ============ ============
Other segment information:
Capital expenditure 58,383,993 10,568,232 65,216,799 - 134,169,024
------------ ------------ ----------- ------------ ------------
Total 58,383,993 10,568,232 65,216,799 - 134,169,024
============ ============ =========== ============ ============
Depreciation and
amortisation 16,832,604 962,046 664,936 18,459,586
Impairment of property
and equipment 765,291 - - - 765,291
============ ============ =========== ============ ============
5 REVENUE
USD 2017 2016
------------------- ------------ ------------
Units operations 147,841,157 123,713,864
Catering services 2,450,360 2,537,195
Projects income* 6,752,850 7,295,711
Others 545,664 569,346
------------ ------------
157,590,031 134,116,116
============ ============
* Projects income represents services relating to outsourcing
various operating projects for clients such as maintenance and
repair services.
6 COST OF REVENUE
USD 2017 2016
------------------------ ----------- -----------
Project direct costs 5,681,202 6,615,569
Maintenance costs 7,307,833 6,079,605
Staff costs 25,677,414 15,666,367
Rental equipment 2,744,852 2,483,465
Insurance 3,637,194 2,958,675
Depreciation (Note 16) 20,426,233 18,296,945
Other costs 12,848,730 11,172,770
----------- -----------
78,323,458 63,273,396
=========== ===========
7 GENERAL AND ADMINISTRATIVE EXPENSE
USD 2017 2016
----------------------------------- ----------- ------------
Staff costs 10,137,211 10,046,238
Depreciation and amortisation
(Notes 16, 17) 237,474 162,641
Professional fees 2,117,751 1,988,492
Business travel expenses 1,250,543 255,517
Free zone expenses 1,606,634 1,405,381
Rental expenses 877,701 546,832
Other expenses 2,797,128 3,710,156
Net foreign exchange loss/ (gain) 8,533 (3,402,151)
----------- ------------
19,032,975 14,713,106
=========== ============
8 FINANCE COSTS
USD 2017 2016
------------------------------------ ----------- ----------
Interest on bank credit facilities
and loans 16,550,209 9,428,294
----------- ----------
16,550,209 9,428,294
=========== ==========
9 IPO EXPENSES
These expenses relates to the initial public offering made
during the year. Out of the total amount of USD 6,535,593 incurred
during the year, amount of USD 5,063,369 was recognised as expenses
in the consolidated statement of comprehensive income for the year
while an amount of USD 1,472,224 was debited to the consolidated
statement of changes in equity.
10 INCOME TAX
USD 2017 2016
Consolidated statement of profit
or loss:
Current income tax (credit)/ expense (1,167,919) 3,284,273
Consolidated statement of financial
position:
Current liabilities:
Balance at 1 January 2,857,063 -
Charge for the year 1,214,416 3,284,273
Release during the year (2,382,335) -
Paid during the year (570,482) (427,210)
Balance at 31 December (Note 18) 1,118,662 2,857,063
Profit before income tax 43,406,020 41,296,996
Tax calculated at domestic tax
rates applicable to profits in
the primary jurisdiction of 0%
(2016: 0%) - -
Effect of different tax rates
in countries in which the Group
operates 951,750 2,650,811
Non-deductible expenses 262,666 218,060
Prior year adjustments* (2,382,335)
Other 415,402
Income tax expense recognised
in the consolidated statement
of profit or loss (1,167,919) 3,284,273
The effective tax rate, excluding the credit in respect of prior
year adjustments, is 3% (2013: 8%).
The Group operates in jurisdictions which are subject to tax at
higher rates than the statutory corporate tax rate of 0%, which is
applicable to profits in Algeria and Kingdom of Saudi Arabia where
applicable tax rate is 26% and 20% respectively. In addition to
statutory corporate tax rate of 26%, the operations in Algeria are
also subject to 15% Branch tax on accounting profit.
Egyptian corporations are normally subject to corporate income
tax at a statutory rate of 22.5% however the Company has been
registered in a Free Zone in Alexandria under the Investment Law No
8 of 1997 which allows exemption from corporate income tax.
* Prior year adjustments represent tax provision recorded in
Algeria during 2016 which is released during 2017 based on the tax
filings and tax assessment.
11 AVAILABLE FOR SALE FINANCIAL ASSET
Country
USD of Incorporation Ownership 2017 2016
------------------ ------------------- ---------- ---------- ----------
Egyptian Chinese
Drilling Company Egypt 48.75% 1,950,000 1,950,000
========== ==========
The Group acquired the investment on 30 March 2015 from AMAK
Drilling and Petroleum Services Co. (a related party) at par value.
Egyptian Chinese Drilling Company is a Joint Stock Company
operating in storing and renting machinery and all needed equipment
to the petroleum industry.
The Group recognised dividends of USD 1,225,000 from Egyptian
Chinese Drilling Company during the year ended 31 December 2015
which is outstanding as at 31 December 2017 (note 15).
This investment is measured at cost less any impairment as its
fair value cannot be reliably measured. The Group has treated this
investment as available for sale as the legal formalities for
change in the articles of association is not complete and
accordingly, has no representation on the Board. The completion of
these formalities will result in the accounting of this investment
from available for sale financial asset to an associate/ joint
arrangement.
Fair value hierarchy
31 December
2017 And Level Level Level
USD 2016 1 2 3
----- ------------ ------ ------ ----------
1,950,000 - - 1,950,000
------------ ------ ------ ----------
12 CASH AND CASH EQUIVELANTS
USD 2017 2016
------------------------------------------- ------------ ----------
Cash on hand 8,931 23,656
Bank balances 9,942,280 5,169,208
Treasury bills 127,013,206 -
------------ ----------
136,964,417 5,192,864
============ ==========
Bank balances and cash comprise
of balances in the following currencies:
United States Dollar (USD) 9,469,067 1,813,324
Saudi Riyal (SAR) 178,817 1,686,404
Egyptian Pound (EGP) 121,869 1,338,380
United Arab Emirates Dirham (AED) 1,012 8,492
Great British Pound (GBP) 54 23,285
Euro (EUR) 64 (51)
Algerian Dinar (DZD) 180,335 323,027
Kuwaiti Dinar (KWD) (7) 3
T-bill's (EGP)* 127,013,206 -
------------ ----------
136,964,417 5,192,864
============ ==========
* Treasury bills represent short-term investment made by the
Group with original maturity less than 90 days. The Group had
invested in July 2017 for an amount of USD 119,797,343 with a
maturity period ranging from 78 to 85 days. This investment matured
in October 2017 and was re-invested with an amount of USD
124,889,042 which accrued interest receivable of USD 2,124,164 as
of 31 December 2017.
The finance income reported in the consolidated statement of
comprehensive income for the year amounting to USD 7,015,552
pertains to total interest received from the investment in treasury
bills.
13 INVENTORIES
USD 2017 2016
------------------------------ ----------- -----------
Spare parts for
Jack Up Rig Admarine (I) 149,814 132,408
Drilling Barge Admarine (II) 306,372 252,953
Jack Up Rig Admarine (III) 1,928,526 1,859,621
Jack Up Rig Admarine (IV) 1,953,838 2,094,650
Jack Up Rig Admarine (V) 1,735,892 1,628,081
Jack Up Rig Admarine (VI) 982,287 1,308,961
Jack Up Rig Admarine (VIII) 1,734,004 1,931,522
Jack Up Rig Admarine (88) 2,249,594 2,321,311
Onshore Rig ADES 2 373,293 366,715
Onshore Rig ADES 3 164,709 161,397
Jack Up Rig Admarine 261 2,640,679 1,941,572
Jack Up Rig Admarine 262 3,245,151 1,746,536
Jack Up Rig Admarine 266 2,234,649 1,684,284
Spare parts in warehouse
Inventory 1,220,669 347,060
----------- -----------
20,919,477 17,777,071
=========== ===========
Inventories mainly represent spare parts.
14 ACCOUNTS RECEIVABLE
USD 2017 2016
----------------------------------- ------------ ------------
Trade receivables 69,681,069 53,903,764
Provision for impairment in trade
receivables (3,693,766) (3,114,651)
------------ ------------
65,987,303 50,789,113
============ ============
Trade receivables are non-interest bearing and are generally on
30 to 90 days terms after which trade receivables are considered to
be past due. Unimpaired trade receivables are expected to be fully
recoverable on the past experience. It is not the practice of the
Group to obtain collateral over receivables and the vast majority
are, therefore, unsecured.
The movement in the provision for impairment of trade
receivables is as follows:
USD 2017 2016
--------------------- ---------- ----------
As at 1 January 3,114,651 752,454
Charge for the year 579,115 2,362,197
---------- ----------
As at 31 December 3,693,766 3,114,651
========== ==========
As at 31 December, the aging analysis of un-impaired trade
receivables is as follows:
Past due but not impaired
-------------------------------------------------------------
Neither
past due 30 - 61 -
USD nor impaired <30 days 60 days 90 days >90 days Total
2017 25,138,781 5,889,514 4,474,001 8,539,624 21,945,383 65,987,303
============== =========== ========== ========== =========== ===========
2016 9,749,411 11,792,203 4,858,481 3,967,213 20,421,805 50,789,113
============== =========== ========== ========== =========== ===========
15 PREPAYMENTS AND OTHER RECEIVABLES
USD 2017 2016
--------------------------------------- ----------- -----------
Advances to contractors and suppliers 6,027,286 3,225,691
Advances to employees 6,378 13,626
Accrued revenue* 12,975,535 17,587,148
Margin LG (Note 28) 3,602,290 3,511,930
Insurance with customers 3,911,475 3,945,436
Aramco Invoice Retention 6,525,863 -
Other receivables and deposits 4,744,248 2,643,332
Dividends receivable 1,225,000 1,225,000
Provision for impairment in dividends
receivables (245,000) -
----------- -----------
38,773,075 32,152,163
=========== ===========
* Accrued revenue represents services rendered but not yet
billed at the reporting date.
The movement in the provision for impairment of dividends
receivable is as follows:
USD 2017 2016
-------------------- -------- -----
Charge for the year 245,000 -
-------- -----
As at 31 December 245,000 -
======== =====
16 PROPERTY AND EQUIPMENT
Furniture Assets Computer
Rigs and Drilling under and Motor Leasehold
USD * fixtures pipes Tools construction equipment vehicles improvements Total
--------------- ------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
31 December
2017
Cost:
As at 1
January
2017 268,524,908 957,088 4,007,526 12,425,178 50,893,103 473,311 249,765 70,039 337,600,918
Additions 41,453 97,175 - 799,461 51,820,656 193,184 - - 52,951,929
Transfers 47,963,113 100,145 4,067,500 8,752,548 (61,045,720) - - 162,414 -
Transfer to
intangible
Assets - - - - (552,898) - - - (552,898)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
As at 31
December
2017 316,529,474 1,154,408 8,075,026 21,977,187 41,115,141 666,495 249,765 232,453 389,999,949
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
Accumulated
depreciation
and
impairment:
As at 1
January
2017 (39,436,649) (271,041) (852,125) (5,184,627) (765,291) (253,165) (106,533) (70,038) (46,939,469)
Depreciation
charge for
the
year (18,702,802) (96,288) (801,505) (887,069) - (80,216) (38,987) (11,638) (20,618,505)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
As of 31
December
2017 (58,139,451) (367,329) (1,653,630) (6,071,696) (765,291) (333,381) (145,520) (81,676) (67,557,974)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
Net book
value:
As of 31
December
2017 258,390,023 787,079 6,421,396 15,905,491 40,349,850 333,114 104,245 150,777 322,441,975
============= ========== ============ ============ ============= ========== ========== ============= =============
Capitalised borrowing costs
The amount of borrowing costs capitalised during the year ended
31 December 2017 was USD 2,608,790 (2016: USD 1,408,530).
16 PROPERTY AND EQUIPMENT (cont'd)
Furniture Assets Computer
Rigs and Drilling under and Motor Leasehold
USD * fixtures pipes Tools construction equipment vehicles improvements Total
----------------- ------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
31 December 2016
Cost:
As at 1 January
2016 145,371,553 795,518 2,498,001 11,393,235 51,911,665 362,797 294,566 70,039 212,697,374
Additions 420,891 161,570 - 1,031,943 132,444,106 110,514 - - 134,169,024
Transfers 122,732,464 - 1,509,525 - (124,241,989) - - - -
Transfers from
assets under
construction
to inventory - - - - (9,220,679) - - - (9,220,679)
Disposals - - - - - - (44,801) - (44,801)
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
As at 31
December
2016 268,524,908 957,088 4,007,526 12,425,178 50,893,103 473,311 249,765 70,039 337,600,918
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
Accumulated
depreciation
and impairment:
As at 1 January
2016 (23,857,683) (192,112) (251,890) (3,097,887) - (198,448) (75,453) (70,038) (27,743,511)
Impairment of
project under
construction - - - - (765,291) - - - (765,291)
Depreciation
charge for the
year (15,578,966) (78,929) (600,235) (2,086,740) - (54,717) (50,889) - (18,450,476)
Disposals - - - - - - 19,809 - 19,809
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
As of 31
December
2016 (39,436,649) (271,041) (852,125) (5,184,627) (765,291) (253,165) (106,533) (70,038) (46,939,469)
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
Net book value:
As of 31
December
2016 229,088,259 686,047 3,155,401 7,240,551 50,127,812 220,146 143,232 1 290,661,449
============= ========== ========== ============ ============== ========== ========== ============= =============
16 PROPERTY AND EQUIPMENT (cont'd)
Depreciation charge is allocated as follows:
USD 2017 2016
Cost of revenue (Note 6) 20,426,233 18,296,945
General and administrative expenses
(Note 7) 192,272 153,531
----------- -----------
Total depreciation charge 20,618,505 18,450,476
=========== ===========
Assets under construction
Assets under construction represent the amounts that are
incurred for the purpose of acquiring property and equipment until
it is ready to be used in the operation. Included in property and
equipment at 31 December 2017 was, an amount of USD 40,349,850
(2016: USD 50,127,812) mainly relating to expenditure for the
assets under construction. Assets under construction will be
transferred to 'Rigs' and 'Tools' of the property and equipment
after completion.
* All rigs are pledged to the lenders (banks) against loans and
borrowings (Note 19) except for ADES 1, ADES 2, ADES 3 and Admarine
88.
17 INTANGIBLE ASSETS
USD 2017 2016
---------------------------------- ---------- ----------
Cost:
As at 1 January 167,980 167,980
Additions 21,579 -
Transfers 552,898 -
---------- ----------
As at 31 December 742,457 167,980
---------- ----------
Accumulated amortisation:
As at 1 January (152,715) (143,605)
Amortisation charge for the year (45,202) (9,110)
---------- ----------
As at 31 December (197,917) (152,715)
---------- ----------
Net carrying amount
As at 31 December 544,540 15,265
========== ==========
Intangible assets represent computer software and the related
licenses.
18 TRADE AND OTHER PAYABLES
USD 2017 2016
------------------------------ ----------- -----------
Local trade payables 26,945,291 27,766,226
Foreign trade payables 3,779,363 -
Notes payable 446,289 150,218
Accrued expenses 10,118,154 7,438,635
Accrued interest 1,751,724 1,616,446
Income tax payable (Note 10) 1,118,662 2,857,063
Other payables 1,355,726 4,078,303
Dividends payable (Note 24) 7,149,034 7,149,034
----------- -----------
52,664,243 51,055,925
=========== ===========
19 INTEREST-BEARING LOANS AND BORROWINGS
USD 2017 2016
----------------------------------- ------------- -------------
Balance as at 1 January 235,733,919 136,208,434
Borrowings drawn during the year 36,581,041 120,899,330
Borrowings repaid during the year (59,825,925) (21,373,845)
------------- -------------
Balance as at 31 December 212,489,035 235,733,919
============= =============
Maturing within 12 months 57,333,621 45,804,082
Maturing after 12 months 155,155,414 189,929,837
------------- -------------
Balance as at 31 December 212,489,035 235,733,919
============= =============
2017 2016
Type Interest rate % Latest maturity USD USD
---------------------------- ------------------------------ ---------------------- ------------- -------------
Current interest-bearing loans and borrowings
4.5% + 3 Month LIBOR 5 years
Loan 1 Syndication
Tranche A 16,000,000 16,000,000
Tranche C 5,000,000 5,000,000
Tranche D 3,800,000 3,800,000
Loan 2 Syndication
Tranche A 5.5% + 3 Month LIBOR 5 years 11,111,111 5,555,556
Credit facility 1 4.50% + 3 Month LIBOR 1 year / renewable 12,306,542 11,791,608
Credit facility 4 1.25% + Corridor Renewable (206) (223)
Credit facility 5 1.25% + Corridor Renewable 2,542,374 2,571,426
Credit facility 6 2.50% + Corridor Renewable 6,573,800 1,085,715
------------- -------------
Total current interest-bearing loans and borrowings 57,333,621 45,804,082
============= =============
Non-current interest-bearing loans and borrowings
5 years
Loan 1 Syndication
------------------------------ ----------------------
Tranche A 4.5% + 3 Month LIBOR 45,533,610 60,686,926
------------------------------------------------------
4.5% + 3 Month LIBOR
Tranche B 4.5% + 3 Month LIBOR 40,000,000 40,000,000
Tranche C 15,000,000 20,000,000
Tranche D 4.5% + 3 Month LIBOR 17,399,507 21,200,000
Loan 2 Syndication
Tranche A 5.5% + 3 Month LIBOR 5 years 33,333,827 43,042,911
Tranche B 5.5% + 3 Month LIBOR 5 years 3,888,470 5,000,000
------------- -------------
Total non-current interest-bearing loans and borrowings 155,155,414 189,929,837
Total interest-bearing loans and borrowings 212,489,035 235,733,919
============= =============
The Group has secured interest-bearing loans and borrowings as
follows:
Bank credit facilities
1. Credit facility 1 is granted by the Arab International Bank
(AIB) with an overdraft facility limit amounting to USD 10,000,000
which is automatically renewable and increased by USD 2,500,000
during the year 2016 to be USD 12,500,000 and is secured by the
assignment of proceeds under the umbrella of Loan 1
syndication.
2. Credit facility 5 is granted by the Egyptian Gulf Bank (EGB)
with an overdraft facility limit amounting to EGP 45,000,000 which
is secured by promissory note.
3. Credit facility 6 is granted by the Arab International Bank
(AIB) with an overdraft facility limit amounting to EGP 40,000,000
which is automatically renewable and increased by EGP 80,000,000
during the year 2017 to be EGP 120,000,000 and is secured by the
assignment of proceeds under the umbrella of Loan 1
syndication.
Loan 1 - Syndication:
On 12 November 2015 the Group has signed a syndication loan
agreement arranged by EBRD with total amount of USD 170 million
divided over eight banks. The loan is divided into four tranches,
the purpose and use of each facility is described as follows:
a) Tranche A
For refinancing certain existing financial indebtedness in full
(including the payment of the fees, costs and expenses incurred
under or in connection with the transaction documents) the
remaining amount for general corporate purposes.
b) Tranche B
New working capital purposes and to refinance certain existing
working capital facilities.
c) Tranche C
Capital expenditure for the acquisition of the new rigs and
mobile offshore production units.
d) Tranche D "Murabaha Participant"
The Group shall apply the amount of all utilisations under the
Murabaha Facility towards the capital expenditure for the
acquisition of the new rigs and mobile offshore production
units.
The Medium-term loan over 5 years includes a 15 months grace
period and is paid quarterly in un-equal instalments starting from
23 February 2017 and the last instalment will be on 23 November
2020.
Loan 1 - Syndication is secured by the rigs Admarine I, Admarine
II, Admarine III, Admarine IV, Admarine V, Admarine VI, and
Admarine VIII and all related collection bank accounts and
insurance proceeds collection bank accounts.
Loan 2 - Syndication:
On 25 October 2016 the Group has signed a syndication loan
agreement arranged by EFG Hermes Advisory Inc. with total amount of
USD 55 million divided over four banks. The loan is divided into
two tranches, the purpose and use of each facility is described as
follows:
a) Facility A
To partially finance the purchase price of the rigs.
b) Facility B
For the purpose of paying pre-operating expense including but
not limited to insurance, office and yard expense. Agent and crew
salaries and the payment of the fees, costs and expense incurred or
may be incurred under or in connection with the financing.
The Medium-term loan over 5 years includes 9 month grace period
and is paid quarterly in equal instalments except the last
instalment starting from 25 July 2017 and the last instalment will
be at 25 October 2021.
Loan 2 - Syndication is secured by the rigs Admarine 261,
Admarine 262, and Admarine 266 and all related collection bank
accounts and insurance proceeds collection bank accounts.
20 PROVISIONS
As at Accrued during*** Paid during As at**
USD 1 January the year the year 31 December
2017
Other tax
provisions
* 3,035,283 898,464 (1,477,664) 2,456,083
========== ================= =========== ============
2016
Other tax
provisions
* 1,513,641 2,128,372 (606,730) 3,035,283
========== ================= =========== ============
* Other tax provisions mainly represent provision made for
employee's taxes and withholding taxes which are borne by the
Group.
** As at 31 December 2017, other tax provisions include long
term liability with respect to employees' end of service benefits
for an amount of USD 620,083 (2016: USD 101,368).
*** The above amounts accrued during the year include amounts of
USD 623,817 (2016: USD 101,368) with respect to employees' end of
services cost for the year ended 31 December 2017, as disclosed in
the consolidated statement of comprehensive income.
21 SHARE CAPITAL
Share capital of the Group comprise:
USD 2017 2016
------------------------------ ------------- -------------- -----------
Authorised shares* 1,500,000,000 10,000,000
Issued shares 42,203,030 1,000,000
Shares par value 1.00 1.00
-------------- -----------
Issued and paid up capital 42,203,030 1,000,000
============== ===========
Share application money
** - 30,900,000
============== ===========
Share premium*** 158,224,346 -
============== ===========
The Company was incorporated
and registered in DIFC on
22 May 2016.
The shareholding structure
as at 31 December 2017 is:
Shareholding
% No. of Value
Shareholders shares USD
------------------------------ ------------- -------------- -----------
ADES Investment Holding
Ltd 65 27,431,970 27,431,970
Individual shareholders 35 14,771,060 14,771,060
------------- -------------- -----------
100 42,203,030 42,203,030
============= ============== ===========
The shareholding structure as at 31 December 2016 was:
Shareholding No. of Value
Shareholder % shares USD
------------------------- ------------- ---------- ----------
ADES Investment Holding
Ltd 100 1,000,000 1,000,000
============= ========== ==========
* During the year, the authorised share capital of the Company
was increased to USD 1,500,000,000 comprising of 1,500,000,000
shares.
** Share application money amounting to USD 30,900,000
representing funds received in advance has been transferred to
share capital account upon issuance of the shares in 2017.
Additionally, share capital amounting to USD 10,303,030 issued over
and above the balance of share application money during 2017.
*** Share premium represents the excess of fair value received
over the par value of shares issued as a result of IPO as mentioned
in note 1.
22 RESERVES
Legal reserve
As required by Egyptian Companies' Law and the Subsidiary's
Articles of Association, 5% of the net profit for the year is
transferred to legal reserve. The Subsidiary may resolve to
discontinue such annual transfers when the reserve totals 20% of
the issued share capital of the Subsidiary. As of 31 December 2017,
the balance of legal reserve amounted to USD 6,400,000 (2016: USD
4,481,408).
Merger reserve
As disclosed in Note 1, pursuant to a reorganisation plan, the
shareholders reorganised the Group by establishing the Company as a
new holding company. Merger reserve represents the difference
between the consideration paid to the shareholders under the
reorganisation plan and the nominal value of the Subsidiary shares.
Prior to the reorganisation, the merger reserve comprise of the
share capital and share application money of the Subsidiary.
23 EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated by
dividing the profit for the year attributable to the ordinary
equity holders by the weighted average number of ordinary shares
outstanding during the year.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding assuming conversion of all
dilutive potential ordinary shares.
The information necessary to calculate basic and diluted
earnings per share is as follows:
USD 2017 2016
------------------------------------- ----------- -----------
Profit attributable to the ordinary
equity holders for
basic and diluted EPS 44,573,939 38,012,723
----------- -----------
Weighted average number of ordinary
shares -
basic and diluted 38,553,620 31,900,000
----------- -----------
Earnings per share - basic and
diluted (USD per share) 1.16 1.19
=========== ===========
24 DIVIDS DECLARED AND PAID
USD 2017 2016
----------------------------------- ---------- -------------
Declared:
To shareholders (deducted from
retained earnings) - 10,100,000
To employees "Employee benefits"
(charged to
consolidated statement of profit
or loss) - 5,323,933
---------- -------------
Declaration for the year - 15,423,933
Unpaid dividends from prior years - 10,601,733
---------- -------------
- 26,025,666
Paid during the year - (18,876,632)
---------- -------------
Dividends payable (Note 18) 7,149,034 7,149,034
========== =============
The above dividends represent dividends of the Subsidiary which
was declared and partially paid prior to the reorganisation.
25 RELATED PARTIES TRANSACTIONS AND BALANCES
Related party transactions
During the year, the following were the significant related
party transactions recorded in the consolidated statement of
comprehensive income or consolidated statement of financial
position:
Assets purchased from related parties amounted to USD 5,000,000
(2016: USD 7,940,000) (Note 16).
Other major related party transactions are:
During the year, the Group had transferred funds to a related
party, AMAK for Drilling & Petroleum Services Co. (other
related party), amounting to USD 6,793,453 for settlement of fixed
assets purchased during the years 2017 and 2016.
Related party balances
Significant related party balances included in the consolidated
statement of financial position are as follows:
2017 2016
--------------------- ---------------------
USD Due from Due to Due From Due to
------------------------------ --------- ---------- --------- ----------
Shareholder
ADES Investment Holding
Ltd - 211,629 - 26,327
Ultimate Shareholder
Sky Investment Holding
ltd. 60,000 - 60,000 -
Into Investment Holding
ltd. 74,998 - 60,000 -
Other related parties
Misr El Mahrousa - - - 207,065
Advansys Project - - 9,499 -
Apetco Co. - - 1,115 -
Advansys Creative Solutions - - 26,212 -
AMAK for Drilling &
Petroleum Services Co. - 2,054,687 - 3,848,140
ADVANSYS FOR ENG.SERV. - 1,028 - -
& CONS
Advansys Telecom Co. - - - -
Intro for Trading & - - 29,291 -
Contracting Co.
ECDC - Free Zone 170,618 - -
Others - - 91,000 -
--------- ---------- --------- ----------
305,616 2,267,344 277,117 4,081,532
========= ========== ========= ==========
Compensation of key management personnel
The remuneration of key management personnel during the year was
as follows:
USD 2017 2016
---------------------- ---------- --------
Short-term benefits 1,890,000 840,000
========== ========
Terms and conditions of transactions with related parties
Outstanding balances at the year-end are unsecured, interest
free and settled in cash. There have been no guarantees provided or
received for any related party receivables or payables. For the
year ended 31 December 2017, the Group has not recorded any
impairment of receivables relating to amounts owed by related
parties (2016: USD Nil). This assessment is undertaken each
financial year by examining the financial position of the related
party and the market in which the related party operates.
26 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
The Group's principal financial liabilities, comprise creditors,
due to related parties, interest bearing loans and borrowings and
other credit balances. The main purpose of these financial
liabilities is to finance the Group's operations and to provide
support to its operations. The Group's principal financial assets
include cash in hand and at banks, including highly liquid
investments with maturity less than 90 days, accounts receivable,
due from related parties, available for sale financial assets and
other receivables that arrive directly from its operations.
The Group is exposed to market risk, credit risk and liquidity
risk. The Board of Directors of the Company oversees the management
of these risks. The Board of Directors of the Company are supported
by senior management that advises on financial risks and the
appropriate financial risk governance framework for the Group. The
Group's senior management provides assurance to the Board of
Directors of the Group's financial risk activities are governed by
appropriate policies and procedures and that financial risks are
identified, measured and managed in accordance with Group policies
and Group risk appetite. The Board of Directors reviews and agrees
policies for managing each of these risks, which are summarised
below.
The Group has exposure to the following risks from its use of
financial instruments:
a) Credit risk,
b) Market risk:
i. Interest rate risk
ii. Foreign currency risk
c) Liquidity risk.
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. The Group's current financial risk
management framework is a combination of formally documented risk
management policies in certain areas and informal risk management
policies in other areas.
Credit risk
Credit risk is the risk that counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities (primarily for trade receivables and
due from related parties) and from its financing activities,
including letter of guarantees with banks, foreign exchange
transactions and other financial instruments. As at 31 December
2017, the top three debtors of the Group represent 84% (2016:
66%).
Trade receivables
Customer credit risk is managed by the Group's established
policy, procedures and controls relating to customer credit risk
management. Credit quality of the customer is assessed based on a
credit rating policy and individual credit limits are defined in
accordance with this assessment. Outstanding customer receivables
are regularly monitored.
The requirement for impairment is analysed at each reporting
date on an individual basis for major clients. Additionally, a
large number of minor receivables are grouped into homogenous
groups and assessed for impairment collectively. The calculation is
based on actual incurred historical data. The maximum exposure to
credit risk at the reporting date is the carrying value of each
class of financial assets. The Group does not hold collateral as
security. The Group evaluates the concentration of risk with
respect to trade receivables as low, as its wide number of
customers operates in highly independent markets. In addition,
instalment dues are monitored on an ongoing basis with the result
that the Group's exposure to bad debts is not significant.
Other financial assets and bank balances
Credit risk from balances with banks and financial institutions
is managed by the Group's treasury department in accordance with
the Group's policy. Counterparty credit limits are reviewed by the
Group's Board of Directors on an annual basis, and may be updated
throughout the year subject to approval of the Group's senior
management. The limits are set to minimise the concentration of
risks and therefore mitigate financial loss through potential
counterparty's failure to make payments. The Group's exposure to
credit risk for the components of the consolidated statement of
financial position is the carrying amounts of these assets. The
Group limits its exposure to credit risk by only placing balances
with international banks and reputable local banks. Management does
not expect any counterparty in failing to meet its obligations.
Due from related parties
Due from related parties relates to transactions arising in the
normal course of business with minimal credit risk, with a maximum
exposure equal to the carrying amount of these balances.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices, such as interest rate risk and currency risk.
Financial instruments affected by market risk include: loans and
borrowings. The Group neither designate hedge accounting or hold or
issue derivative financial instruments.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group's exposure to the risk
of changes in market interest rates relates primarily to the
Group's long-term debt obligations with floating interest
rates.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates on loans and borrowings. With all
other variables held constant, the Group's profit is affected
through the impact on floating rate borrowings, as follows:
Increase/decrease Effect on
in basis profit before
USD points income tax
------------- ------------------ ---------------
31 December
2017
USD +100 (985,126)
USD -100 985,126
31 December
2016
USD +100 (1,044,883)
USD -100 1,044,883
The Group has a short-term investment in treasury bills that is
held in EGP and matured in USD. The exchange rate is secured from
the Central Bank of Egypt at the breakeven level of the investment
and it matured in January 2018.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group's exposure to the risk
of changes in foreign exchange rates relates primarily to the
Group's operating activities (when revenue or expense is
denominated in a different currency from the Group's functional
currency).
The following tables demonstrate the sensitivity to a reasonably
possible change in USD exchange rates, with all other variables
held constant. The impact on the Group's profit is due to changes
in the value of monetary assets and liabilities. The Group's
exposure to foreign currency changes for all other currencies is
not material.
Effect on
profit before
Change in income tax
USD USD rate USD
------------- ---------- ---------------
31 December
2017
USD +10% 1,250,162
USD -10% (1,250,162)
31 December
2016
USD +10% 586,006
USD -10% (586,006)
Liquidity risk
The cash flows, funding requirements and liquidity of the Group
are monitored by Group management. The Group's objective is to
maintain a balance between continuity of funding and flexibility
through the use of banks overdraft and bank loans. The Group
assessed the concentration of risk with respect to refinancing its
debt and concluded it to be low. Access to sources of funding is
sufficiently available and debt maturing within 12 months can be
rolled over with existing lenders.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Financial liabilities
Less
than 3 to 1 to
3 12 5 Over
USD months months years 5 years Total
------------------------ ----------- ----------- ------------ -------- ------------
As at 31 December
2017
Interest-bearing
loans and borrowings 12,666,983 35,941,765 175,584,530 - 224,193,278
Trade and other
payables 44,802,928 7,861,315 - - 52,664,243
Due to related
parties 2,267,344 - - - 2,267,344
----------- ----------- ------------ -------- ------------
Total undiscounted
financial liabilities 59,737,255 43,803,080 175,584,530 - 279,124,865
=========== =========== ============ ======== ============
As at 31 December
2016
Interest-bearing
loans and borrowings 9,793,808 33,612,574 218,413,360 - 261,819,742
Trade and other
payables 43,805,477 7,250,448 - - 51,055,925
Due to related
parties 4,081,532 - - - 4,081,532
----------- ----------- ------------ -------- ------------
Total undiscounted
financial liabilities 57,680,817 40,863,022 218,413,360 - 316,957,199
=========== =========== ============ ======== ============
Capital management
Capital includes share capital, share application money and
retained earnings.
The primary objective of the Group's capital management is to
ensure that it will be able to continue as a going concern while
maintaining a strong credit rating and healthy capital ratios in
order to support its business and maximise shareholder value. The
Group's strategy remains unchanged since inception. The Group
manages its capital structure and makes adjustments to it in light
of changes in economic conditions and the requirements of the
financial covenants. To maintain or adjust the capital structure,
the Group may adjust the dividend payment to shareholders or return
capital to shareholders. The Group monitors capital using a gearing
ratio, which is net debt divided by total capital plus net debt.
The Group's policy is to keep the gearing ratio between 30% and
80%. However, the gearing ratio for the year is only 19% due to the
funds raised from the IPO during the year in order to meet the
Group's growth strategy. The Group includes within net debt,
interest bearing loans and borrowings, less cash and cash
equivalents, excluding discontinued operations.
USD 2017 2016
Interest - bearing loans and borrowings
(Note 19) 212,489,035 235,733,919
Cash and cash equivalents (Note
12) (136,964,417) (5,192,864)
-------------- ------------
Net debt 75,524,618 230,541,055
Total equity 318,009,698 104,908,383
-------------- ------------
Total capital 393,534,316 335,449,438
============== ============
Gearing ratio 19% 69%
27 FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial
liabilities. Financial assets of the Group include bank balances
and cash, accounts receivable, due from related parties, other
receivables and available for sale financial asset. Financial
liabilities of the Group include trade payables, due to related
parties, loans and borrowings and other payables. The fair values
of the financial assets and liabilities are not materially
different from their carrying value unless stated otherwise.
28 CONTINGENT LIABILITIES AND COMMITMENTS
USD 2017 2016
-------------------------------- ----------- -----------
Contingent liabilities
Letter of guarantees (Note 15) 21,301,884 21,540,428
=========== ===========
Capital commitments
Capital commitments
Purchase agreement* 83,000,000 -
Purchase orders** 1,743,996 -
----------- -----------
Total capital commitments 84,743,996 -
=========== ===========
Contingent liabilities represents letters of guarantee issued in
favour of General Authority for Investment, Petrobel Group,
Egyptian General Petroleum Corporation, Petro Gulf of Suez, Suze
Abu Zenima Petroleum Company (Petro Zenima) and Association
Sonatrach - First Calgary Petroleum. The cover margin on such
guarantees amounted to USD 3,602,290 (2016: USD 3,511,930) (Note
15).
* On 19th December 2017, the Group signed a purchase and sale
agreement (PSA) with Nabors Drilling International II Limited to
acquire three operating offshore jack-up rigs in the Arabian Gulf
amounting to USD 83 million which is payable in a combination of
cash and the Company's shares.
** Purchase orders which were submitted to the vendors but
services not received as of 31 December 2017.
29 COMPARATIVE INFORMATION
USD Reported Reclassifications Reclassified
As previously balances
2016 2016
---------------------------- --------------- ------------------ -------------
General and administrative
expenses: 15,056,195 (343,089) 14,713,106
Other expenses 4,053,245 (343,089) 3,710,156
End of services cost - 101,368 101,368
Other taxes - 241,721 241,721
Current liabilities:
Trade and other payables 51,157,293 (101,368) 51,055,925
Non - current liabilities:
Provisions - 101,368 3,035,823
The reclassifications are made to improve the quality of the
information presented.
The third year statement of financial position is not presented
as these reclassifications have no material impact on the third
year numbers.
Click on, or paste the following link into your web browser, to
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http://www.rns-pdf.londonstockexchange.com/rns/0666I_-2018-3-18.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
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