TIDMADES
RNS Number : 9925I
ADES International Holding PLC
07 April 2020
For the purpose of the Transparency Directive the Home Member
state of the issuer is the United Kingdom.
ADES International Holding PLC results for the year ended 31
December 2019
(London & Dubai, 7 April 2020) ADES International Holding
PLC ("ADES" or "the Group") , a leading oil & gas drilling and
production services provider in the Middle East and North Africa
(MENA), announces its full-year audited results for the year ended
31 December 2019 .
Summary of Financials
(US$ '000) 2019 2018 % change
------------------------------------- -------- -------- ---------
Revenues 477,758 205,563 132%
------------------------------------- -------- -------- ---------
EBITDA 193,367 101,071 91%
------------------------------------- -------- -------- ---------
EBITDA Margin 41% 49% -8.7 pts
------------------------------------- -------- -------- ---------
Normalised Net Profit (1) 72,714 44,712 63%
------------------------------------- -------- -------- ---------
Normalised Net Profit Margin 15% 22% -7 pts
------------------------------------- -------- -------- ---------
Net Profit 31,534 73,272 -57%
------------------------------------- -------- -------- ---------
Net Profit Margin 7% 36% -29 pts
------------------------------------- -------- -------- ---------
Weighted Average No. of Shares 43,778 43,082 1.7%
------------------------------------- -------- -------- ---------
Normalised Earnings per Share (US$) 1.66 1.04 60%
------------------------------------- -------- -------- ---------
Reported Earnings per Share (US$) 0.7 1.7 -58%
------------------------------------- -------- -------- ---------
Net Debt 606,188 424,393
------------------------------------- -------- -------- ---------
Key 2019 Financial & Operational Highlights
-- Revenue grew by 132% to US$ 477.8 million in 2019 from US$ 205.6 million in 2018, driven by:
o an increased contribution from acquired Weatherford and Nabors
rigs which contributed 64% of revenue against 24% in 2018;
o organic growth of 10%, due to better utilization and the two
new onshore rigs deployed in Saudi;
o revenue in H2 grew by 17% sequentially from 1H 2019.
-- EBITDA increased by 91% to US$ 193.4 million in 2019 from US$
101.1 million in 2018. As anticipated, the EBITDA margin reflects
geographical diversification and onshore expansion following the
acquisitions.
-- Backlog at year end of c.US$ 1.3 billion, compared to US$ 1.2
billion in 2018 driven by a string of renewals and contract awards
during the year. Our backlog weighted average tenor of 4 years,
matches the Group's debt re-payment profile.
-- Normalised net profit(1) increased by 63% to US$ 72.7 million
in 2019 from US$ 44.7 million in 2018. Normalized net profit margin
reflects the new business distribution following the acquisitions
and higher finance & depreciation charges during the year.
-- Net profit of US$ 31.5 million in 2019 compared to US$ 73.3
million in 2018, affected by significant non-recurring charges in
both years(1) .
-- Significant working capital improvement driving strong net
operating cash flow, which increased by 236% to US$ 172 million in
2019, due to shorter working capital cycles in Saudi Arabia and
Kuwait.
-- Successfully closed a bond offering of US$ 325 million of
senior secured notes due in 2024, with a B+ credit rating from
S&P and Fitch.
-- Net Debt of US$ 606.2 million at year-end, a decrease from
US$ 616.9 million reported at 30 September 2019. Net Debt to EBITDA
stood at 3.1x in 2019 , well below ADES' current covenant level of
4.0x.
-- Cash and bank balances of c. US$ 120 million as at year-end,
providing strong liquidity for the business.
-- Utilisation rate growth to 97% from 85% in 2018.
-- Treasury Stock worth US$ 3.5 million was bought back by the Group throughout 2019.
-- ADES achieved over 13.6 million-man hours in 2019 with a
Recordable Injury Frequency Rate ("RIFR") of 0.41(2) , below the
IADC worldwide standard rate of 0.63.
(1) Normalised Net Profit is calculated as Net profit before
non-controlling interest after excluding non-recurring charges
from: a) one off finance charges related to loan fees and written
off prepaid transaction costs b) accounting adjustments related to
IFRS 3 (Business Combinations) and a one-off bargain purchase gain;
c) non-cash, equity-settled share-based payment compensation from
the parent company; d) non-cash fair-value adjustments under
financial instruments; and e) non-recurring transactions.
(2) Per 200,000 working hours
Current Trading and Outlook
-- Amid the rapidly evolving COVID-19 pandemic and market
volatility caused by the current oil price, ADES is in a strong
position to maintain its current operations and existing business
.
-- The COVID-19 pandemic has not significantly impacted the
Group's activities to date; however, given its rapidly changing
nature, ADES is closely monitoring the situation with robust health
and safety protocols and
business continuity plans in place to mitigate risks posed by the pandemic.
-- With the vast majority of the Group's rigs staffed locally ,
the current restrictions on mobility are not expected to
significantly impact ADES' operations. Moreover, due to the
essential role of the oil & gas industry for the MENA region,
management believes it is unlikely that governments across the
region will impose further restrictions on the Group's operations
even under a more stringent lockdown scenario.
-- ADES is also well-positioned despite the lower oil price environment supported by:
-- strong liquidity with cash on hand of around US $120 million
and available undrawn banking facilities of approximately US$100
million as at 31 December 2019 providing ample headroom and
financial flexibility;
-- long-dated backlog providing significant visibility and supporting future cash generation;
-- ADES' rigs are contracted at fixed daily rates with the
majority already calibrated during a low point of the oil price
cycle;
-- diversified portfolio across the MENA region with the lowest
cost of extraction / breakeven points globally;
-- substantial portion of the Group's business in workover
drilling which demands continuity to avoid well depletion;
-- client-base dominated by NOCs with long-term planning
horizons and less susceptible to short term oil price-cycle;
-- ADES's low-cost business model with minimised overheads
allowing the Group to offer competitive rates to clients and
deliver strong profitability even during tough market
conditions.
-- Integration Project is progressing to plan, and benefits
being realised. Currently, EBITDA margins for the majority of newly
acquired rigs have risen from their acquisition levels and are now
in line with the Group's average.
-- Expected improvement in Net debt position due to resilient
earnings and lower capital expenditure.
-- Our focus remains on business sustainability based on our
diversified regional presence and through leveraging of our strong
asset base in MENA.
Commenting on the results, Dr. Mohamed Farouk, Chief Executive
Officer of ADES International said: "2019 saw the completion of
ADES's transformation with a strong financial performance, an
integrated and strengthened asset base, a substantial order backlog
and a long term and liquid balance sheet.
2020 has started as expected and, whilst we are closely
monitoring the impact of COVID-19 and the low oil price
environment, our operations to date have not been significantly
impacted. We are confident that the Group is well positioned to
weather these tough end market conditions underpinned by the order
book cover, low cost operating model and MENA region focus."
Conference Call
ADES' management team will present the 2019 Results and will be
available for a Q&A session with analysts and investors today
at 14:00 UK. For conference call details, please email
ades@instinctif.com .
ADES International Holding
Hussein Badawy
Investor Relations Officer
ir@adesgroup.com
+2 (0)2527 7111
Instinctif
+44 (0)20 7457
Mark Garraway mark.garraway@instinctif.com 2020
Dinara Shikhametova dinara.shikhametova@instinctif.com
Sarah Hourahane sarah.hourahane@instinctif.com
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 North Africa, offering
onshore and offshore contract drilling as well as workover and
production services. Its c.4,000 employees serve clients including
major national oil companies ("NOCs") such as Saudi Aramco and
Kuwait Oil Company 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
thirty-six onshore drilling rigs, thirteen jack-up offshore
drilling rigs, a jack-up barge, and a mobile offshore production
unit ("MOPU"), which includes a floating storage and offloading
unit. For more information, visit investors.adihgroup.com .
Shareholder Information
LSE: ADES INT.HDG
Bloomberg: ADES:LN
Listed: May 2017
Shares Outstanding: 43.8 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 Group.
Forward-looking statements reflect the current views of the
Group'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 Group'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
Group'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 Group'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 Group 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.
Chief Executive Officer's Report
ADES' results in 2019 reflect the successful transformation
strategy that has seen the Group grow from a local,
offshore-focused driller in Egypt, to a regional champion with a
significant asset base across both the on- and offshore segments.
Our growth was guided by the key strategic pillars of leveraging
our financial resources to pursue non-speculative and value
accretive acquisitions; commitment to organic growth through
increased tendering activity; focusing on operational excellence
and safety to build long-lasting client relationships; and most
importantly our prudent approach to debt and liquidity which leaves
the Group in a resilient position in the face of rising
challenges.
ADES stands today with an asset base of 51 rigs and a
substantial backlog of c.US$ 1.3 billion as of year-end 2019. Our
operations cover a diversified footprint across some of the
region's fastest growing and most resilient markets, while our lean
cost structure, cultural alignment and adherence to global best
practices, provide a solid platform for long-term organic
growth.
In 2019, ADES saw a significant 132% year-on-year increase in
revenue to US$ 477.8 million, with growth being driven primarily by
contributions from acquired assets along with a marked improvement
in utilisation rates to 97% versus 85% in 2018. More importantly,
our revenue base is now more diversified across our geographies,
including KSA (51%), Kuwait (22%), Egypt (18%) and Algeria (9%). On
a segment basis, onshore drilling today constitutes 53% of our
total revenue, up from 15% in 2018, providing for a good balance
between on- and off-shore activities. Meanwhile our profitability
remained strong, with EBITDA almost doubling to US$ 193.4 million,
and with our EBITDA margin standing at a solid 41% for the year.
The strong growth largely flowed through to our bottom-line where
normalised net profit expanded by 63% year-on-year.
In conjunction with our robust financial performance, we
sustained our significant backlog. During 2019, despite having
delivered more than one third of our existing backlog, as at
year-end 2018, we successfully replenished our pipeline to close
the year with an outstanding backlog of US$ 1.3 billion. This
excludes US$ 140 million in offshore renewals in KSA that were
renewed in January 2020. The continued growth is not only a
testament to our ability to secure and renew contracts but is also
a feature of an acquisition strategy focused on assets with clear
backlog visibility. ADES has a client roster of mostly top-tier
IOCs and NOCs , in markets characterized by high barriers to entry
and long-term investment horizons that provide for sustainable cash
flow generation and a long-dated backlog . During 2019, we secured
the Group's first two deepwater drilling contracts in the Egyptian
Mediterranean basin in partnership with Vantage Drilling
International. These contracts are fully consistent with our
asset-light model approach and see us penetrate a new segment of
the oil & gas drilling industry.
Throughout ADES's transformation, we remained focused on
developing an optimised capital structure that is more aligned with
our operational scale and that provides ample liquidity for our
growth requirements. In 2019, we completed our first international
bond offering of US$ 325 million of senior secured notes due in
2024, proceeds from which were utilised to partially refinance our
US$ 450 million syndicated loan secured in 2018. This restructur
ing of our commitments allowed us to secure access to ample
liquidity and diversified our funding across new sources of
international investors, top-tier regional banks and international
organizations. I am pleased to report that since our debut on debt
capital markets, ADES' bond has delivered an outperformance and
maintained a credit rating of B+ from S&P and Fitch. This is
testament to the Group's strong market position, robust
fundamentals and investors' recognition of the Group's
differentiated business model.
Integration of Acquisitions
On the operational front, our focus in 2019 was on driving
forward the integration of our new assets while maintaining
operational excellence. Our target was to promptly integrate the 31
new rigs from the Weatherford acquisition and the three new rigs
acquired from Nabors. We have made good progress and successfully
finalised the first phase of our Integration Programme, ensuring
the smooth transfer of assets and businesses with minimal
operational and contractual disruptions. As part of our integration
strategy, we also strengthened our internal management organisation
by retaining key people within our team and adding new, highly
experienced managers to oversee the various aspects of our
day-to-day operations.
Throughout the integration we also worked to identify synergies
within our expanded asset base as we look to drive cost savings
across our operations to support profitability and allow us to
continue offering competitive rates to our clients. We are already
witnessing results, where EBITDA margins for the majority of newly
acquired rigs have risen from the acquisition levels and are
currently in line with the group's averages. This is despite the
positive effects of the integration being partly offset by the
Egyptian pound's appreciation.
Health and Safety
Across our asset base, we remain ed committed to complying with
the highest occupational HSE standards. We concluded 2019 recording
a Recordable Injury Frequency Rate ("RIFR") of 0.41, well below the
2019 worldwide standard rate of 0.63 by the International
Association of Drilling Contractors ("IADC") and further improving
on our rate of 0.57 in 2018. This represents a notable
accomplishment considering the growth in number of operating rigs
post the recent acquisitions. We are extremely pleased with the
work of our HSE who identify, mitigate and control risks for the
safety of our staff. In the coming year we will continue to work
closely with a leading HSE consultant to review and develop the
Group's safety procedures as our operations grow in size and
continue to expand across different geographies.
COVID-19
Currently, our business has remained largely unaffected by the
COVID-19 pandemic, however, the situation is evolving by the day
and ADES is taking all the necessary precautions to minimize the
potential impact of, and efficiently react to any future
developments. For the time being our top priority is to ensure the
well-being and safety of our employees, partners and the
communities where we operate. We have put in place the necessary
contingencies and protocols to ensure business continuity. Key
efforts include the establishment of a Crisis Management Board
(CMB) to manage and oversee all efforts related to COVID-19 a t
ADES's headquarter and operating countries. The CMB has developed a
holistic plan covering situation monitoring, prevention measures
and response and recovery efforts, key highlights of which
include:
-- Extending crew shifts from 14 to 28 days across ADES' fleet
to minimize travel. Prior to shift change, incoming crews are first
quarantined in hotels under ADES' supervision for screening to
reduce risk of introducing infection.
-- Backup crews in each country and detailed step by step
disinfection protocol as part of recovery plans in the event of an
infection on our rigs.
-- Awareness campaigns for employees, frequent disinfecting and
cleaning, travel restrictions, personnel screening and testing,
increased sick-leave flexibility and deploying technology to
support remote working policies, where possible.
-- Monitor travel-ban updates and address the impact on business continuity.
-- Contingency stocks of food on all rigs in case of quarantine
for 14 days after discovery of any suspected case.
-- Maintaining supplies and material inventory to cover three months of operation.
-- Communication protocol established internally and with our customers and suppliers.
-- Monitoring of all operations in line with updates and
guidance from the World Health Organisation, International SOS and
local governments and authorities in countries where the Group
operates.
-- Systematically monitoring triggers, assessing risk and impact
and defining response actions at various levels from rig to country
and HQ level.
Outlook
Our focus in 2020 will be on business continuity and
sustainability. And while the early months of the year have
witnessed severe pressure on oil prices and risks posed by the
spreading COVID-19 pandemic, ADES has started the year as expected
and is well-positioned to weather the challenges the industry
faces.
Our Group has a strong backlog and contract visibility with an
average maturity of four years, and fixed daily rates that were
acquired and calibrated in a low oil-price environment. Our
position is also bolstered by a lean cost structure that allows us
to offer competitive rates in a region with the lowest extraction
cost and breakeven points. Most importantly, our strong balance
sheet, cash flow generating ability and liquidity provide material
headroom and financial flexibility to reinforce our resilient
position. The Group expects lower levels of capital expenditure in
2020, after successfully completing the acquisitions and related
capital expenditure over the course of 2018 and 2019.
Operationally, we have gained a stronger understanding of the
synergies existing across our expanded asset base and in the months
ahead we will be looking to drive further efficiencies across our
operations. A key focus area will be increased digitisation of our
process es which will unlock substantial efficiency
enhancements.
Our Group today stands on solid foundations that we have
carefully laid out since our IPO and that we continue to strengthen
. Our expanded asset base, diversified backlog, lean cost
structure, strong financial position and our culture of
prioritising health and safety leave me confident that we have the
necessary tools to ensure the well-being of our stakeholders and to
generate long-term value.
Finally, I am grateful for continued commitment and hard work of
ADES' employees and management who are the driving force behind our
success and with whom we will continue to grow as a stronger and
more resilient organization.
Dr. Mohamed Farouk,
Chief Executive Officer
Operational & Financial Review
Revenue
Revenue increased 132% year-on-year based on acquisitive and
organic growth. Organic growth was 10% year-on-year with
utilisation rates rising to 97% from 85% in 2018. The inorganic
growth was driven by the acquisition of Weatherford's assets in
Kuwait, KSA and Algeria as well as the 2018 acquisition of three
rigs from Nabors.
Over the past twelve months, ADES continued renewing and
extending existing contracts, while securing new awards across
several of its countries of operation. Following the completion of
the Weatherford acquisition, ADES successfully secured contract
renewals for six of the newly acquired onshore rigs in Saudi
Arabia. The Group also secured two new seven-year onshore drilling
contracts in the Kingdom for which it ordered two new-build onshore
rigs that meet the contract specifications (ADES 13 and 14). In
Algeria, ADES secured new contracts for ADES 2 and ADES 3, which
started in the second and third quarter of 2019, respectively. The
Group also renewed its contract for RIG 828 in Algeria, which was
extended for an additional year. Finally, in Egypt, ADES extended
contracts for multiple offshore rigs.
Revenue by Country
(US$ '000) 2019 2018 % change
------------- -------- -------- ---------
KSA 243,902 96,095 153.8%
------------- -------- -------- ---------
Egypt 87,125 87,227 -0.1%
------------- -------- -------- ---------
Algeria 40,415 11,594 248.6%
------------- -------- -------- ---------
Kuwait 106,316 10,647 898.5%
------------- -------- -------- ---------
Total 477,758 205,563 132.4 %
------------- -------- -------- ---------
Revenue Contribution by Country
2019 2018 % change
--------------------------------- ----- ----- ---------
KSA 51% 47% 4 pts
--------------------------------- ----- ----- ---------
Egypt 18% 42% -24 pts
--------------------------------- ----- ----- ---------
Algeria 9% 6% 3 pts
--------------------------------- ----- ----- ---------
Kuwait 22% 5% 17 pts
--------------------------------- ----- ----- ---------
Backlog by Country
2019 2018 % change
-------------------- ----- ----- ---------
KSA 45% 50% -5 pts
-------------------- ----- ----- ---------
Egypt 9% 10% -1 pts
-------------------- ----- ----- ---------
Algeria 3% 2% 1 pts
-------------------- ----- ----- ---------
Kuwait 43% 38% 5 pts
-------------------- ----- ----- ---------
In KSA, revenues increased 154% year-on-year to US$ 244 million
for 2019. The contribution to the Group's revenue subsequently
increased 4 percentage points to 51% in 2019. The revenue expansion
was due to the significant growth in the Group's asset base in the
Kingdom. More specifically, the three rigs acquired from Nabors in
June 2018 made full-year contributions in 2019. Additionally, of
the 11 onshore rigs acquired from Weatherford in December 2018,
nine were contracted and therefore contributed to revenue during
the entirety of 2019. ADES has also renewed contracts for six rigs
in KSA during the first quarter of 2019.
Revenue generated by the Group's Egyptian operations stood at
US$ 87 million in 2019, largely unchanged from the previous year
given stable utilization rates in the country. As the revenue
generated from the Nabors and Weatherford acquisitions in KSA,
Kuwait and Algeria continue to rise, Egypt's contribution to total
revenues fell to 18% in 2019, from 42% in 2018. This is in line
with the Group's strategy of diversifying its revenue base across
the MENA region.
Algeria revenue of US$ 40 million in 2019, was up 249% versus
US$ 11.6 million recorded in 2018. Revenue growth was supported by
the two new contracts secured for ADES II and ADES III, and the
completion of the acquisition of the Weatherford rigs and the
associated operations. Algeria's total contribution to revenues
stood at 9% in 2019 versus 6% in the previous year. ADES now has a
total of eight rigs in Algeria.
ADES entered into the Kuwaiti market after finalising the Kuwait
segment of the Weatherford transaction in November 2018, with 12
onshore rigs added to the Group's fleet. With eight from the 12
rigs operational during 2019, Kuwait contributed US$ 106 million in
revenue during 2019 versus US$ 10.6 million in the previous year,
an 899% increase year-on-year. Kuwait's contribution to total
revenue stood at 22% for the year, up 5 percentage points from
2018.
Assets by Country & Type as at 31 December 2019
Onshore Rig Offshore Rig Jack-up Barge MOPU
-------------- ------------ ------------- -------------- ----------------------------
KSA 15 6 - -
-------------- ------------ ------------- -------------- ----------------------------
Egypt 1 7 1 1
-------------- ------------ ------------- -------------- ----------------------------
Algeria 8 - - -
-------------- ------------ ------------- -------------- ----------------------------
Kuwait 12 - -
-------------- ------------ ------------- -------------- ----------------------------
Other - - - -
-------------- ------------ ------------- -------------- ----------------------------
Total Assets 36 13 1 1
-------------- ------------ ------------- -------------- ----------------------------
Revenue by Segment
(US$ '000) 2019 2018 % change
------------------------------ -------- -------- ---------
Offshore Drilling & Workover 171,658 140,010 23%
------------------------------ -------- -------- ---------
Onshore Drilling & Workover 252,493 30,998 715%
------------------------------ -------- -------- ---------
MOPU & Jack up barge 34,244 32,383 5.7%
------------------------------ -------- -------- ---------
Others 19,363 2,172 791%
------------------------------ -------- -------- ---------
Total 477,758 205,563 132%
------------------------------ -------- -------- ---------
Offshore Drilling & Workover (36% of revenues in 2019)
We currently conduct our offshore drilling and workover services
in Egypt and KSA, focusing on shallow/ultra-shallow water and
non-harsh environments.
Offshore Drilling & Workover recorded revenue of US$ 172
million in 2019, up 23% year-on-year and contributing 36% to
revenue compared to 68% in 2018. Revenue growth was driven by the
increase in the number of operational offshore rigs following the
acquisition of the three Nabors rigs in June 2018, which
contributed to full-year revenue in 2019.
Onshore Drilling & Workover (53% of revenues in 2019)
During 2019, ADES operated a total of 25 onshore rigs, of which
21 were part of the Weatherford acquisition and two which were
newly built rigs for KSA. Subsequently, revenue generated from
Onshore Drilling & Workover operations stood at US$ 253 million
in 2019 compared to US$ 31 million generated in 2018. This
represents a 715% year-on-year increase with the contribution to
revenue rising to 53% for the year versus 15% in 2018 .
MOPU & Jack Up Barge (7% of revenues in 2019)
ADES' MOPU services were first introduced in February 2016 with
Admarine I, a converted and modified jack-up rig equipped with
production and process facilities and a Floating Storage and
Offloading (FSO) unit. Admarine I, located in Egypt, is currently
under contract with Petrozenima to process, store and offload crude
oil.
MOPU services generated revenues of US$ 256 million in 2019 flat
on 2018. The contribution to revenue decreased from 13% in 2018 to
5% in 2019, reflecting the higher contribution made by the Group's
Offshore and Onshore Drilling & Workover segments.
The Group's jack-up barge generated US$ 8 million in revenues
for 2019 compared to US$ 6.7 million in 2018.
Others (4% of revenues in 2019)
Other revenue, which mainly includes catering revenue,
mobilization revenue, the rental of essential operating equipment
that the client has not supplied, and site preparation revenue
stood at US$ 19 million in 2019 versus US$ 2 million in 2018.
Catering and site preparation revenues related to the Group's
recent acquisitions contributed c.70% of the year-on-year growth of
other revenues.
Operating Profit
Operating profit in 2019 stood at US$ 124.4 million in 2019, up
75% year-on-year from US$ 71 million in 2018.
The Group's EBITDA recorded a 91% year-on-year increase to US$
193 million in 2019 from US$ 101.1 million in 2018, while EBITDA
margin stood at 41% in 2019 versus 49% in the previous year. The
EBITDA margin contraction was due to a growing contribution from
the increased onshore drilling and workover activities in KSA,
Algeria and Kuwait and the appreciation of the Egyptian pound
experienced during 2019.
Net Finance Charges
Reported ADES' finance charges reached US$ 88.7 million in 2019,
a 184% increase from the US$ 31.2 million recorded in 2018. Higher
finance charges during 2019 were related to the below one-off
finance charges and the new banking facilities secured by the Group
and the successful issuance of the Group's five-year bond which
provided additional liquidity, headroom and financial flexibility.
Additionally, to support business growth post acquisition, ADES
replaced the Letters of Guarantee associated with the Weatherford
rigs.
The normalised finance charge was US $61.1 million. This
excludes one off finance charges related to loan fees and written
off prepaid transaction costs amounting to US$ 27.6 million.
Meanwhile, the Group had finance income of US$ 0.5million in
2019 leading to a net finance charge of US$ 88.2 million.
Statutory and Normalised Net Profit
Normalised net profit, before non-controlling interest, was US$
72.7 million in 2019. This represents an increase of 63%
year-on-year from a normalised net profit of US$ 44.7 million in
2018. The normalised net profit margin stood at 15.2% in 2019 which
reflects the new business distribution following the acquisitions,
higher finance & depreciation charges during the year.
ADES' reported net profit after minority interest was US$ 28.6
million in 2019, a decrease of 61% year-on-year from the US$ 72.9
million in 2018. The decrease was driven by significant
non-recurring charges, including:
-- one off finance charges related to loan fees and written off
prepaid transaction costs amounting to US$ 27.6 million;
-- accounting adjustments stemming from IFRS 3 (Business
Combinations) and a bargain purchase gain of US$ 11.9 million;
-- non-cash, equity-settled share-based payment compensation
from the Parent Company of US$ 11.3 million;
-- non-cash fair-value adjustment gain under financial instruments of US$ 0.8 million;
-- non-recurring transaction costs of US$ 6.4 million;
-- non-recurring integration program costs US$ 8.5 million.
Balance Sheet
Assets
Total assets stood at US$ 1.43 billion as of 31 December 2019,
representing a US$ 32% million increase from the US$ 1.08 billion
at year-end 2018. Net fixed assets closed at US$ 987 million as of
31 December 2019, an increase of US$ 266 million from the previous
year's close of US$ 721 million. This increase was largely driven
by the consolidation of newly acquired assets under the Weatherford
transaction in Algeria and Iraq, in addition to the capital
expenditure related to four rigs in Kuwait and the two newly built
rigs for KSA.
Net accounts receivable stood at US$ 130.7 million as of 31
December 2019, up from US$ 100.8 million as at 31 December 2018.
The increase was mainly due to the significant growth in revenues
in 2019. However, it must be noted that, as a whole, the Group
witnessed a noticeable improvement in average collection rates
compared to 2018, as result of a better geographical
diversification of the business. Egypt's average collection days
experienced modest improvements but remained relatively high
primarily due to one client that is yet to reach production
capacity on its drilling programme.
Liabilities
ADES' total liabilities stood at US$ 978.8 million as of 31
December 2019, up from US$ 663.2 million as at year-end 2018. The
Group's total interest-bearing loans and borrowings grew by US$
163.9 million from the US$ 555.3 million as of 31 December 2018 to
the US$ 719.2 million at the end of 2019. This included the
issuance of the Group's first five-year bond for a total value of
US$ 325 million, which was used to refinance the US$ 450 million
syndicated facility secured in March 2018 as ADES worked to
optimise its capital structure.
During the year, ADES also secured a US$ 144 million top-up to
its Alinma facility to fund operational growth, of which US$ 80
million were utilised during 2019. In addition, the Group secured a
US$ 80 million long term loan facility from National Commercial
Bank, which was drawdown and available in cash balance as of 31
December 2019.
Net debt increased to US$ 606.2 million (on a pre-IFRS16 basis)
as of 31 December 2019, compared to US$ 424.4 million as of 31
December 2018, reflecting the increase in interest-bearing loans
and borrowings to finance a period of investment, including the
purchase of two new-build land rigs in KSA, capital expenditures
related to upgrade works on several of ADES' rigs and the
completion of the Weatherford acquisition in Algeria and Southern
Iraq.
Total re-payment of US$ 60 million during 2020, when the grace
period for Saudi-based loans expires.
Cash Flow
Cash Flow by Activity
(US$ '000) 2019 2018 % change
-------------------------------------------- ----------- ---------- ---------
Cash Flow from Operating Activities 171,971 51,199 236%
-------------------------------------------- ----------- ---------- ---------
Net Cash Flow Used in Investing Activities ( 256,228) (379,396) -32%
-------------------------------------------- ----------- ---------- ---------
Net Cash Flows from Financing Activities 72,983 311,307 -77%
-------------------------------------------- ----------- ---------- ---------
Cash Flow from Operating Activities
In 2019 cash flow from operating activities was US$ 171.9
million, compared to US$ 51.2 million as at 31 December 2018,
representing a strong 236% increase year-on-year, on the back of
the significant increase in operating rigs in 2019. Additionally,
the Group more efficiently managed working capital primarily due to
the expanded presence in Kuwait and KSA who have faster payment
terms.
Net Cash Flow Used in Investing Activities
Net cash flow used in investing activities stood at US$ 256
million in 2019, 32% lower year-on-year. The reduction follows the
significant growth capital expenditure deployed in 2018 related to
the successful completion of the Weatherford transaction in KSA and
Kuwait, amounting to US$ 215.5 million, as well as the US$ 83
million related to the acquisition of the three Nabors rigs. In
2019, capital expenditure stood at US$ 256 million attributed to
the acquisition of the Algerian and South Iraqi land rigs from
Weatherford; investment to purchase two new-build land rigs for
KSA; and spend to upgrade ADES's rigs of. The Group expects lower
levels of capital expenditure in 2020, after successfully
completing the acquisitions and related capital expenditure over
the course of 2018 and 2019.
Net Cash Flow from Financing Activities
Net cash flows from financing activities stood at US$ 73 million
in 2019, down 77% compared to US$ 311 million in the year ended 31
December 2018. The cash from financing activities during 2019
represents utilisation of overdraft facilities of US$ 22.5 million;
utilisation of US$ 325 million bond proceeds to refinance US$ 337.9
million of the Group's syndicated facility secured in March 2018;
and utilisation of US$ 80 million from the Alinma facility to fund
operational growth. Additionally, ADES drew down the US$ 80 million
NCB facility which is available in cash balances as at 31 December
2019. This was partial offset by the principal re-payment of the
syndication facility of US$ 7.5 million.
Interest and finance lease liabilities paid during the period
amounted to US$ 63.2 million. Furthermore, the group bought US$ 3.5
million worth of treasury stock as part of the announced share
buyback program.
The Group has a total loan repayment of approximately US$ 60
million in 2020 and targets a net leverage ratio at 2.5x to 3x.
Principal Risks and Uncertainties
As in any company, 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 Group include political and economic situation in Egypt,
Algeria, Kuwait and KSA and the rest of the Middle East and North
Africa region, foreign currency supply and associated risks,
changes in regulation and regulatory actions, environmental and
occupational hazards, failure to maintain the Group'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.
Additionally, following the current reporting period the spread
of the global Covid-19 pandemic has led to wide economic
disruptions, while recent global developments in oil supply
starting March 2020 has caused further uncertainty in commodity
markets. This may adversely impact future financial results,
earnings and cash flow for all businesses including ADES. The Group
is also exposed to specific risks posed by the Covid-19 pandemic,
including, but not limited to, risk of infection among its
employees, operational disruption in the case of infection on the
Group's rigs, supply-chain related risks and the ability to acquire
necessary materials and failure to mobilise crew due to travel
restrictions and lockdowns.
Going Concern
The Directors are satisfied that the Group 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 Group's
Financial Statements for the full year ended 31 December 2019 are
available on the Group'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
EBITDA - Operating profit for the year before depreciation and
amortisation, employee benefit provision and other provisions and
impairment of assets under construction.
Normalised Net profit - Reported net profit excluding a one-off
bargain purchase gain on acquisitions, transactions expenses and
prepaid transaction costs written off due to refinancing and
arrangement fees related to loans utilised to finance the business
acquisitions.
Backlog - means the total amount payable to the Group 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.
GCC - Gulf Cooperation Council.
MENA - The Middle East and North Africa.
MOPU - Mobile Operating Production Unit.
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.
KSA -The Kingdom of Saudi Arabia.
Utilisation Rate -refers to our measure of the extent to which
our assets under contract and available in the operational area are
generating revenue under client contracts. We calculate our
utilisation rate for each rig by dividing Utilisation Days by
Potential Utilisation days under a contract. Utilisation rates are
principally dependent on our ability to maintain the relevant
equipment in working order and our ability to obtain replacement
and other spare parts. Because our measure of utilisation does not
include rigs that are stacked or being refurbished or mobilised,
our reported utilisation rate does not reflect the overall
utilisation of our fleet, only of our operational, contracted
rigs.
Gross Debt - Total interest-bearing loans and borrowings.
Net Debt - Total gross debt minus cash and cash equivalents.
ADES International Holding PLC (formerly "ADES International
Holding Ltd")
and its Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
31 December 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
USD Notes 2019 2018 Restated*
------------------------------------------------ ------ ---------------------------- --------------------------
Revenue from contract with customers 7 477,757,547 205,563,390
Cost of revenue 8 (285,728,112) (107,593,582)
---------------------------- --------------------------
GROSS PROFIT 192,029,435 97,969,808
General and administrative expenses 9 (52,463,669) (23,971,369)
End of service provision 22 (4,899,967) (1,309,036)
Release / (provision) for impairment of
trade receivables 15 2,776,252 (1,250,607)
Provision for impairment of inventory 14 (253,329) -
Share-based payments expense 24 (11,341,219) -
Other provisions 22 (1,443,181) (280,017)
---------------------------- --------------------------
OPERATING PROFIT 124,404,322 71,158,779
Finance costs 10 (88,702,079) (31,233,612)
Finance income 13 512,013 2,738,844
Bargain purchase gain 6 11,877,674 46,252,908
Business acquisition transaction costs (6,432,718) (5,617,088)
Other income 1,786,501 912,550
Other taxes (438,716) (295,960)
Other expenses (2,907,204) (2,515,532)
Fair value gain (loss) on derivative financial
instrument held for trade 31 771,134 (4,340,180)
PROFIT FOR THE YEAR BEFORE INCOME TAX 40,870,927 77,060,709
Income tax expense 11 (9,337,365) (3,788,784)
---------------------------- --------------------------
PROFIT FOR THE YEAR 31,533,562 73,271,925
Attributable to:
Equity holders of the Parent 28,630,013 72,892,277
Non-controlling interests 2,903,549 379,648
---------------------------- --------------------------
31,533,562 73,271,925
============================ ==========================
Earnings per share - basic and diluted
attributable to equity holders of the
Parent (USD per share) 26 0.65 1.69
============================ ==========================
OTHER COMPREHENSIVE INCOME
Other comprehensive income that may be
reclassified to
profit or loss in subsequent periods (net
of any tax)
Net loss on cash flow hedge 31 (6,147,575) -
---------------------------- --------------------------
OTHER COMPREHENSIVE INCOME FOR THE YEAR, (6,147,575) -
NEXT OF TAX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR,
NET OF TAX 25,385,987 73,271,925
============================ ==========================
Attributable to:
Equity holders of the Parent 22,482,438 72,892,277
---------------------------- --------------------------
Non-controlling interests 2,903,549 379,648
---------------------------- --------------------------
25,385,987 73,271,925
============================ ==========================
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2019
USD Notes 2019 2018 Restated*
--------------------------------------- ------ ------------------------- -------------------------
ASSETS
Non-current assets
Property and equipment 17 987,216,314 727,339,267
Right of use assets 2.2 23,422,290 -
Intangible assets 18 347,304 456,189
Investment in an associate and a
joint venture 12 4,140,576 2,184,382
Trade receivables 15 38,947,290 -
Other non-current assets 2,858,310 1,202,586
------------------------- -------------------------
Total non-current assets 1,056,932,084 731,182,424
------------------------- -------------------------
Current assets
Inventories 14 44,820,164 32,672,320
Trade receivables 15 91,780,792 100,757,512
Contract assets 15 41,541,310 36,369,649
Due from related parties 27 4,740,918 377,345
Prepayments and other receivables 16 72,150,555 52,383,093
Bank balances and cash 13 119,601,159 130,875,239
------------------------- -------------------------
Total current assets 374,634,898 353,435,158
------------------------- -------------------------
Total assets 1,431,566,982 1,084,617,582
========================= =========================
EQUITY AND LIABILITIES
Equity
Share capital 23 43,793,882 43,793,882
Share premium 23 178,746,337 178,746,337
Merger reserve 1, 25 (6,520,807) (6,520,807)
Legal reserve 25 6,400,000 6,400,000
Share-based payments reserve 24 11,341,219 -
Treasury shares 23 (3,501,200) -
Cash flow hedge reserve 25 (6,147,575) -
Retained earnings 219,225,419 190,595,406
------------------------- -------------------------
Equity attributable to equity holders
of the Parent 443,337,275 413,014,818
Non-controlling interests 9,387,205 8,413,319
------------------------- -------------------------
Total equity 452,724,480 421,428,137
------------------------- -------------------------
Liabilities
Non-current liabilities
Loans and borrowings 20 322,354,493 510,010,564
Bonds payable 21 313,158,968 -
Lease liabilities 2.2 13,316,152 5,391,573
Provisions 22 16,375,652 12,959,590
Derivative financial instrument 31 6,584,893 3,123,799
Deferred mobilization revenue 11,751,262 -
Other non-current payables 10,988,839 -
------------------------- -------------------------
Total non-current liabilities 694,530,259 531,485,526
------------------------- -------------------------
Current liabilities
Trade and other payables 19 196,329,456 83,298,424
Loans and borrowings 20 83,692,835 45,258,354
Provisions 22 1,100,000 1,874,654
Due to related parties 27 58,224 56,106
Derivative financial instrument 31 3,131,728 1,216,381
------------------------- -------------------------
Total current liabilities 284,312,243 131,703,919
------------------------- -------------------------
Total liabilities 978,842,502 663,189,445
------------------------- -------------------------
TOTAL EQUITY AND LIABILITIES 1,431,566,982 1,084,617,582
========================= =========================
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Share
based Cash flow
Share Share Merger Legal payment hedge Treasury Retained Non-controlling Total
USD capital premium reserve reserve reserve reserve shares earnings Total interests Equity
--------------- ----------- ------------ ------------- ---------- ----------- ------------- ------------- ------------ ------------- ---------------- -------------
Balance at
1 January
2019 43,793,882 178,746,337 (6,520,807) 6,400,000 - - - 190,595,406 413,014,818 8,413,319 421,428,137
Dividends
(Note 32) - - - - - - - - - (1,934,284) (1,934,284)
Profit for
the year - - - - - - - 28,630,013 28,630,013 2,903,549 31,533,562
Other
comprehensive
income for
the year - - - - - (6,147,575) - - (6,147,575) - (6,147,575)
----------- ------------ ------------- ---------- ----------- ------------- ------------- ------------ ------------- ---------------- -------------
Total
comprehensive
income for
the year - - - - - (6,147,575) - 28,630,013 22,482,438 2,903,549 25,385,987
Treasury
Shares
(Note 23) - - - - - - (3,501,200) - (3,501,200) - (3,501,200)
Investment
in a
subsidiary - - - - - - - - - 4,621 4,621
Share-based
payments
(Note
24) - - - - 11,341,219 - - - 11,341,219 - 11,341,219
----------- ------------ ------------- ---------- ----------- ------------- ------------- ------------ ------------- ---------------- -------------
Balance at
31 December
2019 43,793,882 178,746,337 (6,520,807) 6,400,000 11,341,219 (6,147,575) (3,501,200) 219,225,419 443,337,275 9,387,205 452,724,480
=========== ============ ============= ========== =========== ============= ============= ============ ============= ================ =============
Balance at
1 January
2018 42,203,030 158,224,346 (6,520,807) 6,400,000 - - - 117,703,129 318,009,698 - 318,009,698
Profit for
the year,
restated* - - - - - - - 72,892,277 72,892,277 379,648 73,271,925
Other - - - - - - - - - -
comprehensive -
income for
the year
----------- ------------ ------------- ---------- ----------- ------------- ------------- ------------ ------------- ---------------- -------------
Total
comprehensive
income for
the year - - - - - - - 72,892,277 72,892,277 379,648 73,271,925
Share capital
issued (Note
6, 23) 1,590,852 - - - - - - - 1,590,852 - 1,590,852
Share premium
(Note 6, 23) - 20,521,991 - - - - - - 20,521,991 - 20,521,991
Acquisition
of a
subsidiary,
restated*
(Note 6) - - - - - - - - - 8,033,671 8,033,671
----------- ------------ ------------- ---------- ----------- ------------- ------------- ------------ ------------- ---------------- -------------
Balance at
31 December
2018,
restated* 43,793,882 178,746,337 (6,520,807) 6,400,000 - - - 190,595,406 413,014,818 8,413,319 421,428,137
=========== ============ ============= ========== =========== ============= ============= ============ ============= ================ =============
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
USD Notes 2019 2018 Restated*
------------------------------------------ ------ ------------------------ ------------------------
OPERATING ACTIVITIES
Profit for the year before income
tax 40,870,927 77,060,709
Adjustments for:
Depreciation of property and equipment 17 45,555,024 28,200,128
Amortisation of intangible assets 18 121,861 122,547
Amortisation of right of use assets 2.2 5,348,361 -
(Release) / provision for impairment
of trade receivables and contract
assets 15 (2,776,252) 1,250,607
Provision for impairment of inventory 14 253,329 -
End of services provision 22 4,899,967 1,309,036
Share-based payments expense 24 11,341,219 -
Other provisions 22 1,443,181 280,017
Interest on loans and borrowings 10 88,702,079 31,233,612
Finance income 13 (512,013) (2,738,844)
Other income (527,344) (678,168)
Bargain purchase gain 6 (11,877,674) (46,252,908)
Share of results of investment in
a joint venture and associate 12 (774,898) (234,382)
Fair value loss on derivative financial
instrument 31 (771,134) 4,340,180
------------------------ ------------------------
Cash from operations before working
capital changes 181,296,633 93,892,534
Inventories (4,692,539) 1,436,399
Trade receivables (33,371,207) (24,482,911)
Contract assets (5,171,661) (36,369,649)
Due from related parties (4,363,573) (71,729)
Prepayments and other receivables (24,493,097) 13,605,597
Trade and other payables 69,304,116 8,781,106
Due to related parties 2,118 (2,211,238)
------------------------ ------------------------
Cash flows from operations 178,510,790 54,580,109
Income tax paid 11 (2,837,570) (3,036,313)
Provisions paid 22 (3,701,740) (344,160)
------------------------ ------------------------
Net cash flows from operating activities 171,971,480 51,199,636
------------------------ ------------------------
INVESTING ACTIVITIES
Purchase of intangible assets 18 - (12,788)
Purchase of property and equipment** (179,326,324) (93,682,762)
Acquisitions of subsidiaries and
new rigs (76,237,278) (277,639,472)
Interest received 512,013 2,738,844
Movement in escrow account 13 - (10,800,000)
Investment in joint venture (1,181,295) -
Proceeds from non-controlling interest 4,621 -
share of capital at establishment
date
------------------------ ------------------------
Net cash flows used in investing
activities (256,228,263) (379,396,178)
------------------------ ------------------------
FINANCING ACTIVITIES
Proceeds from loans and borrowings* 179,493,220 602,871,261
Repayment of loans and borrowings (351,018,420) (238,038,447)
Proceeds from bond issuance 325,000,000 -
Payments of loan/bonds transaction
costs* (11,841,033) (33,566,505)
Purchase of Treasury shares 23 (3,501,200) -
Interest paid (56,269,830) (19,958,945)
Payment of lease liabilities 2.2 (6,945,750) -
Dividend Payments 23 (1,934,284) -
------------------------ ------------------------
Net cash flows from financing activities 72,982,703 311,307,364
------------------------ ------------------------
Net (decrease)/ increase in cash
and cash equivalents (11,274,080) (16,889,178)
Cash and cash equivalents at the
beginning of the year 13 130,875,239 136,964,417
------------------------ ------------------------
CASH AND CASH EQUIVALENTS AT THE OF THE YEAR 13 119,601,159 120,075,239
======================== ========================
* For the year ended 31 December 2018, net of "proceeds from
loans and borrowings" and "payments of loan transaction costs"
represent "borrowings drawn during the year" amounting to USD
569,304,756 as disclosed in Note 20.
** Purchase of property and equipment excludes non-cash
transactions amounting to USD 59,557,548.
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
1 BACKGROUND
1.1 Corporate information
ADES International Holding PLC (the "Company" or the "Parent
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 shares are listed on the Main Market of
the London Stock Exchange. The Company's name has changed from ADES
International Holding Ltd to ADES International Holding PLC during
2019. 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
subsidiaries (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,. which is the majority shareholder and ultimate
controlling party.
The consolidated financial statements were authorised for issue
on 1 April 2020 by the Board of Directors.
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, Kuwait 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).
The consolidated financial statements of the Group include
activities of the following main subsidiaries:
Country % equity interest
of incorporation
--------------------------------- ------------------- -----------------------
Name Principal activities 2019 2018
--------------------------------- ---------------------------- ------------------- ------ ---------------
Advanced Energy Systems Oil and gas drilling and
(ADES) (S.A.E)** production services Egypt 100% 100%
Precision Drilling Company*** Holding company Cyprus 100% -
Kuwait Advanced Drilling Leasing of rigs Cayman 100% -
Services
Prime innovations for Trade Trading Egypt 100% -
S.A.E
ADES International for Drilling Leasing of rigs Cayman 100% -
ADES-GESCO Training Academy Training Egypt 70% -
Advanced Transport Services Leasing of transportation Cayman 100% -
equipment
Advanced Drilling Services Trading Cayman 100% -
---------------------------------- --------------------------- ------------------- ------ -------------
** Advanced Energy Systems (ADES) (S.A.E) has branches in the
Kingdom of Saudi Arabia and Algeria.
*** Precision Drilling Company holds a 47.5% interest in United
Precision Drilling Company W.L.L, a Kuwait entity which handles the
operations of the rigs in Kuwait.
The Company holds investment in Egyptian Chinese Drilling
Company (ECDC) (joint venture) and ADVantage for Drilling Services
Company (associate) which are accounted for using the equity method
of accounting in these consolidated financial statements.
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 2018. No such reorganisations took place in
2019 and 2018.
(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, except for derivative financial
instrument carried at fair value which includes interest rate swap
contracts classified as held-for-trading and those designated as
hedging instrument. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services.
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB)
and applicable requirements of the Companies Law pursuant to DIFC
Law No. 5 of 2019.
The consolidated financial statements are presented in United
States Dollars ("USD"), which is the functional currency of the
Parent Company and the presentation currency for the Group.
Basis of consolidation
The Group's consolidated financial statements comprise the
financial statements of the Parent Company and its subsidiaries as
at 31 December 2019. 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 Company
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 a
member in the Group to bring its accounting policies in 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 combinations and acquisition of non-controlling
interests
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred and included in the 'administrative expenses'
line-item.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Contingent consideration, resulting from business combinations,
is measured at fair value at the acquisition date. Contingent
consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity. Contingent
consideration classified as an asset or liability that is a
financial instrument and within the scope of IFRS 9 Financial
Instruments , is measured at fair value with the changes in fair
value recognised in profit or loss in accordance with IFRS 9. Other
contingent consideration that is not within the scope of IFRS 9 is
measured at fair value at each reporting date with changes in fair
value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed). If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss as a 'bargain
purchase gain'.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill has been allocated to a cash-generating unit
(CGU) and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included in
the carrying amount of the operation when determining the gain or
loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
A contingent liability recognised in a business combination is
initially measured at its fair value. Subsequently, it is measured
at the higher of the amount that would be recognised in accordance
with the requirements for provisions in IAS 37 Provisions,
Contingent Liabilities and Contingent Assets or the amount
initially recognised less (when appropriate) cumulative
amortisation recognised in accordance with the requirements for
revenue recognition.
Business combination involving entities under common control
Transactions involving entities under common control where the
transaction does not have any substance, the Group adopts the
pooling of interest method. Under the pooling of interest method,
the carrying value of assets and liabilities are used to account
for these transactions. No goodwill is recognised as a result of
the combination. The only goodwill recognised is any existing
goodwill relating to either of the combining entities. Any
difference between the consideration paid and the carrying value of
net assets acquired is reflected as "Reserve" within equity.
A number of factors are considered in evaluating whether the
transaction has substance, including the following:
-- the purpose of transaction;
-- the involvement of outside parties in the transaction, such
as non-controlling interests or other third parties;
-- whether or not the transactions are conducted at fair values;
-- the existing activities of the entities involved in the transaction; and
-- whether or not it is bringing entities together into a
"reporting entity" that did not exist before.
Periods prior to business combination involving entities under
common control are not restated.
Interest in joint ventures and associates
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
the unanimous consent of the parties sharing control.
The considerations made in determining joint control are similar
to those necessary to determine control over subsidiaries.
The Group's investments in the joint venture and associate are
both accounted for using the equity method. Under the equity
method, the investment is initially recognised at cost. The
carrying amount of the investment is adjusted to recognise changes
in the Group's share of net assets of the investee since the
acquisition date. Goodwill relating to the joint venture or
associate is included in the carrying amount of the investment and
is not tested for impairment separately.
The consolidated profit or loss reflects the Group's share of
the results of operations of the joint venture and associate. Any
change in the other comprehensive income (OCI) of those investees
is presented as part of the Group's OCI. In addition, when there
has been a change recognised directly in the equity of the joint
venture or associate, the Group recognises its share of any
changes, when applicable, directly in the statement of changes in
equity. Unrealised gains and losses resulting from transactions
between the Group and the joint venture or associate are eliminated
to the extent of the interest in the joint venture or associate
unrelated to the Group.
The aggregate of the Group's share of profit or loss of a joint
venture and associate is included in profit or loss on the face of
the consolidated statement of comprehensive income outside
operating profit and represents profit or loss after tax and
non-controlling interests in the subsidiaries of the joint venture
or associate.
The financial statements of the joint venture and associate are
prepared for the same reporting period as the Group. When
necessary, adjustments are made to bring their accounting policies
in line with those of the Group.
After application of the equity method, the Group determines
whether it is necessary to recognise an impairment loss on its
investment in joint venture or associate. At each reporting date,
the Group determines whether there is objective evidence that the
investment in the joint venture or associate is impaired. If there
is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the joint venture
or associate and its carrying value, and then recognises the loss
as 'Share of profit of an associate and a joint venture' in the
consolidated statement of profit or loss.
Upon loss of joint control over a joint venture or significant
influence over an associate, the Group measures and recognises any
retained investment at its fair value. Any difference between the
carrying amount of the joint venture or associate upon loss of
joint control or significant influence, and the fair value of the
retained investment and proceeds from disposal is recognised in
profit or loss.
2.2 CHANGES IN THE ACCOUNTING POLICIES AND DISCLOSURES
(a) New and amended standards and interpretations became
effective during the year
The Group applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2019. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
The Group applies, for the first time, IFRS 16 Leases that
requires restatement of previous financial statements. As required
by IAS 34, the nature and effect of these changes are disclosed
below.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases , IFRIC 4 Determining whether
an Arrangement contains a Lease , SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease . The standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for most leases under a single on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged from
IAS 17. Lessors will continue to classify leases as either
operating or finance leases using similar principles as in IAS 17.
Therefore, IFRS 16 did not have an impact for leases where the
Group is the lessor.
As a lessee, the Group adopted IFRS 16 using the modified
retrospective approach. Application of this approach resulted in no
difference being recognised in retained earnings on the date of
initial application of the standard as the amount at which the
right of use assets is initially recognised was the same as that of
the lease liability.
The Group elected to use the transition practical expedient
allowing the standard to be applied only to contracts that were
previously identified as leases applying IAS 17 and IFRIC 4 at the
date of initial application. The Group also elected to use the
recognition exemptions for lease contracts that, at the
commencement date, have a lease term of 12 months or less and do
not contain a purchase option ('short-term leases'), and lease
contracts for which the underlying asset is of low value
('low-value assets'). The effect of adoption of IFRS 16 is as
follows:
Impact on the statement of financial position
(increase/(decrease)) as at 1 January 2019:
USD
Assets
Right-of-use assets 18,604,345
-----------
Liabilities
Finance lease liabilities 18,809,704
Accruals (205,359)
-----------
a.1) Nature of the effect of adoption of IFRS 16
The Group has lease contracts for various items of property and
equipment. Before the adoption of IFRS 16, the Group classified
each of its leases (as a lessee) at the inception date as either a
finance lease or an operating lease. A lease was classified as a
finance lease if it transferred substantially all of the risks and
rewards incidental to ownership of the leased asset to the Group;
otherwise it was classified as an operating lease. Finance leases
were capitalised at the commencement of the lease at the inception
date fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments were
apportioned between interest (recognised as finance costs) and
reduction of the lease liability. In an operating lease, the leased
property was not capitalised, and the lease payments were
recognised as rent expense in profit or loss on a straight-line
basis over the lease term. Any prepaid rent and accrued rent were
recognised under Prepayments and Trade and other payables,
respectively.
Upon adoption of IFRS 16, the Group applied a single recognition
and measurement approach for all leases in which it is the lessee,
except for short-term leases and leases of low-value assets. The
Group recognised lease liabilities to make lease payments and
right-of-use assets representing the right to use the underlying
assets.
Leases previously classified as finance leases
The Group did not change the initial carrying amounts of
recognised assets and liabilities at the date of initial
application for leases previously classified as finance leases
(i.e., the right-of-use assets and lease liabilities equal the
lease assets and liabilities recognised under IAS 17). The
requirements of IFRS 16 was applied to these leases from 1 January
2019.
Leases previously accounted for as operating leases
The Group recognised right-of-use assets and lease liabilities
for those leases previously classified as operating leases, except
for short-term leases and leases of low-value assets. The
right-of-use assets for most leases were recognised based on the
carrying amount as if the standard had always been applied, apart
from the use of incremental borrowing rate at the date of initial
application. In some leases, the right-of-use assets were
recognised based on the amount equal to the lease liabilities,
adjusted for any related prepaid and accrued lease payments
previously recognised. Lease liabilities were recognised based on
the present value of the remaining lease payments, discounted using
the incremental borrowing rate at the date of initial
application.
The Group also applied the available practical expedients
wherein it:
-- Used a single discount rate to a portfolio of leases with
reasonably similar characteristics
-- Relied on its assessment of whether leases are onerous
immediately before the date of initial application
-- Applied the short-term leases exemptions to leases with lease
term that ends within 12 months at the date of initial
application
-- Excluded the initial direct costs from the measurement of the
right-of-use asset at the date of initial application
-- Used hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
a. 2) Summary of new accounting policies
Set out below are the new accounting policies of the Group upon
adoption of IFRS 16:
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered of low value (i.e.,
below USD 5,000). Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a straight-line basis
over the lease term.
An interest rate of (Egypt 16.5%, KSA 3.35%, Algeria 8%, Kuwait
5.75% and UAE 2.75%) was used in discounting the lease payments and
measuring the lease liabilities recognised in the consolidated
statement of financial position as of 1 January 2019, as this is
the weighted average of the lessee-entity's incremental borrowing
rate at that date (date of initial application of IFRS 16).
a.3) Right of use assets and lease liabilities recognised in the
statement of financial position and comprehensive income
Set out below, are the carrying amounts of the Group's
right-of-use assets and lease liabilities and the movements during
the period:
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the year:
Yards and Office Motor Vehicles Other Equipment Building Total
Warehouse Premises
------------------- ------------- ----------- --------------- ---------------- ---------- -------------
As at 1 January
2019* 3,251,013 1,105,574 1,915,524 12,332,234 6,622,148 25,226,493
Additions 1,578,114 - - - 1,966,044 3,544,158
Depreciation Exp. (1,224,677) (256,292) (678,170) (3,189,222) - (5,348,361)
------------- ----------- --------------- ---------------- ---------- -------------
As at 31 December
2019 3,604,450 849,282 1,237,354 9,143,012 8,588,192 23,422,290
------------- ----------- --------------- ---------------- ---------- -------------
Set out below are the carrying amounts of lease liabilities and
the movements during the year:
USD 2019 2018
----------------------- ------------- -----------
As at 1 January* 24,769,237 -
Additions** 2,909,853 6,622,148
Accretion of interest 1,376,722 -
Payments (6,945,750) (662,615)
------------- -----------
As at 31 December 22,110,062 5,959,533
------------- -----------
Current 8,793,910 567,960
Non-Current 13,316,152 5,391,573
*The beginning balances of right-of-use asset and lease
liabilities include the office premises of the Group amounting to
USD 6,622,148 and USD 5,959,533, respectively, which were accounted
for as a finance lease in the prior year.
**we have capitalized the amount of USD 634,0305 in building
leased assets.
The Group had total cash outflows for leases of USD 6,945,750 in
2019 (2018: USD 662,615). The Group also had non-cash additions to
right-of-use assets and lease liabilities of 3,544,158 in 2019
(2018: USD 6,622,148).
The following are the amounts recognised in the statement of
comprehensive income:
USD 2019 2018
----------------------------------------------------------- ---------- ----------
Depreciation expense of right-of-use assets 5,348,361 -
Interest expense on lease liabilities 1,376,722 -
Expense relating to short-term leases (included
in Cost of revenue) 1,667,506 495,012
Expense relating to short-term lease (included
in General and administrative expenses) 1,011,096 1,022,968
---------- ----------
Total amount recognised in the statement of comprehensive
income 9,403,685 1,517,980
---------- ----------
As of December 31, 2018, the Group had non-cancellable operating
lease commitments of USD 218,556 as disclosed in note 27. Below is
the reconciliation between the discounted value of these operating
lease commitments using the incremental borrowing rate and the
lease liabilities recognised in the consolidated statement of
financial position at the date of initial application:
USD
------------------------------------------------------ -----------
Operating lease non-cancellable commitments
as at 31 December 2018 218,556
Weighted average incremental borrowing rate
as at 1 January 2019 7.27%
Discounted operating lease commitments as at
1 January 2019 217,607
Commitments relating to short-term leases (212,742)
Commitments relating to leases of low-value
assets (886)
Discounted commitments relating to leases previously
classified as finance leases 5,959,533
Discounted commitments relating to cancellable
contracts 18,805,725
Lease liabilities as at 1 January 2019 24,769,237
Several other amendments and interpretations became effective as
of 1 January 2019 and apply for the first time in 2019, but do not
have an impact on the consolidated financial statements of the
Group. These amendments and interpretations are summarised
below:
-- IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
-- Amendments to IFRS 9: Prepayment Features with Negative Compensation
-- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
-- Amendments to IAS 28: Long-term interests in associates and joint ventures
-- Sale or contribution of Assets between an Investor and its
Associates or Joint Ventures- Amendments to IFRS 10 and IAS 28
-- Annual Improvements 2015-2017 Cycle
o IFRS 3 Business Combinations - Previously held Interests in a
joint operation
o IFRS 11 Joint Arrangements - Previously held Interests in a
joint operation
o IAS 12 Income Taxes - Income tax consequences of payments on
financial instruments classified as equity
o IAS 23 Borrowing Costs - Borrowing costs eligible for
capitalisation
b) Standards, amendments and interpretations in issue but not effective
The standards and interpretations that are issued, but not yet
effective are disclosed below. These standards and interpretations
will become effective for annual periods beginning on or after the
dates as respectively mentioned there against. The Group intends to
adopt these standards, if applicable, when they become
effective.
-- IFRS 17 Insurance Contracts (effective for annual reporting
periods beginning on or after 1 January 2023);
-- Amendments to IFRS 3 Business Combinations : Definition of a
Business (effective for business combinations for which the
acquisition date is on or after the beginning of the first annual
reporting period beginning on or after 1 January 2020);
-- Amendments to IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors : Definition of Material (effective for annual reporting
periods beginning on or after 1 January 2020); and
-- Amendments to IFRS 10 Consolidated Financial Statements and
IAS 28 Investments in Associates and Joint Ventures : Sale or
Contribution of Assets between an Investor and its Associate or
Joint Venture (effective date has not been decided yet by the
IASB)
Management is in the process of carrying out impact-analysis to
estimate the potential magnitude arising from the application of
these Standards, Interpretations and Amendments on the Group
consolidated financial statements at their mandatory initial
application dates. Management does not currently anticipate any of
the above Standards and Interpretations be early adopted by the
Group - to the extent applicable - prior to their mandatory
effective dates.
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
The Group recognises revenue from contracts with customers based
on a five-step model as set out in IFRS 15.
Step 1. Identify contract(s) with a customer: A contract is
defined as an agreement between two or more parties that creates
enforceable rights and obligations and sets out the criteria for
every contract that must be met.
Step 2. Identify performance obligations in the contract: A
performance obligation is a promise in a contract with a customer
to transfer a good or service to the customer.
Step 3 Determine the transaction price: The transaction price is
the amount of consideration to which the Group expects to be
entitled in exchange for transferring promised goods or services to
a customer, excluding amounts collected on behalf of third
parties.
Step 4. Allocate the transaction price to the performance
obligations in the contract: For a contract that has more than one
performance obligation, the Group allocates the transaction price
to each performance obligation in an amount that depicts the amount
of consideration to which the Group expects to be entitled in
exchange for satisfying each performance obligation.
Step 5. Recognise revenue when (or as) the Group satisfies a
performance obligation.
The Group satisfies a performance obligation and recognises
revenue over time, if one of the following criteria is met:
a) The Group's performance does not create an asset with an
alternate use to the Group and the Group has as an enforceable
right to payment for performance completed to date.
b) The Group's performance creates or enhances an asset that the
customer controls as the asset is created or enhanced.
c) The customer simultaneously receives and consumes the
benefits provided by the Group's performance as the Group
performs.
For performance obligations where one of the above conditions
are not met, revenue is recognised at the point in time at which
the performance obligation is satisfied.
When the Group satisfies a performance obligation by delivering
the promised goods or services it creates a contract-based asset on
the amount of consideration earned by the performance. Where the
amount of consideration received from a customer exceeds the amount
of revenue recognised this gives rise to a contract liability.
Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually defined
terms of payment and excluding taxes and duty. The Group assesses
its revenue arrangements against specific criteria to determine if
it is acting as principal or agent.
Revenue is recognised to the extent it is probable that the
economic benefits will flow to the Group and the revenue and costs,
if applicable, can be measured reliably.
Based on the assessment of the customer contracts, the Group has
identified one performance obligation for each of its contracts and
therefore revenue is recognised over time. Some of the customer
contracts may include mobilization and demobilisation activities
for which revenue, along with the related cost are amortised over
the period of contract life from the date of the completion of
mobilization activities.
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.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange of
goods or services transferred to the customer. If the Group
performs by transferring goods or services to a customer before the
customer pays consideration or before payment is due, a contract
asset is recognised for earned consideration that is
conditional.
Trade receivables
A receivable represents the Group's right to an amount of
consideration that is unconditional (i.e., only the passage of time
is required before the payment of the consideration is due). Refer
to the accounting policies of financial assets in section financial
instruments - initial recognition and subsequent measurement.
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 Group's branches and subsidiaries are subject
to income tax and withholding tax in accordance to Kingdom of Saudi
Arabia Law, Algeria Law, and Kuwait 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 Group's consolidated financial statements are presented in
USD, which is also the Company's functional currency. For each
entity, the Group determines the functional currency and items
included in the financial statements of each entity are measured
using that functional currency. The Group uses the direct method of
consolidation and on disposal of a foreign operation, the gain or
loss that is reclassified to profit or loss reflects the amount
that arises from using this method.
Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
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 with the exception of
monetary items that are designated as part of the hedge of the
Group's net investment in a foreign operation. These are recognised
in OCI until the net investment is disposed of, at which time, the
cumulative amount is reclassified to profit or loss. Tax charges
and credits attributable to exchange differences on those monetary
items are also recorded in OCI.
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. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in
OCI or profit or loss are also recognised in OCI or profit or loss,
respectively).
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 the Group initially recognises the
non-monetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or receipts
in advance, the Group determines the transaction date for each
payment or receipt of advance consideration.
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
Office premises 20
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
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables and contract assets that do
not contain a significant financing component or for which the
Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs. Trade receivables and contract assets that do
not contain a significant financing component or for which the
Group has applied the practical expedient are measured at the
transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
(SPPI) on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
Initial recognition and measurement (continued)
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e., the date that the Group commits to purchase or
sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified in four categories:
-- Financial assets at amortised cost (debt instruments)
-- Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt instruments)
-- Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments)
-- Financial assets at fair value through profit or loss
The Group's financial assets at amortised cost include trade and
other receivables, due from related parties and cash and bank
balances. The Group does not have financial assets at fair value
through OCI or through profit or loss.
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group
measures financial assets at amortised cost if both of the
following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) 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 flows in full without material delay to a third party under a
'pass-through' arrangement and either (a) 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 rights 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 of 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 its 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 recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual
terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. The Group
has established a provision matrix that is based on its historical
credit loss experience, adjusted for forward-looking factors
specific to the debtors and the economic environment.
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, due to related party balances, loans and borrowings
including bank overdrafts and other financial liabilities.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
(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
This is the category most relevant to the Group. After initial
recognition, loans and borrowings are subsequently measured at
amortised cost using the EIR method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised
as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the consolidated statement of profit or loss. This category
generally applies to loans and borrowings.
(iii) Other financial liabilities at amortised cost
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
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. 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.
Derivative financial instrument
A derivative is a financial instrument or other contract with
all three of the following characteristics:
-- Its value changes in response to the change in a specified
interest rate, financial instrument price, commodity price, foreign
exchange rate, index of prices or rates, credit rating or credit
index, or other variable, provided that, in the case of a
non-financial variable, it is not specific to a party to the
contract (i.e., the 'underlying').
-- It requires no initial net investment or an initial net
investment that is smaller than would be required for other types
of contracts expected to have a similar response to changes in
market factors.
-- It is settled at a future date.
The Group uses derivative financial instruments, such as
interest rate swap, to hedge its interest rate risks. These
interest rate swaps are initially recognised at fair value on the
date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as
financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.
Hedge accounting
For the purpose of hedge accounting, the Group has designated
one of its two derivative financial instruments (interest rate
swaps) as a cash flow hedge. At the inception of a hedge
relationship, the Group formally designates and documents the hedge
relationship to which it wishes to apply hedge accounting and the
risk management objective and strategy for undertaking the
hedge.
The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship
meets the hedge effectiveness requirements (including the analysis
of sources of hedge ineffectiveness and how the hedge ratio is
determined). A hedging relationship qualifies for hedge accounting
if it meets all of the following effectiveness requirements:
-- There is 'an economic relationship' between the hedged item and the hedging instrument.
-- The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
-- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
Cash flow hedges
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve,
while any ineffective portion is recognised immediately in the
statement of comprehensive income. The cash flow hedge reserve is
adjusted to the lower of the cumulative gain or loss on the hedging
instrument and the cumulative change in fair value of the hedged
item.
The amounts accumulated in OCI are accounted for, depending on
the nature of the underlying hedged transaction. If the hedged
transaction subsequently results in the recognition of a
non-financial item, the amount accumulated in equity is removed
from the separate component of equity and included in the initial
cost or other carrying amount of the hedged asset or liability.
This is not a reclassification adjustment and will not be
recognised in OCI for the period. This also applies where the
hedged forecast transaction of a non-financial asset or
non-financial liability subsequently becomes a firm commitment for
which fair value hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in OCI is
reclassified to profit or loss as a reclassification adjustment in
the same period or periods during which the hedged cash flows
affect profit or loss.
If cash flow hedge accounting is discontinued, the amount that
has been accumulated in OCI must remain in accumulated OCI if the
hedged future cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to profit or loss as a
reclassification adjustment. After discontinuation, once the hedged
cash flow occurs, any amount remaining in accumulated OCI must be
accounted for depending on the nature of the underlying transaction
as described above.
Derivative instrument held for trading
The Group classifies one of its two interest rate swaps as
derivative held for trading and did not apply hedge accounting,
which is fair valued at initial recognition and subsequently. Any
change in fair value is recorded in the statement of comprehensive
income as fair value gain (loss) on derivative financial
instrument.
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- accounting policy for the years ended before 31 December
2018:
The determination of whether an arrangement is (or contains) a
lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if
fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the
asset (or assets), even if that asset (or those assets) is not
explicitly specified in an arrangement.
Group as a lessee
A lease is classified at the inception date as a finance lease
or an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Group is
classified as a finance lease.
Finance leases are capitalised at the commencement of the lease
at the inception date fair value of the leased property or, if
lower, at the present value of the minimum lease payments. Lease
payments are apportioned between finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are
recognised in finance costs in the consolidated statement of profit
or loss.
A leased asset is depreciated over the useful life of the asset.
However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the
asset and the lease term. An operating lease is a lease other than
a finance lease. Operating lease payments are recognised as an
operating expense in the consolidated statement of profit or loss
on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all
the risks and rewards of ownership of an asset are classified as
operating leases. Rental income arising is accounted for on a
straight-line basis over the lease terms and is included in revenue
in the consolidated statement of profit or loss due to its
operating nature. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of
the leased asset and recognised over the lease term on the same
basis as rental income. Contingent rents are recognised as revenue
in the period in which they are earned.
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 one of the subsidiaries' 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.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are
recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or
cancellation of the Group's own equity instruments. Any difference
between the carrying amount and the consideration, if reissued, is
recognised in the share premium.
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 principal or
the most advantageous market must be accessible to the Group.
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 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.
3 SIGNIFICANT ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
Judgements
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 Judgements, estimates and assumptions
in relation to the accounting for the business acquired, 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
Judgements have the most significant effects on the amounts
recognised in the consolidated financial statements.
Consolidation of an entity in which the Group holds less than a
majority of voting right
The Group considers that it controls United Precision Drilling
Company W.L.L ("UPDC") even though it owns less than 50% of the
voting rights. This is mainly because (a) the Group has a
substantive right to direct conclusion of revenue contracts,
capital expenditures and operational management; (b) the Group has
a significantly higher exposure to variability of returns than its
voting rights; (c) the Group is the owner of all drilling rigs and
equipment and charters the drilling rigs to UPDC on exclusive
basis. Management also considered that non-controlling interest in
UPDC is not material as compared to the consolidated financial
position.
The lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the
assets for additional terms of three to five years. The Group
applies judgement in evaluating whether it is reasonably certain to
exercise the option to renew. That is, it considers all relevant
factors that create an economic incentive for it to exercise the
renewal. After the commencement date, the Group reassesses the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew (e.g., a change
in business strategy).
The Group included the renewal period as part of the lease term
for leases of property and equipment due to the significance of
these assets to its operations. These leases have a short
non-cancellable period (i.e., three to five years) and there will
be a significant negative effect on operation if a replacement is
not readily available.
Judgement in determining whether assets acquired, and
liabilities assumed qualify as a business combination
The Group acquired 31 rigs and other assets from Weatherford
Drilling International ("the Seller" or "WDI"). The acquisition of
the rigs and other assets from WDI is a global deal covering 3
jurisdictions. The rigs are located in various countries as
follows: 11 rigs in KSA, 12 rigs in Kuwait, 2 rigs in Iraq and 6
rigs in Algeria.
The closing of the KSA and Kuwait Assets transactions took place
on 30 November 2018 and 31 October 2018, respectively, whereas
closure of the Alegria and Iraq Assets transactions took place in
the current year as follows:
Algeria Assets: 6 rigs and related equipment, drilling contracts
and other contracts, vendor contracts, all other equipment and
inventories (including work in progress) related to rigs to the
extent used or intended to be used in the drilling business,
business intellectual property and records related to the drilling
business in Algeria, and certain employees. The closing of the
Algeria Assets transaction took place on 28 February 2019 (4 rigs)
and 18 March 2019 (2 rigs).
Iraq Assets: 2 rigs with related equipment and inventories
(purchase of Iraq rigs was explicitly excluded from the scope of
Kuwait assets upon the closing of Kuwait transaction through a
separate side agreement dated 31 October 2018) and transfer of the
Iraq rigs was made through separate transfer agreements. The
closing of the Iraq Assets took place on 11 February 2019 (1 rig)
and 25 March 2019 (1 rig).
We performed an extensive analysis of the terms of the
agreements entered into to give effect to the above transactions
and applied the 'inputs, processes and outputs' approach required
by IFRS 3 on each individual transaction. We also consulted our
legal advisor about the enforceability of the rights and
obligations under each of these agreements. Our evaluation resulted
in the Algeria and Iraq transactions each qualifying as a business
combination.
Key sources of estimation uncertainty
Fair value measurements and valuation processes in relation to
the acquired assets and liabilities as part of business
combination
During the year ended 31 December 2019 the Group completed the
acquisition accounting for the new businesses acquired during 2019
and 2018 (refer to note 6). For the purposes of fair valuation of
the rigs and inventories acquired the Group engaged and independent
valuation specialists who utilised income approach (discounted cash
flow analysis), cost approach and market approach as per the
requirements of IFRS 13- Fair Value Measurement.
In accordance with IFRS 13 Fair Value Measurement, in some cases
a single valuation will be appropriate, while in other cases,
multiple valuation techniques will be appropriate. If multiple
valuation techniques are used to measure fair value, the results
(i.e. respective indications of fair value) are evaluated
considering the reasonableness of the range of values indicated by
those results. For example, the following valuation approaches have
been applied by management, as appropriate, to measure the
acquisition-date fair value of assets acquired by the Group in
business combinations:
(1) Market approach-based on market transactions involving
identical or similar assets or liabilities, (2) Income
approach-based on future amounts of cash flows or income and
expenses that are discounted to a single present amount and (3)
Cost approach-based on the amount required to replace the service
capacity of an asset (usually referred to as current replacement
cost).
IFRS 13 does not prioritise the use of one valuation technique
over another or require the use of only one technique except in
situations where identical financial instruments exist that trade
in active markets in which case the entity's financial instruments
shall be measured at the market price of the identical instruments
multiplied by quantity (P x Q). In measuring the fair value of an
asset or liability, management use valuation techniques that are
appropriate in the circumstances and for which sufficient data is
available. Therefore, multiple valuation techniques were used, and
judgment is exercised by management in applying them.
The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable
(i.e. similar) assets, liabilities or a group of assets and
liabilities, such as a business. Although the market approach is
described by IFRS 13 as a widely used valuation technique, its use
becomes less favorable and/or relevant in situations for which
observable inputs in active markets are limited, and where no exit
prices exist for those assets on a stand-alone basis because market
information indicates that they are being exchanged together with
other elements as part of an entire business. The Group is
acquiring a business and not an asset. Hence,
operational/contracted assets are a cash generating unit which is
the main driver for acquisition from market participants'
perspective (i.e. the amount and consistency of income generated
from these CGUs).
Accordingly, management believe that using multiple techniques
is more appropriate and should be considered when evaluating the
reasonable range of values to indicate the fair value of the assets
acquired rather than a single approach such as the market approach.
The Group does not rely solely on the market approach because of
the low volume and level of activity for exchanges in similar
rig-assets in the relevant markets and because this approach does
not reflect any revenue generated from these units and only
reflects price for identical or comparable (similar) assets. The
Market Approach depends mainly on Level # 1 inputs which are
observable inputs and minimizes the use of unobservable inputs.
Thus, the nature of the characteristics of the rigs being
measured and the limited observable market prices for similar
assets contributed to the suggested use of several valuation
techniques under the 3 above approaches. Since the Group is
acquiring businesses rather than stand-alone assets, it was
appropriate to estimate the fair value of each business by giving
consideration to multiple valuation approaches, such as income
approach that derives value from the present value of the expected
future cash flows specific to the business and a market approach
that derives value from the market data (such as EBITDA or revenue
multiples). IFRS 13 also permits the use of the cost approach,
where appropriate.
Application of the market, income and cost valuation techniques
each produced a range of possible values (e.g. lower-end and
higher-end values). In accordance with the requirements of IFRS 13,
management evaluated the reasonableness of the range in order to
select the point within the range that is most representative of
fair value. A professional expert had been assigned to review the
valuation and considered the merits of each valuation technique
applied, and the underlying assumptions embedded in each of the
techniques. IFRS 13 requires an entity, in case such approaches
produce results that are disparate, to perform further analysis.
Management, with assistance from the professional expert, sought to
understand why the resulting differences exist among the above
techniques and what assumptions might have contributed to the
variance. The objective was to find the point in the range that
most reflects an exit price.
From management's view, the market technique uses assumptions
that are somehow inconsistent with how market participants would
look at the transaction. Management believe that the acquired
rig-assets would provide maximum value to market participants
through its use in combination with its complementary assets,
contracts and associated liabilities that is, a whole business.
Management believe that the sellers' use of the rig-assets, prior
to the Group's acquisition, is the highest and best use in the
context of the drilling business.
Thus, the income approach was applied using a present value
technique. The cash flows used in that technique reflect the income
stream expected to result from the contracted rig-assets over its
economic life. In other words, the income stream comprises the
contractual cash flows expected to result from the associated
backlogs for the remaining term of the associated drilling
contracts in addition to the residual/termination value reflecting
cash flows for the asset's remaining economic life. Also, the cost
approach was applied, on the relevant group of assets, by
estimating the amount that currently would be required to
substitute rig-assets with comparable utility with appropriate
adjustments for assets condition (used) and location (installed and
configured for use or stacked).
Based on the above, management concluded that the results of the
market approach could not be used in isolation as a representative
of fair value. Additionally, the used other two techniques (income
and cost) together with the market technique produced indications
of fair value that are disparate. Therefore, management considered
the possible range of fair value measures and what is most
representative of fair value taking into consideration that:
o The income valuation technique may be more representative of
fair value for contracted rig-asset than other techniques;
o Inputs used in the cost/or market valuation technique may be
more readily observable in the marketplace for standard and/or
uncontracted assets, stacked rigs or require fewer adjustments.
Impairment of trade receivables and contract assets
The Group recognises an allowance for expected credit losses
(ECLs). The Group applies a simplified approach in calculating ECLs
with respect to trade receivables and contract assets. Therefore,
the Group does not track changes in credit risk, but instead
recognises a loss allowance based on lifetime ECLs at each
reporting date. At the consolidated statement of financial position
date, gross trade receivables and contract assets were USD
174,437,513 (2018: USD 142,071,534) and the provision for
impairment in trade receivables and contract assets was USD
2,168,121 (2018: USD 4,944,373). Any difference between the amounts
actually collected in future periods and the amounts expected will
be recognised in the consolidated statement of comprehensive
income.
Taxes
The Group is exposed to income taxes in certain jurisdictions.
Significant judgement is required to determine the total tax
liability. 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 tax liability is
established, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective
counties in which the Group-entities operate.
The amount of such liability 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 reporting date,
the current income tax payable was USD 9,975,938 (2018: USD
3,040,753).
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.
Write-down of inventories to net realizable value (NVR)
Inventories are carried 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 reporting date, gross
inventories were USD 45,073,493 (2018 as restated: USD 32,672,320).
At the reporting date, the cumulative provision for slow moving
items stands at USD 253,329 (2018: nil). Any difference between the
amounts actually realised in future periods and the amounts
expected will be recognised in profit or loss in the consolidated
statement of comprehensive income.
Impairment of dividends receivable and investment in associates
and joint ventures
The Group has a dividend receivable from the Egyptian Chinese
Drilling Company (ECDC), an investment that is classified by the
Group as a joint venture. As at 31 December 2019, the outstanding
allowance for impairment in the amount of this dividend receivable
is USD 245,000 (2018: USD 245,000). As described in note 12, the
Group currently holds 48.75% equity interest in ECDC amounting to
USD 2,207,916 (2018: USD 2,184,382). This investment was previously
classified as a financial asset. However, on 5 July 2018, ECDC's
shareholders entered into a Shareholders Agreement whereby the
Group obtained a joint control over ECDC and, consequently, the
Group's interest in ECDC became an investment in joint venture
effectively from that date.
The Shareholders' Agreement dated 5 July 2018 sets out a joint
control framework between ADES and the other major shareholder who
holds 51%. This resulted in the change of status of this investment
from financial asset to investment in a joint venture during 2018
with no purchase price consideration transferred by the Group. In
accordance with the IFRS guidance, the Group's investment in ECDC
is measured fair value at the date on which the change in the
status had occurred.
Based on a third-party valuation report and further analysis
performed by the management, they decided to continue to use the
book value of USD1.9 million as an estimation of the fair value as
at 5 July 2018 which is reported as a final value. 2019 has not
seen significant changes in ECDC circumstances indicating a decline
in the fair value of investment below its carrying amount.
Accordingly, no impairment loss has been recognised on this
investment in the current year.
4 COMPARATIVE INFORMATION
The corresponding figures for 2018 have been adjusted to reflect
the IFRS 3 Business combination measurement period adjustments as
discussed in Note 6. These adjustments are summarised below:
IFRS 3 Business
combination Restated
As previously measurement amounts
USD reported 31-Dec-18 period adjustments 31-Dec-18
----------------------------------------- -------------------- -------------------- ------------
Consolidated statement of comprehensive
income:
Bargain purchase gain 44,377,441 1,875,467 46,252,908
Cost of revenue 107,506,253 87,329 107,593,582
Finance costs 31,472,519 (238,907) 31,233,612
Non-controlling interests 254,222 125,426 379,648
Consolidated statement of financial
position:
Non-current assets:
Property and equipment 710,704,139 16,635,128 727,339,267
Current assets:
Inventories 52,508,041 (19,835,721) 32,672,320
Prepayments and other receivables 49,352,692 3,030,401 52,383,093
Equity:
Retained earnings 188,693,787 1,901,619 190,595,406
Non-controlling interests 8,987,787 (574,468) 8,413,319
Non-current liabilities:
Provisions 12,331,933 627,657 12,959,590
Current liabilities:
Trade and other payables 85,423,424 (2,125,000) 83,298,424
Consolidated statement of cash
flows:
Profit for the year before income
tax 75,033,664 2,027,045 77,060,709
Depreciation of property and equipment 28,112,799 87,329 28,200,128
Bargain purchase gain 44,377,441 1,875,467 46,252,908
A third year consolidated statement of financial position is not
presented as these adjustments have no impact on the financial
position as at 31 December 2017.
5 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. As operationally, the Group is only in
the oil and gas production and drilling services, the CEO considers
the business from a geographic perspective and has identified five
geographical segments (2018: five geographical segments).
Management monitors the operating results of its segments
separately for the purpose of making decisions about resource
allocation and performance assessment.
Kingdom Adjustments
of Saudi United Total &
Segment (USD) Egypt Algeria Arabia Kuwait Arab Emirates segment eliminations*** Total
------------------- -------------- -------------- --------------- -------------- -------------- --------------- ---------------- ---------------
For the year ended
31 December
2019
Revenue
External customers 87,125,252 40,414,802 243,901,977 106,315,516 - 477,757,547 - 477,757,547
Inter-segment 87,190,863 - - - - 87,190,863 (87,190,863) -
-------------- -------------- --------------- -------------- -------------- --------------- ---------------- ---------------
Total Revenue 174,316,115 40,414,802 243,901,977 106,315,516 - 564,948,410 (87,190,863) 477,757,547
============== ============== =============== ============== ============== =============== ================ ===============
Income/(expenses)
Cost of revenue* (36,507,892) (23,579,787) (120,675,177) (55,504,546) - (236,267,402) - (236,267,402)
General and
administrative
expenses (11,782,712) (3,147,114) (22,129,888) (9,504,889) (5,899,066) (52,463,669) - (52,463,669)
Finance costs
(net) (11,055,159) (5,128,158) (30,948,262) (13,490,175) (27,568,312) (88,190,066) - (88,190,066)
Depreciation and
amortisation (23,529,605) (2,180,135) (14,356,287) (9,248,182) (146,501) (49,460,710) - (49,460,710)
Other expenses
(net)** (1,187,327) (507,019) (10,568,079) (4,449,325) (3,130,388) (19,842,138) - (19,842,138)
-------------- -------------- --------------- -------------- -------------- --------------- ---------------- ---------------
Profit / Loss-
excluding
inter-segment
revenue 3,062,557 5,872,589 45,224,284 14,118,399 (36,744,267) 31,533,562 - 31,533,562
============== ============== =============== ============== ============== =============== ================ ===============
Total Assets as at
31 December
2019 (i) 863,562,100 98,630,862 108,650,199 346,575,615 14,148,206 1,431,566,982 - 1,431,566,982
============== ============== =============== ============== ============== =============== ================ ===============
Total Liabilities
as at 31
December 2019 374,171,422 16,943,110 58,622,288 94,608,532 434,497,150 978,842,502 - 978,842,502
============== ============== =============== ============== ============== =============== ================ ===============
Other Segment
information
Capital
expenditure (i) 45,215,366 57,085,518 104,558,940 105,207,372 - 312,067,196 - 312,067,196
Intangible assets
expenditure 12,976 - - - - 12,976 - 12,976
-------------- -------------- --------------- -------------- -------------- --------------- ---------------- ---------------
Total 45,228,342 57,085,518 104,558,940 105,207,372 - 312,080,172 - 312,080,172
============== ============== =============== ============== ============== =============== ================ ===============
Kingdom United
of Saudi Arab Total Adjustments
Segment (USD) Egypt Algeria Arabia Kuwait Emirates segment & eliminations*** Total
------------------- -------------- ------------- -------------- ------------- ------------- -------------- ------------------ --------------
For the year ended
31 December
2018
Revenue
External customers 87,226,591 11,594,020 96,094,909 10,647,870 - 205,563,390 - 205,563,390
Inter-segment 37,296,373 - - - - 37,296,373 (37,296,373) -
-------------- ------------- -------------- ------------- ------------- -------------- ------------------ --------------
Net Revenue 124,522,964 11,594,020 96,094,909 10,647,870 - 242,859,763 (37,296,373) 205,563,390
============== ============= ============== ============= ============= ============== ================== ==============
Income/(expenses)
Cost of revenue* (25,707,577) (4,948,032) (44,161,147) (4,840,115) - (79,656,871) - (79,656,871)
General and
administrative
expenses (12,039,563) (968,602) (7,320,294) (932,370) (2,710,540) (23,971,369) - (23,971,369)
Finance costs
(net) (10,325,735) (1,372,480) (11,375,551) (1,260,477) (4,160,525) (28,494,768) - (28,494,768)
Depreciation and
amortisation (21,163,852) (824,442) (5,620,293) (328,124) - (27,936,711) - (27,936,711)
Other expenses
(net)** 4,026,629 (513,107) (4,878,728) 10,255,542 18,877,918 27,768,254 - 27,768,254
-------------- ------------- -------------- ------------- ------------- -------------- ------------------ --------------
Profit / Loss-
excluding
inter-segment
revenue 22,016,493 2,967,357 22,738,896 13,542,326 12,006,853 73,271,925 - 73,271,925
============== ============= ============== ============= ============= ============== ================== ==============
Total Assets as at
31 December
2018 (i) 729,132,307 13,686,120 64,217,842 186,542,751 91,038,562 1,084,617,582 - 1,084,617,582
============== ============= ============== ============= ============= ============== ================== ==============
Total Liabilities
as at 31
December 2018 173,642,219 2,219,470 19,918,375 27,161,429 440,247,952 663,189,445 - 663,189,445
============== ============= ============== ============= ============= ============== ================== ==============
Other Segment
information
Capital
expenditure (i) 41,176,696 - 244,918,138 147,023,994 - 433,118,828 - 433,118,828
Intangible assets
expenditure 34,196 - - - - 34,196 - 34,196
-------------- ------------- -------------- ------------- ------------- -------------- ------------------ --------------
Total 41,210,892 - 244,918,138 147,023,994 - 433,153,024 - 433,153,024
============== ============= ============== ============= ============= ============== ================== ==============
* excluding depreciation and amortisation.
** Other expenses includes end of service provision, provision
for impairment of inventory, provision for impairment of trade
receivables, share-based payments expense, business acquisition
transaction costs, other taxes, income tax expense and other
expenses which are stated net off release of provision for
impairment of trade receivables, bargain purchase gain, fair value
gain/(loss) on derivative financial instrument and other
income.
*** Inter-segment revenues and other adjustments are eliminated
upon consolidation and reflected in the 'adjustments and
eliminations' column.
**** The corresponding figures for 2018 have been adjusted to
reflect the IFRS 3 Business combination measurement period
adjustments as discussed in Note 4 and improve presentation.
(i) Management presents the assets in the segment which holds
such assets, while the capital expenditure are presented in the
segment where such assets are utilised.
6 BUSINESS COMBINATIONS
As part of the Group's strategy to expand its fleet and
operations, the Group has acquired the assets and entities which
are accounted for as business combinations. These business
combinations resulted in bargain purchase transactions because the
fair value of assets acquired and liabilities assumed exceeded the
total fair value of the consideration paid and the fair value of
non- controlling interests.
A. Acquisition of three rigs from Nabors Drilling International
II Limited - recorded in 2018
On 12 June 2018, the Group acquired three jack-up drilling rigs,
located in the Kingdom of Saudi Arabia, in their entirety,
including all spare parts, equipment and inventory, from Nabors
Drilling International II Limited (Nabors). The Group acquired
these rigs to expand its operations in the Kingdom of Saudi Arabia.
The acquisition has been accounted for using the acquisition
method.
Identifiable net assets acquired
The fair values of the identifiable net assets of these rigs as
at the date of acquisition were:
Fair values recognized
on acquisition
USD Restated*
------------------------------------------------------ -----------------------
Property and equipment* 91,328,961
Inventories* 1,657,777
-----------------------
Total identifiable net assets at fair values 92,986,738
-----------------------
Gain from bargain purchase* (8,623,895)
-----------------------
Purchase consideration 84,362,843
=======================
Analysis of purchase consideration
Cash paid 62,250,000
Allotment of shares** 22,112,843
-----------------------
84,362,843
=======================
Analysis of cash flow on acquisition
-----------------------
Net cash paid (included in cash flows from investing
activities) 62,250,000
=======================
*During the current year, the Group completed the necessary
analysis on the fair values of assets acquired and made the
following retrospective adjustments:
-- The Group reduced the fair value of the property and
equipment by USD 3.1 million, with corresponding reduction to gain
from bargain purchase for the same amount.
-- The Group allocated USD 4.5 million out of total fair value
of the rigs acquired to inventories as part of provisional purchase
price. Upon verification of the inventories and their nature, as
well as the projects where these items have been used subsequent to
the acquisition date, the Group identified that USD 2.9 million of
total balance represents critical spare parts which should have
been recorded as part of property and equipment account.
Accordingly, the Group increased fair value of the rigs and reduced
inventories by USD 2.9 million as part of purchase price
allocation.
**In accordance with the purchase and sale agreement, the Group
issued 1,590,852 fully paid shares to Nabors, valued at the price
as quoted on the London Stock Exchange on 12 June 2018.
A. Acquisition of three rigs from Nabors Drilling International
II Limited - recorded in 2018 (continued)
From the date of acquisition till 31 December 2018, the assets
contributed USD 27,866,791 of revenue from continuing operations of
the Group. It is impracticable to disclose the revenue and profit
or loss of the rigs acquired from Nabors for the year ended 31
December 2018 as if the combination had taken place at the
beginning of the year, as the acquired assets and entities did not
represent a reporting entity and the historical information is not
available. The Group acquired the business comprised of the rigs
and the related items, rather than the entire entity from Nabors.
The amount of profit contributed by these assets from the date of
acquisition is also not disclosed, as these rigs do not represent a
separate reporting entity and it impracticable to prepare the
profit and loss for the rigs.
B. Acquisition of the rigs and subsidiaries from Weatherford
Drilling International - recorded in 2018
On 31 October 2018 and 30 November 2018, the Group acquired the
assets from Weatherford Drilling International in Kuwait and The
Kingdom of Saudi Arabia (KSA), respectively. The acquisitions have
been accounted for using the acquisition method.
The Group acquired the following in Kuwait:
i) Kuwait Assets: 12 onshore rigs and related equipment,
drilling contracts, other vendor contracts, certain employees,
inventories to be used in the drilling business, the business
intellectual property and records related to the drilling business
and rig moving equipment; and
ii) 100% interest in PDC Cyprus Holding ("PDC") (pre-qualified
shareholder of UPDC for Kuwait Oil Company tender process) which
has a 47.5% interest in UPDC, a Kuwait entity which handles the
operations of the rigs in Kuwait including the employees and the
drilling contracts.
The Group acquired 11 onshore rigs in KSA and related equipment,
drilling contracts, other vendor contracts, certain employees,
inventories to be used in the drilling business, the business
intellectual property and records related to the drilling
business.
Identifiable net assets acquired
The fair value of the identifiable assets and liabilities as at
the acquisition were:
Fair values recognized Fair values recognized
on acquisition on acquisition
USD (KSA) (Kuwait)
----------------------------------------------- ----------------------- -----------------------
Property and equipment* 108,804,321 133,343,251
Inventories* 6,370,679 5,160,788
Accounts receivable and prepayments* - 36,220,232
Due from related parties - 6,699,193
Bank balances and cash - 110,528
----------------------- -----------------------
Total assets* 115,175,000 181,533,992
----------------------- -----------------------
Employees' end of service benefits* - 11,133,268
Accounts payable and accruals** - 11,335,812
Due to related parties - 6,699,193
----------------------- -----------------------
Total liabilities* - 29,168,273
----------------------- -----------------------
Total identifiable net assets at fair
value* 115,175,000 152,365,719
Non-controlling interest (52.5% of
net assets) ** - (8,033,673)
Bargain purchase gain arising on acquisitions (22,675,000) (14,954,013)
----------------------- -----------------------
Purchase considerations, restated* 92,500,000 129,378,033
======================= =======================
As at the acquisition date, the gross amount of trade
receivables is USD 11,537,905 which approximates to its fair value.
It is expected that the full contractual amounts can be collected,
and management estimated that no allowance for ECL is required.
*During the current year, the Group completed the necessary
analysis on the fair values of assets and liabilities acquired and
made the following retrospective adjustments:
KSA acquisition:
-- With the help of the independent specialist the Group
completed the fair values of inventories and property and equipment
which resulted in decrease in the fair value of inventories by USD
13.94 million with the corresponding increase to the acquired fair
value of property and equipment. It has no effect on total fair
value of the acquired assets and bargain purchase gain recorded
during the year ended 31 December 2018.
Kuwait Adjustments:
-- With the help of the independent specialist the Group
completed the assessment of fair values of inventories and property
and equipment acquired, which resulted in decrease in the fair
value of inventories by USD 2.98 million with the corresponding
increase to the acquired fair value of property and equipment. It
has no effect on total fair value of the acquired assets and
bargain purchase gain recorded during the year ended 31 December
2018.
-- The Group also increased the acquired balance of end of
service benefits for the amount of USD 628 thousand to reflect the
fair value of the liability acquired; and decreased the acquired
balance of accounts receivable and prepayments for the amount USD
706 thousand to write off certain assets which do not have future
benefits for the Group at the acquisition date. Consequently, the
non-controlling interest (52.5% of net assets) is also reduced by
the amount of USD 699.9 thousand.
-- The Group made retrospective adjustments to the amount of
purchase consideration for Kuwait for the total amount of USD
5,621,967 as per the relevant clauses of the Sales and Purchase
Agreement signed between WDI and the Group. The outstanding
consideration payable for Kuwait assets amounting to USD 12,000,000
was reduced to USD 9,875,000 to reflect the IFRS 3 Business
combination measurement period adjustments as discussed in Note 4.
The outstanding consideration payable is included as part of trade
and other payables (Note 19).
**This represents share of non-controlling interests over the
net assets of UPDC as of the acquisition date.
From the date of acquisition to 31 December 2018, the acquired
assets and entities contributed USD 20,681,056 of revenue from
continuing operations of the Group, and PDC reported the profit of
USD 484,232. It is impracticable to disclose the revenue and profit
or loss of the combined businesses for the year ended 31 December
2018, as if the combination had taken place at the beginning of the
year, as the acquired assets and entities did not represent a
reporting entity and the historical information is not available.
The Group acquired the business comprised of the rigs along with
the related items and UPDC rather than all the entities owning
these businesses from the seller.
C. Acquisitions of the rigs from Weatherford Drilling
International - recorded in 2019
On 27 February 2019 and 25 March 2019, the Group acquired
certain assets from Weatherford Drilling International in Algeria
and Iraq, respectively. The acquisitions have been accounted for
using the acquisition method.
The Group acquired 6 onshore rigs in Algeria and related
equipment, drilling contracts, other vendor contracts, certain
employees, spare parts to be used in the drilling business, the
business intellectual property and records related to the drilling
business. While in Iraq, the Group acquired 2 onshore rigs and
related equipment, certain employees, spare parts to be used in the
drilling business, the business intellectual property and records
related to the drilling business.
Identifiable net assets acquired
The fair value of the identifiable assets and liabilities as at
the acquisition were:
Fair values recognized Fair values recognized
on acquisition on acquisition
USD (Algeria) (Iraq)
----------------------------------------------- ----------------------- -----------------------
Property and equipment 55,983,324 17,200,000
Inventories 8,553,595 -
Total identifiable net assets at fair
value 64,536,919 17,200,000
Bargain purchase gain arising on acquisitions (6,677,674) (5,200,000)
----------------------- -----------------------
Purchase considerations 57,859,245 12,000,000
----------------------- -----------------------
Analysis of cash flow on acquisition
(included in cash flows
from investing activities)
Cash paid (60,000,000) (12,000,000)
Cash collected* 2,140,755 -
----------------------- -----------------------
Net cash out flows on acquisition (57,859,245) (12,000,000)
======================= =======================
*The Group claimed and collected USD 2,140,755 from the Seller
which represents a backlog deduction at the closing date for
Algeria as per the terms of the Sales and Purchase Agreement signed
between WDI and the Group.
From the date of acquisition to 31 December 2019, the acquired
assets and entities contributed USD 27,093,236 of revenue from
continuing operations of the Group. It is impracticable to disclose
the revenue and profit or loss of the rigs acquired for the year
ended 31 December 2019 as if the combination had taken place at the
beginning of the year, as the acquired assets and entities did not
represent a reporting entity and the historical information is not
available. The Group acquired the business comprised of the rigs
and the related items, rather than the entire entity from WDI. The
amount of profit contributed by these assets from the date of
acquisition is also not disclosed, as these rigs do not represent a
separate reporting entity and it impracticable to prepare the
profit and loss for the rigs.
7 REVENUE FROM CONTRACT WITH CUSTOMERS
USD 2019 2018
------------------- ------------ ------------
Units operations 456,563,354 196,286,916
Catering services 8,979,507 3,006,326
Projects income * 3,983,560 4,683,478
Others 8,231,126 1,586,670
------------ ------------
477,757,547 205,563,390
============ ============
*Projects income represents services relating to outsourcing
various operating projects for clients such as manpower, well
platform installation, maintenance and repair services.
The disaggregation of revenue in accordance with IFRS 15 is in
line with the segments disclosed in Note 5 above as the management
monitors the revenue geographically and the primary operational
revenue stream is drilling services (units operations) and the
revenue is recognised over the time of service.
8 COST OF REVENUE
2018
USD 2019 Restated*
------------------------ ------------ ------------
Project direct costs 2,158,618 2,596,283
Maintenance costs 45,020,299 14,743,854
Staff costs 102,244,315 35,326,884
Rental equipment 8,201,081 2,288,103
Insurance 6,994,574 4,843,389
Depreciation (Note 17) 49,460,710 27,936,711
Catering costs 20,262,059 6,167,562
Move costs 18,738,061 3,082,553
Crew change costs 7,448,904 1,830,239
Other costs 25,199,491 8,778,004
------------ ------------
285,728,112 107,593,582
============ ============
* The corresponding figures for 2018 have been adjusted to
reflect the IFRS 3 Business combination measurement period
adjustments as discussed in Note 4 and to improve presentation.
9 GENERAL AND ADMINISTRATIVE EXPENSE
USD 2019 2018
----------------------------------------- ----------- -----------
Staff costs* 31,131,732 12,194,853
Depreciation and amortisation (Note 17) 1,563,856 385,964
Professional fees 4,095,097 2,215,480
Business travel expenses 3,385,222 1,816,136
Free zone expenses 3,897,863 2,065,073
Rental expenses 1,011,096 1,022,968
Other expenses 7,378,803 4,270,895
52,463,669 23,971,369
=========== ===========
* It includes staff cost of USD 8,487,320 in relation to the
integration project carried with help of one of the top tier
consultants.
10 FINANCE COSTS
2018
USD 2019 Restated*
---------------------------------------------- ----------- -----------
Loan interest and profit expense 30,956,580 25,204,082
Loan fees and written of prepaid transaction
cost 27,568,312 4,160,525
Bond interest and bond fees amortisation 20,589,926 -
Guarantee related finance charges 3,146,155 -
Interest on lease liabilities 1,376,722 -
IRS related finance charges 1,062,725 -
Interest on overdraft facilities 1,094,760 1,423,310
Initial recognition loss from discounting 1,195,201 -
of a long-term trade receivable
Other finance charges 1,711,698 445,695
----------- -----------
88,702,079 31,233,612
=========== ===========
11 INCOME TAX
USD 2019 2018
--------------------------------------------------- ------------------------- ------------------------
Consolidated statement of profit or loss:
Current income tax expense* 9,772,755 3,788,784
Deferred tax expense (435,390) -
------------------------- ------------------------
Charge for the year ended (note 19) 9,337,365 3,788,784
========================= ========================
Consolidated statement of financial position:
Current liabilities:
Balance at 1 January 3,040,753 2,288,282
Charge for the year 9,777,802 3,840,581
Release during the year (5,047) (51,797)
Paid during the year (2,837,570) (3,036,313)
------------------------- ------------------------
Balance at 31 December (note 19) 9,975,938 3,040,753
========================= ========================
Profit before income tax 40,870,927 75,033,664
Tax calculated at domestic tax rates applicable
to profits
profit in the primary jurisdiction of 0% - -
(2018:0%)
Effect of different tax rates in countries
in which the Group operates 15,142,720 1,643,938
Non-deductible expenses 1,611,116 217,148
Non-taxable income (13,853,048) -
Withholding taxes 6,436,577 1,979,495
Other taxes - (51,797)
------------------------- ------------------------
Income tax expense recognised in the consolidated
statement of comprehensive income 9,337,365 3,788,784
========================= ========================
*Current income tax expense includes withholding taxes on
intercompany rentals in the Kingdom of Saudi Arabia amounting to
USD 4,435,809 (2018: USD 1,979,495).
The effective tax rate is 23% (2018: 5%, excluding the credit in
respect of prior year adjustments).
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.
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.
12 INVESTMENT IN A JOINT VENTURE AND AN ASSOCIATE
Investment in Egyptian Chinese Drilling Company:
The Group holds a 48.75% equity interest in Egyptian Chinese
Drilling Company (ECDC) amounting to USD 2,207,916 as at 31
December 2019 (2018: USD 2,184,382). The Group acquired the
investment on 30 March 2015 from AMAK Drilling and Petroleum
Services Co. (a related party) at par value. ECDC is a Joint Stock
Company operating in storing and renting machinery and all needed
equipment to the petroleum industry.
As at 31 December 2017, the Group has treated this investment as
available for sale since it has no representation on the Board. On
5 July 2018, the Shareholders entered into a Shareholders Agreement
whereby the Group obtained a joint control over ECDC. While the
legal formalities for the change in the articles of association is
in progress as of 31 December 2019, as per the Shareholders
Agreement the investment became an investment in a joint venture
effective 5 July 2019. The investment in joint venture is accounted
for using the equity method of accounting effective from the date
of change.
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 2019 and 2018 (Note 16).
Summarised financial information of the joint venture and
reconciliation with the carrying amount of the investment in the
consolidated financial statements are set out below:
Summarised statement of financial position as at 31 December
2019:
USD 2019 2018
--------------------------------------------------- ------------------- ----------------------
Non-current assets 10,127,468 8,831,562
Current assets 12,898,092 15,126,615
Non-current liabilities - (2,057,094)
Current liabilities (18,496,502) (16,920,300)
------------------- ----------------------
Net assets 4,529,058 4,980,783
=================== ======================
The Group's share in net assets at adjusted
fair value equity - 48.75%* 2,207,916 2,184,382
Summarised statement of comprehensive income
as of 31 December 2019:
Revenues 12,997,816 14,406,829
Cost of revenues (10,547,288) (11,451,747)
Other income 39,317 36,498
General and administrative expenses (2,295,955) (2,116,591)
Provision, net 32,595 (1,150,000)
------------------- ----------------------
Operating profit 226,485 (275,011)
Finance costs (178,211) (57,150)
Foreign exchange gain - 13,581
Non-operating income - 1,434,825
------------------- ----------------------
Profit for the year 48,274 1,116,245
------------------- ----------------------
Profit for the period from 5 July 2018 to 31
December 2018 - 480,783
Group's share of profit for the period - 48.75%** 23,533 234,382
=================== ======================
In the 2018 consolidated financial statements , the summarised
statement of the financial positions was prepared based on the
provisional fair values of the assets and liabilities of ECDC on 5
July 2018. During the year ended 31 December 2019, the Group
completed additional clarifications and analysis on the fair values
which did not result in any adjustments to the fair values of the
assets and liabilities of ECDC at the date of the change from
financial instrument to the joint venture .
** For the year ended 31 December 2018, the amount represents
48.75% Group's share in the net profit of the joint venture from 5
July 2018 to 31 December 2018.
The joint venture had no other contingent liabilities or
commitments as at 31 December 2019 (2018: USD nil). The joint
venture cannot distribute its profits without the consent from the
two venture partners.
Investment in ADVantage Drilling Services S.A.E:
The Group holds 49% equity interest in ADVantage Drilling
Services S.A.E amounting to USD 1,932,660 as at 31 December 2019
(2018: USD Nil). ADVantage Drilling Services S.A.E is a Joint Stock
Company operating drilling deep marine wells, oil-producing wells
or natural gas at depths exceeding 350 meters and exploration
activities, maintenance of petroleum and gas wells and all the
related services, owning, operation, management, renting and
leasing of onshore and offshore equipment.
ADVantage Drilling Services S.A.E has been established as a Free
Zone company in accordance with the provisions of the Investment
Law No. 72 of 2017 at 15 January 2019.
Summarised financial information of the joint venture and
reconciliation with the carrying amount of the investment in the
consolidated financial statements are set out below:
Summarised statement of financial position as at 31 December
2019:
USD 2019
-------------------------------------------------------- -------------
Non-current assets 54,661
Current assets 18,145,907
Non-current liabilities -
Current liabilities (14,256,364)
-------------
Net assets 3,944,204
=============
The Group's share in net assets at adjusted fair value
equity - 49%* 1,932,660
Summarised statement of comprehensive income as of 31 December
2019:
USD 2019
---------------------------------------------- -------------
Revenues 23,285,002
Cost of revenues (19,563,731)
General and administrative expenses (2,214,631)
Operating profit 1 , 506,640
=============
Finance costs (5,486)
Net Foreign exchange gain 32,244
Profit for the year 1,533,398
-------------
Profit for the period from 31 December 2019 1,533,398
-------------
Group's share of profit for the period - 49% 751,365
=============
The associate had no other contingent liabilities or commitments
as at 31 December 2019 (2018: USD nil). The associate cannot
distribute its profits without the consent from the two venture
partners.
13 BANK BALANCES AND CASH
USD 2019 2018
Cash on hand 21,245 31,399
Bank balances 56,373,290 99,808,981
Time deposits 63,206,624 31,034,859
------------ --------------
119,601,159 130,875,239
Escrow account held to acquire new assets - (10,800,000)
------------ --------------
Cash and cash equivalents for the purpose
of statement of cash flows 119,601,159 120,075,239
============ ==============
Bank balances and cash comprise of balances
in the following currencies:
United States Dollar (USD) 33,943,487 90,062,113
Saudi Riyal (SAR) 4,367,958 6,610,718
Egyptian Pound (EGP) 3,879,327 2,417,859
United Arab Emirates Dirham (AED) 38 531
Great British Pound (GBP) 160 6,111
Euro (EUR) 883 247
Algerian Dinar (DZD) 1,377,837 254,620
Kuwaiti Dinar (KWD) 12,824,846 488,181
Time deposits (USD)* 63,206,623 31,034,859
------------ --------------
119,601,159 130,875,239
============ ==============
*Time deposits represent short-term investment with a local bank
in the United Arab Emirates. Time deposits have original maturities
of less than 90 days and earns average interest of 2.8% per annum
(2018: 2.05%). The finance income reported in the consolidated
statement of comprehensive income for the year 2019 amounted to USD
512,013 (2018: USD 2,738,844).
14 INVENTORIES
USD 2019 2018
--------------------- ----------- -----------
Offshore rigs 19,818,133 19,536,583
Onshore rigs 8,295,669 8,077,032
Warehouse and yards 16,706,362 5,058,705
44,820,164 32,672,320
=========== ===========
As at 31 December 2019, the inventories are stated net of
provision for impairment of inventory of USD 253,329 (2018:
Nil).
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
15 TRADE RECEIVABLES AND CONTRACT ASSETS
Trade receivables
USD 2019 2018
----------------------------------------------- ------------ ------------
Trade receivables 132,896,203 105,701,885
Provision for impairment in trade receivables (2,168,121) (4,944,373)
------------ ------------
130,728,082 100,757,512
============ ============
Maturing within 12 months 91,780,792 100,757,512
Maturing after 12 months 38,947,290 -
Balance as at 31 December 130,728,082 100,757,512
============ ============
Trade receivables are non-interest bearing and are generally on
30 to 90 days terms, except for one customer which is recorded as
non-current, 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.
Contract assets
As at 31 December 2019, the Group has contract assets of USD
41,541,310 (2018: 36,369,649). As at 31 December 2019, there was no
impairment of contract assets and hence no ECL has been
recorded.
The movement in the provision for impairment of trade
receivables is as follows:
USD 2019 2018
---------------------- ------------ ----------
As at 1 January 4,944,373 3,693,766
Charge for the year - 1,250,607
Release for the year (2,776,252) -
------------ ----------
As at 31 December 2,168,121 4,944,373
============ ==========
As at 31 December, the aging analysis of un-impaired trade
receivables is as follows:
Past due but not impaired
--------------------------------------------------------------
Neither past 30 - 60 61 - 90
USD due nor impaired <30 days days days >90 days Total
2019 99,540,594 10,527,810 2,668,836 1,808,191 16,182,651 130,728,082
================== =========== ========== ========== =========== ============
2018 36,620,688 7,110,821 3,744,240 6,837,607 46,444,156 100,757,512
================== =========== ========== ========== =========== ============
As at 31 December 2018, the largest portion of over due balances
over 90 days is from one customer of the Group, which is a
partially government owned entity. In 2019 the Group signed a
settlement agreement with the customer to settle all due balance
and the management believes that the customer will be able to
fulfil its obligations. The application of forward looking
information has no material impact on the ECL provision.
16 PREPAYMENTS AND OTHER RECEIVABLES
USD 2017 2016
--------------------------------------------------- ----------- -----------
Invoice retention 44,361,741 25,933,048
Margin LG (Note 30) 2,379,048 5,635,765
Advances to contractors and suppliers 12,018,430 5,513,390
Insurance with customers 3,979,741 3,890,082
Dividends receivable 1,225,000 1,225,000
Provision for impairment in dividends receivables -245,000 -245,000
Other receivables 8,431,595 10,430,808
----------- -----------
72,150,555 52,383,093
=========== ===========
*Accrued revenue represents services rendered but not yet billed
at the reporting date. As at 31 December 2018, the accrued revenue
is presented as contract assets in Note 14.
17 PROPERTY AND EQUIPMENT
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
Furniture
and Drilling Assets under IT Motor Leasehold
USD Rigs * fixtures pipes Tools construction equipment vehicles improvements Total
--------------- -------------- ----------- ------------- ------------- --------------- ----------- ----------- ------------- --------------
31 December
2019
Cost:
As at 1
January
2019 645,604,819 1,188,005 13,137,229 30,586,817 124,673,795 777,987 249,765 256,804 816,475,221
Additions 13,231,608 219,577 461,069 6,420,413 218,467,321 47,137 - 36,747 238,883,872
Acquisitions
through
business
combinations
(Note 6) 42,378,439 - - - 30,804,885 - - - 73,183,324
Transfers 285,572,016 105,596 2,098,219 5,717,389 (294,018,596) 131,456 - 393,920 -
Transfer to
intangible
assets - - - - (12,976) - - - (12,976)
-------------- ----------- ------------- ------------- --------------- ----------- ----------- ------------- --------------
As at 31
December
2019 986,786,882 1,513,178 15,696,517 42,724,619 79,914,429 956,580 249,765 687,471 1,128,529,441
-------------- ----------- ------------- ------------- --------------- ----------- ----------- ------------- --------------
Accumulated
depreciation
and
impairment:
As of 1
January
2019 (82,370,839) (476,251) (3,268,635) (8,130,782) (765,291) (443,545) (184,137) (118,623) (95,758,103)
Depreciation
for
the year (40,202,545) (118,947) (1,761,977) (3,227,333) - (129,484) (36,768) (77,970) (45,555,024)
As of 31
December
2019 (122,573,384) (595,198) (5,030,612) (11,358,115) (765,291) (573,029) (220,905) (196,593) (141,313,127)
-------------- ----------- ------------- ------------- --------------- ----------- ----------- ------------- --------------
Net book
value:
-------------- ----------- ------------- ------------- --------------- ----------- ----------- ------------- --------------
At 31
December
2019 864,213,498 917,980 10,665,905 31,366,504 79,149,138 383,551 28,860 490,878 987,216,314
============== =========== ============= ============= =============== =========== =========== ============= ==============
17 PROPERTY AND EQUIPMENT (cont'd)
Furniture Assets Computers
and Drilling under and Motor Leasehold
USD Rigs * fixtures pipes Tools construction Office-premises equipment vehicles improvements Total
-------------- -------------- ----------- ------------- ------------- -------------- ---------------- ----------- ---------- ------------- --------------
31-Dec-18
Cost:
As at 1
January 2018 316,529,474 1,154,408 8,075,026 21,977,187 41,115,141 - 666,495 249,765 232,453 389,999,949
Additions 647,078 26,727 5,062,203 4,105,794 83,062,191 6,622,148 91,803 - 24,351 99,642,295
Acquisitions
through
business
combinations
,
restated* 224,337,304 - - 3,914,373 105,224,856 - - - - 333,476,533
Transfers 104,090,963 6,870 - 589,463 (104,706,985) - 19,689 - - -
Transfer to
intangible
Assets - - - - (21,408) - - - - (21,408)
-------------- ----------- ------------- ------------- -------------- ---------------- ----------- ---------- ------------- --------------
As at 31
December
2018,
restated* 645,604,819 1,188,005 13,137,229 30,586,817 124,673,795 6,622,148 777,987 249,765 256,804 823,097,369
-------------- ----------- ------------- ------------- -------------- ---------------- ----------- ---------- ------------- --------------
Accumulated
depreciation
and
impairment:
As at 1
January 2018 (58,139,451) (367,329) (1,653,630) (6,071,696) (765,291) - (333,381) (145,520) (81,676) (67,557,974)
Depreciation
for the
year,
restated* (24,231,388) (108,922) (1,615,005) (2,059,085) - - (110,164) (38,617) (36,947) (28,200,128)
-------------- ----------- ------------- ------------- -------------- ---------------- ----------- ---------- ------------- --------------
As of 31 Dec
2018,
restated* (82,370,839) (476,251) (3,268,635) (8,130,781) (765,291) - (443,545) (184,137) (118,623) (95,758,102)
-------------- ----------- ------------- ------------- -------------- ---------------- ----------- ---------- ------------- --------------
Net book
value:
At 31
December
2018,
restated* 563,233,980 711,754 9,868,594 22,456,036 123,908,504 6,622,148 334,442 65,628 138,181 727,339,267
============== =========== ============= ============= ============== ================ =========== ========== ============= ==============
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4.
**The building reported as at 31 December 2018 pertains to the
office premises of the Group under finance lease arrangement. The
Group reclassified the balance on 1 January 2019 as right of use
asset in accordance with the requirement of IFRS 16.
Capitalised borrowing costs
The amount of borrowing costs capitalised during the year ended
31 December 2019 amounted to USD nil-(2018: USD 446,796).
.
17 PROPERTY AND EQUIPMENT (cont'd)
Depreciation charge is allocated as follows:
USD 2019 2018
Cost of revenue (Note 8) 49,460,710 27,936,711
General and administrative expenses (Note
9) 1,563,856 385,964
----------- -----------
Total depreciation charge* 51,024,566 28,322,675
=========== ===========
*Total depreciation charge for the year includes amortisation of
intangible assets and right of use assets of USD 121,861 (2018: USD
122,547) and USD 5,348,361(2018: nil), respectively.
Assets under construction
Assets under construction represent the amounts that are
incurred for the purpose of upgrading and refurbishing property and
equipment until it is ready to be used in the operation. Assets
under construction will be transferred to 'Rigs' or 'Tools' of the
property and equipment after completion.
*Some of the rigs are pledged to the lenders (banks) against
loans and borrowings (Note 20).
18 INTANGIBLE ASSETS
USD 2019 2018
------------------------------------ -------- --------
Cost:
As at 1 January 776,653 742,457
Additions - 12,788
Transfer from property & equipment 12,976 21,408
-------- --------
As at 31 December 789,629 776,653
-------- --------
Accumulated amortisation:
As at 1 January 320,464 197,917
Amortisation charge for the year 121,861 122,547
-------- --------
As at 31 December 442,325 320,464
-------- --------
Net carrying amount
As at 31 December 347,304 456,189
======== ========
Intangible assets represent computer software and the related
licenses.
19 TRADE AND OTHER PAYABLES
USD 2019 2018 Restated*
------------------------------------------- ----------------------- ----------------------
Local trade payables 89,670,226 32,833,885
Foreign trade payables 24,930,548 4,241,609
Notes payable 2,371,597 333,519
Accrued expenses 41,035,747 14,995,275
Accrued interests 9,560,653 7,811,987
Income tax payable (Note 11) 9,975,938 3,040,753
Deferred consideration payable related to
business acquisitions (Note 6) - 9,875,000
Finance lease liability (Note 2.2) 8,793,910 567,960
Other payables 9,990,837 9,598,436
----------------------- ----------------------
196,329,456 83,298,424
======================= ======================
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4
20 LOANS AND BORROWINGS
USD 2019 2018
----------------------------------- ---------------------- -------------------------------
Balance as at 1 January 555,268,918 212,489,035
Borrowings drawn during the year 179,493,220 569,304,756
Borrowings repaid during the year (351,018,420) (238,038,216)
Amortised arrangement fees 22,303,610 11,513,343
---------------------- -------------------------------
Balance as at 31 December 406,047,328 555,268,918
====================== ===============================
Maturing within 12 months 83,692,835 45,258,354
Maturing after 12 months 322,354,493 510,010,564
---------------------- -------------------------------
Balance as at 31 December 406,047,328 555,268,918
====================== ===============================
2019 2018
Type Interest rate % Latest maturity USD USD
--------------------- -------------------- ------------------ ------------------------ ---------------------
Current loans and borrowings
Loan 1 Syndication
Tranche A 5.0% + 6 Month LIBOR 3.5 years 15,050,000 -
-
Ijara Loan -
Tranche A 3.25% + 6 Months 7 years 15,554,000 -
SAIBOR
Tranche B 3.25% + 6 Months 7 years 15,554,000 -
SAIBOR
3.25% + 6 Months
Tranche C SAIBOR 7 years 8,888,000
NCB Loan
NCB Loan 2.25%+SAIBOR 6 years 6,153,846
Loan 2 Syndication
Tranche A 5.0% + 6 Month LIBOR 5 years - 21,500,000
Tranche C 5.0% + 6 Month LIBOR 5 years - 17,568,851
Murabaha facility 5.0% + 6 Month LIBOR 5 years - 3,189,734
-
Credit facility 1 1.25% + Corridor Renewable (177) (186)
Credit facility 2 4.50% + 3 Month LIBOR Renewable 3,996,693 -
Credit facility 3 6.50% + 3 Month LIBOR Renewable 3,551,531 2,999,955
Credit facility 4 4% + 3 Month LIBOR Renewable 111,609 -
Credit facility 5 2% + 6 Month LIBOR Renewable 5,333,333 -
RCF 3.5% + 3 Month LIBOR Renewable 9,500,000 -
-------------------- --------------------
Total current loans and borrowings 83,692,835 45,258,354
2019 2018
Type Interest rate % Latest maturity USD USD
--------------------- -------------------- ------------------ --------------------- -----------------------
Non-current loans and borrowings
Loan 1 Syndication
Tranche A 5.0% + 6 Month LIBOR 3.5 years 42,178,475 -
Tranche B 5.0% + 6 Month LIBOR 3.5 years 30,000,000 -
-
Loan 2 Syndication
Tranche A 5.0% + 6 Month LIBOR 5 years - 155,039,448
Tranche B 5.0% + 6 Month LIBOR 5 years - 41,500,000
Tranche C 5.0% + 6 Month LIBOR 5 years - 145,862,324
Murabaha facility 5.0% + 6 Month LIBOR 5 years - 29,779,091
-
NCB Loan -
NCB Loan 2.25%+SAIBOR 6 years 73,594,207 -
Ijara loan
3.25% + 6 Months
Tranche A SAIBOR 7 years 51,023,811 67,829,701
3.25% + 6 Months
Tranche B SAIBOR 7 years 54,446,000 70,000,000
Tranche C 3.25% + 6 Months 7 years 71,112,000 -
SAIBOR
-------------------- --------------------
Total non-current loans and borrowings 322,354,493 510,010,564
-------------------- --------------------
Total loans and borrowings 406,047,328 555,268,918
The Group has secured loans and borrowings as follows:
Bank credit facilities
Credit facility 2 is granted by Industrial Development Bank of
Egypt (IDBE) with an overdraft facility limit amounting to USD 4
million.
Credit facility 3 is granted by the Al Ahli Bank of Kuwait (ABK)
with an overdraft facility limit amounting to USD 7 million.
Credit Facility 4 is granted by Export development Bank of Egypt
(EBE) with a non-secured facility limit amounting to USD 12 million
available for overdraft &/or Letters of Guarantees.
Credit Facility 5 is granted by National Commercial Bank in KSA
(NCB) with a total amount of SAR 30 million which is secured within
a basket of other facilities.
Financial Institutions (as defined in the Revolving Credit
Facility Agreement) made available a dollar revolving credit
facility dated 18 April 2019 to ADES International Holding PLC, in
the total principal amount of USD 50 million, which terms include
extensions, renewals or increases (which may be made thereto from
time to time).
Loan 1 - Syndication
On 2 May 2019, the Group has signed a syndication loan agreement
arranged by HSBC with total amount of USD 100 million divided over
four banks. The loan is divided into two tranches, the purpose and
the use of each facility is described as follows:
a) Tranche A
For refinancing existing financial indebtedness in full
(excluding the payment of the fees, costs and expenses incurred
under or in connection with the transaction documents). Tranche A
was utilised during the current year to partially settle Loan 2
Tranch A.
b) Tranche B
Tranche B was utilised during the current year to partially
settle Loan 2 Tranche B
Tranche A Facility is a medium-term loans over 3.5 years to be
paid semi-annually in un-equal instalments starting from 22
September 2019 and the last instalment will be on 22 March 2023.
Tranche B will be settled with bullet repayment on 22 March 2023
.
Loan 2 - Syndication
On 22 March 2018, the Group has signed a syndication loan
agreement arranged by Merrill Lynch International and EBRD with
total amount of USD 450 million divided over eleven banks. The loan
is divided into four tranches, the purpose and the use of each
facility is described as follows:
a) Tranche A
For refinancing existing financial indebtedness in full
(including the payment of the fees, costs and expenses incurred
under or in connection with the transaction documents). Tranche A
was utilised in 2018 to settle financial indebtedness. On 2 May
2019, USD 130 million was settled in cash and USD 70 million was
refinanced by Loan 1 Tranch A.
b) Tranche B
New working capital purposes and to refinance certain existing
working capital facilities. Tranche B was utilised in 2018. On 2
May 2019, USD 11.5 million was settled in cash and USD 30 million
was refinanced as discussed by Loan 1 Tranch B.
c) Tranche C
Capital expenditure for the acquisition of the new rigs and
mobile offshore production units. Tranche C was partially utilised
in 2018. On 2 May 2019, Tranche C was fully settled in cash.
d) "Murabaha Facility"
Capital expenditure for the acquisition of the new rigs and
mobile offshore production units. Murabaha Facility was partially
utilised in 2018. On 2 May 2019, Murabaha Facility was fully
settled in cash.
Ijara Loan
On 22 May 2018, the Group has signed "Musharakah" agreement and
"Ijara" agreement with Alinma Bank to finance the acquisition of
the new rigs and related capital expenditure with the amount of the
equivalent to USD 140 million in SAR.
On 25 April 2019 , the Group has signed "Musharakah" agreement
and "Ijara" agreement with Alinma Bank to increase the facility to
the equivalent to USD 284 million .
All loans are medium-term loans over 7 years which includes 2
year grace period and is paid semi-annually in equal instalments
starting from 10 June 2020 and the last instalment will be on 10
June 2024.
Ijara loan is secured by the rigs purchased from Nabors Drilling
International II Limited (Jackup rig Admarine 656, Jackup rig
Admarine 656 and Jackup rig Admarine 657) and rigs purchased from
Weatherford Drilling International (ADES 40, ADES 158, ADES 174,
ADES 799 and ADES 889, Rig 144, Rig 798, Rig 157, Rig 173) (Note
5).
NCB Loan
On 14 May 2019, the group signed a Long Term Loan Facility
agreement with National Commercial Bank ("NCB") for a total limit
of SAR 300 million (USD 80 million). As of 31 December 2019, the
Group has fully utilized the facility.
On 10 December 2019, the group has amended the facility with
National Commercial Bank ("NCB") to be Sharia compliant (Islamic
Facility) without any change in the original agreed terms.
21 BONDS PAYABLE
On 16 April 2019, the Group issued USD 325,000,000 senior
secured notes at 8.625% interest due on 24 April 2024. Interest is
payable semi-annually on 24 April and 24 October each year
commencing on 24 October 2019. The Group paid USD 11,841,032 as
transaction costs for the issuance of the bonds. The Group
recognised interest expense of USD 20,589,926 for the twelve months
period ended 31 December 2019. The bonds payable is recognised at
amortised cost using the effective interest method.
22 PROVISIONS
*Accrued /
As at acquired during Paid during As at
USD 1 January the year the year 31 December
2019
Provision for end of
service benefits * 12,959,590 4,899,967 (1,483,905) 16,375,652
Other tax provisions
** 1,874,654 1,443,181 (2,217,835) 1,100,000
---------- ---------------- ----------- ------------
14,834,244 6,343,148 (3,701,740) 17,475,652
========== ================ =========== ============
2018
Provision for end of
service benefits 620,083 12,442,304 (102,797) 12,959,590
Other tax provisions 1,836,000 280,017 (241,363) 1,874,654
---------- ---------------- ----------- ------------
2,456,083 12,722,321 (344,160) 14,834,244
========== ================ =========== ============
* Other provisions mainly represent provision made for
employee's taxes and withholding taxes which are borne by the
Group. The total balance is presented as current in the statement
of financial position.
** Comparative information has been adjusted to reflect the IFRS
3 Business combination measurement period adjustments, refer to
note 4.
23 SHARE CAPITAL
Share capital of the Group comprise:
USD 2019 2018
------------------------------ -------------- --------------
Authorised shares* 1,500,000,000 1,500,000,000
Issued shares 43,793,882 43,793,882
Shares par value 1.00 1.00
-------------- --------------
Issued and paid up capital** 43,793,882 43,793,882
============== ==============
Share premium*** 178,746,337 178,746,337
============== ==============
*As at 31 December 2019 and 2018, the authorised share capital
of the Company was USD 1,500,000,000 comprising of 1,500,000,000
shares.
**In 2018, the Group issued 1,590,852 shares to Nabors as part
of the consideration paid for the business acquisition (Note
6).
*** Share premium represents the excess of fair value received
over the par value of shares issued as a result of business
combinations (Note 6).
Movement in treasury shares as at 31 December 2019 is as
follows:
Shares Treasury Shares outstanding
issued shares*
------------- ---------------------- ----------- --------- -------------------
1 January Balance at beginning
2019 of year 43,793,882 - 43,793,882
Purchase of treasury
shares for cash - 300,000 300,000
31 December
2019 Balance at year end 43,793,882 300,000 43,493,882
* On 29 November 2019 the Group announced that pursuant to
Shareholders' authority granted at the Company's EGM on 30 October
2019, it intends to commence purchases of ordinary shares in the
capital of the Company. As at 31 December 2019 the total number of
purchased ordinary shares that held as treasury shares is 300,000
amounted to USD 3,501,200 at the purchase price.
The shareholding structure as at
31 December 2019 is:
Shareholding
% No. of Value
Shareholders shares USD
---------------------------------- ------------- ----------- -----------
ADES Investment Holding Ltd 62 27,179,084 27,179,084
Individual shareholders 38 16,614,798 16,614,798
------------- ----------- -----------
100 43,793,882 43,793,882
============= =========== ===========
The shareholding structure as at
31 December 2018 was:
Shareholding
% No. of Value
Shareholders shares USD
---------------------------------- ------------- ----------- -----------
ADES Investment Holding Ltd 63 27,446,772 27,446,772
Individual shareholders 37 16,347,110 16,347,110
------------- ----------- -----------
100 43,793,882 43,793,882
============= =========== ===========
24 EQUITY SETTLED SHARE-BASED PAYMENTS
Pursuant to the rules of the Long Term Incentive Plan ("LTIP")
adopted by ADES Investments Holding Ltd., the awards over a total
number of 1,136,451 ordinary shares of USD 1.00 each in the capital
of the Company have been granted to certain employees of the
Company by ADES Investments Holding Ltd (the majority shareholder).
The LTIP is equity settled and effective from 1 January 2019.
According to the LTIP rules, the shares will be vested over a
period of three years and not subject to performance conditions.
These shares are currently held by ADES Investments Holding Ltd and
the awards will not be satisfied by the new issue of any shares in
the Company. Awards will normally lapse and cease to vest on
termination of employment.
The fair value at grant date was determined based on the market
price of the shares of the Company at grant date which is USD 13.45
per share.
For the year ended 31 December 2019, the Group has recognised
USD 11,341,219 of share-based payment expense, which represent
843,211 shares vested during the year, in the consolidated
statement of profit or loss (31 December 2018: USD Nil) with a
corresponding increase in equity (share-based payment reserve). As
at 31 December 2019, the outstanding number of shares are 293,240.
There were no forfeited nor expired shares during the year.
25 RESERVES
Legal reserve
As required by Egyptian Companies' Law and one of the
Subsidiary's Articles of Association, 5% of the net profit for the
year is transferred to legal reserve. Advanced Energy System (ADES)
(S.A.E.) has resolved to discontinue further transfers as the
reserve totals 20% of issued share capital. As of 31 December 2019,
the balance of legal reserve amounted to USD 6,400,000 (2018: USD
6,400,000).
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 shares of Advanced
Energy System (ADES) (S.A.E.). Prior to the reorganisation, the
merger reserve comprise of the share capital and share application
money of Advanced Energy System (ADES) (S.A.E.).
Interest rate risk Total
2019 2018 2019 2018
------------------------------------ -------------- ----- ------------ -----
Balance at 1 January - - - -
Gain (losses) arising on changes
in fair
value of hedging instruments
during the period (6,748,538) - (6,748,538) -
(Gain)/loss reclassified to profit
or loss -
when hedged item has affected
profit or loss 600,963 - 600,963 -
Balance at 31 December 6,147,575 - 6,147,575 -
The cash flow hedge reserve represents the cumulative amount of
gains and losses on hedging instruments deemed effective in cash
flow hedge relationships. The cumulative deferred gain or loss on
the hedging instrument is recognised in profit or loss only when
the hedged transaction impacts the profit or loss, or is included
directly in the initial cost or other carrying amount of the hedged
non-financial items (as basis adjustment, where applicable).
26 EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated by
dividing the profit for the year attributable to the ordinary
equity holders of the Parent by the weighted average number of
ordinary shares outstanding during the year after adjusting the
number of ordinary shares by the treasury shares.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding assuming conversion of all
dilutive potential ordinary shares. As at 31 December 2019, there
were no potential dilutive shares and hence the basic and diluted
EPS is same.
The information necessary to calculate basic and diluted
earnings per share is as follows:
2018
USD 2019 Restated*
--------------------------------------------- ----------- -----------
Profit attributable to the ordinary equity
holders of the Parent for
basic and diluted EPS 28,630,013 72,892,277
----------- -----------
Weighted average number of ordinary shares
-
basic and diluted 43,778,181 43,082,201
----------- -----------
Earnings per share - basic and diluted (USD
per share) 0.65 1.69
=========== ===========
*Comparative information has been adjusted to reflect the IFRS 3
Business combination measurement period adjustments, refer to note
4
27 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:
During the year, the Group transferred funds to and on behalf of
a related party, AMAK for Drilling & Petroleum Services Co.
(other related party), amounting to USD 4,676,418 for settlement of
payable and fixed assets purchased in 2019. (2018: USD
11,265,899).
Related party balances
Significant related party balances included in the consolidated
statement of financial position are as follows:
2019 2018
Due from Due to Due from Due to
---------------------------------- ---------- ------- --------- -------
Ultimate Shareholders
Sky Investment Holding Ltd. 60,000 - 60,000 -
Intro Investment Holding Ltd. 90,503 - 90,502 -
Shareholder
ADES Investment Holding Ltd 48,864 - 46,364 -
Joint venture
Egyptian Chinese Drilling Co.
(S.A.E.) 57,192 170,618 -
Other related parties
TBS Holding 35,387 - 3,027 -
Misr El-Mahrousa 14,624 - - -
Advantage Drilling Services 425,271 - - -
Advansys Project 1,308 - 1,308 -
Advansys Holding 5,299 - 5,299 -
AMAK for Drilling & Petroleum
Services Co. 4,019,924 - - 55,078
ADVANSYS FOR ENG.SERV. & CONS - 1,032 - 1,028
Intro for Trading & Contracting
Co. 39,738 - 227 -
---------- ------- --------- -------
4,740,918 58,224 377,345 56,106
========== ======= ========= =======
Compensation of key management personnel
The remuneration of key management personnel during the year was
as follows:
USD 2019 2018
----------------------- ---------- ----------
Short-term benefits* 3,640,000 3,285,000
========== ==========
* There is no long term benefits for the key management
personnel.
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 2019, the Group has not recorded any
provision for expected crdit losses relating to receivables and
amounts owed by related parties (2018: 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.
28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
The Group's principal financial liabilities comprise trade and
other payables, due to related parties, loans and borrowings. 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, trade receivables and contract assets, due from related
parties 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,
contract assets 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 2019, the top three debtors of the Group represent
72% (2018: 84%) of trade receivable.
Trade receivables and contract assets
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 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 and contract assets as low,
as its wide number of customers operates in highly independent
markets. In addition, instalment dues are monitored on an ongoing
basis.
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 issue
derivative financial instruments. Refer to note 29 for the interest
rate swap classified as a trading derivative.
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 (net of impact of
time deposits), as follows:
Effect on
Increase/decrease profit before
USD in basis points income tax
------------- ------------------ ---------------
31 December
2018
USD +100 (1,369,287)
USD -100 1,369,287
31 December
2018
( 2,465,056
USD +100 )
USD -100 2,465,056
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
2018
USD +10% 678,829
USD -10% (678,829)
31 December
2018
USD +10% 519,417
USD -10% (519,417)
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.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Financial liabilities
Less than
3 3 to 12 1 to 5 Over
USD months months years 5 years Total
--------------------------------- ----------- ------------ ------------ ----------- --------------
As at 31 December 2019
Loans and borrowings 20,680,991 100,671,911 770,139,912 12,465,041 903,957,855
Trade and other payables 74,541,408 111,812,110 10,988,839 - 197,342,357
Due to related parties - 57,224 - - 57,224
Lease liability 1,350,159 4,050,478 20,805,070 - 26,205,707
Derivative financial instrument 543,164 607,162 2,418,720 - 3,569,046
----------- ------------ ------------ ----------- --------------
Total undiscounted financial
liabilities 97,115,722 217,198,885 804,352,541 12,465,041 1,131,132,189
=========== ============ ============ =========== ==============
As at 31 December 2018
Loans and borrowings - 82,827,165 621,780,202 16,660,874 721,268,241
Trade and other payables 40,883,795 41,498,876 - - 82,382,671
Due to related parties - 56,106 - - 56,106
Finance lease liability 300,000 850,000 4,000,000 3,767,074 8,917,074
Derivative financial instrument 461,759 777,671 3,382,901 - 4,622,331
----------- ------------ ------------ ----------- --------------
Total undiscounted financial
liabilities 41,645,554 126,009,818 629,163,103 20,427,948 817,246,423
=========== ============ ============ =========== ==============
Capital management
Capital includes share capital, share premium, reserves 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 equity plus net debt. The
Group's policy is to keep the gearing ratio between 30% and
80%.
USD 2019 2018
---------------------------------- -------------- --------------
Loans and borrowings (Note 20) 406,047,328 555,268,918
Bank balances and cash (Note 13) (119,601,159) (130,875,239)
-------------- --------------
Net debt 286,446,169 424,393,679
Total equity 452,724,480 421,428,137
-------------- --------------
Total capital 739,170,649 845,821,816
============== ==============
Gearing ratio 39% 50%
29 FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial
liabilities. Financial assets of the Group include bank balances
and cash, trade receivables and contract assets, due from related
parties and other receivables. Financial liabilities of the Group
include trade payables, due to related parties, loans and
borrowings, other payables and derivative financial instrument. The
fair values of the financial assets and liabilities are not
materially different from their carrying value unless stated
otherwise.
30 CONTINGENT LIABILITIES AND COMMITMENTS
Contingent liabilities
USD 31 December 31 December
2019 2018
---------------------- ------------ ------------
Letter of guarantees 33,572,453 25,708,373
============ ============
Contingent liabilities represent 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 5,527,168 (31 December 2018: USD
5,635,765).
The Group also had the following facilities:
-- The Group signed a multicurrency Syndicated Credit facility
agreement with Mashreq Bank PSC Dubai on 6 May 2019 and its
subsequent amendments for the facility amounting to USD 90,000,000
for the issuance of Letters of Credit and Letters of Guarantees. As
of 31 December 2019 the Group utilized letter of guarantees a total
amount of USD 78,269,350.
-- The Group entered into a bilateral Unfunded Trade Finance
Facility Agreement with Arab Petroleum Investments Corporation
(APICORP) on 22 July 2019 for total facility amounting to USD
30,000,000 for the issuance of Letters of Credit and Letters of
Guarantees. As of 31 December 2019 the Group utilized letter of
guarantees for a total amount of USD 2,872,836.
-- The Group entered into a bilateral agreement with Al Ahli
bank of Kuwait Egypt "ABK" dated on 29 May 2019 amounting to USD
3,000,000.00, by means of a Letter of Guarantee agreement. As of 31
December 2019, the Group has not utilized any amounts under the
facility.
-- The Group entered into specific indemnities with Bank of
America on 10 June 2019 for an amount up to USD 4,000,000 for the
issuance of certain Letters of Guarantees for some of its
affiliates or subsidiaries. As of 31 December 2019, the Group
utilized letter of guarantees for a total amount of USD
2,866,644.
-- The Group entered into a bilateral agreement with Suez Canal
Bank "SCB" dated on 21 October, 2018 amounting to USD 12,000,000.00
available as a revolving overdraft &/or Issuance of Letters of
Guarantees. As of 31 December 2019, the Group utilized letter of
guarantees for a total amount of USD 9,314,139.
-- The Group entered into bilateral agreement with Export
development bank of Egypt "EBE" bank dated on 18 July, 2018
amounting to USD 12,000,000.00, available as a revolving overdraft
and/or Issuance of Letters of Guarantees As of 31 December 2019 the
Group utilized letter of guarantees for a total amount of USD
8,999,880.
31 DERIVATIVE FINANCIAL INSTRUMENTS
USD 2019 2018
----------------------------- ---------- ----------
Derivative held for trading
Interest rate swap 3,569,046 4,340,180
---------- ----------
Balance as at 31 December 3,569,046 4,340,180
========== ==========
Total current 1,150,326 1,216,381
Total non-current 2,418,720 3,123,799
The following table shows an analysis of financial instruments
recorded at fair value by level of the fair value hierarchy:
USD (000s) Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-19
Derivative financial instrument:
Interest rate swap (3,569,046) - (3,569,046) -
------------ -------- ------------ --------
During the year ended 31 December 2019, there were no transfers
between Level 1 and Level 2 fair value measurements, and no
transfers into and out of Level 3 at fair value measurements. (31
December 2018: USD 4,340,180).
Interest rate swap derivatives relate to contracts taken out by
the Group with other counterparties (mainly financial institutions)
in which the Group either receives or pays a floating rate of
interest, respectively, in return for paying or receiving a fixed
rate of interest. The payment flows are usually netted against each
other, with the difference being paid by one party to the
other.
Derivative financial instruments - classified as held for
trading financial liabilities - are carried in the consolidated
statement of financial position at fair value at the total of USD
3,569,046 as of 31 December 2019. The carrying amount of these
derivatives represents the negative mark to market value of the
remaining USD 100,000,000 notional amount of the swap contract that
was originally entered into by the Group with Goldman Sachs (GS) in
2018, novated in 2019 and is still outstanding at 31 December 2019.
The remaining tenor of the GS interest rate swap contract extends
from 21 November 2019 until it terminates on 22 March 2023. The
total notional amount of the GS interest rate swap before novation
was USD 241,500,000 which represented at that time the loans
withdrawn as Tranche A and B Loan under Loan 3 Syndication (note
20).
2019 2018
USD
----------------------------------------------------- ---------- -----
Derivative financial liabilities that are designated
and effective as hedging instruments
Interest rate swap contracts 6,147,575 -
---------- -----
Balance as at 31 December 6,147,575 -
========== =====
Total current 1,981,402 -
Total non-current 4,166,173 -
The following table shows an analysis of financial instruments
recorded at fair value by level of the fair value hierarchy:
Derivative financial liabilities - that are designated and
effective as hedging instruments (in a cash flow hedge
relationship) - are carried in the consolidated statement of
financial position at fair value at the total of USD 6,147,575 as
of 31 December 2019. This carrying amount represents the negative
mark to market value for SAR 530,625,000 notional amount
(equivalent to USD 141,500,000 at date of novation) of the new swap
contract that was entered into by the Group with National
Commercial Bank (NCB) in 2019 (part of which was novated from the
original swap contract with GS above) . The tenor of the new NCB
interest rate swap contract extends from 1 August 2019 until it
terminates on 10 June 2025. The objective of the cash flow hedge is
to protect against cash outflows variability related to
floating-rate interest payments on the hedged portion of the Alinma
credit facility using the 6-month SAIBOR rate (as shown in the
following table). Such cash outflows variability results from
changes which may occur on the 6-month SAIBOR market rate (i.e. the
designated benchmark interest rate).
Borrowing Type Notional amount Hedged interest Effective Maturity
(hedged rate date date
item)
-------------- ---------- ---------------- ---------------- ----------- ------------
Alinma Credit Bank loan SAR 530,625,000 Floating 1 Aug 2019 10 Jun 2025
Facility (6m-SAIBOR)
The following table shows an analysis of financial instruments
recorded at fair value by level of the fair value hierarchy:
USD (000s) Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-19
Derivative financial instrument:
Interest rate swap (6,147,575) - (6,147,575) -
------------ -------- ------------ --------
During the year ended 31 December 2019, there were no transfers
between Level 1 and Level 2 fair value measurements, and no
transfers into and out of Level 3 at fair value measurements. (31
December 2018: Nil).
32 DIVIDEND DISTRIBUTIONS
During 2018 no dividends had been paid by the Group. In the
current year, dividends of USD 1,934,284 have been paid by UPDC,
one of the Group's subsidiaries, to its non-controlling
shareholders in respect of 2018 profits. The Board of Directors of
ADES International Holding Plc does not propose a dividend to the
shareholders at the Annual General Meeting.
33 SUBSEQUENT EVENTS
Shares buy back
On January 23, 2020, ADES International Holding PLC has
purchased 70,000 from its own shares with an average price of USD
12.00 per share, in accordance with the shareholder authority
granted at the Company's EGM on 30th October 2019 and as part of
the buyback program announced on November 29, 2019. As at the close
of business on 23rd January 2020, the total number of ordinary
shares held as treasury shares became 370,000 and ADES had
43,793,882 ordinary shares (including treasury shares) in issue.
Therefore, the total number of voting rights in the Company became
43,423,882
Current events caused by COVID-19 and lower oil prices
The outbreak of Novel Coronavirus (COVID-19) continues to
progress and evolve. Therefore, it is challenging now, to predict
the full extent and duration of its business and economic impact.
In January 2020, oil prices fell as a result of the outbreak of
COVID-19 and its impact on demand for petroleum products. More
recently, oil prices suffered a steep fall following the failure of
OPEC and OPEC+ to reach an agreement in respect of production
cuts.
The extent and duration of such impacts remain uncertain and
dependent on future developments that cannot be accurately
predicted at this time, such as the transmission rate of the
coronavirus and the extent and effectiveness of containment actions
taken. Given the ongoing economic uncertainty, a reliable estimate
of the impact cannot be made at the date of authorisation of these
consolidated financial statements. These developments could impact
our future financial results, cash flows and financial
condition.
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